UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
for the fiscal year ended December 31, 2021
☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from: _____________ to _____________
Commission file number: 000-56030
ENERGY AND WATER DEVELOPMENT CORP.
(Exact Name of Registrant as Specified in Its Charter)
| Florida | 30-0781375 | |
| (State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
7901 4th Street N, STE #4174, St Petersburg, Florida 33702
(Address of Principal Executive Offices, including Zip Code)
Tel No.: 727-677-9408
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| None | None | None |
Securities registered pursuant to Section 12(g) of the Act:
| Common Stock, $.001 par value per share |
| (Title of class) |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒
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. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ |
| Non-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 checkmark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the regular public accounting firm that prepared or issued its audit report. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
As of June 30, 2021, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the common stock held by non-affiliates of the registrant was $41,992,600 based on the closing price of $ 0.31 for the registrant’s common stock as quoted on the OTC QB Market on that date. Shares of common stock held by each director, each officer and each person who owns 10% or more of the outstanding common stock have been excluded from this calculation in that such persons may be deemed to be affiliates. The determination of affiliate status is not necessarily conclusive.
The number of shares outstanding of the registrant’s classes of common stock as of April 12, 2022 was shares.
DOCUMENTS INCORPORATED BY REFERENCE
None.
INDEX
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
Certain statements contained in this Report may contain "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements include, but are not limited to, statements regarding our Company and management’s expectations, hopes, beliefs, intentions, or strategies regarding the future, including our financial condition and results of operations. In addition, any statements that refer to projections, forecasts, or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words “anticipates,” “believes,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “might,” “plans,” “possible,” “potential,” “predicts,” “projects,” “seeks,” “should,” “will,” “would” and similar expressions, or the negatives of such terms, may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking.
Forward-looking statements are subject to significant risks and uncertainties. Investors are cautioned against placing undue reliance on such statements. Actual results may differ materially from those set forth in the forward-looking statements. Other important factors that we think could cause our actual results to differ materially from expected results are summarized below, including the still ongoing impact of the current outbreak of the novel coronavirus ("COVID-19"), on the U.S., regional and global economies, the U.S. sustainable energy market, and the broader financial markets. The current outbreak of COVID-19 has also impacted, and is likely to continue to impact, directly or indirectly, many of the other important factors below and the risks described in this Form 10-K and in our subsequent filings under the Exchange Act. Other factors besides those listed could also adversely affect us. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. In particular, it is difficult to fully assess the impact of COVID-19 at this time due to, among other factors, uncertainty regarding the severity and duration of the outbreak domestically and internationally, uncertainty regarding the effectiveness of federal, state and local governments’ efforts to contain the spread of COVID-19 and respond to its direct and indirect impact on the global economy and economic activity, including the timing of the successful distribution of an effective vaccine.
Statements regarding the following subjects, among others, may be forward-looking:
| · | negative impacts from a continued spread of COVID-19, including on the U.S. or global economy or on our business, financial position, or results of operations; | |
| · | market trends in our industry, energy markets, commodity prices, interest rates, the debt and lending markets, or the general economy; | |
| · | our plans and expectations regarding future financial results, expected operating results; | |
| · | the sufficiency of our cash and our liquidity; | |
| · | 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 financing, our ability to comply with debt covenants or cure any defaults; | |
| · | 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; | |
| · | 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; | |
| · | our ability to obtain and maintain financing arrangements on favorable terms, including securitizations; | |
| · | general volatility of the securities markets in which we participate; | |
| · | the impact of weather conditions, natural disasters, accidents or equipment failures, or other events that disrupt our operations or negatively impact the value of our assets; | |
| · | availability of and our ability to attract and retain qualified personnel; and | |
| · | our understanding of our competition. |
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Forward-looking statements are based on beliefs, assumptions and expectations as of the date of this Form 10-K. Any forward-looking statement speaks only as of the date on which it is made. New risks and uncertainties arise over time, and it is not possible for us to predict those events or how they may affect us. Except as required by law, we are not obligated to, and do not intend to, update or revise any forward-looking statements after the date of this Form 10-K, whether as a result of new information, future events or otherwise.
The risks included here are not exhaustive. Other sections of this Form 10-K may include additional factors that could adversely affect our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time and it is not possible for management to predict all such risk factors, nor can it assess the impact of all such risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results.
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PART I
ITEM 1. BUSINESS.
Company History
Energy and Water Development Corp. (the “Company” or “EAWD”) was registered as a Florida corporation under the name Eagle International Holdings Group Inc. on December 12, 2007 and, on March 10, 2008, the Company changed its name to Eurosport Active World Corporation.
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. In connection with the closing of the Acquisition Agreement, the Company adopted ISA’s business plan and the Company’s current officers and directors were elected to their positions. This transaction was accounted for as a recapitalization effected by a share exchange, wherein ISA was considered the acquirer for accounting and financial reporting purposes. ISA was administratively dissolved in September 2010.
In September 2019, the Company changed its name to Energy and Water Development Corp. to better present the Company’s purpose and business sector.
On November 9, 2021, the Company established an official Subsidiary of EAWD in Germany to ensure the company is positioned to service its growing business in one of the EU’s most environmentally progressive countries.
The Business
We are an engineering services company formed as an outsourcing green tech platform, focused on sustainable water and energy solutions.
| · | EAWD builds water and energy systems out of already-existing, proven technologies, utilizing our technical know-how to customize solutions to our clients’ needs. | |
| · | The Company offers design, construction, maintenance and specialty consulting services to private companies, government entities and non-government organizations (NGOs). |
In view of the increased world-wide demand for water and energy, our business goals are focused on sustainable water generation and green energy production. To accomplish this, we set out to establish an outsourcing green tech platform, providing engineering and technical consultation services to design the most sustainable technological solutions that can provide water and energy. We also intend to secure all required technical, maintenance, education, and training related to the identified technology solutions. To this end the Company has sought potential collaboration with green tech research and development centers in Europe and has established a subsidiary in Hamburg Germany, where we have started to assemble the patent filed innovative Self Sufficient Power Supply Atmosphere Water Generation Systems (eAWGs).
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The green tech industry is constantly evolving due to ongoing and increasing water scarcity as well as increased energy need in the world. Therefore, we believe that by designing the most sustainable renewable solutions to these problems, EAWD will become an essential component of a rapidly growing industry with many new markets. The green tech industry is complex because it still requires much promotion and information about its potential. Furthermore, regulations in each country are different and, in many cases, several segments are regulated by both national and local (state, provincial, municipal) governments. EAWD’s approach seeks to assist businesses with the growth and development of their general operations by ensuring the efficient, profitable, and sustainable supply/generation of water and energy allowing our potential customers to focus on their business while adopting strategies of sustainability. Using our identified technology, products, and services licensed or purchased from other technological sources, we are delivering and installing a product set that suits the green technology water and/or energy needs of our customers. By using the state-of-the art technological solutions and technologies identified, designed, and provided by EAWD and its collaborators, we believe that our potential clients will be free to focus on the performance of their operations as well as with the water and energy consumption or generation regulations within their industry. Our clients may be businesses seeking to upgrade their business processes or governmental entities seeking to apply green technology solutions for the water and energy they supply to their constituencies.
We continue to be a development stage company. The Company presently assembles its patent filled eAWGs at its workshop in Germany and outsources most of its engineering and technical services as well as services relating to the promotion, selling, and distribution of the identified technological solutions. We presently have only six employees, from those; Mr. Hofmeier, is our President, Chief Executive Officer, Chairman of the Board, and a significant stockholder, and Ms. Velazquez, is our Chief Operating Officer, Vice-Chairman, and a significant stockholder.
We seek to focus on three main aspects of the water and energy business: (1) generation, (2) supply, and (3) maintenance. We seek to assist private companies, government entities and municipalities NGOs to build profitable and sustainable supplies/generation capabilities of water and energy as required by selling them the required technology or technical service to enhance their productivity/operability. With its outsourced technical arm and its commission-based global network of vendors, the Company expects to create sustainable added value to each project it takes on while generating revenue from its engineering and technical consultancy services, project management, sale of our Self Sufficient Power Supply Atmosphere Water Generation Systems (eAWGs) Solar Energy Generation Systems and Energy Management Systems, royalties from the commercialization of energy and water in certain cases, and revenues from the licensed innovated technologies.
The following table depicts the Company’s service and product offerings to its client.
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We provide customized technology solutions and technical services, based upon client need and preference, which may include any or all of the following:
| · | water/energy generation; | |
| · | technical assistance; | |
| · | strategic and financial partnering; | |
| · | project management. |
The Company also focuses on addressing areas of the industry which concentrate on new technological and engineering concepts relating to water and energy generation and those related components that assist in advancing the green tech industry. These include:
| · | advancement of eAWGs; | |
| · | development of techniques to attain self-sufficient supply of energy; | |
| · | advancement of new ideas on energy generation, storage and management implementation; | |
| · | designing, prototyping, and arranging the manufacture of new water and energy generation systems. |
Our Business Relationships
Agreements with EAWC Tecnologias Verdes, S.A. (“EAWC-TV”)
Pursuant to a Management and Administrative Services Agreement (the “MASA”) between the Company and EAWC Tecnologias Verdes, SA (“EAWC-TV”) dated January 1, 2017, during the fiscal year ended December 31, 2020, back-end management and administrative services were provided to the Company by EAWC-TV, a privately-owned Mexican company. The Company agreed to pay EAWC-TV $25,000 per month pursuant to the MASA. The MASA was terminated effective January 1, 2021. All administrative services previously provided by EAWC-TV will be provided internally by the Company´s subsidiary in Germany. EAWC-TV remains the Company’s exclusive distributor for Mexico and Latin America, pursuant to a distribution agreement dated July 17, 2015.
Mr. Hofmeier, our President, Chief Executive Officer, Chairman of the Board and a significant stockholder, owned 5% of EAWC TV. On December 17, 2021 Mr. Hofmeier sold its 5% to an external third party.
Mr. Hofmeier did not hold any management or other personnel position with EAWC-TV.
Our Vision
The Global Atmospheric Water Generator Market size was estimated at USD 959.85 million in 2020, it was expected to reach USD 1,074.01 million in 2021, and is projected to grow at a CAGR of 14.36% to reach USD 2,147.48 million by 2026.
The mission of EAWD is to provide sustainable water generation systems based on high efficiency and renewable sources, and energy management solutions. Through a combination of the best design and configuration of state of the art technology-assisted solutions, EAWD has created a completely self-sufficient energy generation and water production system (eAWGs), which can be simultaneously used to meet potable water requirements as well as the electrical energy needs of the industrial sector.
EAWD promotes and commercializes its green technology solutions via commission-based distributers and agents worldwide.
Through our BlueTech Alliance for Water Generation, established in December 2020; we have state of the art technology partners, technology transfer agreements, and technology representation agreements in place relating to aspects of renewable energy and water supply. These unique key relationships offer important selling features and capabilities that differentiated EAWD from its competitors.
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The Company plans to generate revenue from its engineering and technical consultancy services, project management, sale of our Self Sufficient Power Supply Atmosphere Water Generation Systems, Solar Energy Generation Systems, and Energy Management Systems, royalties from the commercialization of energy and water in certain cases, and revenues from the licensed innovated technologies.
Our Products
The technological solutions offered by our Company are the following:
Self Sufficient Power Supply Atmosphere Water Generation System (eAWGs) & Aqua Mission Systems
Today, atmosphere water generators (AWGs) are standard equipment in many places; however, operating AWGs requires high amounts of energy that is often not available in the places where they are needed most, making the price for the generated water very high. Our innovative patent filled eAWGs are designed to have an internal power supply and ability to generate power. Our eAWG system produces sufficient quantities of potable water even in very dry and hot climate conditions and can be scaled to almost any size, community, and/or population. Presently, AWGs are largely used in Asian and African countries. The majority of manufacturers of AWGs, which rely on dehumidifying, are located in China. Almost every U.S. based AWG brand is also supplied by manufacturers in China.
By contrast, EAWD uses a proven German technology for condensate water from the air based on A/C technology. We believe that this method allows higher, more efficient, sustainable performance and a larger quantity of water generation because of its internal power supply and because it does not require high humidity to function. EAWD has licensed the rights to use this German AWG technology for ninety-nine years. Our eAWGs line is different in size from the standard AWG water generator line. Our eAWGs are energy self-sufficient and can condense large amounts of water out of the atmosphere and we believe they could be a solution in countries around the world that deal with issues of water scarcity.
Our eAWG with an internal power supply works by first inhaling large volumes of air, then cooling the air down to the dew point, and finally collecting, filtering, and mineralizing the resulting condensed water. Through this process, pure drinking water is created that meets the quality standards of the World Health Organization (WHO). In regions with high temperatures and high humidity levels, a single system Type I can generate up to 10,000 liters or 3,000 gallons of water per day. Our eAWGs line starts at 3,000 gallons/day and can expand the water supply to ONE acre-feet/day, (300,000 gallons or 1.2 Millon liter) which we believe, in effect, is essentially the ability to produce an unlimited supply of water. As a certified vendor of the United Nations Marketplace, EAWD is introducing the eAWGs to the UN with the hopes of initially supplying them to large refugee camps around the world in need of fresh water.
Solar Power Water Purification Systems
EAWD also seeks to respond to the growing need for drinking water by proposing a water purification solution utilizing solar, photovoltaic energy and, when applicable, a mini-windmill or other alternate source of renewable energy. The design of the system is ready to be built and delivered on demand.
Generally, drinking water is produced by passing sea water, lake water, river water, or stagnant water through several stages of purification and treatment until it is rendered drinkable in accordance with WHO standards. In the case of sea or stagnant water, we recommend a treatment via reverse osmosis membranes, which permits the retention of dissolved solids and results in obtaining water of drinking quality. If the water being treated emanates from lakes or rivers, we recommend treatment via an ultrafiltration membrane which functions by retaining suspended materials such as colloids, viruses and bacteria. The systems proposed by EAWD are containerized and contain all the equipment necessary to function autonomously, in part due to an automatic cleansing system that can be accessed remotely via satellite or the internet. Moreover, the machines use available renewable energy sources such as solar or wind.
Solar Power Systems – a high-quality frameless glass-glass solar panel with a supermatt surface.
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Energy Storage and charging Solutions - a highly capable Solar powered and Battery Management System (BMS) that allows controlled and optimized battery cell management and charging mobile stations.
Worldwide Business Relationships
EAWD has commission-based independent agents and distributors strategically placed around the world (i.e. Germany, Mexico, United States, India, Canada, Australia, Colombia, Nepal, Kenya, Morocco and Thailand. In total, we work with 34 commission-based independent agents and distributors to promote and sell EAWD’s technology solutions.
We believe that this worldwide presence through our agents and distributors will provide us access to the most important markets in need of water, energy, and energy management solutions.
Competition
The market witnesses the presence of a diversified array of large and small scale manufacturers resulting in a significant level of competition in the global market. The competition in the market, both in the residential and commercial sectors, is projected to grow in intensity and is characterized by the demand for advanced and reliable atmospheric water generator units. Rising demand for industrial-size eAWGs, particularly in regions facing water shortages, is expected to create opportunities for new market players such as EAWD through 2027. Moreover, current research that is focused on increasing overall product efficiency in the industry is anticipated to open new avenues for market players over the coming years. According to an atmospheric water generator market size report [published by Grand View Research in 2020], some of the prominent players in the atmospheric water generator (AWG) market include: Akvo Atmospheric Water Systems Pvt. Ltd., Dew Point Manufacturing, Saisons Trade & Industry Private Limited, Water Maker India Pvt. Ltd., Planets Water, Water Technologies International, Inc. (WTII), SkyWater Air Water Machines, Drinkable Air, Hendrx Water, Atlantis Solar, GENAQ Technologies S.L., Air2Water LLC, EcoloBlue, Inc and Watergen. On some level, each of these companies faces the two main industry challenges: carbon footprint and high-power requirement.
We compete by providing innovative systems assembled with state of the art technologies and that contain self-sufficient power supplies, which make them more sustainable and profitable than the traditional solutions. We also set ourselves apart by providing services that are valued by our customers such as reliable sales relationships, product innovations, and responses to changing market/business needs.
Government Regulation
The manufacturing, processing, testing, packaging, labeling, and advertising of the technologies that we sell may be subject to regulation by one or more U.S. federal agencies, including the Food and Drug Administration, the Federal Trade Commission, the U.S. Department of Agriculture, the Environmental Protection Agency, and by the standards provided by the U.S. Department of Health and Human Services and the World Health Organization for drinking water. Our operations may also be regulated by various agencies of states, localities, and foreign countries in which consumers reside. Currently, the technologies we intend to use in our solutions and our services are not subject to any governmental regulation in the United States although it is possible that the FDA may choose to regulate the quality of water produced from atmospheric water generating machines in the near future.
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Since the Company may be subject to a wide range of regulation covering every aspect of our business as mentioned above, we cannot predict the nature of any future U.S. laws, regulations, interpretations or applications, nor can we determine what effect additional governmental regulations or administrative orders, when and if promulgated, would have on the business in the future. Although the regulation of water is less restrictive than that of drugs and food additives, we cannot offer assurance that the current statutory scheme and regulations applicable to water will remain less restrictive. Further, we cannot assure you that, under existing laws and regulations, or if more stringent statutes are enacted, regulations are promulgated, or enforcement policies are adopted, we are or will be in compliance with these new statutes, regulations or enforcement policies without incurring material expenses or adjusting our business strategy. Any laws, regulations, enforcement policies, interpretations or applications applicable to our business could require the reformulation of products, all of which are supplied by third parties, to meet new standards or the recall or discontinuance of certain products not capable of reformulation, additional record keeping, expanded documentation of the properties of certain products, expanded or different labeling or scientific substantiation.
Employees
As of December 31, 2021, we had six full-time employees. Over time, we will be required to hire employees or continue to engage independent contractors in order to execute the projects necessary to grow and develop the business. These decisions will be made by our officers and directors, if and when appropriate. We work with 34 commission-based agents and distributors to promote and sell the Company’s technology solutions. These agents and distributors are independent contractors with whom we have contractual relationships and are compensated solely based on commission.
Emerging Growth Company Status
We are an “emerging growth company” as defined in Section 2(a)(19) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). As such, we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We elected to take advantage of all of these exemptions.
In addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards, and delay compliance with new or revised accounting standards until those standards are applicable to private companies. We have elected to take advantage of the benefits of this extended transition period.
We will be an emerging growth company until the last day of the first fiscal year following the fifth anniversary of our first common equity offering, although we will lose that status earlier if our annual revenues exceed $1.0 billion, if we issue more than $1.0 billion in non-convertible debt in any three-year period or if we become a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We will qualify as a “large accelerated filer” as of the first day of the first fiscal year after we have (i) more than $700,000,000 in outstanding common equity held by our non-affiliates as of the last day of our most recently completed second fiscal quarter; (ii) been a public company for at least 12 months; and (iii) filed at least one annual report with the SEC. The value of our outstanding common equity will be measured each year on the last day of our second fiscal quarter.
ITEM 1A. RISK FACTORS.
As a smaller reporting company, the Company is not required to include the disclosure required under this Item 1A.
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ITEM 1B. UNRESOLVED STAFF COMMENTS.
Not applicable.
ITEM 2. PROPERTIES.
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. Since October 2020, the Company had an official registered Branch, which became an officially registered subsidiary in Hamburg Germany; the office address Bellindam 3, 20095 Hamburg. Our Telephone number is +49 40 809 08 1354.
We do not own any real property. We may procure additional space as we add employees and expand geographically. We believe that our current facilities are adequate to meet our needs for the immediate future and that, should it be needed, suitable additional space will be available to accommodate expansion of our operations.
ITEM 3. LEGAL PROCEEDINGS.
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 December 31, 2021 interest had accrued to $59,136. 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.
Due to the nature of the Company's business, the Company may at times be subject to claims and legal actions. The Company accrues liabilities when it is probable that future costs will be incurred, and such costs can be reasonably estimated. Such accruals are based on developments to date and the Company’s estimates of the outcomes of these matters. Except as set forth above, as of December 31, 2021 we are not currently subject to any legal proceedings, nor to the knowledge of management are any legal proceedings threatened that are likely to have a material adverse effect on our financial position, results of operations or cash flows.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Our common stock is currently quoted on the OTCQB tier of the OTC Market under the symbol “EAWD” There is currently a limited market for our common stock and the volume of our common stock traded on any day may vary significantly from one day to another. Trading in stock quoted on the OTC Market’s OTCQB is often thin and characterized by wide fluctuations in trading prices due to many factors that may have little to do with our operations or business prospects. The availability of buyers and sellers represented by this volatility could lead to a market price for our common stock that is unrelated to operating performance. Moreover, the OTC Market’s OTCQB is not a stock exchange, and trading of securities quoted on the OTC Market’s OTCQB is often more sporadic than the trading of securities listed on a stock exchange like NASDAQ. There is no assurance that there will be a sufficient market in our stock, in which case it could be difficult for our stockholders to resell their shares.
On April 12, 2022 , the closing price of our common stock was $0.21 per share as reported on the OTC QB Market maintained by OTC Markets Group, Inc.
The following table sets forth for the respective periods indicated the prices of our common stock in this market as reported and summarized by the OTC Markets. Such prices are based on inter-dealer bid and asked prices, without markup, markdown, commissions, or adjustments and may not represent actual transactions.
| HIGH | LOW | |||||||
| Fiscal Year 2021: | ||||||||
| First Quarter | $ | 0.76 | $ | 0.15 | ||||
| Second Quarter | $ | 0.45 | $ | 0.17 | ||||
| Third Quarter | $ | 0.59 | $ | 0.05 | ||||
| Fourth Quarter | $ | 1.00 | $ | 0.0001 | ||||
| Fiscal Year 2020: | ||||||||
| First Quarter | $ | 0.22 | $ | 0.07 | ||||
| Second Quarter | $ | 0.18 | $ | 0.05 | ||||
| Third Quarter | $ | 1.60 | $ | 0.09 | ||||
| Fourth Quarter | $ | 0.19 | $ | 0.09 | ||||
Penny Stock
The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a market price of less than $5.00, other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock, to deliver a standardized risk disclosure document prepared by the SEC, that: (a) contains a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading; (b) contains a description of the broker’s or dealer’s duties to the customer and of the rights and remedies available to the customer with respect to a violation of such duties or other requirements of the securities laws; (c) contains a brief, clear, narrative description of a dealer market, including bid and ask prices for penny stocks and the significance of the spread between the bid and ask price; (d) contains a toll-free telephone number for inquiries on disciplinary actions; (e) defines significant terms in the disclosure document or in the conduct of trading in penny stocks; and (f) contains such other information and is in such form, including language, type size and format, as the SEC shall require by rule or regulation.
The broker-dealer also must provide, prior to effecting any transaction in a penny stock, the customer with (a) bid and offer quotations for the penny stock; (b) the compensation of the broker-dealer and its salesperson in the transaction; (c) the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and (d) a monthly account statement showing the market value of each penny stock held in the customer’s account.
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In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written acknowledgment of the receipt of a risk disclosure statement, a written agreement as to transactions involving penny stocks, and a signed and dated copy of a written suitability statement.
These disclosure requirements may have the effect of reducing the trading activity for our common stock. Therefore, shareholders may have difficulty selling our securities.
Holders
As of December 31, 2021, we had 796 record holders of our common stock, holding 143,840,643 shares of common stock. The number of record holders was determined from the records of our transfer agent and does not include beneficial owners of common stock whose shares are held in the names of bank, brokers and other nominees.
Dividends
We have not paid any cash dividends to our shareholders. The declaration of any future cash dividends is at the discretion of our Board of Directors and depends upon our earnings, if any, our capital requirements and financial position, and general economic conditions. It is our present intention not to pay any cash dividends in the foreseeable future, but rather to reinvest earnings, if any, in our business operations.
Securities authorized for issuance under equity compensation plans
Reference is made to “Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters—Securities Authorized for Issuance under Equity Compensation Plans” for the information required by this item.
Recent Sales of Unregistered Securities
During the fiscal years ended December 31, 2021 and 2020, the Company issued $404,000 and $468,500 in convertible debentures, respectively. The holders of certain of such instruments had the option to convert these convertible debentures into the Company’s common stock at conversion prices ranging from $0.01 to $0.20. The remaining holders of convertible instruments at December 31, 2021 have convertible instruments with variable conversion rates.
During 2021 and 2020, holders of convertible debentures exercised their conversion options on convertible debentures amounting to $270,000 and $571,000, respectively in exchange for 4,671,167 and 8,334,361 shares of common stock, respectively.
During the year ended December 31, 2021, the Company engaged in the following equity events:
| · | 5,065,344 common shares issued for $718,113 for the sale of shares, | |
| · | 10,000,000 common shares issued to officers for accrued salary, | |
| · | 500,000 common shares issued for $165,000 in marketing and consulting, | |
| · | 4,671,167 common shares were issued for $270,000 to convertible note holder is satisfaction of their notes, | |
| · | 287,246 common shares were issued for $15,355 to pay interest and fees, |
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The sale and the issuance of the foregoing securities were offered and sold in reliance upon exemptions from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”) and Rule 506 of Regulation D promulgated under the Securities Act (“Regulation D”). We made this determination based on the representations of each recipient, as applicable, which included, in pertinent part, that each such investor was either (a) an “accredited investor” within the meaning of Rule 501 of Regulation D or (b) a “qualified institutional buyer” within the meaning of Rule 144A under the Securities Act and upon such further representations from each investor that (i) such investor acquired the securities for his, her or its own account for investment and not for the account of any other person and not with a view to or for distribution, assignment or resale in connection with any distribution within the meaning of the Securities Act, (ii) such investor agreed not to sell or otherwise transfer the purchased securities unless they are registered under the Securities Act and any applicable state securities laws, or an exemption or exemptions from such registration are available, (iii) such investor had knowledge and experience in financial and business matters such that he, she or it was capable of evaluating the merits and risks of an investment in us, (iv) such investor had access to all of our documents, records, and books pertaining to the investment and was provided the opportunity to ask questions and receive answers regarding the terms and conditions of the offering and to obtain any additional information which we possessed or were able to acquire without unreasonable effort and expense, and (v) such investor had no need for the liquidity in its investment in us and could afford the complete loss of such investment. In addition, there was no general solicitation or advertising for such securities issued in reliance upon these exemptions.
ITEM 6. [RESERVED]
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Introductory Statement
The following discussion and analysis of the results of operations and financial condition for the fiscal years ended December 31, 2021 and 2020 should be read in conjunction with our financial statements and the notes to those financial statements that are included elsewhere in this Report. This discussion contains forward-looking statements and information relating to our business that reflect our current views and assumptions with respect to future events and are subject to risks and uncertainties that may cause our or our industry’s 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.
These forward-looking statements speak only as of the date of this report. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, or achievements. Except as required by applicable law, including the securities laws of the United States, we expressly disclaim any obligation or undertaking to disseminate any update or revisions of any of the forward-looking statements to reflect any change in our expectations with regard thereto or to conform these statements to actual results.
Addressing challenges post-COVID-19 and current war in Ukraine.
COVID-19 is an incomparable global public health emergency that has affected almost every industry and has caused the worst global economic contraction of the past 80 years (IMF). The concerted global efforts achieved the development of vaccines that have helped to reduce a person´s risk of contracting the virus. However, the current war in Ukraine lead us as well to considering the changes in consumer behavior and demand, purchasing patterns, re-routing of the supply chain, dynamics of current market forces, and the significant interventions of governments; Disruptive activities could include the temporary closure of our manufacturing facilities and those used in our supply chain processes, restrictions on the export or shipment of our products, significant cutback of ocean container delivery from Germany, business closures in impacted areas, and restrictions on our employees’ and consultants’ ability to travel and to meet with customers. The extent to which COVID-19 impacts our results will depend on future developments, which still uncertain and cannot be predicted, including new information which may emerge concerning the severity of the current conflict as well as virus variants and the actions to contain it or treat its impact, among others. COVID-19 and the war in Ukraine could also continue to result in social, economic and labor instability in the countries in which we or our customers and suppliers operate.
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If workers at one or more of our offices or the offices of our suppliers or manufacturers become ill or are quarantined and in either or both events are therefore unable to work, our operations could be subject to disruption. Further, if our manufacturers become unable to obtain necessary raw materials or components, we may incur higher supply costs or our manufacturers may be required to reduce production levels, either of which may negatively affect our financial condition or results of operations.
In light of these challenges, the Company is focusing its efforts on supporting key areas of our business that will help us to stabilize in the new environment and strategize for what comes next. Those key areas are: crisis and management response, workforce, operation and supply chain, finance and liquidity, tax, trade and regulatory, as well as strategy and brand.
Critical Accounting Policies and Estimates
Our financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and expenses. Note 2 of the Notes to Financial Statements describes the significant accounting policies used in the preparation of the financial statements. Certain of these significant accounting policies are considered to be critical accounting policies, as defined below.
A critical accounting policy is defined as one that is both material to the presentation of our financial statements and requires management to make difficult, subjective or complex judgments that could have a material effect on our financial condition and results of operations. Specifically, critical accounting estimates have the following attributes: 1) we are required to make assumptions about matters that are highly uncertain at the time of the estimate; and 2) different estimates we could reasonably have used, or changes in the estimate that are reasonably likely to occur, would have a material effect on our financial condition or results of operations.
Estimates and assumptions about future events and their effects cannot be determined with certainty. We base our estimates on historical experience and on various other assumptions believed to be applicable and reasonable under the circumstances. These estimates may change as new events occur, as additional information is obtained and as our operating environment changes. These changes have historically been minor and have been included in the financial statements as soon as they became known. Based on a critical assessment of our accounting policies and the underlying judgments and uncertainties affecting the application of those policies, management believes that our financial statements are fairly stated in accordance with accounting principles generally accepted in the United States and present a meaningful presentation of our financial condition and results of operations. We believe the following critical accounting policies reflect our more significant estimates and assumptions used in the preparation of our financial statements:
Risks and Uncertainties – The Company’s business could be impacted by price pressure on its product manufacturing, acceptance of its products in the marketplace, new competitors, changes in federal and/or state legislation and other factors and new technology. If the Company is unsuccessful in securing adequate liquidity, its plans may be curtailed. Adverse changes in these areas could negatively impact the Company’s financial position, results of operations and cash flows.
Basis of Presentation
The consolidated financial statements include the accounts of Energy and Water Development Corp and have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission. 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 periods presented have been reflected herein.
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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 useful life of property and equipment, 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.
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, 2021, and 2020, 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 2020 are subject to examination by the federal and state tax authorities. The Corporation’s tax returns for the tax year ended 2021 have not been filed.
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We record our provision for income taxes in our consolidated statements of operations and comprehensive loss by estimating our taxes in each of the jurisdictions in which we operate. We estimate our actual current tax exposure together with assessing temporary differences arising from differing treatment of items recognized for financial reporting versus tax return purposes. These differences result in deferred tax assets, which are included in our balance sheets. In general, deferred tax assets represent future tax benefits to be received when certain expenses previously recognized in our consolidated statements of operations and comprehensive loss become deductible expenses under applicable income tax laws, or loss or credit carry forwards are utilized. Valuation allowances are recorded when necessary to reduce deferred tax assets to the amount expected to be realized.
Significant management judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets. We make these estimates and judgments about our future taxable income that are based on assumptions that are consistent with our future plans. As of December 31, 2020 and 2019, we had recorded a full valuation allowance on our U.S. net deferred tax assets because we expect that it is more likely than not that our deferred tax assets will not be realized in the foreseeable future. Should the actual amounts differ from our estimates, the amount of our valuation allowance could be materially impacted.
Revenue Recognition
The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers, the core principle of which is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to receive in exchange for those goods or services.
To achieve this core principle, five basic criteria must be met before revenue can be recognized: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to performance obligations in the contract; and (5) recognize revenue when or as the Company satisfies a performance obligation. During the year ended December 31, 2021, the Company recognized $550,000 in revenue as a result of meeting the above criteria.
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.
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, customer/investor deposit 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.
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Stock-Based Payments
The Company adopted Accounting Standards Update 2018-07 (“ASU 2018-07”), “Improvement to Nonemployee Share Based Payment Accounting”, which expanded the scope of ASC 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The guidance was applied prospectively to all new awards granted after the date of adoption. In addition, the guidance was applied to all existing equity-classified awards for which a measurement date has not been established under ASC 505-50 by the adoption date by remeasuring at fair value as of the adoption date and recording a cumulative effect adjustment to opening accumulated deficit on January 1, 2019.
For the Company’s equity-classified awards for which a measurement date has not been established under ASC 505-50, the fair value on January 1, 2019, the adoption date, approximated the value assigned on December 31, 2018, therefore no cumulative adjustment to opening accumulated deficit was required.
Under the revised guidance, the accounting for awards issued to non-employees will be similar to the model for employee awards, except that ASU 2018-07:
| ● | allows the Company to elect on an award-by-award basis to use the contractual term as the expected term assumption in the option pricing model, and | |
| ● | the cost of the grant is recognized in the same period(s) and in the same manner as if the grantor had paid cash. |
Employee and Non-Employee Share Based Compensation
The Company applies ASC 718-10, “Share - Based Payment,” which requires the measurement and recognition of compensation expenses for all share-based payment awards made to employees and directors including employee stock options under the Company’s stock plans and equity awards issued to non-employees based on estimated fair values.
ASC 718-10 requires companies to estimate the fair value of equity-based option awards on the date of grant using an option-pricing model. The fair value of the award is recognized as an expense on a straight-line basis over the requisite service periods. The Company recognizes share based award forfeitures as they occur.
The Company estimates the fair value of granted option equity awards using a Black-Scholes options pricing model. The option-pricing model requires a number of assumptions, of which the most significant are share price, expected volatility and the expected option term (the time from the grant date until the options are exercised or expire). Expected volatility is estimated based on volatility of similar companies in the technology sector. The Company has historically not paid dividends and has no foreseeable plans to issue dividends. The risk-free interest rate is based on the yield from governmental zero-coupon bonds with an equivalent term. The expected option term is calculated for options granted to employees and directors using the “simplified” method. Grants to non-employees are based on the contractual term. Changes in the determination of each of the inputs can affect the fair value of the options granted and the results of operations of the Company.
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Recent Accounting Pronouncements
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 consolidated financial statements.
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 consolidated financial statements and disclosures.
In June 2020, the FASB issued ASU No. 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40). This standard eliminates the beneficial conversion and cash conversion accounting models for convertible instruments. It also amends the accounting for certain contracts in an entity’s own equity that are currently accounted for as derivatives because of specific settlement provisions. In addition, the new guidance modifies how particular convertible instruments and certain contracts that may be settled in cash or shares impact the diluted EPS computation. For public business entities, it is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years using the fully retrospective or modified retrospective method. Early adoption is permitted but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company is currently evaluating the impact this new guidance will have on its consolidated financial statements.
In May 2021, the FASB issued ASU No. 2021-04, Earnings Per Share (Topic 260), Debt – Modifications and Extinguishments (Subtopic 470-50), Compensation – Stock Compensation (Topic 718), and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modification or Exchanges of Freestanding Equity-Classified Written Call Options (“ASU 2021-04”), which will clarify and reduce diversity in practice. Specifically, the new standard includes a recognition model comprising four categories of transactions and corresponding accounting treatment for each category. The category that would apply to a modification or an exchange of an equity-classified warrant would depend on the substance of the modification transaction (e.g., a financing transaction to raise equity versus one to raise debt). This recognition model is premised on the idea that the accounting for the transaction should not differ from what it would have been had the issuer of the warrants paid cash instead of modifying the warrants. ASU 2021-04 will be effective for fiscal years beginning after December 15, 2021 and interim periods within those fiscal years. Early adoption is permitted. This ASU will be applied prospectively to modifications or exchanges occurring on or after the effective date of the ASU. We adopted ASU 2021-04 on January 1, 2022. Adoption of this standard had no material impact on our consolidated financial statements.
Results of Operations
The following discussion should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this Report.
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Comparison of the fiscal years ended December 31, 2021 and December 31, 2020
Revenue
During the year ended December 31, 2021, the Company recognized $550,000 of revenue that was previously deferred in 2020, pending the inspection of equipment pursuant to a sales agreement. For the fiscal year 2020, we generated no revenue.
Cost of equipment sold
The equipment sold was manufactured by third-party fabricators in accordance with EAWD’s specifications at a cost to EAWD of $350,000, which was recognized along with the revenue during the year ended December 31, 2021. No costs were recognized in fiscal year 2020.
Gross profit
EAWD recognized a gross profit of $200,000 from the sale of equipment as discussed above for the year ended December 31, 2021, upon recognition of revenue. The Company had no gross profit for the year ended December 31, 2020.
General and Administrative Expense
General and administrative expense decreased by $6,021,949 or 84.1% to $1,137,795 for the year ended December 31, 2021 from $7,159,744 for the year ended December 31, 2020. The following discussion provides further explanation of the change in each item.
The largest element of change was a decrease in officer’s salaries by $5,699,268 or 95% to $300,732 as compared to $6,000,000 for the year ended December 31, 2020.The decrease resulted primarily from the two following events. To begin, in the first quarter of 2020 the Company issued a combination of common and preferred stock whose value totaled $1,175,000 for our CEO and $1,063,000 for our COO in satisfaction of accrued salary accumulated during the previous years. In addition, during the fourth quarter of 2020 the Company issued a combination of common and preferred stock whose value totaled $2,850,000 for each of our CEO and COO as a bonus for among other things, successful structuring the Company’s first equipment sale. The Company also issued preferred stock whose value totaled $300,000 for both our CEO and COO as settlement of unpaid accrued salaries.
Additionally, the decrease in general and administrative expenses was primarily due to a reduction in management fees to affiliate by $325,000 as the contract with EAWC-TV was terminated as of December 31, 2020 and a reduction in professional fees of $118,499 as a result of lower accounting fees, litigation fees, legal fees and SEC matters. Those decreases were offset by an increase in marketing expense and travel and entertainment of $154,490 and $22,920, respectively, as a result of the Company’s efforts to increase branding and outreach.
Other Income
Other income (expense) increased expense by $1,666,631 from a $433,040 net expense (2020) to a $2,099,671 net expense (2021) primarily as a result of a reduction of interest expense of $860,108 as a result of reduced interest and amortization of debt discount, offset by an increase in the loss on the fair value of derivative liabilities by $2,526,739.
Net Loss
Net loss decreased by $4,555,318 to $3,037,466 for the year ended December 31, 2021, when compared to $7,592,784 for the year ended December 31, 2020. As discussed above, this decrease was primarily attributable to the compensation bonus and conversion of accrued salary into stock and increase in general and administrative expenses in 2020 along with revenue recognized in 2021, partially offset by the increase in other expense in 2021.
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Liquidity and Capital Resources
We had cash of $589,668 and a working capital deficit of $757,053 at December 31, 2021. Our operating and capital requirements in connection with supporting our operations will continue to be significant. Since inception, our losses from operations and working capital requirements have been satisfied through the deferral of payment for services performed by our founders and related parties discussed more fully below.
We have sustained operating losses since we began our operations in 2012. At December 31, 2021, we had an accumulated deficit of $22,395,393. The Company cannot predict how long it will continue to incur further losses or whether it will ever become profitable as this is dependent upon the reduction of certain expenses and success in obtaining project contracts, among other things. These conditions raise substantial doubt about the entity’s ability to continue as a going concern.
We also satisfied our cash and working capital requirements in 2021, through the sale of common stock , the issuance of convertible debentures, and the first sale of product. During the years ended December 2021 and 2020, the Company issued $404,000 and $466,000, respectively, in convertible debentures. The holders of certain of such instruments had the option to convert these convertible debentures into the Company’s common stock at conversion prices ranging from $0.01 to $0.20. The remaining holders at December 31, 2021 have convertible instruments with variable conversion rates. During 2021, holders of convertible debentures exercised their conversion options on convertible debentures amounting to $285,355 of principal and accrued interest in exchange 4,958,413 shares of common stock. The remaining convertible debentures at December 31, 2021 had all converted or been paid by February 1, 2022.
Comparison of Cash Flows for the Years Ended December 31, 2021 and December 31, 2020
Cash Flows from Operating Activities
We used $1,556,268 of cash in our operating activities in 2021 compared to $869,393 used in 2020. The increase in cash used of $686,875 includes a net loss of $3,037,466, offset by non-cash expenses of $2,204,699 principally related to amortization of debt discount and deferred financing costs of $770,134, depreciation expense of $299, change in fair value of derivative liability of $1,269,266, and common stock issued for services of $165,000, as well as cash used in working capital items in the amount of $723,501 principally related to an increase in inventory of $204,533, an increase of prepaid expenses and other current assets of $435,150, a decrease in due to related party of $28,929, and a decrease in accrued management fees and due to officers of $70,482, offset by a decrease in deferred cost of $350,000 and an increase in accounts payable and accrued expenses of $218,096.
Cash Flows from Investing Activities
We used $4,299 of cash to purchase property and equipment for the year ended December 31, 2021. No cash was used or provided from our investing activities in 2020.
Cash Flows from Financing Activities
We received $2,162,208 and $881,440 in cash from financing activities in 2021 and 2020, respectively. Cash flow from financing activities of $2,162,208 is primarily due to increased financing in 2021 through $1,888,208 in proceeds from the sale of shares and subscriptions to purchase common shares and $369,500 in proceeds from convertible loans payable, offset by repayments of convertible loans payable in the amount of $95,500.
Financial Position
Total Assets – At December 31, 2021, the Company had $1,326,738 total assets representing $589,668 in cash, $55,169 in accounts receivable, $196,553 in inventory, $432,082 in prepaid expenses and other current assets, $3,834 in property and equipment, and $49,432 in operating lease right-of-use assets.
PLAN OF OPERATION AND FUNDING
We expect to generate more revenues which should, grow in time and lead to a positive cash flow. In the near future, we expect that working capital requirements will continue to be funded through lines of credit, convertible loans and/or further issuances of other securities in sufficient quantities that we will be able to meet our working capital requirement from these possible sources. Additional issuances of equity or convertible debt will result in dilution to our current shareholders.
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We seek to focus on three main aspects of the water and energy business: (1) generation, (2) supply, and (3) maintenance. We seek to assist private companies, government entities and NGO’s to build profitable and sustainable supplies/generation capabilities of water and energy as required, by selling them the required technology or technical service to enhance their productivity/operability. With its outsourced technical arm and its commission-based global network of vendors, the Company expects to create sustainable added value to each project it takes on while generating revenue from its engineering and technical consultancy services, project management, sale of our patent filed Self Sufficient Power Supply Atmosphere Water Generation Systems (eAWGs) Solar Energy Generation Systems and Energy Management Systems, royalties from the commercialization of energy and water in certain cases, and revenues from the licensed innovated technologies.
Through our BlueTech Alliance for Water Generation established in December 2020, we have state-of the art technology partners, technology transfer agreements, and technology representation agreements in place relating to aspects of renewable energy and water supply. These unique key relationships offer important selling features and capabilities that differentiated EAWD from its competitors.
The Company plans to generate revenue from its engineering and technical consultancy services, project management, sale of our Patent filed Self Sufficient Power Supply Atmosphere Water Generation Systems (eAWGs), Solar Energy Generation Systems, and Energy Management Systems, royalties from the commercialization of energy and water in certain cases, and revenues from the licensed innovated technologies.
Material Commitments
Employment Agreements
The Company entered into employment agreements with each of Mr. Hofmeier, its President, Chief Executive Officer and Chairman of the Board, and Ms. Velazquez, its Chief Operating Officer and Vice-Chairman (together, the “Employment Agreements”), effective January 1, 2012. Under the Employment Agreements, the Company agreed to 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 company’s Board of Directors. Each Employment Agreement has an initial term 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. The Company also entered into employment agreement with 4 other employees, effective on the 3rd quarter of 2021.
Off Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Related Party Transactions
Due to officers
Amounts due to officers as of December 31, 2021 and 2020 are:
| 2021 | 2020 | |||||||
| Ralph Hofmeier: | ||||||||
| Unsecured advances due to officer | $ | — | $ | 17,778 | ||||
| Accrued salaries | 17,485 | — | ||||||
| Total due to Ralph Hofmeier | 17,485 | 17,778 | ||||||
| Irma Velazquez: | ||||||||
| Unsecured advances due to officer | — | 66,898 | ||||||
| Accrued salaries | — | — | ||||||
| Total due to Irma Velazquez | — | 66,898 | ||||||
| $ | 17,485 | $ | 84,676 | |||||
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Unsecured advances due to officers represent unreimbursed company expenses paid by the officers on behalf of the Company and accrued salaries. These net advances are non-interest bearing and are due on demand.
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 January 9, 2020, the Company entered into a Settlement Agreement with each of Mr. Hofmeier and Ms. Velazquez whereby (i) Mr. Hofmeier agreed to receive an aggregate 1,022,095 shares of Common Stock and 2,002,488 shares of Series A Preferred Stock in full and complete satisfaction of an aggregate $1,175,000 in unpaid compensation owed to him pursuant to his January 1, 2012 employment agreement with the Company and (ii) Ms. Velazquez agreed to receive an aggregate 1,022,095 shares of Common Stock and 1,778,488 shares of Series A Preferred Stock in full and complete satisfaction of an aggregate $1,063,000 in unpaid compensation owed to her pursuant to her January 1, 2012 employment agreement with the Company.
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 fair market value of $150,000 (collectively, the “Compensation Shares”). Compensation Shares were issued in full satisfaction of the $150,000 accrued salary due each of the executives in 2020. In recognition of each of Mr. Hofmeier and Ms. Velazquez’ extraordinary service to and sacrifice for the benefit of the Company, simultaneously with the Compensation Shares, each executive received a one-time bonus of (i) 10,000,000 shares of the Company’s Common Stock with an aggregate fair market value of $1,500,000 and (ii) 2,700,000 shares of the Company’s Series A Preferred Stock, with an aggregate fair market value of $1,350,000.
Customer deposit
EAWC-TV functions as a distributor of EAWD product. In 2019, EAWC-TV, having secured EAWD’s first customer, has placed a $550,000 order for a solar powered atmospheric water generator (“AWG”) for one of its customers. EAWC-TV and the Company on December 13, 2019 agreed to accept a $303,742 reduction in the balance owed by EAWD to EAWC-TV as a deposit with EAWD related to this order. The deposit was 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 a majority of the balance of the Company’s outstanding accounts receivables as of both December 31, 2021 and 2020.
Going Concern Qualification
During the year ended December 31, 2021, pursuant to an equipment sale agreement, the Company recognized revenue of $550,000 for a sale of equipment, along with $350,000 for the cost of construction, earning $200,000 gross profit. The next 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 $22,395,393 at December 31, 2021. During the year ended December 31, 2021, the Company incurred net losses of $3,037,466. The Company also incurred a working capital deficit of $757,053 at December 31, 2021.We are an early-stage company and have generated losses from operations since inception (we began operations in December 2012). The Company expects its sales to continue to expand in 2022.
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.
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Management expects sales operations to continue to expand. If necessary, the Company may need to raise additional funds during 2022. Management of the Company intends to raise additional funds through the issuance of equity securities or debt, credit lines or advances from suppliers. The ability of the Company to continue as a going concern depends upon its ability to generate sales or obtain additional funding to finance operating losses until the Corporation is profitable.
These factors raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
As a smaller reporting company, the Company is not required to include the disclosure required under this Item 7A.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements, notes to the consolidated financial statements and the respective reports of the Company’s independent registered accountants required to be filed in response to this Item 8 begin on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
WithumSmith+Brown, PC (“Withum”) served as the independent registered public accounting firm for Energy and Water Development Company (the “Company”) for the year ended December 31, 2020, and reviewed the unaudited financial statements for the quarters ended March 31, 2021 and June 30, 2021 respectively. After careful consideration of the ongoing audit needs of the Company, the Board of Directors of the Company has elected to dismiss Withum. The Company notified Withum on October 22, 2021 that it would be dismissed as the Company’s independent registered public accounting firm, following the filling of the Company’s Form 10-Q for the quarter ended June 30, 2021.
Withum’s report on the Company’s financial statements as of and for the year ended December 31, 2020 did not contain any adverse opinion or a disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope, or accounting principles, except with respect to an explanatory paragraph indicating that there was substantial doubt about the Company’s ability to continue as a going concern.
During the fiscal year ended December 31, 2020 and the subsequent interim period through November 15, 2021, there were no (i) disagreements, within the meaning of Item 304(a)(1)(iv) of Regulation S-K promulgated under the Securities Exchange Act of 1934, as amended (“Regulation S-K”), and the related instructions thereto, with Withum on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Withum, would have caused Withum to make reference to the subject matter of the disagreements in connection with its reports; or (ii) reportable events within the meaning of Item 304(a)(1)(v) of Regulation S-K and the related instructions thereto, except for the material weaknesses described in Item 9A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
The Company provided Withum with the disclosures under this Item 4.01 and requested Withum to furnish the Company with a letter addressed to the Securities and Exchange Commission stating whether it agrees with the statements made by the Company in this Item 4.01 and, if not, stating the respects in which it does not agree. Withum’s letter is filed as Exhibit 16.1 to this Current Report on Form 8-K, which was filed on November 17, 2021.
On November 4, 2021, the Board of Directors of the Company approved the appointment of TAAD LLP. (“TAAD”) as the Company’s new independent registered public accounting firm to audit the Company’s financials for the fiscal year ending December 31, 2021 and to review the company’s unaudited quarterly financial information for the quarter ended September 30, 2021, effective immediately.
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During the Company’s two most recent fiscal years ended December 31, 2019 and 2020, and the subsequent interim period through November 15, 2021, neither the Company nor anyone acting on its behalf has consulted with TAAD regarding: (i) the application of accounting principles to a specific transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s financial statements, and neither a written report nor oral advice was provided to the Company that TAAD concluded was an important factor considered by the Company in reaching a decision as to any accounting, auditing, or financial reporting issue; (ii) any matter that was the subject of a disagreement within the meaning of Item 304(a)(1)(iv) of Regulation S-K and the related instructions; or (iii) any reportable event within the meaning of Item 304(a)(1)(v) of Regulation S-K.
ITEM 9A. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d–15(e) under the Exchange Act) are designed to provide reasonable assurance that information required to be disclosed in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the forms and rules of the SEC and that such information is accumulated and communicated to management, including the CEO, in a manner to allow timely decisions regarding required disclosures.
In connection with the preparation of this Form 10–K, our management, including the CEO and CFO (Principal Accounting Officer), evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2021. As described below, management has identified material weaknesses in our internal control over financial reporting, which is an integral component of our disclosure controls and procedures. As a result of those material weaknesses, our management has concluded that, as of December 31, 2021, our disclosure controls and procedures were not effective.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). The term “internal control over financial reporting” is defined as a process designed by, or under the supervision of, the registrant’s principal executive and principal financial officers, or persons performing similar functions, and effected by the registrant’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
| · | pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the registrant; | |
| · | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the registrant are being made only in accordance with authorizations of management and directors of the registrant; and | |
| · | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the registrant’s assets that could have a material effect on the financial statements. |
Our internal control system is designed to provide reasonable assurance to our management and board of directors regarding the preparation and fair presentation of published financial statements. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. In addition, because of changes in conditions, the effectiveness of internal control may vary over time.
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As of December 31, 2021, management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the criteria in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013) (COSO) and identified material weaknesses. Due to financial constraints, we have not fully implemented a remediation plan. A “material weakness” is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of our annual or interim financial statements will not be presented or detected by our employees.
The specific material weaknesses that management identified in our internal controls as of December 31, 2021 are as follows:
| · | Inadequate segregation of duties, | |
| · | Limited level of multiple reviews among those tasked with preparing the financial statements, | |
| · | Lack of a formal internal control environment. |
We consider an incomplete governing board and transactions running through our executives as a failure of our internal control system. To remediate we will require the time and funds to secure additional qualified personnel and the funds to proper support services to facilitate their functions.
The Company is a non-accelerated filer and is not subject to Section 404(b) of the Sarbanes Oxley Act. Accordingly, this Annual Report does not contain an attestation report of our independent registered public accounting firm regarding internal control over financial reporting, since the rules for smaller reporting companies provide for this exemption.
Plans for Remediation of Material Weaknesses
We intend to implement changes to strengthen our internal controls in addition to the enhanced controls discussed above. We are in the process of implementing a remediation plan for the identified material weaknesses and we expect that work on the plan will continue throughout 2022, as financial resources permit. Specifically, to address the material weaknesses arising from insufficient accounting personnel, the Company plans to hire a full-time Chief Financial Officer and has secured the services of additional accounting personnel on a consulting basis which begins to address segregation of duties. The Company is currently formalizing its policies and procedures in writing and to improve the integration of its financial and reporting system into non accounting departments. Where appropriate, the Company is receiving advice and assistance from third-party experts as it implements and refines its remediation plan.
Additional measures may be necessary, and the measures we expect to take to improve our internal controls may not be sufficient to address the issues identified, to ensure that our internal controls are effective or to ensure that such material weakness or other material weaknesses would not result in a material misstatement of our annual or interim financial statements. In addition, other material weaknesses or significant deficiencies may be identified in the future. If we are unable to correct deficiencies in internal controls in a timely manner, our ability to record, process, summarize and report financial information accurately and within the time periods specified in the rules and forms of the SEC will be adversely affected. This failure could negatively affect the market price and trading liquidity of our common stock, cause investors to lose confidence in our reported financial information, subject us to civil and criminal investigations and penalties, and generally materially and adversely impact our business and financial condition.
Changes in Internal Control over Financial Reporting
Except as otherwise stated above, there were no changes in our internal control over financial reporting or in other factors during the quarter ended December 31, 2021, that have materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION.
None
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
None
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PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors and Executive Officers
Our directors and executive officers as of December 31, 2021 are listed below. The number of directors is determined by our board of directors. All directors hold office until the next annual meeting of the board or until their successors have been duly elected and qualified. Officers are elected by the board of directors and their terms of office are, except to the extent governed by employment contract, at the discretion of the board of directors.
| Name | Age | Principal Positions with Us | ||
| Mr. Ralph Hofmeier | 60 | President, Chief Executive Officer, and Chairman of the Board of Directors | ||
| Ms. Irma Velazquez | 55 | Chief Operating Officer and Vice-Chairman of the Board of Directors |
Set forth below is a brief description of the background and business experience of our directors and executive officers.
Mr. Ralph Hofmeier has a mechanical engineering background. He has worked in companies such as Powermax Energy & Business Solutions Inc., where from 2003 to 2008 he served as President. Since the merger of that company with EAWD in 2008, he has served as President, Chief Executive Officer and Chairman of the Board of Directors of EAWD. Mr. Hofmeier speaks German and English.
Over the last 20 years, Mr. Hofmeier has established and developed several multinational companies in green tech distribution and commercialization, such as Powermax LLC, Powermax Inc and Powermax GmbH. With a solid track record of investment and financial joint ventures and his prior multicultural experience throughout the European and American markets, we believe that Mr. Hofmeier brings our Board and our Company a clear vision of business development, investor relations and joint ventures.
Ms. Irma Velazquez brings to the Company her certified expertise of sustainable development and emerging technologies, along with her extensive experience and managerial skills on large-scale project management. Ms. Velazquez worked from 1997 to 2010 in United Nations agencies such as the World Health Organization, Farmaciens Sans Frontieres, Red Cross and Crescent Societies (IFRC) where she served in the positions of Information Technology Manager, Sustainable Development Manager and Programme Manager, leading the strategic development and execution of corporate vision for operations, communications, and marketing, as well as a Disaster & Crisis Management Coordinator, where she demonstrated the ability to govern complex programs and organizations, which drove development and implementation of business plans, operational structures, processes, and procedures. From 2012 to the present, Ms. Velazquez has acted as Chief Operations Officer and Vice-Chairman of the Board of Directors of EAWD. The Board believes that Ms. Velazquez is a valuable director in light of her extensive employment history as described above, and her solid track record of driving improvements in finance, operations, and human resources processes, resulting in greater efficiency and cost control. Ms. Velazquez has a Master in Sciences from the Erasmus University of Rotterdam and has experience in diplomatic negotiations and proven experience building positive relationships with government entities, agencies, and private sector partners. Ms. Velazquez speaks French, English and Spanish.
Family Relationships
Mr. Hofmeier and Ms. Velazquez are married.
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Involvement in Certain Legal Proceedings
To the best of our knowledge, none of our directors or officers, during the past ten years has:
| · | been convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); | |
| · | had any bankruptcy petition filed by or against the business or property of the person, or of any partnership, corporation or business association of which the person was a general partner or executive officer, either at the time of the bankruptcy filing or within two years prior to that time; | |
| · | been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction or federal or state authority, permanently or temporarily enjoining, barring, suspending or otherwise limiting, the person's involvement in any type of business, securities, futures, commodities, investment, banking, savings and loan, or insurance activities, or been associated with persons engaged in any such activity; | |
| · | been found by a court of competent jurisdiction in a civil action or by the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated; | |
| · | been the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated (not including any settlement of a civil proceeding among private litigants), relating to an alleged violation of any federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or | |
| · | been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member. |
Except as set forth in our discussions in this Report, none of our directors or executive officers has been involved in any transactions with us or any of our directors, executive officers, affiliates or associates which are required to be disclosed pursuant to the rules and regulations of the SEC.
Board Committees and Corporate Governance
Our board of directors has no separate committees and our board of directors acts as the audit committee and the compensation committee. Because we do not have any independent directors, our Board believes that the establishment of committees of our Board would not provide any benefits to our Company and could be considered more form than substance.
Shareholder Communications
Although we do not have a formal policy regarding communications with the Board, shareholders may communicate with the Board by writing to us at 7901 4th Street N STE #4174, St Petersburg, Florida 33072, Attention: Corporate Secretary, or by facsimile (727) 677-9408 or email to investor.relations@energy-water.com The envelope or subject line should indicate that it contains a stockholder communication.
Shareholders who would like their submission directed to a member of the board may so specify, and the communication will be forwarded, as appropriate.
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Code of Business Conduct and Ethics
We have adopted a code of business conduct and ethics that applies to all of our employees and officers, including those officers responsible for financial reporting, and directors. The code of business conduct and ethics is included as an exhibit to this Report.
DELINQUENT SECTION 16(a) REPORTS
Section 16(a) of the Exchange Act requires the Company’s directors and executive officers and persons who own more than ten percent (10%) of the Common Stock to file with the SEC the initial reports of ownership and reports of changes in ownership of Common Stock. Officers, directors and greater than ten percent (10%) stockholders are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms they file.
Specific due dates for such reports have been established by the SEC, and the Company is required to disclose in this Report any failure to file reports by such dates during fiscal year 2020. During the fiscal year ended December 31, 2020, we believe that all reports required to be filed by such persons pursuant to Section 16(a) were filed on a timely basis, with the exception of our officers, directors and greater than 10 percent (10%) beneficial owners listed in the table below:
| Name | Number of Late Reports |
Description | ||
| No late filings |
ITEM 11. EXECUTIVE COMPENSATION.
Summary Compensation Table
The following table sets forth the compensation earned by our President and Chief Executive Officer and our Chief Operating Officer, and our only officers, for the years ended December 31, 2021 and 2020.
| Name and Principal Position | Year | Salary ($) |
All Other Compensation ($) |
Total ($) |
||||||||||||
| Ralph Hofmeier (1)(3)(4) | 2021 | 150,000 | — | 150,000 | ||||||||||||
| President and Chief Executive Officer | 2020 | 150,000 | 2,850,000 | 3,000,000 | ||||||||||||
| Irma Velazquez (2)(3)(4) | 2021 | 150,000 | — | 150,000 | ||||||||||||
| Chief Operating Officer | 2020 | 150,000 | 2,850,000 | 3,000,000 | ||||||||||||
———————
| (1) | Pursuant to an employment agreement dated January 1, 2012. |
| (2) | Pursuant to an employment agreement dated January 1, 2012. |
| (3) | On January 9, 2020, accrued salaries totaling $2,238,000, ($1,175,000 Hofmeier and $1,063,000 Velazquez) were paid with the issuance of 2,044,190 shares (1,022,095 shares each to Hofmeier and Velazquez) of common stock and 3,780,976 shares (2,002,488 shares to Hofmeier and 1,778,488 shares to Velazquez) of Series A preferred stock. |
| (4) | On December 18, 2020, accrued salaries totaling $300,000, ($150,000 to Hofmeier and $150,000 Velazquez) were paid with the issuance of 600,000 shares of Series A Preferred Shares (300,000 shares each to Hofmeier and Velazquez). An additional 5,400,000 shares of Series A Preferred Shares (2,700,000 shares each to Hofmeier and Velazquez), which had an aggregate fair value of $1,350,000 each to Hofmeier and Velazquez were issued as a bonus payment. An additional 20,000,000 shares of Common Shares (10,000,000 shares each to Hofmeier and Velazquez), which had an aggregate fair value of $1,500,000 each to Hofmeier and Velazquez were also issued as a bonus payment. All shares were issued in December 2020, except for Hofmeier’s 10,000,000 Common Shares issued as a bonus payment, were issued in January 2021. |
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Outstanding Equity Awards at Fiscal Year-End Table
As discussed above, on December 18, 2020, Ralph Hofmeier was awarded 10,000,000 Common Shares valued at $1,500,000 as part of a bonus award. The bonus award was recorded in December 2020 when it was granted and the Common Shares were issued in January 2021.
Directors are permitted to receive fixed fees and other compensation for their services as directors. The board of directors has the authority to fix the compensation of directors. No amounts have been paid to, or accrued to, directors in such capacity.
Employment Agreements
The company entered into employment agreements with Mr. Hofmeier, its President and Chief Executive Officer, and Ms. Velazquez, its Chief Operating Officer (collectively the “Employment Agreements”), effective January 1, 2012. Mr. Hofmeier and Ms. Velazquez also serve as the Company’s only directors, and each is a significant stockholder of the Company. Under the Employment Agreements, the company agreed to 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 company’s Board of Directors. Each Employment Agreement has an initial term 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.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The following table sets forth the number of shares of our voting stock beneficially owned, as of April 12, 2022, by (i) those persons known by us to be owners of more than 5% of our common stock, (ii) each director, (iii) our Named Executive Officers, and (iv) all executive officers and directors as a group:
| Common Stock | Series A Preferred Stock | |||||||||||||||
| Name and address of beneficial owner. | No. of Shares |
% of Class (1) |
No. of Shares |
% of Class (1)(3) |
||||||||||||
| Directors and Officers | ||||||||||||||||
| Mr. Ralph Hofmeier(2) | 27,215,855 | 15.77 | % | 5,002,488 | 52.96 | % | ||||||||||
| 7901 4th Street N STE #4174, St Petersburg, Florida 33702 | ||||||||||||||||
| Ms. Irma Velazquez(2) | 39,515,388 | 23.21 | % | 4,778,488 | 47.04 | % | ||||||||||
| 7901 4th Street N STE #4174, St Petersburg, Florida 33702 | ||||||||||||||||
| All officers and directors as a group (two persons) | 66,731,243 | 38.98 | % | 9,780,976 | 100.00 | % | ||||||||||
| 5% Security Holders: | ||||||||||||||||
| Andrea Hofmeier (2) | 8,000,000 | 4.63 | % | |||||||||||||
———————
| (1) | Applicable percentages are based on 172,613,201 – common shares outstanding, as of April 12, 2022, adjusted as required by rules of the SEC. Beneficial ownership is determined under the rules of the SEC and generally includes voting or investment power with respect to securities. Shares of common stock subject to options, warrants and convertible notes currently exercisable or convertible, or exercisable or convertible within 60 days are deemed outstanding for computing the percentage of the person holding such securities but are not deemed outstanding for computing the percentage of any other person. Unless otherwise indicated in the footnotes to this table, we believe that each of the stockholders named in the table has sole voting and investment power with respect to the shares of common stock indicated as beneficially owned by them. |
| (2) | Ralph Hofmeier is the record holder of 27,215,855 shares of common stock. Irma Velazquez, the wife of Ralph Hofmeier, is the record holder of 39,515,388 shares of common stock, over which both Mr. Hofmeier and Ms. Velazquez have joint voting and dispositive power. Andrea Hofmeier, the divorced wife (2012) of Ralph Hofmeier, is the record holder of 8,000,000 shares of common stock. |
| (3) | Applicable percentages are based on 9,780,976 – Series A preferred shares outstanding, adjusted as required by rules of the SEC. Series A preferred shares provide for voting rights at 5 votes per preferred share. |
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Securities Authorized for Issuance under Equity Compensation Plans
On January 2, 2012, the Company’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 Company’s common stock.
Equity Compensation Plan Information as of December 31, 2021
| Plan Category | Number of Securities to Be Issued upon Exercise of Outstanding Options, Warrants and Rights | Weighted Average Exercise Price of Outstanding Options, Warrants and Rights | Number of Securities Remaining Available for Future Issuance under the Plan (Excluding Securities Reflected in Column (a)) | |||||||||
| (a) | (b) | (c) | ||||||||||
| Equity compensation plans approved by security holders | — | $ | — | 2,800,000 | ||||||||
| Equity compensation plans not approved by security holders | — | $ | — | — | ||||||||
| Total | — | $ | — | 2,800,000 | ||||||||
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
Certain Relationships and Related Transactions
The following is a summary of transactions since the years ended December 31, 2021 and 2020 to which we have been a party in which the amount involved exceeded the lesser of (i) $120,000 or (ii) one percent of the average of our total assets at year-end for the last two completed fiscal years, and in which any of our then directors, executive officers or holders of more than 5% of any class of our stock at the time of such transaction, or any members of their immediate family, had or will have a direct or indirect material interest. See also “Executive Compensation” for additional information regarding compensation of related parties.
Due to officers
Amounts due to officers as of December 31, 2021 and 2020 are comprised of the following:
| 2021 | 2020 | |||||||
| Ralph Hofmeier: | ||||||||
| Unsecured advances due to officer | $ | — | $ | 17,778 | ||||
| Accrued salaries | 17,485 | — | ||||||
| Total due to Ralph Hofmeier | 17,485 | 17,778 | ||||||
| Irma Velazquez: | ||||||||
| Unsecured advances due to officer | 66,898 | |||||||
| Accrued salaries | — | — | ||||||
| Total due to Irma Velazquez | — | 66,898 | ||||||
| $ | 17,485 | $ | 84,676 | |||||
Unsecured advances due to officers represent unreimbursed company expenses paid by the officers on behalf of the Company. These net advances are non-interest bearing and are due on demand.
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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 January 9, 2020, the Company entered into a Settlement Agreement with each of Mr. Hofmeier and Ms. Velazquez whereby (i) Mr. Hofmeier agreed to receive an aggregate 1,022,095 shares of Common Stock and 2,002,488 shares of Series A Preferred Stock in full and complete satisfaction of an aggregate $1,175,000 in unpaid compensation owed to him pursuant to his January 1, 2012 employment agreement with the Company and (ii) Ms. Velazquez agreed to receive an aggregate 1,022,095 shares of Common Stock and 1,778,488 shares of Series A Preferred Stock in full and complete satisfaction of an aggregate $1,063,000 in unpaid compensation owed to her pursuant to her January 1, 2012 employment agreement with the Company.
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”). The Compensation Shares were issued in full satisfaction of the $150,000 accrued salary due each of the executives in 2020 in recognition of each of Mr. Hofmeier and Ms. Velazquez’ extraordinary service to and sacrifice for the benefit of the Company, simultaneously with the Compensation Shares, each executive received a one-time bonus of (i) 10,000,000 shares of its Common Stock with an aggregate fair market value of $1,500,000 and (ii) 2,700,000 shares of its Series A Preferred Stock, with an aggregate fair market value of $1,350,000.
Customer deposit
EAWC-TV functions as a distributor of EAWD product. In 2019, EAWC-TV, having secured EAWD’s first customer, has placed a $550,000 order for a solar powered atmospheric water generator (“AWG”) for one of its customers. EAWC-TV and the Company on December 13, 2019 agreed to accept a $303,742 reduction in the balance owed by EAWD to EAWC-TV as a deposit with EAWD related to this order. The deposit was 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 a majority of the balance of the Company’s outstanding accounts receivables as of both December 31, 2021 and 2020.
Related Person Transaction Policy
Our Board considers and approves or disapproves any related person transaction. The Company’s written policies and procedures on related party transactions cover any transaction, arrangement or relationship or series of similar transactions, arrangements or relationships (including any indebtedness or guarantee of indebtedness) in which: (i) the Company (or any subsidiary) is a participant; (ii) any related party has or will have a direct or indirect interest; and (iii) the aggregate amount involved (including any interest payable with respect to indebtedness) will or may be expected to exceed $120,000, except that there is no $120,000 threshold for members of the audit committee (if any). A related party is any: (i) person who is or was (since the beginning of the two fiscal years preceding the last fiscal year, even if they do not presently serve in that role) an executive officer, director or nominee for election as a director; (ii) greater than five percent (5%) beneficial owner of the Company’s common stock; or (iii) immediate family member of any of the foregoing. An immediate family member includes a person’s spouse, parents, stepparents, children, stepchildren, siblings, mothers- and fathers-in-law, sons- and daughters-in-law, and brothers- and sisters-in-law and any person (other than a tenant or employee) sharing the same household as such person.
| 28 |
In determining whether to approve or ratify a related party transaction, the Board, or disinterested directors, as applicable, will take into account, among other factors it deems appropriate: (i) whether the transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances; (ii) the nature and extent of the related party’s interest in the transaction; (iii) the material terms of the transactions; (iv) the importance of the transaction both to the Company and to the related party; (v) in the case of a transaction involving an executive officer or director, whether the transaction would interfere with the performance of such person’s duties to the Company; and (vi) in the case of a transaction involving a non-employee director or a nominee for election as a non-employee director (or their immediate family member), whether the transaction would disqualify the director or nominee from being deemed an “independent” director, and whether the transaction would disqualify the individual from serving on the audit committee or the compensation committee (if any) or other committees of the Board under applicable exchange and other regulatory requirements.
The Board only approves those related party transactions that are on terms comparable to, or more beneficial to us than, those that could be obtained in arm’s length dealings with an unrelated third party.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
The following table shows the fees paid by us to TAAD, our current independent registered public accounting firm, for the year ended December 31, 2021 and our predecessor independent registered public accounting firms MaloneBailey and Withum, for the years ended December 31, 2021 and December 31, 2020.
| TAAD | 2021 | 2020 | ||||||
| Audit Fees (1) | $ | 42,700 | $ | — | ||||
| Audit Related Fees (2) | $ | — | $ | — | ||||
| Tax Fees | $ | — | $ | — | ||||
| All Other Fees | $ | — | $ | — | ||||
| Withum | 2021 | 2020 | ||||||
| Audit Fees (1) | $ | — | $ | 40,000 | ||||
| Audit Related Fees (2) | $ | 24,987 | $ | 450 | ||||
| Tax Fees | $ | — | $ | — | ||||
| All Other Fees | $ | — | $ | — | ||||
| MaloneBailey | 2021 | 2020 | ||||||
| Audit Fees (1) | $ | — | $ | 33,500 | ||||
| Audit Related Fees (2) | $ | — | $ | 2,000 | ||||
| Tax Fees | $ | — | $ | — | ||||
| All Other Fees | $ | — | $ | — | ||||
———————
| (1) | Audit fees – these fees relate to the audit of our annual financial statements and the review of our interim quarterly financial statements. |
| (2) | Audit related fees – these fees reasonably related to the performance of the audit or review of our annual financial statements that are not reported above. |
| 29 |
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
| (a) | The following documents are filed as part of this report: |
| (1) | Financial Statements. See Index, which appears on page F-1 hereof. | |
| (2) | Financial Statements Schedules. All schedules are omitted because they are not applicable or because the required information is contained in the financial statements or notes included in this report. | |
| (3) | Exhibits. The exhibits listed in the accompanying index to exhibits are filed or incorporated by reference as part of this Report. |
| (b) | The following are exhibits to this Report and, if incorporated by reference, we have indicated the document previously filed with the SEC in which the exhibit was included. |
| Certain of the agreements filed as exhibits to this Report contain representations and warranties by the parties to the agreements that have been made solely for the benefit of such parties. These representations and warranties: |
| · | may have been qualified by disclosures that were made to the other parties in connection with the negotiation of the agreements, which disclosures are not necessarily reflected in the agreements; | |
| · | may apply standards of materiality that differ from those of a reasonable investor; and | |
| · | were made only as of specified dates contained in the agreements and are subject to subsequent developments and changed circumstances. |
| Accordingly, these representations and warranties may not describe the actual state of affairs as of the date that these representations and warranties were made or at any other time. Investors should not rely on them as statements of fact. |
EXHIBIT INDEX
| Incorporated by Reference | Filed or Furnished | |||||||||||
| Exhibit # | Exhibit Description | Form | Date Filed | Exhibit # | Herewith | |||||||
| 3.1 | Amended and Restated Articles of Incorporation | 8-K | 1/31/2020 | 3.1 | ||||||||
| 3.2 | Bylaws | S-1 | 8/1/2018 | 3.2 | ||||||||
| 4.1 | Schedule of Convertible Debentures | S-1/A | 10/15/2018 | 10.15 | ||||||||
| 10.1 | License Agreement with Swiss Water Tech Research and Development S.A. | S-1 | 10/7/2015 | 10.1 | ||||||||
| 10.2* | Employment Agreement with Ralph M. Hofmeier | S-1 | 10/7/2015 | 10.3 | ||||||||
| 10.3* | Employment Agreement with Irma Velazquez | S-1 | 10/7/2015 | 10.4 | ||||||||
| 10.4 | Amendment dated January 29, 2016 to License Agreement with Swiss Water Tech Research and Development S.A. | S-1 | 8/1/2018 | 10.6 | ||||||||
| 30 |
| 10.5 | Management and Administrative Services Agreement with EAWC Tecnologias Verdes SA DE CV dated January 1, 2017 | S-1 | 8/1/2018 | 10.8 | ||||||||
| 10.6* | Non-Qualified Stock Option Agreement for Brian Misiunas | S-1 | 8/1/2018 | 10.9 | ||||||||
| 10.7 | March 15, 2015 Commercial Agreement with EAWD Tecnologias Verdes SA de CV | S-1/A | 10/15/2018 | 10.10 | ||||||||
| 10.8 | March 15, 2017 revised agreement with EAWC Tecnologias Verdes SA de CV | S-1/A | 10/15/2018 | 10.11 | ||||||||
| 10.9 | November 2nd, 2017, contract Award Confirmation for Arriyadh Development Authority (ADA) of Saudi Arabia | S-1/A | 10/15/2018 | 10.12 | ||||||||
| 10.10 | March 23, 2017 representation letter agreement with HIS WILL Innovations, LTD a South Africa based company | S-1/A | 10/15/2018 | 10.13 | ||||||||
| 10.11 | Amended sales contract with TV | Filed | ||||||||||
| 14.1 | Code of Ethics | 10-K | 4/14/2020 | 14.1 | ||||||||
| 31.1 | Certification of Principal Executive Officer (Section 302) | Filed | ||||||||||
| 31.2 | Certification of Principal Financial Officer (Section 302) | Filed | ||||||||||
| 32.1 | Certification of Principal Executive Officer and Principal Financial Officer (Section 906) | Furnished** | ||||||||||
| 101.INS | Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) | |||||||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |||||||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |||||||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |||||||||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |||||||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |||||||||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
———————
| * | Indicates management contract or compensatory plan. |
| ** | In accordance with SEC Release 33-8238, Exhibit 32.1 is being furnished rather than filed and shall not be deemed incorporated by reference into any filing, in accordance with Item 601 of Regulation S-K. |
ITEM 16. Form 10-K Summary
Not applicable.
| 31 |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| ENERGY AND WATER DEVELOPMENT CORP. | |||
| Date: April 14, 2022 | By: | /s/ Ralph Hofmeier | |
|
Ralph Hofmeier, Chief Executive Officer
|
|||
| Date: April 14, 2022 | By: | /s/ Irma Velazquez | |
| Irma Velazquez, Chief Operating Officer (Principal Financial Officer and Principal Accounting Officer) |
|||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Signature | Title | Date | ||
| /s/ Ralph Hofmeier | Chief Executive Officer, President, Chairman of the Board (Principal Executive Officer) | April 14, 2022 | ||
| Ralph Hofmeier | ||||
| /s/ Irma Velazquez | Chief Operating Officer and Vice Chairman of the Board (Principal Financial Officer and Principal Accounting Officer) | April 14, 2022 | ||
| Irma Velazquez | ||||
| 32 |
INDEX TO FINANCIAL STATEMENTS
| Page | ||
| Report of Independent Registered Public Accounting Firm TAAD LLP (PCAOB ID #5854) | F-2 | |
| Report of Independent Registered Public Accounting Firm WithumSmith + Brown, PC (PCAOB ID #100) | F-4 | |
| Consolidated Balance Sheets as of December 31, 2021 and 2020 | F-5 | |
| Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2021 and 2020 | F-6 | |
| Consolidated Statements of Changes in Stockholders' Deficit for the years ended December 31, 2021 and 2020 | F-7 | |
| Consolidated Statements of Cash Flows for the years ended December 31, 2021 and 2020 | F-8 | |
| Notes to Consolidated Financial Statements | F-10 |
| F-1 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Energy and Water Development Corp. and Subsidiary
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Energy and Water Development Corp. and Subsidiary (the “Company”) as of December 31, 2021, the related consolidated statements of operations and comprehensive loss, stockholders’ deficit, and cash flows for the year then ended, and the related notes to consolidated financial statements (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States.
Going Concern Matter
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 4 to the consolidated financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raises substantial doubt about its ability to continue as a going concern. Management’s plans regarding these matters are also described in Note 4 to the consolidated financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
| F-2 |
Convertible Notes
Description of the Matter
As discussed in Notes 11 to the consolidated financial statements, the Company had various debt instruments which included conversion features requiring bifurcation and separate accounting. Management evaluated the required accounting, significant estimates, and judgments around the valuation for these embedded derivatives. These embedded derivatives were initially measured at fair value and have subsequently been remeasured to fair value at each reporting period and at settlement.
There is no current observable market for these types of features and, as such, the Company determined the fair value of the embedded derivatives using a Black-Scholes model to measure the fair value of the bifurcated derivative. As a result, a high degree of auditor judgment and effort was required in performing audit procedures to evaluate the conclusions reached by management, as well as the inputs to the Company’s Black-Scholes model.
How We Addressed the Matter in Our Audit
Our principal audit procedures performed to address this critical audit matter included the following:
| · | We obtained an understanding of the controls and processes surrounding the evaluation, initial measurement, and revaluation of the bifurcated derivatives. |
| · | We verified note amount, interest rate and maturity date to the supporting documentation and debt agreement, and examined terms and conditions of the note and confirmed the ending balance to the note holder. |
| · | We evaluated management’s assessment and the conclusions reached to ensure these instruments were recorded in accordance with the relevant accounting guidance. |
| · | We evaluated the fair value of the bifurcated derivatives that included testing the valuation models and assumptions utilized by management. We reviewed and tested the fair value model used, significant assumptions, and underlying data used in the model. |
| · | We considered the adequacy of the disclosures in the financial statements in relation to convertible debt. |
/s/ TAAD LLP
We have served as the Company’s auditor since 2021.
Diamond Bar, California
April 14, 2022
| F-3 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Energy and Water Development Corp.
Opinion on the Financial Statements
We have audited the accompanying balance sheet of Energy and Water Development Corp. (the “Company”) as of December 31, 2020, and the related statements of operations, stockholders’ deficit, and cash flows for the year then ended, and the related notes to financial statements (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 4 to the financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 4. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ WithumSmith+Brown, PC
We have served as the Company’s auditor from June 2021 through November 2021.
Orlando, Florida
September 30, 2021
| F-4 |
Energy and Water Development Corp. and Subsidiary
Consolidated Balance Sheets
See accompanying notes to the consolidated financial statements.
| F-5 |
Energy and Water Development Corp. and Subsidiary
Consolidated Statements of Operations and Comprehensive Loss
| For the Years Ended | ||||||||
| December 31, | ||||||||
| 2021 | 2020 | |||||||
| REVENUE | ||||||||
| Revenue | $ | 550,000 | $ | — | ||||
| TOTAL REVENUE | 550,000 | — | ||||||
| COST OF EQUIPMENT SOLD | ||||||||
| Cost of equipment sold | 350,000 | — | ||||||
| TOTAL COST OF EQUIPMENT SOLD | 350,000 | — | ||||||
| GROSS PROFIT | 200,000 | — | ||||||
| GENERAL and ADMINISTRATIVE EXPENSES | ||||||||
| Professional fees | 416,989 | $ | 535,488 | |||||
| Officers’ salaries and payroll taxes | 300,732 | 6,000,000 | ||||||
| Marketing fees | 174,892 | 20,402 | ||||||
| Travel and entertainment | 22,953 | 33 | ||||||
| Management fees to affiliate | — | 325,000 | ||||||
| Other general and administrative expenses | 222,229 | 278,821 | ||||||
| TOTAL GENERAL and ADMINISTRATIVE EXPENSES | 1,137,795 | 7,159,744 | ||||||
| LOSS FROM OPERATIONS | (937,795 | ) | (7,159,744 | ) | ||||
| OTHER INCOME (EXPENSE) | ||||||||
| Change in fair value of derivative | (1,269,266 | ) | 1,257,473 | |||||
| Interest expense | (830,405 | ) | (1,690,513 | ) | ||||
| TOTAL OTHER INCOME (EXPENSE) | (2,099,671 | ) | (433,040 | ) | ||||
| LOSS BEFORE TAXES | (3,037,466 | ) | (7,592,784 | ) | ||||
| TAXES | — | — | ||||||
| NET LOSS | $ | (3,037,466 | ) | $ | (7,592,784 | ) | ||
| OTHER COMPREHENSIVE LOSS | — | |||||||
| Foreign currency translation adjustments | (42,444 | ) | — | |||||
| TOTAL OTHER COMPREHENSIVE LOSS | $ | (42,444 | ) | $ | — | |||
| COMPREHENSIVE LOSS | (3,079,910 | ) | (7,592,784 | ) | ||||
| Loss per common share - Basic and diluted | $ | (0.02 | ) | $ | (0.07 | ) | ||
| Weighted average number of common shares outstanding - Basic and diluted | 136,720,652 | 103,498,314 | ||||||
See accompanying notes to the consolidated financial statements.
| F-6 |
Energy and Water Development Corp. and Subsidiary
Consolidated Statements of Changes in Stockholders’ Deficit
For the years ended December 31, 2021 and 2020
| Accumulated | ||||||||||||||||||||||||||||||||||||||||
| Common Stock | Additional | Other | Total | |||||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Subscriptions | Paid-in | Accumulated | Comprehensive | Stockholders' | ||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Loss | Deficit | |||||||||||||||||||||||||||||||
| BALANCE AT DECEMBER 31, 2019 | $ | 93,462,483 | $ | 93,462 | $ | $ | 7,491,197 | $ | (11,765,143 | ) | $ | (4,180,484 | ) | |||||||||||||||||||||||||||
| Sale of common stock | — | 5,256,111 | 5,256 | 40,000 | 4,000 | 469,684 | 478,940 | |||||||||||||||||||||||||||||||||
| Common stock issued for services | — | 3,940,000 | 3,940 | — | 1,966,960 | 1,970,900 | ||||||||||||||||||||||||||||||||||
| Common and preferred stock issued to officers for services | 5,400,000 | 5,400 | 10,000,000 | 10,000 | — | 4,184,600 | 4,200,000 | |||||||||||||||||||||||||||||||||
| Common and preferred stock issued to officers for accrued salary | 4,380,976 | 4,381 | 2,044,190 | 2,044 | 10,000,000 | 1,500,000 | 1,031,575 | 2,538,000 | ||||||||||||||||||||||||||||||||
| Common stock issued to satisfy convertible debt | — | 8,334,361 | 8,334 | — | 562,666 | 571,000 | ||||||||||||||||||||||||||||||||||
| Stock issued for interest and fees | — | 279,741 | 280 | — | 14,720 | 15,000 | ||||||||||||||||||||||||||||||||||
| Derivative reduction due to conversion | — | — | — | 455,576 | 455,576 | |||||||||||||||||||||||||||||||||||
| Debt discount | — | — | — | (23,940 | ) | (23,940 | ) | |||||||||||||||||||||||||||||||||
| Net loss | — | — | — | (7,592,784 | ) | (7,592,784 | ) | |||||||||||||||||||||||||||||||||
| BALANCE AT December 31, 2020 | 9,780,976 | $ | 9,781 | 123,316,886 | $ | 123,316 | 10,040,000 | $ | 1,504,000 | $ | 16,153,038 | $ | (19,357,927 | ) | $ | $ | (1,567,792 | ) | ||||||||||||||||||||||
| Sale of Common Stock | — | 5,065,344 | 5,066 | (40,000 | ) | 4,000 | ) | 717,047 | 718,113 | |||||||||||||||||||||||||||||||
| Common stock issued to officers for accrued salary | — | 10,000,000 | 10,000 | (10,000,000 | ) | (1,500,000 | ) | 1,490,000 | ||||||||||||||||||||||||||||||||
| Common stock issued for services | — | 500,000 | 500 | — | 164,500 | 165,000 | ||||||||||||||||||||||||||||||||||
| Common stock issued to satisfy convertible debt | — | 4,671,167 | 4,671 | — | 265,329 | 270,000 | ||||||||||||||||||||||||||||||||||
| Stock issued for interest and fees | — | 287,246 | 287 | — | 15,068 | 15,355 | ||||||||||||||||||||||||||||||||||
| Derivative settled upon conversion of debt | — | — | — | 1,972,419 | 1,972,419 | |||||||||||||||||||||||||||||||||||
| Subscription deposits received | — | — | 15,855,000 | 792,745 | 792,745 | |||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | (3,037,466 | ) | (3,037,466 | ) | |||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | (42,444 | ) | (42,444 | ) | |||||||||||||||||||||||||||||||||
| BALANCE AT December 31, 2021 | 9,780,976 | $ | 9,781 | 143,840,643 | $ | 143,840 | 15,855,000 | $ | 792,745 | $ | 20,777,401 | $ | (22,395,393 | ) | $ | (42,444 | ) | $ | (714,070 | ) | ||||||||||||||||||||
See accompanying notes to the consolidated financial statements.
| F-7 |
Energy and Water Development Corp. and Subsidiary
Consolidated Statements of Cash Flows
| For the Year ended | ||||||||
| December 31, | ||||||||
| 2021 | 2020 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | (3,037,466 | ) | $ | (7,592,784 | ) | ||
| Reconciliation of net loss to net cash used in operating activities | ||||||||
| Stock based compensation | — | 4,200,000 | ||||||
| Preferred shares issued for services | — | 300,000 | ||||||
| Amortization of debt discount and deferred financing costs | 770,134 | 1,683,712 | ||||||
| Depreciation expense | 299 | — | ||||||
| Change in fair value of derivative liability | 1,269,266 | (1,257,473 | ) | |||||
| Common stock issued for services | 165,000 | 1,970,900 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable, net | (2,503 | ) | (52,761 | ) | ||||
| Inventory | (204,533 | ) | — | |||||
| Deferred cost | 350,000 | — | ||||||
| Prepaid expenses and other current assets | (435,150 | ) | (333,809 | ) | ||||
| Accounts payable and accrued expenses | 218,096 | (64,383 | ) | |||||
| Due to related party | (28,929 | ) | ||||||
| Deferred revenue | (550,000 | ) | — | |||||
| Other current liabilities | — | 236,258 | ||||||
| Due to affiliates | — | (4,959 | ) | |||||
| Due to officers | — | 45,906 | ||||||
| Accrued management fees and due to officers | (70,482 | ) | — | |||||
| CASH USED IN OPERATING ACTIVITIES | (1,556,268 | ) | (869,393 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of property and equipment | (4,299 | ) | — | |||||
| NET CASH USED IN INVESTING ACTIVITIES | (4,299 | ) | — | |||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds on convertible loans payable | 369,500 | 402,500 | ||||||
| Repayments of convertible loans payable | (95,500 | ) | — | |||||
| Proceeds from sale of stock | 718,113 | 478,940 | ||||||
| Proceeds from common stock subscriptions | 1,170,095 | — | ||||||
| CASH PROVIDED BY FINANCING ACTIVITIES | 2,162,208 | 881,440 | ||||||
| Effect of exchange rate changes on cash | (24,020 | ) | — | |||||
| Net change in cash | 577,621 | 12,047 | ||||||
| Cash, beginning of period | 12,047 | — | ||||||
| Cash, end of period | $ | 589,668 | $ | 12,047 | ||||
See accompanying notes to the consolidated financial statements.
| F-8 |
Energy and Water Development Corp. and Subsidiary
Consolidated Statements of Cash Flows (Continued)
| For the Year ended | ||||||||
| December 31, | ||||||||
| 2021 | 2020 | |||||||
| SUPPLEMENTAL CASH FLOW INFORMATION: | ||||||||
| Cash paid for interest | $ | 28,864 | $ | — | ||||
| Cash paid for taxes | $ | — | $ | — | ||||
| NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Common shares issued for interest and fees | $ | 15,355 | $ | — | ||||
| Reclassification of common stock subscriptions to common stock | $ | 1,504,000 | $ | — | ||||
| Common shares issued for conversion of loans payable | $ | 270,000 | $ | — | ||||
| Derivative liability discount | $ | 746,672 | $ | 1,609,895 | ||||
| Derivative settled upon conversion of debt | $ | 1,972,419 | $ | — | ||||
| Reclassification of equity to liability for derivatives | $ | — | $ | 455,576 | ||||
| Right of use asset exchanged for lease liability | $ | 79,214 | $ | — | ||||
| Common shares issued to satisfy related party liability | $ | — | $ | — | ||||
See accompanying notes to the consolidated financial statements.
| F-9 |
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.
On November 9, 2021, the Company established an official Subsidiary of EAWD in Germany to ensure the company is positioned to service its growing business in one of the EU’s most environmentally progressive countries.
Note 2. Summary of Significant Accounting Policies
Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of EAWD and its subsidiary. All intercompany transactions and balances have been eliminated in consolidation.
The consolidated financial statements include the accounts of Energy and Water Development Corp. and Subsidiary and have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission. 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 periods presented have been reflected herein.
Certain reclassifications have been made in December 31, 2020 results to conform to the presentation used in December 31, 2021 including the reclassification of from additional paid-in capital to common stock subscriptions on the consolidated balance sheets and consolidated statements of changes in stockholders’ deficit, reclassification of marketing fees out of other general and administrative expenses on the consolidated statements of operations, and the reclassification of amounts to due to related party from accounts payable and accrued expenses on the consolidated balance sheets 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 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, 2021, the Company used a spot rate of 1.13 and an average rate of 1.83 when converting EURO to USD.
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).
| F-10 |
| Energy and Water Development Corp. and Subsidiary Notes to Consolidated Financial Statements
|
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 $589,668 and $12,047 cash at December 31, 2021 and 2020.
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 | 5 |
| Furniture and fixtures | 7 |
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 December 31, 2021 and 2020, unamortized deferred financing costs were $6,663 and $0, respectively and are netted against the related debt.
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.
| F-11 |
| Energy and Water Development Corp. and Subsidiary Notes to Consolidated Financial Statements
|
The application of the three levels of the fair value hierarchy under ASC Topic 820-10-35, our derivative liabilities as of December 31, 2021 and December 31, 2020, were $354,160 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, customer/investor deposit, 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.
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, 2021 and 2020, 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 2020 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 2021 have not been filed.
In June 2018, the FASB issued ASU 2018-07, Improvements to Nonemployee Share-Based Payment Accounting, which simplifies the accounting for share-based payments granted to nonemployees for goods and services. Under the ASU, most of the guidance on such payments to nonemployees would be aligned with the requirements for share-based payments granted to employees. The amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted. This ASU, which the Company adopted as of January 1, 2019, did not have a material effect on the Company’s consolidated financial statements.
Stock-based compensation cost to employees is measured at the grant date based on the fair value of the award and is recognized as an expense on a straight-line basis over the requisite service period, based on the terms of the awards. The fair value of the stock-based payments to nonemployees that are fully vested and non-forfeitable as at the grant date is measured and recognized at that date, unless there is a contractual term for services in which case such compensation would be amortized over the contractual term. As the Reliance Global Group, Inc. Equity Incentive Plan 2019 was adopted in January of 2019, the Company lacks the historical basis to estimate forfeitures and will recognize forfeitures as they occur.
| F-12 |
| Energy and Water Development Corp. and Subsidiary Notes to Consolidated Financial Statements
|
Revenue Recognition
The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers, the core principle of which is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to receive in exchange for those goods or services.
To achieve this core principle, five basic criteria must be met before revenue can be recognized: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to performance obligations in the contract; and (5) recognize revenue when or as the Company satisfies a performance obligation. During the year ended December 31, 2021, the Company recognized $550,000 in revenue as a result of meeting the above criteria.
During 2021, the Company completed its first sale of equipment. Upon approval of the inspection of the equipment by the customer, the Company recognized the revenue as it had met the revenue recognition criteria and had satisfied the performance obligation of the contract through acceptance by the customer. During the year ended December 31, 2021, one customer accounted for 100% of the 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.
For the year ended December 31, 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 December 31, 2021.
As discussed more fully in Note 11, 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, 2021 and 2020, respectively. The potential shares from both the conversion feature and the rights to purchase additional shares were excluded from the computation of diluted net loss per share, as the inclusion of such shares would be anti-dilutive.
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. |
| F-13 |
| Energy and Water Development Corp. and Subsidiary Notes to Consolidated Financial Statements
|
Note 3. Recently Issued Accounting Standards
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 consolidated financial statements.
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 consolidated financial statements and disclosures.
In June 2020, the FASB issued ASU No. 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40). This standard eliminates the beneficial conversion and cash conversion accounting models for convertible instruments. It also amends the accounting for certain contracts in an entity’s own equity that are currently accounted for as derivatives because of specific settlement provisions. In addition, the new guidance modifies how particular convertible instruments and certain contracts that may be settled in cash or shares impact the diluted EPS computation. For public business entities, it is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years using the fully retrospective or modified retrospective method. Early adoption is permitted but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company is currently evaluating the impact this new guidance will have on its consolidated financial statements.
In May 2021, the FASB issued ASU No. 2021-04, Earnings Per Share (Topic 260), Debt – Modifications and Extinguishments (Subtopic 470-50), Compensation – Stock Compensation (Topic 718), and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modification or Exchanges of Freestanding Equity-Classified Written Call Options (“ASU 2021-04”), which will clarify and reduce diversity in practice. Specifically, the new standard includes a recognition model comprising four categories of transactions and corresponding accounting treatment for each category. The category that would apply to a modification or an exchange of an equity-classified warrant would depend on the substance of the modification transaction (e.g., a financing transaction to raise equity versus one to raise debt). This recognition model is premised on the idea that the accounting for the transaction should not differ from what it would have been had the issuer of the warrants paid cash instead of modifying the warrants. ASU 2021-04 will be effective for fiscal years beginning after December 15, 2021 and interim periods within those fiscal years. Early adoption is permitted. This ASU will be applied prospectively to modifications or exchanges occurring on or after the effective date of the ASU. We adopted ASU 2021-04 on January 1, 2022. Adoption of this standard had no material impact on our consolidated financial statements.
| F-14 |
| Energy and Water Development Corp. and Subsidiary Notes to Consolidated Financial Statements
|
Note 4. Going Concern
During the year ended December 31, 2021, pursuant to an equipment sale agreement, the Company recognized revenue of $550,000 for the sale of equipment, along with $350,000 for the cost of construction, earning $200,000 gross profit. The next operational step to accomplish is to achieve sufficient sales volume to achieve net income. The Company has incurred operating losses since it began operations (December 2012) totaling $22,395,393 at December 31, 2021. During the year ended December 31, 2021, the Company incurred net losses of $3,037,466. The Company also incurred a working capital deficit of $757,053 at December 31, 2021. We are an early-stage company and have generated losses from operations since inception. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
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 2022. 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 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 December 31, 2021 and 2020, accounts receivable was $55,169 and $52,761, respectively, and determined to be fully collectible.
Note 6. Inventory
The components of inventory at December 31, 2021 and 2020, consisted of the following:
| December 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Work in progress | $ | 196,553 | $ | |||||
| Inventory, net | $ | 196,553 | $ | |||||
Note 7. Deferred Cost
During the fourth quarter of 2020, the Company delivered its first equipment sale pursuant to an equipment sale agreement; however the delivery of the equipment was deemed to be an unfulfilled performance obligation at December 31, 2020 as it had not yet passed inspection by the customer. During the year ended December 31, 2021, the inspection of the equipment occurred, and the revenue and construction costs were recognized. Deferred cost at December 31, 2021 and 2020 was $0 and $350,000, respectively.
| F-15 |
| Energy and Water Development Corp. and Subsidiary Notes to Consolidated Financial Statements
|
Note 8. Prepaid Expenses and Other Current Assets
The components of prepaid expenses and other current assets at December 31, 2021 and 2020, consisted of the following:
| December 31, 2021 | December 31, 2020 | |||||||
| Prepayment on inventory not received | $ | 225,979 | $ | |||||
| Prepaid expenses | 113,600 | 14,184 | ||||||
| Value added tax receivable | 83,602 | — | ||||||
| Security deposit | 7,394 | — | ||||||
| Purchase deposits | 1,507 | — | ||||||
| Prepaid expenses and other current assets | $ | 432,082 | $ | 14,184 | ||||
Note 9. Property and Equipment, Net
The components of property and equipment at December 31, 2021 and 2020 consisted of the following:
| December 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Office equipment | $ | 1,526 | $ | |||||
| Furniture and fixtures | 2,607 | |||||||
| Property and equipment, gross | 4,133 | |||||||
| Less: Accumulated depreciation | (299 | ) | ||||||
| Property and equipment, net | $ | 3,834 | $ | — | ||||
Note 10. Accounts Payable and Accrued Expenses
Significant components of accounts payable and accrued expenses at December 31, 2021 and 2020 are as follows:
| December 31, 2021 | December 31, 2020 | |||||||
| Accrued expenses | $ | 385,776 | $ | 223,671 | ||||
| Accounts payable | 375,774 | 330,095 | ||||||
| Accrued legal costs | 253,901 | 348,460 | ||||||
| Accrued salary and payroll taxes | 50,228 | — | ||||||
| Total | $ | 1,065,679 | $ | 902,226 | ||||
As of December 31, 2021 and 2020, the Company owed Virhtech Gmbh, a related party of the Company, $124,370 and $153,300, respectively, for services performed for the Company and is classified as accounts payable – related party on the consolidated balance sheets.
Note 11. Convertible Loans Payable
As of December 31, 2021 and 2020, the Company had loans payable balances, net of discount, of $176,703 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 $443,500 and the remaining $25,000 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 notes.
The convertible loans were issued in several different forms as discussed below.
| F-16 |
| Energy and Water Development Corp. and Subsidiary Notes to Consolidated Financial Statements
|
During the year ended December 31, 2021, the Company issued two convertible loans in the aggregate amount of $404,000. The notes bear interest at 8% per annum and all mature within one year. On October 21, 2021, the Maturity Date of the $304,000 loan was extended from March 25, 2022 to April 21, 2022. The embedded beneficial conversion features in the notes meet the definition of a derivative and requires bifurcation and liability classification, at fair value. The fair value of the derivative liability as of the date of issuance was $746,672 and was recorded as a discount of the notes.
| Amount | ||||
| Balance of notes payable, net on December 31, 2019 | $ | 243,923 | ||
| Issuances of debt | 468,500 | |||
| Cash settlement of debt | (66,000 | ) | ||
| Conversions | (571,000 | ) | ||
| Debt discount | (440,426 | ) | ||
| Amortization of debt discount | 514,244 | |||
| Balance of notes payable, net on December 31, 2020 | $ | 149,241 | ||
| Issuances of debt | 404,000 | |||
| Cash settlement of debt | (95,500 | ) | ||
| Conversions | (270,000 | ) | ||
| Debt discount | (406,500 | ) | ||
| Deferred financing costs | (6,663 | ) | ||
| Amortization of debt discount | 402,125 | |||
| Balance of notes payable, net on December 31, 2021 | $ | 176,703 | ||
Derivative Liabilities
The Company issued debts that consist of the issuance of convertible notes with variable conversion provisions. The conversion terms of the convertible notes are variable based on certain factors, such as the future price of the Company’s common stock. The number of shares of common stock to be issued is based on the future price of the Company’s common stock. The number of shares of common stock issuable upon conversion of the promissory note is indeterminate. Due to the fact that the number of shares of common stock issuable could exceed the Company’s authorized share limit, the equity environment is tainted, and all additional convertible debentures and warrants are included in the value of the derivative liabilities. Pursuant to ASC 815-15 Embedded Derivatives, the fair values of the variable conversion options and warrants and shares to be issued were recorded as derivative liabilities on the issuance date and revalued at each reporting period.
Based on the various convertible notes described above, the fair value of applicable derivative liabilities on notes and change in fair value of derivative liability are as follows as of December 31, 2021 and 2020:
| Total | ||||
| Balance 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 as of December 31, 2020 | $ | 310,641 | ||
| Change Due to Issuances | 746,672 | |||
| Change due to exercise / redemptions | (1,972,419 | ) | ||
| Change in fair value | 1,269,266 | |||
| Balance as of December 31, 2021 | $ | 354,160 | ||
| F-17 |
| Energy and Water Development Corp. and Subsidiary Notes to Consolidated Financial Statements
|
A summary of quantitative information with respect to valuation methodology and significant unobservable inputs used for the Company’s common stock purchase that are categorized within Level 3 of the fair value hierarchy for the years ended December 31, 2021 and 2020 is as follows:
| December 31, 2021 | December 31, 2020 | |||||||
| Stock price | $0.16 – 0.45 | $0.07 – 1.20 | ||||||
| Exercise price | $0.03 - 0.20 | $0.04 – 0.20 | ||||||
| Contractual term (in years) | 0.27 - 1 | 0.01 – 1 | ||||||
| Volatility (annual) | 149% – 2,095% | 125% – 424% | ||||||
| Risk-free rate | 0.04% - 0.39% | 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 and derivative liabilities:
| Fair Value measured at December 31, 2021 | ||||||||||||||||
| Quoted | Significant | |||||||||||||||
| prices in | other | Significant | ||||||||||||||
| active markets |
observable inputs |
unobservable inputs |
Fair value at December 31, |
|||||||||||||
| (Level 1) | (Level 2) | (Level 3) | 2021 | |||||||||||||
| Derivative liability | $ | — | $ | — | $ | 354,160 | $ | 354,160 | ||||||||
| Total | $ | — | $ | — | $ | 354,160 | $ | 354,160 | ||||||||
| Fair value measured at December 31, 2020 | ||||||||||||||||
| Quoted | Significant | |||||||||||||||
| prices in | other | Significant | ||||||||||||||
| active markets |
observable inputs | unobservable inputs |
Fair value December 31, |
|||||||||||||
| (Level 1) | (Level 2) | (Level 3) | 2020 | |||||||||||||
| Derivative liability | $ | — | $ | — | $ | 310,641 | $ | 310,641 | ||||||||
| Total | $ | — | $ | — | $ | 310,641 | $ | 310,641 | ||||||||
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 years ended December 31, 2021 and 2020.
During the years ended December 31, 2021 and 2020, the Company recorded a loss of $1,269,266 and a gain of $1,257,473, respectively, from the change in fair value of derivative liability.
| F-18 |
| Energy and Water Development Corp. and Subsidiary Notes to Consolidated Financial Statements
|
Note 12. Leases
The Company’s leases do not provide an implicit rate that can be readily determined. Therefore, the Company uses discount rates based on the incremental borrowing rate of its current external debt of 8%.
The Company’s weighted-average remaining lease term relating to its operating leases is 1.25 years, with a weighted-average discount rate of the 8.00%.
The Company incurred lease expense for its operating leases of $31,266, which was included in general and administrative expenses in the consolidated statements of operations and comprehensive loss for the year ended December 31, 2021. During the year ended December 31, 2021, the Company made cash lease payments of $31,266. At December 31, 2021, the operating lease right-of-use asset was $49,432, the current portion of operating lease liability was $39,148, and the operating lease liability, net of current portion was $10,283.
The following table presents information about the future maturity of the lease liability under the Company’s operating leases as of December 31, 2021.
Note 13. Related Party Transactions
Due to officers
Amounts due to officers as of December 31, 2021 and 2020 are comprised of the following:
| 2021 | 2020 | |||||||
| Ralph Hofmeier: | ||||||||
| Unsecured advances due to officer | $ | $ | 17,778 | |||||
Accrued salaries | 17,485 | — | ||||||
| Total due to Ralph Hofmeier | 17,485 | 17,778 | ||||||
| Irma Velazquez: | ||||||||
| Unsecured advances due to officer | — | 66,898 | ||||||
| Accrued salaries | — | — | ||||||
| Total due to Irma Velazquez | — | 66,898 | ||||||
| $ | 17,485 | $ | 84,676 | |||||
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.
| F-19 |
| Energy and Water Development Corp. and Subsidiary Notes to Consolidated Financial Statements
|
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 shares of its Series A Preferred Stock with a fair market value of $ (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) shares of its Common Stock with a fair market value of $1,500,000 and (ii) shares of its Series A Preferred Stock, with a fair market value of $1,350,000 (collectively the “Bonus Shares”). See Investor and officer deposit below for more information.
Customer deposit
EAWC-TV functions as a distributor of EAWD product. In 2019, EAWC-TV, having secured EAWD’s first customer, has placed a $550,000 order for a solar powered atmospheric water generator (“AWG”) for one of its customers. EAWC-TV and the Company on December 13, 2019 agreed to accept a $303,742 reduction in the balance owed by EAWD to EAWC-TV as a deposit with EAWD related to this order. The deposit was satisfied through delivery of the equipment. 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 a majority of the balance of the Company’s outstanding accounts receivables as of both December 31, 2021 and 2020.
Virhtech Gmbh
As of December 31, 2021 and 2020, the Company owed Virhtech Gmbh, a related party of the Company, $124,370 and $153,300, respectively, for services performed for the Company and is classified as accounts payable – related party on the consolidated balance sheets.
Officer and investor deposits
On December 31, 2020, the Company recorded $1,500,000 as officer compensation and $ in common stock subscriptions for stock issuance transactions in process. The $4,000 is part of a pending stock sale for 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 December 31, 2021.
As of December 31, 2021, the Company recorded $792,745, or 15,855,000 common shares to be issued, as common stock subscriptions within stockholders’ deficit and $377,350, or 7,547,000 common shares to be issued, as a common stock subscription liability for stock issuance transactions in process. The $1,170,095 is part of pending stock sales for shares that has been funded and is waiting issuance to complete the sale at December 31, 2021. The common stock subscription liability consists of cash received for future share issuances in which a sales and purchase agreement was not signed and returned from the investor at the date of this filing.
Note 14. Shareholders’ Deficit
Preferred Stock
Authorized: shares of voting preferred stock with a par value of $0.001. As of both December 31, 2021 and 2020, the Company had 9,780,796 shares of preferred stock issued and outstanding, respectively.
During the year ended December 31, 2020, the Company engaged in the following equity events:
| · | preferred shares issued for $1,001,244 to our CEO to satisfy unpaid and accrued officers salary, | |
| · | preferred shares issued for $889,244 to our COO to satisfy unpaid and accrued officers salary, | |
| · | preferred shares issued for $150,000 to our CEO to satisfy unpaid and accrued officers salary for 2020, | |
| · | preferred shares issued for $150,000 to our COO to satisfy unpaid and accrued officers salary for 2020, | |
| · | preferred shares issued for $1,350,000 to our CEO as a compensation bonus, and | |
| · | preferred shares issued for $1,350,000 to our COO as a compensation bonus. |
| F-20 |
| Energy and Water Development Corp. and Subsidiary Notes to Consolidated Financial Statements
|
Common Stock
Authorized: shares of voting common stock with a par value of $0. As of December 31, 2021 and 2020, the Company had and shares of common stock outstanding, respectively.
During the year ended December 31, 2021, the Company engaged in the following equity events:
| · | common shares issued for $718,113 for the sale of shares, | |
| · | 10,000,000 common shares were issued to officers for accrued salary, | |
| · | common shares issued for $165,000 in marketing and consulting, | |
| · | common shares were issued for $270,000 to convertible note holder is satisfaction of their notes, and | |
| · | common shares were issued for $15,355 to pay interest and fees. |
During the year ended December 31, 2020, the Company engaged in the following equity events:
| · | 3,940,000 common shares were issued for $470,900 in marketing and consulting, | |
| · | common shares were issued for $173,756 to our CEO to satisfy unpaid and accrued officers’ salary, | |
| · | common shares were issued for $173,756 to our COO to satisfy unpaid and accrued officers’ salary, | |
| · | common shares issued for $1,500,000 to our COO as a compensation bonus, | |
| · | common shares issued for $571,000 to convertible note holders in satisfaction of their notes, | |
| · | common shares issued for $15,000 to pay interest and fees, and | |
| · | common shares issued for 478,940 for the sale of shares. |
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-employees members of the Board of Directors with the opportunity to receive grant awards to acquire, in the aggregate, up to shares of the Corporation’s common stock.
A summary of information regarding the Corporation’s common stock options outstanding is as follows:
| Weighted | ||||||||||||
| Average | ||||||||||||
| Weighted | Remaining | |||||||||||
| Number of | Average | Contractual | ||||||||||
| Shares | Exercise Price | Term (Years) | ||||||||||
| Outstanding at December 31, 2019 | 2,200,000 | 0.10 | ||||||||||
| Issued | — | — | — | |||||||||
| Exercised | — | — | — | |||||||||
| Outstanding at December 31, 2020 | 2,200,000 | $ | 0.10 | |||||||||
| Issued | — | — | — | |||||||||
| Expired | (2,200,000 | ) | — | — | ||||||||
| Outstanding at December 31, 2021 | — | $ | — | — | ||||||||
The above outstanding options were granted on January 1, 2012, to a former Corporation’s executive. The options vest options per month with being vested and exercisable at December 31, 2018. These options expired in January 2021. During the years ended December 31, 2021 and 2020, the Corporation did not recognize any stock-based compensation expense on the 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 warrant shares. 500,000 warrants were issued on February 17, 2021, and the remaining 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.
Note 16. 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.
| F-21 |
| Energy and Water Development Corp. and Subsidiary Notes to Consolidated Financial Statements
|
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 year ending December 31, 2021 and 2020 amounted to $56,665 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. Based on the lack of evidence of payment, on March 12th, EAWD filed notice of the parties ‘stipulation of mediator in accordance with the Court´s exhibit to Trial Order.
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 December 31, 2021 interest had accrued to $59,136. 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 17. Income Taxes
The Company maintains deferred tax assets and liabilities that reflect the net tax effects of temporary differences between carrying amounts of the assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The net deferred tax asset has been fully offset by a valuation allowance because of the uncertainty of the attainment of future taxable income. The Company did not have an income tax provision or benefit for the year ended December 31, 2021 and 2020. The Company has incurred losses and therefore has provided a full valuation against net deferred tax assets as December 31, 2021 and 2020.
The items accounting for the difference between U.S. and foreign income taxes at the effective statutory rate and the provision for income taxes for the year ended December 31, 2021 and 2020 were as follows:
| 2021 | 2020 | |||||||
| Income tax benefit at U.S. statutory rate of 21% | ||||||||
| Net operating loss carryforward – U.S. – federal | $ | (562,283 | ) | $ | (1,597,200 | ) | ||
| State income tax net of Federal benefits – U.S. | (94,298 | ) | (267,400 | ) | ||||
| Non-deductible expenses – U.S. | 540,338 | 1,612,600 | ||||||
| Net operating loss carryforward – foreign | (79,179 | ) | ||||||
| Adjust NOL for change in tax rate – U.S. | — | 67,000 | ||||||
| Change in valuation allowance – U.S. | 116,243 | 251,800 | ||||||
| Change in valuation allowance – foreign | 79,179 | |||||||
| Total provision for income tax – U.S. and foreign | $ | — | $ | — | ||||
| F-22 |
| Energy and Water Development Corp. and Subsidiary Notes to Consolidated Financial Statements
|
The Company’s approximate net U.S. and foreign deferred tax assets as of December 31, 2021 and 2020 were as follows:
| 2021 | 2020 | |||||||
| Deferred tax assets | ||||||||
| Deferred stock compensation | $ | — | $ | — | ||||
| Net operating loss carry forward – U.S. | 2,390,769 | 2,274,526 | ||||||
| Net operating loss carry forward – foreign | 79,179 | |||||||
| Total deferred tax assets – U.S. and foreign | 2,469,948 | 2,274,526 | ||||||
| Valuation allowance – U.S. and foreign | (2,469,948 | ) | (2,274,526 | ) | ||||
| Net deferred tax assets | $ | — | $ | — | ||||
Net operating loss carry-forwards for U.S. federal and state in the amount of approximately $9.7 million, and for foreign of $359 thousand, will expire beginning December 31, 2033.
The net change in the valuation allowance for the years ended December 31, 2021 and 2020 was an increase of $116,243 and $251,800, respectively. The valuation allowance increased as a result of losses in the current period. The net change in the foreign valuation allowance for the years ended December 31, 2021 and 2020 was an increase of $79,179 and $, respectively. The valuation allowance increased as a result of losses in the current period.
The Company subject to U.S. federal income tax as well as income tax in multiple state and non-U.S. jurisdictions. The Company’s federal and state tax returns for the previous three years remain open for audit. With respect to material non-U.S. jurisdictions in which we operate, we have open tax years ranging from 2 to 10 years.
Note 16. Subsequent Events
On March 3, 2022, the Company’s common stock was upgraded to the OTCQB tier.
On January 26, 2022 the Company entered into a two year equity Line of credit (“ELOC”) with an investor to provide up to $5 million. The Company may “put” or “draw down” requests for the investor to purchase shares subject to certain limits. Requests are limited to the lesser of $1,000,000 or 500% of the average shares traded for the 10 days prior the Closing Request Date. The purchase price per common share purchased shall equal 85% of the average of the two lowest daily traded VWAP during the 5 trading days commencing with the put notice date. As of April 12, 2022, 2,520,000 common shares were issued pursuant to this agreement, including 500,000 common shares as the agreed upon commitment fee. The initial purchase in this agreement was for $300,000.
On January 14, 2022, the Company completed a conversion of our outstanding convertible debt by exchanging $53,222 cash for retiring $50,000 in convertible debt along with $3,222 in interest for a total of common shares.
On February 1, 2022, the Company repaid the remaining balance of convertible debt for a total of $216,348, which consists of $150,000 of principal, $10,257 of interest, and a prepayment fee of $56,091.
On February 3, 2022, the Company issued shares of the Company’s common stock to a vendor for services.
On February 18, 2022, the Company received a deposit in the amount of $300,000 for common shares to be issued pursuant to a securities purchase agreement. As of April 14, 2022, these shares have been issued.
On February 23, 2022, the Company filed the European trademark applications for Registration of the Name and logo of EAWD as well as the national trademark applications for an international trademark application designating Mexico, Brazil and Australia, a national trademark application in the US and a national trademark application in Argentina.
In February 2022, the Russian Federation and Belarus commenced military action with the country of Ukraine. As a result of this action, various nations, including the United States, have instituted economic sanctions against the Russian Federation and Belarus. Further, the impact of this action and related sanctions on the world economy are not determinable as of the date of these financial statements. The specific impact on the Company’s financial condition, results of operations, and cash flows is also not determinable as of the date of these consolidated financial statements.
From January 1, 2022 through April 14, 2022, the Company has issued common shares related to subscriptions outstanding at December 31, 2021.
F-22