Business Context and Reporting Period
This Form 8-K Current Report was filed by Level Brands, Inc. (not Cbdmd, Inc.) on June 26, 2018. The filing discloses the entry into a Material Definitive Agreement with Boston Therapeutics, Inc. (OTCQB: BTHE), an innovator in therapeutics for diabetes. Level Brands granted Boston Therapeutics a non-exclusive, non-transferrable license to use the "kathy ireland Health & Wellness" trademark for the marketing, development, manufacture, sale, and distribution of the "Sugardown" product globally.
Key Financial Metrics and Agreement Terms
The filing details a compensation structure for the license agreement rather than standard periodic financial results (revenue, profit, cash flow). Key financial terms include:
- Initial Marketing Fee: $850,000 total, paid via a $450,000 promissory note and $400,000 in Boston Therapeutics stock (valued at the effective date trading price).
- Quarterly Fees (Years 1-2): Up to $100,000 per quarter plus 100,000 shares of Boston Therapeutics stock per quarter, contingent on sales volumes. Stock payments may be made in cash at Boston Therapeutics' discretion.
- Royalties: Tiered structure based on gross licensed mark sales:
- 5% on sales up to $10,000,000.
- 7.5% on sales between $10,000,000 and $50,000,000.
- 10% on sales exceeding $50,000,000.
- Term: Initial seven-year term with an automatic two-year extension unless non-renewal is notified 90 days prior to expiration.
Material Changes and Obligations
Level Brands has agreed to specific promotional obligations, including producing four branded videos, creating an electronic press kit, making media teams available for content creation (for separate compensation), and curating social media posts. Boston Therapeutics has indemnified Level Brands against third-party claims related to the product's design, manufacture, sale, and marketing. The agreement allows for termination by either party with 30 days' notice in the event of a material breach, triggering immediate payment of all amounts due.
Guidance, Outlook, and Risks
The filing does not provide specific financial guidance, revenue outlook, or management commentary regarding future earnings projections. The primary risk noted is the contingent nature of the quarterly fees and royalties, which depend on the sales volumes of the Sugardown product. Additionally, the receipt of stock compensation introduces exposure to the market value of Boston Therapeutics shares.
Investor Verification Checklist
- Verify the current trading price and liquidity of Boston Therapeutics, Inc. (BTHE) stock to assess the value of the $400,000 initial equity payment and future quarterly share issuances.
- Review the full text of the License Agreement (Exhibit 10.73) for specific definitions of "gross licensed marks sales" and sales volume thresholds triggering quarterly fees.
- Confirm the creditworthiness of Boston Therapeutics regarding the $450,000 promissory note component of the initial fee.
- Monitor the commercial launch and sales performance of the Sugardown product to evaluate the potential for royalty revenue.