The accompanying
condensed notes are an integral part of these unaudited consolidated financial statements.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
September 30, 2022
(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 selling its proprietary line of specially-formulated, premium quality, hemp-derived CBD products.
In November 2021, new management of the Company
was appointed and the Company began to focus on other complimentary lines of business to its CBD offerings. Under our new management team,
we plan to expand the Company’s focus to regulated cannabis markets in the United States.
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”). Pursuant to the Wonderleaf Purchase Agreement,
Bespoke Colorado agreed to purchase from WonderLeaf, and WonderLeaf agreed to sell to Bespoke Colorado, certain assets of WonderLeaf,
including a license to manufacture marijuana-infused products, existing inventory, and extraction equipment and ancillary items, all as
further set forth in the WonderLeaf Purchase Agreement, for a purchase price of $225,000, to be paid in shares of common stock of the
Company (including 2,500,000 shares issuable, and to be held in escrow, upon execution of the WonderLeaf Purchase Agreement,
and an additional $150,000 of common stock that will be valued based on the volume weighted average price of the common stock, subject
to a floor of $0.02 per share and a ceiling of $0.04 per share), provided that, the purchase price for the inventory will be 90%
of the wholesale value of the regulated marijuana portion of the inventory and the packaging corresponding thereto set forth on the inventory
accounting statement to be prepared pursuant to the WonderLeaf Purchase Agreement. On September
8, 2022, Bespoke Colorado and WonderLeaf entered into amendment No. 3 to the asset purchase agreement. Pursuant to the amendment,
the “Termination Date” under the asset purchase agreement was extended to October 30, 2022. On October 31, 2022, Bespoke
Colorado and WonderLeaf entered into amendment No. 4 to the asset purchase agreement. Pursuant to the amendment, the “Termination
Date” under the asset purchase agreement was extended to November 30, 2022. As of the date of filing the Company has not
closed on the transaction.
The accompanying condensed consolidated unaudited
financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim information
and with the instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all of the information and footnotes required
by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all
adjustments of a normal and recurring nature considered necessary for a fair presentation have been included. Operating results for the
three and nine months ended September 30, 2022 may not necessarily be indicative of the results that may be expected for the year ended
December 31, 2022.
For further information, refer to the Company’s
financial statements and footnotes thereto included in the Annual Report on Form 10-K for the year ended August 31, 2021 and the Transition
Report on Form 10Q-T for the transition period from September 1, 2021 to December 31, 2021.
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.
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 $604,660, a working capital deficit of $465,147 and an accumulated deficit of $22,886,173 as
of and for the nine months ended September 30, 2022. 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 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 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
Cash and cash equivalents include all highly liquid
investments with original maturities of three months or less at the time of purchase. At September 30, 2022 and December 31, 2021, the
Company did not have any cash equivalents.
Fair Value of Financial Instruments
The carrying amounts of cash, accounts receivable,
prepaid expenses, inventory and other assets, accounts payable, accrued liabilities, note payable and convertible note payable approximate
their fair values as of September 30, 2022 and December 31, 2021, 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 30 or net 60 days. Once collection efforts by the Company
and its collection agency are exhausted, the determination for charging off uncollectible receivables is made. At September 30, 2022 and
December 31, 2021, the Company has recorded an allowance for doubtful accounts of $3,636 and $0, respectively. At September 30, 2022
and December 31, 2021 included in the accounts receivable is the merchant holdback receivable balance of $0 and $3,636, respectively
which will be remitted to the Company in the future.
Advances to WonderLeaf
During the nine months ended September 30, 2022
the Company advanced WonderLeaf $12,000 to cover operating expenses. The amounts are repayable upon demand.
Inventory
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 September 30, 2022 and December
31, 2021, inventory amounted to $0 and $46,825, respectively, which consisted of finished goods of $79,909 and $43,574, and
raw materials of $0 and $3,251 net of reserves, respectively. As of September 30, 2022 and December 31, 2021 inventory reserves
were $79,909 and $33,476, respectively.
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 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 offers a 30 day return policy on sales.
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.
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 25,333,500 warrants and 46,072,874 options is anti-dilutive
for the three and nine months ended September 30, 2022 as they are not in the money. The effect of 3,000,000 warrants and 0 options,
as well as 500,000,000 shares issuable upon the conversion of a convertible note, is anti-dilutive for the three and nine months
ended September 30, 2021.
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 February 21, 2017, the Company purchased all
right, title, interest and goodwill in or associated with certain 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. During the year ended August
31, 2020, the Company transferred certain URLs valued at $5,282 to an unrelated party and impaired $289 leaving a balance of
$44,614 of URLs. The domain names are being amortized over a 15 year period. During the year ended August 31, 2021, the
Company recorded an amortization expense of $3,244. During the year ended August 31, 2020, the Company recorded an impairment expense
of $289 for the expired domain names. During the three and nine months ended September 30, 2022 and 2021, the Company recorded an amortization
expense of $0, $0, $3,060 and $3,871, respectively.
In connection with a stock purchase agreement
(see note 9), on October 28, 2021, a convertible debenture with an original issue date of December 24, 2019, as amended by Amendment No.
1 thereto, dated May 28, 2020, Amendment No. 2 thereto, dated August 21, 2020, Amendment No. 3 thereto, dated December 10, 2020, Amendment
No. 4 thereto, dated January 15, 2021, Amendment No. 5 thereto, dated April 2, 2021, and Amendment No. 6 thereto, dated August 2, 2021
(as amended, the “Debenture”) with an original principal amount of approximately $400,000 was terminated, and all amounts
due and payable thereunder forgiven pursuant to a cancellation and satisfaction of debenture agreement entered into between the Company
and the Debenture holder. In exchange for cancellation of the debt owed under the Debenture, the Company transferred to the holder certain
domain names valued at $32,748. (See Notes 3 and 6.)
3. INVENTORY EARN-OUT
As described in Notes 2 and 6, 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 September 30, 2022 no amounts have 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 $85,000 (less any
payments previously made) and will be due February 28, 2023.
(see Note 12).
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. Accrued interest
amounted to $361 at September 30, 2022.
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. Accrued interest
amounted to $320 at September 30, 2022.
5. NOTE PAYABLE – RELATED PARTY
During the nine months ended September 30, 2022,
Michael Feinsod, the Company’s chief executive officer, was repaid $2,500.
6. CONVERTIBLE NOTE PAYABLE
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 Company also
issued to the investor 5,000,000 shares of common stock valued at $55,000 ($0.005 per share). The Company recorded
beneficial conversion of $245,000 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
debenture had an original maturity date of April 30, 2020 and was convertible into shares of common stock of the Company at
an initial conversion price of $0.001, except that, if the Company failed to repay the debenture upon maturity, the conversion price would
be reduced to $0.0004 (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’s obligation to repay the debenture upon maturity was initially secured
by a security interest in the Company’s inventory pursuant to a security agreement between the Company and the investor. For the
year ended August 31, 2020 the Company recorded amortization of debt discount of $500,000. A portion of the debenture was subsequently
sold by the original purchaser to a third party. On April 23, 2020, the Company entered into an amendment to the security agreement with
the holders of the debentures. Pursuant to the security agreement amendment, the collateral under the security agreement was amended to
be the Company’s URLs. The Company also entered into six amendments to the debentures, including to increase the conversion price
to $0.05, and to extend the maturity date, including an amendment entered into on August 2, 2021, to extend the maturity date to August
31, 2021. In September 2021, a debenture holder converted $100,000 into 2,000,000 shares of common stock at a price of
$0.05 per share. As of September 30, 2022, there is no convertible debt outstanding.
On October 28, 2021, in connection with a
stock purchase agreement, the Debenture with an original principal amount of approximately $400,000 was terminated, and all
amounts due and payable thereunder forgiven pursuant to a cancellation and satisfaction of debenture agreement entered into between
the Company and the Debenture holder. In exchange for cancellation of the debt owed under the Debenture, the Company transferred to
the holder certain domain names valued at $32,748 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. The Company recorded a gain on the extinguishment of debt $292,252 during the year ended December 31, 2021. The inventory earn-out
agreement was amended on November 11, 2022 (see Note 12).
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 Wonderleaf 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:
| | |
| |
September 30, | |
| Operating Leases | |
Classification | |
2022 | |
| Right-of-use assets | |
Right of use assets | |
$ | 308,142 | |
| | |
| |
| | |
| Current lease liabilities | |
Current operating lease liabilities | |
| 62,797 | |
| Non-current lease liabilities | |
Long-term operating lease liabilities | |
| 247,907 | |
| Total lease liabilities | |
| |
$ | 310,704 | |
Lease term and discount rate were as follows:
| | |
September 30, | |
| | |
2022 | |
| Weighted average remaining lease term (years) | |
| 4.67 | |
| Weighted average discount rate | |
| 4 | % |
The component of lease costs was as follows:
| | |
Nine months
ended
September 30, | |
| | |
2022 | |
| Operating lease cost | |
$ | 57,279 | |
| Variable lease cost (1) | |
| 3,150 | |
| Total lease costs | |
$ | 60,429 | |
| (1) |
Variable lease cost primarily relates to common area maintenance, property taxes and insurance on leased real estate. |
Supplemental disclosures of cash flow information related to leases
were as follows:
| | |
September 30, | |
| | |
2022 | |
| Cash paid for operating lease liabilities | |
$ | 54,000 | |
Maturities of lease liabilities were as follows as of September 30, 2022:
| | |
Operating | |
| | |
Leases | |
| 2022 | |
$ | 18,200 | |
| 2023 | |
| 75,600 | |
| 2024 | |
| 75,915 | |
| 2025 | |
| 79,380 | |
| 2026 | |
| 72,765 | |
| Thereafter | |
| - | |
| Total undiscounted lease payments | |
| 321,860 | |
| Less: Present value discount | |
| (26,099 | ) |
| Total Present value of lease liabilities | |
$ | 295,761 | |
8. EQUITY
Common Stock and Preferred Stock
As of September 30, 2022 and December 31, 2021,
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 September 30, 2022 and December 31, 2021, 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 and is issued and outstanding as of September 30, 2022 and December 31, 2021, 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 28, 2021, the Company entered into
a stock purchase agreement with Danil Pollack (the Company’s then-chief executive officer), and Infinity Management, LLC (“Infinity”). Pursuant
to the purchase agreement, upon the closing thereof on November 19, 2021, Mr. Pollack sold to Infinity, 50,000,000 shares of common stock
of the Company and one share of Series C preferred stock of the Company for cash consideration of $40,000. The Series C
Preferred Stock Infinity acquired represents 51% of the voting power of the Company’s capital stock, and therefore the transaction
resulted in a change-in-control of the Company.
The purchase agreement further provided for Infinity
to make a capital contribution to the Company of $4,792 to cover payment of the amounts due to certain creditors of the Company,
as set forth in the purchase agreement. The amount was paid on January 18, 2022.
On December 2, 2021, 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”). Pursuant to the Wonderleaf Purchase Agreement, Bespoke Colorado agreed to purchase from WonderLeaf, and
WonderLeaf agreed to sell to Bespoke Colorado, certain assets of WonderLeaf, including a license to manufacture marijuana-infused products,
existing inventory, and extraction equipment and ancillary items, all as further set forth in the Wonderleaf Purchase Agreement, for a
purchase price of $225,000, to be paid in shares of common stock of the Company (including 2,500,000 shares issuable, and to be held in
escrow, upon execution of the Purchase Agreement, and an additional $150,000 of common stock that will be valued based on the volume weighted
average price of the common stock, subject to a floor of $0.02 per share and a ceiling of $0.04 per share), provided that, the purchase
price for the inventory will be 90% of the wholesale value of the regulated marijuana portion of the inventory and the packaging corresponding
thereto set forth on the inventory accounting statement to be prepared pursuant to the Wonderleaf Purchase Agreement. On June 30,
2022, Bespoke Colorado and WonderLeaf entered into amendment No. 2 to the asset purchase agreement. Pursuant to the amendment, the
“Termination Date” under the asset purchase agreement was extended to August 30, 2022. On September
8, 2022, Bespoke Colorado and WonderLeaf entered into amendment No. 3 to the asset purchase agreement. Pursuant to the amendment, the
“Termination Date” under the asset purchase agreement was extended to October 30, 2022. On October 31, 2022, Bespoke
Colorado and WonderLeaf entered into amendment No. 4 to the asset purchase agreement. Pursuant to the amendment, the “Termination
Date” under the asset purchase agreement was extended to November 30, 2022.
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 300,000,000 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 issued shares sub events 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, 22,500,000 shares of restricted common stock valued at $675,000 ($0.03 per share), which will vest one
year from the date of grant. During the three and nine months ended September 30, 2022 the Company recorded $210,170 and $1,646,030
respectively of expenses associated with the stock based compensation.
During the nine months ended September 30, 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 68,890,000 shares of common stock and warrants to purchase an aggregate of 17,222,500 shares
of common stock, for an aggregate purchase price of $344,450. The warrants expire June 30, 2023 and have an exercise price of $0.05.
Effective August 1, 2022, the Company issued
an aggregate of 12,000,000 shares of common stock to employees and consultants for services, including 7,000,000 shares
that vest immediately, 2,500,000 shares that will vest one year from the grant date, and 2,500,000 shares that will
vest two years from the grant date during the nine months ended September 30, 2022 the Company recorded an expense $683,086.
Warrants
During the nine months ended September 30, 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 68,890,000 shares of common stock and warrants to purchase an aggregate of 17,222,500 shares of common stock,
for an aggregate purchase price of $344,450. The warrants expire June 30, 2023 and have an exercise price of $0.05.
The following table summarizes the warrant activities
during the nine months ended September 30, 2022:
| | |
Number of
Warrants | | |
Weighted-
Average
Exercise
Price Per
Share | | |
Weighted-
Average
Remaining
Life | |
| Outstanding at December 31, 2021 | |
| 15,500,000 | | |
$ | 0.14 | | |
1.15 years | |
| Granted | |
| 17,222,500 | | |
| 0.05 | | |
1.0 years | |
| Canceled or expired | |
| (30,000 | ) | |
| 0.40 | | |
| |
| Exercised | |
| - | | |
| - | | |
| |
| Outstanding at September 30, 2022 | |
| 32,692,500 | | |
$ | 0.11 | | |
0.65 years | |
| Exercisable at September 30, 2022 | |
| 32,692,500 | | |
$ | 0.11 | | |
0.65 years | |
| Intrinsic value at September 30, 2022 | |
| | | |
$ | - | | |
| |
Options
On December 14, 2021, the Company entered into
an employment agreement with Hunter Garth, wherein the Company granted to Mr. Garth, pursuant to the Company’s 2021 Equity Incentive
Plan, ten-year options to purchase 15,000,000 shares of common stock at an exercise price of $0.06 (representing a 120% premium over the
closing price of the common stock on December 13, 2021). One-third of the options will vest on each yearly anniversary of the date of
grant. The options were valued at $450,000 using a Black-Scholes pricing model. During the three and nine months ended September 30, 2022
the Company recorded $67,797 and $135,594 of expenses associated with the vesting of these stock options. (See notes 9 and 10).
On December 14, 2021, the Company entered into
an employment agreement with Michael Feinsod, wherein the Company granted to Mr. Feinsod, pursuant to the Company’s 2021 Equity
Incentive Plan, ten-year options to purchase 30,000,000 shares of common stock at an exercise price of $0.06 (representing a 120% premium
over the closing price of the common stock on December 13, 2021). One-third of the options will vest on each yearly anniversary of the
date of grant. The options were valued at $900,000 using a Black-Scholes pricing model. During the three and nine months ended September
30, 2022 the Company recorded $135,594 and $271,188 of expenses associated with the vesting of these stock options. (See notes 9 and 10).
On December 14, 2021, the Company issued to a
consultant options to purchase 1,000,000 shares of common stock at an exercise price of $0.03. The options vest over a period of 3 months
and have a term of 10 years. The options were valued at $30,000 using a Black-Scholes pricing model. During the three and nine months
ended September 30, 2022 the Company recorded $0 and $24,900, respectively of expenses associated with the vesting of these stock options.
The following table summarizes the option activities
during the nine months ended September 30, 2022:
| | |
Number of
Options | | |
Weighted-
Average Exercise
Price Per
Share | |
Weighted-
Average
Remaining
Life | |
| Outstanding at December 31, 2021 | |
| 46,072,874 | | |
$ | 0.06 | |
| 9.95 years | |
| Granted | |
| - | | |
| - | |
| | |
| Canceled or expired | |
| - | | |
| - | |
| | |
| Exercised | |
| - | | |
| - | |
| | |
| Outstanding at September 30, 2022 | |
| 46,072,874 | | |
$ | 0.06 | |
| 9.20 years | |
| Exercisable at September 30, 2022 | |
| 1,072,874 | | |
$ | 0.03 | |
| 9.94 years | |
| Intrinsic value at September 30, 2022 | |
| | | |
$ | - | |
| | |
The future expense as of September 30, 2022 is
$701,410.
9. RELATED PARTY TRANSACTIONS
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. Pollack agreed to serve as the
Company’s chief executive officer and president for a period of one year, which term would 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.
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 then-chief executive
officer. Pursuant to the amendment, the Company agreed to pay Mr. Pollack an annual salary of $48,000. On April 27, 2021, the Company
entered into an amendment to the Company’s employment agreement with Mr. Pollack. Pursuant to the amendment, the Company agreed
to pay Mr. Pollack an annual salary of $66,000 effective April 1, 2021. On November 2, 2021, effective July 1, 2021 Mr. Pollack waived
all compensation owed to him by the Company as of such date through the date of his resignation as the Company’s chief executive
officer. Mr. Pollack elected to forgive $11,000 of salary during the four months ended December 31, 2021, and the amount was recorded
as a capital contribution.
On October 28, 2021, the Company entered into
a stock purchase agreement with Danil Pollack, and Infinity Management, LLC. Pursuant to the purchase agreement, upon the closing thereof
on November 19, 2021, Mr. Pollack sold to Infinity, 50,000,000 shares of the common stock of the Company and one share
of Series C preferred stock of the Company for cash consideration of $40,000. The Series C Preferred Stock Infinity acquired represents 51%
of the voting power of the Company’s capital stock, and therefore the transaction resulted in a change-in-control of the Company.
The purchase agreement further provided for Infinity to make a capital contribution to the Company of $4,792 to cover payment of
the amounts due to certain creditors of the Company, as set forth in the purchase agreement. The amount was paid on January 18, 2022.
In connection with the purchase agreement, and
effective upon the closing thereunder, Mr. Michael Feinsod, the managing member of Infinity, was appointed as the chief executive officer
and chairman of the board of directors of the Company, Mr. Hunter Garth was appointed as a director, as well as chief strategy officer
of the Company, and Mr. Pollack resigned from all positions with the Company, including as president, CEO, chief financial officer and
director of the Company.
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, 22,500,000 shares of restricted common stock, which will vest one year from the date of grant, and ten-year
options to purchase 15,000,000 shares of common stock at an exercise price of $0.06 (representing a 120% premium over the
closing price of the common stock on December 13, 2021). One-third of the options will vest on each yearly anniversary of the date of
grant. In the event that Mr. Garth is terminated without cause or resigns with good reason (each as defined in the employment agreement),
he will be entitled to his monthly base salary for twelve months following such termination.
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, 45,000,000 shares
of restricted common stock, which will vest one year from the date of grant, and ten-year options to purchase 30,000,000 shares
of common stock at an exercise price of $0.06 (representing a 120% premium over the closing price of the common stock on December
13, 2021). One-third of the options will vest on each yearly anniversary of the date of grant. In the event that Mr. Feinsod is terminated
without cause or resigns with good reason (each as defined in the employment agreement), he will be entitled to his monthly base salary
for twelve months following such termination.
During the nine months ended September 30, 2022,
Michael Feinsod, the Company’s chief executive officer, advanced the Company $160,000 for operations. The loans are non-interest
bearing and payable upon demand.
10. COMMITMENTS AND CONTINGENCIES
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 employment
agreement. Pursuant to the amendment, the Company agreed to pay Mr. Pollack an annual salary of $48,000. On April 27, 2021, the Company
entered into an amendment to the Company’s employment agreement with Mr. Pollack. Pursuant to the amendment, the Company agreed
to pay Mr. Pollack an annual salary of $66,000 effective April 1, 2021. Mr. Pollack elected to forgive $11,000 of salary during
the four months ended December 31, 2021; the amount was recorded as a capital contribution. Mr. Pollack resigned on November 19, 2021.
In connection with the purchase agreement, a convertible
debenture with an original issue date of December 24, 2019, as amended by Amendment No. 1 thereto, dated May 28, 2020, Amendment No. 2
thereto, dated August 21, 2020, Amendment No. 3 thereto, dated December 10, 2020, Amendment No. 4 thereto, dated January 15, 2021, Amendment
No. 5 thereto, dated April 2, 2021, and Amendment No. 6 thereto, dated August 2, 2021 (as amended, the “Debenture”) with an
original principal amount of approximately $400,000 was terminated, and all amounts due and payable thereunder forgiven pursuant
to a cancellation and satisfaction of debenture agreement entered into between the Company and the Debenture holder (the “Debt Cancellation
Agreement”). 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 (the “Inventory Earn Out”), 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.
The inventory earn-out agreement was amended on November 11, 2022 (see Note 12).
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, 22,500,000 shares of restricted common stock, which will vest one year from the date of grant,
and ten-year options to purchase 15,000,000 shares of common stock at an exercise price of $0.06 (representing a 120%
premium over the closing price of the common stock on December 13, 2021). One-third of the options will vest on each yearly
anniversary of the date of grant. In the event that Mr. Garth is terminated without cause or resigns with good reason (each as
defined in the employment agreement), he will be entitled to his monthly base salary for twelve months following such
termination.
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, 45,000,000 shares
of restricted common stock, which will vest one year from the date of grant, and ten-year options to purchase 30,000,000 shares
of common stock at an exercise price of $0.06 (representing a 120% premium over the closing price of the common stock on December
13, 2021). One-third of the options will vest on each yearly anniversary of the date of grant. In the event that Mr. Feinsod is terminated
without cause or resigns with good reason (each as defined in the employment agreement), he will be entitled to his monthly base salary
for twelve months following such termination.
On August 11, 2022,the Company and Bespoke Colorado
entered into an asset purchase agreement with Osiris, LLC doing business as Best Day Ever (“BDE”) and Michael Gurtman. Pursuant
to the purchase agreement, Bespoke Colorado agreed to purchase from BDE, and BDE agreed to sell to Bespoke Colorado, the assets of BDE,
including certain licenses. The Company also agreed to assume certain leases, all as further set forth in the purchase agreement. As consideration
for the acquisition of the assets, the Company agreed to issue 125,000,000 shares of common stock at the closing of the transaction.
Closing of the purchase agreement was subject to receipt of certain governmental approvals and other customary closing conditions. The
purchase agreement was terminated on November 18, 2022.
11. MAJOR CUSTOMERS
At September 30, 2022 and December 31, 2021, no
individual customer amounted to over 10% of total accounts receivable. During the three and nine months ended September 30, 2022,
no individual customer amounted to over 10% of total sales. During the three and nine ended September 30, 2021, no individual customer
amounted to over 10% of total sales.
12. SUBSEQUENT EVENTS
On November 11, 2022, the Company entered into amendment No. 1 to inventory earn-out agreement, dated October 28, 2021, between
the Company and Berique Labs, LLC. Pursuant to the amendment, the final payment under the inventory earn out was increased to $85,000
(less any payments previously made) and will be due February 28, 2023.
On November 18, 2022, the asset purchase agreement among the Company,
Bespoke Colorado, Osiris, LLC doing business as Best Day Ever and Michael Gurtman, was terminated.