Rainmaker Worldwide Inc. 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis contain forward-looking statements about our plans and expectations of what may happen in the future. Forward-looking statements are based on a number of assumptions and estimates that are inherently subject to significant risks and uncertainties, and our results could differ materially from the results indicated by our forward-looking statements as a result of many known or unknown factors, including, but not limited to, those factors discussed in Item 1A. “Risk Factors” in our on Form 10-12GA below in Part II Item 1A. “Risk Factors” of this Form 10-K and in the “Cautionary Note Regarding Forward-Looking Statements” set forth at the beginning of this report. You should read the following discussion and analysis in conjunction with the audited financial statements, and the related footnotes thereto, appearing elsewhere in this Form 10-K, and in conjunction with management’s discussion and analysis and the audited financial statements included in our Form 10-12GA. In addition, we intend to use our media and investor section on our website (www.rainmakerww.com/category/investor-updates/), SEC filings and press releases to communicate with the public about Rainmaker, its services and other issues. Overview Rainmaker Worldwide Inc. (“RAKR”, the “Company”, “we”, “us” or “our”) is a Nevada corporation originally formed on February 27, 1998. The corporation became RAKR on July 3, 2017 in a reverse merger. We are currently developing projects in various locations around the globe using RAKR and partner technologies. We are implementing these projects using proprietary technology of our former subsidiary based in the Netherlands, Rainmaker Holland B.V. (“RHBV”). The Company retains a 12% ownership stake in RHBV. RAKR retains access to the technology based on a cost-plus formula. Rainmaker Worldwide Inc. (Ontario) (“RWI”), an Ontario Corporation, was formed in Peterborough, Ontario, Canada on July 21, 2014, under the Ontario Business Corporations Act to finance and commercialize patented technology and to consolidate the assets, intellectual property, and executive management expertise of Dutch Rainmaker B.V. (“DRM”). RWI is a wholly owned subsidiary of the Company. DRM was originally started by Piet Oosterling as a technology company focused on delivering decentralized water solutions to water scarce regions in the world. In his lifetime, Mr. Oosterling wrote and commercialized over 400 patents. His wealth of knowledge and expertise continues to inspire and guide the Company’s executive management team and policy. On July 3, 2017, RWI shareholders completed a share exchange with the Company (the “Merger”) pursuant to a share exchange agreement dated June 28, 2017 (the “Share Exchange Agreement”) among the Company, RWI and RWI’s 45 shareholders at the time. Upon completion of the Merger, and in accordance with the terms and provisions of the Share Exchange Agreement, the Company acquired an aggregate of 9,029,562 common shares of stock in the capital of RWI from the RWI Shareholders (being all the issued and outstanding shares of RWI) in exchange for an aggregate of 66,818,759 restricted shares of the Company’s common stock, or 7.4 shares for each share of RWI. Therefore, RWI became a wholly owned subsidiary of the Company effective July 3, 2017. The Company’s former name, Gold and Silver Mining of Nevada, Inc. (“CJT”) was changed on April 24, 2017, in expectation of and conditional upon completion of the Merger. The Merger was accounted for as a reverse acquisition with RWI considered the accounting acquirer since the former RWI shareholders remained in control of the combined entity after the consummation of the transaction. As part of the Merger, net liabilities of $235,495 were recognized on the Company’s balance sheet. As a result of the Merger, the Company traded on the OTC Pink, but as of March 17, 2022 the Company now trades on the OTCQB continuing to trade under the symbol, RAKR. 13 On July 15, 2020, Sphere 3D Corp. (NASDAQ: ANY) announced that it entered into a definitive merger agreement pursuant to which it would have acquired all the outstanding securities of Rainmaker Worldwide Inc. Upon closing, Sphere 3D’s name would have changed to Rainmaker Worldwide Inc., and its business model would have focused on “WaaS”. Rainmaker management would have assumed operational leadership of the combined entity. The agreement was ultimately terminated on February 12, 2021 and was subsequently announced publicly. As a result of the incomplete Sphere 3D transaction, on March 31, 2021, the Company, including RWI, entered into a business agreement with RHBV, DRM and Wind en Water Technologie Holding B.V. (“WWT”). These companies were considered related parties on that date by virtue of stock ownership exceeding 10%. The parties agreed to an exchange of contractual obligations, debt owed, and shares of common stock in full settlement of all obligations among the parties. The resultant Financial Statements, in accordance with ASC 205-20-45-1E, reflect the impact of these exchanges to the Company. The Company and RHBV decided to restructure in order to optimize business operations and broaden access to the capital markets. The Company and RHBV, as mutual shareholders in each other’s company, continue to pursue the mission and objective of providing low-cost water to communities and commercial entities in need of water solutions. The Company retains a 12% ownership stake in RHBV. RAKR retains access to the technology based on a cost-plus formula. The Company is based in Peterborough, Ontario, Canada. The Company will utilize two main types of energy-efficient, fresh water-producing/purification technologies: (1) Air-to-Water (“AW”), which harvests fresh water from humidity and heat in the atmosphere, and (2) Water-to-Water (“WW”), which transforms seawater or polluted water into drinking water. The technologies can be wind driven, solar based, or can use conventional power sources, such as grid or generator. It is deployable anywhere and leaves no carbon trace if renewable resources are deployed. The Company’s current and ongoing focus is to use the two Rainmaker technologies discussed above or other complementary technologies acquired or licensed by the Company. This focus shall be administered by forming joint venture partnerships (“JV”). In most if not all cases, RAKR expects to have ownership stakes in JVs. Ownership percentages will typically be determined by the relative contribution of the stakeholders. In the Caribbean, locations have been identified and operating plans defined. We have an AW machine being tested in the Netherlands and expect delivery by Q3 2023. Specifically, locations have been identified and operating plans defined for various locations. The Company has generated no revenue up until the present time, and its operations for the past four years have been typically focused on business development, market research, technology research and development activities. The Company, on a consolidated basis, had total assets of $43,038 as of December 31, 2022. As of December 31, 2021, net assets were $344,341, reflecting the impact of restructuring in connection with the previously held RHBV. The ultimate effect of the restructuring has eliminated $2,958,497 in debt, which we believe will aid us in facilitating the future expected financing needs of the Company. Furthermore, 20,238,606 shares of common stock were returned to the corporate treasury in exchange for the cancelation of royalty agreements and all obligations therein. At present, the Company executes consulting agreements with experienced executive personnel and senior advisors. Sales are heavily driven by independent distributors and project developers. The Company had no revenue for the years ending December 31, 2022 and 2021 and had net losses of $1,837,611 and $2,725,464 for the years ended December 31, 2022 and 2021, respectively. A large proportion of the 2021 losses relate to uncustomary expenses associated with the restructuring ($467,118 amortization of debt discount and non-recurring consultancy expenses of $587,500) as well as losses from equity investments ($112,000) and write-down of inventory ($219,701)). The losses associated with discontinued operations ($333,733) are not expected to reoccur in future years. The total of these expense categories is $1,720,052 or 63.1%. of the net loss. The losses in 2022 have been reduced by 33% compared to 2021. The 2022 losses are driven by operating expenses, the first important component being the cost associated with maintaining the Company’s listing and current filing status with the SEC. The second component is consulting expenses including stock option expenses which incorporate derivative liabilities for warrants, the majority of which remains on the balance sheet as related party payables. The Company has suffered recurring losses from operations, negative cash flows from operating activities and has limited resources or revenues to cover its operating costs. Due to a lack of sales, a review of the inventory required that it be fully impaired at December 31, 2023 which amounted to $335,000 of the 2022 losses. The Company still plans to sell the inventory and if successful will report according to US GAAP. The Company’s auditor’s report for 2022 stated that there was substantial doubt about the Company’s ability to continue as a going concern. On June 29, 2022, the Company held a Special Meeting of Stockholders that confirmed majority vote was achieved. Each share of the Company’s common stock was entitled to one vote per share. The matter voted upon and the results are set forth below. The Proposal presented: Increase in Authorized Shares and Establishment of Preferred shares. Stockholders approved an increase in the Company’s authorized common stock to 500,000,000 and the establishment of 1,000,000 preferred shares. For Against Abstentions Broker Non-Votes 78,263,619 1,051,137 305,787 0 14 Impact of COVID-19 On March 11, 2020, the World Health Organization categorized COVID-19 as a pandemic. As a global corporation the economic effects within the Company’s environment were substantial and there are still lingering economic impacts globally. In global markets, disruptions in supply chains and increases in related costs have had a real impact on our ability to deliver projects. Measures being introduced at various levels of government to curtail the spread of the virus (such as travel restrictions, closures of non-essential municipal and private operations, imposition of quarantines and social distancing) had a material impact on the Company’s operations. The extent of the impact of this outbreak and related containment measures on the Company’s operations cannot be reliably estimated at this time but at the same time the impact has been significant since the declaration of the pandemic three years ago. For the Company, it was particularly disruptive because of limitations on our business development and engineering experts to travel and implement projects. As global operations have recently become more open, we have begun reopening our connections with distributors to deliver products to market. Products and Services Overview Across the world, fresh water is unevenly distributed. Many regions are desperately under-served, including North Africa, the Middle East, India, Mexico, large portions of South America, and various island geographies. Fundamentally, our solutions are based on deploying technology with the following attributes to ensure low-cost delivery and Company profitability: ● Versatile ● Scalable & Cost-effective ● Environmentally & Socially Sustainable ● Applying Proprietary Technology through partners and affiliates Air-to-Water (AW) – Harvests fresh water from airborne humidity by using advanced heating and cooling technologies Water-to-Water (WW) – Transforms contaminated water (saltwater, sewage, polluted) into safe, clean water by using an environmentally sustainable process called Multi-Effect Membrane Distillation. The operating efficiency of these technologies allows us to provide customers with clean water at a price that is highly competitive relative to traditional alternatives. We substantially out-perform peer competitors because we can deploy remotely where the water is consumed where the water is consumed and using up to 50% less power than those same competitors. The compact and scalable systems for AW and WW enable decentralized deployment, in which water is distributed directly to the consumption site with no expensive piping or truck transport. AW and WW are both cost-effective technology solutions and can be powered by solar, wind, or grid electricity, or a combination of power sources. They can produce roughly 5,000 to 150,000 liters of water per unit, per day, depending on the local conditions and the type of unit deployed. Cost Information Currently in remote locations, the principal source of supply is bottled water. Accordingly, our solutions are optimally profitable when we compete head-to-head with bottled water that is transported or bulk water that is transported by truck to local communities. In most remote communities where this water is imported, the minimum cost per liter is US$0.30 reaching as high as US$2.00, according to our market research. The Company’s fully amortized cost of water per liter including, bottling, operating and maintenance, distribution and other costs allows us to compete profitably to generate corporate value beneficial to our shareholders. The market for distilled water supported in part by WW-based technology, which is essential to more specialized industrial or commercial activities, is expected to increase margins significantly. 15 Regulatory Information The global nature of our approach means that regulatory conditions vary by jurisdiction. We believe that the ultimate test of profitability in this complex, cross-jurisdictional environment will be the quality of the water that is bottled and tested. The Company seeks to adhere to World Health Organization standards for clean water using the technologies that are authorized in a particular sovereign jurisdiction. Business Model The RAKR business model typically begins with the identification of a trusted local partner. When applicable, the next step is to enter into JV structures, which maximize value to all stakeholder-parties. The Rainmaker delivery systems are to be installed by entering into contracts with local third-party experts that are typically Heating, Ventilation and Air Conditioning (“HVAC”) experts. In addition, over the course of the past year, we have been developing partnerships with highly experienced developers of complementary technology. That gives RAKR the ability to have a more comprehensive product set when proposing solutions to communities, developers and commercial entities. The most significant agreement to date is with Miranda Environmental and Water Treatment Technologies, Energy, Natural Resources, Engineering, Consulting, Construction and Commerce Inc. (“Miranda”). On July 28, 2022, the Company signed a Joint Development Agreement (“JDA”) with Miranda whose primary manufacturing operations reside in Ankara, Turkey. This JDA allows for reciprocal distribution rights for all of RAKR and Miranda’s combined technologies and fosters a long-term technological integration strategy between the two companies. They have been delivering systems for more than ten years across 40 countries globally. As a result, their global experience in invaluable to Rainmaker and Rainmaker shareholders. On October 5, 2022, the Company entered into a Memorandum of Understanding (the “MOU”) with Miranda to formalize the mutual intention to integrate the two firms at both strategic and operating levels. This was a non-binding agreement allowing for standard due diligence to take place before the creation of definitive agreements. The MOU was renewed on March 21, 2023 and will remain in force until May 30, 2023. There can be no assurance that the parties will reach a definitive agreement. Potential Improvements Potential improvements and related applications that we are pursuing or plan to pursue include seeking more strategic and technology-based partnerships with complementary technology and business development companies to expand our global reach and service offering. Market Opportunity In the past ten years, there has been a growing awareness of the shortage of fresh water—and the associated economic and social effects the problem magnifies in impoverished and underdeveloped communities. Entities ranging from Water.Org to the United Nations (access to safe drinking water represents #6 of the 17 Sustainable Development Goals articulated by the United Nations) are at the forefront of driving international policy momentum and prospects for multilateral cooperation in the realms of global governance and public-private co-regulation. Common to these efforts is the search for scalable and practical solutions that possess applications uniquely suited to the problem of shortage. The metrics that underpin the international need for ingenuity and action are the same as those that animate and sustain the market opportunity for our Company: (1) Less than 3% of the world’s water is fresh – the rest is seawater and undrinkable in its current state. (2) Of this 3%, over 2.5% is frozen and locked up in Antarctica, the Arctic and glaciers. (3) People and animals rely on 0.5% of the world’s water. (Source: Unwater.org - Facts and Trends: Water) 16 Moreover, at any moment, the atmosphere contains approximately 37.5 million billion gallons of water. This potential is not currently harvested by the means of private organizations or government institutions and thus presents a significant opportunity for AW technology to satisfy worldwide demand for water. The World Health Organization estimates that 50 liters of water per day is required per individual to meet basic needs. It is estimated by the OECD that by 2030 nearly half of humanity will be living in a condition of severe water stress. Currently, according to UNICEF, 2.2 billion people around the globe lack safe drinking water. While high-income countries only treat 70% of wastewater, low-income countries treat 8%. With the world’s population expected to reach 9 billion by 2038, the global need is indisputably high. Much of the population expansion is or will be in the very areas that are already suffering from the problem of water scarcity. The above analysis points to a global market for water that is extraordinarily immense. Today, the annual global water market for all purposes and uses is $650 billion and is expected to expand to $1 trillion by 2025. (Source: RobecoSAM Study (2015, June). Water: the market of the future). Applying RAKR’s approach against the purposes and uses defined above, our solutions are tailored to meet roughly 70% of that global level of demand. Suppliers As stated previously, our principal supplier for the core technologies to be deployed is RHBV. RHBV in turn has built a global supply chain for its components. Should RHBV not supply the appropriate scale of technology required by a project, RAKR has identified multiple technologies of different sizes and types. We also have suppliers of complementary technology that we expect to be delivering in 2023 to diversify the Rainmaker business model. Complementary and supplemental technology (i.e., bottling, pre-post wastewater treatment, mineralization solutions, and renewable energy) – suppliers are global, abundant, and highly competitive so as to ensure the lowest cost per liter. Competition The Rainmaker business model that will deliver potable water at the source of demand is uniquely positioned to address alternative competitive models. We believe that competitive models, while relevant and plausible alternatives, will not ultimately fully support the global level of demand for water at a reasonable price per liter. In virtue of our current affiliations, we believe we have a cost per liter competitive advantage. Accordingly, on a global basis, we do not believe competitive conditions will thwart our ability to produce long-term, corporate value or significantly diminish our financial results in the near term. However, other companies with sufficiently greater resources may develop competing products and have an advantage over us based on the relative size. Government Subsidies and Incentives While RAKR is not currently pursuing subsidies and incentives, we believe that over time such programs will be applicable to the Company, and we will pursue them in due course. Over time, RAKR will seek subsidies and incentives through its deployment of technology in underserved countries and particular communities within countries. One example is First Nations in Canada where there is an ongoing and desperate shortage of safe drinkable and general-purpose water. Intellectual Property We have indirect access to considerable intellectual property assets as a consequence of our partial ownership of and various partnerships with RHBV. We believe that this allows us to maintain an edge in the competitive process from a technology and economic cost perspective. 17 Results of Operations for the Years ended December 31, 2022 and 2021 Revenue Revenue was $0 for the years ended December 31, 2022 and December 31, 2021. General and Administrative Expenses General and administrative expenses primarily include consultant expenses and benefit costs and stock-based compensation expense for executive consultants, outside legal and professional services, marketing and advertising, and facilities costs. General and administrative expenses for the years ended December 31, 2022 and December 31, 2021 were as follows (in thousands): Years Ended December 31, Increase (Decrease) 2022 2021 $ % General and administrative expense $ 1,514 $ 1,516 $ (2 ) (0.1 )% Stock-based compensation expense included in general and administrative expense $ 410 $ 62 $ 348 561.3 % General and administrative expenses, including stock-based compensation, for the year ended December 31, 2022 decreased $1,829, compared to the same period in 2021. This minor decrease primarily relates to (1) a decrease of $519,000 in consulting fees, (2) marketing and advertising decreased $17,273, and (3) rent expense reduced by $12,364 due to the reduction in our commitment of our office lease. These decreases were offset by the following increases to expense categories; stock-based compensation increased $347,922, general and administrative expenses increased $194,210 due to the impairment of inventory at December 31, 2022 ($335,000) and travel $4,676). Excluding stock-based compensation, general and administrative expenses decreased $349,751 Liquidity and Capital Resources Management’s Plans Similar to other development stage companies, our products have yet to generate revenue. As a result, we have historically suffered recurring losses and we do not have required cash resources to fully execute our business plans. However, we have completed the assembly of three machines, which, after a review for impairment at December 31, 2023, have been removed from inventory. We believe these machines can be converted into cash flow and will be appropriately reflected under US GAAP at such time as they are transferred to prospective clients. Historically, the Company’s major sources of cash have comprised proceeds from various private offerings of its securities (including common stock) and debt financings. From 2015 through to the fiscal year end date December 31, 2022, the Company raised approximately $8 million in gross proceeds from various private offerings of our common stock and convertible debt. These funds were raised during various stages of the company and allowed us first to develop a commercial ready product and as soon as logistics and supply chains allow, deliver these products into identified projects and begin to generate revenue. The Company has sustained losses from operations in each fiscal year since our inception, and we expect losses to continue for the indefinite future. As of December 31, 2022 and December 31, 2021, the Company had an accumulated deficit of approximately $73 million and $71 million, respectively, and stockholders’ equity of approximately $(10.3) and $(8.9) million, respectively. As of December 31, 2022, the Company had approximately $7 thousand in cash. The Company recognizes the need to raise additional capital in order to continue to execute its business plan in the future. There is no assurance that additional financing will be available when needed or that the Company will be able to obtain financing on terms acceptable to it or whether the Company will become profitable and generate positive operating cash flow. 18 Off-Balance Sheet Arrangements As of December 31, 2022, the Company had no off-balance sheet arrangements. Critical Accounting 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 and related disclosures in the financial statements. Management considers an accounting estimate to be critical if: ● it requires assumptions to be made that were uncertain at the time the estimate was made, and ● changes in the estimate or different estimates that could have been selected could have material impact in our results of operations or financial condition. While we base our estimates and judgments on our experience and on various other factors that we believe to be reasonable under the circumstances, actual results could differ from those estimates and the differences could be material. The most significant estimates impact the following transactions or account balances: stock compensation. See Note 2 to our condensed consolidated financial statements for a discussion of our significant accounting policies. Recently Issued Accounting Standards Not Yet Effective or Adopted Until December 31, 2021, the Company evaluated embedded conversion features within convertible debt under ASC 815 Derivatives and Hedging to determine whether the embedded conversion feature(s) should be bifurcated from the host instrument and accounted for as a derivative at fair value with changes in fair value recorded in earnings. If the conversion feature did not require derivative treatment under ASC 815, the instrument was evaluated under ASC 470-20 Debt with Conversion and Other Options for consideration of any beneficial conversion features. On January 1, 2022 the Company adopted ASU 2020-06 using the modified retrospective method and reviewed and calculated the impact on the outstanding financial instruments as of this adoption date concluding there was no impact. Item 7A. Quantitative and Qualitative Disclosures About Market Risk Not applicable.