Energy & Water Development Corp - Quarter Report: 2020 March (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarter ended March 31, 2020

¨  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________

Commission file number: 000-56030

ENERGY and WATER DEVELOPMENT CORP.

 (Exact Name of Registrant as Specified in Its Charter)

7901 4^th Street N STE #4174, St Petersburg, Florida 33702

(Address of Principal Executive Offices, including Zip Code)

Tel No.: 305-517-7330

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ    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 þ    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.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes ¨    No þ

The number of shares outstanding of the registrant’s classes of common stock as of June 15, 2020 was 100,620,350 shares.

INDEX

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

The information contained in this Report, including in the documents incorporated by reference into this Report, includes some statements that are not purely historical and that are “forward-looking statements.” Such forward-looking statements include, but are not limited to, statements regarding our Company and management’s expectations, hopes, beliefs, intentions or strategies regarding the future, including our financial condition, results of operations, and the expected impact of the offering on the parties’ individual and combined financial performance. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words “anticipates,” “believes,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “might,” “plans,” “possible,” “potential,” “predicts,” “projects,” “seeks,” “should,” “will,” “would” and similar expressions, or the negatives of such terms, may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking.

The forward-looking statements contained in this Report are based on current expectations and beliefs concerning future developments and the potential effects on the parties and the transaction. There can be no assurance that future developments actually affecting us will be those anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond the parties’ control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date stated, or if no date is stated, as of the date hereof.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results. The following discussion should be read in conjunction with our financial statements and the related notes included in this Report.

i

PART I.   FINANCIAL INFORMATION

ITEM 1.   FINANCIAL STATEMENTS

Energy and Water Development Corp.

Condensed Consolidated Balance Sheets

See accompanying notes to the condensed consolidated financial statements (unaudited).

1

Energy and Water Development Corp.

Condensed Consolidated Statements of Operations

(Unaudited)

See accompanying notes to the condensed consolidated financial statements (unaudited).

2

Energy and Water Development Corp.

Condensed Consolidated Statement of Changes in Stockholders’ Deficit

See accompanying notes to the condensed consolidated financial statements (unaudited).

3

Energy and Water Development Corp.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

See accompanying notes to the condensed consolidated financial statements (unaudited).

4

Energy and Water Development Corp.

Notes to the Condensed Consolidated Financial Statements (Unaudited)

March 31, 2020 and December 31, 2019

Note 1. Incorporation and Nature of Operations

In September, 2019, Eurosport Active World Corp. changed its name to Energy and Water Development Corp. (the “Corporation”, “Company”, “EAWC” or “EAWD”) to better present the Company’s purpose and business sector.  The name change received approval by Financial Industry Regulatory Authority (“FINRA”) on October 22, 2019.  The Company was incorporated under the laws of the State of Florida on December 12, 2007.  

Note 2. Summary of Significant Accounting Policies

Basis of Presentation

The condensed consolidated financial statements (unaudited) include the accounts of Eurosport Active World Corp. and its wholly-owned subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission. These unaudited condensed consolidated financial statements should be read in conjunction with the financial statements and related notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC.

In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements that would substantially duplicate the disclosures contained in the audited financial statements of Energy and Water Development Corp. for the fiscal year ended December 31, 2019, have been omitted.

Certain reclassifications have been made in Fiscal 2019 results to conform to the presentation used in Fiscal 2020.  These reclassifications had no effect on the reported results of operations of the Company.

Fair Value of Financial Instruments

Prepaid, Other Current Assets, Accounts Payable Accrued Expenses, Accrued Salaries, complex conversion features in note instruments and Other Current Liabilities.

The carrying amounts of these items approximated fair value.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at a measurement date.  A fair value hierarchy requires an entity to maximize the use of observable inputs, where available, and minimize the use of unobservable inputs when measuring fair value.

Described below are the three levels of inputs that may be used to measure fair value:

Level 1 – Quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities,

Level 2 – Observable prices that are based on inputs not quoted on active markets, but corroborated by market data,

Level 3 – Unobservable inputs are used when little or no market data is available.

The application of the three levels of the fair value hierarchy under ASC Topic 820-10-35, our derivative liabilities as of March 31, 2020 and December 31, 2019, were $237,489 and $413,795, respectively and measured on Level 3 inputs.   

Loss Per Common Share

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.

5

Energy and Water Development Corp.

Notes to the Condensed Consolidated Financial Statements (Unaudited)

March 31, 2020 and December 31, 2019

Note 2. Summary of Significant Accounting Policies

For the three months ended March 31, 2020 and 2019, 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.

As discussed more fully in Note 6, convertible note holders have the option of converting their loans into common shares subject to the terms and features offered by the specific convertible notes. Some note holders were also granted purchase options to purchase additional shares subject to the features of each purchase option. If the convertible note holders of unexercised convertible notes exercised their conversion feature and the additional purchase options, they would represent 8,575,622 and 5,380,000 in additional common shares at March 31, 2020 and December 31, 2019, 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:

Note 3. Recently Issued Accounting Standards

Accounting standards promulgated by the FASB are subject to change. Changes in such standards may have an impact on the Corporation’s future consolidated financial statements. The following are a summary of recent accounting developments.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) to increase transparency and compatibility among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. Topic 842 affects any entity that enters into a lease, with some specific scope exceptions. The guidance in this update supersedes Topic 840, Leases. The core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from leases. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For public companies, the amendments in this update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The adoption of ASU No. 2016-02 will have no material impact on our financial statements.

6

Energy and Water Development Corp.

Notes to the Condensed Consolidated Financial Statements (Unaudited)

March 31, 2020 and December 31, 2019

Note 4. Going Concern

The Company has received a deposit on its first order, which it has not yet delivered, consequently it has recognized no revenue.  The Company has incurred operating losses since it began operations (December 2012) totaling $11,956,218 at March 31, 2020. During the three months ended March 31, 2020, the Corporation incurred net losses of $11,299. The Company also incurred a working capital deficit of $2,122,658 at March 31, 2020.

These factors raise substantial doubt regarding the Corporation’s ability to continue as a going concern. The ability of the Corporation to continue as a going concern depends upon its ability to obtain funding to finance operating losses until the Corporation is profitable. The Corporation expects to be financed through equity capital, debt financing or from deposits related to purchases orders on proposals pending customer acceptance.

In the event the Corporation does not generate sufficient funds from issuance of common stock, debt financing or purchase orders, it may be unable to fully implement its business plan and pay its obligations as they become due, any of which circumstances would have a material adverse effect on its business prospects, financial condition, and results of operations. The accompanying condensed consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

Note 5. Related Party Transactions

Due to officers

Amounts due to officers as of March 31, 2020 and December 31, 2019 are comprised of the following:

Unsecured advances due to officers represent unreimbursed Corporation expenses paid by the officers on behalf of the Corporation. These advances are non-interest bearing and are due on demand.

Accrued salaries represent amounts earned for services rendered in accordance with the employment agreements for the Corporation’s Chief Executive Officer and Chief Operating Officer but were unpaid as of December 31, 2019.  On January 9, 2020, settlement and release agreements were signed by Ralph Hofmeier and Irma Velazquez regarding the accrued compensation due to each of them. Ralph Hofmeier received 1,022,095 common shares and 2,002,488 Series A preferred shares in satisfaction of $1,175,000 of accrued salaries. Irma Velazquez received 1,022,095 common shares and 1,778,488 Series A preferred shares in satisfaction of $1,063,000 of accrued salaries.  

7

Energy and Water Development Corp.

Notes to the Condensed Consolidated Financial Statements (Unaudited)

March 31, 2020 and December 31, 2019

Note 6. Other Current Liabilities

Due to/from Commercial Distributor & Services Supplier

During the year ended December 31, 2019, EAWC-TV provided $200,000 of paid services and $100,000 of accrued services plus $13,389 net in interest and remitted $155,537 to vendors in satisfaction of EAWD obligations. EAWD also remitted $358,540 to EAWC-TV. The balance due to EAWC-TV by EAWD at December 31, 2019 was $4,959 in paid charges and $100,000 in unpaid services.  

During the three months ended March 31, 2020, EAWC-TV provided $0 of paid services and $75,000 of accrued services plus $117 net in interest and remitted $25,638 to vendors in satisfaction of EAWD obligations. The escrow agent remitted $127,431 to EAWC-TV. The balance due to EAWD by EAWC-TV at March 31, 2020 was $30,452 in paid charges and $125,000 in unpaid services.  

Also during the three months ended March 31, 2020, the Company engaged an escrow agent to receive funds and make disbursements of company funds held in escrow.  During the quarter the escrow agent accepted $201,000 from lenders who acquired convertible notes and paid $73,569 of company expenses on behalf of EAWD, forwarding the remaining funds of $127,431 to EAWC-TV to manage for EAWD.

Customer deposit

In addition to providing management services and disbursement processing to EAWD as described above, EAWC-TV also functions as a distributor of EAWD products and engineering services.  EAWC-TV, having secured EAWD’s first customer, has placed a $550,000 order for a solar powered atmospheric water generator (“AWG”) for one of its customers.  EAWC-TV and the Company agreed to accept a $303,742 reduction in the balance owed by EAWD to EAWC-TV as a deposit with EAWD related to this order.  The deposit will be satisfied through delivery of the equipment when performance has occurred.  The equipment is being built in Germany.

Investor deposit

On December 16, 2019, the Company received $10,000 from a potential investor to purchase 50,000 shares of the Company’s common stock.  The Company has not received the required signed and completed subscription stock purchase agreements and accordingly has not issued the shares.  This deposit is recorded in the balance sheet as a transaction deposit until instructions are formalized and signed purchase documents are received.

Note 7. Convertible Loans Payable

As of March 31, 2020 and December 31, 2019, the balance of convertible loans payable net of discount was $394,036 and $243,923, respectively of which convertible loans held by shareholders amounted to $242,611 and $203,923. The convertible loans were issued in several different forms as discussed below.

Convertible loans

From December 2015 through December 2018, the Company issued convertible loans payable to an aggregate of 11 note holders, raising $586,825. These convertible loans were due on demand, unsecured, have no maturity date and were generally non-interest bearing although a few of the notes provide for 2% interest. During the year ended December 31, 2019, by mutual agreement between the Company and the debt holders, an aggregate of $546,824 of outstanding convertible debt was converted into 4,877,350 common shares of the Company at a conversion price ranging from $0.10 - $1.00 per share. In addition, the Company has issued 40,000 conditional shares to several note holders pending paperwork to complete the conversion. As of March 31, 2020 and December 31, 2019, the Company had outstanding convertible loans in this form of $40,000 and $40,000, respectively.

8

Energy and Water Development Corp.

Notes to the Condensed Consolidated Financial Statements (Unaudited)

March 31, 2020 and December 31, 2019

Note 7. Convertible Loans Payable (continued)

Convertible loans with beneficial conversion feature

During the first quarter of 2019, the Company issued two convertible loans payable which totaled $98,000. The convertible loans payable are due on February 19, 2020, accrue interest at 0-2% per annum and are convertible into 1,960,000 shares of the Company’s common stock at $0.05 per share which is a discount to the market price on the date of the issuance (beneficial conversion feature). After performing an analysis of the conversion option under ASC Topic 815, “Derivatives and Hedging” and determining that the instrument does not qualify for derivative accounting treatment. The Company therefore performed an analysis if the conversion option was subject to a beneficial conversion feature and determined that it was.  Accordingly, the Company recorded a debt discount of $98,000 for the value of the beneficial conversion feature.  For the three months ended March 31, 2020 and 2019 the Company amortized debt discount of $8,148 and $0, respectively. As of March 31, 2020 and December 31, 2019, the Company had outstanding convertible loans net of the beneficial conversion feature of $98,000 and $98,000, respectively.

As discussed further below, on August 7, 2019, the Company entered into a $110,000 8% unsecured, convertible note that contained an embedded derivative which made the number of shares to be issued under the notes to be indeterminate.  Due to the fact that the number of shares issuable are indeterminate, the equity environment was tainted, and the convertible notes are included in the value of the derivative.  On August 7, 2019, the date the equity environment became tainted, the Company recorded a reduction to additional paid in capital in the amount of $559,300 in connection with the initial valuation of the derivative liability of the convertible notes based on the Black Scholes Merton pricing model.

The fair value of the embedded derivatives was determined using the Black Scholes Option Pricing Model based on the following assumptions:

As of March 31, 2020 and December 31, 2019 the outstanding derivative liability related to these convertible notes was $148,651 and $284,318, respectively. During the three months ended March 31, 2020 and 2019, the Company recorded a reduction of $135,667 and $0, respectively, related to the change in fair value on the convertible notes.

As discussed in Note 11, on May 14, 2020 this debt ($98,000) was converted into 1,960,000 common shares.

Convertible loans with a variable conversion feature

On August 7, 2019, the Company entered into an $110,000 8% convertible note to provide interim financing.  The note bears interest at the rate of 8% per annum. All interest and principal must be repaid before or on August 7, 2020. The note is convertible into common stock, at the holder’s option, at a price equal to 70% of the lowest closing bid price of the common stock during the 20 trading day period prior to conversion. In the event the Company prepays the note in full, the Company is required to pay off all principal, interest and any other amounts owing multiplied by:

(i)

115% if prepaid during the period commencing on the closing date through 60 days thereafter,

(ii)

120% if prepaid 61 days following the closing through 120 days following the closing, and

(iii)

135% if prepaid 121 days following the closing through 180 days following the closing.

After the expiration of 180 days following the date of the Note, the Company has no right of prepayment.

The Company has identified the embedded derivatives related to the above described note. This embedded derivative included variable conversion features. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivative as of the inception date of the note and to fair value as of each subsequent reporting date.

9

Energy and Water Development Corp.

Notes to the Condensed Consolidated Financial Statements (Unaudited)

March 31, 2020 and December 31, 2019

Note 7. Convertible Loans Payable (continued)

At the inception of the note, the Company determined the aggregate fair value of $183,809 of embedded derivatives which resulted in a $73,809 loss from fair value charged to current period operations. The fair value of the embedded derivatives was determined using the Black Scholes Option Pricing Model based on the following assumptions:

The Company recorded $110,000 as a derivative liability discount at inception. At December 31, 2019, the Company determined the aggregate fair value of the embedded derivatives had fallen to $129,477 which resulted in a $54,332 change in fair value credited to current period operations. As of March 31, 2020 and December 31, 2019 the outstanding derivative liability related to these convertible notes was $24,006 and $129,477, respectively.

For the three months ended March 31, 2020 and 2019 the Company amortized debt discount of $42,831 and $0, respectively. Also during the three months ended March 31, 2020, the loan holder on three occasions converted in aggregate, $38,500 of convertible debt into 691,522 common shares at pricing ranging from $0.49 to $0.91.  These conversions were fair valued to determine the reduction of the derivative liability associated with the conversions. As of March 31, 2020 and December 31, 2019, the Company had outstanding convertible loans net of the debt discount of $43,791 and $39,460, respectively.

The fair value of the conversions was determined using the Black Scholes Option Pricing Model based on the following assumptions:

Convertible loans with a variable vested conversion feature, Original Issue Discount

On January 23, 2020 and February 27, 2020 the Company entered into two $60,000 8% convertible note with original issue discount to provide interim financing.  The note bears interest at the rate of 8% per annum. All interest and principal must be repaid before or on January 24, 2021 and February 28, 2021. The note is convertible into common stock, at the holder’s option after a one year vesting period, at a price equal to 70% of the lowest closing bid price of the common stock during the 20 trading day period prior to conversion. In the event the Company prepays the note in full, the Company is required to pay off all principal, interest and any other amounts owing multiplied by:

(i)

120% if prepaid during the period commencing on the closing date through 90 days thereafter,

(ii)

125% if prepaid 91 days following the closing through 120 days following the closing,

(iii)

130% if prepaid 121 days following the closing through 150 days following the closing, and

(iv)

135% if prepaid 151 days following the closing through 180 days following the closing.

After the expiration of 180 days following the date of the Note, the Company has no right of prepayment.

For the three months ended March 31, 2020 and 2019 the Company amortized original issue discount of $1,388 and $0, respectively.

As of March 31, 2020 and December 31, 2019, the Company had outstanding convertible loans with variable vested conversion feature net of the debt discount of $111,389 and $0, respectively.

10

Energy and Water Development Corp.

Notes to the Condensed Consolidated Financial Statements (Unaudited)

March 31, 2020 and December 31, 2019

Note 7. Convertible Loans Payable (continued)

Derivative liability

The Company’s derivative liability consists of transactions discussed in the previous loan category (Convertible loans with a variable conversion feature) and loan category (Convertible loans with beneficial conversion).  

A summary of transactions follows:

Convertible loans with purchase option

In November of 2019, the Company entered into convertible loans with 2 lenders totaling $122,000.  These loans provide for a six month maturity, which may be extended up to one year, do not pay interest, and may be converted any time following the six month anniversary at a fixed price of $0.10 per share and fixed shares.  One loan for $55,000, one of the above 2 loans, became convertible on February 19, 2020.

The loans also provide a purchase option to acquire an additional matching number of shares as results from a conversion at the same $0.10 per share price. The fair value of the purchase options originated in 2020 was determined using the Black Scholes Option Pricing Model based on the following assumptions:

As of March 31, 2020 and December 31, 2019, the Company had outstanding convertible loans with purchase options net of debt discount of $72,981 and $74,611, respectively. As of March 31, 2020 and December 31, 2019 the outstanding derivative liability related to these convertible notes was $32,880 and $0, respectively.

During February and March 2020, the Company entered into additional convertible loans with purchase options with seven lenders totaling $97,000. These loans provide for a six month maturity, which may be extended up to one year, do not pay interest, and may be converted any time following the six month anniversary at a fixed price of $0.10 per share and fixed shares. The fair value of the purchase options originated in 2020 was determined using the Black Scholes Option Pricing Model based on the following assumptions:

11

Energy and Water Development Corp.

Notes to the Condensed Consolidated Financial Statements (Unaudited)

March 31, 2020 and December 31, 2019

Note 7. Convertible Loans Payable (continued)

As of March 31, 2020 and December 31, 2019, the Company had outstanding convertible loans net of debt discount, with the seven lenders of $27,875 and $0, respectively. As of March 31, 2020 and December 31, 2019 the outstanding derivative liability related to these convertible notes was $31,952 and $0, respectively. Further, borrowings for the three months ended March 31, 2020, of $97,000 were net of associated debt discount of $91,675, plus an additional $18,204 adjusting a note issued in 2019.   Total debt discount for the three months ended March 31, 2020 was $109,879.  

Note 8. Stockholders’ Deficit

During the three months ended March 31, 2020 the Company engaged in the following equity transactions:

·

issued 3,780,976 shares of preferred series A stock and 2,044,190 shares of common stock to our Chief Executive and Chief Operating officers in exchange for $2,238,000 in accrued salaries, collectively,

·

issued 691,522 common shares for conversion of $38,500 of convertible debt as discussed in Note 7,

·

issued 46,789 common shares for interest and fees, and

·

removed $23,940 of derivative for converted debt, and

·

recorded $54,159 for reclassification of equity to liability for derivatives. Insufficient shares of common stock resulting in tainting of warrants which changed the valuation creating a derivative liability.

Issuance of Series A Preferred Stock

On January 30, 2020 the articles were amended to authorize 3,780,976 shares of the authorized and unissued Preferred Stock of the Corporation are hereby designated “Series A Preferred Stock” with the following highlights of rights, preferences, powers, privileges and restrictions, qualifications and limitations.

1.

Dividends.  Series A Preferred Stock shall be treated pari passu with Common Stock except that the dividend on each share of Series A Preferred Stock shall be equal to the amount of the dividend declared and paid on each share of Common Stock multiplied by the Conversion Rate.

2.

Liquidation, Dissolution, or Winding Up.  In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, Series A Preferred Stock shall be treated pari passu, with Common Stock except that the payment on each share of Series A Preferred Stock shall be equal to the amount of the payment on each share of Common Stock multiplied by the Conversion Rate.

3.

Voting.  On any matter presented to the shareholders of the Corporation for their action or consideration at any meeting of shareholders of the Corporation (or by written consent of shareholders in lieu of meeting), each holder of outstanding shares of Series A Preferred Stock shall be entitled to cast the number of votes equal to the number of shares of Series A Preferred Stock held by such holder as of the record date for determining shareholders entitled to vote on such matter multiplied by the Conversion Rate. Except as provided by law or by the other provisions of the Articles of Incorporation, holders of Series A Preferred Stock shall vote together with the holders of Common Stock as a single class.

4.

Conversion Rate and Adjustments.

a.

Conversion Rate.  The “Conversion Rate” shall be five (5) shares of Common Stock (as adjusted pursuant to this Section 4) for each share of Series A Preferred Stock.

12

Energy and Water Development Corp.

Notes to the Condensed Consolidated Financial Statements (Unaudited)

March 31, 2020 and December 31, 2019

Note 9. Stock Option Plan

On January 2, 2012, the Corporation’s Board of Directors approved the creation of the 2012 Non-Qualified Stock Option Plan (the “2012 Plan”). The 2012 Plan provides for the issuance of incentive stock options to designated employees, certain key advisors and non-employee members of the Board of Directors with the opportunity to receive grant awards to acquire, in the aggregate, up to 5,000,000 shares of the Corporation’s common stock.

A summary of information regarding the Corporation’s common stock options outstanding is as follows:

The above outstanding options were granted on January 1, 2012, to a former Corporation’s executive. The options were fully vested and exercisable at December 31, 2016. Accordingly, during the three months ended March 31, 2020 and 2019, the Corporation did not recognize any stock-based compensation expense.

Note 10. Commitments and Contingencies

Commitments

Employment Agreements

The Corporation entered into employment agreements with its Chief Executive Officer, Mr. Ralph Hofmeier, and its Chief Operating Officer, Ms. Irma Velazquez (collectively the “Employment Agreements”), effective January 1, 2012. Under the Employment Agreements, the Corporation will pay each of Mr. Hofmeier and Ms. Velazquez an annual base salary of $125,000 during the first year and $150,000 during the second year and forward. Any increase to the annual base salary after the second year is subject to approval by the Corporation’s Board of Directors. The Employment Agreements each has initial terms of ten (10) years and is automatically renewed for successive one-year terms unless either party delivers timely notice of its intention not to renew.

Lease

Effective January 1, 2020 the Company established its 7901 4^th Street N STE# 4174 St Petersburg FL 33702 as the official corporate address.

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 consolidated operating results, financial position or cash flows.

13

Energy and Water Development Corp.

Notes to the Condensed Consolidated Financial Statements (Unaudited)

March 31, 2020 and December 31, 2019

Note 10. Commitments and Contingencies (continued)

Litigation

Norwood - Action proceeding on concluded litigation, Case Number 10-58982 CA 09 – Miami-Dade County, FL Circuit Court. Nick Norwood vs. Eurosport Active World Corp. and Ralph Hofmeier. The case is resolved. An Agreed Stipulation for Final Judgement was entered into by the plaintiff, Nick Norwood and the Company and Ralph Hofmeier in November 2013 in the total amount (as of that date) of $107,872, which has been entered in the public records against the Company plus approximately $34,000 of accrued statutory interest. On June 2, 2020, the Company paid $107,872 and settled the judgement with the plaintiff.

CocoGrove – The nature of the litigation was for breach of a lease agreement. This case is concluded with a judgement against the Company in July 2010 for $84,393 plus 6% interest. There have been no efforts to seek collection of this judgement. Management intends to settle this judgement when it is in a financial position to make a payment.

Note 11. Subsequent Events

·

On April 8, 2020 and June 11, 2020, the Company entered into two convertible notes for $60,000 and $48,000 respectively with an equity lender, that accrues 8% interest, matures in one year and are convertible at various rates based on 70% of market price of the common shares trailing 20 days.  The Company raised $108,000 net of $10,000 of original issue discount.

·

In April and May of 2020, the Company issued in three separate transactions, a total of 1,865,366 shares of common stock to a lender to convert an aggregate of $71,500 of debt, which fully satisfied the Company’s obligation to the lender.

·

On May 14, 2020, the Company issued 1,960,000 shares of common stock to a lender to convert $98,000 of debt which fully satisfied the Company’s obligation to the lender.

·

Also on May 14, 2020, the Company issued 275,000 shares of common stock to a lender to convert $55,000 of debt. This lender also chose to exercise his modified note option to purchase additional shares at $0.10 per share, an additional 275,000 shares of common stock for $27,500. These transactions fully satisfied the Company’s obligation to the lender.

·

On June 2, 2020, the Company satisfied and discharged its obligations with respect to the Norwood Judgment discussed in Note 10, and a Satisfaction of Judgment by Clerk Pursuant to F.S. 55.141 was filed by the Clerk on June 3, 2020. The amount paid was $107,872.

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ITEM 2.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

INTRODUCTORY STATEMENT

The following discussion should be read in conjunction with our condensed consolidated financial statements and the notes to those consolidated financial statements that are included elsewhere in this Report. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors. See “Forward-Looking Statements.”

RESULTS of OPERATIONS

Results of Operations for the Three Months ended March 31, 2020 Compared to the Three Months ended March 31. 2019

Revenue

For the three months ended March 31, 2020, although we signed a contract for the sale of a SPAWG to our South African customer, the build out which began in the fourth quarter of 2019, will take 6-8 months to complete before revenue will occur. This transaction represents the initial revenue opportunity for EAWD.

General and Administrative Expense

General and administrative expense increased by $21,516 to $230,540 for the three months ended March 31, 2020 from $209,024 for the three months ended March 31, 2019.

The increase in general and administrative expenses was primarily due to decreases in the following categories:

The foregoing increases were partially offset by a decrease of:

Other Income (Expense)

Other income increased $224,137 from $4,896 expense (2019) to $219,241 income (2020) primarily as a result of the following:

Net Loss

Net Loss decreased by $202,621 to $11,299 for the three months ended March 31, 2020 from $213,920 for the three months ended March 31, 2019. This increase was attributable to the net increases and decreases as discussed above.

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LIQUIDITY and CAPITAL RESOURCES

We had $0 cash and a working capital deficit of $2,122,658 at March 31, 2020. Our operating and capital requirements in connection with supporting our operations will continue to be significant. Since inception, our losses from operations and working capital requirements have been satisfied through the deferral of payment for services performed by our founders and related parties discussed more fully below.

We have sustained operating losses since our operations began. At March 31, 2020, we had an accumulated deficit of $11,956,218. The Company cannot predict how long it will continue to incur further losses or whether it will ever become profitable as this is dependent upon the reduction of certain expenses and success in obtaining more project contracts, among other things. These conditions raise substantial doubt about the entity’s ability to continue as a going concern.

We have satisfied our cash and working capital requirements in the three months ended March 31, 2020, through the issuance of convertible loans. During the three months ended March 31, 2020, the Company entered into $97,000 in simple convertible loans which contained a purchase option for an additional 970,000 shares. The holders of the convertible loan instruments have the option to convert these loans into common stock at a conversion price of $0.10 per share up to six months from the note issuance. The Company also issued $120,000 of convertible loans with a variable conversion feature.  Refer to Note 7 of the financial statements for more information.

Comparison of Cash Flows for the Three Months Ended March 31, 2020 (2020) and March 31, 2019 (2019)

Cash Flows from Operating Activities

We used $217,000 of cash in our operating activities in 2020 compared to $130,000 used in 2019. The increase in cash used of $87,000 was primarily due to:

·

$54,708 decrease in cash provided from changes in working capital components to $29,212 (2020) compared to $83,920 (2019). The decrease was primarily derived from $93,565 increase in cash used to increase prepaid expenses for vendor advances; $75,087 decrease in cash used for paid management fees; partially offset by $70,000 increase in cash provided by due to officers and a $43,944 increase in cash provided by other items.

·

$32,292 increase in cash used from net loss and noncash adjustments to $246,212 (2020) compared to $213,920 (2019). This increase in cash used was primarily associated with an increase in net loss that was reduced by adjustments for noncash charges for amortization of debt discount and changes in fair value for derivative liabilities.

Cash Flows from Investing Activities

We received $0 cash provided by our investing activities in 2020 or 2019.   

Cash Flows from Financing Activities

We received $217,000 (2020) and $130,000 (2019) in cash provided from financing activities. The net increase of $87,000 is due primarily to a $119,000 increase in financing through issuance of convertible loans which is partially offset by a $32,000 decrease in proceeds from the sale of common stock.

Financial Position

Total Current Assets – At March 31, 2020 the Company had $126,265 representing $102,000 in deposits for the manufacture of equipment comprising our first sale and $24,000 advance payments for services primarily legal retainers for new corporate/SEC counsel.

PLAN OF OPERATION AND FUNDING

We have no lines of credit or other bank financing arrangements. Until we begin to generate revenues and positive cash flow, we expect that working capital requirements will continue to be funded through loans and/or further issuances of other securities. There is no assurance that we will be able to meet our working capital requirement from these possible sources. Additional issuances of equity or convertible debt will result in dilution to our current shareholders. We may not be able to secure the additional financing necessary to commercialize our products and execute our business strategy, at terms that are acceptable to us.

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Our mission is to provide sustainable water production design and already commercialized systems as well as energy design and systems based on high efficiency and renewable sources, and also smart grid and storage solutions. Through a combination of the best design and configuration of AquaTech, EnergyTech and waste management assisted solutions and technologies, we believe that it is possible to create a completely self-sufficient energy generation and water production system, which can be used at the same time to meet the potable water requirements as well as the electrical energy needs of businesses, communities and entire States, like California in USA and or Cape Town in South Africa.

EAWD seeks to promote green technology solutions through commissioned-based distributers and agents worldwide. EAWD anticipates using Made in Germany Green Tech, Swiss and US technologies such as: atmosphere water generators (AWGs), CO2-free energy production, plasma-assisted gasification and sterilizations systems, solar-powered water purification systems, as well as those in solar and wind energy solutions which we may, when our financial condition permits, further develop ourselves.

Today we believe we have potential technology partners, technology transfer agreements and technology representation agreements in place relating to aspects of renewable energy and water supply and we believe one of our key unique selling features and capabilities is this relationship. We believe that one of our key unique selling features and capabilities is the combination of the different disciplines of water, energy and waste management.

Revenue would be generated by the sales of Engineering and Technical Consultancy Services, sales of various identified technologies, royalties from the sales of energy and/or water in certain projects.

MATERIAL COMMITMENTS

Employment Agreements

The Company entered into employment agreements with 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.

OFF-BALANCE SHEET ARRANGEMENTS

None

GOING CONCERN

The Company has begun to commercialize its products by beginning the build out of its initial revenue opportunity.  Due to the timing of the project build out, the Company has not currently received any revenue and consequently has incurred operating losses since it began operations (December 2012) totaling $11,956,218 at March 31, 2020. During the three months ended March 31, 2020, the Corporation incurred net losses of $11,299. The Company also incurred a working capital deficit of $2,122,658 at March 31, 2020.

These factors raise substantial doubt regarding the Corporation’s ability to continue as a going concern. The ability of the Corporation to continue as a going concern depends upon its ability to obtain funding to finance operating losses until the Corporation is profitable. The Corporation expects to be financed through equity capital, debt financing or from deposits related to purchases orders on proposals pending customer acceptance.

In the event the Corporation does not generate more sufficient funds from issuance of common stock, debt financing or purchase orders, it may be unable to fully implement its business plan and pay its obligations as they become due, any of which circumstances would have a material adverse effect on its business prospects, financial condition, and results of operations. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

CRITICAL ACCOUNTING POLICIES

Our critical accounting policies are set forth in Note 2 to the condensed consolidated financial statements.

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RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

We do not expect the adoption of recently issued accounting pronouncements as discussed in Note 3 to have a significant impact on our results of operations, financial position or cash flow.

ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are a smaller reporting company and are not required to provide the information under this item.

ITEM 4.   CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13(a)-15(e) and 15(d)-15(e)) as of December 31, 2019. This evaluation was carried out by our Principal Executive Officer and our Principal Finance Officer. Based on that evaluation, our Principal Executive Officer and our Principal Finance Officer concluded that, as of March 31, 2020, our disclosure controls and procedures were not effective due to the presence of material weaknesses in internal control over financial reporting.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. Management has identified the following material weaknesses which have caused management to conclude that, as of March 31, 2020, our disclosure controls and procedures were not effective:

Remediation Plan to Address the Material Weaknesses in Internal Control over Financial Reporting

Our company plans to take steps to enhance and improve the design of our internal controls over financial reporting. During the period covered by this quarterly report on Form 10-Q, we have not been able to remediate the material weaknesses identified above. To remediate such weaknesses, we plan to implement the following changes during our fiscal year ending December 31, 2019: (i) appoint additional qualified personnel to address inadequate segregation of duties and limited reviews (ii) adopt sufficient written policies and procedures for accounting and financial reporting. The remediation efforts set out are largely dependent upon our securing additional financing to cover the costs of implementing the changes required. If we are unsuccessful in securing such funds, remediation efforts may be adversely affected in a material manner.

We are unable to remedy our controls related to the inadequate segregation of duties and ineffective risk management until we receive financing to hire additional employees.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the three months ended March 31, 2020 that have materially affected, or are reasonable likely to materially affect, our internal control over financial reporting.

Limitations on the Effectiveness of Internal Controls

Management’s conclusion that our disclosure controls and procedures were not effective means that if a fraud or material misstatement of the company’s annual or interim financial statements were to occur; there is a reasonable possibility that they will not be prevented or detected on a timely basis. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the internal control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.

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PART II.   OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS

Norwood - Action proceeding on concluded litigation, Case Number 10-58982 CA 09 – Miami-Dade County, FL Circuit Court. Nick Norwood vs. Eurosport Active World Corp. and Ralph Hofmeier. The case is resolved. An Agreed Stipulation for Final Judgement was entered into by the plaintiff, Nick Norwood and the Company and Ralph Hofmeier in November 2013 in the total amount (as of that date) of $107,872, which has been entered in the public records against the Company plus approximately $34,000 of accrued statutory interest. On June 2, 2020, the Company paid $107,872 and settled the judgement with the plaintiff.

CocoGrove – The nature of the litigation was for breach of a lease agreement. This case is concluded with a judgement against the Company in July 2010 for $84,393 plus 6% interest. 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.

ITEM 1A.   RISK FACTORS

We are a smaller reporting company and are not required to provide the information under this item.

ITEM 2.   UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The Company issued the following common shares during the three months ended March 31, 2020:

·

issued 2,044,190 common shares and 3,780,976 Series A preferred stock, for proceeds of $2,238,000 to satisfy accrued salaries of our Chief Executive Officer and our Chief Operating Officer.  

·

issued 691,522 common shares for converting $38,500 in convertible debt.

·

issued 46,789 common shares for interest and fees related to debt conversion.

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 investor, 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 3.   DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4.   MINE SAFETY DISCLOSURES

N/A

ITEM 5.   OTHER INFORMATION

None

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ITEM 6.   EXHIBITS

EXHIBIT INDEX

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

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.

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