UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2023
OR
☐ TRANSITION REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to ________
Commission file number: 000-52759
BESPOKE EXTRACTS, INC.
(Exact name of registrant as specified in its
charter)
Nevada | | 20-4743354 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
12001 E. 33rd Avenue, Unit O Aurora, CO | | 80010 |
(Address of principal executive offices) | | (Zip Code) |
Registrant’s telephone number, including
area code: (720) 949-1143
Securities registered pursuant to Section 12(b)
of the Act: None.
Securities registered pursuant to Section 12(g)
of the Act:
Common Stock, par value $0.001 per share
Indicate by check mark if the registrant is a
well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not
required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒
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 preceding 12
months (or for such shorter period that the registrant was required to file such reports), 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
has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or
issued its audit report. ☐
If securities are registered pursuant to Section
12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction
of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error
corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s
executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the voting and
non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold as of the
last business day of the registrant’s most recently completed second fiscal quarter was approximately $1.3 million.
As of March 31, 2024, there were 10,168,552 shares
of common stock, par value $0.001 per share, issued and outstanding.
Bespoke Extracts, Inc.
Table of Contents
PART I
This Annual Report on Form
10-K may contain forward-looking statements. Such forward-looking statements are based on our management’s beliefs and assumptions
and on information currently available to our management and involve risks and uncertainties. Forward-looking statements include statements
regarding our plans, strategies, objectives, expectations, and intentions, which are subject to change at any time at our discretion.
Forward-looking statements include our assessment, from time to time of our competitive position, the industry environment, potential
growth opportunities and the effects of regulation. Forward-looking statements include all statements that are not historical facts and
can be identified by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,”
“hopes,” “intends,” “may,” “plans,” “potential,” “predicts,”
“projects,” “should,” “will,” “would” or similar expressions.
Forward-looking statements
involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance, or achievements to
be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.
We discuss many of these risks in greater detail in “Risk Factors.” Given these uncertainties, undue reliance should not
be placed on these forward-looking statements. Also, forward-looking statements represent our management’s beliefs and assumptions
only as of the date of this report. Our actual future results may be materially different from what we expect. Except as required by
law, we assume no obligation to update these forward-looking statements publicly.
As used in this annual report,
the terms “we”, “us”, “our”, the “Company”, “Bespoke Extracts, Inc.”
and “Bespoke” mean Bespoke Extracts, Inc. unless otherwise indicated.
Item 1. Business.
Background
Bespoke Extracts, Inc. is a Nevada corporation.
The Company’s Common Stock (as hereinafter defined) is traded in the United States on the OTCQB (the “OTCQB”) under
the symbol “BSPK.” The Company has one wholly-owned subsidiary, Bespoke Extracts Colorado, LLC (“Bespoke Colorado”).
Originally founded in 1988,
Bespoke began operations in the cannabis industry in 2023 upon the acquisition of a state-licensed adult-use marijuana infused products
business in Aurora, Colorado. The Company has since begun producing pre-rolled marijuana cigarettes, or “pre-rolls”. Currently,
Bespoke owns, manufactures, and distributes a portfolio of cannabis consumer packaged goods brands including Fresh Joints, Box-O-Joints,
and Wee Joints, to licensed marijuana dispensaries across Colorado.
Our Corporate History
For information on the history
of the Company and the development of the business prior to November, 2021, the month new management was appointed, see the information
set forth under the headings “Business – Our Corporate History” in our Form 10-K that was filed with the SEC on April
27, 2023.
In November 2021, new management
of the Company was appointed and the Company began to focus on other complimentary lines of business to its historical CBD offerings,
specifically regulated cannabis. Under our new management team, we plan to expand the Company’s focus to regulated cannabis markets
in the United States.
In furtherance of its expanded strategy, on January 3, 2023, the Company
closed on its acquisition of WonderLeaf assets and they are now owned and operated by Bespoke Colorado. Following the success of the Company’s
cannabis efforts, the Company has discontinued its CBD efforts.
The Company’s expanded
business plan may include the acquisition of related businesses in additional states which allow publicly traded companies to own and
operate such businesses. Depending on the markets entered and state regulation, the Company’s plan may also include: asset purchases,
management/consulting operating agreements, or similar agreements. The Company plans to use a combination of cash, shares of common or
preferred stock, warrants, notes, or other financing vehicles to complete these acquisitions. There is no assurance any required financing
for such acquisitions will be available on acceptable terms, or at all, or that we will complete any such acquisitions.
In addition, the acquisition
of marijuana related businesses is subject to the approval of government authorities which license and regulate marijuana dispensaries
in their applicable jurisdictions. No assurance can be given that any such approvals can be obtained.
WonderLeaf
The Company has developed
a plan to potentially acquire and merge, or “roll up” direct plant-touching dispensaries, manufacturing facilities, and cannabis
cultivation facilities with a target to be one of the highest quality craft cannabis businesses in Colorado.
Consistent with this strategy,
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”). 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 Purchase Agreement.
In connection with the WonderLeaf
Purchase Agreement, Bespoke Colorado entered into a lease agreement (the “Lease”) with WL Holdings, Ltd. (“WL Holdings”).
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. The Company also has an option to purchase the property underlying
the lease for $600,000.
On January 3, 2023, the Company
closed on its acquisition of WonderLeaf assets and they are now owned and operated by Bespoke Colorado.
Our Business--Overview
Since the change in management
and control of the Company that occurred in November 2021, we now primarily operate within the regulated cannabis industry through Bespoke
Colorado.
Branded Products
Since January 2023, the Company has offered cannabis
products focusing on two primary categories:
|
● |
Branded Products – We plan to pursue
production of brands of pre-rolled joints and other processed marijuana products under newly created brand names. We also
plan to explore licensing existing brands from other states and produce them in Colorado. For our branded product segment,
we plan to purchase high quality marijuana, process and package the marijuana and re-sell it to licensed dispensaries. To this end,
in January 2023, the Company launched Fresh Joints, a branded pre-roll.
We are a licensed operator in the recreational
adult-use cannabis market in Colorado where we offer, and plan to expand, a portfolio of adult-use brands and products. We plan to expand
our portfolio to include new cannabis products and formats. We believe that our expanding portfolio of brands, positions us with the ability
to establish a leading position in the adult-use market in Colorado and other US states. Therefore, we are investing in brand building
with our retailers, consumers, new product innovation, distribution, trade marketing and cannabis education to drive market share in the
adult-use cannabis industry.
We are positioned to
grow our brand portfolio to specifically meet the needs and preferences of different consumer segments of the adult-use cannabis
market. We leverage our selection of strains to offer each consumer segment a different experience through its product and terpene
profiles, while also focusing on the highest quality elements for each of these segments as it relates to price, potency and product
assortment. |
|
|
|
|
● |
Processing Business- Given our investment in personnel and equipment,
we are able to leverage our infrastructure and provide processing services for licensed cultivators and dispensaries. In these
arrangements, the company earns a fee for each unit processed and delivered. |
Supply, Manufacturing and Logistics
Our management believes that
there is a consistent supply of high-quality cannabis available in the state of Colorado. Our management reviews daily price advertisements
and quotes and plans out purchases of cannabis on a regular basis based on demand for the Company’s products.
The majority of our licensed
cannabis business is processed electronically through a national data platform.
All of our products are tested
by state-licensed independent third parties via issuance of a Certificate of Analysis (“COA”), for cannabinoid content and
profile, microbiological content, heavy metal content, pesticide content, and residual solvent content. This ensures the consistency and
quality of our product line and brand and compliance with state regulations.
Fulfillment of orders from
customers is managed either directly by employees of the Company or by state licensed third-party logistics partners.
Federal and State Regulation of Cannabis
Below is a discussion of the federal and state-level
regulatory regimes in the jurisdictions where the Company is currently operating through its subsidiary.
Federal illegality of Cannabis
The U.S. federal government
regulates drugs through the Controlled Substances Act (21 U.S.C. § 811), which places controlled substances, including cannabis,
in a schedule. Cannabis is classified as a Schedule I controlled substance. A Schedule I controlled substance is defined as a substance
that has no currently accepted medical use in the United States, a lack of safety for use under medical supervision and a high potential
for abuse. Schedule I controlled substances are federally illegal and the manufacturing, sale and use of cannabis is a violation of federal
law.
Due to the conflicting views
between state legislatures and the federal government regarding cannabis, cannabis businesses are subject to inconsistent laws and regulations.
The Obama Administration attempted to address the inconsistent treatment of cannabis under state and federal law in the Cole Memorandum
that Deputy Attorney General James Cole sent to all U.S. Attorneys in August 2013. The Cole Memorandum noted that, in jurisdictions that
have enacted laws legalizing cannabis in some form and that have also implemented strong and effective regulatory and enforcement systems
to control the cultivation, processing, distribution, sale and possession of cannabis, conduct in compliance with such laws and regulations
was not a prosecution or enforcement priority for the Department of Justice.
On January 4, 2018, then
U.S. Attorney General Jeff Sessions rescinded the Cole Memorandum. Despite its rescission, as of December 31, 2022, federal prosecutors
appear to continue to use the Cole Memorandum’s priorities as an enforcement guide. Attorney General Merrick Garland stated during
his congressional testimony in February 2021, that the Justice Department would not pursue cases against Americans complying with laws
of the states that have legalized and are regulating marijuana. In October 2022, President Joseph R. Biden, announced that marijuana
scheduling under federal law would be reviewed, noting that marijuana is scheduled as more dangerous than fentanyl and methamphetamine,
two substances that are driving an overdose epidemic in the country. In October 2022, President Biden also announced a mass pardon of
persons who had been convicted of simple marijuana possession under federal law. In December 2022, President Biden signed the Medical
Marijuana and Cannabidiol Research Expansion Act into law, which provides for significantly broader opportunities to study cannabis.
As an industry best practice,
the Company continues to employ the following policies to ensure compliance with the guidance provided by the Cole Memorandum:
| ● | Our operations and our subsidiary
operations are compliant with all licensing requirements as established by the applicable
state, county, municipality, town, township, borough and other political/administrative divisions;
to this end, we retain appropriately experienced legal counsel to help ensure compliance
of such operations with applicable licensing requirements; |
| ● | The cannabis-related activities adhere
to the scope of the licensing obtained; |
| ● | Our operating subsidiaries must pass
a range of requirements, adhere to strict business practice standards and be subject to strict
regulatory oversight to ensure that no revenue is distributed to criminal enterprises, gangs
or cartels; |
| ● | We have implemented an inventory
tracking system and necessary procedures to help ensure that such compliance system is effective
in tracking inventory and preventing diversion of cannabis or cannabis products; |
| ● | Our state-authorized cannabis business
activity is not used as a cover or pretense for trafficking of other illegal drugs, and we
are not engaged in any other illegal activity; and |
| ● | We conduct reviews of products and
product packaging to ensure that such products and product packaging comply with applicable
regulations and contain necessary disclaimers about the contents of the products. |
There have been efforts
at reforming federal cannabis law. As of December 31, 2023, there were more than a dozen proposed congressional bills addressing myriad
regarding the cannabis industry, from banking and tax reform to full legalization. However, none have passed into law.
There does exist a legislative
safeguard for the medical cannabis industry, appended to the federal budget bill. For each year since 2015, Congress has adopted a so-called
“rider” provision to the Consolidated Appropriations Acts (formerly referred to as the Rohrabacher-Farr Amendment and currently
referred to as the Rohrabacher-Blumenauer Amendment) to prevent the federal government from using congressionally appropriated funds
to enforce federal law against regulated medical cannabis actors operating in compliance with state and local law. On December 29, 2022,
the amendment was renewed as part of the Consolidated Appropriations Acts of 2023, H.R. 2617, which is effective through March 8, 2024.
The sheer size of the cannabis
industry, in addition to participation by state and local governments and investors, suggests that a large-scale federal enforcement
operation would more than likely create unwanted political backlash for the Department of Justice and the current administration. Regardless,
cannabis remains illegal at the federal level. The U.S. federal government has always reserved the right to enforce federal law over
the sale and disbursement of medical or adult-use cannabis, even if state law authorizes such sale and disbursement. There is no guarantee
that state laws legalizing and regulating the sale and use of cannabis will remain in place or that local governmental authorities will
not limit the applicability of state laws within their respective jurisdictions. Unless and until the United States Congress amends the
Controlled Substances Act with respect to cannabis, there is a risk that federal authorities may enforce current U.S. federal law criminalizing
cannabis.
We will continue to monitor
compliance on an ongoing basis in accordance with our compliance program and standard operating procedures. While our operations are
in compliance with all applicable state laws, regulations and licensing requirements, such activities remain illegal under federal law.
For the reasons described above and the risks further described in the section entitled “Risk Factors,” there are significant
risks associated with our business. Readers of this Form are strongly encouraged to carefully read all of the risk factors contained
in Item 1A—“Risk Factors.”
Federal Law and Ability to Access Public and
Private Capital
Due to the present state
of the laws and regulations governing financial institutions in the U.S., banks often refuse to provide services to businesses involved
in the cannabis industry are currently not permitted to list securities on the U.S. securities exchanges. Consequently, it may be difficult
for us to obtain financing from large U.S. financial institutions.
We have historically, and
continue to have, access to equity and debt financing from non-public (i.e., private placement) markets.
We do not generate adequate
cash to fund our operations without raising additional capital through capital raising transactions. Our business plan continues to include
growth, in the form of acquisitions and through facility expansion and improvements. Accordingly, we expect to raise additional capital,
both in the form of debt and new equity offerings, during the next few years.
However, there can be no
assurance that additional financing will be available to us when needed or on terms that are acceptable.
Restricted Access to Banking and Other Financial
Services
The United States Department
of the Treasury’s Financial Crimes Enforcement Networks, which we refer to as “FinCEN”, issued the FinCEN Memorandum on February
14, 2014, outlining the pathways for financial institutions to back cannabis businesses in compliance with federal enforcement priorities.
These guidelines include burdensome due diligence expectations and reporting requirements. The FinCEN Memorandum outlines the pathways
for financial institutions to bank state-sanctioned cannabis businesses in compliance with federal enforcement priorities. The FinCEN
Memorandum echoed the enforcement priorities of the Cole Memorandum and states that, in some circumstances, it is permissible for banks
to provide services to cannabis-related businesses without risking prosecution for violation of federal money laundering laws. Under
these guidelines, financial institutions must submit a Suspicious Activity Report in connection with all cannabis-related banking activities
by any client of such financial institution, in accordance with federal money laundering laws.
However, the FinCEN Memorandum
does not provide any safe harbors or legal defenses from examination or regulatory or criminal enforcement actions by the Department
of Justice, FinCEN or other federal regulators for banks and other financial institutions and can be amended or revoked at any time.
Thus, most banks and other financial institutions in the United States do not appear comfortable relying on this guidance to provide
banking services to the cannabis industry. Banks and/or card networks may also refuse to process debit card payments and credit card
companies generally refuse to process credit card payments for cannabis-related businesses. In addition, federal money laundering statutes
and regulations under the Bank Secrecy Act, as amended by Title III of the Uniting and Strengthening America by Providing Appropriate
Tools Required to Intercept and Obstruct Terrorism Act of 2001, discourage financial institutions from working with any organization
that sells a controlled substance, regardless of whether the state in which it operates permits cannabis sales. The inability or limitation
on our ability to open or maintain bank accounts, obtain other banking services and/or accept credit card and debit card payments may
make it difficult for us to operate and conduct our business as planned or to operate efficiently.
State Cannabis Law
State laws that permit and
regulate the production, distribution and use of cannabis for adult-use or medical purposes are in direct conflict with federal law.
Although certain states and territories of the U.S. authorize medical and/or adult-use cannabis production and distribution by licensed
or registered entities, under U.S. federal law, the possession, use, cultivation and transfer of cannabis and any related drug paraphernalia
are criminal acts under the Controlled Substances Act. Although the Company’s activities are believed to be compliant with applicable
state and local laws, strict compliance with state and local laws with respect to cannabis may neither absolve the Company of liability
under U.S. federal law, nor may it provide a defense to any federal proceeding that may be brought against the Company.
As of December 31, 2023,
38 states, (and the territories of Guam, Puerto Rico, the U.S. Virgin Islands, the Northern Mariana Islands and the District of Columbia)
have legalized the cultivation and sale of cannabis for medical purposes. In 21 of those states, the sale and possession of cannabis
is legal for both medical and adult-use, and the District of Columbia has legalized adult-use but not commercial sale.
Regulatory Environment
in States Where We Operate
The risk of federal enforcement
and other risks associated with the Company’s business are described in Item 1A—“Risk Factors.”
Regulation of the
Cannabis Market at State and Local Level
Colorado
On November 7, 2000, Colorado
voters approved Amendment 20, which amended the state constitution to allow the use of marijuana in the state by approved patients with
written medical consent.
Amendment 64 passed on November
6, 2012, which amended the state constitution to establish a cannabis program in Colorado and permit the commercial cultivation, manufacture
and sale of marijuana to adults 21 years of age or older. The commercial sale of marijuana for adult-use to the general public began
on January 1, 2014.
Colorado License and
Regulations
In Colorado, cannabis businesses
must comply with local licensing requirements in addition to state licensing requirements in order to operate. Colorado localities are
allowed to limit or prohibit the operation of marijuana cultivation facilities, product manufacturing facilities or retail stores facilities.
There are three principal
license categories in Colorado: (1) cultivation, (2) product manufacturer and (3) medical center/retail store. Each facility is authorized
to engage only in the type of activity for which it is licensed.
We hold a product manufacturing
license and an Owner Entity license in the State of Colorado. We are also licensed by the county of Aurora.
Regulations for the production
and sale of marijuana in Colorado are published through the Marijuana Enforcement Division of the Department of Revenue.
Competition
We believe we possess certain
competitive strengths and advantages in the markets in which we plan to operate. Our management team has significant experience in cultivation,
processing and retailing of cannabis throughout regulated markets. As we execute on our strategy, we believe this expertise enables us
to potentially evaluate, acquire and operate business efficiently.
Industry Knowledge. We
continue to create, share and leverage information and experiences with the purpose of creating awareness and identifying opportunities
to increase shareholder value. Our management team has business expertise, extensive knowledge of the cannabis industry and closely monitors
changes in legislation. We work with partners who enhance the breadth of our industry knowledge.
Regulatory Compliance.
The state and local laws regulating the cannabis industry change at a rapid pace. We have resources committed to ensure our operations
are in compliance with all state and local laws, policies, guidance and regulations to which we are subject. We apply this compliance
knowledge to our customers in order to ensure that they, too, are in full compliance.
In the regulated cannabis
industry, we believe we have significant competition from a range of private and public market participants.
Given the rapid growth of
the U.S. regulated cannabis industries, hundreds of companies have entered the respective markets. Consequently, the market is becoming
highly competitive and we believe to compete in the market requires ensuring the quality and integrity of product offerings. Certain
of our competitors have substantially greater financial, distribution, and marketing resources, as well as greater brand awareness than
us, and there can be no assurance we will be able to successfully compete.
Our Headquarters
Our corporate headquarters
is located at 12001 E. 33rd Avenue, Unit O, Aurora, CO. Our corporate internet website is www.bespokeextracts.com. The contents of the
website are not part of this report.
Employees
As of the date of the filing
of this report, we have 10 full-time employees. We offer a comprehensive package of company-sponsored benefits to our employees. Eligibility
depends on the full-time or part-time status and other factors, and benefits include participation in a 401(k) retirement savings plan,
medical and dental plans, and health insurance. Additionally, we believe in aligned incentives and use our employee stock and incentive
plan for a competitive total rewards program.
Item 1A. Risk Factors
An investment in the Company’s
common stock involves a high degree of risk. In determining whether to purchase the Company’s common stock, an investor should
carefully consider all of the material risks described below, together with the other information contained in this report before making
a decision to purchase the Company’s securities. An investor should only consider purchasing the Company’s securities if
he or she can afford to suffer the loss of his or her entire investment.
Risk Related to our Business and Industry
We have a history of operating losses,
have a working capital deficit as of December 31, 2023, and we may not achieve or maintain profitability in the future.
As of December 31, 2023, we
have an accumulated deficit of $25,366,641, a stockholders’ deficit of $1,724,557, and a working capital deficit of $997,118. We
incurred a net loss of $1,482,843 for the year ended December 31, 2023. We may never achieve profitability or generate significant revenues.
We will need to raise additional capital,
which may not be available.
We anticipate that we will
need to raise additional capital to execute our business plan and maintain and expand our operations. Additional capital may not be available
to us on acceptable terms, or at all. If we are unable to raise additional capital, our business may be harmed and we may need to curtail
or cease operations.
We have a limited operating history that
impedes our ability to evaluate our potential future performance and strategy.
Our business strategy may
not be successful and we may not successfully address these risks. In the event that we do not successfully address these risks, our
business, prospects, financial condition and results of operations may be materially and adversely affected.
Our operating results may fluctuate significantly
based on customer acceptance of our products. As a result our period-to-period comparisons of our results of operations are unlikely
to provide a good indication of our future performance.
Management expects that we
will experience substantial variations in our net sales and operating results from quarter to quarter due to customer acceptance of our
products. If customers do not accept our products, our sales and revenue will either fail to materialize or decline, resulting in a reduction
in our operating income or possible increase in losses.
If we do not successfully develop and commercialize
additional products, we could lose revenue opportunities.
Our future success will depend,
in part, on our ability to expand our product offerings. To that end we have engaged in the process of identifying new product opportunities.
The processes of identifying and commercializing new products is complex and uncertain, and if we fail to accurately predict customers’
changing needs and preferences, our business could be harmed. We have and may continue to commit significant resources to commercializing
new products before knowing whether our investments will result in products the market will accept. Furthermore, we may not execute successfully
on commercializing those products because of errors in product planning or timing, technical hurdles that we fail to overcome in a timely
fashion, or a lack of appropriate resources. This could result in competitors providing those solutions before we do.
The success of new products
will depend on several factors, including proper new product definition, timely completion, and introduction of these products, differentiation
of new products from those of our competitors, and market acceptance of these products. There can be no assurance that we will successfully
identify additional new product opportunities, develop and bring new products to market in a timely manner, or achieve market acceptance
of our products or that products developed by others will not render our products obsolete or noncompetitive.
We may have difficulties managing our Company’s
growth, which could lead to higher operating losses, or we may not grow at all.
If we succeed in growing
our business, such growth could strain our human and capital resources, potentially leading to higher operating losses. Our ability to
manage operations and control growth will be dependent upon our ability to raise and spend capital to successfully attract, train, motivate,
retain and manage new employees and continue to update and improve our management and operational systems, infrastructure and other resources,
financial and management controls, and reporting systems and procedures. Should we be unsuccessful in accomplishing any of these essential
aspects of our growth in an efficient and timely manner, then management may receive inadequate information necessary to manage our operations,
possibly causing additional expenditures and inefficient use of existing human and capital resources or we otherwise may be forced to
grow at a slower pace that could slow or eliminate our ability to achieve and sustain profitability. Such slower than expected growth
may require us to restrict or cease our operations and go out of business.
Loss of our chief executive officer or
president could limit our growth and negatively impact our operations.
We depend upon our chief
executive officer, Michael Feinsod, and our president, Hunter Garth to a substantial extent. The loss of Mr. Feinsod or Mr. Garth could
have a material adverse effect on our business, results of operations or financial condition.
We will be required to attract and retain
top quality talent to compete in the marketplace.
We believe our future growth
and success will depend in part on our ability to attract and retain highly skilled managerial, product development, sales and marketing,
and finance personnel. We may not succeed in attracting and retaining such personnel. Shortages in qualified personnel could limit our
ability to increase sales of existing products and services and launch new product and service offerings.
Our inability to effectively protect our
intellectual property would adversely affect our ability to compete effectively, our revenue, our financial condition, and our results
of operations.
We may be unable to obtain
intellectual property rights to effectively protect our branding, products, and other intangible assets. Our ability to compete effectively
may be affected by the nature and breadth of our intellectual property rights. If we are unable to secure intellectual property rights
to effectively protect our branding, products, and other intangible assets, our revenue and earnings, financial condition, or results
of operations could be adversely affected.
Our industry is highly competitive, and
we have less capital and resources than many of our competitors, which may give them an advantage in developing and marketing products
similar to ours or make our products obsolete.
We are involved in a highly
competitive industry where we compete with various other nutraceutical companies which offer products similar to the products we sell.
These competitors may have far greater resources than we do, giving our competitors an advantage in developing and marketing products
similar to ours or products that make our products obsolete. We may be unable to successfully compete against these other manufacturers.
The COVID-19 pandemic may negatively affect our business.
The COVID-19 pandemic is
having widespread, rapidly evolving, and unpredictable impacts on global society, economies, financial markets, and business practices.
The continuing impacts of COVID-19 are highly unpredictable and could be significant, and may have an adverse effect on our business,
operations and our future financial performance, including by causing delays and constraints in manufacturing and shipping of our products.
We may be subject to the risks associated
with future acquisitions , which may increase our capital requirements, dilute our shareholders, cause us to incur debt or assume contingent
liabilities, and subject us to other risks.
As part of our overall business
strategy, the Company may pursue select strategic acquisitions.
Although the Company will
assess the risks inherent in a particular target business which it may acquire, this assessment may not result in the identification
of all risks that a target business may encounter. Furthermore, some of those risks may be outside of the Company’s control, meaning
that the Company can do nothing to control or reduce the chances that those risks will adversely impact a target business.
Any such future acquisitions,
if completed, may expose the Company to additional potential risks, including risks associated with:
|
● |
increased operating expenses
and cash requirements; |
|
● |
the assumption of additional
indebtedness or contingent liabilities; |
|
● |
the issuance of our equity
securities; |
|
● |
assimilation of operations,
intellectual property and products of an acquired company, including difficulties associated with integrating new personnel; |
|
● |
the diversion of our management’s
attention from our existing product programs and initiatives in pursuing such a strategic merger or acquisition; |
|
● |
retention of key employees,
the loss of key personnel and uncertainties in our ability to maintain key business relationships; and |
|
● |
risks and uncertainties
associated with the other party to such a transaction, including the prospects of that party and their existing products and our
inability to generate revenue from acquired products sufficient to meet our objectives in undertaking the acquisition or even to
offset the associated acquisition and maintenance costs. |
Cannabis remains illegal under federal
law.
Despite the development of
a cannabis industry legal under state laws, state laws legalizing medicinal and recreational adult cannabis use are in conflict with
the federal Controlled Substances Act, which classifies cannabis as a Schedule I controlled substance and makes cannabis use and possession
illegal on a national level. The United States Supreme Court has ruled that it is the federal government that has the right to regulate
and criminalize cannabis, even for medical purposes, and thus federal law criminalizing the use of cannabis preempts state laws that
legalize its use.
A prior U.S. administration
attempted to address the inconsistent treatment of cannabis under state and federal law in the Cole Memorandum which Deputy Attorney
General James Cole sent to all U.S. Attorneys in August 2013 that outlined certain priorities for the Department of Justice (“DOJ”)
relating to the prosecution of cannabis offenses. The Cole Memorandum provided that enforcing federal cannabis laws and regulations in
jurisdictions that have enacted laws legalizing cannabis in some form and that have also implemented strong and effective regulatory
and enforcement systems to control the cultivation, processing, distribution, sale and possession of cannabis conduct in compliance with
those laws and regulations was not a priority for the DOJ. The DOJ did not provide (and has not provided since) specific guidelines for
what regulatory and enforcement systems would be deemed sufficient under the Cole Memorandum. On January 4, 2018, U.S. Attorney General
Jeff Sessions formally issued the Sessions Memorandum, which rescinded the Cole Memorandum effective upon its issuance. The Sessions
Memorandum stated, in part, that current law reflects “Congress’ determination that cannabis is a dangerous drug and cannabis
activity is a serious crime”, and Mr. Sessions directed all U.S. Attorneys to enforce the laws enacted by Congress and to follow
well-established principles when pursuing prosecutions related to cannabis activities.. It is not yet known whether the Department of
Justice under President Biden and Attorney General Garland, will re-adopt the Cole Memorandum or announce a substantive marijuana enforcement
policy. Attorney General Garland indicated at a confirmation hearing before the United States Senate that it did not seem to him to be
a useful use of limited resources to pursue prosecutions in states that have legalized and that are regulating the use of marijuana,
either medically or otherwise. There can be no assurance that the federal government will not enforce federal laws relating to cannabis
in the future. The uncertainty of federal enforcement practices going forward and the inconsistency between federal and state laws and
regulations presents major risks for our business and operations. Any such change in the federal government’s enforcement of federal
laws could cause significant financial damage to us and our stockholders.
Under federal law, and more
specifically the federal Controlled Substances Act, the possession, use, cultivation and transfer of cannabis is illegal. It is also
federally illegal to advertise the sale of cannabis, or to sell paraphernalia designed or intended primarily for use with cannabis, unless
the paraphernalia is authorized by federal, state, or local law. Our business involves the cultivation, production and sale of cannabis
and cannabis products, and, therefore, violates federal law. Further, we provide services to customers that are engaged in the business
of possession, use, cultivation and/or transfer of cannabis. As a result, law enforcement authorities, in their attempt to regulate the
illegal use of cannabis, may seek to bring an action or actions against us, including, but not limited to, a claim of aiding and abetting
another’s criminal activities. The federal aiding and abetting statute provides that anyone who “commits an offense against
the United States or aids, abets, counsels, commands, induces or procures its commission, is punishable as a principal.” 18 U.S.C.
§2(a). As a result of such an action, we may be forced to cease operations and our investors could lose their entire investment.
Such an action would have a material negative effect on our business and operations.
If the Federal Government
were to change its enforcement practices, or were to expend its resources enforcing existing federal laws on those involved in the cannabis
industry, such action could have a materially adverse effect on our operations, our customers or the sales of our products up to and
including a complete cessation of our business.
It is possible that additional
federal or state legislation could be enacted in the future that would prohibit us or our clients from selling cannabis, and if such
legislation were enacted, the demand for our products and services, and those of our clients, likely would decrease, causing revenues
to decline. Further, additional government disruption in the cannabis industry could cause potential customers and users to be reluctant
to use our products and services, which would be detrimental to us. We cannot predict the nature of any future laws, regulations, interpretations
or applications, nor can we determine what effect additional governmental regulations or administrative policies and procedures, when
and if promulgated, could have on our business.
Our business is dependent on state laws
pertaining to the cannabis industry.
The federal Controlled Substances
Act classifies cannabis as a Schedule I controlled substance and makes cannabis use and possession illegal on a national level. The U.S.
Supreme Court has ruled that it is the federal government that has the right to regulate and criminalize cannabis, even for medical purposes,
and thus federal law criminalizing the use of cannabis preempts state laws that legalize its use. While there appears to be ample public
support for favorable legislative action to legalize cannabis use and possession, numerous factors may impact or negatively affect the
legislative process(s) within the various states we have or may in the future have business interests in. Any one of these factors could
slow or halt use of cannabis, which would negatively impact our business.
The voters or legislatures
of states in which cannabis has already been legalized could potentially repeal applicable laws which permit the operation of both medical
and retail cannabis businesses. These actions might force businesses, including our own and those of our clients, to cease operations
in one or more states entirely.
We are required to comply concurrently
with federal, state and local laws in each jurisdiction where we operate or to which we sell our products.
Various federal, state and
local laws, regulations and guidelines govern our business in the jurisdictions in which we operate or propose to operate, or to which
we export or propose to sell our products, including laws and regulations relating to health and safety, conduct of operations and the
production, management, transportation, storage and disposal of our products and of certain material used in our operations. Compliance
with each set of these laws, regulations and guidelines requires concurrent compliance with other complex federal, state and local laws,
regulations and guidelines. These laws, regulations and guidelines change frequently and may be difficult to interpret and apply. Compliance
with these laws, regulations and guidelines requires the investment of significant financial and managerial resources, and a determination
that we are not in compliance with these laws, regulations and guidelines could harm our reputation and brand image and have a material
adverse effect on our prospects, business, financial condition and results of operations. Moreover, it is impossible for us to predict
the cost or effect of such laws, regulations or guidelines upon our future operations. Changes to these laws, regulations and guidelines
could negatively affect our competitive position within our industry and the markets in which we operate, and there is no assurance that
various levels of government in the jurisdictions in which we operate will not pass legislation or regulation or issue guidelines that
adversely impacts our business.
Our business is subject to a variety of
U.S. laws, many of which are unsettled and still developing, and which could subject us to claims or otherwise harm our business.
We are subject to a variety
of state and federal laws in the United States. In the United Stated, despite cannabis having been legalized for medical use in many
states, and for adult recreational use in a number of states, cannabis meeting the definition of “marijuana” continues to
be categorized as a Schedule I controlled substance under the federal Controlled Substances Act. Following the passage of HB19-1090 in
Colorado, we have elected to move into plant-touching operations in addition to non-plant-touching operations. As a public company involved
in direct plant-touching activities, we may face additional scrutiny from the U.S. federal government or other regulatory agencies. Such
scrutiny, and any investigation of our operations related to plant-touching activities, could have a material adverse impact on our prospects,
business, financial condition and results of operations.
We are or will be subject to risks related
to unsafe concentration of heavy metals and other contaminants in our cannabis and nutrient products, and associated inconsistent treatment
under state law.
Cannabis plants may absorb
heavy metals and other contaminants from the soil that they grow in. Nutrient products are made from ingredients that may contain heavy
metals and other contaminants. Heavy metals and contaminants are naturally found in the earth’s crust but may also be present as
a result of, for example, pesticide use. Some contaminants, like heavy metals, are toxic to humans at even low concentrations. If our
raw materials contain contaminants, they may transfer to our products. If the level of contaminants in our products exceeds permissible
or safe levels, it may result in loss of inventory and possible harm to consumers of the products, which may expose us, among other things,
to monetary losses, product liability claims and reputational risk.
In addition, state regulation
of testing for, and permissible levels of, contaminants in cannabis products varies, making compliance difficult and costly.
We will be subject to risks inherent in
an agricultural business, including the risk of crop failure.
We will be in the cannabis
industry, which is an agricultural process. As such, our business will be subject to the risks inherent in the agricultural business,
including risks of crop failure presented by weather, insects, plant diseases and similar agricultural risks that might affect us or
our clients.
The cannabis industry and market are relatively
new in the United States, and this industry and market may not continue to exist or develop as anticipated or we may ultimately be unable
to succeed in this industry and market.
The cannabis industry and
market are relatively new, and our success depends on our ability to operate our business successfully and attract and retain clients.
In addition to being subject to general business risks applicable to a business involving an agricultural product and a regulated consumer
product, we need to continue to build brand awareness of our brand in the cannabis industry and make significant investments in our business
strategy and production capacity. These investments include introducing new products and services into the markets in which we operate,
adopting quality assurance protocols and procedures and undertaking regulatory compliance efforts. These activities may not promote our
business as effectively as intended, or at all, and we expect that our competitors will undertake similar investments to compete with
us for market share. Competitive conditions, consumer preferences and spending patterns in this industry and market are relatively unknown
and may have unique characteristics that differ from other existing industries and markets and that may cause our efforts to further
our business to be unsuccessful or to have undesired consequences. As a result, we may not be successful in our efforts to operate our
business or attract and retain clients or to develop new products and services and produce and distribute these products and services
to the markets in which we operate or to which we export in time to be effectively commercialized, or these activities may require significantly
more resources than we currently anticipate in order to be successful.
We, or the cannabis industry more generally,
may receive unfavorable publicity or become subject to negative consumer or investor perception.
We believe that the cannabis
industry is highly dependent upon positive consumer and investor perception regarding the benefits, safety, efficacy and quality of the
cannabis distributed to consumers. The perception of the cannabis industry and cannabis products, currently and in the future, may be
significantly influenced by scientific research or findings, regulatory investigations, litigation, political statements, media attention
and other publicity (whether or not accurate or with merit) both in the United States and in other countries relating to the consumption
of cannabis products, including unexpected safety or efficacy concerns arising with respect to cannabis products or the activities of
industry participants. There can be no assurance that future scientific research, findings, regulatory proceedings, litigation, media
attention or other research findings or publicity will be favorable to the cannabis market or any particular cannabis product or will
be consistent with earlier publicity. Adverse future scientific research reports, findings and regulatory proceedings that are, or litigation,
media attention or other publicity that is, perceived as less favorable than, or that questions, earlier research reports, findings or
publicity (whether or not accurate or with merit) could result in a significant reduction in the demand for our cannabis products or
those of our clients, which would affect our business. Further, adverse publicity reports or other media attention regarding the safety,
efficacy and quality of cannabis or our products specifically, or associating the consumption of cannabis with illness or other negative
effects or events, could adversely affect us. This adverse publicity could arise even if the adverse effects associated with cannabis
products resulted from consumers’ failure to use such products legally, appropriately or as directed.
Certain events or developments in the cannabis
industry more generally may impact our reputation.
Damage to our reputation
can result from the actual or perceived occurrence of any number of events, including any negative publicity, whether true or not. As
we anticipate becoming a producer and distributor of cannabis, which is a controlled substance in the United States that has previously
been commonly associated with various other narcotics, violence and criminal activities, there is a risk that our business might attract
negative publicity. There is also a risk that the actions of other companies and service providers in the cannabis industry may negatively
affect the reputation of the industry as a whole and thereby negatively impact our reputation. The increased usage of social media and
other web-based tools used to generate, publish and discuss user generated content and to connect with other users has made it increasingly
easier for individuals and groups to communicate and share negative opinions and views in regards to our activities and the cannabis
industry in general, whether true or not. We do not ultimately have direct control over how we or the cannabis industry is perceived
by others. Reputational issues may result in decreased investor confidence, increased challenges in developing and maintaining community
relations and present an impediment to our overall ability to advance our business strategy and realize on our growth prospects.
The cannabis industry could face strong
opposition from other industries.
We believe that established
businesses in other industries may have a strong economic interest in opposing the development of the cannabis industry. Cannabis may
be seen by companies in other industries as an attractive alternative to their products, including recreational cannabis as an alternative
to alcohol and medical cannabis as an alternative to various commercial pharmaceuticals. Many industries that could view the emerging
cannabis industry as an economic threat are well established, with vast economic and federal and state lobbying resources. It is possible
that companies within these industries could use their resources to attempt to slow or reverse legislation legalizing cannabis. Any inroads
these companies make in halting or impeding legislative initiatives that would not be beneficial to the cannabis industry could have
a detrimental impact on our business or our clients’ business and, in turn, on our operations.
Businesses involved in the cannabis industry,
and investments in such businesses, are subject to a variety of laws and regulations related to money laundering, financial recordkeeping
and proceeds of crimes.
Investments in the U.S. cannabis
industry are subject to a variety of laws and regulations that involve money laundering, financial recordkeeping and proceeds of crime,
including the Bank Secrecy Act, as amended by the USA Patriot Act, other anti-money laundering laws, and any related or similar rules,
regulations or guidelines, issued, administered or enforced by governmental authorities in the United States. In February 2014, the Financial
Crimes Enforcement Network (“FinCEN”) of the Treasury Department issued a memorandum (the “FinCEN Memo”) providing
guidance to banks seeking to provide services to cannabis-related businesses. The FinCEN Memo outlines circumstances under which banks
may provide services to cannabis-related businesses without risking prosecution for violation of U.S. federal money laundering laws.
It refers to supplementary guidance that Deputy Attorney General Cole issued to U.S. federal prosecutors relating to the prosecution
of U.S. money laundering offenses predicated on cannabis-related violations of the federal Controlled Substances Act and outlines extensive
due diligence and reporting requirements, which most banks have viewed as onerous. The FinCEN Memo currently remains in place, but it
is unclear at this time whether the current administration will continue to follow the guidelines of the FinCEN Memo. Such requirements
could negatively affect our ability and the ability of our clients to establish and maintain banking connections.
We may be unable to seek the protection
of the bankruptcy courts.
There is an argument that
the federal bankruptcy courts cannot provide relief for parties who engage in cannabis or cannabis-related businesses. Recent bankruptcy
rulings have denied bankruptcies for cannabis dispensaries upon the justification that businesses cannot violate federal law and then
claim the benefits of federal bankruptcy for the same activity and upon the justification that courts cannot ask a bankruptcy trustee
to take possession of, and distribute cannabis assets as such action would violate the federal Controlled Substances Act. Therefore,
due to our cannabis-related business, we may not be able to seek the protection of the bankruptcy courts and this could materially affect
our financial performance and/or our ability to obtain or maintain credit.
Risks Related to our Common Stock
There is a limited trading market for our
common stock, and investors may find it difficult to buy and sell our shares.
Our common stock is not listed
on any national securities exchange. Accordingly, investors may find it more difficult to buy and sell our shares than if our common
stock was traded on an exchange. Although our common stock is quoted on the OTCQB, it is an unorganized, inter-dealer, over-the-counter
market which provides significantly less liquidity than the Nasdaq Capital Market or other national securities exchange. Further, any
significant trading volume in our common stock may not be sustained. These factors may have an adverse impact on the trading and price
of our common stock.
The market price of our common stock is,
and is likely to continue to be, highly volatile and subject to wide fluctuations.
The market price of our common
stock is highly volatile and could be subject to wide fluctuations in response to a number of factors that are beyond our control, including:
|
● |
variations in our quarterly
operating results; |
|
● |
announcements that our
revenue or income are below analysts’ expectations; |
|
● |
general economic slowdowns; |
|
● |
sales of large blocks of
our common stock; and |
|
● |
announcements by us or
our competitors of significant contracts, acquisitions, strategic partnerships, joint ventures or capital commitments. |
Our common stock is considered a “penny
stock” and is subject to additional sale and trading regulations that may make it more difficult to buy or sell.
Our common stock is considered
a “penny stock” and securities broker-dealers participating in sales of our common stock are subject to the “penny
stock” regulations set forth in Rules 15g-2 through 15g-9 promulgated under the Exchange Act. Generally, brokers may be less willing
to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to
dispose of our common stock and cause a decline in the market value of our stock.
We do not intend to pay dividends on our
common stock for the foreseeable future.
We have paid no dividends
on our common stock to date and we do not anticipate paying any dividends to holders of our common stock in the foreseeable future. While
our future dividend policy will be based on the operating results and capital needs of the business, we currently anticipate that we
will retain any earnings to finance our future expansion and for the implementation of our business plan. A lack of a dividend can further
affect the market value of our common stock and could significantly affect the value of any investment in the Company.
Our chief executive officer beneficially owns the majority of
the voting power of our shareholders.
As the managing member of
the holder of our outstanding share of Series C Preferred Stock, our chief executive officer, Michael Feinsod, has 51% of the voting
power of the Company’s shareholders. As a result, Mr. Feinsod has the ability to control all matters submitted to shareholders,
and his interests may differ from those of other shareholders.
Additional stock offerings in the future
may dilute then-existing shareholders’ percentage ownership of the Company.
Given our plans and expectations
that we will need additional capital and personnel, we anticipate that will need to issue additional shares of common stock or securities
convertible or exercisable for shares of common stock, which may include including convertible notes, preferred stock, stock options
or warrants. The issuance of additional securities in the future will dilute the percentage ownership of then-current stockholders.
The rights of the holders of common stock may be impaired by
the potential issuance of preferred stock.
Our board of directors has
the right, without stockholder approval, to issue preferred stock with voting, dividend, conversion, liquidation or other rights which
could adversely affect the voting power and equity interest of the holders of common stock, which could be issued with the right to more
than one vote per share, and could be utilized as a method of discouraging, delaying or preventing a change of control. The possible
negative impact on takeover attempts could adversely affect the price of our common stock.
Failure to achieve and maintain internal
controls in accordance with Sections 302 and 404 of the Sarbanes-Oxley Act of 2002 could have a material adverse effect on our business
and stock price.
Our management has determined
that we do not have effective disclosure controls and procedures, or internal control over financial reporting as of December 31, 2022.
Effective internal controls are necessary for us to produce reliable financial reports and are important in the prevention of financial
fraud. If we cannot produce reliable financial reports or prevent fraud, our business and operating results could be harmed, investors
could lose confidence in our reported financial information, and there could be a material adverse effect on our stock price.
Item 1B. Unresolved Staff Comments.
Not required for a smaller
reporting company.
Item 1C. Cybersecurity
Cybersecurity Risk Management
The Company has processes for assessing, identifying, and managing
material risks from cybersecurity threats. These processes are integrated into the Company’s overall risk management systems. These
processes also include overseeing and identifying risks from cybersecurity threats associated with the use of third-party service providers.
The Company has established monitoring procedures in its effort to mitigate risks related to data breaches or other security incidents
originating from third parties.
Governance
As part of our enterprise risk management program, the Board of Directors
(the “Board”) evaluates risks associated with cybersecurity threats on a regular basis. The Board and receive prompt and
timely information regarding any cybersecurity incident that meets established reporting thresholds, as well as ongoing updates regarding
any such incident until it has been resolved.
Through ongoing communications with these teams, the senior management
team monitor the prevention, detection, mitigation and remediation of cybersecurity threats and incidents in real time and report such
threats and incidents to the Board when appropriate.
During the year ended December 31, 2023, we did not identify any cybersecurity
threats that have materially affected or are reasonably likely to materially affect our business strategy, results of operations, or
financial condition. However, despite the capabilities, processes, and other security measures we employ that we believe are designed
to detect, reduce, and mitigate the risk of cybersecurity incidents, we may not be aware of all vulnerabilities or might not accurately
assess the risks of incidents, and such preventative measures cannot provide absolute security and may not be sufficient in all circumstances
or mitigate all potential risks.
Item 2. Properties.
We maintain our principal
office at 12001 E. 33rd Avenue, Unit O, Aurora, CO., under a 5-year lease that commenced December 2021 (with an option to renew for an
additional five-year term). Monthly rent started at $6,000. We believe that our existing facilities are suitable and adequate to meet
our current business requirements. The lease contains an option to purchase the property for $600,000.
Item 3. Legal Proceedings.
We are not party to, and
our property is not the subject of, any material legal proceedings.
Item 4. Mine Safety Disclosures.
Not applicable.
PART II
Item 5. Market for Registrant’s Common
Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Period | |
Low Trading Price | | |
High Trading Price | | |
Volume | |
Year Ended December 31, 2023 | |
| | | |
| | | |
| | |
First Quarter (March 31, 2023) | |
$ | 0.14 | | |
$ | 0.27 | | |
| 496,613 | |
Second Quarter (June 30, 2023) | |
$ | 0.05 | | |
$ | 0.38 | | |
| 1,079,501 | |
Third Quarter (September 30, 2023) | |
$ | 0.07 | | |
$ | 0.20 | | |
| 212,612 | |
Fourth Quarter (December 31, 2023) | |
$ | 0.03 | | |
$ | 0.20 | | |
| 763,472 | |
Year Ended December 31, 2022 | |
| | | |
| | | |
| | |
First Quarter (March 31, 2022) | |
$ | 0.81 | | |
$ | 1.40 | | |
| 93,117 | |
Second Quarter (June 30, 2022) | |
$ | 0.54 | | |
$ | 1.20 | | |
| 46,511 | |
Third Quarter (September 30, 2022) | |
$ | 0.23 | | |
$ | 1.12 | | |
| 175,778 | |
Fourth Quarter (December 31, 2022) | |
$ | 0.12 | | |
$ | 0.53 | | |
| 120,006 | |
| (2) | Any over-the-counter market quotations for our common stock
on the OTCQB reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions. |
Holders
As of January 25, 2024, there
were approximately 1,440 holders of record of our common stock, which excludes those stockholders holding stock in street name.
Dividend Policy
We have not declared or paid
cash dividends on our common stock in the past, and we do not anticipate that we will pay cash dividends our common stock in the foreseeable
future.
Equity Compensation Plans
For more information on equity compensation plans,
see Item 12 of Part III of the Annual Report.
Repurchases of Equity Securities
None.
Securities authorized for issuance under equity
compensation plans
The following table provides
equity compensation plan information as of December 31, 2023:
Plan category | |
Number of securities to be issued upon exercise of outstanding options (a) | | |
Weighted- average exercise price of outstanding options (b) | | |
Securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) | |
Equity compensation plan’s approved by security holders | |
| - | | |
$ | - | | |
| - | |
Equity compensation plans not approved by security holders | |
| 1,246,341 | | |
| 2.67 | | |
| 5,420,326 | |
Total | |
| 1,246,341 | | |
| 2.67 | | |
| 5,420,326 | |
Recent Sales of Equity Securities
None.
Item 6. [Reserved.]
Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations.
The following discussion
highlights the principal factors that have affected our financial condition and results of operations as well as our liquidity and capital
resources for the periods described. This discussion should be read in conjunction with our financial statements and the related notes
included in Item 8 of this Form 10-K. This discussion contains forward-looking statements. Please see the explanatory note concerning
“Forward-Looking Statements” in Part I of this Annual Report on Form 10-K and Item 1A. Risk Factors for a discussion of the
uncertainties, risks and assumptions associated with these forward-looking statements.
Overview
We sell a produce and sell
a line of high quality pre-rolled marijuana joints.
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. As of June 2023,
the Company no longer operates within the CBD space.
On December 2, 2021, Bespoke
Colorado, 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 $225,000, to be paid in shares of common stock of the Company (including 55,555 shares issuable, and to be held in escrow, upon
execution of the WonderLeaf Purchase Agreement, and an additional $150,000 of common stock that will be valued based on the volume weighted
average price of the common stock, subject to a floor of $0.90 per share and a ceiling of $1.80 per share), provided that, the purchase
price for the inventory will be 90% of the wholesale value of the regulated marijuana portion of the inventory and the packaging corresponding
thereto set forth on the inventory accounting statement to be prepared pursuant to the Wonderleaf Purchase Agreement. The transaction
closed on January 3, 2023.
| |
For the year ended | | |
For the year ended | |
| |
December 31, | | |
December 31, | |
| |
2023 | | |
2022 | |
| |
| | |
| |
Sales | |
$ | 785,453 | | |
$ | 3,407 | |
Cost of products sold | |
| 442,289 | | |
| 1,149 | |
Gross Profit | |
| 343,164 | | |
| 2,258 | |
| |
| | | |
| | |
Operating expenses: | |
| | | |
| | |
Selling, general and administrative expenses | |
| 1,528,815 | | |
| 3,742,275 | |
Professional fees | |
| 192,476 | | |
| 155,888 | |
Consulting | |
| 36,000 | | |
| 124,750 | |
| |
| | | |
| | |
Total operating expenses | |
| 1,754,291 | | |
| 4,022,913 | |
| |
| | | |
| | |
Loss from operations | |
| (1,471,978 | ) | |
| (4,020,655 | ) |
| |
| | | |
| | |
Other income / (expenses) | |
| | | |
| | |
Interest income | |
| (10,865 | ) | |
| 931 | |
Interest expense | |
| - | | |
| 197 | |
Earnout expense | |
| - | | |
| (15,000 | ) |
Reserve for notes receivable to Wonderleaf | |
| - | | |
| (45,931 | ) |
Reserve for advances to Wonderleaf | |
| - | | |
| (35,769 | ) |
Total other (expense) / income | |
| (10,865 | ) | |
| (95,572 | ) |
| |
| | | |
| | |
Loss before income tax | |
| (1,482,843 | ) | |
| (4,116,227 | ) |
Provision for income tax | |
| - | | |
| - | |
Net Loss | |
$ | (1,483,843 | ) | |
$ | (4,116,227 | ) |
| |
| | | |
| | |
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING | |
| | | |
| | |
Basic and Diluted | |
| 10,168,552 | | |
| 9,367,458 | |
| |
| | | |
| | |
NET LOSS PER COMMON SHARE OUTSTANDING | |
| | | |
| | |
Basic and Diluted | |
$ | (0.15 | ) | |
$ | (0.44 | ) |
Results of Operations for the years ended
December 31, 2023 and December 31, 2022
Sales
Sales during the year ended
December 31, 2023 were $785,453 compared to $3,407 for the year ended December 31, 2022. The increase in sales was primarily a result
of sales of Fresh Joints and related services.
Operating Expenses
Selling, general and administrative
expenses for the year ended December 31, 2023 and December 31, 2022 were $1,586,666 and $3,742,275, respectively. The decrease was mainly
attributable to stock-based compensation of $2,995,500 during the year ended December 31, 2022 compared to $380,382 during the year ended
December 31, 2023 and increase in salaries, partially offset by reduced marketing expenses. Professional fees were $192,476 and $155,888,
respectively for the year ended December 31, 2023 and December 31, 2022. The increase in expenses was due to increased legal and accounting
fees associated with the pending WonderLeaf, LLC acquisition. Consulting expense was $36,000 and $124,750, for the year ended December
31, 2023 and December 31, 2022, respectively. The decrease was primarily due to reduction in consulting expenses for sales and marketing
during the year ended December 31, 2022.
Other Income
During the year ended December 31, 2023 there was $0 associated with
interest income on the note receivable from WonderLeaf compared to interest income of $931 for the year ended December 31, 2022. During
the year ended December 31, 2023 there was $10,865 of interest expense compared to interest expense of $197 for the year ended December
31, 2022. During the year ended December 31, 2022 there was $15,000 of earnout expense associated with inventory earnout agreement. During
the year ended December 31, 2022 the Company recorded an reserve for notes of $45,931 and advances of $35,769.
Net Loss
For the reasons stated above,
our net loss for the year ended December 31, 2023 was $1,482,843, or $0.15 per share, compared to a net loss for the year ended December
31, 2022 of $4,116,227, or $0.44 per share
Liquidity and Capital Resources
As of December 31, 2023, we
had cash of $6,607. Net cash used in operating activities for the year ended December 31, 2023 was $415,198. Our current liabilities as
of December 31, 2023 were $1,078,957 and consisted of accounts payable and accrued liabilities of $961,255, and current portion of lease
liability of $64,330 and advance related party of $53,372. As of December 31, 2022, we had cash of $24,433. Net cash used in operating
activities for the year ended December 31, 2022 was $798,067. Our current liabilities as of December 31, 2022 were $865,648 and consisted
of accounts payable and accrued liabilities of $295,818, notes payable- related party of $415,500, an inventory earn-out of $90,000 and
current portion of lease liability of $64,330.
During the year ended December 31, 2023 and 2022, the Company repaid
$0 and $2,500, respectively of a note payable from a related party and borrowed an additional $434,000 an $415,500, respectively. In addition,
the Company raised a total of $0 and $344,450, respectively from the sale of common stock and warrants during the years ended December
31, 2023 and 2022.
The 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 year
ended December 31, 2023 and the year ended December 31, 2022 and had a working capital deficit at December 31, 2023 and 2022. This raises
substantial doubt about our ability to continue as a going concern for the next 12 months.
We have not generated positive
cash flows from operating activities. Our primary source of capital has been from the sale of equity and debt securities from a related
party. 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.
Off-Balance Sheet Arrangements
We have no significant off-balance
sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Critical accounting policies and estimates
The preparation of the consolidated
financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of
assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses during the
reported periods. The more critical accounting estimates include estimates related to revenue recognition and accounts receivable allowances.
We also have other key accounting policies, which involve the use of estimates, judgments and assumptions that are significant to understanding
our results, which are described below and in Note 1 to our financial statements appearing elsewhere in this report.
Accounts Receivable
Accounts receivable are recorded
at fair value on the date revenue is recognized. The Company provides allowances for doubtful accounts for estimated losses resulting
from the inability of its customers to repay their obligation. If the financial condition of the Company’s customers were to deteriorate,
resulting in an impairment of their ability to repay, additional allowances may be required. The Company provides for potential uncollectible
accounts receivable based on specific customer identification and historical collection experience adjusted for existing market conditions.
If market conditions decline, actual collection experience may not meet expectations and may result in decreased cash flows and increased
bad debt expense.
Inventory
Inventories are stated at
the lower of cost or net realizable value. Cost is determined by the first-in, first-out basis and net realizable value. Net realizable
value is defined as sales price less cost of completion, disposition and transportation and a normal profit margin.
Income Taxes
We utilize the asset and
liability method of accounting for income taxes. We recognize deferred tax liabilities or assets for the expected future tax consequences
of temporary differences between the book and tax basis of assets and liabilities. We regularly assess the likelihood that our deferred
tax assets will be recovered from future taxable income. We consider projected future taxable income and ongoing tax planning strategies
in assessing the amount of the valuation allowance necessary to offset our deferred tax assets that will not be recoverable. We have
recorded and continue to carry a full valuation allowance against our gross deferred tax assets that will not reverse against deferred
tax liabilities within the scheduled reversal period. If we determine in the future that it is more likely than not that we will realize
all or a portion of our deferred tax assets, we will adjust our valuation allowance in the period we make the determination. We expect
to provide a full valuation allowance on our future tax benefits until we can sustain a level of profitability that demonstrates our
ability to realize these assets.
Stock Based Compensation
Stock options and warrants
issued to consultants and other non-employees as compensation for services provided to the Company are accounted for based on the fair
value of the services provided or the estimated fair market value of the option or warrant, whichever is more reliably measurable, and
in accordance FASB ASC 718, Compensation-Stock Compensation, including related amendments and interpretations.
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk.
Not required for smaller
reporting companies.
Item 8. Financial Statements.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the Board of Directors and
Stockholders of Bespoke Extracts, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated
balance sheets of Bespoke Extracts, Inc. (the Company) as of December 31, 2023, and 2022, and the related statements of operations, changes
in stockholders’ deficit and cash flows for each of the two years in the period ended December 31, 2023, and the related notes (collectively
referred to as the financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects,
the financial position of the Company as of December 31, 2023 and 2022 and the results of its operations and its cash flows for each of
the years in the two year period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States
of America.
Explanatory Paragraph – Going Concern
The accompanying financial statements have been
prepared assuming the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company had a
net loss and net cash used in operating activities of $1,482,843 and $415,198, respectively, for the year ended December 31, 2023, and
a working capital deficit and accumulated deficit of approximately $997,118 and $25,366,641, respectively, as of December 31, 2023. These
conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans regarding
these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome
of this uncertainty.
Basis for Opinion
These financial statements are the responsibility
of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our
audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the
standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged
to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding
of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess
the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond
to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating
the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
ASSURANCE DIMENSIONS CERTIFIED PUBLIC ACCOUNTANTS
& ASSOCIATES
also d/b/a McNAMARA and ASSOCIATES, PLLC
TAMPA BAY: 4920 W Cypress Street, Suite
102 | Tampa, FL 33607 | Office: 813.443.5048 | Fax: 813.443.5053
JACKSONVILLE: 4720 Salisbury Road,
Suite 223 | Jacksonville, FL 32256 | Office: 888.410.2323 | Fax: 813.443.5053
ORLANDO: 1800 Pembrook Drive, Suite
300 | Orlando, FL 32810 | Office: 888.410.2323 | Fax: 813.443.5053
SOUTH FLORIDA: 2000 Banks Road, Suite
218 | Margate, FL 33063 | Office: 754.800.3400 | Fax: 813.443.5053
www.assurancedimensions.com
Critical Audit Matters
The critical audit matters communicated below
are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to
the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our
especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion
on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions
on the critical audit matters or on the accounts or disclosures to which they relate.
We did not identify any critical audit matters
that need to be communicated.
|
| |
We have served as the Company’s auditor since 2022. | |
Margate, Florida | |
April 18, 2024 | |
PCAOB ID # 5036 | |
ASSURANCE DIMENSIONS CERTIFIED PUBLIC ACCOUNTANTS
& ASSOCIATES
also d/b/a McNAMARA and ASSOCIATES, PLLC
TAMPA BAY: 4920 W Cypress Street, Suite
102 | Tampa, FL 33607 | Office: 813.443.5048 | Fax: 813.443.5053
JACKSONVILLE: 4720 Salisbury Road,
Suite 223 | Jacksonville, FL 32256 | Office: 888.410.2323 | Fax: 813.443.5053
ORLANDO: 1800 Pembrook Drive, Suite
300 | Orlando, FL 32810 | Office: 888.410.2323 | Fax: 813.443.5053
SOUTH FLORIDA: 2000 Banks Road, Suite
218 | Margate, FL 33063 | Office: 754.800.3400 | Fax: 813.443.5053
www.assurancedimensions.com
Bespoke Extracts, Inc.
Consolidated Balance
Sheets
| |
December 31, | | |
December 31, | |
| |
2023 | | |
2022 | |
Assets | |
| | |
| |
Current assets | |
| | |
| |
Cash | |
$ | 6,607 | | |
$ | 24,433 | |
Accounts receivable, net | |
| 45,226 | | |
| - | |
Prepaid stock awards | |
| 9,206 | | |
| 80,113 | |
Prepaid expense | |
| 5,000 | | |
| 7,186 | |
Inventory, net | |
| 15,800 | | |
| - | |
Total current assets | |
| 81,839 | | |
| 111,732 | |
| |
| | | |
| | |
Furniture and equipment, net | |
| 40,979 | | |
| 9,947 | |
License | |
| 10,000 | | |
| - | |
Right of use asset | |
| 209,542 | | |
| 275,912 | |
Deposits | |
| 12,000 | | |
| 12,000 | |
Total assets | |
$ | 354,360 | | |
$ | 409,591 | |
| |
| | | |
| | |
Liabilities and Stockholders’ Deficit | |
| | | |
| | |
Current liabilities | |
| | | |
| | |
Accounts payable and accrued liabilities | |
$ | 961,255 | | |
$ | 295,818 | |
Inventory earn-out | |
| - | | |
| 90,000 | |
Advances - related party | |
| 53,372 | | |
| 415,500 | |
Operating lease liability | |
| 64,330 | | |
| 64,330 | |
Total current liabilities | |
| 1,078,957 | | |
| 865,648 | |
| |
| | | |
| | |
Note payable - related party | |
| 849,500 | | |
| - | |
Long-Term Operating Lease Liability | |
| 150,460 | | |
| 216,039 | |
Total liabilities | |
| 2,078,917 | | |
| 1,081,687 | |
| |
| | | |
| | |
Commitments and contingencies (Note 10) | |
| | | |
| | |
| |
| | | |
| | |
Stockholders’ Deficit | |
| | | |
| | |
Preferred stock, par value $0.001, 50,000,000 shares authorized, 1 share issued and outstanding as of December 31, 2023 and 2022, respectively | |
| - | | |
| - | |
Series C Convertible Preferred Stock, $0.001 par value, 1 share designated; 1 share issued and outstanding as of December 31, 2023 and 2022, respectively, stated value $24,000. | |
| - | | |
| - | |
Common stock, $0.001 par value: 3,000,000,000 authorized; 10,168,552 and 9,945,997 shares issued and outstanding as of December 31, 2023 and 2022, respectively | |
| 10,166 | | |
| 9,944 | |
Additional paid-in capital | |
| 23,631,918 | | |
| 23,201,758 | |
Accumulated deficit | |
| (25,366,641 | ) | |
| (23,883,798 | ) |
Total stockholders’ deficit | |
| (1,724,557 | ) | |
| (672,096 | ) |
Total liabilities and stockholders’ deficit | |
$ | 354,360 | | |
$ | 409,591 | |
The accompanying notes are an integral part of these consolidated financial statements.
Bespoke Extracts, Inc
Consolidated Statements
of Operations
| |
For the years ended December 31, | |
| |
2023 | | |
2022 | |
| |
| | |
| |
Sales | |
$ | 785,453 | | |
$ | 3,407 | |
Cost of products sold | |
| 442,289 | | |
| 1,149 | |
Gross Profit | |
| 343,164 | | |
| 2,258 | |
| |
| | | |
| | |
Operating expenses: | |
| | | |
| | |
Selling, general and administrative expenses | |
| 1,586,666 | | |
| 3,742,275 | |
Professional fees | |
| 192,476 | | |
| 155,888 | |
Consulting | |
| 36,000 | | |
| 124,750 | |
Total operating expenses | |
| 1,815,142 | | |
| 4,022,913 | |
| |
| | | |
| | |
Loss from operations | |
| (1,471,978 | ) | |
| (4,020,655 | ) |
| |
| | | |
| | |
Other income / (expenses) | |
| | | |
| | |
Interest expense | |
| (10,865 | ) | |
| 197 | |
Interest income | |
| - | | |
| 931 | |
Earnout expense | |
| - | | |
| (15,000 | ) |
Reserve for notes receivable to WonderLeaf | |
| - | | |
| (45,931 | ) |
Reserve for advances to WonderLeaf | |
| - | | |
| (35,769 | ) |
Total other (expense) / income | |
| (10,865 | ) | |
| (95,572 | ) |
| |
| | | |
| | |
Loss before income tax | |
| (1,482,843 | ) | |
| (4,116,227 | ) |
Provision for income tax | |
| - | | |
| - | |
Net Loss | |
$ | (1,482,843 | ) | |
$ | (4,116,227 | ) |
| |
| | | |
| | |
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING | |
| | | |
| | |
Basic and Diluted | |
| 10,168,552 | | |
| 9,367,458 | |
| |
| | | |
| | |
NET LOSS PER COMMON SHARE OUTSTANDING | |
| | | |
| | |
Basic and Diluted | |
$ | (0.15 | ) | |
$ | (0.44 | ) |
The accompanying notes are an integral part of these consolidated financial statements.
Bespoke Extracts, Inc
Consolidated Statement of Stockholders Deficit
For the years ended December 31, 2022 and 2023
| |
Preferred | | |
Preferred | | |
Common | | |
Common | | |
Additional | | |
Common
Stock | | |
Common
Stock | | |
| | |
| |
| |
Shares | | |
Par | | |
Shares | | |
Par | | |
Paid-in | | |
Shares | | |
to
be issued | | |
Accumulated | | |
| |
| |
Outstanding | | |
Amount | | |
Outstanding | | |
Amount | | |
Capital | | |
to
be Issued | | |
Par
Amount | | |
Deficit | | |
Total | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Balance
December 31, 2021 | |
| 1 | | |
$ | - | | |
| 8,141,965 | | |
$ | 8,142 | | |
$ | 21,741,403 | | |
| 6,478 | | |
$ | 7,987 | | |
$ | (19,767,571 | ) | |
$ | 1,989,961 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Payment
of capital contribution | |
| - | | |
| - | | |
| - | | |
| - | | |
| 4,793 | | |
| - | | |
| - | | |
| - | | |
| 4,793 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Shares
issued for services | |
| - | | |
| - | | |
| 6,478 | | |
| 6 | | |
| 7,981 | | |
| (6,478 | ) | |
| (7,987 | ) | |
| - | | |
| - | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Stock
based compensation | |
| - | | |
| - | | |
| 266,667 | | |
| 267 | | |
| 1,104,660 | | |
| - | | |
| - | | |
| - | | |
| 1,104,927 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Common
stock issued for cash | |
| - | | |
| - | | |
| 1,530,887 | | |
| 1,529 | | |
| 342,921 | | |
| - | | |
| - | | |
| - | | |
| 344,450 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net
loss for the year ended December 31, 2022 | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (4,116,227 | ) | |
| (4,116,227 | ) |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Balance
December 31, 2022 | |
| 1 | | |
$ | - | | |
| 9,945,997 | | |
$ | 9,944 | | |
$ | 23,201,758 | | |
$ | - | | |
$ | - | | |
$ | (23,883,798 | ) | |
$ | (672,096 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Purchase
Wonderleaf | |
| - | | |
| - | | |
| 222,223 | | |
| 222 | | |
| 49,778 | | |
| - | | |
| - | | |
| - | | |
| 50,000 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Stock
based compensation and stock option expense | |
| - | | |
| - | | |
| - | | |
| - | | |
| 380,382 | | |
| - | | |
| - | | |
| - | | |
| 380,382 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net
loss for the year ended December 31, 2023 | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (1,482,843 | ) | |
| (1,482,843 | ) |
Balance
December 31, 2023 | |
| 1 | | |
$ | - | | |
| 10,168,552 | | |
$ | 10,166 | | |
$ | 23,631,918 | | |
$ | - | | |
$ | - | | |
$ | (25,366,641 | ) | |
$ | (1,724,557 | ) |
The
accompanying notes are an integral part of these consolidated financial statements.
Bespoke Extracts, Inc
Consolidated Statements of Cash Flows
| |
For the year ended December 31, | |
| |
2023 | | |
2022 | |
Cash flows from operating activities | |
| | |
| |
Net loss | |
$ | (1,482,843 | ) | |
$ | (4,116,227 | ) |
Adjustments to reconcile net loss to net cash used in operating activities | |
| | | |
| | |
Inventory reserve | |
| 40,393 | | |
| - | |
Depreciation | |
| 8,968 | | |
| - | |
Bad debt expense | |
| - | | |
| 3,636 | |
Reserve for notes receivable and advances Wonderleaf | |
| | | |
| 46,825 | |
Interest receivable – WonderLeaf | |
| | | |
| 81,700 | |
Amortization of right of use asset, net | |
| 66,370 | | |
| (931 | ) |
Amortization expense for prepaid consulting shares | |
| 70,907 | | |
| - | |
Stock based compensation and stock option expense | |
| 380,382 | | |
| 2,955,500 | |
Inventory earnout | |
| | | |
| 15,000 | |
Changes in operating assets and liabilities: | |
| | | |
| | |
Accounts receivable | |
| (45,226 | ) | |
| - | |
Prepaid expenses | |
| 2,186 | | |
| (747 | ) |
Inventory | |
| (56,193 | ) | |
| - | |
Accounts payable and accrued liabilities | |
| 665,437 | | |
| 213,086 | |
Operating lease liability, net | |
| (65,579 | ) | |
| 4,091 | |
Net Cash (used in) operating activities | |
| (415,198 | ) | |
| (798,067 | ) |
| |
| | | |
| | |
Cash flows from investing activities | |
| | | |
| | |
Advances to Wonderleaf | |
| - | | |
| (35,769 | ) |
Note receivable Wonderleaf funded | |
| - | | |
| (45,000 | ) |
Purchase of equipment | |
| - | | |
| (7,202 | ) |
Net cash used in investing activities | |
| - | | |
| (87,971 | ) |
| |
| | | |
| | |
Cash flow from financing activities | |
| | | |
| | |
Payment of capital contribution | |
| - | | |
| 4,793 | |
Payment of inventory earnout | |
| (90,000 | ) | |
| - | |
Proceeds from issuance of note payable - related party | |
| 434,000 | | |
| 415,500 | |
Proceeds from advances - related party | |
| 53,372 | | |
| - | |
Repayment of note payable - related party | |
| - | | |
| (2,500 | ) |
Proceeds from issuance of units | |
| - | | |
| 344,450 | |
Net cash provided by financing activities | |
| 397,372 | | |
| 762,243 | |
| |
| | | |
| | |
Net increase / (decrease) in cash | |
| (17,826 | ) | |
| (123,795 | ) |
Cash at beginning of period | |
| 24,433 | | |
| 148,228 | |
Cash at end of period | |
$ | 6,607 | | |
$ | 24,433 | |
| |
| | | |
| | |
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 | | |
$ | - | |
Stock issued for prepaid consulting | |
$ | - | | |
$ | 116,499 | |
The accompanying notes are an integral part of these consolidated financial statements.
BESPOKE EXTRACTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023 and 2022
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 consolidated unaudited financial
statements include the accounts of Bespoke Extracts, Inc., and its wholly owned subsidiary Bespoke Colorado. 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 $415,198
for the year ended December 31, 2023, and a working capital deficit of $997,118 and accumulated deficit of $25,366,641, as of December
31, 2023. This raises substantial doubt about our ability to continue as a going concern for a period of one year from the date of
these financial statements.
The Company’s ability to continue as a going
concern is dependent upon the Company generating profitable operations in the future and/or obtaining the necessary financing to meet
its obligations and repay its liabilities arising from normal business operations when they come due. There is no assurance that this
series of events will be satisfactorily completed.
Further, if we issue additional equity or debt
securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior
to those of existing holders of our common stock. If additional financing is not available or is not available on acceptable terms, we
will have to curtail or cease our operations. The financial statements do not include any adjustments relating to the recoverability and
classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event the Company
cannot continue in existence. These financial statements do not include any adjustments that might arise from this uncertainty.
Use of Estimates
The preparation of consolidated financial statements
in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions
that affect the amounts reported in the accompanying consolidated financial statements and accompanying notes. Significant estimates include
the assumption used in the valuation of equity-based transactions, valuation of intangible assets, allowance for doubtful accounts and
inventory valuation and reserves. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid investments with
original maturities of three months or less at the time of purchase. At December 31, 2023 and 2022, the Company did not have any cash
equivalents. The Company did not have any cash in excess of FDIC limits of $250,000 at any single bank.
Fair Value of Financial Instruments
The carrying amounts of cash, accounts receivable, inventory, fixed
assets, licenses, and other assets, accounts payable, accrued liabilities, and notes payable approximate their fair values as of December
31, 2023 and 2022, respectively, because of their short-term natures and the Company’s borrowing rate of interest.
Accounts Receivable
Accounts receivable are recorded at fair value
on the date revenue is recognized. The Company provides allowances for doubtful accounts for estimated losses resulting from the inability
of its customers to repay their obligation. If the financial condition of the Company’s customers were to deteriorate, resulting
in an impairment of their ability to repay, additional allowances may be required. The Company provides for potential uncollectible accounts
receivable based on specific customer identification and historical collection experience adjusted for existing market conditions. If
market conditions decline, actual collection experience may not meet expectations and may result in decreased cash flows and increased
bad debt expense.
The policy for determining past due status is based on the contractual
payment terms of each customer, which are generally net 14 or net 30 days. Once collection efforts by the Company, the determination for
charging off uncollectible receivables is made. At December 31, 2023 and 2022, the Company has recorded an allowance for doubtful accounts
of $0 and $0, respectively.
Inventory, Net
Inventories are stated at the lower of cost or net realizable value. Cost
is determined by the first-in, first-out basis and net realizable value. Net realizable value is defined as sales price less cost of completion,
disposition and transportation and a normal profit margin. As of December 31, 2023 and 2022, inventory amounted to $15,800, and $0
net of reserves, respectively, which consisted of finished goods of $0 and $0, and raw materials of $15,800 and $0, respectively.
Property and equipment
Property and equipment is recorded at cost and
capitalized from the initial date of service. Expenditures for major additions and improvements are capitalized and minor replacements,
maintenance, and repairs are charged to expense as incurred. When property and equipment is retired or otherwise disposed of, the cost
and accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the results of operations for
the respective period. Depreciation is provided over the estimated useful lives of the related assets using the straight-line method for
financial statement purposes. The Company uses other depreciation methods (generally accelerated) for tax purposes where appropriate.
The estimated useful lives for significant property and equipment categories are as follows:
Schedule of Estimated useful Lives of Property
and Equipment
Furniture and Equipment | |
| 5 years | |
License
License represents the Colorado license for distributing cannabis.
Revenue Recognition
We account for revenue in accordance with the
Financial Accounting Standards Board (“FASB”) Accounting Standard Codification Topic 606, “Revenue from Contracts
with Customers”. Revenue is measured based on the amount of consideration that we expect to receive, reduced by discounts and estimates
for credits and returns (calculated based upon previous experience and management’s evaluation). Outbound shipping charged to customers
is recognized at the time the related merchandise revenues are recognized and are included in net revenues. Inbound and outbound shipping
and delivery costs are included in cost of revenues.
Our products are sold directly to licensed marijuana
dispensaries in Colorado. Revenue is recognized when control of the merchandise is transferred to the customer, which generally occurs
upon shipment. Payment is typically due on the date of shipment or within 14 to 30 days.
At December 31, 2023, two customers amounted
to 19.4% and 14.9%, or 34.3% of accounts receivable. During the year ended December 31, 2022 no customer amounted to over 10% of the
total 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.
Net Income / (Loss) per Share
Basic income / (loss) per share amounts are computed based on net income
/ (loss) divided by the weighted average number of common shares outstanding. Diluted earnings per share reflect the potential dilution
that could occur if potentially dilutive securities were exercised or converted to common stock. The dilutive effect of options and warrants
and their equivalent is computed by application of the treasury stock method and the effect of convertible securities by the “if
converted” method. The effect of 29,876 warrants and 1,023,341 options is anti-dilutive for the year ended December
31, 2023 as they are not in the money. The effect of 438,723 warrants and 1,246,341 options is anti-dilutive for the
year ended December 31, 2022 as they are not in the money.
Reverse Stock Split
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 equity
amounts have been presented to reflect this split.
Recent accounting pronouncements
From time to time, new accounting pronouncements
are issued by the Financial Accounting Standards Board (“FASB”) or other standard setting bodies that are adopted by the Company
as of the specified effective date.
Income Taxes
We utilize the asset and liability method of accounting
for income taxes. We recognize deferred tax liabilities or assets for the expected future tax consequences of temporary differences between
the book and tax basis of assets and liabilities. We regularly assess the likelihood that our deferred tax assets will be recovered from
future taxable income. We consider projected future taxable income and ongoing tax planning strategies in assessing the amount of the
valuation allowance necessary to offset our deferred tax assets that will not be recoverable. We have recorded and continue to carry a
full valuation allowance against our gross deferred tax assets that will not reverse against deferred tax liabilities within the scheduled
reversal period. If we determine in the future that it is more likely than not that we will realize all or a portion of our deferred tax
assets, we will adjust our valuation allowance in the period we make the determination. We expect to provide a full valuation allowance
on our future tax benefits until we can sustain a level of profitability that demonstrates our ability to realize these assets.
2. ASSET PURCHASE AGREEMENT
On January
3, 2023, the Company completed the acquisition of the WonderLeaf assets for 222,223 shares of common stock valued at $50,000, or
$0.225 per share. At the time of acquisition Wonderleaf had no operations or no employees and was not considered a business.
Pursuant to ASU 2017-01 and ASC 805, the Company
analyzed the business of Wonderleaf to determine if the Company acquired a business or acquired assets. Based on this analysis, the Company
determined that it acquired assets. No goodwill was recorded since the purchase was accounted for as an asset purchase. In accordance
with ASC 805, the fair value of the assets acquired is based on either the fair value of the consideration given or the fair value of
the assets acquired, whichever is more clearly evident, and thus, more reliably measurable. The Company used the market price of the 222,223
common shares issued of $50,000 as the fair value of the assets acquired since this value was more clearly evident, and thus, more reliably
measurable than the fair value of the license and fixed assets acquired.
Company management determined if the Company acquired
a business or acquired assets. The FASB issued new guidance (ASU 2017-01) that changed the definition of a business to assist entities
with evaluating when a set of transferred assets and activities is a business. The guidance requires an entity to evaluate if substantially
all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets;
if so, the set of transferred assets and activities is not a business. The guidance also requires a business to include at least one substantive
process and narrows the definition of outputs by more closely aligning it with how outputs are described in ASC 606. Under the new guidance,
an entity first determines whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable
asset or a group of similar identifiable assets. If this threshold is met, the set is not a business. If it’s not met, the entity
then evaluates whether the set meets the requirement that a business include, at a minimum, an input and a substantive process that together
significantly contribute to the ability to create outputs. Under the ASU, a set is not a business when substantially all of the fair value
of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets.
Pursuant to 805-10-55-83, the Company first considered
the guidance in paragraphs 805-10-55-5A through 55-5C. The identifiable assets that could be recognized in the purchase only included
the license and fixed assets. Accordingly, the transaction was not considered a business.
The monetary value of the 222,223 shares is deemed
by the Company to be $50,000 in accordance with Accounting Standards Codification (“ASC”) 805-50-30 “Business Combinations”,
the Company determined that if the consideration paid is not in the form of cash, the measurement may be based on either (i) the cost
which is measured based on the fair value of the consideration given or (ii) the fair value of the assets (or net assets) acquired, whichever
is more clearly evident and thus more reliably measurable. No goodwill should be recorded since the WPA was accounting for as an asset
purchase. The Company determined that the fair value of the common shares issued was a better indicator which is more reliably measurable.
The Company assigned a value of $10,000 to the
licenses and $40,000 to the fixed assets acquired.
3. INVENTORY EARN-OUT
As described in Note 9, in exchange for cancellation
of the debt owed under the Debenture, the Company transferred to the holder certain domain names and agreed to pay the holder, beginning
December 1, 2021, and on a monthly basis through August 31, 2022, 40% of the operating profit generated from sale of the existing
CBD inventory of the Company, and on August 31, 2022, to make a final payment equal to an amount of $75,000 minus the total of the
monthly payments made under the Inventory Earn Out. As of December 31, 2022 no amounts had been paid. The inventory earn-out agreement
was amended on November 11, 2022 such that the final payment under the inventory earn out was increased to $90,000 (less any payments
previously made) and was due February 28, 2023. During the year ended December 31, 2023 the amount was paid.
4. NOTE RECEIVABLE
On January 19, 2022 the Company loaned WonderLeaf
$10,000, pursuant to a promissory note. The note bears interest at 5% annually and matured on January 18, 2023.
On February 8, 2022 the Company loaned WonderLeaf
$10,000, pursuant to a promissory note. The note bears interest at 5% annually and matured on February 8, 2023.
On October 25, 2022 the Company loaned WonderLeaf
$25,000, pursuant to a promissory note. The note bears interest at 5% annually and matured on February 8, 2023.
As of December 31, 2022 accrued interest on the
notes receivable amounted to $931.
At December 31, 2022 the Company recorded a reserve
of $45,931 for the promissory notes and accrued interest.
NOTE 5 – FURNITURE AND EQUIPMENT.
Machinery and equipment consisted of the following
at:
Schedule of Machinery and Equipment
| |
December 31, 2023 | | |
December 31, 2022 | |
Furniture and equipment | |
$ | 2,745 | | |
$ | 2,745 | |
Machinery and Equipment | |
| 47,202 | | |
| 7,202 | |
Fixed assets, total | |
| 49,947 | | |
| 9,947 | |
Total: accumulated depreciation | |
| (8,968 | ) | |
| - | |
Fixed assets, net | |
$ | 40,979 | | |
$ | 9,947 | |
Depreciation expense for the years ended December 31, 2023 and 2022
were $8,968 and $0 respectively.
6. 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 December 31, 2023 and 2022 the amount owed Infinity Management, LLC is $902,872 and $415,500,
respectively.
During the year ended December 31, 2023 the Company
received additional advances from Infinity Management, LLC. of $53,372.
7. LEASES
In connection with the WonderLeaf Purchase Agreement,
Bespoke Colorado entered into a lease agreement (the “Lease”) with WL Holdings, Ltd. (“WL Holdings”) in December
2021. Pursuant to the Lease, Bespoke Colorado will lease from WL Holdings certain commercial space in Aurora, Colorado, where WonderLeaf’s
business has been located, commencing upon signing of the Lease and Wonderleaf Purchase Agreement, for a term of five years, which Bespoke
Colorado will have an option to renew for an additional five years. Monthly rent under the Lease will start at $6,000. The Lease grants
the Company an option to purchase the property for $600,000. The Company has not decided whether it will exercise either option.
Supplemental balance sheet information related to leases was as follows:
| |
| |
December 31, | |
Operating Leases | |
Classification | |
2022 | |
Right-of-use assets | |
Right of use assets | |
$ | 275,912 | |
| |
| |
| | |
Current lease liabilities | |
Current operating lease liabilities | |
| 64,330 | |
Non-current lease liabilities | |
Long-term operating lease liabilities | |
| 216,039 | |
Total lease liabilities | |
| |
$ | 280,369 | |
Lease term and discount rate
were as follows:
| |
December 31, | |
| |
2022 | |
Weighted average remaining lease term (years) | |
| 3.94 | |
Weighted average discount rate | |
| 4 | % |
The component of lease costs
was as follows:
| |
Year ended December 31, | |
| |
2022 | |
Operating lease cost | |
$ | 76,372 | |
Variable lease cost (1) | |
| 4,200 | |
Total lease costs | |
$ | 80,572 | |
Supplemental disclosures of cash
flow information related to leases were as follows:
Lease term and discount rate were as follows:
| |
December 31, | |
| |
2023 | |
Weighted average remaining lease term (years) | |
| 2.84 | |
Weighted average discount rate | |
| 4 | % |
The component of lease costs was as follows:
| |
Year ended December 31, | |
| |
2023 | |
Operating lease cost | |
$ | 76,392 | |
Variable lease cost (1) | |
| 4,200 | |
Total lease costs | |
$ | 60,444 | |
(1) |
Variable lease cost primarily relates to common area maintenance, property taxes and insurance on leased real estate. |
Supplemental disclosures of cash flow information related to leases
were as follows:
|
|
December 31, |
|
|
|
2023 |
|
Cash paid for operating lease liabilities |
|
$ |
- |
|
Maturities of lease liabilities were as follows as of December 31,
2023:
| |
Operating | |
| |
Leases | |
2024 | |
$ | 75,915 | |
2025 | |
| 79,380 | |
2026 | |
| 72,765 | |
Total undiscounted lease payments | |
| 228,060 | |
Less: Present value discount | |
| (13,090 | ) |
Total Present value of lease liabilities | |
$ | 214,970 | |
Operating Leases | |
Classification | |
December 31, 2023 | |
Right-of-use assets | |
Right of use assets | |
$ | 209,542 | |
| |
| |
| | |
Current lease liabilities | |
Current operating lease liabilities | |
| 64,330 | |
Non-current lease liabilities | |
Long-term operating lease liabilities | |
| 150,460 | |
Total lease liabilities | |
| |
$ | 214,790 | |
8. EQUITY
Common Stock and Preferred Stock
On December 5, 2022 the Company approved an amendment
to its articles of incorporation to effect a 45-to-1 reverse split of our common stock effective January 13, 2023. All prior amounts
equity amounts have been presented to reflect this reverse split.
As of December 31, 2023 and 2022, the Company’s authorized capital
stock consists of 3,000,000,000 shares of common stock, par value $0.001, and 50,000,000 shares of preferred stock,
par value $0.001. 1,000 shares of preferred stock are designated as Series A Convertible Preferred Stock. No shares of Series
A Preferred Stock are issued and outstanding as of December 31, 2023 and 2022, respectively. The Company’s Certificate of Designation
of Series B Preferred Stock was withdrawn by the Company on September 30, 2020. 1 share of preferred stock is designated Series
C Preferred Stock and is issued and outstanding as of December 31, 2023 and 2022, respectively. The Series C Preferred Stock has a stated
value of $24,000 and entitles the holder to 51% of the total voting power of the Company’s stockholders. The Company may,
in its sole discretion, redeem the Series C Preferred Stock at any time for a redemption price equal to the stated value. Upon payment
of the redemption price by the Company, the Series C Preferred Stock will revert to the status of authorized but unissued preferred stock.
On January 3, 2023, the Company
completed the acquisition of the WonderLeaf assets for 222,223 shares of common stock valued at $50,000, or $0.225 per share.
On December 14, 2021, the board of directors of
the Company adopted the Company’s 2021 Equity Incentive Plan (the “2021 Plan”), pursuant to which up to an aggregate
of 6,666,667 shares of common stock are available for issuance. Awards under the plan may include options (including incentive
stock options and non-qualified stock options), stock appreciation rights, restricted stock, restricted stock units, performance share
awards, or other equity-based awards, each as defined under the 2021 Plan. Options awarded under the 2021 Plan are to have an exercise
price of not less than 100% of the fair market value of the common stock on the grant date and a term of not more than ten years from
the option grant date.
On December 14, 2021, the Company entered into
an employment agreement with Hunter Garth. Pursuant to the employment agreement, Mr. Garth will serve as the Company’s president
and will receive a base monthly salary of $8,000. The Company also granted to Mr. Garth, pursuant to the Company’s 2021 Equity Incentive
Plan, 500,000 shares of restricted common stock valued at $675,000 ($1.35 per share), which vested one year from
the date of grant. During the year ended December 31, 2022 the Company fully amortized the prepaid balance associated with the stock based
compensation. During the years ended December 31, 2023 and 2022 the amount was amortized $0 and $643,562, respectively.
On December 14, 2021, the Company entered into
an employment agreement with Michael Feinsod, the Company’s chief executive officer and chairman. Pursuant to the employment agreement,
Mr. Feinsod will continue to serve as the Company’s chief executive officer and chairman and will receive a base monthly salary
of $10,000. The Company also granted to Mr. Feinsod, pursuant to the Company’s 2021 Equity Incentive Plan, 1,000,000 shares
of restricted common stock valued at $1,350,000 ($1.35 per share), which vested one year from the date of grant. During
the year ended December 31, 2022 the Company recorded $1,350,000 of prepaid expenses associated with the stock based compensation. During
the years ended December 31, 2023 and 2022 the amount was amortized $0 and $1,287,123, respectively.
During the year ended December 31, 2022, the Company
entered into and closed securities purchase agreements with investors pursuant to which the Company issued and sold to the investors an
aggregate of 1,530,897 shares of common stock and warrants to purchase an aggregate of 1,530,897 shares of common
stock, for an aggregate purchase price of $344,450. The warrants expired June 30, 2023 and had an exercise price of $2.25.
Effective August 1, 2022, the Company issued an
aggregate of 266,667 shares of common stock to employees and consultants for services, including 155,556 shares that vest
immediately, 55,556 shares that vested one year from the grant date, and 55,556 shares that will vest two years from
the grant date. During the year ended December 31, 2022 the Company recorded an expense $1,104,928. For the year ended December 31, 2023
the Company recorded an expense of $70,907, respectively. As of December 31, 2023 and December 31, 2022 the Company had a prepaid stock
award of $9,206 and $80,113.
Warrants
During the four months ended December 31, 2021,
the Company entered into and closed securities purchase agreements with investors pursuant to which the Company issued and sold to the
investors an aggregate of 50,000,000 shares of common stock and warrants to purchase an aggregate of 12,500,000 shares
of common stock, for an aggregate purchase price of $250,000 with offering costs of $10,000 for legal expenses. The warrants
had a term of one year and an exercise price of $2.25.
During the year ended December 31, 2022, the Company
entered into and closed securities purchase agreements with investors pursuant to which the Company issued and sold to the investors an
aggregate of 1,530,887 shares of common stock and warrants to purchase an aggregate of 382,722 shares of common stock, for an aggregate
purchase price of $344,450. The warrants expired June 30, 2023 and had an exercise price of $2.25.
The following table summarizes the warrant activities
during the year ended December 31, 2023:
| |
Number of Warrants | | |
Weighted- Average Exercise Price Per Share | | |
Weighted- Average Remaining Life | |
Outstanding at December 31, 2021 | |
| 344,445 | | |
| 6.30 | | |
| 0.90 | |
Granted | |
| 382,722 | | |
| 1.80 | | |
| 0.75 | |
Canceled | |
| (288,444 | ) | |
| 2.99 | | |
| | |
Outstanding at December 31, 2022 | |
| 438,723 | | |
| 5.03 | | |
| 0.36 | |
Granted | |
| - | | |
| - | | |
| - | |
Canceled or expired | |
| (408,847 | ) | |
| 0.95 | | |
| - | |
Outstanding at December 31, 2023 | |
| 29,876 | | |
$ | 25.24 | | |
| 1.21 years | |
Exercisable at December 31, 2023 | |
| 29,875 | | |
$ | 25,.24 | | |
| 1.21 years | |
Intrinsic value at December 31, 2023 | |
| | | |
$ | - | | |
| | |
Options
On December 14, 2021, the Company entered into
an employment agreement with Hunter Garth, wherein the Company granted to Mr. Garth, pursuant to the Company’s 2021 Equity Incentive
Plan, ten-year options to purchase 333,333 shares of common stock at an exercise price of $2.70 (representing a 120% premium over the
closing price of the common stock on December 13, 2021). One-third of the options will vest on each yearly anniversary of the date of
grant. The options were valued at $450,000 using a Black-Scholes pricing model. During the year December 31, 2023 and 2022 the Company
recorded $121,805 and $266,257, respectively of expenses associated with the vesting of these stock options. (See notes 9 and 10).
On
December 14, 2021, the Company entered into an employment agreement with Michael Feinsod, wherein the Company granted to Mr. Feinsod,
pursuant to the Company’s 2021 Equity Incentive Plan, ten-year options to purchase 666,667 shares of common stock at an exercise
price of $2.70 (representing a 120% premium over the closing price of the common stock on December 13, 2021). One-third of the options
will vest on each yearly anniversary of the date of grant. The options were valued at $900,000 using a Black-Scholes pricing model During
the year ended December 31, 2023 and 2022 the Company recorded $243,609 and $532,513, respectively of expenses associated with the
vesting of these stock options. (See notes 9 and 10).
On December 14, 2021, the Company issued to a
consultant options to purchase 22,222 shares of common stock at an exercise price of $1.35. The options vest over a period of 3 months
and have a term of 10 years. The options were valued at $30,000 using a Black-Scholes pricing model. During the year ended December 31,
2023 and 2022 the Company recorded $0 and $24,900, respectively of expenses associated with the vesting of these stock options.
On August 17, 2023, the Company issued to several
employees options to purchase 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 year ended
December 31, 2023 the Company recorded $15,056 of expenses associated with the vesting of these stock options
The following table summarizes the option activities
during the year ended December 31 2023:
| |
Number of Options | | |
Weighted- Average Exercise Price Per Share | | |
Weighted- Average Remaining Life | |
Outstanding at December 31, 2021 | |
| 1,023,842 | | |
| 2.67 | | |
| 10 | |
Granted | |
| - | | |
| - | | |
| - | |
Canceled or expired | |
| - | | |
| - | | |
| - | |
Exercised | |
| - | | |
| - | | |
| - | |
Outstanding at December 31, 2022 | |
| 1,023,842 | | |
$ | 2.67 | | |
| 8.95 years | |
Granted | |
| 222,500 | | |
$ | 0.50 | | |
| 4.88 years | |
Canceled or expired | |
| - | | |
| - | | |
| | |
Exercised | |
| - | | |
| - | | |
| | |
Outstanding at December 31, 2023 | |
| 1,246,341 | | |
$ | 2.67 | | |
| 7.36 years | |
Exercisable at December 31, 2023 | |
| 357,174 | | |
$ | 2.19 | | |
| 7.94 years | |
Intrinsic value at December 31, 2023 | |
| | | |
$ | - | | |
| | |
The future expense as of December 31, 2023 is
$172,752.
9. RELATED PARTY TRANSACTIONS
On December 14, 2021, the Company entered into
an employment agreement with Hunter Garth. Pursuant to the employment agreement, Mr. Garth will serve as the Company’s president
and will receive a base monthly salary of $8,000. The Company also granted to Mr. Garth, pursuant to the Company’s 2021 Equity Incentive
Plan, 500,000 shares of restricted common stock, which vested one year from the date of grant, and ten-year options
to purchase 333,333 shares of common stock at an exercise price of $2.70 (representing a 120% premium over the closing
price of the common stock on December 13, 2021). One-third of the options will vest on each yearly anniversary of the date of grant. In
the event that Mr. Garth is terminated without cause or resigns with good reason (each as defined in the employment agreement), he will
be entitled to his monthly base salary for twelve months following such termination.
On December 14, 2021, the Company entered into
an employment agreement with Michael Feinsod, the Company’s chief executive officer and chairman. Pursuant to the employment agreement,
Mr. Feinsod will continue to serve as the Company’s chief executive officer and chairman and will receive a base monthly salary
of $10,000. The Company also granted to Mr. Feinsod, pursuant to the Company’s 2021 Equity Incentive Plan, 1,000,000 shares
of restricted common stock, which vested one year from the date of grant, and ten-year options to purchase 666,667 shares
of common stock at an exercise price of $2.70 (representing a 120% premium over the closing price of the common stock on December
13, 2021). One-third of the options will vest on each yearly anniversary of the date of grant. In the event that Mr. Feinsod is terminated
without cause or resigns with good reason (each as defined in the employment agreement), he will be entitled to his monthly base salary
for twelve months following such termination.
During the year ended December 31, 2023, Michael
Feinsod, the Company’s chief executive officer, loaned the Company an additional $487,372. As of December 31, 2023 and December
31, 2022 the amount owed Michael Feinsod is $902,872 and $415,500, respectively. All loans are payable upon demand.
On
September 5, 2023 $849,500 of notes payable were converted into a 5% interest bearing note due June 30, 2025. The note
contains provisions whereby it is intended to be subordinate to any senior secured debt the Company may incur while it is outstanding.
In addition, repayment of the note will be due in full out of the proceeds of a new debtor equity capital raise with net proceeds of
more than $2,000,000. (See Note 6.)
As of December 31, 2023 Michael Feinsod is owed
a total of $206,772 of accrued salary and accounts payable of $156,944
10. COMMITMENTS AND CONTINGENCIES
In connection with a stock purchase agreement,
on October 28, 2021, a convertible debenture with an original issue date of December 24, 2019, as amended by Amendment No. 1 thereto,
dated May 28, 2020, Amendment No. 2 thereto, dated August 21, 2020, Amendment No. 3 thereto, dated December 10, 2020, Amendment No. 4
thereto, dated January 15, 2021, Amendment No. 5 thereto, dated April 2, 2021, and Amendment No. 6 thereto, dated August 2, 2021 (as amended,
the “Debenture”) with an original principal amount of approximately $400,000 was terminated, and all amounts due and
payable thereunder forgiven pursuant to a cancellation and satisfaction of debenture agreement entered into between the Company and the
Debenture holder (the “Debt Cancellation Agreement”). In exchange for cancellation of the debt owed under the Debenture, the
Company transferred to the holder certain domain names and agreed to pay the holder, beginning December 1, 2021, and on a monthly basis
through August 31, 2022, 40% of the operating profit generated from sale of the existing CBD inventory of the Company (the “Inventory
Earn Out”), and on August 31, 2022, to make a final payment equal to an amount of $75,000 minus the total of the monthly payments
made under the Inventory Earn Out. The inventory earn-out agreement was amended on November 11, 2022 (see Note 3) such that the final
payment under the inventory earn out was increased to $90,000 (less any payments previously made) and was due February 28, 2023. During
the 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.
11. INCOME TAXES
FASB ASC 740, Income Taxes, requires a valuation
allowance to reduce the deferred tax assets reported if, based on the weight of the evidence, it is more likely than not that some portion
or all of the deferred tax assets will not be realized. After consideration of all the evidence, both positive and negative, management
has determined that a full valuation allowance of approximately $1,689,837 and $1,443,258 against its net deferred taxes is necessary
as of December 31, 2023 and 2022, respectively.
At December 31, 2023 and December 31, 2022, respectively,
the Company had approximately $7,293,000 and $6,277,000 of U.S. net operating loss carryforwards remaining, which expire beginning in
2033.
Tax returns for the years ended August 31, 2022,
2021, 2020, 2019, and 2018, are subject to examination by the Internal Revenue Service.
A reconciliation of the Company’s income taxes
to amounts calculated at the federal statutory rate is as follows for the years ended December 31:
| |
2023 | |
2022 |
| |
| |
|
Federal and state statutory taxes | |
| (21.00 | )% | |
| (25.00 | )% |
Change in tax rate estimate | |
| - | % | |
| - | % |
Permanent differences | |
| 3.52 | % | |
| .28 | % |
Change in valuation allowance | |
| 24.52 | % | |
| 24.72 | % |
| |
| - | % | |
| - | % |
In assessing the recovery of the deferred tax assets,
management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The
ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in the periods in which those temporary
differences become deductible. Management considers the scheduled reversals of future deferred tax liabilities, projected future
taxable income, and tax planning strategies in making this assessment. As a result, management determined it was more likely than
not the deferred tax assets would not be realized as of December 31, 2023 and 2022 and recorded a full valuation allowance.
Components of net deferred tax assets, including a
valuation allowance, are as follows at December 31:
| |
2023 | | |
2022 | |
Deferred tax assets: | |
| | |
| |
Inventory impairment | |
$ | 21,179 | | |
$ | 21,179 | |
Bad debt expense | |
| 41,079 | | |
| 21,045 | |
Net operating loss carryforward | |
| 1,650,169 | | |
| 1,401,034 | |
Total deferred tax assets | |
| 1,712,427 | | |
| 1,443,258 | |
Valuation allowance | |
| (1,712,427 | ) | |
| (1,443,258 | ) |
Total net deferred tax assets | |
$ | - | | |
$ | - | |
A reconciliation of the expected income tax benefit
at the U.S. Federal income tax rate to the income tax benefit actually recognized for the years ended December 31, 2023 and 2022 is set
forth below:
| |
2023 | | |
2022 | |
| |
| | |
| |
Net loss | |
$ | (363,620 | ) | |
$ | (1,009,374 | ) |
Non-deductible expenses and other | |
| 94,451 | | |
| 756,935 | |
Change in valuation allowance | |
| 269,170 | | |
| 252,756 | |
Benefit from income taxes | |
$ | - | | |
$ | - | |
12. SUBSEQUENT EVENTS
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.
Item 9. Changes in and Disagreements With
Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Evaluation of Disclosure and Control 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”) pursuant to Rule
13a-15 under the 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 recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s (the
“SEC”) rules and forms and that such information is accumulated and communicated to management, including our principal
executive and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding
required disclosure.
Based on this evaluation,
management concluded that the design and operation of our disclosure controls and procedures are not effective due to the following material
weaknesses:
|
● |
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 consolidated 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 consolidated financial statements, it could have resulted
in a material misstatement that might have been prevented or detected by a segregation of duties. |
|
● |
Documentation of all proper
accounting procedures is not yet complete. |
Management’s Report on Internal Control over Financial Reporting
Our management is responsible
for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange
Act). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of the consolidated financial statements for external purposes of accounting principles generally
accepted in the United States.
Our internal control over
financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of the consolidated financial statements in accordance with accounting principles
generally accepted in the United States of America, and that receipts and expenditures of the Company are being made only in accordance
with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the consolidated
financial statements. Our management conducted an evaluation of the effectiveness of our internal control over financial reporting
as of December 31, 2023 based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (2013).
A material weakness is defined
within the Public Company Accounting Oversight Board’s Auditing Standard No. 5 as a deficiency, or a combination of deficiencies,
in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s
annual or interim consolidated financial statements will not be prevented or detected on a timely basis.
In conducting his evaluation,
our officer noted the following material weaknesses in our internal controls over financial reporting:
|
● |
While certain accounting
procedures have been adopted, compliance with such procedures has been inconsistent. |
|
● |
The board of directors
has not established an Audit Committee. Accordingly, the entire board, rather than an independent body, has reviewed our consolidated
financial statements. |
|
● |
Segregation procedures
could be improved by strengthening cross approval of various functions, including cash disbursements and internal audit procedures
where appropriate. |
As a result of these deficiencies
in our internal controls, our officer concluded that our internal control over financial reporting was not effective.
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 the consolidated financial statement disclosures.
This annual report does not
include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial
reporting. The Company’s internal control over financial reporting was not subject to attestation by the Company’s independent
registered public accounting firm pursuant to rules of the SEC that permit the Company to provide only management’s report in this
annual report.
Changes in Internal Control over Financial Reporting
There were no changes in
our internal control over financial reporting, as defined in Rules 13a-15(t) and 15d-15(f) under the Exchange Act, during the fiscal
year ended December 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.
Item 9B. Other Information.
(b) Rule 1065-1 Trading Plans.
During the three months ended December 31, 2023 none of the Company’s directors or Section 16 officers adopted or terminated a
“Rule 1065-1 trading arrangement” or a “non-Rule 1065-1 trading arrangement”, as each term is defined in Item
408(a) of Regulation S-K..
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent
Inspections.
Not applicable.
PART III
Item 10. Directors, Executive Officers, and
Corporate Governance.
Our executive officers and directors are as follows:
Name |
|
Age |
|
Title |
Michael Feinsod |
|
53 |
|
Chief Executive Office and Chairman of the Board of
Directors |
Hunter Garth |
|
35 |
|
President and Director |
Michael Feinsod has
served as our chief executive officer and chairman since November 2021. Mr. Feinsod is the managing member of Infinity Capital, LLC,
an investment management company he founded in 1999. Mr. Feinsod was executive chairman of the board of General Cannabis Corporation
from August 2014 through July 2020, and was a director of The Kingstone Companies, Inc. from 2008 through June 2015. Mr. Feinsod
served as a director of Ameritrans Capital Corporation from December 2005 until July 2013. Previously, Mr. Feinsod served as
an investment analyst and portfolio manager at Mark Boyar & Company, Inc. He is admitted to practice law in New York and served as
an associate in the Corporate Law Department of Paul Hastings LLP. Mr. Feinsod holds a J.D. from Fordham University School of Law
and a B.A. from George Washington University. We believe that Mr. Feinsod’s corporate finance, legal and executive-level experience,
as well as his service on the boards of other public companies, give him the qualifications and skills to serve as one of our directors.
Hunter Garth
has served as our chief strategy officer and director and director since November 2021. Mr Garth was most recently was the vice president
of corporate development for General Cannabis Corporation from January 2019 to July 2020, a position in which he was responsible for
developing and sourcing M&A activity in the cannabis industry. Prior to that, he was the managing director of Iron Protection Group,
a security company that he founded in 2013 and sold in March 2015 to General Cannabis Corporation. Mr. Garth served in the U.S. Marine
Corps from October 2008 to October 2012 in multiple roles, including infantry squad leader and instructor with the USMC Special Operations
Training Group. Mr. Garth attended the University of West Florida. We believe that Mr. Garth’s industry and management-level
experience qualifies him to serve as one of our directors.
Terms of Office
Our directors are appointed
for one-year terms in accordance with our charter documents and hold office until the earlier of (i) the next annual meeting of our shareholders,
(ii) until they are removed from the board or (iii) until they resign.
Family Relationships
None.
Involvement in Certain Legal Proceedings
During the past ten years,
none of our current directors or executive officers has been:
|
● |
the subject of any bankruptcy
petition filed by or against any business of which such person was a general partner or executive officer either at the time of the
bankruptcy or within two years prior to that time; |
|
● |
convicted in a criminal
proceeding or is subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); |
|
● |
subject to any order, judgment,
or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction or any Federal or State authority,
permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities
or banking activities; |
|
● |
found by a court of competent
jurisdiction (in a civil action), the Commission or the Commodity Futures Trading Commission to have violated a federal or state
securities or commodities law. |
|
● |
the subject of, or a party
to, any Federal or State judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or
vacated, relating to an alleged violation of (a) any Federal or State securities or commodities law or regulation; (b) any law or
regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction,
order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition
order; or (c) any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or |
|
● |
the subject of, or a party
to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section
3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange
Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its
members or persons associated with a member. |
Delinquent Section 16(a) Reports
Section 16(a) of the Securities
Exchange Act of 1934, as amended, requires the Company’s officers and directors, and certain persons who own more than 10% of a
registered class of the Company’s equity securities (collectively, “Reporting Persons”), to file reports of ownership
and changes in ownership (“Section 16 Reports”) with the Securities and Exchange Commission (the “SEC”). Based
solely on its review of the copies of such Section 16 Reports received by the Company, all Section 16(a) filing requirements applicable
to the Reporting Persons during and with respect to the fiscal year ended December 31, 2023 were complied with on a timely basis, except
that a Form 4 was filed late by Michael Feinsod, resulting in three transactions not being reported on a timely basis.
Board Committees
We have not established any
committees of the board of directors due to the small size of the Company and the board. We do not have an audit committee financial
expert because we do not have the resources to retain one.
Stockholder Communication with the Board of
Directors
Stockholders may send communications
to our board of directors by writing to Bespoke Extracts, Inc. 12001 E. 33rd Avenue, Unit O, Aurora, CO, 80010 Attention: Chief
Executive Officer.
Code of Ethics
The Company has adopted a
Code of Ethics that applies to the Company’s chief executive officer. Any person may obtain a copy of our Code of Ethics, without
charge, by mailing a request to the Company at the address appearing on the front page of this Annual Report on Form 10-K or by viewing
it on our website found at www.bespokeextracts.com.
Item 11. Executive Compensation.
The following table summarizes
all compensation to our named executive officers during the years ended December 31, 2023 and December 31, 2022.
Name & Principal Position | |
Year | | |
Salary | | |
Bonus | | |
Stock Awards | | |
Option Awards | | |
Compensation | | |
Total | |
| |
| | |
($) | | |
($) | | |
($) | | |
($) | | |
($) | | |
($) | |
Michael Feinsod | |
| 2023 | | |
$ | 120,000 | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | 120,000 | |
Chief Executive Officer | |
| 2022 | | |
$ | 120,000 | | |
$ | - | | |
$ | 1,287,123 | | |
$ | 532,513 | | |
$ | - | | |
$ | 1,939,636 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Hunter Garth | |
| 2023 | | |
$ | 96,000 | | |
$ | - | | |
$ | - | | |
$ | 28,523 | | |
$ | - | | |
$ | 124,523 | |
President | |
| 2022 | | |
$ | 96,000 | | |
$ | - | | |
$ | 643,562 | | |
$ | 266,257 | | |
$ | - | | |
$ | 1,005,819 | |
Employment Agreements
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.
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 $2.70 (representing a 120% premium
over the closing price of the common stock on December 13, 2021). One-third of the options will vest on each yearly anniversary of the
date of grant. In the event that Mr. Garth is terminated without cause or resigns with good reason (each as defined in the employment
agreement), he will be entitled to his monthly base salary for twelve months following such termination.
Outstanding Equity Awards at Fiscal Year-End
The following table sets
forth our outstanding equity awards to our executive officers as of December 31, 2023.
|
|
OPTION AWARDS |
|
STOCK
AWARDS |
|
Name
(a) |
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
(b) |
|
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
(c) |
|
|
Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)
(d) |
|
|
Option
Exercise
Price
($)
(e) |
|
|
Option
Expiration
Date
(f) |
|
Number
of Shares
or Units
of Stock
That
Have Not
Vested
(#)
(g) |
|
|
Market
Value of
Shares or
Units of
Stock
That
Have Not
Vested
($)
(h) |
|
|
Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested
(#)
(i) |
|
|
Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights
That Have
Not
Vested
(#)
(j) |
|
Michael
Feinsod |
|
|
444,445 |
|
|
|
222,222 |
|
|
|
|
|
|
$ |
2.70 |
|
|
12/14/2031 |
|
|
- |
|
|
$ |
- |
|
|
|
- |
|
|
|
- |
|
Hunter
Garth |
|
|
222,222 |
|
|
|
111,111 |
|
|
|
- |
|
|
$ |
2.70 |
|
|
12/14/2031 |
|
|
- |
|
|
$ |
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
150,000 |
|
|
|
- |
|
|
|
- |
|
|
$ |
0.20 |
|
|
08/17/2028 |
|
|
- |
|
|
$ |
- |
|
|
|
- |
|
|
|
- |
|
Compensation of Directors
No director of the Company
received any compensation for serving as director of the Company during the year ended December 31, 2023.
Item 12. Security Ownership of Certain Beneficial
Owners and Management and Related Stockholder Matters.
The following table sets forth
certain information concerning the ownership of the company’s common stock and Series C Preferred Stock as of March 31, 2024 with
respect to: (i) each person known to the Company to be the beneficial owner of more than five percent of the Company’s common stock;
(ii) all directors and executive officers; and (iii) directors and executive officers of the Company as a group. To the knowledge of the
Company, each shareholder listed below possesses sole voting and investment power with respect to the shares indicated.
Unless otherwise indicated,
the business address of each person listed is care of Bespoke Extracts, Inc., at 12001 E. 33rd Avenue, Unit O, Aurora, CO. The percentages
in the table are based on 10,168,552 shares of common stock outstanding as of March 31, 2024, and have been calculated on the basis of
treating as outstanding for a particular person, all shares of our common stock outstanding on that date and all shares of our common
stock issuable to that holder in the event of exercise of outstanding options, warrants, rights or conversion privileges owned by that
person at that date which are exercisable within 60 days of March 31, 2024. Except as otherwise indicated, the persons listed below have
sole voting and investment power with respect to all shares of our common stock owned by them.
|
|
Amount of |
|
|
|
|
|
|
Beneficial |
|
|
Percent of |
|
Name of Beneficial Owner |
|
Ownership |
|
|
Class |
|
Executive Officers and Directors: |
|
|
|
|
|
|
Michael Feinsod(1)(2) |
|
|
2,564,112 |
|
|
|
24.2 |
% |
Hunter Garth(3) |
|
|
872,000 |
|
|
|
7.9 |
% |
Officers and Directors as a group (2 persons): |
|
|
3,436,112 |
|
|
|
31.3 |
% |
5% Holders: |
|
|
|
|
|
|
|
|
Infinity Management, LLC (2) |
|
|
1,015,112 |
|
|
|
9.9 |
% |
(1) |
Includes 1,015,112 shares
of common stock held by Infinity, and 444,444 shares underlying vested options. Mr. Feinsod is the managing member of Infinity and
has voting and investment power over the securities of the Company held by Infinity. Infinity also holds 1 share of Series C Preferred
Stock of the Company, which provides the holder with 51% of the voting power of the Company’s stockholders. |
(2) |
Represents shares held by Infinity Management, LLC (“Infinity”). The managing member of Infinity is Michael Feinsod. He has voting and dispositive power of these shares. Infinity also owns our 1 outstanding share of Series C Preferred Stock, which entitles the holder to 51% of the voting power of the Company’s stockholders. |
(3) |
Includes 372,000 shares underlying vested options. |
Item 13. Certain Relationships and Related
Transactions, and Director Independence.
Certain Relationships and Related Transaction
During the year ended December
31, 2023, Infinity Management, LLC, a company controlled by Michael Feinsod, the Company’s chief executive officer, was repaid $2,500
and advanced the Company $415,500 for operations. On September 26, 2023, the loans were consolidated into a note.
Director Independence.
Neither of our directors
is independent as defined under Nasdaq listing standards.
Item 14. Principal Accountant Fees and Services.
The following table shows
the fees that were billed to the Company by its independent auditor for professional services rendered in 2022 and 2023.
Period | |
Audit Fees | | |
Audit- Related Fees | | |
Tax Fees | | |
All Other Fees | |
Year ended December 31, 2022– Liggett & Webb, P.A. | |
$ | 15,576 | | |
$ | - | | |
$ | - | | |
$ | - | |
Year ended December 31, 2022—Assurance Dimensions | |
$ | 43,500 | | |
$ | - | | |
$ | - | | |
$ | - | |
Year ended December 31, 2023— Assurance Dimensions. | |
$ | 41,339 | | |
$ | - | | |
$ | - | | |
$ | - | |
Audit fees. Audit
fees represent fees for professional services performed by for the audit of our annual financial statements and the review of our quarterly
consolidated financial statements, as well as services that are normally provided in connection with statutory and regulatory filings
or engagements.
Audit-related fees. Audit-related
fees represent fees for assurance and related services performed that are reasonably related to the performance of the audit or review
of our consolidated financial statements.
Tax Fees. Tax
Fees represent fees for preparation of tax returns.
All other fees. Liggett
& Webb, P.A. and Assurance Dimensions and did not receive any other fees from us for the years ended December 31, 2023 and 2022.
The board of directors serves
as the audit committee of the Company. All audit and non-audit services are pre-approved by the board of directors, which considers,
among other things, the possible effect of the performance of such services on the auditors’ independence.
PART IV
Item 15. Exhibits, Financial Statement Schedules.
(a)
(1) Our financial statements are listed on page F-1 of this annual
report.
(2) Financial statement schedules: None.
(b) Exhibits.
Exhibit No. |
|
Description |
3.1 |
|
Articles of Incorporation (incorporated by reference to Form 10-SB filed August 10, 2007) |
3.2 |
|
Articles and Certificates of Merger (incorporated by reference to Form 10-SB filed August 10, 2007) |
3.3 |
|
Certificate of Amendment to Articles of Incorporation (incorporated by reference to 8-K filed March 19, 2012) |
3.4 |
|
Certificate of Amendment to Articles of Incorporation (incorporated by reference to 8-K filed March 5, 2014) |
3.5 |
|
Certificate of Amendment to Articles of Incorporation (incorporated by reference to 8-K filed December 3, 2015) |
3.6 |
|
Articles of Merger (incorporated by reference to 8-K filed March 10, 2017) |
3.7 |
|
Certificate of Designation of Series A Preferred Stock (incorporated by reference to 8-K filed June 14, 2012) |
3.8 |
|
Certificate of Amendment to Articles of Incorporation (incorporated by reference to 8-K filed October 7, 2020) |
3.9 |
|
Certificate of Designation of Series C Preferred Stock (incorporated by reference to 8-K filed March 26, 2020) |
3.10 |
|
Bylaws (incorporated by reference to Form 10-SB filed August 10, 2007) |
3.11 |
|
Amendment to Bylaws (incorporated by reference to 8-K filed July 7, 2022) |
4.1 |
|
Description of Registrant’s Securities (incorporated by reference to 10-K filed December 18, 2020) |
10.1 |
|
Asset Purchase Agreement, dated December 2, 2021, between Bespoke Extracts Colorado, LLC and WonderLeaf, LLC (incorporated by reference to 8-K filed December 8, 2021) |
10.2 |
|
Amendment No. 1 to Asset Purchase Agreement between Bespoke Extracts Colorado, LLC and WonderLeaf, LLC (incorporated by reference to 8-K filed December 8, 2021) |
10.3 |
|
Lease, dated December 2, 2021, between Bespoke Extracts Colorado, LLC and WL Holdings, Ltd. (incorporated by reference to 8-K filed December 8, 2021) |
10.4 |
|
Employment Agreement, dated December 14, 2021, between the Company and Michael Feinsod (incorporated by reference to 8-K filed December 15, 2021) *** |
10.5 |
|
Employment Agreement, dated December 14, 2021, between the Company and Hunter Garth (incorporated by reference to 8-K filed December 15, 2021) *** |
10.6 |
|
Form of Restricted Stock Award Agreement (incorporated by reference to 8-K filed December 15, 2021) |
10.7 |
|
Bespoke Extracts, Inc. 2021 Equity Incentive Plan (incorporated by reference to 8-K filed December 15, 2021) |
10.8 |
|
Form of Option Agreement (incorporated by reference to 8-K filed December 15, 2021) |
10.9 |
|
Form of Purchase Agreement (incorporated by reference to 8-K filed January 3, 2022) |
10.10 |
|
Form of Warrant (incorporated by reference to 8-K filed January 3, 2022) |
10.11 |
|
Amendment No. 2 to Asset Purchase Agreement (incorporated by reference to 8-K filed July 7, 2022) |
10.12 |
|
Amendment No. 3 to Asset Purchase Agreement (incorporated by reference to 8-K filed September 9, 2022) |
10.13 |
|
Amendment No. 4 to Asset Purchase Agreement (incorporated by reference to 8-K filed November 3, 2022) |
10.14 |
|
Amendment No. 1 to Inventory Earn Out Agreement (incorporated by reference to 8-K filed November 16, 2022) |
10.15 |
|
Form of Purchase Agreement (incorporated by reference to 8-K filed February
20, 2024) |
10.16 |
|
Form of Note (incorporated by reference to 8-K filed February 20, 2024) |
10.17 |
|
Form of Warrant (incorporated by reference to 8-K filed February 2024) |
14.1 |
|
Code of Ethics (incorporated by reference to 10-K filed December 14, 2018) |
16 |
|
Letter from Liggett & Webb, P.A. (incorporated by reference to 8-K filed November 7, 2022) |
21.1 |
|
Subsidiaries: Bespoke Extracts Colorado, LLC (Colorado) |
31.1 |
|
Certification pursuant to Section 302 of the Sarbanes-Oxley Act* |
32.1 |
|
Certification pursuant to 18 U.S.C. Section 1350, as adopted 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)* |
*** |
Indicates management contract
or compensatory arrangement. |
SIGNATURES
Pursuant to the requirements
of Section 13 or 15(d) 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: April 18, 2024 |
By: |
/s/ Michael Feinsod |
|
|
Michael Feinsod |
|
|
Chief Executive Officer |
|
|
(principal executive officer, |
|
|
principal financial officer and |
|
|
principal accounting officer) |
Pursuant to the requirements
of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
SIGNATURE |
|
TITLE |
|
DATE |
|
|
|
|
|
/s/
Michael Feinsod |
|
Chief Executive Officer
and Director |
|
April 18, 2024 |
Michael Feinsod |
|
(principal executive, financial and accounting officer) |
|
|
|
|
|
|
|
/s/
Hunter Garth |
|
Director |
|
April 18, 2024 |
Hunter Garth |
|
|
|
|
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In connection with the Annual
Report of Bespoke Extracts, Inc. (the “Company”) on Form 10-K for the fiscal year ended December 31, 2023 as filed with
the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael Feinsod, Chief Executive Officer of the
Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies
with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained
in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.