Bespoke Extracts, Inc 10-K, filed Dec 13, 2021
Bespoke Extracts, Inc. (BSPK)
About this 10-K
Bespoke Extracts, Inc filed this 10-K on December 13, 2021, covering the fiscal year ended August 31, 2021.
Headline figures
Fiscal year ended August 31, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Net loss
- $965.58K
- compared with a net loss of $4.64M a year earlier
UNITED STATES
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Washington, D.C. 20549
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As of December 13, 2021, there were
Bespoke Extracts, Inc.
Table of Contents
i
PART I
This Annual Report on Form 10-K may contain forward-looking statements. Such forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to our management and involve risks and uncertainties. Forward-looking statements include statements regarding our plans, strategies, objectives, expectations and intentions, which are subject to change at any time at our discretion. Forward-looking statements include our assessment, from time to time of our competitive position, the industry environment, potential growth opportunities and the effects of regulation. Forward-looking statements include all statements that are not historical facts and can be identified by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “hopes,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would” or similar expressions.
Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. We discuss many of these risks in greater detail in “Risk Factors.” Given these uncertainties, undue reliance should not be placed on these forward-looking statements. Also, forward-looking statements represent our management’s beliefs and assumptions only as of the date of this report. Our actual future results may be materially different from what we expect. Except as required by law, we assume no obligation to update these forward-looking statements publicly.
As used in this annual report, the terms “we”, “us”, “our”, the “Company”, “Bespoke Extracts, Inc.” and “Bespoke” mean Bespoke Extracts, Inc. unless otherwise indicated.
Item 1. Business.
Our Corporate History
We were incorporated in the State of Colorado on July 29, 1988 under the name Cine-Source Entertainment, Inc. On April 27, 2004, the Company changed its name to First Quantum Ventures, Inc. On April 13, 2006, the Company changed its name to First Quantum Ventures, Inc., and on May 5, 2006, the Company reincorporated in Nevada. On March 15, 2012, the Company changed its name to DiMi Telematics International, Inc.
In early 2017, we re-focused our business attention to the hemp-derived cannabidiol, or CBD, market. On March 10, 2017, the Company changed its name to Bespoke Extracts, Inc. to align the Company’s corporate identity with its new business plan.
Since 2017, the Company has focused on selling its proprietary line of specially-formulated, premium quality, hemp-derived CBD products direct to consumers through our ecommerce store, found at www.bespokeextracts.com. Information on our website is not part of this report.
Under our expanded operating plan, we intend to methodically expand our product offerings to include new flavors, including manuka honey; and introduce additional form factors for our CBD formulations, including lotions and balms, depending on customer feedback and evolving consumer demand.
Recent Developments
In November 2021, new management of the Company was appointed and the Company began to focus on other complimentary lines of business to its CBD offerings. Under our new management team, we plan to expand the Company’s focus to regulated cannabis markets in the United States.
The Company’s expanded business plan may include the acquisition of licensed medical and recreational marijuana dispensaries, cultivation facilities and production facilities in states which allow publicly traded companies to own and operate such businesses. Depending on the markets entered and state regulation, the Company’s plan may also include: asset purchases, management/consulting operating agreements, or similar agreements. The Company plans to use a combination of cash, shares of common or preferred stock, notes, or other financing vehicles to complete these acquisitions. There is no assurance any required financing for such acquisitions will be available on acceptable terms, or at all, or that we will complete any such acquisitions.
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In addition, the acquisition of marijuana dispensaries and cultivation/manufacturing/processing facilities is subject to the approval of government authorities which license and regulate marijuana dispensaries in their applicable jurisdictions. No assurance can be given that any such approvals can be obtained.
Wonderleaf
The Company has developed a plan to potentially acquire and merge, or “roll up” direct plant-touching dispensaries, manufacturing facilities, and cannabis cultivations with a target to be one of the highest quality, craft cannabis, seed-to-sale businesses in Colorado.
Consistent with this strategy, on December 2, 2021, Bespoke Extracts Colorado, LLC (“Bespoke Colorado”), a newly formed wholly-owned subsidiary of the Company entered into an asset purchase agreement with WonderLeaf, LLC (“WonderLeaf”), and on December 7, 2021, Bespoke Colorado and WonderLeaf entered into an amendment to such asset purchase agreement (as amended, the “Wonderleaf Purchase Agreement”). Pursuant to the Wonderleaf Purchase Agreement, Bespoke Colorado agreed to purchase from WonderLeaf, and WonderLeaf agreed to sell to Bespoke Colorado, certain assets of WonderLeaf, including a license to manufacture marijuana-infused products, existing inventory, and extraction equipment and ancillary items, all as further set forth in the Purchase Agreement.
In connection with the Wonderleaf Purchase Agreement, Bespoke Colorado entered into a lease agreement (the “Lease”) with WL Holdings, Ltd. (“WL Holdings”) Pursuant to the Lease, Bespoke Colorado will lease from WL Holdings certain commercial space in Aurora, Colorado, where WonderLeaf’s business has been located, commencing upon signing of the Lease and Wonderleaf Purchase Agreement, for a term of five years, which Bespoke Colorado will have an option to renew for an additional five years.
Closing of the Wonderleaf Purchase Agreement is subject to receipt of certain governmental approvals and other customary closing conditions.
Our Business--Overview
Since the change in management and control of the Company that occurred in November 2021, we now primarily operate within the regulated cannabis industry and the CBD industry with three divisions: i) consulting and professional services, which we plan to commence offering around January 2022; (ii) the sale of CBD products through our websites; and (iii) a new business division called “Bespoke Extracts Colorado, LLC,” which, upon closing of the Wonderleaf acquisition, will be a licensed owner/operator of recreational marijuana processing facilities located in Colorado.
Business Consulting Services
We plan to offer consulting services for companies associated with the cannabis and hemp industries in all stages of development. We anticipate that our service offerings will include the following:
| ● | Cannabis and Hemp Business Planning. Our commercial cannabis and hemp business planning services will be structured to help those pursuing state based operational licensing to create and implement effective, long-range business plans. We will work with our clients to generate a comprehensive strategy based on market need and growth opportunities. We understand the challenges and complexities of the regulated commercial cannabis and hemp markets and we have the expertise to help client businesses thrive. |
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| ● | Cannabis and Hemp Business Growth Strategies. We will work with our clients to create competitive, forward-looking cannabis and hemp business growth strategies formulated to minimize risk and maximize potential. |
| ● | Cannabis and Hemp Business Monitoring. The regulated commercial cannabis and hemp industries are constantly growing and shifting, and the ongoing monitoring of a cannabis and hemp business allows it to remain responsive to evolving consumer demands and state regulations as well as potential operations problems. We will offer fully integrated business analysis solutions. Our monitoring services will include sales tracking, market assessment, loss prevention strategies, review of operational efficiency and workflow recommendations. |
The Hemp-Derived CBD Market
In 2014, President Barack Obama signed the 2014 Farm Bill, which essentially allowed for hemp to be grown by permitted universities and state departments of agriculture in the name of federally funded research – rather than as a commercial crop. Thereafter, pro-hemp legislation received increasingly favorable bipartisan support, culminating in December 2018 with the passage of the 2018 Farm Bill, which removed industrial hemp from its listing as a Schedule I drug and recognizes hemp as an agricultural commodity, such as corn, wheat or soybeans. Consequently, demand for hemp-derived CBD products significantly increased, with the Federal government asserting certain oversight and compliance controls. Specifically, the production of hemp-derived CBD must adhere to certain regulatory mandates relating to the hemp grown to produce it, including:
| ● | The hemp must contain less than 0.3% THC; |
| ● | The hemp must adhere to the shared state-federal regulations; and |
| ● | The hemp must be grown by a properly licensed grower. |
In addition, the 2018 Farm Bill also lifted restrictions on the sale, transportation and possession of hemp-derived CBD products and allows for the transportation of hemp-derived CBD products across state lines, as long as the products comply with the aforementioned mandates.
Cannabidiol, or CBD, is one of 140 identified cannabinoids, or plant compounds, found in cannabis species, namely Cannabis sativa (hemp plant) and Cannabis indica (marijuana plant). THC, or tetrahydrocannabinol, is also a natural occurring cannabinoid in these plants.
Numerous medical studies have found that cannabinoids, including CBD and THC, provide a wealth of health and wellness benefits through their interaction with the human endocannabinoid system (ECS), a complex network of cell receptors and neurotransmitters that help maintain the body’s homeostasis. According to one study, “modulating the ECS activity may have therapeutic potential in almost all diseases affecting humans, including obesity/metabolic syndrome, diabetes and diabetic complications, neuro-degenerative inflammatory, cardiovascular, liver, gastrointestinal, skin diseases, pain, psychiatric disorders, cachexia, cancer, chemotherapy-induced nausea and vomiting, among many others.” (Source: Pál Pacher and George Kunos, “Modulating the Endocannabinoid System in Human Health and Disease--Successes and Failures,” The FEBS Journal (U.S. National Library of Medicine, May 2013), https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3684164/.)
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However, unlike CBD-based products which are non-psychoactive, have little to no side effects and are believed to offer tangible therapeutic benefits to its users, THC-based products used for recreational or medical purposes may induce psychotropic or euphoric effects on a user and have potential side effects, such as anxiety and paranoia. Another important distinction between the two is the fact that THC products can only be purchased in U.S. states which have legalized medical or recreational marijuana use, whereas authentic, hemp-derived CBD products may be legally purchased nationwide. In fact, today CBD products are being sold directly to consumers online by manufacturers and resellers and in many major and specialty retail stores, including Rite Aid, Walgreens, The Vitamin Shoppe, CVS, pet stores, beauty salons and even local convenience stores and gas stations.
CBD Product Line
Generally speaking, our management believes most CBD products for oral consumption available on the market have an earthy, bitter taste that some observers suggest is reminiscent of chlorophyll. The centerpiece of our retail product line will be our high quality products, formulated using only premium, organic ingredients. In addition to tinctures, we will also market CBD extract in capsule form, topicals, and gummies. We intend to expand our proprietary CBD products to include a broader range of flavors and form factors. Our current CBD offerings primarily focus on tinctures and liquid gels.
Supply, Manufacturing and Logistics
Our management believes that some companies operating in the CBD oil industry tend to emphasize sales and quantity over quality and safety. Over the past several years, the U.S. Federal Drug Administration (“FDA”) has issued several warning letters to firms that market unapproved new drugs that allegedly contain CBD. As part of these actions, the FDA has tested the chemical content of cannabinoid compounds in some of the products, and many were found to not contain the levels of CBD they claimed to contain – several were found to have no CBD.
All our products are authenticated by an independent third party via issuance of a Certificate of Analysis (“COA”), for cannabinoid content and profile, microbiological content, heavy metal content, pesticide content, and residual solvent content. We recognize the importance of compliance and have partnered with one of the industry’s leading current good manufacturing practices, or CGMP certified extraction facilities. This ensures the consistency and quality of our product line and brand.
Made and derived from non-GMO, USA-grown hemp, our PCR hemp oil and isolate powder are subjected to a rigorous testing system – both in-house and verified through independent, third party labs – which ensures accurate levels of phytocannabinoids and confirms the levels of THC. Our products contain only the highest level of naturally derived CBD, more than 99.5% pure, and never contain more than 0.3% THC. We believe that a key differentiator of our finished products is the superb quality of ingredients we source from the industry’s leading suppliers, each of whom we have carefully vetted and qualified.
Fulfillment of orders from our online customers is managed by a well-established third-party logistics partner.
CBD Sales and Marketing
We currently sell our products through our website www.bespokecbd.com.
We believe that the traditional retail environment is currently experiencing notable economic instability due largely to the global shift in consumer purchasing behaviors – with online shopping/ecommerce sites overtaking brick-and-mortar stores as consumer preferred shopping venues. In view of this retailing reality, we have adopted a Direct-to-Consumer sales model that is anchored by an ecommerce website whereby we educate, sell and ship our CBD products directly to consumers. In addition, we also plan to market our CBD products on a wholesale basis to select specialty retailers, dispensaries and physicians.
Our marketing initiatives include the use of social marketing, social influence marketing, direct response marketing, inbound marketing, email marketing, Search Engine Optimization (“SEO”) and content marketing, among other proven strategies to generate and convert sales prospects into loyal, satisfied customers. We will also explore utilizing coupon and deal sites to drive traffic to our website and retailers, as well as participate in select industry conferences to promote our brand and build greater awareness of our products among prospective business partners and consumers.
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The Difference Between Hemp and Marijuana
Both marijuana and hemp come from the same species of plant called “Cannabis Sativa L.” However, cultivators of the cannabis plant have manipulated it over the years to encourage specific traits to become dominant. Cannabis plants contain unique compounds called cannabinoids. Current research has revealed over 80 different cannabinoids thus far, but management believes THC is the most well-known and is credited with causing the marijuana high. While marijuana plants contain high levels of THC, hemp contains very little of the psychoactive chemical. The foregoing is one of the differences which distinguishes hemp from marijuana.
Scientifically, we now know that industrial hemp plants tend to produce high levels of the cannabinoid CBD, while producing low amounts of THC. Conversely, the marijuana plant produces high THC levels and low CBD levels. This chemical difference dictates the way we use the cannabis plant for medicinal and dietary supplemental purposes.
Cannabis Legislative Overview
Below is a discussion of the federal and state-level U.S. regulatory regimes in those jurisdictions where we may become involved, through our subsidiaries, in the cannabis industry. Under the Company’s plan, the Company may be directly engaged in the manufacture, possession, sale, and distribution of cannabis in the adult-use cannabis marketplace in the State of Colorado.
The United States federal government regulates drugs in large part through the Controlled Substances Act, or CSA. Marijuana, which is a form of cannabis, is classified as a Schedule I controlled substance. As a Schedule I controlled substance, the federal Drug Enforcement Agency, or DEA, considers marijuana to have a high potential for abuse; no currently accepted medical use in treatment in the United States; and a lack of accepted safety for use of the drug under medical supervision. According to the U.S. federal government, cannabis having a concentration of tetrahydrocannabinol, or THC, greater than 0.3% is marijuana. Cannabis with a THC content below 0.3% is classified as hemp.
The scheduling of marijuana as a Schedule I controlled substance is inconsistent with what we believe to be widely accepted medical and recreational uses for marijuana by physicians, researchers, patients, and consumers. Moreover, as of February 4, 2021 and despite the clear conflict with U.S. federal law, at least 36 states and the District of Columbia have legalized marijuana for medical use, although Mississippi’s medical cannabis legalization measure is under challenge. Fifteen of those states and the District of Columbia have legalized the adult-use of cannabis for recreational purposes, although South Dakota’s adult-use measure is subject to potential challenge. In November 2020, voters in Arizona, Montana, New Jersey, and South Dakota voted by referendum to legalize marijuana for adult use, and voters in Mississippi and South Dakota voted to legalized marijuana for medical use.
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Unlike in Canada, which uniformly regulates the cultivation, distribution, sale, and possession of marijuana at the federal level under the Cannabis Act (Canada), marijuana is largely regulated at the state level in the United States. State laws regulating marijuana are in conflict with the CSA, which makes marijuana use and possession federally illegal. Although certain states and territories of the United States authorize medical or adult-use marijuana production and distribution by licensed or registered entities, under United States federal law, the possession, use, cultivation, and transfer of marijuana and any related drug paraphernalia is illegal. Although our activities are compliant with the applicable state and local laws in the states in which we plan to operate, strict compliance with state and local laws with respect to cannabis may neither absolve us of liability under United States federal law nor provide a defense to any federal criminal action that may be brought against us. In 2013, as more and more states began to legalize medical and/or adult-use marijuana, the federal government attempted to provide clarity on the incongruity between federal law and these state-legal regulatory frameworks.
Until 2018, the federal government provided guidance to federal agencies and banking institutions through a series of Department of Justice memoranda. The most notable of this guidance came in the form of a memorandum issued by former U.S. Deputy Attorney General James Cole on August 29, 2013, which we refer to as the Cole Memorandum. The Cole Memorandum offered guidance to federal agencies on how to prioritize civil enforcement, criminal investigations and prosecutions regarding marijuana in all states and quickly set a standard for marijuana-related businesses to comply with. The Cole Memorandum put forth eight prosecution priorities:
| 1. | Preventing the distribution of marijuana to minors; |
| 2. | Preventing revenue from the sale of marijuana from going to criminal enterprises, gangs and cartels; |
| 3. | Preventing the diversion of marijuana from states where it is legal under state law in some form to other states; |
| 4. | Preventing the state-authorized marijuana activity from being used as a cover or pretext for the trafficking of other illegal drugs or other illegal activity; |
| 5. | Preventing violence and the use of firearms in the cultivation and distribution of marijuana; |
| 6. | Preventing drugged driving and the exacerbation of other adverse public health consequences associated with marijuana use; |
| 7. | Preventing the growing of marijuana on public lands and the attendant public safety and environmental dangers posed by marijuana production on public lands; and |
| 8. | Preventing marijuana possession or use on federal property. |
On January 4, 2018, former U.S. Attorney General Sessions rescinded the Cole Memorandum by issuing a new memorandum to all United States Attorneys, which we refer to as the Sessions Memo. Rather than establishing national enforcement priorities particular to marijuana-related crimes in jurisdictions where certain marijuana activity was legal under state law, the Sessions Memo simply rescinded the Cole Memorandum and instructed that “[i]n deciding which marijuana activities to prosecute... with the [DOJ’s] finite resources, prosecutors should follow the well-established principles that govern all federal prosecutions.” Namely, these include the seriousness of the offense, history of criminal activity, deterrent effect of prosecution, the interests of victims, and other principles.”
President Biden’s Attorney General, Merrick Garland, was confirmed by the United States Senate on March 10, 2021. It is not yet known whether the Department of Justice under President Biden and Attorney General Garland, will re-adopt the Cole Memorandum or announce a substantive marijuana enforcement policy. Attorney General Garland indicated at a confirmation hearing before the United States Senate that it did not seem to him to be a useful use of limited resources to pursue prosecutions in states that have legalized and that are regulating the use of marijuana, either medically or otherwise.
Nonetheless, there is no guarantee that state laws legalizing and regulating the sale and use of marijuana will not be repealed or overturned, or that local governmental authorities will not limit the applicability of state laws within their respective jurisdictions. Unless and until the United States Congress amends the CSA with respect to marijuana (and as to the timing or scope of any such potential amendments there can be no assurance), there is a risk that federal authorities may enforce current U.S. federal law. Currently, in the absence of uniform federal guidance, as had been established by the Cole memorandum, enforcement priorities are determined by respective United States Attorneys.
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In order to participate in either the medical or recreational sides of the marijuana industry in Colorado and elsewhere, all businesses and employees must obtain badges and licenses from the state and, for businesses, local jurisdictions. Colorado issues six types of business licenses including cultivation, manufacturing, dispensing, transport, research license and testing. In addition, all owners and employees must obtain an occupational license to be permitted to own or work in a facility. All applicants for licenses undergo a background investigation, including a criminal record check for all owners and employees.
Colorado has also enacted stringent regulations governing the facilities and operations of marijuana businesses. All facilities are required to be licensed by the state and local authorities and are subject to comprehensive security and surveillance requirements. In addition, each facility is subject to extensive regulations that govern its businesses practices, which includes mandatory seed-to-sale tracking and reporting, health and sanitary standards, packaging and labeling requirements and product testing for potency and contaminants.
Laws and regulations affecting the adult-use marijuana industry are constantly changing, which could detrimentally affect our proposed operations. Local, state, and federal adult-use marijuana laws and regulations are broad in scope and subject to evolving interpretations, which could require us to incur substantial costs associated with compliance or alter our business plan. In addition, violations of these laws, or allegations of such violations, could disrupt our business and result in a material adverse effect on our operations. It is also possible that regulations may be enacted in the future that will be directly applicable to our business. These ever-changing regulations could even affect federal tax policies that may make it difficult to claim tax deductions on our returns. We cannot predict the nature of any future laws, regulations, interpretations, or applications, nor can we determine what effect additional governmental regulations or administrative policies and procedures, when and if promulgated, could have on our business.
Competition
We believe we possess certain competitive strengths and advantages in the industries in which we plan to operate. Our management team has significant experience in cultivation, processing and retailing of cannabis throughout regulated markets. As we execute on our strategy, we believe this expertise enables us to potentially evaluate, acquire and operate business efficiently.
Industry Knowledge. We continue to create, share and leverage information and experiences with the purpose of creating awareness and identifying opportunities to increase shareholder value. Our management team has business expertise, extensive knowledge of the cannabis industry and closely monitors changes in legislation. We work with partners who enhance the breadth of our industry knowledge.
Regulatory Compliance. The state and local laws regulating the cannabis industry change at a rapid pace. We have resources committed to ensure our operations are in compliance with all state and local laws, policies, guidance and regulations to which we are subject. We apply this compliance knowledge to our customers in order to ensure that they, too, are in full compliance.
In the regulated cannabis industry, we believe we have significant competition from a range of private and public market participants.
Given the rapid growth of the U.S. CBD and regulated cannabis industries, hundreds of companies have entered the respective markets. Consequently, the market is becoming highly competitive and we believe to compete in the market requires ensuring the quality and integrity of product offerings. Certain of our competitors have substantially greater financial, distribution, and marketing resources, as well as greater brand awareness than us, and there can be no assurance we will be able to successfully compete.
Our Headquarters
Our corporate headquarters is located at 2590 Walnut St., Denver, CO. Our corporate internet website is www.bespokeexracts.com. The contents of the website are not part of this report.
Employees
As of the date of the filing of this report, we have 2 full-time employees.
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Item 1A. Risk Factors
An investment in the Company’s common stock involves a high degree of risk. In determining whether to purchase the Company’s common stock, an investor should carefully consider all of the material risks described below, together with the other information contained in this report before making a decision to purchase the Company’s securities. An investor should only consider purchasing the Company’s securities if he or she can afford to suffer the loss of his or her entire investment.
Risk Related to our Business and Industry
We have a history of operating losses, have a working capital deficit as of August 31, 2021, and we may not achieve or maintain profitability in the future.
As of August 31, 2021, we have an accumulated deficit of $19,742,266, a stockholders’ deficit of $418,242, and a working capital deficit of $453,735. We incurred a net loss of $965,577 for the year ended August 31, 2021. We may never achieve profitability or generate significant revenues.
We will need to raise additional capital, which may not be available.
We anticipate that we will need to raise additional capital to execute our business plan and maintain and expand our operations. Additional capital may not be available to us on acceptable terms, or at all. If we are unable to raise additional capital, our business may be harmed and we may need to curtail or cease operations.
We have a limited operating history that impedes our ability to evaluate our potential future performance and strategy.
We began sales of our products in mid-2018. Our limited operating history makes it difficult for us to evaluate our future business prospects and make decisions based on estimates of our future performance. To address these risks and uncertainties, we must do the following:
| ● | Successfully execute our business strategy to establish the “Bespoke Extracts” brand and reputation as a well-managed enterprise committed to delivering premium quality and cost-effective CBD products; |
| ● | Respond to competitive developments; |
| ● | Execute value-focused pricing strategies that position our tinctures and gelcaps as premium, great tasting, all-natural CBD products offered at a competitive price; |
| ● | Effectively and efficiently market and sell our line of CBD products through the development of distribution strategies; and |
| ● | Attract, integrate, retain and motivate qualified personnel. |
Our business strategy may not be successful and we may not successfully address these risks. In the event that we do not successfully address these risks, our business, prospects, financial condition and results of operations may be materially and adversely affected.
Our operating results may fluctuate significantly based on customer acceptance of our products. As a result our period-to-period comparisons of our results of operations are unlikely to provide a good indication of our future performance.
Management expects that we will experience substantial variations in our net sales and operating results from quarter to quarter due to customer acceptance of our products. If customers do not accept our products, our sales and revenue will either fail to materialize or decline, resulting in a reduction in our operating income or possible increase in losses.
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If we do not successfully develop and commercialize additional products, we could lose revenue opportunities.
Our future success will depend, in part, on our ability to expand our product offerings. To that end we have engaged in the process of identifying new product opportunities. The processes of identifying and commercializing new products is complex and uncertain, and if we fail to accurately predict customers’ changing needs and preferences, our business could be harmed. We have and may continue to commit significant resources to commercializing new products before knowing whether our investments will result in products the market will accept. Furthermore, we may not execute successfully on commercializing those products because of errors in product planning or timing, technical hurdles that we fail to overcome in a timely fashion, or a lack of appropriate resources. This could result in competitors providing those solutions before we do.
The success of new products will depend on several factors, including proper new product definition, timely completion, and introduction of these products, differentiation of new products from those of our competitors, and market acceptance of these products. There can be no assurance that we will successfully identify additional new product opportunities, develop and bring new products to market in a timely manner, or achieve market acceptance of our products or that products developed by others will not render our products obsolete or noncompetitive.
We may have difficulties managing our Company’s growth, which could lead to higher operating losses, or we may not grow at all.
If we succeed in growing our business, such growth could strain our human and capital resources, potentially leading to higher operating losses. Our ability to manage operations and control growth will be dependent upon our ability to raise and spend capital to successfully attract, train, motivate, retain and manage new employees and continue to update and improve our management and operational systems, infrastructure and other resources, financial and management controls, and reporting systems and procedures. Should we be unsuccessful in accomplishing any of these essential aspects of our growth in an efficient and timely manner, then management may receive inadequate information necessary to manage our operations, possibly causing additional expenditures and inefficient use of existing human and capital resources or we otherwise may be forced to grow at a slower pace that could slow or eliminate our ability to achieve and sustain profitability. Such slower than expected growth may require us to restrict or cease our operations and go out of business.
Loss of our chief executive officer could limit our growth and negatively impact our operations.
We depend upon our chief executive officer, Michael Feinsod, to a substantial extent. The loss of Mr. Feinsod could have a material adverse effect on our business, results of operations or financial condition.
We will be required to attract and retain top quality talent to compete in the marketplace.
We believe our future growth and success will depend in part on our ability to attract and retain highly skilled managerial, product development, sales and marketing, and finance personnel. We may not succeed in attracting and retaining such personnel. Shortages in qualified personnel could limit our ability to increase sales of existing products and services and launch new product and service offerings.
Our inability to effectively protect our intellectual property would adversely affect our ability to compete effectively, our revenue, our financial condition, and our results of operations.
We may be unable to obtain intellectual property rights to effectively protect our branding, products, and other intangible assets. Our ability to compete effectively may be affected by the nature and breadth of our intellectual property rights. If we are unable to secure intellectual property rights to effectively protect our branding, products, and other intangible assets, our revenue and earnings, financial condition, or results of operations could be adversely affected.
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Our industry is highly competitive, and we have less capital and resources than many of our competitors, which may give them an advantage in developing and marketing products similar to ours or make our products obsolete.
We are involved in a highly competitive industry where we compete with various other nutraceutical companies which offer products similar to the products we sell. These competitors may have far greater resources than we do, giving our competitors an advantage in developing and marketing products similar to ours or products that make our products obsolete. We may be unable to successfully compete against these other manufacturers.
The COVID-19 pandemic may negatively affect our business.
The COVID-19 pandemic is having widespread, rapidly evolving, and unpredictable impacts on global society, economies, financial markets, and business practices. The continuing impacts of COVID-19 are highly unpredictable and could be significant, and may have an adverse effect on our business, operations and our future financial performance, including by causing delays and constraints in manufacturing and shipping of our products.
We may be subject to the risks associated with future acquisitions , which may increase our capital requirements, dilute our shareholders, cause us to incur debt or assume contingent liabilities, and subject us to other risks.
As part of our overall business strategy, the Company may pursue select strategic acquisitions.
Although the Company will assess the risks inherent in a particular target business which it may acquire, this assessment may not result in the identification of all risks that a target business may encounter. Furthermore, some of those risks may be outside of the Company’s control, meaning that the Company can do nothing to control or reduce the chances that those risks will adversely impact a target business.
Any such future acquisitions, if completed, may expose the Company to additional potential risks, including risks associated with:
| ● | increased operating expenses and cash requirements; | |
| ● | the assumption of additional indebtedness or contingent liabilities; | |
| ● | the issuance of our equity securities; | |
| ● | assimilation of operations, intellectual property and products of an acquired company, including difficulties associated with integrating new personnel; | |
| ● | the diversion of our management’s attention from our existing product programs and initiatives in pursuing such a strategic merger or acquisition; | |
| ● | retention of key employees, the loss of key personnel and uncertainties in our ability to maintain key business relationships; and | |
| ● | risks and uncertainties associated with the other party to such a transaction, including the prospects of that party and their existing productsand our inability to generate revenue from acquired products sufficient to meet our objectives in undertaking the acquisition or even to offset the associated acquisition and maintenance costs. |
Cannabis remains illegal under federal law.
Despite the development of a cannabis industry legal under state laws, state laws legalizing medicinal and recreational adult cannabis use are in conflict with the federal Controlled Substances Act, which classifies cannabis as a Schedule I controlled substance and makes cannabis use and possession illegal on a national level. The United States Supreme Court has ruled that it is the federal government that has the right to regulate and criminalize cannabis, even for medical purposes, and thus federal law criminalizing the use of cannabis preempts state laws that legalize its use.
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A prior U.S. administration attempted to address the inconsistent treatment of cannabis under state and federal law in the Cole Memorandum which Deputy Attorney General James Cole sent to all U.S. Attorneys in August 2013 that outlined certain priorities for the Department of Justice (“DOJ”) relating to the prosecution of cannabis offenses. The Cole Memorandum provided that enforcing federal cannabis laws and regulations in jurisdictions that have enacted laws legalizing cannabis in some form and that have also implemented strong and effective regulatory and enforcement systems to control the cultivation, processing, distribution, sale and possession of cannabis conduct in compliance with those laws and regulations was not a priority for the DOJ. The DOJ did not provide (and has not provided since) specific guidelines for what regulatory and enforcement systems would be deemed sufficient under the Cole Memorandum. On January 4, 2018, U.S. Attorney General Jeff Sessions formally issued the Sessions Memorandum, which rescinded the Cole Memorandum effective upon its issuance. The Sessions Memorandum stated, in part, that current law reflects “Congress’ determination that cannabis is a dangerous drug and cannabis activity is a serious crime”, and Mr. Sessions directed all U.S. Attorneys to enforce the laws enacted by Congress and to follow well-established principles when pursuing prosecutions related to cannabis activities.. It is not yet known whether the Department of Justice under President Biden and Attorney General Garland, will re-adopt the Cole Memorandum or announce a substantive marijuana enforcement policy. Attorney General Garland indicated at a confirmation hearing before the United States Senate that it did not seem to him to be a useful use of limited resources to pursue prosecutions in states that have legalized and that are regulating the use of marijuana, either medically or otherwise. There can be no assurance that the federal government will not enforce federal laws relating to cannabis in the future. The uncertainty of federal enforcement practices going forward and the inconsistency between federal and state laws and regulations presents major risks for our business and operations. Any such change in the federal government’s enforcement of federal laws could cause significant financial damage to us and our stockholders.
Under federal law, and more specifically the federal Controlled Substances Act, the possession, use, cultivation and transfer of cannabis is illegal. It is also federally illegal to advertise the sale of cannabis, or to sell paraphernalia designed or intended primarily for use with cannabis, unless the paraphernalia is authorized by federal, state, or local law. Our business involves the cultivation, production and sale of cannabis and cannabis products, and, therefore, violates federal law. Further, we provide services to customers that are engaged in the business of possession, use, cultivation and/or transfer of cannabis. As a result, law enforcement authorities, in their attempt to regulate the illegal use of cannabis, may seek to bring an action or actions against us, including, but not limited to, a claim of aiding and abetting another’s criminal activities. The federal aiding and abetting statute provides that anyone who “commits an offense against the United States or aids, abets, counsels, commands, induces or procures its commission, is punishable as a principal.” 18 U.S.C. §2(a). As a result of such an action, we may be forced to cease operations and our investors could lose their entire investment. Such an action would have a material negative effect on our business and operations.
If the Federal Government were to change its enforcement practices, or were to expend its resources enforcing existing federal laws on those involved in the cannabis industry, such action could have a materially adverse effect on our operations, our customers or the sales of our products up to and including a complete cessation of our business.
It is possible that additional federal or state legislation could be enacted in the future that would prohibit us or our clients from selling cannabis, and if such legislation were enacted, the demand for our products and services, and those of our clients, likely would decrease, causing revenues to decline. Further, additional government disruption in the cannabis industry could cause potential customers and users to be reluctant to use our products and services, which would be detrimental to us. We cannot predict the nature of any future laws, regulations, interpretations or applications, nor can we determine what effect additional governmental regulations or administrative policies and procedures, when and if promulgated, could have on our business.
Our business is dependent on state laws pertaining to the cannabis industry.
The federal Controlled Substances Act classifies cannabis as a Schedule I controlled substance and makes cannabis use and possession illegal on a national level. The U.S. Supreme Court has ruled that it is the federal government that has the right to regulate and criminalize cannabis, even for medical purposes, and thus federal law criminalizing the use of cannabis preempts state laws that legalize its use. While there appears to be ample public support for favorable legislative action to legalize cannabis use and possession, numerous factors may impact or negatively affect the legislative process(s) within the various states we have or may in the future have business interests in. Any one of these factors could slow or halt use of cannabis, which would negatively impact our business.
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The voters or legislatures of states in which cannabis has already been legalized could potentially repeal applicable laws which permit the operation of both medical and retail cannabis businesses. These actions might force businesses, including our own and those of our clients, to cease operations in one or more states entirely.
We are required to comply concurrently with federal, state and local laws in each jurisdiction where we operate or to which we sell our products.
Various federal, state and local laws, regulations and guidelines govern our business in the jurisdictions in which we operate or propose to operate, or to which we export or propose to sell our products, including laws and regulations relating to health and safety, conduct of operations and the production, management, transportation, storage and disposal of our products and of certain material used in our operations. Compliance with each set of these laws, regulations and guidelines requires concurrent compliance with other complex federal, state and local laws, regulations and guidelines. These laws, regulations and guidelines change frequently and may be difficult to interpret and apply. Compliance with these laws, regulations and guidelines requires the investment of significant financial and managerial resources, and a determination that we are not in compliance with these laws, regulations and guidelines could harm our reputation and brand image and have a material adverse effect on our prospects, business, financial condition and results of operations. Moreover, it is impossible for us to predict the cost or effect of such laws, regulations or guidelines upon our future operations. Changes to these laws, regulations and guidelines could negatively affect our competitive position within our industry and the markets in which we operate, and there is no assurance that various levels of government in the jurisdictions in which we operate will not pass legislation or regulation or issue guidelines that adversely impacts our business.
Our business is subject to a variety of U.S. laws, many of which are unsettled and still developing, and which could subject us to claims or otherwise harm our business.
We are subject to a variety of state and federal laws in the United States. In the United Stated, despite cannabis having been legalized for medical use in many states, and for adult recreational use in a number of states, cannabis meeting the definition of “marijuana” continues to be categorized as a Schedule I controlled substance under the federal Controlled Substances Act. Following the passage of HB19-1090 in Colorado, we have elected to move into plant-touching operations in addition to non-plant-touching operations. As a public company involved in direct plant-touching activities, we may face additional scrutiny from the U.S. federal government or other regulatory agencies. Such scrutiny, and any investigation of our operations related to plant-touching activities, could have a material adverse impact on our prospects, business, financial condition and results of operations.
We are or will be subject to risks related to unsafe concentration of heavy metals and other contaminants in our cannabis and nutrient products, and associated inconsistent treatment under state law.
Cannabis plants may absorb heavy metals and other contaminants from the soil that they grow in. Nutrient products are made from ingredients that may contain heavy metals and other contaminants. Heavy metals and contaminants are naturally found in the earth’s crust but may also be present as a result of, for example, pesticide use. Some contaminants, like heavy metals, are toxic to humans at even low concentrations. If our raw materials contain contaminants, they may transfer to our products. If the level of contaminants in our products exceeds permissible or safe levels, it may result in loss of inventory and possible harm to consumers of the products, which may expose us, among other things, to monetary losses, product liability claims and reputational risk.
In addition, state regulation of testing for, and permissible levels of, contaminants in cannabis products varies, making compliance difficult and costly.
We will be subject to risks inherent in an agricultural business, including the risk of crop failure.
We will be in the cannabis industry, which is an agricultural process. As such, our business will be subject to the risks inherent in the agricultural business, including risks of crop failure presented by weather, insects, plant diseases and similar agricultural risks that might affect us or our clients.
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The cannabis industry and market are relatively new in the United States, and this industry and market may not continue to exist or develop as anticipated or we may ultimately be unable to succeed in this industry and market.
The cannabis industry and market are relatively new, and our success depends on our ability to operate our business successfully and attract and retain clients. In addition to being subject to general business risks applicable to a business involving an agricultural product and a regulated consumer product, we need to continue to build brand awareness of our brand in the cannabis industry and make significant investments in our business strategy and production capacity. These investments include introducing new products and services into the markets in which we operate, adopting quality assurance protocols and procedures and undertaking regulatory compliance efforts. These activities may not promote our business as effectively as intended, or at all, and we expect that our competitors will undertake similar investments to compete with us for market share. Competitive conditions, consumer preferences and spending patterns in this industry and market are relatively unknown and may have unique characteristics that differ from other existing industries and markets and that may cause our efforts to further our business to be unsuccessful or to have undesired consequences. As a result, we may not be successful in our efforts to operate our business or attract and retain clients or to develop new products and services and produce and distribute these products and services to the markets in which we operate or to which we export in time to be effectively commercialized, or these activities may require significantly more resources than we currently anticipate in order to be successful.
We, or the cannabis industry more generally, may receive unfavorable publicity or become subject to negative consumer or investor perception.
We believe that the cannabis industry is highly dependent upon positive consumer and investor perception regarding the benefits, safety, efficacy and quality of the cannabis distributed to consumers. The perception of the cannabis industry and cannabis products, currently and in the future, may be significantly influenced by scientific research or findings, regulatory investigations, litigation, political statements, media attention and other publicity (whether or not accurate or with merit) both in the United States and in other countries relating to the consumption of cannabis products, including unexpected safety or efficacy concerns arising with respect to cannabis products or the activities of industry participants. There can be no assurance that future scientific research, findings, regulatory proceedings, litigation, media attention or other research findings or publicity will be favorable to the cannabis market or any particular cannabis product or will be consistent with earlier publicity. Adverse future scientific research reports, findings and regulatory proceedings that are, or litigation, media attention or other publicity that is, perceived as less favorable than, or that questions, earlier research reports, findings or publicity (whether or not accurate or with merit) could result in a significant reduction in the demand for our cannabis products or those of our clients, which would affect our business. Further, adverse publicity reports or other media attention regarding the safety, efficacy and quality of cannabis or our products specifically, or associating the consumption of cannabis with illness or other negative effects or events, could adversely affect us. This adverse publicity could arise even if the adverse effects associated with cannabis products resulted from consumers’ failure to use such products legally, appropriately or as directed.
Certain events or developments in the cannabis industry more generally may impact our reputation.
Damage to our reputation can result from the actual or perceived occurrence of any number of events, including any negative publicity, whether true or not. As we anticipate becoming a producer and distributor of cannabis, which is a controlled substance in the United States that has previously been commonly associated with various other narcotics, violence and criminal activities, there is a risk that our business might attract negative publicity. There is also a risk that the actions of other companies and service providers in the cannabis industry may negatively affect the reputation of the industry as a whole and thereby negatively impact our reputation. The increased usage of social media and other web-based tools used to generate, publish and discuss user generated content and to connect with other users has made it increasingly easier for individuals and groups to communicate and share negative opinions and views in regards to our activities and the cannabis industry in general, whether true or not. We do not ultimately have direct control over how we or the cannabis industry is perceived by others. Reputational issues may result in decreased investor confidence, increased challenges in developing and maintaining community relations and present an impediment to our overall ability to advance our business strategy and realize on our growth prospects.
13
The cannabis industry could face strong opposition from other industries.
We believe that established businesses in other industries may have a strong economic interest in opposing the development of the cannabis industry. Cannabis may be seen by companies in other industries as an attractive alternative to their products, including recreational cannabis as an alternative to alcohol and medical cannabis as an alternative to various commercial pharmaceuticals. Many industries that could view the emerging cannabis industry as an economic threat are well established, with vast economic and federal and state lobbying resources. It is possible that companies within these industries could use their resources to attempt to slow or reverse legislation legalizing cannabis. Any inroads these companies make in halting or impeding legislative initiatives that would not be beneficial to the cannabis industry could have a detrimental impact on our business or our clients’ business and, in turn, on our operations.
Businesses involved in the cannabis industry, and investments in such businesses, are subject to a variety of laws and regulations related to money laundering, financial recordkeeping and proceeds of crimes.
Investments in the U.S. cannabis industry are subject to a variety of laws and regulations that involve money laundering, financial recordkeeping and proceeds of crime, including the Bank Secrecy Act, as amended by the USA Patriot Act, other anti-money laundering laws, and any related or similar rules, regulations or guidelines, issued, administered or enforced by governmental authorities in the United States. In February 2014, the Financial Crimes Enforcement Network (“FinCEN”) of the Treasury Department issued a memorandum (the “FinCEN Memo”) providing guidance to banks seeking to provide services to cannabis-related businesses. The FinCEN Memo outlines circumstances under which banks may provide services to cannabis-related businesses without risking prosecution for violation of U.S. federal money laundering laws. It refers to supplementary guidance that Deputy Attorney General Cole issued to U.S. federal prosecutors relating to the prosecution of U.S. money laundering offenses predicated on cannabis-related violations of the federal Controlled Substances Act and outlines extensive due diligence and reporting requirements, which most banks have viewed as onerous. The FinCEN Memo currently remains in place, but it is unclear at this time whether the current administration will continue to follow the guidelines of the FinCEN Memo. Such requirements could negatively affect our ability and the ability of our clients to establish and maintain banking connections.
We may be unable to seek the protection of the bankruptcy courts.
There is an argument that the federal bankruptcy courts cannot provide relief for parties who engage in cannabis or cannabis-related businesses. Recent bankruptcy rulings have denied bankruptcies for cannabis dispensaries upon the justification that businesses cannot violate federal law and then claim the benefits of federal bankruptcy for the same activity and upon the justification that courts cannot ask a bankruptcy trustee to take possession of, and distribute cannabis assets as such action would violate the federal Controlled Substances Act. Therefore, due to our cannabis-related business, we may not be able to seek the protection of the bankruptcy courts and this could materially affect our financial performance and/or our ability to obtain or maintain credit.
Risks Related to our Common Stock
There is a limited trading market for our common stock, and investors may find it difficult to buy and sell our shares.
Our common stock is not listed on any national securities exchange. Accordingly, investors may find it more difficult to buy and sell our shares than if our common stock was traded on an exchange. Although our common stock is quoted on the OTC Pink, it is an unorganized, inter-dealer, over-the-counter market which provides significantly less liquidity than the Nasdaq Capital Market or other national securities exchange. Further, prior to July 2018 there was minimal reported trading in our common stock, and any significant trading volume in our common stock may not be sustained. These factors may have an adverse impact on the trading and price of our common stock.
14
The market price of our common stock is, and is likely to continue to be, highly volatile and subject to wide fluctuations.
The market price of our common stock is highly volatile and could be subject to wide fluctuations in response to a number of factors that are beyond our control, including:
| ● | variations in our quarterly operating results; |
| ● | announcements that our revenue or income are below analysts’ expectations; |
| ● | general economic slowdowns; |
| ● | sales of large blocks of our common stock; and |
| ● | announcements by us or our competitors of significant contracts, acquisitions, strategic partnerships, joint ventures or capital commitments. |
Our common stock is considered a “penny stock” and is subject to additional sale and trading regulations that may make it more difficult to buy or sell.
Our common stock is considered a “penny stock” and securities broker-dealers participating in sales of our common stock are subject to the “penny stock” regulations set forth in Rules 15g-2 through 15g-9 promulgated under the Exchange Act. 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 and cause a decline in the market value of our stock.
We do not intend to pay dividends on our common stock for the foreseeable future.
We have paid no dividends on our common stock to date and we do not anticipate paying any dividends to holders of our common stock in the foreseeable future. While our future dividend policy will be based on the operating results and capital needs of the business, we currently anticipate that we will retain any earnings to finance our future expansion and for the implementation of our business plan. A lack of a dividend can further affect the market value of our common stock and could significantly affect the value of any investment in the Company.
Our
chief executive officer beneficially owns the majority of the voting power of our shareholders.
As the managing member of the holder of our outstanding share of Series C Preferred Stock, our chief executive officer, Michael Feinsod, has 51% of the voting power of the Company’s shareholders. As a result, Mr. Feinsod has the ability to control all matters submitted to shareholders, and his interests may differ from those of other shareholders.
Additional stock offerings in the future may dilute then-existing shareholders’ percentage ownership of the Company.
Given our plans and expectations that we will need additional capital and personnel, we anticipate that will need to issue additional shares of common stock or securities convertible or exercisable for shares of common stock, which may include including convertible notes, preferred stock, stock options or warrants. The issuance of additional securities in the future will dilute the percentage ownership of then-current stockholders.
15
The rights of the holders of common stock may be impaired by the potential issuance of preferred stock.
Our board of directors has the right, without stockholder approval, to issue preferred stock with voting, dividend, conversion, liquidation or other rights which could adversely affect the voting power and equity interest of the holders of common stock, which could be issued with the right to more than one vote per share, and could be utilized as a method of discouraging, delaying or preventing a change of control. The possible negative impact on takeover attempts could adversely affect the price of our common stock.
Failure to achieve and maintain internal controls in accordance with Sections 302 and 404 of the Sarbanes-Oxley Act of 2002 could have a material adverse effect on our business and stock price.
Our management has determined that we do not have effective disclosure controls and procedures, or internal control over financial reporting as of August 31, 2021. Effective internal controls are necessary for us to produce reliable financial reports and are important in the prevention of financial fraud. If we cannot produce reliable financial reports or prevent fraud, our business and operating results could be harmed, investors could lose confidence in our reported financial information, and there could be a material adverse effect on our stock price.
Item 1B. Unresolved Staff Comments.
Not required for a smaller reporting company.
Item 2. Properties.
We maintain our principal office at 2590 Walnut St, Denver, CO. Our monthly rent is $1,300 under a month-to-month lease. We believe that our existing facilities are suitable and adequate to meet our current business requirements.
Our-wholly owned subsidiary, Bespoke Extracts Colorado, LLC leases commercial space in Aurora, CO, under a 5 year lease that commenced December 2021 (with an option to renew for an additional five year term). Monthly rent starts at $6,000.
Item 3. Legal Proceedings.
We are not party to, and our property is not the subject of, any material legal proceedings.
Item 4. Mine Safety Disclosures.
Not applicable.
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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Our common stock quoted on the OTC Pink under the symbol “BSPK.” Any over-the-counter market quotations for our common stock on the OTC Pink reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.
Holders
As of December 13, 2021, there were approximately 308 holders of record of our common stock, which excludes those stockholders holding stock in street name.
Dividend Policy
We have not declared or paid cash dividends on our common stock in the past, and we do not anticipate that we will pay cash dividends our common stock in the foreseeable future.
Repurchases of Equity Securities
None.
Securities authorized for issuance under equity compensation plans
None.
Recent Sales of Equity Securities
None.
Item 6. [Reserved.]
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion highlights the principal factors that have affected our financial condition and results of operations as well as our liquidity and capital resources for the periods described. This discussion should be read in conjunction with our financial statements and the related notes included in Item 8 of this Form 10-K. This discussion contains forward-looking statements. Please see the explanatory note concerning “Forward-Looking Statements” in Part I of this Annual Report on Form 10-K and Item 1A. Risk Factors for a discussion of the uncertainties, risks and assumptions associated with these forward-looking statements.
Overview
We sell a proprietary line of specially-formulated, premium quality, hemp-derived CBD products direct to consumers through our ecommerce store, found at www.bespokeextracts.com. Information on our website is not part of this report.
Under our expanded operating plan, we intend to methodically expand our product offerings to include new flavors, including manuka honey; and introduce additional form factors for our CBD formulations, including lotions and balms, depending on customer feedback and evolving consumer demand.
In November 2021, new management of the Company was appointed and the Company began to focus on other complimentary lines of business to its CBD offerings. Under our new management team, we plan to expand the Company’s focus to regulated cannabis markets in the United States.
Results of Operations for the years ended August 31, 2021 and August 31, 2020
Sales
Sales during the year ended August 31, 2021 were $35,566 compared to $8,054 for the year ended August 31, 2020. The increase in sales was primarily a result of increased marketing of the Company’s new line-up of hemp-derived CBD products and sales of older products at reduced prices.
Operating Expenses
Selling, general and administrative expenses for the years ended August 31, 2021 and August 31, 2020 were $640,880 and $3,647,610, respectively. Included in selling, general and administrative expenses, option and warrant expense for the years ended August 31, 2021 and August 31, 2020 was $0 and $3,467,440, respectively which was primarily due to the fair value re-measurement of warrants and options, and the issuance of options to our then-President and CEO. Stock-based compensation for the years ended August 31, 2021 and August 31, 2020 were $0 and $40,500, respectively which was a result of common stock issued for services. Professional fees were $105,950 and $185,603, respectively for the years ended August 31, 2021 and August 31, 2020. The decrease in expenses was due to reduced legal and accounting fees as the Company streamlined operations. Consulting expense was $237,500 and $184,062, for the years ended August 31, 2021 and August 31, 2020, respectively. The increase was primarily due to additional consulting agreements for sales and marketing during the year ended August 31, 2021. Amortization expense of domain names for the year ended August 31, 2021 and August 31, 2020 was $3,244 and $2,797, respectively.
Loss on settlement of debt
On December 24, 2019, the Company entered into an agreement (the “Repayment Agreement”) with the holder of the amended and restated original issue discount convertible debenture issued by the Company on November 11, 2019, in the original principal amount of $200,000 (the “November 2019 Debenture”). Pursuant to the Repayment Agreement, the Company paid the holder $120,000, and transferred certain URLs valued at $5,282 to the holder, and the November 2019 Debenture was deemed paid in full. The Company recognized a loss on settlement of debt of $89,595 during the year ended August 31, 2020.
Interest Expense and Amortization of Debt Discount
Interest expense on promissory notes for the years ended August 31, 2021 and August 31, 2020 was $0 and $535,688 respectively. The decrease in interest expense was due to the amortization expense for the warrants and beneficial conversion associated with those notes that had been converted to common stock or fully amortized during the year ended August 31, 2020.
Net Loss
For the reasons stated above, our net loss for the year ended August 31, 2021 was $965,577, or $0.00 per share, compared to a net loss for the year ended August 31, 2020 of $4,640,806, or $0.04 per share.
Liquidity and Capital Resources
As of August 31, 2021, we had cash of $11,177. Net cash used in operating activities for the year ended August 31, 2021 was $1,040,965. Our current liabilities as of August 31, 2021 were $542,762 and consisted of accounts payable and accrued liabilities of $42,228, notes payable- related party of $534 and a convertible note payable of $500,000. As of August 31, 2020, we had cash of $126,603. Net cash used in operating activities for the year ended August 31, 2020 was $465,240. The increase in net cash used in operating activities during the year ended August 31, 2021 compared to August 31, 2020 was a result of the Company purchasing new inventory and an increase in prepaid expenses, partially offset by the increase in accounts payable and accrued liabilities.
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During the year ended August 31, 2021, the Company raised $800,000 from the sale of common stock. During the year ended August 31, 2021 the Company received a total of $130,534 of loans from our then-Chief Executive Officer. During the year ended August 31, 2020, the Company raised $125,000 from the sale of common stock. During the year ended August 31, 2020, the Company received a total of $400,000, net of original issue discounts, from the sale of a convertible note and repaid $120,000. During the year ended August 31, 2020 the Company repurchased $27,500 of common stock and received $84,000 from the exercise of stock options.
The financial statements included in this report have been prepared assuming a continuation of the Company as a going concern. The Company had negative cash flows from operations for the year ended August 31, 2021 and had a working capital deficit at August 31, 2021. This raises substantial doubt about our ability to continue as a going concern.
We have not generated positive cash flows from operating activities. Our primary source of capital has been from the sale of equity and convertible debt securities. Our primary use of capital has been for professional fees and selling, general and administrative costs. We have no committed sources of capital and will need to raise additional capital to continue and expand our operations. Additional capital may not be available on terms acceptable to us, or at all.
In addition, the COVID-19 pandemic may negatively affect our operations, including by limiting access to our facilities, customers, management, and professional advisors, and by causing delays and constraints in manufacturing and shipping of our products. These factors, in turn, may negatively impact our operations, financial condition and demand for our products, and our ability to raise capital on acceptable terms, or at all.
Off-Balance Sheet Arrangements
We have no significant 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, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Critical accounting policies and estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses during the reported periods. The more critical accounting estimates include estimates related to revenue recognition and accounts receivable allowances. We also have other key accounting policies, which involve the use of estimates, judgments and assumptions that are significant to understanding our results, which are described below and in Note 1 to our financial statements appearing elsewhere in this report.
Accounts Receivable
Accounts receivable are recorded at fair value on the date revenue is recognized. The Company provides allowances for doubtful accounts for estimated losses resulting from the inability of its customers to repay their obligation. If the financial condition of the Company’s customers were to deteriorate, resulting in an impairment of their ability to repay, additional allowances may be required. The Company provides for potential uncollectible accounts receivable based on specific customer identification and historical collection experience adjusted for existing market conditions. If market conditions decline, actual collection experience may not meet expectations and may result in decreased cash flows and increased bad debt expense.
Inventory
Inventories are stated at the lower of cost or net realizable value. Cost is determined by the first-in, first-out basis and net realizable value. Net realizable value is defined as sales price less cost of completion, disposition and transportation and a normal profit margin.
Income Taxes
We utilize the asset and liability method of accounting for income taxes. We recognize deferred tax liabilities or assets for the expected future tax consequences of temporary differences between the book and tax basis of assets and liabilities. We regularly assess the likelihood that our deferred tax assets will be recovered from future taxable income. We consider projected future taxable income and ongoing tax planning strategies in assessing the amount of the valuation allowance necessary to offset our deferred tax assets that will not be recoverable. We have recorded and continue to carry a full valuation allowance against our gross deferred tax assets that will not reverse against deferred tax liabilities within the scheduled reversal period. If we determine in the future that it is more likely than not that we will realize all or a portion of our deferred tax assets, we will adjust our valuation allowance in the period we make the determination. We expect to provide a full valuation allowance on our future tax benefits until we can sustain a level of profitability that demonstrates our ability to realize these assets.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Not required for smaller reporting companies.
Item 8. Financial Statements.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders’ of:
Bespoke Extracts, Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Bespoke Extracts, Inc. (the “Company”) as of August 31, 2021 and 2020, the related statements of operations, changes in stockholders’ deficit and cash flows for each of the two years in the period ended August 31, 2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of August 31, 2021 and 2020, and the results of its operations and its cash flows for the years ended August 31, 2021 and 2020, in conformity with accounting principles generally accepted in the United States of America.
Explanatory Paragraph – Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has negative cash flows from operations, a working capital deficit and an accumulated deficit. These factors raise substantial doubt about the Company's ability to continue as a going concern. Management’s plans in regard to these matters are described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal controls over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. We determined that there are no critical audit matters.
/s/ Liggett & Webb, P.A.
We have served as the Company’s auditor since 2019.
Boynton Beach, Florida
December 13, 2021
F-1
Bespoke Extracts, Inc.
Balance Sheets
| August 31, | August 31, | |||||||
| 2021 | 2020 | |||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Prepaid expense | ||||||||
| Inventory, net | ||||||||
| Total current assets | ||||||||
| Furniture and equipment | ||||||||
| Domain names, net of amortization of $ | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Stockholders’ Deficit | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued liabilities | $ | $ | ||||||
| Note payable - related party | ||||||||
| Convertible notes | ||||||||
| Total current liabilities | ||||||||
| Commitments and contingencies (Note 7) | ||||||||
| Stockholders’ Deficit | ||||||||
| Preferred stock, par value $ | ||||||||
| Series C Preferred Stock, $0.001 par value, | ||||||||
| Common stock, $ | ||||||||
| Additional paid-in capital | ||||||||
| Common stock payable | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ deficit | ( | ) | ( | ) | ||||
| Total liabilities and stockholders’ deficit | $ | $ | ||||||
The accompanying notes are an integral part of these financial statements.
F-2
Bespoke Extracts, Inc
Statements of Operations
| For the year ended | ||||||||
| August 31, | August 31, | |||||||
| 2021 | 2020 | |||||||
| Sales | $ | $ | ||||||
| Cost of products sold | ||||||||
| Gross Profit | ||||||||
| Operating expenses: | ||||||||
| Selling, general and administrative expenses | ||||||||
| Professional fees | ||||||||
| Consulting | ||||||||
| Amortization expense of domain name | ||||||||
| Total operating expenses | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Other expense | ||||||||
| Loss on settlement of debt | ( | ) | ||||||
| Interest expense and amortization of debt discount | ( | ) | ||||||
| Total other expense | ( | ) | ||||||
| Loss before income tax | ( | ) | ( | ) | ||||
| Provision for income tax | ||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | ||
| WEIGHTED AVERAGE COMMON SHARES OUTSTANDING | ||||||||
| Basic and Diluted | ||||||||
| LOSS PER COMMON SHARE OUTSTANDING | ||||||||
| Basic and Diluted | $ | ( | ) | $ | ( | ) | ||
The accompanying notes are an integral part of these financial statements.
F-3
Bespoke Extracts, Inc
Statements of Cash Flows
| For the year ended | ||||||||
| August 31, | August 31, | |||||||
| 2021 | 2020 | |||||||
| Cash flows from operating activities | ||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
| Amortization and impairment expense of domain names | ||||||||
| Amortization of debt discounts | ||||||||
| Bad debt expense | ||||||||
| Loss on settlement of debt | ||||||||
| Option and warrant expense | ||||||||
| Common stock issued for services | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Prepaid expense | ( | ) | ||||||
| Inventory | ( | ) | ||||||
| Accounts payable and accrued liabilities | ( | ) | ||||||
| Net Cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities | ||||||||
| Purchase of Url | ( | ) | ||||||
| Purchase of equipment | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ||||||
| Cash flow from financing activities | ||||||||
| Proceeds from note payable - related party | ||||||||
| Proceeds from the issuance of convertible debt | ||||||||
| Proceeds from exercise of stock options for cash | ||||||||
| Repayment of debt | ( | ) | ||||||
| Repurchase of common stock | ( | ) | ||||||
| Sale of common stock | ||||||||
| Net cash provided by financing activities | ||||||||
| Net (decrease) / increase in cash | ( | ) | ||||||
| Cash at beginning of year | ||||||||
| Cash at end of year | $ | $ | ||||||
| Supplemental disclosure of cash flow information | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
| Noncash investing and financing activities: | ||||||||
| Discount due beneficial conversion feature | $ | - | $ | |||||
| Stock issued with convertible debt | $ | - | $ | |||||
| Stock issued for conversion of debt - related party | $ | $ | - | |||||
| Capital contribution of accrued salary - related party | $ | $ | ||||||
| Stock issued for common stock payable | $ | $ | ||||||
| Preferred stock issued for the conversion of accrued salary | $ | - | $ | |||||
| Assignment of URL for settlement of debt | $ | - | $ | |||||
The accompanying notes are an integral part of these financial statements.
F-4
Bespoke Extracts, Inc
Statement of Stockholders’ Deficit
For The Years Ended August 31, 2021 and 2020
| Series A | Series B | Series C | ||||||||||||||||||||||||||||||||||||||||||||||
| Preferred | Preferred | Preferred | Preferred | Preferred | Preferred | Common | Common | Additional | Common | |||||||||||||||||||||||||||||||||||||||
| Shares | Par | Shares | Par | Shares | Par | Shares | Par | Paid-in | Stock | Accumulated | ||||||||||||||||||||||||||||||||||||||
| Outstanding | Amount | Outstanding | Amount | Outstanding | Amount | Outstanding | Amount | Capital | Payable | Deficit | Total | |||||||||||||||||||||||||||||||||||||
| Balance August 31, 2019 | $ | - | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||
| Preferred stock issued for the conversion of accrued salary | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
| Sale of common stock | ||||||||||||||||||||||||||||||||||||||||||||||||
| Exercise of stock options | ||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for services | ||||||||||||||||||||||||||||||||||||||||||||||||
| Option and warrant expense | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued with debt | ||||||||||||||||||||||||||||||||||||||||||||||||
| Repurchase of common stock | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Exchange of preferred stock | - | - | ( | ( | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||
| Capital contribution of accrued salary - related party | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||
| Beneficial conversion feature | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||
| Net loss for the year ended August 31, 2020 | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||
| Balance August 31, 2020 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||||
| Series A | Series C | |||||||||||||||||||||||||||||||||||||||
| Preferred | Preferred | Preferred | Preferred | Common | Common | Additional | Common | |||||||||||||||||||||||||||||||||
| Shares | Par | Shares | Par | Shares | Par | Paid-in | Stock | Accumulated | ||||||||||||||||||||||||||||||||
| Outstanding | Amount | Outstanding | Amount | Outstanding | Amount | Capital | Payable | Deficit | Total | |||||||||||||||||||||||||||||||
| Balance August 31, 2020 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||
| Common stock for conversion of note payable - related party | - | |||||||||||||||||||||||||||||||||||||||
| Exchange of common stock payable | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Sale of common stock | ||||||||||||||||||||||||||||||||||||||||
| Capital contribution of accrued salary - related party | - | - | - | |||||||||||||||||||||||||||||||||||||
| Net loss for the year ended August 31, 2021 | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Balance August 31, 2021 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||
The accompanying notes are an integral part of these financial statements.
F-5
Bespoke Extracts, Inc.
NOTES TO FINANCIAL STATEMENTS
August 31, 2021 and 2020
1. NATURE OF OPERATIONS, SIGNIFICANT ACCOUNTING POLICIES AND GOING CONCERN
Nature of Business Operations
Bespoke Extracts, Inc. (the “Company”) is a Nevada corporation focused on selling its proprietary line of specially-formulated, premium quality, hemp-derived CBD products.
In November 2021, new management of the Company was appointed and the Company began to focus on other complimentary lines of business to its CBD offerings. Under our new management team, we plan to expand the Company’s focus to regulated cannabis markets in the United States.
Going Concern
The accompanying financial statements have been prepared assuming a continuation of the Company as a going concern. The Company had negative cash flows from operations, a working capital deficit and an accumulated deficit as of and for the year ended August 31, 2021. This raises substantial doubt about our ability to continue as a going concern.
The Company’s ability to continue as a going concern is dependent upon the Company generating profitable operations in the future and/or obtaining the necessary financing to meet its obligations and repaying its liabilities arising from normal business operations when they come due. There is no assurance that this series of events will be satisfactorily completed.
Further, if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our common stock. If additional financing is not available or is not available on acceptable terms, we will have to curtail or cease our operations. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event the Company cannot continue in existence. These financial statements do not include any adjustments that might arise from this uncertainty.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the accompanying financial statements and accompanying notes. Significant estimates include the assumption used in the valuation of equity-based transactions, valuation of intangible assets, allowance for doubtful accounts and inventory valuation and reserves. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid investments with original maturities of three months or less at the time of purchase. At August 31, 2021 and August 31, 2020, the Company did not have any cash equivalents.
Fair Value of Financial Instruments
The carrying amounts of cash, accounts receivable, prepaid expenses, inventory and other assets, accounts payable, accrued liabilities, note payable and convertible note payable approximate their fair values as of August 31, 2021 and August 31, 2020, respectively, because of their short-term natures and the Company’s borrowing rate of interest.
F-6
Accounts Receivable
Accounts receivable are recorded at fair value on the date revenue is recognized. The Company provides allowances for doubtful accounts for estimated losses resulting from the inability of its customers to repay their obligation. If the financial condition of the Company’s customers were to deteriorate, resulting in an impairment of their ability to repay, additional allowances may be required. The Company provides for potential uncollectible accounts receivable based on specific customer identification and historical collection experience adjusted for existing market conditions. If market conditions decline, actual collection experience may not meet expectations and may result in decreased cash flows and increased bad debt expense.
The policy for determining past due status is
based on the contractual payment terms of each customer, which are generally net 30 or net 60 days. Once collection efforts by the Company
and its collection agency are exhausted, the determination for charging off uncollectible receivables is made. At August 31, 2021 and
August 31, 2020, the Company has recorded an allowance for doubtful accounts of $
Inventory
Inventories are stated at the lower of cost or
net realizable value. Cost is determined by the first-in, first-out basis and net realizable value. Net realizable value is defined
as sales price less cost of completion, disposition and transportation and a normal profit margin. As of August 31, 2021 and August 31,
2020, inventory amounted to $
Revenue Recognition
We account for revenue in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification Topic 606, “Revenue from Contracts with Customers”. Revenue is measured based on the amount of consideration that we expect to receive, reduced by discounts and estimates for credits and returns (calculated based upon previous experience and management’s evaluation). Outbound shipping charged to customers is recognized at the time the related merchandise revenues are recognized and are included in net revenues. Inbound and outbound shipping and delivery costs are included in cost of revenues.
Our products are sold through our online and telephonic channels. Revenue is recognized when control of the merchandise is transferred to the customer, which generally occurs upon shipment. Payment is typically due on the date of shipment. The Company offers a 30 day return policy on sales.
Stock Option Plans
Stock options and warrants issued to consultants
and other non-employees as compensation for services provided to the Company are accounted for based on the fair value of the services
provided or the estimated fair market value of the option or warrant, whichever is more reliably measurable, and in accordance FASB ASC
718, Compensation-Stock Compensation, including related amendments and interpretations. The related expense is recognized over
the period the services are provided. Stock option compensation expense has been recognized as a component of general and administrative
expenses in the accompanying financial statements for the years ended August 31, 2020 and 2021. Stock option compensation expense was
recognized for the years ended August 31, 2021 and 2020 was $
Net Income / (Loss) per Share
Basic income / (loss) per share amounts are computed
based on net income / (loss) divided by the weighted average number of common shares outstanding. Diluted earnings per share reflect the
potential dilution that could occur if potentially dilutive securities were exercised or converted to common stock. The dilutive effect
of options and warrants and their equivalent is computed by application of the treasury stock method and the effect of convertible securities
by the “if converted” method. The effect of
F-7
Recent accounting pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other standard setting bodies that are adopted by the Company as of the specified effective date.
Adopted during the year ended August 31, 2021
Financial Instruments—Credit Losses
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The new standard requires that financial assets measured at amortized cost be presented at the net amount expected to be collected and separately measure an allowance for credit losses that is deducted from the amortized cost basis of those financial assets. The Company adopted the new standard on September 1, 2020; however, it did not have a significant impact on the Company’s financial statements.
Income Taxes
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The new standard includes several provisions that simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and increasing consistency and clarity for the users of financial statements. The Company early adopted the new standard on September 1, 2020; however, it did not have a significant impact on the Company’s financial statements.
Income Taxes
We utilize the asset and liability
method of accounting for income taxes. We recognize deferred tax liabilities or assets for the expected future tax consequences of temporary
differences between the book and tax basis of assets and liabilities. We regularly assess the likelihood that our deferred tax assets
will be recovered from future taxable income. We consider projected future taxable income and ongoing tax planning strategies in assessing
the amount of the valuation allowance necessary to offset our deferred tax assets that will not be recoverable. We have recorded and continue
to carry a full valuation allowance against our gross deferred tax assets that will not reverse against deferred tax liabilities within
the scheduled reversal period. If we determine in the future that it is more likely than not that we will realize all or a portion of
our deferred tax assets, we will adjust our valuation allowance in the period we make the determination. We expect to provide a full valuation
allowance on our future tax benefits until we can sustain a level of profitability that demonstrates our ability to realize these assets.
At August 31, 2021, we carried a valuation allowance of $
2. ASSET PURCHASE AGREEMENT
On February 21, 2017, the Company purchased all
right, title, interest and goodwill in or associated with certain domain names set forth in an asset purchase agreement for a total of
$
F-8
3. NOTE PAYABLE - RELATED PARTY
On August 31, 2020, the Company issued a promissory
note in the principal amount of $
During the year ended August 31, 2021, Mr. Pollack
loaned the Company an additional $
4. CONVERTIBLE NOTE PAYABLE
On November 6, 2019,
On December 24, 2019,
On December 24, 2019, the Company entered into
and closed a securities purchase agreement with an accredited investor, pursuant to which the Company issued and sold to the investor
an original issue discount convertible debenture in the principal amount of $
F-9
5. EQUITY
Common Stock and Preferred Stock
As of August 31, 2020, the Company had authorized
capital of
On October 3, 2019, the Company entered into a
letter agreement with Niquana Noel, the Company’s then-chief executive officer.
In connection with the letter agreement, on October 3, 2019, the Company filed a Certificate of Designation of Series B Preferred Stock with the Secretary of State of Nevada. Pursuant to the Certificate of Designation, the Company designated one share of its preferred stock as Series B Preferred Stock.
On October 14, 2019, the Company entered into and closed a securities purchase agreement with an accredited investor pursuant to which the Company issued and sold to the investor 20,833,333 shares of common stock for a purchase price of $125,000.
In November 2019, 3,000,000 shares of common stock were returned to the Company for cancellation and the Company paid $27,500 in connection with a settlement agreement.
On November 6, 2019,
F-10
Effective November 11, 2019, the Company issued
On December 24, 2019, the Company entered into
and closed a securities purchase agreement with an accredited investor, pursuant to which, the Company issued and sold to the investor
an original issue discount convertible debenture in the principal amount of $
On March 25, 2020, Company entered into a letter
agreement with Niquana Noel, the Company’s then-chief executive officer.
In connection with the letter agreement, on March
25, 2020, the Company filed a Certificate of Designation of Series C Preferred Stock with the Secretary of State of Nevada. Pursuant to
the Certificate of Designation, the Company designated one share of its preferred stock as Series C Preferred Stock. The Series C Preferred
Stock has a stated value of $
On June 30, 2020, the Company filed a Certificate of Withdrawal of Certificate of Designation with the Secretary of State of Nevada, pursuant to which the Company withdrew its Series B Preferred Stock.
On August 31, 2020,
During the year ended August 31, 2021, Mr. Pollack
loaned the Company an additional $
On November 30, 2020, the Company entered into
a securities purchase agreement with Danil Pollack. Pursuant to the purchase agreement, the Company issued and sold to Mr. Pollack
On January 21, 2021, the Company entered into
a securities purchase agreement with Danil Pollack. Pursuant to the purchase agreement, the Company issued and sold to Mr. Pollack
On February 24, 2021, the Company entered into
a securities purchase agreement with an accredited investor. Pursuant to the purchase agreement, the Company issued and sold to the investor
F-11
Warrants
On March 2, 2018,
On April 16, 2018,
On October 30, 2018,
The following table summarizes the warrant activities during the years ended August 31, 2021 and 2020:
| Number of Warrants | Weighted- Average Price Per Share | Weighted- Average Remaining Life | ||||||||||
| Outstanding at August 31, 2019 | ||||||||||||
| Granted | - | - | - | |||||||||
| Canceled or expires | ||||||||||||
| Exercised | ||||||||||||
| Outstanding at August 31, 2020 | ||||||||||||
| Granted | ||||||||||||
| Canceled or expired | ( | ) | ||||||||||
| Exercised | ||||||||||||
| Outstanding at August 31, 2021 | $ | |||||||||||
| Exercisable at August 31, 2021 | $ | |||||||||||
| Intrinsic value at August 31, 2021 | $ | |||||||||||
Options
On April 21, 2020, Danil Pollack was appointed
president, chief executive officer, and chief financial officer of the Company. In connection with Mr. Pollack’s appointment, the
Company entered into an employment agreement with Mr. Pollack.
F-12
The following table summarizes the option activities during the years ended August 31, 2021 and 2020:
| Number
of Options | Weighted- Average Price Per Share | Weighted- Average Remaining Life | ||||||||||
| Outstanding at August 31, 2019 | ||||||||||||
| Granted | ||||||||||||
| Canceled or expired | ( | ) | ||||||||||
| Exercised | ( | ) | ||||||||||
| Outstanding at August 31, 2020 | $ | |||||||||||
| Granted | - | - | ||||||||||
| Canceled or expired | ( | ) | ||||||||||
| Exercised | - | - | ||||||||||
| Outstanding at August 31, 2021 | - | $ | - | |||||||||
| Exercisable at August 31, 2021 | $ | |||||||||||
The fair value of the options was estimated using the Black-Scholes option pricing model and the following range of assumptions:
Grant Date | ||||
| For the year ended August 31, 2020 | ||||
| Risk-free interest rate at grant date | % | |||
| Expected stock price volatility | % | |||
| Expected dividend payout | ||||
| Expected life (in years) | . | |||
6. RELATED PARTY TRANSACTIONS
On October 3, 2019, the Company entered into a
letter agreement with Niquana Noel, the Company’s then-chief executive officer.
On April 21, 2020, Danil Pollack was
appointed president, chief executive officer, and chief financial officer of the Company. In connection with Mr. Pollack’s
appointment, the Company entered into an employment agreement with Mr. Pollack.
F-13
On March 25, 2020, Company entered into a letter agreement with Niquana Noel, the Company’s then-chief executive officer. Pursuant to the agreement, Ms. Noel exchanged 1 share of Series B Preferred Stock of the Company for one share of newly created Series C Preferred Stock of the Company.
In connection with the letter agreement, on March
25, 2020, the Company filed a Certificate of Designation of Series C Preferred Stock with the Secretary of State of Nevada.
On April 20, 2020, the Company entered into a
letter agreement with Niquana Noel. Pursuant to the letter agreement, Ms. Noel waived any and all accrued but unpaid compensation owed
to her (which was equal to $
On August 31, 2020,
On September 30, 2020, the Company entered into
an amendment to the Company’s employment agreement, dated April 22, 2020, with Danil Pollack, the Company’s then-chief executive
officer. Pursuant to the amendment, the Company agreed to pay Mr. Pollack an annual salary of $
During the year ended August 31, 2021, Mr. Pollack
loaned the Company an additional $
On November 30, 2020, the Company entered into
a securities purchase agreement with Mr. Pollack.
On January 21, 2021,
7. COMMITMENTS AND CONTINGENCIES
Pursuant to a securities purchase agreement entered
into on June 6, 2018 the Company was obligated to issue additional shares of common stock if the Company sold common stock at a price
lower than $
F-14
On April 21, 2020, Danil Pollack was appointed
president, chief executive officer, and chief financial officer of the Company. In connection with Mr. Pollack’s appointment, the
Company entered into an employment agreement with Mr. Pollack. On September 30, 2020, the Company entered into an amendment to the employment
agreement. Pursuant to the amendment, the Company agreed to pay Mr. Pollack an annual salary of $
On October 13, 2020, the Company entered into a consulting agreement with Yaniv Rozen pursuant to which the Company engaged Mr. Rozen to serve as the Company’s chief operating officer on a consultant/independent contractor basis. Mr. Rozen was permitted to engage in other business activities while serving as the Company’s chief operating officer. On July 1, 2021, Yaniv Rozen resigned as chief operating officer of the Company.
Pursuant to the consulting agreement, the Company
agreed to pay Mr. Rozen a fee of $
The Company also agreed to issue to Mr. Rozen shares of common stock, and increase such monthly fee, as follows:
| ● | Within five business day of the end of the fourth quarter of 2020, (i) if the Company’s average sales were at least $ |
| ● | Within five business day of the end of the first quarter of 2021, (i) if the Company’s average sales were at least $ |
| ● | Within five business days of the end of the second quarter of 2021, (i) if the Company’s average sales were at least $ |
| ● | Within five business days of the end of the third quarter of 2021, (i) if the Company’s average sales were at least $ |
As of July 1, 2021, Mr. Rozen’s resignation date, there was no common stock owed to Mr. Rozen as the quarterly target sales were not met.
The COVID-19 pandemic may negatively affect our operations, including by limiting access to our facilities, customers, management, and professional advisors, and causing delays and constraints in manufacturing and shipping of our products. These factors, in turn, may negatively impact our operations, financial condition and demand for our products, and our ability to raise capital on acceptable terms, or at all.
F-15
8. MAJOR CUSTOMERS
At August 31, 2021 and August 31, 2020, no individual
customer amounted to over
9. INCOME TAXES
FASB ASC 740, Income Taxes, requires a
valuation allowance to reduce the deferred tax assets reported if, based on the weight of the evidence, it is more likely than not that
some portion or all of the deferred tax assets will not be realized. After consideration of all the evidence, both positive and negative,
management has determined that a full valuation allowance of approximately $
Tax returns for the years ended August 31, 2021, 2020, 2019, 2018, and 2017 are subject to examination by the Internal Revenue Service.
A reconciliation of the Company’s income taxes to amounts calculated at the federal statutory rate is as follows for the years ended August 31:
| 2021 | 2020 | |||||||
| Federal and state statutory taxes | ( | )% | ( | )% | ||||
| Change in tax rate estimate | % | % | ||||||
| Permanent differences | % | % | ||||||
| Change in valuation allowance | % | % | ||||||
| % | % | |||||||
In assessing the recovery of the deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in the periods in which those temporary differences become deductible. Management considers the scheduled reversals of future deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. As a result, management determined it was more likely than not the deferred tax assets would not be realized as of August 31, 2021 and 2020 and recorded a full valuation allowance.
Components of net deferred tax assets, including a valuation allowance, are as follows at August 31:
| 2021 | 2020 | |||||||
| Deferred tax assets: | ||||||||
| Inventory impairment | $ | $ | ||||||
| Bad debt expense | ||||||||
| Net operating loss carryforward | ||||||||
| Total deferred tax assets | ||||||||
| Valuation allowance | ( | ) | ( | ) | ||||
| Total net deferred tax assets | $ | $ | ||||||
F-16
A reconciliation of the expected income tax benefit at the U.S. Federal income tax rate to the income tax benefit actually recognized for the years ended August 31, 2021 and 2020 is set forth below:
| 2021 | 2020 | |||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Non-deductible expenses and other | ||||||||
| Change in valuation allowance | ||||||||
| Benefit from income taxes | $ | $ | ||||||
As a result of certain ownership changes, the Company may be subject to an annual limitation on the utilization of its U.S. net operating loss carryforwards pursuant to Section 382 of the Internal Revenue Code. A study to determine the effect, if any, of this change, has not been undertaken.
10. SUBSEQUENT EVENTS
In September 2021 a debenture holder converted
$
On October 28, 2021, the Company entered into
a stock purchase agreement with Danil Pollack (the Company’s then-chief executive officer), and Infinity Management, LLC (‘Infinity”).
Pursuant to the purchase agreement, upon the closing thereof on November 19, 2021, Mr. Pollack sold to Infinity,
The purchase agreement further provided for Infinity
to make a capital contribution to the Company of $
In connection with the purchase agreement, and effective upon the closing thereunder, Mr. Michael Feinsod, the managing member of Infinity, was appointed as the chief executive officer and chairman of the board of directors of the Company, Mr. Hunter Garth was appointed as a director, as well as chief strategy officer of the Company, and Mr. Pollack resigned from all positions with the Company, including as president, CEO, chief financial officer and director of the Company.
On December 2, 2021, Bespoke Extracts
Colorado, LLC (“Bespoke Colorado”), a newly formed wholly-owned subsidiary of the Company entered into an asset purchase
agreement with WonderLeaf, LLC (“WonderLeaf”), and on December 7, 2021, Bespoke Colorado and WonderLeaf entered into an
amendment to such asset purchase agreement (as amended, the “WonderLeaf Purchase Agreement”).
Closing of the WonderLeaf Purchase agreement is subject to receipt of certain governmental approvals and other customary closing conditions.
On November 29, 2021, Michael Feinsod, the Company’s chief executive
officer, loaned the Company $
On December 3, 2021, Michael Feinsod loaned the Company $
F-17
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Evaluation of Disclosure and Control Procedures
Management of the Company conducted an evaluation of the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) pursuant to Rule 13a-15 under the as of the end of the period covered by this report. The Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s (the “SEC”) rules and forms and that such information is accumulated and communicated to management, including our principal executive and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Based on this evaluation, management concluded that the design and operation of our disclosure controls and procedures are not effective due to the following material weaknesses:
| ● | Our chief executive officer also functions as our principal financial officer. As a result, our officer may not be able to identify errors and irregularities in the financial statements and reports. |
| ● | We were unable to maintain full segregation of duties within our financial operations due to our reliance on limited personnel in the finance function. While this control deficiency did not result in any audit adjustments to our financial statements, it could have resulted in a material misstatement that might have been prevented or detected by a segregation of duties. |
| ● | Documentation of all proper accounting procedures is not yet complete. |
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes of accounting principles generally accepted in the United States.
Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements. Our management conducted an evaluation of the effectiveness of our internal control over financial reporting as of August 31, 2021 based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013).
20
A material weakness is defined within the Public Company Accounting Oversight Board’s Auditing Standard No. 5 as a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.
In conducting his evaluation, our officer noted the following material weaknesses in our internal controls over financial reporting:
| ● | While certain accounting procedures have been adopted, compliance with such procedures has been inconsistent. |
| ● | The board of directors has not established an Audit Committee. Accordingly, the entire board, rather than an independent body, has reviewed our financial statements. |
| ● | Segregation procedures could be improved by strengthening cross approval of various functions, including cash disbursements and internal audit procedures where appropriate. |
As a result of these deficiencies in our internal controls, our officer concluded that our internal control over financial reporting was not effective.
To the extent reasonably possible given our limited resources, we intend to take measures to cure the aforementioned weaknesses, including, but not limited to, increasing the capacity of our qualified financial personnel to ensure that accounting policies and procedures are consistent across the organization and that we have adequate control over financial statement disclosures.
This annual report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. The Company’s internal control over financial reporting was not subject to attestation by the Company’s independent registered public accounting firm pursuant to rules of the SEC that permit the Company to provide only management’s report in this annual report.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(t) and 15d-15(f) under the Exchange Act, during the fourth quarter of the fiscal year ended August 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information.
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not applicable.
21
PART III
Item 10. Directors, Executive Officers, and Corporate Governance.
Our executive officers and directors are as follows:
| Name | Age | Title | ||
| Michael Feinsod | 50 | Chief Executive Office and Chairman of the Board of Directors | ||
| Hunter Garth | 32 | Chief Strategy Officer and Director |
Michael Feinsod has served as our chief executive officer and chairman since November 2021. Mr. Feinsod is the managing member of Infinity Capital, LLC, an investment management company he founded in 1999. Mr. Feinsod was executive chairman of the board of General Cannabis from August 2014 through July 2020, and was a director of The Kingstone Companies, Inc. from 2008 through June 2015. From 2006 through 2013, he served in various executive positions at Ameritrans Capital Corporation, a business development company. Mr. Feinsod served as a director of Ameritrans from December 2005 until July 2013 and served as a director of its subsidiary, Elk Associates Funding Corporation, from December 2005 until April 2013. Previously, Mr. Feinsod served as an investment analyst and portfolio manager at Mark Boyar & Company, Inc. He is admitted to practice law in New York and served as an associate in the Corporate Law Department of Paul, Hastings, Janofsky & Walker LLP. Mr. Feinsod holds a J.D. from Fordham University School of Law and a B.A. from George Washington University. We believe that Mr. Feinsod’s corporate finance, legal and executive-level experience, as well as his service on the boards of other public companies, give him the qualifications and skills to serve as one of our directors.
Hunter Garth has served as our chief strategy officer and director and director since November 2021. Mr Garth was most recently was the vice president of corporate development for General Cannabis Corporation from January 2019 to July 2020, a position in which he was responsible for developing and sourcing M&A activity in the cannabis industry. Prior to that, he was the managing director of Iron Protection Group, a security company that he founded in 2013 and sold in March 2015 to General Cannabis Corporation. Mr. Garth served in the U.S. Marine Corps from October 2008 to October 2012 in multiple roles, including infantry squad leader and instructor with the USMC Special Operations Training Group. Mr. Garth attended the University of West Florida. We believe that Mr. Garth’s industry and management-level experience qualifies him to serve as one of our directors.
Terms of Office
Our directors are appointed for one year terms in accordance with our charter documents and hold office until the earlier of (i) the next annual meeting of our shareholders, (ii) until they are removed from the board or (iii) until they resign.
Family Relationships
None.
Involvement in Certain Legal Proceedings
During the past ten years, none of our current directors or executive officers has been:
| ● | the subject of any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; |
| ● | convicted in a criminal proceeding or is subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); |
| ● | subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction or any Federal or State authority, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; |
22
| ● | found by a court of competent jurisdiction (in a civil action), the Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law. |
| ● | the subject of, or a party to, any Federal or State judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of (a) any Federal or State securities or commodities law or regulation; (b) any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order; or (c) any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or |
| ● | the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member. |
Delinquent Section 16(a) Reports
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company’s officers and directors, and certain persons who own more than 10% of a registered class of the Company’s equity securities (collectively, “Reporting Persons”), to file reports of ownership and changes in ownership (“Section 16 Reports”) with the Securities and Exchange Commission (the “SEC”). Based solely on its review of the copies of such Section 16 Reports received by the Company, all Section 16(a) filing requirements applicable to the Reporting Persons during and with respect to the fiscal year ended August 31, 2021 were complied with on a timely basis, except that a Form 3 was not filed by Yaniv Rozen.
Board Committees
We have not established any committees of the board of directors due to the small size of the Company and the board. We do not have an audit committee financial expert because we do not have the resources to retain one.
Stockholder Communication with the Board of Directors
Stockholders may send communications to our board of directors by writing to Bespoke Extracts, Inc., 323 Sunny Isles Blvd., Suite 700, Sunny Isles, Florida, 33160, Attention: Chief Executive Officer.
Code of Ethics
The Company has adopted a Code of Ethics that applies to the Company’s chief executive officer. Any person may obtain a copy of our Code of Ethics, without charge, by mailing a request to the Company at the address appearing on the front page of this Annual Report on Form 10-K or by viewing it on our website found at www.bespokeextracts.com.
Item 11. Executive Compensation.
The following table summarizes all compensation to our chief executive officers during the years ended August 31, 2021 and August 31, 2020. Our chief executive officer is our only named executive officer for whom compensation disclosure is required.
23
Name and Principal Position (a) | Year (b) | Salary (c) | Bonus (d) | Stock Awards (e) | Option Awards (f) | Non-Equity Incentive Plan Compensation (g) | Nonqualified Deferred Compensation Earnings (h) | All Other Compensation (i) | Total (j) | |||||||||||||||||||||||||||
| Danil Pollack | 2021 | $ | 44,500 | -- | $ | 44,500 | ||||||||||||||||||||||||||||||
| Former CEO, President (1) | 2020 | -- | -- | $ | 1,416,571 | (3) | -- | -- | $ | 1,416,571 | ||||||||||||||||||||||||||
| Niquana Noel | 2021 | -- | -- | -- | ||||||||||||||||||||||||||||||||
| Former CEO and President(2) | 2020 | -- | -- | $ | 2,055,748 | (4) | -- | -- | $ | 20,000 | $ | 2,075,748 | ||||||||||||||||||||||||
| (1) | Mr. Pollack was appointed as president and chief executive officer of the Company on April 21, 2020 and resigned on November 19, 2021. |
| (2) | Ms. Noel was appointed as president and chief executive officer of the Company on October 30, 2018 and served until April 21, 2020. |
| (3) | Pursuant to Mr. Pollack’s employment agreement, he was granted the right, for a period of six months, to purchase up to 100,000,000 shares of common stock for a purchase price of $0.001 per share. The Company recognized an expense of $1,416,975 during the year ended August 31, 2020. |
| (4) | Pursuant to Ms. Noel’s employment agreement, she received a warrant to purchase up to 20,000,000 shares of Common Stock at an exercise price of $0.0001 per share. Ms. Noel exercised the warrant and was issued the 20,000,000 shares on October 31, 2018. The fair value of this award was determined to be $2,598,138, of which $2,055,748 was recognized during the fiscal year ended August 31, 2020. |
Employment Agreements
On April 21, 2020, the Company entered into an employment agreement with Danil Pollack, and on September 30, 2020, and April 27, 2021, the employment agreement was amended. Pursuant to the employment agreement, Mr. Pollack was to serve as the Company’s chief executive officer and president for a period of one year, which term will renew automatically for successive one year terms, subject to the right of either party to terminate the agreement at any time upon written notice. Pursuant to the employment agreement, as amended, the Company agreed to pay Mr. Pollack an annual salary of $66,000, and Mr. Pollack was granted the right, for a period of six months, to purchase up to 100,000,000 shares of common stock for a purchase price of $0.001 per share. Mr. Pollack resigned from all positions with the Company on November 19, 2021.
Outstanding Equity Awards at Fiscal Year-End
None.
Compensation of Directors
No director of the Company received any compensation for serving as director of the Company during the year ended August 31, 2021.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The following table sets forth information known to us relating to the beneficial ownership of our common stock as of December 13, 2021 by:
| (1) | each person who is known by us to be the beneficial owner of more than 5% of our outstanding voting stock; |
| (2) | each named executive officer and director; and |
| (3) | all named executive officers and directors as a group. |
24
Unless otherwise indicated, the business address of each person listed is care of Bespoke Extracts, Inc., at 2590 Walnut St., Denver, CO 80205. The percentages in the table are based on 251,889,621 shares of common stock outstanding as of December 13, 2021, and have been calculated on the basis of treating as outstanding for a particular person, all shares of our common stock outstanding on that date and all shares of our common stock issuable to that holder in the event of exercise of outstanding options, warrants, rights or conversion privileges owned by that person at that date which are exercisable within 60 days of December 13, 2021. Except as otherwise indicated, the persons listed below have sole voting and investment power with respect to all shares of our common stock owned by them.
| Amount of | ||||||||
| Beneficial | Percent of | |||||||
| Name of Beneficial Owner | Ownership | Class | ||||||
| Executive Officers and Directors: | ||||||||
| Michael Feinsod(1) | 50,000,000 | 19.8 | % | |||||
| Hunter Garth | 0 | -- | ||||||
| Officers and Directors as a group (2 persons): | 50,000,000 | 19.8 | % | |||||
| 5% Holders: | ||||||||
| Danil Pollack(2) | 76,000,000 | 30.2 | % | |||||
| Infinity Management, LLC (1) | 50,000,000 | 19.8 | % | |||||
| McGlothlin Holdings, Ltd. (3) | 14,562,667 | 5.8 | % | |||||
(1) Represents shares held by Infinity Management, LLC (“Infinity”). The managing member of Infinity is Michael Feinsod. He has voting and dispositive power of these shares. Infinity also owns our 1 outstanding share of Series C Preferred Stock, which entitles the holder to 51% of the voting power of the Company’s stockholders.
(2) Mr. Pollack’s address is 8750 Jane Street, Unit 4B, Concord, ON Canada L4K 2M9
(3) McGlothlin Holdings, Ltd.’s address is PO Box 590, Luling, TX 78649. Mr. Stan McGlothlin holds voting and dispositive power over these shares. Share information for this stockholder is derived from a Schedule 13D filed by it on June 26, 2019.
Equity Compensation Plan Information.
None.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Certain Relationships and Related Transactions.
On October 3, 2019, the Company entered into a letter agreement with Niquana Noel, the Company’s then-chief executive officer. Pursuant to the agreement, Ms. Noel exchanged $24,000 in accrued but unpaid compensation owed to her by the Company for one share of newly created Series B Preferred Stock of the Company.
On March 25, 2020, the Company entered into a letter agreement with Niquana Noel. Pursuant to the agreement, Ms. Noel exchanged one share of Series B Preferred Stock of the Company for one share of newly created Series C Preferred Stock of the Company.
On April 20, 2020, the Company entered into a letter agreement with Niquana Noel. Pursuant to the letter agreement, Ms. Noel waived any and all accrued but unpaid compensation owed to her in exchange for the right to retain all 20,000,000 shares of common stock of the Company Ms. Noel had acquired upon exercise of warrants, notwithstanding provisions of the warrant agreement that would have required her to return certain shares to the Company in the event of her resignation.
25
From June 2020 to August 2020, the Company issued and sold to Danil Pollack, the Company’s then-chief executive officer, an aggregate of 84,000,000 shares of common stock, for a purchase price of $0.001 per share, upon exercise of the right to purchase granted to Mr. Pollack under Mr. Pollack’s employment agreement (see “Executive Compensation”).
On August 31, 2020, the Company issued a promissory note in the principal amount of $150,000, to Danil Pollack. Upon execution of the note, $120,000 was remitted and the remaining $30,000 was paid on September 22, 2020. The note did not bear interest and had a maturity date of November 30, 2020. This note was subsequently exchanged for 15,000,000 shares of common stock, as described below.
On November 10, 2020, the Company entered into an exchange agreement with Danil Pollack. Pursuant to the exchange agreement, Mr. Pollack exchanged an outstanding promissory note of the Company in the outstanding principal amount of $150,000 for 15,000,000 newly issued shares of common stock of the Company.
On November 30, 2020, the Company entered into a securities purchase agreement with Danil Pollack. Pursuant to the agreement, the Company issued and sold to Mr. Pollack 20,000,000 shares of common stock for an aggregate purchase price of $200,000.
On January 21, 2021, the Company entered into a securities purchase agreement with Danil Pollack. Pursuant to the purchase agreement, the Company issued and sold to Mr. Pollack 2,000,000 shares of common stock for an aggregate purchase price of $100,000.
On November 2, 2021, Danil Pollack waived all compensation owed to him by the Company as of such date through the date of his resignation as the Company’s chief executive officer.
On November 29, 2021, Michael Feinsod, the Company’s chief executive officer, loaned the Company $25,000. The loan does not bear interest and is payable on demand.
On December 3, 2021, Michael Feinsod loaned the Company $15,000. The loan does not bear interest and is payable on demand.
Director Independence.
Neither of our directors is independent as defined under Nasdaq listing standards.
Item 14. Principal Accountant Fees and Services.
The following table shows the fees that were billed to the Company by its independent auditor, Liggett & Webb, P.A. for professional services rendered in 2020 and 2021.
| Fiscal Year | Audit Fees | Audit- Related Fees | Tax Fees | All Other Fees | |||||||||||
| 2020 – Liggett & Webb, P.A. | $ | 30,000 | $ | - | $ | 4,000 | $ | - | |||||||
| 2021 - Liggett & Webb, P.A. | $ | 31,000 | $ | - | $ | 750 | $ | - | |||||||
Audit fees. Audit fees represent fees for professional services performed by for the audit of our annual financial statements and the review of our quarterly financial statements, as well as services that are normally provided in connection with statutory and regulatory filings or engagements.
Audit-related fees. Audit-related fees represent fees for assurance and related services performed that are reasonably related to the performance of the audit or review of our financial statements.
Tax Fees. Liggett & Webb, P.A. received $750 and $4,000 for providing tax services relating to preparation of certain tax returns for us during the year ended August 31, 2021 and 2020, respectively.
All other fees. Liggett & Webb, P.A., did not receive any other fees from us for the years ended August 31, 2021 or 2020.
The board of directors serves as the audit committee of the Company. All audit and non-audit services are pre-approved by the board of directors, which considers, among other things, the possible effect of the performance of such services on the auditors’ independence. The board of directors has considered the role of Liggett & Webb, P.A. in providing services to us for the fiscal year ended August 31, 2021 and has concluded that such services are compatible with Liggett & Webb, P.A.’s independence as the Company’s independent registered public accounting firm.
26
PART IV
Item 15. Exhibits, Financial Statement Schedules.
(a)
(1) Our financial statements are listed on page F-1 of this annual report.
(2) Financial statement schedules: None.
(b) Exhibits.
| * | Filed herewith |
| ** | Furnished herewith. |
27
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
| BESPOKE EXTRACTS, INC. | ||
| Dated: December 13, 2021 | By: | /s/ Michael Feinsod |
| Michael Feinsod | ||
|
Chief Executive Officer (principal executive officer, principal financial officer and principal accounting officer) | ||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| SIGNATURE | TITLE | DATE | ||
| /s/ Michael Feinsod | Chief Executive Officer and Director | December 13, 2021 | ||
|
Michael Feinsod
|
(principal executive, financial and accounting officer) | |||
| /s/ Hunter Garth | Director | December 13, 2021 |
Hunter Garth
28
Exhibit 31.1
CERTIFICATION OF PRINCIPLE EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Michael Feinsod, certify that:
| 1. | I have reviewed this annual report on Form 10-K of Bespoke Extracts, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Dated: December 13, 2021 | By: | /s/ Michael Feinsod |
| Michael Feinsod | ||
|
Chief Executive Officer (principal executive and financial officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Bespoke Extracts, Inc. (the “Company”) on Form 10-K for the fiscal year ended August 31, 2021 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael Feinsod, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: December 13, 2021 | /s/ Michael Feinsod |
| Michael Feinsod | |
|
Chief Executive Officer (principal executive and financial officer) |