RAKR 10-Q
Rainmaker Worldwide Inc. (RAKR)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| (Mark One) |
| QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended |
or
| TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from [ ] to [ ] |
Commission
File Number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S.
Employer Identification No.) | |
| (Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
N/A
(Former name or former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes
☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “non-accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ |
| Smaller
reporting company |
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐
APPLICABLE
ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☐ No ☐
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares of the registrant’s Common Stock, $0.001 par value, outstanding as of November 15, 2021 was .
TABLE OF CONTENTS
| Page No. | ||
| PART I | FINANCIAL INFORMATION | 4 |
| Item 1. | Financial Statements (2021 unaudited, 2020 audited) | 4 |
| Consolidated Balance Sheets | 4 | |
| Consolidated Statements of Operations and Comprehensive Loss | 5 | |
| Consolidated Statements of Stockholders’ Equity (deficit) | 6 | |
| Consolidated Statements of Cash Flows | 7 | |
| Notes to the Consolidated Financial Statements | 8-24 | |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 25 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 31 |
| Item 4. | Controls and Procedures | 31 |
| PART II | OTHER INFORMATION | 33 |
| Item 1. | Legal Proceedings | 33 |
| Item 1A. | Risk Factors | 33 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 37 |
| Item 3. | Defaults Upon Senior Securities | 37 |
| Item 4. | Mine Safety Disclosures | 37 |
| Item 5. | Other Information | 37 |
| Item 6. | Exhibits | 37 |
| SIGNATURES | 38 | |
| 2 |
CAUTIONARY NOTE REGARDING FORWARD LOOKING-STATEMENTS
This quarterly report on Form 10-Q (“Form 10-Q”) of Rainmaker Worldwide Inc. (the “Company”) includes statements that are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. In some cases, these forward-looking statements can be identified by the use of such terms as “believes,” “estimates,” “anticipates,” “expects,” “plans,” “intends,” “may,” “could,” “might,” “will,” “should,” “approximately” or the negative or other variations thereon or comparable terminology, although not all forward-looking statements contain these words. They appear in a number of places throughout this Form 10-Q and include statements regarding our intentions, beliefs, projections, outlook, analyses or current expectations concerning, among other things, our ongoing and planned discovery and development of drug candidates, the strength and breadth of our intellectual property, our ongoing and planned preclinical studies and clinical trials, the timing of and our ability to make regulatory filings and obtain and maintain regulatory approvals for our product candidates, the degree of clinical utility of our product candidates, particularly in specific patient populations, expectations regarding clinical trial data, our results of operations, financial condition, our available cash, liquidity, prospects, growth and strategies, impacts of the ongoing coronavirus (COVID-19) pandemic, the length of time that we will be able to continue to fund our operating expenses and capital expenditures, our expected financing needs and sources of financing, the industry in which we operate and the trends that may affect our industry or us.
By their nature, forward-looking statements involve risks and uncertainties because they relate to the occurrence and timing of events or circumstances, many of which are beyond the control of the Company As a result of these, we cannot assure you that the forward-looking statements in this Form 10-Q will prove to be accurate. Although we believe that we have a reasonable basis for each forward-looking statement contained in this Form 10-Q, we caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate, may differ materially from the forward-looking statements contained in this Form 10-Q. In addition, even if our results of operations, financial condition and liquidity, and the development of the industry in which we operate, are consistent with the forward-looking statements contained in this Form 10-Q, they may not be predictive of results or developments in future periods.
Some of the material factors that we believe could cause actual results to differ from those anticipated or predicted include:
| ● | potential effects of the COVID-19 pandemic on our business, financial condition, liquidity and results of operations, and our ability to continue operations in the same manner as previously conducted prior to the macroeconomic effects of the COVID-19 pandemic; |
| ● | the successful development and implementation of our sales and marketing campaigns; |
| ● | the size and growth of the potential markets for our product candidates and our ability to serve those markets; |
| ● | regulatory developments in the United States and other countries; |
| ● | our available cash; |
| ● | the accuracy of our estimates regarding expenses, future revenues, capital requirements and needs for additional financing; |
| ● | our ability to obtain additional funding; |
| ● | our ability to manufacture and the performance of third-party manufacturers; |
| ● | our ability to identify license and collaboration partners and to maintain existing relationships; and |
| ● | our ability to successfully implement our strategy. |
You should also read carefully the factors described in the “Risk Factors” section of the on Form 10-12GA. Any forward-looking statements that we make in this Form 10-Q speak only as of the date of such statement, and we undertake no obligation to update such statements to reflect events or circumstances after the date of this Form 10-Q except as required by the federal securities laws.
This Form 10-Q includes statistical and other industry and market data that we obtained from industry publications and research, surveys and studies conducted by third parties. Industry publications and third-party research, surveys and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. While we believe these industry publications and third-party research, surveys and studies are reliable, we have not independently verified such data.
| 3 |
PART I — FINANCIAL INFORMATION
| Item 1. | Financial Statements |
RAINMAKER WORLDWIDE INC.
(Formerly Gold and Silver Mining of Nevada Inc.)
Consolidated Balance Sheets
| September 30 | December 31 | |||||||
| 2021 | 2020 | |||||||
| Assets | (Unaudited) | (Audited) | ||||||
| Current Assets | ||||||||
| Cash | $ | $ | ||||||
| Other receivables | - | |||||||
| Inventory | ||||||||
| Investments | ||||||||
| Prepaid expenses | ||||||||
| Current assets of discontinued operations | - | |||||||
| Total Current Assets | ||||||||
| Net Operating Lease Right-of-Use Asset | - | |||||||
| Assets of discontinued operations | - | |||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity (Deficit) | ||||||||
| Current Liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Related party payables | ||||||||
| Accrued liabilities | ||||||||
| Operating lease liabilities | - | |||||||
| Customer deposits | ||||||||
| Contingent liability | ||||||||
| Convertible notes payable | ||||||||
| Convertible notes payable-related parties | - | |||||||
| Notes payable - related parties | ||||||||
| Other loans payable | - | |||||||
| Current liabilities of discontinued operations | - | |||||||
| Total Current Liabilities | ||||||||
| Long Term Payables | ||||||||
| Convertible notes payable | ||||||||
| LT Liabilities of discontinued operations | - | |||||||
| Total Long Term Payables | ||||||||
| Total Liabilities | $ | $ | ||||||
| Stockholders’ Equity (Deficit) | ||||||||
| Common stock - $ par value; authorized; and outstanding at September 30, 2021 and December 31, 2020, respectively | $ | $ | ||||||
| Additional paid-in capital | ||||||||
| Stock payable | - | |||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive income | ||||||||
| Total Stockholders’ Equity (Deficit) | $ | ( | ) | $ | ( | ) | ||
| Total Liabilities and Stockholders’ Equity (Deficit) | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 4 |
RAINMAKER WORLDWIDE INC.
(Formerly Gold and Silver Mining of Nevada Inc.)
Consolidated Statements of Operations and Comprehensive Loss for the three and nine month periods ended
| Three month | Three month | Nine month | Nine month | |||||||||||||
| September 30 | September 30 | September 30 | September 30 | |||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Cost of Goods Sold | - | - | - | - | ||||||||||||
| Gross Margin | - | - | - | - | ||||||||||||
| Expenses | ||||||||||||||||
| General and administrative expense | ||||||||||||||||
| Total Expenses | ||||||||||||||||
| Loss from Operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense) | ||||||||||||||||
| Gain on retirement of ARO | - | - | ||||||||||||||
| Other income | - | - | ||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total other income (expense) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss from continuing operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Discontinued operations: | ||||||||||||||||
| Loss from operations of discontinued operations | - | ( | ) | ( | ) | ( | ) | |||||||||
| Total discontinued operations | - | ( | ) | ( | ) | ( | ) | |||||||||
| Net income (loss) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Other comprehensive income (loss) | ||||||||||||||||
| Foreign exchange translation gain (loss) | ( | ) | ( | ) | ( | ) | ||||||||||
| Discontinued operations foreign exchange gain (loss) | - | ( | ) | - | ||||||||||||
| Net income (loss) and comprehensive income (loss) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss per share: | ||||||||||||||||
| Basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average number of common shares outstanding: | ||||||||||||||||
| Basic and diluted | ||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 5 |
RAINMAKER WORLDWIDE INC.
(Formerly Gold and Silver Mining of Nevada Inc.)
Consolidated Statements of Stockholders’ Equity (deficit) (Unaudited)
| Number of stock | Amount ($) | Additional paid-in capital ($) | Stock Payable | Deficit ($) | Accumulated other comprehensive income ($) | Total | ||||||||||||||||||||||
| Balance, December 31, 2019 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||
| Shares issued for debt | - | - | - | |||||||||||||||||||||||||
| Private placements | - | - | - | |||||||||||||||||||||||||
| Shares issued for services | - | - | - | |||||||||||||||||||||||||
| Conversion of convertible promissory notes | - | - | - | - | ||||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | - | |||||||||||||||||||||||
| Stock Payable | - | - | - | - | - | |||||||||||||||||||||||
| Foreign currency translation | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||
| Net gain (loss) for the year | - | - | - | - | ( | ) | - | ( | ) | |||||||||||||||||||
| Balance, December 31, 2020 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||
| Private placements | ( | ) | - | - | - | |||||||||||||||||||||||
| Conversion of convertible promissory notes | - | - | - | |||||||||||||||||||||||||
| Shares cancelled | ( | ) | ( | ) | ( | ) | - | - | - | ( | ) | |||||||||||||||||
| Disposition of discontinued operations | - | - | - | - | - | |||||||||||||||||||||||
| Foreign currency translation | - | - | - | - | - | |||||||||||||||||||||||
| Net gain (loss) for the quarter | - | - | - | - | ( | ) | - | ( | ) | |||||||||||||||||||
| Balance, March 31, 2021 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||
| Stock-based compensation | - | - | - | - | - | |||||||||||||||||||||||
| Foreign currency translation | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||
| Net gain (loss) for the quarter | - | - | - | - | ( | ) | - | ( | ) | |||||||||||||||||||
| Balance, June 30, 2021 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||
| Private Placement: | - | - | - | |||||||||||||||||||||||||
| Stock-based compensation: | - | - | - | - | - | |||||||||||||||||||||||
| Foreign currency translation: | - | - | - | - | - | |||||||||||||||||||||||
| Net gain (loss) for the quarter: | - | - | - | - | ( | ) | - | ( | ) | |||||||||||||||||||
| Balance, September 30, 2021 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 6 |
RAINMAKER WORLDWIDE INC.
(Formerly Gold and Silver Mining of Nevada Inc.)
Consolidated Statements of Cash Flows (Unaudited) for the nine month period ended
| September 30 | September 30 | |||||||
| 2021 | 2020 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net gain (loss) | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net income to net cash used for operating activities: | ||||||||
| Depreciation expense | - | |||||||
| Stock-based compensation | ||||||||
| Other income | - | |||||||
| Shares issued for services | - | |||||||
| Discount amortization | - | |||||||
| IP amortization | - | |||||||
| Provision for ARO obligation | - | ( | ) | |||||
| Non-cash Lease expense | - | |||||||
| Change in operating assets and liabilities: | ||||||||
| Accounts receivable | ||||||||
| Inventory | ( | ) | ( | ) | ||||
| Prepaid expenses | ||||||||
| Accounts payable, related party payables and accrued liabilities | ||||||||
| Customer deposits | ( | ) | ||||||
| Contract obligation | - | |||||||
| Provision for ARO obligation | - | ( | ) | |||||
| Lease liabilities | - | ( | ) | |||||
| Discontinued operations | - | |||||||
| CASH USED FOR OPERATING ACTIVITIES | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Cash paid for purchase of fixed assets | - | ( | ) | |||||
| CASH USED FOR INVESTING ACTIVITIES | - | ( | ) | |||||
| - | ||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from sale of stock | ||||||||
| Borrowed on debt | ||||||||
| Repayments on other loans payable | ( | ) | - | |||||
| CASH PROVIDED BY FINANCING ACTIVITIES | ||||||||
| Effect on Foreign Currency Exchange | ( | ) | ||||||
| NET INCREASE (DECREASE) IN CASH | ( | ) | ( | ) | ||||
| CASH AT BEGINNING OF YEAR | ||||||||
| CASH AT PERIOD END | $ | $ | ||||||
| NON-CASH TRANSACTIONS | ||||||||
| Shares issued for conversion | ||||||||
| Lease modification | - | |||||||
| Shares issued from stock payable | - | |||||||
| Conversion of AP to convertible notes payable | - | |||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 7 |
Note 1: Nature of Operations, Reverse Merger and Going Concern
Nature of Operations
Rainmaker Worldwide Inc. (“Rainmaker” or the “Company” or “RAKR”) is a Nevada company which operates Rainmaker Worldwide Inc. (Ontario) (“RWI”) with its head office in Peterborough, Ontario, Canada. The Company distributes two main types of energy-efficient, fresh water-producing technologies: (1) Air-to-Water (“AW”), which harvests fresh water from humidity in the atmosphere, and (2) Water-to-Water (“WW”), which transforms seawater or polluted water into drinking water. The technology can be wind, solar, or use conventional power sources (grid or generator), is deployable anywhere, and leaves no carbon trace if renewable resources are deployed.
Our post-restructuring business focus will deliver Water-as-a-Service (“WaaS”) i.e., selling water directly to the customer on a per liter basis. This will be executed by forming local joint venture partnerships who will in turn own the Rainmaker and related equipment. In most if not all cases, RAKR will have an ownership stake in the JV the percentage of which will be determined by the relative contribution of the stakeholders.
As
part of the asset restructuring, Rainmaker retains a
The Company will focus its future on the development of WaaS projects globally and has already set up such projects that are ready for deployment or already deployed in Turks and Caicos, Bahamas and Sri Lanka. Our business development activities are expected to yield more definitive agreements during 2021. WaaS involves the selling of produced (AW) or purified water (WW) on a per liter basis either in a bottle for drinking or in bulk for industrial and commercial services. This requires the Company to deliver its operational, maintenance, marketing and sales expertise in combination with local partners in most cases. These projects will often require working with complementary technology for post treatment of water, mineralization, bottling plant and energy companies. Business activities include the full integration of such technologies.
Reverse Merger
RWI
was incorporated on
Merger with Sphere 3D
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 of 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 focus on Water-as-a-Service (“WaaS”). Rainmaker management would have assumed operational leadership of the combined entity.
Under the terms of that agreement, Rainmaker, would have merged with S3D Nevada Inc., a Nevada company wholly owned by Sphere 3D, and the merged entity would have been a wholly owned subsidiary of Sphere 3D.
| 8 |
The
transaction was subject to completion of an equity financing, or series of financings, for a minimum of US$
On September 14, 2020 Sphere 3D announced that the Merger Agreement had been amended to change the ratio of Sphere 3D stock to be received by Rainmaker shareholders (the “Amendment”). This change was intended to better reflect the current market values of the respective companies. At closing, holders of Rainmaker common shares and holders of Rainmaker preferred shares would have each received 1/15th of a share of Sphere 3D per common or preferred share that they hold.
As
part of the Amendment, Sphere 3D also agreed to advance US$
The Merger Agreement was adjusted to become an asset purchase agreement January 3, 2021 with the same business focus, Water-as-a-Service (WaaS), which ultimately was terminated on February 12, 2021 and was subsequently announced publicly. Rainmaker is continuing its ordinary course of business focusing on WaaS.
Going Concern
The
Company has incurred continuing losses from its operations and has an accumulated deficit of $
The Company’s ability to continue its operations and to pay its obligations when they become due is contingent upon the Company obtaining additional financing. Management’s plans include seeking to procure additional funds through debt and equity financings to enable it to meet its operating needs including current and future sales orders. In addition, revenues are being forecasted at the operational level considering the imminent implementation of local JV-based WaaS agreements once travel restrictions due to COVID permit.
Note 2: Significant Accounting Policies
Basis of Preparation
The consolidated financial statements presented are for the entity Rainmaker and its wholly owned subsidiary, Rainmaker Worldwide Inc. (Ontario) and Rainmaker Holland B.V. (“RHBV” Discontinued Operations) as a consolidated entity. The consolidated financial statements have been prepared in accordance with United States Generally Accepted Accounting Principles.
The preparation of the consolidated financial statements in conformity with United States Generally Accepted Accounting Principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
| 9 |
All accounting policies are chosen to ensure the resulting financial information satisfies the concepts of relevance and reliability.
Foreign Currency Translation
The reporting currency of the Company is the United States dollar. The financial statements of discontinued operations and the subsidiary located outside of the United States are measured in their functional currency: Rainmaker Worldwide Inc. (Ontario) reports in Canadian dollars and Rainmaker Holland B.V. reports in Euros. Monetary assets and liabilities of these subsidiaries are translated at the exchange rates at the balance sheet date. Income and expense items are translated using average annual exchange rates. Non-monetary assets are translated at their historical exchange rates. Translation adjustments are included in accumulated other comprehensive income in the consolidated balance sheets.
Intangible Assets
The Company acquired intellectual property including know-how and patents in the December 2015 Asset Purchase Agreement whereby Rainmaker Worldwide Inc. (Ontario) purchased the assets of Dutch Rainmaker B.V. (“DRM”) and Wind En Water Technologie Holding B.V. (“WWT”). Commencing January 2016, the Company has amortized the patents and know-how using the average life expectancy of the patents which is 14 years. As discussed in Note 19 (Discontinued Operations), these intangible assets are part of the restructuring agreement.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and any recognized impairment loss. Cost includes the original purchase price of the asset and any costs attributable to bringing the asset to its working condition for its intended use.
Depreciation is provided at rates estimated to write off the cost of the relevant assets less their estimated residual values by equal annual amounts over their expected useful lives. Residual values and expected useful lives are reviewed and adjusted, if appropriate, at the end of each reporting period. Depreciation periods for the Company’s property and equipment are as follows:
Manufacturing
Equipment – | |
| Office
Furniture & Equipment – |
Demonstration
Equipment – |
| Intellectual
Property – |
Computer
Software – |
Embedded Conversion Features
The Company evaluates 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 does not require derivative treatment under ASC 815, the instrument is evaluated under ASC 470-20 Debt with Conversion and Other Options for consideration of any beneficial conversion features.
Demonstration Equipment
Demonstration equipment is stated at cost less accumulated depreciation and any recognized impairment loss. Cost includes the original purchase price of the asset and any costs attributable to bringing the asset to its working condition for its intended use.
Depreciation for the demonstration equipment is at a rate estimated to write off the cost of the equipment less its estimated residual value by an equal annual amount over its expected useful life. The residual value and expected useful life of the demonstration equipment is reviewed and adjusted, if appropriate, at the end of each reporting period.
| 10 |
Revenue Recognition
In May 2014, the FASB issued an accounting standard update (‘ASU”), 2014-09, Revenue from Contracts with Customers (Topic 606). This ASU amends the existing accounting standards for revenue recognition and is based on the principle that revenue should be recognized to depict the transfer of goods or services to a customer at an amount that reflects the consideration a company expects to receive in exchange for those goods or services. On January 1, 2018, the Company adopted the new Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers using the modified retrospective method, and the Company determined the new guidance does not change the Company’s policy of revenue recognition.
The Company has three sources of revenue. The first is through the direct sales of water production and purification systems. A contract with a customer is established once an agreement is signed and the initial down payment is received. Each transaction price is established in the signed contract. Unearned revenue is recognized upon receipt of the down payment for the system. The revenue is recognized once title of the system transfers to the customer. The nature of the business of equipment sales implies there is only one performance obligation which is delivery of the end product to the customer. Our contracts outline each party’s rights and obligations including the terms and timing of payments.
The second is through participation in WaaS partnerships. These partnerships will purchase the machines from the Company and the revenue is recognized in accordance with the corresponding rules. These partnerships will also generate revenue sharing as water is sold in accordance with the various agreements and that revenue is recognized in the period it is earned. The third source of revenue is in exchange for operating, maintenance and professional services to these joint ventures. That revenue is recognized in the period it is earned.
In June 2018, the FASB issued guidance clarifying the revenue recognition and measurement issues for grants, contracts, and similar arrangements, ASU Topic 958. Government grants and contracts are agreements that generally provide cost reimbursement for certain types of expenditures in return for research and development activities over a contractually defined period. During 2019, RHBV received a Grant from the European Commission. That Grant and associated contract with European Commission has been analyzed and it has been determined it is a non-exchange transaction and falls within the scope of ASU 958, and revenue should be recognized in accordance with Topic 958 guidance. Accordingly, the Company recognizes revenue from its grant and contract in the period during which the related costs are incurred, provided that the conditions under which the grants and contracts were provided have been met and only perfunctory performance obligations are outstanding.
Related Party Transactions
Parties are considered to be related if one party has the ability to directly or indirectly control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence. Related parties may be individuals or corporate entities. A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties. Related party transactions that are in the normal course of business and have commercial substance are measured at the exchange amount.
Share-based Payment Expense
The Company follows the fair value method of accounting for stock awards granted to employees, directors, officers, and consultants. Share-based awards to employees are measured at the fair value of the related share-based awards. Share-based payments to others are valued based on the related services rendered or goods received or if this cannot be reliably measured, on the fair value of the instruments issued. Issuances of shares are valued using the fair value of the shares at the time of grant; issuances of options are valued using the Black-Scholes model with assumptions based on historical experience and future expectations.
| 11 |
Asset Retirement Obligation
Included in the assets acquired in the December 2015 Asset Purchase Agreement, the Company obtained an obsolete wind turbine located in Leeuwarden, Netherlands. In accordance with ASC 410, Asset Retirement and Environmental Obligations and pursuant to the guidelines of the City of Leeuwarden for land leases, the Company was required to decommission the turbine including disassembly and removal of wind turbine generator and tower, substation and interconnection facilities, as well as foundation for the tower, and to provide for restoration of the property to its original state. The Company recorded an initial asset retirement obligation at fair value as a liability in the period in which a legal obligation associated with the retirement of tangible long-lived assets occurs. The liability is accreted each period over the maximum term of the contractual agreements. The Company records the offsetting asset to the initial obligation as an increase to the carrying amount of the related long-lived asset and depreciates that cost over the maximum term of the contractual agreements. In July 2020, the asset was dismantled, and the asset retirement obligation eliminated. (See Note 16).
Financial Liabilities and Equity Instruments
Financial liabilities and equity instruments are classified and accounted for as debt or equity according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Company after deducting all of its liabilities.
Marketing, Advertising and Promotional Costs
As required by Generally Accepted Accounting Principles of the United States, the Company records marketing costs as an expense in the year to which such costs relate. The Company does not defer amounts on its year-end consolidated balance sheets with respect to marketing costs. Advertising costs are expensed as incurred.
Segment Reporting
ASC 280-10, “Disclosures about Segments of an Enterprise and Related Information”, establishes standards for the way that public business enterprises report information about operating segments in the Company’s consolidated financial statements. Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the Chief Executive Officer in deciding how to allocate resources and assess performance. The Company has reportable segments in the United States, Canada and The Netherlands (discontinued operations).
| September 30 | September 30 | |||||||
| 2021 | 2020 | |||||||
| Gross Profit | ||||||||
| United States | ||||||||
| Europe-discontinued operations | ||||||||
| Canada | ||||||||
| $ | $ | |||||||
| Net Loss | ||||||||
| United States | ||||||||
| Europe-discontinued operations | ||||||||
| Canada | ||||||||
| $ | $ | |||||||
| Assets | ||||||||
| United States | ||||||||
| Europe-discontinued operations | ||||||||
| Canada | ||||||||
| $ | $ | |||||||
| 12 |
Use of Estimates
The preparation of financial statements in conformity with Generally Accepted Accounting Principles of the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the year. Management bases its estimates on historical experience and on other assumptions considered to be reasonable under the circumstances. However, actual results may differ from the estimates.
The Company reports loss per share in accordance with ASC 260, “Earnings per Share”. Basic loss per share is computed by dividing net loss by the weighted average number of common stock outstanding during each period. Diluted loss per share is computed by dividing net loss by the weighted average number of shares of common stock and other potentially dilutive securities outstanding during the year. To the extent that the fully diluted shares exceed the authorized capital at any point in time, action will be taken by the Executive Management and Board of the Company to ensure those shares are available for distribution.
Income Taxes
The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, we determine deferred tax assets and liabilities on the basis of the differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
The Company recognizes deferred tax assets to the extent that we believe that these assets are more likely than not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If we determine that we would be able to realize our deferred tax assets in the future in excess of their net recorded amount, we would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.
The Company records uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in which (1) we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.
Income tax assets and liabilities for the current period are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted by the date of the statement of financial position.
Equity-Settled Transactions
The costs of equity-settled transactions with employees are measured by reference to the fair value at the date on which they are granted.
The costs of equity-settled transactions are recognized, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (“the vesting date”). The cumulative expense is recognized for equity-settled transactions at each reporting date until the vesting date reflects the Company’s best estimate of the number of equity instruments that will ultimately vest. The profit or loss charge or credit for a period represents the movement in cumulative expense recognized as at the beginning and end of that period and the corresponding amount is represented in share-based compensation reserve.
No expense is recognized for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vesting irrespective of whether or not the market condition is satisfied provided that all other performance and/or service conditions are satisfied.
| 13 |
Where the terms of an equity-settled award are modified, the minimum expense recognized is the expense as if the terms had not been modified. An additional expense is recognized for any modification which increases the total fair value of the share-based payment arrangement or is beneficial to the employee as measured at the date of modification.
Inventory
Inventory and work in progress are valued at the lower of cost and net realizable value. The production cost of inventory includes an appropriate proportion of depreciation and production overheads based the ratio of indirect vs. direct costs. Cost is determined on the following bases: Raw materials and consumables are valued at cost on a first in, first out (FIFO) basis; finished products are valued at raw material cost, labor cost and a proportion of manufacturing overhead expenses.
Financial Instruments
ASC 820 “Fair Value Measurements and Disclosures” provides the framework for measuring fair value. That framework provides a fair value hierarchy prioritizing the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements).
Fair value is defined as an exit price, representing the amount that would be received upon the sale of an asset or payment to transfer a liability in an orderly transaction between market participants.
Fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or liability. A three-tier fair value hierarchy is used to prioritize the inputs in measuring fair value as follows:
Level 1 - Quoted prices in active markets for identical assets or liabilities.
Level 2 - Quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable, either directly or indirectly.
Level 3 - Significant unobservable inputs that cannot be corroborated by market data.
The Company’s policy is to recognize transfers into and out of Level 3 as of the date of the event or change in the circumstances that caused the transfer. There were no such transfers during the periods being reported.
Customer Concentration
Due to the infancy of the Company’s market penetration, current sales are concentrated on a limited number of customers.
Cash and Cash Equivalents
The
Company considers all highly liquid instruments with a maturity of three months or less to be cash equivalents. The Company maintains
the majority of its cash accounts at a commercial bank. Cash balances are insured by the Canada Deposit Insurance Corporation (“CDIC”)
up to CAD$
Note 3: Convertible Notes Payable
On
June 30, 2017, Gold and Silver Mining of Nevada, Inc. held unsecured, matured and past due convertible notes payable of $
| 14 |
The following summarizes the above notes including notes forgiven:
| ● | Original
note of $ |
| ● | Original
note of $ |
| ● | Original
note of $ |
| ● | Original
note of $ |
| ● | All
of the above notes were convertible at $ |
Following
the Merger, $
On
May 14, 2020, $
On
June 15, 2020, $
On
June 29, 2020, $
As
a result of the above conversions there are $
On
May 10, 2018, the Company entered into a $
In
exchange for the above note dated May 10, 2018, the holder advanced the Company an additional $
On
September 10, 2019, the Company issued two notes each for $
On
November 5, 2019, the Company entered into a convertible loan agreement. This loan agreement is for the aggregate amount of $
| 15 |
On
April 2, 2020, the Company issued two convertible promissory notes of $
On
September 14, 2020, the Company issued a Senior Secured Convertible Promissory Note in the amount of $
On
February 22, 2021, to settle accounts payables due to various entities, the Company issued Convertible Promissory Notes totaling $
During
2020 the Company recognized $
Note 4: Convertible Notes Payable, Related Parties
On
April 18, 2019, the Company entered into a convertible loan agreement with an entity that is controlled by an officer of the Company.
This loan agreement was for the aggregate amount of $
On
September 10, 2019, the Company entered into two convertible promissory notes with an entity controlled by an officer of the Company
each in the amount of $
Compensation
was due to members of the executive management team in the amount of $
| 16 |
Compensation
due to members of the executive management team in the amount of $
Note 5: Notes Payable, Related Parties
The
Company recorded interest expense for the amortization of the discount related party convertible notes in the amount of $
Promissory
notes amounting to $
Note 6: Other Loans Payable
On
January 25, 2019, the Company entered into a loan agreement for $
On
August 4, 2020, the Company entered into a loan agreement for $
The
City Development Fund (“SOFIE”) in Rotterdam, The Netherlands, is an initiative of the municipality of Rotterdam and is made
possible through funds from the European Regional Development Fund. The SOFIE fund was created in the summer of 2013 with the goal of
making the Rotterdam City Ports more attractive to new entrepreneurship.
On
February 2, 2021, the company entered into a short-term loan agreement in the amount of $
| 17 |
Note 7: Intellectual Property
On December 21, 2015, the Company, through its subsidiary, RWI, agreed to purchase the intangible assets of WWT/DRM, companies incorporated in Netherlands. WWT/DRM developed and exclusively owned all necessary know-how, patents, patent applications and technology allowing for the manufacture and commercial sale of water treatment and processing systems using renewable energy. This know-how and technology, at the time, was collectively known as the Dutch Rainmaker system. The resultant products remain the basis for the Company to deliver WaaS to its customers. The original purchase price in 2015 included stock and future royalty obligations based on sales of equipment. The Company evaluated the Intellectual Property for impairment as of December 31, 2020, and determined a full impairment was necessary. As part of the restructuring completed March 31, 2021, any obligation under the original agreements became the full responsibility of RHBV who, in turn, issued shares in RHBV to satisfy these obligations (see Note 19 on Discontinued Operations).
Note 8: Property and Equipment
Demonstration Equipment
Demonstration equipment is stated at cost less accumulated depreciation and any recognized impairment loss. Cost includes the original purchase price of the asset and any costs attributable to bringing the asset to its working condition for its intended 10-year useful life.
The Company has created demonstration equipment to allow it to show a working version of its technology and equipment to customers and organizations. The demonstration equipment was completed in September 2017 therefore the Company commenced depreciation in the 4th quarter of 2017.
Depreciation
for the demonstration equipment is at a rate estimated to write off the cost of the equipment less its estimated residual value by an
equal annual amount over its expected useful life. The residual value and expected useful life of the demonstration equipment is reviewed
and adjusted, if appropriate, at the end of each reporting period. The depreciation period for the Company’s demonstration equipment
is
As part of the restructuring, Demonstration Equipment remains with RHBV and is included in assets of discontinued operations. See Note 19 for full details.
Note 9: Common Stock
Common Stock
As at December 31, 2020, the Company has authorized common stock with $ par value with shares outstanding. At September 30, 2021, shares are outstanding. The following table details the number of common stock issued:
| Number of Stock | ||||
| Balance, December 31, 2019 | ||||
| Shares issued for debt | ||||
| Private placements | ||||
| Shares issued for services | ||||
| Conversion of convertible promissory notes | ||||
| Balance, December 31, 2020 | ||||
| Private placements | ||||
| Conversion of convertible promissory notes | ||||
| Shares cancelled | ( | ) | ||
| Balance, March 31, 2021 | ||||
| Balance, June 30, 2021 | ||||
| Private placements | ||||
| Balance, September 30, 2021 | ||||
In
Q1 2020, the remaining two convertible promissory notes issued on September 10, 2019 totaling $
On February 28, 2020, the Company issued restricted common stock at $ per stock in fulfillment of a services contract entered into September 11, 2019.
| 18 |
In
Q1 2020, the Company completed a private placement raising gross proceeds of $
In
Q2 2020, the Company completed a private placement raising gross proceeds of $
In
Q2 2020, the Company issued shares of common stock for the conversion of $
In
Q2 2020, the Company issued shares of common stock for the conversion of $
On
June 15, 2020, the Company executed a contract for the provision of services. The first invoice of that contract totaled $
On
August 7, 2020, under the above contract for services, the Company issued shares of restricted common stock valued at $
per share, the closing market price on July 31, 2020. This issuance related to the second invoice in the amount of $
December
2020, the Company sold shares for total proceeds of $
On February 8 & 9, 2021, the Company issued a total of restricted shares upon conversion of promissory notes. (See Note 4 for details).
On March 4, 2021, the Company issued a total of restricted shares as settlement of various debts. (See Note 3 for details).
On March 31, 2021, as part of the restructuring agreement, shares were returned to the Company and subsequently cancelled.
On
September 8, 2021, the Company sold shares for total proceeds of $
Note 10: Related Party Transactions
Outstanding
compensation and expense reimbursements due to consultants engaged by the Company $
The
Company’s head office location in Peterborough, Ontario, Canada, is leased from an entity controlled by the Executive Chairman
of the Company. Lease expense for the period is $
Refer to other related party payables in Notes 4 and 5.
The Company entered into an agreement regarding Royalties Payable in 2020, however, as part of the restructuring completed March 31, 2021, the Company no longer bears any responsibility for financial obligations under this agreement. See further discussion in Note 19.
Note 11: Commitments and Contingencies
In the ordinary course of operating the Company’s business, it may, from time to time, be subject to various claims or possible claims. Management’s view that there are no claims or possible claims that if resolved would either individually or collectively result in a material adverse impact on the Company’s financial position, results of operations, or cash flows. These matters are inherently uncertain, and management’s view of these matters may change in the future.
On
April 27, 2018, the Company located a judgement dated August 8, 2016 against six Defendants including a former subsidiary of the Company
as well as a predecessor of the Company as currently named and constituted. The amount of the judgement including costs is $
| 19 |
Note 12: Inventory
Inventory is stated at the lower of cost or market. Cost is recorded at standard cost, which approximates actual cost, on the first-in first-out basis.
| Quarter ended September 30 | Year ended December 31 | |||||||
| 2021 | 2020 | |||||||
| Finished Goods | $ | $ | ||||||
| Components | - | - | ||||||
| Discontinued operations | - | |||||||
| Total Inventory | $ | $ | ||||||
Note 13: Leases
The Company determines whether a contract is or contains a lease at inception of the contract and whether that lease meets the classification criteria of a finance or operating lease. When available, the Company uses the rate implicit in the lease to discount lease payments to present value; the Company’s leases do not provide a readily determinable implicit rate. Therefore, the Company must discount lease payments based on an estimate of its incremental borrowing rate.
The following are the lease related assets and liabilities recorded on the Company’s consolidated balance sheet.
| Quarter ended September 30 | Years ended December 31 | |||||||
| 2021 | 2020 | |||||||
| Classification on Balance Sheet | ||||||||
| Assets | ||||||||
| Operating lease right of use assets | - | |||||||
| Operating lease right of use assets-discontinued operations | - | |||||||
| Total lease assets | $ | $ | ||||||
| Liabilities | ||||||||
| Current liabilities | ||||||||
| Operating lease liability | - | |||||||
| Operating lease liability-discontinued operations | - | |||||||
| Total lease liability | $ | $ | ||||||
The
lease expense for the period ended September 30, 2021 from continuing operations is $
Note 14: Stock Option Plan
The Company’s 2017 Equity Incentive Plan (the “Option Plan”) was established to attract, retain, incentivize and motivate officers and employees of, consultants to, and non-employee directors providing services to the Company and its subsidiaries and affiliates and to promote the success of the Company by providing such participating individuals with a proprietary interest in the performance of the Company. Effective July 3, 2017, at the time of completion of the Merger, the Board adopted the Option Plan under which up to twenty percent of the outstanding shares of common stock of the Company (“Shares”) may be reserved for the issuance of options to purchase Shares (“Options”). The previous Option Plan was administered by the Board, which has all of the powers necessary to enable it to carry out its duties under any Option Plan, including the power and duty to construe and interpret any Option Plan and to determine all questions arising under it. Under the Option Plan, “Eligible Individuals” includes officers, employees, consultants, advisors and non-employee directors providing services to the Company and its subsidiaries and affiliates. In the future, the Board will determine which Eligible Individuals will receive grants of options.
| 20 |
Commencing July 3, 2017, in fulfillment of conditions contained in the share exchange agreement and other contracts, the Board authorized the grant of the following Options:
| ● |
Options to four individuals who are officers and/or directors as compensation for the termination of certain RWI stock option rights;
these options are fully vested, expire on and are exercisable at a price of $ | |
| ● |
Options to seven individuals who are officers and/or directors or contractual service providers; one third of these Options vested
on while the balance vest monthly over a period of 24 months; they have a term of and are exercisable at a price
of $ | |
| ● |
Options to a director; of these Options vested on while the balance vest monthly over a period of 24 months;
they have a term of and are exercisable at a price of $ | |
| ● |
Options to an officer; of these options vested on October 10, 2017; vested on January 13, 2018 and the balance vest
monthly over a period of 24 months thereafter; they have a term of and are exercisable at a price of $ | |
| ● |
Options to a contractual service provider; one third of these options vested on ; the balance vest monthly over a period
of 24 months thereafter; they have a term of and are exercisable at a price of $ | |
| ● |
Options to a contractual service provider; one third of these options vested on ; the balance vest monthly over a period
of 24 months thereafter; they have a term of and are exercisable at a price of $ | |
| ● |
Options to a contractual service provider; one third of these options vested on ; the balance vest monthly over a period
of 24 months thereafter; they have a term of and are exercisable at a price of $ | |
| ● |
Options to a contractual service provider; exercisable at $ | |
| ● |
Options to the five members of the Company’s Strategic Advisory Board; vesting monthly commencing July 3, 2017 over a period
of 24 months, have a term and are exercisable at a price of $ | |
| ● |
Options to a contractual service provider; of these options vested on February 15, 2018; the balance vest monthly over a
period of 24 months thereafter; they have a term of and are exercisable at a price of $ | |
| ● | On
February 15, 2018, the Board authorized the grant of options to a newly appointed Director of the Board; vested on
February 15, 2018 with the remainder vesting monthly over a period of 24 months with a term of years and exercisable at a price
of $ | |
| ● | On
April 15, 2018, the Board authorized the grant of options to a newly appointed Director of the Board; vested on April
15, 2018 with the remainder vesting monthly over a period of 24 months with a term of and exercisable at a price of $ |
| 21 |
| ● | Effective September 30, 2019, the Board of Directors approved the immediate vesting of all remaining options resulting in the immediate recognition of the of the remaining option expense. | |
| ● | In January 2020, all holders of options agreed to waive their right to exercise the above options. | |
| ● | On January 22, 2020, the Company entered into a three-year consulting agreement with a third party for consulting and business development services. The contract includes warrants as follows: |
| ○ |
exercisable at $ | |
| ○ |
exercisable at $ | |
| ○ |
exercisable at $ |
| On
December 22, 2020, the Company terminated this agreement thereby cancelling the 2nd and 3rd warrant blocks.
The first tranche of remain in effect under the same conditions and expiring | ||
| ● | On
January 21, 2020, the Company entered into a three-year consulting agreement with a company controlled by its new CEO. The contract
included warrants with an exercise price of $ | |
| ● | On
October 1, 2020, the Company entered into a consulting agreement with an Advisor which granted warrants in full compensation for
services. It included warrants at an exercise price of $ | |
| ● | On
April 1, 2021, the Company granted options as part of an amendment to an Executive Consultant’s contract;
options vest per month commencing April 1, 2021 with a term of and exercisable at a price of $ | |
| ● | For
the period ended December 31, 2020, the Company recorded a stock option expense of $ |
| Warrants and Options | ||||||||||||||
| Vested | Granted | Vested | Non-Vested | |||||||||||
| Dec 31, 2020 | To Sep 30, 2021 | To Sep 30, 2021 | To Sep 30, 2021 | |||||||||||
| ● | The assumptions used in the Company’s Black Scholes option pricing is as follows: |
| Stock Price | $ | -$ | ||
| Exercise Price | $ | -$ | ||
| Number of Options Granted | ||||
| Dividend Yield | % | |||
| Expected Volatility | - | % | ||
| Weighted Average Risk-Free Interest Rate | - | % | ||
| Term (in years) | - |
| 22 |
Note 15: Income Taxes
The
Company recognizes deferred tax assets and liabilities using the asset and liability method. Deferred tax assets and liabilities are
recorded based on the differences between the financial statement and tax bases of assets and liabilities and the tax rates in effect
when these differences are expected to reverse. This method requires the reduction of deferred tax assets by a valuation allowance if,
based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
As of December 31, 2020, the Company’s deferred tax assets relate to net operating loss (“NOL”) carryforwards that
were derived from operating losses and stock-based compensation from prior years. A full valuation allowance has been applied to the
Company’s deferred tax assets. The valuation allowance will be reduced when and if the Company determines it is more likely than
not that the related deferred income tax assets will be realized. At September 30, 2021, the Company had federal net operating loss carryforwards,
which are available to offset future taxable income, of $
| Quarter ended September 30 | Year ended December 31 | |||||||
| 2021 | 2020 | |||||||
| Net Loss | ( | ) | ( | ) | ||||
| Add back: | ||||||||
| Stock Compensation | ||||||||
| Amortization of Debt Discount | ||||||||
| Taxable Income | ( | ) | ( | ) | ||||
| Tax Rate | % | % | ||||||
| Deferred Tax Asset: | ||||||||
| Net Operating (Gain) Loss | ||||||||
| Valuation Allowance | ( | ) | ( | ) | ||||
| Net Deferred Asset | ||||||||
Note 16: Asset Retirement Obligation
The
Company recorded an asset retirement obligation of $
Note 17: European Commission Grant
In
Q3 2019, RHBV was awarded a €
Note 18: Investments
The
Company will hold, based on an investment of $
| 23 |
Note 19: Discontinued Operations
On March 31, 2021, the Company, including Rainmaker-Ontario, came to an agreement with Rainmaker Holland B.V. (“RHBV”), Dutch Rainmaker B.V. and Wind en Water Technologie Holding B.V. These companies were considered related parties on that date due to stock ownership of more than 10%. The parties agreed to an exchange of contractual obligations, debt owed, an exchange of shares 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. These initiatives were taken subsequent to the mutual decision among the parties to cancel the Sphere 3D Asset Purchase Agreement (see Note1, “Merger with Sphere 3D”). After the termination of that agreement, the Company and RHBV decided to restructure to optimize and broaden access to 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.
| Change to APIC for Disposition of Discontinued Operations | ||||
| Notes Payable moved to RHBV | $ | |||
| Accrued Interest on Notes Payable | ||||
| Royalties Payable moved to RHBV | ||||
| Elimination of Intercompany Loans | ( | ) | ||
| Return Common Shares for Cancellation () | ||||
| Accumulated Losses of Discontinued Operations | ||||
| Total change to APIC for Disposition of Discontinued Operations | $ |
Note 20: Subsequent Events
On October 18, 2021 the Company received notice that the United States Securities and Exchange Commission (SEC) completed their review of the Registration Statement on Form 10 that the Company submitted on July 19, 2021. The Company will take the next step and file an application with the OTC to up-list to the OTCQB. Management has evaluated subsequent events through November 15, 2021.
| 24 |
Item 2. 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-Q 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 unaudited financial statements, and the related footnotes thereto, appearing elsewhere in this Form 10-Q, 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 Water-as-a-Service (“WaaS”) projects in various locations around the globe. 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 as well as having strategic and management influence by virtue of a seat on RHBV’s Advisory Board. RAKR retains access to such technology based on a cost-plus formula, which was negotiated in an exclusive WaaS Distribution Agreement with RHBV.
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 BV (“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, our distribution partners, and RHBV.
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 of 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 now trades on the OTC Pink Sheet under the trading symbol, RAKR.
On March 31, 2021, the Company, including RWI, entered a business agreement with RHBV, DRM and Wind en Water Technologie Holding B.V. (“WWT”). These companies were considered related parties on that date in 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. These initiatives were taken subsequent to the mutual decision among the parties to cancel the Sphere 3D Asset Purchase Agreement. After the termination of this agreement, 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.
| 25 |
The Company operates out of its head office based in Peterborough, Ontario, Canada. In support of its WaaS project implementation strategy the Company plans to utilize will use 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 deliver WaaS, i.e., selling water directly to the customer on a per liter basis, using the two Rainmaker technologies discussed above or other complementary technologies acquired or licensed by the Company. This focus shall be administered by forming local joint venture partnerships (“JV”) where demand exists with profitable pricing scenarios. The JVs will in turn own the water delivery system and related equipment. 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.
The Company has concurrently planned and implemented various WaaS projects in Turks and Caicos, Bahamas and Sri Lanka. Moreover, although there can be no assurance, our business development activities are expected to yield more commercial contracts in 2021. Principally, WaaS involves the selling of produced (AW) or purified water (WW) on a per liter basis either in a bottle for drinking or in bulk for industrial and commercial services. This commercial activity requires the Company to deliver operational, maintenance, marketing and sales expertise in combination with local partners in most dealings. Usually, projects often require working with complementary technology for post treatment of water and mineralization in tandem with bottling plants and renewable energy businesses. Additional commercial activities include but are not limited to the integration of the foregoing technologies and post implementation operation and maintenance-based functions.
When deploying WAAS projects it is imperative to identify access to suitable property to locate the equipment and provide access for customers to purchase water by the bottle or larger container. In the case of the Company’s Caribbean projects, this land access has been identified, primarily in inland housing developments. The Company has also specified all of the required supplemental equipment for bottling, post water treatment and mineralization. Once the machines are able to be shipped the Company will be in a position to provide a turnkey service.
The Company has generated limited revenue up until the present time, and its operations for the past three 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 $2,558,279, as of December 31, 2020. As of September 30, 2021, net assets were $692,028, 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 and is expecting to build a complete, full-time staff in the coming months as machines are delivered to final destinations and revenue is collected. Sales are heavily driven by independent distributors and project developers. The Company had revenues of $0 and $189,237 and net losses of $22,645,794 and $8,019,386 for the years ended December 31, 2020 and 2019, respectively. As of September 30, 2021, the Company had no revenue and a net loss of $2,162,913. A large proportion of these losses relate to uncustomary expenses associated with the restructuring ($467,118 amortization of debt discount and non-recurring consultancy expenses of $587,500). The losses associated with discontinued operations ($333,733) are not expected to reoccur in future years. The total of these three expense categories is $1,388,351 or 64% of the net loss. 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. In the Company’s auditor’s report dated November 15, 2021, RAKR’s auditor stated that there was substantial doubt about the Company’s ability to continue as a going concern.
Impact of COVID-19
On March 11, 2020, the World Health Organization categorized COVID-19 as a pandemic.
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As a global corporation the economic effects within the Company’s environment have been substantial. In global markets, disruptions in supply chains and increases in related costs have been a real impact on our ability to deliver WaaS 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) have 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 nineteen months ago. For the Company, it is particularly disruptive because of limitations on our business development and engineering experts to travel and implement projects. As global operations open, we expect that we will begin to track according to the original business plan.
Products and Services
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 WaaS 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. In the main, we substantially out-perform peer competitors because we can deploy remotely where the water is consumed. 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 Competitiveness
With the core focus on WaaS delivered on a per liter basis, the relevant Cost Information is the cost per liter of alternative suppliers. Currently in remote locations, the main supplier 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 through our distributed WaaS model and distribution agreement with RHBV, 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.
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.
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WaaS Recurring Revenue Model
The RAKR business model begins with the identification of a trusted local partner. 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 contracts with local third-party experts that are typically Heating, Ventilation and Air Conditioning (“HVAC”) experts.
The RAKR model charges a market determined price per liter of bottled water or similarly treated water. Revenue sources include bottled water, bulk water, and industrial water. A representative project in the Caribbean currently under development is expected to generate $110,000 dollars in revenue per month once seven allocated machines are operational. The capital expenses for the project are roughly $650,000 and the payback is less than one year. This representative project reflects the project profile that we will be seeking in the future.
We believe the value we will offer through our WaaS projects is based on the following factors:
| (1) | There are no upfront costs to the customer. | |
| (2) | Capital costs are borne through the JVs and other partnerships. Only end-consumers of the water pay on a per liter basis. | |
| (3) | And, (1) and (2) make it economically viable to deploy in communities that do not have the resources or network infrastructure to independently finance projects that require high amounts of financial capital. |
Potential Improvements
Potential improvements and related applications that we are pursuing or plan to pursue include the following:
| (1) | Seek more strategic and technology-based partnerships with complementary technology and business development companies to expand our global reach and service offering. | |
| (2) | Work with RHBV to identify relevant technological advances based on lessons learned from previously implemented projects to reduce total costs and enhance net profits. |
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) |
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 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.
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The above reasons point 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.
Current Projects
Representative existing projects that reflect the global needs are as follows:
| (1) | Turks and Caicos | |
| (2) | Bahamas |
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. This supply chain, like so many others globally, is suffering from delays and costs are rising significantly as a result. Nonetheless, ongoing projects remain interested and as soon as we can execute delivery we expect to rapidly deploy in various locations. Should RHBV not supply the appropriate scale of technology required by a project, RAKR has identified multiple technologies of different sizes and types.
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 for any given WaaS project planned implemented by the Company.
Competition
With the reorientation of the Rainmaker business model that delivers potable water at the source of demand, we believe that competitive models, while relevant and plausible alternatives, will not ultimately 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
Over time, RAKR will seek subsidies and incentives through its deployment of WaaS 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 DRM. We believe that this allows us to maintain an edge in the competitive process from a technology and economic cost perspective.
Results of Operations for the Nine Months Ended September 30, 2021 and 2020
Revenue
Revenue was $0 for the nine months ended September 30, 2021 and September 30, 2020.
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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 nine months ended September 30, 2021 and September 30, 2020 were as follows (in thousands):
| Nine
Months Ended September 30, | Increase
(Decrease) | |||||||||||||||
| 2021 | 2020 | $ | % | |||||||||||||
| General and administrative expense | $ | 1,108 | $ | 2,384 | $ | (1,276 | ) | (53.5 | )% | |||||||
| Stock-based compensation expense included in general and administrative expense | $ | 40 | $ | 14,075 | $ | (14,035 | ) | (99.7 | )% | |||||||
General and administrative expenses for the nine months ended September 30, 2021 decreased approximately $1.28 million, or 53.5%, compared to the same period in 2020. This decrease primarily relates to (1) a decrease of $14.04 million in stock-based compensation, (2) marketing and advertising decreased $0.8 million, (3) depreciation expense reduced by approximately $0.4 million and (4) rent expense reduced by $23,187 due to the reduction in our commitment of our office lease. These decreases were partially offset by a minor increase in consulting expense.
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 required cash resources to fully execute our business plans. However, we have approximately $400,000 in inventory we believe can be easily converted into revenue once logistics bottlenecks are opened up that may provide sufficient interim cash resources until such time as we may arrange a larger financing. Furthermore, once this inventory is delivered to the ultimate destination it should start to generate recurring revenue.
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 date of this filing, the Company raised approximately $7.7 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 September 30, 2021 and September 30, 2020, the Company had an accumulated deficit of approximately $70.4 million and $68.3 million, respectively, and stockholders’ equity of approximately $(8.3) million and $(14.4) million, respectively. As of September 30, 2021, the Company had approximately $25 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.
Off-Balance Sheet Arrangements
As of September 30, 2021, the Company had no off-balance sheet arrangements.
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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
Management does not believe that any recently issued, but not yet effective accounting pronouncements, if adopted, would have a material impact on the accompanying condensed consolidated financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As of September 30, 2021, Rainmaker had limited to no market exposure. We do not expect it to materially affect the Company’s business.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Based on an evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) required by paragraph (b) of Rule 13a-15 or Rule 15d-15, as of September 30, 2021, our Chief Executive Officer and Acting Chief Financial Officer has concluded that our disclosure controls and procedures were not effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms. Our Chief Executive Officer and Acting Chief Financial Officer also concluded that, as of September 30, 2021, our disclosure controls and procedures were not effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Acting Chief Financial Officer, to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control over Financial Reporting
We are responsible for establishing and maintaining adequate internal control over financial reporting in accordance with Exchange Act Rule 13a-15. With the participation of our Chief Executive Officer and Acting Chief Financial Officer, our management conducted an evaluation of the effectiveness of our internal control over financial reporting as of September 30, 2021 based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013). Based on this evaluation, management concluded that our internal control over financial reporting was not effective as of September 30, 2021, based on those criteria. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.
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A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. We have identified the following material weaknesses:
| 1. | As of September 30, 2021, we did not maintain effective controls over the control environment. Specifically, the Board of Directors does not currently have any independent members. Since this entity level control has a pervasive effect across the organization, management has determined that this circumstance constitutes a material weakness. | |
| 2. | As of September 30, 2021, due to the inherent issue of segregation of duties in a small company, we have relied heavily on entity or management review controls. Accordingly, management has determined that this control deficiency constitutes a material weakness. | |
| 3. | As of September 30, 2021, we did not establish a formal written policy for the approval, identification, and authorization of related party transactions. | |
| 4. | During the 2020 audit, it was necessary to record adjusting journal entries. Management has determined that the effects of the uncorrected misstatements are immaterial, both individually and in the aggregate, to the financial statements as a whole. The uncorrected misstatements or the matters underlying them could potentially cause future period financial statements to be materially misstated, even though, in the judgment of our auditor previously, such uncorrected misstatements are immaterial to the financial statements under audit.
Professional standards define an audit adjustment as a proposed correction of the financial statements that, in the judgment of our auditor previously, may not have been detected except through the auditing procedures. An audit adjustment may or may not indicate matters that could have a significant effect on the Company’s financial reporting process (that is, cause future financial statements to be materially misstated). In the judgment of our auditor previously, the adjustments proposed indicate matters that could have a significant effect on the Company’s financial reporting process. |
Because of these material weaknesses, management has concluded that the Company did not maintain effective internal control over financial reporting as of September 30, 2021, based on the criteria established in “Internal Control-Integrated Framework” issued by the COSO.
Changes in Internal Control over Financial Reporting
During the quarter ended September 30, 2021, there were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or Rule 15d-15 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Effectiveness of Controls
Our management, including our CEO and VP Finance, do not expect that our disclosure controls and procedures or our internal controls over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected.
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PART II — OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not currently in any legal proceedings.
Item 1A. Risk Factors
Investing in our common stock involves risks. Each of these risks as well as other risks and uncertainties not presently known to us or that we currently deem immaterial could adversely affect our business, results of operations, cash flows and financial condition and cause the value of our common shares to decline, which may result in the loss of part or all of your investment.
Risks Related to our Business
RAKR has a limited commercial operating history, which makes the evaluation of its future business prospects difficult.
The Company has only recently commercialized its business to deploy its WaaS service model using AW and WW technologies. Consequently, the Company has limited operating history and an unproven marketing and sales strategy. Our primary activities to date, prior to restructuring in Q1 2021, have been the research and development of intellectual property and technology assets and identifying prospective global clients that management believes would operationalize our WaaS delivery model. As such, we may not be able to achieve positive cash flows and our lack of operating history makes evaluation of our future business and investment prospects difficult. Moreover, the Company has generated only limited revenues to date. The Company’s success is dependent upon the successful development and implementation of suitable water projects and establishing its water production technology capabilities in a variety of complex environmental crises worldwide. Any future success that we might achieve will depend upon various factors, including factors beyond our control that cannot be predicted at this time. These factors may include but are not limited to:
| ● | weather conditions in the areas we serve; | |
| ● | the economies of the countries in which we conduct business; | |
| ● | our relationships with the governments, water utility, and/or companies we serve; | |
| ● | water regulatory matters of the countries in which we conduct business; | |
| ● | our ability to successfully enter new markets; | |
| ● | changes in or increased levels of competition in the water sector; and | |
| ● | the market price of and the uses for water in an international landscape. |
Our independent registered public accounting firm has issued an unqualified opinion on our financial statements with a “going concern” paragraph.
Our independent registered public accounting firm’s opinion on our Fiscal 2020 and Q2 2021 financial statements has a “going concern” explanatory paragraph. Such an opinion may make parties reluctant to extend trade credit to us or raise capital and thereby make it more difficult for us to conduct our business operations. In addition, such an opinion from the independent registered public accounting firm may also make third parties reluctant to do business with us or to invest funds in our company, thereby raising difficulties for us in the conduct of our business.
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Relatively new to commercialization, the Company is unable to predict future revenues which makes an evaluation of its business speculative.
Because of the Company’s current business focus, lack of operating history, the introduction of its new WaaS approach using technology with limited deployments, and early-stage marketing strategy, its ability to accurately forecast revenues is difficult. Future variables to the WaaS strategy are related to the market for water itself; the price of water in international markets; and the creation and maintenance of a significant and reliable customer base. To the extent we are unsuccessful in establishing our business strategy and generating revenues from our WaaS projects, we may be unable to appropriately adjust spending in a timely manner to compensate for any unexpected revenue shortfall or will have to reduce our operating expenses, causing us to forego potential revenue-generating activities, either of which could have a material adverse effect in our business, results of operations, and overall financial condition.
RAKR expects its operating expenses to increase in the future with no assurance that revenues will be sufficient to cover those expenses, which could delay or prevent RAKR from achieving profitability.
As our business grows and expands, RAKR expects to have substantial planned capital expenditures in order to facilitate and maintain strategic distribution channels and key relationships. We expect our cost of revenues, business development, marketing, sales, operational, general, and administrative expenses to continue to increase. If revenues do not increase to correspond with these increased expenses or if outside capital is not secured, there may be a material adverse effect on our business, cash flow, and overall financial condition.
If the Company fails to raise additional external capital to fund its business growth and project development, the Company’s business could fail.
We anticipate the need for significant amounts of financial capital to meet our anticipated costs associated with our working capital stock, to satisfy other near-term cash requirements so as to commercially deliver our WaaS projects, and to finance the purchase of capital (long-term) assets. The Company will attempt to raise such funds through the future issuance of stock or debt instruments in the capital markets. However, there is no assurance that we will be successful in raising sufficient additional capital, and there can be no assurance that external financing will be available to us. If adequate funds are unavailable or unavailable on acceptable terms, our ability to fund the Company’s marketing and sales efforts, global projects, potential expenditures in relation to strategic opportunities, and possible corporate responses to existing or unexpected competitive pressures would be significantly limited. Such limitation could have a material adverse effect on our business and overall financial condition.
Raising funds through debt or equity financings in the future, would dilute the ownership of our existing stockholders and possibly subordinate certain rights to the rights of new investors or creditors.
We expect to raise additional funds by engaging in equity and/or debt financing transactions if capital providers supply the desired amount of financial capital on the basis of terms we believe reasonable to provide for working capital needs, finance the acquisition of capital assets, and carry out business development efforts in the best interest of existing shareholders. Any sales of additional equity and/or convertible debt securities would result in dilution of the equity interests of our existing stockholders, which could be substantial. Additionally, if we issue shares of preferred stock or convertible debt to raise funds, the holders of those securities might be entitled to various preferential rights over the holders of our Common Stock, including repayment of their investment, and possibly additional amounts, before any payments could be made to holders of our Common Stock in connection with an acquisition of the Company. Incurring additional debt, if authorized, would create rights and preferences that would be senior to, or otherwise adversely affect, the rights and the value of our Common Stock and would have to be repaid from future cash flow before there would be any return to investors. Since 2017, no stock issuances have held such preferential rights.
Our business will depend on certain key RAKR personnel and suppliers, the loss of which would adversely affect our chances of financial success.
The Company’s success depends to a significant extent upon the continued service of its senior management, key executives and consultants. We do not have “key person” life insurance policies on any of our officers or other employees. The loss of the services of any key members of senior management, and other key personnel, or our inability to retain high quality subcontractors and/or suppliers would have a material adverse effect on our business and operating results.
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Management may be unable to implement our Business Strategy.
The Company’s business strategy is to commercialize our WaaS projects that management believes may have significant humanitarian and commercial application, thereby effecting corporate value for the benefit of equity holders. The Company’s business strategy includes developing a global marketing and sales network, and there is no assurance that we will be able to successfully identify and/or develop commercial partners for our products. In addition, even if we identify and/or develop commercial partners, distributors, and/or JVs, the time and cost of developing these relationships or otherwise obtaining local permits and guidelines, may exceed our expectations, or, when developed, the amount of water available may fall significantly short of expectations, which may provide a lower return on investment or a loss to the Company.
We have only established a limited customer base and network of distribution partners.
During the past year, 2020-2021, we have entered into various discussions with international partners, distributors, and agents, and we have existing distributors, partners, and retail customers that have developed and are about to deploy WaaS projects. Nonetheless, we have not yet established a significant customer base. While we believe our projects will have a significant impact on global water markets, and, as a result, reflect positively on the Company’s performance, an inability to attract customers and/or an incapacity to deliver our projects in a timely and cost-effective manner would have an adverse effect on our potential revenues from and growth of our business.
Water is a highly regulated industry.
Water is subject to extensive regulation by country, state and municipal regulatory authorities. Federal and state statutes regulate quality standards, safety, handling procedures, and other environmental protection controls as well as the rights of end users. We will strive to verify that our water quality will comply with all known safety and environmental standards and regulations applicable to such countries in which we are conducting business. We have extensive in-house knowledge of World Health Organization water quality standards, and we will seek local partners who we believe are operating in best-efforts compliance with all safety and environmental standards and regulations applicable to delivering water to the end consumers. However, there can be no assurance that our compliance efforts could be challenged or that future changes in federal, state and/or municipal laws, regulations or interpretations thereof will not have a material adverse effect on our ability to establish and sustain operations or adversely affect the operations of our partners.
The technology we decide to deploy in the delivery of WaaS projects may require certifications before being deployed in certain global territories.
The technology we use to deploy our WaaS projects may require certain certifications before being implemented in certain international territories. For example, in the case of the United States our deployed technology must be certified by the United States Environmental Protection Agency, under the Safe Drinking Water Act (“SDWA”) to meet certain standards in order to be certified for use in large government projects. While the RHBV technology expected to be deployed by the Company is certified in certain territories, there is no assurance as to if and/or when such certifications will be obtained in new territories we are expecting to enter and sell into. Supplemental technologies – bottling, mineralization and pre-post treatment — will be chosen only if they have already been certified.
We are exposed to risks in connection with legal liability claims associated with water quality in the event that the water delivered results in injury or damage.
If a consumer of our produced or purified water was ill affected from a health perspective by the water quality the Company could be exposed to legal liability. The Company in all cases will use every tool necessary and practically available to limit any such risk.
We face competition in our market space.
The competition in the WaaS space using AW and WW technology is limited. WaaS is usually developed at much larger scale through municipalities. Until recently, smaller remote on-site solutions have not been cost-competitive compared to alternatives, but that has changed. At the present time, we aware of other companies that produce air-to-water and/or water-to-water technologies to our preferred supplier RHBV. RHBV will face competition, but, at this moment, we are confident that, as we deliver WaaS services, we will possess a competitive advantage. To the extent that future technological advance in the market results in pricing pressures, and the possibility that that will affect the Company’s ability to increase its WaaS market share, we may face an adverse effect on our business, operating results, and overall financial condition. At such time the Company has the right to adjust its technology accordingly.
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We will incur increased costs and may have difficulty attracting and retaining qualified directors and executive officers as a result of becoming a public company.
RAKR has become a public “reporting company” with the US Securities and Exchange Commission (“SEC”). As a public reporting company, we will incur significant legal, accounting, reporting and other expenses not generally applicable to a private company. We also will incur costs associated with corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002 as well as other rules implemented by the SEC. We expect these rules and regulations to increase our legal and financial compliance costs and to make some activities more time-consuming and costly. We also expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage. As a result, we may experience difficulty attracting and retaining qualified individuals to serve on our board of directors or as executive officers.
A significant number of the Company’s outstanding shares remain with resale restrictions however we have 75,511,183 (52.3%) shares in the public float.
The shares of the Company’s common stock issued in the 2017 were issued and designated as “restricted” or “control” shares as defined in Rule 144 under the Securities Act and are subject to resale restrictions. Consequently, these shares were not able to be freely sold at the time unless registered under the Securities Act of 1933 or sold pursuant to an available exemption under Rule 144. Approximately 75,511,183 shares of the Company’s common stock, held by non-affiliate stockholders are eligible for resale pursuant to Rule 144 without resale restrictions. This represents approximately 52.3% of the total issued and outstanding shares of stock. While this remains a risk factor the number of shareholders and the percent of tradeable shares suggest a functioning market for the Company’s shares.
Inadequate market liquidity may make it difficult to sell our stock.
There is currently a public market for our common stock with volumes that have been variable over time, and we can give no assurance that there will always be a market with substantial liquidity, nor can we give assurance that the market for our stock will develop sufficiently to create significant market liquidity and/or stable market prices in the future. A stockholder may find it difficult or impossible to sell shares of our common stock in the public market because of the limited number of potential buyers at any time and/or because of fluctuations in our market price. In addition, the shares of our common stock are not eligible as a margin security, and lending institutions may not accept our common stock as collateral for a loan.
We do not anticipate paying any dividends in the foreseeable future, which may reduce the return on your investment in our common stock.
To date, the Company has not paid any cash dividends on its common stock and does not anticipate paying any such dividends in the foreseeable future. Payment of future dividends will depend on earnings and our capital requirements and our debt facilities and other factors considered appropriate by our Executive Officers and Directors. There is no assurance that we will, at any time, generate sufficient profits or surplus cash that would be available for distribution as a dividend to the holders of our common stock. Our current plans are to use any profits that we may generate to fund our ongoing marketing, sales, and operations. Therefore, any return on your investment would be derived from an increase in the price of our stock, which may or may not occur.
There is an active but variable trading market for our common stock making our stock vulnerable to significant price and volume fluctuations.
There is currently an active trading market for our common stock, which is quoted and traded on the OTC Pink. The OTC is not a listing service or exchange but is instead a dealer quotation service for subscribing members. Consequently, the market for our common stock will depend to a certain extent on the number of market makers trading in our stock. The market price of our common stock may be significantly affected by factors such as actual or anticipated fluctuations in our operating results, the activities of our market makers, general market conditions, and other factors. In addition, stock markets have from time to time experienced significant price and volume fluctuations that have particularly affected the market prices of the shares of development stage companies such as Rainmaker, which may adversely affect the market price of our common stock in a material manner. We intend to apply to have our shares quoted on the OTCQB subsequent to this filing.
In addition, the financial markets have experienced recent extreme price and volume fluctuations. The market prices of securities in the water industry have been highly volatile and may continue to be highly volatile in the future, some of which may be unrelated to the operating performance of particular companies. The sale or attempted sale of a large amount of common stock into the market may also have a significant impact on the trading price of our common stock. Many of these factors are beyond our control and may decrease the market price of our common stock, regardless of our operating performance.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Mine Safety Disclosures
None
Item 5. Other Information
None
Item 6. Exhibits
| Exhibit No. | Description | |
| 31.1* | Certification of Principal Executive Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002 | |
| 31.2* | Certification of Principal Financial Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002 | |
| 32.1* | Certification of Principal Executive Officer pursuant to section 906 of the Sarbanes-Oxley Act of 2002 | |
| 32.2* | Certification of Principal Financial Officer pursuant to section 906 of the Sarbanes-Oxley Act of 2002 | |
| 101.INS | Inline XBRL Instance Document | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
* Filed herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Rainmaker Worldwide Inc. | ||
| Date: November 15, 2021 | By: | /s/ Michael O’Connor |
| Michael O’Connor | ||
| President, Chief Executive Officer and Interim Chief Financial Officer | ||
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