UNITED STATES

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

Washington, D.C. 20549☒

FORM 10-Q

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

For the quarterly period ended: JuneSeptember 30, 2023

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)

12001 E. 33rd Avenue,33^rd Street Unit O

Aurora, CO 80010

(Address of principal executive offices)

855-633-3738

(Registrant’s telephone number, including area code)

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

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

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

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

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

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

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

As of September 28, 2023,January 16, 2024, there were 10,168,220 shares outstanding of the registrant’s common stock, par value $0.001.

TABLE OF CONTENTS

PART I

Item 1. Financial Statements. 

Bespoke Extracts, Inc.

Consolidated Balance Sheets

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

Bespoke Extracts, Inc.Inc

Consolidated Statements of Operations

(Unaudited)

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

Bespoke Extracts, Inc.Inc

Consolidated Statement of Stockholders’Stockholders Equity / (Deficit)

(Unaudited)

For The three and sixnine months ended JuneSeptember 30, 2023 and JuneSeptember 30, 2022

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

Bespoke Extracts, Inc.Inc

Consolidated Statements of Cash Flows

(Unaudited)

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

BESPOKE EXTRACTS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JuneSeptember 30, 2023

(Unaudited)

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

Nature of Business Operations 

Bespoke Extracts, Inc. (the “Company”) is a Nevada corporation focused on operating in the regulated cannabis markets in the United States. Through Bespoke Colorado, we operate a marijuana infused products production facility in Aurora, Colorado.

On December 2, 2021, Bespoke Extracts Colorado, LLC (“Bespoke Colorado”), a newly formed wholly-owned subsidiary of the Company entered into an asset purchase agreement with WonderLeaf, LLC (“WonderLeaf”), and on December 7, 2021, Bespoke Colorado and WonderLeaf entered into an amendment to such asset purchase agreement (as amended, the “WonderLeaf Purchase Agreement”). On January 3, 2023, the Company completed the acquisition of the WonderLeaf assets and the change of control was approved by the Colorado Marijuana Enforcement Division for 222,223 shares of common stock valued at $50,000, or $0.225 per share, and the change of control was approved by the Colorado Marijuana Enforcement Division.share. At the time of acquisition WonderLeafWonderleaf had no operations or no employees and was not considered a business.

On February 2, 2022, the Company changed its fiscal year from August 31 to December 31.

Certain prior period amounts have been reclassified to conform to the current period presentation which include common stock and additional paid in capital.

Principles of Consolidation

The accompanying condensed consolidated unaudited financial statements include the accounts of Bespoke Extracts, Inc., and its wholly owned subsidiary Bespoke Extracts Colorado, LLC. All inter-company balances have been eliminated.

Going Concern

The accompanying condensed consolidated unaudited financial statements have been prepared assuming a continuation of the Company as a going concern. The Company had negative cash flows from operations of $402,440$395,430_ for the sixnine months ended JuneSeptember 30, 2023, and a working capital deficit of $620,213$851,602 and accumulated deficit of $24,789,333,$25,097,554, as of JuneSeptember 30, 2023. This raises substantial doubt about our ability to continue as a going concern for a period of one year from the date of these financial statements.

The Company’s ability to continue as a going concern is dependent upon the Company generating profitable operations in the future and/or obtaining the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. There is no assurance that this series of events will be satisfactorily completed.

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

Use of Estimates

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

Cash and Cash Equivalents

Cash and cash equivalents include all highly liquid investments with original maturities of three months or less at the time of purchase. At JuneSeptember 30, 2023 and December 31, 2022, the Company did not have any cash equivalents. The Company did not have any cash in excess of FDIC limits of $250,000 at any single bank.

Fair Value of Financial Instruments

The carrying amounts of cash, accounts receivable, inventory, fixed assets, licenses, and other assets, accounts payable, accrued liabilities, note payable and convertible notenotes payable approximate their fair values as of JuneSeptember 30, 2023 and December 31, 2022, 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 are generally net 3014 or net 6030 days. Once collection efforts by the Company, and its collection agency are exhausted, the determination for charging off uncollectible receivables is made. At JuneSeptember 30, 2023 and December 31, 2022, the Company has recorded an allowance for doubtful accounts of $0 and $0, respectively.

Inventory, Net

Inventories are stated at the lower of cost or net realizable value. Cost is determined by the first-in, first-out basis and net realizable value. Net realizable value is defined as sales price less cost of completion, disposition and transportation and a normal profit margin. As of JuneSeptember 30, 2023 and December 31, 2022, inventory amounted to $42,364,$25,557, and $0 net of reserves, respectively, which consisted of finished goods of $0 and $0, and raw materials of $42,364$25,557 and $0, respectively.

Property and equipment

Property and equipment is recorded at cost and capitalized from the initial date of service. Expenditures for major additions and improvements are capitalized and minor replacements, maintenance, and repairs are charged to expense as incurred. When property and equipment is retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the results of operations for the respective period. Depreciation is provided over the estimated useful lives of the related assets using the straight-line method for financial statement purposes. The Company uses other depreciation methods (generally accelerated) for tax purposes where appropriate. The estimated useful lives for significant property and equipment categories are as follows:

Schedule of Estimated useful Lives of Property and Equipment

License

License represents the Colorado license for distributing cannabis. The license has an indefinite useful life and the Company will be amortized over its useful life.test annually for impairment.

Revenue Recognition

We account for revenue in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification Topic 606, “Revenue from Contracts with Customers”. Revenue is measured based on the amount of consideration that we expect to receive, reduced by discounts and estimates for credits and returns (calculated based upon previous experience and management’s evaluation). Outbound shipping charged to customers is recognized at the time the related merchandise revenues are recognized and are included in net revenues. Inbound and outbound shipping and delivery costs are included in cost of revenues.

Our products are sold directly to licensed marijuana dispensaries in Colorado. Revenue is recognized when control of the merchandise is transferred to the customer, which generally occurs upon shipment. Payment is typically due on the date of shipment or within 15 days, depending on the customer.

14 to 30 days.

At JuneSeptember 30, 2023, two customers amounted to 35.5%31.2% and 12.7%15.2%, or 48.2%46.4% of accounts receivable. During the year ended December 31, 2022 no customer amounted to over 10% of the total accounts receivable. During the three months ended JuneSeptember 30, 2023 one customer amounted to 39.7%25.8% of sales for the period. During the sixnine months ended JuneSeptember 30, 2023 one customer amounted to 51.6%33.3% of sales for the period.period During the three and sixnine months ended JuneSeptember 30, 2022 no individual customer amounted to over 10% of tota1 sales.

Cash Overdrafts

Cash Overdrafts represent disbursements in excess of cash balances on hand.

Deferred Revenue

Deferred revenueRevenue represents services or productsserviced that werewas paid for but not delivered to the customer as of JuneSeptember 30, 2023.

Stock Based Compensation

Stock options and warrants issued to consultants and other non-employees as compensation for services provided to the Company are accounted for based on the fair value of the services provided or the estimated fair market value of the option or warrant, whichever is more reliably measurable, and in accordance with FASB ASC 718, Compensation-Stock Compensation, including related amendments and interpretations.

Reclassification

Prior gross prepaid stock compensation and additional paid in capital presented in the 10-Q10Q for the period end JuneSeptember 30, 2022 have been reclassified to conform with the financial statementsfinancials filed in the December 31, 2022 10-K.10K.

Net Income / (Loss) per Share

Basic income / (loss) per share amounts are computed based on net income / (loss) divided by the weighted average number of common shares outstanding. Diluted earnings per share reflect the potential dilution that could occur if potentially dilutive securities were exercised or converted to common stock. The dilutive effect of options and warrants and their equivalent is computed by application of the treasury stock method and the effect of convertible securities by the “if converted” method. The effect of 56,00129,876 warrants and 1,023,8421,023,341 options is anti-dilutive for the three and sixnine months ended JuneSeptember 30, 2023 as they are not in the money. The effect of 562.967 warrants and 1,023,842 options is anti-dilutive for the three and sixnine months ended JuneSeptember 30, 2022 as they are not in the money. 

Reverse Stock Split

The Company completed a 45-to-1 reverse split of its common stock effective January 13, 2023. All prior equity amounts have been presented to reflect this split.

Recent accounting pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other standard setting bodies that are adopted by the Company as of the specified effective date.

Income Taxes

We utilize the asset and liability method of accounting for income taxes. We recognize deferred tax liabilities or assets for the expected future tax consequences of temporary differences between the book and tax basis of assets and liabilities. We regularly assess the likelihood that our deferred tax assets will be recovered from future taxable income. We consider projected future taxable income and ongoing tax planning strategies in assessing the amount of the valuation allowance necessary to offset our deferred tax assets that will not be recoverable. We have recorded and continue to carry a full valuation allowance against our gross deferred tax assets that will not reverse against deferred tax liabilities within the scheduled reversal period. If we determine in the future that it is more likely than not that we will realize all or a portion of our deferred tax assets, we will adjust our valuation allowance in the period we make the determination. We expect to provide a full valuation allowance on our future tax benefits until we can sustain a level of profitability that demonstrates our ability to realize these assets.

2. ASSET PURCHASE AGREEMENT

On January 3, 2023, the Company completed the acquisition of the WonderLeaf assets for 222,223 shares of common stock valued at $50,000, or $0.225 per share. At the time of acquisition WonderLeafWonderleaf had no operations or no employees and was not considered a business. 

Pursuant to ASU 2017-01 and ASC 805, the Company analyzed the business of WonderLeafWonderleaf to determine if the Company acquired a business or acquired assets. Based on this analysis, the Company determined that it acquired assets. No goodwill was recorded since the purchase was accounted for as an asset purchase. In accordance with ASC 805, the fair value of the assets acquired is based on either the fair value of the consideration given or the fair value of the assets acquired, whichever is more clearly evident, and thus, more reliably measurable. The Company used the market price of the 222,223 common shares issued of $50,000 as the fair value of the assets acquired since this value was more clearly evident, and thus, more reliably measurable than the fair value of the license and fixed assets acquired.

Company management evaluated whetherdetermined if the Company acquired a business or acquired assets. The FASB issued new guidance (ASU 2017-01) that changed the definition of a business to assist entities with evaluating when a set of transferred assets and activities is a business. The guidance requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets; if so, the set of transferred assets and activities is not a business. The guidance also requires a business to include at least one substantive process and narrows the definition of outputs by more closely aligning it with how outputs are described in ASC 606. Under the new guidance, an entity first determines whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If this threshold is met, the set is not a business. If it’s not met, the entity then evaluates whether the set meets the requirement that a business include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs. Under the ASU, a set is not a business when substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets.

Pursuant to 805-10-55-83, the Company first considered the guidance in paragraphs 805-10-55-5A through 55-5C. The identifiable assets that could be recognized in the purchase only included the license and fixed assets. Accordingly, the transaction was not considered a business.

The monetary value of the 222,223 shares is deemed by the Company to be $50,000 in accordance with Accounting Standards Codification (“ASC”) 805-50-30 “Business Combinations”. The, the Company determined that if the consideration paid is not in the form of cash, the measurement may be based on either (i) the cost which is measured based on the fair value of the consideration given or (ii) the fair value of the assets (or net assets) acquired, whichever is more clearly evident and thus more reliably measurable. No goodwill should be recorded since the WPA was accounting for as an asset purchase. The Company determined that the fair value of the common shares issued was a better indicator which is more reliably measurable.

The Company assigned a value of $10,000 to the licenses and $40,000 to the fixed assets acquired.

3. INVENTORY EARN-OUT 

As described in Note 10,9, in exchange for cancellation of the debt owed under the Debenture, the Company transferred to the holder certain domain names and agreed to pay the holder, beginning December 1, 2021, and on a monthly basis through August 31, 2022, 40% of the operating profit generated from sale of the existing CBD inventory of the Company, and on August 31, 2022, to make a final payment equal to an amount of $75,000 minus the total of the monthly payments made under the Inventory Earn Out. As of December 31, 2022 no amounts had been paid. The inventory earn-out agreement was amended on November 11, 2022 such that the final payment under the inventory earn out was increased to $90,000 (less any payments previously made) and was due February 28, 2023. During the sixnine months ended JuneSeptember 30, 2023 the amount was paid.

4. NOTE RECEIVABLE 

On January 19, 2022 the Company loaned WonderLeaf $10,000, pursuant to a promissory note. The note bears interest at 5% annually and matures on January 18, 2023.

On February 8, 2022 the Company loaned WonderLeaf $10,000, pursuant to a promissory note. The note bears interest at 5% annually and matures on February 8, 2023.

On October 25, 2022 the Company loaned WonderLeaf $25,000, pursuant to a promissory note. The note bears interest at 5% annually and matures on February 8, 2023.

As of December 31, 2022 accrued interest on the notes receivable amounted to $931.

At December 31, 2022 the Company recorded a reserve of $45,931 for the promissory notes and accrued interest.

Note 5 – Furniture and equipment.

Machinery and equipment consisted of the following at:

Schedule of Machinery and Equipment

Depreciation expense for the three and sixnine months ended JuneSeptember 30, 2023 and JuneSeptember 30, 2022 were $2,781, $4,566,$2,617, $7,183, $0 and $0 respectively.

6. NOTE PAYABLE – RELATED PARTY

During the sixnine months ended JuneSeptember 30, 2023, Infinity Management, LLC an affiliate of Michael Feinsod, the Company’s chief executive officer, loaned the Company an additional $469,954.$434,000. On September 5, 2023 $849,500 of notes payable were converted into a 5% interest bearing note due June 30, 2025.2025 (the “Infinity Note”). In addition, repayment of the noteInfinity Note will be due out of the proceeds of a new debt or equity capital raise with net proceeds of more than $2,000,000. Amounts are being presented retroactively as of June 30, 2023. As of JuneSeptember 30, 2023 and December 31, 2022 the amount owed Infinity Management, LLC is $885,454 and $415,500, respectively.

During the nine month ended September 30, 2023 Infinity Management, LLC an affiliate of Michael Feinsod advanced the Company and additional $26,997.

7. LEASES

In connection with the WonderLeaf Purchase Agreement, Bespoke Colorado entered into a lease agreement (the “Lease”) with WL Holdings, Ltd. (“WL Holdings”) in December 2021. Pursuant to the Lease, Bespoke Colorado will lease from WL Holdings certain commercial space in Aurora, Colorado, where WonderLeaf’s business has been located, commencing upon signing of the Lease and WonderLeafWonderleaf Purchase Agreement, for a term of five years, which Bespoke Colorado will have an option to renew for an additional five years. Monthly rent under the Lease will start at $6,000. The Lease grants the Company an option to purchase the property for $600,000. The Company has not decided whether it will exercise either option.

Supplemental balance sheet information related to leases was as follows:

Lease term and discount rate were as follows:

The component of lease costs was as follows:

Supplemental disclosures of cash flow information related to leases were as follows:

Maturities of lease liabilities were as follows as of JuneSeptember 30, 2023:

8. EQUITY

Common Stock and Preferred Stock

TheOn December 5, 2022 the Company completedapproved an amendment to its articles of incorporation to effect a 45-to-1 reverse split of itsour common stock effective January 13, 2023. All prior amounts equity amounts have been presented to reflect this reverse split.

As of JuneSeptember 30, 2023 and December 31, 2022, the Company’s authorized capital stock consists of 3,000,000,000 shares of common stock, par value $0.001, and 50,000,000 shares of preferred stock, par value $0.001. 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 JuneSeptember 30, 2023 and December 31, 2022, respectively. The Company’s Certificate of Designation of Series B Preferred Stock was withdrawn by the Company on JuneSeptember 30, 2020. 1 share of preferred stock is designated Series C Preferred Stock and is issued and outstanding as of JuneSeptember 30, 2023 and December 31, 2022, 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 January 3, 2023, the Company completed the acquisition of the WonderLeaf assets for 222,223 shares of common stock valued at $50,000, or $0.225 per share.

On December 14, 2021, the board of directors of the Company adopted the Company’s 2021 Equity Incentive Plan (the “2021 Plan”), pursuant to which up to an aggregate of 6,666,667 shares of common stock are available for issuance. Awards under the plan may include options (including incentive stock options and non-qualified stock options), stock appreciation rights, restricted stock, restricted stock units, performance share awards, or other equity-based awards, each as defined under the 2021 Plan. Options awarded under the 2021 Plan are to have an exercise price of not less than 100% of the fair market value of the common stock on the grant date and a term of not more than ten years from the option grant date.

On December 14, 2021, the Company entered into an employment agreement with Hunter Garth. Pursuant to the employment agreement, Mr. Garth will serve as the Company’s president and will receive a base monthly salary of $8,000. The Company also granted to Mr. Garth, pursuant to the Company’s 2021 Equity Incentive Plan, 500,000 shares of restricted common stock valued at $675,000 ($1.35 per share), which vested one year from the date of grant. During the year ended December 31, 2022 the Company recorded $675,000 a prepaid expenses associated with the stock based compensation. During the years ended December 31, 2022 and 2021 the amount was amortized $643,562 and $31,438, respectively.

On December 14, 2021, the Company entered into an employment agreement with Michael Feinsod, the Company’s chief executive officer and chairman. Pursuant to the employment agreement, Mr. Feinsod will continue to serve as the Company’s chief executive officer and chairman and will receive a base monthly salary of $10,000. The Company also granted to Mr. Feinsod, pursuant to the Company’s 2021 Equity Incentive Plan, 1,000,000 shares of restricted common stock valued at $1,350,000 ($1.35 per share), which vested one year from the date of grant. During the year ended December 31, 2022 the Company recorded $1,350,000 of prepaid expenses associated with the stock based compensation. During the years ended December 31, 2022 and 2021 the amount was amortized $1,287,123 and $62,877, respectively. As of December 31. 2022 and 2021 the Company recorded a prepaid stock award of $0 and $1,287,123, respectively.

During the year ended December 31, 2022, the Company entered into and closed securities purchase agreements with investors pursuant to which the Company issued and sold to the investors an aggregate of 1,530,897 shares of common stock and warrants to purchase an aggregate of 1,530,897 shares of common stock, for an aggregate purchase price of $344,450. The warrants expired June 30, 2023 and had an exercise price of $2.25.

Effective August 1, 2022, the Company issued an aggregate of 266,667 shares of common stock to employees and consultants for services, including 155,556 shares that vest immediately, 55,556 shares that vested one year from the grant date, and 55,556 shares that will vest two years from the grant date. During the year ended December 31, 2022 the Company recorded an expense $1,104,928. For the three and sixnine months ended JuneSeptember 30, 2023 the Company recorded an expense of $21,544 and $43,328, respectively. As of JuneSeptember 30, 2023 and December 31, 2022 the Company had a prepaid stock award of $38,785 and $80,113.

Effective August 1, 2022, the Company issued an aggregate of 266,667 shares of common stock to employees and consultants for services, including 155,556 shares that vest immediately, 55,556 shares that vested one year from the grant date, and 55,556 shares that will vest two years from the grant date. During the year ended December 31, 2022 the Company recorded an expense of $1,104,928. For the three and nine months ended September 30, 2023 the Company recorded an expense of $21,544 and $43,328, respectively. As of September 30, 2023 and December 31, 2022 the Company had a prepaid stock award of $38,785 and $80,113.

Warrants

During the four months ended December 31, 2021, the Company entered into and closed securities purchase agreements with investors pursuant to which the Company issued and sold to the investors an aggregate of 50,000,000 shares of common stock and warrants to purchase an aggregate of 12,500,000 shares of common stock, for an aggregate purchase price of $250,000 with offering costs of $10,000 for legal expenses. The warrants had a term of one year and an exercise price of $2.25.

During the year ended December 31, 2022, the Company entered into and closed securities purchase agreements with investors pursuant to which the Company issued and sold to the investors an aggregate of 1,530,887 shares of common stock and warrants to purchase an aggregate of 382,722 shares of common stock, for an aggregate purchase price of $344,450. The warrants expired June 30, 2023 and had an exercise price of $2.25.

The following table summarizes the warrant activities during the sixnine months ended JuneSeptember 30, 2023: