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EXCEL - IDEA: XBRL DOCUMENT - SOLAR WIND ENERGY TOWER, INC.Financial_Report.xls
EX-31.1 - CERTIFICATION - SOLAR WIND ENERGY TOWER, INC.solarwind_ex3101.htm
EX-31.2 - CERTIFICATION - SOLAR WIND ENERGY TOWER, INC.solarwind_ex3102.htm
EX-32.1 - CERTIFICATION - SOLAR WIND ENERGY TOWER, INC.solarwind_ex3201.htm
EX-32.2 - CERTIFICATION - SOLAR WIND ENERGY TOWER, INC.solarwind_ex3202.htm

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2014

 

OR

 

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

 

For the transition period from __________ to __________.

 

Commission file number 000-53035

 

SOLAR WIND ENERGY TOWER INC.

(Exact name of Issuer as specified in its charter)

 

Nevada 82-6008752
(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.)
   
1997 Annapolis Exchange Pkwy., Suite 300, Annapolis, MD 21401
(Address of Principal Executive Offices) (Zip Code)

    

(410) 972 - 4713

(Registrant’s Telephone Number, Including Area Code)

 

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

  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

  

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

 

Large accelerated filer o   Accelerated filer o
     
Non-accelerated filer o   Smaller reporting company x
(Do not check if a smaller reporting company)    

 

Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act. Yes o No x

 

Indicate the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 533,326,466 shares of Common Stock ($0.0001 par value) as of October 28, 2014.

 

 

 
 

 

Solar Wind Energy Tower, Inc.

FORM 10-Q for the Quarter Ended September 30, 2014

 

Index

 

  Page 
   
PART I. FINANCIAL INFORMATION 3
   
Item 1. Financial Statements (Unaudited) 3
   

Condensed Consolidated Balance Sheets:

September 30, 2014 (unaudited) and December 31, 2013

3
   

Condensed Consolidated Statements of Operations:

For the three and nine months ended September 30, 2014 and 2013 (unaudited)

4
   

Condensed Consolidated Statement of Stockholders’ Deficit

For the nine months ended September 30, 2014 (unaudited)

5
   

Condensed Consolidated Statements of Cash Flows:

For the nine months ended September 30, 2014 and 2013 (unaudited)

6
   

Notes to Condensed Consolidated Financial Statements:

September 30, 2014 (Unaudited)

7
   
Item 2. Management’s Discussion and Analysis 23
   
Item 3. Quantitative and Qualitative Disclosures About Material Risk 30
   
Item 4. Controls and Procedures 30
   
PART II. OTHER INFORMATION 31
   
Item 1. Legal Proceedings 31
   
Item 1A. Risk Factors 32
   
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 32
   
Item 3. Defaults Upon Senior Securities 32
   
Item 4. Mine Safety Disclosures 32
   
Item 5. Other Information. 32
   
Item 6. Exhibits 32
   
Signatures 34

 

 

 

 

2
 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

 

SOLAR WIND ENERGY TOWER, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

   September 30,   December 31, 
   2014   2013 
    (unaudited)      
ASSETS          
Current assets:          
Cash  $57,385   $61,758 
Prepaid expenses   17,116     
Capitalized financing costs, net   126,386     
  Total current assets   200,887    61,758 
           
Property and equipment, net   2,065    2,284 
           
Other assets:          
Capitalized financing costs, net   69,553     
Deposits   4,259    2,300 
           
Total assets  $276,764   $66,342 
           
LIABILITIES AND STOCKHOLDERS' DEFICIT          
Current liabilities:          
Accounts payable  $150,801   $171,245 
Accrued liabilities and expenses   334,361    737,964 
Advances from stockholders/officers   170,000    170,000 
Settlement payable   75,000     
Notes payable   268,270    358,770 
Convertible notes payable, net of unamortized debt discount of $702,700 and $353,129, respectively   560,300    278,266 
Convertible notes payable, related party, net of unamortized debt discount of $33,031 and $131,047, respectively   246,969    148,953 
Derivative liabilities   1,647,090    689,093 
  Total current liabilities   3,452,791    2,554,291 
           
Long term debt:          
Notes payable, related party   385,000     
Notes payable   80,000     
Convertible notes payable, net of unamortized debt discount of $103,315       24,456 
  Total liabilities   3,917,791    2,578,747 
           
Stockholders' deficit:          
Preferred stock, par value $0.0001 per share; 10,000,000 shares authorized; none issued and outstanding as of September 30, 2014 and December 31, 2013        
Common stock, par value $0.0001 per share; 900,000,000 and 500,000,000 shares authorized as of September 30, 2014 and December 31, 2013, respectively; 524,147,555 and 370,728,168 shares issued and outstanding as of September 30, 2014 and December 31, 2013, respectively   52,415    37,073 
Common stock to be issued   420,000    420,000 
Additional paid in capital   8,807,574    5,896,890 
Accumulated deficit   (12,919,876)   (8,866,368)
  Stockholders' deficit attributable to Solar Wind Energy Tower, Inc.   (3,639,887)   (2,512,405)
Non-controlling interest   (1,140)    
  Total stockholders' deficit   (3,641,027)   (2,512,405)
           
Total liabilities and stockholders' deficit  $276,764   $66,342 

 

See the accompanying notes to the unaudited condensed consolidated financial statements

 

3
 

 

SOLAR WIND ENERGY TOWER, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

 

   Three months ended September 30,   Nine months ended September 30, 
   2014   2013   2014   2013 
OPERATING EXPENSES:                    
Research and development  $82,482   $15,589   $92,705   $37,873 
Selling, general and administrative   434,818    409,069    1,367,878    1,288,101 
Depreciation   367    1,120    2,343    3,360 
  Total operating expenses   517,667    425,778    1,462,926    1,329,334 
                     
Loss from operations   (517,667)   (425,778)   (1,462,926)   (1,329,334)
                     
Other income (expense):                    
Interest expense   (555,300)   (287,938)   (3,161,325)   (862,927)
Gain on settlement of debt   32,985        32,985     
Gain on change in fair value of derivative liabilities   1,013,068    277,568    536,618    359,285 
                     
Loss before provision for income taxes   (26,914)   (436,148)   (4,054,648)   (1,832,976)
                     
Provision for income taxes (benefit)                
                     
Net loss   (26,914)   (436,148)   (4,054,648)   (1,832,976)
                     
Non-controlling interest   1,111        1,140     
                     
NET LOSS ATTRIBUTABLE TO SOLAR WIND ENERGY TOWER, INC.  $(25,803)  $(436,148)  $(4,053,508)  $(1,832,976)
                     
Net loss per common share, basic and diluted  $(0.00)  $(0.00)  $(0.01)  $(0.01)
                     
Weighted average number of common shares outstanding, basic and diluted   522,749,813    306,914,244    475,426,105    296,829,526 

 

 

See the accompanying notes to the unaudited condensed consolidated financial statements

 

4
 

 

SOLAR WIND ENERGY TOWER, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT

NINE MONTHS ENDED SEPTEMBER 30, 2014

(unaudited)

 

   Preferred stock   Common stock   Common to be Issued   Additional Paid In   Accumulated   Non controlling     
   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Deficit   Interest   Total 
Balance, January 1, 2014      $    370,728,168   $37,073    6,000,000   $420,000   $5,896,890   $(8,866,368)  $   $(2,512,405)
Shares issued in settlement of debt           145,794,387    14,580            1,764,964            1,779,544 
Shares issued for consulting services rendered           500,000    50            2,200            2,250 
Sale of common stock           7,125,000    712            24,288            25,000 
Reclassify fair value of warrants from equity to liability                           (13,202)           (13,202)
Fair value of warrants issued in connection with notes payable                           253,119            253,119 
Fair value of warrants issued as director compensation                           33,181            33,181 
Reclassify fair value of warrants from liability to equity                           7,677            7,677 
Reclassify fair value of debt derivative to equity upon note extinguishment                           308,198            308,198 
Stock based compensation                           530,259            530,259 
Net loss                               (4,053,508)   (1,140)   (4,054,648)
Balance, September 30, 2014      $    524,147,555   $52,415    6,000,000   $420,000   $8,807,574   $(12,919,876)  $(1,140)  $(3,641,027)

 

See the accompanying notes to the unaudited condensed consolidated financial statements

 

5
 

 

SOLAR WIND ENERGY TOWER, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

     

 

   For the nine months ended September 30, 
   2014   2013 
CASH FLOWS FROM OPERATING ACTIVITIES:          
Net loss  $(4,054,648)  $(1,832,976)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation   2,343    3,360 
Amortization of debt discounts   1,053,063    493,437 
Amortization of financing costs   57,180    26,000 
Non-cash interest   1,895,183    232,489 
Stock based compensation   532,510    435,546 
Fair value of warrants issued in connection with services and notes payable, respectively   33,181    43,568 
Gain on settlement of debt   (32,985)    
Gain from change in fair value of derivative liabilities   (536,618)   (359,285)
Changes in operating assets and liabilities:          
Advances from stockholders/officers       (15,000)
Prepaid expenses   (17,116)    
Settlement payable   (15,000)    
Accounts payable and accrued expenses   91,792    171,106 
  Net cash used in operating activates   (991,115)   (801,755)
           
CASH FLOWS FROM INVESTING ACTIVITIES:          
Purchase of property and equipment   (2,124)    
Payment of long term deposit   (2,700)    
  Net cash used in investing activities   (4,824)    
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
Proceeds from sale of common stock   25,000    30,500 
Proceeds from issuance of note payable   80,000    75,000 
Proceeds from issuance of convertible notes payable   1,173,000    694,000 
Repayments of convertible notes payable   (286,434)    
  Net cash provided by financing activities   991,566    799,500 
           
Net decrease in cash   (4,373)   (2,255)
Cash, beginning of period   61,758    13,761 
           
Cash, end of period  $57,385   $11,506 
           
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION     
           
Interest paid  $   $ 
Income taxes paid  $   $ 
           
Non-cash investing and financing activities:          
Fair value of warrants issued in connection with notes payable  $253,119   $ 
Notes payable issued in settlement of accrued officer salaries  $385,000   $ 
Common stock issued in settlement of debt  $1,779,544   $444,259 

 

See the accompanying notes to the unaudited condensed consolidated financial statements

 

6
 

SOLAR WIND ENERGY TOWER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2014

(unaudited)

 

NOTE 1 – SUMMARY OF ACCOUNTING POLICIES

 

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

 

Business and Basis of Presentation

 

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

 

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

 

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

 

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

 

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

 

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

 

 

7
 

SOLAR WIND ENERGY TOWER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2014

(unaudited)

 

Interim Financial Statements

 

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

 

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

 

Going Concern

 

The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. However, the Company has reported net losses of $4,054,648 and $1,832,976 for the nine month periods ended September 30, 2014 and 2013, respectively, accumulated deficit of $12,919,876 and total current liabilities in excess of current assets of $3,251,904 as of September 30, 2014.

 

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

 

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

 

Fair Value of Financial Instruments

  

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

 

Research and development

 

In accordance with ASC 730, “Research and Development”, the Company expenses all research and development costs as incurred. The Company had incurred $82,482 and $92,705 for the three and nine months ended September 30, 2014, respectively; and $15,589 and $37,873 for the three and nine months ended September 30, 2013 respectively, in research and development costs. The Company expects the research and development costs to increase in the future as it continues to invest in the infrastructure that is critical to achieve our business goals and objectives.

 

 

8
 

SOLAR WIND ENERGY TOWER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2014

(unaudited)

 

Net loss per Common Share

 

The Company computes net income (loss) per share under Accounting Standards Codification subtopic 260-10, Earnings Per Share (“ASC 260-10”). Basic net loss per common share is computed by dividing net loss by the weighted average number of shares of common stock. Diluted net loss per share is computed using the weighted average number of common and common stock equivalent shares outstanding during the period. There is no effect on diluted loss per share since the common stock equivalents are anti-dilutive for the three and nine months ended September 30, 2014 and 2013, respectively. Dilutive common stock equivalents consist of shares issuable upon conversion of convertible notes and exercise of warrants. Fully diluted shares for the three and nine months ended September 30, 2014 were 701,477,717 and 651,659,009, respectively; and 396,519,404 and 386,434,686 shares for the three and nine months ended September 30, 2013, respectively. Common stock equivalents excluded from the net loss per share for the three and nine month periods ended September 30, 2014 were 178,727,904 and 176,232,904 shares, respectively, and for the three and nine month periods ended September 30, 2013 were 89,605,160 shares.

 

Stock Based Compensation

 

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

 

Stock-based compensation expense in connection with stock grants issued to consultants in exchange for services rendered for the three and nine months ended September 30, 2014 was $151,844 and $532,510, respectively; $174,537 and $435,546 for the three and nine months ended September 30, 2013, respectively.

 

Derivative financial instruments

 

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

 

Capitalized Financing Costs

 

Capitalized financing costs represent costs incurred in connection with obtaining the debt financing.  These costs are amortized ratably and charged to financing expenses over the term of the related debt. The amortization for the three and nine months ended September 30, 2014 was $28,856 and $57,180, respectively. Accumulated amortization of deferred financing costs was $57,180 and $-0- at September 30, 2014 and December 31, 2013, respectively.

 

Recently Issued Accounting Pronouncements

 

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

 

 

9
 

SOLAR WIND ENERGY TOWER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2014

(unaudited)

 

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

 

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

 

The FASB has issued ASU No. 2014-12, Compensation – Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. This ASU requires that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant date fair value of the award. This update further clarifies that compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered.. The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. The Company has not yet determined the effect of the adoption of this standard and it is expected to have a material impact on the Company’s condensed consolidated financial position and results of operations.

 

The FASB has issued ASU No. 2014-09, Revenue from Contracts with Customers. This ASU supersedes the revenue recognition requirements in Accounting Standards Codification 605 - Revenue Recognition and most industry-specific guidance throughout the Codification. The standard requires that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This ASU is effective on January 1, 2017 and should be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the ASU recognized at the date of initial application. The Company has not yet determined the effect of the adoption of this standard and it is expected to have no material impact on the Company’s condensed consolidated financial position and results of operations.

 

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

 

NOTE 2 – ACCRUED LIABILITIES AND EXPENSES

 

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

 

   September 30,
2014
   December 31,
2013
 
Accrued payroll  $160,503   $505,118 
Accrued stock purchase warrants   29,400    29,400 
Accrued lawsuit (Note 4 and 13 below)       122,985 
Accrued interest and other   144,458    80,461 
Total  $334,361   $737,964 

 

 

10
 

SOLAR WIND ENERGY TOWER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2014

(unaudited)

 

NOTE 3 – ADVANCES FROM SHAREHOLDERS/OFFICERS

 

Advances from shareholders are comprised of the fair value of common stock pledged as collateral by shareholder.

 

NOTE 4 – SETTLEMENT PAYABLE

 

In August 2014, the Company settled the litigation with Hanover Holdings I, LLC, described in Note 13 below, for a cash of $90,000 payable in six equal monthly installments of $15,000 beginning September 5, 2014. In connection with the settlement, the Company recognized a gain on settlement of debt of $32,985 during the three and nine months ended September 30, 2014. As of September 30, 2014, the outstanding balance was $75,000.

 

NOTE 5 – NOTES PAYABLE

 

   September 30,
2014
   December 31,
2013
 
Promissory notes issued June 20, 2012  $268,270   $268,270 
Promissory note issued June 6, 2013       90,500 
Note payable issued April 7, 2014   80,000     
  Total   348,270    358,770 
Less current portion   268,270    358,770 
  Long term portion  $80,000   $ 

 

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

 

On June 6, 2013, the Company issued a secured promissory note payable with a face amount of $97,500 with an original interest discount (“OID”) of $22,500. The note was originally due in full on October 3, 2013, subsequently extended to November 15, 2013, and is secured by a Company issued note to the Company’s CEO for $150,000 (See note 8). The Company is obligated to file by July 5, 2013 a registration statement on Form S-1 registering an equity line of credit to the benefit of the note holder and to become effective by September 18, 2013. The Company filed Form S-1 on June 24, 2013 and on October 16, 2013 became effective. Effective November 16, 2013, the remaining unpaid balance was $90,500. On July 11, 2014, the Company issued 7,066,131 shares of its common stock in fully settlement of the outstanding obligation.

 

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

 

 

11
 

SOLAR WIND ENERGY TOWER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2014

(unaudited)

 

NOTE 6 – CONVERTIBLE NOTES PAYABLE

 

Convertible notes payable are comprised of the following:

 

   September 30,
2014
   December 31,
2013
 
Convertible promissory notes, due December 31, 2014, net of unamortized debt discount of $30,063 and $119,274, respectively  $208,937   $119,726 
Convertible note payable, due January 24, 2015, net of unamortized debt discount and OID of $17,712       10,059 
Convertible note payable, due December 19, 2013       32,500 
Convertible note payable, due July 1, 2014, net of unamortized debt discount  and OID of $12,478       15,492 
Convertible note payable, due April 15, 2014, net of unamortized debt discount of $12,231       20,269 
Convertible note payable, due May 15, 2014, net of unamortized debt discount of $13,500       14,000 
Convertible note payable, due January 24, 2015, net of unamortized debt discount of $36,977       13,023 
Convertible note payable, due August 21, 2014, net of unamortized debt discount and OID of $19,925       11,287 
Convertible promissory notes, due June 18, 2014, net of unamortized debt discount of  $19,973       12,527 
Convertible promissory note, due July 14, 2014, net with unamortized debt discount and OID of $20,569       17,931 
Convertible promissory note, due August 16, 2014, net of unamortized debt discount and OID of $24,049       14,451 
Convertible promissory note, due October 22, 2014, net of unamortized debt discount and OID of $25,226       5,986 
Convertible promissory note, due November 1, 2014, net of unamortized debt discount and OID of $47,226       10,274 
Convertible promissory note, due September 10, 2014, net of unamortized debt discount of $38,678       3,822 
Convertible promissory note, due January 24, 2015, net of unamortized debt discount of $48,625       1,375 
Convertible promissory note, due January 7, 2015, net of unamortized debt discount of $13,212   24,288     
Convertible promissory note, due April 4, 2015, net of unamortized debt discount of $18,890   16,110     
Convertible promissory note, due February 2, 2015, net of unamortized debt discount of $28,226   34,774     
Convertible promissory notes, due May 2, 2015, net of unamortized debt discount of $46,904   33,096     
Convertible promissory note, due May 9, 2015, net of unamortized debt discount of $136,233   88,767     
Convertible promissory note, due June 9, 2015, net of unamortized debt discount of $227,836   102,164     
Convertible promissory note, due May 11, 2015, net of unamortized debt discount of $201,336   52,164     
Total   560,300    302,722 
Less current portion   (560,300)   (278,266)
Long term portion  $   $24,456 

 

 

 

12
 

SOLAR WIND ENERGY TOWER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2014

(unaudited)

 

Asher notes:

 

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

  

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

 

During the three months ended September 30, 2014, the Company paid off the above described note in full.

 

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

  

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

 

During the three months ended September 30, 2014, the Company paid off the above described note in full.

 

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

 

JMJ Financial

 

On July 11, 2012, the Company issued a Convertible Promissory Note to JMJ Financial (“JMJ”) providing JMJ with the ability to invest up to $275,000 which contains a 10% original issue discount (the “JMJ Note”). The transaction closed on July 25, 2012. During the nine months ended September 30, 2014, the Company received two tranches of net proceeds in the amount of $70,000, of which $50,000 was repaid. As of September 30, 2014 and December 31, 2013, the aggregate principal amount outstanding under the July 11, 2012 issued convertible promissory note was $-0- and $90,395, respectively. On July 11, 2014, the Company issued 4,624,074 shares of its common stock in full settlement.

 

 

13
 

SOLAR WIND ENERGY TOWER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2014

(unaudited)

 

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

 

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

 

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

 

Typenex Co-Investment, LLC

 

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

 

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

 

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

 

On July 8, 2014, the Company paid $40,178.82 against the note in a scheduled monthly installment followed by a payment on August 11, 2014 of the balance due of $31,078.45 to pay the note in full. In as such as Typenex was disputing the Company’s right to pay in cash, these final two installments were placed in escrow account through the Company’s counsel.

 

KBM Worldwide, Inc.

 

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

  

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

 

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

  

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

 

On August 7, 2014, the Company entered into a Securities Purchase Agreement with KBM Worldwide, Inc. ("KBM"), for the sale of an 8% convertible note in the principal amount of $253,500 (the "Note"). The financing closed on August 7, 2014. The total net proceeds the Company received from this Offering was $250,000.

 

The Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on May 11, 2015. The Note is convertible into common stock, at KBM’s option, at a 42% discount to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion.

 

14
 

SOLAR WIND ENERGY TOWER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2014

(unaudited)

 

Union Capital LLC

 

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

  

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

 

Adar Bays, LLC

 

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

  

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

 

JDF Financial Capital, Inc.

 

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

 

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

 

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

 

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

 

 

15
 

SOLAR WIND ENERGY TOWER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2014

(unaudited)

 

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

 

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

  

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

 

At the inception of the 2014 Notes, the Company determined the aggregate fair value of $3,021,713 of embedded derivatives. The fair value of the embedded derivatives was determined using the Black Scholes Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 157.33% to 197.24%, (3) weighted average risk-free interest rate of 0.11 % to 0.23%, (4) expected life of 0.75 to 1.00 years, and (5) estimated fair value of the Company’s common stock of $0.0025 to $0.0271 per share.

 

The determined fair value of the debt derivatives of $3,021,713 was charged as a debt discount up to the net proceeds of the note with the remainder of $1,895,183 charged to current period operations as non-cash interest expense.

 

At September 30, 2014, the Company marked to market the fair value of the debt derivatives and determined a fair value of $1,416,684. The Company recorded a gain from change in fair value of debt derivatives of $858,661 and $707,801 for the three and nine months ended September 30, 2014. The fair value of the embedded derivatives was determined using Black Scholes Option Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 192.41%, (3) weighted average risk-free interest rate of 0.02% to 0.03%, (4) expected life of 0.25 to 0.69 years, and (5) estimated fair value of the Company’s common stock of $0.0239 per share.

 

The charge of the amortization of debt discounts and costs for the three and nine months ended September 30, 2014 was $343,332 and $914,628, respectively, and $168,322 and $395,421 for the three and nine months ended September 30, 2013, respectively. which was accounted for as interest expense. Also, the Company has accrued interest expense of $46,885 as of September 30, 2013.

 

During the nine months ended September 30, 2014, the Company issued an aggregate of 138,728,256 shares of its common stock in settlement of the convertible note payable and related interest.

 

 

16
 

SOLAR WIND ENERGY TOWER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2014

(unaudited)

 

NOTE 7 – NOTES PAYABLE, RELATED PARTY

 

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

 

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

 

The Company has accrued interest expense of $3,481 as of September 30, 2014.

 

NOTE 8 – CONVERTIBLE NOTES PAYABLE, RELATED PARTY

 

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

 

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

 

Due to the nature of the notes described in Note 6 above, the Company has identified the embedded derivatives related to the above described Notes. These embedded derivatives included certain conversion features and the uncertainty of sufficient authorized shares to meet possible conversion demands. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of the notes and to fair value as of each subsequent reporting date.

 

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

 

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

 

At September 30, 2014, the Company marked to market the fair value of the debt derivatives and determined a fair value of $230,406. The Company recorded a gain (loss) from change in fair value of debt derivatives of $154,407 and $(176,707) for the three and nine months ended September 30, 2014, respectively. The fair value of the embedded derivatives was determined using Black Scholes Option Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 192.41%, (3) weighted average risk-free interest rate of 0.03%, (4) expected life of 0.25 years, and (5) estimated fair value of the Company’s common stock of $0.0239 per share.

 

The charge of the amortization of debt discounts and costs for the three and nine months ended September 30, 2014 was $33,031 and $98,016, respectively, and $33,031 and $98,016 for the three and nine months ended September 30, 2013, respectively; which was accounted for as interest expense. Also, the Company has accrued interest expense of $39,187 as of September 30, 2014.

 

 

 

17
 

SOLAR WIND ENERGY TOWER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2014

(unaudited)

 

NOTE 9 – DERIVATIVE LIABILITIES

 

As described in Notes 6 and 8 above, the Company issued convertible notes that contain conversion features and reset provision. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date and to fair value as of each subsequent reporting date. Refer to Notes 6 and 8 for assumptions used to determine fair values.

 

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

 

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

 

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

 

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

 

NOTE 10 – STOCKHOLDERS' EQUITY

 

Preferred stock

 

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

 

Common stock

 

The Company has authorized 900,000,000 and 500,000,000 shares of common stock, with a par value of $0.0001 per share as of September 30, 2014 and December 31, 2013, respectively. As of September 30, 2014 and December 31, 2013, the Company has 524,147,555 and 370,728,168, respectively, shares of common stock issued and outstanding.

 

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

 

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

 

 

 

18
 

SOLAR WIND ENERGY TOWER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2014

(unaudited)

 

In 2013 and 2012, the Company issued an aggregate of 15,000,000 and 21,500,000 shares of common stock for future services of $328,500 and $1,305,000, respectively. The Company accretes the fair value of the shares issued as stock based compensation during the requisite service period to operations. During the three and nine months ended September 30, 2014, the Company recorded $151,844 and $530,259, respectively, and $150,044 and $368,625 for the three and nine months ended September 30, 2013, respectively, as stock based compensation.

 

NOTE 11 – WARRANTS

 

Warrants

 

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

 

Exercise Price     Number
Outstanding
    Warrants
Outstanding
Weighted
Average
Remaining
Contractual Life
(years)
    Weighted
Average
Exercise price
    Number
Exercisable
    Warrants
Exercisable
Weighted
Average
Exercise Price
 
$ 0.00648       59,413,581       1.55     $ 0.00648       59,413,581     $ 0.00648  
  0.00860       5,787,037       1.51       0.00860       5,787,037       0.00860  
  0.02000       2,495,000       1.51       0.02000       2,495,000       0.02000  
  0.04000       8,750,000       Contingent       0.04000              
  0.05000       1,920,000       1.44       0.05000       1,920,000       0.05000  
  0.05000       7,000,000       Contingent       0.05000              
  0.10000       2,187,101       3.65       0.10000       2,187,101       0.10000  
          87,552,719       1.65               71,802,719     $ 0.01113  

 

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

 

   Number of
Shares
   Weighted
Average
Price Per
Share
 
Outstanding at December 31, 2012       
Granted   2,187,101   $0.10 
Exercised        
Canceled or expired        
Outstanding at December 31, 2013   2,187,101    0.10 
Granted   85,365,618    0.01 
Exercised        
Canceled or expired        
Outstanding at September 30, 2014   87,552,719   $0.01 

 

On April 4, 2014, in recognition of past services by the two (2) Directors, the Company approved for issuance of an aggregate of 2,495,000 and 5,787,037 warrants to purchase the Company’s common stock at $0.02 and $0.0086 per share for the vesting period of two years.

 

 

19
 

SOLAR WIND ENERGY TOWER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2014

(unaudited)

 

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

 

As described in Note 5, on April 7, 2014, the Company issued a warrant to purchase 1,920,000 shares of the Company’s common stock exercisable at $0.05 per share expiring on March 7, 2016 in connection with the issuance of a note. The warrants were valued using the Black Sholes option pricing method with the following assumptions: dividend yield $-0-, volatility of 158.38% and risk free rate of 0.41%. The determined fair value of the warrant of $3,070 is amortized as financing costs of the term of the related note (2 years).

 

As described in Note 7, the Company issued an aggregate of 59,413,581 warrants to purchase the Company’s common stock at $0.00648 per share for two years in connection with the issuance of notes payable.

 

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

 

As described in Note 6, the Company (ii) issued a warrant to purchase an aggregate of 7,000,000 shares of the Company’s common stock, par value $0.0001 per share, for an exercise price of $0.05 per share for a period of 150 days from the effective date of the registration statement (the “First Warrant”), and (iii) issued a warrant to purchase an aggregate of 8,750,000 shares of the Company’s common stock, par value $0.0001 per share, for an exercise price of $0.04 per share for a period of 90 days from the effective date of the registration statement. Due to the contingency nature of these warrants, the Company will determine the fair value at the date of the effectiveness of the registration statement.

 

NOTE 12- NON CONTROLLING INTEREST

 

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

 

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

 

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

 

    September 30,
2014
 
Net loss   $ 85,530  
Average Non-controlling interest percentage     1.33 %
Net loss attributable to the non-controlling interest   $ 1,140  

 

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

 

Balance, December 31, 2013   $  
Transfer (to) from the non-controlling interest as a result of change in ownership      
Net loss attributable to the non-controlling interest     (1,140 )
Balance, September 30, 2014   $ (1,140 )

 

 

20
 

SOLAR WIND ENERGY TOWER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2014

(unaudited)

 

NOTE 13 – CONTINGENCIES

 

Litigation

 

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

 

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

 

As described in Note 4 above, in August 2014, the Company settled the litigation with Hanover Holdings I, LLC for cash of $90,000 payable in six equal monthly installments of $15,000 beginning September 5, 2014. In connection with the settlement, the Company recognized a gain on settlement of debt of $32,985 during the three and nine months ended September 30, 2014. As of September 30, 2014, the outstanding balance was $75,000.

 

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

 

NOTE 14 – FAIR VALUE MEASUREMENTS

 

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

 

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

 

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

 

    Level 1     Level 2     Level 3     Total  
Long-term investments   $     $     $     $  
Total   $     $     $     $  
Derivative liabilities   $     $     $ 1,647,090     $ 1,647,090  
Total   $     $     $ 1,647,090     $ 1,647,090  

 

 

 

 

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SOLAR WIND ENERGY TOWER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2014

(unaudited)

 

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

 

Nine months ended September 30, 2014:

 

    Derivative Liabilities  
Balance, December 31, 2013   $ 689,093  
         
Transfers in (out) at mark-market value on date of payoff or conversion     (1,532,624 )
         
Transfers in (out) upon reclassification from (to) equity     5,525  
         
Transfers in upon initial fair value of derivative liabilities     3,021,714  
         
Gain from change in fair value of derivative liabilities     (536,618 )
         
Balance, September 30, 2014   $ 1,647,090  
         
Total gain for the nine month period included in earnings relating to the liabilities held at September 30, 2014   $ 536,618  

 

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

 

NOTE 15 – SUBSEQUENT EVENTS

 

Subsequent issuances of common stock

 

In October, the Company issued an aggregate of 9,178,911 shares of its common stock in settlement of convertible notes payable and accrued interest of $93,392.

 

Subsequent financing

 

On October 8, 2014, the Company entered into a Securities Purchase Agreement with KBM Worldwide, Inc. ("KBM"), for the sale of an 8% convertible note in the principal amount of $53,500 (the "Note"). The total net proceeds the Company received from this Offering was $50,000.

 

The Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on July 10, 2015. The Note is convertible into common stock, at KBM's option, at a 42% discount to the average of the three lowest closing bid prices of the common stock during the 15 trading day period prior to conversion.

 

Legal Matters

 

In October 2014 the Company's resident agent received a notice that a creditor had filed a law suit against the Company. The Company asserts that it has satisfied its obligations and has hired legal counsel to defend the Company. The Company plans to vigorously defend this claim.

 

 

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the accompanying financial statements and related notes thereto for the quarter ended September 30, 2014, as well as the Company’s consolidated financial statements and related notes thereto and management’s discussion and analysis of financial condition and results of operations in the Company’s Form 10-K for the year ended December 31, 2013 filed on March 28, 2014.

 

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

 

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

 

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

 

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

 

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

 

Forward Looking Statements

 

This report may contain “forward-looking statements,” which represent the Company’s expectations or beliefs, including, but not limited to, statements concerning industry performance and the Company’s results, operations, performance, financial condition, plans, growth and strategies, which include, without limitation, statements preceded or followed by or that include the words “may,” “will,” “expect,” “anticipate,” “intend,” “could,” “estimate,” or “continue” or the negative or other variations thereof or comparable terminology. Any statements contained in this report or the information incorporated by reference that are not statements of historical fact may be deemed to be forward-looking statements.

 

 

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These statements by their nature involve substantial risks and uncertainties, some of which are beyond the Company’s control, and actual results may differ materially depending on a variety of important factors, including those risk factors discussed under “Trends, Risks and Uncertainties”, many of which are also beyond the Company’s control. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this report. The Company does not undertake any obligation to update or release any revisions to these forward-looking statements to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events, except to the extent such updates and/or revisions are required by applicable law.

 

Critical Accounting Policies and Estimates

 

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

 

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

 

General

 

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

 

Revenue Recognition

 

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

 

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

 

 

24
 

 

Fair Value of Financial Instruments

 

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

 

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

 

Accounting for Derivatives

 

In 2013 and 2014, we issued convertible notes payable that contained certain conversion features which we identified as embedded derivatives. In addition, the Company has the possibility of exceeding their common shares authorized when considering the number of possible shares that may be issuable to satisfy settlement provisions of convertible notes after consideration of all existing instruments that could be settled in shares. Therefore, in accordance with ASC 815-40, we reclassified the fair value of the conversion feature from equity to a liability at the date of issuance. Subsequent to the initial issuance date, we are required to adjust to fair value the derivative as an adjustment to current period operations.

 

New Accounting Pronouncements

 

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

 

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

 

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

 

 

25
 

 

The FASB has issued ASU No. 2014-12, Compensation – Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. This ASU requires that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant date fair value of the award. This update further clarifies that compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. The Company has not yet determined the effect of the adoption of this standard and it is expected to have no material impact on the Company’s condensed consolidated financial position and results of operations.

 

The FASB has issued ASU No. 2014-09, Revenue from Contracts with Customers. This ASU supersedes the revenue recognition requirements in Accounting Standards Codification 605 - Revenue Recognition and most industry-specific guidance throughout the Codification. The standard requires that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This ASU is effective on January 1, 2017 and should be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the ASU recognized at the date of initial application. The Company has not yet determined the effect of the adoption of this standard and it is expected to have no material impact on the Company’s condensed consolidated financial position and results of operations.

 

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

 

RESULTS OF OPERATIONS

  

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

 

Revenue

 

The Company has not generated revenue since inception.

 

Operating Expenses

   

Research and development

 

During the three months ended September 30, 2014, research and development costs were $82,482 compared to $15,589 for the same period last year. The Company's expenditures for research and development is dependent on available resources and future expenditures are expected to increase with additional financing.

 

Selling, general and administrative

 

During the three months ended September 30, 2014, selling, general and administrative expenses were $434,818 as compared to $409,069 for the same period last year, a 6% increase. The primary increase is due to increase professional and consulting fees incurred in the current period as compared to same period last year.

 

Depreciation

 

Depreciation expense for the three months ended September 30, 2014 was $367 as compared to $1,120 for the same period last year due to the aging of our equipment.

 

 

26
 

 

Other income (expense)

 

Interest expense

 

Interest expense for the three months ended September 30, 2014 was $555,300 compared to $287,938 for the same period last year. In the current period, we incurred $392,167 non-cash debt discount and OID amortization and $73,946 in non-cash interest expense on issued convertible debt as compared to $201,353 and $68,564, respectively for the same period last year.

 

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

 

During 2013 and 2014, we issued convertible promissory notes with an embedded derivative, all requiring us to fair value the derivatives each reporting period and mark to market as a non-cash adjustment to our current period operations. This resulted in a gain of $1,013,068 and $277,568 on change in fair value of derivative liabilities for the three months ended September 30, 2014 and 2013, respectively.

 

Gain on settlement of debt

 

During the three months ended September 30, 2014, we settled an outstanding litigation resulting in a gain of settlement of debt of $32,985.

 

Nine months ended September 30, 2014 as compared to nine months ended September 30, 2013

 

Revenue

 

The Company has not generated revenue since inception.

 

Operating Expenses

   

Research and development

 

During the nine months ended September 30, 2014, research and development costs were $92,705 compared to $37,873 for the same period last year. The Company's expenditures for research and development is dependent on available resources and future expenditures are expected to increase with additional financing.

 

Selling, general and administrative

 

During the nine months ended September 30, 2014, selling, general and administrative expenses were $1,367,878 as compared to $1,288,101 for the same period last year, a 6% increase. The primary increase is due to increase professional and consulting fees incurred in the current period as compared to same period last year.

 

Depreciation

 

Depreciation expense for the nine months ended September 30, 2014 was $2,343 as compared to $3,360 for the same period last year due to the aging of our equipment.

 

Other income (expense)

 

Interest expense

 

Interest expense for the nine months ended September 30, 2014 was $3,161,325 compared to $862,927 for the same period last year. In the current period, we incurred $1,053,063 non-cash debt discount and OID amortization and $1,895,183 in non-cash interest expense on issued convertible debt as compared to $493,437 and $232,489, respectively for the same period last year.

 

 

27
 

 

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

 

During 2013 and 2014, we issued convertible promissory notes with an embedded derivative, all requiring us to fair value the derivatives each reporting period and mark to market as a non-cash adjustment to our current period operations.  This resulted in a gain of $536,618 and $359,285 on change in fair value of derivative liabilities for the nine months ended September 30, 2014 and 2013, respectively.

 

Gain on settlement of debt

 

During the nine months ended September 30, 2014, we settled an outstanding litigation resulting in a gain of settlement of debt of $32,985.

 

Liquidity and Capital Resources

 

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

 

Working Capital

 

Our working capital deficit increased by $759,371 during the nine months ended September 30, 2014 from a working capital deficit (current liabilities in excess of current assets) of $2,492,533 at December 31, 2013 to a working capital deficit of $3,251,904 at September 30, 2014. The increase in working capital deficit for the nine months ended September 30, 2014 is due to a combination of reasons, of which the significant factors include:

 

  · Cash had a net decrease from working capital by $4,373 for the nine months ended September 30, 2014. The most significant uses and proceeds of cash were:

 

  o Approximately $991,000 of cash consumed in operating activities;
     
  o Proceeds  of $1,173,000 from issuance of convertible notes payable, net of repayments of $286,434
     
  o Proceeds  of $80,000 from issuance of note payable
     
  o Proceeds of $25,000 from the sale of our common stock

 

Total current assets of $200,887 and $61,758 as of September 30, 2014 and December 31, 2013, respectively, cash representing 29% and 100% as of September 30, 2014 and December 31, 2013, respectively.

 

Proceeds from the issuance of convertible promissory notes

 

During the nine months ended September 30, 2014, the Company received proceeds of $1,173,000 from the issuance of Convertible Promissory Notes.

 

Proceeds from the issuance of note payable

 

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

 

Proceeds from the sale of our common stock

 

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

 

 

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Cash flow analysis

 

Cash used in operations was $991,115 during the nine month period ended September 30, 2014. During the nine month period ended September 30, 2014, our primary capital needs were for operating expenses, including funds to support our business strategy, which primarily includes working capital necessary to fund operations and reducing our account payables.

 

During the nine months ended September 30, 2014, we utilized $4,824 cash for investing activities comprised of purchase of equipment of $2,124 and payment of long term deposit of $2,700.

 

Cash provided by financing activities was a total net proceeds of $991,566 from the sale of our common stock and issuance of Convertible and Non-Convertible Promissory Notes.

 

The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. The Company has reported a net loss of $4,054,648 for the nine month period ended September 30, 2014, accumulated deficit of $12,919,876 and total current liabilities in excess of current assets of $3,251,904 as of September 30, 2014.

 

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

 

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

  

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

 

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

 

Inflation

 

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

 

 

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Off-Balance sheet Arrangements

 

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

 

Number of Employees

 

As of September 30, 2014, the Company had 3 full time employees.

 

Disclosure of Contractual Obligations

 

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

 

Item 3. Quantitative and Qualitative Disclosures About Material Risk.

 

As a smaller reporting company, we are not required to include disclosure under this item.

 

Item 4. Controls and Procedures.

 

As of September 30, 2014, the Company performed an evaluation, under the supervision and with the participation of management, including the Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Accounting Officer), of the effectiveness of the design and operation of its disclosure controls and procedures as defined in Rules 13a - 15(e) or 15d - 15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on that evaluation and due to the lack of segregation of duties and failure to implement accounting controls, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this report.

 

The reason for the ineffectiveness of our disclosure controls and procedures was the result of having a limited number of employees and not having proper segregation of duties based on the cost benefit of hiring additional employees solely to address the segregation of duties issue. We compensate for the lack of segregation of duties by employing close involvement of management in day-to-day operations.

 

Limitations on Effectiveness of Controls and Procedures

 

Our management, including our Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer), does not expect that our disclosure controls and procedures will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include, but are not limited to, the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control.

 

The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

 

 

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Remediation of Material Weaknesses in Internal Control over Financial Reporting

 

As a small business, without a viable business and revenues, the Company does not have the resources to install a dedicated staff with deep expertise in all facets of SEC disclosure and GAAP compliance. As is the case with many small businesses, the Company will continue to work with its external consultants and attorneys as it relates to new accounting principles and changes to SEC disclosure requirements. The Company has found that this approach worked well in the past and believes it to be the most cost effective solution available for the foreseeable future.

  

The Company will conduct a review of existing sign-off and review procedures as well as document control protocols for critical accounting spreadsheets. The Company will also increase management's review of key financial documents and records.

 

As a small business, the Company does not have the resources to fund sufficient staff to ensure a complete segregation of responsibilities within the accounting function. However, Company management does review, and will increase the review of, financial statements on a monthly basis. These actions, in addition to the improvements identified above, will minimize any risk of a potential material misstatement occurring.

 

Changes in Internal Controls

 

During the fiscal quarter ended September 30, 2014, there have been no changes in our internal control over financial reporting that have materially affected or are reasonably likely to materially affect our internal controls over financial reporting.

 

Item 1. Legal Proceedings.

 

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

 

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

 

The Company settled the litigation with Hanover holdings I, LLC for cash of $90,000 payable in six equal monthly installments of $15,000 beginning September 5, 2014.

 

In October 2014 the Company's resident agent received a notice that a creditor had filed a law suit against the Company. The Company asserts that it has satisfied its obligations and has hired legal counsel to defend the Company. The Company plans to vigorously defend this claim.

 

The Company is subject to legal proceedings and claims from time to time, which arise in the ordinary course of its business. Although occasional adverse decisions or settlements may occur, the Company believes that the final disposition of such matters should not have a material adverse effect on its financial position, results of operations or liquidity.

 

Item 1A. Risk Factors.

 

The Company’s results of operations, financial condition and cash flows can be adversely affected by various risks. These risks include, but are not limited to, the principal factors listed below and the other matters set forth in this quarterly report on Form 10-Q. You should carefully consider all of these risks.

 

The Company has a history of operating losses and an accumulated deficit and expects to continue to incur losses for the foreseeable future.

 

Since inception through September 30, 2014, the Company has incurred cumulative losses of $12,919,876 and has never generated enough funds through operations to support its business. The Company has a limited operating history and has primarily engaged in operations relating to the development of its business plan.  Additional capital may be required in order to provide working capital requirements for the next twelve months.

 

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

 

In their report dated March 28, 2014, our independent auditors stated that our financial statements for the year ended December 31, 2013 were prepared assuming that we would continue as a going concern, and that they have substantial doubt about our ability to continue as a going concern. Our auditors’ doubts are based on our net losses and deficits in cash flows. We continue to experience net operating losses since the Company is still in a development stage. Our ability to continue as a going concern is subject to our ability to generate a profit and/or obtain necessary funding from outside sources, including by the sale of our securities, or obtaining loans from financial institutions, where possible. Our continued net operating losses and our auditors’ doubts increase the difficulty of our meeting such goals. If we are not successful in raising sufficient additional capital, we may not be able to continue as a going concern and our stockholders may lose their entire investment.

 

 

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

None.

 

Item 3. Defaults Upon Senior Securities.

 

None.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information.

 

None.

 

Item 6. Exhibits.

  

Exhibit   Description
     
2.1    Agreement and Plan of Merger, dated as of December 29, 2010, by and among Superior Silver Mines, Inc., Superior Silver Mines Acquisition Corp., and Clean Wind Energy, Inc. (1)
2.2   Plan of Domestication of Superior Silver Mines, Inc., dated December 21, 2010 (1)
2.3   Nevada Articles of Domestication of Superior Silver Mines, Inc., dated December 27, 2010 (1)
2.4   Idaho Statement of Domestication of Superior Silver Mines, Inc., dated December 22, 2010 (1)
2.5   Articles of Merger by and between Clean Wind Energy Tower, Inc. and Superior Silver Mines, Inc. (2)
3.1   Articles of Incorporation of Clean Wind Energy Tower, Inc. (1)
3.2   Amended Bylaws of Clean Wind Energy Tower, Inc. (3)
4.1   Form of Common Stock Certificate (4)
10.1   Letter Agreement between Clean Wind Energy, Inc. and Source Capital Group, Inc., dated November 22, 2010 (1)
10.2   Deed of Lease, dated December 1, 2010, by and between CKP One, LLC and Clean Wind Energy, Inc. (1)
10.3   Lease Agreement, dated October 20, 2010, and effective November 1, 2010, by and between Office Suites PLUS at Annapolis and Clean Wind Energy, Inc. (1)
10.4    Director and Executive Employment Agreement, dated September 22, 2010, by and between Clean Wind Energy, Inc. and Ronald Pickett, and Amendment dated November 22, 2010 (1)
10.5    Director and Executive Employment Agreement, dated September 22, 2010, by and between Clean Wind Energy, Inc. and Stephen Sadle, and Amendment dated November 22, 2010 (1)
10.6    Director and Executive Employment Agreement, dated September 22, 2010, by and between Clean Wind Energy, Inc. and Robert Crabb, and Amendment dated November 22, 2010 (1)
10.7    Executive Employment Agreement, dated September 22, 2010, by and between Clean Wind Energy, Inc. and John W. Hanback, and Amendment dated November 22, 2010 (1)
10.8    Executive Employment Agreement, dated September 22, 2010, by and between Clean Wind Energy, Inc. and Itzhak Tepper, PE, and Amendment dated November 22, 2010 (1)
10.9    Executive Employment Agreement, dated September 22, 2010, by and between Clean Wind Energy, Inc. and Ownkar Persaud, and Amendment dated November 22, 2010 (1)
10.10   Form of Director and Officer Indemnification Agreement (4)
14.1   Code of Business Conduct and Ethics (5)
21.1   Subsidiaries of the Registrant (4)  

 

 

 

32
 

 

 

31.1   Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Ronald W. Pickett (President/Chief Executive Officer)
31.2   Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Ronald W. Pickett (Chief Financial Officer)
32.1   Certification of Ronald W. Pickett (President/Chief Executive Officer) pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2   Certification of Ronald W. Pickett (Chief Financial Officer) pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS   XBRL Instance Document*  
101.SCH   XBRL Schema Document*  
101.CAL   XBRL Calculation Linkbase Document*  
101.LAB   XBRL Label Linkbase Document*  
101.PRE   XBRL Presentation Linkbase Document*  
101.DEF   XBRL Definition Linkbase Document*  
         

___

*   Pursuant to Rule 406T of Regulation S-T, these interactive data files are not deemed filed or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act or Section 18 of the Securities Exchange Act and otherwise not subject to liability.
(1)   Filed with the registrant's Form 8-K filed with the Securities and Exchange Commission on December 30, 2010 and incorporated herein by reference.
(2)   Filed with the registrant's Form 8-K filed with the Securities and Exchange Commission on January 21, 2011 and incorporated herein by reference.
(3)   Filed with the registrant's Form 8-K filed with the Securities and Exchange Commission on December 28, 2010 and incorporated herein by reference.
(4)   Filed with the registrant's Form 10-K for the year ended December 31, 2010 filed with the Securities and Exchange Commission on April 12, 2011 and incorporated herein by reference.
(5)   Filed with the registrant's Form 10-K for the year ended December 31, 2011 filed with the Securities and Exchange Commission on April 2, 2012 and incorporated herein by reference.

 

 

 

 

 

33
 

 

SIGNATURES

 

 

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

Solar Wind Energy Tower, Inc.

Registrant

 
       
Date: October 31, 2014 By: /s/ Ronald Pickett  
    Ronald Pickett  
    Chief Executive Officer (Principal Executive Officer) and Principal Accounting and Financial Officer  

 

 

 

 

 

34