HOME BISTRO, INC. AND SUBSIDIARIES
The accompanying notes are an integral part of these unaudited consolidated financial statements.
The accompanying notes are an integral part of these unaudited consolidated financial statements.
The accompanying notes are an integral part of these unaudited consolidated financial statements.
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
APRIL 30, 2022
NOTE 1 – ORGANIZATION AND NATURE OF OPERATIONS
Home Bistro, Inc. (formerly known as Gratitude
Health, Inc.) (the “Company”) was incorporated in the State of Nevada on December 17, 2009. Effective March 23, 2018, the
Company changed its name from Vapir Enterprises Inc. to Gratitude Health, Inc. On September 14, 2020, the Company changed its name from
Gratitude Health, Inc. to Home Bistro, Inc. The Company is in the business of providing prepackaged and prepared meals to consumers focused
on offering a broad array of the highest quality meal delivery, and preparation services.
The ongoing COVID-19 global and national health
emergency has caused significant disruption in the international and United States economies and financial markets. In March 2020, the
World Health Organization declared the COVID-19 outbreak a pandemic. The spread of COVID-19 has caused illness, quarantines, cancellation
of events and travel, business and school shutdowns, reduction in business activity and financial transactions, labor shortages, supply
chain interruptions and overall economic and financial market instability. The COVID-19 pandemic has the potential to significantly impact
the Company’s supply chain, food manufacturers, distribution centers, or logistics and other service providers. Additionally, the
Company’s service providers and their operations may be disrupted, temporarily closed or experience worker or meat or other food
shortages, which could result in additional disruptions or delays in shipments of Home Bistro’s products. To date, the Company has
been able to avoid layoffs and furloughs of employees. The Company is not able to estimate the duration of the pandemic and potential
impact on the business if disruptions or delays in shipments of product occur. To date, the Company is not aware of any such disruptions.
In addition, a severe prolonged economic downturn could result in a variety of risks to the business, including weakened demand for product
and a decreased ability to raise additional capital when needed on acceptable terms, if at all. As the situation continues to evolve,
the Company will continue to closely monitor market conditions and respond accordingly. The Company has applied for and received certain
financial assistance under the Coronavirus, Aid, Relief, and Economic Security Act (“CARES Act”) enacted in March 2020 by
the U.S. Government in response to COVID-19 (see Note 6).
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 with grant date fair value of $ 2,028,393 (see
Note 3) and were paid $60,000 in cash.
In January 2022, 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
The accompanying interim unaudited condensed consolidated
financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and
the rules and regulations of the United States Securities and Exchange Commission (“SEC”) for interim financial information,
which present the unaudited consolidated financial statements of the Company and its active wholly owned subsidiaries, Home Bistro Holdings,
Inc. and Model Meals LLC (acquired on July 6, 2021) for the period ending April 30, 2022. All intercompany transactions and balances have
been eliminated. It is management’s opinion that all material adjustments (consisting of normal recurring adjustments) have been
made, which are necessary for a fair financial statement presentation. Significant intercompany accounts and transactions have been eliminated
in consolidation. The results for the interim period are not necessarily indicative of the results to be expected for the fiscal year
ending October 31, 2022.
Certain information and disclosures normally included
in the notes to the annual consolidated financial statements have been condensed or omitted from these interim consolidated financial
statements. Accordingly, these interim consolidated financial statements should be read in conjunction with the consolidated financial
statements and notes thereto included in our Transition Report, due to our change in fiscal year end, on Form 10-KT filed with the SEC
on January 31, 2022.
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
APRIL 30, 2022
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 unaudited consolidated financial statements, for the six months ended April 30, 2022, the
Company had a net loss and cash used in operations of $5,949,819 and $2,457,546, respectively. At April 30, 2022, the Company had an accumulated
deficit, stockholders’ equity, and working capital deficit of $(25,085,483), $3,109,927 and $(1,446,778), respectively. These factors
raise substantial doubt about the Company’s ability to continue as a going concern for a period of twelve months from the issuance
date of this report. The Company’s primary source of operating funds has primarily from the sale of common stock and the issuance
of convertible debt notes. 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 unaudited condensed 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 April 30, 2022 and October 31, 2021 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
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. At April 30, 2022 and October 31, 2021, 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 April 30, 2022 and October 31, 2021, the bank balance was
in excess of FDIC insured levels by approximately $112,000 and $2,025,000, respectively. The Company has not experienced any losses in
such accounts through April 30, 2022.
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 April 30, 2022. 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.
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
APRIL 30, 2022
Assets or liabilities measured at fair value on
a recurring basis include embedded conversion options in convertible debt (see Note 4) and were as follows at April 30, 2022 and October
31, 2021:
| |
April 30, 2022 | | |
October 31, 2021 | |
Description | |
Level 1 | | |
Level 2 | | |
Level 3 | | |
Level 1 | | |
Level 2 | | |
Level 3 | |
Derivative liabilities | |
$ | — | | |
$ | — | | |
$ | 19,476 | | |
$ | — | | |
$ | — | | |
$ | 86,884 | |
A roll forward of the level 3 valuation financial
instruments is as follows:
| |
Six Months Ended April 30,
2022 | |
| |
(Unaudited) | |
Balance at October 31, 2021 | |
$ | 86,884 | |
Change in fair value of derivative liabilities | |
| (67,408 | ) |
Balance at April 30, 2022 | |
$ | 19,476 | |
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.
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 six months
ended April 30, 2022.
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.
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
APRIL 30, 2022
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 April 30, 2022 and October
31, 2021, 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.
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 11) 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 $390,208 and $151,979 for the six months ended April 30, 2022 and 2021,
respectively. Shipping and handling costs charged to customers are included in product 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 $588,069 and $211,248, for the six months ended April 30, 2022 and 2021, respectively, which are presented on the accompanying
unaudited consolidated statement of operations as selling and marketing expenses.
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
APRIL 30, 2022
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.
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 six
months ended April 30, 2022, 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.
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 April 30, 2022 and 2021 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.
| |
April 30, | |
| |
2022 | | |
2021 | |
Common Stock Equivalents: | |
| | |
| |
Stock Warrants | |
| 16,345,066 | | |
| 11,866,896 | |
Convertible Notes | |
| 159,562 | | |
| 2,211,779 | |
Total | |
| 16,504,628 | | |
| 14,078,675 | |
Concentration Risk
The Company purchased approximately 100% of its
food products from one vendor during the six months ended April 30, 2021. 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 April 30, 2021, the Company had no
accounts payable balance to this vendor.
During the six months ended April 30, 2022, the
Company had two kitchen facilities located at Pembroke Pines, FL 33009 and Santa Ana, CA. 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
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
APRIL 30, 2022
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 early adopted ASU 2020-06 during the three months ended January 31, 2022 and did
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 does not believe the adoption of this ASU will 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 its consolidated financial statements.
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
APRIL 30, 2022
NOTE 3 – ACQUISITION OF A SUBSIDIARY
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 an aggregate of 2,008,310 shares of common stock with grant date fair value of $ 2,028,393 (see Note 1) and were paid $60,000
in cash. 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,
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) unaudited balance sheet and unaudited 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 | |
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.
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
APRIL 30, 2022
The following unaudited pro forma consolidated
results of operations for the six months ended April 30, 2021 have been prepared as if the acquisition of Model Meals had occurred
as of the beginning of the period:
|
|
Six Months Ended |
|
|
|
April 30,
2021 |
|
|
|
(Unaudited) |
|
Net Revenues |
|
$ |
2,031,170 |
|
Net Loss |
|
$ |
(1,353,366 |
) |
Net Loss per Share |
|
$ |
(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.
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.
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 to other members of Homemade Meals with an
aggregate fair value of $2,969,334, 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.
Further, the Company issued the celebrity chef 2,000,000 shares of common stock with a fair value of $2,620,000, 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, based on the market price of common stock
on the acquisition date, issued to the celebrity chef as the cost of the License Agreement which 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, 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 | |
April 30, 2022 | | |
October 31, 2021 | |
| |
| |
(Unaudited) | | |
| |
Goodwill | |
Indefinite | |
$ | 1,809,357 | | |
$ | 1,809,357 | |
Less: Impairment | |
| |
| — | | |
| — | |
Goodwill, net | |
| |
$ | 1,809,357 | | |
$ | 1,809,357 | |
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
APRIL 30, 2022
Intangible Assets
| |
Estimated Life | |
April 30, 2022 | | |
October 31, 2021 | |
| |
| |
(Unaudited) | | |
| |
Computer software | |
3.5 years | |
$ | 66,198 | | |
$ | 66,198 | |
Customer relationships | |
7 years | |
| 43,000 | | |
| 43,000 | |
Trademark | |
Indefinite | |
| 505,000 | | |
| 505,000 | |
License agreement | |
3 years | |
| 2,620,000 | | |
| 2,620,000 | |
Total | |
| |
| 3,234,198 | | |
| 3,234,198 | |
Less: Accumulated amortization | |
| |
| (458,758 | ) | |
| (8,837 | ) |
Intangible assets, net | |
| |
$ | 2,775,440 | | |
$ | 3,225,361 | |
Intangible assets with a finite life, net | |
| |
$ | 2,270,440 | | |
$ | 2,720,361 | |
During the three and six months ended April 30,
2022, the Company recorded a total of $224,960 and $449,921, respectively, 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 | |
$ | 449,924 | |
2023 | |
| 899,845 | |
2024 | |
| 898,147 | |
2025 | |
| 6,143 | |
2026 | |
| 6,143 | |
2027 | |
| 6,143 | |
2028 | |
| 4,096 | |
Total | |
$ | 2,270,440 | |
NOTE 5 – CONVERTIBLE NOTES
At April 30, 2022 and October 31, 2021, the convertible
debt consisted of the following:
|
|
April 30,
2022 |
|
|
October 31,
2021 |
|
|
|
(Unaudited) |
|
|
|
|
Principal amount |
|
$ |
133,242 |
|
|
$ |
1,028,179 |
|
Less: debt discount |
|
|
(54,917 |
) |
|
|
(477,541 |
) |
Convertible notes payable, net |
|
$ |
78,325 |
|
|
$ |
550,638 |
|
|
|
|
|
|
|
|
|
|
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 |
|
$ |
78,325 |
|
|
$ |
580,810 |
|
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
APRIL 30, 2022
January 2021 Financing
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 transitional period ending October 31, 2021, the Company paid $213,570 of principal and $24,030 of accrued
interest. During the six months ended April 30, 2022, the Company paid the remaining $116,430 of principal and $2,370 of accrued interest.
As of April 30, 2022, and October 31, 2021, the January 2021 Note II had outstanding principal and accrued interest of $0 and $116,430,
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 adjustments and 4.99%, ownership limitation and; (iv) expires on the fifth-year anniversary from the date of issuance.
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 transitional period ending October 31, 2021, the Company paid $23,467 of the principal and $2,353 of accrued interest. During
the six months ending April 30, 2022, the Company paid the remaining $31,533 of the principal and $742 of accrued interest. As of April
30, 2022 and October 31, 2021, the March 2021 Note I had outstanding principal of $0 and $31,533, 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 adjustments and 4.99%, ownership limitation and; (iv) expire on the fifth-year anniversary from the date of issuance.
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
APRIL 30, 2022
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
transitional period ending October 31, 2021, the Company paid $46,931 of principal and $4,714 of accrued interest. During the six months
ended April 30, 2022, the Company paid the remaining $63,069 of principal and $1,487 of accrued interest. As of April 30, 2022 and October
31, 2021, the March 2021 Note III had outstanding principal of $0 and $63,069 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 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 transitional period ending October 31, 2021, the Company paid $68,191 of principal and $12,477 of accrued interest. During
the six months ended April 30, 2022, the Company paid the remaining $96,809 of principal and $4,025 of accrued interest. As of April 30,
2022 and October 31, 2021, the March 2021 Note V had outstanding principal of $0 and $96,809, 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 adjustments and 4.99%, ownership limitation and; (iv) expires on the fifth-year anniversary from the date of issuance.
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
APRIL 30, 2022
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 transitional period ending October 31, 2021, the Company paid $69,316 of principal and $9,884 of accrued interest.
During the six months ended April 30, 2022, the Company paid the remaining $95,684 of principal and $3,316 of accrued interest. As of
April 30, 2022 and October 31, 2021, the April 2021 Note had outstanding principal of $0 and $95,684, respectively.
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 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 transitional period ending October 31, 2021, the Company paid $41,159 of principal
and $5,842 of accrued interest. During the six months ended April 30, 2022, the Company paid the remaining $90,841 of principal and $3,161
of accrued interest. As of April 30, 2022 and October 31, 2021, the May 2021 Note I had outstanding principal of $0 and $90,841, respectively.
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
APRIL 30, 2022
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 adjustments and 4.99%, ownership limitation and; (iv) expires on the fifth-year anniversary from the date of issuance.
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
transitional period ending October 31, 2021, the Company paid $48,219 of principal and $14,481 of accrued interest. During the six months
ended April 30, 2022, the Company paid $205,832 of principal and $13,618 of accrued interest. As of April 30, 2022 and October 31, 2021,
the May 2021 Note II had outstanding principal of $30,949 and $236,781, 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 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.
During the six months ended April 30, 2022, the Company paid $96,813 of principal and $10,739 of accrued interest. As of April 30, 2022
and October 31, 2021, the September 2021 Note I had outstanding principal of $13,187 and $110,000, 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 adjustments and 4.99%, ownership limitation and; (iv) expires on the fifth-year anniversary from the date of issuance.
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
APRIL 30, 2022
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. During the six months ended April 30, 2022, the Company paid $160,894 of principal and $22,442 of accrued interest.
As of April 30, 2022 and October 31, 2021, the September 2021 Note II had outstanding principal of $89,106 and $250,000, 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 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:
|
● |
the value of the Company’s common stock; |
|
|
|
|
● |
the expected life of issued stock warrants; |
|
|
|
|
● |
the expected volatility of the Company’s stock price; |
|
|
|
|
● |
the expected dividend yield 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. 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.
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
APRIL 30, 2022
Commitment Share True-Up Provision
The 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. During the six months ended April 30, 2022,
the Company fully repaid all Notes that included the Commitment Share True-Up Provision resulting in the reduction in the accrued True-up
Shares of $209,688 which was netted with the interest expense in the accompanying unaudited consolidated statement of operations. As of
April 30, 2022 and October 31, 2021, the Commitment Share True-up had an aggregate fixed monetary value of $0 and $209,688, respectively,
which is reflected as liability to be settled with common stock in the accompanying unaudited consolidated balance sheets.
Derivative Liabilities Pursuant to Convertible Notes
In connection with the issuance of the 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.
At April 30, 2022, 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 $67,408 for the six months ended April 30, 2022.
During the six months ended April 30, 2022, the
fair value of the derivative liabilities were estimated using the Monte Carlo Valuation Model with the following assumptions (see Note
2):
|
|
April 30,
2022 |
|
Dividend rate |
|
|
— |
% |
Term (in years) |
|
|
0.09 to 0.50 |
|
Volatility |
|
|
90 |
% |
Risk—free interest rate |
|
|
0.04 to 0.49 |
% |
Default probability |
|
|
12.5 |
% |
For the six months ended April 30, 2022 and 2021,
amortization of debt discounts related to the convertible notes amounted to $455,521 and $432,014 and, included as interest expense on
the accompanying unaudited consolidated statements of operations. At April 30, 2022 and October 31, 2021 the unamortized debt discount
was $54,917 and $510,438, respectively.
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
APRIL 30, 2022
NOTE 6 – NOTES PAYABLE
Notes payable is summarized below:
| |
April 30, 2022 | | |
October 31, 2021 | |
| |
(Unaudited) | | |
| |
Principal amount | |
$ | 306,900 | | |
$ | 306,900 | |
Less: current portion | |
| (17,198 | ) | |
| (15,361 | ) |
Notes payable - long term portion | |
$ | 289,702 | | |
$ | 291,539 | |
Minimum principal payments under notes payable
are as follows:
Year ended October 31, 2022 (remaining) | |
$ | 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 | |
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. Instalment 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 April 30, 2022 and October 31, 2021,
the SBA Note had outstanding principal balance of $149,900. As of April 30, 2022 and October 31, 2021, the SBA Note had an accrued interest
of $10,942 and $8,152, respectively, reflected in the accompanying unaudited 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 April 30, 2022 and October 31, 2021, the SBA Note had an outstanding
principal balance of $150,000. As of April 30, 2022 and October 31, 2021, the SBA Note had accrued interest of $10,510 and $7,721, respectively,
reflected in the accompanying unaudited consolidated balance sheets under accrued expense and other liabilities.
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 matured on November 12, 2021. This Note is currently in default. As of October 31, 2021, the Note had
an outstanding principal balance of $7,000 and accrued interest of $338 and as of April 30, 2022, the Note had an outstanding principal
balance of $7,000 and accrued interest of $512, reflected in the accompanying unaudited consolidated balance sheets under accrued expense
and other liabilities.
NOTE 7 – ADVANCE PAYABLE
On July 9, 2021, the Company entered into a capital
advance agreement with Shopify (“July Advance Agreement”). Under the terms of the July 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 transition period ending October 31, 2021, the Company paid $27,056
of the outstanding balance. During the six months ended April 30, 2022, the Company repaid all of the outstanding balance.
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
APRIL 30, 2022
On August 31, 2021, the Company entered into a
capital advance agreement with Shopify (“August Advance Agreement”). Under the terms of the August 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. During the six months ended April 30, 2022, the Company paid $28,593
of the outstanding balance. The advance has an outstanding balance of $5,407 as of April 30, 2022, reflected as advance payable
on the accompanying unaudited consolidated balance sheet.
On April 5, 2022, the Company entered into a capital
advance agreement with PayPal (“PayPal Advance Agreement I”). Under the terms of the PayPal Advance Agreement I, the Company
received $25,000 of principal and will repay $27,502 by remitting 30% of the total customer payments processed daily by the e-commerce
platform provider until the advance is repaid in full. The Company recorded $2,502 of debt discount which was amortized immediately to
interest expense. During the six months ended April 30, 2022, the Company paid $2,140 of the outstanding balance. The advance has an outstanding
balance of $25,362 as of April 30, 2022, reflected as advance payable on the accompanying unaudited consolidated balance sheet.
On April 6, 2022, the Company entered into a capital
advance agreement with Shopify (“April Advance Agreement I”). Under the terms of the April Advance Agreement I, the Company
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. The Company recorded $2,990 of debt discount which was amortized immediately to
interest expense. The advance has an outstanding balance of $25,990 as of April 30, 2022, reflected as advance payable on the accompanying
unaudited consolidated balance sheet.
On April 6, 2022, the Company entered into a capital
advance agreement with Shopify (“April Advance Agreement II”). Under the terms of the April Advance Agreement II, the Company
received $120,000 of principal and will repay $135,600 by remitting 17% of the total customer payments processed daily by the e-commerce
platform provider until the advance is repaid in full. The Company recorded $15,600 of debt discount which was amortized immediately to
interest expense. During the three months ended April 30, 2022, the Company paid $11,089 of the outstanding balance. The advance has an
outstanding balance of $124,511 as of April 30, 2022, reflected as advance payable on the accompanying unaudited consolidated balance
sheet.
On April 6, 2022, the Company entered into a capital
advance agreement with Shopify (“April Advance Agreement III”). Under the terms of the April Advance Agreement III, the Company
received $42,000 of principal and will repay $47,460 by remitting 30% of the total customer payments processed daily by the e-commerce
platform provider until the advance is repaid in full. The Company recorded $5,460 of debt discount which was amortized immediately to
interest expense. During the six months ended April 30, 2022, the Company paid $2,922 of the outstanding balance. The advance has an outstanding
balance of $44,538 as of April 30, 2022, reflected as advance payable on the accompanying unaudited consolidated balance sheet.
On April 16, 2022, the Company entered into a capital advance agreement
with Shopify (“April Advance Agreement IV”). Under the terms of the April Advance Agreement III, the Company received $110,000
of principal and will repay $124,300 by remitting 17% of the total customer payments processed daily by the e-commerce platform provider
until the advance is repaid in full. The Company recorded $14,300 of debt discount which was amortized immediately to interest expense.
The advance has an outstanding balance of $124,300 as of April 30, 2022, reflected as advance payable on the accompanying unaudited
consolidated balance sheet.
NOTE 8 – UNREDEEMED GIFT CARDS
Unredeemed gift cards activities as of April 30,
2022 and October 31, 2021 are summarized as follows:
|
|
April 30,
2022 |
|
|
October 31,
2021 |
|
|
|
(Unaudited) |
|
|
|
|
Beginning balance |
|
$ |
164,912 |
|
|
$ |
48,311 |
|
Acquired gift card liability (see Note 3) |
|
|
— |
|
|
|
87,260 |
|
Sale and issuance of gift cards |
|
|
173,744 |
|
|
|
186,749 |
|
Revenue from breakage |
|
|
— |
|
|
|
(60,515 |
) |
Gift card redemptions |
|
|
(102,928 |
) |
|
|
(96,893 |
) |
Ending balance |
|
$ |
235,728 |
|
|
$ |
164,912 |
|
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
APRIL 30, 2022
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 12) 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.
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.
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 (see Note 2).
For the six months ended April 30, 2022, total
rent expense amounted to $128,639 which is included in general and administrative expenses on the accompanying unaudited 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.
| |
April 30, 2022 | | |
October 31, 2021 | |
| |
(Unaudited) | | |
| |
Operating ROU assets | |
$ | 336,614 | | |
$ | 336,614 | |
Less accumulated reductions | |
| (133,337 | ) | |
| (68,105 | ) |
Balance of Operating ROU assets, net | |
$ | 203,277 | | |
$ | 268,509 | |
Operating lease liabilities
related to the Operating ROU assets is summarized below:
|
|
April 30,
2022 |
|
|
October 31,
2021 |
|
|
|
(Unaudited) |
|
|
|
|
Operating lease liabilities |
|
$ |
339,532 |
|
|
$ |
339,532 |
|
Reduction of operating lease liabilities |
|
|
(132,568 |
) |
|
|
(71,178 |
) |
Total |
|
|
206,964 |
|
|
|
268,354 |
|
Less: short term portion |
|
|
(83,378 |
) |
|
|
(101,431 |
) |
Long term portion |
|
$ |
123,586 |
|
|
$ |
166,923 |
|
Future minimum
operating lease payments under the operating lease agreements at April 30, 2022 are as follows:
Year | |
Amount | |
Ending October 31, 2022 (remaining) | |
$ | 49,579 | |
Ending October 31, 2023 | |
| 102,846 | |
Ending October 31, 2024 | |
| 79,991 | |
Total minimum non-cancellable operating lease payments | |
| 232,416 | |
Less: discount to fair value | |
| (25,452 | ) |
Total operating lease liabilities at April 30, 2022 | |
$ | 206,964 | |
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 unaudited consolidated 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
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
APRIL 30, 2022
Financing right-of-use
(“Financing ROU”) asset is summarized below:
|
|
April 30,
2022 |
|
|
October 31,
2021 |
|
|
|
(Unaudited) |
|
|
|
|
Financing ROU assets |
|
$ |
200,509 |
|
|
$ |
200,509 |
|
Less accumulated depreciation |
|
|
(52,912 |
) |
|
|
(19,494 |
) |
Balance of financing ROU assets, net |
|
$ |
147,597 |
|
|
$ |
181,015 |
|
For the three and six
months ended April 30, 2022, depreciation expense related to Financing ROU assets amounted to $16,709 and $33,418, respectively.
Financing lease
liability related to the Financing ROU assets is summarized below:
|
|
April 30,
2022 |
|
|
October 31,
2021 |
|
|
|
(Unaudited) |
|
|
|
|
Financing lease payables for equipment |
|
$ |
200,509 |
|
|
$ |
200,509 |
|
Reduction of financing lease liability |
|
|
(43,932 |
) |
|
|
(13,650 |
) |
Total |
|
|
156,577 |
|
|
|
186,859 |
|
Less: short term portion |
|
|
(65,281 |
) |
|
|
(62,210 |
) |
Long term portion |
|
$ |
91,296 |
|
|
$ |
124,649 |
|
Future minimum
lease payments under the financing lease agreement at April 30, 2022 are as follows:
Year | |
Amount | |
Year ending October 31, 2022 (remaining) | |
$ | 39,000 | |
Year ending October 31, 2023 | |
| 78,000 | |
Year ending October 31, 2024 | |
| 58,500 | |
Total minimum non-cancellable financing lease payments | |
| 175,500 | |
Less: discount to fair value | |
| (18,923 | ) |
Total financing lease liabilities at April 30, 2022 | |
$ | 156,577 | |
NOTE 10 – RELATED PARTY BALANCES AND
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 six months ended April 30, 2022 and 2021 was $159,748 and $82,358, respectively, which is included
in cost of goods sold in the accompanying unaudited consolidated statement of operations. There were no amounts due to this related party
for these services as of April 30, 2022 and October 31, 2021.
See also related party convertible note in Note
5 – March 2021 Note III – Related Party.
See consulting agreement in Note 12 –
Consulting Agreement – Related Party
NOTE 11 – STOCKHOLDERS’ EQUITY (DEFICIT)
Preferred Stock
The Company is authorized to issue 20,000,000 shares of common stock
with a par value of $0.001.
Common Stock
Shares Authorized
The Company is authorized to issue 1,000,000,000
shares of common stock with a par value of $0.001.
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
APRIL 30, 2022
Common Stock Issued for Cash
| ● | During the six months ended April 30, 2022, the Company issued an aggregate of 1,827,702 shares of common stock, to non-affiliate investors for aggregate net cash proceeds of $1,303,728. There were no shares of common stock sold during the six months ended April 30, 2021. |
Common Stock Issued for Services and Prepaid
Services
| ● | April 1, 2021, the Company issued an aggregate of 2,000,000 shares of common stock with 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 a consultant pursuant to a consulting agreement. The fair value of the common stock was recorded in equity as deferred compensation which will be amortized over the twelve-month service period. During the six months ended April 30, 2022 and 2021, the Company amortized $750,000 and $150,000 of the deferred compensation related to this consulting agreement, respectively, which was charged to professional and consulting fee in the accompanying unaudited consolidated statements of operations. As of April 30, 2022 and 2021, there were $0 and $1,650,000, respectively, of deferred compensation related to this consulting agreement. |
| ● | On November 8, 2021, the Company issued an aggregate of 600,000 shares
of common stock with grant date fair value of $726,000 or $1.21 per share based on the market price of common stock on grant date, to
a consultant pursuant to a consulting agreement. The fair value of the common stock was recorded in equity as deferred compensation which
will be amortized over the six-month service period. During the six months ended April 30, 2022, the Company amortized the $726,000 of
the deferred compensation which was charged to professional and consulting fee in the accompanying unaudited consolidated statements of
operations. As of April 30, 2022, there was no deferred compensation related to this consulting agreement. |
| ● | During the six months ended April 30, 2022, the Company granted 60,000 shares of common stock with grant date fair value of $60,600 or $1.01 per share based on the market price of common stock on grant date, to a consultant for services. The grant fair value of the common stock of $60,600 was charged to professional and consulting fee in the accompanying unaudited consolidated statements of operations. |
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 $38,264 using the relative fair value method to two non-affiliate investors as commitment fee in connection with the December 2020 Financings 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, valued at $23,469 using the relative fair value method and was recorded as debt discount to be amortized over the life of the note. |
| ● | On February 3, 2021, the Company
issued 150,000 shares of common stock to a non-affiliate investor as commitment fee, pursuant to a securities purchase agreement, 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, 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. |
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
APRIL 30, 2022
| ● | 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, 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, 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, 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, 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, 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. |
| ● | During the six months ended April 30, 2022, the Company granted 45,989 shares of common stock with grant date fair value of $29,879 or $0.65 per share based on the market price of common stock on grant date, to a convertible note holder as a commitment fee. The grant fair value of the common stock of $29,879 was charged to interest expense in the accompanying unaudited consolidated statements of operations. |
Common Stock Issued Pursuant to Lock-Up
& Leak Out Agreements
| ● | During the six months ended April 30, 2022, the Company issued as consideration, to several stockholders, an aggregate of 516,748 shares of common stock with grant date fair value of $554,273 or an average per share price of $1.07, based on the market price of common stock on grant date, for the stockholders’ execution of a Lock-Up & Leak Out Agreement. The grant date fair value of the common stock was initially recorded in equity as deferred compensation and is being amortized over the lock up period of three-to-four- months through April 30, 2022. During the six months ended April 30, 2022, the Company amortized $670,212 including $113,898 of deferred compensation as of October 31, 2021, of deferred compensation which was recorded as professional and consulting expenses in the accompanying unaudited consolidated statement of operations. As of April 30, 2022, there were no deferred compensation related to the Lock-Up & Leak Out Agreements. |
Common Stock Issued Pursuant to Product
Development Agreements
| ● | During the six months ended April 30, 2022, the Company issued 100,000 shares of common stock with grant date fair value of $100,000 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 six months ended April 30, 2022, $271,614 of the deferred compensation was expensed as product development expense in the accompanying unaudited consolidated statements of operations related to shares issued in connection with joint product development agreements. As of April 30, 2022, there was $336,666 of deferred compensation related to the product development agreements. |
Common Stock Issued Pursuant to Stock-Based
Compensation
| ● | On April 29, 2021, the Company
issued 25,000 shares of common stock with an aggregate grant date fair value of $24,750 or $0.99 per share based on the market price
of common stock on grant date, to a board member for services rendered and was charged to compensation and related expenses in the accompanying
condensed consolidated statements of operations. |
Stock Warrants
Warrants Issued Pursuant to Stock-Based
Compensation
| ● | On March 25, 2022, the Company issued to two executives fully vested warrants to purchase up to an aggregate of 250,000 shares of the Company’s common stock, in connection with their employment agreements dated March 25, 2022. These warrants are exercisable, in whole or in part, upon issuance at $0.001 per share, and expire on March 25, 2027. These warrants have an aggregate grant date fair value of $374,560 or $1.50 per share based on the market price of common stock on grant date, recorded as compensation expense in the accompanying unaudited consolidated statements of operations. |
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
APRIL 30, 2022
Warrants Issued for Professional Services
| ● | During the six months ended April 30, 2021, the Company issued fully vested 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 8, 2025. These warrants have a grant date fair value of $11,471, recorded as professional and consulting expenses in the accompanying unaudited consolidated statements of operations. |
| ● | During the six months ended April 30, 2022, the Company issued fully vested warrants to purchase up to 100,000 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 $1.50 per share, and expires on May 18, 2025. These warrants have a grant date fair value of $36,777, recorded as professional and consulting expenses in the accompanying unaudited consolidated statements of operations. |
Warrants 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. |
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
APRIL 30, 2022
The Company used the Binomial pricing model to
determine the fair value of its common stock warrants 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 April 30, 2022 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 October 31, 2021 | |
| 15,745,076 | | |
$ | 0.170 | | |
| 7.4 | |
Issued for services | |
| 100,000 | | |
| 1.500 | | |
| 4.1 | |
Issued pursuant to employment agreements | |
| 500,000 | | |
| 0.001 | | |
| 4.9 | |
Balance on April 30, 2022 | |
| 16,345,076 | | |
$ | 0.170 | | |
| 6.9 | |
| |
| | | |
| | | |
| | |
Stock warrants exercisable on April 30, 2022 | |
| 16,345,076 | | |
$ | 0.170 | | |
| 6.9 | |
Certain exercisable stock warrants had per share
intrinsic value of $0.49 at April 30, 2022, totaling $7,431,276.
NOTE 12 – COMMITMENTS AND CONTINGENCIES
Employment Agreement
On October 1, 2021, the Company entered into an
employment agreement (“Duchman Employment Agreement”) with Zalmi Scher Duchman to serve as the Company’s Chief Executive
Officer. The Duchman 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,
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 the Duchman 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 Duchman 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.
On March 25, 2022, the Company entered into an
employment agreement (“May Employment Agreement”) with Camille May to serve as the Company’s Chief Financial Officer.
The May Employment Agreement has a term of two years (“Term”) from the effective date and provides for (i) an annual salary
of $120,000 and (ii) a one-time warrant grant of 250,000 shares of common stock, with grant a date fair value of $187,280, which vested
upon issuance, exercisable at $0.001 and expires on March 27, 2027. Ms. May 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 Ms. May for
cause (as defined in the May Employment Agreement) by giving Ms. May written notice approved by the Board of Directors of such termination.
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
APRIL 30, 2022
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 April 30, 2022 and October 31, 2021,
the balance remaining due on this obligation were $21,400 and $22,900, respectively, included in accounts payable on the accompanying
unaudited 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 recorded a reduction of $681,726. During the six months ended April 30, 2022,
the Company recorded a reduction of $113,072. As of April 30, 2022, the Company has recorded an aggregate reduction of $794,799 for net
proceeds realized by the stockholder on sale of Company common stock which was reclassified to additional paid in capital. As of April
30, 2022 and October 31, 2021, the Company had $0.5 and $0.6 million of common stock repurchase obligation outstanding, respectively.
Joint Product Development and Distribution
Agreement
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. The Development Agreement has a three-year
term, unless sooner terminated pursuant to its terms.
During the first year of the Development Agreement’s
term, Corlich is guaranteed a minimum royalty payment of $109,210. For the second and third year of the Development Agreement’s
term, the Development Agreement estimates that Corlich will be guaranteed a minimum royalty payment of $218,380 and $436,770, respectively,
subject to the achievement of the prior year’s guaranteed minimum royalty (“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 of accrued royalty fee. During the six months ended April 30, 2022, the Company paid an aggregate of $41,170 of accrued royalty
fee. During the six months ended April 30, 2022, the Development Agreement was amended by both parties whereby the minimal royalty payment
of $109,210 was extended through December 31, 2021 and the increased GMR of $218,380 would begin January 1, 2022 and the $436,770 GMR
January 1, 2023. As of April 30, 2022 and October 31, 2021, a total of $33,486 and $71,896 of accrued royalty fee, respectively, was reflected
under accrued expense and other liabilities in the accompanying unaudited consolidated balance sheets.
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
APRIL 30, 2022
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 instalments 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. During the transitional period ending October 31, 2021, the Company paid $14,000 of GMC. During the six months ended April 30, 2022,
the Company paid an aggregate of $6,000 of accrued royalty fee. As of April 30, 2022 and October 31, 2021, $4,000 and $1,000 of accrued
royalty fee, respectively, was reflected under accrued expense and other liabilities in the accompanying unaudited 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 April 30, 2022 and 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
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
APRIL 30, 2022
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 transitional period ending October 31, 2021, the first condition has been satisfied by both parties and
the Company paid $9,000 the GMC. As of April 30, 2022 and October 31, 2021, there were no accrued GMC as the Selling Date has not yet
occurred.
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 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 six months ended April
30, 2022, the Company expensed $103,125 of the deferred compensation as product development expense in the accompanying unaudited consolidated
statement of operations. As of April 30, 2022 and October 31, 2021, there were $18,750 and $121,875 of deferred compensation, respectively,
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 occurred in November 2021. During the six months ended April 30, 2022, the Company recorded $12,000 of royalty expense
related to the GMR. As April 30, 2022 and October 31, 2021, there were no accrued royalty fee.
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
APRIL 30, 2022
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 six months ended April 30, 2022, the Company expensed $111,406 of the deferred compensation as
product development expense in the accompanying unaudited consolidated statement of operations. As of April 30, 2022 and October 31, 2021,
there were $35,938 and $147,344 of deferred compensation, respectively, 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. As of October 31, 2021, there was $1,815 accrued royalty fee. During the six months
ended April 30, 2022, the Company recorded $37,500 of royalty expense related to the GMR. As of April 30, 2022, there was a total of $16,935
GMR payable of which $8,065 was recorded in accrued royalty fee and $25,000 was recorded in accounts payable, were reflected under accrued
expense and other liabilities in the accompanying unaudited consolidated balance sheet.
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 $255,000 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 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 six months ended April 30, 2022, the Company expensed $42,500 of the deferred compensation as product development
expense in the accompanying unaudited consolidated statement of operations. As of April 30, 2022 and October 31, 2021, there were $196,563
and $239,063 of deferred compensation, respectively, 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 six months ended April 30, 2022, there were no payments made under the Development Agreement.
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
APRIL 30, 2022
Spicy Mango Foodies LLC
On January 19, 2022 (“Effective Date”),
the Company and Spicy Mango 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. The Company recorded the $100,000 as deferred compensation in the accompanying unaudited consolidated
balance sheet and is being amortized over the two-year term of the Development Agreement. During the six months ended April 30, 2022,
the Company expensed $14,583 of the deferred compensation as product development expense in the accompanying unaudited consolidated statement
of operations. As of April 30, 2022, there was $85,415 of deferred compensation related to this Development Agreement.
For the use of Spicy Mango Foodies, LLC (“SMF”)
and all associated intellectual property for the benefit of the CPN Meals, the Company shall pay to SMF the following: (i) 10% of all
Net Revenue generated from the sale of CPN Meals (“SMF Royalty”). For the purpose of this agreement “Net Revenue”
shall be defined as gross sales generated on CPN Meals less discounts and returns. The SMF 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 SMF
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 SMF
Dedicated Code was used at the time of purchase (“SMF Commission”) and all sales derived from that account thereafter. The
SMF 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 SMF Commission was earned. During the six months ended April 30, 2022, there were no
payments made under the Development Agreement.
Mini Melanie, LLC
On February 22, 2022 (“Effective Date”),
the Company and Mini Melanie, LLC (f/s/o Chef Melanie Moss (“MM”)) (collectively as “Parties”), entered into a
Joint Product Development and Distribution Agreement (“Development Agreement”). Pursuant to the Development Agreement, the
Parties shall collaboratively develop a brand of desserts (“Moss Deserts”) 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.
For the use of MM and all associated intellectual
property for the benefit of the Moss Deserts, the Company shall pay to MM 5% of all Net Revenue generated from the sale of Moss Deserts
(“MM Royalty”). For the purpose of this agreement “Net Revenue” shall be defined as gross sales generated on Moss
Deserts less discounts and returns. The MM 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 MM Royalty was earned. During the three months ended
April 30, 2022, there were no payments made or owed 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. In 2021, the Company amortized $1,050,000
of the deferred compensation. During the six months ended April 30, 2022, the Company amortized $750,000 of the deferred compensation
and was recorded as professional and consulting expense in the accompanying unaudited consolidated statement of operations. As of April
30, 2022 and October 31, 2021, the deferred compensation related to this Agreement was $0 and $750,000, respectively.
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
APRIL 30, 2022
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 instalments
of $50,000 beginning September 2021 until March 2022. In 2021, the Company paid an aggregate amount of $100,000. During the six months
ended April 30, 2022, the Company paid an aggregate amount of $200,000. During the six months ended April 30, 2022, the Company recognized
$175,000 of expense related to this Agreement and recorded as selling and marketing expenses in the accompanying unaudited consolidated
statement of operations. As of April 30, 2022 and October 31, 2021, the prepaid expense related to this Agreement were $66,667 and $41,667,
respectively.
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 and
was recorded as professional and consulting expenses in the accompanying consolidated statement of operations in 2021. 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. 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, 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
In 2021 and during the six months ended April
30, 2022, the Company and various stockholders (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, agreed 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,
as consideration for the stockholders’ execution of 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.
During the six months ended April 30, 2022, as consideration for the stockholders’ execution of the Lock-Up Agreements, the Company
issued an aggregate of 516,748 shares of common stock with grant date fair value of $554,273 which was recorded as deferred compensation
and amortized over the Lock-Up Period (see Note 11). During the six months ended April 30, 2022, the Company amortized $670,212 of the
deferred compensation (see Note 11) and was recorded as professional and consulting expense in the accompanying unaudited consolidated
statement of operations. As of April 30, 2022 and October 31, 2021, the deferred compensation related to this Agreement were $0 and $115,938,
respectively.
License Agreement
On June 24, 2021, the Company entered into a licensing
agreement (“License Agreement”) with Ayesha Curry (see Note 4). The License Agreement has a term of three years and renewable
under the terms and conditions specified in the License Agreement. Pursuant to the License Agreement the Company shall pay Ayesha Curry
a 10% royalty fee of the net sales of all licensed products sold (“Royalties”). For purposes of this License Agreement, licensed
product shall be considered sold on the date upon its billed, invoiced, shipped, or paid for, or when title passes to the buyer, whichever
occurs first.
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
APRIL 30, 2022
Leases
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 (see Note 9). The Renewed Lease Agreement can be terminated with two months’
notice. 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 (see Note 2).
NOTE 13 – SUBSEQUENT EVENTS
Sale of Common Stock
Subsequent to April 30, 2022, the Company issued
and aggregate of 84,396 common stock in exchange for $54,825 of net proceeds.
Convertible Notes Payments
Subsequent to April 30, 2022, the Company paid
an aggregate of $75,350 of outstanding principal and interest (see Note 5).
Warrant Exchange Agreements
Om May 1, 2022, to induce the conversion of various
outstanding warrants the Company entered into a warrant exchange agreement with various warrant holders (collectively as “Parties”)
pursuant to which the Parties exercised an aggregate of 922,495 warrants with initial exercise price of $2.50 issued between January to
September 2021, an agreed upon reduced exercise price of $0.75 with the Company issuing an aggregate of 3,074,983 shares of common stock
in exchange for the outstanding warrants and no cash consideration.
Convertible Notes
May 2022 Note I
On May 18, 2022, the Company entered into a Securities
Purchase Agreement (“May 2022 SPA I”) with an investor for the sale of the Company’s convertible note. Pursuant to
the May 2022 SPA I, the Company; (i) issued a convertible note with principal amount of $500,000 (“May 2022 Note I”) with
the Company receiving $450,000 in net proceeds, net of $40,000 of OID and $10,000 of legal fees; (ii) issued warrants to purchase up
to 769,231 shares of common stock (“May 2022 Warrant I”). The May 2022 Note I bears an annual interest rate of 15% and matures
on May 18, 2023. The May 2022 Note I is convertible at any time or times on or after the occurrence of an event of default, at a price
equal to $0.39, provided, however, that if the Company consummates an Uplist Offering (as defined in this May 2022 Note I) within 180
calendar days after the issuance date, then the conversion price shall equal 75% of the Uplist Offering. If the date of a respective
conversion under the May 2022 Note I, is prior to the date of the Uplist Offering, then the Conversion Price shall equal $0.39 per share. At
any time prior to an event of default the Company shall have the option to pre-pay the outstanding principal at an amount equal to 115%
of the outstanding balance plus accrued.
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
APRIL 30, 2022
The May 2022 Warrant I issued to the investor,
provides for the right to purchase up to 769,231 shares of common stock; (i) to be valued at using the relative fair value method and
recorded as a debt discount to be amortized over the twelve-month term of the May 2022 Note I; (ii) exercisable at $0.65, provided, however,
upon the Uplist Offering, the exercise price shall equal 120% of the Uplist Offering; after180 calendar days from the issuance date the
exercise price shall be $0.65; (iii) subject to adjustments and 4.99% ownership limitation and; (iv) expires on the third-year anniversary
from the date of issuance.
If the Company at any time while the May 2022
Note I and May 2022 Warrant I are outstanding, sell or grant any option to purchase, sell, grant any right to re-price, or otherwise dispose
of or issue any common stock or common stock equivalents (other than an exempt issuance as defined in the May 2022 Note I and May 2022
Warrant I), at a share price per less than the initial conversion and/or exercise price then the conversion and/or exercise price shall
be reduced equal to such price and the number of common stock and/or warrant shares issuable thereunder shall be increased. The May 2022
Note I and May 2022 Warrant I also provide the investor with certain “piggyback” registration rights, permitting them to request
that the Company include the shares issued upon conversion of the note or exercise of the warrant, respectively, for sale in certain registration
statements filed by the Company under the Securities Act of 1933, as amended.
May 2022 Note II
On May 24, 2022, the Company entered into a Securities
Purchase Agreement (“May 2022 SPA II”) with an investor for the sale of the Company’s convertible note. Pursuant to
the May 2022 SPA II, the Company; (i) issued a convertible note with principal amount of $125,000 (“May 2022 Note II”) with
the Company receiving $102,500 in net proceeds, net of $12,500 of OID and $10,000 of legal fees; (ii) issued warrants to purchase up to
217,391 shares of common stock (“May 2022 Warrant II”). The May 2022 Note II bears an annual interest rate of 15% and matures
on May 24, 2023. The May 2022 Note II is convertible at any time or times on or after the occurrence of an event of default, at a price
equal to the lower of; (i) 75% of the closing price of the common stock on the date of the investment, and (ii) 90% of the lowest VWAP
for the common stock during the five trading day period ending on the latest complete trading day prior to the conversion date however
if the Company consummates an Uplist Offering (as defined in the May 2022 Note II) within the 180 calendar days after the issuance date,
then the conversion price shall equal 75% of the offering price per share of common stock at which the Uplist Offering is made. Unless
otherwise adjusted pursuant to the terms of the May 2022 Note II, if the date of a conversion under the May 2022 Note II is prior to the
date of the Uplist Offering, then the conversion price shall equal $0.345 per share. At any time prior to an event of default the Company
shall have the option to pre-pay the May 2022 Note II at an amount equal to 115% of the outstanding balance plus accrued and unpaid interest
on the outstanding balance. Upon the occurrence and during the continuation of any event of default, the May 2022 Note II shall become
immediately due and payable at an amount equal to 150% of the outstanding principal plus accrued and unpaid interest and any default interest,
if any. Upon an event of default, at the option of the investor the conversion price shall equal 90% of the lowest VWAP for the common
stock during the five-trading day period prior to the conversion date.
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
APRIL 30, 2022
The May 2022 Warrant II issued to the investor,
provides for the right to purchase up to 217,391 shares of common stock; (i) shall valued at using the relative fair value method and
recorded as a debt discount to be amortized over the twelve-month term of the May 2022 Note II; (ii) exercisable at $0.575, provided,
however, that if the Company consummates an Uplist Offering within 180 calendar days from the issuance date in which case the exercise
price shall be equal to 120% of the Uplist Offering price; after180 calendar days from the issuance date the exercise price shall be $0.575;
(iii) subject to adjustments and 4.99% ownership limitation and; (iv) expires on the third-year anniversary from the date of issuance.
If the Company at any time while the May 2022 Note II and May 2022
Warrant II are outstanding, sell or grant any option to purchase, sell, grant any right to re-price, or otherwise dispose of or issue
any common stock or common stock equivalents (other than an exempt issuance as defined in the May 2022 Note II and May 2022 Warrant II),
at a share price per less than the initial conversion and/or exercise price then the conversion and/or exercise price shall be reduced
equal to such price and the number of common stock and/or warrant shares issuable thereunder shall be increased.
The May 2022 Note II and the May 2022 Warrant
II also provide the investor with certain “piggyback” registration rights, permitting them to request that the Company include
the shares issued upon conversion of the note or exercise of the warrant, respectively, for sale in certain registration statements filed
by the Company under the Securities Act of 1933, as amended.
May 2022 Note III
On May 24, 2022, the Company entered into a Securities
Purchase Agreement (“May 2022 SPA III”) with an investor for the sale of the Company’s convertible note. Pursuant to
the May 2022 SPA III, the Company; (i) issued a convertible note with principal amount of $182,927 (“May 2022 Note III”) with
the Company receiving $150,000 in net proceeds, net of $18,293 of OID and $14,634 of legal fees; (ii) issued warrants to purchase up to
318,134 shares of common stock (“May 2022 Warrant III”). The May 2022 Note III bears an annual interest rate of 15% and matures
on May 24, 2023. The May 2022 Note III is convertible at any time or times on or after the occurrence of an event of default, at a price
equal to the lower of; (i) 75% of the closing price of the common stock on the date of the investment, and (ii) 90% of the lowest VWAP
for the common stock during the five trading day period ending on the latest complete trading day prior to the conversion date however
if the Company consummates an Uplist Offering (as defined in the May 2022 Note III) within the 180 calendar days after the issuance date,
then the conversion price shall equal 75% of the offering price per share of common stock at which the Uplist Offering is made. Unless
otherwise adjusted pursuant to the terms of the May 2022 Note III, if the date of a conversion under the May 2022 Note III is prior to
the date of the Uplist Offering, then the conversion price shall equal $0.345 per share. At any time prior to an event of default the
Company shall have the option to pre-pay the May 2022 Note III at an amount equal to 115% of the outstanding balance plus accrued and
unpaid interest on the outstanding balance. Upon the occurrence and during the continuation of any event of default, the May 2022 Note
III shall become immediately due and payable at an amount equal to 150% of the outstanding principal plus accrued and unpaid interest
and any default interest, if any. Upon an event of default, at the option of the investor the conversion price shall equal 90% of the
lowest VWAP for the common stock during the five-trading day period prior to the conversion date.
The May 2022 Warrant III issued to the investor,
provides for the right to purchase up to 318,134 shares of common stock; (i) shall valued at using the relative fair value method and
recorded as a debt discount to be amortized over the twelve-month term of the May 2022 Note III; (ii) exercisable at $0.575 however if
the Company consummates an Uplist Offering within 180 calendar days from the issuance date in which case the exercise price shall be equal
to 120% of the Uplist Offering price; after180 calendar days from the issuance date the exercise price shall be $0.575; (iii) subject
to adjustments and 4.99% ownership limitation and; (iv) expires on the third-year anniversary from the date of issuance.
If the Company at any time while the May 2022
Note III and May 2022 Warrant III are outstanding, sell or grant any option to purchase, sell, grant any right to re-price, or otherwise
dispose of or issue any common stock or common stock equivalents (other than an exempt issuance as defined in the May 2022 Note III and
May 2022 Warrant III), at a share price per less than the initial conversion and/or exercise price then the conversion and/or exercise
price shall be reduced equal to such price and the number of common stock and/or warrant shares issuable thereunder shall be increased.
The May 2022 Note III and the May 2022 Warrant III also provide the investor with certain “piggyback” registration rights,
permitting them to request that the Company include the shares issued upon conversion of the note or exercise of the warrant, respectively,
for sale in certain registration statements filed by the Company under the Securities Act of 1933, as amended.