The accompanying
notes are an integral part of these unaudited consolidated financial statements.
The accompanying
notes are an integral part of these unaudited consolidated financial statements.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
1 — BASIS OF PRESENTATION
The
accompanying unaudited consolidated financial statements of Bespoke Extracts, Inc, a Nevada corporation (the “Company”),
have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and footnotes required
by accounting principles generally accepted in the United States of America for complete consolidated financial statements. These
unaudited consolidated financial statements and related notes should be read in conjunction with the Company’s annual report
on Form 10-K for the fiscal year ended August 31, 2017. In the opinion of management, these unaudited consolidated financial statements
reflect all adjustments that are of a normal recurring nature and which are necessary to present fairly the financial position
of the Company as of May 31, 2018, and the results of operations and cash flows for the nine months ended May 31, 2018 and May
31, 2017. The results of operations for the three and nine months ended May 31, 2018 are not necessarily indicative of the results
that may be expected for the entire fiscal year.
Certain
prior period amounts have been reclassified to conform to current period presentation.
Going
Concern
The
accompanying interim consolidated financial statements have been prepared assuming a continuation of the Company as a going concern.
The Company did not generate any revenues and reported a net loss of $5,218,094 for the nine months ended May 31, 2018 and
has a working capital deficit as of May 31, 2018. These conditions raise 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. The accompanying financial
statements do not contain any adjustments that may result from the outcome of this uncertainty.
Inventory
Inventories
are stated at the lower of cost or market value. Cost is determined by the first-in, first-out basis and market being
determined as the lower of replacement cost or net realizable value. The Company records inventory write-downs for estimated obsolescence
of unmarketable inventory based upon assumptions about future demand and market conditions. As of May 31, 2018, inventory amounted
to $73,267 which consists of $53,743 in finished goods and $19,524 in raw materials.
2.
EQUITY
Common
Stock
The
Company was formed in the state of Nevada on April 13, 2006. The Company has authorized capital of 800,000,000 shares of common
stock with a par value of $0.001, and 50,000,000 shares of preferred stock with a par value of $0.001.
On
September 18, 2017, the Company issued 900,000 shares of common stock in connection with the issuance of a convertible note with
a principal amount of $180,000. The relative fair value of the stock of $51,503 was recognized as a discount to the note that
is being amortized to interest expense over the life of the note.
On
September 22, 2017, the company issued 900,000 shares of common stock and 300,000 warrants pursuant to a stock purchase agreement
for cash of $60,300.
On
November 10, 2017, the Company issued an aggregate of 1,400,000 shares of common stock to the holder of a related party 7% Convertible
Promissory Note, to convert principal amount of $11,200.
On
November 27, 2017, the Company issued an aggregate of 1,450,000 shares of common stock to the holder of a related party 7% Convertible
Promissory Note, to convert principal amount of $11,600.
On
December 28, 2017, the Company issued an aggregate of 1,550,000 shares of common stock to the holder of a 7% Convertible Promissory
Note, dated November 14, 2016 to convert principal amount of $12,400.
On
December 13, 2017, the Company issued an aggregate of 200,000 shares of common stock with a relative fair value of $27,946 to
the holder of a $120,000 Convertible Debenture with an original issue discount of $20,000. The debenture has a 0% interest rate
and a term of one year.
On March 5, 2018, the Company entered
into a securities purchase agreement with an investor which is a related party. Pursuant to the purchase agreement, upon
closing on March 7, 2018, the Company issued and sold to the investor, 3,000,000 shares of common stock for an aggregate
purchase price of $300,000. The Company agreed to issue additional shares of common stock (the “Make-Good
Shares”) to the investor for no additional consideration, in the event that, during the six month period commencing on
the closing date, the Company sells common stock at a purchase price lower than $0.10 (the “Subsequent Financing
Price”), such that the total number of shares of common stock received by the investor under the purchase agreement
(including the Make-Good Shares and the initial shares) will be equal to the total purchase price of $300,000 divided by such
lower Subsequent Financing Price. In addition the Company agreed not to pay cash compensation over $100,000 to any Officer of
Director.
On
March 9, 2018, the Company issued an aggregate of 1,780,000 shares of common stock to the holder of a 7% Convertible Promissory
Note, dated November 14, 2016 to convert principal amount of $14,240.
On
March 9, 2018, Bespoke Extracts, Inc. (the “Company”) entered into and closed an asset purchase agreement with VMI
Acquisitions, LLC (“VMI”), pursuant to which the Company sold to VMI the Company’s proprietary Machine-to-Machine
communications solution and certain other intellectual property for a purchase price of $180,000. $135,000 of the purchase price
was paid by members of VMI in cash and had previously been deposited with the Company. The remaining $45,000 of the purchase price
was paid in the form of a reduction in outstanding debt and reimbursements of expenses owed to a member of VMI. Certain members
of VMI are noteholders and/or shareholders of the Company. At the time of the sale the intellectual property had a book value
of $0. As the parties were considered significant shareholders and related parties, the consideration of $180,000 was recorded
as a capital contribution.
On
May 15, 2018 the Company issued 500,000 shares of common stock to an investor for a purchase price of $50,000, and on May
29, 2018, the Company issued 1,870,000 shares of common stock upon conversion of a convertible note in the amount of $14,960.
The Company agreed to issue additional shares of common stock (the “Make-Good Shares”) to the investor for no
additional consideration, in the event that, during the six month period commencing on the closing date, the Company sells
common stock at a purchase price lower than $0.10 (the “Subsequent Financing Price”), such that the total number
of shares of common stock received by the investor under the purchase agreement (including the Make-Good Shares and the
initial shares) will be equal to the total purchase price of $50,000 divided by such lower Subsequent Financing Price. In
addition the Company agreed not to pay cash compensation over $100,000 to any Officer of Director.
Warrants
/ Options
During
the nine months ended May 31, 2018, warrant activity included the following:
On
September 18, 2017, the Company executed an $180,000 Convertible Debenture with an original issue discount of $60,000. In connection
with the debenture, the Company issued the lender 300,000 common stock purchase warrants with a term of 3 years and an exercise
price of $1.00. The relative fair value of the warrants of $16,996 was recognized as a discount to the debenture.
On
May 22, 2017, the Company entered into an employment agreement with Marc Yahr to serve as President and Chief Executive Officer
of the Company for a term of three years, unless earlier terminated pursuant to the terms of the Employment Agreement. Pursuant
to the terms of the Employment Agreement, Mr. Yahr received a warrant to purchase up to 20,000,000 shares of the Company’s
common stock at an exercise price of $0.0001 per share. The warrants were exercised in full on May 31, 2017; however, the 20,000,000
shares of the Company’s common stock were not issued to Mr. Yahr until June 10, 2017. The shares received upon the exercise
of the warrants are subject to forfeiture and vest over a service period of three years. The fair value of the award was determined
to be $10,998,105 which will be recognized as compensation expense over the three year service period. Warrant expense under
this award for the nine months ended May 31, 2018 totaled $2,742,668. As of May 31. 2018, $7,240,948 remains to be expensed over
the remaining vesting period.
On
January 22, 2018, the Company entered into a Sales Representation Agreement for a term of six months. Pursuant to the agreement
the Company agreed to issue the nonemployee sales representative warrants to purchase 10,000 shares of common stock per month
(an aggregate of 60,000 warrants) with an exercise price of $0.50, with a term of three years. The Warrants shall be exercisable
at any time on or after the six (6) month anniversary of each Issuance Date, at his election, in whole or in part, by means of
a “cashless exercise”. The fair value of this award was determined to be $64,292 of which $29,709 was recognized during
the nine months ended May 31, 2018.
On
February 22, 2018, the Company entered into a Consulting Agreement for a term of one year. Pursuant to the agreement the Company
agreed to issue the nonemployee consultant warrants to purchase 10,000 shares of common stock per month (an aggregate of 120,000
warrants) with an exercise price of $0.40, exercisable for cash only for a period of three years commencing six months form the
issuance date. The fair value of this award was determined to be $131,478 of which $36,903 was recognized during the nine months
ended May 31, 2018.
On
March 2, 2018 the Company entered into a Management Agreement with Global Corporate Management, LLC. Pursuant to this
agreement, the Company agreed to pay $4,000 and to issue 150,000 common stock purchase warrants with an exercise price of
$0.50, exercisable commencing six months after issuance for a period of 5 years. The fair value of this award was determined
to be $4,139,966 of which $790,251 was recognized during the nine months ended May 31, 2018.
On
March 20, 2018 the Company entered into a 12 month consulting agreement with Patagonia Global Trading, LLC. Upon execution of
this agreement and upon the Consultant signing their first customer, acceptable by the Company, and for services rendered, the
Company will immediately issue 50,000 common stock purchase warrants to purchase common stock at an exercise price of $.30 per
share. As of May 31, 2018, Patagonia Global Trading, LLC, had not signed any customers and had not earned any warrants. The Company
agreed to pay a total commission rate of 10% of the gross sale amount to be paid in the form of cash and or warrants to purchase
shares of common stock of the Company
On
April 16, 2108 The Company entered into a consulting agreement with Dr. David Hellman for marketing and promotion services. The
term is 1 year with payment of 50,000 warrants to purchase common stock with an exercise price of $0.60. However, if the Consultant
generates more than $10K in monthly sales, the Warrants will have an exercise price of $.30, and if the Consultant generates more
than $20K in monthly sales, the Warrants may be exchanged in "cashless exercise". Additionally, the Company shall pay
10% of retail sales and 5% of wholesale sales. The fair value of this award was determined to be $652,911 of which $88,534 was
recognized during the nine months ended May 31, 2018.
For
the nine months ended May 31, 2017, the Company recognized option expense of $5,088,421 for options granted on July 26, 2017 to
a nonemployee for services. For the nine months ended May 31, 2018, the Company recognized option expense of $4,526,235 for options
granted to non-employees for services. As of May 31, 2018, $11,619,798 remains to be expensed over the remaining service period
through July 26, 2019.
The
fair value of the warrants was estimated using the Black-Scholes option pricing model and the following range of assumptions:
|
|
Grant
Date
|
|
May
31,
2018
|
Risk-free
interest rate at grant date
|
|
1.06% - 1.44%
|
|
1.11%
- 2.68%
|
Expected
stock price volatility
|
|
117%
- 362%
|
|
159%
- 370%
|
Expected
dividend payout
|
|
-
|
|
-
|
Expected
option in life-years
|
|
1
- 3 years
|
|
2.16
- 6.75 years
|
Warrants:
|
|
|
|
|
|
|
Outstanding at August 31, 2017
|
|
|
900,000
|
|
|
$
|
1.00
|
|
Granted
|
|
|
1,220,000
|
|
|
|
2.57
|
|
Canceled or expired
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
|
|
Outstanding at May 31, 2018
|
|
|
2,120,000
|
|
|
$
|
2.27
|
|
Exercisable at May 31, 2018
|
|
|
1,600,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intrinsic value at May 31, 2018
|
|
$
|
581,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options:
|
|
|
|
|
|
|
|
|
Outstanding at August 31, 2017
|
|
|
1,200,000
|
|
|
$
|
1.00
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Canceled or expired
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Outstanding at May 31, 2018
|
|
|
1,200,000
|
|
|
$
|
1.00
|
|
Exercisable at May 31, 2018
|
|
|
300,000
|
|
|
|
|
|
Intrinsic value at May 31, 2018
|
|
$
|
180,000
|
|
|
|
|
|
3.
RELATED PARTY ASSET PURCHASE AGREEMENT
On
August 29, 2017, the Company received $82,750 as a deposit from a significant shareholder toward the purchase price on
an agreement that was being negotiated with VMI Acquisitions, LLC for purchase of certain of the Company’s assets as
well as the payment of $7,500 of expenses on behalf of the Company. The remaining $45,000 of the purchase price was paid
in the form of a reduction in outstanding debt and reimbursements of expenses owed to a member of VMI. Certain members of VMI
are noteholders and/or shareholders of the Company and related parties. The agreement was completed and closed on March 9,
2018. As the parties were considered significant shareholder the consideration of $180,000 was recorded as a capital
contribution. At the time of the sale the intellectual property had a book value of $0.
4.
NOTES PAYABLE – RELATED PARTY
On April 27, 2016, the Company
issued to the former Company’s CEO a 7% unsecured promissory note in the amount of $2,500 which matured six months from
the date of issuance. On July 5, 2016, the Company issued to the Company’s CEO a 7% unsecured note in the amount of
$3,000 which matured six months from date of issuance. As of May 31. 2018, there is a remaining balance on the note of $50
which
is unsecured, non-interest bearing and due on
demand.
On
February 14, 2017, the Company issued to Lyle Hauser, the Company’s largest shareholder, a 7% unsecured promissory note
in the amount of $30,000 which matured six months from the date of issuance. On May 31, 2018 the Company repaid the promissory
note in the amount of $30,000 and accrued interest of $2,811.
5.
CONVERTIBLE DEBENTURE – RELATED PARTY
On
May 17, 2016, the Company issued to Vantage Group, a significant shareholder, a 7% unsecured promissory note in the amount of
$10,000 which had an original maturity of six months from the date of issuance. On August 15, 2016, the Company issued to Vantage
Group, a significant shareholder, a 7% unsecured promissory note in the amount of $16,000 which had an original maturity of six
months from the date of issuance. On October 27, 2016, the Company issued the same shareholder a 7% unsecured promissory note
in the amount of $10,000 which had an original maturity date of six months from the date of issuance. On November 14, 2016, the
Company issued the same shareholder a 7% unsecured promissory note in the amount of $80,000 which had an original maturity date
of six months from the date of issuance. On March 31, 2017, the Company issued the same shareholder a 7% unsecured promissory
note in the amount of $7,000 which had an original maturity date of six months from the date of issuance.
On April 17, 2017
the preceding notes issued to Vantage Group were amended to be convertible into common stock and to mature on April 18, 2018.
The convertible notes have a fixed conversion price of $0.008. The amendments to the notes created a beneficial conversion feature
of $123,000 and amortization of the discount of $123,000 during the 9 months ended May 31, 2018. The Company issued a total of
8,050,000 shares of common stock to convert $64,400 principle into common stock and the remaining $43,000 was exchanged with additional
$2,000 of accrued interest to purchase assets of the Company (See note 3). As of May 31.2018 the balance on the convertible note
is $15,600.
|
|
May 31,
2018
|
|
Convertible debenture
|
|
$
|
123,000
|
|
Conversion
|
|
|
(64,400
|
)
|
Exchange for purchase of Company assets
|
|
|
(43,000
|
)
|
Convertible debenture, net of unamortized discount
|
|
$
|
15,600
|
|
On
April 11, 2017, the Company executed a $540,000 Convertible Debenture with an original issue discount of $180,000. The debenture
has a 0% interest rate and a term of two years. In connection with the debenture, the Company issued the lender an aggregate of
2,700,000 shares of common stock and 900,000 common stock purchase warrants. The relative fair value of the stock and warrants
aggregating $202,490 was recognized as a discount to the note. Amortization of $100,032 was recognized during the nine months
ended May 31, 2018. The conversion price of the outstanding balance is the lesser of $3.00 or 40% of the volume weighted average
price of the 30 days at date of conversion; not to be less than $1.00. In connection with the debenture the lender is entitled
to receive the greater of 5% every dollar raised through financing or every dollar of revenue generated through the earlier of
maturity date and repayment of the principal. As of May 31, 2018 the Company has accrued $31,515. The conversion price was above
the fair market value of the date of issuance so no beneficial conversion feature was recorded
|
|
May 31,
2018
|
|
Convertible debenture
|
|
$
|
540,000
|
|
Unamortized discount
|
|
|
(246,805
|
)
|
Convertible debenture, net of unamortized discount
|
|
$
|
293,195
|
|
On
September 18, 2017, the Company executed, with a related party, an $180,000 Convertible Debenture with an original issue discount
of $60,000. The note has a 0% interest rate and a term of two years. In connection with the note, the Company issued the lender
an aggregate of 900,000 shares of common stock and 300,000 warrants to purchase common stock. The relative fair value of the stock
and warrants aggregating $68,499 was recognized as a discount to the note. Amortization of $21,597 was recognized during the nine
months ended May 31, 2018. The conversion price of the outstanding balance is the lesser of $3.00 or 40% of the volume weighted
average price of the 30 days at date of conversion; not to be less than $1.00. In connection with the debenture the lender is
entitled to receive the greater of 5% of every dollar raised through financing or every dollar of revenue generated through the
earlier of the maturity date or repayment of the principal. As of May 31, 2018 the Company has accrued $22,500.
|
|
May 31.
2018
|
|
Convertible debenture
|
|
$
|
180,000
|
|
Unamortized discount
|
|
|
(106,902
|
)
|
Convertible debenture, net of unamortized discount
|
|
$
|
73,098
|
|
On
December 13, 2017, the Company executed a $120,000 Convertible Debenture with an original issue discount of $20,000. The debenture
has a 0% interest rate and a term of one year. In connection with the note, the Company issued the lender an aggregate of 200,000
shares of common stock and 100,000 warrants to purchase common stock. The relative fair value of the stock and warrants aggregating
$32,930 was recognized as a discount to the note. Amortization of $24,652 was recognized during the nine months ended May 31,
2018. The conversion price of the outstanding balance is the lesser of $3.00 or 40% of the volume weighted average price of the
30 days at date of conversion; not to be less than $1.00. In connection with the debenture the lender is entitled to receive the
greatest of 5% every dollar raised through financing or every dollar of revenue generated through the earlier of maturity date
and repayment of the principal, as of May 31, 2018 the Company has accrued $17,500.
|
|
May 31,
2018
|
|
Convertible debenture
|
|
$
|
120,000
|
|
Unamortized discount
|
|
|
(28,278
|
)
|
Convertible debenture, net of unamortized discount
|
|
$
|
91,722
|
|
6.
SUBSEQUENT EVENTS
On
June 11, 2018, the Company issued an aggregate of 2,000,000 shares of common stock to the holder of a 7% Convertible Promissory
Note, dated November 14, 2016 to convert principal amount and accrued interest of $16,000.
On June 15, 2018, the Company
issued 500,000 shares of common stock pursuant to a stock purchase agreement for cash of $50,000.
7.
COMMITMENTS AND CONTINGENCIES
On January 22, 2018, the Company entered into a Sales Representation Agreement to manage
and solicit orders in a set territory, the United States, with an initial term of six months. The sales representative shall be
compensated 6% of the net sales and three year warrants monthly to purchase 10,000 shares of common stock at an exercise price
of $0.50. Warrants may be exercised after six month anniversary of issuance date.
On February 1, 2018 the Company entered into
a consulting agreement with Optimal Setup LLC for a term of one year to advise the Company on search engine optimization and digital
marketing. Optimal Setup LLC shall receive monthly for services performed $2,500 and 10,000 warrants for common stock exercisable
for cash price of $0.40. Warrants may be exercised after six month anniversary date.
On
February 22, 2018, the Company entered into a Consulting Agreement for a term of one year. Pursuant to the agreement the Company
agreed to issue the nonemployee consultant warrants to purchase 10,000 shares of common stock per month (an aggregate of 120,000
warrants) with an exercise price of $0.40, exercisable for cash only for a period of three years commencing six months form the
issuance date.
On
March 2, 2018 the Company entered into a two year Management Agreement with Global Corporate Management, LLC. Pursuant to this
agreement, the Company to pay $4,000 and to issue 150,000 common stock purchase warrants (exercise price of $0.50, 5 year term,
exercisable 6 months after issuance).
On
March 20, 2018 the Company entered into a consulting agreement with Patagonia Global Trading, LLC. Upon execution of this agreement
and upon the Consultant signing their first customer, acceptable by the Company, and for services rendered, the Company will immediately
issue 50,000 common stock purchase warrants to purchase common stock at an exercise price of $.30 per share. As of May
31, 2018 Patagonia Global Trading, LLC, had not signed any customers and had not earned any warrants. The Company agrees to pay
a total commission rate of 10% of the gross sale amount to be paid in the form of cash and or warrants to purchase shares of common
stock of the Company
On
April 16, 2108 The Company entered into a consulting agreement with Dr. David Hellman for marketing and promotion services. The
term is 1 year with payment of 50,000 warrants to purchase common stock with an exercise price of $0.60. However, if the Consultant
generates more than $10K in monthly sales, the Warrants will have an exercise price of $.30, and if the Consultant generates more
than $20K in monthly sales, the Warrants may be exchanged in "cashless exercise". Additionally, the Company shall pay
10% of retail sales and 5% of wholesale sales.