8-K: Limitless X Holdings Enters Consulting Agreement, Amends Licensing Deal, and Creates New Preferred Stock Series

Limitless X Holdings has entered into a consulting agreement with Limitless Performance Inc., amended a manufacturing and distributorship license agreement, and created a new series of preferred stock.

Summary

• Limitless X Holdings Inc. has engaged Limitless Performance Inc. (LPI) for consulting services to identify cost-effective manufacturing and develop new products, including brain supplements and coffee boosters.
• The consulting agreement has a three-year term with automatic one-year renewals unless either party provides 30 days' notice of non-renewal.
• LPI will receive 133,333 immediately exercisable stock options and may receive performance-based incentives in the form of additional stock or cash.
• A manufacturing and distributorship license agreement with LPI was amended, with LPI waiving royalty payments for three years, ending December 31, 2027.
• The company has created 5,000,000 shares of Series D 15% Cumulative Redeemable Perpetual Preferred Stock, with a par value of $0.0001 per share.
• The Series D stock ranks junior to existing Class A, B, and C preferred stock and all existing and future debt, but senior to common stock and any other future preferred stock.
• Holders of Series D stock are entitled to a 15% annual cumulative cash dividend on a stated value of $25 per share, payable quarterly if declared by the board.
• The Series D stock has limited voting rights and a liquidation preference of $25 per share plus any accumulated unpaid dividends.
• The company may redeem the Series D stock after two years or upon a change of control, but the holders cannot redeem the stock.
• The company has also established an Audit Committee, a Compensation Committee, and a Nominating Committee, each with three independent directors.

Sentiment

Score: 6

Explanation: The document contains both positive and negative elements. The consulting agreement and royalty waiver are positive, but the creation of a new preferred stock series with a high dividend rate and junior ranking could be seen as a mixed signal. The related party nature of some transactions also introduces some risk.

Positives

• The consulting agreement with LPI aims to improve manufacturing processes and develop new products.
• The waiver of royalty payments by LPI for three years will reduce the company's expenses.
• The creation of the Series D preferred stock provides a new avenue for capital raising.
• The formation of the Audit, Compensation, and Nominating Committees enhances corporate governance.

Negatives

• The Series D preferred stock ranks junior to existing preferred stock and all debt, potentially diluting the value of existing shares.
• The Series D stock has limited voting rights, which may reduce shareholder influence.
• The consulting agreement includes performance-based incentives that could further dilute existing shares.
• The consulting agreement is with an entity wholly owned by the CEO, which could raise conflict of interest concerns.

Risks

• The success of the consulting agreement depends on LPI's ability to deliver cost-effective manufacturing processes and new product development.
• The company's ability to pay the 15% dividend on the Series D preferred stock depends on its financial performance.
• The company may face challenges in managing the new committees and ensuring their effectiveness.
• The related party nature of the consulting agreement and license amendment could lead to scrutiny.

Future Outlook

The company aims to expand into new product lines and improve manufacturing processes through the consulting agreement with LPI. The company may also issue additional stock or cash equivalents to LPI based on performance. The company may redeem the Series D stock after two years or upon a change of control.

Management Comments

• The company wishes to expand into additional product lines and brands and wishes to engage the services of the Consultant above and beyond the modified limitations of the MDLA for manufacturing and distributorship processes and communications.
• The Companys board of directors will adopt a charter for each of the Committees and will approve compensation for each member and chair of the Committees upon the recommendation of the newly formed Compensation Committee.

Industry Context

The move to engage a consultant for manufacturing and product development is common in the consumer goods industry, especially for companies looking to expand their product lines and improve efficiency. The creation of preferred stock is a typical method for raising capital, particularly for companies in growth phases.

Comparison to Industry Standards

• The 15% dividend rate on the Series D preferred stock is relatively high compared to typical preferred stock offerings, which often range from 5% to 10%.
• The three-year royalty waiver is a significant concession from LPI, which is unusual in licensing agreements and suggests a strong alignment of interests or a need for immediate cost savings.
• The use of stock options as compensation for consulting services is a common practice, but the number of options granted (133,333) should be evaluated in the context of the company's overall capitalization.
• The formation of audit, compensation, and nominating committees is standard practice for publicly traded companies and is in line with best practices for corporate governance. Companies like Apple, Microsoft, and Google all have similar committees.

Corporate Governance

Related Party Transactions

• The consulting agreement and the amendment to the manufacturing and distributorship license agreement are with Limitless Performance Inc., which is wholly-owned by Jaspreet Mathur, the company's CEO and Chairman.

Stakeholder Impact

• Shareholders may experience dilution due to the issuance of new preferred stock and potential performance-based incentives.
• The royalty waiver will benefit the company's financial position.
• The new committees will provide additional oversight and governance.
• The consulting agreement may lead to new products and improved manufacturing processes.

Next Steps

• The company will need to implement the consulting agreement and monitor its effectiveness.
• The company will need to manage the new committees and ensure they are functioning effectively.
• The company will need to declare and pay dividends on the Series D preferred stock as required.
• The company will need to monitor the performance of LPI and determine if additional performance-based incentives are warranted.

Key Dates

Keywords

consulting agreement, preferred stock, manufacturing, licensing agreement, royalty waiver, corporate governance, stock options, dividends, committees, related party