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 June 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 (“Euro”). 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 $261,867
and $12,047
cash at June 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. All inventory held at June 30, 2021 was raw materials. A reserve is established if
necessary to reduce excess or obsolete inventories to their net realizable value.
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. The Company has not generated any revenues to date.
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.
Energy and Water Development Corp.
Notes to the Condensed Financial
Statements (Unaudited)
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 June 30, 2021 and December 31, 2020, were $790,078
and $310,641,
respectively and measured on Level 3 inputs.
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 six months ended June 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 March 31, 2021.
As discussed more fully in Note 6,
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 2,708,091
and 4,775,000 in additional common shares at
June 30, 2021 and June 30, 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 June 30, 2021 and
December 31, 2020, unamortized deferred financing costs were $22,183 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 June 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.
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 $20,195,460
at June 30, 2021. During the three and six months ended June 30, 2021, the Corporation incurred net losses of $403,481
and $837,533, respectively. The Company also incurred a working capital deficit of $1,536,261
at June 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. Related Party Transactions
Due to officers
Amounts due to officers as of June 30, 2021 and December 31, 2020
are comprised of the following:
|
Due to Officers
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
Ralph Hofmeier:
|
|
|
|
|
|
|
|
Unsecured advances due to officer
|
|
$
|
385
|
|
|
$
|
17,778
|
|
|
Accrued salaries
|
|
|
24,678
|
|
|
|
-
|
|
|
Total due to Ralph Hofmeier
|
|
|
25,063
|
|
|
|
17,778
|
|
|
|
|
|
|
|
|
|
|
|
|
Irma Velazquez:
|
|
|
|
|
|
|
|
|
|
Unsecured advances due to officer
|
|
|
12,149
|
|
|
|
66,898
|
|
|
Accrued salaries
|
|
|
37,500
|
|
|
|
-
|
|
|
Total due to Irma Velazquez
|
|
|
49,649
|
|
|
|
66,898
|
|
|
|
|
$
|
74,712
|
|
|
$
|
84,676
|
|
Energy and Water Development Corp.
Notes to the Condensed Financial
Statements (Unaudited)
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”).
Due to affiliate distributor
During the year ended December 31, 2020,
EAWC-TV provided $75,000
of paid services and $225,000 of
accrued services plus $6,464 net
in interest and remitted $187,518
to vendors in satisfaction of EAWD obligations. EAWD also raised from investors and lenders and remitted $445,865
to EAWC-TV. EAWD also executed several payments totaling $66,500
as a deposit on the equipment purchase and $124,352
which represent the final net balance in the D/T/F EAWC-TV account which was accounted for as a deposit for the customer’s
purchase. In addition, EAWC-TV also functions as a distributor of EAWD product and as such, has placed a $550,000
order for a solar powered atmospheric water generator (“AWG”) for an EAWC-TV customer, which has been secured by EAWC-TV
accepting a $303,742 reduction in the
amount due to EAWC-TV in exchange for a customer deposit with EAWD. The equipment was delivered on December 26, 2020. As of December
31, 2020, no amounts were due to the distributor as the deposit was satisfied out of proceeds from the customer’s deposit.
Customer deposit
In 2019, in addition to providing management
services and disbursement processing to EAWD as described above, EAWC-TV also functions as a distributor of EAWD products and
engineering services. 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 June 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 June 30, 2021.
Energy and Water Development Corp.
Notes to the Condensed Financial
Statements (Unaudited)
As of June 30, 2021, the Company recorded $217,100
in common stock subscriptions for stock issuance transactions in process. The $217,100
is part of pending stock sales for 1,612,322 shares
that has been funded and is waiting issuance to complete the sale.
Note 6. Convertible Loans Payable
As of June 30, 2021 and December 31, 2020, the
balance of convertible loans payable net of discount was $142,108
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 six months ended June 30, 2021, the Company issued convertible loans in the aggregate amount of
$404,000. The notes bear interest at 8% per annum and all mature within one year. 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 $730,280 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
|
|
|
179,050
|
|
|
Debt discount
|
|
|
(406,500
|
)
|
|
Conversions
|
|
|
(66,000
|
)
|
|
Deferred financing costs
|
|
|
(22,183
|
)
|
|
Balance of convertible loan payables, net of discounts on June 30, 2021
|
|
$
|
142,108
|
|
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 June 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
|
|
|
(183,493
|
)
|
|
Balance of derivative liability as of June 30, 2021
|
|
$
|
790,078
|
|
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 June 30, 2021 and December 31, 2020 is
as follows:
|
Summary of Quantitative Information
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
|
December 31, 2020
|
|
|
Stock price
|
|
|
$0.38
|
|
|
$0.07 – 1.20
|
|
|
Exercise price
|
|
|
$0.12 - 0.16
|
|
|
$0.04 – 0.20
|
|
|
Contractual term (in years)
|
|
|
0.6 - 0.7
|
|
|
0.01 - 1
|
|
|
Volatility (annual)
|
|
|
198 - 208
|
%
|
|
125 - 424
|
%
|
|
Risk-free rate
|
|
|
0.07
|
%
|
|
0.08% - 1.46
|
%
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
Value measured at June 30, 2021
|
|
|
|
|
Quoted prices in
|
|
|
Significant other
|
|
|
Significant
|
|
|
|
|
|
|
|
active markets
|
|
|
observable inputs
|
|
|
unobservable inputs
|
|
|
Fair value at
|
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
June 30,
2021
|
|
|
Derivative liability
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
790,078
|
|
|
$
|
790,078
|
|
|
Total
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
790,078
|
|
|
$
|
790,078
|
|
Energy and Water Development Corp.
Notes to the Condensed Financial
Statements (Unaudited)
|
|
|
Fair
value measured at December 31, 2020
|
|
|
|
|
Quoted prices in
|
|
|
Significant other
|
|
|
Significant
|
|
|
|
|
|
|
|
active markets
|
|
|
observable inputs
|
|
|
unobservable inputs
|
|
|
Fair value at
|
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
December 31, 2020
|
|
|
Derivative liability
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
310,641
|
|
|
$
|
310,461
|
|
|
Total
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
310,641
|
|
|
$
|
310,461
|
|
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:
|
|
•
|
Level 1 inputs: Quoted prices (unadjusted) for identical assets or liabilities in active markets;
|
|
|
•
|
Level 2 inputs: Inputs, other than quoted prices included in Level 1, that are observable either directly or indirectly; and
|
|
|
•
|
Level 3 inputs: Unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions.
|
There were no transfers between Level 1, 2 or
3 during the six months ended June 30, 2021 and December 31, 2020.
During the three months ended June 30, 2021 and
2020, the Company recorded losses of $126,855 and 204,331, respectively, and for the six months ended June 30, 2021 and 2020, the Company recorded
gains of $183,493 and $112,073, respectively, from the change in fair value of derivative liability.
Note 7. 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 1.75 years, with a weighted-average discount rate of the 8.00%.
The Company incurred lease expense for its operating
leases of $13,176 and $0, which was included in general and administrative expenses in the statements of operation for the three ended
June 2021 and 2020, respectively, and $13,176 and $0 for the six months ended June 30, 2021 and 2020, respectively. During the three months
ended June 31, 2021 and 2020, the Company made cash lease payments of $17,483 and $0, and for the six months ended June 31, 2021 and 2020,
the Company made cash lease payments in the amount of $17,483 and $0, respectively.
The following table presents information about the
future maturity of the lease liability under the Company’s operating leases as of June 30, 2021.
|
Schedule of maturity of lease liability
|
|
|
|
|
|
Maturity of Lease Liability
|
|
Amount
|
|
|
2021
|
|
$
|
21,820
|
|
|
2022
|
|
|
43,641
|
|
|
2023
|
|
|
10,910
|
|
|
Thereafter
|
|
|
—
|
|
|
Total undiscounted lease payments
|
|
|
76,371
|
|
|
Less: Imputed interest
|
|
|
5,325
|
|
|
Present value of lease liabilities
|
|
$
|
71,046
|
|
|
Remaining lease term (in years)
|
|
|
1.75
|
|
Energy and Water Development Corp.
Notes to the Condensed Financial
Statements (Unaudited)
Note 8. 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:
|
|
·
|
471,433
common shares issued for $160,021 for the sale of shares,
|
|
|
·
|
500,000 common shares issued for $165,000 in marketing and consulting,
|
|
|
·
|
690,606 common shares were issued for $66,000 to convertible note holder is satisfaction of their notes,
|
|
|
·
|
38,690 common shares were issued for $3,441 to pay interest and fees,
|
|
|
·
|
10,000,000 common shares were issued for $1,500,000 to our CEO as a compensation bonus, and
|
|
|
·
|
40,000 common shares were issued for $4,000 for sales of shares.
|
During the three months ended June 30, 2021 the
Company engaged in the following equity events:
|
|
·
|
2,241,662 common shares were issued for $453,100 for the sale of shares.
|
Note 9. 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
Weighted
|
|
|
Remaining
|
|
|
|
|
Number of
|
|
|
Average
|
|
|
Contractual
|
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
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 June 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 six months ended June 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 10. 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 June 30, 2021 and 2020 amounted to $20,080 and
$0, respectively, and for the six months
ended June 30, 2021 and 2020 rent expense amounted to $22,114 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 June 30, 2021 interest had accrued to $56,604. 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 11. Subsequent Events
During the three months ended September 30, 2021, the Company sold
699,927 shares of its common stock to 23 investors raising $104,990.
On September 2, 2021, the Company received
global patent protection for its innovative solution Self Sufficient Energy Supply Atmosphere Water Generation System (EAWG).
From September 27, 2021 through September 29,
2021, the Company recorded $22,350
in subscriptions for stock issuance transactions in process.
