UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended: May 31, 2017

 

or

 

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from __________ to __________

 

Commission File Number: 000-52759

 

BESPOKE EXTRACTS, INC.

(Exact name of registrant as specified in its charter)

 

Nevada		20-4743354
(State or other jurisdiction of incorporation)		(IRS Employer Identification No.)

 

323 Sunny Isles Blvd., Suite 700

Sunny Isles, Florida, 33160

(Address of principal executive offices)

 

855-633-3738

(Registrant’s telephone number, including area code)

 

DiMi Telematics International, Inc.

290 Lenox Avenue, New York, NY 10027

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months, and (2) has been subject to such filing requirements for the past 90 days.  Yes  ☒   No  ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files.  Yes  ☒   No  ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

  

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

 

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

  

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

 

As of July 15, 2017, there were 25,822,712 shares outstanding of the registrant’s common stock.

 

 

 

TABLE OF CONTENTS

 

		Page No.
PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements	2
Item 2.	Management’s Discussion and Analysis of Financial Condition and Plan of Operations	9
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	13
Item 4	Controls and Procedures	13
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	14
Item 1A.	Risk Factors	14
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	14
Item 3.	Defaults Upon Senior Securities	14
Item 4.	Mine Safety Disclosures	14
Item 5.	Other Information	14
Item 6.	Exhibits	14

 

 

PART I

 

These unaudited consolidated financial statements have been prepared by Bespoke Extracts, Inc. (the “Company”, formerly known as DiMi Telematics International, Inc.), pursuant to the rules and regulations of the Securities and Exchange Commission. These unaudited consolidated financial statements and the notes attached hereto should be read in conjunction with the financial statements and notes included in the Company’s annual report on Form 10-K for the fiscal year ended August 31, 2016 as filed with the Securities and Exchange Commission (the “SEC”) on December 16, 2016, and amended on February 8, 2017. In the opinion of the Company, all adjustments, including normal recurring adjustments necessary to present fairly the financial position of the Company, as of May 31, 2017 and August 31, 2016 and the results of its operations and cash flows for the periods ended May 31, 2017 and May 31, 2016 have been included. The results of operations for the interim period are not necessarily indicative of the results for the full year.

 

 

ITEM 1. FINANCIAL STATEMENTS 

 

Bespoke Extracts, Inc.

Formerly Dimi Telematics International, Inc.

Consolidated Balance Sheets

(Unaudited)

 

		May 31,				August 31,
		2017				2016
Assets
Current assets
Cash		$	158,046			$	431
Total current assets			158,046				431
Domain names, net of amortization of $836			49,349				-
Intellectual property, net of amortization of $0 and $657, respectively			-				1,314
Total assets		$	207,395			$	1,745
Liabilities and Stockholders' Deficit
Current liabilities
Accounts payable and accrued liabilities		$	19,798			$	69,426
Accounts payable - related party			-				14,609
Note payable - related party			153,050				31,500
Convertible note payable, net of unamortized discount $371,139			168,861				-
Total current liabilities			341,709				115,535
Stockholders' Deficit
Series A Convertible Preferred Stock, $0.001 par value, 50,000,000 authorized shares; no shares issued and outstanding as of May 31, 2017 and August 31, 2016, respectively			-				-
Common stock, $0.001 par value: 800,000,000 authorized; 45,622,712 and 2,922,712 shares issued and outstanding as of  May 31, 2017 and August 31, 2016, respectively			45,623				2,923
Common stock payable - 200,000 shares			30,000				-
Additional paid-in capital			7,563,087				2,310,876
Accumulated deficit			(7,773,024	)			(2,427,589	)
Total stockholders' deficit			(134,314	)			(113,790	)
Total liability and stockholders' deficit		$	207,395			$	1,745

 

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

 

 

Bespoke Extracts, Inc.

Formerly Dimi Telematics International, Inc.

Consolidated  Statements of Operations

(Unaudited)

 

		For the three months ended								For the nine months ended
		May 31,				May 31,				May 31,				May 31,
		2017				2016				2017				2016
Operating expenses:
Selling, general and administrative expenses		$	16,543			$	4,869			$	30,807			$	15,662
Payroll expense			21,829				21,124				67,515				62,636
Professional fees			28,000				38,500				41,613				108,192
Consulting			73,750				4,675				73,750				122,584
Brand development			-				-				10,000				-
Formula development			-				-				7,500				-
Compensation			5,088,421				-				5,088,421				-
Impairment of intellectual property			-				-				1,248				-
Amortization expense			836				33				902				99
Total operating expenses			5,229,379				69,201				5,321,756				309,173
Loss from operations			(5,229,379	)			(69,201	)			(5,321,756	)			(309,173	)
Other expense
Interest expense			(9,383	)			(60	)			(12,327	)			(60	)
Amortization of debt discounts			(11,352	)			-				(11,352	)			-
Total other expense			(20,735	)			(60	)			(23,679	)			(60	)
Loss before income tax			(5,250,114	)			(69,261	)			(5,345,435	)			(309,233	)
Provision for income tax			-				-				-				-
Net Loss		$	(5,250,114	)		$	(69,261	)		$	(5,345,435	)		$	(309,233	)
Net loss per share: basic and diluted		$	(0.28	)		$	(0.02	)		$	(0.65	)		$	(0.11	)
Weighted average shares outstanding basic and diluted			18,520,538				2,923,907				8,179,122				2,815,848

 

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

 

 

Bespoke Extracts, Inc.

Formerly Dimi Telematics International, Inc.

Consolidated  Statements of Cash Flows

(Unaudited)

 

		For the nine months ended
		May 31,				May 31,
		2017				2016
Cash flows from operating activities
Net loss		$	(5,345,435	)		$	(309,233	)
Adjustments to reconcile net loss to net cash used in operating activities
Amortization expense			902				99
Amortization of debt discount			11,351				-
Stock based compensation			5,088,421				-
Impairment of intellectual property			1,248				-
Changes in operating assets and liabilities
Accounts payable			(62,320	)			19,641
Accounts payable - related party			(14,609	)			-
Accrued interest expense			12,692				60
Prepaid expense			-				95,375
Net Cash used in operating activities			(307,750	)			(194,058	)
Cash flows from investing activities
Proceeds from note payable, related party			-				12,500
Cash paid for domain names			(20,185	)			-
Net cash used in investing activities			(20,185	)			12,500
Cash flow from financing activities
Payment of note payable - related party			(5,500	)			-
Proceeds from exercise of warrants			4,000				-
Borrowings on convertible debt			360,000				-
Proceeds from note payable - related party			127,050				-
Net cash provided by financing activities			485,550				-
Net increase in cash and cash equivalents			157,615				(181,558	)
Cash and cash equivalents at beginning of period			431				185,869
Cash and cash equivalents at end of period		$	158,046			$	4,311
Supplemental disclosure of cash flow information
Cash paid during period for
Cash paid for interest		$	-			$	-
Cash paid for income taxes			-				-
Noncash investing and financing activities:
Common stock payable issued for acquisition of domain names		$	30,000			$	-
Stock issued with debt			157,509				-
Warrants issued with debt			44,981				-
Common stock issued for stock payable			-				210,000

 

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

 

 

Bespoke Extracts, Inc.

(formerly DiMi Telematics International, Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 1 —BASIS OF PRESENTATION

 

The accompanying unaudited consolidated financial statements of Bespoke Extracts, Inc. (formerly known as DiMi Telematics International, Inc.), a Nevada corporation (the “Company”), have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete consolidated financial statements. These unaudited consolidated financial statements and related notes should be read in conjunction with the Company's annual report on Form 10-K for the fiscal year ended August 31, 2016. In the opinion of management, these unaudited consolidated financial statements reflect all adjustments that are of a normal recurring nature and which are necessary to present fairly the financial position of the Company as of May 31, 2017, and the results of operations and cash flows for the three and nine months ended May 31, 2017 and May 31, 2016. The results of operations for the three and nine months ended May 31, 2017 are not necessarily indicative of the results that may be expected for the entire fiscal year.

 

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

 

Going Concern

 

The accompanying financial statements have been prepared assuming a continuation of the Company as a going concern. The Company has reported a net loss of $5,345,435 for the nine months ended May 31, 2017 and had a working capital deficit of $183,663 as of May 31, 2017.  These conditions raise substantial doubt about our ability to continue as a going concern.

 

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

 

Research and Development

 

Research and development costs and brand development costs are expensed as incurred. Development costs of product to be sold are subject to capitalization beginning when a product’s feasibility has been established and ending when a product is available for general release to customers. In most instances, the Company’s products are released soon after technological feasibility has been established. Costs incurred for development are capitalized. Amortization is recorded over the estimated useful lives of the assets, generally, 5 years. For the nine months ended May 31, 2017 the Company expensed $10,000 compared to $0 for the nine months ended May 31, 2016, for brand development. Formula development for the nine months ended May 31, 2017 amounted to $7,500 compared to $0 for the nine months ended May 31, 2016.

 

2. EQUITY

 

Common Stock

 

The Company was formed in the state of Nevada on April 13, 2006.  The Company has authorized capital of 800,000,000 shares of common stock with a par value of $0.001, and 50,000,000 shares of preferred stock with a par value of $0.001.

 

On October 1, 2015, the Board of Directors and a majority of the Company’s shareholders approved an amendment of the Company’s Articles of Incorporation to effect a one (1) for three (3) reverse stock split of the Company’s outstanding common stock (the “Reverse Split”). The Reverse Split became effective on December 1, 2015. As a result of the Reverse Split, each three (3) shares of common stock issued and outstanding prior to the Reverse Split have been converted into one (1) share of common stock. The effect of the Reverse Split has been applied retroactively throughout this quarterly report.

 

On February 21, 2017, the Company recognized a stock payable of $30,000 associated with 200,000 shares committed to be issued for the purchase of certain domain names (see Note 4).

 

On March 10, 2017, the Company changed its name to Bespoke Extracts, Inc. (formerly known as DiMi Telematics International, Inc.).

 

On April 11, 2017, the Company issued 2,700,000 shares of common stock in connection with the issuance of a convertible note with a principal amount of $540,000 (see Note 6). The relative fair value of the stock of $157,509 was recognized as a discount to the note that is being amortized to interest expense over the life of the note.

 

 

3. WARRANTS

 

During the nine months ended May 31, 2017, warrant activity included the following:

 

Warrants granted on March 14, 2017, the Company entered into an employment agreement with Barry Tenzer to continue as CEO of the Company. In connection with the employment agreement the Company issued Mr. Tenzer a warrant to purchase up to 20,000,000 share of common stock at a per share price of $0.0001. The warrant was exercised in full on March 28, 2017. On May 22, 2017, Barry Tenzer resigned as President and Chief Executive Officer. In connection with the resignation of Mr. Tenzer, the 20,000,000 shares of stock issued upon the exercise of the warrants was returned to the company and cancelled and the exercise proceeds of $2,000 were returned to Mr. Tenzer subsequent to May 31, 2017. The fair value of the warrants was determined to be $4,998,021 which was recognized as compensation expense during the nine months ended May 31, 2017.

 

The following table summarizes the warrant activity issued to Barry Tenzer during the nine months ended May 31, 2017:

 

		Number of Warrants				Weighted-Average Price Per Share
Outstanding at August, 2016			-			$	-
Granted			20,000,000				.0001
Canceled or expired			-				-
Exercised			20,000,000				.0001
Outstanding at May 31, 2017			-			$	-

 

On May 22, 2017, the Company entered into an employment agreement with Mr. Yahr to serve as President and Chief Executive Officer of the Company for a term of three years, unless earlier terminated pursuant to the terms of the Employment Agreement. Pursuant to the terms of the Employment Agreement, Mr. Yahr received a warrant to purchase up to 20,000,000 shares of the Company’s common stock at an exercise price of $0.0001 per share. The warrants were exercised in full on May 31, 2017; however, the 20,000,000 shares of the Company’s common stock were not issued to Mr. Yahr until June 10, 2017. The shares received upon the exercise of the warrants are subject to forfeiture and vest over a service period of three years. The fair value of the award was determined to be $10,998,105 of which $90,400 was recognized as compensation expense during the nine months ended May 31, 2017. The remaining $10,908,265 will be recognized as compensation expense over the three year service period.

 

The following table summarizes the warrant activity issued to Marc Yahr during the nine months ended May 31, 2017:

 

		Number of Warrants				Weighted-Average Price Per Share
Outstanding at August, 2016			-			$	-
Granted			20,000,000				.0001
Canceled or expired			-				-
Exercised			20,000,000				.0001
Outstanding at May 31, 2017			-			$	-

  

On April 11, 2017, the Company executed a $540,000 Convertible Debenture with an original issue discount of $180,000. The note has a 9% interest rate and a term of two years. In connection with the note, the Company issued the lender 900,000 warrants with a term of 3 years and an exercise price of $1.00. The relative fair value of the warrants $44,981 was recognized as a discount to the note.

 

		Number of Warrants				Weighted-Average Price Per Share
Outstanding at August, 2016			-			$	-
Granted			900,000				1.00
Canceled or expired			-				-
Exercised			-				-
Outstanding at May 31, 2017			900,000			$	1.00

 

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

 

			Grant Date
Risk-free interest rate at grant date			1.06% – 1.44	%
Expected stock price volatility			117% – 362	%
Expected dividend payout			-
Expected option in life-years			1 – 3 years

 

 

4. ASSET PURCHASE AGREEMENT

 

On February 21, 2017, the Company purchased all right, title, interest and goodwill in or associated with certain the domain names set forth in an asset purchase agreement for a total approximately $20,000 and 200,000 shares of the Company’s common stock valued at $30,000. As of May 31, 2017, the stock had not been issued and a total of $30,000 common stock payable is recorded.

 

5. INTELLECTUAL PROPERTY

 

The Company executed an Asset Purchase Agreement on August 28, 2011 which included the acquisition of various types of intellectual property. The Company elected to suspend further investment and working capital on developing the Company’s technology and business prospects. The Company has recognized a loss on impairment of intellectual property in the amount of $1,248 as of May 31, 2017.

 

6. NOTES PAYABLE

 

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

 

The changes in these notes payable to related party consisted of the following during the nine months ended May 31, 2017 and the year ended August 31, 2016:

  

		May 31, 2017				August 31, 2016
Notes payable – related party at beginning of period		$	5,500			$	-
Payments on notes payable – related party			(5,500	)			-
Borrowings on notes payable – related party			50				5,500
Convertible debenture – related party at end of period		$	50			$	5,500

 

On May 17, 2016, the Company issued to Lyle Hauser, the Company’s largest shareholder, a 7% unsecured promissory note in the amount of $10,000 which matured six months from the date of issuance. On August 15, 2016, the Company issued a significant shareholder a 7% unsecured promissory note in the amount of $16,000 which matures six months from the date of issuance. On October 27, 2016, the Company issued a significant shareholder a 7% unsecured promissory note in the amount of $10,000 which matures six months from the date of issuance. The preceding notes have matured and remain unpaid at the quarter ended May 31, 2017. On November 14, 2016, the Company issued a significant shareholder 7% unsecured promissory note in the amount of $80,000 which matures six months from the date of issuance. On February 17, 2017, the Company issued a significant shareholder 7% unsecured promissory note in the amount of $30,000 which matures six months from the date of issuance. On March 31, 2017, the Company issued a significant shareholder 7% unsecured promissory note in the amount of $7,000 which matures six months from the date of issuance.

 

The changes in notes payable to related party consisted of the following during the nine months ended May 31, 2017 and the year ended August 31, 2016:

 

		May 31, 2017				August 31, 2016
Notes payable – related party at beginning of period		$	26,000			$	-
Payments on notes payable – related party			-				-
Borrowings on notes payable – related party			127,000				26,000
Convertible debenture – related party at end of period		$	153,000			$	26,000

 

On April 11, 2017, the Company executed a $540,000 Convertible Debenture with an original issue discount of $180,000. The note has a 9% interest rate and a term of two years. In connection with the note, the Company issued the lender an aggregate of 2,700,000 shares and 900,000 warrants. The relative fair value of the stock and warrants aggregating $202,490 was recognized as a discount to the note. Amortization of $11,351 was recognized during the nine months ended May 31, 2017. The conversion price of the outstanding balance is the lesser of $3.00 or 40% of the volume weighted average price of the 30 days at date of conversion; not to be less than $1.00. In connection with the note the lender is entitled to receive the greater of 5% every dollar raised through financing or every dollar of revenue generated through the earlier of maturity date and repayment of the principle.

 

		May 31, 2017
Convertible debenture		$	540,000
Unamortized discount			(371,139	)
Convertible debenture, net of unamortized discount		$	168,861

 

 

7. EMPLOYMENT AGREEMENT

 

On March 14, 2017, the Company entered into a two year employment agreement with Barry Tenzer to continue as CEO of the Company. In connection with the employment agreement the Company issued Mr. Tenzer a warrant to purchase up to 20,000,000 share of common stock at a per share price of $0.0001. The warrant was exercised in full on March 28, 2017. The shares of common stock underlying the warrant were issued on April 6, 2017.

 

On May 22, 2017, Barry Tenzer resigned as President and Chief Executive Officer of Bespoke Extracts, Inc. Mr. Tenzer’s resignation was not the result from any disagreement with the Company, any matter related to the Company’s operations, policies or practices, the Company’s management or the Board. In connections with the resignation of Mr. Tenzer his stock issued from his employment agreement has been returned to the company subsequent to May 31, 2017.

 

On May 22, 2017, the Board of Directors of the Company appointed Marc Yahr as President and Chief Executive Officer of the Company and as a member of the Company’s Board. There are no family relationships between Mr. Yahr and any of our other officers and directors.

 

On May 22, 2017, the Company entered into an employment agreement with Mr. Yahr pursuant to which Mr. Yahr will serve as President and Chief Executive Officer of the Company for a term of three years, unless earlier terminated pursuant to the terms of the Employment Agreement. Pursuant to the terms of the Employment Agreement, Mr. Yahr received a warrant to purchase up to 20,000,000 shares of the Company’s common stock at an exercise price of $0.0001 per share. The warrants were exercised in full on May 31, 2017; however, the 20,000,000 shares of the Company’s common stock were not issued to Mr. Yahr until June 10, 2017.

 

8. RELATED PARTY TRANSACTIONS

 

We currently lease approximately 500 square feet of general office space at 290 Lenox Avenue, New York, NY 10027 from our Executive Vice President – Business Development.

 

On April 27, 2016, the Company issued our CEO two 7% unsecured promissory note in the aggregate amount of $5,500 which notes matured six months from the date of issuance. Both notes have been paid off and the remaining principal amount is $0.

 

On May 17, 2016, the Company issued to Lyle Hauser, the Company’s largest shareholder, a 7% unsecured promissory note in the amount of $10,000 which matured six months from the date of issuance. The note has matured and remains unpaid at the quarter ended May 31, 2017.

 

On August 15, 2016, the Company issued a significant shareholder a 7% unsecured promissory note in the amount of $16,000 which matures six months from the date of issuance. The note has matured and remains unpaid at the quarter ended May 31, 2017.

 

As of August 31, 2016, the Company had an outstanding payable of $14,609 to the CEO. The payable is unsecured, due on demand and bears no interest. As of May 31, 2017 the accounts payable – related party has been paid and currently has a balance of $0.

 

On October 27, 2016 the Company issued a significant shareholder a 7% unsecured promissory notes totaling $10,000 which matures six months from the date of issuance. The note has matured and remains unpaid at the quarter ended May 31, 2017

 

One November 14, 2016 the Company issued a significant shareholder a 7% unsecured promissory note totaling $80,000 which matures six months from the date of issuance.

 

On February 17, 2017, the Company issued a significant shareholder a 7% unsecured promissory note in the amount of $30,000 which matures six months from the date of issuance.

 

On March 31, 2017, the Company issued a significant shareholder 7% unsecured promissory note in the amount of $7,000 which matures six months from the date of issuance.

 

9. SUBSEQUENT EVENTS

 

As of June 10, 2017, the Company issued an aggregate of 40,000,000 shares of common stock pursuant to the exercise of warrants for proceeds of $4,000.

 

On June 29, 2017, the Company issued 200,000 shares of common stock committed to be issued for the purchase of certain domain names (see Note 4).

 

On June 29, 2017, in connection with the resignation of Mr. Tenzer, the 20,000,000 shares of stock issued upon the exercise of the warrants was returned to the Company and cancelled and the exercise proceeds of $2,000 were returned to Mr. Tenzer.

 

 

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

 

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

 

	●	Inadequate capital and barriers to raising the additional capital or to obtaining the financing needed to implement our business plans;
	●	Our failure to earn revenues or profits;
	●	Inadequate capital to continue business;
	●	Volatility or decline of our stock price;
	●	Potential fluctuation in quarterly results;
	●	Rapid and significant changes in markets;
	●	Litigation with or legal claims and allegations by outside parties; and
	●	Insufficient revenues to cover operating costs.

 

The following discussion should be read in conjunction with the financial statements and the notes thereto which are included in this Quarterly Report. This discussion contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ substantially from those anticipated in any forward-looking statements included in this discussion as a result of various factors.

 

Overview

 

Cine-Source Entertainment, Inc. (the “Old Corporation”) a Colorado corporation, was formed on July 29, 1988. Pursuant to a Plan of Merger dated February 24, 2004, the Old Corporation filed Articles and Certificate of Merger with the Secretary of State of the State of Colorado merging the Old Corporation into Cine-Source Entertainment, Inc. (the “Surviving Corporation”), a Colorado corporation. A previous controlling stockholder group of the Old Corporation arranged the merger for business reasons that did not materialize. On April 26, 2004, the Surviving Corporation effectuated a 1 for 200 reverse stock split. The name of the Surviving Corporation was changed to First Quantum Ventures, Inc., on April 27, 2004. On April 13, 2006, the Surviving Corporation formed a wholly owned subsidiary, a Nevada corporation named First Quantum Ventures, Inc., and on May 5, 2006 merged the Surviving Corporation with and into this subsidiary, referred to herein as DTII.

 

 

The Share Exchange qualified as a transaction exempt from registration or qualification under the Securities Act of 1933, as amended (the “Securities Act”), and under the applicable securities laws of each jurisdiction where any of the stockholders reside.

 

On March 15, 2012, the Company changed its name to DiMi Telematics International, Inc.

  

On April 16, 2012, the Company issued a 1 for 1 stock dividend to current stockholders whereby the Company issued an additional 33,959,744 shares of common stock.  On May 16, 2012, the Company issued an additional 1 for 1 stock dividend to current stockholders whereby an additional 71,286,155 shares were issued. The dividends were also applied to outstanding warrants.  The Company has reflected the dividends as splits, which have been retroactively reflected in the financial statements.

 

In early 2017, our management team elected to suspend further investment and working capital on developing the Company’s technology and business prospects, turning its attention to prevailing new business opportunities in other high growth industries; namely the hemp-derived cannabidiol (“CBD”) market. On March 10, 2017, the Company changed its name to Bespoke Extracts, Inc. (formerly known as DiMi Telematics International, Inc.) to align the Company’s corporate identity with its new business plan.

 

The Company is now focused on bringing to market a proprietary line of premium, quality, all natural CBD products in the forms of tinctures, capsules, drops and edibles for the nutraceutical and veterinary markets. Produced using pure, all natural, zero-THC phytocannabinoid-rich (“PCR”) hemp-derived isolate, our products will be marketed as dietary supplements through wholesale channels and direct-to-consumers via our retail ecommerce store found at www.bespokeextracts.com.

 

Plan of Operations

 

To be launched in September 2017, our introductory retail line of premium CBD extracts will come in the form of tinctures and include:

 

●

All-Natural, Pure Hemp-Derived CBD Extract with raw Mānuka Honey – available in 2 oz. and will retail at $129.

 

●

All-Natural, Pure Hemp-Derived CBD Extract for Pets with bacon flavoring – available in 2 oz. and will retail at $69.

 

Generally speaking, most CBD products for oral consumption available on the market have an earthy, bitter taste that some observers suggest is reminiscent of chlorophyll. The centerpiece of the Company’s introductory line of great-tasting tinctures is our formulation which infuses pure, raw, all-natural, un-pasteurized Mānuka honey into our hemp-derived CBD extract.

 

Our Mānuka honey, imported directly from New Zealand, is one of the most unique and beneficial forms of honey in the world and carries the industry’s highest Unique Manuka Factor (UMF^®) 16+ rating, distinguishing it as superior high grade Mānuka. Legislated by the UMF Honey Association (http://www.umf.org.nz/), the UMF rating system provides for a quality trademark and grading system identifying natural unadulterated Mānuka honey that has a special unique natural property found only in some strains of Mānuka honey. High grade (10+) Mānuka honey contains a high concentration of methylglyoxal, giving the honey its superior antibiotic quality. Produced by bees that pollinate the native Mānuka bush, general Mānuka honey uses range from healing sore throats and digestive illnesses to curing Staph infections and gingivitis.

 

In 1982, researchers at the New Zealand University of Waikato discovered that Mānuka honey has a considerably higher level of enzymes than regular honey. (http://www.waikato.ac.nz/news/archive.shtml?article=1087). These enzymes create a natural hydrogen peroxide that works as an antibacterial. The Company’s tinctures are infused with superior high grade, raw Mānuka honey, further enhancing the potential health benefits offered by the CBD isolate we use, and delivering a delicious tasting experience for consumers.

 

Planned Expansion of Product Line

 

By the fall of 2017, presuming market conditions are favorable, we expect to expand our retail product offerings to include new flavored options of tinctures and drops, as well as introducing our formulations in the form of capsules, sprays and edibles, such as gummies and chewable candies.

 

 

Commitment to Excellence in Supply, Manufacturing and Logistics

 

A key differentiator of our finished products is the superb quality of ingredients we source from the industry’s leading suppliers, each of whom we have carefully vetted and qualified.

 

It is important to note that the CBD oil industry has attracted a whole host of ‘snake oil-like’ salesmen who are intent on capitalizing on rising consumer demand for CBD products; however their primary motive is merely profit, not quality, much less safety. In fact, in late February 2015, the U.S. Federal Drug Administration (“FDA”) issued several warning letters to companies who claimed that their products contained CBD, but following testing of these products by the FDA were found to have no CBD whatsoever, much less high quality, pure and/or organic CBD.

 

All of the Company’s flavor-infused tinctures and drops are created using our formulations with pure, all natural CBD isolate sourced from a leading supplier which sends each batch of CBD isolate it produces to a third party for purity and safety verification prior to shipping to our manufacturer. CBD isolate contains no THC, so products made using this product are not psychotropic and do not produce the “high” associated with THC products. Committed to sustainable agriculture, our manufacturer sources its hemp-derived CBD from only non-GMO crops grown without pesticides, herbicides or insecticides. Moreover, its purification plant and processes are International Organization for Standardization (“ISO”) 9001 certified and Good Manufacturing Practice (“GMP”) certified, reflecting our shared commitment to following only industry-best standards.

 

Raw Mānuka honey used in our products is imported directly from Graham Cammells Honey located on the north island of New Zealand which has been supplying quality bee products since 1974.

 

Fulfillment of orders from our online customers is managed by a third-party logistics partner.

 

Development Status and Go-to-Market Strategy

 

Few will argue that the traditional retail environment is currently experiencing notable economic instability due largely to the global shift in consumer purchasing behaviors – with online shopping/ecommerce sites rapidly overtaking brick-and-mortar stores as consumer preferred shopping venues. In view of this retailing reality, we have adopted a Direct-to-Consumer sales model that will be anchored by a high impact, visually stunning, content-rich ecommerce website whereby we will educate and sell and ship our CBD products directly to consumers.

 

Our marketing initiatives will include the use of social marketing, direct response marketing, inbound marketing, email marketing, Search Engine Optimization and content marketing, among other proven strategies. We will also explore utilizing coupon and deal sites to drive traffic to our website and participate in select industry conferences to promote our brand and build greater awareness of our products among prospective business partners and consumers.

 

Employees

 

As of May 31, 2017, the Company employed no full time and no part time employees other than its Chief Executive Officer.

 

Results of Operation for the Three Months Ended May 31, 2017 and May 31, 2016.

 

Selling, General and Administrative Expenses

 

Selling, general and administrative expenses for the three months ended May 31, 2017 and May 31, 2016 totaled $16,543 and $4,869, respectively. Payroll expense amounted to $21,829 and $21,124 for the three months ended May 31, 2017 and May 31, 2016, respectively. Impairment of intellectual property amounted to $1,248 and $0 for the three months ended May 31, 2017 and May 31, 2016. Stock based compensation amounted to $5,088,421 and $0 for the three months ended May 31, 2017 and May 31, 2016, respectively. Stock based compensation is an expense related to the issuances of warrants to the CEO. See Note 3.

 

Amortization Expense

 

Amortization expense for the three months ended May 31, 2017 and May 31, 2016 totaled $836 and $33, respectively. Amortization expense is in relation to recent URL purchase, prior year amortization is the expensing of intellectual property and the iPhone application.

 

 

Amortization of Debt Discount

 

Amortization of debt discount for the three months ended May 31, 2017 and May 31, 2016 totaled $11,352 and $0 respectively. Discount on debenture is in relation to the issuance of a note payable in connection with a stock stale. See Note 6.

 

Interest Expense

 

Interest expense on promissory notes for the three months ended May 31, 2017 and May 31, 2016, was $9,383 and $60, respectively.  The Company entered into four unsecured promissory notes with related parties.   See Note 6.

 

Net Loss

 

For the reasons stated above, our net loss for the three months ended May 31, 2017 totaled $5,250,114 or $(0.28) per share, an increase of $5,180,853 compared to a net loss for the three months ended May 31, 2016 of $69,261, or ($0.02) per share. The majority of the additional loss is due to recognition of stock based expense totaling $5,088,421.

 

Results of Operation for the Nine Months Ended May 31, 2017 and May 31, 2016.

 

Selling, General and Administrative Expenses

 

Selling, general and administrative expenses for the nine months ended May 31, 2017 and May 31, 2016 totaled $30,807 and $15,662, respectively. Payroll expense amounted to $67,515 and $62,636 for the nine months ended May 31, 2017 and May 31, 2016, respectively. Brand Development amounted to $10,000 and $0 for the nine months ended May 31, 2017 and May 31, 2016. Formula development amounted to $7,500 and $0 for the nine months ended May 31, 2017 and May 31, 2016. Brand and Formula development is in relation to the change in business operations to the CBD market. Impairment of intellectual property amounted to $1,248 and $0 for the nine months ended May 31, 2017 and May 31, 2016. Stock based compensation amounted to $5,088,421 and $0 for the nine months ended May 31, 2017 and May 31, 2016, respectively. Stock based compensation is an expense related to the issuances of warrants to the CEO. See Note 3.

 

Amortization Expense

 

Amortization expense for the nine months ended May 31, 2017 and May 31, 2016 totaled $902 and $99, respectively. Amortization expense is in relation to recent URL purchase, prior year amortization is the expensing of intellectual property and the iPhone application.

 

Amortization of Debt Discount

 

Amortization of debt discount for the nine months ended May 31, 2017 and May 31, 2016 totaled $11,352 and $0 respectively. Discount on debenture is in relation to the issuance of a note payable in connection with a stock stale. See Note 6.

 

Interest Expense

 

Interest expense on promissory notes for the nine months ended May 31, 2017 and May 31, 2016, was $12,327 and $60, respectively.  The Company entered into four unsecured promissory notes with related parties.   See Note 6.

 

Net Loss

 

For the reasons stated above, our net loss for the nine months ended May 31, 2017 totaled $5,345,435 or $(0.65) per share, an increase of $5,036,202 compared to a net loss for the nine months ended May 31, 2016 of $309,233, or ($0.11) per share. The majority of the additional loss is due to recognition of stock based expense totaling $5,088,421.

 

LIQUIDITY AND CAPITAL RESOURCES

 

As of May 31, 2017, we had cash and cash equivalents of $158,046. Net cash used in operating activities for the nine months ended May 31, 2017 was approximately $308,068 our current liabilities as of May 31, 2017 totaled $341,709 consisting of accounts payable and accrued liabilities of $19,798 note payable of $168,861 and note payables of $153,050. We have net negative working capital of $183,663 as of May 31, 2017.

 

 

The accompanying financial statements have been prepared assuming a continuation of the Company as a going concern. The Company has reported a net loss of $5,345,435 for the nine months ended May 31, 2017 and had an accumulated deficit of $7,773,024 as of May 31, 2017. These conditions raise significant doubt about our ability to continue as a going concern.

 

We have not generated positive cash flows from operating activities. The primary source of capital has been from the sale of equity securities. Our primary use of capital has been for professional fees and general and administrative costs. Our working capital requirements are expected to increase in line with the growth of our business.

 

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.

 

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable to 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 Act (“Exchange Act”)).  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 chief executive officer and chief financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

 

Based on this evaluation, it has been concluded that the design and operation of our disclosure controls and procedures are not effective since the following material weaknesses exist:

 

	●	Since inception our chief executive officer also functions as our chief financial officer. As a result, our officers 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.

 

 

PART II – OTHER INFORMATION

 

ITEM 1.

LEGAL PROCEEDINGS

 

We are not currently a party to, nor is any of our property currently the subject of, any pending legal proceeding that will have a material adverse effect on our business.

 

ITEM 1A.

RISK FACTORS

 

Not applicable to smaller reporting companies.

 

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

None.

 

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4.

MINE SAFETY DISCLOSURES

 

No disclosure required.

 

ITEM 5.

OTHER INFORMATION

 

None.

 

ITEM 6.

EXHIBITS

 

Exhibit No.		Description
31.1		Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
32.1		Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**
101.INS		XBRL Instance Document*
101.SCH		XBRL Taxonomy Extension Schema Document*
101.CAL		XBRL Taxonomy Calculation Linkbase Document*
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document*
101.LAB		XBRL Taxonomy Label Linkbase Document*
101.PRE		XBRL Taxonomy Presentation Linkbase Document*

 

*   Filed herewith.

** Furnished herewith.

 

 

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 on Form 10-Q to be signed on its behalf by the undersigned thereunto duly authorized.

 

	BESPOKE EXTRACTS, INC.
Dated: July 18, 2017	By:	/s/ Marc Yahr
		Marc Yahr President, CEO and CFO
		Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer

 

 

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