Reborn Coffee, Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Unaudited consolidated financial statements. Reborn operates specialty coffee retail stores and wholesale/online sales, primarily in California; retail stores generated about 98% of revenue. The company reported nine stores and four locations in development, and had no franchisees.
Financial performance
| Metric | Three months ended September 30 | Nine months ended September 30 |
|---|---|---|
| Revenue, 2022 | $838,245 | $2,379,871 |
| Revenue, 2021 | $687,814 | $1,567,935 |
| Revenue growth | 21.9% | 51.8% |
| Gross margin dollars, 2022 | $590,918 | $1,555,641 |
| Gross margin percentage, 2022 | 70.5% | 65.4% |
| Operating loss, 2022 | $(895,632) | $(2,399,356) |
| Net loss, 2022 | $(920,060) | $(2,422,320) |
| Net loss, 2021 | $(1,940,973) | $(2,576,136) |
| Basic and diluted loss per share, 2022 | $(0.08) | $(0.20) |
- Revenue growth was attributed mainly to new store openings and marketing. Wholesale and online revenue declined 44.4% in Q3 and 15.4% over nine months.
- Gross margin increased from approximately 55.9% to 70.5% in Q3 and from 62.6% to 65.4% year to date. General and administrative expense was $1.49 million in Q3, up 2.4%, and $3.95 million for nine months, up 47.6%.
- Nine-month net loss improved by $153,816, or 6.0%. Q3 net loss improved by $1.02 million; the 2021 comparison included a $982,383 debt-extinguishment loss and $115,000 PPP grant income, neither of which recurred in Q3 2022.
Cash, liquidity and debt
- At September 30, cash was $4.73 million, compared with $905,051 at December 31, 2021. Current assets were $5.09 million and current liabilities $1.06 million; the reported balances imply a current ratio of approximately 4.8x.
- For the first nine months, operating cash use was $2.00 million, investing cash use was $333,189, and financing provided $6.15 million. Financing included $7.2 million of IPO proceeds, offset by approximately $998,000 of offering costs.
- The August IPO sold 1.44 million shares at $5.00 per share, raising approximately $6.2 million net. Shares outstanding were 13,119,523 at September 30, versus 11,634,523 at year-end 2021.
- Borrowings totaled approximately $758,000, excluding operating leases: $500,000 of EIDL loans, $167,138 of PPP loans, $88,982 of financial-institution loans and $1,515 of equipment debt. Operating lease liabilities were $2.92 million. The company reported no debt defaults.
- Management said expected operating cash flow, a credit facility and IPO proceeds should fund operating leases, capital expenditures and working capital for at least the next 12 months. The filing reports a history of operating losses and negative operating cash flow.
Outlook, risks and other notable items
- Management planned to grow to as many as 20 company-owned locations by the end of 2023, estimating average development cost of about $150,000 per location and approximately $3 million for 20 stores. This is a stated plan, not earnings guidance.
- Management cited inflation in coffee beans, shipping, supplies and labor; it raised whole-bean prices 15% in January 2022 and said it had offset cost increases through pricing, sales growth, purchasing efficiencies and other measures. Further severe inflation could adversely affect results.
- The company described COVID-19-related uncertainty around customer traffic, mall restrictions and new-store openings, while noting no significant supply-chain disruptions. It also identified execution and financing needs associated with expansion.
- No material legal proceedings or material recognizable subsequent events were reported. Disclosure controls were deemed effective; management was not yet required to evaluate internal control over financial reporting as a newly public company.
Important facts for investors to verify
- Whether planned store openings occur on schedule and within the estimated development costs, and how new stores contribute to sales and cash flow.
- Whether revenue growth is sustainable, particularly given the decline in wholesale/online sales and the absence of disclosed comparable-store sales data.
- Whether gross-margin improvement persists while labor, coffee, shipping and other operating costs change; G&A increased substantially year to date.
- How quickly cash is consumed by operating losses, capital spending, lease commitments and debt payments, and whether the stated 12-month funding expectation is achieved.
- Potential dilution and IPO-related securities: the filing notes an unexercised underwriters’ over-allotment option and representative warrants.