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: November 30, 2018

 

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.)

 

323 Sunny Isles Boulevard, Suite 700

Sunny Isles Beach, FL 33160

(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)

 

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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company
  Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐   No ☒

 

As of January 23, 2019, there were 50,203,907 shares outstanding of the registrant’s common stock. 

 

 

 

 

 

  

TABLE OF CONTENTS

 

    Page No.  
     
PART I - FINANCIAL INFORMATION  
Item 1. Financial Statements 1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk 15
Item 4 Controls and Procedures 15
     
PART II - OTHER INFORMATION  
Item 1. Legal Proceedings 16
Item 1A. Risk Factors 16
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Mine Safety Disclosures 16
Item 5. Other Information 16
Item 6. Exhibits 16

 

 

 

 

PART I

 

Item 1. Financial Statements.  

  

Bespoke Extracts, Inc.

Consolidated Balance Sheets

Unaudited

 

    November 30,     August 31,  
    2018     2018  
Assets            
Current assets            
Cash   $ 114,234     $ 79,784  
Accounts receivable     3,954       2,004  
Prepaid expense     32,334       30,976  
Inventory     48,436       61,857  
Total current assets     198,958       174,621  
                 
Domain names, net of amortization of $5,855 and $5,019     44,330       45,166  
Total assets   $ 243,288     $ 219,787  
                 
Liabilities and Stockholders’ Deficit                
Current liabilities                
Accounts payable and accrued liabilities   $ 133,386     $ 105,424  
Convertible notes - related parties, net of unamortized discounts $232,114 and $199,300, respectively     607,886       460,700  
Note payable - related party     50       50  
Total current liabilities     741,322       566,174  
                 
Non-current liabilities                
Related party convertible note payable, net of unamortized discounts $0 and $98,847     -       81,153  
Total non-current liabilities     -       81,153  
Total liabilities     741,322       647,327  
                 
Stockholders’ Deficit                
Series A Convertible Preferred Stock, $0.001 par value, 50,000,000 authorized shares; no shares issued and outstanding as of November 30, 2018 and August 31, 2018, respectively     -       -  
Common stock, $0.001 par value: 800,000,000 authorized; 49,902,712 and 42,902,712 shares issued and outstanding as of November 30, 2018 and August 31, 2018, respectively     49,903       42,903  
Additional paid-in capital     12,238,907       16,246,201  

Common stock payable

   

76,000

      -  
Accumulated deficit     (12,862,844 )     (16,716,644 )
Total stockholders’ deficit     (498,034 )     (427,540 )
Total liabilities and stockholders’ deficit   $ 243,288     $ 219,787  

 

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

 

1

 

 

Bespoke Extracts, Inc

Consolidated Statements of Operations

Unaudited

 

    For the three months ended  
    November 30,     November 30,  
    2018     2017  
             
Sales   $ 41,431     $ -  
Total Sales     41,431       -  
                 
Cost of products sold     11,608       -  
Gross Profit     29,823       -  
                 
Operating expenses:                
Selling, general and administrative (income) expenses     (4,078,341 )     934,745  
Payroll expense     -       19,371  
Professional fees     37,995       23,963  
Consulting     55,500       54,585  
Amortization expense     836       836  
Total operating (income) expenses     (3,984,010 )     1,033,500  
                 
Income /(loss) from operations     4,013,833       (1,033,500 )
                 
Other expense                

Make good common share expense

    (76,000 )     -  
Interest expense     (84,033 )     (103,546 )
Total other expense     (160,033 )     (103,546 )
                 
Loss before income tax     3,853,800       (1,137,046 )
Provision for income tax     -       -  
Net Income / (Loss)   $ 3,853,800     $ (1,137,046 )
                 
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING                
Basic and Diluted     46,257,657       28,542,156  
                 
NET INCOME / (LOSS) PER COMMON SHARE OUTSTANDING                
Basic and Diluted   $ 0.08     $ (0.04 )

 

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

 

2

 

 

Bespoke Extracts, Inc

Consolidated Statements of Cash Flows

Unaudited

 

    For the three months ended  
    November 30,     November 30,  
    2018     2017  
Cash flows from operating activities            
Net Income / (Loss)   $ 3,853,800     $ (1,137,046 )
Adjustments to reconcile net income (loss) to net cash used in operating activities                
Amortization expense     836       836  
Amortization of debt discounts     66,033       119,946  

Gain on forfeited unvested employee share-based award, net of $1,600 cash paid

   

(2,440,768

)    

-

 
Option and warrant (gain)/expense     (1,801,526 )     935,629  

Make good common share expense

   

76,000

      -  
Common stock issued for donation of sponsorship     120,000       -  
Changes in operating assets and liabilities                
Accounts receivable     (1,950 )     -  
Inventory     13,421       -  
Prepaid expense     (1,358 )     (100,221 )
Accounts payable and accrued liabilities     27,962       19,952  
Accounts payable - related party     -       28,075  
Net Cash used in operating activities     (87,550 )     (132,829 )
                 
Cash flow from financing activities                
Borrowings on related party convertible debt     -       120,000  
Proceeds from exercise of warrants     2,000       -  
Sale of common stock     120,000       -  
Sale of common stock and warrants     -       60,300  
Net cash provided by financing activities     122,000       180,300  
                 
Net increase in cash and cash equivalents     34,450       47,471  
Cash and cash equivalents at beginning of period     79,784       87,172  
Cash and cash equivalents at end of period   $ 114,234     $ 134,643  
                 
Supplemental disclosure of cash flow information                
Cash paid for interest   $ -     $ -  
Cash paid for income taxes   $ -     $ -  
                 
Noncash investing and financing activities:                
Discount due beneficial conversion feature   $ -     $ 123000  
Stock issued for conversion of debt - related party   $ -     $ 22,800  
Stock issued with related party debt   $ -     $ 51,503  
Warrants issued with related party debt   $ -     $ 16,996  

 

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

 

3

 

 

Bespoke Extracts, Inc

Consolidated Statement of Stockholders’ Deficit

For the period from August 31, 2018 through November 30, 2018

Unaudited

 

    Preferred     Preferred     Common     Common    

Additional

    Common              
    Shares     Par     Shares     Par    

Paid-in

    Stock     Accumulated        
    Outstanding     Amount     Outstanding     Amount    

Capital

    Payable     Deficit     Total  
August 31, 2018           -     $         -       42,902,712     $ 42,903     $ 16,246,201     $ -     $ (16,716,644 )   $ (427,540 )
                                                                 
Sale of common stock     -       -       2,000,000       2,000       118,000               -       120,000  
                                                                 
Return of common stock upon forfeiture of unvested employee share-based award, net of cash paid of $1,600     -       -       (16,000,000 )     (16,000 )     (2,424,768 )             -       (2,440,768 )
                                                                 
Common stock issued for the exercise of warrants     -       -       20,000,000       20,000       (18,000 )             -       2,000  
                                                                 
Common stock issued  for donation of sponsorship     -       -       1,000,000       1,000       119,000               -       120,000  
                                                                 
Stock option and warrant expense     -       -       -       -       (1,801,526 )             -       (1,801,526 )
                                                                 
Make good common share expense    

-

     

-

     

-

     

-

     

-

     

76,000

      -      

76,000

 
                                                                 
Net income     -       -       -       -       -               3,853,800       3,853,800  
                                                                 
November 30, 2018     -     $ -       49,902,712     $ 49,903     $ 12,238,907     $

76,000

    $ (12,862,844 )   $ (498,034 )

 

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

 

4

 

 

Bespoke Extracts, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

   

NOTE 1. — NATURE OF OPERATIONS, SIGNIFICANT ACCOUNTING POLICIES AND GOING CONCERN

  

BASIS OF PRESENTATION

 

The accompanying unaudited consolidated financial statements of Bespoke Extracts, Inc, a Nevada corporation (the “Company”), have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete consolidated financial statements. These unaudited consolidated financial statements and related notes should be read in conjunction with the Company’s annual report on Form 10-K for the fiscal year ended August 31, 2018 filed with the Securities and Exchange Commission (the “SEC”) on December 14, 2018. In the opinion of management, these unaudited consolidated financial statements reflect all adjustments that are of a normal recurring nature and which are necessary to present fairly the financial position of the Company as of November 30, 2018, and the results of operations and cash flows for the three months ended November 30, 2018 and 2017. The results of operations for the three months ended November 30, 2018 are not necessarily indicative of the results that may be expected for the entire fiscal year.

 

Certain prior period amounts have been reclassified to conform to current period presentation.

  

Going Concern

 

The accompanying unaudited consolidated financial statements have been prepared assuming a continuation of the Company as a going concern. The Company has a working capital deficit as of November 30, 2018 and negative cash flows from operations for the three months ended November 30, 2018. These conditions raise substantial doubt about our ability to continue as a going concern.

 

The Company’s ability to continue as a going concern is dependent upon the Company generating profitable operations in the future and/or obtaining the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. There is no assurance that this series of events will be satisfactorily completed. The accompanying financial statements do not contain any adjustments that may result from the outcome of this uncertainty.

 

Inventory

 

Inventories are stated at the lower of cost or net realizable value.  Cost is determined by the first-in, first-out basis and market being determined as the lower of replacement cost or net realizable value. The Company records inventory write-downs for estimated obsolescence of unmarketable inventory based upon assumptions about future demand and market conditions. As of November 30, 2018 and August 31, 2018, inventory amounted to $48,436 and $61,857, respectively, which consisted of finished goods.

   

Revenue Recognition

 

The Company recognizes revenue from product sales to customers, distributors and resellers when products that do not require further services or installation by the Company are shipped, when there are no uncertainties surrounding customer acceptance and when collectability is reasonably assured. Cash received by the Company prior to shipment is recorded as deferred revenue. Sales are made to customers under terms allowing certain limited rights of return and other limited product and performance warranties for which provision has been made in the accompanying unaudited condensed financial statements.

 

5

 

 

Amounts billed to customers in sales transactions related to shipping and handling, represent revenues earned for the goods provided and are included in net sales. Costs of shipping and handling are included in cost of products sold.

 

The Company accounts for revenue in accordance with Topic 606 which was adopted at the beginning of fiscal year 2018 using the modified retrospective method. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. The Company did not recognize any cumulative-effect adjustment to retained earnings upon adoption as the effect was immaterial.

 

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.  Outstanding options, warrants and convertible debt were excluded from the calculation of diluted income / loss per share during 2018 and 2017 because their inclusion would have been anti-dilutive.

 

2. ASSET PURCHASE AGREEMENT

 

On February 21, 2017, the Company purchased all right, title, interest and goodwill in or associated with certain the domain names set forth in an asset purchase agreement for a total of $20,185 in cash and 200,000 shares of the Company’s common stock valued at $30,000. For the three months ended November 30, 2018 and 2017 amortization expense amounted to $836 and $836, respectively. The domain names are being amortized over a 15 year period.

 

3. NOTE PAYABLE – RELATED PARTY

 

On April 27, 2016, the Company issued its CEO a 7% unsecured promissory note in the amount of $2,500 which matured six months from the date of issuance. On July 5, 2016, the Company issued its CEO a 7% unsecured note in the amount of $3,000 which matured six months from date of issuance. On November 17, 2016, the Company repaid the principal amount of the notes, or $5,500.

 

The changes in notes payable to these related parties consisted of the following during the three months ended November 30, 2018 and the year ended August 31, 2018.

 

    November 30,
2018
    August 31,
2018
 
Notes payable – related party at beginning of period   $ 50     $ 50  
Payments on notes payable – related party     -       -  
Borrowings on notes payable – related party     -       -  
Note payable – related party at end of period   $ 50     $ 50  

 

On February 14, 2017, the Company issued to Lyle Hauser, the Company’s largest shareholder at the time, a 7% unsecured promissory note in the amount of $30,000 which matured six months from the date of issuance. On May 31, 2018 the Company repaid the promissory note in the amount of $30,000 and accrued interest of $2,811.

 

6

 

 

On May 17, 2016, the Company issued to The Vantage Group Ltd. (“Vantage”), a significant shareholder at that time, a 7% unsecured promissory note in the amount of $10,000 which had an original maturity of six months from the date of issuance. On August 15, 2016, the Company issued to Vantage a 7% unsecured promissory note in the amount of $16,000 which had an original maturity of six months from the date of issuance. On October 27, 2016, the Company issued the same shareholder a 7% unsecured promissory note in the amount of $10,000 which had an original maturity date of six months from the date of issuance. On November 14, 2016, the Company issued the same shareholder a 7% unsecured promissory note in the amount of $80,000 which had an original maturity date of six months from the date of issuance. On March 31, 2017, the Company issued the same shareholder a 7% unsecured promissory note in the amount of $7,000 which had an original maturity date of six months from the date of issuance.

 

On April 17, 2017 the preceding notes issued to Vantage were amended to be convertible into common stock and to mature on April 18, 2018. The convertible notes had a fixed conversion price of $0.008. The amendments to the notes created a beneficial conversion feature of $123,000 and amortization of the discount of $123,000 during the year ended August 31, 2018. The Company issued a total of 10,050,000 shares of common stock to convert $80,000 principal and$400 of accrued interest into common stock and the remaining $43,000 was exchanged with an additional $2,000 of accrued interest to purchase assets of the Company.

 

The changes in notes payable to these related parties consisted of the following during the three months ended November 30, 2018 and the year ended August 31, 2018.

 

    November 30,
2018
    August 31, 2018  
Notes payable – related party at beginning of period   $         -     $ 153,000  
Payments on notes payable – related party     -       (30,000 )
Conversion     -       (80,000 )
Exchange for purchase of Company assets     -       (43,000 )
Note payables – related party at end of period   $ -     $ -  

  

4. CONVERTIBLE DEBENTURE – RELATED PARTY

 

On April 11, 2017, the Company executed a $540,000 related party convertible debenture with an original issue discount of $180,000. The note has a 0% interest rate and a term of two years. If the note is not paid in full on the due date, the note will have a 0% interest rate until paid in full. In connection with the note, the Company issued the lender an aggregate of 2,700,000 shares of common stock and 900,000 warrants. The relative fair value of the stock ($157,509) and warrants ($44,981) aggregating $202,490 was recognized as a discount to the note. Amortization of $43,355 was recognized during the three months ended November 30, 2018.   The conversion price of the outstanding balance is the lesser of $3.00 or 40% of the volume weighted average price of the 30 days at date of conversion; not to be less than $1.00. In connection with the note the lender is entitled to receive greater of 5% every dollar raised through financing or every dollar of revenue generated through the earlier of maturity date and repayment of the principal. As of November 30, 2018 and August 31, 2018 the Company has accrued $40,015 and $34,015, respectively.

 

    November 30,
2018
    August 31,
2018
 
Related Party Convertible debenture   $ 540,000     $ 540,000  
Unamortized discount     (141,009 )     (184,364 )
Related Party Convertible debenture, net of unamortized discount   $ 398,991     $ 355,636  

 

7

 

 

On August 28, 2017, the Company executed, with a related party, an $180,000 convertible debenture with an original issue discount of $60,000. The note has a 0% interest rate and a term of two years. In connection with the note, the Company issued the lender an aggregate of 900,000 shares of common stock and 300,000 warrants to purchase common stock. The relative fair value of the stock and warrants aggregating $68,499 was recognized as a discount to the note. Amortization of $16,062 was recognized during the three months ended November 30, 2018.   The conversion price of the outstanding balance is the lesser of $3.00 or 40% of the volume weighted average price of the 30 days at date of conversion; not to be less than $1.00. In connection with the debenture the lender is entitled to receive the greater of 5% of every dollar raised through financing or every dollar of revenue generated through the earlier of the maturity date or repayment of the principal. As of November 30, 2018 and August 31, 2018 the Company has accrued $31,000 and $25,000, respectively.

 

    November 30,
2018
    August 31,
2018
 
Related Party Convertible debenture   $ 180,000     $ 180,000  
Unamortized discount     (82,785 )     (98,847 )
Related Party Convertible debenture, net of unamortized discount   $ 97,215     $ 81,153  

 

On December 13, 2017, the Company executed a $120,000 convertible debenture with an original issue discount of $20,000. The debenture has a 0% interest rate and a term of one year. In connection with the note, the Company issued the lender an aggregate of 200,000 shares of common stock and 100,000 warrants to purchase common stock. The relative fair value of the stock and warrants aggregating $32,930 was recognized as a discount to the note. Amortization of $6,616 was recognized during the three months ended November 30, 2018.  The conversion price of the outstanding balance is the lesser of $3.00 or 40% of the volume weighted average price of the 30 days at date of conversion; not to be less than $1.00. In connection with the debenture the lender is entitled to receive the greater of 5% of every dollar raised through financing or every dollar of revenue generated through the earlier of maturity date and repayment of the principal. As of November 30, 2018 and August 31, 2018 the Company has accrued $26,000 and $20,000, respectively.

 

    November 30,
2018
    August 31,
2018
 
Related Party Convertible debenture   $ 120,000     $ 120,000  
Unamortized discount     (8,320 )     (14,936 )
Related Party Convertible debenture, net of unamortized discount   $ 111,680     $ 105,064  

  

5. EQUITY

 

Common Stock

 

The Company has authorized capital of 800,000,000 shares of common stock with a par value of $0.001, and 50,000,000 shares of Series A Convertible Preferred stock with a par value of $0.001.

  

Between September 1, 2018 and November 30, 2018 the Company sold a total of 2,000,000 shares of common stock for proceeds of $120,000.

 

On October 13, 2018 the Company issued 1,000,000 shares of common stock for a sponsorship donation valued at $120,000.

 

Effective October 30, 2018, Marc Yahr resigned from all positions with the Company including as President and Chief Executive Officer of the Company, except as a member of the board of directors. On November 25, 2018 Mr. Yahr resigned as a member of the Company’s board of directors. On November 6, 2018, 16,000,000 shares of common stock were returned to the Company for which the Company paid $1,600 to Marc Yahr. This forfeiture was in accordance with the terms of this May 22, 2017 employee share based award and the forfeiture resulted in a gain of $2,440,768 (net of the $1,600 cash paid) representing a reversal of the previously recognized expense for the unvested portion of this freighted award.

 

On October 30, 2018, the Company entered into an employment agreement with Niquana Noel pursuant to which Ms. Noel will serve as the Company’s Chief Executive Officer and president for a term of four years, unless earlier terminated pursuant to the terms of the employment agreement. Pursuant to the terms of the employment agreement, Ms. Noel’s annual salary is $96,000 and she received a warrant to purchase up to 20,000,000 shares of the Company’s common stock at an exercise price of $0.0001 per share. Ms. Noel exercised the warrant for $2,000 and was issued the 20,000,000 shares on October 31, 2018. The shares received upon the exercise of the warrants are subject to forfeiture over a service period of four years.

 

Pursuant to a securities purchase agreement entered into on June 6, 2018 the Company was obligated to issue additional shares of common stock if the Company sold common stock at a price lower than $0.10 per share (or common stock equivalents with an exercise price less than $0.10 per share) during the six month period following the closing of the purchase agreement, in which event the Company was required to issue additional shares to the purchaser for no additional consideration, such that the total number of common stock received by the purchaser will be equal to $50,000 divided by lower financing price. As of November 30, 2018 the Company was obligated to issue 500,000 shares of common stock valued at $76,000.

 

8

 

 

Warrants

 

During the year ended August 31, 2018, warrant activity included the following:

 

On May 22, 2017, the Company entered into an employment agreement with Marc Yahr to serve as President and Chief Executive Officer of the Company for a term of three years, unless earlier terminated pursuant to the terms of the employment agreement. Pursuant to the terms of the employment agreement, Mr. Yahr received a warrant to purchase up to 20,000,000 shares of the Company’s common stock at an exercise price of $0.0001 per share. The warrants were exercised in full on May 31, 2017; however, the 20,000,000 shares of the Company’s common stock were not issued to Mr. Yahr until June 10, 2017. The shares received upon the exercise of the warrants were subject to forfeiture over a service period of three years. The fair value of the award was determined to be $10,998,105 which will be recognized as compensation expense over the three year service period.  Effective October 30, 2018, Marc Yahr resigned from all positions with the Company including as President and Chief Executive Officer of the Company (except as director, which he resigned as on November 25, 2018). Pursuant to the agreement, Mr. Yahr agreed to return 80% of the warrant shares to the Company if he served as CEO of the Company pursuant to the terms and conditions of the employment agreement for a period of more than 12 months but less than 18 months. Therefore, 16,000,000 shares of common stock were forfeited to the Company, and the Company recognized a gain on the forfeited common shares of ($2,440,768) net of $1,600 paid by the Company. As of November 30, 2018, $0 remains to be expensed over the remaining vesting period.

 

On January 22, 2018, the Company entered into a sales representation agreement for a term of six months. Pursuant to the agreement the Company agreed to issue the nonemployee sales representative warrants to purchase 10,000 shares of common stock per month (an aggregate of 60,000 warrants) with an exercise price of $0.50, with a term of three years. The warrants shall be exercisable at any time on or after the six (6) month anniversary of each issuance date, at his election, in whole or in part, by means of a cashless exercise. During the three months ended November 30, 2018 the Company recognized a gain of $(31,864) due to a remeasurement of this nonemployee award.

 

On February 1, 2018, the Company entered into a consulting agreement for a term of one year. Pursuant to the agreement the Company agreed to issue the nonemployee consultant warrants to purchase 10,000 shares of common stock per month (an aggregate of 120,000 warrants) with an exercise price of $0.40, exercisable for cash only for a period of three years commencing six months form the issuance date. During the three months ended November 30, 2018 the Company recognized a gain of $(57,703) due to a remeasurement of this nonemployee award.

 

On March 2, 2018 the Company entered into a management agreement with Global Corporate Management, LLC. Pursuant to this agreement, the Company agreed to pay $4,000 and to issue 150,000 common stock purchase warrants per month (an aggregate of 3,600,000 warrants) with an exercise price of $0.50, exercisable commencing six months after issuance for a period of 5 years.  During the three months ended November 30, 2018 the Company recognized a gain of $(1,281,412) due to a remeasurement of this nonemployee award.

 

On April 16, 2018 The Company entered into a consulting agreement with Dr. David Hellman for marketing and promotion services. The term is 1 year with payment of 50,000 warrants each month to purchase common stock with an exercise price of $0.60. However, if the consultant generates more than $10,000 in monthly sales, the warrants will have an exercise price of $0.30, and if the consultant generates more than $20,000 in monthly sales, the warrants may be exercised on a cashless basis. Additionally, the Company agreed to pay to the consultant 10% of retail sales and 5% of wholesale sales. On July 11, 2018 the Company terminated the agreement. On August 1, 2018 the Company entered into a new consulting agreement with Dr. Hellman. The term is 1 year with payment of 60,000 warrants each month (an aggregate of 720,000 warrants) to purchase common stock with an exercise price of $0.60. The warrants may be exercised on a cashless basis.  During the three months ended November 30, 2018 the Company recognized a gain of $(115,843) due to a remeasurement of this nonemployee award.

 

On October 30, 2018, the Company entered into an employment agreement with Ms. Noel pursuant to which Ms. Noel will serve as the Company’s Chief Executive Officer and president for a term of four years, unless earlier terminated pursuant to the terms of the employment agreement. Pursuant to the terms of the employment agreement, Ms. Noel’s annual salary is $96,000 and she received a warrant to purchase up to 20,000,000 shares of the Company’s common stock at an exercise price of $0.0001 per share. Ms. Noel exercised the warrant and was issued the 20,000,000 shares on October 31, 2018. The fair value of this award was determined to be $2,598,138 of which $54,128 was recognized during the three months ended November 30, 2018. Unamortized expense at November 30, 2018 is $2,544,011. The shares received upon the exercise of the warrants are subject to forfeiture over a service period of four years. The shares will be required to be returned to the Company as follows and the Company accounts for forfeitures when they occur.

 

Ms. Noel shall return 80% of the common stock to the Company if she is not serving as Chief Executive Officer of the Company pursuant to the terms and conditions of her employment agreement as of October 2019 (the first anniversary of the employment agreement);

  

Ms. Noel shall return 60% of the common stock to the Company if she is not serving as the Chief Executive Officer of the Company pursuant to the terms and conditions of the employment agreement as of the second anniversary of the employment agreement (October, 2020);

 

Ms. Noel shall return 40% of the common stock to the Company if she is not serving as Chief Executive Officer of the Company pursuant to the terms and conditions of the employment agreement as of the third anniversary of the employment agreement (October 2021);

 

Ms. Noel shall return 20% of the Common Stock to the Company if she is not serving as the Chief Executive Officer of the Company pursuant to the terms and conditions of the Employment Agreement as of the fourth anniversary of the employment agreement (October, 2022);

 

9

 

 

The following table summarizes the warrant activities during the three months ended November 30, 2018 and the year ended August 31, 2018, respectively:

 

    Number of Warrants     Weighted- Average Price Per Share  
Outstanding at August 31, 2018     2,830,000     $ 0.79  
Granted     20,660,000       0.02  
Canceled or expired     -       -  
Exercised     (20,000,000 )     0.00
Outstanding at November 30, 2018     3,490,000     $ 0.74  
Exercisable at November 30, 2018     2,220,000     $ 0.86  
Intrinsic value at November 30, 2018 and August 31, 2018   $ -     $ -  

 

The fair value of the warrants was estimated using the Black-Scholes option pricing model and the following range of assumptions:

 

      Grant Date  
For the three months ended November 30, 2018        
Risk-free interest rate at grant date     1.11% -2.84%    
Expected stock price volatility     159% - 263%    
Expected dividend payout     -  
Expected option in life-years       1 - 6.3 years  

   

OPTIONS

 

On July 26, 2017 the Company granted a nonemployee options to purchase 2,200,000 shares of common stock. The options have a three year term. 1,000,000 options are immediately exercisable on the date of issuance with an exercise price of $0.001 and the remaining 1,200,000 options vest over a period of three years at an exercise price of $1.00. On July 26, 2017, 1,000,000 shares were exercised. During the three months ended November 30, 2018 the Company recognized a gain of $(368,831).

   

    Number of
Options
    Weighted-
Average
Price Per
Share
 
Outstanding at August 31, 2018     1,200,000     $ 1.00  
Granted     -       -  
Canceled or expired     -       -  
Exercised     -       -  
Outstanding at November 30, 2018     1,200,000     $ 1.00  
Exercisable at November 30, 2018     600,000       1.00  
Intrinsic value at November 30, 2018 and August 31, 2018   $ -     $ -  

 

10

 

 

6. COMMITMENTS AND CONTINGENCIES

 

On January 22, 2018, the Company entered into a sales representation agreement to manage and solicit orders in a set territory, the United States, with an initial term of six months. The sales representative shall be compensated 6% of the net sales and three year warrants monthly to purchase 10,000 shares of common stock at an exercise price of $0.50. Warrants may be exercised after six month anniversary of issuance date.

 

On February 1, 2018 the Company entered into a consulting agreement with Optimal Setup LLC for a term of one year to advise the Company on search engine optimization and digital marketing. Optimal Setup LLC shall receive monthly for services performed $2,500 and 10,000 warrants for common stock exercisable for cash price of $0.40. Warrants may be exercised after six month anniversary date. The warrants were granted on February 22, 2018.

 

On March 2, 2018 the Company entered into a two year management agreement with Global Corporate Management, LLC (“GCM”). Pursuant to this agreement, the Company agreed to pay $4,000 and to issue 150,000 common stock purchase warrants (exercise price of $0.50, 5 year term, exercisable 6 months after issuance). The Company shall pay to GCM a commission equal to 10% of all sales every month. The commission will be paid only for the sales which have closed and cash has been paid to the Company. As of November 30, 2018 GCM has not earned any commissions.

 

On March 20, 2018 the Company entered into a consulting agreement with Patagonia Global Trading, LLC. Upon execution of this agreement and upon the consultant signing their first customer, acceptable by the Company, and for services rendered, the Company agreed to issue 50,000 common stock purchase warrants to purchase common stock at an exercise price of $0.30 per share. As of November 30, 2018 Patagonia Global Trading, LLC, had not signed any customers and had not earned any warrants. The Company agreed to pay a total commission rate of 10% of the gross sale amount to be paid in the form of cash or warrants to purchase shares of common stock of the Company at a purchase price of $0.30 per share, exercisable 6 months after issuance. The commission will be paid on net sales from protected accounts and the consultant will be issued warrants on net invoices that are paid in full and money is received.

 

On April 16, 2108 the Company entered into a consulting agreement with Dr. David Hellman for marketing and promotion services. The term is 1 year with payment of 50,000 warrants to purchase common stock with an exercise price of $0.60. However, if the consultant generates more than $10,000 in monthly sales, the warrants will have an exercise price of $0.30, and if the consultant generates more than $20,000 in monthly sales, the warrants may be exchanged in “cashless exercise”. Additionally, the Company agreed to pay to the consultant 10% of retail sales and 5% of wholesale sales. On July 11, 2018 the Company terminated the agreement. On August 1, 2018 the Company entered into a new consulting agreement with Dr. Hellman. The term is 1 year with payment of 60,000 warrants to purchase common stock with an exercise price of $0.60. The warrants may be exercised on a cashless basis.

 

In May 2018 the Company entered into an agreement with Seidman Food Brokerage Inc., pursuant to which the Company appointed Seidman Food Brokerage, Inc. as its non-exclusive regional sales and marketing representative for the company’s product line for 12 months. The broker will be paid a monthly commission equal to the greater of (1) 5% of collected sales for all invoices generated for CBD products available from their product line for human consumption for a particular month or (2) solely with respect to the first six months of the term of the agreement. As of November 30, 2018 Seidman Food Brokerage, Inc. has not earned any commissions.

 

Pursuant to a securities purchase agreement dated March 5, 2018, in the event that, in the six month period commencing on the closing date of such purchase agreement, the Company were to sell common stock at a price lower than $0.10 per share (or common stock equivalents with a conversion or exercise price lower than $0.10 per share (each as adjusted for stock splits, stock dividends, and similar transactions, the “Subsequent Financing Price”), the Company was required to promptly issue additional shares of common stock to the purchaser for no additional consideration, such that the total number of shares of common stock received by the purchaser under the Agreement would be equal to the total purchase price of $300,000 divided by such lower subsequent financing price. The Company also agreed that it would not pay total cash compensation of more than $100,000 to any director, officer or employee of the Company for a period of 12 months from the closing date.

 

Pursuant to a securities purchase agreement dated March 21, 2018, in the event that, in the six month period commencing on the closing date of such purchase agreement, the Company were to sell common stock at a price lower than $0.10 per share (or common stock equivalents with a conversion or exercise price lower than $0.10 per share (each as adjusted for stock splits, stock dividends, and similar transactions), the Company was required to promptly issue additional shares of common stock to the purchaser for no additional consideration, such that the total number of shares of common stock received by the purchaser under the Agreement would be equal to the total purchase price of $50,000 divided by such lower subsequent financing price. The Company also agreed that it would not pay total cash compensation of more than $100,000 to any director, officer or employee of the Company for a period of 12 months from the closing date.

 

Pursuant to a securities purchase agreement entered into on June 6, 2018 the Company was obligated to issue additional shares of common stock if the Company sold common stock at a price lower than $0.10 per share (or common stock equivalents with an exercise price less than $0.10 per share) during the six month period following the closing of the purchase agreement, in which event the Company was required to issue additional shares to the purchaser for no additional consideration, such that the total number of common stock received by the purchaser will be equal to $50,000 divided by lower financing price. The Company also agreed that it would not pay total cash compensation of more than $100,000 to any director, officer, or employee of the Company for a period of 12 months from the closing date. As of November 30, 2018 the Company was obligated to issue 500,000 shares of common stock valued at $76,000 which is included in the common stock payable in the accompanying balance sheet.

 

7. SUBSEQUENT EVENTS

 

In December 2018 the Company sold a total of 300,000 shares of common stock for proceeds of $15,000.

 

11

 

   

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 Quarterly 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 revenues or profits;

 

Inadequate capital to continue business;

 

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 Quarterly Report.

 

Overview

 

We were incorporated in the State of Colorado on July 29, 1988 under the name Cine-Source Entertainment, Inc. On April 27, 2004, the Company changed its name to First Quantum Ventures, Inc. On April 13, 2006, the Company changed its name to First Quantum Ventures, Inc., and on May 5, 2006, the Company reincorporated in Nevada. On March 15, 2012, the Company changed its name to DiMi Telematics International, Inc.

 

In early 2017, our management team elected to suspend further investment and working capital on developing its then-existing technology and business prospects, turning its attention to the hemp-derived cannabidiol, or CBD, market. On March 10, 2017, the Company changed its name to Bespoke Extracts, Inc. to align the Company’s corporate identity with its new business plan.

 

The Company is now focused on introducing a proprietary line of premium quality, all natural cannabidiol (CBD) products in the form of tinctures and capsules for the nutraceutical and veterinary markets, which it introduced in mid-2018. Produced using pure, all natural, zero-THC phytocannabinoid-rich (“PCR”) hemp-derived CBD, our products are marketed as dietary supplements and distributed through our direct-to-consumers ecommerce store, found at www.BespokeExtracts.com. In the future, we also plan to our products through select specialty retailers, pharmacies/dispensaries and care providers.

 

12

 

 

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED November 30, 2018 AND NOVEMBER 30, 2017.

 

Sales

 

Sales during the three months ended November 30, 2018 were $41,431 compared to $0 for the three month ended November 30, 2017. In mid-2018 the Company began selling and shipping its CBD products.   

 

Selling, General and Administrative Expenses

 

Selling, general and administrative expenses for the three months ended November 30, 2018 and November 30, 2017 totaled $(4,078,341) and $934,745, respectively. Stock based compensation which is primarily comprised of the expense for warrants issued to our former and current President and Chief Executive Officer, was included in selling, general and administrative, and totaled $(4,240,694) which was a result of a significant decrease in share price and $935,629, respectively for the three months ended November 30, 2018 and 2017. Payroll expense amounted to $0 and $19,371 respectively for the three months ended November 30, 2018 and 2017, during the three months ended November 30, 2018 Ms. Noel’s compensation was recorded as consulting expense. The reduction in expense was due to a reduction in full time employees. Professional fees amounted to $37,995 and $23,963 respectively for the three months ended November 30, 2018 and 2017. The increase in expenses was due to increased legal and professional fees. Consulting amounted to $55,000 and $54,585 respectively for the three months ended November 30, 2018 and 2017. The increase was primarily due to branding and marketing performed by consultants hired during the three months ended November 30, 2018. Amortization expense for the three months ended November 30, 2018 and 2017 was $836 and $836 respectively. Amortization expense is in relation to a URL purchase and the prior year’s amortization is the expensing of intellectual property.

 

Make good common stock expense

 

Pursuant to a securities purchase agreement entered into on June 6, 2018 the Company was obligated to issue additional shares of common stock if the Company sold common stock at a price lower than $0.10 per share (or common stock equivalents with an exercise price less than $0.10 per share) during the six month period following the closing of the purchase agreement, in which event the Company was required to issue additional shares to the purchaser for no additional consideration, such that the total number of common stock received by the purchaser will be equal to $50,000 divided by lower financing price. As of November 30, 2018 the Company was obligated to issue 500,000 shares of common stock valued at $76,000 which is included in the common stock payable in the accompanying balance sheet.

 

Interest Expense

 

Interest expense on promissory notes for the three months ended November 30, 2018 and 2017, was $84,033 and $103,546, respectively. The decrease in interest expense was due to the reduction in amortization expense for the warrants and beneficial conversion associated with those notes that had been converted to common stock or fully amortized.

 

Net Loss

 

For the reasons stated above, our net income for three months ended November 30, 2018 totaled $3,853,800 or $0.08 per share, compared to a net loss for the three months ended November 30, 2017 of $1,137,046 or ($0.04) per share.

 

13

 

 

LIQUIDITY AND CAPITAL RESOURCES

 

As of November 30, 2018, we had cash and cash equivalents of $114,234. Net cash used in operating activities for the three months ended November 30, 2018 was $87,550. Our current liabilities as of November 30, 2018 totaled $741,322 consisting of accounts payable and accrued liabilities of $133,386, and convertible note payables-net, unamortized discounts of $607,886.

 

During the three months ended November 30, 2018 the Company raised $120,000 from the sale of common stock compared to $60,300 for the three months ended November 30, 2018. During the three months ended November 30, 2017 the Company entered into an agreement with a related party for $120,000 of convertible loans.

  

The accompanying unaudited consolidated financial statements have been prepared assuming a continuation of the Company as a going concern. The Company has a working capital deficit as of November 30, 2018 and negative cash flows from operations for the three months ended November 30, 2018.  These conditions raise substantial doubt about our ability to continue as a going concern.

 

We have not generated positive cash flows from operating activities. Our primary source of capital has been from the sale of equity securities. Our primary use of capital has been for professional fees and 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.

 

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.

 

14

 

 

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 SEC’s rules and forms, and (ii) accumulated and communicated to our management, including our chief executive officer and chief 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 chief 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.

 

The board of directors has not established an Audit Committee.

  

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.

 

15

 

 

PART II – OTHER INFORMATION

 

 

Item 1. Legal Proceedings.

 

We are not currently a party to, nor is 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 December 13, 2018, the Company issued 300,000 shares of common stock to an accredited investor for an aggregate purchase price of $15,000.

 

In connection with the foregoing, the Company relied up on 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.

 

The Company is in default on a convertible debenture that matured in December 2018. The amount due as of the date of the filing of this report is $120,000.

 

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   XBRL Instance Document*
101.SCH   XBRL Taxonomy Extension Schema Document*
101.CAL   XBRL Taxonomy Calculation Linkbase Document*
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document*
101.LAB   XBRL Taxonomy Label Linkbase Document*
101.PRE   XBRL Taxonomy Presentation Linkbase Document*

 

* Filed herewith.

 

16

 

 

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 23, 2019 By: /s/ Niquana Noel
   

Niquana Noel

Chief Executive Officer and
Chief Financial Officer

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

 

17

 

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