Notes to Consolidated Financial Statements
Note 1. Incorporation and Nature of Operations
Energy and Water Development Corp. (formerly Eurosport Active World Corp.) (the Corporation, Company or EAWD), was incorporated under the laws of the State of Florida on December 12, 2007. In September, 2019, the Company changed its name from Eurosport Active World Corp. to Energy and Water Development Corp. to better present the Companys purpose and business sector. We are an engineering services company formed as an outsourcing green tech platform, seeking to exploit renewable energy and water technologies.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of Energy and Water Development Corp. (formerly 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. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the periods presented have been reflected herein.
Certain reclassifications have been made in Fiscal 2018 results to conform to the presentation used in Fiscal 2019. These reclassifications had no effect on the reported results of operations of the Company.
Use of Estimates
The preparation of consolidated 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 consolidated financial statements include estimates relating to the determination of impairment of assets, assessment of going concern, the useful life of property and equipment, the determination of the fair value of stock-based compensation, and the recoverability of deferred income tax assets.
Cash and Cash Equivalents
The Company considers short-term interest-bearing investments with initial maturities of three months or less to be cash equivalents. The Company has no cash and cash equivalents at December 31, 2019 and 2018.
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.
F-7
Energy and Water Development Corp.
(Formerly Eurosport Active World Corp.)
Notes to Consolidated Financial Statements
Note 2. Summary of Significant Accounting Policies (continued)
The application of the three levels of the fair value hierarchy under ASC Topic 820-10-35, our derivative liabilities as of December 31, 2019 and December 31, 2018, were $413,795 and $0, respectively and measured on Level 3 inputs.
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 managements 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, 2019 and 2018, the Corporation does not believe any uncertain tax positions exist that would result in the Corporation having a liability to the taxing authorities. The Corporations 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 consolidated statement of operations. The Corporations tax returns for the years ended 2012 through 2018 are subject to examination by the federal and state tax authorities. The Corporations tax returns for the tax year ended 2019 have not been filed.
Stock-Based Payments
In June 2018, the FASB issued ASU 2018-07, Improvements to Non-Employee Share-Based Payment Accounting, which simplifies the accounting for share-based payments granted to non-employees for goods and services by expanding the scope of ASC Topic 718, Compensation Stock Compensation. The guidance is effective for public companies for fiscal years, and interim fiscal periods within those fiscal years, beginning after December 15, 2018. The adoption of ASU 2018-07 did not have a significant impact on the Companys consolidated financial statements.
The Corporation follows ASC 718, Compensation Stock Compensation, in accounting for its stock-based payments. This standard states that compensation cost or the value of stock issued for services is measured at the grant date based on the value of the stock granted and is recognized over the vesting or service period.
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.
For the years ended December 31, 2019 and 2018, 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.
F-8
Energy and Water Development Corp.
(Formerly Eurosport Active World Corp.)
Notes to Consolidated Financial Statements
Note 2. Summary of Significant Accounting Policies (continued)
As discussed more fully in Note 6, convertible note holders have the option of converting their loans into common shares commencing on February 19, 2019, the completion of an approved S-1 registration of its common shares. Some note holders were also granted warrants to purchase additional shares, however these warrants expired after one year from the date of the note. Convertible note holders began exercising their conversion feature in Q2 2019 and as of December 31, 2019, had converted $546,824 of debt into 4,877,350 common shares. If the remaining convertible note holders of unexercised notes exercised their conversion feature and additional purchase option, they would represent 5,380,000 and 4,917,350 in additional common shares at December 31, 2019 and December 31, 2018, 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:
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(i)
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any person that holds 10% or more of the Companys securities including such persons immediate families,
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(ii)
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the Companys management,
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(iii)
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someone that directly or indirectly controls, is controlled by or is under common control with the Company, or
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(iv)
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anyone who can significantly influence the financial and operating decisions of the Company.
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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 Corporations 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 impact on our financial statements.
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 $11,944,919 at December 31, 2019. During the year ended December 31, 2019, the Corporation incurred net losses of $928,615. The Company also incurred a working capital deficit of $4,360,260 at December 31, 2019.
These factors raise substantial doubt regarding the Corporations ability to continue as a going concern. The ability of the Corporation to continue as a going concern depends upon its ability to obtain funding to finance operating losses until the Corporation is profitable. The Corporation expects to be financed through equity capital, debt financing or from deposits related to purchases orders on proposals pending customer acceptance.
F-9
Energy and Water Development Corp.
(Formerly Eurosport Active World Corp.)
Notes to Consolidated Financial Statements
Note 4. Going Concern (continued)
In the event the Corporation does not generate sufficient funds from issuance of common stock, debt financing or purchase orders, it may be unable to fully implement its business plan and pay its obligations as they become due, any of which circumstances would have a material adverse effect on its business prospects, financial condition, and results of operations. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.
Note 5. Related Party Transactions
Due to officers
Amounts due to officers as of December 31, 2019 and 2018 are comprised of the following:
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2019
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2018
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Ralph Hofmeier:
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Unsecured advances due to officer
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$
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17,778
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$
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17,678
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Accrued salaries
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1,175,000
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1,025,000
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Total due to Ralph Hofmeier
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1,192,778
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1,042,678
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Irma Velazquez:
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Unsecured advances due to officer
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20,992
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38,490
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Accrued salaries
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1,063,000
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913,000
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Total due to Irma Velazquez
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1,083,992
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951,490
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$
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2,276,770
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$
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1,994,168
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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 Corporations Chief Executive Officer and Chief Operating Officer but unpaid as of December 31, 2019 and 2018. As discussed further in Note 10, on January 9, 2020, accrued salaries totaling $2,238,000 were paid with the issuance of 2,044,190 shares of common stock and 3,780,976 shares of Series A preferred stock.
Due to affiliate
Effective February 1, 2013, the Corporation entered into an exclusive 10 year Technology Transfer Agreement and License Agreement (the Technology Transfer and License Agreement) with Swiss Water Tech Research & Development S.A. (SWATE), an entity owned and controlled by the Corporations Chief Executive Officer and Chief Operating Officer who are the primary beneficiaries. Under the terms of the agreement, SWATE:
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·
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will transfer to the Corporation the license to manufacture products developed by SWATE;
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·
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will provide all know-how and technical assistance necessary for the exploitation of their licensed patents and the manufacture of certain products; and
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·
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will grant the Corporation the use of certain related trademarks.
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During the ensuing years, the Corporation did not generate any revenue as a result of the products and licenses related to the Technology Transfer and License Agreement, accordingly the Corporation was only required to pay to SWATE a minimum annual royalty fee stipulated in the agreement. During 2013 the Corporation accrued the minimum fee of approximately $542,000 in accordance with the terms of the agreement, which was settled in 2014. Subsequently, SWATE waived licenses fees for the years ended December 31, 2014, 2015, 2016 and 2017.
F-10
Energy and Water Development Corp.
(Formerly Eurosport Active World Corp.)
Notes to Consolidated Financial Statements
Note 5. Related Party Transactions (continued)
On January 5, 2018, the parties terminated the Technology Transfer and License Agreement. Further, it was agreed that the Company was entitled to manufacture the products only and exclusively for the concept of waste to energy without having to pay any further royalties until February 1, 2023. Effective with the termination of the Technology Transfer and License Agreement, all commercial activities between SWATE and the Company ceased.
Effective February 1, 2013, the Corporation also entered into an International Service Contract with SWATE (the SWATE Service Contract). Under this agreement, SWATE provided operations management, engineering and technical services to the Corporation. The SWATE Service Contract has a term of five years, and provides for a monthly service fee of $35,000, plus out-of-pocket expenses.
On November 1, 2016, SWATE and the Corporation executed a Termination of its International Services Contract effective from December 31, 2016. It was further agreed that the outstanding balance at December 31, 2016 of $712,070 would be settled with the issuance of 712,070 restricted common shares of the Company. EAWC issued 712,070 shares on February 2, 2018, which were fair valued at $85,448. The difference of $626,622 was accounted for as a capital contribution from a related party.
Note 6. Other Current Liabilities
Due to affiliate distributor
Effective January 2017 the Company engaged EAWC Tecnologias Verdes, SA (EAWC-TV) to provide management services, including disbursement processing for $25,000 per month, totaling $300,000 annually. During the first quarter of 2017 and prior, EAWC-TV had been a borrower from EAWD. But starting in the second quarter of 2017 EAWC-TC began repaying EAWD. The balance due to at December 31, 2017 had decreased to $116,643. In April 2018, EAWC-TV completed the repayment of all funds previously borrowed from EAWD and continued to remit its own funds to EAWD suppliers on behalf of EAWD and in satisfaction of EAWD obligations to its suppliers. During the year ending December 31, 2018, EAWC-TV provided $300,000 of services plus $3,620 net in interest and remitted $170,483 to vendors in satisfaction of EAWD obligations. EAWD also remitted $20,000 to EAWC-TV. The balance due to EAWC-TV by EAWD at December 31, 2018 was $298,313.
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.
F-11
Energy and Water Development Corp.
(Formerly Eurosport Active World Corp.)
Notes to Consolidated Financial Statements
Note 6. Other Current Liabilities (continued)
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 EAWDs 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 Companys 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 December 31, 2019 and 2018, the balance of convertible loans payable net of discount was $243,923 and $586, 825, respectively. The notes 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 are due on demand, unsecured, have no maturity date and are generally non-interest bearing although a few of the notes provide for 2% interest. The note holders have the option to convert the loans into 4,917,350 common shares at conversion prices ranging from $1.00 to $.05 per share. The conversion feature is exercisable for one year after the issuance date of the note. For older notes with expired conversion options, management granted an extension as requested.
These convertible loans, issued in 2018 and prior, were determined to be solely debt without an equity portion as the Company has determined that these conversion options issued are not beneficial. As such, these convertible debentures have no equity portion and are presented as loans payables in the financial statements. The transaction price for these loans payable reflects the fair value of the instruments issued.
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 December 31, 2019 and December 31, 2018, the Company had outstanding convertible loans in this form of $40,000 and $586,825, respectively.
Convertible notes with beneficial conversion feature
During the first quarter of 2019, the Company issued two unsecured, convertible loans payable one for $50,000 and one for $48,000 which are due on February 19, 2020. The $50,000 note accrues no interest whereas the $48,000 note accrues interest at 2% per annum. Combined, the notes are convertible into 1,960,000 shares of the Companys 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 determined 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 year ended December 31, 2019 and 2018 the Company amortized debt discount of $89,852 and $0, respectively. As of December 31, 2019 and December 31, 2018, the Company had outstanding convertible loans with a beneficial conversion feature of $98,000 and $0, respectively, less unamortized debt discount of $8,148 and $0, respectively.
F-12
Energy and Water Development Corp.
(Formerly Eurosport Active World Corp.)
Notes to Consolidated Financial Statements
Note 7. Convertible Loans Payable (continued)
As discussed further below, on August 7, 2019, the Company entered into an $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:
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Assumptions
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08/07/19
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12/31/19
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(1) dividend yield of
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0%
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0%
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(2) expected volatility of
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232.19%
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98.05%
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(3) weighted average risk-free interest rate of
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1.75%
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1.48%
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(4) expected life of
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.46 years
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0.06 years
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(5) estimated fair value
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$0.2847
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$0.1450
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The derivative liability related to these convertible notes was $413,795 and $0 as of December 31, 2019, and 2018, respectively. During the years ended December 31, 2019 and 2018, the Company recorded a gain of $255,505 and $0, respectively, related to the change in fair value on the convertible notes.
Convertible notes with a variable conversion feature
On August 7, 2019, the Company entered into an $110,000 8%, unsecured, 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 holders 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.
The fair value of the embedded derivatives was determined using the Black Scholes Option Pricing Model based on the following assumptions:
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Assumptions
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08/07/19
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12/31/19
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(1) dividend yield of
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0%
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0%
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(2) expected volatility of
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316.63%
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215.22%
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(3) weighted average risk-free interest rate of
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1.75%
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1.60%
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(4) expected life of
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1.00 years
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0.72 years
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(5) estimated fair value
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$0.2983
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$0.1409
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F-13
Energy and Water Development Corp.
(Formerly Eurosport Active World Corp.)
Notes to Consolidated Financial Statements
Note 7. Convertible Loans Payable (continued)
At the inception of the note, August 7, 2019, the Company determined the aggregate fair value of the embedded derivatives was $183,809 which resulted in a $73,809 loss from fair value charged to current period operations. 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. The loss for the period due to change in fair value was $19,477. For the years ended December 31, 2019 and 2018 the Company also had a note balance of $110,000 and $0, respectively, less $70,540 and $0 of unamortized note discount, respectively. As of December 31, 2019 and December 31, 2018, the Company had an outstanding derivative liability of $129,477 and $0, respectively.
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Fair value as of December 31, 2018
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$
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Fair value on the date of issuance recorded as debt discount
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183,809
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Fair value on the date of issuance recorded as loss on derivative
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(73,809
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)
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Gain on change in fair value of derivatives
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(255,505
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)
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Reclassification of tainted notes to derivative
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559,300
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Fair value as of December 31, 2019
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$
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413,795
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Convertible notes with purchase option
On or about November 19, 2019, the Company issued two Non-interest bearing convertible notes aggregating $122,000. The notes mature 1 year from issuance and are convertible into 610,000 shares of common stock or $0.20 per share. The notes also contained an option to purchase an additional 610,000 for $0.20 per share. We evaluate the notes under ASC 815-40-25-39 and determined that they were conventional convertible notes as they do not have an adjustable conversion option.
The fair value of the purchase option was determined using the Black Scholes Option Pricing Model based on the following assumptions:
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Assumptions
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11/19/19
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(1) dividend yield of
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0%
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(2) expected volatility of
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242.12%
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(3) weighted average risk-free interest rate of
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1.53%
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(4) expected life of
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1.00 years
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(5) estimated fair value
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$0.1027
|
At the inception of the note, the Company determined the relative fair value of the purchase option was $54,159. As of December 31, 2019 and December 31, 2018, the Company had outstanding convertible loans with a purchase option of $122,000 and $0, respectively, less unamortized debt discount of $47,389 and $0, respectively. For the year ended December 31, 2019 and 2018 the Company amortized debt discount of $6,770 and $0, respectively.
Note 8. Shareholders Deficit
Preferred Stock
Authorized: 500,000,000 shares of voting preferred stock with a par value of $0.001. No shares issued or outstanding.
Common Stock
Authorized: 1,000,000,000 shares of voting common stock with a par value of $0.0001.
During fiscal 2018, the Company issued 712,070 of common shares to a related party in satisfaction of an outstanding liability. The transaction was valued at $85,448, however, since a related party was involved, $626,622 of value was recorded as a capital contribution.
F-14
Energy and Water Development Corp.
(Formerly Eurosport Active World Corp.)
Notes to Consolidated Financial Statements
Note 8. Shareholders Deficit (continued)
During fiscal 2019, the Company sold 211,200 shares of common stock to investors providing $43,200 in proceeds and issued 420,000 shares as payment of $126,000 for services. The Company also issued 4,877,350 shares in satisfaction of $546,824 in convertible notes. In addition, the Company recorded 40,000 valued at $40 in par value of conditional shares issued to shareholders.
Note 9. Stock Option Plan
On January 2, 2012, the Corporations Board of Directors approved the creation of the 2012 Non-Qualified Stock Option Plan (the 2012 Plan). The 2012 Plan provides for the issuance of incentive stock options to designated employees, certain key advisors and non-employees members of the Board of Directors with the opportunity to receive grant awards to acquire, in the aggregate, up to 5,000,000 shares of the Corporations common stock.
A summary of information regarding the Corporations common stock options outstanding is as follows:
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Weighted
|
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|
|
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Average
|
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Weighted
|
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Remaining
|
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Number of
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Average
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Contractual
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Shares
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Exercise Price
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Term (Years)
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Outstanding at December 31, 2017
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2,200,000
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|
$
|
0.10
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|
|
3.0
|
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Issued
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Exercised
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Outstanding at December 31, 2018
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2,200,000
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|
|
0.10
|
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|
|
2.0
|
|
Issued
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Exercised
|
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|
|
|
|
|
|
|
|
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|
|
Outstanding at December 31, 2019
|
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|
2,200,000
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|
|
$
|
0.10
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|
|
|
1.0
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|
The above outstanding options were granted on January 1, 2012, to a former Corporations executive. The options vest 20,000 options per month with 2,200,000 being vested and exercisable at December 31, 2018. During the years ended December 31, 2019 and 2018, the Corporation did not recognize any stock-based compensation expense as the options were fully vested at December 31, 2016.
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 Corporations 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
On March 1, 2016, the Corporation leased US office space at 3250 Mary Street, Suite 303 Coconut Grove FL 33133 USA from its counsel for monthly rent payments of $300 on a month to month basis. Rent was waived from March 2016 through July 2017. Rent expense in the years ending December 31, 2019 and 2018 amounted to $2,736 and $3,600, respectively.
F-15
Energy and Water Development Corp.
(Formerly Eurosport Active World Corp.)
Notes to Consolidated Financial Statements
Note 10. Commitments and Contingencies (continued)
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 Corporations 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.
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. This remains the current situation.
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.
EAWD vs Packard and Co-Defendant Nick Norwood - Case number 18-031011 CA-01 Miami-Dade County Circuit Court.
The company is requesting the proof of payment for shares issued in 2008.
Note 11. Income Taxes
On December 22, 2017, the US Congress enacted the Tax Cuts and Jobs Act (Tax Reform Legislation), which made significant changes to US federal income tax law affecting us including a reduction in the corporate tax rate to 21% for tax years beginning with 2018. These changes will impact changes in our valuation allowance, components of our tax rate reconciliation and realization of loss carryforwards.
The Company maintains deferred tax assets and liabilities that reflect the net tax effects of temporary differences between carrying amounts of the assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The net deferred tax asset has been fully offset by a valuation allowance because of the uncertainty of the attainment of future taxable income. The Company did not have an income tax provision or benefit for the year ended December 31, 2019 and 2018. The Company has incurred losses and therefore has provided a full valuation against net deferred tax assets as December 31, 2019 and 2018.
The items accounting for the difference between income taxes at the effective statutory rate and the provision for income taxes for the year ended December 31, 2019 and 2018 were as follows:
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|
|
|
|
|
|
|
|
|
|
2019
|
|
|
2018
|
|
Income tax benefit at U.S. statutory rate of 21%
|
|
|
|
|
|
|
Net operating loss carryforward
|
|
$
|
(125,809
|
)
|
|
$
|
(168,218
|
)
|
State income tax net of Federal benefits
|
|
|
(26,030
|
)
|
|
|
(34,805
|
)
|
Adjustment to 2018 NOL carryforward to 21% tax rate
|
|
|
|
|
|
|
1,071,247
|
|
Non-deductible expenses
|
|
|
|
|
|
|
|
|
Change in valuation allowance
|
|
|
151,839
|
|
|
|
(868,224
|
)
|
|
|
|
|
|
|
|
|
|
Total provision for income tax
|
|
$
|
|
|
|
$
|
|
|
F-16
Energy and Water Development Corp.
(Formerly Eurosport Active World Corp.)
Notes to Consolidated Financial Statements
Note 11. Income Taxes (continued)
The Companys approximate net deferred tax assets as of December 31, 2019 and 2018 were as follows:
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|
|
|
|
|
|
2019
|
|
|
2018
|
|
Deferred tax assets
|
|
|
|
|
|
|
Net operating loss carryforward
|
|
$
|
2,022,693
|
|
|
$
|
1,870,854
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
2,022,693
|
|
|
|
1,870,854
|
|
Valuation allowance
|
|
|
(2,022,693
|
)
|
|
|
(1,870,854
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
|
|
|
$
|
|
|
Net operating loss carry-forwards in the amount of approximately $7.9 million will expire beginning December 31, 2033.
The net change in the valuation allowance for the years ended December 31, 2019 and 2018 was an increase of $151,839 and a decrease of $868,224, respectively. The valuation allowance increased as a result of losses in the current period.
Note 12. Subsequent Events
·
The Company has begun the process of registration for a branch in Hamburg, Germany, but intends to maintain its principal place of business in the United States. The Company has initiated an agreement with Florida Registered Agent LLC to provide a registered address, mail and call forwarding services. The contract is renewable annually.
·
On January 9th, 2020, written consent was signed by board of Directors to amend and restated articles of incorporation of EAWD to provide for 3,780,976 shares of a new class of Series A preferred Stock. The Series A preferred shares are voting at the conversion rate, receive dividends at the conversion rate and are convertible at 1 Series A share for 5 common shares.
·
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.
·
Between February 12, 2020 and March 6, 2020, the Company entered into seven convertible notes with private lenders, that accrue no interest, are unsecured mature in one year and are convertible at $0.10 per share. The Company raised $97,000 in which can be converted into 970,000 common shares. The note holders have a warrant to acquire an additional 970,000 shares.
·
On January 23, 2020 and February 27, 2020, the Company entered into two convertible notes with an equity lender, that accrues 8% interest, mature in one year and are convertible at variable rates based on 70% of market price of the common shares trailing 20 days. The Company raised $120,000 net of $10,000 of original issue discount.
·
In February and March 2020 the Company issued a total of 738,311 shares of common stock to a lender to convert $38,500 of debt.
F-17