10-Q: Bespoke Extracts Reports Reduced Q1 Loss Amidst Rebranding, Faces Significant Going Concern Doubts

Bespoke Extracts, Inc. reported a reduced net loss of $260,521 for the first quarter of 2025, driven by increased sales and production efficiencies, but continues to face substantial doubt about its ability to continue as a going concern due to a significant working capital deficit and reliance on external financing.

Summary

• Net loss for the three months ended March 31, 2025, was $260,521, a reduction from $314,118 for the same period in 2024.
• Sales increased slightly to $263,159 for Q1 2025, up from $260,428 in Q1 2024, primarily due to increased direct sales of branded pre-rolled joints and joint production services.
• Gross profit improved to $110,779 in Q1 2025 from $102,581 in Q1 2024, attributed to increased production efficiencies.
• Operating expenses decreased to $356,117 in Q1 2025 from $405,384 in Q1 2024, mainly due to reduced stock-based compensation and salaries.
• Cash balance as of March 31, 2025, was $30,365, a decrease from $60,305 at December 31, 2024.
• Net cash used in operating activities for Q1 2025 was $72,940, an improvement from $97,191 used in Q1 2024.
• The company has a working capital deficit of $1,118,415 and an accumulated deficit of $26,664,637 as of March 31, 2025, raising substantial doubt about its ability to continue as a going concern.
• Product offerings in Colorado were rebranded as "The Joint Company" starting January 1, 2025.
• The company faces ongoing legal proceedings, including a threatened lawsuit from a former employee and a vendor lawsuit for approximately $34,000.

Sentiment

Score: 3

Explanation: While the company showed some operational improvements (reduced net loss, increased gross profit, reduced operating cash burn), the severe liquidity issues, substantial working capital and accumulated deficits, and explicit "going concern" warning overshadow these positives. The identified material weaknesses in internal controls and ongoing legal challenges further contribute to a negative outlook, indicating significant financial instability and high risk.

Positives

• Net loss significantly reduced to $260,521 in Q1 2025 from $314,118 in Q1 2024.
• Sales increased slightly to $263,159 in Q1 2025 from $260,428 in Q1 2024, driven by increased direct sales of branded pre-rolled joints and joint production services.
• Gross profit improved to $110,779 in Q1 2025 from $102,581 in Q1 2024, reflecting increased production efficiencies.
• Operating expenses decreased by $49,267, primarily due to a reduction in stock-based compensation and salaries.
• Net cash used in operating activities decreased to $72,940 in Q1 2025 from $97,191 in Q1 2024, indicating a reduced operational cash burn.
• The lease agreement for the Aurora, Colorado facility was amended effective January 1, 2025, reducing monthly base rent from $6,000 to $4,000, which reduced the right-of-use asset and lease liability by $57,043.

Negatives

• The company has a substantial working capital deficit of $1,118,415 as of March 31, 2025.
• An accumulated deficit of $26,664,637 as of March 31, 2025, indicates significant historical losses.
• Cash balance decreased by nearly 50% from $60,305 at December 31, 2024, to $30,365 at March 31, 2025.
• Total liabilities increased to $2,582,325 as of March 31, 2025, from $2,451,026 at December 31, 2024.
• The company's ability to continue as a going concern is in substantial doubt, dependent on future profitable operations or obtaining additional financing.
• Net cash provided by financing activities decreased significantly to $43,000 in Q1 2025 from $105,000 in Q1 2024.
• Material weaknesses in internal controls were identified, including the CEO functioning as Principal Financial Officer, 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.
• Volatility, lack of liquidity, or decline of the company's stock price.
• Potential fluctuation in quarterly results.
• Rapid and significant changes in markets.
• Insufficient revenues to cover operating costs.
• Potential dilution for stockholders if additional equity or debt securities are issued.
• Cessation of operations if additional financing is not available or not on acceptable terms.
• Negative impact of the COVID-19 pandemic on operations, including limited access to facilities, customers, management, and advisors, and delays/constraints in manufacturing and shipping.
• Threatened litigation from a former employee regarding alleged violations of the Colorado Wage Claim Act, breach of contract, unpaid commissions, and retaliatory termination, which, if successful, may have a material adverse effect.
• A vendor lawsuit filed on June 5, 2025, for approximately $34,000 for non-payment of packaging products.

Future Outlook

The company plans to expand its focus to regulated cannabis markets in the United States. It acknowledges that its ability to continue as a going concern is dependent on generating profitable operations or obtaining necessary financing. There is no assurance that satisfactory completion of these events will occur. If additional financing is not available on acceptable terms, the company will have to curtail or cease operations. The COVID-19 pandemic may also negatively affect operations, financial condition, product demand, and ability to raise capital.

Management Comments

• "Our 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."
• "If additional financing is not available or is not available on acceptable terms, we will have to curtail or cease our operations."
• "We believe that that any such potential claims [from former employee litigation], if asserted, would be without substantial merit."
• "The Company plans to defend the lawsuit [from vendor] and has fully reserved for the amount."
• "We intend to take measures to cure the aforementioned weaknesses [in internal controls], including, but not limited to, increasing the capacity of our qualified financial personnel to ensure that accounting policies and procedures are consistent across the organization and that we have adequate control over financial statement disclosures."

Industry Context

Bespoke Extracts operates in the regulated cannabis markets in the United States, specifically focusing on marijuana-infused products in Colorado. The rebranding of its product offerings to "The Joint Company" indicates a strategic effort to enhance brand recognition and market presence within this specific niche. The industry is characterized by evolving regulatory landscapes and competitive pressures, requiring companies to adapt and seek efficiencies, as evidenced by Bespoke Extracts' efforts to improve production efficiencies and manage operating costs. The company's reliance on external financing and its going concern warning highlight the capital-intensive nature and financial challenges often faced by smaller players in this emerging, yet highly regulated, industry.

Comparison to Industry Standards

• NA

Corporate Governance

Legal Proceedings

• In March 2025, a former employee threatened litigation alleging violations of the Colorado Wage Claim Act, breach of contract, unpaid commissions, and retaliatory termination, seeking damages including statutory penalties and back/front pay.
• On June 5, 2025, a vendor sued Bespoke Extracts Colorado, LLC in Colorado state court, alleging non-payment of approximately $34,000 for packaging products from an open account.

Related Party Transactions

• Note payable of $849,500 to Infinity Management, LLC, an affiliate of Michael Feinsod (CEO), bearing 5.0% interest and maturing June 30, 2026. Repayment is contingent on a new debt or equity capital raise exceeding $2,000,000.
• Non-interest bearing demand note of $66,872 owed to Infinity Management, LLC.
• Michael Feinsod (CEO) is owed $30,000 in accrued salary and $161,553 in accounts payable (mainly for travel-related expenses) as of March 31, 2025.

Stakeholder Impact

• Shareholders face significant dilution risk if additional equity is issued. The "going concern" warning indicates a high risk of value impairment or even loss of investment if the company cannot secure financing or achieve profitability. Stock price volatility is explicitly mentioned as a risk.
• Employees: Employment agreements for key executives (Hunter Garth, Michael Feinsod) include severance provisions. A former employee has threatened litigation, indicating potential labor disputes.
• Customers: The rebranding to "The Joint Company" aims to enhance product offerings and market presence, potentially benefiting customers through new products. However, the company's financial instability could impact product availability or quality in the long term.
• Suppliers: A vendor has sued for non-payment of $34,000, indicating potential issues with supplier relationships and payment terms.
• Creditors: The company has substantial liabilities, including secured notes, related party notes, and a promissory note for unpaid rent. The "going concern" warning suggests a high risk of default if the company cannot secure additional financing or generate sufficient cash flow.

Next Steps

• Generate profitable operations in the future.
• Obtain necessary financing to meet obligations and repay liabilities.
• Increase the capacity of qualified financial personnel to address internal control weaknesses.
• Ensure accounting policies and procedures are consistent across the organization.
• Improve control over financial statement disclosures.
• Vigorously defend against the threatened litigation from a former employee.
• Defend against the vendor lawsuit filed on June 5, 2025.

Key Dates

Recommendation

Keywords

Cannabis, Marijuana Infused Products, Colorado, SEC Filing, 10-Q, Financial Results, Quarterly Report, Going Concern, Liquidity, Debt Financing, The Joint Company, Pre-rolled Joints, Manufacturing, SEC, Financial Performance, Risk Factors, Corporate Governance, Legal Proceedings