Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)

Management's Discussion and Analysis of Financial Condition and Results of Operations

Management's Discussion and Analysis of Financial Condition and Results of Operations is intended to assist in understanding and assessing the trends and significant changes in our results of operations and financial condition. Historical results may not be indicative of future performance. The statements in this discussion regarding industry outlook, our expectations regarding our future performance, liquidity and capital resources and all other non-historical statements in this discussion are forward-looking statements and are based on the beliefs of our management, as well as assumptions made by, and information currently available to, our management. Actual results could differ materially from those discussed in or implied by forward-looking statements as a result of various factors, including those discussed below and elsewhere in this report, particularly in "Risk Factors" or in other sections of this Annual Report on Form 10-K.

Business

Reborn Coffee is focused on serving high quality, specialty-roasted coffee at retail locations, kiosks and cafes. We are an innovative company that strives for constant improvement in the coffee experience through exploration of new technology and premier service, guided by traditional brewing techniques. We believe Reborn differentiates Coffee itself from other coffee roasters through its innovative techniques, including sourcing, washing, roasting, and brewing our coffee beans with a balance of precision and craft.

Founded in 2015 by Jay Kim, our Chief Executive Officer, Mr. Kim and his team launched Reborn Coffee with the vision of using the finest pure ingredients and pristine water. We currently serve customers through our 9 retail stores and 1 franchisee located in California, 1 store in Korea, and 1 store in Malaysia.

Reborn Coffee continues to elevate the high-end coffee experience, and we received 1st place traditional still in "America's Best Cold Brew" competition by Coffee Fest in 2017 in Portland and 2018 in Los Angeles.

Current Operations

We have a production and distribution center at our headquarters that we use to process and roast coffee for wholesale and retail distribution.

We have the following ten retail coffee locations as of December 31, 2025:

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La Floresta Shopping Village in Brea, California;

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La Crescenta, California;

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Corona Del Mar, California;

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Home Depot Center in Laguna Woods, California;

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Manhattan Village at Manhattan Beach, California.

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Galleria at Tyler in Riverside, California;

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Intersect in Irvine, California;

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Diamond Bar, California; and

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Anaheim, California

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Kuala Lumpur, Malaysia

Components of Our Results of Operations

Revenue

We recognize revenue in accordance with ASC 606, Revenue from Contracts with Customers. Our net revenue primarily consists of revenues from our retail locations and wholesale and online stores. Accordingly, we recognize revenue as follows:

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Retail Store Revenue

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.

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Wholesale and Online 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 - Reborn Logistics

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.

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License Income

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.

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.

Reverse Stock Split

On January 12, 2024, we filed the Certificate of Amendment to our Certificate of Incorporation to effect the Reverse Stock Split of our issued common stock in the ratio of 1-for-8. The common stock began trading on the Nasdaq Capital Market on a Reverse Stock Split-adjusted basis at the market open on Monday, January 22, 2024.

Results of Operations

The following tables present the summary of historical consolidated financial data for Reborn Coffee, Inc. and its subsidiaries for the periods and at the dates indicated. Historical results are not necessarily indicative of the results expected for any future period. You should read the summary of historical consolidated financial data below, together with our audited consolidated financial statements and related notes thereto.

For the Year Ended December 31, 2025 Compared to the Year Ended December 31, 2024.

		Years Ended December 31,
		2025								2024								Changes
		Amount				%				Amount				%				Amount				%
Net revenues:
Stores		$	5,952,061				73.5	%		$	5,573,247				94.0	%		$	378,814				6.8	%
Wholesale and online			113,577				1.4	%			355,286				6.0	%			(241,709	)			(68.0	)%
Service income			928,990				11.5	%			-				0.0	%			9288,990				100	%
License income			1,100,000				13.6	%			-				0.0	%			1,100,000				100	%
Total net revenues			8,094,628				100.0	%			5,928,533				100.0	%			2,165,095				36.5	%
Operating costs and expenses:
Product, food and drink costs - stores			2,376,017				29.4	%			2,204,574				37.2	%			171,443				7.8	%
Cost of service income - subcontractors			650,293				8.0	%			-				0.0	%			650,293				100	%
General and administrative			7,751,594				95.8	%			6,862,729				115.8	%			888,865				13.0	%
Professional fees			1,626,238				20.1	%			693,563				11.7	%			932,675				134.5	%
Stock compensation expense			1,484,333				18.3	%			787,213				13.3	%			697,120				88.6	%
Total operating costs and expenses			13,888,475				171.6	%			10,548,079				177.9	%			3,340,396				31.7	%
Loss from operations			(5,793,847	)			(71.6	)%			(4,619,546	)			(77.9	)%			(1,174,301	)			25.4	%
Other income (expense):
Other income			146,508				1.8	%			55,140				0.9	%			91,368				165.7	%
Interest expense including amortization of debt discount			(156,093	)			(1.9	)%			(215,140	)			(3.6	)%			59,047				(27.4	)%
Interest expense - debt discount			(1,067,028	)			(13.2	)%			-				0.0	%			(1,067,028	)			100.0	%
Gain on sale of property			45,673				0.6	%			-				0.0	%			45,673				100.0	%
Loss on debt extinguishment			(722,972	)			(8.9	)%			-				0.0	%			(722,972	)			100.0	%
Derivative expense			297,176				3.7	%			-				0.0	%			297,176				100.0	%
Asset impairment loss			(1,647,229	)			(20.3	)%			(25,602	)			(0.4	)%			(1,621,627	)			6334.0	%
Total other expense, net			(3,103,965	)			(38.3	)%			(185,602	)			(3.1	)%			(2,918,363	)			1572.4	%
Loss before income taxes			(8,897,812	)			(109.9	)%			(4,805,148	)			(81.1	)%			(4,092,664	)			85.2	%
Provision for income taxes			109,279				1.4	%			800				0.0	%			108,479				13559.9	%
Net loss		$	(9,007,091	)			-111.3	%		$	(4,805,948	)			(81.1	)%		$	(4,201,143	)			87.4	%

Net Revenues - Revenues were approximately $8.1 million for the year ended December 31, 2025, compared to $5.9 million for the year ended December 31, 2024, representing an increase of approximately $2.1 million, or 36.5%. The increase in sales for the period was primarily driven by new stream of service income from Reborn logistics and the license income along with the continued focus on marketing efforts to grow brand recognition.

Product, Food and Drink Costs (stores) - Product, food and drink costs were approximately $2.4 million for the year ended December 31, 2025 compared to $2.2 million for the comparable period in 2024, representing an increase of approximately $0.2 million, or 7.8%. The increase in costs was mainly driven by the increase of product costs and the overall increase in sales for the period.

Costs of Service Income - Subcontractors - Costs of service income were approximately $0.7 million for the year ended December 31, 2025. The costs of service income - subcontractors were mainly representing the cost of independence contractors and third-party carriers in the performance of its freight forward and transportation services.

General and Administrative Expenses - General and administrative expenses were approximately $7.8 million for the year ended December 31, 2025 compared to $6.9 million for the comparable period in the prior year, representing an increase of approximately $0.9 million, or 13.0%. The increase was mainly caused by increased occupancy expenses and labor costs from the store locations.

Professional Fees - Professional fees were approximately $1.6 million for the year ended December 31, 2025 compared to $0.7 million for the comparable period in the prior year, representing an increase of approximately $0.9 million, or 134.5%. The increase was primarily related to legal and accounting services during 2025 in connection with the convertible debts and other related equity activities.

Stock Compensation Expenses - Stock compensation expenses were approximately $1.5 million for the year ended December 31, 2025 compared to $0.8 million for the comparable period in the prior year, representing an increase of approximately $0.7 million, or 88.6%. The increase was mainly driven by increased activities during 2025.

Other Expense - Other expense primarily includes debt discount, derivative expenses, gain on debt extinguishment and asset impairment loss. Other expense was $3.1 million for the year ended December 31, 2025 compared to $0.2 million for the year ended December 31, 2024, an increase of $2.9 million or 1,572.4%. The increase was contributed by $1.1 million of debt discounts expense from the convertible debt, $0.7 million of loss on debt extinguishment, $1.6 million of asset impairment loss, offset by other income of $0.3 million.

Liquidity and Capital Resources

We have a history of operating losses and negative cash flow in operating activities. We have incurred recurring net losses, including net losses from operations before income taxes of $8.9 million and $4.8 million for the years ended December 31, 2025 and 2024, respectively. We used $6.5 million and $3.5 million cash for operating activities during the years ended December 31, 2025 and 2024, respectively. These factors raise substantial doubt as to our ability to continue as a going concern, and our independent registered public accounting firm has included a going concern explanatory paragraph in our audit report for 2025.

On February 6, 2025, we entered into a Debenture Purchase Agreement with the purchasers named therein (the "Debenture Investors"). Under the Debenture Purchase Agreement, we agreed to 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 "Debenture Transaction"). 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 our shares of common stock during the five 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, we also agreed to issue common stock purchase warrants (the "Debenture Warrants") to each Debenture Investor who participates in such closing. The Debenture Warrants will: (i) provide for the purchase by the applicable Debenture Investor of a number of shares of common stock equal to 20% of the total principal amount of the related Debenture purchased by the Debenture Investor on the applicable closing date divided by 92.5% of the lowest daily VWAP of common stock for the five 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 Debenture Warrants).

As of the date of this Report, we have conducted four closings pursuant to the Debenture Purchase Agreement and sold Debentures in the aggregate principal amount of $ $4,166,665 for a purchase price of $3,750,000, representing an original issue discount of ten percent (10%). We also issued to the Debenture Investors 1,041,667 Debenture Warrants in connection with the closings. In addition, on March 31, 2026, we issued an additional 250,000 common stock purchase warrants to the Debenture Investor, which have an exercise price of $2.00 per share, in exchange for waiver and forbearance of certain terms under the Debentures, the details of which are set forth on Forms 8-K filed by the Company on April 6, 2026 and April 21, 2026.

In addition, we entered into an ELOC Purchase Agreement with Arena whereby, we may, subject to various terms and conditions, including, without limitation that we maintain an effective registration statement covering shares issuable pursuant to the ELOC Agreement, at our discretion, direct Arena to purchase up to $50.0 million of shares of our common stock under the ELOC Agreement from time-to-time. The purchase price per share for the shares of common stock that we may elect to sell to Arena under the ELOC Agreement will fluctuate based on the market prices of our common stock for each purchase made pursuant to the ELOC Agreement, if any. Accordingly, it is not currently possible to predict the number of shares that will be sold to Arena, the actual purchase price per share to be paid by Arena for those shares, if any, or the actual gross proceeds to be raised in connection with those sales. As of the date hereof, we have not drawn down on the ELOC Purchase Agreement.

The extent to which we rely on Arena and/or the Debenture Investors as a source of funding will depend on a number of factors including, the prevailing market price of our common stock and the extent to which we are able to secure working and other capital from other sources. If obtaining sufficient funding from ELOC Agreement were to prove unavailable or prohibitively dilutive, we may need to secure another source of funding in order to satisfy our working and other capital needs. Even if we were to sell to Arena all of the shares of common stock available for sale to Arena under the ELOC Agreement and conduct the remaining closings pursuant to the Debenture Purchase Agreement, we may still need additional capital to fully implement our business, operating and development plans. Should the financing we require to sustain our working capital needs be unavailable or prohibitively expensive when we require it, the consequences may be a material adverse effect on our business, operating results, financial condition and prospects.

Our cash needs will depend on numerous factors, including our revenues, completion of our product development activities, customer and market acceptance of our product, and our ability to reduce and control costs. We expect to devote substantial capital resources to, among other things, fund operations and continue development plans.

To support our existing and planned business model, we need to raise additional capital to fund our future operations. We have not experienced any difficulty in raising funds through loans and have 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 our operations in near future. However, other than the ELOC Agreement and the Arena Debenture Transaction, there are no current agreements or understandings with regard to the form, time or amount of such financing and there is no assurance that any of these financing can be obtained or that we can continue as a going concern.

		Years Ended December 31,
		2025				2024
Statement of Cash Flow Data:
Net cash used in operating activities			(6,505,426	)			(3,452,224	)
Net cash used in investing activities			(2,976,195	)			(977,217	)
Net cash provided by financing activities			11,918,112				4,423,355

Cash Flows Used in Operating Activities

Net cash used in operating activities during the year ended December 31, 2025 was approximately $6.5 million, which mainly resulted from net loss of $9.1 million, non-cash charges of $1.5 million for stock compensation, $0.4 million for depreciation, $1.1 million debt discount expense, $1.6 million asset impairment loss and net cash inflows of $2.5 million from changes in operating assets and liabilities.

Net cash used in operating activities during the year ended December 31, 2024 was approximately $3.5 million, which resulted from net loss of $4.8 million, non-cash charges of $0.8 million for stock compensation, and $0.4 million for depreciation, and net cash inflows of $0.2 million from changes in operating assets and liabilities.

Cash Flows Used in Investing Activities

Net cash used in investing activities for the year ended December 31, 2025 was $3.0 million, which primarily resulted from $2.0 million of loan receivables from related party and $1.0 million of long-term prepayment.

Net cash used in investing activities for the year ended December 31, 2024 was $1.0 million. The expenditure is primarily related to purchases of property and equipment in connection with current and future location openings and maintaining our existing locations.

Cash Flows Provided by Financing Activities

Net cash provided by financing activities during the year ended December 31, 2025 was $11.9 million, which was primarily due to proceeds from issuance of common stock, gain on debt settlement and issuance of convertible debt.

Net cash provided by financing activities during the year ended December 31, 2024 was $4.4 million, which was primarily due to proceeds from issuances of common stock and off-set by repayments of loans payable.

Credit Facilities

Economic Injury Disaster Loan

On May 16, 2020, we executed the EIDL Loan from the SBA under its EIDL assistance program in light of the impact of the COVID-19 pandemic on our business. As of December 31, 2025, the loan payable, EIDL Loan noted above is not in default.

Pursuant to the SBA Loan Agreement, we 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 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 Agreement) in the amount of $731. The balance of principal and interest is payable thirty years from the date of the SBA Loan. In connection with this, we 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 and we have paid the payments since May 2022.

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

Paycheck Protection Program Loan

In May 2020, we secured a loan under the PPP administered by the SBA in the amount of $115,000. In February 2021, we secured a second loan under this program in the amount of approximately $167,000. The interest rate of the loan is 1.00% per annum and accrues on the unpaid principal balance computed on the basis of the actual number of days elapsed in a year of 360 days. Commencing seven months after the effective date of each PPP Loan, we are required to pay the Lender equal monthly payments of principal and interest as required to fully amortize any unforgiven principal balance of the loan by the two-year anniversary of the effective date of the loan. The PPP Loan contains customary events of default relating to, among other things, payment defaults, making materially false or misleading representations to the SBA or the Lender, or breaching the terms of the PPP Loan. The occurrence of an event of default may result in the repayment of all amounts outstanding under the PPP Loan, collection of all amounts we owe, or filing suit and obtaining judgment against us. 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 us to apply for forgiveness of our PPP loan. The Company was granted forgiveness for the initial PPP Loan prior to December 31, 2021.

Leases

Operating Leases

We currently lease all company-owned retail locations. Operating leases typically contain escalating rentals over the lease term, as well as optional renewal periods. Rent expense for operating leases is recorded on a straight-line basis over the lease term and begins when Reborn has the right to use the property. The difference between rent expense and cash payment is recorded as deferred rent on the accompanying consolidated balance sheets. Pre-opening rent is included in selling, general and administrative expenses on the accompanying consolidated statements of income. Tenant incentives used to fund leasehold improvements are recorded in deferred rent and amortized as reductions to rent expense over the term of the lease.

Income Taxes

We file income tax returns in the U.S. federal and California state jurisdictions. We also file income tax returns in South Korea and Malaysia related to our subsidiaries located in those countries. Income taxes in South Korea and Malaysia is not material.

Upon the closing of this offering, we will be taxed at the prevailing U.S. corporate tax rates. We will be treated as a U.S. corporation and a regarded entity for U.S. federal, state and local income taxes. Accordingly, a provision will be recorded for the anticipated tax consequences of our reported results of operations for U.S. federal, state and foreign income taxes.

Off Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that we are required to disclose pursuant to these regulations. In the ordinary course of business, we enter into operating lease commitments, purchase commitments and other contractual obligations. These transactions are recognized in our financial statements in accordance with GAAP.

Critical Accounting Estimates and Policies

The preparation of financial statements requires management to utilize estimates and make judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. These estimates are based on historical experience and on various other assumptions that management believes to be reasonable under the circumstances. The estimates are evaluated by management on an ongoing basis, and the results of these evaluations form a basis for making decisions about the carrying value of assets and liabilities that are not readily apparent from other sources. Although actual results may differ from these estimates under different assumptions or conditions, management believes that the estimates used in the preparation of our financial statements are reasonable. The critical accounting policies affecting our financial reporting are summarized in Note 2 to the financial statements included elsewhere in this Annual Report on Form 10-K.

Recent Accounting Pronouncements

We have determined that all other issued, but not yet effective accounting pronouncements are inapplicable or insignificant to us and once adopted are not expected to have a material impact on our financial position.