Business context and reporting period
Entity and period: The supplied filing is Capax Inc.’s unaudited Form 10-Q for the quarter and six months ended March 31, 2018—not a filing under the name Reborn Coffee, Inc. The statements reflect Capax before its acquisition of Reborn Holding Inc.; they do not include Reborn Holding’s coffee operations.
Capax reported that it had been a shell company and had no revenue. On May 8, 2018, after quarter-end, it acquired Reborn Holding, which operates a wholesale coffee business and two retail shops, in a share exchange described as a reverse merger. Reborn Holding’s owners received 95% ownership of Capax.
Financial results and position
| Metric | Three months ended Mar. 31, 2018 | Six months ended Mar. 31, 2018 |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses | $12,563 | $28,741 |
| Net loss | $12,563 | $28,741 |
| Basic and diluted loss per share | $(0.00) | $(0.00) |
For both comparable 2017 periods, the filing reports no revenue, expenses, or loss, and describes the company as inactive. With no revenue, operating margins are not meaningful.
- Cash flow: Six-month cash used in operations was $28,741; there were no investing cash flows. Financing provided $7,083, comprising $11,190 from stock sales less repayment of a $4,107 officer loan. Cash declined by $21,658, from $90,303 to $68,645.
- Balance sheet at Mar. 31, 2018: Cash and total assets were $68,645; current liabilities were zero; stockholders’ equity was $68,645. The $4,107 related-party payable reported at Sept. 30, 2017 had been repaid. The filing reports no debt balance.
- Equity and accumulated losses: Accumulated deficit was $55,796, versus $27,055 at Sept. 30, 2017. The March 31 balance sheet lists 11,041,600 Class A and 7,000,000 Class B shares outstanding.
Outlook, risks, and unusual items
Management said additional capital would be needed, with potential funding through equity or debt, and warned that financing might not be available or could dilute existing shareholders. It estimated a need for approximately $300,000 to buy an operating coffee-bakery-café and projected, based on assumptions, about $5,000 in monthly net positive cash flow from such a business. These are plans and estimates, not reported results or formal guidance. Management also cited estimated annual public-company compliance costs of $72,000 to $240,000 and stated that the company might have to curtail operations if it could not obtain sufficient capital.
The filing identifies recurring losses, negative operating cash flow, and a $55,796 accumulated deficit as raising substantial doubt about the company’s ability to continue as a going concern. Management pointed to the merger as a possible source of cash flow or funding, but the financial statements contain no adjustments for a failure to continue as a going concern.
Subsequent event: The filing says the CEO withdrew $62,645 on May 9, 2018 as a bonus, following a board approval that the bank cash balance be paid to him in anticipation of the merger. The filing states that Capax would transfer no assets or liabilities to Reborn Holding. It does not clearly reconcile the stated withdrawal with the March 31 cash balance.
Controls and other matters: Management concluded disclosure controls were not effective, citing limited resources, inadequate segregation of duties, and insufficient written accounting and reporting procedures. The filing reports no material litigation and marks risk factors “not applicable,” despite its going-concern disclosure.
Important facts for investors to verify
- Confirm the correct registrant and reporting entity: the filing is in Capax Inc.’s name, while the request identifies Reborn Coffee, Inc.; determine how the reverse merger affects the reporting history and comparable results.
- Reconcile the share counts: the filing reports 11,041,600 Class A and 7,000,000 Class B shares at March 31, but 330,832,000 Class A and 30,000,000 Class B shares outstanding as of May 14.
- Verify the May 9 CEO bonus withdrawal, the amount paid, and the resulting cash available to the combined company.
- Review post-merger financial statements, current cash needs, actual operating performance, and whether financing was obtained; the figures here precede the acquisition.
- Assess the going-concern uncertainty and remediation of the disclosed material weaknesses in financial reporting controls.