Bespoke Extracts, Inc. - Quarter Report: 2019 February (Form 10-Q)

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: February 28, 2019

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)

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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒  No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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.

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 April 30, 2019, there were 76,670,574 shares outstanding of the registrant’s common stock.

TABLE OF CONTENTS

PART I

Item 1. Financial Statements. 

Bespoke Extracts, Inc.

Consolidated Balance Sheets

Unaudited

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

Bespoke Extracts, Inc.

Consolidated Statements of Operations

Unaudited

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

Bespoke Extracts, Inc.

Consolidated Statements of Cash Flows

Unaudited

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

Bespoke Extracts, Inc.

Consolidated Statements of Changes in Stockholders’ Deficit

For the period from August 31, 2017 through February 28, 2018 and August 31, 2018 through February 28, 2019

Unaudited

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

Bespoke Extracts, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1. — NATURE OF OPERATIONS, SIGNIFICANT ACCOUNTING POLICIES AND GOING CONCERN

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, 2018 filed with the Securities and Exchange Commission (the “SEC”) on December 14, 2018. 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 February 28, 2019, and the results of operations and cash flows for the three and six months ended February 28, 2019 and 2018. The results of operations for the six months ended February 28, 2019 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 unaudited consolidated financial statements have been prepared assuming a continuation of the Company as a going concern. The Company has a working capital deficit as of February 28, 2019 and negative cash flows from operations for the six months ended February 28, 2019. 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 net realizable 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 February 28, 2019 and August 31, 2018, inventory amounted to $54,184 and $61,857, respectively, which consisted of finished goods.

Revenue Recognition

The Company recognizes revenue from product sales to customers, distributors and resellers when products that do not require further services or installation by the Company are shipped, when there are no uncertainties surrounding customer acceptance and when collectability is reasonably assured. Cash received by the Company prior to shipment is recorded as deferred revenue. Sales are made to customers under terms allowing certain limited rights of return and other limited product and performance warranties for which provision has been made in the accompanying unaudited consolidated financial statements.

Amounts billed to customers in sales transactions related to shipping and handling, represent revenues earned for the goods provided and are included in net sales. Costs of shipping and handling are included in cost of products sold.

The Company accounts for revenue in accordance with Topic 606 which was adopted at the beginning of fiscal year 2018 using the modified retrospective method. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. The Company did not recognize any cumulative-effect adjustment to retained earnings upon adoption as the effect was immaterial.

Net Income / Loss per Share

Basic income / loss per share amounts are computed based on net income / loss divided by the weighted average number of common shares outstanding. Diluted earnings per share reflect the potential dilution that could occur if potentially dilutive securities were exercised or converted to common stock. The dilutive effect of options and warrants and their equivalent is computed by application of the treasury stock method and the effect of convertible securities by the “if converted” method.  Outstanding options, warrants and convertible debt were excluded from the calculation of diluted income / loss per share during 2018 and 2017 because their inclusion would have been anti-dilutive.

2. 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 of $20,185 in cash and 200,000 shares of the Company’s common stock valued at $30,000. For the three and six months ended February 28, 2019 and 2018 amortization expense amounted to $837, $796, $1,673 and $1,632, respectively. The domain names are being amortized over a 15 year period.

3. NOTE PAYABLE – RELATED PARTY

On April 27, 2016, the Company issued its 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 its 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 notes payable to these related parties consisted of the following during the three months ended February 28, 2019 and the year ended August 31, 2018.

On February 14, 2017, the Company issued to Lyle Hauser, the Company’s largest shareholder at the time, 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.

On May 17, 2016, the Company issued to The Vantage Group Ltd. (“Vantage”), a significant shareholder at that time, 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 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 were amended to be convertible into common stock and to mature on April 18, 2018. The convertible notes had 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 year ended August 31, 2018. The Company issued a total of 10,050,000 shares of common stock to convert $80,000 principal and $400 of accrued interest into common stock and the remaining $43,000 was exchanged with an additional $2,000 of accrued interest to purchase assets of the Company.

The changes in notes payable to these related parties consisted of the following during the six months ended February 28, 2019 and the year ended August 31, 2018.

4. CONVERTIBLE DEBENTURE – RELATED PARTY

On April 11, 2017, the Company executed a $540,000 related party convertible debenture with an original issue discount of $180,000. The note had a 0% interest rate and a term of two years, and provided that, if it were not paid in full on the due date, the note would have a 0% interest rate until paid in full. In connection with the note, the Company issued the lender an aggregate of 2,700,000 shares of common stock and 900,000 warrants. The relative fair value of the stock ($157,509) and warrants ($44,981) aggregating $202,490 was recognized as a discount to the note. Amortization of $99,776 and $143,132 was recognized during the three and six months ended February 28, 2019.  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 was entitled to receive 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 February 28, 2019 and August 31, 2018 the Company has accrued $48,265 and $34,015, respectively. This note has been exchanged for shares of common stock of the Company. See Note 7.

On August 28, 2017, the Company executed, with a related party, an $180,000 convertible debenture with an original issue discount of $60,000. The note had 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 $16,032 and $32,094 was recognized during the three and six months ended February 28, 2019.  The conversion price of the outstanding balance was 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 was 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 February 28, 2019 and August 31, 2018 the Company has accrued $39,250 and $25,000, respectively. This note has been exchanged for shares of common stock of the Company. See Note 7.

On December 13, 2017, the Company executed a $120,000 convertible debenture with an original issue discount of $20,000. The debenture had 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 $8,320 and $14,936 was recognized during the three and six months ended February 28, 2019.  The conversion price of the outstanding balance was 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 was entitled to receive the greater of 5% of every dollar raised through financing or every dollar of revenue generated through the earlier of maturity date and repayment of the principal. As of February 28, 2019 and August 31, 2018 the Company has accrued $34,250 and $20,000, respectively. This note has been exchanged for shares of common stock of the Company. See Note 7.

5. EQUITY

Common Stock

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 Series A Convertible Preferred stock with a par value of $0.001.

Between September 1, 2018 and February 28, 2019 the Company sold a total of 8,966,667 shares of common stock for proceeds of $285,000.

On October 13, 2018 the Company issued 1,000,000 shares of common stock for a sponsorship donation valued at $120,000.

Effective October 30, 2018, Marc Yahr resigned from all positions with the Company including as President and Chief Executive Officer of the Company, except as a member of the board of directors. On November 25, 2018 Mr. Yahr resigned as a member of the Company’s board of directors. On November 6, 2018, 16,000,000 shares of common stock were returned to the Company by Mr. Yahr for which the Company paid $1,600 to Marc Yahr. This forfeiture was in accordance with the terms of this May 22, 2017 employee share based award and the forfeiture resulted in a gain of $2,440,768 (net of the $1,600 cash paid) representing a reversal of the previously recognized expense for the unvested portion of this freighted award.

On October 30, 2018, the Company entered into an employment agreement with Niquana Noel pursuant to which Ms. Noel will serve as the Company’s Chief Executive Officer and president for a term of four years, unless earlier terminated pursuant to the terms of the employment agreement. Pursuant to the terms of the employment agreement, Ms. Noel’s annual salary is $96,000 and she 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. Ms. Noel exercised the warrant for $2,000 and was issued the 20,000,000 shares on October 31, 2018. The shares received upon the exercise of the warrants are subject to forfeiture over a service period of four years.

Pursuant to a securities purchase agreement entered into on June 6, 2018 the Company was obligated to issue additional shares of common stock if the Company sold common stock at a price lower than $0.10 per share (or common stock equivalents with an exercise price less than $0.10 per share) during the six month period following the closing of the purchase agreement, in which event the Company was required to issue additional shares to the purchaser for no additional consideration, such that the total number of common stock received by the purchaser will be equal to $50,000 divided by lower financing price. As of February 28, 2019 the Company was obligated to issue 500,000 shares of common stock valued at $76,000.

Warrants

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 were subject to forfeiture 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.  Effective October 30, 2018, Marc Yahr resigned from all positions with the Company including as President and Chief Executive Officer of the Company (except as director, which he resigned as on November 25, 2018). Pursuant to the agreement, Mr. Yahr agreed to return 80% of the warrant shares to the Company if he served as CEO of the Company pursuant to the terms and conditions of the employment agreement for a period of more than 12 months but less than 18 months. Therefore, 16,000,000 shares of common stock were forfeited to the Company, and the Company recognized a gain on the forfeited common shares of ($2,440,768) net of $1,600 paid by the Company. As of February 28, 2019, $0 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. During the three and six months ended February 28, 2019 the Company recognized a gain of ($197) and $(32,061), respectively due to a remeasurement of this nonemployee award.

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. During the three and six months ended February 28, 2019 the Company recognized a gain / (expense) of $321 and $(57,382), respectively due to a remeasurement of this nonemployee award.

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 per month (an aggregate of 3,600,000 warrants) with an exercise price of $0.50, exercisable commencing six months after issuance for a period of 5 years.  During the three and six months ended February 28, 2019 the Company recognized a (gain) / expense of $(8,363) and $(1,273,049), respectively due to a remeasurement of this nonemployee award.

On April 16, 2018 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 each month to purchase common stock with an exercise price of $0.60. However, if the consultant generates more than $10,000 in monthly sales, the warrants will have an exercise price of $0.30, and if the consultant generates more than $20,000 in monthly sales, the warrants may be exercised on a cashless basis. Additionally, the Company agreed to pay to the consultant 10% of retail sales and 5% of wholesale sales. On July 11, 2018 the Company terminated the agreement. On August 1, 2018 the Company entered into a new consulting agreement with Dr. Hellman. The term is 1 year with payment of 60,000 warrants each month (an aggregate of 720,000 warrants) to purchase common stock with an exercise price of $0.60. The warrants may be exercised on a cashless basis.  During the three and months ended February 28, 2019 the Company recognized a (gain) / expense of $8,225 and $(107,618), respectively due to a remeasurement of this nonemployee award.

On October 30, 2018, the Company entered into an employment agreement with Ms. Noel pursuant to which Ms. Noel will serve as the Company’s Chief Executive Officer and president for a term of four years, unless earlier terminated pursuant to the terms of the employment agreement. Pursuant to the terms of the employment agreement, Ms. Noel’s annual salary is $96,000 and she 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. Ms. Noel exercised the warrant and was issued the 20,000,000 shares on October 31, 2018. The fair value of this award was determined to be $2,598,138 of which $162,384 and $216,512 was recognized during the three and six months ended February 28, 2019, respectively. Unamortized expense at February 28, 2019 is $2,381,627. The shares received upon the exercise of the warrants are subject to forfeiture over a service period of four years. The shares will be required to be returned to the Company as follows and the Company accounts for forfeitures when they occur:

Ms. Noel shall return 80% of the common stock to the Company if she is not serving as Chief Executive Officer of the Company pursuant to the terms and conditions of her employment agreement as of October 2019 (the first anniversary of the employment agreement);

Ms. Noel shall return 60% of the common stock to the Company if she is not serving as the Chief Executive Officer of the Company pursuant to the terms and conditions of the employment agreement as of the second anniversary of the employment agreement (October, 2020);

Ms. Noel shall return 40% of the common stock to the Company if she is not serving as Chief Executive Officer of the Company pursuant to the terms and conditions of the employment agreement as of the third anniversary of the employment agreement (October 2021);

Ms. Noel shall return 20% of the Common Stock to the Company if she is not serving as the Chief Executive Officer of the Company pursuant to the terms and conditions of the Employment Agreement as of the fourth anniversary of the employment agreement (October, 2022);

The following table summarizes the warrant activities during the six months ended February 28, 2019 and the year ended August 31, 2018, respectively:

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

OPTIONS

On July 26, 2017 the Company granted a nonemployee options to purchase 2,200,000 shares of common stock. The options have a three year term. 1,000,000 options were immediately exercisable on the date of issuance with an exercise price of $0.001 and the remaining 1,200,000 options vest over a period of three years at an exercise price of $1.00. On July 26, 2017, 1,000,000 shares were exercised. During the three and six months ended February 28, 2019 the Company recognized a gain of $(7,419) and $(376,250), respectively.

6. 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. The warrants were granted on February 22, 2018.

On March 2, 2018 the Company entered into a two year management agreement with Global Corporate Management, LLC (“GCM”). Pursuant to this agreement, the Company agreed 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). The Company shall pay to GCM a commission equal to 10% of all sales every month. The commission will be paid only for the sales which have closed and cash has been paid to the Company. As of February 28, 2019 GCM has not earned any commissions.

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 agreed to issue 50,000 common stock purchase warrants to purchase common stock at an exercise price of $0.30 per share. As of November 30, 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 or warrants to purchase shares of common stock of the Company at a purchase price of $0.30 per share, exercisable 6 months after issuance. The commission will be paid on net sales from protected accounts and the consultant will be issued warrants on net invoices that are paid in full and money is received.

On April 16, 2018 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 $10,000 in monthly sales, the warrants will have an exercise price of $0.30, and if the consultant generates more than $20,000 in monthly sales, the warrants may be exchanged in “cashless exercise”. Additionally, the Company agreed to pay to the consultant 10% of retail sales and 5% of wholesale sales. On July 11, 2018 the Company terminated the agreement. On August 1, 2018 the Company entered into a new consulting agreement with Dr. Hellman. The term is 1 year with payment of 60,000 warrants to purchase common stock with an exercise price of $0.60. The warrants may be exercised on a cashless basis.

In May 2018 the Company entered into an agreement with Seidman Food Brokerage Inc., pursuant to which the Company appointed Seidman Food Brokerage, Inc. as its non-exclusive regional sales and marketing representative for the company’s product line for 12 months. The broker will be paid a monthly commission equal to the greater of (1) 5% of collected sales for all invoices generated for CBD products available from their product line for human consumption for a particular month or (2) solely with respect to the first six months of the term of the agreement. As of February 28, 2019 Seidman Food Brokerage, Inc. has not earned any commissions.

Pursuant to a securities purchase agreement dated March 5, 2018, in the event that, in the six month period commencing on the closing date of such purchase agreement, the Company were to sell common stock at a price lower than $0.10 per share (or common stock equivalents with a conversion or exercise price lower than $0.10 per share (each as adjusted for stock splits, stock dividends, and similar transactions, the “Subsequent Financing Price”), the Company was required to promptly issue additional shares of common stock to the purchaser for no additional consideration, such that the total number of shares of common stock received by the purchaser under the Agreement would be equal to the total purchase price of $300,000 divided by such lower subsequent financing price. The Company also agreed that it would not pay total cash compensation of more than $100,000 to any director, officer or employee of the Company for a period of 12 months from the closing date.

Pursuant to a securities purchase agreement dated March 21, 2018, in the event that, in the six month period commencing on the closing date of such purchase agreement, the Company were to sell common stock at a price lower than $0.10 per share (or common stock equivalents with a conversion or exercise price lower than $0.10 per share (each as adjusted for stock splits, stock dividends, and similar transactions), the Company was required to promptly issue additional shares of common stock to the purchaser for no additional consideration, such that the total number of shares of common stock received by the purchaser under the Agreement would be equal to the total purchase price of $50,000 divided by such lower subsequent financing price. The Company also agreed that it would not pay total cash compensation of more than $100,000 to any director, officer or employee of the Company for a period of 12 months from the closing date.

Pursuant to a securities purchase agreement entered into on June 6, 2018 the Company was obligated to issue additional shares of common stock if the Company sold common stock at a price lower than $0.10 per share (or common stock equivalents with an exercise price less than $0.10 per share) during the six month period following the closing of the purchase agreement, in which event the Company was required to issue additional shares to the purchaser for no additional consideration, such that the total number of common stock received by the purchaser will be equal to $50,000 divided by lower financing price. The Company also agreed that it would not pay total cash compensation of more than $100,000 to any director, officer, or employee of the Company for a period of 12 months from the closing date. As of February 28, 2019 the Company was obligated to issue 500,000 shares of common stock valued at $76,000 which is included in the common stock payable in the accompanying balance sheet.

7. SUBSEQUENT EVENTS

On March 20, 2019 the Company issued 500,000 shares of common stock pursuant to a consulting agreement. The term of the agreement is one year and the Company agreed to pay the consultant $20,000 per month once it receives proceeds of financing transactions of at least $250,000.

Between April 1, 2019 to April 12, 2019, the Company sold a total of 5,300,000 shares of common stock for proceeds of $110,500.

On April 22, 2019, the Company entered into an exchange agreement with McGlothlin Holdings, Ltd. (“McGlothlin”). Pursuant to the exchange agreement, McGlothlin exchanged convertible debentures of the Company, in the original principal amounts of $540,000 and $120,000, respectively, and 1,000,000 warrants to purchase shares of common stock of the Company, for an aggregate of 11,000,000 newly issued shares of common stock of the Company.

On April 22, 2019, the Company entered into an exchange agreement with Alneil Associates (“Alneil”). Pursuant to the exchange agreement, Alneil exchanged a convertible debenture of the Company, in the original principal amount of $180,000, and 300,000 warrants to purchase shares of common stock of the Company, for an aggregate of 3,000,000 newly issued shares of common stock of the Company.

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:

The following discussion should be read in conjunction with the financial statements and the notes thereto which are included in this Quarterly Report.

Overview

We were incorporated in the State of Colorado on July 29, 1988 under the name Cine-Source Entertainment, Inc. On April 27, 2004, the Company changed its name to First Quantum Ventures, Inc. On April 13, 2006, the Company changed its name to First Quantum Ventures, Inc., and on May 5, 2006, the Company reincorporated in Nevada. 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 its then-existing technology and business prospects, turning its attention to the hemp-derived cannabidiol, or 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 selling its proprietary line of premium quality, all natural cannabidiol (CBD) products in the form of tinctures and capsules for the nutraceutical and veterinary markets, which it introduced in mid-2018. Produced using pure, all natural, zero-THC phytocannabinoid-rich (“PCR”) hemp-derived CBD, our products are marketed as dietary supplements and distributed through our direct-to-consumers ecommerce store, found at www.BespokeExtracts.com. In the future, we plan to also sell through select specialty retailers, pharmacies/dispensaries and care providers.

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED February 28, 2019 AND February 28, 2018.

Sales

Sales during the three months ended February 28, 2019 were $12,509 compared to $0 for the three month ended February 28, 2018. In mid-2018 the Company began selling and shipping its CBD products.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the three months ended February 28, 2019 and February 28, 2018 totaled $239,560 and $1,604,256, respectively. Stock-based compensation which is primarily comprised of the expense for warrants issued to our current President and Chief Executive Officer, was included in selling, general and administrative, and totaled $171,946 which was a result of a significant decrease in share price and $1,198,614, respectively for the three months ended February 28, 2019 and 2018. Payroll expense amounted to $0 and $1,743 respectively for the three months ended February 28, 2019 and 2018. During the three months ended February 28, 2019, Ms. Noel’s compensation was recorded as consulting expense. The reduction in expense was due to a reduction in full-time employees. Professional fees amounted to $68,488 and $27,677 respectively for the three months ended February 28, 2019 and 2018. The increase in expenses was due to increased legal and professional fees. Consulting expense amounted to $59,000 and $22,415 respectively for the three months ended February 28, 2019 and 2018. The increase was primarily due to branding and marketing performed by consultants hired during the three months ended February 28, 2019. Amortization expense for the three months ended February 28, 2019 and 2018 was $837 and $796 respectively. Amortization expense is in relation to a URL purchase and the prior year’s amortization is the expensing of intellectual property.

Interest Expense

Interest expense on promissory notes for the three months ended February 28, 2019 and 2018, was $148,879 and $83,124, respectively. The increase in interest expense was due to the amortization expense for the warrants and beneficial conversion associated with those notes that had been converted to common stock or fully amortized.

Net Loss

For the reasons stated above, our net loss for three months ended February 28, 2019 totaled ($508,535) or ($0.01) per share, compared to a net loss for the three months ended February 28, 2018 of ($1,760,376) or ($0.05) per share.

RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED February 28, 2019 AND February 28, 2018.

Sales

Sales during the six months ended February 28, 2019 were $53,940 compared to $0 for the three months ended February 28, 2018. In mid-2018 the Company began selling and shipping its CBD products.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the six months ended February 28, 2019 and February 28, 2018 totaled ($3,838,781) and $2,539,001, respectively. Stock-based compensation which is primarily comprised of the expense for warrants issued to our former and current President and Chief Executive Officer, was included in selling, general and administrative, and totaled $(4,070,348) which was a result of a significant decrease in share price and $579,419, respectively for the six months ended February 28, 2019 and 2018. Payroll expense amounted to $0 and $21,114 respectively for the six months ended February 28, 2019 and 2018. During the six months ended February 28, 2019, Ms. Noel’s compensation was recorded as consulting expense. The reduction in expense was due to a reduction in full-time employees. Professional fees amounted to $106,483 and $51,640 respectively for the six months ended February 28, 2019 and 2018. The increase in expenses was due to increased legal and professional fees. Consulting expense amounted to $114,500 and $77,000 respectively for the six months ended February 28, 2019 and 2018. The increase was primarily due to branding and marketing performed by consultants hired during the six months ended February 28, 2019. Amortization expense for the six months ended February 28, 2019 and 2018 was $1,673 and $1,632 respectively. Amortization expense is in relation to a URL purchase and the prior year’s amortization is the expensing of intellectual property.

Make good common stock expense

Pursuant to a securities purchase agreement entered into on June 6, 2018 the Company was obligated to issue additional shares of common stock if the Company sold common stock at a price lower than $0.10 per share (or common stock equivalents with an exercise price less than $0.10 per share) during the six month period following the closing of the purchase agreement, in which event the Company was required to issue additional shares to the purchaser for no additional consideration, such that the total number of common stock received by the purchaser will be equal to $50,000 divided by lower financing price. As of February 28, 2019, the Company was obligated to issue 500,000 shares of common stock valued at $76,000 which is included in the common stock payable in the accompanying balance sheet.

Interest Expense

Interest expense on promissory notes for the six months ended February 28, 2019 and 2018, was $232,912 and $186,670, respectively. The increase in interest expense was due to the amortization expense for the warrants and beneficial conversion associated with those notes that had been converted to common stock or fully amortized.

Net Loss

For the reasons stated above, our net income for six months ended February 28, 2019 totaled $3,345,265 or $0.07 per share, compared to a net loss for the six months ended February 28, 2018 of $2,897,422 or ($0.09) per share.

LIQUIDITY AND CAPITAL RESOURCES

As of February 28, 2019, we had cash and cash equivalents of $110,103. Net cash used in operating activities for the six months ended February 28, 2019 was $256,681. Our current liabilities as of February 28, 2019 totaled $910,981 consisting of accounts payable and accrued liabilities of $178,916, and convertible note payables, net of unamortized discounts, of $732,105.

During the six months ended February 28, 2019, the Company raised $285,000 from the sale of common stock compared to $60,300 for the six months ended February 28, 2018. During the six months ended February 28, 2018, the Company entered into an agreement with a related party for $220,000 of convertible loans.

The accompanying unaudited consolidated financial statements have been prepared assuming a continuation of the Company as a going concern. The Company has a working capital deficit as of February 28, 2019 and negative cash flows from operations for the six months ended February 28, 2019. These conditions raise substantial doubt about our ability to continue as a going concern.

We have not generated positive cash flows from operating activities. Our 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. We have no committed sources of capital and will need to raise additional capital to continue and expand our operations. Additional capital may not be available on terms acceptable to us, or at all.

OFF-BALANCE SHEET ARRANGEMENTS

We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Critical accounting policies and estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses during the reported periods. The more critical accounting estimates include estimates related to revenue recognition and accounts receivable allowances. We also have other key accounting policies, which involve the use of estimates, judgments and assumptions that are significant to understanding our results, which are described in Note 1 to our unaudited financial statements appearing elsewhere in this report.  

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:

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.

In December 2018, the Company issued 300,000 shares of common stock to an accredited investor for a purchase price of $15,000.

In February 2019, the Company issued 1,666,667 shares of common stock to an accredited investor for a purchase price of $50,000.

In March 2019 the Company issued 500,000 shares of common stock for consulting services pursuant to a consulting agreement.

In April 2019, the Company issued 300,000 shares of common stock to accredited investors for an aggregate purchase price of $10,500.

In connection with the foregoing, the Company relied up on the exemption from registration provided by Section 4(a)(2) under the Securities Act of 1933, as amended, for transactions not involving a public offering.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

No disclosure required. 

Item 5. Other Information.

None.

Item 6. Exhibits

* 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.

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