10-K: Reborn Coffee Reports 2024 Results, Cites Going Concern Uncertainty

Reborn Coffee's 2024 annual report reveals recurring losses and a going concern uncertainty, despite a revenue increase driven by new store openings.

Summary

• Reborn Coffee, Inc. reported a net loss of $4.8 million for the year ended December 31, 2024, compared to a net loss of $4.7 million in 2023.
• The company's accumulated deficit reached $21.6 million as of December 31, 2024.
• Despite the losses, total net revenues increased by 7.6% to $5.9 million, driven by growth in both retail store and wholesale/online sales.
• The company's independent auditor has raised substantial doubt about its ability to continue as a going concern.
• Reborn Coffee is pursuing additional financing to support its operations, including an ELOC agreement for up to $50 million and a debenture transaction for up to $10 million.
• As of December 31, 2024, Reborn Coffee operated 12 company-owned retail locations, including 10 in California and one each in South Korea and Malaysia.
• The company plans to begin franchise sales in 2025 and expects to open up to 20 franchise locations.
• The company is expanding its sales channels through B2B partnerships with hotels and DTC channels like Amazon and its own website.

Sentiment

Score: 3

Explanation: The document presents a mixed picture. While revenue increased, the recurring losses, going concern warning, and need for additional financing weigh heavily on the sentiment. The potential for franchise expansion offers some hope, but the overall outlook is concerning.

Positives

• Total net revenues increased by 7.6% to $5.9 million, driven by growth in both retail store and wholesale/online sales.
• The company is expanding its sales channels through B2B partnerships with hotels and DTC channels like Amazon and its own website.
• Reborn Coffee plans to begin franchise sales in 2025 and expects to open up to 20 franchise locations.

Negatives

• Reborn Coffee, Inc. reported a net loss of $4.8 million for the year ended December 31, 2024, compared to a net loss of $4.7 million in 2023.
• The company's accumulated deficit reached $21.6 million as of December 31, 2024.
• The company's independent auditor has raised substantial doubt about its ability to continue as a going concern.
• Management has identified control deficiencies regarding inadequate accounting resources, the lack of segregation of duties and the need for a stronger internal control environment.

Risks

• The company's independent auditor has raised substantial doubt about its ability to continue as a going concern.
• The company has a history of operating losses and negative cash flow in operating activities.
• The company's success depends substantially on the value of its brand and failure to preserve its value could have a negative impact on its financial results.
• The company may not be able to compete successfully with other specialty coffee locations, including the growing number of coffee delivery options.
• The company's locations are geographically concentrated in California, and it could be negatively affected by conditions specific to that state.
• The company is subject to the risks associated with leasing space subject to long-term non-cancelable lease and, in the event it chose to purchase real property in the future, owning real estate.
• The company is increasingly dependent on information technology and its ability to process data in order to operate and sell its goods and services, and if it (or its vendors) are unable to protect against software and hardware vulnerabilities, service interruptions, data corruption, cyber-based attacks, ransomware or security breaches, or if it fails to comply with its commitments and assurances regarding the privacy and security of such data, its operations could be disrupted, its ability to provide its goods and services could be interrupted, its reputation may be harmed and it may be exposed to liability and loss of customers and business.

Future Outlook

Reborn Coffee plans to expand across the United States with company-operated and franchise locations. The company aims to accelerate growth through its franchise program and continue innovating in the coffee industry. Reborn Coffee expects to open up to 20 franchise locations in 2025.

Management Comments

• Jay Kim, our Chief Executive Officer, launched Reborn Coffee with the vision to provide the best coffee using the purest ingredients.
• Jay is focused on the expansion of Reborn and he has surrounded himself with leaders with direct experience in beverage and retail.

Industry Context

The report mentions that the retail coffee market in the US is large and growing, with an expected market size of $74.3 billion in 2025. This growth is attributed to a shift in consumer preferences to premium coffee, including specialized blends, espresso-based beverages, and cold brew options.

Comparison to Industry Standards

• The document does not provide specific comparisons to industry standards or comparable companies.
• It does mention that some competitors have substantially greater financial and other resources, have been in business longer, have greater brand recognition or are better established in the markets where Reborn's locations are located or are planned to be located.
• The document does not provide specific details on the financial performance or market position of these competitors.

Related Party Transactions

• In October 2023, the Company borrowed $100,000 from a shareholder and Chairman of the Company, Farooq M. Arjomand.
• In June 2023, the Company entered into a facility lease agreement for corporate office located in Brea, California with DRE, Inc., a company owned by the Board of Director of the Company.
• On January 10, 2024, the Company entered into a securities subscription agreement with Farooq M. Arjomand, the Chairman of the Company's Board of Directors.

Stakeholder Impact

• Shareholders face potential dilution from future equity issuances.
• Employees face uncertainty due to the company's going concern status.
• Customers may be affected by potential changes in operations or service quality.
• Suppliers and creditors face increased risk due to the company's financial instability.

Next Steps

• Reborn Coffee plans to expand across the United States with company-operated and franchise locations.
• The company aims to accelerate growth through its franchise program.
• Reborn Coffee expects to open up to 20 franchise locations in 2025.
• The company will continue to innovate in the coffee industry.
• The company will continue to pursue additional financing to support its operations.

Key Dates

Keywords

Reborn Coffee, Financial Results, Annual Report, Going Concern, Coffee, Franchise, Retail, Revenue, Loss, Debt