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EXCEL - IDEA: XBRL DOCUMENT - STW RESOURCES HOLDING CORP.Financial_Report.xls
EX-32.2 - CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER PURSUANT TO U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 - STW RESOURCES HOLDING CORP.ex32-2.htm
EX-32.1 - CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER PURSUANT TO U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 - STW RESOURCES HOLDING CORP.ex32-1.htm
EX-31.1 - CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 - STW RESOURCES HOLDING CORP.ex31-1.htm
EX-31.2 - CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 - STW RESOURCES HOLDING CORP.ex31-2.htm


UNITED STATES
 
SECURITIES AND EXCHANGE COMMISSION
 
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2015
 
OR
 
[  ]
TRANSITION REPORT PURSUANT TO PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from_____ to _____
 
STW RESOURCES HOLDING CORP
(Exact Name of Registrant as Specified in Charter)
 
Nevada
 
000-52654
 
26-1945743
(State or Other Jurisdiction of Incorporation)
 
(Commission File No.)
 
(I.R.S. Employer Identification No.)
         
3424 South County Road 1192
Midland, Texas 79706
 
 
 
 
(432) 686-7777
(Address of Principal Executive Offices)
 
 
 
(Registrant’s Telephone Number)
 
(Former name and address, if changed since last report)

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

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

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

Large accelerated filer
        [  ]
Accelerated filer
       [  ]
Non-accelerated filer
       [  ]
Smaller reporting company [X]
 
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes [  ]   No [X]
 
As of May 27, 2015, there were 32,345,817 shares of the issuer’s common stock, $0.001 par value per share, outstanding.

 


 

 
 
TABLE OF CONTENTS
 
 
 
Page
 
       
1
 
       
1
 
       
 
1
 
 
2
 
 
3
 
 
4
 
 
6
 
       
23
 
       
27
 
       
 
 
       
28
 
       
28
 
       
28
 
       
29
 
       
30
 
 
 
ITEM 1. FINANCIAL STATEMENTS
STW Resources Holding Corp
Condensed Consolidated Balance Sheets
 
 
 
March 31,
2015
 
 
December 31,
2014
 
ASSETS
 
(Unaudited)
 
 
 
 
Current Assets
 
 
 
 
 
 
Cash
 
$
--
 
 
$
123,629
 
Accounts receivable, trade, net
 
 
2,212,806
 
 
 
3,710,180
 
Accounts receivable from related parties
 
 
--
 
 
 
519,789
 
Deferred project costs
   
1,629,891
     
821,359
 
Prepaid expenses and other current assets
 
 
210,296
 
 
 
344,525
 
Total Current Assets
 
 
4,052,993
 
 
 
5,519,482
 
 
 
 
 
 
 
 
 
 
Property and equipment, net
 
 
1,050,958
 
 
 
1,096,640
 
TOTAL ASSETS
 
$
5,103,951
 
 
$
6,616,122
 
LIABILITIES AND STOCKHOLDERS' DEFICIT
 
 
 
 
 
 
 
 
Current Liabilities
 
 
 
 
 
 
 
 
Book overdraft
 
$
123,629
 
 
$
--
 
Accounts Payable
 
 
3,902,003
 
 
 
4,523,265
 
Payable to related parties:
 
 
 
 
 
 
 
 
Black Pearl Energy, LLC
 
 
37,084
 
 
 
1,371,305
 
Crown Financial, LLC
 
 
1,039,545
 
 
 
2,035,495
 
Accrued compensation - officers
 
 
918,380
 
 
 
873,380
 
Current portion of notes payable, net of discounts and loan costs; payable to related parties $1,661,354 and $1,700,394, respectively
 
 
7,900,661
 
 
 
5,793,293
 
Sales and payroll taxes payable
 
 
2,834,095
 
 
 
2,671,843
 
Insurance premium finance contract payable
 
 
76,151
 
 
 
208,271
 
Accrued expenses and interest
 
 
1,986,084
 
 
 
1,769,117
 
Deferred Revenue
   
1,552,615
     
680,000
 
Accrued compensation
 
 
397,485
 
 
 
643,777
 
Accrued board compensation
 
 
112,500
 
 
 
496,067
 
Fees payable in common stock
 
 
1,479,073
 
 
 
2,783,711
 
Stock subscriptions payable
 
 
17,000
 
 
 
27,000
 
Derivative liability
 
 
1,636,590
 
 
 
802,340
 
Total Current Liabilities
 
 
24,012,895
 
 
 
24,678,864
 
Notes payable, net of discount and current portion
 
 
1,878,430
 
 
 
2,825,295
 
Total Liabilities
 
 
25,891,325
 
 
 
27,504,159
 
Commitments and contingencies (Note 8)
 
 
 
 
 
 
 
 
Stockholders' Deficit
 
 
 
 
 
 
 
 
Preferred stock, par value $0.001 per share, 10,000,000 shares authorized, no shares issued and outstanding as of March 31, 2015 and December 31, 2014, respectively
 
 
--
 
 
 
--
 
Common stock; $0.001 par value; 191,666,667shares authorized, 31,683,150 and 28,194,953 shares issued and outstanding as of March 31, 2015 and December 31, 2014, respectively
 
 
31,686
 
 
 
28,197
 
Additional paid in capital
 
 
21,400,210
 
 
 
18,383,411
 
Accumulated deficit
 
 
(41,950,763
)
 
 
(39,112,171
)
Total Stockholders' Deficit of STW Resources Holding Corp
 
 
(20,518,867
)
 
 
(20,700,563
)
Non-controlling interest in subsidiary
 
 
(268,507
)
 
 
(187,474
)
Total Stockholders’ Deficit
 
 
(20,787,374
)
 
 
(20,888,037
)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT
 
$
5,103,951
 
 
$
6,616,122
 
 
See accompanying notes which are an integral part of these unaudited condensed consolidated financial statements.

 
STW Resources Holding Corp
Condensed Consolidated Statements of Operations

 
 
For the Three Months Ended
March 31,
 
 
 
2015
 
 
2014
 
Revenues:
 
 
 
 
 
 
 
 
  Water treatment services
 
$
148,911
 
 
$
--
 
  Energy and construction services
 
 
2,472,363
 
 
 
3,560,787
 
  Related parties service revenue
 
 
58,127
 
 
 
39,992
 
Net revenues
 
 
2,679,401
 
 
 
3,600,779
 
 
 
 
 
 
 
 
 
 
Cost of revenues
 
 
1,880,265
 
 
 
3,181,242
 
Gross Profit
 
 
799,136
 
 
 
419,537
 
 
 
 
 
 
 
 
 
 
Operating expenses
 
 
 
 
 
 
 
 
  Research and development
 
 
6,125
 
 
 
95,490
 
  Sales and marketing
 
 
292,321
 
 
 
172,508
 
  General and administrative
 
 
2,428,825
 
 
 
2,129,269
 
  Depreciation and amortization
 
 
45,682
 
 
 
52,684
 
Total operating expenses
 
 
2,772,953
 
 
 
2,449,951
 
 
 
 
 
 
 
 
 
 
 Loss from operations
 
 
(1,973,817
)
 
 
(2,030,414
)
 
 
 
 
 
 
 
 
 
 Interest expense, $29,884 and $42,719 to related parties, respectively
 
 
(1,219,588
)
 
 
(437,602
)
  Change in derivative liability
 
 
273,780
 
 
 
13,273
 
Net Loss
 
$
(2,919,625
)
 
$
(2,454,743
)
Less: Share of net loss of subsidiary attributable to non-controlling interest
 
 
(81,033
)
 
 
(41,569
)
Net Loss of STW Resources Holding Corp
 
$
(2,838,592
)
 
$
(2,413,174
)
Loss per common share – basic and diluted
 
$
(0.09
)
 
$
(0.12
)
Weighted average shares outstanding - basic and diluted
 
 
29,977,880
 
 
 
20,538,202
 

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

 
STW Resources Holding Corp
Condensed Consolidated Statement of Stockholders’ Deficit (Unaudited)
 
   
Common Stock
$0.001 Par
   
Additional
Paid In Capital
   
Accumulated
Deficit
   
Non-Controlling Interest
   
Stockholders’
Deficit
   
Number
   
Amount
Balance, December 31, 2014
   
28,194,953
   
$
28,197
   
$
18,383,411
   
$
(39,112,171
)
 
$
(187,474
)
 
$
(20,888,037
)
Shares issued to Employees from Fees Payable in Common Stock
   
1,059,501
     
1,060
     
872,866
                     
873,926
 
Shares issued to Consultants from Fees Payable in Common Stock
   
1,104,976
     
1,105
     
941,630
                     
942,735
 
Shares issued as board of director fees
   
562,500
     
563
     
449,437
                     
450,000
 
Shares issued for subscriptions stock payable
   
15,385
     
15
     
9,985
                     
10,000
 
Shares issued upon conversion of notes payable and accrued interest
   
220,835
     
221
     
322,406
                     
322,627
 
Shares issued in connection with the 2015 Transfer Agreements origination fees
   
525,000
     
525
     
420,475
                     
421,000
 
Net loss for the period
                           
(2,838,592
)
   
(81,033
)
   
(2,919,625
)
Balance,
March 31, 2015
   
31,683,150
   
$
31,686
   
$
21,400,210
   
$
(41,950,763
)
 
$
(268,507
)
 
$
(20,787,374
)

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

 
STW Resources Holding Corp
Condensed Consolidated Statements of Cash Flows (Unaudited)

   
Three month Periods
Ended March 31:
 
   
2015
   
2014
 
Cash flows from operating activities
           
Net loss of STW Resources Holding Corp
 
$
(2,919,625
)
 
$
(2,454,743
)
Adjustments to reconcile net loss to net cash used in operating activities
               
Depreciation
   
45,682
     
52,684
 
Change in fair value of derivative liability
   
(273,780
)
   
(13,273
)
Financing costs of notes payable
   
430,377
     
42,592
 
Change in fair value of debt instruments converted to equity
   
--
     
(272,980
)
Amortization of discount and debt issuance costs
   
492,686
     
43,801
 
Share-based compensation
   
462,221
     
423,683
 
Changes in operating assets and liabilities:
               
(Increase) Decrease in accounts receivable
   
1,497,374
     
(896,702
)
(Increase) Decrease in deferred project costs
   
(808,532
)
   
--
 
(Increase) Decrease in prepaid expenses and other current assets
   
134,229
     
(3,709
)
Increase (Decrease) in accounts payable
   
(1,133,835
)
   
558,331
 
Increase (Decrease) in sales and payroll taxes payable
   
162,252
     
969,460
 
Increase (Decrease) in deferred revenue
   
872,615
     
--
 
Increase (Decrease) in accrued expenses and interest
   
216,967
     
530,134
 
Increase (Decrease) in accrued compensation
   
(246,292
   
108,405
 
Increase (Decrease) in accrued board compensation
   
66,433
     
168,750
 
Net cash used in operating activities
   
(1,001,228
)
   
(743,567
)
                 
Cash flows from investing activities
               
Purchase of equipment, net of equipment loans
   
--
     
(43,643
)
Deposits
   
--
     
(14,000
)
Net cash used in investing activities
   
--
     
(57,643
)
                 
Cash flows from financing activities
               
Book overdraft (repayment)
   
--
     
50,084
 
Stock subscriptions payable
   
--
     
130,000
 
Related party accounts receivables
   
--
     
837,824
 
Related party accounts payables, credit facilities, notes, and advances
   
--
 
   
--
 
Increase (Decrease) in insurance premium finance contract payable     (132,120     --  
Proceeds from notes payable
   
1,284,000
     
80,000
 
Principal payments of notes payable
   
(143,281
)
   
(60,698
)
Proceeds from issuance of common stock
   
--
     
62,500
 
Debt issuance costs
   
(131,000
)
   
--
 
Net cash provided by financing activities
   
877,599
     
1,099,710
 
                 
Net decrease/increase in cash
   
(123,629
)
   
298,500
 
Cash at beginning of period
   
123,629
     
17,301
 
Cash at end of period
 
$
--
   
$
315,801
 
 
(Continued)

 
STW Resources Holding Corp
Condensed Consolidated Statements of Cash Flows (Unaudited)
For the three months ended March 31, 2015 and 2014

Supplemental cash flow information:
           
Cash paid for interest
 
$
83,973
   
$
11,402
 
Cash paid for income taxes
 
$
--
   
$
--
 
                 
Non-cash investing and financing activities:
               
Shares issued from common stock subscriptions payable
 
$
10,000
   
$
--
 
Fees payable in common stock
 
$
--
   
$
423,683
 
Value of shares issued to employees as compensation
 
$
873,926
   
$
--
 
Value of shares issued to consultants
 
$
942,735
   
$
145,000
 
Value of shares issued as board fees
 
$
450,000
   
$
--
 
Value of shares issued in connection with extension of notes payable
 
$
--
   
$
67,354
 
Value of shares issued in payment of accrued PIK interest
 
$
--
   
$
510,769
 
Value of shares issued upon conversion of notes payable and accrued interest
 
$
322,627
   
$
660,684
 
Value of conversion feature of JMJ convertible note payable
 
$
--
   
$
50,000
 
Shares issued for 2015 Transfer Agreement origination fees
 
$
421,000
   
$
--
 
Subscriptions payable
 
$
--
   
$
150,000
 
 
See accompanying notes which are an integral part of these unaudited condensed consolidated financial statements.

 
STW Resources Holding Corp
Notes to Condensed Consolidated Financial Statements (Unaudited)
Three Months Ended March 31, 2015 and 2014


Basis of presentation

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

History of the Company

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

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

Consolidation policy

The unaudited condensed consolidated financial statements for the three months ended March 31, 2015, include the accounts of the Company and its wholly owned subsidiaries: STW Water Process & Technologies LLC, STW Oilfield Construction LLC, STW Pipeline Maintenance Construction, LLC, and its 75% owned subsidiary STW Energy, LLC. The condensed consolidated financial statements as of March 31, 2014, include STW Resources Holding Corp, STW Oilfield Construction LLC, STW Pipeline Maintenance Construction, LLC, and STW Energy, LLC as the other subsidiaries noted above were not established during the quarterly period ended March 31, 2014. All significant intercompany transactions and balances have been eliminated in consolidation.

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

Reclassifications

Certain reclassifications were made to the prior period condensed consolidated financial statements to conform to the current period presentation. There was no change to the previously reported net loss. The reclassifications as of December 31, 2014, are comprised of a $321,359 increase in deferred project costs, a $321,359 decrease in property and equipment, a $97,121 decrease in deferred loan fees, and a $97,121 increase in loan discounts.

Non-Controlling interest

On June 25, 2013, the Company invested in a 75% limited liability company (“LLC”) interest in STW Energy Services, LLC (“STW Energy”). The non-controlling interest in STW Energy is held by Crown Financial, LLC, a Texas Limited Liability Company (“Crown” or “Crown Financial”). As of December 31, 2014, $2,500 was recorded as the equity of the non-controlling interest in our consolidated balance sheet representing the third-party investment in STW Energy, with a cumulative net loss attributable to non-controlling interests of $187,474 for the year ended December 31, 2014. During the three month period ended March 31, 2015, a net loss attributable to the non-controlling interest of $81,033 was incurred. As of March 31, 2015, the net deficit interest in the subsidiary held by the non-controlling interest is $268,507.

Going Concern and Management Plans
 
The Company’s consolidated financial statements have been presented on the basis that it is a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company had an accumulated deficit of $41,950,763 as of March 31, 2015, and as of that date was delinquent in payment of $2,834,095 of sales and payroll taxes. As of March 31, 2015, $3,664,670 of notes payable are in default. Since its inception in January 2008 through December 31, 2014, management has raised equity and debt financing of approximately $20,000,000 to fund operations and provide working capital. The cash resources of the Company are insufficient to meet its planned business objectives without additional financing. These and other factors raise substantial doubt about the Company’s ability to continue as a going concern.
 
 
Management has undertaken steps as part of a plan to improve operations with the goal of sustaining our operations for the next twelve months and beyond. These steps include (a) raising additional capital and/or obtaining financing; (b) executing contracts with oil and gas operators and municipal utility districts; and (c) controlling overhead and expenses.

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

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

Use of Estimates

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

Accounts Receivable

Trade accounts receivable, net of allowance for doubtful accounts consists primarily of receivables from oil & gas services fees. Management determines the allowance for doubtful accounts based on historical losses and current economic conditions. On a continuing basis, management analyzes delinquent receivables, and once these receivables are determined to be uncollectible, they are written off either against an existing allowance account or as a direct charge to the condensed consolidated statement of operations. As of March 31, 2015 and December 31, 2014, the allowance for doubtful accounts were $26,015 and $77,211, respectively.
 
Loan Discounts
 
The Company amortizes loan discounts over the term of the loan using the effective interest method.

Concentration of Credit Risk

A financial instrument that potentially subjects the Company to concentration of credit risk is cash. The Company places its cash with financial institutions deemed by management to be of high credit quality. The Federal Deposit Insurance Corporation (“FDIC”) provides basic deposit coverage with limits to $250,000 per owner per institution. At March 31, 2015, there were no account balances per institution that would have exceeded the $250,000 insurance limit.

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

As of March 31, 2015, three vendors accounted for 11%, 7% and 5% of total accounts payable. During the three months ended March 31, 2015, three vendors accounted for 86% of total purchases. During the three months ended March 31, 2014, one vendor accounted for 70% of total purchases.

During the three months ended March 31, 2015, three customers accounted for 68%, 8% and 4% of net revenues. As of March 31, 2015, three customers accounted for 31%, 22% and 2% of accounts receivable. During the three months ended March 31, 2014, three customers accounted for 29%, 28% and 19% of net revenues.
 
Fair Value of Financial Instruments
 
“Fair value” is defined as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

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

We determine the fair value of our financial instruments based on a three-level hierarchy for fair value measurements under which these assets and liabilities must be grouped, based on significant levels of observable or unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect management’s use of assumptions to external and internal information. This hierarchy requires the use of observable market data when available. These two types of inputs have created the following fair-value hierarchy:
 
Level 1 — Valuations based on unadjusted quoted market prices in active markets for identical securities. Currently, we do not have any items classified as Level 1.

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

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

If the inputs used to measure fair value fall in different levels of the fair value hierarchy, a financial security’s hierarchy level is based upon the lowest level of input that is significant to the fair value measurement.
 
Our derivative liabilities consist of embedded conversion features on debt, price protection features on warrants, and are classified as Level 3 liabilities. We use Black-Scholes to determine the fair value of these instruments (see Note 5).
 
Management has used the simplified Black Scholes model to estimate fair value of derivative instruments. Management believes that as a result of the relatively short term nature of the warrants and convertibility features, a lattice model would not result in a materially different valuation.

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

 
 
Level 1
 
 
Level 2
 
 
Level 3
 
Total
 
Fair value of Derivative Liability at March 31, 2015
 
$
--
 
 
$
--
 
 
$
1,636,590
 
 
$
1,636,590
 
Fair value of Derivative Liability at December 31, 2014
 
$
--
 
 
$
--
 
 
$
802,340
 
 
$
802,340
 

Accounting for Derivatives Liabilities

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

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

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

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

Long-lived Assets and Intangible Assets

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

The Company had no such asset impairments during the three months ending March 31, 2015 or 2014. There can be no assurance, however, that market conditions will not change or demand for the Company’s products and services under development will continue. Either of these could result in future impairment of long-lived assets.

 
Revenue Recognition

During the year ended December 31, 2014, the Company entered into Master Services Agreements (“MSA”) with several major oil & gas companies. These MSAs contract the Company to provide a range of oil & gas support services including oilfield site construction and maintenance, pipeline maintenance, oil rig cleaning, site preparation, energy support services, and other oil & gas support services. The Company bills these customers pursuant to purchase orders issued under the MSAs. The revenues billed include hourly labor fees and equipment usage fees. The Company recognized revenues from these contracts as the services are performed under the customer purchase orders and no further performance obligations exist, generally in the form of a customer approval. During the three months ended March 31, 2015, the Company recognized $2,530,490 of revenues from these services contracts, which included $58,127 revenues from related parties. During the three months ending March 31, 2014 the Company realized revenue of $3,600,779 from services contracts, which included $39,992 of the service revenue was from related parties.

Business Segments

The Company has three reportable segments, (1) water reclamation services, (2) oil & gas services and (3) corporate operations. Segment information is reported in Note 9.

Income Taxes

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
 
The Company maintains a valuation allowance with respect to deferred tax assets. The Company established a valuation allowance based upon the potential likelihood of realizing the deferred tax asset in the future. Changes in circumstances, such as the Company generating taxable income, could cause a change in judgment about the realizability of the related deferred tax asset. Any reduction in the valuation allowance will be included in income in the year of the change in estimate.

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

Common Stock and Common Stock Warrants Issued to Employees

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

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

Net Loss per Share

The basic net loss per share is calculated by dividing the Company’s net loss available to common shareholders by the weighted average number of common shares during the period. The diluted net loss per share is calculated by dividing the Company’s net income (loss) available to common shareholders by the diluted weighted average number of shares outstanding during the period. The diluted weighted average number of shares outstanding is the basic weighted average number of shares adjusted for any potentially dilutive shares arising from debt or equity instruments. Diluted net loss per share is the same as basic net loss per share due to the lack of dilutive items. As of March 31, 2015 and December 31, 2014, the Company had 15,358,412 and 14,442,977 shares issuable upon conversion or exercise, respectively, which have been excluded as their effect is anti-dilutive.

Property and Equipment

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

Computer equipment and software
 
3 years
Furniture
 
3 years
Machinery
 
3-5 years

Stock Subscriptions Payable

The initial balance of stock subscriptions payable as of December 31, 2014, was $27,000 representing 41,539 shares to be issued. During the three months ended March 31, 2015, $10,000 of these stock subscriptions payable were issued representing 15,385 shares of common stock, included in the December 31, 2014 subscription payable. The remaining balance of stock subscriptions payable as of March 31, 2015, is $17,000 representing 26,154 shares to be issued.

 
Fees Payable in Common Stock

During the three months ended March 31, 2015, the Company agreed to issue an aggregate of 1,013,262 shares, valued at $834,649 in payment of performance bonuses, employment signing bonuses, consulting fees, and interest. During the three months ended March 31, 2015, the Company issued an aggregate of 2,385,312 shares of its common stock, valued at $2,139,287, in payment of performance bonuses, employment signing bonuses, consulting fees, and interest which left a remaining balance in fees payable in common stock of $1,479,073, or 1,987,712 shares.

Recently Issued Accounting Standards

Recent accounting pronouncements did not or are not believed by management to have a material impact on the Company's present or future consolidated financial statements.
 
In April 2015 the FASB issued Accounting Standards Update 2015-03 (ASU 2015-03) Simplifying Balance Sheet Presentation by Presenting Debt Issuance Costs as a Deduction from Recognized Debt Liability. The ASU is effective for annual reporting periods, including interim reporting periods within those periods, beginning after December 15, 2015. Early adoption is permitted. The new standard requires debt issuance costs to be classified as reductions to the face value of the related debt. The Company has reclassified debt issuance costs previously reported as other assets to loan discounts and debt issuance costs as a deduction of the debt liability.
 
NOTE 2 – PROPERTY, PLANT AND EQUIPMENT

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

 
 
March 31, 2015
 
 
December 31, 2014
 
Office furniture and equipment
 
$
29,467
 
 
$
29,467
 
Tools and yard equipment
 
 
729,735
 
 
 
729,735
 
Vehicles and construction equipment
 
 
502,007
 
 
 
502,007
 
Leasehold improvements
 
 
15,933
 
 
 
 15,933
 
                 
Total, cost
 
 
1,277,142
 
 
 
1,277,142
 
Accumulated Depreciation and Amortization
 
 
(226,184
)
 
 
(180,502
)
Property and equipment, net
 
$
1,050,958
 
 
$
1,096,640
 

Depreciation expense for the three month periods ended March 31, 2015 and 2014 is $45,682 and $52,684, respectively.

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

Accounts Purchase Agreement – Crown Financial, LLC

STW Energy Services, LLC (“STW Energy”) entered into an accounts purchase facility with Crown Financial, LLC, pursuant to an Account Purchase Agreement (the “Accounts Purchase Agreement”), pursuant to the Texas Finance Code.
 
The Accounts Purchase Agreement shall continue until terminated by either party upon 30 days written notice. The Accounts Purchase Agreement is secured by a security interest in substantially all of STW Energy’s assets pursuant to the terms of a Security Agreement. Under the terms of the Accounts Purchase Agreement, Crown Financial may, at its sole discretion, purchase certain of the STW Energy’s eligible accounts receivable. Upon any acquisition of an account receivable, Crown will advance to STW Energy up to 80% of the face amount of the account receivable; provided however, that based upon when each invoice gets paid, Crown shall pay STW Energy on the related invoice less fess and prior advances. Each account receivable purchased by Crown will be subject to a discount fee of 1.5% of the gross face amount of such purchased account for each 30 day period (or part thereof) the purchased account remains unpaid. Crown will generally have full recourse against STW Energy in the event of nonpayment of any such purchased account. As of March 31, 2015 and December 31, 2014, respectively, there were no accounts receivables subject to recourse due to nonpayment of the purchased accounts.
 
The Accounts Purchase Agreement contains covenants that are customary for agreements of this type and appoints Crown as attorney in fact for various activities associated with the purchased accounts receivable, including opening STW Energy’s mail, endorsing its name on related notes and payments, and filing liens against related third parties. The failure to satisfy covenants under the Accounts Purchase Agreement or the occurrence of other specified events that constitute an event of default could result in the acceleration of the repayment obligations of the Company or Crown enforcing its rights under the Security Agreement and take possession of the collateral. The Accounts Purchase Agreement contains provisions relating to events of default that are customary for agreements of this type. 
 
 
NOTE 4 – NOTES PAYABLE, NET

The Company’s notes payable at March 31, 2015 and December 31, 2014, consisted of the following:
   
March 31,
   
December 31,
 
Name
 
2015
   
2014
 
14% Convertible Notes
 
$
2,296,342
   
$
2,296,342
 
12% Convertible Notes
   
100,000
     
100,000
 
2015 Transfer Agreements
   
1,375,000
     
--
 
GE Note
   
2,100,000
     
2,100,000
 
Deferred Compensation Notes
   
279,095
     
279,095
 
Revenue participation notes
   
2,371,500
     
2,337,500
 
Crown Financial note
   
684,484
     
702,697
 
Dufrane Note Payable
   
611,561
     
725,000
 
Black Pearl Note Payable
   
777,096
     
--
 
Other Short-term Debt
   
55,000
     
55,000
 
Equipment finance contracts
   
100,862
     
110,000
 
Capital lease obligation
   
27,948
     
30,437
 
Unamortized debt discount and loan fees
   
(999,797
)
   
(117,483
Total debt
   
9,779,091
     
8,618,588
 
Less: Current Portion
   
(7,900,661
)
   
(5,793,293
)
Total long term debt
 
$
1,878,430
   
$
2, 825,295
 
Unamortized loan discounts are applicable to notes payable as follows:
               
14% convertible notes
 
$
      --
   
$
  20,362
 
Crown Financial note
   
82,366
     
97,121
 
2015 Transfer Agreements
   
917,431
     
--
 
Total unamortized loan discounts
 
$
999,797
   
$
117,483
 

14% Convertible Notes

As of March 31, 2015 and December 31, 2014, the aggregate principal balances of the 14% notes are $2,296,342 and $2,296,342, respectively. During the three month period ended March 31, 2015, the Company had no activity on these notes. As March 31, 2015, the total of outstanding 14% convertible notes is $2,296,342 of which $688,210 matured on or before March 31, 2015 and are in default, however, as of May 27, 2015, none of the note holders have declared the notes in default. During the three month period ended March 31, 2014, the Company converted principal of $33,793 and accrued interest of $5,632 (total of $39,425) in exchange for 82,685 shares of the Company’s common stock. The value of the stock issued was $46,479 resulting in additional interest expense of $7,054 upon the conversion of convertible debt.

As of March 31, 2015 and December 31, 2014, $171,892 of the 14% convertible notes is payable to related parties.
 
12% Convertible Notes

Between April 2009 and November 2010, the Company issued a series of 12% notes payable to accredited investors that matured on November 30, 2011 and are currently in default. At March 31, 2015, the remaining balance is $100,000. The Company also issued 273,583 warrants to purchase common stock at an exercise price of $0.12 per share that expire at various dates through 2015. The notes and interest are convertible into 1,422,803 shares of the Company’s common stock.

During the three months ended March 31, 2015, there was no activity. During the three months ended March 31, 2014, the Company issued 1,137,417 shares of its common stock valued at $614,205 in payment of $225,000 of principal and $116,225 accrued interest (total of $341,225). The conversion of these notes payable and accrued interest for common stock resulted in a non-cash charge of $272,980 to the derivative liability upon the conversion of convertible debt.
 
 
Other Short-Term Debt
 
On January 1, 2014, the Company issued a $30,000 short term note from an investor, MKM Capital. The note bears interest at 8% and matured on January 1, 2015. The balance of the delinquent note payable as of March 31, 2015, is $30,000.

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

GE Ionics

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

Under the terms of the August 31, 2010 note, interest at the rate of WSJ prime plus 2% is due on the note, upon default, interest is due at the maximum legal rate which is 10% in the state of Texas. The note matured on September 1, 2013, and is in default. Interest on the note through December 31, 2014, has been accrued pursuant to the terms of the note through May 6, 2012, interest upon default on May 7, 2012, has been accrued at the maximum default rate in the state of Texas which is 10%.

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

On May 22, 2013, GE filed a lawsuit against STW in the Supreme Court of the State of New York, County of New York, Index No. 651832/2013 (the “GE Lawsuit”). Although the lawsuit arises out of STW’s obligations to GE under its Settlement Agreement with GE, upon which STW owed GE $2.1 million plus interest, GE has elected to forgo suit on the settlement amount and sue STW for the original debt of $11,239,437, plus interest and attorneys’ fees (the “Original Debt”). As such, STW filed its Answer and asserted that it is entitled to and shall pursue all of its available legal and equitable defenses to the Original Debt, inasmuch as GE has, among other things, failed to discount the Original Debt sued upon by the amounts that it recovered through re-use and re-sale of the equipment it fabricated for STW. Management has not accrued the original amount of the debt because the probability of recovery is remote. (See Note 8)
 
Deferred Compensation Notes
 
As of March 31, 2015, and December 31, 2014, the Company has a balance of $279,095 payable under deferred compensation, non-interest bearing, notes to its former Chief Executive Officer and its in house counsel. The notes matured December 31, 2012, and the notes are in default.

Revenue Participation Notes
 
As of March 31, 2015 and December 31, 2014, the Company has an outstanding balance of $2,371,500 and $2,337,500, respectively of Revenue Participation Notes comprised as follows:

 
 
March 31,
 
 
December 31,
 
Name
 
2015
 
 
2014
 
2012 Revenue Participation Notes
 
$
165,000
 
 
$
165,000
 
2013 Revenue Participation Notes - STW Resources Salt Water Remediation
 
 
302,500
 
 
 
302,500
 
2013 Revenue Participation Notes - STW Energy
   
182,000
     
182,000
 
2013 Convertible Revenue Participation Notes - STW Pipeline
   
115,000
     
115,000
 
2014 Revenue Participation Notes, Upton Project – STW Water
 
 
1,607,000
 
 
 
1,573,000
 
Total revenue participation notes
 
$
2,371,500
 
 
$
2,337,500
 
 
These notes are more fully described in the notes to the consolidated financial statements for the year ended December 31, 2014, which were included in the Company’s Annual Report on Form 10-K as filed with the SEC on April 3, 2015.
 

 
2014 Revenue Participation Notes – STW Resources Upton Project
 
On September 30, 2014, the Company issued its first note for the new Upton Project. As of March 31, 2015, the total principal amount of this financing is $1,607,000. The financing is a Senior Secured Master Note, with a 15% coupon and a maturity of 18 months with interest only payments paid the first three months and equal monthly payments of principal and interest paid for months four though eighteen of the Master Note with Revenue Participation Interest. Additionally, a 5% royalty is assigned to the Master Note, which will be distributed based on pro rata ownership by investors in the Master Note. Principal and interest payments will come solely from the Investors share of the revenue participation fees from water processing contracts related to brackish water. This Agreement, including but not limited to the revenue sharing arrangement, is applicable to the brackish water processing facility being built with the proceeds of the Note. At March 31, 2015, $197,365 of the principal payments is in default. As of the date of this Report the investors have not declared a default on the payment of these notes.
 
Note payable to Crown Financial, LLC, a related party

On June 26, 2013, STW Energy Services, LLC entered into a loan agreement with Crown Financial, LLC for a $1.0 million loan facility to purchase machinery and equipment for STW Energy Services. Crown Financial, LLC is a related party in that it holds a 25% non-controlling interest in our subsidiary: STW Energy Services, LLC. The note matures on June 25, 2016, and bears interest at 15%. Commencing November 1, 2013, monthly principal and interest payments are due on the note over a thirty-three month period. The note is secured by all assets of STW Energy Services. LLC. As of March 31, 2015 and December 31, 2014, the Company had drawn down $684,484 and $702,697, respectively, of this loan facility.
 
For the three months ended March 31, 2015 and 2014, interest expense on all notes payable described above was $1,219,588 and $437,602, respectively, which included $475,868 and $43,801, respectively, of amortization of debt discount and debt issuance costs. 

2015 Transfer Agreement Convertible Notes Payable

During the three months ended March 31, 2015, the Company issued a $1,375,000 of convertible notes payable to four (4) accredited investors. The notes bear interest at 5% and mature at various dates through October 17, 2015. The notes are convertible, including accrued interest, into 2,141,827 shares at a conversion price of $0.65.  In the event of default, the notes are convertible at a price equal to the lower of (a) $0.65 or (b) 60% multiplied by the lowest closing trade price of the common shares for the ten (10) trading days immediately prior to the applicable conversion date.

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

NOTE 5 - DERIVATIVE LIABILITY
 
We apply the accounting standard that provides guidance for determining whether an equity-linked financial instrument, or embedded feature, is indexed to an entity’s own stock. The standard applies to any freestanding financial instrument or embedded features that have the characteristics of a derivative, and to any freestanding financial instruments that are potentially settled in an entity’s own common stock.

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

Management has used the simplified Black Scholes model to estimate fair value of derivative instruments. Management believes that as a result of the relatively short term nature of the warrants and convertibility features, a lattice model would not result in a materially different valuation.
 
During the first quarter of 2015, the Company computed a historical volatility of 160% using daily pricing observations for recent periods. We applied a historical volatility rate during the period ended March 31, 2015, and future periods, since the Company exited its development stage and commenced commercial operations. We believe this method produces an estimate that is representative of our expectations of future volatility over the expected term of these embedded conversion features.
 
We currently have no reason to believe that future volatility over the expected remaining life of these warrants and embedded conversion features is likely to differ materially from historical volatility. The expected life is based on the remaining term of the warrants and embedded conversion features. The risk-free interest rate is based on one-year to five-year U.S. Treasury securities consistent with the remaining term of the warrants and embedded conversion features.
 
 
The following table presents our warrants and embedded conversion options which have no observable market data and are derived using Black-Scholes measured at fair value on a recurring basis, using Level 3 inputs, as of March 31, 2015 and December 31, 2014:

   
For the three months ended March 31, 2015
   
For the year ended  December 31,  2014
 
Annual dividend yield
    0 %     0 %
Expected life (years)
    0.00 - 0.50       0.60 - 0.47  
Risk-free interest rate
    0.11% - 0.25 %     0.11% - 0.25 %
Expected volatility
    160 %     735 %
 
 
 
March 31, 2015
 
 
December 31, 2014
 
Embedded Conversion features
 
$
1,620,142
 
 
$
751,439
 
Warrants
 
 
16,448
 
 
 
50,901
 
 
 
$
1,636,590
 
 
$
802,340
 
 
The following table presents the changes in fair value of our warrants and embedded conversion features measured at fair value (level 3 in the fair value hierarchy) on a recurring basis for each reporting period-end.

 
 
For the three months ended
March 31, 2015
 
 
For the year ended
December 31,
2014
 
Balance beginning
 
$
802,340
 
 
$
1,630,985
 
Value of derivative liability associated with JMJ note payable
 
 
--
 
 
 
42,592
 
Value of derivative liability attributable to conversion feature of Transfer Agreements
   
1,108,030
     
--
 
Value of derivative liability attributable to conversion of notes payable and accrued interest
 
 
  --  
 
 
(694,149
)
Change in derivative liability associated with conversion of notes payable and accrued interest
 
 
--
 
 
 
(272,980
)
Change in fair value
 
 
(273,780
)
 
 
95,892
 
 
 
 
 
 
 
 
   
Balance ending
 
$
1,636,590
 
 
$
802,340
 
 
The increase in fair value of the derivative liability is largely attributable to the derivative liability associated with the conversion feature of the transfer agreement convertible notes payable. The change in the fair value of the derivative liability is attributable to the expiration of some of the warrants that were outstanding.
 
NOTE 6 – RELATED PARTY TRANSACTIONS

Officers’ Compensation
 
During the three months ended March 31, 2015 and 2014, we incurred $42,500 and $37,500, respectively, in officers’ compensation due our Director, Chairman, and CEO, Mr. Stanley Weiner. As of March 31, 2015 and December 31, 2014, the balances of $455,583 and $413,083, respectively, were payable to Mr. Weiner for his officers’ salary. There were no payments to Mr. Weiner during the three months ended March 31, 2015 or 2014.
 
During the three months ended March 31, 2015 and 2014, we incurred zero and $37,500, respectively, in officers’ compensation due to one of our former Directors and former Chief Operating Officer, Mr. Lee Maddox. As of March 31, 2015 and December 31, 2014, the balances of $205,500 and $220,500, respectively, were payable to Mr. Maddox for his officers’ salary. During the three months ended March 31, 2015 and 2014, the Company paid Mr. Maddox $15,000 and zero, respectively.
 
During the three months ended March 31, 2015 and 2014, we incurred $24,000 and zero, respectively, in officers’ compensation due to one of our Directors and Officer, Mr. Paul DiFrancesco. As of March 31, 2015 and December 31, 2014, the balances of $9,000 and zero, respectively, were payable to Mr. DiFrancesco for his officers’ salary. During the three months ended March 31, 2015 and 2014, the Company paid Mr. DiFrancesco $15,000 and zero, respectively.
 
During the three months ended March 31, 2015 and 2014, we incurred $23,500 and $22,500, respectively, in general counsel services fees expense with Seabolt Law Group, a firm owned by our Director and General Counsel, Mr. Grant Seabolt. As of March 31, 2015 and December 31, 2014, the balances of $188,297 and $179,797, respectively, were payable to Seabolt Law Group for these services. During the three months ended March 31, 2015 and 2014, the Company paid Mr. Seabolt $15,000 and $15,000, respectively.
 
During three months ended March 31, 2015 and 2014, we incurred $65,749 and $148,598, respectively, in CFO, audit preparation, tax, and SEC compliance services fees expense with Miranda CFO Services, Inc. and Miranda & Associates, a Professional Accountancy Corporation, firms owned by our Chief Financial Officer, Mr. Robert J. Miranda. As of March 31, 2015 and December 31, 2014, the balances of $70,520 and $219,271, respectively, were payable to Miranda & Associates for these services.
 
 
During three month periods ended March 31, 2015 and 2014, we incurred $50,000 and $50,000, respectively, in officers’ salary due to the President of our wholly-owned subsidiary, STW Pipeline Maintenance & Construction, LLC. Mr. Adam Jennings. During the three month period ended March 31, 2014, we incurred with Mr. Adam Jennings a signing bonus comprised of 50,000 shares of the Company’s common stock valued at $21,000. As of March 31, 2015 and December 31, 2014, the balance of $21,000 and $121,000, was payable to Mr. Jennings for the value of signing bonuses due under his employment agreement. These stock awards are accrued as fees payable in common stock the awards are vested.

During three month periods ended March 31, 2015 and 2014, we incurred $50,000 and none, respectively, in officers’ salary due to the President of our wholly-owned subsidiary, STW Water Process and Technologies, LLC. Mr. Alan Murphy. In the second quarter of 2014, we incurred with Mr. Alan Murphy a signing bonus comprised of 333,333 shares of the Company’s common stock valued at $200,000. As of March 31, 2015 and December 31, 2014, the balance of $200,000 and $200,000, was payable to Mr. Murphy for the value of signing bonuses due under his employment agreement. These stock awards are accrued as fees payable in common stock the awards are vested.

Board and Advisory Board Compensation

Directors are expected to timely and fully participate in all regular and special board meetings, and all meetings of committees that they serve on. In December 2011, the Board voted to authorize the issuance of shares in lieu of cash compensation for past services.
 
Per the Director Agreements, the Company compensates each of the directors through the initial grant of 33,333 shares of common stock and the payment of a cash fee equal to $1,000 plus travel expenses for each board meeting attended, and $75,000 per year as compensation for serving on our board of directors.

For the three months ended March 31, 2015 and 2014, the Company incurred board of director fees of $112,500 and $168,750, respectively. During the three months ended March 31, 2015 and 2014, the Company issued 562,500 and zero shares of its common stock in payment of these fees, valued at $450,000 and zero. As of March 31, 2015 and December 31, 2014, the Company has accrued compensation due to its directors (both current and former) of $112,500 and $496,067, respectively.

Related Party Sales

During three months ended March 31, 2015 and 2014, the Company, had related party sales of $58,127 and $39,992, respectively. Related party sales are a combination of sales to three companies Black Pearl Energy, LLC, Dufrane Construction, and Dufrane Nuclear Shielding Inc.
 
As of March 31, 2015 and December 31, 2014, the Company has a related party note payable of $611,561 and $725,000, respectively, to Dufrane Nuclear, Inc. a company controlled by Mr. Joshua Brooks, the Company’s Former Chief Operating Officer. During the three months ended March 31, 2015 and 2014, the Company made payments on the note of $113,439 and zero, respectively, in principal.

As of March 31, 2015 and December 31, 2014, the Company has $777,096 of related party notes payables and $37,084 of related party payables, respectively, to Black Pearl Energy, LLC, a company controlled by the Company’s CEO, COO, and General Counsel. (See Black Pearl note payable)
 
Line of credit with Black Pearl Energy, LLC
 
On March 19, 2014, we entered into a Line of Credit Agreement (the "Credit Agreement") with Black Pearl Energy, LLC ("Black Pearl"), an entity controlled by Stan Weiner and Lee Maddox, the Company’s Chief Executive Officer and former Chief Operating Officer, respectively, and one of our directors: Grant Seabolt. Pursuant to the Credit Agreement, Black Pearl issued us a $2,000,000 line of credit, of which $1,054,944 has been advanced as of December 31, 2014. The credit was issued in the form of a promissory note (the "Note"). On February 26, 2015, the open balance of the credit line and accrued interest were converted into a note payable, described in the next paragraph, and the credit line was dissolved.

Black Pearl note payable:

On February 26, 2015, the Company negotiated an extension on the note payable to Black Pearl Energy, a Related Party, and established the balance at $1,079,944 plus $105,363 in interest due. The note is to be paid on a monthly basis of $12,000 per month for 48 months and a balloon payment in February of 2019. On March 5, 2015, the note was revised to consolidate the receivables and the payable and net the note down to $805,863 and reduce the interest due to approximately $67,000. Additionally Black Pearl is to be granted 75,000 shares to cure the default and 131,704 shares of common stock to make the extension.  These stock awards are accrued as fees payable in common stock the awards are vested.
 
Factoring Agreement with Crown Financial, LLC

On January 13, 2014, STW Resource Holding Corp entered into an accounts receivable factoring facility (the “Factoring Facility”) with Crown Financial, LLC ("Crown"), pursuant to an Account Purchase Agreement (the “Factoring Agreement”). The Factoring Agreement is secured through a Security Agreement between the Company, two of our subsidiaries: STW Pipeline Maintenance & Construction, LLC and STW Oilfield Construction, LLC (collectively, the "Subsidiaries") and Crown, by all of the instruments, accounts, contracts and rights to the payment of money, all general intangibles and all equipment of the Company and the Subsidiaries. The Factoring Facility includes a loan in the amount of $4,000,000. Although our former Chief Operating Officer, Lee Maddox, personally guaranteed our full and prompt performance of all of our obligations, representations, warranties and covenants under the Factoring Agreement, pursuant to a Guaranty Agreement for and in consideration of Crown issuing us the Factoring Facility, such guaranty was terminated when Mr. Maddox resigned as our COO in July 2014, pursuant to the terms of the related Termination Agreement.
 
 
The Factoring Facility shall continue until terminated by either party upon 30 days written notice. Under the terms of the Factoring Agreement, Crown may, at its sole discretion, purchase certain of the Company’s eligible accounts receivable. Upon any acquisition of an account receivable, Crown will advance to the Company up to 80% of the face amount of the account receivable (the "Purchase Price"); although Crown maintains the right to propose a change in that rate, which we can accept in writing, orally or by accepting funding based on such changed rate. Additionally, based upon when each invoice gets paid, Crown shall pay us a rebate percentage of between 0-18% of the related invoice. Crown will generally have full recourse against us in the event of nonpayment of any such purchased account. Crown has the discretion to also accept a substitute invoice from us for uncollected invoices; if such substitute invoice is not accepted, we will be obligated to pay Crown the Purchase Price of such uncollected invoice plus interest at the maximum lawful interest rate per annum, minus any payments made on the invoice.

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

As of March 31, 2015 and December 31, 2014, the Company has a related party payable of $1,039,545 and $2,035,495, respectively to Crown Financial.
 
NOTE 7 – STOCKHOLDERS’ DEFICIT
 
Preferred Stock

The Company has authorized 10,000,000 shares of preferred stock with a par value of $0.001 per share. However, as of March 31, 2015, no such shares are issued or outstanding and the Company does not currently have any plans to issue shares of such stock.

Common Stock
 
The Company has authorized 191,666,667 shares of common stock with a par value of $0.001. During the three months ended March 31, 2015, the Company issued common shares as follows:
 
Issued:
 
On January 15, 2015, the Company issued 62,500 shares of common stock to an investor, at a unit price of $1.56, in payment of interest on a short term loan for a value of $97,500 and an additional 170,000 shares of common stock, at a unit price of $1.40 to a consultant for services valued at $238,000.
 
On January 27, 2015, the Company issued 281,167 shares of common stock, at various unit prices, valued at $209,825 to 19 employees for signing bonuses and continued service to the company.

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

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

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

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

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

On February 6, 2015, the Company issued 225,000 shares of common stock, at various unit prices, to 3 accredited investors for $187,000 in loan origination fees.
 
On February 17, 2015, the Company issued 100,000 shares of common stock, at a unit price of $0.81, to an accredited investor for $81,000 in loan origination fees.

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

On February 19, 2015, the Company issued 100,000 shares of common stock, at a unit price of $0.85, to an accredited investor for $85,000 in loan origination fees.
 
 
On February 23, 2015, the Company issued 562,500 shares of common stock to 6 directors, at a unit price of $0.80, valued at $450,000 for services rendered in prior year(s).

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

On February 27, 2015, pursuant to the January 8, 2015 Board of Director’s Minutes, a total of 900,000 shares were issued by the Company to 1 employee and 2 consultants for services performed in 2014. They were issued at a unit price of $0.80 per common share at a value of $720,000.
 
As of March 31, 2015, the Company had the following securities outstanding which gives the holder the right to acquire the Company’s common stock outstanding:

Security
 
Number of Underlying
Common Shares
 
Exercise
Price $
 
Expire
Warrants associated with the 12% Convertible Notes
 
 
25,000
 
.012
 
 
2015
 
Warrants associated with 2013 Revenue Participation Notes
 
 
180,872
 
1.20– 1.80
 
 
2015
 
Warrants issued to Crown Financial, LLC
 
 
666,667
 
1.20
 
 
2016
 
Warrants issued on $20,000 short term loan
 
 
33,333
 
1.20
 
 
2015
 
Warrants issued with 2013 Unit Share Offering
   
333,333
 
1.20
   
2015
 
Warrants issued with 2014 Unit Share Offerings
   
2,328,542
 
1.20– 1.50
   
2016
 
Warrants issued with 2014 Unit Share Offering
 
 
20,770
 
1.50
 
 
2017
 
Sub-total of Warrants outstanding
 
 
3,588,517
 
 
 
 
 
 
Common stock associated with the 12% Convertible Notes plus accrued interest
 
 
1,422,803
 
0.12
 
 
N/A
 
Common stock associated with Pipeline Convertible Revenue Participation notes
 
 
164,513
 
0.72
 
 
N/A
 
Common stock associated with 14% convertible notes plus accrued interest
 
 
6,036,040
 
0.48
 
 
N/A
 
Common stock associated with 2015 Transfer Agreements
 
 
2,141,827
 
0.65
 
 
N/A
 
Common stock associated with 2014 Unit Share Offerings
 
 
17,000
 
0.65
 
 
N/A
 
Common stock payable as fees
 
 
1,987,712
 
various
 
 
N/A
 
 Total
 
 
15,358,412
 
 
 
 
 
 

Warrants
 
A summary of the Company’s warrant activity and related information during the three months ended March 31, 2015 follows:
 
 
 
Number of Shares
 
 
Weighted- Average
Exercise Price
 
 
Remaining Contractual Life (Years)
   
Aggregate
Intrinsic Value
Outstanding at January 1, 2015
 
 
3,634,350
 
 
$
1.27
 
 
1.18
   
$
851,313
Issued
 
 
--
     
--
   
--
   
 
 
Exercised
 
 
--
 
 
 
--
 
 
 
   
 
 
Forfeited
 
 
--
 
 
 
--
 
 
 
   
 
 
Cancelled
 
 
--
 
 
 
--
 
 
 
   
 
 
Expired
 
 
(45,833)
 
 
 
0.22
 
 
 
   
 
 
Outstanding at March 31, 2015
 
 
3,588,517
 
 
$
1.29
 
 
0.94
   
$
792,563
Exercisable
 
 
3,588,517
 
 
$
1.29
 
 
0.94
   
$
792,563
 
 
 
NOTE 8 – COMMITMENTS AND CONTINGENCIES

Lease Commitments

The Company leased its office facilities under an operating lease that commenced on October 1, 2013 and expires on September 30, 2020. The lease calls for monthly payments of $9,750, plus payment by the Company of all operating expenses, insurance and taxes on the property. The Company has an option until September 30, 2016, to purchase the land and building for $825,500
 
During 2014, the Company entered into a capital lease of a modular office trailer. The lease contract calls for forty eight (48) monthly payments of $593 with a purchase option at the end of the lease. The Company determined the value of the capital lease to be $23,300 with an implicit interest rate in the lease of 10%. In July of 2014, the Company entered into a lease for a commercial ice machine with Executive Leasing, Inc. The lease contract calls for Thirty six (36) monthly payments of $505 with a purchase option at the end of the lease. The Company determined the value of the capital lease to be $14,854 with an implicit interest rate in the lease of 12%. As of March 31, 2015 and December 31, 2014, the principal balances on these capital leases totaled $32,862 and $23,300, respectively.
 
Future minimum lease payments under the capital lease and operating lease as of March 31, 2015, are as follows:

Years ending December 31:
 
Capital Lease
 
 
Operating Lease
 
 
Totals
 
2015
 
$
9,882
 
 
$
87,750
 
 
$
97,632
 
2016
 
 
13,176
 
 
 
117,000
 
 
 
130,176
 
2017
 
 
8,960
 
 
 
117,000
 
 
 
125,960
 
2018
 
 
 
 
 
 
117,000
 
 
 
117,000
 
Thereafter
 
 
-
 
 
 
204,750
 
 
 
204,750
 
Total minimum lease payments
 
 
32,018
 
 
$
643,500
 
 
$
675,518
 
Less interest
 
 
1,580
 
 
 
 
 
 
 
 
 
Capital lease obligation
 
 
30,438
 
 
 
 
 
 
 
 
 
Less current portion
 
 
10,382
 
 
 
 
 
 
 
 
 
Long-term capital lease obligation
 
$
20,056
 
 
 
 
 
 
 
 
 
 
Rental expense for all property, including equipment rentals cost of sales, and equipment operating leases during the three months ended March 31, 2015 and 2014, was $432,754 (which includes over $350,791 of equipment rental used on projects and reflected in cost of revenues) and $520,196, respectively. Related party rental expense during the three months ended March 31, 2015 and 2014, was zero and $58,698, respectively.

Product Purchase and Manufacturing license agreement

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

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

The initial royalty for the first year of the agreement is for $324,000, payable quarterly beginning with the calendar quarter starting July 1, 2014 as follows: Q3 2014 $60,000, Q4 2014 $60,000, Q1 2015 $100,000 and Q2 2015 $104,000. The Company also agreed to pay a continuing royalty of $240,000 per year for years 2-5, plus 3% of the invoice price of any products sold by the Company under the agreement. The Company also agreed to issue 66,667 shares of its common stock in consideration of this agreement. These stock awards are accrued as fees payable in common stock as the awards are vested and settled upon the issuance of the shares.
 
 
As of March 31, 2015, the minimum royalty obligation payable under this agreement is as follows:

 
 
Years ending December 31:
 
Minimum Royalty Obligation
 
2015
 
$
224,000
 
2016
 
 
240,000
 
2017
 
 
240,000
 
2018
 
 
240,000
 
Thereafter
 
 
120,000
 
         
Total minimum royalty payments
 
 
1,064,000
 

Indemnities and Guarantees

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

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

Stanley T. Weiner is to be employed as Chairman and CEO for a three year term effective February 1, 2015. His base salary is $15,000 monthly ($180,000 annually) during the first year of employment, $22,000 monthly ($264,000 annually) during the second year of employment, and $29,000 monthly ($348,000 annually) during the third year of employment. He will be subject to an annual discretionary bonus up to 100% of his previous six month salary, and a signing bonus of 400,000 fully vested shares of the Company’s common stock. He will also be subject to quarterly bonuses equal to 50,000 shares of the Company’s common stock. He will also be subject to a twelve month severance award in the event of termination.

Paul DiFrancesco is to be employed as Head of Finance for a three year term effective February 1, 2015. His base salary is $12,000 monthly ($144,000 annually) during the first year of employment, $16,000 monthly ($192,000 annually) during the second year of employment, and $16,000 monthly ($192,000 annually) during the third year of employment. He will be subject to an annual discretionary bonus up to 100% of his previous six month salary, and a signing bonus of 300,000 fully vested shares of the Company’s common stock. He will also be subject to quarterly bonuses equal to 50,000 shares of the Company’s common stock. He will also be subject to a twelve month severance award in the event of termination.

Grant Seabolt is to be employed as General Counsel and Corporate Secretary for a three year term effective February 1, 2015. His base salary is $8,000 monthly ($96,000 annually) during the first year of employment, $9,500 monthly ($114,000 annually) during the second year of employment, and $9,500 monthly ($114,000 annually) during the third year of employment. He will be subject to an annual discretionary bonus up to 100% of his previous six month salary, and a signing bonus of 200,000 fully vested shares of the Company’s common stock. He will also be subject to quarterly bonuses equal to 25,000 shares of the Company’s common stock. He will also be subject to a twelve month severance award in the event of termination.

Contingencies

The Company is subject to various claims and contingencies in the normal course of business that arise from litigation, business transactions, or employee-related matters. The Company establishes reserves when it believes a loss is probable and is able to estimate its potential exposure. For loss contingencies believed to be reasonably possible, the Company also discloses the nature of the loss contingency and an estimate of the possible loss, range of loss, or a statement that such an estimate cannot be made. While actual losses may differ from the amounts recorded and the ultimate outcome of our pending actions is generally not yet determinable, the Company does not believe the ultimate resolution of currently pending legal proceedings, either individually or in the aggregate, will have a material adverse effect on its business, financial position, results of operations, or cash flows. In all cases, the Company vigorously defends itself unless a reasonable settlement appears appropriate. All items, whereby the Company agrees with the amount of the claim, have been recorded in the current period and are reflected in accounts payable.
 
 
GE Ionics, Inc. Lawsuit. On May 22, 2013, GE filed a lawsuit against STW in the Supreme Court of the State of New York, County of New York, Index No. 651832/2013 (the “GE Lawsuit”). Although the lawsuit arises out of STW’s obligations to GE under its Settlement Agreement with GE (described more fully in Note 4, Notes Payable - GE Ionics Settlement Agreement), upon which STW owed GE $2.1 million plus interest, GE has elected to forgo suit on the settlement amount and sue STW for the original debt of $11,239,437, plus interest and attorneys’ fees (the “Original Debt”). As such, STW filed its Answer and asserted that it is entitled to and shall pursue all of its available legal and equitable defenses to the Original Debt, inasmuch as GE has, among other things, failed to discount the Original Debt sued upon by the amounts that it recovered through re-use and re-sale of the equipment it fabricated for STW. Management has not accrued the original amount of the debt because the probability of recovery is remote. The lawsuit is in the discovery phase of litigation.
 
Sichenzia and Ross Lawsuit. On June 13, 2014, Sichenzia Ross Friedman Ference LLP filed a lawsuit against the Company in the Supreme Court of New York, County of New York, Index No. 155843/2013, seeking $180,036 in legal fees and expenses from the Company. The legal fees and expenses related to Sichenzia Ross’ representation of the Company on SEC matters. The parties filed a stipulation with the Court on August 25, 2014, which extended the Company’s date to file an Answer to the lawsuit to September 22, 2014. On October 8, 2014, the Parties entered into a Settlement Agreement whereby the Company agreed to pay Sichenzia Ross $80,036.22 on or before November 28, 2014 or within three business days of the Company closing its current round of financing. The agreement to pay was secured by the Company providing Sichenzia Ross an “Affidavit of Judgment by Confession” in the amount of $80,036.22 to be filed only if the Company failed to pay the $80,036.22 by the due date, plus a five day cure period ending on December 03, 2014. On December 10, 2014, Sichenzia Ross filed the Judgement by Confession with the Court. This has been fully accrued for.
 
Bob J. Johnson & Associates Lawsuit. There has been one lawsuit filed on July 14, 2014 against the Company’s subsidiary, STW Water Process & Technologies, LLC (“STW Water”), Bob J. Johnson & Associates, Inc. (BJJA) v. Alan Murphy and STW Water & Process Technologies, LLC, Case No. CV50473 in the 238th District Court of Midland County, Texas (the “BJJA Lawsuit”). BJJA sought to enforce an allegedly enforceable covenant not to compete and a confidentiality agreement signed by Alan Murphy, STW Water’s recently hired President, who was a former vice president and employee of BJJA. On July 14, 2014, BJJA obtained a TRO against Alan Murphy, STW Water and those associated with the Defendants, which, by the Company’s ownership of STW Water, included the Company. The TRO temporarily prohibited the Company, STW Water and Alan Murphy from contacting two key customers of STW and STW Water, Pioneer Energy Resources and the City of St. Stockton, Texas. On July 28, 2014, the Court held a temporary injunction hearing, which resulted in the TRO being dissolved and the Court refusing to further enjoin STW, STW Water or Alan Murphy from competing with BJJA. The case is still on the docket; however, the Company, with the advice of Counsel, is confident that it will not go forward to a trial on the merits, thereby precluding any appreciable risk of a permanent injunction.

Arbitration Judgment

Viewpoint Securities, LLC Arbitration. On or about July 9, 2012, the Company and Stan Weiner, the Company's chief executive officer, received a demand for arbitration with the American Arbitration Association. The demand was filed by Viewpoint Securities LLC ("VP") who entered into an engagement agreement, dated March 9, 2008 (as amended on March 9, 2008, November 10, 2008, January 1, 2009, February 5, 2010, and December 1, 2010), with STW whereby the Company retained VP to act as its financial and capital markets advisor regarding equity and debt introduced by VP to the Company. The demand alleged breach of contract, breach of the covenant of good faith and fair dealings, negligence prayer for commissions and expenses incurred by VP in its efforts to provide introductions and attempt to provide financing to the Company from March 9, 2008 through February 2, 2012, the date of termination of the Agreement. VP seeks, among other things, $216,217 and a warrant to purchase 94,444 shares of the Company's common stock, payment of a $15,000 promissory note plus 3+ years of interest at 12%, attorneys' fees of $18,000 and costs of arbitration for filing fees and hearing fees. The Company believed it had valid defenses and contested these claims vigorously. On August 18, 2012, VP dismissed Stan Weiner from the claim with prejudice. A final arbitration hearing was held on February 3, 2014. On April 1, 2014, the Arbitrator issued an Award in favor of Viewpoint for $196,727 on Viewpoint's claim for $216,217 in fees and expenses, plus $5,541 in arbitration hearing fees and expenses; interest shall accrue at the rate of 10% per annum on any unpaid portion of the award commencing April 1, 2014. The Arbitrator denied Viewpoint's claims related to the Company's warrants, a $15,000 promissory note plus 12% interest and for $18,000 in attorneys' fees. The Award was final on April 1, 2014, and on October 28, 2014, Viewpoint filed a lawsuit in San Diego County, California Superior Court seeking to enforce its Arbitration Award, in Case No. 37-2014-00036027-CU-PA-CTL. On December 08, 2014, the Company filed a motion to dismiss the enforcement action due to Viewpoint having forfeited its corporate rights in California due to non-payment of California corporate taxes, and that motion is still pending before the Court. The full amount of this award has been accrued for in Accounts Payable.
 
NOTE 9 – SEGMENT INFORMATION

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

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

Oil and Gas Services

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

 
Corporate Operations

Corporate operations include senior management salaries and benefits, accounting and finance, legal, business development, and other general corporate operating expenses.
 
The accounting policies for the segments are the same as those described in the Summary of Significant Accounting Policies (see Note 1). The following is a list of methodologies that we use for segment reporting that differ from our external reporting:
 
Liabilities including accounts payable, notes payable, and other liabilities are managed at the corporate level and not included in segment operations.
Interest expense and change in derivative liabilities are managed at the corporate level and not included in segment operations.
 
Segment Operations

   
Three months ended March 31, 2015
       
   
Water
Reclamation
   
Oil & Gas
Services
   
Corporate
Operations
   
Consolidated
Totals
 
Revenues
 
$
148,911
   
$
2,530,490
   
$
--
   
$
2,679,401
 
Costs of revenues
   
145,526
     
1,734,739
     
--
     
1,880,265
 
Operating expenses
   
534,517
     
796,069
     
1,442,367
     
2,772,953
 
Other income (expense)
   
--
     
--
     
(945,808
)
   
(945,808
)
Segment income (loss)
 
$
(531,132
)
 
$
(318
)
 
$
(2,388,175
)
 
$
(2,919,625
)

   
Three months ended March 31, 2014
       
   
Water
Reclamation
   
Oil & Gas
Services
   
Corporate
Operations
   
Consolidated
Totals
 
Revenues
 
$
--
   
$
3,600,779
   
$
--
   
$
3,600,779
 
Costs of revenues
   
--
     
3,181,242
     
--
     
3,181,242
 
Operating expenses
   
131,548
     
735,779
     
1,582,624
     
2,449,951
 
Other income (expense)
   
--
     
--
     
(424,329
)
   
(424,329
)
Segment income (loss)
 
$
(131,548
)
 
$
(316,242
)
 
$
(2,006,953
)
 
$
(2,454,743
)

Segment Assets

   
March 31, 2015
       
   
Water
Reclamation
   
Oil & Gas
Services
   
Corporate Operations
   
Consolidated
Totals
 
Current Assets
 
$
2,207,139
   
$
1,742,631
   
$
103,223
   
$
4,052,993
 
Fixed assets
   
490,230
     
488,525
     
72,203
     
1,050,958
 
Segment Assets
 
$
2,697,369
   
$
2,231,156
   
$
175,426
   
$
5,103,951
 

   
December 31, 2014
       
   
Water
Reclamation
   
Oil & Gas
Services
   
Corporate
Operations
   
Consolidated
Totals
 
Current Assets
 
$
1,710,793
   
$
3,561,024
   
$
247,665
   
$
5,519,482
 
Fixed assets
   
496,243
     
524,219
     
76,178
     
1,096,640
 
Segment Assets
 
$
2,207,036
   
$
4,085,243
   
$
323,843
   
$
6,616,122
 
 

 
-21-


 
NOTE 10 – SUBSEQUENT EVENTS

Shares Issued

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

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

On May 18, 2015, Company issued 206,667 shares of common stock to two consultant for value of $155,000.
 
Financing Arrangements
 
On April 30, 2015, our wholly owned subsidiary, STW Water Process & Technologies, LLC (“STW Water”) entered into a work-in-process financing agreement with Crown Financial, LLC ("Crown"), pursuant to an Account Purchase Agreement and Guaranty (the “Account Purchase Agreement”), with the Company and the Company’s CEO, Stanley T. Weiner as guarantors for STW Water’s obligations.  The Account Purchase Agreement is secured through a Security Agreement between STW Water as Debtor and Crown as the Secured Party (the “Security Agreement”), by a security interest in (the “Collateral”) STW Water’s instruments, accounts, contracts and rights to the payment of money, all general intangibles and all equipment; the Security Agreement also includes a list of items that are specifically excluded from Collateral.
 
Crown has authorized up to a $5,000,000 credit limit to STW Water under the Account Purchase Agreement, all obligations of which are guaranteed by the Company and Mr. Weiner personally.  Neither the Company nor Stanley T. Weiner has received any compensation related to their serving as Guarantors of the Account Purchase Agreement.  The Account Purchase Agreement is not a securities transaction and no Company securities are issuable thereunder; therefore, the Account Purchase Agreement and transactions contemplated thereby will not have any dilutive effect on the Company’s outstanding shares of common stock.
 
 Under the terms of the Account Purchase Agreement, Crown may, at its sole discretion, accept certain of STW Water’s eligible large project contracts nominated by STW Water for the installation of reverse osmosis concentrates or desalination equipment with cities, water districts or other governmental entities. The Account Purchase Agreements is implemented as a form of purchase order financing for work invoiced by STW Water to its project customers for work yet to be performed by STW Water, and is not factoring of invoices for work already performed by STW Water.  Upon Crown’s acceptance of a nominated project contract that STW Water has invoiced its customer for a project with milestone payments due as the work progresses, Crown will advance to the Company 20% of the entire project contract invoice for project start-up costs.  Thereafter, STW Water submits work-in-process invoices from its vendors which Crown pays.  As STW Water’s customer makes milestone payments on each project contract, Crown is repaid its advances, interest due and fees, with the remainder being paid to STW Water.  Crown is entitled to deduct from the amounts paid to STW Water in connection with the accepted project contracts a Gross Contract Fee of 4% of the total amount to be billed by STW Water to its customer under the nominated/accepted project contract.  As a result of the Guaranty Agreement, Crown will generally have full recourse against STW Water, Mr. Weiner and the Company in the event of nonpayment of any such purchased account.  Crown has the discretion to require STW Water to repurchase any invoice related to an accepted contract which has not been fully paid within 95 days of original invoicing, plus STW Water will be obligated to pay Crown the Purchase Price of such uncollected project invoice plus interest at the maximum lawful interest rate per annum, minus any payments made on the project invoice.  The Company and Weiner are also guarantors of STW Water’s repurchase obligations.
 
The Account Purchase Agreement shall continue until terminated by either party upon 30 days written notice.  The Account Purchase Agreement contains covenants that are customary for agreements of this type and appoints Crown as attorney in fact for various activities associated with the purchased accounts receivable, including opening our mail, endorsing its name on related notes and payments, and filing liens against related third parties. The failure to satisfy covenants under the Account Purchase Agreement or the occurrence of other specified events that constitute an event of default could result in the acceleration of our repayment obligations or Crown enforcing its rights under the Security Agreement and taking possession of the collateral. The Account Purchase Agreement contains provisions relating to events of default that are customary for agreements of this type.
 
Original Issue Discount Bridge Note

On May 13, 2015, the Company issued a $385,000 original issue discount bridge note with an accredited investor.  The bridge note includes $35,000 of original issue discount which yielded a net of $350,000 proceeds to the Company.  The note bears interest at 5% to be paid at maturity, the note matures on June 13, 2015.  In connection with the note, the Company agreed to issue 500,000 shares of its common stock and warrants to purchase up to 500,000 shares of the Company’s common stock at $0.59 per share. In the event of default, the Company agreed to reserve 4,000,000 shares of its common stock that will be released if the default is not cured within a 15 day cure period.

 
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING INFORMATION

The following information should be read in conjunction with STW Resources Holding Corp. and its subsidiaries ("we", "us", "our", or the “Company”) condensed consolidated unaudited financial statements and the notes thereto contained elsewhere in this report. Information in this Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations," and elsewhere in this Form 10-Q that does not consist of historical facts, are "forward-looking statements." Statements accompanied or qualified by, or containing words such as "may," "will," "should," "believes," "expects," "intends," "plans," "projects," "estimates," "predicts," "potential," "outlook," "forecast," "anticipates," "presume," and "assume" constitute forward-looking statements, and as such, are not a guarantee of future performance. 

Forward-looking statements are subject to risks and uncertainties, certain of which are beyond our control. Actual results could differ materially from those anticipated as a result of the factors described in the “Risk Factors” and detailed in our other Securities and Exchange Commission filings. Risks and uncertainties can include, among others, fluctuations in general business cycles and changing economic conditions; changing product demand and industry capacity; increased competition and pricing pressures; and advances in technology that can reduce the demand for the Company's products. Consequently, investors should not place undue reliance on forward-looking statements as predictive of future results. 

Because of these risks and uncertainties, the forward-looking events and circumstances discussed in this report or incorporated by reference might not transpire. Factors that cause actual results or conditions to differ from those anticipated by these and other forward-looking statements include those more fully described elsewhere in this report and in the “Risk Factors” section of our annual report on Form 10-K.

The Company disclaims any obligation to update the forward-looking statements in this report.

Overview

The Company was formed for the deployment of multiple water reclamation systems throughout Texas to utilize state of the art water reclamation technologies to reclaim fresh water from highly contaminated oil and gas hydraulic fracture flow-back salt water that is produced by oil and gas operators. The Company, in conjunction with energy producers, operators, various state agencies and legislators, is working to create an efficient and economical solution to this complex problem. The Company is also evaluating the deployment of similar technology in the municipal wastewater industry.
 
Plan of Operations

Due to our recurring net losses and negative cash flows from operations and negative working capital, substantial doubt about our ability to continue as a going concern exists.
 
For the next twelve months, our current operating plan is focused on providing water reclamation services to oil and gas producers and other commercial ventures in Texas. Water reclamation services include treating brackish water for use in fracking operations, landscaping and other commercial applications and reclaiming produced water. During fiscal 2014 and the quarter ended March 31, 2015, we earned most of our revenue through our STW Pipeline Maintenance & Construction, LLC subsidiary and while we continue to benefit from our ownership of that entity, we shall continue to focus on successfully implementing our water reclamation services.

As is discussed further in the Liquidity and Capital Resources section below, we have limited funds to support our operations. Our continuation as a going concern subsequent to December 31, 2014, is dependent on our ability to obtain additional financing to fund the continued operation of our business model for a long enough period to achieve profitable operations. There can be no assurance, however, that such financing will be available or, if it is available, that we will be able to structure such financing on terms acceptable to us and that it will be sufficient to fund our cash requirements until we can reach a level of profitable operations and positive cash flows. If we are unable to obtain the financing necessary to support our operations, we may be unable to continue as a going concern. We currently have no firm commitments for any additional capital.

The downturn in the United States 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 shares of common stock or the debt securities may cause us to be subject to restrictive covenants. 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 additional financing. If additional financing is not available or is not available on acceptable terms, we will have to curtail our operations. 
 
 
Three months ended March 31, 2015 Compared to the Three Months Ended March 31, 2014

Our revenue, operating expenses, and net loss from operations for the three month period ended March 31, 2015 as compared to the three month period ended March 31, 2014, were as follows – some balances on the prior period’s combined financial statements have been reclassified to conform to the current period presentation:
 
   
Three Months Ended
March 31:
         
% Change
Increase
(Decrease)
 
   
2015
   
2014
   
Change
     
Net revenues
 
$
2,679,401
   
$
3,600,779
   
$
(921,378
)
   
(25.6
%)
Cost of revenues
   
1,880,265
     
3,181,242
     
(1,300,977
)
   
(40.9
%)
Gross Profit
   
799,136
     
419,537
     
379,599
     
90.5
%
Operating expenses:
                               
Research & development
   
6,125
     
95,490
     
(89,365
)
   
(93.6
%)
Sales and marketing
   
292,321
     
172,508
     
119,813
     
69.5
%
General and administrative
   
2,428,825
     
2,129,269
     
299,556
     
14.1
%
Depreciation
   
45,682
     
52,684
     
(7,002
)
   
(13.3
%)
Total operating expenses
   
2,772,953
     
2,449,951
     
323,002
     
13.2
%
                                 
Loss from operations
   
(1,973,817
)
   
(2,030,414
)
   
56,597
     
2.8
%
                                 
Interest expense
   
(1,219,588
)
   
(437,602
)
   
(781,986
)
   
(178.7
%)
Change in derivative liability
   
273,780
     
13,273
     
260,507
     
1962.7
%
Share of net loss of subsidiary attributable to
non-controlling interest
   
(81,033
)
   
(41,569
)
   
(39,464
)
   
94.9
%
Net Loss
 
$
(2,838,592
)
 
$
(2,413,174
)
 
$
(425,418
)
   
(17.6
%)
 
Net Revenues: During the three months ended March 31, 2015, we realized $148,911 of revenues from our water reclamation business segment and $2,530,490 of revenues from our oil & gas services business segment, including $58,127 from a related party. During the three months ended March 31, 2014, we realized $3,600,779 of revenues from oil & gas services business segment, including $39,992 from a related party. The decrease in revenues between the quarter ended March 31, 2015 and 2014 is $921,378 or 25.6%. The decrease in revenues is due largely to reduced revenues from our Energy and Oilfield services business units due to a downturn in the sectors nationwide.

Cost of Revenues: Costs of revenues are comprised of labor, fringe benefits, equipment rental, and other costs of providing water reclamation and oil & gas services. Total costs of revenues for the three months ended March 31, 2015 were $1,880,265 as compared to $3,181,242 for the three months ended March 31, 2014, a decrease of $1,300,977 or 40.9%. The decrease in costs of revenue is attributable to the decreased revenues from our STW Energy and Oilfield Services business units as described above. Costs of revenues during the three months ended March 31, 2015 were 70% of revenues while costs of revenues for the three months ended March 31, 2014 were 88% of revenues.  The overall reduction of costs of revenues during the three months ended March 31, 2015, is attributable to decreased revenues combined with decreased costs of revenues as a percentage of revenues.
 
Gross Profit: During the three months ended March 31, 2015, we realized a gross profit of $799,136 while during the three months ended March 31, 2014, we realized a gross profit of $419,537, and increase in gross profit of $379,599 or 90.5%. The increase in gross profit is attributable to improved gross profit margins of 30% during the three months ended March 31, 2015 from a gross profit margin of 12% realized during the three months ended March 31, 2014. During the three months ended March 31, 2014, our combined gross profit margins on STW Energy and STW Oilfield services business units was 3% which brought our overall gross profit down to 12%. During the three months ended March 31, 2015, we have reduced our revenues from STW Energy and STW Oilfield services and eliminated these less profitable activities. During the three months ended March 31, 2015, we improved our labor efficiency in STW Pipeline by reducing redundant supervisory personnel and reducing our labor cost as a percentage of revenues. We also reduced our costs of equipment rentals and fuel costs through improved management of these resources.
 
Research and development expenses: During the three months ended March 31, 2015, we incurred $6,125 in research and development expenses while during the three months ended March 31, 2014 we incurred $95,490 of research and development expenses, a decrease of $89,365 or 93.6%. The research and development expenses are attributable to our water reclamation business segment that became operational during the latter part of 2014, thereby reducing the investment in research & development activities during the three months ended March 31, 2015.

Sales and marketing expenses: During the three months ended March 31, 2015, we incurred $292,321 of sales and marketing expenses while during the three months ended March 31, 2014, we incurred $172,508, an increase of $119,813 or 69.5%. The increase in sales and marketing expenses are attributable to the addition of sales staff during the three months ended March 31, 2015 and the applicable sales commission expenses.
 

General and Administrative Expense: General and administrative expenses increased by $299,556 or 14.1% to $2,428,825 for the three months ended March 31, 2015 from $2,129,269 for the three months ended March 31, 2014. Our general and administrative expenses for the three months ended March 31, 2015 consisted of board of director fees of $112,500, professional fees of $253,438, management fees of $156,594, salaries and wages of $1,221,226, consulting fees of $6,500, insurance of $102,307, and other general and administrative expenses (which includes expenses such as; Auto, Business Development, SEC Filing, Factoring, Investor Relations, General Office, Stock Compensation of $416,987, Travel, and Utilities) of $576,260, for a total of $2,428,825. Our general and administrative expenses for the three months ended March 31, 2014 consisted of board of director fees of $168,750, professional fees of $138,575, salaries and benefits of $262,667, consulting fees of $175,682, insurance of $45,942, penalties of $328,797, and other general and administrative expenses (which includes expenses such as; Auto, Business Development, SEC Filing, Factoring, Investor Relations, General Office, Stock Compensation of $423,683, Travel, and Utilities) of $661,006, for a total of $2,129,269.
 
The changes in general and administrative expenses between the three months ended March 31, 2015 compared to the three months ended March 31, 2014, are comprised of a decrease of $56,250 in board fees due to the departure of three board members, an increase in professional fees of $114,863, a decrease of $191,256 in management fees due to the departure of two senior management executives, an increase of $958,559 in salaries and wages, a decrease of $169,182 in consulting fees, an increase of $56,365 in insurance expense, a decrease of $328,797 in penalties, and a net decrease of $84,746 in other general and administrative expenses.
 
Interest Expense: Interest expense increased by $781,986 to $1,219,588 for the three month period ended March 31, 2015 from $437,602 for the three month period ended March 31, 2014. The increase is due primarily to $479,877 of financing costs from the Transfer Agreement convertible notes payable and interest on short term debt.
 
Change in derivative liability: During the three month period ended March 31, 2015, we recorded a $273,780 decrease in the fair value of the derivative liability from December 31, 2014. During the three month period ended March 31, 2014, we recorded a $13,273 decrease in the derivative liability from December 31, 2013, a net difference of $260,507 between the three months ended March 31, 2015 and 2014. The increase in the derivative liability during the three months ended March 31, 2015 is attributable to the effect of $1,108,030 of derivative liability associated with the conversion feature of our Transfer Agreement convertible notes payable, offset by the expiration of 41,667 of warrants and a decreased share values as of March 31, 2015 as compared to December 31, 2014. The decrease in the derivative liability during the three months ended March 31, 2014 is attributable to the reduction of the remaining term of outstanding warrants, the effect of conversion of $183,333 of convertible notes during the quarter, offset by an increase in the derivative liability due to the conversion feature on the JMJ convertible note payable.
 
Non-controlling interest in Net Loss: During the three months ended March 31, 2015 and 2014, we reported $81,033 and $41,569, respectively, as the non-controlling interest in the net loss of our STW Energy Services, LLC subsidiary. This non-controlling interest in the net loss represents of a 25% non-controlling interest in the net loss of STW Energy Services, LLC, and a subsidiary company.

Net Loss:  Net loss increased by $425,418, or 17.6%, to a net loss of $2,838,592 for the three month period ended March 31, 2015 from a net loss of $2,454,743 for the three month period ended March 31, 2014. This net loss reflects the decreased revenues with improved gross margin, less increased operating expenses, increased interest expense, and the change in derivative liability discussed above.
 
Liquidity, Capital Resources, and Management Plans

Our condensed consolidated financial statements have been presented on the basis that we are a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. As presented in the consolidated financial statements, we incurred a net loss of $2,838,592 during the three months ended March 31, 2015, and losses are expected to continue in the near term. The accumulated deficit since inception is $41,950,763 at March 31, 2015. Refer to Note 7 for our discussion of stockholder deficit. We have been funding our operations through private loans and the sale of common stock in private placement transactions. Refer to Note 4 and Note 7 in the condensed consolidated financial statements for our discussion of notes payable and shares issued, respectively. Our cash resources are insufficient to meet our planned business objectives without additional financing. These and other factors raise substantial doubt about our ability to continue as a going concern. The accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of our company to continue as a going concern.
 
Management anticipates that significant additional expenditures will be necessary to develop and expand our oil & gas services and water reclamation services business units before significant positive operating cash flows can be achieved. Our ability to continue as a going concern is dependent upon our ability to raise additional capital and to ultimately achieve sustainable revenues and profitable operations. At March 31, 2015, we had no cash on hand and had a book overdraft of $123,629. These funds are insufficient to complete our business plan and as a consequence, we will need to seek additional funds, primarily through the issuance of debt or equity securities for cash to operate our business. No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to us. Even if we are able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing or cause substantial dilution for our stock holders, in case or equity financing.
 
Management has undertaken steps as part of a plan to improve operations with the goal of sustaining our operations for the next twelve months and beyond. These steps include (a) raising additional capital and/or obtaining financing; (b) executing contracts with oil and gas operators and municipal utility districts; and (c) controlling overhead and expenses. There can be no assurance that the Company can successfully accomplish these steps and it is uncertain that the Company will achieve a profitable level of operations and obtain additional financing. There can be no assurance that any additional financing will be available to the Company on satisfactory terms and conditions, if at all. As of the date of this Report, we have not entered into any formal agreements regarding the above.
 
 
In the event the Company is unable to continue as a going concern, the Company may elect or be required to seek protection from its creditors by filing a voluntary petition in bankruptcy or may be subject to an involuntary petition in bankruptcy. To date, management has not considered this alternative, nor does management view it as a likely occurrence.

Presently, due to the lack of revenues and profitability we are not able to meet our operating and capital expenses. The success of our ability to continue as a going concern is dependent upon successful permitting of our sites obtaining customers for water reclamation services, and maintaining a break even or profitable level of operations. We have incurred operating losses since inception, and this is likely to continue in the near future.

The financial requirements of our Company will be dependent upon the financial support through credit facilities and additional sales of our equity securities. There can be no assurance, however, that such financing will be available or, if it is available, that we will be able to structure such financing on terms acceptable to us and that it will be sufficient to fund our cash requirements until we can reach a level of profitable operations and positive cash flows. If we are unable to obtain the financing necessary to support our operations, we may be unable to continue as a going concern. We currently have no firm commitments for any additional capital.

The Company’s ability to continue as a going concern is dependent upon its ability to raise additional capital and to ultimately achieve sustainable revenues and profitable operations. At March 31, 2015, the Company had no cash on hand; however, the Company raised an additional $385,000 via a note during the period April 1, 2015 through May 27, 2015, to sustain its operations. Management expects that the current funds on hand will not be sufficient to continue operations through December 31, 2015. Management is currently seeking additional funds, primarily through the issuance of debt or equity securities for cash to operate our business. No assurance can be given that any future financing will be available or, if available, and that it will be on terms that are satisfactory to the Company. Even if the Company is able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing or cause substantial dilution for our stockholders, in case or equity financing.

The downturn in the United States 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 shares of common stock or the debt securities may cause us to be subject to restrictive covenants. 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 additional financing. If additional financing is not available or is not available on acceptable terms, we will have to curtail our operations.
 
Cash, total current assets, total assets, total current liabilities and total liabilities as of March 31, 2015 as compared to December 31, 2014, were as follows:
 
   
March 31, 2015
   
December 31, 2014
 
Cash
 
$
--
   
$
123,629
 
Total current assets
 
$
4,052,993
   
$
5,519,482
 
Total assets
 
$
5,103,951
   
$
6,616,122
 
Total current liabilities
 
$
24,012,895
   
$
24,678,864
 
Total liabilities
 
$
25,891,325
   
$
27,504,159
 
  
At March 31, 2015, we had a working capital deficit of $19,959,902 compared to a working capital deficit of $19,159,382 at December 31, 2014. Current liabilities decreased to $24,012,895 at March 31, 2015 from $24,775,985 at December 31, 2014, primarily as a result of accrued penalties and interest, delinquent payroll taxes and payment of board compensation.

Our operating activities used net cash of $1,001,228 for the three months ended March 31, 2015 compared to net cash used in operations of $743,567 for the three months ended March 31, 2014. The net cash used in operations for the three months ended March 31, 2015, reflects a net loss of $2,919,625, decreased by $1,157,186 in non-cash charges and by $761,210 net increase in the working capital accounts. The net cash used in operations for the three months ended March 31, 2014 reflects a net loss of $2,454,743, decreased by $276,507 in non-cash charges and by $1,434,669 net increase in the working capital accounts.

Our investing activities used cash of zero and $57,643 for the three months ended March 31, 2015 and March 31, 2014, respectively. Our investing activities for the three months ended March 31, 2014 are attributable to deposits and purchases of equipment, net of related equipment loans.

Our financing activities provided cash of $877,599 for the three months ended March 31, 2015, which is comprised of proceeds of $1,284,000 from notes payable, the repayment of $143,281 of notes payable, and debt issuance costs of $131,000. Our financing activities resulted in cash inflow of $1,099,710 for the three months ended March 31, 2014, which is represented by $50,084 of bank overdraft, the repayment of $60,698 of notes payable, proceeds from notes payable of $80,000, proceeds from the issuance of common stock of $62,500, reduction of stock subscriptions payable of $130,000, and a net decrease in related party accounts receivable of $837,824.
 
 
Credit Facility

On March 19, 2014, we entered into a Line of Credit Agreement (the "Credit Agreement") with Black Pearl Energy, LLC ("Black Pearl"), an entity controlled by Stan Weiner and Lee Maddox, the Company’s Chief Executive Officer and former Chief Operating Officer, respectively, and one of our directors: Grant Seabolt. Pursuant to the Credit Agreement, Black Pearl issued us a $2,000,000 line of credit, approximately $1,010,000 of which has already been advanced to us; the credit was issued in the form of a promissory note (the "Note"). We must pay back all advanced funds on or before August 1, 2014, although such date will be extended to September 30, 2014 if we do not receive gross proceeds of no less than $6,000,000 resulting from either or both of: (a) the consummation of one or more private placements of debt or equity securities, not including the funds received pursuant to the Credit Agreement; or (b) the filing of a registration statement on Form S-1 with the Securities and Exchange Commission (“ SEC ”) for a public offering of our securities. Interest accrues at 11% per annum. To further induce Black Pearl to issue us the line of credit, we agreed to issue them 250,000 restricted shares of our common stock (after which, Black Pearl will own 250,000 (1%) of our common stock) and a $25,000 transaction fee to be paid on the final closing date of the credit line. Subsequent to our fiscal year all of this debt was rolled into a related party note.
 
On February 26, 2015, we negotiated an extension on the note payable to Black Pearl Energy, a Related Party, and established the balance at $1,079,944 plus $105,363 in interest due. The note is to be paid on a monthly basis of $12,000 per month for 48 months and a balloon payment in February of 2019. On March 5, 2015, the note was revised to consolidate the receivables and the payable and net the note down to $805,863 and reduce the interest due to approximately $67,000.

Off-Balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company's financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

Critical Accounting Policies and Estimates

Please refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on Form 10-K for the year ended December 31, 2014, for disclosures regarding the Company's critical accounting policies and estimates, as well as updates further disclosed in our interim financial statements as described in this Form 10-Q.


Evaluation of Disclosure Controls and Procedures

As of the end of our fiscal quarter ended March 31, 2015, we carried out an evaluation, under the supervision and with the participation of management, including our chief executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon those evaluations, management concluded that our disclosure controls and procedures were not effective as of March 31, 2015, to cause the information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods prescribed by SEC, and that such information is accumulated and communicated to management, including our chief executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Going forward from this filing, the Company intends to work on re-establishing and maintaining disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are designed to be effective in providing reasonable assurance that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission (the “SEC”), and that such information is accumulated and communicated to our management to allow timely decisions regarding required disclosure.

In designing and evaluating disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute assurance of achieving the desired objectives. Also, 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, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. The design of any system of controls 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.

Changes in Internal Control over Financial Reporting

During the quarter covered by this Report, there were no changes in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. No remediation has been made in this quarter.

 
Part II – Other Information


From time to time, the Company may become a party to litigation or other legal proceedings that it considers to be a part of the ordinary course of its business. The Company is involved currently in legal proceedings described below that could reasonably be expected to have a material adverse effect on its business, prospects, financial condition or results of operations. The Company may become involved in other material legal proceedings in the future.

GE Ionics, Inc. Lawsuit. On May 22, 2013, GE filed a lawsuit against STW in the Supreme Court of the State of New York, County of New York, Index No. 651832/2013 (the “GE Lawsuit”). Although the lawsuit arises out of STW’s obligations to GE under its Settlement Agreement with GE (described more fully in Item 3, GE Ionics Settlement Agreement), upon which STW owed GE $2.1 million plus interest, GE has elected to forgo suit on the settlement amount and sue STW for the original debt of $11,239,437, plus interest and attorneys’ fees (the “Original Debt”). As such, STW filed its Answer and asserted that it is entitled to and shall pursue all of its available legal and equitable defenses to the Original Debt, inasmuch as GE has, among other things, failed to discount the Original Debt sued upon by the amounts that it recovered through re-use and re-sale of the equipment it fabricated for STW. Management has not accrued the original amount of the debt because the probability of recovery is remote. The lawsuit is in the discovery phase of litigation.

Sichenzia and Ross Lawsuit. On June 13, 2014, Sichenzia Ross Friedman Ference LLP filed a lawsuit against the Company in the Supreme Court of New York, County of New York, Index No. 155843/2013, seeking $180,036 in legal fees and expenses from the Company. The legal fees and expenses related to Sichenzia Ross’ representation of the Company on SEC matters. The parties filed a stipulation with the Court on August 25, 2014, which extended the Company’s date to file an Answer to the lawsuit to September 22, 2014. On October 8, 2014, the Parties entered into a Settlement Agreement whereby the Company agreed to pay Sichenzia Ross $80,036.22 on or before November 28, 2014 or within three business days of the Company closing its current round of financing. The agreement to pay was secured by the Company providing Sichenzia Ross an “Affidavit of Judgment by Confession” in the amount of $80,036.22 to be filed only if the Company failed to pay the $80,036.22 by the due date, plus a five day cure period ending on December 03, 2014. On December 10, 2014, Sichenzia Ross filed the Judgement by Confession with the Court, and the Judgment remains unsatisfied.

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

Viewpoint Securities, LLC Arbitration. On or about July 9, 2012, the Company and Stan Weiner, the Company's chief executive officer, received a demand for arbitration with the American Arbitration Association. The demand was filed by Viewpoint Securities LLC ("VP") who entered into an engagement agreement, dated March 9, 2008 (as amended on March 9, 2008, November 10, 2008, January 1, 2009, February 5, 2010, and December 1, 2010), with STW whereby the Company retained VP to act as its financial and capital markets advisor regarding equity and debt introduced by VP to the Company. The demand alleged breach of contract, breach of the covenant of good faith and fair dealings, negligence prayer for commissions and expenses incurred by VP in its efforts to provide introductions and attempt to provide financing to the Company from March 9, 2008 through February 2, 2012, the date of termination of the Agreement. VP seeks, among other things, $216,217 and a warrant to purchase 94,445 shares of the Company's common stock, payment of a $15,000 promissory note plus 3+ years of interest at 12%, attorneys' fees of $18,000 and costs of arbitration for filing fees and hearing fees. The Company believed it had valid defenses and contested these claims vigorously. On August 18, 2012, VP dismissed Stan Weiner from the claim with prejudice. A final arbitration hearing was held on February 3, 2014. On April 1, 2014, the Arbitrator issued an Award in favor of Viewpoint for $196,727 on Viewpoint's claim for $216,217 in fees and expenses, plus $5,541 in arbitration hearing fees and expenses; interest shall accrue at the rate of 10% per annum on any unpaid portion of the award commencing April 1, 2014. The Arbitrator denied Viewpoint's claims related to the Company's warrants, a $15,000 promissory note plus 12% interest and for $18,000 in attorneys' fees. The Award was final April 1, 2014, and on October 28, 2014, Viewpoint filed a lawsuit in San Diego County, California Superior Court seeking to enforce its Arbitration Award, in Case No. 37-2014-00036027-CU-PA-CTL. On December 08, 2014, the Company filed a motion to dismiss the enforcement action due to Viewpoint having forfeited its corporate rights in California due to non-payment of California corporate taxes, and that motion is still pending before the Court. The full amount of this award has been accrued for in Accounts Payable.


We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and, as such, are not required to provide the information under this item. Please refer to our Form 10-K filed with the SEC on April 3, 2015 under item 1.A Risk Factors.


The Company has authorized 191,666,667 shares of common stock with a par value of $0.001.
 
Information on any and all equity securities we have sold during the period covered by this Report that were not registered under the Securities Act of 1933, as amended is set forth below:

 
Recent sales:
 
On January 15, 2015, the Company issued 62,500 shares of common stock to an investor, at a unit price of $1.56, in payment of interest on a short term loan for a value of $97,500 resulting in a reduction in expenses on settlement of $43,750 and an additional 170,000 shares of common stock, at a unit price of $1.40, resulting in a reduction in interest on settlement of $91,800, to a consultant for services valued at $238,000.
 
On January 27, 2015, the Company issued 281,167 shares of common stock, at various unit prices, valued at $209,825 to 19 employees for signing bonuses and continued service to the company.
 
On January 28, 2015, the Company issued 158,335 shares of common stock, at various unit prices, to 7 investors valued at $225,128 in payment of interest on 7 short term loans\.
 
In the first week of February 2015, the Company issued 378,334 shares of common stock, at various unit prices, valued at $344,100 to 4 employees pursuant to their employment contracts.
 
On February 3, 2015, the Company issued 15,385 shares of common stock, at a unit price of $0.65, to an accredited investor based on a unit offering at $0.65 per unit, increasing Capital of the Company by $10,000.
 
On February 3, 2015, the Company issued 100,000 shares of common stock, at a unit price of $0.68, to an accredited investor for $68,000 in loan origination fees.
 
On February 6, 2015, the Company issued 150,001 shares of fully vested common stock, at various unit prices, to 3 consultants valued at $119,500 in payment of services rendered in 2014 and the renewal of a 2015 contract.
 
On February 6, 2015, the Company issued 225,000 shares of common stock, at various unit prices, to 3 accredited investors for $187,000 in loan origination fees.
 
On February 17, 2015, the Company issued 100,000 shares of common stock, at a unit price of $.80, to an accredited investor for $80,000 in loan origination fees.
 
On February 18, 2015, the Company issued 184,975 shares of common stock to an investment group, at a unit price of $0.65, valued at $120,233 for services rendered in procuring investors for the company.
 
On February 19, 2015, the Company issued 100,000 shares of common stock, at a unit price of $0.85, to an accredited investor for $85,000 in loan origination fees.

On February 23, 2015, the Company issued 562,500 shares of common stock to 6 directors, at a unit price of $0.80, valued at $450,000 for services rendered in prior year(s).
 
On February 24, 2015, the Company issued 100,000 shares of common stock, at a unit price of $0.65, to a consultant for services valued at $65,000.
 
On February 27, 2015, pursuant to the January 8, 2015, Board of Director’s Minutes, a total of 900,000 shares were issued by the Company to 1 employee and 2 consultants for services performed in 2014. They were issued at a unit price of $0.80 per common share at a value of $720,000.

All of the transactions listed above were made pursuant to the exemption from the registration provisions of the Securities Act of 1933, as amended, provided by Section 4(a)(2) of the Securities Act for sales not involving a public offering or Rule 506(b) of Regulation D promulgated by the SEC. The securities issued have not been registered under the Securities Act and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.
 

GE Ionics Settlement Agreement

On or about May 22, 2008, STW Resources Holding Corporation entered into a Teaming Agreement, as amended, with GE Ionics, Inc., a Massachusetts corporation (“GE”) (STWR and GE are collectively referred to as the “Parties”). On or about April 4, 2008 STWR and GE entered into a Purchase Order (the “Purchase Order”), pursuant to which there was due and unpaid a debt by STWR to GE in the amount of $11,239,437 as of August 31, 2010 (the “Original Debt”).
 
 
On August 31, 2010, the Company entered into a Settlement Agreement relating to a $2,100,000 note payable that was amended on October 30, 2011. On May 7, 2012, GE informed the Company that it had failed to make any required installment payment that was due and payable under the GE Note and that the Company’s failure to make any such installment payment(s) constituted an Event of Default under the GE Note. Pursuant to the terms of the GE Note, upon the occurrence of an Event of Default for any reason whatsoever, GE shall, among other things, have the right to (a) cure such defaults, with the result that all costs and expenses incurred or paid by GE in effecting such cure shall bear interest at the highest rate permitted by law, and shall be payable upon demand; and (b) accelerate the maturity of the GE Note and demand the immediate payment thereof, without presentment, demand, protest or other notice of any kind. Upon an event of default under the GE Note, GE shall be entitled to, among other things (i) the principal amount of the GE Note along with any interest accrued but unpaid thereon and (ii) any and all expenses (including attorney’s fees and expenses) incurred in connection with the collection and enforcement of any rights under the GE Note.

Under the terms of the August 31, 2010 note, interest at the rate of WSJ prime plus 2% is due on the note, upon default, interest is due at the maximum legal rate which is 10% in the state of Texas. The note matured on September 1, 2013, and is in default. Interest on the note through December 31, 2014, has been accrued pursuant to the terms of the note through May 6, 2012, interest upon default on May 7, 2012, has been accrued at the maximum default rate in the state of Texas which is 10%.

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

On May 22, 2013, GE filed a lawsuit against STW in the Supreme Court of the State of New York, County of New York, Index No. 651832/2013 (the “GE Lawsuit”). Although the lawsuit arises out of STW’s obligations to GE under its Settlement Agreement with GE, upon which STW owed GE $2.1 million plus interest, GE has elected to forgo suit on the settlement amount and sue STW for the original debt of $11,239,437, plus interest and attorneys’ fees (the “Original Debt”). As such, STW filed its Answer and asserted that it is entitled to and shall pursue all of its available legal and equitable defenses to the Original Debt, inasmuch as GE has, among other things, failed to discount the Original Debt sued upon by the amounts that it recovered through re-use and re-sale of the equipment it fabricated for STW. Management has not accrued the original amount of the debt because the probability of recovery is remote.

Item 5. Other Information

The “Recent Sales” included in Item 2. Unregistered Sales of Equity Securities and Use of Proceeds are incorporated by references into this Item 5 of this Form 10-Q in lieu of reporting such transactions pursuant to Items 3.02 of Form 8-K during the period covered by this Report.
 
 
All of the transactions listed above were made pursuant to the exemption from the registration provisions of the Securities Act of 1933, as amended, provided by Section 4(a)(2) of the Securities Act for sales not involving a public offering or Rule 506(b) of Regulation D promulgated by the SEC. The securities issued have not been registered under the Securities Act.

This Report shall not constitute an offer to sell or the solicitation of an offer to buy securities, nor shall such securities be offered or sold in the United States absent registration or an applicable exemption from the registration requirements and certificates evidencing such securities contain a legend stating the same.
 
On March 26, 2015, the Company approved three Executive Long Term Agreements for Stanley T. Weiner (as President and CEO), Paul DiFrancesco (as Head of Finance) and D. Grant Seabolt, Jr. (as General Counsel and Corporate Secretary).

The terms of the employment agreements are as follows:

Stanley T. Weiner shall be employed as Chairman and CEO for a three year term effective February 1, 2015. His base salary shall be $15,000 monthly ($180,000 annually) during the first year of employment, $22,000 monthly ($264,000 annually) during the second year of employment, and $29,000 monthly ($348,000 annually) during the third year of employment. He will be subject to an annual discretionary bonus up to 100% of his previous six month salary, and a signing bonus of 300,000 shares of the Company’s common stock. He will also be subject to quarterly bonuses equal to 50,000 shares of the Company’s common stock. He will also be subject to a twelve month severance award in the event of termination.

Paul DiFrancesco shall be employed as Head of Finance for a three year term effective February 1, 2015. His base salary shall be $12,000 monthly ($144,000 annually) during the first year of employment, $16,000 monthly ($192,000 annually) during the second year of employment, and $16,000 monthly ($192,000 annually) during the third year of employment. He will be subject to an annual discretionary bonus up to 100% of his previous six month salary, and a signing bonus of 300,000 shares of the Company’s common stock. He will also be subject to quarterly bonuses equal to 50,000 shares of the Company’s common stock. He will also be subject to a twelve month severance award in the event of termination.

Grant Seabolt shall be employed as General Counsel and Corporate Secretary for a three year term effective February 1, 2015. His base salary shall be $8,000 monthly ($96,000 annually) during the first year of employment, $9,500 monthly ($114,000 annually) during the second year of employment, and $9,500 monthly ($114,000 annually) during the third year of employment. He will be subject to an annual discretionary bonus up to 100% of his previous six month salary, and a signing bonus of 100,000 shares of the Company’s common stock. He will also be subject to quarterly bonuses equal to 25,000 shares of the Company’s common stock. He will also be subject to a twelve month severance award in the event of termination.

On March 26, 2015, the Board approved amending certain outstanding employment agreements to clarify that any options issuable thereunder, shall only be issued at such time when the Company’s option plan is fully funded and implemented; the Company circulated these amendments to the respective employees and has no reason to believe they will not be countersigned by each such employee.

 
ITEM 6. EXHIBITS
 
EXHIBIT INDEX
Exhibit No.
 
Description
2.1
 
Order Confirming the Second Amended Plan of Re-organization of Woozyfly, Inc. (4)
2.2
 
Agreement and Plan of Merger for proposed merger between Woozyfly, Inc. Merger Sub, and STW Resources, Inc. dated January 17, 2010 (3)
3.1
 
Articles of Incorporation (1)
3.2
 
Certificate of Amendment to the Articles of Incorporation (2)
3.3
 
Certificate of Amendment to the Articles of Incorporation – March 1, 2010 (5)
3.4
 
Articles of Merger between STW Acquisition, Inc. and STW Resources, Inc. (4)
3.5
 
Articles of Merger filed with the State of Nevada on March 3, 2010 (6)
4.1
 
Form of 12% Convertible Note dated August 31, 2010 (8)
4.2
 
Form of Warrant dated August 31, 2010 (8)
4.3
 
Form of Promissory Note dated August 31, 2010 (9)
4.4
 
Form of Warrant for December 2010 Financing (10)
4.5
 
Extension of Note, by and between STW Resources Holding Corp. and GE Ionics, Inc., dated October 28, 2011 (11)
4.6
 
Amended and Restated Note effective October 1, 2011 in favor of GE Ionics, Inc. (11)
4.7
 
Form of November 2011 Warrant (13)
4.8
 
Note Exchange Form of New Note (15)
4.9
 
Note Exchange Form of New Warrant (15)
4.10
 
Form of May 2012 Warrant (16)
10.1
 
Form of securities Purchase Agreement dated August 31, 2010 (6)
10.2
 
Form of Escrow Agreement by and between the Company, Viewpoint, and TD Bank, N.A. dated March 31, 2010 (8)
10.4
 
Form of Settlement Agreement by and between STW Resources Holding Corp and GE Ionics, Inc., dated August 31, 2010 (9)
10.5
 
Form of Subscription Agreement for December 2010 Financing (10)
10.6
 
Letter of Intent dated April 17, 2011 (12)
10.7
 
Amendments to Settlement Agreement dated October 30, 2011, by and between STW Resources Holding Corp. and GE Ionics, Inc. (11)
10.8
 
Form of November 2011 Subscription Agreement (13)
10.9
 
Note Exchange Cover Letter (15)
10.10
 
Note exchange Subscription Agreement Form (15)
10.11
 
Master Note Agreement with Revenue Participation Subscription Package (15)
10.12
 
Form of May 2012 Subscription Agreement (16)
10.13
 
Executive Long Term Agreement between the Company and Stanley Weiner (17)
10.14
 
Executive Long Term Agreement between the Company and Paul DiFrancesco as Head of Finance (17)
10.15
 
Executive Long Term Agreements between the Company and Grant Seabolt as General Counsel and Corporate Secretary (17)
16.1
 
Letter from Weaver & Martin LLC (7)
16.2
 
Letter from Weaver and Tidwell, LLP (14)
31.1
 
Certification of the Chief Executive Officer and Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2
 
Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1
 
Certification of the Principal Executive Officer and Principal Financial Officer pursuant to U.S.C. Section 1350 As adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2
 
Certification of the Principal Financial Officer pursuant to 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 Taxonomy Extension Schema Document
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document
 
 
(1)
Incorporated by reference to the Registration Statement on Form SB-2, previously filed with the Securities and Exchange Commission on September 26, 2006.
(2)
Incorporated by reference to the Registrant’s Definitive Information Statement on Schedule 14C filed with the Securities and Exchange Commission on September 4, 2008.
(3)
Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on January 26, 2010.
(4)
Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on February 19, 2010.
(5)
Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on March 2, 2010.
(6)
Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on March 9, 2010.
(7)
Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on April 5, 2010.
(8)
Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on September 16, 2010.
(9)
Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on September 22, 2010.
(10)
Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on December 10, 2010.
(11)
Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on November 3, 2011.
(12)
Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on April 26, 2011.
(13)
Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on November 23, 2011.
(14)
Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on February 2, 2012.
(15)
Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on April 10, 2012.
(16)
Incorporated by reference to the Form 8-K Current Report filed with the Securities and Exchange Commission on May 11, 2012.
(17)
Incorporated by reference to the Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 3, 2015.
 
SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf of the undersigned thereunto duly authorized

   
STW RESOURCES HOLDING CORP
 
   
(Registrant)
 
       
Date: May 27, 2015
 
By: /s/ Stanley T. Weiner
 
 
Stanley T. Weiner
 
 
President and Chief Executive Officer
(Principal Executive Officer)
 
   
Date: May 27, 2015
By: /s/ Robert J. Miranda
 
 
Robert J. Miranda
 
 
Vice President and Chief Financial Officer
(Principal Accounting Officer)
 

-31-