Reborn Coffee, Inc. (REBN) - Q3 2024 10-Q Summary
Business Context and Reporting Period
This filing covers the quarterly period ended September 30, 2024. Reborn Coffee, Inc. operates specialty coffee retail stores, wholesale distribution, and online sales primarily in California, with recent expansion into South Korea and Malaysia. The company is classified as a smaller reporting company and a non-accelerated filer. As of November 19, 2024, there were 3,672,564 shares of common stock outstanding.
Key Financial Metrics
| Metric | Q3 2024 (3 Months) | YTD 2024 (9 Months) | YTD 2023 (9 Months) |
|---|---|---|---|
| Total Net Revenues | $1,258,929 | $4,149,892 | $4,155,503 |
| Net Loss | $(719,748) | $(3,026,904) | $(3,006,708) |
| Loss Per Share (Basic/Diluted) | $(0.30) | $(1.40) | $(1.82) |
| Cash and Cash Equivalents | $105,863 (as of 9/30/24) | N/A | |
| Net Cash Used in Operating Activities | N/A | $(3,319,670) | $(2,990,792) |
| Total Debt (Current + Long Term) | Approx. $1.4M (Includes EIDL, PPP, and private loans) | ||
| Working Capital | Deficit of $1,953,000 (Current Liabilities exceed Current Assets) |
Material Changes vs. Prior Period
- Revenue Mix Shift: While total YTD revenue remained flat (-0.1%), the composition changed significantly. Wholesale and online revenue surged 470.6% YTD to $365,164, driven by B2B sales of Pour Over Packs. Conversely, Store revenue declined 7.5% YTD to $3,784,728.
- Expense Management: General and administrative (G&A) expenses increased 2.8% YTD to $5.8M, while product costs for stores decreased 19.1%.
- Capital Structure: The company executed a 1-for-8 reverse stock split in January 2024. During the nine months ended September 30, 2024, the company raised approximately $4.88 million through the issuance of common stock to offset operating losses.
- Geographic Expansion: Asia generated $231,826 in revenue for the nine months ended September 30, 2024, compared to zero in the prior year, reflecting new store openings in Korea and Malaysia.
Outlook, Risks, and Contingencies
- Going Concern Warning: Management has expressed substantial doubt about the company's ability to continue as a going concern. This is due to recurring net losses, an accumulated deficit of $19.8 million, and a working capital deficit. Continued operations depend on raising additional equity or debt financing, which is not guaranteed.
- Internal Controls: Management concluded that disclosure controls and procedures were ineffective as of September 30, 2024. Material weaknesses were identified regarding inadequate accounting resources and a lack of segregation of duties due to the small size of the accounting staff.
- Liquidity Needs: The company relies on financing activities (stock issuance and loans) to fund operations. Cash flow from operations remains negative.
- Debt Obligations: The company holds significant debt including SBA EIDL loans ($500k total), PPP loans, and private loans with interest rates ranging from 12% to 30%. Some private loans are due on demand.
Investor Verification Checklist
- Capital Raise Status: Verify if the company has secured additional funding post-filing to address the "substantial doubt" regarding going concern status.
- Store Performance: Investigate the reasons behind the 7.5% decline in store revenue despite the overall brand expansion.
- Debt Covenants: Review terms of the "due on demand" private loans to assess immediate liquidity risk.
- Internal Control Remediation: Monitor progress on hiring accounting staff to address the material weaknesses in internal controls.
- Wholesale Sustainability: Assess the durability of the 470% growth in wholesale revenue and whether it can offset store declines long-term.