Recent Developments (Management Discussion and A

Recent Developments (Management Discussion and Analysis)

Beginning in early 2012, members of the Company’s executive management team began meeting with senior management and executive management and project management teams of energy upstream producers, gathering system pipeline transporters, and midstream pipeline transporters from both domestic and foreign companies as potential customers. Management continued to meet with an increasing number of potential customer industry representatives throughout the 2012 year.

The oil and  gas industry is typically divided into three major sectors: upstream, midstream and downstream. The upstream oil sector is also commonly known as the exploration and production sector. Gathering systems are pipelines used to collect natural gas and/or crude oil from production facilities for transportation to transmission or distribution lines, which then transports the gas and/or crude oil to the consumer. The midstream sector involves the transportation by transmission or distribution lines, for storage and marketing of the various oil and gas products produced by natural gas and crude oil processing plants and petroleum crude oil refineries.

Throughout 2012, the Company established relationships and formal arrangements with multiple manufacturing supply chain companies in line with the Company’s horizontal integration corporate strategy. STWA has established relationships with three supply chain manufacturing companies located in Casper, Wyoming. One manufacturer fabricates “pressure vessels” in accordance with STWA generated designs and engineering drawings. One manufacturer fabricates metal machined parts in accordance with STWA generated designs and engineering drawings. One manufacturer fabricates and assembles electronics components in accordance with STWA generated designs and engineering drawings. STWA has elected this strategy in accordance with its corporate strategic goals to reduce up front capital expenditures (“CAPEX”), in lieu of developing a vertically-integrated strategy due to its cost prohibitive nature. All manufacturing companies are under independent contractor agreements and non-disclosure agreements, which were in force as of our fiscal year ended December 31, 2012.

CAPEX represents funds that are used by a company to acquire or upgrade physical assets such as equipment, property, or industrial buildings.

Throughout 2012, the Company established relationships and formal arrangements with multiple scientific, engineering and manufacturing consultant experts in line with the Company’s technology development and corporate strategies.  These persons represent mechanical engineering, fluid dynamics, fluid mechanics, hydraulics engineering, electrical engineering, scientific research and analysis, and visualization of complex molecular dynamics.

Throughout 2012, the Company engaged several energy midstream and upstream companies under mutually-binding Non-Disclosure and Non-Competition Agreements to begin the process of conducting laboratory testing and case study analyses for those companies as a joint collaborative effort between us and Temple University, many of which are still in the negotiation, analysis and review process at our fiscal year ended December 31, 2012.

In December, 2012 the Company added former state Senator Ryan Zinke (Montana) to the board of directors.

In December, 2012 the Company increased its Intellectual Property Portfolio to 41 Patents issued,pending and licensed.In October, 2012 the Company conducted successful field testing of the AOT prototype 1.3VX with the Chinese Petroleum Pipeline Bureau (CPP) on the Daqing Oilfield in Northeastern China.

In September, 2012 the Company appointed its chief financial officer, Mr. Gregg Bigger, to the additional role of Company President.

In September, 2012 the Company began production of its first AOT Midstream commercial design (“AOT 2.0”, “AOT Midstream”) with its supply chain based in Casper, Wyoming.

In September, 2012 the Company completed programming of its proprietary software system, with successful results presented to domestic and international executive management teams from the Company’s customer base. The software system is designed to allow STWA to analyze and collaborate with our prospective clientele’s engineering teams. The software allows STWA to conduct sample hydraulic modeling analysis, using data provided to STWA by the prospective clientele’s engineering teams.

In July, 2012 the Company shipped the AOT 1.3VX prototype to China for testing at the National Pipeline R&D Flow Assurance Test Facility in Langfang, China.

In July, 2012 the Company completed successful manufacturing of the re-engineered 1.3VX prototype for export to China for testing on a commercial oilfield located near Daqing, China. The company worked with  China Petroleum Pipeline Bureau, and the Daqing Oilfield Company Limited, a subsidiary of Petrochina , to conduct on-site pipeline field testing of the 1.3VX prototype.

In July, 2012 the Company began design and programming of a proprietary software system to model customers’ pipelines for the purposes of value demonstration of the Company’s on-demand viscosity reduction systems

In June, 2012 the Company presented its technology and testing developments to the Pipeline Research Council International (PRCI) in Denver, Colorado.

In June, 2012 the Company sponsored successful Temple University laboratory testing with the Chinese Petroleum Pipeline Bureau (CPP) in Langfang, China.

In May, 2012 the Company completed successful field testing of AOT prototype 1.2V with the United States Department of Energy at the Rocky Mountain Oilfield Testing Center.  (  www.rmotc.doe.gov ).

In April, 2012 the Company completed successful manufacturing of the re-engineered AOT 1.2V prototype.

In March, 2012 the Company completed successful field testing of AOT prototype 1.2H with the United States Department of Energy at the Rocky Mountain Oilfield Testing Center.  (  www.rmotc.doe.gov ).

In March, 2012 the Company awarded a research grant to Temple University for additional technology development of new products in addition to the current technology. (https://phys.cst.temple.edu)

In February, 2012 the Company completed successful manufacturing of the re-engineered AOT 1.2H prototype.

In February, 2012 the Company appointed Mr. Gregg Bigger as its Chief Financial Officer (CFO).

In January, 2012 the Company signed a five year funds-in operating agreement with the United States Department of Energy Naval Petroleum and Oil Shale Reserves-CUW (NPR-3) (“Rocky Mountain Oilfield Testing Center (RMOTC)”)

In January, 2012 the Company began design engineering of the AOT midstream commercial product (“AOT 2.0”, “AOT Midstream”) for large diameter crude oil pipelines (“Trunk Lines”) with assistance from Temple University, with engineering and manufacturing support from the Company’s supply chain, and with the Company’s network of engineering consultants.

In January, 2011 Dr. Rongjia Tao presented his paper    "Controlling the Viscosity of Liquid Suspensions with Electrorheology and Magnetorheology," at the 13  ^th International Conference on Electrorheological Fluids and Magnetorheological Suspension at Gazi University in Ankara, Turkey on July 2  ^nd through 6  ^th , 2012. The conference brought together leading scientists and engineers from around the world to explore state-of-the art multidisciplinary technology.