UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-KT
☐ ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the fiscal year ended ________
☒ TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the transition period from January 1, 2021 to October 31, 2021
Commission
File Number: 000-56222
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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4014 Chase Avenue, #212
Miami Beach, FL 33140
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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, 2021, the last
business day of the registrant’s last completed second quarter, based upon the closing price of the common stock of $1.00 on such
date, is $12,459,759.
As of January 24, 2022, there were 37,724,088 shares of the Company’s
common stock outstanding.
TABLE
OF CONTENTS
Explanatory
Note
Unless
otherwise indicated by the context, any reference herein to the “Company”, “Home Bistro”, “we”, our”
or “us” means Home Bistro, Inc., a Nevada corporation, and its corporate subsidiaries.
In
December 2021, the Company’s board of directors approved a resolution to change our fiscal year end from December 31st
to October 31st, effective immediately. Accordingly, we are required to file this transition report on Form 10-KT to include
audited consolidated financial information for the transition period from January 1, 2021 to October 31, 2021. Any references to the
“transition period” throughout this report refer to that ten-month period ending October 31, 2021. Prior periods have not been
recasted to align with our new fiscal year.
CAUTIONARY
STATEMENT ON FORWARD-LOOKING INFORMATION
This
Annual Report on Form 10-KT (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.
PART
I
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.
Acquisitions and Disposal of Discontinued Operations:
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) 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 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 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 days from end of the Market Period. In connection with the Put
Option Agreement, the Company recorded as 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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Acquisition
of Model Meals
Model
Meals, LLC (the “Model Meals”) was formed on May 1, 2015. Model Meals 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 planning, delivery, and preparation services. Products are customized meal solutions, delivered fresh directly to the home
and utilizes third-party food delivery services to fulfill customers’ orders.
On July 6, 2021, the Company entered and closed
on an Agreement and Plan of Merger with the members of Model Meals, acquiring Model Meals through a reverse triangular merger, whereby
Model Meals merged with Model Meals Acquisition Corp., a wholly owned subsidiary of the Company, with Model Meals being the surviving
entity (the “Acquisition”). As a result, Model Meals became a wholly owned subsidiary of the Company, and the members of Model
Meals received and aggregate of 2,008,310 shares of common stock and were paid $60,000 in cash. Pursuant to the Acquisition, the Company
issued 2,008,310 shares of common stock with grant date fair value of $ 2,028,393. The shares are subject to a 24-month Lockup and Leak-Out
Agreement and were issued pursuant to Section 4(a)(2) of the Securities Act.
Further,
on August 12, 2021, the Company filed, in an amended current report Form 8-K/A, Model Meals’; (i) audited balance sheets and audited
statement of operations as of December 31, 2020 and 2019 and for the years ended December 31, 2020 and 2019, respectively,; (ii) balance
sheet and statement of operations as of March 31, 2021 and for the three months ended March 31, 2021, respectively, and; (iii) unaudited
pro forma combined financial information derived by the application of pro forma adjustments to the historical consolidated financial
statements of the Company and Model Meals which gives effect to the Acquisition between the Company and Model Meals as if the Acquisition
had occurred on January 1, 2020 with respect to the unaudited annual pro forma combined statement of operation, and as of January 1,
2021 for the three months ended March 31, 2021 unaudited pro forma combined statement of operation, and as of March 31, 2021 with respect
to the unaudited pro forma combined balance sheets.
In
connection with the Acquisition, the assets acquired and liabilities assumed were recorded at fair value on the acquisition date. The
fair values are subject to adjustment during measurement period with subsequent changes recognized in earnings or loss. These estimates
are inherently uncertain and are subject to refinement. Management develops estimates based on assumptions as a part of the purchase
price allocation process to value the assets acquired and liabilities assumed as of the business acquisition date. As a result, during
the purchase price measurement period, which may be up to one year from the business acquisition date, the Company may record adjustments
to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. After the purchase price measurement period,
the Company will record any adjustments to assets acquired or liabilities assumed in operating expenses in the period in which the adjustments
may have been determined. Based upon the purchase price allocation, the following table summarizes the preliminary fair value of the
assets acquired and liabilities assumed at the date of the acquisition:
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Total
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Assets acquired:
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Current assets
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$
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97,140
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Computer software
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66,198
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Customer relationships
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43,000
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Trademark
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505,000
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Goodwill
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1,809,357
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Total assets acquired at fair value
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2,520,695
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Less: total liabilities assumed
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|
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(432,302
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)
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Net asset acquired
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$
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2,088,393
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|
|
|
|
|
|
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Purchase consideration paid:
|
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|
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Fair value of common shares issued
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$
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2,028,393
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Cash consideration
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60,000
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Total purchase consideration paid
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$
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2,088,393
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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 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 properly refrigerated 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 has also partnered with famed author and TV personality, Ayesha Curry; “Hungry Fan” celebrity
chef, Daina Falk, renowned Chef Roblé Ali; master chef Claudia Sandoval; chef and television personality, Richard Blais; provider
of healthy lifestyle meals serving celebrities and athletes and Perfecting Athletes LLC. In addition to celebrity chef cuisine, Home Bistro
also offers gourmet desserts created by Red Velvet NYC and will soon offer high quality wine pairings provided by Good Taste Wine, Inc.
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 have reached $28.5 billion in the United States during 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, fully cooked meals direct-to-consumer.
On average, these meals require heating for only three to five minutes using a microwave or 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 2021, Home Bistro entered into a
lease for commercial kitchen facilities, hired and trained professional chefs and implemented its own fulfillment operations. Through
its acquisition of Model Meals in July 2021, the Company gained commercial kitchen facilities on the West Coast, thereby improving its
geographic reach and delivery efficiency. With the expansion of its kitchen facilities and fulfillment capabilities and bicoastal presence,
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 react to dynamics of a developing marketplace and create and introduce new menu
items, including the further expansion of its Celebrity Chef Program.
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.
The Company’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 October 31, 2021, the Company had 15 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 of $12,802,275 for the ten-month
transition period ended October 31, 2021 and $1,241,661 for the twelve month period ended December 31, 2020. The net cash used in operations
was $2,771,676 and $273,817 for the ten-month transition period ended October 31, 2021 and twelve month period ended December 31, 2020,
respectively. Additionally, the Company had an accumulated deficit of $19,135,664 at October 31, 2021. 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 transition period ended October 31, 2021 and year ended December 31, 2020 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 Model Meals, which could adversely affect the value of our common stock.
The ultimate success of the acquisition
of Model Meals will depend, in part, on our ability to realize the anticipated benefits and cost savings from combining the business
of Model Meals and Home Bistro. 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 Model Meals and Home Bistro, 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 Model Meals than the value we will derive from the acquisition; and
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the assumption of known and unknown liabilities of Model Meals.
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If we are not able to successfully combine the
business of Model Meals and Home Bistro 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 Model Meals and Home Bistro 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. Recent disruption in the general supply chain could make it difficult to obtain or increase the cost
of purchasing ingredients, which would have a negative impact on revenue and margins. 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
continuing effects of the outbreak of the novel coronavirus (“COVID-19”) and its variants 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 and its variants 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. 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;
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Reduced
availability of ingredients due to supply chain disruption could further exacerbate price
inflation.
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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 on the Company’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 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 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 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, almost all of our direct-to-consumer
customer orders are shipped by one third-party provider and almost all of our orders for 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 customers, our customer acquisition
cost may increase.
We rely on word-of-mouth advertising
for a portion of our customers. If our brands suffer or the number of customers acquired through referrals drops due to other circumstances,
our costs associated with acquiring new 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 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 celebrity chef 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 we operate is subject
to governmental regulation that could increase in severity and hurt results of operations.
The industry in which we operate 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 we operate
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 “HBIS,” 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 January 14, 2022, the Company’s Chief Executive Officer, Mr. Zalmi Duchman
beneficially owns approximately 24% of the outstanding 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.
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.
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
The Company has its corporate headquarters in
4014 Chase Avenue, #212, Miami Beach, FL 33140 and kitchen locations at 3126 John P Curci Dr., Pembroke Pines, FL 33009 and 201 E. 4th
St. Santa Ana, CA 92701. 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 the transition period
ended October 31, 2021 and year ended December 31, 2020. 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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Transition Period 2021
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First Quarter ended March 31, 2021
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$
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2.00
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$
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0.35
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Second Quarter ended June 30, 2021
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$
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1.20
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$
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0.56
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Third Quarter ended September 30, 2021
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$
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1.98
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$
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0.75
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Fourth Quarter Ended October 31, 2021
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$
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1.58
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$
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1.15
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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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$
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0.77
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Fourth Quarter Ended December 31, 2020
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$
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1.52
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$
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0.76
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Holders of Common Stock
As of January 14, 2022, there were approximately
2,199 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
Except for provided below, all unregistered sales
of our securities during the one month ended October 31, 2021, were previously disclosed in a Quarterly Report on Form 10-Q or in a Current
Report on Form 8-K.
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1.
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On October 1, 2021, the Company issued to
an executive, warrant for 2,000,000 to common stock with grant date fair value of $2,714,974
pursuant to an employment agreement.
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2.
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On October 1, 2021, the Company issued to
a consultant, warrant for 1,000,000 to common stock with grant date fair value of $1,356,507
pursuant to a consulting agreement.
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3.
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On October 1, 2021, the Company issued to
a second consultant, warrant for 500,000 to common stock with grant date fair value of $678,253
pursuant to a consulting agreement.
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4.
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On October 1, 2021, the Company issued to
a member of the Board of Directors, 100,000 shares of common stock with grant date fair value
of $132,000 as stock-based compensation.
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5.
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On October 12, 2021, the Company issued to
a lender, 12,500 shares of common stock with grant date fair value of $17,626 pursuant to
a lock up agreement.
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6.
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On October 20, 2021, the Company granted to
a third consultant, 100,000 shares of common stock with grant date fair value of $132,000
pursuant to the second amendment of a consulting agreement.
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7.
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On October 20, 2021, the Company granted 150,000 shares of common stock with a grant date fair value of $150,000, to a celebrity chef pursuant to a product development agreement.
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8.
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On October 20, 2021, the Company granted 150,000 shares of common stock with a grant date fair value of $172,500, to a second celebrity chef pursuant to a product development agreement.
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9.
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In October 2021, the Company granted 150,000 shares of common stock with a grant date fair value of $255,000, to a third celebrity chef pursuant to a product development agreement dated.
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10.
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On October 25, 2021, the Company issued an aggregate of 4,266,667 shares of common stock with fair value of $5,589,334, in connection with the acquisition of a license agreement.
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11.
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In October 2021, the Company issued to a fourth consultant, an aggregate warrant of 9,605 for common stock with grant date fair value of $2,456 pursuant to a consulting agreement.
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12.
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In October 2021, the Company issued to various investors, an aggregate of 2,297,739 shares of common stock for an aggregate net cash proceeds of $1,655,468.
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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 to Gratitude Health, Inc. from Vapir Enterprises
Inc. Effective September 14, 2019, the Company changed its name to Home Bistro, Inc. from Gratitude Health, Inc.
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.
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 Home Bistro Holdings stockholders
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 of the assets
and liabilities associated with the RTD Business, in the subsequent period, this transaction was accounted for as a reverse recapitalization
effected by a share exchange of Home Bistro Holdings.
On April 20, 2020, Mr. Zalmi Duchman was appointed
the Chief Executive Officer of Home Bistro Holdings and a member of the Board of Directors, and Michael Finkelstein and Michael Novielli
were appointed as directors of the Company, replacing Roy G. Warren, Jr., Mike Edwards and Bruce Zanca, who resigned as directors of
the Company subsequent to the Merger.
On September 14, 2020, the Company filed a Certificate
of Amendment to its Articles of Incorporation with the Nevada Secretary of State to effect (i) a 31.993-for-1 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.”.
The new CUSIP number for the Common Stock following the Reverse Stock Split is 43706U100.
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 May 25, 2021 and is payable in monthly instalments of $1,000 commencing on Prior the Merger, the Company
was solely engaged in manufacturing, selling and marketing functional RTD Business sold under the Company’s trademarks. Following
the Merger and prior to the Divestiture (as defined below), the Company provided high quality, direct-to-consumer, ready-made meals at
www.homebistro.com, and restaurant quality meats and seafood through its Colorado Prime brand. Following the Divestiture, this became
the sole business of the Company. Home Bistro Holdings is uniquely positioned to take advantage of the developing market opportunity
generated by consumers’ growing demand for prepared meals ordered online and delivered to their homes.
On July 6, 2021, the Company entered into an Agreement
and Plan of Merger with the members of Model Meals, LLC (“Model Meals”), acquiring Model Meals through a reverse triangular
merger, whereby Model Meals merged with Model Meals Acquisition Corp., a wholly owned subsidiary of the Company, with Model Meals being
the surviving entity (the “Acquisition”). As a result, Model Meals became a wholly owned subsidiary of the Company, and the
members of Model Meals received and aggregate of 2,008,310 shares of common stock and $60,000 in cash. Pursuant to the Acquisition, the
Company issued 2,008,310 shares of common stock with fair value of $2,028,393 pursuant to the agreement. The shares are subject to a 24-month
Lockup and Leak-Out Agreement and were issued pursuant to Section 4(a)(2) of the Securities Act.
On June 24, 2021, the Company entered into a licensing
agreement (“License Agreement”) with a celebrity chef and majority member interest holder of Homemade Meals, LLC, an inactive
entity. As a condition to finalizing the License Agreement, the Company also executed a Membership Interest Purchase Agreement (the “Member
Agreement”) and issued an aggregate of 2,266,666 shares of common stock with a fair value of $2,969,334 to members of Homemade Meals,
LLC (“Homemade Meals”) on October 25, 2021 to terminate an exclusivity and non-compete agreement the celebrity chef had with
Homemade Meals. The Company issued the celebrity chef 2,000,000 shares of Company’s common stock with a fair value of $2,620,000.
The Company’s primary reason for acquiring the membership interests in Homemade Meals was to terminate the exclusivity and non-compete
agreement between the celebrity chef and Homemade Meals, thereby enabling the celebrity chef to execute the License Agreement with the
Company. At the time of execution of the Member Agreement, Homemade Meals held no significant assets and had no business operations. The
Company recorded the shares given to the celebrity chef and the members of Homemade Meals has two separate transactions.
In December 2021, the
Company’s board of directors and management changed the Company’s fiscal year end from December 31st to October
31st, effective immediately. Accordingly, we are required to file this transition report on Form 10-KT to include audited
consolidated financial information for the transition period from January 1, 2021 to October 31, 2021. Any references to the "transition
period" throughout this report refer to that ten-month period. Prior periods have not been recasted to align with our new fiscal
year.
Joint Product Development and Distribution
Agreements
On September 22, 2020, the Company implemented
its strategy to produce and market celebrity chef inspired gourmet meals with the signing of a joint product development and distribution
agreement with Corlich Enterprises, Inc. to collaboratively develop a brand of meals created by Iron Chef, Cat Cora. In furtherance of
its celebrity chef inspired meal strategy, on March 15, 2021, the Company entered into partnership with celebrity chef Daina Falk, the
author of “The Hungry Fan’s Game Day Cookbook” whereby Home Bistro will collaborate with Ms. Falk to create a line
of meals inspired by her unique tailgate food technique.
On March 19, 2021, the Company and Red Velvet
XOXO LLC, a New York corporation (“Red Velvet”) (collectively as “Parties”) entered into a Joint Product Development
and Distribution Agreement (the “Development Agreement”), effective the same date. The Development Agreement shall remain
in effect for twelve months from the effective date unless sooner terminated as defined in the Development Agreement, or unless extended
by mutual agreement of the Parties. Pursuant to the Development Agreement, the Parties shall collaboratively develop a brand of desserts,
marketed and sold exclusively utilizing Red Velvet’s recipes (the “Red Velvet Desserts”) under the Home Bistro label,
under the terms and conditions of the Development Agreement.
On April 13, 2021, the Company and Roblé
Ali (“Roblé”), celebrity chef and reality TV personality “Chef Roblé & Co.” (collectively as
“Parties”) entered into a Joint Product Development and Distribution Agreement (the “Development Agreement”),
effective the same date. The Development Agreement shall remain in effect for two years from the effective date unless sooner terminated
as defined in the agreement. Pursuant to the Development Agreement, the Parties shall jointly contribute and be responsible for the development
of the Roblé Meals, under the terms and conditions of the Development Agreement.
On February 18, 2021, the Company and Hungry Fan
Brand, LLC (“Hungry Fan”) (collectively as “Parties”) entered into a Joint Product Development and Distribution
Agreement (the “Development Agreement”), effective the same date. The Development Agreement shall remain in effect for twelve
months form the effective date. Pursuant to the Development Agreement, the Parties shall jointly contribute and be responsible for the
development of the Hungry Fan Meals, under the terms and conditions of the Development Agreement.
On June 22, 2021, the Company and Claudia Cocina
LLC (f/s/o Claudia Sandoval), a California limited liability company (“Claudia Cocina”) (collectively as “Parties”)
entered into a Joint Product Development and Distribution Agreement (the “Development Agreement”). Pursuant to the Development
Agreement, the Parties shall collaboratively develop a brand of meals, marketed and sold utilizing the Property (“CS Meals”)
jointly with the Home Bistro label, under the terms and conditions of the Development Agreement. The Development Agreement is effective
upon signature and shall remain in effect from the first date on which the CS Meals are commercially launched (the “Launch Date”)
until the last day of the month that is one year from the Launch Date (the “Initial Term”). The Parties shall have the right
to renew the Development Agreement for an additional one-year term (“Renewal Term”) (the Initial Term and the Renewal Term,
individually and together, the “Term”) upon mutual written consent, which consent must be provided no later than sixty days
prior to the end of the current Term. The Renewal Term shall be on the same terms and conditions as provided herein for the Initial Term,
except that the Guaranteed Minimum Sales and the Guaranteed Minimum Royalties (“GMR”) payable during the Renewal Term shall
be mutually agreed to between the Parties.
On July 22, 2021 (“Effective Date”),
the Company and Trail Blais, LLC (f/s/o Chef Richard Blais), celebrity chef and reality TV personality (“Chef Richard Blais”)
(collectively as “Parties”), entered into a Joint Product Development and Distribution Agreement (the “Development Agreement”).
Pursuant to the Development Agreement, the Parties shall collaboratively develop a brand of meals, marketed and sold utilizing the Property
(“Blais Meals”) jointly with the Home Bistro label, under the terms and conditions of the Development Agreement. The Development
Agreement shall remain in effect from the Effective Date until the last day of the month that is one-year from the Effective Date (“Term”),
ending no later than July 30, 2022. The first twelve-month anniversary of the Development Agreement shall be deemed “Year One”.
The Company shall only distribute the Blais Meals within the Term and any Renewal Term (defined below), as mutually agreed. The Company
agrees that following the Term, the Company shall use best efforts to cease the distribution of all Blais Meals. The Parties shall have
the right to renew the Development Agreement for an additional one-year term (“Renewal Term”) upon mutual written consent.
The Renewal Term shall be negotiated in good faith within ninety days of the end of the Term.
On September 15, 2021 (“Effective Date”),
the Company and Perfecting Athletes, LLC (“PA” or “Perfecting Athletes”) (collectively as “Parties”),
entered into a Joint Product Development and Distribution Agreement (the “Development Agreement”). Pursuant to the Development
Agreement, the Parties shall collaboratively develop a brand of meals, marketed and sold utilizing the Property (“PA Meals”)
jointly with the Home Bistro label, under the terms and conditions of the Development Agreement. The Development Agreement shall remain
in effect from the Effective Date until the last day of the month that is two-years from the Effective Date (“Term”). The
first twelve-month anniversary of the Development Agreement shall be deemed “Year One”. The Company shall only distribute
the PA Meals within the Term and any Renewal Term (defined below), as mutually agreed. The Company agrees that following the Term, The
Company shall use best efforts to cease the distribution of all PA Meals. The Parties shall have the right to renew the Development Agreement
for an additional one-year term (“Renewal Term”) upon mutual written consent.
Production
Until mid-2020, the Company
used third-party co-packers to cooks, packages, fulfill and ship its meals to its customers. In June 2021, the Company entered into a
lease for commercial kitchen facilities, hired and trained professional chefs and implemented its own fulfillment operations. Through
its acquisition of Model Meals in July 2021, the Company gained commercial kitchen facilities on the West Coast, thereby improving its
geographic reach and delivery efficiency. With the expansion of its kitchen facilities and fulfillment capabilities and bicoastal presence,
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 react to dynamics of a developing marketplace and create and introduce new menu
items, including the further expansion of its Celebrity Chef Program.
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.
Results of Operations
For the Ten Months Ended October 31, 2021
and Ten Months Ended October 31, 2020 (Unaudited)
Product Sales
During the ten months ended October 31, 2021
and 2020, revenues amounted to $1,644,208 and $1,083,212, respectively, an increase of $560,966 or 52%. The increase primarily resulted
from the acquisition of Model Meals in July 2021 and introduction of the Company’s celebrity chef program in December 2020.
Cost of Sales
Since the Company implemented its own kitchen
operations in July 2020, its primary components of cost of sales are raw materials and direct kitchen labor and, with the introduction
of the Company’s celebrity chef program in December 2020, it now incurs associated royalty fees.
During the ten months ended October 31, 2021 and
2020, the Company had total cost of sales of $1,447,901 and $678,574, respectively, an increase of $769,327 or 113%. The increase was
due to the Company’s decision to conduct a trial test of free shipping and increase in direct kitchen labor. With the completion
of the test, the Company is assessing its results. The primary increase in 2021 was due to increase in royalty fees of $144,767 of associated
with the Company’s celebrity chef program and increase in kitchen expense of $203,965.
Operating Expenses
For the ten months ended October 31, 2021 and
ten months ended October 31, 2020 (unaudited), operating expenses consisted of the following:
|
|
|
Ten Months Ended
October 31,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
Compensation and related expenses
|
|
$
|
3,338,022
|
|
|
$
|
506,184
|
|
|
Professional and consulting expenses
|
|
|
2,979,610
|
|
|
|
403,652
|
|
|
Professional and consulting expenses – related party
|
|
|
1,366,507
|
|
|
|
—
|
|
|
Product development expense
|
|
|
3,036,286
|
|
|
|
360,000
|
|
|
Selling and marketing expenses
|
|
|
835,723
|
|
|
|
161,859
|
|
|
General and administrative expenses
|
|
|
527,818
|
|
|
|
153,720
|
|
|
Total
|
|
$
|
12,083,966
|
|
|
$
|
1,585,415
|
|
Compensation and related expenses:
|
|
●
|
During the ten months ended October 31, 2021 and 2020, compensation
and related expenses amounted to $3,338,022 and $506,184, respectively, an increase of $2,831,838 or 559%. The increase was primarily
attributable to an increase in employee stock-based compensation in 2021 of $2,555,548, increase in compensation of $205,151 related
to Model Meals which was acquired in July 2021 and increase in compensation related expenses of $71,140.
|
Professional and consulting expenses:
|
|
●
|
During the ten months ended October 31, 2021 and 2020, professional
and consulting expenses amounted to $2,979,610 and $403,652, respectively, an increase of $2,575,958 or 638%. The increase was primarily
due to increases in stock-based compensation to consultants of $1,738,490, increase in consulting fee of $207,208, increase in accounting
fees of $73,714, increase in public relations fee of $703,836, offset by a decrease in legal fees of $147,289.
|
Professional and consulting expenses –
related party:
|
|
●
|
During the ten months ended October 31, 2021 and 2020, professional and consulting expenses – related party amounted to $1,366,507 and $0, respectively, an increase of $1,366,507 or 100%. In October 2021, the Company and Michael Novielli through Dutchess Capital Partners, LLC, entered into a consulting agreement. Michael Novielli currently serves as a member of the Board of Directors and is considered a related party Pursuant to the consulting agreement, Dutchess Capital received warrants with a grant date fair value of $1,356,507 for past services provided and will receive and monthly consulting fee of $10,000.
|
Product development expense:
|
|
●
|
During the ten months ended October 31, 2021 and 2020, product
development expenses amounted to $3,036,286 and $360,000, respectively, an increase of $2,676,286 or 743%. The increase was
primarily due to stock-based compensation of $69,219 in connection with joint development agreements and shares of common stock with
a fair value of $2,969,334 issued as compensation to terminate an exclusivity and non-compete agreement in order to execute a
license agreement with a celebrity chef.
|
Selling and marketing expenses:
|
|
●
|
During the ten months ended October 31, 2021 and 2020, selling and marketing expenses amounted to $835,723 and $161,859, respectively, an increase of $673,864 or 416%. The increase was primarily due increase in marketing activities in 2021 related our celebrity chef program in December 2020.
|
General and administrative expenses:
|
|
●
|
During the ten months ended October 31, 2021 and 2020, general and administrative expenses amounted to $527,818 and $153,720, respectively, an increase of $374,098 or 243%. The increase was primarily due to an increase in rent for a kitchen facility of $125,737, increase in other kitchen expense of $17,866, increase in depreciation and amortization expense of $122,192, increase in transfer agent fees of $37,639, increase in travel expense of $68,260.
|
Operating Loss from Continuing Operations
|
|
●
|
During the ten months
ended October 31, 2021 and 2020, operating loss from continuing operations amounted to $11,887,659 and $1,180,777, respectively, an
increase of $10,706,882 or 907%. The increase was due to the changes discussed above.
|
Other Income (Expense)
|
|
●
|
During the ten months
ended October 31, 2021 and 2020, other expense, net $914,616 and $3,783, respectively, an increase of $910,833 or 24,077%. The
change was primarily due to increase interest expense of $1,245,873, increase in gain on change in fair value of derivative
liabilities of $289,874, increase in gain on extinguishment of debt of $26,629, increase in gain on forgiveness of debt of $14,754
off set by a decrease in other income of $5,000 related to a grant received from the SBA in light of the impact of the COVID-19
pandemic in 2020.
|
Loss from Continuing Operations
|
|
●
|
During the ten months ended October 31,
2021, we had a loss from continuing operations of $12,802,275 or $(0.56) per common share (basic and diluted), compared to a loss
from continuing operations of $1,184,560 or $(0.07) per common share (basic and diluted) for the ten months ended October 31, 2021,
an increase of $11,617,715 or 981%. The increase was due to the changes discussed above.
|
Income from Discontinued Operations
|
|
●
|
During the ten months ended October 31, 2021, we had income from discontinued operations of $0 compared to income from discontinued operations of $38,203 for of the ten months ended October 31, 2021, a decrease of $38,203 or 100%. The decrease was due to the Merger and disposal of the RTD Business segment in 2020.
|
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 $318,797 and cash of $2,275,397
as of October 31, 2021 and a working capital deficit of $466,178 and cash of $447,354 as of December 31, 2020.
|
|
|
October 31,
2021
|
|
|
December 31,
2020
|
|
|
Change
|
|
|
Percentage
Change
|
|
|
Working capital deficit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
$
|
2,372,058
|
|
|
$
|
480,942
|
|
|
$
|
1,891,116
|
|
|
|
393
|
%
|
|
Total current liabilities
|
|
|
(2,690,855
|
)
|
|
|
(947,120
|
)
|
|
|
(1,743,735
|
)
|
|
|
184
|
%
|
|
Working capital deficit:
|
|
$
|
(318,797
|
)
|
|
$
|
(466,178
|
)
|
|
$
|
147,381
|
|
|
|
32
|
%
|
The decrease in working capital deficit was primarily
attributable to an increase in current assets of $1,891,116 and an increase in current liabilities of $1,743,735.
Cash Flows
The following table provides detailed information
about our net cash flows:
|
|
|
Ten Months
Ended
October 31,
2021
|
|
|
Ten Months
Ended
October 31,
2020
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
Net cash used in operating activities
|
|
$
|
(2,771,676
|
)
|
|
$
|
(226,337
|
)
|
|
Net cash provided by (used in) investing activities
|
|
|
(227,824
|
)
|
|
|
1,749
|
|
|
Net cash provided by financing activities
|
|
|
4,827,543
|
|
|
|
274,533
|
|
|
Net change in cash
|
|
$
|
1,828,043
|
|
|
$
|
49,945
|
|
We have an accumulated deficit and have incurred
operating losses since our inception and expect losses to continue during fiscal year 2022. 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 for the
ten months ended October 31, 2021 and 2020, were $2,771,676 and $226,337, respectively, an increase of $2,545,339 or 1,125%.
|
|
●
|
Net cash used in operating activities for the ten months ended October 31, 2021 primarily reflected our net loss of $12,802,275 adjusted for the add-back on non-cash items such as depreciation and amortization expense of $122,368, stock-based compensation of $6,196,844, stock-based compensation of $2,969,334 to terminate an exclusivity and non-compete agreement in order to execute a license agreement with a celebrity chef, amortization of debt discount of $1,012,554, offset by gain on extinguishment of debt and accounts payable of $26,629, gain from change in fair value of derivative liabilities $289,874, gain on forgiveness of debt of $14,754 and changes in operating asset and liabilities consisting primarily of an increase in prepaid expenses and other current assets of $47,053, an increase in unredeemed gift cards of $29,341 and an increase in accounts payable of $129,389 offset by a decrease in accrued expense and other liabilities of $55,664 and a decrease in inventory of $4,743.
|
|
|
●
|
Net cash used in operating
activities for the ten months ended October 31, 2020 primarily reflected our net loss of $1,146,357 adjusted for the add-back
on non-cash items such as depreciation and amortization expense of $176, stock-based compensation of $812,109 and changes
in operating asset and liabilities consisting primarily of an increase in prepaid expenses and other current assets of $14,319, increase
in accounts payable of $4,725, increase in accrued expense and other liabilities of $111,867 an increase in unredeemed gift cards
of $5,462.
|
Net Cash Provided by (Used In) Investing
Activities
Net cash provided by (used in) investing activities
for the ten months ended October 31, 2021 and 2020, were $(227,824) and $1,749, respectively, an increase of $229,573 or 13,126%.
|
|
●
|
Net cash (used by) investing activities for the ten months ended October 31, 2021 consisted of cash consideration for an acquisition of a subsidiary of $60,000 and purchases of property and equipment of $167,824.
|
|
|
●
|
Net cash provided by investing activities for the ten months ended October 31, 2020 consisted of cash acquired from an acquisition of $4,917 offset by purchases of property and equipment of $3,168.
|
Net Cash Provided by Financing Activities
Net cash provided by financing activities for
the ten months ended October 31, 2021 and 2020, were $4,827,543 and $274,533, respectively, an increase of $4,553,010 or 1,658%.
|
|
●
|
Net cash provided by financing activities
for the ten months ended October 31, 2021 consisted of net proceeds from sale of common stock of $4,368,796, net proceeds from convertible
notes payable of $1,581,450, proceeds from convertible note payable – related party of $100,000, net proceeds from advances
payable of $332,900 offset by repayments of convertible notes payable of $1,195,920, repayments of advances payable of $312,752 and
repayment of convertible note – related party of $46,931.
|
|
|
●
|
Net cash provided by financing activities for the ten months ended
October 31, 2020 consisted of proceeds from sale of common stock of $100,006, proceeds from notes payable of $164,612, proceeds from advances
payable of $59,000 offset by repayments of note payable – in default and repayments advances payable in total amount of $3,738 and
$45,347, respectively.
|
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.
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 transition period ended October 31, 2021, the
Company had net loss and cash used in operations of $12,802,275 and $2,771,676, respectively. As of October 31, 2021, the Company had
an accumulated deficit, stockholders’ equity, and working capital deficit of $19,135,664, $4,723,304 and $318,797, 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 transition report. The Company’s primary source of operating funds in 2021 was primarily from the third-party
advances and convertible notes payable and the sale of common stock through private placements. 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 ten-month transition period ended October 31, 2021 and twelve months ended December 31, 2020 included in this Form 10-KT, 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 October
31, 2021 and December 31, 2020 include the assumptions used in the redemption recognition method for unredeemed gift cards, useful life
of property and equipment and intangible assets, valuation of right-of-use (“ROU”) assets and lease liabilities, estimates
of current and deferred income taxes and deferred tax valuation allowances, fair value of assets acquired and liabilities assumed in
a business combination, and the fair value of non-cash equity transactions and derivative liabilities.
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 October 31, 2021. 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.
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, www.modelmeals.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 to three 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. Model meals, the Company’s wholly-owned subsidiary,
does not have sufficient historical redemption information to recognize breakage. Therefore, all issued gift cards are recorded as a
liability upon issuance and revenue when used.
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.
Leases
The Company accounts
for its leases using the method prescribed by ASC 842 – Lease Accounting. The Company assess whether the contract is, or
contains, a lease at the inception of a contract which is based on (i) whether the contract involves the use of a distinct identified
asset, (ii) whether the Company obtain the right to substantially all the economic benefit from the use of the asset throughout the period,
and (iii) whether the Company has the right to direct the use of the asset. The Company allocates the consideration in the contract to
each lease component based on its relative stand-alone price to determine the lease payments. The Company has elected not to recognize
right-of-use (“ROU”) assets and lease liabilities for short-term leases that have a term of 12 months or less.
Operating and financing
lease ROU assets represents the right to use the leased asset for the lease term. Operating and financing lease liabilities are recognized
based on the present value of the future minimum lease payments over the lease term at commencement date. As most leases do not provide
an implicit rate, the Company uses an incremental borrowing rate based on the information available at the adoption date in determining
the present value of future payments. Lease expense for minimum lease payments is amortized on a straight-line basis over the lease term
and is included in general and administrative expenses in the consolidated statements of operations.
Recent Accounting Pronouncements
In August 2020, the FASB issued ASU 2020-06—Debt—Debt
with Conversion and Other Options (Subtopic 470-20) and Derivatives and edging—Contracts in Entity’s Own Equity (Subtopic
815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”) to simplify
the accounting for convertible instruments by removing certain separation models in Subtopic 470- 20, Debt with Conversion and Other
Options, for convertible instruments. Under the amendments in ASU 2020-06, the embedded conversion features no longer are separated
from the host contract for convertible instruments with conversion features that are not required to be accounted for as derivatives
under Topic 815, Derivatives and Hedging, or that do not result in substantial premiums accounted for as paid-in capital. Consequently,
a convertible debt instrument will be accounted for as a single liability measured at its amortized cost and a convertible preferred
stock will be accounted for as a single equity instrument measured at its historical cost, as long as no other features require bifurcation
and recognition as derivatives. By removing those separation models, the interest rate of convertible debt instruments typically will
be closer to the coupon interest rate when applying the guidance in Topic 835, Interest. The amendments in ASU 2020-06 provide financial
statement users with a simpler and more consistent starting point to perform analyses across entities. The amendments also improve the
operability of the guidance and reduce, to a large extent, the complexities in the accounting for convertible instruments and the difficulties
with the interpretation and application of the relevant guidance. To further improve the decision usefulness and relevance of the information
being provided to users of financial statements, amendments in ASU 2020-06 increased information transparency by making the following
amendments to the disclosure for convertible instruments:
|
1.
|
Add a disclosure objective
|
|
|
|
|
2.
|
Add information about events or conditions that occur during the reporting period that cause conversion contingencies to be met or conversion terms to be significantly changed
|
|
|
|
|
3.
|
Add information on which party controls the conversion rights
|
|
|
|
|
4.
|
Align disclosure requirements for contingently convertible instruments with disclosure requirements for other convertible instruments
|
|
|
|
|
5.
|
Require that existing fair value disclosures in Topic 825, Financial Instruments, be provided at the individual convertible instrument level rather than in the aggregate.
|
Additionally, for convertible debt instruments
with substantial premiums accounted for as paid-in capital, amendments in ASU 2020-06 added disclosures about (1) the fair value amount
and the level of fair value hierarchy of the entire instrument for public business entities and (2) the premium amount recorded as paid-in
capital.
The amendments in ASU
2020-06 are effective for public business entities, excluding entities eligible to be smaller reporting companies as defined by the SEC,
for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. For all other entities, the
amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early
adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal
years. Entities should adopt the guidance as of the beginning of its annual fiscal year and are allowed to adopt the guidance through
either a modified retrospective method of transition or a fully retrospective method of transition. In applying the modified retrospective
method, entities should apply the guidance to transactions outstanding as of the beginning of the fiscal year in which the amendments
are adopted. Transactions that were settled (or expired) during prior reporting periods are unaffected. The cumulative effect of the
change should be recognized as an adjustment to the opening balance of retained earnings at the date of adoption. If an entity elects
the fully retrospective method of transition, the cumulative effect of the change should be recognized as an adjustment to the opening
balance of retained earnings in the first comparative period presented. The Company is evaluating the impact of the revised guidance
and believes that it will not have a significant impact on its consolidated financial statements.
In May 2021, the FASB issued ASU 2021-04, Earnings
Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives
and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40). The new ASU addresses issuer’s accounting for certain modifications
or exchanges of freestanding equity-classified written call options. This amendment is effective for all entities, for fiscal years beginning
after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted. The Company is evaluating
the impact of the revised guidance and believes that it will not have a significant impact on its consolidated financial statements.
Management does not believe that any other recently
issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the Company’s consolidated
financial statements.
Inflation and Changing Prices
Neither inflation nor changing prices for the
transition period ended October 31, 2021 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-KT. Based on this evaluation, our principal executive officer and
principal financial officer concluded that as of October 31, 2021, 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 October 31, 2021. 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 October 31, 2021, 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,
|
|
|
|
|
|
|
(3)
|
a lack of operational controls and lack of controls over assets by the acquired subsidiaries, and
|
|
|
|
|
|
|
(4)
|
a lack of adequate controls over board approval and timely distribution of material contracts and agreements.
|
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-KT.
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 transition
period ended October 31, 2021 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
|
|
57
|
|
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 Dutchess 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
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 (“Board”), 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 transition period ended October 31, 2021 and year ended December 31, 2020:
|
|
(i)
|
our
principal executive officer or other individual serving in a similar capacity;
|
|
|
|
|
|
|
(ii)
|
our
named executive officers;
|
|
|
|
|
|
|
(iii)
|
individuals
for whom disclosure would have been required but for the fact that the individual was not serving as an executive officer.
|
SUMMARY COMPENSATION TABLE
FOR OUR NAMED EXECUTIVE
OFFICERS
|
Name and Principal Position
|
|
Year
|
|
|
Salary
|
|
|
Bonus
|
|
|
Stock
Awards
|
|
|
Warrant/
Option
Awards
|
|
|
All Other
Compensation
|
|
|
Total
|
|
|
Zalmi Duchman
|
|
|
2021
|
|
|
$
|
70,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,714,971
|
(1)
|
|
$
|
—
|
|
|
$
|
2,784,971
|
|
|
Chief Executive Officer (1);
|
|
|
2020
|
|
|
$
|
43,750
|
|
|
$
|
—
|
|
|
$
|
97,720
|
(2)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
141,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Roy G. Warren, Jr.
|
|
|
2021
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Former Chief Operating Officer (3)
|
|
|
2020
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Andrew Schamisso
|
|
|
2021
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Former President (4)
|
|
|
2020
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
(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. On October 1, 2021, the Company entered into an
employment agreement with Mr. Duchman that provided of (i) an annual salary of $120,000 and
(ii) a one-time grant of warrants for 2,000,000 common stock which vested upon issuance and
had a grant date fair value of $2,714,971.
|
|
|
(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, 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.
|
Employment Agreement with Executives
On October 1, 2021, the Company entered into
an employment agreement (the “Employment Agreement”) with Zalmi Scher Duchman to serve as the Company’s Chief Executive
Officer. The Employment Agreement has a term of three years (“Term”) from the effective date and provides for (i) an annual
salary of $120,000 and (ii) a one-time warrant grant of 2,000,000 shares of common stock, with grant a date fair value of $2,714,971
(see Note 12), which vested upon issuance, exercisable at $0.001 and expires on October 1, 2026. Mr. Duchman is entitled to vacation,
sick and holiday pay and other benefits, in accordance with the Company’s policies established and in effect from time to time.
The Company may terminate the Mr. Duchman for cause (as defined in Employment Agreement) by giving Mr. Duchman written notice approved
by the Board of Directors (“Board”) of such termination, such notice (i) to state in detail the particular act or acts or
failure or failures to act that constitute the grounds on which the proposed termination for cause is based and (ii) to be given within
six months of the Board learning of such act or acts or failure or failures to act. The Employment Agreement may be terminated at Board’s
discretion during the Term, provided that if Mr. Duchman is terminated without cause, the Company shall pay to Mr. Duchman an amount
calculated by multiplying Mr. Duchman monthly salary, at the time of such termination, times the number of months remaining in the Term.
Outstanding Equity Awards at 2021 Transitional
Period for Named Executive Officers
The following table sets forth certain information concerning the
outstanding equity awards as of October 31, 2021, for each named executive officer.
|
|
|
Option/Warrant Awards
|
|
Stock Awards
|
|
Name
|
|
Number of
Securities
Underlying
Unexercised
Option/
Warrant (#)
Exercisable
|
|
Number of
Securities
Underlying
Unexercised
Option/
Warrant (#)
Unexercisable
|
|
|
Equity Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
|
|
|
Option/ Warrant Exercise Price($)
|
|
|
Option/ Warrant 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)
|
|
2,000,000
|
|
|
—
|
|
|
|
—
|
|
|
|
0.001
|
|
|
10/01/2026
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(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. On October 1, 2021, the Company entered
into an employment agreement with Mr. Duchman that provides for a one-time grant of warrants
for 2,000,000 common stock which vested upon issuance and had a grant date fair value of
$2,714,971.
|
Compensation of Directors
The following table sets forth certain information
regarding the compensation paid to our Board of Directors (“Board”) during the transitional period ending October 31, 2021:
|
Name
|
|
Fees earned or
cash paid
|
|
|
Stock
Awards
|
|
|
Option
Awards
|
|
|
All other
compensation
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Zalmi Duchman
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Michael Finkelstein
|
|
$
|
—
|
|
|
$
|
156,750
|
(1)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
156,750
|
|
|
Michael Novielli
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
(1)
|
The Company issued to Michael Finkelstein,
an aggregate of 125,000 shares of common stock with grant date fair value of $156,750 for
compensation as a member of the Board.
|
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, and at the discretion of the members of the Board may receive shares of common stock
or warrants as 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 January 14, 2022 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.
|
Name and Address of Beneficial Owner (1)
|
|
Beneficial
Ownership (2)
|
|
|
Percentage
of Class (2)
|
|
|
Officers and Directors
|
|
|
|
|
|
|
|
Zalmi Duchman (3)
|
|
|
10,610,147
|
|
|
|
23.92
|
%
|
|
Michael Finkelstein (4)
|
|
|
279,141
|
|
|
|
*
|
|
|
Michael Novielli (5)
|
|
|
5,564,319
|
|
|
|
13.40
|
%
|
|
All officers/directors as a group (3 persons)
|
|
|
10,005,746
|
|
|
|
37.32
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Other 5% Stockholders:
|
|
|
|
|
|
|
|
|
|
Hewlett Fund LP (6)
|
|
|
5,109,101
|
|
|
|
11.52
|
%
|
|
*
|
Less than 1%.
|
|
|
|
|
(1)
|
Unless otherwise indicated, the business address of each person listed is in care of Home Bistro, Inc., 4014 Chase Avenue, #212 Miami Beach, FL 33140.
|
|
|
|
|
(2)
|
The number and percentage of shares beneficially owned are determined in accordance with Rule 13d-3 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rule, beneficial ownership includes any shares over which the individual or entity has voting power or investment power and any shares of common stock that the individual has the right to acquire within 60 days of January 14, 2022, through the exercise of any stock warrants or other rights. As of January 14, 2022, 37,282,857 shares of the Company’s common stock were outstanding.
|
|
|
|
|
(3)
|
Includes 8,610,147 shares of common stock held by Fresh Brands LLC. (“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. Also, includes 2,000,000 shares of common stock issuable upon exercise of warrants, directly owned by Mr. Duchman, exercisable within 60 days of January 14, 2022.
|
|
|
|
|
(4)
|
Includes 115,066 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. Also includes 164,075 shares of common stock directly owned by Mr. Finkelstein.
|
|
|
|
|
(5)
|
Includes 934,516 shares of common stock owned by Dutchess Capital Partners LLC (“DCP”), an entity which Mr. Novielli is the sole managing partner and has sole voting and dispositive control over the common stock it owns. Also includes 1,766,896 shares of common stock issuable upon exercise of warrants, owned by DCP and 2,962,907 shares of common stock issuable upon exercise of warrants, owned by Dutchess Strategic Fund, LLC., exercisable within 60 days of January 14, 2022.
|
|
|
|
|
(6)
|
Includes 5,109,101 shares of common stock issuable upon exercise of warrants, owned by Hewlett Fund, LP, exercisable within 60 days of January 14, 2022.
|
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 consolidated financial
statements accompanying this Transition Report on Form 10-KT.
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 transition period ended October 31, 2021 and the year ended December 31, 2020, for professional services
rendered by our independent registered public accounting firm D. Brooks and Associates CPAs, P.A.
|
Fees
|
|
2021
|
|
|
2020
|
|
|
Audit Fees
|
|
$
|
56,302
|
|
|
$
|
31,556
|
|
|
Audit—Related Fees
|
|
|
—
|
|
|
|
—
|
|
|
Tax Fees
|
|
|
—
|
|
|
|
—
|
|
|
Other Fees
|
|
|
—
|
|
|
|
1,031
|
|
|
Total Fees
|
|
$
|
56,302
|
|
|
$
|
32,588
|
|
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 transition period ended
October 31, 2021 and the year ended December 31, 2020.
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 transition period ended October 31, 2021
and the year ended December 31, 2020, 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 transition period ended October 31, 2021 and the
year ended December 31, 2020. 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 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)
|
|
10.9
|
|
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)
|
|
10.10
|
|
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)
|
|
10.11
|
|
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)
|
|
10.12
|
|
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 and Financial Officer
|
|
32.1*
|
|
Section 906 Certification by the Registrant’s Principal Executive Officer and Principal Financial Officer
|
|
101.ins
|
|
Inline XBRL Instance
Document
|
|
101.sch
|
|
Inline XBRL Taxonomy
Schema Document
|
|
101.cal
|
|
Inline XBRL Taxonomy
Calculation Document
|
|
101.def
|
|
Inline XBRL Taxonomy
Linkbase Document
|
|
101.lab
|
|
Inline XBRL Taxonomy Label
Linkbase Document
|
|
101.pre
|
|
Inline XBRL Taxonomy
Presentation Linkbase Document
|
|
104
|
|
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
|
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: January 31, 2022
|
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
|
|
January 31, 2022
|
|
|
|
|
|
|
|
/s/ Michael Finkelstein
|
|
|
|
|
|
Michael Finkelstein
|
|
Director
|
|
January 31, 2022
|
|
|
|
|
|
|
|
/s/ Michael Novielli
|
|
|
|
|
|
Michael Novielli
|
|
Director
|
|
January 31, 2022
|
HOME
BISTRO, INC. AND SUBSIDIARIES
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER
31, 2021 AND DECEMBER 31, 2020
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 October 31, 2021 and December 31, 2020, and the related consolidated statements
of operations, stockholders’ equity (deficit), and cash flows for the transitional ten month period ended October 31, 2021 (the
“transition period”) and the year ended December 31, 2020, 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 October 31, 2021 and December 31, 2020 and the results
of its operations and its cash flows for the transitional ten month period years ended October 31, 2021 and the year ended December 31,
2020, 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 and a working capital 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 audits 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 our 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.
Derivative Liabilities
During the transition period and 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 5 to the consolidated
financial statements, the Company recorded initial derivative liabilities and debt discount of $223,358 and $212,344 from the embedded
conversion options during the transition period ended and year ended December 31, 2020. Further, during the transition period and year
ended December 31, 2020, the Company recorded a gain on the change in fair value of the derivative liabilities of $289,874 and $32,315,
respectively. There is no current observable market for these types of derivatives and, as such, the Company measured the initial and
October 31, 2021 and December 31, 2020 fair value of the embedded derivative liabilities using the Monte Carlo 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 the 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
Our audit procedures to address this critical audit matter included
the following among others: (a) reviewed and tested 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) compared the accounting treatment and presentation to that
described by authoritative and interpretive literature, (c) tested the Company’s process and methodology for valuing the derivatives
by comparing it to generally accepted methodologies for valuing derivatives, (d) tested 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) recomputed the fair
value of the derivative at issuance and at October 31, 2021 and December 31, 2020 and (f) utilize an internal valuation specialist to
assist in evaluating the Company’s model, methodology, and significant assumptions.
Acquired Intangible Assets
During the transition period, the Company entered
and closed on an agreement and plan of merger with the members of Model Meals, LLC as more fully disclosed in Note 3. The Company determined
that this transaction meet the definition of a business combination in accordance with ASC 805 Business Combinations and the assets
acquired and liabilities assumed were recorded at fair value on the acquisition date. The Company utilized a valuation specialist to assist
in allocating the purchase price to the identifiable intangible assets acquired which were identified as a trademark and customer list.
Such a valuation requires management to make several assumptions with a high degree of subjectivity such as revenue growth, customer retention
and discounted cash flow projections.
How the Critical Audit Matter Was Addressed
in the Audit
Our audit procedures to address this critical audit matter included
the following, among others: (a) reviewed the nature of the transaction and the Company’s conclusion that the acquired entity meet
the definition of a business under ASC 805 by evaluating and comparing the Company’s analysis and conclusions to authoritative and
interpretive literature, (b) compared the accounting treatment and presentation to that described by authoritative and interpretive literature,
(c) tested the Company’s process and methodology for valuing the intangible assets by comparing it to generally accepted methodologies
for valuing acquired intangible assets, (d) tested the Company’s valuation of the acquired intangible assets by reviewing assumptions
and data used in the valuation model for reasonableness including comparable companies, cash flow projections and discount rates and (e)
utilized an internal valuation specialist to assist in evaluating the Company’s model, methodology, and significant assumptions.
D. Brooks and Associates CPAs, P.A
Palm Beach Gardens, Florida
January 31, 2022
We have served as the Company’s independent
auditor since 2016
HOME BISTRO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
|
|
|
October 31,
2021
|
|
|
December 31,
2020
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
Cash
|
|
$
|
2,275,397
|
|
|
$
|
447,354
|
|
|
Inventory
|
|
|
16,020
|
|
|
|
-
|
|
|
Prepaid expenses and other current assets
|
|
|
80,641
|
|
|
|
28,588
|
|
|
Note receivable
|
|
|
-
|
|
|
|
5,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Assets
|
|
|
2,372,058
|
|
|
|
480,942
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER ASSETS:
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
130,970
|
|
|
|
2,728
|
|
|
Finance right-of-use assets, net
|
|
|
181,015
|
|
|
|
-
|
|
|
Operating lease right-of-use assets, net
|
|
|
268,509
|
|
|
|
-
|
|
|
Intangible assets, net
|
|
|
3,225,361
|
|
|
|
-
|
|
|
Deposits
|
|
|
10,000
|
|
|
|
-
|
|
|
Goodwill
|
|
|
1,809,357
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
7,997,270
|
|
|
$
|
483,670
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
568,302
|
|
|
$
|
352,466
|
|
|
Accrued expenses and other liabilities
|
|
|
181,037
|
|
|
|
126,273
|
|
|
Liabilities to be settled with common stock
|
|
|
209,688
|
|
|
|
-
|
|
|
Convertible notes payable, net of debt discount
|
|
|
550,638
|
|
|
|
141,476
|
|
|
Convertible notes payable - related party, net of debt discount
|
|
|
30,172
|
|
|
|
-
|
|
|
Notes payable - current portion
|
|
|
15,361
|
|
|
|
20,068
|
|
|
Advances payable
|
|
|
101,945
|
|
|
|
78,497
|
|
|
Derivative liabilities
|
|
|
86,884
|
|
|
|
180,029
|
|
|
Unredeemed gift cards
|
|
|
164,912
|
|
|
|
48,311
|
|
|
Financing lease liability - current portion
|
|
|
62,210
|
|
|
|
-
|
|
|
Operating lease liabilities - current portion
|
|
|
101,431
|
|
|
|
-
|
|
|
Common stock repurchase obligation
|
|
|
618,275
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities
|
|
|
2,690,855
|
|
|
|
947,120
|
|
|
|
|
|
|
|
|
|
|
|
|
LONG-TERM LIABILITIES:
|
|
|
|
|
|
|
|
|
|
Financing lease liability - long-term portion
|
|
|
124,649
|
|
|
|
-
|
|
|
Operating lease liability- long-term portion
|
|
|
166,923
|
|
|
|
-
|
|
|
Notes payable - long-term portion
|
|
|
291,539
|
|
|
|
151,544
|
|
|
Common stock repurchase obligation - long-term portion
|
|
|
-
|
|
|
|
1,300,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
3,273,966
|
|
|
|
2,398,664
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingency (Note 14):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS' EQUITY (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 October 31, 2021 and December 31, 2020
|
|
|
-
|
|
|
|
-
|
|
|
Common stock: $0.001 par value; 1,000,000,000 shares authorized; 35,152,623 and 19,123,768 shares issued and outstanding as of October 31, 2021 and December 31, 2020, respectively
|
|
|
35,152
|
|
|
|
19,123
|
|
|
Additional paid-in capital
|
|
|
25,198,035
|
|
|
|
4,399,272
|
|
|
Deferred compensation
|
|
|
(1,374,219
|
)
|
|
|
-
|
|
|
Accumulated deficit
|
|
|
(19,135,664
|
)
|
|
|
(6,333,389
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total Stockholders' Equity (Deficit)
|
|
|
4,723,304
|
|
|
|
(1,914,994
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders' Equity (Deficit)
|
|
$
|
7,997,270
|
|
|
$
|
483,670
|
|
The accompanying notes are an integral part of
these consolidated financial statements.
HOME BISTRO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
For the Ten Months Ended
|
|
|
For the Year Ended
|
|
|
|
|
October 31,
2021
|
|
|
December 31,
2020
|
|
|
|
|
|
|
|
|
|
|
Product sales, net
|
|
$
|
1,644,208
|
|
|
$
|
1,335,859
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
1,447,901
|
|
|
|
873,289
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
196,307
|
|
|
|
462,570
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
Compensation and related expenses, includes $2,871,721 of stock-based compensation in 2021
|
|
|
3,338,022
|
|
|
|
547,940
|
|
|
Professional and consulting expenses, includes $1,862,709 of stock-based compensation in 2021
|
|
|
2,979,610
|
|
|
|
434,450
|
|
|
Professional and consulting expenses - related party, includes $1,356,507 of stock-based compensation in 2021
|
|
|
1,366,507
|
|
|
|
-
|
|
|
Product development expense, includes $3,036,286 and $360,000 of stock-based expense in 2021 and 2020, respectively
|
|
|
3,036,286
|
|
|
|
360,000
|
|
|
Selling and marketing expenses
|
|
|
835,723
|
|
|
|
226,428
|
|
|
General and administrative expenses
|
|
|
527,818
|
|
|
|
198,082
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Expenses
|
|
|
12,083,966
|
|
|
|
1,766,900
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Loss from Continuing Operations
|
|
|
(11,887,659
|
)
|
|
|
(1,304,330
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense):
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(1,245,873
|
)
|
|
|
(19,924
|
)
|
|
Change in fair value of derivative liabilities
|
|
|
289,874
|
|
|
|
32,315
|
|
|
Gain on extinguishment of debt
|
|
|
26,629
|
|
|
|
7,075
|
|
|
Gain on forgiveness of debt
|
|
|
14,754
|
|
|
|
-
|
|
|
Other income
|
|
|
-
|
|
|
|
5,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other Income (Expense), net
|
|
|
(914,616
|
)
|
|
|
24,466
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from Continuing Operations
|
|
|
(12,802,275
|
)
|
|
|
(1,279,864
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued Operations:
|
|
|
|
|
|
|
|
|
|
Income from Disposal of Discontinued Operations Before Provision for Income Taxes
|
|
|
-
|
|
|
|
38,203
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Discontinued Operations
|
|
|
-
|
|
|
|
38,203
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(12,802,275
|
)
|
|
$
|
(1,241,661
|
)
|
|
|
|
|
|
|
|
|
|
|
|
BASIC AND DILUTED LOSS PER COMMON SHARE:
|
|
|
|
|
|
|
|
|
|
Continuing operations - basic and diluted
|
|
$
|
(0.56
|
)
|
|
$
|
(0.07
|
)
|
|
Discontinued operations - basic
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
Discontinued operations - diluted
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
23,062,353
|
|
|
|
17,393,644
|
|
|
Diluted
|
|
|
23,062,353
|
|
|
|
17,393,644
|
|
The accompanying notes are an integral part of
these consolidated financial statements.
HOME BISTRO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'
EQUITY (DEFICIT)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER
30, 2021
|
|
|
Preferred
Stock
|
|
|
Common
Stock
|
|
|
Additional
|
|
|
|
|
|
|
|
|
Total
Stockholders'
|
|
|
|
|
Number
of
|
|
|
|
|
|
Number
of
|
|
|
|
|
|
Paid-in
|
|
|
Deferred
|
|
|
Accumulated
|
|
|
Equity
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Compensation
|
|
|
Deficit
|
|
|
(Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2019
|
|
|
-
|
|
|
$
|
-
|
|
|
|
13,104,561
|
|
|
$
|
13,105
|
|
|
$
|
4,806,944
|
|
|
$
|
-
|
|
|
$
|
(5,091,728
|
)
|
|
$
|
(271,679
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for cash
|
|
|
-
|
|
|
|
-
|
|
|
|
1,492
|
|
|
|
1
|
|
|
|
75,005
|
|
|
|
-
|
|
|
|
-
|
|
|
|
75,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant issued for cash
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
25,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for services
|
|
|
-
|
|
|
|
-
|
|
|
|
3,999,085
|
|
|
|
3,999
|
|
|
|
234,269
|
|
|
|
-
|
|
|
|
-
|
|
|
|
238,268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 with convertible
debt
|
|
|
-
|
|
|
|
-
|
|
|
|
119,535
|
|
|
|
119
|
|
|
|
38,144
|
|
|
|
-
|
|
|
|
-
|
|
|
|
38,263
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,241,661
|
)
|
|
|
(1,241,661
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2020
|
|
|
-
|
|
|
|
-
|
|
|
|
19,123,768
|
|
|
|
19,123
|
|
|
|
4,399,272
|
|
|
|
-
|
|
|
|
(6,333,389
|
)
|
|
|
(1,914,994
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued as commitment
fee
|
|
|
-
|
|
|
|
-
|
|
|
|
853,385
|
|
|
|
854
|
|
|
|
417,700
|
|
|
|
-
|
|
|
|
-
|
|
|
|
418,554
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock warrant issued as commitment fee
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
156,926
|
|
|
|
-
|
|
|
|
-
|
|
|
|
156,926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued as stock-based
compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
125,000
|
|
|
|
125
|
|
|
|
156,625
|
|
|
|
-
|
|
|
|
-
|
|
|
|
156,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock warrant issued as stock-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,714,971
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,714,971
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for cash, net of $215,949 of issuance cost
|
|
|
-
|
|
|
|
-
|
|
|
|
6,112,993
|
|
|
|
6,112
|
|
|
|
4,362,684
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,368,796
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock and warrant issued
for services and prepaid services
|
|
|
-
|
|
|
|
-
|
|
|
|
2,100,000
|
|
|
|
2,100
|
|
|
|
3,967,116
|
|
|
|
(750,000
|
)
|
|
|
-
|
|
|
|
3,219,216
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for product
development agreements
|
|
|
-
|
|
|
|
-
|
|
|
|
450,000
|
|
|
|
450
|
|
|
|
577,050
|
|
|
|
(508,281
|
)
|
|
|
-
|
|
|
|
69,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued pursuant
to lock-up agreements
|
|
|
-
|
|
|
|
-
|
|
|
|
112,500
|
|
|
|
113
|
|
|
|
152,513
|
|
|
|
(115,938
|
)
|
|
|
-
|
|
|
|
36,688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reduction of the repurchase
obligation pursuant to the Put Option Agreement
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
681,726
|
|
|
|
-
|
|
|
|
-
|
|
|
|
681,726
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for acquisition
of Model Meals, LLC (see Note 3)
|
|
|
-
|
|
|
|
-
|
|
|
|
2,008,310
|
|
|
|
2,008
|
|
|
|
2,026,385
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,028,393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for asset acquisition transaction (see Note 4)
|
|
|
-
|
|
|
|
-
|
|
|
|
4,266,667
|
|
|
|
4,267
|
|
|
|
5,585,067
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,589,334
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(12,802,275
|
)
|
|
|
(12,802,275
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at October 31, 2021
|
|
|
-
|
|
|
$
|
-
|
|
|
|
35,152,623
|
|
|
$
|
35,152
|
|
|
$
|
25,198,035
|
|
|
$
|
(1,374,219
|
)
|
|
$
|
(19,135,664
|
)
|
|
$
|
4,723,304
|
|
The accompanying notes are an integral part of
these consolidated financial statements.
HOME BISTRO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
For the Ten
Months Ended
|
|
|
For the Year Ended
|
|
|
|
|
October 31, 2021
|
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
$
|
(12,802,275
|
)
|
|
$
|
(1,241,661
|
)
|
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
Depreciation on property and equipment and finance ROU assets
|
|
|
113,531
|
|
|
|
440
|
|
|
Amortization on intangible assets
|
|
|
8,837
|
|
|
|
-
|
|
|
Common stock and warrants issued for stock-based compensation
|
|
|
2,871,721
|
|
|
|
213,841
|
|
|
Common stock and warrants issued for services – related party
|
|
|
1,356,507
|
|
|
|
-
|
|
|
Common stock and warrants issued for services and prepaid services
|
|
|
1,862,709
|
|
|
|
609,739
|
|
|
Common stock and warrants issued for product development
|
|
|
69,219
|
|
|
|
-
|
|
|
Common stock issued pursuant to lock-up agreements
|
|
|
36,688
|
|
|
|
-
|
|
|
Common stock issued pursuant an asset acquisition transaction (see Note 4)
|
|
|
2,969,334
|
|
|
|
-
|
|
|
Gain on extinguishment of debt and accounts payable
|
|
|
(26,629
|
)
|
|
|
(7,075
|
)
|
|
Gain on forgiveness of debt
|
|
|
(14,754
|
)
|
|
|
-
|
|
|
Amortization of debt discount
|
|
|
1,012,554
|
|
|
|
7,983
|
|
|
Change in fair value of derivative liabilities
|
|
|
(289,874
|
)
|
|
|
(32,315
|
)
|
|
Change in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Inventory
|
|
|
4,743
|
|
|
|
-
|
|
|
Prepaid expenses and other current assets
|
|
|
(47,053
|
)
|
|
|
(8,896
|
)
|
|
Accounts payable
|
|
|
129,389
|
|
|
|
43,980
|
|
|
Accrued expense and other liabilities
|
|
|
(55,664
|
)
|
|
|
102,201
|
|
|
Unredeemed gift cards
|
|
|
29,341
|
|
|
|
37,946
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(2,771,676
|
)
|
|
|
(273,817
|
)
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Proceeds (payments) from acquisition of a subsidiaries
|
|
|
(60,000
|
)
|
|
|
4,917
|
|
|
Purchases of property and equipment
|
|
|
(167,824
|
)
|
|
|
(3,168
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used by) provided by investing activities
|
|
|
(227,824
|
)
|
|
|
1,749
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of common stock, net of issuance cost
|
|
|
4,368,796
|
|
|
|
100,006
|
|
|
Proceeds from notes payable
|
|
|
-
|
|
|
|
171,612
|
|
|
Proceeds from convertible note payable, net of debt discount
|
|
|
1,581,450
|
|
|
|
-
|
|
|
Proceeds from convertible note payable - related party, net of debt discount
|
|
|
100,000
|
|
|
|
-
|
|
|
Proceeds from advances payable
|
|
|
332,900
|
|
|
|
140,840
|
|
|
Repayment of convertible notes payable
|
|
|
(1,195,920
|
)
|
|
|
384,100
|
|
|
Repayment of note payable - in default
|
|
|
-
|
|
|
|
(3,738
|
)
|
|
Repayments of advance payable
|
|
|
(312,752
|
)
|
|
|
(80,535
|
)
|
|
Repayment of convertible notes payable - related party
|
|
|
(46,931
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
4,827,543
|
|
|
|
712,285
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Change in Cash
|
|
|
1,828,043
|
|
|
|
440,217
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash - beginning of period
|
|
|
447,354
|
|
|
|
7,137
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash - end of period
|
|
$
|
2,275,397
|
|
|
$
|
447,354
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
159,909
|
|
|
$
|
7,670
|
|
|
Income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
Initial amount of ROU asset and related liability
|
|
$
|
540,041
|
|
|
$
|
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
|
|
|
Reduction of the repurchase obligation pursuant to the Put Option Agreement
|
|
$
|
681,725
|
|
|
$
|
-
|
|
|
Common stock issued as commitment fee in connection with convertible notes payable recorded as debt discount
|
|
$
|
418,554
|
|
|
$
|
38,263
|
|
|
Warrants issued as commitment fee in connection with convertible notes payable
|
|
$
|
156,926
|
|
|
$
|
-
|
|
|
Liabilities to be settled with common stock in connection with convertible notes payable
|
|
$
|
209,688
|
|
|
$
|
-
|
|
|
Initial derivative liability recorded in connection with convertible notes payable
|
|
$
|
223,358
|
|
|
$
|
212,344
|
|
|
Fair value of common stock issued for an asset acquisition transaction (see Note 4)
|
|
$
|
2,620,000
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Asset and Liabilities Assumed in Acquisition:
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
-
|
|
|
$
|
4,917
|
|
|
Prepaid expenses and other assets
|
|
|
241
|
|
|
|
9,776
|
|
|
Inventory
|
|
|
20,763
|
|
|
|
-
|
|
|
Operating right-of-use asset
|
|
|
76,136
|
|
|
|
32,444
|
|
|
Internal use computer software
|
|
|
66,198
|
|
|
|
-
|
|
|
Customer relationships
|
|
|
43,000
|
|
|
|
-
|
|
|
Trademark
|
|
|
505,000
|
|
|
|
-
|
|
|
Goodwill
|
|
|
1,809,357
|
|
|
|
-
|
|
|
Accounts payable and accrued liabilities
|
|
|
(203,348
|
)
|
|
|
(209,417
|
)
|
|
Operating right-of-use liability
|
|
|
(79,054
|
)
|
|
|
(32,444
|
)
|
|
Note Payable
|
|
|
(149,900
|
)
|
|
|
-
|
|
|
Net asset acquired (liability assumed)
|
|
$
|
2,088,393
|
|
|
$
|
(194,724
|
)
|
The accompanying notes are an integral part of
these consolidated financial statements.
HOME
BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER
31, 2021 AND DECEMBER 31, 2020
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. 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 the authorized shares of the common stock to 1,000,000,000
from 600,000,000 (see Note 12).
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 12).
On
September 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 (see Note 3).
HOME
BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER
31, 2021 AND DECEMBER 31, 2020
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 7).
On
July 6, 2021, the Company entered and closed on an Agreement and Plan of Merger with the members of Model Meals, LLC (“Model Meals”),
acquiring Model Meals through a reverse triangular merger, whereby Model Meals merged with Model Meals Acquisition Corp., a wholly owned
subsidiary of the Company, with Model Meals being the surviving entity (the “Acquisition”). As a result, Model Meals became
a wholly owned subsidiary of the Company, and the members of Model Meals received and aggregate of 2,008,310 shares of common stock and
were paid $60,000 in cash. Pursuant to the Acquisition, the Company issued 2,008,310 shares of common stock with grant date fair value
of $ 2,028,393 (see Note 3).
In December 2021, the Company’s board of directors and management
changed the Company’s fiscal year end from December 31st to October 31st, effective immediately (see Note
2).
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 Home Bistro, Inc, its active wholly owned subsidiaries, Home Bistro Holdings, Inc. and Model
Meals LLC for the transition period ended October 31, 2021. Since Model Meals LLC was acquired in 2021, it was not consolidated for the
year ended December 31, 2020. All the intercompany transactions and balances have been eliminated.
HOME
BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER
31, 2021 AND DECEMBER 31, 2020
In December 2021, the Company’s board of directors and management
changed the Company’s fiscal year end from December 31st to October 31st, effective immediately (see Note
1). Accordingly, we are required to file this transition report on Form 10-KT to include audited consolidated financial information for
the transition period from January 1, 2021 to October 31, 2021. Any references to the "transition period" throughout this report
refer to that ten-month period ending October 31, 2021. Prior periods have not been recasted to align with our new fiscal year.
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 transition period ended October 31, 2021, the Company had net loss and
cash used in operations of $12,802,275 and $2,771,676, respectively. As of October 31, 2021, the Company had an accumulated deficit, stockholders’
equity, and working capital deficit of $19,135,664, $4,723,304 and $318,797, 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 transition report.
The Company’s primary source of operating funds in 2021 was primarily from the third-party advances and convertible notes payable
and the sale of common stock through private placements. 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 October 31, 2021 and December 31, 2020 include the assumptions used in the redemption recognition method
for unredeemed gift cards, useful life of property and equipment and intangible assets, valuation of right-of-use (“ROU”)
assets and lease liabilities, estimates of current and deferred income taxes and deferred tax valuation allowances, fair value of assets
acquired and liabilities assumed in a business combination, and the fair value of non-cash equity transactions and derivative liabilities.
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 October 31, 2021 and December 31, 2020, 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 October
31, 2021 and December 31, 2020, the balance outstanding was in excess of FDIC insured levels by approximately $2,025,000 and $197,000.
The Company has not experienced any losses in such accounts through October 31, 2021.
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 October 31, 2021. 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).
HOME
BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER
31, 2021 AND DECEMBER 31, 2020
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 5) and
were as follows at October 31, 2021:
|
|
|
At October 31, 2021
|
|
|
At December 31, 2020
|
|
|
Description
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Derivative liabilities
|
|
|
—
|
|
|
|
—
|
|
|
|
86,884
|
|
|
|
—
|
|
|
|
—
|
|
|
|
180,029
|
|
A roll forward of the level 3 valuation financial
instruments is as follows (see Note 5):
|
|
|
Ten Months
Ended
October 31,
2021
|
|
|
Year
Ended
December 31,
2020
|
|
|
Balance at beginning of year
|
|
$
|
180,029
|
|
|
$
|
—
|
|
|
Initial valuation of derivative liabilities included in debt discount
|
|
|
223,358
|
|
|
|
212,344
|
|
|
Reclassification of derivative liability to gain on debt extinguishment
|
|
|
(26,629
|
)
|
|
|
|
|
|
Change in fair value of derivative liabilities
|
|
|
(289,874
|
)
|
|
|
(32,315
|
)
|
|
Balance at end of the period
|
|
$
|
86,884
|
|
|
$
|
180,029
|
|
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 SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER
31, 2021 AND DECEMBER 31, 2020
Goodwill and Indefinite Lived Intangible Assets
Goodwill
represents the excess of purchase prices over the fair value of nets assets acquired, is carried at cost. Goodwill is not amortized;
rather, it is subject to a periodic assessment for impairment by applying a fair value-based test. Goodwill is evaluated for
impairment on an annual basis at a level of reporting referred to as the reporting unit, and more frequently if adverse events or changes
in circumstances indicate that the asset may be impaired.
Goodwill and indefinite lived intangible assets are tested for
impairment at the reporting unit level by first performing a qualitative assessment to determine whether it is more likely than not (that
is, a likelihood of more than 50%) that the fair value of the reporting unit is less than its carrying amount. The qualitative assessment
considers macroeconomic conditions, industry and market considerations, cost factors and overall company financial performance. If the
reporting unit does not pass the qualitative assessment, the carrying amount of the reporting unit, including goodwill, is compared
to its fair value. When the carrying amount of the reporting unit exceeds its fair value, a goodwill impairment loss is recognized
up to a maximum amount of the recorded goodwill related to the reporting unit. Goodwill impairment losses are not
reversed. There was no impairment loss of goodwill or indefinite lived intangible assets for the ten months ended October
31, 2021.
Impairment
of Long-Lived Assets
In accordance with ASC Topic 360, the Company reviews long-lived assets
including intangible assets with finite life, for impairment whenever events or changes in circumstances indicate that the carrying amount
of the assets may not be fully recoverable, or at least annually. The Company recognizes an impairment loss when the sum of expected undiscounted
future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s
estimated fair value and its book value.
Inventory
Inventory
consists of non-perishable food items distributed by the Company and are stated at the lower of cost and net realizable value utilizing
the first-in first-out (FIFO) method. A reserve is established when management determines that certain inventories may not be saleable.
If inventory costs exceed expected net realizable value due to obsolescence or quantities in excess of expected demand, the Company will
record reserves for the difference between the cost and the net realizable value. These reserves are based on estimates and included
in cost of sales. As of October 31, 2021 and December 31, 2020, the inventory balances were insignificant and the Company determined
that there was no allowance needed.
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,
www.modelmeals.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 to three 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. Model meals,
the Company’s wholly-owned subsidiary, does not have sufficient historical redemption information to recognize breakage. Therefore,
all issued gift cards are recorded as a liability upon issuance and revenue when used.
HOME
BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER
31, 2021 AND DECEMBER 31, 2020
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 addition, the royalty fee related
to the Joint Product Development and Distribution Agreement (see Note 14) 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 $391,890 for the transition
period ended October 31, 2021 and $873,289 for the year ended December 31, 2020, respectively. Shipping and handling costs charged to
customers are included in sales.
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 $835,723 for the transition period ended October 31, 2021 and $226,428,
for the year ended December 31, 2020, respectively, 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.
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 transition period ended October 31, 2021 and year ended December 31, 2020, the Company had no uncertain
tax positions that qualify for either recognition or disclosure in the financial statements.
Leases
The
Company accounts for its leases using the method prescribed by ASC 842 – Lease Accounting. The Company assess whether the
contract is, or contains, a lease at the inception of a contract which is based on (i) whether the contract involves the use of a distinct
identified asset, (ii) whether the Company obtain the right to substantially all the economic benefit from the use of the asset throughout
the period, and (iii) whether the Company has the right to direct the use of the asset. The Company allocates the consideration in the
contract to each lease component based on its relative stand-alone price to determine the lease payments. The Company has elected not
to recognize right-of-use (“ROU”) assets and lease liabilities for short-term leases that have a term of 12 months or less.
HOME
BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER
31, 2021 AND DECEMBER 31, 2020
Operating
and financing lease ROU assets represents the right to use the leased asset for the lease term. Operating and financing lease liabilities
are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most leases
do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at the adoption date
in determining the present value of future payments. Lease expense for minimum lease payments is amortized on a straight-line basis over
the lease term and is included in general and administrative expenses in the consolidated statements of operations.
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 October 31, 2021 and December 31, 2020 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.
|
|
|
October 31,
2021
|
|
|
December 31,
2020
|
|
|
Common Stock Equivalents:
|
|
|
|
|
|
|
|
Stock Options
|
|
|
—
|
|
|
|
60,638
|
|
|
Stock Warrants
|
|
|
15,745,066
|
|
|
|
11,278,211
|
|
|
Convertible Debt
|
|
|
1,041,435
|
|
|
|
589,704
|
|
|
Total
|
|
|
16,786,501
|
|
|
|
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%). 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, the Company had no accounts payable balance to these vendors.
During the ten months ended October 31, 2021, the Company opened a
kitchen location at 3126 John P Curci Dr., Pembroke Pines, FL 33009 and acquired Model Meals (see Note 3) with a kitchen location at 201
E. 4th St. Santa Ana, CA 92701. The Company started producing and packaging its food products at these locations in addition to purchasing
food products from other vendors which mitigated this concentration risk.
HOME
BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER
31, 2021 AND DECEMBER 31, 2020
Recent
Accounting Pronouncements
In
August 2020, the FASB issued ASU 2020-06—Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives
and edging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an
Entity’s Own Equity (“ASU 2020-06”) to simplify the accounting for convertible instruments by removing certain
separation models in Subtopic 470- 20, Debt with Conversion and Other Options, for convertible instruments. Under the amendments
in ASU 2020-06, the embedded conversion features no longer are separated from the host contract for convertible instruments with conversion
features that are not required to be accounted for as derivatives under Topic 815, Derivatives and Hedging, or that do not result in
substantial premiums accounted for as paid-in capital. Consequently, a convertible debt instrument will be accounted for as a single
liability measured at its amortized cost and a convertible preferred stock will be accounted for as a single equity instrument measured
at its historical cost, as long as no other features require bifurcation and recognition as derivatives. By removing those separation
models, the interest rate of convertible debt instruments typically will be closer to the coupon interest rate when applying the guidance
in Topic 835, Interest. The amendments in ASU 2020-06 provide financial statement users with a simpler and more consistent starting point
to perform analyses across entities. The amendments also improve the operability of the guidance and reduce, to a large extent, the complexities
in the accounting for convertible instruments and the difficulties with the interpretation and application of the relevant guidance.
To further improve the decision usefulness and relevance of the information being provided to users of financial statements, amendments
in ASU 2020-06 increased information transparency by making the following amendments to the disclosure for convertible instruments:
|
1.
|
Add
a disclosure objective
|
|
|
|
|
2.
|
Add
information about events or conditions that occur during the reporting period that cause conversion contingencies to be met or conversion
terms to be significantly changed
|
|
|
|
|
3.
|
Add
information on which party controls the conversion rights
|
|
|
|
|
4.
|
Align
disclosure requirements for contingently convertible instruments with disclosure requirements for other convertible instruments
|
|
|
|
|
5.
|
Require
that existing fair value disclosures in Topic 825, Financial Instruments, be provided at the individual convertible instrument level
rather than in the aggregate.
|
Additionally,
for convertible debt instruments with substantial premiums accounted for as paid-in capital, amendments in ASU 2020-06 added disclosures
about (1) the fair value amount and the level of fair value hierarchy of the entire instrument for public business entities and (2) the
premium amount recorded as paid-in capital.
The
amendments in ASU 2020-06 are effective for public business entities, excluding entities eligible to be smaller reporting companies as
defined by the SEC, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. For all
other entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those
fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods
within those fiscal years. Entities should adopt the guidance as of the beginning of its annual fiscal year and are allowed to adopt
the guidance through either a modified retrospective method of transition or a fully retrospective method of transition. In applying
the modified retrospective method, entities should apply the guidance to transactions outstanding as of the beginning of the fiscal year
in which the amendments are adopted. Transactions that were settled (or expired) during prior reporting periods are unaffected. The cumulative
effect of the change should be recognized as an adjustment to the opening balance of retained earnings at the date of adoption. If an
entity elects the fully retrospective method of transition, the cumulative effect of the change should be recognized as an adjustment
to the opening balance of retained earnings in the first comparative period presented. The Company is evaluating the impact of the revised
guidance and believes that it will not have a significant impact on its consolidated financial statements.
In
May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock
Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40). The new ASU addresses
issuer’s accounting for certain modifications or exchanges of freestanding equity-classified written call options. This amendment
is effective for all entities, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years.
Early adoption is permitted. The Company is evaluating the impact of the revised guidance and believes that it will not have a significant
impact on its consolidated financial statements.
Management
does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect
on the Company’s consolidated financial statements.
NOTE
3 – ACQUISITIONS AND DISPOSAL OF THE DISCONTINUED OPERATIONS
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 convert from a limited liability company to a corporation
and changed its name to Home Bistro, Inc.
HOME
BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER
31, 2021 AND DECEMBER 31, 2020
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 with the 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 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, 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 1,364,232 shares of common stock and warrants to purchase up to 4,041,258 shares of common stock (see Note
12). 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 12) 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.
Certain
of the Company’s existing securityholders retained securities held prior to the Merger, consisting of 533,931 shares of common
stock and 60,638 stock options which were outstanding at the effective time of the Merger.
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 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 12).
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.
HOME
BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER
31, 2021 AND DECEMBER 31, 2020
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, reflected in the accompanying
consolidated balance sheets as Common stock repurchase obligation (see Note 14).
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.
HOME
BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER
31, 2021 AND DECEMBER 31, 2020
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.
|
|
|
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.
HOME
BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER
31, 2021 AND DECEMBER 31, 2020
Acquisition
of Model Meals
Model
Meals, LLC (the “Model Meals”) was formed on May 1, 2015. Model Meals 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 planning, delivery, and preparation services. Products are customized meal solutions, delivered fresh directly to the home
and utilizes third-party food delivery services to fulfill customers’ orders.
On July 6, 2021, the Company entered and closed on an Agreement and
Plan of Merger with the members of Model Meals, acquiring Model Meals through a reverse triangular merger, whereby Model Meals merged
with Model Meals Acquisition Corp., a wholly owned subsidiary of the Company, with Model Meals being the surviving entity (the “Acquisition”).
As a result, Model Meals became a wholly owned subsidiary of the Company, and the members of Model Meals received and aggregate of 2,008,310
shares of common stock and were paid $60,000 in cash. Pursuant to the Acquisition, the Company issued 2,008,310 shares of common stock
with grant date fair value of $ 2,028,393 (see Note 1). The shares are subject to a 24-month Lockup and Leak-Out Agreement and were issued
pursuant to Section 4(a)(2) of the Securities Act. The acquisition of Model Meals will allow the Company the ability to increase its customer
base, geographic distribution area, and prepared meals available on its ecommerce sights.
Further,
on August 12, 2021, the Company filed, in an amended current report Form 8-K/A, Model Meals’; (i) audited balance sheets and audited
statement of operations as of December 31, 2020 and 2019 and for the years ended December 31, 2020 and 2019, respectively,; (ii) balance
sheet and statement of operations as of March 31, 2021 and for the three months ended March 31, 2021, respectively, and; (iii) unaudited
pro forma combined financial information derived by the application of pro forma adjustments to the historical consolidated financial
statements of the Company and Model Meals which gives effect to the Acquisition between the Company and Model Meals as if the Acquisition
had occurred on January 1, 2020 with respect to the unaudited annual pro forma combined statement of operation, and as of January 1,
2021 for the three months ended March 31, 2021 unaudited pro forma combined statement of operation, and as of March 31, 2021 with respect
to the unaudited pro forma combined balance sheets.
In
connection with the Acquisition, the assets acquired and liabilities assumed were recorded at fair value on the acquisition date. The
fair values are subject to adjustment during measurement period with subsequent changes recognized in earnings or loss. These estimates
are inherently uncertain and are subject to refinement. Management develops estimates based on assumptions as a part of the purchase
price allocation process to value the assets acquired and liabilities assumed as of the business acquisition date. As a result, during
the purchase price measurement period, which may be up to one year from the business acquisition date, the Company may record adjustments
to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. After the purchase price measurement period,
the Company will record any adjustments to assets acquired or liabilities assumed in operating expenses in the period in which the adjustments
may have been determined. Based upon the purchase price allocation, the following table summarizes the preliminary fair value of the
assets acquired and liabilities assumed at the date of the acquisition:
|
|
|
Total
|
|
|
Assets acquired:
|
|
|
|
|
Current assets
|
|
$
|
97,140
|
|
|
Computer software
|
|
|
66,198
|
|
|
Customer relationships
|
|
|
43,000
|
|
|
Trademark
|
|
|
505,000
|
|
|
Goodwill
|
|
|
1,809,357
|
|
|
Total assets acquired at fair value
|
|
|
2,520,695
|
|
|
Less: total liabilities assumed
|
|
|
(432,302
|
)
|
|
Net asset acquired
|
|
$
|
2,088,393
|
|
|
|
|
|
|
|
|
Purchase consideration paid:
|
|
|
|
|
|
Fair value of common shares issued
|
|
$
|
2,028,393
|
|
|
Cash consideration
|
|
|
60,000
|
|
|
Total purchase consideration paid
|
|
$
|
2,088,393
|
|
HOME
BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER
31, 2021 AND DECEMBER 31, 2020
Goodwill recognized as a result of the acquisition is not deductible
for tax purposes. See Note 4 for additional information about other intangible assets. The recognized goodwill related to Model Meals
is directly attributable to synergies expected to arise after the acquisition.
The
following unaudited pro forma consolidated results of operations for the ten months ended October 31, 2021 and year ended December 31,
2020 have been prepared as if the acquisition of Model Meals had occurred as of the beginning of the following periods:
|
|
|
Ten Months Ended
|
|
|
Ten Months Ended
|
|
|
|
|
October 31,
2021
|
|
|
October 31,
2020
|
|
|
Net Revenues
|
|
$
|
2,993,650
|
|
|
$
|
3,005,607
|
|
|
Net Loss
|
|
$
|
(12,802,275
|
)
|
|
$
|
(1,197,589
|
)
|
|
Net Loss per Share
|
|
$
|
(0.56
|
)
|
|
$
|
(0.07
|
)
|
Pro
forma data does not purport to be indicative of the results that would have been obtained had these events actually occurred at the beginning
of the periods presented and is not intended to be a projection of future results.
HOME
BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER
31, 2021 AND DECEMBER 31, 2020
NOTE
4 – GOODWILL AND INTANGIBLE ASSETS
On July 6, 2021, the Company acquired Model Meals'
net assets with total fair value of $279,036, which includes computer software, customer relationships and trademarks, for a total consideration
of $2,088,393 (see Note 3). The excess consideration over the fair value of the net assets acquired of $1,809,357 was recorded as goodwill.
Asset Acquisition – License Agreement
On June 24, 2021, the Company entered into a licensing agreement (“License
Agreement”) with a celebrity chef and majority member interest holder of Homemade Meals, LLC (“Homemade Meals”). As
a condition to finalizing the License Agreement, the Company executed a Membership Interest Purchase Agreement (the “Member Agreement”)
and issued an aggregate of 2,266,667 shares of common stock issued to other members with an aggregate fair value of $2,969,334, valued
based on the market price of common stock on the close date of October 25, 2021. The shares issued to the other members were consideration
to terminate an exclusivity and non-compete agreement the celebrity chef had with Homemade Meals. The Company issued the celebrity chef
2,000,000 shares of common stock with a fair value of $2,620,000, valued based on the market price of common stock on the close date of
Company’s common stock. The Company’s primary reason for acquiring the membership interests in Homemade Meals was to terminate
the non-compete agreement between the celebrity chef and Homemade Meals, thereby enabling the celebrity chef to execute the License Agreement
with the Company. At the time of execution of the Member Agreement, Homemade meals held no significant assets and had no business operations
and the Member Agreement was solely executed to terminate the exclusivity and non-compete agreement the celebrity chef had with Homemade
Meals. The Company recorded the shares given to the celebrity chef and the members of Homemade Meals has two separate transactions.
The Company and the celebrity chef (collectively
as “Parties”) had a preexisting relationship and other arrangements before negotiations for the acquisition of Homemade Meals
and had planned to enter into a License Agreement during the negotiations, which is separate from the Member Agreement. Since ASC 805-50
includes only general principles related to accounting for an asset acquisition and in the absence of specific guidance, the Company analogized
to the guidance in ASC 805-10-25-20 through 25-21– Business Combination to identify and account for transactions that are
separate from a business combination. Under this guidance, the Company, when applying the acquisition method, recognized “only the
consideration transferred to acquire the asset, the license. Any separate transactions were accounted for separately from acquisition
of the License Agreement in accordance with the relevant GAAP.
Therefore, in accordance with ASC 805-10-25-21,
the Company accounted for the 2,000,000 shares of common stock with fair value of $2,620,000, valued based on the market price of common
stock on the acquisition date, issued to the celebrity chef as the cost of the License Agreement and was recorded as an intangible asset
in the accompanying consolidated balance sheet and will be amortized over the three-year term of the License Agreement. In addition, the
aggregate of 2,266,667 shares of common stock issued to other members with an aggregate fair value of $2,969,334, valued based on the
market price of common stock on the acquisition date, was accounted for as compensation to terminate the exclusivity and non-compete agreement
and was recorded as product development expense in the accompanying consolidated statement of operations.
Goodwill
|
|
|
Estimated
Life
|
|
October
31,
2021
|
|
|
Goodwill
|
|
Indefinite
|
|
$
|
1,809,357
|
|
|
Less:
Impairment
|
|
|
|
|
—
|
|
|
Goodwill,
net
|
|
|
|
$
|
1,809,357
|
|
Intangible
Assets
|
|
|
Estimated
Life
|
|
October 31,
2021
|
|
|
Computer software
|
|
3.5 years
|
|
$
|
66,198
|
|
|
Customer relationships
|
|
7 years
|
|
|
43,000
|
|
|
Trademark
|
|
Indefinite
|
|
|
505,000
|
|
|
License agreement
|
|
3 years
|
|
|
2,620,000
|
|
|
Total
|
|
|
|
|
3,234,197
|
|
|
Less: Accumulated amortization
|
|
|
|
|
(8,837
|
)
|
|
Intangible assets, net
|
|
|
|
$
|
3,225,361
|
|
|
Intangible assets with a finite life, net
|
|
|
|
$
|
2,720,361
|
|
The above intangible assets were acquired by the Company during the
transition period October 31, 2021.
HOME
BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER
31, 2021 AND DECEMBER 31, 2020
During
the transition period ended October 31, 2021, the Company recorded a total of $8,837 of amortization expense related to the intangible
assets.
Amortization of intangible assets attributable to
future periods is as follows:
|
Year ending October 31:
|
|
|
Amount
|
|
|
2022
|
|
|
$
|
899,845
|
|
|
2023
|
|
|
|
899,845
|
|
|
2024
|
|
|
|
898,147
|
|
|
2025
|
|
|
|
6,413
|
|
|
2026
|
|
|
|
6,413
|
|
|
2027
|
|
|
|
6,413
|
|
|
2028
|
|
|
|
4,095
|
|
|
Total
|
|
|
$
|
2,720,361
|
|
NOTE
5 – CONVERTIBLE NOTES
At
October 31, 2021, the convertible debt consisted of the following:
|
|
|
October 31,
2021
|
|
|
December 31,
2020
|
|
|
Principal amount
|
|
$
|
1,028,179
|
|
|
$
|
447,000
|
|
|
Less: debt discount
|
|
|
(477,541
|
)
|
|
|
(305,524
|
)
|
|
Convertible notes payable, net
|
|
$
|
550,638
|
|
|
$
|
141,476
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal amount – related party
|
|
$
|
63,069
|
|
|
$
|
—
|
|
|
Less: debt discount – related party
|
|
|
(32,897
|
)
|
|
|
—
|
|
|
Convertible note payable - related party, net
|
|
$
|
30,172
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Total convertible notes payable, net
|
|
$
|
580,810
|
|
|
$
|
141,476
|
|
December
2020 Financing
December
2020 Note I
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 OID, issuance costs and issued commitment fee shares of common stock have been
recorded as a debt discount to be amortized into interest expense over the twelve-month term of the note. The December 2020 Note I bears
an interest rate of 12% per annum (which shall increase 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.
HOME
BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER
31, 2021 AND DECEMBER 31, 2020
On
March 18, 2021 (the “Redemption Date”), the Company elected, pursuant to terms of payment as described in the December 2020
Note I, to pay 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”).The December 2020 Note I is deemed to have
been paid in full; the lender 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 the Second Commitment Shares were returned by the lender to the Company’s transfer agent
for cancellation as provided for in the December 2020 Agreements I. The fair value of the derivative liability associated with the
December 2020 Note I at Redemption Date amounted to $26,629 and was reclassified to gain on debt extinguishment in the accompanying consolidated
statement of operation upon redemption. Any remaining unamortized debt discounts were recognized as interest expense on the Redemption
Date. As of October 31, 2021, the December 2020 Note I had no outstanding balance.
December
2020 Note II
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 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 OID, issuance costs and issued commitment fee shares of common stock have been recorded
as a debt discount to be amortized into interest expense over the twelve-month term of the note. The December 2020 Note II matures on
December 28, 2021 and bears an interest rate of 12% per annum (which shall increase to 16% per annum upon the occurrence of an Event
of Default (as defined in the December 2020 Note II). The Company shall make nine monthly cash payments (“Amortization Payments”)
in the amount of $19,264 beginning at the end of the third month from the issuance date of the note. The Company can elect to extend
the Amortization Payment due date by thirty-days by notifying the holder on or before the of the Amortization Payment due date and pay
an extension fee of $1,926, provided that the note is not in default. The first twelve months of interest (equal to $20,640) shall be
guaranteed and earned in full as of the issue date, however if the note is repaid in its entirety, on or prior to, the due date of the
first Amortization Payment, then the interest shall be accrued on a per annum basis based on the number of days elapsed as of the repayment
date from the issue date. As of December 31, 2020, the December 2020 Note II had outstanding principal and accrued interest of $172,000
and $0, respectively. During the ten months ended October 31, 2021, the Company fully paid the December 2020 Note II. As of October 31,
2021, the December 2020 Note II had had no outstanding balance.
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 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.
The
Company also entered into a Registration Rights Agreement (“Registration Agreement”) in connection with the December 2020
Agreements II (see Note 14). 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 SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER
31, 2021 AND DECEMBER 31, 2020
On
March 24, 2021, the December 2020 Note II was amended (“Amendment”) pursuant to which, the Company issued a warrant to purchase
up to 78,250 shares of common stock (“December 2020 Warrant II”) as additional commitment fee. The December 2020 Warrant
II; (i) was valued at $4,227 using the relative fair value method and recorded as a debt discount to be amortized over the life of the
note; (ii) has an exercise price of $2.50; (iii) subject to the adjustments and 4.99%, ownership limitation and; (iv) expires on the
fifth-year anniversary from the date of issuance.
In
addition, the Amendment also provided for a Commitment Share True-Up provision (as discussed below under Commitment Share True-Up
Provision). At the inception of the December 2020 Note II, the Commitment Share True-Up had a fixed monetary value of $22,995 and
was recorded as a debt discount to be amortized over the twelve-month term.
The
Amendment was accounted for as a debt modification in accordance with ASC 470-50-40-10 - Debt Modification and Extinguishment.
The present value of the cash flows under the amended terms is less than 10% different from the present value of the remaining cash flows
of the current terms and no gain or loss was recognized on modification on March 24, 2021. The warrant issued as additional commitment
fee was capitalized and amortized as of the original issue date based on the Company’s elected accounting policy.
January
2021 Financings
January
2021 Note I
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, the Company; (i) 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; (ii) issued a total of 29,385 shares of common stock as a commitment fee and; (iii) shall
issue 73,269 shares of common stock which is returnable pursuant to the terms of the January 2021 Agreements I (the “Second Commitment
Shares”). The 29,385 shares of common stock issued were recorded as a debt discount of $17,297 based on the relative fair value
method. The Company received net proceeds of $105,000, net of $10,000 OID and $5,000 issuance cost. The OID, issuance costs and issued
commitment fee shares of common stock have been recorded as a debt discount to be amortized into interest expense over the twelve-month
term of the note. The January 2021 Note I matures on January 12, 2022 and bears an interest rate of 10% per annum (which shall increase
to 16% per annum upon the occurrence of an Event of Default (as defined in the January 2021 Note I)). The Company shall make nine monthly
cash payments (“Amortization Payments”) in the amount of $14,666.66 beginning April 12, 2021. The Company can elect to extend
the Amortization Payment due date by thirty-days by notifying the holder on or before the of the due date and pay an extension fee of
$3,080, provided that the note is not in default. The first twelve months of interest (equal to $12,000) shall be guaranteed and earned
in full as of the issue date, however if the note is repaid in its entirety, on or prior to, the due date of the first Amortization Payment,
then the interest shall be accrued on a per annum basis based on the number of days elapsed as of the repayment date from the issue date.
During the ten months ended October 31, 2021, the Company fully paid the January 2021 Note I. As of October 31, 2021, the January 2021
Note I had no outstanding balance.
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. 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 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 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. 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.
HOME
BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER
31, 2021 AND DECEMBER 31, 2020
On
March 31, 2021, the January 2021 Note I was amended (“Amendment”) pursuant to which, the Company issued a warrant to purchase
up to 55,000 shares of common stock (“January 2021 Warrant I”) as additional commitment fee. The January 2021 Warrant I;
(i) was valued at $6,173 using the relative fair value method and recorded as a debt discount to be amortized over the life of the note;
(ii) has an exercise price of $2.50; (iii) subject to the adjustments and 4.99%, ownership limitation and; (iv) expires on the fifth-year
anniversary from the date of issuance.
In
addition, the Amendment also provided for a Commitment Share True-Up provision as discussed below under Commitment Share True-Up Provision.
At the inception of the January 2021 Note I, the Commitment Share True-Up had fixed monetary value of $13,223 which was recorded as a
debt discount to be amortize over the twelve-month term of the note.
The
Amendment was accounted for as a debt modification in accordance with ASC 470-50-40-10 - Debt Modification and Extinguishment.
The present value of the cash flows under the amended terms is less than 10% different from the present value of the remaining cash flows
of the current terms and no gain or loss was recognized on modification on March 31, 2021. The warrant issued as additional commitment
fee was capitalized and amortized as of the original issue date based on the Company’s elected accounting policy.
January
2021 Note II
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, the Company; (i) issued a convertible note with
principal amount of $330,000 (the “January 2021 Note II”) with the Company receiving $300,000 in net proceeds, net of $33,000
of OID recorded as a debt discount to be amortized over the twelve-month term of the note; (ii) issued 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”) (as discussed below under Commitment Share True-Up Provision) and; (iii) a warrant to purchase up to 150,000
shares of common stock (the “January 2021 Warrant II”, and together with the January 2021 SPA II and the January 2021 Note
II, the “January 2021 Agreements II”). The 150,000 shares of common stock and 150,000 warrants issued were valued at $85,981
and $31,821, respectively, using the relative fair value method and the Commitment Share True-up had a fixed monetary value of $93,750,
all recorded as a debt discount to be amortized over the twelve-month term of the note. The January 2021 Note II matures on February
1, 2022 and a one-time interest charge of 8% was applied on the issue date and will be payable on the maturity date. 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 immediately prior to the occurrence of the Event of Default and becomes immediately due and payable. The Company shall make nine
monthly cash payments (“Amortization Payments”) in the amount of $39,600 beginning May 1, 2021. If the first day of any calendar
month is not on a business day, then the Company shall make monthly payments on the next business day. 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 Agreements II contain other provisions, covenants,
and restrictions common with this type of debt transaction. The January 2021 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. During the ten months ended October 31, 2021, the Company paid $213,570 of principal and
$24,030 of accrued interest. As of October 31, 2021, the January 2021 Note II had outstanding principal and accrued interest of $116,430
and $0, respectively.
The
January 2021 Warrant II, issued to the investor as commitment fee, provides for the right to purchase up to 150,000 shares of common
stock; (i) valued at $31,821 using the relative fair value method and recorded as a debt discount to be amortized over the twelve-month
term of the note; (ii) has an exercise price of $2.50; (iii) subject to the adjustments and 4.99%, ownership limitation and; (iv) expires
on the fifth-year anniversary from the date of issuance.
HOME
BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER
31, 2021 AND DECEMBER 31, 2020
March
2021 Financings
March
2021 Note I
On
March 22, 2021, the Company entered into a Securities Purchase Agreement (the “March 2021 SPA I”) with an investor for the
sale of the Company’s convertible note. Pursuant to the March 2021 SPA I, the Company; (i) issued a convertible note with principal
amount of $55,000 (the “March 2021 Note I”) with the Company receiving $50,000 in net proceeds, net of $5,000 of OID recorded
as a debt discount to be amortized over the twelve-month term of the note; (ii) issued 25,000 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”)
(as discussed below under Commitment Share True-Up Provision) and; (iii) a warrant to purchase up to 25,000 shares of common stock
(the “March 2021 Warrant I”, and together with the March 2021 SPA I and the March 2021 Note I, the “March 2021 Agreements
I”). The 25,000 shares of common stock and 25,000 warrant issued were valued at $6,949 and $1,346, respectively, using the relative
fair value method and the Commitment Share True-up had a fixed monetary value of $5,133, all recorded as a debt discount to be amortized
over the twelve-month term of the note. The March 2021 Note I mature on March 1, 2022 and a one-time interest charge of 10% was applied
on the issue date and will be payable on the maturity date. Upon an event of default, the outstanding balance will immediately and automatically
increase to 140% of the outstanding balance under the March 2021 Note I immediately prior to the occurrence of the Event of Default and
becomes immediately due and payable. The Company shall make nine monthly cash payments (“Amortization Payments”), in the
amount of $6,455 due on the first day of each month, beginning July 1, 2021. If the first day of any calendar month is not on a business
day, then the Company shall make monthly payments on the next business day. The investor may only convert the March 2021 Note I at any
time or times on or after the occurrence of an Event of Default. The March 2021 Note I 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 March 2021 Agreements I contain other provisions, covenants, and restrictions common with this type of debt transaction.
The March 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. During the ten months ended October 31, 2021, the Company paid $23,467 of the principal and $2,353 of accrued
interest. As of October 31, 2021, the March 2021 Note I had outstanding principal and accrued interest of $31,533 and $0, respectively.
The
March 2021 Warrant I, issued to the investor as commitment fee, provides for the right to purchase up to 25,000 shares of common stock;
(i) valued at $1,346 using the relative fair value method and recorded as a debt discount to be amortized over the twelve-month term
of the note; (ii) has an exercise price of $2.50; (iii) subject to the adjustments and 4.99%, ownership limitation and; (iv) expire on
the fifth-year anniversary from the date of issuance.
March
2021 Note II
On
March 29, 2021, the Company entered into a Securities Purchase Agreement (the “March 2021 SPA II”) with an investor for the
sale of the Company’s convertible note. Pursuant to the March 2021 SPA II, the Company; (i) issued a convertible note with principal
amount of $110,000 (the “March 2021 Note II”) with the Company receiving $100,000 in net proceeds, net of $10,000 of OID
to be amortized over the twelve-month term of the note; (ii) issued 50,000 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”) (as discussed
below under Commitment Share True-Up Provision) and; (iii) a warrant to purchase up to 50,000 shares of common stock (the “March
2021 Warrant II”, and together with the March 2021 SPA II and the March 2021 Note II, the “March 2021Agreements II”).
The 50,000 shares of common stock and 50,000 warrant issued were valued at $24,504 and $8,350, respectively, using the relative fair
value method and the Commitment Share True-up had a fixed monetary value of $23,500, all recorded as a debt discount to be amortized
over the twelve-month term of the note. The March 2021 Note II mature on March 21, 2022 and a one-time interest charge of 10% was applied
on the issue date and will be payable on the maturity date. Upon an event of default, the outstanding balance will immediately and automatically
increase to 140% of the outstanding balance under the March 2021 Note II immediately prior to the occurrence of the Event of Default
and becomes immediately due and payable. The Company shall make nine monthly cash payments (“Amortization Payments”), in
the amount of $12,911 due on the first day of each month, beginning June 26, 2021. If the first day of any calendar month is not on a
business day, then the Company shall make monthly payments on the next business day. The investor may only convert the March 2021 Note
II at any time or times on or after the occurrence of an Event of Default. The March 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 March 2021 Agreements II contain other provisions, covenants, and restrictions common
with this type of debt transaction. The March 2021 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. During the ten months ended October 31, 2021, the Company fully paid the March 2021 Note
II. As of October 31, 2021, the March 2021 Note II had no outstanding balance.
HOME
BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER
31, 2021 AND DECEMBER 31, 2020
The
March 2021 Warrant II, issued to the investor as commitment fee, provides for the right to purchase up to 50,000 shares of common stock;
(i) valued at $8,350 using the relative fair value method and recorded as a debt discount to be amortized over the twelve-month term
of the note; (ii) has an exercise price of $2.50; (iii) subject to the adjustments and 4.99%, ownership limitation and; (iv) expires
on the fifth-year anniversary from the date of issuance.
March
2021 Note III – Related Party
On
March 30, 2021, the Company entered into a Securities Purchase Agreement (the “March 2021 SPA III”) with an investor, who
is also a major stockholder and director and considered to be a related party, for the sale of the Company’s convertible note.
Pursuant to the March 2021 SPA III, the Company; (i) issued a convertible note with principal amount of $110,000 (the “March 2021
Note III”) with the Company receiving $100,000 in net proceeds, net of $10,000 of OID recorded as a debt discount to be amortize
over the twelve-month term of the note; (ii) issued 50,000 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”) (as discussed below under
Commitment Share True-Up Provision) and; (iii) a warrant to purchase up to 50,000 shares of common stock (the “March 2021
Warrant III”, and together with the March 2021 SPA III and the March 2021 Note III, the “March 2021 Agreements III”).
The 50,000 shares of common stock and 50,000 warrant issued were valued at $23,718 and $7,924, respectively, using the relative fair
value method and the Commitment Share True-up had a fixed monetary value of $22,250, all recorded as a debt discount to be amortized
over the twelve-month term of the note. The March 2021 Note III mature on March 30, 2022 and a one-time interest charge of 10% was applied
on the issue date and will be payable on the maturity date. Upon an event of default, the outstanding balance will immediately and automatically
increase to 140% of the outstanding balance under the March 2021 Note III immediately prior to the occurrence of the Event of Default
and becomes immediately due and payable. The Company shall make nine monthly cash payments (“Amortization Payments”), in
the amount of $12,911 due on the first day of each month, beginning July 1, 2021. If the first day of any calendar month is not on a
business day, then the Company shall make monthly payments on the next business day. The investor may only convert the March 2021 Note
III at any time or times on or after the occurrence of an Event of Default. The March 2021 Note III 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 March 2021 Agreements III contain other provisions, covenants, and restrictions common
with this type of debt transaction. The March 2021 SPA III 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. During the ten months ended October 31, 2021, the Company paid $46,931 of principal and
$4,714 of accrued interest. As of October 31, 2021, the March 2021 Note III had outstanding principal and accrued interest of $63,069
and $0, respectively.
The
March 2021 Warrant III, issued to the investor as commitment fee, provides for the right to purchase up to 50,000 shares of common stock;
(i) valued at $7,924 using the relative fair value method and recorded as a debt discount to be amortized over the twelve-month term
of the note; (ii) has an exercise price of $2.50; (iii) subject to the adjustments and 4.99%, ownership limitation and; (iv) expires
on the fifth-year anniversary from the date of issuance.
March
2021 Note IV
On
March 30, 2021, the Company entered into a Securities Purchase Agreement (the “March 2021 SPA IV”) with an investor for the
sale of the Company’s convertible note. Pursuant to the March 2021 SPA IV, the Company; (i) issued a convertible note with principal
amount of $55,000 (the “March 2021 Note IV”) with the Company receiving $50,000 in net proceeds, net of $5,000 of OID recorded
as a debt discount to be amortized over the twelve-month term of the note; (ii) issued 25,000 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”)
(as discussed below under Commitment Share True-Up Provision) and; (iii) a warrant to purchase up to 25,000 shares of common stock
(the “March 2021 Warrant IV”, and together with the March 2021 SPA IV and the March 2021 Note IV, the “March 2021Agreements
IV”). The 25,000 shares of common stock and 25,000 warrant issued were valued at $11,845 and $3,957, respectively, using the relative
fair value method and the Commitment Share True-up had a fixed monetary value of $11,125, all recorded as a debt discount to be amortized
over the twelve-month term of the note. The March 2021 Note IV mature on March 21, 2022 and a one-time interest charge of 10% was applied
on the issue date and will be payable on the maturity date. Upon an event of default, the outstanding balance will immediately and automatically
increase to 140% of the outstanding balance under the March 2021 Note IV immediately prior to the occurrence of the Event of Default
and becomes immediately due and payable. The Company shall make nine monthly cash payments (“Amortization Payments”), in
the amount of $6,455 due on the first day of each month, beginning June 26, 2021. If the first day of any calendar month is not on a
business day, then the Company shall make monthly payments on the next business day. The investor may only convert the March 2021 Note
IV at any time or times on or after the occurrence of an Event of Default. The March 2021 Note IV 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 March 2021 Agreements IV contain other provisions, covenants, and restrictions common
with this type of debt transaction. The March 2021 SPA IV 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. During the ten months ended October 31, 2021, the Company fully paid the March 2021 Note
IV. As of October 31, 2021, the March 2021 Note IV had no outstanding balance.
HOME
BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER
31, 2021 AND DECEMBER 31, 2020
The
March 2021 Warrant IV, issued to the investor as commitment fee, provides for the right to purchase up to 25,000 shares of common stock;
(i) valued at $3,957 using the relative fair value method and recorded as a debt discount to be amortized over the twelve-month term
of the note; (ii) has an exercise price of $2.50; (iii) subject to the adjustments and 4.99%, ownership limitation and; (iv) expires
on the fifth-year anniversary from the date of issuance.
March
2021 Note V
On
March 31, 2021, the Company entered into a Securities Purchase Agreement (the “March 2021 SPA V”) with an investor for the
sale of the Company’s convertible note. Pursuant to the March 2021 SPA V, the Company; (i) issued a convertible note with principal
amount of $165,000 (the “March 2021 Note V”) with the Company receiving $150,000 in net proceeds, net of $15,000 of OID recorded
as a debt discount to be amortized over the twelve-month term of the note; (ii) issued 75,000 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”)
(as discussed below under Commitment Share True-Up Provision) and; (iii) a warrant to purchase up to 75,000 shares of common stock
(the “March 2021 Warrant V”, and together with the March 2021 SPA V and the March 2021 Note V, the “March 2021Agreements
V”). The 75,000 shares of common stock and 75,000 warrant issued were valued at $36,499 and $12,352, respectively, using the relative
fair value method and the Commitment Share True-up had a fixed monetary value of $34,500, all recorded as a debt discount to be amortized
over the twelve-month term of the note. The March 2021 Note V mature on March 1, 2022 and a one-time interest charge of 10% was applied
on the issue date and will be payable on the maturity date. Upon an event of default, the outstanding balance will immediately and automatically
increase to 140% of the outstanding balance under the March 2021 Note V immediately prior to the occurrence of the Event of Default and
becomes immediately due and payable. The Company shall make nine monthly cash payments (“Amortization Payments”), in the
amount of $20,167 due on the first day of each month, beginning July 1, 2021. If the first day of any calendar month is not on a
business day, then the Company shall make monthly payments on the next business day. The investor may only convert the March 2021 Note
V at any time or times on or after the occurrence of an Event of Default. The March 2021 Note V 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 March 2021 Agreements V contain other provisions, covenants, and restrictions common
with this type of debt transaction. The March 2021 SPA V 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. During the ten months ended October 31, 2021, the Company paid $68,191 of principal and
$12,477 of accrued interest. As of October 31, 2021, the March 2021 Note V had outstanding principal and accrued interest of $96,809
and $0, respectively.
The
March 2021 Warrant V, issued to the investor as commitment fee, provides for the right to purchase up to 75,000 shares of common stock;
(i) valued at $12,352 using the relative fair value method and recorded as a debt discount to be amortized over the twelve-month term
of the note; (ii) has an exercise price of $2.50; (iii) subject to the adjustments and 4.99%, ownership limitation and; (iv) expires
on the fifth-year anniversary from the date of issuance.
April
2021 Financing
On
April 7, 2021, the Company closed a Securities Purchase Agreement dated March 29, 2021 (the “April 2021 SPA”) with an investor
for the sale of the Company’s convertible note. Pursuant to the April 2021 SPA, the Company; (i) issued a convertible note with
principal amount of $165,000 (the “April 2021 Note”) with the Company receiving $146,500 in net proceeds, net of $15,000
of OID and $3,500 of legal fees; (ii) issued 75,000 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) issued warrant to purchase
up to 75,000 shares of common stock (the “April 2021 Warrant”, and together with the April 2021 SPA and the April 2021 Note,
the “April 2021Agreements”). The 75,000 shares of common stock and 75,000 warrant issued were valued at $31,913 and $9,669,
respectively, using the relative fair value method and the Commitment Share True-up had a fixed monetary value of $27,375, recorded as
a debt discount to be amortized over the twelve-month term of the note. The April 2021 Note I mature on March 30, 2022 and a one-time
interest charge of 8% was applied on the issue date and will be payable on the maturity date. Upon an event of default, the outstanding
balance will immediately and automatically increase to 140% of the outstanding balance under the April 2021 Note immediately prior to
the occurrence of the Event of Default and becomes immediately due and payable. The Company shall make nine monthly cash payments (“Amortization
Payments”), in the amount of $19,800 due on the first day of each month, beginning July 1, 2021. If the first day of any calendar
month is not on a business day, then the Company shall make monthly payments on the next business day. The investor may only convert
the April 2021 Note at any time or times on or after the occurrence of an Event of Default. The April 2021 Note 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 April 2021 Agreements contain other provisions, covenants, and restrictions
common with this type of debt transaction. The April 2021 SPA 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. During the ten months ended October 31, 2021, the Company paid $69,316 of principal and
$9,884 of accrued interest. As of October 31, 2021, the April 2021 Note had outstanding principal and accrued interest of $95,684 and
$0, respectively.
HOME
BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER
31, 2021 AND DECEMBER 31, 2020
The
April 2021 Warrant, issued to the investor as commitment fee, provides for the right to purchase up to 75,000 shares of common stock;
(i) valued at $9,669 using the relative fair value method and recorded as a debt discount to be amortized over the twelve-month term
of the note; (ii) has an exercise price of $2.50; (iii) subject to the adjustments and 4.99%, ownership limitation and; (iv) expires
on the fifth-year anniversary from the date of issuance.
May
2021 Financings
May
2021 Note I
On
May 17, 2021, the Company closed a Securities Purchase Agreement (the “May 2021 SPA I”) with an investor for the sale of
the Company’s convertible note. Pursuant to the May 2021 SPA I, the Company; (i) issued a convertible note with principal amount
of $132,000 (the “May 2021 Note I”) with the Company receiving $111,700 in net proceeds, net of $12,000 of OID and $8,300
of legal fees; (ii) issued 60,000 shares of common stock (the “First Commitment Shares”) as commitment fee and shall issue
165,000 shares of common stock (the “Second Commitment Shares”) issued as a returnable commitment fee, accordingly, the Company
deems the Second Commitment Shares as unissued for accounting purposes and; (iii) issued warrant to purchase up to 60,000 shares of common
stock (the “May 2021 Warrant I”, and together with the May 2021 SPA I and the May 2021 Note I, the “May 2021 Agreements
I”). The 60,000 shares of common stock and 60,000 warrant issued were valued at $26,824 and $9,767, respectively, using the relative
fair value method and the Commitment Share True-up had a fixed monetary value of $26,700, recorded as a debt discount to be amortized
over the twelve-month term of the note. The May 2021 Note I matures on May 10, 2022 and a one-time interest charge of 10% was applied
on the issue date and will be payable on the maturity date; in an event of default, the interest rate shall increase to 16% per annum.
Upon an event of default, the outstanding balance will immediately and automatically increase to 140% of the outstanding balance under
the May 2021 Note I immediately prior to the occurrence of the event of default and becomes immediately due and payable. The Company
shall make nine monthly cash payments (“Amortization Payments”), in the amount of $15,667 due on the first day of each month,
beginning August 9, 2021. If the first day of any calendar month is not on a business day, then the Company shall make monthly payments
on the next business day. The investor may only convert the May 2021 Note I at any time or times on or after the occurrence of an event
of default. The May 2021 Note I 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 May 2021 Agreements
I contain other provisions, covenants, and restrictions common with this type of debt transaction. The May 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. During the
ten months ended October 31, 2021, the Company paid $41,159 of principal and $5,842 of accrued interest. As of October 31, 2021, the
May 2021 Note I had outstanding principal and accrued interest of $90,841 and $0, respectively.
The
May 2021 Warrant I, issued to the investor as commitment fee, provides for the right to purchase up to 60,000 shares of common stock;
(i) valued at $9,767 using the relative fair value method and recorded as a debt discount to be amortized over the twelve-month term
of the note; (ii) has an exercise price of $2.50; (iii) subject to the adjustments and 4.99%, ownership limitation and; (iv) expires
on the fifth-year anniversary from the date of issuance.
HOME
BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER
31, 2021 AND DECEMBER 31, 2020
May
2021 Note II
On
May 28, 2021, the Company closed a Securities Purchase Agreement (the “May 2021 SPA II”) with an investor for the sale of
the Company’s convertible note. Pursuant to the May 2021 SPA II, the Company; (i) issued a convertible note with principal amount
of $285,000 (the “May 2021 Note II”) with the Company receiving $250,000 in net proceeds, net of $28,500 of OID and $6,500
of legal fees; (ii) issued 150,000 shares of common stock (the “Commitment Shares”) as commitment fee and; (iii) issued warrant
to purchase up to 150,000 shares of common stock (the “May 2021 Warrant II”, and together with the May 2021 SPA II and the
May 2021 Note II, the “May 2021Agreements II”). The 150,000 shares of common stock and 150,000 warrant issued were valued
at $69,583 and $30,326, respectively, using the relative fair value method, all recorded as a debt discount to be amortized over the
twelve-month term of the note. The May 2021 Note II matures on May 26, 2022 and a one-time interest charge of 10% was applied on the
issue date and will be payable on the maturity date. Upon an event of default, the outstanding balance will immediately and automatically
increase to 140% of the outstanding balance under the May 2021 Note II immediately prior to the occurrence of the event of default and
becomes immediately due and payable. The Company shall make nine monthly cash payments (“Amortization Payments”), in the
amount of $31,350 due on the first day of each month, beginning August 26, 2021. If the first day of any calendar month is not on a business
day, then the Company shall make monthly payments on the next business day. The investor may only convert the May 2021 Note II at any
time or times on or after the occurrence of an event of default. The May 2021 Note II is convertible at a conversion price of $0.70 (“Conversion
Price”). The May 2021 Agreements II contain other provisions, covenants, and restrictions common with this type of debt transaction.
The May 2021 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. During the ten months ended October 31, 2021, the Company paid $48,219 of principal and $14,481 of accrued interest.
As of October 31, 2021, the May 2021 Note II had outstanding principal and accrued interest of $236,781 and $3,069, respectively.
The
May 2021 Warrant II, issued to the investor as commitment fee, provides for the right to purchase up to 150,000 shares of common stock;
(i) valued at $30,326 using the relative fair value method and recorded as a debt discount to be amortized over the twelve-month term
of the note; (ii) has an exercise price of $1.50; (iii) subject to the adjustments and 4.99%, ownership limitation and; (iv) expires
on the fifth-year anniversary from the date of issuance.
September
2021 Financings
September
2021 Note I
On
September 1, 2021, the Company closed a Securities Purchase Agreement (the “September 2021 SPA I”) with an investor for the
sale of the Company’s convertible note. Pursuant to the September 2021 SPA I, the Company; (i) issued a convertible note with principal
amount of $110,000 (the “September 2021 Note I”) with the Company receiving $100,000 in net proceeds, net of $10,000 of OID;
(ii) issued 50,000 shares of common stock (the “First Commitment Shares”) as commitment fee and; (iii) issued warrant to
purchase up to 50,000 shares of common stock (the “September 2021 Warrant I”, and together with the September 2021 SPA I
and the September 2021 Note I, the “September 2021 Agreements I”). The 50,000 shares of common stock and 50,000 warrant issued
were valued at $24,877 and $9,493, respectively, using the relative fair value method, recorded as a debt discount to be amortized over
the nine-month term of the note. The September 2021 Note I matures on June 1, 2022 and a one-time OID charge of 10% was applied on the
issue date and will be payable on the maturity date. Upon an event of default, the outstanding balance will immediately and automatically
increase to 140% of the outstanding balance under the September 2021 Note I immediately prior to the occurrence of the event of default
and becomes immediately due and payable. The Company shall make nine monthly cash payments (“Amortization Payments”), in
the amount of $13,444 due on the first day of each month, beginning October 1, 2021. If the first day of any calendar month is not on
a business day, then the Company shall make monthly payments on the next business day. The investor may only convert the September 2021
Note I at any time or times on or after the occurrence of an event of default. The September 2021 Note I 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 September 2021 Agreements I contain other provisions, covenants, and restrictions common
with this type of debt transaction. The September 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. As of October 31, 2021, the September 2021 Note I had outstanding principal and accrued
interest of $110,000 and $3,366, respectively.
The
September 2021 Warrant I, issued to the investor as commitment fee, provides for the right to purchase up to 50,000 shares of common
stock; (i) valued at $9,493 using the relative fair value method and recorded as a debt discount to be amortized over the nine-month
term of the note; (ii) has an exercise price of $2.50; (iii) subject to the adjustments and 4.99%, ownership limitation and; (iv) expires
on the fifth-year anniversary from the date of issuance.
HOME
BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER
31, 2021 AND DECEMBER 31, 2020
September
2021 Note II
On
September 8, 2021, the Company closed a Securities Purchase Agreement (the “September 2021 SPA II”) with an investor for
the sale of the Company’s convertible note. Pursuant to the September 2021 SPA II, the Company; (i) issued a convertible note with
principal amount of $250,000 (the “September 2021 Note II”) with the Company receiving $218,250 in net proceeds, net of $25,000
of OID and $6,750 of legal fees; (ii) issued 114,000 shares of common stock (the “First Commitment Shares”) as commitment
fee and; (iii) issued warrant to purchase up to 114,000 shares of common stock (the “September 2021 Warrant II”, and together
with the September 2021 SPA II and the September 2021 Note II, the “September 2021 Agreements II”). The 114,000 shares of
common stock and 114,000 warrant issued were valued at $59,468 and $21,004, respectively, using the relative fair value method, recorded
as a debt discount to be amortized over the twelve-month term of the note. The September 2021 Note II matures on August 1, 2022 and 10%
of OID was applied on the issue date and will be payable on the maturity date. Upon an event of default, the outstanding balance will
immediately and automatically increase to 140% of the outstanding balance under the September 2021 Note II immediately prior to the occurrence
of the event of default and becomes immediately due and payable. The Company shall make nine monthly cash payments (“Amortization
Payments”), in the amount of $30,556 due on the first day of each month, beginning December 1, 2021. If the first day of any calendar
month is not on a business day, then the Company shall make monthly payments on the next business day. The investor may only convert
the September 2021 Note II at any time or times on or after the occurrence of an event of default. The September 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 September 2021 Agreements II contain other provisions, covenants,
and restrictions common with this type of debt transaction. The September 2021 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 October 31, 2021, the September 2021 Note II had outstanding principal and accrued
interest of $250,000 and $5,557, respectively.
The
September 2021 Warrant II, issued to the investor as commitment fee, provides for the right to purchase up to 114,000 shares of common
stock; (i) valued at $21,004 using the relative fair value method and recorded as a debt discount to be amortized over the twelve-month
term of the note; (ii) has an exercise price of $2.50; (iii) subject to the adjustments and 4.99%, ownership limitation and; (iv) expires
on the fifth-year anniversary from the date of issuance.
The
Company uses the Binomial Valuation Model to determine the fair value of its stock warrants which requires the Company to make several
key judgments including:
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●
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the value of the Company’s
common stock;
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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 yield
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. 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.
During
the ten months ended October 31, 2021, the fair value of the stock warrants issued with the convertible notes payable was estimated at
issuance using the Monte Carlo Valuation Model with the following assumptions:
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October
31,
2021
|
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|
Dividend rate
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—
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%
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Term
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2.5 years
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Volatility
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60% to 70
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%
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Risk—free interest rate
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0.14 to 0.24
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%
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HOME
BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER
31, 2021 AND DECEMBER 31, 2020
Commitment
Share True-Up Provision
The
Amended December Note I, Amended January Note I, January Note II, March Financings, April 2021 Financing and May 2021 Note I (collectively
as “Notes”), as discussed above, included a Commitment Share True-Up provision whereby if during the period beginning on
the six-month anniversary of the date of the closing date and ending on the later of (i) the maturity date, or (ii) the date on which
the Notes, is fully satisfied and cancelled (the “True-Up Period”), the then lowest traded price of the Company’s common
stock (“Common Stock”) for any Trading Day within the True-Up Period (“Subsequent Share Price”), as reported
on the Company’s principal market, is less than the closing price of the Company’s common stock on the closing date of each
Note, then the Company shall, within three (3) trading days of holder’s provision of written notice in (“True-Up Notice”),
issue and deliver to the holder an additional number of duly and validly issued, fully paid and non-assessable shares of Common Stock
equal to (X) the quotient of the Commitment Value (as defined below) divided by the Subsequent Share Price, multiplied by 1.5, less (Y)
the Commitment Shares. The “Commitment Value” shall mean the product of the Commitment Shares multiplied by the closing price
of the Company’s common stock on the Closing Date of each Note. Any additional shares of Common Stock issuable as defined in the
Notes (“True-up Shares”), if required to be issued shall be issued provided however, that in no event shall the holder be
entitled to receive shares of common stock in excess of the amount that would result in beneficial ownership by the holder and its affiliates
of 4.99% of the outstanding shares of Common Stock at that time. For purposes of the provision to the immediately preceding sentence,
beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), and Regulations 13D-G thereunder. The Company shall at all times reserve shares of its Common Stock for Holder in an amount
equal to 300% multiplied by (X) the quotient of the Commitment Value divided by the lowest traded price of the Common Stock during the
five Trading Days immediately preceding the respective date of calculation, multiplied by 1.5, less (Y) the Original Shares. At the inception
of the respective Notes, the value of the true-up shares is based on a fixed monetary amount known at inception to be settled with a
variable number of shares if triggered which reflects stock settled debt. Therefore, the Commitment Share True-up had an aggregate fixed
monetary value of $209,688 which is reflected as liability to be settled with common stock in the accompanying consolidated balance
sheets.
Derivative
Liabilities Pursuant to Convertible Notes
In
connection with the issuance of the January 2021 Financings, March 2021 Financings, April 2021 Financing and May 2021 Financings, and
September 2021 Financings (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 Monte Carlo valuation model. At the end of each period
and on note conversion date or repayment, the Company revalues the derivative liabilities resulting from the embedded option.
During
the ten months ended October 31, 2021, in connection with the issuance of the Notes, on the initial measurement date, the fair values
of the embedded conversion option of $223,358 was recorded as derivative liabilities and debt discount.
Additionally,
in connection with the Notes, the Company issued an aggregate of 853,385 shares of common stock and an aggregate of 824,000 warrants
as commitment fees (see Note 12). The Company also issued additional 133,250 warrants as commitment fees (see Note 12), in connection
with a debt modification of the December Note II and January Note I. The common stocks and warrants issued during the ten months ended
October 31, 2021 were valued, in aggregate, at $575,480 using the relative fair value method and recorded as debt discount to be amortized
over the term of the Notes.
At
October 31, 2021, 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 $289,874 for the ten months ended October 31,
2021.
During the ten months ended October 31, 2021,
the fair value of the derivative liabilities was estimated at issuance and at October 31, 2021, using the Monte Carlo Valuation Model
with the following assumptions (see Note 2):
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|
|
October
31,
2021
|
|
|
Dividend rate
|
|
|
—
|
%
|
|
Term (in years)
|
|
|
0.33 to 0.84
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Volatility
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|
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90
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%
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Risk—free interest rate
|
|
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0.04 to 0.11
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%
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Default probability
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25
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%
|
For
the ten months ended October 31, 2021, amortization of debt discounts related to the convertible notes amounted to $1,012,554, included
as interest expense on the accompanying consolidated statements of operations. At October 31, 2021 and December 31, 2020 the unamortized
debt discount was $510,438 and $305,524, respectively.
HOME
BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER
31, 2021 AND DECEMBER 31, 2020
NOTE
6 – 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. During the year ended December 31, 2020, the Company paid the outstanding principal balance of the note payable in full which
amounted to $3,738. As of December 31, 2020, the note payable had no outstanding balance.
NOTE
7 - NOTES PAYABLE
Notes
payable is summarized below:
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|
October
31,
2021
|
|
|
December 31,
2020
|
|
|
Principal amount
|
|
|
306,900
|
|
|
|
171,612
|
|
|
Less:
current portion
|
|
|
(15,361
|
)
|
|
|
(20,068
|
)
|
|
Notes
payable - long term portion
|
|
$
|
291,539
|
|
|
$
|
151,544
|
|
Minimum
principal payments under notes payable are as follows:
|
Year ended October 31, 2022
|
|
$
|
15,620
|
|
|
Year ended October 31, 2023
|
|
|
6,369
|
|
|
Year ended October 31, 2024
|
|
|
6,608
|
|
|
Year ended October 31, 2025
|
|
|
6,859
|
|
|
Thereafter
|
|
|
271,444
|
|
|
Total
principal payments
|
|
$
|
306,900
|
|
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. On April 28, 2021, the SBA authorized
forgiveness of the outstanding principal balance of $14,612 and $142 of accrued interest payable of the Company’s PPP loan which
has been recorded as a gain on debt forgiveness in the accompanying consolidated statements of operations. As of October 31, 2021, the
PPP note had no outstanding balance.
HOME
BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER
31, 2021 AND DECEMBER 31, 2020
Economic
Injury Disaster Loan
On
May 20, 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 $149,900, net of $100 processing fee, 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 in the amount of $731, including principal and interest, are due monthly beginning
May 20, 2021 (twelve months from the date of the SBA Note). The balance of principal and interest is payable thirty years from the date
of the SBA Note. As of October 31, 2021, the SBA Note had an outstanding principal balance of $149,900 and $8,152 of accrued interest,
reflected in the accompanying consolidated balance sheets under accrued expense and other liabilities.
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.
Instalment 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 October
31, 2021, the SBA Note had an outstanding principal balance of $150,000 and accrued interest of $7,721, reflected in the accompanying
consolidated 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 which was recorded as other income in the accompanying consolidated statements 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 October 31, 2021, the Note had an outstanding principal balance of $7,000 and accrued interest of $338, reflected in the accompanying
consolidated balance sheets under accrued expense and other liabilities.
NOTE
8 – 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. 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.
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. In 2020, the Company
paid $47,328 of the principal balance and the advance had an outstanding balance $1,672. During the ten months ended October 31, 2021,
the Company paid the advance in full and there was no balance outstanding as of October 31, 2021.
HOME
BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER
31, 2021 AND DECEMBER 31, 2020
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 advance had outstanding principal balance of $63,000. During the ten months ended October 31, 2021, the Company paid the advance
in full and there was no balance outstanding as of October 31, 2021.
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). In 2020, the Company paid $5,015 of principal balance and the advance had an outstanding balance
of $13,825 as of December 31, 2020. During the ten months ended October 31, 2021, the Company paid the advance in full and there was
no balance outstanding as of October 31, 2021.
On
March 29, 2021, the Company entered into a capital advance agreement (the “Fifth Advance Agreement”) with Shopify. Under
the terms of the Fifth Advance Agreement, the Company has received $23,000 of principal and will repay $25,990 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 ten months
ended October 31, 2021, the Company paid the advance in full and there was no balance outstanding as of October 31, 2021.
On
March 30, 2021, the Company closed a Revenue Share Agreement (“Agreement”) with a lender pursuant to which the Company agreed
to sell, assign and transfer to the lender and the lender agreed to purchase from the Company, all of the Company’s right, title
and interest in its future receivables amounting to $74,200 (“Specified Amount”) and $70,000 (“Purchase Price”
or “Advance”) of this amount shall be made available to the Company. Pursuant to the Agreement, prior to the lender making
the amount of the Advance available for use (even if the Company choose not to spend any or all of the Advance); (a) the Company will
deliver, and will cause to be delivered, on each day to the lender, 20% of future receivables and 25% of future receivables after the
121st day from and including the closing date (“Applicable Percentage”) until the lender receive the specified
Amount and; (b) the Company acknowledge that good, sufficient and valuable consideration has been received. The Company will only use
the Advance for the purchase of products or services necessary to operate its business as defined in the Agreement. On April 1, 2021,
an advance of $74,200 of which $70,000 was made available to the Company and $4,200 OID was charged to interest expense. During the ten
months ended October 31, 2021, the Company paid the advance in full and there was no balance outstanding as of October 31, 2021.
On
July 9, 2021, the Company entered into a capital advance agreement (the “Sixth Advance Agreement”) with Shopify. Under the
terms of the Sixth Advance Agreement, the Company has received $95,000 of principal and will repay $107,350 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 ten months ended
October 31, 2021, the Company paid $27,056 of the outstanding balance. The advance had $67,945 of outstanding balance as of September
30, 2021, reflected as advance payable on the accompanying consolidated balance sheets.
On
August 31, 2021, the Company entered into a capital advance agreement (the “Seventh Advance Agreement”) with Shopify. Under
the terms of the Seventh Advance Agreement, the Company has received $34,000 of principal and will repay $38,420 by remitting 17% of
the total customer payments processed daily by the e-commerce platform provider until the advance is repaid in full. The advance has
an outstanding balance of $34,000 as of September 30, 2021, reflected as advance payable on the accompanying consolidated balance
sheets.
On
September 1, 2021, the Company entered into a capital advance agreement (the “First Liberty Advance Agreement”) with Liberty
Funding. Under the terms of the First Liberty Advance Agreement, the Company has received $110,000 of principal and will repay $132,000
by making weekly installments of $5,500 until the advance is repaid in full. During the ten months ended October 31, 2021, the Company
paid the advance in full and there was no balance outstanding as of October 31, 2021.
HOME
BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER
31, 2021 AND DECEMBER 31, 2020
NOTE
9 – LEASE LIABILITIES
Operating
Lease Right-of-Use (“ROU”) Asset and Operating Lease Liabilities
On July 6, 2021, the Company acquired Model Meals (see Note 3), which
had a lease agreement for its facility in Santa Ana, California which expired in December 2021 (see Note 16) and had remaining operating
right-of-use asset and liability of $76,136 and $79,054, respectively. Pursuant to the lease agreement, the lease requires the Company
to pay a monthly base rent of $14,140 for the remainder of the lease term.
June
1, 2021, the Company entered into a lease agreement, effective July 13, 2021, for its facility in Pembroke Pine, Florida. The lease is
for a period of 36 months commencing in July 2021 and expiring in July 2024. Pursuant to the lease agreement, the Company shall pay a
monthly base rent of; (i) $8,062 in the first year; (ii) $8,465 in the second year and; (iii) $8,888 in the third year.
For
the ten months ended October 31, 2021, total rent expense amounted to $154,078 which is included in general and administrative expenses
on the accompanying consolidated statements of operations.
The
significant assumption used to determine the present value of the operating lease liabilities was a discount rate of 10% which was based
on the Company’s estimated incremental borrowing rate.
Operating
right-of-use (“Operating ROU”) asset is summarized below:
|
|
|
October
31,
2021
|
|
|
Operating ROU
assets
|
|
$
|
336,614
|
|
|
Less
accumulated amortization
|
|
|
(68,105
|
)
|
|
Balance
of Operating ROU assets, net
|
|
$
|
268,509
|
|
Operating
lease liabilities related to the Operating ROU assets is summarized below:
|
|
|
October
31,
2021
|
|
|
Operating
lease liabilities
|
|
$
|
339,532
|
|
|
Total operating lease liabilities
|
|
|
339,532
|
|
|
Reduction
of operating lease liabilities
|
|
|
(71,178
|
)
|
|
Total
|
|
|
268,354
|
|
|
Less:
short term portion
|
|
|
(101,431
|
)
|
|
Long
term portion
|
|
$
|
166,923
|
|
Future
minimum operating lease payments under the operating lease agreements at October 31, 2021 are as follows:
|
Year
|
|
Amount
|
|
|
Year ending October 31, 2022
|
|
$
|
122,402
|
|
|
Year ending October 31, 2023
|
|
|
102,849
|
|
|
Year ending October 31,
2024
|
|
|
79,991
|
|
|
Total minimum non-cancelable
operating lease payments
|
|
|
305,242
|
|
|
Less:
discount to fair value
|
|
|
(36,888
|
)
|
|
Total
operating lease liabilities at October 31, 2021
|
|
$
|
268,354
|
|
Financing
Lease Right-of-Use (“ROU”) Assets and Financing Lease Liability
On
July 13, 2021, the Company entered into a financing agreement with a lessor for the purchase of equipment. Pursuant to the financing
agreement, the Company shall make a monthly payment of $6,500 for a period of 36 months commencing in August 2021 through August 2024.
The monthly payment shall consist of $6,000 cash and $500 in gift card allowance, reflected in the accompanying balance sheet under accrued
expense and other liabilities. At the effective date of the financing agreement, the Company recorded a financing lease payable of
$200,509.
The
significant assumption used to determine the present value of the financing lease liability was a discount rate of 10% which was based
on the Company’s estimated incremental borrowing rate.
HOME
BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER
31, 2021 AND DECEMBER 31, 2020
Financing
right-of-use (“Financing ROU”) asset is summarized below:
|
|
|
October
31,
2021
|
|
|
Financing ROU
assets
|
|
$
|
200,509
|
|
|
Less
accumulated depreciation
|
|
|
(19,494
|
)
|
|
Balance
of financing ROU assets, net
|
|
$
|
181,015
|
|
For
the ten months ended October 31, 2021, depreciation expense related to Financing ROU assets amounted to $19,494.
Financing
lease liability related to the Financing ROU assets is summarized below:
|
|
|
October
31,
2021
|
|
|
Financing
lease payables for equipment
|
|
$
|
200,509
|
|
|
Total
financing lease payables
|
|
|
200,509
|
|
|
Reduction
of financing lease liability
|
|
|
(13,650
|
)
|
|
Total
|
|
|
186,859
|
|
|
Less:
short term portion
|
|
|
(62,210
|
)
|
|
Long
term portion
|
|
$
|
124,649
|
|
Future
minimum lease payments under the financing lease agreement at October 31, 2021 are as follows:
|
Year
|
|
Amount
|
|
|
Year ending October 31, 2022
|
|
$
|
78,000
|
|
|
Year ending October 31, 2023
|
|
|
78,000
|
|
|
Year ending October 31,
2024
|
|
|
58,500
|
|
|
Total minimum non-cancelable
financing lease payments
|
|
|
214,500
|
|
|
Less:
discount to fair value
|
|
|
(27,641
|
)
|
|
Total
financing lease liabilities at October 31, 2021
|
|
$
|
186,859
|
|
NOTE
10 – UNREDEEMED GIFT CARDS
Unredeemed
gift cards activities as of October 31, 2021 and December 31, 2020 are summarized as follows:
|
|
|
October
31,
2021
|
|
|
December 31,
2020
|
|
|
Beginning balance
|
|
$
|
48,311
|
|
|
$
|
10,365
|
|
|
Acquired gift card liability
(see Note 3)
|
|
|
87,260
|
|
|
|
—
|
|
|
Sale and issuance of gift
cards
|
|
|
186,749
|
|
|
|
99,322
|
|
|
Revenue from breakage
|
|
|
(60,515
|
)
|
|
|
(17,114
|
|
|
Total
gift card redemptions
|
|
|
(96,893
|
)
|
|
|
(44,262
|
)
|
|
Ending balance
|
|
$
|
164,912
|
|
|
$
|
48,311
|
|
NOTE
11 – 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 incurred and paid to
the related entity during the ten months ended October 31, 2021 was $153,165 and was $117,310 for the year ended December 31, 2020, which
is included in cost of goods sold on the statement of operations. There were no amounts due to this related party for these services as
of October 31, 2021 and December 31, 2020.
See
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.
See
related party convertible note in Note 5 – March 2021 Note III – Related Party.
See
consulting agreement in Note 14 – Consulting Agreement – Related Party
HOME
BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER
31, 2021 AND DECEMBER 31, 2020
NOTE
12 – STOCKHOLDERS’ EQUITY (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).
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).
Common
Stock and Warrants Issued Pursuant to Recapitalization
On
April 20, 2020, in connection with the Exchange Agreement and Merger (see Note 3):
|
|
●
|
519,000 shares of Series A Preferred stock, were exchanged for aggregate of 1,325,151 shares of common stock and 2,730,425 of stock warrants. The 2,730,424 stock warrants issued are exercisable at $0.001 and expire on April 20, 2030. As of September 30, 2020, there were no outstanding shares of Series A Preferred stock.
|
|
|
●
|
250,000 shares of Series B Convertible Preferred stock owned by a former officer were cancelled on April 9, 2020 pursuant to a General Release Agreement and the remaining 250,000 shares of Series B Convertible Preferred stock remain issued and outstanding as of September 30, 2020.
|
|
|
●
|
2,250 and 250 of the Company’s shares of Series C Preferred stock, were exchanged for 351,639 of stock warrants and 39,071 shares of common stock, respectively, for an aggregate of 2,500 shares of Series C Preferred exchanged. The 351,639 stock warrants are exercisable at $0.001 and expire on April 20, 2030. As of September 30, 2020, there were no outstanding shares of Series C Preferred stock.
|
|
|
|
|
|
|
●
|
a lender converted $1,127,500 of outstanding convertible note balance into 881,052 of stock warrants, exercisable at $0.001 and expire on April 20, 2030.
|
|
|
●
|
2,500,000 shares of commons stock held by a stockholder were exchanged for 78,142 of stock warrants, exercisable at $0.001 and expire on April 20, 2030.
|
As
a result, in connection with the Exchange Agreement and Merger (see Note 3), Gratitude Health, Inc is deemed to have issued a total of
250,000 shares of Series B Convertible Preferred stock, 1,899,094 shares of common stock, 60,368 stock options, 4,041,258 stock warrants
which represent the outstanding preferred stock, common stock (issued and issuable), stock options and stock warrants of the Company
on the date of the Merger.
|
|
●
|
On April 20, 2020, pursuant to the Merger (see Note 3), the Company issued 4,041,258 stock warrants with exercise price of $0.001 and expiration date of April 20, 2030, 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 6,926,314 stock warrants with exercise price of $0.001 and expiration date of April 20, 2030 in exchange for certain outstanding common stock shares of Home Bistro on the date of the Merger.
|
Preferred
Stock
As
of October 31, 2021 and December 31, 2020, there were no outstanding shares of Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock (see above Common Stock and Warrants Issued Pursuant to Recapitalization).
HOME
BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER
31, 2021 AND DECEMBER 31, 2020
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 5) which was recorded as debt discount which will be amortized over the life of the notes.
|
|
|
●
|
On January 12, 2021, the Company issued 29,385 shares of common stock to a non-affiliate investor as commitment fee, pursuant to a securities purchase agreement (see Note 5), valued at $17,297 using the relative fair value method and was recorded as debt discount to be amortized over the life of the note.
|
|
|
●
|
On January 27, 2021, the Company issued 150,000 shares of common stock to a non-affiliate investor as commitment fee, pursuant to a securities purchase agreement (see Note 5), valued at $85,981 using the relative fair value method and was recorded as debt discount to be amortized over the life of the note.
|
|
|
●
|
On March 22, 2021, the Company issued 25,000 shares of common stock to a non-affiliate investor as commitment fee pursuant to a securities purchase agreement (see Note 5), valued at $6,949 using the relative fair value method and was recorded as debt discount to be amortized over the life of the note.
|
|
|
●
|
On March 29, 2021, the Company issued 50,000 shares of common stock to a non-affiliate investor as commitment fee pursuant to a securities purchase agreement (see Note 5), valued at $24,504 using the relative fair value method and was recorded as debt discount to be amortized over the life of the note.
|
|
|
●
|
On March 30, 2021, the Company issued 50,000 shares of common stock to a related party investor as commitment fee pursuant to a securities purchase agreement (see Note 5), valued at $23,718 using the relative fair value method and was recorded as debt discount to be amortized over the life of the note.
|
|
|
●
|
On March 30, 2021, the Company issued 25,000 shares of common stock to a non-affiliate investor as commitment fee pursuant to a securities purchase agreement (see Note 5), valued at $11,845 using the relative fair value method and was recorded as debt discount to be amortized over the life of the note.
|
|
|
●
|
On March 31, 2021, the Company granted 75,000 shares of common stock to a non-affiliate investor as commitment fee pursuant to a securities purchase agreement (see Note 5), valued at $36,499 using the relative fair value method and was recorded as debt discount to be amortized over the life of the note.
|
|
|
●
|
On April 7, 2021, the Company granted 75,000 shares of common stock to a non-affiliate investor as commitment fee pursuant to a securities purchase agreement (see Note 5), valued at $30,947 using the relative fair value method and was recorded as debt discount to be amortized over the life of the note.
|
|
|
●
|
On May 17, 2021, the Company granted 60,000 shares of common stock to a non-affiliate investor as commitment fee pursuant to a securities purchase agreement (see Note 5), valued at $26,824 using the relative fair value method and was recorded as debt discount to be amortized over the life of the note.
|
|
|
●
|
On May 28, 2021, the Company granted 150,000 shares of common stock to a non-affiliate investor as commitment fee pursuant to a securities purchase agreement (see Note 5), valued at $67,645 using the relative fair value method and was recorded as debt discount to be amortized over the life of the note.
|
|
|
●
|
On September 1, 2021, the Company granted 50,000 shares of common stock to a non-affiliate investor as commitment fee pursuant to a securities purchase agreement (see Note 5), valued at $26,877 using the relative fair value method and was recorded as debt discount to be amortized over the life of the note.
|
|
|
●
|
On September 8, 2021, the Company granted 114,000 shares of common stock to a non-affiliate investor as commitment fee pursuant to a securities purchase agreement (see Note 5), valued at $59,468 using the relative fair value method and was recorded as debt discount to be amortized over the life of the note.
|
HOME
BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER
31, 2021 AND DECEMBER 31, 2020
Stock-Based
Compensation
|
|
●
|
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. 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).
|
|
|
●
|
During the ten months ended October 31, 2021 and year ended December
31, 2020, the Company recorded stock-based compensation of $156,750 and $213,841, respectively, related to 125,000 shares of common stock
issued to a director and executive pursuant to employment agreements (see Note 14) which was recorded as compensation and related 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. As of October 31, 2021 and December 31, 2020, there was no unamortized compensation expense related to these common
stocks.
|
Common
Stock Issued for Cash
|
|
●
|
During the year ended December 31, 2020, the Company issued an aggregate of 1,492 shares of common stock, to a related party for aggregate cash proceeds of $100,006.
|
|
|
●
|
During the ten months ended October 31, 2021, the Company issued an
aggregate of 6,112,993 shares of common stock, to non-affiliate investors for aggregate net cash proceeds of $4,368,796, net of $215,949
of issuance costs.
|
Common
Stock Issued for Services
|
|
●
|
During the year ended December 31, 2020, the Company recorded stock-based compensation of $238,268 related to an aggregate of 127,942,741 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.
|
|
|
●
|
On June 22, 2021, the Company issued 150,000 shares of common stock with fair value of $150,000 based on the fair value of common stock on the date of grant, pursuant to an agreement which was recorded as deferred compensation and is being amortized over the 2-year term of the agreement. During the ten months ended October 31, 2021, $28,125 of the deferred compensation was expensed as product development expense in the accompanying consolidated statements of operations. As of October 31, 2021, there was $121,875 of deferred compensation related to this agreement.
|
|
|
●
|
On July 22, 2021, the Company issued 150,000 shares of common stock with fair value of $172,500 based on the fair value of common stock on the date of grant, pursuant to an agreement which was recorded as deferred compensation and is being amortized over the term of the agreement. During the ten months ended October 31, 2021, $25,156 of the deferred compensation was expensed as product development expense in the accompanying consolidated statements of operations. As of October 31, 2021, there was $147,344 of deferred compensation related to this agreement.
|
|
|
|
|
|
|
●
|
On September 15, 2021, the Company issued 150,000 shares of common stock with fair value of $255,000 based on the fair value of common stock on the date of grant, pursuant to an agreement which was recorded as deferred compensation and is being amortized over the 2-year term of the agreement. During the ten months ended October 31, 2021, $15,938 of the deferred compensation was expensed as product development expense in the accompanying consolidated statements of operations. As of October 31, 2021, there was $239,063 of deferred compensation related to this agreement.
|
|
|
●
|
On October 20, 2021, the Company issued 100,000 shares of common stock
with fair value of $132,000 based on the fair value of common stock on the date of grant, pursuant to a consulting agreement which was
recorded as professional and consulting expenses in the accompanying consolidated statements of operations.
|
Common
Stock Issued for Prepaid Services
|
|
●
|
On April 20, 2021, the Company issued an aggregate of 2,000,000 shares
of common stock with an aggregate grant date fair value of $1,800,000 or $0.90 per share based on the market price of common stock on
grant date, to two consultants pursuant to a consulting agreement (see Note 14). The fair value of the common stock was initially recorded
in equity as deferred compensation which will be amortized over the twelve-month service period. During the ten months ended October 31,
2021, the Company amortized $1,050,00 of the deferred compensation which was charged to professional and consulting expense in the accompanying
consolidated statements of operations. As of October 31, 2021, the deferred compensation related to this agreement was $750,000 which
will be amortized over a period of five months.
|
HOME
BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER
31, 2021 AND DECEMBER 31, 2020
Common
Stock Issued Pursuant to Lock-Up & Leak Out Agreements
|
|
●
|
During the ten months ended October 31, 2021, the Company issued to several stockholders, an aggregate of 112,500 shares of common stock with fair value of $152,626 or an average per share price of $1.36, based on the market price of common stock on grant date, pursuant to a Lock-Up & Leak Out Agreement (see Note 14). The fair value of the common stock was initially recorded in equity as deferred compensation which is amortized over the lock up period of three-to-four-month period. During the ten months ended October 31, 2021, the Company amortized $36,688 of the deferred compensation and was recorded as interest expense in the accompanying consolidated statement of operations. As of October 31, 2021, the deferred compensation related to this agreement was $115,938 which will be amortized over a period of three months.
|
Cancellation
of Common Stock Issuable
|
|
●
|
On April 20, 2020, in connection with the Exchange Agreement and Merger (see Note 3), 2,600,000 shares of common stock issuable at the closing of the acquisition were cancelled during the year ended December 31, 2020. As of December 31, 2020, the Company did not have any common stock issuable.
|
Common
Stock Issued for Acquisition of Subsidiary
|
|
●
|
On July 6, 2021, the Company issued an aggregate of 2,008,310 shares of common stock with fair value of $2,028,393, based on the market price of common stock on date of acquisition, to members of Model Meals, LLC in exchange for 100% membership, pursuant to the Agreement and Plan of Merger (see Note 1 and Note 3).
|
Common Stock Issued for Asset Acquisition
Transaction
|
|
●
|
On October 25, 2021, the Company issued: (i) 2,266,666 shares of common stock, with fair value of $2,969,334, based on the market price of common stock on date of issuance, to members of Homemade Meals, LLC as compensation to terminate an exclusivity and non-compete agreement in order to execute a license agreement with a celebrity which was recorded as product development expense in the accompanying consolidated statement of operations and (ii) 2,000,000 shares of common stock with fair value of $2,620,000, based on the market price of common stock, as consideration to a celebrity chef in connection with the execution of a License Agreement which was capitalized as an intangible asset and is being amortized over the three-year term (see Note 4).
|
Stock
Options
A
summary of the Company’s outstanding stock options as of October 31, 2021 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
|
|
|
$
|
—
|
|
|
Expired
|
|
|
(60,638
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Balance on October 31, 2021
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
HOME BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2021 AND DECEMBER 31, 2020
Stock Warrants
Warrants Issued Pursuant to Recapitalization
|
|
●
|
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 Common Stocks and Warrants 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.
|
Warrants Issued Pursuant to an Employment Agreement
|
|
●
|
On October 1, 2021, the Company issued warrants
to purchase up to 2,000,000 shares of the Company’s common stock to a am executive in connection with an employment agreement (see
Note 14). This warrant is exercisable, in whole or in part, upon issuance at $0.001 per share, and expires on October 1, 2026. These warrants
have a grant date fair value of $2,714,971, recorded as compensation and related expenses on the accompanying consolidated statements
of operations.
|
Warrants Issued for Professional Services
|
|
●
|
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 14). 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 at issuance as product development expense 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 professional and consulting expenses on the consolidated statements of operations.
|
|
|
●
|
On April 24, 2021, the Company issued warrants
to purchase up to 5,435 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 $1.10 per share, and expires on April 24, 2026. These warrants have
a grant date fair value of $1,419, recorded as professional and consulting expenses on the consolidated statements of operations.
|
|
|
●
|
On May 17, 2021, the Company issued warrants to purchase up to 1,920
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 $2.50 per share, and expires on May 17, 2026. These warrants have a grant date fair value of $286,
recorded as professional and consulting expenses on the consolidated statements of operations.
|
|
|
●
|
On September 10, 2021, the Company issued warrants
to purchase up to 2,250 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 $3.00 per share, and expires on May 17, 2026. These warrants have a
grant date fair value of $751, recorded as professional and consulting expenses on the consolidated statements of operations.
|
|
|
●
|
On October 1, 2021, the Company issued warrants
to purchase up to 500,000 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 $0.001 per share, and expires on October 1, 2026. These warrants have
a grant date fair value of $678,253, recorded as professional and consulting expenses on the consolidated statements of operations.
|
|
|
●
|
On October 1, 2021, the Company issued warrants
to purchase up to 1,000,000 shares of the Company’s common stock to a related-party entity in connection with a consulting agreement
(see Note 14). This warrant is exercisable, in whole or in part, upon issuance at $0.001 per share, and expires on October 1, 2026. These
warrants have a grant date fair value of $1,356,507, recorded as professional and consulting expenses - related party on the consolidated
statements of operations.
|
HOME BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2021 AND DECEMBER 31, 2020
Warrants Issued for Commitment Fee with
Convertible Notes Payable
|
|
●
|
On January 27, 2021, the Company issued a warrant to purchase up to 150,000 shares of common stock to a non-affiliate investor as additional commitment fee pursuant to a note amendment (see Note 5). The warrant; (i) was valued at $31,821 using the relative fair value method and recorded as a debt discount to be amortized over the life of the note; (ii) has an exercise price of $2.50; (iii) subject to the adjustments and 4.99%, ownership limitation and; (iv) expires on the fifth-year anniversary from the date of issuance.
|
|
|
●
|
On March 22, 2021, the Company issued a warrant to purchase up to 25,000 shares of common stock to a non-affiliate investor as additional commitment fee pursuant to a note amendment (see Note 5). The warrant; (i) was valued at $1,346 using the relative fair value method and recorded as a debt discount to be amortized over the life of the note; (ii) has an exercise price of $2.50; (iii) subject to the adjustments and 4.99%, ownership limitation and; (iv) expires on the fifth-year anniversary from the date of issuance.
|
|
|
●
|
On March 25, 2021, the Company issued warrant to purchase up to 78,250 shares of common to a non-affiliate investor as additional commitment fee pursuant to a note amendment (see Note 5). The warrant; (i) was valued at $4,744 using the relative fair value method and recorded as a debt discount to be amortized over the life of the note; (ii) has an exercise price of $2.50; (iii) subject to the adjustments and 4.99%, ownership limitation and; (iv) expires on the fifth-year anniversary from the date of issuance.
|
|
|
●
|
On March 29, 2021, the Company issued a warrant to purchase up to 50,000 shares of common stock to a non-affiliate investor as additional commitment fee pursuant to a note amendment (see Note 5). The warrant; (i) was valued at $8,350 using the relative fair value method and recorded as a debt discount to be amortized over the life of the note; (ii) has an exercise price of $2.50; (iii) subject to the adjustments and 4.99%, ownership limitation and; (iv) expires on the fifth-year anniversary from the date of issuance.
|
|
|
●
|
On March 29, 2021, the Company issued a warrant to purchase up to 50,000 shares of common stock to a related party investor as additional commitment fee pursuant to a note amendment (see Note 5). The warrant; (i) was valued at $7,924 using the relative fair value method and recorded as a debt discount to be amortized over the life of the note; (ii) has an exercise price of $2.50; (iii) subject to the adjustments and 4.99%, ownership limitation and; (iv) expires on the fifth-year anniversary from the date of issuance.
|
|
|
●
|
On March 30, 2021, the Company issued a warrant to purchase up to 25,000 shares of common stock to a non-affiliate investor as additional commitment fee pursuant to a note amendment (see Note 5). The warrant; (i) was valued at $3,957 using the relative fair value method and recorded as a debt discount to be amortized over the life of the note; (ii) has an exercise price of $2.50; (iii) subject to the adjustments and 4.99%, ownership limitation and; (iv) expires on the fifth-year anniversary from the date of issuance.
|
|
|
●
|
On March 31, 2021, the Company issued a warrant to purchase up to 75,000 shares of common stock to a non-affiliate investor as additional commitment fee pursuant to a note amendment (see Note 5). The warrant; (i) was valued at $12,352 using the relative fair value method and recorded as a debt discount to be amortized over the life of the note; (ii) has an exercise price of $2.50; (iii) subject to the adjustments and 4.99%, ownership limitation and; (iv) expires on the fifth-year anniversary from the date of issuance.
|
|
|
●
|
On March 31, 2021, the Company issued a warrant to purchase up to 55,000 shares of common stock to a non-affiliate investor as additional commitment fee pursuant to a note amendment (see Note 5). The warrant; (i) was valued at $6,173 using the relative fair value method and recorded as a debt discount to be amortized over the life of the note; (ii) has an exercise price of $2.50; (iii) subject to the adjustments and 4.99%, ownership limitation and; (iv) expires on the fifth-year anniversary from the date of issuance.
|
|
|
●
|
On April 7, 2021, the Company issued a warrant to purchase up to 75,000 shares of common stock to a non-affiliate investor as additional commitment fee pursuant to a note amendment (see Note 5). The warrant; (i) was valued at $9,669 using the relative fair value method and recorded as a debt discount to be amortized over the life of the note; (ii) has an exercise price of $2.50; (iii) subject to the adjustments and 4.99%, ownership limitation and; (iv) expires on the fifth-year anniversary from the date of issuance.
|
|
|
●
|
On May 17, 2021, the Company issued a warrant to purchase up to 60,000 shares of common stock to a non-affiliate investor as additional commitment fee pursuant to a note amendment (see Note 5). The warrant; (i) was valued at $9,767 using the relative fair value method and recorded as a debt discount to be amortized over the life of the note; (ii) has an exercise price of $2.50; (iii) subject to the adjustments and 4.99%, ownership limitation and; (iv) expires on the fifth-year anniversary from the date of issuance.
|
HOME BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2021 AND DECEMBER 31, 2020
|
|
●
|
On May 28, 2021, the Company issued a warrant to purchase up to 150,000 shares of common stock to a non-affiliate investor as additional commitment fee pursuant to a note amendment (see Note 5). The warrant; (i) was valued at $30,326 using the relative fair value method and recorded as a debt discount to be amortized over the life of the note; (ii) has an exercise price of $1.50; (iii) subject to the adjustments and 4.99%, ownership limitation and; (iv) expires on the fifth-year anniversary from the date of issuance.
|
|
|
●
|
On September 1, 2021, the Company issued a warrant to purchase up to 50,000 shares of common stock to a non-affiliate investor as additional commitment fee pursuant to a note amendment (see Note 5). The warrant; (i) was valued at $9,493 using the relative fair value method and recorded as a debt discount to be amortized over the life of the note; (ii) has an exercise price of $2.50; (iii) subject to the adjustments and 4.99%, ownership limitation and; (iv) expires on the fifth-year anniversary from the date of issuance.
|
|
|
●
|
On September 8, 2021, the Company issued a warrant to purchase up to 114,000 shares of common stock to a non-affiliate investor as additional commitment fee pursuant to a note amendment (see Note 5). The warrant; (i) was valued at $21,004 using the relative fair value method and recorded as a debt discount to be amortized over the life of the note; (ii) has an exercise price of $2.50; (iii) subject to the adjustments and 4.99%, ownership limitation and; (iv) expires on the fifth-year anniversary from the date of issuance.
|
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:
|
|
●
|
the expected life of issued stock warrants;
|
|
|
|
|
|
|
●
|
the expected volatility of the Company’s stock price;
|
|
|
|
|
|
|
●
|
the expected dividend yields to be realized over the life of the stock warrants; and
|
|
|
|
|
|
|
●
|
the risk-free interest rate over the expected life of the stock warrants.
|
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.
|
Dividend rate
|
|
|
—
|
%
|
|
Term (in years)
|
|
|
2.5 to 5 years
|
|
|
Volatility
|
|
|
69
|
%
|
|
Risk-free interest rate
|
|
|
0.14% to 0.27
|
%
|
A summary of the Company’s outstanding stock
warrants as of October 31, 2021 and changes during the period ended are presented below:
|
|
|
Number of Stock
Warrants
|
|
|
Weighted Average
Exercise
Price
|
|
|
Weighted Average
Remaining
Contractual Life
(Years)
|
|
|
Balance on December 31, 2019
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
Deemed issued in connection with the Company’s recapitalization (see Note 3)
|
|
|
4,041,258
|
|
|
|
0.032
|
|
|
|
9.3
|
|
|
Issued pursuant to Exchange Agreement (see Note 3)
|
|
|
6,926,314
|
|
|
|
0.032
|
|
|
|
9.3
|
|
|
Granted
|
|
|
310,640
|
|
|
|
0.044
|
|
|
|
9.6
|
|
|
Balance on December 31, 2020
|
|
|
11,278,212
|
|
|
|
0.032
|
|
|
|
9.3
|
|
|
Issued as commitment fee pursuant to convertible debt (see Note 5)
|
|
|
957,250
|
|
|
|
2.308
|
|
|
|
4.4
|
|
|
Granted
|
|
|
3,509,605
|
|
|
|
0.001
|
|
|
|
4.9
|
|
|
Stock warrants exercisable on October 31, 2021
|
|
|
15,745,076
|
|
|
$
|
0.167
|
|
|
|
7.4
|
|
|
Weighted average fair value of stock warrants granted during the period
|
|
|
|
|
|
$
|
1.08
|
|
|
|
|
|
The exercisable stock warrants had an intrinsic
value of $18,104,799 on October 31, 2021.
HOME BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2021 AND DECEMBER 31, 2020
NOTE 13 – 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 October 31, 2021 and December 31, 2020 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 ten-months ended October 31, 2021 and the year
ended December 31, 2020 are as follow:
|
|
|
Ten-Months
Ended
October 31,
2021
|
|
|
Year Ended
December 31,
2020
|
|
|
Income tax benefit at U.S. statutory rate of 21%
|
|
$
|
(2,688,478
|
)
|
|
$
|
(260,749
|
)
|
|
Income tax benefit – state
|
|
|
(999,858
|
)
|
|
|
(108,025
|
)
|
|
Non-deductible expenses
|
|
|
2,837,058
|
|
|
|
223,929
|
|
|
Change in tax rate – state from 8.7% to 7.8%
|
|
|
36,281
|
|
|
|
—
|
|
|
Change in valuation allowance
|
|
|
814,997
|
|
|
|
144,845
|
|
|
Total provision for income tax
|
|
$
|
—
|
|
|
$
|
—
|
|
The Company’s approximate net deferred tax
asset as of October 31, 2021 and December 31, 2020 was as follow:
|
|
|
Ten-Months
Ended
October 31,
2021
|
|
|
Year Ended
December 31,
2020
|
|
|
Net operating loss carryforward
|
|
$
|
2,025,694
|
|
|
$
|
1,210,697
|
|
|
Total deferred tax asset
|
|
|
2,025,694
|
|
|
|
1,210,697
|
|
|
Less: valuation allowance
|
|
|
(2,025,694
|
)
|
|
|
(1,210,697
|
)
|
|
Net deferred tax asset
|
|
$
|
—
|
|
|
$
|
—
|
|
The gross operating loss carryforward available
to the Company was $7,031,218 at October 31, 2021. The Company provided a full valuation allowance equal to the net deferred income tax
asset as of October 31, 2021 and December 31, 2020 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 2021 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 $851,278
in 2021. The total net loss carryforward on October 31, 2021 is $2,025,694. 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 $970,156 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.
HOME BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2021 AND DECEMBER 31, 2020
NOTE 14 – COMMITMENTS AND CONTINGENCIES
Employment Agreement
On October 1, 2021, the Company entered into an
employment agreement (the “Employment Agreement”) with Zalmi Scher Duchman to serve as the Company’s Chief Executive
Officer. The Employment Agreement has a term of three years (“Term”) from the effective date and provides for (i) an annual
salary of $120,000 and (ii) a one-time warrant grant of 2,000,000 shares of common stock, with grant a date fair value of $2,714,971 (see
Note 12), which vested upon issuance, exercisable at $0.001 and expires on October 1, 2026. Mr. Duchman is entitled to vacation, sick
and holiday pay and other benefits, in accordance with the Company’s policies established and in effect from time to time. The Company
may terminate the Mr. Duchman for cause (as defined in Employment Agreement) by giving Mr. Duchman written notice approved by the Board
of Directors (“Board”) of such termination, such notice (i) to state in detail the particular act or acts or failure or failures
to act that constitute the grounds on which the proposed termination for cause is based and (ii) to be given within six months of the
Board learning of such act or acts or failure or failures to act. The Employment Agreement may be terminated at Board’s discretion
during the Term, provided that if Mr. Duchman is terminated without cause, the Company shall pay to Mr. Duchman an amount calculated by
multiplying Mr. Duchman monthly salary, at the time of such termination, times the number of months remaining in the Term.
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 October 31, 2021 and December 31,
2020, the balance remaining due on this obligation were $22,900 and $26,400, respectively, included in accounts payable on the accompanying
consolidated balance sheets.
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 common
stock repurchase obligation, and reduction of additional paid in capital upon entering the Put Option Agreement. 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.
During the ten months ended October 31, 2021, the Company re-assessed the repurchase obligation and pursuant to the agreement recorded
a reduction of $681,726 for net proceeds realized by the stockholder on sale of Company common stock which was reclassified to additional
paid in capital. As of October 31, 2021 and December 31, 2020, the Company had $0.6 and $1.3 million of common stock repurchase obligation
outstanding, respectively.
Joint Product Development and Distribution
Agreements
Corlich Enterprises, Inc
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 12). The Development Agreement
has a three-year term, unless sooner terminated pursuant to its terms.
HOME BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2021 AND DECEMBER 31, 2020
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 (“GMR”) 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. The GMR is expensed
to cost of sales over the term of the Development Agreement. During the ten months ended October 31, 2021, the Company paid an aggregate
of $78,260. During the ten months period ended October 31, 2021 and year ended December 31, 2021, the Company recognized GMR expense of
$113,753 and $36,403, respectively. As of October 31, 2021 and December 31, 2020, a total of $71,896 and $36,403 of accrued royalty fee,
respectively, was reflected under accrued expense and other liabilities in the accompanying consolidated balance sheets.
Hungry Fan Brand, LLC
On February 18, 2021, the Company and Hungry Fan
Brand, LLC (“Hungry Fan”) (collectively as “Parties”) entered into a Joint Product Development and Distribution
Agreement (the “Development Agreement”), effective the same date. The Development Agreement shall remain in effect for twelve
months from the effective. Pursuant to the Development Agreement, the Parties shall jointly contribute and be responsible for the development
of the Hungry Fan Meals, under the terms and conditions of the Development Agreement.
For the use of Hungry Fan Meals and all associated
intellectual property for the benefit of the Hungry Fan Meals, the Company shall pay to Hungry Fan the following: (i) 10% of all Net Revenue
generated from the sale of the Hungry Fan Meals (the “Hungry Fan Royalty”). For the purpose of this agreement “Net Revenue”
shall be defined as gross sales generated on Hungry Fan Meals less discounts and returns. The Hungry Fan Royalty generated during each
calendar month in which an agreement is in effect shall be due and payable by the 10th business day of the following month
in which the Hungry Fan Royalty was earned and; (ii) 10% of all Net Revenue generated from the sale of Home Bistro and Prime Chop brand
orders in which a Hungry Fan dedicated code was used at the time of purchase (“Hungry Fan Commission”). Upon execution of
the Development Agreement, the Company shall provide Hungry Fan with a dedicated code to publicly share for a mutually agreed upon percent
off any purchase of Home Bistro and Prime Chop brand orders. The Company shall ensure that the code is valid and in effect for the entire
Term. The Hungry Fan Commission generated during each calendar month in which an agreement is in effect shall be due and payable by the
10th business day of the following month in which the Hungry Fan Commission was earned.
In addition, subject to the terms and conditions
of this Development Agreement, the Company shall pay to Hungry Fan a guaranteed minimum compensation of $24,000 over twelve months (the
“GMC”), to be paid in installments of $2,000 per month, by the 10th business day of the following month in which
the Hungry Fan Commission was earned. The Parties agree that the Hungry Fan Royalty shall be credited against the Guarantee received to
date. As of October 31, 2021, $1,000 of accrued royalty fee was reflected under accrued expense and other liabilities in the accompanying
consolidated balance sheet.
Red Velvet XOXO, LLC
On March 19, 2021, the Company and Red Velvet
XOXO LLC, a New York corporation (“Red Velvet”) (collectively as “Parties”) entered into a Joint Product Development
and Distribution Agreement (the “Development Agreement”), effective the same date. The Development Agreement shall remain
in effect for twelve months from the effective date unless sooner terminated as defined in the Development Agreement, or unless extended
by mutual agreement of the Parties. Pursuant to the Development Agreement, the Parties shall collaboratively develop a brand of desserts,
marketed and sold exclusively utilizing Red Velvet’s recipes (the “Red Velvet Desserts”) under the Home Bistro label,
under the terms and conditions of the Development Agreement.
For the use of Red Velvet Desserts and all associated
intellectual property for the benefit of the Red Velvet Desserts, Bistro shall pay to Red Velvet the following: (i) 10% of all Net Revenue
generated from the sale of the Red Velvet Desserts (the “Velvet Desserts Royalty”). For the purpose of this agreement “Net
Revenue” shall be defined as gross sales generated on Red Velvet Desserts less discounts and returns. The Velvet Desserts Royalty
generated during each calendar month in which an agreement is in effect shall be due and payable by the 10th business day of the following
month in which the Velvet Desserts Royalty was earned and; (ii) 10% of all Net Revenue generated from the sale of Home Bistro and Prime
Chop brand orders in which a Red Velvet Desserts dedicated code was used at the time of purchase (“Velvet Desserts Commission”).
The Velvet Desserts Commission generated during each calendar month in which an agreement is in effect shall be due and payable by the
10th business day of the following month in which the Velvet Desserts Commission was earned. During the ten months ended October 31, 2021,
Red Velvet earned $198 of royalty fees pursuant to terms of the Development Agreement. As of October 31, 2021, $198 of accrued royalty
fee was reflected under accrued expense and other liabilities in the accompanying consolidated balance sheet.
HOME BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2021 AND DECEMBER 31, 2020
Chef Roblé & Co.
On April 13, 2021, the Company and Roblé
Ali (“Roblé”), celebrity chef and reality TV personality “Chef Roblé & Co.” (collectively as
“Parties”) entered into a Joint Product Development and Distribution Agreement (the “Development Agreement”),
effective the same date. The Development Agreement shall remain in effect for two years from the effective date. Pursuant to the Development
Agreement, the Parties shall jointly contribute and be responsible for the development of the Roblé Meals, under the terms and
conditions of the Development Agreement.
For the use of Roblé Meals and all associated
intellectual property for the benefit of the Roblé Meals, the Company shall pay to Roblé the following: (i) 10% of all Net
Revenue generated from the sale of the Roblé Meals (the “Roblé Royalty”). For the purpose of this agreement
“Net Revenue” shall be defined as gross sales generated on Roblé Meals less discounts and returns. The Roblé
Royalty generated during each calendar month in which an agreement is in effect shall be due and payable by the 10th business day of the
following month in which the Roblé Royalty was earned and; (ii) 10% of all Net Revenue generated from the sale of Home Bistro and
Prime Chop brand orders in which a Roblé dedicated code was used at the time of purchase (“Roblé Commission”).
Upon execution of the Development Agreement, the Company shall provide Roblé with a dedicated code to publicly share for a mutually
agreed upon percent off any purchase of Home Bistro and Prime Chop brand orders. The Company shall ensure that the code is valid and in
effect for the entire term. The Roblé Commission generated during each calendar month in which an agreement is in effect shall
be due and payable by the 10th business day of the following month in which the Roblé Commission was earned.
In addition, subject to the terms and conditions
of this Development Agreement, the Company shall pay to Roblé a guaranteed minimum compensation of $36,000 for twelve months (the
“GMC”) as follows: (i) $9,000 upon the Company’s receipt and approval of all recipes submitted by Roblé; (ii)
$9,000 upon the commencement of selling of the Roblé Meals (“Selling Date”); (iii) $3,000 per month for a period of
six months, commencing the month immediately following the Selling Date. The total aggregate compensation paid to Roblé shall be
reduced by the GMC. During the ten months ended October 31, 2021, the first condition has been satisfied by both parties and the Company
paid $9,000 the GMC. As of October 31, 2021, there were no accrued GMC.
Claudia Cocina LLC
On June 22, 2021, the Company and Claudia Cocina LLC (f/s/o Claudia
Sandoval), a California limited liability company (“Claudia Cocina”) (collectively as “Parties”) entered into
a Joint Product Development and Distribution Agreement (the “Development Agreement”). Pursuant to the Development Agreement,
the Parties shall collaboratively develop a brand of meals, marketed and sold utilizing the Property (“CS Meals”) jointly
with the Home Bistro label, under the terms and conditions of the Development Agreement. The Development Agreement is effective upon signature
and shall remain in effect from the first date on which the CS Meals are commercially launched (the “Launch Date”) until the
last day of the month that is one year from the Launch Date (the “Initial Term”). The Parties shall have the right to renew
the Development Agreement for an additional one-year term (“Renewal Term”) (the Initial Term and the Renewal Term, individually
and together, (the “Term”) upon mutual written consent, which consent must be provided no later than sixty days prior to the
end of the current Term. The Renewal Term shall be on the same terms and conditions as provided herein for the Initial Term, except that
the Guaranteed Minimum Sales and the Guaranteed Minimum Royalties (“GMR”) payable during the Renewal Term shall be mutually
agreed to between the Parties. The Company issued 150,000 shares of common stock with grant date fair value of $150,000 based on the market
price of common stock on grant date, that was deemed to be fully earned, non-assessable and irrevocable upon the execution of the Development
Agreement (see Note 12) and subject to a Lock-Up Leak-Out Agreement. The Company recorded the $150,000 as deferred compensation in the
accompanying consolidated balance sheet to be amortized over the term of the Development Agreement. During the ten months ended October
31, 2021, the Company expensed $28,125 of the deferred compensation as product development expense in the accompanying consolidated statement
of operations. As of October 31, 2021, there was $121,875 of deferred compensation related to this Development Agreement.
Claudia Cocina shall receive 10% royalties
on all Net Revenues (“Royalty”) generated from the sale of: (i) CS Meals; and (ii) Home Bistro and Prime Chop brand
orders in which a CS dedicated code was used at the time of purchase, in accordance with the Royalty Schedule set forth in the
Development Agreement. For the purpose of this Development Agreement “Net Revenue” shall be defined as gross sales of
products less actual returns and refunds, which returns and refunds shall not exceed eight percent (8%) of such gross sales. In
addition, the GMR for the Term shall be at least $36,000 per year in the aggregate, payable monthly at the rate of $3,000 per month
or 10% of gross sales, whichever is higher for the month. The Company agrees that Royalty payments may only be credited to the year
to which such payments apply (i.e., Royalty payments paid to Claudia Cocina during the first twelve months of the Agreement can only
offset the GMR of the first twelve months, and not the subsequent 12-month period GMR). Payments made during any year during the
Term, which are in excess of the GMR payments for the applicable year may not be credited towards another year. All GMR payments
hereunder are non-refundable and are due upon the first CS Meals being launched which did not occur by October 31, 2021. As October
31, 2021, there were no payments accrued or paid under the Development Agreement.
HOME BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2021 AND DECEMBER 31, 2020
Chef Richard Blais
On July 22, 2021 (“Effective Date”),
the Company and Trail Blais, LLC (f/s/o Chef Richard Blais), celebrity chef and reality TV personality (“Chef Richard Blais”)
(collectively as “Parties”), entered into a Joint Product Development and Distribution Agreement (the “Development Agreement”).
Pursuant to the Development Agreement, the Parties shall collaboratively develop a brand of meals, marketed and sold utilizing the Property
(“Blais Meals”) jointly with the Home Bistro label, under the terms and conditions of the Development Agreement. The Development
Agreement shall remain in effect from the Effective Date until the last day of the month that is one-year from the Effective Date (“Term”),
ending no later than July 30, 2022. The first twelve-month anniversary of the Development Agreement shall be deemed “Year One”.
The Company shall only distribute the Blais Meals within the Term and any Renewal Term (defined below), as mutually agreed. The Company
agrees that following the Term, The Company shall use best efforts to cease the distribution of all Blais Meals. The Parties shall have
the right to renew the Development Agreement for an additional one-year term (“Renewal Term”) upon mutual written consent.
The Renewal Term shall be negotiated in good faith within ninety days of the end of the Term. The Company issued 150,000 shares of common
stock with grant date fair value of $172,500 based on the market price of common stock on grant date, that was deemed to be fully earned,
non-assessable and irrevocable upon the execution of the Development Agreement (see Note 12) and subject to a Lock-Up Leak-Out Agreement.
The Company recorded the $172,500 as deferred compensation in the accompanying consolidated balance sheet to be amortized over the term
of the Development Agreement. During the ten months ended October 31, 2021, the Company expensed $25,156 of the deferred compensation
as product development expense in the accompanying consolidated statement of operations. As of October 31, 2021, there was $147,344 of
deferred compensation related to this Development Agreement.
For the use of Chef Richard Blais and all associated
intellectual property for the benefit of the Blais Meals, the Company shall pay to Blais the following: (i) 10% of all net revenue generated
from the sale of Blais Meals (the “Blais Royalty”). For the purpose of this agreement “Net Revenue” shall be defined
as gross sales generated on Blais Meals less discounts and returns. The Blais Royalty generated during each calendar month in which an
agreement is in effect shall be due and payable by the 10th business day of the following month in which the Blais Royalty
was earned; (ii) 10% of all Net Revenue generated from the sale of Home Bistro and Prime Chop brand orders in which a Blais Dedicated
Code was used at the time of purchase (“Blais Commission”). The Blais Commission generated during each calendar month in which
an agreement is in effect shall be due and payable by the 10th business day of the following month in which the Blais Commission
was earned and; (iii) Guaranteed Minimum Royalty. Subject to the terms and conditions of the Development Agreement, the Company shall
pay to Chef Richard Blais a guaranteed minimum compensation of $75,000 for each twelve-month period the Development Agreement is in effect
(“GMC”) payable monthly at the rate of $6,250 per month, beginning on the earlier of the launch of Blais Meals or ninety days
after the execution of this Development Agreement. During the ten months ended October 31, 2021, there were no payments made under the
Development Agreement and the royalty expenses was not significant.
Perfect Athlete LLC
On September 15, 2021 (“Effective Date”),
the Company and Perfecting Athletes, LLC (“PA” or “Perfecting Athletes”) (collectively as “Parties”),
entered into a Joint Product Development and Distribution Agreement (the “Development Agreement”). Pursuant to the Development
Agreement, the Parties shall collaboratively develop a brand of meals, marketed and sold utilizing the Property (“PA Meals”)
jointly with the Home Bistro label, under the terms and conditions of the Development Agreement. The Development Agreement shall remain
in effect from the Effective Date until the last day of the month that is two-years from the Effective Date (“Term”). The
first twelve-month anniversary of the Development Agreement shall be deemed “Year One”. The Company shall only distribute
the PA Meals within the Term and any Renewal Term (defined below), as mutually agreed. The Company agrees that following the Term, The
Company shall use best efforts to cease the distribution of all PA Meals. The Parties shall have the right to renew the Development Agreement
for an additional one-year term (“Renewal Term”) upon mutual written consent. The Company issued 150,000 shares of common
stock with grant date fair value of $172,500 based on the market price of common stock on grant date, that was deemed to be fully earned,
non-assessable and irrevocable upon the execution of the Development Agreement (see Note 12) and subject to a Lock-Up Leak-Out Agreement.
The Company recorded the $255,000 as deferred compensation in the accompanying consolidated balance sheet to be amortized over the term
of the Development Agreement. During the ten months ended October 31, 2021, the Company expensed $15,938 of the deferred compensation
as product development expense in the accompanying consolidated statement of operations. As of October 31, 2021, there was $239,063 of
deferred compensation related to this Development Agreement.
For the use of Perfecting Athletes and all associated
intellectual property for the benefit of the PA Meals, the Company shall pay to Perfecting Athletes the following: (i) 10% of all net
revenue generated from the sale of PA Meals (the “PA Royalty”). For the purpose of this agreement “Net Revenue”
shall be defined as gross sales generated on PA Meals less discounts and returns. The PA Royalty generated during each calendar month
in which an agreement is in effect shall be due and payable by the 10th business day of the following month in which the PA
Royalty was earned and; (ii) 10% of all Net Revenue generated from the sale of Home Bistro and Prime Chop brand orders in which a PA Dedicated
Code was used at the time of purchase (“PA Commission”). The PA Commission generated during each calendar month in which an
agreement is in effect shall be due and payable by the 10th business day of the following month in which the PA Commission
was earned. During the ten months ended October 31, 2021, there were no payments made under the Development Agreement.
Consulting Agreements
On April 1, 2021, the Company and Redstone Communications,
LLC (“Redstone”) (collectively as “Parties”) entered into an agreement to provide strategic consulting services
(“Agreement”). The Agreement shall remain in effect for twelve months from the effective date of April 1, 2021 until March
31, 2022. Pursuant to the Agreement, Redstone shall be paid, in cash, a monthly fee of $10,000 over the twelve months service period and
received 2,000,000 shares of common stock with grant date fair value of $1,800,000 as compensation, which was recorded as deferred compensation
in the accompanying consolidated balance sheet and amortized over the twelve months service period (see Note 12). During the ten months
ended October 31, 2021, the Company amortized $1,050,000 of the deferred compensation and was recorded as professional and consulting
expense in the accompanying consolidated statement of operations. As of October 31, 2021, the deferred compensation related to this Agreement
was $750,000 which will be expensed over a period of five months.
HOME BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2021 AND DECEMBER 31, 2020
On September 10, 2021, the Company and Bench International,
LLC (“Bench International”) (collectively as “Parties”) entered into an agreement to marketing consulting services
(“Agreement”). The Agreement shall remain in effect for twelve months from the effective date of September 10, 2021. Pursuant
to the Agreement, Bench International shall be paid, in cash, and aggregate amount of $350,000 to be paid in seven monthly installments
of $50,000 beginning September 2021 until March 2022. During the ten months ended October 31, 2021, the Company paid an aggregate amount
of $100,000. During the ten months ended October 31, 2021, the Company recognized $58,333 of expense related to this Agreement and recorded
as selling and marketing expenses in the accompanying consolidated statement of operations. As of October 31, 2021, the prepaid expense
related to this Agreement was $41,667.
On October 1, 2021, the Company and a consultant
(collectively as “Parties”) entered into a consulting agreement which shall remain in effect until April 1, 2022, unless sooner
terminated as provided in the agreement, or unless extended by agreement of the Parties. Pursuant to the agreement, the Company issued
warrants to purchase 500,000 of common stock (“Warrant”) with a grant date fair value of $678,253 for services rendered (see
Note 12) and was recorded as professional and consulting expenses in the accompanying consolidated statement of operations. The Warrant
vested upon issuance, has an exercise price of $0.001 and expiration date of October 1, 2026. In addition, the consultant shall receive
$3,000 per month, payable in cash on the first of each month commencing on the effective date.
Consulting Agreement – Related Party
On October 1, 2021, the Company and Michael Novielli
through Dutchess Capital Partners, LLC (“Dutchess Capital”) (collectively as “Parties”) entered into a consulting
agreement which shall remain in effect until April 1, 2022 unless sooner terminated as provided in the agreement, or unless extended by
agreement of the Parties. Michael Novielli currently serves as a member of the Board of Directors and is considered a related party (see
Note 11). Pursuant to the agreement, Dutchess Capital received warrants to purchase 1,000,000 of common stock (“Warrant”)
with a grant date fair value of $1,356,507 (see Note 12), for services rendered and was recorded as professional and consulting expenses
– related party in the accompanying consolidated statement of operations. The Warrant vested upon issuance, had exercise price of
$0.001 and expiration date of October 1, 2026 In addition, Dutchess Capital shall receive $10,000 per month, payable in cash on the first
of each month commencing on the effective date.
Lock-Up and Leak Out Agreements
During the ten-months ended October 31, 2021,
the Company and various stockholder (collectively as “Parties”) entered into a Lock-Up and Leak Out Agreement (“Lock-Up
Agreements”). Pursuant to the Lock-Up Agreements, stockholders, including the stockholders’ affiliated entities, agrees that
for the period beginning on the respective effective dates of their Lock-Up Agreements and ending in the period between October 2021 to
June 2023 (the “Lock-Up Period”), the stockholders will not offer, sell, contract to sell, pledge, give, donate, transfer
or otherwise dispose of, directly or indirectly, any shares of Company’s common stock or securities convertible into or exercisable
for common stock or securities or rights convertible into or exchangeable or exercisable for any common stock, whether owned by the stockholders
as the date hereof or acquired subsequent to the date hereof (collectively, the “Lock-Up Shares”), enter into a transaction
which would have the same effect, or enter into any swap, hedge or other arrangement that transfers, in whole or in part, any of the economic
or voting consequences of ownership of such securities, whether any such aforementioned transaction is to be settled by delivery of the
Lock-Up Shares or such other securities, in cash or otherwise, or publicly disclose the intention to make any such offer, sale, pledge
or disposition, or to enter into any such transaction, swap, hedge or other arrangement. During the ten-months ended October 31, 2021,
in connection with the Lock-Up Agreements, the Company issued an aggregate of 112,500 shares of common stock with grant date fair value
of $152,626 which was recorded as deferred compensation and amortized over the Lock-Up Period (see Note 12). During the ten months ended
October 31, 2021, the Company amortized $36,688 of the deferred compensation and was recorded as interest expense in the accompanying
consolidated statement of operations. As of October 31, 2021, the deferred compensation related to this Agreement was $115,938 which will
be amortized over the remaining Lock-Up Period of three months.
Registration Rights Agreement
The Company also entered into a Registration
Rights Agreement (“Registration Agreement”) in connection with the December 2020 Agreements II (see Note 5). 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 SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2021 AND DECEMBER 31, 2020
NOTE 15 – TRANSITION PERIOD COMPARATIVE
DATA
The following table presents certain unaudited
consolidated financial information for the ten months ended October 31, 2020, for comparability with the transition period.
|
|
|
For the Ten Months Ended
|
|
|
For the Ten Months Ended
|
|
|
|
|
October 31,
2021
|
|
|
October 31,
2020
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Product sales, net
|
|
$
|
1,644,208
|
|
|
$
|
1,083,212
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
1,447,901
|
|
|
|
678,574
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
196,307
|
|
|
|
404,638
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
Compensation and related expenses, includes $2,871,721 of stock-based compensation in 2021
|
|
|
3,338,022
|
|
|
|
506,184
|
|
|
Professional and consulting expenses, includes $1,862,709 of stock-based compensation in 2021
|
|
|
2,979,610
|
|
|
|
403,652
|
|
|
Professional and consulting expenses - related party, includes $1,356,507 of stock-based compensation in 2021
|
|
|
1,366,507
|
|
|
|
-
|
|
|
Product development expense, includes $3,036,286 and $360,000 of stock-based expense in 2021 and 2020, respectively
|
|
|
3,036,286
|
|
|
|
360,000
|
|
|
Selling and marketing expenses
|
|
|
835,723
|
|
|
|
161,859
|
|
|
General and administrative expenses
|
|
|
527,818
|
|
|
|
153,720
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Expenses
|
|
|
12,083,966
|
|
|
|
1,585,415
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Loss from Continuing Operations
|
|
|
(11,887,659
|
)
|
|
|
(1,180,777
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Other Expense:
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(1,245,873
|
)
|
|
|
(8,783
|
)
|
|
Change in fair value of derivative liabilities
|
|
|
289,874
|
|
|
|
-
|
|
|
Gain on extinguishment of debt
|
|
|
26,629
|
|
|
|
-
|
|
|
Gain on forgiveness of debt
|
|
|
14,754
|
|
|
|
-
|
|
|
Other income
|
|
|
-
|
|
|
|
5,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other Expense, net
|
|
|
(914,616
|
)
|
|
|
(3,783
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Loss from Continuing Operations
|
|
|
(12,802,275
|
)
|
|
|
(1,184,560
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Provision for Income Taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from Continuing Operations
|
|
|
(12,802,275
|
)
|
|
|
(1,184,560
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued Operations:
|
|
|
|
|
|
|
|
|
|
Income from Disposal of Discontinued Operations Before Provision for Income Taxes
|
|
|
-
|
|
|
|
38,203
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Discontinued Operations
|
|
|
-
|
|
|
|
38,203
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(12,802,275
|
)
|
|
$
|
(1,146,357
|
)
|
|
|
|
|
|
|
|
|
|
|
|
BASIC AND DILUTED LOSS PER COMMON SHARE:
|
|
|
|
|
|
|
|
|
|
Continuing operations - basic and diluted
|
|
$
|
(0.56
|
)
|
|
$
|
(0.07
|
)
|
|
Discontinued operations - basic
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
Discontinued operations - diluted
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
23,062,353
|
|
|
|
17,059,912
|
|
|
Diluted
|
|
|
23,062,353
|
|
|
|
17,059,912
|
|
HOME BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2021 AND DECEMBER 31, 2020
|
|
|
For the Ten Months Ended
|
|
|
For the Ten Months Ended
|
|
|
|
|
October 31,
2021
|
|
|
October 31,
2020
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
$
|
(12,802,275
|
)
|
|
$
|
(1,146,357
|
)
|
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
Depreciation on property and equipment and finance ROU assets
|
|
|
113,531
|
|
|
|
176
|
|
|
Amortization on intangible assets
|
|
|
8,837
|
|
|
|
-
|
|
|
Common stock and warrant issued for stock-based compensation
|
|
|
2,871,721
|
|
|
|
213,841
|
|
|
Common stock and warrants issued for services – related party
|
|
|
1,356,507
|
|
|
|
-
|
|
|
Common stock and warrant issued for services
|
|
|
1,862,709
|
|
|
|
598,268
|
|
|
Common stock and warrant issued for product development
|
|
|
69,219
|
|
|
|
-
|
|
|
Common stock issued pursuant to lock-up agreements
|
|
|
36,688
|
|
|
|
-
|
|
|
Common stock issued pursuant an asset acquisition transaction (see Note 4)
|
|
|
2,969,334
|
|
|
|
-
|
|
|
Gain on extinguishment of debt and accounts payable
|
|
|
(26,629
|
)
|
|
|
-
|
|
|
Gain on forgiveness of debt
|
|
|
(14,754
|
)
|
|
|
-
|
|
|
Amortization of debt discount
|
|
|
1,012,554
|
|
|
|
-
|
|
|
Change in fair value of derivative liabilities
|
|
|
(289,874
|
)
|
|
|
-
|
|
|
Change in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Inventory
|
|
|
4,743
|
|
|
|
-
|
|
|
Prepaid expenses and other current assets
|
|
|
(47,053
|
)
|
|
|
(14,319
|
)
|
|
Accounts payable
|
|
|
129,389
|
|
|
|
4,725
|
|
|
Accrued expense and other liabilities
|
|
|
(55,664
|
)
|
|
|
111,867
|
|
|
Unredeemed gift cards
|
|
|
29,341
|
|
|
|
5,462
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(2,771,676
|
)
|
|
|
(226,337
|
)
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Proceeds (payments) from acquisition of a subsidiaries
|
|
|
(60,000
|
)
|
|
|
4,917
|
|
|
Purchases of property and equipment
|
|
|
(167,824
|
)
|
|
|
(3,168
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used by) provided by investing activities
|
|
|
(227,824
|
)
|
|
|
1,749
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of common stock, net of issuance cost
|
|
|
4,368,796
|
|
|
|
100,006
|
|
|
Proceeds from notes payable
|
|
|
-
|
|
|
|
164,612
|
|
|
Proceeds from convertible note payable, net of debt discount
|
|
|
1,581,450
|
|
|
|
-
|
|
|
Proceeds from convertible note payable - related party, net of debt discount
|
|
|
100,000
|
|
|
|
-
|
|
|
Proceeds from advances payable
|
|
|
332,900
|
|
|
|
59,000
|
|
|
Repayment of convertible notes payable
|
|
|
(1,195,920
|
)
|
|
|
-
|
|
|
Repayment of note payable - in default
|
|
|
-
|
|
|
|
(3,738
|
)
|
|
Repayments of advance payable
|
|
|
(312,752
|
)
|
|
|
(45,347
|
)
|
|
Repayment of convertible notes payable - related party
|
|
|
(46,931
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
4,827,543
|
|
|
|
274,533
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Change in Cash
|
|
|
1,828,043
|
|
|
|
49,945
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash - beginning of period
|
|
|
447,354
|
|
|
|
7,137
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash - end of period
|
|
$
|
2,275,397
|
|
|
$
|
57,082
|
|
HOME BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2021 AND DECEMBER 31, 2020
NOTE 16 - SUBSEQUENT EVENTS
Issuance of Common Stock
On November 8, 2021, the Company issued to a consultant
600,000 shares of common stock with grant date fair value of $725,940 based on the market price of common stock on grant date, as consideration,
pursuant to a consulting agreement for business development related services to be rendered for a six-month period. These common stocks
are subject to a Lock-Up and Leak Out Agreement.
Subsequent to October 31, 2021, the Company issued
an aggregate of 1,187,428 common stock in exchange for net proceeds of $854,405.
On November 8, 2022, the Company issued to a consultant
warrant for 100,000 shares of common stock with grant date fair value of $120,757 based on the market price of common stock on grant
date, as consideration, pursuant to an agreement.
Lock-Up and Leak Out Agreements
Subsequent to October 31, 2021, the Company and
various stockholder (collectively as “Parties”) entered into a Lock-Up and Leak Out Agreement (“Lock-Up Agreements”).
Pursuant to the Lock-Up Agreements, stockholders, including the stockholders’ affiliated entities, agrees that for the period beginning
on the respective effective dates of their Lock-Up Agreements and ending in the period between November 2021 to May 2022 (the “Lock-Up
Period”), the stockholders will not offer, sell, contract to sell, pledge, give, donate, transfer or otherwise dispose of, directly
or indirectly, any shares of Company’s common stock or securities convertible into or exercisable for common stock or securities
or rights convertible into or exchangeable or exercisable for any common stock, whether owned by the stockholders as the date hereof or
acquired subsequent to the date hereof (collectively, the “Lock-Up Shares”), enter into a transaction which would have the
same effect, or enter into any swap, hedge or other arrangement that transfers, in whole or in part, any of the economic or voting consequences
of ownership of such securities, whether any such aforementioned transaction is to be settled by delivery of the Lock-Up Shares or such
other securities, in cash or otherwise, or publicly disclose the intention to make any such offer, sale, pledge or disposition, or to
enter into any such transaction, swap, hedge or other arrangement. In connection with the Lock-Up Agreements, the Company issued an aggregate
of 186,037 shares of common stock with grant date fair value of $171,776 which shall be recorded as deferred compensation and amortized
over the Lock-Up Period.
Convertible Notes Payments
Subsequent to October 31, 2021, the Company paid
an aggregate of $570,645 of outstanding principal and interest (see Note 5).
Joint Product Development and Distribution
Agreement
On January 19, 2021 (“Effective Date”),
the Company and Spicy Mago Foodies LLC (f/s/o Chef Priyanka Naik (“CPN”)) (collectively as “Parties”), entered
into a Joint Product Development and Distribution Agreement (the “Development Agreement”). Pursuant to the Development Agreement,
the Parties shall collaboratively develop a brand of meals, marketed and sold utilizing the Property (“CPN Meals”) jointly
with the Home Bistro label, under the terms and conditions of the Development Agreement. The Development Agreement shall remain in effect
from the Effective Date until the last day of the month that is two-year from the Effective Date (“Term”). The first twelve-month
anniversary of the Development Agreement shall be deemed “Year One”. The Company shall only distribute the CPN Meals within
the Term and any Renewal Term (defined below), as mutually agreed. The Company agrees that following the Term, the Company shall use best
efforts to cease the distribution of all CPN Meals. The Parties shall have the right to renew the Development Agreement for an additional
one-year term (“Renewal Term”) upon mutual written consent. The Company issued 100,000 shares of common stock with grant date
fair value of $100,000 based on the market price of common stock on grant date, that was deemed to be fully earned, non-assessable and
irrevocable upon the execution of the Development Agreement. The Company shall record it as deferred compensation to be amortized over
the Term of the Development Agreement.
For the use of Chef Priyanka Naik and all associated
intellectual property for the benefit of the CPN Meals, the Company shall pay to CPN the following: (i) 10% of all net revenue generated
from the sale of CPN Meals (the “CPN Royalty”). For the purpose of this agreement “Net Revenue” shall be defined
as gross sales generated on CPN Meals less discounts and returns. The CPN Royalty generated during each calendar month in which an agreement
is in effect shall be due and payable by the 10th business day of the following month in which the CPN Royalty was earned;
(ii) 10% of all Net Revenue generated from the sale of Home Bistro and Prime Chop brand orders in which a CPN Dedicated Code was used
at the time of purchase (“CPN Commission”). The CPN Commission generated during each calendar month in which an agreement
is in effect shall be due and payable by the 10th business day of the following month in which the CPN Commission was earned.
Lease Agreement
On November 11, 2021, the Company renewed its
lease agreement (“Renewed Lease Agreement”) for their California kitchen facility, effective on January 1, 2022. The Renewed
Lease Agreement provides for (i) a term of six months from the effective date ending on June 30, 2022; (ii) a monthly base rent of $9,960
and; (iii) a monthly storage fee of $2,340. The Renewed Lease Agreement can be terminated with two months’ notice.
false
--12-31
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