Document and Entity Information
Document and Entity Information - shares | 9 Months Ended | |
May 31, 2018 | Jul. 09, 2018 | |
Document and Entity Information: | ||
Entity Registrant Name | Kush Bottles, Inc. | |
Entity Central Index Key | 1,604,627 | |
Trading Symbol | kshb | |
Current Fiscal Year End Date | --08-31 | |
Entity Filer Category | Smaller Reporting Company | |
Entity Common Stock, Shares Outstanding | 74,198,243 | |
Document Type | 10-Q | |
Document Period End Date | May 31, 2018 | |
Amendment Flag | false | |
Document Fiscal Year Focus | 2,018 | |
Document Fiscal Period Focus | Q3 |
Condensed Consolidated Balance
Condensed Consolidated Balance Sheets - USD ($) | May 31, 2018 | Aug. 31, 2017 |
Current assets: | ||
Cash | $ 3,574,430 | $ 916,984 |
Accounts receivable, net of allowance | 6,285,310 | 1,695,303 |
Prepaid expenses and other current assets | 6,736,528 | 1,625,689 |
Inventory | 10,059,200 | 3,754,171 |
Total current assets | 26,655,468 | 7,992,147 |
Goodwill | 51,281,279 | 34,247,344 |
Intangible assets, net | 3,175,583 | 3,730,287 |
Deposits | 621,723 | 50,235 |
Deferred tax asset | 30,081 | 30,081 |
Property and equipment, net | 2,778,796 | 931,763 |
Total Assets | 84,542,930 | 46,981,857 |
Current liabilities: | ||
Accounts payable | 3,675,579 | 1,039,889 |
Accrued expenses and other current liabilities | 2,494,794 | 993,186 |
Contingent cash consideration | 2,150,000 | 1,820,000 |
Notes payable - current portion | 145,413 | 689,450 |
Line of credit - current portion | 2,433,907 | |
Total current liabilities | 10,899,693 | 4,542,525 |
Long-term liabilities: | ||
Deferred tax liability | 1,151,536 | 1,424,173 |
Notes payable | 185,772 | 34,513 |
Total long-term liabilities | 1,337,308 | 1,458,686 |
Total liabilities | 12,237,001 | 6,001,211 |
Commitments and contingencies | ||
Stockholders' equity | ||
Preferred stock, $0.001 par value, 10,0000,000 shares authorized, no shares issued and outstanding | ||
Common stock, $0.001 par value, 265,000,000 shares authorized, 66,389,529 and 58,607,066 shares issued and outstanding, respectively | 66,389 | 58,607 |
Additional paid-in capital | 75,838,222 | 41,529,283 |
Accumulated deficit | (3,598,682) | (607,244) |
Total stockholders' equity | 72,305,929 | 40,980,646 |
Total liabilities and stockholders' equity | $ 84,542,930 | $ 46,981,857 |
Condensed Consolidated Balance3
Condensed Consolidated Balance Sheets (Parentheticals) - $ / shares | May 31, 2018 | Aug. 31, 2017 |
Statement of Financial Position [Abstract] | ||
Preferred stock, par value (in dollars per share) | $ 0.001 | $ 0.001 |
Preferred stock, shares authorized | 10,000,000 | 10,000,000 |
Preferred stock, shares issued | 0 | 0 |
Preferred stock, shares outstanding | 0 | 0 |
Common stock, par value (in dollars per share) | $ 0.001 | $ 0.001 |
Common stock, shares authorized | 265,000,000 | 265,000,000 |
Common stock, shares issued | 66,389,529 | 58,607,066 |
Common stock, shares outstanding | 66,389,529 | 58,607,066 |
Condensed Consolidated Statemen
Condensed Consolidated Statements of Operations (Unaudited) - USD ($) | 3 Months Ended | 9 Months Ended | ||
May 31, 2018 | May 31, 2017 | May 31, 2018 | May 31, 2017 | |
Income Statement [Abstract] | ||||
Revenue | $ 12,904,609 | $ 4,719,477 | $ 32,113,100 | $ 10,161,813 |
Cost of goods sold | 9,246,879 | 3,042,405 | 22,859,731 | 6,345,204 |
Gross profit | 3,657,730 | 1,677,072 | 9,253,369 | 3,816,609 |
Operating expenses: | ||||
Depreciation | 258,837 | 28,816 | 666,409 | 48,294 |
Stock compensation expense | 495,897 | 259,417 | 1,904,568 | 522,226 |
Selling, general and administrative | 4,987,374 | 1,380,100 | 9,495,295 | 3,369,202 |
Total operating expenses | 5,742,108 | 1,668,333 | 12,066,272 | 3,939,722 |
Income (loss) from operations | (2,084,378) | 8,739 | (2,812,903) | (123,113) |
Other income (expense) | ||||
Other expense | (23,944) | |||
Interest expense | (81,362) | (2,620) | (112,357) | (4,488) |
Total other expense | (81,362) | (2,620) | (112,357) | (28,432) |
Income (loss) before income taxes | (2,165,740) | 6,119 | (2,925,260) | (151,545) |
Provision for income taxes | 66,178 | |||
Net Income (Loss) | $ (2,165,740) | $ 6,119 | $ (2,991,438) | $ (151,545) |
Net Income (Loss) per Share: | ||||
Basic net income (loss) per common share outstanding (in dollars per share) | $ (0.03) | $ (0.05) | ||
Diluted net income (loss) per common share outstanding (in dollars per share) | $ (0.03) | $ (0.05) | ||
Basic weighted average number of common shares outstanding (in shares) | 64,680,419 | 51,805,930 | 61,995,107 | 50,458,416 |
Diluted weighted average number of common shares outstanding (in shares) | 64,680,419 | 53,334,232 | 61,995,107 | 50,458,416 |
Condensed Consolidated Stateme5
Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) | 9 Months Ended | |
May 31, 2018 | May 31, 2017 | |
Cash flows from operating activities | ||
Net loss | $ (2,991,438) | $ (151,545) |
Adjustments to reconcile net loss to net cash used in operating activities: | ||
Depreciation and amortization | 666,410 | 142,814 |
Depreciation cost of goods sold | 125,111 | |
Stock compensation expense | 1,904,568 | 522,226 |
Changes in operating assets and liabilities: | ||
Accounts receivable | (4,119,337) | (625,760) |
Provisions for deferred taxes | (272,637) | |
Prepaids | (3,715,284) | (213,436) |
Inventory | (6,068,029) | (1,305,102) |
Accounts payable | 1,371,469 | 634,741 |
Accrued expenses and other current liabilities | 869,209 | 94,603 |
Net cash used in operating activities | (12,229,958) | (901,459) |
Cash flows from investing activities | ||
Acquisition of web domain | (9,321) | (150,000) |
Security deposits | (571,488) | (28,379) |
Acquisition of CMP Wellness, LLC | (1,500,000) | |
Purchase of property and equipment | (987,746) | (777,542) |
Acquisition of Summit Innovations Gas, LLC, net of cash received | (945,218) | |
Net cash used by investing activities | (2,513,773) | (2,455,921) |
Cash flows from financing activities | ||
Repayment of the car loans | (247,907) | |
Repayment of Summit loans | (711,896) | |
Payment of earn-out | (170,000) | |
Proceeds from note payable | 24,785 | |
Repayment of note payable | (583,441) | (21,614) |
Proceeds from line of credit | 2,433,907 | |
Proceeds from stock option exercises | 245,791 | 44,001 |
Proceeds from sale of stock | 16,434,723 | 3,009,897 |
Net cash provided by financing activities | 17,401,177 | 3,057,069 |
Net increase (decrease) in cash | 2,657,446 | (300,311) |
Cash at beginning of period | 916,984 | 1,027,003 |
Cash at end of period | 3,574,430 | 726,692 |
Cash paid for: | ||
Interest | 73,706 | 3,855 |
Income taxes | 330,000 | |
Non-cash investing and financing activities | ||
Services prepaid for in common stock | 1,308,929 | 169,955 |
Shares issued for accounts payable | 112,310 | |
Fair value of shares issued related to acquisition of business | 19,500,000 | |
Fair value of shares issued related to acquisition of web domain | 466,000 | |
Fair value of contingent equity consideration | $ 11,229,760 | |
Reclass Summit tax payable from loan payable short term | 274,363 | |
Purchase of property and equipment on credit | 204,315 | |
Supplemental Disclosures - Acquisition: | ||
Accounts receivable | 470,670 | |
Prepaid expense and other current assets | 86,626 | |
Inventory | 237,000 | |
Property and equipment, net | 648,770 | |
Goodwill | 17,033,935 | |
Accounts payable | (1,376,531) | |
Accrued expenses | (358,035) | |
Notes payable | (986,816) | |
Stock consideration | (14,310,400) | |
Contingent cash consideration liability | (500,000) | |
Acquisition of Summit Innovations Gas, LLC | $ 945,218 |
NATURE OF BUSINESS AND SIGNIFIC
NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES | 9 Months Ended |
May 31, 2018 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES | NOTE 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES Nature of Business Kush Bottles, Inc. (“the Company”) was incorporated in the state of Nevada on February 26, 2014. The Company provides customizable packaging products, vaporizers, hydrocarbon gases, solvents, accessories and branding solutions for the cannabis industry. Representative examples of the Company’s products include pop-top bottles, vaporizer cartridges and accessories, exit/barrier bags, tubes, and other small-sized containers. The Company’s wholly owned subsidiary Kim International Corporation (KIM), a California corporation, was originally incorporated as Hy Gro Economics Corporation ("Hy Gro") on December 2, 2010. On October 30, 2012, Hy Gro amended its articles of incorporation to reflect a name change to KIM International Corporation (KIM). On March 4, 2014, the shareholders of KIM exchanged all 10,000 of their common shares for 32,400,000 shares of common stock of Kush Bottles, Inc. The operations of KIM became the operations of Kush after the share exchange and accordingly the transaction is accounted for as a recapitalization of KIM whereby the historical financial statements of KIM are presented as the historical financial statements of the combined entity. KIM was the acquiring entity in accordance with ASC 805, Business Combinations. The accumulated losses of KIM were carried forward after the completion of the share exchange. Operations prior to the share exchange were those of KIM. Acquisition of CMP Wellness, LLC On May 1, 2017, the Company entered into an agreement of merger agreement with Lancer West Enterprises, Inc. a California corporation, Walnut Ventures, a California corporation, Jason Manasse, an individual, and Theodore Nicols, an individual, pursuant to which each of Lancer West Enterprises, Inc. and Walnut Ventures were merged with and into Merger Sub, with Merger Sub as the surviving corporation, resulting in the Company’s indirect acquisition of CMP Wellness, LLC, a California limited liability company, which prior to the merger, was owned 100% by Lancer West Enterprises, Inc. and Walnut Ventures. CMP Wellness, LLC is a distributor of vaporizers, cartridges and accessories. See Note 2 for a further description of the CMP acquisition. Acquisition of Summit Innovations, LLC On May 2, 2018, the Company completed its acquisition of Summit Innovations, LLC (“Summit”), a leading distributor of hydrocarbon gases to the legal cannabis industry. Pursuant to the terms of the Agreement and Plan of Merger (the “Merger Agreement”), Summit merged with and into KCH Energy, LLC (“KCH”), a wholly-owned subsidiary of the Company, with KCH as the surviving entity. See Note 3 for a further description of the Summit acquisition. Basis of Presentation The accompanying unaudited condensed consolidated financial statements and related notes include the activity of the Company and its wholly owned subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") for interim financial information. All intercompany balances and transactions have been eliminated. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for annual financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included. The Company’s operating results for the three and nine months period ended May 31, 2018 are not necessarily indicative of the results that may be expected for the fiscal year ended August 31, 2018, or for any other period. These unaudited condensed consolidated financial statements and notes should be read in conjunction with the Company’s audited consolidated financial statements and accompanying notes for the fiscal year ended August 31, 2017. The condensed consolidated balance sheet as of August 31, 2017 included herein was derived from the audited financial statements as of that date, but does not include all disclosures including notes required by GAAP. There have been no changes to the Company’s significant accounting policies described in its Annual Report on Form 10-K for the fiscal year ended August 31, 2017 that have had a material impact on our condensed consolidated financial statements and related notes. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amount of revenues and expenses during the reporting period. Significant estimates relied upon in preparing these unaudited condensed consolidated financial statements include revenue recognition, accounts receivable reserves, inventory and related reserves, valuations and purchase price allocations related to business combinations, expected future cash flows used to evaluate the recoverability of long-lived assets, estimated fair values of long-lived assets used to record impairment charges related to intangible assets and goodwill, amortization periods, accrued expenses, stock-based compensation, contingent liabilities and recoverability of the Company’s net deferred tax assets and any related valuation allowance. Although the Company regularly assesses these estimates, actual results could differ materially from these estimates. Changes in estimates are recorded in the period in which they become known. The Company bases its estimates on historical experience and various other assumptions that it believes to be reasonable under the circumstances. Actual results may differ from management’s estimates. The Company is subject to a number of risks similar to those of other companies of similar size and having a focus of serving the cannabis industry, including, the development stage of certain products, competition, limited number of suppliers, integration of acquisitions, substantial indebtedness, government regulations, protection of proprietary rights, and dependence on key individuals. Reclassification Certain classifications have been made to the prior year financial statements to conform to the current year presentation. The reclassification had no impact on previously reported net income (loss) or accumulated deficit. Segments The Company operates as one operating segment. Operating segments are defined as components of an enterprise for which separate financial information is evaluated regularly by the chief operating decision maker, who is the chief executive officer, in deciding how to allocate resources and assessing performance. Over the past few years, the Company has completed a number of acquisitions. These acquisitions have allowed the Company to expand its offerings, presence and reach in the cannabis industry. While the Company has offerings in multiple geographic locations for its products for the cannabis industry, including as a result of the Company's acquisitions, the Company’s business operates in one operating segment because the majority of the Company's offerings operate similarly, and the Company’s chief operating decision maker evaluates the Company’s financial information and resources and assesses the performance of these resources on a consolidated basis. Since the Company operates in one operating segment, all required financial segment information can be found in the unaudited condensed consolidated financial statements. Accounts Receivable Trade accounts receivable are carried at their estimated collectible amounts. Trade credit is generally extended on a short-term basis, thus trade receivables do not bear interest. Trade accounts receivables are periodically evaluated for collectability based on past credit history and their current financial condition. The Company’s allowance for doubtful accounts was $132,000 and $25,000 as of May 31, 2018 and August 31, 2017, respectively. Inventory Inventories are stated at the lower of cost or net realizable value using the first-in first out (FIFO) method. The Company’s inventory consists of finished goods of $10,059,200 and $3,754,171 as of May 31, 2018 and August 31, 2017, respectively. Fair Value of Financial Instruments The fair value of certain of the Company’s financial instruments, including cash and cash equivalents, receivables, other current assets, accounts payable, accrued compensation and employee benefits, other accrued liabilities and notes payable, approximate their carrying amounts because of the short-term maturity of these instruments. Valuation of Business Combinations and Acquisition of Intangible Assets The Company records intangible assets acquired in business combinations and acquisitions of intangible assets under the purchase method of accounting. The Company accounts for acquisitions in accordance with FASB ASC Topic 805, Business Combinations The Company uses the income approach, the relief from royalty method (both a market and income method), and the with and without method to determine the fair values of its purchased intangible assets. The Company uses the probability-weighted expected return method (an income approach) to determine the appropriate amount of contingent consideration to include in the purchase price for an acquisition. The Company bases its revenue assumptions on estimates of relevant market sizes, expected market growth rates, expected industry trends and expected product introductions by competitors. In arriving at the value. The Company bases the discount rate used to arrive at a present value as of the date of acquisition on the time value of money and cannabis industry investment risk factors. For the intangible assets acquired, the Company used risk-adjusted discount rates ranging from 19% to 26% to discount its projected cash flows. The Company believes that the estimated purchased intangible asset amounts so determined represent the fair value at the date of acquisition and do not exceed the amount a third party would pay for the projects. The Company also used the income approach (probably weighted cash flow), as described above, to determine the estimated fair value of certain identifiable intangibles assets including domain names and tradenames. Domain names represent established relationships with customers, which provides a ready channel for the sale of additional products and services. Tradenames represent acquired product names that the Company intends to continue to utilize. The Company used the with and without method to ascertain the fair value of the non-competition agreement. The company has not completed the valuation of Summit’s assets acquired and liabilities assumed as of May 31, 2018. Goodwill and Intangible Assets Goodwill and intangible assets that have indefinite useful lives are not amortized but are evaluated for impairment annually or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The Company records intangible assets at historical cost. The Company amortizes its intangible assets that have finite lives using either the straight-line method or based on estimated future cash flows to approximate the pattern in which the economic benefit of the asset will be utilized. Amortization is recorded over the estimated useful lives ranging from four to six years. The Company reviews intangible assets subject to amortization quarterly to determine if any adverse conditions exist or a change in circumstances has occurred that would indicate impairment or a change in the remaining useful life. Conditions that would indicate impairment and trigger a more frequent impairment assessment include, but are not limited to, a significant adverse change in legal factors or business climate that could affect the value of an asset, or an adverse action or assessment by a regulator. If the carrying value of an asset exceeds its undiscounted cash flows, the Company will write-down the carrying value of the intangible asset to its fair value in the period identified. The Company generally calculates fair value as the present value of estimated future cash flows to be generated by the asset using a risk-adjusted discount rate. If the estimate of an intangible asset’s remaining useful life is changed, the Company will amortize the remaining carrying value of the intangible asset prospectively over the revised remaining useful life. Consistent with prior years, the Company conducted its annual impairment test of goodwill during the fourth quarter of fiscal 2018. The estimate of fair value requires significant judgment. Any loss resulting from an impairment test would be reflected in operating income in the Company’s unaudited condensed consolidated statements of income. The annual impairment testing process is subjective and requires judgment at many points throughout the analysis. If these estimates or their related assumptions change in the future, the Company may be required to record impairment charges for these assets not previously recorded. The Company performed its goodwill impairment test as of June 1, 2018 and goodwill was not impaired. Business Combinations The Company uses its best estimates and assumptions to accurately assign fair value to the tangible and intangible assets acquired and liabilities assumed at the acquisition date. The Company’s estimates are inherently uncertain and subject to refinement. During the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the fair value of these tangible and intangible assets acquired and liabilities assumed, with the corresponding offset to goodwill. In addition, uncertain tax positions and tax-related valuation allowances are initially established in connection with a business combination as of the acquisition date. The Company continues to collect information and reevaluates these estimates and assumptions quarterly and records any adjustments to the Company’s preliminary estimates to goodwill provided that the Company is within the measurement period. Upon the conclusion of the measurement period or final determination of the fair value of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the Company’s condensed consolidated statements of operations. Earnings (Loss) Per Share The Company computes earnings per share under Accounting Standards Codification subtopic 260-10, "Earnings per Share" (“ASC 260-10”). Basic net income (loss) per common share is computed by dividing net loss by the weighted average number of shares of common stock. Diluted net loss per share is computed using the weighted average number of common and common stock equivalent shares outstanding during the period. Basic earnings per share are computed by dividing net earnings by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share are computed by dividing net earnings by the sum of (a) the weighted average number of shares of common stock outstanding during the period and (b) the potentially dilutive securities outstanding during the period. Stock options are potentially dilutive securities; and the number of dilutive options is computed using the treasury stock method. The effect of the contingent equity consideration relating to the acquisitions of CMP and Summit is also factored into the calculation of dilutive securities. The following table sets forth the calculation of basic and diluted earnings per share: Three Months Ended Nine Months Ended May 31, May 31, May 31, May 31, 2018 2017 2018 2017 Net income $ (2,165,740 ) $ 6,119 $ (2,991,438 ) $ (151,545 ) Weighted average common shares outstanding: Basic 64,680,419 51,805,930 61,995,107 50,458,416 Net effect of dilutive options - 1,528,302 - - Diluted 64,680,419 53,334,232 61,995,107 50,458,416 Earnings per share: Basic $ (0.03 ) $ - $ (0.05 ) $ - Diluted $ (0.03 ) $ - $ (0.05 ) $ - Potentially dilutive securities consisted of 7,231,042 and 4,695,000 stock options as of May 31, 2018 and 2017, respectively. Additionally, the approximately 640,000 shares of Common Stock held back by the Company for a period of 15 months for potential post-closing working capital and/or indemnification claims relating to, among other things, breaches of representations, warranties and covenants contained in the Summit Merger Agreement and the potential earn-out consideration of up to an additional 1,280,000 shares of common stock, in the aggregate, based on the performance of the Summit business during a one-year period following the closing were not included in earnings per share because it is not certain that the shares will be issued. Revenue Recognition It is the Company’s policy that revenues from product sales is recognized in accordance with ASC 605 "Revenue Recognition". Four basic criteria must be met before revenue can be recognized; (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on management’s judgments regarding fixed nature in selling prices of the products delivered and the collectability of those amounts. The Company has not implemented any specific rebate programs. Provisions for discounts to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded. During the three-month period ended May 31, 2018 and 2017, the Company had no provisions for sales discounts of $140,018 and $40,806, respectively. The Company has not established a formal customer incentive program, but considers and accommodates discounts to certain customers on a case by case basis, including by way of example, for volume shipping or for certain new customers with orders over a specific discretionary dollar threshold. The Company classifies the reimbursement by customers of shipping and handling costs as revenue and the associated cost as cost of revenue. As of May 31, 2018 and 2017, the Company had a refund allowance of nil, respectively. Consistent with ASC 605-15-25-1, the Company considers factors such as historical return of products, estimated remaining shelf life, price changes from competitors, and introductions of competing products in establishing a refund allowance. The Company recognizes revenues when and title to products transfers to the customer (which generally occurs at the time shipment is made), the sales price is fixed or determinable, and collectability is reasonably assured. The Company defers any revenue for which the product was not delivered or is subject to refund until such time that the Company and the customer jointly determine that the product has been delivered or no refund will be required. Warranty Costs The Company has not had any historical warranty related expenditures and so does not record a reserve for warranty costs. Fair Value of Financial Instruments The Company adopted ASC 820 which defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). The standard outlines a valuation framework and creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements and the related disclosures. Under this standard certain assets and liabilities must be measured at fair value, and disclosures are required for items measured at fair value. The Company currently does not have non-financial assets or non-financial liabilities that are required to be measured at fair value on a recurring basis. The Company’s financial assets and liabilities are measured using inputs from the three levels of the fair value hierarchy. The three levels are as follows: Level 1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. The fair value of the Company’s cash is based on quoted prices and therefore classified as Level 1. Level 2 - Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs). Level 3 - Unobservable inputs that reflect management’s assumptions about the assumptions that market participants would use in pricing the asset or liability. Application of Valuation Hierarchy Financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The following is a description of the valuation methodology used to measure fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy. The Company has a contingent consideration liability of $2,150,000 which consists of contingent cash consideration of $1,650,000 resulting from the acquisition of CMP and $500,000 resulting from the acquisition of Summit. The contingent consideration liability is calculated based on the weighted average probability of meeting certain milestones. This liability is remeasured at each reporting period. The Company had no other financial assets or liabilities that are measured at fair value on a recurring basis as of May 31, 2018. The following table summarizes, for assets or liabilities measured at fair value, the respective fair value and the classification by level of input within the fair value hierarchy: Fair Value Measurement at Reporting Date Using Description May 31, 2018 Quoted Prices Significant Significant Contingent consideration liability $ 2,150,000 $ - $ - $ 2,150,000 The Company classifies its contingent consideration liability within Level 3 as the valuation inputs are based on quoted market prices and market observable data. During the nine months ended May 31, 2018, a payment of $170,000 was made towards this liability, an increase of $500,000 resulted from the Summit acquisition, resulting in a net liability of $2,150,000. During the three months ended May 31, 2018, the Company did not recognize any change in the fair value of its contingent consideration liability of $2,150,000. Recently Issued Accounting Pronouncements On December 22, 2017 the Securities and Exchange Commission (“SEC”) staff issued Staff Accounting Bulletin 118 (SAB 118), which provides guidance on accounting for the tax effects of the Tax Cuts and Jobs Act (the TCJA). SAB 118 provides a measurement period that should not extend beyond one year from the enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the TCJA for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the TCJA is incomplete but for which they are able to determine a reasonable estimate, it must record a provisional amount in the financial statements. Provisional treatment is proper in light of anticipated additional guidance from various taxing authorities, the SEC, the FASB, and even the Joint Committee on Taxation. If a company cannot determine a provisional amount to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the TCJA. The Company is still in the process of estimating the tax impact and is expected to apply this guidance at year end. In September 2017, the Financial Accounting Standards Board “FASB” issued Accounting Standards Update (ASU) No. 2017-13, “Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842): Amendments to SEC Paragraphs Pursuant to the Staff Announcement at the July 20, 2017 EITF Meeting and Rescission of Prior SEC Staff Announcements and Observer Comments.” In March 2017, the FASB issued ASU 2017-08, “Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities” In January 2017, the FASB issued Accounting Standards Update No. 2017-04, Simplifying the Test for Goodwill Impairment In January 2017, the FASB issued Accounting Standards Update No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business In August, 2016, the FASB issued Accounting Standards Update No. 2016-15, Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force) Statement of Cash Flows In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”), and subsequently issued modifications or clarifications in ASU No. 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date,” ASU 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net),” ASU No. 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing,” and ASU No. 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients.” The revenue recognition principle in ASU 2014-09 and the related guidance is that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 prescribes a five-step process for evaluating contracts and determining revenue recognition. In addition, new and enhanced disclosures are required. Companies may adopt the new standard either using the full retrospective approach, a modified retrospective approach with practical expedients, or a cumulative effect upon adoption approach. The Company has not yet determined whether the impact that this new guidance will be material to its consolidated financial statements. In March 2016, the FASB issued ASU 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities Other Accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures. |
ACQUISITION OF CMP WELLNESS, LL
ACQUISITION OF CMP WELLNESS, LLC | 9 Months Ended |
May 31, 2018 | |
Acquisition of CMP Wellness, LLC | |
Business Acquisition [Line Items] | |
Acquisition of CMP Wellness, LLC | NOTE 2 – ACQUISITION OF CMP WELLNESS, LLC On May 1, 2017 (“Merger Date”), the Company and KBCMP, Inc., a Delaware corporation and newly formed wholly-owned subsidiary of the Company (“Merger Sub”), entered into an Agreement of Merger (the “Merger Agreement”) with Lancer West Enterprises, Inc. a California corporation and Walnut Ventures, a California corporation, pursuant to which each of Lancer West Enterprises, Inc. and Walnut Ventures were merged with and into Merger Sub, with Merger Sub as the surviving corporation, resulting in the Company’s indirect acquisition of CMP Wellness, LLC (“CMP”), a California limited liability company, which prior to the merger, was owned 100% by Lancer West Enterprises, Inc. and Walnut Ventures. Membership interest in CMP was the sole and only asset of Lancer West Enterprises, Inc. and Walnut Ventures. As a result, CMP became a wholly-owned subsidiary of the Company. CMP is a distributor of vaporizers, cartridges and accessories. The Company’s Directors believed the acquisition of CMP and the product offerings of CMP leveraged the Company’s existing product development program and provided the Company with the possibility of generating near term revenue and operating cash flow, as well as establishing a commercial platform whereby other cannabis industry-support products may be accessed in the future. Going forward, the existing product offering and other product licensing opportunities, will be the basis of the Company's long-term product portfolio. The acquisition consideration consisted of a cash payment of $1,500,000, unsecured promissory notes in the aggregate principal amount of approximately $770,820, having a one-year maturity, and an aggregate of 7,800,000 restricted shares of the Company’s common stock (equal to 12% of the Company’s common stock outstanding as of May 31, 2018). During the one-year period following the closing, the two sellers of CMP may become entitled to receive up to an additional $1,905,000 in cash, in the aggregate, and 4,740,960 shares of common stock of the Company, in the aggregate, based on the gross profit generated by CMP product line for the period from May 1, 2017 to April 30, 2018. Per the terms of the Merger Agreement, post-closing adjustments to CMP’s working capital is directly offset to the unsecured promissory notes payable. Management has estimated that the post-closing working capital adjustments amounted to $104,032, which management estimates will result in a decrease of the unsecured promissory notes payable from $770,820 to $666,788. In accordance with ASC 805, management has evaluated the estimated fair value of the contingent consideration based a probability-weighted assessment of the occurrence of CMP reaching certain gross profit earnout targets. The Company initially recorded a contingent liability for the contingent cash consideration of $1,735,375 and recorded contingent equity consideration of $10,763,760. Based on information obtained during the fourth fiscal quarter, the Company revised its estimate of the contingent cash consideration from $1,735,375 to $1,905,000, and its estimate of the contingent equity consideration from $10,763,760 to $11,852,400. A payment of $85,000 was made towards this liability during the year ended August 31, 2017, resulting in a net liability of $1,820,000. During the six months ended February, a payment of $170,000 was made towards this liability, resulting in a net liability of $1,650,000. During the three months ended May 31, 2018, the Company did not recognize any change in the fair value of its contingent consideration liability of $1,650,000. CMP’s assets acquired and liabilities assumed are recorded at their acquisition-date fair values. As part of the purchase price allocation, all intangible assets that were a part of the acquisition were identified and valued. It was determined that only non-competition agreements and trade name had separately identifiable values. Trade name represents the CMP product names that the Company intends to continue to use. The deferred income tax liability relates to the tax effect of acquired identifiable intangible assets as such amounts are not deductible for tax purposes. For the acquisition discussed above, goodwill represents the excess of the purchase price over the net identifiable tangible and intangible assets acquired. The Company determined that the acquisition of CMP resulted in the recognition of goodwill primarily because of synergies unique to the Company and the strength of its acquired workforce. The results of operations of CMP were consolidated beginning on the date of the merger. Acquisition-related transaction costs are not included as a component of consideration transferred, but are accounted for as an expense in the period in which the costs are incurred. Any excess of the acquisition consideration over the fair value of tangible and intangible assets acquired and liabilities assumed is allocated to goodwill. The amount of contingent consideration was recorded at its estimated fair value as of the acquisition date. The subsequent accounting for contingent consideration depends on whether the contingent consideration is classified as a liability or equity. The portion of contingent consideration classified as equity is not remeasured in subsequent accounting periods. However, contingent consideration classified as a liability is remeasured to its fair value at the end of each reporting period and the change in fair value is reflected in income or expense during that period. Any changes within the measurement period resulting from facts and circumstances that existed as of the acquisition date may result in retrospective adjustments to the provisional amounts recorded at the acquisition date. The equity consideration received by CMP members was calculated based on the negotiated price per share of common stock of the Company of $2.50, which approximated the quoted market price on the acquisition date. The contingent equity consideration (number of common shares) was also calculated based on the negotiated price per share of common stock of the Company of $2.50, which approximated the quoted market price. The total preliminary acquisition consideration used in preparing the consolidated financial statements is as follows: Acquisition Consideration: May 1, 2017 Measurement August 31, Cash $ 1,500,000 $ — $ 1,500,000 Fair value of common shares issued to CMP members 19,500,000 — 19,500,000 Promissory notes 660,216 6,572 666,788 Estimated fair value contingent cash consideration 1,735,375 169,625 1,905,000 Estimated fair value contingent equity consideration 10,763,760 1,088,640 11,852,400 Total estimated acquisition consideration $ 34,159,351 $ 1,264,837 $ 35,424,188 (1) As of August 31, 2017, the Company revised its estimate of the contingent cash consideration from $1,735,375 to $1,905,000, and the Company revised its estimate of the contingent equity consideration from $10,763,760 to $11,852,400, to reflect the increased probability of the sellers of CMP reaching the maximum earnouts available. An additional post-closing adjustment of $6,572 was recorded, which resulted in an increase of the promissory notes from $660,216 to $666,788. The balance of the note payable at May 31, 2018 reflects principal payments of $583,440 made to the sellers of CMP. The balance of the contingent cash consideration $1,650,000 as of May 31, 2018, reflects a decrease of $255,000 due to cash payments made to the sellers of CMP. |
ACQUISITION OF SUMMIT INNOVATIO
ACQUISITION OF SUMMIT INNOVATIONS, LLC | 9 Months Ended |
May 31, 2018 | |
ACQUISITION OF SUMMIT INNOVATIONS, LLC | |
Business Acquisition [Line Items] | |
ACQUISITION OF SUMMIT INNOVATIONS, LLC | NOTE 3 - ACQUISITION OF SUMMIT INNOVATIONS, LLC On May 2, 2018, the Company completed its acquisition of Summit, a leading distributor of hydrocarbon gases to the legal cannabis industry. Pursuant to the terms of the Merger Agreement with Summit, Summit merged with and into KCH, a wholly-owned subsidiary of the Company, with KCH as the surviving entity. The acquisition was accounted for using the acquisition method of accounting in accordance with ASC 805, Business Combinations. The consideration paid to the Members of Summit at the closing included the Cash Consideration, consisting of an aggregate of $1.4 million in cash, net of cash received and the Share Consideration, consisting of an aggregate of 1,280,000 shares common stock. $500,000 of the Cash Consideration and approximately 640,000 shares of common stock from the Share Consideration were held back by the Company for a period of 15 months for potential post-closing working capital and/or indemnification claims relating to, among other things, breaches of representations, warranties and covenants contained in the Merger Agreement. The Members may become entitled to receive earn-out consideration of up to an additional 1,280,000 shares of common stock, in the aggregate, based on the net revenue performance of the Summit business during a one-year period following the closing. The Company estimated the probability of the contingent consideration at 100% and recorded the earn-out consideration of the additional 1,280,000 shares of common stock in stockholders’ equity. The preliminary total purchase price (based on the $5.59 May 2, 2018 closing price) Shares Dollars Company stock 640,000 $ 3,577,600 Company stock held back 640,000 3,577,600 Contingent company stock consideration 1,280,000 7,155,200 Cash, net of cash received - 945,218 Cash held back - 500,000 Total purchase price 2,560,000 $ 15,755,618 The following table summarizes the allocation of the preliminary purchase price to the assets acquired and liabilities assumed: Accounts receivable $ 470,670 Prepaid expense and other current assets 86,626 Inventory 237,000 Property and equipment, net 648,770 Goodwill 17,033,935 Accounts payable (1,376,531 ) Accrued expenses (358,035 ) Notes payable (986,816 ) Total purchase price $ 15,755,618 The following unaudited pro forma financial data assumes the acquisition had occurred at September 1, 2016. Pro forma results have been prepared by adjusting the Company’s historical results to include Summit's results of operations. The unaudited pro forma results presented do not necessarily reflect the results of operations that would have resulted had the acquisition been completed at September 1, 2016, nor do they indicate the results of operations in future periods. Additionally, the unaudited pro forma results do not include the impact of possible business model changes, nor do they consider any potential impacts of current market conditions or revenues, reduction of expenses, asset dispositions, or other factors. The impact of these items could alter the following pro forma results ($ in thousands): Three Months Ended Three Months Ended May 31, 2018 May 31, 2017 Unaudited Unaudited Total revenues $ 13,860,746 $ 4,735,295 Net income (loss) $ (2,778,867 ) $ (83 ) Loss per share: Basic $ (0.04 ) $ (0.00 ) Diluted $ (0.04 ) $ (0.00 ) Nine Months Ended Nine Months Ended May 31, 2018 May 31, 2017 Unaudited Unaudited Total revenues $ 35,249,655 $ 10,177,631 Net income (loss) $ (4,285,427 ) $ (157,747 ) Loss per share: Basic $ (0.07 ) $ (0.00 ) Diluted $ (0.07 ) $ (0.00 ) |
CONCENTRATIONS OF RISK
CONCENTRATIONS OF RISK | 9 Months Ended |
May 31, 2018 | |
Risks and Uncertainties [Abstract] | |
CONCENTRATIONS OF RISK | NOTE 4 - CONCENTRATIONS OF RISK Supplier Concentrations The Company purchases inventory from various suppliers and manufacturers. For the nine months ended May 31, 2018 and 2017, two vendors, Transpring And Shenzhen Buddy Technology Co. Ltd., Customer Concentrations During the nine months ended May 31, 2018 there was no customer which represented over 10% of the Company’s revenues there were no such customers for the same period ended May 31, 2017. As of May 31, 2018, there were two customers who represented 8% of accounts receivable. As of May 31, 2017, there was one customer that accounted for over 10% of accounts receivable. |
RELATED-PARTY TRANSACTIONS
RELATED-PARTY TRANSACTIONS | 9 Months Ended |
May 31, 2018 | |
Related Party Transactions [Abstract] | |
RELATED-PARTY TRANSACTIONS | NOTE 5 - RELATED-PARTY TRANSACTIONS The Company leases its California and Colorado facilities from related parties. During the nine months ended May 31, 2018 and 2017, the Company made rent payments |
PROPERTY AND EQUIPMENT
PROPERTY AND EQUIPMENT | 9 Months Ended |
May 31, 2018 | |
Property, Plant and Equipment [Abstract] | |
PROPERTY AND EQUIPMENT | NOTE 6 - PROPERTY AND EQUIPMENT The major classes of fixed assets consist of the following as of May 31, 2018 and August 31, 2017: May 31, August 31, 2018 2017 Machinery and equipment $ 1,422,523 $ 886,608 Vehicles 378,543 144,845 Office Equipment 219,123 118,387 Leasehold improvements 800,120 71,545 Gas Tanks - Summit 593,974 - 3,414,283 1,221,385 Accumulated Depreciation (635,487 ) (289,622 ) $ 2,778,796 $ 931,763 Depreciation expense was $113,258 and $ 51,297 for the three months ended May 31, 2018 and 2017, respectively. Of the $113,258 of depreciation expense, $70,885 is included in depreciation and amortization expense and $42,373 is included in cost of goods sold on the consolidated statements of operations. Depreciation expense was $227,496 and $124,393 for the nine months ended May 31, 2018 and 2017, respectively. Of the $227,496 of depreciation expense, $102,385 is included in depreciation and amortization expense and $125,111 is included in cost of goods sold on the consolidated statements of operations. |
INTANGIBLE ASSETS AND GOODWILL
INTANGIBLE ASSETS AND GOODWILL | 9 Months Ended |
May 31, 2018 | |
Goodwill and Intangible Assets Disclosure [Abstract] | |
INTANGIBLE ASSETS AND GOODWILL | NOTE 7 - INTANGIBLE ASSETS AND GOODWILL Intangible assets consist of the following as of May 31, 2018 and August 31, 2017: As of May 31, 2018 As of August 31, 2017 Weighted Average Estimated Gross Gross Useful Carrying Accumulated Carrying Accumulated Acquisition Description Life Value Amortization Value Amortization Roll-Uh-Bowl Domain name 5 years $ 598,605 $ (136,910 ) $ 589,284 $ (47,886 ) CMP Wellness, LLC Trade name 6 years 2,600,000 (469,444 ) 2,600,000 (144,444 ) Non-compete agreement 4 years 800,000 (216,667 ) 800,000 (66,667 ) $ 3,998,605 $ (823,022 ) $ 3,989,284 $ (258,997 ) The activity in the goodwill balance for the nine months ended May 31, 2018 was as follows: Balance - August 31, 2017 $ 34,247,344 Summit acquisition (Note 2) 17,033,935 Balance - May 31, 2018 $ 51,281,279 |
ACCRUED EXPENSES AND OTHER CURR
ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES | 9 Months Ended |
May 31, 2018 | |
Accrued Liabilities and Other Liabilities [Abstract] | |
ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES | NOTE 8 - ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES Accrued expenses and other current liabilities consist of the following as of May 31, 2018 and August 31, 2017: May 31, August 31, 2018 2017 Customer deposits $ 750,950 $ 319,492 Accrued compensation 388,342 245,975 Income tax payable 1,774 219,082 Credit card liabilities 198,709 142,157 Deferred revenue 476,384 - Deferred rent 25,301 25,881 Sales tax payable 364,601 17,182 Other accrued expenses 288,734 23,417 $ 2,494,794 $ 993,186 |
NOTES PAYABLE
NOTES PAYABLE | 9 Months Ended |
May 31, 2018 | |
Debt Disclosure [Abstract] | |
NOTES PAYABLE | NOTE 9 - NOTES PAYABLE Notes payable – current portion consists of unsecured promissory notes relating to the CMP acquisition with a principal balance of $83,348 and vehicle loans with an aggregate principal balance of $62,065 for the sum of $145,413, as described below. As partial consideration for the acquisition of CMP, the Company issued the sellers unsecured promissory notes totaling $770,820. Management has estimated that the post-closing working capital adjustments amounted to $104,032, which resulted in a decrease of the unsecured promissory notes payable from $770,820 to $666,788. The promissory notes matured on May 1, 2018 (however, this note payable remains outstanding as of July 9, 2018) and bear interest at an annual rate of 1.15%. The notes and accrued and unpaid interest are payable in quarterly installments beginning August 1, 2017. As of May 31, 2018, management has accrued for $0 of interest expense on the promissory notes, which is included in accrued expenses and other current liabilities. The principal balance of $83,348 is recognized in the current portion of notes payable in the consolidated balance sheet as of May 31, 2018. Principal payments of $583,441 were made during the nine months ended May 31, 2018. Automobile Contracts Payable The Company has entered into purchase contracts for its vehicles. The loans are secured by the vehicles and bear interest at an average interest rate of approximately 6% per annum. Future principal payments on these automobile contracts payable is summarized in the table below: Principal May 31, 2018 Due 2018 $ 62,247 2019 59,351 2020 52,730 2021 46,812 2022 30,906 $ 252,045 |
LOAN AGREEMENT
LOAN AGREEMENT | 9 Months Ended |
May 31, 2018 | |
Loan Agreement [Abstract] | |
LOAN AGREEMENT | NOTE 10 - LOAN AGREEMENT On November 16, 2017, the Company and KIM as borrowers, and all of the Company’s other subsidiaries, as credit parties, entered into a Loan and Security Agreement (the “Loan Agreement”) with Gerber Finance Inc., as lender (“Gerber”), effective as of November 6, 2017. The Loan Agreement provides a secured revolving credit facility (the “Revolving Line”) in an aggregate principal amount of up to $2.0 million at any time outstanding (subsequently increased to $4.0 million), of which $2,433,907 |
STOCKHOLDERS' EQUITY
STOCKHOLDERS' EQUITY | 9 Months Ended |
May 31, 2018 | |
Stockholders' Equity Note [Abstract] | |
STOCKHOLDERS' EQUITY | NOTE 11 - STOCKHOLDERS' EQUITY Preferred Stock The authorized preferred stock is 10,000,000 shares with a par value of $0.001. As of May 31, 2018, and August 31, 2017, the Company has no shares of preferred stock issued or outstanding. Common Stock The authorized common stock is 265,000,000 shares with a par value of $0.001. As of May 31, 2018, and August 31, 2017, 66,389,529 and 58,607,066 shares were issued and outstanding, respectively. During the nine months ended May 31, 2018, the Company sold 5,877,415 shares of its common stock to investors in exchange for cash of $16,404,723. During the nine months ended May 31, 2018, the Company received $30,000 from an investor but the shares were not issued as of May 31, 2018. Share-based Compensation The Company recorded stock compensation expense of $495,897 and $259,418 for the three month periods ended May 31, 2018 and 2017, respectively, in connection with the issuance of shares of common stock and options to purchase common stock. The Company recorded stock compensation expense of $1,904,568 and $522,226 for the nine month periods ended May 31, 2018 and 2017, respectively, in connection with the issuance of shares of common stock and options to purchase common stock. During the nine month period ended May 31, 2018, the Company issued 368,624 shares of common stock to consultants in exchange for $1,794,828 of services, of which $485,899 was service rendered and $1,308,929 of prepaid services. During the nine month period ended May 31, 2018, the Company entered into a separation agreement dated as of January 12, 2018 with one employee. The Company issued 100,000 restricted common shares as part of the separation agreement to this employee, which valued at $667,000 and was recorded as share-based compensation during the nine months ended May 31, 2018. Stock Options The Company’s 2016 Stock Incentive Plan (the Plan) was adopted on February 9, 2016. The Plan permits the grant of share options and shares to its employees and directors for up to 5,000,000 shares of common stock. The Company believes that such awards better align the interests of its employees with those of its shareholders. Option awards are generally granted with an exercise price equal to the market price of the Company's stock at the date of grant; those option awards generally vest based on three years of continuous service and have 10-year contractual terms. The Company estimates the fair value of share-based compensation utilizing the Black-Scholes option pricing model, which is dependent upon several variables such as the expected option term, expected volatility of the Company’s stock price over the expected option term, expected risk-free interest rate over the expected option term, expected dividend yield rate over the expected option term, and an estimate of expected forfeiture rates. The Company believes this valuation methodology is appropriate for estimating the fair value of stock options granted to employees and directors which are subject to ASC Topic 718 requirements. These amounts are estimates and thus may not be reflective of actual future results, nor amounts ultimately realized by recipients of these grants. The Company recognizes compensation on a straight-line basis over the requisite service period for each award. The following table summarizes the assumptions the Company utilized to record compensation expense for stock options granted during the nine months ended May 31, 2018 and 2017: May 31, February 28, 2018 2017 Expected term (years) 1-4 1-4 Expected volatility 60 % 60 % Weighted-average volatility 60 % 60 % Risk-free interest rate 0.67%-2.81 % 0.85%-1.57 % Dividend yield 0 % 0 % Expected forfeiture rate 33 % 33 % The expected life is computed using the simplified method, which is the average of the vesting term and the contractual term. The expected volatility is based on management's analysis of historical volatility for comparable companies. The risk-free interest rate is based on the U.S. Treasury yields with terms equivalent to the expected term of the related option at the time of the grant. While the Company believes these estimates are reasonable, the compensation expense recorded would increase if the expected life was increased, a higher expected volatility was used, or if the expected dividend yield increased. During the nine months ended May 31, 2018 and 2017, the Company issued 4,096,000 and 2,940,000 stock options, respectively, pursuant to the Company’s 2016 Stock Incentive Plan. A summary of the Company’s stock option activity during the nine month period ended May 31, 2018 is presented below: Weighted Weighted Average Average Remaining Aggregate No. of Exercise Contractual Intrinsic Options Price Term Value Balance Outstanding, August 31, 2017 5,275,500 $ 1.73 8.0 years $ 917,610 Granted 4,098,500 $ 4.42 9.7 years - Exercised 834,459 $ 0.56 - - Forfeited 1,579,375 $ 2.60 - - Balance Outstanding, May 31, 2018 6,960,166 $ 3.25 8.7 years 23,250,945 Exercisable, May 31, 2018 2,135,549 $ 1.74 7.5 years 16,093,825 The weighted-average grant-date fair value of options granted during the nine months ended May 31, 2018 and 2017, was $4.42 and $0.96, respectively. The weighted-average grant-date fair value of options forfeited during the nine months ended May 31, 2018 was $2.61. During the nine months ended May 31, 2018, the Company issued 796,425 shares of common stock pursuant to exercises of stock options and received cash of $245,791. As of May 31, 2018, there was $14,500,580 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Plan. That cost is expected to be recognized over a weighted-average period of 8.7 years. The total fair value of shares vested during the nine month period May 31, 2018 is $939,420. This amount is included in stock compensation expense on the consolidated statements of operations. |
COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES | 9 Months Ended |
May 31, 2018 | |
Commitments and Contingencies Disclosure [Abstract] | |
COMMITMENTS AND CONTINGENCIES | NOTE 12- COMMITMENTS AND CONTINGENCIES Lease The Company’s corporate head-quarters and primary distribution center is located in Santa Ana, California. In July 2017, the Company entered into a facility lease in Garden Grove, California. The Garden Grove facility lease expires on August 1, 2022 and requires escalating monthly payments that range between $24,480 and $28,379. As part of the acquisition of CMP on May 1, 2017, the Company assumed the lease for CMP’s facility located in Lawndale, California. The lease expires in January 2019, and requires escalating monthly payments that range between $4,031 and $4,143. On April 1, 2016, the Company entered into a sublease agreement for a facility located in Woodinville, Washington. The lease commenced on July 15, 2016 and expires on January 31, 2020, and requires escalating monthly payments that range between $14,985 and $16,022. Effective April 10, 2015, the Company assumed the facility lease in Denver, Colorado, which is the headquarters of operations for its wholly-owned subsidiary, Dank. On September 1, 2016, the Colorado facility lease was amended to include additional office space. The lease runs through March 31, 2020 and requires escalating monthly payments, ranging between $4,800 and $7,300. During the nine months ended May 31, 2018 and 2017, the Company recognized $601,938 and $288,789, respectively, of rental expense, related to its office, retail and warehouse space. The increase is the result of the addition of the CMP Wellness facility as well as expenses related to the Company’s new headquarters in Garden Grove, CA. Additionally, Summit has several short-term operating leases in several states, which expire at various dates during 2018. Other Commitments In the ordinary course of business, the Company may enter into contractual purchase obligations and other agreements that are legally binding and specify certain minimum payment terms. The Company had no such agreements as of May 31, 2018. Litigation The Company may be subject to legal proceedings and claims which arise in the ordinary course of its business. Although occasional adverse decisions or settlements may occur, the Company believes that the final disposition of such matters should not have a material adverse effect on its financial position, results of operations or liquidity. The Company had no pending legal proceedings or claims as of May 31, 2018. |
SUBSEQUENT EVENTS
SUBSEQUENT EVENTS | 9 Months Ended |
May 31, 2018 | |
Subsequent Events [Abstract] | |
SUBSEQUENT EVENTS | NOTE 13 - SUBSEQUENT EVENTS On June 7, 2018, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with certain accredited investors (the “Purchasers”) pursuant to which the Company agreed to issue and sell an aggregate of 7,500,000 shares of its common stock and warrants to purchase 3,750,000 shares of common stock in a registered direct offering (the “Offering”). The securities were offered by the Company pursuant to its shelf registration statement on Form S-3 (File No. 333-221910). Subject to certain ownership limitations, the warrants are immediately exercisable at an exercise price equal to $5.28 per share of common stock. The warrants are exercisable for five years from the date of issuance. The combined per share purchase price for a share of common stock and half of a warrant was $4.80. The Company completed the Offering on June 12, 2018 for aggregate gross proceeds of $36.0 million and net proceeds, after deducting the placement agent fees and other estimated offering expenses, of approximately $32.9 million. A.G.P./Alliance Global Partners (the “Placement Agent”) acted as the placement agent for the Offering. The Company agreed to pay the Placement Agent an aggregate cash fee equal to 7% of the aggregate gross proceeds raised in the Offering. The Company also agreed to reimburse the Placement Agent for up to $120,000 of certain of its expenses with respect to the Offering and to pay the Placement Agent a non-accountable expense allowance equal to 1% of the aggregate gross proceeds raised in the Offering. |
NATURE OF BUSINESS AND SIGNIF19
NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Policies) | 9 Months Ended |
May 31, 2018 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Basis of Presentation | Basis of Presentation The accompanying unaudited condensed consolidated financial statements and related notes include the activity of the Company and its wholly owned subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") for interim financial information. All intercompany balances and transactions have been eliminated. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for annual financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included. The Company’s operating results for the three and nine months period ended May 31, 2018 are not necessarily indicative of the results that may be expected for the fiscal year ended August 31, 2018, or for any other period. These unaudited condensed consolidated financial statements and notes should be read in conjunction with the Company’s audited consolidated financial statements and accompanying notes for the fiscal year ended August 31, 2017. The condensed consolidated balance sheet as of August 31, 2017 included herein was derived from the audited financial statements as of that date, but does not include all disclosures including notes required by GAAP. There have been no changes to the Company’s significant accounting policies described in its Annual Report on Form 10-K for the fiscal year ended August 31, 2017 that have had a material impact on our condensed consolidated financial statements and related notes. |
Use of Estimates | Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amount of revenues and expenses during the reporting period. Significant estimates relied upon in preparing these unaudited condensed consolidated financial statements include revenue recognition, accounts receivable reserves, inventory and related reserves, valuations and purchase price allocations related to business combinations, expected future cash flows used to evaluate the recoverability of long-lived assets, estimated fair values of long-lived assets used to record impairment charges related to intangible assets and goodwill, amortization periods, accrued expenses, stock-based compensation, contingent liabilities and recoverability of the Company’s net deferred tax assets and any related valuation allowance. Although the Company regularly assesses these estimates, actual results could differ materially from these estimates. Changes in estimates are recorded in the period in which they become known. The Company bases its estimates on historical experience and various other assumptions that it believes to be reasonable under the circumstances. Actual results may differ from management’s estimates. The Company is subject to a number of risks similar to those of other companies of similar size and having a focus of serving the cannabis industry, including, the development stage of certain products, competition, limited number of suppliers, integration of acquisitions, substantial indebtedness, government regulations, protection of proprietary rights, and dependence on key individuals. |
Reclassification | Reclassification Certain classifications have been made to the prior year financial statements to conform to the current year presentation. The reclassification had no impact on previously reported net income (loss) or accumulated deficit. |
Segments | Segments The Company operates as one operating segment. Operating segments are defined as components of an enterprise for which separate financial information is evaluated regularly by the chief operating decision maker, who is the chief executive officer, in deciding how to allocate resources and assessing performance. Over the past few years, the Company has completed a number of acquisitions. These acquisitions have allowed the Company to expand its offerings, presence and reach in the cannabis industry. While the Company has offerings in multiple geographic locations for its products for the cannabis industry, including as a result of the Company's acquisitions, the Company’s business operates in one operating segment because the majority of the Company's offerings operate similarly, and the Company’s chief operating decision maker evaluates the Company’s financial information and resources and assesses the performance of these resources on a consolidated basis. Since the Company operates in one operating segment, all required financial segment information can be found in the unaudited condensed consolidated financial statements. |
Accounts Receivable | Accounts Receivable Trade accounts receivable are carried at their estimated collectible amounts. Trade credit is generally extended on a short-term basis, thus trade receivables do not bear interest. Trade accounts receivables are periodically evaluated for collectability based on past credit history and their current financial condition. The Company’s allowance for doubtful accounts was $132,000 and $25,000 as of May 31, 2018 and August 31, 2017, respectively. |
Inventory | Inventory Inventories are stated at the lower of cost or net realizable value using the first-in first out (FIFO) method. The Company’s inventory consists of finished goods of $10,059,200 and $3,754,171 as of May 31, 2018 and August 31, 2017, respectively. |
Fair Value of Financial Instruments | Fair Value of Financial Instruments The fair value of certain of the Company’s financial instruments, including cash and cash equivalents, receivables, other current assets, accounts payable, accrued compensation and employee benefits, other accrued liabilities and notes payable, approximate their carrying amounts because of the short-term maturity of these instruments. |
Valuation of Business Combinations and Acquisition of Intangible Assets | Valuation of Business Combinations and Acquisition of Intangible Assets The Company records intangible assets acquired in business combinations and acquisitions of intangible assets under the purchase method of accounting. The Company accounts for acquisitions in accordance with FASB ASC Topic 805, Business Combinations The Company uses the income approach, the relief from royalty method (both a market and income method), and the with and without method to determine the fair values of its purchased intangible assets. The Company uses the probability-weighted expected return method (an income approach) to determine the appropriate amount of contingent consideration to include in the purchase price for an acquisition. The Company bases its revenue assumptions on estimates of relevant market sizes, expected market growth rates, expected industry trends and expected product introductions by competitors. In arriving at the value. The Company bases the discount rate used to arrive at a present value as of the date of acquisition on the time value of money and cannabis industry investment risk factors. For the intangible assets acquired, the Company used risk-adjusted discount rates ranging from 19% to 26% to discount its projected cash flows. The Company believes that the estimated purchased intangible asset amounts so determined represent the fair value at the date of acquisition and do not exceed the amount a third party would pay for the projects. The Company also used the income approach (probably weighted cash flow), as described above, to determine the estimated fair value of certain identifiable intangibles assets including domain names and tradenames. Domain names represent established relationships with customers, which provides a ready channel for the sale of additional products and services. Tradenames represent acquired product names that the Company intends to continue to utilize. The Company used the with and without method to ascertain the fair value of the non-competition agreement. The company has not completed the valuation of Summit’s assets acquired and liabilities assumed as of May 31, 2018. |
Goodwill and Intangible Assets | Goodwill and Intangible Assets Goodwill and intangible assets that have indefinite useful lives are not amortized but are evaluated for impairment annually or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The Company records intangible assets at historical cost. The Company amortizes its intangible assets that have finite lives using either the straight-line method or based on estimated future cash flows to approximate the pattern in which the economic benefit of the asset will be utilized. Amortization is recorded over the estimated useful lives ranging from four to six years. The Company reviews intangible assets subject to amortization quarterly to determine if any adverse conditions exist or a change in circumstances has occurred that would indicate impairment or a change in the remaining useful life. Conditions that would indicate impairment and trigger a more frequent impairment assessment include, but are not limited to, a significant adverse change in legal factors or business climate that could affect the value of an asset, or an adverse action or assessment by a regulator. If the carrying value of an asset exceeds its undiscounted cash flows, the Company will write-down the carrying value of the intangible asset to its fair value in the period identified. The Company generally calculates fair value as the present value of estimated future cash flows to be generated by the asset using a risk-adjusted discount rate. If the estimate of an intangible asset’s remaining useful life is changed, the Company will amortize the remaining carrying value of the intangible asset prospectively over the revised remaining useful life. Consistent with prior years, the Company conducted its annual impairment test of goodwill during the fourth quarter of fiscal 2018. The estimate of fair value requires significant judgment. Any loss resulting from an impairment test would be reflected in operating income in the Company’s unaudited condensed consolidated statements of income. The annual impairment testing process is subjective and requires judgment at many points throughout the analysis. If these estimates or their related assumptions change in the future, the Company may be required to record impairment charges for these assets not previously recorded. The Company performed its goodwill impairment test as of June 1, 2018 and goodwill was not impaired. |
Earnings (Loss) Per Share | Earnings (Loss) Per Share The Company computes earnings per share under Accounting Standards Codification subtopic 260-10, "Earnings per Share" (“ASC 260-10”). Basic net income (loss) per common share is computed by dividing net loss by the weighted average number of shares of common stock. Diluted net loss per share is computed using the weighted average number of common and common stock equivalent shares outstanding during the period. Basic earnings per share are computed by dividing net earnings by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share are computed by dividing net earnings by the sum of (a) the weighted average number of shares of common stock outstanding during the period and (b) the potentially dilutive securities outstanding during the period. Stock options are potentially dilutive securities; and the number of dilutive options is computed using the treasury stock method. The effect of the contingent equity consideration relating to the acquisitions of CMP and Summit is also factored into the calculation of dilutive securities. The following table sets forth the calculation of basic and diluted earnings per share: Three Months Ended Nine Months Ended May 31, May 31, May 31, May 31, 2018 2017 2018 2017 Net income $ (2,165,740 ) $ 6,119 $ (2,991,438 ) $ (151,545 ) Weighted average common shares outstanding: Basic 64,680,419 51,805,930 61,995,107 50,458,416 Net effect of dilutive options - 1,528,302 - - Diluted 64,680,419 53,334,232 61,995,107 50,458,416 Earnings per share: Basic $ (0.03 ) $ - $ (0.05 ) $ - Diluted $ (0.03 ) $ - $ (0.05 ) $ - Potentially dilutive securities consisted of 7,231,042 and 4,695,000 stock options as of May 31, 2018 and 2017, respectively. Additionally, the approximately 640,000 shares of Common Stock held back by the Company for a period of 15 months for potential post-closing working capital and/or indemnification claims relating to, among other things, breaches of representations, warranties and covenants contained in the Summit Merger Agreement and the potential earn-out consideration of up to an additional 1,280,000 shares of common stock, in the aggregate, based on the performance of the Summit business during a one-year period following the closing were not included in earnings per share because it is not certain that the shares will be issued. |
Revenue Recognition | Revenue Recognition It is the Company’s policy that revenues from product sales is recognized in accordance with ASC 605 "Revenue Recognition". Four basic criteria must be met before revenue can be recognized; (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on management’s judgments regarding fixed nature in selling prices of the products delivered and the collectability of those amounts. The Company has not implemented any specific rebate programs. Provisions for discounts to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded. During the three-month period ended May 31, 2018 and 2017, the Company had no provisions for sales discounts of $140,018 and $40,806, respectively. The Company has not established a formal customer incentive program, but considers and accommodates discounts to certain customers on a case by case basis, including by way of example, for volume shipping or for certain new customers with orders over a specific discretionary dollar threshold. The Company classifies the reimbursement by customers of shipping and handling costs as revenue and the associated cost as cost of revenue. As of May 31, 2018 and 2017, the Company had a refund allowance of nil, respectively. Consistent with ASC 605-15-25-1, the Company considers factors such as historical return of products, estimated remaining shelf life, price changes from competitors, and introductions of competing products in establishing a refund allowance. The Company recognizes revenues when and title to products transfers to the customer (which generally occurs at the time shipment is made), the sales price is fixed or determinable, and collectability is reasonably assured. The Company defers any revenue for which the product was not delivered or is subject to refund until such time that the Company and the customer jointly determine that the product has been delivered or no refund will be required. |
Warranty Costs | Warranty Costs The Company has not had any historical warranty related expenditures and so does not record a reserve for warranty costs. |
Fair Value of Financial Instruments | Fair Value of Financial Instruments The Company adopted ASC 820 which defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). The standard outlines a valuation framework and creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements and the related disclosures. Under this standard certain assets and liabilities must be measured at fair value, and disclosures are required for items measured at fair value. The Company currently does not have non-financial assets or non-financial liabilities that are required to be measured at fair value on a recurring basis. The Company’s financial assets and liabilities are measured using inputs from the three levels of the fair value hierarchy. The three levels are as follows: Level 1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. The fair value of the Company’s cash is based on quoted prices and therefore classified as Level 1. Level 2 - Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs). Level 3 - Unobservable inputs that reflect management’s assumptions about the assumptions that market participants would use in pricing the asset or liability. Application of Valuation Hierarchy Financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The following is a description of the valuation methodology used to measure fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy. The Company has a contingent consideration liability of $2,150,000 which consists of contingent cash consideration of $1,650,000 resulting from the acquisition of CMP and $500,000 resulting from the acquisition of Summit. The contingent consideration liability is calculated based on the weighted average probability of meeting certain milestones. This liability is remeasured at each reporting period. The Company had no other financial assets or liabilities that are measured at fair value on a recurring basis as of May 31, 2018. The following table summarizes, for assets or liabilities measured at fair value, the respective fair value and the classification by level of input within the fair value hierarchy: Fair Value Measurement at Reporting Date Using Description May 31, 2018 Quoted Prices Significant Significant Contingent consideration liability $ 2,150,000 $ - $ - $ 2,150,000 The Company classifies its contingent consideration liability within Level 3 as the valuation inputs are based on quoted market prices and market observable data. During the nine months ended May 31, 2018, a payment of $170,000 was made towards this liability, an increase of $500,000 resulted from the Summit acquisition, resulting in a net liability of $2,150,000. During the three months ended May 31, 2018, the Company did not recognize any change in the fair value of its contingent consideration liability of $2,150,000. |
Recently Issued Accounting Pronouncements | Recently Issued Accounting Pronouncements On December 22, 2017 the Securities and Exchange Commission (“SEC”) staff issued Staff Accounting Bulletin 118 (SAB 118), which provides guidance on accounting for the tax effects of the Tax Cuts and Jobs Act (the TCJA). SAB 118 provides a measurement period that should not extend beyond one year from the enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the TCJA for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the TCJA is incomplete but for which they are able to determine a reasonable estimate, it must record a provisional amount in the financial statements. Provisional treatment is proper in light of anticipated additional guidance from various taxing authorities, the SEC, the FASB, and even the Joint Committee on Taxation. If a company cannot determine a provisional amount to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the TCJA. The Company is still in the process of estimating the tax impact and is expected to apply this guidance at year end. In September 2017, the Financial Accounting Standards Board “FASB” issued Accounting Standards Update (ASU) No. 2017-13, “Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842): Amendments to SEC Paragraphs Pursuant to the Staff Announcement at the July 20, 2017 EITF Meeting and Rescission of Prior SEC Staff Announcements and Observer Comments.” In March 2017, the FASB issued ASU 2017-08, “Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities” In January 2017, the FASB issued Accounting Standards Update No. 2017-04, Simplifying the Test for Goodwill Impairment In January 2017, the FASB issued Accounting Standards Update No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business In August, 2016, the FASB issued Accounting Standards Update No. 2016-15, Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force) Statement of Cash Flows In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”), and subsequently issued modifications or clarifications in ASU No. 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date,” ASU 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net),” ASU No. 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing,” and ASU No. 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients.” The revenue recognition principle in ASU 2014-09 and the related guidance is that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 prescribes a five-step process for evaluating contracts and determining revenue recognition. In addition, new and enhanced disclosures are required. Companies may adopt the new standard either using the full retrospective approach, a modified retrospective approach with practical expedients, or a cumulative effect upon adoption approach. The Company has not yet determined whether the impact that this new guidance will be material to its consolidated financial statements. In March 2016, the FASB issued ASU 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities Other Accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures. |
Business Acquisition [Line Items] | |
Business Combinations | Business Combinations The Company uses its best estimates and assumptions to accurately assign fair value to the tangible and intangible assets acquired and liabilities assumed at the acquisition date. The Company’s estimates are inherently uncertain and subject to refinement. During the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the fair value of these tangible and intangible assets acquired and liabilities assumed, with the corresponding offset to goodwill. In addition, uncertain tax positions and tax-related valuation allowances are initially established in connection with a business combination as of the acquisition date. The Company continues to collect information and reevaluates these estimates and assumptions quarterly and records any adjustments to the Company’s preliminary estimates to goodwill provided that the Company is within the measurement period. Upon the conclusion of the measurement period or final determination of the fair value of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the Company’s condensed consolidated statements of operations. |
Acquisition of CMP Wellness, LLC | |
Business Acquisition [Line Items] | |
Business Combinations | Acquisition of CMP Wellness, LLC On May 1, 2017, the Company entered into an agreement of merger agreement with Lancer West Enterprises, Inc. a California corporation, Walnut Ventures, a California corporation, Jason Manasse, an individual, and Theodore Nicols, an individual, pursuant to which each of Lancer West Enterprises, Inc. and Walnut Ventures were merged with and into Merger Sub, with Merger Sub as the surviving corporation, resulting in the Company’s indirect acquisition of CMP Wellness, LLC, a California limited liability company, which prior to the merger, was owned 100% by Lancer West Enterprises, Inc. and Walnut Ventures. CMP Wellness, LLC is a distributor of vaporizers, cartridges and accessories. See Note 2 for a further description of the CMP acquisition. |
Acquisition of Summit Innovations, LLC | |
Business Acquisition [Line Items] | |
Business Combinations | Acquisition of Summit Innovations, LLC On May 2, 2018, the Company completed its acquisition of Summit Innovations, LLC (“Summit”), a leading distributor of hydrocarbon gases to the legal cannabis industry. Pursuant to the terms of the Agreement and Plan of Merger (the “Merger Agreement”), Summit merged with and into KCH Energy, LLC (“KCH”), a wholly-owned subsidiary of the Company, with KCH as the surviving entity. See Note 3 for a further description of the Summit acquisition. |
NATURE OF BUSINESS AND SIGNIF20
NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Tables) | 9 Months Ended |
May 31, 2018 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Schedule of basic and diluted earnings per share | Three Months Ended Nine Months Ended May 31, May 31, May 31, May 31, 2018 2017 2018 2017 Net income $ (2,165,740 ) $ 6,119 $ (2,991,438 ) $ (151,545 ) Weighted average common shares outstanding: Basic 64,680,419 51,805,930 61,995,107 50,458,416 Net effect of dilutive options - 1,528,302 - - Diluted 64,680,419 53,334,232 61,995,107 50,458,416 Earnings per share: Basic $ (0.03 ) $ - $ (0.05 ) $ - Diluted $ (0.03 ) $ - $ (0.05 ) $ - |
Schedule of assets or liabilities measured at fair value | Fair Value Measurement at Reporting Date Using Description May 31, 2018 Quoted Prices Significant Significant Contingent consideration liability $ 2,150,000 $ - $ - $ 2,150,000 |
ACQUISITION OF CMP WELLNESS, 21
ACQUISITION OF CMP WELLNESS, LLC (Tables) | 9 Months Ended |
May 31, 2018 | |
Acquisition of CMP Wellness, LLC | |
Business Acquisition [Line Items] | |
Schedule of acquisition consideration | May 1, 2017 Measurement August 31, Cash $ 1,500,000 $ — $ 1,500,000 Fair value of common shares issued to CMP members 19,500,000 — 19,500,000 Promissory notes 660,216 6,572 666,788 Estimated fair value contingent cash consideration 1,735,375 169,625 1,905,000 Estimated fair value contingent equity consideration 10,763,760 1,088,640 11,852,400 Total estimated acquisition consideration $ 34,159,351 $ 1,264,837 $ 35,424,188 (1) As of August 31, 2017, the Company revised its estimate of the contingent cash consideration from $1,735,375 to $1,905,000, and the Company revised its estimate of the contingent equity consideration from $10,763,760 to $11,852,400, to reflect the increased probability of the sellers of CMP reaching the maximum earnouts available. An additional post-closing adjustment of $6,572 was recorded, which resulted in an increase of the promissory notes from $660,216 to $666,788. The balance of the note payable at May 31, 2018 reflects principal payments of $583,440 made to the sellers of CMP. The balance of the contingent cash consideration $1,650,000 as of May 31, 2018, reflects a decrease of $255,000 due to cash payments made to the sellers of CMP. |
ACQUISITION OF SUMMIT INNOVAT22
ACQUISITION OF SUMMIT INNOVATIONS, LLC (Tables) - Acquisition of Summit Innovations, LLC | 9 Months Ended |
May 31, 2018 | |
Business Acquisition [Line Items] | |
Schedule of preliminary total purchase price | Shares Dollars Company stock 640,000 $ 3,577,600 Company stock held back 640,000 3,577,600 Contingent company stock consideration 1,280,000 7,155,200 Cash, net of cash received - 945,218 Cash held back - 500,000 Total purchase price 2,560,000 $ 15,755,618 |
Schedule of allocation of the preliminary purchase price to the assets acquired and liabilities assumed | Accounts receivable $ 470,670 Prepaid expense and other current assets 86,626 Inventory 237,000 Property and equipment, net 648,770 Goodwill 17,033,935 Accounts payable (1,376,531 ) Accrued expenses (358,035 ) Notes payable (986,816 ) Total purchase price $ 15,755,618 |
Schedule of pro forma information | Three Months Ended Three Months Ended May 31, 2018 May 31, 2017 Unaudited Unaudited Total revenues $ 13,860,746 $ 4,735,295 Net income (loss) $ (2,778,867 ) $ (83 ) Loss per share: Basic $ (0.04 ) $ (0.00 ) Diluted $ (0.04 ) $ (0.00 ) Nine Months Ended Nine Months Ended May 31, 2018 May 31, 2017 Unaudited Unaudited Total revenues $ 35,249,655 $ 10,177,631 Net income (loss) $ (4,285,427 ) $ (157,747 ) Loss per share: Basic $ (0.07 ) $ (0.00 ) Diluted $ (0.07 ) $ (0.00 ) |
PROPERTY AND EQUIPMENT (Tables)
PROPERTY AND EQUIPMENT (Tables) | 9 Months Ended |
May 31, 2018 | |
Property, Plant and Equipment [Abstract] | |
Schedule of property, plant and equipment | May 31, August 31, 2018 2017 Machinery and equipment $ 1,422,523 $ 886,608 Vehicles 378,543 144,845 Office Equipment 219,123 118,387 Leasehold improvements 800,120 71,545 Gas Tanks - Summit 593,974 - 3,414,283 1,221,385 Accumulated Depreciation (635,487 ) (289,622 ) $ 2,778,796 $ 931,763 |
INTANGIBLE ASSETS AND GOODWILL
INTANGIBLE ASSETS AND GOODWILL (Tables) | 9 Months Ended |
May 31, 2018 | |
Intangible Assets Disclosure [Abstract] | |
Schedule of intangible assets | As of May 31, 2018 As of August 31, 2017 Weighted Average Estimated Gross Gross Useful Carrying Accumulated Carrying Accumulated Acquisition Description Life Value Amortization Value Amortization Roll-Uh-Bowl Domain name 5 years $ 598,605 $ (136,910 ) $ 589,284 $ (47,886 ) CMP Wellness, LLC Trade name 6 years 2,600,000 (469,444 ) 2,600,000 (144,444 ) Non-compete agreement 4 years 800,000 (216,667 ) 800,000 (66,667 ) $ 3,998,605 $ (823,022 ) $ 3,989,284 $ (258,997 ) |
Schedule of goodwill | Balance - August 31, 2017 $ 34,247,344 Summit acquisition (Note 2) 17,033,935 Balance - May 31, 2018 $ 51,281,279 |
ACCRUED EXPENSES AND OTHER CU25
ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES (Tables) | 9 Months Ended |
May 31, 2018 | |
Accrued Liabilities and Other Liabilities [Abstract] | |
Schedule of accrued liabilities | May 31, August 31, 2018 2017 Customer deposits $ 750,950 $ 319,492 Accrued compensation 388,342 245,975 Income tax payable 1,774 219,082 Credit card liabilities 198,709 142,157 Deferred revenue 476,384 - Deferred rent 25,301 25,881 Sales tax payable 364,601 17,182 Other accrued expenses 288,734 23,417 $ 2,494,794 $ 993,186 |
NOTES PAYABLE (Tables)
NOTES PAYABLE (Tables) | 9 Months Ended |
May 31, 2018 | |
Debt Disclosure [Abstract] | |
Schedule of notes payable | Principal May 31, 2018 Due 2018 $ 62,247 2019 59,351 2020 52,730 2021 46,812 2022 30,906 $ 252,045 |
STOCKHOLDERS' EQUITY (Tables)
STOCKHOLDERS' EQUITY (Tables) | 9 Months Ended |
May 31, 2018 | |
Stockholders' Equity Note [Abstract] | |
Schedule of assumptions used | May 31, February 28, 2018 2017 Expected term (years) 1-4 1-4 Expected volatility 60 % 60 % Weighted-average volatility 60 % 60 % Risk-free interest rate 0.67%-2.81 % 0.85%-1.57 % Dividend yield 0 % 0 % Expected forfeiture rate 33 % 33 % |
Schedule of stock option activity | Weighted Weighted Average Average Remaining Aggregate No. of Exercise Contractual Intrinsic Options Price Term Value Balance Outstanding, August 31, 2017 5,275,500 $ 1.73 8.0 years $ 917,610 Granted 4,098,500 $ 4.42 9.7 years - Exercised 834,459 $ 0.56 - - Forfeited 1,579,375 $ 2.60 - - Balance Outstanding, May 31, 2018 6,960,166 $ 3.25 8.7 years 23,250,945 Exercisable, May 31, 2018 2,135,549 $ 1.74 7.5 years 16,093,825 |
NATURE OF BUSINESS AND SIGNIF28
NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES - Calculation of basic and diluted earnings per share (Details) - USD ($) | 3 Months Ended | 9 Months Ended | ||
May 31, 2018 | May 31, 2017 | May 31, 2018 | May 31, 2017 | |
Accounting Policies [Abstract] | ||||
Net income | $ (2,165,740) | $ 6,119 | $ (2,991,438) | $ (151,545) |
Weighted average common shares outstanding: | ||||
Basic (in shares) | 64,680,419 | 51,805,930 | 61,995,107 | 50,458,416 |
Net effect of dilutive options (in shares) | 0 | 1,528,302 | 0 | 0 |
Diluted (in shares) | 64,680,419 | 53,334,232 | 61,995,107 | 50,458,416 |
Earnings per share: | ||||
Basic (in dollars per share) | $ (0.03) | $ (0.05) | ||
Diluted (in dollars per share) | $ (0.03) | $ (0.05) |
NATURE OF BUSINESS AND SIGNIF29
NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES - Fair value and classification by level of input (Details 1) - Fair Value | May 31, 2018USD ($) |
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |
Contingent consideration liability | $ 1,650,000 |
Quoted Prices in Active Markets for Identical Assets (Level 1) | |
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |
Contingent consideration liability | 0 |
Significant Other Observable Inputs (Level 2) | |
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |
Contingent consideration liability | 0 |
Significant Unobservable Inputs (Level 3) | |
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |
Contingent consideration liability | $ 2,150,000 |
NATURE OF BUSINESS AND SIGNIF30
NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Detail Textuals) | May 02, 2018USD ($) | May 01, 2017shares | Mar. 04, 2014shares | May 31, 2018USD ($)Operating_Segment | May 31, 2017USD ($) | Feb. 28, 2018USD ($) | Feb. 28, 2017USD ($) | May 31, 2018USD ($)shares | May 31, 2017shares | Aug. 31, 2017USD ($) |
Nature Of Business And Significant Accounting Policies [Line Items] | ||||||||||
Sales discounts | $ 140,018 | $ 40,806 | ||||||||
Number of operating segment | Operating_Segment | 1 | |||||||||
Allowance for doubtful accounts | $ 132,000 | $ 132,000 | $ 25,000 | |||||||
Inventory finished goods | 10,059,200 | $ 10,059,200 | 3,754,171 | |||||||
Potentially dilutive securities consisted of stock options | shares | 7,231,042 | 4,695,000 | ||||||||
Risk-adjusted discount rates | 19% to 26% | |||||||||
Payment of consideration liability | $ 170,000 | $ 170,000 | $ 170,000 | 85,000 | ||||||
Number of common stock held back | shares | 640,000 | |||||||||
Held back period of common stock | 15 months | |||||||||
Number of additional shares for potential earn out consideration | shares | 1,280,000 | |||||||||
Fair Value | ||||||||||
Nature Of Business And Significant Accounting Policies [Line Items] | ||||||||||
Contingent consideration liability | 1,650,000 | $ 1,650,000 | ||||||||
Lancer West Enterprises, Inc And Walnut Ventures | ||||||||||
Nature Of Business And Significant Accounting Policies [Line Items] | ||||||||||
Percentage of ownership interest owned | 100.00% | |||||||||
CMP Wellness | ||||||||||
Nature Of Business And Significant Accounting Policies [Line Items] | ||||||||||
Cash consideration | $ 1,500,000 | |||||||||
Number of aggregate restricted shares | shares | 7,800,000 | |||||||||
Contingent consideration liability | $ 2,150,000 | 2,150,000 | ||||||||
ACQUISITION OF SUMMIT INNOVATIONS, LLC | ||||||||||
Nature Of Business And Significant Accounting Policies [Line Items] | ||||||||||
Cash consideration | $ 1,400,000 | 500,000 | ||||||||
Payment of consideration liability | $ 500,000 | |||||||||
KIM International Corporation (KIM) | ||||||||||
Nature Of Business And Significant Accounting Policies [Line Items] | ||||||||||
Shares exchanged for common stock | shares | 32,400,000 | |||||||||
Shares exchanged | shares | 10,000 |
ACQUISITION OF CMP WELLNESS, 31
ACQUISITION OF CMP WELLNESS, LLC - Acquisition consideration (Details) - CMP Wellness - USD ($) | May 01, 2017 | Aug. 31, 2017 | |
Business Acquisition [Line Items] | |||
Cash | $ 1,500,000 | ||
Fair value of common shares issued to CMP members | 19,500,000 | ||
Promissory notes | 666,788 | ||
Estimated fair value contingent cash consideration | 1,905,000 | ||
Estimated fair value contingent equity consideration | 11,852,400 | ||
Total estimated acquisition consideration | 35,424,188 | ||
As initially reported | |||
Business Acquisition [Line Items] | |||
Cash | $ 1,500,000 | ||
Fair value of common shares issued to CMP members | 19,500,000 | ||
Promissory notes | 660,216 | ||
Estimated fair value contingent cash consideration | 1,735,375 | ||
Estimated fair value contingent equity consideration | 10,763,760 | ||
Total estimated acquisition consideration | $ 34,159,351 | ||
Measurement Period Adjustments | |||
Business Acquisition [Line Items] | |||
Cash | [1] | 0 | |
Fair value of common shares issued to CMP members | [1] | 0 | |
Promissory notes | [1] | 6,572 | |
Estimated fair value contingent cash consideration | [1] | 169,625 | |
Estimated fair value contingent equity consideration | [1] | 1,088,640 | |
Total estimated acquisition consideration | [1] | $ 1,264,837 | |
[1] | As of August 31, 2017, the Company revised its estimate of the contingent cash consideration from $1,735,375 to $1,905,000, and the Company revised its estimate of the contingent equity consideration from $10,763,760 to $11,852,400, to reflect the increased probability of the sellers of CMP reaching the maximum earnouts available. An additional post-closing adjustment of $6,572 was recorded, which resulted in an increase of the promissory notes from $660,216 to $666,788. The balance of the note payable at May 31, 2018 reflects principal payments of $583,440 made to the sellers of CMP. The balance of the contingent cash consideration $1,650,000 as of May 31, 2018, reflects a decrease of $255,000 due to cash payments made to the sellers of CMP. |
ACQUISITION OF CMP WELLNESS, 32
ACQUISITION OF CMP WELLNESS, LLC - Acquisition consideration (Parentheticals) (Details) - USD ($) | May 01, 2017 | May 31, 2018 | May 31, 2017 | Aug. 31, 2017 | |
Business Acquisition [Line Items] | |||||
Repayment of note payable | $ (583,441) | $ (21,614) | |||
Contingent cash consideration | 1,650,000 | ||||
Amount of decrease due to cash payments made to sellers of CMP | $ 255,000 | ||||
CMP Wellness | |||||
Business Acquisition [Line Items] | |||||
Estimated fair value contingent cash consideration | $ 1,905,000 | ||||
Estimated fair value contingent equity consideration | 11,852,400 | ||||
Promissory notes | 666,788 | ||||
CMP Wellness | As initially reported | |||||
Business Acquisition [Line Items] | |||||
Estimated fair value contingent cash consideration | $ 1,735,375 | ||||
Estimated fair value contingent equity consideration | 10,763,760 | ||||
Promissory notes | $ 660,216 | ||||
CMP Wellness | Measurement Period Adjustments | |||||
Business Acquisition [Line Items] | |||||
Estimated fair value contingent cash consideration | [1] | 169,625 | |||
Estimated fair value contingent equity consideration | [1] | 1,088,640 | |||
Promissory notes | [1] | $ 6,572 | |||
[1] | As of August 31, 2017, the Company revised its estimate of the contingent cash consideration from $1,735,375 to $1,905,000, and the Company revised its estimate of the contingent equity consideration from $10,763,760 to $11,852,400, to reflect the increased probability of the sellers of CMP reaching the maximum earnouts available. An additional post-closing adjustment of $6,572 was recorded, which resulted in an increase of the promissory notes from $660,216 to $666,788. The balance of the note payable at May 31, 2018 reflects principal payments of $583,440 made to the sellers of CMP. The balance of the contingent cash consideration $1,650,000 as of May 31, 2018, reflects a decrease of $255,000 due to cash payments made to the sellers of CMP. |
ACQUISITION OF CMP WELLNESS, 33
ACQUISITION OF CMP WELLNESS, LLC (Detail Textuals) - USD ($) | May 01, 2017 | Feb. 28, 2018 | Feb. 28, 2017 | May 31, 2018 | Aug. 31, 2017 |
Business Acquisition [Line Items] | |||||
Unsecured promissory note principal amount | $ 770,820 | ||||
Number of stock issued to investor in exchange for cash | 5,877,415 | ||||
Amount of working capital adjustments | $ 104,032 | ||||
Unsecured promissory notes payable increase (decrease) | 666,788 | ||||
Payment of consideration liability | $ 170,000 | $ 170,000 | 170,000 | $ 85,000 | |
Contingent cash consideration | $ 1,650,000 | $ 2,150,000 | 1,820,000 | ||
Lancer West Enterprises, Inc And Walnut Ventures | |||||
Business Acquisition [Line Items] | |||||
Percentage of ownership interest owned | 100.00% | ||||
CMP Wellness | |||||
Business Acquisition [Line Items] | |||||
Cash consideration | 1,500,000 | ||||
Unsecured promissory note principal amount | $ 770,820 | ||||
Debt instrument, term | 1 year | ||||
Number of aggregate restricted shares | 7,800,000 | ||||
Percentage of common stock outstanding | 12.00% | ||||
Estimated fair value contingent cash consideration | 1,905,000 | ||||
Number of stock issued to investor in exchange for cash | 4,740,960 | ||||
Estimated fair value contingent equity consideration | $ 11,852,400 | ||||
Market price on acquisition date | $ 2.50 | ||||
CMP Wellness | As initially reported | |||||
Business Acquisition [Line Items] | |||||
Cash consideration | $ 1,500,000 | ||||
Estimated fair value contingent cash consideration | 1,735,375 | ||||
Estimated fair value contingent equity consideration | $ 10,763,760 |
ACQUISITION OF SUMMIT INNOVAT34
ACQUISITION OF SUMMIT INNOVATIONS, LLC (Details) - ACQUISITION OF SUMMIT INNOVATIONS, LLC | May 02, 2018USD ($)shares |
Business Acquisition [Line Items] | |
Company stock (in shares) | shares | 640,000 |
Company stock held back (in shares) | shares | 640,000 |
Company stock held back | $ 3,577,600 |
Contingent company stock consideration (in shares) | shares | 1,280,000 |
Contingent company stock consideration | $ 7,155,200 |
Cash, net of cash received | 945,218 |
Cash held back | $ 500,000 |
Total purchase price (in shares) | shares | 2,560,000 |
Total purchase price | $ 15,755,618 |
Common Stock | |
Business Acquisition [Line Items] | |
Company stock | $ 3,577,600 |
ACQUISITION OF SUMMIT INNOVAT35
ACQUISITION OF SUMMIT INNOVATIONS, LLC (Details 1) - USD ($) | May 31, 2018 | May 02, 2018 | Aug. 31, 2017 |
Business Acquisition [Line Items] | |||
Goodwill | $ 51,281,279 | $ 34,247,344 | |
ACQUISITION OF SUMMIT INNOVATIONS, LLC | |||
Business Acquisition [Line Items] | |||
Accounts receivable | $ 470,670 | ||
Prepaid expense and other current assets | 86,626 | ||
Inventory | 237,000 | ||
Property and equipment, net | 648,770 | ||
Goodwill | 17,033,935 | ||
Accounts payable | (1,376,531) | ||
Accrued expenses | (358,035) | ||
Notes payable | (986,816) | ||
Total purchase price | $ 15,755,618 |
ACQUISITION OF SUMMIT INNOVAT36
ACQUISITION OF SUMMIT INNOVATIONS, LLC (Details 2) - ACQUISITION OF SUMMIT INNOVATIONS, LLC - USD ($) | 3 Months Ended | 9 Months Ended | ||
May 31, 2018 | May 31, 2017 | May 31, 2018 | May 31, 2017 | |
Business Acquisition [Line Items] | ||||
Total revenues | $ 13,860,746 | $ 4,735,295 | $ 35,249,655 | $ 10,177,631 |
Net income (loss) | $ (2,778,867) | $ (83) | $ (4,285,427) | $ (157,747) |
Loss per share: | ||||
Basic (in dollars per share) | $ (0.04) | $ 0 | $ (0.07) | $ 0 |
Diluted (in dollars per share) | $ (0.04) | $ 0 | $ (0.07) | $ 0 |
ACQUISITION OF SUMMIT INNOVAT37
ACQUISITION OF SUMMIT INNOVATIONS, LLC (Detail Textuals) - ACQUISITION OF SUMMIT INNOVATIONS, LLC - USD ($) | May 02, 2018 | May 31, 2018 |
Business Acquisition [Line Items] | ||
Cash Consideration, Aggregated | $ 1,400,000 | $ 500,000 |
Cash held back | $ 500,000 | |
Share consideration held back period | 15 months | |
Percentage of contingent consideration | 100.00% | |
Market price on acquisition date | $ 5.59 | |
Common Stock | ||
Business Acquisition [Line Items] | ||
Contingent company stock consideration (in shares) | 1,280,000 | |
Company stock (in shares) | 640,000 | |
Common Stock | Earn-out Consideration | ||
Business Acquisition [Line Items] | ||
Company stock (in shares) | 640,000 | |
Maximum earn out consideration of common stock shares to be entitled to members | 1,280,000 | |
Contingent earn out realized and recorded in Equity | 1,280,000 |
CONCENTRATIONS OF RISK (Detail
CONCENTRATIONS OF RISK (Detail Textuals) | 9 Months Ended | |
May 31, 2018VendorCustomer | May 31, 2017VendorCustomer | |
Purchase | Supplier Concentration Risk | ||
Concentration Risk [Line Items] | ||
Number of vendors | Vendor | 2 | 2 |
Concentration risk, percentage | 14.00% | 22.00% |
Accounts Receivable | Customer Concentration Risk | ||
Concentration Risk [Line Items] | ||
Concentration risk description | two customers who represented 8% of accounts receivable | one customer that accounted for over 10% of accounts receivable |
Concentration risk, percentage | 8.00% | 10.00% |
Number of customer | Customer | 2 | 1 |
RELATED-PARTY TRANSACTIONS (Det
RELATED-PARTY TRANSACTIONS (Detail Textuals) - USD ($) | 9 Months Ended | |
May 31, 2018 | May 31, 2017 | |
Related Party Transactions [Abstract] | ||
Rent payment to related parties | $ 161,100 | $ 152,100 |
PROPERTY AND EQUIPMENT - Major
PROPERTY AND EQUIPMENT - Major classes of fixed assets (Details) - USD ($) | May 31, 2018 | Aug. 31, 2017 |
Property, Plant and Equipment [Line Items] | ||
Property, plant and equipment, gross | $ 3,414,283 | $ 1,221,385 |
Accumulated Depreciation | (635,487) | (289,622) |
Property, plant and equipment, net | 2,778,796 | 931,763 |
Machinery and equipment | ||
Property, Plant and Equipment [Line Items] | ||
Property, plant and equipment, gross | 1,422,523 | 886,608 |
Vehicles | ||
Property, Plant and Equipment [Line Items] | ||
Property, plant and equipment, gross | 378,543 | 144,845 |
Office Equipment | ||
Property, Plant and Equipment [Line Items] | ||
Property, plant and equipment, gross | 219,123 | 118,387 |
Leasehold improvements | ||
Property, Plant and Equipment [Line Items] | ||
Property, plant and equipment, gross | 800,120 | 71,545 |
Gas Tanks - Summit | ||
Property, Plant and Equipment [Line Items] | ||
Property, plant and equipment, gross | $ 593,974 | $ 0 |
PROPERTY AND EQUIPMENT (Detail
PROPERTY AND EQUIPMENT (Detail Textuals) - USD ($) | 3 Months Ended | 9 Months Ended | ||
May 31, 2018 | May 31, 2017 | May 31, 2018 | May 31, 2017 | |
Property, Plant and Equipment [Line Items] | ||||
Depreciation | $ 113,258 | $ 51,297 | $ 227,496 | $ 124,393 |
Depreciation cost of goods sold | 42,373 | 125,111 | ||
Depreciation and Amortization | ||||
Property, Plant and Equipment [Line Items] | ||||
Depreciation | $ 70,885 | $ 102,385 |
INTANGIBLE ASSETS AND GOODWIL42
INTANGIBLE ASSETS AND GOODWILL (Details) - USD ($) | 9 Months Ended | 12 Months Ended |
May 31, 2018 | Aug. 31, 2017 | |
Acquired Finite-Lived Intangible Assets [Line Items] | ||
Gross Carrying Value | $ 3,998,605 | $ 3,989,284 |
Accumulated Amortization | $ (823,022) | $ (258,997) |
Roll-Uh-Bowl | Domain name | ||
Acquired Finite-Lived Intangible Assets [Line Items] | ||
Weighted average estimated useful life | 5 years | 5 years |
Gross Carrying Value | $ 598,605 | $ 589,284 |
Accumulated Amortization | $ (136,910) | $ (47,886) |
CMP Wellness | Trade name | ||
Acquired Finite-Lived Intangible Assets [Line Items] | ||
Weighted average estimated useful life | 6 years | 6 years |
Gross Carrying Value | $ 2,600,000 | $ 2,600,000 |
Accumulated Amortization | $ (469,444) | $ (144,444) |
CMP Wellness | Non-compete agreement | ||
Acquired Finite-Lived Intangible Assets [Line Items] | ||
Weighted average estimated useful life | 4 years | 4 years |
Gross Carrying Value | $ 800,000 | $ 800,000 |
Accumulated Amortization | $ (216,667) | $ (66,667) |
INTANGIBLE ASSETS AND GOODWIL43
INTANGIBLE ASSETS AND GOODWILL (Details 1) | 9 Months Ended |
May 31, 2018USD ($) | |
Goodwill [Roll Forward] | |
Balance - August 31, 2017 | $ 34,247,344 |
Summit acquisition (Note 2) | 17,033,935 |
Balance - May 31, 2018 | $ 51,281,279 |
ACCRUED EXPENSES AND OTHER CU44
ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES (Details) - USD ($) | May 31, 2018 | Aug. 31, 2017 |
Accrued Liabilities And Other Liabilities Current [Abstract] | ||
Customer deposits | $ 750,950 | $ 319,492 |
Accrued compensation | 388,342 | 245,975 |
Income tax payable | 1,774 | 219,082 |
Credit card liabilities | 198,709 | 142,157 |
Deferred revenue | 476,384 | |
Deferred rent | 25,301 | 25,881 |
Sales tax payable | 364,601 | 17,182 |
Other accrued expenses | 288,734 | 23,417 |
Accrued expenses and other current liabilities | $ 2,494,794 | $ 993,186 |
NOTES PAYABLE - Automobile Cont
NOTES PAYABLE - Automobile Contracts Payable (Details) | May 31, 2018USD ($) |
Debt Disclosure [Abstract] | |
2,018 | $ 62,247 |
2,019 | 59,351 |
2,020 | 52,730 |
2,021 | 46,812 |
2,022 | 30,906 |
Total | $ 252,045 |
NOTES PAYABLE (Detail Textuals)
NOTES PAYABLE (Detail Textuals) - USD ($) | 9 Months Ended | ||
May 31, 2018 | Aug. 31, 2017 | May 01, 2017 | |
Debt Instrument [Line Items] | |||
Unsecured promissory note | $ 770,820 | ||
Amount of working capital adjustments | 104,032 | ||
Unsecured promissory notes payable increase (decrease) | 666,788 | ||
Notes payable, current | 145,413 | $ 689,450 | |
CMP Wellness | |||
Debt Instrument [Line Items] | |||
Unsecured promissory note | $ 770,820 | ||
CMP Wellness | Unsecured promissory notes | |||
Debt Instrument [Line Items] | |||
Unsecured promissory note | 770,820 | ||
Amount of working capital adjustments | 104,032 | ||
Unsecured promissory notes payable increase (decrease) | $ 666,788 | ||
Interest rate | 1.15% | ||
Accrued interest on the promissory notes | $ 0 | ||
Notes payable, current | 83,348 | ||
Payments made during quarter end | $ 583,441 | ||
Percentage of average interest rate | 6.00% | ||
CMP Wellness | Unsecured promissory notes | Vehicles | |||
Debt Instrument [Line Items] | |||
Notes payable, current | $ 62,065 |
LOAN AGREEMENT (Detail Textuals
LOAN AGREEMENT (Detail Textuals) - Loan And Security Agreement - Kim International Corporation - Gerber Finance Inc. - Revolving Credit Facility - USD ($) | Mar. 08, 2018 | Nov. 06, 2017 |
Line of Credit Facility [Line Items] | ||
Maximum borrowing capacity | $ 4,000,000 | $ 2,000,000 |
Fair value of amount outstanding | $ 2,433,907 | |
Percentage of threshold maximum borrowing capacity | 85.00% | |
Maturity date | Nov. 6, 2019 | |
Margin added in interest rate | 3.00% | |
Letters of credit, maximum percentage of inventory | 40.00% | |
Letters of credit, maximum percentage of accounts receivable | 50.00% |
STOCKHOLDERS' EQUITY - Schedule
STOCKHOLDERS' EQUITY - Schedule of assumptions used (Details) | 9 Months Ended | |
May 31, 2018 | May 31, 2017 | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Expected volatility | 60.00% | 60.00% |
Weighted-average volatility | 60.00% | 60.00% |
Dividend yield | 0.00% | 0.00% |
Expected forfeiture rate | 33.00% | 33.00% |
Minimum | ||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Expected term (years) | 1 year | 1 year |
Risk-free interest rate | 0.67% | 0.85% |
Maximum | ||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Expected term (years) | 4 years | 4 years |
Risk-free interest rate | 2.81% | 1.57% |
STOCKHOLDERS' EQUITY - Stock op
STOCKHOLDERS' EQUITY - Stock option activity (Detail 1) - USD ($) | 9 Months Ended | 12 Months Ended | |
May 31, 2018 | May 31, 2017 | Aug. 31, 2017 | |
No. of Options | |||
Balance Outstanding, August 31, 2017 | 5,275,500 | ||
Granted | 4,098,500 | ||
Exercised | 834,459 | ||
Forfeited | 1,579,375 | ||
Balance Outstanding, May 31, 2018 | 6,960,166 | 5,275,500 | |
Exercisable, May 31, 2018 | 2,135,549 | ||
Weighted Average Exercise Price | |||
Balance Outstanding, August 31, 2017 | $ 1.73 | ||
Granted | 4.42 | $ 0.96 | |
Exercised | 0.56 | ||
Forfeited | 2.60 | ||
Balance Outstanding, May 31, 2018 | 3.25 | $ 1.73 | |
Exercisable, May 31, 2018 | $ 1.74 | ||
Weighted Average Remaining Contractual Term Outstanding | 8 years 8 months 12 days | 8 years | |
Weighted Average Remaining Contractual Term Granted | 9 years 8 months 12 days | ||
Weighted Average Remaining Contractual Term Exercisable | 7 years 6 months | ||
Aggregate Intrinsic Value, Balance Outstanding | $ 23,250,945 | $ 917,610 | |
Aggregate Intrinsic Value Exercisable | $ 16,093,825 |
STOCKHOLDERS' EQUITY (Detail Te
STOCKHOLDERS' EQUITY (Detail Textuals) - USD ($) | 9 Months Ended | |
May 31, 2018 | Aug. 31, 2017 | |
Stockholders' Equity Note [Abstract] | ||
Preferred stock, shares authorized | 10,000,000 | 10,000,000 |
Preferred stock, par value (in dollars per share) | $ 0.001 | $ 0.001 |
Preferred stock, shares issued | 0 | 0 |
Preferred stock, shares outstanding | 0 | 0 |
Common stock, shares authorized | 265,000,000 | 265,000,000 |
Common stock, par value (in dollars per share) | $ 0.001 | $ 0.001 |
Common stock, shares issued | 66,389,529 | 58,607,066 |
Common stock, shares outstanding | 66,389,529 | 58,607,066 |
Number of stock issued to investor in exchange for cash | 5,877,415 | |
Value of stock issued to investor in exchange for cash | $ 16,404,723 | |
Value of shares under stock payables | $ 30,000 |
STOCKHOLDERS' EQUITY (Detail 51
STOCKHOLDERS' EQUITY (Detail Textuals 1) | 3 Months Ended | 9 Months Ended | ||
May 31, 2018USD ($) | May 31, 2017USD ($) | May 31, 2018USD ($)Employeesshares | May 31, 2017USD ($) | |
Stockholders' Equity Note [Abstract] | ||||
Stock compensation expense | $ 495,897 | $ 259,417 | $ 1,904,568 | $ 522,226 |
Number of shares issued to consultants for services rendered | shares | 368,624 | |||
Value of stock issued to consultants for services rendered | $ 1,794,828 | |||
Value of stock issued to consultants for prepaid services | $ 485,899 | 485,899 | ||
Total value of stock issued to consultants for services rendered and prepaid services | $ 1,308,929 | |||
Number of employee | Employees | 1 | |||
Number of restricted common shares issued under separation agreement | shares | 100,000 | |||
Value of restricted common shares issued under separation agreement | $ 667,000 |
STOCKHOLDERS' EQUITY (Detail 52
STOCKHOLDERS' EQUITY (Detail Textuals 2) - USD ($) | 9 Months Ended | 12 Months Ended | |
May 31, 2018 | May 31, 2017 | Aug. 31, 2017 | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
Weighted average remaining contractual term | 8 years 8 months 12 days | 8 years | |
Number of shares issued | 4,098,500 | ||
Weighted-average grant-date fair value of options granted | $ 4.42 | $ 0.96 | |
Weighted-average grant-date fair value of options forfeited | $ 2.60 | ||
2016 Stock Incentive Plan | |||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
Number of shares issued | 5,000,000 | ||
Share-based payment award vesting period | 3 years | ||
Weighted average remaining contractual term | 10 years | ||
Number of shares issued | 4,096,000 | 2,940,000 | |
Number of common stock issued | 796,425 | ||
Value of shares issued | $ 245,791 | ||
Unrecognized compensation cost related to non-vested share | $ 14,500,580 | ||
Weighted-average period, cost expected to be recognized | 8 years 8 months 12 days | ||
Fair value of shares vested | $ 939,420 |
COMMITMENTS AND CONTINGENCIES (
COMMITMENTS AND CONTINGENCIES (Detail Textuals) - USD ($) | Aug. 31, 2016 | Apr. 01, 2016 | Jul. 31, 2017 | May 31, 2018 | May 31, 2017 |
Operating Leased Assets [Line Items] | |||||
Monthly payments | $ 161,100 | $ 152,100 | |||
Operating leases, rental expense, retail and warehouse space | $ 601,938 | $ 288,789 | |||
Lease expires on August 1, 2022 | Minimum | |||||
Operating Leased Assets [Line Items] | |||||
Monthly payments | $ 24,480 | ||||
Lease expires on August 1, 2022 | Maximum | |||||
Operating Leased Assets [Line Items] | |||||
Monthly payments | 28,379 | ||||
Lease expires in January 2019 | Minimum | |||||
Operating Leased Assets [Line Items] | |||||
Monthly payments | 4,031 | ||||
Lease expires in January 2019 | Maximum | |||||
Operating Leased Assets [Line Items] | |||||
Monthly payments | $ 4,143 | ||||
Lease commenced on July 15, 2016 and expires on January 31, 2020 | Minimum | |||||
Operating Leased Assets [Line Items] | |||||
Monthly payments | $ 14,985 | ||||
Lease commenced on July 15, 2016 and expires on January 31, 2020 | Maximum | |||||
Operating Leased Assets [Line Items] | |||||
Monthly payments | $ 16,022 | ||||
Lease runs through March 31, 2020 | Minimum | |||||
Operating Leased Assets [Line Items] | |||||
Monthly payments | $ 4,800 | ||||
Lease runs through March 31, 2020 | Maximum | |||||
Operating Leased Assets [Line Items] | |||||
Monthly payments | $ 7,300 |
SUBSEQUENT EVENTS (Detail Textu
SUBSEQUENT EVENTS (Detail Textuals) - Subsequent Event - USD ($) | Jun. 12, 2018 | Jun. 07, 2018 |
A.G.P./Alliance Global Partners (the "Placement Agent") | ||
Subsequent Event [Line Items] | ||
Gross proceeds from offering | $ 36,000,000 | |
Net proceeds after deducting placement agent fees and estimated offering expense | $ 32,900,000 | |
Cash fee percentage equal to gross proceeds raised in the offering | 7.00% | |
Maximum expenses to be reimbursed in offering | $ 120,000 | |
Percentage of non-accountable expense allowance equal to gross proceeds raised in offering | 1.00% | |
Securities purchase agreement (the "Purchase Agreement") | Certain accredited investors (the "Purchasers") | ||
Subsequent Event [Line Items] | ||
Number of common stock issued | 7,500,000 | |
Number of warrants to purchase common stock | 3,750,000 | |
Warrant exercise price for per share of common stock | $ 5.28 | |
Term of warrant exercisable | 5 years | |
Combined per share purchase price | $ 4.80 |