The accompanying notes are an integral part of these unaudited
condensed financial statements.
The accompanying notes are an integral part of these unaudited
condensed financial statements.
The accompanying notes are an integral part of these unaudited
condensed financial statements.
The accompanying notes are an integral part
of these unaudited condensed financial statements.
NOTES
TO CONDENSED FINANCIAL STATEMENTS
NOVEMBER
30, 2020 AND 2019
(Unaudited)
1.
NATURE OF OPERATIONS, SIGNIFICANT ACCOUNTING POLICIES AND GOING CONCERN
Nature
of Business Operations
Bespoke
Extracts, Inc. (the “Company”) is a Nevada corporation focused on selling its proprietary line of specially-formulated,
premium quality, hemp-derived CBD products.
The
Company introduced its original line of CBD products in 2018. In the fall of 2020, the Company unveiled a new brand image, new
website and ecommerce store and a new line-up of seven hemp-derived CBD formulations available for purchase in the form of tinctures
and softgels.
Basis
of Presentation
The
accompanying condensed unaudited condensed financial statements have been prepared in accordance with accounting principles generally
accepted in the United States for interim information and with the instructions to Form 10-Q and Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by accounting principles generally accepted in the United States
for complete financial statements. In the opinion of management, all adjustments consisting of a normal and recurring nature considered
necessary for a fair presentation have been included. Operating results for the three-month period ended November 30, 2020 may
not necessarily be indicative of the results that may be expected for the year ending August 31, 2021.
For
further information, refer to the Company’s financial statements and footnotes thereto included in the Annual Report on
Form 10-K for the year ended August 31, 2020.
Certain prior period amounts have been
reclassified to conform to the current period presentation.
Going
Concern
The
accompanying condensed financial statements have been prepared assuming a continuation of the Company as a going concern. The
Company had negative cash flows from operations, a working capital deficit and an accumulated deficit as of and for the three
months ended November 30, 2020. This raises substantial doubt about our ability to continue as a going
concern.
The
Company’s ability to continue as a going concern is dependent upon the Company generating profitable operations in the future
and/or obtaining the necessary financing to meet its obligations and repaying its liabilities arising from normal business operations
when they come due. There is no assurance that this series of events will be satisfactorily completed.
Further,
if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities
may have rights, preferences or privileges senior to those of existing holders of our common stock. If additional financing is
not available or is not available on acceptable terms, we will have to curtail or cease our operations. The financial statements
do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification
of liabilities that might be necessary in the event the Company cannot continue in existence. These financial statements do not
include any adjustments that might arise from this uncertainty.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts reported in the accompanying financial statements and accompanying
notes. Significant estimates include the assumption used in the valuation of equity-based transactions, valuation of intangible
assets, allowance for doubtful accounts and inventory valuation and reserves. Actual results could differ from those estimates.
Cash
and Cash Equivalents
Cash
and cash equivalents include all highly liquid investments with original maturities of three months or less at the time of purchase.
At November 30, 2020 and August 31, 2020, the Company did not have any cash equivalents.
Fair
Value of Financial Instruments
The
carrying amounts of cash, accounts receivable, prepaid expenses, inventory and other assets, accounts payable, accrued
liabilities, note payable and convertible note payable approximate their fair values as of November 30, 2020 and August 31,
2020, respectively, because of their short-term natures and the Company’s borrowing rate of interest.
Accounts
Receivable
Accounts
receivable are recorded at fair value on the date revenue is recognized. The Company provides allowances for doubtful accounts
for estimated losses resulting from the inability of its customers to repay their obligation. If the financial condition of the
Company’s customers were to deteriorate, resulting in an impairment of their ability to repay, additional allowances may
be required. The Company provides for potential uncollectible accounts receivable based on specific customer identification and
historical collection experience adjusted for existing market conditions. If market conditions decline, actual collection experience
may not meet expectations and may result in decreased cash flows and increased bad debt expense.
The policy for determining past due status
is based on the contractual payment terms of each customer, which are generally net 30 or net 60 days. Once collection efforts
by the Company and its collection agency are exhausted, the determination for charging off uncollectible receivables is made. At
November 30, 2020 and August 31, 2020, the Company has recorded an allowance for doubtful accounts of $2,981 and $2,981, respectively.
At November 30, 2020 and August 31, 2020 included in the accounts receivable is the merchant holdback receivable balance of $3,521
and $3,585, respectively which will be remitted to the Company in the future.
Inventory
Inventories
are stated at the lower of cost or net realizable value. Cost is determined by the first-in, first-out basis and net realizable
value. Net realizable value is defined as sales price less cost of completion, disposition and transportation and a normal profit
margin. As of November 30, 2020 and August 31, 2020, inventory amounted to $37,651 and $0, respectively, which consisted of finished
goods, net of reserves. During the three months ended November 30, 2020 the Company adjusted the reserves by $6,776 for products
sold. As of November 30, 2020 and August 31, 2020 inventory reserves were $33,476 and $40,252, respectively.
Revenue
Recognition
We account for revenue in accordance with
ASC Topic 606. Net 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. Net revenues exclude sales and other similar
taxes collected from customers.
Our
products are sold through our online and telephonic channels. Revenue is recognized when control of the merchandise is transferred
to the customer, which generally occurs upon shipment. Payment is typically due on the date of shipment. The Company offers a
14 day return policy on sales.
Stock
Option Plans
Stock options and warrants issued to consultants
and other non-employees as compensation for services provided to the Company are accounted for based on the fair value of the services
provided or the estimated fair market value of the option or warrant, whichever is more reliably measurable, and in accordance
FASB ASC 718, Compensation-Stock Compensation, including related amendments and interpretations. The related expense is
recognized over the period the services are provided. Stock option compensation expense has been recognized as a component of general
and administrative expenses in the accompanying financial statements for the three months ended November 30, 2019. No stock option
compensation expense was recognized for the three months ended November 30, 2020.
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
3,150,000 warrants and 0 options is anti-dilutive for the three months ended November 30, 2020 as well as 500,000,000 shares issuable
upon the conversion of a convertible note. The effect of 3,450,000 warrants and 1,200,000 options is anti-dilutive for the three
months end November 30, 2019.
2.
ASSET PURCHASE AGREEMENT
On February 21, 2017, the Company purchased
all right, title, interest and goodwill in or associated with certain domain names set forth in an asset purchase agreement for
a total of $20,185 in cash and 200,000 shares of the Company’s common stock valued at $30,000. During the year ended August
31, 2020, the Company transferred certain URLs valued at $5,282 to an unrelated party and impaired $289 leaving a balance of $44,614
of URL’s. The domain names are being amortized over a 15 year period. During the three months ended November 30, 2020 and
2019, the Company recorded an amortization expense of $811 and $836, respectively.
3.
NOTE PAYABLE - RELATED PARTY
On August 31, 2020, the Company issued
a promissory note in the principal amount of $150,000, to Danil Pollack, the Company’s chief executive officer. Upon execution
of the note, $120,000 was remitted and the remaining $30,000 was remitted on September 22, 2020. The note did not bear interest.
On November 10, 2020, the Company entered into an exchange agreement with Mr. Pollack. Pursuant to the exchange agreement, Mr.
Pollack exchanged the note issued August 31, 2020 with an outstanding principal amount of $150,000 for 15,000,000 newly issued
shares of common stock of the Company.
During
the three months ended November 30, 2020 Mr. Pollack loaned the Company an additional $100,534 that was non-interest bearing and
payable upon demand. $100,000 of this amount was subsequently deemed to be consideration for 5,000,000 shares of common stock
the Company issued to Mr. Pollack on January 6, 2021. See Note 9.
4.
CONVERTIBLE NOTE PAYABLE
On December 24, 2019, the Company entered
into and closed a securities purchase agreement with an accredited investor, pursuant to which the Company issued and sold to the
investor an original issue discount convertible debenture in the principal amount of $500,000, for a purchase price of $300,000.
The Company also issued to the investor 5,000,000 shares of common stock valued at $55,000 ($.005 per share). The Company recorded
beneficial conversion of $245,000 due to the conversion feature. The debenture may not be converted to common stock to the extent
such conversion would result in the holder beneficially owning more than 4.99% of the Company’s outstanding common stock.
The debenture had an original maturity date of April 30, 2020 and was convertible into shares of common stock of the Company at
a conversion price of $0.001, except that, if the Company failed to repay the debenture upon maturity, the conversion price would
be reduced to $0.0004 (subject to adjustment for stock splits, stock dividends, and similar transactions) and the debenture would
bear interest at the rate of 9% per year. The Company’s obligation to repay the debenture upon maturity was initially secured
by a security interest in the Company’s inventory pursuant to a security agreement between the Company and the investor.
For the year ended August 31, 2020 the Company recorded amortization of debt discount of $500,000. On April 23, 2020, the Company
entered into an amendment to the security agreement, dated December 24, 2019 between the Company and the holder of the Company’s
original issue discount convertible debenture, dated December 24, 2019. Pursuant to the security agreement amendment, the collateral
under the security agreement was amended to be the Company’s URLs. On December 10, 2020 the Company entered into amendments
(“Amendment No. 3”) with the holders of the Company’s original issue discount convertible debentures, with an
original issuance date of December 24, 2019, as amended by amendment No. 1 thereto, dated May 28, 2020, and amendment No. 2 thereto,
dated August 21, 2020, in the aggregate outstanding principal amount of $500,000. Pursuant to Amendment No. 3, the maturity date
of the debentures was extended to February 28, 2021. On January 15, 2021, the Company entered into amendments (“Amendment
No. 4”) with the holders to increase the conversion price of the debentures to $0.05. See Note 9.
5.
EQUITY
Common
Stock and Preferred Stock
As
of August 31, 2020, the Company had authorized capital of 800,000,000 shares of common stock with a par value of $0.001, and 50,000,000
shares of preferred stock with a par value of $0.001. On October 2, 2020, the Company filed a certificate of amendment to the
Company’s articles of incorporation with the Secretary of State of Nevada, pursuant to which the Company increased its authorized
shares of common stock from 800,000,000 to 3,000,000,000. 1,000 shares of preferred stock are designated as Series A Convertible
Preferred Stock. No shares of Series A Preferred Stock are issued and outstanding as of November 30, 2020 and August 31, 2020,
respectively. The Company’s Certificate of Designation of Series B Preferred Stock was withdrawn by the Company on June
30, 2020. 1 share of preferred stock is designated Series C Preferred Stock and is issued and outstanding as of November 30, 2020
and August 31, 2020, 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.
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 August 31, 2020, the Company
was obligated to issue 500,000 shares of common stock valued at $76,000. On January 5, 2021, the Company issued the 500,000 shares
of common stock (see Note 9).
On
August 31, 2020, the Company issued a promissory note in the principal amount of $150,000, to Danil Pollack, the Company’s
chief executive officer. Upon execution of the note, $120,000 was remitted and the remaining $30,000 was remitted on September 22,
2020. The note did not bear interest. On November 10, 2020, the Company entered into an exchange agreement with Mr. Pollack. Pursuant
to the exchange agreement, Mr. Pollack exchanged the promissory note issued August 31, 2020 for 15,000,000 newly issued shares
of common stock of the Company.
On
November 30, 2020, the Company entered into a securities purchase agreement with Danil Pollack. Pursuant to the purchase agreement,
the Company issued and sold to Mr. Pollack 20,000,000 shares of common stock for an aggregate purchase price of $200,000.
Warrants
The
following table summarizes the warrant activities during the three months ended November 30, 2020:
|
|
Number of
Warrants
|
|
|
Weighted-
Average
Price Per
Share
|
|
|
Weighted-
Average
Remaining
Life
|
|
|
|
|
|
|
|
|
|
Outstanding at August 31, 2020
|
|
|
3,450,000
|
|
|
$
|
0.56
|
|
|
2.8 years
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
Canceled or expired
|
|
|
(300,000
|
)
|
|
|
1.00
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
Outstanding at November 30, 2020
|
|
|
3,150,000
|
|
|
$
|
0.52
|
|
|
2.78 years
|
Exercisable at November 30, 2020
|
|
|
3,150,000
|
|
|
$
|
0.52
|
|
|
2.78 years
|
Intrinsic value at November 30, 2020
|
|
|
|
|
|
$
|
-
|
|
|
|
Options
On April 21, 2020, Danil Pollack was appointed
president, chief executive officer, and chief financial officer of the Company. In connection with Mr. Pollack’s appointment,
the Company entered into an employment agreement with Mr. Pollack. Pursuant to the employment agreement, Mr. Pollack will serve
as the Company’s chief executive officer and president for a period of one year, which term will renew automatically for
successive one year terms, subject to the right of either party to terminate the agreement at any time upon written notice. Mr.
Pollack was granted the right, for a period of six months, to purchase up to 100,000,000 shares of common stock of the Company
for a purchase price of $0.001 per share. The Company recognized option expense of $1,416,975 during the year ended August 31,
2020. During the year ended August 31, 2020, Mr. Pollack exercised 84,000,000 stock options for $84,000. During the three months
ended November 30, 2020, the remaining 16,000,000 stock options expired.
The following table summarizes the option
activities during the three months ended November 30, 2020:
|
|
Number of
Options
|
|
|
Weighted-
Average
Price Per
Share
|
|
|
Weighted-
Average
Remaining
Life
|
Outstanding at August 31, 2020
|
|
|
16,000,000
|
|
|
$
|
.001
|
|
|
0.9 years
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
Canceled or expired
|
|
|
(16,000,000
|
)
|
|
|
.001
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
Outstanding at November 30, 2020
|
|
|
-
|
|
|
$
|
-
|
|
|
|
Exercisable at November 30, 2020
|
|
|
-
|
|
|
$
|
-
|
|
|
|
6.
RELATED PARTY TRANSACTIONS
On September 30, 2020, the Company entered
into an amendment to the Company’s employment agreement, dated April 22, 2020, with Danil Pollack, the Company’s chief
executive officer. Pursuant to the amendment, the Company will pay Mr. Pollack an annual salary of $48,000. The Company may also
in its discretion pay additional compensation to Mr. Pollack at any time as a bonus. See Note 7.
On August 31, 2020, the Company issued
a promissory note in the principal amount of $150,000, to Danil Pollack. Upon execution of the note, $120,000 was remitted and
the remaining $30,000 was paid on September 22, 2020. The note did not bear interest. On November 10, 2020, the Company entered
into an exchange agreement with Mr. Polllack. Pursuant to the exchange agreement, Mr. Pollack exchanged this note for 15,000,000
newly issued shares of common stock of the Company. See Note 5.
On November 30, 2020, the Company entered
into a securities purchase agreement with Mr. Pollack. Pursuant to the purchase agreement, the Company issued and sold to Mr. Pollack
20,000,000 shares of common stock for an aggregate purchase price of $200,000. See Note 5.
7.
COMMITMENTS AND CONTINGENCIES
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, 2020 and August 31, 2020, 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.
On January 5, 2021, the Company issued 500,000 shares of common stock. See Note 9.
On
April 21, 2020, Danil Pollack was appointed president, chief executive officer, and chief financial officer of the Company. In
connection with Mr. Pollack’s appointment, the Company entered into an employment agreement with Mr. Pollack. On September
30, 2020, the Company entered into an amendment to the employment agreement. Pursuant to the amendment, the Company will pay Mr.
Pollack an annual salary of $48,000. The Company may also in its discretion pay additional compensation to Mr. Pollack at any
time as a bonus.
On
October 13, 2020, the Company entered into a consulting agreement with Yaniv Rozen pursuant to which the Company engaged Mr. Rozen
to serve as the Company’s chief operating officer on a consultant/independent contractor basis. Mr. Rozen may engage in
other business activities while serving as the Company’s chief operating officer.
Pursuant
to the consulting agreement, the Company will pay Mr. Rozen a fee of $3,000 per month.
The
Company also agreed to issue to Mr. Rozen shares of common stock, and increase such monthly fee, as follows:
|
●
|
Within five business
day of the end of the fourth quarter of 2020, (i) if the Company’s average sales were at least $50,000 per month, for
such quarter, the Company would issue to Mr. Rozen 500,000 shares of common stock; or (ii) if the Company’s average
sales were at least $100,000 per month for such quarter, the Company would issue to Mr. Rozen 750,000 shares of common stock;
|
|
●
|
Within five business
day of the end of the first quarter of 2021, (i) if the Company’s average sales were at least $100,000 per month for
such quarter, the Company will issue to Mr. Rozen 750,000 shares of common stock, or (ii) if the Company’s average sales
were at least $150,000 per month for such quarter, the Company will issue to Mr. Rozen 1,000,000 shares of common stock, and
will increase Mr. Rozen’s fee to $5,000 per month effective commencing at the end such quarter;
|
|
●
|
Within five business
days of the end of the second quarter of 2021, (i) if the Company’s average sales were at least $200,000 per month,
for such quarter, the Company will issue to Mr. Rozen 1,500,000 shares of common stock, or (ii) if the Company’s average
sales were at least $300,000 per month, for such quarter, the Company will issue to Mr. Rozen 2,000,000 shares of common stock;
and
|
|
●
|
Within five business
days of the end of the third quarter of 2021, (i) if the Company’s average sales were at least $300,000 per month, for
such quarter, the Company will issue to Mr. Rozen 2,000,000 shares of common stock; or (ii) if the Company’s average
sales were at least $500,000 per month, for such quarter, the Company will issue to Mr. Rozen 3,000,000 shares of common stock,
and will increase Mr. Rozen’s fee to $7,000 per month effective commencing at the end such quarter.
|
As of November 30, 2020, there was no common
stock owed to Mr. Rozen as the quarterly target sales were not met.
The
COVID-19 pandemic may negatively affect our operations, including by limiting access to our facilities, customers, management,
and professional advisors, and causing delays and constraints in manufacturing and shipping of our products. These factors, in
turn, may negatively impact our operations, financial condition and demand for our products, and our ability to raise capital
on acceptable terms, or at all.
8.
MAJOR CUSTOMERS
At November 30, 2020 and August 31, 2020,
no individual customer amounted to over 10% of total accounts receivable. During the three months ended November 30, 2020 and 2019
no individual customer amounted to over 10% of total sales.
9. SUBSEQUENT EVENTS
On January 5, 2021, pursuant to a securities
purchase agreement entered into on June 6, 2018 the Company issued 500,000 shares of common stock that had been previously recorded
as a common stock payable. See Note 5.
On January 6, 2021, the Company entered
into an agreement with Danil Pollack. Pursuant to the agreement, the Company issued to Mr. Pollack 5,000,000 shares of common stock
in consideration for a payment of $100,000 which was previously loaned to the Company. See Note 3.
On January 15, 2021, the Company entered
into amendments (“Amendment No. 4”) with the holders of the Company’s original issue discount convertible debentures,
with an original issuance date of December 24, 2019, as amended by amendment No. 1 thereto, dated May 28, 2020, amendment No. 2
thereto, dated August 21, 2020, and amendment No. 3 thereto, dated December 10, 2020, in the aggregate outstanding principal amount
of $500,000. Pursuant to Amendment No. 4, the conversion price of the debentures was increased to $0.05 per share (subject to adjustment
for stock splits, stock dividends, and similar transactions). See Note 4.
On January 21, 2021, the Company entered
into a securities purchase agreement with Danil Pollack. Pursuant to the purchase agreement, the Company issued and sold to Mr.
Pollack 2,000,000 shares of common stock for an aggregate purchase price of $100,000.