EX-99.3 3 levb_ex993.htm PROFORMA FINANCIAL STATEMENTS OF LEVEL BRANDS, INC FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2018 Blueprint
  Exhibit 99.3
 
LEVEL BRANDS, INC.
 
UNAUDITED PRO-FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
 
 

 
Introduction to Unaudited Pro-Forma Combined Condensed Financial Statements
F-1
Unaudited Pro-Forma Combined Condensed Balance Sheet as of September 30, 2018
F-2
Unaudited Pro-Forma Combined Condensed Statement of Operations for the
 
Year Ended September 30, 2018
F-4
Notes to Unaudited Pro-Forma Combined Condensed Financial Statements
F-5
 
 
 
 
 
 
 
 
 
 
 
 
LEVEL BRANDS, INC.
INTRODUCTION TO
UNAUDITED PRO-FORMA COMBINED CONDENSED BALANCE SHEET AS OF SEPTEMBER 30, 2018 AND
THE PRO-FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS FOR THE YEAR ENDED SEPTEMBER 30, 2018
 
 
The following unaudited pro forma combined condensed balance sheet, unaudited pro forma combined condensed statement of operations, unaudited pro forma combined condensed statement of comprehensive income (loss), and the explanatory notes give effect to the mergers of Cure Based Development LLC and CBDMD LLC, a wholly owned subsidiary of Level Brands, Inc., on December 20, 2018.
 
The unaudited pro forma combined condensed balance sheet, unaudited pro forma combined condensed statement of operations, unaudited pro forma combined condensed statement of comprehensive income (loss), and explanatory notes are based on estimates and assumptions set forth in the explanatory notes. These unaudited pro forma combined condensed balance sheet, unaudited pro forma combined condensed statement of operations and unaudited pro forma combined condensed statement of comprehensive income (loss) have been prepared utilizing the historical financial statements of Level Brands to the extent such has been filed previously with the Securities and Exchange Commission. Other unaudited combined condensed financial information has been obtained from the company records of Cure Based Development.
 
The unaudited pro forma combined condensed statement of operations for the year ended September 30, 2018 and unaudited pro forma condensed statement of comprehensive income (loss) for the year ended September 30, 2018 have been prepared as if the mergers of Cure Based Development LLC and CBDMD LLC had been consummated on October 1, 2017. The unaudited pro forma combined condensed balance sheet as of September 30, 2018 has been prepared as if the mergers of Cure Based Development LLC and CBDMD LLC was consummated on September 30, 2018.
 
These unaudited pro forma combined condensed financial statements are provided for illustrative purposes only, and do not purport to be indicative of the actual financial position or results of operations had the mergers occurred at the beginning of the period presented, nor are they necessarily indicative of the results of future operations. The unaudited pro forma condensed financial statements do not reflect any operating efficiencies and/or cost savings that the combined entity may achieve with respect to the combined companies.
 
 
 

F-1
 
 
LEVEL BRANDS, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET AS OF
SEPTEMBER 30, 2018
(UNAUDITED)
 
 
 
(Audited)
 
 
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
Level Brands, Inc.
 
 
CBD LLC
 
 
 
 
 
 
 
 
 
 
 
 
September 30,
 
 
September 30,
 
 
Pro Forma
 
 
Notes
 
 
Pro Forma
 
 
 
2018
 
 
2018
 
 
Adjustments
 
 
 
 
 
Combined
 
ASSETS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 $4,282,553 
 $256,850 
 $5,356,998 
    (2,3)
 $9,896,401 
Accounts receivable
  307,874 
  102,655 
  - 
       
  410,529 
Accounts receivable related party
  1,537,863 
  - 
  - 
       
  1,537,863 
Accounts receivable other
  1,743,874 
  - 
  - 
       
  1,743,874 
Marketable securities
  1,050,961 
  - 
  - 
       
  1,050,961 
Investment other securities
  1,159,112 
  - 
  - 
       
  1,159,112 
Receivable from Payment Processor
  - 
  533,862 
  - 
       
  533,862 
Note receivable
  459,000 
  - 
  - 
       
  459,000 
Note receivable related party
  156,147 
  - 
  - 
       
  156,147 
Deferred issuance costs
  28,049 
  - 
  - 
       
  28,049 
Prepaid rent
  180,000 
  - 
  - 
       
  180,000 
Prepaid expenses and other current assets
  561,491 
  - 
  - 
       
  561,491 
Prepaid consulting agreement
  200,000 
  - 
  - 
       
  200,000 
Inventory
  123,223 
  1,020,259 
  - 
       
  1,143,482 
Total Current Assets
  11,790,147 
  1,913,626 
  5,356,998 
       
  19,060,771 
 
    
    
    
       
    
Property and equipment, net
  53,480 
  609,309 
  - 
       
  662,789 
Goodwill
  - 
  - 
  54,876,483 
    (3)
  54,876,483 
Intangible assets, net
  3,173,985 
  - 
  21,585,000 
    (3)
  24,758,985 
Total Assets
 $15,017,612 
 $2,522,935 
 $81,818,481 
       
 $99,359,028 
 
see notes to unaudited combined condensed pro forma financial statements
F-2
 
 
LEVEL BRANDS, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF SEPTEMBER 30, 2018
(UNAUDITED)
(continued)
 
 
 
(Audited)
 
 
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
Level Brands, Inc.
 
 
CBD LLC
 
 
 
 
 
 
 
 
 
 
 
 
September 30,
 
 
September 30,
 
 
Pro Forma
 
 
Notes
 
 
Pro Forma
 
 
 
2018
 
 
2018
 
 
Adjustments
 
 
 
 
 
Combined
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
LIABILITIES AND MEMBERS' EQUITY
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accounts payable
 $473,717 
 $139,879 
 $- 
 
 $613,596 
Accounts payable related party
  7,860 
 $- 
  - 
 
  7,860 
Deferred revenue
  161,458 
  - 
  - 
 
  161,458 
Note payable related party
  - 
  2,010,300 
  (1,000,000)
    (3)
  1,010,300 
customer deposit
  - 
  265,000 
  - 
       
  265,000 
Accrued expenses
  6,920 
  186,144 
  - 
       
  193,064 
Accrued expenses related party
  320,000 
  42,652 
  - 
       
  362,652 
Total Current Liabilities
  969,955 
  2,643,975 
  (1,000,000)
       
  2,613,930 
 
    
    
    
       
    
Long Term Liabilities:
    
    
    
       
    
Long term liabilities
  7,502 
  - 
  - 
       
  7,502 
Contingent liability
  - 
  - 
  71,353,483 
    (3)
  71,353,483 
Deferred tax liability
  21,000 
  - 
  5,108,000 
    (3)
  5,129,000 
Total Long Term Liabilities
  28,502 
  - 
  76,461,483 
       
  76,489,985 
 
    
    
    
       
    
Shareholders' Equity:
    
    
    
       
    
Preferred Stock
  - 
  - 
  - 
       
  - 
Common stock
  8,124 
  - 
  1,971 
    (2)
  10,095 
Paid In Capital
  21,781,095 
  771,053 
  6,355,027 
    (2)
  28,907,175 
Accumulated other comprehensive income (loss)
  (2,512,539)
  - 
  - 
       
  (2,512,539)
Accumulated deficit
  (6,669,497)
  (892,093)
  - 
       
  (7,561,590)
Total Shareholders' Equity
  12,607,183 
  (121,040)
  6,356,998 
       
  18,843,141 
Non-controlling interest
  1,411,972 
  - 
  - 
       
  1,411,972 
Total Shareholder' Equity
 $14,019,155 
 $(121,040)
 $6,356,998 
       
 $20,255,113 
 
    
    
    
       
    
Total liabilities and shareholders' equity
 $15,017,612 
 $2,522,935 
 $81,818,481 
       
 $99,359,028 
 
see notes to unaudited combined condensed pro forma financial statements
F-3
 
 
LEVEL BRANDS, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 2018
(UNAUDITED)
 
 
 
(Audited)
 
 
(Unaudited)
 
 
 
 
 
 
 
 
 
 
Level Brands
 
 
CBD
 
 
 
 
 
 
 
 
 
 
 
 
 
12 Months
 
 
 
 
 
 
 
 
 
 
Year ended
 
 
Period ended
 
 
Pro Forma
 
 
 
Pro Forma
 
 
 
September 30, 2018
 
 
September 30, 2018
 
 
Adjustments
 
Notes
 
Combined
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Sales
 $6,453,173 
 $3,998,281 
 $- 
 
 $10,451,454 
Sales related party
  1,992,046 
    
    
 
  1,992,046 
Total Gross Sales
  8,445,219 
    
    
 
  8,445,219 
Less returns and allowances
  (25,077)
  (101,723)
  - 
 
  (126,800)
Net sales
  6,428,096 
  3,896,558 
  - 
 
  10,324,654 
Net sales related party
  1,992,046 
    
    
 
  1,992,046 
Total Net Sales
  8,420,142 
  3,896,558 
    
 
  12,316,700 
 
    
    
    
 
    
Cost of sales
  2,673,272 
  946,536 
  - 
 
  3,619,808 
Gross profit
  5,746,870 
  2,950,022 
  - 
 
  8,696,892 
 
    
    
    
 
    
Operating expenses
  5,629,771 
  3,715,738 
  - 
 
  9,345,509 
Loss from operations
  117,099 
  (765,716)
  - 
 
  (648,617)
 
    
    
    
 
    
Loss on disposal of property
  69,310 
  - 
  - 
 
  69,310 
Interest expense
  955 
  72,110 
  - 
 
  73,065 
Income (loss) before provision for income taxes
  46,834 
  (837,826)
  - 
 
  (790,992)
 
    
    
    
 
    
Provision for income taxes
  16,000 
  - 
  - 
 
  16,000 
Net Income (loss)
  62,834 
  (837,826)
  - 
 
  (774,992)
 
    
    
    
 
    
Net Income (loss) attributable to non-controlling interest
  474,909 
  - 
  - 
 
  474,909 
Net loss attributable to Level Brands, Inc. common shareholders
 $(412,075)
 $(837,826)
 $- 
 
 $(1,249,901)
 
    
    
    
 
    
Net loss per share, basic and diluted
 $(0.05)
    
    
(5)
 $(0.05)
Weighted average number of shares outstanding
  7,742,644 
    
    
 
  24,964,072 
 
see notes to unaudited combined condensed pro forma financial statements
F-4
 
 
LEVEL BRANDS, INC.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
FOR THE YEAR ENDED SEPTEMBER 30, 2018
 
 
 
(Audited)
 
 
(Unaudited)
 
 
 
 
 
 
 
 
 
 
Level Brands
 
 
CBD
 
 
 
 
 
 
 
 
 
 
 
 
 
12 Months
 
 
 
 
 
 
 
 
 
 
Year ended
 
 
Period ended
 
 
Pro Forma
 
 
 
Pro Forma
 
 
 
September 30, 2018
 
 
September 30, 2018
 
 
Adjustments
 
Notes
 
Combined
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Income (Loss)
 $62,834 
 $(837,826)
 $- 
 
 $(774,992)
Other Comprehensive Income:
    
    
    
 
    
    Net Unrealized Gain (Loss) on Marketable Securities, net of tax of $0
  (2,512,539)
  - 
  - 

  (2,512,539)
Comprehensive Income (Loss)
  (2,449,705)
  (837,826)
  - 
 
  (3,287,531)
 
    
    
    
 
    
Comprehensive Income (Loss) attributable to non-controlling interest
  474,909 
  - 
  - 
 
  474,909 
Comprehensive Income (Loss) attributable to Level Brands, Inc. common shareholders
 $(2,924,614)
 $(837,826)
  - 
 
 $(3,762,440)
 
 

 
see notes to unaudited combined condensed pro forma financial statements
F-5
 
 
LEVEL BRANDS, INC.
NOTES TO
UNAUDITED PRO-FORMA COMBINED CONDENSED BALANCE SHEET AS OF SEPTEMBER 30, 2018 AND
THE PRO-FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS FOR THE YEAR ENDED SEPTEMBER 30, 2018
 
1. – Basis of Pro Forma Presentation
 
These unaudited pro forma combined condensed financial statements have been compiled from and include:
 
i.
An audited consolidated balance sheet of Level Brands as of September 30, 2018.
ii.
An unaudited condensed balance sheet of Cure Based Development as of September 30, 2018.
iii.
An audited consolidated statement of operations of Level Brands for the year ended September 30, 2018.
iv.
An unaudited condensed statement of operations of Cure Based Development for the twelve months ended as of September 30, 2018.
 
Cure Based Development’s fiscal year end was December 31, therefore we utilized their financial results from the periods which aligned with our year end of September 30 as we created the unaudited pro forma combined condensed financial statements.
 
The assets acquired and liabilities assumed were recorded as preliminary estimates of fair values determined by management, based on information currently available and on current assumptions as to future operations, and are subject to change upon the completion of acquisition accounting, including the finalization of asset valuations. These changes could result in material variances between the Company’s future financial results and the amounts presented in these unaudited pro forma combined condensed financial statements, including fair values recorded, as well as expenses and cash flows associated with these items.
 
The unaudited pro forma combined condensed financial statements are presented for illustrative purposes only and are not necessarily indicative of the operating results that would have occurred if the Company had operated CBD for the year ended September 30, 2018, nor is it necessarily indicative of future operating results or financial position. The unaudited pro forma combined condensed financial statements do not reflect any operating efficiencies, adjustments for non-recurring expenses recorded by both Level Brands and CBD (see note 6), or cost savings that the Company may achieve with respect to the combined companies.
 
The unaudited pro forma combined condensed financial statements should be read in conjunction with the historical audited financial statements and notes to financial statements of Level Brands contained in its 2018 Annual Report on Form 10-K.
 
2. – Equity Financings
 
On October 2, 2018, the Company completed a secondary public offering of 1,971,428 shares of its common stock for aggregate gross proceeds of $6,899,998.
 
(a)
The Company received $6,356,998 in net proceeds after deducting underwriting discounts and commissions and other estimated offering expenses payable by us.
 
(b)
A proforma adjustment to reflect this equity financing in the unaudited pro forma combined condensed balance sheet as of September 30, 2018 was made as if the financing occurred on September 30, 2018.
 
F-6
 
 
3. – Preliminary Purchase Price Allocation and Pro Forma Adjustments
 
The adjustments included in the unaudited pro forma combined condensed financial statements are those that are considered to be directly attributable to the merger with Cure Based Development. The total purchase consideration is $3,000,000 in cash and 30,500,000 shares of Level Brands common stock to be issued upon shareholder approval (including Earnout Shares - shares that could be issued upon achievement of future revenue targets). In accordance with purchase accounting rules under ASC 805 guidance, the consideration the Company transfers in exchange for Cure Based Development includes any asset or liability resulting from a contingent consideration arrangement. The Company has an obligation to transfer 15,250,000 common shares of Level Brands, upon shareholder approval, to the members of Cure Based Development. In addition, the Company has an obligation to potentially transfer Earnout Shares, which could total an additional 15,250,000 shares. The issuance of the Earnout Shares is based on CBDMD meeting certain revenue targets over the next five years. Both of these share issuances have been determined as contingent liabilities and were valued using both a market approach method and a monte carlo simulation.
 
The following purchase consideration is as follows:
 
6,500,000 shares - tranche 1
 $16,601,367 
8,750,000 shares - tranche 2 leak out shares
  18,811,117 
Earnout potential shares
  35,941,000 
Note paid
  1,000,000 
Cash provided via advance
  2,000,000 
Total Purchase 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 adjustments included in the unaudited pro forma combined condensed balance sheet as of September 30, 2018 that are considered to be directly attributable to the merger with Cure Based Development and purchase accounting are as follows:
 
F-7
 
 
Asset adjustments:
 
 
 
Cash and cash equivalents
 $(1,000,000)
Intangible assets
  21,585,000 
Goodwill
  54,876,483 
Total asset adjustments
  75,461,483 
 
    
Liabilities adjustments:
    
Notes payable – related party
 $(1,000,000)
Contingent Liability
  71,353,483 
Deferred tax liability
  5,108,000 
Total liabilities adjustments
  75,461,483 
 
The goodwill asset adjustment amount for the unaudited pro form combined condensed balance sheet as of September 30, 2018 is $382,062 different than the purchase price accounting amount recorded for the merger. The difference is due to the estimated change in the fair value of assets acquired and liabilities assumed from the actual acquisition date of December 20, 2018 and the pro forma financial statement date of September 30, 2018.
 
4.            
Income Tax Expense / Benefit
 
Cure Based Development did not record any tax expense for the period ended September 30, 2018. For the period ended September 30, 2018, Cure Based Development had not recorded any income tax benefit against its net losses as it determined it was appropriate to set up full valuation allowances against the net deferred tax assets.
 
As a result of the Mergers, the Company established as part of the purchase price allocation a net deferred tax liability related to the book-tax basis of certain assets and liabilities of approximately $5.1 million.
 
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 and the deferred tax liabilities that resulted from the Mergers with Cure Based Development.
 
Level Brands files income tax returns in the United States, and various state jurisdictions. Our policy is to recognize interest expense and penalties related to income tax matters as tax expense. At September 30, 2018 there are no unrecognized tax benefits, and there are no significant accruals for interest related to unrecognized tax benefits or tax penalties.
 
5.            
Pro Forma Weighted Average Shares
 
The pro forma basic and diluted earnings per share amounts presented in the unaudited pro forma combined condensed statement of operations are based on the weighted average number of the Company’s common shares outstanding at September 30, 2018 as adjusted for the following:
 
 
 
September 30,
2018
 
 
 
 
 
Weighted average shares outstanding
  7,742,644 
Weighted average effect of CBD shares issued for the mergers
  15,250,000 
Issuance of shares with equity financing
  1,971,428 
Combined pro forma weighted average shares
  24,964,072 
 
Common stock equivalents were not considered as the effects were anti-dilutive.
 
F-8
 
 
6.            
Non-Recurring items
 
During the year ended September 30, 2018, the Company determined that inventory held under the Beauty & Pin-Ups subsidiary was impaired by approximately $262,000.
 
The Company has performed a qualitative and quantitative analysis for the year ended September 30, 2018 accounting for the performance of Beauty and Pin-Ups and the business shift in relation to its original business model and current focus on licensing and has determined that an impairment was required. As a result, the Company recorded an impairment charge of $240,000 as impairment to intangibles under the products segment for the year ended September 30, 2018.
 
The Company disposed of a show booth held under the Beauty & Pin-Ups subsidiary, in the year ended September 30, 2018, and recorded a loss on disposal of property of $69,310.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
F-9