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2. ACQUISITIONS

3 Months Ended

Dec. 31, 2018

Business Combinations [Abstract]

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, intangibles, and a minimal amount of inventory, all in aggregate valued at $486,760. The Company recorded an impairment charge of $240,000 as impairment to intangibles under the BPU segment for the year ended of September 30, 2018 (see Note 6 for more information).

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.

On December 20, 2018 (the “Closing”), the Company, and its newly organized wholly-owned subsidiaries AcqCo, LLC and cbdMD, both North Carolina limited liability companies, completed a two-step merger (the “Merger Agreement”) with Cure Based Development, LLC, a Nevada limited liability company (“Cure Based Development”). The Merger Agreement provided that AcqCo LLC merge with and into Cure Based Development with Cure Based Development as the surviving entity (the “Merger”), and immediately thereafter Cure Based Development merged with and into cbdMD with cbdMD as the surviving entity (the “Secondary Merger” and collectively with the Merger, the “Mergers”). cbdMD has continued as a wholly-owned subsidiary of Level Brands and maintains the operations of Cure Based Development pre-closing. As consideration for the Merger, the Company has a contractual obligation, after approval by our shareholders, to issue 15,250,000 shares of our common stock to the members of Cure Based Development, of which 8,750,000 of the shares will vest over a five year period and are subject to a voting proxy agreement. The Merger Agreement also provides that an additional 15,250,000 shares of our common stock can be issued upon the satisfaction of aggregate net revenue criteria by cbdMD, within 60 months following the Closing. The net revenue criteria are: $20.0, $40.0, $80.0 and $160.0 million, in aggregate $300.0 million (See Note 9 for more information).

The Company owns 100% of the equity interest of cbdMD. The valuation and purchase price allocation for the Mergers remains preliminary and will be finalized by September 30, 2019.

The following table presents the preliminary purchase price allocation:

Consideration		$	74,353,483

Assets acquired:
Cash and cash equivalents		$	1,822,331
Accounts receivable			850,921
Inventory			1,054,926
Other current assets			38,745
Property and equipment, net			608,947
Intangible assets			21,585,000
Goodwill			55,258,545
Total assets acquired			81,219,415

Liabilities assumed:
Accounts payable			257,081
Notes payable – related party			764,300
Customer deposits - related party			265,000
Accrued expenses			471,551
Deferred tax liability			5,108,000
Total Liabilities assumed			6,865,932

Net Assets Acquired		$	74,353,483

In connection with the purchase price allocation, the Company recorded a deferred tax liability of approximately $5,108,000, with a corresponding increase to goodwill, for the tax effect of the acquired intangible assets from Cure Base Development. This liability was recorded as there will be no future tax deductions related to the acquired intangibles, and we have identified these as indefinite-lived intangible assets.

The Company also acquired estimated net operating loss carryforwards of approximately $1,996,000, Under Internal Revenue Code (IRC) Section 382, the use of net operating loss (“NOL”) carryforwards may be limited if a change in ownership of a company occurs. The Company will perform an analysis to determine if a change of ownership under IRC Section 382 had occurred and if so, determine the expiration and limitations of use of the NOLs.