STOCKHOLDERS' DEFICIT | NOTE 10 – STOCKHOLDERS’ DEFICIT Shares Authorized On April 7, 2020, the Board of Directors of the Company approved the increase of the authorized shares of the common stock to 1,000,000,000 from 600,000,000 (see Note 1). As of June 30, 2020, the authorized capital of the Company consisted of 1,000,000,000 shares of common stock, par value $0.001 per share and 20,000,000 shares of preferred stock, par value $0.001 per share. On April 20, 2020, as a result of the closing of the Share Exchange Agreement with Home Bistro (see Note 3), the equity of the consolidated entity is the historical equity of Home Bistro retroactively restated to reflect the number of shares issued by the Company in the reverse recapitalization. Stocks Issued Pursuant to Recapitalization On April 20, 2020, in connection with the Exchange Agreement and Merger (see Note 3): ● 519,000 shares of Series A Preferred stock, were exchanged for aggregate of 42,395,542 shares of common stock and 87,354,458 of stock warrants. The 87,354,458 stock warrants issued are exercisable at $0.001 and expire on April 20, 2030. As of June 30, 2020, there were no outstanding shares of Series A Preferred stock. ● 250,000 shares of Series B Convertible Preferred stock owned by a former officer were cancelled on April 9, 2020 pursuant to a General Release Agreement and the remaining 250,000 shares of Series B Convertible Preferred stock remain issued and outstanding as of June 30, 2020. ● 2,250 and 250 of the Company’s shares of Series C Preferred stock, were exchanged for 11,250,000 of stock warrants and 1,250,000 shares of common stock, respectively, for an aggregate of 2,500 shares of Series C Preferred exchanged. The 11,250,000 stock warrants are exercisable at $0.001 and expire on April 20, 2030. As of June 30, 2020, there were no outstanding shares of Series C Preferred stock. ● a lender converted $1,127,500 of outstanding convertible note balance into 28,187,500 of stock warrants, exercisable at $0.001 and expire on April 20, 2030. ● 2,500,000 shares of commons stock held by a stockholder were exchanged for 2,500,000 of stock warrants, exercisable at $0.001 and expire on April 20, 2030. As a result, in connection with the Exchange Agreement and Merger (see Note 3), Gratitude Health, Inc is deemed to have issued a total of 250,000 shares of Series B Convertible Preferred stock, 60,727,607 shares of common stock, 1,940,000 stock options, 129,291,958 stock warrants which represent the outstanding preferred stock, common stock (issued and issuable), stock options and stock warrants of the Company on the date of the Merger. Preferred Stock As of June 30, 2020, there were no outstanding shares of Series A Preferred and Series C Preferred stock (see above Stocks Issued Pursuant to Recapitalization Series B Preferred Stock On March 18, 2018, the Company filed a Certificate of Designation of Preferences, Rights and Limitations of Series B preferred stock (“Certificate of Designation”) which includes: ● a par value of $0.001 per share and 500,000 designated shares of Series B Preferred and has a stated value of $10 per share, ● the Series B Preferred stock was convertible at an initial conversion price of $0.10, subject to adjustment in the event of stock split, stock dividends, and recapitalizations or otherwise, and was adjusted down to $0.04 conversion price, ● Series B Preferred holders shall be entitled to receive in cash out of the assets of the Corporation, whether from capital or from earnings available for distribution to its stockholders (the “Liquidation Funds”), before any amount shall be paid to the holders of any of shares of Junior Stock, an amount per Preferred Share equal to the Stated Value, plus any accrued and unpaid dividends thereon and any other fees or liquidated damages then due and owing thereon under this Certificate of Designation for each share of Preferred Stock such Holder would receive if such Holder converted such Preferred Shares into common stock immediately prior to the date of such payment, provided that if the Liquidation Funds are insufficient to pay the full amount due to the Holders and holders of shares of Parity Stock, then each Holder and each holder of Parity Stock shall receive a percentage of the Liquidation Funds equal to the full amount of Liquidation Funds payable to such Holder and such holder of Parity Stock as a liquidation preference, in accordance with their respective certificate of designations (or equivalent), as a percentage of the full amount of Liquidation Funds payable to all holders of Preferred Shares and all holders of shares of Parity Stock, ● Series B Preferred holders voting as a single class, in the aggregate, shall be entitled to vote with all voting securities of the Company on all matters submitted to the holders of voting securities for vote with the holders of the Preferred Shares entitling the holder thereof to cast that number of votes equal to the number of shares of common stock issued and outstanding eligible to vote, at the time of the respective vote plus the number of votes which all other series, or classes of securities are entitled to cast together with the holders of common stock at the time of the relevant vote plus one additional share of common stock, ● the Series B Preferred stock shall rank senior to the Company’s common stock and to all other classes and series of equity securities of the Company which by their terms do not rank senior to the Series B Preferred, and ● Series B Preferred holders shall be entitled to receive such dividends paid and distributions made to the holders of shares of common stock to the same extent as if such Series B Preferred holders had converted each Series B Preferred stock held by each of them into shares of common stock (without regard to any limitations on conversion herein or elsewhere) and had held such shares of common stock on the record date for such dividends and distributions. As of June 30, 2020, there were 250,000 shares of Series B Preferred stock issued and outstanding (see above Stocks Issued Pursuant to Recapitalization Common Stock Common stock for cash ● During the six months ended June 30, 2020, the Company issued an aggregate of 47,749 shares of common stock, to a related party and non-affiliate investor for aggregate cash proceeds of $100,006. The Company did not issue any common stock for cash during the six months ended June 30, 2019. Stock-based compensation ● During the six months ended June 30, 2020 and 2019, the Company recorded stock-based compensation of $213,841 and $91,648, respectively, related to common stock issued to an executive pursuant to an employment agreement (see Note 11) and was charged as compensation and related expenses in the accompanying statements of operations. As of June 30, 2020, there was no unamortized compensation expense related to these common shares. ● During the six months ended June 30, 2020, the Company recorded stock-based compensation of $238,268 related to an aggregate of 127,942,741 shares of common stock issued to employees and various consultants, of which $102,332 was charged as compensation and related expenses, $124,219 as professional and consulting expenses and $11,717 as selling and marketing expenses in the accompanying condensed consolidated statements of operations. Cancellation of common stock issuable ● On April 20, 2020, in connection with the Exchange Agreement and Merger (see Note 3), 2,600,000 shares of common stock issuable at the closing of the acquisition were cancelled during the three months ended June 30, 2020. As of June 30, 2020, the Company did not have any common stock issuable. Stock Options A summary of the Company’s outstanding stock options as of June 30, 2020 and changes during the period ended are presented below: Number of Weighted Average Exercise Weighted Average Remaining Contractual Life Aggregate Intrinsic Balance at December 31, 2019 — $ — — $ — Issued in connection with the Company’s recapitalization (see Note 3) 1,940,000 $ 0.10 1.04 — Balance at June 30, 2020 1,940,000 $ 0.10 0.54 $ — Stock Warrants Stocks Issued Pursuant to Recapitalization On April 20, 2020, pursuant to the Exchange Agreement (see Note 3), the Company issued 221,593,553 stock warrants with exercise price of $0.001 and expiration date of April 20, 2030 in exchange for certain outstanding common stock shares of Home Bistro on the date of the Merger. A summary of the Company’s outstanding stock warrants as of June 30, 2020 and changes during the period ended are presented below: Number of Stock Warrants Weighted Average Exercise Price Weighted Average Remaining Contractual Life (Years) Balance at December 31, 2019 — $ — — Issued in connection with the Company’s recapitalization (see Note 3) 129,291,958 0.001 9.81 Issued pursuant to Exchange Agreement (see Note 3) 221,593,553 0.001 9.81 Cancelled/Forfeited — — — Exercised — — — Balance at June 30, 2020 350,885,511 $ 0.001 9.81 Stock warrants exercisable at June 30, 2020 350,885,511 $ 0.001 9.81 Weighted average fair value of stock warrants granted during the period $ 0.02 The exercisable stock warrants had an intrinsic value of $8,456,341 at June 30, 2020. |