The Era Of Premium Packaged Food
(Home Bistro, Inc.)
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Over the past five years, food delivery platforms have been locked in a cash-incinerating deathmatch over the $200 billion global food delivery market.
But if you’re looking for a better way to play this unstoppable trend in food delivery…
Forget about the pizza delivery giants – Domino’s Pizza, Papa John’s and Yum Brands’ Pizza Hut – who are stuck in Food Delivery 1.0.
Forget about these headline grabbing food delivery platforms – like Uber Eats, DoorDash, and Postmates – who are still fighting the “last war” of Food Delivery 2.0.
Because today you have the opportunity to invest in…
That’s why Home Bistro is going all in on dominating one of the most undercover – but fast moving – categories in food delivery: ready-made meals.
According to Brandessence Market Research and Consulting, the global ready-made meal delivery market is slated to jump from $3.74 billion in 2019 to $11.32 billion in 2027, a CAGR of 17.15%.
And thanks to their unique “go-to-market” strategy – partnering with Celebrity Chefs and other “Food Influencers” – they’re in the prime position build…
We’ve already seen Celebrities and “Influencers” launch smash hit products that build multi-million brands…
Like George Clooney, a Hollywood actor who accidentally started the fastest-growing super-premium tequila brand in the US, Casamigos. In his own words: “Acting used to be how I paid the rent, but I sold a tequila company for a billion f—ing dollars. I don’t need money”.
Or Celebrity Influencer Kylie Jenner, who became the youngest self-made billionaire ever at age 21 after her wildly popular Kylie Cosmetics generated a reported $420 million in retail sales, just 18 months after it was founded.
But for Celebrity Chef’s, there hasn’t been a great option for launching a high-scale product; you can only sell someone so many cookbooks and cookware before they’re tapped out.
That’s why they’re excited to partner with Home Bistro to create premium branded food products that can be scaled nationally…
Without having to launch new brick-and-mortar restaurants!
But before they can start swallowing the American ready-made meal delivery market, they need to solve the three major problems…
Inconsistent Quality – Most meal delivery companies are locked in a race to the bottom in terms of price. This means they’re forced to make tradeoffs with the food quality to compete.
Meal Fatigue – Eventually, people get bored eating the same meals over and over again, even if it’s their favorite dish from their favorite restaurant.
Poor Experience – Even if you get a great meal delivered from a high quality restaurant – or you cook the meals yourself – eating at home is still eating at home.
As consumers become increasingly time-starved and convenience-seeking, they’ve aggressively sought out alternatives to cooking at home or ordering take out…
And Home Bistro has a breakthrough strategy for satisfying the changing tastes of America’s premium food buyers.
Here’s how Home Bistro solves these problems:
Here’s how Home Bistro solves these problems:
Up until recently, all of Home Bistro’s gourmet, ready-made meals were flash frozen; simply microwave the meal and you’ve got a gourmet meal ready to eat in 10 minutes or less.
But the forward thinking Zalmi Duchman – CEO of Home Bistro – knew that customers perceive fresh food to be higher quality than frozen.
That’s why on April 13th, 2021, the company announced a full transition to fresh meal delivery that uses state-of-the-art materials which are specially engineered to create a more attractive and reliably sealed package.
It’s called “vacuum skin-packaging”.
Not only is it cheaper than the current flash frozen process, but it’s more environmentally friendly and easier to ship.
Their goal by the end of June 2021 is to be able to provide overnight, fresh delivery, coast-to-coast
No matter how much you love your favorite takeout food, today’s consumers want to try new things and experience new flavors.
For millions of people across America, they look to “Celebrity Chefs” and influencers to tell them what new dishes they need to try.
On October 8th, 2020, Home Bistro announced a partnership with celebrity chef Cat Cora, the first woman inducted into The Culinary Hall of Fame, and best known for becoming the first female Iron Chef on the Food Network’s hit show, Iron Chef America.
The impact of this partnership was immediate and dramatic:
Online orders in were up 289% in 2020-Q4 over the 2019-Q4, and 2021-Q1 orders TRIPLED vs 2020-Q1.
That’s why it’s no surprise to see one analyst predicting “HBIS could reach the $3.40 mark in the next 12 months” up from 90 cents per share – representing a potential 277% gain – at the time the report was published…
And that was before Home Bistro announced two new partnerships with…
That’s exactly what Home Bistro’s CEO Zalmi Duchman is on a mission to accomplish…
And as an experienced entrepreneur and executive with a previous exit in this space, he’s able to negotiate deals with name brand Celebrity Chefs that give the company a huge advantage over competitors.
But Duchman isn’t content to simply deliver ready-to-eat meals…
That’s why he’s partnering with other premium food and beverage manufacturers to make sure the Home Bistro customer can shop for anything and everything they need to have…
On March 30th, 2021, Home Bistro announced another partnership, this time with Red Velvet NYC, a subscription-based service specializing in DIY gourmet baking kits.
This joint venture means Home Bistro will begin offering fully-prepared desserts from recipes created and developed by Red Velvet.
But Duchman has his eyes on several other potential joint ventures and acquisitions.
He wants to build a portfolio of premium, direct-to-consumer food products that can have the potential scale to $5m, $10m, even $100m+ per year in annual sales.
And he has a distinct advantage to make that happen…
Now, Duchman is looking to load up the war chest and start making deals to rapidly grow the company.
That’s why he’s inviting people just like you to become an investor in Home Bistro. But instead of purchasing your shares through your brokerage account on the OTC…
Today, you have the opportunity to buy shares at a discount to market price thanks to this private Reg A+ offering.
Why is Duchman willing to give you this deal?
In exchange for the discount, all shares will be restricted for 6 months. Once the lockup period is over, you’re free to do whatever you want with your shares.
But to make this an even better opportunity, when you purchase shares through this offer, you’ll also get a bonus “warrant,“ which allows you to buy shares at a set price regardless of where the stock goes.
You’ve may not have heard of warrants before, but these are what Wall Street insiders negotiate when they’re doing deals…
Like Warren Buffett – who made a deal to invest in the publicly traded Bank of America, acquiring warrants for BAC common stock at an exercise price of $7.14 each.
Eventually, the stock reached $24.32 per share, and the Oracle of Omaha netted a 240% gain… turning a $5 billion investment into $17 billion.
Legally (and hopefully obviously), we’re not promising you’re going to make billions of dollars or see a 240% gain.
But if you’d like to have the chance to do deals the way “insiders” on Wall Street do… and own equity in the company that could potentially change the way we eat gourmet food at home…
Here Are 5 Reasons To Consider Investing In Home Bistro
Even before the global pandemic, the premium food and beverage category has been skyrocketing in sales volume. With an estimated $136 billion in retail sales up for grabs by 2022 – an astounding 13% of the $1 trillion U.S. food and beverage category.
But buried inside of this trillion-dollar market is an opportunity to be the proverbial “big fish” in a small pond.
The global ready-made meal delivery market is slated to jump from $3.74 billion in 2019 to $11.32 billion in 2027… and for Home Bistro, this multi-billion dollar niche could be the stepping stone on their way to building a portfolio of 8-figure and 9-figure food products.
Most professional investors will agree that ideas are a dime a dozen, but execution is everything. That’s why investors should be excited to see Zalmi Duchman at the helm of Home Bistro.
Before becoming CEO of Home Bistro, he was CEO and founder of “The Fresh Diet”, an online meal delivery service he grew from startup to over $30 million annualized revenue before selling the company.
Not only does he have a proven track record of success in this specific industry, he’s already demonstrating his ability to negotiate deals with major Celebrity Chefs, establish joint venture partnerships with complementary brands, and navigate the M&A landscape as the company grows.
The end result? A CEO who understands how to create value for shareholders.
The Celebrity Chef strategy isn’t merely a good idea on paper. It’s a strategy that is already working.
After announcing their first partnerships with Celebrity Chef Cat Cora, Home Bistro’s online orders skyrocketed over the next two quarters.
Now, with two more deals signed and presumably several more in the pipeline, Home Bistro is in prime position to take this working business model and start replicating it at scale across multiple influencers who can serve a diverse range of customers.
Even better? Because these influencers have an existing audience of followers, they have an “unfair” marketing advantage when it comes to acquiring new customers.
This, in turn, drives down customer acquisition costs and creates an opportunity to scale much faster than paid advertising alone.
Even though flash freezing is a safe and efficient way to keep food preserved for long periods of time, consumers put a higher premium on “fresh” food vs frozen.
That’s why Home Bistro is making a full transition to fresh meal delivery utilizing a packaging process known as “vacuum skin-packaging”.
Vacuum skin-packaging seals the product like a second skin while eliminating air, providing package durability and optimal product presentation, and shelf-life extension.
Home Bistro expects to begin delivery of fresh, skin-packaged meals by July 2021, and could represent a significant opportunity to not only win new customers, but increase repeat purchases from existing customers.
At the time of publishing, Home Bistro (OTC:HBIS) is trading at roughly $1 per share. You’re free to purchase shares through your brokerage account, but if you did, you’d be missing out on a chance to own shares at a significant discount.
Here’s how it works:
You see, Home Bistro is taking advantage of the Regulation-A+ exemption to raise capital from the private markets. This means they can issue new shares at whatever price they’d like.
And if you’re wondering why they’re willing to make this deal, here’s the tradeoff…
Any shares you purchase through this offer will be locked-up for six months (i.e. you won’t be able to sell them for that time period). After that, you’re free to do whatever you’d like with them.
And to give investors an extra incentive to invest via this private offering, with every share you buy you’ll also receive a warrant that gives you the option to purchase an additional share at $1.50, anytime within the next 60 months.
This means if Home Bistro reaches the $3.40 price target set by Goldman Small Cap Research, you could “turn back time” and buy more stock at $1.50 per share, netting you an instant 126% gain — just like how Warren Buffett made big gains with Bank of America.
This “double dip” is exactly what the insiders on Wall Street negotiate when they do deals… and now, through this special offer, you have the opportunity to “double dip” on this publicly traded stock!
Ready to invest in this company?
Click the button below to get started…
The Era Of Premium Packaged Food
Over the past twenty five years, the food industry has experienced a mind-boggling shift that has Wall Street traders stumped…
Everyday people are willing to pay 2x, 3x, even 4x more for premium food products compared to the category average…
And what was once dismissed as a temporary anomaly has become a “Mega Trend” that can no longer be ignored.
With an estimated $136 billion in retail sales up for grabs by 2022 – an astounding 13% of the $1 trillion U.S. food and beverage category – the growth of premium food and beverage products look like it’s about to go exponential!
And the food industry titans are buying up premium brands as they look to capitalize on the changing demands of today’s increasingly health-conscious consumer.
To make things even more interesting, these major brands have long been preparing for the inevitable shift to ordering food online.
Amazon acquired Whole Foods back in 2017 for $13.4 billion not because it wanted to know how to operate stores, but to learn about the grocery business so it could convert grocery consumers to online.
Unilever dedicated a team of 800 people to its e-commerce business which was growing at 40% back in 2018.
Nestle grew its ecommerce sales by 18.5% in 2019 to reach 8.5% of its total retail sales, a remarkable e-commerce share in the food and beverage industry.
Industry wide, in 2019, food and beverage ecommerce retail sales were growing at over 23% per year and were projected to surpass $40 billion by 2022.
Then, the global pandemic sent e-commerce adoption rates skyrocketing…
And as brick-and-mortar food retailers – like Albertsons and Kroger – have been shifting to private labeled food products to boost profit margins…
Food product manufacturers are increasingly seeing the importance of developing their “direct to consumer” marketing channels.
For savvy investors who believe this trend will continue, there’s no shortage of ways to benefit from this growing demand.
But if you’re looking for a “pure play” investment opportunity in the fast-moving direct-to-consumer, premium food and beverage space…
Because today, you have the opportunity to invest in a tiny company that could be in prime position to build the #1 platform for launching premium, Celebrity Chef branded food products!
Why Premium Food Products
(and why now?)
Premium products are defined as anything priced at least 20% above the average category price. But it takes more than just a higher price to justify a premium product…
That’s what makes Home Bistro’s Celebrity Chef line a perfect opportunity for today’s market conditions.
According to MarketingCharts.com…
“Premium products have emotional resonance with consumers relating primarily to self-esteem and perceptions/status.
For example, around half of more say that buying premium products makes them feel good (52%) and confident (50%), while more than 4 in 10 also note that buying premium products shows other people that they have good taste (45%) and are successful (41%).”
Given the current state of the world, it’s easy to imagine that people would be spending less on premium food products.
But the data tells a far different story…
According to research firm IRI Worldwide…
According to research firm IRI Worldwide…
Put another way, not even a global pandemic can stop the rise of premium branded products!
In fact, it likely boosted the demand for products with premium attributes – health and wellness, immunity, hygiene, indulgence and convenience.
But perhaps the biggest case for premium foods is the massive revenue numbers they can achieve; up to 4x the price for what is essentially a commodity.
And with that extreme pricing power, it means premium brands can achieve enormous scale in ways mass market products simply can’t.
According to the Hartman Group…
“Successful premium food and beverage brands can generate as much revenue per point of household (HH) penetration as 100-year-old legacy food brands selling to far more households.”
The largest premium brands, selling $400M+ annually, have an average household penetration of only 16%, far lower than large legacy brands.
Crazy enough, a company can even reach $1B in sales without hitting one-third of American households. The key to success is scaling within niches to create disruptive products that create brand loyalty.
Which brings us to the most important question when considering an investment in a premium food products company like Home Bistro…
What is the best food product niche to focus on?
That’s why they’re targeting the most eaten, “highest stakes” meal that will define the “in home dining” experience: Dinner.
Of the 8 eating occasions each day, dinner is – by far – the most eaten meal across all consumer segments surveyed.
More important, it’s overwhelmingly eaten at home.
And it is most likely to be eaten with other people.
And before you think time-strapped Americans are going to be cooking more meals now that they’re home more often…
Consumers continue to be stretched thin in terms of their time and responsibilities; We’ve already seen a swift reversal from the early days of the pandemic when people were rediscovering cooking.
At the time of writing, 49% all meals involve no preparation at all… and it’s close to 67% if you include microwaving as an option!
However, the impact on people’s perception of food has shifted towards what’s called the New Value Paradigm.
These manifest in a desire for unique, high-quality products and experiences that provide reliable access to enable exploration of new flavors and the ability to gain new knowledge and skills, all while fitting into restraints on time and movement caused by the pandemic and ongoing obligations.
And for millions of people across America, they look to “Celebrity Chefs” and influencers for discovering new products and experiences.
That’s why Home Bistro is focused on dominating one of the most undercover – but fast moving – items in grocery: ready-made meals.
And more specifically, the ready-made meal delivery market!
According to Brandessence Market Research and Consulting, the global ready-made meal delivery market is slated to jump from $3.74 billion in 2019 to $11.32 billion in 2027, a CAGR of 17.15%.
And thanks to their unique “go-to-market” strategy – partnering with Celebrity Chefs and other “Food Influencers” – they’re in the perfect position to satisfy the changing demands of premium food buyers.
The New Food Value Paradigm
As people, our Food Values are shaped by the sum total of values, ideas, practices, preparations, techniques, actors and everything else that allows us to make sense of the world of food and beverage.
This is called Food Culture… and understanding how people relate to food is the key to unlocking new growth opportunities.
As Food Culture evolves, it means people’s regular eating routines – and expectations about food – change with it.
In the mid-twentieth century, Americans were mostly concerned with getting enough food to eat (a “quantity” issue). Consumers ate mostly meat-and-potatoes meals common to pre-WWII America, and they were largely satisfied with their food products.
But over the past two decades, we’ve seen a profound shift in the Greater Food Culture here in America.
Thanks to the “on demand” nature of everything – and the explosion of “food influencers” – today’s consumers have more variety in their daily eating routines than ever before.
With the vast abundance of food choices available, consumers don’t want the same boring meals over and over again. They want a variety of quality – and convenient – meals at an affordable price.
This phenomenon is called “Meal Fatigue,” and it’s both an opportunity for new brands to capture market share, and a warning to legacy brands who aren’t continually adapting to the times.
Under the “Old Value Paradigm,” food manufacturers relied on a simple math equation…
Price is a function of the quality, convenience, and quantity of food we deliver.
But price isn’t king when it comes to understanding value.
In order to be a premium branded food product that sells for 2 – 4x as much as their category average, you need more than just a great tasting product that is ready-to-eat…
Manufacturers must make concrete arguments for their elevated price in the category.
More and more, customers are demanding an “elevated experience” when it comes to their food choices…
And this “New Value Paradigm” of food not only impacts buying decisions, but how they form long-term relationships with products and brands.
The six food values are…
Food Value #1: Quality
Rise of Health & Wellness-Related Quality Dimensions
Quality has always been an important aspect of value (even in the old paradigm). Generally speaking, people want better tasting food products that use more nutrient dense ingredients.
But COVID-19 has transformed the definition of Quality to include a higher focus on health and wellness related needs.
For a growing number of consumers, the question ‘Does it taste good?’ is now secondary to the questions ‘How does this item make me more resilient?’ and ‘Does it support my health near- and long term?’
Food Value #2: Relevence
Deepend Focus on Utility and Consciousness of Waste
Relevance is the notion of usefulness, a consideration that the old paradigm had a tendency to minimize in lieu of irresistible ‘rock-bottom deals’ and price per unit calculations.
COVID-19 has added a new dimension to how people view their food purchased; With a limited ability to source food, there’s a greater awareness around how food products will be used, and the desire to not waste food.
As a result, we’re starting to see food product brands be more conscious about portion size and reusable packaging in an effort to minimize food waste.
As consumers question ‘Will I get the full usefulness of this item?’ and ‘How can I minimize, if not bypass, waste?’…
Products and services must demonstrate greater purposefulness as they position themselves as solutions to consumers’ needs.
Food Value #3: Experience
The Shift From Enjoyment to Engagement
To truly appreciate why consumers – even ones of meager means – will buy food products that seem to defy pricing logic, the answer can often be found in a Food Culture that values an enjoyable eating experience and connection.
In the pandemic era – where millions of consumers are confined to their homes – this factor has become more important than ever.
Because consumers have been limited in what they can do in “the real world,” eating experiences have provided a much needed outlet for consumers looking for new and engaging experiences.
As a result, the pandemic has raised the bar for what Experience can entail, creating a new litmus test for products and services to demonstrate true differentiation through authenticity, discovery, playfulness and engagement.
The key to a premium food product is one that can satisfy these experiential factors, in addition to its other core features (like taste).
Food Value #4: Price
Consumer’s Fluctuating Relationship With Price
One of the most interesting shifts in consumer food values is their relationship to Price; Rather than simply asking ‘What is the price?’, the central questions of the New Value Paradigm (NVP) are ‘Is this the fair price?’ and ‘Is it the right price?’
And perhaps more importantly, COVID-19 has raised awareness of the thorny social, political and environmental issues surrounding the production of food (including retail and restaurants).
This in turn means consumers are beginning to ask a different question about price:
Or put another way, the new critical question has shifted away from “what is my out of pocket cost?” to “what is the true cost of this product?”
Food Value #5: Quantity
The Return of “Stock Up” Behaviors
One of the key “Depression-Era” behaviors we saw the return of was the desire to stock-up… especially as consumers have anxieties around recent memories of grocery stores being out of food for perhaps the first time in their lives.
As a result, purchasing time frames also increased significantly… with about one third of occasions involving foods and beverages purchased 8 or more days in advance (+7 percentage points from 2019).
To be fair, the shift towards stocking up on shelf-stable and frozen items have already started to slow down. However, just like in other “post-crisis” eras, the scars of the trauma are hard to get rid of.
It’s likely that consumers will continue to value having an emergency stash of long-lasting, versatile food products in case they need them.
Food Value #6: Convenience
From “Quick and Easy” to Versatile and Adaptable”
Traditional notions of convenience – defined in terms of easy, quick, and accessible – were about helping the consumer by taking away the thought, time, and physical energy needed to procure and prepare food.
Convenience continues to be a key grocery shopping need. But consumers’ ideas of what convenience means have matured: Today’s consumer is no longer willing to sacrifice flexibility in choice, a positive experience, and their personal needs.
They want to eat better, in alignment with their interests and aspirations, and want true versatility and adaptability … not just something quick and easy.
With more products and retailers catering to the demands of this new convenience—from prepared foods to meal kits to click & collect services and online delivery—consumers can factor these into their shopping habits.
This, in turn, will likely become a key factor in the success of premium food brands in 2021 and beyond.
The Recipe Behind 9-Figure Premium Food And Beverage Brands
$10 million in retail sales is the gold standard for early-stage growth. The majority of brands that can pull this off tend to make it to $100 million eventually.
It is a rare set of players.
However, almost all of them had product design featuring attributes connected to long-term megatrends in American food culture.
According to a study of over 150+ brands that have scaled past $100m and are continuing to grow, there are two important design features to consider…
They tend to be highly focused on innovation in a singular category and…
The innovation in question was very focused on solving cross-category dietary concerns (e.g. weight management, health and wellness, immunity).
However, these two design features alone aren’t enough to bring a premium product to market and scale it to 9-figures and beyond.
Eventually, the true “X factor” of bringing a new product to market – and quickly scaling it up – is marketing.
For decades, this meant deploying huge ad budgets on national campaigns and/or celebrity endorsers.
But thanks to the proliferation of social media, the so-called “influencers” now have the ability to sell products and services to their existing audiences at the push of a button.
Even more interesting, many celebrities who used to be content being the face of the brand are now much more interested in owning their own products…
And some celebrities are making way more money selling premium consumer packaged goods than they ever did from their artistic careers.
Celebrity Actors like George Clooney…
In 2013, he founded Cassamigos – one of the fastest-growing tequila brands in the world – on accident. In 2018, he sold it for $1 BILLION.
Clooney is one of the highest paid actors of all time… but the money he made from acting pales in comparison to the estimated $239 million paycheck he received from the sale of Casamigos.
And now, there’s dozens of celebrities who all have their own premium wine or spirits brand that are making them wealthier than ever… and in record time.
The label attained widespread recognition in 2018, after Hollywood A-lister Ryan Reynolds purchased an undisclosed stake in the brand.
Launched in September of 2018, In July 2020, reports emerged that Jose Cuervo had exercised stock options to increase its share in the brand from 20 to 49 percent. Based on the amount paid for shares, the sale valued the Irish whiskey brand at 200 million euros (roughly $240m USD at the time of writing).
Celebrity Influencers like Kylie Jenner…
In 2016, Kylie Jenner launched her wildly popular Kylie Cosmetics. 18 months later, the company generated a reported $420 million in retail sales.
At the time, Kylie was reported to be the youngest self-made billionaire ever at age 21 (a title which was later revoked by Forbes, knocking her down to a mere $900 millionaire).
However, she’s not alone in terms of celebrity backed beauty products.
Rihanna’s Fenty Beauty launched in 2017, and according to Forbes, the cosmetics line has earned Rihanna $570 million in just 15 months of business. She would soon expand into skincare (Fenty Skin) and lingerie (Savage X Fenty).
In February 2021, Savage X Fenty received a second round of funding in the amount of $115 million, valuing it at over $1B… making her the world’s wealthiest female musician, despite having not released a record in five years.
But what about Celebrity Chefs?
When it comes to who has the largest affinity with people who eat premium food products – and otherwise have a major impact on Food Culture – there’s no better influencer than the Celebrity Chef.
Several of the top Food Network personalities have created culinary empires. Syndicated shows, cookbooks, apparel lines, cookware, celebrity restaurants and guest appearances have earned them millions, tens of millions and even hundreds of millions of dollars.
However, the wealthiest chefs have all had to travel down the long hard road of building restaurants and developing real estate.
Using the latest fresh food packaging technology, Home Bistro offers a virtual “Bistro Emporium” where consumers can cross select from a wide variety of individual “bistros” each with a dedicated section and unique visitor experience created by a renowned chef.
If we take a look at the New Value Paradigm – Quality, Relevance, Experience, Price, Quantity, Convenience – Home Bistro’s growth strategy is directly in tune with today’s premium food consumer…
And perhaps more importantly, a perfect answer to the cash-incinerating problems found in other meal delivery businesses that prevent them from scaling profitably.
“The initial trend in the meal delivery world was a diet focused, subscription-based business.
It all started with the Zone diet in the 90s. It was popular, but difficult to follow. As a result, it launched these high end meal delivery businesses… all on a very local basis.
The trend started to change as diets changed. Now we have this mix of low fat, low carb, low sugar food products.
But we believe the next era of food will be centered around high quality meals that create a more premium experience for the user… not on the back of diet and weight loss fads like the previous era’s winners.”
According to Zalmi Duchman, CEO of Home Bistro…
“The initial trend in the meal delivery world was a diet focused, subscription-based business.
It all started with the Zone diet in the 90s. It was popular, but difficult to follow. As a result, it launched these high end meal delivery businesses… all on a very local basis.
The trend started to change as diets changed. Now we have this mix of low fat, low carb, low sugar food products.
But we believe the next era of food will be centered around high quality meals that create a more premium experience for the user… not on the back of diet and weight loss fads like the previous era’s winners.”
Mr. Duchman founded The Fresh Diet, Inc. in 2005 and served as its Chief Executive Officer until July 2013 and its Chairman of the Board from July 2013 until its August 2014 acquisition.
During that time, he noticed a startling trend with these local meal preparation services:
“When you’re constantly having to discount your prices and sell food at $14-$15 a meal, you can’t deliver a good enough experience much less make a profit.
That’s why so many of our competitors are stuck in the $1m – 10m revenue mark. They’re locked in this race to the bottom to compete for younger, diet focused / fitness oriented customers who likely aren’t going to stick with them for the long term.
A lot of our competitors have no understanding of the economics of this business. As a result, they just lose money and bleed themselves dry.”
Because these small business owners don’t understand how to properly price products and build in sufficient profit margin – nor do they have proper systems in place to scale – they will remain small because they don’t have access to the level of capital that would be required to grow.
But before you think the titans of food delivery platforms – like GrubHub, Uber Eats, and DoorDash – have all the talent and money required to survive in a low margin business…
Fundamentally, they all suffer from the same problems that small meal preparation businesses do: they’re trapped in a “winner take all” race to the bottom with razor thin margins.
But according to Duchman…
When you look at what these companies are trying to do with cloud kitchens, it’s the same thing we’re seeing retail grocers do: increase profit margins by having greater control over the supply chain and manufacturing process, creating what is essentially a “private label” brand.
But no matter what, as long as their business model is centered around local delivery, they’re still constrained by geography.
In essence, Home Bistro is already a cloud kitchen, except we can deliver to the entire country. If we make a hit product, we can target the whole country unlike companies that are regional and local.
Even better, we don’t have to deal with our customers price checking our products against another aggregator – we’re the only ones who sell our product.
But the biggest insight Mr. Duchman has about the food delivery business?
Focus on higher value niches, not mass market!
From the beginning Home Bistro decided they didn’t want to be locked into a low margin business with fickle “diet fad” customers.
That’s why they decided to target older, wealthier customers who were willing to pay a premium for quality, convenience, and presentation.
And the #1 thing this demographic is looking for help with?
Why? Because more often than not, dinner is a “high stakes” meal that requires the most amount of preparation, cook time, and cleanup.
Thanks to Home Bistro’s “heat-to-eat” meals, discerning diners can now enjoy the indulgence of gourmet eating in as little as three minutes.
Customers can place single, weekly or monthly orders, and purchase gift certificates, which are very popular during holidays and for weddings and baby shower gifts.
“Ideal for the person who wants a restaurant-quality meal at home — especially when restaurant dining isn’t a legit option for many RN. The company also recently partnered with the first ever female Iron Chef Cat Cora, and her menu looks legit drool-worthy.”
“We believe Home Bistro has the best gourmet menu caretakers may wish to consider if they want to add higher quality meals to their loved one’s meal plan. “Gourmet” means the meal is created with high-quality ingredients, prepared using an advanced technique, or prepared with a high level of skill. All three describe the senior meals you would get from Home Bistro.”
“The preparation is as easy as a meal delivery service can be, and the ingredients and preparation are top-notch.”
Now, Duchman is looking to load up the war chest and start making deals to rapidly grow the company.
But Home Bistro’s Meals Are About To Get Even Better
Up until recently, all of Home Bistro’s gourmet, ready-made meals were flash frozen; simply microwave the meal and you’ve got a gourmet meal ready to eat in 10 minutes or less.
While this strategy has proved successful, Duchman realized that consumers’ perception of frozen was working against the brand. Even though flash freezing is a safe and efficient way to keep food preserved for long periods of time, consumers put a higher premium on “fresh” food vs frozen.
That’s why on April 13th, 2021, the company announced a full transition to fresh meal delivery utilizing a packaging process known as “vacuum skin-packaging”.
Vacuum skin-packaging seals the product like a second skin while eliminating air, providing package durability and optimal product presentation, and shelf-life extension. Home Bistro expects to begin delivery of fresh, skin-packaged meals by July 2021.
Home Bistro, Inc., CEO Zalmi Duchman stated…
“Transitioning from flash-frozen to fresh meal delivery is a pivotal shift for our company. We’ve made a significant capital investment in the equipment and technology required for the production of fresh, skin-packaged meals.
Home Bistro customers will soon receive fresh meals that can last up to 14 days in the refrigerator or, if the customer prefers, can be frozen for future enjoyment.
We will continue to invest in new technologies as our platform develops for the home delivery of celebrity chef inspired meals.”
Another benefit? Cost wise, skin packing is cheaper than the current flash frozen process Home Bistro currently uses.
Previously, each component was packaged separately and individually. Now, it’s packaged in a single step, which cuts down on labor costs and packaging costs.
According to Duchman…
“A big problem with the industry is food waste and packaging materials. Not only does this shift to skin packing make the food look better from a packing perspective and keep food fresh for longer…
It also helps us reduce our environmental impact and create a product in alignment with our customers values and expectations for a premium food product.”
But as mentioned earlier, it’s not enough to simply have a great product that has built in margins…
The real “X Factor” for Home Bistro comes from Zalmi Duchman and his ability to make deals with top Celebrity Chefs and establish joint venture relationships with other complementary offers.
Celebrity Chefs Like Iron Chef Cat Cora
According to Zalmi Duchman…
“Cat Cora is one of the most renowned and respected chefs in the world – her considerable achievements in the culinary arts speak for themselves. She is the ideal partner to initiate Home Bistro’s next generation of culinary diverse products.”
Cat Cora added…
“Home Bistro’s team’s in-depth experience in the direct-to-consumer food market will prove a great platform to offer my Mediterranean inspired cooking to a large consumer base, where they can enjoy healthy, gourmet prepared meals in the comfort of their homes.”
When it comes to food, Cat Cora is more than just a TV personality. She is a true chef with deep culinary expertise and exceptional business skills.
After earning her Bachelor of Science degree in Exercise Physiology and Biology from the University of Southern Mississippi, she enrolled at the Culinary Institute of America in Hyde Park, New York at the urging of the legendary Julia Child.
She went on to train with and work for some of the world’s most famous chefs, including Americans Anne Rosenzweig and Larry Forgione, and Michelin-starred French chefs Georges Blanc and Roger Verge.
Over and over again, Cat Cora has “shattered the glass ceiling” in the perennially male-dominated culinary world…
To say she is an icon in the food industry would be putting it lightly. And after decades of honing her craft, her ability to create food that delights people across the country can’t be ignored.
She also brings her 300,000+ followers with her to this deal, meaning any time she launches a new product, it can be instantly marketed to her existing audience and followers.
If the early results of the partnership are any indication of success, it looks like this strategy could pay off handsomely in 2021 and beyond.
The partnership was announced on Oct 8th, 2020, with Q4 online orders up 289% over the previous Q4.
Celebrity Chef Roble Ali
When he’s not running his catering company Roblé & Co., providing delicious food and services for celebrity clients like Rihanna, Leonardo DiCaprio and President Obama.
According to Zalmi Duchman:
“We are eager to welcome Chef Roblé to our expanding roster of celebrity chefs. His unique style and innovations of “street food” have made him a household name among the elite culinary crowd.”
Chef Roblé Ali added:
“I’m excited about the opportunity to showcase my culinary creations through the Home Bistro platform.
As I actively oversee kitchens in New York, I am highly enthusiastic to now be able to introduce my talents to a vast market via Home Bistro.
I very much look forward to our summer launch when my line will be showcased together with the creations of the other great celebrity chefs like Cat Cora and Chef Daina Falk.”
With his unique team of talented chefs and event producers, Roblé creates captivating, one-of-a-kind dining experiences for high-end clientele across the country.
Not only does he bring his unique flair for food to this partnership, he also has a growing fanbase thanks to his social media following.
Celebrity Chefs Like “Hungry Fan” Daina Falk
Her website, www.HungryFan.com, offers a range of sports- and food-related content and products to help sports fans entertain on game day. She also happens to be the daughter of super-sports agent David Falk, best known for representing sports icon Michael Jordan for his entire career.
Daina also authored Amazon-bestselling “The Hungry Fan’s Game Day Cookbook”, in which she presents more than 100 crowd-pleasing recipes to “Jazz up your tailgate and score points with any home game-watching guest”.
According to Zalmi Duchman…
“Daina has focused her passion for cooking around ‘game day’, crowd-pleasing, tailgate food she experienced through her time spent at major sporting events and with professional athletes.
Her fresh take on classic tailgate food, motivated by her passion for sports and influenced by the sports legends she’s met, adds a new dimension to the Home Bistro culinary experience.”
Daina Falk commented…
“First of all, I’ve long wanted to make actual food products that we at Hungry Fan could provide for our community. But up until now, I haven’t been able to send them actual food.
This partnership with Home Bistro is exciting because it gives me the opportunity to do that.
Beyond that Zalmi has a stellar background in this space… and knowing they launched with Cat Cora – the first ever female Iron Chef – was huge for me. To know I’d follow her was an enormous honor.”
Not only does Falk bring a new type of cuisine to the Home Bistro marketplace, she also brings an entirely new audience that can be marketed to.
Home Bistro expects to launch the new line of Chef Daina’s “Hungry Fan” meals during the second quarter of 2021.
Joint Ventures With Companies Like “Red Velvet NYC”
This joint venture means Home Bistro will begin offering fully-prepared desserts from recipes created and developed by Red Velvet.
According to Duchman…
“As we continue to add menu diversity and choices by expanding our roster of celebrity chefs, we are also focused on developing other meal compliments to round out the complete dining experience.
Partnering with an established leader like Red Velvet and adding their delicious gourmet desserts to our menu achieves a critical aspect of this strategy.”
Why is this important? Because it means Home Bistro can increase the average order value from each customer by including desert…
AND they can continue to deliver the best “in-home dining experience” possible for their customers — a complete dinner that meets the New Value Paradigms in premium branded foods.
There’s Never Been A Better Time To Bet On Direct-To-Consumer Premium Food Products
According to Business Insider Intelligence, online grocery adoption is about to cross the 51% adoption rate this year (if it hasn’t already).
The U.S. online grocery market finished March with $9.3 billion in sales, a return to January’s record spending levels, as over 69 million households placed an average of 2.8 online orders during the month…
And all signs seem to be pointing towards the continued rise of premium food products across all households in all income brackets.
But to be successful long term, it’s not enough to merely launch one hit product. It means launching hit products over and over again, consistently over time.
That’s why the Hartman Group reports…
“To sustain the growth, one needs to have a brand that acts like a platform (e.g., Nature Valley), one that can continually ride premium trends in the category.”
And that’s exactly what Home Bistro is set up to do.
We Stand upon the cusp of a new era in the world of premium food & beverage
And if you’re looking for a “pure play” in this growing sector, we’d like to invite you to consider an investment in Home Bistro.
The Company just announced online orders for its ready-made gourmet meals increased approximately 198% in Q1 of 2021.
Analysts at Goldman Small Cap Research are predicting “HBIS could reach the $3.40 mark in the next 12 months” up from 90 cents per share at the time of publishing.
Invest in this company Now!
In the execution of our business strategy, our operations and financial condition are subject to certain risks. A summary of certain material risks is provided below, and you should take such risks into account in evaluating any investment decision involving the Company. This section does not describe all risks applicable to us and is intended only as a summary of certain material factors that could impact our operations in the industries in which we operate. Other sections of this Offering Statement contain additional information concerning these and other risks.
Risks Relating to Our Business Generally
There is substantial doubt about our ability to continue as a going concern.
We had had net losses $1,241,661 and $199,061 for the years ended December 31, 2020 and 2019, respectively. The net cash used in operations was $273,817 and $30,244 for the years ended December 31, 2020 and 2019, respectively. Additionally, the Company had an accumulated deficit of $6,333,389 on December 31, 2020. These conditions, among others, raise substantial doubt about our ability to continue as a going concern for a period of twelve months for the issuance date of this report.
Management cannot provide assurance that we will ultimately achieve sufficient profitable operations or become cash flow positive or raise additional debt and/or equity capital. Management believes that our 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. The Company may seek to raise capital through additional debt and/or equity financings and generate sufficient revenues to fund its operations in the future.
The Report of our Independent Registered Public Accountant firm issued in connection with our audited consolidated financial statement for the years ended December 31, 2020 and 2019 express substantial doubt about our ability to continue as a going concern.
Although management believes there is substantial doubt about our ability to continue as a going concern, they do not reflect any adjustments that might result if we are unable to continue our business.
Our business strategy relating to the development and introduction of new products and services exposes us to risks such as limited customer and/or market acceptance and additional expenditures that may not result in additional net revenue.
An important component of our business strategy is to focus on new products and services that enable us to provide immediate value to our customers. Customer and/or market acceptance of these new products and services cannot be predicted with certainty, and if we fail to execute properly on this strategy or to adapt this strategy as market conditions evolve, our ability to grow revenue and our results of operations may be adversely affected. If we fail to successfully implement our business strategy, our financial performance and our growth could be materially and adversely affected.
If we fail to successfully implement our business strategy, our financial performance and our growth could be materially and adversely affected.
Our future financial performance and success are dependent in large part upon our ability to implement our business strategy successfully. Implementation of our strategy will require effective management of our operational, financial and human resources and will place significant demands on those resources. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Offering Statement for more information regarding our business strategy. There are risks involved in pursuing our strategy, including the ability to hire or retain the personnel necessary to manage our strategy effectively.
In addition to the risks set forth above, implementation of our business strategy could be affected by a number of factors beyond our control, such as increased competition, legal developments, government regulation, general economic conditions, increased operating costs or expenses, and changes in industry trends. We may decide to alter or discontinue certain aspects of our business strategy at any time. If we are not able to implement our business strategy successfully, our long-term growth and profitability may be adversely affected. Even if we are able to implement some or all of the initiatives of our business strategy successfully, our operating results may not improve to the extent we anticipate, or at all.
If we fail to successfully improve our customer experience, including the development of new product offerings and the enhancement of our existing product offerings, our ability to retain existing customers and attract new customers, our business, financial condition and operating results, may be materially adversely affected.
Our customers have a wide variety of options for purchasing food, including traditional and online grocery stores and restaurants, and consumer tastes and preferences may change from time to time. Our ability to retain existing customers, attract new customers and increase customer engagement with us will depend in part on our ability to successfully improve our customer experience, including by creating and introducing new product offerings and improving upon and enhancing our existing product offerings. If our new or enhanced product offerings are unsuccessful, including because they fail to generate sufficient revenue or operating profit to justify our investments in them, our business and operating results could be materially adversely affected. Furthermore, new customer demands, tastes or interests, superior competitive offerings or a deterioration in our product quality or our ability to bring new or enhanced product offerings to market quickly and efficiently could negatively affect the attractiveness of our products and the economics of our business and require us to make substantial changes to and additional investments in our product offerings or business model.
Developing and launching new product offerings or enhancements to our existing product offerings involves significant risks and uncertainties, including risks related to the reception of such product offerings by our existing and potential future customers, increases in operational complexity, unanticipated delays or challenges in implementing such offerings or enhancements, increased strain on our operational and internal resources (including an impairment of our ability to accurately forecast demand and related supply), inability to adequately support new offerings or enhancements with sufficient marketing investment and negative publicity in the event such new or enhanced product offerings are perceived to be unsuccessful. In addition, developing and launching new product offerings and enhancements to our existing product offerings may involve significant upfront capital investments and such investments may not prove to be justified. Any of the foregoing risks and challenges could materially adversely affect our ability to attract and retain customers as well as our visibility into expected operating results, and could materially adversely affect our business, financial condition and operating results.
Food safety and food-borne illness incidents or advertising or product mislabeling may materially adversely affect our business by exposing us to lawsuits, product recalls or regulatory enforcement actions, increasing our operating costs and reducing demand for our product offerings.
Selling food for human consumption involves inherent legal and other risks, and there is increasing governmental scrutiny of and public awareness regarding food safety. Unexpected side effects, illness, injury or death related to allergens, food-borne illnesses or other food safety incidents (including food tampering or contamination) caused by products we sell, or involving suppliers that supply us with ingredients and other products, could result in the discontinuance of sales of these products or our relationships with such suppliers, or otherwise result in increased operating costs or harm to our reputation. Shipment of adulterated products, even if inadvertent, can result in criminal or civil liability. Such incidents could also expose us to product liability, negligence or other lawsuits, including consumer class action lawsuits. Any claims brought against us may exceed or be outside the scope of our existing or future insurance policy coverage or limits. Any judgment against us that is in excess of our policy limits or not covered by our policies or not subject to insurance would have to be paid from our cash reserves, which would reduce our capital resources.
The occurrence of food-borne illnesses or other food safety incidents could also adversely affect the price and availability of affected ingredients, resulting in higher costs, disruptions in supply and a reduction in our sales. Furthermore, any instances of food contamination, whether or not caused by our products, could subject us or our suppliers to a food recall pursuant to the Food Safety Modernization Act of the FDA, and comparable state laws. The risk of food contamination may be also heightened further due to changes in government funding or a government shutdown. Our meat and poultry suppliers may operate only under inspection by the USDA. While USDA meat and poultry inspections are considered essential services, a government shutdown or lapse in funding may increase the risk that inspectors perform their duties inadequately, fail to report for work, or leave their positions without prompt replacement, potentially compromising food safety. Food recalls could result in significant losses due to their costs, the destruction of product inventory, lost sales due to the unavailability of the product for a period of time and potential loss of existing customers and a potential negative impact on our ability to retain existing customers and attract new customers due to negative consumer experiences or as a result of an adverse impact on our brand and reputation.
In addition, food companies have been subject to targeted, large-scale tampering as well as to opportunistic, individual product tampering, and we could be a target for product tampering. Forms of tampering could include the introduction of foreign material, chemical contaminants and pathological organisms into consumer products as well as product substitution. Beginning in July 2019, FDA requirements require companies like us to analyze, prepare and implement “food defense” mitigation strategies specifically to address tampering designed to inflict widespread public health harm. If we do not adequately address the possibility, or any actual instance, of product tampering, we could face possible seizure or recall of our products and the imposition of civil or criminal sanctions, which could materially adversely affect our business, financial condition and operating results.
Our business depends on a strong and trusted brand, and any failure to maintain, protect or enhance our brand, including as a result of events outside our control, could materially adversely affect our business.
We have developed a strong and trusted brand, and we believe our future success depends on our ability to maintain and grow the value of the Home Bistro, Prime Chop and Colorado Prime brands. Maintaining, promoting and positioning our brand and reputation will depend on, among other factors, the success of our food safety, quality assurance, marketing and merchandising efforts and our ability to provide a consistent, high-quality customer experience. Any negative publicity, regardless of its accuracy, could materially adversely affect our business. Brand value is based in large part on perceptions of subjective qualities, and any incident that erodes the loyalty of our customers or suppliers, including adverse publicity or a governmental investigation or litigation, could significantly reduce the value of our brand and significantly damage our business.
We believe that our customers hold us and our products to a high food safety standard. Therefore, real or perceived quality or food safety concerns or failures to comply with applicable food regulations and requirements, whether or not ultimately based on fact and whether or not involving us (such as incidents involving our competitors), could cause negative publicity and lost confidence in our company, brand or products, which could in turn harm our reputation and sales, and could materially adversely affect our business, financial condition and operating results.
In addition, in recent years, there has been a marked increase in the use of social media platforms and other forms of Internet-based communications that provide individuals with access to broad audiences, and the availability of information on social media platforms is virtually immediate, as can be its impact. Many social media platforms immediately publish the content their participants post, often without filters or checks on accuracy of the content posted. Furthermore, other Internet-based or traditional media outlets may in turn reference or republish such social media content to an even broader audience. Information concerning us, regardless of its accuracy, may be posted on such platforms at any time. Information posted may be adverse to our interests or may be inaccurate, each of which may materially harm our brand, reputation, performance, prospects and business, and such harm may be immediate and we may have little or no opportunity to respond or to seek redress or a correction.
The value of our brand also depends on effective customer support to provide a high-quality customer experience, which requires significant personnel expense. If not managed properly, this expense could impact our profitability. Failure to manage or train our own or outsourced customer support representatives properly could compromise our ability to handle customer complaints effectively.
Changes in macroeconomic conditions may adversely affect our business.
Economic difficulties and other macroeconomic conditions could reduce the demand and/or the timing of purchases for certain of our services from customers and potential customers. In addition, changes in economic conditions could create liquidity and credit constraints. We cannot assure you that we would be able to secure additional financing if needed and, if such funds were available, that the terms and conditions would be acceptable to us.
The effects of the outbreak of the novel coronavirus (“COVID-19”) have negatively affected the global economy, the United States economy and the global financial markets, and may disrupt our operations and our clients’ and counterparties’ operations, which could have an adverse effect on our business, financial condition and results of operations.
The effects of the outbreak of the novel coronavirus have negatively affected the global economy, the United States economy and the global financial markets, and may disrupt our operations and our clients’ and counterparties’ operations, which could have an adverse effect on our business, financial condition and results of operations.
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 United States now has the world’s most reported COVID-19 cases, and all 50 states and the District of Columbia have reported cases of individuals infected with COVID-19. All states have declared states of emergency. Similar impacts have been experienced in every country in which we do business. Impacts to our business could be widespread and global, and material impacts may be possible, including the following:
Furthermore, the Company has been following the recommendations of local health authorities to minimize exposure risk for its employees for the past several weeks, including the temporary closures of its offices and having employees work remotely to the extent possible, which has to an extent adversely affected their efficiency. In addition, the cancellation of in-person meetings and conferences has had an adverse impact on the Company’s business and financial condition and has hampered the Company’s ability to meet with customers to promote products, generate revenue and access usual sources of liquidity on reasonable terms, which in turn has negatively impacted the Company’s cash flow and its ability to pay for certain professional services.
The COVID-19 pandemic also has the potential to significantly our supply chain, food manufacturers, distribution centers, or logistics and other service providers. Additionally, our 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 our products.
We are still assessing our business operations and system supports and the impact COVID-19 may have on our results and financial condition, but there can be no assurance that this analysis will enable us to avoid part or all of any impact from the spread of COVID-19 or its consequences, including downturns in business sentiment generally or in our sectors in particular. To date, the Company has been able to avoid layoffs and furloughs of employees.
As the situation continues to evolve, the Company will continue to closely monitor market conditions and respond accordingly.
The further spread of the COVID-19 outbreak may materially disrupt banking and other financial activity generally and in the areas in which we operate. This would likely result in a decline in demand for our products and services, which would negatively impact our liquidity position and our business strategies. Any one or more of these developments could have a material adverse effect on our and our consolidated subsidiaries’ business, operations, consolidated financial condition, and consolidated results of operations.
A failure of our information technology or systems could adversely affect our business.
Our ability to deliver our products and services depends on effectively using information technology. We rely upon our information technology and systems, employees, and third parties for operating and monitoring all major aspects of our business. These technologies and systems and, therefore, our operations could be damaged or interrupted by natural disasters, power loss, network failure, improper operation by our employees, data privacy or security breaches, computer viruses, computer hacking, network penetration or other illegal intrusions or other unexpected events. Any disruption in the operation of our information technology or systems, regardless of the cause, could adversely impact our operations, which may adversely affect our financial condition, results of operations and cash flows.
A cybersecurity incident could result in the loss of confidential data, give rise to remediation and other expenses, expose us to liability under consumer protection laws, common law theories or other laws, subject us to litigation and federal and state governmental inquiries, damage our reputation, and otherwise be disruptive to our business.
The nature of our business involves the receipt, storage and use of personal data about our customers, as well as employees. Additionally, we rely upon third parties that are not directly under our control to store and use portions of that personal data as well. The secure maintenance of this and other confidential information or other proprietary information is critical to our business operations. To protect our information systems from attack, damage and unauthorized use, we have implemented multiple layers of security, including technical safeguards, processes, and our people. Our defenses are monitored and routinely tested internally and by external parties. Despite these efforts, threats from malicious persons and groups, new vulnerabilities, technology failures, and advanced attacks against information systems create risk of cybersecurity incidents. We cannot provide assurance that we or our third-party vendors or other service providers will not be subject to cybersecurity incidents, which may result in unauthorized access by third parties, loss, misappropriation, disclosure or corruption of customer, employee, or our information; or other data subject to privacy laws. Such cybersecurity incidents or delays in responding to or remedying damage caused by such incidents may lead to a disruption in our systems or business, costs to modify, enhance, or remediate our cybersecurity measures, liability under privacy, security and consumer protection laws or litigation under these or other laws, including common law theories, and subject us to enforcement actions, fines, regulatory proceedings or litigation against us, damage to our business reputation, a reduction in participation and sales of our products and services, and legal obligations to notify customers or other affected individuals about an incident, which could cause us to incur substantial costs and negative publicity, any of which could have a material adverse effect on our financial condition and results of operations and harm our business reputation.
As a result, cybersecurity and the continued development and enhancement of our controls, processes and practices remain a priority for us. We may be required to expend significant additional resources in our efforts to modify or enhance our protective measures against evolving threats or to investigate and remediate any cybersecurity vulnerabilities.
Our business is subject to changing privacy and security laws, rules and regulations, including the Payment Card Industry Data Security Standards, the Telephone Consumer Protection Act and other state privacy regulations, which impact our operating costs and for which failure to adhere could negatively impact our business.
Our business is subject to various privacy and data security laws, regulations, and codes of conduct that apply to our various business units (e.g., Payment Card Industry Data Security Standards and Telephone Consumer Protection Act). These laws and regulations may be inconsistent across jurisdictions and are subject to evolving and differing (sometimes conflicting) interpretations. While we are using internal and external resources to monitor compliance with and to continue to modify our data processing practices and policies in order to comply with evolving privacy laws, relevant regulatory authorities could determine that our data handling practices fail to address all the requirements of certain new laws, which could subject us to penalties and/or litigation. Government regulators, privacy advocates and class action attorneys are increasingly scrutinizing how companies collect, process, use, store, share and transmit personal data. This increased scrutiny may result in new interpretations of existing laws as well as new laws, regulations, and industry standards concerning privacy, data protection, and information security proposed and enacted in various jurisdictions, thereby further impacting our business. For example, the California Consumer Privacy Act of 2018 (“CCPA”), went into effect on January 1, 2020, and it applies broadly to information that identifies or is associated with any California household or individual, and compliance with the new law requires that we implement several operational changes, including processes to respond to individuals’ data access and deletion requests. Failure to comply with the CCPA may result in attorney general enforcement action and damage to our reputation. The CCPA also provides for civil penalties for violations, as well as a private right of action for data breaches that may increase data breach litigation. We may also be exposed to litigation, regulatory fines, penalties or other sanctions if the personal, confidential or proprietary information of our customers is mishandled or misused by any of our suppliers, counterparties or other third parties, or if such third-parties do not have appropriate controls in place to protect such personal, confidential or proprietary information. Additionally, the FTC and many state attorneys general are interpreting federal and state consumer protection laws to impose standards for the collection, use, dissemination and security of data. The obligations imposed by the CCPA and other similar laws that may be enacted at the federal and state level may require us to modify our business practices and policies and to incur substantial expenditures in order to comply.
We depend on our management team.
The Company’s future success primarily depends on the efforts of the existing management team, particularly, Zalmi Duchman, our Chief Executive Officer. Loss of the services of Mr. Duchman could materially and adversely affect the Company’s business prospects. We do not carry “key-man” life insurance on the lives of any of our employees or advisors. As sufficient funds become available, the Company intends to hire additional qualified personnel. Significant competition exists for such personnel and, accordingly, our compensation costs may increase significantly. The Company believes it will be able to recruit and retain personnel with the skills required for present needs and future growth, but cannot assure it will be successful in those efforts.
In order to be successful, we must attract, engage, retain and integrate key employees and have adequate succession plans in place, and failure to do so could have an adverse effect on our ability to manage our business.
Our success depends, in large part, on our ability to attract, engage, retain and integrate qualified executives and other key employees throughout all areas of our business. Identifying, developing internally or hiring externally, training and retaining highly skilled managerial and other personnel are critical to our future, and competition for experienced employees can be intense. Failure to successfully hire executives and key employees or the loss of any executives and key employees could have a significant impact on our operations. The loss of services of any key personnel, the inability to retain and attract qualified personnel in the future, or delays in hiring may harm our business and results of operations. Further, changes in our management team may be disruptive to our business, and any failure to successfully integrate key newly hired employees could adversely affect our business and results of operations.
We face competition for staffing, which may increase our labor costs and reduce profitability.
We compete with other food and beverage services providers in recruiting qualified management, including executives with the required skills and experience to operate and grow our business, and staff personnel for the day-to-day operations of our business. These challenges may require us to enhance wages and benefits to recruit and retain qualified management and other professionals. Difficulties in attracting and retaining qualified management and other professionals, or in controlling labor costs, could have a material adverse effect on our profitability.
We are or may become a party to litigation that could potentially force us to pay significant damages and/or harm our reputation.
We could be subject to certain legal proceedings, which potentially involve large claims and significant defense costs (see “Legal Proceedings”). These legal proceedings and any other claims that we may face in the future, whether with or without merit, could result in costly litigation, and divert the time, attention, and resources of our management. The coverage limits of our insurance policies may not be adequate to cover all such claims and some claims may not be covered by insurance. Additionally, insurance coverage with respect to some claims against us or our directors and officers may not be available on terms that would be favorable to us, or the cost of such coverage could increase in the future. Further, although we believe that we have conducted our operations in compliance with applicable statutory and contractual requirements and that we have meritorious defenses to outstanding claims, it is possible that resolution of these legal matters could have a material adverse effect on our results of operations. In addition, legal expenses associated with the defense of these matters may be material to our results of operations in a particular financial reporting period.
Third parties may infringe on our brands, trademarks and other intellectual property rights, which may have an adverse impact on our business.
We currently rely on a combination of trademark and other intellectual property laws and confidentiality procedures to establish and protect our proprietary rights, including our brands. If we fail to successfully enforce our intellectual property rights, the value of our brands, services and products could be diminished and our business may suffer. Our precautions may not prevent misappropriation of our intellectual property.
We may not be able to discover or determine the extent of any unauthorized use or infringement or violation of our intellectual property or proprietary rights. Third parties also may take actions that diminish the value of our proprietary rights or our reputation. The protection of our intellectual property may require the expenditure of significant financial and managerial resources. Moreover, the steps we take to protect our intellectual property may not adequately protect our proprietary rights or prevent third parties from continuing to infringe or misappropriate these rights. We also cannot be certain that others will not independently develop or otherwise acquire equivalent or superior technology or other intellectual property rights, which could materially adversely affect our business, financial condition and operating results.
Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to obtain and use information that we regard as proprietary. Litigation may be necessary in the future to enforce our intellectual property rights, to protect our trade secrets, to determine the validity and scope of the proprietary rights of others or to defend against claims of infringement or invalidity. Such litigation could be costly, time-consuming and distracting to management, result in a diversion of resources, the impairment or loss of portions of our intellectual property and could materially adversely affect our business, financial condition and operating results. Furthermore, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims and countersuits attacking the validity and enforceability of our intellectual property rights. These steps may be inadequate to protect our intellectual property. We will not be able to protect our intellectual property if we are unable to enforce our rights or if we do not detect unauthorized use of our intellectual property. Despite our precautions, it may be possible for unauthorized third parties to use information that we regard as proprietary to create product offerings that compete with ours
We may be subject to intellectual property rights claims.
Third parties may make claims against us alleging infringement of their intellectual property rights. Any intellectual property claims, regardless of merit, could be time-consuming and expensive to litigate or settle and could significantly divert management’s attention from other business concerns. In addition, if we were unable to successfully defend against such claims, we may have to pay damages, stop selling the service or product or stop using the software, technology or content found to be in violation of a third party’s rights, seek a license for the infringing service, product, software, technology or content or develop alternative non-infringing services, products, software, technology or content. If we cannot license on reasonable terms, develop alternatives or stop using the service, product, software, technology or content for any infringing aspects of our business, we may be forced to limit our service and product offerings. Any of these results could reduce our revenue and our ability to compete effectively, increase our costs or harm our business.
Damage to our reputation could harm our business, including our competitive position and business prospects.
Our ability to attract and retain customers and employees is impacted by our reputation. Harm to our reputation can arise from various sources, including employee misconduct, cyber security breaches, unethical behavior, litigation or regulatory outcomes, which could, among other consequences, increase the size and number of litigation claims and damages asserted or subject us to enforcement actions, fines and penalties and cause us to incur related costs and expenses.
We rely on third parties to provide us with adequate food supply, freight and fulfillment and Internet and networking services, the loss or disruption of any of which could cause our revenue, earnings or reputation to suffer.
We rely on third-party manufacturers to supply all of the food and other products we sell as well as packaging materials. If we are unable to obtain sufficient quantity, quality and variety of food, other products and packaging materials in a timely and low-cost manner from our manufacturers, we will be unable to fulfill our customers’ orders in a timely manner, which may cause us to lose revenue and market share or incur higher costs, as well as damage the value of our brands.
Currently, all of our order fulfillment is handled by one third-party provider. Also, almost all of our direct to consumer customer orders are shipped by one third-party provider and almost all of our orders for retail programs are shipped by another third-party provider. Should these providers be unable to service our needs for even a short duration, our revenue and business could be adversely affected. Additionally, the cost and time associated with replacing these providers on short notice would add to our costs. Any replacement fulfillment provider would also require startup time, which could cause us to lose sales and market share.
Our business also depends on a number of third parties for Internet access and networking, and we have limited control over these third parties. Should our network connections go down, our ability to fulfill orders would be delayed. Further, if our websites or call center become unavailable for a noticeable period of time due to Internet or communication failures, our business could be adversely affected, including harm to our brands and loss of sales.
Therefore, we are dependent on these third parties. The services we require from these parties may be disrupted by a number of factors, including the following:
Further, if a regional or global health epidemic or pandemic occurs, such as COVID-19, depending upon its location, duration and severity, our business could be severely affected. A regional or global health epidemic or pandemic might also adversely affect our business by disrupting the operations of our call center, creating negative popular sentiment among consumers of delivered food, or by disrupting or delaying our third-party providers’ ability to, among other things (i) supply the products that we sell, as well as packaging materials, (ii) fulfill segment customer orders and (iii) provide internet and networking services.
Our ability to source quality ingredients and other products is critical to our business, and any disruption to our supply or supply chain could materially adversely affect our business.
We depend on frequent deliveries of ingredients and other products from a variety of local, regional, national and international suppliers, and some of our suppliers may depend on a variety of other local, regional, national and international suppliers to fulfill the purchase orders we place with them. The availability of such ingredients and other products at competitive prices depends on many factors beyond our control, including the number and size of farms, ranches and other suppliers that provide crops, livestock and other raw materials that meet our quality and production standards.
We rely on our suppliers, and their supply chains, to meet our quality and production standards and specifications and supply ingredients and other products in a timely and safe manner. We have developed and implemented a series of measures to ensure the safety and quality of our third party-supplied products, including using contract specifications, certificates of identity for some products or ingredients, sample testing by suppliers and sensory based testing. However, no safety and quality measures can eliminate the possibility that suppliers may provide us with defective or out-of-specification products against which regulators may take action or which may subject us to litigation or require a recall. Suppliers may provide us with food that is or may be unsafe, food that is below our quality standards or food that is improperly labeled. In addition to a negative customer experience, we could face possible seizure or recall of our products and the imposition of civil or criminal sanctions if we incorporate a defective or out-of-specification item into one of our deliveries.
Furthermore, there are many factors beyond our control which could cause shortages or interruptions in the supply of our ingredients and other products, including adverse weather, environmental factors, natural disasters, unanticipated demand, labor or distribution problems, changes in law or policy, food safety issues by our suppliers and their supply chains, and the financial health of our suppliers and their supply chains. Production of the agricultural products used in our business may also be materially adversely affected by drought, water scarcity, temperature extremes, scarcity of agricultural labor, changes in government agricultural programs or subsidies, import restrictions, scarcity of suitable agricultural land, crop conditions, crop or animal diseases or crop pests. Failure to take adequate steps to mitigate the likelihood or potential effect of such events, or to effectively manage such events if they occur, may materially adversely affect our business, financial condition and operating results, particularly in circumstances where an ingredient or product is sourced from a single supplier or location.
In addition, unexpected delays in deliveries from suppliers that ship directly to our fulfillment centers or increases in transportation costs (including through increased fuel costs) could materially adversely affect our business, financial condition and operating results. Labor shortages or work stoppages in the transportation industry, long-term disruptions to the national transportation infrastructure, reduction in capacity and industry-specific regulations such as hours-of-service rules that lead to delays or interruptions of deliveries could also materially adversely affect our business, financial condition and operating results.
Changes in food costs and availability could materially adversely affect our business.
The future success of our business depends in part on our ability to anticipate and react to changes in food and supply costs and availability. We are susceptible to increases in food costs as a result of factors beyond our control, such as general economic conditions, market changes, increased competition, general risk of inflation, exchange rate fluctuations, seasonal fluctuations, shortages or interruptions, weather conditions, changes in global climates, global demand, food safety concerns, generalized infectious diseases, changes in law or policy, declines in fertile or arable lands, product recalls and government regulations. In particular, deflation in food prices could reduce the attractiveness of our product offerings relative to competing products and thus impede our ability to maintain or increase overall sales, while food inflation, particularly periods of rapid inflation, could reduce our operating margins as there may be a lag between the time of the price increase and the time at which we are able to increase the price of our product offerings. We generally do not have long-term supply contracts or guaranteed purchase commitments with our food suppliers, and we do not hedge our commodity risks. In limited circumstances, we may enter into strategic purchasing commitment contracts with certain suppliers, but many of these contracts are relatively short in duration and may provide only limited protection from price fluctuations, and the use of these arrangements may limit our ability to benefit from favorable price movements. As a result, we may not be able to anticipate, react to or mitigate against cost fluctuations which could materially adversely affect our business, financial condition and operating results.
Any increase in the prices of the ingredients most critical to our recipes, or scarcity of such ingredients, such as vegetables, poultry, beef, pork and seafood, would adversely affect our operating results. Alternatively, in the event of cost increases or decrease of availability with respect to one or more of our key ingredients, we may choose to temporarily suspend including such ingredients in our recipes, rather than paying the increased cost for the ingredients. Any such changes to our available recipes could materially adversely affect our business, financial condition and operating results.
Any failure to adequately store, maintain and deliver quality perishable foods could materially adversely affect our business, financial condition and operating results.
Our ability to adequately store, maintain and deliver quality perishable foods is critical to our business. We store food products, which are highly perishable, in refrigerated fulfillment centers and ship them to our customers inside boxes that are insulated with thermal or corrugate liners and frozen refrigerants to maintain appropriate temperatures in transit. Keeping our food products at specific temperatures maintains freshness and enhances food safety. In the event of extended power outages, natural disasters or other catastrophic occurrences, failures of the refrigeration systems in our fulfillment centers or third party delivery trucks, failure to use adequate packaging to maintain appropriate temperatures, or other circumstances both within and beyond our control, our inability to store highly perishable inventory at specific temperatures could result in significant product inventory losses as well as increased risk of food-borne illnesses and other food safety risks. Improper handling or storage of food by a customer—without any fault by us—could result in food-borne illnesses, which could nonetheless result in negative publicity and harm to our brand and reputation. Further, we contract with third parties to conduct certain fulfillment processes and operations on our behalf. Any failure by such third party to transport perishable foods within reasonable time could negatively impact the safety, quality and merchantability of our products and the experience of our customers. The occurrence of any of these risks could materially adversely affect our business, financial condition and operating results.
Even inadvertent, non-negligent or unknowing violations of federal, state or local regulatory requirements could expose us to adverse governmental action and materially adversely affect our business, financial condition and operating results.
The Federal Food, Drug, and Cosmetic Act (“FDCA”), which governs the shipment of foods in interstate commerce, generally does not distinguish between intentional and unknowing, non-negligent violations of the law’s requirements. Most state and local laws operate similarly. Consequently, almost any deviation from subjective or objective requirements of the FDCA or state or local law leaves us vulnerable to a variety of civil and criminal penalties. In the future, we may deploy new equipment, update our facilities or occupy new facilities. These activities require us to adjust our operations and regulatory compliance systems to meet rapidly changing conditions. Although we have adopted and implemented systems to prevent the production of unsafe or mislabeled products, any failure of those systems to prevent or anticipate an instance or category of deficiency could result in significant business interruption and financial losses to us. The occurrence of events that are difficult to prevent completely, such as the introduction of pathogenic organisms from the outside environment into our facilities, also may result in the failure of our products to meet legal standards. Under these conditions we could be exposed to civil and criminal regulatory action.
In some instances, we may be responsible or held liable for the activities and compliance of our third party vendors and suppliers, despite limited visibility into their operations. Although we monitor and carefully select our third-party vendors and suppliers, they may fail to adhere to regulatory standards, our safety and quality standards or labor and employment practices, and we may fail to identify deficiencies or violations on a timely basis or at all. In addition, a statute in California called the Transparency in Supply Chains Act of 2010 requires us to audit our suppliers with respect to certain risks related to slavery and human trafficking and to mitigate any such risks in our operations, and any failure to disclose issues or other non-compliance could subject us to action by the California Attorney General.
We cannot assure you that we will always be in full compliance with all applicable laws and regulations or that we will be able to comply with any future laws and regulations. Failure to comply with these laws and regulations could materially adversely affect our business, financial condition and operating results.
Packaging, labeling and advertising requirements are subject to varied interpretation and selective enforcement.
We operate under a novel business model in which we source, process, store and package fully prepared meals and ship them directly to consumers. Most FDA requirements for mandatory food labeling are decades old and were adopted prior to the advent of large-scale, direct-to-consumer food sales and e-commerce platforms. Consequently, we, like our competitors, must make judgments regarding how best to comply with labeling and packaging regulations and industry practices not designed with our specific business model in mind. Government regulators may disagree with these judgments, leaving us open to civil or criminal enforcement action. This could materially adversely affect our business, financial condition and operating results.
We are subject to detailed and complex requirements for how our products may be labeled and advertised, which may also be supplemented by guidance from governmental agencies. Generally speaking, these requirements divide information into mandatory information that we must present to consumers and voluntary information that we may present to consumers. Packaging, labeling, disclosure and advertising regulations may describe what mandatory information must be provided to consumers, where and how that information is to be displayed physically on our materials or elsewhere, the terms, words or phrases in which it must be disclosed, and the penalties for non-compliance.
Voluntary statements made by us or by certain third parties, whether on package labels or labeling, on websites, in print, in radio, on social media channels, or on television, can be subject to FDA regulation, FTC regulation, USDA regulation, state and local regulation, or any combination of the foregoing. These statements may be subject to specific requirements, subjective regulatory evaluation, and legal challenges by plaintiffs. FDA, FTC, USDA and state- and local-level regulations and guidance can be confusing and subject to conflicting interpretations. Guidelines, standards and market practice for, and consumers’ understandings of, certain types of voluntary statements, such as those characterizing the nutritional and other attributes of food products, continue to evolve rapidly, and regulators may attempt to impose civil or criminal penalties against us if they disagree with our approach to using voluntary statements. Furthermore, in recent years the FDA has increased enforcement of its regulations with respect to nutritional, health and other claims related to food products, and plaintiffs have commenced legal actions against a number of companies that market food products positioned as “natural” or “healthy,” asserting false, misleading and deceptive advertising and labeling claims, including claims related to such food being “all natural” or that they lack any genetically modified ingredients. Should we become subject to similar claims or actions, consumers may avoid purchasing products from us or seek alternatives, even if the basis for the claim is unfounded, and the cost of defending against any such claims could be significant. The occurrence of any of the foregoing risks could materially adversely affect our business, financial condition and operating results.
Our industry is highly competitive. If any of our competitors or a new entrant into the market with significant resources has products similar to ours, our business could be significantly affected.
Competition is intense in the meal delivery services industry and the beverage industry and we must remain competitive in the areas of program efficacy, price, taste, customer service and brand recognition. Some of our competitors are significantly larger than we are and have substantially greater resources. Our business could be adversely affected if someone with significant resources decided to imitate our services or products. Any increased competition from new entrants into our segments’ industry or any increased success by existing competition could result in reductions in our sales or prices, or both, which could have an adverse effect on our business and results of operations.
If we do not continue to receive referrals from existing customers, our customer acquisition cost may increase.
We rely on word-of-mouth advertising for a portion of our new customers. If our brands suffer or the number of customers acquired through referrals drops due to other circumstances, our costs associated with acquiring new customers and generating revenue will increase, which will, in turn, have an adverse effect on our profitability.
Changes in customer preferences could negatively impact our operating results.
Our programs feature gourmet online meal delivery service selections, which we believe offer convenience and value to our customers. Our continued success depends, to a large degree, upon the continued popularity of our programs versus various other food services. Changes in customer tastes and preferences away from our ready-to-go food, and any failure to provide innovative responses to these changes, may have a materially adverse impact on our business, financial condition, operating results and cash flows.
Our success is also dependent on our food innovation including maintaining a robust array of food items and improving the quality of existing items. If we do not continually expand our food items or provide customers with items that are desirable in taste and quality, our business could be adversely impacted.
The industry in which we operate is subject to governmental regulation that could increase in severity and hurt results of operations.
The industry in which we operate is subject to federal, state and other governmental regulation. Certain federal and state agencies, such as the FTC, regulate and enforce such laws relating to advertising, disclosures to customers, privacy, customer pricing and billing arrangements and other customer protection matters. A determination by a federal or state agency, or a court, that any of our practices do not meet existing or new laws or regulations could result in liability, adverse publicity and restrictions on our business operations.
Other aspects of the industry in which we operate are also subject to government regulation. For example, the manufacturing, labeling and distribution of food products are subject to strict USDA and FDA requirements and food manufacturers are subject to rigorous inspection and other requirements of the USDA and FDA, and companies operating in foreign markets must comply with those countries’ requirements for proper labeling, controls on hygiene, food preparation and other matters. Additionally, remedies available in any potential administrative or regulatory actions may include product recalls and requiring us to refund amounts paid by all affected customers or pay other damages, which could be substantial.
Laws and regulations directly applicable to communications, operations or commerce over the Internet such as those governing intellectual property, privacy, libel and taxation, are becoming more prevalent and some remain unsettled. If we are required to comply with new laws or regulations or new interpretations of existing laws or regulations, or if we are unable to comply with these laws, regulations or interpretations, our business could be adversely affected.
Future laws or regulations, including laws or regulations affecting our marketing and advertising practices, relations with customers, employees, service providers, or our services and products, may have an adverse impact on us.
Disruptions in our data and information systems could harm our reputation and our ability to run our business.
We rely extensively on data and information systems for our supply chain, order processing, fulfillment operations, financial reporting, human resources and various other operations, processes and transactions. Furthermore, a significant portion of the communications between, and storage of personal data of, our personnel, customers and suppliers depend on information technology. Our data and information systems are subject to damage or interruption from power outages, computer and telecommunications failures, computer viruses, security breaches (including breaches of our transaction processing or other systems that could result in the compromise of confidential customer data), catastrophic events, data breaches and usage errors by our employees or third-party service providers. Our data and information technology systems may also fail to perform as we anticipate, and we may encounter difficulties in adapting these systems to changing technologies or expanding them to meet the future needs of our business. If our systems are breached, damaged or cease to function properly, we may have to make significant investments to fix or replace them, suffer interruptions in our operations, incur liability to our customers and others or face costly litigation, and our reputation with our customers may be harmed. We also rely on third parties for a majority of our data and information systems, including for third party hosting and payment processing. If these facilities fail, or if they suffer a security breach or interruption or degradation of service, a significant amount of our data could be lost or compromised and our ability to operate our business and deliver our product offerings could be materially impaired. In addition, various third parties, such as our suppliers and payment processors, also rely heavily on information technology systems, and any failure of these systems could also cause loss of sales, transactional or other data and significant interruptions to our business. Any material interruption in the data and information technology systems we rely on, including the data or information technology systems of third parties, could materially adversely affect our business, financial condition and operating results.
Our business is subject to data security risks, including security breaches.
We, or our third-party vendors on our behalf, collect, process, store and transmit substantial amounts of information, including information about our customers. We take steps to protect the security and integrity of the information we collect, process, store or transmit, but there is no guarantee that inadvertent or unauthorized use or disclosure will not occur or that third parties will not gain unauthorized access to this information despite such efforts. Security breaches, computer malware, computer hacking attacks and other compromises of information security measures have become more prevalent in the business world and may occur on our systems or those of our vendors in the future. Large Internet companies and websites have from time to time disclosed sophisticated and targeted attacks on portions of their websites, and an increasing number have reported such attacks resulting in breaches of their information security. We and our third-party vendors are at risk of suffering from similar attacks and breaches. Although we take steps to maintain confidential and proprietary information on our information systems, these measures and technology may not adequately prevent security breaches and we rely on our third-party vendors to take appropriate measures to protect the security and integrity of the information on those information systems. Because techniques used to obtain unauthorized access to or to sabotage information systems change frequently and may not be known until launched against us, we may be unable to anticipate or prevent these attacks. In addition, a party who is able to illicitly obtain a customer’s identification and password credentials may be able to access the customer’s account and certain account data.
Any actual or suspected security breach or other compromise of our security measures or those of our third party vendors, whether as a result of hacking efforts, denial-of-service attacks, viruses, malicious software, break-ins, phishing attacks, social engineering or otherwise, could harm our reputation and business, damage our brand and make it harder to retain existing customers or acquire new ones, require us to expend significant capital and other resources to address the breach, and result in a violation of applicable laws, regulations or other legal obligations. Our insurance policies may not be adequate to reimburse us for direct losses caused by any such security breach or indirect losses due to resulting customer attrition.
We rely on email and other messaging services to connect with our existing and potential customers. Our customers may be targeted by parties using fraudulent spoofing and phishing emails to misappropriate passwords, payment information or other personal information or to introduce viruses through Trojan horse programs or otherwise through our customers’ computers, smartphones, tablets or other devices. Despite our efforts to mitigate the effectiveness of such malicious email campaigns through product improvements, spoofing and phishing may damage our brand and increase our costs. Any of these events or circumstances could materially adversely affect our business, financial condition and operating results.
Failure to establish and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business and stock price.
As a public company, we are required to comply with the rules of the SEC implementing Sections 302 and 404 of the Sarbanes-Oxley Act, which requires management to certify financial and other information in our quarterly and annual reports and provide an annual management report on the effectiveness of controls over financial reporting. We are required to disclose changes made in our internal controls and procedures on a quarterly basis and to make annual assessments of our internal control over financial reporting pursuant to Section 404. As an emerging growth company, our independent registered public accounting firm will not be required to attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 until the date we are no longer an emerging growth company. At such time, our independent registered public accounting firm, and management, may issue a report that is adverse in the event it is not satisfied with the level at which our controls are documented, designed or operating.
To comply with the requirements of being a public company, we have undertaken various actions, and may need to take additional actions, such as implementing new internal controls and procedures and hiring additional accounting or internal audit staff. Testing and maintaining internal control can divert our management’s attention from other matters that are important to the operation of our business. Additionally, when evaluating our internal control over financial reporting, we may identify material weaknesses that we may not be able to remediate in time to meet the applicable deadline imposed upon us for compliance with the requirements of Section 404. If we identify any material weaknesses in our internal control over financial reporting or are unable to comply with the requirements of Section 404 in a timely manner or assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting once we are no longer an emerging growth company, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our Common Stock could be materially adversely affected, and we could become subject to investigations by the stock exchange on which our securities are listed, the SEC or other regulatory authorities, which could require additional financial and management resources.
Risks Related to an Investment in Our Units, Our Common Stock, Our Warrants, the Warrant Shares and this Offering
There is currently a limited public market for our Common Stock, a trading market for our Common Stock may never develop, and our common stock prices may be volatile and could decline substantially.
Although our Common Stock is quoted on the OTC Pink Sheets, under the symbol “HBIS”, there has been no material public market for our Common Stock. In these marketplaces, our stockholders may find it difficult to obtain accurate quotations as to the market value of their shares of our Common Stock, and may find few buyers to purchase their stock and few market makers to support its price. As a result of these and other factors, investors may be unable to resell shares of our Common Stock at or above the price for which they purchased them, at or near quoted bid prices, or at all. Further, an inactive market may also impair our ability to raise capital by selling additional equity in the future, and may impair our ability to enter into strategic partnerships or acquire companies or products by using shares of our Common Stock as consideration.
Moreover, there can be no assurance that any stockholders will sell any or all of their shares of Common Stock and there may initially be a lack of supply of, or demand for, our Common Stock. In the case of a lack of supply for our Common Stock, the trading price of our Common Stock may rise to an unsustainable level, particularly in instances where institutional investors may be discouraged from purchasing our Common Stock because they are unable to purchase a block of shares in the open market due to a potential unwillingness of our stockholders to sell the amount of shares at the price offered by such investors and the greater influence individual investors have in setting the trading price. In the case of a lack of demand for our Common Stock, the trading price of our Common Stock could decline significantly and rapidly at any time.
We intend to list shares of our Common Stock on a national securities exchange in the future, but we do not now, and may not in the future, meet the initial listing standards of any national securities exchange, which is often a more widely-traded and liquid market. Some, but not all, of the factors which may delay or prevent the listing of our Common Stock on a more widely-traded and liquid market include the following: our stockholders’ equity may be insufficient; the market value of our outstanding securities may be too low; our net income from operations may be too low; our Common Stock may not be sufficiently widely held; we may not be able to secure market makers for our Common Stock; and we may fail to meet the rules and requirements mandated by the several exchanges and markets to have our Common Stock listed. Should we fail to satisfy the initial listing standards of the national exchanges, or our Common Stock is otherwise rejected for listing, and remains listed on the OTC Pink Sheets or is suspended from the OTC Pink Sheets, the trading price of our Common Stock could suffer and the trading market for our Common Stock may be less liquid and our Common Stock price may be subject to increased volatility.
Therefore, an active, liquid, and orderly trading market for our Common Stock may not initially develop or be sustained, which could significantly depress the public price of our Common Stock and/or result in significant volatility, which could affect your ability to sell your Common Stock. Even if an active trading market develops for our Common Stock, the market price of our Common Stock may be highly volatile and subject to wide fluctuations. Our financial performance, government regulatory action, tax laws, interest rates and market conditions in general could have a significant impact on the future market price of our Common Stock.
There is no public trading market for the Units or Warrants.
While the Common Stock is quoted on the OTC Pink Sheets, prior to this Offering, there has been no public market for shares of our Units or Warrants. There is no guarantee we will ever be able to have our Units or Warrants approved for trading on the OTC Market or ultimately listed on a national securities exchange, such as Nasdaq or the NYSE. If our Units or Warrants are not approved for quotation on the OTC Market, such securities may only trade on the over-the-counter “pink sheets.” In any such event, an active trading market may not develop following completion of this Offering, or if developed, may not be maintained.
Our CEO has significant voting power and may take actions that may not be in the best interests of our other stockholders.
Stockholders have limited ability to exercise control over the Company’s daily business affairs and implement changes in its policies because management beneficially owns a majority of the current shares of Common Stock. As of January 31, 2021, the Company’s Chief Executive Officer, Mr. Zalmi Duchman beneficially owns 46.4% of the Common Stock. (See “Security Ownership of Management & Certain Security Holders”). As directors and officers of the Company, the Company’s management team has a fiduciary duty to the Company and must act in good faith in the manner it reasonably believes to be in the best interest of its stockholders. As stockholders, the management team is entitled to vote its shares in its own interest, which may not always be in the best interest of the stockholders.
We are not subject to the rules of a national securities exchange requiring the adoption of certain corporate governance measures and, as a result, our stockholders do not have the same protections.
Our Common Stock is quoted on the OTC Pink Sheets and we are not subject to the rules of a national securities exchange, such as the New York Stock Exchange or the Nasdaq Stock Market. National securities exchanges generally require more rigorous measures relating to corporate governance designed to enhance the integrity of corporate management. The requirements of the OTC Pink Sheets afford our stockholders fewer corporate governance protections than those of a national securities exchange. Until we comply with such greater corporate governance measures, regardless of whether such compliance is required, our stockholders will have fewer protections such as those related to director independence, stockholder approval rights and governance measures designed to provide board oversight of management.
Our Common Stock is currently deemed a “penny stock,” which makes it more difficult for our investors to sell their shares.
The SEC has adopted Rule 15g-9 which establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require that a broker or dealer approve a person’s account for transactions in penny stocks, and the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.
In order to approve a person’s account for transactions in penny stocks, the broker or dealer must obtain financial information and investment experience objectives of the person and make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.
The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, in highlight form sets forth the basis on which the broker or dealer made the suitability determination, and that the broker or dealer received a signed, written agreement from the investor prior to the transaction.
Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to dispose of our Common Stock if and when such shares are eligible for sale and may cause a decline in the market value of its stock.
Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading, and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities, and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stock.
As an issuer of a “penny stock,” the protection provided by the federal securities laws relating to forward-looking statements does not apply to us.
Although federal securities laws provide a safe harbor for forward-looking statements made by a public company that files reports under the federal securities laws, this safe harbor is not available to issuers of penny stocks. As a result, we will not have the benefit of this safe harbor protection in the event of any legal action based upon a claim that the material provided by us contained a material misstatement of fact or was misleading in any material respect because of our failure to include any statements necessary to make the statements not misleading. Such an action could hurt our financial condition.
Our Common Stock prices may be volatile which could cause the value of an investment in our Common Stock to decline.
The market price of our Common Stock may be highly volatile and subject to wide fluctuations. Our financial performance, government regulatory action, tax laws, interest rates and market conditions in general could have a significant impact on the future market price of our Common Stock. The public price of our Common Stock may be subject to wide fluctuations in response to the risk factors described in this Offering Statement and others beyond our control, including:
In addition, the stock market in general has experienced extreme price and volume fluctuations that often have been unrelated or disproportionate to the operating performance of those companies. Securities class action litigation has often been instituted against companies following periods of volatility in the overall market and in the market price of a company’s securities. Such litigation, if instituted against us, could result in very substantial costs, divert our management’s attention and resources and harm our business, operating results, and financial condition.
Because we are a “smaller reporting company,” we will not be required to comply with certain disclosure requirements that are applicable to other public companies and we cannot be certain if the reduced disclosure requirements applicable to smaller reporting companies will make our common stock less attractive to investors.
We are a “smaller reporting company,” as defined in Item 10(f)(1) of Regulation S-K. As a smaller reporting company we are eligible for exemptions from various reporting requirements applicable to other public companies that are not smaller reporting companies, including, but not limited to:
We will remain a smaller reporting company until the end of the fiscal year in which (1) we have a public common equity float of more than $250 million, or (2) we have annual revenues for the most recently completed fiscal year of more than $100 million plus we have any public common equity float or public float of more than $700 million. We also would not be eligible for status as smaller reporting company if we become an investment company, an asset-backed issuer or a majority-owned subsidiary of a parent company that is not a smaller reporting company.
We do not expect to pay any cash dividends to the holders of the Common Stock in the foreseeable future and the availability and timing of future cash dividends, if any, is uncertain.
We expect to use cash flow from future operations to support the growth of our business and do not expect to declare or pay any cash dividends on our Common Stock in the foreseeable future. Our board of directors will determine the amount and timing of stockholder dividends, if any, that we may pay in future periods. In making this determination, our directors will consider all relevant factors, including the amount of cash available for dividends, capital expenditures, covenants, prohibitions or limitations with respect to dividends, applicable law, general operational requirements and other variables. We cannot predict the amount or timing of any future dividends you may receive, and if we do commence the payment of dividends, we may be unable to pay, maintain or increase dividends over time. Therefore, you may not be able to realize any return on your investment in our Common Stock for an extended period of time, if at all.
Future sales of our Common Stock, or the perception that such sales may occur, may depress our share price, and any additional capital through the sale of equity or convertible securities may dilute your ownership in us.
We may in the future issue our previously authorized and unissued securities. We are authorized to issue 1,000,000,000 shares of Common Stock and 20,000,000 shares of preferred stock (none of which are issued and outstanding) with such designations, preferences and rights as determined by our board of directors. The potential issuance of such additional shares of Common Stock will result in the dilution of the ownership interests of the holders of our Common Stock and may create downward pressure on the trading price, if any, of our Common Stock.
The exercise, conversion or exchange of convertible securities, including for other securities, will dilute the percentage ownership of our stockholders. The dilutive effect of the exercise or conversion of these securities may adversely affect our ability to obtain additional capital. The holders of these securities may be expected to exercise or convert such securities at a time when we would be able to obtain additional equity capital on terms more favorable than such securities or when our Common Stock is trading at a price higher than the exercise or conversion price of the securities. The exercise or conversion of outstanding securities will have a dilutive effect on the securities held by our stockholders. We have in the past, and may in the future, exchange outstanding securities for other securities on terms that are dilutive to the securities held by other stockholders not participating in such exchange.
We may issue preferred stock whose terms could adversely affect the voting power or value of our Common Stock.
Our certificate of incorporation authorizes us to issue, without the approval of our stockholders, one or more classes or series of preferred stock having such designations, preferences, limitations and relative rights, including preferences over our Common Stock with respect to dividends and distributions, as our board of directors may determine. The terms of one or more classes or series of preferred stock could adversely impact the voting power or value of our Common Stock. For example, we might grant holders of preferred stock the right to elect some number of our directors in all events or on the happening of specified events, or the right to veto specified transactions. Similarly, the repurchase or redemption rights or liquidation preferences we might grant to holders of preferred stock could affect the value of the Common Stock.
We will continue to incur increased costs as a result of operating as a public company, and our management will be required to devote substantial time to new compliance initiatives.
As a public company, we incur significant legal, accounting and other expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act of 2002 and rules subsequently implemented by the SEC, impose various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Our management and other personnel devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly, particularly after we are no longer a smaller reporting company. For example, we expect that these rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance.
Pursuant to Section 404, we will be required to furnish a report by our management on our internal control over financial reporting, including an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. To achieve compliance with Section 404 within the prescribed period, we will be engaged in a process to document and evaluate our internal control over financial reporting, which is both costly and challenging. In this regard, we will need to continue to dedicate internal resources, potentially engage outside consultants and adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal control over financial reporting. Despite our efforts, there is a risk that neither we nor our independent registered public accounting firm will be able to conclude within the prescribed timeframe that our internal control over financial reporting is effective as required by Section 404. This could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements.
We will continue to incur significant costs in staying current with reporting requirements. Our management will be required to devote substantial time to compliance initiatives. Additionally, the lack of an internal audit group may result in material misstatements to our financial statements and ability to provide accurate financial information to our stockholders.
Our management and other personnel will need to devote a substantial amount of time to compliance initiatives to maintain reporting status. Moreover, these rules and regulations, which are necessary to remain as a public reporting company, will be costly because external third party consultant(s), attorneys, or other firms may have to assist us in following the applicable rules and regulations for each filing on behalf of the company
We currently do not have an internal audit group, and we may eventually need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge to have effective internal controls for financial reporting. Additionally, due to the fact that our officers and directors have limited experience as an officer or director of a reporting company, such lack of experience may impair our ability to maintain effective internal controls over financial reporting and disclosure controls and procedures, which may result in material misstatements to our financial statements and an inability to provide accurate financial information to our stockholders.
Moreover, if we are not able to comply with the requirements or regulations as a public reporting company in any regard, we could be subject to sanctions or investigations by the SEC or other regulatory authorities, which would require additional financial and management resources.
Many of our officers and directors lack significant experience in, and with, the reporting and disclosure obligations of publicly-traded companies in the United States.
Many of our officers and directors lack significant experience in, and with the reporting and disclosure obligations of publicly-traded companies, and with serving as an officer and or director of a publicly-traded company. This lack of experience may impair our ability to maintain effective internal controls over financial reporting and disclosure controls and procedures, which may result in material misstatements to our financial statements and an inability to provide accurate financial information to our stockholders. Consequently, our operations, future earnings and ultimate financial success could suffer irreparable harm due to our officers’ and director’s ultimate lack of experience in our industry and with publicly-traded companies and their reporting requirements in general.
Shares purchased pursuant to this Offering are subject to lock-up restrictions.
Pursuant to the subscription agreement, investors purchasing Units shall have certain restrictions related to the resale of their shares. Specifically, each common share of the Unit shall be subject to a six month lock-up period, meaning that the shareholder will not be able to resell the share of common stock for six months. This could adversely affect the underlying investment as our common shares are traded on over the counter markets which can be subject to high volatility. As a result, the market price of our common stock could drop drastically, leaving an investor with a negative return on the investment, despite the market price at that date of purchase.
The subscription agreement for the purchase of common stock from the Company contains an exclusive forum provision, which will limit investors ability to litigate any issue that arises in connection with the offering anywhere other than the Federal courts in Nevada.
The subscription agreement states that it shall be governed by the local law of the State of Nevada and the United States, and the parties consent to the exclusive forum of the Federal courts in Nevada for any action deriving from the subscription agreement itself or under the Securities Act of 133 or the Securities Exchange Act of 1934. They will not have the benefit of bringing a lawsuit in a more favorable jurisdiction or under more favorable law than the local law of the State of Nevada for matters not addressed by the Securities Act or the Securities Exchange Act. Moreover, we cannot provide any certainty as to whether a court would enforce such a provision. In addition, you cannot waive compliance with the federal securities laws and the rules and regulations thereunder as Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. The combination of both potentially unfavorable forum and the lack of certainty regarding enforceability poses a risk regarding litigation related to the subscription to this Offering and should be considered by each investor before signing the subscription agreement.
Risks Relating to the Internet
We are dependent on our telephone, Internet and management information systems for the sales and distribution of our potential products.
Our success depends, in part, on our ability to provide prompt, accurate and complete service to our customers on a competitive basis and our ability to purchase and promote products, manage inventory, ship products, manage sales and marketing activities and maintain efficient operations through our telephone and proprietary management information system. A significant disruption in our telephone, Internet or management information systems could harm our relations with our customers and the ability to manage our operations. We can offer no assurance that our back-up systems will be sufficient to prevent an interruption in our operations in the event of disruption in our management information systems, and an extended disruption in the management information systems could adversely affect our business, financial condition and results of operations.
Online security breaches could harm our business.
The secure transmission of confidential information over the Internet is essential to maintain consumer confidence in our website. Substantial or ongoing security breaches of our system or other Internet-based systems could significantly harm our business. Any penetration of our network security or other misappropriation of our users’ personal information could subject us to liability. We may be liable for claims based on unauthorized purchases with credit card information, fraud, or misuse of personal information, such as for unauthorized marketing purposes. These claims could result in litigation and financial liability. We rely on licensed encryption and authentication technology to effect secure transmission of confidential information, including credit card numbers. It is possible that advances in computer capabilities, new discoveries or other developments could result in a compromise or breach of the technology we use to protect customer transaction data. We may incur substantial expense to protect against and remedy security breaches and their consequences. A party that is able to circumvent our security systems could steal proprietary information or cause interruptions in our operations. We cannot guarantee that our security measures will prevent security breaches. Any breach resulting in misappropriation of confidential information would have a material adverse effect on our business, financial condition and results of operations.
Government regulation and legal uncertainties relating to the Internet and online commerce could negatively impact our business operations.
Online commerce is rapidly changing, and federal and state regulation relating to the Internet and online commerce is evolving. The U.S. Congress has enacted Internet laws regarding online privacy, copyrights and taxation. Due to the increasing popularity of the Internet, it is possible that additional laws and regulations may be enacted with respect to the Internet, covering issues such as user privacy, pricing, taxation, content, copyrights, distribution, antitrust and quality of products and services. The adoption or modification of laws or regulations applicable to the Internet could harm our business operations.
Changing technology could adversely affect the operation of our website.
The Internet, online commerce and online advertising markets are characterized by rapidly changing technologies, evolving industry standards, frequent new product and service introductions and changing customer preferences. Our future success will depend on our ability to adapt to rapidly changing technologies and address its customers’ changing preferences. However, we may experience difficulties that delay or prevent us from being able to do so.
Risks Related to our Indebtedness
We have debt which could adversely affect our ability to raise additional capital to fund operations and prevent us from meeting our obligations under outstanding indebtedness.
December 2020 Financings
On December 18, 2020, the Company entered a Securities Purchase Agreement (the “December 2020 SPA I”) with an investor for the sale of the Company’s convertible note. Pursuant to the December 2020 SPA I, among other things, (i) the Company issued a self-amortization promissory note (the “December 2020 Note I”, and together with the December 2020 SPA I, the “December 2020 Agreements I”) in the aggregate principal amount of $275,000, and (ii) issued a total of 75,546 shares of common stock, as a commitment fee and 183,866 shares (the “Second Commitment Shares”) issued as a returnable commitment fee. Accordingly, the Company deems the Second Commitment Shares as unissued shares for accounting purposes. The 75,546 shares of common stock were recorded as a debt discount of $23,546 based on the relative fair value method. Pursuant to the December 2020 Note I, the Company received net proceeds of $234,100, net of $27,500 OID and $13,400 of issuance costs. The December 2020 Note I bears an interest rate of 12% per annum (which interest rate shall be increased to 16% per annum upon the occurrence of an Event of Default (as defined in the December 2020 Note I)) and shall mature on December 18, 2021. The investor has the right, only upon the occurrence of an Event of Default, to convert all or any portion of the then outstanding and unpaid principal amount and interest thereon (including any default interest) into shares of common stock equal to the lesser of (i) 105% multiplied by the closing bid price of the common stock on the trading day immediately preceding the issue date ($1.04) or (ii) the closing bid price of the common stock on the trading day immediately preceding the date of the respective conversion (the “Conversion Price”), subject to certain percentage of ownership limitations. The Second Commitment Shares must be returned to the Company’s treasury if the December 2020 Note I is fully repaid and satisfied on or prior to the maturity date, the. Upon the occurrence and during the continuation of any Event of Default (as defined in December 2020 Note I), the investor is no longer required to return the Second Commitment Shares to the Company and the December 2020 Note I becomes immediately due and payable thereunder in the amount equal to the principal amount then outstanding plus accrued interest (including any default interest) through the date of full repayment multiplied by 125%. The obligations of the Company under the December 2020 Note I rank senior with respect to any and all unsecured indebtedness incurred following the issue date except with respect to the Company’s current and future indebtedness with Shopify and any further loans that may be received pursuant to the CARES Act and the SBA’s Economic Injury Disaster loan program. Further, the December 2020 Note I contain standard anti-dilution provisions and price protections provisions in the event that the Company issues securities for a price per share less than the Conversion Price. The December 2020 Agreements I contain other provisions, covenants, and restrictions common with this type of debt transaction. Furthermore, the Company is subject to certain negative covenants under the December 2020 Agreements I, which the Company also believes are customary for transactions of this type. The December 2020 SPA I also provides the investor with certain “piggyback” registration rights, permitting them to request that the Company include the issued shares for sale in certain registration statements filed by the Company under the Securities Act of 1934, as amended. As of December 31, 2020, the December 2020 Note I had outstanding principal and accrued interest of $275,000 and $1,175, respectively.
On December 28, 2020, the Company entered into a Securities Purchase Agreement (the “December 2020 SPA II”) with an investor for the sale of the Company’s convertible note. Pursuant to the SPA II, among other things, (i) the Company issued a self-amortization promissory note (the “December 2020 Note II”, and together with the December 2020 SPA II, the “December 2020 Agreements II”) in the aggregate principal amount of $172,000, and (ii) issued 45,989 shares of common stock as a commitment fee and 114,667 shares (the “Second Commitment Shares”) issued as a returnable commitment fee. Accordingly, the Company deems the Second Commitment Shares as unissued shares for accounting purposes. The 45,989 shares of common stock issued were recorded as a debt discount of $14,720 based on the relative fair value method. Pursuant to the December 2020 Note II, the Company received net proceeds of $150,000, net of $15,500 OID and $6,500 of issuance costs. The December 2020 Note II bears an interest rate of 12% per annum (which interest rate shall be increased to 16% per annum upon the occurrence of an Event of Default (as defined in the December 2020 Note II)) and shall mature on December 28, 2021. The investor has the right, only upon the occurrence of an Event of Default, to convert all or any portion of the then outstanding and unpaid principal amount and interest thereon (including any default interest) into shares of common stock equal to the lesser of (i) 105% multiplied by the closing bid price of the common stock on the trading day immediately preceding the issue date ($1.00) or (ii) the closing bid price of the common stock on the trading day immediately preceding the date of the respective conversion (the “Conversion Price”), subject to certain percentage of ownership limitations. The Second Commitment Shares must be returned to the Company’s treasury if the December 2020 Note II is fully repaid and satisfied on or prior to the maturity date, the. Upon the occurrence and during the continuation of any Event of Default (as defined in the December 2020 Note II), the investor is no longer required to return the Second Commitment Shares to the Company and the December 2020 Note II becomes immediately due and payable thereunder in the amount equal to the principal amount then outstanding plus accrued interest (including any default interest) through the date of full repayment multiplied by 125%. The obligations of the Company under the December 2020 Note II rank senior with respect to any and all unsecured indebtedness incurred following the issue date except with respect to the Company’s current and future indebtedness with Shopify and any further loans that may be received pursuant to the CARES Act and the SBA’s Economic Injury Disaster loan program. Further, the December 2020 Note II contain standard anti-dilution provisions and price protections provisions in the event that the Company issues securities for a price per share less than the Conversion Price. The December 2020 Agreements II contain other provisions, covenants, and restrictions common with this type of debt transaction. Furthermore, the Company is subject to certain negative covenants under the December 2020 Agreements II, which the Company also believes are also customary for transactions of this type. The December 2020 SPA II also provides the investor with certain “piggyback” registration rights, permitting them to request that the Company include the issued shares for sale in certain registration statements filed by the Company under the Securities Act of 1934, as amended. As of December 31, 2020, the December 2020 Note II had outstanding principal and accrued interest of $172,000 and $0, respectively.
The Company shall use its best efforts to have the Registration Statement filed with the SEC within 60 or 120 days following the closing date of the December 2020 Agreements II (collectively as “Filing Deadline”). The Company shall pay the holder the sum of 1% of the purchase amount of the December 2020 Note II as liquidated damages, and not as a penalty for each time it fails to meet the Filing Deadline. The liquidated damages set forth in the Registration Agreement shall be paid, at the holder’s option, in cash or securities priced at the share price, or portion thereof. Failure of the Company to make payment within five business days of the Filing Date shall be considered a breach of the Registration Agreement.
Derivative Liabilities Pursuant to Convertible Notes
In connection with the issuance of the December 2020 Note I and II (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 Binomial valuation model. At the end of each period and on note conversion date, the Company revalues the derivative liabilities resulting from the embedded option.
The Company also entered into a Registration Rights Agreement (“Registration Agreement”) in connection with the December 2020 Agreements II (see Note 13). Pursuant to which the Company is required to prepare and file with the SEC a Registration Statement or Registration Statements (as is necessary) covering the resale of all of the Registrable Securities, which Registration Statement(s) shall state that, in accordance with Rule 415 promulgated under the Securities Act, such Registration Statement also covers such indeterminate number of additional shares of Securities as may become issuable upon stock splits, stock dividends or similar transactions. The Company shall initially register for resale all of the Registerable Securities, or an amount equal to the maximum amount allowed under Rule 415 (a)(1)(i) as interpreted by the SEC. In the event the Company cannot register sufficient shares of Securities, due to the remaining number of authorized shares of Securities being insufficient, the Company will use its best efforts to register the maximum number of shares it can base on the remaining balance of authorized shares and will use its best efforts to increase the number of its authorized shares as soon as reasonably practicable.
Paycheck Protection Program Loan
On April 8, 2020, the Company received federal funding in the amount of $14,612 through the Paycheck Protection Program (the “PPP”) of the CARES Act, administered by the U.S. Small Business Administration (“SBA”). The PPP note bears an interest rate 0.98% per annum and accrues on the unpaid principal balance computed on the basis of the actual number of days elapsed in a year of 360 days. Commencing six months after the effective date of the PPP note, the Company is required to pay the lender equal monthly payments of principal and interest as required to fully amortize any unforgiven principal balance of the loan by the two-year anniversary of the effective date of the PPP note (the “Maturity Date”). The Maturity Date can be extended to five years if mutually agreed upon by both the lender and the Company. The PPP note contains customary events of default relating to, among other things, payment defaults, making materially false or misleading representations to the SBA or the lender, or breaching the terms of the PPP note. The occurrence of an event of default may result in the repayment of all amounts outstanding under the PPP note, collection of all amounts owing from the Company, or filing suit and obtaining judgment against the Company. Under the terms of the CARES Act, PPP loan recipients can apply for and be granted forgiveness for all or a portion of the loan granted under the PPP. Such forgiveness will be determined, subject to limitations, based on the use of loan proceeds for payment of payroll costs and any payments of mortgage interest, rent, and utilities. Recent modifications to the PPP by the U.S. Treasury and Congress have extended the time period for loan forgiveness beyond the original eight-week period, making it possible for the Company to apply for forgiveness of its PPP note. No assurance can be given that the Company will be successful in obtaining forgiveness of the loan in whole or in part. As of December 31, 2020, the PPP note had an outstanding principal balance of $14,612 and accrued interest of $106, reflected in the accompanying balance sheets under accrued expense and other liabilities.
Economic Injury Disaster Loan
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. Installment 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 December 31, 2020, the SBA Note had an outstanding principal balance of $150,000 and accrued interest of $3,036, reflected in the accompanying balance sheets under accrued expense and other liabilities.
On June 26, 2020, in connection SBA Loan Agreement, the Company received a grant that does not have to be repaid, in the amount of $5,000. It was recorded as other income in the accompanying consolidated statement of operations.
November Note Payable
On November 12, 2020, the Company entered into a Note Agreement with an investor for the sale of the Company’s note (the “Note”). Pursuant to the terms provided for in the Note Agreement, the Company issued to the investor a Note and the Company received proceeds in the amount of $7,000. The Note bears an interest of 5% per annum and matures on November 12, 2021. The Company may prepay all or any portion of the interest and the unpaid principal balance of this Note at any time, or from time to time, without penalty or premium. As of December 31, 2020, the Note had an outstanding principal balance of $7,000 and accrued interest of $47, reflected in the accompanying balance sheets under accrued expense and other liabilities.
On October 15, 2019, the Company entered into a capital advance agreement (the “First Advance Agreement”) with their e-commerce platform provider (“Shopify”). Under the terms of the First Advance Agreement, the Company received $23,000 of principal and will repay $25,999 by remitting 17% of the total customer payments processed daily by the e-commerce platform provider until the advance is repaid in full. As of December 31, 2019, the advance had an outstanding principal balance of $18,192. During the year ended December 31, 2020, the Company paid the principal balance of the advance in full and there was no balance outstanding as of December 31, 2020.
On March 17, 2020, the Company entered into a capital advance agreement (the “Second Advance Agreement”) with Shopify. Under the terms of the Second Advance Agreement, the Company received $10,000 of principal and will repay $11,300 by remitting 17% of the total customer payments processed daily by the e-commerce platform provider until the advance is repaid in full. During the year ended December 31, 2020, the Company paid the advance in full and there was no balance outstanding as of December 31, 2020.
On August 5, 2020, the Company entered into a capital advance agreement (the “Third Advance Agreement”) with Shopify. Under the terms of the Third Advance Agreement, the Company has received $49,000 of principal and will repay $55,370 by remitting 17% of the total customer payments processed daily by the e-commerce platform provider until the advance is repaid in full. During the year ended December 31, 2020, the Company paid $47,328 of the principal balance and the advance had an outstanding balance $1,672 as of December 31, 2020 presented as advance payable on the accompanying consolidated balance sheets.
On November 17, 2020, the Company entered into a capital advance agreement (the “Fourth Advance Agreement”) with Shopify. Under the terms of the Fourth Advance Agreement, the Company has received $63,000 of principal and will repay $71,190 by remitting 17% of the total customer payments processed daily by the e-commerce platform provider until the advance is repaid in full. As of December 31, 2020, the entire principal balance of $63,000 remained outstanding and is presented as advances payable on the accompanying consolidated balance sheets.
On December 10, 2020, the Company entered into a working capital agreement (the “First PayPal Advance Agreement”) with PayPal. Under the terms of the Fifth Advance Agreement, the Company received net proceeds of $17,000, net of $1,840 loan fee for a total principal amount of $18,840. and will repay the principal and by remitting The Company shall pay a minimum payment every 90-days beginning at the end of the Cancellation Period and ending when the Total Payment Amount has been delivered to Lender. The minimum payment is due in each 90-day period, irrespective of the amount paid in any previous 90-day period. The minimum payment is 5% of the principal amount for loans expected to be repaid in 12 months or more and 10% of the principal amount for loans expected to be repaid in less than 12 months (based on the Company’s account history). During the year ended December 31, 2020, the Company paid $5,015 of the principal balance and the advance had an outstanding balance $13,825 as of December 31, 2020 presented as advance payable on the accompanying consolidated balance sheets.
As of December 31, 2020, our total indebtedness was $391,585, including total net convertible debt of $141,476, net of $305,524 discount, total advances payable of $78,497, total notes payable of $171,612 including bank loans of $150,000 and $14,612 of Paycheck Protection Program (“PPP”) loans that the Company expects to be forgiven. As of December 31, 2020 $240,041 and $151,544 of such debt is classified as current and long-term debt, respectively. This debt could have important consequences, including the following: (i) a substantial portion of our cash flow from operations may be dedicated to the payment of principal and interest on indebtedness, thereby reducing the funds available for operations, future business opportunities and capital expenditures; (ii) our ability to obtain additional financing for working capital, debt service requirements and general corporate purposes in the future may be limited; (iii) we may face a competitive disadvantage to lesser leveraged competitors; (iv) our debt service requirements could make it more difficult to satisfy other financial obligations; and (v) we may be vulnerable in a downturn in general economic conditions or in our business and we may be unable to carry out activities that are important to our growth.
Our ability to make scheduled payments of the principal of, or to pay interest on, or to refinance our indebtedness depends on and is subject to our financial and operating performance, which in turn is affected by general and regional economic, financial, competitive, business and other factors beyond management’s control. If we are unable to generate sufficient cash flow to service our debt or to fund our other liquidity needs, we will need to restructure or refinance all or a portion of our debt, which could impair our liquidity. Any refinancing of indebtedness, if available at all, could be at higher interest rates and may require us to comply with more onerous covenants that could further restrict our business operations. Despite our significant amount of indebtedness, we may need to incur significant additional amounts of debt, which could further exacerbate the risks associated with our substantial debt
If we do not meet the standards for forgiveness of our PPP Loan, we may be required to repay the loan over a period of two years.
On April 8, 2020, we entered into a promissory note evidencing an unsecured $14,612 under the Paycheck Protection Program. The Paycheck Protection Program (“PPP”) was established under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and is administered by the U.S. Small Business Administration (“SBA”). The PPP note bears an interest rate of 0.98% per annum and accrues on the unpaid principal balance computed on the basis of the actual number of days elapsed in a year of 360 days. Commencing seven months after the effective date of the PPP note, the Company is required to pay the lender equal monthly payments of principal and interest as required to fully amortize any unforgiven principal balance of the loan by the two-year anniversary of the effective date of the PPP note (the “Maturity Date”). The Maturity Date can be extended to five years if mutually agreed upon by both the lender and the Company. As of December 31, 2020, the PPP note had an outstanding principal balance of $14,612 and accrued interest of $106.
Although the Company intends to apply for forgiveness of all or a portion of its PPP note, we make no representations that we will qualify for forgiveness of all or part of the PPP note. While we expect to meet the standards for full forgiveness of the PPP note, there can be no assurance that we will meet such standards. Further, as a consequence of post-PPP note rule making by the SBA, shifting regulatory guidance and/or other factors, we may be required to repay the PPP note before its expected maturity date.
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