Document and Entity Information
Document and Entity Information - USD ($) | 12 Months Ended | |
Aug. 31, 2017 | Feb. 28, 2017 | |
Document and Entity Information: | ||
Entity Registrant Name | Kush Bottles, Inc. | |
Document Type | 10-K | |
Document Period End Date | Aug. 31, 2017 | |
Trading Symbol | kshb | |
Amendment Flag | false | |
Entity Central Index Key | 1,604,627 | |
Current Fiscal Year End Date | --08-31 | |
Entity Common Stock, Shares Outstanding | 58,607,066 | |
Entity Filer Category | Smaller Reporting Company | |
Entity Current Reporting Status | Yes | |
Entity Voluntary Filers | No | |
Entity Well-known Seasoned Issuer | No | |
Document Fiscal Year Focus | 2,017 | |
Document Fiscal Period Focus | FY | |
Entity Public Float | $ 53,333,776 |
Kush Bottles, Inc. - Consolidat
Kush Bottles, Inc. - Consolidated Balance Sheets - USD ($) | Aug. 31, 2017 | Aug. 31, 2016 | |
Current Assets: | |||
Cash | $ 916,984 | $ 1,027,003 | |
Accounts receivable, net of allowance | 1,695,303 | 199,844 | |
Prepaid expenses and other current assets | 1,625,689 | 596,456 | |
Inventory | 3,754,171 | 1,142,458 | |
TOTAL CURRENT ASSETS | 7,992,147 | 2,965,761 | |
Goodwill | 34,247,344 | 2,376,589 | |
Intangible Assets, net | 3,730,287 | ||
Deposits | 50,235 | 12,220 | |
Deferred tax asset | 30,081 | ||
Property and equipment, net | 831,763 | 273,597 | |
Total Assets | 46,981,857 | 5,628,167 | |
Current Liabilities: | |||
Accounts payable | 1,039,889 | 369,636 | |
Accrued expenses and other current liabilities | 993,186 | 549,101 | |
Contingent cash consideration | 1,820,000 | ||
Notes payable- current portion | 689,450 | 20,247 | |
Total Current Liabilities | 4,542,525 | 938,984 | |
LONG-TERM DEBT | |||
Deferred tax liability | 1,424,173 | ||
Notes payable | 34,513 | 39,307 | |
TOTAL LIABILITIES | 6,001,211 | 978,291 | |
COMMITMENTS AND CONTINGENCIES | |||
STOCKHOLDERS' EQUITY | |||
Preferred stock | [1] | ||
Common stock | [2] | 58,607 | 48,300 |
Additional paid-in capital | 41,529,283 | 5,278,284 | |
Accumulated deficit | (607,244) | (676,708) | |
Total Stockholders' Equity | 40,980,646 | 4,649,876 | |
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ 46,981,857 | $ 5,628,167 | |
[1] | $0.001 par value; 10,000,000 shares authorized, no shares issued and outstanding | ||
[2] | $0.001 par value, 265,000,000 shares authorized, 58,607,066 and 48,300,162 shares issued and outstanding, respectively |
Statement of Financial Position
Statement of Financial Position - Parenthetical - $ / shares | Aug. 31, 2017 | Aug. 31, 2016 |
Statement of Financial Position | ||
Preferred Stock, Par Value | $ 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 | $ 0.001 | $ 0.001 |
Common Stock, Shares Authorized | 265,000,000 | 265,000,000 |
Common Stock, Shares Issued | 58,607,066 | 48,300,162 |
Common Stock, Shares Outstanding | 58,607,066 | 48,300,162 |
Kush Bottles, Inc. - Consolida4
Kush Bottles, Inc. - Consolidated Statements of Operations - USD ($) | 12 Months Ended | |
Aug. 31, 2017 | Aug. 31, 2016 | |
Income Statement | ||
REVENUE | $ 18,799,169 | $ 8,215,452 |
COST OF GOODS SOLD | 12,596,544 | 5,536,234 |
GROSS PROFIT | 6,202,625 | 2,679,218 |
OPERATING EXPENSES | ||
Depreciation and amortization | 300,841 | 26,253 |
Stock compensation expense | 943,125 | 137,887 |
Selling, general and administrative | 4,578,300 | 2,430,623 |
Total Operating Expenses | 5,822,266 | 2,594,763 |
INCOME FROM OPERATIONS | 380,359 | 84,455 |
OTHER INCOME (EXPENSES) | ||
Other income (expense) | (85,166) | 7,582 |
Interest expense | (6,647) | (20,298) |
Total Other Income (Expense) | (91,813) | (12,716) |
INCOME BEFORE INCOME TAXES | 288,546 | 71,739 |
PROVISION FOR INCOME TAXES | 219,082 | |
NET INCOME | $ 69,464 | $ 71,739 |
BASIC INCOME (LOSS) PER SHARE | $ 0 | $ 0 |
DILUTED INCOME (LOSS) PER SHARE | $ 0 | $ 0 |
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING- BASIC | 52,430,070 | 46,911,818 |
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING- DILUTED | 58,429,683 | 48,109,866 |
Kush Bottles, Inc. - Consolida5
Kush Bottles, Inc. - Consolidated Statement of Stockholders' Equity - USD ($) | Common Stock | Additional Paid-in Capital | Accumulated Deficit | Total |
Balance, Value at Aug. 31, 2015 | $ 46,133 | $ 3,437,070 | $ (748,447) | $ 2,734,756 |
Balance, Shares at Aug. 31, 2015 | 46,132,779 | |||
Stock sold to investors, Value | $ 1,955 | 1,576,093 | 1,578,048 | |
Stock sold to investors, Shares | 1,955,028 | |||
Stock option amortization | 91,960 | 91,960 | ||
Accrued compensation paid in stock, Value | $ 147 | 95,049 | 95,196 | |
Accrued compensation paid in stock, Shares | 147,500 | |||
Stock issued for prepaid machinery, Value | $ 25 | 32,225 | 32,250 | |
Stock issued for prepaid machinery, Shares | 25,000 | |||
Share-based compensation, Value | $ 40 | 45,887 | 45,927 | |
Share-based compensation, Shares | 39,855 | |||
NET INCOME | 71,739 | 71,739 | ||
Balance, Value at Aug. 31, 2016 | $ 48,300 | 5,278,284 | (676,708) | 4,649,876 |
Balance, Shares at Aug. 31, 2016 | 48,300,162 | |||
Stock sold to investors, Value | $ 1,776 | 3,023,121 | 3,024,897 | |
Stock sold to investors, Shares | 1,776,250 | |||
Stock option amortization | 527,572 | 527,572 | ||
NET INCOME | 69,464 | 69,464 | ||
Stock option exercises, Value | $ 226 | 218,774 | 219,000 | |
Stock option exercises, Shares | 225,557 | |||
Stock issued for services, Value | $ 305 | 671,132 | 671,437 | |
Stock issued for services, Shares | 305,097 | |||
Acquisition of CMP Wellness, LLC, Value | $ 7,800 | 31,344,600 | 31,352,400 | |
Acquisition of CMP Wellness, LLC, Shares | 7,800,000 | |||
Acquisition of roll-uh-bowl.com, Value | $ 200 | 465,800 | 466,000 | |
Acquisition of roll-uh-bowl.com, Shares | 200,000 | |||
Balance, Value at Aug. 31, 2017 | $ 58,607 | $ 41,529,283 | $ (607,244) | $ 40,980,646 |
Balance, Shares at Aug. 31, 2017 | 58,607,066 |
Kush Bottles, Inc. - Consolida6
Kush Bottles, Inc. - Consolidated Statements of Cash Flows - USD ($) | 12 Months Ended | |
Aug. 31, 2017 | Aug. 31, 2016 | |
CASH FLOWS FROM OPERATING ACTIVITIES | ||
NET INCOME | $ 69,464 | $ 71,739 |
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||
Depreciation and amortization | 436,136 | 80,341 |
Stock compensation expense | 943,125 | 137,887 |
Provision for deferred taxes | 39,722 | |
Changes in operating assets and liabilities | ||
Accounts receivable | (759,946) | (53,452) |
Prepaids | (566,474) | (410,817) |
Inventory | (1,929,027) | (480,090) |
Deposits | (31,754) | (12,220) |
Accounts payable | 565,861 | (7,563) |
Accrued expenses and other current liabilities | 449,924 | 252,963 |
Net cash used in operating activities | (782,969) | (421,212) |
CASH FLOWS FROM INVESTING ACTIVITIES | ||
Acquisition of web domain | (150,000) | |
Acquisition of CMP Wellness, LLC | (1,500,000) | |
Purchase of property and equipment | (833,568) | (148,667) |
Net cash used in investing activities | (2,483,568) | (148,667) |
CASH FLOWS FROM FINANCING ACTIVITIES | ||
Repayment of related party loan | (75,000) | |
Drawdown on line of credit | 155,000 | |
Payments on line of credit | (240,000) | |
Payments on contingent cash consideration | (85,000) | |
Proceeds from notes payable | 24,785 | |
Repayment of notes payable | (27,164) | (22,425) |
Proceeds from stock option exercises | 219,000 | |
Proceeds from sale of stock | 3,024,897 | 1,578,048 |
Net cash provided by financing activities | 3,156,518 | 1,395,623 |
NET INCREASE (DECREASE) IN CASH | (110,019) | 825,744 |
Cash, beginning of period | 1,027,003 | 201,259 |
Cash, end of period | 916,984 | 1,027,003 |
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | ||
Cash paid for interest | 6,647 | 20,298 |
Cash paid for income taxes | ||
NON-CASH INVESTING AND FINANCING ACTIVITIES | ||
Services prepaid for in common stock | 255,884 | |
Machinery prepaid for in stock | 32,250 | |
Accrued compensation paid in stock | $ 95,196 | |
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 | 11,852,400 | |
Notes payable issued as consideration of acquisition of business | $ 666,788 |
Note 1 - Nature of Business and
Note 1 - Nature of Business and Significant Accounting Policies | 12 Months Ended |
Aug. 31, 2017 | |
Notes | |
Note 1 - 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 specializes in the wholesale distribution of packaging supplies for the cannabis industry. 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 common shares 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. The acquisition was accounted for using the acquisition method of accounting in accordance with ASC 805, Business Combinations. The purchase price payable to Jason Manasse and Theodore Nicols at the closing of the merger in exchange for consummating the merger was comprised of an aggregate of $1,500,000 in cash, 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. The purchase price is subject to customary post-closing adjustments with respect to confirmation of the levels of working capital and cash held by CMP Wellness, LLC as of the closing. During the one year period following the closing, Jason Manasse and Theodore Nicols may become entitled to receive up to an additional approximately $1,905,000 in cash, in the aggregate, and approximately 4,740,960 shares of common stock of the Company, in the aggregate, based on the future performance of CMP Wellness, LLC (See Note 2). Basis of Presentation The accompanying consolidated financial statements and related notes include the activity of the Company and its wholly owned subsidiaries, have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Significant inter-company transactions and balances have been eliminated in consolidation. 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 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. 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 consolidated financial statements. Cash and Cash Equivalents The Company considers cash and cash equivalents to consist of cash on hand and investments having an orginal maturity of 90 days or less that are readily convertible into cash. The Company invests its cash and cash equivalents with financial institutions with highly rated credit and monitors the amount on deposit at the financial institution. As of August 31, 2017 and 2016, the Company had $916,984 and $1,027,003, respectively. 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 $ 25,000 and $ 2,000 as of August 31, 2017 and 2016, 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 $3,754,171 and $1,142,458 as of August 31, 2017 Property and Equipment Property and equipment is recorded at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the shorter of estimated useful life of the asset or the lease term, after the asset is placed in service. The estimated useful lives of the property and equipment are generally as follows: computer software acquired for internal use, three to seven years; computer equipment, two to three years; leasehold improvements, three to life of lease; and furniture and equipment, one to 7 years. Gains and losses from the retirement or disposition of property and equipment are included in operations in the period incurred. Maintenance and repairs are expensed as incurred. Fair Value of Financial Instruments The fair value of certain of our 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. Concentration of Risk The Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents, and accounts receivable. Collateral is not required for accounts receivable. The Company maintains an allowance for its doubtful accounts receivable. This allowance is based upon historical loss patterns, the number of days that billings are past due and an evaluation of the potential risk of loss associated with delinquent accounts. Receivables are written-off and charged against its recorded allowance when the Company has exhausted collection efforts without success. The Company’s losses related to collection of trade receivables have consistently been within management’s expectations. Due to these factors, no additional credit risk beyond amounts provided for collection losses, which the Company reevaluates on a monthly basis based on specific review of receivable agings and the period that any receivables are beyond the standard payment terms, is believed by management to be probable in the Company’s accounts receivable. Although, the Company is directly affected by the overall financial condition of the cannabis industry, management does not believe significant credit risk exists as of August 31, 2017. The Company generally has not experienced any material losses related to receivables from individual customers or groups of customers. The Company maintains an allowance for doubtful accounts based on accounts past due according to contractual terms and historical collection experience. Actual losses when incurred are charged to the allowance. The Company purchases products from a small number of suppliers. A change in or loss of these suppliers could cause a delay in filling customer orders and a possible loss of sales, which would adversely affect results of operations; however, management believes that suitable replacement suppliers could be obtained in such an event. Intangible Assets acquired through Business Combinations Intangible assets, domain name, trademarks and non-compete agreements that are deemed to have a definite life are amortized over their estimated useful lives and intangible assets with an indefinite life are assessed for impairment at least annually. Each period, the Company evaluates the estimated remaining useful life of its intangible assets and whether events or changes in circumstances warrant a revision to the remaining period of amortization. Impairment Assessment The Company evaluates intangible assets and long-lived assets for possible impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. This includes but is not limited to significant adverse changes in business climate, market conditions, or other events that indicate an asset's carrying amount may not be recoverable. Recoverability of these assets is measured by comparison of the carrying amount of each asset to the future undiscounted cash flows the asset is expected to generate. If the undiscounted cash flows used in the test for recoverability are less than the carrying amount of these assets, the carrying amount of such assets is reduced to fair value. The Company evaluates and tests the recoverability of its goodwill for impairment at least annually during its fourth quarter of each fiscal year or more often if and when circumstances indicate that goodwill may not be recoverable. There was no impairment of intangible assets, long-lived assets or goodwill during years ended August 31, 2017 and 2016. 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. 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 2017. 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 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. 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 consolidated statements of operations. Earnings 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 acquisition of CMP is also factored into the calculation of dilutive securities. The following table sets forth the calculation of basic and diluted earnings per share: August 31, 2017 August 31, 2016 Net income $ 69,464 $ 71,739 Weighted average common shares outstanding for basic EPS 52,430,070 46,911,818 Net effect of dilutive options 1,258,653 1,198,048 Net effect of contingent equity consideration 4,740,960 - Weighted average common shares outstanding for diluted EPS 58,429,683 48,109,866 Basic earnings (loss) per share $ 0.00 $ 0.00 Diluted earnings (loss) per share $ 0.00 $ 0.00 Comprehensive Income (loss) Comprehensive income (loss) is the change in the Company’s equity (net assets) during each period from transactions and other events and circumstances from non-owner sources. During the years ended August 31, 2017 and 2016, the Company had no elements of comprehensive income or loss. 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 years ended August 31, 2017 and 2016, the Company had provisions for sales discounts of $131,368 and $96,591, 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 August 31, 2017 and 2016, the Company had a refund allowance of $0. 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 as risk 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 from the sales of its products, which if incurred would result in the return of any defective products by customers. Share-based Compensation The Company account for its stock based award in accordance with Accounting Standards Codification subtopic 718-10, "Compensation", which requires fair value measurement and recognition of compensation expense for all share-based payment awards made to employees and directors, including restricted stock awards. The Company estimates the fair value of stock using the stock price on the date of the approval of the award. The fair value is then expensed over the requisite service periods of the awards, which is generally the performance period and the related amount is recognized in the consolidated statements of operations. Advertising The Company conducts advertising for the promotion of its products and services. In accordance with ASC Topic 720-35-25, advertising costs are charged to operations when incurred. Income Taxes The Company accounts for income taxes in accordance with accounting guidance now codified as FASB ASC 740, "Income Taxes," which requires that the Company recognize deferred tax liabilities and assets based on the differences between the financial statement carrying amounts and the tax bases of assets and liabilities, using enacted tax rates in effect in the years the differences are expected to reverse. Deferred income tax benefit (expense) results from the change in net deferred tax assets or deferred tax liabilities. A valuation allowance is recorded when it is more likely than not that some or all deferred tax assets will not be realized. The Company applies the provisions of ASC 740, "Accounting for Uncertainty in Income Taxes". The ASC prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The ASC provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company utilizes a two-step approach to recognizing and measuring uncertain tax positions (tax contingencies). The first step evaluates the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that we will sustain the position on audit, including resolution of related appeals or litigation processes. The second step measures the tax benefit as the largest amount more than 50% likely of being realized upon ultimate settlement. The Company did not identify any material uncertain tax positions on returns that have been filed or that will be filed. The Company did not recognize any interest or penalties for unrecognized tax benefits during the years ended August 31, 2017 and 2016, nor were any interest or penalties accrued as of August 31, 2017 and 2016. To the extent the Company may accrue interest and penalties, it elects to recognizes accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense. 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 A 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 $1,820,000, which consists of contingent cash consideration of $1,820,000 resulting from the acquisition of CMP (Note 2). 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 August 31, 2017 and 2016. 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 Quoted Prices in Active Markets for Significant Other Significant Idential Assets Observerable Inputs Unobservable Inputs Description August 31, 2017 (Level 1) (Level 2) (Level 3) Contingent cash consideration liability $1,820,000 $- $- $1,820,000 The Company classifies its contingent consideration liability within Level 3 as the valuation inputs are based on a combination of market observable and unobservable data. During the year ended August 31, 2017, the Company recognized a change in the fair value of its contingent consideration liability of $169,625, which increased liability from $1,735,375 to $1,905,000. 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. Recently Issued Accounting Pronouncements In September 2017, the 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 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 2016, accounting guidance was issued to clarify the not yet effective revenue recognition guidance issued in May 2014. This additional guidance does not change the core principle of the revenue recognition guidance issued in May 2014, rather, it provides clarification of accounting for collections of sales taxes as well as recognition of revenue (i) associated with contract modifications, (ii) for noncash consideration, and (iii) based on the collectability of the consideration from the customer. The guidance also specifies when a contract should be considered “completed” for purposes of applying the transition guidance. The effective date and transition requirements for this guidance are the same as the effective date and transition requirements for the guidance previously issued in 2014, which is effective for interim and annual periods beginning on or after December 15, 2017. The new standard also permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the modified retrospective method). The Company’s management currently anticipates adopting the standard using the modified retrospective method. While management is still in the process of completing the analysis on the impact this guidance will have on the Company’s consolidated financial statements, related disclosures, and its internal controls over financial reporting. 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. |
Note 2 - Acquisition of Cmp Wel
Note 2 - Acquisition of Cmp Wellness, Llc | 12 Months Ended |
Aug. 31, 2017 | |
Notes | |
Note 2 - 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 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 13% of the Company’s common stock outstanding as of August 31, 2017). 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 $1,905,000 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. The fair value of the contingent equity consideration is recorded in additional paid in capital. CMP’s assets acquired and liabilities assumed are recorded at their acquisition-date fair values. 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 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 Period August 31, 2017 (As initially reported) Adjustments (1) (As adjusted) 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. As of August 31, 2017, the Company revised the initial probability-weighted assessment of the contingent consideration. In accordance with the provisions of FASB ASC 805, the following table presents the preliminary allocation of the total fair value of consideration transferred, as discussed above, to the acquired tangible and intangible assets and assumed liabilities of CMP Wellness based on their estimated fair values as of the closing date of the transaction, measurement period adjustments recorded since that date and the adjusted allocation of the total fair value: May 1, 2017 Measurement Period August 31, 2017 (As initially reported) Adjustments (1) (As adjusted) Accounts receivable $ 735,513 $ - $ 735,513 Inventory 655,970 - 655,970 Prepaid expenses 206,874 - 206,874 Fixed assets 1,737 - 1,737 Deposits 6,261 - 6,261 Deferred tax liability - (1,354,370) (1,354,370) Accounts payable and accrued liabilities (105,124) 6,572 (98,552) Total identifiable net assets 1,501,231 (1,347,798) 153,433 Trade name - 2,600,000 2,600,000 Non-compete - 800,000 800,000 Goodwill 32,658,120 (787,365) 31,870,755 Total fair value of consideration $ 34,159,351 $ 1,264,837 $ 35,424,188 (1) As of August 31, 2017, the Company allocated $2,600,000 and $800,000 to the trade name and non-compete, respectively. The Company also recorded a deferred tax liability of $1,354,370 associated with the CMP acquisition. 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. Pro Forma Impact of the CMP Wellness, LLC Acquisition The following unaudited summary pro forma financial information for the years ended August 31, 2017 and 2016 has been presented for illustrative purposes only and does not purport to represent what the Company’s results of operations would have been if the acquisition had occurred as presented, or to project the Company’s results of operations for any future periods. The pro forma financial information was prepared assuming the CMP Wellness Transaction occurred as of September 1, 2015. The pro forma adjustments are based on available information and certain assumptions that management believes are reasonable, including those pertaining to revenue, operating expenses, income taxes, and depreciation expense. For the Years Ended August 31, 2017 2016 Revenues $ 25,672,583 $ 11,375,944 Income from operations 1,654,934 488,886 Net income 821,368 431,033 Net income per common share: Basic $ 0.02 $ 0.01 Diluted $ 0.01 $ 0.01 |
Note 3 - Concentrations of Risk
Note 3 - Concentrations of Risk | 12 Months Ended |
Aug. 31, 2017 | |
Notes | |
Note 3 - Concentrations of Risk | NOTE 3 – CONCENTRATIONS OF RISK Supplier Concentrations The Company purchases inventory from various suppliers and manufacturers. For the years ended August 31, 2017 and 2016, two vendors accounted for approximately 22% and 24%, respectively, of total inventory purchases. Customer Concentrations During the years ended August 31, 2017 and 2016, there were no customers which represented over 10% of the Company’s revenues. As of August 31, 2017, there were two customers who represented 25% of accounts receivable. As of August 31, 2016, there were no customers that accounted for over 10% of accounts receivable. |
Note 4 - Related-party Transact
Note 4 - Related-party Transactions | 12 Months Ended |
Aug. 31, 2017 | |
Notes | |
Note 4 - Related-party Transactions | NOTE 4 – RELATED-PARTY TRANSACTIONS The Company leases its California and Colorado facilities from related parties. During the years ended August 31, 2017 and 2016, the Company made rent payments of $202,800 and $174,750, respectively, to these related parties. |
Note 5 - Property and Equipment
Note 5 - Property and Equipment | 12 Months Ended |
Aug. 31, 2017 | |
Notes | |
Note 5 - Property and Equipment | NOTE 5 – PROPERTY AND EQUIPMENT The major classes of fixed assets consist of the following as of August 31, 2017 and 2016: August 31, 2017 August 31, 2016 Machinery and equipment $ 886,608 $ 147,577 Vehicles 144,845 116,592 Office Equipment 118,387 71,507 Leasehold improvements 71,545 63,323 1,221,385 398,999 Accumulated Depreciation (289,622) (125,402) $ 931,763 $ 273,597 Depreciation expense was $177,139 and $80,341 for the years ended August 31, 2017 and 2016, respectively. Of the $177,139 of depreciation expense, $41,844 is included in depreciation and amortization expense and $135,295 is included in cost of goods sold on the consolidated statements of operations. |
Note 6 - Goodwill
Note 6 - Goodwill | 12 Months Ended |
Aug. 31, 2017 | |
Notes | |
Note 6 - Goodwill | NOTE 6 – GOODWILL The following table summarizes the changes in the carrying amount of goodwill for the fiscal years ended August 31, 2017 and 2016: Balance as of August 31, 2016 $ 2,376,589 Acquisition of CMP Wellness, LLC 20,805,720 Contingent consideration related to CMP Wellness, LLC 11,852,400 Purchase price adjustments (787,365) Balance as of August 31, 2017 $ 34,247,344 |
Note 7 - Acquisition of Intangi
Note 7 - Acquisition of Intangible Assets | 12 Months Ended |
Aug. 31, 2017 | |
Notes | |
Note 7 - Acquisition of Intangible Assets | NOTE 7 – ACQUISITION OF INTANGIBLE ASSETS On May 3, 2017, pursuant to an Asset Purchase Agreement between the Company and RUB Acquisition, LLC (“Seller”), the Company acquired the domain name and inventory for $150,000 in cash and 200,000 shares of restricted common stock having a fair value of $466,000. During the one-year period following the closing, the Seller may become entitled to receive up to an additional $100,000 in cash and 400,000 shares of common stock of the Company if certain contingent milestones are achieved. The Company initially recorded a preliminary contingent liability for the contingent cash consideration of $50,000 and recorded contingent equity consideration of $466,000. As of August 31, 2017, management determined that the probability of the Seller receiving the contingent earnout payments was remote. As a result and pursuant to guidance in ASC Topic 360-10-30-1 and Topic 450-20-25-2, the Company reduced the basis of the intangible asset by $516,000 to reflect these change of events. The total acquisition consideration used in preparing the consolidated financial statements is as follows: Asset Acquisition Consideration: Cash $ 150,000 Fair value of common shares issued to seller 466,000 Total estimated acquisition consideration $ 616,000 The following table summarizes the allocation of the fair values of the assets acquired: Inventory $ 26,716 Finite-lived intangible assets: Domain name 589,284 Net assets acquired 616,000 Total fair value of consideration $ 616,000 As a result of the acquisition of CMP Wellness, LLC, on May 1, 2017, the Company identified an intangible asset of $2,600,000 relating to the CMP trade name acquired and $800,000 relating to non-compete agreement. Intangible assets consist of the following: As of August 31, 2017 As of August 31, 2016 Weighted Average Estimated Gross Gross Useful Carrying Accumulated Carrying Accumulated Acquisition Description Life Value Amortization Value Amortization Roll-Uh-Bowl Domain name 5 years $ 589,284 $ (47,886) $ - $ - CMP Wellness, LLC Trade name 6 years 2,600,000 (144,444) - - Non-compete agreement 4 years 800,000 (66,667) - - $ 3,989,284 $ (258,997) $ - $ - The Company operates as one reporting segment. The Company determined that the web domain has an estimated useful life of five (5) years. Accordingly, amortization expense of $47,886 was recorded for the year ended August 31, 2017 The Company determined that the trade name has an estimated useful life of six (6) years and the non-compete has an estimated useful life of four (4) years. Amortization expense related to domain name, trade name and non-competition agreement is classified as a component of amortization of acquired intangible assets in the accompanying consolidated statement of operations. The estimated remaining amortization expense for each of the five succeeding fiscal years: Year ended August 31, 2018 $ 751,190 2019 751,190 2020 751,190 2021 684,523 2022 503,304 Thereafter 288,890 $ 3,730,287 |
Note 8 - Accrued Expenses and O
Note 8 - Accrued Expenses and Other Current Liabilities | 12 Months Ended |
Aug. 31, 2017 | |
Notes | |
Note 8 - Accrued Expenses and Other Current Liabilities | NOTE 8 – ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES Accrued expenses and other current liabilities consist of the following: August 31, 2017 August 31, 2016 Customer deposits $ 319,492 $ 260,409 Accrued compensation 245,975 178,769 Income tax payable 219,082 - Credit card liabilities 142,157 67,813 Deferred rent 25,881 18,810 Sales tax payable 17,182 23,300 Other accrued expenses 23,417 - $ 993,186 $ 549,101 |
Note 9 - Notes Payable
Note 9 - Notes Payable | 12 Months Ended |
Aug. 31, 2017 | |
Notes | |
Note 9 - Notes Payable | NOTE 9 – NOTES PAYABLE Promissory Notes Payable 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 mature on May 1, 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 August 31, 2017, management has accrued for $1,917 of interest on the promissory notes, which is included in accrued expenses and other current liabilities. As of August 31, 2017, no principal or interest payments have been made. The principal balance of $666,788 is recognized in the current portion of notes payable in the consolidated balance sheets. 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 Year ended August 31, Due 2018 $ 22,662 2019 19,310 2020 11,815 2021 3,389 $ 57,175 |
Note 10 - Contingent Cash Consi
Note 10 - Contingent Cash Consideration | 12 Months Ended |
Aug. 31, 2017 | |
Notes | |
Note 10 - Contingent Cash Consideration | NOTE 10 – CONTINGENT CASH CONSIDERATION The Company recognized estimated contingent cash consideration liability of $1,905,000 related to the CMP acquisition. As of August 31, 2017, the Company paid the first earn-out achieved of $85,000 to the sellers of CMP, resulting in a remaining liability of $1,820,000. The final determined CMP cash consideration earnout is payable in June of 2018. The CMP contingent cash consideration of $1,820,000 is included as a current liability on the consolidated balance sheets. |
Note 11 - Stockholders' Equity
Note 11 - Stockholders' Equity | 12 Months Ended |
Aug. 31, 2017 | |
Notes | |
Note 11 - 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 August 31, 2017 and 2016, 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 August 31, 2017 and 2016, 58,607,066 and 48,300,162 shares were issued and outstanding, respectively. During the year ended August 31, 2017, the Company sold 1,776,250 shares of its common stock to investors in exchange for cash of $3,024,897. Share-based Compensation The Company recorded stock compensation expense of $943,125 and $137,887 for the years ended August 31, 2017 and 2016, respectively, in connection with the issuance of shares of common stock and options to purchase common stock. During the year period ended August 31, 2017, the Company issued 305,097 shares of common stock to consultants in exchange for $415,553 of services rendered and $255,884 of prepaid services, for a total of $671,437. The $415,553 of services rendered is included in stock compensation expense on the consolidated statements of operations for the year ended August 31, 2017. The $255,884 of prepaid services is included in prepaid expenses and other current assets on the consolidated balance sheet as of August 31, 2017. During the year ended August 31, 2016, the Company issued 187,355 shares of common stock to employees and consultants in exchange for $45,927 of services rendered, of which $95,196 was included in accrued expenses as of August 31, 2015. In addition, on March 17, 2016, the Company issued 25,000 shares of common stock, valued at $32,250, as partial payment for the development of specific machinery and equipment. This amount is included in prepaid expenses as of August 31, 2016. The total amount of stock compensation expense pertaining to shares issued directly to employees and consultants was $45,927 for the year ended August 31, 2016. This amount is included in stock compensation expense on the consolidated statements of operations. 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 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 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 years ended August 3 and 2016: August 31, 2017 August 31, 2016 Expected term (years) 1-4 2-4 Expected volatility 54%-62% 60% Weighted-average volatility 54%-62% 60% Risk-free interest rate 0.85%-1.60% 0.71%-1.20% 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 years ended August 31, 2017 and 2016, the Company issued 3,940,000 and 1,039,000 stock options, respectively, pursuant to the Company’s 2016 Stock Incentive Plan. A summary of the Company’s stock option activity during the year ended August 31, 2017 is presented below: Weighted Weighted Average Average Remaining Aggregate No. of Exercise Contractual Intrinsic Options Price Term Value Balance Outstanding, August 31, 2016 2,039,000 $ 0.57 5.15 years $ 2,283,680 Granted 3,940,000 $ 2.29 9.60 years - Exercised (232,500) $ 1.02 - - Forfeited (471,000) $ 1.76 - - Balance Outstanding, August 31, 2017 5,275,500 $ 1.73 7.96 years $ 917,610 Exercisable, August 31, 2017 1,595,528 $ 0.54 4.21 years $ 2,171,065 The weighted-average grant-date fair value of options granted during the years ended August 31, 2017 and 2016 31, 2017 During the year ended August 31, 2017, the Company issued 215,000 shares of common stock in exchange for $219,000, pursuant to stock option exercises. In addition, the Company issued 10,557 shares of common stock pursuant to a cashless exercise of 17,500 stock options. There were no options exercised during the year ended August 31, 2016. A summary of the status of the Company’s non-vested options as of August 31, 2017, and changes during year ended August 31, 2017, is presented below: Weighted Average No. of Grant-Date Options Fair Value Nonvested at August 31, 2016 909,000 $ 221,227 Granted 3,940,000 2,420,571 Vested (698,028) (527,572) Forfeited (471,000) (236,083) Nonvested at August 31, 2017 3,679,972 $ 1,878,144 As of August 31, 2017, there was $1,878,144 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 1.9 years. The total fair value of shares vested during the year ended August 31, 2017 is $527,572. This amount is included in stock compensation expense on the consolidated statements of operations. |
Note 12 - Income Taxes
Note 12 - Income Taxes | 12 Months Ended |
Aug. 31, 2017 | |
Notes | |
Note 12 - Income Taxes | NOTE 12 – INCOME TAXES For financial reporting purposes, income before income taxes for fiscal 2017, fiscal 2016 includes the following components: August 31, 2017 August 31, 2016 Pre-tax income: $ 288,546 $ 71,739 Income before income taxes $ 288,546 $ 71,739 The components of the provision for income taxes for fiscal 2017 and fiscal 2016 are as follows: August 31, 2017 August 31, 2016 Federal tax 111,611 - State tax 107,471 - Total tax provision $ 219,082 $ - The net deferred tax asset generated by the loss carry-forward generated in previous fiscal years has been fully utilized during the year ended August 31, 2017. Deferred tax liability resulting from intangible assets that are non-deductible for tax purposes was recorded as a liability on the merger date. The income tax benefit differs from the amount computed by applying the federal income tax rate of 34% to net earnings before income taxes. The provision for income tax consists of the following: August 31, August 31, 2017 2016 Federal income tax/benefit attributable to: Current operations $ 111,611 $ 24,391 Non-deductible entertainment 11,121 31,059 Penalties 7,310 - Prior year adjustments - 17,810 State tax, net of Federal benefit 72,375 9,516 Incentive stock options 126,734 - Reorganization costs 43,620 - Less: valuation of allowance - (82,776) Less: utilization of allowance (261,160) Net provision for Federal income taxes $ 111,611 $ - The cumulative tax effect at the expected rate of 43% of significant items comprising our net deferred tax amount is as follows: August 31, 2017 August 31, 2016 Deferred tax attributable to: Net operating loss carryover $ - $ 149,622 Stock-based compensation 143,611 75,133 Issuance of restricted stock 58,683 - Depreciation, amortization and other (1,596,386) 2,197 Valuation allowance - (226,952) Net deferred tax liability $ (1,394,092) $ - The Company includes interest and penalties arising from the underpayment of income taxes in the statements of operations in the provision for income taxes. As of August 31, 2017 and 2016, the Company had no accrued interest or penalties related to uncertain tax positions. The tax years that remain subject to examination by major taxing jurisdictions are for the years ended August 31, 2016, 2015 and 2014. |
Note 13 - Commitments and Conti
Note 13 - Commitments and Contingencies | 12 Months Ended |
Aug. 31, 2017 | |
Notes | |
Note 13 - Commitments and Contingencies | NOTE 13 – 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 years ended August 31, 2017 and 2016, the Company recognized $ 398,802 and $ 226,559 , respectively, of rental expense, related to its office, retail and warehouse space. Minimum future commitments under non-cancelable operating leases and other obligations were as follows: Year ended August 31, 2018 613,712 2019 601,102 2020 444,420 2021 322,604 2022 332,278 $ 2,314,116 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 August 31, 2017 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 August 31, 2017 |
Note 14 - Subsequent Events
Note 14 - Subsequent Events | 12 Months Ended |
Aug. 31, 2017 | |
Notes | |
Note 14 - Subsequent Events | NOTE 14 – SUBSEQUENT EVENTS On November 16, 2017, we and KIM as borrowers, and all of our 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, of which $1,500,000 was drawn as of November 24, 2017. Under the 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 our eligible receivables minus reserves. Under the terms of the Loan Agreement, we 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%. Subsequent to August 31, 2017 and through November 27, 2017, the Company sold 1,360,507 shares of common stock to accredited investors in exchange for cash consideration of $2,040,761. |
Note 1 - Nature of Business a21
Note 1 - Nature of Business and Significant Accounting Policies: Nature of Business (Policies) | 12 Months Ended |
Aug. 31, 2017 | |
Policies | |
Nature of Business | Nature of Business Kush Bottles, Inc. (“the Company”) was incorporated in the state of Nevada on February 26, 2014. The Company specializes in the wholesale distribution of packaging supplies for the cannabis industry. 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 common shares 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. |
Note 1 - Nature of Business a22
Note 1 - Nature of Business and Significant Accounting Policies: Acquisition of CMP Wellness, LLC (Policies) | 12 Months Ended |
Aug. 31, 2017 | |
Policies | |
Acquisition of CMP Wellness, LLC | 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 CompanyÂ’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. The acquisition was accounted for using the acquisition method of accounting in accordance with ASC 805, Business Combinations. The purchase price payable to Jason Manasse and Theodore Nicols at the closing of the merger in exchange for consummating the merger was comprised of an aggregate of $1,500,000 in cash, 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 CompanyÂ’s common stock. The purchase price is subject to customary post-closing adjustments with respect to confirmation of the levels of working capital and cash held by CMP Wellness, LLC as of the closing. During the one year period following the closing, Jason Manasse and Theodore Nicols may become entitled to receive up to an additional approximately $1,905,000 in cash, in the aggregate, and approximately 4,740,960 shares of common stock of the Company, in the aggregate, based on the future performance of CMP Wellness, LLC (See Note 2). |
Note 1 - Nature of Business a23
Note 1 - Nature of Business and Significant Accounting Policies: Basis of Presentation (Policies) | 12 Months Ended |
Aug. 31, 2017 | |
Policies | |
Basis of Presentation | Basis of Presentation The accompanying consolidated financial statements and related notes include the activity of the Company and its wholly owned subsidiaries, have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Significant inter-company transactions and balances have been eliminated in consolidation. |
Note 1 - Nature of Business a24
Note 1 - Nature of Business and Significant Accounting Policies: Use of Estimates (Policies) | 12 Months Ended |
Aug. 31, 2017 | |
Policies | |
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 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 CompanyÂ’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 managementÂ’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. |
Note 1 - Nature of Business a25
Note 1 - Nature of Business and Significant Accounting Policies: Segments (Policies) | 12 Months Ended |
Aug. 31, 2017 | |
Policies | |
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 CompanyÂ’s business operates in one operating segment because the majority of the Company's offerings operate similarly, and the CompanyÂ’s chief operating decision maker evaluates the CompanyÂ’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 consolidated financial statements. |
Note 1 - Nature of Business a26
Note 1 - Nature of Business and Significant Accounting Policies: Cash and Cash Equivalents (Policies) | 12 Months Ended |
Aug. 31, 2017 | |
Policies | |
Cash and Cash Equivalents | Cash and Cash Equivalents The Company considers cash and cash equivalents to consist of cash on hand and investments having an orginal maturity of 90 days or less that are readily convertible into cash. The Company invests its cash and cash equivalents with financial institutions with highly rated credit and monitors the amount on deposit at the financial institution. As of August 31, 2017 and 2016, the Company had $916,984 and $1,027,003, respectively. |
Note 1 - Nature of Business a27
Note 1 - Nature of Business and Significant Accounting Policies: Accounts Receivable (Policies) | 12 Months Ended |
Aug. 31, 2017 | |
Policies | |
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 CompanyÂ’s allowance for doubtful accounts was $ 25,000 and $ 2,000 as of August 31, 2017 and 2016, respectively. |
Note 1 - Nature of Business a28
Note 1 - Nature of Business and Significant Accounting Policies: Inventory (Policies) | 12 Months Ended |
Aug. 31, 2017 | |
Policies | |
Inventory | Inventory Inventories are stated at the lower of cost or net realizable value using the first-in first out (FIFO) method. The CompanyÂ’s inventory consists of finished goods of $3,754,171 and $1,142,458 as of August 31, 2017 |
Note 1 - Nature of Business a29
Note 1 - Nature of Business and Significant Accounting Policies: Property and Equipment (Policies) | 12 Months Ended |
Aug. 31, 2017 | |
Policies | |
Property and Equipment | Property and Equipment Property and equipment is recorded at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the shorter of estimated useful life of the asset or the lease term, after the asset is placed in service. The estimated useful lives of the property and equipment are generally as follows: computer software acquired for internal use, three to seven years; computer equipment, two to three years; leasehold improvements, three to life of lease; and furniture and equipment, one to 7 years. Gains and losses from the retirement or disposition of property and equipment are included in operations in the period incurred. Maintenance and repairs are expensed as incurred. |
Note 1 - Nature of Business a30
Note 1 - Nature of Business and Significant Accounting Policies: Fair Value of Financial Instruments (Policies) | 12 Months Ended |
Aug. 31, 2017 | |
Policies | |
Fair Value of Financial Instruments | Fair Value of Financial Instruments The fair value of certain of our 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. |
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 CompanyÂ’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 CompanyÂ’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 managementÂ’s assumptions about the assumptions that market participants would use in pricing the asset or liability. Application of Valuation Hierarchy A financial instrumentÂ’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 $1,820,000, which consists of contingent cash consideration of $1,820,000 resulting from the acquisition of CMP (Note 2). 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 August 31, 2017 and 2016. 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 Quoted Prices in Active Markets for Significant Other Significant Idential Assets Observerable Inputs Unobservable Inputs Description August 31, 2017 (Level 1) (Level 2) (Level 3) Contingent cash consideration liability $1,820,000 $- $- $1,820,000 The Company classifies its contingent consideration liability within Level 3 as the valuation inputs are based on a combination of market observable and unobservable data. During the year ended August 31, 2017, the Company recognized a change in the fair value of its contingent consideration liability of $169,625, which increased liability from $1,735,375 to $1,905,000. 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. |
Note 1 - Nature of Business a31
Note 1 - Nature of Business and Significant Accounting Policies: Concentration of Risk (Policies) | 12 Months Ended |
Aug. 31, 2017 | |
Policies | |
Concentration of Risk | Concentration of Risk The CompanyÂ’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents, and accounts receivable. Collateral is not required for accounts receivable. The Company maintains an allowance for its doubtful accounts receivable. This allowance is based upon historical loss patterns, the number of days that billings are past due and an evaluation of the potential risk of loss associated with delinquent accounts. Receivables are written-off and charged against its recorded allowance when the Company has exhausted collection efforts without success. The CompanyÂ’s losses related to collection of trade receivables have consistently been within managementÂ’s expectations. Due to these factors, no additional credit risk beyond amounts provided for collection losses, which the Company reevaluates on a monthly basis based on specific review of receivable agings and the period that any receivables are beyond the standard payment terms, is believed by management to be probable in the CompanyÂ’s accounts receivable. Although, the Company is directly affected by the overall financial condition of the cannabis industry, management does not believe significant credit risk exists as of August 31, 2017. The Company generally has not experienced any material losses related to receivables from individual customers or groups of customers. The Company maintains an allowance for doubtful accounts based on accounts past due according to contractual terms and historical collection experience. Actual losses when incurred are charged to the allowance. The Company purchases products from a small number of suppliers. A change in or loss of these suppliers could cause a delay in filling customer orders and a possible loss of sales, which would adversely affect results of operations; however, management believes that suitable replacement suppliers could be obtained in such an event. |
Note 1 - Nature of Business a32
Note 1 - Nature of Business and Significant Accounting Policies: Intangible Assets acquired through Business Combinations (Policies) | 12 Months Ended |
Aug. 31, 2017 | |
Policies | |
Intangible Assets acquired through Business Combinations | Intangible Assets acquired through Business Combinations Intangible assets, domain name, trademarks and non-compete agreements that are deemed to have a definite life are amortized over their estimated useful lives and intangible assets with an indefinite life are assessed for impairment at least annually. Each period, the Company evaluates the estimated remaining useful life of its intangible assets and whether events or changes in circumstances warrant a revision to the remaining period of amortization. |
Note 1 - Nature of Business a33
Note 1 - Nature of Business and Significant Accounting Policies: Impairment Assessment (Policies) | 12 Months Ended |
Aug. 31, 2017 | |
Policies | |
Impairment Assessment | Impairment Assessment The Company evaluates intangible assets and long-lived assets for possible impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. This includes but is not limited to significant adverse changes in business climate, market conditions, or other events that indicate an asset's carrying amount may not be recoverable. Recoverability of these assets is measured by comparison of the carrying amount of each asset to the future undiscounted cash flows the asset is expected to generate. If the undiscounted cash flows used in the test for recoverability are less than the carrying amount of these assets, the carrying amount of such assets is reduced to fair value. The Company evaluates and tests the recoverability of its goodwill for impairment at least annually during its fourth quarter of each fiscal year or more often if and when circumstances indicate that goodwill may not be recoverable. There was no impairment of intangible assets, long-lived assets or goodwill during years ended August 31, 2017 and 2016. |
Note 1 - Nature of Business a34
Note 1 - Nature of Business and Significant Accounting Policies: Valuation of Business Combinations and Acquisition of Intangible Assets (Policies) | 12 Months Ended |
Aug. 31, 2017 | |
Policies | |
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. |
Note 1 - Nature of Business a35
Note 1 - Nature of Business and Significant Accounting Policies: Goodwill and Intangible Assets (Policies) | 12 Months Ended |
Aug. 31, 2017 | |
Policies | |
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 assetÂ’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 2017. The estimate of fair value requires significant judgment. Any loss resulting from an impairment test would be reflected in operating income in the CompanyÂ’s 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. |
Note 1 - Nature of Business a36
Note 1 - Nature of Business and Significant Accounting Policies: Business Combinations (Policies) | 12 Months Ended |
Aug. 31, 2017 | |
Policies | |
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 CompanyÂ’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 CompanyÂ’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 CompanyÂ’s consolidated statements of operations. |
Note 1 - Nature of Business a37
Note 1 - Nature of Business and Significant Accounting Policies: Earnings Per Share (Policies) | 12 Months Ended |
Aug. 31, 2017 | |
Policies | |
Earnings Per Share | Earnings 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 acquisition of CMP is also factored into the calculation of dilutive securities. The following table sets forth the calculation of basic and diluted earnings per share: August 31, 2017 August 31, 2016 Net income $ 69,464 $ 71,739 Weighted average common shares outstanding for basic EPS 52,430,070 46,911,818 Net effect of dilutive options 1,258,653 1,198,048 Net effect of contingent equity consideration 4,740,960 - Weighted average common shares outstanding for diluted EPS 58,429,683 48,109,866 Basic earnings (loss) per share $ 0.00 $ 0.00 Diluted earnings (loss) per share $ 0.00 $ 0.00 |
Note 1 - Nature of Business a38
Note 1 - Nature of Business and Significant Accounting Policies: Comprehensive Income (loss) (Policies) | 12 Months Ended |
Aug. 31, 2017 | |
Policies | |
Comprehensive Income (loss) | Comprehensive Income (loss) Comprehensive income (loss) is the change in the CompanyÂ’s equity (net assets) during each period from transactions and other events and circumstances from non-owner sources. During the years ended August 31, 2017 and 2016, the Company had no elements of comprehensive income or loss. |
Note 1 - Nature of Business a39
Note 1 - Nature of Business and Significant Accounting Policies: Revenue Recognition (Policies) | 12 Months Ended |
Aug. 31, 2017 | |
Policies | |
Revenue Recognition | Revenue Recognition It is the CompanyÂ’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 managementÂ’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 years ended August 31, 2017 and 2016, the Company had provisions for sales discounts of $131,368 and $96,591, 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 August 31, 2017 and 2016, the Company had a refund allowance of $0. 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 as risk 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. |
Note 1 - Nature of Business a40
Note 1 - Nature of Business and Significant Accounting Policies: Warranty Costs (Policies) | 12 Months Ended |
Aug. 31, 2017 | |
Policies | |
Warranty Costs | Warranty Costs The Company has not had any historical warranty related expenditures from the sales of its products, which if incurred would result in the return of any defective products by customers. |
Note 1 - Nature of Business a41
Note 1 - Nature of Business and Significant Accounting Policies: Share-based Compensation (Policies) | 12 Months Ended |
Aug. 31, 2017 | |
Policies | |
Share-based Compensation | Share-based Compensation The Company account for its stock based award in accordance with Accounting Standards Codification subtopic 718-10, "Compensation", which requires fair value measurement and recognition of compensation expense for all share-based payment awards made to employees and directors, including restricted stock awards. The Company estimates the fair value of stock using the stock price on the date of the approval of the award. The fair value is then expensed over the requisite service periods of the awards, which is generally the performance period and the related amount is recognized in the consolidated statements of operations. |
Note 1 - Nature of Business a42
Note 1 - Nature of Business and Significant Accounting Policies: Advertising (Policies) | 12 Months Ended |
Aug. 31, 2017 | |
Policies | |
Advertising | Advertising The Company conducts advertising for the promotion of its products and services. In accordance with ASC Topic 720-35-25, advertising costs are charged to operations when incurred. |
Note 1 - Nature of Business a43
Note 1 - Nature of Business and Significant Accounting Policies: Income Taxes (Policies) | 12 Months Ended |
Aug. 31, 2017 | |
Policies | |
Income Taxes | Income Taxes The Company accounts for income taxes in accordance with accounting guidance now codified as FASB ASC 740, "Income Taxes," which requires that the Company recognize deferred tax liabilities and assets based on the differences between the financial statement carrying amounts and the tax bases of assets and liabilities, using enacted tax rates in effect in the years the differences are expected to reverse. Deferred income tax benefit (expense) results from the change in net deferred tax assets or deferred tax liabilities. A valuation allowance is recorded when it is more likely than not that some or all deferred tax assets will not be realized. The Company applies the provisions of ASC 740, "Accounting for Uncertainty in Income Taxes". The ASC prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The ASC provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company utilizes a two-step approach to recognizing and measuring uncertain tax positions (tax contingencies). The first step evaluates the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that we will sustain the position on audit, including resolution of related appeals or litigation processes. The second step measures the tax benefit as the largest amount more than 50% likely of being realized upon ultimate settlement. The Company did not identify any material uncertain tax positions on returns that have been filed or that will be filed. The Company did not recognize any interest or penalties for unrecognized tax benefits during the years ended August 31, 2017 and 2016, nor were any interest or penalties accrued as of August 31, 2017 and 2016. To the extent the Company may accrue interest and penalties, it elects to recognizes accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense. |
Note 1 - Nature of Business a44
Note 1 - Nature of Business and Significant Accounting Policies: Recently Issued Accounting Pronouncements (Policies) | 12 Months Ended |
Aug. 31, 2017 | |
Policies | |
Recently Issued Accounting Pronouncements | Recently Issued Accounting Pronouncements In September 2017, the 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 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 2016, accounting guidance was issued to clarify the not yet effective revenue recognition guidance issued in May 2014. This additional guidance does not change the core principle of the revenue recognition guidance issued in May 2014, rather, it provides clarification of accounting for collections of sales taxes as well as recognition of revenue (i) associated with contract modifications, (ii) for noncash consideration, and (iii) based on the collectability of the consideration from the customer. The guidance also specifies when a contract should be considered “completed” for purposes of applying the transition guidance. The effective date and transition requirements for this guidance are the same as the effective date and transition requirements for the guidance previously issued in 2014, which is effective for interim and annual periods beginning on or after December 15, 2017. The new standard also permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the modified retrospective method). The Company’s management currently anticipates adopting the standard using the modified retrospective method. While management is still in the process of completing the analysis on the impact this guidance will have on the Company’s consolidated financial statements, related disclosures, and its internal controls over financial reporting. 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. |
Note 1 - Nature of Business a45
Note 1 - Nature of Business and Significant Accounting Policies: Earnings Per Share: Schedule of Earnings Per Share, Basic and Diluted (Tables) | 12 Months Ended |
Aug. 31, 2017 | |
Tables/Schedules | |
Schedule of Earnings Per Share, Basic and Diluted | August 31, 2017 August 31, 2016 Net income $ 69,464 $ 71,739 Weighted average common shares outstanding for basic EPS 52,430,070 46,911,818 Net effect of dilutive options 1,258,653 1,198,048 Net effect of contingent equity consideration 4,740,960 - Weighted average common shares outstanding for diluted EPS 58,429,683 48,109,866 Basic earnings (loss) per share $ 0.00 $ 0.00 Diluted earnings (loss) per share $ 0.00 $ 0.00 |
Note 1 - Nature of Business a46
Note 1 - Nature of Business and Significant Accounting Policies: Fair Value of Financial Instruments: Schedule of Assets and Liabilities Measure at Fair Value Table Text Block (Tables) | 12 Months Ended |
Aug. 31, 2017 | |
Tables/Schedules | |
Schedule of Assets and Liabilities Measure at Fair Value Table Text Block | Fair Value Measurement at Reporting Date Using Quoted Prices in Active Markets for Significant Other Significant Idential Assets Observerable Inputs Unobservable Inputs Description August 31, 2017 (Level 1) (Level 2) (Level 3) Contingent cash consideration liability $1,820,000 $- $- $1,820,000 |
Note 2 - Acquisition of Cmp W47
Note 2 - Acquisition of Cmp Wellness, Llc: Schedule of Acquisition Consideration Table Text Block (Tables) | 12 Months Ended |
Aug. 31, 2017 | |
Tables/Schedules | |
Schedule of Acquisition Consideration Table Text Block | Acquisition Consideration: May 1, 2017 Measurement Period August 31, 2017 (As initially reported) Adjustments (1) (As adjusted) 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 |
Note 2 - Acquisition of Cmp W48
Note 2 - Acquisition of Cmp Wellness, Llc: Schedule of Assessment of Contingent Consideration Table Text Block (Tables) | 12 Months Ended |
Aug. 31, 2017 | |
Tables/Schedules | |
Schedule of Assessment of Contingent Consideration Table Text Block | May 1, 2017 Measurement Period August 31, 2017 (As initially reported) Adjustments (1) (As adjusted) Accounts receivable $ 735,513 $ - $ 735,513 Inventory 655,970 - 655,970 Prepaid expenses 206,874 - 206,874 Fixed assets 1,737 - 1,737 Deposits 6,261 - 6,261 Deferred tax liability - (1,354,370) (1,354,370) Accounts payable and accrued liabilities (105,124) 6,572 (98,552) Total identifiable net assets 1,501,231 (1,347,798) 153,433 Trade name - 2,600,000 2,600,000 Non-compete - 800,000 800,000 Goodwill 32,658,120 (787,365) 31,870,755 Total fair value of consideration $ 34,159,351 $ 1,264,837 $ 35,424,188 |
Note 2 - Acquisition of Cmp W49
Note 2 - Acquisition of Cmp Wellness, Llc: Schedule of Unaudited Summary Pro Forma Financial Information Table Text Block (Tables) | 12 Months Ended |
Aug. 31, 2017 | |
Tables/Schedules | |
Schedule of Unaudited Summary Pro Forma Financial Information Table Text Block | For the Years Ended August 31, 2017 2016 Revenues $ 25,672,583 $ 11,375,944 Income from operations 1,654,934 488,886 Net income 821,368 431,033 Net income per common share: Basic $ 0.02 $ 0.01 Diluted $ 0.01 $ 0.01 |
Note 5 - Property and Equipme50
Note 5 - Property and Equipment: Property, Plant and Equipment (Tables) | 12 Months Ended |
Aug. 31, 2017 | |
Tables/Schedules | |
Property, Plant and Equipment | August 31, 2017 August 31, 2016 Machinery and equipment $ 886,608 $ 147,577 Vehicles 144,845 116,592 Office Equipment 118,387 71,507 Leasehold improvements 71,545 63,323 1,221,385 398,999 Accumulated Depreciation (289,622) (125,402) $ 931,763 $ 273,597 |
Note 6 - Goodwill_ Schedule of
Note 6 - Goodwill: Schedule of Intangible Assets and Goodwill (Tables) | 12 Months Ended |
Aug. 31, 2017 | |
Tables/Schedules | |
Schedule of Intangible Assets and Goodwill | Balance as of August 31, 2016 $ 2,376,589 Acquisition of CMP Wellness, LLC 20,805,720 Contingent consideration related to CMP Wellness, LLC 11,852,400 Purchase price adjustments (787,365) Balance as of August 31, 2017 $ 34,247,344 |
Note 7 - Acquisition of Intan52
Note 7 - Acquisition of Intangible Assets: Schedule of Total Acquisition Consideration Table Text Block (Tables) | 12 Months Ended |
Aug. 31, 2017 | |
Tables/Schedules | |
Schedule of Total Acquisition Consideration Table Text Block | Asset Acquisition Consideration: Cash $ 150,000 Fair value of common shares issued to seller 466,000 Total estimated acquisition consideration $ 616,000 |
Note 7 - Acquisition of Intan53
Note 7 - Acquisition of Intangible Assets: Schedule of Intangible Assets Table Text Block (Tables) | 12 Months Ended |
Aug. 31, 2017 | |
Tables/Schedules | |
Schedule of Intangible Assets Table Text Block | As of August 31, 2017 As of August 31, 2016 Weighted Average Estimated Gross Gross Useful Carrying Accumulated Carrying Accumulated Acquisition Description Life Value Amortization Value Amortization Roll-Uh-Bowl Domain name 5 years $ 589,284 $ (47,886) $ - $ - CMP Wellness, LLC Trade name 6 years 2,600,000 (144,444) - - Non-compete agreement 4 years 800,000 (66,667) - - $ 3,989,284 $ (258,997) $ - $ - |
Note 7 - Acquisition of Intan54
Note 7 - Acquisition of Intangible Assets: Schedule of Amortization Expense Text Block (Tables) | 12 Months Ended |
Aug. 31, 2017 | |
Tables/Schedules | |
Schedule of Amortization Expense Text Block | Year ended August 31, 2018 $ 751,190 2019 751,190 2020 751,190 2021 684,523 2022 503,304 Thereafter 288,890 $ 3,730,287 |
Note 8 - Accrued Expenses and55
Note 8 - Accrued Expenses and Other Current Liabilities: Schedule of Accrued Liabilities (Tables) | 12 Months Ended |
Aug. 31, 2017 | |
Tables/Schedules | |
Schedule of Accrued Liabilities | August 31, 2017 August 31, 2016 Customer deposits $ 319,492 $ 260,409 Accrued compensation 245,975 178,769 Income tax payable 219,082 - Credit card liabilities 142,157 67,813 Deferred rent 25,881 18,810 Sales tax payable 17,182 23,300 Other accrued expenses 23,417 - $ 993,186 $ 549,101 |
Note 11 - Stockholders' Equity_
Note 11 - Stockholders' Equity: Schedule of Assumptions Used (Tables) | 12 Months Ended |
Aug. 31, 2017 | |
Tables/Schedules | |
Schedule of Assumptions Used | August 31, 2017 August 31, 2016 Expected term (years) 1-4 2-4 Expected volatility 54%-62% 60% Weighted-average volatility 54%-62% 60% Risk-free interest rate 0.85%-1.60% 0.71%-1.20% Dividend yield 0% 0% Expected forfeiture rate 33% 33% |
Note 11 - Stockholders' Equit57
Note 11 - Stockholders' Equity: Schedule of Stockholders Equity (Tables) | 12 Months Ended |
Aug. 31, 2017 | |
Tables/Schedules | |
Schedule of Stockholders Equity | Weighted Weighted Average Average Remaining Aggregate No. of Exercise Contractual Intrinsic Options Price Term Value Balance Outstanding, August 31, 2016 2,039,000 $ 0.57 5.15 years $ 2,283,680 Granted 3,940,000 $ 2.29 9.60 years - Exercised (232,500) $ 1.02 - - Forfeited (471,000) $ 1.76 - - Balance Outstanding, August 31, 2017 5,275,500 $ 1.73 7.96 years $ 917,610 Exercisable, August 31, 2017 1,595,528 $ 0.54 4.21 years $ 2,171,065 |
Note 11 - Stockholders' Equit58
Note 11 - Stockholders' Equity: Schedule of Nonvested Share Activity (Tables) | 12 Months Ended |
Aug. 31, 2017 | |
Tables/Schedules | |
Schedule of Nonvested Share Activity | Weighted Average No. of Grant-Date Options Fair Value Nonvested at August 31, 2016 909,000 $ 221,227 Granted 3,940,000 2,420,571 Vested (698,028) (527,572) Forfeited (471,000) (236,083) Nonvested at August 31, 2017 3,679,972 $ 1,878,144 |
Note 13 - Commitments and Con59
Note 13 - Commitments and Contingencies: Other Commitments (Tables) | 12 Months Ended |
Aug. 31, 2017 | |
Tables/Schedules | |
Other Commitments | Year ended August 31, 2018 613,712 2019 601,102 2020 444,420 2021 322,604 2022 332,278 $ 2,314,116 |
Note 1 - Nature of Business a60
Note 1 - Nature of Business and Significant Accounting Policies: Accounts Receivable (Details) - USD ($) | Aug. 31, 2017 | Aug. 31, 2016 |
Details | ||
Allowance for Doubtful Accounts Receivable | $ 25,000 | $ 2,000 |
Note 1 - Nature of Business a61
Note 1 - Nature of Business and Significant Accounting Policies: Inventory (Details) - USD ($) | Aug. 31, 2017 | Aug. 31, 2016 |
Details | ||
Inventory, Finished Goods, Gross | $ 3,754,171 | $ 1,142,458 |
Note 1 - Nature of Business a62
Note 1 - Nature of Business and Significant Accounting Policies: Earnings Per Share: Schedule of Earnings Per Share, Basic and Diluted (Details) - USD ($) | 3 Months Ended | 12 Months Ended | |
May 31, 2017 | Aug. 31, 2017 | Aug. 31, 2016 | |
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING- DILUTED | 58,429,683 | 48,109,866 | |
BASIC INCOME (LOSS) PER SHARE | $ 0 | $ 0 | |
DILUTED INCOME (LOSS) PER SHARE | $ 0 | $ 0 | |
Earnings Per Share | |||
Net loss | $ 69,464 | $ 71,739 | |
Weighted Average Number of Shares Outstanding, Basic | 52,430,070 | 46,911,818 | |
Net Effect of Dilutive Options | 1,258,653 | 1,198,048 | |
Net Effect of Contingent Equity Consideration | 4,740,960 | ||
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING- DILUTED | 58,429,683 | 48,109,866 | |
BASIC INCOME (LOSS) PER SHARE | $ 0 | $ 0 | |
DILUTED INCOME (LOSS) PER SHARE | $ 0 | $ 0 |
Note 1 - Nature of Business a63
Note 1 - Nature of Business and Significant Accounting Policies: Fair Value of Financial Instruments: Schedule of Assets and Liabilities Measure at Fair Value Table Text Block (Details) | Aug. 31, 2017USD ($) |
May 31, 2017 | |
Contingent Consideration Liability | $ 1,820,000 |
Significant Unobservable Inputs (Level 3) | |
Contingent Consideration Liability | $ 1,820,000 |
Note 2 - Acquisition of Cmp W64
Note 2 - Acquisition of Cmp Wellness, Llc: Schedule of Acquisition Consideration Table Text Block (Details) - USD ($) | Aug. 31, 2017 | May 31, 2017 |
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 as of August 31, 2017 | ||
Promissory Notes | $ 6,572 | |
Estimated fair value contingent cash consideration | 169,625 | |
Estimated fair value contingent equity consideration | 1,088,640 | |
Total estimated acquisition consideration | 1,264,837 | |
As of August 31, 2017, Adjusted | ||
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 |
Note 2 - Acquisition of Cmp W65
Note 2 - Acquisition of Cmp Wellness, Llc: Schedule of Assessment of Contingent Consideration Table Text Block (Details) - USD ($) | Aug. 31, 2017 | Aug. 31, 2016 |
Accounts receivable, net of allowance | $ 1,695,303 | $ 199,844 |
Inventory | 3,754,171 | 1,142,458 |
Property and equipment, net | 831,763 | 273,597 |
Deferred tax liability | 1,424,173 | |
Goodwill | 34,247,344 | $ 2,376,589 |
May 1, 2017 (As initially reported) | ||
Accounts receivable, net of allowance | 735,513 | |
Inventory | 655,970 | |
Prepaid Expense, Current | 206,874 | |
Property and equipment, net | 1,737 | |
Deposit Assets | 6,261 | |
Accounts Payable and Accrued Liabilities, Current | (105,124) | |
Net Assets | 1,501,231 | |
Goodwill | 32,658,120 | |
Fair Value of Consideration | 34,159,351 | |
Measurement Period Adjustments (1) | ||
Deferred tax liability | (1,354,370) | |
Accounts Payable and Accrued Liabilities, Current | 6,572 | |
Net Assets | (1,347,798) | |
Finite-Lived Trade Names, Gross | 2,600,000 | |
Finite-Lived Noncompete Agreements, Gross | 800,000 | |
Goodwill | (787,365) | |
Fair Value of Consideration | 1,264,837 | |
August 31, 2017 (as adjusted) | ||
Accounts receivable, net of allowance | 735,513 | |
Inventory | 655,970 | |
Prepaid Expense, Current | 206,874 | |
Property and equipment, net | 1,737 | |
Deposit Assets | 6,261 | |
Deferred tax liability | (1,354,370) | |
Accounts Payable and Accrued Liabilities, Current | (98,552) | |
Net Assets | 153,433 | |
Finite-Lived Trade Names, Gross | 2,600,000 | |
Finite-Lived Noncompete Agreements, Gross | 800,000 | |
Goodwill | 31,870,755 | |
Fair Value of Consideration | $ 35,424,188 |
Note 2 - Acquisition of Cmp W66
Note 2 - Acquisition of Cmp Wellness, Llc: Schedule of Unaudited Summary Pro Forma Financial Information Table Text Block (Details) - USD ($) | 12 Months Ended | |
Aug. 31, 2017 | Aug. 31, 2016 | |
REVENUE | $ 18,799,169 | $ 8,215,452 |
INCOME FROM OPERATIONS | 380,359 | 84,455 |
NET INCOME | $ 69,464 | $ 71,739 |
BASIC INCOME (LOSS) PER SHARE | $ 0 | $ 0 |
DILUTED INCOME (LOSS) PER SHARE | $ 0 | $ 0 |
Pro Forma Impact of the CMP Wellness, LLC Acquisition | ||
REVENUE | $ 25,672,583 | $ 11,375,944 |
INCOME FROM OPERATIONS | 1,654,934 | 488,886 |
NET INCOME | $ 821,368 | $ 431,033 |
BASIC INCOME (LOSS) PER SHARE | $ 0.02 | $ 0.01 |
DILUTED INCOME (LOSS) PER SHARE | $ 0.01 | $ 0.01 |
Note 4 - Related-party Transa67
Note 4 - Related-party Transactions (Details) - USD ($) | 12 Months Ended | 24 Months Ended |
Aug. 31, 2017 | Aug. 31, 2017 | |
Details | ||
Related Party Tax Expense, Due to Affiliates, Current | $ 202,800 | $ 174,750 |
Note 5 - Property and Equipme68
Note 5 - Property and Equipment: Property, Plant and Equipment (Details) - Fixed Assets - USD ($) | Aug. 31, 2017 | Aug. 31, 2016 |
Machinery and Equipment, Gross | $ 886,608 | $ 147,577 |
Public Utilities, Property, Plant and Equipment, Vehicles | 144,845 | 116,592 |
Furniture and Fixtures, Gross | 118,387 | 71,507 |
Leasehold Improvements, Gross | 71,545 | 63,323 |
Accumulated Depreciation, Depletion and Amortization, Property, Plant, and Equipment | (289,622) | (125,402) |
Property, Plant and Equipment, Other, Gross | $ 931,763 | $ 273,597 |
Note 6 - Goodwill_ Schedule o69
Note 6 - Goodwill: Schedule of Intangible Assets and Goodwill (Details) - USD ($) | 12 Months Ended | |
Aug. 31, 2017 | Aug. 31, 2016 | |
Goodwill | $ 34,247,344 | $ 2,376,589 |
Acquisition of CMP Wellness, LLC | (1,500,000) | |
Goodwill | ||
Goodwill | $ 2,376,589 | |
Acquisition of CMP Wellness, LLC | 20,805,720 | |
Contingent Consideration related to CMP Wellness, LLC | 11,852,400 | |
Purchase Price Adjustments | $ (787,365) |
Note 7 - Acquisition of Intan70
Note 7 - Acquisition of Intangible Assets: Schedule of Total Acquisition Consideration Table Text Block (Details) - USD ($) | Aug. 31, 2017 | Aug. 31, 2016 |
Cash | $ 916,984 | $ 1,027,003 |
Asset Acquisition Consideration | ||
Cash | 150,000 | |
Fair value of common shares issued to seller | 466,000 | |
Total estimated acquisition consideration | $ 616,000 |
Note 7 - Acquisition of Intan71
Note 7 - Acquisition of Intangible Assets: Schedule of Intangible Assets Table Text Block (Details) | Aug. 31, 2017USD ($) |
Roll-Uh-Bowl | |
Finite-Lived Intangible Assets, Gross | $ 589,284 |
Finite-Lived Intangible Assets, Accumulated Amortization | (47,886) |
CMP Wellness, LLC | |
Finite-Lived Intangible Assets, Gross | 2,600,000 |
Finite-Lived Intangible Assets, Accumulated Amortization | (144,444) |
Non-Compete Agreement | |
Finite-Lived Intangible Assets, Gross | 800,000 |
Finite-Lived Intangible Assets, Accumulated Amortization | $ (66,667) |
Note 7 - Acquisition of Intan72
Note 7 - Acquisition of Intangible Assets: Schedule of Amortization Expense Text Block (Details) - USD ($) | Aug. 31, 2023 | Aug. 31, 2022 | Aug. 31, 2021 | Aug. 31, 2020 | Aug. 31, 2019 | Aug. 31, 2018 |
Details | ||||||
Finite-Lived Intangible Assets, Amortization Expense, Year Two | $ 751,190 | |||||
Finite-Lived Intangible Assets, Amortization Expense, Year Three | $ 751,190 | |||||
Finite-Lived Intangible Assets, Amortization Expense, Year Four | $ 751,190 | |||||
Finite-Lived Intangible Assets, Amortization Expense, Year Five | $ 684,523 | |||||
Finite-Lived Intangible Assets, Amortization Expense, Rolling after Year Five | $ 503,304 | |||||
Finite Lived Intangible Assets Amortization Expense Thereafter | $ 288,890 |
Note 8 - Accrued Expenses and73
Note 8 - Accrued Expenses and Other Current Liabilities: Schedule of Accrued Liabilities (Details) - Accrued Expenses and other current liabilities - USD ($) | Aug. 31, 2017 | Aug. 31, 2016 |
Customer Deposits, Current | $ 319,492 | $ 260,409 |
Accrued Compensation | 245,975 | 178,769 |
Income Tax Payable | 219,082 | |
Other Liabilities | 142,157 | 67,813 |
Deferred Tax Liabilities, Net, Current | 25,881 | 18,810 |
Taxes Payable, Current | 17,182 | $ 23,300 |
Other Accrued Liabilities, Current | $ 23,417 |
Note 11 - Stockholders' Equity
Note 11 - Stockholders' Equity (Details) - USD ($) | 12 Months Ended | |
Aug. 31, 2017 | Aug. 31, 2016 | |
Details | ||
Preferred Stock, Shares Authorized | 10,000,000 | 10,000,000 |
Preferred Stock, Par Value | $ 0.001 | $ 0.001 |
Common Unit, Authorized | 265,000,000 | |
Common Stock, Par Value | $ 0.001 | $ 0.001 |
Common Stock, Shares Issued | 58,607,066 | 48,300,162 |
Weighted Average Number of Shares, Restricted Stock | 1,776,250 | |
Cash | $ 3,024,897 | |
Employee Service Share-based Compensation, Nonvested Awards, Compensation Not yet Recognized, Stock Options | $ 1,878,144 |
Note 11 - Stockholders' Equit75
Note 11 - Stockholders' Equity: Schedule of Assumptions Used (Details) | 12 Months Ended | |
Aug. 31, 2017 | Aug. 31, 2016 | |
Details | ||
Expected Term Years, Minimum | 1 | 2 |
Expected Term Years, Maximum | 4 | 4 |
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Volatility Rate, Minimum | 54.00% | |
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Volatility Rate, Maximum | 62.00% | |
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Volatility Rate | 60.00% | |
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Weighted Average Volatility Rate | 62.00% | 60.00% |
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Risk Free Interest Rate, Minimum | 0.85% | 0.71% |
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Risk Free Interest Rate, Maximum | 1.60% | 1.20% |
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Dividend Rate | 0.00% | 0.00% |
Expected Forfeiture Rate | 33.00% | 33.00% |
Note 11 - Stockholders' Equit76
Note 11 - Stockholders' Equity: Schedule of Stockholders Equity (Details) - USD ($) | 12 Months Ended | 20 Months Ended |
Aug. 31, 2017 | Aug. 31, 2016 | |
Details | ||
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number | 5,275,500 | 2,039,000 |
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price | $ 1.73 | $ 0.57 |
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Remaining Contractual Term | 7 years 11 months 16 days | 5 years 1 month 24 days |
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested and Expected to Vest, Outstanding, Aggregate Intrinsic Value | $ 917,610 | $ 2,283,680 |
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Net of Forfeitures | 3,940,000 | |
Share-based Compensation Arrangements by Share-based Payment Award, Options, Grants in Period, Weighted Average Exercise Price | $ 2.29 | |
Weighted Average Remaining Contractual Term Granted | 9 years 7 months 6 days | |
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Exercised | (232,500) | |
Share-based Compensation Arrangements by Share-based Payment Award, Options, Exercises in Period, Weighted Average Exercise Price | $ 1.02 | |
Stock Issued During Period, Shares, Share-based Compensation, Forfeited | (471,000) | |
Share-based Compensation Arrangements by Share-based Payment Award, Options, Forfeitures in Period, Weighted Average Exercise Price | $ 1.76 | |
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Number | 1,595,528 | |
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Weighted Average Exercise Price | $ 0.54 | |
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Weighted Average Remaining Contractual Term | 4 years 2 months 16 days | |
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested and Expected to Vest, Exercisable, Aggregate Intrinsic Value | $ 2,171,065 |
Note 11 - Stockholders' Equit77
Note 11 - Stockholders' Equity: Schedule of Nonvested Share Activity (Details) - USD ($) | 12 Months Ended | |
Aug. 31, 2017 | Aug. 31, 2016 | |
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Net of Forfeitures | 3,940,000 | |
Nonvested | ||
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number | 3,679,972 | 909,000 |
Nonvested Weighted Average Grant Date Fair Value | $ 1,878,144 | $ 221,227 |
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Net of Forfeitures | 3,940,000 | |
Weighted Average Grant Date Fair Value Granted | $ 2,420,571 | |
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested, Number of Shares | (698,028) | |
Weighted Average Grant Date Fair Value Vested | $ (527,572) | |
Share-based Compensation Arrangement by Share-based Payment Award, Options, Forfeitures in Period | (471,000) | |
Weighted Average Grant Date Fair Value Fofeited | $ (236,083) |
Note 12 - Income Taxes (Details
Note 12 - Income Taxes (Details) - USD ($) | 12 Months Ended | |
Aug. 31, 2017 | Aug. 31, 2016 | |
Details | ||
Pre Tax Income | $ 288,546 | $ 71,739 |
Income Before Income Tax | 288,546 | 71,739 |
Current Federal Tax Expense (Benefit) | 111,611 | 24,391 |
Current Federal, State and Local, Tax Expense (Benefit) | 107,471 | |
Total Tax Provision | 219,082 | |
Non-deductible Entertainment | 11,121 | 31,059 |
Income Tax Examination, Penalties Expense | 7,310 | |
Prior Year Adjustments | 17,810 | |
State Tax, Net of Federal Benefit | 72,375 | 9,516 |
Incentive Stock Options | 126,734 | |
Reorganization Costs | 43,620 | |
Effective Income Tax Rate Reconciliation, Nondeductible Expense, Other, Amount | (82,776) | |
Less: Utilization of Allowance | (261,160) | |
Net Provision for Federal Income Taxes | 111,611 | |
Deferred Tax Assets, Operating Loss Carryforwards | 149,622 | |
Deferred Tax Assets, Tax Deferred Expense, Compensation and Benefits, Share-based Compensation Cost | 143,611 | 75,133 |
Issuance of Restricted Stock | 58,683 | |
Deferred Tax Assets, Tax Deferred Expense, Reserves and Accruals, Contingencies | (1,596,386) | 2,197 |
Deferred Tax Assets, Valuation Allowance | $ (226,952) | |
Deferred Tax Assets, Net, Current | $ (1,394,092) |
Note 13 - Commitments and Con79
Note 13 - Commitments and Contingencies (Details) - USD ($) | 12 Months Ended | |
Aug. 31, 2017 | Aug. 31, 2016 | |
Details | ||
Operating Leases, Rent Expense | $ 398,802 | $ 226,559 |
Note 13 - Commitments and Con80
Note 13 - Commitments and Contingencies: Other Commitments (Details) - USD ($) | Aug. 31, 2022 | Aug. 31, 2021 | Aug. 31, 2020 | Aug. 31, 2019 | Aug. 31, 2018 |
Details | |||||
Operating Leases, Future Minimum Payments, Due in Rolling Year Two | $ 613,712 | ||||
Operating Leases, Future Minimum Payments, Due in Rolling Year Three | $ 601,102 | ||||
Operating Leases, Future Minimum Payments, Due in Rolling Year Four | $ 444,420 | ||||
Operating Leases, Future Minimum Payments, Due in Rolling Year Five | $ 322,604 | ||||
Operating Leases, Future Minimum Payments, Due in Rolling after Year Five | $ 332,278 |