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HOMETOWN INTERNATIONAL INC.
QUARTERLY REPORT ON FORM 10-Q
SEPTEMBER 30, 2021
TABLE OF CONTENTS
| PAGE | ||
| PART I - FINANCIAL INFORMATION | 1 | |
| Item 1. | Financial Statements | 1 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 2 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 6 |
| Item 4. | Controls and Procedures | 6 |
| PART II - OTHER INFORMATION | 7 | |
| Item 1. | Legal Proceedings | 7 |
| Item 1A. | Risk Factors | 7 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 7 |
| Item 3. | Defaults Upon Senior Securities | 7 |
| Item 4. | Mine Safety Disclosure | 7 |
| Item 5. | Other Information | 7 |
| Item 6. | Exhibits | 7 |
| SIGNATURES | 8 | |
i
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
The following unaudited interim financial statements of Hometown International, Inc. (referred to herein as the “Company,” “we,” “us” or “our”) are included in this quarterly report on Form 10-Q:
Hometown International, Inc.
Financial Statements for the Three and Nine Months Ended September 30, 2021
Index to the Condensed Consolidated Financial Statements
1
HOMETOWN INTERNATIONAL, INC. AND SUBSIDIARY
Condensed Consolidated Balance Sheets
| September 30, 2021 | December 31, 2020 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash | $ | $ | ||||||
| Prepaid expenses and other current assets | ||||||||
| Inventory | ||||||||
| Note receivable - related parties, net | ||||||||
| Interest receivable - related parties | ||||||||
| Total Current Assets | ||||||||
| Leasehold improvements and equipment, net | ||||||||
| Operating lease asset | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current Liabilities | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Due to related party | ||||||||
| Operating lease liability, current | ||||||||
| Due to former officers | ||||||||
| Total Current Liabilities | ||||||||
| Long Term Liabilities | ||||||||
| Operating lease liability, net of current | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies (See Note 8) | ||||||||
| Stockholders’ Equity | ||||||||
| Common stock, $ | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Equity | ||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | ||||||
See accompanying notes to condensed consolidated unaudited financial statements
F-1
HOMETOWN INTERNATIONAL, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Operations
(Unaudited)
| For the Three Months Ended | For the Three Months Ended | For the Nine Months Ended | For the Nine Months Ended | |||||||||||||
| September 30, 2021 | September 30, 2020 | September 30, 2021 | September 30, 2020 | |||||||||||||
| Sales | $ | $ | $ | $ | ||||||||||||
| Costs and Expenses | ||||||||||||||||
| Food, beverage and supplies | ||||||||||||||||
| Labor | ||||||||||||||||
| Direct operating and occupancy | ||||||||||||||||
| Depreciation | ||||||||||||||||
| Consulting - related parties | - | |||||||||||||||
| Consulting | ||||||||||||||||
| Professional fees | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Total cost and expenses | ||||||||||||||||
| Loss from Operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other Income (Expenses) | ||||||||||||||||
| Other Income | - | - | ||||||||||||||
| Interest Income - related parties | ||||||||||||||||
| Interest Expense | - | ( | ) | |||||||||||||
| Total Other Income (Expenses) | ( | ) | ||||||||||||||
| LOSS FROM OPERATIONS BEFORE INCOME TAXES | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Provision for Income Taxes | ||||||||||||||||
| NET LOSS | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net Loss Per Share - Basic and Diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average number of shares outstanding during the period - Basic and Diluted | ||||||||||||||||
See accompanying notes to condensed consolidated unaudited financial statements
F-2
HOMETOWN INTERNATIONAL, INC. AND SUBSIDIARY
Condensed Consolidated Statement of Stockholders’ Equity (Deficit)
For the three and nine months ended September 30, 2021 and 2020
(Unaudited)
| Additional | Total | |||||||||||||||||||
| Common stock | paid-in | Accumulated | Stockholders’ | |||||||||||||||||
| Shares | Amount | capital | Deficit | Equity | ||||||||||||||||
| Balance, June 30, 2021 (Unaudited) | $ | $ | $ | ( | ) | $ | ||||||||||||||
| In kind contribution of services | - | - | ||||||||||||||||||
| Net loss for the three months ended September 30, 2021 | - | ( | ) | ( | ) | |||||||||||||||
| Balance, September 30, 2021 (Unaudited) | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Balance, December 31, 2020 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| In kind contribution of services | - | - | ||||||||||||||||||
| Net loss for the nine months ended September 30, 2021 | - | ( | ) | ( | ) | |||||||||||||||
| Balance, September 30, 2021 (Unaudited) | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Common stock | Treasury | Additional paid-in | Accumulated | Total Stockholders’ Equity | ||||||||||||||||||||
| Shares | Amount | Shares | capital | Deficit | (Deficit) | |||||||||||||||||||
| Balance, December 31, 2019 | $ | $ | - | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||
| Conversion of note payable - related party to common shares ($ | - | - | ||||||||||||||||||||||
| Repurchase of common shares ($ | ( | ) | - | ( | ) | - | - | ( | ) | |||||||||||||||
| Common stock issued for cash ($ | - | - | ||||||||||||||||||||||
| In kind contribution of services | - | - | - | - | ||||||||||||||||||||
| Net loss for the nine months ended September 30, 2020 | - | - | ( | ) | ( | ) | ||||||||||||||||||
| Balance, September 30, 2020 (Unaudited) | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||
| Balance, June 30, 2020 (Unaudited) | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||
| In kind contribution of services | - | - | - | - | ||||||||||||||||||||
| Net loss for the three months ended September 30, 2020 | - | - | ( | ) | ( | ) | ||||||||||||||||||
| Balance, September 30, 2020 (Unaudited) | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||
See accompanying notes to condensed consolidated unaudited financial statements
F-3
HOMETOWN INTERNATIONAL, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| For the Nine Months Ended | For the Nine Months Ended | |||||||
| September 30, 2021 | September 30, 2020 | |||||||
| Cash Flows From Operating Activities: | ||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operations | ||||||||
| In-kind contribution of services | ||||||||
| Depreciation expense | ||||||||
| Amortization of operating lease assets | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Decrease in prepaid expenses and other current assets | ||||||||
| (Increase) in inventory | ( | ) | ( | ) | ||||
| Decrease in interest receivable - related parties | ||||||||
| Increase in accounts payable and accrued expenses | ( | ) | ||||||
| Decrease in operating lease liability | ( | ) | ( | ) | ||||
| Net Cash Used In Operating Activities | ( | ) | ( | ) | ||||
| Cash Flows From Investing Activities: | ||||||||
| Note receivable - related parties | ( | ) | ||||||
| Repayment of note receivable - related parties | ||||||||
| Net Cash Provided By Investing Activities | ||||||||
| Cash Flows From Financing Activities: | ||||||||
| Proceeds from common stock issuance for cash | ||||||||
| Proceeds from/due to former officers | ||||||||
| Proceeds from/due to related party | ||||||||
| Repayment of due to related party | ( | ) | ||||||
| Repayment of note payable - related party | ( | ) | ||||||
| Proceeds from note payable - related party | ||||||||
| Purchase of treasury stock | ( | ) | ||||||
| Net Cash Provided by (Used in) Financing Activities | ( | ) | ||||||
| Net (Decrease) Increase in Cash | ( | ) | ||||||
| Cash at Beginning of Period | ||||||||
| Cash at End of Period | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for taxes | $ | $ | ||||||
| Supplemental disclosure of non-cash investing and financing activities: | ||||||||
| Operating lease asset obtained for operating lease liability upon remeasurement | $ | $ | ||||||
| Note payable related party, converted into | $ | $ | ||||||
See accompanying notes to condensed consolidated unaudited financial statements
F-4
HOMETOWN INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2021
(UNAUDITED)
| NOTE 1 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION |
| (A) | Organization and Basis of Presentation |
The accompanying condensed consolidated unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, they do not include all the information necessary for a comprehensive presentation of financial position and results of operations.
These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on March 26, 2021.
It is management’s opinion that all material adjustments (consisting of normal recurring adjustments) have been made, which are necessary for a fair financial statement presentation. The results for the interim period are not necessarily indicative of the results to be expected for the year.
Hometown International, Inc. (the “Company”) was incorporated under the laws of the State of Nevada on May 19, 2014. Through its wholly owned subsidiary, Your Hometown Deli, LLC, the Company is the originator of a new “Delicatessen” concept (“Your Hometown Deli”). The Company intends that its delicatessens will feature “home-style” sandwiches and other entrees in a casual friendly atmosphere, designed to be comfortable community gathering places for guests of all ages. Targeted towards smaller towns and communities, the Company’s first and only store is located in Paulsboro, New Jersey.
On January 18, 2014, Your Hometown
Deli, LLC was formed under the laws of the State of New Jersey. On May 29, 2014, Your Hometown Deli, LLC, entered into a Membership Interest
Purchase Agreement with Hometown International, Inc. For accounting purposes, this transaction is being accounted for as a merger of entities
under common control and has been treated as a recapitalization of Hometown International, Inc. with Your Hometown Deli, LLC, as the accounting
acquirer. The historical financial statements of the accounting acquirer became the financial statements of the registrant. The Company
did not recognize goodwill or any intangible assets in connection with the transaction. The
On May 12, 2021, shareholder’s
holding
F-5
HOMETOWN INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2021
(UNAUDITED)
The Company was forced to temporarily close the delicatessen due to the stay-at-home order issued by the Governor of New Jersey on March 9, 2020, resulting from the outbreak of COVID-19. The delicatessen was re-opened on September 8, 2020, with a “soft opening” to a limited audience, prior to its “Grand Re-Opening” to the public on September 22, 2020. The temporary closure and other effects of COVID-19 had a material impact on the Company’s business during 2020. It is anticipated that the COVID-19 pandemic will continue to impact the Company’s business in 2021.
Going forward, the Company intends to seek, investigate and, if such investigation warrants, engage in a business combination with a private entity whose business presents an opportunity for our shareholders. The Company has no particular business combination in mind and has not entered into any negotiations regarding such a combination.
The Company’s accounting year end is December 31, which is the year end of Your Hometown Deli, LLC.
(B) Principles of Consolidation
The accompanying September 30, 2021 and 2020 unaudited condensed consolidated financial statements include the accounts of Hometown International, Inc. and its wholly owned subsidiary, Your Hometown Deli, LLC. All intercompany accounts have been eliminated upon consolidation.
(C) Use of Estimates
In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reported period. Significant estimates include valuation of in-kind contribution of service, valuation of deferred tax assets and operating lease assets and liabilities. Actual results could differ from those estimates.
(D) Cash and Cash Equivalents
The Company considers all highly liquid temporary cash investments with an original maturity of 90 days or less to be cash equivalents. At September 30, 2021 and December 31, 2020, the Company had no cash equivalents.
(E) Loss Per Share
Basic and diluted net loss per common share is computed based upon the weighted average common shares outstanding as defined by FASB ASC No. 260, “Earnings Per Share.” Diluted loss per share is computed by dividing net loss by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during the period”. For September 30, 2021 and 2020, warrants were not included in the computation of income/ (loss) per share because their inclusion is anti-dilutive.
The computation of basic and diluted loss per share for September 30, 2021 and September 30, 2020 excludes the common stock equivalents of the following potentially dilutive securities because their inclusion would be anti-dilutive:
| September 30, 2021 | September 30, 2020 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Class A Warrants (Exercise price - $ | ||||||||
| Class B Warrants (Exercise price - $ | ||||||||
| Class C Warrants (Exercise price - $ | ||||||||
| Class D Warrants (Exercise price - $ | ||||||||
| Total | ||||||||
F-6
HOMETOWN INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2021
(UNAUDITED)
(F) Income Taxes
The Company accounts for income taxes under FASB Codification Topic 740-10-25 (“ASC 740-10-25”). Under ASC 740-10-25, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC 740-10-25, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
(G) Property and Equipment
Property and equipment is recorded at cost and depreciated or amortized using the straight-line method over the estimated useful life of the asset or the underlying lease term for leasehold improvements, whichever is shorter onset the property and equipment is put into service.
(H) Revenue Recognition
The Company recognizes revenue in accordance with Accounting Standards Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers”. The standard states that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
The Company generates revenue operating a delicatessen. Revenues from the operations of Company-owned delicatessen are recognized when sales occur.
(I) Fair Value of Financial Instruments
The Company measures its financial assets and liabilities in accordance with GAAP. For certain of our financial instruments, including cash, accounts payable, and the short-term portion of long-term debt, the carrying amounts approximate fair value due to their short maturities.
We adopted accounting guidance for financial and non-financial assets and liabilities (ASC 820). The adoption did not have a material impact on our results of operations, financial position or liquidity. This standard defines fair value, provides guidance for measuring fair value and requires certain disclosures. This standard does not require any new fair value measurements, but rather applies to all other accounting pronouncements that require or permit fair value measurements. This guidance does not apply to measurements related to share-based payments. This guidance discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost). The guidance utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:
| ● | Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities. | |
| ● | Level 2: Inputs other than quoted prices that are observable, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active. | |
| ● | Level 3: Unobservable inputs in which little or no market data exists, therefore developed using estimates and assumptions developed by us, which reflect those that a market participant would use. |
F-7
HOMETOWN INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2021
(UNAUDITED)
(J) Concentrations
The Company maintains various bank
accounts at one bank, which, at times, may have balances that exceed federally insured limits. The Company believes it is not exposed
to any significant credit risk on its cash balances and has not experienced any losses in such accounts. At September 30, 2021 and December
31, 2020, the Company had cash balances in excess of FDIC limits of $
(K) Recent Accounting Pronouncements
All newly issued accounting pronouncements but not yet effective have been deemed either immaterial or not applicable.
(L) Business Segments
The Company operates in one segment and therefore segment information is not presented.
(M) Inventories
Inventories consist of food and beverages, and are stated at cost.
(N) Advertising
Advertising costs are expensed as incurred.
These costs are included in direct operating & occupancy expenses and totaled $
Advertising costs are expensed as incurred.
These costs are included in direct operating & occupancy expenses and totaled $
| NOTE 2 | LEASEHOLD IMPROVEMENT AND EQUIPMENT |
Leasehold improvement and equipment consist of the following at September 30, 2021 and December 31, 2020:
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| (Unaudited) | ||||||||
| Leasehold Improvements | ||||||||
| Equipment | ||||||||
| Leasehold Improvements and Equipment | ||||||||
| Less: Accumulated Depreciation | ( | ) | ( | ) | ||||
| Leasehold Improvements and Equipment, Net | $ | $ | ||||||
Depreciation expense was $
Depreciation expense was $
| NOTE 3 | NOTES RECEIVABLE – RELATED PARTIES |
On February 12, 2021, the Company received
an unsecured promissory note from Med Spa Vacations, Inc., a related party, in exchange for $
On November 25, 2020, the Company received
an unsecured promissory note from E-Waste Corp., a related party, in exchange for $
F-8
HOMETOWN INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2021
(UNAUDITED)
| NOTE 4 | NOTE PAYABLE – RELATED PARTY |
On March 18, 2020, the Company entered
into an unsecured promissory note with Peter L. Coker, Jr., the Company’s Chairman of the Board, in the amount of $
On February 13, 2020, the Company entered
into an unsecured promissory note with Peter L. Coker, Jr., the Company’s Chairman of the Board, in the amount of $
On December 31, 2019, the Company entered
into an unsecured promissory note with Peter L. Coker, Jr., the Company’s Chairman of the Board, in the amount of $
On December 31, 2019, the Company entered
into an unsecured promissory note with Peter L. Coker, Jr., the Company’s Chairman of the Board, in the amount of $
On December 31, 2019, the Company and
a related party note holder agreed to combine the principal and accrued interest of multiple notes, and issued a new unsecured promissory
note in the amount of $
On March 18, 2020, the Company, entered
into a Debt Exchange Agreement with a related party pursuant to which $
On December 31, 2019, the Company and
Peter L. Coker, Jr., the Company’s Chairman of the Board, agreed to combine the principal and accrued interest of a note and issued
a new unsecured promissory note in the amount of $
On October 16, 2014, the Company entered
into an unsecured promissory note with a related party in the amount of $
| NOTE 5 | DUE TO FORMER OFFICERS |
During the nine months ended September
30, 2021, certain former officers paid a net aggregate $
| NOTE 6 | DUE TO RELATED PARTY |
As of March 31, 2021, the Company owed
to its Chairman $
As of December 31, 2020, the Company
owed to its Chairman $
F-9
HOMETOWN INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2021
(UNAUDITED)
| NOTE 7 | STOCKHOLDERS’ EQUITY |
(A) Increase in Authorized Shares
On March 23, 2020, the Company filed
a Certificate of Amendment to the Company’s Articles of Incorporation with the Secretary of State of the State of Nevada, increasing
the number of shares of common stock the Company is authorized to issue from
(B) In-kind Contribution of Services
For the three months ended September
30, 2021 and 2020, the Company recorded $
For the nine months ended September
30, 2021 and 2020, the Company recorded $
For the three months ended September
30, 2021 and 2020, the Company recorded $
For the nine months ended September
30, 2021 and 2020, the Company recorded $
(C) Common Stock Repurchase
On March 18, 2020, the Company repurchased
an aggregate of
(D) Warrant Issuance
On March 18, 2020,
On April 15, 2020, the Company issued twenty warrants for every one share of common stock held to shareholders of record as of April 15, 2020. The warrants were issued to the shareholders of record on a pro-rata basis on the issuance date. There was no consideration in exchange for the issuance of these warrants and, therefore, these warrants are treated as a shareholder’s distribution with a net effect of zero on the stockholder’s equity.
The Company issued the following warrants:
| ● | ||
| ● | ||
| ● | ||
| ● | |
F-10
HOMETOWN INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2021
(UNAUDITED)
As of the date of this report, no warrants have been exercised.
| Number of Warrants | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (in Years) | ||||||||||
| Balance, December 31, 2020 | ||||||||||||
| Granted | ||||||||||||
| Exercised | ||||||||||||
| Cancelled/Forfeited | ||||||||||||
| Balance, September 30, 2021 (Unaudited) | $ | |||||||||||
| Intrinsic Value | $ | |||||||||||
For the nine months ended September 30, 2021, the following warrants were outstanding:
| Exercise Price Warrants Outstanding | Warrants Exercisable | Weighted Average Remaining Contractual Life | Aggregate Intrinsic Value | |||||||||||
| $ | $ | |||||||||||||
| $ | $ | |||||||||||||
| $ | $ | |||||||||||||
| $ | $ | |||||||||||||
For the year ended December 31, 2020, the following warrants were outstanding:
| Exercise Price Warrants Outstanding | Warrants Exercisable | Weighted Average Remaining Contractual Life | Aggregate Intrinsic Value | |||||||||||
| $ | $ | |||||||||||||
| $ | $ | |||||||||||||
| $ | $ | |||||||||||||
| $ | $ | |||||||||||||
(E) Common Stock Issued on Debt Conversion
On March 18,
2020, the Company entered into a Debt Exchange Agreement with a related party pursuant to which $
(F) Common Stock Issued for Cash
In April 2020, the Company sold
In April 2020, the Company sold
In April 2020, the Company sold
F-11
HOMETOWN INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2021
(UNAUDITED)
| NOTE 8 | COMMITMENTS AND CONTINGENCIES |
Consulting Agreements
Effective as of April 26, 2021, the
Company also entered into a Consulting Agreement with Benchmark Capital, LLC Limited, a company formed under the laws of New Jersey (“Benchmark”).
Pursuant to this agreement, Benchmark was engaged as a consultant to the Company, to assist with all filings requirements with the SEC.
The term of the agreement is month-to-month; provided, however, that each party has the right to terminate the agreement upon
30 days’ prior written notice to the other. Pursuant to the agreement, Benchmark shall receive $
Effective as of May 1, 2020, the Company
entered into a Consulting Agreement with Tryon Capital Ventures LLC, a North Carolina limited liability company (“Tryon”),
which is
Effective as of May 1, 2020, the Company
also entered into a Consulting Agreement with VCH Limited, a company formed under the laws of Macau (“VCH”), which owns in
excess of
Operating Lease Agreement
On July 1, 2014, the Company entered
into a five-year non-cancelable operating lease with a related party for its store space at a monthly rate of $
Operating lease assets and operating
lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement
date. The operating lease right-of-use (ROU) asset also includes any lease payments made and excludes lease incentives and initial direct
costs incurred, if any. In calculating the present value of the revised lease payments, the Company elected to utilize its incremental
borrowing rate based on the revised lease terms as of the March 22, 2021, re-measurement date. This rate was determined to be
The lease expense is recognized over the expected term on a straight-line basis. Operating leases are recognized on the balance sheet as operating lease assets, current operating lease liabilities and non-current operating lease liabilities.
F-12
HOMETOWN INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2021
(UNAUDITED)
Supplemental consolidated balance sheet information related to leases was as follows:
| Operating Leases | ||||
| September 30, 2021 (Unaudited) | ||||
| Operating lease assets - right of use | $ | | ||
| Lease liability is summarized below: | ||||
| Lease Liability | $ | |||
| Less: operating lease liability, current | ( | ) | ||
| Long term operating lease liability | $ | |||
| Maturities of lease liabilities at September 30, 2021 are as follows: | ||||
| 2021 | $ | |||
| 2022 | ||||
| 2023 | ||||
| Total lease liability | ||||
| Less: present value discount | ( | ) | ||
| Total lease liability | $ | |||
Supplemental disclosures of cash flow information related to leases were as follows:
| For the nine months ended September 30, 2021 | For the nine months ended September 30, 2020 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Cash paid for operating lease liabilities | $ | $ | ||||||
For
the | For the nine months ended September 30, 2020 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Operating lease asset obtained for operating lease liability upon remeasurement | $ | $ | ||||||
For the three months ended September
30, 2021 and 2020, the total lease costs were $
For the nine months ended September
30, 2021 and 2020, the total lease costs were $
| NOTE 9 | RELATED PARTY TRANSACTIONS |
On July 1, 2014, the Company entered
into a five-year non-cancelable operating lease with a related party for its store space at a monthly rate of $
F-13
HOMETOWN INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2021
(UNAUDITED)
On October 16, 2014, the Company entered
into an unsecured promissory note with a former related party in the amount of $
For the three months ended September
30, 2021 and 2020, the Company recorded $
For the nine months ended September
30, 2021 and 2020, the Company recorded $
For the three months ended September
30, 2021 and 2020, the Company recorded $
For the nine months ended September
30, 2021 and 2020, the Company recorded $
During the nine months ended September
30, 2021, certain former officers paid a net aggregate $
As of March 31, 2021, the Company owed
to its Chairman $
As of December 31, 2020, the Company
owed to its Chairman $
On December 31, 2019, the Company entered
into an unsecured promissory note with Peter L. Coker, Jr., the Company’s Chairman of the Board, in the amount of $
On December 31, 2019, the Company entered
into an unsecured promissory note with Peter L. Coker, Jr., the Company’s Chairman of the Board, in the amount of $
On December 31, 2019, the Company and
a related party note holder agreed to combine the principal and accrued interest of multiple notes, and issued a new unsecured promissory
note in the amount of $
On December 31, 2019, the Company and
Peter L. Coker, Jr., the Company’s Chairman of the Board, agreed to combine the principal and accrued interest of a note and issued
a new unsecured promissory note in the amount of $
F-14
HOMETOWN INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2021
(UNAUDITED)
On March 18, 2020, the Company entered into an unsecured
promissory note with Peter L. Coker, Jr., its Chairman, in the amount of $
On February 13, 2020, the Company entered
into an unsecured promissory note with Peter L. Coker, Jr., its Chairman, in the amount of $
Effective as of May 1, 2020, the Company
entered into a Consulting Agreement with Tryon Capital Ventures LLC, a North Carolina limited liability company (“Tryon”),
which is
Effective as of May 1, 2020, the Company
also entered into a Consulting Agreement with VCH Limited, a company formed under the laws of Macau (“VCH”) which owns in
excess of
On November 25, 2020, the Company received
an unsecured promissory note from E-Waste Corp., a related party, in exchange for $
On February 12, 2021, the Company received
an unsecured promissory note from Med Spa Vacations, Inc., a related party, in exchange for $
| NOTE 10 | LIQUIDITY |
As reflected in the accompanying condensed
consolidated unaudited financial statements, the Company used cash in operations of $
On March 23, 2020, the Company temporarily closed the delicatessen due to the stay-at-home order issued by the Governor of New Jersey. Although the Stay at Home at Home Order was lifted, on October 24, 2020, the Governor signed Executive Order No. 191 extending the Public Health Emergency for another 30 days. The deli was re-opened on September 8, 2020, with a “soft opening” to a limited audience, prior to its “Grand Re-Opening” to the public on September 22, 2020. It is anticipated that the COVID-19 pandemic will continue to impact our business in 2021.
The Company is slowly regaining its customer base since reopening. Even though the delicatessen has been re-opened, the Company may have a slowdown in customer’s visit due to the current economic condition. There can be no assurance that the Company will generate sufficient revenues to continue its operations. The Company expects the growth rate and sales to be volatile in the near term.
As of September 30, 2021, the Company
had $
F-15
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The information set forth in this Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) contains certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995, including, among others (i) expected changes in our revenue and profitability, (ii) prospective business opportunities and (iii) our strategy for financing our business. Forward-looking statements are statements other than historical information or statements of current condition. Some forward-looking statements may be identified by use of terms such as “believes”, “anticipates”, “intends” or “expects”. These forward-looking statements relate to our plans, liquidity, ability to complete financing and purchase capital expenditures, growth of our business including entering into future agreements with companies, and plans to successfully develop and obtain approval to market our product. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs.
Although we believe that our expectations with respect to the forward-looking statements are based upon reasonable assumptions within the bounds of our knowledge of our business and operations, in light of the risks and uncertainties inherent in all future projections, the inclusion of forward-looking statements in this Quarterly Report should not be regarded as a representation by us or any other person that our objectives or plans will be achieved.
We assume no obligation to update these forward-looking statements to reflect actual results or changes in factors or assumptions affecting forward-looking statements.
Our revenues and results of operations could differ materially from those projected in the forward-looking statements as a result of numerous factors, including, but not limited to, the following: the risk of significant natural disaster, the inability of our company to insure against certain risks, inflationary and deflationary conditions and cycles, currency exchange rates, and changing government regulations domestically and internationally affecting our products and businesses.
You should read the following discussion and analysis in conjunction with the Financial Statements and Notes attached hereto, and the other financial data appearing elsewhere in this Quarterly Report.
US Dollars are denoted herein by “USD”, “$” and “dollars”.
Overview and Recent Developments
Hometown International, Inc. (the “Company”) was incorporated under the laws of the State of Nevada on May 19, 2014. The Company is the originator of a new Delicatessen concept. Through our wholly-owned subsidiary, Your Hometown Deli Limited Liability Company (“Your Hometown Deli”), we operate a delicatessen store that features “home-style” sandwiches and other entrees in a casual and friendly atmosphere. The store is designed to offer local patrons of all ages with a comfortable community gathering place. Targeted towards smaller towns and communities, the Company’s first and only store is located in Paulsboro, New Jersey.
We were forced to temporarily close the delicatessen due to the stay-at-home order issued by the Governor of New Jersey on March 9, 2020, resulting from the outbreak of COVID-19. The delicatessen was re-opened on September 8, 2020, with a “soft opening” to a limited audience, prior to its “Grand Re-Opening” to the public on September 22, 2020. The temporarily closure and other effects of COVID-19 had a material impact on our business during 2020. It is anticipated that the COVID-19 pandemic will continue to impact our business in 2021.
The delicatessen was temporarily closed, beginning on August 1, 2021, while we changed management of Your Hometown Deli and hired a new operations manager for the store in Paulsboro, New Jersey. The delicatessen reopened on September 11, 2021, with increased staff and expanded hours.
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Going forward, we intend to seek, investigate and, if such investigation warrants, engage in a business combination with a private entity whose business presents an opportunity for our shareholders. Our objectives discussed below are extremely general and are not intended to restrict discretion of our board of directors to search for and enter into potential business opportunities or to reject any such opportunities. We have no particular business combination in mind and have not entered into any negotiations regarding such a combination. Neither our officers nor any of our affiliates has engaged in any negotiations with any representative of any company regarding the possibility of an acquisition or combination between our company and such other company. We have not yet entered into any agreement, nor do we have any commitment or understanding to enter into or become engaged in a transaction.
We will not restrict our potential candidate target companies to any specific business, industry or geographical location and, thus, may acquire any type of business. Further, we may acquire or combine with a venture that is in its preliminary or early stages of development, one that is already in operation or one that is in a more mature stage of its corporate existence. Accordingly, business opportunities may be available in many different industries and at various stages of development, all of which will make the task of comparative investigation and analysis of such business opportunities difficult and complex.
The analysis of new business opportunities will be undertaken by or under the supervision of our executive officers and directors, none of whom is a business analyst. Therefore, it is anticipated that outside consultants or advisors may be utilized to assist us in the search for and analysis of qualified target companies.
Results of Operations
Three Months Ended September 30, 2021 Compared to Three Months Ended September 30, 2020
We generated revenue of $2,387 and $1,894 for the three months ended September 30, 2021 and 2020, respectively. The increase in revenue is mainly attributed to an increase in customer’s visits following the re-opening of our delicatessen as a result of the easing of restrictions related to the COVID-19 pandemic.
Our total cost and expenses were $106,733 for the three months ended September 30, 2021, compared to $179,872 for the three months ended September 30, 2020. The total cost and expenses decreased by approximately 41% primarily attributable to a decrease of $120,000 in consulting fees paid to related parties during the three months ended September 30, 2020, offset by an increase of $22,500 in consulting fees paid during the three months ended September 30, 2021, an increase of $15,040 in professional fees attributable to fees paid for filings with the Securities and Exchange Commission, an increase in food costs of $3,079, an increase in labor costs of $1,080, and an increase of $5,361 in general and administrative expenses. The increase in general and administrative fees was attributable to fees required in connection with filings with the SEC and an increase in general business expenses.
We incurred a loss from operations of $104,346 and $177,978 for the nine months ended September 30, 2021 and 2020, respectively. The decrease in loss from operations is mainly attributable to a decrease in total costs and expenses, slightly offset by our increase in revenue during the three months ended September 30, 2021, as compared to the same period ended September 30, 2020.
Other income for the three months ended September 30, 2020 was $1,000 resulting from the New Jersey Economic Development Authority grant received from the NJEDA Small Business Emergency Assistance Phase 2 Grant assistance program in light of the impact of the coronavirus pandemic.
Interest income – related parties decreased by $37 to $32 for the three months ended September 30, 2021, from $69 for the three months ended September 30, 2020. The decrease was primarily due to interest on notes receivable – related parties as a result of a decreased note receivable due to repayment.
Interest expense was $0 for the three months ended September 30, 2021, compared to $0 for the three months ended September 30, 2020.
Due to the described factors above, we had a net loss of $104,314 and $176,909 for the three months ended September 30, 2021 and 2020, respectively.
3
Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020
We generated revenue of $13,980 and $5,471 for the nine months ended September 30, 2021 and 2020, respectively. The increase in revenue is mainly attributed to an increase in customer’s visits following the re-opening of our delicatessen as a result of the easing of restrictions related to the COVID-19 pandemic.
Our total cost and expenses were $403,451 for the nine months ended September 30, 2021, compared to $437,255 for the nine months ended September 30, 2020. The total cost and expenses decreased by approximately 8% primarily as a result of a decrease of $40,000 in consulting fees paid to related parties and a decrease of $50,202 in professional fees related to the preparation and filing of a registration statement by the Company during the nine months ended September 30, 2020, offset by an increase in food costs of $10,246 and labor costs of $1,499, an increase of $30,000 in consulting fees paid during the nine months ended September 30, 2021, and an increase of $19,419 in general and administrative expenses. The increase in general and administrative fees was attributable to fees required in connection with filings with the SEC and an increase in general business expenses.
We incurred a loss from operations of $389,471 and $431,784 for the nine months ended September 30, 2021 and 2020, respectively. The decrease in loss from operations is mainly attributable to an increase in total costs and expenses and slightly offset by our increase in revenue during the nine months ended September 30, 2021, as compared to the same period ended September 30, 2020.
Other income for the nine months ended September 30, 2020 was $1,000 resulting from the New Jersey Economic Development Authority grant received from the NJEDA Small Business Emergency Assistance Phase 2 Grant assistance program in light of the impact of the coronavirus pandemic.
Interest income – related parties increased by $4,643 to $4,903 for the nine months ended September 30, 2021, from $260 for the nine months ended September 30, 2020. The increase was primarily due to interest on notes receivable – related parties as a result of increased note receivable.
Interest expense was $0 for the nine months ended September 30, 2021, compared to $9,091 for the nine months ended September 30, 2020. This decrease was due to a lower interest expense on loans as a result of a decrease in debt outstanding.
Due to the described factors above, we had a net loss of $384,568 and $439,615 for the nine months ended September 30, 2021 and 2020, respectively.
Liquidity and Capital Resources
As of September 30, 2021, we had current assets of $1,225,582, consisting of $1,222,934 in cash and $2,648 in inventory. Our current liabilities as of September 30, 2021, were $74,363, which is comprised of $62,297 due to certain former officers, $6,788 in accounts payable and accrued expenses, and $5,278 in current operating lease liability. Our long-term liabilities as of September 30, 2021, were $4,318, which is comprised of long-term operating lease liability.
4
The following is a summary of our cash flows provided by (used in) operating, investing, and financing activities for the nine months ended September 30, 2021 and 2020:
| For the nine months ended September 30, 2021 | For the nine months ended September 30, 2020 | |||||||
| (Unaudited) | ||||||||
| Net Cash Used in Operating Activities | $ | (322,620 | ) | $ | (465,381 | ) | ||
| Net Cash Provided by Investing Activities | $ | 150,000 | $ | - | ||||
| Net Cash (Used in) Provided by Financing Activities | $ | (2,452 | ) | $ | 2,207,650 | |||
| Net (Decrease) Increase in Cash and Cash Equivalents | $ | (175,072 | ) | $ | 1,742,269 | |||
For the nine months ended September 30, 2021, net cash used in operations of $322,620 was the result of a net loss of $384,568, offset by in-kind contribution of services by $51,571, depreciation expense of $205, a decrease in prepaid expenses and other current assets of $6,594, an increase in inventory of $1,694, a decrease in interest receivable of $872, and an increase in accounts payable and accrued expense of $4,400.
For the nine months ended September 30, 2020, net cash used in operations of $465,381 was the result of a net loss of $439,615, offset by in-kind contribution of services of $23,142, depreciation expense of $5,428, a decrease in operating lease right of use of $4,006, an increase of inventory of $109, a decrease of accounts payable and accrued expenses of $54,227, and a decrease in operating lease liability of $4,006.
Net cash provided by our investing activities were $150,000 and $0 for the nine months ended September 30, 2021 and September 30, 2020, respectively. The increase was attributable to issuance of note receivable - related party of $150,000 and a repayment of note receivable – related party of $300,000.
Our financing activities resulted in a cash outflow of $2,452 for the nine months ended September 30, 2021, which is represented by $1,000 in proceeds from due to former officers, $4,993 due to President – related party for corporate expense reimbursement and a $8,445 repayment of due to President – related party.
Our financing activities resulted in a cash inflow of $2,207,650 for the nine months ended September 30, 2020, which is represented by $2,500,000 proceeds from issuance of common stock, $8,090 proceeds from a shareholder loan payable, $332,104 loan repayment to related party, $70,000 proceeds from note payable- related party and $38,336 purchase of treasury stock.
As reflected in the accompanying condensed consolidated unaudited financial statements, the Company used cash in operations of $322,620, has an accumulated deficit of $1,822,844 and has a net loss of $384,568 for the nine months ended September 30, 2021.
The Company is slowly regaining its customer base since re-opening. However, even though the delicatessen has been re-opened, the Company may have a slowdown in customer visits due to the current economic condition. There can be no assurance that we will generate sufficient revenues to continue our operations. The Company expects the growth rate and sales to be volatile in the near term.
Critical Accounting Policies and Estimates
Use of Estimates in Financial Statements
In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reported period. Significant estimates include valuation of in-kind contribution of service and valuation of deferred tax assets. Actual results could differ from those estimates.
Revenue Recognition
The Company recognizes revenue in accordance with Accounting Standards Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers”. The standard states that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
The Company generates revenue operating a delicatessen. Revenues from the operations of Company-owned delicatessen are recognized when sales occur.
5
Leases
The Company accounts for lease in accordance with ASC Topic 842, “Leases”.
Operating lease assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. The operating lease right-of-use (ROU) asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred, if any.
The lease expense is recognized over the expected term on a straight-line basis. Operating leases are recognized on the balance sheet as operating lease assets, current operating lease liabilities and non-current operating lease liabilities.
Off Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, sales or expenses, results of operations, liquidity or capital expenditures, or capital resources that are material to an investment in our securities.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable because we are an emerging growth company.
ITEM 4. CONTROLS AND PROCEDURES.
Disclosure Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (“Exchange Act”), the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Company’s CEO and CFO concluded that our disclosure controls and procedures were not effective as of September 30, 2021 for the material weakness described below.
Management’s Report on Internal Control over Financial Reporting
The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Our internal control system was designed to, in general, provide reasonable assurance to the Company’s management and board regarding the preparation and fair presentation of published financial statements, but because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of the Company’s internal control over financial reporting as of September 30, 2021. The framework used by management in making that assessment was the criteria set forth in the document entitled “Internal Control – Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based on this assessment, our management has concluded that our internal controls were not effective as of September 30, 2021 for the material weaknesses describe as follows: (i) lack of an independent board of directors, (ii) our accounting personnel lack U.S. GAAP expertise and (iii) lack of segregated duties.
Changes in Internal Controls over Financial Reporting
No change in our internal control over financial reporting occurred during the third fiscal quarter ended September 30, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
6
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
From time to time, we may become involved in various lawsuits and legal proceedings, which arise, in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse effect on our business, financial condition or operating results.
ITEM 1A. RISK FACTORS.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
None, other than as previously disclosed in a Current Report on Form 8-K.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS.
| Exhibits # | Title | |
| 31.1/31.2* | Certification of Principal Executive Officer and Principal Financial and Accounting Officer pursuant to Exchange Act Rule 13a-14(a)/15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 32.1/32.2* | Certification of Principal Executive Officer and Principal Financial and Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 101.INS* | XBRL Instance Document | |
| 101.SCH* | XBRL Taxonomy Extension Schema Document | |
| 101.CAL* | XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF* | XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB* | XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE* | XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104* | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
| * | Filed herewith |
7
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Date: November 15, 2021 | HOMETOWN INTERNATIONAL, INC. | |
| /s/ Peter Coker Jr. | ||
| Name: | Peter Coker Jr. | |
| Title: | President, Chief Executive Officer, | |
| Chief Financial Officer, Secretary | ||
| Treasurer and Chairman of the Board of Directors | ||
| (Principal Executive Officer and Principal Financial and Accounting Officer | ||
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