Document and Entity Information
Document and Entity Information - shares | 3 Months Ended | |
Dec. 31, 2017 | Feb. 01, 2018 | |
Document And Entity Information | ||
Entity Registrant Name | Level Brands, Inc. | |
Entity Central Index Key | 1,644,903 | |
Document Type | 10-Q | |
Document Period End Date | Dec. 31, 2017 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --09-30 | |
Is Entity a Well-known Seasoned Issuer? | No | |
Is Entity a Voluntary Filer? | No | |
Is Entity's Reporting Status Current? | Yes | |
Entity Filer Category | Smaller Reporting Company | |
Entity Common Stock, Shares Outstanding | 8,028,928 | |
Document Fiscal Period Focus | Q1 | |
Document Fiscal Year Focus | 2,018 |
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS - USD ($) | Dec. 31, 2017 | Sep. 30, 2017 |
Current assets: | ||
Cash and cash equivalents | $ 8,817,856 | $ 284,246 |
Accounts receivable | 65,728 | 141,462 |
Accounts receivable- related party | 0 | 712,325 |
Accounts receivable other | 50,052 | 12,440 |
Accounts receivable other- related party | 290,909 | 236,364 |
Marketable securities | 299,000 | 0 |
Investment other securities | 1,159,112 | 859,112 |
Investment other securities - related party | 200,000 | 0 |
Note receivable - related party | 268,373 | 276,375 |
Inventory | 593,149 | 588,197 |
Deferred initial public offering costs | 0 | 497,735 |
Prepaid expenses and other current assets | 306,964 | 85,420 |
Total current assets | 12,051,143 | 3,693,676 |
Other assets: | ||
Property and equipment, net | 56,125 | 135,476 |
Intangible assets, net | 3,191,725 | 3,240,287 |
Total other assets | 3,247,850 | 3,375,763 |
Total assets | 15,298,993 | 7,069,439 |
Current liabilities: | ||
Accounts payable | 168,645 | 397,601 |
Accounts payable related party | 8,199 | 67,879 |
Deferred revenue | 49,125 | 41,417 |
Accrued payroll | 364,515 | 0 |
Accrued expenses | 165,148 | 123,823 |
Accrued expenses to related party | 12,800 | 892,805 |
Total current liabilities | 768,432 | 1,523,525 |
Long term liabilities | ||
Long term liabilities, to related party | 360,000 | 360,000 |
Deferred tax liability | 15,000 | 37,000 |
Total long term liabilities | 375,000 | 397,000 |
Total liabilities | 1,143,432 | 1,920,525 |
Level Brands, Inc. shareholders' equity: | ||
Preferred stock, authorized 50,000,000 shares, $0.001 par value, no shares issued and outstanding | 0 | 0 |
Common stock, authorized 150,000,000 shares, $0.001 par value, 7,798,928 and 5,792,261 shares issued and outstanding, respectively | 7,799 | 5,792 |
Accumulated other comprehensive income | 33,500 | 0 |
Additional paid in capital | 20,699,403 | 10,463,480 |
Accumulated deficit | (7,390,350) | (6,257,421) |
Total Level Brands, Inc. shareholders' equity | 13,350,352 | 4,211,851 |
Non-controlling interest | 805,209 | 937,063 |
Total shareholders' equity (deficit) | 14,155,561 | 5,148,914 |
Total liabilities and shareholders' equity (deficit) | $ 15,298,993 | $ 7,069,439 |
CONSOLIDATED BALANCE SHEETS (Pa
CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares | Dec. 31, 2017 | Sep. 30, 2017 |
Stockholders' Equity | ||
Preferred Stock Shares, Par Value | $ 0.001 | $ 0.001 |
Preferred Stock Shares, Authorized | 50,000,000 | 50,000,000 |
Preferred Stock Shares, Issued | 0 | 0 |
Preferred Stock Shares, Outstanding | 0 | 0 |
Common Stock Shares, Par Value | $ 0.001 | $ 0.001 |
Common Stock Shares, Authorized | 150,000,000 | 150,000,000 |
Common Stock Shares, Issued | 7,798,928 | 5,792,261 |
Common Stock Shares, Outstanding | 7,798,928 | 5,792,261 |
CONSOLIDATED STATEMENTS OF OPER
CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) | 3 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Income Statement [Abstract] | ||
Sales | $ 448,793 | $ 422,173 |
Sales related party | 254,545 | 0 |
Total Gross Sales | 703,338 | 422,173 |
Allowances | (15,582) | (222,336) |
Net Sales | 433,211 | 199,837 |
Net sales related party | 254,545 | 0 |
Total Net Sales | 687,756 | 199,837 |
Costs of sales | 228,124 | 162,746 |
Gross profit | 459,632 | 37,091 |
Operating expenses | 1,687,644 | 600,266 |
Loss from operations | (1,228,012) | (563,175) |
Loss on disposal of property and equipment | (69,511) | 0 |
Interest expense | 259 | 132,320 |
Loss before provision for income taxes | (1,297,782) | (695,495) |
Benefit (Provision) for income taxes | 33,000 | (2,000) |
Net loss | (1,264,782) | (697,495) |
Net loss attributable to non-controlling interest | (131,854) | (63,016) |
Net loss attributable to Level Brands, Inc. common shareholders | $ (1,132,928) | $ (634,479) |
Loss per share, basic and diluted | $ (0.16) | $ (0.18) |
Weighted average number of shares outstanding | 6,911,871 | 3,485,950 |
CONDENSED CONSOLIDATED STATEMEN
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - USD ($) | 3 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Income Statement [Abstract] | ||
Net loss | $ (1,264,782) | $ (697,495) |
Other Comprehensive Income: | ||
Net Unrealized Gain on Marketable Securities, net of tax | 33,500 | 0 |
Comprehensive Loss | (1,231,282) | (697,495) |
Comprehensive loss attributable to non-controlling interest | (131,854) | (63,016) |
Comprehensive loss attributable to Level Brands, Inc. common shareholders | $ (1,099,428) | $ (634,479) |
CONSOLIDATED STATEMENT OF CASH
CONSOLIDATED STATEMENT OF CASH FLOWS - USD ($) | 3 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Cash flows from operating activities: | ||
Net loss | $ (1,264,782) | $ (697,495) |
Adjustments to reconcile net loss to net cash used by operating activities: | ||
Stock based compensation | 17,114 | 9,672 |
Restricted stock expense | 39,100 | 39,101 |
Issuance of stock / warrants for services | 37,002 | 0 |
Amortization of debt issue costs | 0 | 79,774 |
Depreciation and amortization | 61,067 | 9,189 |
Loss on sale of property and equipment | 69,511 | 4,000 |
Common stock issued as charitable contribution | 0 | 17,000 |
Non-cash consideration received for services provided | (454,503) | 0 |
Changes in operating assets and liabilities: | ||
Accounts receivable | 75,734 | 2,620 |
Accounts receivable – related party | 712,325 | 0 |
Other accounts receivable | (37,612) | 0 |
Other accounts receivable – related party | (54,545) | 0 |
Note receivable – related party | 8,002 | 0 |
Inventory | (4,952) | (19,572) |
Prepaid expenses and other current assets | (221,545) | 26,832 |
Accounts payable and accrued expenses | 162,142 | (49,739) |
Accounts payable and accrued expenses - related party | (939,685) | 0 |
Interest Payable | 0 | 47,981 |
Deferred Revenue | 7,708 | 0 |
Deferred tax liability | (33,000) | 2,000 |
Cash used by operating activities | (1,820,919) | (528,637) |
Cash flows from investing activities: | ||
Purchase of investment other securities | (300,000) | 0 |
Purchase of property and equipment | (2,665) | (7,034) |
Cash used by investing activities | (302,665) | (7,034) |
Cash flows from financing activities: | ||
Proceeds from issuance of common stock | 10,927,535 | 0 |
Proceeds from convertible note | 0 | 2,125,000 |
Debt issuance cost | 0 | (200,800) |
Repayments of line of credit | 0 | (300,000) |
Deferred issuance costs | (270,341) | 0 |
Cash provided by financing activities | 10,657,194 | 1,624,200 |
Net increase (decrease) in cash | 8,533,610 | 1,088,529 |
Cash and cash equivalents, beginning of period | 284,246 | 34,258 |
Cash and cash equivalents, beginning of period | 8,817,856 | 1,122,787 |
Cash Payments for: | ||
Interest expense | 259 | 4,565 |
Non-cash financial activities: | ||
Warrants issued to IPO selling agent | 171,600 | 0 |
IPO costs incurred but unpaid as of quarter end | 14,745 | 0 |
Common stock issued for services | 0 | 570,000 |
Warrants issued with convertible notes | 0 | 5,159 |
Noncontrolling interest transfer | 0 | 338,556 |
Strike price adjustment on placement agent warrants | 0 | 31,505 |
Common stock issued for warrant exercise | 0 | 85,950 |
Equity issued to purchase membership interest in subsidiary | $ 0 | $ 110,000 |
1. ORGANIZATION AND SUMMARY OF
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 3 Months Ended |
Dec. 31, 2017 | |
Organization And Summary Of Significant Accounting Policies | |
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | Organization and Nature of Business Level Brands, Inc. ("Level Brands", "we", "us", “our”, "Parent Company” or the “Company”) is a North Carolina corporation formed on March 17, 2015 as Level Beauty Group, Inc. In November 2016 we changed the name of the Company to Level Brands Inc. We operate from our offices located in Charlotte, North Carolina. Our fiscal year end is established as September 30. The accompanying unaudited interim condensed consolidated financial statements of Level Brands have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the rules of the Securities and Exchange Commission (“SEC”) and should be read in conjunction with the audited consolidated financial statements and notes September 30, 2017. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of consolidated financial position and the consolidated results of operations for the interim periods presented have been reflected herein. Notes to the financial statements which would substantially duplicate the disclosure contained in the audited consolidated financial statements for fiscal year 2017 as reported in the Form 10-K have been omitted. In March 2015, the Company formed Beauty and Pin-Ups, LLC ("BPU"), a North Carolina limited liability company, and contributed $250,000 in exchange for our member interest. As of September 30, 2017 we own 100% interest in BPU. BPU manufactures, markets and sells an array of beauty and personal care products, including hair care and hair treatments, as well as beauty tools. The Company's products are sold to the professional salon segment, principally through distributors to professional salons in the North America. I’M1, LLC. (“I’M1”) was formed in California in September 2016. IM1 Holdings, LLC, a California limited liability company, (“IM1 Holdings”) was the initial member of I’M1. In January 2017, we acquired all of the Class A voting membership interests in I’M1 from IM1 Holdings in exchange for 583,000 shares of our common stock, which represents 51% of the interest in I’M1. IM1 Holdings continues to own the Class B non-voting membership interest of I’M1. I’M1 – Ireland Men One is a brand inspired by Kathy Ireland that focuses on providing millennial-inspired lifestyle products under the I’M1 brand. I’M1 has entered into an exclusive wholesale license agreement with kathy ireland® Worldwide in connection with the use of the intellectual property related to this brand. Encore Endeavor 1, LLC (“EE1”) was formed in California in March 2016. EE1 Holdings, LLC, a California limited liability company, (“EE1 Holdings") was the initial member of EE1. In January 2017, we acquired all of the Class A voting membership interests in EE1 from EE1 Holdings in exchange for 283,000 shares of our common stock, which represents 51% of the interest in EE1. EE1 Holdings continues to own the Class B non-voting membership interests of EE1. EE1 is a company and brand, which is designed to serve as a brand management company and producer and marketer of multiple entertainment distribution platforms under the EE1 brand. Level H&W, LLC (“Level H&W”) was formed in North Carolina in October 2017 and began operations in fiscal 2018; we own 100% interest in Level H&W. The Company signed an agreement with kathy ireland® Worldwide to retain exclusive rights to the intellectual property and other rights in connection with kathy ireland® Health & Wellness™ and its associated trademarks and tradenames. The Company focuses on establishing licensing arrangements under the kathy ireland® Health & Wellness™ brand. The agreement is a seven year agreement with a three year option to extend by the Company. The Company agreed to pay $840,000 over the license term of seven years, of which $480,000 was paid by January 1, 2018, and $120,000 is to be paid on January 1 of subsequent years until paid in full. The agreement can be extended for an additional three years by paying an upfront additional $360,000 upon agreement extension. The Company will pay kathy ireland® Worldwide 33 1/3% of net proceeds we receive under any sublicense agreements we may enter into for this intellectual property as royalties, with credit being applied for any payments made toward the $840,000. On November 17, 2017, the Company completed an initial public offering (the “IPO”) of 2,000,000 shares of its common stock for aggregate gross proceeds of $12.0 million. The Company received approximately $10.9 million in net proceeds after deducting expenses and commissions. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its majority owned subsidiaries I’M1 and EE1 and wholly owned subsidiaries BPU and Level H&W. All material intercompany transactions and balances have been eliminated in consolidation. The third party ownership of the Company’s subsidiaries is accounted for as non-controlling interest in the consolidated financial statements. Changes in the non-controlling interest are reported in the statement of shareholders’ equity (deficit). Reclassifications Certain amounts previously presented in the consolidated financial statements have been reclassified to conform to the current year presentation. Such reclassifications had no effect on previously reported net loss, shareholders’ equity or cash flows . Use of Estimates The preparation of the Company's consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”), and requires management to make estimates and assumptions that affect amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the financial statements and reported amounts of revenues and expenses during the periods presented. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the consolidated financial statements in the period they are determined to be necessary. Significant estimates made in the accompanying consolidated financial statements include, but are not limited to, allowances for doubtful accounts, inventory valuation reserves, expected sales returns and allowances, trade support costs, certain assumptions related to the valuation of investments other securities, common stock, acquired intangible and long-lived assets and the recoverability of intangible and long-lived assets and income taxes, including deferred tax valuation allowances and reserves for estimated tax liabilities. Actual results could differ from these estimates. Cash and Cash Equivalents For financial statements purposes, the Company considers all highly liquid investments with a maturity of less than three months when purchased to be cash equivalents. Accounts receivable and Accounts receivable other Accounts receivable are stated at cost less an allowance for doubtful accounts, if applicable. Credit is extended to customers after an evaluation of customer’s financial condition, and generally collateral is not required as a condition of credit extension. Management’s determination of the allowance for doubtful accounts is based on an evaluation of the receivables, past experience, current economic conditions, and other risks inherent in the receivables portfolio. In addition, the Company may, from time to time, enter into contracts where a portion of the consideration provided by the customer in exchange for the Company's services is common stock, options or warrants (an equity position). In these situations, upon invoicing the customer for the stock or other instruments, the Company will record the receivable as accounts receivable other, and use the value of the stock or other instrument upon invoicing to determine the value. Where an accounts receivable is settled with the receipt of the common stock or other instrument, the common stock or other instrument will be classified as an asset on the balance sheet as either an investment marketable security (when the customer is a public entity) or as an investment other security (when the customer is a private entity). Accounts receivable and accounts receivable other items that involve a related party are indicated as such on the face of the financial statements. Marketable Securities At the time of acquisition, a marketable security is designated as available-for-sale as the intent is to hold for a period of time before selling. Available-for-sale securities are carried at fair value on the consolidated balance sheets statements of financial condition with changes in fair value recorded in the accumulated other comprehensive income component of shareholders’ equity in the period of the change in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Code (“ASC”) 320-10. Upon the disposition of an available-for-sale security, the Company reclassifies the gain or loss on the security from accumulated other comprehensive income to non-operating income on the Company’s consolidated statements of operations. Investment Other Securities For equity investments where the Company neither controls nor has significant influence over the investee and which are non-marketable, the investments are accounted for using the cost method of accounting in accordance with ASC 325-10. Under the cost method, dividends received from the investment are recorded as dividend income within non-operating income. Other-than-Temporary Impairment The Company’s management periodically assesses its marketable securities and investment other securities, for any unrealized losses that may be other-than-temporary and require recognition of an impairment loss in the consolidated statement of operations. If the cost of an investment exceeds its fair value, the Company evaluates, among other factors, general market conditions, the length of time the security has been in a loss position, the extent to which the security’s market value is less than its cost, the financial condition and prospects of the security’s issuer and the Company’s ability and intent to hold the security for a length of time sufficient to allow for recovery. If the impairment is considered other-than-temporary, an impairment charge is recorded in non-operating income in the consolidated statements of operations. Inventory Inventory is stated at the lower of cost or net realizable value with cost being determined on a weighted average basis. The cost of inventory includes product cost, freight-in, and production fill and labor (which we outsource to third party manufacturers). Write-offs of potentially slow moving or damaged inventory are recorded based on management’s analysis of inventory levels, forecasted future sales volume and pricing and through specific identification of obsolete or damaged products. Prepaid Inventory represents deposits made with third party manufacturers in order to begin production of an order for product. We assess inventory quarterly for slow moving products and potential impairments and perform a physical inventory count annually near fiscal year end. Property and Equipment Property and equipment items are stated at cost less accumulated depreciation. Expenditures for maintenance and repairs are charged to operations as incurred. Depreciation is charged to expense over the estimated useful lives of the assets using the straight-line method. Generally, the useful lives are five years for show booths and equipment, three years for manufacturer’s molds and plates, three years for computer, furniture and equipment, and three years for software. The cost and accumulated depreciation of property are eliminated from the accounts upon disposal, and any resulting gain or loss is included in the consolidated statement of operations for the applicable period. Long-lived assets held and used by the Company are reviewed for impairment whenever changes in circumstance indicate the carrying value of an asset may not be recoverable. Fair value accounting The Company utilizes accounting standards for fair value, which include the definition of fair value, the framework for measuring fair value, and disclosures about fair value measurements. Fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, fair value accounting standards establish a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy). Level 1 inputs utilize quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are directly or indirectly observable for the asset or liability. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability. Level 3 inputs are unobservable inputs for the asset or liability, which are based on an entity’s own assumptions, as there is little, if any, observable market activity. In instances where the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. When the Company records an investment in marketable securities the asset is valued at fair value. For investment other securities, it will value the asset using the cost method of accounting. Any changes in fair value for marketable securities during a given period will be recorded as a gain or loss in other comprehensive income, unless a decline is determined to be other-than-temporary. For investment other securities we use the cost method and compare the fair value to cost in order to determine if there is an other-than-temporary impairment. Intangible Assets The Company's intangible assets consist of trademarks and other intellectual property, all of which are accounted for ASC Topic 350, Intangibles – Goodwill and Other. The Company employs the non-amortization approach to account for purchased intangible assets having indefinite lives. Under the non-amortization approach, intangible assets having indefinite lives are not amortized into the results of operations, but instead are reviewed annually or more frequently if events or changes in circumstances indicate that the assets might be impaired, to assess whether their fair value exceeds their carrying value. We perform an impairment analysis at August 1 annually on the indefinite-lived intangible assets following the steps laid out in ASC 350-30-35-18. Our annual impairment analysis includes a qualitative assessment to determine if it is necessary to perform the quantitative impairment test. In performing a qualitative assessment, we review events and circumstances that could affect the significant inputs used to determine if the fair value is less than the carrying value of the intangible assets. If a quantitative analysis is necessary, we would analyze various aspects including number of contracts acquired and retained as well as revenues from those contracts, associated with the intangible assets. In addition, intangible assets will be tested on an interim basis if an event or circumstance indicates that it is more likely than not that an impairment loss has been incurred. Events that are assessed include contracts acquired and lost that are associated with the intangible assets, as well as the revenues associated with those contracts. Intangible assets with finite useful lives are amortized using the straight-line method over their estimated period of benefit. In accordance with ASC 360-10-35-21, definite lived intangibles are reviewed annually or more frequently if events or changes in circumstances indicate that the assets might be impaired, to assess whether their fair value exceeds their carrying value. In Conjunction with any acquisitions, the Company refers to ASC-805 as amended by Accounting Standards Update (“ASU”) 2017-01in determining if the Company is acquiring any inputs, processes or outputs and the impact that such factors would have on the classification of the acquisition as a business combination or asset purchase. Additionally, the Company refers to the aforementioned guidance in reviewing all potential assets and liabilities for valuation including the determination of intangible asset values. Common stock Level Brands was a private company until November 2017 and as such there was no market for the shares of its common stock. Previously, we valued a share of common stock based on recent financing transactions that included the issuance of common stock to an unrelated party at a specified price. In the event, however, there had not been a recent and significant equity financing transaction or the nature of the business has significantly changed subsequent to an equity financing, we used valuation techniques, which included discounted cash flow analysis, comparable company review, and consultation with third party valuation experts to assist in estimating the value of our common stock. On November 17, 2017, the Company completed its IPO, thus our stock is valued by the market since that date. Revenue Recognition The Company's policy in relation to product sales, is to recognize revenue when persuasive evidence of an arrangement exists, shipping has occurred or service obligations have been satisfied, the sales price is fixed or determinable and collection is probable. The Company records revenue from the sale of its products when risk of loss and title to the product are transferred to the customer, which is upon shipping. Net sales are comprised of gross revenues less expected product returns, trade discounts and customer allowances, which include costs associated with off-invoice mark-downs and other price reductions, as well as trade promotions and coupons. These incentive costs are recognized at the later of the date on which the Company recognizes the related revenue or the date on which the Company offers the incentive. Although, the Company does not have a formal return policy, from time to time the Company will allow customers to return certain products. A business decision related to customer returns is made by the Company and is performed on a case-by-case basis. We record returns as a reduction in sales and based on whether we dispose of the returned product, adjust inventory and record expense as appropriate. There were no allowances for sales returns during the three months ended December 31, 2017 and 2016. The Company also enters into various license agreements that provide revenues based on royalties as a percentage of sales and advertising/marketing fees. The contracts can also have a minimum royalty, with which this and the advertising/marketing revenue is recognized on a straight-line basis over the term of each contract year, as defined, in each license agreement. Royalties exceeding the defined minimum amounts are recognized as income during the period corresponding to the licensee’s sales, as are all royalties that do not have a minimum royalty. Payments received as consideration of the grant of a license are recognized ratably as revenue over the term of the license agreement and are reflected on the Company’s consolidated balance sheets as deferred license revenue at the time payment is received and recognized ratably as revenue over the term of the license agreement. Similarly, advanced royalty payments are recognized ratably over the period indicated by the terms of the license and are reflected in the Company’s consolidated balance sheet in deferred license revenue at the time the payment is received. Revenue is not recognized unless collectability is reasonably assured. If licensing arrangements are terminated prior to the original licensing period, we will recognize revenue for any contractual termination fees, unless such amounts are deemed non-recoverable. In regard to sales for services provided, the Company records revenue when persuasive evidence of any agreement exists, services have been rendered, and collectability is reasonably assured. Based on the contracted services, revenue is recognized when the Company invoices customers for completed services at agreed upon rates or revenue is recognized over a fixed period of time during which the service is performed. Cost of Sales Our cost of sales includes costs associated with distribution, external fill and labor expense, components, and freight for our professional products divisions, and includes labor and third party service providers for our licensing and entertainment divisions. In our professional products division, cost of sales also includes the cost of refurbishing products returned by customers that will be offered for resale and the cost of inventory write-downs associated with adjustments of held inventories to their net realizable value. These costs are reflected in the Company’s consolidated statements of operations when the product is sold and net sales revenues are recognized or, in the case of inventory write-downs, when circumstances indicate that the carrying value of inventories is in excess of their recoverable value. Advertising Costs The Company expenses all costs of advertising and related marketing and promotional costs as incurred. The Company incurred approximately $194,000 and $30,000 in advertising and related marketing and promotional costs included in operating expenses during the three months ended December 31, 2017 and 2016, respectively. Shipping and Handling Fees and Costs All fees billed to customers for shipping and handling are classified as a component of sales. All costs associated with shipping and handling are classified as a component of cost of goods sold. Income Taxes The Parent Company is a North Carolina corporation that is treated as a corporation for federal and state income tax purposes. Prior to April 2017, BPU was a multi-member limited liability company that was treated as a partnership for federal and state income tax purposes. As such, the Parent Company’s partnership share in the taxable income or loss of BPU was included in the tax return of the Parent Company. Beginning in April of 2017, the Parent Company acquired the remaining interest in BPU. As a result of the acquisition, BPU became a disregarded entity for tax purposes and its entire share of taxable income or loss was included in the tax return of the Parent Company. Level H&W is a wholly owned subsidiary and is a disregarded entity for tax purposes and its entire share of taxable income or loss is included in the tax return of the Parent Company. IM1 and EE1 are multi-member limited liability companies that are treated as partnerships for federal and state income tax purposes. As such, the Parent Company’s partnership share in the taxable income or loss of IM1 and EE1 are included in the tax return of the Parent Company. The Parent Company accounts for income taxes pursuant to the provisions of the Accounting for Income Taxes topic of the FASB Accounting Standards Codification (“ASC”), which requires, among other things, an asset and liability approach to calculating deferred income taxes. The asset and liability approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. The Parent Company uses the inside basis approach to determine deferred tax assets and liabilities associated with its investment in a consolidated pass-through entity. A valuation allowance is provided to offset any net deferred tax assets for which management believes it is more likely than not that the net deferred asset will not be realized. US GAAP requires management to evaluate tax positions taken by the Company and recognize a tax liability (or asset) if the Company has taken an uncertain tax position that more likely than not would not be sustained upon examination by the Internal Revenue Service. Management has analyzed the tax positions taken by the Company, and has concluded that as of December 31, 2017 and 2016, there were no uncertain tax positions taken or expected to be taken that would require recognition of a liability (or asset) or disclosure in the consolidated financial statements. Concentrations Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents, accounts receivable, and securities. The Company places its cash and cash equivalents on deposit with financial institutions in the United States. The Federal Deposit Insurance Corporation (“FDIC”) covers $250,000 for substantially all depository accounts. The Company from time to time may have amounts on deposit in excess of the insured limits. The Company had a $8,347,313 uninsured balance at December 31, 2017 and a $4,728 uninsured balance at September 30, 2017. Concentration of credit risk with respect to receivables is principally limited to trade receivables with corporate customers that meet specific credit policies. Management considers these customer receivables to represent normal business risk. The Company had sales to three customers that individually represented over 10% of total net sales for the three months ended December 31, 2017. Such customers represented 37%, 13%, and 37% of net sales. Net sales to such customers reported in the entertainment divisions were approximately $254,000, $92,000 and $254,000, respectively. The aggregate accounts receivable of such customers represented 79% of the Company’s total accounts receivable at December 31, 2017. The Company had two customers whose revenue collectively represented approximately 88% of the Company’s net sales for the three months ended December 31, 2016. Debt Issuance Costs Debt issuance costs related to a recognized debt liability are presented in the balance sheet as a direct deduction from the carrying value of that debt liability, consistent with debt discounts. Amortization of debt issuance costs are included as a component of interest expense in accordance with ASU 2015-03. All debt obligations were satisfied in fiscal 2017 and all amortization costs had been recognized in interest expense in fiscal 2017 (see Notes 7 and 8). Stock-Based Compensation We account for our stock compensation under the ASC -718-10-30 “Compensation - Stock Compensation” using the fair value based method. Under this method, compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. This guidance establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity's equity instruments or that may be settled by the issuance of those equity instruments. We use the Black-Scholes model for measuring the fair value of options and warrants. The stock based fair value compensation is determined as of the date of the grant or the date at which the performance of the services is completed (measurement date) and is recognized over the vesting periods. Under ASU 2016-09 which amends ASC 718 and the standard became effective October 1, 2017, we elected to change our accounting principle to recognize forfeitures when they occur. This change had no impact on beginning retained earnings as there had been no forfeitures estimated or incurred in prior periods. Net Loss Per Share The Company uses ASC 260-10, “Earnings Per Share” for calculating the basic and diluted loss per share. The Company computes basic loss per share by dividing net loss and net loss attributable to common shareholders by the weighted average number of common shares outstanding. Common equivalent shares are excluded from the computation of net loss per share if their effect is anti-dilutive. At December 31, 2017 and 2016, 855,476 and 597,476 potential shares, respectively, were excluded from the shares used to calculate diluted loss per share as their inclusion would reduce net loss per share. Deferred IPO costs In following the guidance under ASC 340-10-S99-1, IPO costs directly attributable to an offering of equity securities were deferred and charged against the gross proceeds of the offering as a reduction of additional paid-in capital during the three months ended December 31, 2017. These costs included legal fees related to the registration drafting and counsel, independent audit costs directly related to the registration and offering, SEC filing and print related costs, exchange listing costs, and IPO roadshow related costs. New Accounting Standards In May 2014, August 2015 and May 2016, the FASB issued ASU 2014-09, Revenue from Contracts with Customers Revenue from Contracts with Customers, Deferral of the Effective Date Subsequently, the FASB has issued the following standards related to ASU 2014-09: ASU No. 2016-08, Revenue from Contracts with Customers Revenue from Contracts with Customers Identifying Performance Obligations and Licensing Revenue from Contracts with Customers Narrow-Scope Improvements and Practical Expedients Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers The Company is assessing the impact, if any, of implementing this guidance on its consolidated financial position, results of operations and liquidity. The Company will adopt this standard in the first quarter of fiscal 2019. In February 2016, the FASB issued ASU 2016-02, Leases In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments |
2. ACQUISITIONS
2. ACQUISITIONS | 3 Months Ended |
Dec. 31, 2017 | |
Acquisitions | |
ACQUISITIONS | In March 2015 Level Brands formed BPU, a North Carolina limited liability company, and contributed $250,000 in exchange for its member interest. In April 2015 BPU entered into a Contribution Agreement with Beauty & Pinups, Inc., a New York corporation ("BPUNY"), and two members. Under the terms of the Contribution Agreement, BPUNY and its founder contributed the business and certain assets, including the trademark “Beauty & Pin Ups” and its variants, certain other intellectual property and certain inventory to BPU in exchange for a (i) 22% membership interest for two members, and (ii) $150,000 in cash. At closing we assumed $277,500 of BPUNY's accounts payable to its product vendor, which bore interest at 6% annually. The payable was paid off in April 2016. The fair value of the noncontrolling membership interest issued was based on the value of the initial contribution of $250,000 made by Level Brands. The total consideration paid was allocated to the net assets acquired based on relative fair values of those net assets as of the transaction date, in accordance with the Fair Value Measurement topic of the FASB ASC 820. The fair value is comprised of the cash, accounts payable acquired, non-controlling interest and a minimal amount of inventory, all in aggregate valued at $486,760. I’M1 was formed in California in September 2016. IM1 Holdings was the initial member of IM'1. In January 2017, we acquired all of the Class A voting membership interests in I’M1 from IM1 Holdings in exchange for 583,000 shares of our common stock, which represents 51% of the interest in I’M1. The shares were valued by the Company based upon assumptions and other information provided by management, and used three approaches available when valuing a closely held business interest: the cost approach, the income approach and the market approach. Consequently, the market approach was deemed most appropriate, as it considers values established by non-controlling buyers and sellers of interests in the Company as evidenced by implied pricing in rounds of financing. In addition, given the limited data and outlook, the backsolve method was applied to assign values to the common equity, options and warrants after giving consideration to the preference of the convertible debt holders. The valuation determined the price per share of $0.85 which put the value of the 583,000 shares at $495,550. IM1 Holdings continues to own the Class B non-voting membership interest of I’M1. We accounted for the membership acquired by allocating the purchase price to the tradename and intellectual property valued at $971,667. EE1 was formed in California in March 2016. EE1 Holdings was the initial member of EE1 Holdings. In January 2017, we acquired all of the Class A voting membership interests in EE1 from EE1 Holdings in exchange for 283,000 shares of our common stock, which represents 51% of the interest in EE1. We used the same valuation from the Company of $0.85 per share which put the value of the 283,000 shares at $240,550. EE1 Holdings continues to own the Class B non-voting membership interests of EE1. We accounted for the membership acquired by allocating the purchase price to the tradename and intellectual property valued at $471,667. |
3. MARKETABLE SECURITIES AND IN
3. MARKETABLE SECURITIES AND INVESTMENT OTHER SECURITIES | 3 Months Ended |
Dec. 31, 2017 | |
Marketable Securities And Investment Other Securities | |
MARKETABLE SECURITIES AND INVESTMENT OTHER SECURITIES | The Company may, from time to time, enter into contracts where a portion of the consideration provided by the customer in exchange for the Company's services is common stock, options or warrants (an equity position). In these situations, upon invoicing the customer for the stock or other instruments, the Company will record the receivable as accounts receivable other, and use the value of the stock or other instrument upon invoicing to determine the value. If there is insufficient data to support the valuation of the security directly, the company will value it, and the underlying revenue, on the estimated fair value of the services provided. Where an accounts receivable is settled with the receipt of the common stock or other instrument, the common stock or other instrument will be classified as an asset on the balance sheet as either an investment marketable security (when the customer is a public entity) or as an investment other security (when the customer is a private entity). As of April 2017, the Company received 2,500,000 shares of common stock, of an OTC-quoted company as terms of its agreement for services to the OTC-quoted company, which was valued at $650,000 based on the trading price on the OTC Markets the day of issuance, which was $0.26 per share. The shares were restricted as indicated under Securities Act of 1933 and may not be resold without registration under the Securities Act of 1933 or an exemption therefrom. The Company determined that this common stock was classified as Level 1 for fair value measurement purposes as the stock was actively traded on an exchange. As of June 30, 2017 the trading price on the OTC Markets was $0.03 and the Company had exchanged the 2,500,000 shares of common stock with the issuer for 65 shares of preferred stock. The 65 shares of preferred stock issued were each convertible using the lesser of either $0.26 per share or the 30 day trading average, that would provide a number of shares equal to the value of $10,000 per share. The Company classified the preferred stock as Level 3 for fair value measurement purposes as there were no observable inputs. The preferred shares also contained a put option for the holder for the stated value per share. The Company determined that the value of the preferred shares was $475,000, which was an approximation of fair market value. On July 31, 2017 the Company sold the preferred shares to a related party for $475,000; $200,000 in cash and a short term note receivable for $275,000. As a result, the Company recorded an other-than-temporary impairment on securities for the year ended September 30, 2017 of $175,000 in the consolidated statement of operations. On June 23, 2017, I’M1 and EE1 in aggregate exercised a warrant for 1,600,000 shares of common stock for services delivered to a customer and accounted for this in Investment Other Securities. The common stock was issued to the Company’s subsidiaries I’M1 and EE1. The customer is a private entity and the stock was valued at $912,000, which was based on its recent financing in June 2017 at $0.57 per share. The Company has classified this common stock as Level 3 for fair value measurement purposes as there are no observable inputs. In valuing the stock the Company used the fair value of the services provided, utilizing an analysis of vendor specific objective evidence of its selling price. In August 2017, each of I’M1 and EE1 distributed the shares to its majority owner, Level Brands, and also distributed shares valued at $223,440 to its non-controlling interests (“NCI”). In August 2017, the Company also provided referral services for kathy Ireland® WorldWide and this customer. As compensation the Company received an additional 200,000 shares of common stock valued at $114,000 using the pricing described above. The Company assessed the common stock and determined there was not an impairment for the period ended December 31, 2017. On September 19, 2017, I’M1 and EE1 in aggregate exercised a warrant for 56,552 shares of common stock for services delivered to a customer and accounted for this in Investment Other Securities. The common stock was issued to the Company’s subsidiaries I’M1 and EE1. The customer is a private entity and the stock was valued at $56,552, which was based on all 2017 financing transactions of the customer set at $1.00 per share, with the most recent third party transaction in August 2017. The Company has classified this common stock as Level 3 for fair value measurement purposes as there are no observable inputs. In valuing the stock the Company used factors including financial projections provided by the issuer and conversations with the issuer management regarding the Company’s recent results and future plans and the Company’s financing transactions over the past twelve months. In November 2017, the Company completed services in relation to an agreement with SG Blocks, Inc. As payment for these services, SG Blocks issued 50,000 shares of its common stock to Level Brands. The customer is a publicly traded entity and the stock was valued based on the trading price at the day the services were determined delivered, which was $5.09 per share for an aggregate value of $254,500. The Company determined that this common stock was classified as Level 1 for fair value measurement purposes as the stock was actively traded on an exchange. The common stock is held as available for sale, and at December 31, 2017, the shares were $5.98 per share, and we recorded $44,500 as other comprehensive income on the Company consolidated financial statements. In December 2017, the Company completed advisory services in relation to an agreement with Kure Corp, a related party, which it entered into in August 2017. As payment for these services, Kure Corp issued 400,000 shares of its stock to Level Brands. The customer is a private entity and the stock was valued at $200,000, which was based on financing activities by Kure Corp in September 2017 in which shares were valued at $0.50 per share. The Company has classified this common stock as Level 3 for fair value measurement purposes as there are no observable inputs. In valuing the stock the Company used factors including information provided by the issuer regarding their recent results and future plans as well as their most recent financing transactions. On December 21, 2017, the Company purchased 300 shares of preferred stock in a private offering from a current customer for $300,000. The preferred shares are convertible into common stock at a 20% discount of a defined subsequent financing, or an IPO offering of a minimum $15 million, or at a company valuation of $45 million whichever is the least. The customer is a private entity. The Company has classified this common stock as Level 3 for fair value measurement purposes as there are no observable inputs. In valuing the stock the Company used the value paid, which was the price offered to all third party investors. The table below summarizes the assets valued at fair value as of December 31, 2017: In Active Markets for Identical Assets and Liabilities (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Fair Value at December 31, 2017 Marketable securities $ 299,000 - $ - $ 299,000 Investment other securities - - $ 1,359,112 $ 1,359,112 Level 1 Level 2 Level 3 Total Balance at September 30, 2017 $ - $ - $ 859,112 $ 859,112 Receipt of equity investment upon completion of contract $ 254,500 $ - $ - $ 254,500 Receipt of equity investment upon completion of contract $ - $ - $ 200,000 $ 200,000 Purchase of preferred shares, convertible into common stock $ - $ - $ 300,000 $ 300,000 Change in value of equity, other comprehensive income $ 44,500 $ - $ - $ 44,500 Balance at December 31, 2017 $ 299,000 $ - $ 1,359,112 $ 1,658,112 |
4. INVENTORY
4. INVENTORY | 3 Months Ended |
Dec. 31, 2017 | |
Inventory Abstract | |
INVENTORY | Inventory at December 31, 2017 and September 30, 2017 consists of the following: December 31, September 30, 2017 2017 Finished goods $ 383,036 $ 375,459 Inventory components 210,113 212,738 Inventory reserve - - Total $ 593,149 $ 588,197 At September 30, 2017, the Company determined that inventory was impaired by approximately $67,000. |
5. PROPERTY AND EQUIPMENT
5. PROPERTY AND EQUIPMENT | 3 Months Ended |
Dec. 31, 2017 | |
Property And Equipment | |
PROPERTY AND EQUIPMENT | Major classes of property and equipment at December 31, 2017 and September 30, 2017 consist of the following: December 31, September 30, 2017 2017 Computers and equipment $ 39,926 $ 37,261 Show booth and equipment 49,123 171,986 Manufacturers’ molds and plates 34,200 34,200 123,249 243,447 Less accumulated depreciation (67,124 ) (107,971 ) Net property and equipment $ 56,125 $ 135,476 Depreciation expense related to property and equipment was $13,756 and $9,189 for the periods ended December 31, 2017 and 2016, respectively. In the three months ended December 31, 2017 we recorded a one time loss of $69,511 on the disposal of a show booth that is no longer in use. |
6. INTANGIBLE ASSETS
6. INTANGIBLE ASSETS | 3 Months Ended |
Dec. 31, 2017 | |
Intangible Assets | |
INTANGIBLE ASSETS | On April 13, 2015, BPU acquired from BPUNY certain assets, including the trademark "Beauty & Pin Ups" and its variants and certain other intellectual property and assumed $277,500 of BPUNY's accounts payable to its product vendor, which was paid off in April 2016. On January 6, 2017, the Company acquired 51% ownership in I’M1 from I’M1 Holdings. I’M1’s assets include the trademark "I’M1” and its variants and certain other intellectual property. Specifically, a licensing agreement with kathy ireland® Worldwide and an advisory agreement for services with kathy ireland® Worldwide. The licensing agreement provides the rights to use of the tradename for business and licensing purposes, this is the baseline of the business and will be required as long as the business is operating. Our capability for renewals of these agreements are extremely likely as the agreements are with a related party. We also believe the existence of this agreement does not have limits on the time it will contribute to the generation of cash flows for I’M1 and therefore we have identified these as indefinite-lived intangible assets. On January 6, 2017, the Company acquired 51% ownership in EE1 from EE1 Holdings. EE1’s assets include the trademark "EE1” and its variants and certain other intellectual property. Specifically, a production deal agreement with BMG Rights Management US and an advisory agreement for services with kathy ireland® Worldwide. We believe the production deal agreement and the advisory agreement do not have limits on the time they will contribute to the generation of cash flows for EE1 and therefore we have identified these as indefinite-lived intangible assets. On September 8, 2017, the Company entered into a seven year wholesale license agreement with Andre Carthen and issued 45,500 shares of common stock, valued at $179,725. In addition, the Company agreed to pay $65,000 in cash within 30 days completion of its initial public offering and also issued warrants to purchase 45,500 shares of common stock at a strike price of $4.00. The warrants were valued at $65,338. Under the terms of this nonexclusive agreement, we have the right to use, assign and sublicense the marks, intellectual property and other rights in connection with "Chef Andre," "Andre Carthen," ACafe" or "Fit Chef" and all trade names, trademarks and service marks related to this intellectual property for the purpose of entering into sublicense agreements with third parties for the manufacture, marketing and sale of products utilizing these marks. We are amortizing the capitalized value of the cash, warrants and common stock over the seven year term of the agreement and have amortized $11,847 for the three months ended December 31, 2017. On September 8, 2017, the Company entered into a seven year wholesale license agreement with Nicholas Walker and issued 25,000 shares of common stock, valued at $98,750. In addition, the Company agreed to pay $40,000 in cash within 30 days completion of its initial public offering and also issued warrants to purchase 25,000 shares of common stock at a strike price of $4.00. The warrants were valued at $35,900. Under the terms of this nonexclusive agreement, we have the right to use, assign and sublicense the marks, intellectual property and other rights in connection with "Jardin," "Nicholas Walker," "Nicholas Walker Jardin," "Nicholas Walker Garden Party," "Cultivated by Nicholas Walker," and "Jardin Du Jour," and all trade names, trademarks and service marks related to this intellectual property for the purpose of entering into sublicense agreements with third parties for the manufacture, marketing and sale of products utilizing these marks. We are amortizing the capitalized value of the cash, warrants and common stock over the seven year term of the agreement and have amortized $6,713 for the three months ended December 31, 2017. In September 2017, the Company entered into an exclusive seven year license agreement with kathy ireland® Worldwide for the right to license the mark, intellectual property and other marks in connection with kathy ireland® Health & Wellness™. The agreement is for seven years for a license fee of $840,000. The Company has an option to extend for another three years for an additional price of $360,000. Per the agreement, $480,000 was paid prior to January 1, 2018. The remaining amount of $360,000 are due in equal installments on January 1 of subsequent years until the license fee is paid, and are classified as long term liabilities related party as of December 31, 2017. Under this license agreement with kathy ireland® Worldwide we were granted an exclusive, royalty free right to license, assign and use the kathy ireland® Health & Wellness™ trademark, and all trade names, trademarks and service marks related to the intellectual property including any derivatives or modifications, goodwill associated with this intellectual property when used in conjunction with health and wellness as well as Ms. Ireland's likeness, videos, photographs and other visual representations connected with kathy ireland® Health & Wellness™. The license and associated intellectual property is being amortized over the term of the agreement and we have amortized $30,000 for the three months ended December 31, 2017. Intangible assets as of December 31, 2017 and September 30, 2017 consisted of the following: December 31, September 30, 2017 2017 Trademark and other intellectual property related to BPU $ 486,760 $ 486,760 Trademark and other intellectual property related to I’M1 971,667 971,667 Trademark and other intellectual property related to EE1 471,667 471,667 Trademark, tradename and other intellectual property related to kathy ireland®Health & Wellness™, net 800,000 830,000 Cash, warrants and stock issued related to the Wholesale license agreement with Chef Andre Carthen, net 295,298 307,146 Cash, warrants and stock issued related to the Wholesale license agreement with Nicholas Walker, net 166,333 173,047 Total $ 3,191,725 $ 3,240,287 In September 2017 the Company acquired three definite lived intangible assets, all with a seven year life. Future amortization schedule: Intangible Total unamortized cost 2018 2019 2020 2021 2022 thereafter Trademark, tradename and other intellectual property related to kathy ireland® Health & Wellness™ $ 800,000 $ 90,000 $ 120,000 $ 120,000 $ 120,000 $ 120,000 $ 230,000 Cash, warrant and stock issued related to the Wholesale license agreement with Chef Andre Carthen $ 295,298 $ 32,446 $ 44,294 $ 44,294 $ 44,294 $ 44,294 $ 85,676 Cash, warrant and stock issued related to the Wholesale license agreement with Nicholas Walker $ 166,333 $ 17,402 $ 24,950 $ 24,950 $ 24,950 $ 24,950 $ 48,297 The Company performs an impairment analysis at August 1 annually on the indefinite-lived intangible assets following the steps laid out in ASC 350-30-35-18. Our annual impairment analysis includes a qualitative assessment to determine if it is necessary to perform the quantitative impairment test. In performing a qualitative assessment we review events and circumstances that could affect the significant inputs used to determine if the fair value is less than the carrying value of the intangible assets. In addition, intangible assets will be tested on an interim basis if an event or circumstance indicates that it is more likely than not that an impairment loss has been incurred and the Company evaluates the indefinite-lived intangible assets each reporting period to determine whether events and circumstances continue to support an indefinite useful life. The Company has performed a qualitative and quantitative analysis and for the years ended September 30, 2017 and 2016 there has been no impairment. The Company has determined that no event or circumstances indicate likeliness of an impairment as of December 31, 2017. The Company performs an impairment analysis at August 1 annually on the definite lived intangible assets following the steps laid out in ASC 360-10-35-21. We first assess if there is an indicator of possible impairment such as change in the use of the asset, market price changes in the asset, or other events that impact the value of the asset. If an indicator is present we then perform a quantitative analysis to determine if the carrying amount of the asset is recoverable. This is done by comparing the total undiscounted future cash flows of the long-lived asset to its carrying amount. If the total undiscounted future cash flows exceed the carrying amount of the asset, the carrying amount is deemed recoverable and an impairment is not recorded. If the carrying amount of a long-lived asset is deemed to be unrecoverable, an impairment loss needs to be estimated. In order to calculate the impairment loss, the Fair Value of the asset must be determined. Fair Value referenced here is determined using the guidance in FASB ASC Topic 820. After assessing indicators for impairment, the Company determined that a quantitative analysis was not needed as of December 31, 2017. |
7. CONVERTIBLE PROMISSORY NOTES
7. CONVERTIBLE PROMISSORY NOTES | 3 Months Ended |
Dec. 31, 2017 | |
Convertible Promissory Notes | |
CONVERTIBLE PROMISSORY NOTES | On October 4, 2016 and October 24, 2016, the Company issued in aggregate $2,125,000 of 8% Convertible Promissory Notes to accredited investors. The securities consist of 8% Convertible Notes with warrants to purchase 141,676 shares of the Company’s stock (the “Notes”). The warrants have an exercise price of $7.80. The Warrants expire in September 2021 and are exercisable beginning the earlier of: (i) immediately after the IPO Closing; or (ii) July 1, 2017. Effective June 30, 2017, the Company converted the $2,125,000 principal amount of convertible promissory notes and all accrued interest of $127,500 into common shares of the Company at a price of $3.95 per share. In this transaction, the Company issued 570,254 shares of common stock. The Company accounted for the initial issuance of these Notes in accordance with FASB ASC Topic 470-20 “Debt with Conversion and Other Options”. The Black-Scholes value of the warrants, $5,159, associated with the issuance was recorded as a discount to debt and was amortized into interest expense. In addition, the issuance of the Notes and warrants were assessed and did not contain an embedded beneficial conversion feature as the effective conversion price was not less than the relative fair value of the instrument. We also had fees of $200,800 associated with the financing, which was recorded as a debt discount and is being amortized over the term of the Notes. We have recorded no interest expense related to these amounts for the three months ended December 31, 2017. |
8. LINE OF CREDIT
8. LINE OF CREDIT | 3 Months Ended |
Dec. 31, 2017 | |
Line Of Credit | |
LINE OF CREDIT | In August 2015, we entered into a one year $1,000,000 revolving line of credit agreement with LBGLOC, LLC, a related party. Under the terms of the agreement, we pay interest on any amounts available for advance at the rate of 10% per annum. We granted LBGLOC, LLC a blanket security agreement on our assets as collateral for amounts advanced under the credit line. As additional consideration for granting the credit line, we issued the lender 16,000 shares of common stock, valued at $32,000 and was recorded as a debt discount and amortized over the term of the note. The agreement was renewed for an additional one year period on September 1, 2016. As additional consideration for renewing the credit line, we issued the lender 14,000 shares of common stock, which was valued at $105,000 based on the most recent equity financing in February 2016, and was recorded as a debt discount and was being amortized over the term of the note. On June 6, 2017, pursuant to an agreement dated May 15, 2017, the Company converted the outstanding principal balance of the line of credit in the amount of $593,797, together with the accrued interest of $179,380 for a total payoff amount of $773,177 into common shares of the Company at a price of $3.95 per share. The Company recorded a loss on extinguishment of $8,750 which was recorded as interest expense in the consolidated statement of operations. In this transaction, the Company issued 195,740 shares of common stock. The outstanding balances due under the agreements were $0 at both December 31, 2017 and September 30, 2017. |
9. RELATED PARTY TRANSACTIONS
9. RELATED PARTY TRANSACTIONS | 3 Months Ended |
Dec. 31, 2017 | |
Related Party Transactions [Abstract] | |
RELATED PARTY TRANSACTIONS | In November 2016 we issued 20,000 shares of our common stock valued at $17,000 to Best Buddies International as a charitable contribution. Best Buddies International is an affiliate of a member of our board of directors. On January 1, 2017, we entered into a sublease agreement for office space with Kure Corp. (“Kure”). The lease is for one year and the space was to be used by our subsidiary BPU. A shareholder of Kure is Stone Street Capital, LLC, an affiliate of our CEO and Chairman and our CEO and Chairman was the past Chairman of Kure and is also a shareholder of Kure. In February 2017 we entered into a master advisory and consulting agreement with kathy ireland® Worldwide, as amended, pursuant to which we have engaged the company to provide non-exclusive strategic advisory services to us under a term expiring in February 2025. Under the terms of this agreement, Ms. Ireland serves in the non-executive positions as our Chairman Emeritus and Chief Brand Strategist. The agreement also provides that kathy ireland® Worldwide will provide input to us on various aspects of our corporate strategies and branding, provides access to us of its in-house design team to assist us in developing our brands. As compensation under the agreement we agreed to pay kathy ireland® Worldwide a nominal monthly fee. We are also responsible for the payment of expenses incurred by Ms. Ireland or kathy ireland® Worldwide in providing these services to our company. On February 8, 2017 the Company entered into a one year advisory agreement with Mr. Tommy Meharey pursuant to which he provides advisory and consulting services to us, including serving as co-Managing Director of I’M1. We have agreed to pay Mr. Meharey a fee of $15,000 per month for his services. We are negotiating and expect to execute a new agreement with multi-year terms. On February 8, 2017 the Company entered into a one year advisory agreement with Mr. Nic Mendoza pursuant to which he provides advisory and consulting services to us, including serving as co-Managing Director of EE1. We have agreed to pay Mr. Mendoza a fee of $10,000 per month for his services. We are negotiating and expect to execute a new agreement with multi-year terms. On February 8, 2017 the Company entered into a one year advisory agreement with Mr. Stephen Roseberry pursuant to which he provides advisory and consulting services to us, including serving as co-Managing Director of EE1 and I’M1. We have agreed to pay Mr. Roseberry a fee of $1.00 per month for his services. We are negotiating and expect to execute a new agreement with multi-year terms. In February 2017 the Company entered into an advisory agreement with Mr. Jon Carrasco, expiring in February 2019, pursuant to which he provides advisory and consulting services to us, including serving as Global Creative Director of EE1 and I’M1. We have agreed to pay Mr. Carassco a fee of $1.00 per month for his services. We are negotiating and expect to execute a new agreement with multi-year terms. In February 2017 EE1 arranged, coordinated and booked for Sandbox LLC a travel related event, arranging for travel and concierge related services. Under the terms of the oral agreement, EE1 was paid $68,550 for its services, which was recorded as consulting/advisory revenue. Sandbox LLC is an affiliate of a member of our board of directors. In March 2017, our subsidiary I’M1 entered into a consulting agreement with Kure. In this agreement I’M1 provided services delivered in two phases. The first phase was delivered by March 31, 2017 which included a social media blitz and marketing and branding support and strategies for $200,000. The second phase was delivered by June 22, 2017 which included modeling impressions for the brand and extension of publicity to other media outlets for $400,000. In addition, in March 2017, I’M1 entered into a separate licensing agreement for 10 years with Kure under which we will receive royalties based on gross sales of Kure products with the I’M1 brand. On June 6, 2017, pursuant to an agreement dated May 15, 2017, the Company converted the line of credit with LBGLOC LLC, which included the outstanding principal balance of $593,797 and the accrued interest of $179,380 for a total payoff amount of $773,177 into common shares of the Company at a price of $3.95 per share. One member of LBGLOC LLC, Stone Street Partners Opportunity Fund II LLC is an affiliate of our CEO and Chairman and received 94,475 shares of common stock in this transaction. Effective June 30, 2017, the Company converted the $2,125,000 principal amount of convertible promissory notes and all accrued interest of $127,500 into common shares of the Company at a price of $3.95 per share. One note holder, Stone Street Partners Opportunity Fund II LLC is an affiliate of our CEO and Chairman and received a total of 26,836 shares. In June 2017, the Company earned a referral fee from kathy ireland® WorldWide after establishing a business meeting resulting in a new license agreement for kathy ireland® WorldWide. The referral fee was paid out of 200,000 options issued to kathy ireland® WorldWide from the new client, which were exercised and transferred to the Company. The shares are valued at $114,000, which was derived after assessing the value of our services provided and determining a per share value of $0.57. The warrant was exercised in June 2017 and the shares issued to the Company in August 2017. In June 2017, Kure purchased products from our subsidiary BPU for resale in their stores. The total purchase was $97,850. Our CEO and Chairman is the past Chairman of Kure and is also a shareholder of Kure. In July 2017, the Company entered into subscription agreements for 133,000 shares of common stock with two accredited investors in a private placement, which resulted in gross proceeds of $525,350 to the Company. The accredited investors Stone Street Partners LLC and Stone Street Partners Opportunity Fund II LLC are affiliates of our CEO and Chairman. On July 31 2017, the Company sold preferred shares it had received as payment for services to a customer. The preferred shares were sold to a related party. The preferred shares were originally valued as marketable securities at $650,000 and were sold for $475,000, an approximation of fair market value, which was paid $200,000 in cash and a short term note of $275,000 at 3% interest, which is in note receivable related party as of December 31, 2017. The Company recorded an impairment of $175,000 for the year ended September 30, 2017 (see Note 3). On August 1, 2017, the Company entered into an additional advisory agreement with Kure, in which the Company would act as an advisor regarding business strategy involving (1) conversion of Kure franchises into company stores, (2) conversion of Kure debt and preferred shares into common share of Kure and (3) preparation steps required and a strategy to position for a possible Reg A+ offering. The services are to be delivered in two phases, the first deliverables of items 1 and 2 above were delivered by September 30, 2017 and 3 is to be delivered by June 30, 2018. The Company was paid $200,000 in Kure stock for the first deliverables and will be paid $200,000 in cash for the second deliverable. In August 2017, EE1 entered into a representation agreement with Romero Britto and Britto Central, Inc. under which it was appointed as exclusive licensing consultant to license certain intellectual property in entertainment industry category, which includes theatre, film, art, dance, opera, music, literary, publishing, television and radio, worldwide except for South America. Under the terms of the agreement, EE1 will identify and introduce Britto to potential license opportunities, negotiate terms of license agreements, and implement and administer each eligible license agreement entered. As compensation for our services, EE1 is entitled to receive 35% of the net proceeds received under any license, and following the termination or expiration of the agreement, 15% of the net proceeds of eligible licenses. The President of Britto Central, Inc is the spouse of a member of our board of directors. In September 2017 EE1 arranged, coordinated and booked for Sandbox LLC a travel related event, arranging for travel and concierge related services. Under the terms of the oral agreement, EE1 was paid $64,475 for its services, which were recorded as consulting/advisory revenue. EE1 engaged Sterling Winters Company to assist with this service and incurred a cost of sales for that service of $35,421. Sandbox LLC is an affiliate of a member of our board of directors. On September 1, 2017, the Company entered into a license agreement with kathy ireland® Worldwide for certain use of kathy ireland trademark, likeness, videos, photos and other visual presentations for the Company’s IPO and associated roadshow. The Company paid $100,000 for this agreement. In September 2017 EE1 created a marketing campaign for a customer and worked through their approved vendor, Sandbox LLC, to deliver services. Under the terms of the oral agreement, EE1 was paid $550,000 for its services from Sandbox. Sandbox LLC is an affiliate of a member of our board of directors. EE1 engaged Sterling Winters Company to assist with this campaign and incurred expenses of $250,000. Sterling Winters Company is a subsidiary of kathy ireland® Worldwide. On September 8, 2017, the Company extended its Master Advisory and Consulting Agreement, executed in February 2017, with kathy ireland® Worldwide to February 2025. On December 11, 2017, the Company entered into a service agreement with Kure to facilitate the “Vape Pod” transaction with the modular building systems vendor, SG Blocks, Inc., which is also a customer of our company. Under the terms of this agreement we also agreed to facilitate the introduction to third parties in connection with Kure Corp.'s initiative to establish Vape Pod's at U.S. military base retail locations and advising and aid in site selection for Kure retail stores on military bases and adjoining convenience stores, gas stations, and other similar retail properties utilizing Kure Corp.'s retail Vape Pod concept, among other services. As compensation for this recent agreement, we were issued 400,000 shares of Kure Corp.'s common stock which was valued at $200,000 (see Note 3). On December 11, 2017 Level Brands also entered into a Revolving Line of Credit Loan Agreement with Kure Corp., pursuant to which we agreed to lend Kure Corp. up to $500,000 to be used for the purchase of prefabricated intermodal container building systems. This credit line was provided in connection with Kure Corp.'s recent Master Purchase Agreement with SG Blocks, Inc. for the purchase of 100 repurposed shipping containers for its Kure Vape Pod™ initiative. Under the terms of the Revolving Line of Credit Loan Agreement, Kure Corp. issued us a $500,000 principal amount secured promissory note, which bears interest at 8% per annum, and which matures on the earlier of one year from the issuance date or when Kure Corp. receives gross proceeds of at least $2,000,000 from the sale of its equity securities. As collateral for the repayment of the loan, pursuant to a Security Agreement we were granted a first position security interest in Kure Corp.'s inventory, accounts and accounts receivable. Our CEO and Chairman is the past Chairman of Kure Corp. and currently a minority shareholder of Kure Corp. Level Brands is also a shareholder of Kure Corp. At December 31, 2017 the outstanding balance due under the agreement was $0 and the revolving line of credit has not been utilized. On December 21, 2017, the Company entered into a sublease agreement with a related party for office space for its subsidiary BPU. The initial lease period is for six months and then changes to a month to month lease. The space includes office and warehouse space and will cost $3,000 per month. As we engage in providing services to customers, at times we will utilized related parties to assist in delivery of the services. For the period ended December 31, 2017 we incurred related party cost of sales of approximately $126,000 and $53,000 of marketing related expense. We had no related party costs of sales for the period ended December 31, 2016. |
10. SHAREHOLDERS_ EQUITY
10. SHAREHOLDERS’ EQUITY | 3 Months Ended |
Dec. 31, 2017 | |
Shareholders Equity | |
SHAREHOLDERS' EQUITY | Preferred Stock – We are authorized to issue 50,000,000 shares of preferred stock, par value $0.001 per share. Our preferred stock does not have any preference, liquidation, or dividend provisions. No shares of preferred stock have been issued. Common Stock – We are authorized to issue 150,000,000 shares of common stock, par value $0.001 per share. There were 7,798,928 and 5,792,261 shares of common stock issued and outstanding at December 31, 2017 and September 30, 2017, respectively. On November 17, 2017, the Company completed an IPO of 2,000,000 shares of its common stock for aggregate gross proceeds of $12.0 million. The Company received approximately $10.9 million in net proceeds after deducting discounts and commissions and other offering expenses paid by us. The Company also issued to the selling agent warrants to purchase in aggregate 100,000 shares of common stock with an exercise price of $7.50. The warrants were valued at $171,600 and expire on September 27, 2022. Common stock transactions: In the three months ended December 31, 2017: On November 17, 2017, the Company completed an IPO of 2,000,000 shares of its common stock for aggregate gross proceeds of $12.0 million. In November 2017, we issued 6,667 shares of our common stock to an individual as part of a consulting agreement. The shares were valued at $37,002, based on the trading price upon issuance and expensed as contract compensation. In the three months ended December 31, 2016: Per terms in the Operating Agreement of BPU, the Company can redeem the 10% membership interest of Sigan Industries Group (“Sigan”) for $110,000 at any time before April 13, 2017. On October 14, 2016, Sigan entered into an agreement with the Company to transfer their 10% member interest for 129,412 shares of the Company’s common stock. In October 2016 we issued 38,358 shares of our stock to six individuals and entities upon the cashless exercise of 70,067 placement agents warrants previously granted to T.R. Winston & Co LLC and its affiliates. In November 2016 we issued Stone Street Partners, LLC an aggregate of 76,000 shares of our common stock valued at $570,000 as compensation for services, which had been accrued and expensed at September 30, 2016. The stock was valued at the time based on the most recent equity financing from February 2016 which was priced at what is a post reverse split price of $7.50. In November 2016 we issued 20,000 shares of our common stock valued at $17,000 to Best Buddies International as a charitable contribution. Stock option transactions: No options were issued in the three months ended December 31, 2017. In the three months ended December 31, 2016: On October 1, 2016 we granted an aggregate of 14,300 common stock options to two employees. The options vest 16% immediately, 42% January 1, 2017 and 42% January 1, 2018. The options have an exercise price of $7.50 per share and a term of five years. We have recorded an expense for the options of $53 and $418 respectively for the three months ended December 31, 2017 and 2016. On October 1, 2016 we granted an aggregate of 171,500 common stock options to two employees. The options vest ratably through January 1, 2018. The options have an exercise price of $7.50 per share and a term of six years. We have recorded an expense for the options of $4,802 and $4,802 respectively for the three months ended December 31, 2017 and 2016. The following table summarizes the inputs used for the Black-Scholes pricing model on the options issued in the three months ended December 31, 2017 and 2016: 2017 2016 Exercise price - $ 7.50 Risk free interest rate - 1.14% - 1.42% Volatility - 54.69% - 60.39% Expected term - 5 - 7 years Dividend yield - None The expected volatility rate was estimated based on comparison to the volatility of a peer group of companies in the similar industry. The expected term used was the full term of the contract for the issuances. The risk-free interest rate for periods within the contractual life of the option is based on U.S. Treasury securities. Under ASU 2016-09 which amends ASC 718, the Company elected to change our accounting principle to recognize forfeitures when they occur. This change had no impact on beginning retained earnings as there had been no forfeitures estimated or incurred in prior periods. Management will continue to assess the assumptions and methodologies used to calculate estimated fair value of share-based compensation. Circumstances may change and additional data may become available over time, which could result in changes to these assumptions and methodologies, and thereby materially impact our fair value determination. Warrant transactions: On November 17, 2017 in relation to the IPO, we issued to the selling agent warrants to purchase in aggregate 100,000 shares of common stock with an exercise price of $7.50. The warrants expire on September 27, 2022. On October 1, 2016, the board approved the strike price adjustment for certain placement agent warrants totaling 20,067 from a strike price of $8.75 to $5.00. On October 26, 2016, 38,358 shares were issued, upon a cashless exercise of the 20,067 warrants above and another 50,000 warrants, at a strike price of $2.75, which had been issued to a placement agent for prior services related to previous private placements of our securities. On October 4, 2016 and October 24, 2016, we issued in aggregate, warrants exercisable into 141,676 shares of common stock with an exercise price of $7.80. The warrants expire on September 30, 2021. The warrants were issued in conjunction with the Company’s 8% convertible notes, described in Note 7. The following table summarizes the inputs used for the Black-Scholes pricing model on the warrants issued in the periods ended December 31, 2017 and 2016: 2017 2016 Exercise price $ 7.50 $ 7.80 Risk free interest rate 2.06 % 1.22% - 1.27% Volatility 43.12 % 52.77% - 54.49% Expected term 5 years 5 years Dividend yield None None |
11. STOCK-BASED COMPENSATION
11. STOCK-BASED COMPENSATION | 3 Months Ended |
Dec. 31, 2017 | |
Share-based Compensation [Abstract] | |
STOCK-BASED COMPENSATION | Equity Compensation Plan – On June 2, 2015, the Board of Directors of Level Brands, Inc. approved the 2015 Equity Compensation Plan (“Plan”). The Plan made 1,175,000 common stock shares, either unissued or reacquired by the Company, available for awards of options, restricted stocks, other stock grants, or any combination thereof. The number of shares of common stock available for issuance under the Plan shall automatically increase on the first trading day of January each calendar year during the term of the Plan, beginning with calendar year 2016, by an amount equal to one percent (1%) of the total number of shares of common stock outstanding on the last trading day in December of the immediately preceding calendar year, but in no event shall any such annual increase exceed 100,000 shares of common stock. We account for stock-based compensation using the provisions of FASB ASC 718. FASB ASC 718 codification requires companies to recognize the fair value of stock-based compensation expense in the financial statements based on the grant date fair value of the options. We have only awarded stock options since December 2015. All options are approved by the Compensation Committee of the Board of Directors. Restricted stock awards that vest in accordance with service conditions are amortized over their applicable vesting period using the straight-line method. The fair value of our stock option awards or modifications is estimated at the date of grant using the Black-Scholes option pricing model. Eligible recipients include employees, officers, directors and consultants who are deemed to have rendered or to be able to render significant services to the Company or its subsidiaries and who are deemed to have contributed or to have the potential to contribute to the success of the Company. Options granted generally have a ten-year term and generally vest over one to three years from the date of grant. Certain of the stock options granted under the plan have been granted pursuant to various stock option agreements. Each stock option agreement contains specific terms. Stock Options – The Company currently has awards outstanding with service conditions and graded-vesting features. We recognize compensation cost on a straight-line basis over the requisite service period. The fair value of each time-based award is estimated on the date of grant using the Black-Scholes option valuation model, which uses the assumptions described above. The following table summarizes stock option activity under the Plan: Number of shares Weighted-average exercise price Weighted-average remaining contractual term (in years) Aggregate intrinsic value (in thousands) Outstanding at September 30, 2017 333,300 5.83 Granted — — Exercised — — Forfeited 20,000 2.00 Outstanding at December 31, 2017 313,300 $ 6.07 5.4 $ — Exercisable at December 31, 2017 285,800 $ 5.72 — $ — As of December 31, 2017, there was approximately $37,207 of total unrecognized compensation cost related to non-vested stock options which vest over a period of approximately 8 months. Restricted Stock Award transactions: On October 1, 2016 the Company issued 230,000 restricted stock awards in aggregate to board members. The restricted stock awards vest January 1, 2018. The stock awards are valued at fair market upon issuance at $195,500 and amortized over the vesting period. We recognized $39,101 of stock based compensation expense for the three months ended December 31, 2017 and 2016, respectively. |
12. WARRANTS
12. WARRANTS | 3 Months Ended |
Dec. 31, 2017 | |
Warrants Abstract | |
WARRANTS | Transactions involving our equity-classified warrants are summarized as follows: Number of shares Weighted-average exercise price Weighted- average remaining contractual term (in years) Aggregate intrinsic value (in thousands) Outstanding at September 30, 2017 212,176 $ 6.53 Issued 100,000 7.50 Exercised — — Forfeited — — Outstanding at December 31, 2017 312,176 $ 6.84 4.3 $ — Exercisable at December 31, 2017 312,176 $ 6.84 4.3 $ — The following table summarizes outstanding common stock purchase warrants as of December 31, 2017: Number of shares Weighted-average exercise price Expiration Exercisable at $7.80 per share 141,676 $ 7.80 September 2021 Exercisable at $4.00 per share 70,500 $ 4.00 September 2022 Exercisable at $7.50 per share 100,000 $ 7.50 October 2022 312,176 6.84 |
13. COMMITMENTS AND CONTINGENCI
13. COMMITMENTS AND CONTINGENCIES | 3 Months Ended |
Dec. 31, 2017 | |
Commitments And Contingencies | |
COMMITMENTS AND CONTINGENCIES | Wholesale License Agreement In September 2017 we entered into a wholesale license agreement with kathy ireland® Worldwide under which we were granted an exclusive, royalty free right to license, assign and use the kathy ireland® Health & Wellness™ trademark, and all trade names, trademarks and service marks related to the intellectual property including any derivatives or modifications, goodwill associated with this intellectual property when used in conjunction with health and wellness as well as Ms. Ireland's likeness, videos, photographs and other visual representations connected with kathy ireland® Health & Wellness™. As compensation under this agreement, we agreed to pay kathy ireland® Worldwide a marketing fee of $840,000, of which $480,000 was paid by December 31, 2017. The balance is payable in three equal annual installments beginning January 1, 2019, subject to acceleration. Under the terms of this agreement, we also agreed to pay kathy ireland® Worldwide a royalty of 33 1/3% of our net proceeds under any sublicense agreements we may enter into for this intellectual property. The initial term of this wholesale license agreement expires in September 2024, and we have the right to renew it for an additional three year period by paying an additional marketing fee of $360,000. |
14. SEGMENT INFORMATION
14. SEGMENT INFORMATION | 3 Months Ended |
Dec. 31, 2017 | |
Segment Information | |
SEGMENT INFORMATION | The Company operates through its four subsidiaries in three business segments: the Professional Products, the Licensing, and the Entertainment divisions. The Professional Products division is designed to be an innovative and cutting-edge producer and marketer of quality hair care and other beauty products. The Licensing division is designed to establish brands via licensing of select products / categories and encompasses our two subsidiaries with a focus on health and wellness products and men’s lifestyle products. The Entertainment division’s focus is to become a producer and marketer of multiple entertainment distribution platforms. The corporate parent also will generate revenue from time to time, thru advisory consulting agreements. This revenue is similar to the Entertainment divisions’ revenue process and we have allocated revenue from corporate to the Entertainment division for segment presentation. The Professional Products division operated for the full year in fiscal 2017 and 2016. The Licensing and Entertainment divisions were both acquired in January 2017. The performance of the business is evaluated at the segment level. Cash, debt and financing matters are managed centrally. These segments operate as one from an accounting and overall executive management perspective, though each segment has senior management in place; however they are differentiated from a marketing and customer presentation perspective, though cross-selling opportunities exist and continue to be pursued. Condensed summary segment information follows for the three months ended December 31, 2017 and 2016. Three months ended December 31, 2017 Three Months Ended September 30, 2016 Professional Product Division Licensing Division Entertainment Division Total Net Sales $ 29,070 $ 37,162 $ 366,979 $ 433,211 Net Sales related party $ - $ - $ 254,545 $ 254,545 Income (loss) from Operations before Overhead $ (360,753 ) $ (360,109 ) $ 242,553 $ (478,309 ) Allocated Corporate Overhead (a) 49,930 41,554 694,989 786,474 Net Loss $ (410,683 ) $ (401,663 ) $ (452,436 ) $ (1,264,782 ) Assets $ 4,587,741 $ 5,792,671 $ 4,918,581 $ 15,298,993 Three months ended December 31, 2016 Three Months Ended September 30, 2016 Professional Product Division Licensing Division Entertainment Division Total Net Sales $ 199,837 $ - $ - $ 199,837 Income (loss) from Operations before Overhead $ (458,347 ) $ - $ - $ (458,347 ) Allocated Corporate Overhead (a) 239,156 239,156 Net Loss $ (697,495 ) $ - $ - $ (697,495 ) Assets $ 2,688,852 - - $ 2,688,852 (a) The Company began allocating corporate overhead to the business segments in April 2017. We have allocated overhead on a proforma basis for the period ended December 31, 2017 and 2016 above for comparison purposes. |
15. INCOME TAXES
15. INCOME TAXES | 3 Months Ended |
Dec. 31, 2017 | |
Income Taxes | |
INCOME TAXES | The Company has adopted the provisions of ASU 2016-09 as of the beginning of the current fiscal year (October 1, 2017) which requires recognition through opening retained earnings of any pre-adoption date NOL carryforwards from nonqualified stock options and other employee share-based payments (e.g., restricted shares and share appreciation rights), as well as recognition of all income tax effects from share-based payments arising on or after October 1, 2017 (our adoption date) in income tax expense. The impact of the adoption of ASU 2016-09 was immaterial. The Company has a valuation allowance against the net deferred tax assets, with the exception of the deferred tax liabilities that result from indefinite-life intangibles which cannot be offset by deferred tax assets. On November 17, 2017, the Company completed an initial public offering (the “IPO”). The Company conducted a preliminary Section 382 analysis and determined an ownership change likely occurred upon the IPO. Management has determined that the Company's federal and state NOL carryovers established up through the date of the ownership change may be subject to an annual limitation. The Company is in the process of determining the annual limitation. On December 22, 2017, the Tax Cuts and Jobs Act was enacted. As a result of the enactment, the U.S. corporate tax rate was changed from a progressive bracketed tax rate with the highest marginal rate of 35% to a flat corporate tax rate of 21%. The Company has revalued its deferred tax assets and liabilities at the date of enactment and the result was a reduction of the net deferred tax liability and a tax provision benefit of $12,000 which was reflected in the quarter ending December 31, 2017 financial statements. |
16. SUBSEQUENT EVENTS
16. SUBSEQUENT EVENTS | 3 Months Ended |
Dec. 31, 2017 | |
Subsequent Events [Abstract] | |
SUBSEQUENT EVENTS | On December 30, 2017 Level Brands, Inc. entered into a License Agreement with Isodiol International, Inc. (CSE: ISOL, OTCQB: ISOLF, FSE:LB6A.F), a Canadian company which is a developer of pharmaceutical grade phytochemical compounds and a manufacture and developer of phytoceutical consumer products. The agreement was amended on January 19, 2018. With this agreement, the Company will receive equity positions in Isodiol International as compensation for its services. The amount of equity received upon execution of the License Agreement will be 1,679,321 shares of Isodiol International's common stock, which is equal to $2 million. In addition, the Company will receive each quarter such amount of shares as shall equal $750,000 for services each quarter. The License Agreement is included on Form 8-K filed with the SEC on January 5, 2018 and January 22, 2018. With this agreement, the Company has begun assessing the impact related to the Investment Company Act of 1940 as we believe in our period ending March 31, 2018 we will exceed the 45% threshold related to assets held which are securities. We will assess the income threshold of 45% in the period ending March 31, 2018 to determine if we also exceed the 45% threshold related to income being derived from securities. If these thresholds are exceeded, the Company would be deemed an investment company, and that is not the Company’s focus or intention. The Company has begun working on a plan to liquidate, in an orderly fashion, assets as well as review business strategy to mitigate this issue, if it is determined these thresholds are exceeded. On January 19, 2018 the base compensation of the Chief Executive Officer and Chief Financial Officer of Level Brands, Inc., was increased. The Compensation Committee of the Board of Directors approved the increases in each of their base compensation to $270,000 annually for Mr. Sumichrast and $180,000 annually for Mr. Elliott, retroactively effective for the pay period beginning January 1, 2018. In addition, the Compensation Committee awarded Mr. Sumichrast and Mr. Elliott cash bonuses of $240,000 and $100,000, respectively. The Compensation Committee of the Board of Directors is presently negotiating the terms of new employment agreements with each executive. On January 30, 2018, Level Brands, amended its Wholesale License Agreement (the “Agreement”) executed on September 8, 2017 with kathy Ireland® WorldWide related to exclusive rights to the kathy Ireland® Health & Wellness™ trademarks. The amendment accounted for the Company exercising its option on a three year extension and amending the payment terms related to this extension as follows: to pay $400,000 within 5 days of executing the amendment (which was paid on January 31, 2018), and to pay the final amounts due under the Agreement, $320,000 on the latter of January 1, 2019 or 30 days after the receipt by the Company of $5,000,000 in net proceeds from sublicense agreements signed under the health and wellness trademarks. In addition, royalty payments to kathy ireland® WorldWide for the additional three year extension are set at 35% of net proceeds. |
1. ORGANIZATION AND SUMMARY O23
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) | 3 Months Ended |
Dec. 31, 2017 | |
Organization And Summary Of Significant Accounting Policies Policies | |
Principles of Consolidation | The consolidated financial statements include the accounts of the Company and its majority owned subsidiaries I’M1 and EE1 and wholly owned subsidiaries BPU and Level H&W. All material intercompany transactions and balances have been eliminated in consolidation. The third party ownership of the Company’s subsidiaries is accounted for as non-controlling interest in the consolidated financial statements. Changes in the non-controlling interest are reported in the statement of shareholders’ equity (deficit). |
Reclassifications | Certain amounts previously presented in the consolidated financial statements have been reclassified to conform to the current year presentation. Such reclassifications had no effect on previously reported net loss, shareholders’ equity or cash flows . |
Use of Estimates | The preparation of the Company's consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”), and requires management to make estimates and assumptions that affect amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the financial statements and reported amounts of revenues and expenses during the periods presented. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the consolidated financial statements in the period they are determined to be necessary. Significant estimates made in the accompanying consolidated financial statements include, but are not limited to, allowances for doubtful accounts, inventory valuation reserves, expected sales returns and allowances, trade support costs, certain assumptions related to the valuation of investments other securities, common stock, acquired intangible and long-lived assets and the recoverability of intangible and long-lived assets and income taxes, including deferred tax valuation allowances and reserves for estimated tax liabilities. Actual results could differ from these estimates. |
Cash and Cash Equivalents | For financial statements purposes, the Company considers all highly liquid investments with a maturity of less than three months when purchased to be cash equivalents. |
Accounts receivable and Accounts receivable other | Accounts receivable are stated at cost less an allowance for doubtful accounts, if applicable. Credit is extended to customers after an evaluation of customer’s financial condition, and generally collateral is not required as a condition of credit extension. Management’s determination of the allowance for doubtful accounts is based on an evaluation of the receivables, past experience, current economic conditions, and other risks inherent in the receivables portfolio. In addition, the Company may, from time to time, enter into contracts where a portion of the consideration provided by the customer in exchange for the Company's services is common stock, options or warrants (an equity position). In these situations, upon invoicing the customer for the stock or other instruments, the Company will record the receivable as accounts receivable other, and use the value of the stock or other instrument upon invoicing to determine the value. Where an accounts receivable is settled with the receipt of the common stock or other instrument, the common stock or other instrument will be classified as an asset on the balance sheet as either an investment marketable security (when the customer is a public entity) or as an investment other security (when the customer is a private entity). Accounts receivable and accounts receivable other items that involve a related party are indicated as such on the face of the financial statements. |
Marketable Securities | At the time of acquisition, a marketable security is designated as available-for-sale as the intent is to hold for a period of time before selling. Available-for-sale securities are carried at fair value on the consolidated balance sheets statements of financial condition with changes in fair value recorded in the accumulated other comprehensive income component of shareholders’ equity in the period of the change in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Code (“ASC”) 320-10. Upon the disposition of an available-for-sale security, the Company reclassifies the gain or loss on the security from accumulated other comprehensive income to non-operating income on the Company’s consolidated statements of operations. |
Investment Other Securities | For equity investments where the Company neither controls nor has significant influence over the investee and which are non-marketable, the investments are accounted for using the cost method of accounting in accordance with ASC 325-10. Under the cost method, dividends received from the investment are recorded as dividend income within non-operating income. |
Other-than-Temporary Impairment | The Company’s management periodically assesses its marketable securities and investment other securities, for any unrealized losses that may be other-than-temporary and require recognition of an impairment loss in the consolidated statement of operations. If the cost of an investment exceeds its fair value, the Company evaluates, among other factors, general market conditions, the length of time the security has been in a loss position, the extent to which the security’s market value is less than its cost, the financial condition and prospects of the security’s issuer and the Company’s ability and intent to hold the security for a length of time sufficient to allow for recovery. If the impairment is considered other-than-temporary, an impairment charge is recorded in non-operating income in the consolidated statements of operations. |
Inventory | Inventory is stated at the lower of cost or net realizable value with cost being determined on a weighted average basis. The cost of inventory includes product cost, freight-in, and production fill and labor (which we outsource to third party manufacturers). Write-offs of potentially slow moving or damaged inventory are recorded based on management’s analysis of inventory levels, forecasted future sales volume and pricing and through specific identification of obsolete or damaged products. Prepaid Inventory represents deposits made with third party manufacturers in order to begin production of an order for product. We assess inventory quarterly for slow moving products and potential impairments and perform a physical inventory count annually near fiscal year end. |
Property and Equipment | Property and equipment items are stated at cost less accumulated depreciation. Expenditures for maintenance and repairs are charged to operations as incurred. Depreciation is charged to expense over the estimated useful lives of the assets using the straight-line method. Generally, the useful lives are five years for show booths and equipment, three years for manufacturer’s molds and plates, three years for computer, furniture and equipment, and three years for software. The cost and accumulated depreciation of property are eliminated from the accounts upon disposal, and any resulting gain or loss is included in the consolidated statement of operations for the applicable period. Long-lived assets held and used by the Company are reviewed for impairment whenever changes in circumstance indicate the carrying value of an asset may not be recoverable. |
Fair value accounting | The Company utilizes accounting standards for fair value, which include the definition of fair value, the framework for measuring fair value, and disclosures about fair value measurements. Fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, fair value accounting standards establish a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy). Level 1 inputs utilize quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are directly or indirectly observable for the asset or liability. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability. Level 3 inputs are unobservable inputs for the asset or liability, which are based on an entity’s own assumptions, as there is little, if any, observable market activity. In instances where the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. When the Company records an investment in marketable securities the asset is valued at fair value. For investment other securities, it will value the asset using the cost method of accounting. Any changes in fair value for marketable securities during a given period will be recorded as a gain or loss in other comprehensive income, unless a decline is determined to be other-than-temporary. For investment other securities we use the cost method and compare the fair value to cost in order to determine if there is an other-than-temporary impairment. |
Intangible Assets | The Company's intangible assets consist of trademarks and other intellectual property, all of which are accounted for ASC Topic 350, Intangibles – Goodwill and Other. The Company employs the non-amortization approach to account for purchased intangible assets having indefinite lives. Under the non-amortization approach, intangible assets having indefinite lives are not amortized into the results of operations, but instead are reviewed annually or more frequently if events or changes in circumstances indicate that the assets might be impaired, to assess whether their fair value exceeds their carrying value. We perform an impairment analysis at August 1 annually on the indefinite-lived intangible assets following the steps laid out in ASC 350-30-35-18. Our annual impairment analysis includes a qualitative assessment to determine if it is necessary to perform the quantitative impairment test. In performing a qualitative assessment, we review events and circumstances that could affect the significant inputs used to determine if the fair value is less than the carrying value of the intangible assets. If a quantitative analysis is necessary, we would analyze various aspects including number of contracts acquired and retained as well as revenues from those contracts, associated with the intangible assets. In addition, intangible assets will be tested on an interim basis if an event or circumstance indicates that it is more likely than not that an impairment loss has been incurred. Events that are assessed include contracts acquired and lost that are associated with the intangible assets, as well as the revenues associated with those contracts. Intangible assets with finite useful lives are amortized using the straight-line method over their estimated period of benefit. In accordance with ASC 360-10-35-21, definite lived intangibles are reviewed annually or more frequently if events or changes in circumstances indicate that the assets might be impaired, to assess whether their fair value exceeds their carrying value. In Conjunction with any acquisitions, the Company refers to ASC-805 as amended by Accounting Standards Update (“ASU”) 2017-01in determining if the Company is acquiring any inputs, processes or outputs and the impact that such factors would have on the classification of the acquisition as a business combination or asset purchase. Additionally, the Company refers to the aforementioned guidance in reviewing all potential assets and liabilities for valuation including the determination of intangible asset values. |
Common stock | Level Brands was a private company until November 2017 and as such there was no market for the shares of its common stock. Previously, we valued a share of common stock based on recent financing transactions that included the issuance of common stock to an unrelated party at a specified price. In the event, however, there had not been a recent and significant equity financing transaction or the nature of the business has significantly changed subsequent to an equity financing, we used valuation techniques, which included discounted cash flow analysis, comparable company review, and consultation with third party valuation experts to assist in estimating the value of our common stock. On November 17, 2017, the Company completed its IPO, thus our stock is valued by the market since that date. |
Revenue Recognition | The Company's policy in relation to product sales, is to recognize revenue when persuasive evidence of an arrangement exists, shipping has occurred or service obligations have been satisfied, the sales price is fixed or determinable and collection is probable. The Company records revenue from the sale of its products when risk of loss and title to the product are transferred to the customer, which is upon shipping. Net sales are comprised of gross revenues less expected product returns, trade discounts and customer allowances, which include costs associated with off-invoice mark-downs and other price reductions, as well as trade promotions and coupons. These incentive costs are recognized at the later of the date on which the Company recognizes the related revenue or the date on which the Company offers the incentive. Although, the Company does not have a formal return policy, from time to time the Company will allow customers to return certain products. A business decision related to customer returns is made by the Company and is performed on a case-by-case basis. We record returns as a reduction in sales and based on whether we dispose of the returned product, adjust inventory and record expense as appropriate. There were no allowances for sales returns during the three months ended December 31, 2017 and 2016. The Company also enters into various license agreements that provide revenues based on royalties as a percentage of sales and advertising/marketing fees. The contracts can also have a minimum royalty, with which this and the advertising/marketing revenue is recognized on a straight-line basis over the term of each contract year, as defined, in each license agreement. Royalties exceeding the defined minimum amounts are recognized as income during the period corresponding to the licensee’s sales, as are all royalties that do not have a minimum royalty. Payments received as consideration of the grant of a license are recognized ratably as revenue over the term of the license agreement and are reflected on the Company’s consolidated balance sheets as deferred license revenue at the time payment is received and recognized ratably as revenue over the term of the license agreement. Similarly, advanced royalty payments are recognized ratably over the period indicated by the terms of the license and are reflected in the Company’s consolidated balance sheet in deferred license revenue at the time the payment is received. Revenue is not recognized unless collectability is reasonably assured. If licensing arrangements are terminated prior to the original licensing period, we will recognize revenue for any contractual termination fees, unless such amounts are deemed non-recoverable. In regard to sales for services provided, the Company records revenue when persuasive evidence of any agreement exists, services have been rendered, and collectability is reasonably assured. Based on the contracted services, revenue is recognized when the Company invoices customers for completed services at agreed upon rates or revenue is recognized over a fixed period of time during which the service is performed. |
Cost of Sales | Our cost of sales includes costs associated with distribution, external fill and labor expense, components, and freight for our professional products divisions, and includes labor and third party service providers for our licensing and entertainment divisions. In our professional products division, cost of sales also includes the cost of refurbishing products returned by customers that will be offered for resale and the cost of inventory write-downs associated with adjustments of held inventories to their net realizable value. These costs are reflected in the Company’s consolidated statements of operations when the product is sold and net sales revenues are recognized or, in the case of inventory write-downs, when circumstances indicate that the carrying value of inventories is in excess of their recoverable value. |
Advertising Costs | The Company expenses all costs of advertising and related marketing and promotional costs as incurred. The Company incurred approximately $194,000 and $30,000 in advertising and related marketing and promotional costs included in operating expenses during the three months ended December 31, 2017 and 2016, respectively. |
Shipping and Handling Fees and Costs | All fees billed to customers for shipping and handling are classified as a component of sales. All costs associated with shipping and handling are classified as a component of cost of goods sold. |
Income Taxes | The Parent Company is a North Carolina corporation that is treated as a corporation for federal and state income tax purposes. Prior to April 2017, BPU was a multi-member limited liability company that was treated as a partnership for federal and state income tax purposes. As such, the Parent Company’s partnership share in the taxable income or loss of BPU was included in the tax return of the Parent Company. Beginning in April of 2017, the Parent Company acquired the remaining interest in BPU. As a result of the acquisition, BPU became a disregarded entity for tax purposes and its entire share of taxable income or loss was included in the tax return of the Parent Company. Level H&W is a wholly owned subsidiary and is a disregarded entity for tax purposes and its entire share of taxable income or loss is included in the tax return of the Parent Company. IM1 and EE1 are multi-member limited liability companies that are treated as partnerships for federal and state income tax purposes. As such, the Parent Company’s partnership share in the taxable income or loss of IM1 and EE1 are included in the tax return of the Parent Company. The Parent Company accounts for income taxes pursuant to the provisions of the Accounting for Income Taxes topic of the FASB Accounting Standards Codification (“ASC”), which requires, among other things, an asset and liability approach to calculating deferred income taxes. The asset and liability approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. The Parent Company uses the inside basis approach to determine deferred tax assets and liabilities associated with its investment in a consolidated pass-through entity. A valuation allowance is provided to offset any net deferred tax assets for which management believes it is more likely than not that the net deferred asset will not be realized. US GAAP requires management to evaluate tax positions taken by the Company and recognize a tax liability (or asset) if the Company has taken an uncertain tax position that more likely than not would not be sustained upon examination by the Internal Revenue Service. Management has analyzed the tax positions taken by the Company, and has concluded that as of December 31, 2017 and 2016, there were no uncertain tax positions taken or expected to be taken that would require recognition of a liability (or asset) or disclosure in the consolidated financial statements. |
Concentrations | Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents, accounts receivable, and securities. The Company places its cash and cash equivalents on deposit with financial institutions in the United States. The Federal Deposit Insurance Corporation (“FDIC”) covers $250,000 for substantially all depository accounts. The Company from time to time may have amounts on deposit in excess of the insured limits. The Company had a $8,347,313 uninsured balance at December 31, 2017 and a $4,728 uninsured balance at September 30, 2017. Concentration of credit risk with respect to receivables is principally limited to trade receivables with corporate customers that meet specific credit policies. Management considers these customer receivables to represent normal business risk. The Company had sales to three customers that individually represented over 10% of total net sales for the three months ended December 31, 2017. Such customers represented 37%, 13%, and 37% of net sales. Net sales to such customers reported in the entertainment divisions were approximately $254,000, $92,000 and $254,000, respectively. The aggregate accounts receivable of such customers represented 79% of the Company’s total accounts receivable at December 31, 2017. The Company had two customers whose revenue collectively represented approximately 88% of the Company’s net sales for the three months ended December 31, 2016. |
Debt Issuance Costs | Debt issuance costs related to a recognized debt liability are presented in the balance sheet as a direct deduction from the carrying value of that debt liability, consistent with debt discounts. Amortization of debt issuance costs are included as a component of interest expense in accordance with ASU 2015-03. All debt obligations were satisfied in fiscal 2017 and all amortization costs had been recognized in interest expense in fiscal 2017 (see Notes 7 and 8). |
Stock-Based Compensation | We account for our stock compensation under the ASC -718-10-30 “Compensation - Stock Compensation” using the fair value based method. Under this method, compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. This guidance establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity's equity instruments or that may be settled by the issuance of those equity instruments. We use the Black-Scholes model for measuring the fair value of options and warrants. The stock based fair value compensation is determined as of the date of the grant or the date at which the performance of the services is completed (measurement date) and is recognized over the vesting periods. Under ASU 2016-09 which amends ASC 718 and the standard became effective October 1, 2017, we elected to change our accounting principle to recognize forfeitures when they occur. This change had no impact on beginning retained earnings as there had been no forfeitures estimated or incurred in prior periods. |
Net Loss Per Share | The Company uses ASC 260-10, “Earnings Per Share” for calculating the basic and diluted loss per share. The Company computes basic loss per share by dividing net loss and net loss attributable to common shareholders by the weighted average number of common shares outstanding. Common equivalent shares are excluded from the computation of net loss per share if their effect is anti-dilutive. At December 31, 2017 and 2016, 855,476 and 597,476 potential shares, respectively, were excluded from the shares used to calculate diluted loss per share as their inclusion would reduce net loss per share. |
Deferred IPO costs | In following the guidance under ASC 340-10-S99-1, IPO costs directly attributable to an offering of equity securities were deferred and charged against the gross proceeds of the offering as a reduction of additional paid-in capital during the three months ended December 31, 2017. These costs included legal fees related to the registration drafting and counsel, independent audit costs directly related to the registration and offering, SEC filing and print related costs, exchange listing costs, and IPO roadshow related costs. |
New Accounting Standards | In May 2014, August 2015 and May 2016, the FASB issued ASU 2014-09, Revenue from Contracts with Customers Revenue from Contracts with Customers, Deferral of the Effective Date Subsequently, the FASB has issued the following standards related to ASU 2014-09: ASU No. 2016-08, Revenue from Contracts with Customers Revenue from Contracts with Customers Identifying Performance Obligations and Licensing Revenue from Contracts with Customers Narrow-Scope Improvements and Practical Expedients Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers The Company is assessing the impact, if any, of implementing this guidance on its consolidated financial position, results of operations and liquidity. The Company will adopt this standard in the first quarter of fiscal 2019. In February 2016, the FASB issued ASU 2016-02, Leases In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments |
3. MARKETABLE SECURITIES AND 24
3. MARKETABLE SECURITIES AND INVESTMENT OTHER SECURITIES (Tables) | 3 Months Ended |
Dec. 31, 2017 | |
Marketable Securities And Investment Other Securities Tables | |
Assets valued at fair value | In Active Markets for Identical Assets and Liabilities (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Fair Value at December 31, 2017 Marketable securities $ 299,000 - $ - $ 299,000 Investment other securities - - $ 1,359,112 $ 1,359,112 Level 1 Level 2 Level 3 Total Balance at September 30, 2017 $ - $ - $ 859,112 $ 859,112 Receipt of equity investment upon completion of contract $ 254,500 $ - $ - $ 254,500 Receipt of equity investment upon completion of contract $ - $ - $ 200,000 $ 200,000 Purchase of preferred shares, convertible into common stock $ - $ - $ 300,000 $ 300,000 Change in value of equity, other comprehensive income $ 44,500 $ - $ - $ 44,500 Balance at December 31, 2017 $ 299,000 $ - $ 1,359,112 $ 1,658,112 |
4. INVENTORY (Tables)
4. INVENTORY (Tables) | 3 Months Ended |
Dec. 31, 2017 | |
Inventory Tables | |
Inventory | December 31, September 30, 2017 2017 Finished goods $ 383,036 $ 375,459 Inventory components 210,113 212,738 Inventory reserve - - Total $ 593,149 $ 588,197 |
5. PROPERTY AND EQUIPMENT (Tabl
5. PROPERTY AND EQUIPMENT (Tables) | 3 Months Ended |
Dec. 31, 2017 | |
Property And Equipment Tables | |
Major classes of property and equipment | December 31, September 30, 2017 2017 Computers and equipment $ 39,926 $ 37,261 Show booth and equipment 49,123 171,986 Manufacturers’ molds and plates 34,200 34,200 123,249 243,447 Less accumulated depreciation (67,124 ) (107,971 ) Net property and equipment $ 56,125 $ 135,476 |
6. INTANGIBLE ASSETS (Tables)
6. INTANGIBLE ASSETS (Tables) | 3 Months Ended |
Dec. 31, 2017 | |
Intangible Assets Tables | |
Intangible assets | December 31, September 30, 2017 2017 Trademark and other intellectual property related to BPU $ 486,760 $ 486,760 Trademark and other intellectual property related to I’M1 971,667 971,667 Trademark and other intellectual property related to EE1 471,667 471,667 Trademark, tradename and other intellectual property related to kathy ireland®Health & Wellness™, net 800,000 830,000 Cash, warrants and stock issued related to the Wholesale license agreement with Chef Andre Carthen, net 295,298 307,146 Cash, warrants and stock issued related to the Wholesale license agreement with Nicholas Walker, net 166,333 173,047 Total $ 3,191,725 $ 3,240,287 |
Future amortization schedule | Intangible Total unamortized cost 2018 2019 2020 2021 2022 thereafter Trademark, tradename and other intellectual property related to kathy ireland® Health & Wellness™ $ 800,000 $ 90,000 $ 120,000 $ 120,000 $ 120,000 $ 120,000 $ 230,000 Cash, warrant and stock issued related to the Wholesale license agreement with Chef Andre Carthen $ 295,298 $ 32,446 $ 44,294 $ 44,294 $ 44,294 $ 44,294 $ 85,676 Cash, warrant and stock issued related to the Wholesale license agreement with Nicholas Walker $ 166,333 $ 17,402 $ 24,950 $ 24,950 $ 24,950 $ 24,950 $ 48,297 |
10. SHAREHOLDERS_ EQUITY (Table
10. SHAREHOLDERS’ EQUITY (Tables) | 3 Months Ended |
Dec. 31, 2017 | |
Shareholders Equity Tables | |
Fair value assumptions | 2017 2016 Exercise price - $ 7.50 Risk free interest rate - 1.14% - 1.42% Volatility - 54.69% - 60.39% Expected term - 5 - 7 years Dividend yield - None 2017 2016 Exercise price $ 7.50 $ 7.80 Risk free interest rate 2.06 % 1.22% - 1.27% Volatility 43.12 % 52.77% - 54.49% Expected term 5 years 5 years Dividend yield None None |
11. STOCK-BASED COMPENSATION (T
11. STOCK-BASED COMPENSATION (Tables) | 3 Months Ended |
Dec. 31, 2017 | |
Stock-based Compensation Tables | |
Stock option activity | Number of shares Weighted-average exercise price Weighted-average remaining contractual term (in years) Aggregate intrinsic value (in thousands) Outstanding at September 30, 2017 333,300 5.83 Granted — — Exercised — — Forfeited 20,000 2.00 Outstanding at December 31, 2017 313,300 $ 6.07 5.4 $ — Exercisable at December 31, 2017 285,800 $ 5.72 — $ — |
12. WARRANTS (Tables)
12. WARRANTS (Tables) | 3 Months Ended |
Dec. 31, 2017 | |
Warrants Tables | |
Summary of warants | Number of shares Weighted-average exercise price Weighted- average remaining contractual term (in years) Aggregate intrinsic value (in thousands) Outstanding at September 30, 2017 212,176 $ 6.53 Issued 100,000 7.50 Exercised — — Forfeited — — Outstanding at December 31, 2017 312,176 $ 6.84 4.3 $ — Exercisable at December 31, 2017 312,176 $ 6.84 4.3 $ — |
Outstanding common stock purchase warrants | Number of shares Weighted-average exercise price Expiration Exercisable at $7.80 per share 141,676 $ 7.80 September 2021 Exercisable at $4.00 per share 70,500 $ 4.00 September 2022 Exercisable at $7.50 per share 100,000 $ 7.50 October 2022 312,176 6.84 |
14. SEGMENT INFORMATION (Tables
14. SEGMENT INFORMATION (Tables) | 3 Months Ended |
Dec. 31, 2017 | |
Segment Information Tables | |
Segment information | Three months ended December 31, 2017 need tax Three Months Ended September 30, 2016 Professional Product Division Licensing Division Entertainment Division Total Net Sales $ 29,070 $ 37,162 $ 366,979 $ 433,211 Net Sales related party $ - $ - $ 254,545 $ 254,545 Income (loss) from Operations before Overhead $ (360,753 ) $ (360,109 ) $ 242,553 $ (478,309 ) Allocated Corporate Overhead (a) 49,930 41,554 694,989 786,474 Net Loss $ (410,683 ) $ (401,663 ) $ (452,436 ) $ (1,264,782 ) Assets $ 4,587,741 $ 5,792,671 $ 4,918,581 $ 15,298,993 Three months ended December 31, 2016 Three Months Ended September 30, 2016 Professional Product Division Licensing Division Entertainment Division Total Net Sales $ 199,837 $ - $ - $ 199,837 Income (loss) from Operations before Overhead $ (458,347 ) $ - $ - $ (458,347 ) Allocated Corporate Overhead (a) 239,156 239,156 Net Loss $ (697,495 ) $ - $ - $ (697,495 ) Assets $ 2,688,852 - - $ 2,688,852 (a) The Company began allocating corporate overhead to the business segments in April 2017. We have allocated overhead on a proforma basis for the period ended December 31, 2017 and 2016 above for comparison purposes. |
1. ORGANIZATION AND SUMMARY O32
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($) | 3 Months Ended | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | Sep. 30, 2017 | |
Organization And Summary Of Significant Accounting Policies Details Narrative | |||
Accounts receivable allowance | $ 0 | $ 50,000 | |
Investment other securities | 1,159,112 | 859,112 | |
Other than temporary impairment | 175,000 | ||
Advertising costs | 194,000 | $ 30,000 | |
Uninsured balance | $ 8,347,313 | $ 4,728 | |
Shares excluded | 855,476 | 597,476 |
3. MARKETABLE SECURITIES AND 33
3. MARKETABLE SECURITIES AND INVESTMENT OTHER SECURITIES (Details) - USD ($) | Dec. 31, 2017 | Sep. 30, 2017 |
Marketable securities | $ 299,000 | $ 0 |
Investment other securities | 1,359,112 | 859,112 |
In Active Markets for Identical Assets and Liabilities (Level 1) | ||
Marketable securities | 299,000 | |
Investment other securities | 0 | 0 |
Significant Other Observable Inputs (Level 2) | ||
Marketable securities | 0 | |
Investment other securities | 0 | 0 |
Significant Unobservable Inputs (Level 3) | ||
Marketable securities | 0 | |
Investment other securities | $ 1,359,112 | $ 859,112 |
3. MARKETABLE SECURITIES AND 34
3. MARKETABLE SECURITIES AND INVESTMENT OTHER SECURITIES (Details 1) - USD ($) | 3 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Investment other securities, beginning | $ 859,112 | |
Receipt of equity investment upon completion of contract | 254,500 | |
Receipt of equity investment upon completion of contract | 200,000 | |
Purchase of preferred shares, convertible into common stock | 300,000 | $ 0 |
Change in value of equity, other comprehensive income | 44,500 | |
Investment other securities, ending | 1,359,112 | |
In Active Markets for Identical Assets and Liabilities (Level 1) | ||
Investment other securities, beginning | 0 | |
Receipt of equity investment upon completion of contract | 254,500 | |
Receipt of equity investment upon completion of contract | 0 | |
Change in value of equity, other comprehensive income | 44,500 | |
Investment other securities, ending | 0 | |
Significant Other Observable Inputs (Level 2) | ||
Investment other securities, beginning | 0 | |
Receipt of equity investment upon completion of contract | 0 | |
Receipt of equity investment upon completion of contract | 0 | |
Change in value of equity, other comprehensive income | 0 | |
Investment other securities, ending | 0 | |
Significant Unobservable Inputs (Level 3) | ||
Investment other securities, beginning | 859,112 | |
Receipt of equity investment upon completion of contract | 0 | |
Receipt of equity investment upon completion of contract | 200,000 | |
Purchase of preferred shares, convertible into common stock | 300,000 | |
Change in value of equity, other comprehensive income | 0 | |
Investment other securities, ending | $ 1,359,112 |
3. MARKETABLE SECURITIES AND 35
3. MARKETABLE SECURITIES AND INVESTMENT OTHER SECURITIES (Details Narrative) | 12 Months Ended |
Sep. 30, 2017USD ($) | |
Marketable Securities And Investment Other Securities Details Narrative | |
Other than temporary impairment | $ 175,000 |
4. INVENTORY (Details)
4. INVENTORY (Details) - USD ($) | Dec. 31, 2017 | Sep. 30, 2017 |
Inventory Details | ||
Finished goods | $ 383,036 | $ 375,459 |
Inventory components | 210,113 | 212,738 |
Inventory | $ 593,149 | $ 588,197 |
4. INVENTORY (Details Narrative
4. INVENTORY (Details Narrative) | 3 Months Ended |
Sep. 30, 2017USD ($) | |
Inventory Details Narrative | |
Inventory impairment | $ 67,000 |
5. PROPERTY AND EQUIPMENT (Deta
5. PROPERTY AND EQUIPMENT (Details) - USD ($) | Dec. 31, 2017 | Sep. 30, 2017 |
Property and equipment, gross | $ 123,249 | $ 243,447 |
Less accumulated depreciation | (67,124) | (107,971) |
Net property and equipment | 56,125 | 135,476 |
Computers, furniture and equipment | ||
Property and equipment, gross | 39,926 | 37,261 |
Show booth and equipment | ||
Property and equipment, gross | 49,123 | 171,986 |
Manufacturers molds and plates | ||
Property and equipment, gross | $ 34,200 | $ 34,200 |
5. PROPERTY AND EQUIPMENT (De39
5. PROPERTY AND EQUIPMENT (Details Narrative) - USD ($) | 3 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Property And Equipment Details Narrative | ||
Depreciation expense | $ 13,756 | $ 9,189 |
Disposal of show booth | $ 69,511 | $ 0 |
6. INTANGIBLE ASSETS (Details)
6. INTANGIBLE ASSETS (Details) - USD ($) | Dec. 31, 2017 | Sep. 30, 2017 |
Intangible assets | $ 3,191,725 | $ 3,240,287 |
Trademark and other intellectual property related to BPU | ||
Intangible assets | 486,760 | 486,760 |
Trademark and other intellectual property related to IM1 | ||
Intangible assets | 971,667 | 971,667 |
Trademark and other intellectual property related to EE1 | ||
Intangible assets | 471,667 | 471,667 |
Trademark, tradename and other intellectual property related to kathy ireland Health & Wellness, net | ||
Intangible assets | 800,000 | 830,000 |
Cash, warrants and stock issued related to the Wholesale license agreement with Chef Andre Carthen, net | ||
Intangible assets | 295,298 | 307,146 |
Cash, warrants and stock issued related to the Wholesale license agreement with Nicholas Walker, net | ||
Intangible assets | $ 166,333 | $ 173,047 |
6. INTANGIBLE ASSETS (Details 1
6. INTANGIBLE ASSETS (Details 1) | Dec. 31, 2017USD ($) |
Trademark, tradename and other intellectual property related to kathy ireland Health & Wellness, net | |
Unamortized | $ 800,000 |
2,019 | 90,000 |
2,020 | 120,000 |
2,021 | 120,000 |
2,022 | 120,000 |
2,023 | 120,000 |
Thereafter | 230,000 |
Cash, warrants and stock issued related to the Wholesale license agreement with Chef Andre Carthen, net | |
Unamortized | 295,298 |
2,019 | 32,446 |
2,020 | 44,294 |
2,021 | 44,294 |
2,022 | 44,294 |
2,023 | 44,294 |
Thereafter | 85,676 |
Cash, warrants and stock issued related to the Wholesale license agreement with Nicholas Walker, net | |
Unamortized | 166,333 |
2,019 | 17,402 |
2,020 | 24,950 |
2,021 | 24,950 |
2,022 | 24,950 |
2,023 | 24,950 |
Thereafter | $ 48,297 |
8. LINE OF CREDIT (Details Narr
8. LINE OF CREDIT (Details Narrative) - USD ($) | 3 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Line Of Credit Details Narrative | ||
Line of credit | $ 0 | $ 0 |
9. RELATED PARTY TRANSACTIONS (
9. RELATED PARTY TRANSACTIONS (Details Narrative) | 3 Months Ended |
Dec. 31, 2017USD ($) | |
Related Party Transactions Details Narrative | |
Related party cost of sales | $ 126,000 |
Marketing expense | $ 53,000 |
10. SHAREHOLDERS_ EQUITY (Detai
10. SHAREHOLDERS’ EQUITY (Details) - $ / shares | 3 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Exercise price | $ 0 | $ 7.50 |
Risk free interest rate | 0.00% | |
Volatility | 0.00% | |
Expected term | 0 years | |
Dividend yield | 0.00% | |
Warrants | ||
Exercise price | $ 7.50 | $ 7.80 |
Risk free interest rate | 2.06% | |
Volatility | 43.12% | |
Expected term | 5 years | 5 years |
Dividend yield | ||
Minimum | ||
Risk free interest rate | 1.14% | |
Volatility | 54.69% | |
Expected term | 5 years | |
Minimum | Warrants | ||
Risk free interest rate | 1.22% | |
Volatility | 52.77% | |
Maximum | ||
Risk free interest rate | 1.42% | |
Volatility | 60.39% | |
Expected term | 7 years | |
Maximum | Warrants | ||
Risk free interest rate | 1.27% | |
Volatility | 54.49% |
10. SHAREHOLDERS_ EQUITY (Det45
10. SHAREHOLDERS’ EQUITY (Details Narrative) - shares | Dec. 31, 2017 | Sep. 30, 2017 |
Shareholders Equity Details Narrative | ||
Common stock issued | 7,798,928 | 5,792,261 |
Common stock outstanding | 7,798,928 | 5,792,261 |
11. STOCK-BASED COMPENSATION (D
11. STOCK-BASED COMPENSATION (Details) - Options | 3 Months Ended |
Dec. 31, 2017USD ($)$ / sharesshares | |
Number of Options Outstanding, Beginning | shares | 333,300 |
Number of Options Granted | shares | 0 |
Number of Options Exercised | shares | 0 |
Number of Options Forfeited | shares | 20,000 |
Number of Options Outstanding, Ending | shares | 313,300 |
Number of Options Exerciseable | shares | 285,800 |
Weighted Average Exercise Price Outstanding, Beginning | $ / shares | $ 5.83 |
Weighted Average Exercise Price Granted | $ / shares | 0 |
Weighted Average Exercise Price Exercised | $ / shares | 0 |
Weighted Average Exercise Price Forfeited | $ / shares | 2 |
Weighted Average Exercise Price Outstanding, Ending | $ / shares | 6.07 |
Weighted Average Exercise Price Exerciseable | $ / shares | $ 5.72 |
Weighted average remaining contractual terms (in years), outstanding | 5 years 4 months 24 days |
Aggregate Intrinsic Value Outstanding, Ending | $ | |
Aggregate Intrinsic Value Exerciseable | $ |
11. STOCK-BASED COMPENSATION 47
11. STOCK-BASED COMPENSATION (Details Narrative) - USD ($) | 3 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Unrecognized compensation cost | $ 37,207 | |
Restricted Stock | ||
Stock based compensation expense | $ 39,101 | $ 39,101 |
12. WARRANTS (Details)
12. WARRANTS (Details) - Warrants | 3 Months Ended |
Dec. 31, 2017USD ($)$ / sharesshares | |
Number of Options Outstanding, Beginning | shares | 212,176 |
Number of Options Issued | shares | 100,000 |
Number of Options Exercised | shares | 0 |
Number of Options Forfeited | shares | 0 |
Number of Options Outstanding, Ending | shares | 312,176 |
Number of Options Exerciseable | shares | 312,176 |
Weighted Average Exercise Price Outstanding, Beginning | $ / shares | $ 6.53 |
Weighted Average Exercise Price Granted | $ / shares | 7.50 |
Weighted Average Exercise Price Exercised | $ / shares | 0 |
Weighted Average Exercise Price Forfeited | $ / shares | 0 |
Weighted Average Exercise Price Outstanding, Ending | $ / shares | 6.84 |
Weighted Average Exercise Price Exerciseable | $ / shares | $ 6.84 |
Weighted average remaining contractual terms (in years), outstanding | 4 years 3 months 18 days |
Weighted average remaining contractual terms (in years), exerciseable | 4 years 3 months 18 days |
Aggregate Intrinsic Value Outstanding, Ending | $ | |
Aggregate Intrinsic Value Exerciseable | $ |
12. WARRANTS (Details 1)
12. WARRANTS (Details 1) - $ / shares | 3 Months Ended | |
Dec. 31, 2017 | Sep. 30, 2017 | |
Warrants | ||
Number of shares | 312,176 | 212,176 |
Weighted-average exercise price | $ 6.84 | $ 6.53 |
Warrant 1 | ||
Number of shares | 141,676 | |
Weighted-average exercise price | $ 7.80 | |
Expiration | September 2,021 | |
Warrant 2 | ||
Number of shares | 70,500 | |
Weighted-average exercise price | $ 4 | |
Expiration | September 2,022 | |
Warrant 3 | ||
Number of shares | 100,000 | |
Weighted-average exercise price | $ 7.50 | |
Expiration | October 2,022 |
14. SEGMENT INFORMATION (Detail
14. SEGMENT INFORMATION (Details) - USD ($) | 3 Months Ended | ||
Dec. 31, 2017 | Dec. 31, 2016 | Sep. 30, 2017 | |
Net Sales | $ 687,756 | $ 199,837 | |
Net sales related party | 254,545 | 0 | |
Income (loss) from Operations before Overhead | (478,309) | (458,347) | |
Allocated Corporate Overhead | 786,474 | 239,156 | |
Net Loss | (1,264,782) | (697,495) | |
Assets | 15,298,993 | 2,688,852 | $ 7,069,439 |
Professional Product Division | |||
Net Sales | 29,070 | 199,837 | |
Net sales related party | 0 | 0 | |
Income (loss) from Operations before Overhead | (360,753) | (458,347) | |
Allocated Corporate Overhead | 49,930 | 239,156 | |
Net Loss | (410,683) | (697,495) | |
Assets | 4,587,741 | 2,688,852 | |
Licensing Division | |||
Net Sales | 37,162 | 0 | |
Net sales related party | 0 | 0 | |
Income (loss) from Operations before Overhead | (360,109) | ||
Allocated Corporate Overhead | 41,554 | 0 | |
Net Loss | (401,663) | 0 | |
Assets | 5,792,671 | ||
Entertainment Division | |||
Net Sales | 366,979 | 0 | |
Net sales related party | 254,545 | 0 | |
Income (loss) from Operations before Overhead | 242,553 | ||
Allocated Corporate Overhead | 694,989 | 0 | |
Net Loss | (452,436) | $ 0 | |
Assets | $ 4,918,581 |