Reborn Coffee, Inc. 10-K

Item 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures Our management has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of December 31, 2022. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of December 31, 2022, our disclosure controls and procedures were ineffective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act (a) is recorded, processed, summarized and reported within the time periods specified by Securities and Exchange Commission (“SEC”) rules and forms and (b) is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding any required disclosure. 39 Management has identified control deficiencies regarding inadequate accounting resources, the lack of segregation of duties and the need for a stronger internal control environment. Management of the Company believes that these material weaknesses are due to the small size of the Company’s accounting staff. The small size of the Company’s accounting outsourced staff may prevent adequate controls in the future due to the cost/benefit of such remediation. To mitigate the current limited resources and limited employees, we rely heavily on direct management oversight of transactions, along with the use of external legal and accounting professionals. As we grow, we expect to increase our number of employees, which will enable us to implement adequate segregation of duties within the internal control framework. These control deficiencies could result in a misstatement of account balances that would result in a reasonable possibility that a material misstatement to our financial statements may not be prevented or detected on a timely basis. In light of this material weakness, we performed additional analyses and procedures in order to conclude that our financial statements for the year ended December 31, 2022 included in this Annual Report on Form 10-K were fairly stated in accordance with GAAP. Accordingly, management believes that despite our material weaknesses, our financial statements for the quarter ended December 31, 2022 are fairly stated, in all material respects, in accordance with GAAP. Changes in Internal Control Over Financial Reporting Due to a transition period established by SEC rules applicable to newly public companies, our management is not required to evaluate the effectiveness of our internal control over financial reporting until after the filing of our Annual Report on Form 10-K for the year ending December 31, 2022. As a result, this Annual Report does not address whether there have been any changes in our internal control over financial reporting. Limitations on Effectiveness of Controls and Procedures In designing and evaluating the disclosure controls and procedures and internal control over financial reporting, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures and internal control over financial reporting must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs. Item 9B. Other Information None. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections Not applicable. 40 Part III Item 10. Directors, Executive Officers and Corporate Governance Current Directors and Executive Officers The following table provides information regarding our executive officers and members of our board of directors as of the date of this Annual Report on Form 10-K: Name Age Position Executive Officers Jay Kim 60 Chief Executive Officer and Director Stephan Kim 46 Chief Financial Officer Non-Employee, Independent Directors Farooq M. Arjomand 64 Chairman of the Board of Directors and Independent Director Dennis R. Egidi 76 Vice Chairman of the Board of Directors and Independent Director Sehan Kim 69 Independent Director Background of Executive Officers and Directors Jay Kim, age 60, Chief Executive Officer and Director Mr. Kim has served as the Chief Executive Officer of Reborn Coffee since the inception of the Company in 2014. On July 1, 2007, Mr. Kim previously founded Wellspring Industry, Inc., which created the yogurt distribution company “Tutti Frutti” and the bakery-café franchise “O’My Buns.” Tutti Frutti grew to approximately 700 agents worldwide that offered self-serve frozen yogurt. Mr. Kim sold the majority ownership of Wellspring to group of investors in 2017 to focus his efforts on Reborn Coffee. Prior to beginning Wellspring Mr. Kim was the owner of Coffee Roasters in Riverside, California from 2002 to 2007. Mr. Kim worked as the project manager for JES Inc., based in Brea, CA from 1997 to 2002 where he coordinated and managed environmental engineering projects. Mr. Kim worked as a Senior Process Engineer for Allied Signal Environment Catalyst in Tulsa, Oklahoma, from 1992 to 1997 where he coordinated and implemented projects related to plant productivity. He also acted as the leader in start-up plant to be based in Mexico for Allied Signal. From 1988 to 1992 Mr. Kim worked as the plant start-up engineer for Toyota Auto Body Inc. Mr. Kim has a B.S, in Chemical Engineering from California State University at Long Beach and followed a Chemical office basic at US Army Chemical School in 1988. He was commissioned 1st. LT. of the US Army in 1986 and retired from the US Army in 1988. Stephan Kim, age 46, Chief Financial Officer Mr. Kim has served as the full-time Chief Financial Officer of the Company since June 26, 2022. Prior to joining Reborn Coffee, Mr. Kim provided professional accounting and tax consulting services for nearly 20 years to various clients in the consumer retail, healthcare, industrial manufacturing, and technology industries, including public accounting and tax consulting services under his own practice since 2011. Throughout his career as a public accountant, controller and banker in the US and South Korea, Mr. Kim has obtained broad and in-depth expertise on international accounting, finance, taxes and Sarbanes-Oxley 404 compliance. Mr. Kim graduated from Sogang University in South Korea with a B.A. in Sociology and Business in 2002 and earned a Master’s degree in Professional Accountancy from Indiana University in 2005. Mr. Kim began his career in 2002 as a banker with Shinhan Bank in South Korea. From 2005 to 2010, Mr. Kim was an Audit Manager at KPMG, Los Angeles office. 41 Non-Employee Directors Farooq M. Arjomand, age 64, Chairman of the Board of Directors Farooq Arjomand has served as the Chairman of the Board of Directors of Reborn Global since January 2015, and took over as the Chairman of the Board of Reborn Coffee Inc. on May 7, 2018. In 1984, he started his career as a banker with HSBC and gained experience across all departments—namely, private banking, corporate finance, trade services, and investment banking. During his stint with HSBC, he also became the founding member of Amlak Finance & Emmar Properties in 1997. Mr. Arjomand founded the Arjomand Group of companies in 2000 and has served as chief executive officer since that company’s inception. Based in Dubai, the Arjomand Group conducts various activities including real estate, manufacturing, trades, financial activities and aviation across the GCC, Asia, Europe and the US. Mr. Arjomand has also served as the Chairman of DAMAC Properties, a leading developer in the Middle East and as a board member of Al Ahlia Insurance Company BSC, Bahrain. Mr. Arjomand also serves as Managing Partner of Barakat Group. Barakat Group has been involved in the manufacturing of juices and food stuffs for the past 30 years. Mr. Arjomand is a citizen of the United Arab Emirates. He graduated with a Business Management degree from Seattle Pacific University in Seattle, Washington. Dennis R. Egidi, age 76, Vice Chairman of the Board of Directors Mr. Egidi is a licensed real estate broker in the State of Illinois. Additionally, Mr. Egidi was awarded the CPM® designation through the Institute of Real Estate Management. He holds a bachelor’s degree in civil engineering and attended graduate school in Civil Engineering at the University of Detroit. Mr. Egidi joined Reborn Coffee Inc. as a Director and the Vice Chairman of the Board of Directors in June of 2020. Mr. Egidi formed DRE, Inc., an Illinois real estate development company in 1993, developing over 30 affordable housing projects in Illinois, Ohio, Indiana, Iowa, and California, totaling approximately 5,000 units. Today, he continues to serve as President of DRE, Inc., and acts as Managing General Partner of 15 limited partnerships, of which 5 have been redeveloped over the past 5 years. In addition, Mr. Egidi served as President and Chairman of the board of Promex Midwest, a real estate property management firm. He has been involved in all phases of management in the commercial, residential and industrial building fields in the Midwest. Mr. Egidi has extensive knowledge and experience in the construction industry, having served as Executive Vice President and Chief Estimator for Corbetta Construction Company of Illinois, and then for Contractors and Engineers, Inc. During his 25 years of experience in the construction industry, he was involved in all types of projects ranging from multifamily housing, historical rehabs, high-rise office buildings and shopping centers. Mr. Egidi and DRE also have experience in the food service industry having developed fast food pizza stores in central Illinois under the Rocky Rococo brand in the 1980s. He was also a principal partner in Cookie Associates of Houston, Texas. Cookie Associates owned and operated 34 “Great American Cookie” stores and kiosks in the Houston market. Most recently, Mr. Egidi, as a principal of TF Investors LLC, was a franchisor of eight Tutti Frutti Frozen Yogurt franchises located in France and England. Sehan Kim, age 69, Director Sehan Kim has been a Director of Reborn Global since January 2015. Sehan Kim joined Magitech Incorporation in 2013 as Vice President of Operations. He oversees operations and management in water, and beverage businesses at Magitech Corporation. He led the major projects at Magitech to install the ERP system and the cold brewed coffee extraction systems. Prior to this position, Sehan Kim from 2005 to 2011, was Senior Vice President at Korean Air Co., Ltd. (“Korean Air”). He was the Head of the Aerospace Division at Korean Air. Prior to that, Sehan Kim was vice president and general manager of the Commercial Aerostructure Businesses at Korean Air from 2001 to 2005, which supplied various aircraft structural components to major commercial airplane manufacturers, including Airbus, Boeing and Embraer. From January 1994 to February 1997 Mr. Kim worked as a Korean Air representative at Boeing in Seattle, Washington, and had on the job training in configuration management at Northrop Aircraft company in Los Angeles, for the Korean Fighter Coproduction Program in 1981. He joined Korean Air in August 1979 as an Aerospace structural engineer. Mr. Sehan Kim studied Aerospace Engineering at Seoul National University in 1973 through 1977 and holds a master’s Degree in business management from Busan National University. 42 Family Relationships There are no family relationships among any of our executive officers or directors. Board Composition Our business and affairs are managed under the direction of our board of directors, a majority of which are independent (i.e., Farooq M. Arjomand, Dennis R. Egidi, and Sehan Kim). We have four directors with no vacancies. Our current directors will continue to serve as directors until their resignation, removal or successor is duly elected. Our certificate of incorporation and our bylaws permit our board of directors to establish the authorized number of directors from time to time by resolution. Each director serves until the expiration of the term for which such director was elected or appointed, or until such director’s earlier death, resignation or removal. Involvement in Certain Legal Proceedings As of the filing of this Annual Report on Form 10-K, there are no legal proceedings, and during the past ten years there have been no legal proceedings, that are material to an evaluation of the ability or integrity of any of our directors, director nominees or executive officers. Committees of Our Board of Directors Our board of directors has established a compensation committee and an audit committee. The composition and responsibilities of each of the committees of our board of directors are described below. Members serve on these committees until their resignation or until otherwise determined by our board of directors. Our board of directors may establish other committees as it deems necessary or appropriate from time to time. Audit Committee As of the date of this filing, our audit committee consists of Farooq M. Arjomand, Dennis R. Egidi and Sehan Kim. Each member of our audit committee can read and understand fundamental financial statements in accordance with applicable requirements. The chair of our audit committee is Farooq M. Arjomand, who our board of directors has determined is an “audit committee financial expert” within the meaning of SEC regulations. In arriving at these determinations, our board of directors has examined each audit committee member’s scope of experience and the nature of their employment in the corporate finance sector. The principal duties and responsibilities of our audit committee include, among other things: ● hiring and selecting a qualified firm to serve as the independent registered public accounting firm to audit our financial statements; ● helping to ensure the independence and performance of the independent registered public accounting firm; ● helping to maintain and foster an open avenue of communication between management and the independent registered public accounting firm; ● discussing the scope and results of the audit with the independent registered public accounting firm, and reviewing, with management and the independent registered public accounting firm, our interim and year-end operating results; ● developing procedures for employees to submit concerns anonymously about questionable accounting or audit matters; ● reviewing our policies on risk assessment and risk management; ● reviewing related party transactions; ● obtaining and reviewing a report by the independent registered public accounting firm at least annually, that describes its internal quality-control procedures, any material issues with such procedures, and any steps taken to deal with such issues when required by applicable law; and ● approving (or, as permitted, pre-approving) all audit and all permissible non-audit services to be performed by the independent registered public accounting firm. Our audit committee operates under a written charter that satisfies the applicable listing standards of the Nasdaq Capital Market. 43 Compensation Committee Our compensation committee consists of Farooq M. Arjomand, Dennis R. Egidi and Sehan Kim. The chair of our compensation committee is Dennis R. Egidi. The principal duties and responsibilities of our compensation committee include, among other things: ● approving the retention of compensation consultants and outside service providers and advisors; ● reviewing and approving, or recommending that our board of directors approve, the compensation, individual and corporate performance goals and objectives and other terms of employment of our executive officers, including evaluating the performance of our chief executive officer and, with his assistance, that of our other executive officers; ● reviewing and recommending to our board of directors the compensation of our directors; ● administering our equity and non-equity incentive plans; ● reviewing our practices and policies of employee compensation as they relate to alignment of incentives; ● reviewing and evaluating succession plans for the executive officers; ● reviewing and approving, or recommending that our board of directors approve, incentive compensation and equity plans; and ● reviewing and establishing general policies relating to compensation and benefits of our employees and reviewing our overall compensation philosophy. Our compensation committee operates under a written charter that satisfies the applicable listing standards of the Nasdaq Capital Market. Compensation Committee Interlocks None of the members of the compensation committee are currently, or have been at any time, one of our executive officers or employees. None of our executive officers currently serve, or have served during the last year, as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving as a member of our board of directors or compensation committee. Director Nominations We do not have a standing nominating committee. In accordance with the Nasdaq Stock Exchange corporate governance standards, a majority of the independent directors may recommend a director nominee for selection by the board of directors. The board of directors believes that the independent directors can satisfactorily carry out the responsibility of properly selecting or approving director nominees without the formation of a standing nominating committee. As there is no standing nominating committee, we do not have a nominating committee charter in place. The board of directors will also consider director candidates recommended for nomination by our stockholders during such times as they are seeking proposed nominees to stand for election at the next annual meeting of stockholders (or, if applicable, a special meeting of stockholders). Our stockholders that wish to nominate a director for election to our board of directors should follow the procedures set forth in our bylaws. 44 We expect to expand our board of directors in the future to include additional independent directors. In adding additional members to our board of directors, we will consider each candidate’s independence, skills and expertise based on a variety of factors, including the person’s experience or background in management, finance, regulatory matters and corporate governance. Further, when identifying nominees to serve as a director, we expect that our board of directors will seek to create a board of directors that is strong in its collective knowledge and has a diversity of skills and experience with respect to accounting and finance, management and leadership, vision and strategy, business operations, business judgment, industry knowledge and corporate governance. Code of Business Conduct and Ethics In filing our Registration Statement on Form S-1 on July 3, 2017, we adopted a Code of Business Conduct and Ethics that applies to all our employees, officers and directors. This includes our principal executive officer, principal financial officer and principal accounting officer or controller, or persons performing similar functions. The full text of our Code of Business Conduct and Ethics will be posted on our website at www.reborncoffee.com. We intend to disclose on our website any future amendments of our Code of Business Conduct and Ethics or waivers that exempt any principal executive officer, principal financial officer, principal accounting officer or controller, persons performing similar functions or our directors from provisions in the Code of Business Conduct and Ethics. Information contained on, or that can be accessed through, our website is not incorporated by reference into this Annual Report on Form 10-K, and you should not consider information on our website to be part of this Annual Report on Form 10-K. Risk and Compensation Policies We have analyzed our compensation programs and policies to determine whether those programs and policies are reasonably likely to have a material adverse effect on us. Compliance with Section 16(a) of the Exchange Act Section 16(a) of the Exchange Act requires our executive officers, directors and persons who beneficially own more than 10% of a registered class of our equity securities to file with the SEC initial reports of ownership and reports of changes in ownership of our common stock and other equity securities. These executive officers, directors, and greater than 10% beneficial owners are required by SEC regulation to furnish us with copies of all Section 16(a) forms filed by such reporting persons. Based solely on our review of such forms furnished to us and written representations from certain reporting persons, we believe that during the year ended December 31, 2022, all reports applicable to our executive officers, directors and greater than 10% beneficial owners were filed in a timely manner in accordance with Section 16(a) of the Exchange Act. Item 11. Executive Compensation Compensation Philosophy Our compensation philosophy includes: ● pay for performance; ● fair compensation that is competitive with market standards; ● compensation mix according to growth stage of our company as well as job level; and ● incentivizing employees to work for long-term sustainable and profitable growth of our company. 45 Objective of Executive Compensation Program The objective of our compensation program is to provide a fair and competitive compensation package in the industry to each named executive officer (“NEO”) that will enable us to: ● attract and hire outstanding individuals to achieve our mid-term and long-term visions; ● motivate, develop and retain employees; and ● align the financial interests of each named executive officer with the interests of our stakeholders including stockholders and encourage each named executive officer to contribute to enhance value of the Company. Our named executive officers for the year 2022, which consist of our principal executive officers, were: ● Jay Kim, President and Chief Executive Officer; and ● Stephan Kim, Chief Financial Officer. Administration Following the consummation of this offering, our Compensation Committee, which includes two independent directors, will oversee our executive compensation program and will be responsible for approving the nature and amount of the compensation paid to our NEOs. The committee will also administer our equity compensation plan and awards. Elements of Compensation Our compensation program for NEOs consists of the following elements of compensation, each described in greater depth below: ● base salaries; ● performance-based bonuses; ● equity-based incentive compensation; and ● general benefits. Base Salary Base salaries are an annual fixed level of cash compensation to reflect each NEO’s performance, role and responsibilities, and retention considerations. Performance-Based Bonus To incentivize management to drive strong operating performance and reward achievement of our company’s business goals, our executive compensation program includes performance-based bonuses for NEOs. Our Compensation Committee has established annual target performance-based bonuses for each NEO during the first quarter of the fiscal year. Equity Compensation We may pay equity-based compensation to our NEOs in order to link our long-term results achieved for our stockholders and the rewards provided to NEOs, thereby ensuring that such NEOs have a continuing stake in our long-term success. General Benefits Our NEOs are provided with other fringe benefits that we believe are commonly provided to similarly situated executives. 46 Summary Compensation Table – Officers The following table sets forth information concerning the compensation of our named executive officers for the years ended December 31, 2022 and December 31, 2021. Name and principal Salary Bonus Stock Awards Option Awards Non-equity Incentive plan compensation Change in Pension Value and Nonqualified deferred compensation All other Compensation Total position Year ($) ($) ($) ($) ($) ($) ($) ($) Jay Kim Chief Executive Officer 2022 144,000 200,000 -0- -0- -0- -0- -0- 344,000 Stephan Kim Chief Financial Officer (1) 2022 83,000 -0- 56,000 -0- -0- -0- -0- 139,000 Jay Kim Chief Executive Officer 2021 50,000 -0- -0- -0- -0- -0- -0- 50,000 Kevin Hartley Former Chief Financial Officer (2) 2021 10,000 -0- 200 -0- -0- -0- -0- 10,200 (1) Effective July 27, 2022, the Company executed an employment agreement with Stephan Kim for Mr. Kim to serve as full time Chief Financial Officer of the Company, effective immediately. Mr. Kim shall receive a monthly payment of $12,000 ($144,000 annually) as compensation for his services, and the Company granted $56,000 worth of shares of RSU, which will be vested in 3 months after employment and can be sold after one year. The terms of the RSUs will be set out in a separate RSU agreement to be executed in the near future. The employment agreement is an at-will agreement and is terminable by either party at any time. A copy of the agreement is filed herewith as Exhibit 10.11. (2) We entered into a consulting agreement on September 15, 2021 with Kevin Hartley for his services as CFO of the Company pursuant to which Mr. Hartley received $10,000 per year and additional compensation in the form of shares common stock. Effective July 27, 2022, Mr. Hartley amicably resigned as CFO of the Company and Stephan Kim was appointed as new full-time CFO of the Company. Outstanding Equity Awards at Fiscal Year-End As of December 31, 2022, there were no outstanding equity awards for each of the NEOs. Director Compensation No compensation was paid to our non-employee directors for services rendered during the years ended December 31, 2022 and 2021. 47 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The following table sets forth, as of December 31, 2022, information regarding beneficial ownership of our capital stock by: ● each person, or group of affiliated persons, known by us to beneficially own more than 5% of our common stock; ● each of our directors; ● each of our named executive officers; and ● all of our current executive officers, directors and director nominees as a group. In the table below, percentage ownership is based on 13,163,126 shares of our Class A Common Stock issued and outstanding as of December 31, 2022. Unless otherwise indicated, we believe that all persons named in the table have sole voting and investment power with respect to all ordinary shares beneficially owned by them. The following table does not reflect record or beneficial ownership of the private placement warrants or rights as these warrants and rights are not exercisable or convertible within 60 days of the date of this Report. Except as otherwise noted below, the address for each person or entity listed in the table is c/o Reborn Coffee Inc., 580 N. Berry St. Brea, CA 92821. Number of Shares Percentage of Shares Name of Beneficial Owner Beneficially Owned Beneficially Owned 5% or Greater Stockholders Directors and Named Executive Officers Jay Kim, Chief Executive Officer and Director 2,520,333 19.1 % Stephan Kim, Chief Financial Officer 11,200 0.1 % Farooq M. Arjomand, Chairman of the Board 3,648,631 27.7 % Dennis R. Egidi, Vice Chairman of the Board 1,242,792 9.4 % Sehan Kim, Director 382,273 2.9 % Hannah Goh, Former Director 1,000,001 7.6 % All directors, directors nominees and executive officers as a group (6 persons): 8,805,230 66.8 % Securities Authorized for Issuance under Equity Compensation Plans None. Changes in Control None. 48 Item 13. Certain Relationships and Related Transactions, and Director Independence Policies and Procedures for Related Person Transactions We do not currently have a formal, written policy or procedure for the review and approval of related party transactions. However, all related party transactions are currently reviewed and approved by our NEOs. Our board of directors has adopted a written related person transaction policy, effective upon the closing of the IPO, which sets forth the policies and procedures for the review and approval or ratification of related party transactions. This policy will be administrated by our Audit Committee. These policies will provide that, in determining whether or not to recommend the initial approval or ratification of a related party transaction, the relevant facts and circumstances available shall be considered, including, among other factors it deems appropriate, whether the interested transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and the extent of the related party’s interest in the transaction. Director Independence Nasdaq rules require that a majority of the board of directors of a company listed on Nasdaq be composed of “independent directors,” which is defined generally as a person other than an officer or employee of the company or its subsidiaries or any other individual having a relationship, which, in the opinion of the company’s board of directors, would interfere with the director’s exercise of independent judgment in carrying out the responsibilities of a director. In addition, the director must not be precluded from qualifying as independent under the per se bars set forth by the Nasdaq rules. Our Board has undertaken a review of its composition, the composition of its committees and the independence of our directors and considered whether any director has a material relationship with us that could compromise his or her ability to exercise independent judgment in carrying out his or her responsibilities. Based upon information requested from and provided by each director concerning his or her background, employment and affiliations, including family relationships, our Board of Directors has determined that each of the directors on our Board, other than Jay Kim are independent directors under the Nasdaq listing rules. Our independent directors have regularly scheduled meetings at which only independent directors are present. Indemnification Agreements We have entered into indemnification agreements with each of our directors and executive officers. These agreements, among other things, require us to indemnify each director and executive officer to the fullest extent permitted by Delaware law, including indemnification of expenses such as attorneys’ fees, judgments, penalties, fines and settlement amounts incurred by the director or executive officer in any action or proceeding, including any action or proceeding by or in right of us, arising out of the person’s services as a director or executive officer. Our certificate of incorporation contains provisions that limit the liability of our current and former directors for monetary damages to the fullest extent permitted by Delaware law. Additionally, a director is not personally liable for monetary damages for breach of fiduciary duty as a director (i) for any breach of his or her duty of loyalty to the Company or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of the law, (iii) under Section 174 of the General Corporation Law of the State of Delaware, or (iv) for any transaction from which the director derives an improper personal benefit. 49 Our certificate of incorporation authorizes us to indemnify our directors, officers, employees and other agents to the fullest extent permitted by Delaware law. Our bylaws provide that we are required to indemnify our directors and officers to the fullest extent permitted by Delaware law and may indemnify our other employees and agents. Our bylaws also provide that, on satisfaction of certain conditions, we will advance expenses incurred by a director or officer in advance of the final disposition of any action or proceeding, and permit us to secure insurance on behalf of any officer, director, employee or other agent for any liability arising out of his or her actions in that capacity regardless of whether we would otherwise be permitted to indemnify him or her under the provisions of Delaware law. We have entered and expect to continue to enter into agreements to indemnify our directors, executive officers and other employees as determined by our board of directors. With certain exceptions, these agreements provide for indemnification for related expenses including attorneys’ fees, judgments, fines and settlement amounts incurred by any of these individuals in any action or proceeding. We believe these provisions in our certificate of incorporation and bylaws and these indemnification agreements are necessary to attract and retain qualified persons as directors and officers. We also maintain customary directors’ and officers’ liability insurance. The limitation of liability and indemnification provisions in our certificate of incorporation and bylaws may discourage stockholders from bringing a lawsuit against our directors for breach of their fiduciary duty. They may also reduce the likelihood of derivative litigation against our directors and officers, even though an action, if successful, might benefit us and other stockholders. Further, a stockholder’s investment may be adversely affected to the extent that we pay the costs of settlement and damage awards against directors and officers as required by these indemnification provisions. Insofar as indemnification for liabilities arising under the Securities Act may be permitted for directors, executive officers or persons controlling us, we have been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. Item 14. Principal Accountant Fees and Services Audit, Audit-Related, Tax and All Other Fees The following is a summary of fees paid or to be paid to Kreit & Chiu CPA LLP for services rendered. Audit Fees. $ 60,000 Audit Committee Pre-Approval Policy and Procedures As of the date of this filing, our audit committee consists of Farooq M. Arjomand, Dennis R. Egidi and Sehan Kim. Each member of our audit committee can read and understand fundamental financial statements in accordance with applicable requirements. The chair of our audit committee is Farooq M. Arjomand, who our board of directors has determined is an “audit committee financial expert” within the meaning of SEC regulations. In arriving at these determinations, our board of directors has examined each audit committee member’s scope of experience and the nature of their employment in the corporate finance sector. 50 PART IV Item 15. Exhibits, Financial Statement Schedule (a) The following documents are filed as part of this Report: (1) Financial Statements Page Report of Independent Registered Public Accounting Firm F-1 Balance Sheets F-2 Statements of Operations F-3 Statements of Changes in Shareholders’ Deficit F-4 Statements of Cash Flows F-5 Notes to Financial Statements F-6 (2) Financial Statements Schedule All financial statement schedules are omitted because they are not applicable or the amounts are immaterial and not required, or the required information is presented in the financial statements and notes beginning on F-1 on this Report. (b) Exhibits EXHIBIT INDEX 3.1 Certificate of Incorporation (Delaware), dated July 27, 2022 (incorporated by reference to Exhibit 3.1 to Amendment No. 5 to our Registration Statement on Form S-1 filed on August 2, 2022) 3.2 Bylaws of Registrant (Delaware) (incorporated by reference to Exhibit 3.2 to Amendment No. 5 to our Registration Statement on Form S-1 filed on August 2, 2022) 4.1 Specimen Common Stock Certificate (Delaware) (incorporated by reference to Exhibit 4.1 to Amendment No. 5 to our Registration Statement on Form S-1 filed on August 2, 2022) 4.2 Form of Representative’s Warrant (incorporated by reference to Exhibit 4.5 to Amendment No. 2 to our Registration Statement on Form S-1 filed on April 18, 2022) 4.3 Description of Registrant’s Securities 10.1 Share Exchange Agreement, dated May 7, 2018 by and among Capax, Reborn and each of the RB shareholders (incorp orated by reference to Exhibit 10.1 to Amendment No. 2 to our Registration Statement on Form S-1 filed on April 18, 2022) 10.2 Form of Letter Agreement (Lockup) by and among Registrant, officers and directors of Registrant and EF Hutton (incorporated by reference to Exhibit 10.2 to Amendment No. 2 to our Registration Statement on Form S-1 filed on April 18, 2022) 10.3 Form of Director and Officer Indemnity Agreement (incorporated by reference to Exhibit 10.3 to Amendment No. 2 to our Registration Statement on Form S-1 filed on April 18, 2022) 10.4 Shopping Center Lease by and between Reborn Global Holdings, Inc. and La Floresta Regency, LLC, effective July 25, 2016 (incorporated by reference to Exhibit 10.4 to Amendment No. 2 to our Registration Statement on Form S-1 filed on April 18, 2022) 10.5 Standard Industrial/ Commercial Multi-Tenant Lease, as amended, by and between Reborn Global Holdings, Inc. and Foothill Crescenta, LLC, effective December 6, 2016 (incorporated by reference to Exhibit 10.5 to Amendment No. 2 to our Registration Statement on Form S-1 filed on April 18, 2022) 10.6 Shopping Center Lease by and between Reborn Global Holdings, Inc. and Sibling Associates, LLC, effective July 12, 2017 (incorporated by reference to Exhibit 10.6 to Amendment No. 2 to our Registration Statement on Form S-1 filed on April 18, 2022) 10.7 Standard Lease by and between Reborn Global Holdings, Inc. and El Toro, LP, effective February 12, 2021 (incorporated by reference to Exhibit 10.7 to Amendment No. 2 to our Registration Statement on Form S-1 filed on April 18, 2022) 10.8 Long Term Kiosk License Agreement by and between Reborn Global Holdings, Inc. and Tyler Mall Limited Partnership, effective February 4, 2021 (incorporated by reference to Exhibit 10.8 to Amendment No. 2 to our Registration Statement on Form S-1 filed on April 18, 2022) 51 10.9 Long Term Kiosk License Agreement by and between Reborn Global Holdings, Inc. and Stonestown Shopping Center, LP, effective December 22, 2020 (incorporated by reference to Exhibit 10.9 to Amendment No. 2 to our Registration Statement on Form S-1 filed on April 18, 2022) 10.10 Long Term Kiosk License Agreement by and between Reborn Global Holdings, Inc. and Glendale I Mall Associates, LP, effective October 27, 2020 (incorporated by reference to Exhibit 10.10 to Amendment No. 2 to our Registration Statement on Form S-1 filed on April 18, 2022) 10.11 Form of Subscription Agreement (Regulation A+ Offering) (incorporated by reference to Exhibit 10.11 to Amendment No. 2 to our Registration Statement on Form S-1 filed on April 18, 2022) 10.12 Consulting Agreement by and between the Company and Kevin Hartley, effective September 15, 2021 (incorporated by reference to Exhibit 10.12 to Amendment No. 2 to our Registration Statement on Form S-1 filed on April 18, 2022) 10.13 Amendment to Share Exchange Agreement, dated January 25, 2022, by and among Reborn Coffee Inc., Andrew Weeraratne and each of the former shareholders of Reborn Global Holdings, Inc., a California corporation (incorp orated by reference to Exhibit 10 .1 0 to Amendment No. 5 to our Registration Statement on Form S-1 filed on August 2, 2022) 10.14 Offer of Employment by and between the Company and Stephan Kim, dated July 27, 2022 (incorporated by reference to Exhibit 10.11 to Amendment No. 5 to our Registration Statement on Form S-1 filed on August 2, 2022) 21.1 Subsidiaries of Registrant 31.1 Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32 Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 101.INS Inline XBRL Instance Document. 101.SCH Inline XBRL Taxonomy Extension Schema Document. 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document. 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document. 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document. 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document. 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). Item 16. Form 10-K Summary None. 52 Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of Reborn Coffee, Inc. and Subsidiaries Opinion on the Consolidated Financial Statements` We have audited the accompanying consolidated balance sheets of Reborn Coffee, Inc. and subsidiaries (the “Company”) as of December 31, 2022 and 2021, and the related statements of operation, stockholders’ equity (deficit), and cash flows for each of the two years in the period ended December 31, 2022, and the related notes and schedules (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America. Explanatory Paragraph – Going Concern The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 2 to the consolidated financial statements, the Company has incurred recurring losses and at December 31, 2022, had an accumulated deficit of $12,031,801. For the year ending December 31, 2022, the Company sustained a net loss of $3,554,897. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might become necessary should the Company be unable to continue as a going concern. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ Kreit & Chiu CPA LLP (Formerly known as Paris, Kreit & Chiu CPA LLP) We have served as the Company’s auditor since 2020. New York, NY PCAOB ID 6651 April 11, 2023 F- 1 Consolidated Balance Sheet December 31, 2022 2021 ASSETS Current assets: Cash and cash equivalents $ 3,019,035 $ 905,051 Accounts receivable, net of allowance for doubtful accounts of $ 0 and $ 0 , respectively 780 - Inventories, net 132,343 88,877 Prepaid expense and other current assets 477,850 191,838 Total current assets 3,630,008 1,185,766 Property and equipment, net 1,581,805 1,110,890 Operating lease right-of-use asset 3,010,564 2,466,873 Other assets 235,164 - Total assets $ 8,457,541 $ 4,763,529 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 87,809 $ 45,748 Accrued expenses and current liabilities 233,053 124,535 Loans payable to financial institutions 44,664 98,475 Current portion of loan payable, emergency injury disaster loan (EIDL) 30,060 7,957 Current portion of loan payable, payroll protection program (PPP) 45,678 42,345 Current portion of equipment loan payable - 15,989 Current portion of operating lease liabilities 624,892 578,419 Total current liabilities 1,066,156 913,468 Loans payable to financial institutions, less current portion 6,234 23,228 Loan payable, emergency injury disaster loan (EIDL), less current portion 469,940 492,043 Loan payable, payroll protection program (PPP), less current portion 98,697 124,793 Operating lease liabilities, less current portion 2,529,985 2,011,702 Total liabilities 4,171,012 3,565,234 Commitments and Contingencies Stockholders’ equity Common Stock, $ 0.0001 par value, 40,000,000 shares authorized; 13,163,126 and 11,634,523 shares issued and outstanding at December 31, 2022 and 2021, respectively 1,316 1,163 Preferred Stock, $ 0.0001 par value, 1,000,000 shares authorized; no shares issued and outstanding at December 31, 2022 and 2021 - - Additional paid-in capital 16,317,014 9,674,036 Accumulated deficit ( 12,031,801 ) ( 8,476,904 ) Total stockholders’ equity 4,286,529 1,198,295 Total liabilities and stockholders’ equity $ 8,457,541 $ 4,763,529 See accompanying notes to consolidated financial statements. F- 2 Consolidated Statements of Operations Years Ended December 31, 2022 2021 Net revenues: Stores $ 3,184,491 $ 2,204,201 Wholesale and online 56,032 75,871 Total net revenues 3,240,523 2,280,072 Operating costs and expenses: Product, food and drink costs—stores 1,092,573 821,713 Cost of sales—wholesale and online 24,542 33,231 General and administrative 5,663,950 3,988,805 Total operating costs and expenses 6,781,065 4,843,749 Loss from operations ( 3,540,542 ) ( 2,563,677 ) Other income (expense): Other income 16,440 7,631 Paycheck protection program (PPP) loan forgiven income - 115,000 Interest expense ( 29,195 ) ( 16,172 ) Loss on extinguishment of debt - ( 982,383 ) Total other income (expense), net ( 12,755 ) ( 875,924 ) Loss before income taxes ( 3,553,297 ) ( 3,439,601 ) Provision for income taxes 1,600 800 Net loss $ ( 3,554,897 ) $ ( 3,440,401 ) Loss per share: Basic and diluted $ ( 0.29 ) $ ( 0.32 ) Weighted average number of common shares outstanding: Basic and diluted 12,173,031 10,724,944 See accompanying notes to consolidated financial statements. F- 3 Consolidated Shareholders’ Equity Additional Subscription of Total Common Stock Preferred Stock Paid-in Common Accumulated Shareholders’ Shares Amount Shares Amount Capital Stock Deficit Equity Balance as of December 31, 2020 10,443,721 1,044 - - 4,733,064 ( 450,000 ) ( 5,036,504 ) ( 752,396 ) Net loss - - - - - - ( 3,440,401 ) ( 3,440,401 ) Conversion of debt into common stock 402,954 40 - - 2,014,726 - - 2,014,766 Stock issued for store acquisition 232,558 23 - - 149,977 - - 150,000 Stock compensation – issuance for services 110,000 11 - - 549,989 - - 550,000 Common stock issued 31,875 3 - - ( 3 ) - - - Payments received from prior year subscription - 450,000 450,000 Stock subscription 413,415 42 - - 2,226,284 - - 2,226,326 Balance as of December 31, 2021 11,634,523 $ 1,163 - $ - $ 9,674,037 $ - $ ( 8,476,904 ) $ 1,198,295 Net loss - - - - - - ( 3,554,897 ) ( 3,554,897 ) Stock compensation – issuance for services 88,200 9 - - 440,991 - - 441,000 Common stock issued 1,440,000 144 - - 7,199,856 - - 7,200,000 Offering costs associated with issuance of common stock in the Initial Public Offering - - - - ( 997,870 ) - - ( 997,870 ) Balance as of December 31, 2022 13,162,723 $ 1,316 - $ - $ 16,317,014 $ - $ ( 12,031,801 ) $ 4,286,529 See accompanying notes to consolidated financial statements. F- 4 Consolidated Statements of Cash Flows Years Ended December 31, 2022 2021 Cash flows from operating activities: Net loss $ ( 3,554,897 ) $ ( 3,440,401 ) Adjustments to reconcile net loss to net cash used in operating activities: Stock compensation 441,001 550,000 Operating lease 21,065 65,545 Depreciation 210,616 174,696 Loss on extinguishment of debt - 982,383 Forgiveness of Paycheck protection program (PPP) loan - ( 115,000 ) Changes in operating assets and liabilities: Accounts receivable ( 780 ) 3,853 Inventories ( 43,466 ) ( 73,598 ) Prepaid expense and other current assets ( 521,176 ) ( 132,059 ) Accounts payable 42,062 ( 27,571 ) Accrued expenses and current liabilities 108,518 62.332 Net cash used in operating activities ( 3,297,058 ) ( 1,949,820 ) Cash flows from investing activities: Purchases of property and equipment ( 681,531 ) ( 348,224 ) Reacquisition of store - ( 150,000 ) Net cash used in investing activities ( 681,531 ) ( 498,224 ) Cash flows from financing activities: Proceeds from issuance of common stock 7,200,000 2,688,874 Payment for offering costs ( 997,870 ) - Proceeds from Line of Credit 685,961 - Repayment of Line of Credit ( 685,961 ) - Proceeds from loans 262,215 1,028,027 Repayments of loans ( 355,783 ) ( 473,187 ) Repayments of equipment loan payable ( 15,989 ) ( 19,187 ) Net cash provided by financing activities 6,092,573 3,224,527 Net increase in cash 2,113,984 776,483 Cash at beginning of period 905,051 128,568 Cash at end of period $ 3,019,035 $ 905,051 Supplemental disclosures of non-cash financing activities: Issuance of common shares for repurchase of lease and leasehold improvements $ - $ 150,000 Conversion of debt to common stock issuances $ - $ 2,014,766 Forgiveness of paycheck protection program (PPP) loan $ - $ 115,000 Issuance of common shares for service $ 441,000 $ 550,000 Supplemental disclosure of cash flow information: Cash paid during the years for: Interest $ 8,530 $ 16,172 Income taxes $ 1,600 $ 800 Lease liabilities and assets $ 926,626 $ 544,873 See accompanying notes to consolidated financial statements. F- 5 NOTES TO 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 wholly owned subsidiaries: ● Reborn Global Holdings, Inc. (“Reborn Holdings”), a California Corporation incorporated in November 2014. Reborn Holdings is engaged in the operation of wholesale distribution and retail coffee stores in California to sell a variety of coffee, tea, Reborn brand name water and other beverages along with bakery and dessert products. ● Reborn Coffee Franchise, LLC (the “Reborn Coffee Franchise”), a California limited liability corporation formed in December 2020, is a franchisor providing premier roaster specialty coffee to franchisees or customers. Reborn Coffee Franchise continues to develop the Reborn Coffee system for the establishment and operation of Reborn Coffee stores using one or more Reborn Coffee marks. Reborn Coffee Franchise does not have any franchisee as of December 31, 2022. Reborn Coffee, Inc., Reborn Global Holdings, Inc., and Reborn Coffee Franchise, LLC will be collectively referred as the “Company”. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Reporting The consolidated financial statements include Reborn Coffee, Inc. and its wholly owned subsidiaries as of and for the years ended December 31, 2022 and 2021. Basis of Presentation and Consolidation The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) as promulgated in the United States of America. The consolidated financial statements include Reborn Coffee, Inc. and its wholly owned subsidiaries. All intercompany accounts, transactions, and profits have been eliminated upon consolidation. 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 $ 12,031,801 at December 31, 2022, and had a net loss of $ 3,554,897 for the year ended December 31, 2022 and net cash used in operating activities of $ 3,297,058 for the year ended December 31, 2022. These matters raise substantial doubt about the Company’s ability to continue as a going concern. To support our 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 impacted our results of operations and cash flows. Additional debt financing is anticipated to fund the Company’s operations in near future. However, 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 this financing can be obtained or that the Company can continue as a going concern. F- 6 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Use of Estimates The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States (“U.S. 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 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 Revenue Retail store revenues are recognized when payment is tendered at the point of sale. Retail store revenues are reported net of sales, use or other transaction taxes that are collected from customers and remitted to taxing authorities. Sales taxes that are payable are recorded as accrued as other current liabilities. Retail store revenue makes up approximately 98 % of the Company’s total revenue. ● Wholesale and Online Revenue Wholesale and online revenues are recognized when the products are delivered, and title passes to the customers or to the wholesale distributors. When customers pick up products at the Company’s warehouse, or distributed to the wholesale distributors, the title passes, and revenue is recognized. Wholesale revenues make up approximately 2 % of the Company’s total revenue. ● Royalties and Other Fees Franchise revenues consists of royalty fee and other franchise fees. Royalty fee is based on a percentage of franchisee’s weekly gross sales revenue at 5 %. The Company recognizes the fee as the underlying sales occur. The Company recorded revenue from royalties of $ 0 for the years ended December 31, 2022 and 2021. Other fees are earned as incurred and the Company did not have any other fee revenue for the years ended December 31, 2022 and 2021. ● Customer Loyalty Program The Company has a loyalty program whereby a customer receives a discounted or free beverage after a number of prior purchases. The costs of providing the reward are recognized when incurred and there is no revenue allocated for original purchases to the provision of the reward since the program is not significant and the usage is uncertain. F- 7 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Cost of Sales 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. 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 $ 52,688 and $ 82,351 for the years ended December 31, 2022 and 2021, respectively, and is recorded under general and administrative expenses in the accompanying consolidated statements of operations. Pre-opening Costs Pre-opening costs for new stores consist primarily of payroll and recruiting expense, training, marketing, rent, travel, and supplies, and are expensed as incurred. 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, 2022 and 2021, allowance for doubtful accounts was $ 0 and $ 0 , 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. F- 8 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 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: Furniture and fixtures 5 - 7 Years Store construction Lesser of the lease term or the estimated useful lives of the improvements, generally 6 years Leasehold improvement Lesser of the lease term or the estimated useful lives of the improvements, generally 6 years 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 (Note 11). Earnings 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 earnings (loss) per share (EPS) computations. Basic earnings (loss) per share are computed by dividing net earnings available to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted earnings (loss) per share is computed similar to basic earnings 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, 2022 and 2021. Segment Reporting FASB ASC Topic 280, Segment Reporting, requires public companies to report financial and descriptive information about their reportable operating segments. The Company’s management identifies operating segments based on how the Company’s management internally evaluate separate financial information, business activities and management responsibility. At the current time, the Company has only one reportable segment, consisting of both the wholesale and retail sales of coffee, water, and other beverages. The Company’s franchisor subsidiary was not material as of and for the years ended December 31, 2022 and 2021. 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. 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 December 31, 2022 and 2021, the Company was not aware of any events or changes in circumstances that would indicate that the long-lived assets are impaired. F- 9 2 . SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 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. As of December 31, 2022 and 2021, 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. 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, 2022 and 2021, no purchases from any vendors accounted for a significant amount of the Company’s bean coffee purchases. F- 10 2 . SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 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. Significant Recent Developments Regarding COVID-19 The novel coronavirus (“COVID-19”) pandemic has significantly impacted health and economic conditions throughout the United States and globally, as public concern about becoming ill with the virus has led to the issuance of recommendations and/or mandates from federal, state and local authorities to practice social distancing or self-quarantine. The Company is continually monitoring the outbreak of COVID-19 and the related business and travel restrictions and changes to behavior intended to reduce its spread, and its impact on operations, financial position, cash flows, inventory, supply chains, purchasing trends, customer payments, and the industry in general, in addition to the impact on its employees. We have experienced significant disruptions to our business due to the COVID-19 pandemic and related suggested and mandated social distancing and shelter-in-place orders. Recent Accounting Pronouncement In June 2016, the FASB issued Accounting Standards Update No. 2016-13, “Financial Instruments - Credit Losses (Topic 326)” (“ASU 2016-13”). ASU 2016-13 revises the methodology for measuring credit losses on financial instruments and the timing of when such losses are recorded. Originally, ASU 2016-13 was effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. In November 2019, FASB issued ASU 2019-10, “Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842).” This ASU defers the effective date of ASU 2016-13 for public companies that are considered smaller reporting companies as defined by the SEC to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is planning to adopt this standard in the first quarter of fiscal 2023. The Company evaluated and concluded that no material effects of adopting the provisions of ASU No. 2016-13 on its consolidated financial statements. Other recently issued accounting updates are not expected to have a material impact on the Company’s consolidated financial statements. F- 11 3. PROPERTY AND EQUIPMENT Property and equipment consisted of the following: December 31, 2022 2021 Furniture and equipment $ 1,203,737 $ 779,649 Leasehold improvement 639,602 639,602 Store construction 251,745 52,161 Store 300,000 300,000 Vehicle 57,859 - Total property and equipment 2,452,943 1,771,412 Less accumulated depreciation ( 871,138 ) ( 660,522 ) Total property and equipment, net $ 1,581,805 $ 1,110,890 Depreciation expense on property and equipment amounted to approximately $ 210,616 and $ 174,696 for the years ended December 31, 2022 and 2021, respectively. 4. LOANS PAYABLE TO FINANCIAL INSTITUTIONS Loans payable to financial institutions consist of the following: December 31, 2022 2021 July 2021 - Loan agreement with principal amount of $ 90,000 and repayment rate of 19 % for a total of $ 101,700 . The loan payable matures on January 31, 2023 and was fully paid off in 2022. - 52,819 August 2021 - Loan agreement with principal amount of $72,500 and a repayment rate of 18.5 % for a total of $ 81,925 . The loan payable matures on February 10, 2023 and was fully paid off in 2022. - 36,502 August 2021 - Loan agreement with principal amount of $ 67,500 and repayment rate of 18.5 % for a total of $ 76,275 . The loan payable matures on February 11, 2023 and was fully paid off in 2022. - 32,382 August 2022 - Loan agreement with principal amount of $ 100,000 and repayment rate of 20.5 % for a total of $ 124,430 . The loan payable matures on February 2, 2024 . 50,898 - Less: current portion ( 44,664 ) ( 98,475 ) Total loan payable, net of current $ 6,234 $ 23,228 F- 12 4. LOANS PAYABLE TO FINANCIAL INSTITUTIONS (continued) July 2021 - $ 101,700 loan payable In July 2021, the Company entered into a loan agreement with Square Capital in the principal amount of $ 90,000 with loan cost $ 11,700 . The loan payable has a maturity date on January 31, 2023 . As of December 31, 2022 and December 31, 2021, there was a balance outstanding of $ 0 and $ 52,819 , respectively. August 2021 - $ 81,925 loan payable In August 2021, the Company entered into a loan agreement with Square Capital in the principal amount of $ 72,500 with loan cost $ 9,425 . The loan payable has a maturity date on February 10, 2023 . As of December 31, 2022 and December 31, 2021, there was a balance outstanding of $ 0 and $ 36,502 , respectively. August 2021 - $ 76,275 loan payable In August 2021, the Company entered into a loan agreement with Square Capital in the principal amount of $ 67,500 with loan cost $ 8,775 . The loan payable has a maturity date on February 11, 2023 . As of December 31, 2022 and December 31, 2021, there was a balance outstanding of $ 0 and $ 32,382 , respectively. August 2022 - $ 112,215 loan payable In August 2022, the Company entered into a loan agreement with Square Capital in the principal amount of $ 100,000 with loan cost $ 12,215 . The loan payable has a maturity date on February 2, 2024 . As of December 31, 2022, there was a balance outstanding of $ 50,898 . F- 13 5. LOAN PAYABLE, EMERGENCY INJURY DISASTER LOAN (EIDL) December 31, 2022 2021 May 16, 2020 ($ 150,000 ) - Loan agreement with principal amount of $150,00 with an interest rate of 3.75 % and maturity date on May 16, 2050 $ 150,000 $ 150,000 June 28, 2021 ($ 350,000 ) – Loan agreement with principal amount of $350,000 with an interest rate of 3.75 % and maturity date on May 18, 2050 350,000 350,000 Total long-term loan payable, emergency injury disaster loan (EIDL) 500,000 500,000 Less - current portion ( 30,060 ) ( 7,957 ) Total loan payable, emergency injury disaster loan (EIDL), less current portion $ 469,940 $ 492,043 The following table provides future minimum payments: For the years ended December 31, Amount 2023 $ 30,060 2024 30,060 2025 30,060 2026 30,060 2027 30,060 Thereafter 349,700 Total $ 500,000 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 actually 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. F- 14 6. LOAN PAYABLE, PAYROLL PROTECTION LOAN PROGRAM (PPP) December 31, 2022 2021 Loan payable from Payroll protection program (PPP) $ 144,375 $ 167,138 Less - current portion ( 45,678 ) ( 42,345 ) Total loan payable, payroll protection program (PPP), less current portion $ 98,697 $ 124,793 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. 7. INCOME TAX Total income tax (benefit) expense consists of the following: For the Years Ended December 31, 2022 2021 Current provision (benefit): Federal $ - $ - State 1,600 800 Total current provision (benefit) 1,600 800 Deferred provision (benefit): Federal - - State - - Total deferred provision (benefit) - - Total tax provision (benefit) $ 1,600 $ 800 F- 15 7. INCOME TAX (continued) A reconciliation of the Company’s effective tax rate to the statutory federal rate is as follows: Description December 31, 2022 December 31, 2021 Statutory federal rate 21.00 % 21.00 % State income taxes net of federal income tax benefit and others 6.98 % 6.98 % Permanent differences for tax purposes and others 0.00 % 0.00 % Change in valuation allowance - 27.98 % - 27.98 % Effective tax rate 0 % 0 % 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 6.98 % due to the change in the valuation allowance. Deferred tax assets December 31, 2022 December 31, 2021 Deferred tax assets: Net operating loss $ 2,515,031 $ 1,768,839 Other temporary differences - - Total deferred tax assets 2,515,031 1,768,839 Less – valuation allowance ( 2,515,031 ) ( 1,768,839 ) Total deferred tax assets, net of 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: As of December 31, 2021, the Company had available net operating loss carryovers of approximately $ 1,769,000 . Per the Tax Cuts and Jobs Act (TCJA) implemented in 2018, the two-year carryback provision was removed and now allows for an indefinite carryforward period. The carryforwards are limited to 80 % of each subsequent year’s net income. As a result, net operating loss may be applied against future taxable income and expires at various dates subject to certain limitations. The Company has a deferred tax asset arising substantially from the benefits of such net operating loss deduction and has recorded a valuation allowance for the full amount of this deferred tax asset since it is more likely than not that some or all of the deferred tax asset may not be realized. The Company files income tax returns in the U.S. federal jurisdiction and California and is subject to income tax examinations by federal tax authorities for tax year ended 2018 and later and subject to California authorities for tax year ended 2017 and later. The Company currently is not under examination by any tax authority. The Company’s policy is to record interest and penalties on uncertain tax positions as income tax expense. As of December 31, 2022 and December 31, 2021, the Company has no accrued interest or penalties related to uncertain tax positions. As of December 31, 2022, the Company had cumulative net operating loss carryforwards for federal tax purposes of approximately $ 2,515,000 . In addition, the Company had state tax net operating loss carryforwards of approximately $ 2,515,000 . The carryforwards may be applied against future taxable income and expires at various dates subject to certain limitations. F- 16 8. COMMITMENTS AND CONTINGENCIES Operating Leases The Company entered into the following operating facility leases: Brea - On September 1, 2018, the Company entered into an operating facility lease for its corporate office located in Brea, California with a term of 72 months and an option to extend. The lease started on September 2018 and expires in August 2024. La Floresta - On July 25, 2016, the Company entered into an operating facility lease 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 started in July 2016 and expiration date was extended to November 2024. 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 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 starts 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 starts in March 2022 and expires in February 2027. Cabazon - On May 2017, the Company entered into an operating facility lease for its store located in Cabazon, California with 120 months term with option to extend. The lease started in November 2022 and expires in October 2032. The Company entered into non-cancellable lease agreement for a coffee shop approximately 1,734 square feet located in Cabazon, California commencing in November 2022 and expiring in November 2032. The monthly lease payment under the lease agreement is approximately $ 6,521 . Glendale – On October 27, 2020, The Company entered a 7 -year operating facility lease for its store located at the Glendale Galleria in Glendale, California. The lease started in November 2020 and expires in October 2027. Santa Anita - On December 22, 2020, the Company entered into an operating facility lease for its store located at Arcadia, California with 36 months term with option to extend. The lease starts in February 2021 and expires in January 2024. 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. San Francisco - On December 22, 2020, the Company entered into an operating facility lease for its store located at Stonestown Galleria in San Francisco, California with a term of 84 months with an option to extend. The lease starts in June 2021 and expires in April 2028. Irvine - On October 1, 2022 the Company entered into a percentage base lease agreement for the store located in Irvine, California with 9 months term with option to extend. The lease started in October 2022 and expires on June 30, 2023. The rate to be used is 10 % and it’s based on monthly gross sales. F- 17 8. COMMITMENTS AND CONTINGENCIES (continued) 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: Year ended December 31, 2022 2021 Operating lease expense $ 949,769 $ 663,670 Total lease expense $ 949,769 $ 663,670 In accordance with ASC 842, other information related to leases was as follows: Year ended December 31, 2022 2021 Operating cash flows from operating leases $ 926,626 $ 544,873 Cash paid for amounts included in the measurement of lease liabilities $ 926,626 $ 544,873 Weighted-average remaining lease term—operating leases 3.8 Years Weighted-average discount rate—operating leases 9.7 % In accordance with ASC 842, maturities of operating lease liabilities as of December 31, 2022 were as follows: Operating For the years ended December 31, Lease 2023 $ 1,045,907 2024 976,495 2025 838,463 2026 773,306 2027 492,712 Thereafter 997,604 Total undiscounted cash flows $ 5,124,486 Reconciliation of lease liabilities: Weighted-average remaining lease terms 3.8 Years Weighted-average discount rate 9.7 % Present values $ 3,154,877 Lease liabilities—current 624,892 Lease liabilities—long-term 2,529,985 Lease liabilities—total $ 3,154,877 Difference between undiscounted and discounted cash flows $ 1,969,609 Contingencies The Company is subject to various legal proceedings from time to time as part of its business. As of December 31, 2022, 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. F- 18 9. SHAREHOLDERS’ EQUITY Common Stock The Company has authorization to issue and have 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 to one 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 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 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 December 31, 2022 and 2021, no shares of our preferred stock had been designated any rights and we had no shares of preferred stock issued and outstanding. Issuance of Common Stock in Settlement of Antidilution Provisions In May 2018, the Company had entered into a share exchange agreement wherein Capax, Inc., the predecessor entity of Reborn Coffee, Inc. (“Capax”) effectively merged with Reborn Global Holdings, Inc. to form the Company. In this share exchange agreement, the preexisting shareholder of Capax were provided covenants that for a period of one year following the date upon which the Company is approved for quotation or trading on a public exchange (“IPO”), the percentage of ownership of the prior shareholders of Capax would not be less than the 5% of the total number of shares of voting common stock outstanding of the Company that they owned following the share exchange. In the event the ownership of the pre-merger shareholders of Capax fell below 5%, the Company was obligated to issue that number of shares of common stock to those shareholders which would increase the ownership of all of the Pre-Merger Shareholders to five percent (5%) of the total outstanding voting common shares of the Company. During the year ended December 31, 2021, the Company issued 325,495 shares of common stock under these provisions. On January 25, 2022, the Company modified this agreement with the preexisting shareholders to effectively end the antidilution protection at the time of a successful IPO, eliminating the one-year period following an IPO as provided under the original agreement. The shareholders would be entitled to additional protection through the IPO date should the Company issue any additional shares between December 31, 2021 and the IPO date. The Company has not issued any additional shares subsequent to December 31, 2021. Initial Public Offering In August 2022, the Company consummated its initial public offering (the “IPO”) of 1,440,000 shares of its common stock at a public offering price of $ 5.00 per share, generating gross proceeds of $ 7,200,000 . Net proceeds from the IPO were approximately $ 6.2 million after deducting underwriting discounts and commissions and other offering expenses of approximately $ 998,000 . The Company had granted the underwriters a 45-day option to purchase up to 216,000 additional shares (equal to 15 % of the shares of common stock sold in the offering) to cover over-allotments. In addition, the Company had agreed to issue to the representative of the several underwriters warrants to purchase the number of shares of common stock in the aggregate equal to five percent ( 5 %) of the shares of common stock to be issued and sold in the IPO. The warrants are exercisable for a price per share equal to 125 % of the public offering price. No over-allotment option or representative’s warrants have been exercised. F- 19 9. SHAREHOLDERS’ EQUITY (continued) Stock Compensation The Company issued a total of 88,200 shares of common stock to employees and consultants for compensation. These shares were valued at $ 5.00 per share for total stock-based compensation expense of $ 441,000 . 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 were no dividends declared for the years ended December 31, 2022 and 2021, respectively. 10. EARNINGS PER SHARE The Company calculates earnings per share in accordance with FASB ASC 260, Earnings Per Share, which requires a dual presentation of basic and diluted earnings per share. Basic earnings per share are 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 income per common share: Years Ending December 31, 2022 2021 Net Loss $ ( 3,554,897 ) $ ( 3,440,401 ) Weighted Average Shares of Common Stock Outstanding Basic 12,173,031 10,724,944 Diluted 12,173,031 10,724,944 Years Ending December 31, 2022 2021 Earnings Per Share - Basic Net Loss Per Share ( 0.29 ) ( 0.32 ) Earnings Per Share - Diluted Net Loss Per Share ( 0.29 ) ( 0.32 ) 11. SUBSEQUENT EVENTS The Company evaluated all events or transactions that occurred after December 31, 2022 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, 2022. In January 2023, the Company closed a store located in Glendale, California. In January 2023, the Company completed an acquisition of a café located in Irvine, California, under an asset purchase agreement entered on October 5, 2022. The purchase price of $ 250,000 was paid in 2022 and included in prepaid expenses and other current assets in the December 31, 2022 consolidated balance sheet. In February 2023, the Company opened a store located in Huntington Beach, California and the store is under a 10 -year operating lease which expires in February 2032. In February 2023, the Company formed a subsidiary in Korea, “Reborn Coffee Korea, Inc.”, under the Company’s international expansion plan. Initial investment capital of $ 138,000 was made to Reborn Coffee Korea, Inc. by the Company. F- 20 Signatures Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Signature Title Date /s/ Jay Kim Chief Executive Officer April 11, 2023 Jay Kim ( Principal Executive Officer ) /s/ Stephan Kim Chief Financial Officer April 11, 2023 Stephan Kim ( Principal Financial and Accounting Officer ) Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /s/ Jay Kim Chief Executive Officer April 11, 2023 Jay Kim (Principal Executive Officer) /s/ Stephan Kim Chief Financial Officer April 11, 2023 Stephan Kim (Principal Financial and Accounting Officer) /s/ Farooq M. Arjomand Chairman of the Board of Directors April 11, 2023 Farooq M. Arjomand /s/ Dennis R. Egidi Vice Chairman of the Board of Directors April 11, 2023 Dennis R. Egidi /s/ Sehan Kim Director April 11, 2023 Sehan Kim 53