UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-K
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the fiscal year ended December 31, 2020
or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission
File Number: 333-185083
HOME
BISTRO, INC.
(Exact
Name of Registrant as Specified in Charter)
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Nevada
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27-1517938
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(State or other jurisdiction
of incorporation or organization)
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(IRS Employer
Identification No.)
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15000
W. 6th Avenue, Suite 400
Golden,
CO 80401
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(631)
964-1111
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(Address
of principal executive offices, including zip code)
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(Registrant’s
telephone number, including area code)
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(Former
name, former address and formal fiscal year, if changed since last report)
Securities
registered pursuant to Section 12(b) of the Act: None.
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Title
of each class
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Trading
Symbol(s)
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Name
of each exchange on which registered
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Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes ☒ No ☐
Indicate
by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period
that the registrant was required to submit such files). Yes ☒ No ☐
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large
accelerated filer
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Accelerated
filer
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Non-accelerated
filer
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Smaller
reporting company
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Emerging
growth company
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☐
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☐
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☒
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☒
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☐
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If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered
public accounting firm that prepared or issued its audit report. Yes ☐ No ☒
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of the voting
and non-voting common stock held by non-affiliates of the registrant as of June 30, 2020, the last business day of the registrant’s
last completed second quarter, based upon the closing price of the common stock of $0.08029 on such date, is $756,055.
As of March 15, 2021, there were 19,422,300 shares of registrant’s
common stock outstanding held by approximately 111 shareholders.
TABLE
OF CONTENTS
PART
I
CAUTIONARY
STATEMENT ON FORWARD-LOOKING INFORMATION
This Quarterly
Report on Form 10-Q (this “Report”) contains “forward-looking statements” within the meaning of the Private
Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”),
and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements
discuss matters that are not historical facts. Because they discuss future events or conditions, forward-looking statements may
include words such as “anticipate,” “believe,” “estimate,” “intend,” “could,”
“should,” “would,” “may,” “seek,” “plan,” “might,” “will,”
“expect,” “predict,” “project,” “forecast,” “potential,” “continue”
negatives thereof or similar expressions. Forward-looking statements speak only as of the date they are made, are based on various
underlying assumptions and current expectations about the future and are not guarantees. Such statements involve known and unknown
risks, uncertainties and other factors that may cause our actual results, level of activity, performance, or achievement to be
materially different from the results of operations or plans expressed or implied by such forward-looking statements.
These
factors include, among others:
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current
or future financial performance;
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management’s
plans and objectives for future operations;
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uncertainties
associated with product research and development
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uncertainties
associated with dependence upon the actions of government regulatory agencies;
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product
plans and performance;
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management’s
assessment of market factors; and
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statements regarding
our strategy and plans.
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Actual
results could differ materially from the results described in the forward-looking statements due to the risks and uncertainties
set forth in this Report and those described from time to time in our future reports filed with the Securities and Exchange Commission
(the “SEC”).
We cannot predict all of the risks and uncertainties. Accordingly,
such information should not be regarded as representations that the results or conditions described in such statements or that
our objectives and plans will be achieved, and we do not assume any responsibility for the accuracy or completeness of any of these
forward-looking statements. These forward-looking statements are found at various places throughout this Report and include information
concerning possible or assumed future results of our operations, including statements about business strategies; future cash flows;
financing plans; plans and objectives of management; any other statements regarding future acquisitions, future cash needs, future
operations, business plans and future financial results, and any other statements that are not historical facts. These forward-looking
statements represent our intentions, plans, expectations, assumptions, and beliefs about future events and are subject to risks,
uncertainties and other factors. Many of those factors are outside of our control and could cause actual results to differ materially
from the results expressed or implied by those forward-looking statements. In light of these risks, uncertainties and assumptions,
the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time
than we have described. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as
of the date of this Report. All subsequent written and oral forward-looking statements concerning other matters addressed in this
Report and attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements
contained or referred to in this Report.
Except to the extent required by law, we undertake no obligation
to update or revise any forward-looking statements, whether as a result of new information, future events, a change in events,
conditions, circumstances, or assumptions underlying such statements, or otherwise.
ITEM
1. BUSINESS
Business
Overview
Home Bistro, Inc. (formerly known as Gratitude Health, Inc.)
(the “Company”) was incorporated in the State of Nevada on December 17, 2009. Effective March 23, 2018, the Company
changed its name to Gratitude Health, Inc. from Vapir Enterprises Inc. On September 14, 2020, the Company changed its name from
Gratitude Health, Inc. to Home Bistro, Inc. The Company is in the business of providing prepackaged and prepared meals to consumers
focused on offering a broad array of the highest quality meal planning, delivery, and preparation services. The Company’s
primary former operations were in the business of manufacturing, selling, and marketing functional RTD (Ready to Drink) beverages
sold under the Company’s trademark (the “RTD Business”). The RTD Business was disposed on September 25, 2020
as discussed below.
On
April 7, 2020, the Board of Directors of the Company approved the increase of authorized shares of common stock from 600,000,000
to 1,000,000,000.
Acquisition
of Home Bistro Holdings and Disposal of the Discontinued Operations of the RTD Business
Home
Bistro, Inc. was formed on April 9, 2013 as a Delaware corporation, under the name DineWise, LLC. On December 1, 2014, it underwent
a statutory conversion filed under Section 8-265 of the Delaware Code to converted from a limited liability company to a
corporation and changed its name to Home Bistro, Inc.
On September 22, 2020, Home Bistro, Inc. (presently known as
Home Bistro Holdings, Inc., a Nevada corporation) (“Home Bistro Holdings”) filed a Certificate of Conversion to a Non-Delaware
Entity Delaware Secretary State to file a statutory conversion under Section 266 of the Delaware General Corporation Law to
convert its state of domicile from Delaware to Nevada and simultaneously filed an Articles of Conversion Nevada Secretary of State
for the same and changed its name from Home Bistro, Inc. to Home Bistro Holdings, Inc., each effective as of September 30, 2020.
Home Bistro Holdings provides prepackaged
and prepared meals as a solution for time-constrained but discerning consumers focused on satisfying every member of the family
by offering a broad array of the highest quality meal delivery and preparation services. Products are gourmet meals delivered
fresh-frozen directly to the home.
Agreement
and Plan of Merger
On
April 20, 2020, the Company, Fresh Market Merger Sub, Inc., a Delaware corporation and a newly created wholly-owned subsidiary
of the Company, also referred to herein as Merger Sub, and Home Bistro, Inc., a privately-held Delaware corporation engaged in
the food preparation and home-delivery business (presently known as Home Bistro Holdings, Inc., a Nevada corporation), also referred
to herein also Home Bistro Holdings, entered into an Agreement and Plan of Merger, also referred to herein as the Merger Agreement,
pursuant to which, among other things, Merger Sub agreed to merge with and into Home Bistro Holdings, with Home Bistro Holdings
becoming a wholly-owned subsidiary of the Company and the surviving corporation in the merger, also referred to herein as the
Merger. Pursuant to the terms of the Merger Agreement, Home Bistro Holdings filed a Certificate of Merger with the Nevada Secretary
of State on April 20, 2020.
Prior to the effective time of the Merger,
the Company and certain of its existing securityholders entered into an Exchange Agreement providing for, among other things,
the exchange (the “Exchange”) of securities held by such securityholders for shares of common stock, as more fully
detailed therein. As a result of the Exchange, all of the Company’s issued and outstanding shares of Series A Preferred
Stock, Series C Preferred Stock and convertible notes were converted into an aggregate of 5,405,479 shares of common stock on
a fully diluted basis, consisting of 1,364,222 shares of common stock and warrants to purchase up to 4,041,258 shares of common
stock. The 250,000 shares of Series B Preferred Stock owned by a former officer were cancelled on April 9, 2020 pursuant to a
General Release Agreement and 250,000 shares of Series B Preferred Stock held by a related party remained issued and outstanding
as of the date of the Merger.
After
the Exchange, a total of 1,899,094 shares of common stock, warrants to purchase 4,041,258 shares of common stock and 60,638 stock
options were deemed issued and outstanding.
At the effective time of the Merger, and
subject to the terms and conditions of the Merger Agreement, each outstanding share of common stock of Home Bistro Holdings was
converted into the right to receive approximately four hundred seventy-three (473) shares of common stock. Accordingly, the aggregate
shares of the Company’s common stock issued in the Merger to the former securityholders of Home Bistro Holdings is 24,031,453
shares of common stock on a fully diluted basis consisting of 17,105,139 shares of common stock and warrants to purchase up to
6,926,314 shares of common stock.
Subsequent to the Merger, the Company had
an aggregate of 30,031,501 shares of common stock issued and outstanding on a fully diluted basis consisting of 19,004,233 shares
of common stock, 60,638 stock options and warrants to purchase up to 10,967,572 shares of common stock.
On April 20, 2020, pursuant to the terms
of the Merger Agreement, Roy G. Warren, Jr., Mike Edwards, and Bruce Zanca resigned as directors of the Company and Roy G. Warren,
Jr. resigned as Chief Operating Officer of the Company. The resignations were not the result of any disagreement related to the
Company’s operations, policies, or practices. Furthermore, on April 20, 2020, Mr. Zalmi Duchman, the Chief Executive Officer
of Home Bistro Holdings, Michael Finkelstein and Michael Novielli were appointed as directors of the Company. In addition, Mr.
Duchman was appointed Chief Executive Officer.
In
connection with the Merger, certain Company stockholders entered into a Lock-Up and Leak-Out Agreement with the Company pursuant
to which, among other thing, such stockholders agreed to certain restrictions regarding the resale of common stock for a period
of two years from the date of the Merger Agreement, as more fully detailed therein.
Additionally,
on April 20, 2020, the Company and a stockholder entered into a Put Option Agreement, pursuant to which, among other things, the
Company agreed, at the election of the stockholder, to purchase certain shares of common stock from such stockholder no sooner
than two years from the date of the Put Option Agreement (the “Market Period”). Pursuant to the Put Option Agreement,
in the event that the stockholder does not generate $1.3 million dollars (the “Total Investment”) in gross proceeds
from the sale of its shares of common stock by the second anniversary of the Put Option Agreement, then the stockholder has the
right to cause the Company to purchase shares held by the stockholder at a price equal to the difference between the Total Investment
and the net proceeds actually realized by the stockholder from shares of common stock sold during the Market Period and the number
of shares of common stock held by the stockholder on the date the put right is exercised. The put right expires fourteen (14)
days from end of the Market Period. In connection with the Put Option Agreement, the Company recorded a common stock repurchase
obligation in the amount of $1.3 million.
Effective April 20, 2020, the Company
acquired all the issued and outstanding shares of Home Bistro Holdings pursuant to the Merger Agreement and Home Bistro Holdings
became a wholly owned subsidiary of the Company. As a result of the Merger, for financial statement reporting purposes, the Merger
between the Company and Home Bistro Holdings has been treated as a reverse acquisition and recapitalization with Home Bistro Holdings
deemed the accounting acquirer and the Company deemed the accounting acquiree in accordance with FASB Accounting Standards Codification
(“ASC”) Section 805-10-55. At the time of the Merger, both the Company and Home Bistro Holdings had their own separate
operating segments. Accordingly, the assets and liabilities and the historical operations that are reflected in the consolidated
financial statements after the Merger are those of Home Bistro Holdings and are recorded at the historical cost basis of Home
Bistro Holdings. The acquisition process utilizes the capital structure of the Company and the assets and liabilities of Home
Bistro Holdings which are recorded at historical cost. The results of operations of the Company are consolidated with results
of operations of Home Bistro Holdings starting on the date of the Merger Agreement. The equity of the consolidated entity is the
historical equity of Home Bistro Holdings retroactively restated to reflect the number of shares issued by the Company in the
reverse acquisition.
The Merger constituted a change of control
and the majority of the Board of Directors changed with the consummation of the Merger. The Company issued to the stockholders
of Home Bistro Holdings shares of common stock and stock warrants which represented approximately 80% of the combined company
on a fully converted basis after the closing of the Merger. As a result of the above transactions and the Company’s
intent to dispose of or divest the assets and liabilities associated with the RTD Business as discussed below, this transaction
was accounted for as a reverse recapitalization of Home Bistro Holdings where Home Bistro Holdings is considered the historical
registrant and the historical operations presented will be those of Home Bistro Holdings.
The
following assets and liabilities were assumed in the Merger:
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Cash
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$
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4,917
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Prepaid expense
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9,776
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Operating right-of-use asset
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32,444
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Total assets acquired
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47,137
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Accounts payable and accrued expenses
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(209,417
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)
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Operating right-of-use liability
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(32,444
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)
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Total liabilities assumed
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$
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(241,861
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)
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Net liability assumed
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$
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(194,724
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)
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Disposal
of Discontinued Operations of the RTD Business
On
September 25, 2020, pursuant to the Asset Purchase Agreement, among other things, the Company agreed to sell all of the Company’s
business, assets and properties used, or held or developed for use, in its functional RTD (Ready to Drink) beverage segment (the
“RTD Business”), and the Buyer agreed to assume certain debts, obligations and liabilities related to the RTD Business.
The Company assumed an accounts payable liability in the amount of $14,000 related to accounting expense of the RTD Business for
a period prior to the Merger. Pursuant to the Asset Purchase Agreement, the Buyer reimbursed the Company for t accounting expenses
in amount of $14,000 incurred prior to the Merger, of which $7,000 was payable in cash and the balance in form of a promissory
note dated September 25, 2020 in the amount of $7,000. The promissory note bears interest at a rate of 5% per annum, matures on
April 25, 2021 and is payable in monthly installments of $1,000 commencing on October 25, 2020 through April 25, 2021. The Company
received the $7,000 cash portion of the consideration subsequent to September 30, 2020 which has been included in the prepaid
and other current assets on the accompanying consolidated balance sheets as of September 30, 2020 (see Note 1). The $14,000 reimbursement
was recorded to additional paid in capital as reflected in the accompanying consolidated statements of changes in stockholders’
deficit.
ASC
205-20 “Discontinued Operations” establishes that the disposal or abandonment of a component of an entity or a group
of components of an entity should be reported in discontinued operations if the disposal represents a strategic shift that has
(or will have) a major effect on an entity’s operations and financial results. As a result, the component’s results
of operations have been classified as discontinued operations on a retrospective basis for all periods presented. The results
of operations of this component, for all periods, are separately reported as “discontinued operations” on the consolidated
statements of operations.
The
Asset Purchase Agreement, discussed above under Agreement and Plan of Merger, was intended to be part of the Merger and
in effect transferred the RTD Business and the related assets and liabilities to Gratitude Keto, whose CEO, Roy Warren Jr., formerly
served as the Company’s director and Chief Operating Officer and was considered a related party, in substance, in the accounting
of this transaction. Therefore, the disposal of net liabilities and the reimbursement discussed above in connection with the disposal
of the RTD Business was recorded to additional paid in capital as reflected in the accompanying consolidated statements of changes
in stockholders’ deficit.
The
following table set forth the selected financial data of the net liabilities recorded to additional paid in capital as of September
24, 2020.
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September 24,
2020
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Assets:
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Other assets:
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Operating lease right-of-use assets, net
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$
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2,417
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Total assets
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$
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2,417
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Liabilities:
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Current liabilities:
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Accounts payable
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$
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112,212
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Accrued expenses and other liabilities
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5,009
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Operating lease liabilities, current portion
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2,417
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Total current liabilities
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119,638
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Total liabilities
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$
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119,638
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Net liabilities
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$
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117,221
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Expense reimbursement by Buyer
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14,000
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Disposal of net liabilities to a related party
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$
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131,221
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The
Products and Packaging:
The Company manufactures, packages, and
sells, direct-to-consumer, gourmet meals under the Home Bistro brand and markets restaurant quality meats and seafood under the
Prime Chop and Colorado Prime brands. The Company’s meals are freshly prepared, flash-frozen, to preserve freshness, and
packaged in its facility located in Miami, Florida. Home Bistro meals are ordered on-line and delivered to consumers in containers
designed to keep the products frozen during transport. Once delivered, the meals can be heated using a microware cooker or hot
water for consumption within minutes and with little to no preparation and minimal cleanup.
In addition to its diverse menu of gourmet meals, the Company
has also partnered with world-renowned chefs to offer a selection of each chef’s specialty cuisine (the “Celebrity
Chef Program”). The Company launched its Celebrity Chef Program with Iron Chef, Cat Cora to offer Chef Cora’s Mediterranean/Southern
inspired cooking. Home Bistro also partnered with “Hungry Fan” celebrity chef, Daina Falk to offer Ms. Falk’s
sports stadium tailgate inspired recipes. The Company plans to expand it celebrity chef program to include gourmet cuisine from
notable chefs around the world. In doing so, the Company intends to create a digital food court through which it will offer consumers
an internationally diversified selection of fully cooked gourmet meals.
Market
Information and the Value Chain and Routes to Market
The online food
delivery market is projected to reach $28.5 billion in the United States in 2021 and achieve a cumulative average growth rate of
4.3% through 2024, according to a recent report by market and consumer data company Statista.
Consumers are continually becoming time-starved and convenience-seeking,
while others have tired from the impact the pandemic has had on their access to restaurant quality food over the last year. As
a result, consumers have aggressively sought out alternatives to cooking at home or ordering take-out.
Meal-Kits
vs. Third-Party Delivery vs. Prepared Meals
Business models
for meal-kit providers, third-party delivery services and prepared “heat-to-eat” meal companies, differ vastly from
one another. Meal-kit companies provide customers pre-portioned, raw ingredients and recipes that require preparation, cooking,
and the ensuing clean-up, not to mention that the resulting meal is still subject to the preparer’s ability, or lack thereof,
to cook. On average, meals take anywhere from 30-60 minutes for preparation and cooking and another 15 minutes to clean up. In
addition, due to the short shelf life of raw materials provided in meal-kits, meal-kit providers experience higher operating and
supply chain costs compared to prepared meal providers. Home Bistro’s flash freezing process and packaging serves to extend
its product’s shelf life and promotes operational efficiencies.
Third-party online
delivery platforms such as Grubhub, Uber Eats and DoorDash offer access to restaurants’ menus via a single online portal.
Customers then order directly from the app and cooked meals are delivered typically within 60 minutes by the restaurant, third
party delivery service or the app platform itself. During the delivery, cooked meals lose heat, which can decrease the enjoyment
of the meal or require reheating.
The prepared, heat-to-eat providers in the meal delivery segment
(in which Home Bistro operates) ship fresh and fresh-frozen, fully cooked meals direct-to-consumer. On average, these meals require
heating for only three to five minutes using a microwave of sous vide machine. The experience is extremely convenient, requires
very little cleanup and delivers a gourmet meal prepared by a professional chef. Consumers can order one meal or several meals,
which can be stored and heated when desired.
Production
Until
mid-2020, the Company used third-party co-packers to cooks, packages, fulfill and ship its meals to its customers. In June, Home
Bistro entered into a lease for commercial kitchen facilities, hired and trained professional chefs and implemented its own fulfillment
operations. By managing its own food production and fulfillment, Home Bistro expects to be able to improve its competitive position,
while expanding its gross profit and operating margins. It will provide the Company with significantly greater flexibility to
create and introduce new menu items, including the expansion of its Celebrity Chef Program, and react to dynamics of a developing
marketplace.
Orders
for restaurant quality meats and seafood through the Company’s Prime Chop and Colorado Prime brands continue to be processed
through a third-party co-packer based in North Carolina who fulfills and ships customer orders.
Competition
In
the direct-to-consumer prepared meal home delivery market segment, our competition is extensive and includes larger more established
companies such as Jenny Craig, WW International and Nutrisystem which have significantly greater financial, technical, sales and
marketing resources than the Company, as well as numerous smaller independent providers. We believe, however, there is considerable
room for additional competitors offering modestly priced, high quality offerings, as the direct-to-consumer segment of the home
delivery market for food continues to expand. In addition, we believe the competition for consumers seeking ready-made gourmet
meals (such as Home Bistro) is less intensive than other niches such as weight loss, high protein, keto, or paleo.
In
the direct-to-consumer, high quality meats and seafood market segment, our competition is extensive and includes larger more established
companies such as Omaha Steaks, Kansas City Steak Company and Snake River Farms which have significantly greater financial, technical,
sales and marketing resources than the Company, as well as Butcher Block, D’Artagnan and Crowd Cow. We believe, however,
there is considerable room for additional competitors offering modestly priced, high quality offerings, as the direct-to-consumer
segment of the home delivery market for food continues to expand.
Home Bistro’s online competition consists primarily of
national and local service providers, point-of-sale module vendors that serve some independent restaurants who have their own standalone
websites and the online interfaces of restaurants that also offer takeout. The Company also competes for diners with online competitors
on the basis of convenience, control, and customer care. For restaurants, Home Bistro competes with other online platforms based
on its ability to generate additional orders, manage challenges such as customization, change orders, menu updates and specials
and the ability to help them improve their operational efficiency.
Government
Regulation
We
are subject to labor and employment laws, import and trade restrictions laws, laws governing advertising, privacy and data security
laws, safety regulations and other laws, including consumer protection regulations that apply to retailers and/or the promotion
and sale of merchandise and the operation of stores and warehouse facilities. In the United States, we are subject to the regulatory
authority of, among other agencies, the Federal Trade Commission (“FTC”) and U.S. Food and Drug Administration (“FDA”).
We will employ a number of external resources to assist us in complying with our regulatory obligations. These external resources
will include outside technology providers and consultants. As we expand our business, we will be required to raise additional
capital to cover the expected increase in costs to hire and train additional internal and external resources to ensure we remain
in substantial compliance with our governmental obligations. We monitor changes in these laws and believe that we are in material
compliance with applicable laws.
Trademarks
We own trademarks on certain of our products,
including Trademark serial numbers 86636971 and 86636968.
Employees
As of December 31, 2020, Home Bistro had 5 full-time employees.
None of these employees are represented by collective bargaining agreements and the Company considers it relations with its employees
to be good.
ITEM
1A. RISK FACTORS
In
the execution of our business strategy, our operations and financial condition are subject to certain risks. A summary of certain
material risks is provided below, and you should take such risks into account in evaluating any investment decision involving
the Company. This section does not describe all risks applicable to us and is intended only as a summary of certain material factors
that could impact our operations in the industries in which we operate. Other sections of this report contain additional information
concerning these and other risks.
Risks
Relating to Our Business Generally
There
is substantial doubt about our ability to continue as a going concern.
We had had net losses $1,241,661 and $199,061
for the years ended December 31, 2020 and 2019, respectively. The net cash used in operations was approximately $273,817 and $30,244
for the years ended December 31, 2020 and 2019, respectively. Additionally, the Company had an accumulated deficit of approximately
$6,333,389 on December 31, 2020. These conditions, among others, raise substantial doubt about our ability to continue as a going
concern for a period of twelve months for the issuance date of this report.
Management cannot provide assurance that
we will ultimately achieve sufficient profitable operations or become cash flow positive or raise additional debt and/or equity
capital. Management believes that our capital resources are not currently adequate to continue operating and maintaining its business
strategy for a period of twelve months from the issuance date of this report. The Company may seek to raise capital through additional
debt and/or equity financings and generate sufficient revenues to fund its operations in the future.
The Report of our Independent Registered
Public Accountant firm issued in connection with our audited consolidated financial statement for the years ended December 31,
2020 and 2019 express substantial doubt about our ability to continue as a going concern.
Our
business strategy relating to the development and introduction of new products and services exposes us to risks such as limited
customer and/or market acceptance and additional expenditures that may not result in additional net revenue.
An
important component of our business strategy is to focus on new products and services that enable us to provide immediate value
to our customers. Customer and/or market acceptance of these new products and services cannot be predicted with certainty, and
if we fail to execute properly on this strategy or to adapt this strategy as market conditions evolve, our ability to grow revenue
and our results of operations may be adversely affected. If we fail to successfully implement our business strategy, our financial
performance and our growth could be materially and adversely affected.
If
we fail to successfully implement our business strategy, our financial performance and our growth could be materially and adversely
affected.
Our future financial performance and success are dependent in
large part upon our ability to implement our business strategy successfully. Implementation of our strategy will require effective
management of our operational, financial, and human resources and will place significant demands on those resources. See “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” in this report for more information regarding our
business strategy. There are risks involved in pursuing our strategy, including the ability to hire or retain the personnel necessary
to manage our strategy effectively.
In
addition to the risks set forth above, implementation of our business strategy could be affected by a number of factors beyond
our control, such as increased competition, legal developments, government regulation, general economic conditions, increased
operating costs or expenses, and changes in industry trends. We may decide to alter or discontinue certain aspects of our business
strategy at any time. If we are not able to implement our business strategy successfully, our long-term growth and profitability
may be adversely affected. Even if we are able to implement some or all of the initiatives of our business strategy successfully,
our operating results may not improve to the extent we anticipate, or at all.
We
may fail to realize the anticipated benefits and cost savings of the acquisition of Home Bistro, which could adversely affect
the value of our common stock.
The
ultimate success of the acquisition of Home Bistro will depend, in part, on our ability to realize the anticipated benefits and
cost savings from combining the business of Home Bistro with our legacy business. Our ability to realize these anticipated benefits
and cost savings is subject to certain risks including:
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our ability to successfully combine the business of Home Bistro with our legacy business, including with respect to the integration of our systems and technology;
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whether
the combined businesses will perform as currently expected;
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the
possibility that we paid more for Home Bistro than the value we will derive from the acquisition; and
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the
assumption of known and unknown liabilities of Home Bistro.
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If
we are not able to successfully combine the business of Home Bistro with our legacy business within the anticipated time frame,
or at all, the anticipated cost savings and other benefits of the acquisition may not be realized fully or at all or may take
longer to realize than expected, the combined businesses may not perform as expected, and the value of our common stock may be
adversely affected.
We
cannot provide assurances that Home Bistro’s business and our legacy business can be integrated successfully. It is possible
that the integration process could result in the loss of key employees, the disruption of our ongoing businesses or in unexpected
integration issues, higher than expected integration costs, and an overall integration process that takes longer than originally
anticipated. In addition, at times, the attention of certain members of our management and resources may be focused on completion
of the integration and diverted from day-to-day business operations, which may disrupt our ongoing business. We may experience
difficulties associated with the implementation and/or integration of new businesses, services (including outsourced services),
technologies, solutions, or products.
We may face difficulties, costs, and delays in effectively implementing
and/or integrating acquired businesses, services (including outsourced services), technologies, solutions, or products into our
business. Implementing internally developed solutions and products, and/or integrating newly acquired businesses, services (including
outsourced services), and technologies could be time-consuming and may strain our resources. Consequently, we may not be successful
in implementing and/or integrating these new businesses, services, technologies, solutions, or products and may not achieve anticipated
revenue and cost benefits.
We
may experience difficulties associated with the implementation and/or integration of new businesses, services (including outsourced
services), technologies, solutions, or products.
We may face difficulties, costs, and delays in effectively implementing
and/or integrating acquired businesses, services (including outsourced services), technologies, solutions, or products into our
business. Implementing internally developed solutions and products, and/or integrating newly acquired businesses, services
(including outsourced services), and technologies could be time-consuming and may strain our resources. Consequently, we may not
be successful in implementing and/or integrating these new businesses, services, technologies, solutions, or products and may not
achieve anticipated revenue and cost benefits.
Changes
in macroeconomic conditions may adversely affect our business.
Economic
difficulties and other macroeconomic conditions could reduce the demand and/or the timing of purchases for certain of our services
from customers and potential customers. In addition, changes in economic conditions could create liquidity and credit constraints.
We cannot assure you that we would be able to secure additional financing if needed and, if such funds were available, that the
terms and conditions would be acceptable to us.
The
effects of the outbreak of the novel coronavirus (“COVID-19”) have negatively affected the global economy,
the United States economy, and the global financial markets, and may disrupt our operations and our clients’ and counterparties’
operations, which could have an adverse effect on our business, financial condition and results of operations.
The effects of the outbreak of the novel coronavirus have negatively
affected the global economy, the United States economy, and the global financial markets, and may disrupt our operations and our
clients’ and counterparties’ operations, which could have an adverse effect on our business, financial condition and
results of operations.
The
ongoing COVID-19 global and national health emergency has caused significant disruption in the international and United States
economies and financial markets. In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. The spread
of COVID-19 has caused illness, quarantines, cancellation of events and travel, business and school shutdowns, reduction in business
activity and financial transactions, labor shortages, supply chain interruptions and overall economic and financial market instability.
The United States now has the world’s most reported COVID-19 cases, and all 50 states and the District of Columbia have
reported cases of individuals infected with COVID-19. All states have declared states of emergency. Similar impacts have been
experienced in every country in which we do business. Impacts to our business could be widespread and global, and material impacts
may be possible, including the following:
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Our
employees contracting COVID-19;
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Reductions
in our operating effectiveness as our employees work from home or disaster-recovery locations;
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Unavailability
of key personnel necessary to conduct our business activities;
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Unprecedented
volatility in global financial markets;
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Reductions
in revenue across our operating businesses;
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Closure
of our offices or the offices of our clients; and
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Furthermore,
the Company has been following the recommendations of local health authorities to minimize exposure risk for its employees for
the past several weeks, including the temporary closures of its offices and having employees work remotely to the extent possible,
which has to an extent adversely affected their efficiency. In addition, the cancellation of in-person meetings and conferences
has had an adverse impact on the Company’s business and financial condition and has hampered the Company’s ability
to meet with customers to promote products, generate revenue and access usual sources of liquidity on reasonable terms, which
in turn has negatively impacted the Company’s cash flow and its ability to pay for certain professional services.
The
COVID-19 pandemic also has the potential to significantly impact our Home Bistro segment’s supply chain, food manufacturers,
distribution centers, or logistics and other service providers. Additionally, our service providers and their operations may be
disrupted, temporarily closed or experience worker or meat or other food shortages, which could result in additional disruptions
or delays in shipments of our Home Bistro segment’s products.
We
are still assessing our business operations and system supports and the impact COVID-19 may have on our results and financial
condition, but there can be no assurance that this analysis will enable us to avoid part or all of any impact from the spread
of COVID-19 or its consequences, including downturns in business sentiment generally or in our sectors in particular. To date,
the Company has been able to avoid layoffs and furloughs of employees.
As
the situation continues to evolve, the Company will continue to closely monitor market conditions and respond accordingly.
The
further spread of the COVID-19 outbreak may materially disrupt banking and other financial activity generally and in the areas
in which we operate. This would likely result in a decline in demand for our products and services, which would negatively impact
our liquidity position and our business strategies. Any one or more of these developments could have a material adverse effect
on our and our consolidated subsidiaries’ business, operations, consolidated financial condition, and consolidated results
of operations.
A
failure of our information technology or systems could adversely affect our business.
Our
ability to deliver our products and services depends on effectively using information technology. We rely upon our information
technology and systems, employees, and third parties for operating and monitoring all major aspects of our business. These technologies
and systems and, therefore, our operations could be damaged or interrupted by natural disasters, power loss, network failure,
improper operation by our employees, data privacy or security breaches, computer viruses, computer hacking, network penetration
or other illegal intrusions or other unexpected events. Any disruption in the operation of our information technology or systems,
regardless of the cause, could adversely impact our operations, which may adversely affect our financial condition, results of
operations and cash flows.
A
cybersecurity incident could result in the loss of confidential data, give rise to remediation and other expenses, expose us to
liability under consumer protection laws, common law theories or other laws, subject us to litigation and federal and state governmental
inquiries, damage our reputation, and otherwise be disruptive to our business.
The nature of our business involves the receipt, storage and
use of personal data about our customers, as well as employees. Additionally, we rely upon third parties that are not directly
under our control to store and use portions of that personal data as well. The secure maintenance of this and other confidential
information or other proprietary information is critical to our business operations. To protect our information systems from attack,
damage, and unauthorized use, we have implemented multiple layers of security, including technical safeguards, processes, and our
people. Our defenses are monitored and routinely tested internally and by external parties. Despite these efforts, threats from
malicious persons and groups, new vulnerabilities, technology failures, and advanced attacks against information systems create
risk of cybersecurity incidents. We cannot provide assurance that we or our third-party vendors or other service providers will
not be subject to cybersecurity incidents, which may result in unauthorized access by third parties, loss, misappropriation, disclosure
or corruption of customer, employee, or our information; or other data subject to privacy laws. Such cybersecurity incidents or
delays in responding to or remedying damage caused by such incidents may lead to a disruption in our systems or business, costs
to modify, enhance, or remediate our cybersecurity measures, liability under privacy, security and consumer protection laws or
litigation under these or other laws, including common law theories, and subject us to enforcement actions, fines, regulatory proceedings
or litigation against us, damage to our business reputation, a reduction in participation and sales of our products and services,
and legal obligations to notify customers or other affected individuals about an incident, which could cause us to incur substantial
costs and negative publicity, any of which could have a material adverse effect on our financial condition and results of operations
and harm our business reputation.
As
a result, cybersecurity and the continued development and enhancement of our controls, processes and practices remain a priority
for us. We may be required to expend significant additional resources in our efforts to modify or enhance our protective measures
against evolving threats or to investigate and remediate any cybersecurity vulnerabilities.
Our business is subject to changing privacy and security laws,
rules, and regulations, including the Payment Card Industry Data Security Standards, the Telephone Consumer Protection Act and
other state privacy regulations, which impact our operating costs and for which failure to adhere could negatively impact our business.
Our business is subject to various privacy and data security
laws, regulations, and codes of conduct that apply to our various business units (e.g., Payment Card Industry Data Security Standards
and Telephone Consumer Protection Act (“TCPA”)). These laws and regulations may be inconsistent across jurisdictions
and are subject to evolving and differing (sometimes conflicting) interpretations. While we are using internal and external resources
to monitor compliance with and to continue to modify our data processing practices and policies in order to comply with evolving
privacy laws, relevant regulatory authorities could determine that our data handling practices fail to address all the requirements
of certain new laws, which could subject us to penalties and/or litigation. Government regulators, privacy advocates and class
action attorneys are increasingly scrutinizing how companies collect, process, use, store, share and transmit personal data. This
increased scrutiny may result in new interpretations of existing laws as well as new laws, regulations, and industry standards
concerning privacy, data protection, and information security proposed and enacted in various jurisdictions, thereby further impacting
our business. For example, the California Consumer Privacy Act of 2018 (“CCPA”), went into effect on January 1, 2020,
and it applies broadly to information that identifies or is associated with any California household or individual, and compliance
with the new law requires that we implement several operational changes, including processes to respond to individuals’ data
access and deletion requests. Failure to comply with the CCPA may result in attorney general enforcement action and damage to our
reputation. The CCPA also provides for civil penalties for violations, as well as a private right of action for data breaches that
may increase data breach litigation. We may also be exposed to litigation, regulatory fines, penalties or other sanctions if the
personal, confidential or proprietary information of our customers is mishandled or misused by any of our suppliers, counterparties
or other third parties, or if such third parties do not have appropriate controls in place to protect such personal, confidential
or proprietary information. Additionally, the Federal Trade Commission (“FTC”) and many state attorneys general are
interpreting federal and state consumer protection laws to impose standards for the collection, use, dissemination, and security
of data. The obligations imposed by the CCPA and other similar laws that may be enacted at the federal and state level may require
us to modify our business practices and policies and to incur substantial expenditures in order to comply.
We
depend on our management team.
The Company’s future success primarily depends on the
efforts of the existing management team, particularly, Zalmi Duchman, our Chief Executive Officer. Loss of the services of Mr.
Duchman could materially and adversely affect the Company’s business prospects. We do not carry “key-man” life
insurance on the lives of any of our employees or advisors. As sufficient funds become available, the Company intends to hire additional
qualified personnel. Significant competition exists for such personnel and, accordingly, our compensation costs may increase significantly.
The Company believes it will be able to recruit and retain personnel with the skills required for present needs and future growth
but cannot assure it will be successful in those efforts.
In order to be successful, we must attract, engage, retain,
and integrate key employees and have adequate succession plans in place, and failure to do so could have an adverse effect on our
ability to manage our business.
Our success depends, in large part, on our ability to attract,
engage, retain, and integrate qualified executives and other key employees throughout all areas of our business. Identifying, developing
internally, or hiring externally, training and retaining highly skilled managerial and other personnel are critical to our future,
and competition for experienced employees can be intense. Failure to successfully hire executives and key employees or the loss
of any executives and key employees could have a significant impact on our operations. The loss of services of any key personnel,
the inability to retain and attract qualified personnel in the future, or delays in hiring may harm our business and results of
operations. Further, changes in our management team may be disruptive to our business, and any failure to successfully integrate
key newly hired employees could adversely affect our business and results of operations.
We
face competition for staffing, which may increase our labor costs and reduce profitability.
We
compete with other food and beverage services providers in recruiting qualified management, including executives with the required
skills and experience to operate and grow our business, and staff personnel for the day-to-day operations of our business. These
challenges may require us to enhance wages and benefits to recruit and retain qualified management and other professionals. Difficulties
in attracting and retaining qualified management and other professionals, or in controlling labor costs, could have a material
adverse effect on our profitability.
We
are or may become a party to litigation that could potentially force us to pay significant damages and/or harm our reputation.
We
could be subject to certain legal proceedings, which potentially involve large claims and significant defense costs (see “Legal
Proceedings”). These legal proceedings and any other claims that we may face in the future, whether with or without merit,
could result in costly litigation, and divert the time, attention, and resources of our management. The coverage limits of our
insurance policies may not be adequate to cover all such claims and some claims may not be covered by insurance. Additionally,
insurance coverage with respect to some claims against us or our directors and officers may not be available on terms that would
be favorable to us, or the cost of such coverage could increase in the future. Further, although we believe that we have conducted
our operations in compliance with applicable statutory and contractual requirements and that we have meritorious defenses to outstanding
claims, it is possible that resolution of these legal matters could have a material adverse effect on our results of operations.
In addition, legal expenses associated with the defense of these matters may be material to our results of operations in a particular
financial reporting period.
Third
parties may infringe on our brands, trademarks, and other intellectual property rights, which may have an adverse impact on our
business.
We currently rely on a combination of trademark and other intellectual
property laws and confidentiality procedures to establish and protect our proprietary rights, including our brands. If we fail
to successfully enforce our intellectual property rights, the value of our brands, services and products could be diminished and
our business may suffer. Our precautions may not prevent misappropriation of our intellectual property. Any legal action that we
may bring to protect our brands and other intellectual property could be unsuccessful and expensive and could divert management’s
attention from other business concerns. In addition, legal standards relating to the validity, enforceability, and scope of protection
of intellectual property, especially in Internet-related businesses, are uncertain and evolving. We cannot assure you that these
evolving legal standards will sufficiently protect our intellectual property rights in the future.
We
may be subject to intellectual property rights claims.
Third parties may make claims against us alleging infringement
of their intellectual property rights. Any intellectual property claims, regardless of merit, could be time-consuming and expensive
to litigate or settle and could significantly divert management’s attention from other business concerns. In addition, if
we were unable to successfully defend against such claims, we may have to pay damages, stop selling the service or product or stop
using the software, technology or content found to be in violation of a third party’s rights, seek a license for the infringing
service, product, software, technology, or content or develop alternative non-infringing services, products, software, technology
or content. If we cannot license on reasonable terms, develop alternatives, or stop using the service, product, software, technology
or content for any infringing aspects of our business, we may be forced to limit our service and product offerings. Any of these
results could reduce our revenue and our ability to compete effectively, increase our costs or harm our business.
Damage
to our reputation could harm our business, including our competitive position and business prospects.
Our ability to attract and retain customers
and employees is impacted by our reputation. Harm to our reputation can arise from various sources, including employee misconduct,
cyber security breaches, unethical behavior, litigation, or regulatory outcomes, which could, among other consequences, increase
the size and number of litigations claims and damages asserted or subject us to enforcement actions, fines and penalties and cause
us to incur related costs and expenses.
We
rely on third parties to provide us with adequate food supply, freight and fulfillment and Internet and networking services, the
loss or disruption of any of which could cause our revenue, earnings, or reputation to suffer.
We rely on third-party manufacturers to supply all of the food
and other products we sell as well as packaging materials. If we are unable to obtain sufficient quantity, quality and variety
of food, other products, and packaging materials in a timely and low-cost manner from our manufacturers, we will be unable to fulfill
our customers’ orders in a timely manner, which may cause us to lose revenue and market share or incur higher costs, as well
as damage the value of our brands.
Currently,
all of our Home Bistro order fulfillment is handled by one third-party provider. Also, almost all of our direct-to-consumer Home
Bistro customer orders are shipped by one third-party provider and almost all of our orders for Home Bistro retail programs are
shipped by another third-party provider. Should these providers be unable to service our needs for even a short duration, our
revenue and business could be adversely affected. Additionally, the cost and time associated with replacing these providers on
short notice would add to our costs. Any replacement fulfillment provider would also require startup time, which could cause us
to lose sales and market share.
Our
business also depends on a number of third parties for Internet access and networking, and we have limited control over these
third parties. Should our network connections go down, our ability to fulfill orders would be delayed. Further, if our websites
or call center become unavailable for a noticeable period of time due to Internet or communication failures, our business could
be adversely affected, including harm to our brands and loss of sales.
Therefore,
we are dependent on these third parties. The services we require from these parties may be disrupted by a number of factors, including
the following:
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financial
condition or results of operations;
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internal
inefficiencies;
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natural
or man-made disasters; and
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with
respect to our food suppliers, shortages of ingredients or United States Department of Agriculture (“USDA”) or United
States Food and Drug Administration (“FDA”) compliance issues.
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Further,
if a regional or global health epidemic or pandemic occurs, such as COVID-19, depending upon its location, duration and severity,
our business could be severely affected. A regional or global health epidemic or pandemic might also adversely affect our business
by disrupting the operations of our call center, creating negative popular sentiment among consumers of delivered food, or by
disrupting or delaying our third-party providers’ ability to, among other things (i) supply the products that we sell, as
well as packaging materials, (ii) fulfill segment customer orders and (iii) provide internet and networking services.
Our
industries are highly competitive. If any of our competitors or a new entrant into the market with significant resources has products
similar to ours, our business could be significantly affected.
Competition
is intense in the meal delivery services industry and the beverage industry and we must remain competitive in the areas of program
efficacy, price, taste, customer service and brand recognition. Some of our competitors are significantly larger than we are and
have substantially greater resources. Our business could be adversely affected if someone with significant resources decided to
imitate our services or products. Any increased competition from new entrants into our segments’ industry or any increased
success by existing competition could result in reductions in our sales or prices, or both, which could have an adverse effect
on our business and results of operations.
If
we do not continue to receive referrals from existing Home Bistro segment customers, our Home Bistro segment’s customer
acquisition cost may increase.
We
rely on word-of-mouth advertising for a portion of our new Home Bistro segment customers. If our brands suffer or the number of
customers acquired through referrals drops due to other circumstances, our costs associated with acquiring new Home Bistro segment
customers and generating revenue will increase, which will, in turn, have an adverse effect on our profitability.
Changes
in customer preferences could negatively impact our operating results.
Our Home Bistro segment programs feature gourmet online meal
delivery service selections, which we believe offer convenience and value to our customers. Our continued success depends,
to a large degree, upon the continued popularity of our Home Bistro segment programs versus various other food services. Changes
in customer tastes and preferences away from our ready-to-go food, and any failure to provide innovative responses to these changes,
may have a materially adverse impact on our business, financial condition, operating results, and cash flows.
Our
success is also dependent on our food innovation including maintaining a robust array of food items and improving the quality
of existing items. If we do not continually expand our food items or provide customers with items that are desirable in taste
and quality, our business could be adversely impacted.
The
industry in which our Home Bistro segment operates is subject to governmental regulation that could increase in severity and hurt
results of operations.
The industry in which our Home Bistro segment operates is subject
to federal, state, and other governmental regulation. Certain federal and state agencies, such as the FTC, regulate and enforce
such laws relating to advertising, disclosures to customers, privacy, customer pricing and billing arrangements and other customer
protection matters. A determination by a federal or state agency, or a court, that any of our practices do not meet existing or
new laws or regulations could result in liability, adverse publicity, and restrictions on our business operations.
Other
aspects of the industry in which our Home Bistro segment operates are also subject to government regulation. For example, the
manufacturing, labeling and distribution of food products are subject to strict USDA and FDA requirements and food manufacturers
are subject to rigorous inspection and other requirements of the USDA and FDA, and companies operating in foreign markets must
comply with those countries’ requirements for proper labeling, controls on hygiene, food preparation and other matters.
Additionally, remedies available in any potential administrative or regulatory actions may include product recalls and requiring
us to refund amounts paid by all affected customers or pay other damages, which could be substantial.
Laws and regulations directly applicable
to communications, operations, or commerce over the Internet such as those governing intellectual property, privacy, libel and
taxation, are becoming more prevalent and some remain unsettled. If we are required to comply with new laws or regulations or
new interpretations of existing laws or regulations, or if we are unable to comply with these laws, regulations or interpretations,
our business could be adversely affected.
Future
laws or regulations, including laws or regulations affecting our marketing and advertising practices, relations with customers,
employees, service providers, or our services and products, may have an adverse impact on us.
The
sale of ingested products involves product liability and other risks.
Like other distributors of products that
are ingested, we face an inherent risk of exposure to product liability claims if the use of our products results in illness or
injury. The foods that we resell in the U.S. are subject to laws and regulations, including those administered by the USDA and
FDA that establish manufacturing practices and quality standards for food products. Product liability claims could have a material
adverse effect on our business as existing insurance coverage may not be adequate. The successful assertion or settlement of an
uninsured claim, a significant number of insured claims or a claim exceeding the limits of our insurance coverage would harm us
by adding costs to the business and by diverting the attention of senior management from the operation of our business. We may
also be subject to claims that our Home Bistro segment products contain contaminants, are improperly labeled, include inadequate
instructions as to use or inadequate warnings covering interactions with other substances. Product liability litigation, even
if not meritorious, is very expensive and could also entail adverse publicity for us and adversely affect our results of operations.
In addition, the products we distribute, or certain components of those products, may be subject to product recalls or other deficiencies.
Any negative publicity associated with these actions would adversely affect our brands and may result in decreased product sales
and, as a result, lower revenue, and profits.
Risks
Related to an Investment in Our Common Stock
There
is currently a limited public market for our common stock, a trading market for our common stock may never develop, and our common
stock prices may be volatile and could decline substantially.
Although
our common stock is quoted on OTC Markets, OTCQB tier of OTC Markets Group Inc., an over-the-counter quotation
system, under the symbol “GRTD,” there has been no material public market for our common stock. In these marketplaces,
our stockholders may find it difficult to obtain accurate quotations as to the market value of their shares of our common stock
and may find few buyers to purchase their stock and few market makers to support its price. As a result of these and other factors,
investors may be unable to resell shares of our common stock at or above the price for which they purchased them, at or near quoted
bid prices, or at all. Further, an inactive market may also impair our ability to raise capital by selling additional equity in
the future and may impair our ability to enter into strategic partnerships or acquire companies or products by using shares of
our common stock as consideration.
Moreover,
there can be no assurance that any stockholders will sell any or all of their shares of common stock and there may initially
be a lack of supply of, or demand for, our common stock. In the case of a lack of supply for our common stock, the trading price
of our common stock may rise to an unsustainable level, particularly in instances where institutional investors may be discouraged
from purchasing our common stock because they are unable to purchase a block of shares in the open market due to a potential unwillingness
of our stockholders to sell the amount of shares at the price offered by such investors and the greater influence individual investors
have in setting the trading price. In the case of a lack of demand for our common stock, the trading price of our common stock
could decline significantly and rapidly at any time.
We
intend to list shares of our common stock on a national securities exchange in the future, but we do not now, and may not in the
future, meet the initial listing standards of any national securities exchange, which is often a more widely traded and liquid
market. Some, but not all, of the factors which may delay or prevent the listing of our common stock on a more widely-traded and
liquid market include the following: our stockholders’ equity may be insufficient; the market value of our outstanding securities
may be too low; our net income from operations may be too low; our common stock may not be sufficiently widely held; we may not
be able to secure market makers for our common stock; and we may fail to meet the rules and requirements mandated by the several
exchanges and markets to have our common stock listed. Should we fail to satisfy the initial listing standards of the national
exchanges, or our common stock is otherwise rejected for listing, and remains listed on the OTC Markets or is suspended
from the OTC Markets, the trading price of our common stock could suffer and the trading market for our common stock
may be less liquid and our common stock price may be subject to increased volatility.
Therefore,
an active, liquid, and orderly trading market for our common stock may not initially develop or be sustained, which could significantly
depress the public price of our common stock and/or result in significant volatility, which could affect your ability to sell
your common stock. Even if an active trading market develops for our common stock, the market price of our common stock may be
highly volatile and subject to wide fluctuations. Our financial performance, government regulatory action, tax laws, interest
rates and market conditions in general could have a significant impact on the future market price of our common stock.
Our
CEO has significant voting power and may take actions that may not be in the best interests of our other stockholders.
Stockholders
have limited ability to exercise control over the Company’s daily business affairs and implement changes in its policies
because management beneficially owns a majority of the current shares of Common Stock. As of April 20, 2020, the Company’s
Chief Executive Officer, Mr. Zalmi Duchman beneficially owns 50.7% of the Common Stock. As directors and officers of the Company,
the Company’s management team has a fiduciary duty to the Company and must act in good faith in the manner it reasonably
believes to be in the best interest of the members. As stockholders, the management team is entitled to vote its shares in its
own interest, which may not always be in the best interest of the stockholders.
We
are not subject to the rules of a national securities exchange requiring the adoption of certain corporate governance measures
and, as a result, our stockholders do not have the same protections.
We
are quoted on the OTCQB marketplace and are not subject to the rules of a national securities exchange, such as the New York Stock
Exchange or the Nasdaq Stock Market. National securities exchanges generally require more rigorous measures
relating to corporate governance designed to enhance the integrity of corporate management. The requirements of the OTCQB afford
our stockholders fewer corporate governance protections than those of a national securities exchange. Until we comply with
such greater corporate governance measures, regardless of whether such compliance is required, our stockholders will
have fewer protections such as those related to director independence, stockholder approval rights and governance measures
designed to provide board oversight of management.
We
do not have a class of our securities registered under Section 12 of the Exchange Act. Until we do, or we become subject to Section
15(d) of the Exchange Act, we will be a “voluntary filer.”
We
are not currently required under Section 13 or Section 15(d) of the Exchange Act to file periodic reports with the SEC. We have
in the past voluntarily elected to file some or all of these reports to ensure that sufficient information about us and our operations
is publicly available to our stockholders and potential investors. Until we become subject to the reporting requirements under
the Exchange Act, we are a “voluntary filer”, and we are currently considered a non-reporting issuer under the Exchange
Act. We will not be required to file reports under Section 13(a) or 15(d) of the Exchange Act until the earlier to occur of: (i)
our registration of a class of securities under Section 12 of the Exchange Act, which would be required if we list a class of
securities on a national securities exchange or if we meet the size requirements set forth in Section 12(g) of the Exchange Act,
or which we may voluntarily elect to undertake at an earlier date; or (ii) the effectiveness of a registration statement under
the Securities Act relating to our common stock. Until we become subject to the reporting requirements under either Section 13(a)
or 15(d) of the Exchange Act, we are not subject to the SEC’s proxy rules, and large holders of our capital stock will not
be subject to beneficial ownership reporting requirements under Sections 13 or 16 of the Exchange Act and their related rules.
As a result, our stockholders and potential investors may not have available to them as much or as robust information as they
may have if and when we become subject to those requirements. In addition, if we do not register under Section 12 of the Exchange
Act, and remain a “voluntary filer”, we could cease filing annual, quarterly, or current reports under the Exchange
Act.
If
our common stock becomes subject to the “penny stock” rules, it could adversely affect the market price of our common
stock and increase your transaction costs to sell those shares.
The
SEC has adopted Rule 3a51-1, which establishes the definition of a “penny stock” as any equity security that has a
market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions.
If the price if our common stock is less than $5.00, our common stock will be deemed a penny stock. For any transaction involving
a penny stock, unless exempt, Rule 15g-9 requires that a broker-dealer must make a special written determination that the penny
stock is a suitable investment for the purchaser and receive (i) the purchaser’s written acknowledgment of the receipt of
a risk disclosure statement; (ii) a written agreement to transactions involving penny stocks; and (iii) a signed and dated copy
of a written suitability statement. Generally, brokers may be less willing to execute transactions in securities subject to the
“penny stock” rules. This may make it more difficult for investors to dispose of our common stock and cause a decline
in the market value of our stock.
Our
common stock prices may be volatile which could cause the value of an investment in our common stock to decline.
The
market price of our common stock may be highly volatile and subject to wide fluctuations. Our financial performance, government
regulatory action, tax laws, interest rates and market conditions in general could have a significant impact on the future market
price of our common stock. The public price of our common stock may be subject to wide fluctuations in response to the risk factors
described in this Annual Report and others beyond our control, including:
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the
number of shares of our common stock publicly owned and available for trading;
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actual
or anticipated quarterly variations in our results of operations or those of our competitors;
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our
actual or anticipated operating performance and the operating performance of similar companies in our industry;
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our
announcements or our competitors’ announcements regarding, significant contracts, acquisitions, or strategic investments;
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general
economic conditions and their impact on the food and beverage markets;
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the
overall performance of the equity markets;
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threatened
or actual litigation;
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changes
in laws or regulations relating to our industry;
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any
major change in our board of directors or management;
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publication
of research reports about us or our industry or changes in recommendations or withdrawal of research coverage by securities analysts;
and
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sales
or expected sales of shares of our common stock by us, and our officers, directors, and significant stockholders.
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In
addition, the stock market in general has experienced extreme price and volume fluctuations that often have been unrelated or
disproportionate to the operating performance of those companies. Securities class action litigation has often been instituted
against companies following periods of volatility in the overall market and in the market price of a company’s securities.
Such litigation, if instituted against us, could result in very substantial costs, divert our management’s attention and
resources and harm our business, operating results, and financial condition.
Because
we are a “smaller reporting company,” we will not be required to comply with certain disclosure requirements that
are applicable to other public companies and we cannot be certain if the reduced disclosure requirements applicable to smaller
reporting companies will make our common stock less attractive to investors.
We are a “smaller reporting company,” as defined
in Item 10(f)(1) of Regulation S-K. As a smaller reporting company, we are eligible for exemptions from various reporting requirements
applicable to other public companies that are not smaller reporting companies, including, but not limited to:
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Reduced
disclosure obligations regarding executive compensation in our periodic reports, proxy statements and registration statements;
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Not
being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002; and
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Reduced
disclosure obligations for our annual and quarterly reports, proxy statements and registration statements.
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We
will remain a smaller reporting company until the end of the fiscal year in which (1) we have a public common equity float of
more than $250 million, or (2) we have annual revenues for the most recently completed fiscal year of more than $100 million plus
we have any public common equity float or public float of more than $700 million. We also would not be eligible for status as
smaller reporting company if we become an investment company, an asset-backed issuer or a majority-owned subsidiary of a parent
company that is not a smaller reporting company.
We
do not expect to pay any cash dividends to the holders of the common stock in the foreseeable future and the availability and
timing of future cash dividends, if any, is uncertain.
We expect to use cash flow from future operations to support
the growth of our business and do not expect to declare or pay any cash dividends on our common stock in the foreseeable future.
Our board of directors will determine the amount and timing of stockholder dividends, if any, that we may pay in future periods.
In making this determination, our directors will consider all relevant factors, including the amount of cash available for dividends,
capital expenditures, covenants, prohibitions, or limitations with respect to dividends, applicable law, general operational requirements
and other variables. We cannot predict the amount or timing of any future dividends you may receive, and if we do commence the
payment of dividends, we may be unable to pay, maintain or increase dividends over time. Therefore, you may not be able to realize
any return on your investment in our common stock for an extended period of time, if at all.
Future
sales of our common stock, or the perception that such sales may occur, may depress our share price, and any additional capital
through the sale of equity or convertible securities may dilute your ownership in us.
We may in the future issue our previously
authorized and unissued securities. We are authorized to issue 1,000,000,000 shares of common stock and 20,000,000 shares of preferred
stock with such designations, preferences, and rights as determined by our board of directors. The potential issuance of such additional
shares of common stock will result in the dilution of the ownership interests of the holders of our common stock and may create
downward pressure on the trading price, if any, of our common stock.
In connection with the Exchange Agreement
and the Merger Agreement, the Company agreed to issue to certain stockholders a warrant to purchase shares of Common Stock.
The exercise, conversion, or exchange of
convertible securities, including for other securities, will dilute the percentage ownership of our stockholders. The dilutive
effect of the exercise or conversion of these securities may adversely affect our ability to obtain additional capital. The holders
of these securities may be expected to exercise or convert such securities at a time when we would be able to obtain additional
equity capital on terms more favorable than such securities or when our common stock is trading at a price higher than the exercise
or conversion price of the securities. The exercise or conversion of outstanding securities will have a dilutive effect on the
securities held by our stockholders. We have in the past, and may in the future, exchange outstanding securities for other securities
on terms that are dilutive to the securities held by other stockholders not participating in such exchange.
We may issue
preferred stock whose terms could adversely affect the voting power or value of our common stock.
Our certificate
of incorporation authorizes us to issue, without the approval of our stockholders, one or more classes or series of preferred stock
having such designations, preferences, limitations, and relative rights, including preferences over our common stock with respect
to dividends and distributions, as our board of directors may determine. The terms of one or more classes or series of preferred
stock could adversely impact the voting power or value of our common stock. For example, we might grant holders of preferred stock
the right to elect some number of our directors in all events or on the happening of specified events, or the right to veto specified
transactions. Similarly, the repurchase or redemption rights or liquidation preferences we might grant to holders of preferred
stock could affect the value of the common stock.
We will continue to incur increased
costs as a result of operating as a public company, and our management will be required to devote substantial time to new compliance
initiatives.
As a public company, we incur significant
legal, accounting, and other expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act of 2002 and
rules subsequently implemented by the SEC, impose various requirements on public companies, including establishment and maintenance
of effective disclosure and financial controls and corporate governance practices. Our management and other personnel devote a
substantial amount of time to these compliance initiatives. Moreover, these rules and regulations will increase our legal and financial
compliance costs and will make some activities more time-consuming and costly, particularly after we are no longer a smaller
reporting company. For example, we expect that these rules and regulations may make it more difficult and more expensive for us
to obtain director and officer liability insurance.
Pursuant to Section 404, we will be required
to furnish a report by our management on our internal control over financial reporting, including an attestation report on internal
control over financial reporting issued by our independent registered public accounting firm. To achieve compliance with Section
404 within the prescribed period, we will be engaged in a process to document and evaluate our internal control over financial
reporting, which is both costly and challenging. In this regard, we will need to continue to dedicate internal resources, potentially
engage outside consultants and adopt a detailed work plan to assess and document the adequacy of internal control over financial
reporting, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as
documented and implement a continuous reporting and improvement process for internal control over financial reporting. Despite
our efforts, there is a risk that neither we nor our independent registered public accounting firm will be able to conclude within
the prescribed timeframe that our internal control over financial reporting is effective as required by Section 404. This could
result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements.
We will continue to incur significant
costs in staying current with reporting requirements. Our management will be required to devote substantial time to compliance
initiatives. Additionally, the lack of an internal audit group may result in material misstatements to our financial statements
and ability to provide accurate financial information to our stockholders.
Our management and other personnel will
need to devote a substantial amount of time to compliance initiatives to maintain reporting status. Moreover, these rules and
regulations, which are necessary to remain as a public reporting company, will be costly because external third-party consultant(s),
attorneys, or other firms may have to assist us in following the applicable rules and regulations for each filing on behalf of
the Company.
We
currently do not have an internal audit group, and we may eventually need to hire additional accounting and financial staff with
appropriate public company experience and technical accounting knowledge to have effective internal controls for financial reporting.
Additionally, due to the fact that our officers and directors have limited experience as an officer or director of a reporting
company, such lack of experience may impair our ability to maintain effective internal controls over financial reporting and disclosure
controls and procedures, which may result in material misstatements to our financial statements and an inability to provide accurate
financial information to our stockholders.
Moreover,
if we are not able to comply with the requirements or regulations as a public reporting company in any regard, we could be subject
to sanctions or investigations by the SEC or other regulatory authorities, which would require additional financial and management
resources.
Many
of our officers and directors lack significant experience in, and with, the reporting and disclosure obligations of publicly traded
companies in the United States.
Many
of our officers and directors lack significant experience in, and with the reporting and disclosure obligations of publicly traded
companies, and with serving as an officer and or director of a publicly traded company. This lack of experience may impair our
ability to maintain effective internal controls over financial reporting and disclosure controls and procedures, which may result
in material misstatements to our financial statements and an inability to provide accurate financial information to our stockholders.
Consequently, our operations, future earnings and ultimate financial success could suffer irreparable harm due to our officers’
and director’s ultimate lack of experience in our industry and with publicly traded companies and their reporting requirements
in general.
ITEM
1B. UNRESOLVED STAFF COMMENTS
Not
applicable.
ITEM
2. PROPERTIES
Subsequent
to the Merger to acquire Home Bistro Holdings, the Company moved its corporate headquarters from 11231 US Highway One, Suite 200,
North Palm Beach, FL 33408 to 4014 Chase Avenue, #212, Miami Beach, FL 33140. Our telephone number, including area code, is (631)
964-1111.
ITEM
3. LEGAL PROCEEDINGS
From time to time, the Company is involved in litigation matters
relating to claims arising from the ordinary course of business. While the results of such claims and legal actions cannot be predicted
with certainty, the Company’s management does not believe that there are claims or actions, pending or threatened against
the Company, the ultimate disposition of which would have a material adverse effect on our business, results of operations, financial
condition, or cash flows.
ITEM
4. MINE SAFETY DISCLOSURES
Not
applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT’S
COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our common stock is currently approved
for quotation on the OTC Bulletin Board (OTCQB) maintained by the Financial Industry Regulatory Authority, Inc. under the symbol
“HBIS”. The table below sets forth the high and low closing price per share of our common stock for each quarter during
2020 and 2019. These prices represent inter-dealer quotations without retail markup, markdown, or commission and may not necessarily
represent actual transactions.
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High
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Low
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Fiscal
Year 2020
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First
Quarter ended March 31, 2020
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$
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0.88
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$
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0.19
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Second
Quarter ended June 30, 2020
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$
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6.01
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$
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0.20
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Third
Quarter ended September 30, 2020
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$
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3.00
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$
|
0.77
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Fourth
Quarter Ended December 31, 2020
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$
|
1.52
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|
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$
|
0.76
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Fiscal
Year 2019
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|
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|
|
|
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First
Quarter ended March 31, 2019
|
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$
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3.52
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|
|
$
|
0.81
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Second
Quarter ended June 30, 2019
|
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$
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2.81
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|
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$
|
0.96
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Third
Quarter ended September 30, 2019
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$
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1.53
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|
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$
|
0.61
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Fourth
Quarter Ended December 31, 2019
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$
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1.05
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$
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0.36
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Holders of Common Stock
As of March 18, 2021, there were approximately 111 record holders
of our common stock. The number of record holders does not include beneficial owners of common stock whose shares are held in the
names of banks, brokers, nominees, or other fiduciaries.
Dividends
We have not declared cash dividends on
our common stock since our inception and we do not anticipate paying any cash dividends in the foreseeable future. Our current
policy is to retain earnings, if any, for use in our operations and in the development of our business. Our future dividend policy
will be determined from time to time by our board of directors.
Recent Sales of Unregistered Securities
All unregistered sales of our securities during the quarter
ended December 31, 2020, were previously disclosed in a Quarterly Report on Form 10-Q.
The shares of common stock referenced
herein were issued in reliance upon the exemption from securities registration afforded by the provisions of Section 4(a)(2) of
the Securities Act of 1933, as amended (“Securities Act”).
Authorized Capital Stock
The authorized capital of the Company
consists of 1,000,000,000 shares of common stock, par value $0.001 per share and 20,000,000 shares of preferred stock, par value
$0.001 per share.
ITEM 6. SELECTED FINANCIAL DATA
Not applicable.
ITEM 7. MANAGEMENT’S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Except for the historical information, the following discussion
contains forward-looking statements that are subject to risks and uncertainties. We caution you not to put undue reliance on any
forward-looking statements, which speak only as of the date of this Report. Our actual results or actions may differ materially
from these forward-looking statements for many reasons. Our discussion and analysis of our financial condition and results of operations
should be read in conjunction with the financial statements and related notes and with the understanding that our actual future
results may be materially different from what we currently expect. See “CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION”
above. As used herein, the terms “we,” “us,” “our” and the “Company” refers to
Home Bistro, Inc., a Nevada corporation, and its subsidiaries unless otherwise stated.
Overview
The Company was incorporated in the State of Nevada on December
17, 2009. Effective March 23, 2018, the Company changed its name from Vapir Enterprises, Inc. to Gratitude Health, Inc. On September
14, 2020, the Company changed its name from Gratitude Health, Inc. to Home Bistro, Inc. The Company is in the business of providing
prepackaged and prepared meals to consumers focused on offering a broad array of the highest quality meal planning, delivery, and
preparation services. The Company’s primary former operations were in the business of manufacturing, selling, and marketing
functional RTD (Ready to Drink) beverages sold under the Company’s trademark (the “RTD Business”). The RTD Business
was disposed on September 25, 2020 as discussed below.
On April 7, 2020, the Board of Directors
of the Company approved the increase of authorized shares of common stock from 600,000,000 to 1,000,000,000.
On April 20, 2020, the Company, Fresh
Market Merger Sub, Inc., a Delaware corporation and a newly created wholly-owned subsidiary of the Company (“Merger Sub”),
and Home Bistro, Inc., a privately-held Delaware corporation engaged in the food preparation and home-delivery business (presently
known as Home Bistro Holdings, Inc., a Nevada corporation) (“Home Bistro Holdings”), entered into an Agreement and
Plan of Merger (the “Merger Agreement”) pursuant to which, among other things, Merger Sub agreed to merge with and
into Home Bistro Holdings, with Home Bistro Holdings becoming a wholly-owned subsidiary of the Company and the surviving corporation
in the merger (the “Merger”). Pursuant to the terms of the Merger Agreement, Home Bistro Holdings filed a Certificate
of Merger with the Nevada Secretary of State on April 20, 2020.
On April 20, 2020, pursuant to the terms of the Merger Agreement,
Roy G. Warren, Jr., Mike Edwards, and Bruce Zanca resigned as directors of the Company and Roy G. Warren, Jr. resigned as Chief
Operating Officer of the Company. The resignations were not the result of any disagreement related to the Company’s operations,
policies, or practices. Furthermore, on April 20, 2020, Mr. Zalmi Duchman, the Chief Executive Officer of Home Bistro Holdings,
Michael Finkelstein and Michael Novielli were appointed as directors of the Company. In addition, Mr. Duchman was appointed Chief
Executive Officer.
The Merger constituted a change of control
and the majority of the Board of Directors changed with the consummation of the Merger. The Company issued to the stockholders
of Home Bistro Holdings shares of common stock and stock warrants which represented approximately 80% of the combined company
on a fully converted basis after the closing of the Merger. As a result of the above transactions and the Company’s
intent to dispose or divest the assets and liabilities associated with the RTD Business, this transaction was accounted for as
a reverse recapitalization effected by a share exchange of Home Bistro Holdings. The consolidated interim financial statements
are those of Home Bistro Holdings (the accounting acquirer) prior to the Merger and include the activity of the Company (the accounting
acquiree) from the date of the Merger.
On September 14, 2020, the Company filed
with the Secretary of State of the State of Nevada a Certificate of Amendment to its Articles of Incorporation to effect (i) a
1 for 31.993 reverse stock split of its common stock, par value $0.001 per share, with fractional shares rounding up to the nearest
whole share (the “Reverse Stock Split”), and (ii) the change of the Company’s name from “Gratitude Health,
Inc.” to “Home Bistro, Inc.”. All share and per-share data and amounts have been retroactively adjusted as of
the earliest period presented in the consolidated financial statements to reflect the Reverse Stock Split.
On Sept. 14, 2020, the Financial Industry
Regulatory Authority approved the Company’s symbol change from “GRTD” to “HBIS”, effective twenty
(20) business days from the approval date.
On September 25, 2020, the Company entered
into, and closed the transactions contemplated by, that certain Asset Purchase Agreement (the “Asset Purchase Agreement”),
by and among the Company, Gratitude Keto Holdings, Inc., a Florida corporation (the “Buyer” or “Gratitude Keto”),
and the holder of 250,000 of the Company’s issued and outstanding shares of Series B Preferred Stock, $0.001 par value per
share (such stock, the “Series B Preferred Stock”, and such stockholder, the “Stockholder”). Pursuant
to the Asset Purchase Agreement, among other things, the Company agreed to sell to the Buyer all of the Company’s business,
assets and properties used, or held or developed for use, in its functional RTD Business, and the Buyer agreed to assume certain
debts, obligations and liabilities related to the RTD Business. Furthermore, in connection with the Asset Purchase Agreement,
the Buyer returned the 250,000 shares of Series B Preferred Stock held by the Stockholder which was then cancelled by the Company
upon return. As a result, the Company has no outstanding shares of preferred stock. Additionally, the RTD Business activities
were reclassified and reported as part of “discontinued operations” for all periods presented on the consolidated
statements of operations. In addition, the Company assumed an accounts payable liability in the amount of $14,000 related to accounting
expenses of the RTD Business for a period prior to the Merger. Pursuant to the Asset Purchase Agreement, the Buyer reimbursed
the Company for the accounting expenses in amount of $14,000, of which $7,000 was payable in cash and the balance in form of a
promissory note dated September 25, 2020 in the amount of $7,000. The promissory note bears an interest rate of 5% per annum,
matures on April 25, 2021 and is payable in monthly installments of $1,000 commencing on October 25, 2020 through maturity.
The ongoing COVID-19 global and national
health emergency has caused significant disruption in the international and United States economies and financial markets. In
March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. The spread of COVID-19 has caused illness,
quarantines, cancellation of events and travel, business and school shutdowns, reduction in business activity and financial transactions,
labor shortages, supply chain interruptions and overall economic and financial market instability. The COVID-19 pandemic has the
potential to significantly impact the Company’s supply chain, food manufacturers, distribution centers, or logistics and
other service providers. Additionally, the Company’s service providers and their operations may be disrupted, temporarily
closed or experience worker or meat or other food shortages, which could result in additional disruptions or delays in shipments
of Home Bistro’s products. To date, the Company has been able to avoid layoffs and furloughs of employees. The Company is
not able to estimate the duration of the pandemic and potential impact on the business if disruptions or delays in shipments of
product occur. To date, the Company is not aware of any such disruptions. In addition, a severe prolonged economic downturn could
result in a variety of risks to the business, including weakened demand for product and a decreased ability to raise additional
capital when needed on acceptable terms, if at all. As the situation continues to evolve, the Company will continue to closely
monitor market conditions and respond accordingly. The Company has applied for and received certain financial assistance under
the Coronavirus, Aid, Relief, and Economic Security Act (“CARES Act”) enacted in March 2020 by the U.S. Government
in response to COVID-19.
Results of Operations
For the Years Ended December 31,
2020 and 2019
The Company is in the business of providing prepackaged and
prepared meals to consumers focused on offering a broad array of the highest quality meal delivery, and preparation services.
Product Sales
During the years ended December 31, 2020 and 2019, sales from
the food preparation and home-delivery business amounted to $1,335,859 and $836,599, respectively, an increase of $499,260 or 60%.
Cost of Sales
The primary components of cost of sales
are royalty fee and food and processing costs directly attributable to fulfilment and the delivery of the product to customers
including both inbound and outbound shipping costs.
During the years ended December 31, 2020
and 2019, cost of sales amounted to $873,289 and $499,396, respectively, an increase of $373,893 or 75% due to increase in sales
and royalty fee.
Operating Expenses
For the years ended December 31, 2020
and 2019, operating expenses consisted of the following:
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Year Ended
December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Compensation and related expenses
|
|
$
|
547,940
|
|
|
$
|
362,526
|
|
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Professional and consulting expenses
|
|
|
434,450
|
|
|
|
27,231
|
|
|
Product development expense
|
|
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360,000
|
|
|
|
—
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Selling and marketing expenses
|
|
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226,428
|
|
|
|
57,067
|
|
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General and administrative expenses
|
|
|
198,082
|
|
|
|
104,569
|
|
|
Total
|
|
$
|
1,766,900
|
|
|
$
|
551,393
|
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●
|
Compensation
and related expenses:
|
During the year ended December
31, 2020, compensation and related expenses amounted to $547,940 as compared to $362,526 for the year ended December 31, 2019,
an increase of $185,414 or 51%. The increase was primarily attributable to an increase in employee stock-based compensation in
2020.
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●
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Professional
and consulting expenses:
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During the year ended December 31, 2020, professional and consulting
expenses amounted to $434,450 as compared to $27,231 for the year ended December 31, 2019, an increase of $407,219 or 1,495%. The
increase was primarily due to increases in stock-based compensation to consultants and legal of $124,219, legal expense of $187,318
and accounting and auditing expense of $86,713 in 2020.
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|
●
|
Product
development expense:
|
During the year ended December
31, 2020, product development expenses amounted to $360,000 as compared to $0 for the year ended December 31, 2019, an increase
of $360,000, or 100%. The increase was primarily due to the grant of warrant to purchase up to 300,000 shares of the Company’s
common stock with grant date fair value of $360,000 in 2020 in connection with the execution of that Joint Production Development and Distribution Agreement.
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|
●
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Selling
and marketing expenses:
|
During the year ended December 31, 2020, selling and marketing
expenses to $226,428 as compared to $57,067 for the year ended December 31, 2019, an increase of $169,361, or 297%. The increase
was primarily due to stock-based compensation to a vendor of $11,717 and increase in marketing activities in 2020 in connection
with the execution of that Joint Production Development and Distribution Agreement.
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|
●
|
General
and administrative expenses:
|
During the year ended December 31, 2020, general and administrative
expenses amounted to $198,082 as compared to $104,569 for the year ended December 31, 2019, an increase of $93,513 or 89%. The
increase was primarily due to increase in operational expenses such as rent for a kitchen facility for the Company.
Loss from Operations
During the year ended December 31, 2020, loss from operations
amounted to $1,304,330 as compared to $214,190 for the year ended December 31, 2019, an increase of $1,215,507 or 509%. The increase
was due to the changes discussed above.
Other Income
|
|
●
|
During year ended
December 31, 2020, other income, net amounted to $24,466 as compared to other income, net of $15,129 for the year ended December
31, 2019, an increase in other income, net of $9,337 or 62%. The change was primarily due to increase in interest expense
of $16,583, a decrease in gain on extinguishment of accounts payable of $11,395 offset by an increase in gain from change
in fair value of derivative liabilities of $32,315 and an increase in other income of $5,000 grant received from the SBA under
the SBA’s Economic Injury Disaster Loan assistance program in light of the impact of the COVID-19 pandemic in 2020.
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Loss from continuing operations
|
|
●
|
During the year ended December 31, 2020, we had a loss from continuing
operations of $1,279,864 or $(0.07) per common share (basic and diluted), compared to a loss from continuing operations of $199,061
or $(0.02) per common share (basic and diluted) for the year ended December 31, 2019, an increase of $1,080,833 or 543%. The increase
was due to the changes discussed above.
|
Income from discontinued operations
|
|
●
|
During the year
ended December 31, 2020, we had income from discontinued operations of $38,203 compared to income from discontinued operations
of $0 for of the year ended December 31, 2019, an increase of $38,203 or 100%. The increase was due to the Merger and disposal
of the RTD Business segment.
|
Liquidity and Capital Resources
Liquidity is the ability of an enterprise to generate adequate
amounts of cash to meet its needs for cash requirements. We had a working capital deficit of $466,178 and cash of $447,354 as of
December 31, 2020 and a working capital deficit of $271,679 and $7,137 of cash as of December 31, 2019.
|
|
|
December 31,
2020
|
|
|
December 31,
2019
|
|
|
Change
|
|
|
Percentage
Change
|
|
|
Working capital deficit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
$
|
480,942
|
|
|
$
|
8,053
|
|
|
$
|
472,889
|
|
|
|
5,872
|
%
|
|
Total current liabilities
|
|
|
(947,120
|
)
|
|
|
(279,732
|
)
|
|
|
(667,388
|
)
|
|
|
239
|
%
|
|
Working capital deficit:
|
|
$
|
(466,178
|
)
|
|
$
|
(271,679
|
)
|
|
$
|
(194,499
|
)
|
|
|
72
|
%
|
The increase in working capital deficit was primarily attributable
to an increase in current assets of $472,889 and an increase in current liabilities of $667,388.
Cash Flows
The following table provides detailed
information about our net cash flows:
|
|
|
Year Ended
December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Net cash used in operating activities
|
|
$
|
(273,816
|
)
|
|
$
|
(30,244
|
)
|
|
Net cash provided by investing activities
|
|
|
1,749
|
|
|
|
—
|
|
|
Net cash provided by (used in) financing activities
|
|
|
712,284
|
|
|
|
(11,900
|
)
|
|
Net change in cash
|
|
$
|
440,217
|
|
|
$
|
(42,144
|
)
|
We have an accumulated deficit and have
incurred operating losses since our inception and expect losses to continue during fiscal year 2020. This raises substantial doubt
about our ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the
Company’s ability to raise additional capital, implement its business plan and generate sufficient revenues. The consolidated
financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Net Cash Used in Operating Activities
Net cash used in operating activities
was $273,816 for the year ended December 31, 2020 as compared to $30,244 for the year ended December 31, 2019, an increase of
$243,572 or 805%.
|
|
●
|
Net cash used in operating activities for the year ended December
31, 2020 primarily reflected our net loss of $1,241,661 adjusted for the add-back on non-cash items such as depreciation expense
of $440, stock-based compensation of $213,841 and commons stock and warrants issued for services of $609,740, amortization of debt
discount of $7,983, offset by gain on extinguishment of accounts payable of $7,075, and gain from change in fair value of derivative
liabilities $32,315 and changes in operating asset and liabilities consisting primarily of an increase of prepaid expenses and
other current assets of $8,896, an increase in unredeemed gift cards of $37,946, an increase in accrued expense and other liabilities
of $102,201 and an increase in accounts payable of $43,980.
|
|
|
●
|
Net cash used in
operating activities from continuing operations for the year ended December 31, 2019 primarily reflected our net loss of $199,061 adjusted
for the add-back on non-cash items such as stock-based compensation of $183,294, gain on extinguishment of accounts payable
of $18,470 and changes in operating asset and liabilities consisting primarily of a decrease in inventory of $7,306, a decrease
in prepaid expenses and other current assets of $7,428, an increase in unredeemed gift cards of $399 offset by a decrease
in accounts payable of $11,140.
|
Net Cash Provided Investing Activities
Net cash provided by investing activities
was $1,749 for the year ended December 31, 2020 as compared to nil for the year ended December 31, 2019, an increase of $1,749
or 100%.
|
|
●
|
Net cash provided
by investing activities for the year ended December 31, 2020 consisted of cash acquired from an acquisition of $4,917 offset
by acquisition of property and equipment of $3,168.
|
Net Cash Provided by (Used in) Financing
Activities
Net cash provided by financing activities
was $712,284 for the year ended December 31, 2020 as compared to net cash used amounting to $11,900 for the year ended December
31, 2019, a change of $724,184 or 6,086%.
|
|
●
|
Net cash provided by financing activities for the year ended December
31, 2020 consisted of proceeds from sale of warrants of $100,005, notes payable of $171,612, advances payable of $140,840 and
convertible notes payable of $384,100 offset by repayments of note payable – in default and advance payable in total amount
of $84,273.
|
|
|
●
|
Net cash used in
financing activities for the year ended December 31, 2019, consisted of proceeds from sale of common stock of $3,000 and advance
payable of $23,000 off set by repayments of note payable – in default and advance payable in total amount of $37,900.
|
Cash Requirements
We currently have no external sources
of liquidity, such as arrangements with credit institutions or off-balance sheet arrangements that will have or are reasonably
likely to have a current or future effect on our financial condition or immediate access to capital. As noted above and
below, the Company received a loan in the aggregate amount of $14,612 under the Paycheck Protection Program of the Coronavirus
Aid, Relief, and Economic Security Act, and a loan in the aggregate amount of $150,000 from the SBA under its Economic Injury
Disaster Loan assistance program in light of the impact of the COVID-19 pandemic.
We are dependent on our product sales
to fund our operations and may require the sale of additional common stock and preferred stock to maintain operations. Our officers
and directors have made no written commitments with respect to providing a source of liquidity in the form of cash advances,
loans, and/or financial guarantees.
Going Concern
The financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business.
As reflected in the accompanying consolidated financial statements, for the year ended December 31, 2020, the Company had net loss
and cash used in operations of $1,241,661 and $273,817, respectively. As of December 31, 2020, the Company had an accumulated deficit,
stockholders’ deficit, and working capital deficit of $6,333,389, $1,914,994 and $466,178, respectively. These factors raise
substantial doubt about the Company’s ability to continue as a going concern for a period of twelve months from the issuance
date of this report. The Company’s primary source of operating funds in 2020 was primarily from the third-party advances
and proceeds from note payables. The Company has experienced net losses from operations since inception but expects these conditions
to improve in the near term and beyond as it develops its business model.
Management cannot provide assurance that
the Company will ultimately achieve profitable operations or become cash flow positive or raise additional debt and/or equity
capital. Management believes that the Company’s capital resources are not currently adequate to continue operating and maintaining
its business strategy for a period of twelve months from the issuance date of this report. If the Company is unable to raise additional
capital or secure additional lending in the near future, management expects that the Company will need to curtail or cease operations.
These consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded
asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Critical Accounting Policies
The preparation of financial statements
in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires
our management to make assumptions, estimates, and judgments that affect the amounts reported, including the notes thereto, and
related disclosures of commitments and contingencies, if any. We have identified certain accounting policies that are significant
to the preparation of our financial statements. These accounting policies are important for an understanding of our financial
condition and results of operations. Critical accounting policies are those that are most important to the portrayal of our financial
condition and results of operations and require management’s difficult, subjective, or complex judgment, often as a result
of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods.
Certain accounting estimates are particularly sensitive because of their significance to financial statements and because of the
possibility that future events affecting the estimate may differ significantly from management’s current judgments.
We believe the following critical accounting
policies involve the most significant estimates and judgments used in the preparation of our consolidated financial statements.
We believe the critical accounting policies in Note 2 to the consolidated financial statements appearing in our audited
financial statements for the years ended December 31, 2020 and 2019 included in this Form 10-K, affect our more significant judgments
and estimates used in the preparation of our consolidated financial statements.
Use of Estimates
The preparation of the financial statements in conformity with
U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ from these estimates. Significant estimates as of
December 31, 2020 and 2019 include the assumptions used in the redemption recognition method for unredeemed gift cards, collectability
of note receivable, estimates of current and deferred income taxes and deferred tax valuation allowances, valuation of derivative
liabilities, and the fair value of non-cash equity transactions.
Fair Value of Financial Instruments
and Fair Value Measurements
FASB ASC 820 - Fair Value Measurements
and Disclosures, 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. FASB ASC 820 requires disclosures about the fair value
of all financial instruments, whether or not recognized, for financial statement purposes. Disclosures about the fair value of
financial instruments are based on pertinent information available to the Company on December 31, 2020. Accordingly, the estimates
presented in these financial statements are not necessarily indicative of the amounts that could be realized on disposition of
the financial instruments. FASB ASC 820 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation
techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable
inputs reflect market assumptions. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical
assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement).
The three levels of the fair value hierarchy
are as follows:
|
|
Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.
|
|
|
|
|
|
Level 2—Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.
|
|
|
|
|
|
Level 3—Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.
|
The carrying amounts reported in the consolidated
balance sheets for cash, due from and to related parties, prepaid expenses, accounts payable and accrued liabilities approximate
their fair market value based on the short-term maturity of these instruments.
Derivative Liabilities
The Company has certain financial instruments that are embedded
derivatives associated with capital raises. The Company evaluates all its financial instruments to determine if those contracts
or any potential embedded components of those contracts qualify as derivatives to be separately accounted for in accordance with
ASC 815-10 – Derivative and Hedging – Contract in Entity’s Own Equity. This accounting treatment requires
that the carrying amount of any derivatives be recorded at fair value at issuance and marked-to-market at each balance sheet date.
In the event that the fair value is recorded as a liability, as is the case with the Company, the change in the fair value during
the period is recorded as either other income or expense. Upon conversion, exercise or repayment, the respective derivative liability
is marked to fair value at the conversion, repayment, or exercise date and then the related fair value amount is reclassified to
other income or expense as part of gain or loss on debt extinguishment.
In July 2017, FASB issued ASU No. 2017-11,
Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part
I) Accounting for Certain Financial Instruments with Down Round Features. These amendments simplify the accounting for certain
financial instruments with down-round features. The amendments require companies to disregard the down-round feature when assessing
whether the instrument is indexed to its own stock, for purposes of determining liability or equity classification. For public
business entities, the amendments in Part I of the ASU are effective for fiscal years, and interim periods within those fiscal
years, beginning after December 15, 2018.
Revenue Recognition
The Company’s revenues consist of high quality, direct-to-consumer,
ready-made meals that can be ordered by customers through www.homebistro.com, and restaurant quality meats and seafood through
its Colorado Prime Brand. Revenues from the Company’s ready-made meals are recognized when the product is delivered to the
customer and title has transferred, it is at this point in time that the Company’s performance obligations have been completed.
Product sales are recorded net of any discounts or allowances and include shipping charges.
Customers can purchase gift cards via
phone or online through the Company’s e-commerce website. Gift card purchases are initially recorded as unredeemed gift
card liabilities and are recognized as product sales upon redemption. Historically, the majority of gift cards are redeemed within
two years of issuance. The Company does not charge administrative fees on unused gift cards, and its gift cards do not have an
expiration date.
Based on historical redemption
patterns, a portion of issued gift cards are not expected to be redeemed (breakage). The Company uses the redemption recognition method
for recognizing breakage related to unredeemed gift cards for which it has sufficient historical redemption information.
Under the redemption recognition method, breakage revenue is recorded in proportion to, and over the time period gift cards
are actually redeemed. The estimated breakage rate is based on historical issuance and redemption patterns and is re-assessed
by the Company on a regular basis. At least three years of historical data, which is updated annually, is used to estimate
redemption patterns.
Inflation and Changing Prices
Neither inflation nor changing prices
for the year ended December 31, 2020 had a material impact on our operations.
Off-Balance Sheet Arrangements
None.
ITEM 7A. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA
The financial statements and the reports
of our independent registered public accounting firm required pursuant to this Item are included in Item 15 of this report and
are presented beginning on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS
WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Management’s Report on Internal
Control over Financial Reporting
We maintain “disclosure controls
and procedures,” as that term is defined in Rule 13a-15(e), promulgated by the SEC pursuant to the Securities Exchange Act
of 1934, as amended (the “Exchange Act”). Disclosure controls and procedures include controls and procedures designed
to ensure that information required to be disclosed in our company’s reports filed under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated
and communicated to our management, including our principal executive officer and principal financial officer to allow timely
decisions regarding required disclosure. Our management, with the participation of our principal executive officer and principal
financial officer, evaluated our company’s disclosure controls and procedures as of the end of the period covered by this
annual report on Form 10-K. Based on this evaluation, our principal executive officer and principal financial officer concluded
that as of December 31, 2020, our disclosure controls and procedures were not effective. The ineffectiveness of our disclosure
controls and procedures was due to material weaknesses, which we identified, in our report on internal control over financial
reporting.
Internal Control over Financial Reporting
Management’s annual report
on internal control over financial reporting
Our management, including our principal
executive officer and principal financial officer, is responsible for establishing and maintaining adequate internal control over
financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our management, with the participation of our principal
executive officer and principal financial officer, evaluated the effectiveness of our internal control over financial reporting
as of December 31, 2020. Our management’s evaluation of our internal control over financial reporting was based on the framework
in Internal Control-Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Based on this evaluation, our management concluded that as of December 31, 2020, our internal control over financial reporting
was not effective.
The ineffectiveness of our internal control
over financial reporting was due to the following material weaknesses which we identified in our internal control over financial
reporting:
|
|
(1)
|
the lack of multiples
levels of management review on complex accounting and financial reporting issues, and business transactions,
|
|
|
|
|
|
|
(2)
|
a lack of adequate
segregation of duties and necessary corporate accounting resources in our financial reporting process and accounting function
as a result of our limited financial resources to support hiring of personnel and implementation of accounting systems, and
|
|
|
|
|
|
|
(3)
|
a lack of operational
controls and lack of controls over assets by the acquired subsidiaries.
|
We expect to be materially dependent upon
third parties to provide us with accounting consulting services related to accounting services for the foreseeable future. We
believe this will be sufficient to remediate the material weaknesses related to our accounting discussed above. Until such time
as we have a chief financial officer with the requisite expertise in U.S. GAAP, there are no assurances that the material weaknesses
and significant deficiencies in our disclosure controls and procedures will not result in errors in our consolidated financial
statements which could lead to a restatement of those financial statements.
A material weakness is a deficiency or
a combination of control deficiencies in internal control over financial reporting such that there is a reasonable possibility
that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
Limitations on Effectiveness of
Controls
Our principal executive officer and principal
financial officer do not expect that our disclosure controls or our internal control over financial reporting will prevent all
errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that
there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent
limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances
of fraud, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making
can be faulty, and that breakdowns can occur because of a simple error or mistake. Additional controls can be circumvented by
the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design
of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can
be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls
may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.
Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not
be detected.
This annual report does not include an
attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s
report was not subject to attestation by the company’s registered public accounting firm pursuant to SEC rules that permit
us to provide only management’s report on internal control over financial reporting in this annual report on Form 10-K.
Changes in internal control over financial
reporting
There was no change in the Company’s
internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934)
during the year ended December 31, 2020 that has materially affected, or is reasonably likely to materially affect, the Company’s
internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM
10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Board of Directors and Executive Officers
The following table sets forth the names,
positions and ages of our directors and executive officers as of the date of this report.
|
Name
|
|
Age
|
|
Position
|
|
Zalmi Duchman
|
|
41
|
|
Chief Executive Officer and Secretary and Director
|
|
Michael Finkelstein
|
|
66
|
|
Director
|
|
Michael Novielli
|
|
56
|
|
Director
|
Biographical information concerning the
directors and executive officers listed above is set forth below. The information presented includes information each individual
has given us about all positions they hold and their principal occupation and business experience for the past five years. In addition
to the information presented below regarding each director’s specific experience, qualifications, attributes, and skills
that led our board to conclude that he should serve as a director, we also believe that all of our directors have a reputation
for integrity, honesty, and adherence to high ethical standards. Each has demonstrated business acumen and an ability to exercise
sound judgment, as well as a commitment of service to our company and our board of directors.
Zalmi Duchman. Mr. Duchman has been
the Company’s Chief Executive Officer and Secretary, and a member of the Board of Directors of the Company since April 20,
2020. Mr. Duchman also serves as the Chief Executive Officer of the Company’s wholly owned subsidiary Home Bistro Holdings
since March 2018 and a member of its Board of Directors since March 2018. Mr. Duchman founded The Fresh Diet, Inc. in 2005 and
served as its Chief Executive Officer until July 2013 and its Chairman of the Board from July 2013 until its August 2014 acquisition.
Mr. Duchman and The Fresh Diet, Inc. have earned numerous prestigious accolades over the years, including making the Inc. 500 list
consecutively in 2010, 2011 and 2012, the Forbes Top 20 Most Promising U.S. Companies List in 2011 and 2012, as well as being an
Ernst & Young Entrepreneur of the Year nominee in both 2009 and 2011. The Miami Herald named Duchman as one of Miami’s
leading “20 under 40”. Mr. Duchman is well qualified to serve as the Chief Executive Officer due to his extensive experience
in the management and operation of companies in the Company’s industry, and his previous leadership experience as an entrepreneur,
chairman and chief executive officer.
Michael Finkelstein. Mr. Finkelstein
has been a member of Board of Directors of the Company since April 20, 2020. From 2013 to present, Mr. Finkelstein has consulted
with family offices in New York City and Europe as a reorganization and problem-solving specialist and has founded and run a high-quality
catering business. From 2003 to 2013, Michael co-founded a “pipe fund” with a U.S. partner which grew at its peak into
a $100 million dollar entity and was liquidated in 2013. His public accounting, financial and taxation experience is primarily
derived from his time at Arthur Andersen & Co. where he rose to the high level of income tax manager. Mr. Finkelstein became
one of Canada’s top producing investment advisors after departing public accounting and was a multiple award winner at his
firm in the investment services business. Michael is a graduate of McGill University with a Major in Economics. Michael received
his diploma in public accounting after his B.A. at McGill and successfully completed the chartered accountancy exams in Canada.
Mr. Finkelstein is well qualified to serve as a member of the Board of Directors of the Company due to his extensive experience
in the financial and accounting industries.
Michael Novielli. Mr. Novielli
has been a member of the Company’s Board of Directors since April 20, 2020. Since January 2020, Mr. Novielli has been a
Managing Partner of Hudson View Capital Management, a corporate advisory and investment firm. From 1996 to 2019, he was a
Managing Partner of Dutchess Capital which invested in over 200 growth-stage companies, with a total transaction value exceeding
$1 billion. Mr. Novielli was a member of the firm’s investment committee and also served on the board of directors of the
firm’s portfolio companies. He helped engineer the firm’s expansion into Europe, Asia, Australia, and Latin America
and also led the firm’s private to public strategy, as well as restructurings and workouts of its distressed portfolio,
which included corporate divestitures, asset sales, ABCs, and bankruptcy. Mr. Novielli has over 30 years’ experience in
asset management, corporate finance, advisory and investment banking. He began his investment career with PaineWebber (now UBS),
and held previous positions in corporate accounting and finance with PHH Corp., a Fortune 100 company. Mr. Novielli graduated
with a BS in Business from the University of South Florida and completed post-graduate Business studies at Colorado State University.
Mr. Novielli is well qualified to serve as a member of the Board of Directors of the Company due to his extensive financial and
investment experience.
Involvement in Certain Legal Proceedings
Zalmi Duchman is the founder of Fresh
Diet Inc. (“Fresh Diet”). On or around July 29, 2016, Fresh Diet undertook an assignment of all of its assets to Seth
Heller, as assignee for the benefit of Fresh Diet’s creditors (“Fresh Diet Assignee”). On August 1, 2016, Fresh
Diet Assignee initiated state-level insolvency proceedings on behalf of Fresh Diet (an assignment for the benefit of creditors),
captioned In re The Fresh Diet, Inc., Case No. 2016-019789-CA-01 (Fla. 11th Cir. Ct.) before the Circuit Court of the Eleventh
Judicial Circuit in and for Miami-Dade County, Florida.
Except as set forth above, to the best
of our knowledge, none of our directors, executive officer or promoter and control person (as identified under “Certain
Relationships and Related Transactions”) has, during the past ten years:
|
|
●
|
been
convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other
minor offenses);
|
|
|
●
|
had
any bankruptcy petition filed by or against the business or
property of the person, or of any partnership, corporation, or business association of which he was a general partner or executive
officer, either at the time of the bankruptcy filing or within two years prior to that time;
|
|
|
●
|
been
subject to any order, judgment, or decree, not subsequently
reversed, suspended, or vacated, of any court of competent jurisdiction or federal or state authority, permanently or temporarily
enjoining, barring, suspending or otherwise limiting, his involvement in any type of business, securities, futures, commodities,
investment, banking, savings and loan, or insurance activities, or to be associated with persons engaged in any such activity;
|
|
|
●
|
been
found by a court of competent jurisdiction in a civil action or by the SEC or the Commodity Futures Trading Commission to
have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated;
|
|
|
●
|
been
the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently
reversed, suspended or vacated (not including any settlement of a civil proceeding among private litigants), relating to an
alleged violation of any federal or state securities or commodities law or regulation, any law or regulation respecting financial
institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement
or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or
any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or
|
|
|
●
|
been
the subject of, or a party to, any sanction or order, not subsequently
reversed, suspended, or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act), any
registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity,
or organization that has disciplinary authority over its members or persons associated with a member.
|
Except as set forth in our discussion below in “Certain
Relationships and Related Transactions,” none of our directors or executive officers has been involved in any transactions
with us or any of our directors, executive officers, affiliates, or associates which are required to be disclosed pursuant to the
rules and regulations of the SEC.
Committees; Audit Committee Financial
Expert
Our board does not have an Audit Committee
or other committees.
Changes in Nominating Procedures
None.
Family Relationships
None of the directors and officers is related to any other
director or officer of the Company.
Board Oversight in Risk Management
Our Chief Executive Officer, who is our
principal executive officer, also serves on the Board of Directors, and we do not have a lead director. In the context of risk
oversight, we believe that our selection of one person to serve in both positions provides the Board with additional perspective
which combines the operational experience of a member of management with the oversight focus of a member of the Board. The business
and operations of our Company are managed by our Board as a whole, including oversight of various risks, such as operational and
liquidity risks that our Company faces. Because our Board includes a member of our management, this individual is responsible
for both the day-to-day management of the risks we face as well as the responsibility for the oversight of risk management.
ITEM
11. EXECUTIVE COMPENSATION
The following table sets forth information
concerning the total compensation paid during the years ended December 31, 2020 and 2019.
|
|
(i)
|
our
principal executive officer or other individual serving in a similar capacity during the years ended December 31, 2020 and
2019;
|
|
|
|
|
|
|
(ii)
|
our
named executive officers during the years ended December 31, 2020 and 2019;
|
|
|
|
|
|
|
(iii)
|
individuals
for whom disclosure would have been required but for the fact that the individual was not serving as an executive officer
during the years ended December 31, 2020 and 2019:
|
SUMMARY COMPENSATION
TABLE
FOR OUR NAMED EXECUTIVE
OFFICERS
|
Name and Principal Position
|
|
Year
|
|
|
Salary
|
|
|
Bonus
|
|
|
Stock Awards
|
|
|
Option Awards
|
|
|
All Other Compensation
|
|
|
Total
|
|
|
Zalmi Duchman
|
|
2020
|
|
|
$
|
43,750
|
|
|
$
|
—
|
|
|
$
|
97,720
|
(2)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
141,470
|
|
|
Chief Executive Officer;
|
|
2019
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
Chief Executive Officer (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Roy G. Warren
|
|
2020
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Former Chief Executive Officer (3)
|
|
2019
|
|
|
$
|
50,769
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
50,769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Roy G. Warren, Jr.
|
|
2020
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Former Chief Operating Officer (4)
|
|
2019
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Andrew Schamisso
|
|
2020
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Former President (5)
|
|
2019
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
(1)
|
Mr.
Duchman was appointed to serve as the Chief Executive Officer of the Company on April 20, 2020 and continue to serve as the
Chief Executive Officer of Home Bistro Holdings.
|
|
|
|
|
(2)
|
Mr.
Duchman was granted 4,746 shares of Home Bistro Holdings common
stock with grant date fair value of $97,720 as bonus in April 2020. These shares of Home Bistro Holdings common stock were converted
into 2,242,924 shares of the Company’s common stock post-merger and post-reverse stock split.
|
|
|
|
|
(3)
|
Roy
G. Warren was the Chief Executive Officer of the Company from March 29, 2018 until his death on July 1, 2019.
|
|
|
|
|
(4)
|
Roy
G. Warren, Jr. was the Chief Operating Officer and a director of the Company from August 9, 2019 until his resignation on
April 20, 2020.
|
|
|
|
|
(5)
|
Mr.
Schamisso was the President of the Company from March 29, 2018 until his termination on April 9, 2020.
|
Employment Agreement with Executives
On February 20, 2018, the Home Bistro
Holdings entered into an employment agreement (the “Employment Agreement”) with Zalmi Scher Duchman to serve as the
Company’s Chief Executive Officer, the term of which runs for three years includes an annual salary of $1.00 for the first
year which shall be increased in the second and third year of employment to an amount mutually approved by Mr. Duchman and the
Company’s Board of Directors. Thereafter, the Employment Agreement shall be renewed upon the mutual agreement of Mr. Duchman
and Company. In connection with this Employment Agreement, the Company issued 7,643,239 (retroactively restated to reflect shares
issued in Merger and post reverse stock split) shares of restricted common stock with a grant date fair value of $549,882, as
a sign-on bonus. The Company shall have the right and option to repurchase the stock at par value of $0.001 if Mr. Duchman is
terminated for cause; (i) all of the shares shall be eligible for stock repurchase if terminated for cause within the first year;
(ii) 2/3 of the shares shall be eligible for stock repurchase terminated for cause within the second year and; (iii) 1/3 of the
shares shall be eligible for stock repurchase terminated for cause within the third year.
Outstanding Equity Awards at 2020 Fiscal
Year-End for Named Executive Officers
The following table sets forth certain information concerning
the outstanding equity awards as of December 31, 2020, for each named executive officer.
|
|
|
Option Awards
|
|
|
Stock Awards
|
|
|
Name
|
|
Number of Securities Underlying
Unexercised Options (#) Exercisable
|
|
|
Number of Securities Underlying
Unexercised Options (#) Unexercisable
|
|
|
Equity Incentive Plan Awards:
Number of Securities Underlying Unexercised Unearned Options
|
|
|
Option Exercise Price($)
|
|
|
Option Expiration Date
|
|
|
Number of Shares or Units
of Stock that Have Not Vested
|
|
|
Market Value of Shares or
Units of Stock that Have Not Vested
|
|
|
Equity Incentive Plan Awards:
Number of Unearned Shares, Units or Other Rights that Have Not Vested
|
|
|
Equity Incentive Plan Awards:
Market or Payout Value of Unearned Shares, Units or Other Rights that Have Not Vested
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Zalmi Duchman (1)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Roy G. Warren (2)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Roy G. Warren, Jr. (3)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Andrew Schamisso (4)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
(1)
|
Mr.
Duchman was appointed the Chief Executive Officer of the Company on April 20, 2020 and has been the Chief Executive Officer
of Home Bistro Holdings, Inc since March 2018.
|
|
|
|
|
(2)
|
Roy
G. Warren was the Chief Executive Officer of the Company from March 29, 2018 until his death on July 1, 2019.
|
|
|
|
|
(3)
|
Roy
G. Warren, Jr. was the Chief Operating Officer and a director of the Company from August 9, 2019 until his resignation on
April 20, 2020.
|
|
|
|
|
(4)
|
Mr.
Schamisso was the President of the Company from March 29, 2018 until his termination on April 9, 2020.
|
Compensation of Directors
The following table sets forth certain
information regarding the compensation paid to our directors during the fiscal year ended December 31, 2020:
|
Name
|
|
Fees earned or cash paid
|
|
|
Stock Awards
|
|
|
Option Awards
|
|
|
All other compensation
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Zalmi Duchman
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Michael Finkelstein
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Michael Novielli
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
All directors hold office until the next
annual meeting of shareholders and until their successors have been duly elected and qualified, or until their earlier death, resignation,
or removal. Officers are elected by and serve at the discretion of the board.
Our directors are reimbursed for expenses incurred by them
in connection with attending board meetings, but they do not receive any other compensation for serving on the board.
Resignation, Retirement, Other Termination,
or Change in Control Arrangements
We do not have arrangements in respect
of remuneration received or that may be received by our executive officers to compensate such officers in the event of termination
of employment (as a result of resignation, retirement, change of control) or a change of responsibilities following a change of
control.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following tables sets forth certain information regarding
beneficial ownership of our common stock as of March 15, 2021 by (i) each person (or group of affiliated persons) who is known
by us to own more than five percent of the outstanding shares of our common stock, (ii) each director, executive officer, and director
nominee, and (iii) all of our directors and executive officers as a group.
The number of shares of common stock beneficially
owned by each person is determined under the rules of the SEC and the information is not necessarily indicative of beneficial
ownership for any other purpose. Under such rules, beneficial ownership includes any shares as to which such person has sole or
shared voting power or investment power and also any shares which the individual has the right to acquire within 60 days after
the date hereof, through the exercise of any stock option, warrant or other right. Unless otherwise indicated, each person has
sole investment and voting power (or shares such power with his or her spouse) with respect to the shares set forth in the following
table. The inclusion herein of any shares deemed beneficially owned does not constitute an admission of beneficial ownership of
those shares.
Common Stock
|
Name and Address
|
|
Beneficial Ownership
|
|
|
Percentage of Class (1)
|
|
|
Officers and Directors
|
|
|
|
|
|
|
|
Zalmi Duchman, 4014 Chase Avenue, #212 Miami Beach, FL 33140 (2)
|
|
|
8,956,164
|
|
|
|
46.11
|
%
|
|
Michael Finkelstein, 4014 Chase Avenue, #212 Miami Beach, FL 33140 (3)
|
|
|
115,066
|
|
|
|
*
|
|
|
Michael Novielli, 4014 Chase Avenue, #212 Miami Beach, FL 33140 (4)
|
|
|
934,516
|
|
|
|
4.81
|
%
|
|
All officers/directors as a group (3 persons)
|
|
|
10,005,746
|
|
|
|
51.52
|
%
|
|
*
|
Less than 1%.
|
|
|
|
|
(1)
|
Based on shares of common stock outstanding and common stock issuable of 19,422,300 shares as of March 18, 2021.
|
|
|
|
|
(2)
|
All of shares of Common Stock are held by Fresh Brands LLC, a Delaware limited liability company (“Fresh Brands”). Mr. Duchman and his wife own 100% of the membership interests in Fresh Brands in tenancy-by-entirety, and accordingly, Mr. Duchman has shared voting power and shared dispositive power over such shares.
|
|
|
|
|
(3)
|
All shares of Common Stock owned by Whalehaven Capital Fund Ltd. Mr. Finkelstein is the Managing Partner of Whalehaven Capital Fund Ltd and thus has sole voting and sole dispositive power over such shares.
|
|
|
|
|
(4)
|
All shares of Common Stock owned by Dutchess Capital Partners LLC, an entity which Mr. Novielli is the sole managing partner and has sole voting and dispositive control over the Common Stock owned it (“DCP”) and excludes all warrants held by Mr. Novielli through DCP and Dutchess Strategic Fund, LLC Each of the foregoing warrants were issued on April 20, 2020 and may be exercised on or prior to April 20, 2030 at a price of $0.001 per share of Common Stock.
|
Change in Control
There are no present arrangements
known to the Company, including any pledge by any person of the Company’s securities, the operation of which may at a subsequent
date result in a change in control of the Company, except as disclosed in the subsequent event footnote to the audited financial
statements accompanying this Annual Report on Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Related Party Transactions
None.
Director Independence
Currently, we
have one independent director. Because our common stock is not currently listed on a national securities exchange, we have used
the definition of “independence” of The NASDAQ Stock Market to make this determination. NASDAQ Listing Rule 5605(a)(2)
provides that an “independent director” is a person other than an officer or employee of the company or any other
individual having a relationship which, in the opinion of the company’s board of directors, would interfere with the exercise
of independent judgment in carrying out the responsibilities of a director. The NASDAQ listing rules provide that a director cannot
be considered independent if:
|
|
●
|
the
director is, or at any time during the past three years was, an employee of the Company;
|
|
|
●
|
the
director or a family member of the director accepted any compensation from the Company in excess of $120,000 during any period
of 12 consecutive months within the three years preceding the independence determination (subject to certain exclusions, including,
among other things, compensation for board or board committee service);
|
|
|
●
|
a
family member of the director is, or at any time during the past three years was, an executive officer of the Company;
|
|
|
●
|
the
director or a family member of the director is a partner in, controlling stockholder of, or an executive officer of an entity
to which the Company made, or from which the Company received, payments in the current or any of the past three fiscal years
that exceed 5% of the recipient’s consolidated gross revenue for that year or $200,000, whichever is greater (subject
to certain exclusions);
|
|
|
●
|
the
director or a family member of the director is employed as an executive officer of an entity where, at any time during the
past three years, any of the executive officers of the Company served on the compensation committee of such other entity;
or
|
|
|
●
|
the
director or a family member of the director is a current partner of the Company’s outside auditor, or at any time during
the past three years was a partner or employee of the Company’s outside auditor, and who worked on the company’s
audit
|
ITEM 14. PRINCIPAL ACCOUNTANT FEES
AND SERVICES
The following table sets forth the fees billed to date to our
company for the years ended December 31, 2020 and 2019 for professional services rendered by our independent registered public
accounting firm D. Brooks and Associates CPAs, P.A.
|
Fees
|
|
2020
|
|
|
2019
|
|
|
Audit Fees
|
|
$
|
31,556
|
|
|
$
|
29,643
|
|
|
Audit—Related Fees
|
|
|
—
|
|
|
|
—
|
|
|
Tax Fees
|
|
|
—
|
|
|
|
—
|
|
|
Other Fees
|
|
|
1,031
|
|
|
|
—
|
|
|
Total Fees
|
|
$
|
32,588
|
|
|
$
|
29,643
|
|
Audit Fees
Audit fees were for professional services
rendered for the audits of our annual financial statements and for review of our quarterly financial statements during the 2020
and 2019 fiscal years.
Audit-related Fees
This category consists of assurance and
related services by the independent registered public accounting firm that are reasonably related to the performance of the audit
or review of our financial statements and are not reported above under “Audit Fees”.
Tax Fees
As our independent registered public accountants
did not provide any services to us for tax compliance, tax advice and tax planning during the fiscal years ended December 31,
2020 and 2019, no tax fees were billed or paid during those fiscal years.
All Other Fees
Our independent registered public accountants
did not provide any products and services not disclosed in the table above during the 2020 and 2019 fiscal years. As a result,
there were no other fees billed or paid during those fiscal years.
Pre-Approval Policies and Procedures
Our entire board of directors, which acts
as our audit committee, pre-approves all services provided by our independent auditors. All of the above services and fees were
reviewed and approved by our board of directors before the respective services were rendered.
Our board of directors has considered
the nature and amount of fees billed by our independent registered public accounting firm and believe that the provision of services
for activities unrelated to the audit is compatible with maintaining their respective independence.
PART IV
ITEM 15. EXHIBIT AND FINANCIAL STATEMENT
SCHEDULES
|
(a)
|
1.
|
Financial
Statements
|
|
|
|
The financial statements
and Report of Independent Registered Public Accounting Firm are listed in the “Index to Financial Statements and Schedules”
on page F-1 and included on pages F-2 thereon.
|
|
|
|
|
|
|
2.
|
Financial Statement
Schedules
|
|
|
|
All schedules for
which provision is made in the applicable accounting regulations of the Securities and Exchange Commission (the “Commission”)
are either not required under the related instructions, are not applicable (and therefore have been omitted), or the required
disclosures are contained in the financial statements included herein.
|
|
|
|
|
|
|
3.
|
Exhibits (including
those incorporated by reference).
|
|
Exhibit
No
|
|
Description
|
|
2.1
|
|
Agreement
and Plan of Merger dated April 20, 2020, by and among Gratitude Health, Inc., Fresh Market Merger Sub, Inc. and Home Bistro,
Inc. (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the SEC on April
22, 2020).
|
|
3.1
|
|
Certificate
of Amendment to Articles of Incorporation (incorporated by reference to Exhibit 3.A.1 to the Company’s Current Report
on Form 8-K filed with the SEC on April 28, 2017).
|
|
3.2
|
|
Certificate
of Amendment to Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the Company’s Current Report
on Form 8-K filed with the SEC on March 28, 2018).
|
|
3.3
|
|
Certificate
of Amendment to Articles of Incorporation (incorporated by reference Exhibit 3.2 to the Company’s Current Report on
Form 8-K filed with the SEC on April 22, 2020).
|
|
3.4
|
|
Bylaws
of the Company (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K/A filed with the
SEC on March 31, 2015).
|
|
4.1
|
|
Certificate
of Designation of Series A Preferred Stock (incorporated by reference to Exhibit 4.1 to the Company’s Current Report
on Form 8-K filed with the SEC on March 28, 2018).
|
|
4.2
|
|
Certificate
of Designation of Series B Preferred Stock (incorporated by reference to Exhibit 4.2 to the Company’s Current Report
on Form 8-K filed with the SEC on March 28, 2018).
|
|
4.3
|
|
Certificate
of Designation of Series C Preferred Stock (incorporated by reference to Exhibit 3.1 to the Company’s Current Report
on Form 8-K filed with the SEC on August 21, 2018).
|
|
4.4
|
|
Amendment
to Certificate of Designation of Series C Preferred Stock (incorporated by reference to Exhibit 3.1 to the Company’s
Current Report on Form 8-K filed with the SEC on October 24, 2018).
|
|
10.1
|
|
Loan
Authorization and Agreement, dated June 17, 2020, by and between Home Bistro, Inc. and the U.S. Small Business Administration
(incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on June
29, 2020).
|
|
10.2
|
|
Note,
dated June 17, 2020, by Home Bistro, Inc. for the benefit of the U.S. Small Business Administration (incorporated by reference
to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on June 29, 2020).
|
|
10.3
|
|
Security
Agreement, dated June 17, 2020, by and between Home Bistro, Inc. and the U.S. Small Business Administration (incorporated
by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on June 29, 2020).
|
|
10.4
|
|
Form
of Exchange Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with
the SEC on April 22, 2020).
|
|
10.5
|
|
Form
of Warrant (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC
on April 22, 2020).
|
|
10.6
|
|
Form
of Lock-Up and Leak-Out Agreement (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form
8-K filed with the SEC on April 22, 2020).
|
|
10.7
|
|
Put
Option Agreement, dated April 20, 2020, between the Company and the stockholder named therein (incorporated by reference to
Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the SEC on April 22, 2020).
|
|
10.8
|
|
Securities
Purchase Agreement dated December 18, 2020, by and between Home Bistro, Inc. and Labrys Fund, LP. (incorporated by reference
to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on January 6, 2021).
|
|
10.9
|
|
Self-Amortization
Promissory Note, dated December 18, 2020, issued to Labrys Fund, LP. (incorporated by reference to Exhibit 10.2 to the Company’s
Current Report on Form 8-K filed with the SEC on January 6, 2021).
|
|
10.10
|
|
Securities
Purchase Agreement dated December 28, 2020, by and between Home Bistro, Inc. and FirstFire Global Opportunities Fund, LLC.
(incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on January
6, 2021).
|
|
10.11
|
|
Self-Amortization
Promissory Note dated December 28, 2020, issued to FirstFire Global Opportunities Fund, LLC. (incorporated by reference to
Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the SEC on January 6, 2021)
|
|
10.12
|
|
Registration Rights
Agreement dated December 28, 2020, by and between Home Bistro, Inc. and FirstFire Global Opportunities Fund, LLC. (incorporated
by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed with the SEC on January 6, 2021)
|
|
10.13
|
|
Securities
Purchase Agreement dated January 27, 2021, by and between Home Bistro, Inc. and Vista Capital Investments, LLC. (incorporated
by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on February 8, 2021)
|
|
10.14
|
|
Convertible
Note, dated January 27, 2021, issued to Vista Capital Investments, LLC. (incorporated by reference to Exhibit 10.2 to the
Company’s Current Report on Form 8-K filed with the SEC on February 8, 2021)
|
|
10.15
|
|
Warrant
to Purchase Shares of Common Stock, dated January 27, 2021, issued to Vista Capital Investments, LLC. (incorporated by reference
to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on February 8, 2021)
|
|
10.16
|
|
Securities Purchase
Agreement dated January 12, 2021, by and between Home Bistro, Inc. and GS Capital Partners, LLC. (incorporated by reference
to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on January 19, 2021)
|
|
10.17
|
|
Self-Amortization
Promissory Note, dated January 12, 2020, issued to GS Capital Partners, LLC. (incorporated by reference to Exhibit 10.2 to
the Company’s Current Report on Form 8-K filed with the SEC on January 19, 2021)
|
|
31.1*
|
|
Section 302 Certification by the Registrant’s Principal Executive Officer and Principal Financial Officer
|
|
32.1*
|
|
Section 906 Certification by the Registrant’s Principal Executive Officer and Principal Financial Officer
|
|
|
|
|
|
101.ins
|
|
XBRL Instance Document
|
|
101.sch
|
|
XBRL Taxonomy Schema
Document
|
|
101.cal
|
|
XBRL Taxonomy Calculation
Document
|
|
101.def
|
|
XBRL Taxonomy Linkbase
Document
|
|
101.lab
|
|
XBRL Taxonomy Label
Linkbase Document
|
|
101.pre
|
|
XBRL Taxonomy Presentation
Linkbase Document
|
ITEM 16. FORM 10-K SUMMARY
Not Applicable.
SIGNATURES
Pursuant to the requirements of Section
13 or 15(d) of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
|
|
HOME
BISTRO, INC.
|
|
|
|
|
Date:
March 22, 2021
|
By:
|
/s/
Zalmi Duchman
|
|
|
|
Zalmi Duchman
|
|
|
|
Chief Executive
Officer
|
|
|
|
(Principal Executive
Officer and
|
|
|
|
Principal Financial
Officer)
|
Pursuant to the requirements of the Exchange
Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
|
/s/
Zalmi Duchman
|
|
|
|
|
|
Zalmi Duchman
|
|
Chief Executive
Officer and Secretary and Director
|
|
March
22, 2021
|
|
|
|
|
|
|
|
/s/
Michael Finkelstein
|
|
|
|
|
|
Michael Finkelstein
|
|
Director
|
|
March
22, 2021
|
|
|
|
|
|
|
|
/s/
Michael Novielli
|
|
|
|
|
|
Michael Novielli
|
|
Director
|
|
March
22, 2021
|
HOME BISTRO, INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020 and 2019
CONTENTS
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Home Bistro, Inc.
Opinion on the Consolidated Financial
Statements
We have audited the accompanying consolidated
balance sheets of Home Bistro, Inc. (the Company) as of December 31, 2020 and 2019, and the related consolidated statements of
operations, stockholders’ equity (deficit), and cash flows for the years ended December 31, 2020 and 2019, and the related
consolidated financial statement footnotes (collectively referred to as the consolidated financial statements).
In our opinion, the consolidated financial
statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019 and
the results of its operations and its cash flows for the years ended December 31, 2020 and 2019 in conformity with accounting principles
generally accepted in the United States of America.
Substantial Doubt Regarding Going Concern
The accompanying consolidated financial
statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 of the consolidated
financial statements, the Company suffered recurring losses from operations and has a significant accumulated deficit. In addition,
the Company continues to experience negative cash flows from operations. These factors raise substantial doubt about the Company’s
ability to continue as a going concern. Management’s plans in regard to these matters
are described in Note 2 of the consolidated financial statements. The accompanying consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements
are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated
financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight
Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with
the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required
to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are
required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion
on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures
to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe
that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated
below are matters arising from the current period audit of the consolidated financial statements that were communicated or required
to be communicated to the audit committee or those charged with governance and that: (1) relate to accounts or disclosures that
are material to the consolidated financial statements and (2) involved especially challenging, subjective, or complex judgments.
The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken
as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit
matters or on the accounts or disclosures to which they relate.
Description of the Matter
During the year ended December 31, 2020, the Company issued
convertible debt notes (the “Notes”) that allow the holders to convert the debt into common stock upon certain default
events not within the control of the Company. The Company determined that the terms of the Notes included an embedded conversion
option to be accounted for as derivative liabilities, which are required to be accounted for at fair value upon issuance and each
reporting period, under the provisions of ASC 815-40 – Derivatives and Hedging – Contracts in an Entity’s
Own Stock (ACS 815).
As disclosed in Notes 2 and 4 to the consolidated financial
statements, the Company recorded initial derivative liabilities and debt discount of $212,344 from the embedded conversion options.
Further, as of December 31, 2020, the Company recorded a gain on the change in fair value of the derivative liabilities of $32,315.
There is no current observable market for these types of derivatives and, as such, the Company measured the initial and December
31, 2020 fair value of the embedded derivative liabilities using the Bionomial lattice valuation model. Such a model includes
techniques that require management to make several assumptions with a high degree of subjectivity related to stock price, discount
yield, risk free rates, volatility, probability of principal repayment in cash or common stock and probability of the Company defaulting
on the convertible debt notes.
We identified the evaluation of the terms of financial instruments
to determine whether the embedded conversion option met the definition of a derivative, the analysis of the accounting treatment,
presentation and disclosures, and the valuation of the derivative liabilities as critical audit matters due to the complex nature
of these financial instruments.
How the Critical Audit Matter Was
Addressed in the Audit
The primary procedures we performed to
address these critical audit matters included (a) reviewing and testing the Company’s conclusions as to whether the financial
instruments included an embedded conversion option that met the definition of a derivative as defined by ASC 815 by evaluating
and comparing the Company’s analysis and conclusions to authoritative and interpretive literature, (b) comparing the accounting
treatment and presentation to that described by authoritative and interpretive literature, (c) testing the Company’s process
and methodology for valuing the derivatives by comparing it to generally accepted methodologies for valuing derivatives, (d) testing
the Company’s valuation of the derivatives by testing assumptions and data used in the valuation model including the term,
volatility and risk free rate, (e) recomputing the fair value of the derivative at issuance and December 31, 2020 and (f) utilizing
a valuation specialist to assist in evaluating the Company’s model, methodology, and significant assumptions.
We agreed with management’s final
conclusions with regards to the accounting treatment of the embedded conversion options, valuations, accounting treatment, presentation,
and disclosures.
D. Brooks and Associates CPAs, P.A
Palm Beach Gardens, Florida
March 22, 2021
We have served as the Company’s independent
auditor since 2020
HOME BISTRO, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
|
|
|
December 31,
2020
|
|
|
December 31,
2019
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
Cash
|
|
$
|
447,354
|
|
|
$
|
7,137
|
|
|
Prepaid expenses and other current assets
|
|
|
28,588
|
|
|
|
916
|
|
|
Note receivable
|
|
|
5,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Assets
|
|
|
480,942
|
|
|
|
8,053
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER ASSETS:
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
2,728
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
483,670
|
|
|
$
|
8,053
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
352,466
|
|
|
$
|
223,046
|
|
|
Accrued expenses and other liabilities
|
|
|
126,273
|
|
|
|
24,391
|
|
|
Convertible notes payable, net of debt discount
|
|
|
141,476
|
|
|
|
-
|
|
|
Note payable - in default
|
|
|
-
|
|
|
|
3,738
|
|
|
Notes payable - current portion
|
|
|
20,068
|
|
|
|
-
|
|
|
Advances payable
|
|
|
78,497
|
|
|
|
18,192
|
|
|
Derivative liabilities
|
|
|
180,029
|
|
|
|
-
|
|
|
Unredeemed gift cards
|
|
|
48,311
|
|
|
|
10,365
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities
|
|
|
947,120
|
|
|
|
279,732
|
|
|
|
|
|
|
|
|
|
|
|
|
LONG-TERM LIABILITIES:
|
|
|
|
|
|
|
|
|
|
Notes payable - long-term portion
|
|
|
151,544
|
|
|
|
-
|
|
|
Common stock repurchase obligation
|
|
|
1,300,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
2,398,664
|
|
|
|
279,732
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingency (Note 13):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS' DEFICIT:
|
|
|
|
|
|
|
|
|
|
Preferred Stock: $0.001 par value; 20,000,000 shares authorized;
|
|
|
|
|
|
|
|
|
|
Convertible Series B Preferred stock: $0.001 Par Value; 500,000 Shares Authorized; nil shares issued and outstanding as of December 31, 2020 and 2019
|
|
|
-
|
|
|
|
-
|
|
|
Common stock: $0.001 par value; 1,000,000,000 shares authorized; 19,123,767 and 13,104,561 shares issued and outstanding as of December 31, 2020 and 2019
|
|
|
19,123
|
|
|
|
13,105
|
|
|
Additional paid-in capital
|
|
|
4,399,272
|
|
|
|
4,806,944
|
|
|
Accumulated deficit
|
|
|
(6,333,389
|
)
|
|
|
(5,091,728
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total Stockholders' Deficit
|
|
|
(1,914,994
|
)
|
|
|
(271,679
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders' Deficit
|
|
$
|
483,670
|
|
|
$
|
8,053
|
|
The accompanying notes are an integral part
of these consolidated financial statements.
HOME BISTRO, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
For the Years Ended
December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
Product sales, net
|
|
$
|
1,335,859
|
|
|
$
|
836,599
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
873,289
|
|
|
|
499,396
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
462,570
|
|
|
|
337,203
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
Compensation and related expenses
|
|
|
547,940
|
|
|
|
362,526
|
|
|
Professional and consulting expenses
|
|
|
434,450
|
|
|
|
27,231
|
|
|
Product development expense
|
|
|
360,000
|
|
|
|
-
|
|
|
Selling and marketing expenses
|
|
|
226,428
|
|
|
|
57,067
|
|
|
General and administrative expenses
|
|
|
198,082
|
|
|
|
104,569
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Expenses
|
|
|
1,766,900
|
|
|
|
551,393
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Loss from Continuing Operations
|
|
|
(1,304,330
|
)
|
|
|
(214,190
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense):
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(19,924
|
)
|
|
|
(3,341
|
)
|
|
Change in fair value of derivative liabilities
|
|
|
32,315
|
|
|
|
-
|
|
|
Gain from extinguishment of accounts payable
|
|
|
7,075
|
|
|
|
18,470
|
|
|
Other income
|
|
|
5,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other Income, net
|
|
|
24,466
|
|
|
|
15,129
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from Continuing Operations Before Provision for Income Taxes
|
|
|
(1,279,864
|
)
|
|
|
(199,061
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Provision for Income Taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from Continuing Operations
|
|
|
(1,279,864
|
)
|
|
|
(199,061
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued Operations:
|
|
|
|
|
|
|
|
|
|
Income from Discontinued Operations Before Provision for Income Taxes
|
|
|
38,203
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for Income Taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Discontinued Operations
|
|
|
38,203
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(1,241,661
|
)
|
|
$
|
(199,061
|
)
|
|
|
|
|
|
|
|
|
|
|
|
BASIC AND DILUTED LOSS PER COMMON SHARE:
|
|
|
|
|
|
|
|
|
|
Continuing operations - basic and diluted
|
|
$
|
(0.07
|
)
|
|
$
|
(0.02
|
)
|
|
Discontinued operations - basic
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
Discontinued operations - diluted
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
17,393,644
|
|
|
|
13,104,561
|
|
|
Diluted
|
|
|
17,393,644
|
|
|
|
13,104,561
|
|
The accompanying notes are an integral part
of these consolidated financial statements.
HOME BISTRO, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' DEFICIT
For the Years Ended December 31, 2020
and 2019
|
|
|
Preferred Stock
|
|
|
Common Stock
|
|
|
Additional
|
|
|
|
|
|
Total
|
|
|
|
|
Number of
|
|
|
|
|
|
Number of
|
|
|
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
Stockholders'
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2018
|
|
|
-
|
|
|
$
|
-
|
|
|
|
13,104,561
|
|
|
$
|
13,105
|
|
|
$
|
4,623,650
|
|
|
$
|
(4,892,667
|
)
|
|
$
|
(255,912
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion of stock-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
183,294
|
|
|
|
-
|
|
|
|
183,294
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(199,061
|
)
|
|
|
(199,061
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2019
|
|
|
-
|
|
|
|
-
|
|
|
|
13,104,561
|
|
|
|
13,105
|
|
|
|
4,806,944
|
|
|
|
(5,091,728
|
)
|
|
|
(271,679
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants issued for cash
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
100,005
|
|
|
|
-
|
|
|
|
100,005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for services
|
|
|
-
|
|
|
|
-
|
|
|
|
4,000,577
|
|
|
|
4,000
|
|
|
|
234,269
|
|
|
|
-
|
|
|
|
238,269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recapitalization of the Company
|
|
|
250,000
|
|
|
|
250
|
|
|
|
1,899,094
|
|
|
|
1,899
|
|
|
|
(196,873
|
)
|
|
|
-
|
|
|
|
(194,724
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock repurchase obligation (see Note 3)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,300,000
|
)
|
|
|
-
|
|
|
|
(1,300,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Disposal of a component with related party (see Note 3)
|
|
|
(250,000
|
)
|
|
|
(250
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
131,471
|
|
|
|
-
|
|
|
|
131,221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant issued pursuant to an agreement
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
360,000
|
|
|
|
-
|
|
|
|
360,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant issued for services
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
11,471
|
|
|
|
-
|
|
|
|
11,471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion of stock-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
213,841
|
|
|
|
-
|
|
|
|
213,841
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
Common stock issued as commitment fee with convertible
notes payable
|
|
|
-
|
|
|
|
-
|
|
|
|
119,535
|
|
|
|
119
|
|
|
|
38,144
|
|
|
|
|
|
|
|
38,263
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,241,661
|
)
|
|
|
(1,241,661
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2020
|
|
|
-
|
|
|
$
|
-
|
|
|
|
19,123,767
|
|
|
$
|
19,123
|
|
|
$
|
4,399,272
|
|
|
$
|
(6,333,389
|
)
|
|
$
|
(1,914,994
|
)
|
The accompanying notes are an integral
part of these consolidated financial statements.
HOME BISTRO, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
For the Years Ended
December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,241,661
|
)
|
|
$
|
(199,061
|
)
|
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense
|
|
|
440
|
|
|
|
-
|
|
|
Stock-based compensation
|
|
|
213,841
|
|
|
|
183,294
|
|
|
Common stock and warrant issued for services
|
|
|
609,739
|
|
|
|
-
|
|
|
Gain on extinguishment of accounts payable
|
|
|
(7,075
|
)
|
|
|
(18,470
|
)
|
|
Amortization of debt discount
|
|
|
7,983
|
|
|
|
-
|
|
|
Change in fair value of derivative liabilities
|
|
|
(32,315
|
)
|
|
|
-
|
|
|
Change in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Inventory
|
|
|
-
|
|
|
|
7,306
|
|
|
Prepaid expenses and other current assets
|
|
|
(8,896
|
)
|
|
|
7,428
|
|
|
Accounts payable
|
|
|
43,980
|
|
|
|
(11,140
|
)
|
|
Accrued expense and other liabilities
|
|
|
102,201
|
|
|
|
-
|
|
|
Unredeemed gift cards
|
|
|
37,946
|
|
|
|
399
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Used in Operating Activities
|
|
|
(273,816
|
)
|
|
|
(30,244
|
)
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Acquisition of property and equipment
|
|
|
(3,168
|
)
|
|
|
-
|
|
|
Cash acquired from acquisition
|
|
|
4,917
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by investing activities
|
|
|
1,749
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of warrants
|
|
|
100,005
|
|
|
|
-
|
|
|
Proceeds from notes payable
|
|
|
171,612
|
|
|
|
-
|
|
|
Proceeds from note payable - related party
|
|
|
-
|
|
|
|
3,000
|
|
|
Advance payable
|
|
|
140,840
|
|
|
|
23,000
|
|
|
Proceeds from convertible note payable
|
|
|
384,100
|
|
|
|
-
|
|
|
Repayment of note payable - related party
|
|
|
-
|
|
|
|
(3,000
|
)
|
|
Repayment of note payable - in default
|
|
|
(3,738
|
)
|
|
|
(34,900
|
)
|
|
Repayments of advance payable
|
|
|
(80,535
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash (Used in) Provided by Financing Activities
|
|
|
712,284
|
|
|
|
(11,900
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net Change in Cash
|
|
|
440,217
|
|
|
|
(42,144
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash - beginning of year
|
|
|
7,137
|
|
|
|
49,281
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash - end of year
|
|
$
|
447,354
|
|
|
$
|
7,137
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
7,670
|
|
|
$
|
3,064
|
|
|
Income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
Initial amount of ROU asset and related liability
|
|
$
|
32,444
|
|
|
$
|
-
|
|
|
Termination of the ROU asset and related liability
|
|
$
|
27,843
|
|
|
$
|
-
|
|
|
Disposal of a component with related party
|
|
$
|
131,221
|
|
|
$
|
-
|
|
|
Repurchase obligation pursuant to the Put Option Agreement
|
|
$
|
1,300,000
|
|
|
$
|
-
|
|
|
Common stock issued with convertible notes payable recorded as debt discount
|
|
$
|
38,263
|
|
|
$
|
-
|
|
|
Initial derivative liability recorded in connection with convertible notes payable
|
|
$
|
212,344
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Liabilities Assumed in Reverse Acquisition:
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
4,917
|
|
|
$
|
-
|
|
|
Prepaid expenses
|
|
|
9,776
|
|
|
|
-
|
|
|
Operating right-of-use asset
|
|
|
32,444
|
|
|
|
-
|
|
|
Accounts payable and accrued liabilities
|
|
|
(209,417
|
)
|
|
|
-
|
|
|
Operating right-of-use liability
|
|
|
(32,444
|
)
|
|
|
-
|
|
|
Net liability assumed
|
|
$
|
(194,724
|
)
|
|
$
|
-
|
|
The accompanying notes are an integral part
of these consolidated financial statements.
HOME BISTRO, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020 and 2019
NOTE 1 – ORGANIZATION AND
NATURE OF OPERATIONS
Home Bistro, Inc. (formerly known as Gratitude Health, Inc.)
(the “Company”) was incorporated in the State of Nevada on December 17, 2009. Effective March 23, 2018, the Company
changed its name from Vapir Enterprises Inc. to Gratitude Health, Inc. On September 14, 2020, the Company changed its name from
Gratitude Health, Inc. to Home Bistro, Inc. The Company is in the business of providing prepackaged and prepared meals to consumers
focused on offering a broad array of the highest quality meal delivery, and preparation services. The Company’s primary former
operations were in the business of manufacturing, selling, and marketing functional RTD (Ready to Drink) beverages sold under the
Company’s trademark (the “RTD Business”). The RTD Business was disposed on September 25, 2020 as discussed below.
On April 7, 2020, the Board of Directors
of the Company approved the increase of authorized shares of common stock from 600,000,000 to 1,000,000,000 (see Note 11).
On April 20, 2020, the Company, Fresh
Market Merger Sub, Inc., a Delaware corporation and a newly created wholly-owned subsidiary of the Company (“Merger Sub”),
and Home Bistro, Inc., a privately-held Delaware corporation formed on April 9, 2013, engaged in the food preparation and home-delivery
business (presently known as Home Bistro Holdings, Inc., a Nevada corporation) and now wholly-owned subsidiary of the Company
(“Home Bistro Holdings”) (see Note 3), entered into an Agreement and Plan of Merger (the “Merger Agreement”)
pursuant to which, among other things, Merger Sub agreed to merge with and into Home Bistro Holdings, with Home Bistro Holdings
becoming a wholly-owned subsidiary of the Company and the surviving corporation in the merger (the “Merger”). Pursuant
to the terms of the Merger Agreement, Home Bistro Holdings filed a Certificate of Merger with the Nevada Secretary of State on
April 20, 2020 (see Note 3).
On April 20, 2020, pursuant to the terms of the Merger Agreement,
Roy G. Warren, Jr., Mike Edwards, and Bruce Zanca resigned as directors of the Company and Roy G. Warren, Jr. resigned as Chief
Operating Officer of the Company. The resignations were not the result of any disagreement related to the Company’s operations,
policies, or practices. Furthermore, on April 20, 2020, Mr. Zalmi Duchman, the Chief Executive Officer of Home Bistro Holdings,
Michael Finkelstein and Michael Novielli were appointed as directors of the Company. In addition, Mr. Duchman was appointed Chief
Executive Officer.
The Merger constituted a change of control
and the majority of the Board of Directors changed with the consummation of the Merger. The Company issued to the stockholders
of Home Bistro Holdings shares of common stock and stock warrants which represented approximately 80% of the combined company
on a fully converted basis after the closing of the Merger and approximately 51% of voting control. As a result of the above
transactions and the Company’s intent to dispose or divest the assets and liabilities associated with the RTD Business,
this transaction was accounted for as a reverse recapitalization effected by a share exchange of Home Bistro Holdings. The consolidated
financial statements are those of Home Bistro Holdings (the accounting acquirer) prior to the Merger and include the activity
of the Company (the accounting acquiree) from the date of the Merger (see Note 3).
On September 14, 2020, the Company filed
with the Secretary of State of the State of Nevada a Certificate of Amendment to its Articles of Incorporation to effect (i) a
1 for 31.993 reverse stock split of its common stock, par value $0.001 per share, with fractional shares rounding up to the nearest
whole share (the “Reverse Stock Split”), and (ii) the change of the Company’s name from “Gratitude Health,
Inc.” to “Home Bistro, Inc.”. All share and per-share data and amounts have been retroactively adjusted as of
the earliest period presented in the consolidated financial statements to reflect the Reverse Stock Split (see Note 3).
On Sept. 14, 2020, the Financial Industry
Regulatory Authority approved the Company’s symbol change from “GRTD” to “HBIS”, effective twenty
(20) business days from the approval date (see Note 3).
On September 25, 2020, the Company entered
into, and closed the transactions contemplated by, that certain Asset Purchase Agreement (the “Asset Purchase Agreement”),
by and among the Company, Gratitude Keto Holdings, Inc., a Florida corporation (the “Buyer” or “Gratitude Keto”),
and the holder of 250,000 of the Company’s issued and outstanding shares of Series B Preferred Stock, $0.001 par value per
share (such stock, the “Series B Preferred Stock”, and such stockholder, the “Stockholder”). Pursuant
to the Asset Purchase Agreement, among other things, the Company agreed to sell to the Buyer all of the Company’s business,
assets and properties used, or held or developed for use, in its functional RTD Business, and the Buyer agreed to assume certain
debts, obligations and liabilities related to the RTD Business. Furthermore, in connection with the Asset Purchase Agreement,
the Buyer returned the 250,000 shares of Series B Preferred Stock held by the Stockholder which was then cancelled by the Company
upon return. As a result, the Company has no outstanding shares of preferred stock. Additionally, the RTD Business activities
were reclassified and reported as part of “discontinued operations” for all periods presented on the consolidated
statements of operations. In addition, the Company assumed an accounts payable liability in the amount of $14,000 related to accounting
expenses of the RTD Business for a period prior to the Merger. Pursuant to the Asset Purchase Agreement, the Buyer reimbursed
the Company for the accounting expenses in amount of $14,000, of which $7,000 was payable in cash and the balance in form of a
promissory note dated September 25, 2020 in the amount of $7,000. The promissory note bears an interest rate of 5% per annum,
matures on April 25, 2021 and is payable in monthly installments of $1,000 commencing on October 25, 2020 through maturity (see
Note 3).
HOME BISTRO, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020 and 2019
The ongoing COVID-19 global and national
health emergency has caused significant disruption in the international and United States economies and financial markets. In
March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. The spread of COVID-19 has caused illness,
quarantines, cancellation of events and travel, business and school shutdowns, reduction in business activity and financial transactions,
labor shortages, supply chain interruptions and overall economic and financial market instability. The COVID-19 pandemic has the
potential to significantly impact the Company’s supply chain, food manufacturers, distribution centers, or logistics and
other service providers. Additionally, the Company’s service providers and their operations may be disrupted, temporarily
closed or experience worker or meat or other food shortages, which could result in additional disruptions or delays in shipments
of Home Bistro’s products. To date, the Company has been able to avoid layoffs and furloughs of employees. The Company is
not able to estimate the duration of the pandemic and potential impact on the business if disruptions or delays in shipments of
product occur. To date, the Company is not aware of any such disruptions. In addition, a severe prolonged economic downturn could
result in a variety of risks to the business, including weakened demand for product and a decreased ability to raise additional
capital when needed on acceptable terms, if at all. As the situation continues to evolve, the Company will continue to closely
monitor market conditions and respond accordingly. The Company has applied for and received certain financial assistance under
the Coronavirus, Aid, Relief, and Economic Security Act (“CARES Act”) enacted in March 2020 by the U.S. Government
in response to COVID-19 (see Note 6).
NOTE 2 - SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Basis of Presentation and Principles
of Consolidation
The accompanying consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”)
and in accordance with Regulation S-X of the Securities and Exchange Commission (the “SEC”). The consolidated financial
statements present the consolidated financial statements of the Company and Home Bistro Holdings, Inc., its wholly owned subsidiary
for the years ended December 31, 2020 and 2019. All intercompany transactions and balances have been eliminated.
Going Concern
The financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business.
As reflected in the accompanying consolidated financial statements, for the year ended December 31, 2020, the Company had net loss
and cash used in operations of $1,241,661 and $273,817, respectively. As of December 31, 2020, the Company had an accumulated deficit,
stockholders’ deficit, and working capital deficit of $6,333,389, $1,914,994 and $466,178, respectively. These factors raise
substantial doubt about the Company’s ability to continue as a going concern for a period of twelve months from the issuance
date of this report. The Company’s primary source of operating funds in 2020 was primarily from third-party advances and
proceeds from convertible notes payable and note payables. The Company has experienced net losses from operations since inception
but expects these conditions to improve in the near term and beyond as it develops its business model.
Management cannot provide assurance that
the Company will ultimately achieve profitable operations or become cash flow positive or raise additional debt and/or equity
capital. Management believes that the Company’s capital resources are not currently adequate to continue operating and maintaining
its business strategy for a period of twelve months from the issuance date of this report. If the Company is unable to raise additional
capital or secure additional lending in the near future, management expects that the Company will need to curtail or cease operations.
These consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded
asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Use of Estimates
The preparation of the financial statements
in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Significant
estimates as of December 31, 2020 and 2019 include the assumptions used in the redemption recognition method for unredeemed gift
cards, collectability of note receivable, estimates of current and deferred income taxes and deferred tax valuation allowances,
valuation of derivative liabilities, and the fair value of non-cash equity transactions.
Cash and Cash Equivalents
For purposes of the statements of cash
flows, the Company considers all highly liquid instruments with a maturity of three months or less at the purchase date and money
market accounts to be cash equivalents. As of December 31, 2020 and 2019, the Company did not have any cash equivalents.
The Company maintains its cash in bank
and financial institution deposits that at times may exceed federally insured limits. As of December 31, 2020, the balance outstanding
was in excess of FDIC insured levels by approximately $197,000. As of December 31, 2019, the balance outstanding was not in excess
of FDIC insured levels. The Company has not experienced any losses in such accounts through December 31, 2020.
HOME BISTRO, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020 and 2019
Fair Value of Financial Instruments
and Fair Value Measurements
FASB ASC 820 - Fair Value Measurements
and Disclosures, 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. FASB ASC 820 requires disclosures about the fair value
of all financial instruments, whether or not recognized, for financial statement purposes. Disclosures about the fair value of
financial instruments are based on pertinent information available to the Company on December 31, 2020. Accordingly, the estimates
presented in these financial statements are not necessarily indicative of the amounts that could be realized on disposition of
the financial instruments. FASB ASC 820 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation
techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable
inputs reflect market assumptions. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for
identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement).
The three levels of the fair value hierarchy
are as follows:
|
|
Level 1—Inputs
are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.
|
|
|
|
|
|
Level 2—Inputs
are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar
assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived
from or corroborated by observable market data.
|
|
|
|
|
|
Level 3—Inputs
are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants
would use in pricing the asset or liability based on the best available information.
|
The carrying amounts reported in the consolidated
balance sheets for cash, due from and to related parties, prepaid expenses, accounts payable and accrued liabilities approximate
their fair market value based on the short-term maturity of these instruments.
Assets or liabilities measured at fair
value or a recurring basis included embedded conversion options in convertible debt (see Note 4) and were as follows at December
31, 2020:
|
|
|
At December 31, 2020
|
|
|
Description
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Derivative liabilities
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
180,029
|
|
A roll forward of the level 3 valuation
financial instruments is as follows:
|
|
|
For the Year Ended
December 31,
2020
|
|
|
Balance at beginning of year
|
|
$
|
—
|
|
|
Initial valuation of derivative liabilities included in debt discount
|
|
|
212,344
|
|
|
Change in fair value of derivative liabilities
|
|
|
(32,315
|
)
|
|
Balance at end of year
|
|
$
|
180,029
|
|
There were no assets or liabilities measured
at fair value as of December 31, 2019.
ASC 825-10 “Financial Instruments”
allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (fair value option). The
fair value option may be elected on an instrument-by-instrument basis and is irrevocable unless a new election date occurs. If
the fair value option is elected for an instrument, unrealized gains and losses for that instrument should be reported in earnings
at each subsequent reporting date. The Company did not elect to apply the fair value option to any outstanding equity instruments.
Derivative Liabilities
The Company has certain financial instruments
that are embedded derivatives associated with capital raises. The Company evaluates all its financial instruments to determine
if those contracts or any potential embedded components of those contracts qualify as derivatives to be separately accounted for
in accordance with ASC 815-10 – Derivative and Hedging – Contract in Entity’s Own Equity. This accounting
treatment requires that the carrying amount of any derivatives be recorded at fair value at issuance and marked-to-market at each
balance sheet date. In the event that the fair value is recorded as a liability, as is the case with the Company, the change in
the fair value during the period is recorded as either other income or expense. Upon conversion, exercise or repayment, the respective
derivative liability is marked to fair value at the conversion, repayment, or exercise date and then the related fair value amount
is reclassified to other income or expense as part of gain or loss on debt extinguishment.
HOME BISTRO, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020 and 2019
In July 2017, FASB issued ASU No. 2017-11, Earnings Per Share
(Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain
Financial Instruments with Down Round Features. These amendments simplify the accounting for certain financial instruments with
down-round features. The amendments require companies to disregard the down-round feature when assessing whether the instrument
is indexed to its own stock, for purposes of determining liability or equity classification. For public business entities, the
amendments in Part I of the ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after
December 15, 2018.
Revenue Recognition
The Company’s revenues consist of high quality, direct-to-consumer,
ready-made meals that can be ordered by customers through www.homebistro.com, and restaurant quality meats and seafood through
its Colorado Prime Brand. Revenues from the Company’s ready-made meals are recognized when the product is delivered to the
customer and title has transferred, it is at this point in time that the Company’s performance obligations have been completed.
Product sales are recorded net of any discounts or allowances and include shipping charges.
Customers can purchase gift cards via
phone or online through the Company’s e-commerce website. Gift card purchases are initially recorded as unredeemed gift
card liabilities and are recognized as product sales upon redemption. Historically, the majority of gift cards are redeemed within
two years of issuance. The Company does not charge administrative fees on unused gift cards, and its gift cards do not have an
expiration date.
Based on historical redemption patterns,
a portion of issued gift cards are not expected to be redeemed (breakage). The Company uses the redemption recognition method
for recognizing breakage related to unredeemed gift cards for which it has sufficient historical redemption information. Under
the redemption recognition method, breakage revenue is recorded in proportion to, and over the time period gift cards are actually
redeemed. The estimated breakage rate is based on historical issuance and redemption patterns and is re-assessed by the Company
on a regular basis. At least three years of historical data, which is updated annually, is used to estimate redemption patterns.
Breakage revenue is included in product sales and the Company recorded $17,114 and nil for the years ended December 31, 2020 and
2019, respectively (see Note 9).
Cost of Sales
The Company’s policy is to recognize
product related cost of sales in conjunction with revenue recognition, when the product costs are incurred which is upon delivery
of product. Cost of sales includes the food and processing costs directly attributable to fulfillment and the delivery of the
product to customers including both inbound and outbound shipping costs. In additional, the royalty fee related to the Joint Product
Development and Distribution Agreement (see Note 13) was also included in cost of sales.
Shipping and handling costs incurred for
product shipped to customers are included in cost of sales and amounted to $873,289 and $499,396 for the years ended December
31, 2020 and 2019, respectively. Shipping and handling costs charged to customers are included in product sales, net.
Stock-Based Compensation
Stock-based compensation is accounted
for based on the requirements of ASC 718 – “Compensation–Stock Compensation”, which requires recognition
in the financial statements of the cost of employee, non-employee and director services received in exchange for an award of equity
instruments over the period the employee or director is required to perform the services in exchange for the award (presumptively,
the vesting period). The ASC also requires measurement of the cost of employee and director services received in exchange for
an award based on the grant-date fair value of the award.
Advertising costs
The Company participates in various advertising programs. All
costs related to advertising of the Company’s products are expensed in the period incurred. Advertising costs charged to
operations were $226,428 and $57,067, for the years ended December 31, 2020 and 2019, respectively, and are presented on the accompanying
consolidated statement of operations as selling and marketing expenses.
Income Taxes
The Company accounts for income taxes
using the liability method prescribed by ASC 740 - Income Taxes. Under this method, deferred tax assets and liabilities are determined
based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will
be in effect in the year in which the differences are expected to reverse. The Company records a valuation allowance to offset
deferred tax assets if based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the
deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized as income or loss
in the period that includes the enactment date.
HOME BISTRO, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020 and 2019
In December 2019, the FASB issued ASU
2019-12, “Simplifying the Accounting for Income Taxes.” This guidance, among other provisions, eliminates certain
exceptions to existing guidance related to the approach for intra-period tax allocation, the methodology for calculating income
taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. This guidance also requires
an entity to reflect the effect of an enacted change in tax laws or rates in its effective income tax rate in the first interim
period that includes the enactment date of the new legislation, aligning the timing of recognition of the effects from enacted
tax law changes on the effective income tax rate with the effects on deferred income tax assets and liabilities. Under existing
guidance, an entity recognizes the effects of the enacted tax law change on the effective income tax rate in the period that includes
the effective date of the tax law. ASU 2019-12 is effective for interim and annual periods beginning after December 15, 2020,
with early adoption permitted. On December 31, 2020, the Company early adopted ASU 2019-12 and its adoption did not have any material
impact on the Company’s financial statements.
The Company follows the accounting guidance
for uncertainty in income taxes using the provisions of ASC 740. Using that guidance, tax positions initially need to be recognized
in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities.
For the year ended December 31, 2020, the Company had no uncertain tax positions that qualify for either recognition or disclosure
in the financial statements.
Basic and Diluted Loss Per Share
Pursuant to ASC 260-10-45, basic loss
per common share is computed by dividing net loss by the weighted average number of shares of common stock outstanding for the
periods presented. Diluted loss per share is computed by dividing net loss by the weighted average number of shares of common
stock, common stock equivalents and potentially dilutive securities outstanding during the period. Potentially dilutive common
shares consist of common stock issuable for stock options and stock warrants (using the treasury stock method), convertible notes
and common stock issuable. These common stock equivalents may be dilutive in the future.
The potentially dilutive common stock
equivalents as of December 31, 2020 and 2019 were excluded from the dilutive loss per share calculation as they would be antidilutive
due to the net loss. The following were the computation of diluted shares outstanding and in periods where the Company has a net
loss, all dilutive securities are excluded.
|
|
|
December 31,
2020
|
|
|
December 31,
2019
|
|
|
Common Stock Equivalents:
|
|
|
|
|
|
|
|
Stock Options
|
|
|
60,638
|
|
|
|
—
|
|
|
Stock Warrants
|
|
|
11,278,211
|
|
|
|
—
|
|
|
Convertible Debt
|
|
|
589,704
|
|
|
|
—
|
|
|
Total
|
|
|
11,928,553
|
|
|
|
—
|
|
Concentration Risk
The Company purchased approximately 100%
of its food products from two vendors during the year ended December 31, 2020 (approximately 74% and 26%) and 2019 (approximately
79% and 31%). The Company is not obligated to purchase from these vendors and, if necessary, there are other vendors from which
the Company can purchase food products. As of December 31, 2020 and 2019, the Company had accounts payable balance of $0 and $2,103,
respectively, to these vendors.
Recent Accounting Pronouncements
Management does not believe that any recently
issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on its consolidated financial
statements.
NOTE 3 – REVERSE RECAPITALIZATION
OF HOME BISTRO HOLDINGS AND DISPOSAL OF THE DISCONTINUED OPERATIONS OF THE RTD BUSINESS
Home Bistro, Inc. was formed on April 9,
2013 as a Delaware corporation, under the name DineWise, LLC. On December 1, 2014, it underwent a statutory conversion filed under
Section 8-265 of the Delaware Code to convert from a limited liability company to a corporation and changed its name to Home
Bistro, Inc.
On September 22, 2020, Home Bistro, Inc.
filed a Certificate of Conversion under Section 266 of the Delaware General Corporation Law to convert its state of domicile
from Delaware to Nevada and simultaneously filed an Articles of Conversion Nevada Secretary of State for the same and changed
its name from Home Bistro, Inc. (the now wholly-owned subsidiary of the Company) to Home Bistro Holdings, Inc., each effective
as of September 30, 2020.
HOME BISTRO, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020 and 2019
Home Bistro manufactures, packages, and sells, direct-to-consumer,
gourmet meals under the Home Bistro brand and markets restaurant quality meats and seafood under the Prime Chop and Colorado Prime
brands. The Company’s meals are freshly prepared, flash-frozen, to preserve freshness, and packaged in its facility located
in Miami, Florida. Home Bistro meals are ordered on-line and delivered to consumers in containers designed to keep the products
frozen during transport. Orders for restaurant quality meats and seafood through the Company’s Prime Chop and Colorado Prime
brands are processed through a third-party co-packer based in North Carolina who fulfills and ships customer orders.
Agreement and Plan of Merger
On April 20, 2020, the Company, Fresh
Market Merger Sub, Inc., a Delaware corporation and a newly created wholly-owned subsidiary of the Company, also referred to herein
as Merger Sub, and Home Bistro, Inc., a privately-held Delaware corporation engaged in the food preparation and home-delivery
business (presently known as Home Bistro Holdings, Inc., a Nevada corporation), also referred to herein also Home Bistro Holdings,
entered into an Agreement and Plan of Merger, also referred to herein as the Merger Agreement, pursuant to which, among other
things, Merger Sub agreed to merge with and into Home Bistro Holdings, with Home Bistro Holdings becoming a wholly-owned subsidiary
of the Company and the surviving corporation in the merger, also referred to herein as the Merger. Pursuant to the terms of the
Merger Agreement, Home Bistro Holdings filed a Certificate of Merger with the Nevada Secretary of State on April 20, 2020 (see
Note 1).
Prior to the effective time of the Merger, the Company and certain
of its existing securityholders entered into an Exchange Agreement providing for, among other things, the exchange (the “Exchange”)
of securities held by such securityholders for shares of common stock, as more fully detailed therein. As a result of the Exchange,
all of the Company’s issued and outstanding shares of Series A Preferred Stock, Series C Preferred Stock and convertible
notes were converted into an aggregate of 5,405,479 shares of common stock on a fully diluted basis, consisting of 1,364,222 shares
of common stock and warrants to purchase up to 4,041,258 shares of common stock (see Note 11). The 250,000 shares of Series B Preferred
Stock owned by a former officer were cancelled on April 9, 2020 pursuant to a General Release Agreement (see Note 11) and 250,000
shares of Series B Preferred Stock held by a related party remained issued and outstanding as of the date of the Merger.
After the Exchange, a total of 1,899,094
shares of common stock, warrants to purchase 4,041,258 shares of common stock and 60,638 stock options were deemed issued and
outstanding.
At the effective time of the Merger, and subject to the terms
and conditions of the Merger Agreement, each outstanding share of common stock of Home Bistro Holdings was converted into the right
to receive approximately four hundred seventy-three (473) shares of common stock. Accordingly, the aggregate shares of the Company’s
common stock issued in the Merger to the former securityholders of Home Bistro Holdings is 24,031,453 shares of common stock on
a fully diluted basis consisting of 17,105,139 shares of common stock and warrants to purchase up to 6,926,314 shares of common
stock (see Note 11).
Subsequent to the Merger, the Company had an aggregate of 30,031,501
shares of common stock issued and outstanding on a fully diluted basis consisting of 19,004,233 shares of common stock, 60,638
stock options and warrants to purchase up to 10,967,572 shares of common stock.
On April 20, 2020, pursuant to the terms of the Merger Agreement,
Roy G. Warren, Jr., Mike Edwards, and Bruce Zanca resigned as directors of the Company and Roy G. Warren, Jr. resigned as Chief
Operating Officer of the Company. The resignations were not the result of any disagreement related to the Company’s operations,
policies, or practices. Furthermore, on April 20, 2020, Mr. Zalmi Duchman, the Chief Executive Officer of Home Bistro Holdings,
Michael Finkelstein and Michael Novielli were appointed as directors of the Company. In addition, Mr. Duchman was appointed Chief
Executive Officer (see Note 1).
In connection with the Merger, certain
Company stockholders entered into a Lock-Up and Leak-Out Agreement with the Company pursuant to which, among other thing, such
stockholders agreed to certain restrictions regarding the resale of common stock for a period of two years from the date of the
Merger Agreement, as more fully detailed therein.
Additionally, on April 20, 2020, the Company
and a stockholder entered into a Put Option Agreement (see Note 11), pursuant to which, among other things, the Company agreed,
at the election of the stockholder, to purchase certain shares of common stock from such stockholder no sooner than two years
from the date of the Put Option Agreement (the “Market Period”). Pursuant to the Put Option Agreement, in the event
that the stockholder does not generate $1.3 million dollars (the “Total Investment”) in gross proceeds from the sale
of its shares of common stock by the second anniversary of the Put Option Agreement, then the stockholder has the right to cause
the Company to purchase shares held by the stockholder at a price equal to the difference between the Total Investment and the
net proceeds actually realized by the stockholder from shares of common stock sold during the Market Period and the number of
shares of common stock held by the stockholder on the date the put right is exercised. The put right expires fourteen (14) days
from end of the Market Period. In connection with the Put Option Agreement, the Company recorded a common stock repurchase obligation
in the amount of $1.3 million, reflected in the accompanying consolidated balance sheets as a long-term liability, Common stock
repurchase obligation (see Note 11).
HOME BISTRO, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020 and 2019
Effective April 20, 2020, the Company
acquired all the issued and outstanding shares of Home Bistro Holdings pursuant to the Merger Agreement and Home Bistro Holdings
became a wholly owned subsidiary of the Company. As a result of the Merger, for financial statement reporting purposes, the Merger
between the Company and Home Bistro Holdings has been treated as a reverse acquisition and recapitalization with Home Bistro Holdings
deemed the accounting acquirer and the Company deemed the accounting acquiree in accordance with FASB Accounting Standards Codification
(“ASC”) Section 805-10-55. At the time of the Merger, both the Company and Home Bistro Holdings had their own separate
operating segments. Accordingly, the assets and liabilities and the historical operations that are reflected in the consolidated
financial statements after the Merger are those of Home Bistro Holdings and are recorded at the historical cost basis of Home
Bistro Holdings. The acquisition process utilizes the capital structure of the Company and the assets and liabilities of Home
Bistro Holdings which are recorded at historical cost. The results of operations of the Company are consolidated with results
of operations of Home Bistro Holdings starting on the date of the Merger Agreement. The equity of the consolidated entity is the
historical equity of Home Bistro Holdings retroactively restated to reflect the number of shares deemed issued by the Company
in the reverse acquisition.
The Merger constituted a change of control
and the majority of the Board of Directors changed with the consummation of the Merger. The Company issued to the stockholders
of Home Bistro Holdings shares of common stock and stock warrants which represented approximately 80% of the combined company
on a fully converted basis after the closing of the Merger. As a result of the above transactions and the Company’s
intent to dispose or divest the assets and liabilities associated with the RTD Business as discussed below, this transaction was
accounted for as a reverse recapitalization of Home Bistro Holdings where Home Bistro Holdings is considered the historical registrant
and the historical operations presented will be those of Home Bistro Holdings.
The following assets and liabilities
were assumed in the Merger:
|
Cash
|
|
$
|
4,917
|
|
|
Prepaid expense
|
|
|
9,776
|
|
|
Operating right-of-use asset
|
|
|
32,444
|
|
|
Total assets acquired
|
|
|
47,137
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
|
(209,417
|
)
|
|
Operating right-of-use liability
|
|
|
(32,444
|
)
|
|
Total liabilities assumed
|
|
$
|
(241,861
|
)
|
|
|
|
|
|
|
|
Net liability assumed
|
|
$
|
(194,724
|
)
|
Disposal of Discontinued Operations
of the RTD Business
On September 25, 2020, pursuant to the
Asset Purchase Agreement, among other things, the Company agreed to sell all of the Company’s business, assets and properties
used, or held or developed for use, in its functional RTD (Ready to Drink) beverage segment (the “RTD Business”),
and the Buyer agreed to assume certain debts, obligations and liabilities related to the RTD Business. The Company assumed an
accounts payable liability in the amount of $14,000 related to accounting expense of the RTD Business for a period prior to the
Merger. Pursuant to the Asset Purchase Agreement, the Buyer reimbursed the Company for accounting expenses in amount of $14,000
incurred prior to the Merger, of which $7,000 was payable in cash and the balance in form of a promissory note dated September
25, 2020 in the amount of $7,000. The promissory note bears interest at a rate of 5% per annum, matures on April 25, 2021 and
is payable in monthly installments of $1,000 commencing on October 25, 2020 through April 25, 2021. As of December 31, 2020, $5,000
remained due on the promissory note. The Company received the $7,000 cash portion of the consideration as of December 31, 2020.
The $14,000 reimbursement was recorded to additional paid in capital as reflected in the accompanying consolidated statements
of changes in stockholders’ deficit.
ASC 205-20 “Discontinued Operations”
establishes that the disposal or abandonment of a component of an entity or a group of components of an entity should be reported
in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s
operations and financial results. As a result, the component’s results of operations have been classified as discontinued
operations on a retrospective basis for all periods presented. The results of operations of this component, for all periods, are
separately reported as “discontinued operations” on the consolidated statements of operations.
The Asset Purchase Agreement, discussed
above under Agreement and Plan of Merger, was intended to be part of the Merger and in effect transferred the RTD Business
and the related assets and liabilities to Gratitude Keto, whose CEO, Roy Warren Jr., formerly served as the Company’s director
and Chief Operating Officer and was considered a related party, in substance, in the accounting of this transaction. Therefore,
the disposal of net liabilities and the reimbursement discussed above in connection with the disposal of the RTD Business was
recorded to additional paid in capital as reflected in the accompanying consolidated statements of changes in stockholders’
deficit.
HOME BISTRO, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020 and 2019
The following table set forth the selected
financial data of the net liabilities recorded to additional paid in capital as of September 24, 2020.
|
|
|
September 24,
2020
|
|
|
Assets:
|
|
|
|
|
Other assets:
|
|
|
|
|
Operating lease right-of-use assets, net
|
|
$
|
2,417
|
|
|
Total assets
|
|
$
|
2,417
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
Accounts payable
|
|
$
|
112,212
|
|
|
Accrued expenses and other liabilities
|
|
|
5,009
|
|
|
Operating lease liabilities, current portion
|
|
|
2,417
|
|
|
Total current liabilities
|
|
|
119,638
|
|
|
Total liabilities
|
|
$
|
119,638
|
|
|
|
|
|
|
|
|
Net liabilities
|
|
$
|
117,221
|
|
|
Expense reimbursement by Buyer
|
|
|
14,000
|
|
|
Disposal of net liabilities to a related party
|
|
$
|
131,221
|
|
The summarized operating result of discontinued
operations of the RTD Business included in the Company’s consolidated statements of operations for the year ended December
31, 2020 is as follows:
|
|
|
Year Ended
December 31,
2020
|
|
|
Revenues
|
|
|
|
|
Cost of revenues
|
|
$
|
—
|
|
|
Gross (loss) profit
|
|
|
—
|
|
|
|
|
|
—
|
|
|
Operating expenses:
|
|
|
|
|
|
Compensation expense
|
|
|
5,511
|
|
|
Professional and consulting expenses
|
|
|
26,606
|
|
|
Selling and marketing expenses
|
|
|
(7,850
|
)
|
|
General and administrative expenses
|
|
|
37,255
|
|
|
Total operating expenses
|
|
|
61,522
|
|
|
Loss from operations
|
|
$
|
61,522
|
|
|
|
|
|
|
|
|
Gain on debt extinguishment
|
|
|
99,897
|
|
|
Interest income (expense)
|
|
|
(172
|
)
|
|
Other income, net
|
|
|
99,725
|
|
|
|
|
|
|
|
|
Income from discontinued operations
|
|
$
|
38,203
|
|
The gain on debt extinguishment in the
amount of $99,897 reflected above was due to the settlement of outstanding liabilities owed to a vendor in connection with the
RTD Business.
NOTE 4 – CONVERTIBLE NOTES
At December 31, 2020, the convertible
debt consisted of the following:
|
|
|
December 31,
2020
|
|
|
|
|
|
|
|
Principal amount
|
|
$
|
447,000
|
|
|
Less: debt discount
|
|
|
(305,524
|
)
|
|
Convertible notes payable balance
|
|
$
|
141,476
|
|
HOME BISTRO, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020 and 2019
December 2020 Financings:
On December 18, 2020, the Company entered
a Securities Purchase Agreement (the “December 2020 SPA I”) with an investor for the sale of the Company’s convertible
note. Pursuant to the December 2020 SPA I, among other things, (i) the Company issued a self-amortization promissory note (the
“December 2020 Note I”, and together with the December 2020 SPA I, the “December 2020 Agreements I”) in
the aggregate principal amount of $275,000, and (ii) issued a total of 75,546 shares of common stock, as a commitment fee and
183,866 shares (the “Second Commitment Shares”) issued as a returnable commitment fee. Accordingly, the Company deems
the Second Commitment Shares as unissued shares for accounting purposes. The 75,546 shares of common stock were recorded as a
debt discount of $23,546 based on the relative fair value method. Pursuant to the December 2020 Note I, the Company received net
proceeds of $234,100, net of $27,500 OID and $13,400 of issuance costs. The December 2020 Note I bears an interest rate of 12%
per annum (which interest rate shall be increased to 16% per annum upon the occurrence of an Event of Default (as defined in the
December 2020 Note I)) and shall mature on December 18, 2021. The investor has the right, only upon the occurrence of an Event
of Default, to convert all or any portion of the then outstanding and unpaid principal amount and interest thereon (including
any default interest) into shares of common stock equal to the lesser of (i) 105% multiplied by the closing bid price of the common
stock on the trading day immediately preceding the issue date ($1.04) or (ii) the closing bid price of the common stock on the
trading day immediately preceding the date of the respective conversion (the “Conversion Price”), subject to certain
percentage of ownership limitations. The Second Commitment Shares must be returned to the Company’s treasury if the December
2020 Note I is fully repaid and satisfied on or prior to the maturity date, the. Upon the occurrence and during the continuation
of any Event of Default (as defined in December 2020 Note I), the investor is no longer required to return the Second Commitment
Shares to the Company and the December 2020 Note I becomes immediately due and payable thereunder in the amount equal to the principal
amount then outstanding plus accrued interest (including any default interest) through the date of full repayment multiplied by
125%. The obligations of the Company under the December 2020 Note I rank senior with respect to any and all unsecured indebtedness
incurred following the issue date except with respect to the Company’s current and future indebtedness with Shopify and
any further loans that may be received pursuant to the CARES Act and the SBA’s Economic Injury Disaster loan program. Further,
the December 2020 Note I contain standard anti-dilution provisions and price protections provisions in the event that the Company
issues securities for a price per share less than the Conversion Price. The December 2020 Agreements I contain other provisions,
covenants, and restrictions common with this type of debt transaction. Furthermore, the Company is subject to certain negative
covenants under the December 2020 Agreements I, which the Company also believes are customary for transactions of this type. The
December 2020 SPA I also provides the investor with certain “piggyback” registration rights, permitting
them to request that the Company include the issued shares for sale in certain registration statements filed by the Company under
the Securities Act of 1934, as amended. As of December 31, 2020, the December 2020 Note I had outstanding principal and accrued
interest of $275,000 and $1,175, respectively.
On December 28, 2020, the Company entered
into a Securities Purchase Agreement (the “December 2020 SPA II”) with an investor for the sale of the Company’s
convertible note. Pursuant to the SPA II, among other things, (i) the Company issued a self-amortization promissory note (the “December
2020 Note II”, and together with the December 2020 SPA II, the “December 2020 Agreements II”) in the aggregate
principal amount of $172,000, and (ii) issued a 45,989 shares of common stock as a commitment fee and 114,667 shares (the “Second
Commitment Shares”) issued as a returnable commitment fee. Accordingly, the Company deems the Second Commitment Shares as
unissued shares for accounting purposes. The 45,989 shares of common stock issued were recorded as a debt discount of $14,720 based
on the relative fair value method. Pursuant to the December 2020 Note II, the Company received net proceeds of $150,000, net of
$15,500 OID and $6,500 of issuance costs. The December 2020 Note II bears an interest rate of 12% per annum (which interest rate
shall be increased to 16% per annum upon the occurrence of an Event of Default (as defined in the December 2020 Note II)) and shall
mature on December 28, 2021. The investor has the right, only upon the occurrence of an Event of Default, to convert all or any
portion of the then outstanding and unpaid principal amount and interest thereon (including any default interest) into shares of
common stock equal to the lesser of (i) 105% multiplied by the closing bid price of the common stock on the trading day immediately
preceding the issue date ($1.00) or (ii) the closing bid price of the common stock on the trading day immediately preceding the
date of the respective conversion (the “Conversion Price”), subject to certain percentage of ownership limitations.
The Second Commitment Shares must be returned to the Company’s treasury if the December 2020 Note II is fully repaid and
satisfied on or prior to the maturity date, the. Upon the occurrence and during the continuation of any Event of Default (as defined
in the December 2020 Note II), the investor is no longer required to return the Second Commitment Shares to the Company and
the December 2020 Note II becomes immediately due and payable thereunder in the amount equal to the principal amount then outstanding
plus accrued interest (including any default interest) through the date of full repayment multiplied by 125%. The obligations of
the Company under the December 2020 Note II rank senior with respect to any and all unsecured indebtedness incurred following the
issue date except with respect to the Company’s current and future indebtedness with Shopify and any further loans that may
be received pursuant to the CARES Act and the SBA’s Economic Injury Disaster loan program. Further, the December 2020 Note
II contain standard anti-dilution provisions and price protections provisions in the event that the Company issues securities for
a price per share less than the Conversion Price. The December 2020 Agreements II contain other provisions, covenants, and restrictions
common with this type of debt transaction. Furthermore, the Company is subject to certain negative covenants under the December
2020 Agreements II, which the Company also believes are also customary for transactions of this type. The December 2020 SPA II
also provides the investor with certain “piggyback” registration rights, permitting them to request that
the Company include the issued shares for sale in certain registration statements filed by the Company under the Securities Act
of 1934, as amended. As of December 31, 2020, the December 2020 Note II had outstanding principal and accrued interest of $172,000
and $0, respectively.
The Company also entered into a Registration
Rights Agreement (“Registration Agreement”) in connection with the December 2020 Agreements II (see Note 13). Pursuant
to which the Company is required to prepare and file with the SEC a Registration Statement or Registration Statements (as is necessary)
covering the resale of all of the Registrable Securities , which Registration Statement(s) shall state that, in accordance with
Rule 415 promulgated under the Securities Act, such Registration Statement also covers such indeterminate number of additional
shares of Securities as may become issuable upon stock splits, stock dividends or similar transactions. The Company shall initially
register for resale all of the Registerable Securities, or an amount equal to the maximum amount allowed under Rule 415 (a)(1)(i)
as interpreted by the SEC. In the event the Company cannot register sufficient shares of Securities, due to the remaining number
of authorized shares of Securities being insufficient, the Company will use its best efforts to register the maximum number of
shares it can base on the remaining balance of authorized shares and will use its best efforts to increase the number of its authorized
shares as soon as reasonably practicable.
HOME BISTRO, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020 and 2019
The Company shall use its best efforts
to have the Registration Statement filed with the SEC within 60 or 120 days following the closing date of the December 2020 Agreements
II (collectively as “Filing Deadline”). The Company shall pay the holder the sum of 1% of the purchase amount of the
December 2020 Note II as liquidated damages, and not as a penalty for each time it fails to meet the Filing Deadline. The liquidated
damages set forth in the Registration Agreement shall be paid, at the holder’s option, in cash or securities priced at the
share price, or portion thereof. Failure of the Company to make payment within five business days of the Filing Date shall be
considered a breach of the Registration Agreement.
Derivative Liabilities Pursuant
to Convertible Notes
In connection with the issuance of the
December 2020 Note I and II (collectively referred to as “Notes”), the Company determined that the terms of the Notes
contain an embedded conversion option to be accounted for as derivative liabilities due to the holder having the potential to
gain value upon an event of default, which includes events not within the control of the Company. Accordingly, under the provisions
of ASC 815-40 –Derivatives and Hedging – Contracts in an Entity’s Own Stock, the embedded conversion
option contained in the convertible instruments were accounted for as derivative liabilities at the date of issuance and shall
be adjusted to fair value through earnings at each reporting date. The fair value of the embedded conversion options was determined
using the Binomial valuation model. At the end of each period and on note conversion date, the Company revalues the derivative
liabilities resulting from the embedded option.
During year ended December 31, 2020, in
connection with the issuance of the December 2020 Note I and Note II, on the initial measurement date, the fair values of the
embedded conversion option of $212,344 was recorded as derivative liabilities and debt discount. Additionally, the Company accounted
for the 119,535 commitment shares issued by using the relative fair value method and recorded $38,263 of a debt discount which
will be amortized over the term of the Notes (see Note 11).
At the end of the period, the Company
revalued the embedded conversion option derivative liabilities. In connection with these revaluations, the Company recorded a
gain from the change in the derivative liabilities fair value of $32,315 for the year ended December 31, 2020.
During the year ended December 31, 2020,
the fair value of the derivative liabilities was estimated at issuance and at December 31, 2020, using the Binomial valuation
model with the following assumptions:
|
|
|
2020
|
|
|
Dividend rate
|
|
|
—
|
%
|
|
Term (in years)
|
|
|
1 year
|
|
|
Volatility
|
|
|
138 - 139
|
%
|
|
Risk—free interest rate
|
|
|
0.09 to 0.12
|
%
|
For the year ended December 31, 2020,
amortization of debt discounts related to this convertible note amounted to $7,983 included in interest expense on the accompanying
consolidated statements of operations. At December 31, 2020, unamortized debt discount was $305,524.
NOTE 5 – NOTE PAYABLE –
IN DEFAULT
On July 3, 2015, the Company entered into
a promissory note payable with a principal amount of $33,000. The note bore interest at a rate of 5% per year and had a maturity
date of September 1, 2016. During the year ended December 31, 2018, the Company repaid $18,000 of outstanding principal. In 2019,
the Company paid $11,262 of the outstanding principal balance and $3,738 remained unpaid and was classified as Note Payable –
In default on the accompanying December 31, 2019 balance sheet. During the year ended December 31, 2020, the Company paid the outstanding
principal balance of the note payable in full and there was no balance outstanding as of December 31, 2020.
NOTE 6 - NOTES PAYABLE
Notes payable is summarized below:
|
|
|
December 31,
2020
|
|
|
Principal amount
|
|
$
|
171,612
|
|
|
Less: current portion
|
|
|
(20,068
|
)
|
|
Notes payable - long term portion
|
|
$
|
151,544
|
|
HOME BISTRO, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020 and 2019
Minimum principal payments under notes
payable are as follows:
|
Year ended December 31, 2021
|
|
$
|
20,068
|
|
|
Year ended December 31, 2022
|
|
|
6,350
|
|
|
Year ended December 31, 2023
|
|
|
3,185
|
|
|
Year ended December 31, 2024
|
|
|
3,307
|
|
|
Year ended December 31, 2025
|
|
|
3,433
|
|
|
Thereafter
|
|
|
135,269
|
|
|
Total principal payments
|
|
$
|
171,612
|
|
Paycheck Protection Program Loan
On April 8, 2020, the Company received
federal funding in the amount of $14,612 through the Paycheck Protection Program (the “PPP”) of the CARES Act,
administered by the U.S. Small Business Administration (“SBA”). The PPP note bears an interest rate 0.98% per annum
and accrues on the unpaid principal balance computed on the basis of the actual number of days elapsed in a year of 360 days.
Commencing six months after the effective date of the PPP note, the Company is required to pay the lender equal monthly payments
of principal and interest as required to fully amortize any unforgiven principal balance of the loan by the two-year anniversary
of the effective date of the PPP note (the “Maturity Date”). The Maturity Date can be extended to five years if mutually
agreed upon by both the lender and the Company. The PPP note contains customary events of default relating to, among other things,
payment defaults, making materially false or misleading representations to the SBA or the lender, or breaching the terms of the
PPP note. The occurrence of an event of default may result in the repayment of all amounts outstanding under the PPP note, collection
of all amounts owing from the Company, or filing suit and obtaining judgment against the Company. Under the terms of the CARES Act, PPP loan
recipients can apply for and be granted forgiveness for all or a portion of the loan granted under the PPP. Such forgiveness will
be determined, subject to limitations, based on the use of loan proceeds for payment of payroll costs and any payments of mortgage
interest, rent, and utilities. Recent modifications to the PPP by the U.S. Treasury and Congress have extended the time period
for loan forgiveness beyond the original eight-week period, making it possible for the Company to apply for forgiveness of its
PPP note. No assurance can be given that the Company will be successful in obtaining forgiveness of the loan in whole or
in part. As of December 31, 2020, the PPP note had an outstanding principal balance of $14,612 and accrued interest
of $106, reflected in the accompanying balance sheets under accrued expense and other liabilities.
Economic Injury Disaster Loan
On June 17, 2020, the Company entered
into a Loan Authorization and Agreement (“SBA Loan Agreement”) with the SBA, under the SBA’s Economic Injury
Disaster Loan assistance program in light of the impact of the COVID-19 pandemic. Pursuant to the SBA Loan Agreement, the Company
received an advanced of $150,000, to be used for working capital purposes only. Pursuant to the SBA Loan Agreement, the Company
executed; (i) a note for the benefit of the SBA (“SBA Note”), which contains customary events of default; and (ii)
a Security Agreement, granting the SBA a security interest in all tangible and intangible personal property of the Company, which
also contains customary events of default. The SBA Note bears an interest rate of 3.75% per annum which accrue from the date of
the advance. Installment payments, including principal and interest, are due monthly beginning June 17, 2021 (twelve months from
the date of the SBA Note) in the amount of $731. The balance of principal and interest is payable thirty years from the date of
the SBA Note. As of December 31, 2020, the SBA Note had an outstanding principal balance of $150,000 and accrued interest of $3,036,
reflected in the accompanying balance sheets under accrued expense and other liabilities.
On June 26, 2020, in connection SBA Loan
Agreement, the Company received a grant that does not have to be repaid, in the amount of $5,000. It was recorded as other
income in the accompanying consolidated statement of operations.
November Note Payable
On November 12, 2020, the Company entered
into a Note Agreement with an investor for the sale of the Company’s note (the “Note”). Pursuant to the terms
provided for in the Note Agreement, the Company issued to the investor a Note and the Company received proceeds in the amount
of $7,000. The Note bears an interest of 5% per annum and matures on November 12, 2021. The Company may prepay all or any portion
of the interest and the unpaid principal balance of this Note at any time, or from time to time, without penalty or premium. As
of December 31, 2020, the Note had an outstanding principal balance of $7,000 and accrued interest of $47, reflected in the accompanying
balance sheets under accrued expense and other liabilities.
NOTE 7 – ADVANCE PAYABLE
On October 15, 2019, the Company entered
into a capital advance agreement (the “First Advance Agreement”) with their e-commerce platform provider (“Shopify”).
Under the terms of the First Advance Agreement, the Company received $23,000 of principal and will repay $25,999 by remitting
17% of the total customer payments processed daily by the e-commerce platform provider until the advance is repaid in full. As
of December 31, 2019, the advance had an outstanding principal balance of $18,192. During the year ended December 31, 2020, the
Company paid the principal balance of the advance in full and there was no balance outstanding as of December 31, 2020.
HOME BISTRO, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020 and 2019
On March 17, 2020, the Company entered
into a capital advance agreement (the “Second Advance Agreement”) with Shopify. Under the terms of the Second Advance
Agreement, the Company received $10,000 of principal and will repay $11,300 by remitting 17% of the total customer payments processed
daily by the e-commerce platform provider until the advance is repaid in full. During the year ended December 31, 2020, the Company
paid the advance in full and there was no balance outstanding as of December 31, 2020.
On August 5, 2020, the Company entered
into a capital advance agreement (the “Third Advance Agreement”) with Shopify. Under the terms of the Third Advance
Agreement, the Company has received $49,000 of principal and will repay $55,370 by remitting 17% of the total customer payments
processed daily by the e-commerce platform provider until the advance is repaid in full. During the year ended December 31, 2020,
the Company paid $47,328 of the principal balance and the advance had an outstanding balance $1,672 as of December 31, 2020 presented
as advance payable on the accompanying consolidated balance sheets.
On November 17, 2020, the Company entered
into a capital advance agreement (the “Fourth Advance Agreement”) with Shopify. Under the terms of the Fourth Advance
Agreement, the Company has received $63,000 of principal and will repay $71,190 by remitting 17% of the total customer payments
processed daily by the e-commerce platform provider until the advance is repaid in full. As of December 31, 2020, the entire principal
balance of $63,000 remained outstanding and is presented as advances payable on the accompanying consolidated balance sheets.
On December 10, 2020, the Company entered
into a working capital agreement (the “First PayPal Advance Agreement”) with PayPal. Under the terms of the Fifth
Advance Agreement, the Company received net proceeds of $17,000, net of $1,840 loan fee for a total principal amount of $18,840.
and will repay the principal and by remitting The Company shall pay a minimum payment every 90-days beginning at the end of the
Cancellation Period and ending when the Total Payment Amount has been delivered to Lender. The minimum payment is due in each
90-day period, irrespective of the amount paid in any previous 90-day period. The minimum payment is 5% of the principal amount
for loans expected to be repaid in 12 months or more and 10% of the principal amount for loans expected to be repaid in less than
12 months (based on the Company’s account history). During the year ended December 31, 2020, the Company paid $5,015 of
the principal balance and the advance had an outstanding balance $13,825 as of December 31, 2020 presented as advance payable
on the accompanying consolidated balance sheets.
NOTE 8 – OPERATING LEASE RIGHT-OF-USE ASSETS AND
LIABILITIES
Operating lease right-of-use (ROU) and
liabilities are recognized at the present value of the future lease payments at the lease commencement date. The interest rate
used to determine the present value is an incremental borrowing rate, estimated to be 10%, as the interest rate implicit in most
of our leases is not readily determinable. Operating lease expense is recognized on a straight-line basis over the lease term.
During the Year ended December 31, 2020 and 2019, the Company recorded $4,601 and $0, respectively, as operating lease expense
which is included the income from disposal of discontinued operations on the statements of operations.
On the date of the Merger, the Company
had an operating lease for its office and a copier. On June 30, 2020, the Company and the lessor (collectively as “Parties”)
entered into an Office Lease Termination Agreement (the “Termination Agreement”) whereby the Parties agreed to terminate
the lease and settle all claims and to extinguish all rights and claims arising out of the lease agreement entered into in April
2018. Pursuant to the Termination Agreement, the Parties agreed for the lessor to retain the deposit in the amount of $6,828 to
settle all remaining claims. As of December 31, 2020, the Company had no remaining lease obligations towards the lease. At termination,
the Company removed the remaining ROU asset and liability of $25,426.
The equipment lease agreement for a copier
expires March 27, 2022 and requires monthly payments of $145 with an option to purchase the equipment at fair market value at
the end of the lease term. Pursuant to the disposal of discontinued operations discussed in Note 3, the ROU asset and liability
related to the equipment lease was assumed by Gratitude Keto., a related party, pursuant to the Asset Purchase Agreement between
the Company and Gratitude Keto. As of December 31, 2020, the Company had no remaining lease obligations towards the lease. Upon
the closing of the Asset Purchase Agreement, the Company removed the remaining ROU asset and liability of $2,417.
Right-of-use assets are summarized below:
|
|
|
December 31,
2020
|
|
|
|
|
|
|
|
Office lease
|
|
$
|
29,417
|
|
|
Equipment lease (remaining lease term of 21 months)
|
|
|
3,027
|
|
|
Subtotal
|
|
|
32,444
|
|
|
Less accumulated amortization
|
|
|
(4,601
|
)
|
|
Adjustment in connection with the termination of lease
|
|
|
(25,426
|
)
|
|
Adjustment in connection with the disposal of discontinued operations
|
|
|
(2,417
|
)
|
|
Right-of-use assets, net
|
|
$
|
—
|
|
HOME BISTRO, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020 and 2019
Operating Lease liabilities are summarized
below:
|
|
|
December 31,
2020
|
|
|
|
|
|
|
|
Office lease
|
|
$
|
29,417
|
|
|
Equipment lease
|
|
|
3,027
|
|
|
Subtotal
|
|
|
32,444
|
|
|
Reduction of lease liability
|
|
|
(4,601
|
)
|
|
Adjustment in connection with the termination of lease
|
|
|
(25,426
|
)
|
|
Adjustment in connection with the disposal of discontinued operations
|
|
|
(2,417
|
)
|
|
Right-of-use liability, net
|
|
$
|
—
|
|
NOTE 9 – UNREDEEMED GIFT CARDS
Unredeemed gift cards activities as of
December 31, 2020 and 2019 are summarized as follows:
|
|
|
December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Beginning balance
|
|
$
|
10,365
|
|
|
$
|
9,966
|
|
|
Sale of gift cards
|
|
|
99,322
|
|
|
|
26,217
|
|
|
Revenue from breakage
|
|
|
(17,114
|
)
|
|
|
—
|
|
|
Total gift card redemptions
|
|
|
(44,262
|
)
|
|
|
(25,818
|
)
|
|
Ending balance
|
|
$
|
48,311
|
|
|
$
|
10,365
|
|
NOTE 10 – RELATED PARTY TRANSACTIONS
The Company utilizes the shipping carrier
account of a related entity, owned 50% by the Company’s current chief executive officer and principal stockholder for its
inbound and outbound shipping needs. The related entity bills the Company for the direct cost of the shipping charges plus a 10%
fee. The total amount paid to the related entity during the years ended December 31, 2020 and 2019 were $117,310 and $72,077,
respectively, which is included in cost of goods sold on the statement of operations.
See also disposal of the RTD Business
with related party in Note 3 – Acquisition of Home Bistro Holdings and Disposal of the Discontinued Operations of
the RTD Business.
NOTE 11 – STOCKHOLDERS’ DEFICIT
On September 14, 2020, the Company filed
with the Secretary of State of the State of Nevada a Certificate of Amendment to its Articles of Incorporation to effect a 1 for
31.993 reverse stock split of its common stock. Proportional adjustments for the reverse stock split were made to the Company’s
outstanding stock options, stock warrants and equity incentive plans. All share and per-share data and amounts have been retroactively
adjusted as of the earliest period presented in the consolidated financial statements to reflect the reverse stock split (see
Note 1 and Note 3).
Shares Authorized
On April 7, 2020, the Board of Directors
of the Company approved the increase of the authorized shares of the common stock to 1,000,000,000 from 600,000,000 (see Note
1).
Stocks Issued Pursuant to Recapitalization
On April 20, 2020, as a result of the
closing of the Share Exchange Agreement with Home Bistro Holdings (see Note 3), the equity of the consolidated entity is the historical
equity of Home Bistro Holdings retroactively restated to reflect the number of shares issued by the Company in the reverse recapitalization
and to reflect the reverse stock split.
As a result, in connection with the Exchange Agreement and
Merger (see Note 3), the Company was deemed to have issued a total of 250,000 shares of Series B Convertible Preferred Stock,
1,899,094 shares of common stock.
HOME BISTRO, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020 and 2019
Preferred Stock
On September 25, 2020, in connection with
the Asset Purchase Agreement between the Company and Gratitude Keto, the Company repurchased the 250,000 shares of Series B Preferred
Stock (see above Stocks Issued Pursuant to Recapitalization) held by a stockholder (see Note 1 and Note 3).
As of December 31, 2020, there were no
outstanding shares of Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock (see above Stocks Issued
Pursuant to Recapitalization).
Common Stock
Common stock for commitment fee with
convertible notes payable
|
|
●
|
In
December 2020, the Company issued an aggregate of 119,535 shares of common stock valued
at $38,263 using the relative fair value method to two non-affiliate investors as commitment fee
in connection with the December 2020 Financings (see Note 4) which was recorded as debt
discount which will be amortized over the life of the Notes. The Company did not issue
any common stock as commitment fee during the year ended December 31, 2019.
|
Stock-based compensation
|
|
●
|
During
the year ended December 31, 2020 and 2019, the Company recorded stock-based compensation
of $213,841 and $183,294, respectively, related to common stock issued to an executive
pursuant to an employment agreement (see Note 11) and which was recorded as compensation
and related expenses in the accompanying statements of operations. As of December 31,
2020, there was no unamortized compensation expense related to these common shares.
|
|
|
●
|
During
the year ended December 31, 2020, the Company recorded stock-based compensation of $238,268
related to an aggregate of 4,000,577 shares of common stock issued to employees and various
consultants, of which $102,332 was charged as compensation and related expenses, $124,219
as professional and consulting expenses and $11,717 as selling and marketing expenses
in the accompanying consolidated statements of operations. The stock-based compensation
was based on the fair value of common stock on the date of grant based on recent sales
of common stock. In addition, the Company issued a warrant to purchase up to 300,000
shares of the Company’s common stock with grant date fair value of $360,000 for
product development services pursuant to an agreement (see below under Warrants).
|
Stock Options
A summary of the Company’s outstanding
stock options as of December 31, 2020 and changes during the period ended are presented below:
|
|
|
Number of
Options
|
|
|
Weighted Average
Exercise
Price
|
|
|
Weighted Average Remaining
Contractual Life
(Years)
|
|
|
Aggregate
Intrinsic
Value
|
|
|
Balance on December 31, 2019
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
Deemed issued in connection with the Company’s recapitalization (see Note 3)
|
|
|
60,638
|
|
|
$
|
3.20
|
|
|
|
0.03
|
|
|
|
—
|
|
|
Balance on December 31, 2020
|
|
|
60,638
|
|
|
$
|
3.20
|
|
|
|
0.03
|
|
|
$
|
—
|
|
Stock Warrants
On April 20, 2020, pursuant to the Merger
(see Note 3), the Company issued warrants to purchase up to 4,041,258 shares of common stock with exercise price of $0.032 per
share (in whole or in part) and expiration date of April 20, 2030 (see above Stocks Issued Pursuant to Recapitalization),
in exchange for certain outstanding shares of the Company’s common stock on the date of the Merger.
On April 20, 2020, pursuant to the
Exchange Agreement (see Note 3), the Company issued warrants to purchase up to 6,926,314 shares of common stock with an exercise
price of $0.032 per share (in whole or in part) and expiration date of April 20, 2030 in exchange for certain outstanding common
stock shares of Home Bistro Holdings on the date of the Merger, of which the Company had received $100,005 in total proceeds prior
to the Merger in exchange for shares of Home Bistro Holdings common stock.
HOME BISTRO, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020 and 2019
On September 22, 2020, the Company issued
a warrant to purchase up to 300,000 shares of the Company’s common stock to a third-party entity in connection with the
Joint Product Development and Distribution Agreement (see Note 13). This warrant is exercisable, in whole or in part, upon issuance
at $0.001 per share, and expires on September 22, 2030. This warrant has a grant date fair value of $360,000 recorded as product
development expense at issuance on the consolidated statements of operations.
On December 18, 2020, the Company issued
warrants to purchase up to 10,640 shares of the Company’s common stock to a third-party entity in connection with a consulting
agreement. This warrant is exercisable, in whole or in part, upon issuance at $1.27 per share, and expires on December 18, 2025.
These warrants have a grant date fair value of $11,471, recorded as consulting fee on the consolidated statements of operations.
The Company used the Binomial pricing
model to determine the fair value of its stock options which requires the Company to make several key judgments including:
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●
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the expected life
of issued stock warrants;
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●
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the expected volatility
of the Company’s stock price;
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●
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the expected dividend
yields to be realized over the life of the stock warrants; and
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●
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the risk-free interest
rate over the expected life of the stock warrants.
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The Company’s computation of the
expected life of issued stock warrants was based on the simplified method as the Company does not have adequate exercise experience
to determine the expected term and was estimated to be 2 years. The interest rate was based on the U.S. Treasury yield curve in
effect at the time of grant. The computation of volatility was based on the historical volatility of the Company’s common
stock and the Company’s expected divided yield was estimated to be zero.
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Dividend rate
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—
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%
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Term (in years)
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5 to 10 years
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Volatility
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139
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%
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Risk-free interest rate
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0.39% to 0.68
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%
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A summary of the Company’s outstanding
stock warrants as of December 31, 2020 and changes during the period ended are presented below:
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Number of Stock
Warrants
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Weighted Average
Exercise
Price
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Weighted Average
Remaining
Contractual Life
(Years)
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Balance on December 31, 2019
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—
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$
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—
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—
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Deemed issued in connection with the Company’s recapitalization (see Note 3)
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4,041,258
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0.032
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9.31
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Issued pursuant to Exchange Agreement (see Note 3)
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6,926,314
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0.032
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9.31
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Granted
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310,640
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0.044
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9.57
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Balance on December 31, 2020
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11,278,212
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$
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0.032
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9.31
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Stock warrants exercisable on December 31, 2020
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11,278,212
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$
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0.032
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9.31
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Weighted average fair value of stock warrants granted during the period
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$
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0.044
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The exercisable stock warrants had an
intrinsic value of $9,564,277 on December 31, 2020.
HOME BISTRO, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020 and 2019
NOTE 12– INCOME TAXES
The Company maintains deferred tax assets
and liabilities that reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax purposes. The deferred tax assets on December 31, 2020 and
2019 consist of net operating loss carryforwards. The net deferred tax asset has been fully offset by a valuation allowance because
of the uncertainty of the attainment of future taxable income.
The items accounting for the difference
between income taxes at the effective statutory rate and the provision for income taxes for the years ended December 31, 2020
and 2019 are as follow:
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Years Ended December 31,
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2020
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2019
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Income tax benefit at U.S. statutory rate of 21%
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$
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(260,749
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)
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$
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(41,803
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)
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Income tax benefit – state
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(108,025
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)
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(17,318
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)
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Non-deductible expenses
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223,929
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48,953
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Change in valuation allowance
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144,845
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10,168
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Total provision for income tax
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$
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—
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$
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—
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The Company’s approximate net deferred
tax asset as of December 31, 2020 and 2019 was as follow:
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Years Ended December 31,
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2020
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2019
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Net operating loss carryforward
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$
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1,210,697
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$
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1,065,852
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Total deferred tax asset
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1,210,697
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1,065,852
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Less: valuation allowance
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(1,210,697
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)
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(1,065,852
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)
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Net deferred tax asset
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$
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—
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$
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—
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The gross operating loss carryforward available
to the Company was $4,076,418 at December 31, 2020. The Company provided a full valuation allowance equal to the net deferred income
tax asset as of December 31, 2020 and 2019 because it was not known whether future taxable income will be sufficient to utilize
the loss carryforward. Additionally, the future utilization of the net operating loss carryforward to offset future taxable income
is subject to annual limitations as a result of ownership or business changes that occurred prior to 2020 and may occur in the
future. The Company has not conducted a study to determine the limitations on the utilization of these net operating loss carryforwards.
The increase in the valuation allowance was $144,845 in 2020.
The total net loss carryforward on December 31, 2020 is $1,210,697. The potential tax benefit arising from the net operating loss
carryforward of $1,055,538 generated prior to January 1, 2018 will expire in 2033. The potential tax benefit arising from the net
operating loss carryforward of $155,159 generated from January 1, 2018 thereon can be carried forward indefinitely within the annual
usage limitations.
The Company does not have any uncertain
tax positions or events leading to uncertainty in a tax position. The Company’s 2020, 2019 and 2018 Corporate Income Tax
Returns are subject to Internal Revenue Service examination.
NOTE 13 – COMMITMENTS AND
CONTINGENCIES
Employment Agreements
On February 20, 2018, the Home Bistro
Holdings entered into an employment agreement (the “Employment Agreement”) with Zalmi Scher Duchman to serve as the
Company’s Chief Executive Officer, the term of which runs for three years includes an annual salary of $1.00 for the first
year which shall be increased in the second and third year of employment to an amount mutually approved by Mr. Duchman and the
Company’s Board of Directors. Thereafter, the Employment Agreement shall be renewed upon the mutual agreement of Mr. Duchman
and Company. In connection with this Employment Agreement, the Company issued 7,643,239 (retroactively restated to reflect shares
issued in Merger and post reverse stock split) shares of restricted common stock with a grant date fair value of $549,882, as
a sign-on bonus (see Note 11). The Company shall have the right and option to repurchase the stock at par value of $0.001 if Mr.
Duchman is terminated for cause; (i) all of the shares shall be eligible for stock repurchase if terminated for cause within the
first year; (ii) 2/3 of the shares shall be eligible for stock repurchase terminated for cause within the second year and; (iii)
1/3 of the shares shall be eligible for stock repurchase terminated for cause within the third year. As a result of the Merger
(see Note 3) all these shares of common stock fully vested on the date of Merger and any unamortized deferred compensation was
expensed during the year ended December 31, 2020 (see Note 11).
Lease Obligation Settlement
On February 22, 2018, the Company entered
into a Surrender Agreement with a former landlord for rental obligations dating back to the year ended December 31, 2017 until
the space was vacated by the Company on March 31, 2017. Upon executing the Surrender Agreement, the former landlord and the Company
agreed that the total rental obligation due was $109,235. The former landlord agreed to $50,000 as full satisfaction of all obligations
owed at the time of the Surrender Agreement. The Company agreed to make regular payments on the outstanding rental obligation
until paid in full through September 2019; however, there is no penalty if the obligation is not fully paid by such date. As of
December 31, 2020 and 2019, the balance remaining due on this obligation were $26,400 and $30,700, respectively, included in accounts
payable on the accompanying consolidated balance sheets.
HOME BISTRO, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020 and 2019
Put Option Agreement
On April 20, 2020, the Company and a stockholder
entered into a Put Option Agreement (see Note 3), pursuant to which, among other things, the Company agreed, at the election of
the stockholder, to purchase certain shares of common stock from such stockholder no sooner than two years from the date of the
Put Option Agreement also referred to herein as Market Period. Pursuant to the Put Option Agreement, in the event that the stockholder
does not generate $1.3 million dollars also referred to herein as Total Investment in gross proceeds from the sale of its shares
of common stock by the second anniversary of the Put Option Agreement, then the stockholder has the right to cause the Company
to purchase shares held by the stockholder at a price equal to the difference between the Total Investment and the net proceeds
actually realized by the stockholder from shares of common stock sold during the Market Period and the number of shares of common
stock held by the stockholder on the date the put right is exercised. The put right expires fourteen (14) days from end of the
Market Period. In connection with the Put Option Agreement, the Company recorded a common stock repurchase obligation in the amount
of $1.3 million, reflected in the accompanying consolidated balance sheets as a long-term liability, Common stock repurchase
obligation. The repurchase obligation is re-assessed by the Company each reporting period and adjusted for the proceeds received
by the stockholder from sale of common stock. As of December 31, 2020, the Company had $1.3 million of common stock repurchase
obligation outstanding.
Joint Product Development and Distribution
Agreement
On September 22, 2020, the Company and
Corlich Enterprises, Inc., a New Jersey corporation (“Corlich”) entered into a Joint Product Development and Distribution
Agreement (the “Development Agreement”), effective the same date, pursuant to which, among other things, Corlich agreed
to provide certain commercial services (the “Services”) of Cat Cora, an American professional chef, in order for the
Company and Corlich to collaboratively develop a brand of meals (the “Cat Cora Meals”). In consideration for the Services,
the Company agreed to (i) pay Corlich a royalty on net revenues generated from (A) the Cat Cora Meals, and (B) Home Bistro and
Prime Chop brand orders where a dedicated code is used at purchase, and (ii) issue a warrant to purchase up to 300,000 shares
of common stock (see Note 11). The Development Agreement has a three-year term, unless sooner terminated pursuant to its terms.
During the first year of the Development
Agreement’s term, Corlich is guaranteed a minimum royalty payment of $109,210. For the second and third year of the Development
Agreement’s term, the Development Agreement estimates that Corlich will be guaranteed a minimum royalty payment of $218,380
and $436,770, respectively, subject to the achievement of the prior year’s guaranteed minimum royalty payment and the parties’
agreement to negotiate in good faith a lower guaranteed minimum royalty if such guaranteed minimum royalty payment is not achieved
or to otherwise terminate the Development Agreement. Royalties above the guaranteed minimum royalty are based on an increasing
percentage of net revenues generated from the sale of Cat Cora Meals as certain revenue milestones are met as defined in the Distribution
Agreement. Royalties will be accrued over the term of the Development Agreement and $36,403 of royalty fee was accrued during
the period ended December 31, 2020 and included in cost of sales in the accompanying consolidated statement of operations.
Extinguishment of Accounts Payable
The Company settled certain accounts payable
and recognized gain on extinguishment of accounts payable of $7,075 and $18,470 during the years ended December 31, 2020 and 2019,
respectively.
Registration Rights Agreement
The Company also entered into a Registration
Rights Agreement (“Registration Agreement”) in connection with the December 2020 Agreements II (see Note 4). Pursuant
to which the Company is required to prepare and file with the SEC a Registration Statement or Registration Statements (as is necessary)
covering the resale of all of the Registrable Securities, which Registration Statement(s) shall state that, in accordance with
Rule 415 promulgated under the Securities Act, such Registration Statement also covers such indeterminate number of additional
shares of Securities as may become issuable upon stock splits, stock dividends or similar transactions. The Company shall initially
register for resale all of the Registerable Securities, or an amount equal to the maximum amount allowed under Rule 415 (a)(1)(i)
as interpreted by the SEC. In the event the Company cannot register sufficient shares of Securities, due to the remaining number
of authorized shares of Securities being insufficient, the Company will use its best efforts to register the maximum number of
shares it can base on the remaining balance of authorized shares and will use its best efforts to increase the number of its authorized
shares as soon as reasonably practicable.
The Company shall use its best efforts
to have the Registration Statement filed with the SEC within 60 or 120 days following the closing date of the December 2020 Agreements
II (collectively as “Filing Deadline”). The Company shall pay the holder the sum of 1% of the purchase amount of the
December 2020 Note II as liquidated damages, and not as a penalty for each time it fails to meet the Filing Deadline. The liquidated
damages set forth in the Registration Agreement shall be paid, at the holder’s option, in cash or securities priced at the
share price, or portion thereof. Failure of the Company to make payment within five business days of the Filing Date shall be
considered a breach of the Registration Agreement.
HOME BISTRO, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020 and 2019
NOTE 14 - SUBSEQUENT EVENTS
January 2021 Financing:
On January 12, 2021, the Company entered
into a Securities Purchase Agreement (the “January 2021 SPA I”) with an investor for the sale of the Company’s
convertible note. Pursuant to the January 2021 SPA I, among other things; (i) the Company issued a self-amortization promissory
note (the “January 2021 Note I”, and together with the January 2021 SPA I, the “January 2021 Agreements I”)
in the aggregate principal amount of $120,000 and (ii) shall issue a total of 29,385 shares of common stock as a commitment fee
and 73,269 shares (the “Second Commitment Shares”) shall be issued as a returnable commitment fee. Pursuant to the
January 2021 Note I, the Company received net proceeds of $105,000, net of $10,000 OID and $5,000 issuance cost. The January 2021
Note I bears an interest rate of 10% per annum (which interest rate shall be increased to 16% per annum upon the occurrence of
an Event of Default (as defined in the January 2021 Note I)) and shall mature on January 12, 2022. The investor has the right,
only upon the occurrence of an Event of Default, to convert all or any portion of the then outstanding and unpaid principal amount
and interest thereon (including any default interest) into shares of common stock equal to the lesser of (i) 105% multiplied by
the closing bid price of the common stock on the trading day immediately preceding the issue date or (ii) the closing bid price
of the common stock on the trading day immediately preceding the date of the respective conversion (the “Conversion Price”),
subject to certain percentage of ownership limitations. The Second Commitment Shares must be returned to the Company’s treasury
if the January 2021 Note I is fully repaid and satisfied on or prior to the maturity date, the. Upon the occurrence and during
the continuation of any Event of Default (as defined in the January 2021 Note I), the investor is no longer required to return
the Second Commitment Shares to the Company and the January 2021 Note I becomes immediately due and payable thereunder in the
amount equal to the principal amount then outstanding plus accrued interest (including any default interest) through the date
of full repayment multiplied by 125%. The obligations of the Company under the January 2021 Note I rank senior with respect to
any and all unsecured indebtedness incurred following the issue date except with respect to the Company’s current and future
indebtedness with e-commerce platform provider (see Note 7) and any further loans that may be received pursuant to the CARES Act
and the SBA’s Economic Injury Disaster loan program. Further, the January 2021 Note I contain standard anti-dilution provisions
and price protections provisions in the event that the Company issues securities for a price per share less than the Conversion
Price. The January 2021 Agreements I contain other provisions, covenants, and restrictions common with this type of debt transaction.
Furthermore, the Company is subject to certain negative covenants under the January 2021 Agreements I, which the Company also
believes are also customary for transactions of this type. The January 2021 SPA I also provides the investor with certain “piggyback” registration rights,
permitting them to request that the Company include the issued shares for sale in certain registration statements filed by the
Company under the Securities Act of 1934, as amended.
On January 27, 2021, the Company entered
into a Securities Purchase Agreement (the “January 2021 SPA II”) with an investor for the sale of the Company’s
convertible note. Pursuant to the January 2021 SPA II, among other things the Company; (i) agreed to issue a convertible note in
the original principal amount of $330,000 (the “January 2021 Note II”); (ii) shall issue 150,000 shares of common stock,
subject to a true-up based upon the trading price of the common stock and the investor’s ownership limitations (“commitment
share true up”) and; (iii) a warrant to purchase up to 150,000 shares of common stock (the “January 2021 Warrant”,
and together with the January 2021 SPA II and the January 2021 Note II, the “January 2021 Agreements II”). Upon closing,
the Company received $300,000 in net proceeds, net of $33,000 of OID and issuance cost. The January 2021 Note II matures on February
1, 2022 or such later date as determined at the option of the investor in the event that, and for so long as, an Event of Default
(as defined in the January 2021 Note II) has not occurred and is not continuing and no event has occurred and is continuing that
with the passage of time and the failure to cure would result in an Event of Default, or upon earlier acceleration or prepayment
as provided therein. Upon an Event of Default, the outstanding balance will immediately and automatically increase to 140% of the
outstanding balance under the January 2021 Note II as of immediately prior to the occurrence of the Event of Default and the January
2021 Note II becomes immediately due and payable. A one-time interest charge of 8% was applied on the issue date and will be payable
on the maturity date. Beginning May 1, 2021 and continuing on the first day of every consecutive month thereafter for nine-months,
the Company will make cash payments of $39,600. The investor may only convert the January 2021 Note II at any time or times on
or after the occurrence of an Event of Default. The January 2021 Note II is convertible at the rate equal to 105% of the lowest
trading price occurring during the twenty-five consecutive trading days immediately preceding the applicable conversion date (“Conversion
Price”). The January 2021 Note II contains an embedded option to be accounted for as a derivative liability that will
need to be valued on note inception and an obligation pursuant to the commitment fee true up. The obligations under the Note are
not secured by any assets of the Company.
The January 2021 Warrant, issued to
the investor as commitment fee, provides for the right to purchase up to 150,000 shares of common stock at an exercise price
of $2.50, subject to the adjustments and 4.99%, ownership limitation, until the date which is the last calendar day of the
month in which the fifth anniversary of the issue date occurs.
The January 2021 Note II and the January 2021 Warrant also provides
the investor with certain “piggyback” registration rights, permitting them to request that the Company include
the shares issued upon conversion of the January 2021 Note II or exercise of the January 2021 Warrant, respectively, for sale in
certain registration statements filed by the Company under the Securities Act of 1934, as amended (the “Securities Act”).
The Agreements contain other provisions, covenants, and restrictions common with this type of debt transaction, including a no
shorting provision preventing the investor from taking a short position against the Company’s stock. Furthermore, the Company
is subject to certain negative covenants under the January 2021 Agreements II, which the Company also believes are also customary
for transactions of this type.
On March 18, 2021 (the “Redemption
Date”), the Company elected, pursuant to terms of payment as described in the December 2020 Note I (see Note 4), date December
18, 2020 to pay the Investor an aggregate amount of 283,615.75 (the “Payoff Amount”) consisting of $275,000 of principal,
$7,865.75 of accrued interest and $750.00 in administrative fees (the “Redemption Amount”). So long as the Investor
receives the Payoff Amount on March 18, 2021 (i) the December 2020 Note I shall be deemed to have been paid in full, (ii) the
Investor will not exercise any of its rights relating to any potential default that may have occurred after the issue date of
the December 2020 Note I, and (iii) the Second Commitment Shares (as defined in the December 2020 Note I) shall be returned by
the Investor to the Company’s transfer agent for cancellation as provided for in the December 2020 Agreements I (see Note
4).
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