Document and Entity Information
Document and Entity Information - shares | 6 Months Ended | |
Feb. 28, 2019 | Apr. 11, 2019 | |
Document and Entity Information: | ||
Entity Registrant Name | KushCo Holdings, Inc. | |
Entity Central Index Key | 0001604627 | |
Trading Symbol | kshb | |
Current Fiscal Year End Date | --08-31 | |
Entity Filer Category | Accelerated Filer | |
Entity Common Stock, Shares Outstanding | 88,017,716 | |
Document Type | 10-Q | |
Document Period End Date | Feb. 28, 2019 | |
Amendment Flag | false | |
Document Fiscal Year Focus | 2019 | |
Document Fiscal Period Focus | Q2 | |
Entity Small Business | true | |
Entity Emerging Growth Company | true | |
Entity Ex Transition Period | true |
Condensed Consolidated Balance
Condensed Consolidated Balance Sheets - USD ($) | Feb. 28, 2019 | Aug. 31, 2018 | ||
Current assets: | ||||
Cash | $ 17,941,908 | $ 13,466,807 | ||
Accounts receivable, net of allowance | 11,315,237 | 8,600,959 | [1] | |
Prepaid expenses and other current assets | 14,215,998 | 13,623,285 | [1] | |
Inventory, net | 35,798,958 | 11,813,755 | [1] | |
Total current assets | 79,272,101 | 47,504,806 | [1] | |
Goodwill | 52,267,353 | 52,267,353 | [1] | |
Intangible assets, net | 3,576,889 | 4,487,415 | [1] | |
Equity investment | 1,198,768 | |||
Property and equipment, net | 6,886,721 | 4,135,090 | [1] | |
Other assets | 1,093,229 | 250,296 | [1] | |
Total Assets | 144,295,061 | 108,644,960 | [1] | |
Current liabilities: | ||||
Accounts payable | 11,375,885 | 2,821,839 | [1] | |
Accrued expenses and other current liabilities | 6,111,739 | 3,008,385 | [1] | |
Contingent consideration payable | [1] | 5,488,410 | ||
Notes payable - current portion | 116,892 | 61,685 | [1] | |
Line of credit - current portion | 1,496,534 | 918,124 | [1] | |
Total current liabilities | 19,101,050 | 12,298,443 | [1] | |
Long-term liabilities: | ||||
Notes payable | 310,085 | 172,021 | [1] | |
Warrant liability | 13,375,000 | 14,430,000 | ||
Deferred rent | 115,127 | 106,032 | [1] | |
Total liabilities | 32,901,262 | 27,006,496 | [1] | |
Commitments and contingencies (Note 16) | [1] | |||
Stockholders’ equity | ||||
Preferred stock, $0.001 par value, 10,000,000 shares authorized, no shares issued and outstanding | [1] | |||
Common stock, $0.001 par value, 265,000,000 shares authorized, 88,011,867 and 78,273,124 shares issued and outstanding, respectively | 88,012 | 78,273 | [1] | |
Additional paid-in capital | 152,157,458 | 104,917,890 | [1] | |
Accumulated deficit | (40,851,671) | (23,357,699) | [1] | |
Total stockholders’ equity | 111,393,799 | 81,638,464 | [1] | |
Total liabilities and stockholders’ equity | $ 144,295,061 | $ 108,644,960 | [1] | |
[1] | Restated |
Condensed Consolidated Balanc_2
Condensed Consolidated Balance Sheets (Parentheticals) - $ / shares | Feb. 28, 2019 | Aug. 31, 2018 |
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 | 88,011,867 | 78,273,124 |
Common stock, shares outstanding | 88,011,867 | 78,273,124 |
Condensed Consolidated Statemen
Condensed Consolidated Statements of Operations (Unaudited) - USD ($) | 3 Months Ended | 6 Months Ended | |||||
Feb. 28, 2019 | Feb. 28, 2018 | Feb. 28, 2019 | Feb. 28, 2018 | ||||
Income Statement [Abstract] | |||||||
Net revenue | $ 35,176,332 | $ 10,361,400 | [1] | $ 60,495,973 | $ 19,208,492 | [1] | |
Cost of goods sold | 30,654,239 | 7,172,082 | [1] | 52,744,742 | 13,132,523 | [1] | |
Gross profit | 4,522,093 | 3,189,318 | [1] | 7,751,231 | 6,075,969 | [1] | |
Operating expenses: | |||||||
Selling, general and administrative | 18,765,667 | 4,071,566 | [1] | 31,313,065 | 6,806,774 | [1] | |
Gain on disposition of assets | (1,254,414) | ||||||
Change in fair value of contingent consideration | (5,602,336) | 6,684,754 | [1] | (5,208,071) | 11,141,256 | [1] | |
Total operating expenses | 13,163,331 | 10,756,320 | [1] | 24,850,580 | 17,948,030 | [1] | |
Loss from operations | (8,641,238) | (7,567,002) | [1] | (17,099,349) | (11,872,061) | [1] | |
Other income (expense): | |||||||
Change in fair value of warrant liability | 1,271,000 | 1,055,000 | |||||
Change in fair value of equity investment | (1,128,116) | (592,116) | |||||
Interest expense | (490,995) | (28,581) | [1] | (978,369) | (30,994) | [1] | |
Other income, net | 74,451 | 120,862 | |||||
Total other expense | (273,660) | (28,581) | [1] | (394,623) | (30,994) | [1] | |
Loss before income taxes | (8,914,898) | (7,595,583) | [1] | (17,493,972) | (11,903,055) | [1] | |
Income tax expense | [1] | 11,763 | 66,178 | ||||
Net loss | $ (8,914,898) | $ (7,607,346) | [1] | $ (17,493,972) | $ (11,969,233) | [1] | |
Net loss per share: | |||||||
Basic and diluted net loss per common share outstanding (in dollars per share) | $ (0.10) | $ (0.12) | [1] | $ (0.22) | $ (0.20) | [1] | |
Basic and diluted weighted average number of common shares outstanding (in shares) | 86,771,973 | 62,155,608 | [1] | 84,304,688 | 60,614,074 | [1] | |
[1] | Restated |
Condensed Consolidated Statem_2
Condensed Consolidated Statements of Stockholders' Equity (Unaudited) - USD ($) | Common Shares | Additional Paid-in Capital | Accumulated Deficit | Total | |
Balance at Aug. 31, 2017 | [1] | $ 58,607 | $ 29,676,883 | $ 979,067 | $ 30,714,557 |
Balance (in shares) at Aug. 31, 2017 | [1] | 58,607,066 | |||
Increase (Decrease) in Stockholders' Equity [Roll Forward] | |||||
Stock option exercises | [1] | $ 234 | 196,873 | 197,107 | |
Stock option exercises (in shares) | [1] | 234,128 | |||
Stock-based compensation | [1] | 458,887 | 458,887 | ||
Stock issued for services | [1] | $ 157 | 829,672 | 829,829 | |
Stock issued for services (in shares) | [1] | 156,624 | |||
Stock sold to investors, net of offering costs | [1] | $ 4,626 | 11,412,379 | 11,417,005 | |
Stock sold to investors, net of offering costs (in shares) | [1] | 4,626,296 | |||
Net loss | [1] | (11,969,233) | (11,969,233) | ||
Balance at Feb. 28, 2018 | [1] | $ 63,624 | 42,574,694 | (10,990,166) | 31,648,152 |
Balance (in shares) at Feb. 28, 2018 | [1] | 63,624,114 | |||
Balance at Aug. 31, 2018 | [1] | $ 78,273 | 104,917,890 | (23,357,699) | 81,638,464 |
Balance (in shares) at Aug. 31, 2018 | [1] | 78,273,124 | |||
Increase (Decrease) in Stockholders' Equity [Roll Forward] | |||||
Stock option exercises | $ 370 | 41,132 | 41,502 | ||
Stock option exercises (in shares) | 370,519 | ||||
Stock-based compensation | $ 130 | 5,475,071 | $ 5,475,201 | ||
Stock-based compensation (in shares) | 129,560 | 2,012,756 | |||
Stock sold to investors, net of offering costs | $ 9,077 | 41,583,434 | $ 41,592,511 | ||
Stock sold to investors, net of offering costs (in shares) | 9,076,664 | ||||
Stock issued for acquisition of Hybrid | $ 162 | 139,931 | 140,093 | ||
Stock issued for acquisition of Hybrid (In shares) | 162,000 | ||||
Net loss | (17,493,972) | (17,493,972) | |||
Balance at Feb. 28, 2019 | $ 88,012 | $ 152,157,458 | $ (40,851,671) | $ 111,393,799 | |
Balance (in shares) at Feb. 28, 2019 | 88,011,867 | ||||
[1] | Restated |
Condensed Consolidated Statem_3
Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) | 6 Months Ended | |||
Feb. 28, 2019 | Feb. 28, 2018 | |||
Cash flows from operating activities | ||||
Net loss | $ (17,493,972) | $ (11,969,233) | [1] | |
Adjustments to reconcile net loss to net cash used in operating activities: | ||||
Depreciation and amortization | 1,077,635 | 490,310 | [1] | |
Gain on disposition of assets | (1,254,414) | |||
Change in fair value of equity investment | 592,116 | |||
Stock compensation expense | 6,534,044 | 1,408,671 | [1] | |
Change in fair value of warrant liability | (1,055,000) | |||
Provision for deferred taxes | [1] | (270,359) | ||
Change in contingent consideration | (5,208,071) | 11,141,256 | [1] | |
Changes in operating assets and liabilities: | ||||
Accounts receivable | (2,714,278) | (2,200,893) | [1] | |
Prepaids | (1,511,463) | (2,647,357) | [1] | |
Inventory | (24,099,353) | (3,505,198) | [1] | |
Prepaid consulting | (775,102) | |||
Accounts payable | 8,041,452 | 2,070,118 | [1] | |
Accrued expenses and other current liabilities | 3,112,449 | 49,866 | [1] | |
Net cash used in operating activities | (34,753,957) | (5,432,819) | [1] | |
Cash flows from investing activities | ||||
Acquisition of web domain | [1] | (9,321) | ||
Security deposits | (67,831) | |||
Purchase of property and equipment | (2,868,347) | (259,635) | [1] | |
Net cash used in investing activities | (2,936,178) | (268,956) | [1] | |
Cash flows from financing activities | ||||
Repayment of capital leases | (47,186) | (8,508) | [1] | |
Repayment of note payable | [1] | (333,395) | ||
Proceeds from stock option exercises | 41,501 | |||
Proceeds from sale of stock, net of costs | 41,592,511 | 11,614,112 | [1] | |
Proceeds from line of credit | 54,325,000 | 742,504 | [1] | |
Payments on line of credit | (53,746,590) | |||
Payments on contingent consideration | [1] | (170,000) | ||
Net cash provided by financing activities | 42,165,236 | 11,844,713 | [1] | |
Net increase in cash | 4,475,101 | 6,142,938 | [1] | |
Cash at beginning of period | 13,466,807 | 916,984 | [1] | |
Cash at end of period | 17,941,908 | 7,059,922 | [1] | |
Cash paid for: | ||||
Interest | 826,638 | 30,994 | [1] | |
Income taxes | [1] | 66,178 | ||
Non-cash investing and financing activities | ||||
Property and equipment included in accounts payable | 232,256 | |||
Capital leases | 240,457 | |||
Services prepaid for in common stock | 697,202 | 102,800 | [1] | |
Shares issued for accounts payable | [1] | $ 159,983 | ||
Equity investment | 1,790,884 | |||
Stock issue for acquisition of Hybrid | $ 140,093 | |||
[1] | Restated |
NATURE OF BUSINESS AND SIGNIFIC
NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES | 6 Months Ended |
Feb. 28, 2019 | |
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 KushCo Holdings, Inc. (“the Company”) was incorporated in the state of Nevada on February 26, 2014. The Company specializes in marketing and selling packaging products, vaporizers, hydrocarbon gases, solvents, accessories and branding solutions to customers operating in the regulated medical and recreational cannabis industries. The Company provides custom branding on packaging products, and its testing standards meet the requirements set by the Consumer Product Safety Commission. The Company’s packaging products primarily consists of bottles, bags, tubes and containers. The Company maintains relationships with a broad range of manufacturers and also has sophisticated in-house labeling and customization capabilities. The Company sells a wide selection of vaporizer cartridges with a variety of core materials and heating technologies, as well as a wide selection of batteries to match the cartridges. The Company provides ultra-pure hydrocarbon gases, including isobutene, n-butane, propane, ethanol, pre-mixes, custom blends and other solvents, which are essential in the extraction process. The Company’s wholly-owned subsidiary, The Hybrid Creative, LLC, is a full-service creative agency that serves both cannabis and non-cannabis clients across the U.S., Canada and Europe. 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 six months periods ended February 28, 2019 are not necessarily indicative of the results that may be expected for the fiscal year ended August 31, 2019, 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, 2018, as restated. The condensed consolidated balance sheet as of August 31, 2018 included herein was derived from the audited financial statements as of that date, as restated, but does not include all disclosures as required by GAAP. Use of Estimates The preparation of financial statements in conformity with U.S. GAAP 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 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, 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 if past experience or other assumptions do not turn out to be substantially accurate. 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 condensed consolidated financial statements to conform to the current year presentation. The reclassification had no impact on previously reported net income (loss) or retained earnings (accumulated deficit). 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 $1,306,346 and $999,752 as of February 28, 2019 and August 31, 2018, 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 $35,798,958 and $11,813,755 as of February 28, 2019 and August 31, 2018, respectively. The Company also makes prepayments against the future delivery of inventory classified as prepaid inventory. The Company’s prepaid inventory was $11,667,382 and $11,019,000 as of February 28, 2019 and August 31, 2018, respectively. Net 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 income or loss by the weighted-average number of shares of common stock outstanding during the period. Diluted net income (loss) per share is computed using the weighted-average number of common shares and common shares equivalents outstanding during the period using the treasury stock method. Revenue Recognition The Company markets and sells packaging products, vaporizers, hydrocarbon gases, solvents, accessories and branding solutions to customers operating in the regulated medical and recreational cannabis industries. The Company expenses fulfillment costs as incurred because the amortization period would be less than one year in accordance with the ASC 606 practical expedient. In accordance with ASC 606, the Company applies the following steps to recognize revenue for the sale of products that reflects the consideration to which the Company expects to be entitled to receive in exchange for the promised goods: 1. Identify the contract with a customer A contract with a customer exists when the Company enters into an enforceable contract with a customer. The contract is based on either the acceptance of standard terms, or the execution of terms and conditions contracts. These contracts define each party's rights, payment terms and other contractual terms and conditions of the sale. The Company applies judgment in determining the customer’s ability and intention to pay, which is based on a variety of factors including the customer’s historical payment experience and, in some circumstances, published credit and financial information pertaining to the customer. 2. Identify the performance obligations in the contract Performance obligations promised in a contract are identified based on the goods that will be transferred to the customer that are both capable of being distinct and are distinct in the context of the contract, whereby the transfer of the goods is separately identifiable from other promises in the contract. The Company has concluded the sale of finished goods and related shipping and handling are accounted for as a single performance obligation. 3. Determine the transaction price The transaction price is determined based on the consideration to which the Company will be entitled to receive in exchange for transferring goods to the customer. The Company estimates the amount of potential refunds at each reporting period using a portfolio approach of historical data, adjusted for changes in expected customer experience, including seasonality and changes in economic factors. Discounts provided to customers are accounted for as an element of the transaction price and as a reduction to revenue. Discounts were $307,583 and $63,551 for the three months ended February 28, 2019 and 2018, respectively, and $619,875 and $117,375 for the six months ended February 28, 2019 and 2018, respectively. Revenue is presented net of taxes collected from customers and remitted to governmental authorities. 4. Allocate the transaction price to the performance obligations in the contract The Company’s products are sold at their standalone selling price. 5. Recognize revenue when the Company satisfies a performance obligation Revenue is recognized when control of the finished goods is transferred to the customer. Control of the finished goods is transferred at a point in time, upon delivery to the customer. The period of time between the satisfaction of the performance obligation and when payment is due from the customer is not significant. In the following table, product sales are disaggregated as follows for the three and six months ended February 28, 2018 and 2019: Three Months Ended February 28, Six Months Ended February 28, 2019 2018 2019 2018 Manufacturing $ 34,542,287 $ 10,229,154 $ 59,402,237 $ 18,962,012 Services 634,045 132,246 1,093,736 246,480 Total Net Revenue $ 35,176,332 $ 10,361,400 $ 60,495,973 $ 19,208,492 Advertising The Company conducts advertising for the promotion of its products and services. In accordance with ASC subtopic 720-35-25 (“ASC 720”), advertising costs are charged to expense when incurred. Advertising costs were $285,266 and $75,984 for the three months ended February 28, 2019 and 2018, respectively. Advertising costs were $777,849 and $183,908 for the six months ended February 28, 2019 and 2018, respectively. Recently Issued Accounting Pronouncements In August 2018, the FASB issued Accounting Standards Update (“ASU”) No. 2018-13, “ Fair Value Measurement (Topic 820), - Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement In February 2016, the FASB issued ASU No. 2016-02, Leases (“ASC 842”) 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 condensed 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. |
RESTATEMENT
RESTATEMENT | 6 Months Ended |
Feb. 28, 2019 | |
Accounting Changes and Error Corrections [Abstract] | |
RESTATEMENT | NOTE 2 - RESTATEMENT In connection with the preparation of the Company’s condensed consolidated interim financial statements as of and for the fiscal quarter ended February 28, 2019, the Company identified inadvertent errors in the accounting for certain shared-settled contingent consideration obligations relating to the Company’s acquisition of CMP Wellness in May 2017, Summit Innovations in May 2018, and Hybrid Creative in July 2018. In connection with those acquisitions, contingent equity consideration relating to certain earn-out arrangements were accounted for as equity. Upon further evaluation, the Company determined that the share-settled contingent consideration should have been accounted for as liabilities with fair value changes recorded in the Company’s consolidated statements of operations. Accordingly, on April 11, 2019, the Company filed Amendment No. 1 to its Annual Report on Form 10-K/A (the “Amended 10-K”), which restated the Company’s previously issued audited consolidated financial statements as of and for the fiscal years ended August 31, 2018 and 2017 and unaudited condensed consolidated interim financial statements as of and for the fiscal periods ended May 31, 2017, November 30, 2017, February 28, 2018, May 31, 2018 and November 30, 2018. Tables summarizing the effects of the restatement adjustments to the Company’s condensed consolidated balance sheet as of August 31, 2018 and condensed consolidated statements of operations as of and for the three and six months ended February 28, 2018 were presented in Note 2, “Restatement” and Note 18, “Quarterly Information (Unaudited)” to the consolidated financial statements in the Amended 10-K. |
ACQUISITION OF SUMMIT INNOVATIO
ACQUISITION OF SUMMIT INNOVATIONS, LLC | 6 Months Ended |
Feb. 28, 2019 | |
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 Innovations, LLC (“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 Energy, LLC, a wholly-owned subsidiary of the Company, with KCH Energy, LLC as the surviving entity. The acquisition was accounted for using the acquisition method of accounting in accordance with ASC 805, Business Combinations |
ACQUISITION OF THE HYBRID CREAT
ACQUISITION OF THE HYBRID CREATIVE, LLC | 6 Months Ended |
Feb. 28, 2019 | |
ACQUISITION OF HYBRID CREATIVE, LLC | |
Business Acquisition [Line Items] | |
ACQUISITION OF THE HYBRID CREATIVE, LLC | NOTE 4 - ACQUISITION OF THE HYBRID CREATIVE, LLC On July 11, 2018, the Company completed its acquisition of Zack Darling Creative Associates (“ZDCA”), and its wholly-owned subsidiary The Hybrid Creative, LLC (“Hybrid”), which together operated as a specialist design agency. Pursuant to the terms of the purchase agreement with the members of ZDCA, the Company purchased the entire issued member interest of ZDCA. Following the acquisition, ZDCA operates as a wholly-owned subsidiary of the Company, with Hybrid continuing to operate as wholly-owned subsidiary of ZDCA. 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 Hybrid at the closing included cash consideration consisting of an aggregate of $847,187 in cash, net of cash received, $82,106 in cash held back and share consideration consisting of an aggregate of 360,000 shares of the Company’s common stock. The former members of ZDCA may become entitled to receive cash contingent consideration of up to $485,000 and up to 212,858 common shares of equity consideration, based on the net revenue performance of Hybrid during the period September 1, 2018 through August 31, 2019. As of February 28, 2019, we concluded that it did not appear likely that ZDCA would meet the minimum earnout target threshold. Accordingly, we estimated the fair value of the related contingent consideration to be zero. |
CONCENTRATIONS OF RISK
CONCENTRATIONS OF RISK | 6 Months Ended |
Feb. 28, 2019 | |
Risks and Uncertainties [Abstract] | |
CONCENTRATIONS OF RISK | NOTE 5 - CONCENTRATIONS OF RISK Supplier Concentrations The Company purchases inventory from various suppliers and manufacturers. For the six months ended February 28, 2019, one vendor accounted for approximately 37% of total inventory purchases. For the six months ended February 28, 2018, two vendors, accounted for approximately 40% of total inventory purchases. Customer Concentrations During the six months ended February 28, 2019 and 2018, there was one customer which represented over 10% of the Company’s revenues. As of February 28, 2019, there was one customer who represented 21% of accounts receivable. As of February 28, 2018, there were two customers who represented 22% of accounts receivable. |
RELATED PARTY TRANSACTIONS
RELATED PARTY TRANSACTIONS | 6 Months Ended |
Feb. 28, 2019 | |
Related Party Transactions [Abstract] | |
RELATED PARTY TRANSACTIONS | NOTE 6 - RELATED PARTY TRANSACTIONS The Company sub-leased its former corporate headquarters from 3 Kings Ventures, LLC, a related party owned by Dallas Imbimbo, Director, Nicholas Kovacevich, Chairman and Chief Executive Officer, and Jeffrey Meng, formerly a greater than 5% stockholder. During the six months ended February 28, 2019 and 2018, the Company made rent payments of $0 and $107,360, respectively, to these related parties. |
SALE OF RUB
SALE OF RUB | 6 Months Ended |
Feb. 28, 2019 | |
Sale Of Rub [Abstract] | |
SALE OF RUB | NOTE 7 - SALE OF RUB On September 21, 2018, Smoke Cartel, Inc. (“Smoke Cartel”) and the Company entered into an agreement to sell a web domain and inventory related to the Company’s Roll-uh-Bowl (“RUB”) product line. The Company received 1,410,145 shares of Smoke Cartel common stock as part of the consideration for this transaction. The fair value of its equity investment as of September 21, 2018 was based upon the closing stock price of Smoke Cartel. The following sets forth the calculation of the gain on disposition of assets upon completion of the sale: Fair value of Smoke Cartel as of September 21, 2018 $ 1,790,884 RUB web domain and inventory sold (536,470 ) Gain on disposition of assets $ 1,254,414 The sale of the RUB assets did not qualify as a discontinued operation as the sale is not a strategic shift that has (or will have) a major effect on the Company’s operations and financial results. |
PROPERTY AND EQUIPMENT
PROPERTY AND EQUIPMENT | 6 Months Ended |
Feb. 28, 2019 | |
Property, Plant and Equipment [Abstract] | |
PROPERTY AND EQUIPMENT | NOTE 8 - PROPERTY AND EQUIPMENT The major classes of fixed assets consist of the following as of February 28, 2019 and August 31, 2018: February 28, August 31, 2019 2018 Machinery and equipment $ 3,576,577 $ 2,937,784 Vehicles 677,092 380,893 Office Equipment 655,107 385,627 Leasehold improvements 1,748,613 1,318,805 Construction in Progress 1,684,929 - 8,342,318 5,023,109 Accumulated Depreciation (1,455,597 ) (888,019 ) $ 6,886,721 $ 4,135,090 Of the $677,092 of vehicles as of February 28, 2019, $240,457 consists of capital leased assets. Depreciation and amortization expense was $302,711 and $58,767, for the three months ended February 28, 2019 and 2018, respectively. Of the $302,711 of depreciation and amortization expense related to property and equipment for the three months ended February 28, 2019, $193,700 is included in selling, general and administrative expense and $109,011 is included in cost of goods sold in the condensed consolidated statements of operations. Of the $58,767 of depreciation and amortization expense for the three months ended February 28, 2018, $17,804 is included in selling, general and administrative expense and $40,963 is included in cost of goods sold in the condensed consolidated statements of operations. Depreciation and amortization expense was $568,053 and $114,239, for the six months ended February 28, 2019 and 2018, respectively. Of the $568,053 of depreciation and amortization expense related to property and equipment for the six months ended February 28, 2019, $356,134 is included in selling, general and administrative expense and $211,919 is included in cost of goods sold in the condensed consolidated statements of operations. Of the $114,239 of depreciation and amortization expense for the six months ended February 28, 2018, $31,500 is included in selling, general and administrative expense and $82,739 is included in cost of goods sold in the condensed consolidated statements of operations. |
INTANGIBLE ASSETS
INTANGIBLE ASSETS | 6 Months Ended |
Feb. 28, 2019 | |
Goodwill and Intangible Assets Disclosure [Abstract] | |
INTANGIBLE ASSETS | NOTE 9 - INTANGIBLE ASSETS Intangible assets consist of the following as of February 28, 2019 and August 31, 2018: Weighted As of February 28, 2019 As of August 31, 2018 Estimated Gross Gross Useful Carrying Accumulated Net Carrying Accumulated Net Description Life Value Amortization Amount Value Amortization Amount Domain name 5 years $ - $ - $ - $ 598,605 $ (166,530 ) $ 432,075 Trade name 6 years 2,600,000 (794,444 ) 1,805,556 2,600,000 (577,778 ) 2,022,222 Non-compete agreement 4 years 2,370,000 (598,667 ) 1,771,333 2,370,000 (336,882 ) 2,033,118 $ 4,970,000 $ (1,393,111 ) $ 3,576,889 $ 5,568,605 $ (1,081,190 ) $ 4,487,415 Amortization expense was $109,011 and $40,963 for the three months ended and $509,582 and $376,072, for the six months ended February 28, 2019 and 2018, respectively. The following table shows the remaining estimated amortization expense associated with finite lived intangible assets as of February 28, 2019: Intangible Assets 2019 $ 473,667 2020 947,333 2021 947,333 2022 919,667 2023 288,889 $ 3,576,889 |
ACCRUED EXPENSES AND OTHER CURR
ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES | 6 Months Ended |
Feb. 28, 2019 | |
Accrued Liabilities and Other Liabilities [Abstract] | |
ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES | NOTE 10 - ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES Accrued expenses and other current liabilities consist of the following as of February 28, 2019 and August 31, 2018: February 28, August 31, 2019 2018 Customer deposits $ 1,563,938 $ 768,908 Accrued compensation 2,162,620 992,747 Sales tax payable 923,686 432,491 Other accrued expenses 1,461,495 814,239 $ 6,111,739 $ 3,008,385 |
NOTES PAYABLE
NOTES PAYABLE | 6 Months Ended |
Feb. 28, 2019 | |
Debt Disclosure [Abstract] | |
NOTES PAYABLE | NOTE 11 - NOTES PAYABLE Automobile Contracts Payable The Company has entered into purchase contracts for its vehicles. The loans and automobile contracts are secured by the vehicles and bear interest at an average interest rate of approximately 4% per annum. Future principal payments on these automobile contracts payable is summarized in the table below: Principal Due 2019 $ 60,081 2020 116,297 2021 110,728 2022 112,767 2023 27,104 $ 426,977 |
LOAN AGREEMENT
LOAN AGREEMENT | 6 Months Ended |
Feb. 28, 2019 | |
Loan Agreement [Abstract] | |
LOAN AGREEMENT | NOTE 12 - LOAN AGREEMENT On November 16, 2017, the Company and its wholly-owned subsidiary KIM International Corporation (“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 originally provided a secured revolving credit facility (the “Revolving Line”) in an aggregate principal amount of up to $2.0 million at any time outstanding. Under the original terms of the Loan Agreement, the principal amount of loans, plus the face amount of any outstanding letters of credit, at any time outstanding cannot exceed up to 85% of the Company’s eligible receivables minus reserves. Under the terms of the Loan Agreement, the Company may also request letters of credit from Gerber. The proceeds of the loans under the Loan Agreement will be used for working capital and general corporate purposes. The Revolving Line has a maturity date of November 6, 2019. Borrowings under the Revolving Line accrues interest at a rate based on the prime rate as customarily defined, plus a margin of 3.0%. On March 8, 2018, the Company and KIM entered into a first amendment to the Loan Agreement with Gerber. Pursuant to the first amendment, the aggregate principal amount of the Revolving Line at any time outstanding was increased to $4.0 million and the principal amount of loans, plus the face amount of any outstanding letters of credit, at any time outstanding could not exceed the lesser of (i) 40% of the value of certain inventory and (ii) 50% of certain accounts receivable. On November 9, 2018, the Company and KIM entered into a second amendment to the Loan Agreement with Gerber. Pursuant to the second amendment, the aggregate principal amount of the Revolving Line at any time outstanding was increased to $8.0 million. Additionally, subject to certain exceptions, the face amount of any outstanding letters of credit, at any time outstanding cannot exceed the lesser of (i) 25% of the value of certain inventory (increasing to 40% upon receipt of certain landlord waivers) and (ii) 50% of certain accounts receivable. In April 2019, the Company obtained a waiver of non-compliance with certain covenant violations associated with the restatements noted in Note 2. |
WARRANT LIABILITY
WARRANT LIABILITY | 6 Months Ended |
Feb. 28, 2019 | |
Warrant Liabilities [Abstract] | |
WARRANT LIABILITY | NOTE 13 - WARRANT LIABILITY In June of 2018, the Company issued warrants to purchase 3,750,000 shares of its common stock to investors in a registered direct offering. The warrants have a term of five years from the date of issuance. The exercise price of the warrants is protected in the event the Company issues securities with a variable conversion or exercise price during the three-year period following the warrants’ issuance. Pursuant to ASC 815, the fair value of the warrants of $15,350,000 was recorded as a derivative liability on the issuance dates. The estimated fair values of the warrants were computed at issuance using an option pricing model. The estimated fair value of the outstanding warrant liabilities was $13,375,000 and $14,430,000 as of February 28, 2019 and August 31, 2018, respectively. Increases or decreases in the fair value of the derivative liability are included as a component of other income (expense) in the accompanying condensed consolidated statements of operations for the respective period. Accordingly, the changes to the derivative liability for warrants resulted in a decrease of $1,271,000 and $1,055,000 in warrant liability and a corresponding gain for the three and six months ended February 28, 2019. The estimated fair value of the warrants was computed as of February 28, 2019 and August 31, 2018 using the following assumptions: February 28, August 31, 2019 2018 Stock price volatility 71% 81% Risk-free interest rates 2.51% 2.74% Annual dividend yield -% -% Term (years) 4.3 4.0 In addition, as applicable management assessed the probabilities of future financing assumptions in the valuation models. |
FAIR VALUE OF FINANCIAL INSTRUM
FAIR VALUE OF FINANCIAL INSTRUMENTS | 6 Months Ended |
Feb. 28, 2019 | |
Fair Value Disclosures [Abstract] | |
FAIR VALUE OF FINANCIAL INSTRUMENTS | NOTE 14 - FAIR VALUE OF FINANCIAL INSTRUMENTS Fair value measurements are performed in accordance with the guidance provided by ASC Topic 820, “Fair Value Measurements and Disclosures.” ASC Topic 820 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Assets and liabilities recorded at fair value in the financial statements are categorized based upon the hierarchy of levels of judgment associated with the inputs used to measure their fair value. Hierarchical levels directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities, are as follows: Level 1 - Quoted prices in active markets for identical assets or liabilities that an entity has the ability to access. Level 2 - Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. Level 3 - Unobservable inputs that are supportable by little or no market activity and that are significant to the fair value of the asset or liability. The carrying amounts of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, capital lease obligations and deferred revenue approximate their fair values based on their short-term nature. The carrying amount of the Company’s long-term notes payable approximates its fair value based on interest rates available to the Company for similar debt instruments and similar remaining maturities. The estimated fair value of the contingent consideration related to the Company's business combinations is recorded using significant unobservable measures and other fair value inputs and is therefore classified as a Level 3 financial instrument. The Company accounts for its investment in Smoke Cartel at fair value. On September 21, 2018, Smoke Cartel and the Company entered into an agreement to sell the RUB web domain and inventory related to this product line and in exchange, received 1,410,145 shares of Smoke Cartel common stock (see Note 7 above.) The fair value of its investment as of September 21, 2018 and February 28, 2019 was based upon the closing stock price of Smoke Cartel. The investment was classified as a Level 2 financial instrument. In connection with the Company’s registered direct offering in June 2018, the Company issued warrants to purchase shares of its common stock and recorded embedded conversion features which are accounted for as derivative liabilities (see Note 13 above.) The estimated fair value of the derivatives is recorded using significant unobservable measures and other fair value inputs and is therefore classified as a Level 3 financial instrument. The following table details the fair value measurements within the fair value hierarchy of the Company’s financial instruments, which includes the Level 2 assets and the Level 3 liabilities: Fair Value at February 28, 2019 Total Level 1 Level 2 Level 3 Assets: Equity investment $ 1,198,768 $ - $ 1,198,768 $ - Liabilities: Warrant liability 13,375,000 - - 13,375,000 Total liabilities $ 14,573,768 $ - $ 1,198,768 $ 13,375,000 Fair Value at August 31, 2018 Total Level 1 Level 2 Level 3 Liabilities: Contingent consideration payable $ 5,488,410 $ - $ - $ 5,488,410 Warrant liability 14,430,000 - - 14,430,000 Total liabilities $ 19,918,410 $ - $ - $ 19,918,410 The following table reflects the activity for the Company’s investment in Smoke Cartel measured at fair value using Level 2 inputs: Investment in Smoke Cartel Balance at August 31, 2018 $ - Acquisition of equity investment 1,790,884 Adjustments to estimated fair value (592,116 ) Balance at February 28, 2019 $ 1,198,768 The following table reflects the activity for the Company’s warrant derivative liability measured at fair value using Level 3 inputs: Warrant Liability Balance at August 31, 2018 $ 14,430,000 Adjustments to estimated fair value (1,055,000 ) Balance at February 28, 2019 $ 13,375,000 The following table reflects the activity for the Company’s contingent consideration measured at fair value using Level 3 inputs: Total As of August 31, 2018 $ 5,488,409 Change in Fair Value 394,265 As of November 30, 2018 $ 5,882,674 Change in Fair Value (5,602,336 ) Cash Payment (140,106 ) Settled in shares- Hybrid (140,232 ) As of February 28, 2019 $ - Total As of August 31, 2017 $ 10,827,824 Change in Fair Value 4,456,502 Cash Payment (85,000 ) As of November 30, 2017 $ 15,199,326 Change in Fair Value 6,684,754 Cash Payment (85,000 ) As of February 28, 2018 $ 21,799,080 The fair value of contingent consideration is evaluated each reporting period using projected financial information, discount rates, and key inputs. Projected contingent payment amounts are discounted back to the current period using a discount rate. Financial information is based on the Company’s most recent internal operational budgets and forecasts. Changes in projected financial information may result in higher fair value measurements. Increases in discount rates and the time to payment may result in lower fair value measurements. Increases (decreases) in any of those inputs in isolation may result in a significantly lower (higher) fair value measurement. |
STOCKHOLDERS' EQUITY
STOCKHOLDERS' EQUITY | 6 Months Ended |
Feb. 28, 2019 | |
Stockholders' Equity Note [Abstract] | |
STOCKHOLDERS' EQUITY | NOTE 15 - STOCKHOLDERS' EQUITY Preferred Stock The authorized preferred stock is 10,000,000 shares with a par value of $0.001. As of February 28, 2019, and August 31, 2018, 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 February 28, 2019, and August 31, 2018, 88,011,867 and 78,273,124 shares were issued and outstanding, respectively. On January 15, 2019, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with certain accredited investors (the “Purchasers”) pursuant to which the Company sold an aggregate of 6,476,190 shares of its common stock, par value $0.001 per share (the “Common Stock”) and warrants to purchase 3,238,095 shares of Common Stock (“Warrants”) (collectively, the “Securities”), 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) initially filed with the Securities and Exchange Commission (the “Commission”) on December 5, 2017, as amended on January 25, 2018 and February 14, 2018, and declared effective on February 28, 2018, and an additional registration statement on Form S-3 filed pursuant to Rule 462(b) under the Securities Act, which became effective upon filing on January 16, 2019. Subject to certain ownership limitations, the Warrants are immediately exercisable at an exercise price equal to $5.75 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 a half of a Warrant was $5.25. The Offering closed on January 18, 2019 with aggregated gross proceeds of approximately $34.0 million. The aggregate net proceeds from the Offering, after deducting the placement agent fees and other estimated offering expenses, approximated $31.2 million. During the six months ended February 28, 2019, the Company sold 9,076,664 shares of its common stock to investors in exchange for aggregate net proceeds of approximately $41.6 million. During the six months ended February 28, 2018, the Company sold 4,626,296 shares of its common stock to investors in exchange for aggregate net proceeds of approximately $11.6 million. Share-based Compensation The Company recorded stock compensation expense of $6,534,044 and $1,408,671 for the six months ended February 28, 2019 and 2018, respectively, in connection with the issuance of shares of common stock and options to purchase common stock. During the six months ended February 28, 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 as of February 28, 2018. Stock Options The Company’s 2016 Stock Incentive Plan (the “Plan”) was adopted on February 9, 2016. The Plan, as amended, permits the grant of share options and shares to its employees and directors for up to 18,000,000 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 our 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 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 six months ended February 28, 2019 and 2018: February 28, February 28, 2019 2018 Expected term in years 3 1-4 Expected volatility 72% - 87% 60% Risk-free interest rate 2.35% - 3.01% 1.14% - 2.37% Expected dividend yield -% -% 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 six months ended February 28, 2019 and 2018, the Company issued 5,019,000 and 1,517,500 stock options, respectively, pursuant to the Company’s 2016 Stock Incentive Plan. A summary of the Company’s stock option activity during the six month period ended February 28, 2019 is presented below: Weighted Weighted Average Average Remaining Aggregate Stock Exercise Contractual Intrinsic Options Price Term (in years) Value Balance Outstanding, August 31, 2018 9,367,693 $ 3.85 9.1 $ 14,463,235 Granted 5,019,000 $ 5.70 - - Exercised (370,519 ) $ 0.85 - - Forfeited (2,012,756 ) $ 4.03 - - Balance Outstanding, February 28, 2019 12,003,418 $ 4.70 9.2 $ 15,878,082 Exercisable, February 28, 2019 2,934,149 $ 3.18 8.5 $ 8,336,782 The weighted-average grant-date fair value of options granted during the six months ended February 28, 2019 and 2018, was $3.07 and $3.50, respectively. During the six months ended February 28, 2019 and 2018, the intrinsic value of stock options excercised was $2,230,360 and $1,226,510, respectively. As of February 28, 2019, there was $21,822,071 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 1.3 years. |
COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES | 6 Months Ended |
Feb. 28, 2019 | |
Commitments and Contingencies Disclosure [Abstract] | |
COMMITMENTS AND CONTINGENCIES | NOTE 16 - COMMITMENTS AND CONTINGENCIES 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. 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. |
NATURE OF BUSINESS AND SIGNIF_2
NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Policies) | 6 Months Ended |
Feb. 28, 2019 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Nature of Business | Nature of Business KushCo Holdings, Inc. (“the Company”) was incorporated in the state of Nevada on February 26, 2014. The Company specializes in marketing and selling packaging products, vaporizers, hydrocarbon gases, solvents, accessories and branding solutions to customers operating in the regulated medical and recreational cannabis industries. The Company provides custom branding on packaging products, and its testing standards meet the requirements set by the Consumer Product Safety Commission. The Company’s packaging products primarily consists of bottles, bags, tubes and containers. The Company maintains relationships with a broad range of manufacturers and also has sophisticated in-house labeling and customization capabilities. The Company sells a wide selection of vaporizer cartridges with a variety of core materials and heating technologies, as well as a wide selection of batteries to match the cartridges. The Company provides ultra-pure hydrocarbon gases, including isobutene, n-butane, propane, ethanol, pre-mixes, custom blends and other solvents, which are essential in the extraction process. The Company’s wholly-owned subsidiary, The Hybrid Creative, LLC, is a full-service creative agency that serves both cannabis and non-cannabis clients across the U.S., Canada and Europe. |
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 six months periods ended February 28, 2019 are not necessarily indicative of the results that may be expected for the fiscal year ended August 31, 2019, 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, 2018, as restated. The condensed consolidated balance sheet as of August 31, 2018 included herein was derived from the audited financial statements as of that date, as restated, but does not include all disclosures as required by GAAP. |
Use of Estimates | Use of Estimates The preparation of financial statements in conformity with U.S. GAAP 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 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, 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 if past experience or other assumptions do not turn out to be substantially accurate. 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 condensed consolidated financial statements to conform to the current year presentation. The reclassification had no impact on previously reported net income (loss) or retained earnings (accumulated deficit). |
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 $1,306,346 and $999,752 as of February 28, 2019 and August 31, 2018, 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 $35,798,958 and $11,813,755 as of February 28, 2019 and August 31, 2018, respectively. The Company also makes prepayments against the future delivery of inventory classified as prepaid inventory. The Company’s prepaid inventory was $11,667,382 and $11,019,000 as of February 28, 2019 and August 31, 2018, respectively. |
Net Loss Per Share | Net 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 income or loss by the weighted-average number of shares of common stock outstanding during the period. Diluted net income (loss) per share is computed using the weighted-average number of common shares and common shares equivalents outstanding during the period using the treasury stock method. |
Revenue Recognition | Revenue Recognition The Company markets and sells packaging products, vaporizers, hydrocarbon gases, solvents, accessories and branding solutions to customers operating in the regulated medical and recreational cannabis industries. The Company expenses fulfillment costs as incurred because the amortization period would be less than one year in accordance with the ASC 606 practical expedient. In accordance with ASC 606, the Company applies the following steps to recognize revenue for the sale of products that reflects the consideration to which the Company expects to be entitled to receive in exchange for the promised goods: 1. Identify the contract with a customer A contract with a customer exists when the Company enters into an enforceable contract with a customer. The contract is based on either the acceptance of standard terms, or the execution of terms and conditions contracts. These contracts define each party's rights, payment terms and other contractual terms and conditions of the sale. The Company applies judgment in determining the customer’s ability and intention to pay, which is based on a variety of factors including the customer’s historical payment experience and, in some circumstances, published credit and financial information pertaining to the customer. 2. Identify the performance obligations in the contract Performance obligations promised in a contract are identified based on the goods that will be transferred to the customer that are both capable of being distinct and are distinct in the context of the contract, whereby the transfer of the goods is separately identifiable from other promises in the contract. The Company has concluded the sale of finished goods and related shipping and handling are accounted for as a single performance obligation. 3. Determine the transaction price The transaction price is determined based on the consideration to which the Company will be entitled to receive in exchange for transferring goods to the customer. The Company estimates the amount of potential refunds at each reporting period using a portfolio approach of historical data, adjusted for changes in expected customer experience, including seasonality and changes in economic factors. Discounts provided to customers are accounted for as an element of the transaction price and as a reduction to revenue. Discounts were $307,583 and $63,551 for the three months ended February 28, 2019 and 2018, respectively, and $619,875 and $117,375 for the six months ended February 28, 2019 and 2018, respectively. Revenue is presented net of taxes collected from customers and remitted to governmental authorities. 4. Allocate the transaction price to the performance obligations in the contract The Company’s products are sold at their standalone selling price. 5. Recognize revenue when the Company satisfies a performance obligation Revenue is recognized when control of the finished goods is transferred to the customer. Control of the finished goods is transferred at a point in time, upon delivery to the customer. The period of time between the satisfaction of the performance obligation and when payment is due from the customer is not significant. In the following table, product sales are disaggregated as follows for the three and six months ended February 28, 2018 and 2019: Three Months Ended February 28, Six Months Ended February 28, 2019 2018 2019 2018 Manufacturing $ 34,542,287 $ 10,229,154 $ 59,402,237 $ 18,962,012 Services 634,045 132,246 1,093,736 246,480 Total Net Revenue $ 35,176,332 $ 10,361,400 $ 60,495,973 $ 19,208,492 |
Advertising | Advertising The Company conducts advertising for the promotion of its products and services. In accordance with ASC subtopic 720-35-25 (“ASC 720”), advertising costs are charged to expense when incurred. Advertising costs were $285,266 and $75,984 for the three months ended February 28, 2019 and 2018, respectively. Advertising costs were $777,849 and $183,908 for the six months ended February 28, 2019 and 2018, respectively. |
Recently Issued Accounting Pronouncements | Recently Issued Accounting Pronouncements In August 2018, the FASB issued Accounting Standards Update (“ASU”) No. 2018-13, “ Fair Value Measurement (Topic 820), - Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement In February 2016, the FASB issued ASU No. 2016-02, Leases (“ASC 842”) 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 condensed 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. |
NATURE OF BUSINESS AND SIGNIF_3
NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Tables) | 6 Months Ended |
Feb. 28, 2019 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Schedule of disaggregation of revenue | Three Months Ended February 28, Six Months Ended February 28, 2019 2018 2019 2018 Manufacturing $ 34,542,287 $ 10,229,154 $ 59,402,237 $ 18,962,012 Services 634,045 132,246 1,093,736 246,480 Total Net Revenue $ 35,176,332 $ 10,361,400 $ 60,495,973 $ 19,208,492 |
SALE OF RUB (Tables)
SALE OF RUB (Tables) | 6 Months Ended |
Feb. 28, 2019 | |
Sale Of Rub [Abstract] | |
Schedule of gain on disposition of assets | Fair value of Smoke Cartel as of September 21, 2018 $ 1,790,884 RUB web domain and inventory sold (536,470 ) Gain on disposition of assets $ 1,254,414 |
PROPERTY AND EQUIPMENT (Tables)
PROPERTY AND EQUIPMENT (Tables) | 6 Months Ended |
Feb. 28, 2019 | |
Property, Plant and Equipment [Abstract] | |
Schedule of property, plant and equipment | February 28, August 31, 2019 2018 Machinery and equipment $ 3,576,577 $ 2,937,784 Vehicles 677,092 380,893 Office Equipment 655,107 385,627 Leasehold improvements 1,748,613 1,318,805 Construction in Progress 1,684,929 - 8,342,318 5,023,109 Accumulated Depreciation (1,455,597 ) (888,019 ) $ 6,886,721 $ 4,135,090 |
INTANGIBLE ASSETS (Tables)
INTANGIBLE ASSETS (Tables) | 6 Months Ended |
Feb. 28, 2019 | |
Intangible Assets Disclosure [Abstract] | |
Schedule of intangible assets | Weighted As of February 28, 2019 As of August 31, 2018 Estimated Gross Gross Useful Carrying Accumulated Net Carrying Accumulated Net Description Life Value Amortization Amount Value Amortization Amount Domain name 5 years $ - $ - $ - $ 598,605 $ (166,530 ) $ 432,075 Trade name 6 years 2,600,000 (794,444 ) 1,805,556 2,600,000 (577,778 ) 2,022,222 Non-compete agreement 4 years 2,370,000 (598,667 ) 1,771,333 2,370,000 (336,882 ) 2,033,118 $ 4,970,000 $ (1,393,111 ) $ 3,576,889 $ 5,568,605 $ (1,081,190 ) $ 4,487,415 |
Schedule of remaining amortization expense associated with finite lived intangible assets | Intangible Assets 2019 $ 473,667 2020 947,333 2021 947,333 2022 919,667 2023 288,889 $ 3,576,889 |
ACCRUED EXPENSES AND OTHER CU_2
ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES (Tables) | 6 Months Ended |
Feb. 28, 2019 | |
Accrued Liabilities and Other Liabilities [Abstract] | |
Schedule of accrued liabilities | February 28, August 31, 2019 2018 Customer deposits $ 1,563,938 $ 768,908 Accrued compensation 2,162,620 992,747 Sales tax payable 923,686 432,491 Other accrued expenses 1,461,495 814,239 $ 6,111,739 $ 3,008,385 |
NOTES PAYABLE (Tables)
NOTES PAYABLE (Tables) | 6 Months Ended |
Feb. 28, 2019 | |
Debt Disclosure [Abstract] | |
Schedule of notes payable | Principal Due 2019 $ 60,081 2020 116,297 2021 110,728 2022 112,767 2023 27,104 $ 426,977 |
WARRANT LIABILITY (Tables)
WARRANT LIABILITY (Tables) | 6 Months Ended |
Feb. 28, 2019 | |
Warrant Liabilities [Abstract] | |
Schedule of estimated fair value of the warrants | February 28, August 31, 2019 2018 Stock price volatility 71% 81% Risk-free interest rates 2.51% 2.74% Annual dividend yield -% -% Term (years) 4.3 4.0 |
FAIR VALUE OF FINANCIAL INSTR_2
FAIR VALUE OF FINANCIAL INSTRUMENTS (Tables) | 6 Months Ended |
Feb. 28, 2019 | |
Fair Value Disclosures [Abstract] | |
Schedule of fair value of financial instruments | Fair Value at February 28, 2019 Total Level 1 Level 2 Level 3 Assets: Equity investment $ 1,198,768 $ - $ 1,198,768 $ - Liabilities: Warrant liability 13,375,000 - - 13,375,000 Total liabilities $ 14,573,768 $ - $ 1,198,768 $ 13,375,000 Fair Value at August 31, 2018 Total Level 1 Level 2 Level 3 Liabilities: Contingent consideration payable $ 5,488,410 $ - $ - $ 5,488,410 Warrant liability 14,430,000 - - 14,430,000 Total liabilities $ 19,918,410 $ - $ - $ 19,918,410 |
Schedule of fair value investment in smoke cartel | Investment in Smoke Cartel Balance at August 31, 2018 $ - Acquisition of equity investment 1,790,884 Adjustments to estimated fair value (592,116 ) Balance at February 28, 2019 $ 1,198,768 |
Schedule of warrant derivative liability | Warrant Liability Balance at August 31, 2018 $ 14,430,000 Adjustments to estimated fair value (1,055,000 ) Balance at February 28, 2019 $ 13,375,000 |
Schedule of contingent consideration measured at fair value | Total As of August 31, 2018 $ 5,488,409 Change in Fair Value 394,265 As of November 30, 2018 $ 5,882,674 Change in Fair Value (5,602,336 ) Cash Payment (140,106 ) Settled in shares- Hybrid (140,232 ) As of February 28, 2019 $ - Total As of August 31, 2017 $ 10,827,824 Change in Fair Value 4,456,502 Cash Payment (85,000 ) As of November 30, 2017 $ 15,199,326 Change in Fair Value 6,684,754 Cash Payment (85,000 ) As of February 28, 2018 $ 21,799,080 |
STOCKHOLDERS' EQUITY (Tables)
STOCKHOLDERS' EQUITY (Tables) | 6 Months Ended |
Feb. 28, 2019 | |
Stockholders' Equity Note [Abstract] | |
Schedule of assumptions used | February 28, February 28, 2019 2018 Expected term in years 3 1-4 Expected volatility 72% - 87% 60% Risk-free interest rate 2.35% - 3.01% 1.14% - 2.37% Expected dividend yield -% -% |
Schedule of stock option activity | Weighted Weighted Average Average Remaining Aggregate Stock Exercise Contractual Intrinsic Options Price Term (in years) Value Balance Outstanding, August 31, 2018 9,367,693 $ 3.85 9.1 $ 14,463,235 Granted 5,019,000 $ 5.70 - - Exercised (370,519 ) $ 0.85 - - Forfeited (2,012,756 ) $ 4.03 - - Balance Outstanding, February 28, 2019 12,003,418 $ 4.70 9.2 $ 15,878,082 Exercisable, February 28, 2019 2,934,149 $ 3.18 8.5 $ 8,336,782 |
NATURE OF BUSINESS AND SIGNIF_4
NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES - Summary of revenue of product sales (Details) - USD ($) | 3 Months Ended | 6 Months Ended | ||||
Feb. 28, 2019 | Feb. 28, 2018 | Feb. 28, 2019 | Feb. 28, 2018 | |||
Product Information [Line Items] | ||||||
Total Net Revenue | $ 35,176,332 | $ 10,361,400 | [1] | $ 60,495,973 | $ 19,208,492 | [1] |
Manufacturing | ||||||
Product Information [Line Items] | ||||||
Total Net Revenue | 34,542,287 | 10,229,154 | 59,402,237 | 18,962,012 | ||
Services | ||||||
Product Information [Line Items] | ||||||
Total Net Revenue | $ 634,045 | $ 132,246 | $ 1,093,736 | $ 246,480 | ||
[1] | Restated |
NATURE OF BUSINESS AND SIGNIF_5
NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Detail Textuals) - USD ($) | 3 Months Ended | 6 Months Ended | |||
Feb. 28, 2019 | Feb. 28, 2018 | Feb. 28, 2019 | Feb. 28, 2018 | Aug. 31, 2018 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||||
Allowance for doubtful accounts | $ 1,306,346 | $ 1,306,346 | $ 999,752 | ||
Inventory finished goods | 35,798,958 | 35,798,958 | 11,813,755 | ||
Prepaid inventory | 11,667,382 | 11,667,382 | $ 11,019,000 | ||
Discounts provided to customers of transaction price and as a reduction to revenue | 307,583 | $ 63,551 | 619,875 | $ 117,375 | |
Advertising costs | $ 285,266 | $ 75,984 | $ 777,849 | $ 183,908 |
ACQUISITION OF SUMMIT INNOVAT_2
ACQUISITION OF SUMMIT INNOVATIONS, LLC (Detail Textuals) - ACQUISITION OF SUMMIT INNOVATIONS, LLC | May 02, 2018USD ($)shares |
Business Acquisition [Line Items] | |
Cash consideration, aggregated in cash | $ | $ 905,231 |
Cash held back | $ | $ 187,849 |
Share consideration held back period | 15 months |
Common Shares | |
Business Acquisition [Line Items] | |
Company stock (in shares) | 1,280,000 |
Number of shares issued for purchase consideration (in shares) | 640,000 |
Common Shares | Earn-out Consideration | |
Business Acquisition [Line Items] | |
Maximum earn out consideration of common stock shares to be entitled to members | 1,280,000 |
ACQUISITION OF THE HYBRID CRE_2
ACQUISITION OF THE HYBRID CREATIVE, LLC (Detail Textuals) - ACQUISITION OF HYBRID CREATIVE, LLC | Jul. 11, 2018USD ($)shares |
Business Acquisition [Line Items] | |
Cash consideration, aggregated in cash | $ 847,187 |
Cash held back | $ 82,106 |
Aggregate shares common stock (in shares) | shares | 360,000 |
Earn-out Consideration | Zack Darling Creative Associates ("ZDCA") | |
Business Acquisition [Line Items] | |
Cash consideration, aggregated in cash | $ 485,000 |
Aggregate shares common stock (in shares) | shares | 212,858 |
CONCENTRATIONS OF RISK (Detail
CONCENTRATIONS OF RISK (Detail Textuals) | 6 Months Ended | |
Feb. 28, 2019VendorCustomer | Feb. 28, 2018VendorCustomer | |
Purchase | Supplier Concentration Risk | ||
Concentration Risk [Line Items] | ||
Number of vendors | Vendor | 1 | 2 |
Concentration risk description | one vendor accounted for approximately 37% of total inventory purchases | two vendors accounted for approximately 40% respectively, of total inventory purchases |
Concentration risk, percentage | 37.00% | |
Purchase | Supplier Concentration Risk | Vendor 1 | ||
Concentration Risk [Line Items] | ||
Concentration risk, percentage | 40.00% | |
Purchase | Supplier Concentration Risk | Vendor 2 | ||
Concentration Risk [Line Items] | ||
Concentration risk, percentage | 40.00% | |
Revenue | Customer Concentration Risk | ||
Concentration Risk [Line Items] | ||
Concentration risk description | one customer which represented over 10% of the Company's revenues | one customer which represented over 10% of the Company's revenues |
Concentration risk, percentage | 10.00% | 10.00% |
Number of customer | 1 | 1 |
Accounts Receivable | Customer Concentration Risk | ||
Concentration Risk [Line Items] | ||
Concentration risk description | one customer who represented 21% of accounts receivable | two customers who represented 22% of accounts receivable |
Concentration risk, percentage | 21.00% | 22.00% |
Number of customer | 1 | 2 |
RELATED PARTY TRANSACTIONS (Det
RELATED PARTY TRANSACTIONS (Detail Textuals) - USD ($) | 6 Months Ended | |
Feb. 28, 2019 | Feb. 28, 2018 | |
Related Party Transactions [Abstract] | ||
Related party transaction ownership percentage | greater than 5% stockholder | |
Rent payment to related parties | $ 0 | $ 107,360 |
SALE OF RUB (Details)
SALE OF RUB (Details) - USD ($) | 1 Months Ended | 6 Months Ended |
Sep. 21, 2018 | Feb. 28, 2019 | |
Product Information [Line Items] | ||
Gain on disposition of assets | $ 1,254,414 | |
Smoke Cartel, Inc. | ||
Product Information [Line Items] | ||
Fair value of Smoke Cartel as of September 21, 2018 | $ 1,790,884 | |
RUB web domain and inventory sold | (536,470) | |
Gain on disposition of assets | $ 1,254,414 |
SALE OF RUB (Detail Textuals)
SALE OF RUB (Detail Textuals) | 1 Months Ended |
Sep. 21, 2018shares | |
Smoke Cartel, Inc. | |
Product Information [Line Items] | |
Common stock issued for consideration to sell web domain and inventory related to Roll-uh-Bowl ("RUB") product line | 1,410,145 |
PROPERTY AND EQUIPMENT - Major
PROPERTY AND EQUIPMENT - Major classes of fixed assets (Details) - USD ($) | Feb. 28, 2019 | Aug. 31, 2018 | |
Property, Plant and Equipment [Line Items] | |||
Property, plant and equipment, gross | $ 8,342,318 | $ 5,023,109 | |
Accumulated Depreciation | (1,455,597) | (888,019) | |
Property, plant and equipment, net | 6,886,721 | 4,135,090 | [1] |
Machinery and equipment | |||
Property, Plant and Equipment [Line Items] | |||
Property, plant and equipment, gross | 3,576,577 | 2,937,784 | |
Vehicles | |||
Property, Plant and Equipment [Line Items] | |||
Property, plant and equipment, gross | 677,092 | 380,893 | |
Office Equipment | |||
Property, Plant and Equipment [Line Items] | |||
Property, plant and equipment, gross | 655,107 | 385,627 | |
Leasehold improvements | |||
Property, Plant and Equipment [Line Items] | |||
Property, plant and equipment, gross | 1,748,613 | 1,318,805 | |
Construction in progress | |||
Property, Plant and Equipment [Line Items] | |||
Property, plant and equipment, gross | $ 1,684,929 | $ 0 | |
[1] | Restated |
PROPERTY AND EQUIPMENT (Detail
PROPERTY AND EQUIPMENT (Detail Textuals) - USD ($) | 3 Months Ended | 6 Months Ended | |||
Feb. 28, 2019 | Feb. 28, 2018 | Feb. 28, 2019 | Feb. 28, 2018 | Aug. 31, 2018 | |
Property, Plant and Equipment [Line Items] | |||||
Property, plant and equipment, gross | $ 8,342,318 | $ 8,342,318 | $ 5,023,109 | ||
Depreciation expense | 302,711 | $ 58,767 | 568,053 | $ 114,239 | |
Selling, general and administrative expense | |||||
Property, Plant and Equipment [Line Items] | |||||
Depreciation expense | 193,700 | 17,804 | 356,134 | 31,500 | |
Cost of goods sold | |||||
Property, Plant and Equipment [Line Items] | |||||
Depreciation expense | 109,011 | $ 40,963 | 211,919 | $ 82,739 | |
Vehicles | |||||
Property, Plant and Equipment [Line Items] | |||||
Property, plant and equipment, gross | 677,092 | 677,092 | $ 380,893 | ||
Capital leased assets | $ 240,457 | $ 240,457 |
INTANGIBLE ASSETS AND GOODWILL
INTANGIBLE ASSETS AND GOODWILL (Details) - USD ($) | 6 Months Ended | |
Feb. 28, 2019 | Aug. 31, 2018 | |
Acquired Finite-Lived Intangible Assets [Line Items] | ||
Gross Carrying Value | $ 4,970,000 | $ 5,568,605 |
Accumulated Amortization | (1,393,111) | (1,081,190) |
Net Amount | $ 3,576,889 | 4,487,415 |
Domain name | ||
Acquired Finite-Lived Intangible Assets [Line Items] | ||
Weighted average estimated useful life | 5 years | |
Gross Carrying Value | $ 0 | 598,605 |
Accumulated Amortization | 0 | (166,530) |
Net Amount | $ 0 | 432,075 |
Trade name | ||
Acquired Finite-Lived Intangible Assets [Line Items] | ||
Weighted average estimated useful life | 6 years | |
Gross Carrying Value | $ 2,600,000 | 2,600,000 |
Accumulated Amortization | (794,444) | (577,778) |
Net Amount | $ 1,805,556 | 2,022,222 |
Non-compete agreement | ||
Acquired Finite-Lived Intangible Assets [Line Items] | ||
Weighted average estimated useful life | 4 years | |
Gross Carrying Value | $ 2,370,000 | 2,370,000 |
Accumulated Amortization | (598,667) | (336,882) |
Net Amount | $ 1,771,333 | $ 2,033,118 |
INTANGIBLE ASSETS AND GOODWIL_2
INTANGIBLE ASSETS AND GOODWILL (Details 1) - USD ($) | Feb. 28, 2019 | Aug. 31, 2018 |
Year ended August 31, | ||
2019 | $ 473,667 | |
2020 | 947,333 | |
2021 | 947,333 | |
2022 | 919,667 | |
2023 | 288,889 | |
Amortization expense | $ 3,576,889 | $ 4,487,415 |
INTANGIBLE ASSETS AND GOODWIL_3
INTANGIBLE ASSETS AND GOODWILL (Detail Textuals) - USD ($) | 3 Months Ended | 6 Months Ended | ||
Feb. 28, 2019 | Feb. 28, 2018 | Feb. 28, 2019 | Feb. 28, 2018 | |
Goodwill and Intangible Assets Disclosure [Abstract] | ||||
Amortization expense | $ 109,011 | $ 40,963 | $ 509,582 | $ 376,072 |
ACCRUED EXPENSES AND OTHER CU_3
ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES (Details) - USD ($) | Feb. 28, 2019 | Aug. 31, 2018 | |
Accrued Liabilities And Other Liabilities Current [Abstract] | |||
Customer deposits | $ 1,563,938 | $ 768,908 | |
Accrued compensation | 2,162,620 | 992,747 | |
Sales tax payable | 923,686 | 432,491 | |
Other accrued expenses | 1,461,495 | 814,239 | |
Accrued expenses and other current liabilities | $ 6,111,739 | $ 3,008,385 | [1] |
[1] | Restated |
NOTES PAYABLE - Automobile Cont
NOTES PAYABLE - Automobile Contracts Payable (Details) | Feb. 28, 2019USD ($) |
Debt Disclosure [Abstract] | |
2019 (Remaining six months) | $ 60,081 |
2020 | 116,297 |
2021 | 110,728 |
2022 | 112,767 |
2023 | 27,104 |
Total | $ 426,977 |
NOTES PAYABLE (Detail Textuals)
NOTES PAYABLE (Detail Textuals) | Feb. 28, 2019 |
Loans and automobile contract | |
Debt Instrument [Line Items] | |
Average interest rate | 4.00% |
LOAN AGREEMENT (Detail Textuals
LOAN AGREEMENT (Detail Textuals) - Loan and Security Agreement (the "Loan Agreement") - Kim International Corporation - Gerber Finance Inc., as lender ("Gerber") - Secured revolving credit facility (the "Revolving Line") - USD ($) $ in Millions | Nov. 09, 2018 | Mar. 08, 2018 | Nov. 06, 2017 |
Line of Credit Facility [Line Items] | |||
Maximum borrowing capacity | $ 8 | $ 4 | $ 2 |
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 | 25.00% | 40.00% | |
Letters of credit, maximum percentage of inventory increasing upon receipt of certain landlord waivers | 40.00% | ||
Letters of credit, maximum percentage of accounts receivable | 50.00% | 50.00% |
WARRANT LIABILITY (Details)
WARRANT LIABILITY (Details) | Feb. 28, 2019 | Aug. 31, 2018 |
Stock price volatility | ||
Credit Derivatives [Line Items] | ||
Measurement input | 71 | 81.1 |
Risk-free interest rates | ||
Credit Derivatives [Line Items] | ||
Measurement input | 2.51 | 2.74 |
Annual dividend yield | ||
Credit Derivatives [Line Items] | ||
Measurement input | 0 | 0 |
Term (years) | ||
Credit Derivatives [Line Items] | ||
Term of outstanding warrant liabilities | 4 years 3 months 18 days | 4 years |
WARRANT LIABILITY (Detail Textu
WARRANT LIABILITY (Detail Textuals) - Derivative [Member] - USD ($) | 3 Months Ended | 6 Months Ended | ||
Feb. 28, 2019 | Feb. 28, 2019 | Aug. 31, 2018 | Jun. 30, 2018 | |
Credit Derivatives [Line Items] | ||||
Number of warrants issued | 3,750,000 | |||
Term of outstanding warrant liabilities | 5 years | |||
Estimated fair value of outstanding warrant liabilities | $ 13,375,000 | $ 13,375,000 | $ 14,430,000 | $ 15,350,000 |
Changes in derivative liability | $ 1,271,000 | $ 1,055,000 |
FAIR VALUE OF FINANCIAL INSTR_3
FAIR VALUE OF FINANCIAL INSTRUMENTS (Details) - USD ($) | Feb. 28, 2019 | Aug. 31, 2018 |
Liabilities | ||
Contingent consideration payable | $ 0 | $ 5,488,410 |
Recurring | ||
Assets: | ||
Equity investment | 1,198,768 | |
Liabilities | ||
Contingent consideration payable | 5,488,410 | |
Warrant liability | 13,375,000 | 14,430,000 |
Total liabilities | 14,573,768 | 19,918,410 |
Recurring | Level 1 | ||
Assets: | ||
Equity investment | 0 | |
Liabilities | ||
Contingent consideration payable | 0 | |
Warrant liability | 0 | 0 |
Total liabilities | 0 | 0 |
Recurring | Level 2 | ||
Assets: | ||
Equity investment | 1,198,768 | |
Liabilities | ||
Contingent consideration payable | 0 | |
Warrant liability | 0 | 0 |
Total liabilities | 1,198,768 | 0 |
Recurring | Level 3 | ||
Assets: | ||
Equity investment | 0 | |
Liabilities | ||
Contingent consideration payable | 5,488,410 | |
Warrant liability | 13,375,000 | 14,430,000 |
Total liabilities | $ 13,375,000 | $ 19,918,410 |
FAIR VALUE OF FINANCIAL INSTR_4
FAIR VALUE OF FINANCIAL INSTRUMENTS (Details 1) - Level 2 - Smoke Cartel, Inc. | 6 Months Ended |
Feb. 28, 2019USD ($) | |
Investment in Smoke Cartel | |
Balance at August 31, 2018 | $ 0 |
Acquisition of equity investment | 1,790,884 |
Adjustments to estimated fair value | (592,116) |
Balance at February 28, 2019 | $ 1,198,768 |
FAIR VALUE OF FINANCIAL INSTR_5
FAIR VALUE OF FINANCIAL INSTRUMENTS (Details 2) | 6 Months Ended |
Feb. 28, 2019USD ($) | |
Warrant Liability | |
Begining balance | $ 14,430,000 |
Adjustments to estimated fair value | (1,055,000) |
Ending balance | $ 13,375,000 |
FAIR VALUE OF FINANCIAL INSTR_6
FAIR VALUE OF FINANCIAL INSTRUMENTS (Details 3) | 6 Months Ended |
Feb. 28, 2019USD ($) | |
Contingent Consideration | |
Balance at August 31, 2018 | $ 5,488,410 |
Level 3 liabilities settled /paid | (280,339) |
Adjustments to estimated fair value | (5,208,071) |
Balance at February 28, 2019 | $ 0 |
FAIR VALUE OF FINANCIAL INSTR_7
FAIR VALUE OF FINANCIAL INSTRUMENTS (Details 4) - USD ($) | 3 Months Ended | 6 Months Ended | |||
Feb. 28, 2019 | Nov. 30, 2018 | Feb. 28, 2018 | Nov. 30, 2017 | Feb. 28, 2019 | |
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward] | |||||
Begining balance | $ 14,430,000 | $ 14,430,000 | |||
Settled in shares- Hybrid | (1,055,000) | ||||
Ending balance | $ 13,375,000 | 13,375,000 | |||
Contingent consideration | |||||
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward] | |||||
Begining balance | 5,882,675 | 5,488,409 | $ 15,199,326 | $ 10,827,884 | 5,488,409 |
Change in Fair Value | (5,602,336) | 394,265 | 6,684,754 | 4,456,502 | |
Cash payment | (140,106) | (85,000) | (85,000) | ||
Settled in shares- Hybrid | (140,232) | ||||
Ending balance | $ 0 | $ 5,882,675 | $ 21,799,080 | $ 15,199,326 | $ 0 |
FAIR VALUE OF FINANCIAL INSTR_8
FAIR VALUE OF FINANCIAL INSTRUMENTS (Detail Textuals) - USD ($) | 1 Months Ended | 6 Months Ended | 12 Months Ended | |
Sep. 21, 2018 | Feb. 28, 2019 | Feb. 28, 2018 | Aug. 31, 2018 | |
Fair Value Measurement Inputs and Valuation Techniques [Line Items] | ||||
Adjustment to the fair value of contingent consideration | $ 5,208,071 | $ 0 | ||
Weighted average discount rate | 17.00% | 17.00% | ||
Smoke Cartel, Inc. | ||||
Fair Value Measurement Inputs and Valuation Techniques [Line Items] | ||||
Common stock issued for consideration to sell a web domain and inventory related to the Company's Roll-uh-Bowl ("RUB") product line | 1,410,145 |
STOCKHOLDERS' EQUITY - Schedule
STOCKHOLDERS' EQUITY - Schedule of assumptions used (Details) | 6 Months Ended | |
Feb. 28, 2019 | Feb. 28, 2018 | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Expected term in years | 3 years | |
Expected volatility | 60.00% | |
Expected dividend yield | 0.00% | 0.00% |
Minimum | ||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Expected term in years | 1 year | |
Expected volatility | 72.00% | |
Risk-free interest rate | 2.35% | 1.14% |
Maximum | ||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Expected term in years | 4 years | |
Expected volatility | 87.00% | |
Risk-free interest rate | 3.01% | 2.37% |
STOCKHOLDERS' EQUITY - Stock op
STOCKHOLDERS' EQUITY - Stock option activity (Details 1) - USD ($) | 6 Months Ended | |
Feb. 28, 2019 | Feb. 28, 2018 | |
Stock Options | ||
Balance Outstanding | 9,367,693 | |
Granted | 5,019,000 | |
Exercised | (370,519) | |
Forfeited | (2,012,756) | |
Balance Outstanding | 12,003,418 | |
Exercisable | 2,934,149 | |
Weighted Average Exercise Price | ||
Balance Outstanding | $ 3.85 | |
Granted | 5.70 | |
Exercised | 0.85 | |
Forfeited | 4.03 | |
Balance Outstanding | 4.70 | |
Exercisable | $ 3.18 | |
Weighted Average Remaining Contractual Term Outstanding | 9 years 2 months 12 days | 9 years 1 month 6 days |
Weighted Average Remaining Contractual Term Exercisable | 8 years 6 months | |
Aggregate Intrinsic Value | ||
Aggregate Intrinsic Value, Balance Outstanding | $ 14,463,235 | |
Aggregate Intrinsic Value Granted | 0 | |
Aggregate Intrinsic Value Exercised | 0 | |
Aggregate Intrinsic Value Forfeited | 0 | |
Aggregate Intrinsic Value, Balance Outstanding | 15,878,082 | |
Aggregate Intrinsic Value Exercisable | $ 8,336,782 |
STOCKHOLDERS' EQUITY (Detail Te
STOCKHOLDERS' EQUITY (Detail Textuals) - USD ($) $ / shares in Units, $ in Millions | Jan. 15, 2019 | Jan. 18, 2019 | Feb. 28, 2019 | Feb. 28, 2018 | Aug. 31, 2018 |
Stockholders Equity [Line Items] | |||||
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 | 88,011,867 | 78,273,124 | |||
Common stock, shares outstanding | 88,011,867 | 78,273,124 | |||
Common Shares | |||||
Stockholders Equity [Line Items] | |||||
Number of stock issued to investor in exchange for cash | 9,076,664 | 4,626,296 | |||
Value of stock issued to investor in exchange for aggregate net proceeds | $ 41.6 | $ 11.6 | |||
Securities purchase agreement (the "Purchase Agreement") | Certain accredited investors (the "Purchasers") | |||||
Stockholders Equity [Line Items] | |||||
Number of shares sold to investors | 6,476,190 | ||||
Common stock, par value | $ 0.001 | ||||
Number of warrants issued | 3,238,095 | ||||
Warrants exercise price | $ 5.75 | ||||
Combined per share purchase price for a share of Common Stock and half of a Warrant | $ 5.25 | ||||
Gross proceeds from the Offering | $ 34 | ||||
Net proceeds from the Offering | $ 31.2 |
STOCKHOLDERS' EQUITY (Detail _2
STOCKHOLDERS' EQUITY (Detail Textuals 1) - USD ($) | Jan. 12, 2018 | Feb. 28, 2019 | Feb. 28, 2018 | [1] |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||
Stock compensation expense | $ 6,534,044 | $ 1,408,671 | ||
One employee | Separation agreement | ||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||
Number of restricted stock issued | 100,000 | |||
Value for number of restricted stock issued | $ 667,000 | |||
[1] | Restated |
STOCKHOLDERS' EQUITY (Detail _3
STOCKHOLDERS' EQUITY (Detail Textuals 2) - USD ($) | 6 Months Ended | |
Feb. 28, 2019 | Feb. 28, 2018 | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Weighted average remaining contractual term | 9 years 2 months 12 days | 9 years 1 month 6 days |
Number of shares issued | 5,019,000 | |
Aggregate Intrinsic Value Exercised | $ 0 | |
2016 Stock Incentive Plan (the Plan) | ||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Number of shares issued | 18,000,000 | |
Share-based payment award vesting period | 3 years | |
Weighted average remaining contractual term | 10 years | |
Number of shares issued | 5,019,000 | 1,517,500 |
Weighted-average grant-date fair value of options granted | $ 3.07 | $ 3.50 |
Aggregate Intrinsic Value Exercised | $ 2,230,360 | $ 1,226,510 |
Unrecognized compensation cost related to non-vested share | $ 21,822,071 | |
Weighted-average period, cost expected to be recognized | 1 year 3 months 18 days |