10-Q: Bespoke Extracts Reports Revenue Growth Amidst Going Concern Doubts

Bespoke Extracts, Inc. announced a significant increase in sales and gross profit for the nine months ended September 30, 2025, alongside a reduced net loss, but continues to face substantial doubt regarding its ability to continue as a going concern.

Summary

• Sales for the nine months ended September 30, 2025, increased by 37% to $1,121,657, up from $816,062 in the prior year.
• Gross profit for the nine months ended September 30, 2025, rose by 67% to $542,453, compared to $323,693 in the same period last year.
• Net loss for the nine months ended September 30, 2025, improved to $(543,715), from $(850,626) in the prior year.
• The company reported a working capital deficit of $1,675,749 and an accumulated deficit of $26,947,831 as of September 30, 2025.
• Cash on hand decreased to $16,743 as of September 30, 2025, from $60,305 at December 31, 2024.
• The company faces substantial doubt about its ability to continue as a going concern due to negative cash flows from operations and significant deficits.

Sentiment

Score: 3

Explanation: While the company showed strong revenue and gross profit growth and reduced its net loss, the severe liquidity issues, significant working capital deficit, accumulated deficit, and explicit "going concern" warning, coupled with identified material weaknesses in internal controls, indicate a highly precarious financial position. The reliance on future capital raises without committed sources adds substantial risk.

Positives

• Sales for the three months ended September 30, 2025, increased by 69% to $467,945 compared to $277,471 in the prior year.
• Gross profit for the three months ended September 30, 2025, more than doubled, increasing by 103% to $234,175 from $114,995 in the prior year.
• Net loss for the three months ended September 30, 2025, significantly improved to $(78,088) from $(275,613) in the prior year.
• Operating expenses for the three months ended September 30, 2025, decreased to $288,066 from $377,463 in the prior year, primarily due to lower stock-based compensation.
• Net cash used in operating activities for the nine months ended September 30, 2025, improved to $(123,562) from $(153,662) in the prior year.
• The company increased efficiencies with revenue growth, leading to a decrease in cost of goods sold as a percentage of sales.
• The lease agreement for the Aurora, Colorado facility was amended, reducing monthly base rent from $6,000 to $4,000, effective January 1, 2025.

Negatives

• The company had negative cash flows from operations of $123,562 for the nine months ended September 30, 2025.
• A working capital deficit of $1,675,749 and an accumulated deficit of $26,947,831 as of September 30, 2025, raise substantial doubt about the company's ability to continue as a going concern.
• Cash on hand significantly decreased to $16,743 as of September 30, 2025, from $60,305 at December 31, 2024.
• Total liabilities increased to $2,891,081 as of September 30, 2025, from $2,451,026 at December 31, 2024.
• Interest expense for the nine months ended September 30, 2025, increased to $(82,528) from $(35,112) in the prior year.
• Net cash provided by financing activities decreased to $80,000 for the nine months ended September 30, 2025, from $168,500 in the prior year.
• The company has material weaknesses in its disclosure controls and procedures, 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.
• 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.
• The COVID-19 pandemic may negatively affect operations, including limiting access to facilities, customers, management, and professional advisors, and causing delays and constraints in manufacturing and shipping.
• Potential claims from a former employee related to violations of the Colorado Wage Claim Act, breach of contract, unpaid commissions, and retaliatory termination, which, if successful, may have a material adverse effect on the business.

Future Outlook

The company plans to expand its focus on regulated cannabis markets in the United States. However, it acknowledges significant uncertainties including inadequate capital, potential failure to achieve profitability, stock price volatility, rapid market changes, and insufficient revenues to cover operating costs. The company explicitly states it has no committed sources of capital and will need to raise additional capital to continue and expand operations, which may not be available on acceptable terms or at all.

Management Comments

• The increase in sales was a result of increased product sales of pre-rolled joints to licensed dispensaries in Colorado as well as increased joint production services for third parties.
• The increase in joint sales was primarily driven by new products in addition to an increase in sales of Fresh Joint products.
• The decrease in cost of goods sold, as a percentage of sales, was primarily driven by decreases in all categories as the company increased efficiencies with revenue growth.
• We have not generated positive cash flows from operating activities. Our primary source of capital has been from the sale of equity and convertible debt securities.
• Our primary use of capital has been for professional fees and selling, general and administrative costs.
• We have no committed sources of capital and will need to raise additional capital to continue and expand our operations. Additional capital may not be available on terms acceptable to us, or at all.
• To the extent reasonably possible given our limited resources, 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 market in Colorado, focusing on marijuana-infused products and pre-rolled joints. This segment of the cannabis industry is characterized by evolving regulations and competition. The company's growth in sales of pre-rolled joints and production services suggests a response to consumer demand for convenience and specialized products within the legal cannabis framework. However, the industry also faces challenges such as capital access, which is highlighted by the company's ongoing need for financing and its "going concern" warning. The mention of the COVID-19 pandemic's potential impact indicates broader economic and supply chain vulnerabilities affecting the sector.

Corporate Governance

Legal Proceedings

• Threatened litigation by a former employee in March 2025, alleging violations of the Colorado Wage Claim Act, breach of contract, unpaid commissions, and retaliatory termination. The company believes claims are without substantial merit but acknowledges a potential material adverse effect if successful.
• A vendor sued the company on June 5, 2025, for non-payment of approximately $35,560 for packaging products. This was settled on October 8, 2025, with the company agreeing to pay $30,000 in monthly installments through September 1, 2026.

Related Party Transactions

• Note payable of $849,500 to Infinity Management, LLC, an affiliate of Michael Feinsod (CEO), bearing 5.0% interest, unsecured, with maturity extended to June 30, 2027.
• Non-interest bearing demand note of $66,872 outstanding to Infinity Management, LLC.
• Michael Feinsod (CEO) is owed $90,000 in accrued salary and $161,553 for advances of company expenses and business travel related expenses as of September 30, 2025.

Stakeholder Impact

• Shareholders: Potential for significant dilution if additional equity is issued to raise capital. Risk of stock price volatility and decline. Substantial doubt about the company's ability to continue as a going concern poses a significant risk to investment value.
• Employees: Accrued salary of $90,000 owed, indicating potential payment delays. Threatened litigation by a former employee suggests potential workplace disputes and financial liabilities.
• Creditors: Increased total liabilities and a working capital deficit indicate higher credit risk. The extension of the related party note maturity suggests challenges in debt repayment.
• Customers: Increased sales and production of pre-rolled joints and processing services indicate continued product availability and service delivery. However, the "going concern" risk could impact long-term supply stability.
• Suppliers: A vendor sued the company for non-payment, indicating potential payment issues, though a settlement was reached. This highlights a risk of strained supplier relationships due to liquidity constraints.

Next Steps

• Generate profitable operations in the future.
• Obtain necessary financing to meet obligations and repay liabilities.
• Curtail or cease operations if additional financing is not available on acceptable terms.
• Take measures to cure material weaknesses in disclosure controls and procedures, including increasing qualified financial personnel.
• Vigorously defend against potential claims from a former employee.
• Continue monthly installment payments for the vendor settlement through September 1, 2026.

Key Dates

Recommendation

Despite revenue growth and a reduced net loss, the company's severe liquidity crisis, substantial working capital deficit, and explicit "going concern" warning present an extremely high risk profile. The reliance on future, uncommitted capital raises, coupled with material weaknesses in internal controls and increasing total liabilities, indicates a highly unstable financial position. The risk of significant dilution or cessation of operations makes this a strong sell for investors.

Keywords

Cannabis, Marijuana Infused Products, Colorado, SEC Filing, 10-Q, Financial Results, Going Concern, Pre-rolled Joints, Bespoke Extracts, Financial Performance, Quarterly Report