What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-03-28 compared with 2023-04-11 · 76 added, 106 removed, 257 unchanged (41% of the section changed)

76 unchanged sentences

Currently, we have the following

eleven retail coffee locations:

Floresta Shopping Village in Brea, California;

Crescenta, California;

Del Mar, California;

Depot Center in Laguna Woods, California;

Village at Manhattan Beach, California.

Galleria in Glendale, California;

Anita Westfield Mall in Arcadia, California;

at Tyler in Riverside, California;

Galleria in San Francisco, California;

in Irvine, California.

Components of Our Results of Operations

fourteen retail coffee locations:

La Floresta Shopping Village in Brea, California;

La Crescenta, California;

Corona Del Mar, California;

Home Depot Center in Laguna Woods, California;

Manhattan Village at Manhattan Beach, California.

Cabazon, California;

Huntington Beach, California;

Santa Anita Westfield Mall in Arcadia, California;

Galleria at Tyler in Riverside, California;

Stonestown Galleria in San Francisco, California;

Intersect in Irvine, California;

Dupont Drive in Irvine, California;

Diamond Bar, California;

Anaheim, California

Components of Our Results

of Operations

The Company recognizes revenue in accordance

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Advertising Expense

Advertising expenses are expensed as incurred.

Advertising expenses amounted to $52,688 and $82,351 for the years ended December 31, 2022 and 2021, respectively, and are recorded under

general and administrative expenses in the accompanying unaudited condensed consolidated statements of operations.

Advertising expenses are

expensed as incurred.

Advertising expenses amounted to $71,072 and $52,688 for the years ended December 31, 2023 and 2022, respectively,

and are recorded under general and administrative expenses in the accompanying unaudited condensed consolidated statements of operations.

Pre-opening Costs

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Other income (expense):

Other income (expense)

Paycheck protection program (PPP) loan forgiven income

Interest expense

Loss of extinguishment of debt

Gain on the sale of building

Total other expense

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Product, food and drink

Product, food and drink costs were approximately $1,093,000 for the year ended December 31, 2022 compared to $822,000 for the

comparable period in 2021, representing an increase of approximately $271,000, or 33.0%.

The increase in costs was partially driven by

the opening of new locations and the overall increase in sales for the period.

Product, food and drink costs were approximately $1,758,000 for the year ended December 31, 2023 compared to $1,093,000 for

the comparable period in 2022, representing an increase of approximately $666,000, or 37.9%.

The increase in costs was partially driven

by the opening of new locations and the overall increase in sales for the period.

General and administrative

General and administrative expenses were approximately $5.7 million for the year ended December 31, 2022 compared to $4.0

million for the comparable period in the prior year, representing an increase of approximately $1.7 million, or 42.0%.

The increase was

mainly caused by increased occupancy expenses and labor costs with opening of new locations.

General and administrative expenses were approximately $7,968,000 for the year ended December 31, 2023 compared to $5,664,000

for the comparable period in the prior year, representing an increase of approximately $2,304,000, or 28.9%.

The increase was mainly caused

by increased occupancy expenses and labor costs with opening of new locations.

Liquidity and Capital Resources

We have a history of operating losses and negative cash flow in operating

We have incurred recurring net losses, including net losses from operations before income taxes of $3.5 million and $2.6 million

for the year ended December 31, 2022 and 2021, respectively.

We used $3.3 million and $1.9 million of cash for operating activities the

year ended December 31, 2022 and 2021, respectively, and we had an accumulated deficit of $12,031,801 at December 31, 2022.

These factors

raise substantial doubt as to our ability to continue as a going concern, and our independent registered public accounting firm has included

a going concern uncertainty explanatory paragraph in their report for 2022.

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 $3.7 million and $3.5 million for the year ended December 31, 2023 and 2022, respectively.

We used $3.1 million and $3.3

million of cash for operating activities the year ended December 31, 2023 and 2022, respectively, and we had an accumulated deficit of

$15,303,487 at December 31, 2023.

These factors raise substantial doubt as to our ability to continue as a going concern, and our independent

registered public accounting firm has included a going concern uncertainty explanatory paragraph in their report for 2023.

Our cash needs will depend on numerous factors,

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financing can be obtained or that the Company can continue as a going concern.

Year Ended December 31,

Statement of Cash Flow Data:

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Cash Flows Used in Operating Activities

Net cash used in operating activities during the year ended December

31, 2023 was approximately $2.8 million, which resulted from net loss of $3.7 million, non-cash charges of $285,000 for stock compensation,

$272,000 for operating lease and $262,000 for depreciation, and net cash outflows of $388,000 from changes in operating assets and liabilities.

Net cash used in operating

activities during the year ended December 31, 2022 was approximately $3.3 million, which resulted from net loss of $3.5 million, non-cash

charges of $441,000 for stock compensation and $210,616 for depreciation and net cash outflows of $414,842 from changes in operating assets

and liabilities.

The net cash outflows from changes in operating assets and liabilities were primarily the result of increases in inventory

of $43,466, prepaid and other assets of $521,176, partially offset by increase of $150,580 in accrued liabilities.

Net cash used in operating activities during

the year ended December 31, 2021 was approximately $1.9 million, which resulted from net loss of $3.4 million, non-cash charges of $550,000

for stock compensation, 982,383 of loss on extinguishment of debt and $174,696 for depreciation, and net cash outflows of $101,498 from

changes in operating assets and liabilities.

The net cash outflows from changes in operating assets and liabilities were primarily the

result of increases in inventories of $73,598, prepaids and other assets of $132,059 and a decrease in accounts payable of $27,571, partially

offset by increases of $127,877 in accrued liabilities.

charges of $441,000 for stock compensation, $21,000 for operating lease and $210,616 for depreciation, and net cash outflows of $415,000

from changes in operating assets and liabilities.

Cash Flows Used in Investing Activities

Net cash used in investing activities for the

year ended December 31, 2022 and 2021 was $681,531 and $498,224, respectively, These expenditures in each period are primarily related

to purchases of property and equipment in connection with current and future location openings and maintaining our existing locations.

Net cash used in investing

activities for the year ended December 31, 2023 and 2022 was $1,019,353 and $681,531, respectively, These expenditures in each period

are primarily related to purchases of property and equipment in connection with current and future location openings and maintaining our

existing locations.

Cash Flows Provided by Financing Activities

Net cash provided by financing activities during

the year ended December 31, 2022 was $6.1 million, which was primarily a proceeds from the IPO, net of offering expenses of approximately

Net cash provided by financing activities during the year ended December

31, 2023 was $1.5 million, which was primarily a proceeds from the credit line and loans.

Net cash provided by financing activities during

the year ended December 31, 2021 was $3.2 million, primarily due to approximately $2.7 million received from the common stock issuance

and $1.0 million from the loans, offset by approximately $492,000 of repayments of borrowings.

the year ended December 31, 2022 was $6.1 million, which was primarily a proceeds from the IPO.

As of December 31, 2023,

the Company had total assets of approximately $9.0 million.

Our cash balance as of December 31, 2022 was approximately $3.0 million.

Our cash balance as of December 31, 2023 was approximately $676,000.

Credit Facilities

Loans with Square Capital

In August 2022, the Company entered into loan

agreements with Square Capital in the aggregate principal amount of $100,000 with loan costs of $12,215.

The loan payable has a maturity

date on February 2, 2024.

During the fiscal year ended December 31, 2023, the Company entered

into loan agreements with Square Capital.

As of December 31, 2023, there was a balance outstanding of $1,126,500.

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Paycheck Protection Program

In May 2020, the Company secured a loan under

the PPP administered by the SBA in the amount of $115,000.

In February 2021, the Company secured a second loan under this program in

the amount of approximately $167,000.

The interest rate of the loan is 1.00% per annum and accrues on the unpaid principal balance computed

on the basis of the actual number of days elapsed in a year of 360 days.

Commencing seven months after the effective date of each PPP

Loan, the Company is required to pay the Lender equal monthly payments of principal and interest as required to fully amortize any unforgiven

principal balance of the loan by the two-year anniversary of the effective date of the loan.

The PPP Loan contains customary events of

default relating to, among other things, payment defaults, making materially false or misleading representations to the SBA or the Lender,

or breaching the terms of the PPP Loan.

The occurrence of an event of default may result in the repayment of all amounts outstanding

under the PPP Loan, collection of all amounts owing from the Company, or filing suit and obtaining judgment against the Company.

the terms of the CARES Act, PPP loan recipients can apply for and be granted forgiveness for all or a portion of the loan granted under

Such forgiveness will be determined, subject to limitations, based on the use of loan proceeds for payment of payroll costs

and any payments of mortgage interest, rent, and utilities.

In May 2020, the Company

secured a loan under the PPP administered by the SBA in the amount of $115,000.

In February 2021, the Company secured a second loan under

this program in the amount of approximately $167,000.

The interest rate of the loan is 1.00% per annum and accrues on the unpaid principal

balance computed on the basis of the actual number of days elapsed in a year of 360 days.

Commencing seven months after the effective

date of each PPP Loan, the Company is required to pay the Lender equal monthly payments of principal and interest as required to fully

amortize any unforgiven principal balance of the loan by the two-year anniversary of the effective date of the loan.

The PPP Loan contains

customary events of default relating to, among other things, payment defaults, making materially false or misleading representations

to the SBA or the Lender, or breaching the terms of the PPP Loan.

The occurrence of an event of default may result in the repayment of

all amounts outstanding under the PPP Loan, collection of all amounts owing from the Company, or filing suit and obtaining judgment against

Under the terms of the CARES Act, PPP loan recipients can apply for and be granted forgiveness for all or a portion of the

loan granted under the PPP.

Such forgiveness will be determined, subject to limitations, based on the use of loan proceeds for payment

of payroll costs and any payments of mortgage interest, rent, and utilities.

Recent modifications to the PPP by the U.S.

Treasury and Congress have extended

the time period for loan forgiveness beyond the original eight-week period, making it possible for the Company to apply for forgiveness

of its PPP loan.

The Company was granted forgiveness for the initial PPP Loan prior to December 31, 2021 and expects to be granted forgiveness

on the remainder subsequently.

Congress have extended the time period for loan forgiveness beyond the original eight-week period, making it possible for the Company

to apply for forgiveness of its PPP loan.

The Company was granted forgiveness for the initial PPP Loan prior to December 31, 2021.

Operating Leases

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federal, state and foreign income taxes.

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.

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

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impact on our financial position.

Quantitative and Qualitative Disclosures About Market Risk.

We are a smaller reporting company as defined by 17 C.F.R.

229 (10)(f)(i)

and are not required to provide information under this item.

Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our management has evaluated the effectiveness

of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of December 31, 2022.

Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of December 31, 2022, our disclosure

controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in the reports

that we file or submit under the Exchange Act (a) is recorded, processed, summarized and reported within the time periods specified by

SEC rules and forms and (b) is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial

Officer, as appropriate, to allow timely decisions regarding any required disclosure.

Changes in Internal Control Over Financial Reporting

Due to a transition period established by SEC rules applicable to

newly public companies, our management is not required to evaluate the effectiveness of our internal control over financial reporting

until after the filing of our Annual Report on Form 10-K for the year ending December 31, 2022.

As a result, this Quarterly Report does

not address whether there have been any changes in our internal control over financial reporting.

Quantitative and Qualitative Disclosures

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis