Reborn Coffee, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2023. Financial statements are unaudited. The company operates coffee retail stores and wholesale/online sales, primarily in California; it reported 14 retail locations and no franchisees.
Financial performance and position
| Metric | Q3 2023 | Nine months 2023 |
|---|---|---|
| Revenue | $1.514 million | $4.156 million |
| Operating loss | $733,000 | $2.884 million |
| Net loss | $749,000 | $3.007 million |
| Basic and diluted loss per share | $0.06 | $0.23 |
| Cash used in operating activities | Not separately provided for the quarter | $2.991 million |
- Nine-month revenue rose 74.6% year over year; Q3 revenue rose 80.6%. Management attributed the increases mainly to new store openings and marketing.
- Nine-month store product costs were 31.9% of revenue, down from 33.9% in 2022; management cited cost-reduction efforts. General and administrative expense increased 43.8% for the nine-month period to $5.687 million, including added staff, professional services, growth-related costs, and public-company expenses.
- At September 30, cash was $364,000, compared with $3.019 million at year-end 2022. Current assets were $1.816 million and current liabilities were $2.565 million.
- Total liabilities were $6.876 million and stockholders’ equity was $1.565 million. Interest-bearing borrowings included approximately $1.009 million of credit-facility balances, $159,000 of loans to financial institutions, $500,000 of EIDL loans, and $109,000 of PPP loans. Operating lease liabilities totaled $4.624 million.
- Investing cash outflow was $746,000, primarily for property and equipment. Financing provided $1.082 million, including $1.009 million of line-of-credit proceeds. Cash declined by $2.655 million during the nine months.
Changes versus prior comparable periods
- For the first nine months, net loss widened to $3.007 million from $2.422 million, while operating cash outflow increased to $2.991 million from $1.997 million.
- Q3 net loss improved to $749,000 from $920,000, and operating loss narrowed to $733,000 from $896,000, despite higher revenue and operating expenses.
- Interest expense for the nine months increased to $125,000 from $39,000. Nine-month investing outflow also increased to $746,000 from $333,000.
Outlook, risks, and notable items
- Management said additional capital is needed to fund operations and expects additional debt financing in the near future, but reported no financing agreement or assurance that financing can be obtained. The filing warns there is no assurance the company can continue as a going concern.
- A $2 million credit facility with a financial institution matures December 31, 2023 and carried a reported balance of approximately $349,000. A separate $1 million facility from DRE, guaranteed by the CEO, carried approximately $660,000 outstanding; it bears a variable rate of prime plus 1 percentage point, with an 8% floor, and matures May 31, 2025.
- In July 2023, the company sold its warehouse and roasting facility for $3.8 million, paid off the $2.85 million mortgage, and leased the property back under a triple-net lease.
- Nasdaq notified the company of continued noncompliance with minimum bid-price and stockholders’ equity requirements and scheduled delisting. The company requested a hearing, scheduled for January 18, 2024, and said it would present a compliance plan; there is no assurance the appeal will succeed. The company reported stockholders’ equity of $1.565 million, below Nasdaq’s $2.5 million minimum.
- An effective Form S-3 shelf registration permits offerings of up to $20 million in securities; the filing does not report proceeds from any offering under it. Stockholders subsequently approved a reverse stock split of up to one-for-twenty, with the ratio left to the board.
- Management concluded disclosure controls and procedures were ineffective, citing material weaknesses involving limited accounting resources, inadequate segregation of duties, and the need for a stronger control environment. Management said additional procedures were performed and believes the reported statements are fairly stated.
- The company reported no material pending or threatened legal proceedings as of September 30, 2023. It recorded no franchise royalty revenue and had no franchisees.
Important facts for investors to verify
- Current cash runway, operating cash burn, and the availability and terms of additional financing.
- Status and repayment or renewal of the credit facility maturing December 31, 2023, and the terms and balance of the CEO-guaranteed DRE loan.
- Outcome of the Nasdaq appeal and whether the company regained bid-price and stockholders’ equity compliance.
- Whether any securities were issued under the $20 million shelf registration, and the board’s implementation of the approved reverse split.
- Progress in addressing the disclosed material weaknesses and maintaining reliable financial reporting as the company expands.