The accompanying notes are an integral part of these
condensed consolidated financial statements.
The accompanying notes are an integral part of these
condensed consolidated financial statements.
The accompanying notes are an integral part of these
condensed consolidated financial statements.
The accompanying notes are an integral part of these
condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - DESCRIPTION OF BUSINESS
History
HFactor, Inc. formerly known as Ficaar, Inc. (the
“Company” or “Ficaar” or “HFactor”) was incorporated in July 2001 under the name OwnerTel, Inc. The
name of the Company was changed to Ficaar, Inc. in December of 2007 and to HFactor, Inc. on November 8, 2021.
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.
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.
On September 2, 2021 the Company filed an amendment
in its articles of incorporation to change its name to HFactor Inc. The Company was able to secure an OTC Bulletin Board symbol HWTR
from Financial Industry Regulatory Authority (FINRA).
Present Operations
The Company through its wholly owned subsidiary,
HyEdge, Inc., a Delaware Corporation, engages in the manufacturing, marketing, distribution and selling of HFactor® hydrogen
infused drinking water.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Basis of Presentation
The accompanying (a) condensed consolidated balance
sheet at December 31, 2021, has been derived from audited financial statements and (b) condensed consolidated unaudited financial statements
as of September 30, 2022 and 2021, 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, 2021 (the “2021 Annual Report”), filed with the Securities and Exchange Commission (the “SEC”) on
April 14, 2022. 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 six months ended September 30, 2022, are not
necessarily indicative of the results of operations expected for the year ending December 31, 2022.
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 HFactor Inc. and its wholly owned subsidiary, HyEdge, 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 recurring losses, working
capital deficiency or accumulated deficit.
As of September 30, 2022, the Company had $22,036
in cash to fund its operations. 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. These principal factors raise substantial
doubt concerning the Company’s ability to continue as a going concern. Management has financed the Company’s operations principally
through government loans, third party loans and from related parties, and through equity investments into the Company.
It is the Company’s intent to continue to attempt
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.
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, 2022 and December 31, 2021, the Company held a cash balance of $22,036 and $250,854, respectively.
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, 2022 and 2021, the Company recognized revenue at the time of delivery
without providing any reserve.
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, 2022 and December 31, 2021, the allowance for doubtful accounts were not material.
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, 2022 and December 31, 2021, the inventory reserves were not material.
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 three to five years. The cost of repairs and maintenance is charged to expense as incurred. Expenditures for property betterments
and renewals are capitalized. Upon sale or other disposition of a depreciable asset, cost and accumulated depreciation are removed from
the accounts and any gain or loss is reflected in other income or expense.
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.
Intangible Assets
On July 22, 2022, the Company entered into an Intellectual
Property Assignment Agreement, with Gail Levy whereby the Company acquired the intellectual property related to its beverage production
operations from HyEdge IP in exchange for 715,000 shares of Company Common stock. The acquired intellectual property was valued at $1.00
per share for total valuation of $715,000 and is being amortized over 10 years on a straight-line basis.
Advertising Costs
Advertising costs are expensed as incurred. Advertising
costs for the periods ended September 30, 2022 and 2021 were $107,342 and $ -0-, respectively.
Income Taxes
The Company accounts for income taxes under ASC 740,
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 is recognized
in income in the period, which includes the enactment date. Deferred tax assets are reduced by a valuation allowance when, in the opinion
of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets
and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
ASC 740 contains a two-step approach to recognizing
and measuring uncertain tax positions. This first step is to evaluate the tax position for recognition by determining if the weight of
available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related
appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount which is more than 50% likely
of being realized upon ultimate settlement. The Company considers many factors when evaluating and estimating its tax positions and tax
benefits, which may require periodic adjustments and which may not accurately anticipate actual outcomes.
Based on its evaluation, the Company has concluded
that there are no significant uncertain tax positions requiring recognition in its financial statements. The Company's evaluation was
performed for the tax years ended December 31, 2017 through 2021, The Company does not expect any changes in its unrecognized tax benefits
in the current year.
The Company’s policy for recording interest
and penalties related to unrecognized tax benefits is to record such expenses as a component of current income tax expense. As of September
30, 2022 and December 31, 2021, the Company has no accrued interest or penalties related to uncertain tax positions.
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.
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 not incurred any research and
development for the periods ended September 30, 2022 and 2021.
Basic and Diluted Net Loss Per Share
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;
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, 2022 and December 31, 2021. 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 2022 and 2021 and do not believe the adoption of such pronouncements will have a material impact on our consolidated
financial statements.
NOTE 3 – FIXED ASSETS, NET
Fixed assets, net consist of the following:
Schedule of fixed assets, net | |
| | |
| |
| |
September 30, | | |
December 31, | |
| |
2022 | | |
2021 | |
Machinery and equipment | |
$ | 577,645 | | |
$ | 577,645 | |
Construction in progress | |
| 3,089 | | |
| 3,089 | |
Less accumulated depreciation | |
| (371,927 | ) | |
| (323,515 | ) |
Fixed assets net | |
$ | 208,807 | | |
$ | 257,219 | |
Depreciation expense for the periods ended September
30, 2022 and 2021 was $48,648 and $35,705, respectively.
NOTE 4 – NOTES PAYABLE-THIRD PARTIES
Third party convertible notes payable consists of
the following:
Schedule of third party convertible notes payable | |
| | |
| |
| |
September 30,
2022 | | |
December 31,
2021 | |
Convertible promissory note with interest at 8%
per annum, convertible into common shares at the lesser of: (i) a 50% discount to market price for the Company’s stock or (ii)
$0.01
per share. Matures on June
30, 2022, net of unamortized discount of $-0-
at September 30, 2022. (Note 9) | |
$ | 121,369 | | |
$ | 80,394 | |
| |
| | | |
| | |
$250,000 convertible promissory notes with interest at 10% per annum, convertible into common shares at any time after 180 days at 30% discount to the lowest daily VWAP during the 10-day period immediately preceding conversion. Matures on May 27, 2022, unless earlier converted, net of unamortized discount of $-0- at September 30, 2022. (A) (D) | |
| 250,000 | | |
| 176,805 | |
| |
| | | |
| | |
$152,000 convertible promissory notes with interest at 10% per annum, convertible into common shares at any time after 180 days at 30% discount to the lowest daily VWAP during the 10-day period immediately preceding conversion. Matures on July 22, 2022, net of unamortized discount of $-0- at September 30, 2022. (B) (D) | |
| 152,000 | | |
| 71,875 | |
| |
| | | |
| | |
$252,000 convertible promissory notes with interest at 10% per annum, convertible into common shares at any time after 180 days at 30% discount to the lowest daily VWAP during the 10-day period immediately preceding conversion. Matures on October 4, 2022, net of unamortized discount of $2,770 at June 30, 2022. (C) (D) | |
| 249,230 | | |
| 60,098 | |
| |
| | | |
| | |
Unsecured promissory note for finder’s fee due with interest at 10% per annum, with monthly payments of $1,000. Matures May 1, 2022, or the earlier of the Company aggregate proceeds exceeding $1,000,000 from the sale of equity securities. This note is in default and the Company is pursuing discussions with the lender for its extension. | |
| 69,309 | | |
| 74,049 | |
| |
| | | |
| | |
Total Notes Payable-Third Parties | |
$ | 841,909 | | |
$ | 463,221 | |
(A) Includes a warrant for the right to purchase an
additional 250,000 shares of Company Common Stock, subject to adjustments for anti-dilution. Each Warrant is exercisable for a period
of five years from the date of issuance at an initial exercise price of $1 per share. The exercise price is also subject to adjustment
due to certain events, including stock dividends, stock splits and recapitalizations. In the event the Company files a registration statement
with the Securities and Exchange Commission, the Maturity Date shall be the earlier of (i) May 27, 2022; or (ii) the date on which the
Company has raised at least $1,250,000 under a registration statement. Interest is payable at the Maturity Date. This note is in default
and the Company is pursuing discussions with the lender for its extension.
(B) Includes a warrant for the right to purchase an
additional 300,000 shares of Company Common Stock, subject to adjustments for anti-dilution. Each Warrant is exercisable for a period
of five years from the date of issuance at an initial exercise price of $0.55 per share. The exercise price is also subject to adjustment
due to certain events, including stock dividends, stock splits and recapitalizations. In the event the Company files a registration statement
with the Securities and Exchange Commission, the Maturity Date shall be the earlier of (i) July 22, 2022; or (ii) the date on which the
Company has raised at least $1,500,000 under a registration statement. Interest is payable at the Maturity Date. This note is in default
and the Company is pursuing discussions with the lender for its extension.
(C) Includes a warrant for the right to purchase an
additional 300,000 shares of Company Common Stock, subject to adjustments for anti-dilution. Each Warrant is exercisable for a period
of five years from the date of issuance at an initial exercise price of $0.55 per share. The exercise price is also subject to adjustment
due to certain events, including stock dividends, stock splits and recapitalizations. In the event the Company files a registration statement
with the Securities and Exchange Commission, the Maturity Date shall be the earlier of (i) October 4, 2022; or (ii) the date on which
the Company has raised at least $1,500,000 under a registration statement. Interest is payable at the Maturity Date
(D) On December 3, 2021, the Company entered into
a Stock Purchase Agreement with Boot Capital LLC (“Boot”), lender for the three notes of (A), (B) and (C), whereby Boot agreed
to retire all of its outstanding warrants (850,000 in total) in exchange for 200 shares of Series D Preferred stock. The Preferred stock
shares were issued on March 29, 2022. Accordingly, the Warrant liability of $335,651 as of December 31, 2021 was written-off during the
period ended June 30, 2022.
In accordance with ASC 470-20 “Debt with
Conversion and Other Options”, the Company allocated $-0- and $654,000 of the derivative liability as discounts against the
convertible notes for the period ended September 30, 2022 and year ended December 31, 2021, respectively. The discounts are being amortized
to interest expense over the term of the notes using the straight-line method which approximates the effective interest method. The Company
recorded $383,426 and $387,996 of interest expense pursuant to the amortization of the note discounts during the periods ended September
30, 2022 and 2021, respectively.
NOTE 5 – NOTES PAYABLE - RELATED PARTY
Notes payable to related parties consists of the following:
Schedule of notes payable related parties | |
| | |
| |
| |
September 30, 2022 | | |
December 31, 2021 | |
Secured Promissory Note – RP, dated September 30, 2019 Note accrues interest at 10 % per annum, due and payable on July 1, 2023 (A) | |
$ | 445,116 | | |
$ | 445,116 | |
| |
| | | |
| | |
Secured Promissory Note – LK, dated September 30, 2019 Note accrues interest at 10 % per annum, due and payable on July 1, 2023 (A) | |
| 100,000 | | |
| 100,000 | |
| |
| | | |
| | |
Secured Promissory Note – C Lemen, dated July 23, 2020. Note accrues interest at 10% per annum, due and payable on July 1, 2023 (A)(B) | |
| 90,000 | | |
| 90,000 | |
| |
| | | |
| | |
Unsecured Loan – Shareholder, dated September 23, 2022, terms to be formalized | |
| 100,000 | | |
| – | |
| |
| | | |
| | |
Unsecured Promissory Note – DC, dated September 30, 2012. Note accrues interest at 7% per annum, due and payable on June 30, 2022 | |
| 6,525 | | |
| 6,525 | |
| |
| | | |
| | |
Total Notes Payable-Related Party | |
$ | 741,641 | | |
$ | 641,641 | |
(A) |
Secured by all of Company’s accounts receivable and inventory. |
(B) |
Includes a five (5) year common stock warrant of common stock. Warrants equal to 1% of the principal loan divided by $0.414, exercisable at the fair market value on execution date. |
NOTE 6 – GOVERNMENT DEBT
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 $150,000. The loan
is secured by all tangible and intangible assets of the Company and payable over 30 years at an interest rate of 3.75 % per annum. Installment
payments, including principal and interest, totaling $731.00 monthly, will begin thirty (30) months from the date of the Note, with first
payments applied to accumulated accrued interest. As part of the loan, the Company also received an advance of $10,000 from the SBA. While
the SBA refers to this program as an advance, it was written into law as a grant. This means that the amount given through this program
does not need to be repaid.
Future maturities of government debt are as follows:
Schedule of future maturities of debt |
|
|
|
Period Ending September 30, |
|
|
|
2022 |
|
$ |
– |
|
2023 |
|
|
– |
|
2024 |
|
|
– |
|
2025 |
|
|
– |
|
Thereafter |
|
|
150,000 |
|
Total Principal Payments |
|
$ |
150,000 |
|
NOTE 7 – DERIVATIVE LIABILITIES
The Company analyzed the notes payable – related
parties and convertible notes payable referred to in Notes 4 and 5 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, 2022 and December 31, 2021 amounted to $801,449 and $793,997, respectively. The assets or liability’s fair value
measurement within the fair value hierarchy is based upon the lowest level of any input that is significant to the fair value measurement.
The following table provides a summary of the assets that are measured at fair value on a recurring basis.
Schedule of asset measured at fair value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
Inputs
(Level 3) |
|
Derivative Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2022 |
|
$ |
801,449 |
|
|
$ |
– |
|
|
$ |
– |
|
|
$ |
801,449 |
|
December 31, 2021 |
|
$ |
793,997 |
|
|
$ |
– |
|
|
$ |
– |
|
|
$ |
793,997 |
|
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:
Summary of changes in fair value of liability | |
| | |
| |
| |
Period Ended September 30, 2022 | | |
Year Ended December 31, 2021 | |
Beginning balance | |
$ | 793,997 | | |
$ | – | |
Aggregate fair value of conversion features upon issuance | |
| – | | |
| 918,403 | |
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 | |
| 7,452 | | |
| (124,406 | ) |
Change in fair value of warrant and stock option derivative liabilities | |
| – | | |
| – | |
Ending balance | |
$ | 801,449 | | |
$ | 793,997 | |
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 0.7 As a result, an aggregate of 30,895,530 shares of the company’s Common Stock, 1,000,000 shares
of Series C Preferred Stock and 3,054 shares of Series D Preferred Stock were to be issued to the shareholders of Target. As of December
31, 2021, there were 30,197,888 of the planned Merger shares of common stock issued and the Series C and D Preferred shares issued.
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.
On July 22, 2022, the Company entered into a Memorandum
of Understanding (“MOU”) with Bear Face Capital LLC (“Bear Face”) and Concorde Consulting Corp (“Concorde”)
for an influx of capital. In accordance with the terms of the MOU, the following changes were implemented: (i) Gail Levy resigned as Chief
Executive Officer and assumed the position of President for the Company, subject to a two (2) year Employment Contract, renewable annually,
at an annual salary of $120,000; (ii) Dawn Cames, former officer for the predecessor company (“FICAAR), was appointed to serve as
a Director and Chairman of the Board for the Company and was assigned one (1) share of Series C Preferred stock; (iii) Gail Levy, James
C. Sanborn, and Leonard Klingbaum resigned as members of the Board of Directors; (iv) James C. Sanborn resigned as COO; and (v) Gail Levy
and James C. Sanborn returned 999,999 shares of Series C Preferred stock to the Company.
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.
Legal Matters:
From time to time, the Company may become involved
in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to inherent
uncertainties, and an adverse result in these or other matters may arise from time to time that may harm its business.
To the best of the Company’s knowledge and belief,
no material legal proceedings of merit are currently pending or threatened.
Dispute:
The Company is disputing the validity of a convertible
promissory note carried over from its merger in August 2021. Since it presently is not possible to determine the outcome of this matter,
the note is disclosed in Note 4 to the financial statements with a net balance of $121,369 until its ultimate resolution.
Employment and Consulting Agreements:
Gail Levy resigned as Chief Executive Officer and
assumed the position of President for the Company, subject to a two (2) year Employment Contract, renewable annually, at an annual salary
of $120,000
Rental:
As a result of the COVID-19 pandemic, Company management
and employees have been working remotely and accordingly, incurring no rental expense during the years ended December 31, 2021, and 2020.
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-19has 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 March 11, 2020, the World Health Organization declared
the ongoing COVID-19 outbreak as a global health emergency. This resulted in governments worldwide enacting emergency measures to combat
the spread of the virus, including the closure of certain non-essential businesses
During the years ended December 31, 2021, and 2020,
respectively, the pandemic did not have a material impact on the Company’s operations. As of December 31, 2021, and 2020, and through
September 30, 2022, the Company did not observe any material impairment of its assets or a significant change in the fair value of assets
due to the COVID-19 pandemic. The Company has taken steps to minimize the potential impact of the pandemic including safety measures with
respect to personal protective equipment, the reduction in travel and the implementation of a virtual office including regular video conference
meetings and participation in virtual customer meetings and other virtual events.
NOTE 10 – EQUITY
Common stock:
The Company has authorized 200,000,000 shares of $.001
par value common stock. As of September 30, 2022, and December 31, 2021, the Company had 48,151,164 and 47,631,164 shares, respectively,
of common stock issued and outstanding.
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.
On December 10, 2021 and December 15, 2021, the Company
received total proceeds of $650,000 for the sale of 650,000 common stock shares at $1.00 per share. The December 15, 2021 sale of 400,000
shares were issued on January 3, 2022 and accordingly, recorded as common stock subscribed in the accompanying financial statements.
On November 12, 2021, the U.S. Securities and Exchange
Commission (“SEC”) issued a Notice of Qualification for the Company's Form 1-A Offering Circular for an offering of the Company’s
Common Stock shares under Regulation A+ (the "Offering") of the Securities Act of 1933 (the “Act”). The purpose
of the Offering is to allow both accredited and non-accredited potential investors the opportunity to invest directly in the Company.
The Offering has a minimum and maximum investment of $25,000 to at a price of $1.00 per share.
During the first quarter of 2022, the Company received
total proceeds of $370,000 for the sale of 370,000 common stock shares at $1.00 per share, of which 45,000 shares were issued in the second
quarter ending June 30, 2022 and accordingly, recorded as common stock subscribed in the accompanying financial statements.
During the second quarter of 2022, the Company received
total proceeds of $150,000 for the sale of 150,000 common stock shares at $1.00 per share.
During the third quarter of 2022, the Company received
total proceeds of $600,000 for the sale of 600,000 common stock shares at $1.00 per share, which as of date of the accompanying financial
statements have not been issued and, accordingly recorded as common stock subscribed.
Preferred Stock:
The Company has authorized 30,000,000 shares of $.001
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
1,000,000 shares and, Series D Preferred, authorized 18,000,000 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.
On December 3, 2021, the Company entered into a Stock
Purchase Agreement with Boot Capital LLC (“Boot”) whereby Boot Capital agreed to retire all of its outstanding warrants (850,000
in total) in exchange for 200 shares of Series D Preferred stock. The Preferred stock shares were issued on March 29, 2022.
On June 29,2022, 100 shares of Series D Preferred
Stock were issued to an investor in connection with execution of a Leak-Out Agreement.
On July 28,2022, 250
and 350
shares of Series D Preferred Stock were issued to an two investors in connection with execution of a Leak-Out Agreements.
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 $16 million and $13 million at September 30, 2022 and December 31, 2021, respectively,
which begin to expire in 2036. Section 382 of the Internal Revenue Code limits the amount of NOL’s available to offset future taxable
income when a substantial change in ownership occurs.
The significant components of deferred income tax
assets at September 30, 2022 and December 31, 2021 were as follows:
Schedule of Components of Deferred Income Tax Asset | |
| | |
| |
| |
September 30, 2022 | | |
December 31, 2021 | |
Deferred tax asset: | |
| | | |
| | |
Net operating loss carry-forward | |
$ | 3,800,000 | | |
$ | 3,150,000 | |
Less: valuation allowance | |
| (3,800,000 | ) | |
| (3,150,000 | ) |
| |
| | | |
| | |
Net deferred income tax asset | |
$ | – | | |
$ | – | |
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.
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”). On July 22, 2022, the Company entered into an Intellectual
Property Assignment Agreement, with Gail Levy whereby the Company acquired the intellectual property related to its beverage production
operations from HyEdge IP in exchange for 715,000 shares of Company Common stock
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.
NOTE 13 – SUBSEQUENT EVENTS
The Company has evaluated subsequent events through November 19, 2022,
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.