| Notes Payable | NOTE 4 NOTES PAYABLE The Companys notes payable at
June 30, 2015 and December 31, 2014, consisted of the following:
June 30, December 31,
Name 2015 2014
14% convertible notes $ 2,296,342 $ 2,296,342
12% convertible notes 100,000 100,000
2015 transfer agreements 1,375,000 --
GE Ionics 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 620,459 702,698
Black Pearl note payable 777,096 --
Dufrane note payable 555,879 725,000
Other short-term debt 55,000 55,000
2015 Q2 short term financing 486,000 --
Discontinued operations L/T debt -- (752,441 )
Equipment finance contracts 48,168 110,000
Capital lease obligations 25,388 30,437
Total notes payable 11,089,927 7,983,631
Less: current portion (9,222,248 ) (5,890,414 )
Net long term portion notes payable $ 1,867,679 $ 2,093,217
Current portion notes payable $ 9,222,248 $ 5,890,414
Less items as follows:
Unamortized loan discounts and loan fees 568,337 20,930
Discontinued operations 600,276 --
Total current portion of notes payable, net of discounts $ 8,053,635 $ 5,869,484 14% Convertible Notes As of June 30, 2015 and December 31,
2014, the aggregate principal balances of the 14% convertible notes are $2,296,342 and $2,296,342, respectively. During the six
month period ended June 30, 2015, the Company had no activity on these notes. As of June 30, 2015, the total of outstanding 14%
convertible notes was $2,296,342 of which $2,264,800 matured on or before June 30, 2015 and were in default, however, as of October
6, 2015, none of the note holders have declared the notes in default. During the six month period ended June 30, 2014, the Company
converted principal and accrued interest of $973,869 in exchange for 1,628,335 shares of the Companys common stock. The
value of the stock issued was $781,337 resulting in additional interest expense of $192,532 upon the conversion of convertible
debt. During the three month period ended June 30, 2014, the Company converted principal and accrued interest of $741,912 in exchange
for 1,545,650 shares of the Companys common stock. The value of the stock issued was $927,390 resulting in additional interest
expense of $185,478 upon the conversion of convertible debt. At June 30, 2014, the total of outstanding 14% convertible notes was
$2,326,517 of which $294,752 matured on November 30, 2013 and was in default; however, none of the note holders had declared the
notes in default. During the six month period ended June 30, 2013, the Company converted principal of $25,000. The Company did
not convert any principal or accrued interest of the 14% convertible notes during the three months ending June 30, 2013. As of June 30, 2015 and December 31,
2014, $171,892 of the 14% convertible notes is payable to related parties. 12% Convertible Notes Between April 2009 and November 2010,
the Company issued a series of 12% convertible notes payable to accredited investors that matured on November 30, 2011 and are
currently in default. At June 30, 2015, the remaining balance was $100,000. In connection with the issuance of the 12% convertible
notes, the Company also issued 273,583 warrants to purchase common stock at an exercise price of $0.12 per share that expire at
various dates through 2015. The 12% convertible notes are convertible into 1,454,053 shares of the Companys common stock. During the three and six months ended
June 30, 2015, the Company has had no activity on the 12% convertible notes. The notes are currently in default, however, as of
October 6, 2015, 2015, the note holders have not declared the notes in default. During the three and six months ended June 30,
2014, the Company had no activity and issued 1,137,417 shares of its common stock valued at $614,205 in payment of $225,000 of
principal and $116,225 of accrued interest (total of $341,225), respectively. 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 to an investor, MKM Capital. The note bears interest at 8% and matured on January 1, 2015. The balance
of the note payable as of June 30, 2015 and December 31, 2014, was $30,000. It is currently in default, however, as of October
6, 2015, MKM capital has not declared the note in default. In September 2014, the Company entered
into short term loan agreements with seven accredited investors for short term notes of $145,000 to be used to sustain daily operating
activities. The notes matured in October 2014 with a 5% transaction fee at maturity and the lenders were entitled to receive 18%
interest if the notes were not paid at maturity. As additional consideration for the loan, the Company agreed to issue the lenders
an aggregate of 171,667 shares of common stock. These shares were included in the "Fees Payable in Common Stock"
and were expensed as interest in the current period. As of June 30, 2015 and December 31, 2014, all but $25,000 of the delinquent
loans had been repaid, but as of October 6, 2015, the remaining lender has not declared a default on the payment of his note. GE Ionics On August 31, 2010, the Company entered
into a Settlement Agreement with GE Ionics (GE) relating to a $2,100,000 note payable that was amended on October
30, 2011 (GE Note). On May 7, 2012, GE informed the Company that the Company had failed to make any required installment
payment that was due and payable under the GE Note and that the Companys 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
attorneys fees and expenses) incurred in connection with the collection and enforcement of any rights under the GE Note. Under the terms of the GE note, interest
at the rate of WSJ prime plus 2% is due on the note, upon default, interest is due at the maximum legal rate which is 10% in the
state of Texas. The note matured on September 1, 2013, and is in default. Interest on the note through December 31, 2014, has been
accrued pursuant to the terms of the note through May 6, 2012, interest upon default on May 7, 2012, has been accrued at the maximum
default rate in the state of Texas which is 10%. As of the date hereof, the Company has
not repaid any principal or accrued but unpaid interest that has become due and payable under the GE Note. On May 22, 2013, GE Ionics, Inc. ("GE")
filed a lawsuit against STW in the Supreme Court of the State of New York, County of New York, Index No. 651832/2013 (the "GE
Lawsuit"). Although the lawsuit arises out of STW's obligations to GE under its Settlement Agreement with GE entered into
on August 31, 2010, upon which STW owed GE $2.1 million plus interest. GE elected to forgo suit on the settlement amount and sued
STW for the original debt of $11,239,437, plus interest and attorneys' fees (the "Original Debt"). STW filed its Answer
asserting that it is entitled to and shall pursue all of its available legal and equitable defenses to the Original Debt, inasmuch
as GE had, among other things, failed to discount the Original Debt sued upon by the amounts that it recovered through re-use and
re-sale of the equipment it fabricated for STW. Management has not accrued the original amount of the debt because the probability
of recovery is remote. The lawsuit is currently in the discovery phase of litigation and the parties are exploring settlement.
(See Note 9) Deferred Compensation Notes As of June 30, 2015, and December 31,
2014, the Company had a balance of $279,095 and $279,095 payable under deferred compensation, non-interest bearing, notes to its
former Chief Executive Officer and its in house counsel. The notes matured on December 31, 2012, and the notes are in default,
however, as of October 6, 2015, none of the note holders have declared the notes in default. Revenue Participation Notes As of June 30, 2015 and December 31,
2014, the Company had an outstanding balance of $2,371,500 and $2,337,500, respectively, of Revenue Participation Notes comprised
as follows:
June 30, December 31,
Name 2015 2014
2012 Revenue Participation Notes $ 165,000 $ 165,000
2013 Revenue Participation Notes - STW Resources Salt Water Remediation 302,500 302,500
2013 Revenue Participation Notes - STW Energy 182,000 182,000
2013 Convertible Revenue Participation Notes - STW Pipeline 115,000 115,000
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 Companys
Annual Report on Form 10-K as filed with the SEC on April 3, 2015. 2014 Revenue Participation Notes
STW Resources Upton Project On September 30, 2014, the Company issued
its first note for the new Upton Project. The financing is a senior secured master note (Master Note) with a 15%
coupon and a maturity of 18 months. According to the terms of the Master Note, the Company should pay interest only in the first
three months of the issuance, and commencing on the fourth month of the issuance, the Company should pay equal monthly payment
of principal and accrued interest through the maturity date of the Master Note with revenue participation interest. Additionally,
the Master Note carries 5% royalty to be distributed based on pro rata ownership by investors in the Master Note. Payments for
principal and interest will come solely from the revenue participation fees from water processing contracts related to brackish
water. This Agreement, including but not limited to the revenue sharing arrangement, is applicable to the brackish water processing
facility being built with the proceeds of the Master Note. As of June 30, 2015, the total principal amount of this financing was
$1,607,000. At June 30, 2015, $502,760 of the principal payments was in default. As of the date of this Report, the investors have
not declared a default on the payment of the Master Note. 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 June 30, 2015 and December 31, 2014, the Company had drawn down $620,458 and $702,697, respectively, of this loan facility.
This loan is part of the discontinued operations. Black Pearl Energy, LLC, a related
party On March 19, 2014, we entered into a
Line of Credit Agreement (the "Credit Agreement") with Black Pearl Energy, LLC ("Black Pearl"), an entity controlled
by the Companys CEO, Stan Weiner, former COO, Lee Maddox, and one of our directors and General Counsel, Grant Seabolt. Pursuant
to the Credit Agreement, Black Pearl issued us a $2,000,000 line of credit, of which $1,054,944 had been advanced as of December
31, 2014. The credit was issued in the form of a promissory note (the "Note"). On February 26, 2015, the open balance
of the credit line and accrued interest were converted into a note payable, described in more details in the Black Pearl note payable
herein below, and the credit line was dissolved. On February 26, 2015, the Company negotiated
an extension on the note payable to Black Pearl for the outstanding balance of $1,079,944 plus $105,363 of accrued interest under
the Credit Agreement. The note is to be paid on a monthly basis of $12,000 per month for 48 months and the rest of the payment will
become due in February 2019. On March 5, 2015, the note was revised to consolidate the receivables and the payable and reduced
the principal and accrued interest to approximately $805,863 and $67,000, respectively. Additionally, we would issue 75,000
shares of common stock to Black Pearl to cure the default and 131,704 shares of common stock in consideration of the extension.
These stock awards were accrued as fees payable in common stock when the awards were vested. As of June 30, 2015 and December 31,
2014, the Company had $777,096 of related party notes payables and zero, respectively, to Black Pearl. Dufrane Nuclear, Inc. , a related
party As of June 30, 2015 and December 31,
2014, the Company has a related party note payable of $555,879 and $725,000, respectively, to Dufrane Nuclear, Inc. a company controlled
by Mr. Joshua Brooks, the Companys Former Chief Operating Officer. During the six months ended June 30, 2015 and 2014, the
Company made payments on the note of $169,121 and zero, respectively, in principal. 2015 Transfer Agreement Convertible
Notes Payable During the six months ended June 30,
2015, the Company issued $1,375,000 of convertible transfer agreements to four (4) accredited investors. The transfer agreements
bear interest at 5% and mature at various dates through October 17, 2015. The transfer agreements are convertible, including accrued
interest, into 2,141,827 shares at a conversion price of $0.65 per share. In the event of default, the transfer agreements are
convertible at a price equal to the lower of (a) $0.65 or (b) 60% multiplied by the lowest closing trade price of the common shares
for the ten (10) trading days immediately prior to the applicable conversion date. The conversion feature of the 2015 transfer
agreements meet the definition of a derivative due to the reset provision to occur upon the issuance of equity based instruments
at below $0.65 per share or upon default of the notes and is accounted for as a derivative liability. The Company has determined
the value of the conversion feature upon default of this note using the Black-Scholes pricing model to be $1,108,030 as of
the date of issuance, of which $479,877 was recorded as a financing cost in the condensed consolidated statement of operations
and $628,153 was recorded as a loan discount. In connection with these transfer agreements, the Company issued 525,000 shares of
its common stock to the investors valued at $470,500. The Company also incurred third party loan fees of $151,347 on these notes.
The value of the conversion feature of $628,153 and $746,847 will be amortized as interest expense over the term of the note under
the straight line method, which we believe approximates the effective interest method due to their short term nature. The effective
interest rate of these transfer agreements was determined to be 102.5%. 2015 Short Term Financing In the second quarter of 2015, the Company
obtained short term loans from three qualified investors totaling $450,000. As part of the short term loans, one investor was given
a discount on two notes totaling $73,500 and awarded 650,000 shares of common stock at various prices valued at $340,000 plus 4,000,000
shares, to be issued only in the event of a default, valued at $1,600,000. Another investor was awarded 100,000 shares of common
stock at various prices valued at $80,000 plus 500,000 warrants at an exercise price of $0.59 per share. These costs
in excess of the stated value were written off as current expenses due to the short term nature of the loans and others were deferred
and will be expensed over the life of the short term loans as interest expense. For the six months ended June 30, 2015
and 2014, interest expense on all notes payable (including related parties in Note 6) described above was $2,595,741 and $861,616,
respectively, which included $1,354,148 and $58,328, respectively, of amortization of debt discount and debt issuance costs. |
