Energy and Water Development (EAWD) 10-Q/A2024 Q1 Quarterly report (amended)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A

(Mark One)

For the quarterly period ended: March 31, 2024

or

For the transition period from ____________ to _____________

Commission File Number: 000-056030

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 ☒ 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 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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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

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

As of June 25, 2024, there were 280,945,682 shares of common stock of the registrant issued and outstanding. 

 Explanatory Note

This Amendment No. 1 is to include the iXBRL files which were omitted from the original filing filed on June 28, 2024.

Other than as expressly set forth herein, this Amendment does not, and does not purport to, amend, update or restate the information in Original Filing or reflect any events that have occurred after the Original Filing was made. Information not affected by this Amendment remains unchanged and reflects the disclosures made at the time as of which the Original Filing was made. No changes have been made to the financial statements of the Company as contained in the Original Filing. Accordingly, this Amendment should be read together with the Original Filing and the Company’s other filings with the SEC.

ENERGY AND WATER DEVELOPMENT CORP.

Quarterly Report on Form 10-Q

 Period Ended March 31, 2024

TABLE OF CONTENTS

PART I

FINANCIAL INFORMATION

ENERGY AND WATER DEVELOPMENT CORP. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

ENERGY AND WATER DEVELOPMENT CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

See accompanying notes to the condensed consolidated financial statements

ENERGY AND WATER DEVELOPMENT CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

See accompanying notes to the condensed consolidated financial statements

ENERGY AND WATER DEVELOPMENT CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

(UNAUDITED)

See accompanying notes to the condensed consolidated financial statements

ENERGY AND WATER DEVELOPMENT CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

See accompanying notes to the condensed consolidated financial statements

ENERGY AND WATER DEVELOPMENT CORP. AND SUBSIDIARIES

NOTES CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 1. Incorporation and Nature of Operations

Energy and Water Development Corp. (the “Company”) was originally incorporated as a Delaware corporation named Wealthhound.com, Inc. in 2000 and was converted to a Florida corporation under the name Eagle International Holdings Group Inc. on December 14, 2007.

On March 10, 2008, the Company changed its name to Eurosport Active World Corporation and on March 17, 2008, the Company entered into an Agreement and Plan of Acquisition (the “Acquisition Agreement”) with Inko Sport America, LLC (“ISA”), a privately-held Florida limited liability company wherein all of the certified owners of ISA exchanged their ownership interests in ISA for shares of the Company. In connection with the closing of the Acquisition Agreement, the Company adopted ISA’s business plan. This transaction was accounted for as a recapitalization effected by a share exchange, wherein ISA was considered the acquirer for accounting and financial reporting purposes. ISA was administratively dissolved in September 2010. In September 2019, the Company changed its name to Energy and Water Development Corp. to more accurately reflect the Company’s purpose and business sector.

In order to effectively cater to its expanding operations within one of the EU’s most environmentally advanced nations, the Company has strategically established a branch for business operations in Germany, along with two wholly-owned German subsidiaries: Energy and Water Development Deutschland GmbH (“EAWD Deutschland”) and EAWD Logistik GmbH (“EAWD Logistik”). Moreover, recognizing the importance of regional market demands, the Company has also extended its presence to Mexico through a wholly-owned subsidiary called EAWD Mexico SAPI de CV (“EAWD Mexico”), enhancing its capacity to address the needs of this area efficiently. This strategic positioning not only reflects the Company's commitment to environmental progress but also ensures an optimized response to evolving market requirements.

Note 2. Basis of Presentation and Other Information 

Principles of Consolidation and Basis of Presentation

The consolidated financial statements include the accounts of EAWD. 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.

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, 2023, have been omitted. 

Foreign currency translation

The United States dollar (“USD”) is the Company’s reporting currency. The Company has a subsidiary located in Germany. The net sales generated, and the related expenses directly incurred from the operations, if any, are denominated in local currency, Euro (“Euro”). The functional currency of the subsidiary is generally the same as the local currency.

Assets and liabilities measured in Euros are translated into USD at the prevailing exchange rates in effect as of the financial statement date and the related gains and losses, net of applicable deferred income taxes, are reflected in accumulated other comprehensive loss in its balance sheets. Income and expense accounts are translated at the average exchange rate for the period. The Company has not, to the date of these consolidated financial statements, entered into derivative instruments to offset the impact of foreign currency fluctuations. During the year ended December 31, 2023 the Company used a spot rate of 1.10 and an average rate of 1.08 when converting EURO to USD. 

Use of Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting periods. Actual results could differ from those estimates. Estimates which are particularly significant to the financial statements include estimates relating to the determination of impairment of assets, assessment of going concern, the determination of the fair value of stock-based compensation, and the recoverability of deferred income tax assets.

Leases

Effective January 1, 2019, the Company adopted ASC 842- Leases (“ASC 842”). The lease standard provided a number of optional practical expedients in transition. The Company elected the package of practical expedients. As such, the Company did not have to reassess whether expired or existing contracts are or contain a lease; did not have to reassess the lease classifications or reassess the initial direct costs associated with expired or existing leases. The lease standard also provides practical expedients for an entity’s ongoing accounting. The Company elected the short-term lease recognition exemption under which the Company will not recognize right-of-use (“ROU”) assets or lease liabilities, and this includes not recognizing ROU assets or lease liabilities for existing short-term leases. The Company elected the practical expedient to not separate lease and non-lease components for certain classes of assets (facilities).

At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present in the arrangement. Leases with a term greater than one year are recognized on the balance sheet as right-of-use assets and short-term and long-term lease liabilities, as applicable. The Company does not have operating or financing leases.

Cash

The Company considers short-term interest-bearing investments with initial maturities of three months or less to be cash equivalents. The Company has $50,506 and $76,627 cash at March 31, 2024 and December 31, 2023.

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:

Deferred Financing Costs

The Company has recorded deferred financing costs as a result of fees incurred by the Company in conjunction with its debt financing activities. These costs are amortized to interest expense using the straight-line method which approximates the interest rate method over the term of the related debt. There were no deferred financing costs as of March 31, 2024 and December 31, 2023.

Fair Value of Financial Instruments

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

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

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

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

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

The application of the three levels of the fair value hierarchy under ASC Topic 820-10-35, our derivative liabilities as of March 31, 2024 and December 31, 2023, were $186,973 and $376,941, 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, and accounts payable and accrued expenses have been determined to approximate carrying amounts due to the short maturities of these instruments. The Company believes that its indebtedness approximates fair value based on current yields for debt instruments with similar terms.

Income Taxes

Income taxes are accounted for under the asset and liability method as stipulated by ASC 740, “Accounting for Income Taxes”. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC 740, the effect on deferred tax assets and liabilities or a change in tax rate is recognized in income in the period that includes the enactment date. Deferred tax assets are reduced to estimated amounts to be realized by the use of the valuation allowance. A valuation allowance is applied when in management’s view it is more likely than not (50%) that such deferred tax will not be utilized.

ASC 740 provides interpretative guidance for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. In the unlikely event that an uncertain tax position exists in which the Corporation could incur income taxes, the Corporation would evaluate whether there is a probability that the uncertain tax position taken would be sustained upon examination by the taxing authorities. A liability for uncertain tax positions would then be recorded if the Corporation determined it is more likely than not that a position would not be sustained upon examination or if a payment would have to be made to a taxing authority and the amount is reasonably estimable.

As of December 31, 2023 and 2022, the Corporation does not believe any uncertain tax positions exist that would result in the Corporation having a liability to the taxing authorities. The Corporation’s policy is to classify interest and penalties related to unrecognized tax benefits, if and when required, as part of interest expense and general and administrative expense, respectively, in the statement of operations. The Corporation’s tax returns for the years ended 2012 through 2022 have been filed and are subject to examination by the federal and state tax authorities. The Corporation’s tax returns for the tax year ended 2023 have not been filed.

Revenue Recognition

The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers, the core principle of which is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to receive in exchange for those goods or services.

To achieve this core principle, five basic criteria must be met before revenue can be recognized: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to performance obligations in the contract; and (5) recognize revenue when or as the Company satisfies a performance obligation. During the years ended December 31, 2023 and 2022, the Company did not recognize any revenue.

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.

As discussed more fully in Note 10, convertible note holders have the option of converting their loans into common shares subject to the terms and features offered by the specific convertible notes. Some note holders were also granted purchase options to purchase additional shares subject to the features of each purchase option. If the convertible note holders of unexercised convertible notes exercised their conversion feature and the additional purchase options, they would represent 0 and 8,317,828 in additional common shares at December 31, 2023 and 2022, respectively. The potential shares from both the conversion feature and the rights to purchase additional shares were excluded from the computation of diluted net loss per share, as the inclusion of such shares would be anti-dilutive.

Related Party Transactions

A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties. A related party is generally defined as:

Note 3. Recently Issued Accounting Standards

The Company considers the applicability and impact of all Accounting Standards Updates (“ASUs”) issued by the Financial Accounting Standards Board (“FASB”). The Company has evaluated all recent accounting pronouncements and determined that the adoption of pronouncements applicable to the Company has not had or is not expected to have a material impact on the Company’s condensed consolidated financial statements.

Note 4. Going Concern

The Company has incurred operating losses since it began operations (December 2012) totaling $28,755,111 at March 31, 2024. During the three months ended March 31, 2024, the Company incurred net losses of $983,820 . The Company had a working capital deficit of $1,231,290 at March 31, 2024.

The Company’s ability to transition to profitable operations is dependent upon achieving a level of revenues adequate to support its cost structure. The timing and amount of actual expenditures will be based on many factors, including cash flows from operations and the anticipated growth of the Company’s business and availability to sufficient resources.

Management is working to conclude the sales in Germany and in other regions of the world relating to previously approved proposals, which would bring a growing revenue. Management plans to expand sales operations by greater market penetration of the agricultural, industrial and community development markets with the Company’s innovative water and energy generation solutions. Management also plans to raise additional funds during 2024 through the issuance of equity securities, from deposits related to customer purchase orders, and, if necessary, loans from management and third-party lenders. Management also plans to reduce expenses by centralizing the Company’s assembly, logistics and administrative operations into a larger, self-sufficient, off-grid location that will be able to house the storage of supplies and inventory, as well as provide space for assembly and administrative operations. The Company is also planning to acquire our its electric vehicles to reduce its supply transportation costs. 

These factors raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying unaudited condensed consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

Note 5. Accounts Receivable

At March 31, 2024 and December 31, 2023, accounts receivable was $0.

Note 6. Inventory

The components of inventory at March 31, 2024 and December 31, 2023, consisted of the following:

Work in progress only reflects the value of products in intermediate production stages and excludes the value of finished products being held as inventory in anticipation of future sales and raw materials not yet incorporated into an item for sale. Work in progress consists of materials used for water generators, commercial solar panels supply, and materials used for the construction of a charging station.

Note 7. Prepaid Expenses and Other Current Assets

The components of prepaid expenses and other current assets at March 31, 2024 and December 31, 2023 consisted of the following:

Note 8. Property and Equipment, Net

The components of property and equipment at March 31, 2024 and December 31, 2023 consisted of the following:

Depreciation expense for the three months ended March 31, 2024 and 2023 was $21,584 and $19,402, respectively, and is included in other general and administrative expenses on the consolidated statements of operations and comprehensive loss.

Note 9. Accounts Payable and Accrued Expenses

Significant components of accounts payable and accrued expenses at March 31, 2024 and December 31, 2023 are as follows:

As of March 31, 2024 and December 31, 2023, the Company owed Virhtech Gmbh, a related party of the Company, $16,900 and $16,900, respectively, for services performed for the Company and is classified as accounts payable - related party on the consolidated balance sheets.

Note 10. Accounts Payable – Related Party

Significant components of accounts payable – related party at March 31, 2024 and December 31, 2023 are as follows:

As of March 31, 2024 and December 31, 2023, the Company owed Virhtech Gmbh, a related party of the Company, $16,900 and $16,900, 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 March 31, 2024 and December 31, 2023, the Company had convertible loans payable, net of discount, of $134,817   and $152,459, respectively.

On February 15, 2024  , the Company issued an 8% convertible redeemable note in the principal amount of $150,000 to Geebis Consulting LLC. This note bears interest at a rate of 8% per annum and all principal and interest is due on August 15, 2024. Upon an event of default (as defined in the note), the interest rate shall increase to 24% per annum and certain other penalties may apply depending on the reason for the default. This note may be prepaid upon the payment of certain prepayment premiums. This note is convertible only after the maturity date at a fix conversion price of $0.04; provided that if the closing price of the Company’s common stock is below $0.03 for the five consecutive trading days prior to conversion, then the conversion price shall be equal to the lower of $0.01 or 70% of the lowest closing price for the twenty prior trading days. This note is unsecured and contains customary events of default for a loan of this type.   The Company received a default notice from Geebis Consulting LLC, but it was not executed.

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q of Regulation S-X. They do not include all information and footnotes required by GAAP for complete financial statements. The December 31, 2023 consolidated balance sheet data was derived from audited financial statements but do not include all disclosures required by GAAP. However, except as disclosed herein, there has been no material change in the information disclosed in the notes to the consolidated financial statements for the year ended December 31, 2023 included in the Company’s Annual Report on Form 10-K, as filed with the Securities and Exchange Commission on April 26, 2024. The interim unaudited condensed consolidated financial statements should be read in conjunction with those consolidated financial statements included in the Form 10-K. In the opinion of management, all adjustments considered necessary for a fair presentation of the financial statements, consisting solely of normal recurring adjustments, have been made. Operating results for the three months ended March 31, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024.

Derivative Liabilities

The Company issued debt that consists of the issuance of convertible notes with variable conversion provisions as described above. The conversion terms of the convertible notes are variable based on certain factors, such as the future price of the Company’s common stock. The number of shares of common stock to be issued is based on the future price of the Company’s common stock. Accordingly, the number of shares of common stock issuable upon conversion of the promissory note is indeterminate. Due to the fact that the number of shares of common stock issuable could exceed the Company’s authorized share limit, the equity environment is tainted, and all additional convertible debentures and warrants are included in the value of the derivative liabilities. Pursuant to ASC 815-15, “Embedded Derivatives,” the fair values of the variable convertible notes and shares to be issued were recorded as derivative liabilities on the issuance date and revalued at each reporting period. 

Based on the various convertible notes described above, the fair value of applicable derivative liabilities on notes and change in fair value of derivative liability are as follows as of March 31, 2024 and December 31, 2023: 

A summary of quantitative information with respect to valuation methodology and significant unobservable inputs used for the Company’s derivative liabilities that are categorized within Level 3 of the fair value hierarchy for the periods ended March 31, 2024 and December 31, 2023 is as follows:

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:

There were no transfers between Level 1, 2 or 3 during the three months ended March 31, 2024 and 2023.

During the three months ended March 31, 2024 and 2023, the Company recorded a gain of $188,020 and a gain of $30,593, respectively, from the change in fair value of derivative liability.

Note 12. Leases

Financing Leases

The Company has entered into a finance lease agreement for heavy machinery. The Company’s financing lease does not provide an implicit rate that can be readily determined. Therefore, the Company uses discount rates based on the incremental borrowing rate of its most recent external debt of 8%.

The Company’s remaining lease term relating to its financing lease is 2.67 years, with a weighted-average discount rate of 8%.

The Company incurred amortization expense for its financing lease of $4,097 and $3,255 during the three months ended March 31, 2024 and 2023, respectively, which was included in general and administrative expenses in the condensed consolidated statements of operations and comprehensive loss. During the three months ended March 31, 2024 and 2023, the Company made cash lease payments of $4,800 and $4,768, respectively. At March 31, 2024 and December 31, 2023, the financing lease right-of-use asset was $65,135 and $66,613, respectively, which is included in property and equipment, net, on the condensed consolidated balance sheets. At March 31, 2024 and December 31, 2023, the current portion of financing lease liability was $16,005 and $16,045, respectively, and the operating lease liability, net of current portion, was $29,681 and $34,570, respectively.

Operating Leases

In October 2023, the Company entered into a facility lease agreement with an unrelated party for an office and warehouse space located in Bargteheide, Germany. The monthly rental payments due, inclusive of taxes, are $15,356. The lease agreement is for a two-year term expiring on September 30, 2025. The Company also entered into a vehicle lease in October 2023 with an unrelated party with monthly payments of €741 for a three-year term expiring in October 2026.

The Company’s operating leases do not provide an implicit rate that can be readily determined. Therefore, the Company uses discount rates based on the incremental borrowing rate of its most recent external debt of 8%. 

The Company’s weighted-average remaining lease term relating to its operating leases is 1.60 years, with a weighted-average discount rate of 8%.

The Company incurred lease expense for its operating leases of $52,180 and $24,932 during the three months ended March 31, 2024 and 2023, respectively, which was included in general and administrative expenses in the condensed consolidated statements of operations and comprehensive loss. During the three months ended March 31, 2024 and 2023, the Company made cash lease payments of $52,180 and $24,932, respectively. At March 31, 2024 and December 31, 2023, the operating lease right-of-use asset was $244,516 and $287,334, respectively, the current portion of operating lease liability was $153,255 and $153,803, respectively, and the operating lease liability, net of current portion, was $91,261 and $133,531, respectively.

The following table presents information about the future maturity of the lease liabilities under the Company’s operating and financing leases as of March 31, 2024.

Note 13. Loans Payable

On March 7, 2024, the Company issued a promissory note to 1800 Diagonal Lending LLC in the principal amount of $147,775, which included an original issue discount of $19,275. This note includes a one-time interest charge of 12% applied on the issuance date to the principal amount, requires monthly payments commencing on September 15, 2024, and is due on December 15, 2024. This note is convertible only upon an event of default at a conversion price equal to 75% of the lowest trading price of the Company’s common stock during the ten trading days prior to conversion. This note is unsecured and contains customary events of default for a loan of this type.  

We note that there was a loan outstanding at March 31, 2024. We need a narrative similar to above for all outstanding notes during the periods covered.

Note 14. Related Party Transactions

Due to Officers

Amounts due to officers as of March 31, 2024 and December 31, 2023 are comprised of the following:

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

Officer Compensation

Accrued salaries represent amounts accrued in accordance with the employment agreements for Mr. Hofmeier, the Company’s Chief Technology Officer and Chairman of the Board, and Ms. Velazquez, the Company’s Chief Executive Officer and Vice-Chairman of the Board. Mr. Hofmeier and Ms. Velazquez are also significant stockholders.

Virhtech Gmbh

As of March 31, 2024 and December 31, 2023, the Company owed Virhtech Gmbh, a related party of the Company, $16,900 and $16,900, respectively, for services performed for the Company and is classified as accounts payable - related party on the condensed consolidated balance sheets.

Officer and Investor Deposits

On January 18, 2023, the Company issued 6,952,523 shares of common stock to officers for accrued salaries payable valued at $168,126.

For the three months ended March 31, 2024, the Company received deposits in the amount of $100,000 for 2,000,000 shares of common stock related to common stock subscriptions that were issued in May 2024.  

Note 15. Stockholders’ Deficit

Preferred Stock

The Company is authorized to issue 500,000,000 shares of preferred stock, $0.001 par value, of which 50,000,000 shares have been designated as series A preferred stock. As of March 31, 2024 and December 31, 2023, there were 9,780,976 shares of series A preferred stock issued and outstanding. The following is a description of the rights and preferences of the series A preferred stock. 

Dividend Rights. Upon the declaration of any dividends on the common stock, the series A preferred stock shall be treated pari passu with common stock, except that the dividend on each share of series A preferred stock shall be equal to the amount of the dividend declared and paid on each share of common stock multiplied by the conversion rate then in effect.

Liquidation Rights. In the event of any liquidation, dissolution or winding up of the Company, either voluntarily or involuntarily, the series A preferred stock shall be treated pari passu with the common stock, except that the payment on each share of series A preferred stock shall be equal to the amount of the payment on each share of common stock multiplied by the conversion rate then in effect.

Voting Rights. On any matter presented to stockholders for their action or consideration, each holder of outstanding shares of series A preferred stock shall be entitled to cast the number of votes equal to the number of shares of series A preferred stock held by such holder as of the record date for determining stockholders entitled to vote on such matter multiplied by the conversion rate then in effect. Except as provided by law or by the other provisions of the Company’s amended and restated articles of incorporation, holders of series A preferred stock shall vote together with the holders of common stock as a single class. In addition, so long as any share of series A preferred stock is outstanding, the Company shall not, without the written consent or affirmative vote of the holders of at least sixty-five percent (65%) of the then outstanding shares of series A preferred stock:

Conversion Rights. Each share of series A preferred stock is convertible, at the option of the holder thereof, at any time and from time to time, into such number of shares of common stock as is determined by multiplying the number of shares of series A preferred stock held by such holder by the conversion rate in effect at the time of conversion. In addition, upon either (i) the closing of the sale of shares common stock to the public in a firm commitment underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, resulting in at least $25 million of proceeds or (ii) the date and time, or the occurrence of an event, specified by the vote or written consent of the holders of at least sixty five percent (65%) of the then outstanding shares of series A preferred stock, all outstanding shares of series A preferred stock shall automatically be converted into shares of common stock at the conversion rate in effect at the time of conversion. The conversion rate is currently five (5) shares of common stock for each share of series A preferred stock, which is subject to standards adjustments for any stock splits, stock dividends, recapitalizations, reclassifications, mergers, consolidations or similar events.

Common Stock

The Company is authorized to issue 1,000,000,000 shares of common stock, $0.001 par value. As of March 31, 2024 and December 31, 2023, there were 277,695,682 and 268,040,179 shares of common stock outstanding, respectively.

During the three months ended March 31, 2024, the Company engaged in the following equity events:

During the three months ended March 31, 2023, the Company engaged in the following equity events:

Note 16. Commitments and Contingencies

Employment Agreements

On August 4, 2022, the Company entered into employment agreements with its Chief Technology Officer and Chairman of the Board, Ralph Hofmeier, and its Chief Executive Officer and Vice-Chairman of the Board, Irma Velazquez. Under the employment agreements, the employees are entitled to a base salary of $210,305 payable in arrears in accordance with the Company’s ordinary payroll policies and procedures. Additionally, in recognition of the employees’ past services, the Company agreed to pay each employee a lump sum cash signing bonus of $29,164, less payroll deductions and withholdings, and each individual will be eligible to receive a yearly bonus based on yearly profitability. Additionally, if certain performance milestones are met, each employee will be granted options to purchase shares of common stock. No options had been granted as of March 31, 2024. Any increase to the annual base salary is subject to approval by the Company’s board of directors. The employment agreements have indefinite terms.

Litigation

From time to time, the Company may be a defendant in pending or threatened legal proceedings arising in the normal course of its business. While the outcome and impact of currently pending legal proceedings cannot be predicted with certainty, the Company’s management and legal counsel believe that the resolution of these proceedings through settlement or adverse judgment will not have a material adverse effect on its operating results, financial position or cash flows.

Note 17. Subsequent Events

The Company has evaluated its operations subsequent to March 31, 2024 to the date these condensed consolidated financial statements were available to be issued and determined the following subsequent events and transactions required disclosure in these condensed consolidated financial statements.

On May 14, 2024, the Company issued an aggregate of 2,025,000 shares of common stock to Dale Johnson III at a per share price of $0.01.

On May 14, 2024, the Company issued an aggregate of 1,225,000 shares of common stock to Michael Henry Erbes at a per share price of $0.01.

On April 16, 2024, the Company received a default notice from 1800 Diagonal Lending LLC (See Note 13) requiring the immediate payment (as provided in the note) of a sum representing 160% of the remaining outstanding principal balance, together with accrued interest and default interest as provided for in the note.

On June 18, 2024, the Company formally dissolved its subsidiary EAWD Logistik. The decision to dissolve EAWD Logistik was driven by strategic realignment of the Company’s operations in Germany. After a thorough review, management determined that dissolving the subsidiary would better align with the Company’s long-term strategic goals and enhance overall operational efficiency.

The following management’s discussion and analysis of financial condition and results of operations provides information that management believes is relevant to an assessment and understanding of our plans and financial condition. The following financial information is derived from our financial statements and should be read in conjunction with such financial statements and notes thereto set forth elsewhere herein.

Use of Terms

Except as otherwise indicated by the context and for the purposes of this report only, references in this report to “we,” “us,” “our” and “our company” are to Energy and Water Development Corp., a Florida corporation, and its consolidated subsidiaries.

Special Note Regarding Forward-Looking Statements

This report contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, that are based on our management’s beliefs and assumptions and on information currently available to us. All statements other than statements of historical facts are forward-looking statements. These statements relate to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Forward-looking statements include, but are not limited to, statements about:

In some cases, you can identify forward-looking statements by terms such as “may,” “could,” “will,” “should,” “would,” “expect,” “plan,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “project” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions. You should not place undue reliance on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, which are, in some cases, beyond our control and which could materially affect results. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under “Risk Factors” included in our Registration Statement on Form S-1, originally filed with the Securities and Exchange Commission, or the SEC, on October 30, 2023, as amended . If one or more of these risks or uncertainties occur, or if our underlying assumptions prove to be incorrect, actual events or results may vary significantly from those implied or projected by the forward-looking statements. No forward-looking statement is a guarantee of future performance.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

The forward-looking statements made in this report relate only to events or information as of the date on which the statements are made in this report. Except as expressly required by the federal securities laws, there is no undertaking to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason.

Overview

We are an engineering services company formed as an outsourcing green tech platform focused on sustainable water and energy solutions. We are a United Nations “accredited vendor” and offer design, construction, maintenance and specialty consulting services to private companies, government entities, non-government organizations and intergovernmental organizations for the sustainable supply of energy and water.

We build sustainable water and energy systems out of existing, proven technologies, utilizing our intellectual property and our technical know-how to customize solutions to meet our clients’ needs. Using our patent-pending design, we are working to design, build, and operate off-the-grid atmospheric water generation systems in Mexico and the United States, as well as off-the-grid electric vehicle charging stations in Germany.

In order to effectively cater to our expanding operations in Germany, we have strategically established a branch for business operations in Germany, along with two wholly owned German subsidiaries: Energy and Water Development Deutschland GmbH and EAWD Logistik GmbH. Moreover, recognizing the importance of regional market demands, we have also extended our presence to Mexico through a wholly owned subsidiary, EAWD Mexico SAPI de CV, enhancing our capacity to address the needs of this area efficiently. This strategic positioning not only reflects our commitment to environmental progress but also ensures an optimized response to evolving market requirements.

To date, we have not generated any revenues from the sale of our sustainable water and energy solutions.

Recent Developments

On April 16, 2024, we received a default notice from 1800 Diagonal Lending LLC requiring the immediate payment of a sum representing 160% of the remaining outstanding principal balance, together with accrued interest and default interest, as provided for in the promissory note described below.

On June 18, 2024, we formally dissolved our subsidiary EAWD Logistik GmbH. The decision to dissolve this subsidiary was driven by strategic realignment of our operations in Germany. After a thorough review, management determined that dissolving the subsidiary would better align with our long-term strategic goals and enhance overall operational efficiency.

Results of Operations

Comparison of Three Months Ended March 31, 2024 and 2023

The following table sets forth key components of our results of operations during the three months ended March 31, 2024 and 2023.

General and administrative expenses. Our general and administrative expenses consist primarily of professional fees relating primarily to accounting, auditing and legal services; personnel expenses, including employee salaries and bonuses plus related payroll taxes; marketing expenses; travel and entertainment expenses; and rent expense, insurance, public reporting expenses and other expenses incurred in connection with general operations. Our general and administrative expenses increased by $111,014, or 22%, to $616,195 for the three months ended March 31, 2024 from $505,181 for the three months ended March 31, 2023. The largest element of the year-over-year change was an increase in professional fees of $26,307, or 20%, to $158,883 for the three months ended March 31, 2024 from $132,576 for the three months ended March 31, 2023 as a result of higher accounting fees, litigation fees and legal fees. Additionally, the increase in general and administrative expenses was due to an increase in other general and administrative expenses by $129,443, or 60%, which includes large increases in insurance and rent for the current year due to the new office and warehouse spaces.

Total other expense. We had $367,625 in total other expense, net, for the three months ended March 31, 2024, as compared to other expense, net, of $204,845 for the three months ended March 31, 2023. Other expense, net, for the three months ended March 31, 2024 consisted of interest expense of $177,688 loss  on change in  fair value of derivatives of $188,019  and other expense of $1,918, while other expense, net, for the three months ended March 31, 2023 consisted of a loss on settlement of liabilities of $196,159 and interest expense of $47,671, offset by change in fair value of derivatives of $30,593 and other income of $8,392. The loss on settlement of liabilities related to the issuance of an aggregate of 6,952,523 shares of common stock to officers in satisfaction of amounts owed to them.

Net loss. As a result of the cumulative effect of the factors described above, our net loss was $983,820 for the three months ended March 31, 2024, as compared to $710,026 for the three months ended March 31, 2023, an increase of $273,794, or 47%.

Liquidity and Capital Resources

As of March 31, 2024, we had $50,506 in cash. Our operating and capital requirements in connection with supporting our operations will continue to be significant. Since inception, our losses from operations and working capital requirements have been satisfied through the deferral of payment for services performed by our founders and related parties.

We have sustained operating losses since we began our operations in 2012. At March 31, 2024, we had an accumulated deficit of $28,755,111. We cannot predict how long we will continue to incur further losses or whether we will ever become profitable as this is dependent upon the reduction of certain expenses and success in obtaining project contracts, among other things. These conditions raise substantial doubt about our ability to continue as a going concern. Our financial statements were prepared on a going concern basis and do not include any adjustment with respect to these uncertainties.

Our ability to transition to profitable operations is dependent upon achieving a level of revenue adequate to support our cost structure. The timing and amount of our actual expenditures will be based on many factors, including cash flows from operations and the anticipated growth of our business and availability to sufficient resources.

Management is working to conclude the sales in Germany and in other regions of the world relating to previously approved proposals, which would bring a growing revenue. Management plans to expand sales operations by greater market penetration of the agricultural, industrial and community development markets with our innovative water and energy generation solutions. Management also plans to raise additional funds during 2024 through the issuance of equity securities, from deposits related to customer purchase orders, and, if necessary, loans from management and third-party lenders. Management also plans to reduce expenses by centralizing our assembly, logistics and administrative operations into a larger, self-sufficient, off-grid location that will be able to house the storage of supplies and inventory, as well as provide space for assembly and administrative operations. We are also planning to acquire our own electric vehicles to reduce our supply transportation costs.

The ability of our company to continue as a going concern depends upon its ability to generate sales or obtain additional funding to finance operating losses until it is profitable.

Summary of Cash Flow

The following table provides detailed information about our net cash flow for all financial statement periods presented in this report.

Our net cash used in operating activities was $405,116 for the three months ended March 31, 2024, as compared to $392,602 for the three months ended March 31, 2023. For the three months ended March 31, 2024, our net loss of $983,820, offset by a loss on partial extinguishment of convertible debt of $95,404 and a decrease in accounts payable and accrued expenses of $148,752, were the primary drivers of our net cash used in operating activities. For the three months ended March 31, 2023, our net loss of $710,026, offset by a loss on settlement of liabilities of $196,159, a decrease in amounts due to officers of $64,010 and amortization of debt discount and deferred financing costs of $43,157, were the primary drivers of our net cash used in operating activities.

Our net cash used in investing activities was $5,785 for the three months ended March 31, 2024, which consisted entirely of purchases of property and equipment, as compared to $0 for the three months ended March 31, 2023.

Our net cash provided by financing activities was $412,988 for the three months ended March 31, 2024, as compared to $541,409 for the three months ended March 31, 2023. Our net cash provided by financing activities for the three months ended March 31, 2024 consisted of proceeds from convertible notes of $150,000, proceeds from promissory notes $127,917, proceeds from stock subscriptions of $100,000, and proceeds from sale of common stock $40,000, offset by payments of finance lease liabilities of $4,929, while our net cash provided by financing activities for the three months ended March 31, 2023 consisted of proceeds from common stock subscriptions of $310,700 and proceeds from the sale of common stock of $233,500, offset by payments of finance leases of $2,791.

Convertible Notes 

On February 15, 2024, we issued an 8% convertible redeemable note in the principal amount of $150,000 to Geebis Consulting LLC. This note bears interest at a rate of 8% per annum and all principal and interest is due on August 15, 2024. Upon an event of default (as defined in the note), the interest rate shall increase to 24% per annum and certain other penalties may apply depending on the reason for the default. This note may be prepaid upon the payment of certain prepayment premiums. This note is convertible only after the maturity date at a fix conversion price of $0.04; provided that if the closing price of our common stock is below $0.03 for the five consecutive trading days prior to conversion, then the conversion price shall be equal to the lower of $0.01 or 70% of the lowest closing price for the twenty prior trading days. This note is unsecured and contains customary events of default for a loan of this type.

On June 30, 2023, we issued an 8% convertible redeemable note in the principal amount of $153,000 to GS Capital Partners, LLC. The note bears interest at 8% per annum and all principal and interest is due on June 30, 2024. Upon an event of default (as defined in the note), the interest rate shall increase to 24% per annum and certain other penalties may apply depending on the reason for the default. This note is convertible after six months at a fix conversion price of $0.03; provided that if the closing price of our common stock is below $0.03 for the ten consecutive trading days prior to conversion, then the conversion price shall be equal to the lower of $0.01 or 70% of the lowest closing price for the twenty prior trading days. On January 17, 2024, principal in the amount of $75,000, along with $3,238 in interest and $900 in other fees was converted into 7,913,836 shares of common stock.

Promissory Note

On March 7, 2024, we issued a promissory note to 1800 Diagonal Lending LLC in the principal amount of $147,775, which included an original issue discount of $19,275. This note includes a one-time interest charge of 12% applied on the issuance date to the principal amount, requires monthly payments commencing on September 15, 2024, and is due on December 15, 2024. This note is convertible only upon an event of default at a conversion price equal to 75% of the lowest trading price of our common stock during the ten trading days prior to conversion. This note is unsecured and contains customary events of default for a loan of this type.

Contractual Obligations

Our principal commitments consist mostly of obligations under the loans described above.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Critical Accounting Policies

The preparation of the unaudited condensed consolidated financial statements requires our management to make estimates and assumptions that affect the reported amounts of assets, liabilities, expenses, and related disclosure of contingent assets and liabilities. On a regular basis, we evaluate these estimates. These estimates are based on management’s historical industry experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.

For a description of the accounting policies that, in management’s opinion, involve the most significant application of judgment or involve complex estimation and which could, if different judgment or estimates were made, materially affect our reported financial position, results of operations, or cash flows, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 filed with the SEC on April 26, 2024.

Not applicable.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

As required by Rule 13a-15(e) of the Exchange Act, our management has carried out an evaluation, with the participation and under the supervision of our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as of March 31, 2024. Based upon, and as of the date of this evaluation, our chief executive officer and chief financial officer determined that, because of the material weaknesses described in Item 9A “Controls and Procedures” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, which we are still in the process of remediating as of March 31, 2024, our disclosure controls and procedures were not effective. Investors are directed to Item 9A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 for the description of these weaknesses.

Remediation of Material Weaknesses in Internal Control Over Financial Reporting

We have evaluated the material weakness described above and our management and board of directors are committed to the design and successful implementation of internal control over financial reporting as promptly as possible. We currently plan to evaluate our updated internal controls design and determine whether the controls have operated effectively during 2024 in order to fully remediate the aforementioned material weakness in our internal control over financial reporting.

As disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, our management has identified the steps necessary to address the material weaknesses, and in the first quarter of 2024, we continued to implement the following remedial procedures:

We intend to complete the remediation of the material weaknesses discussed above as soon as practicable, but we can give no assurance that we will be able to do so. Designing and implementing an effective disclosure controls and procedures is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to devote significant resources to maintain a financial reporting system that adequately satisfies our reporting obligations. The remedial measures that we have taken and intend to take may not fully address the material weaknesses that we have identified, and material weaknesses in our disclosure controls and procedures may be identified in the future. Should we discover such conditions, we intend to remediate them as soon as practicable. We are committed to taking appropriate steps for remediation, as needed.

Changes in Internal Control Over Financial Reporting

Other than in connection with the implementation of the remedial measures described above, there were no changes in our internal controls over financial reporting during the first quarter of 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II

OTHER INFORMATION

From time to time, we may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these, or other matters, may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse effect on our business, financial condition or operating results.

Not applicable.

Except as set forth below, we have not sold any equity securities during the three months ended March 31, 2024 that were not previously disclosed in a current report on Form 8-K that was filed during the quarter.

On February 13, 2024, we sold 700,000 shares of common stock to a third party at a per share price of $0.021.

On March 7, 2024, we sold 1,041,667 shares of common stock to a third party at a per share price of $0.024.

We did not repurchase any shares of our common stock during the three months ended March 31, 2024.

None.

Not applicable.

During the quarter ended March 31, 2024, no director or officer of the Company adopted or terminated a contract, instruction or written plan for the purchase or sale of securities of the Company intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) and/or a non-Rule 10b5-1 trading arrangement.

______________ 

*Filed herewith

** Furnished herewith 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.