REBN

Reborn Coffee, Inc. (REBN) - 10-K Summary

Business Context and Reporting Period

Company: Reborn Coffee, Inc.
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2024
Business Overview: Reborn Coffee operates as a high-growth operator and franchisor of retail coffee locations and kiosks, focusing on specialty-roasted coffee. As of December 31, 2024, the company operated 12 company-owned locations (10 in California, 1 in South Korea, 1 in Malaysia). The company is a "smaller reporting company" and a "non-accelerated filer."

Key Financial Metrics

Debt Obligations (as of Dec 31, 2024):

• EIDL Loan: $500,000 principal outstanding.
• PPP Loan: $63,801 principal outstanding.
• Loans to Financial Institutions: $111,300.
• Loans to Others: $427,073.

Material Changes vs. Prior Period

• Revenue Growth: Total net revenues increased by 7.6% ($420,394) year-over-year. Store revenue grew 5.8%, while wholesale and online revenue surged 47.2%.
• Expense Increases: Total operating costs and expenses rose 4.9% to $10.5 million. Product, food, and drink costs increased 15.7% due to new location openings and sales volume. General and administrative expenses increased 2.2% primarily due to occupancy and labor costs.
• Profitability: The company continued to incur significant losses. Net loss increased slightly by 1.7% to $4.8 million. Loss from operations widened by 1.7% to $4.6 million.
• Capital Structure: The company executed a 1-for-8 reverse stock split in January 2024. Stockholders' equity increased significantly from $846k to $2.6 million, driven by proceeds from the issuance of common stock ($4.3 million) and common stock issuable ($1.5 million).

Guidance, Outlook, Risks, and Contingencies

Going Concern Uncertainty: The independent registered public accounting firm has included an explanatory paragraph regarding substantial doubt about the company's ability to continue as a going concern. This is due to recurring operating losses, negative cash flows from operations, and an accumulated deficit of $21.6 million.

Liquidity and Financing:

• The company requires additional capital to fund future operations.
• ELOC Agreement: Entered into a purchase agreement with Arena Business Solutions Global SPC II, Ltd. to sell up to $50.0 million of common stock.
• Convertible Debentures: Entered into a Securities Purchase Agreement to issue up to $10.0 million in 10% OID secured convertible debentures. As of the filing date, three tranches totaling $1.67 million principal had closed.

Internal Controls: Management concluded that disclosure controls and procedures and internal control over financial reporting were ineffective as of December 31, 2024. Material weaknesses were identified regarding inadequate accounting resources and lack of segregation of duties.

Key Risks:

• Failure to achieve profitability or secure additional financing.
• Geographic concentration (all U.S. locations in California).
• Competition from national chains and delivery options.
• Nasdaq delisting risks (company is under a Discretionary Panel Monitor until May 16, 2025).
• Supply chain disruptions and commodity price volatility.

Investor Verification Checklist

• Going Concern Status: Verify the company's ability to secure the necessary financing under the ELOC and Debenture agreements to sustain operations beyond the current cash balance of ~$158k.
• Internal Controls: Assess the remediation plan for the material weaknesses in internal controls over financial reporting.
• Nasdaq Compliance: Monitor the company's status regarding the Discretionary Panel Monitor and compliance with Nasdaq listing requirements (bid price, equity, public float).
• Dilution Impact: Evaluate the potential dilution to existing shareholders from the $50M ELOC facility and the $10M convertible debenture offering.
• Debt Service: Review the repayment schedules for the EIDL, PPP, and private party loans, noting the high interest rates on certain private borrowings.