Reborn Coffee, Inc. (REBN) - Q2 2024 10-Q Summary
Business Context and Reporting Period
This filing covers the quarterly period ended June 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 August 8, 2024, there were 3,752,510 shares of common stock outstanding.
Key Financial Metrics
| Metric | Six Months Ended June 30, 2024 | Three Months Ended June 30, 2024 |
|---|---|---|
| Total Net Revenues | $2,890,963 | $1,372,901 |
| Net Loss | $(2,307,156) | $(1,316,612) |
| Loss Per Share (Basic & Diluted) | $(1.05) | $(0.48) |
| Cash and Cash Equivalents | $617,051 (as of June 30, 2024) | N/A |
| Net Cash Used in Operating Activities | $(2,895,711) | N/A |
| Total Liabilities | $7,986,318 | N/A |
| Stockholders' Equity | $2,542,688 | N/A |
Revenue Breakdown (Six Months 2024): Store revenues were $2,666,206 (92% of total), while wholesale and online revenues were $224,757 (8% of total).
Material Changes vs. Prior Period
- Revenue: Total net revenues increased by 9.5% ($249,719) for the six months ended June 30, 2024, compared to the same period in 2023. This was driven by a 497.9% increase in wholesale and online sales, partially offset by a 2.4% increase in store sales.
- Expenses: General and administrative expenses increased by 10.6% ($413,851) year-over-year for the six-month period, attributed to hiring, professional services, and public company costs. Conversely, product, food, and drink costs decreased by 28.6% due to cost reduction initiatives.
- Profitability: The net loss increased slightly by 2.2% for the six-month period compared to the prior year. For the three-month period, store revenues declined 20.1% compared to Q2 2023, though wholesale revenues surged 633.3%.
- Capital Structure: The company issued 983,498 shares in Q1 2024 and 385,985 shares in Q2 2024, raising capital to fund operations.
Outlook, Risks, and Contingencies
- Going Concern: The filing explicitly states there is substantial doubt about the company's ability to continue as a going concern. The company has an accumulated deficit of $19,064,080 and current liabilities exceed current assets by $2,054,312. Management intends to raise additional funds through equity or debt offerings, but there is no assurance of success.
- Liquidity: Cash balance increased to $617,051 from $164,301 at year-end 2023, primarily due to $4.0 million in proceeds from a line of credit and stock issuances. However, operating cash flow remains deeply negative.
- Internal Controls: Management concluded that disclosure controls and procedures were ineffective as of June 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.
- Debt Obligations: The company holds various loans including EIDL ($500,000 total), PPP ($73,721 remaining), and loans from financial institutions and private parties totaling over $1.8 million. Some loans carry high interest rates (up to 30%) or are due on demand.
Investor Verification Checklist
- Verify the status of the going concern warning and the company's specific plan to secure additional financing.
- Review the details of the material weaknesses in internal controls and the timeline for remediation.
- Confirm the terms and maturity dates of the high-interest loans and "due on demand" obligations to assess immediate liquidity risk.
- Monitor the sustainability of the wholesale revenue growth versus the decline in same-store retail sales observed in Q2.
- Check for any updates on the reverse stock split (1-for-8) executed in January 2024 and its impact on share liquidity.