# Reborn Coffee, Inc.: Form 10-Q for the period ended Sep 30, 2023

- Company: [Reborn Coffee, Inc.](/companies/rebn.md) (CIK 1707910)
- Form: 10-Q
- Filed: 2023-11-14
- Accepted by EDGAR: Nov 14, 2023, 21:03 ET
- Period: 2023-09-30
- Accession: 0001213900-23-086898
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1707910/000121390023086898/f10q0923_reborn.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1707910/000121390023086898/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $1.5m | us-gaap:Revenues |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $4.2m | us-gaap:Revenues |
| Cost of revenue | 3 months, 2023-07-01 to 2023-09-30 | $11.6k | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months, 2023-01-01 to 2023-09-30 | $28.0k | us-gaap:CostOfRevenue |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | −$732.7k | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-09-30 | −$2.9m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-07-01 to 2023-09-30 | $18.5k | us-gaap:InterestExpense |
| Interest expense | 9 months, 2023-01-01 to 2023-09-30 | $125.0k | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-07-01 to 2023-09-30 | $7.8k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-01-01 to 2023-09-30 | $7.8k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | −$748.9k | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | −$3.0m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | −$0.06 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | −$0.23 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | −$0.06 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | −$0.23 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 13,241,171 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 13,225,858 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | −$3.0m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-01-01 to 2023-09-30 | $746.4k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2023-09-30 | $364.0k | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-09-30 | $1.8m | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $8.4m | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $2.6m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-09-30 | $6.9m | us-gaap:Liabilities |
| Long-term debt | at 2023-09-30 | $500.0k | us-gaap:LongTermDebt |
| Current portion of debt | at 2023-09-30 | $30.1k | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2023-09-30 | $1.6m | us-gaap:StockholdersEquity |
| Shares outstanding | at 2023-09-30 | 13,262,723 shares | dei:EntityCommonStockSharesOutstanding |

## Management's discussion and analysis

As filed, 27,640 characters.

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, 2022. As discussed in the section titled “Cautionary 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, 2022.

### Business

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

Founded in 2015 by Jay Kim, our Chief Executive Officer, Mr. Kim and his team launched Reborn Coffee with the vision of using the finest pure ingredients and pristine water. We currently serve customers through our retail store locations in California: Brea, La Crescenta, Huntington Beach, Corona Del Mar, Arcadia, Laguna Woods, Riverside, San Francisco, Cabazon, Manhattan Beach, two locations in Irvine, Diamond Bar and Anaheim with one location in development.

Reborn Coffee continues to elevate the high-end coffee experience and we received first place in the “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 7 locations), our B2B sales increased as these companies recognized the convenience and functionality our Pour Over Packs serve to their customers.

Reborn Coffee’s 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 its core values of service, trust, and well-being, Reborn Coffee delivers 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 achieve a specific flavor profile, Reborn Coffee proactively distinguishes 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, Reborn Coffee creates opportunities to develop transparency by paying homage to origin stories and sparking new conversations by building cross-cultural communities united by a passion for the finest coffee.

Through a broad product offering, Reborn Coffee 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 2021, the retail market for coffee in the United States is expected to be $46.2 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.

### 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.

Currently, we have the following fourteen retail coffee locations:

- 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.
- Cabazon, California;
- Huntington Beach, California;
- Santa Anita Westfield Mall in Arcadia, California;
- Galleria at Tyler in Riverside, California;
- Stonestown Galleria in San Francisco, California;
- Intersect in Irvine, California;
- Dupont Drive in Irvine, California;
- Diamond Bar, California; and
- Anaheim, California

### Components of Our Results of Operations

### 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 store. Accordingly, the Company recognizes revenue as follows:

|  |  |
| --- | --- |
| ● | **Retail Store Revenue** |
|  | Retail store revenues are recognized when payment is tendered at the point of sale. Retail store revenues are reported net of sales, use or other transaction taxes that are collected from customers and remitted to taxing authorities. Sales taxes that are payable are recorded as accrued as other current liabilities. Retail store revenue makes up approximately 98% of the Company’s total revenue. |

|  |  |
| --- | --- |
| ● | **Wholesale and Online Revenue** |
|  | Wholesale and online revenues are recognized when the products are delivered, and title passes to customers or to the wholesale distributors. When customers pick up products at the Company’s warehouse, or distributed to the wholesale distributors, the title passes, and revenue is recognized. Wholesale revenues make up approximately 2% of the Company’s total revenue. |

|  |  |
| --- | --- |
| ● | **Royalties and Other Fees** |
|  | Franchise revenues consist of royalty fees and other franchise fees. Royalty fees are based on a percentage of a franchisee’s weekly gross sales revenue at 5%. The Company recognizes the fee as the underlying sales occur. The Company recorded revenue from royalty of $0 for the nine-month periods ended September 30, 2023 and 2022. Other fees are earned as incurred and the Company did not have any other fee revenue for the nine-months periods ended September 30, 2023 and 2022. |

### Cost of Sales

Cost of sales includes costs associated with generating revenue within our company-owned retail locations, and franchising operations (of which, as of September 30, 2023, we had none).

#### Shipping and Handling Costs

The Company incurred freight out cost and is included in the Company’s cost of sale.

#### General and Administrative Expense

General and administrative expense includes store-related expense as well as the Company’s corporate headquarters’ expenses.

### Advertising Expense

Advertising expenses are expensed as incurred. Advertising expenses amounted to $60,581 and $27,110 for the nine-month periods ended September 30, 2023 and 2022, respectively, and are recorded under general and administrative expenses in the accompanying unaudited condensed consolidated statements of operations.

### Pre-opening Costs

Pre-opening costs for new stores, which are not material, consist primarily of payroll and recruiting expense, training, marketing, rent, travel, and supplies, and are expensed as incurred depreciated over the shorter of the useful life of the improvement or the lease term, including renewal periods that are reasonably assured.

### Results of Operations

### Three and nine months ended September 30, 2023 compared to three and nine months ended September 30, 2022

The following table presents selected comparative results of operations from our unaudited financial statements for the three and nine months ended September 30, 2023 compared to three and nine months ended September 30, 2022. 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.

| Net revenues: | Nine Months Ended September 30, 2023 | 2022 | Increase / (Decrease) Dollars | Percentage |
| --- | ---: | ---: | ---: | ---: |
| Stores | $4,091,512 | $2,339,284 | $1,752,228 | 74.9% |
| Wholesale and online | 63,991 | 40,587 | 23,404 | 57.7% |
| Total net revenues | 4,155,503 | 2,379,871 | 1,775,632 | 74.6% |
| Operating costs and expenses: |  |  |  |  |
| Product, food and drink costs—stores | 1,324,465 | 806,453 | 518,012 | 64.2% |
| Cost of sales—wholesale and online | 28,028 | 17,777 | 10,251 | 57.7% |
| General and administrative | 5,687,095 | 3,954,997 | 1,732,098 | 43.8% |
| Loss from operations | (2,884,085) | (2,399,356) | (484,729) | 20.2% |
| Other income | - | 16,440 | (16,440) | -100.0% |
| Interest expense | (124,967) | (39,404) | (85,563) | 217.1% |
| Gain (loss) on asset disposition, net | 10,172 | - | 10,172 | 100.00% |
| Loss before income taxes | (2,998,880) | (2,422,320) | (576,560) | 23.8% |
| Provision for income taxes | 7,828 | - | 7,828 | 100.0% |
| Net loss | $(3,006,708) | $(2,422,320) | $(584,388) | 24.1% |

| Net revenues: | Three Months Ended September 30, 2023 | 2022 | Increase / (Decrease) Dollars | Percentage |
| --- | ---: | ---: | ---: | ---: |
| Stores | $1,487,858 | $827,332 | $660,526 | 79.8% |
| Wholesale and online | 26,401 | 10,913 | 15,488 | 141.9% |
| Total net revenues | 1,514,259 | 838,245 | 676,014 | 80.6% |
| Operating costs and expenses: |  |  |  |  |
| Product, food and drink costs—stores | 442,163 | 242,547 | 199,616 | 82.3% |
| Cost of sales—wholesale and online | 11,564 | 4,780 | 6,784 | 141.9% |
| General and administrative | 1,793,246 | 1,486,550 | 306,696 | 20.6% |
| Loss from operations | (732,714) | (895,632) | (162,918) | -18.2% |
| Interest expense | (18,532) | (24,428) | 5,896 | -24.1% |
| Gain (loss) on asset disposition, net | 10,172 | - | 10,172 | 100.0% |
| Loss before income taxes | (741,074) | (920,060) | 178,986 | -19.5% |
| Provision for income taxes | 7,828 | - | 7,828 | 100.0% |
| Net loss | $(748,902) | $(920,060) | $171,158 | -38.0% |

23

### Revenues

Revenues were approximately $4.2 million for the nine-month period ended September 30, 2023, compared to $2.4 million for the comparable period in 2022, representing an increase of $1.8 million, or 74.6%. Revenues were approximately $1.5 million for the three-month period ended September 30, 2023, compared to $838,000 for the comparable period in 2022, representing an increase of $676,000, or 80.6%. The increase in sales for the period was primarily driven by the opening of new stores, and to the continued focus on marketing efforts to increase brand recognition.

### Product, food and drink costs - stores

Product, food and drink costs were approximately $1.3 million for the nine-month period ended September 30, 2023 compared to $806,000 for the comparable period in 2022, representing an increase of approximately $518,000, or 64.2%, and were approximately $442,000 for the three-month period ended September 30, 2023 compared to $243,000 for the comparable period in the prior year, representing an increase of $200,000 or 82.3%. The increase in costs for the periods was partially driven by the opening of new locations and the overall increase in sales for the period.

As a percentage of revenues, product, food and drink costs decreased to 31.9% in the nine-month period ended September 30, 2023 compared to 33.9% in the comparable period in 2022. The decrease in costs as a percentage of sales was primarily driven by our cost reduction efforts. We monitor product costs to analyze whether they are considered to be representative of general economic conditions, such as inflation, or to be related to commodity specific changes.

### General and administrative expenses

General and administrative expenses were approximately $5.7 million for the nine-month period ended September 30, 2023 compared to $4.0 million for the comparable period in the prior year, representing an increase of approximately $1.7 million, or 43.8%, and were approximately $1.7 million for the three-month period ended September 30, 2023 compared to $1.5 million for the comparable period in 2022, representing an increase of approximately $307,000, or 20.6%.

This increase in general and administrative expenses was primarily due to the hiring of additional administrative employees, increases in professional services and corporate-level costs to support growth plans, the opening of new restaurants, as well as costs associated with outside administrative, legal and professional fees and other general corporate expenses associated with being a public company.

### 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 $3.0 million and $2.4 million for the nine-month periods ended September 30, 2023 and 2022, respectively. We used $3.0 million and $2.0 million of cash for operating activities for the nine-month periods ended September 30, 2023 and 2022, respectively.

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.

In August 2022, the Company consummated the IPO of 1,440,000 shares of its common stock at a public offering price of $5.00 per share, generating gross proceeds of $7,200,000. Net proceeds from the IPO were approximately $6.2 million after deducting underwriting discounts and commissions and other offering expenses of approximately $998,000.

To support our existing and planned business model, the Company needs to raise additional capital to fund our future operations. The Company has not experienced any difficulty in raising funds through loans, and has not experienced any liquidity problems in settling payables in the normal course of business and repaying loans when they fall due. Successful renewal of our loans, however, is subject to numerous risks and uncertainties. In addition, the increasingly competitive industry conditions under which we operate may negatively impacted our results of operations and cash flows. Additional debt financing is anticipated to fund the Company’s operations in near future. However, there are no current agreements or understandings with regard to the form, time or amount of such financing and there is no assurance that any of this financing can be obtained or that the Company can continue as a going concern.

| Statement of Cash Flow Data: | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| Net cash used in operating activities | (2,990,792) | (1,996,700) |
| Net cash used in investing activities | (746,426) | (333,189) |
| Net cash provided by financing activities | 1,082,134 | 6,154,935 |

### Cash Flows used in Operating Activities

Net cash used in operating activities during the nine-month period ended September 30, 2023 was approximately $3.0 million, which resulted mostly from net loss of $3.0 million.

### Cash Flows used in Investing Activities

Net cash used in investing activities during the nine-month periods ended September 30, 2023 and 2022 was $746,000 and $333,000, respectively. Net cash used in investing activities for the third quarter of 2023 was primarily related to purchases of property and equipment.

### Cash Flows provided by Financing Activities

Net cash provided by financing activities during the nine-month period ended September 30, 2023 and 2022 was $1.1 million and $6.2 million, respectively. Net cash flows provided by financing activities for the third quarter of 2023 was primarily proceeds from line of credit by $1 million.

As of September 30, 2023, the Company had total assets of approximately $8.4 million. Our cash balance as of September 30, 2023 was approximately $364,000.

### Credit Facilities

#### Loans with Square Capital

During the second quarter of 2023, the Company entered into three loan agreements with Square Capital in the aggregate principal amount of $294,800 with loan costs of $40,811. These loans have a maturity of 18 months. As of September 30, 2023, there was a balance outstanding of $159,332.

#### Economic Injury Disaster Loan

On May 16, 2020, the Company executed the EIDL Loan from the SBA under its EIDL assistance program in light of the impact of the COVID-19 pandemic on the Company’s business. As of September 30, 2023, the loan payable, EIDL Loan noted above is not in default.

Pursuant to the SBA Loan Agreement, the Company borrowed an aggregate principal amount of the EIDL Loan of $500,000, with proceeds to be used for working capital purposes. Interest accrues at the rate of 3.75% per annum and will accrue only on funds actually advanced from the date of each advance. Installment payments, including principal and interest, are due monthly beginning May 16, 2021 (twelve months from the date of the SBA Loan Agreement) in the amount of $731. The balance of principal and interest is payable thirty years from the date of the SBA Loan. In connection therewith, the Company also received a $10,000 grant, which does not have to be repaid. During the year ended December 31, 2020, $10,000 was recorded in Economy injury disaster loan (EIDL) grant income in the Statements of Operations. The schedule of payments on this loan was later deferred to commence 24 months from the date of loan and the Company had paid the payments since May 2022.

In connection therewith, the Company 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 tangible and intangible personal property of the Company, which also contains customary events of default (the “SBA Security Agreement”).

#### Paycheck Protection Program Loan

In May 2020, the Company secured a loan under the PPP administered by the SBA in the amount of $115,000. In February 2021, the Company 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, 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 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 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. The Company was granted forgiveness for the initial PPP Loan prior to December 31, 2021 and expects to be granted forgiveness on the remainder subsequently.

#### Line of Credit Facilities

During the second quarter of 2023, the Company entered into a line of credit agreement with a financial institution that provides a maximum borrowing limit of $2,000,000 with interest at 5% per annum. This line of credit facility matures on December 31, 2023. Total borrowing balance under this facility as of September 30, 2023 was approximately $349,027.

On June 1, 2023, the Company entered into a debt agreement (the “Loan Note”) with DRE, Inc, a Illinois corporation (“DRE”). The Loan Note was guaranteed by Jay Kim, Chief Executive Officer of the Company and member of its Board of Directors.

The terms of the Loan Note require DRE, Inc. to provide the Company with a $1.0 million credit facility bearing a variable interest rate and a maturity date of May 31, 2025. The Company is responsible for making interest-only payments starting on July 15, 2023 and will continue to make such interest payments until the maturity date. The Loan Note further specifies that the interest rate payable to DRE is equal to one percentage point in excess of that rate shown in the Wall Street Journal as the prime rate. The interest rate on the Loan Note will therefore change with each change in the prime rate so published. If at any time the Wall Street Journal prime rate is no longer published, then DRE will establish a similar replacement rate in its sole discretion. The terms of the Loan Note also specify that the interest rate will never be less than 8% per year. The Company will be in default should they fail to repay any amount due within 30 days after demand by DRE, however, the Company may pay off the Loan Note at any time and without penalty. The Loan Note does not permit the Company the right to offset, deduct or counterclaim from the amount due, but it does include a usury savings clause whereby interest payments may not exceed the amount proscribed by usury laws and that that any payments made exceeding the interest limit will be applied to lowering the principal.

Total borrowing balance under this credit facility as of September 30, 2023 was approximately $660,000.

### Leases

#### Operating Leases

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

### Income Taxes

Reborn files income tax returns in the U.S. federal and California state jurisdictions.

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

### JOBS Act Accounting Election

We are an “emerging growth company,” as defined in the JOBS Act, and may take advantage of certain exemptions from various public company reporting requirements for up to five years or until we are no longer an emerging growth company, whichever is earlier. The JOBS Act provides that an “emerging growth company” can delay adopting new or revised accounting standards until those standards apply to private companies. We have elected to use this extended transition period under the JOBS Act. Accordingly, our financial statements may not be comparable to the financial statements of public companies that comply with such new or revised accounting standards.

### 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.

## Market risk

As filed, 134 characters.

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.

## Controls and procedures

As filed, 2,790 characters.

### 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 September 30, 2023. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of September 30, 2023, 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. Management of the Company believes that these material weaknesses are due to the small size of the Company’s accounting staff. The small size of the Company’s accounting outsourced staff may prevent adequate controls in the future due to the cost/benefit of such remediation.

To mitigate the current limited resources and limited employees, we rely heavily on direct management oversight of transactions, along with the use of external legal and accounting professionals. As we grow, we expect to increase our number of employees, which will enable us to implement adequate segregation of duties within the internal control framework.

These control deficiencies could result in a misstatement of account balances that would result in a reasonable possibility that a material misstatement to our financial statements may not be prevented or detected on a timely basis. In light of this material weakness, we performed additional analyses and procedures in order to conclude that our financial statements for the quarter ended September 30, 2023, 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 September 30, 2023, 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 September 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 139 characters.

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.

Filed Nov 14, 2023.
Source: SEC EDGAR, the filing index for accession 0001213900-23-086898. Last ingested by Listed: Oct 24, 2026, 15:07 ET. No prices; not investment advice.