Bespoke Extracts, Inc 10-Q for FY2023 Q3
Bespoke Extracts, Inc. (BSPK)
About this 10-Q
Bespoke Extracts, Inc filed this 10-Q on January 16, 2024, covering the quarter ended September 30, 2023 (FY2023 Q3).
Headline figures
Quarter ended September 30, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $244.41K
- Net loss
- $301.53K
- compared with a net loss of $1.13M a year earlier
- Diluted EPS
- -$0.01
- compared with -$0.14 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended:
or
For the transition period from __________ to __________
Commission File Number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation) | (IRS Employer Identification No.) |
(Address of principal executive offices)
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act: None.
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months,
and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company | |||
If an emerging growth company, indicate by check
mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
No
As of January 16, 2024, there were
TABLE OF CONTENTS
| Page No. | ||
| PART I - FINANCIAL INFORMATION | 1 | |
| Item 1. | Financial Statements | 1 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 16 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 19 |
| Item 4 | Controls and Procedures | 20 |
| PART II - OTHER INFORMATION | 21 | |
| Item 1. | Legal Proceedings | 21 |
| Item 1A. | Risk Factors | 21 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 21 |
| Item 3. | Defaults Upon Senior Securities | 21 |
| Item 4. | Mine Safety Disclosures | 21 |
| Item 5. | Other Information | 21 |
| Item 6. | Exhibits | 21 |
i
PART I
Item 1. Financial Statements.
Bespoke Extracts, Inc.
Consolidated Balance Sheets
| September 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Prepaid stock awards | ||||||||
| Prepaid expense | ||||||||
| Inventory, net | ||||||||
| Total current assets | ||||||||
| Furniture and equipment | ||||||||
| License | ||||||||
| Right of Use Asset | ||||||||
| Deposits | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current liabilities | ||||||||
| Cash overdraft | $ | $ | ||||||
| Accounts payable and accrued liabilities | ||||||||
| Inventory earn-out | ||||||||
| Deferred revenue | ||||||||
| Note payable - related party | ||||||||
| Operating lease liability | ||||||||
| Total current liabilities | ||||||||
| Note payable - related party | ||||||||
| Long-Term Operating Lease Liability | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 10) | ||||||||
| Stockholders’ Deficit | ||||||||
| Preferred stock, par value $ | ||||||||
| Series C Convertible Preferred Stock, $ | ||||||||
| Common stock, $ | ||||||||
| Common stock to issue | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ deficit | ( | ) | ( | ) | ||||
| Total liabilities and stockholders’ deficit | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
1
Bespoke Extracts, Inc
Consolidated Statements of Operations
(Unaudited)
| For the three months ended September 30, | For the nine months ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Sales | $ | $ | $ | $ | ||||||||||||
| Cost of products sold | ||||||||||||||||
| Gross Profit | ( | ) | ( | ) | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Selling, general and administrative expenses | ||||||||||||||||
| Professional fees | ||||||||||||||||
| Consulting | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income / (expenses) | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ||||||||||||
| Interest income | ||||||||||||||||
| Total other (expense) / income | ( | ) | ( | ) | ||||||||||||
| Loss before income tax | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Provision for income tax | ||||||||||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| WEIGHTED AVERAGE COMMON SHARES OUTSTANDING | ||||||||||||||||
| NET LOSS PER COMMON SHARE OUTSTANDING | ||||||||||||||||
| $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||
The accompanying notes are an integral part of these consolidated financial statements.
2
Bespoke Extracts, Inc
Consolidated Statement of Stockholders Equity / (Deficit)
For The three and nine months ended September 30, 2023 and September 30, 2022
| Series C | ||||||||||||||||||||||||||||||||||||
| Preferred Shares Outstanding | Preferred Par Amount | Common Shares Outstanding | Common Par Amount | Additional Paid-in Capital | Common Stock Shares to be Issued | Common Stock to be issued Par Amount | Accumulated Deficit | Total | ||||||||||||||||||||||||||||
| Balance June 30, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||
| Stock based compensation and stock option expense | - | - | - | - | ||||||||||||||||||||||||||||||||
| Common stock issued for cash | - | - | - | |||||||||||||||||||||||||||||||||
| Net loss for the three months ended September 30, 2022 | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Balance September 30, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||
| Series C | ||||||||||||||||||||||||||||||||||||
| Preferred Shares Outstanding | Preferred Par Amount | Common Shares Outstanding | Common Par Amount |
Additional Paid-in Capital | Common Stock Shares to be Issued |
Common Stock to be issued Par Amount |
Accumulated Deficit |
Total | ||||||||||||||||||||||||||||
| Balance June 30, 2023 | |
$ | - | $ | $ | $ | - | $ | - | $ | ( |
) | $ | ( |
) | |||||||||||||||||||||
| Stock based compensation and stock option expense | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
| Net loss for the three months ended September 30, 2023 | - | - | - | - | - | - | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Balance September 30, 2023 | $ | - | $ | $ | $ | - | $ | - | $ | ( |
) | $ | ( |
) | ||||||||||||||||||||||
| 3 |
| Series C | ||||||||||||||||||||||||||||||||||||
| Preferred Shares Outstanding | Preferred Par Amount | Common Shares Outstanding | Common Par Amount | Additional Paid-in Capital | Common Stock Shares to be Issued | Common Stock to be issued Par Amount | Accumulated Deficit | Total | ||||||||||||||||||||||||||||
| Balance December 31, 2021 | $ | - | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||
| Payment of capital contribution | - | - | - | - | - | |||||||||||||||||||||||||||||||
| Stock based compensation and stock option expense | - | - | - | - | - | |||||||||||||||||||||||||||||||
| Common stock issued for services | - | - | - | - | ||||||||||||||||||||||||||||||||
| Common stock issued for cash | - | - | - | - | ||||||||||||||||||||||||||||||||
| Net loss for the nine months ended September 30, 2022 | - | - | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||
| Balance September 30, 2022 | $ | - | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||
| Series C | ||||||||||||||||||||||||||||||||||||
| Preferred Shares Outstanding | Preferred Par Amount | Common Shares Outstanding | Common Par Amount | Additional Paid-in Capital | Common Stock Shares to be Issued | Common Stock to be issued Par Amount | Accumulated Deficit | Total | ||||||||||||||||||||||||||||
| Balance December 31, 2022 | $ | - | $ | $ | $ | - | $ | - | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||
| Purchase Wonderleaf | - | - | - | - | ||||||||||||||||||||||||||||||||
| Stock based compensation and stock option expense | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
| Net loss for Nine Months ended September 30, 2023 | - | - | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||
| Balance September 30, 2023 | $ | - | $ | $ | $ | - | $ | - | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
4
Bespoke Extracts, Inc
Consolidated Statements of Cash Flows
(Unaudited)
For
the Nine months ended | ||||||||
| 2023 | 2022 | |||||||
| Cash flows from operating activities | ||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
| Inventory reserve | ||||||||
| Depreciation | ||||||||
| Allowance for doubtful accounts | ||||||||
| Amortization of right of use asset, net | ||||||||
| Amortization expense for prepaid expenses for consulting shares | ||||||||
| Stock based compensation and stock option expense | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Prepaid expenses | ( | ) | ( | ) | ||||
| Inventory | ( | ) | ||||||
| Interest receivable - Wonderleaf | ( | ) | ||||||
| Deposits | ( | ) | ||||||
| Accounts payable and accrued liabilities | ||||||||
| Deferred revenue | ||||||||
| Operating lease liability | ( | ) | ( | ) | ||||
| Net Cash (used in) operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities | ||||||||
| Advances to Wonderleaf | ( | ) | ||||||
| Note receivable Wonderleaf funded | ( | ) | ||||||
| Purchase of equipment | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ||||||
| Cash flow from financing activities | ||||||||
| Payment of capital contribution | ||||||||
| Payment of inventory earnout | ( | ) | ||||||
| Proceeds from issuance of note payable - related party | ||||||||
| Proceeds from advances - related party | ||||||||
| Repayment of note payable - related party | ( | ) | ||||||
| Proceeds from issuance of units | ||||||||
| Net cash provided by financing activities | ||||||||
| Net increase / (decrease) in cash | ( | ) | ( | ) | ||||
| Cash at beginning of period | ||||||||
| Cash at end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
| Noncash investing and financing activities: | ||||||||
Stock issued to Wonderleaf for fixed assets and license | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
5
BESPOKE EXTRACTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2023
(Unaudited)
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 operating in the regulated cannabis markets in the United States. Through Bespoke Colorado, we operate a marijuana infused products production facility in Aurora, Colorado.
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”). On January
3, 2023, the Company completed the acquisition of the WonderLeaf assets and the change of control was approved by the Colorado Marijuana
Enforcement Division for
On February 2, 2022, the Company changed its fiscal year from August 31 to December 31.
Certain prior period amounts have been reclassified to conform to the current period presentation which include common stock and additional paid in capital.
Principles of Consolidation
The accompanying condensed consolidated unaudited financial statements include the accounts of Bespoke Extracts, Inc., and its wholly
owned subsidiary Bespoke Extracts Colorado, LLC. All inter-company balances have been eliminated.
Going Concern
The accompanying condensed consolidated unaudited financial statements
have been prepared assuming a continuation of the Company as a going concern. The Company had negative cash flows from operations of $
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 repay 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.
6
Use of Estimates
The preparation of consolidated 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 consolidated 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 September 30, 2023 and December 31, 2022, the
Company did not have any cash equivalents. The Company did not have any cash in excess of FDIC limits of $
Fair Value of Financial Instruments
The carrying amounts of cash, accounts receivable, inventory, fixed assets, licenses, and other assets, accounts payable, accrued liabilities, and notes payable approximate their fair values as of September 30, 2023 and December 31, 2022, respectively, because of their short-term natures and the Company’s borrowing rate of interest.
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 14 or net 30 days. Once collection efforts by the Company,
the determination for charging off uncollectible receivables is made. At September 30, 2023 and December 31, 2022, the Company has recorded
an allowance for doubtful accounts of $
Inventory, Net
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 September 30, 2023 and December 31, 2022, inventory amounted to $
7
Property and equipment
Property and equipment is recorded at cost and
capitalized from the initial date of service. Expenditures for major additions and improvements are capitalized and minor replacements,
maintenance, and repairs are charged to expense as incurred. When property and equipment is retired or otherwise disposed of, the cost
and accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the results of operations for
the respective period. Depreciation is provided over the estimated useful lives of the related assets using the straight-line method for
financial statement purposes. The Company uses other depreciation methods (generally accelerated) for tax purposes where appropriate.
Schedule of Estimated useful Lives of Property and Equipment
| Furniture and Equipment |
License
License represents the Colorado license for distributing cannabis. The license has an indefinite useful life and the Company will test annually for impairment.
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 directly to licensed marijuana dispensaries in Colorado. 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 or within 14 to 30 days.
At September 30, 2023,
Cash Overdrafts
Cash Overdrafts represent disbursements in excess of cash balances on hand.
Deferred Revenue
Deferred Revenue represents serviced that was paid for but not delivered to the customer as of September 30, 2023.
Stock Based Compensation
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 with FASB ASC 718, Compensation-Stock Compensation, including related amendments and interpretations.
Reclassification
Prior gross prepaid stock compensation and additional paid in capital presented in the 10Q for the period end September 30, 2022 have been reclassified to conform with the financials filed in the December 31, 2022 10K.
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
8
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.
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.
2. ASSET PURCHASE AGREEMENT
On January
3, 2023, the Company completed the acquisition of the WonderLeaf assets for
Pursuant to ASU 2017-01 and ASC 805, the Company
analyzed the business of Wonderleaf to determine if the Company acquired a business or acquired assets. Based on this analysis, the Company
determined that it acquired assets. No goodwill was recorded since the purchase was accounted for as an asset purchase. In accordance
with ASC 805, the fair value of the assets acquired is based on either the fair value of the consideration given or the fair value of
the assets acquired, whichever is more clearly evident, and thus, more reliably measurable. The Company used the market price of the
Company management determined if the Company acquired a business or acquired assets. The FASB issued new guidance (ASU 2017-01) that changed the definition of a business to assist entities with evaluating when a set of transferred assets and activities is a business. The guidance requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets; if so, the set of transferred assets and activities is not a business. The guidance also requires a business to include at least one substantive process and narrows the definition of outputs by more closely aligning it with how outputs are described in ASC 606. Under the new guidance, an entity first determines whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If this threshold is met, the set is not a business. If it’s not met, the entity then evaluates whether the set meets the requirement that a business include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs. Under the ASU, a set is not a business when substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets.
Pursuant to 805-10-55-83, the Company first considered the guidance in paragraphs 805-10-55-5A through 55-5C. The identifiable assets that could be recognized in the purchase only included the license and fixed assets. Accordingly, the transaction was not considered a business.
9
The monetary value of the
The Company assigned a value of $
3. INVENTORY EARN-OUT
As described in Note 9, in exchange for cancellation
of the debt owed under the Debenture, the Company transferred to the holder certain domain names and agreed to pay the holder, beginning
December 1, 2021, and on a monthly basis through August 31, 2022,
4. NOTE RECEIVABLE
On January 19, 2022 the Company loaned WonderLeaf
$
On February 8, 2022 the Company loaned WonderLeaf
$
On October 25, 2022 the Company loaned WonderLeaf
$
As of December 31, 2022 accrued interest on the
notes receivable amounted to $
At December 31, 2022 the Company recorded a reserve
of $
Note 5 – Furniture and equipment.
Machinery and equipment consisted of the following at:
| September 30, 2023 | December 31, 2022 | |||||||
| Furniture and equipment | $ | $ | ||||||
| Machinery and Equipment | $ | $ | ||||||
| Fixed assets, total | $ | $ | ||||||
| Total: accumulated depreciation | $ | ( | ) | $ | ||||
| Fixed assets, net | $ | $ | ||||||
Depreciation expense for the three and nine months ended September
30, 2023 and September 30, 2022 were $
10
6. NOTE PAYABLE – RELATED PARTY
During the
nine months ended September 30, 2023, Infinity Management, LLC an affiliate of Michael Feinsod, the Company’s chief executive officer,
loaned the Company an additional $
During the nine month ended September 30, 2023 Infinity
Management, LLC an affiliate of Michael Feinsod advanced the Company and additional $
7. LEASES
In connection with the WonderLeaf Purchase Agreement,
Bespoke Colorado entered into a lease agreement (the “Lease”) with WL Holdings, Ltd. (“WL Holdings”) in December
2021. 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
Supplemental balance sheet information related to leases was as follows:
| September 30, | ||||
| 2023 | ||||
| Weighted average remaining lease term (years) | ||||
| Weighted average discount rate | % | |||
| Nine months ended September 30, | ||||
| 2023 | ||||
| Operating lease cost | $ | |||
| Variable lease cost (1) | ||||
| Total lease costs | $ | |||
| (1) |
| September 30, | ||||
| 2023 | ||||
| Cash paid for operating lease liabilities | $ | |||
11
| Operating | ||||
| Leases | ||||
| 2023 | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Total undiscounted lease payments | ||||
| Less: Present value discount | ( | ) | ||
| Total Present value of lease liabilities | $ | |||
| Operating Leases | Classification | September 30, 2023 |
||||
| Right-of-use assets | $ | |||||
| Current lease liabilities | ||||||
| Non-current lease liabilities | ||||||
| Total lease liabilities | $ | |||||
8. EQUITY
Common Stock and Preferred Stock
On December 5, 2022 the Company approved an amendment to its articles of incorporation to effect a 45-to-1 reverse split of our common stock effective January 13, 2023. All prior amounts equity amounts have been presented to reflect this reverse split.
As of September 30, 2023 and December 31, 2022, the Company’s
authorized capital stock consists of
On January 3, 2023, the Company
completed the acquisition of the WonderLeaf assets for
On December 14, 2021, the board of directors of
the Company adopted the Company’s 2021 Equity Incentive Plan (the “2021 Plan”), pursuant to which up to an aggregate
of
On December 14, 2021, the Company entered into
an employment agreement with Hunter Garth. Pursuant to the employment agreement, Mr. Garth will serve as the Company’s president
and will receive a base monthly salary of $
12
On December 14, 2021, the Company entered into
an employment agreement with Michael Feinsod, the Company’s chief executive officer and chairman. Pursuant to the employment agreement,
Mr. Feinsod will continue to serve as the Company’s chief executive officer and chairman and will receive a base monthly salary
of $
During the year ended December 31, 2022, the Company
entered into and closed securities purchase agreements with investors pursuant to which the Company issued and sold to the investors an
aggregate of
Effective August 1, 2022, the Company issued an
aggregate of
Effective August 1, 2022, the Company issued an aggregate of 266,667 shares of common stock to employees and consultants for services, including 155,556 shares that vest immediately, 55,556 shares that vested one year from the grant date, and 55,556 shares that will vest two years from the grant date. During the year ended December 31, 2022 the Company recorded an expense of $1,104,928. For the three and nine months ended September 30, 2023 the Company recorded an expense of $21,544 and $43,328, respectively. As of September 30, 2023 and December 31, 2022 the Company had a prepaid stock award of $38,785 and $80,113.
Warrants
During the four months ended December 31, 2021,
the Company entered into and closed securities purchase agreements with investors pursuant to which the Company issued and sold to the
investors an aggregate of
During the year ended December 31, 2022, the Company
entered into and closed securities purchase agreements with investors pursuant to which the Company issued and sold to the investors an
aggregate of
| Number of Warrants | Weighted- Average Exercise Price Per Share | Weighted- Average Remaining Life | ||||||||||
| Outstanding at December 31, 2022 | ||||||||||||
| Granted | ||||||||||||
| Canceled or expired | ( | ) | ||||||||||
| Outstanding at September 30, 2023 | $ | |||||||||||
| Exercisable at September 30, 2023 | $ | |||||||||||
| Intrinsic value at September 30, 2023 | $ | |||||||||||
13
Options
On December 14, 2021, the Company entered into
an employment agreement with Hunter Garth, wherein the Company granted to Mr. Garth, pursuant to the Company’s 2021 Equity Incentive
Plan, ten-year options to purchase
On December 14, 2021, the Company entered into
an employment agreement with Michael Feinsod, wherein the Company granted to Mr. Feinsod, pursuant to the Company’s 2021 Equity
Incentive Plan, ten-year options to purchase
On December 14, 2021, the Company issued to a
consultant options to purchase
On August 17, 2023, the Company issued to several
employees options to purchase
| Number of Options | Weighted- Average Exercise Price Per Share | Weighted- Average Remaining Life | ||||||||||
| Outstanding at December 31, 2022 | $ | |||||||||||
| Granted | $ | |||||||||||
| Canceled or expired | ||||||||||||
| Exercised | ||||||||||||
| Outstanding at September 30, 2023 | $ | |||||||||||
| Exercisable at September 30, 2023 | $ | |||||||||||
| Intrinsic value at September 30, 2023 | $ | |||||||||||
The future expense as of September 30, 2023 is
$
9. RELATED PARTY TRANSACTIONS
On December 14, 2021, the Company entered into
an employment agreement with Hunter Garth. Pursuant to the employment agreement, Mr. Garth will serve as the Company’s president
and will receive a base monthly salary of $
14
On December 14, 2021, the Company entered into
an employment agreement with Michael Feinsod, the Company’s chief executive officer and chairman. Pursuant to the employment agreement,
Mr. Feinsod will continue to serve as the Company’s chief executive officer and chairman and will receive a base monthly salary
of $
During the nine months ended September 30, 2023,
Michael Feinsod, the Company’s chief executive officer, loaned the Company an additional $
During the nine months ended September 30, 2023 Infinity
Management, LLC an affiliate of Michael Feinsod advanced the Company and additional $
As of September 30, 2023 Michael Feinsod is owed
a total of $
10. COMMITMENTS AND CONTINGENCIES
In connection with a stock purchase agreement,
on October 28, 2021, a convertible debenture with an original issue date of December 24, 2019, as amended by Amendment No. 1 thereto,
dated May 28, 2020, Amendment No. 2 thereto, dated August 21, 2020, Amendment No. 3 thereto, dated December 10, 2020, Amendment No. 4
thereto, dated January 15, 2021, Amendment No. 5 thereto, dated April 2, 2021, and Amendment No. 6 thereto, dated August 2, 2021 (as amended,
the “Debenture”) with an original principal amount of approximately $
On December 14, 2021, the Company entered into
an employment agreement with Hunter Garth. Pursuant to the employment agreement, Mr. Garth will serve as the Company’s president
and will receive a base monthly salary of $
On December 14, 2021, the Company entered into
an employment agreement with Michael Feinsod, the Company’s chief executive officer and chairman. Pursuant to the employment agreement,
Mr. Feinsod will continue to serve as the Company’s chief executive officer and chairman and will receive a base monthly salary
of $
On August 11, 2022, the Company and Bespoke Colorado
entered into an asset purchase agreement with Osiris, LLC doing business as Best Day Ever (“BDE”) and Michael Gurtman. Pursuant
to the purchase agreement, Bespoke Colorado agreed to purchase from BDE, and BDE agreed to sell to Bespoke Colorado, the assets of BDE,
including certain licenses. The Company also agreed to assume certain leases, all as further set forth in the purchase agreement. As consideration
for the acquisition of the assets, the Company agreed to issue
11. SUBSEQUENT EVENTS
Subsequent to September 30, 2023, the Company’s
chief executive officer, loaned the Company an additional $
15
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
We and our representatives may from time to time make written or oral statements that are “forward-looking,” including statements contained in this report and other filings with the SEC, reports to our stockholders and news releases. All statements that express expectations, estimates, forecasts or projections are forward-looking statements. In addition, other written or oral statements which constitute forward-looking statements may be made by us or on our behalf. Words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “estimate,” “project,” “forecast,” “may,” “should,” and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in or suggested by such forward-looking statements. We undertake no obligation to update or revise any of the forward-looking statements after the date of this report to conform forward-looking statements to actual results, except as may be required under applicable law. Important factors on which such statements are based are assumptions concerning uncertainties, including but not limited to, uncertainties associated with the following:
| ● | Inadequate capital and barriers to raising the additional capital or to obtaining the financing needed to implement our business plans; |
| ● | Our failure to earn significant revenues or profits; |
| ● | Volatility, lack of liquidity or decline of our stock price; |
| ● | Potential fluctuation in quarterly results; |
| ● | Rapid and significant changes in markets; |
| ● | Insufficient revenues to cover operating costs; and |
| ● | The effect of the COVID-19 pandemic on our operations, including as it may limit access to our facilities, customers, management, and professional advisors, and negatively impact demand for our products, and ability to raise capital on acceptable terms or at all. |
The following discussion should be read in conjunction with the financial statements and the notes thereto which are included in this report.
Overview
Through our wholly-owned subsidiary, Bespoke Extracts Colorado, LLC, we operate a marijuana infused products manufacturing facility in Colorado.
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.
On December 2, 2021, Bespoke Extracts Colorado, LLC, a newly formed wholly-owned subsidiary of the Company entered into an asset purchase agreement with 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 WonderLeaf Purchase Agreement, for a purchase price of $50,000, to be paid in shares of common stock of the Company. The Company issued a total of 222,223 shares of common stock ($0.225 per share), the fair market value on the date of issuance.
16
Results of Operations for the three months ended September 30, 2023 and September 30, 2022
Sales
Sales during the three months ended September 30, 2023 were $244,408 compared to $0 for the three months ended September 30, 2022. The increase in sales was a direct result of the products we are producing after the purchase of WonderLeaf. The increase in sales was due to direct sales of pre-rolled joints to licensed dispensaries in Colorado.
Cost of Goods Sold
Cost of goods sold for the three months ended September 30, 2023 was $146,000 compared to $0 for the three months ended September 30, 2022. The increase was a direct result of the increase in sales. The increase in cost of sales was due to increases in purchases of raw materials, packaging, and labor associated with the production of pre-rolled joints.
Operating Expenses
Selling, general and administrative expenses for the three months September 30, 2023 and September 30, 2022 were $347,717 and $1,069,487, respectively. The decrease was mainly attributable to reduced stock-based compensation of $763,158 and was partially offset by increased salary expenses. Professional fees were $46,833 and $29,270, respectively for the three months ended September 30, 2023 and September 30, 2022. Consulting expenses were $0 and $35,750, for the three months ended September 30, 2023 and September 30, 2022, respectively.
Other Income / (Expenses)
During the three months ended September 30, 2023 and September 30, 2022 there were $(5,377) and $447, respectively associated with interest expense on loans and interest income on the note receivable from WonderLeaf.
Net Loss
For the reasons stated above, our net loss for the three months ended September 30, 2023 was $301,529, or $0.03 per share, compared to a net loss for the three months ended September 30, 2022 of $1,134,125 or $0.14 per share
Results of Operations for the nine months ended September 30, 2023 and September 30, 2022
Sales
Sales during the nine months ended September 30, 2023 were $524,671 compared to $3,407 for the nine months ended September 30, 2022.
The increase in sales was a direct result of the products we are producing after the purchase of WonderLeaf. The increase in sales was due to direct sales of pre-rolled joints to licensed dispensaries in Colorado.
Cost of Goods Sold
Cost of goods sold for the nine months ended September 30, 2023 was $341,878 compared to $47,580 for the nine months ended September 30, 2022. The increase was a direct result of the increase in sales. The increase in cost of sales was due to increases in purchases of raw materials, packaging, and labor associated with the production of pre-rolled joints.
Operating Expenses
Selling, general and administrative expenses for the nine months September 30, 2023 and September 30, 2022 were $1,179,598 and $2,861,938, respectively. The decrease was mainly attributable to a reduction of stock-based compensation of $2,047,237 and partially offset by increased payroll expenses. Professional fees were $171,259 and $119,118, respectively for the nine months ended September 30, 2023 and September 30, 2022. The increase in expenses was due to increased legal and accounting fees associated with the pending WonderLeaf, LLC acquisition. Consulting expense was $36,000 and $94,250, for the nine months ended September 30, 2023 and September 30, 2022, respectively.
17
Other Income/ (Expenses)
During the nine months ended September 30, 2023 and September 30, 2022 there were $(6,692) and $878, respectively associated with interest expense on loans and interest income on the note receivable from WonderLeaf.
Net Loss
For the reasons stated above, our net loss for the nine months ended September 30, 2023 was $1,213,756, or $0.12 per share, compared to a net loss for the nine months ended September 30, 2022 of $3,118,601, or $0.40 per share
Investing Activities
During the nine months ended September 30, 2023 and September 30, 2022 the Company loaned WonderLeaf a total of $0 and $20,000, respectively pursuant to promissory notes, advanced WonderLeaf $12,000 and purchased $7,202 of equipment.
Liquidity and Capital Resources
As of September 30, 2023, we had cash deficit of $2,949. Net cash used in operating activities for the nine months ended September 30, 2023 was $398,379. Our current liabilities as of September 30, 2023 were $925,281 and consisted of accounts payable and accrued liabilities of $828,069, and current portion of lease liability of $64,330 and notes payable related party of $26,997. As of September 30, 2022, we had cash of $10,856. Net cash used in operating activities for the nine months ended September 30, 2022 was $604,660.
During the nine months ended September 30, 2023, the Company borrowed an additional $434,000 in a Note payable from a related party.
The unaudited condensed consolidated 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 nine months ended September 30, 2023 and the year ended December 31, 2022 and had a working capital deficit at September 30, 2023 and December 31, 2022. 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.
18
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.
Stock Based Compensation
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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not required for smaller reporting companies.
19
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and 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”)) 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 (i) recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms, and (ii) accumulated and communicated to our management, including our principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Based on this evaluation, our management has concluded that the design and operation of our disclosure controls and procedures are not effective since the following material weaknesses exist:
| ● | 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; and |
| ● | Documentation of all proper accounting procedures is not yet complete. |
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.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
20
PART II – OTHER INFORMATION
Item 1. Legal Proceedings.
We are not currently a party to, nor are any of our property currently the subject of, any material legal proceedings.
Item 1A. Risk Factors.
Not required for smaller reporting companies.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
No disclosure required.
Item 5. Other Information.
None.
Item 6. Exhibits.
| Exhibit No. | Description | |
| 31.1 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002* | |
| 32.1 | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002** | |
| 101.INS | Inline XBRL Instance Document | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document. | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document. | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
| * | Filed herewith. |
| ** | Furnished herewith. |
21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| BESPOKE EXTRACTS, INC. | ||
| Dated: January 16, 2024 | By: | /s/ Michael Feinsod |
|
Michael Feinsod Chief Executive Officer | ||
| (Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer) | ||
22
Exhibit 31.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Michael Feinsod, certify that:
| 1) | I have reviewed this Quarterly Report on Form 10-Q of Bespoke Extracts, Inc. (the “registrant”); |
| 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 the 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 issuer 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; and |
| 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 involved management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| /s/ Michael Feinsod | |
| Michael Feinsod | |
|
Chief Executive Officer (Principal Executive Officer and Principal Financial Officer) |
|
| January 16, 2024 |
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 Quarterly Report on Form 10-Q of Bespoke Extracts, Inc., as filed with the U.S. Securities and Exchange Commission on the date hereof (the “Report”), I, Michael Feinsod, the Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec. 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 such Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| /s/ Michael Feinsod | |
| Michael Feinsod | |
| Chief Executive Officer | |
| (Principal Executive Officer and Principal Financial Officer) | |
| Dated: January 16, 2024 |