REBORN COFFEE, INC. You should read the following discussion and analysis of our financial condition and results of operations together with our condensed consolidated financial statements and the related notes and other financial information included elsewhere in this Annual Report on Form 10-K and with our audited consolidated financial statements included in our Registration Statement on Form S-1 (File No: 333-261937), as amended (the "Registration Statement"). As discussed in the section titled "Note Regarding Forward-Looking Statements," the following discussion and analysis contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those identified below and those discussed in the section titled "Risk Factors" in our Registration Statement.
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Business
Founded in 2015 by
The Experience, Reborn
As leading pioneers of the emerging "Fourth Wave" movement,
Our success in innovating within the "fourth wave" coffee movement is measured by our success in B2B sales with our introduction of Reborn Coffee Pour Over Packs to hotels. With the introduction of our Pour Over Packs to major hotels (including one hotel company with 7 locations), our B2B sales increased as these companies recognized the convenience and functionality our Pour Over Packs serve to their customers.
Centered around its core values of service, trust, and well-being,
Through a broad product offering,
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Current Operations
We have a production and distribution center at our headquarters that we use to process and roast coffee for wholesale and retail distribution.
Currently, we have the following eleven retail coffee locations:
?
?La Crescenta, California ;
?
? Home Depot Center in
? Manhattan
?Cabazon, California ;
? Glendale Galleria in
?
?
? Stonestown Galleria in
? Intersect in
Components of Our Results of Operations
Revenue
The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers. The Company's net revenue primarily consists of revenues from its retail locations and wholesale and online store. Accordingly, the Company recognizes revenue as follows:
? Retail Store Revenue
Retail store revenues are recognized when payment is tendered at the point of sale. Retail store revenues are reported net of sales, use or other transaction taxes that are collected from customers and remitted to taxing authorities. Sales taxes that are payable are recorded as accrued as other current liabilities. Retail store revenue makes up approximately 98% of the Company's total revenue.
? Wholesale and Online Revenue
Wholesale and online revenues are recognized when the products are delivered, and title passes to customers or to the wholesale distributors. When customers pick up the products at the Company's warehouse, or the products are delivered to the wholesale distributors, the title of the products passes and revenue is recognized. Wholesale revenues make up approximately 2% of the Company's total revenue.
Cost of Sales
Cost of sales includes costs associated with generating revenue within our company-owned retail locations and through wholesale and online platform.
Shipping and Handling Costs
The Company incurred freight out cost and is included in the Company's cost of sale.
General and Administrative Expense
General and administrative expense includes store-related expense as well as the Company's corporate headquarters' expenses.
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Advertising Expense
Advertising expenses are expensed as incurred. Advertising expenses amounted to
Pre-opening Costs
Pre-opening costs for new stores, which are not material, consist primarily of payroll and recruiting expense, training, marketing, rent, travel, and supplies, and are expensed as incurred depreciated over the shorter of the useful life of the improvement or the lease term, including renewal periods that are reasonably assured.
Results of Operations
The following tables present the summary of historical consolidated financial
data for
Historical results are not necessarily indicative of the results expected for any future period. You should read the summary of historical consolidated financial data below, together with our audited consolidated financial statements and related notes thereto.
Year Ended
December 31,
2022 2021
Net revenues:
Stores $ 3,184,491 $ 2,204,201
Wholesale and online 56,032 75,871
Total net revenues 3,240,523 2,280,072
Operating costs and expenses:
Product, food and drink costs-stores 1,092,573 821,713
Cost of sales-wholesale and online 24,542 33,231
General and administrative 5,663,950 3,988,805
Total operating costs and expenses 6,781,065 4,843,749
Loss from operations (3,540,542 ) (2,563,677 )
Other income (expense):
Other income 16,440 7,631
Paycheck protection program (PPP) loan forgiven income - 115,000
Interest expense (29,195 ) (16,172 )
Loss of extinguishment of debt - (982,383 )
Total other expense (12,755 ) (875,924 )
Loss before income taxes (3,553,297 ) (3,439,601 )
Provision for income taxes 1,600 800
Net loss $ (3,554,897 ) $ (3,440,401 )
Earnings (loss) per share:
Basic and diluted $ (0.29 ) $ (0.32 )
Weighted average number of common shares outstanding:
Basic and diluted 12,173,031 10,724,944
Revenues. Revenues were approximately
Product, food and drink costs. Product, food and drink costs were approximately
General and administrative expenses. General and administrative expenses were
approximately
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Liquidity and Capital Resources
We have a history of operating losses and negative cash flow in operating
activities. We have incurred recurring net losses, including net losses from
operations before income taxes of
Our cash needs will depend on numerous factors, including our revenues, completion of our product development activities, customer and market acceptance of our product, and our ability to reduce and control costs. We expect to devote substantial capital resources to, among other things, fund operations and continue development plans.
In
To support our existing and planned business model, the Company needs to raise additional capital to fund our future operations. The Company has not experienced any difficulty in raising funds through loans, and has not experienced any liquidity problems in settling payables in the normal course of business and repaying loans when they fall due. Successful renewal of our loans, however, is subject to numerous risks and uncertainties. In addition, the increasingly competitive industry conditions under which we operate may negatively impacted our results of operations and cash flows. Additional debt financing is anticipated to fund the Company's operations in near future. However, there are no current agreements or understandings with regard to the form, time or amount of such financing and there is no assurance that any of this financing can be obtained or that the Company can continue as a going concern.
Year Ended December 31,
2022 2021
Statement of Cash Flow Data: Net cash used in operating activities (3,297,058 ) (1,949,820 ) Net cash used in investing activities
(681,531 ) (498,224 )
Net cash provided by financing activities 6,092,573 3,224,527
Cash Flows Used in Operating Activities
Net cash used in operating activities during the year ended
Net cash used in operating activities during the year ended
Cash Flows Used in Investing Activities
Net cash used in investing activities for the year ended
Cash Flows Provided by Financing Activities
Net cash provided by financing activities during the year ended
Net cash provided by financing activities during the year ended
As of
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Credit Facilities
Loans with Square Capital In
Economic Injury Disaster Loan
On
Pursuant to the SBA Loan Agreement, the Company borrowed an aggregate principal
amount of the EIDL Loan of
In connection therewith, the Company executed (i) a loan for the benefit of the SBA, which contains customary events of default and (ii) a Security Agreement, granting the SBA a security interest in all tangible and intangible personal property of the Company, which also contains customary events of default (the "SBA Security Agreement").
Paycheck Protection Program Loan
In
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Leases
Operating Leases
We currently lease all company-owned retail locations. Operating leases typically contain escalating rentals over the lease term, as well as optional renewal periods. Rent expense for operating leases is recorded on a straight-line basis over the lease term and begins when Reborn has the right to use the property. The difference between rent expense and cash payment is recorded as deferred rent on the accompanying consolidated balance sheets. Pre-opening rent is included in selling, general and administrative expenses on the accompanying consolidated statements of income. Tenant incentives used to fund leasehold improvements are recorded in deferred rent and amortized as reductions to rent expense over the term of the lease.
Income Taxes
Reborn files income tax returns in the
Upon the closing of this offering, we will be taxed at the prevailing
JOBS Act Accounting Election
We are an "emerging growth company," as defined in the JOBS Act, and may take advantage of certain exemptions from various public company reporting requirements for up to five years or until we are no longer an emerging growth company, whichever is earlier. The JOBS Act provides that an "emerging growth company" can delay adopting new or revised accounting standards until those standards apply to private companies. We have elected to use this extended transition period under the JOBS Act. Accordingly, our financial statements may not be comparable to the financial statements of public companies that comply with such new or revised accounting standards.
Off Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that we are required to disclose pursuant to these regulations. In the ordinary course of business, we enter into operating lease commitments, purchase commitments and other contractual obligations. These transactions are recognized in our financial statements in accordance with GAAP.
Critical Accounting Estimates and Policies
The preparation of financial statements requires management to utilize estimates and make judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. These estimates are based on historical experience and on various other assumptions that management believes to be reasonable under the circumstances. The estimates are evaluated by management on an ongoing basis, and the results of these evaluations form a basis for making decisions about the carrying value of assets and liabilities that are not readily apparent from other sources. Although actual results may differ from these estimates under different assumptions or conditions, management believes that the estimates used in the preparation of our financial statements are reasonable. The critical accounting policies affecting our financial reporting are summarized in Note 2 to the financial statements included elsewhere in this Annual Report on Form 10-K.
Recent Accounting Pronouncements
We have determined that all other issued, but not yet effective accounting pronouncements are inapplicable or insignificant to us and once adopted are not expected to have a material impact on our financial position.
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