UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For quarterly period ended
For the transition period from __________ to __________.
Commission file number:
(Exact name of registrant as specified in its charter)
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Securities registered pursuant to Section 12(b) of the Act:
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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
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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
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| Large accelerated filer | ☐ | Smaller reporting company | |
| ☒ | Emerging growth company | ||
| Accelerated filer | ☐ |
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As of November, 4, 2021, there were issued and outstanding.
FICAAR, INC.
FORM 10-Q
TABLE OF CONTENTS
| PART I. FINANCIAL INFORMATION | ||
| Item 1. | Financial Statements | 3 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 25 |
| Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 28 |
| Item 4. | Controls and Procedures | 28 |
| PART II. OTHER INFORMATION | ||
| Item 1. | Legal Proceedings | 30 |
| Item 1A. | Risk Factors | 30 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 30 |
| Item 3. | Defaults Upon Senior Securities | 30 |
| Item 4. | Mine Safety Disclosures | 30 |
| Item 5. | Other Information | 30 |
| Item 6. | Exhibits | 30 |
| Signatures | 31 | |
| 2 |
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL INFORMATION
FICAAR, INC.
Condensed Consolidated Balance Sheets
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| -Unaudited- | ||||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net of allowance for doubtful accounts | ||||||||
| Inventories | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total Current Assets | ||||||||
| Fixed Assets, net of accumulated depreciation | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||
| Current Liabilities | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Accrued Interest | ||||||||
| Current portion of notes payable-third party, net of debt discount | ||||||||
| Note payable-related party | ||||||||
| Government loans payable | ||||||||
| Derivative liabilities | ||||||||
| Warrant liability, net of unamortized discount | ||||||||
| Total Current Liabilities | ||||||||
| Long-Term Liabilities | ||||||||
| Notes payable - third party | ||||||||
| Note payable - related party | ||||||||
| Total Long-Term Liabilities | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies | ||||||||
| Stockholders' Deficit | ||||||||
| Preferred stock , $ par value shares authorized, shares issued and outstanding as follows: | ||||||||
| Series C voting, convertible Preferred stock, $ par value shares authorized; and shares issued and outstanding September 30, 2021 and December 31, 2020; respectively | ||||||||
| Series D voting, convertible Preferred stock, $ par value shares authorized; and shares issued and outstanding September 30, 2021 and December 31, 2020; respectively | ||||||||
| Common stock , $ par value shares authorized; and shares issued and outstanding at September 30, 2021 and December 31, 2020; respectively | ||||||||
| Additional paid-in capital | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders' Deficit | ( | ) | ( | ) | ||||
| Total Liabilities and Stockholders' Deficit | $ | $ | ||||||
Going Concern (Note 2)
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 3 |
FICAAR, INC.
Condensed Consolidated Statements of Operations
-Unaudited-
| Three Months | Three Months | Nine Months | Nine Months | |||||||||||||
| Ended | Ended | Ended | Ended | |||||||||||||
| September 30, 2021 | September 30, 2020 | September 30, 2021 | September 30, 2020 | |||||||||||||
| REVENUES | ||||||||||||||||
| Sales, net | $ | $ | $ | $ | ||||||||||||
| TOTAL REVENUES | – | – | – | – | ||||||||||||
| COST OF REVENUES | ||||||||||||||||
| GROSS PROFIT | ||||||||||||||||
| OPERATING EXPENSES | ||||||||||||||||
| Manufacturing expenses | ||||||||||||||||
| Sales and marketing | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Total expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other (income) expense | ||||||||||||||||
| Amortization of debt discount | ||||||||||||||||
| Derivative (income) expense | ( | ) | ( | ) | ||||||||||||
| Change in FMV of derivatives | ||||||||||||||||
| Interest expense | ||||||||||||||||
| Gain on forgiveness of debt | ( | ) | ( | ) | ||||||||||||
| Other (income) expense | ( | ) | ||||||||||||||
| Total Other (income) expense | ||||||||||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net Loss per common shares outstanding - Basic and diluted: | ||||||||||||||||
| Net Loss per share attributable to common stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average shares outstanding | ||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 4 |
FICAAR, Inc.
Consolidated Statements of Stockholders' Deficit
-Unaudited-
| Series C | Series D | Additional | ||||||||||||||||||||||||||||||||||
| Preferred Stock | Preferred Stock | Common stock | Paid-In | Accumulated | ||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||||||||
| Balance as of December 31, 2018 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||
| Net loss for the nine months ended September 30, 2019 | – | – | – | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Balance as of September 30, 2019 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||
| Balance as of December 31, 2019 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Net loss for the nine months ended September 30, 2020 | – | – | – | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Balance as of September 30, 2020 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||
| Balance as of December 31, 2020 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Merger of HyEdge, Inc. | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Net loss for the nine months ended September 30, 2021 | – | – | – | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Balance as of September 30, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 5 |
FICAAR, INC.
Condensed Consolidated Statements of Cash Flows
-Unaudited-
| Nine Months | Nine Months | |||||||
| Ended | Ended | |||||||
| September 30, 2021 | September 30, 2020 | |||||||
| OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation | ||||||||
| Amortization of debt discount on convertible notes | ||||||||
| Derivative expense (income) | ( | ) | ||||||
| Change in fair market value of derivative liabilities | ||||||||
| Gain on forgiveness of debt | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ||||||||
| Inventory | ( | ) | ||||||
| Prepaid expenses | ( | ) | ||||||
| Accounts payable and accrued expenses | ||||||||
| Accrued interest | ||||||||
| NET CASH (USED) IN OPERATING ACTIVITIES | ( | ) | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Equipment purchase | ||||||||
| NET CASH (USED) IN INVESTING ACTIVITIES | ||||||||
| FINANCING ACTIVITIES: | ||||||||
| Proceeds from convertible notes payable | ||||||||
| Payments of loan payable | ( | ) | ||||||
| NET CASH PROVIDED BY FINANCING ACTIVITIES | ||||||||
| Increase (decrease) in cash and cash equivalents | ||||||||
| Cash and cash equivalents - Beginning | ||||||||
| Cash and cash equivalents - Ending | $ | $ | ||||||
| Supplemental Disclosure of Cash Flow Information | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
| NON-CASH TRANSACTIONS: | ||||||||
| Common stock and Preferred stock issued in merger in exchange for net assets of HyEdge, Inc | $ | ( | ) | $ | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 6 |
FICAAR, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - DESCRIPTION OF BUSINESS
History
Ficaar, Inc. (the “Company” or “Ficaar”) was incorporated in July 2001 under the name OwnerTel, Inc. The name of the Company was changed to Ficaar, Inc. in December of 2007.
In August 2012, certain shareholders of the Ficaar (the “Shareholders”), representing a majority of the issued and outstanding common stock of Ficaar, entered into an agreement and consummated such agreement with Sneaker Charmz, Inc., a Delaware corporation, whereby 72,020,000 shares of common stock of Ficaar were assigned by the Shareholders to Sneaker Charmz. Thereafter, Sneaker Charmz, Ficaar and David Cicalese consummated a transaction where the shares of common stock of Ficaar owned by Sneaker Charmz were transferred and assigned to Mr. Cicalese and Mr. Cicalese transferred his ownership of Sneaker Charmz to Ficaar. Thus, Sneaker Charmz became a wholly owned subsidiary of Ficaar and Mr. Cicalese then owning 85% of the total issued and outstanding common stock of Ficaar. In addition, the Company divested Medical Cannabis Network, Inc., a company incorporated pursuant to the laws of Delaware and Ficaar’s former wholly-owned subsidiary. Mr. Jason Draizin resigned as an officer and member of Ficaar’s board of directors and Mr. David Cicalese (President and sole member of the Board of Directors of Sneaker Charmz) was appointed as President and a member of the Board of Directors of Ficaar. Following the consummation of the Agreement, Ficaar is engaged in the business of Sneaker Charmz, the development, marketing and sales of designer charms for footwear.
In January 2014, Mr. David Cicalese, President, a member of the Board of Directors and majority shareholder of Ficaar, contributed 100 shares of Precious Holdings, Inc., a Delaware corporation, which consists of all of the issued and outstanding equity of Precious Holdings, Inc. Thus, Precious Holdings Inc. became a wholly owned subsidiary of the Company.
On November 16, 2014, the Company acquired 100% of the outstanding common stock of Standard Canna, Inc. (“Standard”), a Florida corporation, and its wholly owned subsidiaries, Standard Cultivation Systems Inc., a Colorado corporation; and Standard Property Group Inc., a California corporation, in exchange for 110,000 shares of common stock of the Company pursuant to a Transfer Agreement (the “Agreement”), by and among, the Company and Jonas Zetzel, sole shareholder of Standard.
On July 28, 2015, the Company transferred its ownership in Sneaker Charmz to David Cicalese, the Company’s sole officer and director and majority shareholder, in exchange for 42,000,000 shares of our common stock, which reduced Mr. Cicalese's share ownership of the Company to 30,020,000 shares of Company Common Stock. In July 2015, the Board of Directors and shareholders representing a majority of the issued and outstanding common stock of the Company appointed Dawn Cames as President of the Company and a member of its Board of Directors. In connection with Ms. Cames appointment, she was issued 1,300,000 shares of Company common stock.
On May 28, 2021, David Cicalese entered into an agreement with Gail Levy whereby Cicalese agreed to sell 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.
| 7 |
FICAAR, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - DESCRIPTION OF BUSINESS (CONTINUED)
Immediately following the Merger, the business of HyEdge became the business of the Company.
In connection with the reverse acquisition and recapitalization, all share and per share amounts have been retroactively restated. Since the transaction is considered a reverse acquisition and recapitalization, accounting guidance does not apply for purposes of presenting pro-forma financial information.
Present Operations
Ficaar, Inc., as a result of the Merger, changed its business focus from engaging in the cannabis industry to presently being a holding company that operates entirely through its subsidiary, HyEdge, Inc., a Delaware Corporation. The Company engages in the manufacturing, marketing, distribution and selling of HFactor® hydrogen infused drinking water.
COVID-19
In
December 2019, a novel strain of coronavirus (“COVID-19”) was reported to have surfaced in Wuhan, China, and has since reached
multiple other countries, including the United States, resulting in government-imposed quarantines, travel restrictions and other
public health safety measures in affected countries. The various precautionary measures taken by many governmental authorities around
the world in order to limit the spread of COVID-19 has had, and could continue to have, an adverse effect on the global markets and
its economy, including on the availability and pricing of employees and resources, and other aspects of the global economy. Although the
Company cannot predict the impact that the COVID-19 pandemic will have on its business or results of operations in future periods,
to date, the Company’s core water product applications have been able to support the increased demand the Company has experienced.
On April 20, 2020, to help ensure adequate liquidity in light of the uncertainties posed by the COVID-19 pandemic, the Company entered
into a promissory note with an aggregate principal amount of $
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Basis of Presentation
The accompanying (a) condensed consolidated balance sheet at December 31, 2020, has been derived from audited financial statements and (b) condensed consolidated unaudited financial statements as of September 30, 2021 and 2020, have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements, and should be read in conjunction with the audited consolidated financial statements and related footnotes included in our Annual Report on Form 10K for the year ended December 31, 2020 (the “2020 Annual Report”), filed with the Securities and Exchange Commission (the “SEC”) on April 13, 2021. It is management’s opinion, however, that all material adjustments (consisting of normal recurring adjustments), have been made which are necessary for a fair financial statement presentation. The condensed consolidated financial statements include all material adjustments (consisting of normal recurring accruals) necessary to make the condensed consolidated financial statements not misleading as required by Regulation S-X, Rule 10-01. Operating results for the three and nine months ended September 30, 2021, are not necessarily indicative of the results of operations expected for the year ending December 31, 2021.
| 8 |
FICAAR, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
These consolidated financial statements are presented in accordance with accounting principles generally accepted in the United States (“GAAP”) and are expressed in United States dollars. These consolidated financial statements include the accounts of Ficaar and its wholly owned subsidiaries, HyEdge, Inc., a Delaware corporation and, the following all of which are inactive, Standard Canna, Inc., a Florida corporation, and its wholly owned subsidiaries, Standard Cultivation Systems Inc., a Colorado corporation; and Standard Property Group Inc., a California corporation; and as well as Precious Holdings, Inc., a Delaware corporation. All inter-company balances and transactions have been eliminated on consolidation.
Going Concern
The financial statements have been prepared on a going concern basis, and do not reflect any adjustments related to the uncertainty surrounding the Company’s development stage losses.
As of September 30, 2021,
the Company had $
It is the Company’s intent to continue to raise funds in this manner and to raise funds through the sale of equity securities until the Company attains profitability. However, management cannot provide any assurance that the Company will be successful in accomplishing any of its plans.
The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plan described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Cash
For purposes of reporting
cash flows, the Company considers all short-term investments with an original maturity of three months or less when purchased to be cash
equivalents. As of September 30, 2021 and December 31, 2020, the company held a cash balance of $
Revenue Recognition
Revenue from sales of the Company’s products is recorded when title and risk of loss have passed to the buyer and criteria for revenue recognition is met. The Company sells its products to individual consumers and resellers upon receipt of a written order. The Company has a limited return policy for defective items that requires that buyers give the Company notice within 30 days after receipt of the products. Due to the immaterial quantities of returned products historically, for the periods ended September 30, 2021 and December 31, 2020, the Company recognized revenue at the time of delivery without providing any reserve.
| 9 |
FICAAR, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Accounts Receivable
Accounts receivable represents
amounts due from the Company’s customers. The Company maintains an allowance for doubtful accounts for estimated losses inherent
in its accounts receivable portfolio. In establishing the required allowance, management utilizes a specific customer identification methodology.
Management also considers historical losses adjusted for current market conditions and the customers’ financial condition and the
current receivables aging and current payment patterns. Account balances are charged off against the allowance after all means of collection
have been exhausted and the potential for recovery is considered remote. The Company does not have any off-balance sheet credit exposure
related to its customers. As of September 30, 2021 and December 31,2020, the allowance for doubtful accounts were
Inventories
Inventories are stated at
the lower of cost (on a first-in, first-out basis) or market value. The stated cost is comprised of finished goods of HFactor®
hydrogen infused drinking water, its related raw material and spare parts for machinery. Reserves, if necessary, are recorded to
reduce inventory to market value based on assumptions about consumer demand, current inventory levels and product life cycles for the
various inventory items. These assumptions are evaluated annually and are based on the Company’s business plan and from feedback
from customers and the product development team. As of September 30, 2021 and 2020, the inventory reserves were
Fixed Assets
Fixed assets are stated at
cost, less accumulated depreciation. Depreciation is provided principally on the straight-line method over the estimated useful lives
of the assets, which is generally
The Company will periodically evaluate whether events and circumstances have occurred that may warrant revision of the estimated useful lives of fixed assets or whether the remaining balance of fixed assets should be evaluated for possible impairment. The Company uses an estimate of the related undiscounted cash flows over the remaining life of the fixed assets in measuring their recoverability.
Advertising Costs
Advertising costs are expensed
as incurred. Advertising costs for the periods ended September 30, 2021 and 2020 were $
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management evaluates these estimates and assumptions on a regular basis. Actual results could differ from those estimates.
| 10 |
FICAAR, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Research and Development Expense
Costs related to research
and development, which primarily consists of consulting for logo and packaging design, are charged to expense as incurred. The Company
has
The Company computes net income (loss) per share in accordance with ASC Topic 260, Earning per Share, formerly Statement of Accounting Standards SFAS No. 128, “Earnings per Share”, which requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) before and after discontinued operations, by the weighted average number of common shares outstanding (denominator) during the period, including contingently issuable shares where the contingency has been resolved. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. For the periods ended September 30, 2021 and 2020, outstanding stock options, warrants, and shares issuable upon conversion of convertible notes were anti-dilutive because of net losses, and, as such, their effect has not been included in the calculation of diluted net loss per share.
Income Taxes
The Company accounts for income taxes under ASC 740 (formerly FASB 109) “Accounting for Income Taxes”. Under ASC 740 deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates in recognized in income in the period which includes the enactment date.
In June, 2006, the Financial Accounting Standards Board issued FASB Interpretation No. 48 (FIN 48), “Accounting for Uncertainty in Income Taxes” - An interpretation of FASB Statement No. 109 and codified under ASC 740. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an entity’s financial statements in accordance with Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes”. This interpretation prescribed a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax provision taken or expected to be taken in a tax return. In addition, FIN 48 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosures and transition.
Based on its evaluation, the Company has concluded that there are no significant uncertain tax positions regarding recognition in financial statements. The Company’s evaluation was performed for the tax years, ended December 31, 2020, 2019, 2018, 2017 and 2016 for US federal income tax and state income taxes, the years which remain subject to examination by major tax jurisdictions as of December 31, 2020.
| 11 |
FICAAR, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company computes loss per common share, in accordance with FASB ASC Topic 260, Earnings Per Share, which requires dual presentation of basic and diluted earnings per share. Basic income or loss per common share is computed by dividing net income or loss by the weighted average number of common shares outstanding during the period. Diluted income or loss per common share is computed by dividing net income or loss by the weighted average number of common shares outstanding, plus the issuance of common shares, if dilutive, that could result from the exercise of outstanding stock options and warrants. No potential dilutive common shares are included in the computation of any diluted per share amount when a loss is reported.
Stock Based Compensation
The Company applies the fair value method of ASC 718, Compensation-Stock Compensation, in accounting for its stock-based compensation. These standards state that compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period, if any. The Company uses the Black-Scholes option pricing model to determine the fair value of its stock, stock option and warrant issuance. The determination of the fair value of stock-based payment awards on the date of grant using an option-pricing model is affected by the Company’s stock price, as well as assumptions regarding a number of complex and subjective variables. These variables include the Company’s expected stock price, volatility over the term of the awards, actual employee exercise behaviors, risk-free interest rate and expected dividends.
Fair Value
FASB ASC 820, Fair Value Measurements and Disclosures (“ASC 820”) establishes a framework for all fair value measurements and expands disclosures related to fair value measurement and developments. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 requires that assets and liabilities measured at fair value are classified and disclosed in one of the following three categories:
Level 1 — Quoted market prices for identical assets or liabilities in active markets or observable inputs;
| 12 |
FICAAR, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Level 2 — Significant other observable inputs that can be corroborated by observable market data; and
Level 3 — Significant unobservable inputs that cannot be corroborated by observable market data.
The carrying amounts of cash, loan receivable, accounts payable and other liabilities, and accrued interest payable approximate fair value because of the short-term nature of these items.
The fair value of the Company’s debt approximated the carrying value of the Company's debt as of September 30, 2021 and December 31, 2020. Factors that the Company considered when estimating the fair value of its debt included market conditions, liquidity levels in the private placement market, variability in pricing from multiple lenders and term of debt.
Recent Accounting Pronouncements
We have considered all other recently issued accounting pronouncements during 2021 and 2020 and do not believe the adoption of such pronouncements will have a material impact on our consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which will require lessees to recognize almost all leases on their balance sheet as a right-of-use asset and a lease liability. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance. Classification will be based on criteria that are largely similar to those applied in current lease accounting, but without explicit bright lines. Lessor accounting is similar to the current model, but updated to align with certain changes to the lessee model and the new revenue recognition standard. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. In January 2018, the FASB issued ASU 2018-01, which permits an entity to elect an optional transition practical expedient to not evaluate land easements that exist or expire before the Company's adoption of Topic 842 and that were not previously accounted for as leases under Topic 840. On May 20, 2020, the FASB voted to delay implementing the new lease standard for non-public organizations, making their new effective date the fiscal year starting after Dec. 15, 2021. The Company intends to elect this transition provision.
NOTE 3 – FIXED ASSETS, NET
Fixed assets, net consist of the following:
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Machinery and equipment | $ | $ | ||||||
| Construction in progress | ||||||||
| Less accumulated depreciation | ( | ) | ||||||
| Fixed assets net | $ | $ | ||||||
Depreciation expense for the
periods ended September 31, 2021 and December 31, 2020 was $
| 13 |
FICAAR, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 4 – GOVERNMENT DEBT
Paycheck Protection Program Loan
On April
20th, 2020, the Company executed a note (the “PPP Note”) for the benefit of Stone Bank, N.A. (the
“Lender”) in the aggregate amount of $
Economic Injury Disaster Loan
On June 2, 2020, the
Company executed a secured loan with the U.S. Small Business Administration (SBA) under the Economic Injury Disaster Loan program in
the amount of $
Future maturities of government debt are as follows:
| Year Ending December 31, | ||||
| 2021 | $ | |||
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| Thereafter | ||||
| Total Principal Payments | $ | |||
| 14 |
FICAAR, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 5 – NOTES PAYABLE-THIRD PARTIES
Third party convertible notes payable consists of the following:
| September 30, 2021 | December 31, 2020 | |||||||
| Convertible promissory note with interest at | $ | $ | ||||||
| $ | ||||||||
| $ | ||||||||
| Unsecured promissory note for finder’s fee due with interest at | ||||||||
| Total Notes Payable-Third Parties | $ | $ | ||||||
(A) Includes a warrant for
the right to purchase an additional
(B) Includes a warrant
for the right to purchase an additional
The Company allocated $
| 15 |
FICAAR, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 5 – NOTES PAYABLE-THIRD PARTIES (CONTINUED)
In accordance with ASC 470-20
“Debt with Conversion and Other Options”, the Company allocated $
NOTE 6 – NOTES PAYABLE - RELATED PARTY
Notes payable to related parties consists of the following:
| September 30, 2021 | December 31, 2020 | |||||||
| Secured Promissory Note – RP, dated September 30, 2019 Note accrues interest at 10 % per annum, due and payable on December 31, 2021 (A) | $ | $ | ||||||
| Secured Promissory Note – LK, dated September 30, 2019 Note accrues interest at 10 % per annum, due and payable on December 31st, 2021 (A) | ||||||||
| Secured Promissory Note – C Lemen, dated July 23, 2020. Note accrues interest at 10% per annum, due and payable on December 31, 2021 (A)(B) | ||||||||
| Unsecured Promissory Note – DC, dated September 30, 2012. Note accrues interest at 7% per annum, due and payable on June 30, 2022 | ||||||||
| Total Notes Payable-Related Party | $ | $ | ||||||
| (A) |
| (B) |
| 16 |
FICAAR, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 7 – DERIVATIVE LIABILITIES
The Company analyzed the notes payable – related parties and convertible notes payable referred to in Notes 3 and 4 based on the provisions of ASC 815-15 and determined that the conversion options of the convertible notes qualify as embedded derivatives and required the recognition of derivative liabilities.
For the derivative instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then revalued at each reporting date and any resulting gain or loss is recognized as a current period charge to the consolidated statements of operations. The Company estimates the fair value of the embedded derivatives using a Monte Carlo simulation valuation model that combines expected cash outflows with market-based assumptions regarding risk-adjusted yields, stock price volatility, probability of a change of control and the trading information of our common stock into which the notes are convertible, as appropriate to value the derivative instruments at inception and subsequent valuation dates and the value is reassessed at the end of each reporting period, in accordance with FASB ASC Topic 815-15.
The aggregate fair value
of derivative liabilities as of September 30, 2021 and December 31, 2020 amounted to $
| Consolidated Balance Sheet | Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1) | Quoted Prices for Similar Assets or Liabilities in Active Markets (Level 2) | Significant Unobservable (Level 3) | |||||||||||||
| Derivative Liabilities: | ||||||||||||||||
| September 30, 2021 | $ | $ | $ | $ | ||||||||||||
| December 31, 2020 | $ | $ | $ | $ | ||||||||||||
The following table sets forth a summary of the changes in the fair value of the Company’s Level 3 financial liabilities that are measured at fair value on a recurring basis:
Nine Months Ended 2021 | Year Ended December 31, 2020 | |||||||
| Beginning balance | $ | $ | ||||||
| Aggregate fair value of conversion features upon issuance | ||||||||
| Fair value of derivatives reclassified to equity | ||||||||
| Net transfer into level 3 | ||||||||
| Fair value of warrants netted against common stock issued for stock | ||||||||
| Change in fair value of conversion features | ( | ) | ||||||
| Change in fair value of warrant and stock option derivative liabilities | ||||||||
| Ending balance | $ | $ | ||||||
| 17 |
FICAAR, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 8 – MERGER AND RELATED TRANSACTIONS
The Merger
On August 6, 2021, 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, entered into an Agreement and Plan of Merger (the "Merger Agreement") which closed on August 9, 2021 (the "Closing Date"). Pursuant to the terms of the Merger Agreement, Merger Sub merged with and into the Target and the separate corporate existence of Merger Sub ceased, with Target continuing its corporate existence as a wholly owned subsidiary of the Company. 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.
Prior to the Merger, the Company ceased being an operating company and became a "shell company". Pursuant to the Merger, the Company acquired the business of Target to engage in the business of the development, marketing, and sale of hydrogen-infused water and other consumer goods.
As consideration for the
merger, Target shareholders exchanged 100% of Target Stock (as defined in the Merger Agreement) totaling 44,136,473 fully diluted
shares into shares of Company Common Stock at a conversion rate of
The end of report schedule presents unaudited consolidate pro forma results of operations data as if the acquisitions had occurred on January 1, 2020. This information does not purport to be indicative of the actual results that would have occurred if the acquisition had actually been completed on the date indicated, not is it necessarily indicative of the future operating results or the financial position of the combined company.
Changes to the Company's Officers and Directors
Effective May 27, 2021, the Company’s Board of Directors appointed Gail Levy as Chief Executive Officer of FICAAR, Inc. On June 1, 2021, in conjunction with the aforementioned change in control, David Cicalese resigned as Secretary and Chairman of the Board of Directors. On June 9, 2021, a majority of Company shareholders elected Gail Levy as Chairman and a member of the Board of Directors. These changes were reported on the Company's form 8-K that was filed on June 10, 2021.
In conjunction with the Merger, Dawn Cames resigned as President, James C. Sanborn was appointed as COO and as a member of the Board of Directors, and Leonard Klingbaum was appointed as a member of the Board of Directors.
NOTE 9 – COMMITMENTS AND CONTINGENCIES
Legal – To the best of our knowledge and belief, no material legal proceedings of merit are currently pending or threatened.
| 18 |
FICAAR, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 10 – EQUITY
Common stock:
The Company has authorized shares of $ par value common stock. As of September 30, 2021, and December 31, 2020, the Company had and shares, respectively, of common stock issued and outstanding.
Preferred Stock:
The Company has authorized shares of $par value preferred stock.
On August 6, 2021, the Company amended its Articles of Incorporation to include Certificates of Designation for two new classes of Preferred Stock – Series C Preferred, authorized shares and, Series D Preferred, authorized shares.
In connection with the Merger with HyEdge, on September 15, 2021, the Company issued 1,000,000 shares of Series C Convertible Preferred stock, non-dividend, with voting rights. Each share of Series C Preferred stock is convertible into the number of shares of the Company’s common stock equal to the result of (i) 1.5 times the number of Common shares issued and outstanding calculated on a fully diluted basis at the time of conversion, (ii) divided by the total number of Series C Preferred shares issued and outstanding at the time of conversion.
Additionally, the Company issued 3,054 shares of Series D Convertible Preferred stock, non-dividend, with no voting rights. Each share of Series D Preferred stock is convertible into the number of shares of the Company’s common stock equal to 0.01% of the number of Common shares issued and outstanding at the time of conversion.
As of September 30, 2021,
NOTE 11 – INCOME TAXES
The Company uses the liability method, where deferred tax assets and liabilities are determined based on the expected future tax consequences of temporary differences between the carrying amounts of assets and liabilities for financial and income tax reporting purposes. During the current period, the Company incurred a net loss and therefore has no tax liability.
The Company has U.S. federal
and state net operating loss carryovers (“NOL’s”) of approximately $
At December 31, 2020,
the Company has a net operating loss carryforward of approximately $
September 30, 2021 | December 31, 2020 | |||||||
| Deferred tax asset: | ||||||||
| Net operating loss carry-forward | $ | $ | ||||||
| Less: valuation allowance | ( | ) | ( | ) | ||||
| Net deferred income tax asset | $ | $ | ||||||
| 19 |
FICAAR, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 11 – INCOME TAXES (CONTINUED)
The amount taken into income as deferred income tax assets must reflect that portion of the income tax loss carry forwards that is more-likely-than-not to be realized from future operations. The Company has chosen to provide a full valuation allowance against all available income tax loss carry forwards. The Company has recognized a valuation allowance for the deferred income tax asset since the Company cannot be assured that it is more likely than not that such benefit will be utilized in future years. The valuation allowance is reviewed annually. When circumstances change and which cause a change in management’s judgment about the realizability of deferred income tax assets, the impact of the change on the valuation allowance is generally reflected in current income.
As
of September 30, 2021 and December 31, 2020, the Company has
NOTE 12 – RELATED PARTY TRANSACTIONS
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. Details of transactions between the Company and related parties are disclosed below:
On April 15, 2019, the Company entered into an intellectual property licensing agreement (the "Agreement") with HyEdge IP Co. ("HyEdge IP"), an entity 100% owned by the founder and CEO of the Company. Pursuant to the agreement, HyEdge IP granted the Company an exclusive, non-assignable, non-sublicensable and royalty-free right and license to use the intellectual properties related to beverages infused with hydrogen for human consumption owned by HyEdge IP (the "Intellectual Properties"), solely within North America. In addition, the Company agrees to irrevocably assign and transfer to HyEdge IP, all of its right, title and interest in and to any improvements, acquired through use, modification or improvement, on the Intellectual Properties (the "Improvements").
The license will be terminated if 1) the Company fails to perform any term or condition of the Agreement and fails to cure such failure within 30 days. or 2) the Company undergoes any direct or indirect sale, merger, consolidation, or transfer of greater than 50% of the Licensee's ownership shares or business assets to a person or group of persons, or 3) the Company substantially discontinues business operations.
On December 20, 2019, the Company and HyEdge IP entered into an amendment to the Agreement (the "Amendment"), expanding the territory in the Agreement from North America to worldwide, including the World Wide Web. In addition, the Amendment clarified the scope of the license and rights in question, which includes the Intellectual Properties and the Improvements. The Amendment also stipulated that the Company and HyEdge IP shall agree upon a royalty for the Company's use of the Intellectual Properties, including the Improvements, outside of North America.
| 20 |
FICAAR, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 13 – SUBSEQUENT EVENTS
The Company has evaluated subsequent events through November 9, 2021, which is the date the financial statements were issued, and has concluded that no such events or transactions took place which would require adjustment to or disclosure in the financial statements, except for the following:
Equity:
On October 27, 2021 26,910,000 shares of Common Stock of the Company held by the Company’s Chief Executive Officer were returned to treasury and retired.
Financing
On October 4, 2021, the Company issued an additional convertible promissory note in the amount of $252,000 and a warrant for the right to purchase an additional 300,000 shares of Common Stock to Boot Capital LLC. The notes and warrants issued to lender are subject to adjustment for anti-dilution.
Other
On September 2, 2021, the Company’s Board of Directors voted and consented to a name change of the Company’s corporate name from Ficaar, Inc. to HFactor, Inc. As of date of these financial statements the name change is pending regulatory filings.
| 21 |
FICAAR, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED BALANCE SHEETS (Unaudited)
Pro Forma Schedules
| SEPTEMBER 30, 2021 | DECEMBER 31, 2020 | |||||||||||||||||||||||||||||||||||
| FICAAR | HYEDGE | Merger | Pro Forma | FICAAR | HYEDGE | Merger | Pro Forma | |||||||||||||||||||||||||||||
| INC. | INC. | Adjustments | Combined | INC. | INC. | Adjustments | Combined | |||||||||||||||||||||||||||||
| (Public Co.) | (Private Co.) | (Public Co.) | (Private Co.) | |||||||||||||||||||||||||||||||||
| Accounting | Accounting | Accounting | Accounting | |||||||||||||||||||||||||||||||||
| Acquiree | Acquiror | Acquiree | Acquiror | |||||||||||||||||||||||||||||||||
| ASSETS | ||||||||||||||||||||||||||||||||||||
| CURRENT ASSETS: | ||||||||||||||||||||||||||||||||||||
| Cash | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
| Accounts receivable | ||||||||||||||||||||||||||||||||||||
| Loan receivable | bb | ( | ) | |||||||||||||||||||||||||||||||||
| Inventory | ||||||||||||||||||||||||||||||||||||
| Other current assets | ||||||||||||||||||||||||||||||||||||
| TOTAL CURRENT ASSETS | ||||||||||||||||||||||||||||||||||||
| PROPERTY AND EQUIPMENT, net | ||||||||||||||||||||||||||||||||||||
| Assets | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | ||||||||||||||||||||||||||||||||||||
| CURRENT LIABILITIES | ||||||||||||||||||||||||||||||||||||
| Accounts payable and accrued expenses | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| Notes payable- Shareholders | ||||||||||||||||||||||||||||||||||||
| Government Loans | ||||||||||||||||||||||||||||||||||||
| Loan payable | bb | |||||||||||||||||||||||||||||||||||
| Current portion of notes payable, net of debt discount | ||||||||||||||||||||||||||||||||||||
| Derivative liabilities | ||||||||||||||||||||||||||||||||||||
| Warrant liabilities | ||||||||||||||||||||||||||||||||||||
| Other current liabilities | ||||||||||||||||||||||||||||||||||||
| TOTAL CURRENT LIABILITIES | ||||||||||||||||||||||||||||||||||||
| NON-CURRENT LIABILITIES | ||||||||||||||||||||||||||||||||||||
| Other non-current liabilities | ||||||||||||||||||||||||||||||||||||
| Notes payable- Shareholders | ||||||||||||||||||||||||||||||||||||
| TOTAL NON-CURRENT LIABILITIES | ||||||||||||||||||||||||||||||||||||
| TOTAL LIABILITIES | ||||||||||||||||||||||||||||||||||||
| STOCKHOLDERS' EQUITY (DEFICIT): | ||||||||||||||||||||||||||||||||||||
| Preferred stock | aa | aa | ||||||||||||||||||||||||||||||||||
| Common stock | aa | aa | ||||||||||||||||||||||||||||||||||
| Common stock options | aa | aa | ( | ) | ||||||||||||||||||||||||||||||||
| Warrants | aa | aa | ( | ) | ||||||||||||||||||||||||||||||||
| Additional paid-in capital | ( | ) | aa | ( | ) | ( | ) | ( | ) | aa | ( | ) | ( | ) | ||||||||||||||||||||||
| Accumulated earnings (deficit) | ( | ) | ( | ) | aa | ( | ) | ( | ) | ( | ) | aa | ( | ) | ||||||||||||||||||||||
| TOTAL STOCKHOLDERS' EQUITY (DEFICIT) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Total Liabilities and Stockholders' Deficit | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||
See accompanying notes to the Unaudited Pro Forma Condensed Combined Financial Information
| 22 |
FICAAR, INC.
PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS (Unaudited)
| NINE MONTHS ENDED SEPTEMBER 30,2021 | YEAR ENDED DECEMBER 31, 2020 | |||||||||||||||||||||||||||||||
| FICAAR | HYEDGE | Merger | Pro Forma | FICAAR | HYEDGE | Merger | Pro Forma | |||||||||||||||||||||||||
| INC. | INC. | Adjustments | Combined | INC. | INC. | Adjustments | Combined | |||||||||||||||||||||||||
| (Public Co.) | (Private Co.) | (Public Co.) | (Private Co.) | |||||||||||||||||||||||||||||
| Accounting | Accounting | Accounting | Accounting | |||||||||||||||||||||||||||||
| Acquiree | Acquiror | Acquiror | Acquiror | |||||||||||||||||||||||||||||
| REVENUES | ||||||||||||||||||||||||||||||||
| Net Sales | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||
| TOTAL REVENUES | ||||||||||||||||||||||||||||||||
| COST OF REVENUES | ||||||||||||||||||||||||||||||||
| GROSS PROFIT | ||||||||||||||||||||||||||||||||
| OPERATING EXPENSES | ||||||||||||||||||||||||||||||||
| Manufacturing expenses | ||||||||||||||||||||||||||||||||
| Sales and Marketing | ||||||||||||||||||||||||||||||||
| General and administrative | ||||||||||||||||||||||||||||||||
| Total Expenses | ||||||||||||||||||||||||||||||||
| INCOME (LOSS) FROM OPERATIONS | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||
| OTHER INCOME (EXPENSE) | ||||||||||||||||||||||||||||||||
| Amortization of debt discount | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Derivative expense | ||||||||||||||||||||||||||||||||
| Change in FMV of derivatives | ( | ) | ||||||||||||||||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||
| Other income (expense) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| TOTAL OTHER INCOME (EXPENSE) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||
| NET INCOME (LOSS) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||
| Common stock outstanding | ||||||||||||||||||||||||||||||||
| Common stock issued in merger | aa | aa | ||||||||||||||||||||||||||||||
| Total common stock outstanding | ||||||||||||||||||||||||||||||||
| NET LOSS PER SHARE | $ | ( | ) | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||
See accompanying notes to the Unaudited Pro Forma Condensed Combined Financial Information
| 23 |
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
1. Unaudited Pro Forma Condensed Combined Balance Sheet Adjustments
| aa | Reflects the recapitalization of HyEdge through (i) the exchange of 44,136,473 shares of common stock of HyEdge for 30,895,530 shares of common stock of FICAAR public stock on a 1:0.70 exchange basis, and issuance of 1,003,054 shares of Preferred stock (ii) the elimination of the historical retained earnings of HyEdge. |
| bb | Reflects the elimination of the intercompany outstanding notes with HyEdge related parties. |
| 24 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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, 2020 and 2019. 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.
Plan of Operations
BUSINESS DESCRIPTION
Immediately following the Merger executed on August 6, 2021, the business of HyEdge became our business. Overview HyEdge operates primarily through its subsidiary, HFactor Water International, LLC, a Delaware limited liability company ("HFactor"). 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.
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.
| 25 |
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, 2021 to Three Months ended September 30, 2020
Results of Operations
| Three months ended September 30, | Percent | |||||||||||||||
| 2021 | 2020 | Change | Change | |||||||||||||
| Revenues | $ | 513,174 | $ | – | $ | 513,174 | 100% | |||||||||
| Gross profit | 266,867 | – | 266,867 | 100% | ||||||||||||
| Operating expenses | (633,806 | ) | (3,360 | ) | 630,446 | 18,763% | ||||||||||
| Other income (expense) | (96,504 | ) | (2,145 | ) | 94,359 | 4,399% | ||||||||||
| Net loss | $ | (463,443 | ) | $ | (5,505 | ) | $ | 457,938 | 8,319% | |||||||
Net revenues for the nine months ended September 30, 2021 were $513,174 as compared to $-0- for the nine months ended September 31, 2020 which resulted from the merger of HyEdge.
Gross profits for the nine months ended September 30, 2021 were $266,867 as compared to $-0- for the nine months ended September 31, 2020.
Total operating expenses were $633,806 for the three months ended September 30, 2021 compared to $3,360 for the three months ended September 30, 2020. The 18,763% increase was primarily attributable to the additional operating expenses resulting from the merger of HyEdge, specifically $358,270 in sales and marketing expenses and $141,588 in payroll and compensation.
Other income (expense) was $96,504 for the three months ended September 30, 2021 compared to $2,145 for the three months ended September 30, 2020. The $94,359 increase was primarily $290,342 in amortization of debt discount and derivative expenses associated with embedded liabilities in convertible debt, $124,406 in change in fair market value of derivatives and $47,622 increase in interest expenses associated with borrowings, offset by approximately $113,000 gain from forgiveness of debt.
For the nine months ended September 30, 2021, the Company reported a net loss of $463,443 as compared to a net loss of $5,505 for the nine months ended September 30, 2020. The $457,938 increase in net loss for the nine months ended September 30, 2021 mainly arose from the additional net loss resulting from the merger of HyEdge.
Comparison of Nine Months Ended September 30, 2021 to Nine Months ended September 30, 2020
Results of Operations
| Nine months ended September 30, | Percent | |||||||||||||||
| 2021 | 2020 | Change | Change | |||||||||||||
| Revenues | $ | 513,174 | $ | – | $ | 513,174 | 100% | |||||||||
| Gross profit | 266,867 | – | 266,867 | 100% | ||||||||||||
| Operating expenses | (646,664 | ) | (10,512 | ) | (236,656 | ) | 2,251% | |||||||||
| Other income (expense) | (339,111 | ) | (6,390 | ) | (332,721 | ) | 5,207% | |||||||||
| Net loss | $ | (718,908 | ) | $ | (16,902 | ) | $ | (702,006 | ) | 4,153% | ||||||
| 26 |
Net revenues for the nine months ended September 30, 2021 were $513,174 as compared to $-0- for the nine months ended September 31, 2020 which resulted from the merger of HyEdge.
Gross profits for the nine months ended September 30, 2021 were $266,867 as compared to $-0- for the nine months ended September 31, 2020.
Total operating expenses were $646,664 for the nine months ended September 30, 2021 compared to $10,512 for the nine months ended September 30, 2020. The 2,251% increase was primarily attributable to the additional operating expenses resulting from the merger of HyEdge, specifically $358,270 in sales and marketing expenses and $141,588 in payroll and compensation.
Other income (expense) was $339,111 for the nine months ended September 30, 2021 compared to $6,390 for the nine months ended September 30, 2020. The $332,721 increase Net Other Expenses was primarily $290,342 in amortization of debt discount and derivative expenses associated with embedded liabilities in convertible debt, $124,406 in change in fair market value of derivatives and $49,937 increase in interest expenses associated with borrowings. offset by approximately $113,000 gain from forgiveness of debt .
For the nine months ended September 30, 2021, the Company reported a net loss of $718,908 as compared to a net loss of $16,902 for the nine months ended September 30, 2020. The $702,006 increase in net loss for the nine months ended September 30, 2021 mainly resulted from the additional net loss resulting from the merger of HyEdge.
Liquidity and Capital Resources
As of September 30, 2021, the Company had $38,200 in cash to fund its operations. The Company reported working capital deficit of $4,650,438 at September 30, 2021 as compared to a working capital deficit of $66,694 at December 31, 2020, representing an increase in working capital deficit by $4,583,764.
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 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.
Operating Activities:
For the nine months ended September 30, 2021, net cash flow used by operating activities was $110,800 compared to -$0- for the nine months ended September 30, 2020. The decreases in cash flow used for operating activities for both periods were primarily due to increases in operating expenditures.
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Investing and Financing Activities:
Net cash flows provided by (used) in investing and financing activities for the period ended September 30, 2021 were $3,000 in net repayments from borrowings, offset with $152,000 in proceeds from borrowings compared to $-0- for the nine months ended September 30, 2020.
Liquidity and Capital Resource Measures:
The Company’s primary source of liquidity has been from convertible loans and third party and related party loans.
Transaction with Related Parties:
None
Critical Accounting Policies
Our condensed consolidated financial statements and accompanying notes have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires management to make estimates, judgments and assumptions that affect reported amounts of assets, liabilities, revenues and expenses. We continually evaluate the accounting policies and estimates used to prepare the condensed financial statements. The estimates are based on historical experience and assumptions believed to be reasonable under current facts and circumstances. Actual amounts and results could differ from these estimates made by management. Certain accounting policies that require significant management estimates and are deemed critical to our results of operations or financial position are discussed in our Annual Report on Form 10-K for the year ended December 31, 2020, and Note 2 to the Condensed Consolidated Financial Statements in this Form 10-Q.
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide information required by this Item.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Accounting Officer, as appropriate to allow timely decisions regarding required disclosure.
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We carried out an evaluation under the supervision and with the participation of management, including our Chief Executive Officer and Chief Accounting Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2021, the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Accounting Officer concluded that our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weaknesses discussed below.
Internal Control Over Financial Reporting
Evaluation of Disclosure Controls and Procedures
Management of the Company has evaluated, with the participation of the Chief Executive Officer and Chief Financial Officer of the Company, the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) promulgated by the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer of the Company had concluded that the Company's disclosure controls and procedures as of the period covered by this Quarterly Report on Form 10-Q were not effective for the following reasons:
a) The Company has limited segregation of duties amongst its employees with respect to the Company's control activities. This deficiency is the result of the Company's limited number of employees. This deficiency may affect management's ability to determine if errors or inappropriate actions have taken place. Management is required to apply its judgment in evaluating the cost-benefit relationship of possible changes in our disclosure controls and procedures.
b) The Company's has a limited number of external board members. This deficiency may give the impression to the investors that the board is not independent from management. Management and the Board of Directors are required to apply their judgment in evaluating the cost-benefit relationship of possible changes in the organization of the Board of Directors.
Changes in internal control over financial reporting.
Management of the Company has also evaluated, with the participation of the Chief Executive Officer of the Company, any change in the Company’s internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q and determined that there was no change in the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we may be involved in various claims and legal actions in the ordinary course of business. We are not currently involved in any material legal proceedings outside the ordinary course of our business.
ITEM 1A. RISK FACTORS
As of the date of this report, there have been no material changes to the Risk Factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On or about August 8, 2021 the Company issued 30,197,888 shares of Company common stock and 1,003,054 Preferred stock upon the closing of the HyEdge, Inc. acquisition. The shares were the component of the consideration paid by the Company to acquire HyEdge. These shares of Company common stock were offered and sold in a private transaction in accordance with Section 4(a)(2) of the Securities Act of 1933, as amended.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
| Exhibits | Description | |
| 10.1 | Securities Purchase Agreement dated May 27, 2021 between Ficaar Inc. and Boot Capital, LLC (**) | |
| 10.2 | Convertible Promissory Note dated May 27, 2021 between Ficaar Inc. and Boot Capital, LLC (**) | |
| 10.3 | Common Stock Purchase Warrant dated May 27, 2021 between Ficaar Inc. and Boot Capital, LLC (**) | |
| 10.4 | Stock Purchase Agreement dated May 28, 2021 between David Cicalese (the “Seller”) and Gail Levy (the “Purchaser”) (**) | |
| 17.1 | Resignation of David Cicalese dated June 1, 2021 (**) | |
| 31.1 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 31.2 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 32.1 | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 101.INS | Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL 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 (formatted in IXBRL, and included in exhibit 101). |
| (**) | Incorporated by reference to the Current Report on Form 8-K as filed on June 10, 2021. |
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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.
| Ficaar, Inc. | |
| Date: November 10, 2021 | /s/ Gail Levy |
| Gail Levy, Principal Executive Officer | |
| /s/ Chris Sanborn | |
| Chris Sanborn, Acting Principal Financial and Accounting Officer |
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