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3. MARKETABLE SECURITIES AND INVESTMENT OTHER SECURITIES | 9 Months Ended
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Jun. 30, 2018
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, using 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 under the 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 on 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 due July 31, 2018, which had a balance of $161,573 at June 30, 2018 and was subsequently amended with a payoff date of December 31, 2018. 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. 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 June 30, 2018. 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. The Company assessed the common stock and determined there was not an impairment for the period ended June 30, 2018. In November 2017, the Company completed services in relation to an agreement with SG Blocks, Inc. (NASDAQ: SGBX). 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 March 31, 2018 and June 30, 2018 respectively, the shares were $4.61 and $5.20 per share, and we have recorded $29,500 and $5,500 as other comprehensive income (loss) on the Company consolidated financial statements for the three and nine months ended June 30, 2018. The Company assessed the common stock and determined there was not an indication of an other-than-temporary impairment. In December 2017, the Company completed services per an advisory services agreement with Kure Corp, a related party. As payment for these services, Kure Corp issued 400,000 shares of its stock to Level Brands. The customer was 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. In addition, in December 2017, the Company engaged and completed advisory services in relation to an additional agreement with Kure Corp, for services related to their “vape-pod” strategy. As payment for these services, Kure Corp issued an additional 400,000 shares of its stock to Level Brands which the Company received in January 2018. These shares were also valued at $200,000. The Company had classified this common stock, cumulative value of $400,000, as Level 3 for fair value measurement purposes as there were 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 April 30, 2018, Kure Corp. merged with Isodiol International, Inc. (CSE: ISOL, OTCQB: ISOLF, FSE:LB6A.F), a Canadian company. In the merger agreement, each share of Kure was valued at $1.00 as the initial value and is to be exchanged for shares of Isodiol in three issuances as follows: 1) 30% of the initial value issued on May 1, 2018, the balance of shares issued based on earn out goals as 2) 50% of the initial value to be issued on January 31, 2019 on a prorata basis based on sales and using the prior 10 day volume weighted average price of Isodiol shares and 3) 20% of the initial value to be issued on January 31, 2020 on a prorata basis based on sales and using the prior 10 day volume weighted average price of Isodiol shares. We recorded the first issuance of 380,952 shares based on a trading price on April 30, 2018 of $0.63 per share valued at $240,000 as a Level 1 for fair value measurement purposes as the stock is actively traded on an exchange. We also removed the value of the Kure equity of $400,000 from our Level 3 investments as part of the exchange described above. As the full value of the Kure equity will not be received until the future issuances based on the above earn out goals, we have recorded an accounts receivable other of $160,000 as of June 30, 2018. The Company has assessed the other accounts receivable and determined there is no indication that we will not receive the full amount. The common stock is held as available for sale, and at June 30, 2018, the shares were $0.36 per share, and we recorded $(102,857) as other comprehensive income (loss) on the Company consolidated financial statements for the three and nine months ended June 30, 2018. The Company also assessed the common stock and determined there was not an indication of an other-than-temporary impairment. 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. As of June 30, 2018, the Company has determined there is no impairment on the value of the shares of stock. On December 30, 2017 Level Brands entered into an 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 manufacturer and developer of phytoceutical consumer products. The agreement required the Company to create a global branding and marketing campaign, which includes a joint strategy to develop Isodiol’s brand and products, an influencer program, and a social and traditional media strategy. As payment for these services, Isodiol agreed to pay $2,000,000 and issued 1,679,321 shares of its common stock to Level Brands, based on the trading price on the day of the agreement, which was $1.1909 per share. These shares were issued on January 22, 2018. In addition, the Company will provide ongoing quarterly support of the campaign which includes two branded videos each quarter, Ms. Ireland’s direct involvement in meetings or conferences once each quarter, and ongoing social media support by Ms. Ireland and Level Brands, all the services valued at $750,000 per quarter. This amount will be paid through issuance of Isodiol stock and the number of shares issued will be determined based on the trading value of Isodiol stock on the last day of each quarter. Isodiol made the $750,000 payment for quarterly services for March 31, 2018 through the issuance of shares of common stock. The common stock is held as available for sale, and at March 31, 2018 and June 30, 2018, the shares were $0.85 and $0.36 per share, and we recorded $(1,253,370) and $(1,825,947) as other comprehensive income (loss) on the Company consolidated financial statements for the three and nine months ended June 30, 2018. The Company assessed the common stock and based on conversations with the company regarding its recent acquisitions, position in the CBD market, current financing events, and overall strategy, determined there was not an indication of an other-than-temporary impairment. The table below summarizes the assets valued at fair value as of June 30, 2018:
|  | 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 June 30, 2018 |
Marketable securities |  | $ | 1,321,196 |  |  |  | - |  |  | $ | - |  |  | $ | 1,321,196 |
Investment other securities |  |  | - |  |  |  | - |  |  | $ | 1,159,112 |  |  | $ | 1,159,112 |
|  | 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 |
Receipt of equity investment upon completion of services |  | $ | - |  |  | $ | - |  |  | $ | 200,000 |  |  | $ | 200,000 |
Receipt of equity investment upon completion of services |  | $ | 2,000,000 |  |  | $ | - |  |  | $ | - |  |  | $ | 2,000,000 |
Change in value of equity, other comprehensive income |  | $ | (641,077 | ) |  | $ | - |  |  | $ | - |  |  | $ | (641,077 | )
Balance at March 31, 2018 |  | $ | 1,657,923 |  |  | $ | - |  |  | $ | 1,559,112 |  |  | $ | 3,217,035 |
Receipt of equity investment upon completion of services |  | $ | 750,000 |  |  | $ | - |  |  | $ | - |  |  | $ | 750,000 |
Exchange of equity via owner merger into public company |  | $ | 240,000 |  |  | $ | - |  |  | $ | (400,000 | ) |  | $ | (160,000 | )
Change in value of equity, other comprehensive income |  | $ | (1,326,727 | ) |  | $ | - |  |  | $ | - |  |  | $ | (1,326,727 | )
Balance at June 30, 2018 |  | $ | 1,321,196 |  |  | $ | - |  |  | $ | 1,159,112 |  |  | $ | 2,480,308 |

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