UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 31,April 30, 2022,
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 000-56222
HOME BISTRO, INC.
(Exact Name of Registrant as Specified in Its Charter)
| Nevada | 27-1517938 | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
4014 Chase Avenue, #212 Miami Beach, FL 33140 |
(631) 964-1111 | |
| (Address of Principal Executive Offices and Zip Code) | (Registrant’s telephone number, including area code) |
(Former name, former address and formal fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act: None.
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically, if any, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| Non-accelerated filer | ☒ | Smaller reporting company | ☒ |
| Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of outstanding shares of Home Bistro, Inc.’s common stock as of March 15,June 8, 2022 was 38,090,520.41,462,441.
HOME BISTRO, INC. AND SUBSIDIARIES
FORM 10-Q
JANUARY 31,APRIL 30, 2022
TABLE OF CONTENTS
i
CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION
This Quarterly Report on Form 10-Q (this “Report”) contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements discuss matters that are not historical facts. Because they discuss future events or conditions, forward-looking statements may include words such as “anticipate,” “believe,” “estimate,” “intend,” “could,” “should,” “would,” “may,” “seek,” “plan,” “might,” “will,” “expect,” “predict,” “project,” “forecast,” “potential,” “continue” negatives thereof or similar expressions. Forward-looking statements speak only as of the date they are made, are based on various underlying assumptions and current expectations about the future and are not guarantees. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, level of activity, performance, or achievement to be materially different from the results of operations or plans expressed or implied by such forward-looking statements.
These factors include, among others:
| ● | current or future financial performance; |
| ● | management’s plans and objectives for future operations; |
| ● | uncertainties associated with product research and development |
| ● | uncertainties associated with dependence upon the actions of government regulatory agencies; |
| ● | product plans and performance; |
| ● | management’s assessment of market factors; and |
| ● | statements regarding our strategy and plans. |
Actual results could differ materially from the results described in the forward-looking statements due to the risks and uncertainties set forth in this Report and those described from time to time in our future reports filed with the Securities and Exchange Commission (the “SEC”).
We cannot predict all of the risks and uncertainties. Accordingly, such information should not be regarded as representations that the results or conditions described in such statements or that our objectives and plans will be achieved, and we do not assume any responsibility for the accuracy or completeness of any of these forward-looking statements. These forward-looking statements are found at various places throughout this Report and include information concerning possible or assumed future results of our operations, including statements about business strategies; future cash flows; financing plans; plans and objectives of management; any other statements regarding future acquisitions, future cash needs, future operations, business plans and future financial results, and any other statements that are not historical facts. These forward-looking statements represent our intentions, plans, expectations, assumptions, and beliefs about future events and are subject to risks, uncertainties and other factors. Many of those factors are outside of our control and could cause actual results to differ materially from the results expressed or implied by those forward-looking statements. In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have described. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Report. All subsequent written and oral forward-looking statements concerning other matters addressed in this Report and attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this Report.
Except to the extent required by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, a change in events, conditions, circumstances, or assumptions underlying such statements, or otherwise.
ii
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HOME BISTRO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| April 30, 2022 | October 31, 2021 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash | $ | 361,636 | $ | 2,275,397 | ||||
| Inventory | 30,270 | 16,020 | ||||||
| Prepaid expenses and other current assets | 360,121 | 80,641 | ||||||
| Total Current Assets | 752,027 | 2,372,058 | ||||||
| OTHER ASSETS: | ||||||||
| Property and equipment, net | 115,618 | 130,970 | ||||||
| Finance lease right-of-use assets, net | 147,597 | 181,015 | ||||||
| Operating lease right-of-use assets, net | 203,277 | 268,509 | ||||||
| Intangible assets, net | 2,775,440 | 3,225,361 | ||||||
| Deposits | 10,000 | 10,000 | ||||||
| Goodwill | 1,809,357 | 1,809,357 | ||||||
| Total Assets | $ | 5,813,316 | $ | 7,997,270 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable | $ | 680,234 | $ | 568,302 | ||||
| Accrued expenses and other liabilities | 163,874 | 181,037 | ||||||
| Liabilities to be settled with common stock | - | 209,688 | ||||||
| Convertible notes payable, net of debt discount | 78,325 | 550,638 | ||||||
| Convertible notes payable - related party, net of debt discount | - | 30,172 | ||||||
| Notes payable - current portion | 17,198 | 15,361 | ||||||
| Advances payable | 350,108 | 101,945 | ||||||
| Derivative liabilities | 19,476 | 86,884 | ||||||
| Unredeemed gift cards | 235,728 | 164,912 | ||||||
| Financing lease liability - current portion | 65,281 | 62,210 | ||||||
| Operating lease liabilities - current portion | 83,378 | 101,431 | ||||||
| Common stock repurchase obligation | 505,203 | 618,275 | ||||||
| Total Current Liabilities | 2,198,805 | 2,690,855 | ||||||
| LONG-TERM LIABILITIES: | ||||||||
| Financing lease liability - long-term portion | 91,296 | 124,649 | ||||||
| Operating lease liability- long-term portion | 123,586 | 166,923 | ||||||
| Notes payable - long-term portion | 289,702 | 291,539 | ||||||
| Total Liabilities | 2,703,389 | 3,273,966 | ||||||
| Commitments and contingency (Note 12): | ||||||||
| STOCKHOLDERS’ EQUITY: | ||||||||
| Preferred Stock: $0.001 par value; 20,000,000 shares authorized; | ||||||||
| Common stock: $0.001 par value; 1,000,000,000 shares authorized; 38,303,062 and 35,152,623 shares issued and outstanding as of April 30, 2022 and October 31, 2021, respectively | 38,303 | 35,152 | ||||||
| Additional paid-in capital | 28,493,773 | 25,198,035 | ||||||
| Deferred compensation | (336,666 | ) | (1,374,219 | ) | ||||
| Accumulated deficit | (25,085,483 | ) | (19,135,664 | ) | ||||
| Total Stockholders’ Equity | 3,109,927 | 4,723,304 | ||||||
| Total Liabilities and Stockholders’ Equity | $ | 5,813,316 | $ | 7,997,270 | ||||
| January 31, 2022 | October 31, 2021 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash | $ | 1,253,844 | $ | 2,275,397 | ||||
| Inventory | 23,822 | 16,020 | ||||||
| Prepaid expenses and other current assets | 381,725 | 80,641 | ||||||
| Total Current Assets | 1,659,391 | 2,372,058 | ||||||
| OTHER ASSETS: | ||||||||
| Property and equipment, net | 117,858 | 130,970 | ||||||
| Finance lease right-of-use assets, net | 164,306 | 181,015 | ||||||
| Operating lease right-of-use assets, net | 223,205 | 268,509 | ||||||
| Intangible assets, net | 3,000,400 | 3,225,361 | ||||||
| Deposits | 10,000 | 10,000 | ||||||
| Goodwill | 1,809,357 | 1,809,357 | ||||||
| Total Assets | $ | 6,984,517 | $ | 7,997,270 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable | $ | 632,729 | $ | 568,302 | ||||
| Accrued expenses and other liabilities | 143,195 | 181,037 | ||||||
| Liabilities to be settled with common stock | 115,938 | 209,688 | ||||||
| Convertible notes payable, net of debt discount | 307,729 | 550,638 | ||||||
| Convertible notes payable - related party, net of debt discount | 12,364 | 30,172 | ||||||
| Notes payable - current portion | 16,409 | 15,361 | ||||||
| Advances payable | 51,147 | 101,945 | ||||||
| Derivative liabilities | 27,706 | 86,884 | ||||||
| Unredeemed gift cards | 216,902 | 164,912 | ||||||
| Financing lease liability - current portion | 63,675 | 62,210 | ||||||
| Operating lease liabilities - current portion | 80,138 | 101,431 | ||||||
| Common stock repurchase obligation | 524,777 | 618,275 | ||||||
| Total Current Liabilities | 2,192,709 | 2,690,855 | ||||||
| LONG-TERM LIABILITIES: | ||||||||
| Financing lease liability - long-term portion | 108,231 | 124,649 | ||||||
| Operating lease liability- long-term portion | 145,524 | 166,923 | ||||||
| Notes payable - long-term portion | 290,491 | 291,539 | ||||||
| Total Liabilities | 2,736,955 | 3,273,966 | ||||||
| Commitments and contingency (Note 12): | ||||||||
| STOCKHOLDERS’ EQUITY: | ||||||||
| 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 January 31, 2022 and October 31, 2021 | - | - | ||||||
| Common stock: $0.001 par value; 1,000,000,000 shares authorized; 37,563,563 and 35,152,623 shares issued and outstanding as of January 31, 2022 and October 31, 2021, respectively | 37,563 | 35,152 | ||||||
| Additional paid-in capital | 27,480,563 | 25,198,035 | ||||||
| Deferred compensation | (1,238,564 | ) | (1,374,219 | ) | ||||
| Accumulated deficit | (22,032,000 | ) | (19,135,664 | ) | ||||
| Total Stockholders’ Equity | 4,247,562 | 4,723,304 | ||||||
| Total Liabilities and Stockholders’ Equity | $ | 6,984,517 | $ | 7,997,270 | ||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
HOME BISTRO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| For the Three Months Ended | For the Three Months Ended | For the Six Months Ended | ||||||||||||||||||||||
| January 31, | April 30, | April 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Product sales, net | $ | 801,799 | $ | 399,027 | $ | 743,263 | $ | 328,024 | $ | 1,545,062 | $ | 727,051 | ||||||||||||
| Cost of sales | 615,994 | 288,629 | 746,603 | 291,693 | 1,362,597 | 580,322 | ||||||||||||||||||
| Gross profit | 185,805 | 110,398 | (3,340 | ) | 36,331 | 182,465 | 146,729 | |||||||||||||||||
| Operating Expenses: | ||||||||||||||||||||||||
| Compensation and related expenses | 287,579 | 68,037 | ||||||||||||||||||||||
| Professional and consulting expenses, includes $1,189,314 and $0 of stock-based compensation in 2022 and 2021, respectively | 1,652,054 | 68,847 | ||||||||||||||||||||||
| Compensation and related expenses, includes $374,560 and $24,750 of stock-based compensation for the six months ended April 30, 2022 and 2021, respectively | 704,098 | 97,785 | 991,677 | 165,822 | ||||||||||||||||||||
| Professional and consulting expenses, includes $2,243,591 and $150,000 of stock-based compensation for the six months ended April 30, 2022 and 2021, respectively | 1,415,748 | 453,876 | 3,067,802 | 522,723 | ||||||||||||||||||||
| Professional and consulting expenses - related party | 30,000 | - | 30,000 | - | 60,000 | - | ||||||||||||||||||
| Product development expense, includes $146,614 and $0 of stock-based compensation in 2022 and 2021, respectively | 146,614 | - | ||||||||||||||||||||||
| Product development expense, includes $271,614 and $0 of stock-based compensation for the six months ended April 30, 2022 and 2021, respectively | 125,000 | - | 271,614 | - | ||||||||||||||||||||
| Selling and marketing expenses | 364,584 | 75,940 | 223,485 | 135,308 | 588,069 | 211,248 | ||||||||||||||||||
| General and administrative expenses | 448,401 | 61,129 | 386,643 | 92,615 | 835,044 | 153,744 | ||||||||||||||||||
| Total Operating Expenses | 2,929,232 | 273,953 | 2,884,974 | 779,584 | 5,814,206 | 1,053,537 | ||||||||||||||||||
| Loss from Operations | (2,743,427 | ) | (163,555 | ) | (2,888,314 | ) | (743,253 | ) | (5,631,741 | ) | (906,808 | ) | ||||||||||||
| Other Income (Expense): | ||||||||||||||||||||||||
| Interest expense, net | (212,087 | ) | (18,771 | ) | (173,399 | ) | (452,571 | ) | (385,486 | ) | (471,342 | ) | ||||||||||||
| Change in fair value of derivative liabilities | 59,178 | 32,315 | 8,230 | 150,006 | 67,408 | 182,321 | ||||||||||||||||||
| Gain on extinguishment of debt | - | 26,629 | - | 26,629 | ||||||||||||||||||||
| Gain on extinguishment of accounts payable | - | 7,075 | - | - | - | 7,075 | ||||||||||||||||||
| Total Other Income (Expense), net | (152,909 | ) | 20,619 | |||||||||||||||||||||
| Total Other Expense, net | (165,169 | ) | (275,936 | ) | (318,078 | ) | (255,317 | ) | ||||||||||||||||
| Net Loss | $ | (2,896,336 | ) | $ | (142,936 | ) | $ | (3,053,483 | ) | $ | (1,019,189 | ) | $ | (5,949,819 | ) | $ | (1,162,125 | ) | ||||||
| BASIC AND DILUTED LOSS PER COMMON SHARE: | ||||||||||||||||||||||||
| Continuing operations - basic and diluted | $ | (0.08 | ) | $ | (0.01 | ) | ||||||||||||||||||
| Basic and diluted | $ | (0.08 | ) | $ | (0.05 | ) | $ | (0.16 | ) | $ | (0.06 | ) | ||||||||||||
| WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: | ||||||||||||||||||||||||
| Basic and diluted | 36,873,228 | 19,026,157 | 38,083,009 | 20,045,288 | 37,468,510 | 19,513,758 | ||||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
HOME BISTRO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
FOR THE THREE AND SIX MONTHS ENDED JANUARY 31,APRIL 30, 2022 AND 2021
(UNAUDITED)
| Preferred Stock | Common Stock | Additional | Total | Preferred Stock | Common Stock | Additional | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Number of | Number of | Paid-in | Deferred | Accumulated | Stockholders’ | Number of | Number of | Paid-in | Deferred | Accumulated | Stockholders’ | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Compensation | Deficit | Equity | Shares | Amount | Shares | Amount | Capital | Compensation | Deficit | Equity | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at October 31, 2021 | - | $ | - | 35,152,623 | $ | 35,152 | $ | 25,198,035 | $ | (1,374,219 | ) | $ | (19,135,664 | ) | $ | 4,723,304 | - | $ | - | 35,152,623 | $ | 35,152 | $ | 25,198,035 | $ | (1,374,219 | ) | $ | (19,135,664 | ) | $ | 4,723,304 | ||||||||||||||||||||||||||||||||
| Common stock issued for cash | - | - | 1,378,399 | 1,378 | 989,790 | - | - | 991,168 | - | - | 1,378,399 | 1,378 | 989,790 | - | - | 991,168 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for services and prepaid services | - | - | 660,000 | 660 | 785,940 | 87,000 | - | 873,600 | - | - | 660,000 | 660 | 785,940 | 87,000 | - | 873,600 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock warrant issued for services | - | - | - | - | 36,777 | - | - | 36,777 | - | - | - | - | 36,777 | - | - | 36,777 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Reduction of the repurchase obligation pursuant to the Put Option Agreement | - | - | - | - | 93,498 | - | - | 93,498 | - | - | - | - | 93,498 | - | - | 93,498 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for product development agreements | - | - | 100,000 | 100 | 99,900 | 46,614 | - | 146,614 | - | - | 100,000 | 100 | 99,900 | 46,614 | - | 146,614 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued pursuant to lock-up agreements | - | - | 272,541 | 273 | 276,623 | 2,041 | - | 278,937 | - | - | 272,541 | 273 | 276,623 | 2,041 | - | 278,937 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | (2,896,336 | ) | (2,896,336 | ) | - | - | - | - | - | - | (2,896,336 | ) | (2,896,336 | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Balance at January 31, 2022 | - | $ | - | 37,563,563 | $ | 37,563 | $ | 27,480,563 | $ | (1,238,564 | ) | $ | (22,032,000 | ) | $ | 4,247,562 | - | - | 37,563,563 | 37,563 | 27,480,563 | (1,238,564 | ) | (22,032,000 | ) | 4,247,562 | ||||||||||||||||||||||||||||||||||||||
| Common stock warrant issued for stock based compensation | - | - | - | - | 374,560 | - | - | 374,560 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for cash | - | - | 449,303 | 450 | 312,110 | - | - | 312,560 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for services and prepaid services | - | - | - | - | - | 663,000 | - | 663,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for commitment fee | - | - | 45,989 | 45 | 29,834 | - | - | 29,879 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Reduction of the repurchase obligation pursuant to the Put Option Agreement | - | - | - | - | 19,574 | - | - | 19,574 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for product development agreements | - | - | - | - | - | 125,000 | - | 125,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued pursuant to lock-up agreements | - | - | 244,207 | 245 | 277,132 | 113,898 | - | 391,275 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | (3,053,483 | ) | (3,053,483 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at April 30, 2022 | - | $ | - | 38,303,062 | $ | 38,303 | $ | 28,493,773 | $ | (336,666 | ) | $ | (25,085,483 | ) | $ | 3,109,927 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Additional | Total | |||||||||||||||||||||||||||||
| Number of | Number of | Paid-in | Deferred | Accumulated | Stockholders’ | |||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Compensation | Deficit | Equity | |||||||||||||||||||||||||
| Balance at October 31, 2020 | - | $ | - | 19,004,232 | $ | 19,004 | $ | 4,349,657 | $ | - | $ | (6,238,085 | ) | $ | (1,869,424 | ) | ||||||||||||||||
| Common stock issued as commitment fee | - | - | 148,920 | 149 | 61,584 | - | - | 61,733 | ||||||||||||||||||||||||
| Common stock warrant issued for services | - | - | - | - | 11,471 | - | - | 11,471 | ||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | (142,936 | ) | (142,936 | ) | ||||||||||||||||||||||
| Balance at January 31, 2021 | - | $ | - | 19,153,152 | $ | 19,153 | $ | 4,422,712 | $ | - | $ | (6,381,021 | ) | $ | (1,939,156 | ) | ||||||||||||||||
| Preferred Stock | Common Stock | Additional | Total | |||||||||||||||||||||||||||||
| Number of | Number of | Paid-in | Deferred | Accumulated | Stockholders’ | |||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Compensation | Deficit | Deficit | |||||||||||||||||||||||||
| Balance at October 31, 2020 | - | $ | - | 19,004,232 | $ | 19,004 | $ | 4,349,657 | $ | - | $ | (6,238,085 | ) | $ | (1,869,424 | ) | ||||||||||||||||
| Common stock issued as commitment fee | - | - | 148,920 | 149 | 61,584 | - | - | 61,733 | ||||||||||||||||||||||||
| Common stock warrants issued for services | - | - | - | - | 11,471 | - | - | 11,471 | ||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | (142,936 | ) | (142,936 | ) | ||||||||||||||||||||||
| Balance at January 31, 2021 | - | - | 19,153,152 | 19,153 | 4,422,712 | - | (6,381,021 | ) | (1,939,156 | ) | ||||||||||||||||||||||
| Common stock issued for services and prepaid services | - | - | 2,000,000 | 2,000 | 1,798,000 | (1,650,000 | ) | - | 150,000 | |||||||||||||||||||||||
| Common stock warrant issued for stock based compensation | 25,000 | 25 | 24,725 | - | - | 24,750 | ||||||||||||||||||||||||||
| Common stock and common stock warrants issued as commitment fee | - | - | 450,000 | 450 | 299,826 | - | - | 300,276 | ||||||||||||||||||||||||
| Reduction of the repurchase obligation pursuant to the Put Option Agreement | - | - | - | - | 145,636 | - | - | 145,636 | ||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | (1,019,189 | ) | (1,019,189 | ) | ||||||||||||||||||||||
| Balance at April 30, 2021 | - | $ | - | 21,628,152 | $ | 21,628 | $ | 6,690,899 | $ | (1,650,000 | ) | $ | (7,400,210 | ) | $ | (2,337,683 | ) | |||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
HOME BISTRO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| For the Six Months Ended | ||||||||
| April 30, | ||||||||
| 2022 | 2021 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | (5,949,819 | ) | $ | (1,162,125 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | 125,752 | 528 | ||||||
| Amortization on intangible assets | 449,921 | - | ||||||
| Common stock and warrants issued for stock-based compensation | 374,560 | 24,750 | ||||||
| Common stock and warrants issued for services | - | 11,471 | ||||||
| Common stock and warrants issued for services and prepaid services | 1,603,256 | 150,000 | ||||||
| Common stock and warrants issued for product development | 271,614 | - | ||||||
| Common stock issued pursuant to lock-up agreements | 670,212 | - | ||||||
| Gain on extinguishment of accounts payable | - | (7,075 | ) | |||||
| Gain on extinguishment of debt | - | (26,629 | ) | |||||
| Amortization of debt discount on convertible notes payable and advances payable | 284,183 | 432,014 | ||||||
| Change in fair value of derivative liabilities | (67,408 | ) | (182,321 | ) | ||||
| Change in operating assets and liabilities: | ||||||||
| Inventory | (14,250 | ) | - | |||||
| Prepaid expenses and other current assets | (279,480 | ) | (40,404 | ) | ||||
| Accounts payable | 111,932 | 115,176 | ||||||
| Accrued expense and other liabilities | (108,835 | ) | (102,043 | ) | ||||
| Unredeemed gift cards | 70,816 | 18,531 | ||||||
| Net cash used in operating activities | (2,457,546 | ) | (768,127 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchases of property and equipment | (11,750 | ) | (113,755 | ) | ||||
| Net cash used by investing activities | (11,750 | ) | (113,755 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from sale of common stock, net of issuance costs | 1,303,728 | - | ||||||
| Proceeds from note payable | - | 7,000 | ||||||
| Proceeds from convertible notes payable, net of debt discount | - | 1,285,600 | ||||||
| Proceeds from convertible note payable - related party, net of debt discount | - | 100,000 | ||||||
| Proceeds from advances payable | 322,502 | 177,200 | ||||||
| Repayment of convertible notes payable | (894,937 | ) | (295,979 | ) | ||||
| Repayments of advance payable | (112,689 | ) | (100,773 | ) | ||||
| Repayment of convertible notes payable - related party | (63,069 | ) | - | |||||
| Net cash provided by financing activities | 555,535 | 1,173,048 | ||||||
| Net Change in Cash | (1,913,761 | ) | 291,166 | |||||
| Cash - beginning of period | 2,275,397 | 57,082 | ||||||
| Cash - end of period | $ | 361,636 | $ | 348,248 | ||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | 61,780 | $ | 16,491 | ||||
| Income taxes | $ | - | $ | - | ||||
| Non-cash investing and financing activities: | ||||||||
| Initial amount of ROU asset and related liability | $ | 540,041 | $ | - | ||||
| Reduction of the repurchase obligation pursuant to the Put Option Agreement | $ | 113,072 | $ | 145,636 | ||||
| Common stock and common stock warrants issued as commitment fee in connection with convertible notes payable, recorded as debt discount | $ | - | $ | 300,276 | ||||
| Liabilities to be settled with common stock in connection with convertible notes payable | $ | - | $ | 253,921 | ||||
| Initial derivative liability recorded in connection with convertible notes payable | $ | - | $ | 355,411 | ||||
| For the Three Months Ended | ||||||||
| January 31, | ||||||||
| 2022 | 2021 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Loss from continuing operations | $ | (2,896,336 | ) | $ | (142,936 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | 75,125 | 264 | ||||||
| Amortization on intangible assets | 224,961 | - | ||||||
| Common stock and warrant issued for services and prepaid services | 910,377 | 11,471 | ||||||
| Common stock and warrant issued for product development | 146,614 | - | ||||||
| Common stock issued pursuant to lock-up agreements | 278,937 | - | ||||||
| Gain on extinguishment of accounts payable | - | (7,075 | ) | |||||
| Amortization of debt discount | 174,929 | 7,983 | ||||||
| Change in fair value of derivative liabilities | (59,178 | ) | (32,315 | ) | ||||
| Change in operating assets and liabilities: | ||||||||
| Inventory | (7,802 | ) | - | |||||
| Prepaid expenses and other current assets | (301,084 | ) | (4,014 | ) | ||||
| Accounts payable | 64,427 | 39,937 | ||||||
| Accrued expense and other liabilities | (95,487 | ) | (39,123 | ) | ||||
| Unredeemed gift cards | 51,990 | 25,696 | ||||||
| Net cash used in operating activities | (1,432,527 | ) | (140,112 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from sale of common stock, net of issuance cost | 991,168 | - | ||||||
| Proceeds from notes payable | - | 7,000 | ||||||
| Proceeds from convertible note payable, net of debt discount | - | 489,100 | ||||||
| Proceeds from advances payable | - | 80,000 | ||||||
| Repayment of convertible notes payable | (491,850 | ) | - | |||||
| Repayments of advance payable | (50,798 | ) | (42,280 | ) | ||||
| Repayment of convertible notes payable - related party | (37,546 | ) | - | |||||
| Net cash provided by financing activities | 410,974 | 533,820 | ||||||
| Net Change in Cash | (1,021,553 | ) | 393,708 | |||||
| Cash - beginning of period | 2,275,397 | 57,082 | ||||||
| Cash - end of period | $ | 1,253,844 | $ | 450,790 | ||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | 41,349 | $ | 2,840 | ||||
| Income taxes | $ | - | $ | - | ||||
| Non-cash investing and financing activities: | ||||||||
| Initial amount of ROU asset and related liability | $ | 540,041 | $ | - | ||||
| Reduction of the repurchase obligation pursuant to the Put Option Agreement | $ | 93,498 | $ | - | ||||
| Common stock issued as commitment fee in connection with convertible notes payable, recorded as debt discount | $ | - | $ | 61,733 | ||||
| Liabilities to be settled with common stock in connection with convertible notes payable | $ | 115,938 | $ | 13,223 | ||||
| Initial derivative liability recorded in connection with convertible notes payable | $ | - | $ | 222,244 | ||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2021APRIL 30, 2022
NOTE 1 – ORGANIZATION AND NATURE OF OPERATIONS
Home Bistro, Inc. (formerly known as Gratitude Health, Inc.) (the “Company”) was incorporated in the State of Nevada on December 17, 2009. Effective March 23, 2018, the Company changed its name from Vapir Enterprises Inc. to Gratitude Health, Inc. On September 14, 2020, the Company changed its name from Gratitude Health, Inc. to Home Bistro, Inc. The Company is in the business of providing prepackaged and prepared meals to consumers focused on offering a broad array of the highest quality meal delivery, and preparation services. The 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.
The ongoing COVID-19 global and national health emergency has caused significant disruption in the international and United States economies and financial markets. In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. The spread of COVID-19 has caused illness, quarantines, cancellation of events and travel, business and school shutdowns, reduction in business activity and financial transactions, labor shortages, supply chain interruptions and overall economic and financial market instability. The COVID-19 pandemic has the potential to significantly impact the Company’s supply chain, food manufacturers, distribution centers, or logistics and other service providers. Additionally, the Company’s service providers and their operations may be disrupted, temporarily closed or experience worker or meat or other food shortages, which could result in additional disruptions or delays in shipments of Home Bistro’s products. To date, the Company has been able to avoid layoffs and furloughs of employees. The Company is not able to estimate the duration of the pandemic and potential impact on the business if disruptions or delays in shipments of product occur. To date, the Company is not aware of any such disruptions. In addition, a severe prolonged economic downturn could result in a variety of risks to the business, including weakened demand for product and a decreased ability to raise additional capital when needed on acceptable terms, if at all. As the situation continues to evolve, the Company will continue to closely monitor market conditions and respond accordingly. The Company has applied for and received certain financial assistance under the Coronavirus, Aid, Relief, and Economic Security Act (“CARES Act”) enacted in March 2020 by the U.S. Government in response to COVID-19 (see Note 6).
On July 6, 2021, the Company entered and closed on an Agreement and Plan of Merger with the members of Model Meals, LLC (“Model Meals”), acquiring Model Meals through a reverse triangular merger, whereby Model Meals merged with Model Meals Acquisition Corp., a wholly owned subsidiary of the Company, with Model Meals being the surviving entity (the “Acquisition”). As a result, Model Meals became a wholly owned subsidiary of the Company, and the members of Model Meals received and aggregate of 2,008,310 shares of common stock 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). and were paid $60,000 in cash.
In January 2022, the Company’s board of directors and management changed the Company’s fiscal year end from December 31st to October 31st, effective immediately (see Note 2).
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying interim unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the United States Securities and Exchange Commission (“SEC”) for interim financial information, which present the unaudited consolidated financial statements of the Company and its active wholly owned subsidiaries, Home Bistro Holdings, Inc. and Model Meals LLC (acquired on July 6, 2021) for the period ending January 31,April 30, 2022. All intercompany transactions and balances have been eliminated. It is management’s opinion that all material adjustments (consisting of normal recurring adjustments) have been made, which are necessary for a fair financial statement presentation. Significant intercompany accounts and transactions have been eliminated in consolidation. The results for the interim period are not necessarily indicative of the results to be expected for the fiscal year ending October 31, 2022.
Certain information and disclosures normally included in the notes to the annual consolidated financial statements have been condensed or omitted from these interim consolidated financial statements. Accordingly, these interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Transition Report, due to our change in fiscal year end, on Form 10-KT filed with the SEC on January 31, 2022.
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2021APRIL 30, 2022
Going Concern
The financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in the accompanying unaudited consolidated financial statements, for the threesix months ended January 31,April 30, 2022, the Company had a net loss and cash used in operations of $2,896,336$5,949,819 and $1,432,527,$2,457,546, respectively. At January 31,April 30, 2022, the Company had an accumulated deficit, stockholders’ equity, and working capital deficit of $22,032,000, $4,247,562$(25,085,483), $3,109,927 and $533,318,$(1,446,778), respectively. These factors raise substantial doubt about the Company’s ability to continue as a going concern for a period of twelve months from the issuance date of this report. The Company’s primary source of operating funds has primarily from the sale of common stock and the issuance of convertible debt notes. The Company has experienced net losses from operations since inception but expects these conditions to improve in the near term and beyond as it develops its business model.
Management cannot provide assurance that the Company will ultimately achieve profitable operations or become cash flow positive or raise additional debt and/or equity capital. Management believes that the Company’s capital resources are not currently adequate to continue operating and maintaining its business strategy for a period of twelve months from the issuance date of this report. If the Company is unable to raise additional capital or secure additional lending in the near future, management expects that the Company will need to curtail or cease operations. These consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Use of Estimates
The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Significant estimates as of January 31,April 30, 2022 and October 31, 2021 include the assumptions used in the redemption recognition method for unredeemed gift cards, useful life of property and equipment and intangible assets, valuation of right-of-use (“ROU”) assets and lease liabilities, estimates of current and deferred income taxes and deferred tax valuation allowances, fair value of assets acquired and liabilities assumed in a business combination, and the fair value of non-cash equity transactions and derivative liabilities.
Cash
For purposes of the statements of cash flows, the Company considers all highly liquid instruments with a maturity of three months or less at the purchase date and money market accounts to be cash equivalents. At January 31,April 30, 2022 and October 31, 2021, the Company did not have any cash equivalents.
The Company maintains its cash in bank and financial institution deposits that at times may exceed federally insured limits. As of January 31,April 30, 2022 and October 31, 2021, the bank balance was in excess of FDIC insured levels by approximately $1,004,000$112,000 and $2,025,000, respectively. The Company has not experienced any losses in such accounts through January 31,April 30, 2022.
Fair Value of Financial Instruments and Fair Value Measurements
FASB ASC 820 - Fair Value Measurements and Disclosures, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FASB ASC 820 requires disclosures about the fair value of all financial instruments, whether or not recognized, for financial statement purposes. Disclosures about the fair value of financial instruments are based on pertinent information available to the Company on January 31,April 30, 2022. Accordingly, the estimates presented in these financial statements are not necessarily indicative of the amounts that could be realized on disposition of the financial instruments. FASB ASC 820 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement).
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2021
The three levels of the fair value hierarchy are as follows:
| Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date. | |
| Level 2—Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data. | |
| Level 3—Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information. |
The carrying amounts reported in the consolidated balance sheets for cash, due from and to related parties, prepaid expenses, accounts payable and accrued liabilities approximate their fair market value based on the short-term maturity of these instruments.
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2022
Assets or liabilities measured at fair value oron a recurring basis includedinclude embedded conversion options in convertible debt (see Note 4) and were as follows at JanuaryApril 30, 2022 and October 31, 2022:2021:
| January 31, 2022 | October 31, 2021 | April 30, 2022 | October 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||||
| Description | Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||||||||||||||||
| Derivative liabilities | $ | — | $ | — | $ | 27,706 | $ | — | $ | — | $ | 86,884 | $ | — | $ | — | $ | 19,476 | $ | — | $ | — | $ | 86,884 | ||||||||||||||||||||||||
A roll forward of the level 3 valuation financial instruments is as follows:
| Three Months Ended January 31, 2022 | Six Months Ended April 30, 2022 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Balance at October 31, 2021 | $ | 86,884 | $ | 86,884 | ||||
| Change in fair value of derivative liabilities | (59,178 | ) | (67,408 | ) | ||||
| Balance at January 31, 2022 | $ | 27,706 | ||||||
| Balance at April 30, 2022 | $ | 19,476 | ||||||
ASC 825-10 “Financial Instruments” allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable unless a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that instrument should be reported in earnings at each subsequent reporting date. The Company did not elect to apply the fair value option to any outstanding equity instruments.
Derivative Liabilities
The Company has certain financial instruments that are embedded derivatives associated with capital raises. The Company evaluates all its financial instruments to determine if those contracts or any potential embedded components of those contracts qualify as derivatives to be separately accounted for in accordance with ASC 815-10 – Derivative and Hedging – Contract in Entity’s Own Equity. This accounting treatment requires that the carrying amount of any derivatives be recorded at fair value at issuance and marked-to-market at each balance sheet date. In the event that the fair value is recorded as a liability, as is the case with the Company, the change in the fair value during the period is recorded as either other income or expense. Upon conversion, exercise or repayment, the respective derivative liability is marked to fair value at the conversion, repayment, or exercise date and then the related fair value amount is reclassified to other income or expense as part of gain or loss on debt extinguishment.
Goodwill and Indefinite Lived Intangible Assets
Goodwill represents the excess of purchase prices over the fair value of nets assets acquired, is carried at cost. Goodwill is not amortized; rather, it is subject to a periodic assessment for impairment by applying a fair value-based test. Goodwill is evaluated for impairment on an annual basis at a level of reporting referred to as the reporting unit, and more frequently if adverse events or changes in circumstances indicate that the asset may be impaired.
Goodwill and indefinite lived intangible assets are tested for impairment at the reporting unit level by first performing a qualitative assessment to determine whether it is more likely than not (that is, a likelihood of more than 50%) that the fair value of the reporting unit is less than its carrying amount. The qualitative assessment considers macroeconomic conditions, industry and market considerations, cost factors and overall company financial performance. If the reporting unit does not pass the qualitative assessment, the carrying amount of the reporting unit, including goodwill, is compared to its fair value. When the carrying amount of the reporting unit exceeds its fair value, a goodwill impairment loss is recognized up to a maximum amount of the recorded goodwill related to the reporting unit. Goodwill impairment losses are not reversed. There was no impairment loss of goodwill or indefinite lived intangible assets for the threesix months ended January 31,April 30, 2022.
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 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.
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2022
Inventory
Inventory consists of non-perishable food items distributed by the Company and are stated at the lower of cost and net realizable value utilizing the first-in first-out (FIFO) method. A reserve is established when management determines that certain inventories may not be saleable. If inventory costs exceed expected net realizable value due to obsolescence or quantities in excess of expected demand, the Company will record reserves for the difference between the cost and the net realizable value. These reserves are based on estimates and included in cost of sales. As of January 31,April 30, 2022 and October 31, 2021, the inventory balances were insignificant and the Company determined that there was no allowance needed.
Revenue Recognition
The Company’s revenues consist of high quality, direct-to-consumer, ready-made meals that can be ordered by customers through www.homebistro.com, www.modelmeals.com and restaurant quality meats and seafood through its Colorado Prime Brand. Revenues from the Company’s ready-made meals are recognized when the product is delivered to the customer and title has transferred. It is at this point in time that the Company’s performance obligations have been completed. Product sales are recorded net of any discounts or allowances and include shipping charges.
Customers can purchase gift cards via phone or online through the Company’s e-commerce website. Gift card purchases are initially recorded as unredeemed gift card liabilities and are recognized as product sales upon redemption. Historically, the majority of gift cards are redeemed within two to three years of issuance. The Company does not charge administrative fees on unused gift cards, and its gift cards do not have an expiration date.
Based on historical redemption patterns, a portion of issued gift cards are not expected to be redeemed (breakage). The Company uses the redemption recognition method for recognizing breakage related to unredeemed gift cards for which it has sufficient historical redemption information. Under the redemption recognition method, breakage revenue is recorded in proportion to, and over the time period gift cards are actually redeemed. The estimated breakage rate is based on historical issuance and redemption patterns and is re-assessed by the Company on a regular basis. At least three years of historical data, which is updated annually, is used to estimate redemption patterns. Model meals, the Company’s wholly-owned subsidiary, does not have sufficient historical redemption information to recognize breakage. Therefore, all issued gift cards are recorded as a liability upon issuance and revenue when used.
Cost of Sales
The Company’s policy is to recognize product related cost of sales in conjunction with revenue recognition, when the product costs are incurred which is upon delivery of product. Cost of sales includes the food and processing costs directly attributable to fulfillment and the delivery of the product to customers including both inbound and outbound shipping costs. In addition, the royalty fee related to the Joint Product Development and Distribution Agreement (see Note 11) was also included in cost of sales.
Shipping and handling costs incurred for product shipped to customers are included in cost of sales and amounted to $182,472$390,208 and $83,302$151,979 for the threesix months ended January 31,April 30, 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
JANUARY 31, 2021
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 $364,584$588,069 and $75,940,$211,248, for the threesix months ended January 31,April 30, 2022 and 2021, respectively, which are presented on the accompanying unaudited consolidated statement of operations as selling and marketing expenses.
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2022
Income Taxes
The Company accounts for income taxes using the liability method prescribed by ASC 740 - Income Taxes. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the year in which the differences are expected to reverse. The Company records a valuation allowance to offset deferred tax assets if based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized as income or loss in the period that includes the enactment date.
The Company follows the accounting guidance for uncertainty in income taxes using the provisions of ASC 740. Using that guidance, tax positions initially need to be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. For the threesix months ended January 31,April 30, 2022, the Company had no uncertain tax positions that qualify for either recognition or disclosure in the financial statements.
Leases
The Company accounts for its leases using the method prescribed by ASC 842 – Lease Accounting. The Company assess whether the contract is, or contains, a lease at the inception of a contract which is based on (i) whether the contract involves the use of a distinct identified asset, (ii) whether the Company obtain the right to substantially all the economic benefit from the use of the asset throughout the period, and (iii) whether the Company has the right to direct the use of the asset. The Company allocates the consideration in the contract to each lease component based on its relative stand-alone price to determine the lease payments. The Company has elected not to recognize right-of-use (“ROU”) assets and lease liabilities for short-term leases that have a term of 12 months or less.
Operating and financing lease ROU assets represents the right to use the leased asset for the lease term. Operating and financing lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at the adoption date in determining the present value of future payments. Lease expense for minimum lease payments is amortized on a straight-line basis over the lease term and is included in general and administrative expenses in the consolidated statements of operations.
Basic and Diluted Loss Per Share
Pursuant to ASC 260-10-45, basic loss per common share is computed by dividing net loss by the weighted average number of shares of common stock outstanding for the periods presented. Diluted loss per share is computed by dividing net loss by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during the period. Potentially dilutive common shares consist of common stock issuable for stock options and stock warrants (using the treasury stock method), convertible notes and common stock issuable. These common stock equivalents may be dilutive in the future.
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2021
The potentially dilutive common stock equivalents as of January 31,April 30, 2022 and 2021 were excluded from the dilutive loss per share calculation as they would be antidilutive due to the net loss. The following were the computation of diluted shares outstanding and in periods where the Company has a net loss, all dilutive securities are excluded.
| January 31, | April 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Common Stock Equivalents: | ||||||||||||||||
| Stock Warrants | 17,892,446 | 11,278,211 | 16,345,066 | 11,866,896 | ||||||||||||
| Convertible Notes | 573,164 | 282,017 | 159,562 | 2,211,779 | ||||||||||||
| Total | 18,465,610 | 11,560,228 | 16,504,628 | 14,078,675 | ||||||||||||
Concentration Risk
The Company purchased approximately 100% of its food products from one vendor during the threesix months ended January 31,April 30, 2021. The Company is not obligated to purchase from these vendors and, if necessary, there are other vendors from which the Company can purchase food products. As of January 31,April 30, 2021, the Company had no accounts payable balance of $10,554 to this vendor.
During the threesix months ended January 31,April 30, 2022, the Company had two kitchen facilities located at Pembroke Pines, FL 33009 and Santa Ana, CA. The Company started producing and packaging its food products at these locations in addition to purchasing food products from other vendors which mitigated this concentration risk.
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2022
Recent Accounting Pronouncements
In August 2020, the FASB issued ASU 2020-06—Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and edging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”) to simplify the accounting for convertible instruments by removing certain separation models in Subtopic 470- 20, Debt with Conversion and Other Options, for convertible instruments. Under the amendments in ASU 2020-06, the embedded conversion features no longer are separated from the host contract for convertible instruments with conversion features that are not required to be accounted for as derivatives under Topic 815, Derivatives and Hedging, or that do not result in substantial premiums accounted for as paid-in capital. Consequently, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost and a convertible preferred stock will be accounted for as a single equity instrument measured at its historical cost, as long as no other features require bifurcation and recognition as derivatives. By removing those separation models, the interest rate of convertible debt instruments typically will be closer to the coupon interest rate when applying the guidance in Topic 835, Interest. The amendments in ASU 2020-06 provide financial statement users with a simpler and more consistent starting point to perform analyses across entities. The amendments also improve the operability of the guidance and reduce, to a large extent, the complexities in the accounting for convertible instruments and the difficulties with the interpretation and application of the relevant guidance. To further improve the decision usefulness and relevance of the information being provided to users of financial statements, amendments in ASU 2020-06 increased information transparency by making the following amendments to the disclosure for convertible instruments:
| 1. | Add a disclosure objective |
| 2. | Add information about events or conditions that occur during the reporting period that cause conversion contingencies to be met or conversion terms to be significantly changed |
| 3. | Add information on which party controls the conversion rights |
| 4. | Align disclosure requirements for contingently convertible instruments with disclosure requirements for other convertible instruments |
| 5. | Require that existing fair value disclosures in Topic 825, Financial Instruments, be provided at the individual convertible instrument level rather than in the aggregate. |
Additionally, for convertible debt instruments with substantial premiums accounted for as paid-in capital, amendments in ASU 2020-06 added disclosures about (1) the fair value amount and the level of fair value hierarchy of the entire instrument for public business entities and (2) the premium amount recorded as paid-in capital.
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2021
The amendments in ASU 2020-06 are effective for public business entities, excluding entities eligible to be smaller reporting companies as defined by the SEC, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Entities should adopt the guidance as of the beginning of its annual fiscal year and are allowed to adopt the guidance through either a modified retrospective method of transition or a fully retrospective method of transition. In applying the modified retrospective method, entities should apply the guidance to transactions outstanding as of the beginning of the fiscal year in which the amendments are adopted. Transactions that were settled (or expired) during prior reporting periods are unaffected. The cumulative effect of the change should be recognized as an adjustment to the opening balance of retained earnings at the date of adoption. If an entity elects the fully retrospective method of transition, the cumulative effect of the change should be recognized as an adjustment to the opening balance of retained earnings in the first comparative period presented. The Company early adopted ASU 2020-06 during the three months ended January 31, 2022 and did not have a significant impact on its consolidated financial statements.
In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40). The new ASU addresses issuer’s accounting for certain modifications or exchanges of freestanding equity-classified written call options. This amendment is effective for all entities, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted. The Company does not believe the adoption of this ASU will have a significant impact on its consolidated financial statements.
Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on its consolidated financial statements.
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2022
NOTE 3 – ACQUISITION OF A SUBSIDIARY
Acquisition of Model Meals
Model Meals, LLC (the “Model Meals”) was formed on May 1, 2015. Model Meals provides prepackaged and prepared meals as a solution for time-constrained but discerning consumers focused on satisfying every member of the family by offering a broad array of the highest quality meal planning, delivery, and preparation services. Products are customized meal solutions, delivered fresh directly to the home and utilizes third-party food delivery services to fulfill customers’ orders.
On July 6, 2021, the Company entered and closed on an Agreement and Plan of Merger with the members of Model Meals, acquiring Model Meals through a reverse triangular merger, whereby Model Meals merged with Model Meals Acquisition Corp., a wholly owned subsidiary of the Company, with Model Meals being the surviving entity (the “Acquisition”). As a result, Model Meals became a wholly owned subsidiary of the Company, and the members of Model Meals received andan 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). 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, 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) 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
JANUARY 31, 2021
In connection with the Acquisition, the assets acquired and liabilities assumed were recorded at fair value on the acquisition date. The fair values are subject to adjustment during measurement period with subsequent changes recognized in earnings or loss. These estimates are inherently uncertain and are subject to refinement. Management develops estimates based on assumptions as a part of the purchase price allocation process to value the assets acquired and liabilities assumed as of the business acquisition date. As a result, during the purchase price measurement period, which may be up to one year from the business acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. After the purchase price measurement period, the Company will record any adjustments to assets acquired or liabilities assumed in operating expenses in the period in which the adjustments may have been determined. Based upon the purchase price allocation, the following table summarizes the preliminary fair value of the assets acquired and liabilities assumed at the date of the acquisition:
| Total | ||||
| Assets acquired: | ||||
| Current assets | $ | 97,140 | ||
| Computer software | 66,198 | |||
| Customer relationships | 43,000 | |||
| Trademark | 505,000 | |||
| Goodwill | 1,809,357 | |||
| Total assets acquired at fair value | 2,520,695 | |||
| Less: total liabilities assumed | (432,302 | ) | ||
| Net asset acquired | $ | 2,088,393 | ||
| Purchase consideration paid: | ||||
| Fair value of common shares issued | $ | 2,028,393 | ||
| Cash consideration | 60,000 | |||
| Total purchase consideration paid | $ | 2,088,393 | ||
Goodwill recognized as a result of the acquisition is not deductible for tax purposes. See Note 4 for additional information about other intangible assets. The recognized goodwill related to Model Meals is directly attributable to synergies expected to arise after the acquisition.
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2022
The following unaudited pro forma consolidated results of operations for the threesix months ended January 31,April 30, 2021 have been prepared as if the acquisition of Model Meals had occurred as of the beginning of the period:
| Six Months Ended | ||||||||
| Three Months Ended | April 30, 2021 | |||||||
| January 31, 2021 | (Unaudited) | |||||||
| Net Revenues | $ | 867,660 | $ | 2,031,170 | ||||
| Net Loss | $ | (275,249 | ) | $ | (1,353,366 | ) | ||
| Net Loss per Share | $ | (0.02 | ) | $ | (0.07 | ) | ||
Pro forma data does not purport to be indicative of the results that would have been obtained had these events actually occurred at the beginning of the periods presented and is not intended to be a projection of future results.
NOTE 4 – GOODWILL AND INTANGIBLE ASSETS
On July 6, 2021, the Company acquired Model Meals’ net assets with total fair value of $279,036, which includes computer software, customer relationships and trademarks, for a total consideration of $2,088,393 (see Note 3). The excess consideration over the fair value of the net assets acquired of $1,809,357 was recorded as goodwill.
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2021
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 of Homemade Meals 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. TheFurther, 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 andwhich 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 | January 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 | January 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 | (233,798 | ) | (8,837 | ) | ||||||
| Intangible assets, net | $ | 3,000,400 | $ | 3,225,361 | ||||||
| Intangible assets with a finite life, net | $ | 2,495,400 | $ | 2,720,361 | ||||||
During the three months ended January 31, 2022, the Company recorded a total of $224,961 of amortization expense related to the intangible assets.
| Estimated Life | April 30, 2022 | October 31, 2021 | ||||||||
| (Unaudited) | ||||||||||
| Goodwill | Indefinite | $ | 1,809,357 | $ | 1,809,357 | |||||
| Less: Impairment | — | — | ||||||||
| Goodwill, net | $ | 1,809,357 | $ | 1,809,357 | ||||||
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2021
APRIL 30, 2022
Intangible Assets
| Estimated Life | April 30, 2022 | October 31, 2021 | ||||||||
| (Unaudited) | ||||||||||
| Computer software | 3.5 years | $ | 66,198 | $ | 66,198 | |||||
| Customer relationships | 7 years | 43,000 | 43,000 | |||||||
| Trademark | Indefinite | 505,000 | 505,000 | |||||||
| License agreement | 3 years | 2,620,000 | 2,620,000 | |||||||
| Total | 3,234,198 | 3,234,198 | ||||||||
| Less: Accumulated amortization | (458,758 | ) | (8,837 | ) | ||||||
| Intangible assets, net | $ | 2,775,440 | $ | 3,225,361 | ||||||
| Intangible assets with a finite life, net | $ | 2,270,440 | $ | 2,720,361 | ||||||
During the three and six months ended April 30, 2022, the Company recorded a total of $224,960 and $449,921, respectively, of amortization expense related to the intangible assets.
Amortization of intangible assets attributable to future periods is as follows:
| Year ending October 31: | Amount | Amount | ||||||
| 2022 | $ | 674,883 | $ | 449,924 | ||||
| 2023 | 899,845 | 899,845 | ||||||
| 2024 | 898,147 | 898,147 | ||||||
| 2025 | 6,143 | 6,143 | ||||||
| 2026 | 6,143 | 6,143 | ||||||
| 2027 | 6,143 | 6,143 | ||||||
| 2028 | 4,096 | 4,096 | ||||||
| Total | $ | 2,495,400 | $ | 2,270,440 | ||||
NOTE 5 – CONVERTIBLE NOTES
At January 31,April 30, 2022 and October 31, 2021, the convertible debt consisted of the following:
| January 31, 2022 | October 31, 2021 | April 30, 2022 | October 31, 2021 | |||||||||||||
| (Unaudited) | (Unaudited) | |||||||||||||||
| Principal amount | $ | 536,329 | $ | 1,028,179 | $ | 133,242 | $ | 1,028,179 | ||||||||
| Less: debt discount | (228,600 | ) | (477,541 | ) | (54,917 | ) | (477,541 | ) | ||||||||
| Convertible notes payable, net | $ | 307,729 | $ | 550,638 | $ | 78,325 | $ | 550,638 | ||||||||
| Principal amount – related party | $ | 25,523 | $ | 63,069 | $ | — | $ | 63,069 | ||||||||
| Less: debt discount – related party | (13,159 | ) | (32,897 | ) | — | (32,897 | ) | |||||||||
| Convertible note payable - related party, net | $ | 12,364 | $ | 30,172 | $ | — | $ | 30,172 | ||||||||
| Total convertible notes payable, net | $ | 320,093 | $ | 580,810 | $ | 78,325 | $ | 580,810 | ||||||||
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2022
January 2021 Financing
January 2021 Note II
On January 27, 2021, the Company entered into a Securities Purchase Agreement (the “January 2021 SPA II”) with an investor for the sale of the Company’s convertible note. Pursuant to the January 2021 SPA II, the Company; (i) issued a convertible note with principal amount of $330,000 (the “January 2021 Note II”) with the Company receiving $300,000 in net proceeds, net of $33,000 of OID recorded as a debt discount to be amortized over the twelve-month term of the note; (ii) issued 150,000 shares of common stock, subject to a true-up based upon the trading price of the common stock and the investor’s ownership limitations (“Commitment Share True-up”) (as discussed below under Commitment Share True-Up Provision) and; (iii) a warrant to purchase up to 150,000 shares of common stock (the “January 2021 Warrant II”, and together with the January 2021 SPA II and the January 2021 Note II, the “January 2021 Agreements II”). The 150,000 shares of common stock and 150,000 warrants issued were valued at $85,981 and $31,821, respectively, using the relative fair value method and the Commitment Share True-up had a fixed monetary value of $93,750, all recorded as a debt discount to be amortized over the twelve-month term of the note. The January 2021 Note II matures on February 1, 2022 and a one-time interest charge of 8% was applied on the issue date and will be payable on the maturity date. Upon an event of default, the outstanding balance will immediately and automatically increase to 140% of the outstanding balance under the January 2021 Note II immediately prior to the occurrence of the Event of Default and becomes immediately due and payable. The Company shall make nine monthly cash payments (“Amortization Payments”) in the amount of $39,600 beginning May 1, 2021. If the first day of any calendar month is not on a business day, then the Company shall make monthly payments on the next business day. The investor may only convert the January 2021 Note II at any time or times on or after the occurrence of an Event of Default. The January 2021 Note II is convertible at the rate equal to 105% of the lowest trading price occurring during the twenty-five consecutive trading days immediately preceding the applicable conversion date (“Conversion Price”). The January 2021 Agreements II contain other provisions, covenants, and restrictions common with this type of debt transaction. The January 2021 SPA II also provides the investor with certain “piggyback” registration rights, permitting them to request that the Company include the issued shares for sale in certain registration statements filed by the Company under the Securities Act of 1934, as amended. During the transitional period ending October 31, 2021, the Company paid $213,570 of principal and $24,030 of accrued interest. During the threesix months ended January 31,April 30, 2022, the Company paid the remaining $116,430 of principal and $2,370 of accrued interest. As of January 31,April 30, 2022, and October 31, 2021, the January 2021 Note II had outstanding principal and accrued interest of $0 and $116,430, respectively.
The January 2021 Warrant II, issued to the investor as commitment fee, provides for the right to purchase up to 150,000 shares of common stock; (i) valued at $31,821 using the relative fair value method and recorded as a debt discount to be amortized over the twelve-month term of the note; (ii) has an exercise price of $2.50; (iii) subject to adjustments and 4.99%, ownership limitation and; (iv) expires on the fifth-year anniversary from the date of issuance.
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2021
March 2021 Financings
March 2021 Note I
On March 22, 2021, the Company entered into a Securities Purchase Agreement (the “March 2021 SPA I”) with an investor for the sale of the Company’s convertible note. Pursuant to the March 2021 SPA I, the Company; (i) issued a convertible note with principal amount of $55,000 (the “March 2021 Note I”) with the Company receiving $50,000 in net proceeds, net of $5,000 of OID recorded as a debt discount to be amortized over the twelve-month term of the note; (ii) issued 25,000 shares of common stock, subject to a true-up based upon the trading price of the common stock and the investor’s ownership limitations (“Commitment Share True-up”) (as discussed below under Commitment Share True-Up Provision) and; (iii) a warrant to purchase up to 25,000 shares of common stock (the “March 2021 Warrant I”, and together with the March 2021 SPA I and the March 2021 Note I, the “March 2021 Agreements I”). The 25,000 shares of common stock and 25,000 warrant issued were valued at $6,949 and $1,346, respectively, using the relative fair value method and the Commitment Share True-up had a fixed monetary value of $5,133, all recorded as a debt discount to be amortized over the twelve-month term of the note. The March 2021 Note I mature on March 1, 2022 and a one-time interest charge of 10% was applied on the issue date and will be payable on the maturity date. Upon an event of default, the outstanding balance will immediately and automatically increase to 140% of the outstanding balance under the March 2021 Note I immediately prior to the occurrence of the Event of Default and becomes immediately due and payable. The Company shall make nine monthly cash payments (“Amortization Payments”), in the amount of $6,455 due on the first day of each month, beginning July 1, 2021. If the first day of any calendar month is not on a business day, then the Company shall make monthly payments on the next business day. The investor may only convert the March 2021 Note I at any time or times on or after the occurrence of an Event of Default. The March 2021 Note I is convertible at the rate equal to 105% of the lowest trading price occurring during the twenty-five consecutive trading days immediately preceding the applicable conversion date (“Conversion Price”). The March 2021 Agreements I contain other provisions, covenants, and restrictions common with this type of debt transaction. The March 2021 SPA I also provides the investor with certain “piggyback” registration rights, permitting them to request that the Company include the issued shares for sale in certain registration statements filed by the Company under the Securities Act of 1934, as amended. During the transitional period ending October 31, 2021, the Company paid $23,467 of the principal and $2,353 of accrued interest. During the threesix months ending January 31,April 30, 2022, the Company paid $18,772the remaining $31,533 of the principal and $593$742 of accrued interest. As of January 31,April 30, 2022 and October 31, 2021, the March 2021 Note I had outstanding principal of $12,761$0 and $31,533, respectively.
The March 2021 Warrant I, issued to the investor as commitment fee, provides for the right to purchase up to 25,000 shares of common stock; (i) valued at $1,346 using the relative fair value method and recorded as a debt discount to be amortized over the twelve-month term of the note; (ii) has an exercise price of $2.50; (iii) subject to adjustments and 4.99%, ownership limitation and; (iv) expire on the fifth-year anniversary from the date of issuance.
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2022
March 2021 Note III – Related Party
On March 30, 2021, the Company entered into a Securities Purchase Agreement (the “March 2021 SPA III”) with an investor, who is also a major stockholder and director and considered to be a related party, for the sale of the Company’s convertible note. Pursuant to the March 2021 SPA III, the Company; (i) issued a convertible note with principal amount of $110,000 (the “March 2021 Note III”) with the Company receiving $100,000 in net proceeds, net of $10,000 of OID recorded as a debt discount to be amortize over the twelve-month term of the note; (ii) issued 50,000 shares of common stock, subject to a true-up based upon the trading price of the common stock and the investor’s ownership limitations (“Commitment Share True-up”) (as discussed below under Commitment Share True-Up Provision) and; (iii) a warrant to purchase up to 50,000 shares of common stock (the “March 2021 Warrant III”, and together with the March 2021 SPA III and the March 2021 Note III, the “March 2021 Agreements III”). The 50,000 shares of common stock and 50,000 warrant issued were valued at $23,718 and $7,924, respectively, using the relative fair value method and the Commitment Share True-up had a fixed monetary value of $22,250, all recorded as a debt discount to be amortized over the twelve-month term of the note. The March 2021 Note III mature on March 30, 2022 and a one-time interest charge of 10% was applied on the issue date and will be payable on the maturity date. Upon an event of default, the outstanding balance will immediately and automatically increase to 140% of the outstanding balance under the March 2021 Note III immediately prior to the occurrence of the Event of Default and becomes immediately due and payable. The Company shall make nine monthly cash payments (“Amortization Payments”), in the amount of $12,911 due on the first day of each month, beginning July 1, 2021. If the first day of any calendar month is not on a business day, then the Company shall make monthly payments on the next business day. The investor may only convert the March 2021 Note III at any time or times on or after the occurrence of an Event of Default. The March 2021 Note III is convertible at the rate equal to 105% of the lowest trading price occurring during the twenty-five consecutive trading days immediately preceding the applicable conversion date (“Conversion Price”). The March 2021 Agreements III contain other provisions, covenants, and restrictions common with this type of debt transaction. The March 2021 SPA III also provides the investor with certain “piggyback” registration rights, permitting them to request that the Company include the issued shares for sale in certain registration statements filed by the Company under the Securities Act of 1934, as amended. During the transitional period ending October 31, 2021, the Company paid $46,931 of principal and $4,714 of accrued interest. During the threesix months ended January 31,April 30, 2022, the Company paid $37,546the remaining $63,069 of principal and $1,188$1,487 of accrued interest. As of January 31,April 30, 2022 and October 31, 2021, the March 2021 Note III had outstanding principal of $25,523$0 and $63,069 respectively.
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2021
The March 2021 Warrant III, issued to the investor as commitment fee, provides for the right to purchase up to 50,000 shares of common stock; (i) valued at $7,924 using the relative fair value method and recorded as a debt discount to be amortized over the twelve-month term of the note; (ii) has an exercise price of $2.50; (iii) subject to adjustments and 4.99%, ownership limitation and; (iv) expires on the fifth-year anniversary from the date of issuance.
March 2021 Note V
On March 31, 2021, the Company entered into a Securities Purchase Agreement (the “March 2021 SPA V”) with an investor for the sale of the Company’s convertible note. Pursuant to the March 2021 SPA V, the Company; (i) issued a convertible note with principal amount of $165,000 (the “March 2021 Note V”) with the Company receiving $150,000 in net proceeds, net of $15,000 of OID recorded as a debt discount to be amortized over the twelve-month term of the note; (ii) issued 75,000 shares of common stock, subject to a true-up based upon the trading price of the common stock and the investor’s ownership limitations (“Commitment Share True-up”) (as discussed below under Commitment Share True-Up Provision) and; (iii) a warrant to purchase up to 75,000 shares of common stock (the “March 2021 Warrant V”, and together with the March 2021 SPA V and the March 2021 Note V, the “March 2021Agreements V”). The 75,000 shares of common stock and 75,000 warrant issued were valued at $36,499 and $12,352, respectively, using the relative fair value method and the Commitment Share True-up had a fixed monetary value of $34,500, all recorded as a debt discount to be amortized over the twelve-month term of the note. The March 2021 Note V mature on March 1, 2022 and a one-time interest charge of 10% was applied on the issue date and will be payable on the maturity date. Upon an event of default, the outstanding balance will immediately and automatically increase to 140% of the outstanding balance under the March 2021 Note V immediately prior to the occurrence of the Event of Default and becomes immediately due and payable. The Company shall make nine monthly cash payments (“Amortization Payments”), in the amount of $20,167 due on the first day of each month, beginning July 1, 2021. If the first day of any calendar month is not on a business day, then the Company shall make monthly payments on the next business day. The investor may only convert the March 2021 Note V at any time or times on or after the occurrence of an Event of Default. The March 2021 Note V is convertible at the rate equal to 105% of the lowest trading price occurring during the twenty-five consecutive trading days immediately preceding the applicable conversion date (“Conversion Price”). The March 2021 Agreements V contain other provisions, covenants, and restrictions common with this type of debt transaction. The March 2021 SPA V also provides the investor with certain “piggyback” registration rights, permitting them to request that the Company include the issued shares for sale in certain registration statements filed by the Company under the Securities Act of 1934, as amended. During the transitional period ending October 31, 2021, the Company paid $68,191 of principal and $12,477 of accrued interest. During the threesix months ended January 31,April 30, 2022, the Company paid $57,292the remaining $96,809 of principal and $3,209$4,025 of accrued interest. As of January 31,April 30, 2022 and October 31, 2021, the March 2021 Note V had outstanding principal of $39,518$0 and $96,809, respectively.
The March 2021 Warrant V, issued to the investor as commitment fee, provides for the right to purchase up to 75,000 shares of common stock; (i) valued at $12,352 using the relative fair value method and recorded as a debt discount to be amortized over the twelve-month term of the note; (ii) has an exercise price of $2.50; (iii) subject to adjustments and 4.99%, ownership limitation and; (iv) expires on the fifth-year anniversary from the date of issuance.
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2022
April 2021 Financing
On April 7, 2021, the Company closed a Securities Purchase Agreement dated March 29, 2021 (the “April 2021 SPA”) with an investor for the sale of the Company’s convertible note. Pursuant to the April 2021 SPA, the Company; (i) issued a convertible note with principal amount of $165,000 (the “April 2021 Note”) with the Company receiving $146,500 in net proceeds, net of $15,000 of OID and $3,500 of legal fees; (ii) issued 75,000 shares of common stock, subject to a true-up based upon the trading price of the common stock and the investor’s ownership limitations (“Commitment Share True-up”) and; (iii) issued warrant to purchase up to 75,000 shares of common stock (the “April 2021 Warrant”, and together with the April 2021 SPA and the April 2021 Note, the “April 2021Agreements”). The 75,000 shares of common stock and 75,000 warrant issued were valued at $31,913 and $9,669, respectively, using the relative fair value method and the Commitment Share True-up had a fixed monetary value of $27,375, recorded as a debt discount to be amortized over the twelve-month term of the note. The April 2021 Note I mature on March 30, 2022 and a one-time interest charge of 8% was applied on the issue date and will be payable on the maturity date. Upon an event of default, the outstanding balance will immediately and automatically increase to 140% of the outstanding balance under the April 2021 Note immediately prior to the occurrence of the Event of Default and becomes immediately due and payable. The Company shall make nine monthly cash payments (“Amortization Payments”), in the amount of $19,800 due on the first day of each month, beginning July 1, 2021. If the first day of any calendar month is not on a business day, then the Company shall make monthly payments on the next business day. The investor may only convert the April 2021 Note at any time or times on or after the occurrence of an Event of Default. The April 2021 Note is convertible at the rate equal to 105% of the lowest trading price occurring during the twenty-five consecutive trading days immediately preceding the applicable conversion date (“Conversion Price”). The April 2021 Agreements contain other provisions, covenants, and restrictions common with this type of debt transaction. The April 2021 SPA also provides the investor with certain “piggyback” registration rights, permitting them to request that the Company include the issued shares for sale in certain registration statements filed by the Company under the Securities Act of 1934, as amended. During the transitional period ending October 31, 2021, the Company paid $69,316 of principal and $9,884 of accrued interest. During the threesix months ended January 31,April 30, 2022, the Company paid $56,755the remaining $95,684 of principal and $2,645$3,316 of accrued interest. As of January 31,April 30, 2022 and October 31, 2021, the April 2021 Note had outstanding principal of $38,929$0 and $95,684, respectively.
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2021
The April 2021 Warrant, issued to the investor as commitment fee, provides for the right to purchase up to 75,000 shares of common stock; (i) valued at $9,669 using the relative fair value method and recorded as a debt discount to be amortized over the twelve-month term of the note; (ii) has an exercise price of $2.50; (iii) subject to adjustments and 4.99%, ownership limitation and; (iv) expires on the fifth-year anniversary from the date of issuance.
May 2021 Financings
May 2021 Note I
On May 17, 2021, the Company closed a Securities Purchase Agreement (the “May 2021 SPA I”) with an investor for the sale of the Company’s convertible note. Pursuant to the May 2021 SPA I, the Company; (i) issued a convertible note with principal amount of $132,000 (the “May 2021 Note I”) with the Company receiving $111,700 in net proceeds, net of $12,000 of OID and $8,300 of legal fees; (ii) issued 60,000 shares of common stock (the “First Commitment Shares”) as commitment fee and shall issue 165,000 shares of common stock (the “Second Commitment Shares”) issued as a returnable commitment fee, accordingly, the Company deems the Second Commitment Shares as unissued for accounting purposes and; (iii) issued warrant to purchase up to 60,000 shares of common stock (the “May 2021 Warrant I”, and together with the May 2021 SPA I and the May 2021 Note I, the “May 2021 Agreements I”). The 60,000 shares of common stock and 60,000 warrant issued were valued at $26,824 and $9,767, respectively, using the relative fair value method and the Commitment Share True-up had a fixed monetary value of $26,700, recorded as a debt discount to be amortized over the twelve-month term of the note. The May 2021 Note I matures on May 10, 2022 and a one-time interest charge of 10% was applied on the issue date and will be payable on the maturity date; in an event of default, the interest rate shall increase to 16% per annum. Upon an event of default, the outstanding balance will immediately and automatically increase to 140% of the outstanding balance under the May 2021 Note I immediately prior to the occurrence of the event of default and becomes immediately due and payable. The Company shall make nine monthly cash payments (“Amortization Payments”), in the amount of $15,667 due on the first day of each month, beginning August 9, 2021. If the first day of any calendar month is not on a business day, then the Company shall make monthly payments on the next business day. The investor may only convert the May 2021 Note I at any time or times on or after the occurrence of an event of default. The May 2021 Note I is convertible at the rate equal to 105% of the lowest trading price occurring during the twenty-five consecutive trading days immediately preceding the applicable conversion date (“Conversion Price”). The May 2021 Agreements I contain other provisions, covenants, and restrictions common with this type of debt transaction. The May 2021 SPA I also provides the investor with certain “piggyback” registration rights, permitting them to request that the Company include the issued shares for sale in certain registration statements filed by the Company under the Securities Act of 1934, as amended. During the transitional period ending October 31, 2021, the Company paid $41,159 of principal and $5,842 of accrued interest. During the threesix months ended January 31,April 30, 2022, the Company paid $44,752the remaining $90,841 of principal and $2,249$3,161 of accrued interest. As of January 31,April 30, 2022 and October 31, 2021, the May 2021 Note I had outstanding principal of $46,089$0 and $90,841, respectively.
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2022
The May 2021 Warrant I, issued to the investor as commitment fee, provides for the right to purchase up to 60,000 shares of common stock; (i) valued at $9,767 using the relative fair value method and recorded as a debt discount to be amortized over the twelve-month term of the note; (ii) has an exercise price of $2.50; (iii) subject to adjustments and 4.99%, ownership limitation and; (iv) expires on the fifth-year anniversary from the date of issuance.
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2021
May 2021 Note II
On May 28, 2021, the Company closed a Securities Purchase Agreement (the “May 2021 SPA II”) with an investor for the sale of the Company’s convertible note. Pursuant to the May 2021 SPA II, the Company; (i) issued a convertible note with principal amount of $285,000 (the “May 2021 Note II”) with the Company receiving $250,000 in net proceeds, net of $28,500 of OID and $6,500 of legal fees; (ii) issued 150,000 shares of common stock (the “Commitment Shares”) as commitment fee and; (iii) issued warrant to purchase up to 150,000 shares of common stock (the “May 2021 Warrant II”, and together with the May 2021 SPA II and the May 2021 Note II, the “May 2021Agreements II”). The 150,000 shares of common stock and 150,000 warrant issued were valued at $69,583 and $30,326, respectively, using the relative fair value method, all recorded as a debt discount to be amortized over the twelve-month term of the note. The May 2021 Note II matures on May 26, 2022 and a one-time interest charge of 10% was applied on the issue date and will be payable on the maturity date. Upon an event of default, the outstanding balance will immediately and automatically increase to 140% of the outstanding balance under the May 2021 Note II immediately prior to the occurrence of the event of default and becomes immediately due and payable. The Company shall make nine monthly cash payments (“Amortization Payments”), in the amount of $31,350 due on the first day of each month, beginning August 26, 2021. If the first day of any calendar month is not on a business day, then the Company shall make monthly payments on the next business day. The investor may only convert the May 2021 Note II at any time or times on or after the occurrence of an event of default. The May 2021 Note II is convertible at a conversion price of $0.70 (“Conversion Price”). The May 2021 Agreements II contain other provisions, covenants, and restrictions common with this type of debt transaction. The May 2021 SPA II also provides the investor with certain “piggyback” registration rights, permitting them to request that the Company include the issued shares for sale in certain registration statements filed by the Company under the Securities Act of 1934, as amended. During the transitional period ending October 31, 2021, the Company paid $48,219 of principal and $14,481 of accrued interest. During the threesix months ended January 31,April 30, 2022, the Company paid $115,342$205,832 of principal and $10,058$13,618 of accrued interest. As of January 31,April 30, 2022 and October 31, 2021, the May 2021 Note II had outstanding principal of $121,439$30,949 and $236,781, respectively.
The May 2021 Warrant II, issued to the investor as commitment fee, provides for the right to purchase up to 150,000 shares of common stock; (i) valued at $30,326 using the relative fair value method and recorded as a debt discount to be amortized over the twelve-month term of the note; (ii) has an exercise price of $1.50; (iii) subject to adjustments and 4.99%, ownership limitation and; (iv) expires on the fifth-year anniversary from the date of issuance.
September 2021 Financings
September 2021 Note I
On September 1, 2021, the Company closed a Securities Purchase Agreement (the “September 2021 SPA I”) with an investor for the sale of the Company’s convertible note. Pursuant to the September 2021 SPA I, the Company; (i) issued a convertible note with principal amount of $110,000 (the “September 2021 Note I”) with the Company receiving $100,000 in net proceeds, net of $10,000 of OID; (ii) issued 50,000 shares of common stock (the “First Commitment Shares”) as commitment fee and; (iii) issued warrant to purchase up to 50,000 shares of common stock (the “September 2021 Warrant I”, and together with the September 2021 SPA I and the September 2021 Note I, the “September 2021 Agreements I”). The 50,000 shares of common stock and 50,000 warrant issued were valued at $24,877 and $9,493, respectively, using the relative fair value method, recorded as a debt discount to be amortized over the nine-month term of the note. The September 2021 Note I matures on June 1, 2022 and a one-time OID charge of 10% was applied on the issue date and will be payable on the maturity date. Upon an event of default, the outstanding balance will immediately and automatically increase to 140% of the outstanding balance under the September 2021 Note I immediately prior to the occurrence of the event of default and becomes immediately due and payable. The Company shall make nine monthly cash payments (“Amortization Payments”), in the amount of $13,444 due on the first day of each month, beginning October 1, 2021. If the first day of any calendar month is not on a business day, then the Company shall make monthly payments on the next business day. The investor may only convert the September 2021 Note I at any time or times on or after the occurrence of an event of default. The September 2021 Note I is convertible at the rate equal to 105% of the lowest trading price occurring during the twenty-five consecutive trading days immediately preceding the applicable conversion date (“Conversion Price”). The September 2021 Agreements I contain other provisions, covenants, and restrictions common with this type of debt transaction. The September 2021 SPA I also provides the investor with certain “piggyback” registration rights, permitting them to request that the Company include the issued shares for sale in certain registration statements filed by the Company under the Securities Act of 1934, as amended. During the threesix months ended January 31,April 30, 2022, the Company paid $34,565$96,813 of principal and $5,767$10,739 of accrued interest. As of January 31,April 30, 2022 and October 31, 2021, the September 2021 Note I had outstanding principal of $75,435$13,187 and $110,000, respectively.
The September 2021 Warrant I, issued to the investor as commitment fee, provides for the right to purchase up to 50,000 shares of common stock; (i) valued at $9,493 using the relative fair value method and recorded as a debt discount to be amortized over the nine-month term of the note; (ii) has an exercise price of $2.50; (iii) subject to adjustments and 4.99%, ownership limitation and; (iv) expires on the fifth-year anniversary from the date of issuance.
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2021
APRIL 30, 2022
September 2021 Note II
On September 8, 2021, the Company closed a Securities Purchase Agreement (the “September 2021 SPA II”) with an investor for the sale of the Company’s convertible note. Pursuant to the September 2021 SPA II, the Company; (i) issued a convertible note with principal amount of $250,000 (the “September 2021 Note II”) with the Company receiving $218,250 in net proceeds, net of $25,000 of OID and $6,750 of legal fees; (ii) issued 114,000 shares of common stock (the “First Commitment Shares”) as commitment fee and; (iii) issued warrant to purchase up to 114,000 shares of common stock (the “September 2021 Warrant II”, and together with the September 2021 SPA II and the September 2021 Note II, the “September 2021 Agreements II”). The 114,000 shares of common stock and 114,000 warrant issued were valued at $59,468 and $21,004, respectively, using the relative fair value method, recorded as a debt discount to be amortized over the twelve-month term of the note. The September 2021 Note II matures on August 1, 2022 and 10% of OID was applied on the issue date and will be payable on the maturity date. Upon an event of default, the outstanding balance will immediately and automatically increase to 140% of the outstanding balance under the September 2021 Note II immediately prior to the occurrence of the event of default and becomes immediately due and payable. The Company shall make nine monthly cash payments (“Amortization Payments”), in the amount of $30,556 due on the first day of each month, beginning December 1, 2021. If the first day of any calendar month is not on a business day, then the Company shall make monthly payments on the next business day. The investor may only convert the September 2021 Note II at any time or times on or after the occurrence of an event of default. The September 2021 Note II is convertible at the rate equal to 105% of the lowest trading price occurring during the twenty-five consecutive trading days immediately preceding the applicable conversion date (“Conversion Price”). The September 2021 Agreements II contain other provisions, covenants, and restrictions common with this type of debt transaction. The September 2021 SPA II also provides the investor with certain “piggyback” registration rights, permitting them to request that the Company include the issued shares for sale in certain registration statements filed by the Company under the Securities Act of 1934, as amended. During the threesix months ended January 31,April 30, 2022, the Company paid $47,842$160,894 of principal and $13,270$22,442 of accrued interest. As of January 31,April 30, 2022 and October 31, 2021, the September 2021 Note II had outstanding principal of $202,158$89,106 and $250,000, respectively.
The September 2021 Warrant II, issued to the investor as commitment fee, provides for the right to purchase up to 114,000 shares of common stock; (i) valued at $21,004 using the relative fair value method and recorded as a debt discount to be amortized over the twelve-month term of the note; (ii) has an exercise price of $2.50; (iii) subject to adjustments and 4.99%, ownership limitation and; (iv) expires on the fifth-year anniversary from the date of issuance.
The Company uses the Binomial Valuation Model to determine the fair value of its stock warrants which requires the Company to make several key judgments including:
| ● | the value of the Company’s common stock; | |
| ● | the expected life of issued stock warrants; | |
| ● | the expected volatility of the Company’s stock price; | |
| ● | the expected dividend yield to be realized over the life of the stock warrants; and | |
| ● | the risk-free interest rate over the expected life of the stock warrants. |
The Company’s computation of the expected life of issued stock warrants was based on the simplified method as the Company does not have adequate exercise experience to determine the expected term. The interest rate was based on the U.S. Treasury yield curve in effect at the time of grant. The computation of volatility was based on the historical volatility of the Company’s common stock.
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2022
Commitment Share True-Up Provision
The March Financings, April 2021 Financing and May 2021 Note I (collectively as “Notes”), as discussed above, included a Commitment Share True-Up provision whereby if during the period beginning on the six-month anniversary of the date of the closing date and ending on the later of (i) the maturity date, or (ii) the date on which the Notes, is fully satisfied and cancelled (the “True-Up Period”), the then lowest traded price of the Company’s common stock (“Common Stock”) for any Trading Day within the True-Up Period (“Subsequent Share Price”), as reported on the Company’s principal market, is less than the closing price of the Company’s common stock on the closing date of each Note, then the Company shall, within three (3) trading days of holder’s provision of written notice in (“True-Up Notice”), issue and deliver to the holder an additional number of duly and validly issued, fully paid and non-assessable shares of Common Stock equal to (X) the quotient of the Commitment Value (as defined below) divided by the Subsequent Share Price, multiplied by 1.5, less (Y) the Commitment Shares. The “Commitment Value” shall mean the product of the Commitment Shares multiplied by the closing price of the Company’s common stock on the Closing Date of each Note. Any additional shares of Common Stock issuable as defined in the Notes (“True-up Shares”), if required to be issued shall be issued provided however, that in no event shall the holder be entitled to receive shares of common stock in excess of the amount that would result in beneficial ownership by the holder and its affiliates of 4.99% of the outstanding shares of Common Stock at that time. For purposes of the provision to the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Regulations 13D-G thereunder. The Company shall at all times reserve shares of its Common Stock for Holder in an amount equal to 300% multiplied by (X) the quotient of the Commitment Value divided by the lowest traded price of the Common Stock during the five Trading Days immediately preceding the respective date of calculation, multiplied by 1.5, less (Y) the Original Shares. At the inception of the respective Notes, the value of the true-up shares is based on a fixed monetary amount known at inception to be settled with a variable number of shares if triggered which reflects stock settled debt. During the threesix months ended January 31,April 30, 2022, the Company fully repaid two of its convertible notes payableall Notes that included the Commitment Share True-Up Provision resulting in the reduction in the accrued True-up Shares amounting to $93,750.of $209,688 which was netted with the interest expense in the accompanying unaudited consolidated statement of operations. As of January 31,April 30, 2022 and October 31, 2021, the Commitment Share True-up had an aggregate fixed monetary value of $115,938$0 and $209,688, respectively, which is reflected as liability to be settled with common stock in the accompanying unaudited consolidated balance sheets.
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2021
Derivative Liabilities Pursuant to Convertible Notes
In connection with the issuance of the March 2021 Financings, April 2021 Financing and May 2021 Financings, and September 2021 Financings (collectively referred to as “Notes”), the Company determined that the terms of the Notes contain an embedded conversion option to be accounted for as derivative liabilities due to the holder having the potential to gain value upon an event of default, which includes events not within the control of the Company. Accordingly, under the provisions of ASC 815-40 –Derivatives and Hedging – Contracts in an Entity’s Own Stock, the embedded conversion option contained in the convertible instruments were accounted for as derivative liabilities at the date of issuance and shall be adjusted to fair value through earnings at each reporting date. The fair value of the embedded conversion options was determined using the Monte Carlo valuation model. At the end of each period and on note conversion date or repayment, the Company revalues the derivative liabilities resulting from the embedded option.
At January 31,April 30, 2022, the Company revalued the embedded conversion option derivative liabilities. In connection with these revaluations, the Company recorded a gain from the change in the derivative liabilities fair value of $59,178$67,408 for the threesix months ended January 31,April 30, 2022.
During the threesix months ended January 31,April 30, 2022, the fair value of the derivative liabilities were estimated using the Monte Carlo Valuation Model with the following assumptions (see Note 2):
2022 | ||||
| Dividend rate | — | % | ||
| Term (in years) | 0.09 to 0.50 | |||
| Volatility | 90 | % | ||
| Risk—free interest rate | 0.04 to 0.49 | % | ||
| Default probability | 12.5 | % | ||
For the threesix months ended January 31,April 30, 2022 and 2021, amortization of debt discounts related to the convertible notes amounted to $174,929$455,521 and $7,983,$432,014 and, included as interest expense on the accompanying unaudited consolidated statements of operations. At January 31,April 30, 2022 and October 31, 2021 the unamortized debt discount was $241,759$54,917 and $510,438, respectively.
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2022
NOTE 6 – NOTES PAYABLE
Notes payable is summarized below:
| April 30, 2022 | October 31, 2021 | |||||||||||||||
| January 31, 2022 | October 31, 2021 | (Unaudited) | ||||||||||||||
| Principal amount | $ | 306,900 | $ | 306,900 | $ | 306,900 | $ | 306,900 | ||||||||
| Less: current portion | (16,409 | ) | (15,361 | ) | (17,198 | ) | (15,361 | ) | ||||||||
| Notes payable - long term portion | $ | 290,491 | $ | 291,539 | $ | 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 |
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2021
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 January 31,April 30, 2022 and October 31, 2021, the SBA Note had an outstanding principal balance of $149,900. As of January 31,April 30, 2022 and October 31, 2021, the SBA Note had an accrued interest of $9,570$10,942 and $8,152, respectively, reflected in the accompanying unaudited consolidated balance sheets under accrued expense and other liabilities.
On June 17, 2020, the Company entered into a Loan Authorization and Agreement (“SBA Loan Agreement”) with the SBA, under the SBA’s Economic Injury Disaster Loan assistance program in light of the impact of the COVID-19 pandemic. Pursuant to the SBA Loan Agreement, the Company received an advanced of $150,000, to be used for working capital purposes only. Pursuant to the SBA Loan Agreement, the Company executed; (i) a note for the benefit of the SBA (“SBA Note”), which contains customary events of default; and (ii) a Security Agreement, granting the SBA a security interest in all tangible and intangible personal property of the Company, which also contains customary events of default. The SBA Note bears an interest rate of 3.75% per annum which accrue from the date of the advance. Instalment payments, including principal and interest, are due monthly beginning June 17, 2021 (twelve months from the date of the SBA Note) in the amount of $731. The balance of principal and interest is payable thirty years from the date of the SBA Note. As of January 31,April 30, 2022 and October 31, 2021, the SBA Note had an outstanding principal balance of $150,000. As of January 31,April 30, 2022 and October 31, 2021, the SBA Note had an accrued interest of $9,139$10,510 and $7,721, respectively, reflected in the accompanying unaudited consolidated balance sheets under accrued expense and other liabilities.
November Note Payable
On November 12, 2020, the Company entered into a Note Agreement with an investor for the sale of the Company’s note (the “Note”). Pursuant to the terms provided for in the Note Agreement, the Company issued to the investor a Note and the Company received proceeds in the amount of $7,000. The Note bears an interest of 5% per annum and maturesmatured on November 12, 2021. The Company may prepay all or any portion of the interest and the unpaid principal balance of thisThis Note at any time, or from time to time, without penalty or premium.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 January 31,April 30, 2022, the Note had an outstanding principal balance of $7,000 and accrued interest of $633,$512, reflected in the accompanying unaudited consolidated balance sheets under accrued expense and other liabilities.
NOTE 7 – ADVANCE PAYABLE
On July 9, 2021, the Company entered into a capital advance agreement with Shopify (“July Advance Agreement”) with Shopify.. Under the terms of the July Advance Agreement, the Company has received $95,000 of principal and will repay $107,350 by remitting 17% of the total customer payments processed daily by the e-commerce platform provider until the advance is repaid in full. During the transition period ending October 31, 2021, the Company paid $27,056 of the outstanding balance. During the threesix months ended January 31,April 30, 2022, the Company paid $50,797repaid all of the outstanding balance. The advance had $17,147 of outstanding balance as of January 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
APRIL 30, 2022
On August 31, 2021, the Company entered into a capital advance agreement with Shopify (“August Advance Agreement”) with Shopify.. Under the terms of the August Advance Agreement, the Company has received $34,000 of principal and will repay $38,420 by remitting 17% of the total customer payments processed daily by the e-commerce platform provider until the advance is repaid in full. During the six months ended April 30, 2022, the Company paid $28,593 of the outstanding balance. The advance has an outstanding balance of $34,000$5,407 as of January 31,April 30, 2022, reflected as advance payable on the accompanying unaudited consolidated balance sheet.
On April 5, 2022, the Company entered into a capital advance agreement with PayPal (“PayPal Advance Agreement I”). Under the terms of the PayPal Advance Agreement I, the Company received $25,000 of principal and will repay $27,502 by remitting 30% of the total customer payments processed daily by the e-commerce platform provider until the advance is repaid in full. The Company recorded $2,502 of debt discount which was amortized immediately to interest expense. During the six months ended April 30, 2022, the Company paid $2,140 of the outstanding balance. The advance has an outstanding balance of $25,362 as of April 30, 2022, reflected as advance payable on the accompanying unaudited consolidated balance sheet.
On April 6, 2022, the Company entered into a capital advance agreement with Shopify (“April Advance Agreement I”). Under the terms of the April Advance Agreement I, the Company received $23,000 of principal and will repay $25,990 by remitting 17% of the total customer payments processed daily by the e-commerce platform provider until the advance is repaid in full. The Company recorded $2,990 of debt discount which was amortized immediately to interest expense. The advance has an outstanding balance of $25,990 as of April 30, 2022, reflected as advance payable on the accompanying unaudited consolidated balance sheet.
On April 6, 2022, the Company entered into a capital advance agreement with Shopify (“April Advance Agreement II”). Under the terms of the April Advance Agreement II, the Company received $120,000 of principal and will repay $135,600 by remitting 17% of the total customer payments processed daily by the e-commerce platform provider until the advance is repaid in full. The Company recorded $15,600 of debt discount which was amortized immediately to interest expense. During the three months ended April 30, 2022, the Company paid $11,089 of the outstanding balance. The advance has an outstanding balance of $124,511 as of April 30, 2022, reflected as advance payable on the accompanying unaudited consolidated balance sheet.
On April 6, 2022, the Company entered into a capital advance agreement with Shopify (“April Advance Agreement III”). Under the terms of the April Advance Agreement III, the Company received $42,000 of principal and will repay $47,460 by remitting 30% of the total customer payments processed daily by the e-commerce platform provider until the advance is repaid in full. The Company recorded $5,460 of debt discount which was amortized immediately to interest expense. During the six months ended April 30, 2022, the Company paid $2,922 of the outstanding balance. The advance has an outstanding balance of $44,538 as of April 30, 2022, reflected as advance payable on the accompanying unaudited consolidated balance sheet.
On April 16, 2022, the Company entered into a capital advance agreement with Shopify (“April Advance Agreement IV”). Under the terms of the April Advance Agreement III, the Company received $110,000 of principal and will repay $124,300 by remitting 17% of the total customer payments processed daily by the e-commerce platform provider until the advance is repaid in full. The Company recorded $14,300 of debt discount which was amortized immediately to interest expense. The advance has an outstanding balance of $124,300 as of April 30, 2022, reflected as advance payable on the accompanying unaudited consolidated balance sheet.
NOTE 8 – UNREDEEMED GIFT CARDS
Unredeemed gift cards activities as of January 31,April 30, 2022 and October 31, 2021 are summarized as follows:
| January 31, 2022 | October 31, 2021 | April 30, 2022 | October 31, 2021 | |||||||||||||
| (Unaudited) | (Unaudited) | |||||||||||||||
| Beginning balance | $ | 164,912 | $ | 48,311 | $ | 164,912 | $ | 48,311 | ||||||||
| Acquired gift card liability (see Note 3) | — | 87,260 | — | 87,260 | ||||||||||||
| Sale and issuance of gift cards | 115,497 | 186,749 | 173,744 | 186,749 | ||||||||||||
| Revenue from breakage | — | (60,515 | ) | — | (60,515 | ) | ||||||||||
| Total gift card redemptions | (63,507 | ) | (96,893 | ) | ||||||||||||
| Gift card redemptions | (102,928 | ) | (96,893 | ) | ||||||||||||
| Ending balance | $ | 216,902 | $ | 164,912 | $ | 235,728 | $ | 164,912 | ||||||||
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2021
APRIL 30, 2022
NOTE 9 – LEASE LIABILITIES
Operating Lease Right-of-Use (“ROU”) Asset and Operating Lease Liabilities
On July 6, 2021, the Company acquired Model Meals (see Note 3), which had a lease agreement for its facility in Santa Ana, California which expired in December 2021 (see Note 12) and had remaining operating right-of-use asset and liability of $76,136 and $79,054, respectively. Pursuant to the lease agreement, the lease requires the Company to pay a monthly base rent of $14,140 for the remainder of the lease term.
June 1, 2021, the Company entered into a lease agreement, effective July 13, 2021, for its facility in Pembroke Pine, Florida. The lease is for a period of 36 months commencing in July 2021 and expiring in July 2024. Pursuant to the lease agreement, the Company shall pay a monthly base rent of; (i) $8,062 in the first year; (ii) $8,465 in the second year and; (iii) $8,888 in the third year.
On November 11, 2021, the Company renewed its lease agreement (“Renewed Lease Agreement”) for their California kitchen facility, effective on January 1, 2022. The Renewed Lease Agreement provides for (i) a term of six months from the effective date ending on June 30, 2022; (ii) a monthly base rent of $9,960 and; (iii) a monthly storage fee of $2,340. The Renewed Lease Agreement can be terminated with two months’ notice. The Company has elected not to recognize right-of-use (“ROU”) assets and lease liabilities for short-term leases that have a term of 12 months or less (see Note 2).
For the threesix months ended January 31,April 30, 2022, total rent expense amounted to $64,801$128,639 which is included in general and administrative expenses on the accompanying unaudited consolidated statements of operations.
The significant assumption used to determine the present value of the operating lease liabilities was a discount rate of 10% which was based on the Company’s estimated incremental borrowing rate.
January 31, 2022 | October 31, 2021 | April 30, 2022 | October 31, 2021 | |||||||||||||
| (Unaudited) | (Unaudited) | |||||||||||||||
| Operating ROU assets | $ | 336,614 | $ | 336,614 | $ | 336,614 | $ | 336,614 | ||||||||
| Less accumulated reductions | (113,409 | ) | (68,105 | ) | (133,337 | ) | (68,105 | ) | ||||||||
| Balance of Operating ROU assets, net | $ | 223,205 | $ | 268,509 | $ | 203,277 | $ | 268,509 | ||||||||
Operating lease liabilities related to the Operating ROU assets is summarized below:
| January 31, 2022 | October 31, 2021 | April 30, 2022 | October 31, 2021 | |||||||||||||
| (Unaudited) | (Unaudited) | |||||||||||||||
| Operating lease liabilities | $ | 339,532 | $ | 339,532 | $ | 339,532 | $ | 339,532 | ||||||||
| Total operating lease liabilities | 339,532 | 339,532 | ||||||||||||||
| Reduction of operating lease liabilities | (113,870 | ) | (71,178 | ) | (132,568 | ) | (71,178 | ) | ||||||||
| Total | 225,662 | 268,354 | 206,964 | 268,354 | ||||||||||||
| Less: short term portion | (80,138 | ) | (101,431 | ) | (83,378 | ) | (101,431 | ) | ||||||||
| Long term portion | $ | 145,524 | $ | 166,923 | $ | 123,586 | $ | 166,923 | ||||||||
Future minimum operating lease payments under the operating lease agreements at January 31,April 30, 2022 are as follows:
| Year | Amount | Amount | ||||||
| Ending October 31, 2022 (remaining) | $ | 73,764 | $ | 49,579 | ||||
| Ending October 31, 2023 | 102,849 | 102,846 | ||||||
| Ending October 31, 2024 | 79,991 | 79,991 | ||||||
| Total minimum non-cancellable operating lease payments | 256,604 | 232,416 | ||||||
| Less: discount to fair value | (30,942 | ) | (25,452 | ) | ||||
| Total operating lease liabilities at January 31, 2022 | $ | 225,662 | ||||||
| Total operating lease liabilities at April 30, 2022 | $ | 206,964 | ||||||
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2021
Financing Lease Right-of-Use (“ROU”) Assets and Financing Lease Liability
On July 13, 2021, the Company entered into a financing agreement with a lessor for the purchase of equipment. Pursuant to the financing agreement, the Company shall make a monthly payment of $6,500 for a period of 36 months commencing in August 2021 through August 2024. The monthly payment shall consist of $6,000 cash and $500 in gift card allowance, reflected in the accompanying unaudited consolidated balance sheet under accrued expense and other liabilities. At the effective date of the financing agreement, the Company recorded a financing lease payable of $200,509.
The significant assumption used to determine the present value of the financing lease liability was a discount rate of 10% which was based on the Company’s estimated incremental borrowing rate.
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2022
Financing right-of-use (“Financing ROU”) asset is summarized below:
January 31, 2022 | October 31, 2021 | April 30, 2022 | October 31, 2021 | |||||||||||||
| (Unaudited) | (Unaudited) | |||||||||||||||
| Financing ROU assets | $ | 200,509 | $ | 200,509 | $ | 200,509 | $ | 200,509 | ||||||||
| Less accumulated depreciation | (36,203 | ) | (19,494 | ) | (52,912 | ) | (19,494 | ) | ||||||||
| Balance of financing ROU assets, net | $ | 164,306 | $ | 181,015 | $ | 147,597 | $ | 181,015 | ||||||||
For the three and six months ended January 31,April 30, 2022, depreciation expense related to Financing ROU assets amounted to $16,709.$16,709 and $33,418, respectively.
Financing lease liability related to the Financing ROU assets is summarized below:
January 31, 2022 | October 31, 2021 | April 30, 2022 | October 31, 2021 | |||||||||||||
| (Unaudited) | (Unaudited) | |||||||||||||||
| Financing lease payables for equipment | $ | 200,509 | $ | 200,509 | $ | 200,509 | $ | 200,509 | ||||||||
| Total financing lease payables | 200,509 | 200,509 | ||||||||||||||
| Reduction of financing lease liability | (28,603 | ) | (13,650 | ) | (43,932 | ) | (13,650 | ) | ||||||||
| Total | 171,906 | 186,859 | 156,577 | 186,859 | ||||||||||||
| Less: short term portion | (63,675 | ) | (62,210 | ) | (65,281 | ) | (62,210 | ) | ||||||||
| Long term portion | $ | 108,231 | $ | 124,649 | $ | 91,296 | $ | 124,649 | ||||||||
Future minimum lease payments under the financing lease agreement at January 31,April 30, 2022 are as follows:
| Year | Amount | Amount | ||||||
| Year ending October 31, 2022 (remaining) | $ | 58,500 | $ | 39,000 | ||||
| Year ending October 31, 2023 | 78,000 | 78,000 | ||||||
| Year ending October 31, 2024 | 58,500 | 58,500 | ||||||
| Total minimum non-cancellable financing lease payments | 195,000 | 175,500 | ||||||
| Less: discount to fair value | (23,094 | ) | (18,923 | ) | ||||
| Total financing lease liabilities at January 31, 2022 | $ | 171,906 | ||||||
| Total financing lease liabilities at April 30, 2022 | $ | 156,577 | ||||||
NOTE 10 – RELATED PARTY BALANCES AND TRANSACTIONS
The Company utilizes the shipping carrier account of a related entity, owned 50% by the Company’s current chief executive officer and principal stockholder for its inbound and outbound shipping needs. The related entity bills the Company for the direct cost of the shipping charges plus a 10% fee. The total amount incurred and paid to the related entity during the threesix months ended January 31,April 30, 2022 and 2021 was $78,377$159,748 and $42,983,$82,358, respectively, which is included in cost of goods sold in the accompanying unaudited consolidated statement of operations. There were no amounts due to this related party for these services as of January 31,April 30, 2022 and October 31, 2021.
See also related party convertible note in Note 5 – March 2021 Note III – Related Party.
See consulting agreement in Note 12 – Consulting Agreement – Related Party
NOTE 11 – STOCKHOLDERS’ EQUITY (DEFICIT)
Preferred Stock
The Company is authorized to issue 20,000,000 shares of common stock with a par value of $0.001.
Common Stock
Shares Authorized
The Company is authorized to issue 1,000,000,000 shares of common stock with a par value of $0.001.
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2021
APRIL 30, 2022
NOTE 11 – STOCKHOLDERS’ DEFICIT
On September 14, 2020, the Company filed with the Secretary of State of the State of Nevada a Certificate of Amendment to its Articles of Incorporation to effect a 1 for 31.993 reverse stock split of its common stock. Proportional adjustments for the reverse stock split were made to the Company’s outstanding stock options, stock warrants and equity incentive plans. All share and per-share data and amounts have been retroactively adjusted as of the earliest period presented in the consolidated financial statements to reflect the reverse stock split.
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.
Preferred Stock
As of January 31, 2022 and October 31, 2021, there were no outstanding shares of Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock.
Common Stock
Common Stock Issued for Cash
| ● | During the |
Common Stock Issued for Services and Prepaid Services
| ● | April 1, 2021, the Company issued an aggregate of 2,000,000 shares of common stock with grant date fair value of $1,800,000 or $0.90 per share based on the market price of common stock on grant date, to a consultant pursuant to a consulting agreement. The fair value of the common stock was recorded in equity as deferred compensation which will be amortized over the twelve-month service period. During the six months ended April 30, 2022 and 2021, the Company amortized $750,000 and $150,000 of the deferred compensation related to this consulting agreement, respectively, which was charged to professional and consulting fee in the accompanying unaudited consolidated statements of operations. As of April 30, 2022 and 2021, there were $0 and $1,650,000, respectively, of deferred compensation related to this consulting agreement. |
| ● | On November 8, 2021, the Company issued an aggregate of 600,000 shares of common stock with grant date fair value of $726,000 or $1.21 per share based on the market price of common stock on grant date, to a consultant pursuant to a consulting agreement. The fair value of the common stock was recorded in equity as deferred compensation which will be amortized over the six-month service period. During the |
| ● | During the |
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 |
| ● | 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 |
| ● | On February 3, 2021, the Company issued 150,000 shares of common stock to a non-affiliate investor as commitment fee, pursuant to a securities purchase agreement, valued at $85,981 using the relative fair value method and was recorded as debt discount to be amortized over the life of the note. |
| ● | On March 22, 2021, the Company issued 25,000 shares of common stock to a non-affiliate investor as commitment fee pursuant to a securities purchase agreement, valued at $6,949 using the relative fair value method and was recorded as debt discount to be amortized over the life of the note. |
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2022
| ● | On March 29, 2021, the Company issued 50,000 shares of common stock to a non-affiliate investor as commitment fee pursuant to a securities purchase agreement, valued at $24,504 using the relative fair value method and was recorded as debt discount to be amortized over the life of the note. |
| ● | On March 30, 2021, the Company issued 50,000 shares of common stock to a related party investor as commitment fee pursuant to a securities purchase agreement, valued at $23,718 using the relative fair value method and was recorded as debt discount to be amortized over the life of the note. |
| ● | On March 30, 2021, the Company issued 25,000 shares of common stock to a non-affiliate investor as commitment fee pursuant to a securities purchase agreement, valued at $11,845 using the relative fair value method and was recorded as debt discount to be amortized over the life of the note. |
| ● | On March 31, 2021, the Company granted 75,000 shares of common stock to a non-affiliate investor as commitment fee pursuant to a securities purchase agreement, valued at $36,499 using the relative fair value method and was recorded as debt discount to be amortized over the life of the note. |
| ● | On April 7, 2021, the Company granted 75,000 shares of common stock to a non-affiliate investor as commitment fee pursuant to a securities purchase agreement, valued at $30,947 using the relative fair value method and was recorded as debt discount to be amortized over the life of the note. |
| ● | During the six months ended April 30, 2022, the Company granted 45,989 shares of common stock with grant date fair value of $29,879 or $0.65 per share based on the market price of common stock on grant date, to a convertible note holder as a commitment fee. The grant fair value of the common stock of $29,879 was charged to interest expense in the accompanying unaudited consolidated statements of operations. |
Common Stock Issued Pursuant to Lock-Up & Leak Out Agreements
| ● | During the |
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2021
Common Stock Issued Pursuant to Product Development Agreements
| ● | During the |
Common Stock Issued Pursuant to Stock-Based Compensation
| ● | On April 29, 2021, the Company issued 25,000 shares of common stock with an aggregate grant date fair value of $24,750 or $0.99 per share based on the market price of common stock on grant date, to a board member for services rendered and was charged to compensation and related expenses in the accompanying condensed consolidated statements of operations. |
Stock Warrants
Warrants Issued Pursuant to Stock-Based Compensation
| ● | On March 25, 2022, the Company issued to two executives fully vested warrants to purchase up to an aggregate of 250,000 shares of the Company’s common stock, in connection with their employment agreements dated March 25, 2022. These warrants are exercisable, in whole or in part, upon issuance at $0.001 per share, and expire on March 25, 2027. These warrants have an aggregate grant date fair value of $374,560 or $1.50 per share based on the market price of common stock on grant date, recorded as compensation expense in the accompanying unaudited consolidated statements of operations. |
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2022
Warrants Issued for Professional Services
| ● | During the |
| ● | During the |
Warrants for Commitment Fee with Convertible Notes Payable
| ● | On January 27, 2021, the Company issued a warrant to purchase up to 150,000 shares of common stock to a non-affiliate investor as additional commitment fee pursuant to a note amendment. The warrant; (i) was valued at $31,821 using the relative fair value method and recorded as a debt discount to be amortized over the life of the note; (ii) has an exercise price of $2.50; (iii) subject to the adjustments and 4.99%, ownership limitation and; (iv) expires on the fifth-year anniversary from the date of issuance. |
| ● | On March 22, 2021, the Company issued a warrant to purchase up to 25,000 shares of common stock to a non-affiliate investor as additional commitment fee pursuant to a note amendment. The warrant; (i) was valued at $1,346 using the relative fair value method and recorded as a debt discount to be amortized over the life of the note; (ii) has an exercise price of $2.50; (iii) subject to the adjustments and 4.99%, ownership limitation and; (iv) expires on the fifth-year anniversary from the date of issuance. |
| ● | On March 25, 2021, the Company issued warrant to purchase up to 78,250 shares of common to a non-affiliate investor as additional commitment fee pursuant to a note amendment. The warrant; (i) was valued at $4,744 using the relative fair value method and recorded as a debt discount to be amortized over the life of the note; (ii) has an exercise price of $2.50; (iii) subject to the adjustments and 4.99%, ownership limitation and; (iv) expires on the fifth-year anniversary from the date of issuance. |
| ● | On March 29, 2021, the Company issued a warrant to purchase up to 50,000 shares of common stock to a non-affiliate investor as additional commitment fee pursuant to a note amendment. The warrant; (i) was valued at $8,350 using the relative fair value method and recorded as a debt discount to be amortized over the life of the note; (ii) has an exercise price of $2.50; (iii) subject to the adjustments and 4.99%, ownership limitation and; (iv) expires on the fifth-year anniversary from the date of issuance. |
| ● | On March 29, 2021, the Company issued a warrant to purchase up to 50,000 shares of common stock to a related party investor as additional commitment fee pursuant to a note amendment. The warrant; (i) was valued at $7,924 using the relative fair value method and recorded as a debt discount to be amortized over the life of the note; (ii) has an exercise price of $2.50; (iii) subject to the adjustments and 4.99%, ownership limitation and; (iv) expires on the fifth-year anniversary from the date of issuance. |
| ● | On March 30, 2021, the Company issued a warrant to purchase up to 25,000 shares of common stock to a non-affiliate investor as additional commitment fee pursuant to a note amendment. The warrant; (i) was valued at $3,957 using the relative fair value method and recorded as a debt discount to be amortized over the life of the note; (ii) has an exercise price of $2.50; (iii) subject to the adjustments and 4.99%, ownership limitation and; (iv) expires on the fifth-year anniversary from the date of issuance. |
| ● | On March 31, 2021, the Company issued a warrant to purchase up to 75,000 shares of common stock to a non-affiliate investor as additional commitment fee pursuant to a note amendment. The warrant; (i) was valued at $12,352 using the relative fair value method and recorded as a debt discount to be amortized over the life of the note; (ii) has an exercise price of $2.50; (iii) subject to the adjustments and 4.99%, ownership limitation and; (iv) expires on the fifth-year anniversary from the date of issuance. |
| ● | On March 31, 2021, the Company issued a warrant to purchase up to 55,000 shares of common stock to a non-affiliate investor as additional commitment fee pursuant to a note amendment. The warrant; (i) was valued at $6,173 using the relative fair value method and recorded as a debt discount to be amortized over the life of the note; (ii) has an exercise price of $2.50; (iii) subject to the adjustments and 4.99%, ownership limitation and; (iv) expires on the fifth-year anniversary from the date of issuance. |
| ● | On April 7, 2021, the Company issued a warrant to purchase up to 75,000 shares of common stock to a non-affiliate investor as additional commitment fee pursuant to a note amendment. The warrant; (i) was valued at $9,669 using the relative fair value method and recorded as a debt discount to be amortized over the life of the note; (ii) has an exercise price of $2.50; (iii) subject to the adjustments and 4.99%, ownership limitation and; (iv) expires on the fifth-year anniversary from the date of issuance. |
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2022
The Company used the Binomial pricing model to determine the fair value of its common stock warrants which requires the Company to make several key judgments including:
| ● | the expected life of issued stock warrants; | |
| ● | the expected volatility of the Company’s stock price; | |
| ● | the expected dividend yields to be realized over the life of the stock warrants; and | |
| ● | the risk-free interest rate over the expected life of the stock warrants. |
The Company’s computation of the expected life of issued stock warrants was based on the simplified method as the Company does not have adequate exercise experience to determine the expected term and was estimated to be 2 years. The interest rate was based on the U.S. Treasury yield curve in effect at the time of grant. The computation of volatility was based on the historical volatility of the Company’s common stock and the Company’s expected divided yield was estimated to be zero.
| Dividend rate | — | % | ||
| Term (in years) | 2.5 to 5 years | |||
| Volatility | % | |||
| Risk-free interest rate | % |
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2021
A summary of the Company’s outstanding stock warrants as of January 31,April 30, 2022 and changes during the period ended are presented below:
| Number of Stock Warrants | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (Years) | Number of Stock Warrants | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (Years) | |||||||||||||||||||
| Balance on October 31, 2021 | 15,745,076 | $ | 0.17 | 7.4 | 15,745,076 | $ | 0.170 | 7.4 | ||||||||||||||||
| Issued for services | 100,000 | 1.50 | 4.3 | 100,000 | 1.500 | 4.1 | ||||||||||||||||||
| Balance on January 31, 2022 | 15,845,076 | $ | 0.18 | 7.2 | ||||||||||||||||||||
| Issued pursuant to employment agreements | 500,000 | 0.001 | 4.9 | |||||||||||||||||||||
| Balance on April 30, 2022 | 16,345,076 | $ | 0.170 | 6.9 | ||||||||||||||||||||
| Stock warrants exercisable on January 31, 2022 | 15,845,076 | $ | 0.18 | 6.8 | ||||||||||||||||||||
| Stock warrants exercisable on April 30, 2022 | 16,345,076 | $ | 0.170 | 6.9 | ||||||||||||||||||||
Certain exercisable stock warrants had per share intrinsic value of $1.08$0.49 at January 31,April 30, 2022, totaling $15,594,292.$7,431,276.
NOTE 12 – COMMITMENTS AND CONTINGENCIES
Employment Agreement
On October 1, 2021, the Company entered into an employment agreement (the “Employment(“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, (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 the Duchman Employment Agreement) by giving Mr. Duchman written notice approved by the Board of Directors (“Board”) of such termination, such notice (i) to state in detail the particular act or acts or failure or failures to act that constitute the grounds on which the proposed termination for cause is based and (ii) to be given within six months of the Board learning of such act or acts or failure or failures to act. The Duchman Employment Agreement may be terminated at Board’s discretion during the Term, provided that if Mr. Duchman is terminated without cause, the Company shall pay to Mr. Duchman an amount calculated by multiplying Mr. Duchman monthly salary, at the time of such termination, times the number of months remaining in the Term.
On March 25, 2022, the Company entered into an employment agreement (“May Employment Agreement”) with Camille May to serve as the Company’s Chief Financial Officer. The May Employment Agreement has a term of two years (“Term”) from the effective date and provides for (i) an annual salary of $120,000 and (ii) a one-time warrant grant of 250,000 shares of common stock, with grant a date fair value of $187,280, which vested upon issuance, exercisable at $0.001 and expires on March 27, 2027. Ms. May is entitled to vacation, sick and holiday pay and other benefits, in accordance with the Company’s policies established and in effect from time to time. The Company may terminate the Ms. May for cause (as defined in the May Employment Agreement) by giving Ms. May written notice approved by the Board of Directors of such termination.
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2022
Lease Obligation Settlement
On February 22, 2018, the Company entered into a Surrender Agreement with a former landlord for rental obligations dating back to the year ended December 31, 2017 until the space was vacated by the Company on March 31, 2017. Upon executing the Surrender Agreement, the former landlord and the Company agreed that the total rental obligation due was $109,235. The former landlord agreed to $50,000 as full satisfaction of all obligations owed at the time of the Surrender Agreement. The Company agreed to make regular payments on the outstanding rental obligation until paid in full through September 2019; however, there is no penalty if the obligation is not fully paid by such date. As of January 31,April 30, 2022 and October 31, 2021, the balance remaining due on this obligation were $21,400 and $22,900, respectively, included in accounts payable on the accompanying unaudited consolidated balance sheets.
Put Option Agreement
On April 20, 2020, the Company and a stockholder entered into a Put Option Agreement (see Note 3), pursuant to which, among other things, the Company agreed, at the election of the stockholder, to purchase certain shares of common stock from such stockholder no sooner than two years from the date of the Put Option Agreement also referred to herein as Market Period. Pursuant to the Put Option Agreement, in the event that the stockholder does not generate $1.3 million dollars also referred to herein as Total Investment in gross proceeds from the sale of its shares of common stock by the second anniversary of the Put Option Agreement, then the stockholder has the right to cause the Company to purchase shares held by the stockholder at a price equal to the difference between the Total Investment and the net proceeds actually realized by the stockholder from shares of common stock sold during the Market Period and the number of shares of common stock held by the stockholder on the date the put right is exercised. The put right expires fourteen (14) days from end of the Market Period. In connection with the Put Option Agreement, the Company recorded a common stock repurchase obligation in the amount of $1.3 million, reflected in the accompanying consolidated balance sheets as common stock repurchase obligation, and reduction of additional paid in capital upon entering the Put Option Agreement. The repurchase obligation is re-assessed by the Company each reporting period and adjusted for the proceeds received by the stockholder from sale of common stock. During the ten months ended October 31, 2021, the Company recorded a reduction of $681,726. During the threesix months ended January 31,April 30, 2022, the Company recorded a reduction of $93,498.$113,072. As of January 31,April 30, 2022, the Company has recorded an aggregate reduction of $775,225$794,799 for net proceeds realized by the stockholder on sale of Company common stock which was reclassified to additional paid in capital. As of January 31,April 30, 2022 and October 31, 2021, the Company had $0.5 and $0.6 million of common stock repurchase obligation outstanding, respectively.
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2021
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 threesix months ended January 31,April 30, 2022, the Company paid an aggregate of $26,581$41,170 of accrued royalty fee. During the threesix months ended January 31,April 30, 2022, the Development Agreement was amended by both parties whereby the minimal royalty payment of $109,210 was extended through December 31, 2021 and the increased GMR of $218,380 would begin January 1, 2022 and the $436,770 GMR January 1, 2023. This resulted in a $22,747 reduction of the accrued royalty fee. As of January 31,April 30, 2022 and October 31, 2021, a total of $22,568$33,486 and $71,896 of accrued royalty fee, respectively, was reflected under accrued expense and other liabilities in the accompanying unaudited consolidated balance sheets.
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2022
Hungry Fan Brand, LLC
On February 18, 2021, the Company and Hungry Fan Brand, LLC (“Hungry Fan”) (collectively as “Parties”) entered into a Joint Product Development and Distribution Agreement (the “Development Agreement”), effective the same date. The Development Agreement shall remain in effect for twelve months from the effective. Pursuant to the Development Agreement, the Parties shall jointly contribute and be responsible for the development of the Hungry Fan Meals, under the terms and conditions of the Development Agreement.
For the use of Hungry Fan Meals and all associated intellectual property for the benefit of the Hungry Fan Meals, the Company shall pay to Hungry Fan the following: (i) 10% of all Net Revenue generated from the sale of the Hungry Fan Meals (the “Hungry Fan Royalty”). For the purpose of this agreement “Net Revenue” shall be defined as gross sales generated on Hungry Fan Meals less discounts and returns. The Hungry Fan Royalty generated during each calendar month in which an agreement is in effect shall be due and payable by the 10th business day of the following month in which the Hungry Fan Royalty was earned and; (ii) 10% of all Net Revenue generated from the sale of Home Bistro and Prime Chop brand orders in which a Hungry Fan dedicated code was used at the time of purchase (“Hungry Fan Commission”). Upon execution of the Development Agreement, the Company shall provide Hungry Fan with a dedicated code to publicly share for a mutually agreed upon percent off any purchase of Home Bistro and Prime Chop brand orders. The Company shall ensure that the code is valid and in effect for the entire Term. The Hungry Fan Commission generated during each calendar month in which an agreement is in effect shall be due and payable by the 10th business day of the following month in which the Hungry Fan Commission was earned.
In addition, subject to the terms and conditions of this Development Agreement, the Company shall pay to Hungry Fan a guaranteed minimum compensation of $24,000 over twelve months (the “GMC”), to be paid in instalments of $2,000 per month, by the 10th business day of the following month in which the Hungry Fan Commission was earned. The Parties agree that the Hungry Fan Royalty shall be credited against the Guarantee received to date. During the transitional period ending October 31, 2021, the Company paid $14,000 of GMC. During the six months ended April 30, 2022, the Company paid an aggregate of $6,000 of accrued royalty fee. As of January 31,April 30, 2022 and October 31, 2021, $8,000$4,000 and $1,000 of accrued royalty fee, respectively, was reflected under accrued expense and other liabilities in the accompanying unaudited consolidated balance sheet.
Red Velvet XOXO, LLC
On March 19, 2021, the Company and Red Velvet XOXO LLC, a New York corporation (“Red Velvet”) (collectively as “Parties”) entered into a Joint Product Development and Distribution Agreement (the “Development Agreement”), effective the same date. The Development Agreement shall remain in effect for twelve months from the effective date unless sooner terminated as defined in the Development Agreement, or unless extended by mutual agreement of the Parties. Pursuant to the Development Agreement, the Parties shall collaboratively develop a brand of desserts, marketed and sold exclusively utilizing Red Velvet’s recipes (the “Red Velvet Desserts”) under the Home Bistro label, under the terms and conditions of the Development Agreement.
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2021
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 January 31,April 30, 2022 and October 31, 2021, $198 of accrued royalty fee was reflected under accrued expense and other liabilities in the accompanying consolidated balance sheet.
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2022
Chef Roblé & Co.
On April 13, 2021, the Company and Roblé Ali (“Roblé”), celebrity chef and reality TV personality “Chef Roblé & Co.” (collectively as “Parties”) entered into a Joint Product Development and Distribution Agreement (the “Development Agreement”), effective the same date. The Development Agreement shall remain in effect for two years from the effective date. Pursuant to the Development Agreement, the Parties shall jointly contribute and be responsible for the development of the Roblé Meals, under the terms and conditions of the Development Agreement.
For the use of Roblé Meals and all associated intellectual property for the benefit of the Roblé Meals, the Company shall pay to Roblé the following: (i) 10% of all Net Revenue generated from the sale of the Roblé Meals (the “Roblé Royalty”). For the purpose of this agreement “Net Revenue” shall be defined as gross sales generated on Roblé Meals less discounts and returns. The Roblé Royalty generated during each calendar month in which an agreement is in effect shall be due and payable by the 10th business day of the following month in which the Roblé Royalty was earned and; (ii) 10% of all Net Revenue generated from the sale of Home Bistro and Prime Chop brand orders in which a Roblé dedicated code was used at the time of purchase (“Roblé Commission”). Upon execution of the Development Agreement, the Company shall provide Roblé with a dedicated code to publicly share for a mutually agreed upon percent off any purchase of Home Bistro and Prime Chop brand orders. The Company shall ensure that the code is valid and in effect for the entire term. The Roblé Commission generated during each calendar month in which an agreement is in effect shall be due and payable by the 10th business day of the following month in which the Roblé Commission was earned.
In addition, subject to the terms and conditions of this Development Agreement, the Company shall pay to Roblé a guaranteed minimum compensation of $36,000 for twelve months (the “GMC”) as follows: (i) $9,000 upon the Company’s receipt and approval of all recipes submitted by Roblé; (ii) $9,000 upon the commencement of selling of the Roblé Meals (“Selling Date”); (iii) $3,000 per month for a period of six months, commencing the month immediately following the Selling Date. The total aggregate compensation paid to Roblé shall be reduced by the GMC. During the transitional period ending October 31, 2021, the first condition has been satisfied by both parties and the Company paid $9,000 the GMC. As of January 31,April 30, 2022 and October 31, 2021, there were no accrued GMC as the Selling Date has not yet occurred.
Claudia Cocina LLC
On June 22, 2021, the Company and Claudia Cocina LLC (f/s/o Claudia Sandoval), a California limited liability company (“Claudia Cocina”) (collectively as “Parties”) entered into a Joint Product Development and Distribution Agreement (the “Development Agreement”). Pursuant to the Development Agreement, the Parties shall collaboratively develop a brand of meals, marketed and sold utilizing the Property (“CS Meals”) jointly with the Home Bistro label, under the terms and conditions of the Development Agreement. The Development Agreement is effective upon signature and shall remain in effect from the first date on which the CS Meals are commercially launched (the “Launch Date”) until the last day of the month that is one year from the Launch Date (the “Initial Term”). The Parties shall have the right to renew the Development Agreement for an additional one-year term (“Renewal Term”) (the Initial Term and the Renewal Term, individually and together, (the “Term”) upon mutual written consent, which consent must be provided no later than sixty days prior to the end of the current Term. The Renewal Term shall be on the same terms and conditions as provided herein for the Initial Term, except that the Guaranteed Minimum Sales and the Guaranteed Minimum Royalties (“GMR”) payable during the Renewal Term shall be mutually agreed to between the Parties. The Company issued 150,000 shares of common stock with grant date fair value of $150,000 based on the market price of common stock on grant date, that was deemed to be fully earned, non-assessable and irrevocable upon the execution of the Development Agreement and subject to a Lock-Up Leak-Out Agreement. The Company recorded the $150,000 as deferred compensation in the accompanying consolidated balance sheet to be amortized over the term of the Development Agreement. During the threesix months ended January 31,April 30, 2022, the Company expensed $65,625$103,125 of the deferred compensation as product development expense in the accompanying unaudited consolidated statement of operations. As of January 31,April 30, 2022 and October 31, 2021, there were $56,250$18,750 and $121,875 of deferred compensation, respectively, related to this Development Agreement.
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2021
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 threesix months ended January 31,April 30, 2022, the Company recorded $3,000$12,000 of royalty expense related to the GMR. As January 31,April 30, 2022 and October 31, 2021, there $9,000 and $0were no accrued royalty fee, respectively, was reflected under accrued expense and other liabilities in the accompanying unaudited consolidated balance sheet.fee.
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2022
Chef Richard Blais
On July 22, 2021 (“Effective Date”), the Company and Trail Blais, LLC (f/s/o Chef Richard Blais), celebrity chef and reality TV personality (“Chef Richard Blais”) (collectively as “Parties”), entered into a Joint Product Development and Distribution Agreement (the “Development Agreement”). Pursuant to the Development Agreement, the Parties shall collaboratively develop a brand of meals, marketed and sold utilizing the Property (“Blais Meals”) jointly with the Home Bistro label, under the terms and conditions of the Development Agreement. The Development Agreement shall remain in effect from the Effective Date until the last day of the month that is one-year from the Effective Date (“Term”), ending no later than July 30, 2022. The first twelve-month anniversary of the Development Agreement shall be deemed “Year One”“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 threesix months ended January 31,April 30, 2022, the Company expensed $68,281$111,406 of the deferred compensation as product development expense in the accompanying unaudited consolidated statement of operations. As of April 30, 2022 and October 31, 2021, there were $79,063$35,938 and $147,344 of deferred compensation, respectively, related to this Development Agreement.
For the use of Chef Richard Blais and all associated intellectual property for the benefit of the Blais Meals, the Company shall pay to Blais the following: (i) 10% of all net revenue generated from the sale of Blais Meals (the “Blais Royalty”). For the purpose of this agreement “Net Revenue” shall be defined as gross sales generated on Blais Meals less discounts and returns. The Blais Royalty generated during each calendar month in which an agreement is in effect shall be due and payable by the 10th business day of the following month in which the Blais Royalty was earned; (ii) 10% of all Net Revenue generated from the sale of Home Bistro and Prime Chop brand orders in which a Blais Dedicated Code was used at the time of purchase (“Blais Commission”). The Blais Commission generated during each calendar month in which an agreement is in effect shall be due and payable by the 10th business day of the following month in which the Blais Commission was earned and; (iii) Guaranteed Minimum Royalty. Subject to the terms and conditions of the Development Agreement, the Company shall pay to Chef Richard Blais a guaranteed minimum compensation of $75,000 for each twelve-month period the Development Agreement is in effect (“GMC”) payable monthly at the rate of $6,250 per month, beginning on the earlier of the launch of Blais Meals or ninety days after the execution of this Development Agreement. As of October 31, 2021, there was $1,815 accrued royalty fee. During the threesix months ended January 31,April 30, 2022, the Company recorded $18,750$37,500 of royalty expense related to the GMR. As January 31,of April 30, 2022, and October 31, 2021, there $20,565 and $1,815was a total of $16,935 GMR payable of which $8,065 was recorded in accrued royalty fee respectively,and $25,000 was recorded in accounts payable, were reflected under accrued expense and other liabilities in the accompanying unaudited consolidated balance sheet.
Perfect Athlete LLC
On September 15, 2021 (“Effective Date”), the Company and Perfecting Athletes, LLC (“PA” or “Perfecting Athletes”) (collectively as “Parties”), entered into a Joint Product Development and Distribution Agreement (the “Development Agreement”). Pursuant to the Development Agreement, the Parties shall collaboratively develop a brand of meals, marketed and sold utilizing the Property (“PA Meals”) jointly with the Home Bistro label, under the terms and conditions of the Development Agreement. The Development Agreement shall remain in effect from the Effective Date until the last day of the month that is two-years from the Effective Date (“Term”). The first twelve-month anniversary of the Development Agreement shall be deemed “Year One”“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$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 threesix months ended January 31,April 30, 2022, the Company expensed $10,625$42,500 of the deferred compensation as product development expense in the accompanying unaudited consolidated statement of operations. As of January 31,April 30, 2022 and October 31, 2021, there were $228,438$196,563 and $239,063 of deferred compensation, respectively, related to this Development Agreement.
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2021
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 threesix months ended January 31,April 30, 2022, there were no payments made under the Development Agreement.
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2022
Spicy Mango Foodies LLC
On January 19, 2022 (“Effective Date”), the Company and Spicy Mango Foodies LLC (f/s/o Chef Priyanka Naik (“CPN”)) (collectively as “Parties”), entered into a Joint Product Development and Distribution Agreement (the “Development Agreement”). Pursuant to the Development Agreement, the Parties shall collaboratively develop a brand of meals, marketed and sold utilizing the Property (“CPN Meals”) jointly with the Home Bistro label, under the terms and conditions of the Development Agreement. The Development Agreement shall remain in effect from the Effective Date until the last day of the month that is two-year from the Effective Date (“Term”). The first twelve-month anniversary of the Development Agreement shall be deemed “Year One”. The Company shall only distribute the CPN Meals within the Term and any Renewal Term (defined below), as mutually agreed. The Company agrees that following the Term, the Company shall use best efforts to cease the distribution of all CPN Meals. The Parties shall have the right to renew the Development Agreement for an additional one-year term (“Renewal Term”) upon mutual written consent. The Company issued 100,000 shares of common stock with grant date fair value of $100,000 based on the market price of common stock on grant date, that was deemed to be fully earned, non-assessable and irrevocable upon the execution of the Development Agreement. The Company shall record it as deferred compensation to be amortized over the Term of the Development Agreement. The Company recorded the $100,000 as deferred compensation in the accompanying unaudited consolidated balance sheet and is being amortized over the two-year term of the Development Agreement. During the threesix months ended January 31,April 30, 2022, the Company expensed $2,083$14,583 of the deferred compensation as product development expense in the accompanying unaudited consolidated statement of operations. As of January 31,April 30, 2022, there was $97,917$85,415 of deferred compensation related to this Development Agreement.
For the use of Spicy Mango Foodies, LLC (“SMF”) and all associated intellectual property for the benefit of the CPN Meals, the Company shall pay to SMF the following: (i) 10% of all Net Revenue generated from the sale of CPN Meals (“SMF Royalty”). For the purpose of this agreement “Net Revenue” shall be defined as gross sales generated on CPN Meals less discounts and returns. The SMF Royalty generated during each calendar month in which an agreement is in effect shall be due and payable by the 10th business day of the following month in which the SMF Royalty was earned and; (ii) 10% of all Net Revenue generated from the sale of Home Bistro and Prime Chop brand orders in which a SMF Dedicated Code was used at the time of purchase (“SMF Commission”) and all sales derived from that account thereafter. The SMF Commission generated during each calendar month in which an agreement is in effect shall be due and payable by the 10th business day of the following month in which the SMF Commission was earned. During the threesix months ended January 31,April 30, 2022, there were no payments made under the Development Agreement.
Mini Melanie, LLC
On February 22, 2022 (“Effective Date”), the Company and Mini Melanie, LLC (f/s/o Chef Melanie Moss (“MM”)) (collectively as “Parties”), entered into a Joint Product Development and Distribution Agreement (“Development Agreement”). Pursuant to the Development Agreement, the Parties shall collaboratively develop a brand of desserts (“Moss Deserts”) jointly with the Home Bistro label, under the terms and conditions of the Development Agreement. The Development Agreement shall remain in effect from the Effective Date until the last day of the month that is one-year from the Effective Date.
For the use of MM and all associated intellectual property for the benefit of the Moss Deserts, the Company shall pay to MM 5% of all Net Revenue generated from the sale of Moss Deserts (“MM Royalty”). For the purpose of this agreement “Net Revenue” shall be defined as gross sales generated on Moss Deserts less discounts and returns. The MM Royalty generated during each calendar month in which an agreement is in effect shall be due and payable by the 10th business day of the following month in which the MM Royalty was earned. During the three months ended April 30, 2022, there were no payments made or owed under the Development Agreement.
Consulting Agreements
On April 1, 2021, the Company and Redstone Communications, LLC (“Redstone”) (collectively as “Parties”) entered into an agreement to provide strategic consulting services (“Agreement”). The Agreement shall remain in effect for twelve months from the effective date of April 1, 2021 until March 31, 2022. Pursuant to the Agreement, Redstone shall be paid, in cash, a monthly fee of $10,000 over the twelve months service period and received 2,000,000 shares of common stock with grant date fair value of $1,800,000 as compensation, which was recorded as deferred compensation in the accompanying consolidated balance sheet and amortized over the twelve months service period. In 2021, the Company amortized $1,050,000 of the deferred compensation. During the threesix months ended January 31,April 30, 2022, the Company amortized $450,000$750,000 of the deferred compensation and was recorded as professional and consulting expense in the accompanying unaudited consolidated statement of operations. As of January 31,April 30, 2022 and October 31, 2021, the deferred compensation related to this Agreement was $300,000$0 and $750,000, respectively.
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2021
APRIL 30, 2022
On September 10, 2021, the Company and Bench International, LLC (“Bench International”) (collectively as “Parties”) entered into an agreement to marketing consulting services (“Agreement”). The Agreement shall remain in effect for twelve months from the effective date of September 10, 2021. Pursuant to the Agreement, Bench International shall be paid, in cash, and aggregate amount of $350,000 to be paid in seven monthly instalments of $50,000 beginning September 2021 until March 2022. In 2021, the Company paid an aggregate amount of $100,000. During the threesix months ended January 31,April 30, 2022, the Company paid an aggregate amount of $125,000.$200,000. During the threesix months ended January 31,April 30, 2022, the Company recognized $87,500$175,000 of expense related to this Agreement and recorded as selling and marketing expenses in the accompanying unaudited consolidated statement of operations. As of January 31,April 30, 2022 and October 31, 2021, the prepaid expense related to this Agreement were $79,167$66,667 and $41,667, respectively.
On October 1, 2021, the Company and a consultant (collectively as “Parties”) entered into a consulting agreement which shall remain in effect until April 1, 2022, unless sooner terminated as provided in the agreement, or unless extended by agreement of the Parties. Pursuant to the agreement, the Company issued warrants to purchase 500,000 of common stock (“Warrant”) with a grant date fair value of $678,253 for services rendered and was recorded as professional and consulting expenses in the accompanying consolidated statement of operations in 2021. The Warrant vested upon issuance, has an exercise price of $0.001 and expiration date of October 1, 2026. In addition, the consultant shall receive $3,000 per month, payable in cash on the first of each month commencing on the effective date.
Consulting Agreement – Related Party
On October 1, 2021, the Company and Michael Novielli through Dutchess Capital Partners, LLC (“Dutchess Capital”) (collectively as “Parties”) entered into a consulting agreement which shall remain in effect until April 1, 2022 unless sooner terminated as provided in the agreement, or unless extended by agreement of the Parties. Michael Novielli currently serves as a member of the Board of Directors and is considered a related party. Pursuant to the agreement, Dutchess Capital received warrants to purchase 1,000,000 of common stock (“Warrant”) with a grant date fair value of $1,356,507, for services rendered and was recorded as professional and consulting expenses – related party in the accompanying consolidated statement of operations. The Warrant vested upon issuance, had exercise price of $0.001 and expiration date of October 1, 2026. In addition, Dutchess Capital shall receive $10,000 per month, payable in cash on the first of each month commencing on the effective date.
Lock-Up and Leak Out Agreements
In 2021 and during the threesix months ended January 31,April 30, 2022, the Company and various stockholders (collectively as “Parties”) entered into a Lock-Up and Leak Out Agreement (“Lock-Up Agreements”). Pursuant to the Lock-Up Agreements, stockholders, including the stockholders’ affiliated entities, agreed that for the period beginning on the respective effective dates of their Lock-Up Agreements and ending in the period between October 2021 to June 2023 (the “Lock-Up Period”), the stockholders will not offer, sell, contract to sell, pledge, give, donate, transfer or otherwise dispose of, directly or indirectly, any shares of Company’s common stock or securities convertible into or exercisable for common stock or securities or rights convertible into or exchangeable or exercisable for any common stock, whether owned by the stockholders as the date hereof or acquired subsequent to the date hereof (collectively, the “Lock-Up Shares”), enter into a transaction which would have the same effect, or enter into any swap, hedge or other arrangement that transfers, in whole or in part, any of the economic or voting consequences of ownership of such securities, whether any such aforementioned transaction is to be settled by delivery of the Lock-Up Shares or such other securities, in cash or otherwise, or publicly disclose the intention to make any such offer, sale, pledge or disposition, or to enter into any such transaction, swap, hedge or other arrangement. During the ten-months ended October 31, 2021, as consideration for the stockholders’ execution of the Lock-Up Agreements, the Company issued an aggregate of 112,500 shares of common stock with grant date fair value of $152,626 which was recorded as deferred compensation and amortized over the Lock-Up Period. During the threesix months ended January 31,April 30, 2022, as consideration for the stockholders’ execution of the Lock-Up Agreements, the Company issued an aggregate of 272,541516,748 shares of common stock with grant date fair value of $276,896$554,273 which was recorded as deferred compensation and amortized over the Lock-Up Period (see Note 11). During the threesix months ended January 31,April 30, 2022, the Company amortized $279,937$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 January 31,April 30, 2022 and October 31, 2021, the deferred compensation related to this Agreement were $113,897$0 and $115,938, respectively, which will be amortized over the remaining Lock-Up Period of three months.respectively.
License Agreement
On June 24, 2021, the Company entered into a licensing agreement (“License Agreement”) with Ayesha Curry (see Note 4). The License Agreement has a term of three years and renewable under the terms and conditions specified in the License Agreement. Pursuant to the License Agreement the Company shall pay Ayesha Curry a 10% royalty fee of the net sales of all licensed products sold (“Royalties”). For purposes of this License Agreement, licensed product shall be considered sold on the date upon its billed, invoiced, shipped, or paid for, or when title passes to the buyer, whichever occurs first.
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2022
Leases
On November 11, 2021, the Company renewed its lease agreement (“Renewed Lease Agreement”) for their California kitchen facility, effective on January 1, 2022. The Renewed Lease Agreement provides for (i) a term of six months from the effective date ending on June 30, 2022; (ii) a monthly base rent of $9,960 and; (iii) a monthly storage fee of $2,340 (see Note 9). The Renewed Lease Agreement can be terminated with two months’ notice. The Company has elected not to recognize right-of-use (“ROU”) assets and lease liabilities for short-term leases that have a term of 12 months or less (see Note 2).
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2021
NOTE 13 – SUBSEQUENT EVENTS
Sale of Common Stock
Subsequent to January 31,April 30, 2022, the Company issued and aggregate of 282,75084,396 common stock in exchange for $200,448$54,825 of net proceeds.
Convertible Notes Payments
Subsequent to January 31,April 30, 2022, the Company paid an aggregate of $300,800$75,350 of outstanding principal and interest (see Note 5).
Joint Product DevelopmentWarrant Exchange Agreements
Om May 1, 2022, to induce the conversion of various outstanding warrants the Company entered into a warrant exchange agreement with various warrant holders (collectively as “Parties”) pursuant to which the Parties exercised an aggregate of 922,495 warrants with initial exercise price of $2.50 issued between January to September 2021, an agreed upon reduced exercise price of $0.75 with the Company issuing an aggregate of 3,074,983 shares of common stock in exchange for the outstanding warrants and Distribution Agreementno cash consideration.
Convertible Notes
May 2022 Note I
On February 22,May 18, 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 DistributionSecurities Purchase Agreement (“Development Agreement”May 2022 SPA I”). with an investor for the sale of the Company’s convertible note. Pursuant to the Development Agreement,May 2022 SPA I, the Parties shall collaboratively developCompany; (i) issued a brandconvertible note with principal amount of desserts$500,000 (“Moss Deserts”May 2022 Note I”) jointly with the Home Bistro label,Company receiving $450,000 in net proceeds, net of $40,000 of OID and $10,000 of legal fees; (ii) issued warrants to purchase up to 769,231 shares of common stock (“May 2022 Warrant I”). The May 2022 Note I bears an annual interest rate of 15% and matures on May 18, 2023. The May 2022 Note I is convertible at any time or times on or after the occurrence of an event of default, at a price equal to $0.39, provided, however, that if the Company consummates an Uplist Offering (as defined in this May 2022 Note I) within 180 calendar days after the issuance date, then the conversion price shall equal 75% of the Uplist Offering. If the date of a respective conversion under the terms and conditionsMay 2022 Note I, is prior to the date of the Development Agreement. Uplist Offering, then the Conversion Price shall equal $0.39 per share. At any time prior to an event of default the Company shall have the option to pre-pay the outstanding principal at an amount equal to 115% of the outstanding balance plus accrued.
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2022
The Development AgreementMay 2022 Warrant I issued to the investor, provides for the right to purchase up to 769,231 shares of common stock; (i) to be valued at using the relative fair value method and recorded as a debt discount to be amortized over the twelve-month term of the May 2022 Note I; (ii) exercisable at $0.65, provided, however, upon the Uplist Offering, the exercise price shall remain in effectequal 120% of the Uplist Offering; after180 calendar days from the Effective Date untilissuance date the last day ofexercise price shall be $0.65; (iii) subject to adjustments and 4.99% ownership limitation and; (iv) expires on the month that is one-yearthird-year anniversary from the Effective Date.date of issuance.
ForIf the useCompany 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 MMor issue any common stock or common stock equivalents (other than an exempt issuance as defined in the May 2022 Note I and all associated intellectual property forMay 2022 Warrant I), at a share price per less than the benefitinitial 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 Moss Deserts,note or exercise of the warrant, respectively, for sale in certain registration statements filed by the Company shall pay to MM 5%under the Securities Act of all Net Revenue generated from the sale of Moss Deserts (“MM Royalty”). For the purpose of this agreement “Net Revenue” shall be defined1933, 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.amended.
May 2022 Note II
Lock-UpOn 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 Leak Out Agreements$10,000 of legal fees; (ii) issued warrants to purchase up to 217,391 shares of common stock (“May 2022 Warrant II”). The May 2022 Note II bears an annual interest rate of 15% and matures on May 24, 2023. The May 2022 Note II is convertible at any time or times on or after the occurrence of an event of default, at a price equal to the lower of; (i) 75% of the closing price of the common stock on the date of the investment, and (ii) 90% of the lowest VWAP for the common stock during the five trading day period ending on the latest complete trading day prior to the conversion date however if the Company consummates an Uplist Offering (as defined in the May 2022 Note II) within the 180 calendar days after the issuance date, then the conversion price shall equal 75% of the offering price per share of common stock at which the Uplist Offering is made. Unless otherwise adjusted pursuant to the terms of the May 2022 Note II, if the date of a conversion under the May 2022 Note II is prior to the date of the Uplist Offering, then the conversion price shall equal $0.345 per share. At any time prior to an event of default the Company shall have the option to pre-pay the May 2022 Note II at an amount equal to 115% of the outstanding balance plus accrued and unpaid interest on the outstanding balance. Upon the occurrence and during the continuation of any event of default, the May 2022 Note II shall become immediately due and payable at an amount equal to 150% of the outstanding principal plus accrued and unpaid interest and any default interest, if any. Upon an event of default, at the option of the investor the conversion price shall equal 90% of the lowest VWAP for the common stock during the five-trading day period prior to the conversion date.
Subsequent
HOME BISTRO, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2022
The May 2022 Warrant II issued to January 31,the investor, provides for the right to purchase up to 217,391 shares of common stock; (i) shall valued at using the relative fair value method and recorded as a debt discount to be amortized over the twelve-month term of the May 2022 Note II; (ii) exercisable at $0.575, provided, however, that if the Company consummates an Uplist Offering within 180 calendar days from the issuance date in which case the exercise price shall be equal to 120% of the Uplist Offering price; after180 calendar days from the issuance date the exercise price shall be $0.575; (iii) subject to adjustments and various stockholders (collectively as “Parties”) entered into a Lock-Up Agreements (“Lock-Up Agreements”). Pursuant to the Lock-Up Agreements, stockholders, including the stockholders’ affiliated entities, agreed that for the period beginning4.99% ownership limitation and; (iv) expires on the respective effective datesthird-year anniversary from the date of their Lock-Up Agreements and ending inissuance.
If the period between February 2022 toCompany at any time while the May 2022 (the “Lock-Up Period”), the stockholders will not offer,Note II and May 2022 Warrant II are outstanding, sell contractor grant any option to purchase, sell, pledge, give, donate, transfergrant any right to re-price, or otherwise dispose of directly or indirectly,issue any shares of Company’s common stock or securities convertible into or exercisable for 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 securities exercise price then the conversion and/or rights convertible into or exchangeable or exercisable for anyexercise price shall be reduced equal to such price and the number of common stock whether ownedand/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 stockholdersCompany under the Securities Act of 1933, as amended.
May 2022 Note III
On May 24, 2022, the date hereof or acquired subsequentCompany 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 date hereof (collectively,May 2022 SPA III, the “Lock-Up Shares”), enter intoCompany; (i) issued a transaction which would have the same effect, or enter into any swap, hedge or other arrangement that transfers, in whole or in part, anyconvertible note with principal amount 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. As consideration for the stockholders’ execution of$182,927 (“May 2022 Note III”) with the Lock-Up Agreements, the Company receiving $150,000 in net proceeds, net of $18,293 of OID and $14,634 of legal fees; (ii) issued an aggregate of 244,207warrants to purchase up to 318,134 shares of common stock with grant(“May 2022 Warrant III”). The May 2022 Note III bears an annual interest rate of 15% and matures on May 24, 2023. The May 2022 Note III is convertible at any time or times on or after the occurrence of an event of default, at a price equal to the lower of; (i) 75% of the closing price of the common stock on the date of the investment, and (ii) 90% of the lowest VWAP for the common stock during the five trading day period ending on the latest complete trading day prior to the conversion date however if the Company consummates an Uplist Offering (as defined in the May 2022 Note III) within the 180 calendar days after the issuance date, then the conversion price shall equal 75% of the offering price per share of common stock at which the Uplist Offering is made. Unless otherwise adjusted pursuant to the terms of the May 2022 Note III, if the date of a conversion under the May 2022 Note III is prior to the date of the Uplist Offering, then the conversion price shall equal $0.345 per share. At any time prior to an event of default the Company shall have the option to pre-pay the May 2022 Note III at an amount equal to 115% of the outstanding balance plus accrued and unpaid interest on the outstanding balance. Upon the occurrence and during the continuation of any event of default, the May 2022 Note III shall become immediately due and payable at an amount equal to 150% of the outstanding principal plus accrued and unpaid interest and any default interest, if any. Upon an event of default, at the option of the investor the conversion price shall equal 90% of the lowest VWAP for the common stock during the five-trading day period prior to the conversion date.
The May 2022 Warrant III issued to the investor, provides for the right to purchase up to 318,134 shares of common stock; (i) shall valued at using the relative fair value of $277,377 which shall bemethod and recorded as deferred compensation anda debt discount to be amortized over the Lock-Up Period.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.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Except for the historical information, the following discussion contains forward-looking statements that are subject to risks and uncertainties. We caution you not to put undue reliance on any forward-looking statements, which speak only as of the date of this Report. Our actual results or actions may differ materially from these forward-looking statements for many reasons. Our discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and related notes and with the understanding that our actual future results may be materially different from what we currently expect. See “CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION” above. As used herein, the terms “we,” “us,” “our” and the “Company” refers to Home Bistro, Inc., a Nevada corporation and its subsidiaries unless otherwise stated.
Overview
Home Bistro, Inc. (formerly known as Gratitude Health, Inc.) (the “Company”) was incorporated in the State of Nevada on December 17, 2009. Effective March 23, 2018, the Company changed its name from Vapir Enterprises Inc. to Gratitude Health, Inc. On September 14, 2020, the Company changed its name from Gratitude Health, Inc. to Home Bistro, Inc. The Company is in the business of providing pre-packaged 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.
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.
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.
In January 2022, the Company’s board of directors and management changed the Company’s fiscal year end from December 31st to October 31st, effective immediately.
Recent Developments
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 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 10thbusiness 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.
Results of Operations
For the Three and Six Months Ended January 31,April 30, 2022 and 2021
Product Sales
Product Sales
During the three months ended January 31,April 30, 2022 and 2021, revenues were $801,799$743,263 and $399,027,$328,024, respectively, an increase of $402,772$415,239 or 101%127%.
During the six months ended April 30, 2022 and 2021, revenues were $1,545,062 and $727,051, respectively, an increase of $818,011 or 113%.
Cost of Sales
Since the Company implemented its own kitchen operations in July 2020, its primary components of cost of sales are raw materials and direct kitchen labor and, with the introduction of the Company’s celebrity chef program in the fourth quarter of 2020, it now incurs associated royalty fees.
During the three months ended January 31,April 30, 2022 and 2021, the Company had total cost of sales of $746,603 and $291,693, respectively, an increase of $454,910 or 156%. The increase was due to an increase in direct kitchen labor, royalty fees and packaging expenses.
During the six months ended April 30, 2022 and 2021, the Company had total cost of sales of $615,994 and $288,629, respectively, an increase of $327,365 or 113%. The increase was due to the Company’s decision to conduct a trial test of free shipping an increase in direct kitchen labor, royalty fees and the acquisition of Model Meals in July 2021.packaging expenses.
Operating Expenses
Operating Expenses
For the Three and Six Months Ended January 31,April 30, 2022 and 2021, operating expenses consisted of the following:
| Three Months Ended January 31, | Three Months Ended April 30, | Six Months Ended April 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Compensation and related expenses | $ | 287,579 | $ | 68,037 | $ | 704,098 | $ | 97,785 | $ | 991,677 | $ | 165,822 | ||||||||||||
| Professional and consulting expenses | 1,652,054 | 68,847 | 1,415,748 | 453,876 | 3,067,802 | 522,723 | ||||||||||||||||||
| Professional and consulting expenses – related party | 30,000 | — | 30,000 | — | 60,000 | — | ||||||||||||||||||
| Product development expense | 146,614 | — | 125,000 | — | 271,614 | — | ||||||||||||||||||
| Selling and marketing expenses | 364,584 | 75,940 | 223,485 | 135,308 | 588,069 | 211,248 | ||||||||||||||||||
| General and administrative expenses | 448,401 | 61,129 | 386,643 | 92,615 | 835,044 | 153,744 | ||||||||||||||||||
| Total | $ | 2,929,232 | $ | 273,953 | $ | 2,884,974 | $ | 779,584 | $ | 5,814,206 | $ | 1,053,537 | ||||||||||||
Compensation and Related Expenses
| ● | During the three months ended |
| ● | During the six months ended April 30, 2022 and 2021, compensation and related expenses amounted to $991,677 and $165,822, respectively, an increase of $825,855 or 498%. The increase was primarily attributable to an increase of $349,810 stock-based compensation and increase in executive salary in 2022. |
Professional and Consulting Expenses:
| ● | During the three months ended |
| ● | During the six months ended April 30, 2022 and 2021, professional and consulting expenses amounted to $3,067,802 and $522,723, respectively, an increase of $2,545,079 or 487%. The increase was primarily due an increase in stock-based compensation of $2,093,591 related to commons stock issued for lock up and leak out agreements and common stock issued for services and prepaid services, an increase in investor relations fee of |
Professional and Consulting Expenses – Related Party:
| ● | During the three months ended |
| ● | During the six months ended April 30, 2022 and 2021, professional and consulting expenses – related party amounted to 60,000 and $0, respectively, an increase of $60,000 or 100%. The increase was a result of a consulting agreement with a related party, dated October 1, 2021 which provides for $10,000 monthly consulting fee. |
Product Development Expenses
| ● | During the three months ended |
| ● | During the six months ended April 30, 2022 and 2021, product development expenses amounted to $271,614 and $0, respectively, an increase of $271,614, or 100%. The product development expense in the 2022 period was primarily due to the amortization of the deferred compensation resulting from common stock issued in connection with the product development agreements. |
Selling and Marketing Expenses
| ● | During the three months ended |
| ● | During the six months ended April 30, 2022 and 2021, selling and marketing expenses amounted to $588,069 and $211,248, respectively, an increase of $376,821, or 178%. The increase was primarily due to the expansion of our multi-channel digital marketing strategy to further promote our celebrity chef program in and acquisition of Model Meals in July 2021. |
General and Administrative Expenses
| ● | During the three months ended |
| ● | During the six months ended April 30, 2022 and 2021, general and administrative expenses amounted to $835,044 and $153,744, respectively, an increase of $681,300 or 443%. The increase was primarily due to an increase in depreciation and amortization expense of $509,914, an increase in transfer agent fees of |
Loss from Operations
| ● | During the three months ended |
Other Income (Expense), net
| ● | During the |
Net Loss
Other Income (Expense), net
| ● | During the three months ended April 30, 2022 and 2021, other expense, net amounted to $165,169 and $275,936, respectively, a decrease of $110,767 or 40%. The change was primarily due to a decrease in interest expense of $279,712 resulting from a decrease in convertible notes in 2022, a decrease in gain from change in fair value of derivative liabilities of $141,776 and offset by a decrease in gain on extinguishment of debt of $26,629. |
| ● | During the six months ended April 30, 2022 and 2021, other expense, net amounted to $318,078 and $255,317, respectively, an increase $62,761 or 25%. The change was primarily due to decrease in interest expense of $85,856 resulting from a decrease in convertible notes in 2022, a decrease in gain from change in fair value of derivative liabilities of $114,913, a decrease in gain on extinguishment of accounts payable of $7,075 and a decrease in gain on extinguishment of debt of $26,629. |
Net Loss
| ● | During the three months ended April 30, 2022 and 2021, we had a net loss of $3,053,483 or $(0.08) per common share (basic and diluted) and $1,019,189 or $(0.05) per common share (basic and diluted), respectively, an increase of $2,034,294 or 200%. The increase was due to the changes discussed above. |
| ● | During the six months ended April 30, 2022 and 2021, we had a net loss of $5,949,819 or $(0.16) per common share (basic and diluted) and $1,162,125 or $(0.06) per common share (basic and diluted), respectively, an increase of $4,787,694 or 412%. The increase was due to the changes discussed above. |
Liquidity and Capital Resources
Liquidity is the ability of an enterprise to generate adequate amounts of cash to meet its needs for cash requirements. We had a working capital deficit of $533,318$1,446,778 and cash of $1,253,844$361,636 as of January 31,April 30, 2022 and a working capital deficit of $318,797 and cash of $2,275,397 as of October 31, 2021.
| January 31, 2022 | October 31, 2021 | Change | Percentage Change | April 30, 2022 | October 31, 2021 | Change | Percentage Change | |||||||||||||||||||||||||
| Working capital deficit: | ||||||||||||||||||||||||||||||||
| Total current assets | $ | 1,659,391 | $ | 2,372,058 | $ | (712,667 | ) | 30 | % | $ | 752,027 | $ | 2,372,058 | $ | (1,620,031 | ) | 68 | % | ||||||||||||||
| Total current liabilities | (2,192,709 | ) | (2,690,855 | ) | 498,146 | 19 | % | (2,198,805 | ) | (2,690,855 | ) | 492,050 | 18 | % | ||||||||||||||||||
| Working capital deficit: | $ | (533,318 | ) | $ | (318,797 | ) | $ | (214,521 | ) | 67 | % | $ | (1,446,778 | ) | $ | (318,797 | ) | $ | (1,127,981 | ) | 354 | % | ||||||||||
The increase in working capital deficit was primarily attributable to a decrease in current assets of $712,667$1,620,031 and a decrease in current liabilities of $498,146,$492,050, due to the repayment of convertible notes, reduction in derivative liabilities, repayment advances payable and reduction in lease liabilities.
Cash Flows
Cash Flows
The following table provides detailed information about our net cash flows:
| Three Months Ended January 31, | Six Months Ended April 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Net cash used in operating activities | $ | (1,432,527 | ) | $ | (140,112 | ) | $ | (2,457,546 | ) | $ | (768,127 | ) | ||||
| Net cash used in investing activities | (11,750 | ) | (113,755 | ) | ||||||||||||
| Net cash provided by financing activities | 410,974 | 533,820 | 555,535 | 1,173,048 | ||||||||||||
| Net change in cash | $ | (1,021,553 | ) | $ | 393,708 | $ | (1,913,761 | ) | $ | 291,166 | ||||||
Net Cash Used in Operating Activities
Net cash used in operating activities for the threesix months ended January 31,April 30, 2022 and 2021, were $1,432,527$2,457,546 and $140,112,$768,127, respectively, an increase of $1,292,415$1,689,419 or 922%220%.
| ● | Net cash used in operating activities for the |
| ● | Net cash used in operating activities for the |
Net Cash Used in Investing Activities
Net cash used in investing activities the six months ended April 30, 2022 and 2021, were $11,750 and $113,755, respectively, a decrease of $102,005 or 90%.
| ● | Net cash used by investing activities for the six months ended April 30, 2022 consisted of purchase of property and equipment in the amount of $11,750. |
| ● | Net cash used by investing activities for the six months ended April 30, 2021 consisted of purchase of property and equipment in the amount of $113,755. |
Net Cash Provided by Financing Activities
Net cash provided by financing activities the threesix months ended January 31,April 30, 2022 and 2021, were $410,974$555,535 and $533,820,$1,173,048, respectively, a decrease of $122,846$617,513 or 23%53%.
| ● | Net cash provided by financing activities for the |
| ● | Net cash provided by financing activities for the |
Cash Requirements
Cash Requirements
We are dependent on our product sales to fund our operations and may require the sale of additional common stock to maintain operations. Our officers and directors have made no written commitments with respect to providing a source of liquidity in the form of cash advances, loans, and/or financial guarantees.
Going Concern
Going Concern
The financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in the accompanying unaudited consolidated financial statements, for the threesix months ended January 31,April 30, 2022, the Company had a net loss and cash used in operations of $2,896,336$5,949,819 and $1,432,527,$2,457,546, respectively. At January 31,April 30, 2022, the Company had an accumulated deficit, stockholders’ equity, and working capital deficit of $22,032,000, $4,247,562$(25,085,483), $3,109,927 and $533,318,$(1,446,778), respectively. These factors raise substantial doubt about the Company’s ability to continue as a going concern for a period of twelve months from the issuance date of this report. The Company’s primary source of operating funds in 2022 washas primarily from the sale of common stock through private placements.and the issuance of convertible debt notes. The Company has experienced net losses from operations since inception but expects these conditions to improve in the near term and beyond as it develops its business model.
Management cannot provide assurance that the Company will ultimately achieve profitable operations or become cash flow positive or raise additional debt and/or equity capital. Management believes that the Company’s capital resources are not currently adequate to continue operating and maintaining its business strategy for a period of twelve months from the issuance date of this report. If the Company is unable to raise additional capital or secure additional lending in the near future, management expects that the Company will need to curtail or cease operations. These consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Inflation and Changing Prices
Neither inflation nor changing prices for the threesix months ended January 31,April 30, 2022 had a material impact on our operations.
Off-Balance Sheet Arrangements
None.
Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires our management to make assumptions, estimates, and judgments that affect the amounts reported, including the notes thereto, and related disclosures of commitments and contingencies, if any. We have identified certain accounting policies that are significant to the preparation of our financial statements. These accounting policies are important for an understanding of our financial condition and results of operations. Critical accounting policies are those that are most important to the portrayal of our financial condition and results of operations and require management’s difficult, subjective, or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Certain accounting estimates are particularly sensitive because of their significance to financial statements and because of the possibility that future events affecting the estimate may differ significantly from management’s current judgments.
We believe the following critical accounting policies involve the most significant estimates and judgments used in the preparation of our unaudited condensed consolidated financial statements. We believe the critical accounting policies in Note 2 to the condensedunaudited consolidated financial statements appearing in the consolidated financial statements for the three and six months ended January 31,April 30, 2022 affect our more significant judgments and estimates used in the preparation of our condensedunaudited consolidated financial statements.
Use of Estimates
The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Significant estimates as of January 31,April 30, 2022 and October 31, 2021 include the assumptions used in the redemption recognition method for unredeemed gift cards, useful life of property and equipment and intangible assets, valuation of right-of-use (“ROU”) assets and lease liabilities, estimates of current and deferred income taxes and deferred tax valuation allowances, fair value of assets acquired and liabilities assumed in a business combination, and the fair value of non-cash equity transactions and derivative liabilities.
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 January 31,April 30, 2022. Accordingly, the estimates presented in these financial statements are not necessarily indicative of the amounts that could be realized on disposition of the financial instruments. FASB ASC 820 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement).
The three levels of the fair value hierarchy are as follows:
| Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date. | |
| Level 2—Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data. | |
| Level 3—Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information. |
The carrying amounts reported in the consolidated balance sheets for cash, due from and to related parties, prepaid expenses, accounts payable and accrued liabilities approximate their fair market value based on the short-term maturity of these instruments.
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 threesix months ended January 31,April 30, 2022.
Impairment of Long-Lived Assets
In accordance with ASC Topic 360, the Company reviews long-lived assets including intangible assets with finite life, for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value.
Derivative Liabilities
The Company has certain financial instruments that are embedded derivatives associated with capital raises. The Company evaluates all its financial instruments to determine if those contracts or any potential embedded components of those contracts qualify as derivatives to be separately accounted for in accordance with ASC 815-10 – Derivative and Hedging – Contract in Entity’s Own Equity. This accounting treatment requires that the carrying amount of any derivatives be recorded at fair value at issuance and marked-to-market at each balance sheet date. In the event that the fair value is recorded as a liability, as is the case with the Company, the change in the fair value during the period is recorded as either other income or expense. Upon conversion, exercise or repayment, the respective derivative liability is marked to fair value at the conversion, repayment, or exercise date and then the related fair value amount is reclassified to other income or expense as part of gain or loss on debt extinguishment.
Revenue Recognition
The Company’s revenues consist of high quality, direct-to-consumer, ready-made meals that can be ordered by customers through www.homebistro.com, www.modelmeals.com and restaurant quality meats and seafood through its Colorado Prime Brand. Revenues from the Company’s ready-made meals are recognized when the product is delivered to the customer and title has transferred. It is at this point in time that the Company’s performance obligations have been completed. Product sales are recorded net of any discounts or allowances and include shipping charges.
Customers can purchase gift cards via phone or online through the Company’s e-commerce website. Gift card purchases are initially recorded as unredeemed gift card liabilities and are recognized as product sales upon redemption. Historically, the majority of gift cards are redeemed within two to three years of issuance. The Company does not charge administrative fees on unused gift cards, and its gift cards do not have an expiration date.
Based on historical redemption patterns, a portion of issued gift cards are not expected to be redeemed (breakage). The Company uses the redemption recognition method for recognizing breakage related to unredeemed gift cards for which it has sufficient historical redemption information. Under the redemption recognition method, breakage revenue is recorded in proportion to, and over the time period gift cards are actually redeemed. The estimated breakage rate is based on historical issuance and redemption patterns and is re-assessed by the Company on a regular basis. At least three years of historical data, which is updated annually, is used to estimate redemption patterns. Model meals, the Company’s wholly-owned subsidiary, does not have sufficient historical redemption information to recognize breakage. Therefore, all issued gift cards are recorded as a liability upon issuance and revenue when used.
Leases
The Company accounts for its leases using the method prescribed by ASC 842 – Lease Accounting. The Company assess whether the contract is, or contains, a lease at the inception of a contract which is based on (i) whether the contract involves the use of a distinct identified asset, (ii) whether the Company obtain the right to substantially all the economic benefit from the use of the asset throughout the period, and (iii) whether the Company has the right to direct the use of the asset. The Company allocates the consideration in the contract to each lease component based on its relative stand-alone price to determine the lease payments. The Company has elected not to recognize right-of-use (“ROU”) assets and lease liabilities for short-term leases that have a term of 12 months or less.
Operating and financing lease ROU assets represents the right to use the leased asset for the lease term. Operating and financing lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at the adoption date in determining the present value of future payments. Lease expense for minimum lease payments is amortized on a straight-line basis over the lease term and is included in general and administrative expenses in the consolidated statements of operations.
Recent Accounting Pronouncements
In August 2020, the FASB issued ASU 2020-06—Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and edging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”) to simplify the accounting for convertible instruments by removing certain separation models in Subtopic 470- 20, Debt with Conversion and Other Options, for convertible instruments. Under the amendments in ASU 2020-06, the embedded conversion features no longer are separated from the host contract for convertible instruments with conversion features that are not required to be accounted for as derivatives under Topic 815, Derivatives and Hedging, or that do not result in substantial premiums accounted for as paid-in capital. Consequently, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost and a convertible preferred stock will be accounted for as a single equity instrument measured at its historical cost, as long as no other features require bifurcation and recognition as derivatives. By removing those separation models, the interest rate of convertible debt instruments typically will be closer to the coupon interest rate when applying the guidance in Topic 835, Interest. The amendments in ASU 2020-06 provide financial statement users with a simpler and more consistent starting point to perform analyses across entities. The amendments also improve the operability of the guidance and reduce, to a large extent, the complexities in the accounting for convertible instruments and the difficulties with the interpretation and application of the relevant guidance. To further improve the decision usefulness and relevance of the information being provided to users of financial statements, amendments in ASU 2020-06 increased information transparency by making the following amendments to the disclosure for convertible instruments:
| 1. | Add a disclosure objective |
| 2. | Add information about events or conditions that occur during the reporting period that cause conversion contingencies to be met or conversion terms to be significantly changed |
| 3. | Add information on which party controls the conversion rights |
| 4. | Align disclosure requirements for contingently convertible instruments with disclosure requirements for other convertible instruments |
| 5. | Require that existing fair value disclosures in Topic 825, Financial Instruments, be provided at the individual convertible instrument level rather than in the aggregate. |
Additionally, for convertible debt instruments with substantial premiums accounted for as paid-in capital, amendments in ASU 2020-06 added disclosures about (1) the fair value amount and the level of fair value hierarchy of the entire instrument for public business entities and (2) the premium amount recorded as paid-in capital.
The amendments in ASU 2020-06 are effective for public business entities, excluding entities eligible to be smaller reporting companies as defined by the SEC, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Entities should adopt the guidance as of the beginning of its annual fiscal year and are allowed to adopt the guidance through either a modified retrospective method of transition or a fully retrospective method of transition. In applying the modified retrospective method, entities should apply the guidance to transactions outstanding as of the beginning of the fiscal year in which the amendments are adopted. Transactions that were settled (or expired) during prior reporting periods are unaffected. The cumulative effect of the change should be recognized as an adjustment to the opening balance of retained earnings at the date of adoption. If an entity elects the fully retrospective method of transition, the cumulative effect of the change should be recognized as an adjustment to the opening balance of retained earnings in the first comparative period presented. The Company early adopted ASU 2020-06 during the three months ended January 31, 2022 and did not have a significant impact on its consolidated financial statements.
In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40). The new ASU addresses issuer’s accounting for certain modifications or exchanges of freestanding equity-classified written call options. This amendment is effective for all entities, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted. The Company does not believe the adoption of this ASU will have a significant impact on its consolidated financial statements.
Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on its consolidated financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company, we are not required to provide this information.
ITEM 4. CONTROLS AND PROCEDURES
We maintain “disclosure controls and procedures,” as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive and Financial Officer, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
With respect to the quarterly period ending January 31,April 30, 2022, under the supervision and with the participation of our management, we conducted an evaluation of the effectiveness of the design and operations of our disclosure controls and procedures. Based upon this evaluation, our management has concluded that our disclosure controls and procedures were not effective as of January 31,April 30, 2022 due to our limited internal resources and lack of ability to have multiple levels of transaction review. In connection with this evaluation, management identified the following control deficiencies that represent material weaknesses as of January 31,April 30, 2022:
| (1) | the lack of multiples levels of management review on complex accounting and financial reporting issues, and business transactions, | |
| (2) | a lack of adequate segregation of duties and necessary corporate accounting resources in our financial reporting process and accounting function as a result of our limited financial resources to support hiring of personnel and implementation of accounting systems, | |
| (3) | a lack of operational controls and lack of controls over assets by the acquired subsidiaries, and | |
| (4) | a lack of adequate controls over the board of director’s approval and timely distribution and review of material contracts and agreements. |
Changes in internal control over financial reporting
There was no change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934) for the period ended January 31,April 30, 2022 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not currently involved in any legal proceedings. However, from time to time, the Company may be involved in litigation matters relating to claims arising from the ordinary course of business. While the results of such claims and legal actions cannot be predicted with certainty, the Company’s management does not believe that there are claims or actions, pending or threatened against the Company, the ultimate disposition of which would have a material effect on our business, results of operations, financial condition or cash flows.
ITEM 1A. RISK FACTORS
None.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Except for provided below, all unregistered sales of our securities during the three months ended January 31,April 30, 2022, were previously disclosed in a Quarterly Report on Form 10-Q or in a Current Report on Form 8-K.
| 1. | During the three months ended |
| 2. | During the three months ended |
| 3. | During the three months ended |
| 4. | During the three months ended |
The shares of common stock referenced herein were issued in reliance upon the exemption from securities registration afforded by the provisions of Section 4(a)(2) of the Securities Act of 1933, as amended, (“Securities Act”).
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURE
Not applicable.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS
| * | Filed herein |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| HOME BISTRO, INC. | ||
| Date: | By: | / |
| Zalmi Duchman | ||
Chief Executive Officer (Principal Executive
| ||
| Date: June 10, 2022 | By: | /s/ Camille May |
Camille May Chief Financial Officer (Principal Financial Officer) | ||
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