UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30,
2023
or
☐ TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number: 000-52759
BESPOKE EXTRACTS, INC.
(Exact name of registrant as specified in its charter)
Nevada | | 20-4743354 |
(State or other jurisdiction
of incorporation) | | (IRS Employer
Identification No.) |
12001 E. 33rd Street Unit O
Aurora, CO 80010
(Address of principal executive offices)
855-633-3738
(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. Yes ☒ No ☐
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). Yes ☒ No ☐
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 | ☐ |
Non-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 10,168,220
shares outstanding of the registrant’s common stock, par value $0.001.
TABLE OF CONTENTS
PART I
Item 1. Financial Statements.
Bespoke Extracts, Inc.
Consolidated Balance Sheets
| |
September 30, | | |
December 31, | |
| |
2023 | | |
2022 | |
| |
| | |
| |
Assets | |
| | |
| |
Current assets | |
| | |
| |
Cash | |
$ | - | | |
$ | 24,433 | |
Accounts receivable, net | |
| 45,950 | | |
| - | |
Prepaid stock awards | |
| 14,762 | | |
| 80,113 | |
Prepaid expense | |
| 10,695 | | |
| 7,186 | |
Inventory, net | |
| 25,557 | | |
| - | |
Total current assets | |
| 96,964 | | |
| 111,732 | |
| |
| | | |
| | |
Furniture and equipment | |
| 42,764 | | |
| 9,947 | |
License | |
| 10,000 | | |
| - | |
Right of Use Asset | |
| 226,381 | | |
| 275,912 | |
Deposits | |
| 12,000 | | |
| 12,000 | |
Total assets | |
$ | 388,109 | | |
$ | 409,591 | |
| |
| | | |
| | |
Liabilities and Stockholders’ Equity | |
| | | |
| | |
Current liabilities | |
| | | |
| | |
Cash overdraft | |
$ | 2,949 | | |
$ | - | |
Accounts payable and accrued liabilities | |
| 828,069 | | |
| 295,818 | |
Inventory earn-out | |
| - | | |
| 90,000 | |
Deferred revenue | |
| 2,936 | | |
| - | |
Note payable - related party | |
| 26,997 | | |
| 415,500 | |
Operating lease liability | |
| 64,330 | | |
| 64,330 | |
Total current liabilities | |
| 925,281 | | |
| 865,648 | |
| |
| | | |
| | |
Note payable - related party | |
| 849,500 | | |
| - | |
Long-Term Operating Lease Liability | |
| 167,101 | | |
| 216,039 | |
Total liabilities | |
| 1,941,882 | | |
| 1,081,687 | |
| |
| | | |
| | |
Commitments and contingencies (Note 10) | |
| | | |
| | |
| |
| | | |
| | |
Stockholders’ Deficit | |
| | | |
| | |
Preferred stock, par value $0.001, 50,000,000 shares authorized, 1 share issued and outstanding as of September 30, 2023 and December 31,2022, respectively | |
| - | | |
| - | |
Series C Convertible Preferred Stock, $0.001 par value, 1 share designated; 1 share issued and outstanding as of Sepember 30, 2023 and December 31, 2022, respectively, stated value $24,000. | |
| - | | |
| - | |
Common stock, $0.001 par value: 3,000,000,000 authorized; 10,168,220 and 9,946,067 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively | |
| 10,166 | | |
| 9,944 | |
Common stock to issue 6,478 shares | |
| - | | |
| - | |
Additional paid-in capital | |
| 23,533,615 | | |
| 23,201,758 | |
Accumulated deficit | |
| (25,097,554 | ) | |
| (23,883,798 | ) |
Total stockholders’ deficit | |
| (1,553,773 | ) | |
| (672,096 | ) |
Total liabilities and stockholders’ deficit | |
$ | 388,109 | | |
$ | 409,591 | |
The accompanying notes are an integral part of these consolidated financial statements.
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 | |
$ | 244,408 | | |
$ | - | | |
$ | 521,671 | | |
$ | 3,407 | |
Cost of products sold | |
| 146,000 | | |
| 65 | | |
| 341,878 | | |
| 47,580 | |
Gross Profit | |
| 98,408 | | |
| (65 | ) | |
| 179,793 | | |
| (44,173 | ) |
| |
| | | |
| | | |
| | | |
| | |
Operating expenses: | |
| | | |
| | | |
| | | |
| | |
Selling, general and administrative expenses | |
| 347,717 | | |
| 1,069,487 | | |
| 1,179,598 | | |
| 2,861,938 | |
Professional fees | |
| 46,883 | | |
| 29,270 | | |
| 171,259 | | |
| 119,118 | |
Consulting | |
| - | | |
| 35,750 | | |
| 36,000 | | |
| 94,250 | |
Total operating expenses | |
| 394,600 | | |
| 1,134,507 | | |
| 1,386,857 | | |
| 3,075,306 | |
| |
| | | |
| | | |
| | | |
| | |
Loss from operations | |
| (296,192 | ) | |
| (1,134,572 | ) | |
| (1,207,064 | ) | |
| (3,119,479 | ) |
| |
| | | |
| | | |
| | | |
| | |
Other income / (expenses) | |
| | | |
| | | |
| | | |
| | |
Interest expense | |
| (5,337 | ) | |
| - | | |
| (6,692 | ) | |
| - | |
Interest income | |
| - | | |
| 447 | | |
| | | |
| 878 | |
Total other (expense) / income | |
| (5,337 | ) | |
| 447 | | |
| (6,692 | ) | |
| 878 | |
| |
| | | |
| | | |
| | | |
| | |
Loss before income tax | |
| (301,529 | ) | |
| (1,134,125 | ) | |
| (1,213,756 | ) | |
| (3,118,601 | ) |
Provision for income tax | |
| - | | |
| - | | |
| - | | |
| - | |
Net Loss | |
$ | (301,529 | ) | |
$ | (1,134,125 | ) | |
$ | (1,213,756 | ) | |
$ | (3,118,601 | ) |
| |
| | | |
| | | |
| | | |
| | |
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING | |
| | | |
| | | |
| | | |
| | |
Basic and Diluted | |
| 10,168,220 | | |
| 8,353,245 | | |
| 10,165,778 | | |
| 7,724,148 | |
| |
| | | |
| | | |
| | | |
| | |
NET LOSS PER COMMON SHARE OUTSTANDING | |
| | | |
| | | |
| | | |
| | |
Basic and Diluted | |
$ | (0.03 | ) | |
$ | (0.14 | ) | |
$ | (0.12 | ) | |
$ | (0.40 | ) |
The accompanying notes are an integral part of these consolidated financial
statements.
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 | |
| 1 | | |
$ | - | | |
| 9,672,854 | | |
$ | 9,673 | | |
$ | 23,564,461 | | |
| 6,478 | | |
$ | 7,987 | | |
$ | (21,752,047 | ) | |
$ | 1,830,074 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Stock based compensation and stock option expense | |
| - | | |
| - | | |
| - | | |
| - | | |
| 170,682 | | |
| - | | |
| - | | |
| - | | |
| 170,682 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Common stock issued for cash | |
| - | | |
| - | | |
| 266,667 | | |
| 267 | | |
| 682,820 | | |
| - | | |
| - | | |
| - | | |
| 683,087 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net loss for the three months ended September 30, 2022 | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (1,134,125 | ) | |
| (1,134,125 | ) |
Balance September 30, 2022 | |
| 1 | | |
$ | - | | |
| 9,939,521 | | |
$ | 9,940 | | |
$ | 24,417,963 | | |
| 6,478 | | |
$ | 7,987 | | |
$ | (22,886,172 | ) | |
$ | 1,549,718 | |
|
|
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 |
|
|
1 |
|
|
$ |
- |
|
|
|
10,168,220 |
|
|
$ |
10,166 |
|
|
$ |
23,436,312 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
(24,796,025 |
) |
|
$ |
(1,349,547 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation and stock option expense |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
97,303 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
97,303 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the three months ended September 30, 2023 |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(301,529 |
) |
|
|
(301,529 |
) |
Balance September 30, 2023 |
|
|
1 |
|
|
$ |
- |
|
|
|
10,168,220 |
|
|
$ |
10,166 |
|
|
$ |
23,533615 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
(25,097,554 |
) |
|
$ |
(1,553,773 |
) |
| |
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 | |
| 1 | | |
$ | - | | |
| 8,141,965 | | |
$ | 8,142 | | |
$ | 21,741,403 | | |
| 6,478 | | |
$ | 7,987 | | |
$ | (19,767,571 | ) | |
$ | 1,989,961 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Payment of capital contribution | |
| - | | |
| - | | |
| - | | |
| - | | |
| 4,792 | | |
| - | | |
| - | | |
| - | | |
| 4,792 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Stock based compensation and stock option expense | |
| - | | |
| - | | |
| - | | |
| - | | |
| 1,646,030 | | |
| - | | |
| - | | |
| - | | |
| 1,646,030 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Common stock issued for services | |
| - | | |
| - | | |
| 266,667 | | |
| 267 | | |
| 682,819 | | |
| - | | |
| - | | |
| - | | |
| 683,086 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Common stock issued for cash | |
| - | | |
| - | | |
| 1,530,889 | | |
| 1,531 | | |
| 342,919 | | |
| - | | |
| - | | |
| - | | |
| 344,450 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net loss for the nine months ended September 30, 2022 | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (3,118,601 | ) | |
| (3,118,601 | ) |
Balance September 30, 2022 | |
| 1 | | |
$ | - | | |
| 9,939,521 | | |
$ | 9,940 | | |
$ | 24,417,963 | | |
| 6,478 | | |
$ | 7,987 | | |
$ | (22,886,172 | ) | |
$ | 1,549,718 | |
| |
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 | |
| 1 | | |
$ | - | | |
| 9,945,997 | | |
$ | 9,944 | | |
$ | 23,201,758 | | |
$ | - | | |
$ | - | | |
$ | (23,883,798 | ) | |
$ | (672,096 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Purchase Wonderleaf | |
| - | | |
| - | | |
| 222,223 | | |
| 222 | | |
| 49,778 | | |
| - | | |
| - | | |
| - | | |
| 50,000 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Stock based compensation and stock option expense | |
| - | | |
| - | | |
| - | | |
| - | | |
| 282,079 | | |
| - | | |
| - | | |
| - | | |
| 282,079 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net loss for Nine Months ended September 30, 2023 | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (1,213,756 | ) | |
| (1,213,756 | ) |
Balance September 30, 2023 | |
| 1 | | |
$ | - | | |
| 10,168,220 | | |
$ | 10,166 | | |
$ | 23,533,615 | | |
$ | - | | |
$ | - | | |
$ | (25,097,554 | ) | |
$ | (1,553,773 | ) |
The accompanying notes are an integral part of these consolidated financial
statements.
Bespoke Extracts, Inc
Consolidated Statements of Cash Flows
(Unaudited)
| |
For
the Nine months ended
September 30, | |
| |
2023 | | |
2022 | |
Cash flows from operating activities | |
| | |
| |
Net Loss | |
$ | (1,213,756 | ) | |
$ | (3,118,601 | ) |
Adjustments to reconcile net loss to net cash used in operating activities | |
| | | |
| | |
Inventory reserve | |
| 40,393 | | |
| 46,825 | |
Depreciation | |
| 7,183 | | |
| - | |
Allowance for doubtful accounts | |
| - | | |
| 3,636 | |
Amortization of right of use asset, net | |
| 49,531 | | |
| - | |
Amortization expense for prepaid expenses for consulting shares | |
| 65,351 | | |
| - | |
Stock based compensation and stock option expense | |
| 282,079 | | |
| 2,329,116 | |
Changes in operating assets and liabilities: | |
| | | |
| | |
Accounts receivable | |
| (45,950 | ) | |
| - | |
Prepaid expenses | |
| (3,509 | ) | |
| (4,047 | ) |
Inventory | |
| (65,950 | ) | |
| - | |
Interest receivable - Wonderleaf | |
| - | | |
| (431 | ) |
Deposits | |
| - | | |
| (1,416 | ) |
Accounts payable and accrued liabilities | |
| 535,200 | | |
| 141,113 | |
Deferred revenue | |
| 2,936 | | |
| - | |
Operating lease liability | |
| (48,938 | ) | |
| (855 | ) |
Net Cash (used in) operating activities | |
| (395,430 | ) | |
| (604,660 | ) |
| |
| | | |
| | |
Cash flows from investing activities | |
| | | |
| | |
Advances to Wonderleaf | |
| - | | |
| (12,000 | ) |
Note receivable Wonderleaf funded | |
| - | | |
| (20,250 | ) |
Purchase of equipment | |
| - | | |
| (7,202 | ) |
Net cash used in investing activities | |
| - | | |
| (39,452 | ) |
| |
| | | |
| | |
Cash flow from financing activities | |
| | | |
| | |
Payment of capital contribution | |
| - | | |
| 4,791 | |
Payment of inventory earnout | |
| (90,000 | ) | |
| - | |
Proceeds from issuance of note payable - related party | |
| 434,000 | | |
| 160,000 | |
Proceeds from advances - related party | |
| 26,997 | | |
| - | |
Repayment of note payable - related party | |
| - | | |
| (2,500 | ) |
Proceeds from issuance of units | |
| - | | |
| 344,450 | |
Net cash provided by financing activities | |
| 370,997 | | |
| 506,741 | |
| |
| | | |
| | |
Net increase / (decrease) in cash | |
| (24,433 | ) | |
| (137,371 | ) |
Cash at beginning of period | |
| 24,433 | | |
| 148,227 | |
Cash at end of period | |
$ | - | | |
$ | 10,856 | |
| |
| | | |
| | |
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 | |
$ | 50,000 | | |
$ | - | |
The accompanying notes are an integral part of these consolidated financial
statements.
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 222,223 shares of common stock valued at $50,000, or $0.225 per share. At the time of acquisition Wonderleaf
had no operations or no employees and was not considered a business.
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 $395,430_
for the nine months ended September 30, 2023, and a working capital deficit of $851,602 and accumulated deficit of $25,097,554, as of
September 30, 2023. This raises substantial doubt about our ability to continue as a going concern for a period of one year from
the date of these financial statements.
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 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 $250,000 at any single bank.
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 $0 and $0, respectively.
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 $25,557, and
$0 net of reserves, respectively, which consisted of finished goods of $0 and $0, and raw materials of $25,557 and $0, respectively.
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.
The estimated useful lives for significant property and equipment categories are as follows:
Schedule of Estimated useful Lives of Property
and Equipment
Furniture and Equipment |
|
|
5 years |
|
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, two customers amounted
to 31.2% and 15.2%, or 46.4% of accounts receivable. During the year ended December 31, 2022 no customer amounted to over 10% of the total
accounts receivable. During the three months ended September 30, 2023 one customer amounted to 25.8% of sales for the period. During the
nine months ended September 30, 2023 one customer amounted to 33.3% of sales for the period During the three and nine months ended September
30, 2022 no individual customer amounted to over 10% of tota1 sales.
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 29,876 warrants and 1,023,341 options is anti-dilutive for the
three and nine months ended September 30, 2023 as they are not in the money. The effect of 562.967 warrants and 1,023,842 options
is anti-dilutive for the three and nine months ended September 30, 2022 as they are not in the money.
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 222,223 shares of common stock valued at $50,000, or
$0.225 per share. At the time of acquisition Wonderleaf had no operations or no employees and was not considered a business.
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 222,223
common shares issued of $50,000 as the fair value of the assets acquired since this value was more clearly evident, and thus, more reliably
measurable than the fair value of the license and fixed assets acquired.
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.
The monetary value of the 222,223 shares is deemed
by the Company to be $50,000 in accordance with Accounting Standards Codification (“ASC”) 805-50-30 “Business Combinations”,
the Company determined that if the consideration paid is not in the form of cash, the measurement may be based on either (i) the cost
which is measured based on the fair value of the consideration given or (ii) the fair value of the assets (or net assets) acquired, whichever
is more clearly evident and thus more reliably measurable. No goodwill should be recorded since the WPA was accounting for as an asset
purchase. The Company determined that the fair value of the common shares issued was a better indicator which is more reliably measurable.
The Company assigned a value of $10,000 to the
licenses and $40,000 to the fixed assets acquired.
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, 40% of the operating profit generated from sale of the existing
CBD inventory of the Company, and on August 31, 2022, to make a final payment equal to an amount of $75,000 minus the total of the
monthly payments made under the Inventory Earn Out. As of December 31, 2022 no amounts had been paid. The inventory earn-out agreement
was amended on November 11, 2022 such that the final payment under the inventory earn out was increased to $90,000 (less any payments
previously made) and was due February 28, 2023. During the nine months ended September 30, 2023 the amount was paid.
4. NOTE RECEIVABLE
On January 19, 2022 the Company loaned WonderLeaf
$10,000, pursuant to a promissory note. The note bears interest at 5% annually and matures on January 18, 2023.
On February 8, 2022 the Company loaned WonderLeaf
$10,000, pursuant to a promissory note. The note bears interest at 5% annually and matures on February 8, 2023.
On October 25, 2022 the Company loaned WonderLeaf
$25,000, pursuant to a promissory note. The note bears interest at 5% annually and matures on February 8, 2023.
As of December 31, 2022 accrued interest on the
notes receivable amounted to $931.
At December 31, 2022 the Company recorded a reserve
of $45,931 for the promissory notes and accrued interest.
Note 5 – Furniture and equipment.
Machinery and equipment consisted of the following
at:
Schedule of Machinery and Equipment
| |
September 30, 2023 | | |
December 31, 2022 | |
Furniture and equipment | |
$ | 2,745 | | |
$ | 2,745 | |
Machinery and Equipment | |
$ | 47,202 | | |
$ | 7,202 | |
Fixed assets, total | |
$ | 49,947 | | |
$ | 9,947 | |
Total: accumulated depreciation | |
$ | (7,183 | ) | |
$ | - | |
Fixed assets, net | |
$ | 42,764 | | |
$ | 9,947 | |
Depreciation expense for the three and nine months ended September
30, 2023 and September 30, 2022 were $2,617, $7,183, $0 and $0 respectively.
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 $434,000. On September 5, 2023 $849,500 of
notes payable were converted into a 5% interest bearing note due June 30,
2025 (the “Infinity Note”). In addition, repayment of the Infinity Note will be due
out of the proceeds of a new debt or equity capital raise with net proceeds of more than $2,000,000.
As of September 30, 2023 and December 31, 2022 the amount owed Infinity Management, LLC is $885,454 and
$415,500, respectively.
During the nine month ended September 30, 2023 Infinity
Management, LLC an affiliate of Michael Feinsod advanced the Company and additional $26,997.
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 five years, which Bespoke
Colorado will have an option to renew for an additional five years. Monthly rent under the Lease will start at $6,000. The Lease grants
the Company an option to purchase the property for $600,000. The Company has not decided whether it will exercise either option.
Supplemental balance sheet information related to leases was as follows:
Lease term and discount rate were as follows:
| |
September 30, | |
| |
2023 | |
Weighted average remaining lease term (years) | |
| 3.19 | |
Weighted average discount rate | |
| 4 | % |
The component of lease costs was as follows:
| |
Nine months ended September 30, | |
| |
2023 | |
Operating lease cost | |
$ | 57,294 | |
Variable lease cost (1) | |
| 3,150 | |
Total lease costs | |
$ | 60,444 | |
Supplemental disclosures of cash flow information related to leases
were as follows:
| |
September 30, | |
| |
2023 | |
Cash paid for operating lease liabilities | |
$ | - | |
| |
| | |
Maturities of lease liabilities were as follows as of September 30,
2023:
| |
Operating | |
| |
Leases | |
2023 | |
$ | 16,641 | |
2024 | |
| 75,915 | |
2025 | |
| 79,380 | |
2026 | |
| 72,765 | |
Thereafter | |
| - | |
Total undiscounted lease payments | |
| 244,701 | |
Less: Present value discount | |
| (13,270 | ) |
Total Present value of lease liabilities | |
$ | 231,431 | |
Operating Leases |
|
Classification |
|
September 30,
2023 |
|
Right-of-use assets |
|
Right of use assets |
|
$ |
226,381 |
|
Current lease liabilities |
|
Current operating lease liabilities |
|
|
64,330 |
|
Non-current lease liabilities |
|
Long-term operating lease liabilities |
|
|
167,101 |
|
Total lease liabilities |
|
|
|
$ |
231,431 |
|
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 3,000,000,000 shares of common stock, par value $0.001, and 50,000,000 shares
of preferred stock, par value $0.001. 1,000 shares of preferred stock are designated as Series A Convertible Preferred Stock.
No shares of Series A Preferred Stock are issued and outstanding as of September 30, 2023 and December 31, 2022, respectively. The Company’s
Certificate of Designation of Series B Preferred Stock was withdrawn by the Company on September 30, 2020. 1 share of preferred
stock is designated Series C Preferred Stock and is issued and outstanding as of September 30, 2023 and December 31, 2022, respectively.
The Series C Preferred Stock has a stated value of $24,000 and entitles the holder to 51% of the total voting power of the Company’s
stockholders. The Company may, in its sole discretion, redeem the Series C Preferred Stock at any time for a redemption price equal to
the stated value. Upon payment of the redemption price by the Company, the Series C Preferred Stock will revert to the status of authorized
but unissued preferred stock.
On January 3, 2023, the Company
completed the acquisition of the WonderLeaf assets for 222,223 shares of common stock valued at $50,000, or $0.225 per share.
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 6,666,667 shares of common stock are available for issuance. Awards under the plan may include options (including incentive
stock options and non-qualified stock options), stock appreciation rights, restricted stock, restricted stock units, performance share
awards, or other equity-based awards, each as defined under the 2021 Plan. Options awarded under the 2021 Plan are to have an exercise
price of not less than 100% of the fair market value of the common stock on the grant date and a term of not more than ten years from
the option grant date.
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 $8,000. The Company also granted to Mr. Garth, pursuant to the Company’s 2021 Equity Incentive
Plan, 500,000 shares of restricted common stock valued at $675,000 ($1.35 per share), which vested one year from
the date of grant. During the year ended December 31, 2022 the Company recorded $675,000 a prepaid expenses associated with the stock
based compensation. During the years ended December 31, 2022 and 2021 the amount was amortized $643,562 and $31,438, respectively.
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 $10,000. The Company also granted to Mr. Feinsod, pursuant to the Company’s 2021 Equity Incentive Plan, 1,000,000 shares
of restricted common stock valued at $1,350,000 ($1.35 per share), which vested one year from the date of grant. During
the year ended December 31, 2022 the Company recorded $1,350,000 of prepaid expenses associated with the stock based compensation. During
the years ended December 31, 2022 and 2021 the amount was amortized $1,287,123 and $62,877, respectively. As of December 31. 2022 and
2021 the Company recorded a prepaid stock award of $0 and $1,287,123, respectively.
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 1,530,897 shares of common stock and warrants to purchase an aggregate of 1,530,897 shares of common
stock, for an aggregate purchase price of $344,450. The warrants expired June 30, 2023 and had an exercise price of $2.25.
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 $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.
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 50,000,000 shares of common stock and warrants to purchase an aggregate of 12,500,000 shares
of common stock, for an aggregate purchase price of $250,000 with offering costs of $10,000 for legal expenses. The warrants
had a term of one year and an exercise price of $2.25.
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 1,530,887 shares of common stock and warrants to purchase an aggregate of 382,722 shares of common stock, for an aggregate
purchase price of $344,450. The warrants expired June 30, 2023 and had an exercise price of $2.25.
The following table summarizes the warrant activities
during the nine months ended September 30, 2023:
| |
Number of Warrants | | |
Weighted- Average Exercise Price Per Share | | |
Weighted- Average Remaining Life | |
Outstanding at December 31, 2022 | |
| 438,723 | | |
| 5.03 | | |
| 0.36 | |
Granted | |
| - | | |
| - | | |
| - | |
Canceled or expired | |
| (408,847 | ) | |
| 0.95 | | |
| - | |
Outstanding at September 30, 2023 | |
| 29,876 | | |
$ | 25.24 | | |
| 1.46 years | |
Exercisable at September 30, 2023 | |
| 29,875 | | |
$ | 25,.24 | | |
| 1.46 years | |
Intrinsic value at September 30, 2023 | |
| | | |
$ | - | | |
| | |
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 333,333 shares of common stock at an exercise price of $2.70 (representing a 120% premium over the
closing price of the common stock on December 13, 2021). One-third of the options will vest on each yearly anniversary of the date of
grant. The options were valued at $450,000 using a Black-Scholes pricing model. During the three and nine months ending September 30,
2023 and 2022 the Company recorded $30,811, $92,433, $67,797 and $203,391 respectively of expenses associated with the vesting of these
stock options. (See notes 9 and 10).
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 666,667 shares of common stock at an exercise price of $2.70 (representing a 120% premium
over the closing price of the common stock on December 13, 2021). One-third of the options will vest on each yearly anniversary of the
date of grant. The options were valued at $900,000 using a Black-Scholes pricing model. During the three and nine months ended September
30, 2023 and 2022 the Company recorded $61,621, $184,863, $135,594 and $406,782, respectively of expenses associated with the vesting
of these stock options. (See notes 9 and 10).
On December 14, 2021, the Company issued to a
consultant options to purchase 22,222 shares of common stock at an exercise price of $1.35. The options vest over a period of 3 months
and have a term of 10 years. The options were valued at $30,000 using a Black-Scholes pricing model. During the three and nine months
ended September 30, 2023 and 2022 the Company recorded $0, $0, $0 and $24,900, respectively of expenses associated with the vesting of
these stock options.
On August 17, 2023, the Company issued to several
employees options to purchase 222,500 shares of common stock at an exercise price of $0.20. The options vest over a period of 12 months
and have a term of 5 years. The options were valued at $44,306 using a Black-Scholes pricing model. During the three and nine months ended
September 30, 2023 and 2022 the Company recorded $4,871 and $4,871, respectively of expenses associated with the vesting of these stock
options
The following table summarizes the option activities
during the nine months ended September 30, 2023:
| |
Number of Options | | |
Weighted- Average Exercise Price Per Share | | |
Weighted- Average Remaining Life | |
Outstanding at December 31, 2022 | |
| 1,023,842 | | |
$ | 2.67 | | |
| 8.95 years | |
Granted | |
| 222,500 | | |
$ | 0.20 | | |
| 4.88 years | |
Canceled or expired | |
| - | | |
| - | | |
| | |
Exercised | |
| - | | |
| - | | |
| | |
Outstanding at September 30, 2023 | |
| 1,246,341 | | |
$ | 2.67 | | |
| 7.61 years | |
Exercisable at September 30, 2023 | |
| 357,174 | | |
$ | 2.19 | | |
| 8.19 years | |
Intrinsic value at September 30, 2023 | |
| | | |
$ | - | | |
| | |
The future expense as of September 30, 2023 is
$271,054.
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 $8,000. The Company also granted to Mr. Garth, pursuant to the Company’s 2021 Equity Incentive
Plan, 500,000 shares of restricted common stock, which vested one year from the date of grant, and ten-year options
to purchase 333,333 shares of common stock at an exercise price of $2.70 (representing a 120% premium over the closing
price of the common stock on December 13, 2021). One-third of the options will vest on each yearly anniversary of the date of grant. In
the event that Mr. Garth is terminated without cause or resigns with good reason (each as defined in the employment agreement), he will
be entitled to his monthly base salary for twelve months following such termination.
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 $10,000. The Company also granted to Mr. Feinsod, pursuant to the Company’s 2021 Equity Incentive Plan, 1,000,000 shares
of restricted common stock, which vested one year from the date of grant, and ten-year options to purchase 666,667 shares
of common stock at an exercise price of $2.70 (representing a 120% premium over the closing price of the common stock on December
13, 2021). One-third of the options will vest on each yearly anniversary of the date of grant. In the event that Mr. Feinsod is terminated
without cause or resigns with good reason (each as defined in the employment agreement), he will be entitled to his monthly base salary
for twelve months following such termination.
During the nine months ended September 30, 2023,
Michael Feinsod, the Company’s chief executive officer, loaned the Company an additional $434,000. As of September 30, 2023 and
December 31, 2022 the amount owed Michael Feinsod is $849,500 and $415,500, respectively. All loans are payable upon demand. On
September 5, 2023 $849,500 of notes payable were converted into a 5% interest bearing note due June 30, 2025. The note
contains provisions whereby it is intended to be subordinate to any senior secured debt the Company may incur while it is outstanding.
In addition, repayment of the note will be due in full out of the proceeds of a new debtor equity capital raise with net proceeds of more
than $2,000,000. (See Note 6.)
During the nine months ended September 30, 2023 Infinity
Management, LLC an affiliate of Michael Feinsod advanced the Company and additional $26,997. (See
Note 6.)
As of September 30, 2023 Michael Feinsod is owed
a total of $165,000 of accrued salary and accounts payable of $138,066.
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 $400,000 was terminated, and all amounts due and
payable thereunder forgiven pursuant to a cancellation and satisfaction of debenture agreement entered into between the Company and the
Debenture holder (the “Debt Cancellation Agreement”). 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, 40% of the operating profit generated from sale of the existing CBD inventory of the Company (the “Inventory
Earn Out”), and on August 31, 2022, to make a final payment equal to an amount of $75,000 minus the total of the monthly payments
made under the Inventory Earn Out. The inventory earn-out agreement was amended on November 11, 2022 (see Note 3) such that the final
payment under the inventory earn out was increased to $90,000 (less any payments previously made) and was due February 28, 2023. During
the nine months ended September 30, 2023 the amount was paid.
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 $8,000. The Company also granted to Mr. Garth, pursuant to the Company’s 2021 Equity Incentive
Plan, 500,000 shares of restricted common stock, which vested one year from the date of grant, and ten-year options
to purchase 333,333 shares of common stock at an exercise price of $2.70 (representing a 120% premium over the closing
price of the common stock on December 13, 2021). One-third of the options will vest on each yearly anniversary of the date of grant. In
the event that Mr. Garth is terminated without cause or resigns with good reason (each as defined in the employment agreement), he will
be entitled to his monthly base salary for twelve months following such termination.
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 $10,000. The Company also granted to Mr. Feinsod, pursuant to the Company’s 2021 Equity Incentive Plan, 1,000,000 shares
of restricted common stock, which vested one year from the date of grant, and ten-year options to purchase 666,667 shares
of common stock at an exercise price of $0.06 (representing a 120% premium over the closing price of the common stock on December
13, 2021). One-third of the options will vest on each yearly anniversary of the date of grant. In the event that Mr. Feinsod is terminated
without cause or resigns with good reason (each as defined in the employment agreement), he will be entitled to his monthly base salary
for twelve months following such termination.
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 2,777,778 shares of common stock at the closing of the transaction.
Closing of the purchase agreement was subject to receipt of certain governmental approvals and other customary closing conditions. The
purchase agreement was terminated on November 18, 2022.
11. SUBSEQUENT EVENTS
Subsequent to September 30, 2023, the Company’s
chief executive officer, loaned the Company an additional $33,000.
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.
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.
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.
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.
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.
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.
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) |
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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: