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 Rainmaker Holland B.V. (“RHBV”) in which the Company has a 12% ownership stake. 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 DRM. RAKR retains a 40% interest in RWI following an investment from financial partners to affect the acquisition of Miranda. 13 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 trades on the OTC: Pink under the symbol RAKR. 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 Water-as-a-Service (“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 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. The Company is headquartered 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. Miranda Acquisition On January 22, 2024, RWI, a 40% subsidiary of RAKR, finalized the acquisition of Miranda. The first payment of one million USD together with 40 million RAKR common shares was paid to the shareholders of Miranda. This provides RWI with controlling interest of Miranda initially at 60% of Miranda common stock holdings. The remaining two million USD is to be paid no later than 2 years from the closing date of January 22 nd , 2024. Miranda is coming into 2024 after having a solid year of results in 2023 delivering projects in Iraq and Fiji among others. RWI and RAKR are actively marketing their solutions in Canada, US, Mexico, the Caribbean, Central America and South America. The expanded product portfolio will assist in market entry opportunities for Miranda and RAKR products alike, bringing revenue and value to all of the companies. Ongoing Approach to Sales and Marketing The Company’s ongoing focus will be to pair Rainmaker technologies with those of Miranda and their affiliate partners. The Company has generated limited 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 had total assets of $43,038, as of December 31, 2022. As of December 31, 2023, net assets were $30,725. 14 At present, the Company executes consulting agreements with experienced executive personnel and senior advisors. Future sales will be heavily driven by independent distributors and project developers. The Company had $78,912 in revenue for the year ending December 31, 2023 and no revenue for the year ending December 31, 2022 and had net losses of $1,218,908 and $1,837,611 for the years ended December 31, 2023 and 2022, respectively. The losses in 2023 have been reduced by 34% compared to 2022. The 2023 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. The Company’s auditor’s report for 2023 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 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. 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. Through the acquisition of Miranda and RAKR’s own technology we have multiple options to purify wastewater. 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 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. On January 22, 2024, RWI finalized the acquisition of Miranda (RAKR owns 40% of RWI). Miranda has been delivering systems for more than ten years across 40 countries globally. As a result, their global experience is invaluable to Rainmaker and Rainmaker shareholders. 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 suppliers for the core technologies to be deployed are Miranda and RHBV. Should RHBV not supply the appropriate scale of technology required by a project, RAKR has identified multiple technologies of different sizes and types. With the acquisition of Miranda, we now have complementary technology that we expect to deliver in 2024 to diversify the Rainmaker business model. 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 and Miranda. We believe that this allows us to maintain an edge in the competitive process from a technological and economic cost perspective. 17 Results of Operations for the Years ended December 31, 2023 and 2022 Revenue Revenue was $78,912 and $0 for the years ended December 31, 2023 and December 31, 2022, respectively. 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, 2023 and December 31, 2022 were as follows (in thousands): Years Ended December 31, Increase (Decrease) 2023 2022 $ % General and administrative expense $ 623 $ 1,514 $ (891 ) (58.9 )% Stock-based compensation expense included in general and administrative expense $ 133 $ 410 $ (277 ) (67.6 )% General and administrative expenses, including stock-based compensation, for the year ended December 31, 2023 decreased $890,724, compared to the same period in 2022. This decrease primarily relates to (1) a decrease of $493,133 in general and administrative expenses, (2) stock-based compensation decreased $277,590, (3) consulting expense reduced by $83,417, and (4) marketing and advertising decreased by $48,811. These decreases were offset minimally by an increase in travel. Excluding stock-based compensation, general and administrative expenses decreased $613,134. Liquidity and Capital Resources Management’s Plans Similar to other development stage companies, our products have yet to generate significant revenue. As a result, we have historically suffered recurring losses and we do not have the required cash resources to fully execute our business plans. 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, 2023, the Company raised approximately $8.2 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 commercially 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, 2023 and December 31, 2022, the Company had an accumulated deficit of approximately $74 million and $73 million, respectively, and stockholders’ equity of approximately $(10.9) and $(10.3) million, respectively. As of December 31, 2023, the Company had approximately $131 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, 2023, 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 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.