You should read the following discussion and analysis of our financial condition
and results of operations together with the section entitled "Selected Financial
Data" and our financial statements and related notes included elsewhere in this
Registration Statement. Some of the information contained in this discussion and
analysis or set forth elsewhere in this Registration Statement, including
information with respect to our plans and strategy for our business and related
financing, includes forward-looking statements that involve risks and
uncertainties. See "Cautionary Note Regarding Forward-Looking Statements." Our
actual results may differ materially from those described below.
We define our accounting periods as follows: "fiscal 2022" - January 1, 2022
through December 31, 2022.
This Management's Discussion and Analysis ("MD&A") reports on the operating
results and financial condition of the Company for the years ended December 31,
2022 and December 31, 2021. The MD&A should be read in conjunction with the
Company's audited consolidated financial statements for the year ended December
31, 2022 ("Annual Financial Statements").
The MD&A and Annual Financial Statements have been prepared in accordance with
general accepted principles in the United States of America ("GAAP").
All significant intercompany balances and transactions were eliminated on
consolidation.
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
Immediately following the Merger executed on August 6, 2021, the business of
HyEdge became our business. HyEdge 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 a 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 e-commerce presence. Our company prides itself on
having a low carbon footprint due to our eco-conscious packaging.
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 Year Ended December 31, 2022 to Year Ended December 31, 2021
Results of Operations
Year ended December 31, Percent
2022 2021 Change Change
Revenues $ 1,886,666 $ 751,773 $ 1,134,893 151%
Gross profit 985,044 331,573 653,471 197%
Operating expenses 2,876,482 1,119,227 1,757,255 157%
Other expenses 530,055 805,038 (274,983 ) (34% )
Net loss $ (2,421,493 ) $ (1,592,693 ) $ (828,800 ) 52%
Net revenues for the year ended December 31, 2022 were $1,886,666, as compared
to $751,773 for the year ended December 31, 2021, due to partial inclusion of
the HyEdge revenue in 2021 as a result of the merger of this company.
Gross profits for the year ended December 31, 2022 were $ 985,044, as compared
to $ 331,573 for the year ended December 31, 2021.
Total operating expenses were $ 2,876,482 for the year ended December 31, 2022,
compared to $1,119,227 for the year ended December 31, 2021. The 157% increase
was primarily attributable to the additional operating expenses, compared to the
partial inclusion of the operation expenses of HyEdge in 2021 as the result of
the merger. This increase is specifically reflected in $1,143,096 in sales and
marketing expenses and $465,698 in general and administrative expenses.
Other expenses were $530,055 for the year ended December 31, 2022 compared to
$805,038 for the year ended December 31, 2021. The decrease was primarily due to
$300,203 in change in amortization of debt discount and derivative expenses
associated with embedded liabilities in convertible debt.
For the year ended December 31, 2022, the Company reported a net loss of
$2,421,493, as compared to a net loss of $1,592,693 for the year ended December
31, 2021. The $828,800 increase in net loss for the year ended December 31, 2022
mainly arose from the additional net loss resulting from the merger of HyEdge.
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Liquidity and Capital Resources
As of December 31, 2022, the Company had $148,055 in cash to fund its
operations. The Company reported working capital deficit of $ 5,260,943 on
December 31, 2022, as compared to a working capital deficit of $ 4,695,836 on
December 31, 2021, representing a increase in working capital deficit by
$565,107.
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 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
offerings and may seek additional capital through arrangements with strategic
partners 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.
Operating Activities:
For the year ended December 31, 2022, net cash flow used by operating activities
was $1,763,799, compared to $ 826,956 for the year ended December 31, 2021. The
increases in cash flow used for operating activities for both periods were
primarily due to increases in operating expenditure.
Investing and Financing Activities:
Net cash flows provided by investing and financing activities for the year ended
December 31, 2022, were $1,661,000, of which $1,420,000 was from sales of common
stock shares and $241,000 in proceeds from borrowings, compared to $1,077,810
for the year ended December 31, 2021.
Liquidity and Capital Resource Measures:
The Company's primary source of liquidity has been convertible loans and third
party and related party loans.
Going Concern
The Company has experienced a net loss and had an accumulated deficit of $
4,195,601 as of December 31, 2022. The success of our business plan during the
next 12 months and beyond will be contingent upon generating sufficient revenue
to cover our costs of operations and/or upon obtaining additional financing.
Transaction with Related Parties:
Parties are considered to be related if one party has the ability to control or
exercise significant influence over the other party in making financial and
operating decisions. Refer to Note 13 for details of transactions between the
Company and related parties.
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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 expenditure or capital
resources.
Inflation and Changing Prices
We do not believe that inflation nor changing prices for the year ended December
31, 2022 had a material effect on our operations.
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