UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended:
or
For the transition period from __________ to __________
Commission File Number
:
BESPOKE EXTRACTS, INC.
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction
of incorporation) |
(IRS Employer
Identification No.) |
(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.
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
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☒ | Smaller reporting company |
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| Emerging growth company |
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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 18, 2022, there were
TABLE OF CONTENTS
| Page No. | ||
| PART I - FINANCIAL INFORMATION | 1 | |
| Item 1. | Financial Statements | 1 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 13 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 16 |
| Item 4 | Controls and Procedures | 16 |
| PART II - OTHER INFORMATION | 17 | |
| Item 1. | Legal Proceedings | 17 |
| Item 1A. | Risk Factors | 17 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 17 |
| Item 3. | Defaults Upon Senior Securities | 17 |
| Item 4. | Mine Safety Disclosures | 17 |
| Item 5. | Other Information | 17 |
| Item 6. | Exhibits | 17 |
i
PART I
Item 1. Financial Statements.
Bespoke
Extracts, Inc.
Condensed Balance Sheets
| November 30, | August 31, | |||||||
| 2021 | 2021 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash | $ |
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$ |
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| Accounts receivable, net |
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| Prepaid expense |
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| Inventory, net |
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| Total current assets |
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| Furniture and equipment |
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Domain names, net of amortization of $
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| Total assets | $ |
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$ |
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| Liabilities and Stockholders’ Deficit | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued liabilities | $ |
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$ |
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| Inventory earn-out |
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| Note payable - related party |
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| Convertible notes |
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| Total current liabilities |
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| Commitments and contingencies (Note 8) | ||||||||
| Stockholders’ Deficit | ||||||||
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Preferred stock, par value $
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Series C Preferred Stock, $
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Common stock, $
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| Additional paid-in capital |
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| Accumulated deficit |
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| Total stockholders’ deficit |
(
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(
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| Total liabilities and stockholders’ deficit | $ |
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$ |
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The accompanying notes are an integral part of these unaudited condensed financial statements.
1
Bespoke Extracts, Inc
Condensed Statements of Operations
(Unaudited)
| For the Three Months Ended | ||||||||
| November 30, | November 30, | |||||||
| 2021 | 2020 | |||||||
| Sales | $ |
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$ |
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| Cost of products sold |
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| Gross Profit |
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| Operating expenses: | ||||||||
| Selling, general and administrative expenses |
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| Professional fees |
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| Consulting |
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| Amortization expense of domain name |
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| Total operating expenses |
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| Loss from operations |
(
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(
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| Other income | ||||||||
| Gain on settlement of debt |
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| Gain on settlement of accrued expenses |
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| Total other income |
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| Income / (Loss) before income tax |
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(
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| Provision for income tax | ||||||||
| Net Income / (Loss) | $ |
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$ |
(
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| WEIGHTED AVERAGE COMMON SHARES OUTSTANDING | ||||||||
| Basic and Diluted |
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| NET INCOME / (LOSS) PER COMMON SHARE OUTSTANDING | ||||||||
| Basic and Diluted | $ |
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$ |
(
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The accompanying notes are an integral part of these unaudited condensed financial statements.
2
Bespoke Extracts, Inc
Condensed Statement of Stockholders Deficit
For The Three Months Ended November 30, 2021 and 2020
(Unaudited)
| Series C | ||||||||||||||||||||||||||||||||||
| Preferred | Preferred | Common | Common | Additional | Common | |||||||||||||||||||||||||||||
| Shares | Par | Shares | Par | Paid-in | Stock | Accumulated | ||||||||||||||||||||||||||||
| Outstanding | Amount | Outstanding | Amount | Capital | Payable | Deficit | Total | |||||||||||||||||||||||||||
| Balance August 31, 2020 |
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$ |
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$ |
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$ |
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$ |
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$ |
(
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| Common stock for conversion of note payable - related party |
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| Sale of common stock |
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| Net loss for the three months ended November 30, 2020 | - | - |
(
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(
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| Balance November 30, 2020 (Unaudited) |
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$ |
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$ |
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$ |
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$ |
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$ |
(
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) | $ |
(
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| Series C | ||||||||||||||||||||||||||||||
| Preferred | Preferred | Common | Common | Additional | ||||||||||||||||||||||||||
| Shares | Par | Shares | Par | Paid-in | Accumulated | |||||||||||||||||||||||||
| Outstanding | Amount | Outstanding | Amount | Capital | Deficit | Total | ||||||||||||||||||||||||
| Balance August 31, 2021 |
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$ |
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$ |
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$ |
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$ |
(
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| Common stock for conversion of note payable |
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| Capital contribution of accrued salary - related party | - | - |
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| Forgiveness of related party note payable | - | - |
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| Net income for the three months ended November 30, 2021 | - | - |
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| Balance November 30, 2021 (Unaudited) |
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$ |
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$ |
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$ |
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$ |
(
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(
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The accompanying notes are an integral part of these unaudited condensed financial statements.
3
Bespoke Extracts, Inc
Condensed Statements of Cash Flows
(Unaudited)
| For the Three Months Ended | ||||||||
| November 30, | November 30, | |||||||
| 2021 | 2020 | |||||||
| Cash flows from operating activities | ||||||||
| Net Income / (Loss) | $ |
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$ |
(
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| Adjustments to reconcile net income / (loss) to net cash used in operating activities | ||||||||
| Amortization expense of domain names |
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| Gain on settlement of debt |
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| Gain on settlement of accrued expenses |
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| Bad debt allowance |
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| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable |
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| Prepaid expense |
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| Inventory |
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| Accounts payable and accrued liabilities |
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| Net Cash used in operating activities |
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| Cash flows from investing activities | ||||||||
| Purchase of equipment |
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| Net cash used in investing activities |
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| Cash flow from financing activities | ||||||||
| Proceeds from note payable - related party |
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| Sale of common stock |
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| Net cash provided by financing activities |
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| Net (decrease) / increase in cash |
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| Cash at beginning of period |
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| Cash at end of period | $ |
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$ |
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| Supplemental disclosure of cash flow information | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
| Noncash investing and financing activities: | ||||||||
| Stock issued with convertible debt | $ |
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$ | |||||
| Stock issued for conversion of debt - related party | $ | $ |
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| Capital contribution of accrued salary - related party | $ |
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$ | |||||
| Forgiveness of note payable - related party | $ |
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$ | |||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
4
NOTES TO CONDENSED FINANCIAL STATEMENTS
November 30, 2021 and 2020
(Unaudited)
1. NATURE OF OPERATIONS, SIGNIFICANT ACCOUNTING POLICIES AND GOING CONCERN
Nature of Business Operations
Bespoke Extracts, Inc. (the “Company”) is a Nevada corporation focused on selling its proprietary line of specially-formulated, premium quality, hemp-derived CBD products.
In November 2021, new management of the Company was appointed and the Company began to focus on other complimentary lines of business to its CBD offerings. Under our new management team, we plan to expand the Company’s focus to regulated cannabis markets in the United States.
Basis of Presentation
The accompanying condensed unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments consisting of a normal and recurring nature considered necessary for a fair presentation have been included. Operating results for the three months ended November 30, 2021 may not necessarily be indicative of the results that may be expected for the year ended August 31, 2022.
For further information, refer to the Company’s financial statements and footnotes thereto included in the Annual Report on Form 10-K for the year ended August 31, 2021.
Certain prior period amounts have been reclassified to conform to the current period presentation.
Going Concern
The accompanying financial statements have been prepared assuming a continuation of the Company as a going concern. The Company had negative cash flows from operations, a working capital deficit and an accumulated deficit as of and for the three months ended November 30, 2021. This raises substantial doubt about our ability to continue as a going concern.
The Company’s ability to continue as a going concern is dependent upon the Company generating profitable operations in the future and/or obtaining the necessary financing to meet its obligations and repaying its liabilities arising from normal business operations when they come due. There is no assurance that this series of events will be satisfactorily completed.
Further, if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our common stock. If additional financing is not available or is not available on acceptable terms, we will have to curtail or cease our operations. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event the Company cannot continue in existence. These financial statements do not include any adjustments that might arise from this uncertainty.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the accompanying financial statements and accompanying notes. Significant estimates include the assumption used in the valuation of equity-based transactions, valuation of intangible assets, allowance for doubtful accounts and inventory valuation and reserves. Actual results could differ from those estimates.
5
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 November 30, 2021 and August 31, 2021, the Company did not have any cash equivalents.
Fair Value of Financial Instruments
The carrying amounts of cash, accounts receivable, prepaid expenses, inventory and other assets, accounts payable, accrued liabilities, note payable and convertible note payable approximate their fair values as of November 30, 2021 and August 31, 2021, respectively, because of their short-term natures and the Company’s borrowing rate of interest.
Accounts Receivable
Accounts receivable are recorded at fair value on the date revenue is recognized. The Company provides allowances for doubtful accounts for estimated losses resulting from the inability of its customers to repay their obligation. If the financial condition of the Company’s customers were to deteriorate, resulting in an impairment of their ability to repay, additional allowances may be required. The Company provides for potential uncollectible accounts receivable based on specific customer identification and historical collection experience adjusted for existing market conditions. If market conditions decline, actual collection experience may not meet expectations and may result in decreased cash flows and increased bad debt expense.
The policy for determining past due status is
based on the contractual payment terms of each customer, which are generally net 30 or net 60 days. Once collection efforts by the Company
and its collection agency are exhausted, the determination for charging off uncollectible receivables is made. At November 30, 2021 and
August 31, 2021, the Company has recorded an allowance for doubtful accounts of $
Inventory
Inventories are stated at the lower of cost or
net realizable value. Cost is determined by the first-in, first-out basis and net realizable value. Net realizable value is defined
as sales price less cost of completion, disposition and transportation and a normal profit margin. As of November 30, 2021 and August
31, 2021, inventory amounted to $
Revenue Recognition
We account for revenue in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification Topic 606, “Revenue from Contracts with Customers”. Revenue is measured based on the amount of consideration that we expect to receive, reduced by discounts and estimates for credits and returns (calculated based upon previous experience and management’s evaluation). Outbound shipping charged to customers is recognized at the time the related merchandise revenues are recognized and are included in net revenues. Inbound and outbound shipping and delivery costs are included in cost of revenues.
Our products are sold through our online and telephonic channels. Revenue is recognized when control of the merchandise is transferred to the customer, which generally occurs upon shipment. Payment is typically due on the date of shipment. The Company offers a 30 day return policy on sales.
6
Stock Option Plans
Stock options and warrants issued to consultants and other non-employees as compensation for services provided to the Company are accounted for based on the fair value of the services provided or the estimated fair market value of the option or warrant, whichever is more reliably measurable, and in accordance FASB ASC 718 , Compensation-Stock Compensation, including related amendments and interpretations.
Net Income / (Loss) per Share
Basic income / (loss) per share amounts are computed
based on net income / (loss) divided by the weighted average number of common shares outstanding. Diluted earnings per share reflect the
potential dilution that could occur if potentially dilutive securities were exercised or converted to common stock. The dilutive effect
of options and warrants and their equivalent is computed by application of the treasury stock method and the effect of convertible securities
by the “if converted” method. The effect of
Recent accounting pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other standard setting bodies that are adopted by the Company as of the specified effective date.
Income Taxes
We utilize the asset and liability method of accounting for income taxes. We recognize deferred tax liabilities or assets for the expected future tax consequences of temporary differences between the book and tax basis of assets and liabilities. We regularly assess the likelihood that our deferred tax assets will be recovered from future taxable income. We consider projected future taxable income and ongoing tax planning strategies in assessing the amount of the valuation allowance necessary to offset our deferred tax assets that will not be recoverable. We have recorded and continue to carry a full valuation allowance against our gross deferred tax assets that will not reverse against deferred tax liabilities within the scheduled reversal period. If we determine in the future that it is more likely than not that we will realize all or a portion of our deferred tax assets, we will adjust our valuation allowance in the period we make the determination. We expect to provide a full valuation allowance on our future tax benefits until we can sustain a level of profitability that demonstrates our ability to realize these assets.
2. ASSET PURCHASE AGREEMENT
On February 21, 2017, the Company purchased all
right, title, interest and goodwill in or associated with certain domain names set forth in an asset purchase agreement for a total of
$
3. INVENTORY EARN-OUT
As described in Notes 2 and 5, 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,
7
4. NOTE PAYABLE - RELATED PARTY
During the three months ended November 30, 2021,
Danil Pollack, the Company’s former chief executive officer, forgave a note payable in the amount of $
On November 29, 2021, Michael Feinsod, the Company’s
chief executive officer, loaned the Company $
5. CONVERTIBLE NOTE PAYABLE
On December 24, 2019, the Company entered into
and closed a securities purchase agreement with an accredited investor, pursuant to which the Company issued and sold to the investor
an original issue discount convertible debenture in the principal amount of $
On October 28, 2021, in connection with a stock purchase
agreement (see Note 3), the remaining debenture with an original principal amount of approximately $
8
6. EQUITY
Common Stock and Preferred Stock
As of August 31, 2020, the Company had authorized
capital of
In September 2021 a debenture holder converted
$
On October 28, 2021, the Company entered into
a stock purchase agreement with Danil Pollack (the Company’s then-chief executive officer), and Infinity Management, LLC (“Infinity”).
The purchase agreement further provided for Infinity
to make a capital contribution to the Company of $
In connection with the purchase agreement, and effective upon the closing thereunder, Mr. Michael Feinsod, the managing member of Infinity, was appointed as the chief executive officer and chairman of the board of directors of the Company, Mr. Hunter Garth was appointed as a director, as well as chief strategy officer of the Company, and Mr. Pollack resigned from all positions with the Company, including as president, CEO, chief financial officer and director of the Company.
9
Warrants
The following table summarizes the warrant activities during the three months ended November 30, 2021:
|
Number of
Warrants |
Weighted-
Average Price Per Share |
Weighted-
Average Remaining Life |
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| Outstanding at August 31, 2021 |
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$ |
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| Granted | ||||||||||||
| Canceled or expired | ||||||||||||
| Exercised | ||||||||||||
| Outstanding at November 30, 2021 |
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$ |
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| Exercisable at November 30, 2021 |
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$ |
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| Intrinsic value at November 30, 2021 | $ | |||||||||||
7. RELATED PARTY TRANSACTIONS
On April 21, 2020, Danil Pollack was appointed
president, chief executive officer, and chief financial officer of the Company. In connection with Mr. Pollack’s appointment, the
Company entered into an employment agreement with Mr. Pollack. Pursuant to the employment agreement, Mr. Pollack agreed to serve as the
Company’s chief executive officer and president for a period of one year, which term would renew automatically for successive
10
On September 30, 2020, the Company entered into
an amendment to the Company’s employment agreement, dated April 22, 2020, with Danil Pollack. Pursuant to the amendment, the Company
agreed to pay Mr. Pollack an annual salary of $
On October 28, 2021, the Company entered into
a stock purchase agreement with Danil Pollack (the Company’s then-chief executive officer), and Infinity Management, LLC (“Infinity”).
Pursuant to the purchase agreement, upon the closing thereof on November 19, 2021, Mr. Pollack sold to Infinity,
The purchase agreement further provided for Infinity
to make a capital contribution to the Company of $
In connection with the purchase agreement, and effective upon the closing thereunder, Mr. Michael Feinsod, the managing member of Infinity, was appointed as the chief executive officer and chairman of the board of directors of the Company, Mr. Hunter Garth was appointed as a director, as well as chief strategy officer of the Company, and Mr. Pollack resigned from all positions with the Company, including as president, CEO, chief financial officer and director of the Company.
On November 29, 2021, Michael Feinsod, the Company’s
chief executive officer, loaned the Company $
During the three months ended November 30, 2021,
Danil Pollack, the Company’s former chief executive officer forgave a note payable in the amount of $
8. COMMITMENTS AND CONTINGENCIES
On April 21, 2020, Danil Pollack was appointed
president, chief executive officer, and chief financial officer of the Company. In connection with Mr. Pollack’s appointment, the
Company entered into an employment agreement with Mr. Pollack. On September 30, 2020, the Company entered into an amendment to the employment
agreement. Pursuant to the amendment, the Company agreed to pay Mr. Pollack an annual salary of $
In connection with a stock purchase agreement
(see Note 5), on October 28, 2021, a convertible debenture in the original principal amount of approximately $
The COVID-19 pandemic may negatively affect our operations, including by limiting access to our facilities, customers, management, and professional advisors, and causing delays and constraints in manufacturing and shipping of our products. These factors, in turn, may negatively impact our operations, financial condition and demand for our products, and our ability to raise capital on acceptable terms, or at all.
9. MAJOR CUSTOMERS
At November 30, 2021 and August 31, 2021, no individual
customer amounted to over
11
10. SUBSEQUENT EVENTS
On December 2, 2021, Bespoke Extracts Colorado,
LLC (“Bespoke Colorado”), a newly formed wholly-owned subsidiary of the Company entered into an asset purchase agreement with
WonderLeaf, LLC (“WonderLeaf”), and on December 7, 2021, Bespoke Colorado and WonderLeaf entered into an amendment to such
asset purchase agreement (as amended, the “WonderLeaf Purchase Agreement”).
Closing of the WonderLeaf Purchase agreement is subject to receipt of certain governmental approvals and other customary closing conditions.
On December 3, 2021, Michael Feinsod loaned the
Company $
On December 14, 2021, Hunter Garth was appointed President of the Company.
On December 14, 2021, the
board of directors of the Company adopted the Company’s 2021 Equity Incentive Plan (the “2021 Plan”), pursuant to which
up to an aggregate of
On December 14, 2021, the
Company entered into an employment agreement with Hunter Garth. Pursuant to the employment agreement, Mr. Garth will serve as the Company’s
president and will receive a base monthly salary of $
On December 14, 2021, the
Company entered into an employment agreement with Michael Feinsod, the Company’s chief executive officer and chairman. Pursuant
to the employment agreement, Mr. Feinsod will continue to serve as the Company’s chief executive officer and chairman and will receive
a base monthly salary of $
On December 14, 2021, the Company issued to a consultant
options to purchase
On December 21, 2021, Michael Feinsod loaned the Company
$
On December 23, 2021, the Company repaid Michael Feinsod
$
From December 27, 2021 to 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. The warrants have a term of one year and an exercise price of $0.05.
On December 27, 2021, the Company repaid Michael
Feinsod the balance of the $
On January 18,
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
12
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 Quarterly Report and other filings with the SEC, reports to our stockholders and news releases. All statements that express expectations, estimates, forecasts or projections are forward-looking statements. In addition, other written or oral statements which constitute forward-looking statements may be made by us or on our behalf. Words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “estimate,” “project,” “forecast,” “may,” “should,” and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in or suggested by such forward-looking statements. We undertake no obligation to update or revise any of the forward-looking statements after the date of this report to conform forward-looking statements to actual results, except as may be required under applicable law. Important factors on which such statements are based are assumptions concerning uncertainties, including but not limited to, uncertainties associated with the following:
| ● |
Inadequate capital and barriers to raising the additional capital or to obtaining the financing needed to implement our business plans; |
| ● | Our failure to earn significant revenues or profits; |
| ● | Volatility, lack of liquidity or decline of our stock price; |
| ● | Potential fluctuation in quarterly results; |
| ● | Rapid and significant changes in markets; |
| ● | Insufficient revenues to cover operating costs; and |
| ● |
The effect of the COVID-19 pandemic on our operations, including as it may limit access to our facilities, customers, management, and professional advisors, and negatively impact demand for our products, and ability to raise capital on acceptable terms or at all. |
The following discussion should be read in conjunction with the financial statements and the notes thereto which are included in this report.
Overview
We sell a proprietary line of specially-formulated, premium quality, hemp-derived CBD products direct to consumers through our ecommerce store, found at www.bespokeextracts.com. Information on our website is not part of this report.
Under our expanded operating plan, we intend to methodically expand our product offerings to include new flavors, including manuka honey; and introduce additional form factors for our CBD formulations, including lotions and balms, depending on customer feedback and evolving consumer demand.
In November 2021, new management of the Company was appointed and the Company began to focus on other complimentary lines of business to its CBD offerings. Under our new management team, we plan to expand the Company’s focus to regulated cannabis markets in the United States.
Results of Operations for the three months ended November 30, 2021 and November 30, 2020
Sales
Sales during the three months ended November 30, 2021 were $3,782 compared to $7,539 for the three months ended November 30, 2020. The decrease in sales was primarily a result of reduced marketing of the Company’s line-up of hemp-derived CBD products and sales of older products at reduced prices.
13
Operating Expenses
Selling, general and administrative expenses for the three months ended November 30, 2021 and November 30, 2020 were $21,413 and $142,372, respectively. The reduction was mainly attributable to the Company’s reduced funding and reduced operations. Professional fees were $21,438 and $22,415, respectively for the three months ended November 30, 2021 and November 30, 2020. The decrease in expenses was due to reduced legal and accounting fees as the Company streamlined operations. Consulting expense was $27,000 and $42,000, for the three months ended November 30, 2021 and November 30, 2020, respectively. The decrease was primarily due to reduction in consulting agreements for sales and marketing during the three months ended November 30, 2021. Amortization expense of domain names for the three months ended November 30, 2021 and November 30, 2020 was $0 and $811, respectively.
Gain on settlement of debt
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. In exchange for cancellation of the debt owed under the Debenture, the Company transferred to the holder certain domain names valued at $32,748 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 Company recorded a gain on the extinguishment of debt $292,252.
Gain on settlement of accrued expenses
During the three months ended November 30, 2021 there were $2,665 of accrued expenses that were forgiven by the holders.
Net Loss
For the reasons stated above, our net income / (loss) for the three months ended November 30, 2021 was $226,984, or $0.00 per share, compared to a net loss for the three months ended November 30, 2020 of $(202,106), or $(0.00) per share.
Liquidity and Capital Resources
As of November 30, 2021, we had cash of $6,295. Net cash used in operating activities for the three months ended November 30, 2021 was $29,882. Our current liabilities as of November 30, 2021 were $146,830 and consisted of accounts payable and accrued liabilities of $46,830, notes payable- related party of $25,000 and an inventory earn-out of $75,000. Net cash used in operating activities for the three months ended November 30, 2020 was $196,416.
During the three months ended November 30, 2021, the Company raised $25,000 from a note payable form a related party compared to $330,534 for three months ended November 30, 2020. During the three months ended November 30, 2020, the Company raised $200,000 from the sale of common stock and received a total of $130,534 of loans from our Chief Executive Officer.
The unaudited condensed financial statements included in this report have been prepared assuming a continuation of the Company as a going concern. The Company had negative cash flows from operations for the three months ended November 30, 2021 and the year ended August 31, 2021 and had a working capital deficit at November 30, 2021 and August 31, 2021. This raises substantial doubt about our ability to continue as a going concern.
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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.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not required for smaller reporting companies.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Management of the Company conducted an evaluation of the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. The Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported , within the time periods specified in the Commission’s rules and forms, and (ii) accumulated and communicated to our management, including our principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Based on this evaluation, our management has concluded that the design and operation of our disclosure controls and procedures are not effective since the following material weaknesses exist:
| ● | Our chief executive officer also functions as our principal financial officer. As a result, our officer may not be able to identify errors and irregularities in the financial statements and reports; |
| ● | We were unable to maintain full segregation of duties within our financial operations due to our reliance on limited personnel in the finance function. While this control deficiency did not result in any audit adjustments to our financial statements, it could have resulted in a material misstatement that might have been prevented or detected by a segregation of duties; and |
| ● | Documentation of all proper accounting procedures is not yet complete. |
To the extent reasonably possible given our limited resources, we intend to take measures to cure the aforementioned weaknesses, including, but not limited to, increasing the capacity of our qualified financial personnel to ensure that accounting policies and procedures are consistent across the organization and that we have adequate control over financial statement disclosures.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II – OTHER INFORMATION
Item 1. Legal Proceedings.
We are not currently a party to, nor are any of our property currently the subject of, any material legal proceedings.
Item 1A. Risk Factors.
Not required for smaller reporting companies.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
On September 7, 2021, the Company issued 2,000,000 shares of common stock upon conversion of a debenture in the principal amount of $100,000. In connection with the foregoing, the Company relied upon the exemption from registration provided by Section 4(a)(2) under the Securities Act of 1933, as amended, for transactions not involving a public offering.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
No disclosure required.
Item 5. Other Information.
None.
Item 6. Exhibits.
| Exhibit No. | Description | |
| 31.1 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002* | |
| 32.1 | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002** | |
| 101 | Inline XBRL Document Set for the financial statements and accompanying notes in Part I, Item 1, of this Quarterly Report on Form 10-Q.* | |
| 104 | Inline XBRL for the cover page of this Quarterly Report on Form 10-Q, included in the Exhibit 101 Inline XBRL Document Set.* |
| * | Filed herewith. |
| ** | Furnished herewith. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| BESPOKE EXTRACTS, INC. | ||
| Dated: January 19, 2022 | By: | /s/ Michael Feinsod |
|
Michael Feinsod
Chief Executive Officer |
||
|
(Principal Executive Officer,
Principal Financial Officer and Principal Accounting Officer) |
||
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