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. 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. 13 Share Consolidation On September 26, 2024, the Company filed Articles of Amendment to effect a share consolidation (also known as a reverse stock split) of its issued and outstanding common shares on a one-for-twenty-five basis. The share consolidation became effective on September 26, 2024. All share and per share amounts have been restated for all periods presented to reflect the share consolidation. Overview Rainmaker Worldwide Inc. (“RAKR” or the “Company”) is a Nevada-based corporation that became publicly traded on July 3, 2017, following a reverse merger. The Company specializes in energy-efficient freshwater production and purification technologies, primarily through Air-to-Water (“AW”) systems that extract water from humidity. It also offers solutions to transform contaminated or seawater into potable or reusable water. Rainmaker focuses on providing sustainable water solutions to communities and industries globally through strategic partnerships. Originally, the Company operated through its Ontario-based subsidiary, Rainmaker Worldwide Inc. (Ontario) (“RWI”), established in 2014 to commercialize its patented water technologies. In line with its expansion strategy, Rainmaker sold a 60% stake in RWI on March 31, 2023, retaining a 40% interest. Subsequently, on January 22, 2024, RWI acquired a 60% stake in Miranda Environmental and Water Treatment Technologies, with plans to acquire the remaining 40% over the next two years. This acquisition significantly expanded RAKR’s portfolio through its distribution rights for Miranda’s products, thereby strengthening its water treatment capabilities. On December 31, 2024, RWI underwent a restructuring, during which the Company converted its investment in RWI into RWI shares. Simultaneously, RWI independently secured new capital investment, reducing the Company’s ownership in RWI to 13.65%. As a result of RWI’s financial situation—characterized by insufficient cash flow, net liabilities, and ongoing net losses—the Company decided to impair the investment in accordance with standard accounting principles. Given these conditions, the Company determined that the investment could not reasonably provide a sufficient return on investment (ROI) and therefore impaired the asset to zero. The Company was fully aware of this outcome prior to the restructuring. Although the equity value of this investment has been impaired, the Company continues to benefit from all of the original distribution rights, in particular for Mexico and the United States. The Company and RWI continue will work together to maximize the value of these distribution rights. Both companies understand that the water infrastructure sector has long sales cycles, often contingent upon factors such as timely permitting for projects that require water treatment. On October 9, 2024, RWI restructured its 12% ownership of Rainmaker Holland B.V. (“RHBV”) by rolling it into Rainmaker Holding B.V., reducing its stake to 5%. Despite this reduction, the Company continues to benefit from access to RHBV’s technology on a cost-plus pricing basis. Rainmaker’s corporate journey has included significant restructuring efforts. Originally formed as Gold and Silver Mining of Nevada, Inc., the Company underwent a merger with RWI in 2017, resulting in a reverse acquisition where RWI shareholders took control of the combined entity. In 2021, Rainmaker and RWI entered into an agreement with RHBV, Dutch Rainmaker B.V. (“DRM”), and Wind en Water Technologie Holding B.V. (“WWT”) to settle financial obligations through an exchange of debt, contractual obligations, and common stock. These actions were aimed at optimizing business operations and expanding access to capital markets. Today, RAKR remains committed to delivering advanced water production and purification solutions, leveraging its innovative technologies and expanded product range, particularly through its distribution agreements for Miranda products. The Company is focused on business development across North, South, and Central America, as well as the Caribbean, positioning itself as a leader in sustainable water solutions. Miranda Acquisition On January 22, 2024, RWI finalized the acquisition of Miranda. The first payment of one million USD together with 1,600,000 RAKR common shares was paid to the shareholders of Miranda. This provided RWI with a 60% controlling interest of Miranda. The remaining two million USD is to be paid no later than 2 years from the closing date of January 22 nd , 2024. RAKR is actively marketing Miranda products through distribution agreements with RWI, primarily for Mexico and the United States. It is possible that RAKR will expand this territory to include Central and South America in the future. With an expanded portfolio of products RAKR has the opportunity to increase revenue and shareholder value. Ongoing Approach to Sales and Marketing The Company’s ongoing focus will be to pair Rainmaker technologies with those of Miranda and our affiliate partners. The Company has generated limited revenue up to present. Operations have been typically focused on business development, market research, technology research and development activities. The Company had total assets of $30,725, as of December 31, 2023. As of December 31, 2024, net assets were $50,116. 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 $143,725 in revenue for the year ending December 31, 2024, and $78,912 in revenue for the year ending December 31, 2023 and had net losses of $1,056,242 and $1,229,753 for the years ended December 31, 2024 and 2023, respectively. The losses in 2024 have been reduced by 14% compared to 2023. The 2024 losses are driven by operating expenses and other expenses, the largest components in operating expenses being consulting expenses, including stock option expenses while the largest contributor in other expenses were interest expense, amortization of debt discount, loss on equity method investment and impairment expense. The costs associated with maintaining the Company’s listing and current filing status with the SEC as expected are significant. 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 2024 stated that there was substantial doubt about the Company’s ability to continue as a going concern. 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, the 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 humidity by using advanced heating and cooling technologies. Through the acquisition of Miranda and RAKR’s own technologies the Company has multiple options to purify wastewater to potable water standards. 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 purification equipment enable decentralized deployment, in which water is distributed directly to the consumption site with no expensive piping or truck transport. Our technologies are cost-effective and can be powered by solar, wind, or grid electricity, or a combination of power sources. AW can produce roughly 5,000 liters of water per unit, per day, depending on the local climatic conditions. 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. 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 technology partner and distributor. The Rainmaker delivery systems will be installed by contracted local third-party experts that are typically Heating, Ventilation and Air Conditioning (“HVAC”) experts. We work with the end clients and their general contractors to build the supporting infrastructure required for our systems (i.e. holding tanks, platforms etc.). 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 advance to date is the acquisition of Miranda. On January 22, 2024, RWI finalized the acquisition of Miranda. 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 twenty 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 $880 billion in 2023 and is expected to expand to $1.2 trillion by 2031 (Source: Verified Market Research: www.verifiedmarketresearch.com). 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 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. By 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. Intellectual Property We have indirect access to intellectual property assets as a consequence of our partial ownership of and 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. Results of Operations for the Years ended December 31, 2024 and 2023 Revenue Revenue was $143,725 and $78,912 for the years ended December 31, 2024 and December 31, 2023, respectively. 17 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, 2024 and December 31, 2023 were as follows (in thousands): Years Ended December 31, Increase (Decrease) 2024 2023 $ % General and administrative expense $ 365 $ 623 $ (258 ) (41.5 )% Stock-based compensation expense included in general and administrative expense $ 46 $ 109 $ (63 ) (57.9 )% General and administrative expenses, including stock-based compensation, for the year ended December 31, 2024 decreased $258,580, compared to the same period in 2023. This decrease primarily relates to (1) a reduction in consulting expense of $158,583, (2) stock-based compensation decreased by $62,832, (3) a decrease of $20,782 in general and administrative expenses, and (4) travel and entertainment expense decreased by $16,903. These decreases were offset minimally by an increase in marketing and advertising expenses of $519. Excluding stock-based compensation, general and administrative expenses decreased $195,748. Segment Information Effective for the fiscal year ended December 31, 2024, the Company adopted Accounting Standards Update (ASU) ASC 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures . This standard enhances the disclosure of segment expenses and the measures used by the Chief Operating Decision Maker (CODM) in evaluating performance. As the Company has limited revenue, management continues to evaluate its business activities to determine the most relevant financial metrics for assessing performance. Currently, the Company operates as a single reportable segment and does not allocate material costs or expenses across multiple business units. The Company will continue to monitor its operational growth and assess whether additional segment disclosures become necessary in future periods. Liquidity and Capital Resources Management’s Plans While we are similar to other development stage companies, we have now pursued and executed a strategy whereby we have a full suite of products that can deliver distributed water solutions globally. To date, 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 financing. 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, 2024 and December 31, 2023, the Company had an accumulated deficit of approximately $75.1 million and $74.1 million and stockholders’ equity of approximately $(11.9) and $(10.9) million, respectively. As of December 31, 2024, the Company had approximately $116 in cash. 18 The Company recognizes and is addressing 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. Off-Balance Sheet Arrangements As of December 31, 2024, 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 a material impact on 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 in our financial statements for a discussion of our significant accounting policies. Recently Issued Accounting Standards Not Yet Effective or Adopted The Financial Accounting Standards Board (FASB) issued ASU 2024-03, which amends the disclosure requirements for the disaggregation of income statement expenses. Effective for annual reporting periods beginning after December 15, 2026, and interim periods beginning after December 15, 2027, this update requires public business entities to provide more detailed expense disclosures, including amounts for inventory purchases, employee compensation, depreciation, intangible asset amortization, and depletion in relevant expense captions. Entities must also disclose total selling expenses annually and a qualitative description of non-disaggregated amounts. Early adoption is permitted. The standard can be applied prospectively or retrospectively. 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. Item 7A. Quantitative and Qualitative Disclosures About Market Risk Not applicable.