UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarter ended
For the transition period from ________ to ________
Commission file number:
(Exact Name of Registrant as Specified in Its Charter)
| (State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
(Address of Principal Executive Offices, including Zip Code)
Tel No.:
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| None | None | None |
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ |
| Smaller reporting company | |
| Emerging growth company |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No
The number of shares outstanding of the registrant’s classes of common stock as of January 5, 2024 was shares.
INDEX
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
The information contained in this Report, including in the documents incorporated by reference into this Report, includes some statements that are not purely historical and that are “forward-looking statements.” Such forward-looking statements include, but are not limited to, statements regarding our Company and management’s expectations, hopes, beliefs, intentions or strategies regarding the future, including our financial condition, results of operations, and the expected impact of the offering on the parties’ individual and combined financial performance. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words “anticipates,” “believes,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “might,” “plans,” “possible,” “potential,” “predicts,” “projects,” “seeks,” “should,” “will,” “would” and similar expressions, or the negatives of such terms, may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking.
The forward-looking statements contained in this Report are based on current expectations and beliefs concerning future developments and the potential effects on the parties and the transaction. There can be no assurance that future developments actually affecting us will be those anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond the parties’ control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date stated, or if no date is stated, as of the date hereof.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results. The following discussion should be read in conjunction with our financial statements and the related notes included in this Report.
| i |
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Energy and Water Development Corp.
Condensed Consolidated Balance Sheets
| September 30, | December 31, | ||||||||
| 2023 | 2022 | ||||||||
| (Unaudited) | |||||||||
| Assets | |||||||||
| Current assets: | |||||||||
| Cash | $ | $ | |||||||
| Accounts receivable | |||||||||
| Inventory | |||||||||
| Prepaid expenses and other current assets | |||||||||
| Total current assets | |||||||||
| Property and equipment, net | |||||||||
| Operating lease right-of-use asset | |||||||||
| Total assets | |||||||||
| Liabilities and stockholders' deficit | |||||||||
| Current liabilities | |||||||||
| Accounts payable and accrued expenses | $ | $ | |||||||
| Accounts payable - related party | |||||||||
| Convertible loans payable, net of discounts | |||||||||
| Due to officers | |||||||||
| Derivative liability | |||||||||
| Current portion of operating lease liability | |||||||||
| Current portion of financing lease liability | |||||||||
| Total current liabilities | |||||||||
| Financing lease liability, net of current portion | |||||||||
| Total Liabilities | |||||||||
| Commitments and contingencies | |||||||||
| Stockholders' deficit: | |||||||||
| Preferred stock, par value $per share; shares authorized, shares issued and outstanding at both September 30, 2023 and December 31, 2022 | |||||||||
| Common stock, par value $per share; shares authorized, and shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively | |||||||||
| Common stock subscriptions; and shares as of September 30, 2023 and December 31, 2022, respectively | |||||||||
| Additional paid in capital | |||||||||
| Accumulated deficit | ( | ) | ( | ) | |||||
| Accumulated other comprehensive income (loss) | ( | ) | ( | ) | |||||
| Total shareholders' deficit | ( | ) | ( | ) | |||||
| Total liabilities and stockholders' deficit | $ | $ | |||||||
See accompanying notes to the condensed consolidated financial statements (unaudited).
| 1 |
Energy and Water Development Corp.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||
| General and Administrative Expenses | |||||||||||||||||
| Professional fees | $ | $ | $ | $ | |||||||||||||
| Officers’ salaries and payroll taxes | |||||||||||||||||
| Marketing fees | |||||||||||||||||
| Travel and entertainment | |||||||||||||||||
| Other general and administrative expenses | |||||||||||||||||
| Total general and administrative expenses | |||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||
| Other income (expense) | |||||||||||||||||
| Change in fair value of derivative | ( | ) | ( | ) | |||||||||||||
| Other income (expense) | ( | ) | ( | ) | |||||||||||||
| Loss on settlement of liabilities | ( | ) | |||||||||||||||
| Interest income (expense), net | ( | ) | ( | ) | ( | ) | |||||||||||
| Total other income (expense) | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||
| Loss before taxes | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||
| Tax (income) expenses | ( | ) | |||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||
| Other comprehensive income (loss) | |||||||||||||||||
| Foreign currency translation adjustments | ( | ) | ( | ) | |||||||||||||
| Total other comprehensive income (loss) | ( | ) | ( | ) | |||||||||||||
| Comprehensive loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||
| Weighted average number of common shares outstanding | |||||||||||||||||
| Net loss per common share - Basic and Diluted | ) | ) | ) | ) | |||||||||||||
See accompanying notes to the condensed consolidated financial statements (unaudited).
| 2 |
Energy and Water Development Corp.
Condensed Statements of Changes in Stockholders’ Deficit
(Unaudited)
| Preferred Stock | Common Stock | Common Stock Subscriptions | Additional Paid-in | Accumulated | Accumulated Other Comprehensive | Total Stockholders' | ||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Loss | Deficit | |||||||||||||||||||||||||||||||
| BALANCE AT DECEMBER 31, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||
| Sale of Common Stock | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||
| Common stock issued for services | — | — | ||||||||||||||||||||||||||||||||||||||
| Common stock issued to satisfy convertible debt | — | — | ||||||||||||||||||||||||||||||||||||||
| Stock issued for interest and fees | — | — | ||||||||||||||||||||||||||||||||||||||
| Subscriptions liability reclassification to subscriptions | — | — | ||||||||||||||||||||||||||||||||||||||
| Derivative settled upon conversion of debt | — | — | — | |||||||||||||||||||||||||||||||||||||
| Subscription deposits received | — | — | ||||||||||||||||||||||||||||||||||||||
| Costs associated with equity line of credit | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | |||||||||||||||||||||||||||||||||||||
| BALANCE AT March 31, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||||||
| Sale of Common Stock | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||
| Common stock issued for services | — | — | ||||||||||||||||||||||||||||||||||||||
| Subscription deposits received | — | — | ||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | |||||||||||||||||||||||||||||||||||||
| BALANCE AT June 30, 2022 | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Sale of Common Stock | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||
| Common stock issued for services | — | — | ||||||||||||||||||||||||||||||||||||||
| Subscription deposits received | — | — | — | |||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | |||||||||||||||||||||||||||||||||||||
| BALANCE AT September 30, 2022 | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
See accompanying notes to the condensed consolidated financial statements (unaudited).
| 3 |
| Preferred Stock | Common Stock | Common Stock Subscriptions | Additional Paid-in | Accumulated | Accumulated Other Comprehensive | Total Stockholders' | ||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Loss | Deficit | |||||||||||||||||||||||||||||||
| BALANCE AT DECEMBER 31, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||
| Sale of Common Stock | — | |||||||||||||||||||||||||||||||||||||||
| Common stock issued to officers for accrued salary | — | — | ||||||||||||||||||||||||||||||||||||||
| Imputed interest on related party loans | — | — | — | |||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| BALANCE AT March 31, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||
| Sale of Common Stock | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||
| Common stock issued to satisfy convertible debt | — | — | ||||||||||||||||||||||||||||||||||||||
| Common stock issued for interest and fees | — | — | ||||||||||||||||||||||||||||||||||||||
| Derivative settled upon conversion of debt | — | — | — | |||||||||||||||||||||||||||||||||||||
| Subscription deposits received | — | — | ||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | |||||||||||||||||||||||||||||||||||||
| BALANCE AT June 30, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||
| Subscriptions liability reclassification to subscriptions | — | — | ||||||||||||||||||||||||||||||||||||||
| Sale of Common Stock | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||
| Common stock issued to satisfy convertible debt | — | — | ||||||||||||||||||||||||||||||||||||||
| Common stock issued for interest and fees | — | — | ||||||||||||||||||||||||||||||||||||||
| Derivative settled upon conversion of debt | — | — | — | |||||||||||||||||||||||||||||||||||||
| Subscription deposits received | — | — | ||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| BALANCE AT September 30, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||
See accompanying notes to the condensed consolidated financial statements (unaudited).
| 4 |
Energy and Water Development Corp.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| For the Nine Months Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Reconciliation of net loss to net cash used in operating activities | ||||||||
| Amortization of debt discount and deferred financing costs | ||||||||
| Depreciation and amortization | ||||||||
| Non-cash lease expense | ||||||||
| Change in fair value of derivative liability and derivative expense | ( | ) | ||||||
| Stock issued for services | ||||||||
| Imputed interest on related party loans | ||||||||
| Loss on settlement | ||||||||
| Bad debt expense | ||||||||
| Foreign currency (gain) loss | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Inventory | ( | ) | ( | ) | ||||
| Prepaid expenses and other current assets | ( | ) | ||||||
| Accounts payable, accrued expenses and deferred taxes | ||||||||
| Due to related party | ( | ) | ||||||
| Operating lease liabilities, current and non-current | ( | ) | ||||||
| Due to officers | ||||||||
| Cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from convertible notes | ||||||||
| Repayments of convertible loans payable | ( | ) | ||||||
| Proceeds from sale of stock | ||||||||
| Proceeds from subscriptions | ||||||||
| Payments of finance lease liabilities | ( | ) | ||||||
| Costs associated with equity line of credit | ( | ) | ||||||
| Cash provided by financing activities | ||||||||
| Effect of exchange rate changes on cash | ( | ) | ( | ) | ||||
| Net change in cash | ( | ) | ||||||
| Cash, beginning of period | ||||||||
| Cash, end of period | $ | $ | ||||||
| Supplemental cash flow information: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for taxes | $ | $ | ||||||
| Non-cash investing and financing activities: | ||||||||
| Common shares issued for interest and fees | $ | $ | ||||||
| Reclassification of common stock subscriptions to common stock | $ | $ | ||||||
| Common shares issued for conversion of loans payable | $ | $ | ||||||
| Derivative liability discount | $ | $ | ||||||
| Derivative settled upon conversion of debt | $ | $ | ||||||
| Reclassification of liability to equity for subscriptions | $ | $ | ||||||
| Addition of finance lease obligation | $ | $ | ||||||
See accompanying notes to the condensed consolidated financial statements (unaudited).
| 5 |
Energy and Water Development Corp.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
Note 1. Incorporation and Nature of Operations
Energy and Water Development Corp. (the “Company” or “EAWD”) was originally incorporated as a Delaware corporation named Wealthhound.com, Inc. in 2000 and was converted to a Florida corporation under the name Eagle International Holdings Group Inc. on December 14, 2007.
On March 10, 2008, the Company changed its name to Eurosport Active World Corporation and on March 17, 2008, the Company entered into an Agreement and Plan of Acquisition (the “Acquisition Agreement”) with Inko Sport America, LLC (“ISA”), a privately-held Florida limited liability company wherein all of the certified owners of ISA exchanged their ownership interests in ISA for shares of the Company. In connection with the closing of the Acquisition Agreement, the Company adopted ISA’s business plan and the Company’s registered directors were elected to their positions. This transaction was accounted for as a recapitalization effected by a share exchange, wherein ISA was considered the acquirer for accounting and financial reporting purposes. ISA was administratively dissolved in September 2010.
In September 2019, the Company changed its name to Energy and Water Development Corp. to more accurately reflect the Company’s purpose and business sector and the Company has registered its logo “EAWD” with the United States Patent and Trademark Office, the European Union Intellectual Property Office and the World Intellectual Property Organization (WIPO) to secure its corporate identity.
To ensure the Company is positioned to service its growing business in one of the EU’s most environmentally progressive countries, the Company has a branch registered to conduct business in Germany and two wholly-owned German subsidiaries: Energy and Water Development Deutschland GmbH (“EAWD Deutschland”) and EAWD Logistik GmbH (“EAWD Logistik”).
Note 2. Summary of Significant Accounting Policies
Principles of Consolidation and Basis of Presentation
The condensed consolidated financial statements include the accounts of EAWD and its subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.
The condensed consolidated financial statements (unaudited) include the accounts of Energy and Water Development Corp. and have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission. These unaudited condensed financial statements should be read in conjunction with the financial statements and related notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC.
In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements that would substantially duplicate the disclosures contained in the audited financial statements of Energy and Water Development Corp. for the fiscal year ended December 31, 2022, have been omitted.
Foreign currency translation
The United States dollar (“USD”) is the Company’s reporting currency. The Company has two subsidiaries located in Germany. The net sales generated, and the related expenses directly incurred from the operations, if any, are denominated in local currency, Euro (“Euro”). The functional currency of the subsidiaries is generally the same as the local currency.
Assets and liabilities measured in Euros are translated into USD at the prevailing exchange rates in effect as of the financial statement date and the related gains and losses, net of applicable deferred income taxes, are reflected in accumulated other comprehensive loss in its balance sheets. Income and expense accounts are translated at the average exchange rate for the period. The Company has not, to the date of these consolidated financial statements, entered into derivative instruments to offset the impact of foreign currency fluctuations. During the nine months ended September 30, 2023 the Company used a spot rate of 1.06 and an average rate of 1.08 when converting EURO to USD.
| 6 |
Energy and Water Development Corp. Notes to the Condensed Consolidated Financial Statements (Unaudited) |
Use of Estimates
The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting periods. Actual results could differ from those estimates. Estimates which are particularly significant to the financial statements include estimates relating to the determination of impairment of assets, assessment of going concern, the determination of the fair value of stock-based compensation, and the recoverability of deferred income tax assets.
Leases
Effective January 1, 2019, the Company adopted ASC 842- Leases (“ASC 842”). The lease standard provided a number of optional practical expedients in transition. The Company elected the package of practical expedients. As such, the Company did not have to reassess whether expired or existing contracts are or contain a lease; did not have to reassess the lease classifications or reassess the initial direct costs associated with expired or existing leases. The lease standard also provides practical expedients for an entity’s ongoing accounting. The Company elected the short-term lease recognition exemption under which the Company will not recognize right-of-use (“ROU”) assets or lease liabilities, and this includes not recognizing ROU assets or lease liabilities for existing short-term leases. The Company elected the practical expedient to not separate lease and non-lease components for certain classes of assets (facilities).
At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present in the arrangement. Leases with a term greater than one year are recognized on the balance sheet as right-of-use assets and short-term and long-term lease liabilities, as applicable.
Cash
The Company considers short-term interest-bearing
investments with initial maturities of three months or less to be cash equivalents. The Company has $
Inventory
Inventory is stated at the lower of cost or net realizable value using the first in, first out (FIFO) method. A reserve is established if necessary to reduce excess or obsolete inventories to their net realizable value.
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets include prepaid inventory, purchase deposits, miscellaneous prepaid expenses, value added tax receivable, and a security deposit.
Property and Equipment
Property and equipment is stated at cost, less accumulated depreciation. Depreciation is recognized over an asset’s estimated useful life using the straight-line method beginning on the date an asset is placed in service. The Company regularly evaluates the estimated remaining useful lives of the Company’s property and equipment to determine whether events or changes in circumstances warrant a revision to the remaining period of depreciation. Maintenance and repairs are charged to expense as incurred. Estimated useful lives of the Company’s Property and Equipment are as follows:
| Useful Life (in years) | |
| Office equipment | |
| Furniture and fixtures | |
| Automobile | |
| Machinery and equipment |
| 7 |
Energy and Water Development Corp. Notes to the Condensed Consolidated Financial Statements (Unaudited) |
Revenue Recognition
The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers, the core principle of which is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to receive in exchange for those goods or services.
To achieve this core principle, five basic
criteria must be met before revenue can be recognized: (1) identify the contract with a customer; (2) identify the performance obligations
in the contract; (3) determine the transaction price; (4) allocate the transaction price to performance obligations in the contract; and
(5) recognize revenue when or as the Company satisfies a performance obligation. During the three and nine months ended September 30,
2023 and 2022, the Company did
Fair Value of Financial Instruments
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at a measurement date. A fair value hierarchy requires an entity to maximize the use of observable inputs, where available, and minimize the use of unobservable inputs when measuring fair value.
Described below are the three levels of inputs that may be used to measure fair value:
Level 1 – Quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities,
Level 2 – Observable prices that are based on inputs not quoted on active markets, but corroborated by market data,
Level 3 – Unobservable inputs are used when little or no market data is available.
The application of the three levels of the fair value
hierarchy under ASC Topic 820-10-35, our derivative liabilities as of September 30, 2023 and December 31, 2022 were $
Certain assets and liabilities are required to be recorded at fair value on a recurring basis. The Company adjusts derivative financial instruments to fair value on a recurring basis. The fair value for other assets and liabilities such as cash, accounts receivable, prepaid expenses and other current assets, accounts payable and accrued expenses, deferred cost and deferred revenue have been determined to approximate carrying amounts due to the short maturities of these instruments. The Company believes that its indebtedness approximates fair value based on current yields for debt instruments with similar terms.
The Corporation accounts for earnings (loss) per share in accordance with FASB ASC Topic No. 260 - 10, “Earnings Per Share”, which establishes the requirements for presenting earnings per share (“EPS”). FASB ASC Topic No. 260 - 10 requires the presentation of “basic” and “diluted” EPS on the face of the statement of operations. Basic EPS amounts are calculated using the weighted-average number of common shares outstanding during each period. Diluted EPS assumes the exercise of all stock options, warrants and convertible securities having exercise prices less than the average market price of the common stock during the periods, using the treasury stock method. When a loss from operations exists, potential common shares are excluded from the computation of diluted EPS because their inclusion would result in an anti-dilutive effect on per share amounts.
| 8 |
Energy and Water Development Corp. Notes to the Condensed Consolidated Financial Statements (Unaudited) |
As discussed more fully in Note 10, convertible note holders have the option of converting their loans into common shares subject to the terms and features offered by the specific convertible notes. Some note holders were also granted purchase options to purchase additional shares subject to the features of each purchase option. If the convertible note holders of unexercised convertible notes exercised their conversion feature and the additional purchase options, they would represent 0 and 0 in additional common shares as of September 30, 2023 and 2022, respectively. The potential shares from both the conversion feature and the rights to purchase additional shares were excluded from the computation of diluted net loss per share, as the inclusion of such shares would be anti-dilutive.
Related Party Transactions
A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties. A related party is generally defined as:
| (i) | any person that holds 10% or more of the Company’s securities including such person’s immediate families, | |
| (ii) | the Company’s management, | |
| (iii) | someone that directly or indirectly controls, is controlled by or is under common control with the Company, or | |
| (iv) | anyone who can significantly influence the financial and operating decisions of the Company. |
Note 3. Recently Issued Accounting Standards
Accounting standards promulgated by the FASB are subject to change. Changes in such standards may have an impact on the Corporation’s future financial statements. The following are a summary of recent accounting developments.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses to improve information on credit losses for financial assets and net investment in leases that are not accounted for at fair value through net income. ASU 2016-13 replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses. In April 2019 and May 2019, the FASB issued ASU No. 2019-04, “Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments” and ASU No. 2019-05, “Financial Instruments-Credit Losses (Topic 326): Targeted Transition Relief” which provided additional implementation guidance on the previously issued ASU. In November 2019, the FASB issued ASU 2019-10, “Financial Instruments - Credit Loss (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842),” which defers the effective date for public filers that are considered small reporting companies (“SRC”) as defined by the Securities and Exchange Commission to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Since the Company is an SRC, implementation is not needed until January 1, 2023. The Company adopted ASU 2016-13 on January 1, 2023. The adoption did not have a material impact on the Company’s consolidated financial statements.
| 9 |
Energy and Water Development Corp. Notes to the Condensed Consolidated Financial Statements (Unaudited) |
Note 4. Going Concern
The Company has incurred operating losses since it
began operations (December 2012) totaling $
The Company’s ability to transition to profitable operations is dependent upon achieving a level of revenues adequate to support its cost structure. The timing and amount of our actual expenditures will be based on many factors, including cash flows from operations and the anticipated growth of our business and availability to sufficient resources.
Management expects sales operations to continue to expand. If necessary, the Company will need to raise additional funds during 2023. Management of the Company intends to raise additional funds through the issuance of equity securities or debt, credit lines or advances from suppliers. The ability of the Company to continue as a going concern depends upon its ability to generate sales or obtain additional funding to finance operating losses until the Corporation is profitable.
These factors raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying condensed consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Note 5. Accounts Receivable
As of September 30, 2023 and December 31, 2022, accounts
receivable was $
On September 1, 2023 EAWD and EAWC-TV entered into
a settlement agreement whereby the unpaid balance on the equipment of $
Note 6. Inventory
The components of inventory as of September 30, 2023 and December 31, 2022, consisted of the following:
| September 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| (Unaudited) | ||||||||
| Work in progress | $ | $ | ||||||
| Inventory, net | $ | $ | ||||||
| 10 |
Energy and Water Development Corp. Notes to the Condensed Consolidated Financial Statements (Unaudited) |
Note 7. Prepaid Expenses and Other Current Assets
The components of prepaid expenses and other current assets as of September 30, 2023 and December 31, 2022, consisted of the following:
| September 30, 2023 | December 31, 2022 | |||||||
| (Unaudited) | ||||||||
| Prepaid expenses | $ | $ | ||||||
| Value added tax receivable | ||||||||
| Security deposit | ||||||||
| Prepayment on inventory not received | ||||||||
| Prepaid expenses and other current assets | $ | $ | ||||||
Note 8. Property and Equipment, net
The components of property and equipment as of September 30, 2023 and December 31, 2022 consisted of the following:
| September 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| (Unaudited) | ||||||||
| Office equipment | $ | $ | ||||||
| Furniture and fixtures | ||||||||
| Financing lease equipment | ||||||||
| Machinery and equipment | ||||||||
| Automobile | ||||||||
| Property and equipment, gross | ||||||||
| Less: Accumulated depreciation | ( | ( | ) | |||||
| Property and equipment, net | $ | $ | ||||||
Depreciation expense for the three months ended September
30, 2023 and 2022 was $
Note 9. Accounts Payable and Accrued Expenses and Accounts payable – Related Party
Significant components of accounts payable and accrued expenses as of September 30, 2023 and December 31, 2022 are as follows:
| September 30, 2023 | December 31, 2022 | |||||||
| (Unaudited) | ||||||||
| Accrued expenses | $ | $ | ||||||
| Accounts payable | ||||||||
| Accrued legal costs | ||||||||
| Accrued salary and payroll taxes | ||||||||
| Total | $ | $ | ||||||
As of September 30, 2023 and December 31, 2022, the
Company owed Virhtech GmbH, a related party of the Company, $
| 11 |
Energy and Water Development Corp. Notes to the Condensed Consolidated Financial Statements (Unaudited) |
Note 10. Convertible Loans Payable
As of September 30, 2023 and December 31, 2022, the
balance of convertible loans payable net of discount was $
During the nine
months ended September 30, 2023, the Company issued one convertible loan in the aggregate amount of $
During the year
ended December 31, 2022, the Company issued one convertible loan in the aggregate amount of $
During the year
ended December 31, 2021, the Company issued two convertible loans in the aggregate amount of $
| Amount | ||||
| Balance of notes payable, net on December 31, 2021 | $ | |||
| Issuances of debt | ||||
| Cash settlement of debt | ( | ) | ||
| Debt discount | ( | ) | ||
| Conversions | ( | ) | ||
| Amortization of debt discount | ||||
| Balance of notes payable, net on December 31, 2022 | ||||
| Amortization of debt discount | ||||
| Balance of convertible loan payables, net of discounts on March 31, 2023 (Unaudited) | ||||
| Conversions | ( | ) | ||
| Amortization of debt discount | ||||
| Balance of convertible loan payables, net of discounts on June 30, 2023 (Unaudited) | ||||
| Issuances of debt | ||||
| Debt discount | ( | ) | ||
| Conversions | ( | ) | ||
| Amortization of debt discount | ||||
| Balance of convertible loan payables, net of discounts on September 30, 2023 (Unaudited) | $ | |||
Derivative Liability
The Company issued debts that consist of the issuance of convertible notes with variable conversion provisions. The conversion terms of the convertible notes are variable based on certain factors, such as the future price of the Company’s common stock. The number of shares of common stock to be issued is based on the future price of the Company’s common stock. The number of shares of common stock issuable upon conversion of the promissory note is indeterminate. Due to the fact that the number of shares of common stock issuable could exceed the Company’s authorized share limit, the equity environment is tainted, and all additional convertible debentures and warrants are included in the value of the derivative liabilities. Pursuant to ASC 815-15 Embedded Derivatives, the fair values of the variable conversion options and warrants and shares to be issued were recorded as derivative liabilities on the issuance date and revalued at each reporting period.
Based on the various convertible notes described above, the fair value of applicable derivative liabilities on notes and change in fair value of derivative liability are as follows as of September 30, 2023 and December 31, 2022:
| Total | ||||
| Balance as of December 31, 2021 | $ | |||
| Change Due to Issuances | ||||
| Change due to exercise / redemptions | ( | ) | ||
| Change in fair value | ( | ) | ||
| Balance as of December 31, 2022 | ||||
| Change in fair value | ( | ) | ||
| Balance as of March 31, 2023 (Unaudited) | ||||
| Change due to exercise / redemptions | ( | ) | ||
| Change in fair value | ||||
| Balance of derivative liability as of June 30, 2023 (Unaudited) | $ | |||
| Change Due to Issuances | ||||
| Change due to exercise / redemptions | ( | ) | ||
| Change in fair value | ||||
| Balance of derivative liability as of September 30, 2023 (Unaudited) | $ | |||
| 12 |
Energy and Water Development Corp. Notes to the Condensed Consolidated Financial Statements (Unaudited) |
A summary of quantitative information with respect to valuation methodology and significant unobservable inputs used for the Company’s derivative liabilities that are categorized within Level 3 of the fair value hierarchy for the periods ended September 30, 2023 and December 31, 2022 is as follows:
| September 30, 2023 | December 31, 2022 | |||||||
| (Unaudited) | ||||||||
| Stock price | $ | |
$ | |||||
| Exercise price | $ | |
$ | |||||
| Contractual term (in years) | ||||||||
| Volatility (annual) | % | % | ||||||
| Risk-free rate | % | % |
The foregoing assumptions are reviewed quarterly and are subject to change based primarily on management’s assessment of the probability of the events described occurring. Accordingly, changes to these assessments could materially affect the valuations.
Financial Liabilities Measured at Fair Value on a Recurring Basis
Financial liabilities measured at fair value on a recurring basis are summarized below and disclosed on the balance sheet under Derivative liability – warrants and derivative liabilities:
| Fair Value measured at September 30, 2023 (Unaudited) | ||||||||||||||||
| Quoted prices in active markets | Significant other observable inputs | Significant unobservable inputs | Fair value at December 31 | |||||||||||||
| (Level 1) | (Level 2) | (Level 3) | 2023 | |||||||||||||
| Derivative liability | $ | $ | $ | $ | ||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| Fair value measured at December 31, 2022 | ||||||||||||||||
| Quoted prices in active markets | Significant other observable inputs | Significant unobservable inputs | Fair value at December 31 | |||||||||||||
| (Level 1) | (Level 2) | (Level 3) | 2022 | |||||||||||||
| Derivative liability | $ | $ | $ | $ | ||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
There were no transfers between Level 1, 2 or 3 during the nine months ended September 30, 2023 and 2022.
During the three and nine months ended September 30,
2023 the Company recorded losses of $
| 13 |
Energy and Water Development Corp. Notes to the Condensed Consolidated Financial Statements (Unaudited) |
Note 11. Leases
Finance leases
The Company’s
financing lease does not provide an implicit rate that can be readily determined. Therefore, the Company uses discount rates based on
the incremental borrowing rate of its most recent external debt of
The Company’s
weighted-average remaining lease term relating to its finance leases is
The Company
incurred amortization expense for its financing leases of $
Operating leases
The Company’s
operating leases do not provide an implicit rate that can be readily determined. Therefore, the Company uses discount rates based on the
incremental borrowing rate of its most recent external debt of
The Company’s
weighted-average remaining lease term relating to its operating leases is
The Company
incurred lease expense for its operating leases of $
The following table presents information about the future maturity of the lease liabilities under the Company’s operating and financing leases as of September 30, 2023.
| Maturity of Lease Liabilities | Operating lease liabilities | Finance lease liability | Total Amount | |||||||||||
| 2023 (remainder of year) | $ | $ | $ | |||||||||||
| 2024 | ||||||||||||||
| 2025 | ||||||||||||||
| 2026 | ||||||||||||||
| 2027 | ||||||||||||||
| Total future minimum lease payments | ||||||||||||||
| Less: Imputed interest | ( |
( |
) | ( |
) | |||||||||
| Present value of lease liabilities | $ | $ | $ | |||||||||||
| Remaining lease term (in years) | ||||||||||||||
| 14 |
Energy and Water Development Corp. Notes to the Condensed Consolidated Financial Statements (Unaudited) |
77
Note 12. Related Party Transactions
Due to officers
Amounts due to officers as of September 30, 2023 and December 31, 2022 are comprised of the following:
| September 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| (Unaudited) | ||||||||
| Ralph Hofmeier: | ||||||||
| Unsecured advances due to officer | $ | $ | ||||||
| Accrued salaries | ||||||||
| Total due to Ralph Hofmeier | ||||||||
| Irma Velazquez: | ||||||||
| Unsecured advances due to officer | ||||||||
| Accrued salaries | ||||||||
| Total due to Irma Velazquez | ||||||||
| Total amounts due to officers | $ | $ | ||||||
Unsecured advances due to officers represent unreimbursed Corporation expenses paid by the officers on behalf of the Corporation. These advances are non-interest bearing and are due on demand.
Officer Compensation
Accrued salaries represent amounts accrued in accordance with the employment agreements for Mr. Hofmeier, the Company’s Chief Technology Officer and Chairman of the Board, and Ms. Velazquez, the Company’s Chief Executive Officer and Vice-Chairman of the Board. Mr. Hofmeier and Ms. Velazquez are also significant stockholders.
Virhtech GmbH
As of September 30, 2023
and December 31, 2022, the Company owed Virhtech GmbH, a related party of the Company, $
Investor deposit and officer compensation
On January 18, 2023, the Company issued shares of the Company’s common stock to officers for accrued salaries payable valued at $.
As of March 31, 2023, the Company received deposits in the amount of $ for common shares related to common stock subscriptions that were issued in May 2023.
As of June 30, 2023, the Company received deposits in the amount of $ for common shares related to common stock subscriptions that were issued during the quarter ended September 30, 2023.
As of September 30, 2023, the Company received deposits in the amount of $ for common shares related to common stock subscriptions that were issued during the quarter ended December 31, 2023.
| 15 |
Energy and Water Development Corp. Notes to the Condensed Consolidated Financial Statements (Unaudited) |
Note 13. Stockholders’ Equity (Deficit)
Preferred Stock
Authorized: shares of voting preferred stock with a par value of $0. As of both September 30, 2023 and December 31, 2022, the Company had 9,780,796 shares of preferred stock issued and outstanding.
Common Stock
Authorized: shares common stock with a par value of $0. As of September 30, 2023 and December 31, 2022, the Company had and shares of common stock outstanding, respectively.
Sale of Common Stock and Subscriptions:
On February 18, 2022, the Company received a deposit in the
amount of $
From January 1, 2022 through March 31, 2022, the Company has
issued common shares related to subscriptions outstanding at December 31, 2021 for total cash consideration of $
From April 1, 2022 through June 30, 2022, the Company has issued
common shares related to subscriptions outstanding at March 31, 2022 for total cash consideration of $
From January 1, 2023 through March 31, 2023, the Company
issued shares of the Company’s common stock to investors for an aggregate purchase price of $
From April 1, 2023 through June 30, 2023, the
Company sold
shares of the Company’s common stock to investors for an aggregate purchase price of $
From July 1, 2023 through September 30, 2023, the
Company sold shares of the Company’s common stock to investors for an aggregate purchase price of $
Shares issued pursuant to ELOC:
On January 26, 2022 the Company entered into a two year equity
line of credit (“ELOC”) with an investor to provide up to $
On January 26, 2022, the Company entered into a Securities Purchase
Agreement with an investor. As of March 31, 2022, common shares were issued pursuant to this agreement for a purchase price
of $
In the fourth quarter of 2022, the Company issued an additional
shares of the Company’s common stock pursuant to the ELOC for a purchase price of $
In the first quarter of 2023, the Company issued an
additional shares of the Company's common stock pursuant to the ELOC for an aggregate purchase price of $
Shares issued upon conversion of convertible debt:
On January 14, 2022, the Company completed a conversion of our
outstanding convertible debt by exchanging $
In the second quarter of 2023, the holder of our convertible
debt elected to convert $
In the third quarter of 2023, the holder of our convertible
debt elected to convert $
Shares issued for accrued salary:
On January 18, 2023, the Company issued an aggregate
shares of common stock to Gary Rodney at a per share price of $ in full satisfaction of all accrued but unpaid amounts payable
for services as interim chief financial officer pursuant to his consulting agreement by and between InfoQuest Technology, Inc. and the
Company dated June 2, 2021. The Company recognized a loss of $
On January 18, 2023, the Company issued an aggregate
shares of common stock to Ralph Hofmeier the Company’s Chief Technology Officer and Chairman of the Board at a per share
price of $ in full satisfaction of all accrued but unpaid amounts payable pursuant to his employment agreement by and between Ralph
Hofmeier and the Company dated August 4, 2022. The Company recognized a loss of $
| 16 |
Energy and Water Development Corp. Notes to the Condensed Consolidated Financial Statements (Unaudited) |
Note 14. Commitments and Contingencies
Commitments
Equity Line of Credit
The Company entered into a two-year Equity Line of
Credit pursuant to an Equity Purchase Agreement with Tysadco Partners, LLC, dated January 26, 2022. Pursuant to the agreement, Tysadco
Partners agreed to invest up to $
Employment Agreements
The Company entered into
employment agreements with its Chief Executive Officer, Mr. Ralph Hofmeier, and its Chief Operating Officer, Ms. Irma Velazquez (collectively
the “Employment Agreements”), effective January 1, 2012. Under the Employment Agreements, the Corporation will pay each of
Mr. Hofmeier and Ms. Velazquez an annual base salary of $
Effective as of August 4, 2022, Mr. Ralph M. Hofmeier has resigned as Chief Executive Officer and President of Energy and Water Development Corp. (the "Company"), and has been appointed as Chief Technology Officer of the Company. Mr. Hofmeier’s resignation is not a result of any disagreement with the Company or its independent auditors on any matter relating to the Company’s accounting, strategy, management, operations, policies, regulatory matters, or practices (financial or otherwise).
Effective as of August 4, 2022, Ms. Irma Velazquez has resigned as Chief Operating Officer of the Company, and has been appointed as Chief Executive Officer of the Company. Ms. Velazquez’s resignation is not a result of any disagreement with the Company or its independent auditors on any matter relating to the Company’s accounting, strategy, management, operations, policies, regulatory matters, or practices (financial or otherwise).
On
August 4, 2022, per a board of directors resolution, the Company entered into employment agreements with its Chief Technology
Officer, Mr. Ralph Hofmeier, and its Chief Executive Officer, Ms. Irma Velazquez (collectively the “2022 Employment Agreements”).
Effective for the fiscal year ended December 31, 2022, under the 2022 Employment Agreements, the base salary will be $
| 17 |
Energy and Water Development Corp. Notes to the Condensed Consolidated Financial Statements (Unaudited) |
Lease
Our registered office is located at 7901
4th Street N STE #4174, St. Petersburg, Florida 33702. Our telephone number is +1 (727) 677-9408. Office services are contracted for on
a month-to-month basis in this address. In October 2020, the Company established its official registered branch in Hamburg Germany; the
office address until March 31, 2021 was Offakamp 9f- 2.17. On April 1, 2021, the Company entered into two lease agreements for a workshop
located at Industriestraße 17, 25462 Relligen and an office located at Ballindam 3 20095 Hamburg, Germany. Our telephone number
is +49 40 809081354. Rent expense for the three months ending September 30, 2023 and 2022 amounted to $
The Company notified the landlord for one of its operating leases in May 2023 to effectively terminate the lease on June 30, 2023 as a precaution to the vague language used in the lease agreement. In response to the notification, the landlord has sought September 30, 2023 as the final date of the lease and demanded additional compensation for the early termination of the lease and for damages to the rental space. The Company may seek potential litigation against the landlord for demanding additional compensation that the Company does not believe the landlord is entitled to.
Contingencies
From time to time, the Corporation may be a defendant in pending or threatened legal proceedings arising in the normal course of its business. While the outcome and impact of currently pending legal proceedings cannot be predicted with certainty, the Corporation’s management and legal counsel believe that the resolution of these proceedings through settlement or adverse judgment will not have a material adverse effect on its operating results, financial position or cash flows.
Litigation
EAWD vs Packard and Co-Defendant Nick Norwood – Case number 18-031011 CA-01 Miami-Dade County Circuit Court. The Company is demanding the proof of payment for shares issued in 2008. The parties are currently scheduled to participate in non-binding arbitration.
EAWD vs Nerve Smart Systems ApS (“Nerve”) - Case number BS-15264/2022– The Court of Roskilde, Denmark. On April 2022, the Company filed a claim against Nerve demanding the return of the amounts paid by the Company for a Battery Energy Storage System that was never delivered by Nerve to the Company, and therefore Nerve did not meet the requirements and specifications of the contract with the Company. The Company is confident there will be a positive outcome in this case. This matter is not expected to be resolved prior to 2024 due to the long waiting times of the Danish court System.
Note 15. Subsequent Events
On October 2, 2023, the Company issued shares
of common stock to GS Capital Partners, LLC for conversion of $
For the three months ended September 30, 2023, the
Company received deposits in the amount of $
In October and November 2023, the Company sold shares of common
stock for $
In October and November 2023, the company issued and shares
of common stock per the 2022 Long Term Incentive Plan with conversion prices per share of $
On October 1, 2023, the Company entered into a facility lease
agreement with an unrelated party for an office and warehouse space located in Bargteheide, Germany. The monthly rental payments
due, inclusive of taxes, are $
| 18 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
INTRODUCTORY STATEMENT
The following discussion should be read in conjunction with our condensed financial statements and the notes to those condensed financial statements that are included elsewhere in this Report. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors. See “Forward-Looking Statements.”
RESULTS of OPERATIONS
Results of Operations for the Three Months ended September 30, 2023 Compared to the Three Months ended September 30, 2022
For the Three Months Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| General and Administrative Expenses | ||||||||
| Professional fees | $ | 348,355 | $ | 106,853 | ||||
| Officers’ salaries and payroll taxes | 134,117 | 128,545 | ||||||
| Marketing fees | — | 129,714 | ||||||
| Travel and entertainment | 13,213 | 5,920 | ||||||
| Other general and administrative expenses | 314,303 | 146,268 | ||||||
| Total general and administrative expenses | 809,988 | 517,300 | ||||||
| Loss from operations | (809,988 | ) | (517,300 | ) | ||||
| Other income (expense) | ||||||||
| Change in fair value of derivative | (189,042 | ) | — | |||||
| Other income (expense) | 4,753 | (134,599 | ) | |||||
| Loss on settlement of liabilities | — | — | ||||||
| Interest income (expense), net | (71,755 | ) | — | |||||
| Total other income (expense) | (256,044 | ) | (134,599 | ) | ||||
| Loss before taxes | (1,066,032 | ) | (651,899 | ) | ||||
| Tax (income) expense | (443 | ) | — | |||||
| Net loss | $ | (1,065,589 | ) | $ | (651,899 | ) | ||
| 19 |
General and Administrative Expense
General and administrative expense increased by $292,688 to $809,988 for the three months ended September 30, 2023 from $517,300 for the three months ended September 30, 2022.
The increase in general and administrative expenses was primarily due to an increase in professional fees of $241,502, officer’s salaries of $5,572, travel and entertainment expenses by $7,293 and other general and administrative expenses of $168,035, offset by a decrease in marketing fees of $129,714.
Other Income (Expense)
Other expense increased by $121,445 to $256,044 for the three months ended September 30, 2023 compared to other expense of $134,599 for the three months ended September 30, 2022. The increase in other expense is the result of an increase in the fair value of derivative of $189,042, and an increase in interest expense of $71,755, offset by an increase in other income of $139,352.
Net Loss
Net loss increased by $413,690 to $1,065,589 for the three months ended September 30, 2023 from $651,899 for the three months ended September 30, 2022. This decrease was attributable to the net increases and decreases as discussed above.
Results of Operations for the nine months ended September 30, 2023 Compared to the nine months ended September 30, 2022
| For the Nine Months Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| General and Administrative Expenses | ||||||||
| Professional fees | $ | 690,483 | $ | 398,593 | ||||
| Officers’ salaries and payroll taxes | 392,085 | 364,818 | ||||||
| Marketing fees | 23,832 | 223,313 | ||||||
| Travel and entertainment | 35,354 | 24,368 | ||||||
| Other general and administrative expenses | 719,030 | 384,559 | ||||||
| Total general and administrative expenses | 1,860,784 | 1,395,651 | ||||||
| Loss from operations | (1,860,784 | ) | (1,395,651 | ) | ||||
| Other income (expense) | ||||||||
| Change in fair value of derivative | (178,933 | ) | 243,653 | |||||
| Other income (expense) | 7,076 | (267,013 | ) | |||||
| Loss on settlement of liabilities | (196,159 | ) | — | |||||
| Interest income (expense), net | (165,848 | ) | (125,712 | ) | ||||
| Total other income (expense) | (533,864 | ) | (149,072 | ) | ||||
| Loss before taxes | (2,394,648 | ) | (1,544,723 | ) | ||||
| Tax (income) expense | 482 | — | ||||||
| Net loss | $ | (2,395,130 | ) | $ | (1,544,723 | ) | ||
General and Administrative Expense
General and administrative expense increased by $465,133 to $1,860,784 for the nine months ended September 30, 2023 from $1,395,651 for the nine months ended September 30, 2022.
The increase in general and administrative expenses was primarily due to an increase in professional fees of $291,890, travel and entertainment expenses by $10,986, other general and administrative expenses of $334,471 and officer’s salaries of $27,267, offset by a decrease in marketing fees of $199,481.
| 20 |
Other Income (Expense)
Other expense increased by $384,792 to $533,864 of other expense for the nine months ended September 30, 2023 compared to other expense of $149,072 for the nine months ended September 30, 2022. The increase in other expense is the result of a decrease in the change in fair value derivative liability of $422,586, loss on settlement of liabilities of $196,159 and increase in interest expense of $40,136, offset by a decrease in other expense of $274,089.
Net Loss
Net loss increased by $850,407 to $2,395,130 for the nine months ended September 30, 2023 from $1,544,723 for the nine months ended September 30, 2022. This increase was attributable to the net increases and decreases as discussed above.
LIQUIDITY and CAPITAL RESOURCES
We had $115,831 cash and negative working capital of $911,635 as of September 30, 2023. Our operating and capital requirements in connection with supporting our operations will continue to be significant. Since inception, our losses from operations and working capital requirements have been satisfied through the deferral of payment for services performed by our founders and related parties discussed more fully below.
We have sustained operating losses since our operations began. As of September 30, 2023, we had an accumulated deficit of $26,733,103. The Company cannot predict how long it will continue to incur further losses or whether it will ever become profitable as this is dependent upon the reduction of certain expenses and success in obtaining more project contracts, among other things. These conditions raise substantial doubt about the entity’s ability to continue as a going concern.
During the nine months ended September 30, 2023, the Company issued one convertible loan in the aggregate amount of $153,000. The note bears interest at 8% per annum and all matures within one year. The conversion features in the note met the definition of a derivative and required bifurcation and liability classification, at fair value. The fair value of the derivative liability as of the date of issuance was $81,530 and was recorded as a discount of the notes. During the nine months ended September 30, 2023, the Company received proceeds from sales of stock of $1,546,300.
During the year ended December 31, 2022, the Company issued one convertible loan in the aggregate amount of $178,000. The note bore interest at 8% per annum and all matured within one year. The conversion features in the note met the definition of a derivative and required bifurcation and liability classification, at fair value. The fair value of the derivative liability as of the date of issuance was $175,025 and was recorded as a discount of the notes.
We have satisfied our cash and working capital requirements in the three months ended September 30, 2023, through the sale of common stock.
Comparison of Cash Flows for the nine months ended September 30, 2023 (2023) and September 30, 2022 (2022)
Net cash used in operating activities
We used $1,553,442 of cash in our operating activities in 2023 compared to $1,318,574 used in 2022. The increase in cash used of $234,868 is primarily due to a decrease in stock issued for services of $268,100 decrease in foreign currency loss of $262,969 and an increase in net loss of $850,407, offset by an increase in amortization of debt discount and deferred financing costs of $88,108, increase in depreciation and amortization expense of $50,095, increase of non-cash lease expense of $52,369, decrease in change in fair value derivative liability and derivative expense of $422,586, increase in imputed interest on related party loans of $3,305, increase in loss on settlement of $196,159, and increase in bad debt expense of $52,761, as well as a decrease in cash used by working capital items of $281,225 principally related to a decrease in inventory of $261,785, a decrease in accounts payable, accrued expenses and deferred taxes of $32,683, an increase in due to officers of $45,760 and a decrease in due to related party of $71,095, offset by a decrease in prepaid expenses and other current assets of $77,729 and an increase in operating lease liabilities, current and non-current of $52,369.
| 21 |
Cash Flows from Investing Activities
The Company used $31,781 in cash from investing activities in 2023 as compared to $78,123 in 2022.
Cash Flows from Financing Activities
The Company received $1,677,288 (2023) and $891,000 (2022) in cash provided from financing activities. The net increase of $786,288 is due to $679,700 of proceeds from sale of stock, proceeds from subscriptions of $866,600 and proceeds from convertible notes of $153,000, offset by payments made on finance lease liabilities of $22,012.
Financial Position
Total Assets – As of September 30, 2023 the Company had $1,231,779 of total assets representing $115,831 in cash, $468,004 in inventory, $317,581 in prepaid expenses and other current assets, $320,619 in property and equipment, and $9,744 in operating lease right-of-use asset.
PLAN OF OPERATION AND FUNDING
We expect to generate more revenues which should, grow in time and lead to a positive cash flow. In the near future, we expect that working capital requirements will continue to be funded through sales contracts, lines of credit, convertible loans and/or further issuances of other securities in sufficient quantities that we will be able to meet our working capital requirement from these possible sources. Additional issuances of equity or convertible debt will result in dilution to our current shareholders.
We seek to focus on three main aspects of the water and energy business: (1) generation, (2) supply, and (3) maintenance. We seek to assist private companies, government entities and NGO’s to build profitable and sustainable supplies/generation capabilities of water and energy as required, by selling them the required technology or technical service to enhance their productivity/operability. With its outsourced technical arm and its commission-based global network of vendors, the Company expects to create sustainable added value to each project it takes on while generating revenue from the sale of EAWD Off-Grid AWG Systems, EAWD Off-Grid EV Charging Stations, EAWD Off-Grid Power Systems, and EAWD Off-Grid Water Purification Systems, royalties from the commercialization of energy and water in certain cases, and the licensing of our innovated technologies; as well as from its engineering, technical consulting, and project management services.
Through our BlueTech Alliance for Water Generation, established in December 2020, we have state-of-the-art technology partners, technology transfer agreements, and technology representation agreements in place relating to aspects of renewable energy and water supply. These unique key relationships offer important selling features and capabilities that differentiated EAWD from its competitors.
The Company plans to generate revenue from the sale of EAWD Off-Grid AWG Systems, EAWD Off-Grid EV Charging Stations, EAWD Off-Grid Power Systems, and EAWD Off-Grid Water Purification Systems, royalties from the commercialization of energy and water in certain cases, and the licensing of our innovated technologies, as well as from its engineering, technical consulting, and project management services.
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MATERIAL COMMITMENTS
Employment Agreements
The Company entered into employment agreements with each of Irma Velazquez, its Chief Executive Officer and Vice Chairman of the Board, and Ralph Hofmeier, its Chairman of the Board and Chief Technology Officer, effective August 4, 2022 (together, the “Executive Employment Agreements”). Under the Executive Employment Agreements, the Company agreed to pay each of Ms. Velazquez and Mr. Hofmeier an annual base salary of €200,000, which is approximately $210,000 per year with discretionary cash and equity bonuses available based on the Board’s assessment of the executive’s performance against applicable performance objectives as well as Company performance. Any increase to the annual base salary is subject to approval by the Company’s Board of Directors. The foregoing descriptions of the Executive Employment Agreements does not purport to be complete and is qualified in its entirety by reference to the copy of each agreement filed as Exhibits 10.1 and 10.2 the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC.
The Company also entered into employment agreements with 4 other employees, effective during the 3rd quarter of 2021. In 2022, The Company dismissed two employees to upgrade these positions as technical assistants.
OFF-BALANCE SHEET ARRANGEMENTS
We have no off-balance sheet arrangements.
GOING CONCERN
The next operational step to accomplish is to achieve sufficient sales volume to yield positive net income. Due to the timing of the project build out, the Company has currently recorded limited revenue and consequently has incurred operating losses since it began operations (December 2012) totaling $26,733,103 as of September 30, 2023. During the nine months ended September 30, 2023, the Corporation incurred net losses of $2,395,130. The Company also had a working capital deficit of $911,635 as of September 30, 2023.
The Company’s ability to transition to profitable operations is dependent upon achieving a level of revenue adequate to support its cost structure. The timing and amount of our actual expenditures will be based on many factors, including cash flows from operations and the anticipated growth of our business and availability to sufficient resources.
At the filling date of this report, management is working to conclude the sales in Germany and in other regions of the world relating to the previously approved proposals, which would bring a growing revenue. Managements plans to expand the sales operations by greater market penetration of the agricultural, industrial and community development markets with its innovative water and energy generation solution. Management also plans to raise additional funds during 2022 through the issuance of equity securities, from deposits related to customer purchase orders, and, if necessary, loans from management and third-party lenders. Management also plans to reduce expenses by centralizing the assembly, logistics and administrative operations of the Company into a larger, self-sufficient, off-grid location that will be able to house the storage of supplies and inventory, as well as provide space for assembly and administrative operations. The Company is also planning to acquire its own electric vehicles to reduce its supply transportation costs.
The ability of the Company to continue as a going concern depends upon its ability to generate sales or obtain additional funding to finance operating losses until the Corporation is profitable.
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ADDRESSING CHALLENGES POST-COVID-19
COVID-19 is an incomparable global public health emergency that has affected almost every industry and has caused the worst global economic contraction of the past 80 years (IMF) and the current war in Ukraine has also caused significant changes in consumer behavior and purchasing patterns, supply chain routing, the dynamics of current market forces, and government oversight and intervention. Disruptive activities could include the temporary closure of our manufacturing facilities and those used in our supply chain processes, restrictions on the export or shipment of our products, significant cutback of ocean container delivery from Germany, business closures in impacted areas, and restrictions on our employees’ and consultants’ ability to travel and to meet with customers. The extent to which COVID-19 or the war in Ukraine impacts our results will depend on future developments, which still uncertain and cannot be predicted, including new information which may emerge concerning the severity of the current conflict as well as virus variants and the actions to contain it or treat its impact, among others. COVID-19 and the war in Ukraine could also continue to result in social, economic and labor instability in the countries in which we or our customers and suppliers operate.
If workers at one or more of our offices or the offices of our suppliers or manufacturers become ill or are quarantined and in either or both events are therefore unable to work, our operations could be subject to disruption. Further, if our manufacturers become unable to obtain necessary raw materials or components, we may incur higher supply costs or our manufacturers may be required to reduce production levels, either of which may negatively affect our financial condition or results of operations.
In light of these challenges, the Company is focusing its efforts on supporting key areas of our business that will help us to stabilize in the new environment and strategize for what comes next. Those key areas are: crisis management and response, workforce, operation and supply chain, finance and liquidity, tax, trade and regulatory, as well as strategy and brand.
CRITICAL ACCOUNTING POLICIES
Our critical accounting policies are set forth in Note 2 to the condensed financial statements.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
We do not expect the adoption of recently issued accounting pronouncements as discussed in Note 3 to have a significant impact on our results of operations, financial position or cash flow.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are a smaller reporting company and are not required to provide the information under this item.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13(a)-15(e) and 15(d)-15(e)) as of December 31, 2022. This evaluation was carried out by our Principal Executive Officer and our Principal Finance Officer. Based on that evaluation, our Principal Executive Officer and our Principal Finance Officer concluded that, as of September 30, 2023, our disclosure controls and procedures were not effective due to the presence of material weaknesses in internal control over financial reporting.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. Management has identified the following material weaknesses, which have caused management to conclude that, as of September 30, 2023, our disclosure controls and procedures were not effective:
| · | Inadequate segregation of duties, due to lack of human resources | |
| · | Limited level of multiple reviews among those tasked with preparing the financial statements, | |
| · | Lack of a more formal internal control environment. |
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Remediation Plan to Address the Material Weaknesses in Internal Control over Financial Reporting
We intend to implement changes to strengthen our internal controls in addition to the enhanced controls discussed above. We are in the process of implementing a remediation plan for the identified material weaknesses and we expect that work on the plan will continue throughout 2023, as financial resources permit. Specifically, to address the material weaknesses arising from insufficient accounting personnel, the Company hired a part-time Chief Financial Officer and has secured the services of additional accounting personnel on a consulting basis which begins to address segregation of duties. The Company is currently formalizing its policies and procedures in writing and improving the integration of its financial and reporting system into non accounting departments. Where appropriate, the Company receives advice and assistance from third-party experts as it implements and refines its remediation plan.
Additional measures may be necessary, and the measures we expect to take to improve our internal controls may not be sufficient to address the issues identified, to ensure that our internal controls are effective or to ensure that such material weakness or other material weaknesses would not result in a material misstatement of our annual or interim financial statements. In addition, other material weaknesses or significant deficiencies may be identified in the future. If we are unable to correct deficiencies in internal controls in a timely manner, our ability to record, process, summarize and report financial information accurately and within the time periods specified in the rules and forms of the SEC will be adversely affected. This failure could negatively affect the market price and trading liquidity of our common stock, cause investors to lose confidence in our reported financial information, subject us to civil and criminal investigations and penalties, and generally materially and adversely impact our business and financial condition.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the fiscal quarter ended September 30, 2023 that have materially affected, or are reasonable likely to materially affect, our internal control over financial reporting.
Limitations on the Effectiveness of Internal Controls
Management’s conclusion that our disclosure controls and procedures were not effective means that if a fraud or material misstatement of the company’s annual or interim financial statements were to occur; there is a reasonable possibility that they will not be prevented or detected on a timely basis. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the internal control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
EAWD vs Packard and Co-Defendant Nick Norwood - Case number 18-031011 CA-01 Miami-Dade County Circuit Court. The Company is demanding the proof of payment for shares issued in 2008. The parties are currently scheduled to participate in non-binding arbitration.
EAWD vs Nerve Smart Systems ApS (“Nerve”) Case number BS-15264/2022– The Court of Roskilde, Denmark. On April 2022, the Company filed a claim against Nerve demanding the return of amounts paid by the Company for a Battery Energy Storage System that was never delivered by Nerve to the Company, and therefore Nerve did not meet the requirements and specifications of the contract with the Company. The Company is confident there will be a positive outcome. This matter is not expected to be resolved prior to 2024 due to the long waiting times of the Danish court System.
ITEM 1A. RISK FACTORS
We are a smaller reporting company and are not required to provide the information under this item.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The Company issued 39,748,459 common shares during the nine months ended September 30, 2023.
The sale and the issuance of the foregoing securities were offered and sold in reliance upon exemptions from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”) and Rule 506 of Regulation D promulgated under the Securities Act (“Regulation D”). We made this determination based on the representations of each recipient, as applicable, which included, in pertinent part, that each such investor was either (a) an “accredited investor” within the meaning of Rule 501 of Regulation D or (b) a “qualified institutional buyer” within the meaning of Rule 144A under the Securities Act and upon such further representations from each investor that (i) such investor acquired the securities for his, her or its own account for investment and not for the account of any other person and not with a view to or for distribution, assignment or resale in connection with any distribution within the meaning of the Securities Act, (ii) such investor agreed not to sell or otherwise transfer the purchased securities unless they are registered under the Securities Act and any applicable state securities laws, or an exemption or exemptions from such registration are available, (iii) such investor had knowledge and experience in financial and business matters such that he, she or it was capable of evaluating the merits and risks of an investment in us, (iv) such investor had access to all of our documents, records, and books pertaining to the investment and was provided the opportunity to ask questions and receive answers regarding the terms and conditions of the offering and to obtain any additional information which we possessed or were able to acquire without unreasonable effort and expense, and (v) such investor had no need for the liquidity in its investment in us and could afford the complete loss of such investment. In addition, there was no general solicitation or advertising for such securities issued in reliance upon these exemptions.
The proceeds were used to cover expenses of Company operations.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. MINE SAFETY DISCLOSURES
N/A
ITEM 5. OTHER INFORMATION
N/A
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ITEM 6. EXHIBITS
EXHIBIT INDEX
| Incorporated by Reference | Filed or Furnished | |||||||||||
| Exhibit # | Exhibit Description | Form | Date Filed | Exhibit # | Herewith | |||||||
| 31.1 | Certification of Principal Executive Officer (Section 302) | * | ||||||||||
| 31.2 | Certification of Principal Financial Officer (Section 302) | * | ||||||||||
| 32.1 | Certification of Principal Executive Officer and Principal Financial Officer (Section 906) | * | ||||||||||
| 101.INS | Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) | * | ||||||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | * | ||||||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | * | ||||||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | * | ||||||||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | * | ||||||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | * | ||||||||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | * | ||||||||||
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Energy and Water Development Corp. | ||
| Date: January 12, 2024 | By: | /s/ Irma Velazquez |
| Irma Velazquez | ||
| Chief Executive Officer (Principal Executive Officer) | ||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Signature | Title | Date | ||
| /s/ Irma Velazquez | Chief Executive Officer, Director, and | January 12, 2024 | ||
| Irma Velazquez | Vice-Chairperson of the Board (Principal Executive Officer) | |||
| /s/ Amedeo Montonati | Chief Financial Officer (Principal Financial Officer and | January 12, 2024 | ||
| Amedeo Montonati | Principal Accounting Officer) | |||
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