March 13, 2019
Mark S. Elliott
Chief Financial Officer and Chief Operating Officer
Level Brands, Inc.
4521 Sharon Road, Suite 450
Charlotte, NC 28211
Re: Level Brands, Inc.
Registration Statement on Form S-3
Filed December 13, 2018
File No. 333-228773
Dear Mr. Elliott:
We have reviewed your February 28, 2019 response to our comment letter
and have the
following comments. In some of our comments, we may ask you to provide us with
information
so we may better understand your disclosure.
Please respond to this letter by amending your registration statement
and providing the
requested information. If you do not believe our comments apply to your facts
and
circumstances or do not believe an amendment is appropriate, please tell us why
in your
response.
After reviewing any amendment to your registration statement and the
information you
provide in response to these comments, we may have additional comments. Unless
we note
otherwise, our references to prior comments are to comments in our February 27,
2019 letter.
Form S-3 filed December 13, 2018
Form 8-K/A filed February 22, 2019 Exhibit 99.3
1. Basis of Pro Forma Presentation, page F-6
1. We note your response to prior comment one from our letter dated
February 27, 2019.
Please amend the Form 8-K/A to provide disclosure on the determination
of the
accounting treatment for the merger. Ensure your disclosures and pro
forma financial
statements address the following comments.
2. We have the following comments regarding your accounting for the
consideration
transferred in the merger:
Reconcile the Schedule of Company Members in Exhibit B to the Merger
Agreement
Mark S. Elliott
FirstName LastNameMark S. Elliott
Level Brands, Inc.
Comapany2019
March 13, NameLevel Brands, Inc.
Page 2
March 13, 2019 Page 2
FirstName LastName
with the disclosure in Notes 6 and 10 to Cure Based Development
financial statements
for the year ended August 31, 2018. Identify the three investors
that contributed
$700,000 and indicate whether they received Preferred or Common
Membership
Interests. In this regard, we note that as of August 31, 2018, the
$771,053 of
Contributed Capital reflected in Cure Based Development's balance
sheet appears to
relate to the $700,000 from the three investors and the $71,053
related to the units
issued to Caryn Dunayer's employment agreement;
Identify the owners and their respective ownership percentage of
CBD Holding, LLC;
Provide us with a comprehensive explanation of the terms the
Preferred and Common
Membership Interests of Cure Based Development. Based on the terms
of the member
interests, explain how you determined the number of shares to be
issued to the
Preferred and Common Membership Interest holders; and
Explain why the Common Membership Interest holders did not receive
First Tranche
Shares. Specifically address why these owners are treated
differently than the
Preferred Members with regard to the consideration transferred in
the merger. In light
of these differences, please re-assess your conclusion that the
Second Tranche Shares
should not be deemed a compensation arrangement.
3. Please expand upon your conclusion that the Earnout Shares are deemed
contingent
consideration. In this regard, we note your belief that these shares
represent part of the
exchange in the form of equity interests to the former owners of Cure
Based Development
for acquiring the control of Cure Based Development. However, in light
of the following
factors, please reassess the need to account for these shares as a
compensation
arrangement:
We note that the Earnout Shares will be issued to CBD Holding, LLC,
whose owners,
R. Scott Coffman and Caryn Dunayer, have also signed employment
agreements with
the Company. Please fully explain why the other former owners of
Cure Based
Development do not have the right to participate in the Earnout
Shares. Address why
the non-pro-rata allocation of the Earnout Shares does not
contradict your conclusion;
and
ASC 805-10-55-25e indicates that the relative number of shares owned
by the selling
shareholders who remain as key employees may be an indicator of
the substance of the
contingent consideration arrangement. In this regard, we note that
after the issuance of
the First and Second Tranche Shares, Mr. Coffman, the controlling
shareholder of
Cure Based Development will control the Company.
Form 10-Q for the Quarter ended December 18, 2018
Note 2. Acquisitions, page 18
4. Notwithstanding the above comments, we have the following comments on
your
determination of the purchase consideration herein as well as in your
Pro Forma Financial
Statements:
Explain how you determined the apparent $2.55 per share price for
the First Tranche
Mark S. Elliott
Level Brands, Inc.
March 13, 2019
Page 3
Shares;
Explain how you determined the apparent $2.15 fair value for the Second
Tranche
Shares. Separately address the fair value of the shares that vest on
each anniversary
date and how you took into consideration that these shares have no
voting rights until
they vest; and
Please quantify the number of shares and the respective fair value of
the Earnout
Shares you included in the determination of your purchase
consideration. Your
response should address how you assessed the probability of meeting
the revenue
targets at each of the first through fourth earnout dates.
Ensure you refer to ASC 820 for guidance.
Please contact Sergio Chinos, Staff Attorney, at (202) 551-7844 or Jay
Ingram, Legal
Branch Chief, at (202) 551-3397 with any questions.
Sincerely,
FirstName LastNameMark S. Elliott Division of
Corporation Finance
Office of
Manufacturing and
Comapany NameLevel Brands, Inc.
Construction
March 13, 2019 Page 3
cc: Brian Pearlman
FirstName LastName