0001357838
2010-12-31
0001357838
2008-01-27
0001357838
2008-01-28
2012-03-31
0001357838
2012-01-01
2012-03-31
0001357838
2012-03-31
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2013-02-25
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2011-12-31
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2011-01-01
2011-03-31
0001357838
2011-03-31
iso4217:USD
xbrli:shares
iso4217:USD
xbrli:shares
STW RESOURCES HOLDING CORP.
0001357838
10-Q
2012-03-31
false
--12-31
No
No
No
Smaller Reporting Company
Q1
2012
96308598
96308
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left">STW Resources Holding Corp. (“STW”
or the “Company”, f/k/a Woozyfly Inc. and STW Global Inc.) is a development stage 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 similar technology in the municipal wastewater industry.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left">The Company’s operations are located in
the United States of America and the principal executive offices are located at 619 W. Texas Ave Ste 126, Midland, TX 79701.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left">On January 17, 2010, the Company entered into
an Agreement and Plan of Merger (“Merger Agreement”) with STW Acquisition, Inc. (“Acquisition Sub”), a
wholly owned subsidiary of STW Resources, Inc. (“STWR”) and certain shareholders of STWR controlling a majority of
the issued and outstanding shares of STWR.  Pursuant to the Merger Agreement, STWR merged into the Acquisition Sub resulting
in an exchange of all of the issued and outstanding shares of STWR for shares of the Company on a one for one basis. At such time,
STWR became a wholly owned subsidiary of the Company.  </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left">On February 9, 2010, the Court entered an order
confirming the Second Amended Plan of Reorganization (the “Plan”) pursuant to which the Plan and the Merger was approved.  The
Plan was effective February 19, 2010 (the “Effective Date”). The principal provisions of the Plan were as follows:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"> </p>
<table cellspacing="0" cellpadding="0" style="width: 100%">
<tr style="vertical-align: top">
<td style="width: 90px; font: 10pt Symbol; text-align: center">·</td>
<td style="font: 10pt Times New Roman, Times, Serif; text-align: left">MKM, the DIP lender, received 400,000 shares of common stock and 2,140,000 shares of preferred stock,</td></tr>
<tr style="vertical-align: top">
<td style="font: 10pt Symbol; text-align: center">·</td>
<td style="font: 10pt Times New Roman, Times, Serif; text-align: left">The holders of the Convertible Notes received 1,760,000 shares of common stock,</td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"> </p>
<table cellspacing="0" cellpadding="0" style="font-size: 10pt; width: 100%">
<tr style="vertical-align: top">
<td style="width: 90px; text-align: center; font-family: Symbol">·</td>
<td style="text-align: left; font-family: Times New Roman, Times, Serif">General unsecured claims received 100,000 shares of common stock, and</td></tr>
<tr style="vertical-align: top">
<td style="text-align: center; font-family: Symbol">·</td>
<td style="text-align: left; font-family: Times New Roman, Times, Serif">The Company’s equity interest was extinguished and cancelled.</td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left">On February 12, 2010, pursuant to the terms of
the Merger Agreement, STWR merged with and into Acquisition Sub, which became a wholly-owned subsidiary of the Company (the “Merger”).  In
consideration for the Merger and STWR becoming a wholly-owned subsidiary of the Company, the Company issued an aggregate of 31,780,004
(the “STW Acquisition Shares”) shares of common stock to the shareholders of STWR at the closing of the Merger and
all derivative securities of STWR as of the Merger became derivative securities of the Company including options and warrants to
acquire 12,613,002 shares of common stock at an exercise price ranging from $3.00 to $8.00 with an exercise period ranging from
July 31, 2011 through November 12, 2014 and convertible debentures in the principal amount of $1,467,903 with a conversion price
of $0.25 and maturity dates ranging from April 24, 2010 through November 12, 2010.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left">The par value of the exchanged shares changed
from $0.00001 to $0.001.  All share amounts presented throughout this document reflect this change in par value.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left">Considering that, following the Merger, the shareholders
of the Company control the majority of our outstanding voting common stock of the Company and effectively succeeded our otherwise
minimal operations to those that are theirs; the Company is considered the accounting acquirer in this reverse-merger transaction.
 A reverse-merger transaction is considered, and accounted for as, a capital transaction in substance; it is equivalent to
the issuance of the Company’s securities for our net monetary assets, which are deminimus, accompanied by a recapitalization.
Accordingly, the Company has not recognized any goodwill or other intangible assets in connection with this reverse merger transaction.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left">Effective March 1, 2010, Woozyfly, Inc. changed
its name to STW Global, Inc. in accordance with the Bankruptcy proceeding.   On March 3, 2010, the Company changed
its name to STW Resources Holding Corp.  The name change was accomplished by merging a wholly owned subsidiary of the
Company into the Company resulting in the Company being the surviving Company and changing the name of the Company.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left">STW Resources Holding Corp. was the surviving
and continuing entity and the historical financials following the reverse merger transaction are those of STWR.   WoozyFly
was a "shell company" (as such term is defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended) immediately
prior to our acquisition of STWR pursuant to the terms of the Merger Agreement.   Consequently, management believes that
the acquisition of STWR caused the Company to cease to be a shell company as it no longer has nominal operations.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"><i>Going Concern</i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left">These condensed consolidated financial statements
have been prepared on a going concern basis which contemplates the realization of assets and the settlement of liabilities in the
normal course of business.  The Company from January 28, 2008 (Inception) through March 31, 2012, the Company has not
had any significant revenues.  The Company curtailed operations until it has raised sufficient capital to execute its
business plan as of March 31, 2012, has accumulated losses of approximately $15,272,000 and has negative cash flow from operations
of approximately $4,000,000 since inception. These factors raise substantial doubt about our ability to continue as a going concern.  From
Inception (January 28, 2008) through March 31, 2012, management has raised equity and debt financing of approximately
$10,300,000 to fund operations and to provide working capital.  However, there is no assurance that in the future such
financing will be available to meet the Company’s needs.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left">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.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left">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 classifications of liabilities that may result from the possible inability of the Company to continue as a going
concern.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left">  </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"><i>Principles of Consolidation</i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left">These consolidated financial statements include
the accounts of the Company and its wholly owned subsidiary, STW Resources, Inc. Intercompany transactions and balances have been
eliminated upon consolidation.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left">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.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"><i>Development Stage Enterprise</i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left">The Company is a development stage company as
defined by the Financial Accounting Standards Board (the “FASB”). The Company is devoting substantially all of its
present efforts to establish a new business, and its planned principal operations have not yet commenced. All losses accumulated
since inception have been considered as part of the Company’s development stage activities.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left">The Company is a development stage enterprise
and has sustained significant losses since inception and expects to continue to incur losses through 2013.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"><i>Concentration of Credit Risk</i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left">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. In addition to the basic insurance deposit coverage, the FDIC is providing temporary unlimited coverage
for noninterest-bearing transaction accounts from December 31, 2010 to December 31, 2012. At March 31, 2012, there were no uninsured
deposits.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left">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.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left">As of March 31, 2012 and December 31, 2011, three
vendors accounted for 75% and 77% of total accounts payable, respectively.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"><i>Use of Estimates</i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left">The preparation of consolidated financial statements
in conformity with accounting principles generally accepted in the United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual
results could differ from those estimates.  The Company's significant estimates include valuation of deferred tax assets and
the valuation of derivative liabilities, conversion options, and share-based transactions.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left">  </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"><i>Fair Value of Financial Instruments</i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left">The Company’s financial instruments consist
of cash, notes payable, convertible 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.  The Company cannot determine the estimated fair value of its convertible notes payable as
instruments similar to the convertible notes payable could not be found.  Our derivative liabilities are recorded at
fair value (see Note 3).</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left">  </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left">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 market assumptions. This hierarchy requires the use of observable market data
when available. These two types of inputs have created the following fair-value hierarchy:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left; text-indent: 45pt">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.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left; text-indent: 45pt">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.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left; text-indent: 45pt">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.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left">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.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left">Our derivative liabilities consist of embedded
conversion features on debt, price protection features on warrants, and derivatives due to insufficient authorized shares to settle
outstanding contracts which are carried at fair value, and are classified as Level 3 liabilities. We use Black-Scholes to
determine the fair value of these instruments (see Note 3).</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"><i>Accounting for Derivatives Liabilities</i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left">The Company evaluates stock options, stock warrants
or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately
accounted for under the relevant sections of Accounting Standards Codification (“ASC”), Topic 815-40, “<i>Derivative
Instruments and Hedging: Contracts in Entity’s Own Equity</i>” (“ASC Topic 815-40”). The result of this
accounting treatment could be that the fair value of a financial instrument is classified as a derivative instrument and is marked-to-market
at each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change
in fair value is recorded in the statement of operations as other income or other 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 under ASC Topic 815-40 are reclassified
to a liability account at the fair value of the instrument on the reclassification date.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left">Certain of the Company’s embedded conversion
features on debt, price protection features on outstanding common stock purchase warrants, and derivative liabilities due to insufficient
authorized shares to settle outstanding contracts 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, liability or any
net investment in a foreign operation. 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 and derivative liabilities due to insufficient authorized
shares to settle outstanding contracts using Black-Scholes (see Note 3).</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"><i>Equity Instruments Issued to Non-Employees
for Acquiring Goods or Services</i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left">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.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left">  </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"><i>Basic and Diluted Loss per Share</i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"> The Company’s basic earnings (loss)
per share (“EPS”) amounts have been computed based on the weighted-average number of shares of common stock outstanding
for the period. Diluted EPS reflects the potential dilution, using the treasury stock method and as-if-converted method for convertible
debt, which could occur if all potentially dilutive securities were exercised. As the Company realized a net loss for the periods
ended March 31, 2012 and 2011, no potentially dilutive securities were included in the calculation of diluted loss per share as
their impact would have been anti-dilutive. See Note 4 for a list of all dilutive securities as of March 31, 2012. </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left">The following presents the basic and diluted earnings
(loss) per share for the three month period ended March 31, 2012 and 2011.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: bottom">
<td style="padding-bottom: 1.2pt; text-align: left"> </td>
<td style="padding-bottom: 1.2pt; text-align: left"> </td>
<td colspan="10" style="border-bottom: black 1.5pt solid; text-align: center; font-weight: bold">Three months ended March 31, 2012</td>
<td style="padding-bottom: 1.2pt; text-align: left"> </td></tr>
<tr style="vertical-align: bottom">
<td style="padding-bottom: 1.2pt; text-align: left"> </td>
<td style="padding-bottom: 1.2pt; text-align: left"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid">
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">Numerator</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">(Loss)</p></td>
<td style="padding-bottom: 1.2pt; text-align: left"> </td>
<td style="padding-bottom: 1.2pt; text-align: left"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center">Denominator (Shares)</td>
<td style="padding-bottom: 1.2pt; text-align: left"> </td>
<td style="padding-bottom: 1.2pt; text-align: left"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center">Per Share Amount</td>
<td style="padding-bottom: 1.2pt; text-align: left"> </td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: left">Basic EPS:</td>
<td style="text-align: left"> </td>
<td colspan="2" style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td colspan="2" style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td colspan="2" style="text-align: left"> </td>
<td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 55%; text-align: left; text-indent: 27pt">Net Loss</td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 1%; text-align: left">$</td>
<td style="width: 12%; text-align: right">(1,547,872</td>
<td style="width: 1%; text-align: left">)</td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 12%; text-align: right">49,297,430</td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 1%; text-align: left">$</td>
<td style="width: 12%; text-align: right">(0.03</td>
<td style="width: 1%; text-align: left">)</td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.2pt; text-align: left">Diluted EPS:</td>
<td style="padding-bottom: 1.2pt; text-align: left"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: left"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right">-</td>
<td style="padding-bottom: 1.2pt; text-align: left"> </td>
<td style="padding-bottom: 1.2pt; text-align: left"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: left"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right">-</td>
<td style="padding-bottom: 1.2pt; text-align: left"> </td>
<td style="padding-bottom: 1.2pt; text-align: left"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: left"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"> </td>
<td style="padding-bottom: 1.2pt; text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 2.4pt; text-align: left">Loss available to common shareholders</td>
<td style="padding-bottom: 2.4pt; text-align: left"> </td>
<td style="border-bottom: black 2.25pt double; text-align: left">$</td>
<td style="border-bottom: black 2.25pt double; text-align: right">(1,547,872</td>
<td style="padding-bottom: 2.4pt; text-align: left">)</td>
<td style="padding-bottom: 2.4pt; text-align: left"> </td>
<td style="border-bottom: black 2.25pt double; text-align: left"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right">49,297,430</td>
<td style="padding-bottom: 2.4pt; text-align: left"> </td>
<td style="padding-bottom: 2.4pt; text-align: left"> </td>
<td style="border-bottom: black 2.25pt double; text-align: left">$</td>
<td style="border-bottom: black 2.25pt double; text-align: right">(0.03</td>
<td style="padding-bottom: 2.4pt; text-align: left">)</td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.2pt; text-align: left"> </td>
<td style="padding-bottom: 1.2pt; text-align: left"> </td>
<td colspan="10" style="border-bottom: black 1.5pt solid">
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Three months ended March 31, 2011</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>(as restated)</b></p></td>
<td style="padding-bottom: 1.2pt; text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.2pt; text-align: left"> </td>
<td style="padding-bottom: 1.2pt; text-align: left"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid">
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">Numerator (Loss)</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">(as restated)</p></td>
<td style="padding-bottom: 1.2pt; text-align: left"> </td>
<td style="padding-bottom: 1.2pt; text-align: left"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center">Denominator (Shares)</td>
<td style="padding-bottom: 1.2pt; text-align: left"> </td>
<td style="padding-bottom: 1.2pt; text-align: left"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center">Per Share Amount</td>
<td style="padding-bottom: 1.2pt; text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: left">Basic EPS:</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: left; text-indent: 27pt">Net Loss</td>
<td style="text-align: left"> </td>
<td style="text-align: left">$</td>
<td style="text-align: right">(5,474</td>
<td style="text-align: left">)</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">43,836,849</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left">$</td>
<td style="text-align: right">-</td>
<td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.2pt; text-align: left">Diluted EPS:</td>
<td style="padding-bottom: 1.2pt; text-align: left"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: left"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right">-</td>
<td style="padding-bottom: 1.2pt; text-align: left"> </td>
<td style="padding-bottom: 1.2pt; text-align: left"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: left"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right">-</td>
<td style="padding-bottom: 1.2pt; text-align: left"> </td>
<td style="padding-bottom: 1.2pt; text-align: left"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: left"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"> </td>
<td style="padding-bottom: 1.2pt; text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 2.4pt; text-align: left">Loss available to common shareholders</td>
<td style="padding-bottom: 2.4pt; text-align: left"> </td>
<td style="border-bottom: black 2.25pt double; text-align: left">$</td>
<td style="border-bottom: black 2.25pt double; text-align: right">(5,474</td>
<td style="padding-bottom: 2.4pt; text-align: left">)</td>
<td style="padding-bottom: 2.4pt; text-align: left"> </td>
<td style="border-bottom: black 2.25pt double; text-align: left"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right">43,836,849</td>
<td style="padding-bottom: 2.4pt; text-align: left"> </td>
<td style="padding-bottom: 2.4pt; text-align: left"> </td>
<td style="border-bottom: black 2.25pt double; text-align: left">$</td>
<td style="border-bottom: black 2.25pt double; text-align: right">-</td>
<td style="padding-bottom: 2.4pt; text-align: left"> </td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"><i>Income Taxes</i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left">The Company accounts for its income taxes in accordance
with ASC Topic 740, “Income Taxes”.  Deferred tax assets and liabilities are computed based upon the difference
between the financial statement and income tax basis of assets and liabilities using the enacted marginal tax rate applicable when
the related asset or liability is expected to be realized or settled.  Deferred income tax expenses or benefits are based
on the changes in the asset or liability during each period.  If available evidence suggests that it is more likely than
not that some portion or all of the deferred tax assets will not be realized, a valuation allowance is required to reduce the deferred
tax assets to the amount that is more likely than not to be realized.  Future changes in such valuation allowance are
included in the provision for deferred income taxes in the period of change.  Deferred income taxes may arise from temporary
differences resulting from income and expense items reported for financial accounting and tax purposes in different periods.  Deferred
taxes are classified as current or non-current, depending on the classification of assets and liabilities to which they relate.  Deferred
taxes arising from temporary differences that are not related to an asset or liability are classified as current or non-current
depending on the periods in which the temporary differences are expected to reverse.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left">ASC Topic 740, which clarifies the accounting
for uncertainty in income taxes recognized in the financial statements, provides that a tax benefit from an uncertain tax position
may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of
any related appeals or litigation processes, based on the technical merits. Income tax positions must meet a more likely than not
recognition threshold.  As of March 31, 2012 and December 31, 2011, there was no unrecognized tax benefits included in
the accompanying condensed consolidated balance sheets that would, if recognized, affect the effective tax rates. It is not anticipated
that there will be a significant change in the unrecognized tax benefits over the next twelve months.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left">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, 2012 and December 31, 2011 respectively, and has not recognized interest and/or
penalties in the condensed consolidated statements of operations for the periods ended March 31, 2012 and 2011.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"><i>Reclassifications</i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left">Certain reclassifications have been made to prior
periods presented to conform with the current period presentation.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left">The Company’s debt at March 31, 2012 and
December 31, 2011, consisted of the following:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: bottom">
<td style="text-align: left"> </td>
<td style="text-align: left; font-weight: bold"> </td>
<td colspan="2" style="text-align: center; font-weight: bold">March 31,</td>
<td nowrap="nowrap" style="text-align: left; font-weight: bold"> </td>
<td style="text-align: left; font-weight: bold"> </td>
<td colspan="2" style="text-align: center; font-weight: bold">December 31,</td>
<td nowrap="nowrap" style="text-align: left; font-weight: bold"> </td></tr>
<tr style="vertical-align: bottom">
<td style="padding-bottom: 1.2pt; text-align: center; font-weight: bold">Name</td>
<td style="padding-bottom: 1.2pt; text-align: left; font-weight: bold"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid">
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>2012</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>(Unaudited)</b></p></td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: left; font-weight: bold"> </td>
<td style="padding-bottom: 1.2pt; text-align: left; font-weight: bold"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid">
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>2011</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>(Audited)</b></p></td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: left; font-weight: bold"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 70%; text-align: left">14% Convertible Notes</td>
<td style="width: 1%; text-align: right"> </td>
<td style="width: 1%; text-align: left">$</td>
<td style="width: 12%; text-align: right">2,481,235</td>
<td nowrap="nowrap" style="width: 1%; text-align: left"> </td>
<td style="width: 1%; text-align: right"> </td>
<td style="width: 1%; text-align: left">$</td>
<td style="width: 12%; text-align: right">2,481,235</td>
<td nowrap="nowrap" style="width: 1%; text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: left">12% Convertible Notes:</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td nowrap="nowrap" style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td nowrap="nowrap" style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: left">Cash issuances of 2009 Notes</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">90,000</td>
<td nowrap="nowrap" style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">90,000</td>
<td nowrap="nowrap" style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.2pt; text-align: left">Cash issuances of 2010 Notes</td>
<td style="padding-bottom: 1.2pt; text-align: left"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: left"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right">325,000</td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: left"> </td>
<td style="padding-bottom: 1.2pt; text-align: left"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: left"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right">325,000</td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: left">    Total  12% Convertible Notes</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">415,000</td>
<td nowrap="nowrap" style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">415,000</td>
<td nowrap="nowrap" style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td nowrap="nowrap" style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td nowrap="nowrap" style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: left">GE Note</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">2,100,000</td>
<td nowrap="nowrap" style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">2,100,000</td>
<td nowrap="nowrap" style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: left">Deferred Compensation Notes</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">279,095</td>
<td nowrap="nowrap" style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">279,095</td>
<td nowrap="nowrap" style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td nowrap="nowrap" style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td nowrap="nowrap" style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: left">Revenue Participation Notes</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">165,000</td>
<td nowrap="nowrap" style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">-</td>
<td nowrap="nowrap" style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td nowrap="nowrap" style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td nowrap="nowrap" style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: left">Other Short-term debt</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">152,906</td>
<td nowrap="nowrap" style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">164,693</td>
<td nowrap="nowrap" style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td nowrap="nowrap" style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td nowrap="nowrap" style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.2pt; text-align: left">Unamortized debt discount</td>
<td style="padding-bottom: 1.2pt; text-align: left"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: left"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right">(52,504</td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: left">)</td>
<td style="padding-bottom: 1.2pt; text-align: left"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: left"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right">(60,380</td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: left">)</td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td nowrap="nowrap" style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td nowrap="nowrap" style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: left">   Total Debt</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">5,540,732</td>
<td nowrap="nowrap" style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">5,379,643</td>
<td nowrap="nowrap" style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 1.2pt; text-align: left">Less: Current Portion</td>
<td style="padding-bottom: 1.2pt; text-align: left"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: left"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right">(2,947,001</td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: left">)</td>
<td style="padding-bottom: 1.2pt; text-align: left"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: left"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right">(2,958,788</td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: left">)</td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 2.4pt; text-align: left">Total Long Term Debt</td>
<td style="padding-bottom: 2.4pt; text-align: left"> </td>
<td style="border-bottom: black 2.25pt double; text-align: left">$</td>
<td style="border-bottom: black 2.25pt double; text-align: right">2,593,731</td>
<td nowrap="nowrap" style="padding-bottom: 2.4pt; text-align: left"> </td>
<td style="padding-bottom: 2.4pt; text-align: left"> </td>
<td style="border-bottom: black 2.25pt double; text-align: left">$</td>
<td style="border-bottom: black 2.25pt double; text-align: right">2,420,855</td>
<td nowrap="nowrap" style="padding-bottom: 2.4pt; text-align: left"> </td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"><i>Revenue Participation Notes</i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">During February 2012, the Company issued to certain
accredited investors (the “Investors”) revenue participation interest notes with a principal amount of $165,000 (the
“March 2012 Notes”). These March 2012 Notes mature on January 31, 2017 and carry an interest rate of 12%. Principal
and interest payments shall come solely from the Investors share of the revenue participation fees from water processing contracts
related to brackish and/or produced water. The Investors shall receive 50% of the net revenues from such contracts until such time
as they have received two times their investment amount and 10% of the net revenues thereafter until such time as they have received
an additional $295,000 at which time the March 2012 Notes are retired in full. The Investors received warrants to purchase 165,000
shares of the Company’s common stock. These warrants have an exercise price of $0.20, are immediately exercisable and a two
year maturity. The Company incurred cash fees of $16,500 which is recorded as a loan origination fee and is included in prepaid
expenses in the accompanying condensed consolidated balance sheet and will be amortized to interest expense, and issued 16,500
warrants under the same terms as those received by the Investors. As of March 31, 2012, the Company has not generated revenue in
connection with these March 2012 Notes.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company valued the warrants using the Black-Scholes
option pricing model, using the following variables: annual dividend yield of 0%; expected life of 2 years; risk free rate of return
of 0.33%; expected volatility of 100%. As the value of the warrants was not significant, the Company did not allocate any portion
of the debt proceeds to the warrants, however, the warrants are included in the derivative liability account each reporting period
as the Company has insufficient authorized shares to settle outstanding contracts (see Note 3).</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i>Other Short-term Debt</i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">September 1, 2011, the Company entered into
a note modification with a holder (the "Holder") of $100,000 of the 2010 12% Convertible Notes that had previously matured.
The agreement called for the Company to issue 2,000,000 shares (the "Shares") of the Company's common stock to the Holder
who will sell these shares for which the proceeds will be used to reduce the Company's note to the Holder. The Company has the
right to settle the $160,900 liability in cash at any time and reclaim any remaining Shares provided to the Holder. The Company
may be required to issue additional shares of its common stock to the Holder if the Holder's sales proceeds from selling the Shares
is less than the $160,900 note plus accrued interest payable.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">During the current period, the Holder sold
the 2,000,000 shares held at December 31, 2011 for cash consideration in the amount of $11,787, which was recorded as a reduction
of the note amount owed as of March 31, 2012 and recorded a loss of $8,213 related to the change in fair value of the 2,000,000
shares during the three months ended March 31, 2012 in the accompanying condensed consolidated statement of operations. The Company
issued the Holder an additional 3,000,000 shares during the period ended March 31, 2012 to be used to pay off the note balance
when such shares are sold. As of March 31, 2012, the Holder held the 3,000,000 shares issued during the current period (see Note
4). On October 16, 2012, the Company renegotiated the terms of the notes which was in default at March 31, 2012. Under the new
terms of the note, the Company is required to make principal payments of $15,000 in October and November 2012 and $20,000 for each
of the remaining months, through May 2013, plus interest of 12%. The principal balance on October 16, 2012 was approximately $150,000.
The Company has reported the balance on such note as current due to the history of the Company not being able to make the monthly
principal payments and due to the note being due in May 2013.  The Company is current in its payments under the amended
note.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">  </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>GE Ionics Settlement Agreement</u></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On or about May 22, 2008, STWR 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”).</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On August 31, 2010, the Parties entered into
a Settlement Agreement (the “GE Settlement Agreement”) pursuant to which GE permitted the Company to substitute for
STWR as to all rights and obligations under the Purchase Order (including the Original Debt) and Teaming Agreement, and such that
to fully discharge STWR financial obligations to GE under the Purchase Order, the Company shall pay GE $1,400,000.00 pursuant to
a senior promissory note (the “GE Note”). The GE Note bore interest at a rate of the WSJ Prime Rate (as published daily
in the Wall Street Journal) plus two percent (2%) per annum. Under the terms of the GE Note, the Company had thirteen (13) months
to pay off the GE Note plus all accrued interest.  In addition, upon the consummation and closing of a debt or equity
financing following the execution of the GE Note, the Company shall pay GE thirty percent (30%) of any and all tranches (“Tranches”
being defined as the cash receipts of the proceeds of any equity investments in or loans to the Company or any affiliated entity
by third parties, but excluding any conversions of pre-existing debt to equity by any of the Company’s then current convertible
note holders or creditors) until the GE Note is paid in full, including all accrued interest.  On September 29, 2011,
the Parties agreed to extend the maturity date of the GE Note from September 30, 2011 to October 30, 2011.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On October 30, 2011, the Parties entered into
an amendment to the GE Settlement Agreement, effective October 1, 2011, pursuant to which, among other things, the Parties agreed
as follows: (i) the Company will have until September 1, 2013 to pay GE $2,100,000 plus interest accrued after October 1, 2011
under the GE Note in accordance with its terms, (ii) upon the consummation and closing of a debt or equity financing following
the execution of the GE Note, the Company shall pay GE thirty percent (30%) of any and all tranches (“Tranches” being
defined as the cash receipts of the proceeds of any equity investments in or loans to the Company or any affiliated entity by third
parties, but excluding any conversions of pre-existing debt to equity by any of the Company’s then current convertible note
holders or creditors) until the GE Note is paid in full, including all accrued interest, provided the Company shall not be obligated
to pay GE upon, among other things, the following: (a) short term commercial paper of $200,000 or less, up to a cumulative maximum
of $500,000 through December 31, 2012, (b) commercial equipment leasing whereby GE is taking a secured interest in the purchased
equipment, (c) proceeds from project, lease and equipment funding to any subsidiary of the Company provided the Company does not
receive any proceeds of such funding and (d) a one-time general exception for $1,500,000 of new equity financing of the Company,
(iii) the Company shall begin making a regular series of installment payments as follows: (a) $10,000 per month beginning on January
1, 2012, and (b) $15,000 per month beginning on June 1, 2012 through the maturity date of the GE Note and (iv) the Company shall
be able to prepay the GE Note, without interest, on or before the maturity date.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On May 7, 2012, GE informed the Company that
it had failed to may 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.  </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">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.  While GE has
not accelerated any amounts that are due and payable under the GE Note, as a result of the notice of default, as of the date hereof,
the GE Note could become immediately due and payable.  The Company is currently working with GE on making arrangements
to honor its obligations under the GE Note, however, there can be no assurance that any such arrangements will ever materialize
or be permissible or sufficient to cover any or all of the obligations under the GE Note.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"><u>TCA Loan</u></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On May 11, 2010, the Company entered into a
subscription agreement with TCA Global Credit Master Fund LP (“TCA”) pursuant to which TCA purchased a 12% convertible
note for an aggregate purchase price of $100,000 (the “TCA Note”).  The TCA Note bore interest at a rate
of 12% per annum and matured one year from the date of issuance.  The TCA Note was convertible, at any time at the option
of the holder, into shares of the Company’s common stock, at an initial conversion price of $0.25 per share (the “Conversion
Price”).    On May 6, 2011, the Company and TCA agreed to extend the maturity date of the Note from May 6,
2011 until August 11, 2011.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On September 1, 2011, the Company and TCA entered
into a loan repayment agreement (the “Repayment Agreement”) with TCA pursuant to which the Company agreed to pay TCA
a $45,000 extension fee, plus $15,900 of accrued interest, in consideration for TCA not calling the TCA Note, and resulted in the
total aggregate principal amount that is due and payable to TCA to be equal to $160,900, which shall continue to bear interest
at 12% per annum (the “Owed Amount”). In connection with the Repayment Agreement, the Company agreed to issue TCA 2,000,000
shares of the Company's common stock (the "Shares")  to repay the Owed Amount which TCA shall be able to sell
and use the proceeds to pay down the Owed Amount.  If the Owed Amount is not satisfied by the sale of the Shares, upon
request from TCA, the Company must issue TCA additional shares of the Company’s common stock.  The Company has
the right to settle the Owed Amount in cash at any time and reclaim any remaining Shares provided to the Holder. On August 19,
2012, TCA informed the Company that it is in default and demanded repayment of the Owed Amount (the “DefaultEffective October
16, 2012, the Company and TCA entered into a settlement agreement (the “TCA Settlement Agreement”) pursuant to which
the Company agreed to pay $146,686.46 plus accrued but unpaid interest at a rate of twelve percent (12%) per annum as well as legal
fees in the amount of $3,000 arising from the Default (the “TCA Settlement Amount”) as follows: (i) $15,000 to be paid
on October 18, 2012, (ii) $15,000 to be paid on or before November 1, 2012, (iii) five (5) equal installments of $20,000 to be
paid beginning on December 1, 2012 and continuing on the first day of each month thereafter, (iv) $11,686.46 in principal and $9,067.93
of interest to be paid on or prior to May 1, 2013 and (v) $3,000 for legal fees to be paid on May 1, 2013.  Under the
settlement Agreement, if STW is late on any installment, it has ten days after notice from TCA to make a cure payment.  To
date, all payments under the Settlement Agreement have been timely made under the regular payment date or within the allowed cure
period.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"><u>August 2010 Loans</u></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On August 13, 2010, the Company entered into
subscription agreements with two investors (the “August Investors”) pursuant to which the August Investors each purchased
a 12% convertible note for an aggregate purchase price of $25,000 (the “August 2010 Notes”).  The August
2010 Notes bore interest at a rate of 12% per annum and matured one year from the date of issuance.  The August 2010
Notes were convertible, at any time at the option of the holder, into shares of the Company’s common stock, at an initial
conversion price of $0.25 per share (the “Conversion Price”).    On March 2, 2012, the August Investors
informed the Company that it is in default and demanded repayment under the August 2010 Notes.  As a result of the notice
of default, as of the date hereof, the August 2010 Notes are immediately due and payable.  On December 7, 2012, the Company
and the August 2010 Investors agreed that beginning December 1, 2012, the Company would make a monthly payment of $350 to each
investor, provided that either party will have the right to terminate the agreement upon 30 days notice.  While the Company
is currently working with the August Investors to honor its obligations under the August 2010 Notes, however, there can be no assurance
that any such arrangements will ever materialize or be permissible or sufficient to cover any or all of the obligations under the
August 2010 Notes.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left">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.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left">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. In addition,
the Company has an insufficient amount of authorized shares to settle outstanding contracts (see Note 4). The Company estimates
the fair value of these embedded conversion features, warrants and derivatives related to insufficient authorized shares to settle
outstanding contracts using Black-Scholes with the following assumptions:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left">  </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left">Expected volatility is based primarily on historical
volatility. Historical volatility was computed using weekly pricing observations for recent periods. We believe this method produces
an estimate that is representative of our expectations of future volatility over the expected term of these warrants and embedded
conversion features.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left">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.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left">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, 2012 and December 31, 2011:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: bottom">
<td style="padding-bottom: 1.2pt; text-align: left"> </td>
<td style="padding-bottom: 1.2pt; text-align: left"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid">
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>For the three months ended March 31,</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>2012</b></p></td>
<td style="padding-bottom: 1.2pt; text-align: left"> </td>
<td style="padding-bottom: 1.2pt; text-align: left"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid">
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>For the year ended</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>December 31,</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>2011</b></p></td>
<td style="padding-bottom: 1.2pt; text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 70%; text-align: left">Annual dividend yield</td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 12%; text-align: right">0</td>
<td style="width: 1%; text-align: left">%</td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 12%; text-align: right">0</td>
<td style="width: 1%; text-align: left">%</td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: left">Expected life (years)</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">0.70– 2.70</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">0.01 – 4.35</td>
<td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: left">Risk-free interest rate</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">0.15% - 0.51</td>
<td style="text-align: left">%</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">0.01% - 1.29</td>
<td style="text-align: left">%</td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: left">Expected volatility</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">100</td>
<td style="text-align: left">%</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">100</td>
<td style="text-align: left">%</td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: bottom">
<td style="padding-bottom: 1.2pt; text-align: left"> </td>
<td style="padding-bottom: 1.2pt; text-align: left"> </td>
<td colspan="5" style="border-bottom: black 1.5pt solid; text-align: center; font-weight: bold">Level 3 Carrying Value</td>
<td style="padding-bottom: 1.2pt; text-align: left"> </td></tr>
<tr style="vertical-align: bottom">
<td style="padding-bottom: 1.2pt; text-align: left"> </td>
<td style="padding-bottom: 1.2pt; text-align: left"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid">
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>March 31,</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>2012</b></p></td>
<td style="padding-bottom: 1.2pt; text-align: left"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid">
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>December 31,</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>2011</b></p></td>
<td style="padding-bottom: 1.2pt; text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 71%; text-align: left">Embedded Conversion Options</td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 1%; text-align: left">$</td>
<td style="width: 12%; text-align: right">1,091,382</td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 1%; text-align: left">$</td>
<td style="width: 12%; text-align: right">-</td>
<td style="width: 1%; text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.2pt; text-align: left">Warrants</td>
<td style="padding-bottom: 1.2pt; text-align: left"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: left"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right">134,465</td>
<td style="padding-bottom: 1.2pt; text-align: left"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: left"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right">1,491</td>
<td style="padding-bottom: 1.2pt; text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 2.4pt; text-align: left"> </td>
<td style="padding-bottom: 2.4pt; text-align: left"> </td>
<td style="border-bottom: black 2.25pt double; text-align: left">$</td>
<td style="border-bottom: black 2.25pt double; text-align: right">1,225,847</td>
<td style="padding-bottom: 2.4pt; text-align: left"> </td>
<td style="border-bottom: black 2.25pt double; text-align: left">$</td>
<td style="border-bottom: black 2.25pt double; text-align: right">1,491</td>
<td style="padding-bottom: 2.4pt; text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 2.4pt; text-align: left">Increase (Decrease) in fair value</td>
<td style="padding-bottom: 2.4pt; text-align: left"> </td>
<td style="border-bottom: black 2.25pt double; text-align: left">$</td>
<td style="border-bottom: black 2.25pt double; text-align: right">1,224,356</td>
<td style="padding-bottom: 2.4pt; text-align: left"> </td>
<td style="border-bottom: black 2.25pt double; text-align: left">$</td>
<td style="border-bottom: black 2.25pt double; text-align: right">(606,293</td>
<td style="padding-bottom: 2.4pt; text-align: left">)</td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left">The following table presents the changes in fair
value of our warrants and embedded conversion options measured at fair value on a recurring basis for the period ended March 31:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: bottom">
<td style="padding-bottom: 1.2pt; text-align: left"> </td>
<td style="padding-bottom: 1.2pt; text-align: left"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid">
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>March 31,</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>2012</b></p></td>
<td style="padding-bottom: 1.2pt; text-align: left"> </td>
<td style="padding-bottom: 1.2pt; text-align: left"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid">
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>March 31,</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>2011</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>(as restated)</b></p></td>
<td style="padding-bottom: 1.2pt; text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 70%; text-align: left">Balance as of January 1</td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 1%; text-align: left">$</td>
<td style="width: 12%; text-align: right">1,491</td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 1%; text-align: left">$</td>
<td style="width: 12%; text-align: right">631,711</td>
<td style="width: 1%; text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.2pt; text-align: left">Change in fair  value</td>
<td style="padding-bottom: 1.2pt; text-align: left"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: left"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right">1,224,356</td>
<td style="padding-bottom: 1.2pt; text-align: left"> </td>
<td style="padding-bottom: 1.2pt; text-align: left"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: left"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right">(375,141</td>
<td style="padding-bottom: 1.2pt; text-align: left">)</td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 2.4pt; text-align: left">Balance as of March 31</td>
<td style="padding-bottom: 2.4pt; text-align: left"> </td>
<td style="border-bottom: black 2.25pt double; text-align: left">$</td>
<td style="border-bottom: black 2.25pt double; text-align: right">1,225,847</td>
<td style="padding-bottom: 2.4pt; text-align: left"> </td>
<td style="padding-bottom: 2.4pt; text-align: left"> </td>
<td style="border-bottom: black 2.25pt double; text-align: left">$</td>
<td style="border-bottom: black 2.25pt double; text-align: right">256,570</td>
<td style="padding-bottom: 2.4pt; text-align: left"> </td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"><i>Preferred Stock</i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left">The Company has authorized 10,000,000 shares of
preferred stock with a par value of $0.001 per share.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left">In April 2008, the Company designated the Series
A Preferred Stock, with a par value of $0.001 per share, and authorized the issuance of 100 shares to the Company’s Chairman
and Chief Executive Officer. The Series A Preferred Stock provides voting rights as if each share of Series A Preferred Stock is
equal to 80,000 shares of the Company’s common stock. The holder of Series A Preferred Stock is entitled to vote together
with the holders of the common stock on all matters that the common stock is entitled to vote on.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left">  </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Effective February 24, 2009, the Company acquired,
and retired, from its former Chairman and Chief Executive Officer, the 100 shares of Series A preferred stock then outstanding,
in exchange for a commitment by the Company to issue its former Chairman and Chief Executive Officer a warrant to purchase 1,500,000
shares of the Company’s common stock at $8.00 per share, with a five-year exercise period.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"><i>Common Stock</i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left">The Company has authorized 100,000,000 shares
of common stock with a par value of $0.001.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left">On March 20, 2012, pursuant to a debt settlement
agreement (see Note 2), the Company issued 3,000,000 shares of its common stock to a note holder who will sell these shares, and
the net proceeds will reduce the Company's liability to the note holder. The Company estimated the fair market value of the common
stock to be $30,000 on the date of issuance (based on the closing share price on the issuance date) and recorded the amount in
prepaid expenses and other current assets. The Company will record the change in fair value of the shares still held by the note
holder on each reporting date with the change in fair value being recorded as a change in fair value of shares issued to note holder
within the condensed consolidated statement of operations. The fair market value of the shares still held by the note holder (3,000,000
shares are still held by the note holder) at March 31, 2012 was $120,000. As a result, the Company recorded a change in fair value
of $90,000 in the condensed consolidated statement of operations for the period ended March 31, 2012.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left">On March 23, 2012, the Board of Directors agreed
to exchange their accrued and future compensation for fiscal 2012 for 29,478,000 shares of the Company’s common stock valued
at $1,473,900. Total accrued compensation as of that date was $1,248,900, of which $75,000 was incurred during the three months
ended March 31, 2012 and $1,173,900 was included in accrued compensation at December 31, 2011.  The future compensation
for 2012 is expected to be $225,000 which in aggregate was agreed by both parties to be exchanged into shares at a price of $0.05
per share. The Company recorded $225,000 related to the estimated value of the shares to prepaid expenses as the services are expected
to be provided over the remaining period of fiscal 2012 and $1,248,900 being recorded against accrued compensation during the period
ended March 31, 2012. The prepaid expense of $225,000 will be recorded to professional fees in the accompanying condensed consolidated
statements of operations over the next three quarters as services are provided to the Company.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left">On March 23, 2012, the Board of Directors authorized
the Company to issue stock for consulting services to be performed on behalf of the Company. The Board authorized the issuance
of 16,950,000 shares of common stock to various consultants, of which, 5,000,000 shares are to be  issued to Mr. Stan
Weiner, the Company’s Chief Executive Officer, and 10,750,000 to be issued to the other various consultants.  As
of the date of this report, the Company was in the process of cancelling 1,200,000 of the shares that were part of the original
16,950,000 shares to be issued for consulting services to be performed.  As of March 31, 2012, none of the shares have
been issued related to the services to be performed pursuant to such consulting agreements. The Company estimated the fair value
of the shares to be approximately $786,000 based on the fair value of the share price on the commitment date. The Company will
record estimated fair value to expense for such services as they are performed ratably over the term of the consulting agreements.
Upon issuance of shares, the Company will re-class such accrued amount to equity at such time. The consulting agreements mature
on various dates through April 2013. As of March 31, 2012, the Company has accrued $8,000 in the accompanying condensed consolidated
balance sheet under - Accrued consulting fees – share based and expensed $8,000 in the accompanying condensed consolidated
statement of operations under – shares issued or to be issued for compensation. The Company expects to record approximately
$285,000, $201,000 and $203,000 to expense during the second, third and fourth quarters, respectively, for fiscal year 2012.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left">On March 23, 2012, the Board authorized the issuance
of 425,000 shares of the Company’s common stock to its Advisory Board members. The Company estimated the fair market value
to be $8,500 based on the closing share price on the date of issuance.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left">On March 23, 2012, the Company issued 18,750 shares
to a consultant. The Company estimated the fair market value to be $375 based on the closing share price on the date of issuance.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left">As of March 31, 2012, the Company has an aggregate
of common stock issued and outstanding plus common stock equivalents which, if fully converted, would be in excess of the 100,000,000
authorized shares permitted by the articles of incorporation of the Company. Total common shares outstanding plus common stock
equivalents (warrants and conversion features) totaled approximately 168,000,000 as of March 31, 2012. As a result, the Company
has recorded all common stock equivalents as a derivative liability in the accompanying condensed consolidated balance sheet at
March 31, 2012 (see Note 3).</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"><i>Total Dilutive Securities</i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left">As of March 31, 2012, the Company had the following
outstanding dilutive securities to acquire the Company’s common stock:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: bottom">
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td colspan="2" style="text-align: center; font-weight: bold">Number of</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td colspan="2" style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td colspan="2" style="text-align: left"> </td>
<td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td colspan="2" style="text-align: center; font-weight: bold">Underlying</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td colspan="2" style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td colspan="2" style="text-align: left"> </td>
<td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td colspan="2" style="text-align: center; font-weight: bold">Common</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td colspan="2" style="text-align: center; font-weight: bold">Exercise</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td colspan="2" style="text-align: left"> </td>
<td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom">
<td style="border-bottom: black 1.5pt solid; text-align: center; font-weight: bold">Security</td>
<td style="padding-bottom: 1.2pt; text-align: left"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; font-weight: bold">Shares</td>
<td style="padding-bottom: 1.2pt; text-align: left"> </td>
<td style="padding-bottom: 1.2pt; text-align: left"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; font-weight: bold">Price</td>
<td style="padding-bottom: 1.2pt; text-align: left"> </td>
<td style="padding-bottom: 1.2pt; text-align: left"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; font-weight: bold">Expire</td>
<td style="padding-bottom: 1.2pt; text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 64%; text-align: left">Warrants associated with the $2.00 Unit Offering</td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 9%; text-align: right">1,948,300</td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 1%; text-align: left">$</td>
<td style="width: 9%; text-align: right">0.30</td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 1%; text-align: right"> </td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 9%; text-align: right">2013</td>
<td style="width: 1%; text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: left">Warrants associated with the $2.00 Unit Offering</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">1,948,300</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">0.60</td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">2013</td>
<td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: left">Warrants associated with the $2.00 Unit Offering</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">1,948,300</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">1.20</td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">2013</td>
<td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: left">Warrants issued for Professional Services</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">1,500,000</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">4.00</td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">2014</td>
<td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: left">Warrants associated with the January 14, 2009 Bridge Note</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">480,000</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">3.00</td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">2014</td>
<td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: left">Warrants associated with the acquisition of the Company's</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: left">Preferred Shares outstanding</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">1,500,000</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">8.00</td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">2014</td>
<td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: left">Warrants associated with the 12% Convertible Notes</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">1,641,496</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">0.02</td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">2014-2015</td>
<td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: left">Common stock associated with the 12% Convertible Notes</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">26,443,250</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">0.02</td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">2010-2011</td>
<td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: left">Warrants associated with the 2010 Unit Offering</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">1,430,000</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">0.50</td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">2012</td>
<td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: left">Warrant associated with Revenue Participating Notes</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">181,500</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">0.20</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">2014</td>
<td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: left">Warrants issued to Placement Agent</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">566,667</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">0.20</td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">2013</td>
<td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: left">Warrants associated with the 14% Convertible Notes</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">16,840,371</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">0.20</td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">2013</td>
<td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.2pt; text-align: left">Common stock associated with the 14% Convertible Notes</td>
<td style="padding-bottom: 1.2pt; text-align: left"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: left"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right">32,460,500</td>
<td style="padding-bottom: 1.2pt; text-align: left"> </td>
<td style="padding-bottom: 1.2pt; text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="padding-bottom: 1.2pt; text-align: right">0.08</td>
<td style="padding-bottom: 1.2pt; text-align: left"> </td>
<td style="padding-bottom: 1.2pt; text-align: right"> </td>
<td style="text-align: left"> </td>
<td style="padding-bottom: 1.2pt; text-align: right">2013</td>
<td style="padding-bottom: 1.2pt; text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 2.4pt; text-align: left"> </td>
<td style="padding-bottom: 2.4pt; text-align: left"> </td>
<td style="border-bottom: black 2.25pt double; text-align: left"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right">88,888,684</td>
<td style="padding-bottom: 2.4pt; text-align: left"> </td>
<td style="padding-bottom: 2.4pt; text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="padding-bottom: 2.4pt; text-align: right"> </td>
<td style="padding-bottom: 2.4pt; text-align: left"> </td>
<td style="padding-bottom: 2.4pt; text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="padding-bottom: 2.4pt; text-align: right"> </td>
<td style="padding-bottom: 2.4pt; text-align: left"> </td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"><i>Warrants</i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left">A summary of the Company’s warrant activity
and related information during the period ended March 31, 2012 follows:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: bottom">
<td style="padding-bottom: 1.2pt; text-align: left"> </td>
<td style="padding-bottom: 1.2pt; text-align: left"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; font-weight: bold">Number of Shares</td>
<td style="padding-bottom: 1.2pt; text-align: left"> </td>
<td style="padding-bottom: 1.2pt; text-align: left"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid">
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Weighted- Average Exercise</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Price</b></p></td>
<td style="padding-bottom: 1.2pt; text-align: left"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: center; font-weight: bold">Remaining Contractual Life (Years)</td>
<td style="border-bottom: black 1.5pt solid; text-align: left; font-weight: bold"> </td>
<td style="padding-bottom: 1.2pt; text-align: left"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: center; font-weight: bold">Aggregate Intrinsic Value</td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 48%; text-align: left">Outstanding at January 1, 2012</td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 11%; text-align: right">29,803,434</td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 1%; text-align: left">$</td>
<td style="width: 11%; text-align: right">0.93</td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 11%; text-align: left"> </td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 11%; text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: left">Issued</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">181,500</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left">$</td>
<td style="text-align: right">0.20</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: left">Exercised</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">-</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: left">Forfeited</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">-</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: left">Cancelled</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">-</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left">$</td>
<td style="text-align: right">-</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.2pt; text-align: left">Expired</td>
<td style="padding-bottom: 1.2pt; text-align: left"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: left"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right">-</td>
<td style="padding-bottom: 1.2pt; text-align: left"> </td>
<td style="padding-bottom: 1.2pt; text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="padding-bottom: 1.2pt; text-align: right"> </td>
<td style="padding-bottom: 1.2pt; text-align: left"> </td>
<td style="padding-bottom: 1.2pt; text-align: left"> </td>
<td style="padding-bottom: 1.2pt; text-align: left"> </td>
<td style="padding-bottom: 1.2pt; text-align: left"> </td>
<td style="padding-bottom: 1.2pt; text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 2.4pt; text-align: left">Outstanding at March 31, 2012</td>
<td style="padding-bottom: 2.4pt; text-align: left"> </td>
<td style="border-bottom: black 2.25pt double; text-align: left"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right">29,984,934</td>
<td style="padding-bottom: 2.4pt; text-align: left"> </td>
<td style="padding-bottom: 2.4pt; text-align: left"> </td>
<td style="border-bottom: black 2.25pt double; text-align: left">$</td>
<td style="border-bottom: black 2.25pt double; text-align: right">0.93</td>
<td style="padding-bottom: 2.4pt; text-align: left"> </td>
<td style="border-bottom: black 2.25pt double; text-align: center">1.67</td>
<td style="padding-bottom: 2.4pt; text-align: left"> </td>
<td style="border-bottom: black 2.25pt double; text-align: left">$</td>
<td style="border-bottom: black 2.25pt double; text-align: right">     -</td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 2.4pt; text-align: left">Exercisable</td>
<td style="padding-bottom: 2.4pt; text-align: left"> </td>
<td style="border-bottom: black 2.25pt double; text-align: left"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right">29,984,934</td>
<td style="padding-bottom: 2.4pt; text-align: left"> </td>
<td style="padding-bottom: 2.4pt; text-align: left"> </td>
<td style="border-bottom: black 2.25pt double; text-align: left">$</td>
<td style="border-bottom: black 2.25pt double; text-align: right">0.93</td>
<td style="padding-bottom: 2.4pt; text-align: left"> </td>
<td style="border-bottom: black 2.25pt double; text-align: center">1.67</td>
<td style="padding-bottom: 2.4pt; text-align: left"> </td>
<td style="border-bottom: black 2.25pt double; text-align: left">$</td>
<td style="border-bottom: black 2.25pt double; text-align: right">     -</td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left">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.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left">Per the Director Agreements, the Company compensates
each of the directors through the initial grant of 200,000 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.
As of March 31, 2012 , the Company recorded professional fees in the accompanying condensed consolidated statement of operations
of $131,250, of which the Company has accrued cash compensation due to its directors (both current and former) of $56,250 and  as
of December 31, 2011 the Company had accrued $1,173,900,  which is calculated based upon time of service and the number
of Board meetings attended and is included in accrued compensation in the accompanying condensed consolidated balance sheet. During
the current period, the Company issued shares to the board of directors for prior and current year compensation fees due (see Note
4).</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left">The Company’s advisory board is comprised
of three members. Each advisory board member is granted 56,250 shares upon joining the board and 75,000 shares annually thereafter.
As of March 31, 2012, the Company was obligated to issue 56,250 shares to the advisory board members and has recorded the fair
market value of these shares as an accrued liability totaling approximately $2,250 in accrued expenses in the accompanying condensed
consolidated balance sheet.  During the current period, the Company issued shares to the advisory board for prior and
current compensation fees due (see Note 4).</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left">The Company restated its consolidated financial
statements and other financial information for the years ended December 31, 2010 and 2009, and the quarters ended March 31, 2009,
June 30, 2009, September 30, 2009, March 31, 2010, June 30, 2010, September 30, 2010, March 31, 2011, June 30, 2011 and September
30, 2011, as a result of the Company’s determination that the original accounting for certain of its unit and convertible
note offerings failed to appropriately record separate derivative treatment for the embedded conversion options and the warrants
issued. See the restated financial statements included in the Company’s annual report filed on Form 10-K with the Securities
and Exchange Commission on October 24, 2012 for more information.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: bottom">
<td style="text-align: left; font-weight: bold">Effect of Correction</td>
<td style="text-align: left"> </td>
<td colspan="2" style="text-align: center; font-weight: bold">As Previously</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td colspan="2" style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td colspan="2" style="text-align: center; font-weight: bold">As</td>
<td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom">
<td style="padding-bottom: 1.2pt; text-align: left"> </td>
<td style="padding-bottom: 1.2pt; text-align: left"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; font-weight: bold">Reported</td>
<td style="padding-bottom: 1.2pt; text-align: left"> </td>
<td style="padding-bottom: 1.2pt; text-align: left"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; font-weight: bold">Adjustments</td>
<td style="padding-bottom: 1.2pt; text-align: left"> </td>
<td style="padding-bottom: 1.2pt; text-align: left"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; font-weight: bold">Restated</td>
<td style="padding-bottom: 1.2pt; text-align: left"> </td></tr>
<tr style="vertical-align: bottom">
<td style="width: 55%; text-align: left">Statement of Operations for the 3 months ended 3/31/2011</td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 12%; text-align: right"> </td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 12%; text-align: right"> </td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 1%; text-align: left"> </td>
<td style="width: 12%; text-align: right"> </td>
<td style="width: 1%; text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: left">Interest Inc (Exp): 2009 Note: Amort of debt discount</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">(79,149</td>
<td style="text-align: left">)</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">(2,801</td>
<td style="text-align: left">)</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">(81,950</td>
<td style="text-align: left">)</td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: left">Interest Income (Expense)</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">(2,540</td>
<td style="text-align: left">)</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">2,540</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">-</td>
<td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: left">Marked to market gain (loss)</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">-</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">375,141</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">375,141</td>
<td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: left">Net Income (Loss)</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">(380,354</td>
<td style="text-align: left">)</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">374,880</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">(5,474</td>
<td style="text-align: left">)</td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: left">Basic and Diluted Loss per share</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">(0.01</td>
<td style="text-align: left">)</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">0.01</td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: left"> </td>
<td style="text-align: right">(0.00</td>
<td style="text-align: left">)</td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left">In May 2012, the Company entered into a subscription
agreement with accredited investors pursuant to which the Company sold 1,000,000 Units, each Unit consisting of one share of the
Company’s common stock, par value $0.001, and a warrant to purchase 0.375 shares of the Company’s common stock (the
“Warrants”) for aggregate consideration of $50,000. The Warrants shall be exercisable for a period of two years from
the date of issuance at an initial exercise price of $0.20. The Company paid cash financing fees of $5,000 and issued 150,000 warrants
under the same terms.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left">Between June and September 2012, the Company issued
to certain accredited investors, new 14% Convertible Notes with a principal amount of $200,000. These notes have the same terms
as the 14% Notes issued in 2011.  In addition, the investors also received warrants to purchase 500,000 shares of the Company’s
common stock at an exercise price of $0.20 and exercisable for a period of two years from the date of issuance. The Company paid
cash financing fees of $20,000 and issued 50,000 warrants under the same terms.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left">On September 6, 2012, the Company announced that
it had signed a contract with Ranchland Hills Golf Club, Midland, TX, to design, build and deliver a proprietary water desalinization
facility to produce 700,000 gallons of water a day by converting brackish well water into the equivalent of rain water to maintain
the greens and fairways of the golf course. Under terms of the agreement, STW has received a down payment of $400,500 and will
collect additional manufacturing milestone payments to engineer and install customized equipment that adds proprietary technology
and chemicals to a desalinization membrane technology to increase the amount of fresh water recovered and lower the cost of operation. As
of the date of this report, the Company has delivered and installed the equipment related to this contract.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left">On November 27, 2012, STW entered into subscription
agreements (the “Subscription Agreements”) with three accredited investors (each an “Investor” and collectively,
the “Investors”), providing for the sale by the Company to the Investors of a 14% convertible note (each a “Note”
and collectively, the “Notes”) for aggregate gross proceeds of $300,000. The Notes mature on the second anniversary
of the date of issuance (the “Maturity Date”) and bear interest at a rate of 14% per annum, of which 6% shall be paid
in cash semi-annually in arrears and the remaining 8% shall accrue until the Maturity Date. The Investors may convert, at any time,
the outstanding principal and accrued interest on the Notes into shares of the Company’s common stock, par value $0.001 per
share (“Common Stock”) at a conversion price equal to $0.08 per share, subject to adjustment (the “Conversion
Price”).</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left">In connection with the purchase of the Notes,
each Investor received a warrant to purchase such number of shares of Common Stock of the Company equal to 50% of the number of
shares of Common Stock issuable upon exercise of such Investor’s Note on the date of issuance (or an aggregate of 1,875,000
shares of Common Stock) (collectively, the “Warrants”). The Warrants are exercisable for a period of two years from
the date of issuance at an initial exercise price of $0.20 per share, subject to adjustment (the “Exercise Price”).</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left">The Conversion Price and the Exercise Price are
subject to customary adjustments for stock splits, stock dividends, and recapitalizations.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left">A FINRA registered broker-dealer was engaged as
placement agent in connection with the private placement. We paid the placement agent a cash fee in the amount of $30,000 (representing
a 10% sales commission) and will issue the placement agent a warrant to purchase 187,500 shares of Common Stock with an exercise
price of $0.20 per share.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left">On January 8, 2013, STW and Black Pearl Energy,
LLC, an entity controlled by Stan Weiner and Lee Maddox, the Company’s Chief Executive Officer and Chief Operating Officer,
respectively (“BPE”), entered into an equity exchange agreement (the “Agreement”) pursuant to which BPE
transferred 10% of the outstanding membership interests of Black Wolf Enterprises, LLC, (“Black Wolf”) to the Company
in exchange for 7,000,000 shares of the Company’s common stock, which shares will be issued once the Company amends its articles
of incorporation, as amended, to increase the number of authorized shares of common stock. The transactions contemplated by the
Agreement closed on January 8, 2013. Black Wolf currently commercializes the expertise and services of Lone Wolf Resources, LLC,
an environmental and civil construction company operating in the oil and gas industry (“Lone Wolf”). Lone Wolf has
worked with the Department of Transportation and the Texas Commission on environmental quality to shape the standards for processing
hydrocarbon-impacted soils to a reusable road base. Lone Wolf has completed projects internationally and throughout the United
States, including the world's largest in-situ thermal remediation project. BPE is an oilfield service company that has developed
an evaporation cover that is conservation friendly, economical and can be floated on to existing ponds or installed during construction
for the elimination of evaporation on frac ponds used throughout the oilfield. BPE also provides high quality liners with fusion-welded
seams, quality control testing including air tests of seams and destruction testing in West Texas and Eastern New Mexico, and intends
to expand into South Texas during the first quarter of this year. Black Wolf combines Lone Wolf’s and BPE’s services
and constructs drill sites, reserve pits, frac ponds, roads, pit closings, liners, leak detection systems, evaporation covers,
and provides associated maintenance. Black Wolf also offers turnkey services for H-11 permitted ponds, including surveys, engineering
and design, and permitting for storage of produced and brine waters as well as utilizes proprietary technologies employed by Lone
Wolf in the reclamation of hydrocarbon-impacted soils. Black Wolf is currently negotiating on a number of multi-well packages with
many of the largest oil and gas producers in West Texas.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
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