Business Context and Reporting Period
This Form 8-K, filed on May 8, 2018, reports the completion of a reverse merger between Capax Inc. (the Registrant) and Reborn Global Holdings, Inc. ("Reborn" or "RB"). On May 7, 2018, Capax acquired 100% of Reborn's outstanding shares in exchange for newly issued Class A and Class B common stock. The transaction is accounted for as a recapitalization, making Reborn the accounting acquirer. Consequently, the Registrant's fiscal year end changed from September 30 to December 31, and the company ceased to be a "shell company."
Reborn operates wholesale distribution and retail coffee stores in California, selling coffee, tea, branded water, and bakery products. The company utilizes proprietary technologies for water treatment and coffee processing.
Key Financial Metrics (Reborn Historical Data)
The following metrics reflect Reborn's audited financial statements for the fiscal years ended December 31, 2017 and 2016, which now represent the historical financials of the combined entity.
| Metric | Year Ended Dec 31, 2017 | Year Ended Dec 31, 2016 |
|---|---|---|
| Total Net Sales | $311,095 | $48,169 |
| Cost of Goods Sold | $160,557 | $62,004 |
| Gross Profit | $150,538 | $(13,835) |
| Operating Expenses | $1,120,074 | $536,019 |
| Net Loss | $(970,336) | $(550,654) |
| Total Assets | $1,036,528 | $404,344 |
| Total Liabilities | $2,031,923 | $429,403 |
| Stockholders' Deficit | $(995,395) | $(25,059) |
| Operating Cash Flow | $(610,462) | $(530,400) |
| Financing Cash Flow | $1,207,627 | $627,000 |
Note: The filing does not provide specific debt maturity schedules or liquidity ratios beyond the balance sheet totals.
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased by approximately 546% from 2016 to 2017, driven by the gradual expansion of operations.
- Profitability: The company moved from a gross loss in 2016 to a gross profit of $150,538 in 2017. However, net losses widened significantly due to a 109% increase in operating expenses.
- Balance Sheet: Total liabilities increased by 373% to over $2 million, primarily due to financing activities and property purchases funded by promissory notes. Total assets more than doubled.
- Cash Position: Current assets decreased from $157,702 in 2016 to $29,147 in 2017, while current liabilities surged to $1,968,054, indicating a significant liquidity strain.
Guidance, Outlook, and Risks
Outlook and Expansion: Management plans to open a third retail location in Corona del Mar, CA, in May or June 2018, and aims to open seven additional locations in the US by 2019. The company intends to raise additional funds through public or private offerings to support daily operations and expansion.
Risks and Contingencies:
- Liquidity Risk: The company explicitly states its cash position may not be sufficient to support daily operations and requires additional funding to continue as a going concern.
- Competition: The business faces intense competition from major franchises (e.g., Starbucks) and well-capitalized water brands (e.g., Fuji Water).
- Technology Validity: The filing notes that magnetic water treatment is regarded by some as "unproven and unscientific," though the company relies on it for product differentiation.
- Related Party Transactions: The company subleases office space from a shareholder-owned entity and relies on shareholders for proprietary technology.
Investor Verification Checklist
- Capital Adequacy: Verify the status of the planned public or private offering to determine if the company can meet its liquidity needs and operational costs.
- Debt Obligations: Review the terms of the promissory notes and financing activities that drove liabilities to over $2 million.
- Revenue Concentration: Confirm current revenue reliance on only two retail locations and the timeline for the third location's opening.
- Accounting Treatment: Understand the implications of the reverse merger accounting, where Reborn's historical losses are now the registrant's history.
- Technology Claims: Assess the commercial viability and regulatory standing of the "Magnetically Activated Water Treatment" technology.