Reborn Coffee, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Reborn Coffee, Inc. (“Reborn”) was incorporated in the State of Florida in January 2018. In July 2022, Reborn was migrated from Florida to Delaware, and filed a certificate of incorporation with the Secretary of State of the State of Delaware having the same capitalization structure as the Florida predecessor entity. Reborn has the following wholly owned subsidiaries:

Reborn Coffee, Inc., Reborn Global Holdings, Inc., Reborn Coffee Franchise, LLC, Reborn Realty, LLC, Reborn Korea, Reborn Malaysia and Reborn Logistics will be collectively referred as the “Company”.

Going Concern

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates, among other things, the realization of assets and satisfaction of liabilities in the normal course of business. The Company had an accumulated deficit of $30.7 million at December 31, 2025, and had a net loss before income taxes of $8.9 million and net cash used in operating activities of $6.5 million for the year ended December 31, 2025. These matters raise substantial doubt about the Company’s ability to continue as a going concern.

To support its existing and planned business model, the Company needs to raise additional capital to fund our future operations. The Company has not experienced any difficulty in raising funds through loans and has not experienced any liquidity problems in settling payables in the normal course of business and repaying loans when they fall due. Successful renewal of our loans, however, is subject to numerous risks and uncertainties. In addition, the increasingly competitive industry conditions under which we operate may negatively impact on our results of operations and cash flows. Additional financing is anticipated to fund the Company’s operations in near future. There is no assurance that any of this financing can be obtained or that the Company can continue as a going concern.

Reporting

The consolidated financial statements include Reborn Coffee, Inc., its wholly owned subsidiaries and majority owned subsidiary as of and for the years ended December 31, 2025 and 2024.

Basis of Presentation and Consolidation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The consolidated financial statements include the accounts of Reborn Coffee, Inc. and its wholly owned subsidiaries, as well as a variable interest entity, Reborn Logistics, Inc., in which the Company holds a 51% ownership interest. All significant intercompany balances, transactions, and profits have been eliminated upon consolidation.

Non-controlling interest presented in the consolidated balance sheets represents the equity interest in Reborn Logistics not attributable to the Company. The net income (loss) of consolidated subsidiaries or variable interest entities that are not wholly owned is allocated between the Company and the non-controlling interest holders based on their respective ownership interests.

Segment Reporting

FASB ASC Topic 280, Segment Reporting, requires public companies to report financial and descriptive information about their reportable operating segments. Operating segments are identified based on the manner in which the Company’s chief operating decision maker (“CODM”) evaluates financial information, business activities, and performance results.

Management has identifiedtwo reportable operating segments: (i) Reborn Coffee, which includes both wholesale and retail sales of coffee, water, and other beverages, and (ii) Reborn Logistics, which provides freight forwarding services. The Company’s franchisor subsidiary was not material for the years ended December 31, 2025 and 2024.

The Company’s CODM is its Chief Executive Officer. The CODM evaluates segment performance primarily based on revenues, income from operations, and other income (expense). Assets by segment are not reviewed by the CODM in assessing segment performance and, accordingly, are not disclosed.

The following table presents a summary of operating performance by reportable segment for the periods indicated:

The Company generates revenues from two geographic areas, consisting of North America and Asia. The following enterprise-wide disclosure is prepared on a basis consistent with the preparation of the consolidated financial statements. The following table contains certain financial information by geographic area:

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and the accompanying notes. Such estimates include accounts receivables, accrued liabilities, income taxes, long-lived assets, and deferred tax valuation allowances. These estimates generally involve complex issues and require management to make judgments, involve analysis of historical and future trends that can require extended periods of time to resolve, and are subject to change from period to period. In all cases, actual results could differ materially from estimates.

Foreign Currency Translations

The Company has wholly owned subsidiaries in foreign countries, South Korea and Malaysia. Fluctuations in foreign currency impact the amount of total assets, liabilities, earnings and cash flows that the Company report for foreign subsidiaries upon the translation of these amounts into U.S. Dollars for, and as of the end of, each reporting period. In particular, the strengthening of the U.S. Dollar generally will reduce the reported amount of our foreign-denominated cash, cash equivalents, total revenues and total expense that we translate into U.S. Dollars and report in the Company’s consolidated financial statements for, and as of the end of, each reporting period. However, a majority of the Company’s consolidated revenue is denominated in U.S. Dollars, and therefore, the Company’s revenue is not directly subject to foreign currency risk.

In accordance with FASB ASC 830, “Foreign Currency Matters”, when an operation has transactions denominated in a currency other than its functional currency, they are measured in the functional currency. Changes in the expected functional currency cash flows caused by changes in exchange rates are included in net income for the period.

Revenue Recognition

The Company recognizes revenue in accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers. The Company’s net revenue primarily consists of revenues from its retail stores and wholesale and online store. Accordingly, the Company recognizes revenue as follows:

Retail store revenues are recognized at the point of sale when payment is tendered. Retail store revenues are reported net of sales, use, or other transaction taxes collected from customers and remitted to taxing authorities. Sales taxes payable are recorded as accrued liabilities within other current liabilities. Retail store revenue represents approximately 73.5% of the Company’s total revenue.

Wholesale and online revenues are recognized when products are delivered and title passes to the customer or to wholesale distributors. When customers pick up products at the Company’s warehouse or when products are delivered to wholesale distributors, title transfers and revenue is recognized at that time. Wholesale and online revenues represent approximately 1.4% of the Company’s total revenue.

Service income is primarily derived from Reborn Logistics’ freight forwarding and logistics services. The Company recognizes service revenue when shipment transactions are delivered. Each shipment transaction or service order generally represents a separate contract with a customer. A performance obligation is established once a customer agreement with an agreed-upon transaction price exists. The transaction price is typically fixed and is not contingent upon the occurrence or non-occurrence of future events, and payment is generally due within 45 to 60 days from the invoice date.

The Company’s transportation arrangements involve organizing the movement of freight to a customer’s destination. Transportation services, including certain ancillary services such as loading and unloading, freight insurance, and customs clearance, represent a single performance obligation, as these services are not distinct in the context of the contract. This performance obligation is satisfied and revenue is recognized as control of the services transfers to the customer during the transit period, as the customer’s goods move from origin to destination.

The Company evaluates whether it controls the transportation services provided to determine whether it is acting as a principal or an agent. The Company has determined that it acts as the principal in its transportation service arrangements, as it controls pricing, manages all aspects of the shipment process, and assumes the risks associated with delivery and collection. Accordingly, service income is presented on a gross basis in the consolidated statements of operations. Service income represents approximately 11.5% of the Company’s total revenue.

The Company has entered into license agreements that allow licensees to operate and market Reborn Coffee branded stores and products under the Reborn Coffee trademarks. Under these agreements, the Company provides ongoing services, including training, marketing support, system updates, and other operational assistance. As the Company is required to provide these ongoing services, license revenue is recognized over the term of the license agreement. License agreements typically have initial terms of three years and may be renewed for additional periods. License income represents approximately 13.6% of the Company’s total revenue.

Product, Food and Drink Costs – Stores, Wholesales and Online

Product, food and drink costs – stores and cost of sales – wholesale and online primarily include the costs of ingredients of food and beverage sold and related supplies used in customer service. The wholesale and online sales also include costs of packaging and shipping.

Cost of service income – subcontractors (Reborn Logistics)

Cost of service income – subcontractors mainly represent the cost of independence contractors and third-party carriers in the performance of its freight forward and transportation services.

Shipping and Handling Costs

The Company incurred freight out costs, which are primarily included in the Company’s cost of sales – wholesale and online. Freight in costs, when attached to a specific purchase, are included as a component of the cost of the purchased goods and materials items and allocated to accounts in accordance with the nature of the goods. When the freight in costs are not allocable to an individual purchase or are more significant, they are recorded to a freight and shipping account within cost of sales.

General and Administrative Expense

General and administrative expense includes store-related expense as well as the Company’s corporate headquarters’ expenses. These include rent and utilities, payroll and benefits, and depreciation expenses.

Advertising Expense

Advertising costs are expensed as incurred. Advertising expenses amounted to $9,616 and $173,577 for the years ended December 31, 2025 and 2024, respectively, and is recorded under general and administrative expenses in the accompanying consolidated statements of operations.

Accounts Receivable

Accounts receivables are stated net of allowance for doubtful accounts. The allowance for doubtful accounts is determined primarily on the basis of past collection experience and general economic conditions. The Company determines terms and conditions for its customers based on volume transacted by the customer, customer creditworthiness and past transaction history. At December 31, 2025 and 2024, allowance for doubtful accounts was $75,689 andzero, respectively. The Company does not have any off-balance sheet exposure related to its customers.

Inventories

Inventories consisted primarily of coffee beans, drink products, and supplies which are recorded at cost or at net realizable value.

Property and Equipment

Property and equipment are recorded at cost. Maintenance and repairs are charged to expense as incurred. Depreciation and amortization are provided using both the straight-line and declining balance methods over the following estimated useful lives:

When assets are retired or disposed of, the cost and accumulated depreciation thereon are removed, and any resulting gains or losses are included in the consolidated statements of operations. Leasehold improvements are amortized using the straight-line method over the estimated life of the asset, not to exceed the length of the lease. Repair and maintenance costs are expensed as incurred.

Operating Leases

The Company adopted FASB Accounting Standards Codification, or ASC, Topic 842, Leases (“ASC 842”) which requires the recognition of the right-of-use assets and relating operating and finance lease liabilities on the balance sheet. Under ASC 842, all leases are required to be recorded on the balance sheet and are classified as either operating leases or finance leases. The lease classification affects the expense recognition in the income statement. Operating lease charges are recorded entirely in operating expenses. Finance lease charges are split, where amortization of the right-of-use asset is recorded in operating expenses and an implied interest component is recorded in interest expense.

Long-term prepayment

As of December 31, 2025, the Company recorded $1.0 million of long-term prepayment, included within other non-current assets on the consolidated balance sheets. This amount represents the advance payments made in connection with a planned acquisition of certain real property.

Net Loss Per Share

Financial Accounting Standard Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 260, Earnings Per Share, requires a reconciliation of the numerator and denominator of the basic and diluted loss per share computations.

Basic loss per share are computed by dividing net losses available to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted loss per share is computed similar to basic loss per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. In periods where losses are reported, the weighted-average number of common stock outstanding excludes common stock equivalents, because their inclusion would be anti-dilutive.

The Company did not have any dilutive shares for the years ended December 31, 2025 and 2024.

Long-lived Assets

In accordance with FASB ASC Topic 360, Property, Plant, and Equipment, the Company reviews for impairment of long-lived assets and certain identifiable intangibles whenever events or circumstances indicate that the carrying amount of assets may not be recoverable.

During the year ended December 31, 2025, the Company identified triggering events related to its subsidiaries in Korea and Malaysia. These triggering events included continued operating losses, negative cash flows, and the absence of revenue generation, which indicated that the carrying value of the related asset groups may not be recoverable.

Upon identification of these indicators, the Company performed a recoverability test by comparing the carrying amount of the asset groups to the estimated undiscounted future cash flow expected to be generated from the use and eventual disposition of the asset groups. Based on this assessment, the Company determined that the carrying amounts of the asset groups were not recoverable.

The Company measured the impairment loss as the excess of the carrying amount of the asset groups over their estimated fair value. Given the lack of revenue generation, continued operating losses, and limited future cash flow expectations, the estimated fair value of the asset groups was determined to be negligible.

Accordingly, the Company recognized an impairment loss of $444,216 during the year ended December 31, 2025, representing substantially all of the net carrying value of the assets associated with its Korea and Malaysia subsidiaries. The impairment loss is included in asset impairment loss in the consolidated statements of operations.

The asset groups primarily consisted of leasehold improvements, furniture and fixtures, and right-of-use assets. Following the impairment, the carrying value of these assets was reduced to $727,093 as of December 31, 2025.

Fair Value of Financial Instruments

The Company records its financial assets and liabilities at fair value, which is defined under the applicable accounting standards as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measure date. The Company uses valuation techniques to measure fair value, maximizing the use of observable outputs and minimizing the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following:

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 – Inputs include management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. The inputs are unobservable in the market and significant to the instrument’s valuation.

The financial statements do not include any financial instruments at fair value on a recurring or non-recurring basis. The carrying value of financial assets and liabilities recorded at fair value is measured on a recurring or nonrecurring basis. Financial assets and liabilities measured on a non-recurring basis are those that are adjusted to fair value when a significant event occurs. There were no financial assets or liabilities carried and measured on a nonrecurring basis during the reporting periods. Financial assets and liabilities measured on a recurring basis are those that are adjusted to fair value each time a financial statement is prepared. There have been no transfers between levels. As of December 31, 2025 and 2024, the Company believes that the carrying value of accounts receivable, accounts payable, accrued expenses, and other current assets and liabilities approximate fair value due to the short maturity of these financial instruments.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk are accounts receivable arising from its normal business activities. The Company performs ongoing credit evaluations to its customers and establishes allowances when appropriate.

The Company purchases from various vendors for its operations. For the years ended December 31, 2025 and 2024, no purchases from any vendors accounted for a significant amount of the Company’s bean coffee purchases.

Related Parties

Related parties are any entities or individuals that, through employment, ownership, or other means, possess the ability to direct or cause the direction of management and policies of the Company.

Recent Accounting Pronouncement

Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-07,Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. This ASU requires public entities to disclose significant segment expenses and other segment items on both an annual and interim basis and to provide, in interim periods, all disclosures about a reportable segment’s profit or loss and assets that are currently required on an annual basis. In addition, the ASU requires public entities to disclose the title and position of the chief operating decision maker (“CODM”). The ASU does not change the manner in which operating segments are identified, aggregated, or evaluated under the quantitative thresholds for determining reportable segments.

The ASU is effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted, and the amendments are required to be applied retrospectively to all prior periods presented in the financial statements. The Company adopted ASU 2023-07 beginning with its Form 10-K for the year ended December 31, 2025. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statement disclosures.

Income Statement - Expense Disaggregation Disclosures (Subtopic 220-40)

In November 2024, the FASB issued ASU No. 2024-03,Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. This ASU is intended to enhance the transparency of expense disclosures for public business entities by requiring more detailed information about the types of costs included within commonly presented expense captions. The enhanced disclosures are intended to improve investors’ understanding of an entity’s performance, future cash flows, and comparability with other entities.

The amendments require public business entities to disclose, in the notes to the financial statements for each annual and interim reporting period, specific information about certain cost components included in expense captions presented on the face of the income statement, including purchases of inventory, employee compensation, depreciation, intangible asset amortization, and the total amount of selling expenses.

The guidance is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027, and may be applied either prospectively or retrospectively. Early adoption is permitted. The Company is currently evaluating the impact that the adoption of this ASU will have on its consolidated financial statements.

Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force) and the SEC did not or are not believed by management to have a material impact on the Company’s present or future consolidated financial statements

Property and equipment consisted of the following:

Depreciation expense related to property and equipment was $449,585 and $391,263 for the years ended December 31, 2025 and 2024, respectively.

Loans payable to financial institutions consisted of the following:

Loans payable to others consisted of the following:

Loans payable to shareholders consisted of the following:

Loans payable to related party consisted of the following:

Loans payable, Emergency Injury Disaster Loan (EIDL) consisted of the following:

The following table provides future minimum payments:

May 16, 2020 – $150,000

On May 16, 2020, the Company executed the standard loan documents required for securing a loan (the “EIDL Loan”) from the SBA under its Economic Injury Disaster Loan (“EIDL”) assistance program in light of the impact of the COVID-19 pandemic on the Company’s business. As of December 31, 2022, the loan payable, Emergency Injury Disaster Loan noted above is not in default.

Pursuant to that certain Loan Authorization and Agreement (the “SBA Loan Agreement”), the Company borrowed an aggregate principal amount of the EIDL Loan of $150,000, with proceeds to be used for working capital purposes. Interest accrues at the rate of 3.75% per annum and will accrue only on funds actually advanced from the date of each advance. Installment payments, including principal and interest, are due monthly beginning May 16, 2021 (twelve months from the date of the SBA Loan) in the amount of $731. The balance of principal and interest is payable thirty years from the date of the SBA Loan. In connection therewith, the Company also received a $10,000 grant, which does not have to be repaid. During the year ended December 31, 2020, $10,000 was recorded in Economy injury disaster loan (EIDL) grant income in the Statements of Operations. The schedule of payments on this loan was later deferred to commence 24 months from the date of loan, which was May 2022.

In connection therewith, the Company executed (i) a loan for the benefit of the SBA (the “SBA Loan”), which contains customary events of default and (ii) a Security Agreement, granting the SBA a security interest in all tangible and intangible personal property of the Company, which also contains customary events of default (the “SBA Security Agreement”).

June 28, 2021 – $350,000

On June 28, 2021, the Company executed the standard loan documents required for securing a loan (the “EIDL Loan”) from the SBA under its Economic Injury Disaster Loan (“EIDL”) assistance program in light of the impact of the COVID-19 pandemic on the Company’s business. As of December 31, 2022, the loan payable, Emergency Injury Disaster Loan noted above is not in default.

Pursuant to that certain Amended Loan Authorization and Agreement (the “SBA Loan Agreement”), the Company borrowed an aggregate principal amount of the EIDL Loan of $500,000, with proceeds to be used for working capital purposes. Interest accrues at the rate of 3.75% per annum and will accrue only on funds advanced from the date of each advance. Installment payments, including principal and interest, are due monthly beginning April 16, 2022 (twenty four months from the original date of the SBA Loan) in the amount of $2,505. The balance of principal and interest is payable thirty years from the original date of the SBA Loan.

Loans payable, Payroll Protection Loan Program (PPP) consisted of the following:

The Paycheck Protection Program Loan (the “PPP Loan”) is administered by the U.S. Small Business Administration (the “SBA”). 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 the 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 PPP Loan (the “Maturity Date”). 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. 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.

Convertible Notes Payable consisted of the following:

On February 6, 2025, the Company entered into a Securities Purchase Agreement (“Securities Purchase Agreement”) with the purchasers named therein (the “Arena Investors”). Under the Securities Purchase Agreement, the Company will issue 10% original issue discount secured convertible debentures (“Debentures”) in a principal amount of up to $10,000,000, divided into up to four separate tranches that are each subject to certain closing conditions (the “Offering”). The conversion price per share of each Debenture, subject to adjustment as provided therein, is equal to 92.5% of the lowest daily VWAP (as defined in the Debentures) of the Company’s shares of common stock during thefive trading day period ending on the trading day immediately prior to delivery or deemed delivery of the applicable Conversion Notice (as defined in the Debentures). The Debentures accrue interest at a rate of 10% per annum paid in kind, unless there is an event of default in which case the Debentures will accrue interest at a default rate.

Upon the consummation of the closing of each tranche, the Company issued common stock purchase warrants (“Warrants”) to each Arena Investor who participated in such closing. The Warrants will: (i) provide for the purchase by the applicable Arena Investor of a number of shares of common stock equal to 20% of the total principal amount of the related Debenture purchased by the Arena Investor on the applicable closing date divided by 92.5% of the lowest daily VWAP of common stock for thefive consecutive trading day period ended on the last trading day immediately preceding such closing date and (ii) be exercisable at an exercise price equal to 92.5% of the average of the lowest daily VWAP of the common stock over the consecutive trading days immediately preceding the delivery of the applicable Notice of Exercise (as defined in the Warrants).

The Company executed four closings in February 2025, March 2025, and August 2025 and issued the Arena Investors Debentures in an aggregate principal amount of $3,750,000. The Debentures were sold to the Arena Investors for a purchase price of $4,166,665, representing an original issue discount of ten percent (10%) and professional fees. The Company also issued to the Arena Investors 1,041,667 Warrants in connection with the Debentures. The fair value of the warrant liability was determined using Monte Carlo valuation techniques and is remeasured at each reporting date, with changes in fair value recognized in the statement of operations. In December 2025, the Company entered into a Warrant Exchange and Termination Agreement (“Warrant Termination Agreement”) with Areana Investors. Under the Warrant Termination Agreement, the Company terminated and cancelled all previously issued 1,041,667 Warrants and issued 134,139 common stock shares.

During the initial recognition company calculated fair value of derivative liability on convertible debt and Warrants and recorded the difference as debt discount subject to maximum of notes payable amount. Debt discount will be amortized over the term of the note.

Debt discount is calculated as follows:

Derivative Liability consisted of the following:

The Company analyzed the conversion feature of the Debentures for derivative accounting consideration under ASC 815 Derivatives and Hedging and determined that the embedded conversion feature should be classified as a liability due to their being no explicit limit to the number of shares to be delivered upon settlement of the above conversion features. ASC 815 requires that the conversion features are bifurcated and separately accounted for as an embedded derivative contained in the Company’s convertible debt. The embedded derivative is carried on the balance sheet at fair value. Any unrealized change in fair value, as determined at each measurement period, is recorded as a component of the income statement and the associated carrying amount on the balance sheet is adjusted by the change.

As of December 31, 2025, the Company’s conversion features of the Debentures were treated as derivative liability and changes in the fair value were recognized in earnings. The Company estimated the fair value of conversion features of the Debentures using Monte Carlo model and the following assumptions:

Expected volatility was based primarily on historical volatility. Historical volatility was computed using daily pricing observations for recent periods. The Company believes this method produced an estimate that was representative of the Company’s expectations of future volatility over the expected term of the Debentures. The Company had no reason to believe that future volatility over the expected remaining life of these warrants was likely to differ materially from historical volatility. The risk-free rate is set to 0%, as both the end price and the minimum price grow and are discounted back at the same risk-free rate in a Geometric Brownian Motion model.

The derivative liability of $596,195 was recognized by the Company on issuance as note payable. The derivative liability was further revalued as of December 31, 2025 and the Company recorded $503,384 as the changes in fair value of derivative liability for the year ended December 31, 2025.

Total income tax provision expense consists of the following:

A reconciliation of the Company’s effective tax rate to the statutory federal rate is as follows:

The income tax benefit differs from the amount computed by applying the U.S. federal statutory tax rate of 21% and California state income taxes of 0.10% due to the change in the valuation allowance.

The Company uses the liability method of accounting for income taxes as set forth in ASC 740. Under the liability method, deferred taxes are determined based on differences between the financial statement and tax bases of assets and liabilities using enacted tax rates. As of December 31, 2025, the Company had federal and State net operating loss carryforwards of approximately $25.2 million and $17.8 million, respectively. Under the new tax law, the Federal net operating loss arising in tax years ending after December 31, 2017, will be carried forward indefinitely. The Company have pre-tax reform federal net operating loss carryforwards in the amount of approximately $2.0 million as of December 31, 2025. Net operating loss carryforwards arising tax years ending after December 31, 2017, is approximately $23.2 million. The state net operating loss carryforwards will begin to expire in 2042.

As of December 31, 2025 and 2024, the Company maintained full valuation allowance for net operating loss carryforward deferred tax asset. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversals of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. The amount of the deferred tax asset considered realizable, however, could be reduced if estimates of future taxable income are reduced.

The Company files a federal income tax return and files tax returns in state and local jurisdictions. The statutes of limitations for its federal income tax returns are open for years 2022 and after, and state and local income tax returns are open for years 2021 and after.

The components of income (loss) before income taxes by jurisdiction are as follows:

Loss before income taxes is derived from operations conducted in the United States and two foreign jurisdictions. Domestic results primarily reflect the Company’s U.S. operations, while foreign income primarily relates to the Company’s international subsidiaries.

The Company paid income taxes to the following jurisdictions that individually represent greater than 5 percent of total income taxes paid during the year ended December 31, 2025 and 2024, respectively.

Operating Leases

The Company has the following operating facility leases:

Brea (Corporate office) – On August 12, 2024, the Company entered into an operating facility lease for its corporate office located in Brea, California with term of 36 months at $10,589 per month. The lease started on September 1, 2024 and expires in August 2026.

Brea – On August 16, 2024, the Company entered into an operating lease agreement for its store located at La Floresta Shopping Village in Brea, California, with a term of 60 months and an option to extend. The lease commenced in December 1, 2014 and was initially set to expire on November 30, 2029. The monthly lease payment under the lease agreement is approximately $7,965.

La Crescenta - On May 2017, the Company entered into an operating facility lease for its store located in La Crescenta, California with 120 months term with option to extend. The lease started on May 2017 and expires in May 2027. The Company entered into non-cancellable lease agreement for a coffee shop approximately 1,607 square feet located in La Crescenta, California commencing in May 2017 and expiring in April 2027. The monthly lease payment under the lease agreement is approximately $6,026.

Corona Del Mar - On January 18, 2023, the Company renewed its retail store in Corona Del Mar, 1California. As part of that lease renewal, the Company renewed the original operating lease with 60 months term with an option to extend. The lease expires in January 2028. The monthly lease payment under the renewed lease agreement is approximately $5,001.

Laguna Woods* -*On February 12, 2021, the Company entered into an operating facility lease for its store located at Home Depot Center in Laguna Woods, California with a term of 60 months and an option to extend. The lease started in June 2021 and expires in May 2026.

Manhattan Village - On March 1, 2022, the Company entered into an operating facility lease for its store located at Manhattan Beach, California with 60 months term with option to extend. The lease started in March 2022 and expires in February 2027.

Huntington Beach - On October 7, 2022, the Company entered into an operating facility lease for its store located at Huntington Beach, California with a 124 months term with option to extend. The lease started in November 2021 and expires in February 2032.

Riverside*-*On February 4, 2021, the Company entered into an operating facility lease for its store located at Galleria at Tyler in Riverside, California with a term of 84 months and an option to extend. The lease started in April 2021 and expires in March 2028.

Reborn Logistics – On October 1, 2025, Reborn Logistics entered into a sublease agreement for its location at Buena Park, California with a term of 36 months at a $1,500 per month.

Diamond Bar – On March 20, 2023, the Company entered into an operating facility lease for its store located at Diamond Bar, California which matures on March 31, 2027. The monthly lease payment under the lease agreement is approximately $5,900.

Anaheim - On March 3, 2023, the Company entered into an operating facility lease for its store located at Anaheim, California with 120 months term with option to extend. The lease started in March 2023 and expires in February 2033.

Pasadena – On December 1, 2024, the Company entered into an operating lease agreement for its store located in Pasadena, California. The lease has a term of 120 months (10 years), with an option to extend. The lease commenced on December 1, 2024 and is set to expire in December 2034.

Operating lease right-of-use (“ROU”) assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Generally, the implicit rate of interest in arrangements is not readily determinable and the Company utilizes its incremental borrowing rate in determining the present value of lease payments. The Company’s incremental borrowing rate is a hypothetical rate based on its understanding of what its credit rating would be. The operating lease ROU asset includes any lease payments made and excludes lease incentives. Our variable lease payments primarily consist of maintenance and other operating expenses from our real estate leases. Variable lease payments are excluded from the ROU assets and lease liabilities and are recognized in the period in which the obligation for those payments is incurred. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

The Company has lease agreements with lease and non-lease components. The Company has elected to account for these lease and non-lease components as a single lease component.

In accordance with ASC 842, the components of lease expense were as follows:

In accordance with ASC 842, other information related to leases was as follows:

In accordance with ASC 842, maturities of operating lease liabilities as of December 31, 2025 were as follows:

Contingencies

The Company is subject to various legal proceedings from time to time as part of its business. As of December 31, 2025, the Company was not currently party to any legal proceedings or threatened legal proceedings, the adverse outcome of which, individually or in aggregate, it believes would have a material adverse effect on its business, financial condition and results of operations.

Common Stock

The Company has authorization to issue and outstanding at any one time 40,000,000 share of common stock with a par value of $0.0001 per share. The shareholders of common stock shall be entitled toone vote per share and dividends declared by the Company’s Board of Directors.

During 2025, the Company issued the following Common Stock shares:

During 2024, the Company issued the following Common Stock shares:

Preferred Stock

The Company has authorization to issue and have outstanding at any one time 1,000,000 share of preferred stock with a par value of $0.0001 per share, in one or more classes or series within a class as may be determined by our board of directors, who establish, from time to time, the number of shares to be included in each class or series, fix the designation, powers, preferences and rights of the shares of each such class or series and any qualifications, limitations or restrictions thereof. Any preferred stock to issued is senior to other existing classes of common stock with respect to the payment of dividends or amounts upon liquidation or dissolution. As of December 31, 2025 and 2024, no shares of our preferred stock had been designated any rights, and we had no shares of preferred stock issued and outstanding.

Stock Compensation

During 2025, the Company issued the following Common Stock shares for stock compensation. The fair value of stock options granted was estimated using market value of the stock as on the date of issuance. These shares were fully vested at issuance and as such the related stock-based compensation was recognized immediately:

During 2024, the Company issued the following Common Stock shares for stock compensation. These shares were fully vested at issuance and as such the related stock-based compensation was recognized immediately:

Dividend policy

Dividends are paid at the discretion of the Board of Directors. There wereno dividends declared for the years ended December 31, 2025 and 2024, respectively.

The Company calculates loss per share in accordance with FASB ASC 260, Earnings Per Share, which requires a dual presentation of basic and diluted earnings per share. Basic loss per share is computed using the weighted average number of shares outstanding during the fiscal year. Potentially dilutive common shares consist of stock options outstanding (using the treasury method).

The following table sets forth the computation of basic and diluted net loss per common share:

The Company had the following related party transactions:

The Company evaluated all events or transactions that occurred after December 31, 2025 up through the date the consolidated financial statements were available to be issued. Based upon the evaluation, except as disclosed below or within the footnotes, the Company did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the consolidated financial statements as of and for the year ended December 31, 2025, except as follows:

As previously reported, on October 20, 2025, the Company entered into a Securities Subscription Agreement (the “October Agreement”) with Charles Joeng (“Jeong”), pursuant to which the Company issued 1,192,661 shares of common stock to Jeong for an aggregate purchase price of $6,500,000 funded in multiple tranches. Section 6(a) of the Debentures with the Arena Investors provides that, at any time prior to the full repayment or full conversion of all amounts owed under the Debentures, the Company receives cash proceeds from the issuance of equity, the Company shall inform the Arena Investors, whereupon the Arena Investors shall have the right to require that the Company immediately apply up to thirty percent (30%) of the gross cash proceeds received from the applicable financing transaction to redeem a portion of the outstanding principal amount of the Debentures. On February 19, 2026, the Arena Investors sent a letter to the Company requesting that the Company pay to the Arena Investors thirty percent (30%) of the gross cash proceeds received from the October Agreement, which the Arena Investors and the Company were in mutual discussion regarding the timing and manner of such payment to the Arena Investors which caused a delay in payment to the Arena Investors (the “Specified Delay”). On March 31, 2026, the Company and the Arena Investors entered into a Forbearance Agreement (the “Forbearance Agreement”) whereby the Arena Investors would waive and forbear from any exercise of their rights and remedies under the Securities Purchase Agreement, the Debentures and applicable law in connection with the Specified Delay and waive any defaults or events of default which may exist and may be ongoing under the Debentures as of March 31, 2026. In consideration of such forbearance and waiver, the Company agreed to: (i) make payment of $1,059,522 in cash to the Arena Investors on or before April 6, 2026; (ii) make payment of $400,000 in cash to the Arena Investors on or before April 20, 2026; (iii) make payment of $500,000 in cash to the Arena Investors on the sixth day of each month, beginning in May 2026, until the Debentures have been fully paid off or converted; (iv) issue warrants to the Arena Investors to purchase 250,000 shares of Common Stock at an exercise price of $2.00 per share (the “Forbearance Warrants”); and (v) file a registration statement no later than five business days following the filing of the Company’s Annual Report on Form 10-K for the year ended December 31, 2025, covering the shares underlying the Forbearance Warrants and other common stock purchase warrants issued to the Arena Investors on December 31, 2025.

On April 15, 2026, the Company and the Arena Investors entered into an Amended and Restated Forbearance Agreement (the “A&R Forbearance Agreement”), which amended and restated the Forbearance Agreement in certain respects. Pursuant to the A&R Forbearance Agreement, the Company and the Arena Investors agreed to amend and restate the plan for repayment of the Debentures in its entirety, as follows: (i) the Company agreed to, on or before April 30, 2026, make payment of $400,000 to the Arena Investors and $25,000 to counsel for the Arena Investors for the Arena Investors’ expenses incurred in connection with the A&R Forbearance Agreement; (ii) the Company agreed to, beginning on May 30, 2026, make payments of $400,000 to the Arena Investors on the 30th day of each calendar month toward the outstanding amounts due under the Debentures; (iii) the Company agreed to pay to the Arena Investors all remaining amounts then outstanding under the Debentures on or before September 30, 2026 (subject to prior repayment or conversion); and (iv) the Company agreed to, within three business days following receipt of funds from any sale of the Company’s securities, pay to the Arena Investors towards the amounts then outstanding under the Debentures the lesser of (x)70% of the cash proceeds from such sale and (y) the amount outstanding under the Debentures.

In addition, pursuant to the A&R Forbearance Agreement, the Company agreed to use commercially reasonable efforts to file a registration statement no later than 20 business days following the filing of the Company’s Annual Report on Form 10-K covering the shares underlying the common stock purchase warrants issued to the Arena Investors in connection with the Forbearance Agreement and other common stock purchase warrants issued to the Arena Investors on December 31, 2025.

On December 2, 2025, the Company received a determination letter from the staff of the Nasdaq Stock Market LLC (“Nasdaq”) indicating that the Company did not meet the minimum shareholders’ equity requirement under Nasdaq Listing Rule 5550(b) and that Nasdaq intended to delist the Company’s common stock. On December 9, 2025, the Company timely submitted the Company’s plan of compliance to Nasdaq and requested a hearing before the Nasdaq Hearings Panel, which stayed the delisting action pending a final written decision by the panel. On January 13, 2026, Nasdaq notified the Company that it had regained compliance with Nasdaq Listing Rule 5550(b) and that the Company was in compliance with all applicable continued listing standards. As a result, the previously scheduled hearing was canceled, and the Company’s common stock continues to be listed and traded on The Nasdaq Stock Market.

Management has evaluated these events and determined that no adjustments to the accompanying consolidated financial statements were required.