10-K/A: Reborn Coffee Files Amended 10-K, Citing Immaterial Financial Adjustments and Prior Audit Firm Omission

Reborn Coffee, Inc. has filed an amendment to its annual report to correct immaterial errors in its 2022 financial statements and include an omitted audit report from its previous accounting firm.

Summary

• Reborn Coffee, Inc. filed an amendment to its annual report on Form 10-K to correct immaterial errors in the 2022 financial statements.
• The amendment includes the report of the independent registered public accounting firm for the year ended December 31, 2022, which was unintentionally omitted from the original filing.
• The company's principal executive officer and principal financial officer have provided new certifications in connection with this amendment.
• The original filing was for the fiscal year ended December 31, 2023, and was filed on March 28, 2024, and amended on July 8, 2024.
• The company reported a net loss of approximately $4.7 million on revenue of $5.5 million for 2023, and a net loss of $3.6 million on revenue of $3.2 million for 2022.
• The company's adjusted EBITDA was approximately -$4.3 million in 2023 and -$3.3 million in 2022.
• As of December 31, 2023, Reborn Coffee had 14 company-operated locations, with an average unit volume (AUV) of approximately $458,000.
• The company plans to expand to over 20 corporate-owned locations and 20 franchised locations by the end of 2024.

Sentiment

Score: 4

Explanation: The document presents a mixed picture. While there is strong revenue growth and expansion plans, the significant net losses, negative EBITDA, going concern warning, and Nasdaq listing non-compliance raise serious concerns. The company's future is uncertain, and the risks outweigh the positives.

Positives

• Reborn Coffee's revenue increased significantly from $3.2 million in 2022 to $5.5 million in 2023, indicating strong growth.
• The company is actively expanding its retail footprint, with plans to operate over 20 corporate-owned and 20 franchised locations by the end of 2024.
• Reborn Coffee has a strong focus on innovation, including unique bean processing methods and product offerings like pour-over packs.
• The company has received awards for its cold brew, demonstrating product quality.
• Reborn Coffee is expanding its sales channels through B2B partnerships with hotels and exploring opportunities in grocery stores.

Negatives

• Reborn Coffee has incurred significant net losses, with a $4.7 million loss in 2023 and a $3.6 million loss in 2022.
• The company's adjusted EBITDA was negative in both 2023 and 2022, indicating operational challenges.
• The company's independent registered public accounting firm has included a going concern uncertainty explanatory paragraph in their report for 2023.
• The company is not in compliance with Nasdaq continued listing requirements and faces potential delisting.
• The company has identified material weaknesses in its internal controls over financial reporting.

Risks

• The company has a history of operating losses and negative cash flow, raising substantial doubt about its ability to continue as a going concern.
• Reborn Coffee faces intense competition from other coffee locations and delivery options.
• The company's growth strategy depends on opening new locations, which may be unsuccessful or delayed.
• The company's operations are geographically concentrated in California, making it vulnerable to regional conditions.
• The company is dependent on a small number of suppliers and is vulnerable to supply chain disruptions.
• Increases in the cost of coffee beans and other commodities could negatively impact the company's financial results.
• The company is increasingly dependent on information technology and is vulnerable to cyber-attacks and data breaches.
• Pandemics or disease outbreaks, such as COVID-19, may continue to affect the company's business and results of operations.
• The company's success depends on the value of its brand, which could be negatively impacted by negative publicity or other incidents.
• The company may not be able to adequately protect its intellectual property.
• Changes in the availability and cost of labor could harm the company's business.
• The company is subject to various regulations and litigation risks.
• The company is not in compliance with Nasdaq continued listing requirements and faces potential delisting.
• The company's stock price may be volatile, and investors could lose their investment.
• The company may need additional capital, and there is no guarantee that additional financing will be available.

Future Outlook

Reborn Coffee plans to expand across the United States with company-operated and franchised locations, aiming to operate over 20 corporate-owned and 20 franchised locations by the end of 2024. The company also intends to grow its B2B sales and explore partnerships with grocery operators.

Management Comments

• Jay Kim, the Chief Executive Officer, launched Reborn Coffee with the vision to provide the best coffee using the purest ingredients.
• Management believes Reborn differentiates itself from other coffee roasters through its innovative techniques, including sourcing, washing, roasting, and brewing coffee beans.
• Management considers Reborn Coffee a leader of the fourth wave coffee movement due to its continuous development of bean processing methods and research into design concepts.

Industry Context

The document highlights Reborn Coffee's position within the emerging 'Fourth Wave' coffee movement, emphasizing innovation and quality. The company aims to capitalize on the growing retail coffee market in the US, which is expected to reach $48.7 billion in 2023, driven by consumer preferences for premium coffee.

Comparison to Industry Standards

• Reborn Coffee's AUV of $458,000 is below the average for established national chains like Starbucks, which can range from $500,000 to over $1 million per store, but is comparable to smaller regional chains.
• The company's net loss margins of -82.5% in 2023 and -109.3% in 2022 are significantly worse than industry averages, which typically see net profit margins in the single to low double digits for established players.
• Reborn's focus on specialty coffee and unique processing methods aligns with the trend of premiumization in the coffee industry, similar to companies like Blue Bottle Coffee and Intelligentsia Coffee.
• The company's expansion plans to operate 20 corporate-owned and 20 franchised locations by the end of 2024 is aggressive compared to the more gradual growth of some established specialty coffee chains.
• The company's reliance on a limited number of suppliers and its vulnerability to commodity price fluctuations are common risks in the coffee industry, similar to other coffee roasters and retailers.

Related Party Transactions

• In October 2023, the Company borrowed $100,000 from the shareholder and Chairman of the Company, Farooq M. Arjomand.
• In June 2023, the Company entered into a facility lease agreement for a corporate office located in Brea, California with DRE, Inc., a company owned by a Board of Director of the Company.

Stakeholder Impact

• Shareholders face significant risks due to the company's financial losses, going concern uncertainty, and potential delisting from Nasdaq.
• Employees may be affected by the company's financial instability and potential restructuring.
• Customers may experience changes in service or store availability due to the company's expansion and potential closures.
• Suppliers may face uncertainty due to the company's financial challenges and potential supply chain disruptions.
• Creditors face risks due to the company's high debt levels and potential inability to repay loans.

Next Steps

• The company plans to expand to over 20 corporate-owned locations and 20 franchised locations by the end of 2024.
• Reborn Coffee aims to increase its channel presence by expanding B2B partnerships and online sales.
• The company will continue to innovate in the coffee industry by making the industry more personal to consumers, franchisees, and employees.
• The company expects to launch a training school for baristas in 2024.

Key Dates

Keywords

Reborn Coffee, specialty coffee, franchise, retail locations, coffee beans, cold brew, financial results, EBITDA, net loss, revenue, going concern, Nasdaq, internal controls, risk factors