Reborn Coffee has completed a successful initial public offering on NASDAQ (REBN), raising $7.2 million, of which the company will retain about $6.9 million after paying fees. I dug through the statutory filings on the NASDAQ website – most of the details discussed in this article can be found in this public IPO filing. I was looking for information about what was different or special about this company that allowed it to raise so much money on a major exchange like NASDAQ.
We believe Reborn differentiates itself from other coffee roasters through its innovative techniques, including sourcing, washing, roasting, and brewing our coffee beans with a balance of precision and craft.Reborn market prospectus
The company, founded by Jay Kim in 2015, currently owns and operates nine retail locations, with another to be completed by the end of 2022. The company’s revenue last year was about $2.3 million, but it made a massive loss of $3.4 million.
The company is rapidly increasing its revenues. In 2020, net revenues were $793,000 and by 2021 they had grown to $2.3 million. But while one might expect operating margins to improve as it scaled, the change was marginal, from -133% to -112%. It makes you wonder how the company is going to become profitable if their margins don’t improve as they scale.
If you read further down in the prospectus the section on risks, this point is actually referred to by the company as a material risk and it will probably have to raise more cash in the future.
We have a history of operating losses and negative cash flow and we anticipate that we will need to raise additional funds to finance operations.Reborn market prospectus
“We have a history of operating losses and negative cash flow. We have incurred recurring net losses, including net losses from operations before income taxes of $565,000 for the three-month period ended March 31, 2022 and $3.4 million and $1.1 million in 2021 and 2020, respectively. We used $486,000 of cash for operating activities during the three-month period ended March 31, 2022 and used $1.9 million and $0.9 million of cash for operating activities during 2021 and 2020, respectively.”
What I could not find was a reason why this loss-making coffee chain is selling its shares at such a high value. A software company that can scale ‘digital bits’ infinitely often command a high valuation (usually based on a multiple of profit, e.g. 15 x net profit), but what is the supporting story of an infrastructure company like a coffee shop that loses as much money as Reborn? There is mention of a planned franchise and more B2B business, but no history of execution in this regard.
Oddly, the company talks of a “cleaner” taste through the use of innovative magnetised water at various stages, including washing the green coffee before roasting. I haven’t heard about this technique, and couldn’t find any scientific papers online to support the claims made by the company, although Reborn Coffee points to their award winning cold brew as evidence their process is superior.
The company may well succeed, but if it does, I doubt it will be on the basis of washing their beans in magnitized water.
Differentiated from other coffee companies, the Reborn Wash Process is the key to creating the clean flavor of our coffee. Our Wash Process is distinguished by the use of magnetized water to wash our green coffee beans when they arrive at the Reborn facility, in order to extract impurities and enhance hydration before the roasting process.
Magnetizing water is a process that converts the particles of water, which can naturally appear in various sizes, into evenly sized particles. As a result of this process, we believe that the water increases its hydration and ability to absorb into organic material. Our water is created through a water magnetizing device in which water is flowed through the device and magnetizes the water on-site immediately prior to use.Reborn market prospectus
Brea, California, Aug. 16, 2022 (GLOBE NEWSWIRE) — Reborn Coffee, Inc. (Nasdaq: REBN) (“Reborn”, or the “Company”), a California-based retailer of specialty coffee, today announced the closing of its previously announced upsized initial public offering of 1,440,000 shares of its common stock at a public offering price of $5.00 per share, for aggregate gross proceeds of approximately $7.2 million before deducting underwriting discounts, commissions, and other offering expenses. In addition, the Company has granted the underwriters a 45-day option to purchase up to an additional 216,000 shares of common stock at the public offering price per share, less the underwriting discounts and commissions, to cover over-allotments, if any.
The Company’s common stock began trading on the Nasdaq Capital Market on August 12, 2022, under the symbol “REBN”.
The Company intends to use the net proceeds from the offering to open new company-owned retail locations, develop a franchise program and for general corporate purposes.
EF Hutton, division of Benchmark Investments, LLC, acted as sole book-running manager for the offering.
A registration statement on Form S-1 (File No. 333-261937) was filed with the Securities and Exchange Commission (“SEC”) and was declared effective on August 11, 2022, and a registration statement on Form S-1MEF (File No. 333-266805), was filed with the SEC on the same date and became effective upon filing. A final prospectus relating to the offering was filed with the SEC and is available on the SEC’s website at www.sec.gov. Electronic copies of the final prospectus relating to this offering, when available, may be obtained from EF Hutton, division of Benchmark Investments, LLC, 590 Madison Avenue, 39th Floor, New York, NY 10022, Attention: Syndicate Department, or via email at email@example.com or telephone at (212) 404-7002.
This press release shall not constitute an offer to sell or the solicitation of an offer to buy any of the securities described herein, nor shall there be any sale of these securities in any state or jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state or jurisdiction.
About Reborn Coffee, Inc.
Reborn Coffee, Inc. is focused on serving high quality, specialty-roasted coffee at retail locations, kiosks and cafes. Reborn is an innovative company that strives for constant improvement in the coffee experience through exploration of new technology and premier service, guided by traditional brewing techniques. Reborn believes they differentiate themselves from other coffee roasters through innovative techniques, including sourcing, washing, roasting, and brewing their coffee beans with a balance of precision and craft.
For more information, please visit www.reborncoffee.com.
Forward Looking Statements
This press release contains statements that constitute “forward-looking statements,” including with respect to the proposed initial public offering and the anticipated use of the net proceeds. No assurance can be given that the offering discussed above will be completed on the terms described, or at all, or that the net proceeds of the offering will be used as indicated. Forward-looking statements are subject to numerous conditions, many of which are beyond the control of the Company, including those set forth in the Risk Factors section of the Company’s registration statement and preliminary prospectus for the Company’s offering filed with the SEC. Copies of these documents are available on the SEC’s website, www.sec.gov. The Company undertakes no obligation to update these statements for revisions or changes after the date of this release, except as required by law.
Images sourced from: Reborn market prospectus