This Management's Discussion and Analysis ("MD&A") is intended to provide an
understanding of our financial condition, results of operations and cash flows
by focusing on changes in certain key measures from year to year. This
discussion should be read in conjunction with the Condensed Consolidated
Unaudited Financial Statements contained in this Quarterly Report on Form 10-Q
and the Consolidated Financial Statements and related notes and MD&A of
Financial Condition and Results of operations appearing in our Annual Report on
Form 10-K as of and for the years ended December 31, 2021 and 2020. The results
of operations for an interim period may not give a true indication of results
for future interim periods or for the year.
Cautionary Statement Regarding Forward Looking Statements
This Quarterly Report on Form 10-Q, Financial Statements and Notes to Financial
Statements contain forward-looking statements that discuss, among other things,
future expectations and projections regarding future developments, operations
and financial conditions. All forward-looking statements are based on
management's existing beliefs about present and future events outside of
management's control and on assumptions that may prove to be incorrect. If any
underlying assumptions prove incorrect, our actual results may vary materially
from those anticipated, estimated, projected or intended. We undertake no
obligation to publicly update or revise any forward-looking statements to
reflect actual results, changes in expectations or events or circumstances after
the date this Quarterly Report on Form 10-Q is filed.
When this report uses the words "we," "us," "our," or "FICAAR" and the
"Company," they refer to Ficaar, Inc.
Company History and Summary
HFactor, Inc., formerly known as Ficaar, Inc. (the "Company" or "HFactor" or
"Ficaar") was incorporated in July 2001 in the State of Georgia under the name
OwnerTel, Inc. The name of the Company was changed to Ficaar, Inc. in December
of 2007 and to HFactor, Inc. on September 2, 2021.
The Company's fiscal year end is December 31.
On May 28, 2021, David Cicalese ("Cicalese"), an officer and Board member of
Ficaar entered into an agreement with Gail Levy whereby Cicalese agreed to sell
29,900,000 shares, representing a majority interest in Ficaar, to Levy. Acting
as the majority shareholder of the Company, Levy then caused Ficaar to enter
into an Agreement and Plan of Merger (the "Merger Agreement") between the
Company, FCAA Merger Sub I, Inc. ("Merger Sub"), a Delaware corporation and
wholly owned subsidiary of Ficaar, and HyEdge, Inc. ("Target" or "HyEdge"), a
Delaware corporation, wherein Merger Sub and Target would merge, with Target
surviving the transaction as a wholly owned subsidiary of Ficaar (the "Merger").
The Merger Agreement was executed on August 6, 2021 and the Merger closed on
August 9, 2021. The Merger effected a change in control and was accounted for as
a "reverse acquisition" whereby Target is the accounting acquiror for financial
statement purposes. Accordingly, for all periods subsequent to the Closing Date,
the financial statements of the Company reflect the historical financial
statements of HyEdge and any operations of the Company subsequent to the Merger.
Plan of Operations
BUSINESS DESCRIPTION
HFactor water was created by Gail Levy, HyEdge's founder and CEO. Gail is a
successful serial entrepreneur who was looking for a new product that could
alleviate the toxic side effects of the cancer chemotherapeutic drugs that had
riddled a dear friend. As she researched the properties of hydrogen water, she
became more and more enthralled by its potential. Ms. Levy felt she could honor
her friend by making hydrogen water immaculate, effective, and accessible to
everyone. Enlivened by this mission, she collected a team of experts to help her
engineer a natural process to combine hydrogen with water with zero impurities
and optimal impact. In 2017, she launched her flagship product through retail
and ecommerce channels. HFactor was developed and is manufactured by a team of
experts in the U.S. and utilizes a patented chemical-free and magnesium-free
process to infuse free hydrogen into its water. Its award winning,
environmentally friendly ergonomic pouch keeps the hydrogen potent and pure and
makes it extremely portable.
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HFactor's anti-inflammatory and antioxidant benefits appeal to a wide population
across every age group, positioning HFactor to capture significant share in an
expanding market. The global market for bottled water is projected to reach
$215B by 2025. HFactor has demonstrated significant market traction, with $2.87M
sales in 2020, 30M+ followers across Social Media channels.
The quality of our product is achieved through a proprietary manufacturing
process. A reverse osmosis filtering system and patent-protected infusion
process ensures efficacy, purity, and taste. The efficacy of hydrogen water is
backed by over 1,000 published peer reviewed studies demonstrating that hydrogen
positively impacts fitness, health, lifestyle, recovery, and wellness.
Our sales strategy involves a diversified, multi-channel approach. Our products
are currently on shelves in approximately 5,000+ retail stores across 20 chains
in addition to our growing ecommerce presence. Our company prides itself on
having a low carbon footprint, primarily due to our eco-conscious packaging and
free mail-in recycling program through our partnership with Teracycle.
Our mission statement is to build a brand and corporate culture that, at its
essence, exhibits strength in oneself and in one's community. We promote a
foundation of "doing well by doing good". This foundation enables HFactor to
produce and distribute the highest quality "better for you" consumer products
that are conscious to the community, mind, body, and the environment
Comparison of Three Months Ended September 30, 2022 to Three Months Ended
September 30, 2021
Results of Operations
Three Months ended September 30, Percent
2022 2021 Change Change
Revenues $ 272,329 $ 513,174 $ (240,845 ) (47)%
Gross profit 110,452 266,867 (156,415 ) (59)%
Operating expenses (597,012 ) (633,806 ) (36,794 ) (6)%
Other income (expense) (138,436 ) (96,504 ) 41,932 43%
Net loss $ (624,996 ) $ (463,443 ) $ (161,553 ) 35%
Net revenues for the three months ended September 30, 2022 were $272,329 as
compared to $513,174 for the three months ended September 30, 2021 which
resulted primarily from higher distributor dictated trade spending during the
summer high peak season.
Gross profit for the three months ended September 30, 2022 was $110,452 as
compared to $266,867 for the three months ended September 30, 2021.
Total operating expenses were $597,012 for the three months ended September 30,
2022 compared to $633,806 for the three months ended September 30, 2021. The 6%
decrease was primarily attributable to a reduction in payroll and compensation.
Other income (expense) was $(138,436) for the three months ended September 30,
2022 compared to $(96,504) for the three months ended September 30,2021. The
$41,932 increase was primarily additional interest accrued associated with
convertible debt borrowings that are in default status.
For the three months ended September 30, 2022, the Company reported a net loss
of $624,996 as compared to a net loss of $463,443 for the three months ended
September 30, 2021. The $161,553 increase in net loss for the three months ended
September 30, 2022 mainly arose from decreased sales, net of higher than usual
trade spending .
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Comparison of Nine Months Ended September 30, 2022 to Nine Months Ended
September 30, 2021
Results of Operations
Nine Months ended September 30, Percent
2022 2021 Change Change
Revenues $ 1,468,447 $ 513,174 $ 955,273 186%
Gross profit 764,175 266,867 497,308 186%
Operating expenses (2,340,024 ) (646,667 ) (1,693,360 ) 315%
Other income (expense) (511,450 ) (339,111 ) (172,339 ) 51%
Net loss $ (2,087,299 ) $ (718,908 ) $ (1,368,391 ) 190%
Net revenues for the nine months ended September 30, 2022 were $1,468,447 as
compared to $513,174 for the nine months ended September 30, 2021 which resulted
from the merger of HyEdge.
Gross profit for the nine months ended September 30, 2022 was $764,175 as
compared to $266,867 for the nine months ended September 30, 2021.
Total operating expenses were $2,340,024 for the nine months ended September 30,
2022 compared to $646,667 for the nine months ended September 30, 2021. The 315%
increase was primarily attributable to the additional operating expenses
resulting from the merger of HyEdge, specifically $1,087,021 in additional sales
and marketing expenses..
Other income (expense) was $(511,450) for the nine months ended September 30,
2022 compared to $(339,111) for the nine months ended September 30,2021. The
$172,339 increase was primarily $116,954 decrease in derivative expenses
associated with embedded liabilities in convertible debt and $100,061 increase
in interest expenses associated with borrowings.
For the nine months ended September 30, 2022, the Company reported a net loss of
$2,087,299 as compared to a net loss of $718,908 for the nine months ended
September 30, 2021. The $1,368,391 increase in net loss for the nine months
ended September 30, 2022 mainly arose from higher sales and marketing expenses.
Liquidity and Capital Resources
As of September 30, 2022, the Company had $22,036 in cash to fund its
operations. The Company reported working capital deficit of $5,427,155 at
September 30, 2022 as compared to a working capital deficit of $4,855,836 at
December 31, 2021, representing an increase in working capital deficit by
$571,320.
The Company does not believe its current cash balance will be sufficient to
allow the Company to fund its planned operating activities for the next twelve
months. The ability of the Company to continue as a going concern is dependent
on the Company obtaining adequate capital to fund operating losses until it
becomes profitable. If the Company is unable to obtain adequate capital, it
could be forced to cease operations or substantially curtail some or all of its
planned activities. These conditions raise substantial doubt as to the Company's
ability to continue as a going concern. The accompanying financial statements do
not include any adjustments relating to the recoverability and classification of
recorded assets and classification of liabilities should the Company be unable
to continue as a going concern.
As the Company continues to incur losses, achieving profitability is dependent
on achieving a level of revenues adequate to support the Company's cost
structure. The Company may never achieve profitability, and unless and until it
does, the Company will continue to need to raise additional capital. Management
intends to fund future operations through additional private or public equity
offering and may seek additional capital through arrangements with strategic
partners of from other sources. There can be no assurances, however, that
additional funding will be available on terms acceptable to the Company, or at
all. Any equity financing may be dilutive to existing shareholders, which
dilution may be significant depending on the terms of the transactions.
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Operating Activities:
For the nine months ended September 30, 2022, net cash flow used by operating
activities was $(1,448,818) compared to $(110,800) for the nine months ended
September 30, 2021. The increases in cash flow used for operating activities for
2022 period were primarily due to increases in operating expenditures resulting
from the HyEdge merger.
Investing and Financing Activities:
Net cash flows provided by (used) in investing and financing activities for the
nine months ended September 30, 2022 were $1,220,000 from sales of common stock
shares compared to $149,000 in proceeds from convertible loans in September 30,
2021.
Liquidity and Capital Resource Measures:
The Company's primary source of liquidity has been from sales of its common
stock and convertible loans.
Going Concern
The Company has experienced a net loss and had an accumulated deficit of
$3,861,407 as of September 30, 2022. These conditions raise substantial doubt
about the Company's ability to continue absent raising sufficient capital to
fund continued operations. Management expects to incur additional losses in the
foreseeable future and recognizes the need to raise capital to remain viable.
The accompanying financial statements do not include any adjustments that might
be necessary should the Company be unable to continue as a going concern.
Transaction with Related Parties:
None.
Critical Accounting Policies
Refer to Note 2 in the Consolidated Financial Statements for a summary of
recently adopted and recently issued accounting standards and their related
effects or anticipated effects on our consolidated results of operations and
financial condition.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements that are reasonably likely to
have a current or future material effect on our financial condition, revenue or
expenses, results of operations, liquidity, capital expenditures or capital
resources.
Inflation and Changing Prices
We do not believe that inflation nor changing prices for the three months
September 30, 2022 had a material effect on our operations.
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