UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2026
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-41479
REBORN COFFEE, INC.
(Exact name of Registrant as specified in its charter)
580 N. Berry Street, Brea, CA 92821
(714) 784-6369
(Address, including zip code, and telephone number, including
area code, of Registrant’s principal executive offices)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
The registrant has 8,620,122 shares of common stock outstanding as of September 14, 2026.
TABLE OF CONTENTS
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NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) that are based on our management’s beliefs and assumptions and on information currently available to management, and which statements involve substantial risk and uncertainties. All statements contained in this Quarterly Report on Form 10-Q other than statements of historical fact, including statements regarding our future operating results and financial position, our business strategy and plans, market growth and trends, and trends, and objectives for future operations are forward-looking statements. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential,” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions.
These risks and uncertainties include, among other things, risks related to global macro-economic conditions, including the effects of inflation, rising interest rates and market volatility on the global economy; our ability to estimate the size of our total addressable market, and the development of the market for our products, which is evolving; our ability to effectively sustain and manage our growth and future expenses, achieve and maintain future profitability, attract new customers and maintain and expand our existing customer base; our ability to scale and update our business to respond to customers’ needs and rapid technological change; the effects of increased competition in our market and our ability to compete effectively; our ability to expand use cases within existing customers and vertical solutions; our ability to expand our operations and increase adoption of our products internationally; our ability to strengthen and foster our relationships with third party service providers; our ability to expand our direct sales force, customer success team and strategic partnerships around the world; the impact of any data breaches, cyberattacks or other malicious activity on our technology systems; our ability to identify targets for and execute potential acquisitions; our ability to successfully integrate the operations of businesses we may acquire, and to realize the anticipated benefits of such acquisitions; our ability to maintain, protect and enhance our brand; the sufficiency of our cash, cash equivalents and capital resources to satisfy our liquidity needs; limitations on us due to obligations we have under our credit facility or other indebtedness; our failure or the failure of our products to comply with applicable industry standards, laws and regulations; our ability to maintain, protect and enhance our intellectual property; our ability to successfully defend litigation against us; our ability to maintain our corporate culture; our ability to offer high-quality customer support; our ability to hire, retain and motivate qualified personnel, including executive level management; our ability to successfully manage and integrate executive management transitions; our ability to estimate the size and potential growth of our target market; uncertainties regarding the impact of general economic and market conditions, including as a result of regional and global conflicts or related government sanctions; our ability to successfully implement and maintain new and existing information technology systems; and our ability to maintain proper and effective internal controls.
You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations, and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, and other factors described in the section titled “Risk Factors” and found in our Annual Report on Form 10-K filed for the year ended December 31, 2025. We undertake no obligation to update any forward-looking statements after the date of this Quarterly Report on Form 10-Q or to conform such statements to actual results or revised expectations, except as required by law.
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PART I—FINANCIAL INFORMATION
Item 1. Unaudited Condensed Consolidated Financial Statements.
Reborn Coffee, Inc. and Subsidiaries
Unaudited Condensed Consolidated Balance Sheets
See accompanying notes to unaudited condensed consolidated financial statements.
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Unaudited Condensed Consolidated Statements of Operations
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Unaudited Condensed Consolidated Stockholders’ Equity (Deficit)
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Unaudited Consolidated Statements of Cash Flows
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REBORN COFFEE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
Reborn Coffee, Inc. (“Reborn”) was incorporated in the State of Florida in January 2018. In July 2022, Reborn was migrated from Florida to Delaware, and filed a certificate of incorporation with the Secretary of State of the State of Delaware having the same capitalization structure as the Florida predecessor entity. Reborn has the following subsidiaries:
Reborn Coffee, Inc., Reborn Global Holdings, Inc., Reborn Coffee Franchise, LLC, Reborn Realty, LLC, Reborn Korea, Reborn Malaysia and Reborn Logistics will be collectively referred as the “Company.”
Going Concern Matters
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates, among other things, the realization of assets and satisfaction of liabilities in the normal course of business. The Company had an accumulated deficit of $35.1 million as of June 30, 2026 and a net loss before income taxes of $4.0 million during the six months ended June 30, 2026. These matters raise substantial doubt about the Company’s ability to continue as a going concern.
To support its existing and planned business model and to fund its future operations, the Company has taken several steps to strengthen its liquidity and capital resources. The Company previously entered into a Securities Subscription Agreement providing for aggregate proceeds of approximately $6.5 million, which was funded in multiple tranches. In addition, on April 15, 2026, the Company entered into an Amended and Restated Forbearance Agreement with the Arena Investors that amended the repayment terms of the Company’s outstanding convertible debentures and provided forbearance from specified rights and remedies, subject to the Company’s compliance with the terms of the agreement.
Further, on April 29, 2026, the Company entered into a Securities Purchase Agreement pursuant to which the Company agreed to issue and sell shares of common stock in a private placement for aggregate gross proceeds of up to $21.0 million, subject to the satisfaction of specified closing conditions. The Company intends to use the proceeds from the financing, together with cash generated from operations and other available financing sources, to fund working capital, operations and its planned business initiatives.
Although management believes that these financing arrangements and its plans to improve operating performance will provide additional liquidity, the Company continues to have significant capital requirements and recurring losses. The Company cannot provide assurance that the contemplated financing transactions will be completed on the expected terms or that sufficient additional financing will be available when needed. Accordingly, substantial doubt about the Company’s ability to continue as a going concern remains.
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Unaudited Interim Financial Statements
The accompanying interim unaudited condensed consolidated financial statements (“Interim Financial Statements”) of the Company and its 100%-owned subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and are presented in accordance with the requirements of Form 10-Q and Regulation S-X. Accordingly, these Interim Financial Statements do not include all of the information and notes required by GAAP for complete financial statements. These Interim Financial Statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2025 included in the Company’s Form 10-K. In the opinion of management, the Interim Financial Statements included herein contain all adjustments, including normal recurring adjustments, considered necessary to present fairly the Company’s financial position, the results of operations and cash flows for the periods presented.
The operating results and cash flows of the interim periods presented herein are not necessarily indicative of the results to be expected for any other interim period or the full year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Reporting
The unaudited condensed consolidated financial statements include Reborn Coffee, Inc. and its subsidiaries as of June 30, 2026 and December 31, 2025 and for the three and six months ended June 30, 2026 and 2025.
Basis of Presentation and Consolidation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with GAAP. The consolidated financial statements include Reborn Coffee, Inc. and its subsidiary. All intercompany accounts, transactions, and profits have been eliminated upon consolidation.
Minority Interest
The Company consolidates Reborn Logistics, which is majority-owned subsidiary (51% own) and presents the portion of equity and earnings attributable to the non-controlling interest separately in the unaudited condensed consolidated financial statements. As of June 30, 2026, non-controlling interest was $368,975. For the six months ended June 30, 2026, net income attributable to non-controlling interest was $234,826.
Segment Reporting
FASB ASC Topic 280, Segment Reporting, requires public companies to report financial and descriptive information about their reportable operating segments. Operating segments are identified based on the manner in which the Company’s chief operating decision maker (“CODM”) evaluates financial information, business activities, and performance results.
Management has identified two reportable operating segments: (i) Reborn Coffee, which includes both wholesale and retail sales of coffee, water, and other beverages, and (ii) Reborn Logistics, which provides freight forwarding services.
The Company’s CODM is its Chief Executive Officer. CODM evaluates segment performance primarily based on revenues, income from operations, and other income (expense). Assets by segment are not reviewed by the CODM in assessing segment performance and, accordingly, are not disclosed.
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The following table presents a summary of operating performance by reportable segment for the periods indicated:
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and the accompanying notes. Such estimates include accounts receivables, accrued liabilities, income taxes, long-lived assets, and deferred tax valuation allowances. These estimates generally involve complex issues and require management to make judgments, involve analysis of historical and future trends that can require extended periods of time to resolve, and are subject to change from period to period. In all cases, actual results could differ materially from estimates.
Revenue Recognition
The Company recognizes revenue in accordance with 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 at the point of sale when payment is tendered. Retail store revenues are reported net of sales, use, or other transaction taxes collected from customers and remitted to taxing authorities. Sales taxes payable are recorded as accrued liabilities within other current liabilities.
Wholesale and Online Revenue
Wholesale and online revenues are recognized when products are delivered and title passes to the customer or to wholesale distributors. When customers pick up products at the Company’s warehouse or when products are delivered to wholesale distributors, title transfers and revenue is recognized at that time.
Service Income – Reborn Logistics – Related Party
Service income is primarily derived from Reborn Logistics’ freight forwarding and logistics services. The Company recognizes service revenue when shipment transactions are delivered. Each shipment transaction or service order generally represents a separate contract with a customer. A performance obligation is established once a customer agreement with an agreed-upon transaction price exists. The transaction price is typically fixed and is not contingent upon the occurrence or non-occurrence of future events, and payment is generally due within 45 to 60 days from the invoice date. Service income represents related-party revenue from logistics services provided to TJ American, which owns a 49% interest in Reborn Logistics. For six months ended June 30, 2026, substantially all logistics revenue of $7.9 million was generated by TJ America.
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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 upon delivery, as the customer’s goods move from origin to destination.
The Company evaluates whether it controls the specified transportation service before that service is transferred to the customer 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 because it is primarily responsible for fulfilling the customer contract and ensuring that the specified transportation service is completed in accordance with the agreed-upon terms. The Company enters into agreements directly with customers, establishes the price charged to customers, and has discretion in selecting and contracting with third-party carriers and negotiating the amounts paid to those carriers. The Company also assumes the risks associated with delivery and collection. These factors indicate that the Company obtains control of the specified transportation service before it is transferred to the customer. Accordingly, service income is presented on a gross basis in the consolidated statements of operations, with amounts paid to third-party carriers recognized as cost of service income.
The Company has entered into license agreements that allow licensees to operate and market Reborn Coffee branded stores and products under the Reborn Coffee trademarks. Under these agreements, the Company provides ongoing services, including training, marketing support, system updates, and other operational assistance. As the Company is required to provide these ongoing services, license revenue is recognized over the term of the license agreement. License agreements typically have initial terms of three years and may be renewed for additional periods. License income represents related-party revenue from certain board members.
Accounts receivable related to license revenue totaled $1,205,000. Since the related accounts receivable had not been collected for more than one year, the Company ceased recognizing license revenue beginning in the second quarter of 2026 and recorded an allowance for doubtful accounts for the total outstanding balance of $682,500. Of the gross receivable, $255,000 arose from a transaction with a member of the Company’s board of directors and, accordingly, represents a related-party transaction.
Product, Food and Drink Costs – Stores, Wholesales and Online
Product, food and drink costs – stores, wholesale and online primarily include the costs of ingredients of food and beverage sold and related supplies used in customer service. The wholesale and online sales also include costs of packaging and shipping.
Cost of service income – Subcontractors
Cost of service income – subcontractors mainly represent the cost of independence contractors and third-party carriers in the performance of its freight forward and transportation services.
Shipping and Handling Costs
The Company incurred freight out costs, which are primarily included in the Company’s cost of sales – wholesale and online. Freight in costs, when attached to a specific purchase, are included as a component of the cost of the purchased goods and materials items and allocated to accounts in accordance with the nature of the goods. When the freight in costs are not allocable to an individual purchase or are more significant, they are recorded to a freight and shipping account within cost of sales.
General and Administrative Expense
General and administrative expenses include store-related expenses as well as the Company’s corporate headquarters’ expenses.
Accounts Receivable, Net
Accounts receivables are stated net of allowance for doubtful accounts. The allowance for doubtful accounts is determined primarily on the basis of past collection experience and general economic conditions. The Company determines terms and conditions for its customers based on volume transacted by the customer, customer creditworthiness and past transaction history. As of June 30, 2026 and December 31, 2025, the allowance for doubtful accounts was $511,719 and $75,689, respectively. The allowance as of June 30, 2026 primarily related to a receivable arising from license income. 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.
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Property and Equipment
Property and equipment are recorded at cost. Maintenance and repairs are charged to expense as incurred. Depreciation and amortization are provided using both the straight-line and declining balance methods over the following estimated useful lives:
When assets are retired or disposed of, the cost and accumulated depreciation thereon are removed, and any resulting gains or losses are included in the consolidated statements of operations. Leasehold improvements are amortized using the straight-line method over the estimated life of the asset, not to exceed the length of the lease. Repair and maintenance costs are expensed as incurred.
Operating Leases
The Company accounts for its leases under ASC Topic 842, Leases. The Company determines if an arrangement is or contains a lease at inception. The Company’s operating leases with a term greater than one year are included in operating lease right-of-use (“ROU”) assets, operating lease liabilities, current and operating lease liabilities, net of current in the unaudited condensed consolidated balance sheets. ROU assets represent the Company’s right to use an underlying asset during the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the lease commencement date, based on the present value of lease payments over the lease term. In determining the net present value of lease payments, the Company uses its incremental borrowing rate which represents an estimated rate of interest that the Company would have to pay to borrow equivalent funds on a collateralized basis at the lease commencement date. Operating lease expense is recognized on a straight-line basis over the expected lease term.
Earnings Per Share
FASB ASC Topic 260, Earnings Per Share, requires a reconciliation of the numerator and denominator of the basic and diluted earnings (loss) per share 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 had potentially dilutive securities, including convertible debentures and warrants, outstanding during the six months ended June 30, 2026 and 2025. Because the Company incurred a net loss for the periods presented, the effect of these securities would have been anti-dilutive and, accordingly, they were excluded from the computation of diluted net loss per share. As a result, basic and diluted net losses per share were the same for the periods presented.
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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 June 30, 2026 and December 31, 2025, the Company was not aware of any events or changes in circumstances that would indicate that the long-lived assets are impaired.
Fair Value of Financial Instruments
The Company records its financial assets and liabilities at fair value, which is defined under the applicable accounting standards as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measure date. The Company uses valuation techniques to measure fair value, maximizing the use of observable outputs and minimizing the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of input, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following:
Level 1 – Quoted prices in active markets for identical assets or liabilities.
Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 – Inputs include management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. The inputs are unobservable in the market and significant to the instrument’s valuation.
The carrying value of financial assets and liabilities recorded at fair value is measured on a recurring basis. Financial assets and liabilities measured on a non-recurring basis are those that are adjusted to fair value when a significant event occurs. There were no financial assets or liabilities carried and measured on a nonrecurring basis during the reporting periods. Financial assets and liabilities measured on a recurring basis are those that are adjusted to fair value each time a financial statement is prepared. There have been no transfers between levels.
As of June 30, 2026 and December 31, 2025, the Company believes that the carrying value of accounts receivable, accounts payable, accrued expenses, and other current assets and liabilities approximate fair value due to the short maturity of these financial instruments. The Company had a derivative liability with a fair value of approximately $1.1 million that was measured on a recurring basis and classified within Level 3 of the fair value hierarchy. See Note 11 for additional information. The financial statements include financial instruments at fair value on a recurring or non-recurring basis.
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Income Taxes
Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due and deferred taxes. Deferred taxes are recognized for the differences between the basis of assets and liabilities for financial statement and income tax purposes.
The Company follows FASB ASC Topic 740, Income Taxes, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates, applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. ASC 740-10-25 provides criteria for the recognition, measurement, presentation and disclosure of uncertain tax position. The Company must recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position.
We estimate our annual effective income tax rate to be -7.08% for calendar 2026, which is different from the U.S. federal statutory rate, primarily due to its full valuation position and dual rate approach. The Company recorded $160,016 of tax expense as of June 30, 2026. As of June 30, 2026, we have no material unrecognized tax benefits, and we expect no material unrecognized tax benefits for next 12 months.
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.
Company purchases from various vendors for its operations. For the three and six months ended June 30, 2026 and 2025, no purchases from any vendors accounted for a significant amount of the Company’s bean coffee purchases.
For the six months ended June 30, 2026, revenue from one customer was approximately $7.9 million, representing a significant concentration of the Company’s revenue.
Related Parties
The Company follows ASC Topic 850, Related Party Disclosures, for the identification of related parties and disclosure of related party transactions. Related parties are any entities or individuals that, through employment, ownership, or other means, possess the ability to direct or cause the direction of management and policies of the Company.
As of June 30, 2026 and December 31, 2025, the Company has $3,759,156 and $2,000,000 of related party loan receivable which is non-interest bearing and payable upon demand.
The following table presents the Company’s related parties and the nature of their relationships:
Recent Accounting Pronouncement
The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and does not believe the future adoption of any such pronouncements may be expected to cause a material impact on our financial statements.
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3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
Depreciation expense on property and equipment amounted to approximately $209,492 and $144,341 for the six months ended June 30, 2026 and 2025, respectively, and $105,461 and $83,333 for the three-month periods ended June 30, 2026 and 2025, respectively.
4. LOANS PAYABLE TO FINANCIAL INSTITUTIONS
Loans payable to financial institutions consisted of the following:
5. LOAN PAYABLE TO OTHER
Loans payable to others consisted of the following:
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6. LOAN PAYABLE TO SHAREHOLDER
Loans payable to shareholders consisted of the following:
Borrowing from a shareholder, bearing no interest and due upon demand.
7. LOAN PAYABLE TO RELATED PARTY
Loans payable to related parties consisted of the following:
8. LOAN PAYABLE, ECONOMIC INJURY DISASTER LOAN (EIDL)
Loans payable, Economic Injury Disaster Loan (EIDL) consisted of the following:
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The following table provides future minimum payments:
May 16, 2020 – $150,000
On May 16, 2020, the Company executed the standard loan documents required for securing a loan from the U.S. Small Business Administration (“SBA”) under its Economic Injury Disaster Loan (“EIDL”) assistance program in light of the impact of the COVID-19 pandemic on the Company’s business. As of June 30, 2026, the loan payable, EIDL noted above is not in default.
Pursuant to that certain Loan Authorization and Agreement (the “SBA Loan Agreement”), the Company borrowed an aggregate principal amount of the EIDL Loan of $150,000, with proceeds to be used for working capital purposes. Interest accrues at the rate of 3.75% per annum and will accrue only on funds actually advanced from the date of each advance. Installment payments, including principal and interest, are due monthly beginning May 16, 2021 (12 months from the date of the SBA Loan) in the amount of $731. The balance of principal and interest is payable 30 years from the date of the SBA Loan. In connection with this, 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 EIDL grant income in the Statements of Operations. The schedule of payments on this loan was later deferred to commence 24 months from the date of loan, which was May 2022.
In connection therewith, the Company executed (i) a loan for the benefit of the SBA (the “SBA Loan”), which contains customary events of default and (ii) a Security Agreement, granting the SBA a security interest in all tangible and intangible personal property of the Company, which also contains customary events of default (the “SBA Security Agreement”).
June 28, 2021 – $350,000
On June 28, 2021, the Company executed the standard loan documents required for securing a second loan (the “Second EIDL”) from the SBA under its EIDL assistance program in light of the impact of the COVID-19 pandemic on the Company’s business. As of June 30, 2026, the loan payable, the Second EIDL noted above is not in default.
Pursuant to that certain Amended Loan Authorization and Agreement (the “SBA Loan Agreement”), the Company borrowed an aggregate principal amount of the Second EIDL of $500,000, with proceeds to be used for working capital purposes. Interest accrues at the rate of 3.75% per annum and will accrue only on funds actually advanced from the date of each advance. Installment payments, including principal and interest, are due monthly beginning April 16, 2022 (24 months from the original date of the SBA Loan) in the amount of $2,505. The balance of principal and interest is payable 30 years from the original date of the SBA Loan.
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9. LOAN PAYABLE, PAYROLL PROTECTION LOAN PROGRAM (PPP)
Loans payable, Payroll Protection Loan Program (PPP) consisted of the following:
The Paycheck Protection Program Loan (the “PPP Loan”) is administered by the 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.
10. CONVERTIBLE NOTES PAYABLE NET OF DEBT DISCOUNT
Convertible Notes Payable consisted of the following:
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During the initial recognition company calculated fair value of derivative liability on convertible debt and warrants and recorded the difference as debt discount subject to maximum of notes payable amount. Debt discount will be amortized over the term of the note.
On February 6, 2025, the Company entered into a Securities Purchase Agreement with Arena Special Opportunities (Offshore) Master II, LP and Arena Special Opportunities Partners III, LP (collectively, the “Arena Investors”), pursuant to which the Company issued secured convertible debentures with an aggregate principal amount of $4,166,665. The Debentures accrue interest at 10% per annum, payable in kind, and contain a variable-price conversion feature. The accounting for the embedded conversion feature is described in Note 11.
On April 15, 2026, the Company entered into an Amended and Restated Forbearance Agreement with the Arena Investors, which revised the repayment terms of the Debentures. Under the agreement, the Company was required to make scheduled monthly payments and repay all remaining amounts outstanding by September 30, 2026, subject to earlier repayment or conversion.
The Company evaluated the revised terms under ASC 470-50 and determined that the transaction resulted in an extinguishment of the existing debt and recognition of replacement debt. In connection with the restructuring, the Company also issued warrants to purchase 250,000 shares of common stock.
During the three months ended June 30, 2026, the Company made aggregate cash payments of approximately $1.06 million, of which approximately $0.88 million reduced contractual principal, with the remaining amount primarily representing contractual redemption premiums and other amounts due under the debt agreements.
The Company recognized a loss on debt extinguishment of approximately $619,000 during the three and six months ended June 30, 2026. The replacement debt was initially recorded at fair value, and the resulting debt discount is being amortized over the remaining term using the effective interest method.
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11. DERIVATIVE LIABILITY
The Company accounts for the embedded conversion feature of its Convertible debentures and certain warrants as derivative liabilities. Derivative liabilities are measured at fair value at each reporting date, with changes in fair value recognized in earnings.
Embedded Conversion Derivative
The Arena convertible debentures contain a variable-price conversion feature based on the market price of the Company’s common stock. The Company determined that the conversion feature requires bifurcation from the debt host and separate accounting as a derivative liability under ASC 815.
In April 2026, in connection with the Amended and Restated Forbearance Agreement described in Note 10, the Company accounted for the revised debt terms as an extinguishment of the existing debt and recognition of replacement convertible debt. Immediately prior to extinguishment, the existing conversion derivative was remeasured to fair value of approximately $798,365 and derecognized with the existing debt. The conversion derivative associated with the replacement debt was initially recognized at fair value of approximately $820,171. As of June 30, 2026, the fair value of the embedded conversion derivative was approximately $746,915. The change in fair value from initial recognition of the replacement derivative through June 30, 2026 was recognized in earnings.
Forbearance Warrants
In connection with the April 2026 forbearance arrangements, the Company issued warrants to the Arena Investors to purchase an aggregate of 250,000 shares of common stock at an exercise price of $2.00 per share. Based on the settlement provisions of the warrants, the Company classified the warrant as liabilities.
The warrants had an aggregate initial fair value of approximately $677,250. As of June 30, 2026, the warrant liability had a fair value of approximately $351,000. The decrease in fair value of approximately $326,250 was recognized as a gain in earnings during the three months ended June 30, 2026.
Fair Value Measurement
The Company estimated the fair value of the embedded conversion derivative using a Monte Carlo simulation model and the fair value of the warrant liability using a Black-Scholes-Merton option pricing model. The principal assumptions as of June 30, 2026 were as follows:
The fair value measurements use significant unobservable inputs and are classified within Level 3 of the fair value hierarchy.
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12. COMMITMENTS AND CONTINGENCIES
The Company has the following operating facility leases:
Brea (Corporate office) – On August 12, 2024, the Company entered into an operating facility lease for its corporate office located in Brea, California with term of 36 months at $10,589 per month. The lease started on September 1, 2024 and expires in August 2026.
Brea – On August 16, 2024, the Company entered into an operating lease agreement for its store located at La Floresta Shopping Village in Brea, California, with a term of 60 months and an option to extend. The lease commenced on December 1, 2024 and was initially set to expire on November 30, 2029. The monthly lease payment under the lease agreement is approximately $7,965.
La Crescenta - On May 2017, the Company entered into an operating facility lease for its store located in La Crescenta, California with 120 months term with option to extend. The lease started in May 2017 and expires in May 2027. The Company entered into non-cancellable lease agreement for a coffee shop approximately 1,607 square feet located in La Crescenta, California commencing in May 2017 and expiring in April 2027. The monthly lease payment under the lease agreement is approximately $6,026.
Corona Del Mar - On January 18, 2023, the Company renewed its retail store in Corona Del Mar, California. As part of that lease renewal, the Company renewed the original operating lease with 60 months term with an option to extend. The lease expires in January 2028. The monthly lease payment under the renewed lease agreement is approximately $5,001.
Laguna Woods - On February 12, 2021, the Company entered into an operating facility lease for its store located at Home Depot Center in Laguna Woods, California with a term of 60 months and an option to extend. The lease has been renewed until Jan 2031.
Manhattan Village - On March 1, 2022, the Company entered into an operating facility lease for its store located at Manhattan Beach, California with 60 months term with option to extend. The lease started in March 2022 and expires in February 2027.
Huntington Beach - On October 7, 2022, the Company entered into an operating facility lease for its store located at Huntington Beach, California with a 124-month term with option to extend. The lease started in November 2021 and expires in February 2032.
Riverside - On February 4, 2021, the Company entered into an operating facility lease for its store located at Galleria at Tyler in Riverside, California with a term of 84 months and an option to extend. The lease started in April 2021 and expires in March 2028.
Reborn Logistics – On October 1, 2025, Reborn Logistics entered into a sublease agreement for its location at Buena Park, California with a term of 36 months at a $1,500 per month.
Diamond Bar – On March 20, 2023, the Company entered into an operating facility lease for its store located at Diamond Bar, California which matures on March 31, 2027. The monthly lease payment under the lease agreement is approximately $5,900.
Anaheim - On March 3, 2023, the Company entered into an operating facility lease for its store located at Anaheim, California with 120 months term with option to extend. The lease started in March 2023 and expires in February 2033.
Pasadena – On December 1, 2024, the Company entered into an operating lease agreement for its store located in Pasadena, California. The lease has a term of 120 months (10 years), with an option to extend. The lease commenced on December 1, 2024 and is set to expire in December 2034.
Operating lease right-of-use (“ROU”) assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Generally, the implicit rate of interest in arrangements is not readily determinable and the Company utilizes its incremental borrowing rate in determining the present value of lease payments. The Company’s incremental borrowing rate is a hypothetical rate based on its understanding of what its credit rating would be. The operating lease ROU asset includes any lease payments made and excludes lease incentives. Our variable lease payments primarily consist of maintenance and other operating expenses from our real estate leases. Variable lease payments are excluded from the ROU assets and lease liabilities and are recognized in the period in which the obligation for those payments is incurred. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.
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The Company has lease agreements with lease and non-lease components. The Company has elected to account for these lease and non-lease components as a single lease component.
In accordance with ASC 842, the components of lease expense were as follows:
In accordance with ASC 842, other information related to leases was as follows:
In accordance with ASC 842, maturities of operating lease liabilities as of June 30, 2026 were as follows:
Contingencies
The Company is subject to various legal proceedings from time to time as part of its business. As of June 30, 2026, the Company was not currently party to any legal proceedings or threatened legal proceedings, the adverse outcome of which, individually or in the aggregate, it believes would have a material adverse effect on its business, financial condition, and results of operations.
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13. SHAREHOLDERS’ EQUITY
Common Stock
The Company has authorization to issue and outstanding at any one time 40,000,000 shares of common stock with a par value of $0.0001 per share. The holders of common stock are entitled 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 shares of preferred stock with a par value of $0.0001 per share, in one or more classes or series within a class as may be determined by our board of directors, who establish, from time to time, the number of shares to be included in each class or series, fix the designation, powers, preferences and rights of the shares of each such class or series and any qualifications, limitations or restrictions thereof. Any preferred stock 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 June 30, 2026 and December 31, 2025, no shares of our preferred stock had been designated any rights, and we had no shares of preferred stock issued and outstanding.
Dividend policy
Dividends are paid at the discretion of the Board of Directors. There were no dividends declared for the six months ended June 30, 2026 and 2025.
14. SUBSEQUENT EVENTS
The Company evaluated all events or transactions that occurred after June 30, 2026 up through the date the consolidated financial statements were available to be issued. Based upon the evaluation, except as disclosed below or within the footnotes, the Company did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the consolidated financial statements as of and for the period ended June 30, 2026, except as follows:
On July 14, 2026, the Company renewed the lease for its facility in Brea, California. The renewed lease term begins on September 1, 2026 and expires on August 31, 2027, with monthly lease payments of approximately $11,453. No adjustment to the accompanying condensed consolidated financial statements was required as a result of this event.
On August 10, 2026, the Company entered into an Agricultural Import and Supply Agreement (the “Import and Supply Agreement”) with The Mighty Oak, Inc. (“Mighty Oak”), which established the general terms and conditions under which the Company will import, purchase, store, and supply agricultural products to Mighty Oak, and Mighty Oak will supply such products to major markets and retailers in the United States of America (U.S.) using its vendor codes. The specific terms for transactions, including items, quantities, prices, delivery dates, delivery locations, and payment terms, shall be determined in accepted Purchase Orders (“PO”). The annual supply and import volume under the Import and Supply Agreement is guaranteed at a minimum of $20,000,000, and both parties are obligated to supply and purchase the minimum committed volume. If actual PO amounts fall short of the annual minimum guaranteed amount due to reasonable market conditions, the parties shall, upon mutual written agreement, carry over the shortfall quantity to the following year’s PO volume for adjustment and fulfillment. The Import and Supply Agreement remains in effect for two years from August 10, 2026, and automatically renews for successive one-year terms unless either party provides written notice of non-renewal at least 60 days prior to expiration. During the term of the Agreement and for a period of one year following termination, Mighty Oak is precluded from directly purchasing products covered under the Agreement from the Company’s suppliers without the Company’s prior written consent.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion and analysis of our financial condition and results of operations together with our condensed consolidated financial statements and the related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q and with our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ending December 31, 2025. As discussed in the section titled “Note Regarding Forward-Looking Statements,” the following discussion and analysis contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those identified below and those discussed in the section titled “Risk Factors” in our Annual Report on Form 10-K for the year ending December 31, 2025.
Business
Reborn Coffee, Inc. (“Reborn”) is focused on serving high quality, specialty-roasted coffee at retail locations, kiosks and cafes. We are an innovative company that strives for constant improvement in the coffee experience through exploration of new technology and premier service, guided by traditional brewing techniques. We believe Reborn differentiates itself from other coffee roasters through its innovative techniques, including sourcing, washing, roasting, and brewing our coffee beans with a balance of precision and craft.
Reborn was founded in 2015 with the vision of using the finest pure ingredients and pristine water. We currently serve customers through our retail store locations in California: Brea, La Crescenta, Corona Del Mar, Laguna Woods, Manhattan Beach, Huntington Beach, Riverside, San Francisco, Irvine, Diamond Bar, Anaheim and Pasadena. In addition to the locations in the United States, we have one international location in Malaysia.
Reborn continues to elevate the high-end coffee experience and we received first place traditional still in “America’s Best Cold Brew” competition by Coffee Fest in 2017 in Portland and 2018 in Los Angeles.
The Experience, Reborn
We believe that we are the leading pioneers of the emerging “Fourth Wave” movement and that our business is redefining specialty coffee as an experience that demands much more than premium quality. We consider ourselves leaders of the “fourth wave” coffee movement because we are constantly developing our bean processing methods, researching design concepts, and reinventing new ways of drinking coffee. For instance, the current transition from the K-Cup trend to the pour over drip concept allowed us to reinvent the way people consume coffee, by merging convenience and quality. We took the pour over drip concept and made it available and affordable to the public through our Reborn Coffee Pour Over packs. Our Pour Over Packs allow our consumers to consume our specialty coffee outdoors and on-the-go.
Our success in innovating within the “Fourth Wave” coffee movement is measured by our success in B2B sales with our introduction of Reborn Coffee Pour Over Packs to hotels. With the introduction of our Pour Over Packs to major hotels (including one hotel company with seven locations), our B2B sales increased as these companies recognized the convenience and functionality our Pour Over Packs serve to their customers.
Our continuous Research and Development is essential to developing new parameters in the production of new blends. Our first place position in “America’s Best Cold Brew” competition by Coffee Fest in 2017 in Portland and 2018 in Los Angeles is a testament to the way we believe we lead the “Fourth Wave” movement by example.
Centered around our core values of service, trust, and well-being, we deliver an appreciation of coffee as both a science and an art. Developing innovative processes such as washing green coffee beans with magnetized water, we challenge traditional preparation methods by focusing on the relationship between water chemistry, health, and flavor profile. Leading research studies, testing brewing equipment, and refining roasting/brewing methods to a specific, we proactively distinguish exceptional quality from good quality by starting at the foundation and paying attention to the details. Our mission places an equal emphasis on humanizing the coffee experience, delivering a fresh take on “farm-to-table” by sourcing internationally. In this way, we create opportunities to develop transparency by paying homage to origin stories and spark new conversations by building cross-cultural communities united by a passion for the finest coffee.
Through a broad product offering, Reborn provides customers with a wide variety of beverages and coffee options. As a result, we believe we can capture share of any experience where customers seek to consume great beverages whether in our inviting store atmospheres which are designed for comfort, or on the go through our pour over packs, or at home with our whole bean ground coffee bags. We believe that the retail coffee market in the US is large and growing. According to IBIS, in 2025, the retail market for coffee in the United States is expected to be $74.3 billion. This is expected to grow due to a shift in consumer preferences to premium coffee, including specialized blends, espresso-based beverages, and cold brew options. Reborn aims to capture a growing portion of the market as we expand and increase consumer awareness of our brand.
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Plan of Operation
We have a production and distribution center at our headquarters that we use to process and roast coffee for wholesale and retail distribution.
We have the following ten retail coffee locations as of June 30, 2026:
Critical Accounting Policies and Significant Judgments and Estimates
Revenue
The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers. The Company’s net revenue primarily consists of revenues from its retail locations and wholesale and online stores. Accordingly, the Company recognizes revenue as follows:
Service income is primarily derived from Reborn Logistics’ freight forwarding and logistics services. The Company recognizes service revenue when shipment transactions are delivered. Each shipment transaction or service order generally represents a separate contract with a customer. A performance obligation is established once a customer agreement with an agreed-upon transaction price exists. The transaction price is typically fixed and is not contingent upon the occurrence or non-occurrence of future events, and payment is generally due within 45 to 60 days from the invoice date.
The Company’s transportation arrangements involve organizing the movement of freight to a customer’s destination. Transportation services, including certain ancillary services such as loading and unloading, freight insurance, and customs clearance, represent a single performance obligation, as these services are not distinct in the context of the contract. This performance obligation is satisfied and revenue is recognized as control of the services transfers to the customer during the transit period, as the customer’s goods move from origin to destination.
The Company evaluates whether it controls the transportation services provided to determine whether it is acting as a principal or an agent. The Company has determined that it acts as the principal in its transportation service arrangements, as it controls pricing, manages all aspects of the shipment process, and assumes the risks associated with delivery and collection. Accordingly, service income is presented on a gross basis in the consolidated statements of operations.
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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.
Results of Operations
The following tables present selected comparative results of operations from our unaudited financial statements for the three and six months ended June 30, 2026 compared to three and six months ended June 30, 2025. Our financial results for these periods are not necessarily indicative of the financial results that we will achieve in future periods. Certain totals for the table below may not sum to 100% due to rounding.
Six months ended June 30, 2026 compared to Six months ended June 30, 2025
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Three months ended June 30, 2026 compared to three months ended June 30, 2025
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Revenues. Revenues were approximately $11.5 million for the six-month period ended June 30, 2026, compared to $3.5 million for the comparable period in 2025, representing an increase of approximately $8.0 million, or 226.9%. Revenues were approximately $6.3 million for the three-month period ended June 30, 2026, compared to $1.8 million for the comparable period in 2025, representing an increase of approximately $4.5 million, or 244.6%. The increase in sales for the period was primarily driven by the service income from Logistics and license income.
Product, food and drink costs. Product, food and drink costs were approximately $1.0 million for the six-month period ended June 30, 2026 compared to $1.3 million for the comparable period in the prior year, and were approximately $0.4 million for the three-month period ended June 30, 2026 compared to $0.4 million for the comparable period in the prior year.
Cost of service income – subcontractors. Subcontractor costs were approximately $7.2 million for the six-month period ended June 30, 2026, and were approximately $4.7 million for the three-month period ended June 30, 2026.
Gross margin. Gross margin was approximately $3.4 million for the six-month period ended June 30, 2026, compared to $2.2 million for the comparable period in 2025, representing an increase of approximately $1.2 million, or 53.7%. Gross margin was approximately $1.3 million for the three-month period ended June 30, 2026, compared to $1.4 million for the comparable period in 2025, representing a decrease of approximately $0.2 million, or 11.4%. The decrease in gross margin for the period was primarily driven by the operation of Reborn Logistics.
Operating Costs. General and administrative expenses were approximately $4.8 million for the six-month period ended June 30, 2026 compared to $4.3 million for the comparable period in 2025, representing an increase of approximately $0.5 million which is primarily due to increase in bad debt expenses. Professional fees were $ 0.7 million for the six months ended June 30, 2026 compared to $1.4 million for the comparable period in 2025. Higher amount of professional fees in 2025 was related to the legal and accounting professional fees for various Form S-1 filings last year.
Liquidity and Capital Resources
We have a history of operating losses and negative cash flow in operating activities. We have incurred recurring net losses from operations before income taxes of approximately $4.0 million and $7.5 million for the six months ended June 30, 2026 and 2025, respectively. We used approximately $1.6 million and $3.2 million cash for operating activities for the six months ended June 30, 2026 and 2025, respectively.
We conducted four closings pursuant to the Securities 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 10%. We also issued to Arena Investors a total of 1,041,667 Warrants in connection with the closing.
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.
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The extent to which we rely on Arena and/or the Arena 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, we may still need additional capital to fully implement our business, operating and development plans. Should the financing we require to sustain our working capital needs be unavailable or prohibitively expensive when we require it, the consequences may be a material adverse effect on our business, operating results, financial condition and prospects.
Our cash needs will depend on numerous factors, including our revenues, completion of our product development activities, customer and market acceptance of our product, and our ability to reduce and control costs. We expect to devote substantial capital resources to, among other things, fund operations and continue development plans.
To support our existing and planned business model, we need to raise additional capital to fund our future operations. We have not experienced any difficulty in raising funds through loans and have not experienced any liquidity problems in settling payables in the normal course of business and repaying loans when they fall due. Successful renewal of our loans, however, is subject to numerous risks and uncertainties. In addition, the increasingly competitive industry conditions under which we operate may negatively impact on our results of operations and cash flows. Additional financing is anticipated to fund our operations in near future. However, other than the ELOC Agreement and the Arena Debenture Transaction, there are no current agreements or understandings with regard to the form, time or amount of such financing and there is no assurance that any of these financing can be obtained or that we can continue as a going concern.
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Cash Flows Used in Operating Activities
Net cash used in operating activities was approximately $1.7 million for the six months ended June 30, 2026. This primarily reflected a net loss of $4.4 million, partially offset by non-cash charges of $0.3 million for stock-based compensation, $0.4 million for debt discount expense, $0.6 million for loss on debt extinguishment, $0.4 million for derivative expense, and $0.2 million for depreciation, as well as approximately $0.6 million of net cash inflows from changes in operating assets and liabilities.
Cash Flows Provided by (Used in) Investing Activities
Net cash used in investing activities was $1.8 million for the six months ended June 30, 2026, primarily consisting of $1.7 million in related-party loans and $0.1 million in purchases of property and equipment.
Cash Flows Provide by Financing Activities
Net cash provided by financing activities was $1.2 million, comprising cash provided by net proceeds from loan payable from others of $0.4 million, cash provided by net borrowings from related loan payable of $1.1 million, cash used for repayment of convertible debt of $1.1 million, cash provided by net borrowings from loan to shareholder of $0.3 million, cash provided by borrowings from financial institutions of $0.4 million, and cash used for repayments on loan payable to PPP of $0.4 million.
Net cash provided by financing activities was $1.2 million for the six months ended June 30, 2026. This primarily consisted of $0.4 million of net proceeds from other borrowings, $1.4 million of net borrowings from a related party, $0.3 million of borrowings from a shareholder, and $0.4 million of borrowings from financial institutions, partially offset by $1.1 million of convertible debt repayments.
Credit Facilities
Economic Injury Disaster Loan
On May 16, 2020, we executed an Economic Injury Disaster Loan (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 June 30, 2026, the EIDL Loan is not in default.
Pursuant to the SBA Loan Agreement, we borrowed an aggregate principal amount of the EIDL Loan of $500,000, with proceeds to be used for working capital purposes. Interest accrues at the rate of 3.75% per annum and will accrue only on funds actually advanced from the date of each advance. Installment payments, including principal and interest, are due monthly beginning May 16, 2021 (12 months from the date of the SBA Loan Agreement) in the amount of $731. The balance of principal and interest is payable 30 years from the date of the SBA Loan. In connection therewith, we also received a $10,000 grant, which does not have to be repaid. During the year ended December 31, 2020, $10,000 was recorded in EIDL grant income in the Statements of Operations. The schedule of payments on this loan was later deferred to commence 24 months from the date of loan and we have paid all payments owed since May 2022.
In connection therewith, we executed (i) a loan for the benefit of the SBA, which contains customary events of default and (ii) a Security Agreement, granting the SBA a security interest in all of our tangible and intangible personal property, which also contains customary events of default (the “SBA Security Agreement”).
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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 February 2021, we secured a second loan under this program in the amount of approximately $167,000. The interest rate of the loan is 1.00% per annum and accrues on the unpaid principal balance computed on the basis of the actual number of days elapsed in a year of 360 days. Commencing seven months after the effective date of each PPP Loan, we are required to pay the Lender equal monthly payments of principal and interest as required to fully amortize any unforgiven principal balance of the loan by the two-year anniversary of the effective date of the loan. The PPP Loan contains customary events of default relating to, among other things, payment defaults, making materially false or misleading representations to the SBA or the Lender, or breaching the terms of the PPP Loan. The occurrence of an event of default may result in the repayment of all amounts outstanding under the PPP Loan, collection of all amounts owing, 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 the Company to apply for forgiveness of its PPP loan. We were granted forgiveness for the initial PPP Loan prior to December 31, 2021 and expect to be granted forgiveness on the remainder subsequently.
Leases
We currently lease all company-owned retail locations. Operating leases typically contain escalating rentals over the lease term, as well as optional renewal periods. Rent expense for operating leases is recorded on a straight-line basis over the lease term and begins when Reborn has the right to use the property. The difference between rent expense and cash payment is recorded as deferred rent on the accompanying consolidated balance sheets. Pre-opening rent is included in selling, general and administrative expenses on the accompanying consolidated statements of income. Tenant incentives used to fund leasehold improvements are recorded in deferred rent and amortized as reductions to rent expense over the term of the lease.
Off Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that we are required to disclose pursuant to these regulations. In the ordinary course of business, we enter into operating lease commitments, purchase commitments and other contractual obligations. These transactions are recognized in our financial statements in accordance with GAAP.
Critical Accounting Estimates and Policies
The preparation of financial statements requires management to utilize estimates and make judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. These estimates are based on historical experience and on various other assumptions that management believes to be reasonable under the circumstances. The estimates are evaluated by management on an ongoing basis, and the results of these evaluations form a basis for making decisions about the carrying value of assets and liabilities that are not readily apparent from other sources. Although actual results may differ from these estimates under different assumptions or conditions, management believes that the estimates used in the preparation of our financial statements are reasonable. The critical accounting policies affecting our financial reporting are summarized in Note 2 to the financial statements included elsewhere in this Quarterly Report on Form 10-Q.
Recent Accounting Pronouncements
We have determined that all other issued, but not yet effective accounting pronouncements are inapplicable or insignificant to us and once adopted are not expected to have a material impact on our financial position.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We are a smaller reporting company as defined by 17 C.F.R. 229 (10)(f)(i) and are not required to provide information under this item.
Item 4. 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 June 30, 2026. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of June 30, 2026, 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.
Management has identified control deficiencies regarding inadequate accounting resources, the lack of segregation of duties and the need for a stronger internal control environment. Our management believes that these material weaknesses are due to the small size of our accounting staff. The small size of our outsourced accounting 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 quarter ended June 30, 2026, included in this Quarterly Report on Form 10-Q were fairly stated in accordance with GAAP. Accordingly, management believes that despite our material weaknesses, our financial statements for the quarter ended June 30, 2026, are fairly stated, in all material respects, in accordance with GAAP.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended June 30, 2026, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
In the future, the Company may be subject to various legal proceedings from time to time as part of its business. We are currently not involved in litigation that we believe will have a materially adverse effect on our financial condition or results of operations. As of June 30, 2026, there is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self- regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries threatened against or affecting our company, our common stock, any of our subsidiaries or of our company’s or our company’s subsidiaries’ officers or directors in their capacities as such, in which an adverse decision is expected to have a material adverse effect.
Item 1A. Risk Factors.
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide information required by this item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Item 5. Other Information
During the three months ended June 30, 2026, none of our directors or officers (as defined in Rule 16a-1(f) of the Exchange Act) adopted, modified or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement” as such terms are defined under Item 408 of Regulation S-K.
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Item 6. Exhibits.
The following exhibits are included herein or incorporated herein by reference:
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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