Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended December 31, 2017, for Capax Inc. (referred to as "Reborn Coffee, Inc." in the request metadata, though the filing identifies the registrant as Capax Inc.). The company is a Florida-incorporated shell company and smaller reporting company. Originally formed to market veterinary products, the company pivoted in February 2017 to focus on establishing a chain of bakery-cafes with long-term franchising goals. As of the filing date, the company has no active operations, no revenue, and operates out of the CEO's residence.
Key Financial Metrics
| Metric | Q3 2018 (Ended Dec 31, 2017) | Q3 2017 (Ended Dec 31, 2016) |
|---|---|---|
| Revenue | $0 | $0 |
| Operating Expenses | $16,178 | $0 |
| Net Loss | $(16,178) | $0 |
| Cash and Cash Equivalents | $81,208 | $0 |
| Total Assets | $81,208 | $0 |
| Total Liabilities | $0 | $0 |
| Stockholders' Equity | $81,208 | $0 |
| Accumulated Deficit | $(43,233) | $(27,055) |
Cash Flow Summary: Net cash used in operating activities was $(16,178). Net cash provided by financing activities was $7,083, driven by $11,190 in proceeds from the sale of common stock, partially offset by a $4,107 repayment of an officer loan.
Material Changes vs. Prior Period
- Operational Activity: The company transitioned from a state of inactivity in the prior year (Q3 2017) to incurring operating expenses of $16,178 in the current quarter, primarily for professional fees ($7,162) and administrative expenses ($9,016).
- Liquidity: Cash balances increased from $0 to $81,208 due to equity financing activities in late 2017.
- Debt: The company repaid a $4,107 related-party loan (officer credit card expenses) during the quarter, reducing current liabilities to zero.
- Equity: The company issued 74,600 shares of Class A common stock, raising $11,190.
Outlook, Risks, and Management Commentary
Strategy and Guidance: Management plans to raise approximately $300,000 to acquire an operating bakery-cafe, which they estimate could generate $5,000 in monthly net positive cash flow. Without this acquisition, the company estimates it can sustain its current low-overhead operations (burn rate of ~$6,000/month) for approximately 14 months using existing cash reserves.
Risks and Contingencies:
- Shell Company Status: The company is a shell company with nominal operations, making its securities potentially illiquid.
- Capital Needs: There is no assurance that additional capital will be available to fund the acquisition of a bakery-cafe or to sustain operations beyond the estimated 14-month runway.
- Internal Controls: Management concluded that disclosure controls and procedures are not effective due to material weaknesses, including inadequate segregation of duties, lack of formal documentation, and limited internal resources.
- Business Execution: The company has not secured formal agreements for acquisitions in Miami or franchise partnerships in China, despite initial discussions.
Investor Verification Checklist
- Runway Validation: Verify if the $81,208 cash balance is sufficient to cover the estimated $6,000 monthly burn rate for the projected 14 months, considering potential increases in compliance costs ($72,000–$240,000 annually).
- Capital Raising Progress: Confirm if the company has secured the $300,000 required to acquire a bakery-cafe or if it is actively raising funds to extend its runway.
- Internal Control Remediation: Assess the timeline and plan for addressing the material weaknesses in internal controls and disclosure procedures.
- Related Party Transactions: Review the terms of the CEO's office lease (provided at no charge) and any future reliance on officer loans or credit cards for operations.
- Asset Ownership: Confirm the status of the 74,600 shares sold in Q3 and ensure all proceeds were properly deposited and accounted for.