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, 2018

 

or

 

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

 

For the transition period from __________ to __________

 

Commission File Number: 000-52759

 

BESPOKE EXTRACTS, INC.

(Exact name of registrant as specified in its charter)

 

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

 

323 Sunny Isles Boulevard, Suite 700

Sunny Isles Beach, FL 33160

(Address of principal executive offices)

 

855-633-3738

(Registrant’s telephone number, including area code)

 

 

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

 

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

 

Indicate by check mark whether the registrant has submitted electronically 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	☐ (Do not check if a smaller reporting company)	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 19, 2018, there were 42,873,907 shares outstanding of the registrant’s common stock.

 

 

 

TABLE OF CONTENTS

 

		Page No.
PART I - FINANCIAL INFORMATION		1
Item 1.	Financial Statements – unaudited	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Plan of Operations	11
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	14
Item 4	Controls and Procedures	14
PART II - OTHER INFORMATION		15
Item 1.	Legal Proceedings	15
Item 1A.	Risk Factors	15
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	15
Item 3.	Defaults Upon Senior Securities	15
Item 4.	Mine Safety Disclosures	15
Item 5.	Other Information	15
Item 6.	Exhibits	15

 

 

PART I

 

ITEM 1. FINANCIAL STATEMENTS 

 

Bespoke Extracts, Inc.

Consolidated Balance Sheets

(Unaudited)

 

		May 31,				August 31,
		2018				2017
Assets
Current assets
Cash		$	315,670			$	87,172
Prepaid expense			-				19,952
Inventory			73,267				-
Total current assets			388,937				107,124
Domain names, net of amortization of $3,346 and $1,673			46,003				48512
Total assets		$	434,940			$	155,636
Liabilities and Stockholders' Deficit
Current liabilities
Accounts payable and accrued liabilities		$	117,622			$	36,525
Deposit for future assets sales from related party			-				45,000
Convertible notes - related parties, net unamortized discounts $275,083 and $0			400,517				123,000
Note payable - related party			50				30,050
Total current liabilities			518,189				234,575
Non-current liabilities
Related party convertible note payable, net of unamortized discounts $106,902 and $346,837			73,098				193,163
Total non-current liabilities			73,098				193,163
Total liabilities			591,287				427,738
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, 2018 and August 31, 2017, respectively			-				-
Common stock, $0.001 par value: 800,000,000 authorized; 40,372,712 and 26,822,712 shares issued and outstanding as of May 31, 2018 and August 31, 2017, respectively			40,373				26,823
Additional paid-in capital			14,199,975				8,808,161
Accumulated deficit			(14,396,695	)			(9,107,086	)
Total stockholders' deficit			(156,347	)			(272,102	)
Total liabilities and stockholders' deficit		$	434,940			$	155,636

 

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

 

 

Bespoke Extracts, Inc

Consolidated Statements of Operations

(Unaudited)

 

		For the three				For the three				For the nine				For the nine
		months ended				months ended				months ended				months ended
		May 31,				May 31,				May 31,				May 31,
		2018				2017				2018				2017
Operating expenses:
Selling, general and administrative expenses		$	2,103,756			$	5,104,964			$	4,642,757			$	5,119,228
Payroll expense			3,128				21,829				24,242				67,515
Professional fees			52,950				28,000				104,590				41,613
Consulting			51,500				73,750				128,500				73,750
Promotion			39,014				-				59,379				-
Brand development			-				-				-				10,000
Formula development			-				-				-				7,500
Impairment of intellectual property			-				-				-				1,248
Amortization expense			877				836				2,509				902
Total operating expenses			2,251,225				5,229,379				4,961,977				5,321,756
Loss from operations			(2,251,225	)			(5,229,379	)			(4,961,977	)			(5,321,756	)
Other expense
Interest expense			(140,962	)			(20,735	)			(327,632	)			(23,679	)
Total other expense			(140,962	)			(20,735	)			(327,632	)			(23,679	)
Loss before income tax			(2,392,187	)			(5,250,114	)			(5,289,609	)			(5,345,435	)
Provision for income tax			-				-				-				-
Net Loss		$	(2,392,187	)		$	(5,250,114	)		$	(5,289,609	)		$	(5,345,435	)
Net loss per common share: basic and diluted		$	(0.07	)		$	(0.28	)		$	(0.16	)		$	(0.65	)
Weighted average common shares outstanding basic and diluted			36,477,528				18,520,538				33,000,844				8,179,122

 

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

 

 

Bespoke Extracts, Inc

Consolidated Statements of Cash Flows

(Unaudited)

 

		For the nine months ended,
		May 31,				May 31,
		2018				2017
Cash flows from operating activities
Net loss		$	(5,289,609	)		$	(5,345,435	)
Adjustments to reconcile net loss to net cash used in operating activities
Amortization expense			2,509				902
Amortization of debt discounts			269,281				11,351
Option expense amortized			-				-
Stock based compensation			4,526,235				5,088,421
Impairment of intellectual property			-				1,248
Changes in operating assets and liabilities
Inventory			(73,267	)			-
Prepaid expense			19,952				-
Accounts payable and accrued liabilities			83,097				(49,628	)
Accounts payable - related party			-				(14,609	)
Net Cash used in operating activities			(461,802	)			(307,750	)
Cash flows from investing
Proceeds from sale of assets to related parties			90,000				-
Cash paid for domain names			-				(20,185	)
Net cash provided by investing activities			90,000				(20,185	)
Cash flow from financing activities
Payment of note payable - related party			(30,000	)			(5,500	)
Proceeds from exercise of warrants			-				4,000
Borrowings on related party convertible debt			220,000				360,000
Proceeds from note payable - related party			-				127,050
Sale of common stock and warrants			410,300				-
Net cash provided by financing activities			600,300				485,550
Net increase in cash and cash equivalents			228,498				157,615
Cash and cash equivalents at beginning of period			87,172				431
Cash and cash equivalents at end of period		$	315,670			$	158,046
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
Discount due beneficial conversion feature		$	123,000			$	-
Stock issued for conversion of debt - related party		$	64,400			$	157,509
Stock issued with related party debt		$	79,449				-
Warrants issued with related party debt		$	21,980				44,981
Related party note and accrued interest exchanged for purchase of assets		$	45,000				-

 

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

 

 

Bespoke Extracts, Inc.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 1 — BASIS OF PRESENTATION

 

The accompanying unaudited consolidated financial statements of Bespoke Extracts, Inc, a Nevada corporation (the “Company”), have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete consolidated financial statements. These unaudited consolidated financial statements and related notes should be read in conjunction with the Company’s annual report on Form 10-K for the fiscal year ended August 31, 2017. 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, 2018, and the results of operations and cash flows for the nine months ended May 31, 2018 and May 31, 2017. The results of operations for the three and nine months ended May 31, 2018 are not necessarily indicative of the results that may be expected for the entire fiscal year.

 

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

 

Going Concern

 

The accompanying interim consolidated financial statements have been prepared assuming a continuation of the Company as a going concern. The Company did not generate any revenues and reported a net loss of $5,218,094 for the nine months ended May 31, 2018 and has a working capital deficit as of May 31, 2018.  These conditions raise substantial doubt about our ability to continue as a going concern.

 

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

 

Inventory

 

Inventories are stated at the lower of cost or market value.  Cost is determined by the first-in, first-out basis and market being determined as the lower of replacement cost or net realizable value. The Company records inventory write-downs for estimated obsolescence of unmarketable inventory based upon assumptions about future demand and market conditions. As of May 31, 2018, inventory amounted to $73,267 which consists of $53,743 in finished goods and $19,524 in raw materials.

 

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 September 18, 2017, the Company issued 900,000 shares of common stock in connection with the issuance of a convertible note with a principal amount of $180,000. The relative fair value of the stock of $51,503 was recognized as a discount to the note that is being amortized to interest expense over the life of the note.

 

On September 22, 2017, the company issued 900,000 shares of common stock and 300,000 warrants pursuant to a stock purchase agreement for cash of $60,300.

 

 

On November 10, 2017, the Company issued an aggregate of 1,400,000 shares of common stock to the holder of a related party 7% Convertible Promissory Note, to convert principal amount of $11,200.

 

On November 27, 2017, the Company issued an aggregate of 1,450,000 shares of common stock to the holder of a related party 7% Convertible Promissory Note, to convert principal amount of $11,600.

 

On December 28, 2017, the Company issued an aggregate of 1,550,000 shares of common stock to the holder of a 7% Convertible Promissory Note, dated November 14, 2016 to convert principal amount of $12,400.

 

On December 13, 2017, the Company issued an aggregate of 200,000 shares of common stock with a relative fair value of $27,946 to the holder of a $120,000 Convertible Debenture with an original issue discount of $20,000. The debenture has a 0% interest rate and a term of one year. 

 

On March 5, 2018, the Company entered into a securities purchase agreement with an investor which is a related party. Pursuant to the purchase agreement, upon closing on March 7, 2018, the Company issued and sold to the investor, 3,000,000 shares of common stock for an aggregate purchase price of $300,000. The Company agreed to issue additional shares of common stock (the “Make-Good Shares”) to the investor for no additional consideration, in the event that, during the six month period commencing on the closing date, the Company sells common stock at a purchase price lower than $0.10 (the “Subsequent Financing Price”), such that the total number of shares of common stock received by the investor under the purchase agreement (including the Make-Good Shares and the initial shares) will be equal to the total purchase price of $300,000 divided by such lower Subsequent Financing Price. In addition the Company agreed not to pay cash compensation over $100,000 to any Officer of Director.

 

On March 9, 2018, the Company issued an aggregate of 1,780,000 shares of common stock to the holder of a 7% Convertible Promissory Note, dated November 14, 2016 to convert principal amount of $14,240.

 

On March 9, 2018, Bespoke Extracts, Inc. (the “Company”) entered into and closed an asset purchase agreement with VMI Acquisitions, LLC (“VMI”), pursuant to which the Company sold to VMI the Company’s proprietary Machine-to-Machine communications solution and certain other intellectual property for a purchase price of $180,000. $135,000 of the purchase price was paid by members of VMI in cash and had previously been deposited with the Company. The remaining $45,000 of the purchase price was paid in the form of a reduction in outstanding debt and reimbursements of expenses owed to a member of VMI. Certain members of VMI are noteholders and/or shareholders of the Company. At the time of the sale the intellectual property had a book value of $0. As the parties were considered significant shareholders and related parties, the consideration of $180,000 was recorded as a capital contribution.

 

On May 15, 2018 the Company issued 500,000 shares of common stock to an investor for a purchase price of $50,000, and on May 29, 2018, the Company issued 1,870,000 shares of common stock upon conversion of a convertible note in the amount of $14,960. The Company agreed to issue additional shares of common stock (the “Make-Good Shares”) to the investor for no additional consideration, in the event that, during the six month period commencing on the closing date, the Company sells common stock at a purchase price lower than $0.10 (the “Subsequent Financing Price”), such that the total number of shares of common stock received by the investor under the purchase agreement (including the Make-Good Shares and the initial shares) will be equal to the total purchase price of $50,000 divided by such lower Subsequent Financing Price. In addition the Company agreed not to pay cash compensation over $100,000 to any Officer of Director.

 

 

Warrants / Options

 

During the nine months ended May 31, 2018, warrant activity included the following: 

 

On September 18, 2017, the Company executed an $180,000 Convertible Debenture with an original issue discount of $60,000. In connection with the debenture, the Company issued the lender 300,000 common stock purchase warrants with a term of 3 years and an exercise price of $1.00. The relative fair value of the warrants of $16,996 was recognized as a discount to the debenture.

 

On May 22, 2017, the Company entered into an employment agreement with Marc Yahr to serve as President and Chief Executive Officer of the Company for a term of three years, unless earlier terminated pursuant to the terms of the Employment Agreement. Pursuant to the terms of the Employment Agreement, Mr. Yahr received a warrant to purchase up to 20,000,000 shares of the Company’s common stock at an exercise price of $0.0001 per share. The warrants were exercised in full on May 31, 2017; however, the 20,000,000 shares of the Company’s common stock were not issued to Mr. Yahr until June 10, 2017. The shares received upon the exercise of the warrants 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 which will be recognized as compensation expense over the three year service period.  Warrant expense under this award for the nine months ended May 31, 2018 totaled $2,742,668. As of May 31. 2018, $7,240,948 remains to be expensed over the remaining vesting period.

 

On January 22, 2018, the Company entered into a Sales Representation Agreement for a term of six months. Pursuant to the agreement the Company agreed to issue the nonemployee sales representative warrants to purchase 10,000 shares of common stock per month (an aggregate of 60,000 warrants) with an exercise price of $0.50, with a term of three years. The Warrants shall be exercisable at any time on or after the six (6) month anniversary of each Issuance Date, at his election, in whole or in part, by means of a “cashless exercise”. The fair value of this award was determined to be $64,292 of which $29,709 was recognized during the nine months ended May 31, 2018.

 

On February 22, 2018, the Company entered into a Consulting Agreement for a term of one year. Pursuant to the agreement the Company agreed to issue the nonemployee consultant warrants to purchase 10,000 shares of common stock per month (an aggregate of 120,000 warrants) with an exercise price of $0.40, exercisable for cash only for a period of three years commencing six months form the issuance date. The fair value of this award was determined to be $131,478 of which $36,903 was recognized during the nine months ended May 31, 2018.

 

On March 2, 2018 the Company entered into a Management Agreement with Global Corporate Management, LLC. Pursuant to this agreement, the Company agreed to pay $4,000 and to issue 150,000 common stock purchase warrants with an exercise price of $0.50, exercisable commencing six months after issuance for a period of 5 years. The fair value of this award was determined to be $4,139,966 of which $790,251 was recognized during the nine months ended May 31, 2018.

 

On March 20, 2018 the Company entered into a 12 month consulting agreement with Patagonia Global Trading, LLC. Upon execution of this agreement and upon the Consultant signing their first customer, acceptable by the Company, and for services rendered, the Company will immediately issue 50,000 common stock purchase warrants to purchase common stock at an exercise price of $.30 per share. As of May 31, 2018, Patagonia Global Trading, LLC, had not signed any customers and had not earned any warrants. The Company agreed to pay a total commission rate of 10% of the gross sale amount to be paid in the form of cash and or warrants to purchase shares of common stock of the Company

 

On April 16, 2108 The Company entered into a consulting agreement with Dr. David Hellman for marketing and promotion services. The term is 1 year with payment of 50,000 warrants to purchase common stock with an exercise price of $0.60. However, if the Consultant generates more than $10K in monthly sales, the Warrants will have an exercise price of $.30, and if the Consultant generates more than $20K in monthly sales, the Warrants may be exchanged in "cashless exercise". Additionally, the Company shall pay 10% of retail sales and 5% of wholesale sales. The fair value of this award was determined to be $652,911 of which $88,534 was recognized during the nine months ended May 31, 2018.

 

 

For the nine months ended May 31, 2017, the Company recognized option expense of $5,088,421 for options granted on July 26, 2017 to a nonemployee for services. For the nine months ended May 31, 2018, the Company recognized option expense of $4,526,235 for options granted to non-employees for services. As of May 31, 2018, $11,619,798 remains to be expensed over the remaining service period through July 26, 2019.

 

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

 

		Grant Date		May 31, 2018
Risk-free interest rate at grant date		1.06% - 1.44%		1.11% - 2.68%
Expected stock price volatility		117% - 362%		159% - 370%
Expected dividend payout		-		-
Expected option in life-years		1 - 3 years		2.16 - 6.75 years

  

Warrants:
Outstanding at August 31, 2017			900,000			$	1.00
Granted			1,220,000				2.57
Canceled or expired			-				-
Exercised			-
Outstanding at May 31, 2018			2,120,000			$	2.27
Exercisable at May 31, 2018			1,600,000
Intrinsic value at May 31, 2018		$	581,000
Options:
Outstanding at August 31, 2017			1,200,000			$	1.00
Granted			-				-
Canceled or expired			-				-
Exercised			-				-
Outstanding at May 31, 2018			1,200,000			$	1.00
Exercisable at May 31, 2018			300,000
Intrinsic value at May 31, 2018		$	180,000

 

3. RELATED PARTY ASSET PURCHASE AGREEMENT

 

On August 29, 2017, the Company received $82,750 as a deposit from a significant shareholder toward the purchase price on an agreement that was being negotiated with VMI Acquisitions, LLC for purchase of certain of the Company’s assets as well as the payment of $7,500 of expenses on behalf of the Company. The remaining $45,000 of the purchase price was paid in the form of a reduction in outstanding debt and reimbursements of expenses owed to a member of VMI. Certain members of VMI are noteholders and/or shareholders of the Company and related parties. The agreement was completed and closed on March 9, 2018.  As the parties were considered significant shareholder the consideration of $180,000 was recorded as a capital contribution. At the time of the sale the intellectual property had a book value of $0.

 

 

4. NOTES PAYABLE – RELATED PARTY

 

On April 27, 2016, the Company issued to the former Company’s 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 to the Company’s CEO a 7% unsecured note in the amount of $3,000 which matured six months from date of issuance. As of May 31. 2018, there is a remaining balance on the note of $50 which is unsecured, non-interest bearing and due on demand.

 

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

 

5. CONVERTIBLE DEBENTURE – RELATED PARTY 

 

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

 

On April 17, 2017 the preceding notes issued to Vantage Group were amended to be convertible into common stock and to mature on April 18, 2018. The convertible notes have a fixed conversion price of $0.008. The amendments to the notes created a beneficial conversion feature of $123,000 and amortization of the discount of $123,000 during the 9 months ended May 31, 2018. The Company issued a total of 8,050,000 shares of common stock to convert $64,400 principle into common stock and the remaining $43,000 was exchanged with additional $2,000 of accrued interest to purchase assets of the Company (See note 3). As of May 31.2018 the balance on the convertible note is $15,600.

 

		May 31, 2018
Convertible debenture		$	123,000
Conversion			(64,400	)
Exchange for purchase of Company assets			(43,000	)
Convertible debenture, net of unamortized discount		$	15,600

 

On April 11, 2017, the Company executed a $540,000 Convertible Debenture with an original issue discount of $180,000. The debenture has a 0% interest rate and a term of two years. In connection with the debenture, the Company issued the lender an aggregate of 2,700,000 shares of common stock and 900,000 common stock purchase warrants. The relative fair value of the stock and warrants aggregating $202,490 was recognized as a discount to the note. Amortization of $100,032 was recognized during the nine months ended May 31, 2018. The conversion price of the outstanding balance is the lesser of $3.00 or 40% of the volume weighted average price of the 30 days at date of conversion; not to be less than $1.00. In connection with the debenture the lender is entitled to receive the greater of 5% every dollar raised through financing or every dollar of revenue generated through the earlier of maturity date and repayment of the principal. As of May 31, 2018 the Company has accrued $31,515. The conversion price was above the fair market value of the date of issuance so no beneficial conversion feature was recorded

 

		May 31, 2018
Convertible debenture		$	540,000
Unamortized discount			(246,805	)
Convertible debenture, net of unamortized discount		$	293,195

 

 

On September 18, 2017, the Company executed, with a related party, an $180,000 Convertible Debenture with an original issue discount of $60,000. The note has a 0% interest rate and a term of two years. In connection with the note, the Company issued the lender an aggregate of 900,000 shares of common stock and 300,000 warrants to purchase common stock. The relative fair value of the stock and warrants aggregating $68,499 was recognized as a discount to the note. Amortization of $21,597 was recognized during the nine months ended May 31, 2018. The conversion price of the outstanding balance is the lesser of $3.00 or 40% of the volume weighted average price of the 30 days at date of conversion; not to be less than $1.00. In connection with the debenture the lender is entitled to receive the greater of 5% of every dollar raised through financing or every dollar of revenue generated through the earlier of the maturity date or repayment of the principal. As of May 31, 2018 the Company has accrued $22,500.

 

		May 31. 2018
Convertible debenture		$	180,000
Unamortized discount			(106,902	)
Convertible debenture, net of unamortized discount		$	73,098

 

On December 13, 2017, the Company executed a $120,000 Convertible Debenture with an original issue discount of $20,000. The debenture has a 0% interest rate and a term of one year. In connection with the note, the Company issued the lender an aggregate of 200,000 shares of common stock and 100,000 warrants to purchase common stock. The relative fair value of the stock and warrants aggregating $32,930 was recognized as a discount to the note. Amortization of $24,652 was recognized during the nine months ended May 31, 2018. The conversion price of the outstanding balance is the lesser of $3.00 or 40% of the volume weighted average price of the 30 days at date of conversion; not to be less than $1.00. In connection with the debenture the lender is entitled to receive the greatest of 5% every dollar raised through financing or every dollar of revenue generated through the earlier of maturity date and repayment of the principal, as of May 31, 2018 the Company has accrued $17,500.

 

		May 31, 2018
Convertible debenture		$	120,000
Unamortized discount			(28,278	)
Convertible debenture, net of unamortized discount		$	91,722

  

6. SUBSEQUENT EVENTS

 

On June 11, 2018, the Company issued an aggregate of 2,000,000 shares of common stock to the holder of a 7% Convertible Promissory Note, dated November 14, 2016 to convert principal amount and accrued interest of $16,000.

 

On June 15, 2018, the Company issued 500,000 shares of common stock pursuant to a stock purchase agreement for cash of $50,000.

 

 

7. COMMITMENTS AND CONTINGENCIES

 

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

 

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

 

On February 22, 2018, the Company entered into a Consulting Agreement for a term of one year. Pursuant to the agreement the Company agreed to issue the nonemployee consultant warrants to purchase 10,000 shares of common stock per month (an aggregate of 120,000 warrants) with an exercise price of $0.40, exercisable for cash only for a period of three years commencing six months form the issuance date.

 

On March 2, 2018 the Company entered into a two year Management Agreement with Global Corporate Management, LLC. Pursuant to this agreement, the Company to pay $4,000 and to issue 150,000 common stock purchase warrants (exercise price of $0.50, 5 year term, exercisable 6 months after issuance).

 

On March 20, 2018 the Company entered into a consulting agreement with Patagonia Global Trading, LLC. Upon execution of this agreement and upon the Consultant signing their first customer, acceptable by the Company, and for services rendered, the Company will immediately issue 50,000 common stock purchase warrants to purchase common stock at an exercise price of $.30 per share.   As of May 31, 2018 Patagonia Global Trading, LLC, had not signed any customers and had not earned any warrants. The Company agrees to pay a total commission rate of 10% of the gross sale amount to be paid in the form of cash and or warrants to purchase shares of common stock of the Company

 

On April 16, 2108 The Company entered into a consulting agreement with Dr. David Hellman for marketing and promotion services. The term is 1 year with payment of 50,000 warrants to purchase common stock with an exercise price of $0.60. However, if the Consultant generates more than $10K in monthly sales, the Warrants will have an exercise price of $.30, and if the Consultant generates more than $20K in monthly sales, the Warrants may be exchanged in "cashless exercise". Additionally, the Company shall pay 10% of retail sales and 5% of wholesale sales.

 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

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

 

	●	Inadequate capital and barriers to raising the additional capital or to obtaining the financing needed to implement our business plans;
	●	Our failure to earn revenues or profits;
	●	Inadequate capital to continue business;
	●	Volatility, lack of liquidity or decline of our stock price;
	●	Potential fluctuation in quarterly results;
	●	Rapid and significant changes in markets;
	●	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.

 

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. 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.

 

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

 

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

 

 

The Company is now focused on 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

 

We have not yet commenced sales of our products but anticipate doing so in the near future. Our introductory retail line of premium CBD extracts comes in the form of tinctures including:

 

●

All-Natural, Pure Hemp-Derived CBD Extract with raw Mānuka Honey.

 

●

All-Natural, Pure Hemp-Derived CBD Extract for Pets with bacon flavoring.

 

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 end of the summer of 2018, presuming market conditions are favorable, we expect to expand our retail product offerings to include new flavored options of tinctures, as well as introducing our formulations in the form of lotions and salves. 

 

Development Status and Go-to-Market Strategy

 

We believe the traditional retail environment is 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.

 

Critical Accounting Policies and Estimates

 

The presentation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates.

 

Intellectual Property

  

Intellectual property is stated at cost. When retired or otherwise disposed, the related carrying value and accumulated amortization are removed from the respective accounts and the net difference less any amount realized from disposition, is reflected in earnings. Minor additions and renewals are expensed in the year incurred. Major additions and renewals are capitalized and depreciated over their estimated useful lives being 3 years up to 15 years.

 

 

Revenue Recognition

 

The Company intends to recognize revenue on four basic criteria which must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on management's judgments regarding the fixed nature of the selling prices of the products delivered and the collectability of those amounts. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded.

 

Stock Based Compensation

 

The Company accounts for all compensation related to stock, options or warrants using a fair value based method whereby compensation cost is measured at the grant date for employee awards and upon a commitment date or completion of services for nonemployee awards based on the value of the award and is recognized over the service period, which is usually the vesting period. The Company uses the Black-Scholes pricing model to calculate the fair value of options and warrants issued to both employees and non-employees. Stock issued for compensation is valued using the market price of the stock on the date of the related agreement.

 

Employees

 

As of May 31, 2018, the Company employed no full time and no part time employees other than its Chief Executive Officer.

 

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED May 31. 2018 AND May 31, 2017.

 

Operating Expenses

 

Selling, general and administrative expenses for the three months ended May 31, 2018 and May 31, 2017 totaled $2,103,756 and $5,104,964, respectively. Warrant expenses included in selling, general and administrative totaled $2,641,192 for warrants issued to the Company’s CEO and consulting agreements in 2018. Warrant expenses included in selling, general and administrative totaled $5,088,421 for warrants issued to the Company’s CEO in 2017. Payroll expense amounted to $3,128 and $21,829 for the three months ended May 31, 2018 and May 31, 2017, respectively. Consulting amounted to $52,590 and $28,000 for the three months ended May 31, 2018 and May 31, 2017. Amortization expense for the three months ended May 31, 2018 and May 31, 2017 totaled $877 and $836, respectively. Amortization expense is in relation to recent URL purchase, prior year amortization is the expensing of intellectual property and the iPhone application.

 

Interest Expense

 

Interest expense on promissory notes for the three months ended May 31, 2018 and May 31, 2017, was $140,962 and $20,735, respectively.

 

Net Loss

 

For the reasons stated above, our net loss for the three months ended May 31, 2018 totaled $2,392,187 or $(0.07) per share, and decreased of $2,857,927 compared to a net loss for the three months ended May 31, 2017 of $5,250,114, or ($0.28) per share.

 

RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED May 31, 2018 AND MAy 31, 2017.

 

Selling, General and Administrative Expenses

 

Selling, general and administrative expenses for the nine months ended May 31, 2018 and May 31, 2017 totaled $4,642,757 and $5,119,228, respectively. Warrant expenses included in selling, general and administrative totaled $4,526,235 for warrants issued to the Company’s CEO and consulting agreements in 2018. Warrant expenses included in selling, general and administrative totaled $5,088,421 for warrants issued to the Company’s CEO in 2017. Payroll expense amounted to $24,242 and $67,515 for the nine months ended May 31, 2018 and May 31, 2017, respectively. Consulting amounted to $128,500 and $73,750 for the nine months ended May 31, 2018 and May 31, 2017. Amortization expense for the nine months ended May 31, 2018 and May 31, 2017 totaled $2,509 and $902, respectively. Amortization expense is in relation to recent URL purchase, prior year amortization is the expensing of intellectual property and the iPhone application.

 

Interest Expense

 

Interest expense on promissory notes for the nine months ended May 31, 2018 and May 31, 2017, was $327,632 and $23,679, respectively

 

Net Loss

 

For the reasons stated above, our net loss for the nine months ended May 31, 2018 totaled $5,289,609 or $(0.16) per share, a decrease of $55,826 compared to a net loss for the nine months ended May 31, 2017 of $5,345,435, or ($0.65) per share.

  

  

LIQUIDITY AND CAPITAL RESOURCES

 

As of May 31, 2018, we had cash and cash equivalents of $315,670. Net cash used in operating activities for the nine months ended May 31, 2018 was $461,802. Our current liabilities as of May 31, 2018 totaled $518,189 consisting of accounts payable and accrued liabilities of $117,622, and convertible note payables-net, unamortized discounts of $400,517.

 

The accompanying financial statements have been prepared assuming a continuation of the Company as a going concern. The Company reported a net loss of $5,289,609 for the nine months ended May 31, 2018 and had an accumulated deficit of $14,396,695 as of May 31, 2018. 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. 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.

 

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 chief executive officer and chief financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

 

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

 

	●	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 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

 

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.

 

  

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 20, 2018	By:	/s/ Marc Yahr
		Marc Yahr President and Chief Executive Officer
		(Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer)

 

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