Filed
Pursuant to Rule 424(b)(5)
Registration No.
333-228773
The information in this preliminary prospectus supplement is not
complete and may be changed. This preliminary prospectus supplement
and the accompanying prospectus are part of an effective
registration statement filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended. This
preliminary prospectus supplement and the accompanying prospectus
are not an offer to sell these securities, and we are not
soliciting an offer to buy these securities, in any jurisdiction
where the offer or sale is not permitted.
PRELIMINARY PROSPECTUS
|
SUBJECT
TO COMPLETION
|
DATED OCTOBER 10, 2019
|
(To the
Prospectus dated April 9, 2019)
500,000 Shares
8.0% Series A Cumulative Convertible Preferred
Stock
Liquidation Preference $10.00 Per Share
cbdMD, Inc.
We are
offering 500,000 shares of our 8.0%
Series A Cumulative Convertible Preferred Stock, which we refer to
as the Series A Convertible Preferred Stock, in this offering
pursuant to this prospectus supplement
and the accompanying prospectus.
Dividends
on our Series A Convertible Preferred Stock accrue daily and will
be cumulative from the first day of the calendar month in which
they are issued, and shall be payable monthly in arrears on the
15th day of each calendar month, when, as and if declared by our
board of directors, at the rate of 8.0% per annum of
its liquidation preference, which is the equivalent to $0.80 per
annum per share.
The
Series A Convertible Preferred Stock has no stated maturity, is not
subject to any sinking fund, and will remain outstanding
indefinitely unless a holder chooses to convert the Series A
Convertible Preferred Stock into shares of our common stock, we
elect to automatically convert it into shares of our common stock
upon a Market Trigger, on or after October ___, 2023
we elect to redeem it, or a Change of Control occurs resulting in a
mandatory redemption.
Each
share of Series A Convertible Preferred Stock is convertible into
shares of our common stock at a conversion price of
$6.00 per common share, or 1.667 shares
of our common stock, at any time at the option of the holder,
subject to certain customary adjustments as described later in this
prospectus supplement. The initial conversion price and the
conversion price as adjusted are referred to as the
“Conversion Price”. We may elect to automatically
convert some or all of the Series A Convertible Preferred Stock
into shares of our common stock if the closing price of the common
stock has exceeded $8.25 (137.5% of the Conversion
Price) for at least 20 out of 30 consecutive trading days ending
within five trading days prior to the notice of automatic
conversion, which we refer to as the Market Trigger.
The
Series A Convertible Preferred Stock will not be redeemable before
October __, 2023 except as described below upon the
occurrence of a Change of Control. Commencing on October
__, 2023, we may
redeem, at our option, the Series A Convertible Preferred Stock, in
whole or in part, at a cash redemption price of $10.00 per share,
plus all accrued and unpaid dividends to, but not including, the
redemption date. Holders of the Series A Convertible Preferred
Stock will have the right to convert such shares after the optional
redemption notice but prior to the redemption date into shares of
our common stock at the Conversion Price. In addition, upon the
occurrence of a Change of Control (as hereinafter defined) we are
required to redeem any or all of the shares of Series A Convertible
Preferred Stock at a redemption price of $11.00 per share, plus any
accrued but unpaid dividends to, but excluding, the redemption
date. Holders of the Series A Convertible Preferred Stock will have
the right to convert such shares after the notice of the Change of
Control but prior to the redemption date into shares of our common
stock at the Conversion Price.
In the
event of our liquidation, dissolution or winding up, holders of our
Series A Convertible Preferred Stock will receive a payment equal
to $10.00 per share of Series A Convertible Preferred Stock plus
accrued but unpaid dividends before any proceeds are distributed to
the holders of our common stock. Shares of Series A Convertible
Preferred Stock will generally have no voting rights, except as
required by law or upon certain other events as described later in
this prospectus supplement. In the event dividends on
the Series A Convertible Preferred Stock are in arrears for each of
12 or more consecutive monthly periods, the holders of the Series A
Convertible Preferred Stock will be entitled to vote for the
election of two additional directors to serve on our board of
directors until all dividends that are owed have been
paid.
Currently,
no market exists for the Series A Convertible Preferred Stock. We
have filed an application to list the Series A Convertible
Preferred Stock on the NYSE American under the symbol
“YCBDP.” If the application is approved, trading of the
Series A Convertible Preferred Stock is expected to begin within
three business days after the initial issuance of the
Series A Convertible Preferred Stock.
Investing in our Series A Convertible Preferred Stock involves a
high degree of risk. See “Risk Factors” beginning
on page S-9 of this prospectus supplement and on page 5 of the
accompanying prospectus for a discussion of information that should
be considered in connection with an investment in our Series A
Convertible Preferred Stock.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
We are an “emerging growth company” as that term is
used in the Jumpstart Our Business Startups Act of 2012 (the
“JOBS Act”) and, as such, have elected to comply with
certain reduced public company reporting requirements.
|
|
|
Public offering
price
|
|
|
Underwriting
discounts and commissions (1)
|
|
|
Proceeds, before
expenses, to us
|
|
|
(1)
In addition, we
have agreed to issue to the representative of the underwriters as a
portion of the underwriting compensation warrants to purchase
shares of common stock and to reimburse the underwriters for
certain expenses. See “Underwriting” on page S-43 of
this prospectus supplement for additional information.
We have
granted the representative of the underwriters an option to
purchase up to an additional 75,000 shares of Series A
Convertible Preferred Stock from us at the public offering price,
less the underwriting discounts and commissions, within 45 days
from the date of this prospectus to cover over-allotments, if
any.
The
underwriters expect to deliver the shares of Series A Convertible
Preferred Stock to the purchasers on or about October
___, 2019.
ThinkEquity
a division of Fordham Financial Management, Inc.
Benchmark Company
The
date of this prospectus supplement is __________,
2019
TABLE OF CONTENTS
Prospectus Supplement
ABOUT
THIS PROSPECTUS SUPPLEMENT
|
S-ii
|
CAUTIONARY
STATEMENTS REGARDING FORWARD-LOOKING INFORMATION
|
S-iii
|
PROSPECTUS
SUPPLEMENT SUMMARY
|
S-1
|
THE
OFFERING
|
S-4
|
RISK
FACTORS
|
S-9
|
USE OF
PROCEEDS
|
S-16
|
CAPITALIZATION
|
S-17
|
DESCRIPTION
OF THE SERIES A CONVERTIBLE PREFERRED STOCK
|
S-18
|
CERTAIN
U.S. FEDERAL INCOME TAX CONSIDERATIONS
|
S-32
|
UNDERWRITING
|
S-38
|
LEGAL
MATTERS
|
S-43
|
EXPERTS
|
S-43
|
WHERE
YOU CAN FIND MORE INFORMATION
|
S-43
|
INFORMATION
INCORPORATED BY REFERENCE
|
S-44
|
Prospectus
ABOUT
THIS PROSPECTUS
|
2
|
AVAILABLE
INFORMATION
|
2
|
OUR
COMPANY
|
3
|
CAUTIONARY
STATEMENTS REGARDING FORWARD-LOOKING INFORMATION
|
4
|
RISK
FACTORS
|
5
|
USE OF
PROCEEDS
|
17
|
DESCRIPTION
OF CAPITAL STOCK
|
17
|
DESCRIPTION
OF WARRANTS
|
18
|
MATERIAL
FEDERAL INCOME TAX CONSEQUENCES
|
19
|
PLAN OF
DISTRIBUTION
|
19
|
LEGAL
MATTERS
|
20
|
EXPERTS
|
20
|
INFORMATION
INCORPORATED BY REFERENCE
|
21
|
ABOUT THIS PROSPECTUS SUPPLEMENT
This
document is in two parts. The first part is the prospectus
supplement, including the documents incorporated by reference,
which describes the specific terms of this offering. The second
part, the accompanying prospectus, including the documents
incorporated by reference, provides more general information.
Before you invest, you should carefully read this prospectus
supplement, the accompanying prospectus, all information
incorporated by reference herein and therein, as well as the
additional information described under “Where You Can Find
More Information” on page S-43 of this prospectus supplement.
These documents contain information you should consider when making
your investment decision. This prospectus supplement may add,
update or change information contained in the accompanying
prospectus. To the extent there is a conflict between the
information contained in this prospectus supplement, on the one
hand, and the information contained in the accompanying prospectus
or any document incorporated by reference therein filed prior to
the date of this prospectus supplement, on the other hand, you
should rely on the information in this prospectus supplement. If
any statement in one of these documents is inconsistent with a
statement in another document having a later date — for
example, a document filed after the date of this prospectus
supplement and incorporated by reference in this prospectus
supplement and the accompanying prospectus — the statement in
the document having the later date modifies or supersedes the
earlier statement.
You
should rely only on the information contained or incorporated by
reference in this prospectus supplement, the accompanying
prospectus and in any free writing prospectuses we may provide to
you in connection with this offering. We have not, and the
underwriters in this offering, including the representative of the
underwriters, ThinkEquity, a division of Fordham Financial
Management, Inc., or ThinkEquity, have not, authorized any other
person to provide you with any information that is different. If
anyone provides you with different or inconsistent information, you
should not rely on it. We are offering to sell, and seeking offers
to buy, shares of our Series A Convertible Preferred Stock only in
jurisdictions where offers and sales are permitted. The
distribution of this prospectus supplement and the offering of the
Series A Convertible Preferred Stock in certain jurisdictions may
be restricted by law. Persons outside the United States who come
into possession of this prospectus supplement must inform
themselves about, and observe any restrictions relating to, the
offering of the Series A Convertible Preferred Stock and the
distribution of this prospectus supplement outside the United
States. This prospectus supplement does not constitute, and may not
be used in connection with, an offer to sell, or a solicitation of
an offer to buy, any securities offered by this prospectus
supplement by any person in any jurisdiction in which it is
unlawful for such person to make such an offer or
solicitation.
We
further note that the representations, warranties and covenants
made by us in any agreement that is filed as an exhibit to any
document that is incorporated by reference in the accompanying
prospectus were made solely for the benefit of the parties to such
agreement, including, in some cases, for the purpose of allocating
risk among the parties to such agreements, and should not be deemed
to be a representation, warranty or covenant to you. Moreover, such
representations, warranties or covenants were accurate only as of
the date when made. Accordingly, such representations, warranties
and covenants should not be relied on as accurately representing
the current state of our affairs.
When
used herein, “cbdMD”, “we”,
“us” or “our” refers to cbdMD, Inc., a
North Carolina corporation formerly known as Level Brands, Inc.,
and our subsidiaries, CBD Industries, LLC, a North Carolina limited
liability company formerly known as cbdMD, LLC, which we refer to
as “CBDI,” Beauty and
Pinups, LLC, a North Carolina limited liability company which we
refer to as “Beauty & Pin-Ups”, I | M 1, LLC, a
California limited liability company, which we refer to as
“I’M1”, Encore Endeavor 1 LLC, a California
limited liability company which we refer to as “EE1,”
and Level H&W, LLC, a North Carolina limited liability company
which we refer to as “Level H&W.” In addition,
“fiscal 2017” refers to the year ended September 30,
2017, “fiscal 2018” refers to the year ended September
30, 2018, and “fiscal 2019” refers to the year ending
September 30, 2019.
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING
INFORMATION
The
information included or incorporated by reference into this
prospectus supplement and the accompanying prospectus contains
forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, or Securities Act, and Section
21E of the Securities Exchange Act of 1934, as amended, or Exchange
Act. These forward-looking statements
that relate to future events or our future financial performance
and involve known and unknown risks, uncertainties and other
factors that may cause our actual results, levels of activity,
performance or achievements to differ materially from any future
results, levels of activity, performance or achievements expressed
or implied by these forward-looking statements. Words such as, but
not limited to, “believe,” “expect,”
“anticipate,” “estimate,”
“intend,” “plan,” “targets,”
“likely,” “aim,” “will,”
“would,” “could,” and similar expressions
or phrases identify forward-looking statements. We have based these
forward-looking statements largely on our current expectations and
future events and financial trends that we believe may affect our
financial condition, results of operation, business strategy and
financial needs. Actual results may differ materially from those
expressed or implied in such forward-looking statements as a result
of various factors. We do not undertake, and we disclaim, any
obligation to update any forward-looking statements or to announce
any revisions to any of the forward-looking statements, except as
required by law. Certain factors that could cause results to be
materially different from those projected in the forward-looking
statements include, but are not limited to, statements
about:
●
terms and
provisions of the designations, rights and preferences of the
Series A Convertible Preferred Stock;
●
our ability to
obtain a listing of the Series A Convertible Preferred Stock on the
NYSE American and, if such listing is obtained, risks associated
with a new issue of securities with no established trading
market;
●
management’s
broad discretion as to the use of proceeds from this
offering;
●
the impact of fair
value accounting on our results of operations in future
periods;
●
possible continuing
material weaknesses in our internal control over financial
reporting;
●
the dilution to our
shareholders upon the possible future issuance of the Earnout
Shares;
●
risks associated
with control by our executive officers, directors and
affiliates;
●
our history of
losses and possible charges related to the carrying value of
assets;
●
laws and
regulations impacting our company; and
●
risks associated
with our possible need to raise additional capital.
We urge
you to consider these factors before investing in our Series A
Convertible Preferred Stock. The forward-looking statements
included in this prospectus supplement, the accompanying prospectus
and any other offering material, or in the documents incorporated
by reference into this prospectus supplement, the accompanying
prospectus and any other offering material, are made only as of the
date of the prospectus supplement, the accompanying prospectus, any
other offering material or the incorporated document. For more
detail on these and other risks, please see “Risk
Factors” in this prospectus supplement, the accompanying
prospectus, our Annual Report on Form 10-K for our fiscal year
ended September 30, 2018 filed with the Securities and Exchange
Commission, or SEC, on December 12, 2018, our Quarterly Report on
Form 10-Q/A for the period ended December 31, 2018 as filed with
the SEC on April 26, 2019, our Quarterly Report on Form 10-Q for
the period ended March 31, 2019 as filed with the SEC on May 15,
2019, our Quarterly Report on Form 10-Q for the period ended June
30, 2019 filed with the SEC on August 14, 2019 and our subsequent
filings with the SEC.
PROSPECTUS SUPPLEMENT SUMMARY
The following information below is only a summary of more detailed
information included elsewhere in, or incorporated by reference in,
this prospectus supplement and the accompanying prospectus, and
should be read together with the information contained or
incorporated by reference in other parts of this prospectus
supplement and the accompanying prospectus. This summary highlights
selected information about us and this offering. This summary may
not contain all of the information that may be important to you.
Before making a decision to invest in our Series A Convertible
Preferred Stock, you should read carefully all of the information
contained in or incorporated by reference into this prospectus
supplement and the accompanying prospectus, including the
information set forth under the caption “Risk Factors”
in this prospectus supplement and the accompanying prospectus as
well as the documents incorporated herein by reference, which are
described under “Where You Can Find More Information”
and “Information Incorporated by Reference” in this
prospectus supplement.
Our Company
cbdMD
was originally founded in 2015 as an innovative branding and marketing company with a
focus on lifestyle-based brands. In December 2018 we acquired Cure
Based Development LLC following the approval of the United
States of the Agricultural Improvement Act of 2018, commonly known
as the Farm Bill, which contained a permanent declassification of
cannabidiol (CBD) as a controlled substance under Federal
law. As a result of that transaction,
we own and operate the nationally recognized CBD brand cbdMD
which now represents substantially all of our revenues. We also
continue to own legacy licensing and corporate brand management
businesses.
Through
our CBDI subsidiary which succeeded to the business of Cure Based
Development LLC, we produce and distribute
various high-grade, premium CBD products, including tinctures,
capsules, gummies, bath bombs and topical creams. We recently
launched a 36 SKU line of pet related CBD products under our
Paw CBD brand including tinctures, treats, and balms,
with additional products under development. We manufacture our
premium line of products at our Charlotte, NC facility using 100%,
all-natural CBD extracted from organic, non-GMO, vegan, and
gluten-free industrial hemp grown in the USA. We utilize a
CO2 extraction process for
broad-spectrum concentrations retaining other cannabinoids,
terpenes, vitamins, and various other compounds for enhanced
benefits while eliminating tetrahydrocannabinol
(THC) content.
Since
December 2018, we have increased the
number of locations cbdMD products are available in by 500%, and
with the building momentum of retailer acceptance subsequent to the
passage of the Farm Bill, we are pursuing multiple opportunities to
expand our product distribution as we continue to work to build
cbdMD into a top recognized brand in the industry. We are also
utilizing partnerships and sponsorships with professional athletes
as a way to gain brand recognition. During the third quarter of
fiscal 2019 we signed several significant sponsorships, including
professional golfer and 12-time PGA Tour winner Bubba Watson, Ice
Cube’s Big 3 basketball league, Bellator MMA, and Nitro
Circus.
Risk Factors
An
investment in our Series A Convertible Preferred Stock involves
risk. Before deciding whether to participate in this offering, you
should carefully consider the risk factors beginning on page S-9 of
this prospectus supplement and the risk factors contained in the
documents incorporated by reference in this prospectus supplement
and the accompanying prospectus.
Corporate Information
Our company was formed under the laws of the state of North
Carolina in March 2015 under the name Level Beauty Group, Inc. In
November 2016 we changed the name of our company to Level Brands,
Inc. Effective May 1, 2019, we changed our name to cbdMD, Inc. in
connection with the mergers with Cure Based
Development.
Our principal executive offices are located at 8845 Red Oak
Boulevard, Charlotte, NC 28217. Our telephone number at this
location is (704) 445-3060. Our website address is
www.cbdmd.com.
We make our periodic and current reports that are filed with the
SEC available, free of charge, on our website as soon as reasonably
practicable after such material is electronically filed with, or
furnished to, the SEC. The information contained in, and that can
be accessed through, our website is not incorporated into and is
not a part of this prospectus supplement.
Please
see our Annual Report on Form 10-K for the fiscal year ended
September 30, 2018 and subsequently filed Quarterly Report on Form
10-Q for the quarters ended December 31, 2018, March 31, 2019 and
June 30, 2019 for additional information about our business,
operations and financial condition. See “Where You Can Find
More Information.”
Implications of Being an Emerging Growth
Company
We
qualify as an “emerging growth company” as defined in
the JOBS Act. As an emerging growth company, we intend to take
advantage of specified reduced disclosure and other requirements
that are otherwise applicable generally to public companies. These
provisions include:
●
allowance to
provide only two years of audited financial statements in addition
to any required unaudited interim financial statements with
correspondingly reduced Management’s Discussion and Analysis
of Financial Condition and Results of Operations
disclosures;
●
reduced disclosure
about our executive compensation arrangements;
●
no non-binding
advisory votes on executive compensation or golden parachute
arrangements; and
●
exemption from
auditor attestation requirements in the assessment of our internal
control over financial reporting.
We may
take advantage of these provisions for up to five years or such
earlier time that we are no longer an emerging growth company. We
would cease to be an emerging growth company on the date that is
the earliest of: (i) the last day of the fiscal year in which we
have total annual gross revenues of $1.07 billion or more; (ii) the
last day of our fiscal year following the fifth anniversary of the
date of the completion of our initial public offering; (iii) the
date on which we have issued more than $1.0 billion in
nonconvertible debt during the previous three years; or (iv) the
date on which we are deemed to be a large accelerated filer under
the rules of the SEC. We have taken advantage of reduced reporting
requirements in this prospectus. Accordingly, the information
contained herein may be different than the information you receive
from other public companies in which you have beneficial
ownership.
THE OFFERING
The
following summary contains basic information about this offering.
The summary is not intended to be complete. You should read the
full text and more specific details contained elsewhere in this
prospectus supplement. See “Description of Series A
Convertible Preferred Stock” and
“Underwriting.”
Issuer
|
|
cbdMD, Inc.
|
|
|
|
Securities Offered
|
|
500,000 shares of 8.0% Series A
Cumulative Convertible Preferred Stock, liquidation preference
$10.00 per share.
|
|
|
|
Offering Price
|
|
$10.00 per share.
|
|
|
|
Over-allotment Option
|
|
We have granted to the representative of the underwriters the
option, exercisable for 45 days from the date of this prospectus
supplement, to purchase up to additional 75,000 shares
of Series A Convertible Preferred Stock to cover
over-allotments.
|
|
|
|
Dividends
|
|
Holders
of shares of the Series A Convertible Preferred Stock are entitled
to receive, when, as and if declared by our board of directors, out
of funds legally available for the payment of dividends, cumulative
cash dividends at the rate of 8.0% per annum of the $10.00 per
share liquidation preference (equivalent to $0.80 per annum per
share). All accrued dividends on the Series A Convertible Preferred
Stock shall be paid in cash only when, as and if declared by the
Board out of funds legally available therefor or upon a liquidation
or redemption of the Series A Convertible Preferred
Stock.
|
|
|
|
|
|
Dividends will be payable monthly in arrears on the 15th day of
each month (each, a “Dividend Payment Date”);
provided that if any Dividend Payment Date is not a business day,
then the dividend that would otherwise have been payable on that
Dividend Payment Date may be paid on the next succeeding business
day and no interest, additional dividends or other sums will accrue
on the amount so payable for the period from and after that
Dividend Payment Date to that next succeeding business day.
The record date for the payment of
dividends on the Series A Convertible Preferred Stock is the close
of business on the first day of the calendar month, whether or not
a business day (each, a “Dividend Record Date”). The
shares of Series A Convertible Preferred Stock offered hereby will
be credited as having accrued dividends since the first day of the
calendar month in which they are issued.
|
|
|
|
|
|
As a
result, holders of shares of Series A Convertible Preferred Stock
will not be entitled to receive dividends on a Dividend Payment
Date if such shares were not issued and outstanding on the
applicable Dividend Record Date.
|
|
|
|
|
|
Any
dividend payable on the Series A Convertible Preferred Stock,
including dividends payable for any partial dividend period, will
be computed on the basis of a 360-day year consisting of twelve
30-day months.
|
|
|
|
No Maturity
|
|
The
Series A Convertible Preferred Stock has no maturity date, and we
are not required to redeem the Series A Convertible Preferred Stock
except in the event of a Change of Control (as defined hereafter).
Accordingly, the Series A Convertible Preferred Stock will remain
outstanding indefinitely unless a Change of Control occurs, we
decide to redeem it, we elect to automatically convert it into
shares of common stock upon a Market Trigger (as defined hereafter)
or the holder elects to voluntarily convert the Series A
Convertible Preferred Stock into shares of our common stock. We are
not required to set aside funds to redeem the Series A Convertible
Preferred Stock.
|
|
|
|
Conversion
|
|
|
|
|
|
Optional Conversion by the Holder
|
|
Each
share of Series A Convertible Preferred Stock, together with
accrued but unpaid dividends, is convertible into shares of our
common stock at any time at the option of the holder at a
Conversion Price of $6.00 per share, which equals
1.667 shares of common stock for each share of Series
A Convertible Preferred Stock so converted, subject to adjustment
for: (i) the payment of stock dividends or other distributions
payable in common stock on the outstanding shares of our common
stock, excluding the shares of common stock issuable upon the
conversion of the Series A Convertible Preferred Stock; and (ii)
subdivisions and combinations (including by way of a reverse stock
split) (the “Anti-Dilution Provisions”).
|
|
|
|
Market Trigger
|
|
At our
option, we may cause the Series A Convertible Preferred Stock, plus
accrued and unpaid dividends, to be automatically converted, in
whole or in part, on a pro rata basis into shares of our common
stock at the Conversion Price if the Trading Price (as defined
hereafter) of the common stock equals or exceeds $8.25
(137.5% of the Conversion Price) for at least 20 trading days in
any 30 consecutive trading day period ending five days prior to the
date of notice of conversion (such event, the “Market
Trigger”).
|
|
|
|
Optional Redemption by cbdMD
|
|
The
Series A Convertible Preferred Stock may be redeemed in whole or in
part at our option any time on or after, October __,
2023 upon not less than 30 days nor more than 60 days’
written notice by mail to the holders prior to the date fixed for
redemption thereof, for cash at a redemption price equal to $10.00
per share, plus any accrued but unpaid dividends to, but not
including, the redemption date. Holders of Series A Convertible
Preferred Stock will have the right to convert such shares after
the optional redemption notice but prior to the redemption date
into shares of our common stock at the Conversion
Price.
|
|
|
|
Change of Control
|
|
|
|
|
|
Mandatory Redemption by cbdMD
|
|
Upon
the occurrence of a Change of Control, we are required to redeem
all of the then issued and outstanding shares of Series A
Convertible Preferred Stock for cash at $11.00 per share, plus
accrued but unpaid dividends (whether or not declared) to, but
excluding, the redemption date.
|
|
|
|
|
|
A
“Change of Control” is deemed to occur, after the
original issuance of the Series A Convertible Preferred Stock, upon
the acquisition by any person, including any syndicate or group
deemed to be a “person” under Section 13(d)(3) of the
Exchange Act of beneficial ownership, directly or indirectly,
through a purchase, merger or other acquisition transaction or
series of purchases, mergers or other acquisition transactions
which were pre-approved by our board
of directors of our stock entitling that person to exercise
more than 50% of the total voting power of all of our stock
entitled to vote generally in the election of our board of
directors (except that such person will be deemed to have
beneficial ownership of all securities that such person has the
right to acquire, whether such right is currently exercisable or is
exercisable only upon the occurrence of a subsequent condition);
provided,
however, that (i) the vesting
of the aggregate of 8,750,000 shares of our common stock and/or
(ii) the issuance of an aggregate of 15,525,000 shares of our
common stock both pursuant to the terms and conditions of that
certain Agreement and Plan of Merger dated December 3, 2018 by and
among cbdMD, our wholly-owned subsidiaries and Cure Based
Development, LLC will not be deemed to be a Change of
Control.
|
|
|
|
|
Change of Control Conversion Right
|
|
Upon
the holder’s receipt of a change of control notice until the
trading day ending three trading days prior to the change of
control redemption date, the holder of shares of Series A
Convertible Preferred Stock will have the right (“Change of
Control Conversion Right”) to convert some or all of the
shares of Series A Convertible Preferred Stock held by such holder,
together with accrued but unpaid dividends on those shares, into of
shares of Common Stock at the Conversion Price. In the event of a
Change of Control, any shares of Series A Convertible Preferred
Stock not so converted by the holder pursuant to the Change of
Control Conversion Right will be subject to the mandatory
redemption described above.
|
|
|
|
|
Liquidation Preference
|
|
If we
liquidate, dissolve or wind up, holders of the Series A Convertible
Preferred Stock will have the right to receive $10.00 per share,
plus any accrued but unpaid dividends to, but not including, the
date of payment, before any payment is made to the holders of our
common stock.
|
|
|
|
Ranking
|
|
The
Series A Convertible Preferred Stock will rank, with respect to
rights to the payment of dividends and the distribution of assets
upon our liquidation, dissolution or winding up, (1) senior to all
classes or series of our common stock and to all other equity
securities issued by us other than equity securities referred to in
clauses (2) and (3); (2) on a parity with all equity securities
issued by us with terms specifically providing that those equity
securities rank on a parity with the Series A Convertible Preferred
Stock with respect to rights to the payment of dividends and the
distribution of assets upon our liquidation, dissolution or winding
up; (3) junior to all equity securities issued by us with terms
specifically providing that those equity securities rank senior to
the Series A Convertible Preferred Stock with respect to rights to
the payment of dividends and the distribution of assets upon our
liquidation, dissolution or winding up; and (4) junior to all of
our existing and future indebtedness.
|
|
|
|
Limited
Voting Rights
|
|
Holders
of the Series A Convertible Preferred Stock do not have any voting
rights, except as set forth as follows or as otherwise required by
law. In the event dividends on the Series A Convertible Preferred
Stock are in arrears for each of 12 or more consecutive monthly
periods, the holders of the Series A Convertible Preferred Stock,
voting as a separate class, will be entitled to vote for the
election of two additional directors to serve on our board of
directors until all dividends that are owed have been paid. In
addition, we will be restricted in our ability to modify the terms
of the Series A Convertible Preferred Stock or to issue or create
any class or series of capital stock ranking senior to the Series A
Convertible Preferred Stock with respect to dividends or
distributions, unless holders of at least two-thirds of the then
outstanding Series A Convertible Preferred Stock voting as a
separate class consent to same. The affirmative consent of the
holders of a majority of the outstanding shares of Series A
Convertible Preferred Stock, voting as a separate class, is
required, if we want to increase the number of authorized shares of
this series (except in connection with the Anti-Dilution
Provisions) or if we want to create a class or series of capital
stock ranking pari passu to
the Series A Convertible Preferred Stock. Except as expressly
stated in the certificate of designations or as may be required by
applicable law, the Series A Convertible Preferred Stock does not
bestow any relative, participating, optional or other special
voting rights or powers, and the consent of the holders thereof
shall not be required for the taking of any corporate
action.
|
|
|
|
Exchange Listing
|
|
Currently,
no market exists for the Series A Convertible Preferred Stock. We
have filed an application to list our Series A Convertible
Preferred Stock on the NYSE American under the symbol
“YCBDP.” We expect trading of the Series A Convertible
Preferred Stock on the NYSE American, if the listing is approved,
to commence within three business days after the date
of initial issuance of the shares of Series A Convertible Preferred
Stock.
|
|
|
|
Representative’s Warrants
|
|
The registration statement of which this prospectus supplement is a
part also registers for sale warrants to purchase shares of our
common stock to the representative of the underwriters as a portion
of the underwriting compensation payable to the underwriters in
connection with this offering and the shares of common stock
underlying the warrants. The warrants will be exercisable for a
period commencing 180 days following the effective date of this
offering and ending on the fifth anniversary of the effective date
of this offering at an exercise price equal to
$
per share, or 125% of the last closing price per share of
our common stock on the NYSE American prior to the execution of the
underwriting agreement for this offering.
|
|
|
|
Use of Proceeds
|
|
We intend to use the net proceeds from this offering for working
capital. See “Use of Proceeds."
|
|
|
|
Risk Factors
|
|
This investment involves a high degree of risk. See “Risk
Factors” and other information included or incorporated by
reference in this prospectus supplement and the accompanying
prospectus for a discussion of certain factors you should carefully
consider before deciding to invest in shares of our Series A
Convertible Preferred Stock.
|
|
|
|
Certain U.S. Federal Income
Tax Considerations
|
|
For a discussion of certain U.S. federal income tax consequences of
purchasing, owning and disposing of the Series A Convertible
Preferred Stock, please see the section entitled “Certain
U.S. Federal Income Tax Considerations.” You should consult
your independent tax advisor with respect to the U.S. federal
income tax consequences of owning the Series A Convertible
Preferred Stock in light of your own particular situation and with
respect to any tax consequences arising under the laws of any other
taxing jurisdiction.
|
|
|
|
Form
|
|
The Series A Convertible Preferred Stock will be represented by one
or more global certificates in definitive, fully registered form
deposited with a custodian for, and registered in the name of, a
nominee of The Depository Trust Company
(“DTC”).
|
|
|
|
Settlement
|
|
Delivery of the Series A Convertible Preferred Stock offered hereby
will be made against payment therefor through the book-entry
facilities of the DTC.
|
|
|
|
Transfer Agent
|
|
The registrar, transfer agent and dividend and redemption price disbursing agent in respect
of the Series A Convertible Preferred Stock will be VStock
Transfer, LLC.
|
RISK FACTORS
Investing in our Series A Convertible
Preferred Stock involves a high degree of risk. You should
carefully consider and evaluate all of the information contained in
this prospectus supplement, the accompanying prospectus and in the
documents we incorporate by reference into this prospectus
supplement and the accompanying prospectus before you decide to
purchase our securities. In particular, you should carefully
consider and evaluate the risks and uncertainties described under
the heading “Risk Factors” in this prospectus
supplement and the accompanying prospectus. You should also
consider the risks, uncertainties and assumptions discussed under
Item 1A, “Risk Factors,” in Part I of our Annual Report
on Form 10-K for the year ended September 30, 2018, Item 1A,
“Risk Factors,” in our Quarterly Report on Form 10-Q/A
for the period ended December 31, 2018, our Quarterly Reports on
Form 10-Q for the periods ended March 31, 2019 and June 30, 2019,
together with any updates or other risks contained in other filings
that we may make with the SEC after the date of this prospectus,
all of which are incorporated herein by reference, and may be
amended, supplemented or superseded from time to time by other
reports we file with the SEC in the future and any additional
prospectus supplement. Any of the
risks and uncertainties set forth in this prospectus supplement and
the accompanying prospectus, as updated by annual, quarterly and
other reports and documents that we file with the SEC and
incorporate by reference into this prospectus supplement or the
accompanying prospectus could materially and adversely affect our
business, results of operations and financial condition, which in
turn could materially and adversely affect the value of our Series
A Convertible Preferred Stock. As a result, you could lose all or
part of your investment. See “Where You Can Find More
Information,” “Description of Series A Convertible
Preferred Stock,” and “Certain U.S. Federal Income Tax
Considerations.”
Risks Related to this Offering
The Series A Convertible Preferred Stock ranks junior to all of our
indebtedness and other liabilities and is effectively junior to all
indebtedness and other liabilities of our
subsidiaries.
In the
event of our bankruptcy, liquidation, dissolution or winding-up of
our affairs, our assets will be available to pay obligations on the
Series A Convertible Preferred Stock only after all of our
indebtedness and other liabilities have been paid. The rights of
holders of the Series A Convertible Preferred Stock to participate
in the distribution of our assets will rank junior to the prior
claims of our current and future creditors and any future series or
class of preferred stock we may issue that ranks senior to the
Series A Convertible Preferred Stock. In addition, the Series A
Convertible Preferred Stock effectively ranks junior to all
existing and future indebtedness and other liabilities of our
existing subsidiaries and any future subsidiaries. Our existing
subsidiaries are, and any future subsidiaries would be, separate
legal entities and have no legal obligation to pay any amounts to
us in respect of dividends due on the Series A Convertible
Preferred Stock. If we are forced to liquidate our assets to pay
our creditors, we may not have sufficient assets to pay amounts due
on any or all of the Series A Convertible Preferred Stock then
outstanding.
Future offerings of debt may adversely affect the market price of
the Series A Convertible Preferred Stock.
If we
decide to issue debt securities in the future, it is possible that
these securities will be governed by an indenture or other
instruments containing covenants restricting our operating
flexibility. Additionally, any convertible or exchangeable
securities that we issue in the future may have rights, preferences
and privileges more favorable than those of the Series A
Convertible Preferred Stock and may result in dilution to owners of
the Series A Convertible Preferred Stock. We and, indirectly, our
shareholders, will bear the cost of issuing and servicing such
securities. Because our decision to issue debt securities in any
future offering will depend on market conditions and other factors
beyond our control, we cannot predict or estimate the amount,
timing or nature of our future offerings. The holders of the Series
A Convertible Preferred Stock may bear the risk of our future
offerings, potentially reducing the market price of the Series A
Convertible Preferred Stock and diluting the value of their
holdings in us.
We may not be able to pay dividends on the Series A Convertible
Preferred Stock.
Our
ability to pay cash dividends on the Series A Convertible Preferred
Stock requires us to (i) either be able to pay our debts as they
become due in the usual course of business, or (ii) have
total assets that are greater than the sum of our total liabilities
plus the amount that would be needed if we were to be dissolved at
the time of the distribution to satisfy the preferential rights
upon dissolution of shareholders whose preferential rights are
superior to those receiving the distribution. Further,
notwithstanding these factors, we may not have sufficient cash to
pay dividends on the Series A Convertible Preferred Stock. Our
ability to pay dividends may be impaired if any of the risks
described in this prospectus supplement and the accompanying
prospectus, including the documents incorporated by reference
herein and therein, were to occur. Also, payment of our dividends
depends upon our financial condition and other factors as our board
of directors may deem relevant from time to time. We cannot assure
you that our businesses will generate sufficient cash flow from
operations in an amount sufficient to enable us to make
distributions on our common stock, if any, and preferred stock,
including the Series A Convertible Preferred Stock, or to fund our
other liquidity needs.
The Series A Convertible Preferred Stock is a new issue of
securities and does not have an established trading market, which
may negatively affect its value and your ability to transfer and
sell your shares.
The
Series A Convertible Preferred Stock is a new issue of securities
and currently no market exists for the Series A Convertible
Preferred Stock. We have filed an application to list the Series A
Convertible Preferred Stock on the NYSE American. Even if so
approved, trading of the Series A Convertible Preferred Stock on
the NYSE American is not expected to begin until sometime during
the period ending three business days after the date
of initial issuance of the Series A Convertible Preferred Stock,
and, in any event, a trading market on the NYSE American for the
Series A Preferred Stock may never develop or, even if one
develops, may not be maintained and may not provide you with
adequate liquidity. The liquidity of any market for the Series A
Preferred Stock that may develop will depend on a number of
factors, including prevailing interest rates, our financial
condition and operating results, the number of holders of the
Series A Preferred Stock, the market for similar securities and the
interest of securities dealers in making a market in the Series A
Preferred Stock. As a result, the ability to transfer or sell the
Series A Preferred Stock and could be adversely
affected.
If our Series A Convertible Preferred Stock is delisted, the
ability to transfer or sell shares of the Series A Convertible
Preferred Stock may be limited and the market value of the Series A
Convertible Preferred Stock will likely be materially adversely
affected.
The
Series A Convertible Preferred Stock does not contain provisions
that are intended to protect investors if our Series A Convertible
Preferred Stock is delisted from the NYSE American. If our Series A
Convertible Preferred Stock is delisted from the NYSE American,
investors’ ability to transfer or sell shares of the Series A
Convertible Preferred Stock will be limited and the market value of
the Series A Convertible Preferred Stock will likely be materially
adversely affected. Moreover, since the Series A Convertible
Preferred Stock has no stated maturity date, absent a
holder’s voluntary conversion of the Series A Convertible
Preferred Stock investors may be forced to hold shares of the
Series A Convertible Preferred Stock indefinitely while receiving
stated dividends thereon when, as and if authorized by our board of
directors and paid by us with no assurance as to ever receiving the
liquidation value thereof.
Future issuances of preferred stock, including future issuances of
shares of Series A Convertible Preferred Stock, may reduce the
value of the Series A Convertible Preferred Stock.
Upon
the completion of the offering described in this prospectus
supplement, we may sell additional shares of preferred stock,
including shares of Series A Convertible Preferred Stock, on terms
that may differ from those described in this prospectus supplement.
Such shares could rank on parity with or, subject to the voting
rights referred to below (with respect to issuances of new series
of preferred stock), senior to the Series A Convertible Preferred
Stock offered hereby as to distribution rights or rights upon
liquidation, winding up or dissolution. The subsequent issuance of
additional shares of Series A Convertible Preferred Stock, or the
creation and subsequent issuance of additional classes of preferred
stock on parity with the Series A Convertible Preferred Stock,
could dilute the interests of the holders of Series A Convertible
Preferred Stock offered hereby. Any issuance of preferred stock
that is senior to the Series A Convertible Preferred Stock would
not only dilute the interests of the holders of Series A
Convertible Preferred Stock offered hereby, but also could affect
our ability to pay distributions on, redeem or pay the liquidation
preference on the Series A Convertible Preferred
Stock.
Market interest rates may materially and adversely affect the value
of the Series A Convertible Preferred Stock.
One of
the factors that influences the price of the Series A Convertible
Preferred Stock is the dividend yield on the Series A Convertible
Preferred Stock (as a percentage of the market price of the Series
A Convertible Preferred Stock) relative to market interest rates.
Continued increase in market interest rates, which are currently at
low levels relative to historical rates, may lead prospective
purchasers of the Series A Convertible Preferred Stock to expect a
higher dividend yield (and higher interest rates would likely
increase our borrowing costs and potentially decrease funds
available for dividend payments). Thus, higher market interest
rates could cause the market price of the Series A Convertible
Preferred Stock to materially decrease, assuming a market is
established of which there are no assurances.
Holders of the Series A Convertible Preferred Stock may be unable
to use the dividends-received deduction and may not be eligible for
the preferential tax rates applicable to “qualified dividend
income.”
Distributions
paid to corporate U.S. holders of the Series A Convertible
Preferred Stock may be eligible for the dividends-received
deduction, and distributions paid to non-corporate U.S. holders of
the Series A Convertible Preferred Stock may be subject to tax at
the preferential tax rates applicable to “qualified dividend
income,” if we have current or accumulated earnings and
profits, as determined for U.S. federal income tax purposes. We do
not currently have any accumulated earnings and profits.
Additionally, we may not have sufficient current earnings and
profits during future fiscal years for the distributions on the
Series A Convertible Preferred Stock to qualify as dividends for
U.S. federal income tax purposes. If the distributions fail to
qualify as dividends, U.S. holders would be unable to use the
dividends-received deduction and may not be eligible for the
preferential tax rates applicable to “qualified dividend
income.” If any distributions on the Series A Convertible
Preferred Stock with respect to any fiscal year are not eligible
for the dividends-received deduction or preferential tax rates
applicable to “qualified dividend income” because of
insufficient current or accumulated earnings and profits, it is
possible that the market value of the Series A Convertible
Preferred Stock might decline.
The Series A Convertible Preferred Stock represents perpetual
equity interests in us, and investors should not expect us to
redeem or convert the Series A Convertible Preferred Stock on the
date the Series A Convertible Preferred Stock becomes redeemable or
convertible by us or on any particular date
afterwards.
The
Series A Convertible Preferred Stock represents perpetual equity
interests in us, and it has no maturity or mandatory redemption
except upon a Change of Control, and is not redeemable at the
option of investors under any other circumstances. As a result, the
Series A Convertible Preferred Stock will not give rise to a claim
for payment of any amount at a particular date. As a result,
holders of the Series A Convertible Preferred Stock may be required
to bear the financial risks of an investment in the Series A
Convertible Preferred Stock for an indefinite period of time unless
the holder chooses to voluntarily convert the shares of Series A
Convertible Preferred Stock into shares of our common
stock.
The Series A Convertible Preferred Stock has not been
rated.
We have
not sought to obtain a rating for the Series A Convertible
Preferred Stock. However, one or more rating agencies may
independently determine to issue such a rating or such a rating, if
issued, may adversely affect the market price of the Series A
Convertible Preferred Stock. In addition, we may elect in the
future to obtain a rating for the Series A Convertible Preferred
Stock, which could adversely affect the market price of the Series
A Convertible Preferred Stock. Ratings only reflect the views of
the rating agency or agencies issuing the ratings and such ratings
could be revised downward, placed on a watch list or withdrawn
entirely at the discretion of the issuing rating agency if in its
judgment circumstances so warrant. Any such downward revision,
placing on a watch list or withdrawal of a rating could have an
adverse effect on the market price of the Series A Convertible
Preferred Stock.
Change of Control redemption obligations may make it more difficult
for a party to acquire us or discourage a party from acquiring
us.
The
Change of Control redemption feature of the Series A Convertible
Preferred Stock may have the effect of discouraging a third party
from making an acquisition proposal for us or of delaying,
deferring or preventing certain of our change of control
transactions under circumstances that otherwise could provide the
holders of our common stock and Series A Convertible Preferred
Stock with the opportunity to realize a premium over the
then-current market price of such stock or that shareholders may
otherwise believe is in their best interests.
The market price of the Series A Convertible Preferred Stock could
be substantially affected by various factors.
Assuming
a market develops for the Series A Convertible Preferred Stock, the
market price of the Series A Convertible Preferred Stock will
depend on many factors, which may change from time to time,
including:
●
prevailing interest
rates, increases in which may have an adverse effect on the market
price of the Series A Convertible Preferred Stock;
●
government
regulation impacting the manufacture and sale of CBD
products;
●
continued consumer
acceptance of our products;
●
the highly
competitive market in which we operate and our ability to
effectively compete;
●
our operating
expenses which fluctuate due to growth of our
business;
●
variable sales
cycle and implementation periods for our products;
●
the annual yield
from distributions on the Series A Preferred Stock as compared to
yields on other financial instruments;
●
general economic
and financial market conditions;
●
significant changes
in the financial condition, performance and prospects of us and our
competitors;
●
changes in
financial estimates or recommendations by securities analysts with
respect to us, our competitors in our industry;
●
our issuance of
additional preferred equity or debt securities; and
●
actual or
anticipated variations in quarterly operating results of us and our
competitors.
As a
result of these and other factors, investors who purchase the
Series A Convertible Preferred Stock in this offering may
experience a decrease, which could be substantial and rapid, in the
market price of the Series A Convertible Preferred Stock, including
decreases unrelated to our operating performance or
prospects.
A holder of Series A Convertible Preferred Stock has extremely
limited voting rights.
The
voting rights for a holder of Series A Convertible Preferred Stock
are limited. Our shares of common stock are the only class of our
securities that carry full voting rights. Holders of the shares of
Series A Convertible Preferred Stock do not have any voting right
other than as set forth below in the next two sentences or unless
dividends on the Series A Convertible Preferred Stock are in
arrears for each of 12 or more consecutive monthly periods, in
which case the holders of the Series A Convertible Preferred Stock
will be entitled to vote as a separate class for the election of
two additional directors to serve on the board of directors until
all dividends that are owed have been paid. Holders of shares of
Series A Convertible Preferred Stock, voting as a class, are also
entitled to vote if we should seek to issue or create any class or
series of capital stock ranking senior to the Series A Convertible
Preferred Stock with respect to dividends or distributions, in
which event the consent of holders of at least two thirds of the
then outstanding Series A Convertible Preferred Stock is required.
The consent of the holders of a majority of the Series A
Convertible Preferred Stock, voting as a class, is required if we
were to seek to adopt any amendment to
our articles of incorporation or bylaws that would materially
affect existing terms of the Series A Convertible Preferred Stock,
or increase the number of authorized shares of that series,
other than in connection with the Anti-Dilution Provisions, or if
we seek to create a series or class which ranks pari passu with the
Series A Convertible Preferred Stock. Other than these limited
circumstances and except to the extent required by law, holders of
Series A Convertible Preferred Stock do not have any voting
rights.
We have broad discretion in determining how to use the proceeds
from this offering and we cannot assure you that we will be
successful in spending the proceeds in ways that increase our
profitability or market value, or otherwise yield favorable
returns.
We plan
to utilize net proceeds of this offering for general working
capital. Nevertheless, we will have broad discretion in determining
specific expenditures. You will be entrusting your funds to our
management, upon whose judgment you must depend, with limited
information concerning the purposes to which the funds will
ultimately be applied. We may not be successful in spending the
proceeds of this offering in ways which increase our profitability
or market value, or otherwise yield favorable returns.
We may redeem the Series A Convertible Preferred Stock at our
option, we will be required to redeem the Series A Convertible
Preferred Stock upon a Change of Control and we may convert shares
of Series A Convertible Preferred Stock upon a Market Trigger into
shares of our common stock. In the event of any of these
occurrences, you may not receive dividends that you
anticipate.
On or after October ___, 2023 we may, at our option,
redeem the Series A Convertible Preferred Stock, in whole or in
part, at any time or from time to time. In addition, upon
the occurrence of a Change of Control, we are required to redeem
any or all of the shares of Series A Convertible Preferred Stock at
a redemption price of $11.00 per share, plus any accrued but unpaid
dividends to, but excluding, the redemption date. Furthermore,
upon a Market Trigger, we may convert
all or any portion of those shares of Series A Convertible
Preferred Stock into shares of our
common stock. We may have an incentive to redeem or convert the
Series A Convertible Preferred Stock voluntarily if market
conditions allow us to issue other preferred stock or debt
securities at a rate that is lower than the dividend rate on the
Series A Convertible Preferred Stock. If we redeem or convert the
Series A Convertible Preferred Stock, then from and after the
redemption date or conversion date, as applicable, dividends will
cease to accrue on shares of Series A Convertible Preferred Stock,
the shares of Series A Convertible Preferred Stock shall no longer
be deemed outstanding and all rights as a holder of those shares
will terminate, including the rights to receive dividend
payments.
Risks Related to the Regulatory Environment
Changes to state laws pertaining to industrial hemp could slow the
use of industrial hemp which would materially impact our revenues
in future periods.
As of
the date hereof, approximately 40 states authorized industrial hemp
programs pursuant to the Farm Bill. Continued development of the
industrial hemp industry will be dependent upon new legislative
authorization of industrial hemp at the state level, and further
amendment or supplementation of legislation at the federal level.
Any number of events or occurrences could slow or halt progress all
together in this space. While progress within the industrial hemp
industry is currently encouraging, growth is not assured. While
there appears to be ample public support for favorable legislative
action, numerous factors may impact or negatively affect the
legislative process(es) within the various states where we have
business interests. Any one of these factors could slow or halt use
of industrial hemp, which could negatively impact the business up
to possibly causing us to discontinue operations as a
whole.
Costs associated with compliance with numerous laws and regulations
could impact our financial results.
The
manufacture, labeling and distribution by us of the CBD products is
regulated by various federal, state and local agencies. These
governmental authorities may commence regulatory or legal
proceedings, which could restrict the permissible scope of our
product claims or the ability to sell products in the future. The
U.S. Food and Drug Administration, or FDA, may regulate our
products to ensure that the products are not adulterated or
misbranded. We are subject to regulation by the federal government
and other state and local agencies as a result of our CBD products.
The shifting compliance environment and the need to build and
maintain robust systems to comply with different compliance in
multiple jurisdictions increases the possibility that we may
violate one or more of the requirements. If our operations are
found to be in violation of any of such laws or any other
governmental regulations that apply to our company, we may be
subject to penalties, including, without limitation, civil and
criminal penalties, damages, fines, the curtailment or
restructuring of our operations, any of which could adversely
affect the ability to operate our business and our financial
results. Failure to comply with FDA requirements may result in,
among other things, injunctions, product withdrawals, recalls,
product seizures, fines and criminal prosecutions. Our advertising
is subject to regulation by the U.S. Federal Trade Commission, or
FTC, under the Federal Trade Commission Act. In recent years, the
FTC has initiated numerous investigations of dietary and nutrition
supplement products and companies. Additionally, some states also
permit advertising and labeling laws to be enforced by private
attorneys general, who may seek relief for consumers, seek
class-action certifications, seek class-wide damages and product
recalls of products sold by us. Any actions against our company by
governmental authorities or private litigants could have a material
adverse effect on our business, financial condition and results of
operations.
Uncertainty caused by potential changes to legal regulations could
impact the use of CBD products.
There
is substantial uncertainty and different interpretations among
federal, state and local regulatory agencies, legislators,
academics and businesses as to the scope of operation of Farm
Bill-compliant hemp programs relative to the emerging regulation of
cannabinoids. These different opinions include, but are not limited
to, the regulation of cannabinoids by the U.S. Drug Enforcement
Administration, or DEA, and/or the FDA and the extent to which
manufacturers of products containing Farm Bill-compliant
cultivators and processors may engage in interstate commerce. The
uncertainties cannot be resolved without further federal, and
perhaps even state-level, legislation, regulation or a definitive
judicial interpretation of existing legislation and rules. If these
uncertainties continue, such may have an adverse effect upon the
introduction of our products in different markets.
If we fail to obtain the required regulatory permits, licenses and
approvals our ability to conduct our business would be in
jeopardy.
We may
be required to obtain and maintain certain permits, licenses and
approvals in the jurisdictions where our products are sold. There
can be no assurance that we will be able to obtain or maintain any
necessary licenses, permits or approvals. Any material delay or
inability to receive these items is likely to delay and/or inhibit
our ability to conduct our business, and could have an adverse
effect on our business, financial condition and results of
operations.
Risks Related to our Company
We have identified weaknesses in our internal controls, and we
cannot provide assurances that these weaknesses will be effectively
remediated or that additional material weaknesses will not occur in
the future.
Our management is responsible for establishing and maintaining
adequate internal control over our financial reporting, as defined
in Rule 13a-15(f) under the Exchange Act. During the first quarter
of 2019, we determined that a material weakness in our internal
control over financial reporting existed as of December 31, 2018 in
that we did not maintain effective internal controls related to
accounting for the application of new accounting rules.
Specifically, we did not properly assess the phase-in date of ASU
2016-01 which became material to our company in the quarter ended
December 31, 2018. The foregoing resulted in the restatement of our
unaudited condensed consolidated financial statements for quarter
ended December 31, 2018. While certain remedial actions have been
completed in the second and third quarters of fiscal 2019, and we
intend to continue to remediate these control deficiencies, there
can be no assurance that the internal control over financial
reporting, as modified, will enable us to identify or avoid
material weaknesses in the future. Any failure to maintain
effective disclosure controls and internal control over financial
reporting could have a material and adverse effect on our business
and operating results, and cause a decline in the market price of
our Series A Convertible Preferred Stock.
Our executive officers, directors and their affiliates may exert
control over us and may exercise influence over matters subject to
shareholder approval.
Our executive officers and directors, together with their
respective affiliates, beneficially own approximately 55% of our
outstanding common stock as of October 10, 2019.
Accordingly, these shareholders, if they act together, may exercise
substantial influence over matters requiring shareholder approval,
including the election of directors and approval of corporate
transactions. This concentration of ownership could have the effect
of delaying or preventing a change in control or otherwise
discourage a potential acquirer from attempting to obtain control
over us, which in turn could have a material adverse effect on the
market value of our Series A Convertible Preferred
Stock.
Risks Related to our Overall Business
The impact of changes in the fair value of our contingent
liabilities associated with the Earnout Shares may materially
impact our results of operations in future periods.
As consideration for the mergers with Cure Based Development, LLC,
we had a contractual obligation, after approval by our
shareholders, to issue 15,250,000 shares of our common stock (the
“Initial Shares”) to the members of Cure Based
Development, LLC of which 8,750,000 of the shares will vest over a
five year period and are subject to a voting proxy agreement, as
well as to issue another 15,250,000 shares of our common stock (the
“Earnout Shares”) in the future upon earnout goals
being within the next five years. Our shareholders approved the
issuance of the both the Initial Shares and the Earnout Shares at
our 2019 annual shareholder meeting and the Initial Shares were
issued to members of Cure Based Development on April 19, 2019.
Under GAAP we are required to record a non-cash contingent
liability associated with both the Initial Shares and the Earnout
Shares. As of June 30, 2019, the Initial Shares have been issued
and have been reclassified from contingent liability to additional
paid in capital. At June 30, 2019, the total of this contingent
liability was $70,600,000 and is reflective of the Earnout Shares.
We will be obligated to reassess the obligations associated with
the Earnout Shares and, in the event our estimate of the fair value
of the contingent consideration changes, we will record increases
or decreases in the fair value as an adjustment to earnings, which
could have a material impact on our results of operations, our
shareholders’ equity and the market price of the Series A
Convertible Preferred Stock. In particular, changes in the market
price of our common stock, which is one of the inputs used in
determining the amount of the non-cash contingent liability, will
result in increases or decreases in this liability and positively
or negatively impact our net loss or profit for the period.
Investors should not place undue reliance on the impact of these
non-cash changes when evaluating our results of operations in
future periods, as they have no impact on the operations of the
business.
We have a history of losses and there are no assurances we will
report profitable operations in future periods.
We reported net losses to common shareholders of $61,600,702,
$412,075 and $1,738,734 for the nine months ended June 30, 2019,
fiscal 2018 and fiscal 2017, respectively. Included in our net loss
for the nine months ended June 30, 2019 was an increase of
approximately $52.5 million in the non-cash contingent liability
associated with the Earnout Shares as a result of the increase in
the market price of our common stock. Until such time, if ever,
that we are successful in generating profits which are sufficient
to pay our operating expenses it is likely we will continue to
report losses in future periods. There are no assurances we will
generate substantial revenues from the new businesses or that we
will ever generate sufficient revenues to report profitable
operations or a net profit.
We could incur charges in future periods related to assets
associated with our non-core businesses.
We have
assets on our consolidated balance sheet from subsidiaries which
are no longer a part of our core business, as our CBD operations
have significantly expanded since the mergers with Cure Based
Development. As we determine future direction in relation to the
subsidiaries, which could include sale or wind down of the non-core
subsidiaries, we could incur a charge on our consolidated income
statement related to the carrying value of those
assets.
We may require additional capital to finance the acquisition of
additional brands and if we are unable to raise such capital on
beneficial terms or at all this could restrict our
growth.
We may, in the future, require additional capital to help fund all
or part of potential acquisitions. If, at the time required, we do
not have sufficient cash to finance those additional capital needs,
we will need to raise additional funds through equity and/or debt
financing. We cannot guarantee that, if and when needed, additional
financing will be available to us on acceptable terms or at all.
Further, if additional capital is needed and is either unavailable
or cost prohibitive, our growth may be limited as we may need to
change our business strategy to slow the rate of our expansion
plans. In addition, any additional financing we undertake could
impose additional covenants upon us that restrict our operating
flexibility, and, if we issue equity securities to raise capital or
as acquisition consideration, our existing shareholders may
experience dilution or the new securities may have rights senior to
those of our Series A Convertible Preferred Stock, assuming the
holders of the Series A Convertible Preferred Stock approve the
issuance of such senior securities.
USE OF PROCEEDS
We
estimate that the net proceeds from the issuance and sale of the
Series A Convertible Preferred Stock in this offering will be
approximately $4,253,000, after deducting the
underwriting discounts and commissions and estimated offering
expenses payable by us, assuming no exercise of the over-allotment
option and approximately $4,946,750 if the
over-allotment option is exercised in full.
We will
have broad discretion in the use of the net proceeds from the sale
of the shares of Series A Convertible Preferred Stock offered under
this prospectus supplement. We presently intend to use the net
proceeds from the sale of our shares of Series A Convertible
Preferred Stock for general working capital.
Pending
our use of the net proceeds from this offering, we intend to invest
the net proceeds in a variety of capital preservation investments,
including short-term, investment grade, interest bearing
instruments and U.S. government securities.
CAPITALIZATION
The following table sets forth our capitalization as of June 30,
2019:
●
on
an actual basis; and
●
on
an as adjusted basis to give effect to the sale of
500,000 shares of Series A Convertible Preferred Stock
in this offering at the public offering price of $10.00 per share,
after deducting underwriting discounts and commissions and other
estimated offering expenses payable by us, but giving no effect to
the exercise of the over-allotment option.
This capitalization table should be read in conjunction with
Management’s Discussion and Analysis of Financial Condition
and Results of Operations and our consolidated financial statements
and related notes incorporated by reference in this prospectus
supplement, and other financial information included and
incorporated by reference in this prospectus supplement. See
“Where You Can Find More Information.”
|
As
of June 30, 2019
(unaudited)
|
|
|
|
Cash and cash
Equivalents
|
$11,633,213
|
$ 15,886,213
|
|
|
|
Preferred stock,
authorized 50,000,000 shares, $0.001 par value; no shares issued
and outstanding, actual, 10,000,000 shares designated; 1,250,000
shares outstanding, as adjusted
|
-
|
500
|
Common stock,
authorized 500,000 shares, $0.001 par value;
27,720,356 shares issued and outstanding
|
27,720
|
27,720
|
Additional paid-in
capital
|
96,130,158
|
100,382,658
|
Accumulated
deficit
|
(70,782,736)
|
(70,782,736)
|
Total cbdMD, Inc.
shareholders’ equity
|
25,375,142
|
29,628,142
|
Non-controlling
interest
|
(229,420)
|
(229,420)
|
Total
shareholders’ equity
|
25,145,722
|
29,398,722
|
Total
capitalization
|
$25,145,722
|
$ 29,398,722
|
————————
All information in this Capitalization section
excludes:
●
1,219,650 shares
issuable upon the exercise of outstanding options with a weighted
average exercise price of $6.07per share;
●
57,500 shares
issuable upon vesting of restricted stock awards;
●
423,605 shares
issuable upon the exercise of outstanding warrants with a weighted
average exercise price of $6.64 per share;
●
shares of our common stock issuable upon the exercise of the
representative’s warrants to be issued upon the closing of
this offering at an exercise price equal to $ per share, or 125% of
the last closing price per share our common stock on the NYSE
American prior to the execution of the underwriting agreement for
this offering;
●
962,955 shares
reserved for future issuances under our equity compensation
plan;
●
the future issuance
of up to 15,250,000 Earnout Shares; and
●
the future impact
of changes in the fair value of the contingent liabilities
associated with the Earnout Shares.
DESCRIPTION OF THE SERIES A CONVERTIBLE PREFERRED
STOCK
The description of certain terms of the Series A Convertible
Preferred Stock in this prospectus supplement does not purport to
be complete and is in all respects subject to, and qualified in its
entirety by references to the relevant provisions of our articles
of incorporation, as amended, the certificate of designations
establishing the terms of our Series A Convertible Preferred Stock,
our bylaws and North Carolina corporate law. You are strongly
encouraged to read the certificate of designations because it, and
not this description, defines your rights as a holder of shares of
Series A Convertible Preferred Stock. See “Where You Can Find
More Information.”
General
Pursuant
to our articles of incorporation, as amended, we are currently
authorized to designate and issue up to 50,000,000 shares of
preferred stock, par value $0.001 per share, in one or more classes
or series and, subject to the limitations prescribed by our
articles of incorporation and North Carolina corporate law, with
such rights, preferences, privileges and restrictions of each class
or series of preferred stock, including dividend rights, voting
rights, terms of redemption, liquidation preferences and the number
of shares constituting any class or series as our board of
directors may determine, without any vote or action by our
shareholders. On October 10, 2019, we filed articles
of amendment to our articles of incorporation designating
5,000,000 shares of preferred stock as the Series A
Convertible Preferred Stock.
As of
October 10, 2019, we had no shares of preferred stock
issued and outstanding. Assuming all of the shares of Series A
Convertible Preferred Stock offered hereunder (including the
underwriters’ over-allotment option) are issued, we will have
available for issuance 45,000,000 authorized and
undesignated and unissued shares of preferred stock, and
4,425,000 shares of unissued Series A Convertible
Preferred Stock available for future issuance. The Series A
Convertible Preferred Stock offered hereby, when issued, delivered
and paid for in accordance with the terms of the underwriting
agreement, will be fully paid and nonassessable. Our board of
directors may, without the approval of holders of the Series A
Convertible Preferred Stock or our common stock, designate
additional series of authorized preferred stock ranking junior to
or on par with the Series A Convertible Preferred Stock and/or sell
additional shares of the Series A Convertible Preferred Stock.
Designation of preferred stock ranking senior to the Series A
Convertible Preferred Stock will require approval of the holders of
Series A Convertible Preferred Stock, as described below in
“—Voting Rights.”
The
registrar, transfer agent and dividend and redemption price
disbursing agent in respect of the Series A Convertible Preferred
Stock is V Stock Transfer, LLC. Its principal business address is
18 Lafayette Place, Woodmere, NY 11598.
Listing
Currently,
no market exists for the Series A Convertible Preferred Stock. We
have filed an application to list our Series A Convertible
Preferred Stock on the NYSE American under the symbol
“YCBDP.” We expect trading of the Series A Convertible
Preferred Stock on the NYSE American, if the listing is approved,
to commence within three business days after the date
of initial issuance of the Series A Convertible Preferred Stock. We
expect the Series A Convertible Preferred Stock will be issued and
maintained in book-entry form registered in the name of the
nominee, The Depository Trust Company. See “—Book-Entry
Procedures” described below.
No Maturity
The
Series A Convertible Preferred Stock has no maturity date, and we
are not required to redeem the Series A Convertible Preferred
Stock, except in the event of a Change of Control. Accordingly, the
Series A Convertible Preferred Stock will remain outstanding
indefinitely unless a Change of Control occurs, we decide to redeem
it, we elect to automatically convert it into shares of common
stock upon a Market Trigger or the holder elects to voluntarily
convert the Series A Preferred into shares of our common stock. We
are not required to set aside funds to redeem the Series A
Convertible Preferred Stock.
Ranking
The
Series A Convertible Preferred Stock will rank, with respect to
rights to the payment of dividends and the distribution of assets
upon our liquidation, dissolution or winding up:
(1)
senior to all
classes or series of our common stock and to all other equity
securities issued by us other than equity securities referred to in
clauses (2) and (3) below;
(2)
on a parity with
all equity securities issued by us with terms specifically
providing that those equity securities rank on a parity with the
Series A Convertible Preferred Stock with respect to rights to the
payment of dividends and the distribution of assets upon our
liquidation, dissolution or winding up, which we refer to as
“Parity Stock”;
(3)
subject to the
consent of the Series A Convertible Preferred Stockholders set
forth below in “—Voting Rights,” junior to all
equity securities issued by us with terms specifically providing
that those equity securities rank senior to the Series A
Convertible Preferred Stock with respect to rights to the payment
of dividends and the distribution of assets upon our liquidation,
dissolution or winding up, which we refer to as “Senior
Stock”; and
(4)
junior to all of
our existing and future indebtedness.
Dividends
Holders
of shares of the Series A Convertible Preferred Stock are entitled
to receive, when, as and if declared by our board of directors, out
of funds legally available for the payment of dividends, cumulative
cash dividends at the rate of 8.0% per annum of the $10.00 per
share liquidation preference (equivalent to $0.80 per annum per
share), which we refer to as the “Dividend
Rate.”
Dividends
on our Series A Convertible Preferred Stock will accrue daily and
will be cumulative from, and including, the first day of the
calendar month in which they are issued and will be payable monthly
in arrears on the Dividend Payment Date, which is the 15th day of
each calendar month; provided that if any Dividend Payment Date is
not a Business Day then the dividend that would otherwise have been
payable on that Dividend Payment Date may be paid on the next
succeeding Business Day and no interest, additional dividends or
other sums will accrue on the amount so payable for the period from
and after that Dividend Payment Date to that next succeeding
Business Day. “Business Day” shall mean any day, other
than a Saturday or Sunday, that is neither a legal holiday nor a
day on which banking institutions in New York, New York are
authorized or required by law, regulation or executive order to
close.
Any
dividend payable on the Series A Convertible Preferred Stock,
including dividends payable for any partial Dividend Period, will
be computed on the basis of a 360-day year consisting of twelve
30-day months. Dividends will be payable to holders of record as
they appear in our stock records for the Series A Convertible
Preferred Stock at the close of business on the corresponding
Dividend Record Date, the first day of each calendar month, whether
or not a Business Day.
No
dividends on shares of Series A Convertible Preferred Stock shall
be authorized by our board of directors or paid or set apart for
payment by us at any time when the payment thereof would be
unlawful under the laws of the State of North Carolina or when the
terms and provisions of any agreement of ours, including any
agreement relating to our indebtedness, prohibits the
authorization, payment or setting apart for payment thereof or
provide that the authorization, payment or setting apart for
payment thereof would constitute a breach of the agreement or a
default under the agreement, or if the authorization, payment or
setting apart for payment shall be restricted or prohibited by
law.
Notwithstanding
the foregoing, dividends on the Series A Convertible Preferred
Stock will accrue regardless of whether (i) the terms of any Senior
Stock we may issue or agreements we may enter into, including any
documents governing any indebtedness, at any time prohibit the
current payment of dividends, (ii) if we have earnings, (iii) there
are funds legally available for the payment of those dividends; or
(iv) such dividends are declared by our board of directors. No
interest, or sum in lieu of interest, will be payable in respect of
any dividend payment or payments on the Series A Convertible
Preferred Stock that may be in arrears, and holders of the Series A
Convertible Preferred Stock will not be entitled to any dividends
in excess of full cumulative dividends described above. Any
dividend payment made on the Series A Convertible Preferred Stock
shall first be credited against the earliest accrued but unpaid
dividend due with respect to those shares.
Unless
full cumulative dividends on all shares of Series A Convertible
Preferred Stock have been or contemporaneously are declared and
paid or declared and a sum sufficient for the payment thereof has
been or contemporaneously is set apart for payment for all past
Dividend Periods, no dividends (other than in shares of our common
stock or in shares of any junior stock we may issue as to dividends
and upon liquidation) shall be declared or paid or set aside for
payment upon shares of any junior stock or Parity Stock that we may
issue.
When
dividends are not paid in full (or a sum sufficient for such full
payment is not so set apart) upon the Series A Convertible
Preferred Stock and the shares of any other series of preferred
stock that we may issue ranking on a parity as to the payment of
dividends with the Series A Convertible Preferred Stock, all
dividends declared upon the Series A Convertible Preferred Stock
and any other series of preferred stock that we may issue ranking
on a parity as to the payment of dividends with the Series A
Convertible Preferred Stock shall be declared pro rata so that the
amount of dividends declared per share of Series A Convertible
Preferred Stock and such other series of preferred stock that we
may issue shall in all cases bear to each other the same ratio that
accrued dividends per share on the Series A Convertible Preferred
Stock and such other series of preferred stock that we may issue
(which shall not include any accrual in respect of unpaid dividends
for prior Dividend Periods if such preferred stock does not have a
cumulative dividend) bear to each other. No interest, or sum of
money in lieu of interest, shall be payable in respect of any
dividend payment or payments on the Series A Convertible Preferred
Stock that may be in arrears.
Holders
of Series A Convertible Preferred Stock shall not be entitled to
any dividend in excess of all accumulated accrued and unpaid
dividends on the Series A Convertible Preferred Stock as described
herein. Any dividend payment made on the Series A Convertible
Preferred Stock shall first be credited against the earliest
accumulated accrued and unpaid dividend due with respect to such
shares which remains payable at the time of such
payment.
Liquidation Preference
Upon
the voluntary or involuntary liquidation, dissolution or winding up
of our affairs, then, before any distribution or payment shall be
made to the holders of any common stock or any other class or
series of junior stock, the holders of Series A Convertible
Preferred Stock shall be entitled to receive out of our assets
legally available for distribution to shareholders, liquidating
distributions in the amount of the liquidation preference, or
$10.00 per share, plus an amount equal to all dividends (whether or
not declared) accrued and unpaid thereon to and including the date
of payment. After payment of the full amount of the liquidating
distributions to which they are entitled, the holders of Series A
Convertible Preferred Stock will have no right or claim to any of
our remaining assets. In the event that, upon any such voluntary or
involuntary liquidation, dissolution or winding up, our available
assets are insufficient to pay the amount of the liquidating
distributions on all outstanding shares of Series A Convertible
Preferred Stock and the corresponding amounts payable on all Senior
Stock and Parity Stock, then after payment of the liquidating
distribution on all outstanding Senior Stock, the holders of the
Series A Convertible Preferred Stock and all other such classes or
series of Parity Stock shall share ratably in any such distribution
of assets in proportion to the full liquidating distributions to
which they would otherwise be respectively entitled. For such
purposes, any consolidation or merger of our company with or into
any other entity, or the sale, lease or conveyance of all or
substantially all of the property or business of our company, or a
statutory share exchange shall not be deemed to constitute the
voluntary or involuntary liquidation, dissolution or winding up of
our company.
Conversion
The
Series A Convertible Preferred Stock, together with accrued but
unpaid dividends, is convertible at any time at the option of the
holder, by us upon a Market Trigger and upon a holder’s
receipt of a Change of Control Notice. Except as provided below,
the Series A Convertible Preferred Stock is not convertible into or
exchangeable for any other securities or property.
Conversion at Option of Holder
Each
share of Series A Convertible Preferred Stock, together with
accrued but unpaid dividends, is convertible into shares of our
common stock at a Conversion Price of $6.00 per common
share, which initially equals 1.667 shares of our
common stock, at any time at the option of the holder, subject to
adjustment for the Anti-Dilution Provisions set forth
below.
Holders shall effect conversions of the Series A Convertible
Preferred Stock (an “Optional Conversion”) by providing
us a conversion notice (a “Notice of Optional
Conversion”), duly completed and executed. Other than a
conversion following a Change of Control Notice (as defined and as
set forth below), the Optional Notice of Conversion must specify
the number of shares of Series A Convertible Preferred Stock then
held by the holder and the number of such shares which the holder
is converting (the “Optional Conversion Shares”).
Provided that our transfer agent is participating in the DTC Fast
Automated Securities Transfer program, the Notice of Optional
Conversion may specify, at the holder’s election, whether the
Optional Conversion Shares are to be credited to the account of the
holder’s prime broker with DTC through its Deposit Withdrawal
Agent Commission (“DWAC”) system (a “DWAC
Delivery”). The “Optional Conversion Date”, or
the date on which a conversion will be deemed effective, is the
Trading Day that the Notice of Optional Conversion, completed and
executed, is sent by facsimile or other electronic transmission to,
and received during regular business hours by, us;
provided
that the original
certificate(s) (if applicable) representing such shares of Series A
Convertible Preferred Stock being converted, duly endorsed, and the
accompanying Notice of Optional Conversion, are received by us
within two Trading Days thereafter. In all other cases, the
Optional Conversion Date shall be defined as the Trading Day on
which the original share certificate(s) (if applicable) of Series A
Convertible Preferred Stock being converted, duly endorsed, and the
accompanying Notice of Optional Conversion, are received by
us. “Trading Day” shall mean any Business Day on
which the common stock is traded, or able to be traded, on the
“Trading Market” which means the NYSE American, the
Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global
Select Market or the New York Stock Exchange, or any successor
exchange to the foregoing, or any market on which our common stock
is listed or admitted to trading (including any over-the-counter
market).
If, at
any time while the Series A Convertible Preferred Stock is
outstanding: we (A) pay a stock dividend or otherwise make a
distribution or distributions payable in shares of our common stock
(which, for avoidance of doubt, shall not include any shares of
common stock issued by us upon conversion of the Series A
Convertible Preferred Stock) with respect to the then outstanding
shares of common stock; (B) subdivide outstanding shares of common
stock into a larger number of shares; or (C) combine (including by
way of a reverse stock split) outstanding shares of common stock
into a smaller number of shares, which we refer to collectively as
the “Anti-Dilution Provisions”, then the Conversion
Price shall be multiplied by a fraction of which the numerator
shall be the number of shares of common stock (excluding any
treasury shares) outstanding immediately before such event and of
which the denominator shall be the number of shares of common stock
outstanding immediately after such event (excluding any treasury
shares). Any adjustment made as a result of the Anti-Dilution
Provisions shall become effective immediately after the record date
for the determination of shareholders entitled to receive such
dividend or distribution and shall become effective immediately
after the effective date in the case of a subdivision or
combination. All calculations will be made to the nearest cent or
the nearest 1/100th of a share, as the case may be. For purposes of
the Anti-Dilution Provisions, the number of shares of common stock
deemed to be issued and outstanding as of a given date shall be the
sum of the number of shares of common stock (excluding any treasury
shares) issued and outstanding. Whenever the Conversion Price is
adjusted pursuant to any Anti-Dilution Provision, we will promptly
deliver to each holder of Series A Convertible Preferred Stock a
notice setting forth the Conversion Price after such adjustment and
setting forth a brief statement of the facts requiring such
adjustment.
If (A)
we declare a dividend (or any other distribution in whatever form)
on our common stock, (B) we declare a special nonrecurring cash
dividend on or a redemption of our common stock, (C) we authorize
the granting to all holders of the common stock of rights or
warrants to subscribe for or purchase any shares of capital stock
of any class or of any rights, (D) the approval of any of our
shareholders shall be required in connection with any
reclassification of the common stock, any consolidation or merger
to which we are a party, any sale or transfer of all or
substantially all of our assets, or any compulsory share exchange
whereby the common stock is converted into other securities, cash
or property, or (E) we authorize the voluntary or involuntary
dissolution, liquidation or winding up of our affairs, then, in
each case, we shall cause to be filed at each office or agency
maintained for the purpose of conversion of this Series A
Convertible Preferred Stock, and, except if such notice and the
contents thereof shall be deemed to constitute material non-public
information, shall cause to be delivered to each holder at its last
address as it shall appear upon our stock books, at least 20
calendar days prior to the applicable record or effective date
hereinafter specified, a notice stating (x) the date on which a
record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not
to be taken, the date as of which the holders of our common stock
of record to be entitled to such dividend, distributions,
redemption, rights or warrants are to be determined or (y) the date
on which such reclassification, consolidation, merger, sale,
transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of our
common stock of record shall be entitled to exchange their shares
of the common stock for securities, cash or other property
deliverable upon such reclassification, consolidation, merger,
sale, transfer or share exchange; provided that the failure to deliver
such notice or any defect therein or in the delivery thereof shall
not affect the validity of the corporate action required to be
specified in such notice.
Notwithstanding
anything herein to the contrary, we will not effect any Optional
Conversion of the Series A Convertible Preferred Stock, and a
holder shall not have the right to convert any portion of the
Series A Convertible Preferred Stock, to the extent that, after
giving effect to an attempted conversion set forth on an applicable
Notice of Optional Conversion, such holder (together with such
Holder’s Affiliates (as that term is defined in Rule 405 of
the Securities Act), and any other natural person, company,
corporation, partnership, association, trust or organization
(collectively, a “Person”) whose beneficial ownership
of our common stock would be aggregated with the holder’s for
purposes of Section 13(d) or Section 16 of the Exchange Act and the
applicable regulations of the SEC, including any
“group” of which the holder is a member, which we refer
to as the “Attribution Parties,” would beneficially own
a number of shares of our common stock in excess of the Beneficial
Ownership Limitation (as defined below). For purposes of the
foregoing sentence, the aggregate number of shares of common stock
beneficially owned by such holder and its Attribution Parties shall
include the number of shares of common stock held by such holder
and its Attribution Parties plus the number of shares of common
stock issuable upon Optional Conversion subject to the Notice of
Optional Conversion with respect to which such determination is
being made, but shall exclude the number of shares of common stock
which are issuable upon (A) conversion of the remaining,
unconverted shares of Series A Convertible Preferred Stock
beneficially owned by such holder or any of its Attribution
Parties, and (B) exercise or conversion of the unexercised or
unconverted portion of any other of our securities beneficially
owned by such holder or any of its Attribution Parties that, in the
case of both (A) and (B), are subject to a limitation on conversion
or exercise similar to the limitation contained herein. For
purposes of this section, beneficial ownership shall be calculated
in accordance with Section 13(d) of the Exchange Act and the
applicable regulations of the SEC. In addition, for purposes
hereof, “group” has the meaning set forth in Section
13(d) of the Exchange Act and the applicable regulations of the
SEC. For purposes of this section, in determining the number of
outstanding shares of common stock, a holder may rely on the number
of outstanding shares of common stock as stated in the most recent
of the following: (A) our most recent periodic or annual filing
with the SEC, as the case may be, (B) a more recent public
announcement by us that is filed with the SEC, or (C) a more recent
notice by us or our transfer agent to the holder setting forth the
number of shares of common stock then outstanding. Upon the written
request of a holder (which may be by email), we shall, within three
Trading Days thereof, confirm in writing to such holder (which may
be via email) the number of shares of common stock then
outstanding. In any case, the number of outstanding shares of
common stock shall be determined after giving effect to any actual
conversion or exercise of our securities, including shares of
Series A Convertible Preferred Stock, by such holder or its
Attribution Parties since the date as of which such number of
outstanding shares of common stock was last publicly reported or
confirmed to the holder.
The
“Beneficial Ownership Limitation” shall initially be
9.99% of the number of shares of the common stock outstanding
immediately after giving effect to the issuance of shares of common
stock pursuant to such Notice of Optional Conversion (to the extent
permitted pursuant to this section), or 4.99% upon election by the
holder at the time of the purchase of the shares of our Series A
Convertible Preferred Stock in this offering. Notwithstanding the
foregoing, by written notice to us, which will not be effective
until the 61st day after such
notice is delivered to us, the holder may reset the Beneficial
Ownership Limitation percentage to a higher or lower percentage, or
if such notice is given upon initial issuance of the Series A
Convertible Preferred Stock to the holder, then the reset
Beneficial Ownership Limitation shall be effective immediately.
Upon such a change by a holder of the Beneficial Ownership
Limitation, the Beneficial Ownership Limitation may not be further
amended by such holder without first providing the minimum 61-day
notice to us. We are entitled to rely on representations made to us
by the holder in any Notice of Optional Conversion regarding its
Beneficial Ownership Limitation, and the determination as to
whether the Series A Convertible Preferred Stock is convertible and
of which portion of the Series A Convertible Preferred Stock is
convertible shall be made in the sole discretion of the holder and
we shall have no obligation to verify or confirm the accuracy of
such determination.
Market Trigger Conversion
We, at
our option, may cause the Series A Convertible Preferred Stock,
together with accrued but unpaid dividends, to be converted, which
we refer to as a “Market Trigger Conversion,” in whole
or in part, on a pro rata basis, into fully paid and nonassessable
shares of common stock at the Conversion Price if the Trading Price
(as defined hereafter) of the common stock shall have equaled or
exceeded 137.5% of the Conversion Price for at least 20 trading
days in any 30 consecutive trading day period ending five days
prior to the Market Trigger Conversion Date which is defined
below.
As used
herein, “Trading Price” of our common stock on any
Trading Day (excluding any after-hours trading as of such date)
shall mean:
(A)
the last sale
price, regular way, or, in case no such sale takes place on such
day, the average of the closing bid and ask prices, regular way, in
either case as reported by the principal consolidated transaction
reporting system with respect to the common stock listed or
admitted to trading or quoted on the NYSE American, or if the
common stock is not listed or admitted to trading or quoted on the
NYSE American, as reported in the principal consolidated
transaction reporting system with respect to the common stock
listed on the principal national securities exchange or national
securities market on or in which the common stock is listed or
admitted to trading;
(B)
if the common stock
is not listed on, admitted to trading or quoted on the NYSE
American or a national securities exchange or national securities
market on that date, the last price quoted by OTC Market Group Inc.
for the common stock on the date, or if OTC Market Group Inc. is
not quoting such price, a similar quotation service selected by
us;
(C)
if the common stock
is not so quoted, the average mid-point of the last bid and ask
prices for the common stock on that date from at least two dealers
recognized as market-makers for our common stock selected by us for
this purpose; or
(D)
if the common stock
is not so quoted, the average of the last bid and ask prices for
the common stock on that date from a dealer engaged in the trading
of the common stock selected by us for such purpose.
No
greater than 60 nor fewer than 20 days prior to the date of any
such Market Trigger Conversion, notice (the “Market Trigger
Conversion Notice”) shall be given to the holders of record
of the Series A Convertible Preferred Stock to be converted, by
first class mail, postage prepaid and addressed to such holders at
their last addresses as shown on our stock transfer books. The
Market Trigger Conversion Notice shall specify the date fixed for
conversion (the “Market Trigger Conversion Date”), the
place or places for surrender of shares of Series A Convertible
Preferred Stock and the then effective Conversion
Price.
Any
outstanding shares of Series A Convertible Preferred Stock,
together with accrued but unpaid dividends, subject to the Market
Trigger Conversion Notice will automatically convert into shares of
common stock on the Market Trigger Conversion Date. The holders
entitled to receive the shares of our common stock issuable upon
the Market Trigger (the “Market Trigger Conversion
Shares”) will be treated as the record holder(s) of such
shares as of 5:00 p.m., New York City time, on the Market Trigger
Conversion Date. Prior to 5:00 p.m., New York City time, on the
Market Trigger Conversion Date, the Market Trigger Conversion
Shares will not be outstanding for any purpose and you will have no
rights with respect to such Market Trigger Conversion Shares,
including voting rights, rights to respond to tender offers and
rights to receive any dividends or other distributions on the
common stock, by virtue of holding the Series A Convertible
Preferred Stock.
Holders Change of Control Conversion Rights
Upon a
holder’s receipt of a Change of Control Notice (as defined
below) until the Trading Day ending three (3) Trading Days prior to
the Change of Control Redemption Date (as defined below) (the
“Change of Control Conversion Date”, holders of the
Series A Convertible Preferred Stock will have the right to convert
some or all of the shares of Series A Convertible Preferred Stock
held by such holder, together with all accrued but unpaid dividends
(the “Change of Control Conversion Right”) into shares
of our common stock at the Conversion Price (the “Change of
Control Conversion Shares”). In the event of a Change of
Control, any shares of Series A Convertible Preferred Stock not
converted pursuant to the Change of Control Conversion Right will
be subject to the Change of Control Redemption described
below.
Additional Conversion Terms
Delivery of Certificate or Electronic Issuance Upon
Conversion
Not
later than the earlier of (i) two Trading Days and (ii) the number
of Trading Days comprising the Standard Settlement Period after the
applicable conversion date, or if the holder requests the issuance
of physical certificate(s), five Business Days after receipt by us
of both the original certificate(s) representing such shares of
Series A Convertible Preferred Stock being converted, duly
endorsed, and the accompanying notice of conversion (the
“Share Delivery Date”), we shall (A) deliver, or cause
to be delivered, to the converting holder a physical certificate or
certificates representing the number of either Optional Conversion
Shares or Market Trigger Conversion Shares or the Change of Control
Conversion Shares (collectively, the “Conversion
Shares”) being acquired upon the conversion of shares of
Series A Convertible Preferred Stock or (B) in the case of a DWAC
Delivery, electronically transfer such Conversion Shares by
crediting the account of the holder’s prime broker with DTC
through its DWAC system. As used herein, “Standard Settlement
Period” means the standard settlement period, expressed in a
number of Trading Days, on the Trading Market. If in the case of
any Notice of Optional Conversion such certificate or certificates
are not delivered to or as directed by or, in the case of a DWAC
Delivery, such shares are not electronically delivered to or as
directed by, the applicable holder by the Share Delivery Date, the
applicable holder shall be entitled to elect to rescind such Notice
of Optional Conversion by written notice to us at any time on or
before its receipt of such certificate or certificates for Optional
Conversion Shares or electronic receipt of such shares, as
applicable, in which event we shall promptly return to such holder
any original Series A Convertible Preferred Stock certificate
delivered to us and such holder shall promptly return to us any
common stock certificates or otherwise direct the return of any
shares of common stock delivered to the holder through the DWAC
system, representing the shares of Series A Convertible Preferred
Stock unsuccessfully tendered for conversion to us.
Obligation Absolute
Subject to holder’s right to rescind a Notice of Optional
Conversion set forth above, our obligation to issue and deliver the
Conversion Shares upon conversion of Series A Convertible Preferred
Stock in accordance with its terms are absolute and unconditional,
irrespective of any action or inaction by a holder to enforce the
same, any waiver or consent with respect to any provision hereof,
the recovery of any judgment against any Person or any action to
enforce the same, or any setoff, counterclaim, recoupment,
limitation or termination, or any breach or alleged breach by such
holder or any other Person of any obligation to us or any violation
or alleged violation of law by such holder or any other Person, and
irrespective of any other circumstance which might otherwise limit
our obligation to such holder in connection with the issuance of
such Conversion Shares.
Buy-In on Failure to Timely Deliver Certificates Upon
Conversion
If we
fail to deliver to a holder the applicable certificate or
certificates or to effect a DWAC Delivery, as applicable, by the
Share Delivery Date (other than a failure caused by incorrect or
incomplete information provided by the holder to us), and if after
such Share Delivery Date the holder is required by its brokerage
firm to purchase (in an open market transaction or otherwise), or
the holder’s brokerage firm otherwise purchases, shares of
common stock to deliver in satisfaction of a sale by such holder of
the Conversion Shares which the holder was entitled to receive upon
the conversion relating to such Share Delivery Date (a
“Buy-In”), then we are obligated to (A) pay in cash to
the holder (in addition to any other remedies available to or
elected by the holder) the amount by which (x) the holder’s
total purchase price (including any brokerage commissions) for the
shares of common stock so purchased exceeds (y) the product of (1)
the aggregate number of shares of common stock that such holder was
entitled to receive from the conversion at issue multiplied by (2)
the actual sale price at which the sell order giving rise to such
purchase obligation was executed (including any brokerage
commissions) and (B) at the option of the holder, either reissue
(if surrendered) the shares of Series A Convertible Preferred Stock
equal to the number of shares of Series A Convertible Preferred
Stock submitted for conversion or deliver to the holder the number
of shares of common stock that would have been issued if we had
timely complied with our delivery requirements. For example, if a
holder purchases shares of common stock having a total purchase
price of $11,000 to cover a Buy-In with respect to an attempted
conversion of shares of Series A Convertible Preferred Stock with
respect to which the actual sale price (including any brokerage
commissions) giving rise to such purchase obligation was a total of
$10,000 under clause (A) of the immediately preceding sentence, we
would be required to pay such holder $1,000. The holder shall
provide us written notice, within three Trading Days after the
occurrence of a Buy-In, indicating the amounts payable to such
holder in respect of such Buy-In together with applicable
confirmations and other evidence reasonably requested by us.
Nothing herein shall limit a holder’s right to pursue any
other remedies available to it hereunder, at law or in equity
including, without limitation, a decree of specific performance
and/or injunctive relief with respect our failure to timely deliver
certificates representing shares of common stock upon conversion of
the shares of Series A Convertible Preferred Stock as required
pursuant to the terms hereof; provided, however, that the holder
shall not be entitled to both (i) require the reissuance of the
shares of Series A Convertible Preferred Stock submitted for
conversion for which such conversion was not timely honored and
(ii) receive the number of shares of common stock that would have
been issued if we had timely complied with its delivery
requirements under the section entitled “Delivery of
Certificate or Electronic Issuance Upon
Conversion.”
Reservation of Shares Issuable Upon Conversion
We have
agreed that we will at all times reserve and keep available out of
our authorized and unissued shares of common stock for the sole
purpose of issuance upon conversion of the Series A Convertible
Preferred Stock, free from preemptive rights or any other actual
contingent purchase rights of Persons other than the holders of the
Series A Convertible Preferred Stock, not less than such aggregate
number of shares of the common stock as shall be issuable upon the
conversion of all outstanding shares of Series A Convertible
Preferred Stock. We have further agreed that all shares of common
stock that shall be so issuable shall, upon issue, be duly
authorized, validly issued, fully paid, nonassessable and free and
clear of all liens and other encumbrances.
Fractional Shares
No
fractional shares or scrip representing fractional shares of common
stock will be issued upon the conversion of the Series A
Convertible Preferred Stock. As to any fraction of a share which a
holder would otherwise be entitled to receive upon such conversion,
we will pay a cash adjustment in respect of such final fraction in
an amount equal to such fraction multiplied by the Conversion
Price.
Transfer Taxes
The
issuance of certificates for shares of the common stock upon
conversion of the Series A Convertible Preferred Stock shall be
made without charge to any holder for any documentary stamp or
similar taxes that may be payable in respect of the issue or
delivery of such certificates, provided that we will not be
required to pay any tax that may be payable in respect of any
transfer involved in the issuance and delivery of any such
certificate upon conversion in a name other than that of the
registered holder(s) of such shares of Series A Convertible
Preferred Stock and we will not be required to issue or deliver
such certificates unless or until the Person or Persons requesting
the issuance thereof shall have paid to us the amount of such tax
or shall have established to our satisfaction that such tax has
been paid.
Status as Shareholder
Upon
each Conversion Date, (a) the shares of Series A Convertible
Preferred Stock being converted shall be deemed converted into
shares of common stock and (b) the holder’s rights as a
holder of such converted shares of Series A Convertible Preferred
Stock shall cease and terminate, excepting only the right to
receive certificates for such shares of common stock and to any
remedies provided herein or otherwise available at law or in equity
to such holder because of our failure to comply with the terms of
the Certificate of Designations, Rights and Preferences of the
Series A Convertible Preferred Stock. In all cases, the holder
shall retain all of its rights and remedies for our failure to
convert Series A Convertible Preferred Stock.
Dividends
If a
holder converts any shares of Series A Convertible Preferred Stock
and if the Conversion Date occurs after a Dividend Record Date and
on or prior to the related Dividend Payment Date, the dividend
payable on such Dividend Payment Date with respect to such shares
so converted shall be payable on such Dividend Payment Date to the
holders of record at the close of business on such Dividend Record
Date, and shall not be converted into shares of common stock as
part of the Conversion Price for such shares.
Redemption
The
Series A Convertible Preferred Stock is redeemable by us at our
option commencing, October ___, 2023 or on a mandatory
basis at any time upon a Change of Control.
Optional Redemption
The
Series A Convertible Preferred Stock is not redeemable by us prior
to October ___, 2023. On or after October
___, 2023, at our option, upon not less than 30 days nor
more than 60 days’ written notice, redeem (the
“Optional Redemption”) the then issued and outstanding
shares of Series A Convertible Preferred Stock, in whole or in
part, for cash at a redemption price of $10.00 per share, plus any
accrued but unpaid dividends to, but not including, the date fixed
for redemption (the “Optional Redemption Date”). If we
elect to redeem any shares of Series A Convertible Preferred Stock
as described in this paragraph, we may use any available cash to
pay the redemption price.
Notice
of an Optional Redemption (the “Optional Redemption
Notice”) will be mailed upon not less than 30 days nor more
than 60 days before the date fixed by us for the Optional
Redemption (the “Optional Redemption Date”) to each
holder of record of Series A Convertible Preferred Stock at the
address shown on our share transfer books. The Optional Redemption
Notice shall state: (i) the Optional Redemption Date; (ii) the
number of shares of Series A Convertible Preferred Stock to be
redeemed; (iii) the Optional Redemption Price; (iv) the place or
places where any certificates issued for Series A Convertible
Preferred Stock other than through DTC book entry described below,
are to be surrendered for payment of the Optional Redemption Price;
(v) that dividends on the Series A Convertible Preferred Stock will
cease to accrue on such Optional Redemption Date; and (vi) any
other information required by law or by the applicable rules of any
exchange upon which the Series A Convertible Preferred Stock may be
listed or admitted for trading. If fewer than all outstanding
shares of Series A Convertible Preferred Stock are to be redeemed,
the Optional Redemption Notice mailed to each such holder thereof
shall also specify the number of shares of Series A Convertible
Preferred Stock to be redeemed from each such holder. For the
avoidance of doubt, holders of shares of Series A Convertible
Preferred Stock shall have the right to convert all or a portion of
the Series A Convertible Preferred Stock at any time following the
Optional Redemption Notice but prior to the Optional Redemption
Date.
Mandatory Redemption Upon the Occurrence of a Change of
Control
In the
event of a transaction resulting in a Change of Control, we are
required to redeem (the “Change of Control
Redemption”), by irrevocable written notice to the holders,
all of the then issued and outstanding shares of the Series A
Convertible Preferred Stock held by the holders. Upon such Change
of Control Redemption, we will pay or deliver, as applicable, to
each holder in respect to each share of Series A Convertible
Preferred Stock held by the holder, an amount equal to $11.00 per
share of Series A Convertible Preferred Stock held by such holder
plus the aggregate amount of accrued but unpaid dividends from the
Dividend Payment Date immediately preceding the redemption date
through, but excluding, the redemption date (the “Change of
Control Redemption Price”). We will issue a press release for
publication on the Dow Jones & Company, Inc., Business Wire, PR
Newswire or Bloomberg Business News (or, if these organizations are
not in existence at the time of issuance of the press release, such
other news or press organization as is reasonably calculated to
broadly disseminate the relevant information to the public), in any
event prior to the opening of business on the first Business Day
following any date on which we provide the Change of Control Notice
described below to the holders of shares of Series A Convertible
Preferred Stock.
A
“Change of Control” is deemed to occur upon the
acquisition by any person, including any syndicate or group deemed
to be a “person” under Section 13(d)(3) of the Exchange
Act, of beneficial ownership, directly or indirectly, through a
purchase, merger or other acquisition transaction or series of
purchases, mergers or other acquisition transactions which were pre-approved by our board of
directors of our stock entitling that person to exercise
more than 50% of the total voting power of all our stock entitled
to vote generally in the election of our directors (except that
such person will be deemed to have beneficial ownership of all
securities that such person has the right to acquire, whether such
right is currently exercisable or is exercisable only upon the
occurrence of a subsequent condition); provided,
however, that (i) the vesting
of the aggregate of 8,750,000 shares of our common stock and/or
(ii) the issuance of an aggregate of 15,525,000 shares of our
common stock both pursuant to the terms and conditions of that
certain Agreement and Plan of Merger dated December 3, 2018 by and
among cbdMD, our wholly-owned subsidiaries and Cure Based
Development, LLC will not be deemed to be a Change of
Control. If, in connection with a transaction resulting
in a Change of Control, we or our successor shall not have
sufficient funds legally available under applicable North Carolina
law to redeem all outstanding shares of Series A Convertible
Preferred Stock, then we shall (a) redeem, pro rata among the
holders, a number of shares of Series A Convertible Preferred Stock
equal to the number of shares of Series A Convertible Preferred
Stock that can be redeemed with the maximum amount legally
available for the redemption of such shares of Series A Convertible
Preferred Stock under applicable North Carolina law, and (b) redeem
all remaining shares of Series A Convertible Preferred Stock not
redeemed because of the foregoing limitations at the applicable
Change of Control Redemption Price as soon as practicable after we
(or our successor) is able to make such redemption out of assets
legally available for the purchase of such share of Series A
Convertible Preferred Stock. Our inability (or that of our
successor) to make a redemption payment for any reason shall not
relieve us (or our successor) from our obligation to effect any
required redemption when, as and if permitted by applicable
law.
On or
prior to the 10th Business Day prior to the date on which we
anticipate consummating a transaction which would result in a
Change of Control, we shall send written notice (a “Change of
Control Notice”) to each holder of record of Series A
Convertible Preferred Stock at the address shown on our share
transfer books. The Change of Control Notice shall state (i) the
date on which the transaction that would result in a Change of
Control is anticipated to be effected, (ii) a description of the
material terms and conditions of such Change of Control
transaction, (iii) a statement that all shares of Series A
Convertible Preferred Stock shall be redeemed by us (or our
successor) on the date specified in such Change of Control Notice
(the “Change of Control Redemption Date”), which such
date must be a Business Day of our choosing that is no later than
the date of the consummation of the transaction resulting in such
Change of Control, (iv) the Change of Control Redemption Price with
respect to each share of Series A Convertible Preferred Stock, and
(v) the procedures that holders of shares of Series A Convertible
Preferred Stock must follow in order for their shares of Series A
Convertible Preferred Stock to be redeemed. Any Change of Control
Notice mailed or delivered will be conclusively presumed to have
been duly given, whether or not any applicable holder receives such
notice, but failure to duly give such notice by mail or delivery,
or any defect in such notice or in the mailing or delivery thereof,
to any holder of shares of Series A Convertible Preferred Stock to
be redeemed pursuant to a Change of Control will not affect the
validity of the proceedings for the redemption of any other
share(s) of Series A Convertible Preferred Stock to the extent that
such failure to duly give notice or any defect in such notice or
the mailing or delivery thereof (in each case, to the extent such
failure or defect is not promptly cured or corrected) does not
materially prejudice any such holder. For avoidance of doubt,
upon a
holder’s receipt of a Change of Control Notice until the
Trading Day ending three (3) Trading Days prior to the Change of
Control Redemption Date, holders of shares of Series A
Convertible Preferred Stock shall have the right to convert all or
a portion of the Series A Convertible Preferred Stock at the
Conversion Price.
Additional Redemption Procedures
At our
election, on or prior to the Optional Redemption Date or the Change
of Control Redemption Date (collectively, the “Redemption
Date”), as applicable, we may irrevocably deposit the
Optional Redemption Price or the Change of Control Redemption
Price, as applicable (collectively, the “Redemption
Price”) (including accrued and unpaid dividends) of the
Series A Convertible Preferred Stock so called for redemption in
trust for the holders thereof with a bank or trust company of its
choice, in which case the notice to holders of redemption of shares
of Series A Convertible Preferred Stock will (i) state the date of
such deposit, and (ii) specify the office of such bank or trust
company as the place of payment of the Redemption Price. Any
interest or other earnings earned on the Redemption Price
(including all accrued and unpaid dividends) deposited with a bank
or trust company will be paid to us. Any monies so deposited that
remain unclaimed by the holders of shares of Series A Convertible
Preferred Stock at the end of six months after the Redemption Date
will be returned to us by such bank or trust company. If we make
such a deposit, shares of Series A Convertible Preferred Stock
shall not be considered outstanding for purposes of voting or
determining shares entitled to vote on any matter on or after the
date of such deposit.
On or
after the date fixed for redemption, each holder of shares of
Series A Convertible Preferred Stock that holds a certificate other
than through the DTC book entry must present and surrender each
certificate representing his or her Series A Convertible Preferred
Stock to us at the place designated in the applicable notice and
thereupon the Redemption Price of such shares will be paid to or on
the order of the person whose name appears on such certificate
representing the Series A Convertible Preferred Stock as the owner
thereof.
If we
redeem any shares of Series A Convertible Preferred Stock and if
the Redemption Date occurs after a Dividend Record Date and on or
prior to the related Dividend Payment Date, the dividend payable on
such Dividend Payment Date with respect to such shares called for
redemption shall be payable on such Dividend Payment Date to the
holders of record at the close of business on such Dividend Record
Date, and shall not be payable as part of the Redemption Price for
such shares.
Voting Rights
Holders
of shares of Series A convertible Preferred Stock will not have any
voting rights other than those set forth below, except as
specifically required by North Carolina law or by our articles of
incorporation from time to time.
Right to Elect Two Directors Upon Nonpayment
Whenever
dividends on any shares of Series A Convertible Preferred Stock
have not been declared and paid for the equivalent of 12 or more
Dividend Periods, whether or not for consecutive Dividend Periods
(a “Nonpayment”), the authorized number of directors on
our board of directors shall, at the next annual meeting of
shareholders or at a special meeting of shareholders as provided
below, automatically be increased by two and holders of shares of
Series A Convertible Preferred Stock, voting together as a single
class, shall be entitled, at our next annual meeting of
shareholders or at a special meeting of shareholders as provided
below, to vote for the election of a total of two additional
members of the board of directors (the “Preferred Stock
Directors”); provided
that the election of any such Preferred Stock Directors will not
cause our company to violate the corporate governance requirements
of NYSE American (or any other exchange or automated quotation
system on which our securities may be listed or quoted) that
requires listed or quoted companies to have a majority of
independent directors; provided
further that such Preferred Stock Director shall not be
subject to any “Bad Actor” disqualifications described
in Rule 506(d)(1)(i) to (viii) under the Securities Act (a
“Disqualifying Event”), except for a Disqualifying
Event covered by Rule 506(d)(2) or (d)(3); provided further that the board of
directors shall, at no time, include more than two Preferred Stock
Directors.
In the
event of a Nonpayment, the holders of at least 25% of the shares of
Series A Convertible Preferred Stock may request that a special
meeting of shareholders be called to elect such Preferred Stock
Directors; provided,
however, to the extent permitted by our bylaws, if the next
annual or a special meeting of shareholders is scheduled to be held
within 90 days of the receipt of such request, the election of such
Preferred Stock Directors shall be included in the agenda for, and
shall be held at, such scheduled annual or special meeting of
shareholders. The Preferred Stock Directors shall stand for
reelection annually, at each subsequent annual meeting of the
shareholders, so long as the holders continue to have such voting
rights. At any meeting at which the holders are entitled to elect
Preferred Stock Directors, the holders of record of at least 33
1/3% of the then outstanding shares of Series A Convertible
Preferred Stock, present in person or represented by proxy, shall
constitute a quorum and the vote of the holders of record of a
majority of such shares of Series A Convertible Preferred Stock so
present or represented by proxy at any such meeting at which there
shall be a quorum shall be sufficient to elect the Preferred Stock
Directors.
If and
when all accumulated and unpaid dividends on Series A Convertible
Preferred Stock have been paid in full (a “Nonpayment
Remedy”), the holders shall immediately and, without any
further action by us, be divested of the voting rights described in
this section, subject to the revesting of such rights in the event
of each subsequent Nonpayment. If such voting rights for the
holders shall have terminated, the term of office of each Preferred
Stock Director so elected shall terminate at such time and the
authorized number of directors on the board of directors shall
automatically decrease by two.
Any
Preferred Stock Director may be removed at any time, with or
without cause, by the holders of a majority in voting power of the
outstanding shares of Series A Convertible Preferred Stock then
outstanding when they have the voting rights described in this
section. In the event that a Nonpayment shall have occurred and
there shall not have been a Nonpayment Remedy, any vacancy in the
office of a Preferred Stock Director (other than prior to the
initial election of Preferred Stock Directors after a Nonpayment)
may be filled by the written consent of the Preferred Stock
Director remaining in office, except in the event that such vacancy
is created as a result of such Preferred Stock Director being
removed or if no Preferred Stock Director remains in office, such
vacancy may be filled by a vote of the holders of a majority in
voting power of the outstanding shares of Series A Convertible
Preferred Stock then outstanding when they have the voting rights
described above; provided that the election of any such Preferred
Stock Directors to fill such vacancy will not cause our company to
violate the corporate governance requirements of NYSE American (or
any other exchange or automated quotation system on which our
securities may be listed or quoted) that requires listed or quoted
companies to have a majority of independent directors. The
Preferred Stock Directors shall each be entitled to one vote per
director on any matter that shall come before the Board of
Directors for a vote.
Other Voting Rights
So long
as any shares of Series A Convertible Preferred Stock are
outstanding, in addition to any other vote or consent of
shareholders required by law or by our articles of incorporation,
we shall not, without the affirmative vote or consent of the
holders of at least two-third (2/3) in voting power of the
outstanding shares of Series A Convertible Preferred Stock, voting
as a separate class, given in person or by proxy, either by vote at
an annual or special meeting of such shareholders or, if and to the
extent permitted by applicable North Carolina law and our articles
of incorporation, in writing:
(i) adopt
any amendment to our articles of incorporation or bylaws that would
materially affect the special rights, preferences, privileges or
voting powers of the Series A Convertible Preferred Stock, and if
all series of a class of preferred stock are not equally affected
by a proposed change to the existing terms of the Series A
Convertible Preferred Stock, the approval of the holders and the
approval of the holders of at least two-third (2/3) in voting power
of the series that will have a diminished status will be required
to authorize such change; or
(ii) create
a Senior Stock, although consent by the holders of the Series A
Convertible Preferred Stock will not be required for the creation
of a Senior Stock if the Series A Convertible Preferred
Stockholders received adequate notice of redemption to occur within
90 days; provided, however,
a vote of the holders of the Series A Convertible Preferred Stock
will be required if all or part of shares of Series A Convertible
Preferred Stock is being retired with proceeds from the sale of the
new issue;
provided, however, that so long as any shares of Series A
Convertible Preferred Stock are outstanding, in addition to any
other vote or consent of shareholders required by law or by our
articles of incorporation, we shall not, without the affirmative
vote or consent of the holders of at least a majority in voting
power of the outstanding shares of Series A Convertible Preferred
Stock, voting as a separate class, given in person or by proxy,
either by vote at an annual or special meeting of such shareholders
or, if and to the extent permitted by applicable North Carolina law
and our articles of incorporation, increase in the number of
authorized shares of Series A Convertible Preferred Stock, except
in connection with the Anti-Dilution Provisions or create an issue
of Parity Stock as to dividend rights and distribution rights upon
our liquidation, winding up or dissolution;
provided, further, however, that:
(A) any
increase in the amount of our authorized but unissued shares of
preferred stock,
(B) any
increase in the amount of our authorized or issued shares of Series
A Convertible Preferred Stock as a result of the Anti-Dilution
Provisions, and
(C) the
creation or issuance, or an increase in the authorized or issued
amount, of any other series of junior stock as to dividend rights
and distribution rights upon our liquidation, winding-up or
dissolution,
shall
be deemed not to adversely affect the special rights, preferences,
privileges or voting powers of the Series A Convertible Preferred
Stock and shall not require the affirmative vote or consent of
holders.
Amendments without Holder Consent
Without
the consent of the holders, so long as such action does not
adversely affect the special rights, preferences, privileges or
voting powers of the Series A Convertible Preferred Stock and
limitations and restrictions thereof, we may amend, alter,
supplement or repeal any terms of the Series A Convertible
Preferred Stock to:
(A) to
cure any ambiguity or mistake, or to correct or supplement any
provision contained in the Certificate of Designations, Rights and
Preferences of the Series A Convertible Preferred Stock that may be
defective or inconsistent with any other provision contained in the
Certificate of Designations, Rights and Preferences;
(B) to
make any provision with respect to matters or questions relating to
the Series A Convertible Preferred Stock that is not inconsistent
with the provisions of our articles of Incorporation or the
Certificate of Designations, Rights and Preferences;
or
(C) to
waive any of our rights with respect to the Series A Convertible
Preferred Stock.
Information Rights
During
any period in which we are not subject to Section 13 or 15(d) of
the Exchange Act and any shares of Series A Convertible Preferred
Stock are outstanding, we shall use our best efforts to (a)
transmit by mail to all holders of Series A Convertible Preferred
Stock, as their names and addresses appear in our record books and
without cost to such holders, copies of the annual reports and
quarterly reports that we would have been required to file with the
SEC pursuant to Section 13 or 15(d) of the Exchange Act if we were
subject to such sections (other than any exhibits that would have
been required) and (b) promptly upon written request, supply copies
of such reports to any prospective holder of Series A Convertible
Preferred Stock. We will mail the reports to the holders of Series
A Convertible Preferred Stock within 30 days after the respective
dates by which we would have been required to file the reports with
the SEC if we were then subject to Section 13 or 15(d) of the
Exchange Act, assuming we are a “non-accelerated filer”
in accordance with the Exchange Act.
Record Holders
We and
our transfer agent shall deem and treat the record holder of any
shares of Series A Convertible Preferred Stock as the true and
lawful owner thereof for all purposes, and neither our company nor
our transfer agent shall be affected by any notice to the
contrary.
Sinking Fund
The
Series A Convertible Preferred Stock shall not be entitled to the
benefits of any retirement or sinking fund.
Status of Acquired Shares
All
shares of Series A Convertible Preferred Stock redeemed or
converted, or otherwise acquired by us, will be cancelled and
restored to the status of authorized but unissued shares of
undesignated preferred stock.
Preemptive Rights
No
holders of the Series A Convertible Preferred Stock will, as
holders of Series A Convertible Preferred Stock, have any
preemptive rights to purchase or subscribe for our common stock or
any other security.
Book-Entry Procedures
The
Series A Convertible Preferred DTC will act as securities
depository for our outstanding Series A Convertible Preferred
Stock. With respect to the Series A Convertible Preferred Stock
offered hereunder, we will issue one or more fully registered
global securities certificates in the name of DTC’s nominee,
Cede & Co. These certificates will represent the total
aggregate number of shares of Series A Convertible Preferred Stock.
We will deposit these certificates with DTC or a custodian
appointed by DTC. We will not issue certificates to you for the
shares of Series A Convertible Preferred Stock that you purchase,
unless DTC’s services are discontinued as described
below.
Title
to book-entry interests in the Series A Convertible Preferred Stock
will pass by book-entry registration of the transfer within the
records of DTC in accordance with its procedures. Book-entry
interests in the securities may be transferred within DTC in
accordance with procedures established for these purposes by DTC.
Each person owning a beneficial interest in shares of the Series A
Convertible Preferred Stock must rely on the procedures of DTC and
the participant through which such person owns its interest to
exercise its rights as a holder of the Series A Convertible
Preferred Stock.
DTC has
advised us that it is a limited-purpose trust company organized
under the New York Banking Law, a member of the Federal Reserve
System, a “clearing corporation” within the meaning of
the New York Uniform Commercial Code and a “clearing
agency” registered under the provisions of Section 17A of the
Exchange Act. DTC holds securities that its participants
(“Direct Participants”) deposit with DTC. DTC also
facilitates the settlement among Direct Participants of securities
transactions, such as transfers and pledges in deposited securities
through electronic computerized book-entry changes in Direct
Participants’ accounts, thereby eliminating the need for
physical movement of securities certificates. Direct Participants
include securities brokers and dealers, banks, trust companies,
clearing corporations, and certain other organizations. Access to
the DTC system is also available to others such as securities
brokers and dealers, including the placement agent, banks and trust
companies that clear through or maintain a custodial relationship
with a Direct Participant, either directly or indirectly
(“Indirect Participants”). The rules applicable to DTC
and its Direct and Indirect Participants are on file with the
SEC.
When
you purchase shares of Series A Convertible Preferred Stock within
the DTC system, the purchase must be by or through a Direct
Participant. The Direct Participant will receive a credit for the
Series A Convertible Preferred Stock on DTC’s records. You
will be considered to be the “beneficial owner” of the
Series A Convertible Preferred Stock. Your beneficial ownership
interest will be recorded on the Direct and Indirect
Participants’ records, but DTC will have no knowledge of your
individual ownership. DTC’s records reflect only the identity
of the Direct Participants to whose accounts shares of Series A
Convertible Preferred Stock are credited.
You
will not receive written confirmation from DTC of your purchase.
The Direct or Indirect Participants through whom you purchased the
Series A Convertible Preferred Stock should send you written
confirmations providing details of your transactions, as well as
periodic statements of your holdings. The Direct and Indirect
Participants are responsible for keeping an accurate account of the
holdings of their customers like you.
Transfers
of ownership interests held through Direct and Indirect
Participants will be accomplished by entries on the books of Direct
and Indirect Participants acting on behalf of the beneficial
owners.
The
laws of some states may require that specified purchasers of
securities take physical delivery of shares of Series A Convertible
Preferred Stock in definitive form. These laws may impair the
ability to transfer beneficial interests in the global certificates
representing the Series A Convertible Preferred Stock.
Conveyance
of notices and other communications by DTC to Direct Participants,
by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to beneficial owners will be
governed by arrangements among them, subject to any statutory or
regulatory requirements as may be in effect from time to
time.
We
understand that, under DTC’s existing practices, in the event
that we request any action of the holders, or an owner of a
beneficial interest in a global security, such as you, desires to
take any action that a holder is entitled to take under our amended
and restated certificate of incorporation (including the
certificate of designations designating the Series A Convertible
Preferred Stock), DTC would authorize the Direct Participants
holding the relevant shares to take such action, and those Direct
Participants and any Indirect Participants would authorize
beneficial owners owning through those Direct and Indirect
Participants to take such action or would otherwise act upon the
instructions of beneficial owners owning through them.
Any
optional conversion, Market Trigger or redemption notices with
respect to the Series A Convertible Preferred Stock will be sent to
Cede & Co. If less than all of the outstanding shares of Series
A Convertible Preferred Stock are being converted or redeemed, DTC
will reduce each Direct Participant’s holdings of shares of
Series A Convertible Preferred Stock in accordance with its
procedures.
In
those instances where a vote is required, neither DTC nor Cede
& Co. itself will consent or vote with respect to the shares of
Series A Convertible Preferred Stock. Under its usual procedures,
DTC would mail an omnibus proxy to us as soon as possible after the
record date. The omnibus proxy assigns Cede & Co.’s
consenting or voting rights to those Direct Participants whose
accounts the shares of Series A Convertible Preferred Stock are
credited to on the record date, which are identified in a listing
attached to the omnibus proxy.
Dividends
on the Series A Convertible Preferred Stock are made directly to
DTC (or its successor, if applicable). DTC’s practice is to
credit participants’ accounts on the relevant payment date in
accordance with their respective holdings shown on DTC’s
records unless DTC has reason to believe that it will not receive
payment on that payment date.
Payments
by Direct and Indirect Participants to beneficial owners will be
governed by standing instructions and customary practices, as is
the case with securities held for the accounts of customers in
bearer form or registered in “street name.” These
payments will be the responsibility of the participant and not of
DTC, us or any agent of ours.
DTC may
discontinue providing its services as securities depositary with
respect to the Series A Convertible Preferred Stock at any time by
giving reasonable notice to us. Additionally, we may decide to
discontinue the book-entry only system of transfers with respect to
the Series A Convertible Preferred Stock. In that event, we will
print and deliver certificates in fully registered form for the
Series A Convertible Preferred Stock. If DTC notifies us that it is
unwilling to continue as securities depositary, or it is unable to
continue or ceases to be a clearing agency registered under the
Exchange Act and a successor depositary is not appointed by us
within 90 days after receiving such notice or becoming aware that
DTC is no longer so registered, we will issue the Series A
Convertible Preferred Stock in definitive form, at our expense,
upon registration of transfer of, or in exchange for, such global
security.
According
to DTC, the foregoing information with respect to DTC has been
provided to the financial community for informational purposes only
and is not intended to serve as a representation, warranty or
contract modification of any kind.
Global Clearance and Settlement Procedures
Initial
settlement for the Series A Convertible Preferred Stock will be
made in immediately available funds. Secondary market trading among
DTC’s participants occurs in the ordinary way in accordance
with DTC’s rules and will be settled in immediately available
funds using DTC’s Same-Day Funds Settlement
System.
Direct Registration System
The
Series A Convertible Preferred Stock will be registered in
book-entry form through the Direct Registration System (the
“DRS”). The DRS is a system administered by DTC
pursuant to which the depositary may register the ownership of
uncertificated shares, which ownership shall be evidenced by
periodic statements issued by the depositary to the holders of
shares of Series A Convertible Preferred Stock entitled thereto.
This direct registration form of ownership allows investors to have
securities registered in their names without requiring the issuance
of a physical stock certificate, eliminates the need for you to
safeguard and store certificates and permits the electronic
transfer of securities to effect transactions without transferring
physical certificates.
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The
following is a summary of certain U.S. federal income tax
considerations relevant to the purchase, ownership, disposition and
conversion of the Series A Convertible Preferred Stock and the
ownership and disposition of our common stock received upon
conversion of the Series A Convertible Preferred Stock. The
following summary is based upon the provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), Treasury Regulations
and judicial and administrative authority, all of which are subject
to change, possibly with retroactive effect, or to different
interpretations. We have not sought any ruling from the Internal
Revenue Service (the "IRS") or opinion of counsel with respect to
the statements made and conclusions reached in this summary, and
there can be no assurance that the IRS or a court will agree with
these summary statements and conclusions.
This
summary does not address all aspects of U.S. federal income
taxation that may be relevant to an investor's decision to purchase
shares of Series A Convertible Preferred Stock, nor any tax
consequences arising under U.S. federal estate or gift tax laws or
under the laws of any state, locality or foreign jurisdiction. This
summary also does not address the Medicare tax on certain
investment income or the tax consequences that may be applicable to
special classes of investors including, but not limited to,
tax-exempt organizations, qualified foreign pension funds,
insurance companies, banks or other financial institutions,
partnerships or other pass-through entities or holders of interests
therein, dealers in securities or currency, persons liable for the
alternative minimum tax, U.S. expatriates and former long-term U.S.
residents, traders in securities that elect to use a mark-to-market
method of accounting for their securities holdings, regulated
investment companies, real estate investment trusts, "controlled
foreign corporations," "passive foreign investment companies,"
common trust funds, certain trusts, hybrid entities, U.S. holders
whose "functional currency" is not the U.S. dollar, foreign
governments or international organizations and persons that will
hold our Series A Convertible Preferred Stock or common stock as a
position in a "straddle", "conversion transaction" or other risk
reduction transaction.
This
summary is limited to taxpayers who will hold our Series A
Convertible Preferred Stock and our common stock received upon
conversion of our Series A Convertible Preferred Stock as "capital
assets" (generally, property held for investment). We cannot assure
you that a change in the law will not significantly alter the tax
consequences that we describe in this discussion.
If a
partnership (including an entity or arrangement treated as a
partnership for U.S. federal income tax purposes) holds our Series
A Convertible Preferred Stock or common stock, the tax treatment of
a partner in the partnership will generally depend upon the status
of the partner and upon the activities of the partnership.
Accordingly, we urge partnerships (including entities and
arrangements treated as partnerships for U.S. federal income tax
purposes) that hold our Series A Convertible Preferred Stock and
partners in such partnerships to consult their tax
advisors.
Tax
reform legislation informally known as the Tax Cuts and Jobs Act
(the “Tax Act”) was enacted in the United States on
December 22, 2017. The Tax Act makes major changes to the Code,
including a number of provisions that may affect the taxation of
holders. The individual and collective impact of these changes is
uncertain, and may not become evidence for some period of time.
Legislative, regulatory, or administrative changes could be enacted
or promulgated at any time, either prospectively or with
retroactive effect, and may adversely affect the Fund the Company
and/or its shareholders. We
urge each prospective investor to consult with its own tax adviser
as to the U.S. federal, state, local, foreign and any other tax
consequences, including the implications of the Tax Act, of the
purchase, ownership, conversion and disposition of our Series A
Convertible Preferred Stock and of the ownership and disposition of
our common stock.
Consequences to U.S. holders of Series A Convertible Preferred
Stock or common stock
The
discussion in this section is addressed to a holder of our Series A
Convertible Preferred Stock and common stock received in respect
thereof that is a U.S. holder for U.S. federal income tax purposes.
You are a "U.S. holder" if you are a beneficial owner of Series A
Convertible Preferred Stock or common stock and you are, for U.S.
federal income tax purposes:
●
An individual
citizen or resident of the United States, including an alien
individual who is a lawful permanent resident of the United States
or who meets the "substantial presence" test under Section 7701(b)
of the Code;
●
a corporation, or
other entity taxable as a corporation for U.S. federal income tax
purposes, that was created or organized in or under the laws of the
United States, any state thereof or the District of
Columbia;
●
an estate whose
income is subject to U.S. federal income tax regardless of its
source; or
●
a trust (i) whose
administration is subject to the primary supervision of a U.S.
court and which has one or more U.S. persons who have the authority
to control all substantial decisions of the trust or (ii) which has
made a valid election to be treated as a U.S. person.
Distributions in General. Distributions with respect to our
Series A Convertible Preferred Stock and our common stock (other
than certain stock distributions with respect to our common stock)
will be treated as dividends to the extent of our current or
accumulated earnings and profits, as determined under the Code. To
the extent that the amount of distributions with respect to our
Series A Convertible Preferred Stock or common stock exceeds our
current and accumulated earnings and profits, such excess will be
treated first as a tax-free return of capital to the extent of the
U.S. holder's adjusted tax basis in such Series A Convertible
Preferred Stock or common stock, as the case may be, on a
share-by-share basis, and thereafter as capital gain. Such gain
will be long-term capital gain provided that the U.S. holder has
held such Series A Convertible Preferred Stock or common stock, as
the case may be, for more than one year as of the time of the
distribution. For a discussion of a U.S. holder's tax basis and
holding period in respect of our common stock received with respect
to our Series A Convertible Preferred Stock, see below under
"Common Stock Distributions on the Series A Convertible Preferred
Stock" and "Conversion of Series A Convertible Preferred Stock into
Common Stock."
Subject
to certain exceptions for short-term and hedged positions and
dividends that a holder elects to treat as "investment income,"
distributions constituting dividend income received by
non-corporate U.S. holders in respect of our Series A Convertible
Preferred Stock or common stock will be subject to a reduced U.S.
federal income tax rate if such dividends are treated as "qualified
dividend income" for U.S. federal income tax purposes. If a
dividend received by a non-corporate U.S. holder that qualifies for
the rate reduction is an "extraordinary dividend" within the
meaning of Section 1059 of the Code, such non-corporate U.S. holder
would be required to treat any losses on the sale of Series A
Convertible Preferred Stock as long-term capital loss to the extent
of such "extraordinary dividend," irrespective of such holder's
holding period for the stock.
Subject
to similar exceptions for short-term and hedged positions,
distributions on our Series A Convertible Preferred Stock and
common stock constituting dividend income paid to U.S. holders that
are U.S. corporations are subject to tax at ordinary corporate
rates, but will qualify for the dividends received deduction.
However, any distribution (or the portion of any distribution) that
exceeds our current and accumulated earnings and profits will not
be eligible for the dividends received deduction. A U.S. holder
should consult its own tax adviser regarding the availability of
the reduced U.S. federal income tax rate applicable to "qualified
dividend income" or the dividends received deduction, as
applicable, in the light of its particular
circumstances.
Investors
that are U.S. corporations that receive an "extraordinary dividend"
within the meaning of Section 1059 of the Code in respect of our
Series A Convertible Preferred Stock or common stock generally
would be required to reduce their basis in our Series A Convertible
Preferred Stock or common stock (but not below zero) by the portion
of the dividend that is not taxed because of the dividends received
deduction. To the extent the non-taxed portion of such dividend
exceeds the corporate investor's stock basis, such investor must
treat such excess as gain from the sale or exchange of our Series A
Convertible Preferred Stock or common stock for the taxable year in
which such dividend is received.
Common Stock Distributions on the Series A Convertible Preferred
Stock. If the Company pays a distribution on the Series A
Convertible Preferred Stock in the form of common stock, such
distribution will be taxable for U.S. federal income tax purposes
in the same manner as distributions described above under
"Distributions in General." The amount of such distribution will
equal the fair market value on the distribution date of the common
stock distributed to a U.S. holder on that date. A U.S. holder's
tax basis in such common stock will equal the fair market value of
such common stock on the distribution date, and such U.S. holder's
holding period for such common stock will begin on the day
following the distribution date.
Sale or Other Disposition. A U.S. holder will generally
recognize capital gain or loss on a sale or exchange of our Series
A Convertible Preferred Stock (other than pursuant to a conversion
into common stock or pursuant to a redemption) or common stock
equal to the difference between the amount realized upon the sale
or exchange (not including any proceeds attributable to any
dividends in arrears, which generally will be taxable as described
above under "Distributions in General") and the U.S. holder's
adjusted tax basis in the shares sold or exchanged. Such capital
gain or loss will be long-term capital gain or loss if the U.S.
holder's holding period for the shares sold or exchanged is more
than one year. Long-term capital gains of non-corporate taxpayers
generally are subject to a reduced rate of taxation. The
deductibility of capital losses is subject to
limitations.
Conversion of Series A Convertible Preferred Stock into Common
Stock. As a general rule, a U.S. holder will not recognize
any gain or loss in respect of the receipt of common stock upon the
conversion of our Series A Convertible Preferred Stock into common
stock. Cash received in lieu of a fractional share of common stock
will generally be treated as a payment in a taxable exchange for
such fractional share, and gain or loss will be recognized on the
receipt of cash in an amount equal to the difference between the
amount of cash received and the amount of adjusted tax basis in the
stock that is allocable to the fractional share.
The
adjusted tax basis of common stock received on conversion will
equal the adjusted tax basis of the Series A Convertible Preferred
Stock converted (reduced by the portion of adjusted tax basis
allocated to any fractional shares of common stock exchanged for
cash, as described above), and the holding period of such common
stock received on conversion will generally include the period
during which the Series A Convertible Preferred Stock was held by
the U.S. holder prior to conversion. A U.S. holder's tax basis in a
fractional share will be determined by allocating such holder's tax
basis in the Series A Convertible Preferred Stock between the
common stock such U.S. holder receives upon conversion and the
fractional share in accordance with their respective fair market
values.
If a
U.S. holder exercises its right to convert the Series A Convertible
Preferred Stock into shares of common stock after a regular record
date but before the Dividend Payment Date, then upon conversion,
the U.S. holder generally will be required to pay to us in cash an
amount equal to the portion of such dividend attributable to the
current monthly dividend period. In this case, the U.S. holder will
be entitled to receive the dividend payment on the corresponding
Dividend Payment Date. A U.S. holder should consult its own tax
adviser with respect to the treatment of such cash payment and the
subsequent receipt of such dividend payment.
Adjustment of Conversion Price. The conversion price of the
Series A Convertible Preferred Stock is subject to adjustment under
certain circumstances pursuant to the Anti-Dilution Provisions.
Treasury Regulations promulgated under Section 305 of the Code
would treat a U.S. holder of our Series A Convertible Preferred
Stock as having received a constructive distribution includable in
such U.S. holder's income in the manner described under
"Distributions in General," above, if and to the extent that
certain adjustments (or failures to make adjustments) in the
conversion price increase the proportionate interest of the U.S.
holder in our assets or earnings and profits. For example, a
decrease in the conversion price to reflect a taxable dividend to
holders of common stock will generally give rise to a deemed
taxable dividend to the holders of Series A Convertible Preferred
Stock to the extent of an allocable portion of our current and
accumulated earnings and profits. Thus, under certain
circumstances, U.S. holders may recognize income in the event of a
constructive distribution even though they may not receive any cash
or property. Adjustments to the conversion price made pursuant to a
bona fide reasonable adjustment formula that has the effect of
preventing dilution in the interest of the U.S. holders of the
Series A Convertible Preferred Stock (other than an adjustment in
respect of a taxable dividend on the common stock), however,
generally will not be considered to result in a constructive
dividend distribution.
Redemption of Series A Convertible Preferred Stock. If we
redeem our Series A Convertible Preferred Stock solely in exchange
for common stock, the tax consequences to a U.S. holder would be as
described above under "—Conversion of Series A Convertible
Preferred Stock into common stock" (except that any common stock
received in respect of dividends in arrears generally will be
taxable as described above under "Distributions in
General").
If we
redeem our Series A Convertible Preferred Stock solely in exchange
for cash, the redemption would be treated as a sale or exchange if
the redemption (i) results in a meaningful reduction in the U.S.
holder's interest in us or (ii) results in a complete termination
of the U.S. holder's entire equity interest in us (in either case,
within the meaning of Section 302(b) of the Code). If the
redemption qualifies as a sale under one of these rules, the tax
consequences to a U.S. holder would be as described above under
"Sale or other disposition." If the redemption does not qualify as
a sale for tax purposes under the rules described above, the amount
of cash received by a U.S. holder would be treated as described
above under "Distributions in General."
If we
redeem our Series A Convertible Preferred Stock in exchange for a
combination of cash and common stock, a U.S. holder could not
recognize a loss but would recognize gain equal to the lesser of
(i) the excess of the sum of the fair market value of the common
stock and the amount of cash received (not including any proceeds
attributable to any dividends in arrears, which generally will be
taxable as described above under "Distributions in General") over
the U.S. holder's adjusted tax basis in the Series A Convertible
Preferred Stock redeemed, and (ii) the amount of cash received by
the U.S. holder (not including any proceeds attributable to any
dividends in arrears, which generally will be taxable as described
above under "Distributions in General"). The character of such gain
is uncertain. If the redemption results in a meaningful reduction
in the U.S. holder's interest in us (within the meaning of Section
302(b) of the Code), then the gain would be capital gain that is
taxed as described above under "—Sale or other disposition."
If the redemption does not qualify as a sale for tax purposes under
one of these rules, the gain recognized by you would be treated as
described above under "Distributions in General." The initial
adjusted tax basis of common stock received by a U.S. holder upon
redemption will be equal to the U.S. holder's aggregate adjusted
tax basis in the Series A Convertible Preferred Stock redeemed,
reduced by the amount of any cash received (other than cash
attributable to accrued but unpaid dividends), and increased by the
amount of gain, if any, recognized. The holding period for the
shares of common stock received by the U.S. holder upon redemption
of the Series A Convertible Preferred Stock generally will include
the U.S. holder's holding period in the Series A Convertible
Preferred Stock redeemed, except that the holding period of any
common stock received with respect to dividends in arrears will
commence on the day after the date of receipt.
Information Reporting and Backup Withholding. Certain U.S.
holders will be subject to information reporting with respect to
distributions on our Series A Convertible Preferred Stock or common
stock and the payment of proceeds on the sale or other disposition
of our Series A Convertible Preferred Stock or common stock, and
backup withholding may apply unless the U.S. holder provides proof
of an applicable exemption or a correct taxpayer identification
number, and otherwise complies with applicable requirements of the
backup withholding rules.
Any
amount withheld under the backup withholding rules from a payment
to a U.S. holder is allowable as a credit against such holder's
U.S. federal income tax liability, which may entitle the U.S.
holder to a refund if the amount of taxes withheld exceed the U.S.
holder's actual tax liability, provided that the U.S. holder timely
provides the required information to the IRS. U.S. holders are
urged to consult their own tax advisers regarding the application
of backup withholding in their particular circumstances and the
availability of and procedure for obtaining an exemption from
backup withholding under current Treasury Regulations.
Consequences to non-U.S. holders of Series A Convertible Preferred
Stock or common stock
The
discussion in this section is addressed to a holder of our Series A
Convertible Preferred Stock and common stock received in respect
thereof that is a non-U.S. holder. You are a "non-U.S. holder" if
you are a beneficial owner of Series A Convertible Preferred Stock
or common stock received in respect thereof and you are not a U.S.
holder.
Distributions. Generally, distributions (including any
constructive distributions taxable as dividends as described below
and any cash paid upon a conversion that is treated as a dividend)
treated as dividend income and paid to a non-U.S. holder with
respect to our Series A Convertible Preferred Stock or our common
stock will be subject to a 30% U.S. withholding tax, or such lower
rate as may be specified by an applicable tax treaty. Any dividends
paid on our Series A Convertible Preferred Stock in shares of our
common stock and taxed as dividend income as described above under
"Consequences to U.S. holders of Series A Convertible Preferred
Stock or common stock—common stock distributions on the
Series A Convertible Preferred Stock" will be subject to
withholding tax in the same manner as described in the previous
sentence. Any required withholding tax might be satisfied by the
withholding agent through a sale of a portion of the shares you
receive as a dividend or might be withheld from cash dividends or
sales proceeds subsequently paid or credited to you. To receive the
benefit of a reduced treaty rate, a non-U.S. holder must provide
the applicable withholding agent with an IRS Form W-8BEN, IRS Form
W-8BEN-E, or other appropriate version of IRS Form W-8 certifying
qualification for the reduced rate. Special certification and other
requirements apply to certain non-U.S. holders that are
pass-through entities rather than corporations or
individuals.
Dividends
that are effectively connected with a trade or business carried on
by a non-U.S. holder within the United States, and, to the extent
an applicable tax treaty provides, attributable to a permanent
establishment maintained by the non-U.S. holder in the United
States, will generally be subject to U.S. federal income tax on a
net basis at the individual or corporate rates generally applicable
to U.S. holders, but will not be subject to U.S. withholding tax if
certain certification requirements are satisfied. You can generally
meet the certification requirements by providing a properly
executed IRS Form W-8ECI or appropriate substitute form to the
applicable withholding agent. A non-U.S. holder that is a
corporation may also be subject to a "branch profits tax" at a 30%
rate (or such lower rate as may be specified by an applicable tax
treaty) on its "effectively connected earnings and profits,"
subject to certain adjustments, which will include effectively
connected dividends.
A
non-U.S. holder of our common stock may obtain a refund of any
excess amounts withheld under these rules if the non-U.S. holder is
eligible for a reduced rate of United States withholding tax and an
appropriate claim for refund is timely filed with the
IRS.
Sale or Other Disposition. Subject to the discussion under
"Information reporting and backup withholding" and "FATCA," a
non-U.S. holder generally will not be subject to U.S. federal
income or withholding tax on any gain realized on the sale,
exchange or other taxable disposition (other than a redemption) of
our Series A Convertible Preferred Stock or our common stock
unless:
●
the gain is
effectively connected with a trade or business conducted by the
non-U.S. holder in the United States and, if required by an
applicable tax treaty, is attributable to a permanent establishment
or fixed base maintained by such non-U.S. holder in the United
States);
●
the non-U.S. holder
is an individual who is present in the United States for a period
or periods aggregating 183 days or more during the calendar year in
which the sale or disposition occurs and certain other conditions
are met; or
●
our common stock
constitutes a "United States real property interest" by reason of
our status as a "United States real property holding corporation"
("USRPHC") for U.S. federal income tax purposes at any time during
the five-year period ending on the date of such disposition or, if
shorter, the non-U.S. holder's holding period for its shares of
common stock or Series A Convertible Preferred Stock, as
applicable, and one of the circumstances below applies to
you.
A
non-U.S. holder whose gain is described in the first bullet point
above will be subject to U.S. federal income tax on the gain
derived from the sale in the same manner as a U.S. person, unless
an applicable tax treaty provides otherwise. If such non-U.S.
holder is a foreign corporation, it may also be subject to a branch
profits tax (at a 30% rate or such lower rate as specified by an
applicable tax treaty) on its effectively connected earnings and
profits attributable to such gain, as adjusted for certain items. A
non-U.S. holder described in the second bullet point above will be
subject to a 30% U.S. federal income tax (or such lower rate as may
be specified by an applicable tax treaty) on the gain derived from
the sale, which may be offset by certain U.S.-source capital
losses.
With
respect to the third bullet point above, we are, and expect to
continue to be for the foreseeable future, a USRPHC (and the
remainder of this discussion assumes we are and will be a USRPHC).
Our common stock is currently listed on the NYSE American and we
believe that, for as long as we continue to be so listed, our
common stock will be treated as regularly traded on an established
securities market. If we are a USRPHC, and if our common stock
continues to be regularly traded on an established securities
market:
●
with respect to a
disposition of our common stock, if you have owned, or are deemed
to have owned, at any time within the shorter of the five-year
period preceding the disposition of our common stock or your
holding period for your common stock, more than 5% of our common
stock, you generally would be subject to U.S. federal income tax on
any gain from the disposition;
●
with respect to a
disposition of Series A Convertible Preferred Stock, if (as
expected) the Series A Convertible Preferred Stock is not regularly
traded on an established securities market at the time of the
disposition and, on the date you acquired the Series A Convertible
Preferred Stock, it had a fair market value greater than 5% of the
fair market value of our common stock outstanding, you generally
would be subject to U.S. federal income tax on the gain from the
disposition and the transferee of the Series A Convertible
Preferred Stock generally would be required to withhold 15% of the
gross proceeds payable to you. For this purpose, if you
subsequently acquire additional Series A Convertible Preferred
Stock, then such Series A Convertible Preferred Stock would be
aggregated and valued as of the date of the subsequent acquisition
in order to apply the 5% limitation.
If the
gain from any disposition is subject to tax as described above, it
will be taxed as if you were a U.S. holder and you would be
required to file a U.S. tax return with respect to such
gain.
If,
during the calendar year in which the relevant sale, exchange or
other taxable disposition occurs, we are a USRPHC and our common
stock were not considered to be regularly traded on an established
securities market, all non-U.S. holders generally would be subject
to U.S. federal income tax on any gain from the disposition of the
Series A Convertible Preferred Stock or our common stock
(regardless of the amount of Series A Convertible Preferred Stock
or our common stock owned), and transferees of the Series A
Convertible Preferred Stock or our common stock would generally be
required to withhold 15% of the gross proceeds payable to the
non-U.S. holder. The gain from the disposition would be subject to
regular U.S. income tax as if the non-U.S. holder were a U.S.
holder, and the non-U.S. holder would be required to file a U.S.
tax return with respect to such gain.
Non-U.S.
holders that may be treated as actually or constructively owning
more than 5% of our Series A Convertible Preferred Stock or common
stock should consult their own tax advisers with respect to the
U.S. federal income tax consequences of the ownership and
disposition of Series A Convertible Preferred Stock or common
stock.
Conversion of Series A Convertible Preferred Stock into Common
Stock. You generally will not recognize any gain or loss by
reason of receiving common stock upon conversion of the Series A
Convertible Preferred Stock, except gain or loss will be recognized
with respect to any cash received in lieu of fractional shares,
which may be subject to U.S. federal income tax, as discussed above
in "Sale or other disposition."
Notwithstanding
these general rules, if a non-U.S. holder is subject to tax under
the special rules governing USRPHCs as described above under "Sale
or other disposition" with respect to its Series A Convertible
Preferred Stock but not the common stock into which the Series A
Convertible Preferred Stock is convertible, then the conversion of
the Series A Convertible Preferred Stock into common stock would be
a taxable event and such non-U.S. holder would be subject to U.S.
tax in the same manner as described in "Sale or other disposition."
This situation could arise, for example, if the Series A
Convertible Preferred Stock were "regularly traded" and a non-U.S.
holder owned more than 5% of Series A Convertible Preferred Stock
that was convertible into less than 5% of the common stock. If, as
to a non-U.S. holder, both the Series A Convertible Preferred Stock
and the common stock into which the Series A Convertible Preferred
Stock is convertible are subject to the special rules governing
USRPHCs described above, then, although the conversion of the
Series A Convertible Preferred Stock solely into the common stock
generally would not be taxable, the non-U.S. holder may be required
to file a U.S. federal income tax return for the taxable year of
the conversion and satisfy certain procedural requirements in
accordance with the applicable Treasury Regulations.
Non-U.S.
holders that may be subject to the special rules governing USRPHCs
should consult their own tax advisers with respect to the U.S.
federal income tax consequences of the conversion of their Series A
Convertible Preferred Stock into common stock, including any filing
requirements that may be applicable.
Adjustment of Conversion Price. As described above under
"Consequences to U.S. Holders of Series A Convertible Preferred
Stock or common stock—Adjustment of Conversion Price,"
adjustments in the conversion price (or failures to adjust the
conversion price) that result in an increase in the proportionate
interest of a non-U.S. holder in our assets or earnings and profits
could result in deemed distributions to the non-U.S. holder that
are taxed as described under "Distributions." It is possible that
any withholding tax on such a deemed distribution might be
satisfied by the withholding agent through a sale of a portion of
the shares you receive as a dividend or might be withheld from cash
dividends, shares of our common stock or sale proceeds subsequently
paid or credited to you.
Redemption of Series A Convertible Preferred Stock. If we
redeem our Series A Convertible Preferred Stock solely in exchange
for common stock, the tax consequences to a non-U.S. holder would
be as described above under "Conversion of Series A Convertible
Preferred Stock into common stock" (except that any common stock
received in respect of dividends in arrears generally will be
taxable as described above under "Distributions").
If we
redeem our Series A Convertible Preferred Stock solely in exchange
for cash, the redemption would be treated as a sale or exchange if
the redemption results in a meaningful reduction in the non-U.S.
holder's interest in us, or results in a complete termination of
the non-U.S. holder's entire equity interest in us (in each case,
within the meaning of Section 302(b) of the Code). If the
redemption qualifies as a sale under one of these rules, the tax
consequences to a non-U.S. holder would be as described above under
"Sale or other disposition." If the redemption does not qualify as
a sale for tax purposes under the rules described above, the amount
of cash received by a non-U.S. holder would be treated as described
above under "Distributions."
If we
redeem our Series A Convertible Preferred Stock in exchange for a
combination of cash and common stock, a non-U.S. holder would
recognize gain (but not loss) equal to the lesser of (i) the excess
of the sum of the fair market value of the common stock and the
amount of cash received (not including any proceeds attributable to
any dividends in arrears, which generally will be taxable as
described above under "Distributions") over the non-U.S. holder's
adjusted tax basis in the Series A Convertible Preferred Stock
redeemed, and (ii) the amount of cash received by the non-U.S.
holder (not including any proceeds attributable to any dividends in
arrears, which generally will be taxable as described above under
"Distributions"), provided, however, that the amount of gain
required to be recognized by a non-U.S. holder that is subject to
tax under the special rules governing USRPHCs may be greater than
described above.
The tax
treatment of any such gain to non-U.S. holders is uncertain. If the
redemption results in a meaningful reduction in the non-U.S.
holder's interest in us (in either case, within the meaning of
Section 302(b) of the Code), then the gain generally would be taxed
only as described above under "Sale or other disposition." If the
redemption does not qualify as a sale for tax purposes under one of
these rules, the gain generally would be treated as described above
under "Distributions." Because the characterization of a redemption
of the Series A Convertible Preferred Stock in exchange for common
stock is uncertain and is determined on a holder-by-holder basis,
it is possible that a withholding agent would withhold on the cash
proceeds received.
Non-U.S.
holders that are subject to tax under the special rules governing
USRPHCs should consult their own tax advisers with respect to the
U.S. federal income tax consequences of a redemption of their
Series A Convertible Preferred Stock, including any filing
requirements that may be applicable.
Information Reporting and Backup Withholding. Payment of
dividends (including constructive dividends), and the tax withheld
with respect thereto, is subject to information reporting
requirements. These information reporting requirements apply
regardless of whether withholding was reduced or eliminated by an
applicable tax treaty or withholding was not required because the
dividends were effectively connected with a trade or business in
the United States conducted by the non-U.S. holder. Copies of the
information returns reporting such dividends and withholding may
also be made available under the provisions of an applicable tax
treaty or agreement with the tax authorities in the country in
which the non-U.S. holder resides. U.S. backup withholding will
generally apply to the payment of dividends to non-U.S. holders
unless such non-U.S. holders furnish to the payor a Form W-8BEN or
Form W-8BEN-E (or other applicable form) or otherwise establish an
exemption.
Payment
by a U.S. office of a broker of the proceeds of a sale of our
Series A Convertible Preferred Stock or common stock is subject to
both backup withholding and information reporting unless the
non-U.S. holder, or beneficial owner thereof, as applicable,
certifies that it is a non-U.S. holder on Form W-8BEN or Form
W-8BEN-E (or other suitable substitute or successor form), or
otherwise establishes an exemption. Subject to certain exceptions,
backup withholding and information reporting generally will not
apply to a payment of proceeds from the sale of our Series A
Convertible Preferred Stock or common stock if such sale is
effected through a foreign office of a broker, provided that the
broker does not have certain U.S. connections.
Any
amount withheld under the backup withholding rules from a payment
to a non-U.S. holder is allowable as a credit against such holder's
U.S. federal income tax liability (if any), which may entitle the
holder to a refund if in excess of such liability, provided that
the holder timely provides the required information to the IRS.
Non-U.S. holders are urged to consult their own tax advisers
regarding the application of backup withholding in their particular
circumstances and the availability of and procedure for obtaining
an exemption from backup withholding under current Treasury
Regulations.
FATCA. Sections 1471 to 1474 of the Code (such sections, and
the Treasury Regulations and administrative guidance issued
thereunder, commonly referred to as “FATCA”) impose a
30% U.S. withholding tax on certain "withholdable payments" made to
a "foreign financial institution" or a "non-financial foreign
entity." "Withholdable payments" include payments of dividends and
the gross proceeds from a disposition of certain property (such as
the Series A Convertible Preferred Stock or our common stock), if
such disposition occurs after December 31, 2018. In general, if a
holder is a "foreign financial institution" (which includes
investment entities such as hedge funds and private equity funds),
the 30% withholding tax will apply to withholdable payments made to
such holder, unless such holder enter into an agreement with the
U.S. Department of Treasury to collect and provide substantial
information regarding its U.S. account holders, including certain
account holders that are foreign entities with U.S. owners, and to
withhold 30% on certain "passthru payments." If such holder is a
"non-financial foreign entity," FATCA also generally will impose a
withholding tax of 30% on withholdable payments made to such holder
unless the holder provide the withholding agent with a
certification that it does not have any "substantial United States
owners" or a certification identifying its direct and indirect
substantial United States owners. Intergovernmental agreements
between the United States and a holder's resident country may
modify some of the foregoing requirements.
Non-U.S.
holders should consult their own tax advisers with respect to the
U.S. federal income tax consequences of FATCA on their ownership
and disposition of Series A Convertible Preferred Stock and common
stock.
UNDERWRITING
ThinkEquity,
a division of Fordham Financial Management, Inc., is acting as the
representative of the underwriters of this offering, which we refer
to as the Representative or ThinkEquity. We have entered into an
underwriting agreement dated October ___, 2019 with
the Representative. Subject to the terms and conditions of the
underwriting agreement, we have agreed to sell to each underwriter
named below and each underwriter named below has severally and not
jointly agreed to purchase from us, at the public offering price
per share less the underwriting discounts set forth on the cover
page of this prospectus supplement, the number of shares of Series
A Convertible Preferred Stock listed next to its name in the
following table:
Underwriters
|
|
ThinkEquity, a
division of Fordham Financial Management, Inc.
|
|
The Benchmark
Company LLC
|
|
Total
|
|
All of
the shares of Series A Convertible Preferred Stock to be purchased
by the underwriters will be purchased from us.
The
underwriting agreement provides that the obligations of the
underwriters to pay for and accept delivery of the shares of Series
A Convertible Preferred Stock offered by this prospectus supplement
are subject to various conditions and representations and
warranties, including the approval of certain legal matters by
their counsel and other conditions specified in the underwriting
agreement. The shares of Series A Convertible Preferred Stock are
offered by the underwriters, subject to prior sale, when, as and if
issued to and accepted by them. The underwriters reserve the right
to withdraw, cancel or modify the offer to the public and to reject
orders in whole or in part. The underwriters are obligated to take
and pay for all of the shares of Series A Preferred Stock offered
by this prospectus supplement if any such shares of Series A
Convertible Preferred Stock are taken, other than those shares of
Series A Convertible Preferred Stock covered by the over-allotment
option described below.
We
expect that delivery of the Series A Convertible Preferred Stock
will be made against payment therefor on or about October
___, 2019. Under Rule 15c6-1 under the Exchange Act, trades
in the secondary market generally are required to settle in two
business days, unless the parties to any such trade expressly agree
otherwise.
Over-Allotment Option
We have
granted to the underwriters an option, exercisable no later than 45
calendar days after the closing of this offering, to purchase up to
an additional 75,000 shares of Series A Convertible
Preferred Stock (15% of the shares of Series A Convertible
Preferred Stock sold in this offering) from us to cover
over-allotments, if any, at a price per share of Series A
Convertible Preferred Stock equal to the public offering price,
less the underwriting discounts and commissions. The underwriters
may exercise this option only to cover over-allotments made in
connection with this offering. If the underwriters exercise this
option in whole or in part, then the underwriters will be severally
committed, subject to the conditions described in the underwriting
agreement, to purchase these additional shares of Series A
Convertible Preferred Stock. If any additional shares of Series A
Preferred Stock are purchased, the underwriters will offer the
additional shares of Series A Convertible Preferred Stock on the
same terms as those on which the shares of Series A Convertible
Preferred Stock are being offered hereby.
Discounts and Commissions
The Representative has advised us that the underwriters propose to
offer the shares of Series A Convertible Preferred Stock to the
public at the public offering price per share set forth on the
cover page of this prospectus supplement. The underwriters may
offer shares to securities dealers at that price less a concession
of not more than $ per share. After the initial offering to the
public, the public offering price and other selling terms may be
changed by the Representative.
The
following table summarizes the public offering price, underwriting
discounts and commissions and proceeds before expenses to us
assuming both no exercise and full exercise by the underwriters of
their over-allotment option:
|
|
Total Without
Over-allotment Option
|
Total With
Over-allotment Option
|
Public offering
price
|
|
|
|
Underwriting
discounts and commissions (7.5%)
|
|
|
|
Proceeds, before
expenses, to us
|
|
|
|
We have agreed to reimburse the Representative for all
reasonable and actual out-of-pocket accountable fees and costs
incurred by the Representative in connection with this offering up
to a maximum of $125,000 in the aggregate, including the fees and
expenses of the underwriters’ legal counsel.
We
estimate the expenses of this offering payable by us, not including
underwriting discounts and commissions, will be approximately
$372,000.
Representative’s Warrants
Upon
closing of this offering, we have agreed to issue to the
Representative as compensation warrants to purchase a number of
shares of common stock equal to 3.0% of the quotient of the gross
proceeds from this offering divided by $ (the
last closing price per share of our common stock on the NYSE
American prior to the execution of the underwriting agreement for
this offering), which we refer to as the Representative’s
Warrants. The Representative’s Warrants will be exercisable
at a per share exercise price equal to 125% of the last closing
price per share of our common stock on the NYSE American prior to
the execution of the underwriting agreement for this offering
(excluding the over-allotment option). The Representative’s
Warrants are exercisable at any time and from time to time, in
whole or in part, during the four and one-half year period
commencing 180 days from the effective date of the registration statement of which this
prospectus supplement is a part, which we refer to as the effective
date of this offering.
The
Representative’s Warrants have been deemed compensation by
FINRA and are therefore subject to a 180-day lock-up pursuant to
Rule 5110(g)(1) of FINRA. The Representative (or permitted
assignees under Rule 5110(g)(1)) will not sell, transfer, assign,
pledge, or hypothecate these warrants or the securities underlying
these warrants, nor will they engage in any hedging, short sale,
derivative, put, or call transaction that would result in the
effective economic disposition of the warrants or the underlying
securities for a period of 180 days from the effective date of this
offering. In addition, the warrants provide for registration rights
upon request, in certain cases. The demand registration right
provided will not be greater than five years from the effective
date of this offering in compliance with FINRA Rule
5110(f)(2)(G)(iv). The piggyback registration right provided will
not be greater than seven years from the effective date of this
offering in compliance with FINRA Rule 5110(f)(2)(G)(v). We will
bear all fees and expenses attendant to registering the securities,
including only one demand registration right granted by us to the
Representative, issuable on exercise of the warrants other than
underwriting commissions incurred and payable by the holders. The
exercise price and number of shares issuable upon exercise of the
warrants may be adjusted in certain circumstances including in the
event of a stock dividend or our recapitalization, reorganization,
merger or consolidation. However, the warrant exercise price or
underlying shares will not be adjusted for issuances of shares of
common stock at a price below the warrant exercise
price.
Right of First Refusal
From
the date of the executed underwriting agreement until March 31,
2020, the Representative will have, subject to certain exceptions,
an irrevocable right of first refusal to act as sole investment
banker, sole book-runner and/or sole placement agent, at the
Representative’s sole discretion, for each and every future
public and private equity financing, including equity-linked
financings, during such period, for us, or any successor to or any
subsidiary of us, on terms customary for the Representative. The
Representative will have the sole right to determine whether or not
any other broker-dealer shall have the right to participate in any
such offering and the economic terms of any such
participation.
Discretionary Accounts
The
underwriters do not intend to confirm sales of the securities
offered hereby to any accounts over which they have discretionary
authority.
Other
From time to time, certain of the underwriters and/or their
affiliates have provided, and may in the future provide, various
investment banking and other financial services for us for
which services they have
received and, may in the future receive, customary fees. In
the course of their businesses, the underwriters and their
affiliates may actively trade our securities or loans for their own
account or for the accounts of customers, and, accordingly, the
underwriters and their affiliates may at any time hold long or
short positions in such securities or loans.
Except for services provided in connection with this offering and
our public offering in May 2019 in which ThinkEquity acted as the
lead underwriter, no underwriter has provided any investment
banking or other financial services to us during the 180-day period
preceding the date of this prospectus supplement and we do not
expect to retain any underwriter to perform any investment banking
or other financial services for at least 90 days after the date of
this prospectus supplement.
Lock-Up Agreements
Pursuant
to “lock-up” agreements, we and our executive officers,
directors and 5% or greater shareholders have agreed, subject to
limited exceptions, without the prior written consent of the
Representative not to directly or indirectly, offer to sell, sell,
pledge or otherwise transfer or dispose of any of our shares of
common stock or securities convertible into or exercisable or
exchangeable for our common stock or any of our other securities
(or enter into any transaction or device that is designed to, or
could be expected to, result in the transfer or disposition by any
person at any time in the future of our securities), enter into any
swap or other derivatives transaction that transfers to another, in
whole or in part, any of the economic benefits or risks of
ownership of our of our shares of common stock or securities
convertible into or exercisable or exchangeable for our common
stock or any of our other securities, make any demand for or
exercise any right or cause to be filed a registration statement,
including any amendments thereto, with respect to the registration
of any of our securities, shares of common stock or securities
convertible into or exercisable or exchangeable for common stock or
any of our other securities or publicly disclose the intention to
do any of the foregoing, subject to customary exceptions, for a
period of 90 days from the date of the pricing of this
offering.
NYSE American Listing
We have
applied to list our Series A Convertible Preferred Stock on the
NYSE American under the symbol “YCBDP.” If the
application is approved, trading of the Series A Convertible
Preferred Stock is expected to begin within three business days
after the initial issuance of the Series A Convertible Preferred
Stock.
Transfer Agent
Our
transfer agent for our Series A Convertible Preferred Stock is
VStock Transfer, LLC, 18 Lafayette
Place, Woodmere, New York 11598.
Price Stabilization, Short Positions and Penalty Bids
In
connection with this offering, the underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price
of our Series A Convertible Preferred Stock. Specifically, the
underwriters may over-allot in connection with this offering by
selling more shares of our Series A Convertible Preferred Stock
than are set forth on the cover page of this prospectus supplement.
This creates a short position in our Series A Convertible Preferred
Stock for its own account. The short position may be either a
covered short position or a naked short position. In a covered
short position, the number of shares of Series A Convertible
Preferred Stock over-allotted by the underwriters is not greater
than the number of shares of Series A Convertible Preferred Stock
that they may purchase in the over-allotment option. In a naked
short position, the number of shares of Series A Convertible
Preferred Stock involved is greater than the number of shares
Series A Convertible Preferred Stock in the over-allotment option.
To close out a short position, the underwriters may elect to
exercise all or part of the over-allotment option. The underwriters
may also elect to stabilize the price of our Series A Convertible
Preferred Stock or reduce any short position by bidding for, and
purchasing, Series A Convertible Preferred Stock in the open
market.
The
underwriters may also impose a penalty bid. This occurs when a
particular underwriter or dealer repays selling concessions allowed
to it for distributing shares of Series A Convertible Preferred
Stock in this offering because the underwriter repurchases the
shares of Series A Convertible Preferred Stock in stabilizing or
short covering transactions.
Finally,
the underwriters may bid for, and purchase, shares of our Series A
Convertible Preferred Stock in market making transactions,
including “passive” market making transactions as
described below.
These
activities may stabilize or maintain the market price of our Series
A Convertible Preferred Stock at a price that is higher than the
price that might otherwise exist in the absence of these
activities. The underwriters are not required to engage in these
activities, and may discontinue any of these activities at any time
without notice. These transactions may be effected on the national
securities exchange on which our shares of Series A Convertible
Preferred Stock are traded, in the over-the-counter market, or
otherwise.
Passive Market Making
In connection with the offering, the underwriters may engage in
passive market making transactions in shares of Series A
Convertible Preferred Stock on the NYSE American in accordance with
Rule 103 of Regulation M under the Exchange Act during
the period before the commencement of offers or sales of shares of
Series A Convertible Preferred Stock and extending through the
completion of distribution. A passive market maker must display its
bids at a price not in excess of the highest independent bid of the
security. However, if all independent bids are lowered below the
passive market maker’s bid, that bid must be lowered when
specified purchase limits are exceeded.
Indemnification
We have
agreed to indemnify the underwriters against liabilities relating
to this offering arising under the Securities Act and the Exchange
Act, liabilities arising from breaches of some or all of the
representations and warranties contained in the underwriting
agreement, and to contribute to payments that the underwriters may
be required to make for these liabilities.
Electronic Distribution
This prospectus supplement in electronic format may be made
available on websites or
through other online services maintained by one or more of the
underwriters, or by their affiliates. Other than this
prospectus supplement in electronic format, the information on any
underwriters’ website and any information contained in any
other website maintained by an underwriter is not part of this
prospectus supplement or the registration statement of which this
prospectus supplement is a part, has not been approved and/or
endorsed by us or any underwriter in its capacity as underwriter,
and should not be relied upon by investors.
Selling Restrictions
No
action has been taken in any jurisdiction (except in the United
States) that would permit a public offering of our Series A
Convertible Preferred Stock, or the possession, circulation or
distribution of this prospectus supplement, the accompanying
prospectus or any other material relating to us or our Series A
Convertible Preferred Stock in any jurisdiction where action for
that purpose is required. Accordingly, our Series A Convertible
Preferred Stock may not be offered or sold, directly or indirectly,
and none of this prospectus supplement, the accompanying prospectus
or any other offering material or advertisements in connection with
our Series A Convertible Preferred Stock may be distributed or
published, in or from any country or jurisdiction, except in
compliance with any applicable rules and regulations of any such
country or jurisdiction.
European Economic Area
In
relation to each Member State of the European Economic Area which
has implemented the Prospectus Directive, each a “Relevant
Member State”, with effect from and including the date on
which the Prospectus Directive is implemented in that Relevant
Member State, or the “Relevant Implementation Date”,
our securities will not be offered to the public in that Relevant
Member State prior to the publication of a prospectus in relation
to our securities that has been approved by the competent authority
in that Relevant Member State or, where appropriate, approved in
another Relevant Member State and notified to the competent
authority in that Relevant Member State, all in accordance with the
Prospectus Directive, except that, with effect from and including
the Relevant Implementation Date, an offer of our securities may be
made to the public in that Relevant Member State at any
time:
●
to any legal entity
that is a qualified investor as defined in the Prospectus
Directive;
●
to fewer than 100
or, if the Relevant Member State has implemented the relevant
provision of the 2010 PD Amending Directive, 150 natural or legal
persons (other than qualified investors as defined in the
Prospectus Directive), as permitted under the Prospectus Directive,
subject to obtaining the prior consent of the manager for any such
offer; or
●
in any other
circumstances which do not require the publication by the issuer of
a prospectus pursuant to Article 3(2) of the Prospectus Directive,
provided that no such offer of the securities shall require the
issuer or any underwriter to publish a prospectus pursuant to
Article 3 of the Prospectus Directive.
For the
purposes of this provision, the expression an “offer of
securities to the public” in relation to any securities in
any Relevant Member State means the communication in any form and
by any means of sufficient information on the terms of the offer
and securities to be offered so as to enable an investor to decide
to purchase or subscribe securities, as the same may be varied in
that Relevant Member State by any measure implementing the
Prospectus Directive in that Relevant Member State and the
expression “Prospectus Directive” means Directive
2003/71/EC (and amendments thereto, including the 2010 PD Amending
Directive, to the extent implemented in the Relevant Member State),
and includes any relevant implementing measure in each Relevant
Member State and the expression “2010 PD Amending
Directive” means Directive 2010/73/EU.
United Kingdom
In the
United Kingdom, this document is being distributed only to, and is
directed only at, and any offer subsequently made may only be
directed at persons who are “qualified investors” (as
defined in the Prospectus Directive) (i) who have professional
experience in matters relating to investments falling within
Article 19 (5) of the Financial Services and Markets Act 2000
(Financial Promotion) Order 2005, as amended (the Order), and/or
(ii) who are high net worth companies (or persons to whom it may
otherwise be lawfully communicated) falling within Article 49(2)(a)
to (d) of the Order (all such persons together, the relevant
persons). This document must not be acted on or relied on in the
United Kingdom by persons who are not relevant persons. In the
United Kingdom, any investment or investment activity to which this
document relates is only available to, and will be engaged in with,
relevant persons.
Canada
The
offering of our Series A Convertible Preferred Stock in Canada is
being made on a private placement basis in reliance on exemptions
from the prospectus requirements under the securities laws of each
applicable Canadian province and territory where our Series A
Convertible Preferred Stock may be offered and sold, and therein
may only be made with investors that are purchasing, or deemed to
be purchasing, as principal and that qualify as both an
“accredited investor” as such term is defined in
National Instrument 45-106 Prospectus Exemptions or subsection
73.3(1) of the Securities
Act (Ontario) and as a “permitted client” as
such term is defined in National Instrument 31-103 Registration Requirements, Exemptions and
Ongoing Registrant Obligations. Any offer and sale of our
Series A Convertible Preferred Stock in any province or territory
of Canada may only be made through a dealer that is properly
registered under the securities legislation of the applicable
province or territory wherein our Series A Convertible Preferred
Stock is offered and/or sold or, alternatively, where such
registration is not required.
Any
resale of our Series A Convertible Preferred Stock by an investor
resident in Canada must be made in accordance with applicable
Canadian securities laws, which require resales to be made in
accordance with an exemption from, or in a transaction not subject
to, prospectus requirements under applicable Canadian securities
laws. These resale restrictions may under certain circumstances
apply to resales of the Series A Convertible Preferred Stock
outside of Canada.
Securities
legislation in certain provinces or territories of Canada may
provide a purchaser with remedies for rescission or damages if this
prospectus (including any amendment thereto) contains a
misrepresentation, provided that the remedies for rescission or
damages are exercised by the purchaser within the time limit
prescribed by the securities legislation of the purchaser’s
province or territory. The purchaser should refer to any applicable
provisions of the securities legislation of the purchaser’s
province or territory for particulars of these rights or consult
with a legal advisor.
Pursuant
to section 3A.3 (or, in the case of securities issued or guaranteed
by the government of a non-Canadian jurisdiction, section 3A.4) of
National Instrument 33-105 Underwriting Conflicts (“NI
33-105”), the underwriters are not required to comply with
the disclosure requirements of NI 33-105 regarding underwriter
conflicts of interest in connection with this
offering.
Upon
receipt of this prospectus supplement, each Québec investor
hereby confirms that it has expressly requested that all documents
evidencing or relating in any way to the sale of the securities
described herein (including for greater certainty any purchase
confirmation or any notice) be drawn up in the English language
only. Par la réception de ce
document, chaque investisseur québecois confirme par les
présentes qu’il a expressément exigé que tous
les documents faisant foi ou se rapportant de quelque manière
que ce soit à la vente des valeurs mobilières
décrites aux présentes (incluant, pour plus de certitude,
toute confirmation d’achat ou tout avis) soient
rédigés en anglais seulement.
LEGAL MATTERS
Pearlman
Law Group LLP, Fort Lauderdale, Florida will provide us with an
opinion as to certain legal matters in connection with the
securities offered hereby. Certain
matters under North Carolina law will be passed upon for us by the
Timothy B. Gavigan, PLLC. Gracin & Marlow, LLP, New York, New
York is representing the underwriters in this
offering.
EXPERTS
Our consolidated balance sheets as of September 30, 2018 and 2017
and the related consolidated statements of operations,
comprehensive income (loss), shareholders’ equity and cash
flows for the fiscal years ended September 30, 2018 and 2017
incorporated by reference in the registration statement of which
this prospectus supplement is a part have been audited by Cherry
Bekaert LLP, independent registered public accounting firm, as
indicated in their report with respect thereto, and have been so
included in reliance upon the report of such firm given on their
authority as experts in accounting and auditing.
Cherry Bekaert LLP, independent registered public accounting firm,
as indicated in their report with respect thereto, has
audited the consolidated financial statements of Cure Based
Development, LLC as of August 31, 2018 and for the periods from
January 1, 2018 to August 31, 2018 and from August 3, 2017
(inception) to December 31, 2017, included in our Current Report on
Form 8-K filed with the SEC on December 20, 2018, as stated in
their report thereon, dated November 27, 2018, included therein,
which is incorporated by reference herein. Such consolidated
financial statements are incorporated by reference in reliance upon
the report of such firm given upon their authority as experts in
accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We file
annual, quarterly and other reports, proxy statements and other
information with the SEC. The SEC maintains a website at
www.sec.gov
that contains reports, proxy and information statements, and other
information regarding issuers such as our company that file
electronically with the SEC.
Our
website address is www.cbdmd.com.
We make available free of charge, through the Investor section of
our website, annual reports on Form 10-K, quarterly reports on Form
10-Q and current reports on Form 8-K and amendments to those
reports filed or furnished pursuant to Section 13(a) or 15(d) of
the Exchange Act as soon as reasonably practicable after we
electronically file such material with, or furnish it to, the
SEC.
INFORMATION INCORPORATED BY REFERENCE
The SEC allows us to incorporate by reference the information we
file with them, which means that we can disclose important
information to you by referring you to those documents. The
information incorporated by reference is considered to be part of
this prospectus supplement, and later information filed with the
Securities and Exchange Commission will update and supersede this
information. We incorporate by reference the documents listed below
that we have previously filed with the SEC, except that information
furnished under Item 2.02 or Item 7.01 of our Current Reports on
Form 8-K or any other filing where we indicate that such
information is being furnished and not filed under the Exchange
Act, is not deemed to be filed and not incorporated by reference
herein:
●
our
Annual Report on Form 10-K for the fiscal year ended September 30,
2018 as filed on December 12, 2018;
●
our
Quarterly Report on Form 10-Q/A for the period ended December 31,
2018 as filed on April 26, 2019;
●
our
Quarterly Report on Form 10-Q for the period ended March 31, 2019
as filed on May 15, 2019;
●
our
Quarterly Report on Form 10-Q for the period ended June 30, 2019 as
filed on August 14, 2019;
●
our
Current Reports on Forms 8-K and 8-K/A as filed on October 3, 2018,
December 4, 2018, December 20, 2018, December 28, 2018, January 11,
2019, February 22, 2019, March 21, 2019, April 18, 2019, April 19,
2019, April 29, 2019, May 1, 2019, May 10, 2019, May 14, 2019, May
15, 2019, July 1, 2019, September 20, 2019 and September 27,
2019;
●
our
definitive proxy statement on Schedule 14A as filed on March 21,
2019; and
●
the
description of our common stock contained in our Registration
Statement on Form 8-A as filed with the SEC on November 15, 2017
and any further amendment or report filed hereafter for the purpose
of updating such description.
We also incorporate by reference into this prospectus supplement
additional documents that we may file with the SEC under Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the
completion or termination of the offering, including all such
documents we may file with the SEC after the date of this
prospectus supplement and before the completion of this offering of
the Series A Convertible Preferred Stock included in this
prospectus supplement, the initial registration statement and prior
to the effectiveness of the registration statement, but excluding
any information deemed furnished and not filed with the SEC. Any
statements contained in a previously filed document incorporated by
reference into this prospectus supplement is deemed to be modified
or superseded for purposes of this prospectus supplement to the
extent that a statement contained in this prospectus supplement, or
in a subsequently filed document also incorporated by reference
herein, modifies or supersedes that statement.
This prospectus supplement may contain information that updates,
modifies or is contrary to information in one or more of the
documents incorporated by reference in this prospectus supplement.
You should rely only on the information incorporated by reference
or provided in this prospectus supplement. We have not authorized
anyone else to provide you with different information. You should
not assume that the information in this prospectus supplement is
accurate as of any date other than the date of this prospectus
supplement or the date of the documents incorporated by reference
in this prospectus supplement.
We will provide to each person, including any beneficial owner, to
whom this prospectus supplement is delivered, upon written or oral
request, at no cost to the requester, a copy of any and all of the
information that is incorporated by reference in this prospectus
supplement. You may request a copy of these filings, at no cost to
you, by telephoning us at (704) 445-3060 or by writing us at the
following address:
cbdMD, Inc.
8845 Red Oak Boulevard
Charlotte, NC 28217
Attention: Investor Relations
You may also access the documents incorporated by reference in this
prospectus supplement through our website at www.cbdmd.com. The
reference to our website is an inactive textual reference only and,
except for the specific incorporated documents listed above, no
information available on or through our website shall be deemed to
be incorporated in this prospectus supplement, the accompanying
prospectus or the registration statement of which it forms a
part.
The information in this prospectus is not complete and may be
changed. We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is
effective. This prospectus is not an offer to sell these securities
and we are not soliciting offers to buy these securities in any
state where the offer or sale is not permitted.
PROSPECTUS
$100,000,000
Level Brands, Inc.
COMMON STOCK
PREFERRED STOCK
WARRANTS
UNITS
We may
offer and sell, from time to time in one or more offerings, any
combination of common stock, preferred stock, warrants or units
having a maximum aggregate offering price of $100,000,000. When we
decide to sell a particular class or series of securities, we will
provide specific terms of the offered securities in a prospectus
supplement.
The
prospectus supplement may also add, update or change information
contained in or incorporated by reference into this prospectus.
However, no prospectus supplement shall offer a security that is
not registered and described in this prospectus at the time of its
effectiveness. You should read this prospectus and any prospectus
supplement, as well as the documents incorporated by reference or
deemed to be incorporated by reference into this prospectus,
carefully before you invest.
This
prospectus may not be used to offer or sell our securities unless
accompanied by a prospectus supplement relating to the offered
securities.
Our
common stock is listed on the NYSE American under the symbol
“LEVB.” The last reported sale price of our common
stock on April 3, 2019 was $4.63 per share.
The
aggregate market value of our outstanding common stock held by
non-affiliates is $51,390,150 based on 10,170,356 shares of common
stock outstanding, of which 7,732,983 shares are held by
non-affiliates, and a per share value of $5.23 based on the closing
price of our common stock on the NYSE American on February 19,
2019. We have not offered any securities pursuant to General
Instruction I.B.6 of Form S-3 during the prior 12 calendar month
period that ends on and includes the date of this
prospectus.
These
securities may be sold directly by us, through dealers or agents
designated from time to time, to or through underwriters or through
a combination of these methods. See “Plan of
Distribution” beginning on page 18. We may also describe the
plan of distribution for any particular offering of our securities
in a prospectus supplement. If any agents, underwriters or dealers
are involved in the sale of any securities in respect of which this
prospectus is being delivered, we will disclose their names and the
nature of our arrangements with them in a prospectus supplement.
The net proceeds we expect to receive from any such sale will also
be included in a prospectus supplement.
Investing
in our securities involves various risks. See “Risk
Factors” on page 5 for more information on these risks.
Additional risks, if any, will be described in the prospectus
supplement related to a potential offering under the heading
“Risk Factors”. You should review that section of the
related prospectus supplement for a discussion of matters that
investors in such securities should consider.
Neither
the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities, or
passed upon the adequacy or accuracy of this prospectus or any
accompanying prospectus supplement. Any representation to the
contrary is a criminal offense.
The
date of this prospectus is April 9, 2019
ABOUT THIS PROSPECTUS
This
prospectus is part of a registration statement on Form S-3 that we
filed with the Securities and Exchange Commission utilizing a
“shelf” registration, or continuous offering, process.
Under the shelf registration process, we may issue and sell any
combination of the securities described in this prospectus in one
or more offerings with a maximum offering price of up to
$100,000,000.
This
prospectus provides you with a general description of the
securities we may offer. Each time we sell securities under this
shelf registration, we will provide a prospectus supplement that
will contain certain specific information about the terms of that
offering, including a description of any risks related to the
offering, if those terms and risks are not described in this
prospectus. A prospectus supplement may also add, update or change
information contained in this prospectus. If there is any
inconsistency between the information in this prospectus and the
applicable prospectus supplement, you should rely on the
information in the prospectus supplement. The registration
statement we filed with the Securities and Exchange Commission
includes exhibits that provide more details on the matters
discussed in this prospectus. You should read this prospectus and
the related exhibits filed with the Securities and Exchange
Commission and the accompanying prospectus supplement together with
additional information described under the headings
“Available Information” and “Information
Incorporated by Reference” before investing in any of the
securities offered.
We
may sell securities to or through underwriters or dealers, and also
may sell securities directly to other purchasers or through agents.
To the extent not described in this prospectus, the names of any
underwriters, dealers or agents employed by us in the sale of the
securities covered by this prospectus, the principal amounts or
number of shares or other securities, if any, to be purchased by
such underwriters or dealers and the compensation, if any, of such
underwriters, dealers or agents will be set forth in the
accompanying prospectus supplement.
The
information in this prospectus is accurate as of the date on the
front cover. Information incorporated by reference into this
prospectus is accurate as of the date of the document from which
the information is incorporated. You should not assume that the
information contained in this prospectus is accurate as of any
other date.
Unless the context otherwise indicates, when used
herein, the terms “Level Brands,” “we,”
“us”, “our” and similar terms refer to
Level Brands, Inc., a North Carolina corporation formerly known as
Level Beauty Group, Inc., and our subsidiaries cbdMD, LLC, a North Carolina limited liability
company which we refer to as “cbdMD”, Beauty and
Pinups, LLC, a North Carolina limited liability company which we
refer to as “Beauty & Pin-Ups”, I | M 1, LLC, a
California limited liability company, which we refer to as
“I’M1”, Encore Endeavor 1 LLC, a California
limited liability company which we refer to as “EE1,”
Level H&W, LLC, a North Carolina limited liability company
which we refer to as “Level Health & Wellness”,
AcqCo, LLC, a newly organized North Carolina limited liability
company and cbdMD LLC, a newly organized North Carolina limited
liability company. In addition, “fiscal 2017” refers to
the year ended September 30, 2017, "fiscal 2018" refers to the year
ended September 30, 2018, "fiscal 2019" refers to the year ending
September 30, 2019.
AVAILABLE INFORMATION
We
file annual, quarterly and other reports, proxy statements and
other information with the Securities and Exchange Commission. You
may read and copy any materials that we file at the Securities and
Exchange Commission’s Public Reference Room, 100 F Street,
N.E., Washington, D.C. 20549. You may obtain information on the
operation of the Public Reference Room by calling the Securities
and Exchange Commission at 1-800-SEC-0330. The Securities and
Exchange Commission also maintains a website at www.sec.gov that
contains reports, proxy and information statements, and other
information regarding issuers such as our company that file
electronically with the Securities and Exchange
Commission.
We
have filed a registration statement under the Securities Act of
1933 with the Securities and Exchange Commission with respect to
the securities to be sold by pursuant to this prospectus. This
prospectus has been filed as part of the registration statement.
This prospectus does not contain all of the information set forth
in the registration statement because certain parts of the
registration statement are omitted in accordance with the rules and
regulations of the Securities and Exchange Commission. You should
refer to the registration statement, including the exhibits, for
further information about us and the securities being offered
pursuant to this prospectus. Statements in this prospectus
regarding the provisions of certain documents filed with, or
incorporated by reference in, the registration statement are not
necessarily complete and each statement is qualified in all
respects by that reference.
Our
Internet address is www.levelbrands.com. We make available free of
charge, through the investor section of our website, annual reports
on Form 10-K, quarterly reports on Form 10-Q and current reports on
Form 8-K and amendments to those reports filed or furnished
pursuant to Section 13(a) or 15(d) of the Securities Exchange Act
of 1934 as soon as reasonably practicable after we electronically
file such material with, or furnish it to, the Securities and
Exchange Commission.
OUR COMPANY
Level
Brands strives to be an innovative licensing, marketing and brand
management company with a focus on lifestyle-based products. We
champion a bold, unconventional image, and social consciousness for
our company and our brands. Working closely with our Chairman
Emeritus and Chief Brand Strategist, Kathy Ireland, the Chairman,
CEO and Chief Designer of kathy
ireland® Worldwide, we seek to secure strategic
licenses and joint venture partnerships for our brands, as well as
to grow the portfolio of brands through strategic
acquisitions.
We
operate our business in four business units,
including:
|
|
Level H&W was established in September 2017 and has an
exclusive license to the kathy
ireland® Health &
Wellness™ brand. Its goal is to create a brand which will
include a wide variety of licensed products and services, targeted
to both Baby Boomers as well as millennials. This unit began
operating in fiscal 2018.
|
|
|
|
|
|
|
|
|
Founded
in early 2017 and first conceptualized
by kathy
ireland® Worldwide,
I'M1 is a men’s lifestyle brand established to capitalize on
potentially lucrative licensing and co-branding opportunities with
products focused on millennials.
|
|
|
|
|
|
|
Also
founded in 2017, EE1 was established to serve as a producer and
marketer of experiential entertainment including recordings, film,
TV, web and live events, and entertainment experiences. EE1 also
provides brand management services including creative development
and marketing, brand strategy, and distribution
support.
|
|
|
|
|
"Beauty
belongs to everyone"
|
|
Beauty
& Pin-Ups, our first business unit is a professional hair care
line with a social conscience and launched its products in 2015. We
offer quality hair care products, including shampoos, conditioners,
styling aides and a patented styling tool, through retailers and
online outlets and are expanding into licensing
opportunities.
|
|
|
|
|
|
|
|
Our
newest business unit was established in December 2018 in connection
with the mergers with Cure Based Development LLC. In conjunction
with the mergers, we acquired the cbdMD brand. cbdMD produces
and
distributes various high-grade, premium cannabidiol ("CBD")
products under the cbdMD brand, including: tinctures, capsules,
gummies, bath bombs, vape oils, topical creams and animal treats
and oils.
|
|
Our
business model is designed with the goal of maximizing the value of
our brands through entry into license agreements with partners that
are responsible for the design, manufacturing and distribution of
our licensed products. We promote our brands across multiple
channels, including print, television and social media. We believe
that this “omnichannel” (or multi-channel) approach,
which we expect will allow our customers to interact with each of
our brands, in addition to the products themselves, will be
critical to our success.
Corporate information
Our
company was formed under the laws of the state of North Carolina in
March 2015 under the name Level Beauty Group, Inc. In November 2016
we changed the name of our company to Level Brands,
Inc.
Our principal executive offices are located at
4521 Sharon Road, Suite 450, Charlotte, NC 28211. Our telephone
number at this location is (704) 362-6286. The information which appears on our website at
www.levelbrands.com is not part of this
prospectus.
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING
INFORMATION
This
prospectus contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended.
These forward-looking statements are subject to known and unknown
risks, uncertainties and other factors which may cause actual
results, performance or achievements to be materially different
from any future results, performance or achievements expressed or
implied by such forward-looking statements. These forward-looking
statements were based on various factors and were derived utilizing
numerous assumptions and other factors that could cause our actual
results to differ materially from those in the forward-looking
statements. These factors include, but are not limited
to:
●
our ability to
successfully integrate the operations of Cure Based Development
following the mergers;
●
our material
dependence on our relationships with kathy ireland® Worldwide and
certain of its affiliates;
●
the significant
dilution to our shareholders of the issuance of the shares of our
common stock as the consideration for the
mergers;
●
our limited
operating history;
●
the limited
operating histories of our subsidiaries;
●
the evolving and
highly competitive market in which cbdMD
operates;
●
laws and
regulations impacting cbdMD
●
risks associated
with any failure by us to maintain an effective system of internal
control over financial reporting;
●
the terms of
various agreements with kathy
ireland® Worldwide and possible impacts on our
management's abilities to make certain decisions regarding the
operations of our company;
●
our dependence on
consumer spending patterns;
●
our history on
reliance on sales from a limited number of customers, including
related parties;
●
risks associated
with our failure to effectively promote our
brands;
●
our ability to
identify and successfully acquire additional brands and
trademarks;
●
the operating
agreements of our I'M1 and EE1 subsidiaries;
●
the accounting
treatment of securities we accept as partial compensation for
services;
●
our ability to
liquidate securities we accept as partial compensation for services
and the possible impact of the Investment Company Act of
1940;
●
the possible need
to raise additional capital in the future;
●
terms of the
contracts with third parties in each of our
divisions;
●
possible conflicts
of interest with kathy
ireland® Worldwide;
●
possible litigation
involving our licensed products;
●
our ability to
effectively compete and our dependence on market acceptance of our
brands;
●
the lack of
long-term contracts for the purchase of products from our
professional products division;
●
our ability to
protect our intellectual property;
●
additional
operational risks associated with our professional products
division;
●
risks associated
with developing a liquid market for our common stock and possible
future volatility in its trading price;
●
risks associated
with any future failure to satisfy the NYSE American LLC continued
listing standards;
●
dilution to our
shareholders from the exercise of outstanding options and warrants
and the vesting of restricted stock awards;
●
risks associated
with our status as an emerging growth company;
●
risks associated
with control by our executive officers, directors and
affiliates;
●
risks associated
with unfavorable research reports;
●
risks associated
with our status as a public company; and
●
risks associated
with articles of incorporation, bylaws and North Carolina
law.
Most of
these factors are difficult to predict accurately and are generally
beyond our control. You should consider the areas of risk described
in connection with any forward-looking statements that may be made
herein. Readers are cautioned not to place undue reliance on these
forward-looking statements and readers should carefully review our
Annual Report on Form 10-K for the fiscal year ended September 30,
2018 as filed with the Securities and Exchange Commission on
December 12, 2018, including the risk factors described therein,
our Quarterly Report on Form 10-Q for the period ended December 31,
2018 as filed with the Securities and Exchange Commission on
February 14, 2019, as well as our other filings with the Securities
and Exchange Commission. Except for our ongoing obligations to
disclose material information under the Federal securities laws, we
undertake no obligation to release publicly any revisions to any
forward-looking statements, to report events or to report the
occurrence of unanticipated events. These forward-looking
statements speak only as of the date of this prospectus, and you
should not rely on these statements without also considering the
risks and uncertainties associated with these statements and our
business.
RISK FACTORS
An
investment in our securities involves a significant degree of risk.
You should not invest in our securities unless you can afford to
lose your entire investment. You should consider carefully the
following risk factors and other information in this prospectus
before deciding to invest in our securities. If any of the
following risks and uncertainties develops into actual events, our
business, financial condition or results of operations could be
materially adversely affected and you could lose your entire
investment in our company.
RISKS RELATED TO OUR OVERALL BUSINESS
THERE ARE NO ASSURANCES WE WILL SUCCESSFULLY INTEGRATE THE CURE
BASED DEVELOPMENT BUSINESSES INTO OUR BUSINESS, WHICH WOULD
ADVERSELY AFFECT THE COMBINED COMPANY’S FUTURE
RESULTS.
In
December 2018 we closed the mergers with Cure Based Development.
The success of this transaction will depend, in large part, on the
ability of the combined company to realize anticipated benefits
from combining the businesses of the companies. The failure to
successfully integrate and to successfully manage the challenges
presented by the integration process may result in the failure to
achieve some or all the anticipated benefits of the transaction,
which may have a material adverse effect on our operations and
financial condition. Potential difficulties that may be encountered
in the integration process include the following:
●
the potential
disruption of, or the loss of momentum in, each company’s
ongoing business;
●
using the combined
company’s assets efficiently to develop the business of the
combined company;
●
potential unknown
or currently unquantifiable liabilities associated with the mergers
and the operations of the combined company;
●
potential unknown
and unforeseen expenses and delays associated with the mergers and
the possibility that integration costs may be
material;
●
performance
shortfalls at one or both companies as a result of the diversion of
management’s attention caused by integrating the
companies’ operations;
●
necessary changes
in the operations and culture of the acquired company post-closing
in order to accommodate the changes from a privately-held company
with a limited operating history to a subsidiary of a public
company;
●
complexities
associated with managing the combined businesses, including
difficulty addressing possible differences in corporate cultures
and management philosophies;
●
significant
increases in our operating expenses; and
●
additional
business, financial and operating risks we have yet to
identify.
There
are no assurances that the mergers will ultimately result in the
realization of the anticipated economic benefits and other expected
synergies, or that such anticipated economic benefits and other
expected synergies will take longer than excepted to be realized.
If we are unable to fully realize the perceived benefits from the
mergers on a timely basis, we may be required to in the future
impair some or all of the goodwill associated with this transaction
which would materially adversely impact our results of operations
in future periods.
CBDMD LLC HAS A LIMITED OPERATING HISTORY THAT IMPEDES OUR ABILITY
TO EVALUATE ITS POTENTIAL FUTURE PERFORMANCE AND
STRATEGY.
Our
wholly-owned subsidiary, cbdMD, succeeded to the operations of Cure
Based Development following the closing of the mergers in December
2018. We formed cbdMD in connection with the mergers and it had no
operating history prior to the mergers. Cure Based Development was
formed in 2017 and did not begin reporting any meaningful revenues
until mid-2018. Its limited operating history makes it difficult
for us to evaluate cbdMD’s future business prospects and make
decisions based on estimates of its future performance. To address
these risks and uncertainties, we must do the
following:
●
successfully
execute our business strategy to offer the highest quality CBD in
the industry;
●
introduce new,
differentiated botanical products;
●
respond to
competitive business developments;
●
effectively and
efficiently market and sell our line of CBD products;
●
improve the
distribution of our CBD products; and
●
attract, integrate,
retain and motivate qualified personnel.
Our
business strategy may not be successful and we may not successfully
address these risks. In the event that we do not successfully
address these risks, our business, prospects, financial condition
and results of operations may be materially and adversely
affected.
THE MARKET FOR CBD PRODUCTS IS HIGHLY COMPETITIVE, AND IF WE ARE
UNABLE TO COMPETE EFFECTIVELY AGAINST OUR COMPETITORS, OUR BUSINESS
AND OPERATING RESULTS COULD BE ADVERSELY AFFECTED.
cbdMD
operates in a competitive and rapidly evolving market. While we
believe that the industry is fragmented at the present time, there
are numerous competitors, including Green Roads, PlusCBD, and
Select CBD in the retail of CBD-based products, and in the digital
selling space Diamond CBD, CBDistillery, and Lazarus Naturals, some
of whom are larger and have a longer operating history and may have
greater financial resources than cbdMD does. Moreover, we expect
competition in the CBD industry to intensify following the passage
of the Farm Bill in December 2018. In the future we may also face
competition with larger, better capitalized companies who elect to
enter the market given the relatively low barriers to entry. cbdMD
believes that it competes effectively with its competitors because
of the quality of its products and customer service. However, no
assurance can be given that cbdMD will effectively compete with its
existing or future competitors. In addition, competition may drive
the prices of our products down, which may have a materially
adverse effect on our results of operations in future
periods.
LAWS AND REGULATIONS AFFECTING OUR INDUSTRY ARE EVOLVING UNDER THE
FARM BILL, FDA AND OTHER REGULATORY AUTHORITIES AND CHANGES TO ANY
REGULATION MAY MATERIALLY EFFECT OUR CBD OPERATIONS.
In
conjunction with the enactment of the Farm Bill, the United States
Food and Drug Administration (“FDA”) released a
statement about the status of CBD as a nutritional supplement, and
the agency’s actions in the short term with regards to CBD
will guide the industry. The statement noted that the Farm Bill
explicitly preserved the FDA’s authority to regulate products
containing cannabis or cannabis-derived compounds under the Federal
Food, Drug, and Cosmetic Act (FD&C Act) and Section 351 of the
Public Health Service Act. As a nutritional supplement
manufacturer, cbdMD LLC is also striving to meet or exceed the FDAs
Good Manufacturing Practice (GMP) guidelines. Any difficulties in
compliance with existing government regulation could increase our
operating costs and adversely impact our results of operations in
future periods.
In
addition, as a result of the Farm Bill’s recent passage, we
expect that there will be a constant evolution of laws and
regulations affecting the CBD industry which could affect
cbdMD’s operations. Local, state and federal hemp laws and
regulations may be broad in scope and subject to changing
interpretations. These changes may require us to incur substantial
costs associated with legal and compliance fees and ultimately
require us to alter our business plan. Furthermore, violations of
these laws, or alleged violations, could disrupt our business and
result in a material adverse effect on our operations. In addition,
we cannot predict the nature of any future laws, regulations,
interpretations or applications, and it is possible that
regulations may be enacted in the future that will be directly
applicable to our business.
THE ISSUANCES OF THE SHARES OF OUR COMMON STOCK TO THE CURE BASED
DEVELOMENT MEMBERS WILL SIGNIFICATLY DILUTE OUR EXISTING
SHAREHOLDERS. WE ARE REQUIRED TO MEET THE INITIAL LISTING STANDARDS
OF THE NYSE AMERICAN IN CONNECTION WITH SUCH
ISSUANCES.
Upon
the terms set forth in the merger agreement, on the closing date
the members of Cure Based Development received contractual rights
to receive 15,250,000 shares of our common stock, representing
approximately 60% of our outstanding common stock following such
issuance, as the consideration for the mergers. The merger
agreement also provides that we may issue up to an additional
15,250,000 shares of our common stock as part of the merger
consideration upon the satisfaction of certain aggregate net
revenue criteria by cbdMD within 60 months following the closing
date. As of the closing date, there were 10,095,396 shares of our
common stock issued and outstanding. Our ability to issue these
shares must be approved by our shareholders at our upcoming 2019
annual meeting of shareholders in accordance with the rules and
regulations of NYSE American. Assuming the approval of such
issuances at the shareholder meeting, the issuance of the first
15,250,000 shares, but giving effect to no other change to the
number of shares of our common stock issued and outstanding or the
possible issuance of additional 15,250,000 shares in future
periods, the members of Cure Based Development would own 60.2% of
our then outstanding shares of common stock. Therefore, the
ownership and voting rights of our existing shareholders will be
proportionally reduced.
Kathy Ireland is not an officer or director of our company. We are
materially dependent upon our relationships with kathy
ireland® Worldwide and certain of its affiliates. If these
advisory agreements or license rights should be terminated or
expire, we would be deprived of the services and our business could
be materially adversely impacted.
While affiliates of kathy
ireland® Worldwide are
minority owners of both I’M1 and EE1, the terms of the
operating agreements for those subsidiaries do not require them to
provide any services to us. We have entered into a non-exclusive
advisory agreement with kathy
ireland® Worldwide, as
amended, which expires in February 2025 under which we engaged it
to provide various consulting and advisory services to us. Ms.
Ireland serves in the non-executive role of Chairman Emeritus and
Chief Brand Strategist to us under this agreement. Ms. Ireland is
not a member of our management or board of directors, the title
Chairman Emeritus is an honorary title and she is not a founder or
co-founder of our company. Ms. Ireland provides services to us
solely under the terms of the non exclusive advisory agreement. We
have also entered into advisory agreements with additional
affiliates of kathy
ireland® Worldwide,
including Messrs. Roseberry, Carrasco, Meharey and Mendoza,
pursuant to which they provide various management and advisory
services to us, including key operational roles at I’M1 and
EE1. These agreements will expire in February 2019 and at that
point extend on a month to month basis unless cancelled by either
party. None of these services are provided on an exclusive basis,
each of these individuals may have a conflict of interest in that
they have a long term relationship with Kathy Ireland and have
derived substantial income from kathy
ireland® Worldwide and
there is no minimum number of hours which are required to be
devoted to us. In addition we have obtained a royalty free right to
license the intellectual property related to kathy
ireland® Health &
Wellness. Our business model is materially dependent upon our
continued relationship with kathy
ireland® Worldwide, Ms.
Ireland and her affiliates, including Messrs. Roseberry, Carrasco,
Meharey and Mendoza. If we should lose access to those
relationships or if the reputation of Ms. Ireland and/or
kathy
ireland® Worldwide were to
be damaged, our results would suffer and there are no assurances we
would be able to continue to operate our company and develop our
brands as presently planned.
Our limited operating history does not afford investors a
sufficient history on which to base an investment
decision.
Level Brands was formed in March 2015. Until
fiscal 2017, our net sales were solely from our products division.
We began reporting revenues from our licensing division and our
entertainment division during the second quarter of fiscal 2017. In
September 2017, we entered into wholesale license agreements for
three new brands, including kathy
ireland® Health &
Wellness, a newly created brand. There are no assurances we will be
successful in generating any significant net sales in future
periods based upon these new agreements. Our operations are subject
to all the risks inherent in the establishment of a new business
enterprise. The likelihood of success must be considered in light
of the problems, expenses, difficulties, complications and delays
that are frequently encountered in a newly-formed company. There
can be no assurance that at this time that we will successfully
implement our business plan, operate profitably or will have
adequate working capital to meet our obligations as they become
due. Prospective investors must consider the risks and difficulties
frequently encountered by early stage companies, particularly in
rapidly evolving markets. We cannot be certain that our business
strategy will be successful or that we will successfully address
these risks. In the event that we do not successfully address these
risks, our business, prospects, financial condition, and results of
operations could be materially and adversely affected and we may
not have the resources to continue or expand our business
operations.
Our subsidiaries I’M1, EE1 and Level H&W are new entities
with a limited operating history and we recently entered into a
license agreement licensing the rights to certain intellectual
property related to kathy ireland ® Health & Wellness, a
newly created brand with no previous operating history, which does
not afford investors a sufficient history on our company which to
base an investment decision.
I’M1, EE1, and Level H&W are entities
formed in September 2016, March 2016, and September 2017
respectively. We acquired membership interests in I’M1 and
EE1 in January 2017. In September 2017 we entered into an exclusive
license agreement to license the trademark and intellectual
property rights for kathy
ireland® Health &
Wellness, a newly created brand with no previous operations. All of
these entities are in the early stages of their businesses and we
began reporting revenues from I’M1 and EE1 operations in the
second quarter of fiscal 2017 and reported revenues from Level
H&W in the second quarter of fiscal 2018. Our operations are
subject to all the risks inherent in the establishment of a new
business enterprise. The likelihood of success must be considered
in light of the problems, expenses, difficulties, complications and
delays that are frequently encountered in a newly-formed company.
There can be no assurance that at this time that we will operate
profitably or will have adequate working capital to meet our
obligations as they become due. Prospective investors must consider
the risks and difficulties frequently encountered by early stage
companies, particularly in rapidly evolving markets. We cannot be
certain that our business strategy will be successful or that we
will successfully address these risks. In the event that we do not
successfully address these risks, our business, prospects,
financial condition, and results of operations could be materially
and adversely affected and we may not have the resources to
continue or expand our business operations.
We have a history of losses and there are no assurances we will
report profitable operations in future periods.
We
reported net losses to common shareholders of $584,385, $412,075
and $1,738,734 for the first quarter of fiscal 2019, fiscal 2018
and fiscal 2017, respectively. Until such time, if ever, that we
are successful in generating profits which are sufficient to pay
our operating expenses it is likely we will continue to report
losses in future periods. Further, historically our revenues have
been attributable to sales from our products division and we did
not begin reporting revenues from either our licensing division or
our entertainment division until the second quarter of fiscal 2017.
There are no assurances we will generate substantial revenues from
the new businesses or that we will ever generate sufficient
revenues to report profitable operations or a net
profit.
The terms of the various agreements between our company and kathy
ireland® Worldwide contain termination provisions which may
impact management's ability to make certain decisions regarding the
operation of our company.
The master advisory and consulting agreement
with kathy
ireland® Worldwide on
which we are materially dependent provides that the agreement is
immediately terminable by kathy
ireland® Worldwide if any
officers are terminated or resign, including Mr. Roseberry in his
role as President and co-Managing Director of I'M1 and EE1, or if
additional officers are appointed for each I'M1 and EE1 without the
consent of kathy
ireland® Worldwide. The
wholesale license agreement for kathy
ireland® Health &
Wellness™ contains the right of kathy
ireland® Worldwide to
immediately terminate it if any officers are terminated or removed
or additional officers are appointed with respect to either I'M1 or
EE1, or if we compete with or invest in business that compete
with kathy
ireland® Worldwide. It is
possible, however, that our management's ability to make certain
operational decisions which it believes are otherwise in the best
interests of our company could be restricted in future periods if
these decisions could result in triggering the rights of
kathy
ireland® Worldwide to
terminate any agreement.
Our business depends on consumer spending
patterns.
Our
business is sensitive to a number of factors that influence the
levels of consumer spending, including political and economic
conditions such as recessionary environments, the levels of
disposable consumer income, consumer debt, interest rates and
consumer confidence. Reduced consumer spending on beauty products
could have an adverse effect on our operating results in future
periods.
Substantially all of our net sales historically have been to a
limited number of customers, the loss of any of which would be
materially adverse to our company.
Prior
to the close of the mergers in December 2018, substantially all of
our net sales in fiscal 2018 and 2017 were attributable to sales to
a limited number of customers. There are no assurances sales to
these customers will continue. While we expect to add additional
customers to our distribution network in the future for our
products division, and expand our licensing and consulting clients
in our other divisions, until such time as we are successful in
these efforts, of which there is no assurance, any significant
decrease in sales to any of our customers would have a material
adverse financial effect on our company.
A significant amount of our net sales were from customers who are
identified as related parties, the loss of any of which would be
materially adverse to our company.
A
significant amount of our net sales in fiscal 2018 and 2017,
totaling $1,992,046 and $1,731,238 respectively, were from
customers who are identified as related parties. There are no
assurances sales to these customers will continue. While we expect
to add additional customers in all of our businesses as we expand
our licensing and consulting clients, until such time as we are
successful in these efforts, of which there is no assurance, any
significant decrease in sales to any of our customers would have a
material adverse financial effect on our company.
If we fail to promote and maintain our brands in the market, our
businesses, operating results, financial condition, and our ability
to attract customers will be materially adversely
affected.
Our
success depends on our ability to create and maintain brand
awareness for our product offerings. This may require a significant
amount of capital to allow us to market our products and establish
brand recognition and customer loyalty. Additionally, many of the
companies offering similar products have already established their
brand identity within the marketplace. We can offer no assurances
that we will be successful in establishing awareness of our brands
allowing us to compete in this market. The importance of brand
recognition will continue to increase because low barriers of entry
to the industries in which we operate may result in an increased
number of direct competitors. To promote our brands, we may be
required to continue to increase our financial commitment to
creating and maintaining brand awareness. We may not generate a
corresponding increase in revenue to justify these
costs.
If we are unable to identify and successfully acquire additional
brands and trademarks, our growth may be limited, and, even if
additional trademarks are acquired, we may not realize anticipated
benefits due to integration or licensing difficulties.
A
component of our growth strategy is the acquisition of additional
brands and trademarks. We generally compete with traditional
apparel and consumer brand companies, other brand management
companies and private equity groups for brand acquisitions.
However, as more of our competitors continue to pursue our brand
management model, competition for specific acquisition targets may
become more acute, acquisitions may become more expensive and
suitable acquisition candidates could become more difficult to
find. In addition, even if we successfully acquire additional
trademarks or the rights to use additional trademarks, we may not
be able to achieve or maintain profitability levels that justify
our investment in, or realize planned benefits with respect to,
those additional brands.
Although we seek to temper our acquisition risks by following
acquisition guidelines relating to the existing strength of the
brand, its diversification benefits to us, its potential licensing
scale and credit worthiness of the licensee base, acquisitions,
whether they be of additional intellectual property, or
“IP,” assets or of the companies that own them, entail
numerous risks, any of which could detrimentally affect our results
of operations.
Acquisition
of brands or trademarks transactions involve a number of risks and
present financial, managerial and operational challenges,
including: diversion of management’s attention from running
our existing business; unanticipated costs associated with the
target acquisition, appropriately valuing the target acquisition
and analyzing its marketability, increased expenses, including
legal and administrative expenses; integration costs related to the
customer base and business practices of the acquired company with
our own; and adverse effects on our reported operating results due
to possible write-down of goodwill and/or identifiable intangibles
associated with acquisitions.
When
we acquire IP assets or the companies that own them, our due
diligence reviews are subject to inherent uncertainties and may not
reveal all potential risks. Although we generally attempt to seek
contractual protections through representations, warranties and
indemnities, we cannot be sure that we will obtain such provisions
in our acquisitions or that such provisions will fully protect us
from all unknown, contingent or other liabilities or costs.
Finally, claims against us relating to any acquisition may
necessitate our seeking claims against the seller for which the
seller may not, or may not be able to, indemnify us or that may
exceed the scope, duration or amount of the seller’s
indemnification obligations.
No assurance can be given with respect to the timing, likelihood or
financial or business effect of any possible transaction. As a
result, there is no guarantee that our shareholders will achieve
greater returns as a result of any future acquisitions we
complete.
Each
of our I'M1 and EE1 subsidiaries are governed by operating
agreements that require us to distribute amounts to minority
members in certain circumstances. These distributions could reduce
the amount of operating capital we have in future periods. Under
the terms of the operating agreements for each of I’M1 and
EE1, Level Brands as the manager of these entities is responsible
for the operations, including the payment of the operating costs.
These costs are then deducted from the “profits” of the
entity and a portion of those amounts, as determined by the
particular operating agreement, will then be distributed to the
members. We own all of the voting interests in I'M1 and EE1. During
fiscal 2017 EE1 made a distribution to its members, no additional
distributions have been made or are currently planned.
Distributions to the members of I'M1 and EE1 will reduce the amount
of working capital available to us and could adversely impact our
liquidity in future periods.
The value of the equity securities we may accept as compensation
under consulting agreements will be subject to adjustment which
could result in losses to us in future periods. By accepting equity
securities as partial compensation for our services, we may be
adversely impacting our working capital in future
periods.
From time to time we have entered into several
agreements with third parties under which we accepted shares of its
common stock as partial compensation for the services to be
provided. For fiscal 2018 and fiscal 2017, the value of these
securities represented 60.6% and 43.2%, respectively, of our total
net revenues, and for the first quarter of fiscal 2019 was 37.6% of
total net revenues. By accepting equity securities as partial
compensation for our services in lieu of cash, we incur expenses to
deliver the services without the corresponding cash payments from
our clients. As such, we utilize a greater portion of our working
capital to provide services with the hope that we may benefit from
an increase in the market value of the equity securities we have
received in future periods. In addition, these securities will be
reflected on our balance sheets in future periods as
“marketable securities” or “investment other
securities”. At the end of each quarter, we will evaluate the
carrying value of the marketable securities or investment other
securities for a decrease in value. We will evaluate the company
underlying these marketable securities or investment other
securities to determine whether a decline in fair value below the
amortized cost basis is other than temporary. If the decline in
fair value is judged to be “other- than- temporary”,
the cost basis of the individual security will be written down to
fair value as a new cost basis and the amount of the write-down is
charged to earnings. During fiscal 2018 we recognized another
comprehensive loss of $2,512,539 for loss on these securities, net
of taxes. Subsequent to our most recently Form 10Q being
filed, we have liquidated certain positions in accordance with our
intention to avoid being classified as an Investment Company under
the 1940 Act. As a result of this liquidation, we recognized a
significant other than temporary impairment expense. As we continue
to divest ourselves of such positions in future quarters, such
continued losses are probable. It is
possible that we may continue to recognize impairments on the
carrying value of these securities in future periods. Any future
impairments would adversely affect our operating results for the
corresponding periods in that we would be required to reduce the
carrying value of these investments.
We may be unable to liquidate securities we accept as partial
compensation under consulting agreements which could adversely
impact our liquidity in future periods.
Our
ability to sell any securities we accept as partial compensation
under consulting agreements is dependent upon a number of factors,
including the existence of a liquid market for the securities and
our compliance with the resale provisions of Federal securities
laws which require us to hold the shares for at least six months,
among other factors. While we expect to generally accept securities
from issuers who are publicly traded or who are expecting to become
a publicly traded company, there are no assurances a liquid market
will exist in such securities at such time as we are able to resell
the shares, or that the price we may receive will be commensurate
with the value of the services we are providing. In that event, we
would not benefit from the expected rise in the market price of the
securities we own as a result of our efforts on behalf of the
client company. In addition, depending upon the terms of our
business relationship with the issuer of the securities, it is
possible that from time to time we could be in possession of
non-public information regarding the issuer which could prohibit us
from disposing of the shares at a time when it is advantageous to
us to do so. If we are unable to readily liquidate any securities
we accept as compensation, we would be deprived of the cash value
of those services and we would be required to write-off the
carrying value of the securities which could adversely impact our
results of operations in future periods.
We are subject to the risk of possibly becoming an investment
company under the Investment Company Act of 1940.
The
Investment Company Act of 1940 regulates certain companies that
invest in, hold or trade securities. Although we do not believe we
are engaged in the business of investing, reinvesting or trading in
securities, and we do not currently hold ourselves out to the
public as being engaged in those activities, in the past we have
accepted securities of our client companies as partial
compensation. At December 31, 2018, we do not exceed the exemptive
asset and revenue thresholds under Section 3(a)(1)(C) of Investment
Company Act of 1940. So that we do not become an inadvertent
investment company, we will continue to limit the amount of equity
we accept as compensation for services provided so as to stay under
the income threshold as indicated in the Investment Company Act of
1940 going forward. As a result, we may structure transactions in a
less advantageous manner than if we did not have Investment Company
Act of 1940 concerns, or we may avoid otherwise economically
desirable transactions due to those concerns.
We may require additional capital to finance the acquisition of
additional brands and if we are unable to raise such capital on
beneficial terms or at all this could restrict our
growth.
We
may, in the future, require additional capital to help fund all or
part of potential acquisitions. If, at the time required, we do not
have sufficient cash to finance those additional capital needs, we
will need to raise additional funds through equity and/or debt
financing. We cannot guarantee that, if and when needed, additional
financing will be available to us on acceptable terms or at all.
Further, if additional capital is needed and is either unavailable
or cost prohibitive, our growth may be limited as we may need to
change our business strategy to slow the rate of our expansion
plans. In addition, any additional financing we undertake could
impose additional covenants upon us that restrict our operating
flexibility, and, if we issue equity securities to raise capital or
as acquisition consideration, our existing shareholders may
experience dilution or the new securities may have rights senior to
those of our common stock.
RISKS RELATED TO OUR LICENSING AND ENTERTAINMENT
DIVISIONS
The failure of our licensees to adequately produce, market, import
and sell products bearing our brand names in their license
categories, continue their operations, renew their license
agreements or pay their obligations under their license agreements
could result in a decline in our results of
operations.
Our
future revenues from our licensing division will be substantially
dependent on royalty payments made to us under our license
agreements, in addition to compensation under any consulting
agreements we may enter into with the third parties for services by
either our licensing division, our entertainment division, or both.
The failure of our licensees to satisfy their obligations under
these agreements, or their inability to operate successfully or at
all, could result in their breach and/or the early termination of
such agreements, their non-renewal of such agreements or our
decision to amend such, thereby eliminating some or all of that
stream of revenue. It is possible that the milestones to be met
under the terms of licensing agreements may never be achieved which
also could deprive us of additional revenues. There can be no
assurances that we will not lose the licensees under our license
agreements due to their failure to exercise the option to renew or
extend the term of those agreements or the cessation of their
business operations (as a result of their financial difficulties or
otherwise) without equivalent options for replacement. Any of such
failures could reduce the anticipated revenue stream to be
generated by the license agreements. In addition, the failure of
our licensees to meet their production, manufacturing and
distribution requirements, or to be able to continue to import
goods (including, without limitation, as a result of labor strikes
or unrest), could cause a decline in their sales and potentially
decrease the amount of royalty payments (over and above any
guaranteed minimums) due to us. Further, the failure of our
licensees and/or their third party manufacturers, which we do not
control, to adhere to local laws, industry standards and practices
generally accepted in the United States in areas of worker safety,
worker rights of association, social compliance, and general health
and welfare, could result in accidents and practices that cause
disruptions or delays in production and/or substantial harm to the
reputation of our brands, any of which could have a material
adverse effect on our business, financial position, results of
operations and cash flows. A weak economy or softness in certain
sectors including apparel, consumer products, retail and
entertainment could exacerbate this risk. This, in turn, could
decrease our potential revenues and cash flows.
From time to time we may compete with kathy ireland Worldwide®
in securing advisory or representation agreements with potential
clients for EE1 which may create a conflict of interests for the
managing directors of EE1.
kathy
ireland® Worldwide is an
established company which has significant experience in assisting
companies in the promotion and management of their brands through
licensing and advisory agreements. Affiliates of
kathy
ireland® Worldwide are
responsible for the day to day operations of EE1 and
kathy
ireland® Worldwide. Part
of EE1's business competes with kathy ireland
®Worldwide in identifying and
securing clients for its advisory services. For example, both EE1
and kathy
ireland ®Worldwide are
parties to substantial identical representation agreements with
Dada Media, Inc. and David Tutera. These affiliates will be able to
determine which entity, either kathy
ireland® Worldwide or EE1,
is referred to the potential client. kathy
ireland® Worldwide has
more experience and resources and there are no assurances that
conflicts of interest which may arise will be resolved in our
favor. As a result, it is possible that we may lose out on
potential business opportunities.
We could become a party to litigation involving our licensed
products which could result in additional costs to us. Certain
licensed products may be more likely to lead to product liability
lawsuits than others, which could expose us to additional unknown
risks.
Although
we are not responsible for the manufacturing, sale or distribution
of licensed products, it is possible our company could be named as
a defendant in litigation related to licensed products. Certain
licensed products may, by virtue of the industry in which they are
sold and the governmental regulations to which they are subject,
such as vaping products, could be more likely to be the subject of
litigation than others. Notwithstanding that our standard form of
license agreements requires the licensee to indemnify us against
ligation involving the licensed products and to maintain product
liability insurance policies, it is possible that a licensee may
fail to maintain this coverage during the term of the license
agreement. While we would then have a right to terminate the
license agreement as a result of this breach of its terms, there
are no assurances we would not be required to expend significant
funds and management time defending our company in any potential
product liability insurance claim. There are no assurances that we
would prevail in any such litigation, which could subject us to
judgments and costs of settlements which could adversely impact our
liquidity and results of operations in future periods.
As a result of the intense competition within our targeted
licensees’ markets and the strength of some of their
competitors, we and our licensees may not be able to compete
successfully.
Many
of our targeted trademark licenses are for products in the apparel,
fashion accessories, footwear, beauty and fragrance, home products
and décor, consumer electronics and entertainment industries
in which licensees face intense competition from third party brands
and licensees. In general, competitive factors include quality,
price, style, name recognition and service. In addition, various
fads and the limited availability of shelf space could affect
competition for our licensees’ products. Many of our
licensees’ competitors have greater financial, importation,
distribution, marketing and other resources than our licensees and
have achieved significant name recognition for their brand names.
Our licensees may be unable to compete successfully in the markets
for their products, and we may not be able to compete successfully
with respect to our licensing arrangements.
Our business is dependent on market acceptance of our brands and
the potential future products of our licensees bearing these
brands.
Although
some of our targeted licensees might have guaranteed minimum net
sales and minimum royalties to us, a failure of our brands or of
products bearing our brands to achieve or maintain market
acceptance could cause a reduction of our licensing revenue and
could further cause existing licensees not to renew their
agreements. Such failure could also cause the devaluation of our
trademarks, which are our primary intellectual property, or
“IP”, assets, making it more difficult for us to renew
our current licenses upon their expiration or enter into new or
additional licenses for our trademarks. In addition, if such
devaluation of our trademarks were to occur, a material impairment
in the carrying value of one or more of our trademarks could also
occur and be charged as an expense to our operating
results.
The
industries in which we target to compete, including the apparel
industry, are subject to rapidly evolving trends and competition.
In addition, consumer tastes change rapidly. The licensees under
our licensing agreements may not be able to anticipate, gauge or
respond to such changes in a timely manner. Failure of our
licensees to anticipate, identify and capitalize on evolving trends
could result in declining sales of our brands and devaluation of
our trademarks. Continued and substantial marketing efforts, which
may, from time to time, also include our expenditure of significant
additional funds to keep pace with changing consumer demands, are
required to maintain market acceptance of the licensees’
products and to create market acceptance of new products and
categories of products bearing our trademarks; however, these
expenditures may not result in either increased market acceptance
of, or licenses for, our trademarks or increased market acceptance,
or sales, of our licensees’ products. Furthermore, while we
believe that we currently maintain sufficient control over the
products our licensees’ produce under our brand names through
the provision of trend direction and our right to preview and
approve a majority of such products, including their presentation
and packaging, we do not actually design or manufacture products
bearing our marks, and therefore, have more limited control over
such products’ quality and design than would a traditional
product manufacturer.
RISKS RELATED TO OUR PRODUCTS DIVISION
Our revenues from our products division have been declining. We
recognized asset impairments of $502,000 in fiscal 2018 related to
this division.
Net sales from our products division were lower in
each period in fiscal 2018 as compared to the same periods in
fiscal 2017, with an overall reduction in fiscal 2018 of 126.3%
from fiscal 2017. This decline continued into the first quarter of
fiscal 2019, with a 10% decline as compared to the first quarter of
2018. As a result, during the fourth quarter of fiscal
2018 we recognized an impairment of $502,000, including an
inventory and prepaid marketing supplies write off of $262,000 and
an intangible asset impairment of $240,000. In addition, 78% of our
net sales in this division occurred in September 2018 and were made
to an entity affiliated with kathy
ireland® Worldwide. cbdMD
will also be reporting under the products division and it is
unknown if there will continue to be impairments, similar to what
we have had historically in future periods.
The majority of our net sales to date in our products division are
generated on the basis of purchase orders, rather than long term
purchase commitments; which could adversely affect our financial
position and results of operations.
Our
operating history is not long enough to evaluate the likelihood of
future cancellations or deferments of customer orders related to
product sales in our products division. Manufacturers and
distributors are currently contracted on a per order basis. The
lack of long-term purchase commitments creates a risk that product
demand may be reduced if orders are canceled or deferred or, in the
event of unanticipated demand, an inability to timely produce and
deliver our products. We do not have long-term agreements with our
distributors, manufacturers or suppliers and these parties may
disrupt or cancel a purchase order or defer or delay shipments of
our products at any time. Furthermore, because of our inability to
rely on enforceable purchase contracts, and our limited visibility
into future customer demand, actual net sales may be different from
our forecasts, which could adversely affect our financial position
and results of operations.
We may be unable to protect our intellectual property rights and/or
intellectual property rights licensed to us, and may be subject to
intellectual property litigation and infringement claims by third
parties.
We
intend to protect our intellectual property through limited patents
and our unpatented trade secrets and know-how through
confidentiality or license agreements with third parties, employees
and consultants, and by controlling access to and distribution of
our proprietary information. However, this method may not afford
complete protection, particularly in foreign countries where the
laws may not protect our proprietary rights as fully as in the
United States and unauthorized parties may copy or otherwise obtain
and use our products, processes or technology. Additionally, there
can be no assurance that others will not independently develop
similar know-how and trade secrets. We are also dependent upon the
owners of intellectual property rights licensed to us under various
wholesale license agreements to protect and defend those rights
against third party claims. If third parties take actions that
affect our rights, the value of our intellectual property, similar
proprietary rights or reputation or the licensors who have granted
us certain rights under wholesale license agreements, or we are
unable to protect the intellectual property from infringement or
misappropriation, other companies may be able to offer competitive
products at lower prices, and we may not be able to effectively
compete against these companies. We also face the risk of claims
that we have infringed third parties’ intellectual property
rights. Any claims of intellectual property infringement, even
those without merit, may require us to:
●
defend
against infringement claims which are expensive and time
consuming;
●
cease
making, licensing or using products that incorporate the challenged
intellectual property;
●
re-design,
re-engineer or re-brand our products or packaging; or
●
enter
into royalty or licensing agreements in order to obtain the right
to use a third party’s intellectual property.
In
the event of claims by third parties for infringement of
intellectual property rights we license from third parties under
wholesale license agreements, we could be liable for costs of
defending allegations of infringement and there are no assurances
the licensors will either adequately defend the licensed
intellectual property rights or that they would prevail in the
related litigation. In that event, we would incur additional costs
and may deprived from generating royalties from these
agreements.
A disruption in operations or our supply chain could adversely
affect our business and financial results.
We
are subject to the risks inherent in manufacturing our products,
including industrial accidents, environmental events, strikes and
other labor disputes, disruptions in supply chain or information
systems, loss or impairment of key manufacturing sites or
suppliers, product quality control, safety, increase in commodity
prices and energy costs, licensing requirements and other
regulatory issues, as well as natural disasters and other external
factors over which we have no control. If such an event were to
occur, it could have an adverse effect on our business and
financial results.
We rely on third-parties to manufacture and to compound some of our
products, and we have no control over these manufactures and may
not be able to obtain quality products on a timely basis or in
sufficient quantity.
Some
of our products are manufactured or compounded by unaffiliated
third parties. We do not have any long-term contracts with any of
these third parties, and we expect to compete with other companies
for raw materials, production and import capacity. If we experience
significant increased demand, or need to replace an existing
manufacturer, there can be no assurance that additional
manufacturing capacity will be available when required on terms
that are acceptable to us, or at all, or that any manufacturer or
compounder would allocate sufficient capacity to us in order to
meet our requirements. In addition, even if we are able to expand
existing or find new sources, we may encounter delays in production
and added costs as a result of the time it takes to engage third
parties. Any delays, interruption or increased costs in the
manufacturing or compounding of our products could have an adverse
effect on our ability to meet retail customer and consumer demand
for our products and result in lower revenues and net income both
in the short and long-term.
RISKS RELATED TO OWNERSHIP OF OUR COMMON STOCK
We are subject to the continued listing standards of the NYSE
American and our failure to satisfy these criteria may result in
delisting of our common stock.
Our
common stock is listed on the NYSE American. In order to maintain
this listing, we must maintain certain share prices, financial and
share distribution targets, including maintaining a minimum amount
of shareholders’ equity and a minimum number of public
shareholders. In addition to these objective standards, the NYSE
American may delist the securities of any issuer (i) if, in its
opinion, the issuer’s financial condition and/or operating
results appear unsatisfactory; (ii) if it appears that the extent
of public distribution or the aggregate market value of the
security has become so reduced as to make continued listing on the
NYSE American inadvisable; (iii) if the issuer sells or disposes of
principal operating assets or ceases to be an operating company;
(iv) if an issuer fails to comply with the NYSE American’s
listing requirements; (v) if an issuer’s common stock sells
at what the NYSE American considers a “low selling
price” and the issuer fails to correct this via a reverse
split of shares after notification by the NYSE American; or (vi) if
any other event occurs or any condition exists which makes
continued listing on the NYSE America, in its opinion, inadvisable.
If the NYSE American delists our common stock, investors may face
material adverse consequences, including, but not limited to, a
lack of trading market for our securities, reduced liquidity,
decreased analyst coverage of our securities, and an inability for
us to obtain additional financing to fund our
operations.
The issuance of shares upon exercise of our outstanding options and
warrants may cause immediate and substantial dilution to our
existing shareholders.
We
presently have options and warrants that if exercised would result
in the issuance of an additional 833,255 shares of our common
stock. The issuance of shares upon exercise of warrants and options
may result in dilution to the interests of other
shareholders.
The price of our common stock may be volatile, and you could lose
all or part of your investment.
Stock
markets have experienced extreme volatility that has often been
unrelated to the operating performance of particular companies.
These broad market fluctuations may adversely affect the trading
price of our common stock. In addition, limited trading volume of
our stock may contribute to its future volatility. Price declines
in our common stock could result from general market and economic
conditions, some of which are beyond our control, and a variety of
other factors, including any of the risk factors described in this
prospectus. These broad market and industry factors may harm the
market price of our common stock, regardless of our operating
performance, and could cause you to lose all or part of your
investment in our common stock since you might be unable to sell
your shares at or above the price you paid. Factors that could
cause fluctuations in the market price of our common stock include
the following:
●
price
and volume fluctuations in the overall stock market from time to
time;
●
changes
in operating performance and stock market valuations of other hair
care products companies generally;
●
sales
of shares of our common stock by us or our
shareholders;
●
failure
of securities analysts to initiate or maintain coverage of us,
changes in financial estimates by securities analysts who follow
our company, or our failure to meet these estimates or the
expectations of investors;
●
the
financial projections we may provide to the public, any changes in
those projections or our failure to meet those
projections;
●
rumors
and market speculation involving us or other companies in our
industry;
●
actual
or anticipated changes in our results of operations or fluctuations
in our results of operations;
●
actual
or anticipated developments in our business, our competitors’
businesses or the competitive landscape generally;
●
litigation
involving us, our industry or both, or investigations by regulators
into our operations or those of our competitors;
●
developments
or disputes concerning our intellectual property or other
proprietary rights;
●
announced
or completed acquisitions of businesses or brands by us or our
competitors;
●
new
laws or regulations or new interpretations of existing laws or
regulations applicable to our business;
●
changes
in accounting standards, policies, guidelines, interpretations or
principles;
●
any
significant change in our management; and
●
general
economic conditions and slow or negative growth of our
markets.
In
addition, in the past, following periods of volatility in the
overall market and the market price of a particular company’s
securities, securities class action litigation has often been
instituted against these companies. This litigation, if instituted
against us, could result in substantial costs and a diversion of
our management’s attention and resources.
We are an “emerging growth company,” and the reduced
reporting requirements applicable to emerging growth companies may
make our common stock less attractive to investors.
We
are an “emerging growth company,” as defined in the
JOBS Act. For as long as we continue to be an emerging growth
company, we may take advantage of exemptions from various reporting
requirements that are applicable to other public companies but not
to “emerging growth companies,” including, but not
limited to:
●
being
permitted to provide only two years of audited financial
statements, in addition to any required unaudited interim financial
statements, with correspondingly reduced “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations” disclosure;
●
not
being required to comply with the auditor attestation requirements
in the assessment of our internal control over financial reporting
under Section 404 of the Sarbanes-Oxley Act of 2002, or
“Sarbanes-Oxley Act”;
●
not
being required to comply with any requirement that may be adopted
by the Public Company Accounting Oversight Board regarding
mandatory audit firm rotation or a supplement to the
auditor’s report providing additional information about the
audit and the financial statements;
●
reduced
disclosure obligations regarding executive compensation in our
periodic reports and proxy statements; and
●
exemptions
from the requirements of holding a nonbinding advisory vote on
executive compensation and shareholder approval of any golden
parachute payments not previously approved.
Investors
may find our common stock less attractive if we choose to rely on
these exemptions. If some investors find our common stock less
attractive as a result of any choices to reduce future disclosure,
there may be a less active trading market for our common stock and
the price of our common stock may be more volatile.
Our executive officers, directors and their affiliates may exert
control over us and may exercise influence over matters subject to
shareholder approval.
Our
executive officers and directors, together with their respective
affiliates, beneficially own approximately 7.8% of our outstanding
common stock as of March 20, 2019. However, when issued, the
aggregate of 15,250,000 shares which are part of the merger
consideration, including following the voting rights vesting over
five years of 8,750,000 of those shares, may result in a change of
control of our company. In addition, the merger agreement also
provides that we may issue up to an additional 15,250,000 shares of
our common stock as part of the merger consideration upon the
satisfaction of certain aggregate net revenue criteria by cbdMD LLC
within 60 months following the closing date. A change of control of
the company may result over time in the event of, and as a result
of, the issuance of those earnout shares. Accordingly, these
shareholders, if they act together, may exercise substantial
influence over matters requiring shareholder approval, including
the election of directors and approval of corporate transactions,
such as a merger. This concentration of ownership could have the
effect of delaying or preventing a change in control or otherwise
discourage a potential acquirer from attempting to obtain control
over us, which in turn could have a material adverse effect on the
market value of our common stock.
If securities or industry analysts do not publish research or
publish unfavorable or inaccurate research about our business, our
common stock share price and trading volume could
decline.
An
active trading market for our common stock will depend, in part, on
the research and reports that securities or industry analysts
publish about us or our business. We may be unable to attract or
sustain coverage by well-regarded securities and industry analysts.
If either none or only a limited number of securities or industry
analysts cover us or our business, or if these securities or
industry analysts are not widely respected within the general
investment community, the trading price for our common stock would
be materially and negatively impacted. In the event we obtain
securities or industry analyst coverage, if one or more of the
analysts who cover us or our business downgrade our common stock or
publish inaccurate or unfavorable research about us or our
business, the price of our common stock would likely decline. If
one or more of these analysts cease coverage of us or our business,
or fail to publish reports on us or our business regularly, demand
for our common stock could decrease, which might cause the price of
our common stock and trading volume to decline.
Public company requirements may strain our resources and divert
management’s attention, which could adversely impact our
ability to execute our strategy and harm operating
results.
We
are subject to the reporting requirements of the Securities
Exchange Act of 1934, the Sarbanes-Oxley Act, the Dodd-Frank Wall
Street Reform and Consumer Protection Act, which we refer to as
“Dodd-Frank,” the listing requirements of the NYSE
American and other applicable securities rules and regulations.
Despite recent reforms made possible by the JOBS Act, compliance
with these rules and regulations will nonetheless increase our
legal and financial compliance costs, make some activities more
difficult, time-consuming or costly and increase demand on our
systems and resources, particularly after we are no longer an
“emerging growth company.” While the members of our
board of directors have substantial experience relevant to our
business, they have limited experience with operations as a public
company upon which you can base your prediction of our future
success or failure in complying with public company requirements.
Our management may fail to comply with public company requirements,
or may fail to do so effectively and efficiently, each would
materially and adversely harm our ability to execute our strategy
and, consequently, our operating results.
Furthermore,
as a result of disclosure in filings required of a public company,
our business and financial condition will become more visible,
which may result in threatened or actual litigation, including by
competitors and other third parties. If these claims are
successful, our business and operating results could be harmed, and
even if the claims do not result in litigation or are resolved in
our favor, these claims, and the time and resources necessary to
resolve them, could divert the resources of management and
adversely affect our business, brand and reputation and results of
operations. Our new public company status and these new rules and
regulations may make it more expensive for us to obtain director
and officer liability insurance, and we may be required to accept
reduced coverage or incur substantially higher costs to obtain
coverage. These factors could also make it more difficult for us to
attract and retain qualified members of the board of directors,
particularly to serve on the audit committee and compensation
committee, and qualified executive officers.
Some provisions of our charter documents and North Carolina law may
have anti-takeover effects that could discourage an acquisition of
us by others, even if an acquisition would be beneficial to our
shareholders and may prevent attempts by our shareholders to
replace or remove our current management.
Provisions
in our articles of incorporation and bylaws, as well as provisions
of North Carolina law, could make it more difficult for a third
party to acquire us or increase the cost of acquiring us, even if
doing so would benefit our shareholders, or remove our current
management. These include provisions that:
●
permit
our board of directors to issue up to 50,000,000 shares of
preferred stock, with any rights, preferences and privileges as
they may designate;
●
provide
that all vacancies on our board of directors, including as a result
of newly created directorships, may, except as otherwise required
by law, be filled by the affirmative vote of a majority of
directors then in office, even if less than a quorum;
and
●
do
not provide for cumulative voting rights, thereby allowing the
holders of a majority of the shares of common stock entitled to
vote in any election of directors to elect all of the directors
standing for election.
These
provisions may frustrate or prevent any attempts by our
shareholders to replace or remove our current management by making
it more difficult for shareholders to replace members of our board
of directors, who are responsible for appointing the members of our
management. In addition, North Carolina has two primary
anti-takeover statutes, the Shareholder Protection Act and the
Control Share Acquisition Act, which govern the shareholder
approval required for certain business combinations. As permitted
by North Carolina law, we have opted out of both these provisions.
Accordingly, we are not subject to any anti-takeover effects of the
North Carolina Shareholder Protection Act or Control Share
Acquisition Act. Any provision of our articles of incorporation,
bylaws or North Carolina law that has the effect of delaying or
deterring a change in control could limit the opportunity for our
shareholders to receive a premium for their shares of common stock,
and could also affect the price that some investors are willing to
pay for our shares of common stock.
We have additional securities available for issuance, which, if
issued, could adversely affect the rights of the holders of our
common stock.
Our
articles of incorporation, as amended, authorizes the issuance of
150,000,000 shares of our common stock and 50,000,000 shares of
preferred stock. In certain circumstances, the common stock, as
well as the awards available for issuance under our equity
incentive plans, can be issued by our board of directors, without
stockholder approval. Any future issuances of such stock would
further dilute the percentage ownership of us held by holders of
common stock. In addition, the issuance of certain securities,
including pursuant to the terms of our stockholder rights plan, may
be used as an “anti-takeover” device without further
action on the part of our stockholders, and may adversely affect
the holders of the common stock.
In
addition, the issuance of preferred stock may be used as an
“anti-takeover” device and may adversely affect the
holders of the common stock. If our board of directors and
stockholders approved the use of “blank check”
preferred stock, our board of directors would be authorized to
create and issue from time to time, without further stockholder
approval, a certain number of shares of preferred stock, in one or
more series and to establish the number of shares of any series of
preferred stock and to fix the designations, powers, preferences
and rights of the shares of each series and any qualifications,
limitations or restrictions of the shares of each series. The
authority to designate preferred stock may be used to issue series
of preferred stock, or rights to acquire preferred stock, that
could dilute the interest of, or impair the voting power of,
holders of the common stock or could also be used as a method of
determining, delaying or preventing a change of
control.
USE OF PROCEEDS
Unless
otherwise indicated in an accompanying prospectus supplement, the
net proceeds from the sale of the securities offered hereby will be
used for general corporate purposes, which may include working
capital, capital expenditures, and development costs. We have not
allocated any portion of the net proceeds for any particular use at
this time. The net proceeds may be invested temporarily until they
are used for their stated purpose. Specific information concerning
the use of proceeds from the sale of any securities will be
included in the prospectus supplement relating to such
securities.
DESCRIPTION OF CAPITAL STOCK
Our
authorized capital is 150,000,000 shares of common stock, par value
$0.001 per share, and 50,000,000 shares of blank check preferred
stock, par value $0.001 per share. At March 26, 2019, there were
10,170,356 shares of common stock and no shares of preferred stock
issued and outstanding.
Common stock
Holders
of common stock are entitled to one vote for each share on all
matters submitted to a shareholder vote. Holders of common stock do
not have cumulative voting rights. Holders of common stock are
entitled to share in all dividends that the board of directors, in
its discretion, declares from legally available funds. In the event
of our liquidation, dissolution or winding up, subject to the
preferences of any shares of our preferred stock which may then be
outstanding, each outstanding share entitles its holder to
participate in all assets that remain after payment of liabilities
and after providing for each class of stock, if any, having
preference over the common stock.
Holders
of common stock have no conversion, preemptive or other
subscription rights, and there are no redemption provisions for the
common stock. The rights of the holders of common stock are subject
to any rights that may be fixed for holders of preferred stock,
when and if any preferred stock is authorized and issued. All
outstanding shares of common stock are duly authorized, validly
issued, fully paid and non-assessable.
Preferred stock
Our
board of directors, without further shareholder approval, may issue
preferred stock in one or more series from time to time and fix or
alter the designations, relative rights, priorities, preferences,
qualifications, limitations and restrictions of the shares of each
series. The rights, preferences, limitations and restrictions of
different series of preferred stock may differ with respect to
dividend rates, amounts payable on liquidation, voting rights,
conversion rights, redemption provisions, sinking fund provisions
and other matters. Our board of directors may authorize the
issuance of preferred stock, which ranks senior to our common stock
for the payment of dividends and the distribution of assets on
liquidation. In addition, our board of directors can fix
limitations and restrictions, if any, upon the payment of dividends
on both classes of our common stock to be effective while any
shares of preferred stock are outstanding.
Limitations on liabilities for our officers and
directors
Sections
55-8-50 through 55-8-58 of the North Carolina General Statutes
permit a corporation to indemnify its directors, officers,
employees or agents under either or both a statutory or
non-statutory scheme of indemnification. Under the statutory
scheme, a corporation may, with certain exceptions, indemnify a
director, officer, employee or agent of the corporation who was,
is, or is threatened to be made, a party to any threatened, pending
or completed legal action, suit or proceeding, whether civil,
criminal, administrative, or investigative, because of the fact
that such person was a director, officer, agent or employee of the
corporation, or is or was serving at the request of such
corporation as a director, officer, employee or agent of another
corporation or enterprise. This indemnity may include the
obligation to pay any judgment, settlement, penalty, fine
(including an excise tax assessed with respect to an employee
benefit plan) and reasonable expenses incurred in connection with a
proceeding (including counsel fees), but no such indemnification
may be granted unless such director, officer, agent or employee (i)
conducted himself in good faith, (ii) reasonably believed (a) that
any action taken in his official capacity with the corporation was
in the best interest of the corporation or (b) that in all other
cases his conduct at least was not opposed to the
corporation’s best interest, and (iii) in the case of any
criminal proceeding, had no reasonable cause to believe his conduct
was unlawful. Whether a director has met the requisite standard of
conduct for the type of indemnification set forth above is
determined by the board of directors, a committee of directors,
special legal counsel or the shareholders in accordance with
Section 55-8-55. A corporation may not indemnify a director under
the statutory scheme in connection with a proceeding by or in the
right of the corporation in which the director was adjudged liable
to the corporation or in connection with a proceeding in which a
director was adjudged liable on the basis of having received an
improper personal benefit.
In addition to, and separate and apart from the indemnification
described above under the statutory scheme, Section 55-8-57 of
the North Carolina General Statutes permits a corporation to
indemnify or agree to indemnify any of its directors, officers,
employees or agents against liability and expenses (including
attorney’s fees) in any proceeding (including proceedings
brought by or on behalf of the corporation) arising out of their
status as such or their activities in such capacities, except for
any liabilities or expenses incurred on account of activities that
were, at the time taken, known or believed by the person to be
clearly in conflict with the best interests of the corporation. Our
bylaws provide for indemnification to the fullest extent permitted
by law for persons who serve as a director, officer, agent or
employee of Level Brands or at the request of Level Brands serve as
a director, officer, agent or employee for any other corporation,
partnership, joint venture, trust or other enterprise, or as a
trustee or administrator under an employee benefit plan.
Accordingly, we may indemnify our directors, officers, agents or
employees in accordance with either the statutory or non-statutory
standards.
Sections
55-8-52 and 55-8-56 of the North Carolina General Statutes require
a corporation, unless its articles of incorporation provide
otherwise, to indemnify a director or officer who has been wholly
successful, on the merits or otherwise, in the defense of any
proceeding to which such director or officer was a party. Unless
prohibited by the articles of incorporation, a director or officer
also may make application and obtain court-ordered indemnification
if the court determines that such director or officer is fairly and
reasonably entitled to such indemnification as provided in Sections
55-8-54 and 55-8-56.
Finally,
Section 55-8-57 of the North Carolina General Statutes provides
that a corporation may purchase and maintain insurance on behalf of
an individual who is or was a director, officer, employee or agent
of the corporation against certain liabilities incurred by such
persons, whether or not the corporation is otherwise authorized by
the North Carolina Business Corporation Act to indemnify such
party. We have purchased a standard directors’ and
officers’ liability policy which will, subject to certain
limitations, indemnify us and our officers and directors for
damages they become legally obligated to pay as a result of any
negligent act, error, or omission committed by directors or
officers while acting in their capacity as such.
As
permitted by North Carolina law, Article 6 of our Articles of
Incorporation limits the personal liability of directors for
monetary damages for breaches of duty as a director arising out of
any legal action for breach of duty as a director.
Transfer Agent
The
transfer agent and registrar for our common stock is VStock
Transfer, LLC, 18 Lafayette Place, Woodmere, NY 11598.
Listing
Our
common stock is listed on the NYSE American under the symbol
“LEVB.”
DESCRIPTION OF WARRANTS
We
may issue warrants for the purchase of preferred stock or common
stock, or any combination of these securities. Warrants may be
issued independently or together with other securities and may be
attached to or separate from any offered securities. Each series of
warrants will be issued under a separate warrant agreement. The
following outlines some of the general terms and provisions of the
warrants that we may issue from time to time. Additional terms of
the warrants and the applicable warrant agreement will be set forth
in the applicable prospectus supplement.
The
following descriptions, and any description of the warrants
included in a prospectus supplement, may not be complete and is
subject to and qualified in its entirety by reference to the terms
and provisions of the applicable warrant agreement, which we will
file with the Securities and Exchange Commission in connection with
any offering of warrants.
General
The
prospectus supplement relating to a particular issue of warrants
will describe the terms of the warrants, including the
following:
●
the
title of the warrants;
●
the
offering price for the warrants, if any;
●
the
aggregate number of the warrants;
●
the
terms of the security that may be purchased upon exercise of the
warrants;
●
if
applicable, the designation and terms of the securities that the
warrants are issued with and the number of warrants issued with
each security;
●
if
applicable, the date from and after which the warrants and any
securities issued with the warrants will be separately
transferable;
●
the
dates on which the right to exercise the warrants commence and
expire;
●
if
applicable, the minimum or maximum amount of the warrants that may
be exercised at any one time;
●
if
applicable, a discussion of material United States federal income
tax considerations;
●
anti-dilution
provisions of the warrants, if any;
●
redemption
or call provisions, if any, applicable to the warrants;
and
●
any
additional terms of the warrants, including terms, procedures and
limitations relating to the exchange and exercise of the
warrants.
Exercise of warrants
Each
warrant will entitle the holder of the warrant to purchase the
securities that we specify in the applicable prospectus supplement
at the exercise price that we describe in the applicable prospectus
supplement. Holders may exercise warrants at any time up to the
close of business on the expiration date set forth in the
applicable prospectus supplement. After the close of business on
the expiration date, unexercised warrants will be void. Holders may
exercise warrants as set forth in the prospectus supplement
relating to the warrants being offered. Until a holder exercises
the warrants to purchase any securities underlying the warrants,
the holder will not have any rights as a holder of the underlying
securities by virtue of ownership of warrants.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
A
summary of any material United States federal income tax
consequences to persons investing in the securities offered by this
prospectus will be set forth in any applicable prospectus
supplement. The summary will be presented for informational
purposes only, however, and will not be intended as legal or tax
advice to prospective purchasers. Prospective purchasers of
securities are urged to consult their own tax advisors prior to any
purchase of securities.
PLAN OF DISTRIBUTION
We
may sell the securities from time to time pursuant to underwritten
public offerings, "at-the-market" offerings, negotiated
transactions, block trades, or a combination of these methods. We
may sell the securities in one or more of the following ways from
time to time:
●
to
or through underwriters or dealers;
●
directly
to one or more purchasers; or
The
prospectus supplement (and any related free writing prospectuses
that we may authorize) will describe the terms of such offering,
including:
●
the
name or names of any underwriters, dealers or agents;
●
the
purchase price of the offered securities and the proceeds to Level
Brands from the sale;
●
any
over-allotment options under which underwriters may purchase
additional securities from us;
●
any
underwriting discounts and commissions or agency fees and other
items constituting underwriters' or agents' compensation;
and
●
any
initial public offering price, any discounts or concessions allowed
or reallowed or paid to dealers and any securities exchanges on
which such offered securities may be listed.
Any
initial public offering prices, discounts or concessions allowed or
reallowed or paid to dealers may be changed from time to
time.
If
underwriters are used in the sale, the underwriters will acquire
the offered securities for their own account and may resell them
from time to time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices
determined at the time of sale. The offered securities may be
offered either to the public through underwriting syndicates
represented by one or more managing underwriters or by one or more
underwriters without a syndicate. Unless otherwise set forth in a
prospectus supplement, the obligations of the underwriters to
purchase any series of securities will be subject to certain
conditions precedent, and the underwriters will be obligated to
purchase all of such series of securities, if any are purchased
(other than securities subject to any over-allotment
option).
In
connection with underwritten offerings of the offered securities
and in accordance with applicable law and industry practice,
underwriters may over-allot or effect transactions that stabilize,
maintain or otherwise affect the market price of the offered
securities at levels above those that might otherwise prevail in
the open market, including by entering stabilizing bids, effecting
syndicate covering transactions or imposing penalty bids. A
stabilizing bid means the placing of any bid, or the effecting of
any purchase, for the purpose of pegging, fixing or maintaining the
price of a security. A syndicate covering transaction means the
placing of any bid on behalf of the underwriting syndicate or the
effecting of any purchase to reduce a short position created in
connection with the offering. A penalty bid means an arrangement
that permits the managing underwriter to reclaim a selling
concession from a syndicate member in connection with the offering
when offered securities originally sold by the syndicate member are
purchased in syndicate covering transactions.
These
transactions may be effected on the NYSE American, in the
over-the-counter market, or otherwise. Underwriters are not
required to engage in any of these activities, or to continue such
activities if commenced.
If
a dealer is used in the sale, Level Brands will sell such offered
securities to the dealer, as principal. The dealer may then resell
the offered securities to the public at varying prices to be
determined by that dealer at the time for resale. The names of the
dealers and the terms of the transaction will be set forth in the
prospectus supplement relating to that transaction.
Offered
securities may be sold directly by Level Brands to one or more
institutional purchasers, or through agents designated by us from
time to time, at a fixed price or prices, which may be changed, or
at varying prices determined at the time of sale. Any agent
involved in the offer or sale of the offered securities in respect
of which this prospectus is delivered will be named, and any
commissions payable by Level Brands to that agent will be set
forth, in the prospectus supplement relating to that offering.
Unless otherwise indicated in such prospectus supplement, any such
agent will be acting on a best efforts basis for the period of its
appointment.
Underwriters,
dealers and agents may be entitled under agreements entered into
with us to indemnification by us against certain civil liabilities,
including liabilities under the Securities Act of 1933, or to
contribution with respect to payments that the underwriters,
dealers or agents may be required to make in respect thereof.
Underwriters, dealers and agents may be customers of, engage in
transactions with, or perform services for us and our affiliates in
the ordinary course of business.
Other
than our common stock, which is listed on the NYSE American, each
of the securities issued hereunder will be a new issue of
securities, will have no prior trading market, and may or may not
be listed on a national securities exchange. Any common stock sold
pursuant to a prospectus supplement will be listed on the NYSE
American, subject to official notice of issuance. Any underwriters
to whom we sell securities for public offering and sale may make a
market in the securities, but such underwriters will not be
obligated to do so and may discontinue any market making at any
time without notice. We cannot assure you that there will be a
market for the offered securities.
LEGAL MATTERS
The
validity of the securities offered by this prospectus will be
passed upon for us by Pearlman Law Group LLP, 200 S. Andrews
Avenue, Suite 901, Fort Lauderdale, Florida 33301. Certain matters
under North Carolina law have been passed upon for us by the Law
Offices of Jason H. Scott.
EXPERTS
Our
consolidated balance sheets as of September 30, 2018 and 2017 and
the related consolidated statements of operations, comprehensive
income (loss), shareholders’ equity and cash flows for the
fiscal years ended September 30, 2018 and 2017 incorporated by
reference in the registration statement of which this prospectus is
a part have been audited by Cherry Bekaert LLP, independent
registered public accounting firm, as indicated in their report
with respect thereto, and have been so included in reliance upon
the report of such firm given on their authority as experts in
accounting and auditing.
INFORMATION INCORPORATED BY REFERENCE
The
Securities and Exchange Commission allows us to “incorporate
by reference” the information we file with them, which means
that we can disclose important information to you by referring you
to those documents. The information incorporated by reference is
considered to be part of this prospectus, and later information
filed with the Securities and Exchange Commission will update and
supersede this information. We incorporate by reference the
documents listed below that we have previously filed with the SEC,
except that information furnished under Item 2.02 or Item 7.01 of
our Current Reports on Form 8-K or any other filing where we
indicate that such information is being furnished and not
“filed” under the Securities Exchange Act of 1934, is
not deemed to be filed and not incorporated by reference
herein:
●
our
Annual Report on Form 10-K for the fiscal year ended September 30,
2018;
●
our
Quarterly Report on Form 10-Q for the period ended December 31,
2018;
●
our
Current Reports on Form 8-K/A as filed on February 22, 2019 and
March 21, 2019; and
●
the
description of our common stock contained in our Registration
Statement on Form 8-A as filed with the SEC on November 15, 2017
and any further amendment or report filed hereafter for the purpose
of updating such description.
We
also incorporate by reference into this prospectus additional
documents that we may file with the SEC under Sections 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934 prior to
the completion or termination of the offering, including all such
documents we may file with the SEC after the date of the initial
registration statement and prior to the effectiveness of the
registration statement, but excluding any information deemed
furnished and not filed with the SEC. Any statements contained in a
previously filed document incorporated by reference into this
prospectus is deemed to be modified or superseded for purposes of
this prospectus to the extent that a statement contained in this
prospectus, or in a subsequently filed document also incorporated
by reference herein, modifies or supersedes that
statement.
This
prospectus may contain information that updates, modifies or is
contrary to information in one or more of the documents
incorporated by reference in this prospectus. You should rely only
on the information incorporated by reference or provided in this
prospectus. We have not authorized anyone else to provide you with
different information. You should not assume that the information
in this prospectus is accurate as of any date other than the date
of this prospectus or the date of the documents incorporated by
reference in this prospectus.
We
will provide to each person, including any beneficial owner, to
whom this prospectus is delivered, upon written or oral request, at
no cost to the requester, a copy of any and all of the information
that is incorporated by reference in this prospectus.
You may request a copy of these filings, at no cost to you, by
telephoning us at (704) 445-5800 or by writing us at the following
address:
Level Brands, Inc.
4521 Sharon Road
Suite 450
Charlotte, NC 28211
Attention: Investor Relations
You
may also access the documents incorporated by reference in this
prospectus through our website at www.levelbrands.com. The
reference to our website is an inactive textual reference only and,
except for the specific incorporated documents listed above, no
information available on or through our website shall be deemed to
be incorporated in this prospectus or the registration statement of
which it forms a part.
500,000 Shares
8% Series A Cumulative Convertible Preferred Stock
Liquidation
Preference $10.00 Per Share
_________________
—————————————————————
PROSPECTUS
SUPPLEMENT
—————————————————————
ThinkEquity
a division of Fordham Financial Management, Inc.
Benchmark Company
,
2019
Level Brands, Inc. (AMEX:LEVB)
Historical Stock Chart
From Apr 2024 to May 2024
Level Brands, Inc. (AMEX:LEVB)
Historical Stock Chart
From May 2023 to May 2024