Reborn Coffee, Inc. — FY 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual filing, not a standalone fourth-quarter report. Filed April 11, 2023.
Business context
Reborn operates and plans to franchise specialty-coffee cafes and kiosks, with wholesale and online sales. At year-end it operated 11 company-owned locations, all in California; it had no franchisees. Retail stores generated about 98% of revenue. The company completed its Nasdaq IPO in August 2022, selling 1.44 million shares at $5.00 each for $7.2 million gross proceeds and approximately $6.2 million net proceeds.
Financial performance and liquidity
| Metric | FY 2022 | FY 2021 |
|---|---|---|
| Revenue | $3.241 million | $2.280 million |
| Operating loss | $(3.541) million | $(2.564) million |
| Net loss | $(3.555) million | $(3.440) million |
| Net loss per share, basic and diluted | $(0.29) | $(0.32) |
| Net cash used in operating activities | $(3.297) million | $(1.950) million |
| Net cash used in investing activities | $(0.682) million | $(0.498) million |
| Net cash provided by financing activities | $6.093 million | $3.225 million |
- Revenue increased 42.1%, mainly attributed to new locations and marketing. Store revenue was $3.184 million; wholesale and online revenue was $56,032.
- Product, food and drink costs were $1.093 million and wholesale/online cost of sales was $24,542. These imply gross profit of approximately $2.123 million, or a 65.5% gross margin, before general and administrative expense.
- General and administrative expense rose 42.0% to $5.664 million, which management attributed mainly to occupancy and labor costs associated with new locations. Operating margin was -109.3%; net loss margin was approximately -109.7%.
- Adjusted EBITDA, a non-GAAP measure, was $(3.330) million, versus $(2.389) million in 2021; Adjusted EBITDA margin was -102.8%, versus -104.8%. The filing reports a 2021 loss on extinguishment of debt of $982,383, which affected the comparison.
- Year-end cash was $3.019 million, current assets $3.630 million and current liabilities $1.066 million. Accumulated deficit was $12.032 million. Total assets were $8.458 million.
- Year-end borrowings included $500,000 of EIDL debt, $144,375 of PPP debt and $50,898 of Square Capital debt, approximately $695,000 combined. Operating lease liabilities were $3.155 million, including $624,892 current; undiscounted future lease payments were $5.124 million.
Changes, outlook and significant risks
- Despite revenue growth, net loss widened by about $114,000 and operating cash outflow increased by about $1.35 million. The company spent $681,531 on property and equipment, principally for locations and upkeep.
- The auditor included a going-concern explanatory paragraph. Recurring losses, the accumulated deficit and operating cash outflows raise substantial doubt about the company’s ability to continue as a going concern. Management said additional capital is needed and anticipated further debt financing, but disclosed no financing agreement or assurance that funding will be available.
- Management described plans to open up to 10 company-operated locations in 2023 and to begin franchise sales in 2024. The filing also describes a target of more than 20 company-operated locations by the end of 2023; these statements should be read as management expectations, not assured results.
- Subsequent events included a Glendale store closure in January 2023, the completion of an Irvine cafe acquisition (the $250,000 purchase price had been paid in 2022), a Huntington Beach opening in February 2023 and a $138,000 initial investment in a Korean subsidiary in February 2023.
- Management reported disclosure controls and procedures were ineffective at December 31, 2022, citing material weaknesses involving limited accounting resources, inadequate segregation of duties and the need for a stronger control environment. The filing elsewhere contains a conflicting statement that controls were effective; see investor verification items.
- Key risks include ongoing funding needs and the going-concern uncertainty; California concentration; execution and profitability of new locations; labor, rent and commodity costs; supplier and supply-chain dependence; competition; and food safety, data security and regulatory risks. The company reported no legal proceedings it believed would have a material adverse effect.
Important facts for investors to verify
- Liquidity runway, near-term cash requirements, and whether additional financing has been secured since the filing; assess the auditor’s going-concern qualification in that context.
- Reconcile the conflicting statements on control effectiveness: Item 7 reports effective disclosure controls, while Item 9A reports ineffective controls and material weaknesses.
- Confirm share counts: the balance sheet reports 13,163,126 shares outstanding, while the 2022 equity rollforward reports 13,162,723; the filing also gives 13,163,126 as of April 2023.
- Track store openings and closures against the stated 2023 expansion targets, and assess store-level profitability, comparable sales and the reported 2022 average unit volume of approximately $376,000.
- Confirm the status and terms of PPP forgiveness: the filing says the initial loan was forgiven, while the year-end balance sheet reports $144,375 outstanding and the company said it expected remaining forgiveness.
- Monitor debt repayments and lease commitments, as well as whether the company can fund planned expansion without further cash burn or dilution.