10-Q: Bespoke Extracts Reports Increased Sales but Continues to Face Losses in Q3 2024

Bespoke Extracts, Inc. saw a rise in sales during the third quarter of 2024, but the company still experienced a net loss and faces ongoing concerns about its ability to continue as a going concern.

Summary

• Bespoke Extracts, Inc. reported a net loss of $275,613 for the three months ended September 30, 2024, which is an improvement compared to the $301,529 loss in the same period of 2023.
• Sales increased to $277,471 for the quarter, up from $244,408 in the prior year, driven by higher sales of pre-rolled joints.
• The cost of goods sold also increased to $162,476, up from $146,000, due to higher raw material and labor costs.
• Operating expenses decreased to $377,463 from $394,600, primarily due to lower stock-based compensation expenses.
• For the nine months ended September 30, 2024, the company's net loss was $850,626, an improvement from the $1,213,756 loss in the same period of 2023.
• Sales for the nine-month period were $816,062, compared to $572,671 in 2023.
• The company's cash balance was $21,445 as of September 30, 2024, and it had a working capital deficit of $1,603,728.
• The company has a significant accumulated deficit of $26,217,267 as of September 30, 2024.
• The company's ability to continue as a going concern is dependent on achieving profitable operations or securing additional financing.

Sentiment

Score: 3

Explanation: The document presents a mixed picture with increased sales but significant losses and financial challenges. The going concern warning and reliance on related party loans are major concerns, leading to a negative sentiment.

Positives

• The company experienced an increase in sales for both the three and nine-month periods ending September 30, 2024.
• The net loss decreased for both the three and nine-month periods ending September 30, 2024, compared to the same periods in 2023.
• Operating expenses decreased for both the three and nine-month periods ending September 30, 2024, primarily due to lower stock-based compensation expenses.

Negatives

• The company continues to operate at a net loss.
• The company has a significant working capital deficit.
• The company has a substantial accumulated deficit.
• The company's ability to continue as a going concern is in doubt.
• The company has negative cash flows from operations.
• The company relies on related party loans and advances.

Risks

• The company's ability to continue as a going concern is dependent on achieving profitable operations or securing additional financing.
• The company has a history of negative cash flows from operations.
• The company may not be able to raise additional capital on acceptable terms, or at all.
• The company's reliance on related party loans and advances poses a risk.
• The company's internal controls are not effective due to limited personnel and lack of segregation of duties.
• The company is exposed to risks associated with the regulated cannabis market.

Future Outlook

The company's ability to continue as a going concern is dependent on achieving profitable operations or securing additional financing. The company has no committed sources of capital and will need to raise additional capital to continue and expand its operations.

Management Comments

• Management acknowledges the company's negative cash flows and working capital deficit.
• Management states that the company's ability to continue as a going concern is dependent on generating profitable operations or obtaining necessary financing.
• Management is focused on expanding the company's focus to regulated cannabis markets in the United States.

Industry Context

The company operates in the regulated cannabis market, which is subject to evolving regulations and market conditions. The company's performance is influenced by factors such as competition, pricing, and consumer demand for cannabis products. The company's focus on pre-rolled joints indicates a specific market segment strategy within the broader cannabis industry.

Comparison to Industry Standards

• It is difficult to make a direct comparison to industry standards without more specific information on comparable companies. However, the company's negative cash flow and working capital deficit are concerning and may indicate underperformance compared to more established cannabis companies.
• The company's reliance on related party loans and advances is not uncommon for early-stage companies in the cannabis industry, but it also indicates a higher level of risk.
• The company's focus on pre-rolled joints is a common strategy in the cannabis market, but its success depends on effective branding, distribution, and cost management.
• Compared to companies like Canopy Growth or Aurora Cannabis, Bespoke Extracts is much smaller and earlier in its development, with significantly lower revenue and higher losses.

Related Party Transactions

• The company received advances from Infinity Management, LLC, an affiliate of the CEO.
• A note payable to Infinity Management, LLC was converted into a 5% interest-bearing note.
• The company owes Michael Feinsod, the CEO, accrued salary and accounts payable.
• The company has a lease agreement with WL Holdings, Ltd., which is related to the WonderLeaf acquisition.

Stakeholder Impact

• Shareholders face the risk of further dilution if the company issues additional equity.
• Employees may be concerned about the company's financial stability and ability to continue operations.
• Customers may be impacted if the company is unable to maintain its operations and supply of products.
• Creditors face the risk of non-payment if the company is unable to secure additional financing or achieve profitability.

Next Steps

• The company needs to secure additional financing to continue operations.
• The company needs to improve its profitability and cash flow.
• The company needs to address its internal control weaknesses.

Key Dates

Keywords

cannabis, marijuana, extracts, financial results, net loss, sales, operating expenses, going concern, liquidity, capital resources, stock compensation, related party transactions