BSPK 10-Q
Bespoke Extracts, Inc. (BSPK)
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 May 16, 2022, 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 | 15 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 18 |
| Item 4 | Controls and Procedures | 18 |
| PART II - OTHER INFORMATION | 19 | |
| Item 1. | Legal Proceedings | 19 |
| Item 1A. | Risk Factors | 19 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 19 |
| Item 3. | Defaults Upon Senior Securities | 19 |
| Item 4. | Mine Safety Disclosures | 19 |
| Item 5. | Other Information | 19 |
| Item 6. | 19 | |
i
PART I
Item 1. Financial Statements.
Bespoke Extracts, Inc. and Subsidiary
Condensed Consolidated Balance Sheets
(Unaudited)
| March 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Advances to WonderLeaf | ||||||||
| Note receivable and accrued interest WonderLeaf | ||||||||
| Prepaid expense | ||||||||
| Inventory, net | ||||||||
| Total current assets | ||||||||
| Furniture and equipment | ||||||||
| Right of Use Asset | ||||||||
| Deposits | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued liabilities | $ | $ | ||||||
| Inventory earn-out | ||||||||
| Note payable - related party | ||||||||
| Operating lease liability | ||||||||
| Total current liabilities | ||||||||
| Long-Term Operating Lease Liability | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 10) | ||||||||
| Stockholders’ Equity | ||||||||
| Preferred stock, par value $ | ||||||||
| Series C Preferred Stock, $ | ||||||||
| Common stock, $ | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1
Bespoke Extracts, Inc. and Subsidiary
Condensed Consolidated Statements of Operations
(Unaudited)
| For the Three Months Ended | ||||||||
| March 31, | March 31, | |||||||
| 2022 | 2021 | |||||||
| 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 income | ||||||||
| Interest income | ||||||||
| Total other income | ||||||||
| Loss before income tax | ( | ) | ( | ) | ||||
| Provision for income tax | ||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | ||
| WEIGHTED AVERAGE COMMON SHARES OUTSTANDING | ||||||||
| Basic and Diluted | ||||||||
| NET LOSS PER COMMON SHARE OUTSTANDING | ||||||||
| Basic and Diluted | $ | ( | ) | $ | ( | ) | ||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
Bespoke Extracts, Inc. and Subsidiary
Condensed consolidated Statement of Stockholders Equity / (Deficit)
For The Three Months Ended March 31, 2022 and 2021
(Unaudited)
| Series C | ||||||||||||||||||||||||||||||||
| Preferred | Preferred | Common | Common | Additional | Common | |||||||||||||||||||||||||||
| Shares | Par | Shares | Par | Paid-in | Stock | Accumulated | ||||||||||||||||||||||||||
| Outstanding | Amount | Outstanding | Amount | Capital | Payable | Deficit | Total | |||||||||||||||||||||||||
| Balance December 31, 2020 (Unaudited) | | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||
| Common stock for conversion of note payable - related party | - | |||||||||||||||||||||||||||||||
| Sale of common stock | - | |||||||||||||||||||||||||||||||
| Issuance of common stock payable | - | ( | ) | |||||||||||||||||||||||||||||
| Net loss for the three months ended March 31, 2021 | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance March 31, 2021 (Unaudited) | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||
| Series C | ||||||||||||||||||||||||||||
| Preferred | Preferred | Common | Common | Additional | ||||||||||||||||||||||||
| Shares | Par | Shares | Par | Paid-in | Accumulated | |||||||||||||||||||||||
| Outstanding | Amount | Outstanding | Amount | Capital | Deficit | Total | ||||||||||||||||||||||
| Balance December 31, 2021 (Unaudited) | | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||
| Payment of capital contribution | - | - | ||||||||||||||||||||||||||
| Stock based compensation and stock option expense | - | |||||||||||||||||||||||||||
| Unit Offering | - | |||||||||||||||||||||||||||
| Net loss for the three months ended March 31, 2022 | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance March 31, 2022 (Unaudited) | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
Bespoke Extracts, Inc. and Subsidiary
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| For the Three Months Ended | ||||||||
| March 31, | March 31, | |||||||
| 2022 | 2021 | |||||||
| Cash flows from operating activities | ||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
| Amortization expense of domain names | ||||||||
| Amortization of Right of Use Asset | ||||||||
| Stock based compensation and stock option expense | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Prepaid expense | ( | ) | ||||||
| Inventory | ( | ) | ||||||
| Interest receivable WonderLeaf | ( | ) | ||||||
| Operating lease liability | ( | ) | ||||||
| Accounts payable and accrued liabilities | ||||||||
| Net Cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities | ||||||||
| Advances to WonderLeaf | ( | ) | ||||||
| Payments to Note receivable WonderLeaf | ( | ) | ||||||
| Purchase of equipment | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ||||||
| Cash flow from financing activities | ||||||||
| Payment of capital contribution | ||||||||
| Repayment of note payable - related party | ( | ) | ||||||
| Proceeds from the 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 for conversion of debt - related party | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
BESPOKE EXTRACTS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022
(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 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.
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 Wonderleaf Purchase Agreement, for a purchase price of $
Basis of Presentation
The accompanying condensed consolidated unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments of a normal and recurring nature considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2022 may not necessarily be indicative of the results that may be expected for the year ended December 31, 2022.
For further information, refer to the Company’s financial statements and footnotes thereto included in the Annual Report on Form 10-K for the year ended August 31, 2021 and the Transition Report on Form 10Q-T for the transition period from September 1, 2021 to December 31, 2021.
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.
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.
5
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, a working capital deficit and an accumulated deficit as of and for the three months ended March 31, 2022. 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 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.
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 March 31, 2022 and December 31, 2021, 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 March 31, 2022 and December 31, 2021, 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 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 March 31, 2022 and December 31, 2021, the Company has recorded an allowance for doubtful accounts of $
6
Advances to WonderLeaf
During the three months ended March 31, 2022 the Company advanced WonderLeaf
$
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 March 31, 2022 and December 31, 2021, 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 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.
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
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.
7
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 $
In
connection with a stock purchase agreement (see note 7), 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
$
3. INVENTORY EARN-OUT
As
described in Notes 2 and 6, 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 $
5. NOTE PAYABLE - RELATED PARTY
During
the three months ended March 31, 2022, Michael Feinsod, the Company’s chief executive officer, was repaid $
8
6. CONVERTIBLE NOTE PAYABLE
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
October 28, 2021, in connection with a stock purchase agreement, the Debenture with an original principal amount of approximately $
7. LEASES
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
Supplemental balance sheet information related to leases was as follows:
| March 31, | ||||||
| Operating Leases | Classification | 2022 | ||||
| Right-of-use assets | $ | |||||
| Current lease liabilities | ||||||
| Non-current lease liabilities | ||||||
| Total lease liabilities | $ | |||||
Lease term and discount rate were as follows:
| December 31, | ||||
| 2021 | ||||
| Weighted average remaining lease term (years) | ||||
| Weighted average discount rate | % | |||
9
The component of lease costs was as follows:
Three
months March 31, | ||||
| 2022 | ||||
| Operating lease cost | $ | |||
| Variable lease cost (1) | ||||
| Total lease costs | $ | |||
(1)
Supplemental disclosures of cash flow information related to leases were as follows:
| March 31, | ||||
| 2022 | ||||
| Cash paid for operating lease liabilities | $ | |||
Maturities of lease liabilities were as follows as of December 31, 2021:
| Operating | |||||
| Leases | |||||
| 2022 | $ | ||||
| 2023 | |||||
| 2024 | |||||
| 2025 | |||||
| 2026 | |||||
| Thereafter | |||||
| Total undiscounted lease payments | |||||
| Less: Present value discount | ( | ) | |||
| Total Present value of lease liabilities | $ | ||||
8. EQUITY
Common Stock and Preferred Stock
As
of March 31, 2022 and December 31, 2021, the Company’s authorized capital stock consists of
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”).
10
The purchase agreement further provided for Infinity
to make a capital contribution to the Company of $
On December 2, 2021, 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 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 $
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 three months ended March 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
Warrants
During the
three months ended March 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
11
The following table summarizes the warrant activities during the three months ended March 31, 2022:
| Number
of Warrants | Weighted- Average Exercise Price Per Share | Weighted- Average Remaining Life | |||||||||
| Outstanding at December 31, 2021 | $ | ||||||||||
| Granted | |||||||||||
| Canceled or expired | ( | ) | |||||||||
| Exercised | |||||||||||
| Outstanding at March 31, 2022 | $ | ||||||||||
| Exercisable at March 31, 2022 | $ | ||||||||||
| Intrinsic value at March 31, 2022 | $ | ||||||||||
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 following table summarizes the option activities during the three months ended March 31, 2022:
| Number
of Options | Weighted- Average Exercise Price Per Share | Weighted- Average Remaining Life | |||||||||
| Outstanding at December 31, 2021 | $ | ||||||||||
| Granted | |||||||||||
| Canceled or expired | |||||||||||
| Exercised | |||||||||||
| Outstanding at March 31, 2022 | $ | ||||||||||
| Exercisable at March 31, 2022 | $ | ||||||||||
| Intrinsic value at March 31, 2022 | $ | ||||||||||
12
9. RELATED PARTY TRANSACTIONS
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. Pursuant to the employment agreement,
Mr. Pollack agreed to serve as the Company’s chief executive officer and president for a period of
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 $
On October 28, 2021, the Company entered into
a stock purchase agreement with Danil Pollack, and Infinity Management, LLC. Pursuant to the purchase agreement, upon the closing thereof
on November 19, 2021, Mr. Pollack sold to Infinity,
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 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 $
13
During
the three months ended March 31, 2022, Michael Feinsod, the Company’s chief executive officer, was repaid $
10. COMMITMENTS AND CONTINGENCIES
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 $
In
connection with the purchase agreement, 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 $
11. MAJOR CUSTOMERS
At March 31, 2022 and December 31, 2021, no individual
customer amounted to over
12. SUBSEQUENT EVENTS
On
April 5, 2022, the Company issued and sold to an investor in a private placement
On May 16, 2022, the Company issued and sold to an investor in a private placement 1,000,000 shares of common stock and warrants to purchase 250,000 shares of common stock with a term of one year and an exercise price of $0.05, for a purchase price of $5,000.
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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
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.
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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 $225,000, to be paid in shares of common stock of the Company (including 2,500,000 shares issuable, and to be held in escrow, upon execution of the WonderLeaf Purchase Agreement, and an additional $150,000 of common stock that will be valued based on the volume weighted average price of the common stock, subject to a floor of $0.02 per share and a ceiling of $0.04 per share), provided that, the purchase price for the inventory will be 90% of the wholesale value of the regulated marijuana portion of the inventory and the packaging corresponding thereto set forth on the inventory accounting statement to be prepared pursuant to the WonderLeaf Purchase Agreement. As of the date of filing the Company has not closed on the transaction.
On February 2, 2022, the Company changed its fiscal year from August 31 to December 31.
Results of Operations for the three months ended March 31, 2022 and March 31, 2021
Sales
Sales during the three months ended March 31, 2022 were $3,061 compared to $5,748 for the three months ended March 31, 2021. The decrease in sales was primarily a result of reduced marketing of the Company’s line-up of hemp-derived CBD products and sales of older products at reduced prices.
Operating Expenses
Selling, general and administrative expenses for the three months March 31, 2022 and three months ended March 31, 2021 were $897,534 and $191,861, respectively. The increase was mainly attributable to stock-based compensation of $727,606 and increase in salaries, partially offset by reduced marketing expenses. Professional fees were $54,355 and $21,343, respectively for the three months ended March 31, 2022 and March 31, 2021. The increase in expenses was due to increased legal and accounting fees associated with the pending Wonderleaf, LLC acquisition. Consulting expense was $23,000 and $71,500, for the three months ended March 31, 2022 and March 31, 2021, respectively. The decrease was primarily due to reduction in consulting expenses for sales and marketing during the three months ended March 31, 2022. Amortization expense of domain names for the three months ended March 31, 2022 and March 31, 2021 was $0 and $811, respectively.
Other Income
During the three months ended March 31, 2022 there was $181 associated with interest income on the note receivable from Wonderleaf.
Net Loss
For the reasons stated above, our net loss for the three months ended March 31, 2022 was $972,494, or $0.00 per share, compared to a net loss for the three months ended March 31, 2021 of $281,135, or $0.00 per share
Investing Activities
During the three months ended March 31, 2022 the Company loaned Wonderleaf a total of $20,000 pursuant to promissory notes, advanced Wonderleaf $6,443 and purchased $7,202 of equipment.
Liquidity and Capital Resources
As of March 31, 2022, we had cash of $94,331. Net cash used in operating activities for the three months ended March 31, 2022 was $219,793. Our current liabilities as of March 31, 2022 were $241,900 and consisted of accounts payable and accrued liabilities of $105,621, an inventory earn-out of $75,000 and current portion of lease liability of $61,279. As of December 31, 2021, we had cash of $148,227. Net cash used in operating activities for the three months ended March 31, 2021 was $335,499. Our current liabilities as of December 31, 2021 were $220,006 and consisted of accounts payable and accrued liabilities of $82,729, notes payable- related party of $2,500, an inventory earn-out of $75,000 and current portion of lease liability of $59,777.
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During the three months ended March 31, 2022, the Company repaid $2,500 of a note payable from a related party. In addition, the Company raised a total of $197,250 from the sale of common stock and warrants. During the three months ended March 31, 2021, the Company raised $600,000 from the sale of common stock.
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 three months ended March 31, 2022 and the year ended December 31, 2021 and had a working capital deficit at March 31, 2022 and December 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.
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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.
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.
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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.
During the three months ended March 31, 2022, the Company issued and sold to investors an aggregate of 39,450,000 shares of common stock and warrants to purchase an aggregate of 9,862,500 shares of common stock, for an aggregate purchase price of $197,250. The warrants have a term of one year and an exercise price of $0.05.
In connection with the foregoing, we relied upon the exemption from registration provided by Section 4(a)(2) under the Securities Act of 1933, as amended, for transactions not involving a public offering.
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 | Inline XBRL Document Set for the financial statements and accompanying notes in Part I, Item 1, of this Quarterly Report on Form 10-Q.* | |
| 104 | Inline XBRL for the cover page of this Quarterly Report on Form 10-Q, included in the Exhibit 101 Inline XBRL Document Set.* |
| * | Filed herewith. |
| ** | Furnished herewith. |
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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: May 16, 2022 | By: | /s/ Michael Feinsod |
Michael Feinsod Chief Executive Officer | ||
| (Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer) | ||
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