Notes to the Condensed Financial
Statements (Unaudited)
Note 1. Incorporation and Nature
of Operations
Energy and Water Development Corp. (the “Corporation”,
“Company” or “EAWD”), was incorporated under the laws of the State of Florida on December 12, 2007. In September
2019, the Company changed its name from Eurosport Active World Corp. to Energy and Water Development Corp. to better present the Company’s
purpose and business sector. We are an engineering services company formed as an outsourcing green tech platform, seeking to exploit renewable
energy and water technologies.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation
The condensed financial statements (unaudited)
include the accounts of Energy and Water Development Corp. 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, 2020 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, 2020, have
been omitted.
Certain reclassifications have been made in
December 31, 2020 results to conform to the presentation used in September 30, 2021 including the reclassification of $10,040,000
from additional paid-in capital to common stock subscriptions on the condensed balance sheets and condensed statements of changes in
stockholders’ deficit. These reclassifications had no effect on the reported results of operations of the Company or total
equity.
Foreign currency translation
The United States dollar (“USD”)
is the Company’s reporting currency. The Company has a branch located in Germany. The net sales generated, and the related expenses
directly incurred from the operations, if any, are denominated in local currency, Euro (“EUR”). The functional currency of
the subsidiary 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 condensed financial statements,
entered into derivative instruments to offset the impact of foreign currency fluctuations.
Use of Estimates
The preparation of condensed 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 condensed financial statements include estimates relating to the determination
of impairment of assets, assessment of going concern, the useful life of property and equipment, the determination of the fair value of
stock-based compensation, and the recoverability of deferred income tax assets.
Energy and Water Development Corp.
Notes to the Condensed Financial
Statements (Unaudited)
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 $62,541
and $12,047
cash at September 30, 2021 and December 31, 2020, respectively.
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 purchase deposits,
miscellaneous prepaid expenses, value added tax receivable, and a security deposit.
Property and Equipment
Property and equipment are stated at cost,
less accumulated depreciation, including assets acquired under capital leases or finance leases, are recorded over the shorter of the
estimated useful life or the lease term of the applicable assets 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. Certain capitalized software has
been reclassified from property and equipment to intangibles and comparative periods have been adjusted accordingly. Maintenance and repairs
are charged to expense as incurred. The estimated useful lives of the Company’s Property and Equipment are as follows:
|
Schedule of estimated useful lives
|
|
|
|
|
|
Useful Life
(in years)
|
|
Office equipment
|
|
5
|
|
Furniture and fixtures
|
|
7
|
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, 2021 and December 31, 2020, were $968,751
and $310,641, respectively and
measured on Level 3 inputs.
Energy and Water Development Corp.
Notes to the Condensed Financial
Statements (Unaudited)
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.
Loss Per Common Share
The Corporation accounts for 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.
For the three and nine months ended September 30,
2020, an aggregate of 2,200,000 stock
options to purchase shares of common stock were excluded from the computation of diluted net loss per share, as the inclusion of
such shares would be anti-dilutive. These stock options expired as of September 30, 2021.
As discussed more fully in Note 7,
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 10,114,286
and 2,897,917 in additional common shares at
September 30, 2021 and 2020, 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.
Deferred Financing Costs
The Company has recorded deferred financing costs
as a result of fees incurred by the Company in conjunction with its debt financing activities. These costs are amortized to interest expense
using the straight-line method which approximates the interest rate method over the term of the related debt. As of September 30, 2021 and
December 31, 2020, unamortized deferred financing costs were $10,739 and $0, respectively and are netted against the related debt.
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.
|
Customer deposit
The Company´s Distributor EAWC-TV, placed a
$550,000 order for a solar powered atmospheric water generator (“AWG”) for one of its customers. EAWC-TV and the Company on
December 13, 2019, agreed to accept a $303,742 reduction in the balance owed by EAWD to EAWC-TV as a deposit with EAWD related to this
order. The deposit will be satisfied through delivery of the equipment when performance has occurred. The equipment was built in Germany.
EAWC-TV has an unpaid balance on the equipment of $52,761, which represents the entire balance of the Company´s outstanding accounts
receivables as September 30, 2021.
Energy and Water Development Corp.
Notes to the Condensed Financial
Statements (Unaudited)
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 will continue to evaluate the effect of adopting ASU 2016-13 will have on the Company’s financial statements
and disclosures.
On January 1, 2021, the Company adopted ASU
No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to simplify
various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740
and also clarifies and amends existing guidance to improve consistent application. The adoption of ASU 2019-12 did not have a material
impact on the Company’s condensed financial statements.
In June 2020, the FASB issued ASU No. 2020-06,
Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic
815-40). This standard eliminates the beneficial conversion and cash conversion accounting models for convertible instruments. It also
amends the accounting for certain contracts in an entity’s own equity that are currently accounted for as derivatives because of
specific settlement provisions. In addition, the new guidance modifies how particular convertible instruments and certain contracts that
may be settled in cash or shares impact the diluted EPS computation. For public business entities, it is effective for fiscal years beginning
after December 15, 2021, including interim periods within those fiscal years using the fully retrospective or modified retrospective method.
Early adoption is permitted but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those
fiscal years. The Company is currently evaluating the impact this new guidance will have on its condensed financial statements.
In May 2021, the FASB issued ASU No. 2021-04,
Earnings Per Share (Topic 260), Debt – Modifications and Extinguishments (Subtopic 470-50), Compensation – Stock Compensation
(Topic 718), and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for
Certain Modification or Exchanges of Freestanding Equity-Classified Written Call Options (“ASU 2021-04”), which will clarify
and reduce diversity in practice. Specifically, the new standard includes a recognition model comprising four categories of transactions
and corresponding accounting treatment for each category. The category that would apply to a modification or an exchange of an equity-classified
warrant would depend on the substance of the modification transaction (e.g., a financing transaction to raise equity versus one to raise
debt). This recognition model is premised on the idea that the accounting for the transaction should not differ from what it would have
been had the issuer of the warrants paid cash instead of modifying the warrants. ASU 2021-04 will be effective for fiscal years beginning
after December 15, 2021 and interim periods within those fiscal years. Early adoption is permitted. This ASU will be applied prospectively
to modifications or exchanges occurring on or after the effective date of the ASU. The Company is currently evaluating the impact this
new guidance will have on its condensed financial statements.
Energy and Water Development Corp.
Notes to the Condensed Financial
Statements (Unaudited)
Note 4. Going Concern
The Company delivered its first equipment sale on
December 26, 2020. The Company will recognize the sale for $550,000 net of costs of $350,000 and earning a $200,000 gross profit once the installation is complete. The next operational step to accomplish is
to achieve sufficient sales volume to
yield positive a net income.
The Company has incurred operating losses since it began operations (December 2012) totaling $20,697,515
at September 30, 2021. During the three and nine months ended September 30, 2021, the Corporation incurred net losses of $502,055
and $1,339,588, respectively. The Company also incurred a working capital deficit of $1,923,626
at September 30, 2021.
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 through the remainder of 2021. Management of the Company intends to raise additional
funds through the issuance of equity securities or debt or from deposits related to purchases orders on proposals
pending customer acceptance. 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 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
At September 30, 2021 and December 31, 2020, accounts receivable
was $52,761 and determined to be fully collectible.
Note 6. Inventory
The components of inventory at September 30, 2021, consisted of
the following:
|
Schedule Of Inventories
|
|
|
|
|
|
|
|
September 30, 2021
|
|
|
Work in progress
|
|
$
|
399,581
|
|
|
Raw materials
|
|
|
4,351
|
|
|
Inventory, net
|
|
$
|
403,932
|
|
Note 7. Deferred Cost
During the fourth quarter of 2020, the Company delivered its first
equipment sale pursuant to an equipment sale agreement; however, the revenue and construction costs will not be recognized until the equipment
is installed. The installation of the equipment has been deemed to be an unfulfilled performance obligation at September 30, 2021 and
December 31, 2020. Deferred cost at both September 30, 2021 and December 31, 2020 was $350,000.
Note 8. Prepaid Expenses and Other Current Assets
The components of prepaid expenses and other current assets at
September 30, 2021 and December 31. 2020, consisted of the following:
|
Schedule Of Prepaid Expenses And Other Current Assets
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
|
December 31, 2021
|
|
|
Purchase deposits
|
|
$
|
125,135
|
|
|
$
|
—
|
|
|
Miscellaneous prepaid expenses
|
|
|
294
|
|
|
|
14,184
|
|
|
Value added tax receivable
|
|
|
67,072
|
|
|
|
—
|
|
|
Security deposit
|
|
|
5,215
|
|
|
|
—
|
|
|
Prepaid expenses and other current assets
|
|
$
|
197,716
|
|
|
$
|
14,184
|
|
Energy and Water Development Corp.
Notes to the Condensed Financial
Statements (Unaudited)
Note 9. Related Party Transactions
Due to officers
Amounts due to officers as of September 30, 2021 and December 31,
2020 are comprised of the following:
|
Due to Officers
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
Ralph Hofmeier:
|
|
|
|
|
|
|
|
Unsecured advances due to officer
|
|
$
|
18,482
|
|
|
$
|
17,778
|
|
|
Accrued salaries
|
|
|
37,178
|
|
|
|
-
|
|
|
Total due to Ralph Hofmeier
|
|
|
55,660
|
|
|
|
17,778
|
|
|
|
|
|
|
|
|
|
|
|
|
Irma Velazquez:
|
|
|
|
|
|
|
|
|
|
Unsecured advances due to officer
|
|
|
(21,052
|
)
|
|
|
66,898
|
|
|
Accrued salaries
|
|
|
50,000
|
|
|
|
-
|
|
|
Total due to Irma Velazquez
|
|
|
28,948
|
|
|
|
66,898
|
|
|
|
|
$
|
84,608
|
|
|
$
|
84,676
|
|
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 President, Chief Executive Officer and Chairman of the
Board, and Ms. Velazquez, the Company’s Chief Operating Officer and Vice-Chairman. Mr. Hofmeier and Ms. Velazquez are also significant
stockholders.
On December 18, 2020, the Company entered into
a Settlement Agreement with each of Mr. Hofmeier and Ms. Velazquez whereby Mr. Hofmeier and Ms. Velazquez each agreed to receive 300,000
shares of its Series A Preferred Stock with a fair market value of $150,000 (collectively, the “Compensation Shares”). Compensation
Shares are issued in full satisfaction of $150,000 accrued salary due the Employees, Mr. Ralph Hofmeier and Mrs. Irma Velazquez, MSc.
simultaneously herewith, each employee shall receive a one-time bonus of (i) 10,000,000 shares of its Common Stock with a fair market
value of $1,500,000 and (ii) 2,700,000 shares of its Series A Preferred Stock, with a fair market value of $1,350,000
(collectively the “Bonus Shares”).
Customer deposit
EAWC-TV functions as a distributor of EAWD product.
In 2019, EAWC-TV, having secured EAWD’s first customer, has placed a $550,000
order for a solar powered atmospheric water generator (“AWG”) for one of its customers. EAWC-TV and the Company on
December 13, 2019 agreed to accept a $303,742
reduction in the balance owed by EAWD to EAWC-TV as a deposit with EAWD related to this order. The deposit will be satisfied
through delivery of the equipment when performance has occurred. The equipment was built in Germany.
In 2020, manufacture of the unit was delayed
due to Covid-19 related issues. The Company and EAWC-TV agreed as it had done in 2019, to clear the outstanding balances in the
D/T/F EAWC-TV and the outstanding balance it carried in its accounts payable account for administrative services, which it did on
December 26, 2020 which resulted in an additional down payment of $193,497.
EAWC-TV has an unpaid balance on the equipment of $52,761, which
represents the entire balance of the Company’s outstanding accounts receivables as of both September 30, 2021 and December 31,
2020.
Investor deposit and officer compensation
On
December 31, 2020, the Company recorded $1,500,000 as
officer compensation and $4,000
in common stock subscriptions for stock issuance transactions in process. The $4,000
is part of a pending stock sale for 40,000
shares that has been funded were issued on January 20, 2021. The $1.5
million is part of the bonus payment to officers authorized on December 18, 2020. The shares were issued as of September 30, 2021.
Energy and Water Development Corp.
Notes to the Condensed Financial
Statements (Unaudited)
As of September 30, 2021, the Company recorded $27,530
in common stock subscriptions for stock issuance transactions in process. The $27,350
is part of pending stock sales for 78,033 shares
that has been funded and is waiting issuance to complete the sale.
Note 10. Property and Equipment, Net
The components of property and equipment at September 30, 2021
consisted of the following:
|
Schedule Of Property And Equipment
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
|
2021
|
|
|
Office equipment
|
|
|
1,588
|
|
Furniture and fixtures
|
|
|
2,713
|
|
|
|
|
|
4,301
|
|
Note 11. Convertible Loans Payable
As of September 30, 2021 and December 31, 2020, the
balance of convertible loans payable net of discount was $248,201
and $149,241,
respectively. During the year ended December 31, 2020, the Company issued convertible loans in the aggregate principal amount of
$468,500.
The aggregate purchase price of the notes was $441,000
and the remaining $27,500
of principal represents the original issue discount. The notes bear interest between
0% and 8%
per annum and all mature within one year. The embedded beneficial conversion feature in the notes meet the definition of a
derivative and requires bifurcation and liability classification, at fair value. The fair value of the derivative liability as of
the date of issuance was $1,609,895 and
was recorded as a discount of the note.
The convertible loans were issued in several different
forms as discussed below. During the nine months ended September 30, 2021, the Company issued two convertible loans in the aggregate amount of
$404,000. The notes bear interest at 8% per annum and all mature within one year. On October 21, 2021, the Maturity Date of
the $304,000 loan was extended from March 25, 2022 to April 21, 2022. The embedded beneficial conversion features in the notes
meet the definition of a derivative and requires bifurcation and liability classification, at fair value. The fair value of the derivative
liability as of the date of issuance was $968,751 and was recorded as a discount of the notes.
|
Schedule of Notes Payable
|
|
|
|
|
|
|
|
Amount
|
|
|
Balance of convertible loan payables, net of discounts on December 31, 2019
|
|
$
|
243,923
|
|
|
Issuances of debt
|
|
|
468,500
|
|
|
Repayments
|
|
|
(66,000
|
)
|
|
Amortization of debt discount
|
|
|
514,244
|
|
|
Debt discount
|
|
|
(440,426
|
)
|
|
Conversions
|
|
|
(571,000
|
)
|
|
Balance of convertible loan payables, net of discounts on December 31, 2020
|
|
$
|
149,241
|
|
|
Issuances of debt
|
|
|
404,000
|
|
|
Repayments
|
|
|
(95,500
|
)
|
|
Amortization of debt discount
|
|
|
273,699
|
|
|
Debt discount
|
|
|
(406,500
|
)
|
|
Conversions
|
|
|
(66,000
|
)
|
|
Deferred financing costs
|
|
|
(10,739
|
)
|
|
Balance of convertible loan payables, net of discounts on September 30, 2021
|
|
$
|
248,201
|
|
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.
Energy and Water Development Corp.
Notes to the Condensed d Financial
Statements (Unaudited)
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, 2021 and December 31, 2020:
|
Outstanding Derivative Liability
|
|
|
|
|
|
|
|
Total
|
|
|
Balance of derivative liability as of December 31, 2019
|
|
$
|
413,795
|
|
|
Change due to issuances
|
|
|
1,609,895
|
|
|
Change due to exercise / redemptions
|
|
|
(455,576
|
)
|
|
Change in fair value
|
|
|
(1,257,473
|
)
|
|
Balance of derivative liability as of December 31, 2020
|
|
$
|
310,641
|
|
|
Change due to issuances
|
|
|
730,280
|
|
|
Change due to exercise / redemptions
|
|
|
(67,350
|
)
|
|
Change in fair value
|
|
|
(4,821
|
)
|
|
Balance of derivative liability as of June 30, 2021
|
|
$
|
968,751
|
|
A summary of quantitative information with
respect to valuation methodology and significant unobservable inputs used for the Company’s common stock purchase warrants that
are categorized within Level 3 of the fair value hierarchy at September 30, 2021 and December 31, 2020 is as follows:
|
Summary of Quantitative Information
|
|
|
|
|
|
|
|
|
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September 30, 2021
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December 31, 2020
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Stock price
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$0.10
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$0.07 – 1.20
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|
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Exercise price
|
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|
$0.04 - 0.07
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$0.04 – 0.20
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Contractual term (in years)
|
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|
0.4 - 0.6
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0.01 - 1
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|
|
Volatility (annual)
|
|
|
501 - 576
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%
|
|
125 - 424
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%
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|
Risk-free rate
|
|
|
0.07
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%
|
|
0.08% - 1.46
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%
|
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:
|
Summary of Financial Liabilities Measured on Recurring Basis
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|
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|
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Fair
Value measured at September 30, 2021
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|
|
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Quoted prices in
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|
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Significant other
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|
Significant
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|
|
|
|
|
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|
active markets
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|
|
observable inputs
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|
unobservable inputs
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|
Fair value at
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|
|
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(Level 1)
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(Level 2)
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(Level 3)
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September 30,
2021
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|
|
Derivative liability
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
968,751
|
|
|
$
|
968,751
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|
|
Total
|
|
$
|
—
|
|
|
$
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—
|
|
|
$
|
968,751
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|
|
$
|
968,751
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|
Energy and Water Development Corp.
Notes to the Condensed Financial
Statements (Unaudited)
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|
|
Fair
value measured at December 31, 2020
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|
|
|
|
Quoted prices in
|
|
|
Significant other
|
|
|
Significant
|
|
|
|
|
|
|
|
active markets
|
|
|
observable inputs
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|
|
unobservable inputs
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|
|
Fair value at
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|
|
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|
(Level 1)
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|
(Level 2)
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(Level 3)
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|
December 31, 2020
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|
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Derivative liability
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|
$
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—
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|
|
$
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—
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|
|
$
|
310,641
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|
|
$
|
310,461
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|
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Total
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|
$
|
—
|
|
|
$
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—
|
|
|
$
|
310,641
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|
|
$
|
310,461
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|
The fair value accounting standards define
fair value as the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants. As such, fair value is determined based upon assumptions that market participants would use in pricing an asset or liability.
Fair value measurements are rated on a three-tier hierarchy as follows:
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•
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Level 1 inputs: Quoted prices (unadjusted) for identical assets or liabilities in active markets;
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•
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Level 2 inputs: Inputs, other than quoted prices included in Level 1, that are observable either directly or indirectly; and
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•
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Level 3 inputs: Unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions.
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There were no transfers between Level 1, 2 or
3 during the nine months ended September 30, 2021 and December 31, 2020.
During the three months ended September 30, 2021 and
2020, the Company recorded a loss of $178,673 and a gain of 694,096, respectively, and for the nine months ended September 30, 2021 and 2020, the Company recorded
gains of $4,820 and $912,825, respectively, from the change in fair value of derivative liability.
Note 12. Leases
The Company’s 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 current
external debt of 8%.
The Company’s weighted-average remaining lease
term relating to its operating leases is 1.50 years, with a weighted-average discount rate of the 8.00%.
The Company incurred lease expense for its operating
leases of $10,813 and $0, which was included in general and administrative expenses in the condensed statements of operations and comprehensive loss for the three ended
September 30, 2021 and 2020, respectively, and $21,885 and $0 for the nine months ended September 30, 2021 and 2020, respectively. During the three months
ended September 30, 2021 and 2020, the Company made cash lease payments of $10,813 and $0, and for the nine months ended September 30, 2021 and 2020,
the Company made cash lease payments in the amount of $21,885 and $0, respectively. At September 30, 2021, the operating lease right-of-use asset was $61,583, the current portion of operating lease liability
was $40,389, and the operating lease liability, net of current portion was $21,195.
The following table presents information about the
future maturity of the lease liability under the Company’s operating leases as of September 30, 2021.
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Schedule of maturity of lease liability
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Maturity of Lease Liability
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Amount
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2021
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$
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10,846
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2022
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43,383
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2023
|
|
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11,299
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Thereafter
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|
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—
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Total undiscounted lease payments
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|
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65,528
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Less: Imputed interest
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|
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3,944
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|
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Present value of lease liabilities
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|
$
|
61,584
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|
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Remaining lease term (in years)
|
|
|
1.50
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|
Energy and Water Development Corp.
Notes to the Condensed Financial
Statements (Unaudited)
Note 13. Stockholders’ Deficit
Preferred Stock
Authorized: 500,000,000 shares of voting preferred
stock with a par value of $0.001.
Common Stock
Authorized: 1,000,000,000 shares of voting common
stock with a par value of $0.001.
During the three months ended March 31, 2021 the
Company engaged in the following equity events:
|
|
·
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471,433
common shares issued for $160,021 for the sale of shares,
|
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·
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500,000 common shares issued for $165,000 in marketing and consulting,
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·
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690,606 common shares were issued for $66,000 to convertible note holder is satisfaction of their notes,
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·
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38,690 common shares were issued for $3,441 to pay interest and fees,
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·
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10,000,000 common shares were issued for $1,500,000 to our CEO as a compensation bonus, and
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·
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40,000 common shares were issued for $4,000 for sales of shares.
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During the three months ended June 30, 2021 the
Company engaged in the following equity events:
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|
·
|
2,241,662 common shares were issued for $453,100 for the sale of shares.
|
During the three months ended September
30, 2021, the Company engaged in the following equity events:
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|
·
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2,278,916 common shares were issued for $127,340 for the sale of shares.
|
Note 14. Stock Option Plan
Stock Options
On January 2, 2012, the Corporation’s Board
of Directors approved the creation of the 2012 Non-Qualified Stock Option Plan (the “2012 Plan”). The 2012 Plan provides for
the issuance of incentive stock options to designated employees, certain key advisors and non-employee members of the Board of Directors
with the opportunity to receive grant awards to acquire, in the aggregate, up to 5,000,000 shares of the Corporation’s common stock.
A summary of information regarding the Corporation’s common stock
options outstanding is as follows:
|
Common Stock Options Outstanding
|
|
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|
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|
|
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|
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Weighted
|
|
|
|
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Average
|
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|
|
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|
|
Weighted
|
|
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Remaining
|
|
|
|
|
Number of
|
|
|
Average
|
|
|
Contractual
|
|
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|
|
Shares
|
|
|
Exercise Price
|
|
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Term (Years)
|
|
|
Outstanding at December 31, 2019
|
|
|
2,200,000
|
|
|
$
|
0.10
|
|
|
|
2.0
|
|
|
Issued
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Outstanding at December 31, 2020
|
|
|
2,200,000
|
|
|
|
0.10
|
|
|
|
1.0
|
|
|
Issued
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Expired
|
|
|
(2,200,000
|
)
|
|
|
—
|
|
|
|
—
|
|
|
Outstanding at September 30, 2021
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
The above outstanding options were granted
on January 1, 2012, to a former executive of the Company. The options were fully vested and exercisable at December 31, 2016.
Accordingly, during the three and nine months ended September 30, 2021 and 2020, the Corporation did not
recognize any stock-based compensation expense on stock options.
Warrants
On February 17, 2021, the Company entered into an agreement with a
consultant to provide Business Development advisement and analysis services. In consideration, the consultant will be issued 1,000,000
warrant shares. 500,000 warrants were issued on February 17, 2021, and the remaining 500,000 will be issued on the six-month anniversary
of initial issuance. On August 31, 2021, due to a failure by the consultant to provide the services as required by the agreement, the
Company terminated the agreement, and the warrants were canceled.
Energy and Water Development Corp.
Notes to the Condensed Financial
Statements (Unaudited)
Note 15. Commitments and Contingencies
Commitments
Employment Agreements
The Corporation 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 $125,000 during the first year and $150,000 during the second year and forward. Any increase to the
annual base salary after the second year is subject to approval by the Corporation’s Board of Directors. The Employment Agreements
each has initial terms of ten (10) years and is automatically renewed for successive one-year terms unless either party delivers timely
notice of its intention not to renew.
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 in the three months ending September 30, 2021 and 2020 amounted to $17,472 and
$0, respectively, and for the nine months
ended September 30, 2021 and 2020 rent expense amounted to $37,552 and $0, respectively.
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 requesting the proof of payment for
shares issued in 2008.
CocoGrove –
Case No. 09-81555 CA 21 in Miami-Dade County, Florida. The nature of the litigation was for breach of a lease agreement. This case
is concluded with a judgement against the Company on July 7, 2010 for $84,393
plus 6%
interest which as of September 30, 2021 interest had accrued to $57,870. There have been no efforts to seek collection of this
judgement. Management intends to settle this judgement when it is in a financial position to make a payment.
Note 16. Subsequent Events
On October 13, 2021, the Company sold 33,333
shares of its common stock to 1 investor raising $5,000.
On November 4, 2021 and November 10, 2021,
the Company completed two conversions of our outstanding convertible debt by exchanging $163,110 cash for retiring $154,000 in convertible
debt along with $9,110 in interest for a total of 3,908,385 common shares.
On November 9, 2021, the Company established an official Subsidiary
of EAWD in Germany to ensure the company is positioned to service its growing business in one of the EU’s most environmentally progressive
countries.
