The Company was incorporated in the State of Nevada
on December 17, 2009. Effective March 23, 2018, the Company changed its name to Gratitude Health, Inc. from Vapir Enterprises Inc. Effective
September 14, 2019, the Company changed its name to Home Bistro, Inc. from Gratitude Health, Inc.
On April 20, 2020, the Company, Fresh Market Merger
Sub, Inc., a Delaware corporation and a newly created wholly-owned subsidiary of the Company (“Merger Sub”), and Home Bistro,
Inc., a privately-held Delaware corporation engaged in the food preparation and home-delivery business (presently known as Home Bistro
Holdings, Inc., a Nevada corporation) (“Home Bistro Holdings”), entered into an Agreement and Plan of Merger (the “Merger
Agreement”) pursuant to which, among other things, Merger Sub agreed to merge with and into Home Bistro Holdings, with Home Bistro
Holdings becoming a wholly-owned subsidiary of the Company and the surviving corporation in the merger (the “Merger”). Pursuant
to the terms of the Merger Agreement, Home Bistro Holdings filed a Certificate of Merger with the Nevada Secretary of State on April 20,
2020.
The Merger constituted a change of control and
the majority of the Board of Directors changed with the consummation of the Merger. The Company issued to Home Bistro Holdings stockholders
shares of Common Stock and stock warrants which represented approximately 80% of the combined company on a fully converted basis after
the closing of the Merger. As a result of the above transactions and the Company’s intent to dispose or divest the assets and
liabilities associated with the RTD Business, in the subsequent period, this transaction was accounted for as a reverse recapitalization
effected by a share exchange of Home Bistro Holdings.
On September 14, 2020, the Company changed its
name from “Gratitude Health, Inc.” to “Home Bistro, Inc.” On September 25, 2020, the Company entered into an Asset
Purchase Agreement (the “Asset Purchase Agreement”) pursuant to which it sold all of the Company’s business, assets
and properties used, or held or developed for use, in its functional RTD Business, and the buyer agreed to assume certain debts, obligations
and liabilities related to the RTD Business (the “Divestiture”).
Prior to the Merger, the Company was solely engaged
in manufacturing, selling and marketing functional RTD Business sold under the Company’s trademarks. Following the Merger and prior
to the Divestiture, the Company provided high quality, direct-to-consumer, ready-made meals at www.homebistro.com, and restaurant quality
meats and seafood through its Colorado Prime brand. Following the Divestiture, this became the sole business of the Company..
On January 19, 2021 (“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. 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.
On July 6, 2021, the Company entered into an Agreement
and Plan of Merger with Model Meals, acquiring Model Meals through a reverse triangular merger, whereby Model Meals merged with Model
Meals Acquisition Corp., a wholly owned subsidiary of the Company, with Model Meals being the surviving entity (the “Acquisition”).
As a result, Model Meals became a wholly owned subsidiary of the Company, and the members of Model Meals received and aggregate of 2,008,310
shares of Common Stock and $60,000 in cash. Pursuant to the Acquisition, the Company issued 2,008,310 shares of Common Stock with fair
value of $2,028,393. The shares were subject to a 24-month Lockup and Leak-Out Agreement and were issued pursuant to Section 4(a)(2) of
the Securities Act.
On June 24, 2021, the Company entered into a licensing
agreement (“License Agreement”) with a celebrity chef and majority member interest holder of Homemade Meals, LLC, an inactive
entity. As a condition to finalizing the License Agreement, the Company also executed a Membership Interest Purchase Agreement (the “Member
Agreement”) and issued an aggregate of 2,266,666 shares of Common Stock with a fair value of $2,969,334 to members of Homemade Meals,
LLC (“Homemade Meals”) on October 25, 2021 to terminate an exclusivity and non-compete agreement the celebrity chef had with
Homemade Meals. The Company issued the celebrity chef 2,000,000 shares of Company’s Common Stock with a fair value of $2,620,000.
The Company’s primary reason for acquiring the membership interests in Homemade Meals was to terminate the exclusivity and non-compete
agreement between the celebrity chef and Homemade Meals, thereby enabling the celebrity chef to execute the License Agreement with the
Company. At the time of execution of the Member Agreement, Homemade Meals held no significant assets and had no business operations. The
Company recorded the shares given to the celebrity chef and the members of Homemade Meals as two separate transactions.
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.
On March 25, 2022, the Company’s Board of
Directors (“Board”) appointed Camille May as Chief Financial Officer of the Company. Ms. May, 34, joined the Company in October
2021 in connection with the acquisition of Model Meals LLC. She was a co-founder and chief financial officer of Model Meals since January
2015. In connection with the appointment, the Board approved an employment agreement with Ms. May, which provides for an annual salary
of $120,000, a grant of five year warrants to purchase 250,000 shares of common stock of the Company at an exercise price of $0.001 per
share, a performance-based bonus of up to $45,000 in cash and up to 100,000 shares of common stock upon attainment of certain performance
targets specified therein, and weekly meal packages of up to 16 meals at no cost. The employment agreement has a two-year initial term
and provides that her employment may only be terminated by the Company for cause.
Biographical information concerning the directors
and executive officers listed above is set forth below. The information presented includes information each individual has given us about
all positions they hold and their principal occupation and business experience for the past five years. In addition to the information
presented below regarding each director’s specific experience, qualifications, attributes, and skills that led our board to conclude
that he should serve as a director, we also believe that all of our directors have a reputation for integrity, honesty, and adherence
to high ethical standards. Each has demonstrated business acumen and an ability to exercise sound judgment, as well as a commitment of
service to our company and our board of directors.
Zalmi Duchman is the founder of Fresh Diet Inc.
(“Fresh Diet”). On or around July 29, 2016, Fresh Diet undertook an assignment of all of its assets to Seth Heller, as assignee
for the benefit of Fresh Diet’s creditors (“Fresh Diet Assignee”). On August 1, 2016, Fresh Diet Assignee initiated
state-level insolvency proceedings on behalf of Fresh Diet (an assignment for the benefit of creditors), captioned In re The Fresh
Diet, Inc., Case No. 2016-019789-CA-01 (Fla. 11th Cir. Ct.) before the Circuit Court of the Eleventh Judicial Circuit in and for Miami-Dade
County, Florida.
Except as set forth above, to the best of our
knowledge, none of our directors, executive officer or promoter and control person (as identified under “Certain Relationships and
Related Transactions”) has, during the past ten years:
Except as set forth in our discussion below in
“Certain Relationships and Related Transactions,” none of our directors or executive officers has been involved in any transactions
with us or any of our directors, executive officers, affiliates, or associates which are required to be disclosed pursuant to the rules
and regulations of the SEC.
At the present time the duties of an Audit Committee,
Nominating and Governance Committee and Compensation Committee (including with respect to setting executive officer compensation) are
performed by the Board as a whole. Prior to the completion of this offering, our Board will form an Audit Committee, Nominating and Governance
Committee and Compensation Committee. We will adopt charters for such committees, as well as other corporate governance guidelines, prior
to the closing of this offering in accordance with the applicable requirements of the SEC and The NASDAQ Capital Market. Each committee
will consist of three directors. All of the directors of our Audit Committee will be independent directors, as defined by the listing
standards of The NASDAQ Capital Market. The Compensation Committee will be composed exclusively of individuals intended to be, to the
extent provided by Rule 16b-3 of the Exchange Act, non-employee directors.
None of the directors and officers is related to any other director
or officer of the Company.
Our Chief Executive Officer, who is our principal
executive officer, also serves on the Board of Directors, and we do not have a lead director. In the context of risk oversight, we believe
that our selection of one person to serve in both positions provides the Board with additional perspective which combines the operational
experience of a member of management with the oversight focus of a member of the Board. The business and operations of our Company are
managed by our Board as a whole, including oversight of various risks, such as operational and liquidity risks that our Company faces.
Because our Board includes a member of our management, this individual is responsible for both the day-to-day management of the risks
we face as well as the responsibility for the oversight of risk management.
As a “smaller reporting
company” under SEC rules, our named executive officer during the transition period ended October 31, 2022 and fiscal year ended
December 31, 2021 was Zalmi Duchman, our current Chief Executive Officer. No other executive officer received total compensation during
the twelve month period ended October 31, 2022 or October 31, 2021 in excess of $100,000.
On October 1, 2021, the Company entered into an
employment agreement (the “Employment Agreement”) with Zalmi Duchman to serve as the Company’s Chief Executive Officer.
The Employment Agreement has a term of three years (“Term”) from the effective date and provides for (i) an annual salary
of $120,000 and (ii) a one-time warrant grant of 2,000,000 shares of common stock, which vested upon issuance, is exercisable at $0.001
and expires on October 1, 2026. Mr. Duchman is entitled to vacation, sick and holiday pay and other benefits, in accordance with the Company’s
policies established and in effect from time to time. The Company may terminate the Mr. Duchman for cause (as defined in Employment Agreement)
by giving Mr. Duchman written notice approved by the Board of such termination, such notice (i) to state in detail the particular act
or acts or failure or failures to act that constitute the grounds on which the proposed termination for cause is based and (ii) to be
given within six months of the Board learning of such act or acts or failure or failures to act. The Employment Agreement may be terminated
at Board’s discretion during the Term, provided that if Mr. Duchman is terminated without cause, the Company shall pay to Mr. Duchman
an amount calculated by multiplying Mr. Duchman monthly salary, at the time of such termination, times the number of months remaining
in the Term.
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 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, which vested upon issuance, is 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 May Employment Agreement for cause (as defined therein) by giving Ms. May written
notice approved by the Board of Directors of such termination
All directors hold office until the next annual
meeting of shareholders and until their successors have been duly elected and qualified, or until their earlier death, resignation, or
removal. Officers are elected by and serve at the discretion of the board.
Our directors are reimbursed for expenses incurred
by them in connection with attending board meetings, and at the discretion of the members of the Board may receive shares of common stock
or warrants as compensation for serving on the Board.
We do not have arrangements in respect of remuneration
received or that may be received by our executive officers to compensate such officers in the event of termination of employment (as a
result of resignation, retirement, change of control) or a change of responsibilities following a change of control.
The following table sets forth certain information
regarding beneficial ownership of our common stock as of September 22, 2022:
As of September 22, 2022, there were 44,373,755 shares of common stock
issued and outstanding.
Beneficial ownership is determined in accordance
with the rules and regulations of the SEC and includes voting or investment power with respect to our common stock. Shares of common stock
subject to stock options, convertible notes and debentures and warrants that are currently exercisable or convertible, or exercisable
or convertible within 60 days of September 22, 2022, are deemed to be outstanding for purposes of computing the percentage ownership of
that person but are not treated as outstanding for computing the percentage ownership of any other person. Unless indicated below, the
persons and entities named in the table have sole voting and sole investment power with respect to all shares beneficially owned, subject
to community property laws where applicable.
Except as otherwise indicated, the address of
each stockholder is c/o Home Bistro, Inc., 4014 Chase Avenue, #212 Miami Beach, FL 33140.
There are no present arrangements known to the Company, including any
pledge by any person of the Company’s securities, the operation of which may at a subsequent date result in a change in control
of the Company.
The following is a description of each transaction
since January 1, 2020 and each currently proposed transaction in which:
Our current policy with regard to related party
transactions is for the Board as a whole to approve any material transactions involving our directors, executive officers or holders of
more than 5% of our outstanding capital stock.
On September 25, 2020, pursuant to the Asset Purchase
Agreement, the Company agreed to sell all of the Company’s business, assets and properties used, or held or developed for use, in
its RTD Business, and Gratitude Keto Holdings, Inc., agreed to assume certain debts, obligations and liabilities related to the RTD Business.
The Asset Purchase Agreement was intended to be part of the Merger and in effect transferred the RTD Business and the related assets and
liabilities to Gratitude Keto, whose CEO, Roy Warren Jr., formerly served as a director of and Chief Operating Officer of the Company.
The Company assumed an accounts payable liability in the amount of $14,000 related to accounting expense of the RTD Business for
a period prior to the Merger. Pursuant to the Asset Purchase Agreement, the Buyer reimbursed the Company for accounting expenses in amount
of $14,000 incurred prior to the Merger, of which $7,000 was payable in cash and the balance in form of a promissory note dated
September 25, 2020 in the amount of $7,000. The promissory note had an interest rate of 5% per annum, matured on April 25, 2021 and
was payable in monthly installments of $1,000 commencing on October 25, 2020 through April 25, 2021. As of December 31, 2020, $5,000 remained
due on the promissory note. The Company received the $7,000 cash portion of the consideration as of December 31, 2020 and the promissory
note has since been satisfied in full.
The Company utilizes the shipping carrier account
of a related entity owned by an LLC affiliated with Zalmi Duchman, the Company’s CEO, for its inbound and outbound shipping
needs. The related entity bills the Company for the direct cost of the shipping charges plus a 20% fee. The total amount incurred
and paid to the related entity during the ten months ended October 31, 2021 was $153,165 and was $117,310 for the year ended
December 31, 2020, which is included in cost of goods sold on the statement of operations. There were no amounts due to this related party
for these services as of October 31, 2021 and December 31, 2020.
On March 30, 2021, the Company entered into a
Securities Purchase Agreement with Dutchess Capital Growth Fund LP (“Dutchess Growth Fund”). Michael Novielli, a Board member,
is a managing partner of Dutchess Capital Growth Fund’s general partner. Pursuant to such agreement, the Company issued (i) a convertible
note with principal amount of $110,000 with the Company receiving $100,000 in net proceeds, net of $10,000 of OID recorded as
a debt discount to be amortized over the twelve-month term of the note; (ii) 50,000 shares of common stock, subject to a true-up based
upon the trading price of the common stock and ownership limitations; and (iii) a warrant to purchase up to 50,000 shares of common stock
at an exercise price of $2.50. During the ten months ended October 31, 2021, the Company fully paid all amounts outstanding under the
convertible note.
On October 1, 2021, the Company and Michael Novielli,
through DCP, entered into a consulting agreement which has been extended by agreement of the Parties. Michael Novielli currently serves
as a member of the Board and is the sole managing partner of DCP. Pursuant to the consulting agreement, DCP received warrants to purchase 1,000,000
shares of common stock for services rendered. Such warrant vested upon issuance, has an exercise price of $0.001 and an expiration
date of October 1, 2026. In addition, under the consulting agreement, DCP receives $10,000 per month, payable in cash.
Currently, we have one
independent director. Because our common stock is not currently listed on a national securities exchange, we have used the definition
of “independence” of The NASDAQ Stock Market to make this determination. NASDAQ Listing Rule 5605(a)(2) provides that an “independent
director” is a person other than an officer or employee of the company or any other individual having a relationship which, in the
opinion of the company’s board of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities
of a director. The NASDAQ listing rules provide that a director cannot be considered independent if:
The authorized capital of the Company consists
of [●] shares of common stock, par value $0.001 per share and 20,000,000 shares of preferred stock, par value $0.001 per share.
The holders of Common Stock are entitled to one
vote per share on all matters submitted to a vote of shareholders, including the election of directors. There is no right to cumulate
votes in the election of directors. The holders of Common Stock are entitled to any dividends that may be declared by the board of directors
out of funds legally available for payment of dividends subject to the prior rights of holders of preferred stock and any contractual
restrictions we have against the payment of dividends on Common Stock. In the event of our liquidation or dissolution, holders of Common
Stock are entitled to share ratably in all assets remaining after payment of liabilities and the liquidation preferences of any outstanding
shares of preferred stock. Holders of Common Stock have no preemptive rights and have no right to convert their Common Stock
into any other securities.
On October 27, 2022, the Board filed a Certificate
of Change pursuant to Nevada Revised Statutes 78.207 with the Nevada Secretary of State to effect the Reverse Stock Split and the proportional
decrease of the Company’s authorized shares of Common Stock in connection with the offering and our intended listing of our Common
Stock on The Nasdaq Capital Market. No shareholder vote was required to authorize the Reverse Stock Split. However, we cannot guarantee
that The Nasdaq Stock Market will approve our initial listing application for our Common Stock in connection with the Reverse Stock Split.
No fractional shares were issued in connection
with the Reverse Stock Split and all such fractional interests were rounded up to the nearest whole number of shares of Common Stock.
On March 19, 2018, the Company designated 520,000
shares of Series A Preferred Stock, par value $0.001 per share (“Series A Preferred Stock”), and 500,000 shares of Series
B Preferred Stock, par value $0.001 per share (“Series B Preferred Stock”). On August 1, 2018, the Company designated 1,000
shares of Series C Preferred Stock, par value $0.001 per share (“Series C Preferred Stock”). In October 2018, the Board approved
and authorized an amendment to increase the number of designated authorized shares of the Series C Preferred Stock to 2,500 shares. As
of September 22, 2022, there are no outstanding shares of Series A Preferred Stock, Series B Preferred Stock or Series C Preferred Stock.
Each share of Series A Preferred Stock is convertible
into shares of Common Stock with a stated value of $10 per share of Series A Preferred Stock and conversion price of $0.04 per share,
subject to adjustment in the event of stock split, stock dividends, and recapitalization or otherwise. The holders of the Series A Preferred
Stock do not possess any voting rights. The Series A Preferred Stock does not contain any redemption provision. The Series A Preferred
Stock are entitled to receive in cash out of assets of the Company before any amounts shall be paid to the holders of any of shares of
junior stock, an amount equal to the stated value plus any accrued and unpaid dividends thereon and any other fees due and owing.
Each share of Series B Preferred Stock is convertible
into shares of Common Stock with a stated value of $10 per share of Series B Preferred Stock and conversion price of $0.04 per share,
subject to adjustment in the event of stock split, stock dividends, and recapitalizations or otherwise. The Series B Preferred Stock are
entitled to receive in cash out of assets of the Company before any amounts shall be paid to the holders of any of shares of junior stock,
an amount equal to the Stated Value plus any accrued and unpaid dividends thereon and any other fees due and owing. Holders of Series
B Preferred Stock voting as a single class, in the aggregate, are entitled to vote with all voting securities of the Company on all matters
submitted to the holders of voting securities for vote with the holders of the Series B Preferred Stock entitling the holder thereof to
cast that number of votes equal to the number of shares of Common Stock issued and outstanding eligible to vote, at the time of the respective
vote plus the number of votes which all other series, or classes of securities are entitled to cast together with the holders of Common
Stock at the time of the relevant vote plus one additional share of Common Stock. Solely with respect to matters of the Company’s
capitalization and similar matters upon which stockholders are entitled to vote or to which stockholders are entitled to give consent,
the holders of the outstanding shares of Series B Preferred Stock shall vote together with the holders of Common Stock without regard
to class, except as to those matters on which separate class voting is required by applicable law or the Certificate of Incorporation
or bylaws.
Each share of Series C Preferred Stock is convertible
into shares of Common Stock with a stated value of $200 per share of Series C Preferred Stock and conversion price of $0.04 per share,
subject to adjustment in the event of stock split, stock dividends, subsequent equity sales with lower effective price, and recapitalization
or otherwise. The Series C Preferred Stock votes with the Common Stock on a fully as converted basis. The Series C Preferred Stock does
not contain any redemption provision. The Series C Preferred Stock are entitled to receive in cash out of assets of the Company before
any amounts shall be paid to the holders of any of shares of junior stock, an amount equal to the stated value plus any accrued and unpaid
dividends thereon and any other fees due and owing.
The Company’s transfer agent, Nevada Agency
and Transfer Company, will serve as transfer agent to maintain stockholder information on a book-entry basis. We will not issue shares
in physical or paper form. Instead, our shares will be recorded and maintained on our stockholder register.
July 31, 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 July 31, 2022 and October 31, 2021, the bank balance was
in excess of FDIC insured levels by approximately $0 and $2,025,000, respectively. The Company has not experienced any losses in such
accounts through July 31, 2022.
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 July 31, 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).
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
JULY 31, 2022
The three levels of the fair value hierarchy are
as follows:
|
Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date. |
|
|
|
Level 2—Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data. |
|
|
|
Level 3—Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information. |
The carrying amounts reported in the consolidated
balance sheets for cash, due from and to related parties, prepaid expenses, accounts payable and accrued liabilities approximate their
fair market value based on the short-term maturity of these instruments.
Assets or liabilities measured at fair value on
a recurring basis include embedded conversion options in convertible debt (see Note 4) and were as follows on July 31, 2022 and October
31, 2021:
| |
July 31, 2022 | | |
October 31, 2021 | |
Description | |
Level 1 | | |
Level 2 | | |
Level 3 | | |
Level 1 | | |
Level 2 | | |
Level 3 | |
Derivative liabilities | |
$ | — | | |
$ | — | | |
$ | 153,206 | | |
$ | — | | |
$ | — | | |
$ | 86,884 | |
A roll forward of the level 3 valuation financial
instruments is as follows:
| |
Nine Months Ended July 31, 2022 | |
| |
(Unaudited) | |
Balance on October 31, 2021 | |
$ | 86,884 | |
Increase in derivative liabilities included in debt discount | |
| 122,177 | |
Change in fair value of derivative liabilities | |
| (55,855 | ) |
Balance on July 31, 2022 | |
$ | 153,206 | |
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.
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
JULY 31, 2022
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 nine months
ended July 31, 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.
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 July 31, 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 $411,380 and $152,070 for the nine months ended July 31, 2022 and 2021,
respectively. Shipping and handling costs charged to customers are included in product sales.
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
JULY 31, 2022
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 $940,580 and $307,980 for the nine months ended July 31, 2022 and 2021, respectively, which are presented on the accompanying
unaudited consolidated statements of operations as selling and marketing expenses.
Income Taxes
The Company accounts for income taxes using the
liability method prescribed by ASC 740 - Income Taxes. Under this method, deferred tax assets and liabilities are determined based on
the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect
in the year in which the differences are expected to reverse. The Company records a valuation allowance to offset deferred tax assets
if based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assets will not
be realized. The effect on deferred taxes of a change in tax rates is recognized as income or loss in the period that includes the enactment
date.
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 nine
months ended July 31, 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.
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
JULY 31, 2022
The potentially dilutive common stock equivalents
as of July 31, 2022 and 2021 were excluded from the dilutive loss per share calculation as they would be antidilutive due to the net loss
and included the following:
| |
July 31, | |
| |
2022 | | |
2021 | |
Common Stock Equivalents: | |
| | |
| |
Stock Warrants | |
| 17,750,156 | | |
| 12,071,461 | |
Convertible Notes | |
| 7,821,102 | | |
| 1,512,844 | |
Total | |
| 25,571,258 | | |
| 13,584,305 | |
Concentration Risk
The Company purchased approximately 100% of its
food products from one vendor during the twelve months ended October 31, 2022. 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 July 31, 2021, the Company had no
accounts payable balance to this vendor.
During the nine months ended July 31, 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.
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.
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
JULY 31, 2022
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 effective November 1, 2021 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.
NOTE 3 – ACQUISITION OF A SUBSIDIARY
Acquisition of Model Meals
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.
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
JULY 31, 2022
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.
The following unaudited pro forma consolidated
results of operations for the nine months ended July 31, 2021 have been prepared as if the acquisition of Model Meals had occurred
as of the beginning of the period:
| |
Nine Months Ended | |
| |
July 31, 2021 | |
| |
(Unaudited) | |
Net Revenues | |
$ | 2,485,615 | |
Net Loss | |
$ | (2,539,633 | ) |
Net Loss per Share | |
$ | (0.12 | ) |
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.
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
JULY 31, 2022
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 | |
July 31, 2022 | | |
October 31, 2021 | |
| |
| |
| (Unaudited) | | |
| | |
Goodwill | |
Indefinite | |
$ | 1,809,357 | | |
$ | 1,809,357 | |
Less: impairment | |
| |
| — | | |
| — | |
Goodwill, net | |
| |
$ | 1,809,357 | | |
$ | 1,809,357 | |
Intangible Assets
|
|
Estimated
Life |
|
July 31,
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 |
|
|
|
|
(683,719 |
) |
|
|
(8,837 |
) |
Intangible assets, net |
|
|
|
$ |
2,550,479 |
|
|
$ |
3,225,361 |
|
Intangible assets with a finite life, net |
|
|
|
$ |
2,045,479 |
|
|
$ |
2,720,361 |
|
During the three and twelve months ended October
31, 2022, the Company recorded a total of $224,961 and $674,882, 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 |
|
$ |
224,962 |
|
2023 |
|
|
899,845 |
|
2024 |
|
|
898,147 |
|
2025 |
|
|
6,143 |
|
2026 |
|
|
6,143 |
|
2027 |
|
|
6,143 |
|
2028 |
|
|
4,096 |
|
Total |
|
$ |
2,045,479 |
|
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
JULY 31, 2022
NOTE 5 – CONVERTIBLE NOTES
On July 31, 2022 and October 31, 2021, convertible
notes consisted of the following:
| |
July 31, 2022 | | |
October 31, 2021 | |
| |
(Unaudited) | | |
| |
Principal amount | |
$ | 992,302 | | |
$ | 1,028,179 | |
Add: put premium on stock-settled debt | |
| 83,058 | | |
| - | |
Less: debt discount | |
| (361,444 | ) | |
| (477,541 | ) |
Convertible notes payable, net | |
$ | 713,916 | | |
$ | 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 | |
$ | 713,916 | | |
$ | 580,810 | |
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 matured 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 made nine monthly cash payments (“Amortization Payments”) in the amount
of $39,600 beginning May 1, 2021. 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 was 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 nine months ended July 31, 2022, the Company paid the remaining $116,430 of principal and $2,370 of accrued interest.
As of July 31, 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.
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
JULY 31, 2022
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 matured 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 was 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 made nine monthly cash payments (“Amortization Payments”), in the amount of $6,455 due on the first day of each
month, beginning July 1, 2021. 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 was 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 July 31, 2022, the Company paid the remaining $31,533 of the principal and $742 of accrued interest. As of July
31, 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 a 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) expires on the fifth-year anniversary from the date of issuance.
March 2021 Note III – Related Party
On March 30, 2021, the Company entered into a
Securities Purchase Agreement (the “March 2021 SPA III”) with an investor, who is also a major stockholder and director and
considered to be a related party, for the sale of the Company’s convertible note. Pursuant to the March 2021 SPA III, the Company;
(i) issued a convertible note with principal amount of $110,000 (the “March 2021 Note III”) with the Company receiving $100,000
in net proceeds, net of $10,000 of OID recorded as a debt discount to be amortize over the twelve-month term of the note; (ii) issued
50,000 shares of common stock, subject to a true-up based upon the trading price of the common stock and the investor’s ownership
limitations (“Commitment Share True-up”) (as discussed below under Commitment Share True-Up Provision) and; (iii) a
warrant to purchase up to 50,000 shares of common stock (the “March 2021 Warrant III”, and together with the March 2021 SPA
III and the March 2021 Note III, the “March 2021 Agreements III”). The 50,000 shares of common stock and 50,000 warrant issued
were valued at $23,718 and $7,924, respectively, using the relative fair value method and the Commitment Share True-up had a fixed monetary
value of $22,250, all recorded as a debt discount to be amortized over the twelve-month term of the note. The March 2021 Note III matured
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 made nine
monthly cash payments (“Amortization Payments”), in the amount of $12,911 due on the first day of each month, beginning July
1, 2021. 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 was 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 twelve months
ended October 31, 2022, the Company paid the remaining $63,069 of principal and $1,487 of accrued interest. As of July 31, 2022 and October
31, 2021, the March 2021 Note III had outstanding principal of $0 and $63,069 respectively.
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
JULY 31, 2022
The March 2021 Warrant III, issued to the investor
as a 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 2021 Agreements 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. 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 was 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 twelve months ended October 31, 2022, the Company paid the remaining $96,809 of principal and $4,025 of accrued interest. As of July
31, 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 a 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.
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 2021 Agreements”). 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 matured 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 made nine monthly cash payments (“Amortization Payments”), in the amount of $19,800 due on the
first day of each month, beginning July 1, 2021. 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 nine months ended July 31, 2022, the Company paid the remaining $95,684 of principal and $3,316 of accrued interest. As of
July 31, 2022 and October 31, 2021, the April 2021 Note had outstanding principal of $0 and $95,684, respectively.
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
JULY 31, 2022
The April 2021 Warrant, issued to the investor
as a 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 a 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 a 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 matured 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 made nine monthly cash payments (“Amortization Payments”),
in the amount of $15,667 due on the first day of each month, beginning August 9, 2021. 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 nine months ended July 31, 2022, the Company paid the remaining $90,841 of principal and $3,161
of accrued interest. As of July 31, 2022 and October 31, 2021, the May 2021 Note I had outstanding principal of $0 and $90,841, respectively.
The May 2021 Warrant I, issued to the investor
as a 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 2021 Agreements
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 matured 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
made nine monthly cash payments (“Amortization Payments”), in the amount of $31,350 due on the first day of each month, beginning
August 26, 2021. 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 nine months ended July
31, 2022, the Company paid $236,781 of principal and $14,019 of accrued interest. As of July 31, 2022 and October 31, 2021, the May 2021
Note II had outstanding principal of $0 and $236,781, respectively.
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
JULY 31, 2022
The May 2021 Warrant II, issued to the investor
as a 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 matured
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 made nine
monthly cash payments (“Amortization Payments”), in the amount of $13,444 due on the first day of each month, beginning October
1, 2021. 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 was 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
nine months ended July 31, 2022, the Company paid $110,000 of principal and $10,996 of accrued interest. As of July 31, 2022 and October
31, 2021, the September 2021 Note I had outstanding principal of $0 and $110,000, respectively.
The September 2021 Warrant I, issued to the investor
as a 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.
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 matured 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”).
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
JULY 31, 2022
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 nine months
ended July 31, 2022, the Company paid $219,875 of principal and $24,573 of accrued interest. As of July 31, 2022 and October 31, 2021,
the September 2021 Note II had outstanding principal of $30,125 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.
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 869,565 warrants issued were valued at $93,641 using the relative fair
value method, recorded as a debt discount to be amortized over the twelve-month term of the note. 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.
The May 2022 Warrant I issued to the investor,
provides for the right to purchase up to 869,565 shares of common stock; (i) valued at $93,641 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 $0.575, provided, however,
upon the Uplist Offering, the exercise price shall equal 120% of the Uplist Offering; after 180 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 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.
As of July 31, 2022, the May 2022 Note I had outstanding
principal of $500,000.
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 217,391 warrants issued were valued at $24,902 using the relative
fair value method, recorded as a debt discount to be amortized over the twelve-month term of the note. 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.
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
JULY 31, 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) valued at $24,902 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; after 180 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.
As of July 31, 2022, the May 2022 Note II had
outstanding principal of $125,000.
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 318,134 warrants issued were valued at $36,442 using the relative
fair value method, recorded as a debt discount to be amortized over the twelve-month term of the note. 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) valued at $36,442 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; after 180 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.
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
JULY 31, 2022
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.
As of July 31, 2022, the May 2022 Note III had
outstanding principal of $182,927.
July 2022 Note
On July 19, 2022 (the “Issue Date”),
the Company entered into Securities Purchase Agreements dated as of July 19, 2022 (the “July 2022 SPA”), by and between
the Company and 1800 Diagonal Lending LLC, a Virginia limited liability company (the “Investor”). Pursuant to the July
2022 SPA, among other things, the Company agreed to issue to the Investor a convertible note in the original principal amount of $154,250
(the “July 2022 Note”). Upon closing, the Company received $138,000 in net proceeds from the Investor, which was net
of $16,250 of legal fees.
The July 2022 Note accrues interest at an
annual interest rate of 8%, has a default interest rate of 22%, and matures on January 19, 2024 (the “Maturity Date”).
The Investor may convert the July 2022 Note into shares of the Company’s common stock 180 days after the Issue Date until the later
of (i) the Maturity Date and (ii) the date the Company pays any amounts owed in connection with an event of default. The per share conversion
price into which the July 2022 Note is convertible into shares of common stock (the “Conversion Price”) is 65% multiplied
by the average of the lowest two closing bid prices for the common stock during the ten trading days ending on the last trading day prior
to the conversion date.
The Company has the right to prepay the outstanding
principal amount of the Note, plus any accrued interest on the outstanding principal (including any default interest) at a rate of (x)
120% during the period ending 120 days after the Issue Date and (y) 125% during the period between 121 days and 180 days after the Issue
Date. The Company does not have a prepayment right following the expiration of the 180-day period.
Upon the occurrence and during the continuation
of any event of default under the Note, the Note becomes immediately due and payable and the Company is obligated to pay the Investor
in full satisfaction of its obligations thereunder an amount equal to the greater of (i) the principal amount then outstanding plus accrued
interest (including any default interest) through the date of full repayment multiplied by 150% and (ii)(a) the highest number of shares
of Common Stock issuable upon conversion of the default sum at the Conversion Price, multiplied by (b) the highest closing price for the
Common Stock during the period beginning on the date of first occurrence of the event of default and ending one day prior to the mandatory
prepayment date.
The obligations under the July 2022 Note are not secured by any assets
of the Company.
The July 2022 SPA and July 2022 Note agreements
contain other provisions, covenants and restrictions common with this type of debt transaction. Furthermore, the Company is subject to
negative covenants under the Agreements, which the Company also believes are also customary for transactions of this type.
The July 2022 Note was treated as stock settled
debt under ASC 480-Distinguishing Liabilities from Equity, and a put premium of $83,058 was recognized and charged to interest expense.
As of July 31, 2022, the July 2022 Note had an
outstanding balance of $237,308 which included principal of $154,250 and a put premium of $83,058.
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
JULY 31, 2022
Valuation of Warrants
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.
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 nine months ended July 31, 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
July 31, 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, May 2021 Financings, September 2021 Financings and May 2022 Financings (collectively referred to as
“Notes”), the Company determined that the terms of the Notes contain redemption features to be accounted for as derivative
liabilities pursuant to ASC 815-15-25-42 as the redemption feature is not clearly closely related to the debt host. 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.
In connection with the issuance of the May 2022
Notes, on the initial measurement date, the fair values of the embedded conversion option of $122,177 was recorded as derivative liabilities
and debt discount.
On July 31, 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 $55,855 for the nine months ended July 31, 2022.
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
JULY 31, 2022
During the nine months ended July 31, 2022, the
fair value of the derivative liabilities were estimated using the Monte Carlo Valuation Model with the following assumptions (see Note
2):
|
|
July 31,
2022 |
|
Dividend rate |
|
|
—% |
|
Term (in years) |
|
|
0.09 to 0.50% |
|
Volatility |
|
|
55% to 90% |
|
Risk—free interest rate |
|
|
0.04 to 2.90% |
|
Default probability |
|
|
10.0% to 12.5% |
|
Probability of uplist offering |
|
|
50% |
|
For the nine months ended July 31, 2022 and 2021,
amortization of debt discounts related to the convertible notes amounted to $388,145 and $817,922 and, included as interest expense on
the accompanying unaudited consolidated statements of operations. On July 31, 2022 and October 31, 2021, the unamortized debt discount
was $361,444 and $510,438, respectively.
NOTE 6 – NOTES PAYABLE
Notes payable is summarized below:
| |
July 31, 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 July 31, 2022 and October 31, 2021,
the SBA Note had outstanding principal balance of $149,900. As of July 31, 2022 and October 31, 2021, the SBA Note had an accrued interest
of $12,360 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 July 31, 2022 and October 31, 2021, the SBA Note had an outstanding
principal balance of $150,000. As of July 31, 2022 and October 31, 2021, the SBA Note had accrued interest of $11,927 and $7,721, respectively,
reflected in the accompanying unaudited consolidated balance sheets under accrued expense and other liabilities.
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
JULY 31, 2022
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 July 31, 2022, the Note had an outstanding principal
balance of $7,000 and accrued interest of $600, 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 $27,055
of the outstanding balance. During the nine months ended July 31, 2022, the Company repaid all remaining outstanding balance of $67,945.
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 nine months ended July 31, 2022, the Company repaid all remaining
outstanding balance of $34,000.
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 nine months ended July 31, 2022, the Company paid $15,822 of the outstanding balance. The advance has an
outstanding balance of $11,680 as of July 31, 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. During the nine months ended July 31, 2022, the Company repaid all remaining outstanding balance of $25,990.
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. Additionally, 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 nine months ended July 31,
2022, the Company paid $48,043 of the April Advance Agreement II and III. The advance has an outstanding balance of $135,017 as of July
31, 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. During the nine months ended July 31, 2022, the Company paid $27,433 of the April Advance Agreement IV.
The advance has an outstanding balance of $96,867 as of July 31, 2022, reflected as advance payable on the accompanying unaudited
consolidated balance sheet.
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
JULY 31, 2022
NOTE 8 – UNREDEEMED GIFT CARDS
Unredeemed gift cards activities as of July 31,
2022 and October 31, 2021 are summarized as follows:
| |
July 31, 2022 | | |
October 31, 2021 | |
| |
(Unaudited) | | |
| |
Beginning balance | |
$ | 164,912 | | |
$ | 48,311 | |
Acquired gift card liability (see Note 3) | |
| — | | |
| 87,260 | |
Sale of gift cards | |
| 121,603 | | |
| 186,749 | |
Promotional and other gift cards issued | |
| 84,250 | | |
| - | |
Revenue from breakage | |
| (22,810 | ) | |
| (60,515 | ) |
Gift card redemptions | |
| (113,323 | ) | |
| (96,893 | ) |
Ending balance | |
$ | 234,632 | | |
$ | 164,912 | |
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 required the Company to pay a monthly base rent of $14,140 for the remainder of the lease term.
On 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 which terminated 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). As of July 1, 2022, the Company is leasing storage space on a month-to month
basis and is no longer operating the kitchen at this facility.
For the nine months ended July 31, 2022, total
rent expense amounted to $182,043 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.
On July 31, 2022 and October 31, 2021, operating lease right-of-use assets is summaries below:
| |
July 31, 2022 | | |
October 31, 2021 | |
| |
(Unaudited) | | |
| |
Operating ROU assets | |
$ | 336,614 | | |
$ | 336,614 | |
Less accumulated reductions | |
| (153,736 | ) | |
| (68,105 | ) |
Balance of Operating ROU assets, net | |
$ | 182,878 | | |
$ | 268,509 | |
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
JULY 31, 2022
Operating lease liabilities
related to the Operating ROU assets is summarized below:
| |
July
31,
2022 | | |
October 31, 2021 | |
| |
(Unaudited) | | |
| |
Operating lease liabilities | |
$ | 339,532 | | |
$ | 339,532 | |
Reduction of operating lease liabilities | |
| (151,738 | ) | |
| (71,178 | ) |
Total | |
| 187,794 | | |
| 268,354 | |
Less: short term portion | |
| (86,699 | ) | |
| (101,431 | ) |
Long term portion | |
$ | 101,095 | | |
$ | 166,923 | |
Future minimum operating
lease payments under the operating lease agreements on July 31, 2022 are as follows:
Year | |
Amount | |
Ending October 31, 2022 (remaining) | |
$ | 25,394 | |
Ending October 31, 2023 | |
| 102,846 | |
Ending October 31, 2024 | |
| 79,991 | |
Total minimum non-cancellable operating lease payments | |
| 208,231 | |
Less: discount to fair value | |
| (20,437 | ) |
Total operating lease liabilities on July 31, 2022 | |
$ | 187,794 | |
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.
Financing right-of-use
(“Financing ROU”) asset is summarized below:
| |
July
31,
2022 | | |
October 31, 2021 | |
| |
(Unaudited) | | |
| |
Financing ROU assets | |
$ | 200,509 | | |
$ | 200,509 | |
Less accumulated depreciation | |
| (69,621 | ) | |
| (19,494 | ) |
Balance of financing ROU assets, net | |
$ | 130,888 | | |
$ | 181,015 | |
For the three and nine
months ended July 31, 2022, depreciation expense related to Financing ROU assets amounted to $16,709 and $50,127, respectively.
Financing lease liability
related to the Financing ROU assets is summarized below:
| |
July 31, 2022 | | |
October 31, 2021 | |
| |
(Unaudited) | | |
| |
Financing lease payables for equipment | |
$ | 200,509 | | |
$ | 200,509 | |
Reduction of financing lease liability | |
| (59,648 | ) | |
| (13,650 | ) |
Total | |
| 140,861 | | |
| 186,859 | |
Less: short term portion | |
| (66,926 | ) | |
| (62,210 | ) |
Long term portion | |
$ | 73,935 | | |
$ | 124,649 | |
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
JULY 31, 2022
Future minimum lease
payments under the financing lease agreement on July 31, 2022 are as follows:
Year | |
Amount | |
Year ending October 31, 2022 (remaining) | |
$ | 19,500 | |
Year ending October 31, 2023 | |
| 78,000 | |
Year ending October 31, 2024 | |
| 58,500 | |
Total minimum non-cancellable financing lease payments | |
| 156,000 | |
Less: discount to fair value | |
| (15,139 | ) |
Total financing lease liabilities on July 31, 2022 | |
$ | 140,861 | |
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 nine months ended July 31, 2022 and 2021 was $288,731 and $121,008, 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 July 31, 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.
Common Stock Issued for Cash
|
● |
During the nine months ended July 31, 2021, the Company issued an aggregate of 1,206,605 shares of common stock, to non-affiliate investors for aggregate net cash proceeds of $866,770. |
|
● |
During the nine months ended July 31, 2022, the Company issued an aggregate of 1,932,204 shares of common stock, to non-affiliate investors for aggregate net cash proceeds of $1,368,492. |
Common Stock Issued for Services and Prepaid
Services
|
● |
On 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 twelve months ended October 31, 2022 and 2021, the Company amortized $750,000 and $600,000 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 July 31, 2022 and October 31, 2021, there was $0 and $750,000, 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 nine months ended July 31, 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 July 31, 2022, there was no deferred compensation related to this consulting agreement. |
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
JULY 31, 2022
|
● |
During the twelve months ended October 31, 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 a 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 $17,296 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. |
|
● |
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 $30,694 using the relative fair value method and was recorded as debt discount to be amortized over the life of the note. |
|
|
|
|
● |
On May 17, 2021, the Company granted 60,000 shares of common stock to a non-affiliate investor as commitment fee pursuant to a securities purchase agreement (see Note 5), valued at $26,824 using the relative fair value method and was recorded as debt discount to be amortized over the life of the note. |
|
|
|
|
● |
On May 28, 2021, the Company granted 150,000 shares of common stock to a non-affiliate investor as commitment fee pursuant to a securities purchase agreement (see Note 5), valued at $67,645 using the relative fair value method and was recorded as debt discount to be amortized over the life of the note. |
|
● |
During the twelve months ended October 31, 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. |
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
JULY 31, 2022
Common Stock Issued Pursuant to Lock-Up
& Leak Out Agreements
|
● |
During the nine months ended July 31, 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 July 31, 2022. During the twelve months ended October 31, 2022, the Company amortized $670,212 including $115,939 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 July 31, 2022, there were no deferred compensation related to the Lock-Up & Leak Out Agreements. |
|
|
|
|
|
On May 1, 2022, the Company issued as consideration to a related party stockholder 25,000 shares of common stock with grant date fair value of $27,500, or $1.10 per share, based on the market price of common stock on grant date, for the stockholder’s execution of a Lock-Up & Leak Out Agreement. In connection with this issuance, on May 1, 2022, the Company recorded stock-based professional fees – related party of $27,500. |
Common Stock Issued Pursuant to Product
Development Agreements
|
● |
During the three months ended January 31, 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 twelve months ended October 31, 2022, $370,677 of the accumulated deferred compensation was expensed as product development expense in the accompanying unaudited consolidated statements of operations related to shares issued in the prior and current period connection with joint product development agreements. As of July 31, 2022, there was $237,603 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. |
Common Stock Issued for Acquisition of Subsidiary
|
● |
On July 6, 2021, the Company issued an aggregate of 2,008,310 shares of common stock with fair value of $2,028,393, based on the market price of common stock on date of acquisition, to members of Model Meals, LLC in exchange for 100% membership, pursuant to the Agreement and Plan of Merger (see Note 1 and Note 3). |
Common Stock Issued for Warrant Exchange
Agreements
|
● |
On May 1, 2022, in connection with the settlement of a down round exercise price trigger, 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, at an agreed upon reduced exercise price of $0.75 with the Company issuing an aggregate of 3,048,917 shares of common stock in exchange for the outstanding warrants and no cash consideration. In connection with this warrant exchange, the Company recorded a deemed dividend of $2,578,446, which was calculated as the fair value of excess shares issued to the Parties with a grant date fair value of $2,578,446, or $0.51 per share, based on the market price of common stock on grant date. |
|
● |
On June 30, 2022, in connection with a lock-up and leak out settlement agreement, the Company issued 674,100 shares of its common stock in connection with the cashless exercise of 674,100 warrants and no cash consideration. The 674,100 had grant date fair value of $195,490 or $0.29 per share based on the market price of common stock on grant date. In connection with this cashless exercise of warrants, the Company recorded settlement expense of $195,490. |
Common stock issued pursuant to settlement
agreements
|
● |
On June 30, 2022, pursuant to a stock repurchase and settlement agreement and a lock-up and settlement agreement, the Company issued an aggregate of 585,000 shares of its common stock with grant date fair value of 169,650, or $0.29 per share, based on the market price of common stock on grant date, for the stockholders’ execution of a Lock-Up & Leak Out Agreement. In connection with these agreements, the Company recorded settlement expense of $185,344. In connection with the stock repurchase and settlement agreement the Company agreed to repurchase 166,667 shares of its common stock from an investor for $150,000. In connection with this agreement the Company recorded a common stock repurchase obligation of $150,000 and reduced additional paid-in capital by $150,000. In July 2022, the Company paid $50,000 towards this common stock repurchase agreement. On July 31, 2022, the common stock repurchase obligation related to this agreement amounted to $100,000. |
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
JULY 31, 2022
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. |
Warrants Issued for Professional Services
|
● |
During the three months ended January 31, 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 three months ended January 31, 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 12, 2021, the Company issued a warrant to purchase up to 55,000 shares of common stock to a non-affiliate investor as an 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 February 2, 2021, the Company issued a warrant to purchase up to 150,000 shares of common stock to a non-affiliate investor as an 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. |
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
JULY 31, 2022
|
● |
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 April 7, 2021, the Company issued a warrant to purchase up to 75,000 shares of common stock to a non-affiliate investor as an additional commitment fee pursuant to a note amendment. The warrant; (i) was valued at $9,592 using the relative fair value method and recorded as a debt discount to be amortized over the life of the note; (ii) has an exercise price of $2.50; (iii) subject to the adjustments and 4.99%, ownership limitation and; (iv) expires on the fifth-year anniversary from the date of issuance. |
|
● |
On May 17, 2021, the Company issued a warrant to purchase up to 60,000 shares of common stock to a non-affiliate investor as additional commitment fee pursuant to a note amendment (see Note 5). The warrant; (i) was valued at $9,767 using the relative fair value method and recorded as a debt discount to be amortized over the life of the note; (ii) has an exercise price of $2.50; (iii) subject to the adjustments and 4.99%, ownership limitation and; (iv) expires on the fifth-year anniversary from the date of issuance. |
|
● |
On May 28, 2021, the Company issued a warrant to purchase up to 150,000 shares of common stock to a non-affiliate investor as additional commitment fee pursuant to a note amendment (see Note 5). The warrant; (i) was valued at $30,328 using the relative fair value method and recorded as a debt discount to be amortized over the life of the note; (ii) has an exercise price of $1.50; (iii) subject to the adjustments and 4.99%, ownership limitation and; (iv) expires on the fifth-year anniversary from the date of issuance. |
|
● |
On May 18, 2022, the Company issued a warrant to purchase up to 869,565 shares of common stock to a non-affiliate investor as additional commitment fee pursuant to a convertible (see Note 5). The warrant; (i) was valued at $93,641 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 $0.575; (iii) subject to the adjustments and 4.99%, ownership limitation and; (iv) expires on the third-year anniversary from the date of issuance. |
|
|
|
|
● |
On May 24, 2022, the Company issued a warrant to purchase up to 217,391 shares of common stock to a non-affiliate investor as additional commitment fee pursuant to a convertible (see Note 5). The warrant; (i) was valued at $24,902 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 $0.575; (iii) subject to the adjustments and 4.99%, ownership limitation and; (iv) expires on the third-year anniversary from the date of issuance. |
|
|
|
|
● |
On May 24, 2022, the Company issued a warrant to purchase up to 318,134 shares of common stock to a non-affiliate investor as additional commitment fee pursuant to a convertible (see Note 5). The warrant; (i) was valued at $36,442 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 $0.575; (iii) subject to the adjustments and 4.99%, ownership limitation and; (iv) expires on the third-year anniversary from the date of issuance. |
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 | |
| 61%
to 69% | |
Risk-free interest rate | |
| 0.14%
to 2.80% | |
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
JULY 31, 2022
A summary of the Company’s outstanding stock
warrants as of July 31, 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 | |
| 15,745,066 | | |
$ | 0.170 | | |
| 7.4 | |
Warrants issued for services | |
| 100,000 | | |
| 1.500 | | |
| 4.1 | |
Warrants issued pursuant to employment agreements | |
| 500,000 | | |
| 0.001 | | |
| 4.9 | |
Warrants issued in connection with convertible debt | |
| 1,405,090 | | |
| 0.575 | | |
| 3.0 | |
Warrants exercised | |
| (1,596,595 | ) | |
| 1.350 | | |
| | |
Balance on July 31, 2022 | |
| 16,153,561 | | |
$ | 0.090 | | |
| 6.4 | |
| |
| | | |
| | | |
| | |
Stock warrants exercisable on July 31, 2022 | |
| 16,153,561 | | |
$ | 0.090 | | |
| 6.4 | |
Certain exercisable stock warrants had per share
intrinsic value of $0.22 on July 31, 2022, totaling $2,876,945.
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.
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 July 31, 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.
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
JULY 31, 2022
Put Option Agreement and Stock Repurchase 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 expired fourteen (14) days from end of the Market Period. In connection with the Put Option Agreement, the Company recorded
an initial 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 $681,725. During the nine months ended
July 31, 2022, the Company recorded a reduction of $113,072. As of July 31, 2022, the Company has recorded an aggregate reduction of $794,797
for net proceeds realized by the stockholder on sale of Company common stock which was reclassified to additional paid in capital. As
of July 31, 2022 and October 31, 2021, the Company had $505,203 and $618,275 million of common stock repurchase obligation outstanding,
respectively.
On June 30, 2022, the Company and a stockholder
entered into a Stock Repurchase Agreement, pursuant to which, among other things, the Company agreed to purchase certain shares of common
stock from such stockholder for an aggregate purchase price of $150,000. In connection with this Stock Repurchase Agreement, the Company
recorded an initial common stock repurchase obligation in the amount of $150,000 which was recorded in the accompanying consolidated balance
sheets as common stock repurchase obligation, and reduction of additional paid in capital upon entering the Stock Repurchase Agreement.
The Company shall pay to the Shareholder the Purchase Price in immediately available funds, as follows: (1) $50,000 which was be paid
upon the complete execution of this Stock Repurchase Agreement, and the related Settlement Agreement and Release, and the Lock-up and
Leak-out Agreement; (2) $50,000 to be paid 30 days after the complete execution of the Stock Repurchase Agreement, the Settlement Agreement
and Release, and the Lock-up and Leak-out Agreement; and (3) the final $50,000 to be paid 60 days after the complete execution of the
Stock Repurchase Agreement, the Settlement Agreement and Release, and the Lock-up and Leak-out Agreement. As of July 31, 2022, the Company
had $100,000 of common stock repurchase obligation outstanding.
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 nine months ended July 31, 2022, the Company paid an aggregate of $49,139 of accrued royalty
fee. During the nine months ended July 31, 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. During the nine months ended July 31, 2022, the Company recorded $86,442 of royalty expense related to the GMR. As of
July 31, 2022, an aggregate total of $109,199 of accrued royalty fee was reflected, with $61,794 included in accounts payable and $44,405
included in accrued expense and other liabilities in the accompanying unaudited consolidated balance sheets. As of July 31, 2022 and October
31, 2021, a total of $109,199 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
JULY 31, 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 installments of $2,000 per month, by the 10th business day of the following month in which
the Hungry Fan Commission was earned. The Parties agree that the Hungry Fan Royalty shall be credited against the Guarantee received to
date. During the transitional period ending October 31, 2021, the Company paid $14,000 of GMC. During the nine months ended July 31, 2022,
the Company paid an aggregate of $6,000 of accrued royalty fee. As of July 31, 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
sheets.
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 July 31, 2022 and October 31, 2021, $198
of accrued royalty fee was reflected under accrued expense and other liabilities in the accompanying consolidated balance sheets.
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.
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
JULY 31, 2022
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 July 31, 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 nine months ended July
31, 2022, the Company expensed $121,875 of the deferred compensation as product development expense in the accompanying unaudited consolidated
statement of operations. As of July 31, 2022 and October 31, 2021, there were $0 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 nine months ended July 31, 2022, the Company recorded $21,000 of royalty expense
related to the GMR. As July 31, 2022 and October 31, 2021, there were no accrued royalty fee.
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
JULY 31, 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 nine months ended July 31, 2022, the Company expensed $147,344 of the deferred compensation as
product development expense in the accompanying unaudited consolidated statement of operations. As of July 31, 2022 and October 31, 2021,
there were $0 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 nine months
ended July 31, 2022, the Company recorded $56,250 of royalty expense related to the GMR. As of July 31, 2022, there was a total of $51,815
GMR payable of which $8,065 was recorded in accrued royalty fee and $43,750 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 nine months ended July 31, 2022, the Company expensed $74,375 of the deferred compensation as product development
expense in the accompanying unaudited consolidated statement of operations. As of July 31, 2022 and October 31, 2021, there were $164,687
and $239,063 of deferred compensation, respectively, related to this Development Agreement.
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
JULY 31, 2022
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 nine months ended July 31, 2022, there were no payments made under the Development Agreement.
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 nine months ended July 31, 2022,
the Company expensed $27,083 of the deferred compensation as product development expense in the accompanying unaudited consolidated statement
of operations. As of July 31, 2022, there was $72,917 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 nine months ended July 31, 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
October 31, 2022, there were no payments made or owed under the Development Agreement.
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
July
31, 2022
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 nine months ended July 31, 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 July
31, 2022 and October 31, 2021, the deferred compensation related to this Agreement was $0 and $750,000, respectively.
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 nine months
ended July 31, 2022, the Company paid an aggregate amount of $205,000. During the nine months ended July 31, 2022, the Company recognized
$246,667 of expense related to this Agreement and recorded as selling and marketing expenses in the accompanying unaudited consolidated
statement of operations. As of July 31, 2022 and October 31, 2021, the prepaid expense related to this Agreement were $0 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. For the three and nine months ended July 31, 2022, professional and consulting expense – related party amounts to $30,000
and $90,000, respectively.
Lock-Up and Leak Out Agreements
In 2021 and during the nine months ended July
31, 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 nine months ended July 31, 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 nine months ended July 31, 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 July 31, 2022 and October 31, 2021, the deferred compensation related to this Agreement were $0 and $115,938,
respectively.
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
JULY 31, 2022
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.
NOTE 13 – SUBSEQUENT EVENTS
Joint Product Development and Distribution
Agreement
Tsuji’s Inc.
On August 26, 2022 (“Effective Date”),
the Company and Tsuji’s Inc. (f/s/o Chef Katsuji Tanabe (“CKJ”)) (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 (“CKJ 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 CKJ 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 CKJ 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 $20,000, or $0.20 per share, 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.
In connection with the sale of CKJ Meals, the
Company shall pay to CKJ the following: (i) 5% of all net revenue generated from the sale of CKJ Meals (the “CKJ Royalty”).
For the purpose of this agreement “Net Revenue” shall be defined as gross sales generated on CKJ Meals less discounts and
returns. The CKJ 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 CKJ Royalty was earned; (ii) 5% of all Net Revenue generated from the sale of Home Bistro
brand orders in which a CKJ Dedicated Code was used at the time of purchase (“CKJ Commission”). The CKJ 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 CKJ Commission is earned.
Chef David Burtka
On September 8, 2022 (“Effective Date”),
the Company and Chef David Burtka (“CDB”) (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 (“CDB 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”). The first twelve-month anniversary of the Development
Agreement shall be deemed “Year One”. The Company shall only distribute the CDB 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 CDB 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 250,000 shares of common stock with grant date fair value of $45,000, or
$0.18 per share, 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.
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
JULY 31, 2022
In connection with the sale of CDB Meals, the
Company shall pay to CDB the following: (i) 5% of all net revenue generated from the sale of CDB Meals (the “CDB Royalty”).
For the purpose of this agreement “Net Revenue” shall be defined as gross sales generated on CDB Meals less discounts and
returns. The CDB 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 CDB Royalty was earned; (ii) 5% of all Net Revenue generated from the sale of Home Bistro
brand orders in which a CDB Dedicated Code was used at the time of purchase (“CDB Commission”). The CDB 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 CDB Commission is earned.
All Grain LLC
On September 9, 2022 (“Effective Date”),
the Company and All Grain LLC (f/s/o Chef Danielle Walker (“CDW”)) (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 (“CDW 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 CDW 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 CDW 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 $21,000, or $0.21, 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.
In connection with the sale of CDW Meals, the
Company shall pay to CDW the following: (i) 5% of all net revenue generated from the sale of CDW Meals (the “CDW Royalty”).
For the purpose of this agreement “Net Revenue” shall be defined as gross sales generated on CDW Meals less discounts and
returns. The CDW 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 CDW Royalty was earned; (ii) 5% of all Net Revenue generated from the sale of Home Bistro
and Prime Chop brand orders in which a CDW Dedicated Code was used at the time of purchase (“CDW Commission”). The CDW 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 CDW Commission is earned.
Common Stock Issued for Convertible Notes
On August 26, 2022, the Company issued 214,427
shares of its common stock upon conversion of debt and accrued interest of $42,778.
Convertible Notes
August 2022 Note
On August 24, 2022 (the “Issue Date”),
the Company entered into a Securities Purchase Agreement dated as of August 24, 2022 (the “SPA”), by and between the Company
and 1800 Diagonal Lending LLC, a Virginia limited liability company (the “Investor”). Pursuant to the SPA, among other things,
the Company agreed to issue to the Investor a convertible note in the original principal amount of $104,250 (the “Note,” and
together with the SPA, the “Agreements”). Upon closing, the Company received $92,000 in net proceeds from the Investor, net
of fees of $12,250.
The Note accrues interest at an annual interest
rate of 8% and a default interest rate of 22%, and matures on August 24, 2023 (the “Maturity Date”). The Investor may convert
the Note into shares of the Company’s common stock, 180 days after the Issue Date until the later of (i) the Maturity Date and (ii)
the date the Company pays any amounts owed in connection with an event of default. The per share conversion price into which the Note
is convertible into shares of Common Stock (the “Conversion Price”) is 65% multiplied by the average of the lowest two closing
bid prices for the Common Stock during the ten trading days ending on the last trading day prior to the conversion date.
The Company has the right to prepay the outstanding
principal amount of the Note, plus any accrued interest on the outstanding principal (including any default interest) at a rate of (x)
120% during the period ending 120 days after the Issue Date and (y) 125% during the period between 121 days and 180 days after the Issue
Date. The Company does not have a prepayment right following the expiration of the 180 day period Upon the occurrence and during the continuation
of any event of default under the Note, the Note becomes immediately due and payable and the Company is obligated to pay the Investor
in full satisfaction of its obligations thereunder an amount equal to the greater of (i) the principal amount then outstanding plus accrued
interest (including any default interest) through the date of full repayment multiplied by 150% and (ii)(a) the highest number of shares
of Common Stock issuable upon conversion of the default sum at the Conversion Price, multiplied by (b) the highest closing price for the
Common Stock during the period beginning on the date of first occurrence of the event of default and ending one day prior to the mandatory
prepayment date. The obligations under the Note are not secured by any assets of the Company. The Agreements contain other provisions,
covenants and restrictions common with this type of debt transaction. Furthermore, the Company is subject to negative covenants under
the Agreements, which the Company also believes are also customary for transactions of this type.
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
JULY 31, 2022
September 2022 Note I
On September 9, 2022, the Company entered into
a Securities Purchase Agreement (“September 2022 SPA I”) with an investor for the sale of the Company’s convertible
note. Pursuant to the September 2022 SPA I, the Company; (i) issued a convertible note with principal amount of $150,000 (“September
2022 Note I”) with the Company receiving $123,000 in net proceeds, net of $15,000 of OID and $12,000 of legal fees; (ii) issued
warrants to purchase up to 666,667 shares of common stock (“September 2022 I Warrant”). The 666,667 warrants issued shall
be valued using the relative fair value method, recording as a debt discount to be amortized over the twelve-month term of the note. The
September 2022 Note I bears an annual interest rate of 15% and matures on September 9, 2023. The September 2022 Note II is convertible
shall be convertible into shares of Common Stock hereunder, which shall equal 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 volume weighted average price for the Common Stock during the five (5)
Trading Day period ending on the latest complete Trading Day prior to the Conversion Date, provided, however, that if the Company consummates
an Uplist Offering (as defined in this Note) on or before the date that is one hundred and eighty (180) calendar days after the Issuance
Date, then the Conversion Price shall equal 75% of the offering price per share of Common Stock (or unit, if units are offered in the
Uplist Offering) at which the Uplist Offering is made (for the avoidance of doubt, if a unit includes more than one share of the Common
Stock in the Uplist Offering, the Conversion Price shall mean 75% of the unit price divided by the number of shares of Common Stock contained
in a unit).
The September 2022 I Warrant issued to the investor,
provides for the right to purchase up to 666,667 shares of common stock; (i) shall be valued using the relative fair value method and
recorded as a debt discount to be amortized over the twelve-month term of the September 2022 Note; (ii) exercisable at $0.225, provided,
however, that if the Company consummates an Uplist Offering (as defined in this Warrant) on or before the date that is one hundred and
eighty (180) calendar days after the Issue Date, then the Exercise Price shall equal 120% of the offering price per share of Common Stock
(or unit, if units are offered in the Uplist Offering) at which the Uplist Offering is made (for the avoidance of doubt, if a unit includes
more than one share of the Common Stock in the Uplist Offering, the Exercise Price shall mean 120% of the unit price divided by the number
of shares of Common Stock contained in a unit), subject to adjustment as provided herein (including but not limited to cashless exercise).
Unless otherwise adjusted pursuant to the terms of this Warrant, if the date of a respective exercise under the Warrant is on or before
the date that is one hundred and eighty (180) calendar days after the Issue Date and the Company has not consummated an Uplist Offering,
then the exercise price of this Warrant shall equal the initial Exercise Price.
If the Company at any time while the September
Note I and September 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
September 2022 Note I and September 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.
Consulting Agreements
On August 29, 2022, the Company entered into a
six-month Capital Market Advisory Agreement (the “Advisory Agreement”) with a third-party consultant for advisory services.
In connection with this Advisory Agreement, the Company shall pay the advisor (1) $5,000 upon execution of the agreement and $5,000 per
month to accrue until an uplisting occurs; (2) $25,000 payable upon a NASDAQ uplisting; (3) 100,000 share of the Company’s common
stock. The shares shall have reverse split protection through the Nasdaq Listing so that if the Company undertakes a reverse split as
part of the of the Nasdaq Listing, the consultant shall receive additional shares immediately after the Nasdaq Listing so that the consultant
retains 100,000 shares post reverse split; and (4) the Company will issue 100,000 warrants to the Consultant or its designees exercisable
for a period of 5 years with an exercise price of $.20 per share. The warrants shall have a cashless exercise provision in the event that
the shares underlying the warrants are not registered in an effective registration statement. In the event that the Company undertakes
a reverse split prior to or simultaneous with the Nasdaq Listing, the warrants shall have reverse split protection so that the Consultant
shall receive 100,000 warrants exercisable for five years at $.20 per share after the reverse split. The Company issued 100,000 shares
of common stock with grant date fair value of $20,000, or $0.20 per share, based on the market price of common stock on grant date.
On September 8, 2022, the Company entered into
a six-month Capital Market Advisory Agreement (the “Advisory Agreement II”) with a third-party consultant for advisory and
uplisting services. In connection with this Advisory Agreement II, the Company shall pay the advisor 500,000 share of the Company’s
common stock with a grant date fair value of $90,000, or $0.18 per share, based on the market price of common stock on grant date.
THE COMPANY’S MOST RECENT FINANCIAL
STATEMENTS AND INFORMATION AS REPORTED WITHIN THIS FORM 10-K FILING ARE NOT COMPLETE AND HAVE NOT BEEN AUDITED. THE COMPANY IS CURRENTLY
UNDERGOING ITS AUDIT FOR THE 12 MONTH PERIOD ENDED OCTOBER 31, 2022, AND BELIEVES IT WILL BE COMPLETED IN THE COMING WEEKS AND REFILED
WITH AN AMENDMENT TO THIS FORM 10-K FILING. THE INFORMATION CONTAINED HEREIN IS FOR INFORMATIONAL ONLY AND SHOULD NOT BE RELIED UPON
FOR INVESTMENT OR ANY OTHER PURPOSE.
HOME BISTRO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| |
October 31, 2021 | | |
December 31, 2020 | |
ASSETS | |
| | |
| |
| |
| | |
| |
CURRENT ASSETS: | |
| | |
| |
Cash | |
$ | 2,275,397 | | |
$ | 447,354 | |
Inventory | |
| 16,020 | | |
| - | |
Prepaid expenses and other current assets | |
| 80,641 | | |
| 28,588 | |
Note receivable | |
| - | | |
| 5,000 | |
| |
| | | |
| | |
Total Current Assets | |
| 2,372,058 | | |
| 480,942 | |
| |
| | | |
| | |
OTHER ASSETS: | |
| | | |
| | |
Property and equipment, net | |
| 130,970 | | |
| 2,728 | |
Finance right-of-use assets, net | |
| 181,015 | | |
| - | |
Operating lease right-of-use assets, net | |
| 268,509 | | |
| - | |
Intangible assets, net | |
| 3,225,361 | | |
| - | |
Deposits | |
| 10,000 | | |
| - | |
Goodwill | |
| 1,809,357 | | |
| - | |
| |
| | | |
| | |
Total Assets | |
$ | 7,997,270 | | |
$ | 483,670 | |
| |
| | | |
| | |
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | |
| | | |
| | |
| |
| | | |
| | |
CURRENT LIABILITIES: | |
| | | |
| | |
Accounts payable | |
$ | 568,302 | | |
$ | 352,466 | |
Accrued expenses and other liabilities | |
| 181,037 | | |
| 126,273 | |
Liabilities to be settled with common stock | |
| 209,688 | | |
| - | |
Convertible notes payable, net of debt discount | |
| 550,638 | | |
| 141,476 | |
Convertible notes payable - related party, net of debt discount | |
| 30,172 | | |
| - | |
Notes payable - current portion | |
| 15,361 | | |
| 20,068 | |
Advances payable | |
| 101,945 | | |
| 78,497 | |
Derivative liabilities | |
| 86,884 | | |
| 180,029 | |
Unredeemed gift cards | |
| 164,912 | | |
| 48,311 | |
Financing lease liability - current portion | |
| 62,210 | | |
| - | |
Operating lease liabilities - current portion | |
| 101,431 | | |
| - | |
Common stock repurchase obligation | |
| 618,275 | | |
| - | |
| |
| | | |
| | |
Total Current Liabilities | |
| 2,690,855 | | |
| 947,120 | |
| |
| | | |
| | |
LONG-TERM LIABILITIES: | |
| | | |
| | |
Financing lease liability - long-term portion | |
| 124,649 | | |
| - | |
Operating lease liability- long-term portion | |
| 166,923 | | |
| - | |
Notes payable - long-term portion | |
| 291,539 | | |
| 151,544 | |
Common stock repurchase obligation - long-term portion | |
| - | | |
| 1,300,000 | |
| |
| | | |
| | |
Total Liabilities | |
| 3,273,966 | | |
| 2,398,664 | |
| |
| | | |
| | |
Commitments and contingency (Note 14): | |
| | | |
| | |
| |
| | | |
| | |
STOCKHOLDERS’ EQUITY (DEFICIT): | |
| | | |
| | |
Preferred Stock: $0.001 par value; 20,000,000 shares authorized; | |
| | | |
| | |
Convertible Series B Preferred stock: $0.001 Par Value; 500,000 Shares Authorized; nil shares issued and outstanding as of October 31, 2021 and December 31, 2020 | |
| - | | |
| - | |
Common stock: $0.001 par value; 1,000,000,000 shares authorized; 35,152,623 and 19,123,768 shares issued and outstanding as of October 31, 2021 and December 31, 2020, respectively | |
| 35,152 | | |
| 19,123 | |
Additional paid-in capital | |
| 25,198,035 | | |
| 4,399,272 | |
Deferred compensation | |
| (1,374,219 | ) | |
| - | |
Accumulated deficit | |
| (19,135,664 | ) | |
| (6,333,389 | ) |
| |
| | | |
| | |
Total Stockholders’ Equity (Deficit) | |
| 4,723,304 | | |
| (1,914,994 | ) |
| |
| | | |
| | |
Total Liabilities and Stockholders’ Equity (Deficit) | |
$ | 7,997,270 | | |
$ | 483,670 | |
The accompanying notes are an integral part of
these consolidated financial statements.
HOME BISTRO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
| |
For the Ten Months Ended | | |
For the Year Ended | |
| |
October 31, 2021 | | |
December 31, 2020 | |
| |
| | |
| |
Product sales, net | |
$ | 1,644,208 | | |
$ | 1,335,859 | |
| |
| | | |
| | |
Cost of sales | |
| 1,447,901 | | |
| 873,289 | |
| |
| | | |
| | |
Gross profit | |
| 196,307 | | |
| 462,570 | |
| |
| | | |
| | |
Operating Expenses: | |
| | | |
| | |
Compensation and related expenses, includes $2,871,721 of stock-based compensation in 2021 | |
| 3,338,022 | | |
| 547,940 | |
Professional and consulting expenses, includes $1,862,709 of stock-based compensation in 2021 | |
| 2,979,610 | | |
| 434,450 | |
Professional and consulting expenses - related party, includes $1,356,507 of stock-based compensation in 2021 | |
| 1,366,507 | | |
| - | |
Product development expense, includes $3,036,286 and $360,000 of stock-based expense in 2021 and 2020, respectively | |
| 3,036,286 | | |
| 360,000 | |
Selling and marketing expenses | |
| 835,723 | | |
| 226,428 | |
General and administrative expenses | |
| 527,818 | | |
| 198,082 | |
| |
| | | |
| | |
Total Operating Expenses | |
| 12,083,966 | | |
| 1,766,900 | |
| |
| | | |
| | |
Operating Loss from Continuing Operations | |
| (11,887,659 | ) | |
| (1,304,330 | ) |
| |
| | | |
| | |
Other Income (Expense): | |
| | | |
| | |
Interest expense, net | |
| (1,245,873 | ) | |
| (19,924 | ) |
Change in fair value of derivative liabilities | |
| 289,874 | | |
| 32,315 | |
Gain on extinguishment of debt | |
| 26,629 | | |
| 7,075 | |
Gain on forgiveness of debt | |
| 14,754 | | |
| - | |
Other income | |
| - | | |
| 5,000 | |
| |
| | | |
| | |
Total Other Income (Expense), net | |
| (914,616 | ) | |
| 24,466 | |
| |
| | | |
| | |
Loss from Continuing Operations | |
| (12,802,275 | ) | |
| (1,279,864 | ) |
| |
| | | |
| | |
Discontinued Operations: | |
| | | |
| | |
Income from Disposal of Discontinued Operations Before Provision for Income Taxes | |
| - | | |
| 38,203 | |
| |
| | | |
| | |
Income from Discontinued Operations | |
| - | | |
| 38,203 | |
| |
| | | |
| | |
Net Loss | |
$ | (12,802,275 | ) | |
$ | (1,241,661 | ) |
| |
| | | |
| | |
BASIC AND DILUTED LOSS PER COMMON SHARE: | |
| | | |
| | |
Continuing operations - basic and diluted | |
$ | (0.56 | ) | |
$ | (0.07 | ) |
Discontinued operations - basic | |
$ | 0.00 | | |
$ | 0.00 | |
Discontinued operations - diluted | |
$ | 0.00 | | |
$ | 0.00 | |
| |
| | | |
| | |
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: | |
| | | |
| | |
Basic | |
| 23,062,353 | | |
| 17,393,644 | |
Diluted | |
| 23,062,353 | | |
| 17,393,644 | |
The accompanying notes are an integral part of
these consolidated financial statements.
HOME BISTRO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’
EQUITY (DEFICIT)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER
30, 2021
| |
Preferred
Stock | | |
Common
Stock | | |
Additional | | |
| | |
| | |
Total Stockholders’ | |
| |
Number of | | |
| | |
Number of | | |
| | |
Paid-in | | |
Deferred | | |
Accumulated | | |
Equity | |
| |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Capital | | |
Compensation | | |
Deficit | | |
(Deficit) | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Balance at December 31, 2019 | |
| - | | |
$ | - | | |
| 13,104,561 | | |
$ | 13,105 | | |
$ | 4,806,944 | | |
$ | - | | |
$ | (5,091,728 | ) | |
$ | (271,679 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Common stock issued for cash | |
| - | | |
| - | | |
| 1,492 | | |
| 1 | | |
| 75,005 | | |
| - | | |
| - | | |
| 75,006 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Warrant issued for cash | |
| - | | |
| - | | |
| - | | |
| - | | |
| 25,000 | | |
| - | | |
| - | | |
| 25,000 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Common stock issued for services | |
| - | | |
| - | | |
| 3,999,085 | | |
| 3,999 | | |
| 234,269 | | |
| - | | |
| - | | |
| 238,268 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Recapitalization of the Company | |
| 250,000 | | |
| 250 | | |
| 1,899,094 | | |
| 1,899 | | |
| (196,873 | ) | |
| - | | |
| - | | |
| (194,724 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Common stock repurchase obligation
(see Note 3) | |
| - | | |
| - | | |
| - | | |
| - | | |
| (1,300,000 | ) | |
| - | | |
| - | | |
| (1,300,000 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Disposal of a component with
related party (see Note 3) | |
| (250,000 | ) | |
| (250 | ) | |
| - | | |
| - | | |
| 131,471 | | |
| - | | |
| - | | |
| 131,221 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Warrant issued pursuant to
an agreement | |
| - | | |
| - | | |
| - | | |
| - | | |
| 360,000 | | |
| - | | |
| - | | |
| 360,000 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Warrant issued for services | |
| - | | |
| - | | |
| - | | |
| - | | |
| 11,471 | | |
| - | | |
| - | | |
| 11,471 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Accretion of stock-based
compensation | |
| - | | |
| - | | |
| - | | |
| - | | |
| 213,841 | | |
| - | | |
| - | | |
| 213,841 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Common stock issued with
convertible debt | |
| - | | |
| - | | |
| 119,535 | | |
| 119 | | |
| 38,144 | | |
| - | | |
| - | | |
| 38,263 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net
loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (1,241,661 | ) | |
| (1,241,661 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance at December 31, 2020 | |
| - | | |
| - | | |
| 19,123,768 | | |
| 19,123 | | |
| 4,399,272 | | |
| - | | |
| (6,333,389 | ) | |
| (1,914,994 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Common stock issued as commitment
fee | |
| - | | |
| - | | |
| 853,385 | | |
| 854 | | |
| 417,700 | | |
| - | | |
| - | | |
| 418,554 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Common stock warrant issued
as commitment fee | |
| - | | |
| - | | |
| - | | |
| - | | |
| 156,926 | | |
| - | | |
| - | | |
| 156,926 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Common stock issued as stock-based
compensation | |
| - | | |
| - | | |
| 125,000 | | |
| 125 | | |
| 156,625 | | |
| - | | |
| - | | |
| 156,750 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Common stock warrant issued
as stock-based compensation | |
| - | | |
| - | | |
| - | | |
| - | | |
| 2,714,971 | | |
| - | | |
| - | | |
| 2,714,971 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Common stock issued for cash, net of $215,949 of issuance cost | |
| - | | |
| - | | |
| 6,112,993 | | |
| 6,112 | | |
| 4,362,684 | | |
| - | | |
| - | | |
| 4,368,796 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Common stock and warrant
issued for services and prepaid services | |
| - | | |
| - | | |
| 2,100,000 | | |
| 2,100 | | |
| 3,967,116 | | |
| (750,000 | ) | |
| - | | |
| 3,219,216 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Common stock issued for product
development agreements | |
| - | | |
| - | | |
| 450,000 | | |
| 450 | | |
| 577,050 | | |
| (508,281 | ) | |
| - | | |
| 69,219 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Common stock issued pursuant
to lock-up agreements | |
| - | | |
| - | | |
| 112,500 | | |
| 113 | | |
| 152,513 | | |
| (115,938 | ) | |
| - | | |
| 36,688 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Reduction of the repurchase
obligation pursuant to the Put Option Agreement | |
| - | | |
| - | | |
| - | | |
| - | | |
| 681,726 | | |
| - | | |
| - | | |
| 681,726 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Common stock issued for acquisition
of Model Meals, LLC (see Note 3) | |
| - | | |
| - | | |
| 2,008,310 | | |
| 2,008 | | |
| 2,026,385 | | |
| - | | |
| - | | |
| 2,028,393 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Common stock issued for asset
acquisition transaction (see Note 4) | |
| - | | |
| - | | |
| 4,266,667 | | |
| 4,267 | | |
| 5,585,067 | | |
| - | | |
| - | | |
| 5,589,334 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net
loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (12,802,275 | ) | |
| (12,802,275 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance at October 31,
2021 | |
| - | | |
$ | - | | |
| 35,152,623 | | |
$ | 35,152 | | |
$ | 25,198,035 | | |
$ | (1,374,219 | ) | |
$ | (19,135,664 | ) | |
$ | 4,723,304 | |
The accompanying notes are an integral part of
these consolidated financial statements.
HOME BISTRO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
| |
For the Ten Months Ended | | |
For the Year Ended | |
| |
October 31,
2021 | | |
December 31, 2020 | |
| |
| | |
| |
CASH FLOWS FROM OPERATING ACTIVITIES: | |
| | |
| |
Loss from continuing operations | |
$ | (12,802,275 | ) | |
$ | (1,241,661 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: | |
| | | |
| | |
Depreciation on property and equipment and finance ROU assets | |
| 113,531 | | |
| 440 | |
Amortization on intangible assets | |
| 8,837 | | |
| - | |
Common stock and warrants issued for stock-based compensation | |
| 2,871,721 | | |
| 213,841 | |
Common stock and warrants issued for services – related party | |
| 1,356,507 | | |
| - | |
Common stock and warrants issued for services and prepaid services | |
| 1,862,709 | | |
| 609,739 | |
Common stock and warrants issued for product development | |
| 69,219 | | |
| - | |
Common stock issued pursuant to lock-up agreements | |
| 36,688 | | |
| - | |
Common stock issued pursuant an asset acquisition transaction (see Note 4) | |
| 2,969,334 | | |
| - | |
Gain on extinguishment of debt and accounts payable | |
| (26,629 | ) | |
| (7,075 | ) |
Gain on forgiveness of debt | |
| (14,754 | ) | |
| - | |
Amortization of debt discount | |
| 1,012,554 | | |
| 7,983 | |
Change in fair value of derivative liabilities | |
| (289,874 | ) | |
| (32,315 | ) |
Change in operating assets and liabilities: | |
| | | |
| | |
Inventory | |
| 4,743 | | |
| - | |
Prepaid expenses and other current assets | |
| (47,053 | ) | |
| (8,896 | ) |
Accounts payable | |
| 129,389 | | |
| 43,980 | |
Accrued expense and other liabilities | |
| (55,664 | ) | |
| 102,201 | |
Unredeemed gift cards | |
| 29,341 | | |
| 37,946 | |
| |
| | | |
| | |
Net cash used in operating activities | |
| (2,771,676 | ) | |
| (273,817 | ) |
| |
| | | |
| | |
CASH FLOWS FROM INVESTING ACTIVITIES: | |
| | | |
| | |
Proceeds (payments) from acquisition of a subsidiaries | |
| (60,000 | ) | |
| 4,917 | |
Purchases of property and equipment | |
| (167,824 | ) | |
| (3,168 | ) |
| |
| | | |
| | |
Net cash (used by) provided by investing activities | |
| (227,824 | ) | |
| 1,749 | |
| |
| | | |
| | |
CASH FLOWS FROM FINANCING ACTIVITIES: | |
| | | |
| | |
Proceeds from sale of common stock, net of issuance cost | |
| 4,368,796 | | |
| 100,006 | |
Proceeds from notes payable | |
| - | | |
| 171,612 | |
Proceeds from convertible note payable, net of debt discount | |
| 1,581,450 | | |
| - | |
Proceeds from convertible note payable - related party, net of debt discount | |
| 100,000 | | |
| - | |
Proceeds from advances payable | |
| 332,900 | | |
| 140,840 | |
Repayment of convertible notes payable | |
| (1,195,920 | ) | |
| 384,100 | |
Repayment of note payable - in default | |
| - | | |
| (3,738 | ) |
Repayments of advance payable | |
| (312,752 | ) | |
| (80,535 | ) |
Repayment of convertible notes payable - related party | |
| (46,931 | ) | |
| - | |
| |
| | | |
| | |
Net cash provided by financing activities | |
| 4,827,543 | | |
| 712,285 | |
| |
| | | |
| | |
Net Change in Cash | |
| 1,828,043 | | |
| 440,217 | |
| |
| | | |
| | |
Cash - beginning of period | |
| 447,354 | | |
| 7,137 | |
| |
| | | |
| | |
Cash - end of period | |
$ | 2,275,397 | | |
$ | 447,354 | |
| |
| | | |
| | |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | |
| | | |
| | |
Cash paid during the period for: | |
| | | |
| | |
Interest | |
$ | 159,909 | | |
$ | 7,670 | |
Income taxes | |
$ | - | | |
$ | - | |
| |
| | | |
| | |
Non-cash investing and financing activities: | |
| | | |
| | |
Initial amount of ROU asset and related liability | |
$ | 540,041 | | |
$ | 32,444 | |
Termination of the ROU asset and related liability | |
$ | - | | |
$ | 27,843 | |
Disposal of a component with related party | |
| | | |
$ | 131,221 | |
Repurchase obligation pursuant to the Put Option Agreement | |
$ | - | | |
$ | 1,300,000 | |
Reduction of the repurchase obligation pursuant to the Put Option Agreement | |
$ | 681,725 | | |
$ | - | |
Common stock issued as commitment fee in connection with convertible notes payable recorded as debt discount | |
$ | 418,554 | | |
$ | 38,263 | |
Warrants issued as commitment fee in connection with convertible notes payable | |
$ | 156,926 | | |
$ | - | |
Liabilities to be settled with common stock in connection with convertible notes payable | |
$ | 209,688 | | |
$ | - | |
Initial derivative liability recorded in connection with convertible notes payable | |
$ | 223,358 | | |
$ | 212,344 | |
Fair value of common stock issued for an asset acquisition transaction (see Note 4) | |
$ | 2,620,000 | | |
$ | - | |
| |
| | | |
| | |
Net Asset and Liabilities Assumed in Acquisition: | |
| | | |
| | |
Cash | |
$ | - | | |
$ | 4,917 | |
Prepaid expenses and other assets | |
| 241 | | |
| 9,776 | |
Inventory | |
| 20,763 | | |
| - | |
Operating right-of-use asset | |
| 76,136 | | |
| 32,444 | |
Internal use computer software | |
| 66,198 | | |
| - | |
Customer relationships | |
| 43,000 | | |
| - | |
Trademark | |
| 505,000 | | |
| - | |
Goodwill | |
| 1,809,357 | | |
| - | |
Accounts payable and accrued liabilities | |
| (203,348 | ) | |
| (209,417 | ) |
Operating right-of-use liability | |
| (79,054 | ) | |
| (32,444 | ) |
Note Payable | |
| (149,900 | ) | |
| - | |
Net asset acquired (liability assumed) | |
$ | 2,088,393 | | |
$ | (194,724 | ) |
The accompanying notes are an integral part of
these consolidated financial statements.
HOME BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2021 AND DECEMBER 31, 2020
NOTE 1 – ORGANIZATION AND NATURE OF OPERATIONS
Home Bistro, Inc. (formerly known as Gratitude
Health, Inc.) (the “Company”) was incorporated in the State of Nevada on December 17, 2009. On September 14, 2020, the Company
changed its name from Gratitude Health, Inc. to Home Bistro, Inc. The Company is in the business of providing prepackaged and prepared
meals to consumers focused on offering a broad array of the highest quality meal delivery, and preparation services. The Company’s
primary former operations were in the business of manufacturing, selling, and marketing functional RTD (Ready to Drink) beverages sold
under the Company’s trademark (the “RTD Business”). The RTD Business was disposed on September 25, 2020 as discussed
below.
On April 7, 2020, the Board of Directors of the
Company approved the increase of the authorized shares of the common stock to 1,000,000,000 from 600,000,000 (see Note 12).
On April 20, 2020, the Company, Fresh Market Merger
Sub, Inc., a Delaware corporation and a newly created wholly-owned subsidiary of the Company (“Merger Sub”), and Home Bistro,
Inc., a privately-held Delaware corporation formed on April 9, 2013, engaged in the food preparation and home-delivery business (presently
known as Home Bistro Holdings, Inc., a Nevada corporation) and now wholly-owned subsidiary of the Company (“Home Bistro Holdings”)
(see Note 3), entered into an Agreement and Plan of Merger (the “Merger Agreement”) pursuant to which, among other things,
Merger Sub agreed to merge with and into Home Bistro Holdings, with Home Bistro Holdings becoming a wholly-owned subsidiary of the Company
and the surviving corporation in the merger (the “Merger”). Pursuant to the terms of the Merger Agreement, Home Bistro Holdings
filed a Certificate of Merger with the Nevada Secretary of State on April 20, 2020 (see Note 3).
On April 20, 2020, pursuant to the terms of the
Merger Agreement, Roy G. Warren, Jr., Mike Edwards, and Bruce Zanca resigned as directors of the Company and Roy G. Warren, Jr. resigned
as Chief Operating Officer of the Company. The resignations were not the result of any disagreement related to the Company’s operations,
policies, or practices. Furthermore, on April 20, 2020, Mr. Zalmi Duchman, the Chief Executive Officer of Home Bistro Holdings, Michael
Finkelstein and Michael Novielli were appointed as directors of the Company. In addition, Mr. Duchman was appointed Chief Executive Officer.
The Merger constituted a change of control and
the majority of the Board of Directors changed with the consummation of the Merger. The Company issued to the stockholders of Home Bistro
Holdings shares of common stock and stock warrants which represented approximately 80% of the combined company on a fully converted basis
after the closing of the Merger and approximately 51% of voting control. As a result of the above transactions and the Company’s
intent to dispose or divest the assets and liabilities associated with the RTD Business, this transaction was accounted for as a reverse
recapitalization effected by a share exchange of Home Bistro Holdings. The consolidated financial statements are those of Home Bistro
Holdings (the accounting acquirer) prior to the Merger and include the activity of the Company (the accounting acquiree) from the date
of the Merger (see Note 3).
On September 14, 2020, the Company filed with
the Secretary of State of the State of Nevada a Certificate of Amendment to its Articles of Incorporation to effect (i) a 1 for 31.993
reverse stock split of its common stock, par value $0.001 per share, with fractional shares rounding up to the nearest whole share (the
“Reverse Stock Split”), and (ii) the change of the Company’s name from “Gratitude Health, Inc.” to “Home
Bistro, Inc.”. All share and per-share data and amounts have been retroactively adjusted as of the earliest period presented in
the consolidated financial statements to reflect the Reverse Stock Split (see Note 12).
On September 14, 2020, the Financial Industry
Regulatory Authority approved the Company’s symbol change from “GRTD” to “HBIS”, effective twenty (20) business
days from the approval date.
On September 25, 2020, the Company entered into,
and closed the transactions contemplated by, that certain Asset Purchase Agreement (the “Asset Purchase Agreement”), by and
among the Company, Gratitude Keto Holdings, Inc., a Florida corporation (the “Buyer” or “Gratitude Keto”), and
the holder of 250,000 of the Company’s issued and outstanding shares of Series B Preferred Stock, $0.001 par value per share (such
stock, the “Series B Preferred Stock”, and such stockholder, the “Stockholder”). Pursuant to the Asset Purchase
Agreement, among other things, the Company agreed to sell to the Buyer all of the Company’s business, assets and properties used,
or held or developed for use, in its functional RTD Business, and the Buyer agreed to assume certain debts, obligations and liabilities
related to the RTD Business. Furthermore, in connection with the Asset Purchase Agreement, the Buyer returned the 250,000 shares of Series
B Preferred Stock held by the Stockholder which was then cancelled by the Company upon return. As a result, the Company has no outstanding
shares of preferred stock. Additionally, the RTD Business activities were reclassified and reported as part of “discontinued operations”
for all periods presented on the consolidated statements of operations. In addition, the Company assumed an accounts payable liability
in the amount of $14,000 related to accounting expenses of the RTD Business for a period prior to the Merger. Pursuant to the Asset Purchase
Agreement, the Buyer reimbursed the Company for the accounting expenses in amount of $14,000, of which $7,000 was payable in cash and
the balance in form of a promissory note dated September 25, 2020 in the amount of $7,000. The promissory note bears an interest rate
of 5% per annum, matures on April 25, 2021 and is payable in monthly installments of $1,000 commencing on October 25, 2020 through maturity
(see Note 3).
HOME BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2021 AND DECEMBER 31, 2020
The ongoing COVID-19 global and national health
emergency has caused significant disruption in the international and United States economies and financial markets. In March 2020, the
World Health Organization declared the COVID-19 outbreak a pandemic. The spread of COVID-19 has caused illness, quarantines, cancellation
of events and travel, business and school shutdowns, reduction in business activity and financial transactions, labor shortages, supply
chain interruptions and overall economic and financial market instability. The COVID-19 pandemic has the potential to significantly impact
the Company’s supply chain, food manufacturers, distribution centers, or logistics and other service providers. Additionally, the
Company’s service providers and their operations may be disrupted, temporarily closed or experience worker or meat or other food
shortages, which could result in additional disruptions or delays in shipments of Home Bistro’s products. To date, the Company has
been able to avoid layoffs and furloughs of employees. The Company is not able to estimate the duration of the pandemic and potential
impact on the business if disruptions or delays in shipments of product occur. To date, the Company is not aware of any such disruptions.
In addition, a severe prolonged economic downturn could result in a variety of risks to the business, including weakened demand for product
and a decreased ability to raise additional capital when needed on acceptable terms, if at all. As the situation continues to evolve,
the Company will continue to closely monitor market conditions and respond accordingly. The Company has applied for and received certain
financial assistance under the Coronavirus, Aid, Relief, and Economic Security Act (“CARES Act”) enacted in March 2020 by
the U.S. Government in response to COVID-19 (see Note 7).
On July 6, 2021, the Company entered and closed
on an Agreement and Plan of Merger with the members of Model Meals, LLC (“Model Meals”), acquiring Model Meals through a reverse
triangular merger, whereby Model Meals merged with Model Meals Acquisition Corp., a wholly owned subsidiary of the Company, with Model
Meals being the surviving entity (the “Acquisition”). As a result, Model Meals became a wholly owned subsidiary of the Company,
and the members of Model Meals received and aggregate of 2,008,310 shares of common stock and were paid $60,000 in cash. Pursuant to the
Acquisition, the Company issued 2,008,310 shares of common stock with grant date fair value of $ 2,028,393 (see Note 3).
In December 2021, the
Company’s board of directors and management changed the Company’s fiscal year end from December 31st to October
31st, effective immediately (see Note 2).
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements
have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”)
and in accordance with Regulation S-X of the Securities and Exchange Commission (the “SEC”). The consolidated financial statements
present the consolidated financial statements of the Home Bistro, Inc, its active wholly owned subsidiaries, Home Bistro Holdings, Inc.
and Model Meals LLC for the transition period ended October 31, 2021. Since Model Meals LLC was acquired in 2021, it was not consolidated
for the year ended December 31, 2020. All the intercompany transactions and balances have been eliminated.
HOME BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2021 AND DECEMBER 31, 2020
In December 2021, the
Company’s board of directors and management changed the Company’s fiscal year end from December 31st to October
31st, effective immediately (see Note 1). Accordingly, we are required to file this transition report on Form 10-KT to include
audited consolidated financial information for the transition period from January 1, 2021 to October 31, 2021. Any references to the “transition
period” throughout this report refer to that ten-month period ending October 31, 2021. Prior periods have not been recasted to align
with our new fiscal year.
Going Concern
The financial statements have been prepared on
a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course
of business. As reflected in the accompanying consolidated financial statements, for the transition period ended October 31, 2021, the
Company had net loss and cash used in operations of $12,802,275 and $2,771,676, respectively. As of October 31, 2021, the Company had
an accumulated deficit, stockholders’ equity, and working capital deficit of $19,135,664, $4,723,304 and $318,797, respectively.
These factors raise substantial doubt about the Company’s ability to continue as a going concern for a period of twelve months from
the issuance date of this transition report. The Company’s primary source of operating funds in 2021 was primarily from the third-party
advances and convertible notes payable and the sale of common stock through private placements. The Company has experienced net losses
from operations since inception but expects these conditions to improve in the near term and beyond as it develops its business model.
Management cannot provide assurance that the Company
will ultimately achieve profitable operations or become cash flow positive or raise additional debt and/or equity capital. Management
believes that the Company’s capital resources are not currently adequate to continue operating and maintaining its business strategy
for a period of twelve months from the issuance date of this report. If the Company is unable to raise additional capital or secure additional
lending in the near future, management expects that the Company will need to curtail or cease operations. These consolidated financial
statements do not include any adjustments related to the recoverability and classification of recorded asset amounts and classification
of liabilities that might be necessary should the Company be unable to continue as a going concern.
Use of Estimates
The preparation of the financial statements in
conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from these estimates. Significant estimates as of October 31, 2021
and December 31, 2020 include the assumptions used in the redemption recognition method for unredeemed gift cards, useful life of property
and equipment and intangible assets, valuation of right-of-use (“ROU”) assets and lease liabilities, estimates of current
and deferred income taxes and deferred tax valuation allowances, fair value of assets acquired and liabilities assumed in a business combination,
and the fair value of non-cash equity transactions and derivative liabilities.
Cash and Cash Equivalents
For purposes of the statements of cash flows,
the Company considers all highly liquid instruments with a maturity of three months or less at the purchase date and money market accounts
to be cash equivalents. As of October 31, 2021 and December 31, 2020, the Company did not have any cash equivalents.
The Company maintains its cash in bank and financial
institution deposits that at times may exceed federally insured limits. As of October 31, 2021 and December 31, 2020, the balance outstanding
was in excess of FDIC insured levels by approximately $2,025,000 and $197,000. The Company has not experienced any losses in such accounts
through October 31, 2021.
Fair Value of Financial Instruments and Fair
Value Measurements
FASB ASC 820 - Fair Value Measurements and Disclosures,
defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. FASB ASC 820 requires disclosures about the fair value of all financial instruments, whether
or not recognized, for financial statement purposes. Disclosures about the fair value of financial instruments are based on pertinent
information available to the Company on October 31, 2021. Accordingly, the estimates presented in these financial statements are not necessarily
indicative of the amounts that could be realized on disposition of the financial instruments. FASB ASC 820 specifies a hierarchy of valuation
techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market
data obtained from independent sources, while unobservable inputs reflect market assumptions. The hierarchy gives the highest priority
to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable
inputs (Level 3 measurement).
HOME BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2021 AND DECEMBER 31, 2020
The three levels of the fair value hierarchy are
as follows:
| Level 1— | Inputs
are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date. |
| Level 2— | Inputs
are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and
liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated
by observable market data. |
| Level 3— | Inputs
are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would
use in pricing the asset or liability based on the best available information. |
The carrying amounts reported in the consolidated
balance sheets for cash, due from and to related parties, prepaid expenses, accounts payable and accrued liabilities approximate their
fair market value based on the short-term maturity of these instruments.
Assets or liabilities measured at fair value or
a recurring basis included embedded conversion options in convertible debt (see Note 5) and were as follows at October 31, 2021:
| |
At October 31, 2021 | | |
At December 31, 2020 | |
Description | |
Level 1 | | |
Level 2 | | |
Level 3 | | |
Level 1 | | |
Level 2 | | |
Level 3 | |
Derivative liabilities | |
| — | | |
| — | | |
| 86,884 | | |
| — | | |
| — | | |
| 180,029 | |
A roll forward of the level 3 valuation financial
instruments is as follows (see Note 5):
| |
Ten Months Ended October 31, 2021 | | |
Year Ended December 31, 2020 | |
Balance at beginning of year | |
$ | 180,029 | | |
$ | — | |
Initial valuation of derivative liabilities included in debt discount | |
| 223,358 | | |
| 212,344 | |
Reclassification of derivative liability to gain on debt extinguishment | |
| (26,629 | ) | |
| | |
Change in fair value of derivative liabilities | |
| (289,874 | ) | |
| (32,315 | ) |
Balance at end of the period | |
$ | 86,884 | | |
$ | 180,029 | |
ASC 825-10 “Financial Instruments”
allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (fair value option). The fair
value option may be elected on an instrument-by-instrument basis and is irrevocable unless a new election date occurs. If the fair value
option is elected for an instrument, unrealized gains and losses for that instrument should be reported in earnings at each subsequent
reporting date. The Company did not elect to apply the fair value option to any outstanding equity instruments.
Derivative Liabilities
The Company has certain financial instruments
that are embedded derivatives associated with capital raises. The Company evaluates all its financial instruments to determine if those
contracts or any potential embedded components of those contracts qualify as derivatives to be separately accounted for in accordance
with ASC 815-10 – Derivative and Hedging – Contract in Entity’s Own Equity. This accounting treatment requires
that the carrying amount of any derivatives be recorded at fair value at issuance and marked-to-market at each balance sheet date. In
the event that the fair value is recorded as a liability, as is the case with the Company, the change in the fair value during the period
is recorded as either other income or expense. Upon conversion, exercise or repayment, the respective derivative liability is marked to
fair value at the conversion, repayment, or exercise date and then the related fair value amount is reclassified to other income or expense
as part of gain or loss on debt extinguishment.
HOME BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2021 AND DECEMBER 31, 2020
Goodwill and Indefinite Lived Intangible Assets
Goodwill represents the excess of purchase prices
over the fair value of nets assets acquired, is carried at cost. Goodwill is not amortized; rather, it is subject to a periodic
assessment for impairment by applying a fair value-based test. Goodwill is evaluated for impairment on an annual basis at a
level of reporting referred to as the reporting unit, and more frequently if adverse events or changes in circumstances indicate that
the asset may be impaired.
Goodwill and indefinite lived intangible
assets are tested for impairment at the reporting unit level by first performing a qualitative assessment to determine whether it is more
likely than not (that is, a likelihood of more than 50%) that the fair value of the reporting unit is less than its carrying amount. The
qualitative assessment considers macroeconomic conditions, industry and market considerations, cost factors and overall company financial
performance. If the reporting unit does not pass the qualitative assessment, the carrying amount of the reporting unit, including goodwill,
is compared to its fair value. When the carrying amount of the reporting unit exceeds its fair value, a goodwill impairment
loss is recognized up to a maximum amount of the recorded goodwill related to the reporting unit. Goodwill impairment
losses are not reversed. There was no impairment loss of goodwill or indefinite lived intangible assets for the ten months
ended October 31, 2021.
Impairment of Long-Lived Assets
In accordance with ASC Topic 360, the Company
reviews long-lived assets including intangible assets with finite life, for impairment whenever events or changes in circumstances indicate
that the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an impairment loss when
the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured
as the difference between the asset’s estimated fair value and its book value.
Inventory
Inventory consists of non-perishable food items
distributed by the Company and are stated at the lower of cost and net realizable value utilizing the first-in first-out (FIFO) method.
A reserve is established when management determines that certain inventories may not be saleable. If inventory costs exceed expected net
realizable value due to obsolescence or quantities in excess of expected demand, the Company will record reserves for the difference between
the cost and the net realizable value. These reserves are based on estimates and included in cost of sales. As of October 31, 2021 and
December 31, 2020, the inventory balances were insignificant and the Company determined that there was no allowance needed.
Revenue Recognition
The Company’s revenues consist of high quality,
direct-to-consumer, ready-made meals that can be ordered by customers through www.homebistro.com, www.modelmeals.com and restaurant quality
meats and seafood through its Colorado Prime Brand. Revenues from the Company’s ready-made meals are recognized when the product
is delivered to the customer and title has transferred. It is at this point in time that the Company’s performance obligations have
been completed. Product sales are recorded net of any discounts or allowances and include shipping charges.
Customers can purchase gift cards via phone or
online through the Company’s e-commerce website. Gift card purchases are initially recorded as unredeemed gift card liabilities
and are recognized as product sales upon redemption. Historically, the majority of gift cards are redeemed within two to three years of
issuance. The Company does not charge administrative fees on unused gift cards, and its gift cards do not have an expiration date.
Based on historical redemption patterns, a portion
of issued gift cards are not expected to be redeemed (breakage). The Company uses the redemption recognition method for recognizing breakage
related to unredeemed gift cards for which it has sufficient historical redemption information. Under the redemption recognition method,
breakage revenue is recorded in proportion to, and over the time period gift cards are actually redeemed. The estimated breakage rate
is based on historical issuance and redemption patterns and is re-assessed by the Company on a regular basis. At least three years of
historical data, which is updated annually, is used to estimate redemption patterns. Model meals, the Company’s wholly-owned subsidiary,
does not have sufficient historical redemption information to recognize breakage. Therefore, all issued gift cards are recorded as a liability
upon issuance and revenue when used.
HOME BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2021 AND DECEMBER 31, 2020
Cost of Sales
The Company’s policy is to recognize product
related cost of sales in conjunction with revenue recognition, when the product costs are incurred which is upon delivery of product.
Cost of sales includes the food and processing costs directly attributable to fulfillment and the delivery of the product to customers
including both inbound and outbound shipping costs. In addition, the royalty fee related to the Joint Product Development and Distribution
Agreement (see Note 14) was also included in cost of sales.
Shipping and handling costs incurred for product
shipped to customers are included in cost of sales and amounted to $391,890 for the transition period ended October 31, 2021 and $873,289
for the year ended December 31, 2020, respectively. Shipping and handling costs charged to customers are included in sales.
Stock-Based Compensation
Stock-based compensation is accounted for based
on the requirements of ASC 718 – “Compensation–Stock Compensation”, which requires recognition in the financial
statements of the cost of employee, non-employee and director services received in exchange for an award of equity instruments over the
period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting period). The
ASC also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date
fair value of the award.
Advertising costs
The Company participates in various advertising
programs. All costs related to advertising of the Company’s products are expensed in the period incurred. Advertising costs charged
to operations were $835,723 for the transition period ended October 31, 2021 and $226,428, for the year ended December 31, 2020, respectively,
are presented on the accompanying consolidated statement of operations as selling and marketing expenses.
Income Taxes
The Company accounts for income taxes using the
liability method prescribed by ASC 740 - Income Taxes. Under this method, deferred tax assets and liabilities are determined based on
the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect
in the year in which the differences are expected to reverse. The Company records a valuation allowance to offset deferred tax assets
if based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assets will not
be realized. The effect on deferred taxes of a change in tax rates is recognized as income or loss in the period that includes the enactment
date.
In December 2019, the FASB issued ASU 2019-12,
“Simplifying the Accounting for Income Taxes.” This guidance, among other provisions, eliminates certain exceptions to existing
guidance related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and
the recognition of deferred tax liabilities for outside basis differences. This guidance also requires an entity to reflect the effect
of an enacted change in tax laws or rates in its effective income tax rate in the first interim period that includes the enactment date
of the new legislation, aligning the timing of recognition of the effects from enacted tax law changes on the effective income tax rate
with the effects on deferred income tax assets and liabilities. Under existing guidance, an entity recognizes the effects of the enacted
tax law change on the effective income tax rate in the period that includes the effective date of the tax law. ASU 2019-12 is effective
for interim and annual periods beginning after December 15, 2020, with early adoption permitted. On December 31, 2020, the Company early
adopted ASU 2019-12 and its adoption did not have any material impact on the Company’s financial statements.
The Company follows the accounting guidance for
uncertainty in income taxes using the provisions of ASC 740. Using that guidance, tax positions initially need to be recognized in the
financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. For the transition
period ended October 31, 2021 and year ended December 31, 2020, the Company had no uncertain tax positions that qualify for either recognition
or disclosure in the financial statements.
Leases
The Company accounts
for its leases using the method prescribed by ASC 842 – Lease Accounting. The Company assess whether the contract is, or
contains, a lease at the inception of a contract which is based on (i) whether the contract involves the use of a distinct identified
asset, (ii) whether the Company obtain the right to substantially all the economic benefit from the use of the asset throughout the period,
and (iii) whether the Company has the right to direct the use of the asset. The Company allocates the consideration in the contract to
each lease component based on its relative stand-alone price to determine the lease payments. The Company has elected not to recognize
right-of-use (“ROU”) assets and lease liabilities for short-term leases that have a term of 12 months or less.
HOME BISTRO, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2021 AND DECEMBER 31, 2020
Operating and financing
lease ROU assets represents the right to use the leased asset for the lease term. Operating and financing lease liabilities are recognized
based on the present value of the future minimum lease payments over the lease term at commencement date. As most leases do not provide
an implicit rate, the Company uses an incremental borrowing rate based on the information available at the adoption date in determining
the present value of future payments. Lease expense for minimum lease payments is amortized on a straight-line basis over the lease term
and is included in general and administrative expenses in the consolidated statements of operations.
Basic and Diluted Loss Per Share
Pursuant to ASC 260-10-45, basic loss per common
share is computed by dividing net loss by the weighted average number of shares of common stock outstanding for the periods presented.
Diluted loss per share is computed by dividing net loss by the weighted average number of shares of common stock, common stock equivalents
and potentially dilutive securities outstanding during the period. Potentially dilutive common shares consist of common stock issuable
for stock options and stock warrants (using the treasury stock method), convertible notes and common stock issuable. These common stock
equivalents may be dilutive in the future.
The potentially dilutive common stock equivalents
as of October 31, 2021 and December 31, 2020 were excluded from the dilutive loss per share calculation as they would be antidilutive
due to the net loss. The following were the computation of diluted shares outstanding and in periods where the Company has a net loss,
all dilutive securities are excluded.
| |
October 31, 2021 | | |
December 31, 2020 | |
Common Stock Equivalents: | |
| | |
| |
Stock Options | |
| — | | |
| 60,638 | |
Stock Warrants | |
| 15,745,066 | | |
| 11,278,211 | |
Convertible Debt | |
| 1,041,435 | | |
| 589,704 | |
Total | |
| 16,786,501 | | |
| 11,928,553 | |
Concentration Risk
The Company purchased approximately 100% of its
food products from two vendors during the year ended December 31, 2020 (approximately 74% and 26%). The Company is not obligated to purchase
from these vendors and, if necessary, there are other vendors from which the Company can purchase food products. As of December 31, 2020,
the Company had no accounts payable balance to these vendors.
During the ten months ended October 31, 2021,
the Company opened a kitchen location at 3126 John P Curci Dr., Pembroke Pines, FL 33009 and acquired Model Meals (see Note 3) with a
kitchen location at 201 E. 4th St. Santa Ana, CA 92701. The Company started producing and packaging its food products at these locations
in addition to purchasing food products from other vendors which mitigated this concentration risk.
HOME BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2021 AND DECEMBER 31, 2020
Recent Accounting Pronouncements
In August 2020, the FASB issued ASU 2020-06—Debt—Debt
with Conversion and Other Options (Subtopic 470-20) and Derivatives and edging—Contracts in Entity’s Own Equity (Subtopic
815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”) to simplify
the accounting for convertible instruments by removing certain separation models in Subtopic 470- 20, Debt with Conversion and Other
Options, for convertible instruments. Under the amendments in ASU 2020-06, the embedded conversion features no longer are separated
from the host contract for convertible instruments with conversion features that are not required to be accounted for as derivatives under
Topic 815, Derivatives and Hedging, or that do not result in substantial premiums accounted for as paid-in capital. Consequently, a convertible
debt instrument will be accounted for as a single liability measured at its amortized cost and a convertible preferred stock will be accounted
for as a single equity instrument measured at its historical cost, as long as no other features require bifurcation and recognition as
derivatives. By removing those separation models, the interest rate of convertible debt instruments typically will be closer to the coupon
interest rate when applying the guidance in Topic 835, Interest. The amendments in ASU 2020-06 provide financial statement users with
a simpler and more consistent starting point to perform analyses across entities. The amendments also improve the operability of the guidance
and reduce, to a large extent, the complexities in the accounting for convertible instruments and the difficulties with the interpretation
and application of the relevant guidance. To further improve the decision usefulness and relevance of the information being provided to
users of financial statements, amendments in ASU 2020-06 increased information transparency by making the following amendments to the
disclosure for convertible instruments:
1. |
Add a disclosure objective |
|
|
2. |
Add information about events or conditions that occur during the reporting period that cause conversion contingencies to be met or conversion terms to be significantly changed |
|
|
3. |
Add information on which party controls the conversion rights |
|
|
4. |
Align disclosure requirements for contingently convertible instruments with disclosure requirements for other convertible instruments |
|
|
5. |
Require that existing fair value disclosures in Topic 825, Financial Instruments, be provided at the individual convertible instrument level rather than in the aggregate. |
Additionally, for convertible debt instruments
with substantial premiums accounted for as paid-in capital, amendments in ASU 2020-06 added disclosures about (1) the fair value amount
and the level of fair value hierarchy of the entire instrument for public business entities and (2) the premium amount recorded as paid-in
capital.
The amendments in ASU
2020-06 are effective for public business entities, excluding entities eligible to be smaller reporting companies as defined by the SEC,
for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. For all other entities, the amendments
are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption
is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years.
Entities should adopt the guidance as of the beginning of its annual fiscal year and are allowed to adopt the guidance through either
a modified retrospective method of transition or a fully retrospective method of transition. In applying the modified retrospective method,
entities should apply the guidance to transactions outstanding as of the beginning of the fiscal year in which the amendments are adopted.
Transactions that were settled (or expired) during prior reporting periods are unaffected. The cumulative effect of the change should
be recognized as an adjustment to the opening balance of retained earnings at the date of adoption. If an entity elects the fully retrospective
method of transition, the cumulative effect of the change should be recognized as an adjustment to the opening balance of retained earnings
in the first comparative period presented. The Company is evaluating the impact of the revised guidance and believes that it will not
have a significant impact on its consolidated financial statements.
In May 2021, the FASB issued ASU 2021-04, Earnings
Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives
and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40). The new ASU addresses issuer’s accounting for certain modifications
or exchanges of freestanding equity-classified written call options. This amendment is effective for all entities, for fiscal years beginning
after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted. The Company is evaluating the
impact of the revised guidance and believes that it will not have a significant impact on its consolidated financial statements.
Management does not believe that any other recently
issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the Company’s consolidated
financial statements.
NOTE 3 – ACQUISITIONS AND DISPOSAL
OF THE DISCONTINUED OPERATIONS
Acquisition of Home Bistro Holdings and Disposal
of The Discontinued Operations of the RTD Business
Home Bistro, Inc. was formed on April 9, 2013
as a Delaware corporation, under the name DineWise, LLC. On December 1, 2014, it underwent a statutory conversion filed under Section
8-265 of the Delaware Code to convert from a limited liability company to a corporation and changed its name to Home Bistro, Inc.
HOME BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2021 AND DECEMBER 31, 2020
On September 22, 2020, Home Bistro, Inc. filed
a Certificate of Conversion under Section 266 of the Delaware General Corporation Law to convert its state of domicile from Delaware
to Nevada and simultaneously filed an Articles of Conversion with the Nevada Secretary of State for the same and changed its name from
Home Bistro, Inc. (the now wholly-owned subsidiary of the Company) to Home Bistro Holdings, Inc., each effective as of September 30, 2020.
Home Bistro manufactures, packages, and sells,
direct-to-consumer, gourmet meals under the Home Bistro brand and markets restaurant quality meats and seafood under the Prime Chop and
Colorado Prime brands. The Company’s meals are freshly prepared, to preserve freshness, and packaged in its facility located in
Miami, Florida. Home Bistro meals are ordered on-line and delivered to consumers in containers designed to keep the products frozen during
transport. Orders for restaurant quality meats and seafood through the Company’s Prime Chop and Colorado Prime brands are processed
through a third-party co-packer based in North Carolina who fulfills and ships customer orders.
Agreement and Plan of Merger
On April 20, 2020, the Company, Fresh Market Merger
Sub, Inc., a Delaware corporation and a newly created wholly-owned subsidiary of the Company, also referred to herein as Merger Sub, and
Home Bistro, Inc., a privately-held Delaware corporation engaged in the food preparation and home-delivery business (presently known as
Home Bistro Holdings, Inc., a Nevada corporation), also referred to herein also Home Bistro Holdings, entered into an Agreement and Plan
of Merger, also referred to herein as the Merger Agreement, pursuant to which, among other things, Merger Sub agreed to merge with and
into Home Bistro Holdings, with Home Bistro Holdings becoming a wholly-owned subsidiary of the Company and the surviving corporation in
the merger, also referred to herein as the Merger. Pursuant to the terms of the Merger Agreement, Home Bistro Holdings filed a Certificate
of Merger with the Nevada Secretary of State on April 20, 2020 (see Note 1).
Prior to the effective time of the Merger, the
Company and certain of its existing securityholders entered into an Exchange Agreement providing for, among other things, the exchange
(the “Exchange”) of securities held by such securityholders for shares of common stock, as more fully detailed therein. As
a result of the Exchange, all of the Company’s issued and outstanding shares of Series A Preferred Stock, Series C Preferred Stock
and convertible notes were converted into an aggregate of 5,405,479 shares of common stock on a fully diluted basis, consisting of 1,364,232
shares of common stock and warrants to purchase up to 4,041,258 shares of common stock (see Note 12). The 250,000 shares of Series B Preferred
Stock owned by a former officer were cancelled on April 9, 2020 pursuant to a General Release Agreement (see Note 12) and 250,000 shares
of Series B Preferred Stock held by a related party remained issued and outstanding as of the date of the Merger.
After the Exchange, a total of 1,899,094 shares
of common stock, warrants to purchase 4,041,258 shares of common stock and 60,638 stock options were deemed issued and outstanding.
Certain of the Company’s existing securityholders
retained securities held prior to the Merger, consisting of 533,931 shares of common stock and 60,638 stock options which were outstanding
at the effective time of the Merger.
At the effective time of the Merger, and subject
to the terms and conditions of the Merger Agreement, each outstanding share of common stock of Home Bistro Holdings was converted into
the right to receive approximately 473 shares of common stock. Accordingly, the aggregate shares of the Company’s common stock issued
in the Merger to the former securityholders of Home Bistro Holdings is 24,031,453 shares of common stock on a fully diluted basis consisting
of 17,105,139 shares of common stock and warrants to purchase up to 6,926,314 shares of common stock (see Note 12).
Subsequent to the Merger, the Company had an aggregate
of 30,031,501 shares of common stock issued and outstanding on a fully diluted basis consisting of 19,004,233 shares of common stock,
60,638 stock options and warrants to purchase up to 10,967,572 shares of common stock.
On April 20, 2020, pursuant to the terms of the
Merger Agreement, Roy G. Warren, Jr., Mike Edwards, and Bruce Zanca resigned as directors of the Company and Roy G. Warren, Jr. resigned
as Chief Operating Officer of the Company. The resignations were not the result of any disagreement related to the Company’s operations,
policies, or practices. Furthermore, on April 20, 2020, Mr. Zalmi Duchman, the Chief Executive Officer of Home Bistro Holdings, Michael
Finkelstein and Michael Novielli were appointed as directors of the Company. In addition, Mr. Duchman was appointed Chief Executive Officer
(see Note 1).
In connection with the Merger, certain Company
stockholders entered into a Lock-Up and Leak-Out Agreement with the Company pursuant to which, among other thing, such stockholders agreed
to certain restrictions regarding the resale of common stock for a period of two years from the date of the Merger Agreement, as more
fully detailed therein.
HOME BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2021 AND DECEMBER 31, 2020
Additionally, on April 20, 2020, the Company and
a stockholder entered into a Put Option Agreement, pursuant to which, among other things, the Company agreed, at the election of the stockholder,
to purchase certain shares of common stock from such stockholder no sooner than two years from the date of the Put Option Agreement (the
“Market Period”). Pursuant to the Put Option Agreement, in the event that the stockholder does not generate $1.3 million dollars
(the “Total Investment”) in gross proceeds from the sale of its shares of common stock by the second anniversary of the Put
Option Agreement, then the stockholder has the right to cause the Company to purchase shares held by the stockholder at a price equal
to the difference between the Total Investment and the net proceeds actually realized by the stockholder from shares of common stock sold
during the Market Period and the number of shares of common stock held by the stockholder on the date the put right is exercised. The
put right expires fourteen (14) days from end of the Market Period. In connection with the Put Option Agreement, the Company recorded
a common stock repurchase obligation in the amount of $1.3 million, reflected in the accompanying consolidated balance sheets as Common
stock repurchase obligation (see Note 14).
Effective April 20, 2020, the Company acquired
all the issued and outstanding shares of Home Bistro Holdings pursuant to the Merger Agreement and Home Bistro Holdings became a wholly
owned subsidiary of the Company. As a result of the Merger, for financial statement reporting purposes, the Merger between the Company
and Home Bistro Holdings has been treated as a reverse acquisition and recapitalization with Home Bistro Holdings deemed the accounting
acquirer and the Company deemed the accounting acquiree in accordance with FASB Accounting Standards Codification (“ASC”)
Section 805-10-55. At the time of the Merger, both the Company and Home Bistro Holdings had their own separate operating segments. Accordingly,
the assets and liabilities and the historical operations that are reflected in the consolidated financial statements after the Merger
are those of Home Bistro Holdings and are recorded at the historical cost basis of Home Bistro Holdings. The acquisition process utilizes
the capital structure of the Company and the assets and liabilities of Home Bistro Holdings which are recorded at historical cost. The
results of operations of the Company are consolidated with results of operations of Home Bistro Holdings starting on the date of the Merger
Agreement. The equity of the consolidated entity is the historical equity of Home Bistro Holdings retroactively restated to reflect the
number of shares deemed issued by the Company in the reverse acquisition.
The Merger constituted a change of control and
the majority of the Board of Directors changed with the consummation of the Merger. The Company issued to the stockholders of Home Bistro
Holdings shares of common stock and stock warrants which represented approximately 80% of the combined company on a fully converted basis
after the closing of the Merger. As a result of the above transactions and the Company’s intent to dispose or divest the assets
and liabilities associated with the RTD Business as discussed below, this transaction was accounted for as a reverse recapitalization
of Home Bistro Holdings where Home Bistro Holdings is considered the historical registrant and the historical operations presented will
be those of Home Bistro Holdings.
The Following Assets and Liabilities were
Assumed in the Merger:
Cash | |
$ | 4,917 | |
Prepaid expense | |
| 9,776 | |
Operating right-of-use asset | |
| 32,444 | |
Total assets acquired | |
| 47,137 | |
| |
| | |
Accounts payable and accrued expenses | |
| (209,417 | ) |
Operating right-of-use liability | |
| (32,444 | ) |
Total liabilities assumed | |
$ | (241,861 | ) |
| |
| | |
Net liability assumed | |
$ | (194,724 | ) |
Disposal of Discontinued Operations of the
RTD Business
On September 25, 2020, pursuant to the Asset Purchase
Agreement, among other things, the Company agreed to sell all of the Company’s business, assets and properties used, or held or
developed for use, in its functional RTD (Ready to Drink) beverage segment (the “RTD Business”), and the Buyer agreed to assume
certain debts, obligations and liabilities related to the RTD Business. The Company assumed an accounts payable liability in the amount
of $14,000 related to accounting expense of the RTD Business for a period prior to the Merger. Pursuant to the Asset Purchase Agreement,
the Buyer reimbursed the Company for accounting expenses in amount of $14,000 incurred prior to the Merger, of which $7,000 was payable
in cash and the balance in form of a promissory note dated September 25, 2020 in the amount of $7,000. The promissory note bears interest
at a rate of 5% per annum, matures on April 25, 2021 and is payable in monthly installments of $1,000 commencing on October 25, 2020 through
April 25, 2021. As of December 31, 2020, $5,000 remained due on the promissory note. The Company received the $7,000 cash portion of the
consideration as of December 31, 2020. The $14,000 reimbursement was recorded to additional paid in capital as reflected in the accompanying
consolidated statements of changes in stockholders’ deficit.
HOME BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2021 AND DECEMBER 31, 2020
ASC 205-20 “Discontinued Operations”
establishes that the disposal or abandonment of a component of an entity or a group of components of an entity should be reported in discontinued
operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial
results. As a result, the component’s results of operations have been classified as discontinued operations on a retrospective basis
for all periods presented. The results of operations of this component, for all periods, are separately reported as “discontinued
operations” on the consolidated statements of operations.
The Asset Purchase Agreement, discussed above
under Agreement and Plan of Merger, was intended to be part of the Merger and in effect transferred the RTD Business and the related
assets and liabilities to Gratitude Keto, whose CEO, Roy Warren Jr., formerly served as the Company’s director and Chief Operating
Officer and was considered a related party, in substance, in the accounting of this transaction. Therefore, the disposal of net liabilities
and the reimbursement discussed above in connection with the disposal of the RTD Business was recorded to additional paid in capital as
reflected in the accompanying consolidated statements of changes in stockholders’ deficit.
The following table set forth the selected financial
data of the net liabilities recorded to additional paid in capital as of September 24, 2020.
| |
September 24, 2020 | |
Assets: | |
| |
Other assets: | |
| |
Operating lease right-of-use assets, net | |
$ | 2,417 | |
Total assets | |
$ | 2,417 | |
| |
| | |
Liabilities: | |
| | |
Current liabilities: | |
| | |
Accounts payable | |
$ | 112,212 | |
Accrued expenses and other liabilities | |
| 5,009 | |
Operating lease liabilities, current portion | |
| 2,417 | |
Total current liabilities | |
| 119,638 | |
Total liabilities | |
$ | 119,638 | |
| |
| | |
Net liabilities | |
$ | 117,221 | |
Expense reimbursement by Buyer | |
| 14,000 | |
Disposal of net liabilities to a related party | |
$ | 131,221 | |
The summarized operating result of discontinued
operations of the RTD Business included in the Company’s consolidated statements of operations for the year ended December 31, 2020
is as follows:
| |
Year Ended December 31, 2020 | |
Revenues | |
| |
Cost of revenues | |
$ | — | |
Gross (loss) profit | |
| — | |
| |
| — | |
Operating expenses: | |
| | |
Compensation expense | |
| 5,511 | |
Professional and consulting expenses | |
| 26,606 | |
Selling and marketing expenses | |
| (7,850 | ) |
General and administrative expenses | |
| 37,255 | |
Total operating expenses | |
| 61,522 | |
Loss from operations | |
$ | 61,522 | |
| |
| | |
Gain on debt extinguishment | |
| 99,897 | |
Interest income (expense) | |
| (172 | ) |
Other income, net | |
| 99,725 | |
| |
| | |
Income from discontinued operations | |
$ | 38,203 | |
The gain on debt extinguishment in the amount
of $99,897 reflected above was due to the settlement of outstanding liabilities owed to a vendor in connection with the RTD Business.
HOME BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2021 AND DECEMBER 31, 2020
Acquisition of Model Meals
Model Meals, LLC (the “Model Meals”)
was formed on May 1, 2015. Model Meals provides prepackaged and prepared meals as a solution for time-constrained but discerning consumers
focused on satisfying every member of the family by offering a broad array of the highest quality meal planning, delivery, and preparation
services. Products are customized meal solutions, delivered fresh directly to the home and utilizes third-party food delivery services
to fulfill customers’ orders.
On July 6, 2021, the Company entered and closed
on an Agreement and Plan of Merger with the members of Model Meals, acquiring Model Meals through a reverse triangular merger, whereby
Model Meals merged with Model Meals Acquisition Corp., a wholly owned subsidiary of the Company, with Model Meals being the surviving
entity (the “Acquisition”). As a result, Model Meals became a wholly owned subsidiary of the Company, and the members of Model
Meals received and aggregate of 2,008,310 shares of common stock and were paid $60,000 in cash. Pursuant to the Acquisition, the Company
issued 2,008,310 shares of common stock with grant date fair value of $ 2,028,393 (see Note 1). The shares are subject to a 24-month Lockup
and Leak-Out Agreement and were issued pursuant to Section 4(a)(2) of the Securities Act. The acquisition of Model Meals will allow the
Company the ability to increase its customer base, geographic distribution area, and prepared meals available on its ecommerce sights.
Further, on August 12, 2021, the Company filed,
in an amended current report Form 8-K/A, Model Meals’; (i) audited balance sheets and audited statement of operations as of December
31, 2020 and 2019 and for the years ended December 31, 2020 and 2019, respectively,; (ii) balance sheet and statement of operations as
of March 31, 2021 and for the three months ended March 31, 2021, respectively, and; (iii) unaudited pro forma combined financial information
derived by the application of pro forma adjustments to the historical consolidated financial statements of the Company and Model Meals
which gives effect to the Acquisition between the Company and Model Meals as if the Acquisition had occurred on January 1, 2020 with respect
to the unaudited annual pro forma combined statement of operation, and as of January 1, 2021 for the three months ended March 31, 2021
unaudited pro forma combined statement of operation, and as of March 31, 2021 with respect to the unaudited pro forma combined balance
sheets.
In connection with the Acquisition, the assets
acquired and liabilities assumed were recorded at fair value on the acquisition date. The fair values are subject to adjustment during
measurement period with subsequent changes recognized in earnings or loss. These estimates are inherently uncertain and are subject to
refinement. Management develops estimates based on assumptions as a part of the purchase price allocation process to value the assets
acquired and liabilities assumed as of the business acquisition date. As a result, during the purchase price measurement period, which
may be up to one year from the business acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed,
with the corresponding offset to goodwill. After the purchase price measurement period, the Company will record any adjustments to assets
acquired or liabilities assumed in operating expenses in the period in which the adjustments may have been determined. Based upon the
purchase price allocation, the following table summarizes the preliminary fair value of the assets acquired and liabilities assumed at
the date of the acquisition:
| |
Total | |
Assets acquired: | |
| |
Current assets | |
$ | 97,140 | |
Computer software | |
| 66,198 | |
Customer relationships | |
| 43,000 | |
Trademark | |
| 505,000 | |
Goodwill | |
| 1,809,357 | |
Total assets acquired at fair value | |
| 2,520,695 | |
Less: total liabilities assumed | |
| (432,302 | ) |
Net asset acquired | |
$ | 2,088,393 | |
| |
| | |
Purchase consideration paid: | |
| | |
Fair value of common shares issued | |
$ | 2,028,393 | |
Cash consideration | |
| 60,000 | |
Total purchase consideration paid | |
$ | 2,088,393 | |
HOME BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2021 AND DECEMBER 31, 2020
Goodwill recognized as a result of the acquisition
is not deductible for tax purposes. See Note 4 for additional information about other intangible assets. The recognized goodwill related
to Model Meals is directly attributable to synergies expected to arise after the acquisition.
The following unaudited pro forma consolidated
results of operations for the ten months ended October 31, 2021 and year ended December 31, 2020 have been prepared as if the acquisition
of Model Meals had occurred as of the beginning of the following periods:
| |
Ten Months Ended | | |
Ten Months Ended | |
| |
October 31, 2021 | | |
October 31, 2020 | |
Net Revenues | |
$ | 2,993,650 | | |
$ | 3,005,607 | |
Net Loss | |
$ | (12,802,275 | ) | |
$ | (1,197,589 | ) |
Net Loss per Share | |
$ | (0.56 | ) | |
$ | (0.07 | ) |
Pro forma data does not purport to be indicative
of the results that would have been obtained had these events actually occurred at the beginning of the periods presented and is not intended
to be a projection of future results.
HOME BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2021 AND DECEMBER 31, 2020
NOTE 4 – GOODWILL AND INTANGIBLE ASSETS
On July 6, 2021, the Company acquired Model Meals’
net assets with total fair value of $279,036, which includes computer software, customer relationships and trademarks, for a total consideration
of $2,088,393 (see Note 3). The excess consideration over the fair value of the net assets acquired of $1,809,357 was recorded as goodwill.
Asset Acquisition – License Agreement
On June 24, 2021, the Company entered into a licensing
agreement (“License Agreement”) with a celebrity chef and majority member interest holder of Homemade Meals, LLC (“Homemade
Meals”). As a condition to finalizing the License Agreement, the Company executed a Membership Interest Purchase Agreement (the
“Member Agreement”) and issued an aggregate of 2,266,667 shares of common stock issued to other members with an aggregate
fair value of $2,969,334, valued based on the market price of common stock on the close date of October 25, 2021. The shares issued to
the other members were consideration to terminate an exclusivity and non-compete agreement the celebrity chef had with Homemade Meals.
The Company issued the celebrity chef 2,000,000 shares of common stock with a fair value of $2,620,000, valued based on the market price
of common stock on the close date of Company’s common stock. The Company’s primary reason for acquiring the membership interests
in Homemade Meals was to terminate the non-compete agreement between the celebrity chef and Homemade Meals, thereby enabling the celebrity
chef to execute the License Agreement with the Company. At the time of execution of the Member Agreement, Homemade meals held no significant
assets and had no business operations and the Member Agreement was solely executed to terminate the exclusivity and non-compete agreement
the celebrity chef had with Homemade Meals. The Company recorded the shares given to the celebrity chef and the members of Homemade Meals
has two separate transactions.
The Company and the celebrity chef (collectively
as “Parties”) had a preexisting relationship and other arrangements before negotiations for the acquisition of Homemade Meals
and had planned to enter into a License Agreement during the negotiations, which is separate from the Member Agreement. Since ASC 805-50
includes only general principles related to accounting for an asset acquisition and in the absence of specific guidance, the Company analogized
to the guidance in ASC 805-10-25-20 through 25-21– Business Combination to identify and account for transactions that are
separate from a business combination. Under this guidance, the Company, when applying the acquisition method, recognized “only the
consideration transferred to acquire the asset”, the license. Any separate transactions were accounted for separately from acquisition
of the License Agreement in accordance with the relevant GAAP.
Therefore, in accordance with ASC 805-10-25-21,
the Company accounted for the 2,000,000 shares of common stock with fair value of $2,620,000, valued based on the market price of common
stock on the acquisition date, issued to the celebrity chef as the cost of the License Agreement and was recorded as an intangible asset
in the accompanying consolidated balance sheet and will be amortized over the three-year term of the License Agreement. In addition, the
aggregate of 2,266,667 shares of common stock issued to other members with an aggregate fair value of $2,969,334, valued based on the
market price of common stock on the acquisition date, was accounted for as compensation to terminate the exclusivity and non-compete agreement
and was recorded as product development expense in the accompanying consolidated statement of operations.
Goodwill
| |
Estimated Life | |
October 31, 2021 | |
Goodwill | |
Indefinite | |
$ | 1,809,357 | |
Less: Impairment | |
| |
| — | |
Goodwill, net | |
| |
$ | 1,809,357 | |
Intangible Assets
| |
Estimated Life | |
October 31, 2021 | |
Computer software | |
3.5 years | |
$ | 66,198 | |
Customer relationships | |
7 years | |
| 43,000 | |
Trademark | |
Indefinite | |
| 505,000 | |
License agreement | |
3 years | |
| 2,620,000 | |
Total | |
| |
| 3,234,198 | |
Less: Accumulated amortization | |
| |
| (8,837 | ) |
Intangible assets, net | |
| |
$ | 3,225,361 | |
Intangible assets with a finite life, net | |
| |
$ | 2,720,361 | |
The above intangible assets were acquired by the
Company during the transition period October 31, 2021.
HOME BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2021 AND DECEMBER 31, 2020
During the transition period ended October 31,
2021, the Company recorded a total of $8,837 of amortization expense related to the intangible assets.
Amortization of intangible assets attributable
to future periods is as follows:
Year ending October 31: | |
Amount | |
2022 | |
$ | 899,845 | |
2023 | |
| 899,845 | |
2024 | |
| 898,147 | |
2025 | |
| 6,413 | |
2026 | |
| 6,413 | |
2027 | |
| 6,413 | |
2028 | |
| 4,095 | |
Total | |
$ | 2,720,361 | |
NOTE 5 – CONVERTIBLE NOTES
At October 31, 2021, the convertible debt consisted
of the following:
| |
October 31, 2021 | | |
December 31, 2020 | |
Principal amount | |
$ | 1,028,179 | | |
$ | 447,000 | |
Less: debt discount | |
| (477,541 | ) | |
| (305,524 | ) |
Convertible notes payable, net | |
$ | 550,638 | | |
$ | 141,476 | |
| |
| | | |
| | |
Principal amount – related party | |
$ | 63,069 | | |
$ | — | |
Less: debt discount – related party | |
| (32,897 | ) | |
| — | |
Convertible note payable - related party, net | |
$ | 30,172 | | |
$ | — | |
| |
| | | |
| | |
Total convertible notes payable, net | |
$ | 580,810 | | |
$ | 141,476 | |
December 2020 Financing
December 2020 Note I
On December 18, 2020, the Company entered a Securities
Purchase Agreement (the “December 2020 SPA I”) with an investor for the sale of the Company’s convertible note. Pursuant
to the December 2020 SPA I, among other things, (i) the Company issued a self-amortization promissory note (the “December 2020 Note
I”, and together with the December 2020 SPA I, the “December 2020 Agreements I”) in the aggregate principal amount of
$275,000, and (ii) issued a total of 75,546 shares of common stock, as a commitment fee and 183,866 shares (the “Second Commitment
Shares”) issued as a returnable commitment fee. Accordingly, the Company deems the Second Commitment Shares as unissued shares for
accounting purposes. The 75,546 shares of common stock were recorded as a debt discount of $23,546 based on the relative fair value method.
Pursuant to the December 2020 Note I, the Company received net proceeds of $234,100, net of $27,500 OID and $13,400 of issuance costs.
The OID, issuance costs and issued commitment fee shares of common stock have been recorded as a debt discount to be amortized into interest
expense over the twelve-month term of the note. The December 2020 Note I bears an interest rate of 12% per annum (which shall increase
to 16% per annum upon the occurrence of an Event of Default (as defined in the December 2020 Note I)) and shall mature on December 18,
2021. The investor has the right, only upon the occurrence of an Event of Default, to convert all or any portion of the then outstanding
and unpaid principal amount and interest thereon (including any default interest) into shares of common stock equal to the lesser of (i)
105% multiplied by the closing bid price of the common stock on the trading day immediately preceding the issue date ($1.04) or (ii) the
closing bid price of the common stock on the trading day immediately preceding the date of the respective conversion (the “Conversion
Price”), subject to certain percentage of ownership limitations. The Second Commitment Shares must be returned to the Company’s
treasury if the December 2020 Note I is fully repaid and satisfied on or prior to the maturity date, the. Upon the occurrence and during
the continuation of any Event of Default (as defined in December 2020 Note I), the investor is no longer required to return the Second
Commitment Shares to the Company and the December 2020 Note I becomes immediately due and payable thereunder in the amount equal to the
principal amount then outstanding plus accrued interest (including any default interest) through the date of full repayment multiplied
by 125%. The obligations of the Company under the December 2020 Note I rank senior with respect to any and all unsecured indebtedness
incurred following the issue date except with respect to the Company’s current and future indebtedness with Shopify and any further
loans that may be received pursuant to the CARES Act and the SBA’s Economic Injury Disaster loan program. Further, the December
2020 Note I contain standard anti-dilution provisions and price protections provisions in the event that the Company issues securities
for a price per share less than the Conversion Price. The December 2020 Agreements I contain other provisions, covenants, and restrictions
common with this type of debt transaction. Furthermore, the Company is subject to certain negative covenants under the December 2020 Agreements
I, which the Company also believes are customary for transactions of this type. The December 2020 SPA I also provides the investor with
certain “piggyback” registration rights, permitting them to request that the Company include the issued shares for
sale in certain registration statements filed by the Company under the Securities Act of 1934, as amended. As of December 31, 2020, the
December 2020 Note I had outstanding principal and accrued interest of $275,000 and $1,175, respectively.
HOME BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2021 AND DECEMBER 31, 2020
On March 18, 2021 (the “Redemption Date”),
the Company elected, pursuant to terms of payment as described in the December 2020 Note I, to pay an aggregate amount of 283,615.75 (the
“Payoff Amount”) consisting of $275,000 of principal, $7,865.75 of accrued interest and $750.00 in administrative fees (the
“Redemption Amount”). The December 2020 Note I is deemed to have been paid in full; the lender will not exercise any of its
rights relating to any potential default that may have occurred after the issue date of the December 2020 Note I and the Second Commitment
Shares were returned by the lender to the Company’s transfer agent for cancellation as provided for in the December 2020 Agreements
I. The fair value of the derivative liability associated with the December 2020 Note I at Redemption Date amounted to $26,629 and
was reclassified to gain on debt extinguishment in the accompanying consolidated statement of operation upon redemption. Any remaining
unamortized debt discounts were recognized as interest expense on the Redemption Date. As of October 31, 2021, the December 2020 Note
I had no outstanding balance.
December 2020 Note II
On December 28, 2020, the Company entered into
a Securities Purchase Agreement (the “December 2020 SPA II”) with an investor for the sale of the Company’s convertible
note. Pursuant to the SPA II, among other things, (i) the Company issued a self-amortization promissory note (the “December 2020
Note II”, and together with the December 2020 SPA II, the “December 2020 Agreements II”) in the aggregate principal
amount of $172,000, and (ii) issued 45,989 shares of common stock as a commitment fee and 114,667 shares (the “Second Commitment
Shares”) issued as a returnable commitment fee. Accordingly, the Company deems the Second Commitment Shares as unissued shares for
accounting purposes. The 45,989 shares of common stock issued were recorded as a debt discount of $14,720 based on the relative fair value
method. Pursuant to the December 2020 Note II, the Company received net proceeds of $150,000, net of $15,500 OID and $6,500 of issuance
costs. The OID, issuance costs and issued commitment fee shares of common stock have been recorded as a debt discount to be amortized
into interest expense over the twelve-month term of the note. The December 2020 Note II matures on December 28, 2021 and bears an interest
rate of 12% per annum (which shall increase to 16% per annum upon the occurrence of an Event of Default (as defined in the December 2020
Note II)). The Company shall make nine monthly cash payments (“Amortization Payments”) in the amount of $19,264 beginning
at the end of the third month from the issuance date of the note. The Company can elect to extend the Amortization Payment due date by
thirty-days by notifying the holder on or before the of the Amortization Payment due date and pay an extension fee of $1,926, provided
that the note is not in default. The first twelve months of interest (equal to $20,640) shall be guaranteed and earned in full as of the
issue date, however if the note is repaid in its entirety, on or prior to, the due date of the first Amortization Payment, then the interest
shall be accrued on a per annum basis based on the number of days elapsed as of the repayment date from the issue date. As of December
31, 2020, the December 2020 Note II had outstanding principal and accrued interest of $172,000 and $0, respectively. During the ten months
ended October 31, 2021, the Company fully paid the December 2020 Note II. As of October 31, 2021, the December 2020 Note II had had no
outstanding balance.
The investor has the right, only upon the occurrence
of an Event of Default, to convert all or any portion of the then outstanding and unpaid principal amount and interest thereon (including
any default interest) into shares of common stock equal to the lesser of (i) 105% multiplied by the closing bid price of the common stock
on the trading day immediately preceding the issue date ($1.00) or (ii) the closing bid price of the common stock on the trading day immediately
preceding the date of the respective conversion (the “Conversion Price”), subject to certain percentage of ownership limitations.
The Second Commitment Shares must be returned to the Company’s treasury if the December 2020 Note II is fully repaid and satisfied
on or prior to the maturity date, the. Upon the occurrence and during the continuation of any Event of Default (as defined in the December
2020 Note II), the investor is no longer required to return the Second Commitment Shares to the Company and the December 2020 Note
II becomes immediately due and payable thereunder in the amount equal to the principal amount then outstanding plus accrued interest (including
any default interest) through the date of full repayment multiplied by 125%. The December 2020 Note II rank senior with respect to any
and all unsecured indebtedness incurred following the issue date except with respect to the Company’s current and future indebtedness
with Shopify and any further loans that may be received pursuant to the CARES Act and the SBA’s Economic Injury Disaster loan program.
Further, the December 2020 Note II contain standard anti-dilution provisions and price protections provisions in the event that the Company
issues securities for a price per share less than the Conversion Price. The December 2020 Agreements II contain other provisions, covenants,
and restrictions common with this type of debt transaction. Furthermore, the Company is subject to certain negative covenants under the
December 2020 Agreements II, which the Company also believes are also customary for transactions of this type. The December 2020 SPA II
also provides the investor with certain “piggyback” registration rights, permitting them to request that the Company
include the issued shares for sale in certain registration statements filed by the Company under the Securities Act of 1934, as amended.
The Company also entered into a Registration Rights
Agreement (“Registration Agreement”) in connection with the December 2020 Agreements II (see Note 14). Pursuant to which the
Company is required to prepare and file with the SEC a Registration Statement or Registration Statements (as is necessary) covering the
resale of all of the Registrable Securities, which Registration Statement(s) shall state that, in accordance with Rule 415 promulgated
under the Securities Act, such Registration Statement also covers such indeterminate number of additional shares of Securities as may
become issuable upon stock splits, stock dividends or similar transactions. The Company shall initially register for resale all of the
Registerable Securities, or an amount equal to the maximum amount allowed under Rule 415 (a)(1)(i) as interpreted by the SEC. In the event
the Company cannot register sufficient shares of Securities, due to the remaining number of authorized shares of Securities being insufficient,
the Company will use its best efforts to register the maximum number of shares it can base on the remaining balance of authorized shares
and will use its best efforts to increase the number of its authorized shares as soon as reasonably practicable.
The Company shall use its best efforts to have
the Registration Statement filed with the SEC within 60 or 120 days following the closing date of the December 2020 Agreements II (collectively
as “Filing Deadline”). The Company shall pay the holder the sum of 1% of the purchase amount of the December 2020 Note II
as liquidated damages, and not as a penalty for each time it fails to meet the Filing Deadline. The liquidated damages set forth in the
Registration Agreement shall be paid, at the holder’s option, in cash or securities priced at the share price, or portion thereof.
Failure of the Company to make payment within five business days of the Filing Date shall be considered a breach of the Registration Agreement.
HOME BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2021 AND DECEMBER 31, 2020
On March 24, 2021, the December 2020 Note II was
amended (“Amendment”) pursuant to which, the Company issued a warrant to purchase up to 78,250 shares of common stock (“December
2020 Warrant II”) as additional commitment fee. The December 2020 Warrant II; (i) was valued at $4,227 using the relative fair value
method and recorded as a debt discount to be amortized over the life of the note; (ii) has an exercise price of $2.50; (iii) subject to
the adjustments and 4.99%, ownership limitation and; (iv) expires on the fifth-year anniversary from the date of issuance.
In addition, the Amendment also provided for a
Commitment Share True-Up provision (as discussed below under Commitment Share True-Up Provision). At the inception of the December
2020 Note II, the Commitment Share True-Up had a fixed monetary value of $22,995 and was recorded as a debt discount to be amortized over
the twelve-month term.
The Amendment was accounted for as a debt modification
in accordance with ASC 470-50-40-10 - Debt Modification and Extinguishment. The present value of the cash flows under the amended
terms is less than 10% different from the present value of the remaining cash flows of the current terms and no gain or loss was recognized
on modification on March 24, 2021. The warrant issued as additional commitment fee was capitalized and amortized as of the original issue
date based on the Company’s elected accounting policy.
January 2021 Financings
January 2021 Note I
On January 12, 2021, the Company entered into
a Securities Purchase Agreement (the “January 2021 SPA I”) with an investor for the sale of the Company’s convertible
note. Pursuant to the January 2021 SPA I, the Company; (i) issued a self-amortization promissory note (the “January 2021 Note I”,
and together with the January 2021 SPA I, the “January 2021 Agreements I”) in the aggregate principal amount of $120,000;
(ii) issued a total of 29,385 shares of common stock as a commitment fee and; (iii) shall issue 73,269 shares of common stock which is
returnable pursuant to the terms of the January 2021 Agreements I (the “Second Commitment Shares”). The 29,385 shares of common
stock issued were recorded as a debt discount of $17,297 based on the relative fair value method. The Company received net proceeds of
$105,000, net of $10,000 OID and $5,000 issuance cost. The OID, issuance costs and issued commitment fee shares of common stock have been
recorded as a debt discount to be amortized into interest expense over the twelve-month term of the note. The January 2021 Note I matures
on January 12, 2022 and bears an interest rate of 10% per annum (which shall increase to 16% per annum upon the occurrence of an Event
of Default (as defined in the January 2021 Note I)). The Company shall make nine monthly cash payments (“Amortization Payments”)
in the amount of $14,666.66 beginning April 12, 2021. The Company can elect to extend the Amortization Payment due date by thirty-days
by notifying the holder on or before the of the due date and pay an extension fee of $3,080, provided that the note is not in default.
The first twelve months of interest (equal to $12,000) shall be guaranteed and earned in full as of the issue date, however if the note
is repaid in its entirety, on or prior to, the due date of the first Amortization Payment, then the interest shall be accrued on a per
annum basis based on the number of days elapsed as of the repayment date from the issue date. During the ten months ended October 31,
2021, the Company fully paid the January 2021 Note I. As of October 31, 2021, the January 2021 Note I had no outstanding balance.
The investor has the right, only upon the occurrence
of an Event of Default, to convert all or any portion of the then outstanding and unpaid principal amount and interest thereon (including
any default interest) into shares of common stock equal to the lesser of (i) 105% multiplied by the closing bid price of the common stock
on the trading day immediately preceding the issue date or (ii) the closing bid price of the common stock on the trading day immediately
preceding the date of the respective conversion (the “Conversion Price”), subject to certain percentage of ownership limitations.
The Second Commitment Shares must be returned to the Company’s treasury if the January 2021 Note I is fully repaid and satisfied
on or prior to the maturity date. Upon the occurrence and during the continuation of any Event of Default (as defined in the January 2021
Note I), the investor is no longer required to return the Second Commitment Shares to the Company and the January 2021 Note I becomes
immediately due and payable thereunder in the amount equal to the principal amount then outstanding plus accrued interest (including any
default interest) through the date of full repayment multiplied by 125%. The January 2021 Note I rank senior with respect to any and all
unsecured indebtedness incurred following the issue date except with respect to the Company’s current and future indebtedness with
e-commerce platform provider and any further loans that may be received pursuant to the CARES Act and the SBA’s Economic Injury
Disaster loan program. Further, the January 2021 Note I contain standard anti-dilution provisions and price protections provisions in
the event that the Company issues securities for a price per share less than the Conversion Price. The January 2021 Agreements I contain
other provisions, covenants, and restrictions common with this type of debt transaction. The January 2021 SPA I also provides the investor
with certain “piggyback” registration rights, permitting them to request that the Company include the issued shares
for sale in certain registration statements filed by the Company under the Securities Act of 1934, as amended.
HOME BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2021 AND DECEMBER 31, 2020
On March 31, 2021, the January 2021 Note I was
amended (“Amendment”) pursuant to which, the Company issued a warrant to purchase up to 55,000 shares of common stock (“January
2021 Warrant I”) as additional commitment fee. The January 2021 Warrant I; (i) was valued at $6,173 using the relative fair value
method and recorded as a debt discount to be amortized over the life of the note; (ii) has an exercise price of $2.50; (iii) subject to
the adjustments and 4.99%, ownership limitation and; (iv) expires on the fifth-year anniversary from the date of issuance.
In addition, the Amendment also provided for a
Commitment Share True-Up provision as discussed below under Commitment Share True-Up Provision. At the inception of the January
2021 Note I, the Commitment Share True-Up had fixed monetary value of $13,223 which was recorded as a debt discount to be amortize over
the twelve-month term of the note.
The Amendment was accounted for as a debt modification
in accordance with ASC 470-50-40-10 - Debt Modification and Extinguishment. The present value of the cash flows under the amended
terms is less than 10% different from the present value of the remaining cash flows of the current terms and no gain or loss was recognized
on modification on March 31, 2021. The warrant issued as additional commitment fee was capitalized and amortized as of the original issue
date based on the Company’s elected accounting policy.
January 2021 Note II
On January 27, 2021, the Company entered into
a Securities Purchase Agreement (the “January 2021 SPA II”) with an investor for the sale of the Company’s convertible
note. Pursuant to the January 2021 SPA II, the Company; (i) issued a convertible note with principal amount of $330,000 (the “January
2021 Note II”) with the Company receiving $300,000 in net proceeds, net of $33,000 of OID recorded as a debt discount to be amortized
over the twelve-month term of the note; (ii) issued 150,000 shares of common stock, subject to a true-up based upon the trading price
of the common stock and the investor’s ownership limitations (“Commitment Share True-up”) (as discussed below under
Commitment Share True-Up Provision) and; (iii) a warrant to purchase up to 150,000 shares of common stock (the “January 2021
Warrant II”, and together with the January 2021 SPA II and the January 2021 Note II, the “January 2021 Agreements II”).
The 150,000 shares of common stock and 150,000 warrants issued were valued at $85,981 and $31,821, respectively, using the relative fair
value method and the Commitment Share True-up had a fixed monetary value of $93,750, all recorded as a debt discount to be amortized over
the twelve-month term of the note. The January 2021 Note II matured 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 made nine monthly cash payments (“Amortization Payments”) in the amount
of $39,600 beginning May 1, 2021. 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 was 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 twelve months ended October 31, 2022, the Company paid the remaining $116,430 of principal and $2,370 of accrued
interest. As of July 31, 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.
HOME BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2021 AND DECEMBER 31, 2020
March 2021 Financings
March 2021 Note I
On March 22, 2021, the Company entered into a
Securities Purchase Agreement (the “March 2021 SPA I”) with an investor for the sale of the Company’s convertible note.
Pursuant to the March 2021 SPA I, the Company; (i) issued a convertible note with principal amount of $55,000 (the “March 2021 Note
I”) with the Company receiving $50,000 in net proceeds, net of $5,000 of OID recorded as a debt discount to be amortized over the
twelve-month term of the note; (ii) issued 25,000 shares of common stock, subject to a true-up based upon the trading price of the common
stock and the investor’s ownership limitations (“Commitment Share True-up”) (as discussed below under Commitment
Share True-Up Provision) and; (iii) a warrant to purchase up to 25,000 shares of common stock (the “March 2021 Warrant I”,
and together with the March 2021 SPA I and the March 2021 Note I, the “March 2021 Agreements I”). The 25,000 shares of common
stock and 25,000 warrant issued were valued at $6,949 and $1,346, respectively, using the relative fair value method and the Commitment
Share True-up had a fixed monetary value of $5,133, all recorded as a debt discount to be amortized over the twelve-month term of the
note. The March 2021 Note I matured 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 was 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 made nine monthly cash payments (“Amortization Payments”), in the amount of $6,455 due on the first day of each
month, beginning July 1, 2021. 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 was 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 July 31, 2022, the Company paid the remaining $31,533 of the principal and $742 of accrued interest. As of July
31, 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 a 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) expires on the fifth-year anniversary from the date of issuance.
March 2021 Note III – Related Party
On March 30, 2021, the Company entered into a
Securities Purchase Agreement (the “March 2021 SPA III”) with an investor, who is also a major stockholder and director and
considered to be a related party, for the sale of the Company’s convertible note. Pursuant to the March 2021 SPA III, the Company;
(i) issued a convertible note with principal amount of $110,000 (the “March 2021 Note III”) with the Company receiving $100,000
in net proceeds, net of $10,000 of OID recorded as a debt discount to be amortize over the twelve-month term of the note; (ii) issued
50,000 shares of common stock, subject to a true-up based upon the trading price of the common stock and the investor’s ownership
limitations (“Commitment Share True-up”) (as discussed below under Commitment Share True-Up Provision) and; (iii) a
warrant to purchase up to 50,000 shares of common stock (the “March 2021 Warrant III”, and together with the March 2021 SPA
III and the March 2021 Note III, the “March 2021 Agreements III”). The 50,000 shares of common stock and 50,000 warrant issued
were valued at $23,718 and $7,924, respectively, using the relative fair value method and the Commitment Share True-up had a fixed monetary
value of $22,250, all recorded as a debt discount to be amortized over the twelve-month term of the note. The March 2021 Note III matured
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 made nine
monthly cash payments (“Amortization Payments”), in the amount of $12,911 due on the first day of each month, beginning July
1, 2021. 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 was 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 twelve months
ended October 31, 2022, the Company paid the remaining $63,069 of principal and $1,487 of accrued interest. As of July 31, 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 a 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.
HOME BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2021 AND DECEMBER 31, 2020
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. 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 was 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 twelve months ended October 31, 2022, the Company paid the remaining $96,809 of principal and $4,025 of accrued interest. As of July
31, 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 a 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.
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 matured 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 made nine monthly cash payments (“Amortization Payments”), in the amount of $19,800 due on the
first day of each month, beginning July 1, 2021. 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 twelve months ended October 31, 2022, the Company paid the remaining $95,684 of principal and $3,316 of accrued interest. As
of July 31, 2022 and October 31, 2021, the April 2021 Note had outstanding principal of $0 and $95,684, respectively.
HOME BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2021 AND DECEMBER 31, 2020
The April 2021 Warrant, issued to the investor
as a 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 a 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 a 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 matured 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 made nine monthly cash payments (“Amortization Payments”),
in the amount of $15,667 due on the first day of each month, beginning August 9, 2021. 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 twelve months ended October 31, 2022, the Company paid the remaining $90,841 of principal and
$3,161 of accrued interest. As of July 31, 2022 and October 31, 2021, the May 2021 Note I had outstanding principal of $0 and $90,841,
respectively.
The May 2021 Warrant I, issued to the investor
as a 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 matured 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
made nine monthly cash payments (“Amortization Payments”), in the amount of $31,350 due on the first day of each month, beginning
August 26, 2021. 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 twelve months ended
October 31, 2022, the Company paid $236,781 of principal and $14,019 of accrued interest. As of July 31, 2022 and October 31, 2021, the
May 2021 Note II had outstanding principal of $0 and $236,781, respectively.
HOME BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2021 AND DECEMBER 31, 2020
The May 2021 Warrant II, issued to the investor
as a 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 matured
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 made nine
monthly cash payments (“Amortization Payments”), in the amount of $13,444 due on the first day of each month, beginning October
1, 2021. 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 was 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
twelve months ended October 31, 2022, the Company paid $110,000 of principal and $10,996 of accrued interest. As of July 31, 2022 and
October 31, 2021, the September 2021 Note I had outstanding principal of $0 and $110,000, respectively.
The September 2021 Warrant I, issued to the investor
as a 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.
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 matured 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”).
HOME BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2021 AND DECEMBER 31, 2020
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 twelve months
ended October 31, 2022, the Company paid $219,875 of principal and $24,573 of accrued interest. As of July 31, 2022 and October 31, 2021,
the September 2021 Note II had outstanding principal of $30,125 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.
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 869,565 warrants issued were valued at $93,641 using the relative fair
value method, recorded as a debt discount to be amortized over the twelve-month term of the note. 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.
The May 2022 Warrant I issued to the investor,
provides for the right to purchase up to 869,565 shares of common stock; (i) valued at $93,641 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 $0.575, 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 $0.575; (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 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.
As of July 31, 2022, the May 2022 Note I had outstanding
principal of $500,000.
HOME BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2021 AND DECEMBER 31, 2020
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 217,391 warrants issued were valued at $24,902 using the relative
fair value method, recorded as a debt discount to be amortized over the twelve-month term of the note. 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.
The May 2022 Warrant II issued to the investor,
provides for the right to purchase up to 217,391 shares of common stock; (i) valued at $24,902 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.
As of July 31, 2022, the May 2022 Note II had
outstanding principal of $125,000.
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 318,134 warrants issued were valued at $36,442 using the relative
fair value method, recorded as a debt discount to be amortized over the twelve-month term of the note. 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.
HOME BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2021 AND DECEMBER 31, 2020
The May 2022 Warrant III issued to the investor,
provides for the right to purchase up to 318,134 shares of common stock; (i) valued at $36,442 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.
As of July 31, 2022, the May 2022 Note III had
outstanding principal of $182,927.
July 2022 Note
On July 19, 2022 (the “Issue Date”),
the Company entered into Securities Purchase Agreements dated as of July 19, 2022 (the “July 2022 SPA”), by and between
the Company and 1800 Diagonal Lending LLC, a Virginia limited liability company (the “Investor”). Pursuant to the July
2022 SPA, among other things, the Company agreed to issue to the Investor a convertible note in the original principal amount of $154,250
(the “July 2022 Note”). Upon closing, the Company received $138,000 in net proceeds from the Investor, which was net
of $16,250 of legal fees.
The July 2022 Note accrues interest at an
annual interest rate of 8%, has a default interest rate of 22%, and matures on January 19, 2024 (the “Maturity Date”).
The Investor may convert the July 2022 Note into shares of the Company’s common stock 180 days after the Issue Date until the later
of (i) the Maturity Date and (ii) the date the Company pays any amounts owed in connection with an event of default. The per share conversion
price into which the July 2022 Note is convertible into shares of common stock (the “Conversion Price”) is 65% multiplied
by the average of the lowest two closing bid prices for the common stock during the ten trading days ending on the last trading day prior
to the conversion date.
The Company has the right to prepay the outstanding
principal amount of the Note, plus any accrued interest on the outstanding principal (including any default interest) at a rate of (x)
120% during the period ending 120 days after the Issue Date and (y) 125% during the period between 121 days and 180 days after the Issue
Date. The Company does not have a prepayment right following the expiration of the 180-day period.
Upon the occurrence and during the continuation
of any event of default under the Note, the Note becomes immediately due and payable and the Company is obligated to pay the Investor
in full satisfaction of its obligations thereunder an amount equal to the greater of (i) the principal amount then outstanding plus accrued
interest (including any default interest) through the date of full repayment multiplied by 150% and (ii)(a) the highest number of shares
of Common Stock issuable upon conversion of the default sum at the Conversion Price, multiplied by (b) the highest closing price for the
Common Stock during the period beginning on the date of first occurrence of the event of default and ending one day prior to the mandatory
prepayment date.
The obligations under the July 2022 Note are not secured by any assets
of the Company.
The July 2022 SPA and July 2022 Note agreements
contain other provisions, covenants and restrictions common with this type of debt transaction. Furthermore, the Company is subject to
negative covenants under the Agreements, which the Company also believes are also customary for transactions of this type.
The July 2022 Note was treated as stock settled
debt under ASC 480-Distinguishing Liabilities from Equity, and a put premium of $83,058 was recognized and charged to interest expense.
As of July 31, 2022, the July 2022 Note had an
outstanding balance of $237,308 which included principal of $154,250 and a put premium of $83,058.
HOME BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2021 AND DECEMBER 31, 2020
The Company uses the Binomial Valuation Model
to determine the fair value of its stock warrants which requires the Company to make several key judgments including:
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the value of the Company’s common stock; |
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the expected life of issued stock warrants; |
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the expected volatility of the Company’s stock price; |
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the expected dividend yield to be realized over the life of the stock warrants; and |
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the risk-free interest rate over the expected life of the stock warrants. |
Valuation of 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.
During the ten months ended October 31, 2021,
the fair value of the stock warrants issued with the convertible notes payable was estimated at issuance using the Monte Carlo Valuation
Model with the following assumptions:
| |
October 31, 2021 |
|
Dividend rate | |
—% |
|
Term | |
2.5 years |
|
Volatility | |
60% to 70% |
|
Risk—free interest rate | |
0.14 to 0.24% |
|
HOME BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2021 AND DECEMBER 31, 2020
Commitment Share True-Up Provision
The Amended December Note I, Amended January Note
I, January Note II, March Financings, April 2021 Financing and May 2021 Note I (collectively as “Notes”), as discussed above,
included a Commitment Share True-Up provision whereby if during the period beginning on the six-month anniversary of the date of the closing
date and ending on the later of (i) the maturity date, or (ii) the date on which the Notes, is fully satisfied and cancelled (the “True-Up
Period”), the then lowest traded price of the Company’s common stock (“Common Stock”) for any Trading Day within
the True-Up Period (“Subsequent Share Price”), as reported on the Company’s principal market, is less than the closing
price of the Company’s common stock on the closing date of each Note, then the Company shall, within three (3) trading days of holder’s
provision of written notice in (“True-Up Notice”), issue and deliver to the holder an additional number of duly and validly
issued, fully paid and non-assessable shares of Common Stock equal to (X) the quotient of the Commitment Value (as defined below) divided
by the Subsequent Share Price, multiplied by 1.5, less (Y) the Commitment Shares. The “Commitment Value” shall mean the product
of the Commitment Shares multiplied by the closing price of the Company’s common stock on the Closing Date of each Note. Any additional
shares of Common Stock issuable as defined in the Notes (“True-up Shares”), if required to be issued shall be issued provided
however, that in no event shall the holder be entitled to receive shares of common stock in excess of the amount that would result in
beneficial ownership by the holder and its affiliates of 4.99% of the outstanding shares of Common Stock at that time. For purposes of
the provision to the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Regulations 13D-G thereunder. The Company shall at all
times reserve shares of its Common Stock for Holder in an amount equal to 300% multiplied by (X) the quotient of the Commitment Value
divided by the lowest traded price of the Common Stock during the five Trading Days immediately preceding the respective date of calculation,
multiplied by 1.5, less (Y) the Original Shares. At the inception of the respective Notes, the value of the true-up shares is based on
a fixed monetary amount known at inception to be settled with a variable number of shares if triggered which reflects stock settled debt.
Therefore, the Commitment Share True-up had an aggregate fixed monetary value of $209,688 which is reflected as liability to be settled
with common stock in the accompanying consolidated balance sheets.
Derivative Liabilities Pursuant to Convertible Notes
In connection with the issuance of the January
2021 Financings, March 2021 Financings, April 2021 Financing and May 2021 Financings, and September 2021 Financings (collectively referred
to as “Notes”), the Company determined that the terms of the Notes contain an embedded conversion option to be accounted for
as derivative liabilities due to the holder having the potential to gain value upon an event of default, which includes events not within
the control of the Company. Accordingly, under the provisions of ASC 815-40 –Derivatives and Hedging – Contracts in an
Entity’s Own Stock, the embedded conversion option contained in the convertible instruments were accounted for as derivative
liabilities at the date of issuance and shall be adjusted to fair value through earnings at each reporting date. The fair value of the
embedded conversion options was determined using the Monte Carlo valuation model. At the end of each period and on note conversion date
or repayment, the Company revalues the derivative liabilities resulting from the embedded option.
During the ten months ended October 31, 2021,
in connection with the issuance of the Notes, on the initial measurement date, the fair values of the embedded conversion option of $223,358
was recorded as derivative liabilities and debt discount.
Additionally, in connection with the Notes, the
Company issued an aggregate of 853,385 shares of common stock and an aggregate of 824,000 warrants as commitment fees (see Note 12). The
Company also issued additional 133,250 warrants as commitment fees (see Note 12), in connection with a debt modification of the December
Note II and January Note I. The common stocks and warrants issued during the ten months ended October 31, 2021 were valued, in aggregate,
at $575,480 using the relative fair value method and recorded as debt discount to be amortized over the term of the Notes.
At October 31, 2021, the Company revalued the
embedded conversion option derivative liabilities. In connection with these revaluations, the Company recorded a gain from the change
in the derivative liabilities fair value of $289,874 for the ten months ended October 31, 2021.
During the ten months ended October 31, 2021,
the fair value of the derivative liabilities was estimated at issuance and at October 31, 2021, using the Monte Carlo Valuation Model
with the following assumptions (see Note 2):
| |
October 31, 2021 |
|
Dividend rate | |
—% |
|
Term (in years) | |
0.33 to 0.84 |
|
Volatility | |
90% |
|
Risk—free interest rate | |
0.04 to 0.11% |
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Default probability | |
25% |
|
For the ten months ended October 31, 2021, amortization
of debt discounts related to the convertible notes amounted to $1,012,554, included as interest expense on the accompanying consolidated
statements of operations. At October 31, 2021 and December 31, 2020 the unamortized debt discount was $510,438 and $305,524, respectively.
HOME BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2021 AND DECEMBER 31, 2020
NOTE 6 – NOTE PAYABLE – IN DEFAULT
On July 3, 2015, the Company entered into a promissory
note payable with a principal amount of $33,000. The note bore interest at a rate of 5% per year and had a maturity date of September
1, 2016. During the year ended December 31, 2018, the Company repaid $18,000 of outstanding principal. During the year ended December
31, 2020, the Company paid the outstanding principal balance of the note payable in full which amounted to $3,738. As of December 31,
2020, the note payable had no outstanding balance.
NOTE 7 - NOTES PAYABLE
Notes payable is summarized below:
| |
October 31, 2021 | | |
December 31, 2020 | |
Principal amount | |
| 306,900 | | |
| 171,612 | |
Less: current portion | |
| (15,361 | ) | |
| (20,068 | ) |
Notes payable - long term portion | |
$ | 291,539 | | |
$ | 151,544 | |
Minimum principal payments under notes payable
are as follows:
Year ended October 31, 2022 | |
$ | 15,620 | |
Year ended October 31, 2023 | |
| 6,369 | |
Year ended October 31, 2024 | |
| 6,608 | |
Year ended October 31, 2025 | |
| 6,859 | |
Thereafter | |
| 271,444 | |
Total principal payments | |
$ | 306,900 | |
Paycheck Protection Program Loan
On April 8, 2020, the Company received federal
funding in the amount of $14,612 through the Paycheck Protection Program (the “PPP”) of the CARES Act, administered by
the U.S. Small Business Administration (“SBA”). The PPP note bears an interest rate 0.98% per annum and accrues on the unpaid
principal balance computed on the basis of the actual number of days elapsed in a year of 360 days. Commencing six months after the effective
date of the PPP note, the Company is required to pay the lender equal monthly payments of principal and interest as required to fully
amortize any unforgiven principal balance of the loan by the two-year anniversary of the effective date of the PPP note (the “Maturity
Date”). The Maturity Date can be extended to five years if mutually agreed upon by both the lender and the Company. The PPP note
contains customary events of default relating to, among other things, payment defaults, making materially false or misleading representations
to the SBA or the lender, or breaching the terms of the PPP note. The occurrence of an event of default may result in the repayment of
all amounts outstanding under the PPP note, collection of all amounts owing from the Company, or filing suit and obtaining judgment against
the Company. Under the terms of the CARES Act, PPP loan recipients can apply for and be granted forgiveness for all
or a portion of the loan granted under the PPP. Such forgiveness will be determined, subject to limitations, based on the use of loan
proceeds for payment of payroll costs and any payments of mortgage interest, rent, and utilities. Recent modifications to the PPP by the
U.S. Treasury and Congress have extended the time period for loan forgiveness beyond the original eight-week period, making it possible
for the Company to apply for forgiveness of its PPP note. No assurance can be given that the Company will be successful in obtaining
forgiveness of the loan in whole or in part. On April 28, 2021, the SBA authorized forgiveness of the outstanding principal balance
of $14,612 and $142 of accrued interest payable of the Company’s PPP loan which has been recorded as a gain on debt forgiveness
in the accompanying consolidated statements of operations. As of October 31, 2021, the PPP note had no outstanding balance.
HOME BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2021 AND DECEMBER 31, 2020
Economic Injury Disaster Loan
On May 20, 2020, the Company entered into a Loan
Authorization and Agreement (“SBA Loan Agreement”) with the SBA, under the SBA’s Economic Injury Disaster Loan assistance
program in light of the impact of the COVID-19 pandemic. Pursuant to the SBA Loan Agreement, the Company received an advanced of $149,900,
net of $100 processing fee, to be used for working capital purposes only. Pursuant to the SBA Loan Agreement, the Company executed; (i)
a note for the benefit of the SBA (“SBA Note”), which contains customary events of default; and (ii) a Security Agreement,
granting the SBA a security interest in all tangible and intangible personal property of the Company, which also contains customary events
of default. The SBA Note bears an interest rate of 3.75% per annum which accrue from the date of the advance. Installment payments in
the amount of $731, including principal and interest, are due monthly beginning May 20, 2021 (twelve months from the date of the SBA Note).
The balance of principal and interest is payable thirty years from the date of the SBA Note. As of October 31, 2021, the SBA Note had
an outstanding principal balance of $149,900 and $8,152 of accrued interest, reflected in the accompanying consolidated balance sheets
under accrued expense and other liabilities.
On June 17, 2020, the Company entered into a Loan
Authorization and Agreement (“SBA Loan Agreement”) with the SBA, under the SBA’s Economic Injury Disaster Loan assistance
program in light of the impact of the COVID-19 pandemic. Pursuant to the SBA Loan Agreement, the Company received an advanced of $150,000,
to be used for working capital purposes only. Pursuant to the SBA Loan Agreement, the Company executed; (i) a note for the benefit of
the SBA (“SBA Note”), which contains customary events of default; and (ii) a Security Agreement, granting the SBA a security
interest in all tangible and intangible personal property of the Company, which also contains customary events of default. The SBA Note
bears an interest rate of 3.75% per annum which accrue from the date of the advance. Instalment payments, including principal and interest,
are due monthly beginning June 17, 2021 (twelve months from the date of the SBA Note) in the amount of $731. The balance of principal
and interest is payable thirty years from the date of the SBA Note. As of October 31, 2021, the SBA Note had an outstanding principal
balance of $150,000 and accrued interest of $7,721, reflected in the accompanying consolidated balance sheets under accrued expense and
other liabilities.
On June 26, 2020, in connection SBA Loan Agreement,
the Company received a grant that does not have to be repaid, in the amount of $5,000 which was recorded as other income in the accompanying
consolidated statements of operations.
November Note Payable
On November 12, 2020, the Company entered into
a Note Agreement with an investor for the sale of the Company’s note (the “Note”). Pursuant to the terms provided for
in the Note Agreement, the Company issued to the investor a Note and the Company received proceeds in the amount of $7,000. The Note bears
an interest of 5% per annum and matures on November 12, 2021. The Company may prepay all or any portion of the interest and the unpaid
principal balance of this Note at any time, or from time to time, without penalty or premium. As of October 31, 2021, the Note had an
outstanding principal balance of $7,000 and accrued interest of $338, reflected in the accompanying consolidated balance sheets under
accrued expense and other liabilities.
NOTE 8 – ADVANCE PAYABLE
On October 15, 2019, the Company entered into
a capital advance agreement (the “First Advance Agreement”) with their e-commerce platform provider (“Shopify”).
Under the terms of the First Advance Agreement, the Company received $23,000 of principal and will repay $25,999 by remitting 17% of the
total customer payments processed daily by the e-commerce platform provider until the advance is repaid in full. During the year ended
December 31, 2020, the Company paid the principal balance of the advance in full and there was no balance outstanding as of December 31,
2020.
On March 17, 2020, the Company entered into a
capital advance agreement (the “Second Advance Agreement”) with Shopify. Under the terms of the Second Advance Agreement,
the Company received $10,000 of principal and will repay $11,300 by remitting 17% of the total customer payments processed daily by the
e-commerce platform provider until the advance is repaid in full. During the year ended December 31, 2020, the Company paid the advance
in full and there was no balance outstanding as of December 31, 2020.
On August 5, 2020, the Company entered into a
capital advance agreement (the “Third Advance Agreement”) with Shopify. Under the terms of the Third Advance Agreement, the
Company has received $49,000 of principal and will repay $55,370 by remitting 17% of the total customer payments processed daily by the
e-commerce platform provider until the advance is repaid in full. In 2020, the Company paid $47,328 of the principal balance and the advance
had an outstanding balance $1,672. During the ten months ended October 31, 2021, the Company paid the advance in full and there was no
balance outstanding as of October 31, 2021.
HOME BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2021 AND DECEMBER 31, 2020
On November 17, 2020, the Company entered into
a capital advance agreement (the “Fourth Advance Agreement”) with Shopify. Under the terms of the Fourth Advance Agreement,
the Company has received $63,000 of principal and will repay $71,190 by remitting 17% of the total customer payments processed daily by
the e-commerce platform provider until the advance is repaid in full. As of December 31, 2020, the advance had outstanding principal balance
of $63,000. During the ten months ended October 31, 2021, the Company paid the advance in full and there was no balance outstanding as
of October 31, 2021.
On December 10, 2020, the Company entered into
a working capital agreement (the “First PayPal Advance Agreement”) with PayPal. Under the terms of the Fifth Advance Agreement,
the Company received net proceeds of $17,000, net of $1,840 loan fee for a total principal amount of $18,840. and will repay the principal
and by remitting The Company shall pay a minimum payment every 90-days beginning at the end of the Cancellation Period and ending when
the Total Payment Amount has been delivered to Lender. The minimum payment is due in each 90-day period, irrespective of the amount paid
in any previous 90-day period. The minimum payment is 5% of the principal amount for loans expected to be repaid in 12 months or more
and 10% of the principal amount for loans expected to be repaid in less than 12 months (based on the Company’s account history).
In 2020, the Company paid $5,015 of principal balance and the advance had an outstanding balance of $13,825 as of December 31, 2020. During
the ten months ended October 31, 2021, the Company paid the advance in full and there was no balance outstanding as of October 31, 2021.
On March 29, 2021, the Company entered into a
capital advance agreement (the “Fifth Advance Agreement”) with Shopify. Under the terms of the Fifth Advance Agreement, the
Company has received $23,000 of principal and will repay $25,990 by remitting 17% of the total customer payments processed daily by the
e-commerce platform provider until the advance is repaid in full. During the ten months ended October 31, 2021, the Company paid the advance
in full and there was no balance outstanding as of October 31, 2021.
On March 30, 2021, the Company closed a Revenue
Share Agreement (“Agreement”) with a lender pursuant to which the Company agreed to sell, assign and transfer to the lender
and the lender agreed to purchase from the Company, all of the Company’s right, title and interest in its future receivables amounting
to $74,200 (“Specified Amount”) and $70,000 (“Purchase Price” or “Advance”) of this amount shall be
made available to the Company. Pursuant to the Agreement, prior to the lender making the amount of the Advance available for use (even
if the Company choose not to spend any or all of the Advance); (a) the Company will deliver, and will cause to be delivered, on each day
to the lender, 20% of future receivables and 25% of future receivables after the 121st day from and including the closing date
(“Applicable Percentage”) until the lender receive the specified Amount and; (b) the Company acknowledge that good, sufficient
and valuable consideration has been received. The Company will only use the Advance for the purchase of products or services necessary
to operate its business as defined in the Agreement. On April 1, 2021, an advance of $74,200 of which $70,000 was made available to the
Company and $4,200 OID was charged to interest expense. During the ten months ended October 31, 2021, the Company paid the advance in
full and there was no balance outstanding as of October 31, 2021.
On July 9, 2021, the Company entered into a capital
advance agreement (the “Sixth Advance Agreement”) with Shopify. Under the terms of the Sixth Advance Agreement, the Company
has received $95,000 of principal and will repay $107,350 by remitting 17% of the total customer payments processed daily by the e-commerce
platform provider until the advance is repaid in full. During the ten months ended October 31, 2021, the Company paid $27,056 of the outstanding
balance. The advance had $67,945 of outstanding balance as of September 30, 2021, reflected as advance payable on the accompanying
consolidated balance sheets.
On August 31, 2021, the Company entered into a
capital advance agreement (the “Seventh Advance Agreement”) with Shopify. Under the terms of the Seventh Advance Agreement,
the Company has received $34,000 of principal and will repay $38,420 by remitting 17% of the total customer payments processed daily by
the e-commerce platform provider until the advance is repaid in full. The advance has an outstanding balance of $34,000 as of September
30, 2021, reflected as advance payable on the accompanying consolidated balance sheets.
On September 1, 2021, the Company entered into
a capital advance agreement (the “First Liberty Advance Agreement”) with Liberty Funding. Under the terms of the First Liberty
Advance Agreement, the Company has received $110,000 of principal and will repay $132,000 by making weekly installments of $5,500 until
the advance is repaid in full. During the ten months ended October 31, 2021, the Company paid the advance in full and there was no balance
outstanding as of October 31, 2021.
HOME BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2021 AND DECEMBER 31, 2020
NOTE 9 – LEASE LIABILITIES
Operating Lease Right-of-Use (“ROU”)
Asset and Operating Lease Liabilities
On July 6, 2021, the
Company acquired Model Meals (see Note 3), which had a lease agreement for its facility in Santa Ana, California which expired in December
2021 (see Note 16) and had remaining operating right-of-use asset and liability of $76,136 and $79,054, respectively. Pursuant to the
lease agreement, the lease requires the Company to pay a monthly base rent of $14,140 for the remainder of the lease term.
June 1, 2021, the Company
entered into a lease agreement, effective July 13, 2021, for its facility in Pembroke Pine, Florida. The lease is for a period of 36 months
commencing in July 2021 and expiring in July 2024. Pursuant to the lease agreement, the Company shall pay a monthly base rent of; (i)
$8,062 in the first year; (ii) $8,465 in the second year and; (iii) $8,888 in the third year.
For the ten months ended October 31, 2021, total
rent expense amounted to $154,078 which is included in general and administrative expenses on the accompanying consolidated statements
of operations.
The significant assumption used to determine the
present value of the operating lease liabilities was a discount rate of 10% which was based on the Company’s estimated incremental
borrowing rate.
Operating right-of-use
(“Operating ROU”) asset is summarized below:
| |
October 31, 2021 | |
Operating ROU assets | |
$ | 336,614 | |
Less accumulated amortization | |
| (68,105 | ) |
Balance of Operating ROU assets, net | |
$ | 268,509 | |
Operating lease
liabilities related to the Operating ROU assets is summarized below:
| |
October 31, 2021 | |
Operating lease liabilities | |
$ | 339,532 | |
Total operating lease liabilities | |
| 339,532 | |
Reduction of operating lease liabilities | |
| (71,178 | ) |
Total | |
| 268,354 | |
Less: short term portion | |
| (101,431 | ) |
Long term portion | |
$ | 166,923 | |
Future minimum
operating lease payments under the operating lease agreements at October 31, 2021 are as follows:
Year | |
Amount | |
Year ending October 31, 2022 | |
$ | 122,402 | |
Year ending October 31, 2023 | |
| 102,849 | |
Year ending October 31, 2024 | |
| 79,991 | |
Total minimum non-cancelable operating lease payments | |
| 305,242 | |
Less: discount to fair value | |
| (36,888 | ) |
Total operating lease liabilities at October 31, 2021 | |
$ | 268,354 | |
Financing Lease Right-of-Use (“ROU”)
Assets and Financing Lease Liability
On July 13, 2021, the
Company entered into a financing agreement with a lessor for the purchase of equipment. Pursuant to the financing agreement, the Company
shall make a monthly payment of $6,500 for a period of 36 months commencing in August 2021 through August 2024. The monthly payment shall
consist of $6,000 cash and $500 in gift card allowance, reflected in the accompanying balance sheet under accrued expense and other
liabilities. At the effective date of the financing agreement, the Company recorded a financing lease payable of $200,509.
The significant assumption used to determine the
present value of the financing lease liability was a discount rate of 10% which was based on the Company’s estimated incremental
borrowing rate.
HOME BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2021 AND DECEMBER 31, 2020
Financing right-of-use
(“Financing ROU”) asset is summarized below:
| |
October 31, 2021 | |
Financing ROU assets | |
$ | 200,509 | |
Less accumulated depreciation | |
| (19,494 | ) |
Balance of financing ROU assets, net | |
$ | 181,015 | |
For the ten months ended
October 31, 2021, depreciation expense related to Financing ROU assets amounted to $19,494.
Financing lease
liability related to the Financing ROU assets is summarized below:
| |
October 31, 2021 | |
Financing lease payables for equipment | |
$ | 200,509 | |
Total financing lease payables | |
| 200,509 | |
Reduction of financing lease liability | |
| (13,650 | ) |
Total | |
| 186,859 | |
Less: short term portion | |
| (62,210 | ) |
Long term portion | |
$ | 124,649 | |
Future minimum
lease payments under the financing lease agreement at October 31, 2021 are as follows:
Year | |
Amount | |
Year ending October 31, 2022 | |
$ | 78,000 | |
Year ending October 31, 2023 | |
| 78,000 | |
Year ending October 31, 2024 | |
| 58,500 | |
Total minimum non-cancelable financing lease payments | |
| 214,500 | |
Less: discount to fair value | |
| (27,641 | ) |
Total financing lease liabilities at October 31, 2021 | |
$ | 186,859 | |
NOTE 10 – UNREDEEMED GIFT CARDS
Unredeemed gift cards activities as of October
31, 2021 and December 31, 2020 are summarized as follows:
| |
October 31, 2021 | | |
December 31, 2020 | |
Beginning balance | |
$ | 48,311 | | |
$ | 10,365 | |
Acquired gift card liability (see Note 3) | |
| 87,260 | | |
| — | |
Sale and issuance of gift cards | |
| 186,749 | | |
| 99,322 | |
Revenue from breakage | |
| (60,515 | ) | |
| (17,114 | ) |
Total gift card redemptions | |
| (96,893 | ) | |
| (44,262 | ) |
Ending balance | |
$ | 164,912 | | |
$ | 48,311 | |
HOME BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2021 AND DECEMBER 31, 2020
NOTE 11 – RELATED PARTY TRANSACTIONS
The Company utilizes the shipping carrier account
of a related entity, owned 50% by the Company’s current chief executive officer and principal stockholder for its inbound and outbound
shipping needs. The related entity bills the Company for the direct cost of the shipping charges plus a 10% fee. The total amount incurred
and paid to the related entity during the ten months ended October 31, 2021 was $153,165 and was $117,310 for the year ended December
31, 2020, which is included in cost of goods sold on the statement of operations. There were no amounts due to this related party for
these services as of October 31, 2021 and December 31, 2020.
See disposal of the RTD Business with related
party in Note 3 – Acquisition of Home Bistro Holdings and Disposal of the Discontinued Operations of the RTD Business.
See related party convertible note in Note
5 – March 2021 Note III – Related Party.
See consulting agreement in Note 14 –
Consulting Agreement – Related Party
NOTE 12 – STOCKHOLDERS’ EQUITY (DEFICIT)
On September 14, 2020, the Company filed with
the Secretary of State of the State of Nevada a Certificate of Amendment to its Articles of Incorporation to effect a 1 for 31.993 reverse
stock split of its common stock. Proportional adjustments for the reverse stock split were made to the Company’s outstanding stock
options, stock warrants and equity incentive plans. All share and per-share data and amounts have been retroactively adjusted as of the
earliest period presented in the consolidated financial statements to reflect the reverse stock split (see Note 1).
Shares Authorized
On April 7, 2020, the Board of Directors of the
Company approved the increase of the authorized shares of the common stock to 1,000,000,000 from 600,000,000 (see Note 1).
Common Stock and Warrants Issued Pursuant to
Recapitalization
On April 20, 2020, in connection with the Exchange
Agreement and Merger (see Note 3):
| ● | 519,000 shares of Series A Preferred stock, were exchanged for aggregate of 1,325,151 shares of common stock and 2,730,425 of stock warrants. The 2,730,424 stock warrants issued are exercisable at $0.001 and expire on April 20, 2030. As of September 30, 2020, there were no outstanding shares of Series A Preferred stock. |
| ● | 250,000 shares of Series B Convertible Preferred stock owned by a former officer were cancelled on April 9, 2020 pursuant to a General Release Agreement and the remaining 250,000 shares of Series B Convertible Preferred stock remain issued and outstanding as of September 30, 2020. |
| ● | 2,250 and 250 of the Company’s shares of Series C Preferred stock, were exchanged for 351,639 of stock warrants and 39,071 shares of common stock, respectively, for an aggregate of 2,500 shares of Series C Preferred exchanged. The 351,639 stock warrants are exercisable at $0.001 and expire on April 20, 2030. As of September 30, 2020, there were no outstanding shares of Series C Preferred stock. |
| | |
| ● | a lender converted $1,127,500 of outstanding convertible note balance into 881,052 of stock warrants, exercisable at $0.001 and expire on April 20, 2030. |
| ● | 2,500,000 shares of commons stock held by a stockholder were exchanged for 78,142 of stock warrants, exercisable at $0.001 and expire on April 20, 2030. |
As a result, in connection with the Exchange Agreement
and Merger (see Note 3), Gratitude Health, Inc is deemed to have issued a total of 250,000 shares of Series B Convertible Preferred stock,
1,899,094 shares of common stock, 60,368 stock options, 4,041,258 stock warrants which represent the outstanding preferred stock, common
stock (issued and issuable), stock options and stock warrants of the Company on the date of the Merger.
| ● | On April 20, 2020, pursuant to the Merger (see Note 3), the Company issued 4,041,258 stock warrants with exercise price of $0.001 and expiration date of April 20, 2030, in exchange for certain outstanding shares of the Company’s common stock on the date of the Merger. |
| | |
| ● | On April 20, 2020, pursuant to the Exchange Agreement (see Note 3), the Company issued 6,926,314 stock warrants with exercise price of $0.001 and expiration date of April 20, 2030 in exchange for certain outstanding common stock shares of Home Bistro on the date of the Merger. |
HOME BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2021 AND DECEMBER 31, 2020
Preferred Stock
As of October 31, 2022 and December 31, 2021,
there were no outstanding shares of Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock (see above Common
Stock and Warrants Issued Pursuant to Recapitalization).
Common Stock
Common Stock for Commitment Fee with Convertible
Notes Payable
| ● | In December 2020, the Company issued an aggregate of 119,535 shares of common stock valued at $38,263 using the relative fair value method to two non-affiliate investors as commitment fee in connection with the December 2020 Financings (see Note 5) which was recorded as debt discount which will be amortized over the life of the notes. |
| ● | On January 12, 2021, the Company issued 29,385 shares of common stock to a non-affiliate investor as commitment fee, pursuant to a securities purchase agreement (see Note 5), valued at $17,297 using the relative fair value method and was recorded as debt discount to be amortized over the life of the note. |
| ● | On January 27, 2021, the Company issued 150,000 shares of common stock to a non-affiliate investor as commitment fee, pursuant to a securities purchase agreement (see Note 5), valued at $85,981 using the relative fair value method and was recorded as debt discount to be amortized over the life of the note. |
| ● | On March 22, 2021, the Company issued 25,000 shares of common stock to a non-affiliate investor as commitment fee pursuant to a securities purchase agreement (see Note 5), valued at $6,949 using the relative fair value method and was recorded as debt discount to be amortized over the life of the note. |
| ● | On March 29, 2021, the Company issued 50,000 shares of common stock to a non-affiliate investor as commitment fee pursuant to a securities purchase agreement (see Note 5), valued at $24,504 using the relative fair value method and was recorded as debt discount to be amortized over the life of the note. |
| ● | On March 30, 2021, the Company issued 50,000 shares of common stock to a related party investor as commitment fee pursuant to a securities purchase agreement (see Note 5), valued at $23,718 using the relative fair value method and was recorded as debt discount to be amortized over the life of the note. |
| ● | On March 30, 2021, the Company issued 25,000 shares of common stock to a non-affiliate investor as commitment fee pursuant to a securities purchase agreement (see Note 5), valued at $11,845 using the relative fair value method and was recorded as debt discount to be amortized over the life of the note. |
| ● | On March 31, 2021, the Company granted 75,000 shares of common stock to a non-affiliate investor as commitment fee pursuant to a securities purchase agreement (see Note 5), valued at $36,499 using the relative fair value method and was recorded as debt discount to be amortized over the life of the note. |
| ● | On April 7, 2021, the Company granted 75,000 shares of common stock to a non-affiliate investor as commitment fee pursuant to a securities purchase agreement (see Note 5), valued at $30,947 using the relative fair value method and was recorded as debt discount to be amortized over the life of the note. |
| ● | On May 17, 2021, the Company granted 60,000 shares of common stock to a non-affiliate investor as commitment fee pursuant to a securities purchase agreement (see Note 5), valued at $26,824 using the relative fair value method and was recorded as debt discount to be amortized over the life of the note. |
| ● | On May 28, 2021, the Company granted 150,000 shares of common stock to a non-affiliate investor as commitment fee pursuant to a securities purchase agreement (see Note 5), valued at $67,645 using the relative fair value method and was recorded as debt discount to be amortized over the life of the note. |
| ● | On September 1, 2021, the Company granted 50,000 shares of common stock to a non-affiliate investor as commitment fee pursuant to a securities purchase agreement (see Note 5), valued at $26,877 using the relative fair value method and was recorded as debt discount to be amortized over the life of the note. |
| ● | On September 8, 2021, the Company granted 114,000 shares of common stock to a non-affiliate investor as commitment fee pursuant to a securities purchase agreement (see Note 5), valued at $59,468 using the relative fair value method and was recorded as debt discount to be amortized over the life of the note. |
HOME BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2021 AND DECEMBER 31, 2020
Stock-Based Compensation
| ● | During the year ended December 31, 2020, the Company recorded stock-based compensation of $238,268 related to an aggregate of 4,000,577 shares of common stock issued to employees and various consultants, of which $102,332 was charged as compensation and related expenses, $124,219 as professional and consulting expenses and $11,717 as selling and marketing expenses in the accompanying consolidated statements of operations. The stock-based compensation was based on the fair value of common stock on the date of grant. In addition, the Company issued a warrant to purchase up to 300,000 shares of the Company’s common stock with grant date fair value of $360,000 for product development services pursuant to an agreement (see below under Warrants). |
| ● | During the ten months ended October 31, 2021 and year ended December 31, 2020, the Company recorded stock-based compensation of $156,750 and $213,841, respectively, related to 125,000 shares of common stock issued to a director and executive pursuant to employment agreements (see Note 14) which was recorded as compensation and related expenses in the accompanying consolidated statements of operations. The stock-based compensation was based on the fair value of common stock on the date of grant. As of October 31, 2021 and December 31, 2020, there was no unamortized compensation expense related to these common stocks. |
Common Stock Issued for Cash
| ● | During the year ended December 31, 2020, the Company issued an aggregate of 1,492 shares of common stock, to a related party for aggregate cash proceeds of $100,006. |
| ● | During the ten months ended October 31, 2021, the Company issued an aggregate of 6,112,993 shares of common stock, to non-affiliate investors for aggregate net cash proceeds of $4,368,796, net of $215,949 of issuance costs. |
Common Stock Issued for Services
| ● | During the year ended December 31, 2020, the Company recorded stock-based compensation of $238,268 related to an aggregate of 127,942,741 shares of common stock issued to employees and various consultants, of which $102,332 was charged as compensation and related expenses, $124,219 as professional and consulting expenses and $11,717 as selling and marketing expenses in the accompanying consolidated statements of operations. The stock-based compensation was based on the fair value of common stock on the date of grant. |
| ● | On June 22, 2021, the Company issued 150,000 shares of common stock with fair value of $150,000 based on the fair value of common stock on the date of grant, pursuant to an agreement which was recorded as deferred compensation and is being amortized over the 2-year term of the agreement. During the ten months ended October 31, 2021, $28,125 of the deferred compensation was expensed as product development expense in the accompanying consolidated statements of operations. As of October 31, 2021, there was $121,875 of deferred compensation related to this agreement. |
| ● | On July 22, 2021, the Company issued 150,000 shares of common stock with fair value of $172,500 based on the fair value of common stock on the date of grant, pursuant to an agreement which was recorded as deferred compensation and is being amortized over the term of the agreement. During the ten months ended October 31, 2021, $25,156 of the deferred compensation was expensed as product development expense in the accompanying consolidated statements of operations. As of October 31, 2021, there was $147,344 of deferred compensation related to this agreement. |
| | |
| ● | On September 15, 2021, the Company issued 150,000 shares of common stock with fair value of $255,000 based on the fair value of common stock on the date of grant, pursuant to an agreement which was recorded as deferred compensation and is being amortized over the 2-year term of the agreement. During the ten months ended October 31, 2021, $15,938 of the deferred compensation was expensed as product development expense in the accompanying consolidated statements of operations. As of October 31, 2021, there was $239,063 of deferred compensation related to this agreement. |
| ● | On October 20, 2021, the Company issued 100,000 shares of common stock with fair value of $132,000 based on the fair value of common stock on the date of grant, pursuant to a consulting agreement which was recorded as professional and consulting expenses in the accompanying consolidated statements of operations. |
Common Stock Issued for Prepaid Services
| ● | On April 20, 2021, the Company issued an aggregate of 2,000,000 shares of common stock with an aggregate grant date fair value of $1,800,000 or $0.90 per share based on the market price of common stock on grant date, to two consultants pursuant to a consulting agreement (see Note 14). The fair value of the common stock was initially recorded in equity as deferred compensation which will be amortized over the twelve-month service period. During the ten months ended October 31, 2021, the Company amortized $1,050,00 of the deferred compensation which was charged to professional and consulting expense in the accompanying consolidated statements of operations. As of October 31, 2021, the deferred compensation related to this agreement was $750,000 which will be amortized over a period of five months. |
HOME BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2021 AND DECEMBER 31, 2020
Common Stock Issued Pursuant to Lock-Up
& Leak Out Agreements
| ● | During the ten months ended October 31, 2021, the Company issued to several stockholders, an aggregate of 112,500 shares of common stock with fair value of $152,626 or an average per share price of $1.36, based on the market price of common stock on grant date, pursuant to a Lock-Up & Leak Out Agreement (see Note 14). The fair value of the common stock was initially recorded in equity as deferred compensation which is amortized over the lock up period of three-to-four-month period. During the ten months ended October 31, 2021, the Company amortized $36,688 of the deferred compensation and was recorded as interest expense in the accompanying consolidated statement of operations. As of October 31, 2021, the deferred compensation related to this agreement was $115,938 which will be amortized over a period of three months. |
Cancellation of Common Stock Issuable
| ● | On April 20, 2020, in connection with the Exchange Agreement and Merger (see Note 3), 2,600,000 shares of common stock issuable at the closing of the acquisition were cancelled during the year ended December 31, 2020. As of December 31, 2020, the Company did not have any common stock issuable. |
Common Stock Issued for Acquisition of Subsidiary
| ● | On July 6, 2021, the Company issued an aggregate of 2,008,310 shares of common stock with fair value of $2,028,393, based on the market price of common stock on date of acquisition, to members of Model Meals, LLC in exchange for 100% membership, pursuant to the Agreement and Plan of Merger (see Note 1 and Note 3). |
Common Stock Issued for Asset Acquisition
Transaction
| ● | On October 25, 2021, the Company issued: (i) 2,266,666 shares of common stock, with fair value of $2,969,334, based on the market price of common stock on date of issuance, to members of Homemade Meals, LLC as compensation to terminate an exclusivity and non-compete agreement in order to execute a license agreement with a celebrity which was recorded as product development expense in the accompanying consolidated statement of operations and (ii) 2,000,000 shares of common stock with fair value of $2,620,000, based on the market price of common stock, as consideration to a celebrity chef in connection with the execution of a License Agreement which was capitalized as an intangible asset and is being amortized over the three-year term (see Note 4). |
Stock Options
A summary of the Company’s outstanding stock
options as of October 31, 2021 and changes during the period ended are presented below:
| |
Number of Options | | |
Weighted Average Exercise Price | | |
Weighted Average Remaining Contractual Life (Years) | | |
Aggregate Intrinsic Value | |
Balance on December 31, 2019 | |
| — | | |
$ | — | | |
| — | | |
$ | — | |
Deemed issued in connection with the Company’s recapitalization (see Note 3) | |
| 60,638 | | |
$ | 3.20 | | |
| 0.03 | | |
| — | |
Balance on December 31, 2020 | |
| 60,638 | | |
$ | 3.20 | | |
| 0.03 | | |
$ | — | |
Expired | |
| (60,638 | ) | |
| — | | |
| — | | |
| — | |
Balance on October 31, 2021 | |
| — | | |
| — | | |
| — | | |
| — | |
HOME BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2021 AND DECEMBER 31, 2020
Stock Warrants
Warrants Issued Pursuant to Recapitalization
| ● | On April 20, 2020, pursuant to the Merger (see Note 3), the Company issued warrants to purchase up to 4,041,258 shares of common stock with exercise price of $0.032 per share (in whole or in part) and expiration date of April 20, 2030 (see above Common Stocks and Warrants Issued Pursuant to Recapitalization), in exchange for certain outstanding shares of the Company’s common stock on the date of the Merger. |
| ● | On April 20, 2020, pursuant to the Exchange Agreement (see Note 3), the Company issued warrants to purchase up to 6,926,314 shares of common stock with an exercise price of $0.032 per share (in whole or in part) and expiration date of April 20, 2030 in exchange for certain outstanding common stock shares of Home Bistro Holdings on the date of the Merger, of which the Company had received $100,005 in total proceeds prior to the Merger in exchange for shares of Home Bistro Holdings common stock. |
Warrants Issued Pursuant to an Employment Agreement
| ● | On October 1, 2021, the Company issued warrants to purchase up to 2,000,000 shares of the Company’s common stock to a am executive in connection with an employment agreement (see Note 14). This warrant is exercisable, in whole or in part, upon issuance at $0.001 per share, and expires on October 1, 2026. These warrants have a grant date fair value of $2,714,971, recorded as compensation and related expenses on the accompanying consolidated statements of operations. |
Warrants Issued for Professional Services
| ● | On September 22, 2020, the Company issued a warrant to purchase up to 300,000 shares of the Company’s common stock to a third-party entity in connection with the Joint Product Development and Distribution Agreement (see Note 14). This warrant is exercisable, in whole or in part, upon issuance at $0.001 per share, and expires on September 22, 2030. This warrant has a grant date fair value of $360,000 recorded at issuance as product development expense on the consolidated statements of operations. |
| ● | On December 18, 2020, the Company issued warrants to purchase up to 10,640 shares of the Company’s common stock to a third-party entity in connection with a consulting agreement. This warrant is exercisable, in whole or in part, upon issuance at $1.27 per share, and expires on December 18, 2025. These warrants have a grant date fair value of $11,471, recorded as professional and consulting expenses on the consolidated statements of operations. |
| ● | On April 24, 2021, the Company issued warrants to purchase up to 5,435 shares of the Company’s common stock to a third-party entity in connection with a consulting agreement. This warrant is exercisable, in whole or in part, upon issuance at $1.10 per share, and expires on April 24, 2026. These warrants have a grant date fair value of $1,419, recorded as professional and consulting expenses on the consolidated statements of operations. |
| ● | On May 17, 2021, the Company issued warrants to purchase up to 1,920 shares of the Company’s common stock to a third-party entity in connection with a consulting agreement. This warrant is exercisable, in whole or in part, upon issuance at $2.50 per share, and expires on May 17, 2026. These warrants have a grant date fair value of $286, recorded as professional and consulting expenses on the consolidated statements of operations. |
| ● | On September 10, 2021, the Company issued warrants to purchase up to 2,250 shares of the Company’s common stock to a third-party entity in connection with a consulting agreement. This warrant is exercisable, in whole or in part, upon issuance at $3.00 per share, and expires on May 17, 2026. These warrants have a grant date fair value of $751, recorded as professional and consulting expenses on the consolidated statements of operations. |
| ● | On October 1, 2021, the Company issued warrants to purchase up to 500,000 shares of the Company’s common stock to a third-party entity in connection with a consulting agreement. This warrant is exercisable, in whole or in part, upon issuance at $0.001 per share, and expires on October 1, 2026. These warrants have a grant date fair value of $678,253, recorded as professional and consulting expenses on the consolidated statements of operations. |
| ● | On October 1, 2021, the Company issued warrants to purchase up to 1,000,000 shares of the Company’s common stock to a related-party entity in connection with a consulting agreement (see Note 14). This warrant is exercisable, in whole or in part, upon issuance at $0.001 per share, and expires on October 1, 2026. These warrants have a grant date fair value of $1,356,507, recorded as professional and consulting expenses - related party on the consolidated statements of operations. |
HOME BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2021 AND DECEMBER 31, 2020
Warrants Issued for Commitment Fee with
Convertible Notes Payable
| ● | On January 27, 2021, the Company issued a warrant to purchase up to 150,000 shares of common stock to a non-affiliate investor as additional commitment fee pursuant to a note amendment (see Note 5). The warrant; (i) was valued at $31,821 using the relative fair value method and recorded as a debt discount to be amortized over the life of the note; (ii) has an exercise price of $2.50; (iii) subject to the adjustments and 4.99%, ownership limitation and; (iv) expires on the fifth-year anniversary from the date of issuance. |
| ● | On March 22, 2021, the Company issued a warrant to purchase up to 25,000 shares of common stock to a non-affiliate investor as additional commitment fee pursuant to a note amendment (see Note 5). The warrant; (i) was valued at $1,346 using the relative fair value method and recorded as a debt discount to be amortized over the life of the note; (ii) has an exercise price of $2.50; (iii) subject to the adjustments and 4.99%, ownership limitation and; (iv) expires on the fifth-year anniversary from the date of issuance. |
| ● | On March 25, 2021, the Company issued warrant to purchase up to 78,250 shares of common to a non-affiliate investor as additional commitment fee pursuant to a note amendment (see Note 5). The warrant; (i) was valued at $4,744 using the relative fair value method and recorded as a debt discount to be amortized over the life of the note; (ii) has an exercise price of $2.50; (iii) subject to the adjustments and 4.99%, ownership limitation and; (iv) expires on the fifth-year anniversary from the date of issuance. |
| ● | On March 29, 2021, the Company issued a warrant to purchase up to 50,000 shares of common stock to a non-affiliate investor as additional commitment fee pursuant to a note amendment (see Note 5). The warrant; (i) was valued at $8,350 using the relative fair value method and recorded as a debt discount to be amortized over the life of the note; (ii) has an exercise price of $2.50; (iii) subject to the adjustments and 4.99%, ownership limitation and; (iv) expires on the fifth-year anniversary from the date of issuance. |
| ● | On March 29, 2021, the Company issued a warrant to purchase up to 50,000 shares of common stock to a related party investor as additional commitment fee pursuant to a note amendment (see Note 5). The warrant; (i) was valued at $7,924 using the relative fair value method and recorded as a debt discount to be amortized over the life of the note; (ii) has an exercise price of $2.50; (iii) subject to the adjustments and 4.99%, ownership limitation and; (iv) expires on the fifth-year anniversary from the date of issuance. |
| ● | On March 30, 2021, the Company issued a warrant to purchase up to 25,000 shares of common stock to a non-affiliate investor as additional commitment fee pursuant to a note amendment (see Note 5). The warrant; (i) was valued at $3,957 using the relative fair value method and recorded as a debt discount to be amortized over the life of the note; (ii) has an exercise price of $2.50; (iii) subject to the adjustments and 4.99%, ownership limitation and; (iv) expires on the fifth-year anniversary from the date of issuance. |
| ● | On March 31, 2021, the Company issued a warrant to purchase up to 75,000 shares of common stock to a non-affiliate investor as additional commitment fee pursuant to a note amendment (see Note 5). The warrant; (i) was valued at $12,352 using the relative fair value method and recorded as a debt discount to be amortized over the life of the note; (ii) has an exercise price of $2.50; (iii) subject to the adjustments and 4.99%, ownership limitation and; (iv) expires on the fifth-year anniversary from the date of issuance. |
| ● | On March 31, 2021, the Company issued a warrant to purchase up to 55,000 shares of common stock to a non-affiliate investor as additional commitment fee pursuant to a note amendment (see Note 5). The warrant; (i) was valued at $6,173 using the relative fair value method and recorded as a debt discount to be amortized over the life of the note; (ii) has an exercise price of $2.50; (iii) subject to the adjustments and 4.99%, ownership limitation and; (iv) expires on the fifth-year anniversary from the date of issuance. |
| ● | On April 7, 2021, the Company issued a warrant to purchase up to 75,000 shares of common stock to a non-affiliate investor as additional commitment fee pursuant to a note amendment (see Note 5). The warrant; (i) was valued at $9,669 using the relative fair value method and recorded as a debt discount to be amortized over the life of the note; (ii) has an exercise price of $2.50; (iii) subject to the adjustments and 4.99%, ownership limitation and; (iv) expires on the fifth-year anniversary from the date of issuance. |
| ● | On May 17, 2021, the Company issued a warrant to purchase up to 60,000 shares of common stock to a non-affiliate investor as additional commitment fee pursuant to a note amendment (see Note 5). The warrant; (i) was valued at $9,767 using the relative fair value method and recorded as a debt discount to be amortized over the life of the note; (ii) has an exercise price of $2.50; (iii) subject to the adjustments and 4.99%, ownership limitation and; (iv) expires on the fifth-year anniversary from the date of issuance. |
HOME BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2021 AND DECEMBER 31, 2020
| ● | On May 28, 2021, the Company issued a warrant to purchase up to 150,000 shares of common stock to a non-affiliate investor as additional commitment fee pursuant to a note amendment (see Note 5). The warrant; (i) was valued at $30,326 using the relative fair value method and recorded as a debt discount to be amortized over the life of the note; (ii) has an exercise price of $1.50; (iii) subject to the adjustments and 4.99%, ownership limitation and; (iv) expires on the fifth-year anniversary from the date of issuance. |
| ● | On September 1, 2021, the Company issued a warrant to purchase up to 50,000 shares of common stock to a non-affiliate investor as additional commitment fee pursuant to a note amendment (see Note 5). The warrant; (i) was valued at $9,493 using the relative fair value method and recorded as a debt discount to be amortized over the life of the note; (ii) has an exercise price of $2.50; (iii) subject to the adjustments and 4.99%, ownership limitation and; (iv) expires on the fifth-year anniversary from the date of issuance. |
| ● | On September 8, 2021, the Company issued a warrant to purchase up to 114,000 shares of common stock to a non-affiliate investor as additional commitment fee pursuant to a note amendment (see Note 5). The warrant; (i) was valued at $21,004 using the relative fair value method and recorded as a debt discount to be amortized over the life of the note; (ii) has an exercise price of $2.50; (iii) subject to the adjustments and 4.99%, ownership limitation and; (iv) expires on the fifth-year anniversary from the date of issuance. |
The Company used the Binomial pricing model to
determine the fair value of its stock options which requires the Company to make several key judgments including:
|
● |
the expected life of issued stock warrants; |
|
|
|
|
● |
the expected volatility of the Company’s stock price; |
|
|
|
|
● |
the expected dividend yields to be realized over the life of the stock warrants; and |
|
|
|
|
● |
the risk-free interest rate over the expected life of the stock warrants. |
The Company’s computation of the expected
life of issued stock warrants was based on the simplified method as the Company does not have adequate exercise experience to determine
the expected term and was estimated to be 2 years. The interest rate was based on the U.S. Treasury yield curve in effect at the time
of grant. The computation of volatility was based on the historical volatility of the Company’s common stock and the Company’s
expected divided yield was estimated to be zero.
Dividend rate |
|
|
—% |
|
Term (in years) |
|
|
2.5 to 5 years |
|
Volatility |
|
|
69% |
|
Risk-free interest rate |
|
|
0.14% to 0.27% |
|
A summary of the Company’s outstanding stock
warrants as of October 31, 2021 and changes during the period ended are presented below:
| |
Number of Stock Warrants | | |
Weighted Average Exercise Price | | |
Weighted Average Remaining Contractual Life (Years) | |
Balance on December 31, 2019 | |
| — | | |
$ | — | | |
| — | |
Deemed issued in connection with the Company’s recapitalization (see Note 3) | |
| 4,041,258 | | |
| 0.032 | | |
| 9.3 | |
Issued pursuant to Exchange Agreement (see Note 3) | |
| 6,926,314 | | |
| 0.032 | | |
| 9.3 | |
Granted | |
| 310,640 | | |
| 0.044 | | |
| 9.6 | |
Balance on December 31, 2020 | |
| 11,278,212 | | |
| 0.032 | | |
| 9.3 | |
Issued as commitment fee pursuant to convertible debt (see Note 5) | |
| 957,250 | | |
| 2.308 | | |
| 4.4 | |
Granted | |
| 3,509,605 | | |
| 0.001 | | |
| 4.9 | |
Stock warrants exercisable on October 31, 2021 | |
| 15,745,076 | | |
$ | 0.167 | | |
| 7.4 | |
Weighted average fair value of stock warrants granted during the period | |
| | | |
$ | 1.08 | | |
| | |
The exercisable stock warrants had an intrinsic
value of $18,104,799 on October 31, 2021.
HOME BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2021 AND DECEMBER 31, 2020
NOTE 13 – INCOME TAXES
The Company maintains deferred tax assets and
liabilities that reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. The deferred tax assets on October 31, 2021 and December 31, 2020 consist
of net operating loss carryforwards. The net deferred tax asset has been fully offset by a valuation allowance because of the uncertainty
of the attainment of future taxable income.
The items accounting for the difference between
income taxes at the effective statutory rate and the provision for income taxes for the ten-months ended October 31, 2021 and the year
ended December 31, 2020 are as follow:
| |
Ten-Months Ended October 31, 2021 | | |
Year Ended December 31, 2020 | |
Income tax benefit at U.S. statutory rate of 21% | |
$ | (2,688,478 | ) | |
$ | (260,749 | ) |
Income tax benefit – state | |
| (999,858 | ) | |
| (108,025 | ) |
Non-deductible expenses | |
| 2,837,058 | | |
| 223,929 | |
Change in tax rate – state from 8.7% to 7.8% | |
| 36,281 | | |
| — | |
Change in valuation allowance | |
| 814,997 | | |
| 144,845 | |
Total provision for income tax | |
$ | — | | |
$ | — | |
The Company’s approximate net deferred tax
asset as of October 31, 2021 and December 31, 2020 was as follow:
| |
Ten-Months Ended October 31, 2021 | | |
Year Ended December 31, 2020 | |
Net operating loss carryforward | |
$ | 2,025,694 | | |
$ | 1,210,697 | |
Total deferred tax asset | |
| 2,025,694 | | |
| 1,210,697 | |
Less: valuation allowance | |
| (2,025,694 | ) | |
| (1,210,697 | ) |
Net deferred tax asset | |
$ | — | | |
$ | — | |
The gross operating loss carryforward available
to the Company was $7,031,218 at October 31, 2021. The Company provided a full valuation allowance equal to the net deferred income tax
asset as of October 31, 2021 and December 31, 2020 because it was not known whether future taxable income will be sufficient to utilize
the loss carryforward. Additionally, the future utilization of the net operating loss carryforward to offset future taxable income is
subject to annual limitations as a result of ownership or business changes that occurred prior to 2021 and may occur in the future. The
Company has not conducted a study to determine the limitations on the utilization of these net operating loss carryforwards.
The increase in the valuation allowance was $851,278
in 2021. The total net loss carryforward on October 31, 2021 is $2,025,694. The potential tax benefit arising from the net operating loss
carryforward of $1,055,538 generated prior to January 1, 2018 will expire in 2033. The potential tax benefit arising from the net operating
loss carryforward of $970,156 generated from January 1, 2018 thereon can be carried forward indefinitely within the annual usage limitations.
The Company does not have any uncertain tax positions
or events leading to uncertainty in a tax position. The Company’s 2021, 2020, 2019 and 2018 Corporate Income Tax Returns are subject
to Internal Revenue Service examination.
HOME BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2021 AND DECEMBER 31, 2020
NOTE 14 – COMMITMENTS AND CONTINGENCIES
Employment Agreement
On October 1, 2021, the Company entered into an
employment agreement (the “Employment Agreement”) with Zalmi Scher Duchman to serve as the Company’s Chief Executive
Officer. The Employment Agreement has a term of three years (“Term”) from the effective date and provides for (i) an annual
salary of $120,000 and (ii) a one-time warrant grant of 2,000,000 shares of common stock, with grant a date fair value of $2,714,971 (see
Note 12), which vested upon issuance, exercisable at $0.001 and expires on October 1, 2026. Mr. Duchman is entitled to vacation, sick
and holiday pay and other benefits, in accordance with the Company’s policies established and in effect from time to time. The Company
may terminate the Mr. Duchman for cause (as defined in Employment Agreement) by giving Mr. Duchman written notice approved by the Board
of Directors (“Board”) of such termination, such notice (i) to state in detail the particular act or acts or failure or failures
to act that constitute the grounds on which the proposed termination for cause is based and (ii) to be given within six months of the
Board learning of such act or acts or failure or failures to act. The Employment Agreement may be terminated at Board’s discretion
during the Term, provided that if Mr. Duchman is terminated without cause, the Company shall pay to Mr. Duchman an amount calculated by
multiplying Mr. Duchman monthly salary, at the time of such termination, times the number of months remaining in the Term.
Lease Obligation Settlement
On February 22, 2018, the Company entered into
a Surrender Agreement with a former landlord for rental obligations dating back to the year ended December 31, 2017 until the space was
vacated by the Company on March 31, 2017. Upon executing the Surrender Agreement, the former landlord and the Company agreed that the
total rental obligation due was $109,235. The former landlord agreed to $50,000 as full satisfaction of all obligations owed at the time
of the Surrender Agreement. The Company agreed to make regular payments on the outstanding rental obligation until paid in full through
September 2019; however, there is no penalty if the obligation is not fully paid by such date. As of October 31, 2021 and December 31,
2020, the balance remaining due on this obligation were $22,900 and $26,400, respectively, included in accounts payable on the accompanying
consolidated balance sheets.
Put Option Agreement
On April 20, 2020, the Company and a stockholder
entered into a Put Option Agreement (see Note 3), pursuant to which, among other things, the Company agreed, at the election of the stockholder,
to purchase certain shares of common stock from such stockholder no sooner than two years from the date of the Put Option Agreement also
referred to herein as Market Period. Pursuant to the Put Option Agreement, in the event that the stockholder does not generate $1.3 million
dollars also referred to herein as Total Investment in gross proceeds from the sale of its shares of common stock by the second anniversary
of the Put Option Agreement, then the stockholder has the right to cause the Company to purchase shares held by the stockholder at a price
equal to the difference between the Total Investment and the net proceeds actually realized by the stockholder from shares of common stock
sold during the Market Period and the number of shares of common stock held by the stockholder on the date the put right is exercised.
The put right expires fourteen (14) days from end of the Market Period. In connection with the Put Option Agreement, the Company recorded
a common stock repurchase obligation in the amount of $1.3 million, reflected in the accompanying consolidated balance sheets as common
stock repurchase obligation, and reduction of additional paid in capital upon entering the Put Option Agreement. The repurchase obligation
is re-assessed by the Company each reporting period and adjusted for the proceeds received by the stockholder from sale of common stock.
During the ten months ended October 31, 2021, the Company re-assessed the repurchase obligation and pursuant to the agreement recorded
a reduction of $681,726 for net proceeds realized by the stockholder on sale of Company common stock which was reclassified to additional
paid in capital. As of October 31, 2021 and December 31, 2020, the Company had $0.6 and $1.3 million of common stock repurchase obligation
outstanding, respectively.
Joint Product Development and Distribution
Agreements
Corlich Enterprises, Inc
On September 22, 2020, the Company and Corlich
Enterprises, Inc., a New Jersey corporation (“Corlich”) entered into a Joint Product Development and Distribution Agreement
(the “Development Agreement”), effective the same date, pursuant to which, among other things, Corlich agreed to provide certain
commercial services (the “Services”) of Cat Cora, an American professional chef, in order for the Company and Corlich to collaboratively
develop a brand of meals (the “Cat Cora Meals”). In consideration for the Services, the Company agreed to (i) pay Corlich
a royalty on net revenues generated from (A) the Cat Cora Meals, and (B) Home Bistro and Prime Chop brand orders where a dedicated code
is used at purchase, and (ii) issue a warrant to purchase up to 300,000 shares of common stock (see Note 12). The Development Agreement
has a three-year term, unless sooner terminated pursuant to its terms.
HOME BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2021 AND DECEMBER 31, 2020
During the first year of the Development Agreement’s
term, Corlich is guaranteed a minimum royalty payment of $109,210. For the second and third year of the Development Agreement’s
term, the Development Agreement estimates that Corlich will be guaranteed a minimum royalty payment of $218,380 and $436,770, respectively,
subject to the achievement of the prior year’s guaranteed minimum royalty (“GMR”) payment and the parties’ agreement
to negotiate in good faith a lower guaranteed minimum royalty if such guaranteed minimum royalty payment is not achieved or to otherwise
terminate the Development Agreement. Royalties above the guaranteed minimum royalty are based on an increasing percentage of net revenues
generated from the sale of Cat Cora Meals as certain revenue milestones are met as defined in the Distribution Agreement. The GMR is
expensed to cost of sales over the term of the Development Agreement. During the ten months ended October 31, 2021, the Company paid
an aggregate of $78,260. During the ten months period ended October 31, 2021 and year ended December 31, 2021, the Company recognized
GMR expense of $113,753 and $36,403, respectively. As of October 31, 2021 and December 31, 2020, a total of $71,896 and $36,403 of accrued
royalty fee, respectively, was reflected under accrued expense and other liabilities in the accompanying consolidated balance sheets.
Hungry Fan Brand, LLC
On February 18, 2021, the Company and Hungry Fan
Brand, LLC (“Hungry Fan”) (collectively as “Parties”) entered into a Joint Product Development and Distribution
Agreement (the “Development Agreement”), effective the same date. The Development Agreement shall remain in effect for twelve
months from the effective. Pursuant to the Development Agreement, the Parties shall jointly contribute and be responsible for the development
of the Hungry Fan Meals, under the terms and conditions of the Development Agreement.
For the use of Hungry Fan Meals and all associated
intellectual property for the benefit of the Hungry Fan Meals, the Company shall pay to Hungry Fan the following: (i) 10% of all Net Revenue
generated from the sale of the Hungry Fan Meals (the “Hungry Fan Royalty”). For the purpose of this agreement “Net Revenue”
shall be defined as gross sales generated on Hungry Fan Meals less discounts and returns. The Hungry Fan Royalty generated during each
calendar month in which an agreement is in effect shall be due and payable by the 10th business day of the following month
in which the Hungry Fan Royalty was earned and; (ii) 10% of all Net Revenue generated from the sale of Home Bistro and Prime Chop brand
orders in which a Hungry Fan dedicated code was used at the time of purchase (“Hungry Fan Commission”). Upon execution of
the Development Agreement, the Company shall provide Hungry Fan with a dedicated code to publicly share for a mutually agreed upon percent
off any purchase of Home Bistro and Prime Chop brand orders. The Company shall ensure that the code is valid and in effect for the entire
Term. The Hungry Fan Commission generated during each calendar month in which an agreement is in effect shall be due and payable by the
10th business day of the following month in which the Hungry Fan Commission was earned.
In addition, subject to the terms and conditions
of this Development Agreement, the Company shall pay to Hungry Fan a guaranteed minimum compensation of $24,000 over twelve months (the
“GMC”), to be paid in installments of $2,000 per month, by the 10th business day of the following month in which
the Hungry Fan Commission was earned. The Parties agree that the Hungry Fan Royalty shall be credited against the Guarantee received to
date. As of October 31, 2021, $1,000 of accrued royalty fee was reflected under accrued expense and other liabilities in the accompanying
consolidated balance sheet.
Red Velvet XOXO, LLC
On March 19, 2021, the Company and Red Velvet
XOXO LLC, a New York corporation (“Red Velvet”) (collectively as “Parties”) entered into a Joint Product Development
and Distribution Agreement (the “Development Agreement”), effective the same date. The Development Agreement shall remain
in effect for twelve months from the effective date unless sooner terminated as defined in the Development Agreement, or unless extended
by mutual agreement of the Parties. Pursuant to the Development Agreement, the Parties shall collaboratively develop a brand of desserts,
marketed and sold exclusively utilizing Red Velvet’s recipes (the “Red Velvet Desserts”) under the Home Bistro label,
under the terms and conditions of the Development Agreement.
For the use of Red Velvet Desserts and all associated
intellectual property for the benefit of the Red Velvet Desserts, Bistro shall pay to Red Velvet the following: (i) 10% of all Net Revenue
generated from the sale of the Red Velvet Desserts (the “Velvet Desserts Royalty”). For the purpose of this agreement “Net
Revenue” shall be defined as gross sales generated on Red Velvet Desserts less discounts and returns. The Velvet Desserts Royalty
generated during each calendar month in which an agreement is in effect shall be due and payable by the 10th business day of the following
month in which the Velvet Desserts Royalty was earned and; (ii) 10% of all Net Revenue generated from the sale of Home Bistro and Prime
Chop brand orders in which a Red Velvet Desserts dedicated code was used at the time of purchase (“Velvet Desserts Commission”).
The Velvet Desserts Commission generated during each calendar month in which an agreement is in effect shall be due and payable by the
10th business day of the following month in which the Velvet Desserts Commission was earned. During the ten months ended October 31, 2021,
Red Velvet earned $198 of royalty fees pursuant to terms of the Development Agreement. As of October 31, 2021, $198 of accrued royalty
fee was reflected under accrued expense and other liabilities in the accompanying consolidated balance sheet.
HOME BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2021 AND DECEMBER 31, 2020
Chef Roblé & Co.
On April 13, 2021, the Company and Roblé
Ali (“Roblé”), celebrity chef and reality TV personality “Chef Roblé & Co.” (collectively as
“Parties”) entered into a Joint Product Development and Distribution Agreement (the “Development Agreement”),
effective the same date. The Development Agreement shall remain in effect for two years from the effective date. Pursuant to the Development
Agreement, the Parties shall jointly contribute and be responsible for the development of the Roblé Meals, under the terms and
conditions of the Development Agreement.
For the use of Roblé Meals and all associated
intellectual property for the benefit of the Roblé Meals, the Company shall pay to Roblé the following: (i) 10% of all Net
Revenue generated from the sale of the Roblé Meals (the “Roblé Royalty”). For the purpose of this agreement
“Net Revenue” shall be defined as gross sales generated on Roblé Meals less discounts and returns. The Roblé
Royalty generated during each calendar month in which an agreement is in effect shall be due and payable by the 10th business day of the
following month in which the Roblé Royalty was earned and; (ii) 10% of all Net Revenue generated from the sale of Home Bistro and
Prime Chop brand orders in which a Roblé dedicated code was used at the time of purchase (“Roblé Commission”).
Upon execution of the Development Agreement, the Company shall provide Roblé with a dedicated code to publicly share for a mutually
agreed upon percent off any purchase of Home Bistro and Prime Chop brand orders. The Company shall ensure that the code is valid and in
effect for the entire term. The Roblé Commission generated during each calendar month in which an agreement is in effect shall
be due and payable by the 10th business day of the following month in which the Roblé Commission was earned.
In addition, subject to the terms and conditions
of this Development Agreement, the Company shall pay to Roblé a guaranteed minimum compensation of $36,000 for twelve months (the
“GMC”) as follows: (i) $9,000 upon the Company’s receipt and approval of all recipes submitted by Roblé; (ii)
$9,000 upon the commencement of selling of the Roblé Meals (“Selling Date”); (iii) $3,000 per month for a period of
six months, commencing the month immediately following the Selling Date. The total aggregate compensation paid to Roblé shall be
reduced by the GMC. During the ten months ended October 31, 2021, the first condition has been satisfied by both parties and the Company
paid $9,000 the GMC. As of October 31, 2021, there were no accrued GMC.
Claudia Cocina LLC
On June 22, 2021, the Company and Claudia Cocina
LLC (f/s/o Claudia Sandoval), a California limited liability company (“Claudia Cocina”) (collectively as “Parties”)
entered into a Joint Product Development and Distribution Agreement (the “Development Agreement”). Pursuant to the Development
Agreement, the Parties shall collaboratively develop a brand of meals, marketed and sold utilizing the Property (“CS Meals”)
jointly with the Home Bistro label, under the terms and conditions of the Development Agreement. The Development Agreement is effective
upon signature and shall remain in effect from the first date on which the CS Meals are commercially launched (the “Launch Date”)
until the last day of the month that is one year from the Launch Date (the “Initial Term”). The Parties shall have the right
to renew the Development Agreement for an additional one-year term (“Renewal Term”) (the Initial Term and the Renewal Term,
individually and together, (the “Term”)) upon mutual written consent, which consent must be provided no later than sixty days
prior to the end of the current Term. The Renewal Term shall be on the same terms and conditions as provided herein for the Initial Term,
except that the Guaranteed Minimum Sales and the Guaranteed Minimum Royalties (“GMR”) payable during the Renewal Term shall
be mutually agreed to between the Parties. The Company issued 150,000 shares of common stock with grant date fair value of $150,000 based
on the market price of common stock on grant date, that was deemed to be fully earned, non-assessable and irrevocable upon the execution
of the Development Agreement (see Note 12) and subject to a Lock-Up Leak-Out Agreement. The Company recorded the $150,000 as deferred
compensation in the accompanying consolidated balance sheet to be amortized over the term of the Development Agreement. During the ten
months ended October 31, 2021, the Company expensed $28,125 of the deferred compensation as product development expense in the accompanying
consolidated statement of operations. As of October 31, 2021, there was $121,875 of deferred compensation related to this Development
Agreement.
Claudia Cocina shall receive 10% royalties on
all Net Revenues (“Royalty”) generated from the sale of: (i) CS Meals; and (ii) Home Bistro and Prime Chop brand orders in
which a CS dedicated code was used at the time of purchase, in accordance with the Royalty Schedule set forth in the Development Agreement.
For the purpose of this Development Agreement “Net Revenue” shall be defined as gross sales of products less actual returns
and refunds, which returns and refunds shall not exceed eight percent (8%) of such gross sales. In addition, the GMR for the Term shall
be at least $36,000 per year in the aggregate, payable monthly at the rate of $3,000 per month or 10% of gross sales, whichever is higher
for the month. The Company agrees that Royalty payments may only be credited to the year to which such payments apply (i.e., Royalty payments
paid to Claudia Cocina during the first twelve months of the Agreement can only offset the GMR of the first twelve months, and not the
subsequent 12-month period GMR). Payments made during any year during the Term, which are in excess of the GMR payments for the applicable
year may not be credited towards another year. All GMR payments hereunder are non-refundable and are due upon the first CS Meals being
launched which did not occur by October 31, 2021. As October 31, 2021, there were no payments accrued or paid under the Development Agreement.
HOME BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2021 AND DECEMBER 31, 2020
Chef Richard Blais
On July 22, 2021 (“Effective Date”),
the Company and Trail Blais, LLC (f/s/o Chef Richard Blais), celebrity chef and reality TV personality (“Chef Richard Blais”)
(collectively as “Parties”), entered into a Joint Product Development and Distribution Agreement (the “Development Agreement”).
Pursuant to the Development Agreement, the Parties shall collaboratively develop a brand of meals, marketed and sold utilizing the Property
(“Blais Meals”) jointly with the Home Bistro label, under the terms and conditions of the Development Agreement. The Development
Agreement shall remain in effect from the Effective Date until the last day of the month that is one-year from the Effective Date (“Term”),
ending no later than July 30, 2022. The first twelve-month anniversary of the Development Agreement shall be deemed “Year One”.
The Company shall only distribute the Blais Meals within the Term and any Renewal Term (defined below), as mutually agreed. The Company
agrees that following the Term, The Company shall use best efforts to cease the distribution of all Blais Meals. The Parties shall have
the right to renew the Development Agreement for an additional one-year term (“Renewal Term”) upon mutual written consent.
The Renewal Term shall be negotiated in good faith within ninety days of the end of the Term. The Company issued 150,000 shares of common
stock with grant date fair value of $172,500 based on the market price of common stock on grant date, that was deemed to be fully earned,
non-assessable and irrevocable upon the execution of the Development Agreement (see Note 12) and subject to a Lock-Up Leak-Out Agreement.
The Company recorded the $172,500 as deferred compensation in the accompanying consolidated balance sheet to be amortized over the term
of the Development Agreement. During the ten months ended October 31, 2021, the Company expensed $25,156 of the deferred compensation
as product development expense in the accompanying consolidated statement of operations. As of October 31, 2021, there was $147,344 of
deferred compensation related to this Development Agreement.
For the use of Chef Richard Blais and all associated
intellectual property for the benefit of the Blais Meals, the Company shall pay to Blais the following: (i) 10% of all net revenue generated
from the sale of Blais Meals (the “Blais Royalty”). For the purpose of this agreement “Net Revenue” shall be defined
as gross sales generated on Blais Meals less discounts and returns. The Blais Royalty generated during each calendar month in which an
agreement is in effect shall be due and payable by the 10th business day of the following month in which the Blais Royalty
was earned; (ii) 10% of all Net Revenue generated from the sale of Home Bistro and Prime Chop brand orders in which a Blais Dedicated
Code was used at the time of purchase (“Blais Commission”). The Blais Commission generated during each calendar month in which
an agreement is in effect shall be due and payable by the 10th business day of the following month in which the Blais Commission
was earned and; (iii) Guaranteed Minimum Royalty. Subject to the terms and conditions of the Development Agreement, the Company shall
pay to Chef Richard Blais a guaranteed minimum compensation of $75,000 for each twelve-month period the Development Agreement is in effect
(“GMC”) payable monthly at the rate of $6,250 per month, beginning on the earlier of the launch of Blais Meals or ninety days
after the execution of this Development Agreement. During the ten months ended October 31, 2021, there were no payments made under the
Development Agreement and the royalty expenses was not significant.
Perfect Athlete LLC
On September 15, 2021 (“Effective Date”),
the Company and Perfecting Athletes, LLC (“PA” or “Perfecting Athletes”) (collectively as “Parties”),
entered into a Joint Product Development and Distribution Agreement (the “Development Agreement”). Pursuant to the Development
Agreement, the Parties shall collaboratively develop a brand of meals, marketed and sold utilizing the Property (“PA Meals”)
jointly with the Home Bistro label, under the terms and conditions of the Development Agreement. The Development Agreement shall remain
in effect from the Effective Date until the last day of the month that is two-years from the Effective Date (“Term”). The
first twelve-month anniversary of the Development Agreement shall be deemed “Year One”. The Company shall only distribute
the PA Meals within the Term and any Renewal Term (defined below), as mutually agreed. The Company agrees that following the Term, The
Company shall use best efforts to cease the distribution of all PA Meals. The Parties shall have the right to renew the Development Agreement
for an additional one-year term (“Renewal Term”) upon mutual written consent. The Company issued 150,000 shares of common
stock with grant date fair value of $172,500 based on the market price of common stock on grant date, that was deemed to be fully earned,
non-assessable and irrevocable upon the execution of the Development Agreement (see Note 12) and subject to a Lock-Up Leak-Out Agreement.
The Company recorded the $255,000 as deferred compensation in the accompanying consolidated balance sheet to be amortized over the term
of the Development Agreement. During the ten months ended October 31, 2021, the Company expensed $15,938 of the deferred compensation
as product development expense in the accompanying consolidated statement of operations. As of October 31, 2021, there was $239,063 of
deferred compensation related to this Development Agreement.
For the use of Perfecting Athletes and all associated
intellectual property for the benefit of the PA Meals, the Company shall pay to Perfecting Athletes the following: (i) 10% of all net
revenue generated from the sale of PA Meals (the “PA Royalty”). For the purpose of this agreement “Net Revenue”
shall be defined as gross sales generated on PA Meals less discounts and returns. The PA Royalty generated during each calendar month
in which an agreement is in effect shall be due and payable by the 10th business day of the following month in which the PA
Royalty was earned and; (ii) 10% of all Net Revenue generated from the sale of Home Bistro and Prime Chop brand orders in which a PA Dedicated
Code was used at the time of purchase (“PA Commission”). The PA Commission generated during each calendar month in which an
agreement is in effect shall be due and payable by the 10th business day of the following month in which the PA Commission
was earned. During the ten months ended October 31, 2021, there were no payments made under the Development Agreement.
HOME BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2021 AND DECEMBER 31, 2020
Consulting Agreements
On April 1, 2021, the Company and Redstone Communications,
LLC (“Redstone”) (collectively as “Parties”) entered into an agreement to provide strategic consulting services
(“Agreement”). The Agreement shall remain in effect for twelve months from the effective date of April 1, 2021 until March
31, 2022. Pursuant to the Agreement, Redstone shall be paid, in cash, a monthly fee of $10,000 over the twelve months service period and
received 2,000,000 shares of common stock with grant date fair value of $1,800,000 as compensation, which was recorded as deferred compensation
in the accompanying consolidated balance sheet and amortized over the twelve months service period (see Note 12). During the ten months
ended October 31, 2021, the Company amortized $1,050,000 of the deferred compensation and was recorded as professional and consulting
expense in the accompanying consolidated statement of operations. As of October 31, 2021, the deferred compensation related to this Agreement
was $750,000 which will be expensed over a period of five months.
On September 10, 2021, the Company and Bench International,
LLC (“Bench International”) (collectively as “Parties”) entered into an agreement to marketing consulting services
(“Agreement”). The Agreement shall remain in effect for twelve months from the effective date of September 10, 2021. Pursuant
to the Agreement, Bench International shall be paid, in cash, and aggregate amount of $350,000 to be paid in seven monthly installments
of $50,000 beginning September 2021 until March 2022. During the ten months ended October 31, 2021, the Company paid an aggregate amount
of $100,000. During the ten months ended October 31, 2021, the Company recognized $58,333 of expense related to this Agreement and recorded
as selling and marketing expenses in the accompanying consolidated statement of operations. As of October 31, 2021, the prepaid expense
related to this Agreement was $41,667.
On October 1, 2021, the Company and a consultant
(collectively as “Parties”) entered into a consulting agreement which shall remain in effect until April 1, 2022, unless sooner
terminated as provided in the agreement, or unless extended by agreement of the Parties. Pursuant to the agreement, the Company issued
warrants to purchase 500,000 of common stock (“Warrant”) with a grant date fair value of $678,253 for services rendered (see
Note 12) and was recorded as professional and consulting expenses in the accompanying consolidated statement of operations. The Warrant
vested upon issuance, has an exercise price of $0.001 and expiration date of October 1, 2026. In addition, the consultant shall receive
$3,000 per month, payable in cash on the first of each month commencing on the effective date.
Consulting Agreement – Related Party
On October 1, 2021, the Company and Michael Novielli
through Dutchess Capital Partners, LLC (“Dutchess Capital”) (collectively as “Parties”) entered into a consulting
agreement which shall remain in effect until April 1, 2022 unless sooner terminated as provided in the agreement, or unless extended by
agreement of the Parties. Michael Novielli currently serves as a member of the Board of Directors and is considered a related party (see
Note 11). Pursuant to the agreement, Dutchess Capital received warrants to purchase 1,000,000 of common stock (“Warrant”)
with a grant date fair value of $1,356,507 (see Note 12), for services rendered and was recorded as professional and consulting expenses
– related party in the accompanying consolidated statement of operations. The Warrant vested upon issuance, had exercise price of
$0.001 and expiration date of October 1, 2026 In addition, Dutchess Capital shall receive $10,000 per month, payable in cash on the first
of each month commencing on the effective date.
Lock-Up and Leak Out Agreements
During the ten-months ended October 31, 2021,
the Company and various stockholder (collectively as “Parties”) entered into a Lock-Up and Leak Out Agreement (“Lock-Up
Agreements”). Pursuant to the Lock-Up Agreements, stockholders, including the stockholders’ affiliated entities, agrees that
for the period beginning on the respective effective dates of their Lock-Up Agreements and ending in the period between October 2021 to
June 2023 (the “Lock-Up Period”), the stockholders will not offer, sell, contract to sell, pledge, give, donate, transfer
or otherwise dispose of, directly or indirectly, any shares of Company’s common stock or securities convertible into or exercisable
for common stock or securities or rights convertible into or exchangeable or exercisable for any common stock, whether owned by the stockholders
as the date hereof or acquired subsequent to the date hereof (collectively, the “Lock-Up Shares”), enter into a transaction
which would have the same effect, or enter into any swap, hedge or other arrangement that transfers, in whole or in part, any of the economic
or voting consequences of ownership of such securities, whether any such aforementioned transaction is to be settled by delivery of the
Lock-Up Shares or such other securities, in cash or otherwise, or publicly disclose the intention to make any such offer, sale, pledge
or disposition, or to enter into any such transaction, swap, hedge or other arrangement. During the ten-months ended October 31, 2021,
in connection with the Lock-Up Agreements, the Company issued an aggregate of 112,500 shares of common stock with grant date fair value
of $152,626 which was recorded as deferred compensation and amortized over the Lock-Up Period (see Note 12). During the ten months ended
October 31, 2021, the Company amortized $36,688 of the deferred compensation and was recorded as interest expense in the accompanying
consolidated statement of operations. As of October 31, 2021, the deferred compensation related to this Agreement was $115,938 which will
be amortized over the remaining Lock-Up Period of three months.
HOME BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2021 AND DECEMBER 31, 2020
NOTE 15 – TRANSITION PERIOD COMPARATIVE
DATA
The following table presents certain unaudited
consolidated financial information for the ten months ended October 31, 2020, for comparability with the transition period.
| |
For the Ten Months Ended | | |
For the Ten Months Ended | |
| |
October 31, 2021 | | |
October 31, 2020 | |
| |
| | |
(Unaudited) | |
| |
| | |
| |
Product sales, net | |
$ | 1,644,208 | | |
$ | 1,083,212 | |
| |
| | | |
| | |
Cost of sales | |
| 1,447,901 | | |
| 678,574 | |
| |
| | | |
| | |
Gross profit | |
| 196,307 | | |
| 404,638 | |
| |
| | | |
| | |
Operating Expenses: | |
| | | |
| | |
Compensation and related expenses, includes $2,871,721 of stock-based compensation in 2021 | |
| 3,338,022 | | |
| 506,184 | |
Professional and consulting expenses, includes $1,862,709 of stock-based compensation in 2021 | |
| 2,979,610 | | |
| 403,652 | |
Professional and consulting expenses - related party, includes $1,356,507 of stock-based compensation in 2021 | |
| 1,366,507 | | |
| - | |
Product development expense, includes $3,036,286 and $360,000 of stock-based expense in 2021 and 2020, respectively | |
| 3,036,286 | | |
| 360,000 | |
Selling and marketing expenses | |
| 835,723 | | |
| 161,859 | |
General and administrative expenses | |
| 527,818 | | |
| 153,720 | |
| |
| | | |
| | |
Total Operating Expenses | |
| 12,083,966 | | |
| 1,585,415 | |
| |
| | | |
| | |
Operating Loss from Continuing Operations | |
| (11,887,659 | ) | |
| (1,180,777 | ) |
| |
| | | |
| | |
Other Expense: | |
| | | |
| | |
Interest expense, net | |
| (1,245,873 | ) | |
| (8,783 | ) |
Change in fair value of derivative liabilities | |
| 289,874 | | |
| - | |
Gain on extinguishment of debt | |
| 26,629 | | |
| - | |
Gain on forgiveness of debt | |
| 14,754 | | |
| - | |
Other income | |
| - | | |
| 5,000 | |
| |
| | | |
| | |
Total Other Expense, net | |
| (914,616 | ) | |
| (3,783 | ) |
| |
| | | |
| | |
Loss from Continuing Operations | |
| (12,802,275 | ) | |
| (1,184,560 | ) |
| |
| | | |
| | |
Provision for Income Taxes | |
| - | | |
| - | |
| |
| | | |
| | |
Loss from Continuing Operations | |
| (12,802,275 | ) | |
| (1,184,560 | ) |
| |
| | | |
| | |
Discontinued Operations: | |
| | | |
| | |
Income from Disposal of Discontinued Operations Before Provision for Income Taxes | |
| - | | |
| 38,203 | |
| |
| | | |
| | |
Income from Discontinued Operations | |
| - | | |
| 38,203 | |
| |
| | | |
| | |
Net Loss | |
$ | (12,802,275 | ) | |
$ | (1,146,357 | ) |
| |
| | | |
| | |
BASIC AND DILUTED LOSS PER COMMON SHARE: | |
| | | |
| | |
Continuing operations - basic and diluted | |
$ | (0.56 | ) | |
$ | (0.07 | ) |
Discontinued operations - basic | |
$ | 0.00 | | |
$ | 0.00 | |
Discontinued operations - diluted | |
$ | 0.00 | | |
$ | 0.00 | |
| |
| | | |
| | |
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: | |
| | | |
| | |
Basic | |
| 23,062,353 | | |
| 17,059,912 | |
Diluted | |
| 23,062,353 | | |
| 17,059,912 | |
HOME BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2021 AND DECEMBER 31, 2020
| |
For the Ten Months Ended | | |
For the Ten Months Ended | |
| |
October 31, 2021 | | |
October 31, 2020 | |
| |
| | |
(Unaudited) | |
CASH FLOWS FROM OPERATING ACTIVITIES: | |
| | |
| |
Loss from continuing operations | |
$ | (12,802,275 | ) | |
$ | (1,146,357 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: | |
| | | |
| | |
Depreciation on property and equipment and finance ROU assets | |
| 113,531 | | |
| 176 | |
Amortization on intangible assets | |
| 8,837 | | |
| - | |
Common stock and warrant issued for stock-based compensation | |
| 2,871,721 | | |
| 213,841 | |
Common stock and warrants issued for services – related party | |
| 1,356,507 | | |
| - | |
Common stock and warrant issued for services | |
| 1,862,709 | | |
| 598,268 | |
Common stock and warrant issued for product development | |
| 69,219 | | |
| - | |
Common stock issued pursuant to lock-up agreements | |
| 36,688 | | |
| - | |
Common stock issued pursuant an asset acquisition transaction (see Note 4) | |
| 2,969,334 | | |
| - | |
Gain on extinguishment of debt and accounts payable | |
| (26,629 | ) | |
| - | |
Gain on forgiveness of debt | |
| (14,754 | ) | |
| - | |
Amortization of debt discount | |
| 1,012,554 | | |
| - | |
Change in fair value of derivative liabilities | |
| (289,874 | ) | |
| - | |
Change in operating assets and liabilities: | |
| | | |
| | |
Inventory | |
| 4,743 | | |
| - | |
Prepaid expenses and other current assets | |
| (47,053 | ) | |
| (14,319 | ) |
Accounts payable | |
| 129,389 | | |
| 4,725 | |
Accrued expense and other liabilities | |
| (55,664 | ) | |
| 111,867 | |
Unredeemed gift cards | |
| 29,341 | | |
| 5,462 | |
| |
| | | |
| | |
Net cash used in operating activities | |
| (2,771,676 | ) | |
| (226,337 | ) |
| |
| | | |
| | |
CASH FLOWS FROM INVESTING ACTIVITIES: | |
| | | |
| | |
Proceeds (payments) from acquisition of a subsidiaries | |
| (60,000 | ) | |
| 4,917 | |
Purchases of property and equipment | |
| (167,824 | ) | |
| (3,168 | ) |
| |
| | | |
| | |
Net cash (used by) provided by investing activities | |
| (227,824 | ) | |
| 1,749 | |
| |
| | | |
| | |
CASH FLOWS FROM FINANCING ACTIVITIES: | |
| | | |
| | |
Proceeds from sale of common stock, net of issuance cost | |
| 4,368,796 | | |
| 100,006 | |
Proceeds from notes payable | |
| - | | |
| 164,612 | |
Proceeds from convertible note payable, net of debt discount | |
| 1,581,450 | | |
| - | |
Proceeds from convertible note payable - related party, net of debt discount | |
| 100,000 | | |
| - | |
Proceeds from advances payable | |
| 332,900 | | |
| 59,000 | |
Repayment of convertible notes payable | |
| (1,195,920 | ) | |
| - | |
Repayment of note payable - in default | |
| - | | |
| (3,738 | ) |
Repayments of advance payable | |
| (312,752 | ) | |
| (45,347 | ) |
Repayment of convertible notes payable - related party | |
| (46,931 | ) | |
| - | |
| |
| | | |
| | |
Net cash provided by financing activities | |
| 4,827,543 | | |
| 274,533 | |
| |
| | | |
| | |
Net Change in Cash | |
| 1,828,043 | | |
| 49,945 | |
| |
| | | |
| | |
Cash - beginning of period | |
| 447,354 | | |
| 7,137 | |
| |
| | | |
| | |
Cash - end of period | |
$ | 2,275,397 | | |
$ | 57,082 | |
HOME BISTRO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2021 AND DECEMBER 31, 2020
NOTE 16 - SUBSEQUENT EVENTS
Issuance of Common Stock
On November 8, 2021, the Company issued to a consultant
600,000 shares of common stock with grant date fair value of $725,940 based on the market price of common stock on grant date, as consideration,
pursuant to a consulting agreement for business development related services to be rendered for a six-month period. These common stocks
are subject to a Lock-Up and Leak Out Agreement.
Subsequent to October 31, 2021, the Company issued
an aggregate of 1,187,428 common stock in exchange for net proceeds of $854,405.
On November 8, 2022, the Company issued to a consultant
warrant for 100,000 shares of common stock with grant date fair value of $120,757 based on the market price of common stock on grant date,
as consideration, pursuant to an agreement.
Lock-Up and Leak Out Agreements
Subsequent to October 31, 2021, the Company and
various stockholder (collectively as “Parties”) entered into a Lock-Up and Leak Out Agreement (“Lock-Up Agreements”).
Pursuant to the Lock-Up Agreements, stockholders, including the stockholders’ affiliated entities, agrees that for the period beginning
on the respective effective dates of their Lock-Up Agreements and ending in the period between November 2021 to May 2022 (the “Lock-Up
Period”), the stockholders will not offer, sell, contract to sell, pledge, give, donate, transfer or otherwise dispose of, directly
or indirectly, any shares of Company’s common stock or securities convertible into or exercisable for common stock or securities
or rights convertible into or exchangeable or exercisable for any common stock, whether owned by the stockholders as the date hereof or
acquired subsequent to the date hereof (collectively, the “Lock-Up Shares”), enter into a transaction which would have the
same effect, or enter into any swap, hedge or other arrangement that transfers, in whole or in part, any of the economic or voting consequences
of ownership of such securities, whether any such aforementioned transaction is to be settled by delivery of the Lock-Up Shares or such
other securities, in cash or otherwise, or publicly disclose the intention to make any such offer, sale, pledge or disposition, or to
enter into any such transaction, swap, hedge or other arrangement. In connection with the Lock-Up Agreements, the Company issued an aggregate
of 186,037 shares of common stock with grant date fair value of $171,776 which shall be recorded as deferred compensation and amortized
over the Lock-Up Period.
Convertible Notes Payments
Subsequent to October 31, 2021, the Company paid
an aggregate of $570,645 of outstanding principal and interest (see Note 5).
HOME BISTRO, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2021 AND DECEMBER 31, 2020
Joint Product Development and Distribution
Agreement
On January 19, 2021 (“Effective Date”),
the Company and Spicy Mago Foodies LLC (f/s/o Chef Priyanka Naik (“CPN”)) (collectively as “Parties”), entered
into a Joint Product Development and Distribution Agreement (the “Development Agreement”). Pursuant to the Development Agreement,
the Parties shall collaboratively develop a brand of meals, marketed and sold utilizing the Property (“CPN Meals”) jointly
with the Home Bistro label, under the terms and conditions of the Development Agreement. The Development Agreement shall remain in effect
from the Effective Date until the last day of the month that is two-year from the Effective Date (“Term”). The first twelve-month
anniversary of the Development Agreement shall be deemed “Year One”. The Company shall only distribute the CPN Meals within
the Term and any Renewal Term (defined below), as mutually agreed. The Company agrees that following the Term, the Company shall use best
efforts to cease the distribution of all CPN Meals. The Parties shall have the right to renew the Development Agreement for an additional
one-year term (“Renewal Term”) upon mutual written consent. The Company issued 100,000 shares of common stock with grant date
fair value of $100,000 based on the market price of common stock on grant date, that was deemed to be fully earned, non-assessable and
irrevocable upon the execution of the Development Agreement. The Company shall record it as deferred compensation to be amortized over
the Term of the Development Agreement.
For the use of Chef Priyanka Naik and all associated
intellectual property for the benefit of the CPN Meals, the Company shall pay to CPN the following: (i) 10% of all net revenue generated
from the sale of CPN Meals (the “CPN Royalty”). For the purpose of this agreement “Net Revenue” shall be defined
as gross sales generated on CPN Meals less discounts and returns. The CPN Royalty generated during each calendar month in which an agreement
is in effect shall be due and payable by the 10th business day of the following month in which the CPN Royalty was earned;
(ii) 10% of all Net Revenue generated from the sale of Home Bistro and Prime Chop brand orders in which a CPN Dedicated Code was used
at the time of purchase (“CPN Commission”). The CPN Commission generated during each calendar month in which an agreement
is in effect shall be due and payable by the 10th business day of the following month in which the CPN Commission was earned.
Lease Agreement
On November 11, 2021, the Company renewed its lease agreement (“Renewed
Lease Agreement”) for their California kitchen facility, effective on January 1, 2022. The Renewed Lease Agreement provides for
(i) a term of six months from the effective date ending on June 30, 2022; (ii) a monthly base rent of $9,960 and; (iii) a monthly storage
fee of $2,340. The Renewed Lease Agreement can be terminated with two months’ notice.F-96
EXHIBITS
Exhibit
Number |
|
Description |
1.1# |
|
Form of Underwriting Agreement. |
3.1 |
|
Certificate of Amendment to Articles of Incorporation (incorporated by reference to Exhibit 3.A.1 to the Company’s Current Report on Form 8-K filed with the SEC on April 28, 2017). |
3.2 |
|
Certificate of Amendment to Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on March 28, 2018). |
3.3 |
|
Certificate of Amendment to Articles of Incorporation (incorporated by reference Exhibit 3.2 to the Company’s Current Report on Form 8-K filed with the SEC on April 22, 2020). |
3.4 |
|
Bylaws of the Company (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K/A filed with the SEC on March 31, 2015). |
3.5 |
|
Certificate of Designation of Series A Preferred Stock (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the SEC on March 28, 2018). |
3.6 |
|
Certificate of Designation of Series B Preferred Stock (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed with the SEC on March 28, 2018). |
3.7 |
|
Certificate of Designation of Series C Preferred Stock (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on August 21, 2018). |
3.8 |
|
Amendment to Certificate of Designation of Series C Preferred Stock (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on October 24, 2018). |
5.1# |
|
Opinion of Baker McKenzie
LLP as Counsel. |
10.1 |
|
Securities Purchase Agreement, dated as of May 18, 2022, by and between Home Bistro, Inc. and Mast Hill Fund, L.P. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on May 25, 2022). |
10.2 |
|
15% Convertible Note, dated May 18, 2022, issued to Mast Hill Fund, L.P. (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on May 25, 2022). |
10.3 |
|
Warrant to Purchase Shares of Common Stock, dated May 18, 2022, issued to Mast Hill Fund, L.P. (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on May 25, 2022). |
10.4 |
|
Securities Purchase Agreement, dated as of May 24, 2022, by and between Home Bistro, Inc. and GS Capital Partners, LLC. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on June 1, 2022). |
10.5 |
|
15% Convertible Note, dated May 24, 2022, issued to GS Capital Partners, LLC. (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on June 1, 2022). |
10.6 |
|
Warrant to Purchase Shares of Common Stock, dated May 18, 2022, issued to GS Capital Partners, LLC . (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on June 1, 2022). |
10.7 |
|
Securities Purchase Agreement, dated as of May 24, 2022, by and between Home Bistro, Inc. and Jefferson Street Capital LLC (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the SEC on June 1, 2022). |
10.8 |
|
15% Convertible Note, dated May 24, 2022, issued to Jefferson Street Capital LLC. (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed with the SEC on June 1, 2022). |
10.9 |
|
Warrant to Purchase Shares of Common Stock, dated May 24, 2022, issued to Jefferson Street Capital LLC. (incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K filed with the SEC on June 1, 2022). |
10.10 |
|
Securities Purchase Agreement, dated as of July 19, 2022, by and between Home Bistro, Inc. and 1800 Diagonal Lending LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on July 22, 2022). |
10.11 |
|
Convertible Promissory Note, dated July 19, 2022, issued to 1800 Diagonal Lending LLC (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on July 22, 2022). |
10.12 |
|
Securities Purchase Agreement, dated as of August 24, 2022, by and between Home Bistro, Inc. and 1800 Diagonal Lending LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on August 29, 2022). |
10.13 |
|
Convertible Promissory Note, dated August 24, 2022, issued to 1800 Diagonal Lending LLC (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on August 29, 2022). |
10.14 |
|
Securities Purchase Agreement, dated as of September 9, 2022, by and between Home Bistro, Inc. and Greentree Financial Group, Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on September 15, 2022). |
10.15 |
|
15% Convertible Note, dated September 9, 2022, issued to Greentree Financial Group, Inc. (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on September 15, 2022). |
10.16 |
|
Warrant to Purchase Shares of Common Stock, dated September 9, 2022, issued to Greentree Financial Group, Inc. (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on September 15, 2022). |
10.17 |
|
Form of Warrant (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on April 22, 2020). |
10.18 |
|
Form of Lock-Up and Leak-Out Agreement (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on April 22, 2020). |
10.19 |
|
Put Option Agreement, dated April 20, 2020, between the Company and the stockholder named therein (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the SEC on April 22, 2020). |
10.20 |
|
Warrant to Purchase Shares of Common Stock, dated January 27, 2021, issued to Vista Capital Investments, LLC. (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on February 8, 2021) |
10.21**# |
|
Employment Agreement by
and between Home Bistro, Inc. and Zalmi Duchman dated October 1, 2021. |
10.22**# |
|
Employment Agreement by
and between Home Bistro, Inc. and Camille May dated March 25, 2022. |
21.1# |
|
Subsidiaries of the Registrant. |
23.1# |
|
Consent of D. Brooks and
Associates CPAs, P.A., Independent Registered Public Accounting Firm. |
23.2# |
|
Consent of Baker McKenzie
LLP (included in Exhibit 5.1). |
24.1 |
|
Power of Attorney (included on signature page to this registration statement). |
31.1+ |
|
Section 302 Certification by the Registrant’s Principal Executive Officer and Principal Financial Officer |
32.1+ |
|
Section 906 Certification by the Registrant’s Principal Executive Officer and Principal Financial Officer |
101.INS*** |
|
Inline XBRL Instance Document. |
101.SCH*** |
|
Inline XBRL Taxonomy Extension Schema Document. |
101.CAL*** |
|
Inline XBRL Taxonomy Extension Calculation Linkbase
Document. |
101.DEF*** |
|
Inline XBRL Taxonomy Extension Definition Linkbase
Document. |
101.LAB*** |
|
Inline XBRL Taxonomy Extension Label Linkbase Document. |
101.PRE*** |
|
Inline XBRL Taxonomy Extension Presentation Linkbase
Document. |
104*** |
|
Cover Page Interactive Data File (formatted as Inline
XBRL and contained in Exhibit 101). |
| + | Documents
filed herewith. |
| # | To
be filed by amendment |
| ** | The
referenced exhibit is a management contract or compensation plan or arrangement described in Item 601(b)(10)(iii) of Regulation S-K. |
| *** | In
accordance with Regulation S-T, the XBRL-related information in Exhibit 101 shall be deemed to be “furnished” not “filed”. |
| (b) | Financial
Statement Schedules |
N/A