Reborn Coffee, Inc.

REBORN COFFEE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. NATURE OF OPERATIONS

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 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 Matters

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 $32.5 million as of March 31, 2026 and a net loss before income taxes of$1.4 million during the three months ended March 31, 2026. 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. However, there can be no assurance that any of this financing can be obtained or that the Company can continue as a going concern.

Bassi of Presentation

The accompanying interim unaudited condensed consolidated financial statements (“Unaudited Interim Financial Statements”) of the Company and its 100%-owned subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and are presented in accordance with the requirements of Form 10-Q and Regulation S-X. Accordingly, these Unaudited Interim Financial Statements do not include all of the information and notes required by GAAP for complete financial statements. These Unaudited Interim Financial Statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2025 included in the Company’s Form 10-K. In the opinion of management, the Unaudited Interim Financial Statements included herein contain all adjustments, including normal recurring adjustments, considered necessary to present fairly the Company’s financial position, the results of operations and cash flows for the periods presented.

The operating results and cash flows of the interim periods presented herein are not necessarily indicative of the results to be expected for any other interim period or the full year.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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 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:

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.

Revenue Recognition

The Company recognizes revenue in accordance with 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

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.

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.

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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.

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.

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

Product, food and drink costs – stores, 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.

Accounts Receivable, Net

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 March 31, 2026 and December 31, 2025, allowance for doubtful accounts were $84,219 and $75,689, respectively. The Company does not have any off-balance sheet exposure related to its customers.

Inventory

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

Property and Equipment, Net

Property and equipment are recorded at cost, less accumulated depreciation and amortization. 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 accounts for its leases under ASC Topic 842,Leases. The Company determine if an arrangement is or contains a lease at inception. The Company’s operating leases with a term greater than one year are included in operating lease right-of-use (“ROU”) assets, operating lease liabilities, current and operating lease liabilities, net of current in the unaudited condensed consolidated balance sheets. ROU assets represent the Company’s right to use an underlying asset during the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the lease commencement date, based on the present value of lease payments over the lease term. In determining the net present value of lease payments, the Company uses its incremental borrowing rate which represents an estimated rate of interest that the Company would have to pay to borrow equivalent funds on a collateralized basis at the lease commencement date. Operating lease expense is recognized on a straight-line basis over the expected lease term.

Net Loss Per Share

Basic net loss per share are computed by dividing net loss available to common shareholders divided by the weighted-average number of common shares outstanding during the period. Diluted net loss per share is computed similar to basic net 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, or potentially dilutive, shares outstanding for the three months ended March 31, 2026 and 2025.

Long-lived Assets

In accordance with 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. The Company considers the carrying value of assets may not be recoverable based upon our review of the following events or changes in circumstances: the asset’s ability to continue to generate income from operations and positive cash flow in future periods; loss of legal ownership or title to the assets; significant changes in our strategic business objectives and utilization of the asset; or significant negative industry or economic trends. An impairment loss would be recognized when estimated future cash flows expected to result from the use of the asset are less than its carrying amount. As of March 31, 2026 and December 31, 2025, the Company was not aware of any events or changes in circumstances that would indicate that the long-lived assets are impaired.

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 March 31, 2026 and December 31, 2025, 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 theses financial instruments. The financial statements do not include any financial instruments at fair value on a recurring or non-recurring basis.

Income Taxes

Income taxes are provided for the tax effects of transactions reported in the financial statements and consisted of taxes currently due and deferred taxes. Deferred taxes are recognized for the differences between the basis of assets and liabilities for financial statement and income tax purposes.

The Company follows ASC Topic 740,Income Taxes, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates, applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. ASC 740-10-25 provides criteria for the recognition, measurement, presentation and disclosure of uncertain tax position. The Company must recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. The Company did not recognize additional liabilities for uncertain tax positions pursuant to ASC 740 for the three months ended March 31, 2026 and 2025.

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 three months ended March 31, 2026 and 2025, no purchases from any vendors accounted for a significant amount of the Company’s bean coffee purchases.

Related Parties

The Company follows ASC Topic 850,Related Party Disclosures, for the identification of related parties and disclosure of related party transactions. 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

The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and does not believe the future adoption of any such pronouncements may be expected to cause a material impact on our financial statements.

3. PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:

Depreciation expense on property and equipment amounted to approximately $237,549 and $63,330 for the three months ended March 31, 2026 and 2025, respectively.

4. LOANS PAYABLE TO FINANCIAL INSTITUTIONS

Loans payable to financial institutions consisted of the following:

5. LOAN PAYABLE TO OTHER

Loans payable to others consisted of the following:

Loans payable to shareholders consisted of the following:

Loans payable to shareholders consisted of the following:

8. LOAN PAYABLE, EMERGENCY INJURY DISASTER LOAN (EIDL)

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 U.S. Small Business Administration (“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 March 31, 2026, the loan payable, EIDL 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 (12 months from the date of the SBA Loan) in the amount of $731. The balance of principal and interest is payable 30 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 second loan (the “Second EIDL Loan”) from the SBA under its EIDL assistance program in light of the impact of the COVID-19 pandemic on the Company’s business. As of March 31, 2026, the loan payable, the Second EIDL 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 Second 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 actually advanced from the date of each advance. Installment payments, including principal and interest, are due monthly beginning April 16, 2022 (24 months from the original date of the SBA Loan) in the amount of $2,505. The balance of principal and interest is payable 30 years from the original date of the SBA Loan.

9. LOAN PAYABLE, PAYROLL PROTECTION LOAN PROGRAM (PPP)

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

The Paycheck Protection Program Loan (the “PPP Loan”) is administered by 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.

10. CONVERTIBLE NOTES PAYABLE NET OF DEBT DISCOUNT

Convertible Notes Payable consisted of the following:

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:

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 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 conducted four closings in February 2025, March 2025, and August 2025 and the Company issued to 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 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.

11. DERIVATIVE LIABILITY

Derivative Liability consisted of the following:

The Company analyzed the conversion feature of the Debentures for derivative accounting consideration under ASC 815Derivatives 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 March 31, 2026, 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 March 31, 2026 at $550,832 and the Company recorded $47,448 as the changes in fair value of derivative liability for the three months ended March 31, 2026.

10. INCOME TAX

Total income tax (benefit) expense consists of the following:

A reconciliation of the Company’s effective tax rate to the statutory federal rate for the nine months ended March 31, 2026 and 2025 is as follows:

The income tax benefit differs from the amount computed by applying the U.S. federal statutory tax rate of 21% due to California state income taxes of 8.84% and changes in the valuation allowance.

Deferred income taxes reflect the temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The components of deferred tax assets and liabilities are as follows:

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 has pre-tax reform federal net operating loss carryforwards in the amount of approximately $2.0 million as of March 31, 2026. Net operating loss carryforwards arising tax years ending after December 31, 2017, are approximately $23.2 million. The state net operating loss carryforwards will begin to expire in 2042.

As of March 31, 2026 and December 31, 2025, 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.

11. COMMITMENTS AND CONTINGENCIES

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, California. 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 has been renewed until Jan 2031.

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-month 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 March 31, 2026 were as follows:

Contingencies

The Company is subject to various legal proceedings from time to time as part of its business. As of March 31, 2026, the Company was not currently party to any legal proceedings or threatened legal proceedings, the adverse outcome of which, individually or in the aggregate, it believes would have a material adverse effect on its business, financial condition, and results of operations.

12. SHAREHOLDERS’ EQUITY

Common Stock

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

Preferred Stock

The Company has authorization to issue and have outstanding at any one time 1,000,000 shares 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 so 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 March 31, 2026 and December 31, 2025, no shares of our preferred stock had been designated any rights and we had no shares of preferred stock issued and outstanding.

Dividend policy

Dividends are paid at the discretion of the Board of Directors. There wereno dividends declared for the three months ended March 31, 2026 and 2025.

13. SUBSEQUENT EVENTS

The Company evaluated all events or transactions that occurred after March 31 206 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 period ended March 31, 2026, except as follows:

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.

On April 29, 2026, the Company entered into a Securities Purchase Agreement (the “Agreement”) with the purchasers named therein (the “Investors”), pursuant to which the Company agreed to issue and sell, in a private placement, shares of its common stock (the “Shares”) in two closings for aggregate gross proceeds of $21 million, subject to the terms and conditions set forth in the Securities Purchase Agreement (collectively, the “Private Placement”). The Company has agreed to issue and sell to the Investors at a first closing of the Private Placement to be held immediately following the receipt of no objections from Nasdaq on the Company’s Listing of Additional Securities Notification filed on April 29, 2026 (the “First Closing”),1,400,000 Shares at a price per Share equal to $2.00 (the “Share Purchase Price”), for aggregate gross proceeds of $2.8 million and satisfaction of the other customary closing conditions. The First Closing has not yet occurred. The Company has also agreed to issue and sell to the Investors at a second closing of the Private Placement (the “Second Closing”), up to 9,100,000 Shares at the Share Purchase Price for gross aggregate proceeds of $18,200,000. The Second Closing is expected to take place promptly following receipt of the approval by the Company’s stockholders at a meeting of stockholders or acting through written consent of all such matters as may be required by the applicable rules and regulations of the Nasdaq Capital Market or under applicable law from the stockholders of the Company with respect to the Private Placement (the “Stockholder Approvals”) and the satisfaction of other customary closing conditions. The net proceeds from the Private Placement will be used to support the Company’s principal business initiatives, including flagship store expansion in key metropolitan markets, brand development, working capital, and the continued growth of its multi-channel distribution strategy. The proceeds are also expected to support operational and supply chain capabilities designed to enhance efficiency, execution, and scalability across the Company’s expanding platform.