NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March
31, 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. As of the date
of filing the Company has not closed on the transaction.
Basis
of Presentation
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 months ended March 31, 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, a working capital deficit and an accumulated deficit as of and for the
three months ended March 31, 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 March 31, 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 March 31, 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 March 31, 2022 and December 31, 2021, the Company has recorded an allowance for doubtful accounts of $0 and $0,
respectively. At March 31, 2022 and December 31, 2021 included in the accounts receivable is the merchant holdback receivable balance
of $3,636 and $3,636, respectively which will be remitted to the Company in the future.
Advances to WonderLeaf
During the three months ended March 31, 2022 the Company advanced WonderLeaf
$6,443 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 March 31, 2022 and December 31, 2021, inventory amounted to $46,470 and $46,825, respectively, which consisted of finished goods
of $43,219 and $43,574, and raw materials of $3,251 and $3,251 net of reserves, respectively. As of March 31, 2022 and December 31, 2021
inventory reserves were $33,476 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 months ended March 31, 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 months ended March 31,
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 months ended March 31, 2022 and 2021, the Company recorded an amortization expense
of $0 and $811, respectively.
In
connection with a stock purchase agreement (see note 7), 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 March 31, 2022 no amounts
have been paid.
4.
NOTE RECEIVABLE
On January
19, 2022 the Company loaned WonderLeaf $10,000, pursuant to a promissory note. The note bears interest at 5.0% annually and matures on
January 18, 2023. Accrued interest amounted to $111 at March 31, 2022.
On February
8, 2022 the Company loaned WonderLeaf $10,000, pursuant to a promissory note. The note bears interest at 5.0% annually and matures on
February 8, 2023. Accrued interest amounted to $70 at March 31, 2022.
5.
NOTE PAYABLE - RELATED PARTY
During
the three months ended March 31, 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 March 31, 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.
7.
LEASES
In connection
with the Wonderleaf Purchase Agreement, Bespoke Colorado entered into a lease agreement (the “Lease”) with WL Holdings, Ltd.
(“WL Holdings”) 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:
| | |
| |
March 31, | |
| Operating
Leases | |
Classification | |
2022 | |
| Right-of-use assets | |
Right of use assets | |
$ | 324,035 | |
| | |
| |
| | |
| Current lease liabilities | |
Current operating lease liabilities | |
| 61,279 | |
| Non-current lease liabilities | |
Long-term operating lease liabilities | |
| 264,219 | |
| Total lease liabilities | |
| |
$ | 325,498 | |
Lease term
and discount rate were as follows:
| | |
December 31, | |
| | |
2021 | |
| Weighted average remaining lease
term (years) | |
| 4.67 | |
| Weighted average discount rate | |
| 4 | % |
The component
of lease costs was as follows:
| | |
Three
months
ended March
31, | |
| | |
2022 | |
| Operating lease cost | |
$ | 19,098 | |
| Variable lease cost
(1) | |
| 1,050 | |
| Total lease costs | |
$ | 20,148 | |
(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:
| | |
March 31, | |
| | |
2022 | |
| Cash paid for operating lease liabilities | |
$ | 18,000 | |
Maturities
of lease liabilities were as follows as of December 31, 2021:
| | | |
Operating
| |
| | | |
Leases | |
| 2022 | | |
$ | 54,300 | |
| 2023 | |
| 75,600 | |
| 2024 | | |
| 75,915 | |
| 2025 | | |
| 79,380 | |
| 2026 | | |
| 72,765 | |
| Thereafter | | |
| - | |
| Total undiscounted lease payments | | |
| 357,960 | |
| Less:
Present value discount | | |
| (32,462 | ) |
| Total
Present value of lease liabilities | | |
$ | 325,498 | |
8.
EQUITY
Common
Stock and Preferred Stock
As
of March 31, 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 March 31, 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 March 31, 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, As of the date of
filing the Company has not closed on the transaction.
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 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 months ended March 31, 2022 the Company recorded $166,438 of expenses associated with the stock
based compensation.
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 valued at $1,350,000 ($0.03 per share), which will vest one year from the date of grant.
During the three months ended March 31, 2022 the Company recorded $332,877 of expenses associated with the stock based compensation.
During the three months ended March 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 39,450,000 shares of common stock and warrants to purchase an aggregate of 9,862,500 shares of
common stock, for an aggregate purchase price of $197,250. The warrants have a term of one year and an exercise price of $0.05.
Warrants
During the
three months ended March 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 39,450,000 shares of common stock and warrants to purchase an aggregate of
9,862,500 shares of common stock, for an aggregate purchase price of $197,250. The warrants have a term of one year and an exercise price
of $0.05.
The
following table summarizes the warrant activities during the three months ended March 31, 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 | |
| 9,862,500 | | |
| 0.05 | | |
1.0 years | |
| Canceled or expired | |
| (30,000 | ) | |
| 0.40 | | |
| |
| Exercised | |
| - | | |
| - | | |
| |
| Outstanding at March 31, 2022 | |
| 25,332,500 | | |
$ | 0.11 | | |
0.90 years | |
| Exercisable at March 31, 2022 | |
| 25,332,500 | | |
$ | 0.11 | | |
0.90 years | |
| Intrinsic value at March 31, 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 months ended March 31,
2022 the Company recorded $67,797 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 months ended March 31,
2022 the Company recorded $135,594 of expenses associated with the vesting of these stock options. (See notes 9 and 10).
On
December 14, 2021 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 life of 10 years. The options were valued at $30,000 using a Black-Scholes pricing
model. During the three months ended March 31, 2022 the Company recorded $24,900 of expenses associated with the vesting of these stock
options.
The
following table summarizes the option activities during the three months ended March 31, 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 March 31, 2022 | |
| 46,072,874 | | |
$ | 0.06 | | |
9.70 years | |
| Exercisable at March 31, 2022 | |
| 1,072,874 | | |
$ | 0.03 | | |
9.44 years | |
| Intrinsic value at March 31, 2022 | |
| | | |
$ | - | | |
| |
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. The Company could
also in its discretion pay additional compensation to Mr. Pollack at any time as a bonus. 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 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. (See notes 8 and 10).
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. (See notes 8 and 10).
During
the three months ended March 31, 2022, Michael Feinsod, the Company’s chief executive officer, was repaid $2,500.
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. The Company may also in its discretion pay additional compensation
to Mr. Pollack at any time as a bonus. Mr. Pollack elected to forgive $11,000 of salary during 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. (See notes 3 and 6).
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. (See notes 8 and 10).
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. (See notes 8 and 10).
11.
MAJOR CUSTOMERS
At March 31, 2022 and December 31, 2021, no individual
customer amounted to over 10% of total accounts receivable. During the three months ended March 31, 2022, one individual customer amounted
to over 10% of total sales. During the three months ended March 31, 2021, no individual customer amounted to over 10% of total sales.
12.
SUBSEQUENT EVENTS
On
April 5, 2022, the Company issued and sold to an investor in a private placement 10,000,000 shares of common stock and warrants to purchase
2,500,000 shares of common stock with a term of one year and an exercise price of $0.05, for a purchase price of $50,000.
On May 16, 2022, the Company issued and sold to an
investor in a private placement 1,000,000 shares of common stock and warrants to purchase 250,000 shares of common stock with a term
of one year and an exercise price of $0.05, for a purchase price of $5,000.