UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-K

 

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

 

For the fiscal year ended August 31, 20182020

 

OR

 

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

 

For the transition period from _______ to ________

 

Commission file number: 000-52759

 

BESPOKE EXTRACTS, INC.

(Exact name of registrant as specified in its charter)

 

Nevada 20-4743354
(State or other jurisdiction of
incorporation or organization)
 (I.R.S. Employer
Identification No.)

  

323 Sunny Isles Blvd., Suite 700, Sunny Isles, Florida 33160
(Address of principal executive offices) (Zip Code)

 

Registrant’s telephone number, including area code: (855) 633-3738

 

Securities registered pursuant to Section 12(b) of the Act: None.

   

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.001 per share

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐  No ☒

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐  No ☒

 

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

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒

 

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

 

Large accelerated filerAccelerated filer
Non-accelerated filerSmaller 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 Act). Yes ☐  No ☒

 

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold as of the last business day of the registrant’s most recently completed second fiscal quarter was approximately $9,757,852.$549,924.

 

As of December 14, 2018,16, 2020, there were 50,203,907229,389,621 shares of Common Stock,common stock, par value $0.001 per share, issued and outstanding.

 

 

 

  

Bespoke Extracts, Inc.

 

Table of Contents

 

PART I1
  
Item 1. Business1
  
Item 1A. Risk Factors.56
  
Item 1B. Unresolved Staff Comments.910
  
Item 2. Properties.910
  
Item 3. Legal Proceedings.910
  
Item 4. Mine Safety Disclosures.910
  
PART II1011
  
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities1011
  
Item 6. Selected Financial Data1011
  
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.1112
  
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.1213 
  
Item 8. Financial Statements and Supplementary DataF-1
  

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosures.

1314
  
Item 9A. Controls and Procedures1314
  
Item 9B. Other Information.1415
  
PART III1516
  
Item 10. Directors, Executive Officers and Corporate Governance.1516
  
Item 11. Executive Compensation1718
  
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters1819
  
Item 13. Certain Relationships and Related Transactions, and Director Independence.1920
  
Item 14. Principal AccountingAccountant Fees and Services.1921
  
PART IV2022
  
Item 15. Exhibits, Financial Statement Schedules.2022
  
Signatures2123

  

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PART I

 

This Annual Report on Form 10-K may contain forward-looking statements. Such forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to our management and involve risks and uncertainties. Forward-looking statements include statements regarding our plans, strategies, objectives, expectations and intentions, which are subject to change at any time at our discretion. Forward-looking statements include our assessment, from time to time of our competitive position, the industry environment, potential growth opportunities and the effects of regulation. Forward-looking statements include all statements that are not historical facts and can be identified by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “hopes,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would” or similar expressions.

 

Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. We discuss many of these risks in greater detail in “Risk Factors.” Given these uncertainties, undue reliance should not be placed on these forward-looking statements. Also, forward-looking statements represent our management’s beliefs and assumptions only as of the date of this report. Our actual future results may be materially different from what we expect. Except as required by law, we assume no obligation to update these forward-looking statements publicly.

 

As used in this annual report, the terms “we”, “us”, “our”, the “Company”, “Bespoke Extracts, Inc.” and “Bespoke” mean Bespoke Extracts, Inc. unless otherwise indicated.

 

Item 1. Business.

 

Our Corporate History

 

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 specially-formulated, premium quality, all natural cannabidiol (CBD)hemp-derived CBD products direct to consumers through our ecommerce store, found at www.bespokeextracts.com. Information on our website is not part of this report.

We introduced our original line of CBD products in 2018; however, in the fall of 2020, we unveiled a new brand image, new website and ecommerce store and a new line-up of seven hemp-derived CBD formulations available for purchase in the form of tinctures and capsulessoftgels. We intend to methodically expand our product offerings to include new flavors, including manuka honey; and introduce additional form factors for the nutraceuticalour CBD formulations, including lotions 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 supplementsbalms, depending on customer feedback 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.

evolving consumer demand.

 

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The CannabisHemp-Derived CBD Market

 

Many states have already legalized medical cannabis, and adult-use cannabis is now legal atRecreational smoking of marijuana had come to the statewide level in several major U.S. markets. According to ArcView Market Research and its research partner BDS Analytics, over the next 10 years, total sales by the legal cannabis industry will reach $57 billion by 2027, and the largest groupattention of cannabis buyers will be in North America, going from $9.2 billion in 2017 to $47.3 billion a decade later. For context, in a report released in February 2017, Arcview Market Research stated that the North American black market for cannabis is estimated to have totaled $46.4 billion in sales in 2016.Marijuana Business Factbookreports that 2017 spending on legal recreational and medical cannabis in the U.S. Federal Bureau of Narcotics and President Franklin D. Roosevelt and, despite opposition from the American Medical Association, the Marihuana Tax Act of 1937 was passed and an 80-year moratorium on hemp production began. Thirty-three years later when the Controlled Substances Act of 1970 was signed into law, marijuana was further constrained by being classified as a Schedule I narcotic and regulatory restrictions on hemp grew even topped those of Oreos and organic produce combined – and will likely surpass sales of firearms and ammunition in the nation by the end of 2019.more rigid.

 

Hope for revitalizing the hemp industry was ignited in 2014 when President Barack Obama signed the 2014 Farm Bill, which essentially allowed for hemp to be grown by permitted universities and state departments of agriculture in the name of federally funded research – rather than as a commercial crop. Thereafter, pro-hemp legislation received increasingly favorable bipartisan support, culminating in December 2018 with the passage of the 2018 Farm Bill, which removed industrial hemp from its listing as a Schedule I drug and recognizes hemp as an agricultural commodity, such as corn, wheat or soybeans. Consequently, demand for hemp-derived CBD products exploded, and the industry was unleashed, albeit with the government asserting certain oversight and compliance controls. Specifically, the production of hemp-derived CBD must adhere to certain regulatory mandates relating to the hemp grown to produce it, including:

The hemp must contain less than 0.3% THC

The hemp must adhere to the shared state-federal regulations; and

The hemp must be grown by a properly licensed grower.

In addition, the 2018 Farm Bill also lifted restrictions on the sale, transportation and possession of hemp-derived CBD products and allows for the transportation of hemp-derived CBD products across state lines, as long as the products comply with the aforementioned mandates.

According to a market study published by Grand View Research in August 2020, the global CBD oil and CBD consumer health market size was valued at $20.3 billion in 2019 and is expected to grow at a CAGR of 25.6% from 2020 to 2027. Researchers noted that “cannabidiol-based products are gaining acceptance and recognition in the health and wellness sector owing to the confirmation of therapeutic properties of cannabidiol through various scientific studies.”

Cannabidiol, or CBD, is one of over 80 active cannabinoid chemicals140 identified cannabinoids, or plant compounds, found in cannabis is the major non-psychoactive component of the plantspecies, namely Cannabis sativa L.;(hemp plant) and Cannabis indica (marijuana plant). THC, or tetrahydrocannabinol, is proving to be an effective treatment foralso a number of health conditions affecting adults, children and pets. While U.S. companies cannot legally make medical claims about CBD or its uses, there are countless scientific research studies showing potential therapeutic indications for CBD, demonstrating that it works well with body cells to improve immunity and is even produced naturallynatural occurring cannabinoid in the human brain.these plants.

 

Numerous medical studies have found that cannabinoids, including CBD and THC, provide a wealth of health and wellness benefits through their interaction with the human endocannabinoid system (ECS), a complex network of cell receptors and neurotransmitters that help maintain the body’s homeostasis. According to a 2013one study, published in“modulating the British Journal of Clinical Pharmacology, CBD benefits include acting in some experimental models as an anti-inflammatory, anticonvulsant, antioxidant, antiemetic, anxiolytic and antipsychotic agent; and is therefore a potential medicinal treatment for neuroinflammation, epilepsy, oxidative injury, vomiting and nausea, anxiety and schizophrenia. Moreover, there have been dozens of other peer-reviewed studies suggesting that CBDECS activity may have therapeutic value for medical indicationspotential in almost all diseases affecting humans, including bipolar disorder,obesity/metabolic syndrome, diabetes and diabetic complications, neuro-degenerative inflammatory, cardiovascular, liver, gastrointestinal, skin diseases, pain, psychiatric disorders, cachexia, cancer, glaucoma, HIV/AIDS, Huntington’s Disease, Crohn’s Disease, Multiple Sclerosis, Parkinson’s Disease, PTSD, rheumatoid arthritischemotherapy-induced nausea and Tourette’s Syndrome.vomiting, among many others.” (Source: Pál Pacher and George Kunos, “Modulating the Endocannabinoid System in Human Health and Disease--Successes and Failures,” The FEBS Journal (U.S. National Library of Medicine, May 2013), https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3684164/.)

 

DueHowever, unlike CBD-based products which are non-psychoactive, have little to the growing body of published research supporting the promisingno side effects and are believed to offer tangible therapeutic benefits ofto its users, THC-based products used for recreational or medical purposes may induce psychotropic or euphoric effects on a user and have potentially serious side effects, such as extreme anxiety and paranoia. Another important distinction between the two is the fact that THC products can only be purchased in U.S. states which have legalized medical or recreational marijuana use, whereas authentic, hemp-derived CBD the demand for CBDproducts has been increasing rapidly.may be legally purchased nationwide. In fact, cannabis industry analysts at the Brightfield Groupestimate the hemp-CBD market alone could reach $22 billiontoday CBD products are being sold directly to consumers online by 2022. Between 2017manufacturers and 2018, the U.S. hemp-derived CBD market has nearly doubledresellers and in size, but the five-year growth projections for this market are now dramatically higher than they were a year ago. This is because the full legalization of hemp-derived CBD is now a realmany major and likely prospect following Republican Mitch McConnell’s proposal of the Hemp Farm Act of 2018 (the Farm Bill), which is expected to pass before the end of 2018. This legislation would clearlyspecialty retail stores, including GNC, Walgreens, The Vitamin Shoppe, CVS, pet stores, beauty salons and unambiguously legalize hemp as well as its derivatives, extractseven local convenience stores and cannabinoids, including hemp-derived CBD.gas stations.

 


Introductory Product Line

 

Generally speaking, our management believes 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 our introductory retail product line is our great-tasting, flavor-infused tinctures, formulated using only premium, organic ingredients. In addition, we will also market CBD extract in capsule form. As our Company matures, we expectform, topicals, and gummies. We intend to expand our proprietary CBD products to include a much broader range of flavors and form factors.Launched in late summer 2018, our official market Our rebrand debut showcased the following introductoryflagship products:

 

ManukaHoneyBespoke 3C (Cool, Calm, Collected) CBD + CBG Tincture: 1000 mg1200mg & 2000mg, berry and mint flavored, of all-natural, pure hemp-derived CBD + CBG extract infused with raw, organic, UMF16+ManukaHoneytailored for women – available in a 60ml30ml tincture;

Lemon LimeBespoke Recovery W CBD + CBG Tincture for Sport: 1500 mg2000mg, citrus flavored, of all-natural, pure hemp-derived CBD + CBG extract –availabletailored for women – available in 60mla 30ml tincture;

BaconBespoke Recovery S CBD + CBG Tincture for Pets: 500 mg of all-natural, smoked bacon-flavored, pure hemp-derived CBD extract – available in 2 fluid ounce tincture with convenient spray top for dosing on pet food; and
CBD Gelcaps: 1500 mg2000mg, citrus flavored, of all-natural, pure hemp-derived CBD + CBG extract made for sports – available in gelcap form – containing 30 gelcaps with 50 mg each.a 30ml tincture;

   

2Bespoke Comfort CBD + CBN Tincture: 2000mg, natural flavor, of all-natural, pure hemp-derived CBD + CBN extract tailored for women – available in a 30ml tincture.

 

Bespoke Active CBD + CBG Tincture: 1200mg, natural flavor, of all natural, pure hemp-derived CBD + CBG extract made for sports - available in a 30ml tincture; and


Bespoke Serenity CBD Liquid Gels: 50mg/capsule, pure full spectrum CBD with a variety of beneficial ingredients such as Vitamin D, Levodopa, Evening Primrose Oil, Black Cohosh Extract, and more.

Supply, Manufacturing and Logistics

 

Our management believes that some companies operating in the CBD oil industry tend to emphasize sales and quantity over quality and safety. In late February 2015,Over the past several years, the U.S. Federal Drug Administration (“FDA”) has issued several warning letters to companies who claimedfirms that their products contained CBD but, following testingmarket unapproved new drugs that allegedly contain CBD. As part of these products byactions, the FDA has tested the chemical content of cannabinoid compounds in some of the products, and many were found to not contain the levels of CBD they claimed to contain – several were found to have no CBD.

 

All of our flavor-infused tinctures and capsulesgel caps are formulated using pure, all natural, zero-THC phytocannabinoid-rich (“PCR”) hemp-derived CBD sourced from one of the largest, fully and vertically integrated producers of PCR hemp oil. All CBD isolates and oilsour products are authenticated by an independent third party via issuance of a Certificate of Analysis (“COA”), whichfor cannabinoid content and profile, microbiological content, heavy metal content, pesticide content, and residual solvent content. We recognize the importance of compliance and ishave partnered with one of the industry’s leading current good manufacturing practices, or CGMP certified extraction facilities. This ensures the consistency and quality of our product line and brand.

 


Through its proprietary engineering process, our American-based supplier isolates and removes any unwanted compounds – while creating the maximum potency level of phytocannabinoids and terpenes – cold, enclosed and continuous manufacturing processes prevents the degradation of natural molecules during extraction and purification. Made and derived from non-GMO, USA-grown hemp, itsour PCR hemp oil and isolate powder are subjected to a rigorous testing system – both in-house and verified through independent, third party labs – which ensures accurate levels of phytocannabinoids and confirms the absencelevels of THC. Our products contain only the highest level of naturally derived CBD, more than 99.5% pure, and never contain anymore than 0.3% THC.

 

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

 

For instance, raw Mānuka honey used in our products is imported directly from the north island of New Zealand from a supplier which has been supplying quality bee products since 1974. Mānuka honey is believed to be one of the most unique and beneficial forms of honey in the world and may carry the industry’s highest UMF®16+ rating, distinguishing it as superior high-grade Manuka.world. Produced by bees that pollinate the native Manuka bush, possible Mānuka honey uses range from healing sore throats and digestive illnesses to curing Staph infections and gingivitis. All other flavorings infused in our products – including our all-natural, organic lemon lime flavor used in our Bespoke Sport offering -- are also sourced from reputable suppliers.

 

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

 

Sales and Marketing

 

We currently sell our products through our website.

 

Management believesWe believe that the traditional retail environment is currently experiencing notable economic instability due largely to the global shift in consumer purchasing behaviors – with online shopping/ecommerce sites rapidly overtaking brick-and-mortar stores as consumer preferred shopping venues. In view of this retailing reality, we have adopted a Direct-to-Consumer sales model that is anchored by an ecommerce website whereby we educate, sell and ship our CBD products directly to consumers. In addition, we also plan to market our CBD products on a wholesale basis to select specialty retailers, dispensaries and physicians.

 

Our marketing initiatives include the use of social marketing, social influence marketing, direct response marketing, inbound marketing, email marketing, Search Engine Optimization (“SEO”) and content marketing, among other proven strategies to generate and convert sales prospects into loyal, satisfied customers. We will also explore utilizing coupon and deal sites to drive traffic to our website and retailers, as well as participate in select industry conferences to promote our brand and build greater awareness of our products among prospective business partners and consumers.

  

3

Other brand-building tactics include a sports marketing and sponsorship strategy that has initially focused on Extreme Sports, motor racing and other high action sports athletes, teams and events, with the underpinning goal of generating consumer awareness of our high-performance Lemon-Lime Sport CBD brand by fans and athletes. In March 2018, we were a titled sponsor of sportsbike racer Robertino Pietri who took third place at the 77th annual running of the DAYTONA 200; and in October 2018, we were a title sponsor of motorcycle racer Sean Dylan Kelly who competed in and won first place at the 35th Annual Race of Champions at Daytona International Speedway.

The Difference Between Hemp and Marijuana

 

Both marijuana and hemp come from the same species of plant called “Cannabis Sativa L.” However, cultivators of the cannabis plant have manipulated it over the years to encourage specific traits to become dominant. Cannabis plants contain unique compounds called cannabinoids. Current research has revealed over 80 different cannabinoids thus far, but management believes THC is the most well-known and is credited with causing the marijuana high.While marijuana plants contain high levels of THC, hemp contains very little of the psychoactive chemical. The foregoing is one of the differences which distinguishes hemp from marijuana. 

 


Hemp was originally cultivated nearly 10,000 years ago in what is modern day Taiwan. Ancient cultivators of the cannabis plant recognized that it was dioecious, meaning that it had dual characteristics. Cultivators grew one variety of the cannabis plant to be tall and durable. This became what we now call industrial hemp. Upon discovering that the flower buds of the cannabis plant had psychoactive effects, cultivators began separating the hemp plants from the flowering plants in order to isolate their “medicinal” characteristics.

 

Scientifically, we now know that industrial hemp plants tend to produce high levels of the cannabinoid CBD, while producing low amounts of THC. Conversely, the marijuana plant produces high THC levels and low CBD levels. This chemical difference dictates the way we use the cannabis plant for medicinal and dietary supplemental purposes.

 

Federal Legislative Overview

 

Cannabidiol, or CBD, that is derived from industrial hemp plants — like the CBD used in all products currently being produced or to be produced by Bespoke Extracts — is deemed by the FDA to be a dietary supplement, not a medication. Consequently, in the U.S., no prescription is required to obtain CBD and it can be legally purchased and consumed in all 50 states (and in 40 countries around the world).

 

However, inIn December 2016, the Department of U.S. Drug Enforcement Administration (“DEA”) implemented a new rule that declared CBD as a Schedule I drug, meaning it has “no currently accepted medical use in the United States, a lack of accepted safety for use under medical supervision and a high potential for abuse.” While numerous industry insiders have expressed concerns about the DEA’s new ruling, it is widely believed that the agency would struggle to make CBD illegal under current laws, thanks to multiple protections put in place by Congress as part of the 2014 Farm Bill. Moreover, subsequent additions to the 2015 and 2016 Congressional Appropriations Act prohibit the DEA from going after the products produced under these programs. Moreover, the most recent version of the legislation to legalize growing hemp was introduced in April 2018 with Senate Majority Speaker Mitch McConnell as the primary sponsor, which quickly evolved into the Senate’s Agriculture Improvement Act of 2018 (2018 Farm Bill). On December 3, 2018, House and Senate leaders announced that they had come to an agreement on the reconciled versionpassing of the 2018 Farm Bill, which – for the first time ever – includes a provision to lift the federal government’s longstanding ban on the commercial production of industrial hemp. It also amends the Federal Controlled Substance Act of 1970 so that industrial hemp containing no more than 0.3% THC is no longer classifiednow recognized as a Schedule I prohibited substance. The vote to approvean agricultural commodity, such as corn, wheat or soybeans. Historically, hemp was an underpinning of American agriculture from the 2018 Farm Bill17th century through the early 1900’s. This recent change in modern policy is expected to occur priorrestore the legacy of American hemp production as a prolific and highly sustainable crop staple.

Research published in 2019 by consumer data firm MRI-Simmons estimated that 3.7 million U.S. adults were CBD consumers, and roughly 64 million Americans – or 26% of the nation – have reported trying CBD in the last two years. (Source:https://www.marketwatch.com/story/64-million-americans-have-tried-cbd-and-now-the-fda-says-it-could-cause-liver-damage-2019-11-27.) Due to this escalating demand from consumers for CBD as a natural remedy for a myriad of health conditions affecting adults, children and pets, CBD has grown into a multi-billion dollar industry over a few short years; growing from a $550,000 market in 2014 to $7.1 billion in 2019 and is further expected to climb to $9.3 billion by the end of this year.2020. (Source: Grand View Research, https://www.grandviewresearch.com/industry-analysis/cannabidiol-cbd-market.))

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Competitive Overview

 

Given the rapid growth of the U.S. CBD oil industry, hundreds of companies have entered the market. Consequently, the market is becoming highly competitive and we believe to compete in the market requires ensuring the quality and integrity of product offerings. Certain of our competitors have substantially greater financial, distribution, and marketing resources, as well as greater brand awareness than us, and there can be no assurance we will be able to successfully compete. 

  

Our Headquarters

 

Our corporate headquarters is located at 323 Sunny Isles Boulevard, Suite 700, Sunny Isles Beach, Florida 33160. Our Internet website is www.BespokeExracts.com. The contents of the website are not part of this report.

 

Employees

 

As of the date of the filing of this report, we have 1 employee, who is full-time.one full-time employee.


Item 1A. Risk Factors.Factors

 

An investment in the Company’s common stock involves a high degree of risk. In determining whether to purchase the Company’s common stock, an investor should carefully consider all of the material risks described below, together with the other information contained in this report before making a decision to purchase the Company’s securities. An investor should only consider purchasing the Company’s securities if he or she can afford to suffer the loss of his or her entire investment.

 

Risk Related to our Business.Business

 

We have a history of operating losses, have a working capital deficit as of November 30, 2020, and we may not achieve or maintain profitability in the future.

 

As of August 31, 2020, we have an accumulated deficit of $18,776,689 a stockholders’ deficit of $513,665, and a working capital deficit of $547,406. We incurred a net loss of $7,609,558$4,640,806 for the year ended August 31, 2018. As of August 31, 2018, we have an accumulated deficit of $16,716,644 and a stockholders’ deficit of $427,540.2020. We may never achieve profitability or generate significant revenues.

 

We will need to raise additional capital, which may not be available.

 

We anticipate that we will need to raise additional capital to execute our business plan and maintain and expand our operations. Additional capital may not be available to us on acceptable terms, or at all. If we are unable to raise additional capital, our business may be harmed and we may need to curtail or cease operations.

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We have a limited operating history that impedes our ability to evaluate our potential future performance and strategy.

 

We began sales of our products in mid-2018. Our limited operating history makes it difficult for us to evaluate our future business prospects and make decisions based on estimates of our future performance. To address these risks and uncertainties, we must do the following:

 

Successfully execute our business strategy to establish the “Bespoke Extracts” brand and reputation as a well-managed enterprise committed to delivering premium quality and cost-effective CBD products to the nutraceutical and veterinary markets;products;

Respond to competitive developments;

Execute value-focused pricing strategies that position our tinctures and gelcaps as premium, great tasting, all-natural CBD products offered at a competitive price;

Effectively and efficiently market and sell our introductory line of CBD products through the development of multi-channel distribution strategies focused on direct-to-consumerstrategies; and distribution through wholesale venues including specialty retailers, pharmacies, dispensaries and physician’s and veterinarian offices;

Attract, integrate, retain and motivate qualified personnel.

 

Our business strategy may not be successful and we may not successfully address these risks. In the event that we do not successfully address these risks, our business, prospects, financial condition and results of operations may be materially and adversely affected.

 


Our operating results may fluctuate significantly based on customer acceptance of our products. As a result our period-to-period comparisons of our results of operations are unlikely to provide a good indication of our future performance.

 

Management expects that we will experience substantial variations in our net sales and operating results from quarter to quarter due to customer acceptance of our products. If customers do not accept our products, our sales and revenue will either fail to materialize or decline, resulting in a reduction in our operating income or possible increase in losses.

 

If we do not successfully develop and commercialize additional products, and services, or if such products and services are developed but not successfully commercialized, we could lose revenue opportunities.

 

Our future success will depend, in part, on our ability to expand our product offerings. To that end we have engaged in the process of identifying new product opportunities to provide additional products and related services to our customers.opportunities. The processes of identifying and commercializing new products is complex and uncertain, and if we fail to accurately predict customers’ changing needs and preferences, our business could be harmed. We have already and may have to continue to commit significant resources to commercializing new products before knowing whether our investments will result in products the market will accept. Furthermore, we may not execute successfully on commercializing those products because of errors in product planning or timing, technical hurdles that we fail to overcome in a timely fashion, or a lack of appropriate resources. This could result in competitors providing those solutions before we do and a reduction in net sales and earnings.  

 

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The success of new products will depend on several factors, including proper new product definition, timely completion, and introduction of these products, differentiation of new products from those of our competitors, and market acceptance of these products. There can be no assurance that we will successfully identify additional new product opportunities, develop and bring new products to market in a timely manner, or achieve market acceptance of our products or that products and technologies developed by others will not render our products or technologies obsolete or noncompetitive.

 

We may have difficulties managing our Company’s growth, which could lead to higher operating losses, or we may not grow at all.

 

If we succeed in growing our business, such growth could strain our human and capital resources, potentially leading to higher operating losses. Our ability to manage operations and control growth will be dependent upon our ability to raise and spend capital to successfully attract, train, motivate, retain and manage new employees and continue to update and improve our management and operational systems, infrastructure and other resources, financial and management controls, and reporting systems and procedures. Should we be unsuccessful in accomplishing any of these essential aspects of our growth in an efficient and timely manner, then management may receive inadequate information necessary to manage our operations, possibly causing additional expenditures and inefficient use of existing human and capital resources or we otherwise may be forced to grow at a slower pace that could slow or eliminate our ability to achieve and sustain profitability. Such slower than expected growth may require us to restrict or cease our operations and go out of business.

 

Loss of our chief executive officer could limit our growth and negatively impact our operations.

 

We depend upon our president and chief executive officer, Niquana Noel,Danil Pollack, to a substantial extent. The loss of Ms. NoelMr. Pollack could have a material adverse effect on our business, results of operations or financial condition.

 

We will be required to attract and retain top quality talent to compete in the marketplace.

 

We believe our future growth and success will depend in part on our ability to attract and retain highly skilled managerial, product development, sales and marketing, and finance personnel. We may not succeed in attracting and retaining such personnel. Shortages in qualified personnel could limit our ability to increase sales of existing products and services and launch new product and service offerings.

7

 

Our inability to effectively protect our intellectual property would adversely affect our ability to compete effectively, our revenue, our financial condition, and our results of operations.

 

We may be unable to obtain intellectual property rights to effectively protect our branding, products, and other intangible assets. Our ability to compete effectively may be affected by the nature and breadth of our intellectual property rights. While we intend to defend against any threats to our intellectual property rights, there can be no assurance that any such actions will adequately protect our interests. If we are unable to secure intellectual property rights to effectively protect our branding, products, and other intangible assets, our revenue and earnings, financial condition, or results of operations could be adversely affected.

  

Our industry is highly competitive, and we have less capital and resources than many of our competitors, which may give them an advantage in developing and marketing products similar to ours or make our products obsolete.

 

We are involved in a highly competitive industry where we compete with various other nutraceutical companies which offer products similar to the products we sell. These competitors may have far greater resources than we do, giving our competitors an advantage in developing and marketing products similar to ours or products that make our products obsolete. While we believe we are better equipped to customize products for the cannabis market and advise growers on appropriate products to maximize crop yield as compared to traditional nutraceuticals, there can be no assurance that we will be able to successfully compete against these other manufacturers.

 

7

U.S. federal, state and foreign regulation and enforcement may adversely affect the implementation of marijuana laws and regulations andThe COVID-19 pandemic may negatively impactaffect our revenue and profit or we may be violating the Controlled Substances Act or other U.S. federal, state or foreign laws.business.

Currently, 32 statesThe COVID-19 pandemic is having widespread, rapidly evolving, and the Districtunpredictable impacts on global society, economies, financial markets, and business practices. The continuing impacts of Columbia permit some form of whole-plant cannabis use and cultivation either for medical or recreational use. During the midterm elections in November 2018, two more states voted to legalize medical marijuana use (Missouri and Utah) while one more voted to legalize recreational use (Michigan). Forty-seven states allow orCOVID-19 are considering legislation to allow the possession and use of non-psychoactive CBD oil for some medical conditions only. There are efforts in many other states to begin permitting cannabis use and/or cultivation in various contexts, and it has been reported that eleven states are actively considering bills to permit recreational use or to decriminalize the use of marijuana. Nevertheless, the federal government continues to prohibit cannabis in all its forms as well as its derivatives. Under the federal Controlled Substances Act (the “CSA”), the policy and regulations of the federal government and its agencies is that cannabis has no medical benefit, and a range of activities including cultivation and use of cannabis is prohibited. Until Congress amends the CSA or the executive branch deschedules or reschedules cannabis under it, there is a risk that federal authorities may enforce current federal law. Enforcement of the CSA by federal authorities could impair the Company’s business;highly unpredictable and could even force the Company to cease operating entirelybe significant, and may have an adverse effect on our business, operations and our future financial performance, including by causing delays and constraints in the cannabis industry. The riskmanufacturing and shipping of strict federal enforcement of the CSA in light of congressional activity, judicial holdings, and stated federal policy, including enforcement priorities, remains uncertain.our products.

Risks Related to our Common Stock

 

There is a limited trading market for our common stock, and investors may find it difficult to buy and sell our shares.

 

Our common stock is not listed on any national securities exchange. Accordingly, investors may find it more difficult to buy and sell our shares than if our common stock was traded on an exchange. Although our common stock is quoted on the OTCQB,OTC Pink, it is an unorganized, inter-dealer, over-the-counter market which provides significantly less liquidity than the Nasdaq Capital Market or other national securities exchange. Further, prior to July 2018 there was minimal reported trading in our common stock, and any significant trading volume in our common stock may not be sustained. These factors may have an adverse impact on the trading and price of our common stock.

 

Our issuance of common stock upon conversion of outstanding convertible debentures may depress the price of our common stock.

We have outstanding convertible debentures in the aggregate outstanding principal amount of $500,000, which are convertible into common stock at a conversion price of $0.001 per share, or a conversion price of $0.0004 following an event of default on the debentures. Our issuance of shares of common stock upon conversion of outstanding convertible debentures could result in substantial dilution to our stockholders, which may have a negative effect on the price of our common stock.

8

The market price of our common stock is, and is likely to continue to be, highly volatile and subject to wide fluctuations.

 

The market price of our common stock is highly volatile and could be subject to wide fluctuations in response to a number of factors that are beyond our control, including:

 

variations in our quarterly operating results;

 

announcements that our revenue or income are below analysts’ expectations;

 

general economic slowdowns;

 

8

sales of large blocks of our common stock; and

 

announcements by us or our competitors of significant contracts, acquisitions, strategic partnerships, joint ventures or capital commitments.

  

Our common stock is considered a “penny stock” and is subject to additional sale and trading regulations that may make it more difficult to buy or sell.

 

Our common stock is considered a “penny stock” and securities broker-dealers participating in sales of our common stock are subject to the “penny stock” regulations set forth in Rules 15g-2 through 15g-9 promulgated under the Exchange Act. Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our stock.

 

We do not intend to pay dividends on our common stock for the foreseeable future.

 

We have paid no dividends on our common stock to date and we do not anticipate paying any dividends to holders of our common stock in the foreseeable future. While our future dividend policy will be based on the operating results and capital needs of the business, we currently anticipate that we will retain any earnings to finance our future expansion and for the implementation of our business plan. A lack of a dividend can further affect the market value of our common stock and could significantly affect the value of any investment in the Company.

    

Our chief executive officer owns the majority of the voting power of our shareholders.

As the holder of our outstanding share of Series C Preferred Stock, our chief executive officer, Danil Pollack, has 51% of the voting power of the Company’s shareholders.  As a result, Ms. Pollack has the ability to control all matters submitted to shareholders, and his interests may differ from those of other shareholders.

Additional stock offerings in the future may dilute then-existing shareholders’ percentage ownership of the Company.

 

Given our plans and expectations that we will need additional capital and personnel, we mayanticipate that will need to issue additional shares of common stock or securities convertible or exercisable for shares of common stock, which may include including convertible notes, preferred stock, stock options or warrants. The issuance of additional securities in the future will dilute the percentage ownership of then-current stockholders.

 


The rights of the holders of common stock may be impaired by the potential issuance of preferred stock.

Our board of directors has the right, without stockholder approval, to issue preferred stock with voting, dividend, conversion, liquidation or other rights which could adversely affect the voting power and equity interest of the holders of common stock, which could be issued with the right to more than one vote per share, and could be utilized as a method of discouraging, delaying or preventing a change of control. The possible negative impact on takeover attempts could adversely affect the price of our common stock.

Failure to achieve and maintain internal controls in accordance with Sections 302 and 404 of the Sarbanes-Oxley Act of 2002 could have a material adverse effect on our business and stock price.

 

Our management has determined that we do not have not effective disclosure controls and procedures, or internal control over financial reporting as of August 31, 2018.2020. Effective internal controls are necessary for us to produce reliable financial reports and are important in the prevention of financial fraud. If we cannot produce reliable financial reports or prevent fraud, our business and operating results could be harmed, investors could lose confidence in our reported financial information, and there could be a material adverse effect on our stock price.

 

Item 1B. Unresolved Staff Comments.

 

Not required for a smaller reporting company.

 

Item 2. Properties.

 

We maintain our principal office at 323 Sunny Isles Boulevard, Suite 700, Sunny Isles Beach, Florida 33160 square feet of office space.Florida. Our monthly rent is $116 under a lease that terminates in June 2019.2021. We believe that our existing facilities are suitable and adequate to meet our current business requirements.

 

Item 3. Legal Proceedings.

 

We are not party to, and our property is not the subject of, any material legal proceedings.

 

Item 4. Mine Safety Disclosures.

 

Not applicable.

 

9

10

 

   

PART II

 

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. 

 

Our common stock quoted on the OTCQBOTC Pink under the symbol “BSPK.”. Any over-the-counter market quotations for our common stock on the OTC Pink reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.

  

Holders

 

As of December 12, 2018,16, 2020, there were approximately 353 holders of record of our common stock, which excludes those stockholders holding stock in street name.

 

Dividend Policy

 

We have not declared or paid cash dividends on our common stock in the past, and we do not anticipate that we will pay cash dividends our common stock in the foreseeable future. We currently intend to retain and reinvest future earnings, if any, to finance our operations.

 

Repurchases of Equity Securities.Securities

 

None. 

Securities authorized for issuance under equity compensation plans

None.

Recent Sales of Equity Securities

On August 5, 2020, the Company issued 20,000,000 shares of common stock to Danil Pollack, the Company’s chief executive officer, upon exercise of Mr. Pollack’s right to purchase shares granted under Mr. Pollack’s employment agreement, at an exercise price of $0.001 per share.

On August 12, 2020, the Company issued 21,000,000 shares of common stock to Danil Pollack, upon exercise of Mr. Pollack’s right to purchase shares granted under Mr. Pollack’s employment agreement, at an exercise price of $0.001 per share. In connection with the foregoing, the Company relied upon 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 6. Selected Financial Data.

 

Not required for smaller reporting companies.

 

10

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

The following discussion highlights the principal factors that have affected our financial condition and results of operations as well as our liquidity and capital resources for the periods described. This discussion should be read in conjunction with our Consolidated Financial Statements and the related notes included in Item 8 of this Form 10-K. This discussion contains forward-looking statements. Please see the explanatory note concerning “Forward-Looking Statements” in Part I of this Annual Report on Form 10-K and Item 1A. Risk Factors for a discussion of the uncertainties, risks and assumptions associated with these forward-looking statements. The operating results for the periods presented were not significantly affected by inflation.

 

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 introducingsells a proprietary line of specially-formulated, premium quality, all natural cannabidiol (CBD)hemp-derived CBD products direct to consumers through our ecommerce store, found at www.bespokeextracts.com. Bespoke Extracts’ original line of CBD products were introduced to market in 2018; however, in the fall of 2020, we unveiled a new brand image, new website and ecommerce store and a new line-up of seven new hemp-derived CBD formulations available for purchase 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 alsosoftgels.

We plan to methodically expand our products through select specialty retailers, pharmacies/dispensariesproduct offerings to include new flavors, including manuka honey; and care providers.introduce additional form factors for our CBD formulations, including, lotions and balms, depending on customer feedback and evolving consumer demand.

 

RESULTS OF OPERATIONS FOR THE YEAR ENDED AUGUSTResults of Operations for the years ended August 31, 2018 AND AUGUST2020 and August 31, 2017.2019

Sales

 

Sales during the year ended August 31, 20182020 were $15,919$8,054 compared to $0$62,103 for the year ended August 31, 2017. During2019. The reduction in sales was primarily a result of decreased marketing of the year ended August 31, 2018 the Company began selling and shipping its CBDCompany’s products.

 

Selling, General and AdministrativeOperating Expenses

 

Selling, general and administrative expenses for the years ended August 31, 20182020 and 2019 were $3,647,610 and $(3,510,759), respectively. Option and warrant expense for the years ended August 31, 2020 and August 31, 2017 totaled $6,769,7232019 was $3,467,440 and $6,332,332, respectively. Stock based compensation$(1,403,625), respectively which iswas primarily compriseddue to the fair value re-measurement of warrants and options, and the expense for warrants issuedissuance of options to our former Presidentsnew President and Chief Executive Officers,CEO. Stock-based compensation for the year ended August 31, 2020 and August 31, 2019 was included$40,500 and $181,950, respectively which was a result of common stock issued for services. The Company recorded a gain of $(2,440,768) which was a result of a reduction in selling, generalexpense from forfeited common shares during the year ended August 31, 2019. Professional fees were $185,603 and administrative, and totaled $6,508,991 and $6,285,695,$200,720, respectively for the years ended August 31, 2082020 and 2017. PayrollAugust 31, 2019. The decrease in expenses was due to reduced legal and accounting fees as the Company streamlined operations. Consulting expense amounted to $24,389was $184,062 and $91,986$283,150 respectively for the years ended August 31, 2082020 and 2017.August 31, 2019, respectively. The reduction in expensedecrease was primarily due to a reduction in full time employees. Consulting amounted to $185,523final payment of fees for branding and $105,750 respectivelymarketing services performed by consultants during the year ended August 31, 2020 which were expensed throughout the year ended August 31, 2019. Amortization expense and impairment of domain names for the years ended August 31, 2082020 and 2017.August 31, 2019 was $2,797 and $3,345, respectively which was a result of amortization of domain names.

Financing Common Share 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 would be equal to $50,000 divided by the lower financing price. During the year ended August 31, 2019, the Company was obligated to issue 500,000 shares of common stock valued at $76,000, and recorded the amount as financing common share expense as compared to none in the comparable period in 2020.


Loss on settlement of debt

On December 24, 2019, the Company entered into an agreement (the “Repayment Agreement”) with the holder of the amended and restated original issue discount convertible debenture issued by the Company on November 11, 2019, in the original principal amount of $200,000 (the “November 2019 Debenture”). Pursuant to the Repayment Agreement, the Company paid the holder $120,000, and transferred certain URLs valued at $5,282 to the holder, and the November 2019 Debenture was deemed paid in full. The increaseamortization of debt discount of $35,687 was primarily due to branding and marketing performed by consultants hiredrecorded during the year ended August 31, 2018. Amortization expense for2020. The Company recognized a loss on settlement of debt of $89,595 during the yearsyear ended August 31, 2018 and 2017 was $3,346 and $1,739 respectively. Amortization expense is in relation to a URL purchase and the prior year’s amortization is the expensing of intellectual property.2020.

 

Interest Expense and Amortization of Debt Discount

 

Interest expense and amortization of debt discount on promissory notes for the years ended August 31, 2082020 and 2017,August 31, 2019 was $419,000$535,688 and $63,311,$357,473, respectively. The increase of interest expense was due to the issuance of additional notes during the year ended August 31, 2018 and the amortization expense for the warrants and beneficial conversion associated with those notes.notes issued during the year ended August 31, 2020.

 

Net LossIncome / (Loss)

 

For the reasons stated above, our net loss for the year ended August 31, 2018 totaled $7,609,5582020 was ($4,640,806), or $(0.21)($0.04) per share, an increase of $930,061 compared to a net lossincome for the year ended August 31, 20172019 of $6,679,497$2,580,761, or ($0.48)$0.04 per share.

 

11

LIQUIDITY AND CAPITAL RESOURCESLiquidity and Capital Resources

 

As of August 31, 2018,2020, we had cash and cash equivalents of $79,784.$126,603. Net cash used in operating activities for the year ended August 31, 20182020 was $747,688.$465,240. Our current liabilities as of August 31, 2018 totaled $566,174 consisting2020 were $679,913 and consisted of accounts payable and accrued liabilities of $105,424,$59,913, notes payable related party $120,000 and a convertible note payables-net, unamortizedpayable of $500,000. As of August 31, 2019, we had cash and cash equivalents of $10,343. Net cash used in operating activities for the year ended August 31, 2019 was $492,691.

During the year ended August 31, 2020, the Company raised $125,250 from the sale of common stock compared to $421,250 for the year ended August 31, 2019. During the year ended August 31, 2020, the Company received a total of $400,000, net of original issue discounts from sale of $460,700.a convertible note and repaid $120,000 as compared to none during the year ending August 31, 2019. During the year ended August 31, 2020, the Company repurchased $27,500 of common stock. During the year ended August 31, 2020 the Company received $84,000 from the exercise of options compared to $2,000 from the exercise of options for the year ended August 31, 2019.

 

The accompanying financial statements included in this report have been prepared assuming a continuation of the Company as a going concern. The Company reported a net loss of $7,609,558had negative cash flows from operations for the year ended August 31, 20182020 and had an accumulateda working capital deficit of $16,716,644 as ofat August 31, 2018. These conditions raise significant2020. This raises substantial doubt about our ability to continue as a going concern.

 

We have not generated positive cash flows from operating activities. TheOur 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.

In addition, the COVID-19 pandemic may negatively affect our operations, including by limiting access to our facilities, customers, management, and professional advisors, and by causing delays and constraints in manufacturing and shipping of our products. These factors, in turn, may negatively impact our operations, financial condition and demand for our products, and our ability to raise capital on acceptable terms, or at all.

  

OFF-BALANCE SHEET ARRANGEMENTSOff-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 financial statements appearing elsewhere in this report.   

 

Item 7A. Quantitative and Qualitative DisclosureDisclosures About Market Risk.

 

Not required for a smaller reporting company.

companies.

12


Item 8. Financial Statements and Supplementary Data.Statements.

 

CONTENTSPAGE NO.
Report of Independent Registered Public Accounting FirmF-2
Consolidated Balance SheetsF-3
Consolidated Statements of OperationsF-4
Consolidated Statement of Owners EquityF-5
Consolidated Statements of Cash FlowsF-6
Notes to Consolidated Financial StatementsF-7 - F-19


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Shareholders and Board of Directors ofand Stockholders’ of:

Bespoke Extracts, Inc.

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of Bespoke Extracts, Inc. and its subsidiary (collectively, the(the “Company”) as of August 31, 20182020 and 2017, and2019, the related consolidated statements of operations, changes in stockholders’ deficit and cash flows for each of the two years thenin the period ended August 31, 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of August 31, 20182020 and 2017,2019, and the results of theirits operations and theirits cash flows for the years then ended August 31, 2020 and 2019, in conformity with accounting principles generally accepted in the United States of America.

 

Explanatory Paragraph – Going Concern Matter

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, theThe Company has suffered recurring lossesnegative cash flows from operations, a working capital deficit and has a net capital deficiency that raisesan accumulated deficit. These factors raise substantial doubt about itsthe Company's ability to continue as a going concern. Management'sManagement’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB"(“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal controlcontrols over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

/s/ MaloneBailey, LLPLiggett & Webb, P.A.

LIGGETT & WEBB, P.A.

Certified Public Accountants

www.malonebailey.com

We have served as the Company'sCompany’s auditor since 2016.

Houston, Texas2019.

 

Boynton Beach, Florida

December 14, 201818, 2020

 

F-2


Bespoke Extracts, Inc.

Consolidated Balance Sheets

 

  August 31,  August 31, 
  2018  2017 
Assets      
Current assets      
Cash $79,784  $87,172 
Accounts receivable  2,004   - 
Prepaid expense  30,976   19,952 
Inventory  61,857   - 
Total current assets  174,621   107,124 
         
Domain names, net of amortization of $5,019 and $1,673  45,166   48,512 
Total assets $219,787  $155,636 
         
Liabilities and Stockholders’ Deficit        
Current liabilities        
Accounts payable and accrued liabilities $105,424  $36,525 
Deposit for future assets sales from related party  -   45,000 
Convertible notes - related parties, net unamortized discounts $199,300 and $5,019, respectively  460,700   123,000 
Note payable - related party  50   30,050 
Total current liabilities  566,174   234,575 
         
Non-current liabilities        
Related party convertible note payable, net of unamortized discounts $98,847 and $346,837  81,153   193,163 
Total non-current liabilities  81,153   193,163 
Total liabilities  647,327   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 August 31, 2018 and August 31, 2017, respectively  -   - 
Common stock, $0.001 par value: 800,000,000 authorized;42,902,712 and 26,822,712 shares issued and outstanding as of August 31, 2018 and August 31, 2017, respectively  42,903   26,823 
Additional paid-in capital  16,246,201   8,808,161 
Accumulated deficit  (16,716,644)  (9,107,086)
Total stockholders’ deficit  (427,540)  (272,102)
Total liabilities and stockholders’ deficit $219,787  $155,636 
  August 31,  August 31, 
  2020  2019 
       
Assets      
Current assets      
Cash $126,603  $10,343 
Accounts receivable, net  3,585   6,452 
Prepaid expense  2,319   17,637 
Inventory, net  -   3,171 
Total current assets  132,507   37,603 
         
Domain names, net of amortization of $10,872 and $8,364, respectively  33,741   41,821 
Total assets $166,248  $79,424 
         
Liabilities and Stockholders' Deficit        
Current liabilities        
Accounts payable and accrued liabilities $59,913  $111,056 
Note payable - related party  120,000   - 
Convertible notes  500,000   - 
Total current liabilities  679,913   111,056 
         
Commitments and contingencies (Note 7)        
         
Stockholders' Deficit        
Preferred stock, par value $0.001, 50,000,000 shares authorized, 1 share issued and outstanding as of August 31, 2020 and August 31, 2019, respectively        
Series A Convertible Preferred Stock, $0.001 par value, 1,000 designated shares; no shares issued and outstanding as of August 31, 2020 and August 31, 2019, respectively  -   - 
Series C Preferred Stock, $0.001 par value, 1 share designated; 1 share issued and outstanding as of August 31, 2020 and 0 shares issued and outstanding as of August 31, 2019, respectively, stated value $24,000.  -   - 
Common stock, $0.001 par value: 3,000,000,000 authorized; 194,388,426 and 78,155,093 shares issued and outstanding as of August 31, 2020 and August 31, 2019, respectively  194,389   78,156 
Additional paid-in capital  17,992,635   13,950,095 
Common stock payable (500,000 shares to be issued)  76,000   76,000 
Accumulated deficit  (18,776,689)  (14,135,883)
Total stockholders' deficit  (513,665)  (31,632)
         
Total liabilities and stockholders' deficit $166,248  $79,424 

 

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


Bespoke Extracts, Inc.

Consolidated Statements of Operations

 

  For the year ended 
  August 31,  August 31, 
  2018  2017 
       
Sales $11,944  $- 
Sales - related party  3,975   - 
Total Sales  15,919   - 
         
Cost of products sold  (22,925)  - 
Gross Profit  (7,006)  - 
         
Operating expenses:        
Selling, general and administrative expenses  6,769,723   6,332,332 
Payroll expense  24,389   91,986 
Professional fees  132,342   65,631 
Consulting  185,523   105,750 
Promotion  68,229   - 
Brand development  -   10,000 
Formula development  -   7,500 
Impairment of intellectual property  -   1,248 
Amortization expense  3,346   1,739 
Total operating expenses  7,183,552   6,616,186 
         
Loss from operations  (7,190,558)  (6,616,186)
         
Other expense        
Interest expense  (419,000)  (63,311)
Total other expense  (419,000)  (63,311)
         
Loss before income tax  (7,609,558)  (6,679,497)
Provision for income tax  -   - 
Net Loss $(7,609,558) $(6,679,497)
         
Net loss per common share: basic and diluted $(0.21) $(0.48)
         
Weighted average common shares outstanding basic and diluted  35,408,438   13,814,767 
  For the year ended 
  August 31,  August 31, 
  2020  2019 
       
Sales $8,054  $62,103 
Cost of products sold  3,505   71,413 
Gross Profit / (Loss)  4,549   (9,310)
         
Operating expenses:        
Selling, general and administrative expenses  3,647,610   (3,510,759)
Professional fees  185,603   200,720 
Consulting  184,062   283,150 
Amortization expense and impairment of domain name  2,797   3,345 
Total operating expenses  4,020,072   (3,023,544)
         
(Loss) / Income from operations  (4,015,523)  3,014,234 
         
Other expense        
Financing common share expense  -   (76,000)
Loss on settlement of debt  (89,595)  - 
Interest expense and amortization of debt discount  (535,688)  (357,473)
Total other expense  (625,283)  (433,473)
         
(Loss) / Income before income tax  (4,640,806)  2,580,761 
Provision for income tax  -   - 
Net (Loss) / Income $(4,640,806) $2,580,761 
         
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING        
Basic and Diluted  118,851,176   60,588,674 
         
NET (LOSS) / INCOME PER COMMON SHARE OUTSTANDING        
Basic and Diluted $(0.04) $0.04 

 

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

F-4


 

Bespoke Extracts, Inc.

Consolidated StatementStatements of Owners Equity (Deficit)Cash Flows

 

  Preferred  Preferred  Common  Common     Common       
  Shares  Par  Shares  Par     Stock  Accumulated    
  Outstanding  Amount  Outstanding  Amount  APIC  Payable  Deficit  Total 
August 31, 2016  -  $-   2,922,712  $2,923  $2,310,876  $-  $(2,427,589) $(113,790)
   -   -                         
Stock issued with related party debt      -   2,700,000   2,700   154,809   -   -   157,509 
   -                             
Stock issued for asset purchase      -   200,000   200   29,800   -   -   30,000 
   -                             
Issuance of warrants and options for compensation  -   -   -   -   6,285,695   -   -   6,285,695 
                                 
Exercise of options and warrants      -   41,000,000   41,000   (36,000)  -   -   5,000 
   -                             
Warrants issued with related party debt      -   -   -   44,981   -   -   44,981 
   -                             
Forfeiture of stock issued through warrant exercise      -   (20,000,000)  (20,000)  18,000   -   -   (2,000)
   -                             
Net loss  -   -   -   -   -   -   (6,679,497)  (6,679,497)
August 31, 2017  -   -   26,822,712   26,823   8,808,161   -   (9,107,086)  (272,102)
                                 
Sale of common stock  -   -   4,900,000   4,900   455,400   -   -   460,300 
                                 
Conversion of debt to common stock  -   -   10,050,000   10,050   70,350   -   -   80,400 
                                 
Common stock issued with debt  -   -   1,100,000   1,100   78,349   -   -   79,449 
                                 
Warrants issued with related party debt  -   -   -       21,980   -   -   21,980 
                                 
Beneficial conversion feature on convertible debt  -   -   -   -   123,000   -   -   123,000 
                                 
Stock based compensation  -   -   30,000   30   6,508,961   -   -   6,508,991 
                                 
Sale of assets to related parties  -   -   -   -   180,000   -   -   180,000 
                                 
Net loss  -   -   -   -   -   -   (7,609,558)  (7,609,558)
August 31, 2018  -  ��-   42,902,712   42,903   16,246,201   -   (16,716,644)  (427,540)
  For the year ended 
  August 31,  August 31, 
  2020  2019 
Cash flows from operating activities      
Net (Loss) / Income $(4,640,806) $2,580,761 
Adjustments to reconcile net (loss) / income to net cash used in operating activities        
Amortization and impairment expense of domain names  2,797   3,345 
Inventory reserve  -   52,332 
Amortization of debt discounts  535,688   298,147 
Bad debt expense  2,981   3,304 
Loss on settlement of debt  89,595   - 
Forfeited unvested employee stock award (net of cash paid of $1,600)  -   (2,440,768)
Option and warrant expense  3,467,440   (1,403,625)
Common stock issued for services  40,500   181,950 
Financing common share expense  -   76,000 
Changes in operating assets and liabilities:        
Accounts receivable  (114)  (7,752)
Inventory  3,171   6,354 
Prepaid expense  15,318   13,339 
Accounts payable and accrued liabilities  18,190   143,922 
Net Cash used in operating activities  (465,240)  (492,691)
         
         
Cash flow from financing activities        
Proceeds from payable - related party  120,000   - 
Proceeds from the issuance of convertible debt  400,000   - 
Proceeds from exercise of warrants and options for cash  84,000   2,000 
Repayment of debt  (120,000)  - 
Repurchase of common stock  (27,500)  - 
Sale of common stock  125,000   421,250 
Net cash provided by financing activities  581,500   423,250 
         
Net increase / (decrease) in cash and cash equivalents  116,260   (69,441)
Cash and cash equivalents at beginning of year  10,343   79,784 
Cash and cash equivalents at end of year $126,603  $10,343 
         
Supplemental disclosure of cash flow information        
Cash paid for interest $-  $- 
Cash paid for income taxes $-  $- 
         
Noncash investing and financing activities:        
Beneficial conversion feature $281,300  $- 
Stock issued with convertible debt $118,700  $- 
Stock issued for conversion of debt - related party $-  $978,430 
Preferred stock issued for the conversion of accrued salary $24,000  $- 
Capital contribution of accrued salary - related party $45,333  $- 
Assignment of URL for settlement of debt $5,282  $- 

 

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

F-5

 

Bespoke Extracts, Inc.

Consolidated StatementsStatement of Cash FlowsStockholders’ Deficit

For The Years Ended August 31, 2020 and 2019

 

  For the year ended 
  August 31,  August 31, 
  2018  2017 
Cash flows from operating activities      
Net loss $(7,609,558) $(6,679,497)
Adjustments to reconcile net loss to net cash used in operating activities        
Amortization expense  3,346   1,739 
Amortization of debt discounts  353,119   35,653 
Option expense amortized  -   - 
Stock based compensation  6,508,991   6,285,695 
Impairment of intellectual property  -   1,248 
Changes in operating assets and liabilities        
Accounts receivable  (2,004)  - 
Inventory  (61,857)  - 
Prepaid expense  (11,024)  (19,952)
Accounts payable and accrued liabilities  71,299   (32,901)
Accounts payable - related party  -   (14,069)
Net Cash used in operating activities  (747,688)  (422,084)
         
Cash flows from investing        
Proceeds from sale of assets to related parties  90,000   45,000 
Cash paid for domain names  -   (20,185)
Net cash provided by investing activities  90,000.00   24,815 
         
Cash flow from financing activities        
Payment of note payable - related party  (30,000)  (5,500)
Proceeds from exercise of warrants  -   3,000 
Borrowings on related party convertible debt  220,000   360,000 
Proceeds from note payable - related party  -   127,050 
Sale of common stock and warrants  460,300   - 
Net cash provided by financing activities  650,300   484,550 
         
Net increase / (decrease) in cash and cash equivalents  (7,388)  87,281 
Cash and cash equivalents at beginning of period  87,172   431 
Cash and cash equivalents at end of period $79,784  $87,712 
         
Supplemental disclosure of cash flow information        
Cash paid during period for        
Cash paid for interest $11,626  $- 
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 $80,000  $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   - 
  Series A  Series C                   
  Preferred  Preferred  Preferred  Preferred  Common  Common     Common       
  Shares  Par  Shares  Par  Shares  Par     Stock  Accumulated    
  Outstanding  Amount  Outstanding  Amount  Outstanding  Amount  APIC  Payable  Deficit  Total 
                               
Balance August 31, 2018              -  $            -               -  $        -   42,902,712  $42,903  $16,246,201  $       -  $(16,716,644) $(427,540)
                                         
Sale of common stock  -   -           15,252,381   15,253   405,997   -   -   421,250 
                                         
Forfeiture of stock issued through warrant exercise, net of cash paid  -   -           (16,000,000)  (16,000)  (2,424,768)  -   -   (2,440,768)
                                         
Common stock issued for the exercise of warrants  -   -           20,000,000   20,000   (18,000)  -   -   2,000 
                                         
Common stock issued for services  -   -           2,000,000   2,000   179,950   -   -   181,950 
                                         
Option and warrant expense  -   -           -   -   (1,403,625)  -   -   (1,403,625)
                                         
Conversion of debt and accrued interest to common stock - related party  -   -           14,000,000   14,000   964,340   -   -   978,340 
                                         
Financing common share expense  -   -           -   -   -   76,000   -   76,000 
                                         
Net income for the year ended August 31, 2019  -   -   -   -   -   -   -   -   2,580,761   2,580,761 
                                         
Balance August 31, 2019  -  $-  $-  $-   78,155,093  $78,156  $13,950,095  $76,000  $(14,135,883) $(31,632)

  Series A  Series C                   
  Preferred  Preferred  Preferred  Preferred  Common  Common     Common       
  Shares  Par  Shares  Par  Shares  Par     Stock  Accumulated    
  Outstanding  Amount  Outstanding  Amount  Outstanding  Amount  APIC  Payable  Deficit  Total 
Balance August 31, 2019      -  $     -                     -   78,155,093  $78,156  $13,950,095  $76,000  $(14,135,883) $(31,632)
                                         
Preferred stock issued for the conversion of accrued salary  -   -   1      -   -   24,000   -   -   24,000 
                                         
Sale of common stock  -   -           20,833,333   20,833   104,167   -   -   125,000 
                                         
Exercise of stock options  -   -           84,000,000   84,000   -   -   -   84,000 
                                         
Exchange of preferred stock          1   1   -   -   -   -   -   - 
                                         
Common stock issued for services  -   -           4,500,000   4,500   36,000   -   -   40,500 
                                         
Options and Warrant expense  -   -           -   -   3,467,440   -   -   3,467,440 
                                         
Capital contribution of accrued salary - related party  -   -           -   -   45,333   -   -   45,333 
                                         
Common stock issued with debt  -   -           9,900,000   9,900   108,800   -   -   118,700 
                                         
Repurchase of common stock  -   -           (3,000,000)  (3,000)  (24,500)  -   -   (27,500)
                                         
Beneficial conversion feature  -   -           -   -   281,300   -   -   281,300 
                                         
Net loss for the year ended August 31, 2020  -   -   -   -   -   -   -   -   (4,640,806)  (4,640,806)
Balance August 31, 2020  -  $-   1  $1   194,388,426  $194,389  $17,992,635  $76,000  $(18,776,689) $(513,665)

 

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

F-6

 


 

Bespoke Extracts, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2020 and 2019

NOTE 1 —

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

 

Nature of Business Operations

 

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

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

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

The Company is now focused on marketing and selling aits proprietary line of specially-formulated, premium quality, all naturalhemp-derived CBD products in the forms of tinctures, capsules, drops and edibles for the nutraceutical and veterinary markets, which it introduced in mid-2018. Produced using pure, all natural, zero-THC phytocannabinoid-rich (“PCR”) hemp-derived isolate, the Company markets its products as dietary supplements through its retail ecommerce store found at www.bespokeextracts.com. In the future, the Company also intends to sell its products through wholesale channels.

Principles of Consolidationproducts.

 

The accompanying financial statements present onCompany introduced its original line of CBD products in 2018; however, in the fall of 2020, we unveiled a consolidated basisnew brand image, new website and ecommerce store and a new line-up of seven hemp-derived CBD formulations available for purchase in the accountsform of Bespoke Extracts, Inc. (formerly DiMi Telematics International, Inc.), a Nevada corporation (the “Company”). All significant intercompany accountstinctures and transactions have been eliminated in consolidation.softgels.

 

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

Major Customers

Sales to one customer, who is the spouse of one of the Company’s significant shareholders, amounted to 24% of sales for the year ended August 31, 2018. The loss of business from one or a combination of the Company’s significant customers, or an unexpected deterioration in their financial condition, could adversely affect the Company’s operations.

Going Concern

 

The accompanying financial statements have been prepared assuming a continuation of the Company as a going concern. The Company has reportedhad negative cash flows from operations, a net lossworking capital deficit and an accumulated deficit as of $7,609,558and for the year ended August 31, 2018 and had a working capital deficit of $391,553 as of August 31, 2018. These conditions raise2020. This raises 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 repayrepaying its liabilities arising from normal business operations when they come due. There is no assurance that this series of events will be satisfactorily completed.

Further, if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our common stock. If additional financing is not available or is not available on acceptable terms, we will have to curtail or cease our operations. The accompanying financial statements do not containinclude any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event the Company cannot continue in existence. These financial statements do not include any adjustments that may resultmight arise from the outcome of this uncertainty.

 

F-7

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the accompanying financial statements and accompanying notes. Significant estimates include the assumption used in the valuation of equity-based transactions, valuation of intangible assets, allowance for doubtful accounts and inventory valuation and reserves. Actual results could differ from those estimates. 

 

Cash and Cash Equivalents

 

For purposes of these financial statements, cashCash and cash equivalents includesinclude all highly liquid debt instrumentsinvestments with maturityoriginal maturities of three months or less than three months.at the time of purchase. At August 31, 2020 and August 31, 2019, the Company did not have any cash equivalents.

 

ConcentrationsFair Value of Credit RiskFinancial Instruments

 

Financial instrumentsThe carrying amounts of cash, accounts receivable, prepaid expenses and related items,other assets, accounts payable, accrued liabilities, note payable and convertible note payable approximate their fair values as of August 31, 2020 and August 31, 2019, respectively, because of their short-term natures and the Company’s borrowing rate of interest.


Accounts Receivable

Accounts receivable are recorded at fair value on the date revenue is recognized. The Company provides allowances for doubtful accounts for estimated losses resulting from the inability of its customers to repay their obligation. If the financial condition of the Company’s customers were to deteriorate, resulting in an impairment of their ability to repay, additional allowances may be required. The Company provides for potential uncollectible accounts receivable based on specific customer identification and historical collection experience adjusted for existing market conditions. If market conditions decline, actual collection experience may not meet expectations and may result in decreased cash flows and increased bad debt expense.

The policy for determining past due status is based on the contractual payment terms of each customer, which potentially subjectare generally net 30 or net 60 days. Once collection efforts by the Company to concentrationsand its collection agency are exhausted, the determination for charging off uncollectible receivables is made. At August 31, 2020 and August 31, 2019 the Company has recorded an allowance for doubtful accounts of credit risk, consist primarily of cash$2,981 and cash equivalents. The Company places its cash and temporary cash investments with high credit quality institutions. At times, such investments may be in excess of the FDIC insurance limit

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$0, respectively. Included in the year incurred. Major additions and renewals are capitalized and depreciated over their estimated useful lives being 3 years upaccounts receivable is the merchant holdback receivable balance of $3,585 which will be remitted to 15 years.the Company in the future.

 

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 obsolescenceNet realizable value is defined as sales price less cost of unmarketable inventory based upon assumptions about future demandcompletion, disposition and market conditions.transportation and a normal profit margin. As of August 31, 2018,2020 and August 31, 2019, inventory amounted to $61,857$0 and $3,171, respectively, which consisted of finished goods.

Income Taxes

The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for During the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

The Company records net deferred tax assets to the extentended August 31, 2020 the Company believes these assets will more likely than not be realized. In making such determination,adjusted the Company considers all available positivereserves by $8,424 for products sold. As of August 31, 2020 and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies2019 inventory reserves were $40,252 and recent financial operations. A valuation allowance is established against deferred tax assets that do not meet the criteria for recognition. In the event the Company were to determine that it would be able to realize deferred income tax assets in the future in excess of their net recorded amount, the Company would make an adjustment to the valuation allowance which would reduce the provision for income taxes.$48,676, respectively.

 

The Company follows the accounting guidance which provides that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. Income tax positions must meet a more-likely-than-not recognition threshold at the effective date to be recognized initially and in subsequent periods. Also included is guidance on measurement, recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

Revenue Recognition

 

The Company recognizesWe account the revenue from product salesin accordance with ASC Topic 606. Net revenue is measured based on the amount of consideration that we expect to receive, reduced by discounts and estimates for credits and returns (calculated based upon previous experience and management’s evaluation). Outbound shipping charged to customers distributors and resellers when products that do not require further services or installation byis recognized at the Companytime the related merchandise revenues 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 condensed financial statements.

F-8

Amounts billed to customers in sales transactions related to shipping and handling, represent revenues earned for the goods providedrecognized and are included in net sales. Costs ofrevenues. Inbound and outbound shipping and handlingdelivery costs are included in cost of products sold.revenues. Net revenues exclude sales and other similar taxes collected from customers.

 

Our products are sold through our online and telephonic channels. Revenue is recognized when control of the merchandise is transferred to the customer, which generally occurs upon shipment. Payment is typically due on the date of shipment. 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. The adoption of these standards did not haveoffers a material impact14 day return policy on the Company’s consolidated statements of operations during the year ended August 31, 2018.sales.

 

Stock Based CompensationOption Plans

 

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 ofStock options and warrants issued to both employeesconsultants and non-employees. Stock issuedother non-employees as compensation for compensation is valued usingservices provided to the market priceCompany are accounted for based on the fair value of the stock onservices provided or the dateestimated fair market value of the option or warrant, whichever is more reliably measurable, and in accordance FASB ASC 718, Compensation-Stock Compensation, including related agreement.amendments and interpretations. The related expense is recognized over the period the services are provided. Stock option compensation expense has been recognized as a component of general and administrative expenses in the accompanying financial statements for the years ended August 31, 2020 and August 31, 2019.

 

Net LossIncome / (Loss) per Share

 

Basic lossincome / (loss) per share amounts are computed based on net lossincome / (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,The effect of 3,450,000 warrants and 16,000,000 options is anti-dilutive for the year ended August 31, 2020 as well as 500,000,000 shares issuable upon the conversion of a convertible debt were excluded fromnote. The effect of 3,330,000 warrants and 1,200,000 options is anti-dilutive for the calculationyear ended August 31, 2019.


Change of diluted loss per share during 2018 and 2017 because their inclusion would have been anti-dilutive.Control

 

Management EstimatesOn April 16, 2020, Niquana Noel sold 1 outstanding share of Series C Preferred Stock of the Company to Danil Pollack for $24,000 in a private transaction. The Series C Preferred Stock entitles the holder to 51% of the voting power of the Company’s stockholders, and the stock sale thus resulted in a change in control of the Company.

Recent Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, Leases, which will amend current lease accounting to require lessees to recognize (i) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis, and (ii) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. ASU 2016-02 does not significantly change lease accounting requirements applicable to lessors; however, certain changes were made to align, where necessary, lessor accounting with the lessee accounting model. This standard was effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.

 

The presentationadoption of financial statements in conformity with generally accepted accounting principles requires management to make estimatesASU 2016-02 did not have an impact on our balance sheet, results of operations or balance sheets as we currently do not have any long term corporate office 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.equipment leases.

 

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 years ended August 31, 20182020 and 20172019 amortization expense amounted to $3,346was $2,508 and $1,739,$3,445, respectively. The domain names are being amortized over a 15 year period. During the years ended August 31, 2020 and 2019, the Company recorded an impairment expense of $289 and $0, respectively for expired domain names.

On December 24, 2019, the Company repaid a note holder $120,000, and transferred certain URLs valued at $5,282 to the holder (See note 4.)

 

3. NOTE PAYABLE - RELATED PARTY

 

On April 27, 2016,August 31, 2020, the Company issued our CEO a 7% unsecured promissory note in the principal amount of $2,500$150,000, to Danil Pollack, the Company’s chief executive officer. Upon execution of the note, $120,000 was remitted and the remaining $30,000 was paid on September 22, 2020. The note does not bear interest and matures on November 30, 2020.

4. CONVERTIBLE NOTE PAYABLE

On November 6, 2019, the Company entered into and closed a securities purchase agreement with an accredited investor, pursuant to which, matured six months from the date of issuance. On July 5, 2016, the Company issued our CEO a 7% unsecured noteand sold to the investor an original issue discount convertible debenture (which was amended and restated on November 11, 2019) 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 $200,000, for a purchase price of $100,000, resulting in an original issue discount of $100,000. The Company also issued to the notes, or $5,500.investor 4,900,000 shares of common stock valued at $63,700 ($0.013 per share). As amended, the debenture had a maturity date of August 1, 2020 and was convertible into shares of common stock of the Company at a conversion price of $0.006, provided that, if the Company failed to repay the debenture upon maturity, the conversion price would be reduced to $0.001 (subject to adjustment for stock splits, stock dividends and similar transactions) and the debenture would bear interest at the rate of 9% per year. The Company recorded beneficial conversion of $36,300 due to the conversion feature. The debenture could not be converted to common stock to the extent such conversion would result in the holder beneficially owning more than 4.99% of the Company’s outstanding common stock. The Company’s obligation to repay the debenture upon maturity was secured by a security interest in the Company’s URLs pursuant to a security agreement between the Company and the investor. 

 

F-9

The changes in these notes payable to this related party consistedOn December 24, 2019, the Company entered into an agreement (the “Repayment Agreement”) with the holder of the followingamended and restated original issue discount convertible debenture issued by the Company on November 11, 2019, in the original principal amount of $200,000 (the “November 2019 Debenture”). Pursuant to the Repayment Agreement, the Company paid the holder $120,000, and transferred certain URLs valued at $5,282 to the holder, and the November 2019 Debenture was deemed paid in full. The amortization of debt discount of $35,688 was recorded during the year ended August 31, 2018 and2020. The Company recognized a loss on settlement of debt of $89,595, during the year ended August 31, 2017:2020.

 

  August 31,
2018
  August 31,
2017
 
Notes payable – related party at beginning of period $      50  $5,500 
Payments on notes payable – related party  -   (5,550)
Borrowings on notes payable – related party  -   50 
Note payable – related party at end of period $50  $50 

 

On February 14, 2017,December 24, 2019, the Company entered into and closed a securities purchase agreement with an accredited investor, pursuant to which, the Company issued and sold to Lyle Hauser,the investor an original issue discount convertible debenture in the principal amount of $500,000, for a purchase price of $300,000. The Company also issued to the investor 5,000,000 shares of common stock valued at $55,000 ($.005 per share). The Company recorded beneficial conversion of $245,000 due to the conversion feature. The debenture may not be converted to common stock to the extent such conversion would result in the holder beneficially owning more than 4.99% of 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 tooutstanding common stock. 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 whichdebenture had an original maturity date of six months from the dateApril 30, 2020 and is convertible into shares of issuance. On November 14, 2016,common stock of the Company issued the same shareholderat 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.$0.001, except that, if the Company fails to repay the debenture upon maturity, the conversion price will be reduced to $0.0004 (subject to adjustment for stock splits, stock dividends, and similar transactions) and the debenture will bear interest at the rate of 9% per year. The amendmentsCompany’s obligation to repay the notes createddebenture upon maturity was initially secured by a beneficial conversion feature of $123,000security interest in the Company’s inventory pursuant to a security agreement between the Company and amortization of the discount of $123,000 duringinvestor. For the year ended August 31, 2018. The2020 the Company issued a totalrecorded amortization of 10,050,000 sharesdebt discount of common stock$500,000. On April 23, 2020, the Company entered into an amendment to convert $80,000 principal and$400 of accrued interest into common stockthe security agreement, dated December 24, 2019 between the Company and the remaining $43,000 was exchanged with an additional $2,000 of accrued interest to purchase assetsholder of the Company.

The changes in notes payable to these related parties consisted of the following during the year ended August 31, 2018 and 2017.

  August 31,
2018
  August 31, 2017 
Notes payable – related party at beginning of period $153,000  $26,000 
Payments on notes payable – related party  (30,000)  - 
Conversion  (80,000)  - 
Exchange for purchase of Company assets  (43,000)  - 
Borrowings on notes payable – related party  -   127,000 
Note payables – related party at end of period $-  $153,000 

F-10

4. CONVERTIBLE DEBENTURE – RELATED PARTY

On April 11, 2017, the Company executed a $540,000 related party convertible debenture with anCompany’s original issue discount convertible debenture, dated December 24, 2019. Pursuant to the security agreement amendment, the collateral under the security agreement was amended to be the Company’s URLs. The security agreement amendment was entered into with The Vantage Group Ltd., as the purchaser of $180,000. The note hasthe debenture from the original holder. Vantage is owned by Lyle Hauser, formerly a 0% interest rate and a termsignificant stockholder of two years. If the note is not paid in full on the due date, the note will have a 0% interest rate until paid in full. In connection with the note,Company. On May 28, 2020, the Company issued the lenderentered into 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 discountamendment to the note. Amortization of $162,473 was recognized during the year ended August 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; notdebenture, pursuant to be less than $1.00. In connection with the note the lender is 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 August 31, 2018 the Company has accrued $34,015.

  August 31,
2018
  August 31,
2017
 
Related Party Convertible debenture $540,000  $540,000 
Unamortized discount  (184,364)  (346,837)
Related Party Convertible debenture, net of unamortized discount $355,636  $193,163 

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 $29,652 was recognized during the year ended August 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 ofwhich the maturity date or repayment of the principal. As ofdebenture was extended to August 31, 20182020. On August 21, 2020, the Company has accrued $25,000.

  August 31,
2018
 
Convertible debenture $180,000 
Unamortized discount  (98,847)
Convertible debenture, net of unamortized discount $81,153 

On December 13, 2017,entered into a second amendment to 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 withpursuant to which 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 valuematurity date of the stock and warrants aggregating $32,930debenture was recognized as a discountextended to the note. Amortization of $37,994 was recognized during the year ended August 31, 2018.November 30, 2020. 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 August 31, 2018 the Company has accrued $20,000.was further extended on December 10, 2020. See Note 10.

  August 31,
2018
 
Convertible debenture $120,000 
Unamortized discount  (14,936)
Convertible debenture, net of unamortized discount $105,064 

F-11

 

5. EQUITY

 

Common Stock and Preferred Stock

 

TheAs of August 31, 2020, the Company hashad 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 April 11, 2017,October 2, 2020, the Company issued 2,700,000filed a certificate of amendment to the Company’s articles of incorporation with the Secretary of State of Nevada, pursuant to which the Company increased its authorized shares of common stock from 800,000,000 to 3,000,000,000. 1,000 shares of preferred stock are designated as Series A Convertible Preferred Stock. No shares of Series A Preferred Stock are issued and outstanding as of August 31, 2020 and August 31, 2019, respectively. The Company’s Certificate of Designation of Series B Preferred Stock was withdrawn by the Company on June 30, 2020. 1 share of preferred stock is designated Series C Preferred Stock. 1 share and 0 shares of Series C Preferred Stock are issued and outstanding as of August 31, 2020 and August 31, 2019, respectively. The Series C Preferred Stock has a stated value of $24,000 and entitles the holder to 51% of the total voting power of the Company’s stockholders. The Company may, in its sole discretion, redeem the Series C Preferred Stock at any time for a redemption price equal to the stated value. Upon payment of the redemption price by the Company, the Series C Preferred Stock will revert to the status of authorized but unissued preferred stock.

On October 30, 2018, the Company entered into an employment agreement with Niquana Noel pursuant to which Ms. Noel would 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 was $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 were subject to forfeiture over a service period of four years. See “Warrants” below. 


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 August 31, 2020, the Company was obligated to issue 500,000 shares of common stock valued at $76,000.

On October 3, 2019, the Company entered into a letter agreement with Niquana Noel, the Company’s then-chief executive officer. Pursuant to the agreement, Ms. Noel exchanged $24,000 in accrued but unpaid compensation owed to her by the Company for one share of newly created Series B Preferred Stock of the Company. Ms. Noel subsequently exchanged this one share of Series B Preferred for 1 one share of newly created Series C Preferred Stock. See Note 6.

In connection with the letter agreement, on October 3, 2019, the Company filed a Certificate of Designation of Series B Preferred Stock with the Secretary of State of Nevada. Pursuant to the Certificate of Designation, the Company designated one share of its preferred stock as Series B Preferred Stock.

On October 14, 2019, the Company entered into and closed a securities purchase agreement with an accredited investor pursuant to which the Company issued and sold to the investor 20,833,333 shares of common stock for a purchase price of $125,000.

In November 2019, 3,000,000 shares of common stock were returned to the Company for cancellation and the Company paid $27,500 in connection with a settlement agreement.

On November 6, 2019, the issuance ofCompany entered into and closed a securities purchase agreement with an accredited investor, pursuant to which, the Company issued and sold to the investor an original issue discount convertible note with adebenture (which was amended and restated on November 11, 2019) in the principal amount of $540,000 (see$200,000, for a purchase price of $100,000, resulting in an original issue discount of $100,000. The Company also issued to the investor 4,900,000 shares of common stock valued at $63,700, ($0.013 per share). See Note 4)3.

Effective November 11, 2019, the Company issued 4,500,000 shares of common stock pursuant to a consulting agreement valued at $40,500 ($0.009 per share).

On December 24, 2019, the Company entered into and closed a securities purchase agreement with an accredited investor, pursuant to which, the Company issued and sold to the investor an original issue discount convertible debenture in the principal amount of $500,000, for a purchase price of $300,000. The relative fairCompany also issued to the investor 5,000,000 shares of common stock valued at $55,000 ($0.005 per share).

On March 25, 2020, Company entered into a letter agreement with Niquana Noel, the Company’s then-chief executive officer. Pursuant to the agreement, Ms. Noel exchanged 1 share of Series B Preferred Stock of the Company for one share of newly created Series C Preferred Stock of the Company.

In connection with the letter agreement, on March 25, 2020, the Company filed a Certificate of Designation of Series C Preferred Stock with the Secretary of State of Nevada. Pursuant to the Certificate of Designation, the Company designated one share of its preferred stock as Series C Preferred Stock. The Series C Preferred Stock has a stated value of $24,000 and entitles the holder to 51% of the total voting power of the Company’s stockholders. The Company may, in its sole discretion, redeem the Series C Preferred Stock at any time for a redemption price equal to the stated value. The Series C Preferred Stock has a liquidation preference equal to the stated value, does not provide the holder with any dividend rights and is not convertible to common stock. On April 16, 2020, Niquana Noel sold 1 outstanding share of Series C Preferred Stock of the Company to Danil Pollack for $24,000 in a private transaction. The Series C Preferred Stock entitles the holder to 51% of the voting power of the Company’s stockholders, and the stock of $157,509 was recognized assale thus resulted in a discount to the note that is being amortized to interest expense over the lifechange in control of the note.Company.

 On June 30, 2020, the Company filed a Certificate of Withdrawal of Certificate of Designation with the Secretary of State of Nevada, pursuant to which the Company withdrew its Series B Preferred Stock.


 

During the year ended August 31, 2017,2020, the Company issued an aggregate of 40,000,000 common shares pursuant to exercise of options and warrants for proceeds of $5,000. During the year ended August 31, 2017 20,000,000 shares were cancelled and returned to the Company along with the return of the $2,000 exercise price.

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 following such investment was a related party. Pursuant to the purchase agreement, upon closing on March 7, 2018, the Company issued and sold to the investor, 3,000,00084,000,000 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, he 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.

F-12

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.

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.

On August 29, 2018 the Company issued 30,000 shares of common stock for services valued at $44,400.

Warrants

During the year ended August 31, 2017, warrant activity includes the following:

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

During the year ended August 31, 2018, warrant activity included the following:

On September 18, 2017, the Company executed an $180,000 convertible debentureoptions 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$0.001 per share to Danil Pollack, the Company’s chief executive officer, for aggregate gross proceeds of the warrants of $16,996 was recognized as a discount to the debenture.$84,000.

 

On December 13, 2017, the Company issued 100,000 warrants to McGlothin Holdings Ltd. The relative fair value of the warrants of $4,984 was recognized as a discount to the debenture.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 willwould be recognized as compensation expense over the three year service period.  Warrant expense under this award for the year ended August 31, 2018 totaled $3,633,532; the warrant expense under this award for the year ended August 31, 2017 totaled $1,014,489. As of August 31, 2018, $6,359,316 remains to be expensed over the remaining vesting 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).

F-13

On January 22, 2018, the Company entered into a sales representation agreement for a term of six months. Pursuant to the agreement, Mr. Yahr agreed to return 80% of the warrant shares to the Company agreedif he served as CEO of the Company pursuant to issue the nonemployee sales representative warrants to purchase 10,000employment agreement for a period of more than 12 months but less than 18 months. Therefore, 16,000,000 shares of common stock per month (an aggregatewere forfeited to the Company, and the Company recognized a gain on the forfeited common shares of 60,000 warrants) with an exercise price($2,440,768) net of $0.50, with a term of three years. The warrants shall be exercisable at any time on or after$1,600 paid by 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 $58,816 of which $51,635 was recognizedCompany during the year ended August 31, 2018.

On February 22, 2018, the Company entered into a consulting agreement for a term2019. As 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 determinedAugust 31, 2019, $0 remains to be $106,663 of which $65,005 was recognized duringexpensed over the year ended August 31, 2018.remaining vesting period.

 

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 $3,419,925 of which $1,457,561 was recognized during the year ended August 31, 2018.

During the years ended August 31, 2020 and 2019 the Company recognized a gain of ($3,378) and ($1,332,332), respectively due to a remeasurement of this nonemployee award. On March 20, 20182, 2019 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 August 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.was terminated.

 

On April 16, 2018, Thethe Company entered into a consulting agreement with Dr. David Hellman for marketing and promotion services. The term iswas 1 year with payment of 50,000 warrants each month to purchase common stock with an exercise price of $0.60. However, if the Consultantconsultant generates more than $10,000 in monthly sales, the Warrants willwarrants would have an exercise price of $.30, and if the Consultantconsultant generates more than $20,000 in monthly sales, the Warrants maywarrants could be exchanged in “cashless exercise”.exercised on a cashless basis. Additionally, the Company shallagreed to pay 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 iswas 1 year with payment of 60,000 warrants each month to purchase common stock with an exercise price of $0.60. The warrants may be exercised on a cashless basis. A total of $256,038 warrant expense in relation to this award was recognized during the year ended August 31, 2018. During the years ended August 31, 2020 the Company recognized a gain of ($1,905) due to a remeasurement of this nonemployee award. The warrants may be exercised on a cashless basis.  During the year ended August 31, 2020 and 2019 the Company recognized a gain of ($1,905) and ($217,402), respectively due to a remeasurement of this nonemployee award.

On October 30, 2018, the Company entered into an employment agreement with Niquana Noel pursuant to which Ms. Noel would 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 was $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 $2,055,748 and $542,390 were recognized during the years ended August 31, 2020 and 2019, respectively. Unamortized expense at August 31, 2020 and 2019 is $0 and $2,055,748, respectively 

 

On April 11, 2017,20, 2020, the Company executedentered into a $540,000 convertible debentureletter agreement with an original issue discountNiquana Noel, the Company’s then-chief executive officer. Pursuant to the letter agreement, Ms. Noel waived $45,333 of $180,000. In connection withaccrued but unpaid compensation owed to her in exchange for the note,right to retain all 20,000,000 shares of common stock of the Company issued the lender 900,000Ms. Noel had acquired upon exercise of warrants, with a term of 3 years and an exercise price of $1.00. The relative fair valuenotwithstanding provisions of the warrants $44,981 was recognized as a discountwarrant agreement that would have required her to return certain shares to the note.

Company in the event of her resignation.

 

F-14


 

The following table summarizes the warrant activities during the yearyears ended August 31, 2018,2019 and 2017, respectively:2020:

 

 Number of
Warrants
 Weighted-
Average
Price
Per Share
  Number of
Warrants
  Weighted-
Average
Price Per
Share
  Weighted-
Average
Remaining
Life
 
Outstanding at August 31, 2016  -  $- 
       
Outstanding at August 31, 2018  2,830,000  $0.79  2.9 years 
Granted  21,800,000   0.04    
Cancelled or expired  (1,300,000)  1.00    
Exercised  (20,000,000)  0.00    
Outstanding at August 31, 2019  3,330,000  $0.56  3.8 years 
Granted  40,900,000   0.02   120,000   0.60    
Canceled or expired  (40,000,000)  -   -   -    
Exercised  -   - 
Outstanding at August 31, 2017  900,000  $1.00 
Granted  1,930,000   0.69 
Canceled or expired  -   - 
Exercised  -   - 
Outstanding at August 31, 2018  2,830,000  $0.79 
Exercisable at August 31, 2018  1,610,000  $1.00 
        
Intrinsic value at August 31, 2018 $538,500     
Exercised / Exchanged  -   -    
Outstanding at August 31, 2020  3,450,000  $0.56  2.8 years 
Exercisable at August 31, 2020  3,450,000  $0.56  2.8 years 
Intrinsic value at August 31, 2020     $-    

 

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

 

  Grant Date
and
Re-measurement
Date
For the yearyears ended August 31, 20182020  
Risk-free interest rate at grant date 1.52% -2.70%1.30% - 1.62%
Expected stock price volatility 183%314% - 362%394%
Expected dividend payout -
Expected option in life-yearslife (in years) 2.5 - 6.5 years2.50 – 4.50

 

  Grant Date and Re-measurement Date
For the year ended August 31, 20172019  
Risk-free interest rate at grant date 1.06%1.45% - 1.44%2.99%
Expected stock price volatility 117%330% - 362%788%
Expected dividend payout -
Expected optionlife in life-yearsyears 12.5 - 36.0 years


 

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 arewere 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 yearsfour (4) semiannual installments or every six (6) months until July 26, 2019 at an exercise price of $1.00. On July 26, 2017, 1,000,000 shares were exercised. The aggregate fair value of the award asAs of August 31, 2018 was determined to be $1,112,547 and for2020 all the options were expired. During the year ended August 31, 2018 option expense recognized totaled $1,000,820. The aggregate fair value of the award as of August 31, 2017 was determined to be $485,248 and for the year ended August 31, 2017 option expense recognized totaled $273,185.

  Number of Options  Weighted-
Average
Price Per Share
 
Outstanding at August 31, 2016      - 
Granted  2,200,000   .55 
Exercised  1,000,000   .001 
Canceled or expired  -   - 
Addition due to ratchet trigger  -   - 
Outstanding at August 31, 2017  1,200,000  $1.00 
Granted  -   - 
Canceled or expired  -   - 
Exercised  -   - 
Outstanding at August 31, 2018  1,200,000  $1.00 
Exercisable at August 31, 2018  600,000   1.00 
Intrinsic value at August 31, 2018 $-     

F-15

6. RELATED PARTY ASSET PURCHASE AGREEMENT

On August 29, 2017,2019 the Company received $82,750 asrecognized a deposit from a significant shareholder towardgain of $(310,119) due to the purchase price on an agreement thatre-measurement of this non employee award. 


On April 21, 2020, Danil Pollack 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 debtappointed president, chief executive officer, 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.

7. EMPLOYMENT AGREEMENT

On March 14, 2017, the Company entered into a two year employment agreement with Barry Tenzer to continue as CEOchief financial officer of the Company. In connection with Mr. Pollack’s appointment, the Company entered into an employment agreement with Mr. Pollack. Pursuant to the employment agreement, Mr. Pollack will serve as the Company issuedCompany’s chief executive officer and president for a period of one year, which term will renew automatically for successive one year terms, subject to the right of either party to terminate the agreement at any time upon written notice. Mr. TenzerPollack was granted the right, for a warrantperiod of six months, to purchase up to 20,000,000 share of common stock at a per share price of $0.0001. The warrant was exercised in full on March 28, 2017. The100,000,000 shares of common stock underlying the warrant were issued on April 6, 2017.

On September 6, 2017, Barry Tenzer resigned as President and Chief Executive Officer of the Company. In connection with the resignation of Mr. Tenzer his stock issued pursuant to his employment agreement was returned to the Company.

On May 22, 2017, the Board of Directors of the Company appointed Marc Yahr as President and Chief Executive Officerfor a purchase price of $0.001 per share. The Company recognized option expense of $1,416,975 during the year ended August 31, 2020. During the year ended August 31, 2020, Mr. Pollack exercised 84,000,000 stock options for $84,000.

  Number of
Options
  Weighted-
Average
Price Per
Share
  Weighted-
Average
Remaining
Life
 
Outstanding at August 31, 2018  1,200,000  $1.00  1.9 years 
Granted  -   -    
Canceled or expired  -   -    
Exercised  -   -    
Outstanding at August 31, 2019  1,200,000  $1.00  0.9 years 
Granted  100,000,000   .001    
Canceled or expired  (1,200,000)  1.000    
Exercised  (84,000,000)  .001    
Outstanding at August 31, 2020  16,000,000  $.001  0.4 years 
Exercisable at August 31, 2020  16,000,000  $.001  0.4 years 
Intrinsic value at August 31, 2020     $240,000    

The fair value of the Companywarrants was estimated using the Black-Scholes option pricing model and as a memberthe following range of the Company’s Board.assumptions:

Grant

Date

For the year ended August 31, 2020
Risk-free interest rate at grant date.15%
Expected stock price volatility262%
Expected dividend payout-
Expected life (in years).25

Grant Date and Re-measurement Date
For the year ended August 31, 2019
Risk-free interest rate at grant date1.45% - 2.99%
Expected stock price volatility330% - 788%
Expected dividend payout-
Expected life in years2.5 - 6.0 years


6. RELATED PARTY TRANSACTIONS

 

On May 22, 2017, the Company entered into an employment agreement with Mr.Marc Yahr pursuant to which Mr. Yahr would 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. See Note 5.

On October 3, 2019, the Company entered into a letter agreement with Niquana Noel, the Company’s then-chief executive officer. Pursuant to the agreement, Ms. Noel exchanged $24,000 in accrued but unpaid compensation owed to her by the Company for one share of newly created Series B Preferred Stock of the Company. Ms. Noel subsequently exchanged this one share of Series B Preferred for 1 one share of newly created Series C Preferred Stock. See Note 5.

On October 30, 2018, the Company entered into an employment agreement with Niquana Noel pursuant to which Ms. Noel would 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. See Note 5.

On April 21, 2020, Danil Pollack was appointed president, chief executive officer, and chief financial officer of the Company. In connection with Mr. Pollack’s appointment, the Company entered into an employment agreement with Mr. Pollack. Pursuant to the employment agreement, Mr. Yahr receivedPollack will serve as the Company’s chief executive officer and president for a warrantperiod of one year, which term will renew automatically for successive one year terms, subject to the right of either party to terminate the agreement at any time upon written notice. Mr. Pollack was granted the right, for a period of six months, to purchase up to 20,000,000100,000,000 shares of the Company’s common stock at an exerciseof the Company for a purchase price of $0.0001$0.001 per share. The warrants were exercised in full onDuring the year ended August 31, 2017.

8. INCOME TAXES2020 Mr. Pollack exercised 84,000,000 stock options for $84,000. See Note 5.

 

On December 22, 2017, President Trump signedMarch 25, 2020, Company entered into lawa letter agreement with Niquana Noel, the Tax Cuts and Jobs Act (the “TCJA”) that significantly reformsCompany’s then-chief executive officer. Pursuant to the Internal Revenue Codeagreement, Ms. Noel exchanged 1 share of 1986, as amended (the “Internal Revenue Code”). The TCJA, among other things, contains significant changes to corporate taxation, including reductionSeries B Preferred Stock of the corporate tax rate from a top marginal rateCompany for one share of 35% to a flat rate of 21%, effective as of January 1, 2018; limitationnewly created Series C Preferred Stock of the tax deduction for interest expense; limitation of the deduction for net operating losses to 80% of current year taxable income and elimination of net operating loss carrybacks, in each case, for losses arising in taxable years beginning after December 31, 2017 (though any such tax losses may be carried forward indefinitely); modifying or repealing many business deductions and credits, including reducing the business tax credit for certain clinical testing expenses incurred in the testing of certain drugs for rare diseases or conditions generally referred to as “orphan drugs”; and repeal of the federal Alternative Minimum Tax (“AMT”).Company. See Note 5.

 

F-16

The staff of the Securities and Exchange Commission issued Staff Accounting Bulletin No. 118 to address the application of GAAP in situations when a registrant does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the TCJA. In connection with the initial analysisletter agreement, on March 25, 2020, the Company filed a Certificate of Designation of Series C Preferred Stock with the Secretary of State of Nevada. Pursuant to the Certificate of Designation, the Company designated one share of its preferred stock as Series C Preferred Stock. See Note 5.

On August 31, 2020, the Company issued a promissory note in the principal amount of $150,000, to Danil Pollack, the Company’s chief executive officer. Upon execution of the impactnote, $120,000 was remitted and the remaining $30,000 was paid on September 22, 2020. The note did not bear interest and had a maturity date of November 30, 2020. The note was subsequently exchanged for common stock. See note 10.

On September 30, 2020, the Company entered into an amendment to the Company’s employment agreement, dated April 22, 2020, with Danil Pollack, the Company’s chief executive officer. Pursuant to the amendment, the Company will pay Mr. Pollack an annual salary of $48,000. The Company may also in its discretion pay additional compensation to Mr. Pollack at any time as a bonus.

7. COMMITMENTS AND CONTINGENCIES

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 TCJA,purchase agreement, in which event the Company remeasured its deferred tax assetswas 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 August 31, 2020 and liabilities based on2019, the ratesCompany was obligated to issue 500,000 shares of common stock valued at $76,000 which they are expected to reverseis included in the future, which is generally 21%. The remeasurementcommon stock payable in the accompanying balance sheet.

On April 21, 2020, Danil Pollack was appointed president, chief executive officer, and chief financial officer of the Company. In connection with Mr. Pollack’s appointment, the Company entered into an employment agreement with Mr. Pollack. On September 30, 2020, the Company entered into an amendment to the Company’s deferred tax assetsemployment agreement, dated April 22, 2020, with Danil Pollack, the Company’s chief executive officer. Pursuant to the amendment, the Company will pay Mr. Pollack an annual salary of $48,000. The Company may also in its discretion pay additional compensation to Mr. Pollack at any time as a bonus. See Note 5.

The COVID-19 pandemic may negatively affect our operations, including by limiting access to our facilities, customers, management, and liabilities was offsetprofessional advisors, and causing delays and constraints in manufacturing and shipping of our products. These factors, in turn, may negatively impact our operations, financial condition and demand for our products, and our ability to raise capital on acceptable terms, or at all.


8. MAJOR CUSTOMERS

At August 31, 2020, no individual customer amounted to over 10%. There are concentrations of credit risk with respect to accounts receivables due to the amounts owed by a change inone customer at August 31, 2019 whose balance represented approximately 28%, of total accounts receivables. During the valuation allowance.years ended August 31, 2020 and 2019 no individual customer amounted to over 10% of total sales. 

9. INCOME TAXES

 

FASB ASC 740,Income Taxes,requires a valuation allowance to reduce the deferred tax assets reported if, based on the weight of the evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. After consideration of all the evidence, both positive and negative, management has determined that a full valuation allowance of $601,979approximately $947,000 and $733,911$842,000 against its net deferred taxes is necessary as of August 31, 20182020 and 2017,2019, respectively.

 

At August 31, 20182020 and August 31, 2017,2019, respectively, the Company had $2,844,565 and $2,097,117, respectively,approximately $3,156,000 of U.S. net operating loss carryforwards remaining, which expire beginning in 2017.

As a result of certain ownership changes,2032. At August 31, 2020 and August 31, 2019, the Company mayhad approximately $1,120,000 and $655,000, respectively that can be subject to an annual limitation on the utilization of its U.S. net operating loss carryforwards pursuant to Section 382 of the Internal Revenue Code. A study to determine the effect, if any, of this change, has not been undertaken.forward indefinitely.

 

Tax returns for the years ended August 31, 2020, 2019, 2018, 2017, 2016, 2015, and 20142016 are subject to examination by the Internal Revenue Service.

 

A reconciliation of the Company’s income taxes to amounts calculated at the federal statutory rate is as follows for the years ended August 31:

 

 2018  2017  2020  2019 
          
Federal statutory taxes  (35.00)%  (35.00)%
Federal and state statutory taxes  (25.00)%  (25.00)%
Change in tax rate estimate  14.00%  -   -%  -%
Permanent differences  22.50%  20,00%
Change in valuation allowance  21.00%  35.00%  2.50%  5.00%
  -%  -%  -%  -%

 

The valuation allowance for deferred tax assets as of August 31, 2018 and 2017 was $601,978 and $733,991 respectively.  In assessing the recovery of the deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in the periods in which those temporary differences become deductible. Management considers the scheduled reversals of future deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. As a result, management determined it was more likely than not the deferred tax assets would not be realized as of August 31, 20182020 and 20172019 and recorded a full valuation allowance.

 

Reconciliation between the statutory rate and the effective tax rate is as follows at August 31:

  2018  2017 
Federal statutory tax Reconciliation rate  (21.0)%  (35.0)%
Permanent difference and other  -   - 

F-17


 

Components of net deferred tax assets, including a valuation allowance, are as follows at August 31st:31:

 

 2018 2017  2020 2019 
Deferred tax assets:          
Inventory impairment  11,129   13,264 
Bad debt expense  756   - 
Net operating loss  597,359   734,291   946,775   828,901 
Valuation allowance  (597,359)  (734,291)  (958,660)  (842,165)
Total deferred tax assets $-  $-  $-  $- 

 

A reconciliation of the expected income tax benefit at the U.S. Federal income tax rate to the income tax benefit actually recognized for the years ended August 31, 20182020 and 20172019 is set forth below:

 

 2018 2017  2020 2019 
          
Net loss  (2,663,345)  (2,337,824)
Net (loss) / income  (1,176,212)  654,094
Non-deductible expenses and other  1,441,043   2,212,472   1,059,717  (833,419)
Effect due to decrease in tax rates  1,359,234   -   -   - 
Change in valuation allowance  (136,932)  (125,352)  116,495  179,325 
Benefit from income taxes $-  $-  $-  $- 

 

9. RELATED PARTY TRANSACTIONSAs a result of certain ownership changes, the Company may be subject to an annual limitation on the utilization of its U.S. net operating loss carryforwards pursuant to Section 382 of the Internal Revenue Code. A study to determine the effect, if any, of this change, has not been undertaken.

10. SUBSEQUENT EVENTS

 

On May 17, 2016,September 22, 2020, the Company issued to Lyle Hauser, who was thenreceived $30,000 from Danil Pollack, the Company’s largest shareholder,chief executive officer, representing the remaining amount owed for sale of a 7% unsecured promissory note in the principal amount of $10,000 which matured six months from the date of issuance. The$150,000. See note has matured and remains unpaid at August 31, 2017.

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

As of August 31, 2016, the Company had an outstanding payable of $14,609 to the CEO. The payable is unsecured, due on demand and bears no interest. As of August 31, 2017 the accounts payable – related party has been paid and currently has a balance of $0.6.

 

On October 27, 20162, 2020, the Company issuedfiled a significant shareholder 7% unsecured promissory notes totaling $10,000certificate of amendment to the Company’s articles of incorporation with the Secretary of State of Nevada, pursuant to which matures six months from the date of issuance. The notes has matured and remains unpaid at August 31, 2017.

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

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

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

On April 11, 2017, the Company executed a $540,000 convertible debenture with an original issue discount of $180,000. The note has a 0% interest rate and a term of two years. If the note is not paid in full on the due date, the note will have a 0% interest rated until paid in full. In connection with the note, the Company issued the lender an aggregate of 2,700,000 shares and 900,000 warrants.

On August 29, 2017, the Company received $45,000 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 our Company’s assets.

During the year ended August 31, 2018 sales to a customer, who is the spouse of one of the Company’s significant shareholders, amounted to $3,975.

F-18

10. 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 10,000increased its authorized shares of common stock at an exercise price of $0.50. Warrants may be exercised after six month anniversary of issuance date.from 800,000,000 to 3,000,000,000.

 

On February 1, 2018October 13, 2020, the Company entered into a consulting agreement with Optimal Setup LLC for a term of one yearYaniv Rozen pursuant to advisewhich the Company engaged Mr. Rozen to serve as the Company’s chief operating officer on search engine optimization and digital marketing. Optimal Setup LLC shall receive monthly for services performed $2,500 and 10,000 warrants fora consultant/independent contractor basis. Mr. Rozen may engage in other business activities while serving as the Company’s chief operating officer.

Pursuant to the consulting agreement, the Company will pay Mr. Rozen a fee of $3,000 per month.

The Company will also issue to Mr. Rozen shares of common stock, exercisable for cash price of $0.40. Warrants may be exercised after six month anniversary date.and increase such monthly fee, as follows:

Within five business day of the end of the fourth quarter of 2020, (i) if the Company’s average sales were at least $50,000 per month, for such quarter, the Company will issue to Mr. Rozen 500,000 shares of common stock; or (ii) if the Company’s average sales were at least $100,000 per month for such quarter, the Company will issue to Mr. Rozen 750,000 shares of common stock;

Within five business day of the end of the first quarter of 2021, (i) if the Company’s average sales were at least $100,000 per month for such quarter, the Company will issue to Mr. Rozen 750,000 shares of common stock, or (ii) if the Company’s average sales were at least $150,000 per month for such quarter, the Company will issue to Mr. Rozen 1,000,000 shares of common stock, and will increase Mr. Rozen’s fee to $5,000 per month effective commencing at the end such quarter;

Within five business days of the end of the second quarter of 2021, (i) if the Company’s average sales were at least $200,000 per month, for such quarter, the Company will issue to Mr. Rozen 1,500,000 shares of common stock, or (ii) if the Company’s average sales were at least $300,000 per month, for such quarter, the Company will issue to Mr. Rozen 2,000,000 shares of common stock; and

Within five business days of the end of the third quarter of 2021, (i) if the Company’s average sales were at least $300,000 per month, for such quarter, the Company will issue to Mr. Rozen 2,000,000 shares of common stock; or (ii) if the Company’s average sales were at least $500,000 per month, for such quarter, the Company will issue to Mr. Rozen 3,000,000 shares of common stock, and will increase Mr. Rozen’s fee to $7,000 per month effective commencing at the end such quarter.

 

On February 22, 2018,November 10, 2020, the Company entered into a consultingan exchange agreement for a term of one year.with Danil Pollack, the Company’s chief executive officer. Pursuant to the exchange agreement, Mr. Pollack exchanged an outstanding promissory note of 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 agreed to pay a total commission rate of 10% of the gross sale amount to be paid in the formoutstanding principal amount of cash and or warrants to purchase$150,000 (See note 3) for 15,000,000 newly issued shares of common stock of the CompanyCompany.

 

On April 16, 2108 The Company entered into a consulting agreement with Dr. David Hellman for marketing and promotion services. The term isDecember 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 $.30, and if the Consultant generates more than $20,000 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. On July 11, 2018 the Company terminated the agreement. On August 1, 20182020, the Company entered into a new consultingsecurities purchase agreement with Dr. Hellman. The term is 1 year with payment of 60,000 warrantsDanil Pollack, the Company’s chief executive officer. Pursuant to the purchase common stock with an exercise price of $0.60. The warrants may be exercised on a cashless basis.

11. SUBSEQUENT EVENTS

Between September 1, 2018 and December 14, 2018agreement, the Company issued and sold a total of 2,300,000to Mr. Pollack 20,000,000 shares of common stock for proceedsan aggregate purchase price of $135,000.

$200,000.

 

On October 13, 2018 the Company issued 1,000,000 shares of common stock for a sponsorship.

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 his position as a member board of directors. On November 6, 2018 Mr. Yahr returned 16,000,000 shares of common stock to the treasury.

Effective October 30, 2018, the Board of Directors of the Company appointed Niquana Noel as President and Chief Executive Officer of the Company.

Effective October 30, 2018,December 10, 2020 the Company entered into an employment agreementamendments (“Amendment No. 3”) 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 sharesholders of the Company’s common stock atoriginal issue discount convertible debentures, with an exercise priceoriginal issuance date of $0.0001 per share. Ms. Noel exercisedDecember 24, 2019, as amended by amendment No. 1 thereto, dated May 28, 2020, and amendment No. 2 thereto, dated August 21, 2020, in the warrant andaggregate outstanding principal amount of $500,000 (See note 4). Pursuant to Amendment No. 3, the maturity date of the debentures was issued the 20,000,000 shares on October 31, 2018.extended to February 28, 2021.

 

F-19

 

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

 

None.

 

Item9A. Controls and Procedures.

 

Evaluation of Disclosure and Control Procedures

 

Management of the Company conducted an evaluation of the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) pursuant to Rule 13a-15 under the as of the end of the period covered by this report. The Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s (the “SEC”) rules and forms and that such information is accumulated and communicated to management, including our principal executive and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

 

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

 

Our chief executive officer also functions as our chief financial officer.  As a result, our officersofficer 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.

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.

 

Management’s Report on Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes of accounting principles generally accepted in the United States.

 

Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

13

Our management conducted an evaluation of the effectiveness of our internal control over financial reporting as of August 31, 20182020 based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013).

 


A material weakness is defined within the Public Company Accounting Oversight Board’s Auditing Standard No. 5 as a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.

 

In conducting his evaluation, our officer noted the following material weaknesses in our internal controls over financial reporting:

 

While certain accounting procedures have been adopted, compliance with such procedures has been inconsistent.

The board of directors has not established an Audit Committee.  Accordingly, the entire board, rather than an independent body, has reviewed our financial statements.

Segregation procedures could be improved by strengthening cross approval of various functions, including cash disbursements and internal audit procedures where appropriate.

 

As a result of these deficiencies in our internal controls, our officer concluded that our internal control over financial reporting was not effective. 

To the extent reasonably possible given our limited resources, we intend to take measures to cure the aforementioned weaknesses, including, but not limited to, increasing the capacity of our qualified financial personnel to ensure that accounting policies and procedures are consistent across the organization and that we have adequate control over financial statement disclosures.

 

This annual report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. The Company’s internal control over financial reporting was not subject to attestation by the Company’s independent registered public accounting firm pursuant to rules of the SEC that permit the Company to provide only management’s report in this annual report.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(t) and 15d-15(f) under the Exchange Act, during the fourth quarter of the fiscal year ended August 31, 20182020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Item 9B. Other Information.

 

None.

 

14

15

 

 

PART III

  

Item 10. Directors, Executive Officers, and Corporate Governance.

 

Niquana Noel servesOur executive officers and directors are as our chief executive officer, president, chief financial officer, and sole director.follows:

 

NamePosition
Danil PollackPresident, Chief Executive Officer, Chief Financial Officer, Director
Yaniv RozenChief Operating Officer

Ms. Noel, 37, has served as the Company’s

Danil Pollack, 32, was appointed president, chief executive officer and chief financial officer since October 30, 2018, and as our director since November 25, 2018. Ms. Noel also previously served as operations manager at the Company. Ms. Noel is a proven entrepreneurial executive with expertise in operations, finance and accounting, SEC reporting and compliance, staffing, marketing and corporate governance. Ms. Noel has spent nearly two decades working with privately-held and publicly-traded micro and small cap companies. Since 2008, Ms. Noel has been a key member of the leadership team at Hash Labs Inc. (formerly MedeFile International, Inc.), and has served as its chief operating officer since May 2018Company on April 21, 2020, and as a director of Hash Labs Inc. since August 2013. Ms. Noelon May 21, 2020. Prior to the joining the Company, Mr. Pollack oversaw sales and marketing at 2Marketing as Project Manager, a PPC (pay per click), SEO and social media and inbound marketing firm in Toronto, from 2017. In addition, he worked as a lead videographer and editor at YP Media Productions, a creative film production agency which he co-founded in 2010. Between 2010 and 2013, Mr. Pollack also served as Vice President of Operations at Auto Ad, Inc., a full service infomercial production agency specializing in the auto dealership market. Fluent in three languages, Mr. Pollack attended the Toronto Film School, as well as Senaca College - York, where he studied computer system technology. Mr. Pollack’s sales and marketing experience qualify him to serve on our board of directors.

Yaniv Rozen, 38, was appointed chief executiveoperating officer of the Company on October 13, 2020. Mr. Rozen serves as our chief operating officer on an independent contractor/consultant basis and president of Hash Labs Inc. from January 2014 to May 2018. Prior to servingmay engage in that capacity, Ms. Noel servedother business activities. Mr. Rozen has been working as operations manager of Hash Labs Inc. from 2008. Earlya consultant for start-up companies in Ms. Noel’s career while workingthe e-commerce industry for a serial entrepreneur, she was charged with overseeing daily business operations for interests ranging from the ownership and operation of cemeteries in Maryland, Virginia and Florida; to the ownership and operation of exotic, high performance auto dealerships and auto accessory businesses in south Florida.last five years.

 

Terms of Office

 

Our directors are appointed for one year terms in accordance with our charter documents and hold office until the earlier of (i) the next annual meeting of our shareholders, (ii) until they are removed from the board or (iii) until they resign.

 

Family Relationships

 

None.

 

Involvement in Certain Legal Proceedings

 

During the past ten years, none of our current directors or executive officers has been:

 

the subject of any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;

convicted in a criminal proceeding or is subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);

subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction or any Federal or State authority, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities;

found by a court of competent jurisdiction (in a civil action), the Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law.

  

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the subject of, or a party to, any Federal or State judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of (a) any Federal or State securities or commodities law or regulation; (b) any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order; or (c) any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or

the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.

 


Delinquent Section 16(a) Beneficial Ownership Reporting ComplianceReports

 

Section 16(a) of the Exchange Act requires the Company’s officers and directors, and certain persons who own more than 10% of a registered class of the Company’s equity securities (collectively, “Reporting Persons”), to file reports of ownership and changes in ownership (“Section 16 Reports”) with the Securities and Exchange Commission (the “SEC”). Based solely on its review of the copies of such Section 16 Reports received by the Company, all Section 16(a) filing requirements applicable to the Company’s Reporting Persons during and with respect to the fiscal year ended August 31, 20182020 have been complied with on a timely basis, except that a Form 4 was filed late by Danil Pollack, resulting in one transaction not being reported on a timely basis, and a Form 4 was filed late by Niquana Noel, resulting in two transactions not being reported on a timely basis.

  

Board Committees

 

We have not established any committees of the board of directors due to the small size of the Company and the board. We do not have an audit committee financial expert because we do not have the resources to retain one.

 

Board Leadership Structure and Role on Risk Oversight

  

Niquana NoelDanil Pollack is presently the only board member.

 

Our board is primarily responsible for overseeing our risk management processes. The board receives and reviews periodic reports from management, auditors, legal counsel, and others, as considered appropriate regarding the Company’s assessment of risks. The board focuses on the most significant risks facing the Company and the Company’s general risk management strategy, and also ensures that risks undertaken by the Company are consistent with the board’s appetite for risk. While the board oversees the Company’s risk management, management is responsible for day-to-day risk management processes. We believe this division of responsibilities is the most effective approach for addressing the risks facing the Company and that our board leadership structure supports this approach. Ms. Noel’s operational experience qualifies her to serve on our board of directors. 

 

Stockholder Communication with the Board of Directors

 

Stockholders may send communications to our board of directors by writing to Bespoke Extracts, Inc., 323 Sunny Isles Blvd., Suite 700, Sunny Isles, Florida, 33160, Attention: Corporate Secretary.

 

Code of Ethics

 

The Company has adopted a Code of Ethics that applies to the Company’s chief executive officer. Any person may obtain a copy of our Code of Ethics, without charge, by mailing a request to the Company at the address appearing on the front page of this Annual Report on Form 10-K or by viewing it on our website found at www.BespokeExtracts.com.

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Item 11. Executive Compensation.

 

Summary Compensation Table

 

The following table summarizes all compensation to our chief executive officer during the years ended August 31, 20182020 and August 31, 2017.2019. No other officer received compensation of more than $100,000 during such periods.

 

Name and Principal Position Year  Salary  Bonus  Stock
Awards
  Option
Awards
  Non-Equity
Incentive
Plan
Compensation
  Nonqualified
Deferred
Compensation
Earnings
  All Other
Compensation
  Total 
(a) (b)  (c)  (d)  (e)  (f)  (g)  (h)  (i)  (j) 
Marc Yahr  2018   0   --   --   --   --   --   --   0 
Former CEO, President (1)  2017   21,000   --   --   --   --   --   --   21,000 
                                     
Barry Tenzer
Former CEO and
  2018   --   --   --   --   --   --   --   -- 
President (2)  2017   63,000   --   --   --   --   --   --   63,000 
Name and Principal Position Year Salary  Bonus  Stock Awards  Option Awards  Non-Equity Incentive Plan Compensation  Nonqualified Deferred Compensation Earnings  All Other Compensation  Total 
(a) (b) (c)  (d)  (e)  (f)  (g)  (h)  (i)  (j) 
Danil Pollack (1) 2019             --          --              --          --          --  $-- 
  2020      --   --  $1,416,571(4)  --   --   --  $1,416,571 
                                   
Niquana Noel 2019 $80,000          $542,390(3)             $622,390 
Former CEO and
President (2)
 2020 $0   -      $2,055,748(3)  -   -  $20,000  $2,075,748 

 

(1)Mr. Pollack was appointed as president and chief executive officer of the Company on April 21, 2020.

(1) Mr. Yahr resigned as president and chief executive officer of the Company on October 30, 2018.

(2)Ms. Noel resigned as president and chief executive officer of the Company on April 21, 2020 and has since her resignation served as a consultant to the Company. The Company entered into a letter agreement with Niquana Noel, the Company’s then-chief executive officer. Pursuant to the letter agreement, Ms. Noel waived $45,333 of accrued but unpaid compensation owed to her in exchange for the right to retain all 20,000,000 shares of common stock of the Company Ms. Noel had acquired upon exercise of warrants, notwithstanding provisions of the warrant agreement that would have required her to return certain shares to the Company in the event of her resignation.

(2) Mr. Tenzer resigned as president and chief executive officer of the Company on May 22, 2017.

(3)Pursuant to Ms. Noel’s employment agreement (see “Employment Agreements” below), 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 $2,055,748 and $542,390 were recognized during the years ended August 31, 2020 and 2019, respectively.

(4)Pursuant to the Mr. Pollack’s employment agreement (see “Employment Agreements” below), Mr. Pollack was granted the right, for a period of six months, to purchase up to 100,000,000 shares of common stock of the Company for a purchase price of $0.001 per share. The Company recognized an expense of $1,416,975 during the year ended August 31, 2020

 

Employment Agreements

 

Effective October 30, 2018, the Company entered into an employment agreement with Ms. Noel pursuant to which Ms. Noel will serveserved as the Company’s chief executive officer and president. Ms. Noel will serve as president and chief executive officer of the Company 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 salary iswas $96,000 per year and she received warrants 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 has exercised the warrants and has beenwas issued the shares. The shares willUnder the original terms of the employment agreement, Ms. Noel would be required to be returned toreturn the IssuerCompany as follows:

 

Ms. Noel willwould return 80% of the shares to the IssuerCompany if she iswas not serving as chief executive officer of the IssuerCompany pursuant to her employment agreement as of October 30, 2019 (the first anniversary of the employment agreement);

 

Ms. Noel willwould return 60% of the shares to the IssuerCompany if she iswas not serving as chief executive officer of the IssuerCompany pursuant to her employment agreement as of October 30, 2020 (the second anniversary of the employment agreement);

 

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Ms. Noel willwould return 40% of the shares to the IssuerCompany if she iswas not serving as chief executive officer of the IssuerCompany pursuant to her employment agreement as of October 30, 2021 (the third anniversary of the employment agreement); and

 

Ms. Noel willwould return 20% of the shares to the IssuerCompany if she is not serving as chief executive officer of the IssuerCompany pursuant to her employment agreement as of October 30, 2022 (the fourth anniversary of the employment agreement).


On April 20, 2020, the Company entered into a letter agreement with Ms. Noel. Pursuant to the letter agreement, Ms. Noel waived any and all accrued but unpaid compensation owed to her in exchange for the right to retain all 20,000,000 shares of common stock of the Company Ms. Noel had acquired upon exercise of warrants, notwithstanding provisions of the warrant agreement that would have required her to return certain shares to the Company in the event of her resignation.

On April 21, 2020, the Company entered into an employment agreement with Danil Pollack, and on September 30, 2020, the Company and Mr. Pollack entered into an amendment to the employment agreement. Pursuant to the employment agreement, as amended, Mr. Pollack will serve as the Company’s chief executive officer and president for a period of one year, which term will renew automatically for successive one year terms, subject to the right of either party to terminate the agreement at any time upon written notice. Mr. Pollack was granted the right, for a period of six months, to purchase up to 100,000,000 shares of common stock of the Company for a purchase price of $0.001 per share. In addition, the Company will pay Mr. Pollack an annual salary of $48,000. The Company may also in its discretion pay additional compensation to Mr. Pollack at any time as a bonus.

 

Outstanding Equity Awards at Fiscal Year-End

 

None.

 

Compensation of Directors

 

No director of the Company received any compensation for serving as director of the Company during the year ended August 31, 2018.2020.

 

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

 

As of December 14, 201816, 2020, we had 50,203,907229,389,621 shares of common stock issued and outstanding. The following table sets forth information known to us relating to the beneficial ownership of such shares as of such date by:

 

each person who is known by us to be the beneficial owner of more than 5% of our outstanding voting stock;

 

each director;

 

each named executive officer; and

 

all named officers and directors as a group.

 

Unless otherwise indicated, the business address of each person listed is in care of Bespoke Extracts, Inc., at 323 Sunny Isles Blvd., Suite 700, Sunny Isles, Florida 33160. The percentages in the table have been calculated on the basis of treating as outstanding, for a particular person, all shares of our common stock outstanding on that date and all shares of our common stock issuable to that holder in the event ofupon exercise or conversion of outstanding options, warrants, rightsconvertible debt, or conversion privilegesconvertible preferred stock owned by that person at that date which are exercisable or convertible within 60 days of December 12, 2018.16, 2020. Except as otherwise indicated, the persons listed below have sole voting and investment power with respect to all shares of our common stock owned by them.

 

Name of Beneficial Owner Amount of Beneficial Ownership  Percent of Class 
Executive Officers and Directors:      
Niquana Noel  20,000,000   39.8%
Officers and Directors as a group (1 person):  20,000,000   39.8%
5% Holders:        
McGlothlin Holdings, Ltd. (1)  5,222,667   10.1%
Marc Yahr (2)  4,000,000   8.0%
Name of Beneficial Owner Amount of Beneficial Ownership  Percent of Class 
Executive Officers and Directors:      
Danil Pollack (1)  119,000,000   51.9%
Yaniv Rozen  0   -- 
Officers and Directors as a group (2 persons):  119,000,000   51.9%
5% Holders:        
Niquana Noel (2)  20,000,000   8.7%
McGlothlin Holdings, Ltd. (3)  14,562,667   6.3%
Ronald Smith (4)  20,833,333   9.1%

 

(1)Includes 660,000 shares issuable upon conversionMr. Pollack also owns the Company’s one (1) outstanding share of a debenture and 1,000,000 shares issuable upon exerciseSeries C Preferred Stock, which entitles him to 51% of warrants. the total voting power of the Company’s stockholders.
(2)Ms. Noel’s address is 1316 SW 3rd Court, Ft. Lauderdale, FL 33312.
(3)McGlothlin Holdings, Ltd.’s address is PO Box 590, Luling, Texas, 78649, and its control person is Stan McGlothlin.
(2)The
(4)Mr. Smith’s address of Marc Yahr is 1005 Kane Concourse Ste 207-1, Bay Harbour Islands FL 33154-2117.9239 Carpenter Rd., Eden, NY 14057.

 

Equity Compensation Plan Information.

 

None. 

 

18

Item 13. Certain Relationships and Related Transactions, and Director Independence.

 

Certain Relationships and Related Transactions.

On May 17, 2016, the Company issued to The Vantage Group Ltd. (“Vantage”), an entity owned by Lyle Hauser, who was then a greater than 5% stockholder, a 7% 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% 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 to Vantage a 7% 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 to Vantage a 7% 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 to Vantage a 7% 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 notes were amended to be convertible into common stock and to mature on April 18, 2018, with a conversion price of $0.008.  

On February 17, 2017, the Company issued to Vantage, a 7% promissory note in the amount of $30,000 which matured six months from the date of issuance. This note has been repaid.

On April 11, 2017,22, 2019, the Company executed a $540,000 convertible debentureentered into an exchange agreement with an original issue discount of $180,000 issued to McGlothlin Holdings, Ltd. (“McGlothlin”), a greater than 5% stockholder of the Company. The note hasPursuant 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 October 3, 2019, the Company entered into a 0% interest rateletter agreement with Niquana Noel, the Company’s then-chief executive officer. Pursuant to the agreement, Ms. Noel exchanged $24,000 in accrued but unpaid compensation owed to her by the Company for one share of newly created Series B Preferred Stock of the Company.

On March 25, 2020, the Company entered into a letter agreement with Niquana Noel. Pursuant to the agreement, Ms. Noel exchanged one share of Series B Preferred Stock of the Company for one share of newly created Series C Preferred Stock of the Company.

On April 20, 2020, the Company entered into a letter agreement with Niquana Noel. Pursuant to the letter agreement, Ms. Noel waived any and a termall accrued but unpaid compensation owed to her in exchange for the right to retain all 20,000,000 shares of two years. In connection withcommon stock of the note,Company Ms. Noel had acquired upon exercise of warrants, notwithstanding provisions of the warrant agreement that would have required her to return certain shares to the Company in the event of her resignation.

From June 2020 to August 2020, the Company issued and sold to Danil Pollack, the lenderCompany’s chief executive officer, an aggregate of 2,700,00084,000,000 shares and 900,000 warrants. The conversionof common stock, for a purchase price of the outstanding balance is the lesser of $3.00 or 40%$0.001 per share, upon exercise of the volume weighted average price of the 30 days at date of conversion; notright to be less than $1.00. This debenture remains outstanding.purchase granted to Mr. Pollack under Mr. Pollack’s employment agreement (see “Executive Compensation”).

 

On September 18, 2017,August 31, 2020, the Company issued a $180,000 convertible debenture with an original issue discountpromissory note in the principal amount of $60,000$150,000, to Alneil Associates, whichDanil Pollack. Upon execution of the note, $120,000 was then a greater than 5% stockholder.remitted and the remaining $30,000 was paid on September 22, 2020. The note hasdid not bear interest and had a 0% interest rate and a termmaturity date of two years. In connection with theNovember 30, 2020. This note the Company issued the lender an aggregate of 900,000was subsequently exchanged for 15,000,000 shares of common stock, and 300,000 warrantsas described below.

On November 10, 2020, the Company entered into an exchange agreement with Danil Pollack. Pursuant to purchasethe exchange agreement, Mr. Pollack exchanged an outstanding promissory note of the Company in the outstanding principal amount of $150,000 for 15,000,000 newly issued shares of common stock.stock of the Company.

 

On December 13, 2017,1, 2020, the Company executedentered into a $120,000 convertible debenture issuedsecurities purchase agreement with Danil Pollack. Pursuant to McGlothlin with an original issue discount of $20,000. The debenture has a 0% interest rate and a term of one year. 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,agreement, the Company issued and sold to McGlothinlin an aggregate of 200,000Mr. Pollack 20,000,000 shares of common stock and 100,000 warrants tofor an aggregate purchase common stock. This debenture is outstanding.

During the year ended August 31, 2018, the Company had salesprice of $3,975 to the spouse of Stan McGlothin, who is the owner of McGlothlin, a greater than 5% stockholder of the Company$200,000.

  

Director Independence.

 

Niquana NoelDanil Pollack is our sole director and does not qualify as an independent director under the Nasdaq listing standards.


Item 14. Principal AccountingAccountant Fees and Services.

 

The following table shows the fees that were billed to the Company by its independent auditor for professional services rendered in 2020 and 2019.

Fiscal Year Audit Fees  

Audit-

Related Fees

  Tax Fees  All Other Fees 
2020 – Liggett & Webb, P.A. $

30,000

  $         $4,000  $- 
2019 - Liggett & Webb, P.A. $21,000  $-  $-  $   - 
2019 - MaloneBailey, LLP $18,000  $-  $-  $- 

Audit fees. Audit fees represent fees for professional services performed by MaloneBailey, LLP or Liggett & Webb, P.A., as applicable, for the fiscalaudit of our annual financial statements and the review of our quarterly financial statements, as well as services that are normally provided in connection with statutory and regulatory filings or engagements.

Audit-related fees. Audit-related fees represent fees for assurance and related services performed that are reasonably related to the performance of the audit or review of our financial statements.

Tax Fees. Liggett & Webb, P.A. received $4,000 for providing tax services relating to preparation of certain tax returns for us during the year ended August 31, 2020. Liggett & Webb, P.A. did not perform any tax compliance services for us during the year ended August 31, 2019. MaloneBailey, LLP did not perform any tax compliance services for us during the years ended August 31, 2018 and 2017.2020 or 2019.

 

Fiscal Year Audit Fees Audit-Related
Fees
 Tax Fees All Other Fees 
2018  23,500 $   -    -   
2017 $16,000 $- $- $     - 

All other fees. MaloneBailey, LLP and Liggett & Webb, P.A., did not receive any other fees from us for the years ended August 31, 2020 or 2019.

 

The board of directors serves as the audit committee of the Company. The board of directors on an annual basis reviews audit and non-audit services performed by the independent registered public accounting firm. All audit and non-audit services are pre-approved by the board of directors, which considers, among other things, the possible effect of the performance of such services on the auditors’ independence. The board of directors has considered the role of MaloneBailey LLPLiggett & Webb, P.A. in providing services to us for the fiscal year ended August 31, 20182020 and has concluded that such services are compatible with MaloneBailey LLP’sLiggett & Webb, P.A.’s independence as the Company’s independent registered public accounting firm.

19

PART IV

 

Item 15. Exhibits, Financial Statement Schedules.

 

(a)

 

(1) Our financial statements are listed on page F-1 of this annual report.

 

(2) Financial statement schedules: None.

 

(b)  Exhibits.

 

Exhibit No. Description
   
3.1 Articles of Incorporation (incorporated by reference to Form 10-SB filed August 10, 2007)
3.2 Articles and Certificates of Merger (incorporated by reference to Form 10-SB filed August 10, 2007)
3.3 Certificate of Amendment to Articles of Incorporation (incorporated by reference to 8-K filed March 19, 2012)
3.4 Certificate of Amendment to Articles of Incorporation (incorporated by reference to 8-K filed March 5, 2014)
3.5 Certificate of Amendment to Articles of Incorporation (incorporated by reference to 8-K filed December 3, 2015)
3.6 Articles of Merger (incorporated by reference to 8-K filed March 10, 2017)
3.7Certificate of Designation of Series A Preferred Stock (incorporated by reference to 8-K filed June 14, 2012)
3.8Certificate of Amendment to Articles of Incorporation (incorporated by reference to 8-K filed October 7, 2020)
3.9 Bylaws (incorporated by reference to Form 10-SB filed August 10, 2007)
4.1Description of the Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934*
10.1 Asset PurchaseOriginal Issue Discount Convertible Debenture dated December 24, 2019 (incorporated by reference to 8-K filed December 31, 2019)
10.2Security Agreement, dated March 9, 2018,December 24, 2019 (incorporated by reference to 8-K filed December 31, 2019)
10.3Amendment No. 1 to Security Agreement, dated April 23, 2020 (incorporated by reference to 8-K filed April 29, 2020)
10.4Amendment No. 1 to Debenture, dated May 28, 2020 (incorporated by reference to 8-K filed June 2, 2020)
10.5Amendment No. 2 to Debenture, dated August 21, 2020 (incorporated by reference to 8-K filed August 26, 2020)
10.6Employment Agreement between the Company and VMI Acquisitions,Danil Pollack (incorporated by reference to 8-K filed April 23, 2020) **
10.7Consulting Agreement between the Company and Yaniv Rozen (incorporated by reference to 8-K filed October 19, 2020)**
10.8Amendment No. 3 to Debenture, dated December 10, 2020, between the Company and The Vantage Group Ltd. (incorporated by reference to 8-K filed December 11, 2020)
10.9Amendment No. 3 to Debenture, dated December 10, 2020, between the Company and Berique Labs LLC (incorporated by reference to 8-K filed March 14, 2018)December 11, 2020)
10.2Securities Purchase Agreement, dated March 5, 2018 between the Company and Purchaser named therein (incorporated by reference to 8-K filed March 8, 2018)
14.1 Code of Ethics*Ethics (incorporated by reference to 10-K filed December 14, 2018)

31.1

16.1
 

Letter from MaloneBailey, LLP (incorporated by reference to 8-K filed June 7, 2019)

31.1Certification pursuant to Section 302 of the Sarbanes-Oxley Act*

32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002***
   
101.INS 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

* Filed herewith 

**Indicates management contract or compensatory arrangement.

***Furnished herewith.

 

20

22

 

    

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

  

 BESPOKE EXTRACTS, INC.
  
Dated:  December 14, 201818, 2020By:/s/ Niquana NoelDanil Pollack
  Niquana NoelDanil Pollack
  

Chief Executive Officer and

Chief Financial Officer

(principal executive officer,

principal financial officer and
principal accounting officer)

  

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

SIGNATURE TITLE DATE
     
/s/ Niquana NoelDanil Pollack Chief Executive Officer,
December 18, 2020
Danil PollackChief Financial Officer and Director December 14, 2018
Niquana Noel (principal executive, financial and accounting officer)  

 

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