Business Context and Reporting Period
This Form 8-K Current Report was filed by Level Brands, Inc. on December 12, 2017. The filing discloses a series of material definitive agreements and related party transactions with Kure Corp., a company in which Level Brands holds a minority stake and whose past Chairman is Level Brands' current CEO. The transactions support Kure Corp.'s "Kure Vape Pod" initiative involving the purchase of prefabricated intermodal container building systems from SG Blocks, Inc.
Key Financial Metrics and Transaction Details
The filing details specific financial commitments and compensation arrangements rather than standard operating metrics:
- Revolving Line of Credit: Level Brands agreed to lend Kure Corp. up to $500,000.
- Loan Terms: The loan bears interest at 8% per annum and matures on the earlier of one year from issuance or when Kure Corp. receives gross proceeds of at least $2,000,000 from equity sales.
- Collateral: Level Brands holds a first-position security interest in Kure Corp.'s inventory, accounts, and accounts receivable.
- Equity Compensation (Recent): Level Brands received 400,000 shares of Kure Corp. common stock valued at $200,000 for a services agreement dated December 11, 2017.
- Equity Compensation (Prior): In August 2017, Level Brands received 400,000 shares valued at $200,000 and $200,000 in cash for advisory services.
Note: The filing does not provide Level Brands' consolidated revenue, profit, cash flow, or liquidity metrics for the period.
Material Changes and Related Party Status
The filing identifies Kure Corp. as a related party due to Level Brands' shareholding and the overlapping executive leadership (Level Brands' CEO is Kure Corp.'s past Chairman). The material change involves the expansion of the business relationship from licensing and advisory services to direct lending and strategic facilitation of retail site selection for military bases and convenience stores.
Outlook, Risks, and Contingencies
Management Commentary and Strategy: Level Brands is actively facilitating Kure Corp.'s expansion into U.S. military base retail locations and other similar properties using the "Vape Pod" modular building concept. The company is leveraging its existing relationship with SG Blocks, Inc. to support this initiative.
Risks and Contingencies:
- Related Party Risk: The concentration of transactions with a related party where executive leadership overlaps may present conflicts of interest or valuation risks.
- Repayment Contingency: The loan maturity is tied to Kure Corp.'s ability to raise $2,000,000 in equity, creating a dependency on Kure's capital markets success for the loan's term.
- Collateral Dependency: Repayment security relies on Kure Corp.'s inventory and receivables, which are tied to the success of the new Vape Pod initiative.
Key Facts for Investor Verification
- Verify the current market value and liquidity of the 800,000 total shares of Kure Corp. stock held by Level Brands.
- Confirm Kure Corp.'s progress in securing the $2,000,000 equity proceeds required to trigger the loan maturity condition.
- Assess the creditworthiness of Kure Corp. and the sufficiency of the pledged inventory and receivables as collateral for the $500,000 loan.
- Review the full text of the exhibits (10.62 through 10.66) for specific covenants and default provisions not detailed in the summary.
- Monitor the status of the Master Purchase Agreement with SG Blocks, Inc. and the deployment of the 100 repurposed shipping containers.