SEC Comment Letter for cbdMD, Inc. (YCBD) (CIK 0001644903) (YCBD) — Jul 25, 2017
cbdMD, Inc. (YCBD) (CIK 0001644903)
Date: July 25, 2017 · CIK: 0001644903 · Accession: 0000000000-17-026142
AI Filing Summary & Sentiment
Reasoning
Letter
UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -4631 DIVISION OF CORPORATION FINANCE Mail Stop 4631 July 25 , 2017 Via E-Mail Mr. Martin A. Sumichrast Chairman, Chief Executive Officer , and President Level Brands, Inc. 4521 Sharon Road, Suite 450 Charlotte, NC 28211
Re: Level Brands, Inc. Amendment 2 to Draft Registration Statement Submitted July 1 2, 2017 CIK No. 0001644903
Dear Mr. Sumichrast :
We have reviewed your amended draft registration statement and have the following comments. In some of our comments we may ask you to provide us information so that we may better understand your disclosure.
Please respond to this letter by providing the requested information and either submitting an amended draft registration statement or publicly filing your registration statement on EDGAR. If you do not believe that 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 the information you provide in response to these commen ts and your amended draft registration statement or filed registration statement, we may have additional comments.
Prospectus Summary, page 5
1. Refer to comment 3 in our May 18, 2017 letter. The marked version of your amended draft registration statement does not reflect revisions made in the prospectus summary and elsewhere. For example, refer to the three bullet points in the second paragraph on pages 5 -6 of the prospectus summary and throughout the business section. Additionally, the marked version of your amended draft registration reflects revisions where no revisions are made. For example, refer to the first paragraph of the risk factor “Our business is dependent on market acceptance of our brands…” on page 17. Ensure in future filings that the ma rked version reflects accurately where revisions are
Mr. Martin A. Sumichrast Level Brands, Inc. July 25 , 2017 Page 2
made and does not reflect revisions where no revisions are made. If you require technical assistance, you may contact EDGAR operations at (202) 551 -8900.
Results of Operations, page 32
2. It appears to us that all disclosures related to sales in your filing, including MD&A and the notes to the financial statements, should be based on “net sales.” We note certain disclosures of segment sales, including on page 33, indicate that they are based on “net sal es” but appear to be based on gross sales. We also note segment disclosures in the notes to your financial statements are based on gross sales. Please revise your filing to present “net sales” in total and by segment. Please also address the specific na ture of your sales allowances and explain to us why you believe any presentation of gross sales is appropriate.
3. We note your disclosure that during t he three months ended March 31, 2017, I’M1 entered into its “first advisory agreements and delivered strat egic marketing and branding services and recorded revenue during the quarter upon successful completion of the services .” Please more fully disclose and discuss the specific terms of the agreements, including the specific services you provided, the identi ties of the customers, whether they are related parties, and the nature of the consideration you received in return for the services you provided. Please fully address how you were able to provide these services without incurring any related cost of sales . In this regard, it is not clear to us how or why presenting segment disclosures that do not reflect the costs of generating the related revenues are meaningful or relevant.
4. We note your disclosure that during t he three months ended March 31, 2017, EE1 entered into its first service related agreements, “encompassing production assistance related to television shows, event promotion, production and coordination services which were delivered and revenue recorded during the quarter upon successful completio n.” Please more fully disclose and discuss the specific terms of the agreements, including the specific services you provided, the identities of the customers, whether they are related parties, and the nature of the consideration you received in return for the services you provided.
Liquidity and Capital Resources, page 38
5. We note that b oth the changes in your current assets and current liabilities are reflective of the further development of your business during the first six months of fiscal 2017. Given the substantial changes in these balances, please provide a more robust discussion regarding the reasons why changes occurred.
6. We note the significant increase in accounts receivable relative to net sales during the interim period. Please disclose and discuss how you assess the collectability of accounts receivable at each balance sheet date.
Mr. Martin A. Sumichrast Level Brands, Inc. July 25 , 2017 Page 3
Critical Accounting Policies, page 40
7. We note your disclosure on page 33 that sales allowances were 57.2% of gross sales for your professional products divis ion compared to 11.8% for the three months ended March 31, 2017 and 2016 and 55.7% and 8.7% for the six months ended March 31, 2017 and 2016. We note that the increases in the fiscal 2017 periods are related to discounting hair irons to your distribution channel in an effort to offer incentives to customers and move historical products as you prepared to launch new products in 2017 as well as a rollout of a discounted sample sized product as you entered into a new distribution channel. Given that the val uation of your inventory may have such a substantial impact on your results, it appears to us you should update your critical accounting estimate disclosures to discuss how you value your inventory and when and how you assess inventory for impairment.
8. We have read your response to prior comment 2. Given that the valuation of your common stock has a substantial impact on your results, it appears to us you should update your critical accounting estimate disclosures to discuss how you value your common stock and the factors that impacted your valuations during the periods presented.
Intangible Assets, page 40
9. We have read you r response to prior comment 4 and your updated disclosures. Please identify the circumstances that would require you to assess intang ible assets for impairment other than at an annual assessment . Please also disclose how you determine fair value, including the key assumptions used in your most recent impairment analysis.
Advisory Agreement with Formula Four Beverages, Inc., page 51
10. Please disclose when and how you accounted for the consideration paid by Formula Four. Please also clarify why a four year advisory agreement would provide that the “services for which the warrant was issued as consideration were to be fully performed with in 45 days from the date of the agreement .”
Note 2 – Acqu isitions page F -9; Note 4 – Intangible Assets, page F -10
11. We have read your response to prior comment 11. Based on the disclosures in your filing, it remains unclear to us:
how and why your acquisitions of assets related to two recently formed entities with little or no operations resulted in you recording significant intangible assets with indefinite lives and non -controlling interests. More
Mr. Martin A. Sumichrast Level Brands, Inc. July 25 , 2017 Page 4
fully explain to us what you acquired and how de termined that what you acquired have indefinite lives; and
how you determ ined SAB 5G is not applicable.
Please address the terms of each non -controlling interest and explain why you made a distribution to one of the non -controlling interests during the interim period.
Note 14 – Subsequent Events, page F -18
12. We note your disclosure that effective April 28, 2017 you acquired an additional 12% interest in BPU for 155,294 shares of common stock. Please disclose how you accounted for the additional interest you acquired and disclose the fair value of the common stock you issued.
13. In regard to the license agreement you entered into with a customer in March 2017 that was cancelled by both parties on June 8, 2017, please disclose if you recognized any revenue a nd/or have any outstanding receivables related to this agreement.
14. We note your disclosure that effective June 30, 2017 you converted the $2,125,000 principal amount of convertible promissory notes and all accrued interest of $127,500 into common stock at a price of $3.95 per share. Based on the initial conversion terms of the notes, please explain your accounting for the revised conversion terms, including if this was considered to be an induced conversion.
15. We note your disclosure that a customer who pro vided shares of their stock in consideration for services had not timely filed their Form 10 -Q and that the value of their stock subsequently dropped significantly. We also note your disclosure that you expect to record an unrealized loss in a future peri od and may record a loss in a future period. Please disclose your accounting policy for shares you receive in consideration for services, the fair value of any shares you received, and your subsequent determination of fair value. Please refer to ASC 820 -10-50. In regard to this specific transaction, please disclose:
the terms of the shares you received, including if they are freely tradable;
the fair value of the shares you received and how you determined that value; and
the subsequent decline in the fair value of the shares you received and how you determined that value.
Mr. Martin A. Sumichrast Level Brands, Inc. July 25 , 2017 Page 5
You may contact Melinda J. Hooker , Staff Accountant, at (202) 551 -3732 or Anne M. McConnell , Staff Accountant , at (202) 551 -3709 if you have questions about comments on the financial statements and related matters. You may contact Edward M. Kelly, Special Counsel, at (202) 551 -3728 or me at (202) 551 -3765 if you have any other questions .
Very truly yours ,
/s/ Pamela A. Long
Show Raw Text
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549 -4631
DIVISION OF
CORPORATION FINANCE
Mail Stop 4631
July 25 , 2017
Via E-Mail
Mr. Martin A. Sumichrast
Chairman, Chief Executive Officer , and President
Level Brands, Inc.
4521 Sharon Road, Suite 450
Charlotte, NC 28211
Re: Level Brands, Inc.
Amendment 2 to Draft Registration Statement
Submitted July 1 2, 2017
CIK No. 0001644903
Dear Mr. Sumichrast :
We have reviewed your amended draft registration statement and have the
following comments. In some of our comments we may ask you to provide us
information so that we may better understand your disclosure.
Please respond to this letter by providing the requested information and either
submitting an amended draft registration statement or publicly filing your registration
statement on EDGAR. If you do not believe that 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 the information you provide in response to these commen ts and
your amended draft registration statement or filed registration statement, we may have
additional comments.
Prospectus Summary, page 5
1. Refer to comment 3 in our May 18, 2017 letter. The marked version of your amended
draft registration statement does not reflect revisions made in the prospectus summary
and elsewhere. For example, refer to the three bullet points in the second paragraph
on pages 5 -6 of the prospectus summary and throughout the business section.
Additionally, the marked version of your amended draft registration reflects revisions
where no revisions are made. For example, refer to the first paragraph of the risk
factor “Our business is dependent on market acceptance of our brands…” on page 17.
Ensure in future filings that the ma rked version reflects accurately where revisions are
Mr. Martin A. Sumichrast
Level Brands, Inc.
July 25 , 2017
Page 2
made and does not reflect revisions where no revisions are made. If you require
technical assistance, you may contact EDGAR operations at (202) 551 -8900.
Results of Operations, page 32
2. It appears to us that all disclosures related to sales in your filing, including MD&A
and the notes to the financial statements, should be based on “net sales.” We note
certain disclosures of segment sales, including on page 33, indicate that they are
based on “net sal es” but appear to be based on gross sales. We also note segment
disclosures in the notes to your financial statements are based on gross sales. Please
revise your filing to present “net sales” in total and by segment. Please also address
the specific na ture of your sales allowances and explain to us why you believe any
presentation of gross sales is appropriate.
3. We note your disclosure that during t he three months ended March 31, 2017, I’M1
entered into its “first advisory agreements and delivered strat egic marketing and
branding services and recorded revenue during the quarter upon successful
completion of the services .” Please more fully disclose and discuss the specific terms
of the agreements, including the specific services you provided, the identi ties of the
customers, whether they are related parties, and the nature of the consideration you
received in return for the services you provided. Please fully address how you were
able to provide these services without incurring any related cost of sales . In this
regard, it is not clear to us how or why presenting segment disclosures that do not
reflect the costs of generating the related revenues are meaningful or relevant.
4. We note your disclosure that during t he three months ended March 31, 2017, EE1
entered into its first service related agreements, “encompassing production assistance
related to television shows, event promotion, production and coordination services
which were delivered and revenue recorded during the quarter upon successful
completio n.” Please more fully disclose and discuss the specific terms of the
agreements, including the specific services you provided, the identities of the
customers, whether they are related parties, and the nature of the consideration you
received in return for the services you provided.
Liquidity and Capital Resources, page 38
5. We note that b oth the changes in your current assets and current liabilities are
reflective of the further development of your business during the first six months of
fiscal 2017. Given the substantial changes in these balances, please provide a more
robust discussion regarding the reasons why changes occurred.
6. We note the significant increase in accounts receivable relative to net sales during the
interim period. Please disclose and discuss how you assess the collectability of
accounts receivable at each balance sheet date.
Mr. Martin A. Sumichrast
Level Brands, Inc.
July 25 , 2017
Page 3
Critical Accounting Policies, page 40
7. We note your disclosure on page 33 that sales allowances were 57.2% of gross sales
for your professional products divis ion compared to 11.8% for the three months
ended March 31, 2017 and 2016 and 55.7% and 8.7% for the six months ended
March 31, 2017 and 2016. We note that the increases in the fiscal 2017 periods are
related to discounting hair irons to your distribution channel in an effort to offer
incentives to customers and move historical products as you prepared to launch new
products in 2017 as well as a rollout of a discounted sample sized product as you
entered into a new distribution channel. Given that the val uation of your inventory
may have such a substantial impact on your results, it appears to us you should update
your critical accounting estimate disclosures to discuss how you value your inventory
and when and how you assess inventory for impairment.
8. We have read your response to prior comment 2. Given that the valuation of your
common stock has a substantial impact on your results, it appears to us you should
update your critical accounting estimate disclosures to discuss how you value your
common stock and the factors that impacted your valuations during the periods
presented.
Intangible Assets, page 40
9. We have read you r response to prior comment 4 and your updated disclosures. Please
identify the circumstances that would require you to assess intang ible assets for
impairment other than at an annual assessment . Please also disclose how you
determine fair value, including the key assumptions used in your most recent
impairment analysis.
Advisory Agreement with Formula Four Beverages, Inc., page 51
10. Please disclose when and how you accounted for the consideration paid by Formula
Four. Please also clarify why a four year advisory agreement would provide that the
“services for which the warrant was issued as consideration were to be fully
performed with in 45 days from the date of the agreement .”
Note 2 – Acqu isitions page F -9; Note 4 – Intangible Assets, page F -10
11. We have read your response to prior comment 11. Based on the disclosures in your
filing, it remains unclear to us:
how and why your acquisitions of assets related to two recently formed
entities with little or no operations resulted in you recording significant
intangible assets with indefinite lives and non -controlling interests. More
Mr. Martin A. Sumichrast
Level Brands, Inc.
July 25 , 2017
Page 4
fully explain to us what you acquired and how de termined that what you
acquired have indefinite lives; and
how you determ ined SAB 5G is not applicable.
Please address the terms of each non -controlling interest and explain why you
made a distribution to one of the non -controlling interests during the interim
period.
Note 14 – Subsequent Events, page F -18
12. We note your disclosure that effective April 28, 2017 you acquired an additional 12%
interest in BPU for 155,294 shares of common stock. Please disclose how you
accounted for the additional interest you acquired and disclose the fair value of the
common stock you issued.
13. In regard to the license agreement you entered into with a customer in March 2017
that was cancelled by both parties on June 8, 2017, please disclose if you recognized
any revenue a nd/or have any outstanding receivables related to this agreement.
14. We note your disclosure that effective June 30, 2017 you converted the $2,125,000
principal amount of convertible promissory notes and all accrued interest of $127,500
into common stock at a price of $3.95 per share. Based on the initial conversion
terms of the notes, please explain your accounting for the revised conversion terms,
including if this was considered to be an induced conversion.
15. We note your disclosure that a customer who pro vided shares of their stock in
consideration for services had not timely filed their Form 10 -Q and that the value of
their stock subsequently dropped significantly. We also note your disclosure that you
expect to record an unrealized loss in a future peri od and may record a loss in a future
period. Please disclose your accounting policy for shares you receive in
consideration for services, the fair value of any shares you received, and your
subsequent determination of fair value. Please refer to ASC 820 -10-50. In regard to
this specific transaction, please disclose:
the terms of the shares you received, including if they are freely tradable;
the fair value of the shares you received and how you determined that value;
and
the subsequent decline in the fair value of the shares you received and how
you determined that value.
Mr. Martin A. Sumichrast
Level Brands, Inc.
July 25 , 2017
Page 5
You may contact Melinda J. Hooker , Staff Accountant, at (202) 551 -3732 or
Anne M. McConnell , Staff Accountant , at (202) 551 -3709 if you have questions about
comments on the financial statements and related matters. You may contact Edward M.
Kelly, Special Counsel, at (202) 551 -3728 or me at (202) 551 -3765 if you have any other
questions .
Very truly yours ,
/s/ Pamela A. Long
Pamela A. Long
Assistant Director
Office of Manufacturing and Construction
cc: Via E -mail
Brian A. Pearlman, Esq.
Charles B. Pearlman, Esq.
Pearlman Law Group LLP
2200 Corporate Boulevard, N.W., Suite 210
Boca Raton, FL 33431