The most dangerous moment in a company’s life is not when it announces a quarterly loss, nor even when its share price declines. The risk becomes more complex when a loss shifts from a temporary event on the income statement into a long-term accumulation that begins consuming capital, putting pressure on liquidity, and raising questions about the business’s ability to continue operating.

This is what makes the case of Redan Food Company more than just news about a company listed on the Saudi stock market.

At the end of June 2026, the company’s accumulated losses stood at approximately SAR 78.3 million, equivalent to 107% of its capital of about SAR 73.1 million. During the same period, equity attributable to the company’s shareholders, excluding non-controlling interests, became negative by approximately SAR 5.18 million. Meanwhile, current liabilities exceeded current assets, bringing the working-capital deficit to approximately SAR 64.9 million.

These figures provide a useful case for understanding a broader question in economics and corporate management: What happens when the losses of a joint-stock company exceed its capital? And can a capital restructuring actually solve the problem?

First… What Does It Mean for Losses to Reach 107% of Capital?

At first glance, the phrase may appear to mean that the company has “lost more than everything it owns.” But that is not the precise accounting meaning.

Capital here refers to the company’s issued capital—the legally and accounting-recorded value of shareholders’ capital—not the market value of the company’s shares on the stock exchange, nor its total assets or the cash held in its accounts.

Meanwhile, accumulated losses are the total losses accumulated over time from results that previous profits, reserves, and capital adjustments were unable to absorb.

When accumulated losses are said to equal 107% of capital, this means that the balance of those losses has become greater than the issued capital itself.

The distinction matters because capital differs from equity, and both differ from market value.

Market value changes every day according to the share price and number of shares. Equity, in very simplified terms, is what remains accounting-wise for shareholders after liabilities are deducted from assets. In Redan’s case, the signal goes beyond losses exceeding capital: equity attributable to shareholders turned negative, at approximately SAR 5.18 million, at the end of June 2026.

This makes the 107% figure more significant, as it is accompanied by other signs of financial pressure.

The Story Did Not Begin in 2026

Looking at the 107% figure alone may obscure the most important part of the story.

Redan had already gone through a long series of capital restructurings and operating losses in previous years.

In October 2022, the extraordinary general meeting approved reducing capital from SAR 337.5 million to approximately SAR 158.1 million, a reduction of 53.16%. The annual results for that year showed that approximately SAR 179.4 million of accumulated losses had been written off through the capital reduction.

But cleaning up the balance sheet did not stop the generation of losses.

In 2023, Redan recorded revenue of approximately SAR 177.4 million and a net loss of SAR 30.9 million. In 2024, revenue fell to SAR 155.4 million, while the net loss widened to SAR 73.1 million. Revenue then declined to approximately SAR 114.1 million in 2025, with a net loss of SAR 64.7 million.

Thus, annual revenue fell by approximately 36% between 2023 and 2025, while losses remained substantial.

But the most revealing indicator appears at the level of gross profit.

The company generated gross profit of approximately SAR 9.7 million in 2023, which narrowed to just SAR 1.2 million in 2024, before turning into a gross loss of SAR 11.4 million in 2025.

Based on the reported figures, the gross-profit margin fell from approximately 5.4% in 2023 to less than 1% in 2024, before turning negative at approximately 10% in 2025.

This is a fundamental point.

When a company becomes unprofitable only after administrative and financing expenses, the problem may lie in its cost structure or debt. But when gross profit itself turns into a loss, this means the pressure has reached the core of the business: the relationship between the sales the company generates and the direct cost required to generate those sales.

Then Came the First Half of 2026

The picture became more difficult during 2026.

In a corrective announcement issued in August, the company revised first-half revenue for the year to approximately SAR 20.66 million, a decline of nearly 70% from the same period of the previous year, while the gross loss reached approximately SAR 5.31 million. In the second quarter alone, revised revenue amounted to approximately SAR 3.48 million, down nearly 85.9% year on year.

The company explained that the correction resulted from reclassifying certain items to separate continuing and discontinued operations in accordance with the requirements of International Financial Reporting Standard 5, in addition to correcting an aggregation error. It confirmed that the adjustment did not change the period’s total net results.

Based on the corrected figures, the company was losing approximately 26 halalas at the gross-profit level for every riyal of revenue during the first half of 2026, before accounting for the remaining operating and financing expenses.

This explains why a crisis of this kind cannot be reduced to a single accounting line item.

Where Did the Sales Go?

The company attributed the decline in performance to several factors, including lower branch sales, reduced revenue from contracts and franchising, the absence of Hajj contracts during certain periods, impairment losses on property, equipment, and investments, and the company’s share of the losses of an associate.

During the second quarter of 2026, Redan closed eight locations: Al-Waziriyah, Al-Sanabel, Al-Haramain, Al-Samer, Al-Sharae, Al-Tayseer, Al-Zaydi, and Al-Madinah 2. The company said that declining restaurant sales, the absence of catering sales, and the closure of these locations were among the reasons for the decline in revenue.

Economically, closing branches creates a complicated equation.

Closing a loss-making branch may be the right decision because it stops the drain from rent, salaries, and operating costs. At the same time, however, it reduces the revenue-generating network. Therefore, a branch-closure program cannot be evaluated by the number of locations closed, but by asking whether the costs eliminated were greater than the revenue and profit margins lost.

If the productivity of the remaining branches does not increase or new sources of revenue do not emerge, the downsizing process may turn from “restructuring” into merely a contraction in the company’s size.

Is the Problem in Saudi Arabia’s Restaurant Sector?

This is where comparison with the local economy becomes useful.

Ministry of Commerce data show that the number of commercial registrations in the accommodation and food-services sector grew by approximately 10% in 2024, while registrations for restaurants and mobile food services increased by about 10% to more than 136,000 registrations. Food-service registrations grew by 33%.

The General Authority for Statistics also reported that food and beverage service activities in the Kingdom generated operating revenue of approximately SAR 90.3 billion in 2024.

These figures alone are insufficient to say that all restaurant companies were achieving growth or profits; an increase in commercial registrations does not necessarily mean higher demand or wider profit margins.

But they provide important context: the difficulties Redan faced occurred in a market experiencing clear expansion in the number of establishments and competitors, not in a sector from which economic activity had disappeared.

This shifts the discussion from attributing the crisis solely to external conditions to questions concerning the company’s competitiveness, product mix, branch-network efficiency, contracts, costs, and franchising and catering models.

Capital Surgery Does Not Fix the Engine

One of the most important lessons from Redan’s case concerns the difference between addressing the balance sheet and addressing the business model.

In November 2025, the company reduced its capital for the second time, this time from approximately SAR 158.1 million to SAR 73.1 million, by canceling approximately 8.5 million shares, with the aim of writing off nearly SAR 84.95 million in accumulated losses.

After the transaction, accumulated losses fell to approximately SAR 26.25 million, equivalent to 35.8% of capital.

On paper, this was a significant improvement.

But just a few months later, the results at the end of 2025 showed accumulated losses rising again to approximately SAR 56 million, or 76.6% of capital. They then increased to SAR 62.1 million, or 84.9%, at the end of March 2026, before reaching SAR 78.3 million, or 107%, at the end of June.

This is the most important point in the entire case:

A capital reduction can write off accumulated losses for accounting purposes, but it does not stop the company from generating new losses.

This is not merely a theoretical conclusion. In Redan’s latest recommendation to reduce capital, the company itself explained that the reduction would have no material impact on its liabilities, operations, or financial and operating performance.

A capital reduction, in this sense, is like rearranging the balance sheet after it has been damaged. It may correct distortions in the capital structure, but it does not increase restaurant sales, secure a catering contract, or improve a branch’s profit margin.

For the Third Time… Reduction Followed by an Increase

In May 2026, Redan’s board recommended another capital restructuring.

Subject to the required approvals, the plan calls for reducing capital from approximately SAR 73.14 million to SAR 21.94 million, a 70% reduction, to write off approximately SAR 51.2 million in accumulated losses. This time, the company proposed implementing the reduction by lowering the share’s nominal value from SAR 10 to SAR 3, while keeping the number of shares at approximately 7.31 million.

Then comes the economically different step: increasing capital through a SAR 105 million rights issue, which the company says is intended to support working capital, strengthen its financial position, and implement its expansion plans.

The difference between the two transactions is fundamental.

A capital reduction in itself does not add new funds to the company’s treasury; a successful rights issue, however, can bring in genuine new liquidity from shareholders.

But the arrival of the funds is not the end of the story.

If operating activity continues to consume capital instead of generating a return on it, the capital increase may become financing for another period of losses. Therefore, the right economic question is not only: Can Redan raise SAR 105 million?

It is also: What return can the business generate on that money after raising it?

The Most Important Warning May Not Be 107%

The 107% figure may attract the headlines, but another figure is no less important: SAR 64.9 million.

This is the working-capital deficit cited by the auditor at the end of June 2026, compared with approximately SAR 60 million at the end of 2025 and approximately SAR 35.2 million at the end of 2024.

Working capital, in its simplest definition, examines the relationship between current assets that can be converted into cash or used in the short term and liabilities that must be paid during the same period.

When current liabilities significantly exceed current assets, this means the company is facing pressure on its short-term liquidity, even if it has other long-term assets.

This is why the auditor drew attention in the 2024 results, then again in 2025, and once more in the first half of 2026, to the existence of a material uncertainty related to going concern.

This phrase, too, requires careful interpretation.

“Going concern” is the accounting assumption that a company will continue operating for the foreseeable future and will not be forced into liquidation or compelled to cease operations.

The existence of “material uncertainty” does not mean that the auditor has declared the company bankrupt or issued an adverse opinion on its financial statements. The first-half 2026 report instead indicated that the conclusion was unmodified, while drawing attention to circumstances that could raise substantial doubt about the company’s ability to continue as a going concern. Management had prepared the statements on a going-concern basis, relying on the success of its operating and financial plans.

There is an important difference between saying “the company will fail” and saying “there is material uncertainty requiring its ability to execute the rescue plan to be monitored.”

And What Does Saudi Law Say?

Losses exceeding capital does not, by itself, automatically result in the dissolution of a joint-stock company.

Article 132 of the Saudi Companies Law stipulates that if the losses of a joint-stock company reach half of its issued capital, the board must disclose this fact and its recommendations regarding the losses within 60 days of becoming aware of them, and must call an extraordinary general meeting within 180 days to consider whether the company should continue and take the necessary measures to address the losses, or dissolve the company.

The Saudi Exchange also applies special procedures to listed companies when their accumulated losses reach 20% or more of capital, classifying companies according to the level of losses, up to the category of companies whose losses reach 50% or more.

Thus, the law does not say that losses reaching 50% or 100% mean the automatic end of the company.

Instead, it elevates the decision to a higher level of governance: disclosure, recommendations from the board, an extraordinary general meeting, and procedures to address the losses or decide whether the company should continue.

This mechanism seeks to balance two objectives: giving the company an opportunity to restructure while protecting shareholders and creditors from the continuation of operations without a clear response to the financial deterioration.

What Should Determine the Success of the Rescue Plan?

Redan’s announced plan can be viewed through three interconnected dimensions.

The first is restoring revenue. The company says it intends to offset the decline in sales, diversify the products of existing branches, focus on catering, enter into long-term strategic agreements, and restructure its franchise model.

But revenue growth alone is not enough.

The second dimension is the economics of the business itself. When the gross-profit margin becomes negative, adding new sales under the same economic terms may add volume without adding value. It will therefore be important to monitor the return of gross profit to positive territory, followed by gradual improvement in margins.

The third dimension is liquidity. A business may have assets, a brand, and branches, yet remain exposed to pressure if it does not generate enough cash to cover its obligations as they fall due.

Accordingly, the success of the restructuring cannot be measured by the immediate decline in the accumulated-loss ratio after the reduction, because that ratio will fall as a result of the accounting transaction itself.

The more difficult test begins after the reduction.

Do sales increase? Does the gross loss turn into gross profit? Does the working-capital deficit decline? Do operating cash flows become capable of funding the business instead of relying repeatedly on new capital?

These are the indicators that can distinguish between genuine restructuring and an accounting rearrangement of the problem.

A Lesson from the Local Economy: Market Growth Does Not Protect Every Company

Redan’s case also offers a broader lesson about the nature of the economy.

The economy may grow, the sector may attract new companies, and aggregate demand may expand, yet a particular company can still experience distress.

Indeed, market growth can sometimes increase pressure because it attracts more competitors, raises consumer expectations, and forces established companies to improve their products, customer experience, delivery efficiency, pricing, and management.

For this reason, we should not equate the attractiveness of a sector with the quality of the company operating in it.

Ministry of Commerce figures on the expansion of the base of establishments operating in food and restaurant activities during 2024 point to an active market, but they also imply more intense competition.

Redan’s case therefore shifts from being a story about restaurants to a more general economic lesson: a company competes not only for sales, but for its ability to convert those sales into margin, margin into cash flow, and cash flow into a sustainable return on capital.

The Problem Is Not the Loss… But the Ability to Recover

Companies can lose money for a year and then recover. They can reduce capital after an exceptional crisis and then begin a new growth cycle.

What makes this case more complex, however, is the repeated cycle of writing off losses and then seeing them return.

Redan significantly reduced its capital in 2022 to write off accumulated losses, then needed another reduction in 2025. Within months, its losses had returned to a level exceeding its entire capital, while a third reduction and a new capital increase became part of the remedy plan.

Here, the company’s financial history provides a useful test for any future rescue plan:

If losses are addressed on the balance sheet while the causes of loss generation remain embedded in the business model, the losses can return.

That is why a genuine rescue does not begin by writing off the old figure, but by preventing a new one from forming.

From 107% to the Real Question

The figure “107% of capital” is striking because it is large and shocking, but it is not the whole story.

The story is of a company whose revenue declined, margins weakened, branches were closed, sources of contract revenue were lost, impairment losses were recorded on certain assets and investments, a significant working-capital deficit emerged, and more than one capital restructuring was undertaken.

At the same time, the company has an announced remedy path based on reducing costs, improving sales at existing branches, focusing on catering and long-term contracts, restructuring franchising, and rebuilding capital through a reduction followed by a rights issue.

Therefore, it is not possible to conclude from a single figure that Redan will succeed or fail.

But it can be said that the burden of proof has shifted.

After repeated capital-restructuring transactions, it is no longer enough for the accumulated-loss ratio to decline on paper. The economic test has become the business’s ability to generate sales with positive margins, produce sufficient cash flows, reduce its working-capital deficit, and then generate a return on any new capital injected into the company.

This may be the most important lesson Redan’s case offers:

Capital can buy time, and restructuring can clean up the balance sheet, but only operating activity can create continuity.