| ACQUISITION OF HOME BISTRO HOLDINGS AND DISPOSAL OF THE DISCONTINUED OPERATIONS OF THE RTD BUSINESS | NOTE 3 – ACQUISITION OF HOME
BISTRO HOLDINGS AND DISPOSAL OF THE DISCONTINUED OPERATIONS OF THE RTD BUSINESS Home Bistro, Inc. was formed on April 9,
2013 as a Delaware corporation, under the name DineWise, LLC. On December 1, 2014, it underwent a statutory conversion filed under
Section 8-265 of the Delaware Code to converted from a limited liability company to a corporation and changed its name to
Home Bistro, Inc. On September 22, 2020, Home Bistro, Inc.
filed a Certificate of Conversion to a Non-Delaware Entity Delaware Secretary State to file a statutory conversion under Section
266 of the Delaware General Corporation Law to convert its state of domicile from Delaware to Nevada and simultaneously filed
an Articles of Conversion Nevada Secretary of State for the same and changed its name from Home Bistro, Inc. to Home Bistro Holdings,
Inc., each effective as of September 30, 2020. Home Bistro Holdings provides prepackaged
and prepared meals as a solution for time-constrained but discerning consumers focused on satisfying every member of the family
by offering a broad array of the highest quality meal planning, delivery, and preparation services. Products are customized meal
solutions, delivered fresh-frozen directly to the home. Home Bistro Holdings utilizes third-party food processors to fulfill customers’
orders. Agreement and Plan of Merger On April 20, 2020, the Company, Fresh Market
Merger Sub, Inc., a Delaware corporation and a newly created wholly-owned subsidiary of the Company, also referred to herein as
Merger Sub, and Home Bistro, Inc., a privately-held Delaware corporation engaged in the food preparation and home-delivery business
(presently known as Home Bistro Holdings, Inc., a Nevada corporation), also referred to herein also Home Bistro Holdings, entered
into an Agreement and Plan of Merger, also referred to herein as the Merger Agreement, pursuant to which, among other things, Merger
Sub agreed to merge with and into Home Bistro Holdings, with Home Bistro Holdings becoming a wholly-owned subsidiary of the Company
and the surviving corporation in the merger, also referred to herein as the Merger. Pursuant to the terms of the Merger Agreement,
Home Bistro Holdings filed a Certificate of Merger with the Nevada Secretary of State on April 20, 2020 (see Note 1). Prior to the effective time of the Merger,
the Company and certain of its existing securityholders entered into an Exchange Agreement providing for, among other things, the
exchange (the “Exchange”) of securities held by such securityholders for shares of common stock, as more fully detailed
therein. As a result of the Exchange, all of the Company’s issued and outstanding shares of Series A Preferred Stock, Series
C Preferred Stock and convertible notes were converted into an aggregate of 5,405,479 shares of common stock on a fully-diluted
basis, consisting of 1,364,222 shares of common stock and warrants to purchase up to 4,041,258 shares of common stock (see Note
10). The 250,000 shares of Series B Preferred Stock owned by a former officer were cancelled on April 9, 2020 pursuant to a General
Release Agreement (see Note 10) and 250,000 shares of Series B Preferred Stock held by a related party remained issued and outstanding
as of the date of the Merger. After the Exchange, a total of 1,899,094 shares
of common stock , warrants to purchase 4,041,258 shares of common stock and 60,638 stock options were deemed issued and outstanding. At the effective time of the Merger, and subject
to the terms and conditions of the Merger Agreement, each outstanding share of common stock of Home Bistro Holdings was converted
into the right to receive approximately four hundred seventy-three (473) shares of common stock. Accordingly, the aggregate shares
of the Company’s common stock issued in the Merger to the former securityholders of Home Bistro Holdings is 24,031,453 shares
of common stock on a fully-diluted basis consisting of 17,105,139 shares of common stock and warrants to purchase up to 6,926,314
shares of common stock (see Note 10). Subsequent to the Merger, the Company had an
aggregate of 30,031,501 shares of common stock issued and outstanding on a fully-diluted basis consisting of 19,004,233 shares
of common stock, 60,638 stock options and warrants to purchase up to 10,967,572 shares of common stock. On April 20, 2020, pursuant to the terms
of the Merger Agreement, Roy G. Warren, Jr., Mike Edwards and Bruce Zanca resigned as directors of the Company and Roy G. Warren,
Jr. resigned as Chief Operating Officer of the Company. The resignations were not the result of any disagreement related to the
Company’s operations, policies or practices. Furthermore, on April 20, 2020, Mr. Zalmi Duchman, the Chief Executive Officer
of Home Bistro, Michael Finkelstein and Michael Novielli were appointed as directors of the Company. In addition, Mr. Duchman was
appointed Chief Executive Officer (see Note 1). In connection with the Merger, certain
Company stockholders entered into a Lock-Up and Leak-Out Agreement with the Company pursuant to which, among other thing, such
stockholders agreed to certain restrictions regarding the resale of common stock for a period of two years from the date of the
Merger Agreement, as more fully detailed therein. Additionally, on April 20, 2020, the Company
and a stockholder entered into a Put Option Agreement (see Note 11), pursuant to which, among other things, the Company agreed,
at the election of the stockholder, to purchase certain shares of common stock from such stockholder no sooner than two years from
the date of the Put Option Agreement (the “Market Period”). Pursuant to the Put Option Agreement, in the event that
the stockholder does not generate $1.3 million dollars (the “Total Investment”) in gross proceeds from the sale of
its shares of common stock by the second anniversary of the Put Option Agreement, then the stockholder has the right to cause the
Company to purchase shares held by the stockholder at a price equal to the difference between the Total Investment and the net
proceeds actually realized by the stockholder from shares of common stock sold during the Market Period and the number of shares
of common stock held by the stockholder on the date the put right is exercised. The put right expires fourteen (14) days from end
of the Market Period. In connection with the Put Option Agreement, the Company recorded a common stock repurchase obligation in
the amount of $1.3 million, reflected in the accompanying condensed consolidated balance sheets as a long-term liability, Common
stock repurchase obligation Effective April 20, 2020, the Company acquired
all the issued and outstanding shares of Home Bistro Holdings pursuant to the Merger Agreement and Home Bistro Holdings became
a wholly-owned subsidiary of the Company. As a result of the Merger, for financial statement reporting purposes, the Merger between
the Company and Home Bistro Holdings has been treated as a reverse acquisition and recapitalization with Home Bistro Holdings deemed
the accounting acquirer and the Company deemed the accounting acquiree in accordance with FASB Accounting Standards Codification
(“ASC”) Section 805-10-55. At the time of the Merger, both the Company and Home Bistro Holdings had their own separate
operating segments. Accordingly, the assets and liabilities and the historical operations that are reflected in the consolidated
financial statements after the Merger are those of Home Bistro Holdings and are recorded at the historical cost basis of Home Bistro
Holdings. The acquisition process utilizes the capital structure of the Company and the assets and liabilities of Home Bistro Holdings
which are recorded at historical cost. The results of operations of the Company are consolidated with results of operations of
Home Bistro Holdings starting on the date of the Merger Agreement. The equity of the consolidated entity is the historical equity
of Home Bistro Holdings retroactively restated to reflect the number of shares issued by the Company in the reverse acquisition. The Merger constituted a change of control
and the majority of the Board of Directors changed with the consummation of the Merger. The Company issued to the stockholders
of Home Bistro Holdings shares of common stock and stock warrants which represented approximately 80% of the combined company on
a fully converted basis after the closing of the Merger. As a result of the above transactions and the Company’s intent
to dispose or divest the assets and liabilities associated with the RTD Business as discussed below, this transaction was accounted
for as a reverse recapitalization of Home Bistro Holdings where Home Bistro Holdings is considered the historical registrant and
the historical operations presented will be those of Home Bistro Holdings. The following assets and liabilities
were assumed in the Merger:
Cash $ 4,917
Prepaid expense 9,776
Operating right-of-use asset 32,444
Total assets acquired 47,137
Accounts payable and accrued expenses (209,417 )
Operating right-of-use liability (32,444 )
Total liabilities assumed $ (241,861 )
Net liability assumed $ (194,724 ) Disposal of Discontinued Operations
of the RTD Business On September 25, 2020, pursuant to the Asset
Purchase Agreement, among other things, the Company agreed to sell all of the Company’s business, assets and properties used,
or held or developed for use, in its functional RTD (Ready to Drink) beverage segment (the “RTD Business”), and the
Buyer agreed to assume certain debts, obligations and liabilities related to the RTD Business. The Company assumed an accounts
payable liability in the amount of $14,000 related to accounting expense of the RTD Business for a period prior to the Merger.
Pursuant to the Asset Purchase Agreement, the Buyer reimbursed the Company for t accounting expenses in amount of $14,000 incurred
prior to the Merger, of which $7,000 was payable in cash and the balance in form of a promissory note dated September 25, 2020
in the amount of $7,000. The promissory note bears interest at a rate of 5% per annum, matures on April 25, 2021 and is payable
in monthly installments of $1,000 commencing on October 25, 2020 through April 25, 2021. The Company received the $7,000 cash portion
of the consideration subsequent to September 30, 2020 which has been included in the prepaid and other current assets on the accompanying
consolidated condensed balance sheets as of September 30, 2020 (see Note 1). The $14,000 reimbursement was recorded to additional
paid in capital as reflected in the accompanying unaudited condensed consolidated statements of changes in stockholders’
deficit. ASC 205-20 “Discontinued Operations”
establishes that the disposal or abandonment of a component of an entity or a group of components of an entity should be reported
in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s
operations and financial results. As a result, the component’s results of operations have been classified as discontinued
operations on a retrospective basis for all periods presented. The results of operations of this component, for all periods, are
separately reported as “discontinued operations” on the condensed consolidated statements of operations. The Asset Purchase Agreement, discussed above
under Agreement and Plan of Merger The following table set forth the selected
financial data of the net liabilities recorded to additional paid in capital as of September 24, 2020.
September 24,
Assets:
Other assets:
Operating lease right-of-use assets, net $ 2,417
Total assets $ 2,417
Liabilities:
Current liabilities:
Accounts payable $ 112,212
Accrued expenses and other liabilities 5,009
Operating lease liabilities, current portion 2,417
Total current liabilities 119,638
Total liabilities $ 119,638
Net liabilities $ 117,221
Expense reimbursement by Buyer 14,000
Disposal of net liabilities to a related party $ 131,221 The summarized operating result of discontinued
operations of the RTD Business included in the Company’s unaudited condensed consolidated statements of operations for the
three and nine months ended September 30, 2020 is as follows:
For the Three For the Nine
Revenues
Cost of revenues $ — $ —
Gross (loss) profit — —
— —
Operating expenses:
Compensation expense 4,022 5,511
Professional and consulting expenses 6,663 26,606
Selling and marketing expenses (7,956 ) (7,850 )
General and administrative expenses 5,315 37,255
Total operating income (8,044 ) (61,522 )
Income from operations $ 8,044 $ 61,522
Gain on debt extinguishment 99,897 99,897
Interest income (expense) (103 ) (172 )
Other income, net 99,794 99,725
Income from discontinued operations $ 91,750 $ 38,203 The gain on debt extinguishment in the amount
of $99,897 reflected above was due to the settlement of outstanding liabilities owed to a vendor in connection with the RTD Business. |
