UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended:
or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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) | (Zip Code) |
| (Registrant’s telephone number, including area code) |
| N/A |
| (Former name, former address and former fiscal year, if changed since last report) |
Securities registered pursuant to Section 12(b) of the Act: 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 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, a 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 Exchange Act). Yes ☐
No
As of August 16, 2024, there were shares of common stock of the registrant issued and outstanding.
ENERGY AND WATER DEVELOPMENT CORP.
Quarterly Report on Form 10-Q
Period Ended June 30, 2024
TABLE OF CONTENTS
| Page | ||
|
PART I. FINANCIAL INFORMATION |
||
| Item 1. | Financial Statements | 3 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 20 |
| Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 25 |
| Item 4. | Controls and Procedures | 25 |
|
PART II. OTHER INFORMATION |
||
| Item 1. | Legal Proceedings | 27 |
| Item 1A. | Risk Factors | 27 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 27 |
| Item 3. | Defaults Upon Senior Securities | 27 |
| Item 4. | Mine Safety Disclosures | 27 |
| Item 5. | Other Information | 27 |
| Item 6. | Exhibits | 27 |
| 1 |
PART I
FINANCIAL INFORMATION
| ITEM 1. | FINANCIAL STATEMENTS. |
ENERGY AND WATER DEVELOPMENT CORP. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 2 |
ENERGY AND WATER DEVELOPMENT CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| June 30, 2024 | December 31, 2023 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Inventory | ||||||||
| Prepaid expenses and other current assets | ||||||||
| TOTAL CURRENT ASSETS | ||||||||
| Property and equipment, net | ||||||||
| Operating lease right-of-use assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Accounts payable - related party | ||||||||
| Convertible loan payables, net of discount | ||||||||
| Due to officers | ||||||||
| Derivative liability | ||||||||
| Current portion of operating lease liability | ||||||||
| Current portion of financing lease liability | ||||||||
| Loans payable | ||||||||
| TOTAL CURRENT LIABILITIES | ||||||||
| Financing lease liability, net of current portion | ||||||||
| Operating lease liability, net of current portion | ||||||||
| TOTAL LIABILITIES | ||||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| STOCKHOLDERS’ DEFICIT: | ||||||||
| Series A Preferred stock, par value $ per share; shares authorized, shares issued and outstanding at June 30, 2024 and December 31, 2023 | ||||||||
| Common stock, par value $ per share; shares authorized, and shares issued and outstanding in June 30, 2024 and December 31, 2023, respectively | ||||||||
| Common stock subscriptions liability; and shares as of June 30, 2024 and December 31, 2023, respectively | ||||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| TOTAL STOCKHOLDERS’ DEFICIT | ( | ) | ( | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ | $ | ||||||
See accompanying notes to the condensed consolidated financial statements
| 3 |
Energy and Water Development Corp.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)
For the Six Months Ended June 30, | For the Three Months Ended June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| 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 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| TAXES | ||||||||||||||||
| 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).
| 4 |
Energy and Water Development Corp.
Condensed Statements of Changes in Stockholders’ Deficit
(Unaudited)
| Preferred Stock | Common Stock | Common Stock Subscriptions | Additional Paid-In Capital | Accumulated Deficit | Accumulated Other Comprehensive | Total Stockholders’ | ||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | 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 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| 5 |
Energy and Water Development Corp.
Condensed Statements of Changes in Stockholders’ Deficit
(Unaudited)
| Preferred Stock | Common Stock | Common Stock Subscriptions | Additional Paid-In Capital | Accumulated Deficit | Accumulated Other Comprehensive | Total Stockholders’ | ||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Loss | Deficit | |||||||||||||||||||||||||||||||
| Balance at December 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 | — | — | — | |||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Balance at March 31, 2024 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||
| Sale of Common Stock | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||
| Subscription deposits received | — | — | ||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | |||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2024 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
See accompanying notes to the condensed consolidated financial statements (unaudited).
| 6 |
Energy and Water Development Corp.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| June 30, | June 30, | |||||||
| 2024 | 2023 | |||||||
| 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 | ( | ) | ||||||
| Loss on partial extinguishment of convertible debt | ||||||||
| Imputed interest on related party loans | ||||||||
| Loss on settlement | ||||||||
| Foreign currency (gain) loss | ||||||||
| Inventory | ( | ) | ||||||
| Prepaid expenses and other current assets | ||||||||
| Accounts payable, accrued expenses and deferred taxes | ||||||||
| Operating lease liabilities, current and non-current | ( | ) | ( | ) | ||||
| Due to officers | ||||||||
| Deferred cost | ( | ) | ||||||
| CASH USED IN OPERATING ACTIVITIES | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of property and equipment | ( | ) | ||||||
| NET CASH PROVIDED BY (USED IN ) INVESTING ACTIVITIES | ( | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from convertible notes | ||||||||
| Proceeds from sale of stock | ||||||||
| Proceeds from subscriptions | ||||||||
| Payments of finance lease liabilities | ( | ) | ( | ) | ||||
| Proceeds from promissory notes | ||||||||
| 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 | $ | |||||||
| 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 | $ | |||||||
| Addition of finance lease obligation | $ | |||||||
See accompanying notes to the condensed consolidated financial statements (unaudited).
| 7 |
ENERGY AND WATER DEVELOPMENT CORP. AND SUBSIDIARIES
NOTES CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. Incorporation and Nature of Operations
Energy and Water Development Corp. (the “Company”) 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. 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.
In order to effectively cater to its expanding operations within one of the EU’s most environmentally advanced nations, the Company has strategically established a branch for business operations in Germany, along with two wholly-owned German subsidiaries: Energy and Water Development Deutschland GmbH (“EAWD Deutschland”) and EAWD Logistik GmbH (“EAWD Logistik”). Moreover, recognizing the importance of regional market demands, the Company has also extended its presence to Mexico through a wholly-owned subsidiary called EAWD Mexico SAPI de CV (“EAWD Mexico”), enhancing its capacity to address the needs of this area efficiently. This strategic positioning not only reflects the Company's commitment to environmental progress but also ensures an optimized response to evolving market requirements.
Note 2. Basis of Presentation and Other Information
Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of the Company and its consolidated subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q of Regulation S-X. They do not include all information and footnotes required by GAAP for complete financial statements. The December 31, 2023 consolidated balance sheet data was derived from audited financial statements but do not include all disclosures required by GAAP. However, except as disclosed herein, there has been no material change in the information disclosed in the notes to the consolidated financial statements for the year ended December 31, 2023 included in the Company’s Annual Report on Form 10-K, as filed with the Securities and Exchange Commission on April 26, 2024. The interim unaudited condensed consolidated financial statements should be read in conjunction with those consolidated financial statements included in the Form 10-K. In the opinion of management, all adjustments considered necessary for a fair presentation of the financial statements, consisting solely of normal recurring adjustments, have been made. Operating results for the six months ended June 30, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024 .
Foreign currency translation
The United States dollar (“USD”) is the Company’s reporting currency. The Company has a subsidiary 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 consolidated financial statements, entered into derivative instruments to offset the impact of foreign currency fluctuations. During the year ended December 31, 2023 the Company used a spot rate of 1.10 and an average rate of 1.08 when converting EURO to USD.
| 8 |
ENERGY AND WATER DEVELOPMENT CORP. AND SUBSIDIARIES NOTES 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. The Company does not have operating or financing leases.
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 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 | ||||
| 9 |
ENERGY AND WATER DEVELOPMENT CORP. AND SUBSIDIARIES NOTES CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
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. There were
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 June 30, 2024 and December 31, 2023, 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, and accounts payable and accrued expenses 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.
Income Taxes
Income taxes are accounted for under the asset and liability method as stipulated by ASC 740, “Accounting for Income Taxes”. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC 740, the effect on deferred tax assets and liabilities or a change in tax rate is recognized in income in the period that includes the enactment date. Deferred tax assets are reduced to estimated amounts to be realized by the use of the valuation allowance. A valuation allowance is applied when in management’s view it is more likely than not (50%) that such deferred tax will not be utilized.
ASC 740 provides interpretative guidance for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. In the unlikely event that an uncertain tax position exists in which the Corporation could incur income taxes, the Corporation would evaluate whether there is a probability that the uncertain tax position taken would be sustained upon examination by the taxing authorities. A liability for uncertain tax positions would then be recorded if the Corporation determined it is more likely than not that a position would not be sustained upon examination or if a payment would have to be made to a taxing authority and the amount is reasonably estimable.
As of December 31, 2023 and 2022, the Corporation does not believe any uncertain tax positions exist that would result in the Corporation having a liability to the taxing authorities. The Corporation’s policy is to classify interest and penalties related to unrecognized tax benefits, if and when required, as part of interest expense and general and administrative expense, respectively, in the statement of operations. The Corporation’s tax returns for the years ended 2012 through 2022 have been filed and are subject to examination by the federal and state tax authorities. The Corporation’s tax returns for the tax year ended 2023 have not been filed.
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.
| 10 |
ENERGY AND WATER DEVELOPMENT CORP. AND SUBSIDIARIES NOTES CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
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 years ended December 31, 2023 and 2022, the Company did not recognize any revenue.
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.
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 and in additional common shares at December 31, 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 5% 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
The Company considers the applicability and impact of all Accounting Standards Updates (“ASUs”) issued by the Financial Accounting Standards Board (“FASB”). The Company has evaluated all recent accounting pronouncements and determined that the adoption of pronouncements applicable to the Company has not had or is not expected to have a material impact on the Company’s condensed consolidated financial statements.
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 actual expenditures will be based on many factors, including cash flows from operations and the anticipated growth of the Company’s business and availability to sufficient resources.
Management is working to conclude the sales in Germany and in other regions of the world relating to previously approved proposals, which would bring a growing revenue. Management plans to expand sales operations by greater market penetration of the agricultural, industrial and community development markets with the Company’s innovative water and energy generation solutions. Management also plans to raise additional funds during 2024 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 Company’s assembly, logistics and administrative operations 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 our its electric vehicles to reduce its supply transportation costs.
| 11 |
ENERGY AND WATER DEVELOPMENT CORP. AND SUBSIDIARIES NOTES CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
These factors raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying unaudited 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
At June 30, 2024 and
December 31, 2023, accounts receivable was $
Note 6. Inventory
The components of inventory at June 30, 2024 and December 31, 2023, consisted of the following:
| June 30, 2024 | December 31, 2023 | |||||||
| Work in progress | $ | $ | ||||||
| Inventory, net | $ | $ | ||||||
Work in progress only reflects the value of products in intermediate production stages and excludes the value of finished products being held as inventory in anticipation of future sales and raw materials not yet incorporated into an item for sale. Work in progress consists of materials used for water generators, commercial solar panels supply, and materials used for the construction of a charging station.
Note 7. Prepaid Expenses and Other Current Assets
The components of prepaid expenses and other current assets at June 30, 2024 and December 31, 2023 consisted of the following:
| June 30, 2024 | December 31, 2023 | |||||||
| Prepayment on inventory not received | $ | $ | ||||||
| Miscellaneous prepaid expenses | ||||||||
| Value added tax receivable | ||||||||
| Security deposit | ||||||||
| Prepaid expenses and other current assets | $ | $ | ||||||
Note 8. Property and Equipment, Net
The components of property and equipment at June 30, 2024 and December 31, 2023 consisted of the following:
| June 30, 2024 | December 31, 2023 | |||||||
| 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 six months ended June 30, 2024 and 2023 was $
Note 9. Accounts Payable and Accrued Expenses
Significant components of accounts payable and accrued expenses at June 30, 2024 and December 31, 2023 are as follows:
| 12 |
ENERGY AND WATER DEVELOPMENT CORP. AND SUBSIDIARIES NOTES CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
| June 30, 2024 | December 31, 2023 | |||||||
| Accrued expenses | $ | $ | ||||||
| Accounts payable | ||||||||
| Accrued legal costs | ||||||||
| Accrued salary and payroll taxes | ||||||||
| Total | $ | $ | ||||||
Note 10. Accounts Payable – Related Party
Significant components of accounts payable – related party at June 30, 2024 and December 31, 2023 are as follows:
| June 30, 2024 | December 31, 2023 | |||||||
| Accounts payable - related party | ||||||||
| Total | $ | $ | ||||||
As of June 30, 2024
and December 31, 2023, the Company owed Virhtech Gmbh, a related party of the Company, $
Note 11. Convertible Loans Payable
As of June 30, 2024 and December 31, 2023, the Company had convertible loans payable, net of discount, of $202,535 and $152,459, respectively.
On
February 15, 2024, the
On June 26, 2024,
the
| 13 |
ENERGY AND WATER DEVELOPMENT CORP. AND SUBSIDIARIES NOTES CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
| Amount | ||||
| Balance of notes payable, net on December 31, 2023 | $ | |||
| Issuances of debt | ||||
| Cash settlement of debt | ||||
| Debt discount | ( | ) | ||
| Conversions | ( | ) | ||
| Amortization of debt discount | ||||
| Balance of notes payable, net on March 31, 2024 | $ | |||
| Issuances of debt | ||||
| Debt discount | ( | ) | ||
| Amortization of debt discount | ||||
| Balance of notes payable, net on June 30, 2024 | $ | |||
Derivative Liabilities
The Company issued debt that consists of the issuance of convertible notes with variable conversion provisions as described above. 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. Accordingly, 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 convertible notes 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 June 30, 2024 and December 31, 2023:
| Total | ||||
| Balance as of December 31, 2022 | $ | |||
| Change due to issuances | ||||
| Change due to conversion/redemptions | ( | ) | ||
| Change in fair value | ||||
| Balance as of December 31, 2023 | ||||
| Change due to issuances | ||||
| Change due to conversion/redemptions | ( | ) | ||
| Change in fair value | ||||
| Balance as of March 31, 2024 | $ | |||
| Change due to issuances | ||||
| Change in fair value | ||||
| Balance as of June 30, 2024 | $ | |||
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 June 30, 2024 and December 31, 2023 is as follows:
| June 30, 2024 | December 31, 2023 | |||||||
| Stock price | $ |
$ |
||||||
| Exercise price | $ |
$ |
||||||
| Contractual term (in years) | ||||||||
| Volatility (annual) | ||||||||
| Risk-free rate | ||||||||
| 14 |
ENERGY AND WATER DEVELOPMENT CORP. AND SUBSIDIARIES NOTES CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
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:
| Fair Value Measured at June 30, 2024 | ||||||||||||||||
Quoted Prices in Active (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Fair Value June 30, 2024 | |||||||||||||
| Derivative liability | $ | $ | $ | $ | ||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| Fair Value Measured at December 31, 2023 | ||||||||||||||||
Quoted Prices in Active (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Fair Value December 31, 2023 | |||||||||||||
| Derivative liability | $ | $ | $ | $ | ||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
There were no transfers between Level 1, 2 or 3 during the six months ended June 30, 2024 and 2023.
During the three and
six months ended June 30, 2024, the Company recorded a net loss of $
Note 12. Leases
Financing Leases
In January 2024, the
Company terminated its finance lease agreement for heavy machinery. At the termination date, the carrying amount of the right-of-use asset
and lease liability were $
Operating Leases
In October 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 $15,356. The lease agreement is for a two-year term expiring on September 30, 2025. The Company also entered into a vehicle lease in October 2023 with an unrelated party with monthly payments of € for a three-year term expiring in October 2026.
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 $
| 15 |
ENERGY AND WATER DEVELOPMENT CORP. AND SUBSIDIARIES NOTES CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
The following table presents information about the future maturity of the lease liabilities under the Company’s operating leases as of June 30, 2024.
| Maturities of Lease Liabilities | Operating Lease Liabilities | |||
| 2024 (remainder of year) | $ | |
||
| 2025 | |
|||
| 2026 | |
|||
| Total future minimum lease payments | |
|||
| Less: Imputed interest | ( |
|||
| Present value of lease liabilities | $ | |
||
| Remaining lease term (in years) | ||||
Note 13. Loans Payable
On March 7, 2024,
the Company issued a promissory note to 1800 Diagonal Lending LLC in the principal amount of $
We note that there was a loans payable balance of $
| Amount | ||||
| Balance of loans payable, net on December 31, 2023 | $ | |||
| Reclass to promissory note payable | ||||
| Cash settlement of debt | ||||
| Debt discount | ( | ) | ||
| Amortization of debt discount | ||||
| Balance of loan payable, net on March 31, 2024 | $ | |||
| Amortization of debt discount | ||||
| Balance of loan payable, net on June 30, 2024 | ||||
Note 14. Related Party Transactions
Due to Officers
Amounts due to officers as of June 30, 2024 and December 31, 2023 are comprised of the following:
| June 30, 2024 | December 31, 2023 | |||||||
| 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 | ||||||||
| Martin Antonio Del Signo Portilla | ||||||||
| Total amounts due to officers | $ | $ | ||||||
| 16 |
ENERGY AND WATER DEVELOPMENT CORP. AND SUBSIDIARIES NOTES CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
Unsecured advances due to officers represent unreimbursed expenses paid by the officers on behalf of the Company. These advances are unsecured, 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 June 30, 2024
and December 31, 2023, the Company owed Virhtech Gmbh, a related party of the Company, $
Officer and Investor Deposits
On January 18, 2023, the Company issued shares of common stock to officers for accrued salaries payable valued at $.
For the six months ended June 30, 2024, the Company received deposits in the amount of $ for shares of common stock related to common stock subscriptions that were issued in May.
Note 15. Stockholders’ Deficit
Preferred Stock
The
Company is authorized to issue
Dividend Rights. Upon the declaration of any dividends on the common stock, the series A preferred stock shall be treated pari passu with common stock, except that the dividend on each share of series A preferred stock shall be equal to the amount of the dividend declared and paid on each share of common stock multiplied by the conversion rate then in effect.
Liquidation Rights. In the event of any liquidation, dissolution or winding up of the Company, either voluntarily or involuntarily, the series A preferred stock shall be treated pari passu with the common stock, except that the payment on each share of series A preferred stock shall be equal to the amount of the payment on each share of common stock multiplied by the conversion rate then in effect.
Voting Rights. On any matter presented to stockholders for their action or consideration, each holder of outstanding shares of series A preferred stock shall be entitled to cast the number of votes equal to the number of shares of series A preferred stock held by such holder as of the record date for determining stockholders entitled to vote on such matter multiplied by the conversion rate then in effect. Except as provided by law or by the other provisions of the Company’s amended and restated articles of incorporation, holders of series A preferred stock shall vote together with the holders of common stock as a single class. In addition, so long as any share of series A preferred stock is outstanding, the Company shall not, without the written consent or affirmative vote of the holders of at least sixty-five percent (65%) of the then outstanding shares of series A preferred stock:
| (a) | liquidate, dissolve or wind-up the business and affairs of the Company, or effect any merger or consolidation, or consent to any of the foregoing; |
| (b) | amend, alter or repeal any provision of the Company’s amended and restated articles of incorporation or bylaws in a manner that adversely affects the powers, preferences or rights of the series A preferred stock; |
| (c) | create, or authorize the creation of, or issue any additional class or series of capital stock, or increase the authorized number of shares of any class or series of capital stock, unless the same ranks junior to the series A preferred stock with respect to the distribution of assets on the liquidation, dissolution or winding up of the Company, the payment of dividends and rights upon a redemption; |
| 17 |
ENERGY AND WATER DEVELOPMENT CORP. AND SUBSIDIARIES NOTES CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
| (d) | reclassify, alter or amend any existing security that is pari passu with or junior to the series A preferred stock in respect of the distribution of assets on the liquidation, dissolution or winding up the Company, the payment of dividends or rights upon a redemption if such reclassification, alteration or amendment would render such other security senior to or pari passu with the series A preferred stock in respect of any such right, preference or privilege; |
| (e) | purchase or redeem (or permit any subsidiary to purchase or redeem), or pay or declare any dividend or make any distribution on, any shares of capital stock other than (i) redemptions of or dividends or distributions on the series A preferred stock as expressly authorized in the amended and restated articles of incorporation; (ii) dividends or other distributions payable on the common stock solely in the form of additional shares of common stock; (iii) repurchases of stock from former employees, officers, directors, consultants or other persons who performed services for the Company or any subsidiary in connection with the cessation of such employment or service at the lower of the original purchase price or the then-current fair market value thereof; or (iv) as approved by the board of directors; or |
| (f) | create, or authorize the creation of, or issue, or authorize the issuance of any debt security, or permit any subsidiary to take any such action with respect to any debt security, if the aggregate indebtedness of the Company and its subsidiaries for borrowed money following such action would exceed long-term debt, including all lines of credit on the balance sheet of the Company on filing date of the Company’s amended and restated articles of incorporation, other than equipment leases or bank lines of credit, unless such debt security has received the prior approval of the board of directors. |
Conversion Rights. Each share of series A preferred stock is convertible, at the option of the holder thereof, at any time and from time to time, into such number of shares of common stock as is determined by multiplying the number of shares of series A preferred stock held by such holder by the conversion rate in effect at the time of conversion. In addition, upon either (i) the closing of the sale of shares common stock to the public in a firm commitment underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, resulting in at least $25 million of proceeds or (ii) the date and time, or the occurrence of an event, specified by the vote or written consent of the holders of at least sixty five percent (65%) of the then outstanding shares of series A preferred stock, all outstanding shares of series A preferred stock shall automatically be converted into shares of common stock at the conversion rate in effect at the time of conversion. The conversion rate is currently five (5) shares of common stock for each share of series A preferred stock, which is subject to standards adjustments for any stock splits, stock dividends, recapitalizations, reclassifications, mergers, consolidations or similar events.
Common Stock
The Company is authorized to issue shares of common stock, $0 par value. As of June 30, 2024 and December 31, 2023, there were and shares of common stock outstanding, respectively.
During the six months ended June 30, 2024, the Company engaged in the following equity events:
| · | On May 14, 2024, the Company issued shares of common stock to Dale Johnson III at a per share price of $. | |
| · | On May 14, 2024, the Company issued shares of common stock to Dale Johnson III at a per share price of $. | |
| · | On May 14, 2024, the Company issued shares of common stock to Michael Erbes at a per share price of $. | |
| · | On May 14, 2024, the Company issued shares of common stock to Michael Erbes at a per share price of $. | |
| · | On March 7, 2024, the Company issued shares of common stock to William Z. Richardson III at a per share price of $. |
| · | On February 13, 2024, the Company issued shares of common stock to Troy L. Webb at a per share price of $. |
| · | On January 17, 2024, the Company completed a conversion of a convertible note in the principal amount of $ |
| 18 |
ENERGY AND WATER DEVELOPMENT CORP. AND SUBSIDIARIES NOTES CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
During the six months ended June 30, 2023, the Company engaged in the following equity events:
| · | On January 18, 2023, the Company issued 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 a consulting agreement by and between InfoQuest Technology, Inc. and the Company, dated June 2, 2021. The Company recognized a loss of $ related to the settlement that is included in other income (expense) on the accompanying condensed consolidated condensed statement of operations and comprehensive loss. |
| · | On January 18, 2023, the Company issued 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. The Company recognized a loss of $ related to the settlement that is included in other income (expense) on the accompanying condensed consolidated condensed statement of operations and comprehensive loss. |
| · | During the three months ended March 31, 2023, the Company issued an aggregate of shares of 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 $ |
Note 16. Commitments and Contingencies
Employment Agreements
On August 4, 2022,
the Company entered into employment agreements with its Chief Technology Officer and Chairman of the Board, Ralph Hofmeier, and its Chief
Executive Officer and Vice-Chairman of the Board, Irma Velazquez. Under the employment agreements, the employees are entitled to a base
salary of $
Litigation
From time to time, the Company 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 Company’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.
Note 17. Subsequent Events
The Company has evaluated its operations subsequent to June 30, 2024 to the date these condensed consolidated financial statements were available to be issued and determined the following subsequent events and transactions required disclosure in these condensed consolidated financial statements.
On April 16, 2024,
we received a default notice from 1800 Diagonal Lending LLC requiring the immediate payment of a sum representing
On July 24, 2024,
the Company completed a conversion of a convertible note in the principal amount of $
On July 27, 2024, the Company issued an aggregate of shares of common stock to Layne C. Vonderwerf at a per share price of $.
On July 27, 2024, the Company issued an aggregate of shares of common stock to Michael Henry Erbes at a per share price of $.
On July 27, 2024, the Company issued an aggregate of shares of common stock to Dale Johnson III at a per share price of $.
On July 24, 2024,
the Company completed a conversion of a convertible note in the principal amount of $
| 19 |
| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. |
The following management’s discussion and analysis of financial condition and results of operations provides information that management believes is relevant to an assessment and understanding of our plans and financial condition. The following financial information is derived from our financial statements and should be read in conjunction with such financial statements and notes thereto set forth elsewhere herein.
Use of Terms
Except as otherwise indicated by the context and for the purposes of this report only, references in this report to “we,” “us,” “our” and “our company” are to Energy and Water Development Corp., a Florida corporation, and its consolidated subsidiaries.
Special Note Regarding Forward-Looking Statements
This report contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, that are based on our management’s beliefs and assumptions and on information currently available to us. All statements other than statements of historical facts are forward-looking statements. These statements relate to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Forward-looking statements include, but are not limited to, statements about:
| · | our plans and expectations regarding future financial results, expected operating results; |
| · | the sufficiency of our cash and our liquidity; |
| · | market trends in our industry, energy markets, commodity prices, interest rates, the debt and lending markets, or the general economy; |
| · | development of new products and improvements to our existing products; |
| · | our manufacturing capacity and manufacturing costs; |
| · | the adequacy of our agreements with our suppliers; |
| · | our ability to obtain and maintain financing arrangements on favorable terms and to comply with debt covenants or cure any defaults; |
| · | the availability of opportunities to participate in climate solutions, including energy efficiency and renewable energy projects, and our ability to complete potential new opportunities in our pipeline; |
| · | the availability of and our ability to attract and retain qualified personnel; |
| · | actions and initiatives of federal, state and local governments and changes to federal, state and local government policies, regulations, tax laws and rates and the execution and impact of these actions, initiatives and policies; |
| · | general volatility of the securities markets in which we participate; |
| · | casualties, condemnation or catastrophic failures with respect to any of our business’ facilities; |
| · | costs and effects of legal and administrative proceedings, settlements, investigations and claims; and |
| · | extraordinary or force majeure events affecting the business or operations of our businesses. |
In some cases, you can identify forward-looking statements by terms such as “may,” “could,” “will,” “should,” “would,” “expect,” “plan,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “project” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions. You should not place undue reliance on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, which are, in some cases, beyond our control and which could materially affect results. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under “Risk Factors” included in our Registration Statement on Form S-1, originally filed with the Securities and Exchange Commission, or the SEC, on October 30, 2023, as amended . If one or more of these risks or uncertainties occur, or if our underlying assumptions prove to be incorrect, actual events or results may vary significantly from those implied or projected by the forward-looking statements. No forward-looking statement is a guarantee of future performance.
| 20 |
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.
The forward-looking statements made in this report relate only to events or information as of the date on which the statements are made in this report. Except as expressly required by the federal securities laws, there is no undertaking to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason.
Overview
We are an engineering services company formed as an outsourcing green tech platform focused on sustainable water and energy solutions. We are a United Nations “accredited vendor” and offer design, construction, maintenance and specialty consulting services to private companies, government entities, non-government organizations and intergovernmental organizations for the sustainable supply of energy and water.
We build sustainable water and energy systems out of existing, proven technologies, utilizing our intellectual property and our technical know-how to customize solutions to meet our clients’ needs. Using our patent-pending design, we are working to design, build, and operate off-the-grid atmospheric water generation systems in Mexico and the United States, as well as off-the-grid electric vehicle charging stations in Germany.
In order to effectively cater to our expanding operations in Germany, we have strategically established a branch for business operations in Germany, along with two wholly owned German subsidiaries: Energy and Water Development Deutschland GmbH and EAWD Logistik GmbH. Moreover, recognizing the importance of regional market demands, we have also extended our presence to Mexico through a wholly owned subsidiary, EAWD Mexico SAPI de CV, enhancing our capacity to address the needs of this area efficiently. This strategic positioning not only reflects our commitment to environmental progress but also ensures an optimized response to evolving market requirements.
To date, we have not generated any revenues from the sale of our sustainable water and energy solutions.
| 21 |
Results of Operations
Results of Operations for the Three Months ended June 30, 2024 Compared to the Three Months ended June 30, 2023
| For the Three Months Ended | ||||||||
| June 30, | ||||||||
| 2024 | 2023 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| GENERAL AND ADMINISTRATIVE EXPENSES | ||||||||
| Professional fees | $ | 173,195 | $ | 209,552 | ||||
| Officers’ salaries and payroll taxes | 55,166 | 121,335 | ||||||
| Marketing fees | 426 | 8,836 | ||||||
| Travel and entertainment | 982 | 16,614 | ||||||
| Other general and administrative expenses | 328,085 | 189,278 | ||||||
| TOTAL GENERAL and ADMINISTRATIVE EXPENSES | 557,854 | 545,615 | ||||||
| LOSS FROM OPERATIONS | (557,854 | ) | (545,615 | ) | ||||
| OTHER INCOME (EXPENSE) | ||||||||
| Change in fair value of derivative liability | (95,384 | ) | (20,484 | ) | ||||
| Other income (expense) | (16,808 | ) | (6,069 | ) | ||||
| Interest expense | (205,635 | ) | (46,422 | ) | ||||
| TOTAL OTHER INCOME (EXPENSE) | (317,827 | ) | (72,975 | ) | ||||
| LOSS BEFORE TAXES | (875,681 | ) | (618,590 | ) | ||||
| TAXES | — | 925 | ||||||
| NET LOSS | $ | (875,681 | ) | $ | (619,515 | ) | ||
General and administrative expenses.
Our general and administrative expenses consist primarily of professional fees relating primarily to accounting, auditing and legal services; personnel expenses, including employee salaries and bonuses plus related payroll taxes; marketing expenses; travel and entertainment expenses; and rent expense, insurance, public reporting expenses and other expenses incurred in connection with general operations. Our general and administrative expenses increased by $12,239, or 2%, to $557,854 for the three months ended June 30, 2024 from $545,615 for the three months ended June 30, 2023.
The increase in general and administrative expenses was primarily due to an increase in other general and administrative expenses of $ 138,807, offset by a decrease in professional fees of $36,357, officers’ salaries and payroll taxes of $66,169.
Total other expense.
Other expense increased by $244,852 to $317,827 for the three months ended June 30, 2024 compared to other expense of $72,975 for the three months ended June 30, 2023. The increase in other expense is the result of an increase of change in fair value of derivative of $74,900, interest expense of $159,213.
Net loss.
As a result of the cumulative effect of the factors described above, net loss increased by $256,166 to $875,681 for the three months ended June 30, 2024 from $619,515 for the three months ended June 30, 2023. This decrease was attributable to the net increases and decreases as discussed above.
| 22 |
Results of Operations for the Six Months ended June 30, 2024 Compared to the Six Months ended June 30, 2023
| For the Six Months Ended | ||||||||
| June 30, | ||||||||
| 2024 | 2023 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| GENERAL AND ADMINISTRATIVE EXPENSES | ||||||||
| Professional fees | $ | 332,078 | $ | 342,128 | ||||
| Officers’ salaries and payroll taxes | 153,849 | 257,968 | ||||||
| Marketing fees | 11,240 | 23,832 | ||||||
| Travel and entertainment | 3,905 | 22,141 | ||||||
| Other general and administrative expenses | 672,977 | 404,727 | ||||||
| TOTAL GENERAL and ADMINISTRATIVE EXPENSES | 1,174,049 | 1,050,796 | ||||||
| LOSS FROM OPERATIONS | (1,174,049 | ) | (1,050,796 | ) | ||||
| OTHER INCOME (EXPENSE) | ||||||||
| Change in fair value of derivative liability | (283,404 | ) | 10,109 | |||||
| Other income (expense) | (18,726 | ) | 2,323 | |||||
| Loss on settlement | — | (196,159 | ) | |||||
| Interest expense | (383,322 | ) | (94,093 | ) | ||||
| TOTAL OTHER INCOME (EXPENSE) | (685,452 | ) | (277,820 | ) | ||||
| LOSS BEFORE TAXES | (1,859,501 | ) | (1,328,616 | ) | ||||
| TAXES | — | 925 | ||||||
| NET LOSS | $ | (1,859,501 | ) | $ | (1,329,541 | ) | ||
General and Administrative Expense
General and administrative expenses increased by $123,253 to $1,174,049 for the six months ended June 30, 2024 from $1,050,796 for the six months ended June 30, 2023.
The increase in general and administrative expenses was primarily due to an increase in other general and administrative expenses of $268,250, offset by a decrease in officer’s salaries of $104,119, and decrease in travel and entertainment of $18,236.
Other Income (Expense)
Other expense increased by $407,632 to $685,452 of other expense for the six months ended June 30, 2024 compared to other expense of $277,820 for the six months ended June 30, 2023. The increase in other expense is the result of a increase in the change in fair value derivative liability of $ 293,513 and an increase in interest expense of $289,229, offset by a decrease in loss on settlement of liabilities of $196,159.
Net Loss
Net loss increased by $529,960 to $1,859,501 for the six months ended June 30, 2024 from $1,329,541 for the six months ended June 30, 2023. This increase was attributable to the net increases and decreases as discussed above.
Liquidity and Capital Resources
As of June 30, 2024, we had $113,530 in cash. 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.
We have sustained operating losses since we began our operations in 2012. At June 30, 2024, we had an accumulated deficit of $ 29,630,792. We cannot predict how long we will continue to incur further losses or whether we will ever become profitable as this is dependent upon the reduction of certain expenses and success in obtaining project contracts, among other things. These conditions raise substantial doubt about our ability to continue as a going concern. Our financial statements were prepared on a going concern basis and do not include any adjustment with respect to these uncertainties.
| 23 |
Our ability to transition to profitable operations is dependent upon achieving a level of revenue adequate to support our 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 is working to conclude the sales in Germany and in other regions of the world relating to previously approved proposals, which would bring a growing revenue. Management plans to expand sales operations by greater market penetration of the agricultural, industrial and community development markets with our innovative water and energy generation solutions. Management also plans to raise additional funds during 2024 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 our assembly, logistics and administrative operations 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. We are also planning to acquire our own electric vehicles to reduce our supply transportation costs.
The ability of our company to continue as a going concern depends upon its ability to generate sales or obtain additional funding to finance operating losses until it is profitable.
Summary of Cash Flow
Cash Flows from Operating Activities
We used $703,225 of cash in our operating activities in the six months ended June 30, 2024 compared to $708,974 used in the six months ended June 30, 2023. The decrease in cash of $5,749 is primarily due to an increase in net loss of $529,960, decrease in loss on settlement of $196,159, increase in operating lease liabilities, current and non-current of $44,284, offset by increase in change in fair value of derivative liability and derivative expense of $293,513, increase in loss on partial extinguishment of convertible debt of $93,180, as well as an increase in cash used by working capital items of $222,771 principally related to an increase in accounts payable, accrued expenses and deferred taxes of $292,851.
Cash Flows from Investing Activities
The Company generated $46,321 in cash from investing activities in the six months ended June 30, 2024 as compared to net cash used in investing activities of $38,730 in the six months ended June 30, 2023.
Cash Flows from Financing Activities
Net cash provided by financing activities was $755,386 and $726,938 for the six months ended June 30, 2024 and 2023, respectively. The net increase of $28,448 is primarily due to $250,000 of proceeds from convertible notes and proceeds from promissory notes of $134,894, offset by decrease in proceed from sale of stock of $304,699.
Convertible Notes
On June 30, 2023, we issued an 8% convertible redeemable note in the principal amount of $153,000 to GS Capital Partners, LLC. The note bears interest at 8% per annum and all principal and interest is due on June 30, 2024. Upon an event of default (as defined in the note), the interest rate shall increase to 24% per annum and certain other penalties may apply depending on the reason for the default. This note is convertible after six months at a fix conversion price of $0.03; provided that if the closing price of our common stock is below $0.03 for the ten consecutive trading days prior to conversion, then the conversion price shall be equal to the lower of $0.01 or 70% of the lowest closing price for the twenty prior trading days. On January 17, 2024, principal in the amount of $75,000, along with $3,238 in interest and $900 in other fees was converted into 7,913,836 shares of common stock.
On February 15, 2024, we issued an 8% convertible redeemable note in the principal amount of $150,000 to Geebis Consulting LLC. This note bears interest at a rate of 8% per annum and all principal and interest is due on August 15, 2024. Upon an event of default (as defined in the note), the interest rate shall increase to 24% per annum and certain other penalties may apply depending on the reason for the default. This note may be prepaid upon the payment of certain prepayment premiums. This note is convertible only after the maturity date at a fix conversion price of $0.04; provided that if the closing price of our common stock is below $0.03 for the five consecutive trading days prior to conversion, then the conversion price shall be equal to the lower of $0.01 or 70% of the lowest closing price for the twenty prior trading days. This note is unsecured and contains customary events of default for a loan of this type.
On June 26, 2024, the Company issued an 8% convertible redeemable note in the principal amount of $100,000 to GS Capital Partners, LLC. This note bears interest at a rate of 8% per annum and all principal and interest is due on December 31, 2024. Upon an event of default (as defined in the note), the interest rate shall increase to 24% per annum and certain other penalties may apply depending on the reason for the default. This note may be prepaid upon the payment of certain prepayment premiums. This note is convertible only after the maturity date at a fix conversion price of $0.04; provided that if the closing price of the Company’s common stock is below $0.03 for the five consecutive trading days prior to conversion, then the conversion price shall be equal to the lower of $0.01 or 70% of the lowest closing bid price.
| 24 |
Promissory Note
On March 7, 2024, we issued a promissory note to 1800 Diagonal Lending LLC in the principal amount of $147,775, which included an original issue discount of $19,275. This note includes a one-time interest charge of 12% applied on the issuance date to the principal amount, requires monthly payments commencing on September 15, 2024, and is due on December 15, 2024. This note is convertible only upon an event of default at a conversion price equal to 75% of the lowest trading price of our common stock during the ten trading days prior to conversion. This note is unsecured and contains customary events of default for a loan of this type.
Contractual Obligations
Our principal commitments consist mostly of obligations under the loans described above.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Critical Accounting Policies
The preparation of the unaudited condensed consolidated financial statements requires our management to make estimates and assumptions that affect the reported amounts of assets, liabilities, expenses, and related disclosure of contingent assets and liabilities. On a regular basis, we evaluate these estimates. These estimates are based on management’s historical industry experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.
For a description of the accounting policies that, in management’s opinion, involve the most significant application of judgment or involve complex estimation and which could, if different judgment or estimates were made, materially affect our reported financial position, results of operations, or cash flows, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 filed with the SEC on April 26, 2024.
| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. |
Not applicable.
| ITEM 4. | CONTROLS AND PROCEDURES. |
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.
As required by Rule 13a-15(e) of the Exchange Act, our management has carried out an evaluation, with the participation and under the supervision of our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as of June 30, 2024 . Based upon, and as of the date of this evaluation, our chief executive officer and chief financial officer determined that, because of the material weaknesses described in Item 9A “Controls and Procedures” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, which we are still in the process of remediating as of June 30, 2024, our disclosure controls and procedures were not effective. Investors are directed to Item 9A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 for the description of these weaknesses.
Remediation of Material Weaknesses in Internal Control Over Financial Reporting
We have evaluated the material weakness described above and our management and board of directors are committed to the design and successful implementation of internal control over financial reporting as promptly as possible. We currently plan to evaluate our updated internal controls design and determine whether the controls have operated effectively during 2024 in order to fully remediate the aforementioned material weakness in our internal control over financial reporting.
As disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, our management has identified the steps necessary to address the material weaknesses, and in the second quarter of 2024, we continued to implement the following remedial procedures:
| 25 |
| · | We have welcomed a new part-time Chief Financial Officer to our team and augmented our staff with specialized accounting consultants. |
| · | We are in the process of codifying our policies and procedures, which will significantly enhance the cohesion between our financial operations and other non-accounting divisions. |
| · | We are also collaborating with external experts to ensure that our remediation efforts are both efficient and comprehensive. |
We intend to complete the remediation of the material weaknesses discussed above as soon as practicable, but we can give no assurance that we will be able to do so. Designing and implementing an effective disclosure controls and procedures is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to devote significant resources to maintain a financial reporting system that adequately satisfies our reporting obligations. The remedial measures that we have taken and intend to take may not fully address the material weaknesses that we have identified, and material weaknesses in our disclosure controls and procedures may be identified in the future. Should we discover such conditions, we intend to remediate them as soon as practicable. We are committed to taking appropriate steps for remediation, as needed.
Changes in Internal Control Over Financial Reporting
Other than in connection with the implementation of the remedial measures described above, there were no changes in our internal controls over financial reporting during the second quarter of 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
| 26 |
PART II
OTHER INFORMATION
| ITEM 1. | LEGAL PROCEEDINGS. |
From time to time, we may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these, or other matters, may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse effect on our business, financial condition or operating results.
| ITEM 1A. | RISK FACTORS. |
Not applicable.
| ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. |
Except as set forth below, we have not sold any equity securities during the three months ended June 30, 2024 that were not previously disclosed in a current report on Form 8-K that was filed during the quarter.
On May 14, 2024, we sold 2,025,000 shares of common stock to Dale Johnson III at a per share price of $0.10.
On May 14, 2024, we sold 1,225,000 shares of common stock to Michael Erbes at a per share price of $0.10.
We did not repurchase any shares of our common stock during the three months ended June 30, 2024.
| ITEM 3. | DEFAULTS UPON SENIOR SECURITIES. |
None.
| ITEM 4. | MINE SAFETY DISCLOSURES. |
Not applicable.
| ITEM 5. | OTHER INFORMATION. |
During the quarter ended June 30, 2024, no
director or officer of the Company
| ITEM 6. | EXHIBITS. |
| Exhibit No. | Description | |
| 3.1 | Amended and Restated Articles of Energy and Water Development Corp. (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed on January 31, 2020) | |
| 3.2 | Articles of Amendment to Amended and Restated Articles of Energy and Water Development Corp. (incorporated by reference to Exhibit 3.2 to the Registration Statement on Form S-8 filed on October 28, 2022) | |
| 3.3 | Bylaws of Energy and Water Development Corp. (incorporated by reference to Exhibit 3.2 to the Registration Statement on Form S-1 filed on October 7, 2015) | |
| 31.1* | Certifications of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 31.2* | Certifications of Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 32.1** | Certifications of Principal Executive Officer furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 32.2** | Certifications of Principal Financial Officer furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 101.INS | XBRL Instance 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) |
______________
*Filed herewith
** Furnished herewith
| 27 |
SIGNATURES
Pursuant to the requirements 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.
| Date: August 19, 2024 | ENERGY AND WATER DEVELOPMENT CORP. |
| /s/ Irma Velazquez | |
| Name: Irma Velazquez | |
| Title: Chief Executive Officer | |
| (Principal Executive Officer) | |
| /s/ Amedeo Montonati | |
| Name: Amedeo Montonati | |
| Title: Chief Financial Officer | |
| (Principal Financial and Accounting Officer) |