8-K: Reborn Coffee Forges Major International Licensing Deal with Chairman's Group for Middle East and Europe Expansion

Reborn Coffee, Inc. has entered into a significant licensing agreement with Arjomand Group LLC, controlled by its Chairman, Farooq Arjomand, to expand its coffee-brewing business into the Middle East and Europe, including a flagship store in the UAE.

Summary

• Reborn Coffee, Inc. (the "Company") signed a licensing agreement with Arjomand Group LLC (the "Licensee") on July 16, 2025.
• The Licensee, Arjomand Group LLC, is owned and controlled by Farooq Arjomand, who is also the Chairman of Reborn Coffee's Board of Directors.
• The agreement grants the Licensee a non-exclusive limited license to use Reborn Coffee's trademark and certain aspects of its coffee-brewing business.
• The total license fee for these rights is $1,700,000.
• An initial non-refundable fee of 10% ($170,000) is due on the Effective Date (when the Licensee first offers products for sale).
• The remaining 90% ($1,530,000) will be paid in three equal installments of 30% ($510,000 each) on the first, second, and third anniversaries of the Effective Date.
• The agreement has a term of ten years from the Effective Date, with a renewal right for similar terms and identical pricing, exercisable 18 months prior to expiration, subject to specific conditions including a $2,500 renewal fee.
• The Licensee is obligated to construct a flagship Reborn Coffee store in the United Arab Emirates (UAE), which must be open for business within 180 days after the Effective Date.
• The agreement contemplates the Licensee's further expansion of Reborn Coffee's business into hospitality institutions in the Middle East and Europe.
• Reborn Coffee will provide initial and pre-opening training programs, access to manuals, and ongoing consultation.
• The Licensee must adhere to Reborn Coffee's standards, use approved suppliers, maintain quality, and participate in marketing and loyalty programs, including a 2% Marketing Fee based on Gross Sales.
• The Licensee is required to maintain adequate reserves and working capital sufficient for at least three consecutive months of operations.
• The agreement includes provisions for Licensor oversight and approval on store design, property leasing, and training programs.
• The Licensee is prohibited from sublicensing or transferring core business operations and has no exclusive territorial rights for the Reborn Coffee Store, despite the exhibit's cover indicating "Mena Region, Europe" as the "TERRITORY OF LICENSE."
• The Licensee is subject to non-competition clauses during and for two years after the agreement's term, within 20 miles of any Reborn Coffee Stores.
• Reborn Coffee retains the option to purchase the Licensee's Reborn Coffee Store assets upon expiration or termination due to Licensee default, at fair market value.

Sentiment

Score: 7

Explanation: The agreement represents a significant strategic step for international expansion and brings in substantial upfront and recurring revenue. However, the related-party nature of the transaction and the internal contradictions regarding the exclusivity of the license introduce notable risks and ambiguities that temper the overall positive sentiment.

Positives

• Secured a significant upfront license fee of $1,700,000, providing immediate revenue.
• Establishes a pathway for international expansion into the Middle East and Europe without direct capital expenditure by Reborn Coffee.
• Leverages the relationship with the Chairman of the Board, potentially indicating strong commitment and market access.
• Includes recurring revenue streams through a 2% Marketing Fee based on Gross Sales.
• Maintains brand control through strict adherence to Reborn Coffee's system, quality standards, store design, and training requirements.
• Grants Reborn Coffee audit rights over the Licensee's financial records and access to POS system data for monitoring.
• Includes indemnification clauses protecting Reborn Coffee from liabilities arising from the Licensee's operations.
• The Licensee is obligated to open a flagship store in the UAE within 180 days, accelerating market entry.

Negatives

• The agreement is a related-party transaction, as the Licensee is owned and controlled by Reborn Coffee's Chairman, which may raise corporate governance concerns and potential conflicts of interest.
• There is a significant contradiction within the agreement regarding exclusivity: the 8-K and Section 2.1 of the exhibit state a "non-exclusive limited license" with "no territorial or protective rights" and "no exclusive territory," while Section 4.2 of the exhibit states the fee reflects "exclusive license rights granted to Licensee within the designated territory" (Mena Region, Europe). This ambiguity could lead to future disputes or limit the Licensee's incentive for broad expansion if true exclusivity is not granted.
• Reliance on the Licensee for successful market penetration and brand building in new, complex international markets (Middle East and Europe) introduces execution risk.
• The Licensee's financial performance and adherence to standards are critical, and any defaults could impact the revenue stream and brand reputation.
• Reborn Coffee has no fiduciary obligation regarding the Marketing Fee monies, and is not obligated to spend them proportionately in the Licensee's trade area, which could be a point of contention for the Licensee.
• The Licensee's ability to sublease or transfer core business operations is restricted, which could limit flexibility for the Licensee in managing its licensed operations.

Risks

• **Related Party Transaction Risk**: The agreement with Arjomand Group LLC, controlled by the Company's Chairman, Farooq Arjomand, presents potential conflicts of interest and may be subject to increased scrutiny from investors and regulators.
• **Exclusivity Ambiguity Risk**: The contradictory language regarding territorial exclusivity (non-exclusive license vs. exclusive rights for the fee) creates significant legal and operational uncertainty, potentially leading to disputes or limiting the Licensee's long-term investment in the territory.
• **Execution Risk in New Markets**: Successful expansion into the Middle East and Europe depends heavily on the Licensee's operational capabilities, market understanding, and financial commitment in regions with potentially diverse consumer preferences and regulatory environments.
• **Brand Dilution Risk**: Despite quality control provisions, any failure by the Licensee to maintain Reborn Coffee's high standards could negatively impact the brand's reputation in new markets.
• **Financial Performance Risk**: The Company's revenue from this agreement is tied to the Licensee's ability to generate sales and meet payment obligations, including the $1.7 million license fee installments and the 2% Marketing Fee.
• **Default Risk**: The Licensee's failure to meet obligations (e.g., opening the flagship store within 180 days, maintaining quality, financial reporting, or avoiding multiple defaults) could lead to termination of the agreement and loss of anticipated revenue.
• **Competition Risk**: The non-exclusive nature of the license (as stated in the 8-K and Section 2.1 of the exhibit) means Reborn Coffee can grant other licenses in the same broad territory, potentially leading to internal competition or fragmented brand presence.
• **Intellectual Property Misuse Risk**: While the agreement includes clauses against unauthorized use of trademarks and confidential information, there is always a risk of misuse or disclosure by the Licensee.
• **Force Majeure Events**: Unforeseeable events (e.g., natural disasters, political instability, epidemics) could disrupt the Licensee's operations and ability to perform under the agreement.

Future Outlook

The agreement outlines a strategic international expansion for Reborn Coffee into the Middle East and Europe, starting with a flagship store in the UAE and contemplating further growth into hospitality institutions. It also anticipates the future implementation of a direct online ordering and delivery program and an online training and knowledge database, indicating a focus on digital integration and operational efficiency.

Management Comments

• Jay Kim, Chief Executive Officer of Reborn Coffee, Inc., signed the Form 8-K report.
• Farooq M. Arjomand, Chief Executive Officer of Arjomand Group LLC and Chairman of Reborn Coffee's Board of Directors, signed the Licensing Agreement.

Industry Context

This licensing agreement positions Reborn Coffee for significant international expansion, a common strategy in the highly competitive global coffee industry. By leveraging a licensing model, the Company can enter new markets like the Middle East and Europe with reduced capital expenditure and operational risk compared to direct ownership. The focus on hospitality institutions suggests a diversified approach beyond traditional retail, tapping into a growing segment for coffee consumption. This move aligns with broader industry trends of global brand proliferation and localized partnerships to navigate diverse cultural and regulatory landscapes.

Comparison to Industry Standards

• **Licensing Model**: The agreement is structured as a licensing deal, which is a common method for international expansion in the food and beverage sector, similar to how major brands like Starbucks (through licensed stores in certain regions) or Costa Coffee expand globally. This allows for faster market penetration and reduced capital outlay for the licensor.
• **Fee Structure**: The combination of a substantial upfront license fee ($1.7 million) and an ongoing percentage of gross sales (2% Marketing Fee) is typical for international master licensing or multi-unit franchise agreements. However, the document contains a significant contradiction: the 8-K and Section 2.1 of the exhibit state a "non-exclusive limited license" with "no territorial or protective rights" and "no exclusive territory," while Section 4.2 of the exhibit states the fee reflects "exclusive license rights granted to Licensee within the designated territory" (Mena Region, Europe). If the license is truly non-exclusive for a broad territory like MENA and Europe, the $1.7 million fee appears unusually high for a non-exclusive right to operate a single store, as Section 2.1 also limits the license to "solely for Licensees purpose to continuously develop and operate Reborn Coffee Store at, and only at, the Licensed Location."
• **Brand Control**: The extensive provisions for Reborn Coffee's oversight, including mandatory training, adherence to manuals, approved suppliers, design specifications, and audit rights, are standard in licensing and franchising to ensure brand consistency and quality across different markets, comparable to the stringent controls exercised by global brands like McDonald's or Subway over their franchisees.
• **Related Party Involvement**: The involvement of the Company's Chairman as the Licensee's owner is a notable deviation from standard arm's-length transactions and is a common area of scrutiny in corporate governance, requiring transparent disclosure and careful management to avoid perceived conflicts of interest.
• **Development Obligations**: The requirement for the Licensee to open a flagship store within 180 days is a typical development milestone in master agreements, ensuring the licensee commits to market entry within a defined timeframe.

Corporate Governance

Related Party Transactions

• Reborn Coffee, Inc. entered into a licensing agreement with Arjomand Group LLC, a limited liability company owned and controlled by Farooq Arjomand, who is the Chairman of Reborn Coffee's Board of Directors.

Stakeholder Impact

• **Shareholders**: Potential for increased revenue and market capitalization through international expansion, but also risks associated with related-party transactions and execution in new markets.
• **Employees**: Potential for new job opportunities in the licensed territories, but no direct impact on Reborn Coffee's existing employee base is explicitly stated.
• **Customers**: Expansion into new regions will make Reborn Coffee products available to new customer bases in the Middle East and Europe.
• **Suppliers**: Approved suppliers may see increased demand for products and services as the Licensee expands operations.
• **Creditors**: The significant license fee and ongoing revenue streams could improve Reborn Coffee's financial health, potentially benefiting creditors.

Next Steps

• The Licensee must open a flagship Reborn Coffee store in the United Arab Emirates within 180 days after the Effective Date.
• The Licensee will pay the remaining 90% of the license fee in three equal installments on the first, second, and third anniversaries of the Effective Date.
• Reborn Coffee may establish a Marketing Fund in the future, which would then receive the Licensee's Marketing Fee contributions.
• Reborn Coffee plans to implement a direct online ordering and delivery program and an online training and knowledge database, which the Licensee will be required to participate in.

Key Dates

Recommendation

Keywords

Coffee, Licensing Agreement, International Expansion, Middle East, Europe, United Arab Emirates, SEC Filing, Related Party Transaction, Brand Licensing, Hospitality, Trademark, Franchise, REBN