UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x |
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2015
or
o |
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from __________
to __________
Commission File Number 0-29185
SAVE THE WORLD AIR, INC.
(Exact name of registrant as specified in its
charter)
Nevada |
52-2088326 |
(State or other jurisdiction of
incorporation or organization) |
(I.R.S. Employer
Identification No.) |
735 State Street, Suite 500
Santa Barbara, California 93101
(Address, including zip code, of principal
executive offices)
(805)-845-3561
(Registrant’s telephone number, including
area code)
Securities registered pursuant to Section 12(b)
of the Exchange Act: None.
Securities registered pursuant to Section 12(g)
of the Exchange Act: Common Stock, $0.001 par value.
Check whether the Registrant (1) filed
all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions
of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2
of the Exchange Act.
Large accelerated filer o |
Accelerated filer x |
|
|
Non-accelerated filer o (Do not check if a smaller reporting company) |
Smaller reporting company o |
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
The number of shares of the Registrant’s
Common Stock outstanding as of August 3, 2015 was 183,171,577.
SAVE THE WORLD AIR, INC.
FORM 10-Q
INDEX
PART
I – FINANCIAL INFORMATION |
3 |
Item 1.
Unaudited Condensed Consolidated Financial Statements |
3 |
Condensed
Consolidated Balance Sheets, Unaudited |
3 |
Condensed
Consolidated Statements of Operations, Unaudited |
4 |
Condensed
Consolidated Statement of Stockholders’ Equity, Unaudited |
5 |
Condensed
Consolidated Statements of Cash Flows, Unaudited |
6 |
Notes
to Condensed Consolidated Financial Statements, Unaudited |
7 |
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
16 |
Item
3. Quantitative and Qualitative Disclosure about Market Risk |
21 |
Item 4. Controls and Procedures |
21 |
|
|
PART
II – OTHER INFORMATION |
22 |
Item 1. Legal Proceedings |
22 |
Item
1A. Risk Factors |
22 |
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
22 |
Item 3. Defaults Upon Senior Securities |
22 |
Item 4. Mine Safety Disclosures |
22 |
Item 5. Other Information |
22 |
Item 6. Exhibits |
23 |
SIGNATURES |
24 |
|
|
EXHIBITS |
|
EXHIBIT
31.1 |
|
EXHIBIT
31.2 |
|
EXHIBIT
32 |
|
PART
I – FINANCIAL INFORMATION
Item 1. Unaudited Condensed
Consolidated Financial Statements
SAVE THE WORLD AIR, INC.
Condensed
Consolidated Balance Sheets, Unaudited
| |
June 30 | | |
| |
| |
2015 | | |
December 31 | |
| |
(unaudited) | | |
2014 | |
ASSETS | |
| | | |
| | |
Current assets: | |
| | | |
| | |
Cash | |
$ | 1,187,440 | | |
$ | 2,247,557 | |
Prepaid expenses and other current assets | |
| 52,137 | | |
| 72,225 | |
Total current assets | |
| 1,239,577 | | |
| 2,319,782 | |
Property and Equipment, net of accumulated depreciation of $53,723 and $47,180 at June 30, 2015 and December 31, 2014, respectively | |
| 28,317 | | |
| 21,946 | |
Other assets | |
| 7,130 | | |
| 5,830 | |
Total assets | |
$ | 1,275,024 | | |
$ | 2,347,558 | |
| |
| | | |
| | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | |
| | | |
| | |
Current liabilities: | |
| | | |
| | |
Accounts payable-license agreements | |
$ | 496,251 | | |
$ | 405,313 | |
Accounts payable and accrued expenses | |
| 197,176 | | |
| 175,228 | |
Accrued expenses and accounts payable-related parties | |
| 220,814 | | |
| 259,507 | |
Convertible debentures, net of discounts of $33,105 and $105,542 at June 30, 2015 and December 31, 2014, respectively | |
| 158,735 | | |
| 139,098 | |
Total current liabilities | |
| 1,072,976 | | |
| 979,146 | |
| |
| | | |
| | |
Commitments and contingencies | |
| | | |
| | |
| |
| | | |
| | |
Stockholders’ equity | |
| | | |
| | |
Common stock, $.001 par value: 300,000,000 shares authorized 183,171,577 and 181,028,244 shares issued and outstanding at June 30, 2015 and December 31, 2014, respectively | |
| 183,172 | | |
| 181,028 | |
Additional paid-in capital | |
| 99,781,355 | | |
| 98,232,582 | |
Accumulated deficit | |
| (99,762,479 | ) | |
| (97,045,198 | ) |
Total stockholders’ equity | |
| 202,048 | | |
| 1,368,412 | |
Total liabilities and stockholders’ equity | |
$ | 1,275,024 | | |
$ | 2,347,558 | |
See notes to condensed
consolidated financial statements.
SAVE THE WORLD AIR, INC.
Condensed
Consolidated Statements of Operations, Unaudited
| |
Three months ended | | |
Six months ended | |
| |
June 30 | | |
June 30 | |
| |
2015 | | |
2014 | | |
2015 | | |
2014 | |
Revenues | |
$ | – | | |
$ | 60,000 | | |
$ | – | | |
$ | 60,000 | |
Costs and Expenses | |
| | | |
| | | |
| | | |
| | |
Operating expenses | |
| 826,512 | | |
| 925,428 | | |
| 1,681,964 | | |
| 1,850,415 | |
Research and development expenses | |
| 147,658 | | |
| 142,964 | | |
| 420,435 | | |
| 594,951 | |
Loss before other income (expense) | |
| (974,170 | ) | |
| (1,008,392 | ) | |
| (2,102,399 | ) | |
| (2,385,366 | ) |
Other income (expense) | |
| | | |
| | | |
| | | |
| | |
Other income (loss) | |
| 1,500 | | |
| – | | |
| 3,000 | | |
| (26,500 | ) |
Interest and financing expense | |
| (570,274 | ) | |
| – | | |
| (617,882 | ) | |
| – | |
Net loss | |
$ | (1,542,944 | ) | |
$ | (1,008,392 | ) | |
$ | (2,717,281 | ) | |
$ | (2,411,866 | ) |
Net loss per common share, basic and diluted | |
$ | (0.01 | ) | |
$ | (0.01 | ) | |
$ | (0.01 | ) | |
$ | (0.01 | ) |
Weighted average common shares outstanding, basic and diluted | |
| 181,428,211 | | |
| 180,560,764 | | |
| 181,341,542 | | |
| 179,954,724 | |
See notes to condensed
consolidated financial statements.
SAVE THE WORLD AIR, INC.
Condensed
Consolidated Statement of Stockholders’ Equity, Unaudited
For
the SIX Months Ended JUNE 30, 2015
| |
| | |
Additional | | |
| | |
Total | |
| |
Common Stock | | |
Paid-in | | |
Accumulated | | |
Stockholders’ | |
| |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
Equity | |
Balance, January 1, 2015 | |
| 181,028,244 | | |
$ | 181,028 | | |
$ | 98,232,582 | | |
$ | (97,045,198 | ) | |
$ | 1,368,412 | |
Common stock issued upon exercise of warrants | |
| 200,000 | | |
| 200 | | |
| 49,800 | | |
| | | |
| 50,000 | |
Common stock issued on conversion of notes | |
| 1,943,333 | | |
| 1,944 | | |
| 600,856 | | |
| | | |
| 602,800 | |
Fair value of warrants and beneficial conversion feature associated with issued convertible notes | |
| | | |
| | | |
| 470,945 | | |
| | | |
| 470,945 | |
Fair value of options and warrants issued as compensation | |
| | | |
| | | |
| 427,172 | | |
| | | |
| 427,172 | |
Net loss | |
| | | |
| | | |
| | | |
| (2,717,281 | ) | |
| (2,717,281 | ) |
Balance, June 30, 2015, unaudited | |
| 183,171,577 | | |
$ | 183,172 | | |
$ | 99,781,355 | | |
$ | (99,762,479 | ) | |
$ | 202,048 | |
See notes to condensed
consolidated financial statements.
SAVE THE WORLD AIR, INC.
Condensed
Consolidated Statements of Cash Flows, Unaudited
| |
Six months ended | |
| |
June 30 | |
| |
2015 | | |
2014 | |
Cash flows from Operating Activities | |
| | | |
| | |
Net loss | |
$ | (2,717,281 | ) | |
$ | (2,411,866 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: | |
| | | |
| | |
Stock based compensation expense | |
| 427,172 | | |
| 437,222 | |
Amortization of debt discount | |
| 617,882 | | |
| – | |
Depreciation and amortization | |
| 6,543 | | |
| 6,912 | |
Changes in operating assets and liabilities: | |
| | | |
| | |
Prepaid expenses and other current assets | |
| 20,088 | | |
| 3,240 | |
Other assets | |
| (1,300 | ) | |
| – | |
Accounts payable and accrued expenses | |
| 21,948 | | |
| (91,320 | ) |
Accounts payable – license agreements | |
| 90,938 | | |
| 158,457 | |
Accounts payable and accrued expenses – related parties | |
| (38,693 | ) | |
| (233,675 | ) |
Net cash used in operating activities | |
| (1,572,703 | ) | |
| (2,131,030 | ) |
Cash flows from investing activities | |
| | | |
| | |
Purchase of equipment | |
| (12,914 | ) | |
| – | |
Net cash used in investing activities | |
| (12,914 | ) | |
| – | |
Cash flows from financing activities | |
| | | |
| | |
Net proceeds from issuance of convertible notes | |
| 475,500 | | |
| – | |
Net proceeds from exercise of warrants and options | |
| 50,000 | | |
| 1,308,284 | |
Net cash provided by financing activities | |
| 525,500 | | |
| 1,308,284 | |
Net decrease in cash | |
| (1,060,117 | ) | |
| (822,746 | ) |
Cash, beginning of period | |
| 2,247,557 | | |
| 4,137,068 | |
Cash, end of period | |
$ | 1,187,440 | | |
$ | 3,314,322 | |
| |
| | | |
| | |
| |
| | | |
| | |
| |
| | | |
| | |
Supplemental disclosures of cash flow information | |
| | | |
| | |
Cash paid during the year for: | |
| | | |
| | |
Interest | |
$ | – | | |
$ | – | |
Income Taxes | |
$ | – | | |
$ | – | |
Non-cash investing and financing activities | |
| | | |
| | |
Common stock issued on conversion of convertible debentures | |
| 602,800 | | |
| – | |
Fair value of warrants and beneficial conversion feature associated with issued convertible notes | |
| 470,945 | | |
| | |
See notes to condensed
consolidated financial statements.
SAVE THE WORLD AIR, INC.
Notes
to Condensed Consolidated Financial Statements, Unaudited
SIX MONTHS ENDED JUNE 30, 2015 AND 2014
| 1. | Description of Business |
Save The World Air,
Inc. (“STWA”, “Company”) was incorporated on February 18, 1998, as a Nevada Corporation under the name
Mandalay Capital Corporation. The Company changed its name to Save the World Air, Inc. on February 11, 1999. The Company’s
common stock is quoted under the symbol “ZERO” on the Over-the-Counter Bulletin Board. More information including the
Company’s fact sheet, logos and media articles are available at our corporate website, www.stwa.com.
Save The World Air,
Inc. develops and commercializes energy efficiency technologies that assist in meeting increasing global energy demands, improving
the economics of oil extraction and transport, and reducing greenhouse gas emissions. The Company's intellectual property portfolio
includes 47 domestic and international patents and patents pending, a substantial portion of which have been developed in conjunction
with and exclusively licensed from Temple University of Philadelphia, PA (“Temple”). STWA's primary technology is called
Applied Oil Technology™ (AOT™), a commercial-grade crude oil pipeline transportation flow-assurance product. AOT™
has been proven in U.S. Department of Energy tests to increase the energy efficiency of oil pipeline pump stations. The AOT product
has transitioned from the research and development stage to initial commercial production for the midstream pipeline marketplace.
In 2014, the Company
began commercial development of a suite of products based around the Joule Heat technology. The Company began fabrication of prototype
equipment to be operated under a joint development agreement with a commercial entity in the fourth quarter, 2014. This prototype
equipment was installed under the joint development agreement in June, 2015, with testing to begin shortly thereafter. The Company
filed two additional provisional patents related to the technology’s method and apparatus in the second quarter and fourth
quarter of 2013, respectively. The first of the two provisional patents was finalized and submitted to non-provisional status on
April 29, 2014. The second of the two provisional patents was finalized and submitted to non-provisional status at the end of the
third quarter 2014.
Basis of Presentation
The accompanying condensed
consolidated financial statements are unaudited. These unaudited interim condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and applicable
rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain
information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed
or omitted pursuant to such rules and regulations. Accordingly, these interim condensed consolidated financial statements should
be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report
on Form 10-K for the fiscal year ended December 31, 2014 filed with the SEC. The condensed consolidated balance sheet as of December
31, 2014 included herein was derived from the audited consolidated financial statements as of that date, but does not include all
disclosures, including notes, required by GAAP.
In the opinion of management,
the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to fairly present the
Company's financial position and results of operations for the interim periods reflected. Except as noted, all adjustments contained
herein are of a normal recurring nature. Results of operations for the fiscal periods presented herein are not necessarily indicative
of fiscal year-end results.
| 2. | Summary of Significant Accounting Policies |
Consolidation Policy
The accompanying
consolidated financial statements of Save the World Air, Inc. include the accounts of Save the World Air, Inc. (the Parent) and
its wholly owned subsidiary STWA Asia Pte. Limited. Intercompany transactions and balances have been eliminated in consolidation.
Going Concern
The accompanying
consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and
the settlement of liabilities and commitments in the normal course of business. As reflected in the accompanying consolidated financial
statements, the Company has not yet generated significant revenues and has incurred recurring net losses. During the six months
ended June 30, 2015, the Company incurred a net loss of $2,717,281 and used cash in operations of $1,572,703. These factors
raise substantial doubt about the Company’s ability to continue as a going concern. The ability of the Company to continue
as a going concern is dependent upon the Company’s ability to raise additional funds and implement its strategies. The financial
statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
In addition, the
Company's independent registered public accounting firm, in its report on the Company's December 31, 2014 financial statements,
has raised substantial doubt about the Company's ability to continue as a going concern.
At June 30, 2015,
the Company had cash on hand in the amount of $1,187,440. Management estimates that the current funds on hand will be sufficient
to continue operations through March 2016. Management is currently seeking additional funds, primarily through the issuance of
debt and equity securities for cash to operate our business, including without limitation the expenses it will incur in connection
with the license and research and development agreements with Temple; costs associated with product development and commercialization
of the AOT and Joule Heat technologies; costs to manufacture and ship the products; costs to design and implement an effective
system of internal controls and disclosure controls and procedures; costs of maintaining our status as a public company by filing
periodic reports with the SEC and costs required to protect our intellectual property. In addition, as discussed below, the Company
has substantial contractual commitments, including without limitation salaries to our executive officers pursuant to employment
agreements, certain payments to a former officer and consulting fees, during the remainder of 2015 and beyond.
No assurance
can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to the
Company. Even if the Company is able to obtain additional financing, it may contain undue restrictions on our operations, in the
case of debt financing or cause substantial dilution for our stock holders, in case of equity financing.
Revenue Recognition
The Company recognizes lease revenue upon commencement of the lease. Revenue on future product sales will be recognized
upon meeting the following criteria: persuasive evidence of an arrangement exists; delivery has occurred or services rendered;
the seller's price to the buyer is fixed or determinable; and collectability is reasonably assured.
Basic and Diluted Income
(loss) per share
Our computation
of earnings per share (“EPS”) includes basic and diluted EPS. Basic EPS is measured as the income (loss) available
to common stockholders divided by the weighted average common shares outstanding for the period. Diluted income (loss) per share
reflects the potential dilution, using the treasury stock method, that could occur if securities or other contracts to issue common
stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the income
(loss) of the Company as if they had been converted at the beginning of the periods presented, or issuance date, if later. In computing
diluted income (loss) per share, the treasury stock method assumes that outstanding options and warrants are exercised and the
proceeds are used to purchase common stock at the average market price during the period. Options and warrants may have a dilutive
effect under the treasury stock method only when the average market price of the common stock during the period exceeds the exercise
price of the options and warrants. Potential common shares that have an antidilutive effect (i.e., those that increase income per
share or decrease loss per share) are excluded from the calculation of diluted EPS.
Income (loss) per
common share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during
the respective periods. Basic and diluted (loss) per common share is the same for periods in which the Company reported an operating
loss because all warrants and stock options outstanding are anti-dilutive. At June 30, 2015 and 2014, we excluded the outstanding
securities summarized below, which entitle the holders thereof to acquire shares of common stock as their effect would have been
anti-dilutive.
|
June 30, 2015 |
|
June 30, 2014 |
|
Options |
21,681,512 |
|
20,727,960 |
|
Warrants |
6,308,754 |
|
6,121,050 |
|
Total |
27,990,266 |
|
26,849,010 |
|
Stock-Based Compensation
The Company periodically
issues stock options and warrants to employees and non-employees in non-capital raising transactions for services and for financing
costs. The Company accounts for stock option and warrant grants issued and vesting to employees based on the authoritative guidance
provided by the Financial Accounting Standards Board whereas the value of the award is measured on the date of grant and recognized
over the vesting period. The Company accounts for stock option and warrant grants issued and vesting to non-employees in accordance
with the authoritative guidance of the Financial Accounting Standards Board (FASB) whereas the value of the stock compensation
is based upon the measurement date as determined at either a) the date at which a performance commitment is reached, or b) at the
date at which the necessary performance to earn the equity instruments is complete. Non-employee stock-based compensation charges
generally are amortized over the vesting period on a straight-line basis. In certain circumstances where there are no future performance
requirements by the non-employee, option grants are immediately vested and the total stock-based compensation charge is recorded
in the period of the measurement date.
The fair value of
the Company's stock option and warrant grants is estimated using the Black-Scholes Option Pricing model, which uses certain
assumptions related to risk-free interest rates, expected volatility, expected life of the stock options or warrants, and future
dividends. Compensation expense is recorded based upon the value derived from the Black-Scholes Option Pricing model, and based
on actual experience. The assumptions used in the Black-Scholes Option Pricing model could materially affect compensation expense
recorded in future periods.
Business and Credit Concentrations
The Company’s
cash balances in financial institutions at times may exceed federally insured limits. As of June 30, 2015 and December 31, 2014,
before adjustments for outstanding checks and deposits in transit, the Company had $ 1,187,081 and $2,247,557, respectively, on
deposit with two banks. The deposits are federally insured up to $250,000 at each bank. The Company believes that no significant
concentration of credit risk exists with respect to these cash balances because of its assessment of the creditworthiness and financial
viability of these financial institutions.
Estimates
The
preparation of financial statements in conformity with generally accepted accounting principles 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 financial statements and the reported amounts of revenues and expenses during the reporting
period. Significant estimates include those related to assumptions used in valuing equity instruments issued for financing
and services. Actual results could differ from those estimates.
Fair Value of Financial
Instruments
Effective January
1, 2008, fair value measurements are determined by the Company's adoption of authoritative guidance issued by the FASB, with the
exception of the application of the statement to non-recurring, non-financial assets and liabilities as permitted. The adoption
of the authoritative guidance did not have a material impact on the Company's fair value measurements. Fair value is
defined in the authoritative guidance as the price that would be received to sell an asset or paid to transfer a liability in the
principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement
date. A fair value hierarchy was established, which prioritizes the inputs used in measuring fair value into three broad levels
as follows:
Level 1—Quoted
prices in active markets for identical assets or liabilities.
Level 2—Inputs,
other than the quoted prices in active markets, are observable either directly or indirectly.
Level 3—Unobservable
inputs based on the Company's assumptions.
The Company is required
to use of observable market data if such data is available without undue cost and effort. At June 30, 2015, the recorded amounts
for accounts payable, accrued expenses and convertible debentures approximate their fair value due to their short-term nature.
Recent Accounting Pronouncements
In May 2014, the
Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers.
ASU 2014-09 is a comprehensive revenue recognition standard that will supersede nearly all existing revenue recognition guidance
under current U.S. GAAP and replace it with a principle based approach for determining revenue recognition. ASU 2014-09 will require
that companies recognize revenue based on the value of transferred goods or services as they occur in the contract. The ASU also
will require additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer
contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill
a contract. ASU 2014-09 is effective for interim and annual periods beginning after December 15, 2017. Early adoption is permitted
only in annual reporting periods beginning after December 15, 2016, including interim periods therein. Entities will be able to
transition to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption. The Company
is in the process of evaluating the impact of ASU 2014-09 on the Company's financial statements and disclosures.
In June 2014, the
FASB issued Accounting Standards Update No. 2014-12, Compensation – Stock Compensation (Topic 718). The pronouncement was
issued to clarify the accounting for share-based payments when the terms of an award provide that a performance target could be
achieved after the requisite service period. The pronouncement is effective for reporting periods beginning after December 15,
2015. The adoption of ASU 2014-12 is not expected to have a significant impact on the Company’s consolidated financial position
or results of operations.
On August 27, 2014,
the FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern,
which provides guidance on determining when and how to disclose going-concern uncertainties in the financial statements. The new
standard requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern
within one year of the date the financial statements are issued. An entity must provide certain disclosures if conditions or events
raise substantial doubt about the entity’s ability to continue as a going concern. The ASU applies to all entities and is
effective for annual periods ending after December 15, 2016, and interim periods thereafter, with early adoption permitted.
In November 2014,
the FASB issued Accounting Standards Update No. 2014-16, Determining Whether the Host Contract in a Hybrid Financial Instrument
Issued in the Form of a Share Is More Akin to Debt or to Equity. The amendments in ASU 2014-6 do not change the current criteria
in U.S. GAAP for determining when separation of certain embedded derivative features in a hybrid financial instrument is required.
The amendments clarify that an entity should consider all relevant terms and features, including the embedded derivative feature
being evaluated for bifurcation, in evaluating the nature of the host contract. ASU 2014-6 applies to all entities that are issuers
of, or investors in, hybrid financial instruments that are issued in the form of a share and is effective for public business
entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is
permitted. The Company is currently evaluating the impact the adoption of ASU 2014-16 on the Company’s financial statements
and disclosures
In February, 2015,
the FASB issued Accounting Standards Update No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis.
ASU 2015-02 provides guidance on the consolidation evaluation for reporting organizations that are required to evaluate whether
they should consolidate certain legal entities such as limited partnerships, limited liability corporations, and securitization
structures (collateralized debt obligations, collateralized loan obligations, and mortgage-backed security transactions). ASU
2015-02 is effective for periods beginning after December 15, 2015. Early adoption is permitted. The adoption of ASU 2015-02 is
not expected to have a material effect on the Company’s consolidated financial statements.
In April 2015, the FASB issued
Accounting Standards Update No. 2015-03, Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation
of Debt Issuance Costs. ASU 2015-03 requires debt issuance costs to be presented in the balance sheet as a direct deduction
from the carrying value of the associated debt liability, consistent with the presentation of a debt discount. Prior to the issuance
of the standard, debt issuance costs were required to be presented in the balance sheet as an asset. ASU 2015-03 is effective
for fiscal years, and interim periods within those years, beginning after December 15, 2015. The Company is currently evaluating
the impact the adoption of ASU 2015-03 on the Company’s financial statements and disclosures.
Other recent accounting
pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants,
and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company's
present or future consolidated financial statement presentation or disclosures.
| 3. | Certain Relationships and Related Transactions |
As of
June 30, 2015 and December 31, 2014, the Company had accrued expenses and accounts payable to related parties in the amount of
$220,814 and $259,507, respectively. Included in these amounts at June 30, 2015 and December 31, 2014 were unpaid salaries due
the former President and a current member of the Company’s Board of Directors of $105,429 and $135,429, respectively. The
Company agreed to pay the former President $5,000 per month until the unpaid salary is fully settled. Also included in these amounts
at June 30, 2015 and December 31, 2014 are accrued directors fees of $76,089 and $80,586, respectively.
| |
June 30 2015 (unaudited) | | |
December 31 2014 | |
Balance due on convertible notes | |
$ | 191,840 | | |
$ | 244,640 | |
Unamortized note discounts | |
| (33,105 | ) | |
| (105,542 | ) |
Balance on convertible notes, net of note discounts | |
$ | 158,735 | | |
$ | 139,098 | |
Spring 2015 Convertible
Notes:
In the second quarter
of 2015, the Company issued convertible notes in the aggregate of $550,000 for cash consideration of $475,500, net of original
issue discount of $50,000 and commission paid of $24,500. The notes do not bear any interest; however, the Company used an implied
interest rate of 10%. The notes are unsecured, mature one year after issuance, and are convertible into 1,833,333 shares of common
stock at a conversion price of $0.30 per share. The Company determined that the notes contained a beneficial conversion feature
of $352,139 since the market price of the Company’s common stock was higher than the effective conversion price of the notes
when issued.
Investors in the convertible
notes received, for no additional consideration, warrants to purchase a total of 916,667 shares of common stock. Each warrant
is exercisable on a cash basis only at an exercise price of $0.30 per share, are exercisable immediately upon issuance, and expire
one year from the date of issuance. The relative fair value of the warrants issued with the convertible notes was determined to
be $118,806 based on relative fair value method.
The fair value of
the warrants, the beneficial conversion feature, the original issue discount and commission paid, aggregated $545,445 and is considered
a debt discount. In June 30, 2015, the full balance of these notes in the amount of $550,000 was converted to 1,833,333 shares
of common stock and the full aggregated debt discount amortized as interest expense. During the three and six month periods ending
June 30, 2015, the total note discount amortized as interest expense was of $545,455. As of June 30, 2015 there was no remaining
balance due on these notes.
Fall 2014 Convertible Notes:
In the fourth quarter
of 2014, the Company issued convertible notes in the aggregate of $280,390 for cash consideration of $254,900, resulting in an
original issue discount of $25,490. The notes do not bear any interest; however, the Company used an implied interest rate of 10%.
The notes are unsecured, mature one year after issuance, and were convertible into 584,147 shares of common stock at a conversion
price of $0.48 per share. The Company determined that the notes contained a beneficial conversion feature of $94,845 since the
market price of the Company’s common stock was higher than the conversion price of the notes when issued.
Investors in the
convertible notes received, for no additional consideration, warrants to purchase a total of 146,037 shares of common stock. Each
warrant is exercisable on a cash basis only at an exercise price of $0.48 per share, are exercisable immediately upon issuance,
and expire one year from the date of issuance. The fair value of the warrants issued with the convertible notes was determined
to be $24,826.
The fair value of
the warrants, the beneficial conversion feature, and the original issue discount, aggregated $145,161 and was considered a debt
discount. The debt discount is being amortized to interest expense over the term of the notes, or in full upon the conversion of
a note. As of December 31, 2014 the balance due on these notes was $244,640 and unamortized note discount was $105,542.
During the six-month
period ended June 30, 2015, the Company converted $52,800 of these notes into 110,000 shares of common stock. As of June 30, 2015
the balance due on these notes was $191,840.
During the three
and six month periods ended June 30, 2015, amortization of the note discount totaled $24,829 and $72,437, respectively. As of June
30, 2015, the unamortized note discount was $33,105.
| 5. | Research and Development |
The Company
constructs, develops and tests the AOT and Joule Heat technologies with internal resources and through the assistance of various
third party entities. Costs incurred and expensed include fees such as patent fees, purchase of test equipment, pipeline pumping
equipment, crude oil tank batteries, viscometers, SCADA systems, computer equipment, payroll and other related equipment and various
logistical expenses for the purposes of evaluating and testing the Company’s AOT and Joule Heat prototypes.
Total expenses incurred
during the three and six month periods ending June 30, 2015 on Research and Development were $147,658 and $420,435, respectively.
Total expenses incurred
during the three and six month periods ending June 30, 2014 on Research and Development were $142,964 and $594,951, respectively.
AOT and Joule Heat Product
Development and Testing
Total expenses incurred
during the three and six month periods ended June 30, 2015 on AOT and Joule Heat product development and testing amounted to $10,075,
and $25,575, respectively, and have been reflected as part of Research and Development expenses on the accompanying consolidated
statement of operations.
Total expenses incurred
during the three and six month periods ended June 30, 2014 on AOT and Joule Heat product development and testing amounted to $17,826,
and $32,496, respectively, and have been reflected as part of Research and Development expenses on the accompanying consolidated
statement of operations.
AOT Prototypes
During the three
and six month periods ended June 30, 2015, the Company incurred total expenses of $39,629 and $53,021, respectively, in the manufacture
and delivery of AOT prototype equipment.
During the three
and six month periods ended June 30, 2014, the Company incurred total expenses of $45,919 and $403,998, respectively, in the manufacture
and delivery of AOT prototype equipment.
These prototype
equipment expenses have been reflected as part of Research and Development expenses on the accompanying consolidated statement
of operations.
Joule Heat Prototypes
During the three
and six month periods ended June 30, 2015, the Company incurred total expenses of $18,735 and $183,401, respectively, in the manufacture
and delivery of Joule Heat prototype equipment. These expenses have been reflected as part of Research and Development expenses
on the accompanying consolidated statement of operations. No such expenses were incurred in the three and six month period ended
June 30, 2014.
Temple University Licensing
Agreement
On August 1, 2011,
the Company and Temple University (“Temple”) entered into two Exclusive License Agreements (collectively, the “License
Agreements”) relating to Temple’s patent applications, patents and technical information pertaining to technology
associated with an electric and/or magnetic field assisted fuel injector system (the “First Temple License”), and
to technology to reduce crude oil viscosity (the “Second Temple License”). The License Agreements are exclusive
and the territory licensed to the Company is worldwide and replace previously issued License Agreements. A license maintenance
fee of $187,500 is due annually through the life of the underlying patents or until otherwise terminated by either party.
Total expenses recognized
during the three-month period ended June 30, 2015 and 2014 pursuant to these two agreements amounted to $46,875 in each period.
Total expenses recognized during the six-month period ended June 30, 2015 and 2014 pursuant to these two agreements amounted to
$93,750 in each period. These expenses are reflected in Research and Development expenses on the accompanying consolidated statement
of operations.
As of June 30, 2015
and December 31, 2014, total unpaid fees due to Temple pursuant to these agreements amounted to $366,875 and $340,625, respectively,
which are included as part of Accounts Payable – licensing agreement in the accompanying consolidated balance sheets.
There were no revenues
generated from these two licenses during the three and six month periods ended June 30, 2015 and 2014.
Temple University Sponsored
Research Agreement
On March 19,
2012, the Company entered into a Sponsored Research Agreement (“Research Agreement”) with Temple University
(“Temple”), whereby Temple, under the direction of Dr. Rongjia Tao, will perform ongoing research related to the
Company’s AOT device (the “Project”), for the period April 1, 2012, through April 1, 2014. All
rights and title to intellectual property resulting from Temple’s work related to the Project shall be subject to the
Exclusive License Agreements between Temple and the Company, dated August 1, 2011. In exchange
for Temple’s research efforts on the Project, the Company has agreed to pay Temple $500,000, payable in
quarterly installments of $62,500 through December 2013.
In August 2013,
the Company and Temple amended the Research Agreement. Under the amended agreement, parties agreed that total cost for Phase 1
of the agreement was $241,408 and total cost for Phase 2 of the agreement was $258,592 payable beginning September 1, 2013 in eight
quarterly installments of $32,324 through September 2015.
During the three
and six month periods ended June 30, 2015 the Company recognized a total expense of $32,344 and $64,688, respectively, pursuant
to this agreement. During the three and six month periods ended June 30, 2014 the Company recognized a total expense of $32,344
and $64,707, respectively, pursuant to this agreement. These expenses are reflected in Research and Development expenses on the
accompanying consolidated statement of operations.
As of June 30, 2015
and December 31, 2014, total unpaid fees due to Temple pursuant to this agreement amounted to $129,376 and $64,688, respectively,
which are included as part of Accounts Payable – licensing agreement in the accompanying consolidated balance sheets.
Kinder Morgan Crude
& Condensate, LLC Lease
On July 15, 2014,
the Company entered into an Equipment Lease/Option to Purchase Agreement (“Lease”) with Kinder Morgan Crude & Condensate,
LLC (“Kinder Morgan”). In accordance with the terms and conditions of the agreement, Kinder Morgan agreed to lease
and test the effectiveness of the Company’s AOT technology and equipment on one of Kinder Morgan’s operating pipelines.
Equipment provided under the Lease includes a single AOT Midstream pressure vessel with a maximum flow capacity of 5,000 gallons
per minute.
The initial term
(“Initial Term”) of the Lease is four months, with an option to extend the Lease for up to a maximum of 84 months.
During the Initial Term, either the Company or Kinder Morgan may terminate the Agreement for any reason on 45 days’ written
notice. Lease payments shall be $20,000 per month; provided however, that in the event the Equipment is removed from service at
its initial location during the Initial Term, the monthly lease payments shall be reduced to $5,000 until the Equipment is placed
back in service at its new location, at which time the Lease payments shall resume at $20,000 per month. The agreement further
provides that Kinder Morgan shall have an option to purchase the equipment during the term of the Lease for a fixed price of between
$600,000 and $1,200,000, depending upon the date of purchase.
The equipment
was delivered to Kinder Morgan in December 2014 and installed in March 2015. In April 2015, the AOT pressure vessel
experienced an electrical short and was subsequently replaced by another AOT pressure vessel. Subsequently, it was determined
that the unit needed further modification to optimize the system configuration for crude condensate operations. A replacement
unit has been modified at our manufacturer’s facility and is scheduled for delivery to Kinder Morgan during the third
quarter of 2015. The initial term of the lease will commence upon installation and acceptance of the replacement unit.
During the six months
ended June 30, 2015, the Company issued 1,943,333 shares of its common stock upon the conversion of $602,800 in convertible notes
at $0.30 and $0.48 per share, and issued 200,000 shares of common stock upon the exercise of warrants at $0.25 per share with proceeds
of $50,000.
| 8. | Stock Options and Warrants |
The Company periodically
issues stock options and warrants to employees and non-employees in capital raising transactions, for services and for financing
costs. Options vest and expire according to terms established at the grant date.
Options
The Company currently
issues stock options to employees, directors and consultants under its 2004 Stock Option Plan (the Plan). The Company could issue
options under the Plan to acquire up to 7,000,000 shares of common stock as amended in May 2006. The Plan expired by its terms
on March 2, 2014. At its meeting on May 7, 2015, the Board determined not to amend the Plan to extend its term past March 2, 2014.
The Board then determined that all options granted under the Plan from the period March 2, 2014, through May 7, 2015, a total of
1,456,604 options, would instead be deemed granted, as of the date of such grants, pursuant to the terms and conditions of such
grant, outside the Plan.
As of June 30, 2015
and December 31, 2014, options to purchase 3,544,908 shares granted under the Plan were outstanding, respectively.
Employee options
vest according to the terms of the specific grant and expire from 2 to 10 years from date of grant. Non-employee option grants
have vested upon issuance and up to 2 years from the date of grant. The weighted-average, remaining contractual life of employee
and non-employee options outstanding at June 30, 2015 was 5.7 years. Stock option activity for the period December 31, 2014
up to June 30, 2015, was as follows:
|
|
Options |
|
|
Weighted Avg. Exercise Price |
|
December 31, 2014 |
|
|
21,052,030 |
|
|
$ |
0.30 |
|
Granted |
|
|
738,552 |
|
|
|
0.48 |
|
Exercised |
|
|
|
|
|
|
|
|
Forfeited |
|
|
(109,070 |
) |
|
|
1.22 |
|
June 30, 2015 |
|
|
21,681,512 |
|
|
$ |
0.30 |
|
The weighted average
exercise prices, remaining contractual lives for options granted, exercisable, and expected to vest as of June 30, 2015 were as
follows:
|
|
Outstanding Options |
|
Exercisable Options |
Option
Exercise Price
Per Share |
|
Shares |
|
|
Life
(Years) |
|
Weighted
Average Exercise
Price |
|
Shares |
|
|
Weighted
Average Exercise
Price |
$ 0.21 - $ 0.99 |
|
|
21,418,283 |
|
|
5.8 |
|
$0.29 |
|
|
19,846,498 |
|
|
$0.28 |
$ 1.00 - $ 1.99 |
|
|
263,229 |
|
|
4.7 |
|
$1.22 |
|
|
263,229 |
|
|
$1.22 |
|
|
|
21,681,512 |
|
|
5.7 |
|
$0.30 |
|
|
20,109,727 |
|
|
$0.30 |
During the three
month period ending June 30, 2015 the Company granted options to purchase 738,522 shares of common stock to members of the Company’s
Board of Directors. The options are exercisable at prices ranging from $0.46 per share to $0.48 per share, vest monthly over a
twelve month period, and expire ten years from the date granted. Total fair value of these options at grant date was approximately
$296,267 using the Black-Scholes Option Pricing model with the following assumptions: life of 5 to 5.5 years; risk free interest
rate of 1.67% to 1.72%; volatility of 121% and dividend yield of 0%.
During the three
and six month periods ended June 30, 2015, the Company recognized compensation costs based on the fair value of options that vested
of $178,450 and $385,875 respectively.
During the three
and six month periods ended June 30, 2014, the Company recognized compensation costs based on the fair value of options that vested
of $285,923 and $401,575 respectively.
At June 30, 2015
the aggregate intrinsic value of the options outstanding was $1,565,000. Future unamortized compensation expense on the unvested
outstanding options at June 30, 2015 is approximately $367,322.
Warrants
The following
table summarizes certain information about the Company’s stock purchase warrants activity for the period starting December
31, 2014 up to June 30, 2015.
|
|
|
Warrants |
|
|
Weighted Avg. Exercise Price |
|
December 31, 2014 |
|
|
5,692,087 |
|
|
$0.36 |
|
Granted |
|
|
916,667 |
|
|
0.30 |
|
Exercised |
|
|
(200,000 |
) |
|
0.25 |
|
Cancelled |
|
|
(100,000 |
) |
|
0.25 |
|
June 30, 2015 |
|
|
6,308,754 |
|
|
$0.36 |
|
The weighted average
exercise prices, remaining contractual lives for warrants granted, exercisable, and expected to vest as of June 30, 2015 were as
follows:
|
|
Outstanding Warrants |
|
Exercisable Warrants |
Warrant
Exercise Price Per Share |
|
Shares |
|
|
Life
(Years) |
|
Weighted
Average Exercise
Price |
|
Shares |
|
|
Weighted
Average Exercise
Price |
$ 0.25 - $ 0.99 |
|
|
6,188,754 |
|
|
2.4 |
|
$0.34 |
|
|
5,928,754 |
|
|
$0.34 |
$ 1.00 - $ 1.99 |
|
|
120,000 |
|
|
0.5 |
|
$1.01 |
|
|
120,000 |
|
|
$1.01 |
|
|
|
6,308,754 |
|
|
2.3 |
|
$0.36 |
|
|
6,048,754 |
|
|
$0.35 |
During the six month
period ending June 30, 2015, warrants to acquire 200,000 shares of common stock were exercised at $0.25 per share resulting in
proceeds of $50,000, and warrants to purchase 100,000 shares of common stock at $0.25 per share expired.
In May through June
2015, pursuant to terms of convertible notes issued, the Company granted warrants to purchase 916,667 shares with an exercise price
of $0.30 per share, vesting immediately upon grant and expiring one year from the date of grant (see Note 4).
During the three
and six month periods ended June 30, 2015, the Company recognized compensation costs of $20,370 and $41,297, respectively, based
on the fair value of warrants that vest.
During the three
and six month periods ended June 30, 2014, the Company recognized compensation costs of $18,376 and $35,647, respectively, based
on the fair value of warrants that vest.
At June 30, 2015,
the aggregate intrinsic value of the warrants outstanding was $200,667. Future unamortized compensation expense on the unvested
outstanding warrants at June 30, 2015 is approximately $18,250.
| 9. | Contractual Obligations |
The Company has
certain contractual commitments as of June 30, 2015 for future periods, including office leases, minimum guaranteed compensation
payments and other agreements as described in the following table and associated footnotes:
|
|
|
|
|
Research and |
|
|
|
|
|
|
|
Year ending |
|
Office |
|
|
License |
|
|
Compensation |
|
|
Total |
|
December 31, |
|
Lease (1) |
|
|
Agreements (2) |
|
|
Agreements (3) |
|
|
Obligations |
|
2015 |
|
$ |
34,980 |
|
|
$ |
93,750 |
|
|
$ |
175,000 |
|
|
$ |
303,730 |
|
2016 |
|
|
69,960 |
|
|
|
187,500 |
|
|
|
84,167 |
|
|
|
341,627 |
|
2017 |
|
|
69,960 |
|
|
|
187,500 |
|
|
|
15,429 |
|
|
|
272,889 |
|
2018 |
|
|
40,810 |
|
|
|
187,500 |
|
|
|
– |
|
|
|
228,310 |
|
2019 |
|
|
– |
|
|
|
187,500 |
|
|
|
– |
|
|
|
187,500 |
|
Total |
|
$ |
215,710 |
|
|
$ |
843,750 |
|
|
$ |
274,596 |
|
|
$ |
1,334,056 |
|
________________________________
| (1) | Consists of rent for the Company’s Santa Barbara Facility expiring on July 31, 2018. |
| (2) | Consists of license maintenance fees to Temple University in the amount of $187,500 paid annually
through the life of the underlying patents or until otherwise terminated by either party. |
| (3) | Consists of base salary and certain contractually-provided benefits, to an executive officer, pursuant
to an employment agreement that expires on January 30, 2016 in the amount of $169,167 and a severance agreement of a former officer
in the amount of $90,429. |
| 10. | Commitments and Contingencies |
Legal matters
There are no current
or pending litigation of any significance with the exception of the matters that have arisen under, and are being handled in, the
normal course of business.
Item 2. Management’s
Discussion and Analysis of Financial Condition and Results of Operations
The following discussion
and analysis of our financial condition and results of operations should be read in conjunction with the Consolidated Financial
Statements and supplementary data referred to in this Form 10-Q.
This discussion
contains forward-looking statements that involve risks and uncertainties. Such statements, which include statements concerning
future revenue sources and concentration, selling, general and administrative expenses, research and development expenses, capital
resources, additional financings and additional losses, are subject to risks and uncertainties, including, but not limited to,
those discussed elsewhere in this Form 10-Q, particularly in “Risk Factors,” that could cause actual results to differ
materially from those projected. Unless otherwise expressly indicated, the information set forth in this Form 10-Q is as of
June 30, 2015, and we undertake no duty to update this information.
Overview
STWA develops and
commercializes energy efficiency technologies that assist in meeting increasing global energy demands, improving the economics
of oil extraction and transport, and reducing greenhouse gas emissions. STWA's primary technology is called Applied Oil Technology™
(AOT™), a commercial-grade crude oil pipeline transportation flow-assurance product. AOT™ has been proven in U.S. Department
of Energy tests and other independent tests, as well as in full scale operation on a commercial crude oil pipeline to increase
the energy efficiency of oil pipeline pump stations.
In 2014, we reached
a major milestone in the Company’s evolution, generating revenues from our AOT technology for the first time since our inception
in February 1998. We continue to devote the bulk of our efforts to the promotion, design, testing and the commercial manufacturing
and operations of our crude oil pipeline products in the upstream and midstream energy sector. We anticipate that these efforts
will continue during 2015.
Between 2011 and
2012, the Company transitioned from prototype testing of its AOT technology at the U.S. Department of Energy Rocky Mountain Oilfield
Testing Center, Midwest, Wyoming, to the design and production of full-scale commercial prototype units. The Company worked in
a collaborative engineering environment with multiple energy industry companies to refine the AOT™ Midstream commercial design
to comply with the stringent standards and qualification processes as dictated by independent engineering audit groups and North
American industry regulatory bodies. In May 2013, the Company’s first commercial prototype unit known as AOT™ Midstream,
was completed.
In 2013, the Company
entered into an Equipment Lease/Option to Purchase Agreement (“TransCanada Lease”) with TransCanada Keystone Pipeline,
L.P. by its agent TC Oil Pipeline Operations, Inc. ("TransCanada") which agreed to lease and test the effectiveness of
the Company’s AOT technology and equipment on one of TransCanada’s operating pipelines. As previously reported in our
10-K report filed with the SEC on March 16, 2015, the first full test of the AOT equipment on the Keystone pipeline was performed
in July 2014, with preliminary data analyzed and reported by Dr. Rongjia Tao of Temple University. Upon review of the July 2014
test results and preliminary report by Dr. Tao, STWA and TransCanada mutually agreed that this initial test was flawed due to,
among other factors, the short term nature of the test, the inability to isolate certain independent pipeline operating factors
such as fluctuations in upstream pump station pressures, and limitations of the AOT device to produce a sufficient electric field
to optimize viscosity reduction. Although Dr. Tao’s preliminary report indicated promising results, STWA and TransCanada
mutually agreed that no conclusions could be reliably reached from the July 2014 test or from Dr. Tao’s preliminary report.
As a result of this test, the Company modified its testing protocols and contracted with an independent laboratory to perform follow-up
tests at the TransCanada facility. This independent laboratory performed viscosity measurements at the TransCanada facility during
subsequent testing in September 2014 and submitted a report which concluded that i) data indicated a decrease in viscosity of crude
oil flowing through the TransCanada pipeline due to AOT treatment of the crude oil; and ii) the power supply installed on our equipment
would need to be increased to maximize reduction in viscosity and take full advantage of the AOT technology. Although the power
supply was constrained, subsequent analysis of the Report and related laboratory testing at Temple University revealed a limited
sampling of test conditions at TransCanada under which the electrical field within the AOT was sufficient, in theory, to fully
treat crude oil flowing through the treatment vessel. Though statistically inconclusive, viscosity measurements of these limited
test samples indicate AOT treatment by the prototype equipment under commercial operating conditions resulted in viscosity reductions
reasonably consistent with expectations based on previous laboratory tests. While more testing is required to establish the efficacy
of our AOT technology, we are encouraged by the findings of our independent research laboratory and the results of subsequent comparative
analysis of data collected under laboratory and commercial operating conditions. We look forward to further development and commercialization
of our technology. In June 2014, the equipment was accepted by TransCanada and the lease commenced. The TransCanada Lease was terminated
by TransCanada, effective October 15, 2014. The Company has modified the design of the AOT power supply such that future installations
of the AOT device are expected to achieve sufficient electric field to optimize viscosity reduction.
On July 15, 2014,
the Company entered into an Equipment Lease/Option to Purchase Agreement (“Kinder Morgan Lease”) with Kinder Morgan
Crude & Condensate, LLC (“Kinder Morgan”) under which Kinder Morgan agreed to lease and test the effectiveness
of the Company’s AOT technology and equipment on one of Kinder Morgan’s operating pipelines. Equipment provided under
the Lease includes a single AOT Midstream pressure vessel with a maximum flow capacity of 5,000 gallons per minute. The equipment
was delivered to Kinder Morgan in December 2014 and installed in March 2015. In April 2015, during pre-start testing, low electrical
impedance was measured in the unit, indicating an electrical short. A replacement unit was installed May 2015. The second unit
also presented with low impedance when flooded with crude condensate from Kinder Morgan’s pipeline. Laboratory tests previously
run on at Temple University on condensate samples provided by Kinder Morgan indicated the condensate was non-conductive; however,
the condensate is known to have a relatively high density of semi-conductive particulate matter suspended within the fluid. Similar
conditions were experienced in earlier prototype tests at the Rocky Mountain Oilfield Testing Center (“RMOTC”). At
RMOTC, the pipeline had a high concentration of highly conductive particulate matter, which tended to concentrate at the base of
the AOT when installed horizontally, causing the AOT to present with an electrical short. This issue was solved at RMOTC by converting
to a vertical configuration, which allowed the particulate matter to flow naturally through the AOT. Based on experience at RMOTC,
Dr. Tao has expressed a high level of confidence that converting to a vertical configuration will resolve the issue of conductive
particulate matter. In June 2015, STWA engineers performed a series of tests and internal inspections on the AOT unit, which identified
other potential design issues that could impact electrical impedance. Based on these findings, a number of internal components
of the AOT have been retrofitted or remanufactured to improve both efficacy and efficiency. We continue to work closely with Kinder
Morgan and our equipment manufacture to further optimize the AOT for operations at the Kinder Morgan facility. A replacement unit
has been converted to a vertical configuration and fully retrofitted at our manufacturer’s facility, and is now in transit
to Texas for pre-delivery testing and shipment to Kinder Morgan for installation.
In 2014, the Company
began commercial development of a new suite of products based around the new electrical heat system which reduces oil viscosity
through a process known as joule heat (“Joule Heat”). The Company is designing and optimizing the Joule Heat technology
for the upstream oil transportation market. The Company filed two provisional patents related to the technology’s method
and apparatus in the second quarter and fourth quarter of 2013, respectively. The first of the two provisional patents was finalized
and submitted to non-provisional status on April 29, 2014. The second of the two provisional patents was finalized and submitted
to non-provisional status at the end of the third quarter 2014.
In October 2014,
STWA entered into a Joint Development Agreement with Newfield Exploration Company (“Newfield”) to test a commercial
prototype of STWA Joule Heat equipment, and combined Joule Heat and AOT technology, on a crude oil pipeline serving the Greater
Monument Butte oilfield located in the Uintah Basin of Utah. This test of the Joule Heat technology provides ideal conditions to
demonstrate efficiency and efficacy. The Uintah Basin is 5,000 to 10,000 feet above sea level with average low winter temperatures
of 16ºF. Crude oil pumped from the region is highly paraffinic with the consistency of shoe polish at room temperature. Uintah's
black wax crude must remain at a minimum of 95ºF and yellow wax above 115ºF and therefore requires a substantial amount
of heat to keep it above its high pour point. Operators in the upstream market often run at temperatures of 140ºF to 160ºF.
Newfield, like many other companies in the region, incurs significant operating expense in the form of fuel and power used to heat
the waxy crude and counter the cold climate conditions characteristic of Utah. The Company’s first Joule Heat prototype was
installed for testing purposes at the Newfield facility in June 2015 and the system is operational; however, changes to the prototype
configuration will be required to determine commercial effectiveness of this unit. We are working with Newfield and Dr. Carl Meinhart
to modify the prototype configuration for observed pipeline and Joule Heat operating factors. In addition, STWA has provided a
scaled-down version of the commercial Joule Heat unit for static and flow-through testing at Southern Research Institute (SRI).
Design modifications to the installed prototype unit will be completed subject to final laboratory analysis and correlation. Optimization
and testing of this first prototype unit are expected to continue in the third and fourth quarters of 2015.
The Company is working
in collaboration with Newfield, SRI, Dr. Carl Meinhart, and our manufacturing partner to design and build an AOT prototype unit,
for operations in the upstream crude oil pipeline market (“AOT Upstream”), specifically configured for pipeline operating
factors observed at Newfield’s Utah site. Our original plan was to retrofit an earlier prototype device previously tested
at RMOTC; however after multiple site visits and discussions with Newfield, it was determined a new, smaller unit, specifically
optimized for Newfield operations would be more appropriate for this field test opportunity. We plan to jointly test the AOT Upstream
prototype unit under typical upstream commercial pipeline conditions on Newfield’s pipeline in conjunction with the previously
installed Joule Heat unit.
Our expenses to
date have been funded primarily through the sale of shares of common stock and convertible debt, as well as proceeds from the exercise
of stock purchase warrants and options. We raised capital in 2014 and in the first six months of 2015, and we will need to raise
substantial additional capital through the end of 2015, and beyond, to fund our sales and marketing efforts, continuing research
and development, and certain other expenses, until our revenue base grows sufficiently.
There are significant
risks associated with our business, our Company and our stock. See “Risk Factors” in Part II, Item 1A below.
Results of Operation for the Three
and Six Months ended June 30, 2015 and 2014
| I. | Six Months ended June 30, 2015 and 2014 |
The Company had no revenues
in the six month periods ended June 30, 2015. The Company recognized $60,000 in revenues in the six month period ended June 30,
2014 pursuant to the delivery and acceptance of the AOT Equipment by TransCanada in June 2014.
Operating expenses were
$1,681,964 for the six-month period ended June 30, 2015, compared to $1,850,415 for the six-month period ended June 30, 2014, a
decrease of $168,451. This is due to decreases in non-cash expenses of $10,418, and in cash expenses of $157,232. Specifically,
the decrease in non-cash expenses are attributable to decreases in depreciation of $368 and stock compensation expenses attributable
to options granted to directors of $53,179, offset by increases in stock compensation expenses attributable to options and warrants
granted to employees and consultants of $43,129. The decrease in cash expense is attributable to decreases in salaries and benefits
of $222,521, consulting fees of $4,502, and rents of $15,065, offset by increases in corporate expenses of $36,029, travel and
related expenses of $26,929, legal and accounting of 9,182, insurance of $10,520 and other expenses of $2,196.
Research and development
expenses were $420,435 for the six-month period ended June 30, 2015, compared to $594,951 for the three-month period ended June
30, 2014, a decrease of $174,516. This decrease is attributable to decreases in prototype product development costs of $167,576,
and product testing, research, patents and other costs of $6,940.
Other income and expense
were $614,882 expense for the six-month period ended June 30, 2015, compared to $26,500 expense for the six-month period ended
June 30, 2014, a net increase in other expenses of $588,382. This increase is attributable to an increase in non-cash other expenses
of $591,382 and an increase in cash income of $3,000. The increase in non-cash other expense is an increase in expense attributable
to interest, beneficial conversion factors and warrants associated with convertible notes issued in 2015, offset by a decrease
in other non-cash expenses of $26,500 due to write-off of a receivables in 2014. The increase in other cash income is due to the
proceeds of $3,000 from sale fixed assets written off in prior years.
The Company had
a net loss of $2,717,281, or $0.01 per share, for the six-month period ended June 30, 2015, compared to a net loss of $2,411,866,
or $0.01 per share, for the six-month period ended June 30, 2014.
| II. | Three Months ended June 30, 2015 and 2014 |
The Company had no revenues
in the three June 30, 2015. The Company recognized $60,000 in revenues in the three month period ended June 30, 2014 pursuant to
the delivery and acceptance of the AOT Equipment by TransCanada in June 2014.
Operating expenses were
$826,512 for the three-month period ended June 30, 2015, compared to $925,428 for the three-month period ended June 30, 2014, a
decrease of $98,916. This decrease is attributable to decreases in non-cash expenses of $83,149, and in cash expenses of $15,767.
Specifically, the decrease in non-cash expenses are attributable to decreases in depreciation of $125 and stock compensation expense
attributable to options granted to directors of $121,494, offset by increases in stock compensation expenses attributable to options
and warrants granted to employees and consultants of $38,470. The decrease in cash expense is attributable to decreases in salaries
and benefits of $63,440, consulting fees of $27,230, legal and accounting of $2,834, and other expenses of $2,790, offset by increases
in corporate expenses of $40,689, travel and related expenses of $32,892, rents of $1,579 and insurance of $5,367.
Research and development
expenses were $147,658 for the three-month period ended June 30, 2015, compared to $142,964 for the three-month period ended June
30, 2014, an increase of $4,694. This increase is attributable to an increase in prototype product development costs of 12,445,
offset by a decrease in product testing, research, patents and other costs of $7,751.
Other income and
expense were $568,774 expense for the three-month period ended June 30, 2015, compared to $0 expense for the three-month period
ended June 30, 2014, a net increase in other expenses of $568,774. This increase is attributable to an increase in non-cash other
expenses of $570,274 and an increase in cash income of $1,500. The increase in non-cash other expense is attributable to interest,
beneficial conversion factors and warrants associated with convertible notes issued in 2015. The increase in other cash income
is due to the proceeds of $1,500 from sale fixed assets written off in prior years
The Company had
a net loss of $1,542,944, or $0.01 per share, for the three-month period ended June 30, 2015, compared to a net loss of $1,008,392,
or $0.01 per share, for the three-month period ended June 30, 2014.
Liquidity and Capital Resources
General
As reflected in
the accompanying consolidated financial statements, the Company has not yet generated significant revenues and has incurred recurring
net losses. We have incurred negative cash flow from operations since our inception in 1998 and an accumulated deficit of $99,762,479
as of June 30, 2015. Our negative operating cash flow in 2014 and the first six months of 2015 was funded primarily through issuance
of convertible notes and the exercise of stock purchase warrants and options for cash.
The accompanying
consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and
the settlement of liabilities and commitments in the normal course of business. As reflected in the accompanying consolidated financial
statements, the Company had a net loss of $2,717,281 and a negative cash flow from operations of $1,572,703 for the six-month period
ended June 30, 2015. These factors raise substantial doubt about our ability to continue as a going concern.
In addition, the
Company’s independent registered public accounting firm, in its report on the Company’s December 31, 2014 financial
statements, has raised substantial doubt about the Company’s ability to continue as a going concern. Our ability to continue
as a going concern is dependent upon our ability to raise additional funds and implement our business plan. The consolidated financial
statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.
Summary
At June 30, 2015,
we had cash on hand in the amount of $1,187,440. We will need additional funds to operate our business, including without limitation
the expenses we will incur in connection with the license and research and development agreements with Temple University; costs
associated with product development and commercialization of the AOT and related technologies; costs to manufacture and ship our
products; costs to design and implement an effective system of internal controls and disclosure controls and procedures; costs
of maintaining our status as a public company by filing periodic reports with the SEC and costs required to protect our intellectual
property. In addition, as discussed below, we have substantial contractual commitments, including without limitation salaries to
our executive officers pursuant to employment agreements, certain severance payments to a former officer and consulting fees, during
the remainder of 2015 and beyond.
No assurance
can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to the
Company.
Licensing Fees to Temple
University
For details of the
licensing agreements with Temple University, see Financial Statements attached hereto, Note 5 (Research and Development).
Critical Accounting Policies and Estimates
Our discussion and
analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these
consolidated financial statements and related disclosures requires us to make estimates and judgments that affect the reported
amounts of assets, liabilities, expenses, and related disclosure of contingent assets and liabilities. We evaluate, on an on-going
basis, our estimates and judgments, including those related to the useful life of the assets. We base our estimates on historical
experience and assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results
may differ from these estimates.
The methods, estimates
and judgments we use in applying our most critical accounting policies have a significant impact on the results that we report
in our consolidated financial statements. The SEC considers an entity’s most critical accounting policies to be those policies
that are both most important to the portrayal of a company’s financial condition and results of operations and those that
require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about
matters that are inherently uncertain at the time of estimation. For a more detailed discussion of the accounting policies of the
Company, see Note 1 of the Notes to the Condensed Consolidated Financial Statements, “Summary of Significant Accounting Policies”.
We believe
the following critical accounting policies, among others, require significant judgments and estimates used in the preparation of
our consolidated financial statements.
Estimates
The preparation
of consolidated financial statements in conformity with generally accepted accounting principles 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.
Certain significant estimates were made in connection with preparing our consolidated financial statements as described in Note
1 to Notes to the Condensed Consolidated Financial Statements. Actual results could differ from those estimates.
Stock-Based Compensation
The Company
periodically issues stock options and warrants to employees and non-employees in non-capital raising transactions for services
and for financing costs. The Company accounts for stock option and warrant grants issued and vesting to employees based on the
authoritative guidance provided by the Financial Accounting Standards Board whereas the value of the award is measured on the date
of grant and recognized over the vesting period. The Company accounts for stock option and warrant grants issued and vesting to
non-employees in accordance with the authoritative guidance of the Financial Accounting Standards Board whereas the value of the
stock compensation is based upon the measurement date as determined at either a) the date at which a performance commitment is
reached, or b) at the date at which the necessary performance to earn the equity instruments is complete. Non-employee stock-based
compensation charges generally are amortized over the vesting period on a straight-line basis. In certain circumstances where there
are no future performance requirements by the non-employee, option grants are immediately vested and the total stock-based compensation
charge is recorded in the period of the measurement date.
The fair value of
the Company's common stock option grants is estimated using the Black-Scholes Option Pricing model, which uses certain assumptions
related to risk-free interest rates, expected volatility, expected life of the common stock options, and future dividends. Compensation
expense is recorded based upon the value derived from the Black-Scholes Option Pricing model, and based on actual experience.
The assumptions used in the Black-Scholes Option Pricing model could materially affect compensation expense recorded in future
periods.
Going Concern
The accompanying
condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of
assets and the settlement of liabilities and commitments in the normal course of business. As reflected in the accompanying consolidated
financial statements, the Company had a net loss of $2,717,281 and a negative cash flow from operations of $1,572,703 for the six
month period ended June 30, 2015 and an accumulated deficit of $99,762,479 as of June 30, 2015. These factors raise substantial
doubt about the Company’s ability to continue as a going concern. In addition, the Company’s independent registered
public accounting firm, in its report on the Company’s December 31, 2014 financial statements, has raised substantial doubt
about the Company’s ability to continue as a going concern. The ability of the Company to continue as a going concern is
dependent upon the Company’s ability to raise additional funds and implement its business plan. The financial statements
do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
At June 30, 2015,
the Company had cash on hand in the amount of $1,187,440. Management expects that the current funds on hand will be sufficient
to continue operations through March 2016. Management is currently seeking additional funds, primarily through the issuance of
debt and equity securities for cash to operate our business, including without limitation the expenses it will incur in connection
with the license and research and development agreements with Temple; costs associated with product development and commercialization
of the Company’s technologies; costs to manufacture and ship the products; costs to design and implement an effective system
of internal controls and disclosure controls and procedures; costs of maintaining our status as a public company by filing periodic
reports with the SEC and costs required to protect our intellectual property. In addition, as discussed below, the Company has
substantial contractual commitments, including without limitation salaries to our executive officers pursuant to employment agreements,
certain severance payments to former officers and consulting fees, during the remainder of 2015 and beyond.
No assurance can
be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to the Company.
Even if the Company is able to obtain additional financing, it may contain undue restrictions on our operations, in the case of
debt financing or cause substantial dilution for our stockholders, in case of equity financing.
Item 3. Quantitative and Qualitative
Disclosure about Market Risk
We issue from time
to time fixed rate discounted convertible notes. Our convertible notes and our equity securities are exposed to risk as set forth
below, in Part II Item 1A, “Risk Factors.” Please also see Item 2, above, “Management’s Discussion and
Analysis of Financial Condition and Results of Operations.”
Item 4. Controls and Procedures
1. | Disclosure Controls and Procedures |
The Company's
management, with the participation of the Company's chief executive officer and chief financial officer, evaluated, as of June
30, 2015, the effectiveness of the Company's disclosure controls and procedures, which were designed to be effective at the reasonable
assurance level. The term "disclosure controls and procedures," as defined in Rules 13a-15(e) and 15d-15(e) under the
Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed
by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within
the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls
and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits
under the Exchange Act is accumulated and communicated to the company's management, including its principal executive and principal
financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls
and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and
management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based
on the evaluation of the Company's disclosure controls and procedures as of June 30, 2015, management, the chief executive officer
and the chief financial officer concluded that the Company's disclosure controls and procedures were effective at the reasonable
assurance level at that date.
(a) Changes
in Internal Control over Financial Reporting
No change in the
Company's internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred
during the six month period ended June 30, 2015 that has materially affected, or is reasonably likely to materially affect, the
Company's internal control over financial reporting.
PART
II – OTHER INFORMATION
Item 1. Legal Proceedings
There is no litigation
of any significance with the exception of the matters that have arisen under, and are being handled in, the normal course of business.
Item 1A. Risk Factors
There have been
no material changes in the risk factors previously disclosed in Form 10-K for the period ended December 31, 2014, which we filed
with the SEC on March 16, 2015.
Item 2. Unregistered Sales
of Equity Securities and Use of Proceeds
Issuances
During the six months
ended June 30, 2015, the Company issued 200,000 shares of common stock upon exercise of warrants at $0.25 per share for aggregate
net proceeds of $50,000.
During the six months
ended June 30, 2015, the Company issued 1,943,333 shares of its common stock upon the conversion of $602,800 in convertible notes
at $0.30 to $0.48 per share.
The proceeds received
by the Company in connection with the above issuances of shares were used for general corporate purposes.
Item 3. Defaults Upon Senior
Securities
None
Item 4. Mine Safety Disclosures
None
Item 5. Other Information
Increase in Outstanding
Shares
No additional shares
were issued by the Company during the period from July 1, 2015 through August 1, 2015.
Subsequent Events
QS Energy Pool,
Inc., a California corporation (“QSEP”), was formed as a wholly-owned subsidiary of the Company on July 6, 2015. QSEP
was formed to serve as a vehicle for the Company to explore, review and consider acquisition opportunities. No such opportunities
are currently under consideration. As of the date of this submission, QSEP had no assets.
Item 6. Exhibits
Exhibit No. |
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Description |
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31.1 |
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Certification of Chief Executive Officer of Quarterly Report Pursuant to Rule 13(a)-15(e) or Rule 15(d)-15(e) |
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31.2 |
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Certification of Chief Financial Officer of Quarterly Report pursuant to Rule 13(a)-15(e) or Rule 15(d)-15(e) |
|
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32 |
|
Certification of Chief Executive Officer and Chief Financial Officer of
Quarterly Report Pursuant to 18 U.S.C. Section 1350 |
|
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101.INS |
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XBRL Instance Document |
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101.SCH |
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XBRL Schema Document |
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101.CAL |
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XBRL Calculation Linkbase Document |
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101.LAB |
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XBRL Label Linkbase Document |
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101.PRE |
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XBRL Presentation Linkbase Document |
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101.DEF |
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XBRL Definition Linkbase Document |
SIGNATURES
In accordance
with Section 13 or 15(d) of the Exchange Act, the Registrant has caused this Report to be signed on its behalf by the undersigned,
hereunto duly authorized.
|
SAVE THE WORLD AIR, INC. |
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Date: August 7, 2015 |
By: |
/s/ Greggory M. Bigger |
|
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Greggory M. Bigger |
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Chief Financial Officer |
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|
EXHIBITS
Exhibit No. |
|
Description |
|
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31.1 |
|
Certification of Chief Executive Officer of Quarterly Report Pursuant to Rule 13(a)-15(e) or Rule 15(d)-15(e) |
|
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31.2 |
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Certification of Chief Financial Officer of Quarterly Report Pursuant to Rule 13(a)-15(e) or Rule 15(d)-15(e) |
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32 |
|
Certification of Chief Executive Officer and Chief Financial Officer of
Quarterly Report Pursuant to 18 U.S.C. Section 1350 |
|
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101.INS |
|
XBRL Instance Document |
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101.SCH |
|
XBRL Schema Document |
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101.CAL |
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XBRL Calculation Linkbase Document |
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101.LAB |
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XBRL Label Linkbase Document |
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101.PRE |
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XBRL Presentation Linkbase Document |
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101.DEF |
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XBRL Definition Linkbase Document |
EXHIBIT 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY
ACT OF 2002
AND RULES 13A-14 AND 15D-14 UNDER THE
SECURITIES EXCHANGE ACT OF 1934
I, Greggory M. Bigger,
certify that:
1.
I have reviewed this Quarterly Report on Form 10-Q of Save the World Air, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) or 15d-15(e) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(d)-15(f) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its condensed consolidated subsidiaries,
is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report
based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during
the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report)
that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors
(or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date: August 7, 2015 |
/s/ Greggory M. Bigger |
Greggory M. Bigger |
Chief Executive Officer |
EXHIBIT 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY
ACT OF 2002
AND RULES 13A-14 AND 15D-14 UNDER THE
SECURITIES EXCHANGE ACT OF 1934
I, Greggory M. Bigger,
certify that:
1.
I have reviewed this Quarterly Report on Form 10-Q of Save the World Air, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) or 15d-15(e) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(d)-15(f) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its condensed consolidated subsidiaries,
is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report
based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during
the registrant’s most recent fiscal quarter (the regis
trant’s fourth fiscal quarter in the case of an annual report)
that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors
(or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date: August 7, 2015 |
/s/ Greggory M. Bigger |
Greggory M. Bigger |
Chief Financial Officer |
EXHIBIT 32
CERTIFICATION OF PERIODIC FINANCIAL
REPORT BY THE CHIEF EXECUTIVE
OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY
ACT OF 2002
Solely for the purposes
of complying with 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, we, the
undersigned Acting Chief Executive Officer and the Chief Financial Officer of Save the World Air, Inc. (the “Company”),
hereby certify, based on our knowledge, that the Quarterly Report on Form 10-Q of the Company for the quarter ended June 30, 2015
(the “Report”) fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations
of the Company.
Date: August 7, 2015 |
/s/ Greggory M. Bigger |
Greggory M. Bigger |
Chief Executive Officer |
|
Date: August 7, 2015 |
/s/ Greggory M. Bigger |
Greggory M. Bigger |
Chief Financial Officer |
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