UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
or
Commission File Number:
(Exact name of registrant as specified in its charter)
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| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
(Address of principal executive offices) (Zip Code)
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
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Name of each exchange on which registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large Accelerated filer ☐ | Accelerated filer ☐ |
| | Smaller reporting company |
| Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No
State the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date:
CLS HOLDINGS USA, INC.
FORM 10-Q
Quarterly Period Ended November 30, 2024
TABLE OF CONTENTS
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PART I. FINANCIAL INFORMATION |
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Item 1. |
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Condensed Consolidated Balance Sheets as of November 30, 2024 (Unaudited) and May 31, 2024 (Audited) |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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PART II. OTHER INFORMATION |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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EXPLANATORY NOTE
Unless otherwise noted, references in this report to “CLS Holdings USA, Inc.,” the “Company,” “we,” “our” or “us” means CLS Holdings USA, Inc. and its subsidiaries.
FORWARD-LOOKING STATEMENTS
This document contains forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. These statements relate to, among other things, the impact of the COVID-19 virus on our business, the results of our initiatives to retain our employees and strengthen our relationships with our customers and community, the effect of our initiatives to expand market share and achieve growth, the expected development of our business and joint ventures, results of operations and financial performance, liquidity, working capital and capital requirements, the effects of the additional dilution on our common stock that may occur as a result of the amendments to our convertible debentures, and anticipated future events. These forward-looking statements also relate to our ability to obtain debt or equity capital on reasonable terms, or at all, to finance our operations, and to identify, finance and close potential acquisitions and joint ventures, whether our joint venture partner will make its capital contribution, our ability to comply with applicable cannabis-related regulations and obtain regulatory approvals, market acceptance of our services and product offerings, our ability to protect and commercialize our intellectual property, our ability to use net operating losses to offset certain cannabis-related tax liabilities and our ability to grow our wholesale and processing businesses and joint ventures. In some cases, you can identify forward-looking statements by terminology such as “may,” “might,” “will,” “should,” “intends,” “expects,” “plans,” “goals,” “projects,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” or “continue” or the negative of these terms or other comparable terminology.
These forward-looking statements are only predictions, are uncertain and involve substantial known and unknown risks, uncertainties and other factors which may cause our (or our industry’s) actual results, levels of activity or performance to be materially different from any expected future results, levels of activity or performance expressed or implied by these forward-looking statements.
We cannot guarantee future results, levels of activity or performance. You should not place undue reliance on these forward-looking statements, which speak only as of the date that they were made. These cautionary statements should be considered together with any written or oral forward-looking statements that we may issue in the future. Except as required by applicable law, we do not intend to update any of the forward-looking statements to conform these statements to reflect actual results, later events or circumstances or to reflect the occurrence of unanticipated events.
AVAILABLE INFORMATION
We file certain reports under the Securities Exchange Act of 1934 (the “Exchange Act”). Such filings include annual and quarterly reports. The reports we file with the Securities and Exchange Commission (“SEC”) are available on the SEC’s website at (http://www.sec.gov).
Item 1. Financial Statements.
CLS HOLDINGS USA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
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November 30, |
May 31, |
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2024 |
2024 |
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(unaudited) |
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ASSETS |
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Current assets |
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Cash and cash equivalents |
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Accounts Receivable |
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Inventory |
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Prepaid expenses and other current assets |
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Total current assets |
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| Property, plant and equipment, net of accumulated depreciation of $ |
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Right of use assets, operating leases |
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| Intangible assets, net of accumulated amortization of $ |
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Goodwill |
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Other assets |
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Total assets |
$ | $ | ||||||
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LIABILITIES AND STOCKHOLDERS' DEFICIT |
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Current liabilities |
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Accounts payable and accrued liabilities |
$ | $ | ||||||
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Accrued interest |
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Due to related party |
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Lease liability - operating leases, current |
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Lease liability - financing leases, current |
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Taxes Payable |
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Notes payable, current |
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Notes payable - related party, current |
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Convertible notes payable, current |
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Total current liabilities |
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Noncurrent liabilities |
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Lease liability - operating leases, non-current |
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Lease liability - financing leases, non-current |
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| Notes payable, non-current, net of discount of $ |
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Notes payable - related party, non-current |
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Convertible notes payable, non-current |
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Total Liabilities |
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Commitments and contingencies |
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Stockholder's deficit |
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Additional paid-in capital |
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Common stock subscribed |
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Accumulated deficit |
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Stockholder's deficit attributable to CLS Holdings, Inc. |
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Non-controlling interest |
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Total stockholder's deficit |
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Total liabilities and stockholders' deficit |
$ | $ | ||||||
See accompanying notes to these financial statements.
CLS HOLDINGS USA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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For the |
For the |
For the |
For the |
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Three Months Ended |
Three Months Ended |
Six Months Ended |
Six Months Ended |
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November 30, 2024 |
November 30, 2023 |
November 30, 2024 |
November 30, 2023 |
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Revenue |
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Cost of goods sold |
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Gross margin |
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Selling, general and administrative expenses |
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Total operating expenses |
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Operating income (loss) |
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Other (income) expense: |
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Interest expense, net |
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Employee retention tax credit income |
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(Gain) on settlement of debt |
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(Gain) on settlement of accounts payable |
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Total other (income) expense |
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Income (Loss) before income taxes |
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Provision for income tax |
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Net loss |
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Non-controlling interest |
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Net loss attributable to CLS Holdings, Inc. |
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Net loss per share - basic |
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Net loss per share - diluted |
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Weighted average shares outstanding - basic |
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Weighted average shares outstanding - diluted |
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See accompanying notes to these financial statements.
CLS HOLDINGS USA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
(Unaudited)
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Common Stock |
Additional Paid In |
Stock |
Accumulated |
Non-controlling |
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Amount |
Value |
Capital |
Payable |
Deficit |
Interest |
Total |
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Balance, August 31, 2023 |
$ | $ | $ | $ | ( |
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Discount on convertible notes payable |
- | - | - | - | - | |||||||||||||||||||||||
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Loss for the three months ended November 30, 2023 |
- | - | - | - | ( |
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Balance, November 30, 2023 |
$ | $ | $ | $ | ( |
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Balance, May 31, 2023 |
$ | $ | $ | $ | ( |
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Discount on convertible notes payable |
- | - | - | - | - | |||||||||||||||||||||||
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Loss for the six months ended November 30, 2023 |
- | - | - | - | ( |
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Balance, November 30, 2023 |
$ | $ | $ | $ | ( |
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Balance, August 31, 2024 |
$ | $ | $ | $ | ( |
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Shares purchased from related party |
( |
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) | - | - | - | ( |
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Shares and warrants cancelled in debt settlement |
( |
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) | - | - | - | ( |
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Amortization of employee stock options |
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Loss for the three months ended November 30, 2024 |
- | - | - | - | ( |
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Balance, November 30, 2024 |
$ | $ | $ | $ | ( |
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Balance, May 31, 2024 |
$ | $ | $ | $ | ( |
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Conversion of notes payable |
- | - | - | |||||||||||||||||||||||||
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Shares purchased from related party |
( |
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) | - | - | - | ( |
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Shares and warrants cancelled in debt settlement |
( |
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) | - | - | - | ( |
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Amortization of employee stock options |
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Loss for the six months ended November 30, 2024 |
- | - | - | - | ( |
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Balance, November 30, 2024 |
$ | $ | $ | $ | ( |
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See accompanying notes to these financial statements.
CLS HOLDINGS USA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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For the Six |
For the Six |
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Months Ended |
Months Ended |
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November 30, 2024 |
November 30,2023 |
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CASH FLOWS FROM OPERATING ACTIVITIES |
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Net loss |
$ | ( |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Share-based compensation |
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Amortization of debt discounts and fees |
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Depreciation and amortization expense |
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Gain on settlement of accounts payable |
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Gain on settlement of debt |
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Bad debt expense |
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Changes in assets and liabilities: |
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Accounts receivable |
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Prepaid expenses and other current assets |
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Inventory |
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Right of use asset |
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Accounts payable and accrued expenses |
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Accrued interest |
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Deferred tax liability |
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Operating lease liability |
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Net cash provided by operating activities |
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CASH FLOWS FROM INVESTING ACTIVITIES |
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Payments to purchase property, plant and equipment |
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Payment for construction security deposit |
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Net cash used in investing activities |
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CASH FLOWS FROM FINANCING ACTIVITIES |
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Cash received from the issuance of convertible notes payable |
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Cash received from issuance of note payable - related party |
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Principal payment on notes and cancellation of shares |
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Principal payments on convertible notes payable |
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Principal payments on notes payable |
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Principal payments on notes payable -related party |
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Proceeds of loan payable |
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Repayments of loan payable |
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Principal payments on finance leases |
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Net cash used in financing activities |
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Net (decrease) increase in cash and cash equivalents |
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Cash and cash equivalents at beginning of period |
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Cash and cash equivalents at end of period |
$ | $ | ||||||
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: |
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Interest paid |
$ | $ | ||||||
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Income taxes paid |
$ | $ | ||||||
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NONCASH INVESTING AND FINANCING ACTIVITIES: |
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Shares issued for conversion of notes payable |
$ | $ | ||||||
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Capitalized interest |
$ | $ | ||||||
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Initial ROU asset and lease liability - operating |
$ | $ | ||||||
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Discount on convertible note payable |
$ | $ | ||||||
| Cancellation of shares held by related party | $ | $ | ||||||
See accompanying notes to these financial statements.
CLS HOLDINGS USA, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
November 30, 2024
(Unaudited)
Note 1: Nature of Business and Significant Accounting Policies
Basis of Presentation
These financial statements and related notes are presented in accordance with accounting principles generally accepted in the United States and are expressed in US dollars. The Company has adopted a fiscal year end of May 31st.
Principals of Consolidation
The accompanying consolidated financial statements include the accounts of CLS Holdings USA, Inc.; its direct and indirect wholly owned operating subsidiaries, CLS Nevada, Inc., (“CLS Nevada”), CLS Labs, Inc. (“CLS Labs”), CLS Labs Colorado, Inc. (“CLS Colorado”), CLS Massachusetts, Inc. (“CLS Massachusetts”), and Alternative Solutions, LLC (“Alternative Solutions”); and wholly owned inactive subsidiaries CLS Labs Colorado, Inc. (“CLS Colorado”) and CLS Massachusetts, Inc. (“CLS Massachusetts”). Alternative Solutions is the sole owner of the following three entities (collectively, the “Oasis LLCs”): Serenity Wellness Center, LLC (“Serenity Wellness Center”); Serenity Wellness Products, LLC (“Serenity Wellness Products”); and Serenity Wellness Growers, LLC (“Serenity Wellness Growers”). The accompanying consolidated financial statements also include the accounts of CLS CBD in which the company owns a
Nature of Business
CLS Holdings USA, Inc. (the “Company”) was originally incorporated as Adelt Design, Inc. (“Adelt”) on March 31, 2011 to manufacture and market carpet binding art. Production and marketing of carpet binding art never commenced.
We currently operate a retail marijuana dispensary within walking distance to the Las Vegas Strip and a small-scale cultivation facility, as well as a product manufacturing facility and a wholesale distribution operation in North Las Vegas. The vertically integrated business model drives strong margins to the bottom line on a portion of sales at the dispensary.
Our retail dispensary is a single location operation in Nevada and occupies over 5,000 square feet. This location, which is easily accessible by tourists, is currently open 19.5 hours per day for walk-in service. Curbside and in store express pick up is available between the hours of 8:00 AM and 12:00 AM. Oasis dispensary also delivers cannabis to residents between the hours of 8:00 AM and 10:00 PM. The central location provides logistical convenience for delivery to all parts of the Las Vegas valley.
Our wholesale operations, which occupies approximately 10,000 square feet of a 22,000 square foot warehouse, began sales to third parties in August 2017 and completed construction and received a certificate of occupancy for its state-of-the-art extraction facility in December of 2019. We have made sales to over 88 external customers as of November 30, 2024. Our existing product line includes vaporizers, tinctures, ethanol produced THC distillate, and live and cured hydrocarbon concentrates. At present, the City Trees cultivation facility only grows breeding stock to preserve valuable genetics and does not offer its crops for sale or processing. As a result, all raw materials for manufacturing are sourced from third parties.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and 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. Actual results could differ from those estimates.
Reclassification
Certain reclassifications, not affecting previously reported net income or cash flows, have been made to the previously issued financial statements to conform to the current period presentation.
Cash, Cash Equivalents, and Restricted Cash
The Company considers all highly liquid investments with maturities of three months or less to be cash equivalents. The Company had cash and cash equivalents of $
Allowance for Doubtful Accounts
The Company generates the majority of its revenues and corresponding accounts receivable from the sale of cannabis, and cannabis related products. The Company evaluates the collectability of its accounts receivable considering a combination of factors. In circumstances where it is aware of a specific customer’s inability to meet its financial obligations to it, the Company records a specific reserve for bad debts against amounts due in order to reduce the net recognized receivable to the amount it reasonably believes will be collected. For all other customers, the Company recognizes reserves for bad debts based on past write-off experience and the length of time the receivables are past due. The Company had bad debt expense of $
Inventory
Inventories are stated at the lower of cost or market. Cost is determined using a perpetual inventory system whereby costs are determined by acquisition costs of individual items included in inventory. Market is determined based on net realizable value. Appropriate consideration is given to obsolescence, excessive levels, deterioration, and other factors in evaluating net realizable values. Our cannabis products consist of prepackaged purchased goods ready for resale, along with produced tinctures and extracts developed under our production license.
Property, Plant and Equipment
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| Leasehold improvements |
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Repairs and maintenance expenditures are charged to operations as incurred. Major improvements and replacements, which extend the useful life of an asset, are capitalized and depreciated over the remaining estimated useful life of the asset. When assets are retired or sold, the cost and related accumulated depreciation are eliminated, and any resulting gain or loss is reflected in operations.
Long-Lived Assets
The Company reviews its property and equipment and any identifiable intangibles including goodwill for impairment on an annual basis utilizing the guidance set forth in the Statement of Financial Accounting Standards Board ASC 350 “Intangibles – Goodwill and Other” and ASC 360 “Property, Plant, and Equipment.” At November 30, 2024, the net carrying value of goodwill on the Company’s balance sheet remained at $
Employee Retention Tax Credit
Under the provisions of the extension of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), the Company was eligible for a refundable employee retention tax credit (the “ERTC”), subject to certain criteria. As ERTCs are not within the scope of ASC 740, Income Taxes, the Company has chosen to account for the ERTCs by analogizing to the International Standard IAS 20, Accounting/or Government Grants and Disclosure of Government Assistance (“IAS 20”). In accordance with IAS 20, an entity recognizes government grants only when there is reasonable assurance that the entity will comply with the conditions attached to them and the grants will be received. During the three months ended November 30, 2024 and 2023, the Company received an aggregate of $
Comprehensive Income
ASC 220-10-15 “Reporting Comprehensive Income,” establishes standards for reporting and displaying of comprehensive income, its components and accumulated balances. Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, ASC 220-10-15 requires that all items that are required to be recognized under current accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. The Company does not have any items of comprehensive income in any of the periods presented.
Non-Controlling Interests
The Company reports “non-controlling interest in subsidiary” as a component of equity, separate from parent’s equity, on the Consolidated Balance Sheets. In addition, the Company’s Consolidated Statements of Operations includes “net income (loss) attributable to non-controlling interest.” There was
Variable Interest Entities
The Company’s consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries and variable interest entities (“VIE”), where the Company is the primary beneficiary under the provisions of ASC 810, Consolidation (“ASC 810”). A VIE must be consolidated by its primary beneficiary when, along with its affiliates and agents, the primary beneficiary has both: (i) the power to direct the activities that most significantly impact the VIE’s economic performance; and (ii) the obligation to absorb losses or the right to receive the benefits of the VIE that could potentially be significant to the VIE. The Company reconsiders whether an entity is still a VIE only upon certain triggering events and continually assesses its consolidated VIEs to determine if it continues to be the primary beneficiary.
Concentrations of Credit Risk
The Company maintains its cash in bank deposit accounts and other accounts, the balances of which at times may be uninsured or exceed federally insured limits. From time to time, some of the Company’s funds are also held by escrow agents; these funds may not be federally insured. The Company continually monitors its banking relationships and consequently has not experienced any losses in such accounts.
Advertising and Marketing Costs
All costs associated with advertising and promoting products are expensed as incurred. Total recognized advertising and marketing expenses were $
Research and Development
Research and development expenses are charged to operations as incurred. The Company incurred research and development costs of $
Fair Value of Financial Instruments
Pursuant to Accounting Standards Codification (“ASC”) No. 825–- Financial Instruments, the Company is required to estimate the fair value of all financial instruments included on its balance sheets. The carrying amounts of the Company’s cash and cash equivalents, notes receivable, convertible notes payable, accounts payable and accrued expenses, none of which is held for trading, approximate their estimated fair values due to the short-term maturities of those financial instruments.
A three-tier fair value hierarchy is used to prioritize the inputs in measuring fair value as follows:
Level 1–- Quoted prices in active markets for identical assets or liabilities.
Level 2–- Quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable, either directly or indirectly.
Level 3–- Significant unobservable inputs that cannot be corroborated by market data.
Revenue Recognition
Revenue from the sale of cannabis products is recognized by Oasis at the point of sale, at which time payment is received, the product is delivered, and the Company’s performance obligation has been met. Management estimates an allowance for sales returns.
The Company also recognizes revenue from Serenity Wellness Products LLC and Serenity Wellness Growers LLC, d/b/a City Trees (“City Trees”). City Trees recognizes revenue from the sale of the following cannabis products and services to licensed dispensaries, cultivators and distributors within the State of Nevada:
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Premium organic medical cannabis sold wholesale to licensed retailers |
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Recreational marijuana cannabis products sold wholesale to licensed distributors and retailers |
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Extraction products such as oils and waxes derived from in-house cannabis production |
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Processing and extraction services for licensed medical cannabis cultivators in Nevada |
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High quality cannabis strains in the form of vegetative cuttings for sale to licensed medical cannabis cultivators in Nevada |
Effective June 1, 2018, the Company adopted ASC 606 — Revenue from Contracts with Customers. Under ASC 606, the Company recognizes revenue from commercial sales of products and licensing agreements by applying the following steps: (1) identifying the contract with a customer; (2) identifying the performance obligations in the contract; (3) determining the transaction price; (4) allocating the transaction price to each performance obligation in the contract; and (5) recognizing revenue when each performance obligation is satisfied.
Disaggregation of Revenue
|
For the Three |
For the Three |
|||||||
|
Months Ended |
Months Ended |
|||||||
|
November 30, 2024 |
November 30, 2023 |
|||||||
|
Cannabis Dispensary |
||||||||
|
Cannabis Production |
||||||||
| $ | $ | |||||||
|
For the Six |
For the Six |
|||||||
|
Months Ended |
Months Ended |
|||||||
|
November 30, 2024 |
November 30, 2023 |
|||||||
|
Cannabis Dispensary |
||||||||
|
Cannabis Production |
||||||||
| $ | $ | |||||||
Basic and Diluted Earnings or Loss Per Share
Basic net earnings per share is based on the weighted average number of shares outstanding during the period, while fully diluted net earnings per share is based on the weighted average number of shares of common stock and potentially dilutive securities assumed to be outstanding during the period using the treasury stock method. Potentially dilutive securities consist of options and warrants to purchase common stock, and convertible debt. Basic and diluted net loss per share are computed based on the weighted average number of shares of common stock outstanding during the period. At November 30, 2024 and 2023, the Company had the following potentially dilutive instruments outstanding: at November 30, 2024, a total of
The Company uses the treasury stock method to calculate the impact of outstanding stock options and warrants. Stock options and warrants for which the exercise price exceeds the average market price over the period have an anti-dilutive effect on earnings per common share and, accordingly, are excluded from the calculations.
A net loss causes all outstanding stock options and warrants to be anti-dilutive. As a result, the basic and dilutive losses per common share are the same for the three months ended November 30, 2024 and 2023. For the three months ended November 30, 2024 and 2023, the Company excluded from the calculation of fully diluted earnings per share the following instruments which were anti-dilutive: shares issuable pursuant to the conversion of notes payable and accrued interest, shares issuable pursuant to the exercise of warrants, and shares of common stock issuable.
Income Taxes
The Company accounts for income taxes under the asset and liability method in accordance with ASC 740. The Company recognizes deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The components of the deferred tax assets and liabilities are classified as current and non-current based on their characteristics. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that the Company will not realize tax assets through future operations.
Section 280E of the Internal Revenue Code, as amended, prohibits businesses from deducting certain expenses associated with trafficking controlled substances (within the meaning of Schedule I and II of the Controlled Substances Act). The IRS has invoked Section 280E in tax audits against various cannabis businesses in the U.S. that are permitted under applicable state laws. Although the IRS has issued a clarification allowing the deduction of certain expenses, the bulk of operating costs and general administrative costs are generally not permitted to be deducted. The operations of certain of the Company’s subsidiaries are subject to Section 280E. This results in permanent differences between ordinary and necessary business expenses deemed non-deductible under IRC Section 280E. Therefore, the effective tax rate can be highly variable and may not necessarily correlate with pre-tax income or loss.
Commitments and Contingencies
Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company’s management and its legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims brought to such legal counsel’s attention as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potentially material loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, would be disclosed.
Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the nature of the guarantee would be disclosed.
Recent Accounting Pronouncements
There are various updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.
Note 2: Going Concern
As shown in the accompanying financial statements, the Company has incurred net losses from operations resulting in an accumulated deficit of $
Note 3: Accounts Receivable
Accounts receivable was $
Note 4: Inventory
|
November 30, |
May 31, |
|||||||
|
2024 |
2024 |
|||||||
|
Raw materials |
$ | $ | ||||||
|
Finished goods |
||||||||
|
Total |
$ | $ | ||||||
Raw materials consist of cannabis plants and the materials that are used in our production process prior to being tested and packaged for consumption. Finished goods consist of pre-packaged materials previously purchased from other licensed cultivators and our manufactured edibles and extracts.
Note 5: Prepaid Expenses and Other Current Assets
|
November 30, |
May 31, |
|||||||
|
2024 |
2024 |
|||||||
|
Prepaid license fees |
||||||||
|
Other prepaid expenses |
||||||||
|
Total |
$ | $ | ||||||
Prepaid expenses primarily of (i) annual license fees charged by the State of Nevada; (ii) insurance costs; (iii) supplies; (iv) rent; and (v) board fees.
Note 6: Property, Plant and Equipment
|
November 30, 2024 |
May 31, 2024 |
|||||||
|
Office equipment |
$ | $ | ||||||
|
Furniture and fixtures |
||||||||
|
Machinery & Equipment |
||||||||
|
Leasehold improvements |
||||||||
|
Less: accumulated depreciation |
( |
) | ( |
) | ||||
|
Property, plant, and equipment, net |
$ | $ | ||||||
The Company made payments in the amounts of $
Depreciation expense totaled $
Note 7: Right of Use Assets and Liabilities – Operating Leases
The Company has operating leases for offices and warehouses. The Company’s leases have remaining lease terms of
The Company’s lease expense for the three months ended November 30, 2024 and 2023 was entirely comprised of operating leases and amounted to $
The Company’s right of use (“ROU”) asset amortization for the three months ended November 30, 2024 and 2023 was $
The Company has recorded total right of use assets of $
|
November 30, 2024 |
||||
|
Amount at inception of leases |
$ | |||
|
Amount amortized |
( |
) | ||
|
Prior Period Impairment of Quinn River Lease |
( |
) | ||
|
Balance – November 30, 2024 |
$ | |||
|
Amount at inception of leases |
$ | |||
|
Amount amortized |
( |
) | ||
|
Balance – November 30, 2024 |
$ |
|
Warehouse and offices |
$ | |||
|
Land |
||||
|
Office equipment |
||||
|
Balance – November 30, 2024 |
$ | |||
|
Lease liability |
$ | |||
|
Less: current portion |
( |
) | ||
|
Lease liability, non-current |
$ |
|
Twelve months ended November 30, 2025 |
$ | |||
|
Twelve months ended November 30, 2026 |
||||
|
Twelve months ended November 30, 2027 |
||||
|
Twelve months ended November 30, 2028 |
||||
|
Twelve months ended November 30, 2029 |
||||
|
Thereafter |
||||
|
Total |
$ | |||
|
Less: Present value discount |
( |
) | ||
|
Lease liability |
$ |
Note 8: Intangible Assets
|
November 30, 2024 |
||||||||||||||||
|
Accumulated |
||||||||||||||||
|
Gross |
Amortization |
Impairment |
Net |
|||||||||||||
|
License & Customer Relations |
$ | $ | ( |
) | ||||||||||||
|
Tradenames - Trademarks |
( |
) | ||||||||||||||
|
Domain Names |
( |
) | ||||||||||||||
|
Total |
$ | $ | ( |
) | $ | |||||||||||
|
May 31, 2024 |
||||||||||||||||
|
Accumulated |
||||||||||||||||
|
Gross |
Amortization |
Impairment |
Net |
|||||||||||||
|
License & Customer Relations |
( |
) | ||||||||||||||
|
Tradenames - Trademarks |
( |
) | ||||||||||||||
|
Domain Names |
( |
) | ||||||||||||||
|
Total |
$ | $ | ( |
) | $ | $ | ||||||||||
Total amortization expense charged to operations for the three months ended November 30, 2024 and 2023 was $
|
2025 |
$ | |||
|
2026 |
||||
|
2027 |
||||
| $ |
Note 9: Goodwill
Goodwill in the amount of $
Goodwill Impairment Test
The Company assessed its intangible assets as of May 31, 2024 for purposes of determining if an impairment existed as set forth in ASC 350 – Intangibles – Goodwill and Other and ASC 360 – Property Plant and Equipment. Pursuant to ASC 360, the Company determined that the fair value of its intangible assets exceeded the carrying value of goodwill at May 31, 2024. As a result, no impairment was recorded. At November 30, 2024 and May 31, 2024, the net amount of goodwill on the Company’s balance sheet was $
Note 10: Other Assets
|
November 30, |
May 31, |
|||||||
|
2024 |
2024 |
|||||||
|
Security deposits |
||||||||
| $ | $ | |||||||
Note 11: Accounts Payable and Accrued Liabilities
|
November 30, 2024 |
May 31, 2024 |
|||||||
|
Trade accounts payable |
$ | $ | ||||||
|
Accrued payroll and payroll taxes |
||||||||
|
Accrued liabilities |
||||||||
|
Total |
$ | $ | ||||||
Note 12: Due to Related Party
On November 1, 2024, the Company acquired and cancelled
Note 13: Notes Payable
| November 30, 2024 | May 31, 2024 | |||||||
| Debenture 2 Debenture in the principal amount of $
On May 31, 2023, the Debenture 2 was amended as follows: (1) the first payment of principal and interest on June 30, 2023, followed by quarterly payment of principal and interest on September 30, 2023, beginning October 31, 2023, the Company is required to pay the note holder principal and Interest monthly through the maturity date.
On December 31, 2023, the Debenture 2 was amended as follows: The original issue discount in the amount of $
During the three and six months ended November 30, 2024, the Company amortized discounts on the Debenture 2 in the aggregate amount of $ | ||||||||
| November 30, 2024 | May 31, 2024 | |||||||
| Debenture 6 Debenture in the principal amount of $
On May 31, 2023, the Debenture 6 was amended as follows: (1) the maturity date was extended to
On December 31, 2023, the Debenture 6 was amended as follows: The original issue discount in the amount of $375,000 was reduced to $
During the three months and six ended November 30, 2024, the Company amortized discounts in the amount of $ | ||||||||
| Promissory Note 6 (“PN 6”) PN6 in the principal amount of $ | ||||||||
| Notes Payable | $ | $ | ||||||
| Less: Discount | ( | ) | ||||||
| Notes Payable, Net of Discount | $ | $ | ||||||
|
November 30, 2024 |
May 31, 2024 |
|||||||
|
Total Notes Payable, Current Portion |
$ | $ | ||||||
|
Total Notes Payable, Long-term Portion, net of discount |
$ | $ | ||||||
Note 14: Convertible Notes Payable
| November 30, 2024 | May 31, 2024 | |||||||
| US Convertible Debenture 2 (Navy Capital Green Fund) Convertible debenture in the principal amount of $
On July 26, 2019, U.S. Convertible Debenture 2 was amended such that, should the Company issue or sell common stock or equity securities convertible into common stock at a price less than the conversion price of the U.S. convertible Debenture 2, the conversion price of U.S. Convertible Debenture 2 would be reduced to such issuance price, and the exercise price of the warrant issuable in connection with U.S. Convertible Debenture 2 would be exercisable at a price equal to 137.5% of the adjusted conversion price at the time of conversion. The U.S. Convertible Debenture 2 has other features, such as mandatory conversion in the event the common stock trades at a particular price over a specified period of time and required redemption in the event of a “Change in Control” of the Company. The U.S. Convertible Debenture 2 is an unsecured obligation of the Company and ranks pari passu in right of payment of principal and interest with all other unsecured obligations of the Company. The Company recorded a discount in the amount of $
On April 15, 2021, the U.S. Convertible Debenture 2 was amended as follows:
On September 15, 2022, the U.S. Convertible Debenture 2 was amended as follows:
On December 29, 2023, the U.S. Convertible Debenture 2 was amended as follows: | $ | |||||||
| November 30, 2024 | May 31, 2024 | |||||||
| Canaccord Debentures Convertible debentures payable in the aggregate principal amount of $
On March 31, 2021, the Canaccord Debentures were amended as follows:
On September 15, 2022, the Canaccord Debentures were further amended as follows:
On December 28, 2023, the Canaccord Debentures were amended as follows:
On January 4, 2024, debenture holders exercised Put Rights with regard to the Canaccord Debentures with a principal amount of $
On December 27, 2024, the Company executed a Supplemental Indenture to amend that certain debenture indenture by and between the Company and Odyssey Trust Company, as Trustee, dated as of December 12, 2018, as supplemented March 31, 2021, as supplemented September 15, 2022, and as supplemented December 28, 2023, in order to amended the terms of its outstanding $ | ||||||||
| November 30, 2024 | May 31, 2024 | |||||||
| US Convertible Debenture 1 (Navy Capital Green Co-Invest Fund) Convertible debenture in the principal amount of $
On April 15, 2021, the U.S. Convertible Debenture 1 was amended as follows:
On September 15, 2022, the U.S. Convertible Debenture 1 was further amended as follows:
On December 29, 2023, the U.S. Convertible Debenture 1 was amended as follows: (i) the conversion price of the debentures was reduced to $ | ||||||||
| Total Convertible Notes Payable | $ | $ | ||||||
|
November 30, 2024 |
May 31, 2024 |
|||||||
|
Total – Convertible Notes Payable, Current Portion |
$ | $ | ||||||
|
Total – Convertible Notes Payable, Long-term Portion |
$ | $ | ||||||
Note 15: Notes Payable – Related Party
| November 30, 2024 | May 31, 2024 | |||||||
| Promissory Note 1 (“APN1”) PN1 Debenture in the principal amount of $ | $ | $ | ||||||
| Promissory Note 2 (“PN2”) PN2 in the principal amount of $ | ||||||||
| Promissory Note 3 (“PN3”) PN3 in the principal amount of $ | ||||||||
| Promissory Note 4 (“PN4”) PN4 in the principal amount of $ | ||||||||
| Promissory Note 5 (“PN5”) PN5 in the principal amount of $ | ||||||||
| Promissory Note 7 (“PN7”) PN7 in the principal amount of $ | ||||||||
| Promissory Note 8 (“PN8”) PN8 in the principal amount of $ | ||||||||
| November 30, 2024 | May 31, 2024 | |||||||
| Promissory Note 9 (“PN9”) PN9 in the principal amount of $ | ||||||||
| Promissory Note 10 (“PN10”) PN10 in the principal amount of $ | ||||||||
| Total | $ | $ | ||||||
|
November 30, 2024 |
May 31, 2024 |
|||||||
|
Total Notes Payable – Related Party, Current Portion |
$ | $ | ||||||
|
Total Notes Payable – Related Party, Long Term Portion |
$ | $ | ||||||
For the twelve months ended November 30,
|
2025 |
$ | |||
|
2026 |
||||
|
2027 |
||||
|
2028 |
||||
|
Total |
$ |
Note 16: Lease Liabilities - Financing Leases
| November 30, 2024 | May 31, 2024 | |||||||
| Financing lease obligation under a lease agreement for extraction equipment dated March 14, 2022 in the original amount of $ | $ | $ | ||||||
| Financing lease obligation under an agreement for equipment dated June 20, 2022 in the original amount of $ | $ | |||||||
| Total | $ | $ | ||||||
| Current portion | $ | $ | ||||||
| Long-term maturities | ||||||||
| Total | $ | $ | ||||||
For the period ended November 30,
|
2025 |
$ | |||
|
2026 |
||||
|
Total |
$ |
Note 17: Stockholders’ Equity
The Company’s authorized capital stock consists of
Common stock transactions for the six months ended November 30, 2024
On August 30, 2024, the Company issued
On September 10, 2024, the Company settled three notes payable in the aggregate principal amount of $
On November 1, 2024, the Company acquired and cancelled
Common stock transactions for the six months ended November 30, 2023
None.
Warrants
Warrants for the six months ended November 30, 2024:
| Range of exercise Prices | Number of warrants Outstanding | Weighted average remaining contractual life (years) | Weighted average exercise price of outstanding Warrants | Number of warrants Exercisable | Weighted average exercise price of exercisable Warrants | |||||||||||||||||
| $ | $ | $ | ||||||||||||||||||||
| $ | $ | |||||||||||||||||||||
|
Number of Shares |
Weighted Average Exercise Price |
|||||||
|
Warrants outstanding at May 31, 2023 |
$ | |||||||
|
Granted |
$ | |||||||
|
Exercised |
$ | |||||||
|
Cancelled / Expired |
( |
) | $ | |||||
|
Warrants outstanding at May 31, 2024 |
$ | |||||||
|
Granted |
||||||||
|
Exercised |
$ | |||||||
|
Cancelled / Expired |
( |
) | $ | |||||
|
Warrants outstanding at November 30, 2024 |
$ | |||||||
Stock Options
Stock options for the six months ended November 30, 2024
During the six months ended November 30, 2024,
| Range of exercise Prices | Number of options Outstanding | Weighted average remaining contractual life (years) | Weighted average exercise price of outstanding Options | Number of Options Exercisable | Weighted average exercise price of exercisable Option | |||||||||||||||||
| $ | $ | $ | ||||||||||||||||||||
|
Number of Shares |
Weighted Average Exercise Price |
|||||||
|
Options outstanding at May 31, 2024 |
$ | |||||||
|
Granted |
$ | |||||||
|
Exercised |
$ | |||||||
|
Cancelled / Expired |
( |
) | $ | |||||
|
Options outstanding at November 30, 2024 |
$ | |||||||
| November 30, | ||||
| 2024 | ||||
| Volatility | % | |||
| Dividends | $ | |||
| Risk-free interest rates | % | |||
| Expected term (years) | ||||
Stock options for the three months ended November 30, 2023
None.
During the three and six months ended November 30, 2024, the Company charged $
The aggregate intrinsic value of options outstanding and exercisable at November 30, 2024 and 2023 was $
Note 18: Gain on Settlement of Debt
On August 28, 2024, the Company raised $
On September 10, 2024, the Company utilized the proceeds of PN9 to settle three notes payable in the aggregate principal amount of $
| November 30, | ||||
| 2024 | ||||
| Volatility | % | |||
| Dividends | $ | |||
| Risk-free interest rates | % | |||