UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended:
or
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| Emerging growth company | |||
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TABLE OF CONTENTS
| Page No. | ||
| PART I - FINANCIAL INFORMATION | 1 | |
| Item 1. | Financial Statements | 1 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 16 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 18 |
| Item 4 | Controls and Procedures | 18 |
| PART II - OTHER INFORMATION | 19 | |
| Item 1. | Legal Proceedings | 19 |
| Item 1A. | Risk Factors | 19 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 19 |
| Item 3. | Defaults Upon Senior Securities | 19 |
| Item 4. | Mine Safety Disclosures | 19 |
| Item 5. | Other Information | 19 |
| Item 6. | Exhibits | 19 |
i
PART I
Item 1. Financial Statements.
Bespoke Extracts, Inc.
Consolidated Balance Sheets
| March 31, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable | ||||||||
| Prepaid stock awards | ||||||||
| Prepaid expense | ||||||||
| Inventory, net | ||||||||
| Total current assets | ||||||||
| Furniture and equipment. Net | ||||||||
| License | ||||||||
| Right of Use Asset | ||||||||
| Deposits | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued liabilities | $ | $ | ||||||
| Notes payable -- secured (net of discount of $ | ||||||||
| Advances - related party | ||||||||
| Operating lease liability | ||||||||
| Total current liabilities | ||||||||
| Note payable - related party | ||||||||
| Long-Term Operating lease liability | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 10) | ||||||||
| Stockholders’ Deficit | ||||||||
| Preferred stock, par value $ | ||||||||
| Series C Convertible Preferred Stock, $ | ||||||||
| Common stock, $ | ||||||||
| Common stock to issue | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ deficit | ( | ) | ( | ) | ||||
| Total liabilities and stockholders’ deficit | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
1
Bespoke Extracts, Inc
Consolidated Statements of Operations
| For the three months ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Sales | $ | $ | ||||||
| Cost of products sold | ||||||||
| Gross Profit | ||||||||
| Operating expenses | ||||||||
| Selling, general and administrative expenses | ||||||||
| Professional fees | ||||||||
| Consulting | ||||||||
| Total operating expenses | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Other income / (expenses) | ||||||||
| Interest (expense) / income | ( | ) | ||||||
| Total other (expense) / income | ( | ) | ||||||
| Loss before income tax | ( | ) | ( | ) | ||||
| Provision for income tax | ||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | ||
| WEIGHTED AVERAGE COMMON SHARES OUTSTANDING | ||||||||
| NET LOSS PER COMMON SHARE OUTSTANDING | ||||||||
| $ | ( | ) | $ | ( | ) | |||
The accompanying notes are an integral part of these consolidated financial statements.
2
Bespoke Extracts, Inc
Consolidated Statement of Stockholders Deficit
For The three months ended March 31, 2024 and March 31, 2023
| Preferred | Preferred | Common | Common | Additional | ||||||||||||||||||||||||
| Shares | Par | Shares | Par | Paid-in | Accumulated | |||||||||||||||||||||||
| Outstanding | Amount | Outstanding | Amount | Capital | Deficit | Total | ||||||||||||||||||||||
| Balance December 31, 2022 | | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||
| Purchase Wonderleaf | - | - | ||||||||||||||||||||||||||
| Stock option expense | - | - | ||||||||||||||||||||||||||
| Net loss for the three months ended March 31, 2023 | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance March 31, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Series C | ||||||||||||||||||||||||||||
| Preferred | Preferred | Common | Common | Additional | ||||||||||||||||||||||||
| Shares | Par | Shares | Par | Paid-in | Accumulated | |||||||||||||||||||||||
| Outstanding | Amount | Outstanding | Amount | Capital | Deficit | Total | ||||||||||||||||||||||
| Balance December 31, 2023 | | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||
| Warrants issued with financing | - | - | ||||||||||||||||||||||||||
| Stock option expense | - | - | ||||||||||||||||||||||||||
| Net loss for the three months ended March 31, 2024 | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance March 31, 2024 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
3
Bespoke Extracts, Inc
Consolidated Statements of Cash Flows
| For the three months ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Cash flows from operating activities | ||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
| Inventory reserve | ||||||||
| Depreciation | ||||||||
| Amortization of right of use asset, net | ||||||||
| Amortization expense for prepaid expenses for consulting shares | ||||||||
| Amortization of debt discount | ||||||||
| Stock based compensation and stock option expense | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Prepaid expenses | ( | ) | ||||||
| Inventory | ( | ) | ( | ) | ||||
| Accounts payable and accrued liabilities | ||||||||
| Operating lease liability, net | ( | ) | ( | ) | ||||
| Net Cash (used in) operating activities | ( | ) | ( | ) | ||||
| Cash flow from financing activities | ||||||||
| Payment of inventory earnout | ( | ) | ||||||
| Proceeds from issuance of note payable - related party | ||||||||
| Proceeds from advances - related party | ||||||||
| Proceeds from secured notes payable | ||||||||
| Net cash provided by financing activities | ||||||||
| Net increase / (decrease) in cash | ( | ) | ||||||
| Cash at beginning of period | ||||||||
| Cash at end of period | $ | $ | ||||||
| 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 | $ | $ | ||||||
| Warrants issued for financing | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
4
BESPOKE EXTRACTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2024
(Unaudited)
1. NATURE OF OPERATIONS, SIGNIFICANT ACCOUNTING POLICIES AND GOING CONCERN
Nature of Business Operations
Bespoke Extracts, Inc. (the “Company”) is a Nevada corporation focused on operating in the regulated cannabis markets in the United States. Through Bespoke Extracts Colorado, LLC (“Bespoke Colorado”), we operate a marijuana infused products production facility in Aurora, Colorado.
On December 2, 2021, Bespoke Colorado, a newly
formed wholly-owned subsidiary of the Company entered into an asset purchase agreement with WonderLeaf, LLC (“WonderLeaf”),
and on December 7, 2021, Bespoke Colorado and WonderLeaf entered into an amendment to such asset purchase agreement (as amended, the
“WonderLeaf Purchase Agreement”). On January 3, 2023, the Company completed the acquisition of the WonderLeaf assets and
the change of control was approved by the Colorado Marijuana Enforcement Division for
Principles of Consolidation
The accompanying condensed consolidated unaudited financial statements include the accounts of Bespoke Extracts, Inc., and its wholly owned subsidiary Bespoke Extracts Colorado, LLC. All inter-company balances have been eliminated.
Going Concern
The accompanying consolidated financial statements
have been prepared assuming a continuation of the Company as a going concern. The Company had negative cash flows from operations of
$
The Company’s ability to continue as a going concern is dependent upon the Company generating profitable operations in the future and/or obtaining the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. There is no assurance that this series of events will be satisfactorily completed.
Further, if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our common stock. If additional financing is not available or is not available on acceptable terms, we will have to curtail or cease our operations. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event the Company cannot continue in existence. These financial statements do not include any adjustments that might arise from this uncertainty.
5
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the accompanying consolidated financial statements and accompanying notes. Significant estimates include the assumption used in the valuation of equity-based transactions, valuation of intangible assets, allowance for provision for credit losses and inventory valuation and reserves. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include all highly
liquid investments with original maturities of three months or less at the time of purchase. At March 31, 2024 and December 31, 2023,
the Company did not have any cash equivalents. The Company did not have any cash in excess of FDIC limits of $
Fair Value of Financial Instruments
The carrying amounts of cash, accounts receivable, inventory, fixed assets, licenses, and other assets, accounts payable, accrued liabilities, and notes payable approximate their fair values as of March 31, 2024 and December 31, 2023, respectively, because of their short-term natures and the Company’s borrowing rate of interest.
Accounts Receivable
Accounts receivable are recorded at fair value on the date revenue is recognized. The Company provides allowances for provision for credit losses for estimated losses resulting from the inability of its customers to repay their obligation. If the financial condition of the Company’s customers were to deteriorate, resulting in an impairment of their ability to repay, additional allowances may be required. The Company provides for potential uncollectible accounts receivable based on specific customer identification and historical collection experience adjusted for existing market conditions. If market conditions decline, actual collection experience may not meet expectations and may result in decreased cash flows and increased provision for credit losses.
The policy for determining past due status is
based on the contractual payment terms of each customer, which are generally net 14 or net 30 days. Once collection efforts by the Company
are exhausted, the determination for charging off uncollectible receivables is made. At March 31, 2024 and December 31, 2023, the Company
has recorded an allowance for doubtful accounts of
Inventory, net
Inventories are stated at the lower of cost or
net realizable value. Cost is determined by the first-in, first-out basis and net realizable value. Net realizable value is defined
as sales price less cost of completion, disposition and transportation and a normal profit margin. As of March 31, 2024 and December 31,
2023, inventory amounted to $
6
Property and equipment
Property and equipment is recorded at cost and
capitalized from the initial date of service. Expenditures for major additions and improvements are capitalized and minor replacements,
maintenance, and repairs are charged to expense as incurred. When property and equipment is retired or otherwise disposed of, the cost
and accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the results of operations for
the respective period. Depreciation is provided over the estimated useful lives of the related assets using the straight-line method
for financial statement purposes. The Company uses other depreciation methods (generally accelerated) for tax purposes where appropriate.
Schedule of Estimated useful Lives of Property and Equipment
| Furniture and Equipment |
License
License represents the Colorado license for distributing cannabis.
Revenue Recognition
We account for revenue in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification Topic 606, “Revenue from Contracts with Customers”. Revenue is measured based on the amount of consideration that we expect to receive, reduced by discounts and estimates for credits and returns (calculated based upon previous experience and management’s evaluation). Outbound shipping charged to customers is recognized at the time the related merchandise revenues are recognized and are included in net revenues. Inbound and outbound shipping and delivery costs are included in cost of revenues.
Our products are sold directly to licensed marijuana dispensaries in Colorado. Revenue is recognized when control of the merchandise is transferred to the customer, which generally occurs upon shipment. Payment is typically due on the date of shipment or within 14 to 30 days.
As of March 31, 2024
As of December 31, 2023,
Stock Based Compensation
Stock options and warrants issued to consultants and other non-employees as compensation for services provided to the Company are accounted for based on the fair value of the services provided or the estimated fair market value of the option or warrant, whichever is more reliably measurable, and in accordance with FASB ASC 718, Compensation-Stock Compensation, including related amendments and interpretations.
7
Net Income / (Loss) per Share
Basic income / (loss) per share amounts are computed
based on net income / (loss) divided by the weighted average number of common shares outstanding. Diluted earnings per share reflect
the potential dilution that could occur if potentially dilutive securities were exercised or converted to common stock. The dilutive
effect of options and warrants and their equivalent is computed by application of the treasury stock method and the effect of convertible
securities by the “if converted” method. The effect of
Recent accounting pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other standard setting bodies that are adopted by the Company as of the specified effective date.
The Company did not adopt any new accounting pronouncements in the reporting period ended March 31, 2024.
Income Taxes
We utilize the asset and liability method of accounting for income taxes. We recognize deferred tax liabilities or assets for the expected future tax consequences of temporary differences between the book and tax basis of assets and liabilities. We regularly assess the likelihood that our deferred tax assets will be recovered from future taxable income. We consider projected future taxable income and ongoing tax planning strategies in assessing the amount of the valuation allowance necessary to offset our deferred tax assets that will not be recoverable. We have recorded and continue to carry a full valuation allowance against our gross deferred tax assets that will not reverse against deferred tax liabilities within the scheduled reversal period. If we determine in the future that it is more likely than not that we will realize all or a portion of our deferred tax assets, we will adjust our valuation allowance in the period we make the determination. We expect to provide a full valuation allowance on our future tax benefits until we can sustain a level of profitability that demonstrates our ability to realize these assets.
2. ASSET PURCHASE AGREEMENT
On
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
8
Company management determined if the Company acquired a business or acquired assets. The FASB issued new guidance (ASU 2017-01) that changed the definition of a business to assist entities with evaluating when a set of transferred assets and activities is a business. The guidance requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets; if so, the set of transferred assets and activities is not a business. The guidance also requires a business to include at least one substantive process and narrows the definition of outputs by more closely aligning it with how outputs are described in ASC 606. Under the new guidance, an entity first determines whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If this threshold is met, the set is not a business. If it’s not met, the entity then evaluates whether the set meets the requirement that a business include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs. Under the ASU, a set is not a business when substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets.
Pursuant to 805-10-55-83, the Company first considered the guidance in paragraphs 805-10-55-5A through 55-5C. The identifiable assets that could be recognized in the purchase only included the license and fixed assets. Accordingly, the transaction was not considered a business.
The monetary value of the
The Company assigned a value of $
NOTE 3 – FURNITURE AND EQUIPMENT.
Schedule of Machinery and Equipment
| March 31, 2024 | December 31, 2023 | |||||||
| Furniture and equipment | $ | $ | ||||||
| Machinery and Equipment | ||||||||
| Fixed assets, total | ||||||||
| Total: accumulated depreciation | ( | ) | ( | ) | ||||
| Fixed assets, net | $ | $ | ||||||
Depreciation expense for the three months ended
March 31, 2024 and 2023 were $
9
4. NOTE PAYABLE – RELATED PARTY
During the year ended December 31, 2023, Infinity
Management, LLC an affiliate of Michael Feinsod, the Company’s chief executive officer, loaned the Company an additional $
During the year ended December 31, 2023 the Company
received additional advances from Infinity Management, LLC. of $
5. NOTE PAYABLE – SECURED
On February 16, 2024, the Company entered into and
closed securities purchase agreements with investors pursuant to which the Company issued and sold to the investors an aggregate of $
| March 31, 2024 | ||||
| Note amount | $ | |||
| Debt discount | ( | ) | ||
| Amortization of debt discount | ||||
| Notes payable, net | $ | |||
10
6. LEASES
In connection with the WonderLeaf Purchase Agreement,
Bespoke Colorado entered into a lease agreement (the “Lease”) with WL Holdings, Ltd. (“WL Holdings”) in December
2021. Pursuant to the Lease, Bespoke Colorado will lease from WL Holdings certain commercial space in Aurora, Colorado, where WonderLeaf’s
business has been located, commencing upon signing of the Lease and Wonderleaf Purchase Agreement, for a term of
| March 31, | ||||||
| Operating Leases | Classification | 2024 | ||||
| Right-of-use assets | Right of use assets | $ | ||||
| Current lease liabilities | Current operating lease liabilities | |||||
| Non-current lease liabilities | Long-term operating lease liabilities | |||||
| Total lease liabilities | $ | |||||
| March 31, | ||||
| 2024 | ||||
| Weighted average remaining lease term (years) | ||||
| Weighted average discount rate | % | |||
| March 31, | ||||
| 2024 | ||||
| Operating lease cost | $ | |||
| Variable lease cost (1) | ||||
| Total lease costs | $ | |||
| (1) |
| March 31, | ||||
| 2024 | ||||
| Cash paid for operating lease liabilities | $ | |||
| Operating | ||||
| Leases | ||||
| 2024 | $ | |||
| 2025 | ||||
| 2026 | ||||
| Total undiscounted lease payments | ||||
| Less: Present value discount | ( | ) | ||
| Total Present value of lease liabilities | $ | |||
11
7. EQUITY
Common Stock and Preferred Stock
On December 5, 2022 the Company approved an amendment
to its articles of incorporation to effect a
As of March 31, 2024 and 2023, the Company’s
authorized capital stock consists of
On January 3, 2023, the Company completed the
acquisition of the WonderLeaf assets for
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
Effective August 1, 2022, the Company issued
an aggregate of
Warrants
On February 16, 2024, the Company entered into
and closed securities purchase agreements with investors pursuant to which the Company issued and sold to the investors an aggregate of
$
12
| Number of Warrants | Weighted- Average Exercise Price Per Share | Weighted- Average Remaining Life | ||||||||||
| Outstanding at December 31, 2023 | ||||||||||||
| Granted | ||||||||||||
| Canceled or expired | ||||||||||||
| Outstanding at March 31, 2024 | $ | |||||||||||
| Exercisable at March 31, 2024 | $ | |||||||||||
| Intrinsic value at March 31, 2024 | $ | |||||||||||
Options
On December 14, 2021, the Company entered into
an employment agreement with Hunter Garth, wherein the Company granted to Mr. Garth, pursuant to the Company’s 2021 Equity Incentive
Plan, ten-year options to purchase
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
On August 17, 2023, the Company issued to several
employees options to purchase a total of
On January 8, 2024, the Company issued to an employee options to purchase
a total of
On March 1, 2024, the Company issued to several
employees options to purchase a total of
13
| Number of Options | Weighted- Average Exercise Price Per Share | Weighted- Average Remaining Life | ||||||||||
| Outstanding at December 31, 2023 | $ | |||||||||||
| Granted | $ | |||||||||||
| Canceled or expired | ||||||||||||
| Exercised | ||||||||||||
| Outstanding at March 31, 2024 | $ | |||||||||||
| Exercisable at March 31, 2024 | $ | |||||||||||
| Intrinsic value at March 31, 2024 | $ | |||||||||||
The future expense as of March 31, 2024 is $
8. RELATED PARTY TRANSACTIONS
On December 14, 2021, the Company entered into
an employment agreement with Hunter Garth. Pursuant to the employment agreement, Mr. Garth will serve as the Company’s president
and will receive a base monthly salary of $
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 $
During the year ended
December 31, 2023, Michael Feinsod, the Company’s chief executive officer, loaned the Company an additional $
On September 5, 2023 $
As of March 31, 2024 Michael Feinsod is owed
a total of $
14
9. COMMITMENTS AND CONTINGENCIES
In connection with a stock purchase agreement,
on October 28, 2021, a convertible debenture with an original issue date of December 24, 2019, as amended by Amendment No. 1 thereto,
dated May 28, 2020, Amendment No. 2 thereto, dated August 21, 2020, Amendment No. 3 thereto, dated December 10, 2020, Amendment No. 4
thereto, dated January 15, 2021, Amendment No. 5 thereto, dated April 2, 2021, and Amendment No. 6 thereto, dated August 2, 2021 (as
amended, the “Debenture”) with an original principal amount of approximately $
On December 14, 2021, the Company entered into
an employment agreement with Hunter Garth. Pursuant to the employment agreement, Mr. Garth will serve as the Company’s president
and will receive a base monthly salary of $
On December 14, 2021, the Company entered into
an employment agreement with Michael Feinsod, the Company’s chief executive officer and chairman. Pursuant to the employment agreement,
Mr. Feinsod will continue to serve as the Company’s chief executive officer and chairman and will receive a base monthly salary
of $
On 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
10. SUBSEQUENT EVENTS
Subsequent to March 31, 2024, Infinity
Management, LLC, an affiliate of the Company’s chief executive officer, loaned the Company an additional $
On May 20, 2024 the Company entered
into and closed securities purchase agreements with investors pursuant to which the Company issued and sold to the investors an aggregate
of $
On June 6, 2024 the Company entered into and closed securities purchase agreements with investors pursuant to which the Company issued
and sold to the investors an aggregate of $
15
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
We and our representatives may from time to time make written or oral statements that are “forward-looking,” including statements contained in this report and other filings with the SEC, reports to our stockholders and news releases. All statements that express expectations, estimates, forecasts or projections are forward-looking statements. In addition, other written or oral statements which constitute forward-looking statements may be made by us or on our behalf. Words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “estimate,” “project,” “forecast,” “may,” “should,” and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in or suggested by such forward-looking statements. We undertake no obligation to update or revise any of the forward-looking statements after the date of this report to conform forward-looking statements to actual results, except as may be required under applicable law. Important factors on which such statements are based are assumptions concerning uncertainties, including but not limited to, uncertainties associated with the following:
| ● | Inadequate capital and barriers to raising the additional capital or to obtaining the financing needed to implement our business plans; |
| ● | Our failure to earn significant revenues or profits; |
| ● | Volatility, lack of liquidity or decline of our stock price; |
| ● | Potential fluctuation in quarterly results; |
| ● | Rapid and significant changes in markets; and |
| ● | Insufficient revenues to cover operating costs. |
The following discussion should be read in conjunction with the financial statements and the notes thereto which are included in this report.
Overview
Through our wholly-owned subsidiary, Bespoke Extracts Colorado, LLC, we operate a marijuana infused products manufacturing facility in Colorado.
In November 2021, new management of the Company was appointed and the Company began to focus on other complimentary lines of business to its CBD offerings. Under our new management team, we plan to expand the Company’s focus to regulated cannabis markets in the United States.
On December 2, 2021, Bespoke Extracts Colorado, LLC, a newly formed wholly-owned subsidiary of the Company entered into an asset purchase agreement with WonderLeaf, and on December 7, 2021, Bespoke Colorado and WonderLeaf entered into an amendment to such asset purchase agreement (as amended, the “WonderLeaf Purchase Agreement”). Pursuant to the Wonderleaf Purchase Agreement, Bespoke Colorado agreed to purchase from WonderLeaf, and WonderLeaf agreed to sell to Bespoke Colorado, certain assets of WonderLeaf, including a license to manufacture marijuana-infused products, existing inventory, and extraction equipment and ancillary items, all as further set forth in the Wonderleaf Purchase Agreement, for a purchase price of $50,000, to be paid in shares of common stock of the Company. The Company issued a total of 222,223 shares of common stock ($0.225 per share), the fair market value on the date of issuance.
16
Results of Operations for the three months ended March 31, 2024 and March 31, 2023
Sales
Sales during the three months ended March 31, 2024 were $260,428 compared to $89,016 for the three months ended March 31, 2023. The increase in sales was due to increased direct sales of pre-rolled joints to licensed dispensaries in Colorado.
Cost of Goods Sold
Cost of goods sold for the three months ended March 31, 2024 was $157,847 compared to $78,667 for the three months ended March 31, 2023. The increase was a direct result of the increase in sales. The decrease in cost of sales, as a percentage of sales, was due to increased efficiencies in purchases of raw materials, packaging, and labor associated with the production of pre-rolled joints.
Operating Expenses
Selling, general and administrative expenses for the three months March 31, 2024 and March 31, 2023 were $347,859 and $375,415, respectively. The decrease was mainly attributable to a reduction in stock based compensation of $50,418 for the three months ended March 31, 2024 compared to $92,432 for the three months ended March 31, 2023 and were partially offset by increase in salaries. Professional fees were $57,525 and $61,240, respectively for the three months ended March 31, 2024 and March 31, 2023. The decrease in expenses was due to decreased legal and accounting fees primarily associated with the WonderLeaf transaction in the prior period. Consulting expense was $0 and $18,000, for the three months ended March 31, 2024 and March 31, 2023, respectively.
Net Loss
Our net loss for the three months ended March 31, 2024 was $314,118 or $0.03 per share, compared to a net loss for the three months ended March 31, 2023 of $440,620, or $0.04 per share.
Liquidity and Capital Resources
As of March 31, 2024, we had cash of $14,416. Net cash used in operating activities for the three months ended March 31, 2024 was $97,191. Our current liabilities as of March 31, 2024 were $1,345,306 and consisted of accounts payable and accrued liabilities of $1,137,298, current portion of lease liability of $64,330 and notes payable related party of $85,307. As of March 31, 2023, we had cash of $4,635. Net cash used in operating activities for the three months ended March 31, 2023 was $207,068. Our current liabilities as of March 31, 2023 were $1,248,904 and consisted of accounts payable and accrued liabilities of $492,074 and current portion of lease liability of $64,330.
During the three months ended March 31, 2024 the Company borrowed an additional $5,000 from a related party. During the three months ended March 31, 2023 the Company borrowed an additional $277,000 from a related party and repaid $90,000 owed for an inventory earnout
The unaudited condensed consolidated financial statements included in this report have been prepared assuming a continuation of the Company as a going concern. The Company had negative cash flows from operations for the three months ended March 31, 2024 and the year ended December 31, 2023 and had a working capital deficit at March 31, 2024 and December 31, 2023. This raises substantial doubt about our ability to continue as a going concern.
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We have not generated positive cash flows from operating activities. Our primary source of capital has been from the sale of equity and convertible debt securities. Our primary use of capital has been for professional fees and selling, general and administrative costs. We have no committed sources of capital and will need to raise additional capital to continue and expand our operations. Additional capital may not be available on terms acceptable to us, or at all.
In addition, the COVID-19 pandemic may negatively affect our operations, including by limiting access to our facilities, customers, management, and professional advisors, and by causing delays and constraints in manufacturing and shipping of our products. These factors, in turn, may negatively impact our operations, financial condition and demand for our products, and our ability to raise capital on acceptable terms, or at all.
Off-Balance Sheet Arrangements
We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Critical accounting policies and estimates
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not required for smaller reporting companies.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Management of the Company conducted an evaluation of the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. The Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms, and (ii) accumulated and communicated to our management, including our principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Based on this evaluation, our management has concluded that the design and operation of our disclosure controls and procedures are not effective since the following material weaknesses exist:
| ● | Our chief executive officer also functions as our principal financial officer. As a result, our officer may not be able to identify errors and irregularities in the financial statements and reports; |
| ● | We were unable to maintain full segregation of duties within our financial operations due to our reliance on limited personnel in the finance function. While this control deficiency did not result in any audit adjustments to our financial statements, it could have resulted in a material misstatement that might have been prevented or detected by a segregation of duties; and |
| ● | Documentation of all proper accounting procedures is not yet complete. |
To the extent reasonably possible given our limited resources, we intend to take measures to cure the aforementioned weaknesses, including, but not limited to, increasing the capacity of our qualified financial personnel to ensure that accounting policies and procedures are consistent across the organization and that we have adequate control over financial statement disclosures.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II – OTHER INFORMATION
Item 1. Legal Proceedings.
We are not currently a party to, nor are any of our property currently the subject of, any material legal proceedings.
Item 1A. Risk Factors.
Not required for smaller reporting companies.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
No disclosure required.
Item 5. Other Information.
Item 6. Exhibits.
| Exhibit No. | Description | |
| 31.1 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002* | |
| 32.1 | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002** | |
| 101.INS | Inline XBRL Instance Document | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document. | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document. | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
| * | Filed herewith. |
| ** | Furnished herewith. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| BESPOKE EXTRACTS, INC. | ||
| Dated: July 1, 2024 | By: | /s/ Michael Feinsod |
Michael Feinsod Chief Executive Officer | ||
| (Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer) | ||
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