Item 7. Management’s Discussion and Analysis
Item 7. Management’s discussion and
analysis of financial condition and results of operations.
The following discussion and analysis of the
Company’s financial condition and results of operations should be read in conjunction with our audited consolidated financial statements
and the notes related thereto which follow Item 16 of this Annual Report on Form 10-K. Certain information contained in the discussion
and analysis set forth below includes forward-looking statements. Our actual results may differ materially from those anticipated in
these forward-looking statements as a result of many factors, including those set forth under “Cautionary Note Regarding Forward-Looking
Statements,” “Item 1A. Risk Factors” and elsewhere in this Annual Report on Form 10-K.
Unless otherwise indicated or the context
otherwise requires, references in this Holdco Management’s Discussion and Analysis of Financial Condition and Results of Operations
to the company, “we,” “us” “our,” “Holdco” and other similar terms refer to Rain Enhancement
Technologies Holdco, Inc. on a consolidated basis.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
We were founded to provide the world with reliable
access to water, one of life’s most important resources. To achieve this mission, we aim to develop, manufacture and commercialize
ionization rainfall generation technology.
We are combining unique expertise and personnel to develop, improve
and undertake efforts to commercialize ionization rainfall generation technology that enhances rainfall when conditions are appropriate
in the atmosphere. We are building our core platform with software, meteorology, hardware, product design and operations to make rainfall
generation more dependable. We aim to improve on existing rainfall generation technologies by introducing robust measurement tools, including
automation technology, rain gauges, and weather stations, to more precisely quantify the positive water benefit it expects to deliver
to millions globally.
We intend to develop, invent, improve, manufacture, commercialize and
operate technologies that enhance rainfall and elevate water reserves. We believe that our future services will yield potable water that
can be used for all purposes. The projected cost (not including land costs, which are still being determined) and energy requirements
for our future technology are modest on a per gallon basis for communities and ecosystems, estimated to be $0.10 per cubic meter, approximately
10 times less than other alternative technologies. We aim to enhance agricultural, industrial and household water supplies for all the
communities in which we operate by developing technology and services to serve governmental and commercial clients’ needs in creating
water resiliency and abundancy.
Our business model is based on a unique one-to-many community-centric
business model. The numerous client segments to which we market includes large landowners including agriculture, resorts, energy and transportation
companies, insurance and reinsurance companies, decarbonization initiatives of major corporations and philanthropists, supranational governmental
organizations, and city, county, state, federal and non-U.S. governments. In addition, we aim to leverage our offerings and enhance our
potential market position by exploring ways to expand our future water generation products through licensing and acting as a channel partner
for additional water generation technologies.
Since the beginning of 2025 we have created new marketing and sales
programs, identified and contacted potential customers in core market segments, expanded our contacts with rain enhancement experts who
could endorse our technology and introduce us into existing projects looking to address lack of rainfall, and organized our production
of systems to serve expected demand.
We have a limited operating history and have not yet generated any
revenue, and our ability to generate revenue sufficient to achieve profitability will depend on our ability to successfully build and
commercialize rainfall generation technology and successfully execute our sales strategy.
Business Combination
On the Closing Date, Coliseum, RWT, Holdco, Merger
Sub 1, and Merger Sub 2 consummated the Business Combination pursuant to the terms of the Business Combination Agreement.
43
Pursuant to the Business Combination Agreement,
on the Closing Date, the Mergers occurred, and, after giving effect to such Mergers, the Closing occurred. Following the Closing, Holdco
holds all of the equity interests of RWT and Merger Sub 1.
The Business Combination was treated as a reverse
recapitalization in accordance with U.S. GAAP. Under this method of accounting, Coliseum was treated as the “acquired” company
for financial reporting purposes. Accordingly, for accounting purposes, the Business Combination was treated as the equivalent of RWT
issuing stock for the net assets of Coliseum, accompanied by a recapitalization. The net assets of Coliseum were stated at historical
cost, with no goodwill or other intangible assets recorded.
Our common stock and warrants commenced trading
on the Nasdaq Stock Market LLC under the symbols “RAIN” and “RAINW”, respectively, on January 2, 2025.
PIPE Subscriptions
In connection with the Closing, Holdco entered
into the PIPE Subscription Agreements with the PIPE Investors and related parties to sell an aggregate of $1.35 million of shares of Holdco
Class A Common Stock at $11.39 per share, of which Holdco received $700,000 of the PIPE Investment and recorded a subscription receivable
of $650,000 on the consolidated balance sheet as of December 31, 2024. Such receivable was fully paid on February 6, 2025.
On the Closing Date, the Company closed on $700,000 of investment pursuant
to the PIPE Subscription Agreements and issued an aggregate of 61,474 shares of Class A Common Stock to the PIPE Investors and recorded
a subscription receivable of $650,000 from two PIPE Investors for the purchase of 57,083 shares of Class A Common Stock. On January 29,
2025, the Company closed $500,000 of such subscription receivable pursuant to the PIPE Subscription Agreements and issued an aggregate
of 43,910 shares of Class A Common Stock to the PIPE Investors. On February 6, 2025, the Company closed on the remaining $150,000 of subscription
receivable pursuant to the PIPE Subscription Agreements and issued an aggregate of 13,173 shares of Class A Common Stock to the PIPE Investors.
Forward Purchase Agreement with Meteora
On December 30, 2024, Holdco entered into a forward
purchase agreement (the “Forward Purchase Agreement”) with Meteora Capital Partners, LP and affiliated funds (“Meteora”)
for an OTC equity prepaid forward transaction. An aggregate of 361,858 shares of Holdco Class A Common Stock (the “Forward Purchase
Shares”) are subject to the Forward Purchase Agreement, for which Meteora was paid approximately $4.1 million at Closing (the “Prepayment”)
and we retained approximately $20,000 (the “Prepayment Shortfall”). The Forward Purchase Agreement matures on the date of
the effectiveness of a certain registration statement filed by Holdco with the Securities and Exchange Commission following the Closing
Date (the “Maturity Date”). Meteora may sell the Forward Purchase shares at any time following the Closing Date until the
Maturity Date at a price not less than $10.00 per share. If Meteora sells any of the Forward Purchase Shares, Meteora will pay to Holdco
$10.00 for each share sold, less the Prepayment Shortfall. On Maturity Date, any Forward Purchase Shares that have not been sold by Meteora
will be returned to us for no consideration, provided that if the proceeds of the shares sold by Meteora prior to the Maturity Date is
less than the Prepayment Shortfall, then we will pay cash to Meteora in an amount equal to such difference.
Loan Agreement with an Affiliate of Harry You
On December 30, 2024, Holdco entered into the Loan Agreement with RHY,
an affiliate of Harry You, pursuant to which RHY committed to provide Holdco with up to $7 million in new loans. Prior to each drawdown,
pursuant to the Loan Agreement, Holdco must certify to RHY, among other things, that it has used its best efforts to raise equity, equity-linked,
or debt financing on terms available in the market to a similarly-situated company in similar circumstances, and is unable to obtain alternate
financing in the amount of such drawdown. Once amounts are borrowed, they may not be re-borrowed. Additionally, Mr. You agreed to roll
over an aggregate of approximately $3.1 million of loans and advances owed to him or to his affiliates by Coliseum and RWT into the Loan
Agreement and such amounts will be treated for all purposes as loans outstanding pursuant to the Loan Agreement (which, for the avoidance
of doubt, does not decrease the $7 million commitment). As of the date of this Annual Report, Holdco has borrowed an additional $839,000
of new funds under the Loan Agreement.
44
Recent Developments
Appointment of Directors
On April 1, 2025, the Board increased the size
of the Board from five to seven directors and appointed Mr. Marcus Peperzak and Mr. Robert Reardon to fill the resulting vacancies. Mr.
Reardon was appointed to serve as a Class I director with a term expiring at the Company’s first annual meeting of stockholders.
Mr. Peperzak was appointed to serve as a Class II director with a term expiring at the second annual meeting of stockholders. Following
the appointment, Mr. Peperzak and Mr. Reardon serve on the Audit Committee.
In connection with this appointment, Mr. Reardon
and Mr. Peperzak each entered into a Director Agreement (as defined below) that is consistent with the Company’s form of Director
Agreement. Under the Director Agreement, members of the Board will receive compensation for service on the Board and on committees of
the Board consisting of the following: (i) subject to approval by the Board and compensation committee of the Board (the “Compensation
Committee”), a cash payment of $12,500 promptly following attendance at each quarterly Board meeting, for a total annual cash compensation
of $50,000; and (ii) at the beginning of each year of service, and subject to approval by the Board and the Compensation Committee, a
grant of restricted stock, with the number of shares determined by dividing $100,000 by the closing price of the Company’s Class
A common stock, par value $0.0001 per share (“Class A Common Stock”) as reported on the Nasdaq Stock Market LLC on the date
of the grant. The restricted stock granted pursuant to the Director Agreement will vest in full on the first anniversary of the grant
date, subject to acceleration in accordance with the terms of the restricted stock award or the Company’s 2024 Incentive Award Plan.
Additionally, effective as of April 4, 2025, the
Company entered into Director Agreements with Lyman Dickerson, Alexandra Steele, and Christopher Riley, each non-employee members of the
Board. The terms of the Director Agreements are consistent with the Company’s standard form of Director Agreement described above,
except with respect to the grants of restricted stock to Mr. Dickerson and Mr. Riley, which are as follows: (i) subject to approval by
the Board and the Compensation Committee, in lieu of an annual grant of restricted stock, Mr. Dickerson will receive an initial grant
of restricted stock equal to the number of shares determined by dividing $2,000,000 by the closing price of the Class A Common Stock on
the date of grant, and such grant of restricted stock will vest in full on the third anniversary of the grant date, subject to acceleration
in accordance with the terms of the restricted stock award or the Company’s 2024 Incentive Award Plan, and (ii) subject to approval
by the Board and the Compensation Committee, Mr. Riley will receive an annual grant of restricted stock equal to the number of shares
determined by dividing $50,000 by the closing price of the Class A Common Stock on the date of grant.
The grants of restricted stock to each of Mr.
Dickerson, Ms. Steele, Mr. Riley, Mr. Peperzak, and Mr. Reardon pursuant to the Director Agreements were deferred by the Board.
Nasdaq Compliance Notices
On February 18, 2025, we received the MVLS Notice from Nasdaq which
notified the Company that, for the 30 consecutive business days ended February 14, 2025, our MVLS closed below the $50,000,000 MVLS threshold
required for continued listing on the Nasdaq Global Market under Nasdaq Listing Rule 5450(b)(2)(A).
In accordance with Nasdaq Listing Rule 5810(c)(3)(C), we have 180 calendar
days, or until August 18, 2025, to regain compliance with the MVLS Rule. The MVLS Notice notes that, to regain compliance, our MVLS must
close at or above $50,000,000 for a minimum of ten consecutive business days during the MVLS Compliance Period. The MVLS Notice further
notes that if we are unable to satisfy the MVLS requirement prior to such date, we may be eligible to transfer the listing of its securities
to The Nasdaq Capital Market (provided that we then satisfy the requirements for continued listing on that market). If we do not regain
compliance by the end of the MVLS Compliance Period, Nasdaq staff will provide written notice to us that our securities are subject to
delisting. At that time, we may appeal any such delisting determination to a hearings panel.
Also on February 18, 2025, we received the MVPHS Notice from Nasdaq
that for the 30 consecutive business days ended February 14, 2025, our MVPHS closed below the $15,000,000 MVPHS threshold required for
continued listing on Nasdaq under Nasdaq Listing Rule 5450(b)(2)C).
In accordance with Nasdaq Listing Rule 5810(c)(3)(D), we have 180 calendar
days, or until August 18, 2025, to regain compliance with the MVPHS Rule. The MVPHS Notice notes that, to regain compliance, our MVPHS
must close at or above $15,000,000 for a minimum of ten consecutive business days during the MVPHS Compliance Period. The MVPHS Notice
further notes that if we are unable to satisfy the MVPHS requirement prior to such date, we may be eligible to transfer the listing of
its securities to The Nasdaq Capital Market (provided that we then satisfy the requirements for continued listing on that market). If
we do not regain compliance by the end of the MVPHS Compliance Period, Nasdaq staff will provide written notice to us that our securities
are subject to delisting. At that time, we may appeal any such delisting determination to a hearings panel.
The MVLS Notice and MVPHS Notice are notifications
of deficiency, not of imminent delisting, and have no immediate effect on the listing of our securities. Our Class A Common Stock and
Warrants continue to trade on Nasdaq under the symbols “RAIN” and “RAINW”, respectively.
We intend to actively monitor our MVLS and MVPHS between now and August
18, 2025, and may, if appropriate, evaluate available options to resolve the deficiencies and regain compliance with the MVLS Rule and
MVPHS Rule. While we are exercising diligent efforts to maintain the listing of our securities on Nasdaq, there can be no assurance that
we will be able to regain or maintain compliance with Nasdaq listing standards. See “ Risk Factors - There can be no assurance
that Holdco will be able to comply with the continued listing rules of Nasdaq. ”
45
Departure of Co-Chief Executive Officer
On January 29, 2025, Holdco, RWT and Christopher
Riley entered into a letter agreement whereby Mr. Riley resigned as Co-Chief Executive Officer of our company and RWT effective as of
January 30, 2025 (the “Termination Letter”). Pursuant to the Termination Letter, in lieu of all other compensation and payments
of any kind due and payable to Mr. Riley, Mr. Riley will be paid for services rendered in an amount of $124,500, payable in 18 monthly
installments beginning in February 2025. Additionally, conditioned on approval by the Compensation Committee of our board of directors,
the Termination Letter provides that Mr. Riley will be granted 10,000 shares of Class A Common Stock of the Company vesting one year
from the date of grant.
Mr. Riley’s decision to resign as Chief
Executive Officer was not the result of any disagreement with our company or our board of directors, including any matters relating to
our operations, polices, accounting practices or financial reporting. Mr. Riley will remain as a member of our board of directors.
As previously announced, we appointed Randall
Seidl to serve as Co-Chief Executive Officer effective as of January 2, 2025. Following the resignation of Mr. Riley, Mr. Seidl is our
sole Chief Executive Officer.
Plan of Operations
12-Month Plan
RWT currently is warehousing two fully built rain generation systems
in Sydney, Australia. The systems were built by a leading ionization rainfall generation engineer, and have undergone rigorous evaluation,
testing, and documentation. We plan to ship these units to our U.S. warehouse by May 2025 and expect to execute our first client contract
and begin the installation process in the third quarter of 2025. Concurrently, we will identify, recruit, and hire a CTO, CFO and other
go to market resources.
In March 2025, we began planning the development of ten additional
rain generation systems for deployment in new locations. While we have begun documenting the sourcing, manufacturing, and building processes,
we will collaborate with highly skilled technical advisors to develop a step-by-step training manual that can be scaled as our system
volume increases. While systematically documenting the process, we will also explore ways to enhance efficiency and scalability, such
as reviewing the bill of materials to domesticate component sourcing and initiating the request-for-proposal process with prospective
U.S.-based manufacturers.
We are actively hiring and plan to recruit up to five employees to
support sales, operations, or climate science functions by the end of 2025.
We plan to host an onsite event, which will include training U.S. personnel
on the installation and operation of the systems. As part of this, we will install one of the systems received from Australia inside our
warehouse for validation testing, after which it will be re-packed in crates for delivery to the next client site. The second system will
be set up for mechanical testing and value engineering work. At that stage, we will assess whether any components are missing or require
modifications, placing orders and making necessary repairs as needed. Additionally, that month, we will begin hardware engineering on
a variation of the rain generation system designed to meet local permitting requirements for potential installations on public land.
We will also plan and prepare for the installation of our system at
our first location in August 2025. This process will include securing the services of a general contractor (“GC”) in the area.
We will collaborate with the GC to obtain all necessary building permits, which we anticipate will be similar to those required for cell
tower installations and should be acquired efficiently and at a reasonable cost.
Once the rain generation systems are installed at our first location,
we will aim to begin development for rain gauge with our intellectual property to assist with automating the operation of both the installed
system and future systems based on local weather conditions.
We will also begin finalizing site selection for the region where we
plan to install a system in 2025. These regions are expected to host one or more systems to serve one or multiple clients. Our goal is
to install the systems in a way that creates contiguous or overlapping areas of potential rainfall enhancement. Depending on updrafts,
humidity, and other weather conditions, each installed system is expected to generate rainfall within an approximately 50-mile radius.
Site selection will be prioritized based on client engagement, projected returns for the company, and expected local weather and topography.
We anticipate that our supply chain will support the manufacturing and installation of additional systems within 5 to 6 months, allowing
RWT to scale operations rapidly as client referral effects drive increased demand.
We will continue to update and refine internal documentation that outlines
the criteria for selecting sites to install and operate the systems. This will include, but not be limited to, factors such as weather
patterns, terrain, setbacks, access, prevailing wind direction, and average humidity. Additionally, we plan to enhance our operations
process to include a complete set of drawings necessary for permitting, as well as incorporating all feedback received from the site of
our initial installation.
By the fourth quarter of 2025, we expect to begin operationalizing
the manufacturing, testing, and warehousing of devices for the installation pipeline. At that point, we anticipate having well-developed
documentation that we can follow to ensure a steady stream of successful system installations.
As we continue to refine our manufacturing process for rain technology
devices, we will also seek research partnerships with universities. Our goal for these partnerships is to launch a multi-year case study
that evaluates the impact of our devices and related technology on rainfall enhancement in the initial U.S. locations where our systems
have been installed.
46
Liquidity and Capital Resources
As of December 31, 2024, we had approximately
$37,000 in cash and had a working capital deficit of approximately $5.4 million. We expect to continue to incur expenses and begin
to generate revenues as we continue to grow and scale our business.
In connection with the Business Combination, on
December 30, 2024, RHY Management LLC (“RHY”), an affiliate of Harry You, entered into the Loan Agreement and agreed to issue
a line of credit (the “LOC”) to Holdco for up to $7 million. In addition, Mr. You and his affiliate also agreed to rollover
all outstanding amount that Coliseum and RWT owed to them prior to Closing (the “Rollover” under the LOC (such amounts borrowed
under the LOC, together with the Rollover, the “Loan”). The Loan has an interest rate of 5%, and interest will be due and
payable in arrears quarterly. As of December 31, 2024, the Company has not withdrawn any amount under the $7 million available funding
under the LOC and has approximately $3.1 million in Rollover amount outstanding. Subsequent to December 31, 2024, the Company borrowed
approximately $839,000 under the LOC.
Our management estimates approximately $6.3 million
and approximately $62 million in expenses for our one-year and five-year business plan. These funds are expected to be used for producing
units, integrating and rolling out software for the rain enhancement platform, expanding water services through the ‘land and expand’
client acquisition model, and potentially acquiring other weather technologies. Since the base technology and products are developed and
proven, the need for additional capital will primarily be driven by growth in customer acquisition and projects. Our management believes
that the budget can be scaled in line with the funds actually received, enabling RWT to expand its client base, deliver equipment and
technology to newly acquired clients, and develop new products for the RWT platform.
We expect to fund our future development and exploration activities
using the available funding under the LOC and future operating cash flow. The timing of most capital expenditures is largely discretionary.
We have a significant degree of flexibility to adjust the level of our capital expenditures as circumstances warrant. If our plans or
assumptions change, we may seek additional funding through debt or other equity financing arrangements, implement incremental expense
reduction measures or a combination thereof to continue financing our operations. Although our management continues to pursue these plans,
there is no assurance that we will be successful in obtaining sufficient funding on terms acceptable to us to fund continuing operations,
if at all.
In connection with the Company’s
assessment of going concern considerations in accordance with FASB ASC Subtopic 205-40, “Going Concern,” our management
has determined that although we do not have sufficient liquidity to meet our anticipated obligations over the next year from the
date of issuance of these consolidated financial statements, we have access to funds under the LOC. Additionally, an existing
shareholder has pledged financial support as necessary and has the financial ability to provide such funds, that are sufficient to
fund our working capital needs over the next twelve months from the date of issuance of these consolidated financial statements.
Results of Operations
For the year ended December 31, 2024, we had net loss of approximately
$4.5 million, which consisted mainly of general and administrative expenses of approximately $4.5 million and interest expense in connection
with the note payable to related parties of approximately $30,000. The Company experienced higher expenses compared to previous years
due to the merger completed on December 31, 2024.
For the year ended December 31, 2023, we had
net loss of approximately $437,000, which consisted mainly of general and administrative expenses of approximately $410,000 and interest
expense in connection with the note payable to related parties of approximately $27,000.
Cash Flows
For the year ended December 31, 2024, net cash
used in operating activities was approximately $1.3 million, net cash used in investing account was approximately $46,000, and net cash
provided by financing activities was approximately $1.4 million. Net loss of approximately $4.5 million was partially offset by non-cash
activities, including stock-based compensation expense of approximately $2.8 million, amortization expense of approximately $12,000, and
expenses paid by related parties on behalf of RWT of approximately $321,000, and also changes in operating assets and liabilities used
approximately $44,000 of cash for operating activities. Cash used in investing activities consisted solely of payment for building Equipment
of approximately $46,000. Cash provided by financing activities resulted from (i) issuance of RWT Class A and RWT Class B common stock
of $740,000 and $125,000, respectively, (ii) cash proceeds from issuance of Holdco Class A common stock in connection with PIPE subscriptions
of $700,000, and (iii) proceeds from reverse recapitalization in connection with the Business Combination, partially offset by payment
of deferred financing costs of $75,000 and payment of prepaid Forward Purchase Agreement with Meteora of approximately $4.1 million.
47
For the year ended December 31, 2023, net cash
used in operating activities was approximately $238,000, net cash used in investing account was approximately $264,000, and net cash
provided by financing activities was approximately $440,000. Net loss of approximately $437,000 was affected by stock based compensation
expense of approximately $3,800, amortization expense of $12,000, expenses paid by related parties on behalf of RWT of approximately
$11,000, and changes in operating assets and liabilities used approximately $171,000 of cash for operating activities. Cash used in investing
activities consisted solely of payment for building Equipment of approximately $264,000. Cash provided by financing activities resulted
from issuance of common stock and Series A preferred stock of $1,998 and $8,000, respectively, and from the remaining proceeds of approximately
$447,000 pursuant to the Note, partially offset by repayment off advances to certain officer approximately $17,000.
Patent and Consulting Agreements
Patent License
On November 21, 2022, RWT entered into a
license agreement with Dr. Theodore Anderson, a plasma physicist, whereby RWT was granted an exclusive, worldwide license under
certain of Dr. Anderson’s patents. The consideration paid for the license of $33,000, which was fully paid in November 2022,
was recorded as a finite-lived intangible asset.
Consulting Agreement for Rainfall Ionization
Equipment
In November 2022, RWT entered into a consulting agreement, which was
later amended on December 8, 2022, to engage with its senior technology advisor (“Technical Advisor”). RWT agreed to pay the
Technical Advisor a one-time fee upon execution of the agreement (“First-time fee”) and a consulting fee of AUD 250,000 per
year (equivalent to approximately $170,000 as of the effective date), which was later revised to $186,000 in February 2025, as well as
certain bonuses that will be paid upon reaching certain milestones. In May 2023, the Technical Advisor met a significant milestone in
improving the design and a bonus of AUD 25,000 was paid in June 2023 (or approximately $13,000).
In connection with the consulting agreement, we also agreed to obtain
from the Technical Advisor an irrevocable, perpetual, non-exclusive license under certain engineering designs in connection with rainfall
ionization equipment and systems. We fully paid this amount of $83,750 in June 2023.
Related Party Transactions
Note Payable and Line of Credit from Related
Parties
On February 2, 2023, RWT issued a promissory
note (the “Note”) to its former CEO and Mr. You and Mr. de Masi for an aggregate amount of $600,000. The Note has an
annual interest rate of 5% and is currently due on demand.
On December 30, 2024, Holdco entered into the
Loan Agreement with RHY, an affiliate of Harry You, pursuant to which RHY agreed to issue an LOC to Holdco for up to $7 million, in addition
to the Rollover amount described below. The Loan has an interest rate of 5%, and interest will be due and payable in arrears quarterly.
Prior to Closing, the outstanding amount that
Coliseum and RWT owed to Mr. You and his affiliates are: (i) approximately $1.7 million and approximately $333,000 of advances to Coliseum
and RWT, respectively, (ii) convertible note balance of $667,500 to Coliseum, and a portion under the Note discussed above of approximately
$216,000 to RWT (which amount includes $200,000 in principal and approximately $16,000 in accrued interest), and (iii) an outstanding
balance of $180,000 in accrued administrative fees to Coliseum, for a total of approximately $3.1 million. The Rollover amounts were assigned
to and assumed by Holdco and are treated for all purposes as Loans outstanding under the Loan Agreement. The Rollover amount does not
reduce the $7 million funding available to the Company under the LOC. As of December 31, 2024, we had not borrowed any of the $7 million
available funding under the LOC.
48
Employment Agreement
On December 31, 2024, Holdco entered into a binding offer letter (the “Offer Letter”) with its new
CEO, Mr. Seidl effective January 2, 2025, pursuant to which Holdco agreed to pay to the CEO (i) an annual salary of $500,000, (ii) a contingent
bonus payment of $5.0 million that will be issued under a form of an unsecured note payable (the “Officer Note”) on the earlier
of (x) four-year anniversary of the Officer Note, subject to the CEO’s continued service with Holdco through such date, and (y)
the date of termination, if Holdco terminates the CEO’s employment without cause. Holdco and Mr. Seidl agreed to replace the Officer
Note, which was not yet issued, with a retention bonus agreement to better reflect the nature of the commitment (“Retention Bonus”).
As of the date of this filing, the Retention Bonus has not been issued.
Segments
We operate and manage the business as one reportable and operating
segment, which is the business of developing, manufacturing and commercializing ionization rainfall generation technology. Our chief executive
officer, who is the chief operating decision maker, or CODM, reviews financial information on an aggregate basis for allocating resources
and evaluating financial performance.
Off-Balance Sheet Arrangements
We did not have off-balance sheet arrangements as of December 31, 2024,
and do not currently have, any off-balance sheet financing arrangements or any relationships with unconsolidated entities or financial
partnerships, including entities sometimes referred to as structured finance or special purpose entities, that were established for the
purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
Critical Accounting Estimates
The consolidated financial statements have been
prepared in accordance with U.S. GAAP and pursuant to the rules and regulations of the SEC.
Preparation of the consolidated financial statements
requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities. We also make estimates and assumptions on revenue generated and reported expenses incurred during the reporting
periods. Our estimates are based on our historical experience and on various other factors that it believes are reasonable under the
circumstances. The results of these estimates form the basis for making judgments about the carrying value of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from these estimates.
While our significant accounting policies are
described in the notes to our consolidated financial statements included elsewhere in this Annual Report, our management believes there
was no critical accounting estimates identified during the years ended December 31, 2024 and 2023.
Derivative Financial Instruments
We do not use derivative instruments to hedge exposures to cash flow,
market, or foreign currency risks. We evaluate all of our financial instruments to determine if such instruments are derivatives or contain
features that qualify as embedded derivatives, pursuant to FASB ASC Topic 480 “Distinguishing Liabilities from Equity” (“ASC
480”) and ASC 815. The classification of derivative instruments, including whether such instruments should be recorded as liabilities
or as equity, is re-assessed at the end of each reporting period. The assessment considers whether the financial instruments are freestanding
financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the financial instruments
meet all of the requirements for equity classification under ASC 815, including whether the financial instruments are indexed to our own
ordinary shares, among other conditions for equity classification.
Equipment
We capitalize our cost to build its rainfall ionization
equipment (the “Equipment”), including materials and allocated labor costs. In July 2023, we finished building the Equipment
and transferred its capitalized cost from Construction in-process to Equipment. As soon as the Equipment is placed in service upon agreement
with the customers, we will begin to depreciate those assets on a straight- line basis over the estimated useful lives of the assets,
generally 10 to 15 years. At the time of retirement or other disposition of the Equipment, the cost and accumulated depreciation
will be removed from the accounts and the resulting gain or loss, if any, will be reflected in operations. As of December 31, 2024,
no Equipment has been placed in service.
49
Intangible Assets
Recognized intangible assets have finite lives
and include acquired licenses for market-ready technology and designs of weather modification and rainfall ionization equipment. Intangible
assets acquired separately are measured on initial recognition at cost. Following initial recognition, intangible assets are carried
at cost less any accumulated amortization and accumulated impairment losses.
Intangible assets with finite lives are amortized using the straight-line
method over the estimated useful economic life. The amortization period and the amortization method for an intangible asset with a finite
useful life are reviewed at least at the end of each reporting period. Changes in the expected useful life or the expected pattern of
consumption of future economic benefits embodied in the asset are considered to modify the amortization period or method, as appropriate,
and are treated as changes in accounting estimates. The amortization expense on intangible assets with finite lives is recognized in the
consolidated statements of operations and in the expense category that is consistent with the function of the intangible assets.
Intangible assets with finite lives are tested
for impairment whenever events or changes in circumstances indicate the carrying amount may not be recoverable. These conditions may
include a change in the extent or manner in which the asset is being used or a change in future operations. We assess the recoverability
of the carrying amount by preparing estimates of future revenue, margins, and cash flows. If the sum of expected future cash flows (undiscounted
and without interest charges) is less than the carrying amount, an impairment loss is recognized. The impairment loss recognized is the
amount by which the carrying amount exceeds the fair value of the asset. Fair value of these assets may be determined by a variety of
methodologies, including discounted cash flow models. As of December 31, 2024 and 2023, we did not have any intangible assets with indefinite
useful lives.
Stock Compensation
Our policy is to account for stock-based compensation
expense in accordance with FASB ASC Topic 718, “Compensation-Stock Compensation” (“ASC 718”). Under ASC 718,
stock-based compensation associated with equity awards is measured at fair value upon the grant date and recognized over the requisite
service period. To the extent a stock-based award is subject to a performance condition, the amount of expense recorded in a given period,
if any, reflects an assessment of the probability of achieving such performance condition, with compensation recognized once the event
is deemed probable to occur. Forfeitures are recognized as incurred.
Recent Accounting Pronouncements
In November 2023, the FASB issued Accounting Standards Update (“ASU”)
2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures”. The amendments in this ASU expand
public entities’ segment disclosures by requiring disclosure of significant segment expenses that are regularly provided to the
Chief Operating Decision Maker and included within each reported measure of segment profit or loss, an amount and description of its composition
for other segment items, and interim disclosures of a reportable segment’s profit or loss and assets. We adopted ASU 2023-07, which
did not have a material impact on the consolidated financial statements.
In December 2023, the FASB issued ASU No. 2023-09 (Topic 740),
Improvements to Income Tax Disclosures. The ASU requires disaggregated information about a reporting entity’s effective tax rate
reconciliation as well as an expansion of other income tax disclosures. The ASU is effective on a prospective basis for annual reporting
periods beginning after December 15, 2024. We are currently evaluating the impact this ASU will have on our consolidated financial
statements and related disclosures.
50
Emerging Growth Company Status
Holdco is an emerging growth company, as defined
in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”).
Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial
accounting standards until private companies (that is, those that have not had a registration statement under the Securities Act declared
effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised
financial accounting standards.
Section 107 of the JOBS Act allows emerging
growth companies to take advantage of the extended transition period for complying with new or revised accounting standards. Under Section 107,
an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private
companies. Any decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.
The Company has elected to use the extended transition period available under the JOBS Act, which means that when a standard is issued
or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt
the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s
consolidated financial statements with another public company which is neither an emerging growth company nor an emerging growth company
which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting
standards used.
The Company will remain an emerging growth company
until the earlier of: (1) the last day of the fiscal year (a) following the fifth anniversary of the effectiveness of
the Company’s registration statement on Form S-4 in connection with the Business Combination, (b) in which the Company has
total annual revenue of at least $1,235,000,000, or (c) in which the Company is deemed to be a large accelerated filer, which means
the market value of its common equity that is held by non-affiliates exceeds $700.0 million as of the end of the prior fiscal year’s
second fiscal quarter; and (2) the date on which the Company has issued more than $1.0 billion in non-convertible debt securities
during the prior three-year period.
We are also a “smaller reporting company”
as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure obligations,
including, among other things, providing only two years of audited financial statements. The Company will remain a smaller reporting
company until the last day of the fiscal year in which (i) the market value of the shares of Class A Common Stock held by non-affiliates
exceeds $250.0 million as of the prior June 30, and (ii) the Company’s annual revenue exceeds $100.0 million during such completed
fiscal year and the market value of the shares of Class A Common Stock held by non-affiliates exceeds $700.0 million as of the prior
June 30. To the extent the Company takes advantage of such reduced disclosure obligations, it may also make comparison of the Company’s
financial statements with other public companies difficult or impossible.
Item 7A. Quantitative And Qualitative Disclosures
About Market Risk
We are a smaller reporting company, as defined
in Rule 12b-2 of the Exchange Act. Therefore, pursuant to Item 305(e) of Regulation S-K, we are not required to provide the information
required by this Item.
Item 8. Financial Statements and Supplementary
Data
This information appears following Item 16 of
this Form 10-K and is incorporated herein by reference.
51
Item 9. Changes in and Disagreements With
Accountants on Accounting and Financial Disclosure.
None.