What changed in this filing

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Item 7. Management’s Discussion and Analysis

2026-04-22 compared with 2025-03-31 · 232 added, 117 removed, 155 unchanged (69% of the section changed)

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and brewing our coffee beans with a balance of precision and craft.

Founded in 2015 by Jay Kim, our Chief Executive

Kim and his team launched Reborn Coffee with the vision of using the finest pure ingredients and pristine water.

serve customers through our 10 retail stores located in California, 1 store in Korea, and 1 store in Malaysia.

Founded in 2015 by Jay Kim, our Chief Executive Officer, Mr.

his team launched Reborn Coffee with the vision of using the finest pure ingredients and pristine water.

We currently serve customers

through our 9 retail stores and 1 franchisee located in California, 1 store in Korea, and 1 store in Malaysia.

Reborn Coffee continues to elevate the high-end

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our headquarters that we use to process and roast coffee for wholesale and retail distribution.

We have the following twelve retail coffee locations

as of December 31, 2024:

La Floresta Shopping Village in Brea, California;

La Crescenta, California;

Corona Del Mar, California;

Home Depot Center in Laguna Woods, California;

Manhattan Village at Manhattan Beach, California.

Huntington Beach, California;

Galleria at Tyler in Riverside, California;

Intersect in Irvine, California;

Diamond Bar, California;

Anaheim, California

Daejeon, Korea

Kuala Lumpur, Malaysia

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

Floresta Shopping Village in Brea, California;

Crescenta, California;

Del Mar, California;

Depot Center in Laguna Woods, California;

Village at Manhattan Beach, California.

at Tyler in Riverside, California;

in Irvine, California;

Bar, California;

Lumpur, Malaysia

Components of Our Results of Operations

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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.

Retails store revenue makes up approximately [98]% of our total revenue.

Retail store revenues are recognized at the point of sale when payment

Retail store revenues are reported net of sales, use, or other transaction taxes collected from customers and remitted to

taxing authorities.

Sales taxes payable are recorded as accrued liabilities within other current liabilities.

Retail store revenue represents

approximately 73.5% of the Company’s total revenue.

and Online Revenue

Wholesale and online revenues are recognized

when the products are delivered, and title passes to customers or to the wholesale distributors.

When customers pick up the products at

our warehouse, or the products are delivered to the wholesale distributors, the title of the products passes and revenue is recognized.

Wholesale revenues make up between [4% to 6%] of our total revenue.

Cost of Sales

Cost of sales includes costs associated with generating

revenue within our company-owned retail locations and through wholesale and online platform.

Wholesale and online revenues are recognized when products are delivered

and title passes to the customer or to wholesale distributors.

When customers pick up products at the Company’s warehouse or when

products are delivered to wholesale distributors, title transfers and revenue is recognized at that time.

Wholesale and online revenues

represent approximately 1.4% of the Company’s total revenue.

Income – Reborn Logistics

Service income is primarily derived

from Reborn Logistics’ freight forwarding and logistics services.

The Company recognizes service revenue when shipment transactions

are delivered.

Each shipment transaction or service order generally represents a separate contract with a customer.

A performance obligation

is established once a customer agreement with an agreed-upon transaction price exists.

The transaction price is typically fixed and is

not contingent upon the occurrence or non-occurrence of future events, and payment is generally due within 45 to 60 days from the invoice

The Company’s transportation arrangements

involve organizing the movement of freight to a customer’s destination.

Transportation services, including certain ancillary services

such as loading and unloading, freight insurance, and customs clearance, represent a single performance obligation, as these services

are not distinct in the context of the contract.

This performance obligation is satisfied and revenue is recognized as control of the

services transfers to the customer during the transit period, as the customer’s goods move from origin to destination.

The Company evaluates whether it controls the transportation services

provided to determine whether it is acting as a principal or an agent.

The Company has determined that it acts as the principal in its

transportation service arrangements, as it controls pricing, manages all aspects of the shipment process, and assumes the risks associated

with delivery and collection.

Accordingly, service income is presented on a gross basis in the consolidated statements of operations.

Service income represents approximately 11.5% of the Company’s total revenue.

The Company has entered into license agreements that allow licensees

to operate and market Reborn Coffee branded stores and products under the Reborn Coffee trademarks.

Under these agreements, the Company

provides ongoing services, including training, marketing support, system updates, and other operational assistance.

As the Company is

required to provide these ongoing services, license revenue is recognized over the term of the license agreement.

License agreements typically

have initial terms of three years and may be renewed for additional periods.

License income represents approximately 13.6% of the Company’s

total revenue.

Product, Food and Drink Costs – Stores,

Wholesales and Online

Product, food and drink costs – stores and

cost of sales – wholesale and online primarily include the costs of ingredients of food and beverage sold and related supplies used

in customer service.

The wholesale and online sales also include costs of packaging and shipping.

Cost of service income – subcontractors

(Reborn Logistics)

Cost of service income – subcontractors

mainly represent the cost of independence contractors and third-party carriers in the performance of its freight forward and transportation

General and Administrative Expense

General and administrative expenses include store-related

expenses as well as our corporate headquarters’ expenses.

General and administrative expense includes store-related

expense as well as the Company’s corporate headquarters’ expenses.

These include rent and utilities, payroll and benefits,

and depreciation expenses.

Reverse Stock Split

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Wholesale and online

Service income

License income

Total net revenues

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Product, food and drink costs - stores

Cost of sales—wholesale and online

Cost of service income - subcontractors

General and administrative

Professional fees

Stock compensation expense

Total operating costs and expenses

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Other income (expense):

Other income (expense)

Interest expense including amortization of debt discount

Interest expense - debt discount

Gain on sale of property

Loss on debt extinguishment

Derivative expense

Asset impairment loss

Loss on the sale of building

Interest expense

Total other expense, net

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$ (4,805,948 )

Net Revenues – Revenues were

approximately $5.9 million for the year ended December 31, 2024, compared to $5.5 million for the year ended December 31, 2023, representing

an increase of approximately $0.4 million, or 7.6%.

The increase in sales for the periods was primarily driven by the opening of new locations,

and to the continued focus on marketing efforts to grow brand recognition.

$ (4,201,143 )

Net Revenues – Revenues were approximately $8.1 million for the year ended December

31, 2025, compared to $5.9 million for the year ended December 31, 2024, representing an increase of approximately $2.1 million, or 36.5%.

The increase in sales for the period was primarily driven by new stream of service income from Reborn logistics and the license income

along with the continued focus on marketing efforts to grow brand recognition.

Product, Food and Drink Costs (stores)

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for the comparable period in 2024, representing an increase of approximately $0.2 million, or 7.8%.

The increase in costs was partially

driven by the opening of new locations and the overall increase in sales for the period.

The increase in costs was mainly driven

by the increase of product costs and the overall increase in sales for the period.

Costs of Service Income –

Subcontractors – Costs of service income were approximately $0.7 million for the year

ended December 31, 2025.

The costs of service income – subcontractors were mainly representing the cost of independence contractors

and third-party carriers in the performance of its freight forward and transportation services.

General and Administrative Expenses –

– General and administrative expenses were approximately $8.3 million for the year ended December 31, 2024 compared to $8.2

million for the comparable period in the prior year, representing an increase of approximately $0.1 million, or 1.2%.

The increase was

mainly caused by increased occupancy expenses and labor costs with opening of new locations.

Other Income (Expense) – Other

income or expense primarily includes interest expense.

Interest expense was $0.2 million for the year ended December 31, 2024 compared

to $0.1 million for the year ended December 31, 2023, an increase of $0.1 million.

The increase was primarily due to increase in high

interest rate for the monies borrowed during 2024.

General and administrative expenses were approximately $7.8 million for the year ended December 31, 2025 compared to $6.9 million

for the comparable period in the prior year, representing an increase of approximately $0.9 million, or 13.0%.

The increase was mainly

caused by increased occupancy expenses and labor costs from the store locations.

Professional Fees – Professional fees were approximately $1.6 million for the year ended

December 31, 2025 compared to $0.7 million for the comparable period in the prior year, representing an increase of approximately $0.9

million, or 134.5%.

The increase was primarily related to legal and accounting services during 2025 in connection with the convertible

debts and other related equity activities.

Stock Compensation Expenses –

Stock compensation expenses were approximately $1.5 million for the year ended December 31, 2025 compared to $0.8 million for the

comparable period in the prior year, representing an increase of approximately $0.7 million, or 88.6%.

The increase was mainly driven

by increased activities during 2025.

Other Expense – Other expense

primarily includes debt discount, derivative expenses, gain on debt extinguishment and asset impairment loss.

Other expense was $3.1

million for the year ended December 31, 2025 compared to $0.2 million for the year ended December 31, 2024, an increase of $2.9 million

The increase was contributed by $1.1 million of debt discounts expense from the convertible debt, $0.7 million of loss on

debt extinguishment, $1.6 million of asset impairment loss, offset by other income of $0.3 million.

Liquidity and Capital Resources

We have a history of operating losses and negative

cash flow in operating activities.

We have incurred recurring net losses, including net losses from operations before income taxes of

$4.8 million and $4.7 million for the years ended December 31, 2024 and 2023, respectively.

We used $3.5 million and $3.2 million cash

for operating activities during the years ended December 31, 2024 and 2023, respectively.

These factors raise substantial doubt as to

our ability to continue as a going concern, and our independent registered public accounting firm has included a going concern explanatory

paragraph in our audit report for 2024.

We have a history of operating losses and negative cash flow in operating

We have incurred recurring net losses, including net losses from operations before income taxes of $8.9 million and $4.8 million

for the years ended December 31, 2025 and 2024, respectively.

We used $6.5 million and $3.5 million cash for operating activities during

the years ended December 31, 2025 and 2024, respectively.

These factors raise substantial doubt as to our ability to continue as a going

concern, and our independent registered public accounting firm has included a going concern explanatory paragraph in our audit report

On February 6, 2025, we entered into a Debenture Purchase Agreement

with the purchasers named therein (the “Debenture Investors”).

Under the Debenture Purchase Agreement, we agreed to issue

10% original issue discount secured convertible debentures (“Debentures”) in a principal amount of up to $10,000,000, divided

into up to four separate tranches that are each subject to certain closing conditions (the “Debenture Transaction”).

The conversion

price per share of each Debenture, subject to adjustment as provided therein, is equal to 92.5% of the lowest daily VWAP (as defined in

the Debentures) of our shares of common stock during the five trading day period ending on the trading day immediately prior to delivery

or deemed delivery of the applicable Conversion Notice (as defined in the Debentures).

The Debentures accrue interest at a rate of 10%

per annum paid in kind, unless there is an event of default in which case the Debentures will accrue interest at a default rate.

Upon the consummation of the closing of each tranche, we also agreed

to issue common stock purchase warrants (the “Debenture Warrants”) to each Debenture Investor who participates in such closing.

The Debenture Warrants will:

(i) provide for the purchase by the applicable Debenture Investor of a number of shares of common stock equal

to 20% of the total principal amount of the related Debenture purchased by the Debenture Investor on the applicable closing date divided

by 92.5% of the lowest daily VWAP of common stock for the five consecutive trading day period ended on the last trading day immediately

preceding such closing date and (ii) be exercisable at an exercise price equal to 92.5% of the average of the lowest daily VWAP of the

common stock over the consecutive trading days immediately preceding the delivery of the applicable Notice of Exercise (as defined in

the Debenture Warrants).

As of the date of this Report, we have conducted four closings pursuant

to the Debenture Purchase Agreement and sold Debentures in the aggregate principal amount of $ $4,166,665 for a purchase price of $3,750,000,

representing an original issue discount of ten percent (10%).

We also issued to the Debenture Investors 1,041,667 Debenture Warrants in

connection with the closings.

In addition, on March 31, 2026, we issued an additional 250,000 common stock purchase warrants to the Debenture

Investor, which have an exercise price of $2.00 per share, in exchange for waiver and forbearance of certain terms under the Debentures,

the details of which are set forth on Forms 8-K filed by the Company on April 6, 2026 and April 21, 2026.

In addition, we entered into an ELOC Purchase Agreement with Arena

whereby, we may, subject to various terms and conditions, including, without limitation that we maintain an effective registration statement

covering shares issuable pursuant to the ELOC Agreement, at our discretion, direct Arena to purchase up to $50.0 million of shares of

our common stock under the ELOC Agreement from time-to-time.

The purchase price per share for the shares of common stock that we may elect

to sell to Arena under the ELOC Agreement will fluctuate based on the market prices of our common stock for each purchase made pursuant

to the ELOC Agreement, if any.

Accordingly, it is not currently possible to predict the number of shares that will be sold to Arena, the

actual purchase price per share to be paid by Arena for those shares, if any, or the actual gross proceeds to be raised in connection

with those sales.

As of the date hereof, we have not drawn down on the ELOC Purchase Agreement.

The extent to which we rely on Arena and/or the

Debenture Investors as a source of funding will depend on a number of factors including, the prevailing market price of our common stock

and the extent to which we are able to secure working and other capital from other sources.

If obtaining sufficient funding from ELOC

Agreement were to prove unavailable or prohibitively dilutive, we may need to secure another source of funding in order to satisfy our

working and other capital needs.

Even if we were to sell to Arena all of the shares of common stock available for sale to Arena under

the ELOC Agreement and conduct the remaining closings pursuant to the Debenture Purchase Agreement, we may still need additional capital

to fully implement our business, operating and development plans.

Should the financing we require to sustain our working capital needs

be unavailable or prohibitively expensive when we require it, the consequences may be a material adverse effect on our business, operating

results, financial condition and prospects.

Our cash needs will depend on numerous factors,

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We expect to devote substantial capital resources to, among other things, fund operations and continue development

To support our existing and planned business model,

we need to raise additional capital to fund our future operations.

We have not experienced any difficulty in raising funds through loans,

and have not experienced any liquidity problems in settling payables in the normal course of business and repaying loans when they fall

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 financing is anticipated

to fund our operations in near future.

However, other than the ELOC Agreement and the Arena Debenture Transaction, there are no current

agreements or understandings with regard to the form, time or amount of such financing and there is no assurance that any of this financing

can be obtained or that we can continue as a going concern.

To support our existing and planned business model, we need to raise

additional capital to fund our future operations.

We have not experienced any difficulty in raising funds through loans and have not experienced

any liquidity problems in settling payables in the normal course of business and repaying loans when they fall due.

Successful renewal

of our loans, however, is subject to numerous risks and uncertainties.

In addition, the increasingly competitive industry conditions under

which we operate may negatively impact on our results of operations and cash flows.

Additional financing is anticipated to fund our operations

in near future.

However, other than the ELOC Agreement and the Arena Debenture Transaction, there are no current agreements or understandings

with regard to the form, time or amount of such financing and there is no assurance that any of these financing can be obtained or that

we can continue as a going concern.

Years Ended December 31,

Statement of Cash Flow Data:

Net cash used in operating activities

Net cash provided by (used in) investing activities

Net cash used in investing activities

Net cash provided by financing activities

Cash Flows Used in Operating Activities

Net cash used in operating activities during the year ended December

31, 2025 was approximately $6.5 million, which mainly resulted from net loss of $9.1 million, non-cash charges of $1.5 million for stock

compensation, $0.4 million for depreciation, $1.1 million debt discount expense, $1.6 million asset impairment loss and net cash inflows

of $2.5 million from changes in operating assets and liabilities.

Net cash used in operating activities during the

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for stock compensation, and $0.4 million for depreciation, and net cash inflows of $0.2 million from changes in operating assets and liabilities.

Net cash used in operating activities during the

year ended December 31, 2023 was approximately $3.2 million, which resulted from net loss of $4.7 million, non-cash charges of $0.3 million

for stock compensation, $0.3 million for operating lease and $0.3 million for depreciation, and net cash inflows of $0.7 million from

changes in operating assets and liabilities.

Cash Flows Used in Investing Activities

Net cash used in investing activities for the

years ended December 31, 2024 and 2023 was $1.0 million and $2.4 million, respectively.

These expenditures in each period are primarily

related to purchases of property and equipment in connection with current and future location openings and maintaining our existing locations.

year ended December 31, 2025 was $3.0 million, which primarily resulted from $2.0 million of loan receivables from related party and $1.0

million of long-term prepayment.

Net cash used in investing activities for the year ended December 31,

2024 was $1.0 million.

The expenditure is primarily related to purchases of property and equipment in connection with current and future

location openings and maintaining our existing locations.

Cash Flows Provided by Financing Activities

Net cash provided by financing activities during

the year ended December 31, 2024 was $4.4 million, which was primarily due to proceeds from issuances of common stock and off-set by repayments

of loans payable.

Net cash provided by financing activities during the year ended December 31, 2023 was $2.7 million, which was primarily

from proceeds from the credit line and loans.

Net cash provided by financing activities during the year ended December

31, 2025 was $11.9 million, which was primarily due to proceeds from issuance of common stock, gain on debt settlement and issuance of

convertible debt.

Net cash provided by financing activities during the year ended December

31, 2024 was $4.4 million, which was primarily due to proceeds from issuances of common stock and off-set by repayments of loans payable.

Credit Facilities

Economic Injury Disaster Loan

On May 16, 2020, we executed the EIDL Loan from

the SBA under its EIDL assistance program in light of the impact of the COVID-19 pandemic on our business.

As of December 31, 2024, the

loan payable, EIDL Loan noted above is not in default.

On May 16, 2020, we executed the EIDL Loan from the SBA under its EIDL

assistance program in light of the impact of the COVID-19 pandemic on our business.

As of December 31, 2025, the loan payable, EIDL Loan

noted above is not in default.

Pursuant to the SBA Loan Agreement, we borrowed

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The balance of principal and interest is payable thirty years from the date of the SBA Loan.

In connection therewith, we also received

In connection with this, we also received

a $10,000 grant, which does not have to be repaid.

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Paycheck Protection Program Loan

In May 2020, we secured a loan under the PPP administered

by the SBA in the amount of $115,000.

In May 2020, we secured a loan under the PPP

administered by the SBA in the amount of $115,000.

In February 2021, we secured a second loan under this program in the amount of approximately

The interest rate of the loan is 1.00% per annum and accrues on the unpaid principal balance computed on the basis of the actual number

of days elapsed in a year of 360 days.

Commencing seven months after the effective date of each PPP Loan, we are required to pay the Lender

equal monthly payments of principal and interest as required to fully amortize any unforgiven principal balance of the loan by the two-year

anniversary of the effective date of the loan.

The PPP Loan contains customary events of default relating to, among other things, payment

defaults, making materially false or misleading representations to the SBA or the Lender, or breaching the terms of the PPP Loan.

occurrence of an event of default may result in the repayment of all amounts outstanding under the PPP Loan, collection of all amounts

we owe, or filing suit and obtaining judgment against us.

Under the terms of the CARES Act, PPP loan recipients can apply for and be granted

forgiveness for all or a portion of the loan granted under the PPP.

Such forgiveness will be determined, subject to limitations, based

on the use of loan proceeds for payment of payroll costs and any payments of mortgage interest, rent, and utilities.

Recent modifications

to the PPP by the U.S.

Treasury and Congress have extended the time period for loan forgiveness beyond the original eight-week period,

making it possible for us to apply for forgiveness of our PPP loan.

The Company was granted forgiveness for the initial PPP Loan prior

to December 31, 2021.

The interest rate of the loan is 1.00% per annum and accrues on the unpaid principal balance computed on the basis of the actual

number of days elapsed in a year of 360 days.

Commencing seven months after the effective date of each PPP Loan, we are required to pay

the Lender equal monthly payments of principal and interest as required to fully amortize any unforgiven principal balance of the loan

by the two-year anniversary of the effective date of the loan.

The PPP Loan contains customary events of default relating to, among other

things, payment defaults, making materially false or misleading representations to the SBA or the Lender, or breaching the terms of the

The occurrence of an event of default may result in the repayment of all amounts outstanding under the PPP Loan, collection

of all amounts we owe, or filing suit and obtaining judgment against us.

Under the terms of the CARES Act, PPP loan recipients can apply

for and be granted forgiveness for all or a portion of the loan granted under the PPP.

Such forgiveness will be determined, subject to

limitations, based on the use of loan proceeds for payment of payroll costs and any payments of mortgage interest, rent, and utilities.

Recent modifications to the PPP by the U.S.

Treasury and Congress have extended the time period for loan forgiveness beyond the original

eight-week period, making it possible for us to apply for forgiveness of our PPP loan.

The Company was granted forgiveness for the initial

PPP Loan prior to December 31, 2021.

Operating Leases

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We file income tax returns in the U.S.

federal and California state jurisdictions.

We also file income tax returns in South Korea and

Malaysia related to our subsidiaries located in those countries.

and California state jurisdictions.

We also file income tax returns in South Korea and Malaysia related to our subsidiaries located in

those countries.

Income taxes in South Korea and Malaysia is not material.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis