10-Q 1 ea0208424-10q_bespoke.htm QUARTERLY REPORT

 

 

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: March 31, 2024

 

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 Avenue, Unit O

Aurora, CO, 80010

(Address of principal executive offices)

 

720-949-1143

(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 July 1, 2024, there were 10,168,552 shares outstanding of the registrant’s common stock, par value $0.001.

 

 

 

 

 

 

TABLE OF CONTENTS

 

    Page No. 
     
PART I - FINANCIAL INFORMATION 1
Item 1. Financial Statements 1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 16
Item 3. Quantitative and Qualitative Disclosures About Market Risk 18
Item 4 Controls and Procedures 18
     
PART II - OTHER INFORMATION 19
Item 1. Legal Proceedings 19
Item 1A. Risk Factors 19
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 19
Item 3. Defaults Upon Senior Securities 19
Item 4. Mine Safety Disclosures 19
Item 5. Other Information 19
Item 6. Exhibits 19

 

i

 

 

PART I

 

Item 1. Financial Statements.

 

Bespoke Extracts, Inc.

Consolidated Balance Sheets

 

   March 31,   December 31, 
   2024   2023 
         
Assets        
Current assets        
Cash  $14,416   $6,607 
Accounts receivable   43,125    45,226 
Prepaid stock awards   6,104    9,206 
Prepaid expense   1,250    5,000 
Inventory, net   38,876    15,800 
Total current assets   103,771    81,839 
           
Furniture and equipment. Net   37,529    40,979 
License   10,000    10,000 
Right of Use Asset   192,536    209,542 
Deposits   12,000    12,000 
Total assets  $355,836   $354,360 
           
Liabilities and Stockholders’ Equity          
Current liabilities          
Accounts payable and accrued liabilities  $1,137,298   $961,255 
Notes payable -- secured (net of discount of $14,693)   85,307    
-
 
Advances - related party   58,371    53,372 
Operating lease liability   64,330    64,330 
Total current liabilities   1,345,306    1,078,957 
           
Note payable - related party   849,500    849,500 
Long-Term Operating lease liability   133,652    150,460 
Total liabilities   2,328,458    2,078,917 
           
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 March 31, 2024 and December 31, 2023, respectively   
-
    
-
 
Series C Convertible Preferred Stock, $0.001 par value, 1 share designated; 1 share issued and outstanding as of March 31, 2024 and December 31, 2023, 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 March 31, 2024 and December 31, 2023, respectively   10,166    10,166 
Common stock to issue 6,478 shares   
-
    
-
 
Additional paid-in capital   23,697,971    23,631,918 
Accumulated deficit   (25,680,759)   (25,366,641)
Total stockholders’ deficit   (1,972,622)   (1,724,557)
Total liabilities and stockholders’ deficit  $355,836   $354,360 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

1

 

 

Bespoke Extracts, Inc

Consolidated Statements of Operations

 

   For the three months ended
March 31,
 
   2024   2023 
         
Sales  $260,428   $89,016 
Cost of products sold   157,847    78,667 
Gross Profit   102,581    10,349 
           
Operating expenses          
Selling, general and administrative expenses   347,859    374,515 
Professional fees   57,525    61,204 
Consulting   
-
    18,000 
Total operating expenses   

405,384

    453,719 
           
Loss from operations   (302,803)   (443,370)
           
Other income / (expenses)          
Interest (expense) / income   (11,315)   2,750 
Total other (expense) / income   (11,315)   2,750 
           
Loss before income tax   (314,118)   (440,620)
Provision for income tax   
-
    
-
 
Net Loss  $(314,118)  $(440,620)
           
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING          
Basic and Diluted
   10,168,220    10,107,108 
           
NET LOSS PER COMMON SHARE OUTSTANDING          
Basic and Diluted
  $(0.03)  $(0.04)

 

The accompanying notes are an integral part of these consolidated financial statements.

 

2

 

 

Bespoke Extracts, Inc

Consolidated Statement of Stockholders Deficit

For The three months ended March 31, 2024 and March 31, 2023

 

   Preferred   Preferred   Common   Common   Additional         
   Shares   Par   Shares   Par   Paid-in   Accumulated     
   Outstanding   Amount   Outstanding   Amount   Capital   Deficit   Total 
                             
Balance December 31, 2022         1   $
      -
    9,945,997   $9,944   $23,201,758   $(23,883,798)  $(672,096)
                                    
Purchase Wonderleaf   -    
-
    -    222    49,778    
-
    50,000 
                                    
Stock option expense   -    
-
    -         92,432    
-
    92,432 
                                    
Net loss for the three months ended March 31, 2023   -    
-
    -    
-
    
-
    (440,620)   (440,620)
Balance March 31, 2023   1   $
-
    9,945,997   $10,166   $23,343,968   $(24,324,418)  $(970,284)

 

   Series C                     
   Preferred   Preferred   Common   Common   Additional         
   Shares   Par   Shares   Par   Paid-in   Accumulated     
   Outstanding   Amount   Outstanding   Amount   Capital   Deficit   Total 
                             
Balance December 31, 2023       1   $
      -
    10,168,220   $10,166   $23,631,918   $(25,366,641)  $(1,724,557)
                                    
Warrants issued with financing   -    
-
    -    
-
    15,635    
-
    15,635 
                                    
Stock option expense   -    
-
    -    
-
    

50,418

    
-
    

50,418

 
                                    
Net loss for the three months ended March 31, 2024   -    
-
    -    
-
    
-
    (314,118)   (314,118)
Balance March 31, 2024   1   $
-
    10,168,220   $10,166   $23,697,971   $(25,680,759)  $(1,972,622)

 

The accompanying notes are an integral part of these consolidated financial statements.

 

3

 

 

Bespoke Extracts, Inc

Consolidated Statements of Cash Flows

 

   For the three months
ended March 31,
 
   2024   2023 
Cash flows from operating activities        
Net Loss  $(314,118)  $(440,620)
Adjustments to reconcile net loss to net cash used in operating activities          
Inventory reserve   
-
    40,393 
Depreciation   3,450    1,785 
Amortization of right of use asset, net   17,006    16,348 
Amortization expense for prepaid expenses for consulting shares   3,102    21,544 
Amortization of debt discount   942    
-
 
Stock based compensation and stock option expense   

50,418

    92,432 
Changes in operating assets and liabilities:          
Accounts receivable   2,101    (46,483)
Prepaid expenses   3,750    (19,170)
Inventory   (23,076)   (53,403)
Accounts payable and accrued liabilities   

176,042

    196,256 
Operating lease liability, net   (16,808)   (16,150)
Net Cash (used in) operating activities   (97,191)   (207,068)
           
Cash flow from financing activities          
Payment of inventory earnout        (90,000)
Proceeds from issuance of note payable - related party   
-
    277,000 
Proceeds from advances - related party   5,000    
-
 
Proceeds from secured notes payable   100,000    
-
 
Net cash provided by financing activities   105,000    187,000 
           
Net increase / (decrease) in cash   7,809    (20,068)
Cash at beginning of period   6,607    24,433 
Cash at end of period  $14,416   $4,365 
           
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 
Warrants issued for financing  $15,635   $
-
 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

4

 

 

BESPOKE EXTRACTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2024

(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 Extracts Colorado, LLC (“Bespoke Colorado”), we operate a marijuana infused products production facility in Aurora, Colorado.

  

On December 2, 2021, Bespoke Colorado, a newly formed wholly-owned subsidiary of the Company entered into an asset purchase agreement with WonderLeaf, LLC (“WonderLeaf”), and on December 7, 2021, Bespoke Colorado and WonderLeaf entered into an amendment to such asset purchase agreement (as amended, the “WonderLeaf Purchase Agreement”). On 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. 

 

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 consolidated financial statements have been prepared assuming a continuation of the Company as a going concern. The Company had negative cash flows from operations of $97,191 for the three months ended March 31, 2024, and a working capital deficit of $1,241,535 and accumulated deficit of $25,680,759, as of March 31, 2024. 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.

  

5

 

 

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 provision for credit losses and inventory valuation and reserves. Actual results could differ from those estimates. 

 

Cash and Cash Equivalents

 

Cash and cash equivalents include all highly liquid investments with original maturities of three months or less at the time of purchase. At March 31, 2024 and December 31, 2023, 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 March 31, 2024 and December 31, 2023, 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 provision for credit losses 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 provision for credit losses.

 

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 are exhausted, the determination for charging off uncollectible receivables is made. At March 31, 2024 and December 31, 2023, 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 March 31, 2024 and December 31, 2023, inventory amounted to $38,876, and $15,800 net of reserves, respectively, which consisted of finished goods of $0 and $0.

 

6

 

 

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.

 

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.

 

As of March 31, 2024 one customer accounted for approximately 42% of the total accounts receivable.

 

As of December 31, 2023, two customers amounted to 19.4% and 14.9% of accounts receivable.

 

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.

 

7

 

 

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 129,876 warrants and 1,570,341 options is anti-dilutive for the three months ended March 31, 2024 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.

 

The Company did not adopt any new accounting pronouncements in the reporting period ended March 31, 2024.

 

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.

 

8

 

 

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.

 

NOTE 3 – FURNITURE AND EQUIPMENT.

 

Machinery and equipment consisted of the following at:

 

Schedule of Machinery and Equipment

 

   March  31,
2024
   December 31,
2023
 
Furniture and equipment  $2,745   $2,745 
Machinery and Equipment   47,202    47,202 
Fixed assets, total   49,947    49,947 
Total: accumulated depreciation   (12,418)   (9,968)
Fixed assets, net  $37,529   $40,979 

 

Depreciation expense for the three months ended March 31, 2024 and 2023 were $3,450 and $1,785 respectively.

 

9

 

 

4. NOTE PAYABLE – RELATED PARTY

 

During the year ended December 31, 2023, Infinity Management, LLC an affiliate of Michael Feinsod, the Company’s chief executive officer, loaned the Company an additional $469,954. On September 5, 2023 $849,500 of notes payable were converted into a 5.0% 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 March 31, 2024 and December 31, 2023 the amount owed Infinity Management, LLC is $907,872 and $902,872, respectively.

 

During the year ended December 31, 2023 the Company received additional advances from Infinity Management, LLC. of $53,372. During the three months ended March 31, 2024 the Company received additional advances from Infinity Management, LLC. of $5,000.

 

5. NOTE PAYABLE – SECURED

 

On February 16, 2024, 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 $100,000 in 15% Senior Secured Notes due February 15, 2025 (the “Notes”), and warrants to purchase an aggregate of 100,000 shares of common stock, for an aggregate purchase price of $100,000. The Notes are senior in terms of priority and liquidation to all other existing debt obligations of the Company. The warrants have a term of two years and an exercise price of $0.11. The options were valued at $15,636 using a Black-Scholes pricing model with the following assumptions: dividend yield of 0%, annual volatility of 105%, risk free interest rate of 4.64%, an expected life of 1 years. The Company utilized the Relative Fair Value to allocate the value of the warrants and recorded it as debt discount.

 

   March  31,
2024
 
Note amount  $100,000 
Debt discount   (15,635)
Amortization of debt discount   942 
Notes payable, net  $85,307 

 

10

 

 

6. 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:

 

      March 31, 
Operating Leases  Classification  2024 
Right-of-use assets  Right of use assets  $192,536 
         
Current lease liabilities  Current operating lease liabilities   64,330 
Non-current lease liabilities  Long-term operating lease liabilities   133,652 
Total lease liabilities     $197,982 

 

Lease term and discount rate were as follows:

 

   March 31, 
   2024 
Weighted average remaining lease term (years)   3.69 
Weighted average discount rate   4%

 

The component of lease costs was as follows:

 

   March  31, 
   2024 
Operating lease cost  $19,098 
Variable lease cost (1)   1,050 
Total lease costs  $20,148 

 

(1)Variable lease cost primarily relates to common area maintenance, property taxes and insurance on leased real estate.

 

 

   March 31, 
   2024 
Cash paid for operating lease liabilities  $
         -
 
      

 

Maturities of lease liabilities were as follows as of December 31, 2023:

 

   Operating 
   Leases 
2024  $59,107 
2025   79,380 
2026   72,765 
Total undiscounted lease payments   211,252 
Less: Present value discount   (13,270)
Total Present value of lease liabilities  $197,982 

 

11

 

 

7. 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 March 31, 2024 and 2023, 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 $0.0011,000 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 March 31, 2024 and 2023, 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 March 31, 2024 and 2023, 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.

 

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 year ended December 31, 2023 the Company recorded an expense of $70,907, respectively. For the three months ended March 31, 2024 the Company recorded and expense of $3,102. As of March 31, 2024 and December 31, 2023 the Company had a prepaid stock award of $6,104 and $9,206.

 

Warrants

 

On February 16, 2024, 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 $100,000 in 15% Senior Secured Notes due February 15, 2025 (the “Notes”), and warrants to purchase an aggregate of 100,000 shares of common stock, for an aggregate purchase price of $100,000. The Notes are senior in terms of priority and liquidation to all other existing debt obligations of the Company. The warrants have a term of two years and an exercise price of $0.11.

 

12

 

 

The following table summarizes the warrant activities during the three months ended March 31, 2024:

 

   Number of
Warrants
   Weighted-
Average
Exercise
Price Per
Share
   Weighted-
Average
Remaining
Life
 
Outstanding at December 31, 2023   29,876    25.24    1.21 
Granted   

324,000

    .11    8.47 
Canceled or expired   
-
    
-
    
-
 
Outstanding at March 31, 2024   

353,876

   $1.00    7.61 years 
Exercisable at March 31, 2024   242,376   $1.00    7.61 years 
Intrinsic value at March 31, 2024       $
-
      

 

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 months ending March 31, 2024 and 2023 the Company recorded $12,318 and $30,811 respectively of expenses associated with the vesting of these stock options. (See notes 10 and 11).

 

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 months ended March 31, 2023 and 2022 the Company recorded $24,635 and $61,261, respectively of expenses associated with the vesting of these stock options. (See notes 10 and 11).

 

On August 17, 2023, the Company issued to several employees options to purchase a total of 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 months ended March 31, 2024 the Company recorded $10,087 of expenses associated with the vesting of these stock options

 

On January 8, 2024, the Company issued to an employee options to purchase a total of 222,500 shares of common stock at an exercise price of $0.20. The options vest 50% on January 15, 2024 and 50% over a period of 12 months and have a term of 10 years. The options were valued at $8,030 using a Black-Scholes pricing model. During the three months ended March 31, 2024 the Company recorded $1,065 of expenses associated with the vesting of these stock options

  

On March 1, 2024, the Company issued to several employees options to purchase a total of 99,000 shares of common stock at an exercise price of $0.22. 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 months ended March 31, 2024 the Company recorded $1,594 of expenses associated with the vesting of these stock options

 

13

 

 

The following table summarizes the option activities during the three months ended March 31 2024:

 

   Number of
Options
   Weighted-
Average Exercise
Price Per
Share
   Weighted-
Average
Remaining
Life
 
Outstanding at December 31, 2023   1,246,341   $2.67    7.94 years 
Granted   99,000   $0.22    4.88 years 
Canceled or expired   
-
    
-
      
Exercised   
-
    
-
      
Outstanding at March 31, 2024   1,345,341   $2.08    7.11 years 
Exercisable at March 31, 2024   690,508   $2.19    7.70 years 
Intrinsic value at March 31, 2024       $
-
      

 

The future expense as of March 31, 2024 is $143,723.

 

8. 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 year ended December 31, 2023, Michael Feinsod, the Company’s chief executive officer, loaned the Company an additional $487,372. As of March 31, 2024 and December 31, 2023 the amount owed Michael Feinsod is $907,872 and $902,872, respectively. All loans are payable upon demand. During the three months ended March 31, 2024 an additional $5,000 was advanced.

 

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 4.)

 

As of March 31, 2024 Michael Feinsod is owed a total of $253,938 of accrued salary and accounts payable of $156,944.

 

14

 

 

9. 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 year ended December 31, 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.

 

10. SUBSEQUENT EVENTS

 

Subsequent to March 31, 2024, Infinity Management, LLC, an affiliate of the Company’s chief executive officer, loaned the Company an additional $16,000.

 

On May 20, 2024 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 $10,000 in 15% Senior Secured Notes due May 20, 2025 and warrants to purchase an aggregate of 10,000 shares of common stock, for an aggregate purchase price of $10,000. The Notes are senior in terms of priority and liquidation to all other existing debt obligations of the Company. The warrants have a term of two years and an exercise price of $0.11.

 

On June 6, 2024 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 $25,000 in 15% Senior Secured Notes due June 6, 2025 and warrants to purchase an aggregate of 25,000 shares of common stock, for an aggregate purchase price of $25,000. The Notes are senior in terms of priority and liquidation to all other existing debt obligations of the Company. The warrants have a term of two years and an exercise price of $0.11.

 

15

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

We and our representatives may from time to time make written or oral statements that are “forward-looking,” including statements contained in this report and other filings with the SEC, reports to our stockholders and news releases. All statements that express expectations, estimates, forecasts or projections are forward-looking statements. In addition, other written or oral statements which constitute forward-looking statements may be made by us or on our behalf. Words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “estimate,” “project,” “forecast,” “may,” “should,” and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in or suggested by such forward-looking statements. We undertake no obligation to update or revise any of the forward-looking statements after the date of this report to conform forward-looking statements to actual results, except as may be required under applicable law. Important factors on which such statements are based are assumptions concerning uncertainties, including but not limited to, uncertainties associated with the following:

 

  Inadequate capital and barriers to raising the additional capital or to obtaining the financing needed to implement our business plans;

 

  Our failure to earn significant revenues or profits;

 

  Volatility, lack of liquidity or decline of our stock price;

 

  Potential fluctuation in quarterly results;

 

  Rapid and significant changes in markets; and

 

  Insufficient revenues to cover operating costs.

  

The following discussion should be read in conjunction with the financial statements and the notes thereto which are included in this report.

 

Overview

 

Through our wholly-owned subsidiary, Bespoke Extracts Colorado, LLC, we operate a marijuana infused products manufacturing facility in Colorado.

 

In November 2021, new management of the Company was appointed and the Company began to focus on other complimentary lines of business to its CBD offerings. Under our new management team, we plan to expand the Company’s focus to regulated cannabis markets in the United States.

 

On December 2, 2021, Bespoke Extracts Colorado, LLC, a newly formed wholly-owned subsidiary of the Company entered into an asset purchase agreement with WonderLeaf, and on December 7, 2021, Bespoke Colorado and WonderLeaf entered into an amendment to such asset purchase agreement (as amended, the “WonderLeaf Purchase Agreement”). Pursuant to the Wonderleaf Purchase Agreement, Bespoke Colorado agreed to purchase from WonderLeaf, and WonderLeaf agreed to sell to Bespoke Colorado, certain assets of WonderLeaf, including a license to manufacture marijuana-infused products, existing inventory, and extraction equipment and ancillary items, all as further set forth in the Wonderleaf Purchase Agreement, for a purchase price of $50,000, to be paid in shares of common stock of the Company. The Company issued a total of 222,223 shares of common stock ($0.225 per share), the fair market value on the date of issuance.

  

16

 

 

Results of Operations for the three months ended March 31, 2024 and March 31, 2023

 

Sales

 

Sales during the three months ended March 31, 2024 were $260,428 compared to $89,016 for the three months ended March 31, 2023. The increase in sales was due to increased direct sales of pre-rolled joints to licensed dispensaries in Colorado.

 

Cost of Goods Sold

 

Cost of goods sold for the three months ended March 31, 2024 was $157,847 compared to $78,667 for the three months ended March 31, 2023. The increase was a direct result of the increase in sales. The decrease in cost of sales, as a percentage of sales, was due to increased efficiencies 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 March 31, 2024 and March 31, 2023 were $347,859 and $375,415, respectively. The decrease was mainly attributable to a reduction in stock based compensation of $50,418 for the three months ended March 31, 2024 compared to $92,432 for the three months ended March 31, 2023 and were partially offset by increase in salaries. Professional fees were $57,525 and $61,240, respectively for the three months ended March 31, 2024 and March 31, 2023. The decrease in expenses was due to decreased legal and accounting fees primarily associated with the WonderLeaf transaction in the prior period. Consulting expense was $0 and $18,000, for the three months ended March 31, 2024 and March 31, 2023, respectively.

 

Net Loss

 

Our net loss for the three months ended March 31, 2024 was $314,118 or $0.03 per share, compared to a net loss for the three months ended March 31, 2023 of $440,620, or $0.04 per share.

 

Liquidity and Capital Resources

 

As of March 31, 2024, we had cash of $14,416. Net cash used in operating activities for the three months ended March 31, 2024 was $97,191. Our current liabilities as of March 31, 2024 were $1,345,306 and consisted of accounts payable and accrued liabilities of $1,137,298, current portion of lease liability of $64,330 and notes payable related party of $85,307. As of March 31, 2023, we had cash of $4,635. Net cash used in operating activities for the three months ended March 31, 2023 was $207,068. Our current liabilities as of March 31, 2023 were $1,248,904 and consisted of accounts payable and accrued liabilities of $492,074 and current portion of lease liability of $64,330.

 

During the three months ended March 31, 2024 the Company borrowed an additional $5,000 from a related party. During the three months ended March 31, 2023 the Company borrowed an additional $277,000 from a related party and repaid $90,000 owed for an inventory earnout

 

The unaudited condensed consolidated financial statements included in this report have been prepared assuming a continuation of the Company as a going concern. The Company had negative cash flows from operations for the three months ended March 31, 2024 and the year ended December 31, 2023 and had a working capital deficit at March 31, 2024 and December 31, 2023. This raises substantial doubt about our ability to continue as a going concern.

 

17

 

 

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

  

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.

 

18

 

  

PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

We are not currently a party to, nor are any of our property currently the subject of, any material legal proceedings. 

 

Item 1A. Risk Factors.

 

Not required for smaller reporting companies. 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

None.

 

Item 3. Defaults Upon Senior Securities.

 

None.

 

Item 4. Mine Safety Disclosures.

 

No disclosure required. 

 

Item 5. Other Information.

 

None.

 

Item 6. Exhibits.

 

Exhibit No.   Description
31.1   Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
32.1   Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**
101.INS   Inline XBRL Instance Document
101.SCH   Inline XBRL Taxonomy Extension Schema Document.
101.CAL   Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF   Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB   Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE   Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104   Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

  

* Filed herewith.

 

** Furnished herewith.

 

19

 

 

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: July 1, 2024 By: /s/ Michael Feinsod
   

Michael Feinsod

Chief Executive Officer

    (Principal Executive Officer,
Principal Financial Officer and
Principal Accounting Officer)

 

 

20

 

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