10-Q: Bespoke Extracts Reports Reduced Losses Amid Sales Growth
Quarterly Report
Bespoke Extracts, Inc. reported increased sales and a narrower net loss for the quarter and six months ended June 30, 2025, but faces significant liquidity challenges and a going concern warning.
Summary
- Sales for the three months ended June 30, 2025, increased to $390,553 from $278,163 in the prior year period, driven by increased pre-rolled joint sales and third-party production services.
- Net loss for the three months ended June 30, 2025, narrowed to $(205,106), or $(0.02) per share, compared to a net loss of $(260,895), or $(0.03) per share, in the same period last year.
- For the six months ended June 30, 2025, sales rose to $653,712 from $538,591 in the prior year, with net loss decreasing to $(465,627), or $(0.04) per share, from $(575,013), or $(0.06) per share.
- Cash balance as of June 30, 2025, was critically low at $1,363, a significant decrease from $60,305 at December 31, 2024.
- Total current liabilities increased to $1,485,466 as of June 30, 2025, from $1,118,671 at December 31, 2024, contributing to a working capital deficit of $1,330,730.
- The company's accumulated deficit grew to $26,869,743 as of June 30, 2025.
- Net cash used in operating activities for the six months ended June 30, 2025, was $(103,942), an improvement from $(125,316) in the prior year period.
- A lease amendment effective January 1, 2025, reduced monthly base rent from $6,000 to $4,000, resulting in a $57,043 reduction in the right-of-use asset and lease liability.
Sentiment
Score: 2
Explanation: While sales increased and net losses narrowed, the company's critically low cash balance, worsening working capital deficit, and explicit 'going concern' warning indicate severe financial distress. The identified material weaknesses in internal controls and ongoing legal challenges further contribute to a highly negative sentiment, outweighing the positive revenue trends.
Positives
- Sales increased significantly for both the three-month period (40.4%) and six-month period (21.4%) ended June 30, 2025, compared to the prior year.
- Net loss decreased for both the three-month period (21.4%) and six-month period (19.0%) ended June 30, 2025, indicating improved operational efficiency or reduced expenses.
- Gross profit increased substantially for both periods, with the three-month gross profit up 86.1% and the six-month gross profit up 47.7%.
- Cost of goods sold as a percentage of sales decreased due to increased efficiencies with revenue growth.
- Selling, general and administrative expenses decreased for the six-month period, primarily due to lower stock-based compensation and reduced rent.
- Professional fees decreased for the six-month period, mainly due to reduced legal fees.
Negatives
- The company had a critically low cash balance of $1,363 as of June 30, 2025, down from $60,305 at December 31, 2024.
- Total current liabilities increased significantly to $1,485,466 as of June 30, 2025, from $1,118,671 at December 31, 2024.
- The working capital deficit worsened to $1,330,730 as of June 30, 2025, from $953,414 at December 31, 2024.
- The accumulated deficit increased to $26,869,743 as of June 30, 2025, from $26,404,116 at December 31, 2024.
- Net cash provided by financing activities decreased to $45,000 for the six months ended June 30, 2025, from $143,500 in the prior year period.
- The company continues to operate with negative cash flows from operations and has an accumulated deficit, raising substantial doubt about its ability to continue as a going concern.
- Material weaknesses in disclosure controls and procedures were identified, including a lack of segregation of duties and incomplete documentation of accounting procedures.
Risks
- Inadequate capital and barriers to raising additional capital or obtaining necessary financing to implement business plans.
- Failure to earn significant revenues or profits, which is critical for the company's going concern status.
- Volatility, lack of liquidity, or decline of the company's stock price.
- Potential fluctuation in quarterly results due to market changes or operational factors.
- Rapid and significant changes in the regulated cannabis markets.
- Insufficient revenues to cover operating costs, exacerbating liquidity issues.
- The COVID-19 pandemic may negatively affect operations, including limiting access to facilities, customers, management, and professional advisors, and causing delays in manufacturing and shipping.
- Threatened litigation by a former employee alleging violations of the Colorado Wage Claim Act, breach of contract, unpaid commissions, and retaliatory termination, which could have a material adverse effect.
- A lawsuit from a vendor for non-payment of approximately $35,560 for packaging products.
Future Outlook
The company plans to expand its focus to regulated cannabis markets in the United States. Its ability to continue as a going concern is dependent upon generating profitable operations and/or obtaining necessary financing. There is no assurance that these events will be satisfactorily completed, and if additional financing is not available, the company may have to curtail or cease operations. The company intends to take measures to cure identified material weaknesses in internal controls, including increasing the capacity of qualified financial personnel.
Management Comments
- Management believes that any potential claims from the threatened litigation by a former employee, if asserted, would be without substantial merit and plans to vigorously defend any future claims.
- The company plans to defend the lawsuit from a vendor regarding non-payment for packaging products and has fully reserved for the amount.
Industry Context
Bespoke Extracts operates in the regulated cannabis markets in the United States, specifically Colorado, focusing on marijuana-infused products and pre-rolled joints. The rebranding to 'The Joint Company' and increased sales of pre-rolled joints suggest an adaptation to market demand within the cannabis sector. The industry is characterized by evolving regulations and competitive pressures, which can impact a smaller player's ability to secure financing and achieve profitability. The company's challenges with liquidity and going concern status highlight the capital-intensive nature and regulatory hurdles often faced by businesses in this sector.
Comparison to Industry Standards
- NA
Corporate Governance
| Change Type | Description | Effective Date | Impact Assessment |
|---|---|---|---|
| Internal Control Weaknesses | Identified material weaknesses in disclosure controls and procedures, including the CEO also functioning as Principal Financial Officer, lack of full segregation of duties, and incomplete documentation of accounting procedures. | June 30, 2025 | These weaknesses could lead to errors and irregularities in financial statements and reports, potentially affecting the reliability of financial reporting. Management intends to address these by increasing qualified financial personnel capacity. |
Legal Proceedings
- The company was threatened with litigation in March 2025 by a former employee alleging violations of the Colorado Wage Claim Act, breach of contract, unpaid commissions, and retaliatory termination. The company believes these claims lack substantial merit and plans to vigorously defend against them.
- A vendor sued the company on June 5, 2025, in Colorado state court for alleged non-payment of approximately $35,560 for packaging products. The company plans to defend the lawsuit and has fully reserved for the amount.
Related Party Transactions
- A note payable of $849,500 is owed to Infinity Management, LLC, an affiliate of Michael Feinsod, the company's Chief Executive Officer. This note bears 5.0% interest and matures on June 30, 2026, with repayment contingent on a new debt or equity capital raise exceeding $2,000,000.
- A non-interest bearing demand note of $66,872 is outstanding to a related party.
- Michael Feinsod is owed $60,000 in accrued salary and $161,553 in accounts payable, mainly for travel-related expenses, as of June 30, 2025.
Stakeholder Impact
- Shareholders face significant risk of dilution if the company raises additional equity, and the going concern warning indicates a high risk to investment value.
- Employees may be impacted by the company's financial instability and the ongoing litigation with a former employee, though stock options are part of compensation.
- Creditors, particularly unsecured ones, face elevated risk due to the company's severe liquidity issues, increasing liabilities, and the going concern warning. Senior secured note holders have priority.
- Customers may benefit from new product offerings and increased production services, but the company's financial instability could pose long-term supply risks.
- Suppliers are directly impacted by non-payment issues, as evidenced by the vendor lawsuit, indicating potential challenges in maintaining supply chain relationships.
Next Steps
- Generate profitable operations in the future to address the going concern issue.
- Obtain necessary financing to meet obligations and repay liabilities.
- Cure identified material weaknesses in disclosure controls and procedures, including increasing the capacity of qualified financial personnel.
- Vigorously defend against threatened litigation from a former employee.
- Defend against the lawsuit from a vendor for non-payment.
Key Dates
| Date | Description |
|---|---|
| 2021-12-02 | Bespoke Extracts Colorado, LLC entered into an asset purchase agreement with WonderLeaf. |
| 2021-12-07 | Bespoke Colorado and WonderLeaf entered into an amendment to the asset purchase agreement. |
| 2021-12-14 | The board of directors adopted the 2021 Equity Incentive Plan and the company entered into employment agreements with Hunter Garth and Michael Feinsod. |
| 2023-11 | FASB issued ASU 2023-07 Segment Reporting (Topic ASC 280) Improvements to Reportable Segment Disclosures. |
| 2023-12-15 | Effective date for ASU 2023-07 for fiscal years beginning after this date. |
| 2024-01-08 | Company issued options to an employee to purchase 225,000 shares of common stock. |
| 2024-01-15 | 50% of employee stock options vested. |
| 2024-03-01 | Company issued options to several employees to purchase 99,000 shares of common stock. |
| 2024-09-05 | Company entered into and closed on an unsecured note payable of $25,000. |
| 2024-12-15 | Effective date for ASU 2023-07 for interim periods within fiscal years beginning after this date. |
| 2024-12-31 | Landlord converted $169,000 of unpaid rent into a 10% promissory note maturing on December 31, 2030. Also, the company adopted ASU 2023-07 for the annual period ending this date. |
| 2025-01-01 | Lease amendment became effective, reducing monthly base rent. The company also rebranded its product offerings in Colorado as The Joint Company. |
| 2025-01-29 | Company entered into and closed securities purchase agreements for $50,000 in 15% Senior Secured Notes and warrants. |
| 2025-03 | Company was threatened with litigation by a former employee. |
| 2025-06-05 | A vendor sued the company in Colorado state court for non-payment of $35,560. |
| 2025-06-30 | End of the quarterly reporting period. Note payable to Infinity Management, LLC matures. |
| 2025-08-26 | Date of common stock outstanding count (11,153,220 shares). |
| 2025-08-27 | Date of filing of the Quarterly Report on Form 10-Q. |
| 2027-01-29 | Maturity date for the 15% Senior Secured Notes. |
| 2030-12-31 | Maturity date for the 10% promissory note to WL Holdings, Ltd. |
Recommendation
strong sellDespite some revenue growth and a reduction in net losses, Bespoke Extracts, Inc. is in a precarious financial position. The critically low cash balance of $1,363, a worsening working capital deficit of over $1.3 million, and an explicit 'going concern' warning present severe liquidity and solvency risks. The company has no committed sources of capital and relies on future financing, which may not be available or on acceptable terms, potentially leading to a cessation of operations. Furthermore, material weaknesses in internal controls and ongoing legal challenges add to the operational and financial uncertainty. These factors collectively indicate a high probability of significant share price decline and potential loss of investment, making a 'strong sell' recommendation appropriate for any existing holdings.
Keywords
Cannabis, Marijuana Infused Products, Colorado Cannabis Market, The Joint Company, SEC Filing, 10-Q, Financial Results, Liquidity, Going Concern, Pre-rolled Joints, Extracts
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