Consolidated Statements of ~~Stockholders’~~Stockholders’ Equity (Deficit)

~~F-6~~F-5

F-6

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.

On November 12, 2014, CLS Labs, Inc. (“CLS Labs”) acquired 10,000,000 shares, or 55.6%, of the outstanding shares of common stock of Adelt from its founder, Larry Adelt. On that date, Jeffrey Binder, the Chairman, President and Chief Executive Officer of CLS Labs, was appointed Chairman, President and Chief Executive Officer of the Company. On November 20, 2014, Adelt adopted amended and restated articles of incorporation, thereby changing its name to CLS Holdings USA, Inc. Effective December 10, 2014, the Company effected a reverse stock split of its issued and outstanding common stock at a ratio of 1-for-0.625 (the “Reverse Split”), wherein 0.625 shares of the Company’s common stock were issued in exchange for each share of common stock issued and outstanding. As a result, 6,250,000 shares of the Company’s common stock were issued to CLS Labs in exchange for the 10,000,000 shares that it owned by virtue of the above-referenced purchase from Larry Adelt.

On April 29, 2015, the Company, CLS Labs and CLS Merger Inc., a Nevada corporation and wholly owned subsidiary of CLS Holdings (“Merger Sub”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) and completed a merger, whereby CLS Merger Inc. merged with and into CLS Labs, with CLS Labs remaining as the surviving entity (the “Merger”). Upon the consummation of the Merger, the shares of the common stock of CLS Holdings owned by CLS Labs were extinguished and the former stockholders of CLS Labs were issued an aggregate of 15,000,000 (post Reverse Split) shares of common stock in CLS Holdings in exchange for their shares of common stock in CLS Labs. As a result of the Merger, the Company acquired the business of CLS Labs and abandoned its previous business.

The Company has been issued a U.S. patent with respect to its proprietary method of extracting cannabinoids from cannabis plants and converting the resulting cannabinoid extracts into concentrates such as oils, waxes, edibles and shatter. These concentrates may be ingested in a number of ways, including through vaporization via electronic cigarettes (“e-cigarettes”), and used for a variety of pharmaceutical and other purposes. Internal testing of this extraction method and conversion process has revealed that it produces a cleaner, higher quality product and a significantly higher yield than the cannabinoid extraction processes currently existing in the marketplace. The Company has not commercialized its patented proprietary process or otherwise earned any ~~revenues.~~revenues from it. The Company plans to generate revenues through licensing, fee-for-service and joint venture arrangements related to its patented proprietary method of extracting cannabinoids from cannabis plants and converting the resulting cannabinoid extracts into saleable concentrates.

On December 4, 2017, the Company and Alternative Solutions, ~~LLC (“Alternative Solutions”)~~ entered into a Membership Interest Purchase Agreement (the “Acquisition Agreement”), as amended, for the Company to acquire the ~~outstanding equity interests in three subsidiaries (collectively, the “Oasis LLCs”), Serenity Wellness Center LLC d/b/a/~~ Oasis ~~Medical Cannabis, Serenity Wellness Growers LLC, and Serenity Wellness Products LLS,~~LLCs from Alternative Solutions. Pursuant to the Acquisition Agreement, the Company initially contemplated acquiring all of the membership interests in the Oasis LLCs from Alternative Solutions. Just prior to closing, the parties agreed that the Company would instead acquire all of the membership interests in Alternative Solutions, the parent of the Oasis LLCs, from its members, and the membership interests in the Oasis LLCs owned by members other than Alternative Solutions.

Pursuant to the Acquisition Agreement, the Company paid a non-refundable deposit of $250,000 upon signing, which was followed by an additional payment of $1,800,000 onpaid in February 5, 2018, for an initial 10% of each of the ~~subsidiaries. The closing consideration~~Oasis LLCs. At that time, the Company ~~must pay~~applied for regulatory approval to own an interest in the Oasis LLCs, which approval was received. On June 27, 2018, the Company made the payments to indirectly acquire the remaining 90% of the ~~subsidiaries, is~~Oasis LLCs, which were equal to cash in the amount of ~~$6,200,000,~~$5,995,543, a $4.0 million promissory note due in December 2019 (the “Oasis Note”), and ~~$6,000,000 in~~22,058,823 shares of its common stock (the “Purchase Price Shares”) (collectively, the ~~Company’s common stock.~~“Closing Consideration”). The cash payment of $5,995,543 was less than the $6,200,000 payment originally contemplated because the Company assumed an additional $204,457 of liabilities. The Company used the proceeds of a Canadian private securities offering to fund the cash portion of the Closing Consideration. The Company then applied for regulatory approval to own the additional 90% in membership interests in the Oasis LLCs, ~~collectively own~~which it received on December 12, 2018.

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On October 31, 2018, the Company, CLS Massachusetts, Inc., a Massachusetts corporation and ~~operate~~ a ~~vertically integrated cannabis business,~~wholly-owned subsidiary of the Company (“CLS Massachusetts”), and In Good Health, Inc., a Massachusetts corporation (“IGH”), entered into an Option Agreement (the “IGH Option Agreement”). Under the terms of the IGH Option Agreement, CLS Massachusetts has an exclusive option to acquire all of the outstanding capital stock of IGH (the “IGH Option”) during the period beginning on the earlier of the date that is one year after the effective date of the conversion and December 1, 2019 and ending on the date that is 60 days after such date. If CLS Massachusetts exercises the IGH Option, the Company, a wholly-owned subsidiary of the Company and IGH will enter into a merger agreement (the form of which has been agreed to by the parties) (the “IGH Merger Agreement”). At the effective time of the merger contemplated by the IGH Merger Agreement, CLS Massachusetts will pay a purchase price of $47,500,000, subject to reduction as provided in the IGH Merger Agreement, payable as follows: $35 million in cash, $7.5 million in the form of a five-year promissory note, and $5 million in the form of restricted common stock of the Company, plus $2.5 million as consideration for a non-competition agreement with IGH’s President, payable in the form of a five-year promissory note. IGH and certain IGH stockholders holding sufficient aggregate voting power to approve the transactions contemplated by the IGH Merger Agreement have entered into agreements pursuant to which such stockholders have, among other things, agreed to vote in favor of such transactions. On October 31, 2018, as consideration for the IGH Option, the Company made a loan to IGH, in the principal amount of $5,000,000, subject to the terms and conditions set forth in that certain loan agreement, dated as of October 31, 2018 between IGH as the borrower and the Company as the lender. The loan is evidenced by a secured promissory note of IGH, which bears interest at the rate of 6% per annum and matures on October 31, 2021. To secure the obligations of IGH to the Company under the loan agreement and the promissory note, the Company and IGH entered into a security agreement dated as of October 31, 2018, pursuant to which IGH granted to the Company a first priority lien on and security interest in all personal property of IGH. If the Company does not exercise the Option on or prior to the date that is 30 days following the end of the option period, the loan amount will be reduced to $2,500,000 as a break-up fee, subject to certain exceptions set forth in the IGH Option Agreement. On August 26, 2019, the parties amended the IGH Option Agreement to, among other things, delay closing until January 2020. By letter agreement dated January 31, 2020, the Company, CLS Massachusetts and IGH extended the IGH Option Agreement to February 4, 2020. On February 4, 2020, CLS Massachusetts exercised the IGH Option. By letter dated February 26, 2020, the Company informed IGH that as a result of its breaches of the IGH Option, which remained uncured, an event of default had occurred under the IGH Note. The Company advised IGH that it was electing to cause the IGH Note to bear interest at the default rate of 15% per annum effective February 26, 2020 and to accelerate all amounts due under the Note. This dispute, including ~~one dispensary,~~whether IGH breached the IGH Option and whether CLS is entitled to collect default interest, is now in ~~Las Vegas, Nevada.~~litigation.

On January 29, 2019, the Company made a line of credit loan to CannAssist, LLC (“CannAssist”), in the principal amount of up to $500,000, subject to the terms and conditions set forth in that certain Loan Agreement, dated as of January 29, 2019 between CannAssist as the Borrower and the Company as the Lender (the “CannAssist Loan Agreement”). Any draws on the line of credit in excess of $150,000 will only be made in the sole discretion of the Company. The loan is evidenced by a secured promissory note of CannAssist (the “CannAssist Note”), which bears interest at the rate of 8% per annum and is personally guaranteed by the two equity owners of CannAssist. To secure the obligations of CannAssist to the Company under the CannAssist Loan Agreement and the CannAssist Note, the Company and CannAssist entered into a security agreement dated as of January 29, 2019, pursuant to which CannAssist granted to the Company a first priority lien on and security interest in all personal property of CannAssist.

On March 11, 2019, the Company, through its wholly-owned subsidiary, CLS Massachusetts, entered into a membership interest purchase agreement (the ”CannAssist Purchase Agreement”) with CannAssist, each of the members of CannAssist, and David Noble, as the members’ representative, to acquire an 80% ownership interest in CannAssist. After conducting diligence, the parties decided to terminate the CannAssist Purchase Agreement effective August 26, 2019.

On August 26, 2019, the Company and CannAssist entered into an agreement to amend the CannAssist Note. Pursuant to the amendment, there will be no additional advances under the CannAssist Note beyond the $150,000 advanced on February 4, 2019, and the $175,000 advanced on June 24, 2019. In addition, the CannAssist Note shall become due and payable in full on or before February 28, 2020. See note 16. On December 23, 2019, the Company received payment in full on the CannAssist loan in the amount of $342,567, which is made up of $325,000 of principal and $17,567 of interest. At May 31, 2020, the Company was owed $0 pursuant to the CannAssist Note.

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On January 4, 2018, the Attorney General of the United States issued new written guidance concerning the enforcement of federal laws relating to marijuana. The Attorney General’s memorandum stated that previous DOJ guidance specific to marijuana enforcement, including the memorandum issued by former Deputy Attorney General James Cole on August 29, 2013 (as amended on February 14, 2014, the “Cole Memo”) is unnecessary and is rescinded, effective immediately. The Cole Memo told federal prosecutors that in states that had legalized marijuana, they should use their prosecutorial discretion to focus not on businesses that comply with state regulations, but on illicit enterprises that create harms like selling drugs to children, operating with criminal gangs, and selling across state lines. While the rescission did not change federal law, as the Cole Memo and other DOJ guidance documents were not themselves laws, the rescission removed the DOJ’s formal policy that state-regulated cannabis businesses in compliance with the Cole Memo guidelines should not be a prosecutorial priority. Notably, former Attorney General Sessions’ rescission of the Cole Memo has not affected the status of the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) memorandum issued by the Department of Treasury, which remains in effect. This memorandum outlines Bank Secrecy Act-compliant pathways for financial institutions to service state-sanctioned cannabis businesses, which echoed the enforcement priorities outlined in the Cole Memo. In addition to his rescission of the Cole Memo, Attorney General Sessions issued a one-page memorandum known as the “Sessions Memorandum”. The Sessions Memorandum explains the DOJ’s rationale for rescinding all past DOJ cannabis enforcement guidance, claiming that Obama-era enforcement policies are “unnecessary” due to existing general enforcement guidance adopted in the 1980s, in chapter 9.27.230 of the U.A. Attorneys’ Manual (“USAM”). The USAM enforcement priorities, like those of the Cole Memo, are based on the use of the federal government’s limited resources and include “law enforcement priorities set by the Attorney General,” the “seriousness” of the alleged crimes, the “deterrent effect of criminal prosecution,” and “the cumulative impact of particular crimes on the community.” Although the Sessions Memorandum emphasizes that cannabis is a federally illegal Schedule I controlled substance, it does not otherwise instruct U.S. Attorneys to consider the prosecution of cannabis-related offenses a DOJ priority, and in practice, most U.S. Attorneys have not changed their prosecutorial approach to date. However, due to the lack of specific direction in the Sessions Memorandum as to the priority federal prosecutors should ascribe to such cannabis activities, there can be no assurance that the federal government will not seek to prosecute cases involving cannabis businesses that are otherwise compliant with state law.

As shown in the accompanying financial statements, the Company has incurred net losses from operations resulting in an accumulated deficit of ~~$18,569,094~~$76,846,124 as of May 31, ~~2018.~~2020. Further losses are anticipated in the development of the Company’s business raising substantial doubt about the Company’s ability to continue as a going concern. The ability to continue as a going concern is dependent upon the Company generating profitable operations in the future and/or obtaining the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. Management intends to finance operating costs over the next twelve months with ~~loans,~~ the proceeds from the sale of securities, and/or revenues from operations. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might result from this uncertainty.

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.

The accompanying consolidated financial statements include the accounts of CLS Holdings USA, Inc., and its direct and indirect wholly owned operating subsidiaries, CLS Nevada, Inc., (“CLS Nevada”), CLS Labs, Inc. ~~and~~(“CLS Labs”), CLS Labs Colorado, Inc. (“CLS Colorado”), CLS Massachusetts, Inc. (“CLS Massachusetts”), and Alternative Solutions, LLC (“Alternative Solutions”). 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”). All material intercompany transactions have been eliminated upon consolidation of these entities.

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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.

Certain amounts in the prior period have been reclassified to conform to the current period presentation.

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 ~~$52,964~~$2,925,568 and ~~$78,310~~$10,525,791 as of May 31, ~~2018~~2020 and ~~2017.~~2019.

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 believe 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 $108,392 and $0 bad debts expense during the years ended May 31, 2020 and 2019, respectively.

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 edibles and extracts developed under our production license.

Property and equipment is recorded at the lower of cost or estimated net recoverable amount, and is depreciated using the straight-line method over its estimated useful life. ~~Computer~~Property acquired in a business combination is recorded at estimated initial fair value. Property, plant, and equipment ~~is being~~are depreciated using the straight-line method based on the lesser of the estimated useful lives of the assets or the lease term based upon the following life expectancy:

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.

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”. As a ~~three-year period.~~result of the impairment test, it was calculated that the net carrying value of goodwill exceeded the fair value by $25,185,003, and the Company recorded an impairment charge to operations during the year ended May 31, 2020. At May 31, 2020, the net carrying value of goodwill on the Company’s balance sheet was $557,896.

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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.

The Company maintains its cash in bank deposit accounts and other accounts, ~~which may not be federally insured, or~~ 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~~All costs associated with advertising and ~~marketing costs~~promoting products are expensed as incurred. ~~The Company incurred no~~Total recognized advertising and marketing ~~costs~~expenses were $836,000 and $1,655,374 for the years ended May 31, ~~2018~~2020 and ~~2017.~~2019, respectively.

Research and development expenses are charged to operations as incurred. The Company incurred research and development costs of $0 ~~and $0~~ for the years ended May 31, ~~2018~~2020 and ~~2017, respectively.~~2019.

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, ~~note~~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 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.

Derivatives are recorded on the condensed consolidated balance ~~sheet~~sheets at fair value. The conversion features ~~of certain~~ of the convertible notes are embedded derivatives and are separately valued and accounted for on the consolidated balance ~~sheet~~sheets with changes in fair value recognized during ~~the~~each period of change as a separate component of other income/expense. Fair values for exchange-traded securities and derivatives are based on quoted market prices. The pricing model the Company ~~used~~uses for determining the fair value of its derivatives is the Lattice Model. Valuations derived from this model are subject to ongoing internal and external verification and review. The model uses market-sourced inputs such as interest rates and stock price volatilities. Selection of these inputs involves management’s judgment and may impact net ~~income. The derivative component of certain~~income (see note 20).

On June 1, 2018, the Company adopted ASU 2017-11 and accordingly reclassified the fair value of the reset provisions embedded in convertible notes ~~issued are valued at issuance, at conversion or redemption,~~payable and ~~at each period end.~~ certain warrants with embedded anti-dilutive provisions from liability to equity in the aggregate amount of $1,265,751.

The following assumptions were used for the valuation of the derivative liability related to the convertible notes that contain a derivative component:

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There were no derivative liabilities on the Company’s balance sheet during the year ended May 31, 2020 which required valuation.

~~- That the quoted market price of the common stock, which increased from $0.1250 as of May 31, 2017 to $0.6865 as of May 31,~~

That the quoted market price of the common stock, which decreased from $0.6865 as of June 1, 2018 to $0.2999 as of May 31, 2019, would fluctuate with the Company’s projected volatility;

- That the conversion price of the YAN II PN Convertible Notes would be equal to $0.40 with a full reset feature, and upon default, 75% of the lowest Volume Weighted Average Price (the “VWAP”) in the 15 consecutive trading days ending on the trading day that is immediately prior to the applicable conversion date;

-The conversion prices of the various convertible notes would be equal to the lesser of (i) $1.07, $0.80, or $0.40 (reset to $0.03125) , as the case may be, or (ii) 75% of the lowest VWAP in the 15-20 consecutive trading days ending on the trading day that is immediately prior to the application conversion date;

- That the new convertible notes issued during this period with full resets would be initially issued with conversion prices of $0.3125 and $0.40, respectively, which were not reset as a result of the WestPark Offering;;

-That an event of default at a 24% or 15% interest rate would occur 0% of the time, increasing 1.00% per month to a maximum of 25%, and that instead of a penalty, there would be an alternative conversion price;

-That the projected volatility curve from an annualized analysis for each valuation period would be based on the historical volatility of the Company and the remaining term for each convertible note. The projected volatility was in the range of 97.4% to 534.5% during the year ended May 31, 2018;

~~-That the Company would redeem the convertible notes, projected initially at 0% of the time and increasing monthly by 1.00% to a maximum of 10.0%;~~

-That the holder would automatically convert the notes at the maximum of 2 times the conversion price or the stock price if the common stock underlying the YAN II PN Convertible Notes was eligible for sale in compliance with securities laws and the Company was not in default;

-That unless an Event of Default occurred, the holder would sell, per trading day, an amount of Common Stock up to the greater of (i) $5,000 or (ii) 25% multiplied by the “Aggregate Amount,” as defined in the YAN II PN Convertible Notes.

-That the exchange agreement conversions (contingent on the payment by Glashow to Old Main) would occur based on 95% probability; otherwise, the convertible note would revert to the original terms and settlement, and that the value of the 4,500,000 potential shares would be based on the market price as of September 25, 2017, which is the date the convertible notes were re-issued, and each conversion date price.

~~- That the quoted market price of the common stock, which decreased from $0.0409 as of November 30, 2016 to $0.1250 as of May 31, 2017, would fluctuate with the Company’s projected volatility;~~

- That the conversion price of the amended 2016 Convertible Notes would be equal to the lesser of (i) $1.07 or $0.80; or (ii) 75% of the lowest VWAP in the 15 consecutive trading days ending on the trading day that is immediately prior to the applicable conversion date;

- That an event of default at a 24% interest rate would occur 0% of the time, increasing 1.00% per month to a maximum of 10%, and that instead of a penalty, there would be an alternative conversion price;

- That the projected volatility curve from an annualized analysis for each valuation period would be based on the historical volatility of the Company and the term remaining for each note. The projected volatility was from 265% to 407% during the year ended May 31, 2017;

- That the Company would redeem the notes expiring on September 18, 2017 (with a 130% penalty), projected initially at 50% of the time and increasing monthly by 5.0% to a maximum of 75.0% (from alternative financing being available for a redemption event to occur);

- That the holder would automatically convert the notes at the maximum of 2 times the conversion price or the stock price if the common stock underlying the 2016 Convertible Notes was eligible for sale in compliance with securities laws (assumed at September 18, 2016) and the Company was not in default; and

- That unless an Event of Default occurred, the holder would sell, per trading day, an amount of Common Stock up to the greater of (i) $5,000 or (ii) 25% multiplied by the “Aggregate Amount,” as defined in the 2016 Convertible Notes.

Revenue from the sale of cannabis products is recognized by Oasis at the point of sale, at which time payment is received. Management estimates an allowance for sales returns.

The Company ~~applies~~also recognizes revenue ~~recognition provisions pursuant~~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 within the State of Nevada:

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Effective June 1, 2018, the Company adopted ASC ~~No.~~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. For the comparative periods, revenue has not been adjusted and continues to be reported under ASC 605 — Revenue ~~Recognition, which provides guidance~~Recognition. Under ASC 605, revenue is recognized when the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) the performance of the service has been rendered to a customer or delivery has occurred; (3) the amount of fee to be paid by a customer is fixed and determinable; and (4) the collectability of the fee is reasonably assured. There was no impact on the ~~recognition, presentation~~Company’s financial statements as a result of adopting Topic 606 for the years ended May 31, 2020 and ~~disclosure~~2019.

The following table represents a disaggregation of revenue ~~in financial statements filed with~~for the ~~SEC. The guidance outlines the basic criteria that must be met to recognize revenue~~years ended May 31, 2020 and ~~provides guidance for disclosure related to revenue recognition policies.~~2019:

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 May 31, ~~2018~~2020 and ~~2017,~~2019, the Company excluded from the calculation of fully diluted shares outstanding the following shares because the result would have been anti-dilutive: At May 31, 2020 a total of 88,130,526 shares (54,835,145 issuable upon the exercise of warrants; 7,676,974 issuable upon the exercise of unit warrants; 25,131,739 issuable upon the conversion of convertible notes payable and accrued interest; and 486,668 in stock to be issued). At May 31, 2019, the Company excluded from the calculation of fully diluted shares outstanding a total of ~~9,929,058 (4,407,118~~86,439,117 shares (54,818,985 issuable upon the exercise of warrants; 7,676,974 issuable upon the exercise of unit warrants; 23,261,393 issuable upon the conversion of convertible notes ~~payable; 4,700,998 upon the exercise of warrants~~payable and ~~611,071~~accrued interest; and 681,764 in stock ~~payable) and 1,180,350 shares, respectively, issuable upon the conversion of notes payable because the result would have been anti-dilutive.~~to be issued).

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 calculation.

A net loss causes all outstanding stock options and warrants to be antidilutive. As a result, the basic and dilutive losses per common share are the same for the ~~year~~years ended May 31, ~~2018~~2020 and ~~2017.~~2019.

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.

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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.

In ~~August~~February 2016, the Financial Accounting Standards Board (the “FASB”) issued ~~ASU 2016-15,~~ ~~Statement~~Accounting Standards Codification (“ASC”) No. 2016-02, Leases (Topic 842): Accounting for Leases. This update requires that lessees recognize right-of-use assets and lease liabilities that are measured at the present value of ~~Cash Flows (Topic 230).~~the future lease payments at the lease commencement date. The ~~update addresses eight specific cash flow issues~~recognition, measurement, and ~~is intended to reduce diversity in practice in how certain cash receipts~~presentation of expenses and cash ~~payments are presented~~flows arising from a lease by a lessee will largely remain unchanged and ~~classified~~shall continue to depend on its classification as a finance or operating lease. The Company has performed a comprehensive review in order to determine what changes were required to support the adoption of this new standard. The Company adopted the ASU and related amendments on June 1, 2019 and has elected certain practical expedients permitted under the transition guidance. The Company has elected the optional transition method that allows for a cumulative-effect adjustment in the ~~statement~~period of ~~cash flows. This update~~adoption and will ~~be effective for reporting periods beginning after December 15, 2017, including interim periods within~~not restate prior periods. Under the ~~reporting period. Early adoption is permitted. The Company is currently evaluating~~new guidance, the ~~potential impact~~majority of the ~~update on our financial statements.~~Company’s leases continue to be classified as operating. During the first quarter of fiscal 2020, the Company completed its implementation of its processes and policies to support the new lease accounting and reporting requirements. This resulted in an initial increase in both its total assets of $2,703,821 and total liabilities in the amount of $2,675,310.

In January 2017, the FASB issued ASU No. 2017-04, Simplifying the Test for Goodwill Impairment,, which simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. In computing the implied fair value of goodwill under Step 2, current U.S. GAAP requires the performance of procedures to determine the fair value at the impairment testing date of assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Instead, the amendments under this ASU require the goodwill impairment test to be performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The ASU ~~becomes~~became effective for usthe Company on January 1, 2020. The ~~amendments in~~adoption of this ASU ~~will be applied~~did not have a material impact on our consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230). The update addresses eight specific cash flow issues and is intended to reduce diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. This update is effective for reporting periods beginning after December 15, 2017, including interim periods within the reporting period. Adoption of ASU 2016-15 did not have a ~~prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed.~~material effect on our financial statements.

In May 2017, the FASB issued ASU No. 2017-09, Stock Compensation - Scope of Modification Accounting,, which provides guidance on which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. The ASU requires that an entity account for the effects of a modification unless the fair value (or calculated value or intrinsic value, if used), vesting conditions and classification (as equity or liability) of the modified award are all the same as for the original award immediately before the modification. The ASU ~~becomes~~became effective for usthe Company on January 1, 2018, and ~~will be~~is applied ~~prospectively~~ to an award modified on or after the adoption date. ~~Early~~Adoption of ASU 2017-09 did not have a material effect on the Company’s financial statements.

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Effective June 1, 2018, the Company adopted ASC 606 — Revenue from Contracts with Customers. Under ASC 606, the Company recognizes revenue from the commercial sales of products and licensing agreements by applying the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied. For the comparative periods, revenue has not been adjusted and continues to be reported under ASC 605 — Revenue Recognition. Under ASC 605, revenue is recognized when the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) the performance of a service has been rendered to a customer or delivery has occurred; (3) the amount of the fee to be paid by a customer is fixed and determinable; and (4) the collectability of the fee is reasonably assured. There was no impact on the Company’s financial statements as a result of adopting ASC 606.

In July 2017, the FASB issued ASU No. 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815). The amendments in Part I of this update change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features.

When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity classified financial instruments, the amendments require entities that present earnings per share (EPS) in accordance with Topic 260 to recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. Convertible instruments with embedded conversion options that have down round features are now subject to the specialized guidance for contingent beneficial conversion features (in Subtopic 470-20, Debt—Debt with Conversion and Other Options), including related EPS guidance (in Topic 260). The amendments in Part II of this update recharacterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the codification, to a scope exception.

Those amendments do not have an accounting effect. The amendments in Part I of this update became effective the Company on June 1, 2019. The adoption ~~is permitted, including adoption~~of ASU No. 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815) did not have a material effect on the Company’s financial statements.

On June 1, 2018, the Company adopted ASU 2017-11 and accordingly reclassified the fair value of the reset provisions embedded in ~~any interim period. The Company is currently assessing~~convertible notes payable and certain warrants with embedded anti-dilutive provisions from liability to equity in the ~~impact that this standard will have on any awards that are modified once this standard is adopted.~~aggregate amount of $1,265,751.

There are various other updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to a have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

The Company had a security deposit in the amount of $0 and $50,000 at May 31, 2018 and 2017, respectively. This amount consisted of a deposit to secure office and warehouse space. In August of 2017, the Company received a demand letter from the landlord requesting the forfeiture of the $50,000 security deposit, $10,000 in expenses, $15,699 in remaining rent due under the lease agreement and $30,000 to buy out the remaining amounts due under the lease; during the year ended May 31,On June 27, 2018, the Company ~~wrote-off~~closed on the ~~security deposit in the amount~~purchase of ~~$50,000.~~

~~Property, plant and equipment consisted~~all of the ~~following at May 31, 2018 and 2017.~~

~~Depreciation expense totaled $890 and $892 for the years ended May 31, 2018 and 2017, respectively.~~

~~On December 4, 2017, the Company and~~membership interests in Alternative Solutions ~~LLC (“~~and its three operating subsidiaries (collectively, the “Oasis LLCs”) from the members of such entities (other than Alternative ~~Solutions”) entered into~~Solutions). The Oasis LLCs operate a fully integrated cannabis business in Las Vegas, Nevada, including a grow; extraction, conversion and processing facility; and a retail dispensary. The closing occurred pursuant to a Membership Interest Purchase Agreement (the “Acquisition Agreement”) ~~for~~entered into between the Company and Alternative Solutions on December 4, 2017, as amended. Pursuant to ~~acquire~~ the ~~outstanding equity~~Acquisition Agreement, the Company initially contemplated acquiring all of the membership interests in ~~three subsidiaries (collectively,~~ the ~~“Oasis LLCs”), Serenity Wellness Center LLC d/b/a/~~ Oasis ~~Medical Cannabis, Serenity Wellness Growers LLC, and Serenity Wellness Products LLC,~~LLCs from Alternative Solutions. Just prior to closing, the parties agreed that the Company would instead acquire all of the membership interests in Alternative Solutions, the parent of the Oasis LLCs, from its members, and the membership interests in the Oasis LLCs owned by members other than Alternative Solutions. The revised structure of the transaction is referenced in the Oasis Note, which modified the Acquisition Agreement.

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~~The closing consideration that~~which approval was received. On June 27, 2018, the Company ~~must pay~~made the payments to indirectly acquire the remaining 90% of the ~~subsidiaries, is~~Oasis LLCs, which were equal to cash in the amount of ~~$6,200,000,~~$5,995,543, a $4.0 million promissory note due in December 2019 (see note 16), (the “Oasis Note”), and ~~$6,000,000 in~~22,058,823 shares of its common stock (see note 18), (the “Purchase Price Shares”) (collectively, the ~~Company’s common stock.~~“Closing Consideration”). The cash payment of $5,995,543 was less than the $6,200,000 payment originally contemplated because the Company assumed an additional $204,457 of liabilities. The Company used the proceeds of a Canadian private securities offering to fund the cash portion of the Closing Consideration (see note 18). The Company then applied for regulatory approval to own the additional 90% in membership interests in the Oasis LLCs, which it received on December 12, 2018. On August 14, 2019, the Company made a prepayment in the amount of $2,500,000, which, along with certain legal fees and other costs in the aggregate amount of $138,784, was applied to the amount due under the $4.0 million promissory note. The Company repaid the balance due under the Oasis Note on December 31, 2019.

The number of ~~shares shall~~Purchase Price Shares was equal ~~$6,000,000 divided by~~to 80% of the ~~lower of $1.00 or the conversion~~offering price ~~to receive one share~~ of the Company’s common stock in its ~~next~~last equity offering, ~~that it commences in 2018 that exceeds $6 million, multiplied by 80%.~~which price was $0.34 per share. The ~~promissory note will be~~Oasis Note is secured by a first priority security interest over the membership interests in Alternative Solutions and the Oasis LLCs, as well as by the assets ~~of each~~ of the Oasis ~~LLCs, including the Company’s 10% equity interest in the three subsidiaries, and the~~LLCs. The Company ~~shall deliver to Alternative Solutions~~also delivered a confession of judgment to a representative of the sellers that will become effective, in general, if the ~~event of any event of default~~Company defaults under the ~~promissory note.~~Oasis Note.

~~Assuming~~A claim was made that Oasis owed certain amounts to a consultant at the ~~Company closes~~acquisition date; Oasis disputed this claim. This claim was accrued on the ~~acquisition, in~~Company’s balance sheet as of May ~~2020, Alternative Solutions will be~~31, 2019, and was resolved during the year ended May 31, 2020.

The sellers were also entitled to a $1,000,000 payment from the Company on May 30, 2020 if the ~~existing dispensary operated by an~~ Oasis ~~LLC has~~LLCs maintained an average revenue of $20,000 per day during the 2019 calendar year. The fair value of this contingent consideration was $678,111 at the acquisition date as determined by the Company’s outside valuation consultants. At May 31, 2019, the Company increased the value of this contingent consideration to $1,000,000 and charged the amount of $321,889 to operations during the year ended May 31, 2019. This amount was recorded as a contingent liability on the Company’s balance sheet at May 31, 2019.

The full amount of the bonus payment was earned, and on May 27, 2020, the Company made a payment in the amount of $850,000 to the sellers. The Company deposited the balance due to sellers of $150,000 with an escrow agent to hold pending the outcome of a tax audit. During the year ended May 31, 2020, the State of Nevada notified the Oasis LLCs that it would be conducting a tax audit for periods both before and after the closing of the sale ~~assignment, transfer, pledge~~to CLS. The Oasis LLCs have not yet received the demand from the State of Nevada with the precise amount due and the amount escrowed is the Company’s best estimate of the pre-closing tax liability. If the ultimate tax liability is less than $150,000, the balance of the escrowed amount will be paid to sellers. As of May 31, 2020, the $150,000 remains a liability on the Company’s balance sheet and $150,0000 in recorded in an escrow account in the asset section of the Company’s balance sheet.

The acquisition date estimated fair value of the consideration transferred totaled $27,975,650, which consisted of the following:

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The above estimated fair value of the intangible assets is based on a preliminary purchase price allocation prepared by a third party valuation expert. During the preliminary purchase price allocation period, which may be up to one year from the business combination date, the Company may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. After the preliminary purchase price allocation period, the Company may record adjustments to assets acquired or liabilities assumed subsequent to the purchase price allocation period in its operating results in the period in which the adjustments were determined. The Company assessed these intangible assets as of May 31, 2020 for purposes of determining if an impairment exists as set forth in ASC 350 – Intangibles – Goodwill and Other and ASC 360 – Property Plant and Equipment. Pursuant to ASC 360, the Company recorded an impairment of goodwill in the amount of $25,185,003 based upon the difference between the carrying value of $25,742,899 and the fair value $557,896. Fair value was based upon the price of the Company’s common stock at May 31, 2020 of $0.06 per share. (see note 12). At May 31, 2020, the net amount of goodwill on the Company’s balance sheet was $557,896.

The Company recognized revenue from the Oasis LLCs in the amount of $11,917,629 and $8,459,048 for the years ended May 31, 2020 and 2019, respectively.

The following table sets forth the unaudited pro forma results of the Company as if the acquisition of the Oasis LLCs was effective on June 1, 2018. These combined results are not necessarily indicative of the results that may have been achieved had the companies always been combined.

On October 31, 2018, the Company, CLS Massachusetts, and IGH, which converted to a for-profit corporation on November 6, 2018 (the “Conversion”), entered into the IGH Option Agreement. Under the terms of the IGH Option Agreement, CLS Massachusetts has an exclusive option to acquire all of the outstanding capital stock of IGH (the “IGH Option”) during the period beginning on the earlier of the date that is one year after the effective date of the Conversion and December 1, 2019, and ending on the date that is 60 days after such date (the “Option Period”). If CLS Massachusetts exercises the IGH Option, the Company, a wholly-owned subsidiary of the Company and IGH will enter into the IGH Merger Agreement (the form of which has been agreed to by the parties). At the effective time of the merger contemplated by the IGH Merger Agreement, CLS Massachusetts will pay a purchase price of $47,500,000, subject to reduction as provided in the IGH Merger Agreement, payable as follows: $35 million in cash, $7.5 million in the form of a five-year promissory note, and $5 million in the form of restricted common stock of the Company, plus $2.5 million as consideration for a non-competition agreement with IGH’s President, payable in the form of a five-year promissory note.

IGH and certain IGH stockholders holding sufficient aggregate voting power to approve the transactions contemplated by the IGH Merger Agreement have entered into agreements pursuant to which such stockholders have, among other ~~disposition~~things, agreed to vote in favor of ~~any~~such transactions.

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On October 31, 2018, as consideration for the IGH Option, the Company made a loan to IGH (the “IGH Loan”), in the principal amount of $5,000,000 (the “IGH Loan Amount”), subject to the terms and conditions set forth in that certain Loan Agreement, dated as of October 31, 2018 between IGH as the borrower and the Company as the lender (the “IGH Loan Agreement”) (see note 9). The IGH Loan is evidenced by a secured promissory note of IGH (the “IGH Note”), which bears interest at the rate of 6% per annum and matures on October 31, 2021. The Company recorded interest income in the amount of $296,250 and $174,247 on the IGH Loan during the years ended May 31, 2020 and 2019, respectively. On March 1, 2020, the Company capitalized interest in the ~~Oasis LLCs~~amount of $399,453 into the principal amount due. During the year ended May 31, 2020, the Company also received payments on this note in the amount of $1,425,000, which is made up of $1,357,278 of principal and $67,722 of interest. As of May 31, 2020, the principal balance of the IGH Note was $4,042,175 and the balance of interest receivable was $3,322.

To secure the obligations of IGH to the Company under the IGH Loan Agreement and the IGH Note, the Company and IGH entered into a Security Agreement dated as of October 31, 2018 (the “IGH Security Agreement”), pursuant to which IGH granted to the Company a first priority lien on and security interest in all personal property of IGH.

If the Company does not exercise the IGH Option on or ~~Alternative Solutions~~prior to the date that is ~~ineffective unless approved~~30 days following the end of the Option Period, the IGH Loan Amount will be reduced to $2,500,000 as a break-up fee (the “Break-Up Fee”), except in the event of a Purchase Exception (as defined in the IGH Option Agreement), in which case the Break-Up Fee will not apply and there will be no reduction to the Loan Amount.

On August 26, 2019, the parties amended the IGH Option to, among other things, extend the Option Period and delay closing until January 2020. By letter agreement dated January 31, 2020, the Company, CLS Massachusetts and IGH extended the IGH Option Agreement to February 4, 2020. On February 4, 2020, CLS Massachusetts exercised the IGH Option. By letter dated February 26, 2020, the Company informed IGH that as a result of its breaches of the IGH Option, which remained uncured, an event of default had occurred under the IGH Note. The Company advised IGH that it was electing to cause the IGH Note to bear interest at the default rate of 15% per annum effective February 26, 2020 and to accelerate all amounts due under the Note. This dispute, including whether IGH breached the IGH Option and whether CLS is entitled to collect default interest, is now in litigation.

On March 3, 2020, the Company filed a claim for declaratory relief, among other things, requesting the court declare that CLS Massachusetts had validly exercised the IGH Option and instruct IGH to comply with its diligence requests and ultimately execute a merger agreement with CLS and CLS Massachusetts. The dispute regarding whether CLS Massachusetts properly exercised the IGH Option arose after CLS Massachusetts delivered a notice of exercise to IGH and IGH subsequently asserted that CLS Massachusetts’ exercise was invalid. CLS and CLS Massachusetts intend to pursue this suit vigorously and believe that their claims are meritorious, however, there can be no assurance as to the ultimate outcome of this matter.

On January 29, 2019, the Company made a line of credit loan to CannAssist in the principal amount of up to $500,000, subject to the terms and conditions set forth in the CannAssist Loan Agreement. Any draws on the line of credit in excess of $150,000 will only be made in the sole discretion of the Company. The loan is evidenced by the CannAssist Note, which bears interest at the rate of 8% per annum and is personally guaranteed by the two equity owners of CannAssist. On June 24, 2019, the Company advanced the sum of $175,000 to CannAssist, increasing the balance due to the Company under the CannAssist Note to $325,000. The Company recorded interest income in the amount of $14,673 and $4,011 on the loan during the years ended May 31, 2020 and 2019, respectively.

To secure the obligations of CannAssist to the Company under the CannAssist Loan Agreement and the CannAssist Note, the Company and CannAssist entered into a security agreement dated as of January 29, 2019, pursuant to which CannAssist granted to the Company a first priority lien on and security interest in all personal property of CannAssist.

On March 11, 2019, the Company, through its wholly-owned subsidiary, CLS Massachusetts, entered into the CannAssist Purchase Agreement with CannAssist, each of the members of CannAssist, and David Noble, as the members’ representative.

On August 26, 2019, the Company and CannAssist amended the CannAssist Note. Pursuant to the amendment, there will be no additional advances under the CannAssist Note beyond the $150,000 advanced on February 4, 2019, and the $175,000 advanced on June 24, 2019. In addition, the CannAssist Note shall become due and payable in full on or before February 28, 2020. Finally, the Company and CannAssist terminated the CannAssist Purchase Agreement.

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On December 23, 2019, the Company received payment in full on the CannAssist loan in the amount of $342,567, which comprises $325,000 of principal and $17,567 of interest.

Accounts receivable was $161,409 and $163,571 at May 31, 2020 and 2019, respectively. The Company had bad debt expense of $108,392 during the year ended May 31, 2020, including $101,512 in connection with a receivable from a credit card company. The Company had bad debt expense of $0 during the prior period.

Prepaid expenses and other current assets consisted of the following at May 31, 2020 and 2019:

Deposits consist of amounts paid in advance for the acquisition of property and equipment. Prepaid expenses consist primarily of annual license fees charged by the State of ~~Nevada~~Nevada; these fees are paid in advance, and ~~any municipality in which~~amortized over the ~~three subsidiaries’ operations is licensed.~~one year term of the licenses.

~~As of~~During the year ended May 31, ~~2018,~~2020, the Company ~~had not yet received regulatory approval to own the 10% interest~~applied deposits in ~~Oasis LLCs. As a result,~~ the amount ~~that has been paid by~~of $281,966 to the ~~Company is being held by Alternative Solutions.~~acquisition of fixed assets.

Inventory, consisting of material, overhead, labor, and manufacturing overhead, is stated at the lower of cost (first-in, first-out) or market, and consists of the following:

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.

During the year ended May 31, 2015, the Company loaned $500,000 pursuant to a promissory note (the ~~“Note”~~“PRH Note”) to Picture Rock Holdings, LLC, a Colorado limited liability company (“PRH”). Pursuant to the PRH Note, as amended by the parties effective June 30, 2015, October 31, 2015, April 11, 2016, and May 31, 2016, PRH ~~will~~was expected to repay the principal due under the PRH Note in twenty (20) equal quarterly installments of Twenty Five Thousand Dollars ($25,000) commencing in the month following the month in which PRH ~~commences~~commenced generating revenue at the grow facility, which commencement was originally anticipated to occur in the first quarter of 2017, and continuing until paid in full. The Company ~~is currently unable~~suspended its plans to ~~estimate~~operate in Colorado due to regulatory delays and has not yet determined when it will ~~commence generating revenues at the grow facility.~~pursue them again. Interest will accrue on the unpaid principal balance of the PRH Note at the rate of twelve percent (12%) per annum and will be paid quarterly in arrears commencing after such initial payment and continuing until paid in full. All outstanding principal and any accumulated unpaid interest due under the PRH Note is due and payable on the five-year anniversary of the initial payment thereunder. In the event of default as defined in the agreements underlying the PRH Note, all amounts under the PRH Note shall be due and payable at once. During the year ended May 31, 2015, the Company recorded an impairment related to the note receivable in the amount of $500,000. ~~This receivable is recorded on the balance sheet as of May 31, 2017 in the amount of $0, net of allowance in the amount of $500,000.~~

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During the year ended May 31, 2018, the Company received a payment of $50,000 on the PRH Note. As a result, the Company has reduced the impairment of the ~~note~~PRH Note by $50,000 to reflect this payment. The receivable is recorded on the balance sheet as of May 31, ~~2018~~2020 in the amount of $0, net of allowance in the amount of $450,000.

On October 31, 2018, in connection with an option to purchase transaction (see note 5), the Company loaned $5,000,000 pursuant to the IGH Note to IGH; on November 6, 2018, IGH converted to a for-profit corporation. The IGH Note bears interest at the rate of 6% per annum. On March 1, 2020 (the “Initial Payment Date”), all accrued interest shall be added to the outstanding principal due hereunder and such amount shall be payable in eight equal quarterly installments, commencing on the Initial Payment Date, together with interest accruing after the Initial Payment Date. The IGH Note shall mature and all outstanding principal, accrued interest and any other amounts due hereunder, shall become due and payable in full on the third anniversary of the IGH Note. The IGH Note was issued in connection with a loan agreement and security agreement between the Company and IGH, and the IGH Option Agreement between the Company and IGH, among others, in both cases dated as of October 31, 2018 and the other IGH Loan Documents, and is secured by the collateral described in the IGH Loan Documents and by such other collateral as may in the future be granted to the Company to secure the IGH Note. During the years ended May 31, 2020 and 2019, the Company recorded interest income in the amounts of $296,250 and $174,247, respectively, in connection with the IGH Note. During the years ended May 31, 2020 and 2019, the Company capitalized interest in the amount of $399,453 and $0, respectively, on the IGH Note.

By letter dated February 26, 2020, the Company informed IGH that as a result of its breaches of the IGH Option, which remained uncured, an event of default had occurred under the IGH Note. The Company advised IGH that it was electing to cause the IGH Note to bear interest at the default rate of 15% per annum effective February 26, 2020 and to accelerate all amounts due under the Note. This dispute, including whether IGH breached the IGH Option and whether CLS is entitled to collect default interest, is now in litigation.

During the year ended May 31, 2020, the Company received payments on the IGH Note in the amount of $1,425,000. The Company applied these payments as follows; $1,357,278 as a repayment of principal and $67,722 as a repayment of accrued interest. As a result, at May 31, 2020, principal in the amount of $4,042,175 and interest receivable in the amount of $3,322 due under the IGH Note were classified as current assets on the Company’s balance sheet.

On January 29, 2019, the Company made a line of credit loan to CannAssist pursuant to the CannAssist Note, in the principal amount of up to $500,000. The loan bears interest at the rate of 8% per annum and is personally guaranteed by the two equity owners of CannAssist. Payments on the loan were to commence on July 1, 2019 and the CannAssist Note was to mature on December 1, 2019. On August 26, 2019, the Company and CannAssist amended the CannAssist Note. Pursuant to the amendment, among other things, the CannAssist Note shall become due and payable in full on or before February 28, 2020. During the years ended May 31, 2020 and 2019, the Company recorded interest income in the amount of $14,673 and $4,011 on the CannAssist Note. On December 23, 2019, the Company received payment in full on the CannAssist loan in the amount of $342,567, which comprises $325,000 of principal and $17,567 of interest. At May 31, 2020, the principal amount of $0 and interest receivable in the amount of $0 due under the CannAssist Note were classified as current assets on the Company’s balance sheet.

Property, plant and equipment consisted of the following at May 31, 2020 and 2019:

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The Company also made payments in the amount of $1,923,338 and $1,037,262 for property and equipment during the years ended May 31, 2020 and 2019, respectively; the Company also reclassified from deposits to property, plant and equipment the amounts of $281,966 and $0 during the years ended May 31, 2020 and 2019, respectively. During the year ended May 31, 2020, the Company disposed of fixed assets a net book value of $16,817 and recorded a loss on disposal of fixed assets in that amount; there was no such comparable transaction during the prior period. During the year ended May 31, 2019, the Company also acquired property, plant, and equipment with an aggregate fair value of $933,142 with the acquisition of Alternative Solutions. See note 4.

Depreciation expense totaled $323,279 and $173,277 for the years ended May 31, 2020 and 2019, respectively.

NOTE 11 – RIGHT TO USE ASSETS AND LIABILITIES – OPERATING LEASES

The Company has operating leases for offices and warehouses. The Company’s leases have remaining lease terms of 1 year to 4 years, some of which include options to extend.

The Company’s lease expense for the year ended May 31, 2020 was entirely comprised of operating leases and amounted to $420,953. The Company’s right of use (“ROU”) asset amortization for the year ended May 31, 2020 was $361,404. The difference between the lease expense and the associated ROU asset amortization consists of interest.

The Company has recorded total right to use assets of $2,703,821 and liabilities in the amount of $2,675,310 through May 31, 2020, resulting in a gain in the amount of $28,511. During the year ended May 31, 2020, the Company entered into agreements to amend certain of its operating leases; the lease of the dispensary and administrative offices at 1800 Industrial Road were extended from June 30, 2023 to February 28, 2030, and the lease of the offices at 1718 Industrial Road was extended from August 31, 2020 to August 31, 2022.

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Total amortization expense charged to operations for the years ended May 31, 2020 and 2019 was $125,913 and $115,074, respectively.

The Company recorded goodwill in the amount of $25,742,899 in connection with the acquisition of Alternative Solutions on June 27, 2018 (see note 4).

The Company assessed its intangible assets as of May 31, 2020 for purposes of determining if an impairment exists as set forth in ASC 350 – Intangibles – Goodwill and Other and ASC 360 – Property Plant and Equipment. Pursuant to ASC 360, the Company recorded an impairment of goodwill in the amount of $25,185,003 based upon the difference between the carrying value of $25,742,899 and fair value $557,896. Fair value was based upon the price of the Company’s common stock at May 31, 2020 of $0.06 per share. (see note 12). At May 31, 2020, the net amount of goodwill on the Company’s balance sheet was $557,896

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Accounts payable and accrued liabilities consisted of the following at May 31, ~~2018~~2020 and ~~May 31, 2017.~~2019:

NOTE 1016 – ~~RELATED PARTY TRANSACTIONS~~ NOTES PAYABLE AND CONVERTIBLE NOTES PAYABLE

As of May 31, 2018 and 2017, the Company owed the amount of $37,500 and $37,500, respectively, to Jeffrey Binder, its Chief Executive Officer, for accrued salary. For the twelve months ended May 31, 2018, unpaid accrued salary in the amount of $150,000~~was transferred to a convertible promissory note due to Mr. Binder.~~

~~As of May 31, 2018 and 2017, the Company owed the amount of $29,167 and $0, respectively, to David Lamadrid, its President and Chief Financial Officer.~~

~~As of May 31, 2018 and 2017, the Company had accrued salary due to Alan Bonsett, a former officer of the Company prior to his October 1, 2017 separation, in the amount of $37,500 and $0, respectively.~~

~~As of May 31, 2018 and 2017, the Company had accrued salary due to Michael Abrams, a former officer of the Company prior to his September 1, 2015 termination, in the amount of $16,250.~~

As of May 31, 2018 and 2017, the Company had related party payables in the amount of $17,930 due to officers and directors related to expenses paid on behalf of the Company. The Company imputed interest at the rate of 6% per annum on these liabilities, and recorded imputed interest expense on these liabilities in the amounts of $1,076 and $1,075 during the twelve months ended May 31, 2018 and 2017, respectively. These interest accruals were charged to additional paid-in capital.

On March 12, 2018, the Company received conversion notices from Jeffrey I. Binder, Frank Koretsky, Newcan Investment Partners LLC and CLS CO 2016, LLC (collectively, the “Insiders”). Pursuant to the terms of the conversion notices, the following amounts of principal and accrued interest were converted to common stock of the Company:

As of May 31, 2017, the Company owed $37,500 to Jeffrey Binder, its President and Chief Executive Officer, for accrued salary. In July 2016, $250,000 was transferred from accrued salary to a convertible promissory note due to Mr. Binder; in February 2017, an additional $112,500 was transferred from accrued salary to a convertible promissory note due to Mr. Binder.

~~As of May 31, 2017, the Company had accrued salary due to Michael Abrams, a former officer of the Company, prior to his September 1, 2015 termination, in the amount of $16,250.~~

~~F-13~~F-23

Table of Contents

As of May 31, 2017, the Company had amounts due to related parties of $17,930, representing expenses paid by officers and directors on behalf of the Company. The Company accrued interest at the rate of 6% per annum on these liabilities, and recorded interest expense on these liabilities in the amounts of $1,075 during the year ended May 31, 2017. This interest accrual was charged to additional paid-in capital.Convertible Notes Payable

On May 31, 2017, the Company entered into the Omnibus Loan Amendment Agreement (the “Omnibus Loan Agreement”) with Jeffrey I. Binder, Frank Koretsky, Newcan Investment Partners LLC and CLS CO 2016, LLC (collectively, the “Insiders”). Pursuant to the Omnibus Loan Agreement, effective May 31, 2017, the following amounts of principal and accrued interest were converted to common stock of the Company:

At May 31, 2018, the Company had $143,887 in principal and $5,142 in accrued interest of convertible notes payable outstanding to Jeffrey Binder, an officer and director, David Lamadrid, an officer, and to Newcan Investment Partners, LLC, an entity wholly owned by Frank Koretsky, a director.

On February 7, 2018, the Company issued a note payable to Todd Blatt in the amount of $210,000. This note accrues interest at a rate of 6% per annum and is due on February 7, 2019. During the year ended May 31, 2018, the Company accrued interest in the amount of $3,901 on this note. As of May 31, 2018, the outstanding balance of this note is $210,000

On February 7, 2018, the Company issued a note payable to AJG Group in the amount of $200,000. This note accrues interest at a rate of 6% per annum and is due on February 7, 2019. During the year ended May 31, 2018, the Company made a payment of $100,000 on this note. During the year ended May 31, 2018, the Company accrued interest in the amount of $2,696 on this note. As of May 31, 2018, the outstanding balance of this note is $100,000.

On May 31, 2017, the Company entered into an Omnibus Loan Amendment Agreement (the “Omnibus Loan Amendment”) with Jeffrey I. Binder, Frank Koretsky, Newcan Investment Partners LLC and CLS CO 2016, LLC (collectively, the “Insiders”). Pursuant to the Omnibus Loan Amendment, the Company agreed with the Insiders to amend certain terms of loans the Insiders made to the Company for working capital purposes, which loans were initially demand loans, and, except for loans made in 2017, were later memorialized as convertible loans (the “Insider Loans”), in exchange for the agreement of the Insiders to convert all Insider Loans where funds were advanced prior to January 1, 2017, which totaled $2,537,750, plus $166,490 of accrued interest thereon, into an aggregate of 10,816,960 shares of the Company’s common stock at $0.25 per share, and forego the issuance of warrants to purchase the Company’s common stock upon conversion. This resulted in the issuance of an additional 7,609,910 shares compared to the original number of shares issuable upon conversion of the Insider Loans prior to the Omnibus Loan Agreement. The Company valued the shares at $0.125, which was the market price of the Company’s stock at the conversion date, and charged the amount of $951,239 to loss on modification of debt during the twelve months ended May 31, 2017. The Company entered into the Omnibus Loan Amendment in order to ease the debt burden on the Company and prevent it from defaulting on the Insider Loans.

~~F-14~~F-24

Table of Contents

Pursuant to the Omnibus Loan Amendment, the following amendments were made to the Insider Loans: (a) the Company reduced the conversion price on the Insider Loans from between $0.75 and $1.07 per share of common stock to $0.25 per share of common stock, in those cases where the conversion price was greater than $0.25, which reduced conversion price exceeded the closing price of the common stock during the three months prior to the Omnibus Loan Amendment; (b) the Company deleted the requirement to issue warrants to purchase the Company’s common stock upon conversion of the Insider Loans; (c) the Company amended one Insider Loan to permit conversion of only the portion of the Insider Loan related to services that were provided to it prior to January 1, 2017; and (d) the Company amended the terms of the Insider Loans where funds were advanced on or after January 1, 2017, which Insider Loans were not converted into the Company’s common stock, to provide for, where not already the case, a 10% interest rate per annum, a $0.25 conversion price per share of common stock, and the deletion of the requirement that the Company issue warrants to purchase its common stock upon conversion of such Insider Loans.

On January 10, 2018, effective December 1, 2017, the Company entered into an Omnibus Amendment to Convertible Notes (the “Second Omnibus Loan Agreement”) with Jeffrey I. Binder, an officer and director of the Company, and Newcan Investment Partners LLC, an entity owned by Frank Koretsky, a director of the Company. The Second Omnibus Loan Agreement provides that the conversion price of all outstanding convertible promissory notes issued to either Mr. Binder or Newcan Investment Partners, LLC as of the date of the Agreement would be increased from $0.25 to $0.3125 per share of common stock. The remaining terms of such notes remain unchanged.

On March 12, 2018, the Company received conversion notices from the Insiders. The Company converted a total of $1,618,446, of which $1,421,356 was principal and $197,090 was accrued interest, of related party notes payable into 5,179,028 shares of common stock (see note 11).

~~The following tables summarize the Company’s loan balances at May 31, 2018 and 2017:~~

~~F-15~~F-25

Table of Contents

~~F-16~~F-26

Table of Contents

Convertible Notes Payable:

May 31, 2018

May 31, 2017

Unsecured convertible note issued to Jeffrey Binder, an officer and director of the Company, dated April 8, 2016 and due April 1, 2019 (the “Binder Convertible Note 2. This note bears interest at the rate of 6% per annum through February 29, 2017 and 10% per annum thereafter. No payments are required until April 1, 2017, at which time all accrued interest becomes due and payable. Commencing on July 1, 2017, the first of eight principal payments in the amount of $5,313 will be due; subsequent principal payments will due on the first day of each October, January, April, and July until paid in full. This note and accrued interest under the note may be converted, in whole or in part, into one “Unit” for each $1.07 converted, with each Unit consisting of one (1) share of common stock and a five-year warrant to purchase (1) share of common stock at a price of $1.07 per share. The Company recognized a discount of $37,840 on the value of the beneficial conversion feature at the time of issuance.

Pursuant to the Omnibus Loan Agreement, on May 31, 2017, (i) the conversion rate of the Binder Convertible Note 2 was changed to $0.25 per share, and principal and accrued interest in the amounts of $42,500 and $3,583, respectively, were converted into a total of 184,332 shares of common stock; and (ii) the requirement to issue warrants upon conversion was deleted. During the twelve months ended May 31, 2017, the remaining discount on the Binder Convertible Note 2 in the amount of $35,260 was charged to operations, and the Company accrued interest in the amount of $4,287.

Unsecured convertible note issued to Jeffrey Binder, an officer and director of the Company, dated July 20, 2016 and due July 1, 2019 (the “Binder Convertible Note 3”). This note bears interest at the rate of 10% per annum. No payments are required until July 1, 2017, at which time all accrued interest becomes due and payable. Commencing on October 1, 2017, the first of eight principal payments in the amount of $32,844 will become due; subsequent principal payments will become due on the first day of each, January, April, July and October until paid in full. This note and accrued interest under the note may be converted, in whole or in part, into one “Unit” for each $1.07 converted, with each Unit consisting of one (1) share of common stock and a five-year warrant to purchase (1) share of common stock at a price of $1.07 per share.

Pursuant to the Omnibus Loan Agreement, on May 31, 2017, (i) the conversion rate of the Binder Convertible Note 3 was changed to $0.25 per share, and principal and accrued interest in the amounts of $262,750 and $11,972, respectively, were converted into a total of 1,098,888 shares of common stock; and (ii) the requirement to issue warrants upon conversion was deleted. During the twelve months ended May 31, 2017, the Company accrued interest in the amount of $22,742 on the Binder Convertible Note 3.

Unsecured convertible note issued to Jeffrey Binder, an officer and director of the Company, dated March 31, 2017 (the “Binder Convertible Note 4”). The Binder Convertible Note 4 was funded with the conversion of $112,500 of unpaid accrued salary due to Mr. Binder and $47,000 of advances Mr. Binder made to the Company under the Binder Funding Notes. This note bears interest at the rate of 10% per annum. No interest payments are required until April 1, 2018, at which time all accrued interest becomes due and payable. Commencing on July 1, 2018, the first of eight principal payments in the amount of $19,938 will become due; subsequent principal payments will become due on the first day of each October, January, April, and July until paid in full. This note and accrued interest under the note may be converted, in whole or in part, into one “Unit” for each $0.25 converted, with each Unit consisting of one (1) share of common stock and a five-year warrant to purchase (1) share of common stock at a price of $0.25 per share.

Pursuant to the Omnibus Loan Agreement, on May 31, 2017, the requirement to issue warrants upon conversion was deleted, and principal in the amount of $87,500 was converted into a total of 350,000 shares of common stock. The remaining principal balance of $72,000 will be due in eight quarterly payments in the amount of $9,000 commencing July 1, 2018; subsequent principal payments will become due on the first day of each October, January, April, and July until paid in full. During the twelve months ended May 31, 2017, the Company accrued interest in the amount of $2,666 on the Binder Convertible Note 4.

Effective December 1, 2017, pursuant to the Second Omnibus Loan Amendment, the conversion price was increased from $0.25 per share to $0.3125 per share and a discount was recorded in the amount of $29,376 related to the revaluation of the beneficial conversion feature of the Binder Convertible Note 4; this discount was amortized to interest expense during the year ended May 31, 2018.

During the twelve months ended May 31, 2018 and 2017, interest in the amount of $5,622 and $2,666 was accrued on Binder Convertible Note 4, respectively.

During the year ended May 31, 2018, the Binder Convertible Note 4 in the amount of $81,000, of which $72,000 was principal and $9,000 was accrued interest, was converted into 259,200 shares of common stock.

$
-

$
72,000

~~F-17~~

~~Table of Contents~~

	~~May 31, 2018~~		~~May 31, 2017~~

Unsecured convertible note issued to Newcan, an entity owned by Frank Koretsky, a director of the Company, dated March 31, 2017 (the “Newcan Convertible Note 1”). The Newcan Convertible Note 1 was funded with the conversion of $120,000 of advances made to the Company under the Newcan Funding Notes. This note bears interest at the rate of 10% per annum. No interest payments are required until April 1, 2018, at which time all accrued interest becomes due and payable. Commencing on July 1, 2018, the first of eight principal payments in the amount of $15,000 will become due; subsequent principal payments will become due on the first day of each October, January, April, and July until paid in full. This note and accrued interest under the note may be converted, in whole or in part, into one “Unit” for each $0.25 converted, with each Unit consisting of one (1) share of common stock and a five-year warrant to purchase (1) share of common stock at a price of $0.25 per share. During the twelve months ended May 31, 2017, the Company accrued interest in the amount of $2,005 on the Koretsky Convertible Note 4. Pursuant to the Omnibus Loan Agreement, on May 31, 2017, the requirement to issue warrants upon conversion was deleted. Effective December 1, 2017, pursuant to the Second Omnibus Loan Amendment, the conversion price was increased from $0.25 per share to $0.3125 per share and a discount was recorded in the amount of $48,960 related to the revaluation of the beneficial conversion feature of the Newcan Convertible Note 1; this discount was amortized during the year ended May 31, 2018. ~~During the twelve months ended May 31, 2018 and 2017, interest in the amount of $9,370 and $2,005 was accrued on Newcan Convertible Note 1, respectively.~~ During the year ended May 31, 2018, the Newcan Convertible Note 1 in the amount of $133,496, of which $120,000 was principal and $13,496 was accrued interest, was converted into 427,187 shares of common stock.		-		~~120,000~~

Unsecured convertible note issued to Jeffrey Binder, an officer and director of the Company, dated August 23, 2017 in the original principal amount of $115,050 (the “Binder Convertible Note 5”). The Binder Convertible Note 5 was funded with the conversion of $37,500 of unpaid accrued salary due to Mr. Binder and $77,550 of advances Mr. Binder made to the Company under the Binder Funding Notes. This note bears interest at the rate of 10% per annum. No interest payments are required until October 1, 2018, at which time all accrued interest becomes due and payable. Commencing on January 2, 2019, the first of eight principal payments in the amount of $14,381 will become due; subsequent principal payments will become due on the first day of each April, July, October, and January until paid in full. This note and accrued interest under the note may be converted, in whole or in part, into one share of common stock for each $0.25 converted. The Company recognized a discount of $46,020 on the Binder Convertible Note 5 related to the value of the beneficial conversion feature at the time of issuance; this discount was amortized during the twelve months ended May 31, 2018. Effective December 1, 2017, pursuant to the Second Omnibus Loan Amendment, the conversion price was increased from $0.25 per share to $0.3125 per share, and the discount balance in the amount of $41,859 was charged to interest expense. A new discount was recorded in the amount of $46,940 related to the value of the repriced conversion feature of Binder Convertible Note 5; this discount was amortized to interest expense during the twelve months ended May 31, 2018. During the twelve months ended May 31, 2018 and 2017, interest in the amount of $6,336 and $0 was accrued on Binder Convertible Note 5, respectively, and 2,246 of accrued interest was transferred from the Binder Funding Notes. During the year ended May 31, 2018, the Binder Convertible Note 5 in the amount of $123,632, of which $115,050 was principal and $8,582 was accrued interest, was converted into 395,622 shares of common stock.		-		-

~~F-18~~

~~Table of Contents~~

	~~May 31, 2018~~		~~May 31, 2017~~

Unsecured convertible note issued to Jeffrey Binder, an officer and director of the Company, dated August 23, 2017 in the original principal amount of $72,767 (the “Binder Convertible Note 6”). The Binder Convertible Note 6 was funded with the conversion of $25,000 of unpaid accrued salary due to Mr. Binder and $47,767 of advances Mr. Binder made to the Company under the Binder Funding Notes. This note bears interest at the rate of 10% per annum. No interest payments are required until October 1, 2018, at which time all accrued interest becomes due and payable. Commencing on January 2, 2019, the first of eight principal payments in the amount of $9,096 will become due; subsequent principal payments will become due on the first day of each April, July, October, and January until paid in full. This note and accrued interest under the note may be converted, in whole or in part, into one share of common stock for each $0.25 converted. The Company recognized a discount of $29,107 on the Binder Convertible Note 6 related to the value of the beneficial conversion feature at the time of issuance; this discount was amortized during the twelve months ended May 31, 2018. Effective December 1, 2017, pursuant to the Second Omnibus Loan Amendment, the conversion price was increased from $0.25 per share to $0.3125 per share, and the discount balance in the amount of $26,475 was charged to interest expense. A new discount was recorded in the amount of $29,689 related to the value of the repriced conversion feature of Binder Convertible Note 6; this discount was amortized to interest expense during the twelve months ended May 31, 2018. During the twelve months ended May 31, 2018 and 2017, interest in the amount of $4,007 and $0 was accrued on Binder Convertible Note 6, respectively, and 1,384 of accrued interest was transferred from the Binder Funding Notes. During the year ended May 31, 2018, the Binder Convertible Note 6 in the amount of $78,158, of which $72,767 was principal and $5,391 was accrued interest, was converted into 250,160 shares of common stock.		-		-

Unsecured convertible note issued to Newcan, an entity owned by Frank Koretsky, a director of the Company, dated August 23, 2017 in the original principal amount of $621,658 (the “Newcan Convertible Note 4”). The Newcan Convertible Note 4 was funded with the conversion of $621,658 of advances Newcan made to the Company under the Newcan Funding Notes. This note bears interest at the rate of 10% per annum. No interest payments are required until October 1, 2018, at which time all accrued interest becomes due and payable. Commencing on January 2, 2019, the first of eight principal payments in the amount of $69,074 will become due; subsequent principal payments will become due on the first day of each April, July, October, and January until paid in full. This note and accrued interest under the note may be converted, in whole or in part, into one share of common stock for each $0.25 converted. The Company recognized a discount of $248,663 on the Newcan Convertible Note 4 related to the value of the beneficial conversion feature at the time of issuance. Effective December 1, 2017, pursuant to the Second Omnibus Loan Amendment, the conversion price was increased from $0.25 per share to $0.3125 per share, and the discount balance in the amount of $226,181 was charged to interest expense. A new discount was recorded in the amount of $253,636 related to the value of the repriced conversion feature of Newcan Convertible Note 4; this discount was amortized to interest expense during the twelve months ended May 31, 2018. During the twelve months ended May 31, 2018 and 2017, interest in the amount of $34,234 and $0 was accrued on Newcan Convertible Note 4, respectively, and $23,198 of accrued interest was transferred from the Newcan Funding Notes. During the year ended May 31, 2018, the Newcan Convertible Note 4 in the amount of $679,090, of which $621,658 was principal and $57,432 was accrued interest, was converted into 2,173,088 shares of common stock.		-		-

~~F-19~~

~~Table of Contents~~

	~~May 31, 2018~~		~~May 31, 2017~~

Unsecured convertible note issued to Newcan, an entity owned by Frank Koretsky, a director of the Company, dated August 23, 2017 in the original principal amount of $70,000 (the “Newcan Convertible Note 5”). The Newcan Convertible Note 5 was funded with the conversion of $70,000 of advances Newcan made to the Company under the Newcan Funding Notes. This note bears interest at the rate of 10% per annum. No interest payments are required until October 1, 2018, at which time all accrued interest becomes due and payable. Commencing on January 2, 2019, the first of eight principal payments in the amount of $8,750 will become due; subsequent principal payments will become due on the first day of each April, July, October, and January until paid in full. This note and accrued interest under the note may be converted, in whole or in part, into one share of common stock for each $0.25 converted. The Company recognized a discount of $28,000 on the Newcan Convertible Note 5 related to the value of the beneficial conversion feature at the time of issuance. Effective December 1, 2017, pursuant to the Second Omnibus Loan Amendment, the conversion price was increased from $0.25 per share to $0.3125 per share, and the discount balance in the amount of $25,468 was charged to interest expense. A new discount was recorded in the amount of $28,560 related to the value of the repriced conversion feature of Newcan Convertible Note 5; this discount was amortized to interest expense during the twelve months ended May 31, 2018. During the twelve months ended May 31, 2018 and 2017, interest in the amount of $3,855 and $0 was accrued on Newcan Convertible Note 5, respectively, and $148 of accrued interest was transferred from the Newcan Funding Notes. During the year ended May 31, 2018, the Newcan Convertible Note 5 in the amount of $74,003, of which $70,000 was principal and $4,003 was accrued interest, was converted into 236,810 shares of common stock.		-		-

Unsecured convertible note issued to Newcan, an entity owned by Frank Koretsky, a director of the Company, dated October 9, 2017 in the original amount of $30,000 (the “Newcan Convertible Note 6”). The Newcan Convertible Note 6 was funded with the conversion of $30,000 of advances Newcan made to the Company under the Newcan Funding Notes. This note bears interest at the rate of 10% per annum. No interest payments are required until January 2, 2019, at which time all accrued interest becomes due and payable. Commencing on April 1, 2019, the first of eight principal payments in the amount of $3,750 will become due; subsequent principal payments will become due on the first day of each July, October, January and April until paid in full. This note and accrued interest under the note may be converted, in whole or in part, into one share of common stock for each $0.25 converted. The Company recognized a discount of $15,808 on the Newcan Convertible Note 6 related to the value of the beneficial conversion feature at the time of issuance. Effective December 1, 2017, pursuant to the Second Omnibus Loan Amendment, the conversion price was increased from $0.25 per share to $0.3125 per share, and the discount balance in the amount of $11,430 was charged to interest expense. A new discount was recorded in the amount of $12,240 related to the value of the repriced conversion feature of Newcan Convertible Note 6; this discount was amortized to interest expense during the twelve months ended May 31, 2018. ~~During the twelve months ended May 31, 2018 and 2017, interest in the amount of 1,266 and $0 was accrued on Newcan Convertible Note 6, respectively.~~ During the year ended May 31, 2018, the Newcan Convertible Note 6 in the amount of $31,414, of which $30,000 was principal and $1,414 was accrued interest, was converted into 100,525 shares of common stock.		-		-

~~F-20~~

~~Table of Contents~~

	~~May 31, 2018~~		~~May 31, 2017~~

Unsecured convertible note issued to Jeffery Binder, an officer and director of the Company, dated October 9, 2017 in the original principal amount of $39,521 (the “Binder Convertible Note 7”). The Binder Convertible Note 7 was funded with the conversion of $12,500 of unpaid accrued salary due to Mr. Binder and $27,021 of advances Mr. Binder made to the Company under the Binder Funding Notes. This note bears interest at the rate of 10% per annum. No interest payments are required until January 2, 2019, at which time all accrued interest becomes due and payable. Commencing April 1, 2019, the first of eight principal payments in the amount of $4,940 will become due, subsequent payments will become due on the first day of each July, October, January and April until paid in full. This note and accrued interest under the note may be converted, in whole or in part, into one share of common stock for each $0.25 converted. The Company recognized a discount of $12,000 on the Binder Convertible Note 7 related to the value of the beneficial conversion feature at the time of issuance. Effective December 1, 2017, pursuant to the Second Omnibus Loan Amendment, the conversion price was increased from $0.25 per share to $0.3125 per share, and the discount balance in the amount of $15,058 was charged to interest expense. A new discount was recorded in the amount of $16,125 related to the value of the repriced conversion feature of Binder Convertible Note 7; this discount was amortized to interest expense during the twelve months ended May 31, 2018. ~~During the twelve months ended May 31, 2018 and 2017, interest in the amount of $1,667 and $0 was accrued on Binder Convertible Note 7, respectively.~~ During the year ended May 31, 2018, the Binder Convertible Note 7 in the amount of $41,310, of which $39,521 was principal and $1,789 was accrued interest, was converted into 132,192 shares of common stock.		-		-

Unsecured convertible note issued to Newcan, an entity owned by Frank Koretsky, a director of the Company, dated, January 5, 2018 in the original amount of $115,000 (the “Newcan Convertible Note 7”). The Newcan Convertible Note 7 was funded with the conversion of $115,000 of advances Newcan made to the Company under the Newcan Funding Notes. This note bears interest at the rate of 10% per annum. No interest payments are required until April 1, 2019, at which time all of the accrued interest becomes due and payable. Commencing on July 1, 2019, the first of eight principal payments in the amount of $14,375 will become due; subsequent principal payments will become due on the first day of each October, January, April and July until paid in full. This note and accrued interest under the note may be converted, in whole or in part, into one share of common stock for each $0.3125 converted. The Company recognized a discount of $115,000 on the Newcan Convertible Note 7 related to the value of the beneficial conversion feature at the time of issuance. During the twelve months ended May 31, 2018, the Company amortized this discount to interest expense. During the twelve months ended May 31, 2018 and 2017, interest in the amount of $2,079 and $0 was accrued on Newcan Convertible Note 7, respectively, and $1,014 of accrued interest was transferred from the Newcan Funding Notes. During the year ended May 31, 2018, the Newcan Convertible Note 7 in the amount of $118,093, of which $115,000 was principal and $3,093 was accrued interest, was converted into 377,898 shares of common stock.		-		-

~~F-21~~

~~Table of Contents~~

May 31, 2018

May 31, 2017

Unsecured convertible note issued to Jeffery Binder, an officer and director of the Company, dated January 5, 2018 in the original principal amount of $165,360 (the “Binder Convertible Note 8”). The Binder Convertible Note 8 was funded with the conversion of $37,500 of unpaid accrued salary due to Mr. Binder and $127,860 of advances Mr. Binder made to the Company under the Binder Funding Notes. This note bears interest at the rate of 10% per annum. No interest payments are required until April 1, 2019, at which time all accrued interest becomes due and payable. Commencing July 1, 2019, the first of eight principal payments in the amount of $20,670 will become due; subsequent payments will become due on the first day of each October, January, April and July until paid in full. This note and accrued interest under the note may be converted, in whole or in part, into one share of common stock for each $0.3125 converted. The Company recognized a discount of $165,360 on the Binder Convertible Note 8 related to the value of the beneficial conversion feature at the time of issuance. During the twelve months ended May 31, 2018, the Company amortized this discount to interest expense.

During the twelve months ended May 31, 2018 and 2017, interest in the amount of $2,990 and $0 was accrued on Binder Convertible Note 8, respectively, and $1,437 of accrued interest was transferred from the Binder Funding Notes.

During the year ended May 31, 2018, the Binder Convertible Note 8 in the amount of $168,787, of which $165,360 was principal and $4,427 was accrued interest, was converted into 543,318 shares of common stock.

-

-

Convertible promissory note payable to David Lamadrid (the “Lamadrid Note”) dated February 20, 2018 in the principal amount of $31,250 and bearing interest at a rate of 8% per annum. The Lamadrid Note is due eighteen months from the date of issue. Mr. Lamadrid may, at his option, convert all or a portion of the Lamadrid Note and accrued but unpaid interest into shares of common stock at a conversion price of $0.3125 per share. The Lamadrid Note also contains a reset feature, whereby, absent certain exceptions, if the Company issues equity securities at an effective price less than $0.3125 per share of common stock, the conversion price of the Lamadrid Note will be reset to such lower price. The Company recognized a discount of $31,250 on the Lamadrid Note related to the beneficial conversion feature at the time of issuance. During the twelve months ended May 31, 2018, $942 of this discount was charged to operations. During the twelve months ended May 31, 2018, the Company accrued interest in the amount of $685 on this note.

31,250

-

Unsecured convertible note issued to Jeffery Binder, an officer and director of the Company, dated April 6, 2018 in the original principal amount of $37,500 (the “Binder Convertible Note 9”). The Binder Convertible Note 9 was funded with the conversion of $37,500 of unpaid accrued salary due to Mr. Binder. This note bears interest at the rate of 10% per annum. No interest payments are required until July 1, 2019, at which time all accrued interest becomes due and payable. Commencing October 1, 2019, the first of eight principal payments in the amount of $4,688 will become due; subsequent payments will become due on the first day of each January, April, July and October until paid in full. This note and accrued interest under the note may be converted, in whole or in part, into one share of common stock for each $0.3125 converted. The Company recognized a discount of $37,500 on the Binder Convertible Note 9 related to the value of the beneficial conversion feature at the time of issuance. During the twelve months ended May 31, 2018, the Company amortized $1,890 of this discount to interest expense.

During the twelve months ended May 31, 2018 and 2017, interest in the amount of $565 and $0 was accrued on Binder Convertible Note 9, respectively.

37,500

-

Total – Convertible Notes Payable, Related Parties

$
68,750

$
192,000

Less: Discount

(65,918
)

-

Convertible Notes Payable, Related Parties, Net of Discounts

$
2,832

$
192,000

Convertible Notes Payable, Related Parties, Net of Discounts, Current Portion

$
2,832

$
-

Convertible Notes Payable, Related Parties, Net of Discounts, Long-term Portion

-

192,000

~~F-22~~

~~Table of Contents~~

May 31, 2018

May 31, 2017

Convertible promissory note issued to an unaffiliated third party due April 29, 2018 (the “April 2015 Note”). During the twelve months ended May 31, 2015, the lender loaned the Company the amount of $200,000 pursuant to this note. The April 2015 Note bears interest at a rate of 15% per annum. On the first anniversary of this note, the all then accrued interest became due. Thereafter, the Company is required to make eight equal payments of principal together with accrued interest, quarterly in arrears, commencing on July 1, 2016 until paid in full. The note and any accrued unpaid interest is convertible into common stock of the Company. For each dollar converted, the note holder shall receive two shares of common stock and one three-year warrant to purchase 1.33 shares of common stock at $0.75 per share. The Company recognized a discount of $200,000 on the April 2015 Note related to the value of the beneficial conversion feature at the time of issuance. During the twelve months ended May 31, 2016, $66,667 of this discount was charged to operations. During the year ended May 31, 2017, the Company repaid principal in the amount of $100,000 and interest in the amount of $53,837 on this note. Also during the year ended May 31, 2017, the Company charged $100,545 of the discount to operations, and accrued interest in the amount of $22,440 on the April 2015 Note.

On September 20, 2017, the Company entered into an Exchange Agreement, whereby it agreed to exchange the April 2015 Note for 1,500,000 shares of its common stock. The holder of the April 2015 Note had previously sold it for $105,219, which represented the balance due by the Company, to StarForce Media, Inc., an entity that is not affiliated with the Company. The Company recognized a loss on this exchange in the amount of $404,082, which was charged to operations during the twelve months ended May 31, 2018. The Company also expensed the remaining discount in the amount of $18,155 to interest expense during the twelve months ended May 31, 2018.

During the twelve months ended May 31, 2018, the Company accrued interest in the amount of $4,603 on the April 2015 Note.

$
-

$
100,000

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~~May 31, 2018~~

~~May 31, 2017~~

Convertible promissory note payable to Old Main Capital, LLC (“Old Main”) dated March 18, 2016 and bearing interest at a rate of 8% (the “8% Note”). The 8% Note was issued for Old Main’s commitment to enter into an equity line transaction with the Company and prepare all of the related transaction documents. Old Main may, at its option, convert all or a portion of the note and accrued but unpaid interest into shares of common stock at a conversion price of $1.07 per share (post Reverse-Split) (the “8% Fixed Conversion Price”). The 8% Fixed Conversion Price is subject to adjustment if, at any time while this note is outstanding, the Company should issue any equity security with an effective price per share that is lower than the 8% Fixed Conversion Price (the “8% Base Conversion Price”), other than certain exempt issuances. In such an instance, the 8% Fixed Conversion Price will be lowered to match the 8% Base Conversion Price. The shares underlying the 8% Note are subject to a registration rights agreement. At the earlier of September 18, 2016 or two trading days after this registration statement becomes effective, the Company must begin to redeem 1/6th of the face amount of the note and any accrued but unpaid interest on a monthly basis. Such amortization payment may be made, at its option, in cash or, subject to certain conditions, in common stock pursuant to a conversion rate equal to the lower of (a) $1.07 (post Reverse-Split) or (b) 75% of the lowest daily volume weighted average price of the common stock in the twenty consecutive trading days ending on the trading day that is immediately prior to the applicable conversion date. The Company recognized a discount of $172,108 on the value of the embedded derivative.

On November 28, 2016, the 8% Note was amended converting the note from an installment note to a “balloon” note, with all principal and accrued interest due on March 18, 2017. In addition, the Fixed Conversion Price was changed to a variable conversion price equal to the lesser of the prior Fixed Conversion Price or 75% of the lowest VWAP in the fifteen trading days ending on the trading day immediately prior to the conversion date. The November 28, 2016 amendment required an extinguishment analysis of the 8% Note resulting in gain on extinguishment of debt in the amount of $81,496 for the nine months ended February 28, 2017. The gain on extinguishment of debt was included in additional paid-in capital at February 28, 2017. The 8% Note was revalued as of the November 28, 2016 amendment and the Company recognized a discount of $169,476 on the value of the embedded derivative.

On March 27, 2017, the Company entered into a further amendment to the 8% Note, whereby the Company agreed to increase the outstanding amount due under the 8% Note as of March 18, 2017 by 5%, or $10,000. In exchange for doing so, Old Main agreed to extend the maturity of the 8% Note until July 1, 2017 and to suspend conversions under the 8% Note until July 1, 2017. Also during the year ended May 31, 2017, the Company accrued interest in the amount of $17,207 on the 8% Note.

On July 6, 2017, the 8% Note was further amended, whereby the maturity date was extended to July 15, 2017 and the outstanding balance was increased by $15,750. On August 23, 2017, the 8% Note was amended again to extend the maturity date to September 15, 2017.

On September 23, 2017, but effective on September 15, 2017, the 8% note was further orally amended, and the outstanding balance was increased by $96,862. The Company recognized the modification of this note as an extinguishment of debt and recognized a gain on the extinguishment of $144,851. The Company also recognized a discount on the modified note of $300,435, which was fully charged to operations during the three months ended November 30, 2017. On September 25, 2017, but effective September 15, 2017, the Company entered into an Exchange Agreement, whereby it agreed to exchange the 8% Note for 4,500,000 shares of its common stock. Old Main, the original holder of the 8% Note, had previously sold it for $382,496. The balance due by the Company under the 8% Note at the time it was sold was $322,612. The Company recognized a loss on this exchange in the amount of $1,113,883, which was charged to operations during the twelve months ended May 31, 2018.

During the twelve months ended May 31, 2018, the Company accrued interest in the amount of $5,587, on the 8% Note, and $30,411 of the discount was amortized to interest expense during the twelve months ended May 31, 2018.

~~210,000~~

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	~~May 31, 2018~~		~~May 31, 2017~~

Senior Convertible promissory note payable to FirstFire Global Opportunities Fund, LLC (the “FirstFire Note”) dated November 15, 2017 and bearing interest at a rate of 5% per annum. The lender loaned the Company $330,000 and the FirstFire Note has an original issue discount of $33,000. The FirstFire Note is due seven months from the date of issue. FirstFire may, at its option, convert all or a portion of the FirstFire Note and accrued but unpaid interest into shares of common stock at a conversion price of $0.40 per share (the “FirstFire Fixed Conversion Price”) for the first 180 calendar days after the issue date. After the 180^th day, the conversion price shall equal the lower of (i) the FirstFire Fixed Conversion Price, or (ii) 75% multiplied by the lowest traded price of the common stock during the twenty (20) consecutive trading day period immediately preceding the trading day that the Company received a notice of conversion. During the twelve months ended May 31, 2018, a dilutive issuance occurred. As a result, the FirstFire Fixed Conversion Price was reduced to $0.3125 per share. The Company recognized a discount of $363,000 on the FirstFire Note related to the beneficial conversion feature at the time of issuance. During the twelve months ended May 31, 2018, this discount was charged to operations. During the twelve months ended May 31, 2018, the Company accrued interest in the amount of $9,000 on this note. On May 9, 2018, the Company entered into an Amendment to the FirstFire Note, whereby the Company agreed to make a $50,000 payment on or before May 14, 2018 and a $450,000 payment on or before May 31, 2018 to repay the FirstFire Note in full. The Company also agreed to issue an additional warrant to purchase 25,000 shares of the Company’s common stock. In exchange, the note holder agreed that it would not convert the FirstFire Note until after May 31, 2018. During the twelve months ended May 31, 2018, the Company made payments of $500,000 on this note, which amounts repaid the FirstFire Note in full.		-		-

Convertible promissory note payable to Darling Capital, LLC (the “Darling Note”) dated February 5, 2018 and bearing interest at a rate of 8% per annum. The lender loaned the Company $500,000 and the Darling Note has an original issue discount of $50,000. The Darling Note is due eighteen months from the date of issue. Darling may, at its option, convert all or a portion of the Darling Note and accrued but unpaid interest into shares of common stock at a conversion price of $0.3125 per share. The Darling Note also contains a reset feature, whereby, absent certain exceptions, if the Company issues equity securities at an effective price less than $0.3125 per share of common stock, the conversion price of the Darling Note will be reset to such lower price. The Company recognized a discount of $550,000 on the Darling Note related to the beneficial conversion feature at the time of issuance. During the twelve months ended May 31, 2018, $40,427 of this discount was charged to operations. During the twelve months ended May 31, 2018, the Company accrued interest in the amount of $13,863 on this note.		~~550,000~~		-

Convertible promissory note payable to Efrat Investments, LLC (the “Efrat Note”) dated February 12, 2018 and bearing interest at a rate of 8% per annum. The lender loaned the Company $50,000 and the Efrat Note has an original issue discount of $5,000. The Efrat Note is due eighteen months from the date of issue. Efrat may, at its option, convert all or a portion of the Efrat Note and accrued but unpaid interest into shares of common stock at a conversion price of $0.3125 per share. The Efrat Note also contains a reset feature, whereby, absent certain exceptions, if the Company issues equity securities at an effective price less than $0.3125 per share of common stock, the conversion price of the Efrat Note will be reset to such lower price. The Company recognized a discount of $55,000 on the Efrat Note related to the beneficial conversion feature at the time of issuance. During the twelve months ended May 31, 2018, $2,974 of this discount was charged to operations. During the twelve months ended May 31, 2018, the Company accrued interest in the amount of $1,302 on this note.		~~55,000~~		-

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	May 31, 2018			May 31, 2017			May 31, 2020			May 31, 2019

Convertible promissory note payable to YA II PN, Ltd. (the “YA II PN Note”) dated May 14, 2018 and bearing an interest rate of 8% per annum. The lender loaned the Company $750,000, and the note is due November 14, 2019. YA II PN may, at its option convert all or a portion of the YA II PN Note and accrued but unpaid interest into shares of common stock at a conversion price of $0.40 per share. The YA II PN Note also contains a reset feature, whereby, absent certain exceptions, if the Company issues equity securities at an effective price less than $0.40 per share of common stock, the conversion price of the YA II PN Note will be reset to such lower price. The Company recognized a discount of $750,000 related to the beneficial conversion feature at the time of issuance. During the twelve months ended May 31, 2018, $23,224 of this discount was charged to operations. During the twelve months ended May 31, 2018, the Company accrued interest in the amount of $2,795 on this note.		750,000			-

Unsecured convertible note issued to Jay Lasky (the “Lasky Note”), dated May 3, 2018 in the original principal amount of $25,000. This note bears interest at the rate of 10% per annum. No interest payments are required until July 1, 2019, at which time all accrued interest becomes due and payable. Commencing October 1, 2019, the first of eight principal payments in the amount of $3,125 will become due; subsequent payments will become due on the first day of each January, April, July and October until paid in full. The Lasky Note and accrued interest under the note may be converted, in whole or in part, into one share of common stock for each $0.40 converted. The Company recognized a discount of $7,301 on the Lasky Note related to the beneficial conversion feature at the time of issuance. During the twelve months ended May 31, 2018, $149 of this discount was charged to operations. During the twelve months ended May 31, 2018, the Company accrued interest in the amount of $192 on this note.		25,000			-
Convertible debentures payable in the aggregate principal amount of $12,012,000 (the “Canaccord Debentures”) dated December 12, 2018, which bear interest, payable quarterly, at a rate of 8% per annum, with interest during the first eighteen months following issuance being payable by increasing the then-outstanding principal amount of the Canaccord Debentures. The Canaccord Debentures mature on a date that is three years following issuance. The Canaccord Debentures are convertible into Convertible Debenture Units at a conversion price of $0.80 per Convertible Debenture Unit. Each Convertible Debenture Unit consists of (i) one share of the Company’s common stock, and (ii) one-half of one warrant, with each warrant exercisable for three years to purchase a share of common stock at a price of $1.10. The value of the warrants will be recorded when the issuance becomes probable. The Canaccord Debentures have 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 Canaccord Debentures are unsecured obligations of the Company and rank pari passu in right of payment of principal and interest with all other unsecured obligations of the Company. During the three months ended November 30, 2019, in two separate transactions, principal in the aggregate amount of $25,857 was converted into an aggregate of 32,321 shares of the Company’s common stock, and warrants to purchase 16,160 shares of common stock. There were no gains or losses recorded on these conversions because they were done in accordance with the terms of the original agreement. No discount was recorded for the fair value of the warrants issued. Because the market price of the Company’s common stock was less than the conversion price on the date of issuance of the Canaccord Debentures, a discount was not recorded on the Canaccord Debentures. During the years ended May 31, 2020 and 2019, the Company accrued interest in the amounts of $1,025,549 and $458,759 on the Canaccord Debentures, respectively. Also, during the years ended May 31, 2020 and 2019, the Company transferred the amounts of $984,300 and $291,249 from accrued interest to principal of the Canaccord Debentures, respectively.								13,287,549			12,305,492

Total - Convertible Notes Payable	$	1,380,000		$	310,000		$	19,883,212		$	18,360,230
Less: Discount		(1,295,527	)		(57,644	)		(2,238,730	)		(3,819,010	)
Convertible Notes Payable, Net of Discounts	$	84,473		$	252,356		$	17,644,482		$	14,541,220

Total - Convertible Notes Payable, Net of Discounts, Current Portion	$	43,401		$	252,356		$	-		$	-
Total - Convertible Notes Payable, Net of Discounts, Long-term Portion	$	41,072		$	-		$	17,644,482		$	14,541,220

Discounts on notes payable amortized to interest expense – years ended May 31, 2020 and 2019, respectively

~~2,534,104~~1,580,280

~~2,274,519~~921,827

Aggregate maturities of notes payable and convertible notes payable as of May 31, 2020 are as follows:

For the twelve months ended May 31,

2021	$	-
2022		19,883,212
2023		-
2024		-
2025		-
Thereafter		-
Total	$	19,883,212

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Beneficial Conversion Features

~~The 8% Note, FirstFire Note, Darling Note, Efrat Note, Lamadrid Note and YA II PN Note contain~~Certain of the Company’s convertible notes contained conversion features that create derivative liabilities. The pricing model the Company uses for determining fair value of its derivatives is the Lattice Model. Valuations derived from this model are subject to ongoing internal and external verification and review. The model uses market-sourced inputs such as interest rates and stock price volatilities. Selection of these inputs involves management’s judgment and may impact net income. The derivative components of the ~~Notes~~notes were valued at issuance, at conversion, at restructure, and at each period end.

On June 1, 2018, the Company adopted ASU 2017-11 and accordingly reclassified the fair value of the reset provisions embedded in convertible notes payable and certain warrants with embedded anti-dilutive provisions from liability to equity in the aggregate amount of $1,265,751. See note 1.

Certain of the Company’s other convertible notes payable contain beneficial conversion features that are not derivatives, but which require valuation in order to determine the discount to the related convertible note payable. The value of these conversion features is calculated using the intrinsic value method, whereby the amount of the discount is calculated as the difference between the conversion price and the market price of the underlying common stock at the date of issuance multiplied by the number of shares issuable.

NOTE 17 – CONTINGENT LIABILITY

The terms of the Company’s acquisition of Alternative Solutions, include a payment of $1,000,000 contingent upon the Oasis LLCs achieving certain revenue targets. (see note 4). The fair value of ~~these conversion features is calculated using~~this contingent consideration at the ~~Black-Scholes~~time of the Acquisition Agreement was $678,111 as determined by the Company’s outside valuation ~~model. The following table illustrates certain key information regarding~~consultants. Management reviewed the ~~conversion option valuation assumptions under~~value of the ~~Black-Scholes valuation model~~contingent consideration, and concluded that, due to the increased revenue of Alternative Solutions, the fair value of this contingent liability was $1,000,000 at May 31, ~~2018 and 2017:~~2019. The Company recorded a charge to operations in the amount of $321,889 during the year ended May 31, 2019.

May 31,

2018

2017

Volatility
97.4% to 534.5
%
64% to 138
%
Dividends
- -
Risk-free interest rates
1.93% to 2.62
%
0.86% to 1.19
%
Term (years)
0.4997 to 3.1622 1.25 to 3

The full amount of the bonus payment was earned, and on May 27, 2020, the Company made a payment in the amount of $850,000 to the sellers. The Company deposited the balance due to sellers of $150,000 with an escrow agent to hold pending the outcome of a tax audit. During the year ended May 31, 2020, the State of Nevada notified the Oasis LLCs that it would be conducting a tax audit for periods both before and after the closing of the sale to CLS. The Oasis LLCs have not yet received the demand from the State of Nevada with the precise amount due and the amount escrowed is the Company’s best estimate of the pre-closing tax liability If the ultimate tax liability is less than $150,000, the balance of the escrowed amount will be paid to sellers. As of May 31, 2020, the $150,000 remains a liability on the Company’s balance sheet and $150,000 is recorded in an escrow account in the asset section of the Company’s balance sheet.

NOTE 1218 – ~~STOCKHOLDERS’~~ STOCKHOLDERS’ EQUITY

The Company’s authorized capital stock consists of ~~250,000,000~~750,000,000 shares of common stock, par value $0.0001, ~~per share~~at May 31, 2020 and 2019, and 20,000,000 shares of preferred stock, par value $0.001 per share. The Company had ~~50,128,972~~126,521,416 and ~~32,582,944~~125,839,095 shares of common stock issued and outstanding as of May 31, ~~2018~~2020 and ~~2017,~~2019, respectively.

The Company recorded imputed interest of ~~$1,076~~$0 and ~~$1,075~~$807 during the ~~year~~years ended May 31, ~~2018~~2020 and ~~2017~~2019 on related party payables due to a director and officer of the ~~Company.~~

~~Common Stock~~Company, and charged this amount to additional paid-in capital. During the year ended May 31, 2019, the Company repaid the related party payables in the aggregate amount of $17,930.

Year ended May 31, ~~2018:~~2020:

Common Stock and Warrants Issued ~~for Services~~upon Conversion of Notes Payable:

On July ~~13, 2017,~~8, 2019, the Company issued ~~24,000~~16,644 shares of common stock and three-year warrants to ~~a consultant in exchange for a $6,000 accrued liability for services previously provided. This resulted in a gain on the settlement of accounts payable in the amount of $3,480.~~

~~On March 2, 2018, the Company issued 350,000~~acquire 8,322 shares of common stock at a price of $1.10 per share to Canaccord Genuity Corp., as nominee, in connection with the conversion of a ~~consultant~~portion of the Canaccord Debentures in the principal amount of $13,315. No gain or loss was recorded on this transaction because the conversion was made pursuant to the terms of ~~a consulting~~the original agreement. ~~The shares issued for services were valued on the date of grant at $261,800.~~

On ~~February 8, 2018,~~July 19, 2019, the Company ~~agreed to issue 31,250~~issued 15,677 shares of common stock and three-year warrants to acquire 7,838 shares of common stock at a ~~consultant. The shares were valued at $25,313, and are~~price of $1.10 per share to Canaccord Genuity Corp., as nominee, in connection with the conversion of a portion of the Canaccord Debentures in the principal in the amount of $12,542. No gain or loss was recorded on this transaction because the ~~balance sheet as stock payable. These shares have not been issued as~~conversion was made pursuant to the terms of ~~May 31, 2018.~~the original agreement.

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Common Stock Issued and To Be Issued to Officers and Service Providers:

~~During~~On July 22, 2019, the Company issued 500,000 shares of common stock with a fair value of $355,000 to Ben Sillitoe, Chief Executive Officer of CLS Nevada, in connection with his employment agreement. $325,417 was recorded during fiscal 2019, and issued from stock payable during the year ended May 31, 2018, the Company agreed to issue 600,000 shares of common stock to an officer. These shares were valued at $213,321, and are recorded on the balance sheet as stock payable. These shares have not been issued as of May 31, 2018.

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~~Stock Issued upon Note Conversion~~

On March 12, 2018, pursuant to the Omnibus Loan Agreement, related party convertible noteholders converted principal and interest in the aggregate amount of $1,421,356 and $197,090, respectively, into a total of 5,179,028 shares of common stock.

~~Stock Issued for Note Exchange~~

On September 20, 2017, the Company entered into an Exchange Agreement, whereby it agreed to exchange the April 2015 Note for 1,500,000 shares of its common stock valued at $510,000. The holder of the April 2015 Note had previously sold it for $105,219, which represented the balance due by the Company, to StarForce Media, Inc., an entity that is not affiliated with the Company. The Company recognized a loss on this exchange in the amount of $404,082, which2020; $29,583 was charged to operations during the year ended May 31, ~~2018.~~2020. At issuance, $50 was charged to common stock, and $354,950 was charged to additional paid-in capital.

On ~~September 25, 2017,~~July 22, 2019, the Company ~~entered into an Exchange Agreement, whereby it agreed to exchange the 8% Note for 4,500,000~~issued 50,000 shares of ~~its~~ common stock ~~valued at $1,844,035. The Company recognized~~with a ~~loss on~~fair value of $35,495 to Don Decatur, Chief Operating Officer of CLS Nevada, in connection with his employment agreement. $32,542 of this ~~exchange in~~amount was recorded during fiscal 2019, and issued from stock payable during the ~~amount of $989,032, which~~year ended May 31, 2020; $2,958 was charged to operations during the year ended May 31, ~~2018.~~

~~Stock Issued with Note~~

~~On November 15, 2017, the Company issued 250,000 shares of restricted Common Stock, valued at $95,000, as a commitment fee~~2020. At issuance, $5 was charged to ~~a convertible note holder.~~

~~Stock Issued in Offering~~

On December 7, 2017, the Company commenced a private offering of its securities, the terms of which were amended on January 17, 2018 (the “WestPark Offering”). The Company offered for sale a minimum of 800,000 units and a maximum of 4,000,000 units at a price of $1.25 per unit. Each unit consisted of four shares of common stock, and ~~one warrant~~$35,495 was charged to ~~purchase common stock at $0.75 per share.~~

On February 7, 2018, the Company received gross proceeds of $1,087,500 from the WestPark Offering, of which $146,975 were expenses, resulting in net proceeds of $940,525, from the sale of 870,000 units.

~~On February 21, 2018, the Company received~~ additional ~~gross proceeds of $100,000 from the WestPark Offering, of which $28,100 were expenses, resulting in net proceeds of $71,900, from the sale of 80,000 units.~~

On February 28, 2018, the Company received additional gross proceeds of $81,250 from the WestPark Offering, of which $12,148 were expenses, resulting in net proceeds of $69,102, from the sale of 65,000 units.

On March 29, 2018, the Company received additional gross proceeds of $441,563 from the WestPark Offering, of which $62,172 were expenses, resulting in net proceeds of $379,390, from the sale of 353,250 units. paid-in capital.

During the year ended May 31, ~~2018,~~2020, the Company ~~incurred offering costs~~charged an aggregate of ~~$249,397.~~ $154,014 to common stock subscribed representing the accrual over the vesting period of 791,668 shares of restricted common stock issuable to officers.

The ~~offering costs were~~Company also charged $45,000 to common stock subscribed representing the fair value of 200,000 shares of common stock to be issued to a service provider. During the year ended May 31, 2020, the Company issued 100,000 of these shares of common stock. At issuance, $22,500 was transferred from common stock subscribed; $10 was charged to common stock, and $22,490 was charged to additional ~~paid in capital~~paid-in capital.

Year ended May 31, 2019:

Stock Issued upon Conversion of Notes Payable

On June 12, 2018, Darling Capital, holder of a convertible promissory note, converted a total of $565,000, which consisted of $550,000 of principal and $15,000 of accrued interest, into 1,808,000 shares of common stock.

On August 9, 2018, Efrat Investments, holder of a convertible promissory note, converted a total of $57,200, which consisted of $55,000 of principal and $2,200 of accrued interest, into 183,040 shares of common stock.

On August 21, 2018, David Lamadrid, a former executive officer of the Company and holder of a convertible promissory note, converted a total of $32,497, which consisted of $31,250 of principal and $1,247 of accrued interest, into 103,989 shares of common stock.

On August 23, 2018, Jay Lasky, holder of a convertible promissory note, converted a total of $26,185, which consisted of $25,000 of principal and $1,185 of accrued interest, into 65,462 shares of common stock.

On October 23, 2018, Newcan, which is owned by a director of the Company and was the holder of a convertible promissory note, converted a total of $78,534, which consisted of $75,000 of principal and $3,534 of accrued interest, into 196,336 shares of common stock.

On November 14, 2018, YA II PN, holder of a convertible promissory note, converted a total of $280,247, which consisted of $250,000 of principal and $30,247 of accrued interest, into 700,616 shares of common stock.

On January 8, 2019, YA II PN, holder of a convertible promissory note, converted a total of $256,027 which consisted of $250,000 of principal and $6,027 of accrued interest, into 640,068 shares of common stock.

There were no gains or losses on the conversion of notes payable during the year ended May 31, ~~2018.~~2019, as all conversions were made pursuant to the terms of the convertible note agreements.

~~Additional Paid-in-Capital~~Stock Issued for Services

~~During~~On June 24, 2018, pursuant to the terms of a severance agreement between the Company and David Lamadrid, the Company issued 600,000 shares of restricted common stock to Mr. Lamadrid. These shares were valued at $264,000 based upon the Company’s stock price of $0.44 on Mr. Lamadrid’s date of employment. Of this amount, $213,320 had been previously expensed and the remaining $50,680 was charged to operations during the year ended May 31, 2019.

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On July 24, 2018, the Company ~~recorded~~awarded Star Associates, LLC, a ~~discounts on convertible notes payable relating to~~limited liability company owned by Andrew Glashow, a director and executive officer of the ~~beneficial conversion feature~~Company, a cash payment in the amount of ~~$1,758,741.~~

~~During~~$250,000 and 700,000 shares of the Company’s restricted common stock in recognition of Mr. Glashow’s efforts, through Star Associates, in successfully assisting the Company in negotiating and obtaining the financing necessary to acquire Alternative Solutions. The shares were valued at $490,000 based upon the Company’s stock price of $0.70 at the date of the grant, and were charged to operations during the year ended May 31, 2019.

On September 11, 2018, the Company issued 31,250 shares of common stock valued at $25,310 based upon the Company’s stock price of $0.81 at the date of the grant, in exchange for legal services previously rendered to the Company. These shares were accrued on February 8, 2018, and were issued from stock payable.

Stock Issued for Acquisition

On June 27, 2018, the Company issued 22,058,823 shares of its common stock pursuant to the terms of the Alternative Solutions Acquisition Agreement. These shares were valued at $15,441,176. (See note 4).

Special Warrants Issued in Offering

On June 20, 2018, the Company executed an Agency Agreement with Canaccord Genuity Corp. and closed on a private offering of its special warrants for aggregate gross proceeds of C$13,037,859 (USD$9,785,978). Pursuant to the offering, the Company issued 28,973,020 special warrants at a price of C$0.45 (USD$0.34) per special warrant. Each special warrant was automatically exercisable, for no additional consideration, into units of the Company on the earlier of: (i) the date that was five business days following the date on which the Company obtained a receipt from the applicable securities regulatory authorities in each of the jurisdictions in Canada in which the special warrants were sold for a final prospectus qualifying the distribution of the units, which was intended to be no later than November 30, 2018, and (ii) the date that was four months and one day after the completion of the Company’s acquisition of all of the membership interests in Alternative Solutions, known as Oasis Cannabis. The Company allocated $4,226,394 of the proceeds from the sale of the special warrants to the underlying stock, and $5,559,584 of the value to the underlying warrants. The value of the warrants underlying the special warrants was determined utilizing the Black-Scholes valuation model. The Company recorded a ~~settlement of derivative liabilities~~loss on currency conversion in the amount of ~~$442,775.~~

~~Year~~$403,588 in connection with the special warrants during the year ended May 31, ~~2017:~~

~~Stock Issued for Services~~2019.

In ~~May 2017,~~connection with the offering, the Company ~~agreed~~paid Canaccord Genuity Corp. a cash commission equal to ~~issue~~C$1,043,028 (USD$799,053), a corporate finance fee equal to 1,448,651 special warrants, and 2,317,842 compensation broker warrants valued at $1,495,373. Each compensation broker warrant entitles the holder thereof to acquire one unit at a price of C$0.45 per unit for a period of 36 months from the date that the Company’s common stock is listed on a recognized Canadian stock exchange, subject to adjustment in certain events. The 1,448,651 special warrants that were issued were valued at $1,413,300 and were charged to operations during the year ended May 31, 2019.

Upon exercise of the special warrants, each unit was to consist of one share of the Company’s common stock and one warrant to purchase one share of common stock. Each warrant was to be exercisable at a price of C$0.65 for three years after the Company’s common stock was listed on a recognized Canadian stock exchange, subject to adjustment in certain events.

Because the Company did not receive a receipt from the applicable Canadian securities authorities for the qualifying prospectus by August 20, 2018, the unexercised special warrants were adjusted to entitle the holders to receive 1.1 units instead of one unit of the Company. This resulted in the issuance of an additional 3,042,167 units. This penalty was valued at $7,142,550 and was charged to operations during the year ended May 31, 2019.

On November 30, 2018, all of the special warrants were automatically converted into 33,463,838 shares of common stock and warrants to purchase 33,463,838 shares of common stock for CD$0.65 per share.

Stock Issued in Navy Capital Offering

On July 31, 2018, the Company entered into a Subscription Agreement with Navy Capital Green International, Ltd, (the “Navy Capital Offering”) for 7,500,000 units at a price of $0.40 per unit, or an aggregate amount of $3,000,000. The units collectively represent (i) 7,500,000 shares of common stock, and (ii) three-year warrants to purchase an aggregate of 7,500,000 shares of common stock at an exercise price of $0.60 per share of common stock.

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In connection with the Navy Capital Offering, between August 8, 2018 and August 10, 2018, the Company entered into five subscription agreements for a total of 6,875,000 units at a price of $0.40 per unit, or an aggregate purchase price of $2,750,000. The units collectively represent (i) 6,875,000 shares of common stock, and (ii) three-year warrants to purchase an aggregate of 6,875,000 shares of common stock at an exercise price of $0.60 per share of common stock.

Stock Issued to Officers

Effective July 1, 2018, the Company granted the Chief Executive Officer of CLS Nevada, Inc. a one-time signing bonus of 500,000 shares of restricted common stock, which shall become fully vested one year from the effective date of his employment agreement. These shares were valued at $350,000 and will be amortized over the vesting period. As of May 31, 2019, $325,417 had been charged to operations, and is carried as Common Stock Subscribed on the Company’s balance sheet at May 31, 2019.

Effective July 1, 2018, the Company granted the Chief Operating Officer of CLS Nevada, Inc. a one-time signing bonus of 50,000 shares of restricted common stock, which shall become fully vested one year from the effective date of his employment agreement. These shares were valued at $35,000 and will be amortized over the vesting period. As of May 31, 2019, $32,542 had been charged to operations, and is carried as Common Stock Subscribed on the Company’s balance sheet at May 31, 2019.

Effective August 1, 2018, the Company granted 25,000 shares of restricted common stock to its then Chief Financial Officer. These shares vested four months after issuance. The shares were valued at $17,500, and were amortized over the vesting period. On April 11, 2019, these shares were issued.

Effective March 1, 2019, the Company granted its President and Chief Operating Officer Chief Operating Officer 500,000 shares of restricted common stock, which shall become fully vested two years from the effective date of his employment agreement. These shares were valued at $215,500 and will be amortized over the vesting period. As of May 31, 2019, $26,938 had been charged to operations, and is carried as Common Stock Subscribed on the Company’s balance sheet at May 31, 2019.

Effective May 2, 2019, the Company granted its Chief Financial Officer 50,000 shares of restricted common stock, which shall become fully vested one year from the effective date of his employment agreement. These shares were valued at $17,995 and will be amortized over the vesting period. As of May 31, 2019, $1,428 had been charged to operations, and is carried as Common Stock Subscribed on the Company’s balance sheet at May 31, 2019.

Stock Issued upon Cashless Exercise of Warrants

On August 14, 2018, the Company issued 129,412 shares of common stock upon the cashless exercise of warrants to purchase 350,000 shares of common stock at an exercise price of $0.75 per share.

On September 6, 2018, the Company issued 13,684 shares of common stock upon the cashless exercise of warrants to purchase 40,000 shares of common stock at an exercise price of $0.75 per share.

On November 14, 2018, the Company issued 5,867 shares of common stock upon the cashless exercise of warrants to purchase 25,000 shares of common stock at an exercise price of $0.75 per share.

Stock Issued for Settlement

On November 1, 2018, the Company issued 50,000 shares of common stock with a fair value of ~~$3,250~~$47,500 pursuant to a ~~service provider. At~~legal settlement. There was no gain or loss associated with this transaction.

Stock Issued for Compensation for Debenture Offering

On December 12, 2018, in connection with the issuance of the Canaccord Debentures, the Company issued 559,750 units as compensation for advisory and agent fees. Each unit is comprised of one share of common stock and one-half of one common stock purchase warrant at an exercise price of $1.10 per whole share of common stock. As a result, the Company issued 559,750 shares of common stock as compensation for agent and advisory services. These shares were valued at $557,335, and this amount was charged to operations during the year May 31, ~~2017, these shares had not been issued, and the amount of $3,250 is included in stock payable on the Company’s balance sheet.~~2019.

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Table of Contents

Additional ~~Paid-in-Capital~~Paid-in Capital

~~In March 2017,~~During the year ended May 31, 2019, the Company ~~entered into~~recorded discounts on two convertible notes payable related to the beneficial conversion features in the amounts of $362,500 on the YA II PN Note 2, and $58,594 on the Newcan Convertible Note 8. Also, during the year ended May 31, 2019, a ~~modification agreement regarding~~reset event occurred with regard to the ~~8% Promissory~~YA II PN 2 Note.

During the year ended May 31, 2019, the Company recorded an original issue discount on the Oasis Note ~~due to Old Main, and the derivative liability~~ in the amount of ~~$70,143 related~~$189,180.

On June 1, 2018, the Company adopted ASU 2017-11 and accordingly reclassified the fair value of the reset provisions embedded in the previously issued convertible notes payable and certain warrants with embedded anti-dilutive provisions from liability to additional paid-in capital in the aggregate amount of $1,265,751. On June 20, 2018, a reset event occurred in connection with the YA II PN 2 Note, and the Company charged the change in fair value of the conversion feature in the amount of $35,833 to additional paid-in capital. This was considered a material modification of the note, and the Company created a new discount to this note in the amount of $750,000, which was charged to additional paid-in capital.

InDuring the year ended May ~~2017,~~31, 2019, the Company ~~paid the 10% Notes due to Old Main, and the derivative liability in the amount of $145,268~~recorded discounts on six convertible debentures related to the beneficial conversion ~~feature~~features as follows: a discount of ~~this note~~$3,254,896 was ~~charged to additional paid-in capital.~~recorded on U.S. Convertible Debenture 1; a discount of $813,724 was recorded on U.S. Convertible Debenture 2; a discount of $75,415 was recorded on U.S. Convertible Debenture 3; a discount of $416,653 was recorded on U.S. Convertible Debenture 4; a discount of $120,100 was recorded on U.S. Convertible Debenture 5; and a discount of $60,049 was recorded on U.S. Convertible Debenture 6.

~~Stock Issued upon Note Conversions~~Warrants

~~From December 21, 2016, through March 14, 2017, Old Main, holder~~On June 27, 2018, the Company incurred a penalty in connection with the WestPark Offering due to the late filing of the ~~2016 Convertible Notes, converted an aggregate~~registration statement that included the resale of ~~$137,500 of principal,~~the securities that were sold in ~~eight transactions, into 1,685,981 shares of common stock.~~such offering. As a result of the ~~conversions, the Company charged the amount $143,325 to additional paid-in capital related to settlement of derivative liability. See note 10.~~

On May 31, 2017, pursuant to the Omnibus Loan Agreement, four related party convertible noteholders converted principal and interest in the aggregate amount of $2,537,750 and $166,490, respectively, into a total of 10,816,960 shares of common stock. As a result of the conversions, the Company charged the amount $951,239 to loss on modification of debt.

~~Warrants~~

~~On November 15, 2017, in connection with the Company’s sale of a convertible debenture,~~penalty, the Company issued ~~FirstFire Global Opportunities Fund, LLC (“FirstFire”) a~~ three-year common stock ~~purchase warrant~~warrants to purchase ~~350,000~~an aggregate of 1,368,250 shares of the Company’s common stock at an ~~initial~~ exercise price of $0.50 per share. In addition, the Company reduced the exercise price of the common stock purchase warrants previously issued to the investors in the WestPark Offering from $0.75 per share to $0.50 per share. ~~These warrants were valued at $123,950 and were~~The fair value of the penalty was $941,972; this amount was charged to operations during the ~~twelve months~~year ended May 31, ~~2018.~~2019.

On ~~February 9,~~July 20, 2018, in connection with the Company’s sale of a convertible debenture, the Company issued ~~Darling Capital, LLC (“Darling”) a three-year common stock purchase warrant~~ to purchase 400,000 shares of the Company’s common stock at an initial exercise price of $0.75 per share. These warrants were valued at $313,128 and were charged to operations during the twelve months ended May 31, 2018.

On February 16, 2018, in connection with the Company’s sale of a convertible debenture, the Company issued Efrat Investments, LLC (“Efrat”) a three-year common stock purchase warrant to purchase 40,000 shares of the Company’s common stock at an initial exercise price of $0.75 per share. These warrants were valued at $32,076 and were charged to operations during the twelve months ended May 31, 2018.

On February 26, 2018, in connection with the Company’s sale of a convertible debenture, the Company issued David Lamadrid a three-year common stock purchase warrant to purchase 25,000 shares of the Company’s common stock at an initial exercise price of $0.75 per share. These warrants were valued at $18,794 and were charged to operations during the twelve months ended May 31, 2018.

On March 2, 2018, the Company issued three-year common stock purchase warrants to purchase an aggregate of 412,500 shares of the Company’s common stock at an exercise price of $0.75 per share to consultants. These warrants were value at $294,173 and were changed to operations during the twelve months ended May 31, 2018.

On March 29, 2018, the Company issued three-year common stock purchase warrants to purchase an aggregate of 353,250 shares of the Company’s common stock at an exercise price of $0.75 per share, to investors in the WestPark Offering.

On May 9, 2018, in connection with the Amendment to the FirstFire Note, the Company amended the FirstFire three-year common stock purchase warrant to provide that the holder could purchase an additional 25,000 shares of the Company’s common stock at an initial exercise price of $0.75 per share. These additional warrants were valued to $15,977 and were charge to operations during the twelve months ended May 31, 2018.

~~On May 14, 2018, in connections with the Company’s sale of a convertible debenture, the Company issued~~ YA II PN, Ltd. a five-year common stock purchase warrant to purchase ~~1,875,000~~1,250,000 shares of the Company’s common stock at an initial exercise price of $0.60 per share. ~~These~~

On August 6, 2018, the Company issued three-year common stock purchase warrants ~~were~~to purchase an aggregate of 7,500,000 shares of the Company’s common stock at an exercise price of $0.60 per share, to investors in the Navy Capital Offering.

On August 8, 2018, the Company issued three-year common stock purchase warrants to purchase an aggregate of 6,875,000 shares of the Company’s common stock at an exercise price of $0.60 per share, to investors in the Navy Capital Offering.

The Company valued ~~at $1,300,545 and were charged to operations during~~warrants using the ~~twelve months ended May 31, 2018.~~Black-Scholes valuation model utilizing the following variables:

	May 31,			May 31,
	2020			2019
Volatility		-	%		79.02 to 400.3	%
Dividends	$	-		$	0
Risk-free interest rates		-	%		2.68% to 2.77	%
Term (years)		-			3

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As of May 31, 2018, the Company was obligated to issue a five-year warrant to purchase 205,238 of the Company’s units at an exercise price of $1.25 per unit (the “Unit Warrants”) to WestPark Capital, Inc., the placement agent for the WestPark Offering. Each unit consists of four shares of common stock and one warrant to purchase a share of common stock for $0.75 per share. The Unit Warrants are part of the placement agent’s compensation pursuant to the placement agent agreement. The Unit Warrant were valued at $503,655, which amount was charged to operations during the twelve months ended May 31, 2018.

The following table summarizes the significant terms of warrants outstanding at May 31, ~~2018. These warrants were granted as part of financing agreements.~~2020. This table ~~includes~~does not include the ~~205,238~~unit warrants. See Unit ~~Warrants:~~Warrants section below.

Weighted

Weighted

Weighted

average

average

average

Range of

Number of

remaining

exercise

exercise

exercise

warrants

contractual

price of

Number of

price of

Prices

Outstanding

life (years)

outstanding Warrants

warrants Exercisable

exercisable Warrants

$
0.75

2,825,988

3.33

$
0.75

2,825,988

$
0.75

0.60

1,875,000

4.96

0.60

1,875,000

0.60

4,700,988

3.98

0.69

4,700,988

0.69

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
$	0.49		33,465,110		1.50	$	0.49		33,465,110	$	0.49
	0.50		2,736,500		1.73		0.50		2,736,500		0.50
	0.60		17,500,000		1.50		0.60		17,500,000		0.60
	0.75		837,500		0.72		0.75		837,500		0.75
	1.10		296,035		1.56		1.10		296,035		1.10
			54,835,145		1.50	$	0.53		54,835,145	$	0.53

Transactions involving warrants are summarized as ~~follows:~~follows. This table does not include the special warrants or unit warrants. See Special Warrants and Unit Warrants sections below.

	Number of Shares		Weighted Average Exercise Price		Number of Shares			Weighted Average Exercise Price
Warrants outstanding at May 31, 2017		-	$	-
Warrants outstanding at May 31, 2018						4,495,750		$	0.61
Granted		4,700,988	$	0.69		50,738,235		$	0.653
Exercised		-	$	-		(415,000	)	$	0.75
Cancelled / Expired		-	$	-		-		$	-
Warrants outstanding at May 31, 2018		4,700,988	$	0.69

Warrants outstanding at May 31, 2019						54,818,985		$	0.53
Granted						16,160		$	1.10
Exercised						-		$	-
Cancelled / Expired						-		$	-
Warrants outstanding at May 31, 2020						54,835,145		$	0.53

Special Warrants

On June 20, 2018, the Company sold 28,973,019 special warrants for net proceeds of US$9,785,978. Each special warrant was automatically exercisable, for no additional consideration, for units of the Company on the earlier of: (i) the date that was five business days following the date on which the Company obtained a receipt from the applicable securities regulatory authorities in each of the jurisdictions in Canada in which the special warrants were sold for a final prospectus qualifying the distribution of the units, which was intended to be no later than November 30, 2018, and (ii) the date that was four months and one day after the completion of the Company’s acquisition of all of the membership interests in Alternative Solutions, known as Oasis Cannabis, which was June 28, 2018. The Company allocated $4,226,394 of the proceeds from the sale of the special warrants to the underlying stock, and $5,559,584 of the value to the underlying warrants. The value of the warrants underlying the special warrants was determined utilizing the Black-Scholes valuation model. The Company recorded a loss on currency conversion in the amount of $403,588 in connection with the special warrants during the year ended May 31, 2019.

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On November 30, 2018, all of the special warrants were automatically exercised for an aggregate of 33,463,838 shares of common stock and three-year warrants to purchase 33,463,838 shares of common stock for CD$0.65 per share.

Because the special warrants were exercisable for Common Stock and warrants, they were not included in the warrant tables above. There were no special warrants outstanding at May 31, 2020 or 2019.

Unit Warrants

On June 20, 2018, in connection with the special warrant offering, the Company issued Canaccord Genuity Corp. 2,317,842 three-year broker warrants at an exercise price of C$0.45 per share as compensation. Each warrant entitles the holder to purchase one unit, which consists of one share of common stock and a warrant to purchase one share of common stock, for C$0.65 per share. These warrants were valued at $1,495,373, and this amount was charged to operations during the year ended May 31, 2019.

On December 12, 2018, in connection with the issuance of the Canaccord Debentures, the Company issued Canaccord Genuity Corp. as compensation 1,074,720 three-year agent and advisory warrants. Each warrant entitles the holder to purchase a unit for $0.80, which unit consists of one share of common stock and a warrant to purchase one-half share of common stock at an exercise price of $1.10 per share. The Company, in connection with the issuance of the Canaccord Debentures, also issued to National Bank Financial Inc., as compensation, 268,680 three-year agent and advisory warrants. Each warrant entitles the holder to purchase a unit for $0.80, which unit consists of one share of common stock and a warrant to purchase one-half share of common stock at an exercise price of $1.10 per share. The aggregate value of these warrants was $874,457, which was charged to operations during the year ended May 31, 2019.

Because the unit warrants are exercisable for Common Stock and warrants, they are not included in the warrant tables above.

NOTE 13 19 – GAIN ON SETTLEMENT OF LIABILITIES

On August 14, 2019, the Company made a payment to 4Front Advisors to settle its dispute with Alternative Solutions and its former owners and the Oasis Note was reduced in accordance with its terms. In addition, the amount of $275,000, which the Company had accrued with respect to this dispute, was extinguished resulting in a gain of $275,000.

NOTE 20 – FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company has issued convertible notes containing beneficial conversion features. One of the features is a ratchet reset provision which, in general, reduces the conversion price should the Company issue equity with an effective price per share that is lower than the stated conversion price in the note. The Company accounts for the fair value of the conversion feature in accordance with ASC 815- Accounting for Derivatives and Hedging and Emerging Issues Task Force (“EITF”) 07-05- Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock (“EITF 07-05”). The Company carries the embedded derivative on its balance sheet at fair value and accounts for any unrealized change in fair value as a component of its results of operations. The Company also had a contingent liability in connection with the acquisition of Alternative Solutions (see note 17).

The following summarizes the Company’s financial liabilities that are recorded at fair value on a recurring basis at May 31, 2020 and 2019:

May 31, 2020

Level 1

Level 2

Level 3

Total

Liabilities

Derivative liabilities

May 31, 2019

Level 1

Level 2

Level 3

Total

Liabilities

Derivative liabilities

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NOTE 21 – RELATED PARTY TRANSACTIONS

As of May 31, 2020 and 2019, the Company had accrued salary due to Michael Abrams, a former officer of the Company prior to his September 1, 2015 termination, in the amount of $16,250.

On July 27, 2018, the Company granted 25,000 shares of restricted common stock to Frank Tarantino, its former Chief Financial Officer. These shares vested four months after issuance. The shares were valued at $17,500, and were amortized over the vesting period. These shares were issued on April 11, 2019.

On July 31, 2018, the Company granted Ben Sillitoe, the former Chief Executive Officer of CLS Nevada, Inc. a one-time signing bonus of 500,000 shares of restricted common stock, which became fully vested one year from the effective date of his employment agreement. These shares were valued at $355,000 and were amortized over the vesting period. As of May 31, 2020 and 2019, $29,583 and $325,417 had been charged to operations, respectively. On July 22, 2019, the Company issued these shares to Mr. Ben Sillitoe.

On July 31, 2018, the Company granted Mr. Don Decatur, the former Chief Operating Officer of CLS Nevada, Inc. a one-time signing bonus of 50,000 shares of restricted common stock, which became fully vested one year from the effective date of his employment agreement. These shares were valued at $35,000 and were amortized over the vesting period. As of May 31, 2020 and 2019, $2,958 and $32,542 had been charged to operations, respectively. On July 22, 2019, the Company issued these shares to Mr. Decatur.

On July 24, 2018, the Company awarded Star Associates, LLC, a limited liability company owned by Andrew Glashow, a director of the Company, a cash payment in the amount of $250,000 and 700,000 shares of restricted common stock in recognition of Mr. Glashow’s efforts, through Star Associates, in successfully assisting the Company in negotiating and obtaining the financing necessary to acquire Alternative Solutions. The shares were valued at $490,000 and were charged to operations during the year ended May 31, 2019.

Related Party Notes Payable

During the year ended May 31, 2019, the Company made principal and interest payments to Mr. Binder in the amount of $37,500 and $3,903, respectively. At May 31, 2020 and 2019, the Company had no principal or accrued interest payable to Mr. Binder.

During the year ended May 31, 2019, David Lamadrid converted principal in the amount of $31,250 and accrued interest in the amount of $1,247 into a total of 103,989 shares of common stock. At May 31, 2020 and 2019, the Company had no principal or accrued interest payable to Mr. Lamadrid.

During the year ended May 31, 2019, Newcan Investment Partners, LLC, converted principal in the amount of $75,000 and accrued interest in the amount of $3,534 into a total of 196,336 shares of common stock. At May 31, 2020 and 2019, the Company had no principal or accrued interest payable to Newcan Investment Partners, LLC.

NOTE 22 – INCOME TAXES

The Company accounts for income taxes under FASB ASC 740-10, which provides for an asset and liability approach of accounting for income taxes. Under this approach, deferred tax assets and liabilities are recognized based on anticipated future tax consequences, using currently enacted tax laws, attributed to temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts calculated for income tax purposes.

As of May 31, ~~2018~~2020 and ~~2017,~~2019, the Company had incurred a net operating loss and, accordingly, no provision for income taxes has been recorded. In addition, no benefit for income taxes has been recorded due to the uncertainty of the realization of any tax assets.

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The Company’s tax rate was reduced from 34% for the year ended May 31, 2018 to 21% for the year ended May 31, 2020 and 2019 due to changes in the federal income tax rate enacted by the 2018 Tax Cuts and Jobs Act. The tax effects of the temporary differences that give rise to the Company’s estimated deferred tax assets and liabilities are as follows:

	May 31,			May 31,			May 31,			May 31,
	2018			2017			2020			2019
Federal and state statutory rate		34	%		34	%		21	%		21	%
Net operating loss carry forwards		2,790,481			1,386,438			2,538,429			3,001,749
Valuation allowance for deferred tax assets		(2,790,481	)		(1,386,438	)		(2,538,429	)		(3,001,749	)
Net deferred tax assets		-			-			-			-

As of May 31, ~~2018~~2020 and ~~2017,~~2019, the Company had net operating loss carry forwards of approximately ~~$2,790,481~~$12,087,758 and ~~$1,386,438~~$14,294,045 available to offset future taxable income. The net operating loss carry forwards, if not utilized, will begin to expire in 2037.

Based on the available objective evidence, including the Company’s history of losses, management believes it is more likely than not that the net deferred tax assets will not be fully ~~realizable.~~realized. Accordingly, the Company has provided for a full valuation allowance against its net deferred tax assets at May 31, ~~2018~~2020 and ~~2017.~~2019. The Company had no uncertain tax positions as of May 31, ~~2018.~~2020.

NOTE 23 – COMMITMENTS AND CONTINGENCIES

Lease Arrangements

The Company leases several facilities for office, warehouse, and retail space. Currently lease commitments are as follows:

A lease which commenced February 2019 for 1,400 square feet of office space located at 1718 Industrial Road, Las Vegas, NV 89102 initially for a term of eighteen months, for the initial amount of $1,785 per month. In February 2020, this lease was extended to August 31, 2022, with the monthly amount increasing to $1,866.70 until September 2021, after which it will be subject to annual increases of 3%.

A lease which commenced January 2018 for 1,000 square feet of storefront plus 5,900 square feet of warehouse space located at 1800 Industrial Road, Suites 102, 160, and 180, Las Vegas, NV 89102 initially for a term of five years for the base amount of $7,500 per month, with annual increases of 3%. In February 2020, this lease was extended to February 28, 2030 and the monthly payment amount was increased by $600.

A lease which commenced February 2019 for 2,504 square feet of office space located at 1800 Industrial Road, Suite 100, Las Vegas, NV 89102 for the initial amount of $3,210 per month, with annual increases of 4%. In February 2020, this lease was extended to February 28, 2030, and the lease was modified to include annual increases of 3%.

A lease which commenced January 2016 for 22,000 square feet of warehouse space located at 203 E. Mayflower Avenue, North Las Vegas, NV 89030 for an initial term of five years and an initial amount of $11,000 per month, increasing to $29,000 per month.

~~F-30~~F-36

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~~NOTE 14 – COMMITMENTS AND CONTINGENCIES~~

~~Lease Arrangement~~

In connection with the Company’s planned Colorado ~~Arrangement,~~operations, on April 17, 2015, pursuant to an Industrial Lease Agreement (the “Lease”), CLS Labs Colorado leased 14,392 square feet of warehouse and office space (the “Leased Real Property”) in a building in Denver, Colorado where certain intended activities, including growing, extraction, conversion, assembly and packaging of cannabis and other plant materials, are permitted by and in compliance with state, city and local laws, rules, ordinances and regulations. The Lease had an initial term of seventy-two (72) months and provided CLS Labs Colorado with two options to extend the term of the lease by up to an aggregate of ten (10) additional years. In August 2017, as a result of the Company’s decision to suspend its proposed operations in Colorado, CLS Labs Colorado asked its landlord to be relieved from its obligations under the Lease, but the parties have not yet reached an agreement on how to proceed.

In August 2017, the Company’s Colorado subsidiary received a demand letter from its Colorado landlord requesting the forfeiture of the $50,000 security deposit, $10,000 in expenses, $15,699 in remaining rent due under the lease agreement and $30,000 to buy out the remaining amounts due under the lease. These expenses, which are a liability of the Company’s Colorado subsidiary, have been accrued on the balance sheet as of May 31, ~~2018.~~2020.

Contingent Liability

At the time of closing of the Acquisition Agreement, Alternative Solutions owed certain amounts to a consultant known as 4Front Advisors, which amount was in dispute. In August 2019, the Company made a payment to this company to settle this dispute and the Oasis Note was reduced accordingly.

Employment Agreements

CLS Labs and Jeffrey Binder entered into a five-year employment agreement effective October 1, 2014. Under the agreement, Mr. Binder serves as CLS Labs’ Chairman and Chief Executive Officer and is entitled to receive an annual salary of $150,000. Under the agreement, Mr. Binder is also entitled to receive a performance bonus equal to 2% of CLS Labs’ annual EBITDA, up to a maximum annual cash compensation of $1 million (including his base salary), and annual stock options, exercisable at the fair market value of CLS Labs’ common stock on the date of grant, in an amount equal to 2% of its annual EBITDA up to $42.5 million and 4% of its annual EBITDA in excess of $42.5 million. On April 28, 2015, CLS Labs and the Company entered into an addendum to Mr. Binder’s employment agreement whereby Mr. Binder agreed that following the merger of CLS Labs and a subsidiary of the Company, in addition to his obligations to CLS Labs, he would serve the Company and its subsidiaries in such roles as the Company may request. In exchange, the Company agreed to assume the obligations of CLS Labs to grant Mr. Binder annual stock options, as referenced above. Mr. Binder continues to receive an annual salary of $150,000 from CLS Labs for serving as its Chairman, President and Chief Executive Officer. Mr. Binder has deferred all of the salary payable to him under his employment agreement through February 28, 2018. On July 20, 2016, March 31, 2017, August 23, 2017, October 9, 2017, January 5, 2018 and April 6, 2018, the Company issued Mr. Binder convertible notes in exchange for $250,000, $112,500, $62,500, $39,521, $37,500 and $37,500 respectively, in deferred salary, among other amounts owed to Mr. Binder by the Company. ~~As of May 31, 2018 and May 31, 2017, the Company had accrued compensation due to Mr. Binder in the amount of 37,500 and $37,500.~~

~~Effective August~~On October 14, 2019 but effective October 1, ~~2015,~~2019, CLS Labs, Inc., the Company, and ~~Alan Bonsett~~Jeffrey Binder entered into ~~a five-year~~an amendment to Mr. Binder’s employment agreement to provide that the Company would assume all obligations of CLS Labs under the employment agreement. ~~Pursuant~~The amendment also extends the term of Mr. Binder’s employment agreement by three years instead of relying on the automatic one-year renewal provision in the employment agreement, and increases Mr. Binder’s annual base salary to $200,000. Additionally, the ~~agreement, Mr. Bonsett commenced serving as the Company’s Chief Operating Officer on August 15, 2015. Under the agreement, Mr. Bonsett is entitled~~amendment provides for certain change of control provisions, including a payment of up to ~~receive an annual~~three years base salary ~~of $150,000. Further, he is entitled to receive a performance bonus equal to 2% of the Company’s annual EBITDA,~~and bonuses up to a maximum ~~annual cash compensation~~ of ~~$1 million (including his base salary)~~$1,000,000, if Mr. Binder resigns or is terminated in connection with a change in control of the Company. In connection with the amendment, the parties also amended and restated that certain Confidentiality, Non-Compete and Property Rights Agreement entered into by and between RJF Labs, Inc. (now CLS Labs), and ~~annual stock options, exercisable at the fair market value~~Mr. Binder effective as of the Company’s common stock on the date of grant, in an amount equal to 2% of its annual EBITDA up to $42.5 million and 4% of its annual EBITDA in excess of $42.5 million. Additionally, Mr. Bonsett received a one-time signing bonus of 250,000 (post Reverse-Split) shares of restricted common stock of the Company, valued at $327,500, which became fully vested one year from the effective date of the agreement. Mr. Bonsett, as an owner of Picture Rock Holdings, LLC (“PRH”), will indirectly receive the benefits of the Colorado Arrangement discussed in Note 12. The business to be operated by PRH pursuant to the Colorado Arrangement has not yet produced revenues. Mr. Bonsett agreed to defer his salary effective July 1, 2017; at May 31, 2018, the Company had accrued compensation due to Mr. Bonsett in the amount of $37,500. On October 1, 2017, the Company and Mr. Bonsett, the Company’s Chief Operating Officer, mutually agreed to end his employment with the Company. Mr. Bonsett may provide consulting services to the Company in the future on an as needed basis.16, 2014.

~~F-31~~

~~Table of Contents~~

~~At May 31, 2018 and 2017, the Company had accrued salary due to Michael Abrams, a former officer of the Company, prior to his September 1, 2015 termination, in the amount of $16,250.~~

~~NOTE 15 – FAIR VALUE OF FINANCIAL INSTRUMENTS~~

~~The following summarizes the Company’s derivative financial liabilities that are recorded at fair value on a recurring basis at May 31, 2018 and 2017.~~

May 31, 2018

Level 1

Level 2

Level 3

Total

Liabilities

Derivative liabilities

$
-

$
-

$
1,265,751

$
1,265,751

May 31, 2017

Level 1

Level 2

Level 3

Total

Liabilities

Derivative liabilities

$
-

$
-

$
95,276

$
95,276

~~The estimated fair values of the Company’s derivative liabilities are as follows:~~

Derivative

Liability

Liabilities Measured at Fair Value

Balance as of May 31, 2016

$
418,537

Issuances

600,564

Convert or Redeem

(612,850
)

Revaluation gain

(310,975
)

Balance as of May 31, 2017

$
95,276

Issuances

3,671,505

Convert or Redeem

(2,696,755
)

Revaluation loss

195,725

Balance as of May 31, 2018

$
1,265,751

~~NOTE 16 – SUBSEQUENT EVENTS~~

~~On June 12, 2018, the Company received a conversion notice from a note holder requesting the conversion of $550,000 in principal and $15,000 of accrued interest into 1,808,000 shares of common stock.~~

On June 20, 2018, the Company executed an agency agreement with Canaccord Genuity Corp. and closed on a private offering of its special warrants for aggregate gross proceeds of CD$13,037,859 (USD$9,988,173). In connection therewith, the Company also entered into a special warrant indenture and a warrant indenture with Odyssey Trust Company, as special warrant agent and warrant agent.

Pursuant to the offering, the Company issued 28,973,019 special warrants at a price of CD$0.45 (USA$0.34) per special warrant. Each special warrant is automatically exercisable, for no additional consideration, into units of the Company on the earlier of: (i) the date that is five business days following the date on which the Company obtains a receipt from the applicable securities regulatory authorities in each of the jurisdictions in Canada in which the special warrants were sold for a final prospectus qualifying the distribution of the units, which is intended to be no later than August 31, 2018, and (ii) the date that is four months and one day after the completion of the Company's acquisition of all of the membership interests in Alternative Solutions, LLC, known as Oasis Cannabis.

~~F-32~~

~~Table of Contents~~

Upon exercise of the special warrants, each unit shall consist of one share of the Company's common stock and one warrant to purchase one share of common stock. Each warrant will be exercisable at a price of CD$0.65 for three years after the Company's common stock is listed on a recognized Canadian stock exchange, subject to adjustment in certain events. If the Company has not received a receipt from the applicable Canadian securities authorities for the qualifying prospectus by August 19, 2018, the unexercised special warrant will thereafter generally entitle the holder to receive 1.1 units instead of one unit of the Company.

In connection with the offering, the Company paid a cash commission equal to CD$1,043,028 (USD$799,053), a corporate finance fee equal to 1,448,651 special warrants, and 2,317,842 compensation warrants. Each compensation warrant entitles the holder thereof to acquire one unit at a price of CD$0.45 per unit for a period of 36 months from the date that the Company's common stock is listed on a recognized Canadian stock exchange, subject to adjustment in certain events.

On June 27, 2018, the Company closed on the purchase of the remaining 90% of the membership interests of Alternative Solutions and its three operating subsidiaries (the “Oasis LLCs”). The closing occurred pursuant to the Acquisition Agreement dated December 4, 2017, as amended. On such date, the Company made the payments to indirectly acquire the remaining 90% of the Oasis LLCs, which were equal to cash in the amount of $6,200,000, a $4.0 million promissory note due in December 2019 (the “Oasis Note”), and 22,058,823 shares of its common stock. The Oasis Note bears interest at the rate of 6% per annum. The Oasis Note may be prepaid at any time without penalty. The Oasis Note is secured by all of the membership interests in Alternative Solutions and the Oasis LLCs and by the assets of the Oasis LLCs. The Company also applied for regulatory approval to own the additional 90% in membership interests in the Oasis LLCs, which it expects to receive in due course. The change of ownership in the Oasis LLCs to the Company will be recorded upon receipt of such regulatory approvals.

On July 24, 2018, the Company awarded Star Associates, LLC, a limited liability company owned by Andrew Glashow, a director of the Company, a cash payment in the amount of $250,000 and 700,000 restricted shares of the Company’s common stock in recognition of Mr. Glashow’s efforts, through Star Associates, in successfully assisting the Company in negotiating and obtaining the financing necessary to acquire Alternative Solutions, LLC.

On July 24, 2018, the Company and Mr. ~~David~~ Lamadrid ~~its President and Chief Financial Officer,~~ mutually agreed to terminate the employment ~~agreement dated December 1, 2017 between the Company and Mr. Lamadrid (the "Employment Agreement") effective July 13, 2018.~~agreement. Mr. Lamadrid resigned as President and Chief Financial Officer effective as of July 13, 2018. ~~The~~In connection with a severance agreement between the Company and Mr. Lamadrid, the Company paid certain amounts and issued 600,000 shares of common stock to Mr. Lamadrid, and the parties further agreed that neither party would have any further obligations under the Employment Agreement or otherwise after such date. The Company also agreed to release Mr. Lamadrid from his non-competition obligations under the Confidentiality, Non-Compete and Property Rights Agreement dated November 30, 2017 between the parties (the "Confidentiality Agreement"). The balance

F-37

Table of ~~the terms of the Confidentiality Agreement remain in full force and effect.~~

Contents

On July ~~27,~~31, 2018, the Company ~~announced~~and Mr. Sillitoe entered into a one-year employment agreement. Pursuant to the ~~appointment of Frank J. Tarantino as its Chief Financial Officer, effective August 1, 2018. In connection with his employment, the Company awarded~~agreement, Mr. ~~Tarantino 25,000 shares of restricted common stock, which vests four months after the date he~~Sillitoe commenced ~~his employment with the Company.~~

~~Mr. Benjamin Sillitoe was appointed to serve~~serving as the Chief Executive Officer of CLS Nevada, Inc. ~~commencing on~~effective July 1, 2018. ~~On July 31, 2018, CLS Nevada, Inc. and Mr. Sillitoe entered into a one-year employment agreement.~~ Under the agreement, Mr. Sillitoe is entitled to receive an annual salary of $150,000. Further, he is entitled to receive a performance bonus equal to 2% of the annual EBITDA of CLS Nevada, Inc.~~’s annual EBITDA,~~, and annual restricted stock awards of the Company’s common stock in an amount equal to 3% of the annual EBITDA of CLS Nevada, Inc.~~’s annual EBITDA.~~ Additionally, Mr. Sillitoe ~~is entitled to~~received a one-time signing bonus of 500,000 shares of restricted common stock, ~~of the Company,~~ which ~~shall become~~became fully vested one year from the effective date of ~~this agreement assuming~~his employment agreement. On July 31, 2019, CLS Nevada, Inc. and Mr. Sillitoe ~~remains employed by~~amended Mr. Sillitoe’s employment agreement to effect the ~~Company~~original intention of the parties that the performance bonus would be based on ~~such date. Effective July 1, 2018,~~the results of Alternative Solutions and ~~in connection with~~not CLS Nevada, Inc. On April 16, 2020, CLS Nevada, Inc. notified Mr. Sillitoe of its intent not to renew the employment agreement Mr. Sillitoe and the Company entered into a Confidentiality, Non-Compete and Proprietary Rights Agreement. Pursuant thereto, Mr. Sillitoe agreed (i) not to compete with the Company or CLS Nevada, Inc. during the term of his employment and, unless he is terminated without cause, for a period of one year thereafter, (ii) not to release or disclose the Company’s or CLS Nevada, Inc.’s confidential information, and (iii) to assign the rights to all work product to the CLS Nevada, Inc., among other terms.upon its termination on June 30, 2020.

~~Mr. Don Decatur was appointed to serve as CLS Nevada, Inc.’s Chief Operating Officer commencing on July 1, 2018.~~ CLS Nevada, Inc. and Mr. Decatur entered into a one-year employment agreement effective July 31, 2018. Pursuant to the agreement, Mr. Decatur commenced serving as the Chief Operating Officer of CLS Nevada, Inc. on July ~~31,~~1, 2018. Under the agreement, Mr. Decatur is entitled to receive an annual salary of $150,000. Further, he is entitled to receive a performance bonus equal to 2% of the annual EBITDA of CLS Nevada, Inc.~~’s annual EBITDA,~~, and annual restricted stock awards of the ~~Company’s~~Company’ common stock in an amount equal to 3% of the annual EBITDA of CLS Nevada, Inc.’s Additionally, Mr. Decatur received to a one-time signing bonus of 50,000 shares of restricted common stock, which became fully vested one year from the effective date of his employment agreement. On May 14, 2019, CLS Nevada and Mr. Decatur entered into an amendment to his employment agreement to extend the term of Mr. Decatur’s employment agreement by two years instead of relying on the automatic one-year renewal provision in the employment agreement. On July 31, 2019, CLS Nevada, Inc. and Mr. Decatur amended Mr. Decatur’s employment agreement to effect the original intention of the parties that the performance bonus would be based on the results of Alternative Solutions and not CLS Nevada, Inc. On December 16, 2019, Mr. Decatur resigned from his position as Chief Operating Officer of CLS Nevada, Inc., effective immediately, for personal reasons.

On March 1, 2019, the Company and Mr. Glashow entered into a two-year employment agreement and Mr. Glashow commenced serving as the Company’s President and Chief Operating Officer. Under the agreement, Mr. Glashow is entitled to receive an annual salary of $175,000. Further, he is entitled to receive a performance bonus equal to 1% of the Company’s annual EBITDA, and annual restricted stock awards in an amount equal to 1% of the Company’s annual EBITDA. Additionally, Mr. ~~Decatur~~Glashow is entitled to a one-time signing bonus of 500,000 shares of the Company’s restricted common stock, half of which shall vest on March 1, 2020, and half of which shall vest on March 1, 2021. Effective March 1, 2019, and in connection with the employment agreement, Mr. Glashow and the Company entered into a Confidentiality, Non-Compete and Proprietary Rights Agreement. Pursuant thereto, Mr. Glashow agreed (i) not to compete with us during the term of his employment and for a period of one year thereafter, (ii) not to release or disclose our confidential information, and (iii) to assign the rights to all work product to us, among other terms. On October 14, 2019, but effective October 1, 2019, the Company and Mr. Glashow entered into an amendment to his employment agreement to extend the term by one year instead of relying on the automatic one-year renewal provision in the employment agreement, and to increase Mr. Glashow’s annual base salary to $200,000. The amendment also provides that in addition to his base salary, Mr. Glashow is entitled to receive, on an annual basis, a performance-based bonus equal to two percent (2%) of the Company’s annual EBITDA up to a maximum annual cash compensation of $1 million including base salary, and annual stock options, exercisable at the fair market value of the Company’s common stock on the effective date of grant, in an amount equal to 2% of the Company’s EBITDA up to $42.5 million and 4% of its annual EBITDA in excess of $42.5 million. Additionally, the amendment provides for certain change of control provisions, including a payment of up to three years base salary and bonuses up to a maximum of $1,000,000, if Mr. Glashow resigns or is terminated in connection with a change in control of the Company.

On May 2, 2019, the Company and Gregg Carlson entered into a one-year employment agreement. Pursuant to the employment agreement, Mr. Carlson commenced serving as the Company’s Chief financial Officer on May 1, 2019 and will continue his employment with us pursuant to the terms of his one-year employment agreement with Alternative Solutions effective April 8, 2019. Mr. Carlson receives an annual salary of $110,000, and received a one-time signing bonus of 50,000 shares of restricted common stock of the Company, which shall become fully vested one year from the effective date of ~~the~~his employment agreement assuming Mr. ~~Decatur~~Carlson remains employed by the Company on such date. ~~Effective July 1, 2018,~~

At May 31, 2020 and ~~in connection with the employment agreement, Mr. Decatur and~~2019, the Company ~~entered into~~had accrued salary due to Michael Abrams, a ~~Confidentiality, Non-Compete and Proprietary Rights Agreement. Pursuant thereto, Mr. Decatur agreed (i) not to compete with~~former officer of the Company, ~~or CLS Nevada, Inc during~~prior to his September 1, 2015 termination, in the ~~term~~amount of ~~his employment~~$16,250.

NOTE 24 – SUBSEQUENT EVENTS

The Company has evaluated events through the date the financial statements and unless he is terminated without cause, for a period of one year thereafter, (ii) not to release or disclose the Company’s or CLS Nevada, Inc.’s confidential information, and (iii) to assign the rights to all work product to CLS Nevada, Inc., among other terms.has determined that there were no material subsequent events.

~~F-33~~F-38

Table of Contents

Effective July 31, 2018, the Company, entered into a subscription agreement with Navy Capital Green International, Ltd., a British Virgin Islands limited company (“Navy Capital”), pursuant to which the Company agreed to sell to Navy Capital, for a purchase price of $3,000,000, 7,500,000 Units ($0.40 per unit), representing (i) 7,500,000 shares of the Company’s Common Stock, and (ii) three-year warrants to purchase an aggregate of 7,500,000 shares of our Common Stock (the “Warrant Shares”) at an exercise price of $0.60 per share of Common Stock. The closing occurred on August 6, 2018. In the subscription agreement, the Company also agreed to file, on or before November 1, 2018, a registration statement with the SEC registering the shares of Common Stock and Warrant Shares issued to Navy Capital. If the Company fails to file the registration statement on or before that date, the Company must issue to Navy Capital an additional number of units equal to ten percent (10%) of the units originally subscribed for by Navy Capital (which will include additional warrants at the original exercise price). The warrant is exercisable from time to time, in whole or in part for three years. The warrant has anti-dilution provisions that provide for an adjustment to the exercise price in the event of a future sale of Common Stock at a lower price, subject to certain exceptions as set forth in the warrant. The warrant also provides that it is callable at any time after the bid price of the Company’s Common Stock exceeds 120% of the exercise price of the warrant for a period of 20 consecutive business days.

On August 6, 2018, the Company issued a convertible promissory note to Newcan, an entity owned by Frank Koretsky, a director of the Company, in the amount of $75,000.00 (the “Newcan Convertible Note 8”), to finalize the terms of repayment with respect to a certain loan made to the Company by Newcan on May 4, 2018. The Newcan Convertible Note 8 is unsecured and bears interest at the rate of 10% per annum. No payments are required until October 1, 2019, at which time all accrued interest becomes due and payable. Principal will be paid in eight equal quarterly installments, together with interest accrued thereon, beginning on January 1, 2020. The Notes may be prepaid by the Company with no penalty at any time upon thirty days written notice. The holder of the Newcan Convertible Note 9 may, at any time prior to payment or prepayment in full, convert all principal and accrued interest thereunder, in whole or in part, into securities of the Company. For each $0.40 converted, the holder will receive one share of the Company’s Common Stock.

Between August 8, 2018 and August 10, 2018, the Company entered into five subscription agreements, pursuant to which the Company sold, for an aggregate purchase price of $2,750,000, 6,875,000 Units ($0.40 per unit), representing (i) 6,875,000 shares of the Company’s Common Stock, and (ii) three-year warrants to purchase an aggregate of 6,875,000 shares of the Company’s Common Stock (the “Warrant Shares”) at an exercise price of $0.60 per share of Common Stock. The subscription agreements require the Company to file, on or before November 1, 2018, a registration statement with the SEC registering the shares of Common Stock and Warrant Shares issued to the Navy Capital Investors. If the Company fails to file the registration statement on or before that date, the Company must issue to the Navy Capital Investors an additional number of units equal to ten percent (10%) of the units originally subscribed for by each Navy Capital Investor (which will include additional warrants at the original exercise price). The warrants are exercisable from time to time, in whole or in part for three years. The warrants have anti-dilution provisions that provide for an adjustment to the exercise price in the event of a future sale of Common Stock at a lower price, subject to certain exceptions as set forth in the warrant. The warrants also provide that they are callable at any time after the bid price of the Company’s Common Stock exceeds 120% of the exercise price of the warrants for a period of 20 consecutive business days.

~~F-34~~

~~Table of Contents~~

CLS Holdings USA, Inc.

Unaudited Interim Condensed Consolidated Financial Statements

For the Three and Nine Month Periods Ended February 28, ~~2019~~2021 and ~~2018~~February 29, 2020

~~F-35~~F-39

Table of Contents

CLS HOLDINGS USA, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

February 28,

May 31,

2019

2018

ASSETS

Current assets

    Cash and cash equivalents
$ 11,972,015 $ 52,964
    Accounts receivable
295,013 -
    Inventory
605,796 -
    Prepaid expenses and other current assets
712,739 1,410
    Redemption premium in transit
964,788 -
      Total current assets
14,550,351 54,374

Investment
- 2,050,000
Note receivable
5,150,000 -
Interest receivable
99,618 -
Property, plant and equipment, net of accumulated depreciation of $494,439 and $2,674
1,547,164 -
Intangible assets, net of accumulated amortization of $62,856 and $828
1,577,344 898
Goodwill
25,742,899 -
Other assets
160,450 -

Total assets
$ 48,827,826 $ 2,105,272

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities

     Accounts payable and accrued liabilities
$ 1,394,353 $ 826,621
     Accrued compensation, related party
53,750 120,417
     Due to related party
17,930 17,930
     Accrued interest
558,401 24,748
     Accrued interest, related party
6,305 5,143
     Notes payable, net of discount of $100,536 and $0
3,899,464 310,000
     Notes payable, related parties
- 75,137
     Deferred rent obligation
137,707 -
     Convertible notes payable, net of discount of $351,883 and $561,599
398,117 43,401
     Contingent liability
678,111 -
     Derivative liability
- 1,265,751

          Total current liabilities
7,144,138 2,689,148

Noncurrent liabilities

      Accrued interest, long-term
- -
     Convertible notes payable - Long Term, net of discount of $7,678,852 and $65,918
10,190,148 41,072
     Convertible notes payable, related parties, net of discount of $0 and $733,928
- 2,832

Total Liabilities
17,334,286 2,733,052

Commitments and contingencies
- -

Stockholder's equity

Preferred stock, $0.001 par value; 20,000,000 shares authorized; no shares issued
- -
Common stock, $0.0001 par value; 250,000,000 shares authorized; 125,814,107 and 50,128,972 shares issued and outstanding at February 28, 2019 and May 31, 2018, respectively
12,583 5,013
   Additional paid-in capital
73,890,916 17,628,717
   Common stock subscribed
346,784 307,584
   Accumulated deficit
(42,756,743
)
(18,569,094
)
      Total stockholder's equity (deficit)
31,493,540 (627,780
)

Total liabilities and stockholders' equity (deficit)
$ 48,827,826 $ 2,105,272

	February 28,			May 31,
	2021			2020
ASSETS	(unaudited)
Current assets
Cash and cash equivalents	$	2,231,934		$	2,925,568
Accounts Receivable		277,437			161,409
Inventory		969,656			575,242
Prepaid expenses and other current assets		393,041			234,092
Interest receivable - current portion		-			3,322
Notes receivable - current portion		-			4,042,175
Total current assets		3,872,068			7,941,808

Property, plant and equipment, net of accumulated depreciation of $1,291,937 and $868,200		3,533,038			3,775,509
Right of use assets, operating leases		1,136,695			1,403,429
Intangible assets, net of accumulated amortization of $330,207 and $242,908		1,333,905			1,421,204
Goodwill		557,896			557,896
Other assets		167,455			167,455

Total assets	$	10,601,057		$	15,267,301

LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable and accrued liabilities	$	1,179,748		$	1,172,883
Accrued interest		267,945			222,433
Lease liability - operating leases, current		93,532			336,900
Convertible notes payable - current, net of discount of $1,053,520 and $0		19,042,293			-
Contingent liability		-			150,000

Total current liabilities		20,583,518			1,882,216

Noncurrent liabilities
Lease liability - operating leases, non-current		1,065,208			1,136,151
Convertible notes payable - Long Term, net of discount of $0 and $2,238,730		-			17,644,482

Total Liabilities		21,648,726			20,662,849

Commitments and contingencies		-			-

Stockholder's deficit
Preferred stock, $0.001 par value; 20,000,000 shares authorized; no shares issued		-			-
Common stock, $0.0001 par value; 750,000,000 shares authorized at February 28, 2021 and May 31, 2020; 126,821,416 and 126,521,416 shares issued and outstanding at February 28, 2021 and May 31, 2020		12,683			12,653
Additional paid-in capital		71,319,504			71,196,814
Common stock subscribed		173,452			241,109
Accumulated deficit		(82,553,308	)		(76,846,124	)
Total stockholder's deficit		(11,047,669	)		(5,395,548	)

Total liabilities and stockholders' deficit	$	10,601,057		$	15,267,301

See accompanying notes to these financial statements.

~~F-36~~F-40

Table of Contents

CLS HOLDINGS USA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	For the Three			For the Three			For the Nine			For the Nine			For the Three			For the Three			For the Nine			For the Nine
	Months Ended			Months Ended			Months Ended			Months Ended			Months Ended			Months Ended			Months Ended			Months Ended
	February 28, 2019			February 28, 2018			February 28, 2019			February 28, 2018			February 28, 2021			February 29, 2020			February 28, 2021			February 29, 2020


Revenue	$	2,372,790		$	-		$	5,529,053		$	-		$	4,544,082		$	3,224,170		$	13,232,840		$	9,139,616
Cost of goods sold		1,438,424			-			3,245,035			-			2,488,906			1,537,960			6,487,089			4,537,164
Gross margin		934,366			-			2,284,018			-			2,055,176			1,686,210			6,745,751			4,602,452


Selling, general and administrative expenses		5,102,871			1,214,971			23,472,037			1,831,554			2,511,502			2,213,206			7,717,063			6,533,173
Total operating expenses		5,102,871			1,214,971			23,472,037			1,831,554			2,511,502			2,213,206			7,717,063			6,533,173

Operating loss		(4,168,505	)		(1,214,971	)		(21,188,019	)		(1,831,554	)		(456,326	)		(526,996	)		(971,312	)		(1,930,721	)

Other (income) expense:
Interest expense, net		662,961			1,434,314			2,999,630			2,316,145			757,740			725,003			2,237,166			2,254,752
Gain on settlement of debt		-			-			-			(3,480	)
Loss on modification of debt		-			-			-			29,145
Loss on note exchange		-			-			-			404,082
Loss on extinguishment of debt		-			-			-			989,032
Change in fair value of derivative		-			(148,227	)		-			25,863
Impairment of note receivable														2,498,706			-			2,498,706			-
Gain on settlement of liabilities														-			-			-			(275,000	)
Total other expense		662,961			1,286,087			2,999,630			3,760,787			3,256,446			725,003			4,735,872			1,979,752

Income (Loss) before income taxes		(4,831,466	)		(2,501,058	)		(24,187,649	)		(5,592,341	)
Loss before income taxes														(3,712,772	)		(1,251,999	)		(5,707,184	)		(3,910,473	)

Income tax expense		-			-			-			-			-			-			-			-

Net income (loss)	$	(4,831,466	)	$	(2,501,058	)	$	(24,187,649	)	$	(5,592,341	)
Net loss													$	(3,712,772	)	$	(1,251,999	)	$	(5,707,184	)	$	(3,910,473	)

Net income (loss) per share - basic	$	(0.04	)	$	(0.06	)	$	(0.25	)	$	(0.16	)
Net loss per share - basic													$	(0.03	)	$	(0.01	)	$	(0.05	)	$	(0.03	)

Net income (loss) per share - diluted	$	(0.04	)	$	(0.06	)	$	(0.25	)	$	(0.16	)
Net loss per share - diluted													$	(0.03	)	$	(0.01	)	$	(0.05	)	$	(0.03	)

Weighted average shares outstanding - basic		124,346,650			39,126,944			95,132,835			35,654,299			126,635,303			126,470,865			126,568,117			126,343,206

Weighted average shares outstanding - diluted		124,346,650			39,126,944			95,132,835			35,654,299			126,635,303			126,470,865			126,568,117			126,343,206

See accompanying notes to these financial statements.

~~F-37~~F-41

Table of Contents

CLS HOLDINGS USA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF ~~STOCKHOLDERS’ EQUITY~~STOCKHOLDERS’ DEFICIT

(Unaudited)

Additional

Common Stock

Paid In

Stock

Accumulated

Amount

Value

Capital

Payable

Deficit

Total

Balance, May 31, 2017
32,852,944 $ 3,286 $ 7,032,836 $ 68,950 $ (8,991,610
)
$ (1,886,538
)
Common stock issued to consultant for services
374,000 37 264,283 25,313 - 289,633
Common stock issued for debt exchange
6,000,000 600 2,353,437 - - 2,354,037
Common stock issued as commitment fees
250,000 25 94,975 - - 95,000
Common stock issued to officer
- - - 213,321 - 213,321
Common stock issued for cash, net of issuance costs
5,473,000 547 1,460,368 - - 1,460,915
Common stock issued for conversion of debt
5,179,028 518 1,617,928 - - 1,618,446
Warrants issued with debt
- - 1,804,470 - - 1,804,470
Settlement of derivative liability
442,775 442,775
Placement agent warrants
- - 503,655 - - 503,655
Warrants issued to consultants
- - 294,173 - - 294,173
Discount on notes from beneficial conversion feature
- - 1,758,741 - - 1,758,741
Imputed interest
- - 1,076 - - 1,076
Net loss - 12 months
- - - - (9,577,484
)
(9,577,484
)
Balance, May 31, 2018
50,128,972 $ 5,013 $ 17,628,717 $ 307,584 $ (18,569,094
)
$ (627,780
)

Common stock issued for conversion of debt
3,697,511 370 1,295,320 - - 1,295,690
Common stock issued in connection with Oasis acquisition
22,058,823 2,206 15,438,970 - - 15,441,176
Common stock issued to consultant
731,250 73 515,240 (25,313
)
- 490,000
Common stock issued to officer
600,000 60 263,940 (213,320
)
- 50,680
Common stock to be issued to officer
- - - 277,833 - 277,833
Common stock issued for cash
14,375,000 1,438 5,748,562 - - 5,750,000
Special Warrants issued for cash
- - 9,785,978 - - 9,785,978
Cashless exercise of warrant
129,412 13 (13
)
- - -
Warrant issued due to penalty
- - 941,972 - - 941,972
Warrants issued as compensation for offering
- - 2,369,830 - - 2,369,830
Units issued as compensation for offering
559,750 56 557,279 557,335
Warrants issued to placement agent
- - 1,413,300 - - 1,413,300
Special warrant issued due to penalty
- - 7,142,550 - - 7,142,550
Common stock issued for exercise of special warrants
33,463,838 3,347 (3,347
)
- -
Cashless exercise of warrant
19,551 2 (2
)
- - -
Common stock shares issued for settlement
50,000 5 47,495 - - 47,500
Foreign currency transaction loss on equity offering
- - 403,588 - - 403,588
Discount on notes from beneficial conversion feature
- - 9,039,096 - - 9,039,096
Reclassification of derivative upon adoption of ASU 2017-11
- - 1,265,751 - - 1,265,751
Derivative valuation of reset event
- - 35,883 - - 35,883
Imputed interest
- - 807 - - 807
Net loss - 9 months
- - - - (24,187,649
)
(24,187,649
)
Balance, February 28, 2019
125,814,107 $ 12,583 $ 73,890,916 $ 346,784 $ (42,756,743
)
$ 31,493,540

	Common Stock				Paid In		Stock			Accumulated
	Amount		Value		Capital		Payable			Deficit			Total
Balance - May 31, 2019		125,839,095	$	12,585	$	70,758,025	$	455,095		$	(46,188,151	)	$	25,037,554
Common stock issued to officers		550,000		55		390,445		(390,500	)		-			-
Conversion of notes payable		32,321		3		25,854		-			-			25,857
Vesting of Common stock to be issued to officers		-		-		-		124,582			-			124,582
Common stock to be issued to consultants		-		-		-		45,000			-			45,000
Common stock issued to consultants		100,000		10		22,490		(22,500	)		-			-
Net loss - 9 months ended February 29, 2020		-		-		-		-			(3,910,473	)		(3,910,473	)
Balance - February 29, 2020 (unaudited)		126,521,416	$	12,653	$	71,196,814	$	211,677		$	(50,098,624	)	$	21,322,520


Balance, May 31, 2020		126,521,416	$	12,653	$	71,196,814	$	241,109		$	(76,846,124	)	$	(5,395,548	)
Common stock to be issued to officer		-		-		-		80,813			-			80,813
Common stock issued to officer from stock payable		300,000		30		122,690		(122,720	)		-			-
Fair value of cancelled shares issued for services		-		-		-		(25,750	)		-			(25,750	)
Net loss for the 9 months ended February 28, 2021		-		-		-		-			(5,707,184	)		(5,707,184	)
Balance, February 28, 2021 (unaudited)		126,821,416	$	12,683	$	71,319,504	$	173,452		$	(82,553,308	)	$	(11,047,669	)

See accompanying notes to these financial statements.

~~F-38~~F-42

Table of Contents

CLS HOLDINGS USA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

For the Nine

For the Nine

Months Ended

Months Ended

February 28, 2019

February 28, 2018

CASH FLOWS FROM OPERATING ACTIVITIES

Net income (loss)
$ (24,187,649
)
$ (5,592,341
)
Adjustments to reconcile net loss to net cash used in operating activities:

Imputed interest
807 804
Change in fair value of derivative
- 25,863
Warrants issued to placement agent
3,783,130 610,414
Warrants and Special Warrants issued to penalty
8,084,522 -
Units issued to placement agent
557,335
Non-cash offering costs of equity financing
403,588 -
Fair value of shares vested by officers
328,513 55,000
Fair value of shares issued to consultants
490,000 -
Fair value of shares issued in settlement
47,500 -
Loss on modification of debt
- 29,145
(Gain) loss on note exchange
- 404,082
Loss on extinguishment of debt
- 989,032
Gain on settlement of Account Payable
- (3,480
)
Expense from derivative triggering event
12,659 -
Amortization of debt discounts
2,481,674 1,391,110
Amortization of deferred financing costs
- 22,569
Depreciation and amortization expense
184,068 993
Changes in assets and liabilities:

Accounts receivable
(259,576
)
-
Interest receivable
(99,618
)
-
Inventory
(199,843
)
-
Prepaid expenses
(608,090
)
(11,188
)
Other assets
- 50,000
Redemption premium in transit
(964,788
)
(46,000
)
Accounts payable and accrued expenses
(353,832
)
937,895
Accrued compensation
(16,667
)
167,584
Due to related parties
(50,000
)
-
Accrued interest, related party
5,943 87,966
Accrued interest
588,312 21,045
Deferred rent liability
1,667 (49,565
)
Net cash used in operating activities
(9,770,345
)
(909,072
)

CASH FLOWS FROM INVESTING ACTIVITIES

Payments to purchase property, plant and equipment
(735,234
)
-
Payments to acquire note receivable
(5,150,000
)
-
Payment for investment in Alternative Solutions, net of cash received of $14,612
(5,982,710
)
(2,050,000
)
Net cash used in investing activities
(11,867,944
)
(2,050,000
)

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from related party convertible notes payable
- 601,070
Proceeds from related party notes payable
211,700 -
Proceeds from notes payable
- 410,000
Proceeds from convertible notes payable
18,369,000 880,000
Principal payments on notes payable
(310,000
)
-
Principal payments on related party notes payable
(211,838
)
-
Principal payments on convertible notes payable
(37,500
)
-
Proceeds from sale of equity
15,535,978 1,012,425
Net cash provided by financing activities
33,557,340 2,903,495

Net increase in cash and cash equivalents
11,919,051 (55,577
)

Cash and cash equivalents at beginning of period
52,964 78,310

Cash and cash equivalents at end of period
$ 11,972,015 $ 22,733

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Interest paid
$ 8,964 $ -
Income taxes paid
$ - $ -

NON-CASH INVESTING AND FINANCING ACTIVITIES:

Convertible note issued for unpaid accrued salary
$ 75,000 $ 112,500
Related party notes payable reclassified as related party convertible notes payable
$ - $ 1,116,856
Beneficial conversion feature on convertible notes
$ 9,039,096 $ 1,681,946
Note payable exchanged for common stock
$ 1,295,690 $ 936,478
Shares issued for settlement of accounts payable
$ - $ 6,000
Discount on convertible notes payable due to derivative
- $ 1,321,862
Charge to paid-in capital for par value of shares issued in cashless exercise of warrants
$ 3,362 $ -
Reclassify derivative liability to paid-in capital upon adoption of ASU 2017-11
$ 1,265,751 $ -
Shares issued for services from stock payable
$ 25,313 $ -

	For the Nine			For the Nine
	Months Ended			Months Ended
	February 28, 2021			February 29, 2020
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(5,707,184	)	$	(3,910,473	)
Adjustments to reconcile net loss to net cash used in operating activities:
Gain on contingent liabilities		-			(275,000	)
Fair value of cancelled shares issued for services		(25,750	)		-
Amortization of debt discounts		1,185,210			1,249,053
Fair value of shares vested by officers		80,813			124,582
Impairment of note receivable		2,498,706			-
Depreciation and amortization expense		511,036			285,073
Fair value of shares issued in settlement		-			45,000
Bad debt expense		5,927			-
Changes in assets and liabilities:
Accounts receivable		(121,955	)		6,342
Prepaid expenses and other current assets		(158,949	)		(72,742	)
Inventory		(394,414	)		16,503
Interest receivable		2,500			(221,195	)
Right of use asset		266,734			1,215,397
Accounts payable and accrued expenses		6,865			(166,468	)
Accrued interest		258,113			934,117
Contingent liability		(150,000	)		-
Operating lease liability		(314,311	)		(1,101,532	)
Net cash used in operating activities		(2,056,659	)		(1,871,343	)

CASH FLOWS FROM INVESTING ACTIVITIES
Payments to purchase property, plant and equipment		(181,266	)		(1,766,185	)
Loan made to borrower under note receivable		-			(175,000	)
Proceeds from collection of note receivable		1,544,291			325,000
Net cash provided by (used in) investing activities		1,363,025			(1,616,185	)

CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on notes payable		-			(3,999,168	)
Net cash used in financing activities		-			(3,999,168	)

Net decrease in cash and cash equivalents		(693,634	)		(7,486,696	)

Cash and cash equivalents at beginning of period		2,925,568			10,525,791

Cash and cash equivalents at end of period	$	2,231,934		$	3,039,095

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid	$	943,817		$	307,612
Income taxes paid	$	-		$	-

NONCASH INVESTING AND FINANCING ACTIVITIES:
Shares issued for services issued from stock payable	$	122,720		$	-
Adoption of lease standard ASU 2016-02	$	-		$	1,781,446
Capitalized interest on convertible debentures	$	212,601		$	1,144,762
Shares issued for conversion of notes payable	$	-		$	25,857
Reclassification of deposit to fixed assets	$	-		$	136,190

See accompanying notes to these financial statements.

~~F-39~~F-43

Table of Contents

C~~CLS~~LS HOLDINGS USA, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

February 28, ~~2019~~2021

(Unaudited)

Note 1 – Nature of Business and Significant Accounting Policies

Basis of Presentation

Principals of Consolidation

The accompanying consolidated financial statements include the accounts of CLS Holdings USA, Inc., and its 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”). 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”). All material intercompany transactions have been eliminated upon consolidation of these entities.

Nature of Business

The Company has been issued a U.S. patent with respect to its proprietary method of extracting cannabinoids from cannabis plants and converting the resulting cannabinoid extracts into concentrates such as oils, waxes, edibles and shatter. These concentrates may be ingested in a number of ways, including through vaporization via electronic cigarettes (“e-cigarettes”), and used for a variety of pharmaceutical and other purposes. Internal testing of this extraction method and conversion process has revealed that it produces a cleaner, higher quality product and a significantly higher yield than the cannabinoid extraction processes currently existing in the marketplace. The Company has not commercialized its patented proprietary process or otherwise earned any revenues from it. The Company plans to generate revenues through licensing, fee-for-service and joint venture arrangements related to its patented proprietary method of extracting cannabinoids from cannabis plants and converting the resulting cannabinoid extracts into saleable concentrates.

On December 4, 2017, the Company and Alternative Solutions, ~~LLC~~ entered into a Membership Interest Purchase Agreement (the “Acquisition Agreement”), as amended, for the Company to acquire the Oasis LLCs from Alternative Solutions. Pursuant to the Acquisition Agreement, the Company initially contemplated acquiring all of the membership interests in the Oasis LLCs from Alternative Solutions. Just prior to closing, the parties agreed that the Company would instead acquire all of the membership interests in Alternative Solutions, the parent of the Oasis LLCs, from its members, and the membership interests in the Oasis LLCs owned by members other than Alternative Solutions.

~~F-40~~F-44

Table of Contents

Pursuant to the Acquisition Agreement, the Company paid a non-refundable deposit of $250,000 upon signing, which was followed by an additional payment of $1,800,000 paid in February 2018, for an initial 10% of each of the Oasis LLCs. At that time, the Company applied for regulatory approval to own an interest in the Oasis LLCs, which approval was received. On June 27, 2018, the Company made the payments to indirectly acquire the remaining 90% of the Oasis LLCs, which were equal to cash in the amount of $5,995,543, a $4.0 million promissory note due in December 2019 (the “Oasis Note”), and 22,058,823 shares of its common stock (the “Purchase Price Shares”) (collectively, the “Closing Consideration”). The cash payment of $5,995,543 was less than the $6,200,000 payment originally contemplated because the Company assumed an additional $204,457 of liabilities. The Company used the proceeds of a Canadian private securities offering to fund the cash portion of the Closing Consideration. The Company then applied for regulatory approval to own the additional 90% in membership interests in the Oasis LLCs, which it received on December 12, 2018. ~~The Company has adopted a fiscal year end of May 31st.~~

On October 31, 2018, the Company, CLS Massachusetts, Inc., a Massachusetts corporation and a wholly-owned subsidiary of the Company (“CLS Massachusetts”), and In Good Health, Inc. ~~(“IGH”)~~, a Massachusetts ~~not-for-profit~~ corporation ~~which converted to a for-profit corporation on November 6, 2018 (the “Conversion”~~(“IGH”), entered into an Option Agreement (the ~~“Option~~“IGH Option Agreement”). Under the terms of the IGH Option Agreement, CLS Massachusetts ~~has~~had an exclusive option to acquire all of the outstanding capital stock of IGH (the ~~“Option”~~“IGH Option”) during the period beginning on the earlier of the date that is one year after the effective date of the ~~Conversion~~conversion and December 1, 2019 and ending on the date that is 60 days after such ~~date~~date. If CLS Massachusetts exercised the IGH Option, the Company, a wholly-owned subsidiary of the Company and IGH would enter into a merger agreement (the ~~“Option Period”~~form of which had been agreed to by the parties) (the “IGH Merger Agreement”). ~~(See~~At the effective time of the merger contemplated by the IGH Merger Agreement, CLS Massachusetts would pay a purchase price of $47,500,000, subject to reduction as provided in the IGH Merger Agreement, payable as follows: $35 million in cash, $7.5 million in the form of a five-year promissory note, ~~4).~~and $5 million in the form of restricted common stock of the Company, plus $2.5 million as consideration for a non-competition agreement with IGH’s President, payable in the form of a five-year promissory note. IGH and certain IGH stockholders holding sufficient aggregate voting power to approve the transactions contemplated by the IGH Merger Agreement entered into agreements pursuant to which such stockholders, among other things, agreed to vote in favor of such transactions. On October 31, 2018, as consideration for the IGH Option, the Company made a loan to IGH, ~~(the “IGH Loan”~~in the principal amount of $5,000,000, subject to the terms and conditions set forth in that certain loan agreement, dated as of October 31, 2018 between IGH as the borrower and the Company as the lender. The loan is evidenced by a secured promissory note of IGH, which bears interest at the rate of 6% per annum and matures on October 31, 2021. To secure the obligations of IGH to the Company under the loan agreement and the promissory note, the Company and IGH entered into a security agreement dated as of October 31, 2018, pursuant to which IGH granted to the Company a first priority lien on and security interest in all personal property of IGH. If the Company did not exercise the Option on or prior to the date that is 30 days following the end of the option period, the loan amount would be reduced to $2,500,000 as a break-up fee, subject to certain exceptions set forth in the IGH Option Agreement. On August 26, 2019, the parties amended the IGH Option Agreement to, among other things, delay closing until January 2020. By letter agreement dated January 31, 2020, the Company, CLS Massachusetts and IGH extended the IGH Option Agreement to February 4, 2020. On February 4, 2020, CLS Massachusetts exercised the IGH Option. By letter dated February 26, 2020, the Company informed IGH that as a result of its breaches of the IGH Option, which remained uncured, an event of default had occurred under the IGH Note. The Company advised IGH that it was electing to cause the IGH Note to bear interest at the default rate of 15% per annum effective February 26, 2020 and to accelerate all amounts due under the Note. This dispute, including whether IGH breached the IGH Option and whether CLS is entitled to collect default interest, is now in litigation. At February 28, 2021, the Company had collected a total of $2,901,569 of principal and $220,196 of interest on the IGH Note. On February 27, 2021, IGH notified the Company that it did not plan to make further payments under the IGH Note on the theory that the Break-Up Fee (as defined below) excused additional payments. The Company vehemently disagrees with this assertion, which remains in litigation. The Company has requested permission from the court to file an amended complaint to accelerate the due date of all remaining amounts under the IGH Note and receive default interest as a result of IGH’s breach of the IGH Note, as well as to add a fraud count to the complaint. During the nine months ended February 28, 2021, the Company impaired the remaining amounts due under the IGH Note in the amount of $2,498,706, which includes $2,497,884 in principal and $822 in accrued interest. As of February 28, 2021, the principal balance of the IGH Note was $0 and the interest receivable was $0.

On January 29, 2019, the Company made a line of credit loan to CannAssist, LLC (“CannAssist”), in the principal amount of ~~$5,000,000 (the “IGH Loan Amount”),~~up to $500,000, subject to the terms and conditions set forth in that certain Loan Agreement, dated as of ~~October 31, 2018~~January 29, 2019 between ~~IGH~~CannAssist as the ~~borrower~~Borrower and the Company as the ~~lender~~Lender (the ~~“IGH~~“CannAssist Loan Agreement”) ~~(see note 9)~~. Any draws on the line of credit in excess of $150,000 will only be made in the sole discretion of the Company. The ~~IGH Loan~~loan is evidenced by a secured promissory note of ~~IGH~~CannAssist (the ~~“IGH Note Receivable”~~“CannAssist Note”), which bears interest at the rate of 6%8% per annum and ~~matures~~is personally guaranteed by the two equity owners of CannAssist. To secure the obligations of CannAssist to the Company under the CannAssist Loan Agreement and the CannAssist Note, the Company and CannAssist entered into a security agreement dated as of January 29, 2019, pursuant to which CannAssist granted to the Company a first priority lien on ~~October 31, 2021.~~and security interest in all personal property of CannAssist.

On ~~September 13, 2018, we~~March 11, 2019, the Company, through its wholly-owned subsidiary, CLS Massachusetts, entered into a ~~non-binding letter of intent~~membership interest purchase agreement (the “CannAssist ~~LOI”~~Purchase Agreement”) with CannAssist, ~~LLC,~~each of the members of CannAssist, and David Noble, as the members’ representative, to acquire an 80% ownership interest in CannAssist. After conducting diligence, the parties decided to terminate the CannAssist Purchase Agreement effective August 26, 2019.

F-45

Table of Contents

On August 26, 2019, the Company and CannAssist entered into an agreement to amend the CannAssist Note. Pursuant to the amendment, there were no additional advances under the CannAssist Note beyond the $150,000 advanced on February 4, 2019, and the $175,000 advanced on June 24, 2019. In addition, the CannAssist Note became due and payable in full on or before February 28, 2020. See note 8. On December 23, 2019, the Company received payment in full on the CannAssist loan in the amount of $342,567, which was made up of $325,000 of principal and $17,567 of interest. At February 28, 2021, the Company was owed $0 pursuant to the CannAssist Note.

On January 4, 2018, the Attorney General of the United States issued new written guidance concerning the enforcement of federal laws relating to marijuana. The Attorney General’s memorandum stated that previous DOJ guidance specific to marijuana enforcement, including the memorandum issued by former Deputy Attorney General James Cole on August 29, 2013 (as amended on February 14, 2014, the “Cole Memo”) is unnecessary and is rescinded, effective immediately. The Cole Memo told federal prosecutors that in states that had legalized marijuana, they should use their prosecutorial discretion to focus not on businesses that comply with state regulations, but on illicit enterprises that create harms like selling drugs to children, operating with criminal gangs, and selling across state lines. While the rescission did not change federal law, as the Cole Memo and other DOJ guidance documents were not themselves laws, the rescission removed the DOJ’s formal policy that state-regulated cannabis businesses in compliance with the Cole Memo guidelines should not be a ~~Massachusetts limited liability company~~prosecutorial priority. Notably, former Attorney General Sessions’ rescission of the Cole Memo has not affected the status of the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“~~CannAssist”~~FinCEN”)~~, setting forth~~ memorandum issued by the ~~terms and conditions upon~~Department of Treasury, which ~~we propose~~remains in effect. This memorandum outlines Bank Secrecy Act-compliant pathways for financial institutions to ~~form an 80/20 joint venture with CannAssist,~~service state-sanctioned cannabis businesses, which echoed the enforcement priorities outlined in the Cole Memo. In addition to his rescission of ~~which we would own 80%~~the Cole Memo, Attorney General Sessions issued a one-page memorandum known as the “Sessions Memorandum”. ~~CannAssist plans~~The Sessions Memorandum explains the DOJ’s rationale for rescinding all past DOJ cannabis enforcement guidance, claiming that Obama-era enforcement policies are “unnecessary” due to ~~build out a recreationally licensed cultivation grow facility~~existing general enforcement guidance adopted in ~~Leicester, Massachusetts (the “Leicester Facility”~~the 1980s, in chapter 9.27.230 of the U.A. Attorneys’ Manual (“USAM”). The ~~planned Leicester Facility is in possession of its host community agreement and has applied for a recreational license and is awaiting state approval. We intend to use a portion~~USAM enforcement priorities, like those of the ~~net proceeds~~Cole Memo, are based on the use of ~~our 2018 Convertible Debenture Offering~~the federal government’s limited resources and include “law enforcement priorities set by the Attorney General,” the “seriousness” of the alleged crimes, the “deterrent effect of criminal prosecution,” and “the cumulative impact of particular crimes on the community.” Although the Sessions Memorandum emphasizes that cannabis is a federally illegal Schedule I controlled substance, it does not otherwise instruct U.S. Attorneys to ~~fund construction activities at~~consider the ~~Leicester Facility. We~~prosecution of cannabis-related offenses a DOJ priority, and in practice, most U.S. Attorneys have not ~~entered into any definitive agreements regarding~~changed their prosecutorial approach to date. However, due to the ~~transactions contemplated by~~lack of specific direction in the ~~CannAssist LOI, and~~Sessions Memorandum as to the priority federal prosecutors should ascribe to such cannabis activities, there iscan be no ~~guarantee~~assurance that ~~these transactions~~the federal government will ~~close~~not seek to prosecute cases involving cannabis businesses that are otherwise compliant with state law.

Use of Estimates

Cash and Cash Equivalents

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 ~~$11,972,015~~$2,231,934 and ~~$52,964~~$2,925,568 as of February 28, ~~2019~~2021 and May 31, ~~2018,~~2020, respectively.

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 believe 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 no$0 and $0 of bad ~~debts~~debt expense during the three months ended February 28, 2021 and February 29, 2020, respectively. The Company had $5,927 and $0 of bad debt expense during the nine months ended February 28, ~~2019~~2021, and ~~2018.~~February 29, 2020, respectively.

~~Segment Reporting~~

Under FASB ASC 280-10-50, the Company operates two business segments: Cannabis Dispensary Segment, and Cannabis Production Segment, and will evaluate additional segment disclosure requirements as it expands its operations.

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Inventory

Inventories are stated at the lower of cost or market. Cost is determined onusing a ~~standard cost basis that approximates the first-in, first-out (FIFO) method.~~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 ~~consists~~consist of prepackaged purchased goods ready for resale, along with produced edibles and extracts developed under our production license.

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Property, Plant and Equipment

Property and equipment is recorded at the lower of cost or estimated net recoverable amount, and is depreciated using the straight-line method over its estimated useful life. Property acquired in a business combination is recorded at estimated initial fair value. Property, plant, and equipment are depreciated using the straight-line method based on the lesser of the estimated useful ~~lives. Computer~~lives of the assets or the lease term based upon the following life expectancy:

	Years
Office equipment		3 to 5
Furniture & fixtures		3 to 7
Machinery & equipment		3 to 10
Leasehold improvements	Term of lease

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”. As a result of the impairment test, it was calculated that the net carrying value of goodwill exceeded the fair value by $25,185,003, and the Company recorded an impairment charge to operations during the year ended May 31, 2020. At February 28, 2021, the net carrying value of goodwill on the Company’s balance sheet was $557,896.

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 ~~being depreciated over~~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 ~~three-year period.~~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.

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 with the exception of the amortization of the cost of two major video productions. A music video and reality/lifestyle video were both produced in 2017. The remaining amount that hasn’t been expensed is listed on the schedule in Note 7.incurred. Total recognized advertising and ~~promotion~~marketing expenses were ~~$381,082~~$383,128 and ~~$26,549~~$220,927 for the three months ended February 28, ~~2019~~2021 and ~~2018, respectively; total~~February 29, 2020, respectively. Total recognized advertising and ~~promotion~~marketing expenses were ~~$1,134,322~~$826,867 and ~~$31,797~~$424,019 for the nine months ended February 28, ~~2019~~2021 and ~~2018,~~February 29, 2020, respectively.

Research and Development

Research and development expenses are charged to operations as incurred. ~~The Company incurred no~~Total recognized research and development ~~costs~~expenses were $8,334 and $0 for the three months ended February 28, 2021 and February 29, 2020, respectively. Total recognized research and development expenses were $20,726 and $0 for the nine months ended February 28, ~~2019~~2021 and ~~2018,~~February 29, 2020, respectively.

~~Income Taxes~~

The Company accounts for income taxes using the asset and liability method, which requires the establishment of deferred tax assets and liabilities for the temporary differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities at enacted tax rates expected to be in effect when such amounts are realized or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided to the extent deferred tax assets may not be recoverable after consideration of the future reversal of deferred tax liabilities, tax planning strategies, and projected future taxable income.

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 ~~amount~~amounts of the Company’s cash and cash equivalents, ~~note~~notes receivable, convertible notes payable, accounts payable and accrued expenses, none of which is held for trading, ~~approximates~~approximate their estimated fair values due to the short-term maturities of those financial instruments.

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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 3 - Significant unobservable inputs that cannot be corroborated by market data.

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Derivative Financial Instruments

Derivatives are recorded on the condensed consolidated balance ~~sheet~~sheets at fair value. The conversion features of the convertible notes are embedded derivatives and are separately valued and accounted for on the consolidated balance ~~sheet~~sheets with changes in fair value recognized during ~~the~~each period of change as a separate component of other income/expense. Fair values for exchange-traded securities and derivatives are based on quoted market prices. The pricing model the Company uses for determining the fair value of its derivatives is the Lattice Model. Valuations derived from this model are subject to ongoing internal and external verification and review. The model uses market-sourced inputs such as interest rates and stock price volatilities. Selection of these inputs involves management’s judgment and may impact net income (see note ~~17)~~19). ~~On June 1, 2018, the Company adopted ASU 2017-11 and accordingly reclassified the fair value of the~~

There were no reset provisions ~~embedded in convertible notes payable~~triggered or derivative liabilities revalued during the three and ~~certain warrants with embedded anti-dilutive provisions from liability to equity in the aggregate amount of $1,265,751.~~nine months ended February 28, 2021 or February 29, 2020.

Revenue Recognition

Revenue is primarily generated through the Company’s subsidiary, Serenity Wellness Center LLC, d/b/a Oasis Cannabis (“Oasis”). Oasis operates a ~~24-hour~~ cannabis dispensary that recognizes revenue from the sale of medical and recreational cannabis products within the State of Nevada.

Revenue from the sale of cannabis products is recognized by ~~our subsidiary~~Oasis at the point of sale, at which time payment is received. 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.~~Trees (“City Trees”). City Trees recognizes revenue from the sale of the following cannabis products and services to licensed dispensaries within the State of Nevada:

●

Premium organic medical cannabis sold wholesale to licensed retailers

●

Recreational marijuana cannabis products sold wholesale to licensed distributors and retailers

●

Extraction products such as oils and waxes derived from in-house cannabis production

●

Processing and extraction services for licensed medical cannabis cultivators in Nevada

●

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 ~~the~~ commercial sales of products and licensing agreements ~~and contracts to perform pilot studies~~ 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. For the comparative periods, revenue has not been adjusted and continues to be reported under ASC 605 — Revenue Recognition. Under ASC ~~605. Revenue~~605, revenue is recognized when the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) the performance of the service has been rendered to a customer or delivery has occurred; (3) the amount of fee to be paid by a customer is fixed and determinable; and (4) the collectability of the fee is reasonably assured.

At times, the Company may accept payment for its processing and extraction services in the form of the product extracted, which is then added to inventory. These transactions are valued at the market price of the product.

There was no impact on the Company’s financial statements as a result of adopting Topic ~~606~~606.

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Disaggregation of Revenue

The following table represents a disaggregation of revenue for the three and nine months ended February 28, ~~2019.~~2021 and February 29, 2020:

	For the Nine		For the Nine		For the Three		For the Three
	Months Ended		Months Ended		Months Ended		Months Ended
	February 28, 2021		February 29, 2020		February 28, 2021		February 29, 2020
Cannabis Dispensary		10,202,638		7,035,268		3,384,139		2,637,006
Cannabis Production		3,030,202		2,104,348		1,159,943		587,164
		13,232,840		9,139,616		4,544,082		3,224,170

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~~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 isare computed based on the weighted average number of shares of common stock outstanding during the period.

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~~Table~~ At February 28, 2021 and February 29, 2020, the Company excluded from the calculation of ~~Contents~~

fully diluted shares outstanding the following shares because the result would have been anti-dilutive: At February 28 2021, a total of 87,861,815 shares (54,410,145 issuable upon the exercise of warrants; 7,676,974 issuable upon the exercise of unit warrants; 25,454,696 issuable upon the conversion of convertible notes payable and accrued interest; and 320,000 in stock to be issued); at February 29, 2020, a total of 87,577,583 shares (54,835,145 issuable upon the exercise of warrants; 7,676,974 issuable upon the exercise of unit warrants; 24,678,796 issuable upon the conversion of convertible notes payable and accrued interest; and 386,668 in stock to be issued).

A net loss causes all outstanding stock options and warrants to be ~~antidilutive.~~anti-dilutive. As a result, the basic and dilutive losses per common share are the same for the three and nine months ended February 28, ~~2019~~2021 and ~~2018.~~February 29, 2020.

Income Taxes

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 ~~assesses~~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.

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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

~~Accounting standards promulgated by~~In February 2016, the Financial Accounting Standards Board ~~(“FASB”~~(the “FASB”) ~~are subject to change. Changes in such standards may have an impact on the Company’s future financial statements. The following is a summary of recent accounting developments.~~

~~In August 2016, the FASB~~ issued Accounting Standards ~~Update~~Codification (“~~ASU”~~ASC”) ~~2016-15,~~ ~~Statement~~No. 2016-02, Leases (Topic 842): Accounting for Leases. This update requires that lessees recognize right-of-use assets and lease liabilities that are measured at the present value of ~~Cash Flows (Topic 230).~~the future lease payments at the lease commencement date. The ~~update addresses eight specific cash flow issues~~recognition, measurement, and ~~is intended to reduce diversity in practice in how certain cash receipts~~presentation of expenses and cash ~~payments are presented~~flows arising from a lease by a lessee will largely remain unchanged and ~~classified~~shall continue to depend on its classification as a finance or operating lease. The Company performed a comprehensive review in order to determine what changes were required to support the adoption of this new standard. The Company adopted the ASU and related amendments on June 1, 2019 and elected certain practical expedients permitted under the transition guidance. The Company elected the optional transition method that allows for a cumulative-effect adjustment in the ~~statement~~period of ~~cash flows. This update is effective for reporting periods beginning after December 15, 2017, including interim periods within~~adoption and did not restate prior periods. Under the ~~reporting period. Early adoption is permitted. The~~new guidance, the majority of the Company’s leases continue to be classified as operating. During the first quarter of fiscal 2020, the Company ~~does not believe the~~completed its implementation of ~~this update has had a material impact on~~ its ~~financial statements.~~processes and policies to support the new lease accounting and reporting requirements. This resulted in an initial increase in both its total assets of $2,703,821 and total liabilities in the amount of $2,675,310.

In January 2017, the FASB issued ASU No. 2017-04, Simplifying the Test for Goodwill Impairment, which ~~simplifies~~simplified the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. In computing the implied fair value of goodwill under Step 2, current U.S. GAAP requires the performance of procedures to determine the fair value at the impairment testing date of assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Instead, the amendments under this ASU require the goodwill impairment test to be performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The ASU becomes effective for the Company on January 1, 2020. The amendments in this ASU will be applied on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed.

~~In May 2017, the FASB issued ASU No. 2017-09,~~ ~~Stock Compensation - Scope of Modification Accounting~~, which provides guidance on which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. The ASU requires that an entity account for the effects of a modification unless the fair value (or calculated value or intrinsic value, if used), vesting conditions and classification (as equity or liability) of the modified award are all the same as for the original award immediately before the modification. The ASU became effective for the Company on January 1, 2018, and will be applied prospectively to an award modified on or after the adoption date. The Company does not believe that this standard has had a material effect on its financial statements.

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~~Effective~~ June 1, ~~2018, the Company adopted Accounting Standards Codification (“ASC”) 606 — Revenue from Contracts with Customers. Under ASC 606, the Company recognizes revenue from the commercial sales~~2020. The adoption of products, licensing agreements and contracts to perform pilot studies by applying the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied. For the comparative periods, revenue hasthis ASU did not been adjusted and continues to be reported under ASC 605 — Revenue Recognition. Under ASC 605, revenue is recognized when the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) the performance of service has been rendered to a customer or delivery has occurred; (3) the amount of fee to be paid by a customer is fixed and determinable; and (4) the collectability of the fee is reasonably assured. There was no impact on the Company’s financial statements as a result of adopting Topic 606.

~~Management does not believe that any other recently issued, but not yet effective, accounting standards, if currently adopted, would~~ have a material ~~effect~~impact on ~~the accompanying unaudited condensed~~our consolidated financial statements.

~~Adoption of Accounting Standards~~

In July 2017, the FASB issued ASU No. 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815). The amendments in Part I of this update ~~change~~changed the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features.

When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendments also ~~clarify~~clarified existing disclosure requirements for equity-classified instruments. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer ~~would be~~is accounted for as a derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity classified financial instruments, the amendments ~~require~~required entities that present earnings per share (EPS) in accordance with Topic 260 to recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. Convertible instruments with embedded conversion options that have down round features are now subject to the specialized guidance for contingent beneficial conversion features (in Subtopic 470-20, Debt—Debt with Conversion and Other Options), including related EPS guidance (in Topic 260). The amendments in Part II of this update recharacterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the ~~Codification,~~codification, to a scope exception.

Those amendments do not have an accounting effect. ~~For public business entities, the~~The amendments in Part I of this update ~~are~~became effective for ~~fiscal years,~~the Company on June 1, 2019. The adoption of ASU No. 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and ~~interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted for all entities, including adoption in an interim period. If an entity early adopts~~Hedging (Topic 815), did not have a material effect on the ~~amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period.~~Company’s financial statements.

~~On June 1, 2018,~~There are various other updates recently issued, most of which represented technical corrections to the ~~Company adopted ASU 2017-11~~accounting literature or application to specific industries and ~~accordingly reclassified~~are not expected to a have a material impact on the ~~fair value~~Company’s consolidated financial position, results of ~~the reset provisions embedded in convertible notes payable and certain warrants with embedded anti-dilutive provisions from liability to equity in the aggregate amount of $1,265,751.~~operations or cash flows.

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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 ~~$42,756,743~~$82,553,308 as of February 28, ~~2019.~~2021. The Company’s auditors stated in their opinion on the Company’s financial statements for the year ended May 31, ~~2018~~2020 that there was substantial doubt about the Company’s ability to continue as a going concern, and that further losses were anticipated in the development of the Company’s business raising substantial doubt about the Company’s ability to continue as a going concern. The ability to continue as a going concern is dependent upon the Company generating profitable operations in the future and/or obtaining the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. The Company began generating revenue from operations with the Acquisition of Alternative Solutions on June 27, 2018 (note 3). Management intends to finance operating costs over the next twelve months with loans, the proceeds from the sale of securities, and/or revenues from operations. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might result from this uncertainty.

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Note 3 – Acquisition of Alternative Solutions ~~LLC~~

On June 27, 2018, the Company closed on the purchase of all of the membership interests in Alternative Solutions and its three operating subsidiaries (collectively, the “Oasis LLCs”) from the members of such entities (other than Alternative Solutions). The Oasis LLCs operate a fully integrated cannabis business in Las Vegas, Nevada, including a grow; extraction, conversion and processing facility; and a retail dispensary. The closing occurred pursuant to a Membership Interest Purchase Agreement (the “Acquisition Agreement”) entered into between the Company and Alternative Solutions on December 4, 2017, as amended. Pursuant to the Acquisition Agreement, the Company initially contemplated acquiring all of the membership interests in the Oasis LLCs from Alternative Solutions. Just prior to closing, the parties agreed that the Company would instead acquire all of the membership interests in Alternative Solutions, the parent of the Oasis LLCs, from its members, and the membership interests in the Oasis LLCs owned by members other than Alternative Solutions. The revised structure of the transaction is referenced in the Oasis Note, which modified the Acquisition Agreement.

Pursuant to the Acquisition Agreement, the Company paid a non-refundable deposit of $250,000 upon signing, which was followed by an additional payment of $1,800,000 paid in February 2018, for an initial 10% of each of the Oasis LLCs. At that time, the Company applied for regulatory approval to own an interest in the Oasis LLCs, which approval was received. On June 27, 2018, the Company made the payments to indirectly acquire the remaining 90% of the Oasis LLCs, which were equal to cash in the amount of $5,995,543, a $4.0 million promissory note due in December 2019 (see note ~~14)~~15), (the “Oasis Note”), and 22,058,823 shares of its common stock (see note ~~16)~~17), (the “Purchase Price Shares”) (collectively, the “Closing Consideration”). The cash payment of $5,995,543 was less than the $6,200,000 payment originally contemplated because the Company assumed an additional $204,457 of liabilities. The Company used the proceeds of a Canadian private securities offering to fund the cash portion of the Closing Consideration (see note ~~16)~~17). The Company then applied for regulatory approval to own the additional 90% in membership interests in the Oasis LLCs, which it received on December 12, 2018. On August 14, 2019, the Company made a prepayment in the amount of $2,500,000, which, along with certain legal fees and other costs in the aggregate amount of $138,784, was applied to the amount due under the $4.0 million promissory note. The Company repaid the balance due under the Oasis Note on December 31, 2019.

The number of Purchase Price Shares was equal to 80% of the offering price of the Company’s common stock in its last equity offering, which price was $0.34 per share. The Oasis Note is secured by a first priority security interest over the membership interests in Alternative Solutions and the Oasis LLCs, as well as by the assets of the Oasis LLCs. The Company also delivered a confession of judgment to a representative of the sellers that will become effective, in general, if the Company defaults under the Oasis Note.

A claim has been made that Oasis owes certain amounts to a consultant; Oasis disputes this claim. If the Company makes any payments in connection with this claim post-closing, generally speaking, the Company will be entitled to deduct the present value of such payments from the principal amount due under the Oasis Note. This claim has been accrued on the Company’s balance sheet as of February 28, 2019.

The sellers ~~are~~were also entitled to a $1,000,000 payment from the Company on May 30, 2020 if the Oasis LLCs ~~have~~ maintained an average revenue of $20,000 per day during the 2019 calendar year. The fair value of this contingent consideration was $678,111 at the acquisition date as determined by the Company’s outside valuation consultants. At May 31, 2019, the Company increased the value of this contingent consideration to $1,000,000 and charged the amount of $321,889 to operations during the year ended May 31, 2019. This amount iswas recorded as a contingent liability on the Company’s balance sheet at May 31, 2019.

The full amount of the bonus payment was earned, and on May 27, 2020, the Company made a payment in the amount of $850,000 to the sellers. The Company deposited the balance due to sellers of $150,000 with an escrow agent to hold pending the outcome of a tax audit. During the year ended May 31, 2020, the State of Nevada notified the Oasis LLCs that it would be conducting a tax audit for periods both before and after the closing of the sale to CLS. The tax audit was completed and the Company received a deficiency notice dated January 29, 2021. The Company paid the tax due and on February 16, 2021, $41,805 of the escrowed amount was released to the Company, $106,195 was released to sellers and the balance of $2,000 was remitted to the escrow agent as payment of its fees. As of February 28, ~~2019.~~2021, none of the $150,000 escrowed amount remained on the Company’s balance sheet.

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The acquisition date estimated fair value of the consideration transferred totaled $27,975,650, which consisted of the following:

Initial purchase price	$	2,050,000
Cash paid in connection with transaction		5,995,543
Note payable		3,810,820
Contingent consideration		678,111
Common stock		15,441,176
Total purchase price	$	27,975,650

Net tangible assets	$	595,151
Intangible assets		1,637,600
Goodwill		25,742,899
Total purchase price	$	27,975,650

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~~Pro forma results~~The Company assessed these intangible assets as of May 31, 2020 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 recorded an impairment of goodwill in the amount of $25,185,003 based upon the difference between the carrying value of $25,742,899 and the fair value $557,896. Fair value was based upon the price of the Company’s common stock at May 31, 2020 of $0.06 per share. (see note 12). At February 28, 2021, and May 31, 2020, the net amount of goodwill on the Company’s balance sheet was $557,896.

The ~~following table sets forth the unaudited pro forma results of the~~ Company ~~as if the acquisition of~~recognized revenue from the Oasis LLCs ~~was effective on~~in the ~~first day~~amounts of ~~each of~~$4,554,082 and $3,224,170 for the three months ended February 28, 2021 and February 29, 2020, respectively. The Company recognized revenue from the Oasis LLCs in the amounts of $13,232,840 and $9,139,616 for the nine months ~~periods presented. These combined results are not necessarily indicative of the results that may have been achieved had the companies always been combined.~~ended February 28, 2021 and February 29, 2020, respectively.

Three months ended February 28,

2019

2018

(unaudited)

(unaudited)

Revenues
$ 2,372,790 $ 1,827,999
Net loss
$ (12,850,356
)
$ (10,839,019
)
Basic net loss per share
$ (0.10
)
$ (0.17
)
Diluted net loss per share
$ (0.10
)
$ (0.17
)
Weighted average shares - basic
124,346,650 62,460,767
Weighted average shares - diluted
124,346,650 62,460,767

Nine months ended February 28,

2019

2018

(unaudited)

(unaudited)

Revenues
$ 6,299,932 $ 5,139,455
Net loss
$ (24,402,155
)
$ (14,632,294
)
Basic net loss per share
$ (0.26
)
$ (0.25
)
Diluted net loss per share
$ (0.26
)
$ (0.25
)
Weighted average shares - basic
95,132,835 58,988,122
Weighted average shares - diluted
95,132,835 58,988,122

Note 4 – Joint Venture and ~~Option~~Options Transaction

In Good Health

On October 31, 2018, the Company, CLS Massachusetts, ~~Inc., a Massachusetts corporation~~ and ~~a wholly-owned subsidiary of the Company (“CLS Massachusetts”), and In Good Health, Inc. (“IGH”), a Massachusetts not-for-profit corporation,~~IGH, which converted to a for-profit corporation on November 6, 2018 (the “Conversion”), entered into anthe IGH Option ~~Agreement (the “Option Agreement”).~~Agreement. Under the terms of the IGH Option Agreement, CLS Massachusetts ~~has~~had an exclusive option to acquire all of the outstanding capital stock of IGH (the ~~“Option”~~“IGH Option”) during the period beginning on the earlier of the date that is one year after the effective date of the Conversion and December 1, 2019, and ending on the date that is 60 days after such date (the “Option Period”). If CLS Massachusetts ~~exercises~~exercised the IGH Option, the Company, a wholly-owned subsidiary of the Company and IGH ~~will~~would enter into ~~a merger agreement~~the IGH Merger Agreement (the form of which ~~has~~had been agreed to by the parties) ~~(the “IGH Merger Agreement”)~~. At the effective time of the merger contemplated by the IGH Merger Agreement, CLS Massachusetts ~~will~~would pay a purchase price of $47,500,000, subject to reduction as provided in the IGH Merger Agreement, payable as follows: $35 million in cash, $7.5 million in the form of a five-year promissory note, and $5 million in the form of restricted common stock of the Company, plus $2.5 million as consideration for a non-competition agreement with IGH’s President, payable in the form of a five-year promissory note.

IGH and certain IGH stockholders holding sufficient aggregate voting power to approve the transactions contemplated by the IGH Merger Agreement ~~have~~ entered into agreements pursuant to which such stockholders, ~~have,~~ among other things, agreed to vote in favor of such transactions.

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On October 31, 2018, as consideration for the IGH Option, the Company made a loan to IGH (the “IGH Loan”), in the principal amount of $5,000,000 (the “IGH Loan Amount”), subject to the terms and conditions set forth in that certain Loan Agreement, dated as of October 31, 2018 between IGH as the borrower and the Company as the lender (the “IGH Loan Agreement”) (see note 9). The IGH Loan is evidenced by a secured promissory note of IGH (the “IGH ~~Note Receivable”~~Note”), which bears interest at the rate of 6% per annum and matures on October 31, 2021. The Company recorded interest income in the amounts of $39,346 and $74,795 on the IGH Loan during the three months ended February 28, 2021 and February 29, 2020, respectively. The Company recorded interest income in the amounts of $149,972 and $225,205 on the IGH Loan during the nine months ended February 28, 2021 and February 29, 2020, respectively. On March 1, 2020, the Company capitalized interest in the amount of $399,453 into the principal amount due. During the three and nine months ended February 28, 2021, the Company received payments on the IGH Note in the amounts of $196,765 and $1,696,765, which comprise $158,340 and $1,544,291 of principal and $38,424 and $152,473 of interest, respectively.

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On February 27, 2021, IGH notified the Company that it did not plan to make further payments under the IGH Note on the theory that the Break-Up Fee (as defined below) excused additional payments. The Company vehemently disagrees with this assertion, which remains in litigation. The Company has requested permission from the court to file an amended complaint to accelerate the due date of all remaining amounts under the IGH Note and receive default interest as a result of IGH’s breach of the IGH Note, as well as to add a fraud count to the complaint. During the nine months ended February 28, 2021, the Company impaired the remaining amounts due under the IGH Note in the amount of $2,498,706, which includes $2,497,884 in principal and $822 in accrued interest. As of February 28, 2021, the principal balance of the IGH Note was $0 and the interest receivable was $0.

To secure the obligations of IGH to the Company under the IGH Loan Agreement and the IGH Note, ~~Receivable,~~ the Company and IGH entered into a Security Agreement dated as of October 31, 2018 (the “IGH Security Agreement”), pursuant to which IGH granted to the Company a first priority lien on and security interest in all personal property of IGH.

If the Company ~~does not~~did exercise the IGH Option on or prior to the date that is 30 days following the end of the Option Period, the IGH Loan Amount ~~will~~would be reduced to $2,500,000 as a break-up fee (the “Break-Up Fee”), except in the event of a Purchase Exception (as defined in the IGH Option Agreement), in which case the Break-Up Fee ~~will~~would not apply and there ~~will~~would be no reduction to the Loan Amount.

CannAssist

On ~~September 13, 2018, we entered into~~January 29, 2019, the Company made a ~~non-binding letter~~line of ~~intent (the “CannAssist LOI”) with~~credit loan to CannAssist ~~LLC, a Massachusetts limited liability company (“CannAssist”), setting forth~~in the principal amount of up to $500,000, subject to the terms and conditions ~~upon which we propose to form an 80/20 joint venture with~~set forth in the CannAssist Loan Agreement. Any draws on the line of ~~which we would own 80%. CannAssist plans to build out a recreationally licensed cultivation grow facility~~credit in ~~Leicester, Massachusetts (the “Leicester Facility”). The planned Leicester Facility is~~excess of $150,000 will only be made in ~~possession of its host community agreement and has applied for a recreational license and is awaiting state approval. We intend to use a portion~~the sole discretion of the net proceeds of our 2018 Convertible Debenture Offering to fund construction activities at the Leicester Facility. We have not entered into any definitive agreements regarding the transactions contemplatedCompany. The loan is evidenced by the CannAssist ~~LOI,~~Note, which bears interest at the rate of 8% per annum and ~~there~~ is ~~no guarantee that these transactions will close.~~personally guaranteed by the two equity owners of CannAssist. On June 24, 2019, the Company advanced the sum of $175,000 to CannAssist, increasing the balance due to the Company under the CannAssist Note to $325,000. The Company recorded interest income in the amounts of $0 and $1,638 on the CannAssist loan during the three months ended February 28, 2021 and February 29, 2020, respectively. The Company recorded interest income in the amounts of $0 and $12,536 on the CannAssist loan during the nine months ended February 28, 2021 and February 29, 2020, respectively.

On ~~November 7, 2018, we~~March 11, 2019, the Company, through its wholly-owned subsidiary, CLS Massachusetts, entered into the CannAssist Purchase Agreement with CannAssist, each of the members of CannAssist, and David Noble, as the members’ representative.

On August 26, 2019, the Company and CannAssist amended the CannAssist ~~LOI~~Note. Pursuant to ~~extend~~ the ~~termination date to January 15,~~amendment, there will be no additional advances under the CannAssist Note beyond the $150,000 advanced on February 4, 2019, and ~~further amended it effective January 15, 2019~~the $175,000 advanced on June 24, 2019. In addition, the CannAssist Note was to ~~extend~~become due and payable in full on or before February 28, 2020. Finally, the ~~termination date to July 1, 2019.~~Company and CannAssist terminated the CannAssist Purchase Agreement.

On December 23, 2019, the Company received payment in full on the CannAssist loan in the amount of $342,567, which comprises $325,000 of principal and $17,567 of interest.

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Note 5 – Accounts Receivable

Accounts receivable was ~~$295,013~~$277,437 and $0$161,409 at February 28, ~~2019~~2021 and May 31, ~~2018,~~2020, respectively. During the nine months ended February 28, 2021, the Company had bad debt expense in the net amount of $5,927, consisting of the write-off of a receivable from a credit card processor in the amount of $7,668, partially offset by the collection from a customer in the amount of $1,741 which had been previously written-off. No allowance for doubtful accounts was necessary during the three and nine months ended February 28, ~~2019~~2021 and ~~2018.~~February 29, 2020.

Note 6 – Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following:

	February 28, 2021		May 31, 2020
Deposits	$	2,253	$	2,315
Prepaid expenses		390,788		231,777
Total	$	393,041	$	234,092

Note 7 – Inventory

Inventory, consisting of material, overhead, labor, and manufacturing overhead, is stated at the lower of cost (first-in, first-out) or market, and consists of the following:

	February 28,		May 31,		February 28,		May 31,
	2019		2018		2021		2020
Raw materials	$	295,822	$	-	$	419,462	$	134,697
Finished goods		309,974		-		550,194		440,545
Total	$	605,796	$	-	$	969,656	$	575,242

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~~Note 7 – Prepaid Expenses and Other Current Assets~~

~~Prepaid expenses consisted of the following at February 28, 2019 and May 31, 2018:~~

February 28,

May 31,

2019

2018

Prepaid insurance
$ 14,218 $ -
Prepaid license fees
130,412 -
Prepaid legal fees
16,410 1,410
Prepaid fixed assets
460,901
Prepaid rent
6,961
Deposits on inventory
83,837 -
Total
$ 712,739 $ 1,410

Note 8 – ~~Redemption Premium in Transit~~

During the three months ended February 28, 2019, the Company executed a redemption notice with respect to two of the convertible notes payable to redeem all outstanding principal, accrued interest and redemption premiums thereunder. The total amount due to the note holder is $964,788, which includes $250,000 in principal, $62,500 in redemption premium and $2,630 in accrued interest for one note, and $500,000 in principal, $125,000 in redemption premium and $24,658 in accrued interest for the other note. The redemption date is March 1, 2019, and the redemption amount is shown as a current asset on the Company’s balance sheet as of February 28, 2019.

~~Note 9 –~~ Notes Receivable

PRH Note Receivable

During the year ended May 31, 2015, the Company loaned $500,000 pursuant to a promissory note (the “PRH Note”) to Picture Rock Holdings, LLC, a Colorado limited liability company (“PRH”). Pursuant to the PRH Note, as amended by the parties effective June 30, 2015, October 31, 2015, April 11, 2016, and May 31, 2016, PRH was expected to repay the principal due under the PRH Note in twenty (20) equal quarterly installments of Twenty Five Thousand Dollars ($25,000) commencing in the month following the month in which PRH commenced generating revenue at the grow facility, which commencement was originally anticipated to occur in the first quarter of 2017, and continuing until paid in full. WeThe Company suspended ~~our~~its plans to operate in Colorado due to regulatory delays and ~~have~~has not yet determined when weit will pursue them again. Interest will accrue on the unpaid principal balance of the PRH Note at the rate of twelve percent (12%) per annum and will be paid quarterly in arrears commencing after such initial payment and continuing until paid in full. All outstanding principal and any accumulated unpaid interest due under the PRH Note is due and payable on the five-year anniversary of the initial payment thereunder. In the event of default as defined in the agreements underlying the PRH Note, all amounts under the PRH Note shall be due and payable at once. During the year ended May 31, 2015, the Company recorded an impairment related to the note receivable in the amount of $500,000.

During the year ended May 31, 2018, the Company received a payment of $50,000 on the PRH Note. As a result, the Company has reduced the impairment of the ~~note~~PRH Note by $50,000 to reflect this payment. The receivable is recorded on the balance sheet as of ~~February 28, 2019~~November 30, 2020 in the amount of $0, net of allowance in the amount of $450,000.

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IGH Note Receivable

On October 31, 2018, in connection with an option to purchase transaction (see note 4), the Company loaned $5,000,000 ~~(the “IGH Note)~~pursuant to ~~In Good Health, Inc., a Massachusetts not-for-profit corporation (“IGH”);~~the IGH Note to IGH; on November 6, 2018, IGH converted to a for-profit corporation. ~~This~~The IGH Note bears interest at the rate of 6% per annum. On March 1, 2020 (the “Initial Payment Date”), all accrued interest ~~shall be~~was added to the outstanding principal due hereunder and such amount ~~shall be~~is payable in eight equal quarterly installments, commencing on the Initial Payment Date, together with interest accruing after the Initial Payment Date. The IGH Note ~~shall mature~~matures and all outstanding principal, accrued interest and any other amounts due hereunder, ~~shall become~~is due and payable in full on the third anniversary of the IGH Note. The IGH Note was issued in connection with a loan agreement and security agreement between the Company and IGH, and ~~an option agreement~~the IGH Option Agreement between the Company and IGH, among others, ~~(the “IGH Option Agreement”),~~ in both cases dated as of October 31, 2018 and the other ~~agreements and documents executed and/or delivered in connection therewith (collectively the “IGH~~IGH Loan ~~Documents”),~~Documents, and is secured by the collateral described in the IGH Loan Documents and by such other collateral as may in the future be granted to the Company to secure the IGH Note. During the three ~~months~~ and nine months ended February 28, ~~2019,~~2021, the Company recorded interest income in the ~~amount~~amounts of ~~$73,973~~$39,245 and ~~$98,631,~~$149,972, respectively, in connection with the IGH Note. At

During the three and nine months ended February 28, ~~2019, principal~~2021, the Company received payments on the IGH Note in the ~~amount~~amounts of ~~$5,000,000~~$196,765 and $1,696,765, respectively. The Company applied these payments as follows; $1,544,291 as a repayment of principal and $152,473 as a repayment of accrued interest. On February 27, 2021, IGH notified the Company that it did not plan to make further payments under the IGH Note on the theory that the Break-Up Fee excused additional payments. The Company vehemently disagrees with this assertion, which remains in litigation. The Company has requested permission from the court to file an amended complaint to accelerate the due date of all remaining amounts under the IGH Note and receive default interest ~~receivable in~~as a result of IGH’s breach of the ~~amount of $96,631~~IGH Note, as well as to add a fraud count to the complaint. During the nine months ended February 28, 2021, the Company impaired the remaining amounts due under the IGH Note ~~are classified as non-current assets on~~in the ~~Company’s~~amount of $2,498,706, which includes $2,497,884 in principal and $822 in accrued interest. As of February 28, 2021, the principal balance ~~sheet.~~

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the IGH Note was $0 and the interest receivable was $0.

CannAssist Note Receivable

On January 29, 2019, the Company made a line of credit loan to CannAssist ~~(the “CanAssist Note”),~~pursuant to the CannAssist Note, in the principal amount of up to $500,000. ~~Any draws on the line of credit in excess of $150,000 will only be made in the sole discretion of the Company.~~ The ~~Loan~~loan bears interest at the rate of 8% per annum and is personally guaranteed by the two equity owners of CannAssist. Payments on the loan ~~will~~were to commence on July 1, 2019 and the CannAssist Note ~~will~~was to mature on December 1, 2019. AtOn August 26, 2019, the Company and CannAssist amended the CannAssist Note. Pursuant to the amendment, among other things, the CannAssist Note was to become due and payable in full on or before February 28, 2020. On December 23, 2019, the ~~principal amount of $150,000 and interest receivable~~Company received payment in full on the CannAssist loan in the amount of ~~$987 due under~~$342,567, which comprised $325,000 of principal and $17,567 of interest. During the three months ended February 28, 2021 and February 29, 2020, the Company recorded interest income in the amount of $0 and $1,638 on the CannAssist Note, ~~are classified as non-current assets~~respectively. During the nine months ended February 28, 2021 and February 28, 2020, the Company recorded interest income in the amount of $0 and $12,536 on the ~~Company’s balance sheet.~~CannAssist Note, respectively.

Note 10 9 – Property, Plant and Equipment

Property, plant and equipment consisted of the following at February 28, ~~2019~~2021 and May 31, ~~2018.~~2020.

	February 28,			May 31,
	2019			2018			February 28, 2021			May 31, 2020
Office equipment		1,217,563			2,674		$	115,616		$	94,887
Furniture and fixtures		59,617			-			145,103			144,025
Machinery & Equipment								1,785,906			1,741,830
Leasehold improvements	$	764,423		$	-			2,778,350			2,662,967
Less: accumulated depreciation		(494,439	)		(2,674	)		(1,291,937	)		(868,200	)
Property, plant, and equipment, net	$	1,547,164		$	-		$	3,533,038		$	3,775,509

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During the nine months ended February 28, ~~2019,~~2021 and February 29, 2020, the Company ~~acquired~~made payments in the amounts of $181,266 and $1,766,185, respectively, for property, plant, and ~~equipment with an aggregate fair value~~equipment. Also, during the nine months ended February 28, 2021 and February 29, 2020, the Company applied $0 and $136,190 of ~~$933,142 with~~deposits to the acquisition of ~~Alternative Solutions, LLC.~~fixed assets. See note 3.6.

Depreciation of property, plant, and equipment was ~~$45,045~~$139,989 and ~~$223~~$87,025 for the three months ended February 28, ~~2019~~2021 and ~~2018~~February 29, 2020 respectively. Depreciation of property, plant, and equipment was ~~$121,212~~$423,737 and ~~$669~~$198,788 for the nine months ended February 28, ~~2019~~2021 and ~~2018~~February 29, 2020, respectively.

Note 10 – Right to Use Assets and Liabilities – Operating Leases

The Company has operating leases for offices and warehouses. The Company’s leases have remaining lease terms of 1 year to 4 years, some of which include options to extend.

The Company’s lease expense for the three and nine months ended February 28, 2021 was entirely comprised of operating leases and amounted to $106,903 and $314,313, respectively. The Company’s right of use (“ROU”) asset amortization for the three and nine months ended February 28, 2021 was $91,007 and $266,734, respectively. The difference between the lease expense and the associated ROU asset amortization consists of interest.

Right to use assets – operating leases are summarized below:

	February 28, 2021
Amount at inception of leases	$	2,703,821
Amount amortized		(1,567,126	)
Balance – February 28, 2021	$	1,136,695

Operating lease liabilities are summarized below:

Amount at inception of leases	$	2,675,310
Amount amortized		(1,516,570	)
Balance – February 28, 2021	$	1,158,740

	February 28, 2021
Warehouses and offices	$	1,158,740
Lease liability	$	1,158,740
Less: current portion		(93,532	)
Lease liability, non-current	$	1,065,208

Maturity analysis under these lease agreements is as follows:

Twelve months ended February 28, 2022	$	182,858
Twelve months ended February 28, 2023		173,710
Twelve months ended February 29, 2024		168,408
Twelve months ended February 28, 2025		173,244
Twelve months ended February 28, 2026		178,225
Thereafter		765,722
Total	$	1,642,167
Less: Present value discount		(483,427	)
Lease liability	$	1,158,740

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Note 11 – Intangible Assets

Intangible assets consisted of the following at February 28, ~~2019~~2021 and May 31, ~~2018.~~2020:

February 28, 2019
			Accumulated							Accumulated
	Gross		Amortization			Net
February 28, 2021								Gross		Amortization			Net
Intellectual Property	$	319,600	$	(15,981	)	$	303,619	$	319,600	$	(85,227	)	$	234,373
License & Customer Relations		990,000		(24,750	)		965,250		990,000		(132,000	)		858,000
Tradenames - Trademarks		301,000		(15,051	)		285,949		301,000		(80,267	)		220,733
Non-compete Agreements		27,000		(6,750	)		20,250
Non-Compete Agreements									27,000		(27,000	)		-
Domain Names		2,600		(324	)		2,276		26,512		(5,713	)		20,799
Total	$	1,640,020	$	(62,856	)	$	1,577,344	$	1,664,112	$	(330,207	)	$	1,333,905

May 31, 2018

Accumulated

Gross

Amortization

Net

Intellectual Property
$ - $ - $ -
License & Customer Relations
- - -
Tradenames - Trademarks
- - -
Non-compete Agreements
- - -
Domain names
1,726 (828
)
898
Total
$ 1,726 $ (828
)
$ 898

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~~Table of Contents~~

			Accumulated
May 31, 2020	Gross		Amortization			Net
Intellectual Property	$	319,600	$	(61,257	)	$	258,343
License & Customer Relations		990,000		(94,875	)		895,125
Tradenames - Trademarks		301,000		(57,692	)		243,308
Non-Compete Agreements		27,000		(25,882	)		1,118
Domain names		26,512		(3,202	)		23,310
Total	$	1,664,112	$	(242,908	)	$	1,421,204

Total amortization expense charged to operations for the three months ended February 28, ~~2019~~2021 and ~~2018~~February 29, 2020 was ~~$20,952~~$28,716 and ~~$108,~~$28,030, respectively. Total amortization expense charged to operations for the nine months ended February 28, ~~2019~~2021 and ~~2018~~February 28, 2020 was ~~$62,856~~$87,299 and ~~$324,~~$86,334, respectively.

Amount to be amortized during the twelve months ended February 28,
2019	$	27,379
2020		164,103
2021		164,103
2022		164,103	$	111,989
2023		164,103		111,989
2024				111,989
2025				111,989
2026				111,989
Thereafter		893,553		773,960
	$	1,577,344	$	1,333,905

Note 12 – Goodwill

The Company recorded goodwill in the amount of $25,742,899 in connection with the acquisition of Alternative Solutions on June 27, 2018 (see note 3).

The Company assessed its intangible assets as of May 31, 2020 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 recorded an impairment of goodwill in the amount of $25,185,003 based upon the difference between the carrying value of $25,742,899 and fair value of $557,896. Fair value was based upon the price of the Company’s common stock at May 31, 2020 of $0.06 per share. At February 28, 2021, the net amount of goodwill on the Company’s balance sheet was $557,896.

Note 13 – Other Assets

Other assets ~~included the following as of February 28, 2019 and May 31, 2018, respectively:~~

February 28,

May 31,

2019

2018

Security deposits
160,450 -
$ 160,450 $ -

~~Note 13 – Accounts Payable and Accrued Liabilities~~

~~Accrued expenses~~ consisted of the following at February 28, ~~2019~~2021 and May 31, ~~2018:~~2020:

February 28,

May 31,

2019

2018

Trade accounts payable
$ 655,518 $ 726,457
Accrued payroll and payroll taxes
281,584 44,465
Accrued liabilities
457,251 -
Deferred rent liability
- 55,699
Total
$ 1,394,353 $ 826,621

	February 28,		May 31,
	2021		2020
Security deposits	$	167,455	$	167,455
	$	167,455	$	167,455

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Note14 – ~~Notes~~ Accounts Payable and Accrued Liabilities

Accrued accounts payable and accrued liabilities consisted of the following at February 28, 2021 and May 31, 2020:

	February 28, 2021		May 31, 2020
Trade accounts payable	$	600,909	$	591,060
Accrued payroll and payroll taxes		209,822		212,361
Accrued liabilities		369,017		369,462
Total	$	1,179,748	$	1,172,883

15 – Convertible Notes Payable

~~Notes Payable~~

February 28,

May 31,

2019

2018

On February 7, 2018, the Company issued a note payable to Todd Blatt in the amount of $210,000 the “Blatt Note”). This note accrues interest at a rate of 6% per annum and is due on February 7, 2019. During the nine months ended February 28, 2019, the Company accrued interest in the amount of $1,726 on the Blatt Note. On July 20, 2018, the Company made principal and interest payments in the amount of $210,000 and $5,627, respectively, on the Blatt Note.
$ - $ 210,000

On February 7, 2018, the Company issued a note payable to AJG Group in the amount of $200,000 the “AJG Note”). This note accrues interest at a rate of 6% per annum and is due on February 7, 2019. During the nine months ended February 28, 2019, the Company accrued interest in the amount of $641 on the AJG Note. On July 9, 2018, the Company made principal and interest payments in the amount of $100,000 and $3,337, respectively, on the AJG Note.
- 100,000

The Company issued a secured note payable to Serenity Wellness Enterprises, LLC, as nominee (“Oasis Note”). dated June 27, 2018 in the principal amount of $4,000,000 and bearing interest at a rate of 6% per annum pursuant to the Membership Interest Purchase Agreement with Alternative Solutions. The note is due on December 4, 2019, but may be prepaid at any time without penalty. The Oasis Note is secured by all of the membership interests in Alternative Solutions and the Oasis LLCs and by the assets of the Oasis LLCs.

The Company recognized an original issue discount of $189,180 on the Oasis Note. During the nine months ended February 28, 2019, $88,644 of this discount was charged to operations. During the nine months ended February 28, 2019, the Company accrued interest in the amount of $164,000 on the Oasis Note.
4,000,000 -

Total – Notes Payable
$ 4,000,000 $ 310,000
Less: Discount
(100,536
)
-
Notes Payable, Net of Discounts
$ 3,899,464 $ 310,000
Current portion
$ 3,899,464 $ 310,000
Long term portion
$ - $ -

~~Related Party Convertible Demand Notes Payable~~

On May 31, 2017, the Company entered into an Omnibus Loan Amendment Agreement (the “Omnibus Loan Amendment”) with Jeffrey I. Binder, Frank Koretsky, Newcan Investment Partners LLC and CLS CO 2016, LLC (collectively, the “Insiders”). Pursuant to the Omnibus Loan Amendment, the Company agreed with the Insiders to amend certain terms of loans the Insiders made to the Company for working capital purposes, which loans were initially demand loans, and, except for loans made in 2017, were later memorialized as convertible loans (the “Insider Loans”), in exchange for the agreement of the Insiders to convert all Insider Loans where funds were advanced prior to January 1, 2017, which totaled $2,537,750, plus $166,490 of accrued interest thereon, into an aggregate of 10,816,960 shares of the Company’s common stock at $0.25 per share, and forego the issuance of warrants to purchase the Company’s common stock upon conversion. This resulted in the issuance of an additional 7,609,910 shares compared to the original number of shares issuable upon conversion of the Insider Loans prior to the Omnibus Loan Amendment. The Company valued the shares at $0.125, which was the market price of the Company’s stock at the conversion date, and charged the amount of $951,239 to loss on modification of debt during the twelve months ended May 31, 2017. The Company entered into the Omnibus Loan Amendment in order to ease the debt burden on the Company and prevent it from defaulting on the Insider Loans.

February 28,

2021

May 31,

2020

Convertible debenture in the principal amount of $4,000,000 (the “U.S. Convertible Debenture 1”) dated October 31, 2018, which bears interest, payable quarterly, at a rate of 8% per annum, with interest during the first eighteen months following issuance being payable by increasing the then-outstanding principal amount of the U.S. Convertible Debenture 1. The U.S. Convertible Debenture 1 matures on a date that is three years following issuance. The U.S. Convertible Debenture 1 is convertible into units (the “Convertible Debenture Units”) at a conversion price of $0.80 per Convertible Debenture Unit. Each Convertible Debenture Unit consists of (i) one share of the Company’s common stock, and (ii) one-half of one warrant, with each warrant exercisable for three years to purchase a share of common stock at a price of $1.10. The value of the warrants will be recorded when the issuance becomes probable. On July 26, 2019, U.S. Convertible Debenture 1 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 1, the conversion price of U.S. Convertible Debenture 1 will be reduced to such issuance price, and the exercise price of the warrant issuable in connection with U.S. Convertible Debenture 1 will be exercisable at a price equal to 137.5% of the adjusted conversion price at the time of conversion. The U.S. Convertible Debenture 1 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 1 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 $3,254,896 on the U.S. Convertible Debenture 1. During the three and nine months ended February 28, 2021, $271,241 and $813,724 of this discount was charged to operations, respectively. During the three and nine months ended February 28, 2021, the Company accrued interest in the amounts of $90,089 and $270,268 on the U.S. Convertible Debenture 1, respectively. Also, during the three and nine months ended February 28, 2021, the Company transferred the amounts of $0 and $82,688 from accrued interest to principal of the U.S. Convertible Debenture 1, respectively.

4,504,457

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Table of Contents

~~The following tables summarize the Company’s loan balances at February 28, 2019 and May 31, 2018:~~

February 28,

May 31,

2019

2018

Notes payable to Jeffrey Binder, an officer and director of the Company, for advances to fund operations (the “Binder Funding Notes”). The Binder Funding Notes bear interest at a rate of 10% per annum, have no maturity date and are due on demand. Effective May 31, 2017, pursuant to the Omnibus Loan Amendment, a conversion feature was added to the Binder Funding Notes whereby principal and accrued interest is convertible into common stock of the Company at a rate of $0.25 per share.

Effective December 1, 2017, pursuant to the Second Omnibus Loan Amendment, the conversion price was increased from $0.25 per share to $0.3125 per share and a discount in the amount of $35,023 related to the revaluation of the beneficial conversion feature of the Binder Funding Notes was charged to additional paid-in capital and amortized to interest expense.

During the twelve months ended May 31, 2018, Mr. Binder advanced a total of $440,579 to the Company under the Binder Funding Notes. During the year ended May 31, 2018, principal in the amount of $280,198 and accrued interest in the amount of $5,188 was transferred out of the Binder Funding Notes and used to fund four new convertible notes payable to Mr. Binder, which were converted or repaid as of May 31, 2018. Also during the year ended May 31, 2018 the Company made principal payments in the aggregate of $237,794 under the Binder Funding Notes. During the year ended May 31, 2018, the Company accrued interest in the amount of $7,364 on the Binder Funding Notes. During the year ended May 31, 2018, discounts in the amount of $385,637 related to the beneficial conversion feature of the Binder Funding Notes was charged to additional paid-in capital and amortized to interest expense.

During the nine months ended February 28, 2019, Mr. Binder advanced a total of $211,700 to the Company under the Binder Funding Notes. During the nine months ended February 28, 2019, the Company made principal payments to in the amount of $211,837 under the Binder Funding Notes. During the nine months ended February 28, 2019, the Company accrued interest in the amount of $1,710 on the Binder Funding Notes. During the nine months ended February 28, 2019, discounts in the aggregate amount of $211,702 related to the beneficial conversion feature of the Binder Funding Notes were charged to additional-paid in capital and amortized to interest expense.
$ - $ 137

	February 28, 2021		May 31, 2020
Convertible debenture in the principal amount of $1,000,000 (the “U.S. Convertible Debenture 2”) dated October 31, 2018, which bears interest, payable quarterly, at a rate of 8% per annum, with interest during the first eighteen months following issuance being payable by increasing the then-outstanding principal amount of the U.S. Convertible Debenture 2. The U.S. Convertible Debenture 2 matures on a date that is three years following issuance. The U.S. Convertible Debenture 2 is convertible into Convertible Debenture Units at a conversion price of $0.80 per Convertible Debenture Unit. Each Convertible Debenture Unit consists of (i) one share of the Company’s common stock, and (ii) one-half of one warrant, with each warrant exercisable for three years to purchase a share of common stock at a price of $1.10. The value of the warrants will be recorded when the issuance becomes probable. 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 will be reduced to such issuance price, and the exercise price of the warrant issuable in connection with U.S. Convertible Debenture 2 will 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 $813,724 on the U.S. Convertible Debenture 2. During the three and nine months ended February 28, 2021, $67,810 and $203,431 of this discount was charged to operations, respectively. During the three and nine months ended February 28, 2021, the Company accrued interest in the amounts of $22,522 and $67,567 on the U.S. Convertible Debenture 2, respectively. Also, during the three and nine months ended February 28, 2021, the Company transferred the amounts of $0 and $20,672 from accrued interest to principal of the U.S. Convertible Debenture 2, respectively.		1,126,114		1,126,114

Convertible debenture in the principal amount of $100,000 (the “U.S. Convertible Debenture 3”) dated October 24, 2018, which bears interest, payable quarterly, at a rate of 8% per annum, with interest during the first eighteen months following issuance being payable by increasing the then-outstanding principal amount of the U.S. Convertible Debenture 3. The U.S. Convertible Debenture 3 matures on a date that is three years following issuance. The U.S. Convertible Debenture 3 is convertible into Convertible Debenture Units at a conversion price of $0.80 per Convertible Debenture Unit. Each Convertible Debenture Unit consists of (i) one share of the Company’s common stock, and (ii) one-half of one warrant, with each warrant exercisable for three years to purchase a share of common stock at a price of $1.10. The value of the warrants will be recorded when the issuance becomes probable. On July 26, 2019, U.S. Convertible Debenture 3 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 3, the conversion price of U.S. Convertible Debenture 3 will be reduced to such issuance price, and the exercise price of the warrant issuable in connection with U.S. Convertible Debenture 3 will be exercisable at a price equal to 137.5% of the adjusted conversion price at the time of conversion. The U.S. Convertible Debenture 3 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 3 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 $75,415 on the U.S. Convertible Debenture 3. During the three and nine months ended February 28, 2021, $6,285 and $18,854 of this discount was charged to operations, respectively. During the three and nine months ended February 28, 2021, the Company accrued interest in the amounts of $2,252 and $6,757 on the U.S. Convertible Debenture 3, respectively. Also, during the three and nine months ended February 28, 2021, the Company transferred the amounts of $0 and $2,070 from accrued interest to principal of the U.S. Convertible Debenture 3, respectively.		112,613		112,613

~~F-53~~F-59

Table of Contents

February 28,
2019

May 31,
2018

Notes payable to Newcan Investment Partners, LLC (“Newcan”), an entity owned by Frank Koretsky, a director of the Company, for advances to fund operations (the “Newcan Funding Notes”). The Newcan Funding Notes bear interest at a rate of 10% per annum, have no maturity date and are due on demand. Effective May 31, 2017, pursuant to the Omnibus Loan Agreement, a conversion feature was added to the Newcan Funding Notes whereby principal and accrued interest is convertible into common stock of the Company at a rate of $0.25 per share.

Effective December 1, 2017, pursuant to the Second Omnibus Loan Amendment, the conversion price was increased from $0.25 per share to $0.3125 per share and a discount in the amount of $6,120 related to the revaluation of the beneficial conversion feature of the Newcan Funding Notes was charged to additional paid-in capital and amortized to interest expense.

During the twelve months ended May 31, 2018, Newcan advanced a total of $290,000 to the Company under the Newcan Funding Notes. During the year ended May 31, 2018, principal in the amount of $836,658 and accrued interest in the amount of $25,018 was transferred out of the Newcan Funding Notes and used to fund four new convertible notes payable to Newcan, which were converted or repaid as of May 31, 2018.). During the year ended May 31, 2018, the Company accrued interest in the amount of $16,681 on the Newcan Funding Notes. During the year ended May 31, 2018, discounts in the amount of $210,120 related to the beneficial conversion feature of the Newcan Funding Notes was charged to additional paid-in capital and amortized to interest expense.

During the nine months ended February 28, 2019, principal in the amount of $75,000 and accrued interest in the amount of $1,931 was transferred out of the Newcan Funding Notes and used to create a new convertible note payable to Newcan (“Newcan Convertible Note 8”). During the nine months ended February 28, 2019, the Company accrued interest in the amount of $1,377 on the Newcan Funding Notes.
- 75,000

Total – Demand Convertible Notes Payable, Related Parties
$ - $ 75,137
Total – Demand Convertible Notes Payable, Related Parties - Current portion
$ - $ 75,137
Total – Demand Convertible Notes Payable, Related Parties - Long term portion
$ - $ -

	February 28, 2021		May 31, 2020
Convertible debenture in the principal amount of $532,000 (the “U.S. Convertible Debenture 4”) dated October 25, 2018, which bears interest, payable quarterly, at a rate of 8% per annum, with interest during the first eighteen months following issuance being payable by increasing the then-outstanding principal amount of the U.S. Convertible Debenture 4. The U.S. Convertible Debenture 4 matures on a date that is three years following issuance. The U.S. Convertible Debenture 4 is convertible into Convertible Debenture Units at a conversion price of $0.80 per Convertible Debenture Unit. Each Convertible Debenture Unit consists of (i) one share of the Company’s common stock, and (ii) one-half of one warrant, with each warrant exercisable for three years to purchase a share of common stock at a price of $1.10. The value of the warrants will be recorded when the issuance becomes probable. On July 26, 2019, U.S. Convertible Debenture 4 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 4, the conversion price of U.S. Convertible Debenture 4 will be reduced to such issuance price, and the exercise price of the warrant issuable in connection with U.S. Convertible Debenture 4 will be exercisable at a price equal to 137.5% of the adjusted conversion price at the time of conversion. The U.S. Convertible Debenture 4 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 4 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 $416,653 on the U.S. Convertible Debenture 4. During the three and nine months ended February 28, 2021, $34,721 and $104,163 of this discount was charged to operations, respectively. During the three and nine months ended February28, 2021, the Company accrued interest in the amounts of $11,982 and $35,947 on the U.S. Convertible Debenture 4, respectively. Also, during the three and nine months ended February 28, 2021, the Company transferred the amounts of $0 and $11,010 from accrued interest to principal of the U.S. Convertible Debenture 4, respectively.		599,101		599,101

Convertible debenture in the principal amount of $150,000 (the “U.S. Convertible Debenture 5”) dated October 26, 2018, which bears interest, payable quarterly, at a rate of 8% per annum, with interest during the first eighteen months following issuance being payable by increasing the then-outstanding principal amount of the U.S. Convertible Debenture 5. The U.S. Convertible Debenture 5 matures on a date that is three years following issuance. The U.S. Convertible Debenture 5 is convertible into Convertible Debenture Units at a conversion price of $0.80 per Convertible Debenture Unit. Each Convertible Debenture Unit consists of (i) one share of the Company’s common stock, and (ii) one-half of one warrant, with each warrant exercisable for three years to purchase a share of common stock at a price of $1.10. The value of the warrants will be recorded when the issuance becomes probable. The U.S. Convertible Debenture 5 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 5 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 $120,100 on the U.S. Convertible Debenture 5. During the three and nine months ended February 28, 2021, $10,008 and $30,025 of this discount was charged to operations, respectively. During the three and nine months ended February 28, 2021, the Company accrued interest in the amounts of $3,378 and $10,135 on the U.S. Convertible Debenture 5, respectively. Also, during the three and nine months ended February 28, 2021, the Company transferred the amounts of $0 and $3,104 from accrued interest to principal of the U.S. Convertible Debenture 5, respectively.		168,919		168,919

~~F-54~~F-60

Table of Contents

~~Convertible Notes Payable, Related Parties~~

February 28,
2019

May 31,
2018

Convertible promissory note payable to David Lamadrid (the “Lamadrid Note”) dated February 20, 2018 in the principal amount of $31,250 and bearing interest at a rate of 8% per annum. The Lamadrid Note is due eighteen months from the date of issue. Mr. Lamadrid may, at his option, convert all or a portion of the Lamadrid Note and accrued but unpaid interest into shares of common stock at a conversion price of $0.3125 per share. The Lamadrid Note also contains a reset feature, whereby, absent certain exceptions, if the Company issues equity securities at an effective price less than $0.3125 per share of common stock, the conversion price of the Lamadrid Note will be reset to such lower price. The Company recognized a discount of $31,250 on the Lamadrid Note related to the beneficial conversion feature at the time of issuance. During the twelve months ended May 31, 2018, $942 of this discount was charged to operations. During the twelve months ended May 31, 2018, the Company accrued interest in the amount of $685 on this note.

During the nine months ended February 28, 2019, interest in the amount of $562 was accrued on the Lamadrid note. During the nine months ended February 28, 2019, the Lamadrid Note, in the amount of $32,497, of which $31,250 was principal and $1,247 was accrued interest, was converted into 103,989 shares of common stock. During the nine months ended February 28, 2019 the remaining discount in the amount of $30,308 was charged to operations.
$ - $ 31,250

Unsecured convertible note issued to Jeffery Binder, an officer and director of the Company, dated April 6, 2018 in the original principal amount of $37,500 (the “Binder Convertible Note 9”). The Binder Convertible Note 9 was funded with the conversion of $37,500 of unpaid accrued salary due to Mr. Binder. This note bears interest at the rate of 10% per annum. No interest payments are required until July 1, 2019, at which time all accrued interest becomes due and payable. Commencing October 1, 2019, the first of eight principal payments in the amount of $4,688 will become due; subsequent payments will become due on the first day of each January, April, July and October until paid in full. This note and accrued interest under the note may be converted, in whole or in part, into one share of common stock for each $0.3125 converted. The Company recognized a discount of $37,500 on the Binder Convertible Note 9 related to the value of the beneficial conversion feature at the time of issuance. During the twelve months ended May 31, 2018, the Company amortized $1,890 of this discount to interest expense.

During the twelve months ended May 31, 2018 and 2017, interest in the amount of $565 and $0 was accrued on Binder Convertible Note 9, respectively.

During the nine months ended February 28, 2019, interest in the amount of $699 was accrued on the Binder Convertible Note 9. During the nine months ended February 28, 2019, the Company made a principal payment in the amount of $37,500 on the Binder Convertible Note 9. During the nine months ended February 28, 2019 the remaining discount in the amount of $35,610 was charged to operations.
- 37,500

	February 28, 2021			May 31, 2020
Convertible debenture payable in the principal amount of $75,000 (the “U.S. Convertible Debenture 6”) dated October 26, 2018, which bears interest, payable quarterly, at a rate of 8% per annum, with interest during the first eighteen months following issuance being payable by increasing the then-outstanding principal amount of the U.S. Convertible Debenture 6. The U.S. Convertible Debenture 6 matures on a date that is three years following issuance. The U.S. Convertible Debenture 6 is convertible into Convertible Debenture Units at a conversion price of $0.80 per Convertible Debenture Unit. Each Convertible Debenture Unit consists of (i) one share of the Company’s common stock, and (ii) one-half of one warrant, with each warrant exercisable for three years to purchase a share of common stock at a price of $1.10. The value of the warrants will be recorded when the issuance becomes probable. The U.S. Convertible Debenture 6 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 6 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 $60,049 on the U.S. Convertible Debenture 6. During the three and nine months ended February 28, 2021, $5,004 and $15,012 of this discount was charged to operations, respectively. During the three and nine months ended February 28, 2021, the Company accrued interest in the amounts of $1,689 and $5,067 on the U.S. Convertible Debenture 6, respectively. Also, during the three and nine months ended February 28, 2021, the Company transferred the amounts of $0 and $1,552 from accrued interest to principal of the U.S. Convertible Debenture 6, respectively.		84,459			84,459

Convertible debentures payable in the aggregate principal amount of $12,012,000 (the “Canaccord Debentures”) dated December 12, 2018, which bear interest, payable quarterly, at a rate of 8% per annum, with interest during the first eighteen months following issuance being payable by increasing the then-outstanding principal amount of the Canaccord Debentures. The Canaccord Debentures mature on a date that is three years following issuance. The Canaccord Debentures are convertible into Convertible Debenture Units at a conversion price of $0.80 per Convertible Debenture Unit. Each Convertible Debenture Unit consists of (i) one share of the Company’s common stock, and (ii) one-half of one warrant, with each warrant exercisable for three years to purchase a share of common stock at a price of $1.10. The value of the warrants will be recorded when the issuance becomes probable. The Canaccord Debentures have 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 Canaccord Debentures are unsecured obligations of the Company and rank pari passu in right of payment of principal and interest with all other unsecured obligations of the Company. During the three months ended November 30, 2019, in two separate transactions, principal in the aggregate amount of $25,857 was converted into an aggregate of 32,321 shares of the Company’s common stock, and warrants to purchase 16,160 shares of common stock. There were no gains or losses recorded on these conversions because they were done in accordance with the terms of the original agreement. No discount was recorded for the fair value of the warrants issued. Because the market price of the Company’s common stock was less than the conversion price on the date of issuance of the Canaccord Debentures, a discount was not recorded on the Canaccord Debentures. During the three and nine months ended February 28, 2021, the Company accrued interest in the amounts of $270,003 and $806,442 on the Canaccord Debentures, respectively. Also, during the three and nine months ended February 28, 2021, the Company transferred the amounts of $0 and $212,601 from accrued interest to principal of the Canaccord Debentures, respectively.		13,500,150			13,287,549

Total - Convertible Notes Payable	$	20,095,813		$	19,883,212
Less: Discount		(1,053,520	)		(2,238,730	)
Convertible Notes Payable, Net of Discounts	$	19,042,293		$	17,644,482

~~F-55~~F-61

Table of Contents

February 28,
2019

May 31,
2018

Unsecured convertible note issued to Newcan, an entity owned by Frank Koretsky, a director of the Company, dated, August 6, 2018 in the original amount of $75,000 (the “Newcan Convertible Note 8”). The Newcan Convertible Note 8 was funded with the conversion of $75,000 of advances Newcan made to the Company under the Newcan Funding Notes. This note bears interest at the rate of 10% per annum. No interest payments are required until October 1, 2019, at which time all of the accrued interest becomes due and payable. Commencing on January 1, 2020, the first of eight principal payments in the amount of $9,375 will become due; subsequent principal payments will become due on the first day of each April, July, October, and January until paid in full. This note and accrued interest under the note may be converted, in whole or in part, into one share of common stock for each $0.40 converted. The Company recognized a discount of $58,594 on the Newcan Convertible Note 8 related to the value of the beneficial conversion feature at the time of issuance.

During the nine months ended February 28, 2019, the Company accrued interest expense in the amount of $1,603 on this note. During the nine months ended February 28, 2019, the note holder converted $78,534, of which $75,000 was principal and $3,534 was accrued interest into 196,336 shares of common stock. Also during the nine months ended February 28, 2019, the remaining discount in the amount of $57,322 was charged to operations.
- -

Total – Convertible Notes Payable, Related Parties
$ - $ 68,750
Less: Discount
- (65,918
)
Convertible Notes Payable, Related Parties, Net of Discounts
$ - $ 2,832

Convertible Notes Payable, Related Parties, Net of Discounts, Current Portion
$ - $ 2,832
Convertible Notes Payable, Related Parties, Net of Discounts, Long-term Portion
- -

~~F-56~~

~~Table of Contents~~

~~Convertible Notes Payable~~

February 28,
2019

May 31,
2018

Convertible promissory note payable to Darling Capital, LLC (the “Darling Note”) dated February 5, 2018 and bearing interest at a rate of 8% per annum. The lender loaned the Company $500,000 and the Darling Note has an original issue discount of $50,000. The Darling Note is due eighteen months from the date of issue. Darling may, at its option, convert all or a portion of the Darling Note and accrued but unpaid interest into shares of common stock at a conversion price of $0.3125 per share. The Darling Note also contains a reset feature, whereby, absent certain exceptions, if the Company issues equity securities at an effective price less than $0.3125 per share of common stock, the conversion price of the Darling Note will be reset to such lower price. The Company recognized a discount of $550,000 on the Darling Note related to the beneficial conversion feature at the time of issuance. During the twelve months ended May 31, 2018, $40,427 of this discount was charged to operations. During the twelve months ended May 31, 2018, the Company accrued interest in the amount of $13,863 on this note.

During the nine months ended February 28, 2019, the Company accrued interest in the amount of $1,447 on this note. During the nine months ended February 28, 2019, the holder of the Darling Note converted $565,000, of which $550,000 was principal and $15,000 was accrued interest, into 1,808,000 shares of common stock. Also, during the nine months ended February 28, 2019, the remaining discount in the amount of $509,573 was charged to operations.
$ - $ 550,000

Convertible promissory note payable to Efrat Investments, LLC (the “Efrat Note”) dated February 12, 2018 and bearing interest at a rate of 8% per annum. The lender loaned the Company $50,000 and the Efrat Note has an original issue discount of $5,000. The Efrat Note is due eighteen months from the date of issue. Efrat may, at its option, convert all or a portion of the Efrat Note and accrued but unpaid interest into shares of common stock at a conversion price of $0.3125 per share. The Efrat Note also contains a reset feature, whereby, absent certain exceptions, if the Company issues equity securities at an effective price less than $0.3125 per share of common stock, the conversion price of the Efrat Note will be reset to such lower price. The Company recognized a discount of $55,000 on the Efrat Note related to the beneficial conversion feature at the time of issuance. During the twelve months ended May 31, 2018, $2,974 of this discount was charged to operations. During the twelve months ended May 31, 2018, the Company accrued interest in the amount of $1,302 on this note.

During the nine months ended February 28, 2019, the Company accrued interest in the amount of $898 on this note. During the nine months ended February 28, 2019, the holder of the Efrat Note converted $57,200, of which $55,000 was principal and $2,200 was accrued interest into 183,040 shares of common stock. Also during the nine months ended February 28, 2019, the remaining discount in the amount of $52,026 was charged to operations.
- 55,000

~~F-57~~

~~Table of Contents~~

February 28,
2019

May 31,
2018

Convertible promissory note payable to YA II PN, Ltd. (the “YA II PN Note”) dated May 14, 2018 and bearing interest at a rate of 8% per annum. The lender loaned the Company $750,000, and the note is due on November 14, 2019. YA II PN may, at its option, convert all or a portion of the YA II PN Note and accrued but unpaid interest into shares of common stock at a conversion price of $0.40 per share. The YA II PN Note also contains a reset feature, whereby, absent certain exceptions, if the Company issues equity securities at an effective price less than $0.40 per share of common stock, the conversion price of the YA II PN Note will be reset to such lower price. The Company recognized a discount of $750,000 related to the beneficial conversion feature at the time of issuance. Commencing on December 1, 2018, absent certain exceptions, the first of eight payments in the amount of $93,750 will become due; subsequent payments will become due on the first day of each of the following months until paid in full. During the twelve months ended May 31, 2018, $23,224 of this discount was charged to operations. During the twelve months ended May 31, 2018, the Company accrued interest in the amount of $2,795 on this note.

During the nine months ended February 28, 2019, a reset event occurred. As a result, the conversion price of the YA II PN Note was reduced to $0.34 per share of common stock. This was considered a material modification of the note; the remaining balance of the discount to the note in the amount of $699,628 was charged to interest expense, a new discount in the amount of $750,000 was charged to additional paid-in capital, and $620,052 of the new discount was amortized to interest expense. Also during the nine months ended February 28, 2019, the Company accrued interest expense in the amount of $39,068 on the YA II PN Note. During the nine months ended February 28, 2019, the holder of the YA II PN Note converted principal in the amount of $500,000 and accrued interest in the amount of $36,274 into 1,340,684 shares of common stock.
250,000 750,000

Unsecured convertible note issued to Jay Lasky (the “Lasky Note”), dated May 3, 2018 in the original principal amount of $25,000. This note bears interest at the rate of 10% per annum. No interest payments are required until July 1, 2019, at which time all accrued interest becomes due and payable. Commencing on October 1, 2019, the first of eight principal payments in the amount of $3,125 will become due; subsequent payments will become due on the first day of each January, April, July and October until paid in full. The Lasky Note and accrued interest under the note may be converted, in whole or in part, into one share of common stock for each $0.40 converted. The Company recognized a discount of $7,301 on the Lasky Note related to the beneficial conversion feature at the time of issuance. During the twelve months ended May 31, 2018, $149 of this discount was charged to operations. During the twelve months ended May 31, 2018, the Company accrued interest in the amount of $192 on this note.

During the nine months ended February 28, 2019, $7,152 of the discount was charged to operations. Also during the nine months ended February 28, 2019, the Company accrued interest in the amount of $993 on this note. During the nine months ended February 28, 2019, the holder of the Lasky Note converted $26,185, of which $25,000 was principal and $1,185 was accrued interest, into 65,462 shares of common stock.
- 25,000

~~F-58~~

~~Table of Contents~~

	~~February 28,~~ ~~2019~~		~~May 31,~~ ~~2018~~

Convertible promissory note payable to YA II PN, Ltd. (the “YA II PN Note 2”) dated July 20, 2018 and bearing interest at a rate of 8% per annum. The lender loaned the Company $500,000, and the note is due on November 14, 2019. YA II PN may, at its option, convert all or a portion of the YA II PN Note 2 and accrued but unpaid interest into shares of common stock at a conversion price of $0.40 per share. The YA II PN Note 2 also contains a reset feature, whereby, absent certain exceptions, if the Company issues equity securities at an effective price less than $0.40 per share of common stock, the conversion price of the YA II PN Note 2 will be reset to such lower price. The Company recognized a discount of $362,500 related to the beneficial conversion feature at the time of issuance. Commencing on December 1, 2018, absent certain exceptions, the first of eight payments in the amount of 62,500 will become due; subsequent payments will become due on the first day of each of the following months until paid in full. During the nine months ended February 28, 2019, $167,713 of this discount was charged to operations. Also during the nine months ended February 28 2019, the Company accrued interest in the amount of $29,041 on this note.		~~500,000~~		-

Convertible debenture in the principal amount of $4,000,000 (the “U.S. Convertible Debenture 1”) dated October 31, 2018, which bears interest, payable quarterly, at a rate of 8% per annum, with interest during the first eighteen months following issuance being payable by increasing the then-outstanding principal amount of the U.S. Convertible Debenture 1. The U.S. Convertible Debenture 1 matures on a date that is three years following issuance. The U.S. Convertible Debenture 1 is convertible into units (the “Convertible Debenture Units”) at a conversion price of $0.80 per Convertible Debenture Unit. Each Convertible Debenture Unit consists of (i) one share of the Company’s common stock, and (ii) one-half of one warrant, with each warrant exercisable for three years to purchase a share of common stock at a price of $1.10. The U.S. Convertible Debenture 1 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 1 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 $3,254,896 on the U.S. Convertible Debenture 1. During the nine months ended February 28, 2019, $217 of this discount was charged to operations. During the nine months ended February 28, 2019, the Company accrued interest in the amount of $105,205 on the U.S. Convertible Debenture 1.		~~4,000,000~~		-

Convertible debenture in the principal amount of $1,000,000 (the “U.S. Convertible Debenture 2”) dated October 31, 2018, which bears interest, payable quarterly, at a rate of 8% per annum, with interest during the first eighteen months following issuance being payable by increasing the then-outstanding principal amount of the U.S. Convertible Debenture 2. The U.S. Convertible Debenture 2 matures on a date that is three years following issuance. The U.S. Convertible Debenture 2 is convertible into Convertible Debenture Units at a conversion price of $0.80 per Convertible Debenture Unit. Each Convertible Debenture Unit consists of (i) one share of the Company’s common stock, and (ii) one-half of one warrant, with each warrant exercisable for three years to purchase a share of common stock at a price of $1.10. 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 $813,724 on the U.S. Convertible Debenture 2. During the nine months ended February 28, 2019, $52 of this discount was charged to operations. During the nine months ended February 28, 2019, the Company accrued interest in the amount of $26,301 on the U.S. Convertible Debenture 2.		~~1,000,000~~		-

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~~Table of Contents~~

	~~February 28,~~ ~~2019~~		~~May 31,~~ ~~2018~~

Convertible debenture in the principal amount of $100,000 (the “U.S. Convertible Debenture 3”) dated October 24, 2018, which bears interest, payable quarterly, at a rate of 8% per annum, with interest during the first eighteen months following issuance being payable by increasing the then-outstanding principal amount of the U.S. Convertible Debenture 3. The U.S. Convertible Debenture 3 matures on a date that is three years following issuance. The U.S. Convertible Debenture 3 is convertible into Convertible Debenture Units at a conversion price of $0.80 per Convertible Debenture Unit. Each Convertible Debenture Unit consists of (i) one share of the Company’s common stock, and (ii) one-half of one warrant, with each warrant exercisable for three years to purchase a share of common stock at a price of $1.10. The U.S. Convertible Debenture 3 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 3 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 $75,415 on the U.S. Convertible Debenture 3. During the nine months ended February 28, 2019, $60 of this discount was charged to operations. During the nine months ended February 28, 2019, the Company accrued interest in the amount of $2,784 on the U.S. Convertible Debenture 3.		~~100,000~~		-

Convertible debenture in the principal amount of $532,000 (the “U.S. Convertible Debenture 4”) dated October 25, 2018, which bears interest, payable quarterly, at a rate of 8% per annum, with interest during the first eighteen months following issuance being payable by increasing the then-outstanding principal amount of the U.S. Convertible Debenture 4. The U.S. Convertible Debenture 4 matures on a date that is three years following issuance. The U.S. Convertible Debenture 4 is convertible into Convertible Debenture Units at a conversion price of $0.80 per Convertible Debenture Unit. Each Convertible Debenture Unit consists of (i) one share of the Company’s common stock, and (ii) one-half of one warrant, with each warrant exercisable for three years to purchase a share of common stock at a price of $1.10. The U.S. Convertible Debenture 4 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 4 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 $416,653 on the U.S. Convertible Debenture 4. During the nine months ended February 28, 2019, $87 of this discount was charged to operations. During the nine months ended February 28, 2019, the Company accrued interest in the amount of $14,692 on the U.S. Convertible Debenture 4.		~~532,000~~		-

Convertible debenture in the principal amount of $150,000 (the “U.S. Convertible Debenture 5”) dated October 26, 2018, which bears interest, payable quarterly, at a rate of 8% per annum, with interest during the first eighteen months following issuance being payable by increasing the then-outstanding principal amount of the U.S. Convertible Debenture 5. The U.S. Convertible Debenture 5 matures on a date that is three years following issuance. The U.S. Convertible Debenture 5 is convertible into Convertible Debenture Units at a conversion price of $0.80 per Convertible Debenture Unit. Each Convertible Debenture Unit consists of (i) one share of the Company’s common stock, and (ii) one-half of one warrant, with each warrant exercisable for three years to purchase a share of common stock at a price of $1.10. The U.S. Convertible Debenture 5 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 5 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 $120,100 on the U.S. Convertible Debenture 5. During the nine months ended February 28, 2019, $67 of this discount was charged to operations. During the nine months ended February 28, 2019, the Company accrued interest in the amount of $4,110 on the U.S. Convertible Debenture 5.		~~150,000~~		-

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~~Table of Contents~~

February 28,
2019

May 31,
2018

Convertible debenture payable in the principal amount of $75,000 (the “U.S. Convertible Debenture 6”) dated October 26, 2018, which bears interest, payable quarterly, at a rate of 8% per annum, with interest during the first eighteen months following issuance being payable by increasing the then-outstanding principal amount of the U.S. Convertible Debenture 6. The U.S. Convertible Debenture 6 matures on a date that is three years following issuance. The U.S. Convertible Debenture 6 is convertible into Convertible Debenture Units at a conversion price of $0.80 per Convertible Debenture Unit. Each Convertible Debenture Unit consists of (i) one share of the Company’s common stock, and (ii) one-half of one warrant, with each warrant exercisable for three years to purchase a share of common stock at a price of $1.10. The U.S. Convertible Debenture 6 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 6 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 $60,049 on the U.S. Convertible Debenture 6. During the nine months ended February 28, 2019, $57 of this discount was charged to operations. During the nine months ended February 28, 2019, the Company accrued interest in the amount of $2,055 on the U.S. Convertible Debenture 6.
75,000 -

Convertible debentures payable in the aggregate principal amount of $12,012,000 (the “Canaccord Debentures”) dated December 12, 2018, which bears interest, payable quarterly, at a rate of 8% per annum, with interest during the first eighteen months following issuance being payable by increasing the then-outstanding principal amount of the Canaccord Debentures. The Canaccord Debentures mature on a date that is three years following issuance. The Canaccord Debentures are convertible into Convertible Debenture Units at a conversion price of $0.80 per Convertible Debenture Unit. Each Convertible Debenture Unit consists of (i) one share of the Company’s common stock, and (ii) one-half of one warrant, with each warrant exercisable for three years to purchase a share of common stock at a price of $1.10. The Canaccord Debentures have 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 Canaccord Debentures are unsecured obligations of the Company and rank 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 $2,938,690 on the Canaccord Debentures. During the nine months ended February 28, 2019, $136 of this discount was charged to operations. During the nine months ended February 28, 2019, the Company accrued interest in the amount of $205,356 on the Canaccord Debentures.
12,012,000 -

Total - Convertible Notes Payable
$ 18,619,000 $ 1,380,000
Less: Discount
(8,030,735
)
(1,295,527
)
Convertible Notes Payable, Net of Discounts
$ 10,588,265 $ 84,473

Total - Convertible Notes Payable, Net of Discounts, Current Portion
$ 398,117 $ 43,401
Total - Convertible Notes Payable, Net of Discounts, Long-term Portion
$ 10,190,148 $ 41,072

February 28,

2021

May 31,

2020

Total - Convertible Notes Payable, Net of Discounts, Current Portion, net of discount of $1,053,520 and $0

19,042,293

Total - Convertible Notes Payable, Net of Discounts, Long-term Portion, net of discount of $0 and $2,238,730

17,644,482

Discounts on notes payable amortized to interest expense – 3 months ended February 28, ~~2019~~2021 and ~~2018,~~February 29, 2020, respectively

~~337,347~~

395,070

~~818,254~~

398,611

Discounts on notes payable amortized to interest expense – 9 months ended February 28, ~~2019~~2021 and ~~2018,~~February 29, 2020, respectively

~~2,481,674~~

1,185,210

~~1,391,110~~

1,249,053

~~F-61~~

~~Table~~

Aggregate maturities of ~~Contents~~

~~Beneficial Conversion Features~~

~~The Darling Note, Efrat Note, Lamadrid Note~~notes payable and YA II PN Notes contain conversion features that create derivative liabilities. The pricing model the Company uses for determining fair value of its derivatives is the Lattice Model. Valuations derived from this model are subject to ongoing internal and external verification and review. The model uses market-sourced inputs such as interest rates and stock price volatilities. Selection of these inputs involves management’s judgment and may impact net income. The derivative components of the notes were valued at issuance, at conversion, at restructure, and at each period end.

~~Certain of the Company’s other~~ convertible notes payable ~~contain beneficial conversion features that~~as of February 28, 2021 are not derivatives, but which require valuation in order to determine the discount to the related convertible note payable. The value of these conversion features is calculated using the intrinsic value method, whereby the amount of the discount is calculated as ~~the difference between the conversion price and the market price of the underlying common stock at the date of issuance multiplied by the number of shares issuable.~~follows:

For the twelve months ended February 28,

2022	$	20,095,813
2023		-
2024		-
2025		-
2026		-
Thereafter		-
Total	$	20,095,813

Note 1516 – Contingent Liability

The terms of the Company’s acquisition of Alternative Solutions, ~~LLC include~~included a payment of $1,000,000 contingent upon the Oasis LLCs achieving certain revenue targets. (see note 3). The fair value of this contingent consideration at the time of the Acquisition Agreement was $678,111 as determined by the Company’s outside valuation consultants. Management ~~has~~ reviewed the value of the contingent consideration, and ~~has~~ concluded that, ~~no adjustment is necessary~~due to the increased revenue of Alternative Solutions, the fair value of this contingent liability was $1,000,000 at ~~February 28,~~May 31, 2019. The Company recorded a charge to operations in the amount of $321,889 during the year ended May 31, 2019.

The full amount of the bonus payment was earned, and on May 27, 2020, the Company made a payment in the amount of $850,000 to the sellers. The Company deposited the balance due to sellers of $150,000 with an escrow agent to hold pending the outcome of a tax audit. During the year ended May 31, 2020, the State of Nevada notified the Oasis LLCs that it would be conducting a tax audit for periods both before and after the closing of the sale to CLS. The tax audit was completed and the Company received a deficiency notice dated January 29, 2021. The Company paid the tax due and on February 16, 2021, $41,805 of the escrowed amount was released to the Company, $106,195 was released to sellers and the balance of $2,000 was remitted to the escrow agent as payment of its fees.

Note 1617 – ~~Stockholders’~~ Stockholders’ Equity

The Company’s authorized capital stock consists of ~~250,000,000~~750,000,000 shares of common stock, par value $0.0001, ~~per share~~at February 28, 2021 and May 31, 2020, and 20,000,000 shares of preferred stock, par value $0.001 per share. The Company had ~~125,814,107~~126,821,416 and ~~50,128,972~~126,521,416 shares of common stock issued and outstanding as of February 28, ~~2019,~~2021 and May 31, ~~2018,~~2020, respectively.

~~The Company recorded imputed interest of $268 and $265 during the three~~Nine months ended February 28, 2019 and 2018 on related party payables due to a director and officer of the Company. The Company recorded imputed interest of $807 and $804 during the nine months ended February 28, 2019 and 2017 on related party payables due to a director and officer of the Company, and charged this amount to additional paid-in capital.2021

Common Stock Issued ~~upon Conversion of Notes Payable~~and To Be Issued to Officers and Service Providers:

During the nine months ended February 28, ~~2019, Darling Capital, holder~~2021, the Company charged an aggregate of ~~a convertible promissory note, converted a total~~$80,813 to common stock subscribed representing the accrual over the vesting period of ~~$565,000, which consisted of $550,000 of principal and $15,000 of accrued interest, into 1,808,000~~500,000 shares of restricted common ~~stock.~~ stock issuable to officers. During the nine months ended February 28, 2021, the Company recognized the issuance of 250,000 to an officer, which shares were previously recorded in common stock to be issued.

During the nine months ended February 28, ~~2019, Efrat Investments, holder~~2021, the Company recognized the cancellation of a ~~convertible promissory note, converted~~consulting contract, which resulted in a ~~total~~credit to operations in the amount of ~~$57,200, which consisted~~$22,500 and the reversal of ~~$55,000 of principal and $2,200 of accrued interest, into 183,040~~100,000 shares of common ~~stock.~~

During the nine months ended February 28, 2019, David Lamadrid, holder of a convertible promissory note, converted a total of $32,497, which consisted of $31,250 of principal and $1,247 of accrued interest, into 103,989 shares of common stock.

During the nine months ended February 28, 2019, Jay Lasky, holder of a convertible promissory note, converted a total of $26,185, which consisted of $25,000 of principal and $1,185 of accrued interest, into 65,462 shares of common stock.

During the nine months ended February 28, 2019, Newcan, holder of a convertible promissory note, converted a total of $78,534, which consisted of $75,000 of principal and $3,534 of accrued interest, into 196,336 shares of common stock.

During the nine months ended February 28, 2019, YA II PN, holder of a convertible promissory note, converted a total of $280,247, which consisted of $250,000 of principal and $30,247 of accrued interest, into 700,616 shares of common stock.stock to be issued.

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Table of Contents

During the nine months ended February 28, ~~2019, YA II PN, holder~~2021, the Company recognized the cancellation of a ~~convertible promissory note, converted~~consulting contract, which resulted in a ~~total of $256,027 which consisted of $250,000 of principal and $6,027 of accrued interest, into 640,068 shares of common stock.~~

~~Stock Issued for Services~~

~~On July 24, 2018, the Company awarded Star Associates, LLC, a limited liability company owned by Andrew Glashow, a director of the Company, a cash payment~~credit to operations in the amount of $250,000 and 700,000 shares of the Company’s restricted common stock in recognition of Mr. Glashow’s efforts, through Star Associates, in successfully assisting the Company in negotiating and obtaining the financing necessary to acquire Alternative Solutions. The shares were valued at $490,000 and were charged to operations during the nine months ended February 28, 2019.

On June 24, 2018, pursuant to the terms of a severance agreement between the Company and David Lamadrid, the Company issued 600,000 shares of restricted common stock to Mr. Lamadrid. These shares were valued at $264,000, $213,320 of which was previously expensed$3,250 and the ~~remaining $50,680~~reversal of ~~which was charged to operations during the nine months ended February 28, 2019.~~

~~On September 11, 2018, the Company issued 31,250~~25,000 shares of common stock ~~with a fair value of $25,310 in exchange for legal services previously rendered to the Company. These shares were accrued on February 8, 2018, and were issued from stock payable.~~

~~Stock Issued for Acquisition~~

On June 27, 2018, the Company issued 22,058,823 shares of its common stock pursuant to the terms of the Alternative Solutions, LLC Acquisition Agreement. These shares were valued at $15,441,176. (See note 3).

~~Special Warrants Issued in Offering~~

On June 20, 2018, the Company executed an Agency Agreement with Canaccord Genuity Corp. and closed on a private offering of its special warrants for aggregate gross proceeds of C$13,037,859 (USD$9,785,978). Pursuant to the offering, the Company issued 28,973,020 special warrants at a price of C$0.45 (USD$0.34) per special warrant. Each special warrant was automatically exercisable, for no additional consideration, into units of the Company on the earlier of: (i) the date that was five business days following the date on which the Company obtained a receipt from the applicable securities regulatory authorities in each of the jurisdictions in Canada in which the special warrants were sold for a final prospectus qualifying the distribution of the units, which was intended to be no later than November 30, 2018, and (ii) the date that was four months and one day after the completion of the Company's acquisition of all of the membership interests in Alternative Solutions, LLC, known as Oasis Cannabis.

In connection with the offering, the Company paid Canaccord Genuity Corp. a cash commission equal to C$1,043,028 (USD$799,053), a corporate finance fee equal to 1,448,651 special warrants, and 2,317,842 compensation broker warrants valued at $1,495,373. Each compensation broker warrant entitles the holder thereof to acquire one unit at a price of C$0.45 per unit for a period of 36 months from the date that the Company's common stock is listed on a recognized Canadian stock exchange, subject to adjustment in certain events. The 1,448,651 special warrants that were issued were valued at $1,413,300 and were charged to operations during the three months ended August 31, 2018.

Upon exercise of the special warrants, each unit was to consist of one share of the Company's common stock and one warrant to purchase one share of common stock. Each warrant was to be exercisable at a price of C$0.65 for three years after the Company's common stock was listed on a recognized Canadian stock exchange, subject to adjustment in certain events.

~~On February 28, 2019, all of the special warrants were automatically converted into 33,465,110 shares of common stock and warrants to purchase 33,465,110 shares of common stock for CD$0.65 per share.~~

~~F-63~~

~~Table of Contents~~

~~Stock Issued in Navy Capital Offering~~

~~Stock Issued to Officers~~

On July 27, 2018, the Company granted 25,000 shares of restricted common stock to its Chief Financial Officer. These shares vested four months after issuance. The shares were valued at $17,500, and were amortized over the vesting period. As of February 28, 2019, these shares had not been issued. ~~As of February 28, 2019, $17,500 had been charged to operations, and is carried as Common Stock Subscribed on the Company’s balance sheet at February 28, 2019.~~

On July 31, 2018, the Company granted the Chief Executive Officer of CLS Nevada, Inc. a one-time signing bonus of 500,000 shares of restricted common stock, which shall become fully vested one year from the effective date of his employment agreement. These shares were valued at $350,000 and will be amortized over the vesting period. As of February 28, 2019, $236,667 had been charged to operations, and is carried as Common Stock Subscribed on the Company’s balance sheet at February 28, 2019.

On July 31, 2018, the Company granted the Chief Operating Officer of CLS Nevada, Inc. a one-time signing bonus of 50,000 shares of restricted common stock, which shall become fully vested one year from the effective date of his employment agreement. These shares were valued at $35,000 and will be amortized over the vesting period. As of February 28, 2019, $23,667 had been charged to operations, and is carried as Common Stock Subscribed on the Company’s balance sheet at February 28, 2019.

~~Stock Issued upon Cashless Exercise of Warrants~~

~~On August 14, 2018, the Company issued 129,412 shares of common stock for the cashless conversion of 350,000 warrants at an exercise price of $0.75 per share.~~

~~On September 6, 2018, the Company issued 13,684 shares of common stock upon the cashless exercise of 40,000 warrants at an exercise price of $0.75 per share.~~

~~On November 14, 2018, the Company issued 5,867 shares of common stock upon the cashless exercise of 25,000 warrants at an exercise price of $0.75 per share.~~

~~Stock Issued for Settlement~~

~~On November 1, 2018, the Company issued 50,000 shares of common stock with a fair value of $47,500 pursuant to a legal settlement. There was no gain or loss associated with this transaction.~~

~~Stock Issued for Compensation for Debenture Offering~~

On December 12, 2018, in connection with the issuance of the Canaccord Debentures, the Company issued 559,750 units as compensation for advisory and agent fees. Each unit is comprised of one share of common stock and one-half of one common stock purchase warrant at an exercise price of $1.10 per whole share of common stock. As a result, the Company issued 559,750 shares of common stock as compensation for agent and advisory services. These shares were valued at $376,152, and this amount was charged to operations during the three months ended February 28, 2019.

~~F-64~~

~~Table of Contents~~

~~Additional Paid-in Capital~~

During the nine months ended February 28, 2021, the Company recognized the issuance of 50,000 to a former officer, which shares were previously recorded in common stock to be issued.

Nine months ended February 29, 2020

Common Stock and Warrants Issued upon Conversion of Notes Payable:

On July 8, 2019, the Company ~~recorded discounts on two convertible notes payable relating~~issued 16,644 shares of common stock and three-year warrants to ~~beneficial~~acquire 8,322 shares of common stock at a price of $1.10 per share to Canaccord Genuity Corp., as nominee, in connection with the conversion ~~features~~of a portion of the Canaccord Debentures in the ~~aggregate~~principal amount of ~~$362,500~~$13,315. No gain or loss was recorded on this transaction because the ~~YA II PN Note 2, and $58,594 on the Newcan Convertible Note 8. Also, during the nine months ended February 28, 2019, a reset event occurred with regard~~conversion was made pursuant to the ~~YAII PN Note.~~terms of the original agreement.

~~During the nine months ended February 28,~~On July 19, 2019, the Company ~~recorded an original issue discount on~~issued 15,677 shares of common stock and three-year warrants to acquire 7,838 shares of common stock at a price of $1.10 per share to Canaccord Genuity Corp., as nominee, in connection with the ~~Serenity Wellness Note~~conversion of a portion of the Canaccord Debentures in the principal in the amount of ~~$81,961.~~$12,542. No gain or loss was recorded on this transaction because the conversion was made pursuant to the terms of the original agreement.

Common Stock Issuedand To Be Issuedto Officersand Service Providers:

On ~~June 1, 2018,~~July 22, 2019, the Company ~~adopted ASU 2017-11 and accordingly reclassified~~issued 500,000 shares of common stock to Ben Sillitoe, the former Chief Executive Officer of CLS Nevada, in connection with his employment agreement. The fair value of the reset provisions embedded in the previously issued convertible notes payable and certain warrants with embedded anti-dilutive provisions from liability to additional paid-in capital in the aggregate amount of $1,265,751. On June 20, 2018, a reset event occurred in connection with the YA II PN Note (see note 14), and the Company charged the change in fair value of the conversion featurethese shares in the amount of ~~$35,833~~$355,000 had been charged to operations as the shares vested. At issuance, this amount was transferred from common stock subscribed; $50 was charged to common stock, and $354,950 was charged to additional paid-in capital. ~~This was considered a material modification of the note, and~~

On July 22, 2019, the Company ~~created a new discount~~issued 50,000 shares of common stock to ~~this note~~Don Decatur, the former Chief Operating Officer of CLS Nevada, in connection with his employment agreement. The fair value of these shares in the amount of ~~$750,000, which~~$35,500 had been charged to operations as the shares vested. At issuance, this amount was transferred from common stock subscribed; $5 was charged to common stock, and $35,495 was charged to additional paid-in capital.

During the nine months ended February ~~28, 2019,~~29, 2020, the Company ~~recorded discounts on six convertible debentures relating~~charged an aggregate of $124,582 to ~~beneficial conversion features as follows:~~common stock subscribed representing the accrual over the vesting period of 791,668 shares of restricted common stock issuable to officers. The Company also charged $30,000 to common stock subscribed representing the fair value of 133,332 shares of common stock to be issued to a discount of $3,254,863 was recorded on the U.S. Convertible Debenture 1; a discount of $813,696 was recorded on the U.S. Convertible Debenture 2; a discount of $75,395 was recorded on the U.S. Convertible Debenture 3; a discount of $416,627 was recorded on the U.S. Convertible Debenture 4; a discount of $120,078 was recorded on the U.S. Convertible Debenture 5; a discount of $60,030 was recorded on the U.S. Convertible Debenture 6; and a discount of $2,938,690 was recorded on the Canaccord Debentures.service provider.

~~Warrants~~

~~On June 27, 2018,~~The Company also charged $45,000 to common stock subscribed representing the ~~Company incurred~~fair value of 200,000 shares of common stock to be issued to a ~~penalty in connection with~~service provider. During the ~~WestPark Offering due to the late filing of the registration statement that included the resale of the securities that were sold in such offering. As a result of the penalty,~~nine months ended February 29, 2020, the Company issued ~~three-year~~100,000 of these shares of common stock. At issuance, $22,500 was transferred from common stock warrants to purchase an aggregate of 1,368,250 shares of the Company’s common stock at an exercise price of $0.50 per share. In addition, the Company reduced the exercise price of the common stock purchase warrants previously issued to the investors in the WestPark Offering from $0.75 per share to $0.50 per share. The fair value of the penalty was $941,972; this amountsubscribed; $10 was charged to ~~operations during~~common stock, and $22,490 was charged to additional paid-in capital.

Warrants

The following table summarizes the ~~three months ended August 31, 2018.~~significant terms of warrants outstanding at February 28, 2021. This table does not include the unit warrants. See Unit Warrants section below.

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
$	0.49		33,465,110		0.75	$	0.49		33,465,110	$	0.49
	0.50		2,736,500		0.98		0.50		2,736,500		0.50
	0.60		17,500,000		0.75		0.60		17,500,000		0.60
	0.75		412,500		0.01		0.75		412,500		0.75
	1.10		296,035		0.82		1.10		296,035		1.10
			54,410,145		0.76	$	0.53		54,410,145	$	0.53

F-63

Table of Contents

Transactions involving warrants are summarized below. This table does not include the unit warrants. See Unit Warrants sections below.

	Number of Shares			Weighted Average Exercise Price
Warrants outstanding at May 31, 2019		54,818,985		$	0.53
Granted		16,160		$	1.10
Exercised		-
Cancelled / Expired		-		$	-

Warrants outstanding at May 31, 2020		54,838,145		$	0.53
Granted		-		$	-
Exercised		-		$	-
Cancelled / Expired		(425,000	)	$	0.75
Warrants outstanding at February 28, 2021		54,410,145		$	0.53

Unit Warrants

On June 20, 2018, in connection with the special warrant offering, the Company issued Canaccord Genuity Corp. 2,317,842 three-year broker warrants at an exercise price of C$0.45 per ~~share~~unit as compensation. Each warrant entitles the holder to purchase one unit, which consists of one share of common stock and a warrant to purchase one share of common stock, for C$0.65 per share. These warrants were valued at $1,495,373, and this amount was charged to operations during the ~~three~~six months ended ~~August 31,~~November 30, 2018.

On July 20, 2018, in connection with the Company’s sale of a convertible debenture, the Company issued to YA II PN, Ltd. a five-year common stock purchase warrant to purchase 1,250,000 shares of the Company’s common stock at an initial exercise price of $0.60 per share.

On August 6, 2018, the Company issued three-year common stock purchase warrants to purchase an aggregate of 7,500,000 shares of the Company’s common stock at an exercise price of $0.60 per share, to investors in the Navy Capital Offering.

On December 12, 2018, in connection with the issuance of the Canaccord Debentures, the Company issued Canaccord Genuity Corp., as compensation, 1,074,720 three-year agent and advisory ~~warrants~~warrants. Each warrant entitles the holder to purchase a unit for $0.80, which unit consists of one share of common stock and a warrant to purchase one-half share of common stock at an exercise price of ~~$0.80~~$1.10 per ~~share as compensation.~~share. The Company, in connection with the issuance of the Canaccord Debentures, also issued to National Bank ~~Financials~~Financial Inc., as compensation, 268,680 three-year agent and advisory ~~warrants at an exercise price of~~warrants. Each warrant entitles the holder to purchase a unit for $0.80, ~~per share as compensation. These warrants were valued at $874,457, and this amount was charged to operations during the three months ended February 28, 2019.~~

~~F-65~~

~~Table of Contents~~

~~On December 12, 2018, in connection with the issuance of the Canaccord Debentures, the Company issued 559,750 units as compensation for advisory and agent fees. Each~~which unit ~~is comprised~~consists of one share of common stock and a warrant to purchase one-half share of ~~one~~ common stock ~~purchase warrant~~ at an exercise price of $1.10 per ~~whole share~~share. The aggregate value of ~~common stock. As a result, the Company issued 223,900 three-year agent and advisory~~these warrants ~~to Canaccord Genuity Corp. and 55,975 three-year agent and advisory warrants to National Bank Financials Inc. These warrants were valued at $181,183, and this amount~~was $874,457, which was charged to operations during the ~~three months~~year ended ~~February 28,~~May 31, 2019.

~~The following table summarizes~~Because the ~~significant terms of~~unit warrants ~~outstanding at February 28, 2019. These~~are exercisable for Common Stock and warrants, ~~were granted as part of financing agreements. This table does~~they are not ~~include~~included in the ~~special warrants; see Special Warrant section below:~~warrant tables above.

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

$
0.49

35,782,952

2.73

$
0.49

35,782,952

$
0.49

0.50

2,736,500

2.98

0.50

2,736,500

0.50

0.60

17,500,000

2.76

0.60

17,500,000

0.60

0.75

1,042,738

2.37

0.75

1,042,738

0.75

0.80

1,343,400

2.79

0.80

1,343,400

0.80

1.10

279,875

2.79

1.10

279,875

1.10

58,685,465

2.74

$
0.53

58,685,465

$
0.53

~~Transactions involving warrants are summarized as follows. This table does not include the special warrants; see Special Warrant section below.~~

Number of
Shares

Weighted
Average
Exercise
Price

Warrants outstanding at May 31, 2018
4,700,988 $ 0.62
Granted
54,399,477 $ 0.53
Exercised
(415,000
)
$ 0.75
Cancelled / Expired
- $ -
Warrants outstanding at February 28, 2019
58,685,465 $ 0.53

~~Special Warrants~~Note 18 – Gain on Settlement of Liabilities

On ~~June 20, 2018,~~August 14, 2019, the Company ~~sold 28,973,019 special warrants for net proceeds~~made a payment to 4Front Advisors to settle its dispute with Alternative Solutions and its former owners and the Oasis Note was reduced in accordance with its terms. In addition, the amount of US$9,785,978. Each special warrant was automatically exercisable, for no additional consideration, into units of the Company on the earlier of: (i) the date that was five business days following the date on$275,000, which the Company ~~obtained~~had accrued with respect to this dispute, was extinguished resulting in a ~~receipt from the applicable securities regulatory authorities in each~~gain of the jurisdictions in Canada in which the special warrants were sold for a final prospectus qualifying the distribution of the units, which was intended to be no later than November 30, 2018, and (ii) the date that was four months and one day after the completion of the Company's acquisition of all of the membership interests in Alternative Solutions, known as Oasis Cannabis, which was June 28, 2018.$275,000.

All of the special warrants were automatically exercised for units on November 30, 2018. Each unit consists of one share of the Company’s common stock and one three-year warrant to purchase one share of common stock at a price of C$0.65.

~~F-66~~

~~Table of Contents~~

Note 17 19 – Fair Value of Financial Instruments

The Company has issued convertible notes containing beneficial conversion ~~features to Darling, Efrat, David Lamadrid and YA II PN.~~features. One of the features is a ratchet reset provision which, in general, reduces the conversion price should the Company issue equity with an effective price per share that is lower than the stated conversion price in the note. The Company accounts for the fair value of the conversion feature in accordance with ASC 815- Accounting for Derivatives and Hedging and Emerging Issues Task Force (“EITF”) 07-05- Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock (“EITF 07-05”). The Company carries the embedded derivative on its balance sheet at fair value and accounts for any unrealized change in fair value as a component of its results of operations. ~~The Company also has a contingent liability in connection with the acquisition~~

F-64

Table of ~~Alternative Solutions, (see note 3).~~

Contents

The following summarizes the Company’s financial liabilities that are recorded at fair value on a recurring basis at February 28, ~~2019~~2021 and May 31, ~~2018:~~2020:

February 28, 2019

Level 1

Level 2

Level 3

Total

Liabilities

Contingent liabilities

$
-

$
-

$
678,111

$
678,111

February 28, 2021

Level 1

Level 2

Level 3

Total

Liabilities

Derivative liabilities

May 31, 2018

Level 1

Level 2

Level 3

Total

Liabilities

Derivative liabilities

$
-

$
-

$
1,265,751

$
1,265,751

May 31, 2020

Level 1

Level 2

Level 3

Total

Liabilities

Derivative liabilities

Note20 – Related Party Transactions

As of February 28, 2021 and May 31, 2020, the Company had accrued salary due to Michael Abrams, a former officer of the Company prior to his September 1, 2015 termination, in the amount of $16,250

Note 21 – Commitments and Contingencies

Lease Arrangements

The ~~estimated fair values of the Company’s derivative liabilities~~Company leases several facilities for office, warehouse, and retail space. Currently lease commitments are as follows:

Derivative

Liability

Liabilities Measured at Fair Value

Balance as of May 31, 2018
$ 1,265,751

Transfers out due to the adoption of ASU 2017-11 effective June 1, 2018
(1,265,751
)

Balance as of February 28, 2019
$ -

~~Note 18 – Commitments~~A lease which commenced January 2018 for 1,000 square feet of storefront plus 5,900 square feet of warehouse space located at 1800 Industrial Road, Suites 102, 160, and ~~Contingencies~~180, Las Vegas, NV 89102 initially for a term of five years for the base amount of $7,500 per month, with annual increases of 3%. In February 2020, this lease was extended to February 28, 2030 and the monthly payment amount was increased by $600.

In connection with the Company’s planned Colorado operations, on April 17, 2015, pursuant to an Industrial Lease Agreement (the “Lease”), CLS Labs Colorado leased 14,392 square feet of warehouse and office space (the “Leased Real Property”) in a building in Denver, Colorado where certain intended activities, including growing, extraction, conversion, assembly and packaging of cannabis and other plant materials, are permitted by and in compliance with state, city and local laws, rules, ordinances and regulations. The Lease had an initial term of seventy-two (72) months and provided CLS Labs Colorado with two options to extend the term of the lease by up to an aggregate of ten (10) additional years. In August 2017, as a result of the Company’s decision to suspend its proposed operations in Colorado, CLS Labs Colorado asked its landlord to be relieved from its obligations under the Lease, but the parties have not yet reached an agreement on how to proceed.

F-65

Table of Contents

~~F-67~~

~~Table of Contents~~

~~Employment Agreements~~Contingent Liability

~~CLS Labs and Jeffrey Binder entered into a five-year employment agreement effective October 1, 2014. Under~~At the ~~agreement, Mr. Binder serves as CLS Labs’ Chairman and Chief Executive Officer and is entitled to receive an annual salary~~time of ~~$150,000. Under~~closing of the ~~agreement, Mr. Binder is also entitled to receive a performance bonus equal to 2% of CLS Labs’ annual EBITDA, up~~Acquisition Agreement, Alternative Solutions owed certain amounts to a ~~maximum annual cash compensation of $1 million (including his base salary), and annual stock options, exercisable at the fair market value of CLS Labs’ common stock on the date of grant,~~consultant known as 4Front Advisors, which amount was in an amount equal to 2% of its annual EBITDA up to $42.5 million and 4% of its annual EBITDA in excess of $42.5 million. On April 28, 2015, CLS Labs and the Company entered into an addendum to Mr. Binder’s employment agreement whereby Mr. Binder agreed that following the merger of CLS Labs and a subsidiary of the Company, in addition to his obligations to CLS Labs, he would serve the Company and its subsidiaries in such roles as the Company may request.dispute. In exchange, the Company agreed to assume the obligations of CLS Labs to grant Mr. Binder annual stock options, as referenced above. Mr. Binder continues to receive an annual salary of $150,000 from CLS Labs for serving as its Chairman, President and Chief Executive Officer. On July 20, 2016, March 31, 2017, August 23, 2017, October 9, 2017, January 5, 2018 and April 6, 2018, the Company issued Mr. Binder convertible notes in exchange for $250,000, $112,500, $62,500, $39,521, $37,500 and $37,500 respectively, in deferred salary, among other amounts owed to Mr. Binder by the Company. As of February 28, 2019 and May 31, 2018, the Company had accrued compensation due to Mr. Binder in the amount of $0 and $37,500.

Effective August 1, 2015, the Company and Alan Bonsett entered into a five-year employment agreement. Pursuant to the agreement, Mr. Bonsett commenced serving as the Company’s Chief Operating Officer on August 15, 2015. Under the agreement, Mr. Bonsett was entitled to receive an annual salary of $150,000. Further, he was entitled to receive a performance bonus equal to 2% of the Company’s annual EBITDA, up to a maximum annual cash compensation of $1 million (including his base salary), and annual stock options, exercisable at the fair market value of the Company’s common stock on the date of grant, in an amount equal to 2% of its annual EBITDA up to $42.5 million and 4% of its annual EBITDA in excess of $42.5 million. Additionally, Mr. Bonsett received a one-time signing bonus of 250,000 (post Reverse-Split) shares of restricted common stock of the Company, valued at $327,500, which became fully vested one year from the effective date of the agreement. Mr. Bonsett, as an owner of Picture Rock Holdings, LLC (“PRH”), was expected to indirectly receive the benefits of the Colorado operations discussed above. Mr. Bonsett agreed to defer his salary effective July 1, 2017; at February 28, 2019, the Company ~~had accrued compensation due~~made a payment to ~~Mr. Bonsett in~~this company to settle this dispute and the amount of $37,500. On October 1, 2017, the Company and Mr. Bonsett, the Company’s Chief Operating Officer, mutually agreed to end his employment with the Company. Mr. Bonsett may provide consulting services to the Company in the future on an as needed basis.Oasis Note was reduced accordingly.

Effective November 30, 2017, the Company and Mr. Lamadrid entered into a one-year employment agreement. Pursuant to the agreement, Mr. Lamadrid commenced serving as the Company’s President and Chief Financial Officer on December 1, 2017. Under the agreement, Mr. Lamadrid was entitled to receive an annual salary of $175,000. Further, he was entitled to receive a performance bonus equal to 2% of the Company’s annual EBITDA, and annual restricted stock awards of the Company’s common stock in an amount equal to 3% of its annual EBITDA. Additionally, Mr. Lamadrid was entitled to a one-time signing bonus of 500,000 shares of restricted common stock of the Company, which were to become fully vested one year from the effective date of the agreement. On July 24, 2018, the Company and Mr. Lamadrid mutually agreed to terminate the employment agreement. Mr. Lamadrid resigned as President and Chief Financial Officer effective as of July 13, 2018. In connection with a severance agreement between the Company and Mr. Lamadrid, the Company paid certain amounts and issued 600,000 shares of common stock to Mr. Lamadrid, and the parties further agreed that neither party would have any further obligations under the Employment Agreement or otherwise after such date. Note 22 – Subsequent Events

On July 31, 2018, the Company and Mr. Sillitoe entered into a one-year employment agreement. Pursuant to the agreement, Mr. Sillitoe commenced serving as the Chief Executive Officer of CLS Nevada, Inc. effective July 1, 2018. Under the agreement, Mr. Sillitoe is entitled to receive an annual salary of $150,000. Further, he is entitled to receive a performance bonus equal to 2% of the annual EBITDA of CLS Nevada, Inc., and annual restricted stock awards of the Company’s common stock in an amount equal to 3% of the annual EBITDA of CLS Nevada, Inc. Additionally, Mr. Sillitoe is entitled to a one-time signing bonus of 500,000 shares of restricted common stock, which shall become fully vested one year from the effective date of his employment agreement assuming Mr. Sillitoe remains employed by the Company on such date. As of February 28, 2019 and May 31, 2018, the Company had accrued compensation due to Mr. Sillitoe in the amount of $31,806 and $0.

~~F-68~~

~~Table of Contents~~

The Company has evaluated events through the date the financial statements and Mr. Decatur entered into a one-year employment agreement on July 31, 2018. Pursuant to the agreement, Mr. Decatur commenced serving as the Chief Operating Officer of CLS Nevada, Inc. on July 1, 2018. Under the agreement, Mr. Decatur is entitled to receive an annual salary of $150,000. Further, he is entitled to receive a performance bonus equal to 2% of the annual EBITDA of CLS Nevada, Inc., and annual restricted stock awards of the Company’ common stock in an amount equal to 3% of the annual EBITDA of CLS Nevada, Inc. Additionally, Mr. Decatur is entitled to a one-time signing bonus of 50,000 shares of restricted common stock, which shall become fully vested one year from the effective date of his employment agreement assuming Mr. Decatur remains employed by the Company on such date.has determined that there were no additional material subsequent events.

AtAppointment of Director

On February ~~28, 2019 and May 31, 2018, the Company had accrued salary due to Michael Abrams,~~18, 2021, Ross Silver was appointed as a ~~former officer~~Director of the Company ~~prior~~ to ~~his September 1, 2015 termination, in the amount of $16,250.~~

~~Note 19 – Related Party Transactions~~

~~As of February 28, 2019 and May 31, 2018, the Company owed the amount of $0 and $37,500, respectively, to Jeffrey Binder, its Chief Executive Officer, for accrued salary.~~

As of February 28, 2019 and May 31, 2018, the Company had accrued salary due to Alan Bonsett, a former officer of the Company prior to his October 1, 2017 separation, in the amount of $37,500 and $37,500, respectively.

~~As of February 28, 2019 and May 31, 2018, the Company had accrued salary due to Michael Abrams, a former officer of the Company prior to his September 1, 2015 termination, in the amount of $16,250.~~

As of February 28, 2019 and May 31, 2018, the Company had related party payables in the amount of $17,930 due to officers and directors related to expenses paid on behalf of the Company. The Company imputed interest at the rate of 6% per annum on these liabilities, and recorded imputed interest expense on these liabilities in the amounts of $268 and $265 during the three months ended February 28, 2019 and 2018, respectively. These interest accruals were charged to additional paid-in capital.

On July 27, 2018, the Company granted 25,000 shares of restricted common stock to its Chief Financial Officer. These share vested four months after issuance. The shares were valued at $17,500, and were amortized over the vesting period. As of February 28, 2019, these shares had not been issued. As of February 28, 2019, $17,500 had been charged to operations.

On July 31, 2018, the Company granted the Chief Executive Officer of CLS Nevada, Inc. a one-time signing bonus of 500,000 shares of restricted common stock, which shall become fully vested one year from thereplace Frank Koretsky, who resigned effective ~~date of his employment agreement. These shares were valued at $355,000 and will be amortized over the vesting period. As of February 28, 2019, $236,667 had been charged to operations.~~

~~F-69~~

~~Table of Contents~~

~~Note 20 – Subsequent Events~~

Mr. Glashow, a director of the Company since 2017, was appointed to serve as President and Chief Operating Officer commencing on March 1, 2019. The Company and Mr. Mr. Glashow entered into a two-year employment agreement and Mr. Glashow commenced serving as the Company’s President and Chief Operating Officer. Under the agreement, Mr. Glashow is entitled to receive an annual salary of $175,000. Further, he is entitled to receive a performance bonus equal to 1% of our annual EBITDA, and annual restricted stock awards in an amount equal to 1% of our annual EBITDA. Additionally, Mr. Glashow is entitled to a one-time signing bonus of 500,000 shares of our restricted common stock, half of which shall vest on March 1, 2020, and half of which shall vest on MarchJanuary 1, 2021.

Effective March 1, 2019, the Company executed a redemption notice with respect to two of the convertible notes payable to redeem all outstanding principal, accrued interest and redemption premiums thereunder. The total amount due to the note holder is $964,788, which includes $250,000 in principal, $62,500 in redemption premium and $2,630 in accrued interest for one note, and $500,000 in principal, $125,000 in redemption premium and $24,658 in accrued interest for the other note.

On March ~~11, 2019,~~31, 2021, the holders of the Canaccord Debentures approved the amendment of the indenture related to the Canaccord Debentures to: (i) extend the maturity date of the Canaccord Debentures from December 12, 2021 to December 12, 2022; (ii) reduce the conversion price from $0.80 per unit (as such term is defined in the indenture) to $0.30 per unit; (iii) reduce the mandatory conversion VWAP threshold from $1.20 to $0.60 per share; and (iv) amend the definitions of “Warrant” and “Warrant Indenture” (as such terms are defined in the indenture), which included a reduction of the exercise price of each warrant to $0.40 per share of Common Stock of the Company. Simultaneously, the Company ~~through its wholly-owned subsidiary, CLS Massachusetts, Inc., entered into a membership interest purchase agreement with CannAssist, LLC. Pursuant~~and the trustee under the related warrant indenture amended the warrant indenture to the terms of the Purchase Agreement, CLS Massachusetts agreed to purchase 80% of the membership interests in CannAssist for a purchase price of $25 million, which will be utilized to fund the build-out of CannAssist’s recreational cannabis grow facility at its leased premises and for initial working capital.

make conforming amendments.

~~F-70~~F-66

Table of Contents

~~ALTERNATIVE SOLUTIONS L.L.C.~~

~~(A Nevada Corporation)~~

~~AUDITED~~ ~~CONSOLIDATED FINANCIAL STATEMENTS~~

~~For the Years Ended December 31, 2017 and 2016~~

~~F-71~~

~~Table of Contents~~

~~REPORT~~ ~~OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM~~

~~To the Board of Directors and~~
~~Stockholders of Alternative Solutions, LLC.~~

~~Opinion on the Financial Statements~~

We have audited the accompanying consolidated statements of financial condition of Alternative Solutions, LLC (the Company) as of December 31, 2017 and 2016, and the related consolidated statements of operations, changes in partner’s capital, and cash flows for each of the years in the two-year period ended December 31, 2017, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.

~~Basis for Opinion~~

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

The accompanying consolidated financial statements have been prepared assuming that the Company will continues as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company suffered a net loss from operations and has a net capital deficiency, which raises substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters are described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

~~/s/ M&K CPAS, PLLC~~

~~We have served as the Company’s auditor since 2017.~~

~~Houston, TX~~

~~May 25, 2018~~

~~F-72~~

~~Table of Contents~~

~~ALTERNATIVE SOLUTIONS L.L.C.~~

~~CONSOLIDATED~~ ~~STATEMENTS OF FINANCIAL CONDITION~~

December 31,

December 31,

2017

2016

ASSETS

Current assets:

Cash
$ 332,060 $ 919,879
Accounts receivable
47,529 -
Inventory
307,881 73,785
Prepaid expenses
197,409 49,627
Total current assets
884,879 1,043,291

Other assets
198,500 407,500
Property and equipment, net
992,091 883,989

Total assets
$ 2,075,470 $ 2,334,780

LIABILITIES AND PARTNERS' CAPITAL

Current liabilities:

Accounts payable
$ 395,202 $ 41,564
Accrued expenses
550,030 381,326
Deferred rent obligation
134,041 85,177
Convertible notes payable
200,000 625,000
Short term loans, related parties
57,557 57,557
Total current liabilities
1,336,830 1,190,624

Total liabilities
1,336,830 1,190,624

Partners capital:

Class A partner, 2,644,653 Units
(1,309,293
)
(263,756
)
Class B partner, 101,851 Units
775,128 431,594
Class C partner, 301,415 Units
1,022,805 976,318
Unallocated contribution
250,000 -
Total partners' capital
738,640 1,144,156

Total liabilities and partners' capital
$ 2,075,470 $ 2,334,780

~~The accompanying notes are an integral part of these financial statements.~~

~~F-73~~

~~Table of Contents~~

~~ALTERNATIVE SOLUTIONS L.L.C.~~

~~CONSOLIDATED~~ ~~STATEMENTS OF OPERATIONS~~

For the Years

Ended December 31,

2017

2016

Revenue
$ 4,546,210 $ 1,263,262
Cost of goods sold
2,878,110 1,085,115
Gross Profit
1,668,100 178,147

Operating expenses:

General and administrative
2,666,602 1,419,948
Professional fees
134,336 93,285
Guaranteed payments to members
110,000 89,250
Depreciation and amortization
155,474 125,770
Total operating expenses
3,066,412 1,728,253

Net operating loss
(1,398,312
)
(1,550,106
)

Other income (expense):

Interest expense
(94,204
)
(147,000
)
Loss on early extinguishment of loan receivable, related party
- (375,630
)
Total other income (expense)
(94,204
)
(522,630
)

Net loss
$ (1,492,516
)
$ (2,072,736
)

~~The accompanying notes are an integral part of these financial statements.~~

~~F-74~~

~~Table of Contents~~

~~ALTERNATIVE SOLUTIONS L.L.C.~~

~~CONSOLIDATED~~ ~~STATEMENT OF CHANGES IN PARTNERS' CAPITAL~~

~~For the years ended December 31, 2017 and 2016~~

Unallocated

Class A

Class B

Class C

Advance

Partners

Partners

Partners

Total

Partners' capital at December 31, 2015

$
-

$
(76,615
)

$
-

$
-

$
(76,615
)

Capital contributions, 13,590 Class A LLC Units

-

63,303

-

-

63,303

Debt exchanged, 1,457 Class A LLC Units

-

1,615,204

-

-

1,615,204

Debt converted, 86,777 Class B LLC Units

-

-

500,000

-

500,000

Subscriptions, 206,484 Class C LLC Units

-

-

-

1,115,000

1,115,000

Net loss for the year ended December 31, 2016

-

(1,865,648
)

(68,406
)

(138,682
)

(2,072,736
)

Partners' capital at December 31, 2016

$
-

$
(263,756
)

$
431,594

$
976,318

$
1,144,156

Capital contributions, -0- Class A LLC Units

250,000

250,000

-

-

500,000

Debt converted, 64,931 Class B LLC Units

-

-

425,000

-

425,000

Subscriptions, 30,000 Class C LLC Units

-

-

-

162,000

162,000

Net loss for the year ended December 31, 2017

-

(1,295,537
)

(81,466
)

(115,513
)

(1,492,516
)

Partners' capital at December 31, 2017

$
250,000

$
(1,309,293
)

$
775,128

$
1,022,805

$
738,640

~~The accompanying notes are an integral part of these financial statements.~~

~~F-75~~

~~Table of Contents~~

~~ALTERNATIVE SOLUTIONS L.L.C.~~

~~CONSOLIDATED~~ ~~STATEMENTS OF CASH FLOWS~~

For the Years

Ended December 31,

2017

2016

CASH FLOWS FROM OPERATING ACTIVITIES

Net loss

$
(1,492,516
)

$
(2,072,736
)
Adjustments to reconcile net loss

to net cash used in operating activities:

Depreciation and amortization

155,474

125,770

Loss on early extinguishment of loan receivable, related party

-

375,630

Decrease (increase) in assets:

Accounts receivable

(47,529
)

-

Notes receivable

(40,000
)

239,176

Inventory

(234,096
)

25,947

Prepaid expenses

(147,782
)

13,404

Other assets

249,000

(48,000
)
Increase (decrease) in liabilities:

Accounts payable

353,638

(37,873
)
Accrued expenses

168,704

321,158

Deferred rent obligations

48,864

79,613

Net cash used in operating activities

(986,243
)

(977,911
)

CASH FLOWS FROM INVESTING ACTIVITIES

Purchases of property and equipment

(263,576
)

(118,167
)
Net cash used in investing activities

(263,576
)

(118,167
)

CASH FLOWS FROM FINANCING ACTIVITIES

Cash contributions from partners

662,000

1,178,303

Proceeds from convertible notes payable, related party

-

100,000

Proceeds received from short term loans, related party

-

901,125

Repayments on short term loans, related party

-

(239,200
)
Net cash provided by financing activities

662,000

1,940,228

NET CHANGE IN CASH

(587,819
)

844,150

CASH AT BEGINNING OF PERIOD

919,879

75,729

CASH AT END OF PERIOD

$
332,060

$
919,879

SUPPLEMENTAL INFORMATION:

Interest paid

$
100,987

$
156,473

Income taxes paid

$
-

$
-

NON-CASH INVESTING AND FINANCING ACTIVITIES:

Convertible debt converted to capital

$
425,000

$
500,000

Related party debt exchanged for capital

$
-

$
1,615,204

~~The accompanying notes are an integral part of these financial statements.~~

~~F-76~~

~~Table of Contents~~

~~ALTERNATIVE SOLUTIONS L.L.C.~~

~~Notes~~ ~~to Consolidated Financial Statements~~

~~Note 1 – Basis of Presentation and Significant Accounting Policies~~

~~Business~~

Alternative Solutions L.L.C. (“Alternative Solutions”) is a partnership that was formed under the laws of the State of Nevada on April 14, 2014. Alternative Solutions oversees various wholly-owned subsidiaries involved in the cannabis market in, and around, Las Vegas Nevada. Including, Serenity Wellness Center LLC (“SWC”), doing business as Oasis Cannabis (“Oasis”), an adult-use retail and medical cannabis dispensary, Community Oasis LLC, a licensed art gallery and multipurpose community facility adjacent to Oasis Cannabis, Serenity Wellness Products LLC (“SWP”), a cannabis production company, and Serenity Wellness Growers LLC (“SWG”), a cannabis cultivation company. All wholly-owned subsidiaries are in the form of Nevada domestic limited liability companies.

~~Basis of Presentation~~

Our consolidated financial statements are prepared using the accrual method of accounting as generally accepted in the United States of America (U.S. GAAP) and the rules of the Securities and Exchange Commission (SEC).

~~Principles of Consolidation~~

~~The accompanying consolidated financial statements include the accounts of the following entities, all of which are under common control and ownership:~~

	~~State of~~		~~Abbreviated~~
~~Name of Entity~~⁽¹⁾	~~Incorporation~~	~~Relationship~~	~~Reference~~
~~Alternative Solutions L.L.C.~~⁽²⁾	~~Nevada~~	~~Parent~~	~~Alternative Solutions~~
~~Serenity Wellness Center LLC~~	~~Nevada~~	~~Subsidiary~~	~~SWC~~
~~DBA/ Oasis Cannabis~~	~~Nevada~~	~~DBA~~	~~Oasis~~
~~Serenity Wellness Products LLC~~	~~Nevada~~	~~Subsidiary~~	~~SWP~~
~~DBA/ City Trees~~	~~Nevada~~	~~DBA~~	~~City Trees~~
~~Serenity Wellness Growers LLC~~	~~Nevada~~	~~Subsidiary~~	~~SWG~~
~~DBA/ City Trees~~	~~Nevada~~	~~Subsidiary~~	~~City Trees~~

⁽¹⁾ ~~Each entity is in the form of a domestic limited liability company.~~

⁽²⁾ ~~Alternative Solutions L.L.C. is the parent company of each wholly-owned subsidiary.~~

The consolidated financial statements herein contain the operations of the wholly-owned subsidiaries listed above. All significant inter-company transactions have been eliminated in the preparation of these financial statements. The parent company, Alternative Solutions, and subsidiaries noted above, will be collectively referred to herein as the “Company”, “Alternative Solutions” or “Oasis”. The Company's headquarters are located in Las Vegas, Nevada and substantially all of its current customers are within the United States, more specifically, Las Vegas, Nevada.

~~These statements reflect all adjustments, consisting of normal recurring adjustments, which in the opinion of management are necessary for fair presentation of the information contained therein.~~

~~Segment Reporting~~

~~Under FASB ASC 280-10-50, the Company operates as a single segment and will evaluate additional segment disclosure requirements as it expands its operations.~~

~~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 amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

~~F-77~~

~~Table of Contents~~

~~ALTERNATIVE SOLUTIONS L.L.C.~~

~~Notes to Consolidated Financial Statements~~

~~Note 1 – Basis of Presentation and Significant Accounting Policies (Continued)~~

~~Cash and Cash Equivalents~~

The Company maintains cash balances in non-interest-bearing accounts, which do not currently exceed federally insured limits. For the purpose of the statements of cash flows, all highly liquid investments with an original maturity of three months or less are considered to be cash equivalents.

~~Allowance for Doubtful Accounts~~

We generate the majority of our revenues and corresponding accounts receivable from the sale cannabis, and cannabis related products. We evaluate the collectability of our accounts receivable considering a combination of factors. In circumstances where we are aware of a specific customer’s inability to meet its financial obligations to us, we record a specific reserve for bad debts against amounts due in order to reduce the net recognized receivable to the amount we reasonably believe will be collected. For all other customers, we recognize reserves for bad debts based on past write-off experience and the length of time the receivables are past due. We had no debts expense during the years ended December 31, 2017 and 2016, respectively.

~~Inventory~~

Inventories are stated at the lower of cost or market. Cost is determined on a standard cost basis that approximates the first-in, first-out (FIFO) method. Market is determined based on net realizable value. Appropriate consideration is given to obsolescence, excessive levels, deterioration, and other factors in evaluating net realizable value. Our cannabis products consist of prepackaged purchased goods ready for resale, and cannabis flower grown in-house under our cultivation license, along with produced edibles and extracts developed under our production license.

~~Fair Value of Financial Instruments~~

Under FASB ASC 820-10-05, the Financial Accounting Standards Board establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. This Statement reaffirms that fair value is the relevant measurement attribute. The adoption of this standard did not have a material effect on the Company’s financial statements as reflected herein. The carrying amounts of cash, prepaid expenses and accrued expenses reported on the balance sheet are estimated by management to approximate fair value primarily due to the short term nature of the instruments.

~~Basic and Diluted Loss Per Share~~

The basic net loss per common share is computed by dividing the net loss by the weighted average number of common shares outstanding. Diluted net loss per common share is computed by dividing the net loss adjusted on an “as if converted” basis, by the weighted average number of common shares outstanding plus potential dilutive securities. For the periods presented, potential dilutive securities had an anti-dilutive effect and were not included in the calculation of diluted net loss per common share.

~~Deferred Rent Obligation~~

The Company has entered into operating lease agreements for its dispensary/corporate office and grow facility which contain provisions for future rent increases. In accordance with generally accepted accounting principles, the Company records monthly rent expense equal to the total of the payments due over the lease term, divided by the number of months of the lease terms. The difference between rent expense recorded and the amount paid is credited or charged to “Deferred rent obligation,” which is reflected as a separate line item in the accompanying Balance Sheets.

~~Revenue Recognition~~

Sales on fixed price contracts are recorded when services are earned, the earnings process is complete or substantially complete, and the revenue is measurable and collectability is reasonably assured. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded. The Company defers any revenue from sales in which payment has been received, but the earnings process has not occurred. Amounts billed in advance of the period in which service is rendered are recorded as a liability under “Deferred revenues”.

~~F-78~~

~~Table of Contents~~

~~ALTERNATIVE SOLUTIONS L.L.C.~~

~~Notes to Consolidated Financial Statements~~

~~Note 1 – Basis of Presentation and Significant Accounting Policies (Continued)~~

~~Advertising and Promotion~~

~~Stock-Based Compensation~~

Under FASB ASC 718-10-30-2, all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. The Company had no stock based compensation expense for the years ended December 31, 2017 and 2016, respectively.

~~Recent Accounting Pronouncements~~

Effective January 1, 2018, the Company adopted Accounting Standards Codification (“ASC”) 606 — Revenue from Contracts with Customers. Under ASC 606, the Company recognizes revenue from the commercial sales of products, licensing agreements and contracts to perform pilot studies by applying the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied. For the comparative periods, revenue has not been adjusted and continues to be reported under ASC 605 — Revenue Recognition. Under ASC 605, revenue is recognized when the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) the performance of service has been rendered to a customer or delivery has occurred; (3) the amount of fee to be paid by a customer is fixed and determinable; and (4) the collectability of the fee is reasonably assured. There was no impact on the Company’s financial statements as a result of adopting Topic 606 for the years ended December 31, 2018 and 2017.

~~In May 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2017-09~~~~, Compensation — Stock Compensation (Topic 718): Scope of Modification Accounting.~~ ASU 2017-09, which provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. Per ASU 2017-9, an entity should account for the effects of a modification unless all the following are met: (1) the fair value (or calculated value or intrinsic value, if such an alternative measurement method is used) of the modified award is the same as the fair value (or calculated value or intrinsic value, if such an alternative measurement method is used) of the original award immediately before the original award is modified. If the modification does not affect any of the inputs to the valuation technique that the entity uses to value the award, the entity is not required to estimate the value immediately before and after the modification, (2) the vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified, and (3) the classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified. The current disclosure requirements in Topic 718 apply regardless of whether an entity is required to apply modification accounting under the amendments in ASU 2017-9. ASU 2017-9 is effective for public business entities for annual and interim periods in fiscal years beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period, for (1) public business entities for reporting periods for which financial statements have not yet been issued and (2) all other entities for reporting periods for which financial statements have not yet been made available for issuance. The amendments in this ASU should be applied prospectively to an award modified on or after the adoption date. The adoption of ~~ASU 2017-9~~ ~~is not expected to have a material impact on the Company’s financial statements or related disclosures.~~

No other new accounting pronouncements, issued or effective during the years ended December 31, 2017 and 2016, have had or are expected to have a significant impact on the Company’s financial statements.

~~F-79~~

~~Table of Contents~~

~~ALTERNATIVE SOLUTIONS L.L.C.~~

~~Notes to Consolidated Financial Statements~~

~~Note 2 – Going Concern~~

As shown in the accompanying financial statements, the Company has insufficient cash on hand, a working capital deficit of $451,951 and incurred net losses from operations resulting in an accumulated deficit of $4,765,331 that has been distributed to the partners’ capital accounts, and used $986,243 of cash from operations during the year ended December 31, 2017. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The Company is currently seeking additional sources of capital to fund short term operations. The Company, however, is dependent upon its ability to secure equity and/or debt financing and there are no assurances that the Company will be successful; therefore, without sufficient financing it would be unlikely for the Company to continue as a going concern.

The financial statements do not include any adjustments that might result from the outcome of any uncertainty as to the Company’s ability to continue as a going concern. The financial statements also do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern.

~~Note 3 – Fair Value of Financial Instruments~~

Under FASB ASC 820-10-5, fair value is defined 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 GAAP, certain assets and liabilities must be measured at fair value, and FASB ASC 820-10-50 details the disclosures that are required for items measured at fair value.

The Company has certain financial instruments that must be measured under the new fair value standard. 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.~~

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 our assumptions about the assumptions that market participants would use in pricing the asset or liability.~~

~~F-80~~

~~Table of Contents~~

~~ALTERNATIVE SOLUTIONS L.L.C.~~

~~Notes to Consolidated Financial Statements~~

~~Note 3 – Fair Value of Financial Instruments (Continued)~~

~~The following schedule summarizes the valuation of financial instruments at fair value on a recurring basis in the balance sheets as of December 31, 2017 and 2016, respectively:~~

Fair Value Measurements at December 31, 2017

Level 1

Level 2

Level 3

Assets

Cash

$
332,060

$
-

$
-

Total assets

332,060

-

-

Liabilities

Convertible note payable, related parties

-

200,000

-

Notes payable, related parties

-

57,557

-

Total liabilities

-

257,557

-

$
332,060

$
(257,557
)

$
-

Fair Value Measurements at December 31, 2016

Level 1

Level 2

Level 3

Assets

Cash

$
919,879

$
-

$
-

Total assets

919,879

-

-

Liabilities

Convertible note payable, related parties

-

625,000

-

Notes payable, related parties

-

57,557

-

Total liabilities

-

682,557

-

$
919,879

$
(682,557
)

$
-

~~The fair values of our related party debts are deemed to approximate book value, and are considered Level 2 inputs as defined by ASC Topic 820-10-35.~~

~~There were no transfers of financial assets or liabilities between Level 1, Level 2 and Level 3 inputs for the years ended December 31, 2017 and 2016.~~

~~Note 4 – Accounts Receivable~~

~~Accounts receivable was $47,529 and $-0- at December 31, 2017 and 2016, respectively. No allowance for doubtful accounts was necessary during the years ended December 31, 2017 and 2016, respectively.~~

~~Note 5 – Inventory~~

~~Inventories, consisting of material, overhead, labor, and manufacturing overhead, are stated at the lower of cost (first-in, first-out) or market and consist of the following:~~

December 31,

December 31,

2017

2016

Raw materials

$
41,375

$
-

Finished goods

266,506

73,785

$
307,881

$
73,785

~~F-81~~

~~Table of Contents~~

~~ALTERNATIVE SOLUTIONS L.L.C.~~

~~Notes to Consolidated Financial Statements~~

~~Note 6 – Prepaid Expenses~~

~~Prepaid expenses included the following as of December 31, 2017 and 2016, respectively:~~

December 31,

December 31,

2017

2016

Prepaid insurance
$ 11,119 $ -
Prepaid advertising
113,017 -
Prepaid license fees
61,961 43,683
Prepaid general and administrative expenses
11,312 5,944
$ 197,409 $ 49,627

~~Note 7 – Other Assets~~

~~Other assets included the following as of December 31, 2017 and 2016, respectively:~~

December 31,

December 31,

2017

2016

Advance to ATM Provider
$ 40,000 $ -
State and City Bonds
- 250,000
Security deposits
158,500 157,500
$ 198,500 $ 407,500

~~Note 8 – Property and Equipment~~

~~Property and equipment consist of the following at December 31, 2017 and 2016, respectively:~~

December 31,

December 31,

2017

2016

Office equipment
$ 191,424 $ 136,696
Furniture and fixtures
18,991 16,385
Website development costs
2,324 2,324
Leasehold improvements
1,063,281 857,039
Total
1,276,020 1,012,444
Less accumulated depreciation
(283,929
)
(128,455
)
Property and equipment, net
$ 992,091 $ 883,989

~~Depreciation and amortization expense totaled $155,474 and $125,770 for the years ended December 31, 2017 and 2016, respectively.~~

~~Note 9 – Accrued Expenses~~

~~Accrued expenses included the following as of December 31, 2017 and 2016, respectively:~~

December 31,

December 31,

2017

2016

Accrued state and city taxes
$ 173,456 $ 62,881
Accrued payroll and payroll taxes
84,919 20,007
Accrued interest
16,655 23,438
Accrued consulting fees
275,000 275,000
$ 550,030 $ 381,326

Accrued consulting fees consist of an estimated fee that we may be required to pay to settle a disputed contract. This settlement, when and if, it occurs may very well not be settled within the next twelve months, despite being currently recognized as a current liability.

~~F-82~~

~~Table of Contents~~

~~ALTERNATIVE SOLUTIONS L.L.C.~~

~~Notes to Consolidated Financial Statements~~

~~Note 10 – Convertible Notes Payable~~

~~Convertible notes payable consist of the following at December 31, 2017 and 2016, respectively:~~

December 31,

December 31,

2017

2016

On January 6, 2016, we entered into a Subscription Agreement with Jeffrey Sloane (“First Sloane Note”) for $100,000, consisting of an unsecured promissory note convertible into Class B LLC Units at the option of the Subscriber only between January 1, 2019 and February 28, 2019, subject to the execution of the Company’s operating agreement and pursuant to the State and local jurisdictions’ authorization. The Note bears interest at 15%, due and payable on November 30, 2023, and the principal is convertible into Class B LLC Units of the Company at a price based upon a total Company valuation of twenty million dollars ($20,000,000). Interest is to be paid quarterly, in arrears.

$
100,000

$
100,000

On December 18, 2015, we entered into a Subscription Agreement with Archie Perry (“Second Perry Note”) for $100,000, consisting of an unsecured promissory note convertible into Class B LLC Units at the option of the Subscriber only between January 1, 2019 and February 28, 2019, subject to the execution of the Company’s operating agreement and pursuant to the State and local jurisdictions’ authorization. The Note bears interest at 15%, due and payable on November 30, 2023, and the principal is convertible into Class B LLC Units of the Company at a price based upon a total Company valuation of twenty million dollars ($20,000,000). Interest is to be paid quarterly, in arrears.

-

-

On November 30, 2015, we entered into a Subscription Agreement with Jeffrey Hellman (“Second Hellman Note”) for $100,000, consisting of an unsecured promissory note convertible into Class B LLC Units at the option of the Subscriber only between January 1, 2019 and February 28, 2019, subject to the execution of the Company’s operating agreement and pursuant to the State and local jurisdictions’ authorization. The Note bears interest at 15%, due and payable on November 30, 2023, and the principal is convertible into Class B LLC Units of the Company at a price based upon a total Company valuation of twenty million dollars ($20,000,000). Interest is to be paid quarterly, in arrears.

-

100,000

On September 10, 2015, we entered into a Subscription Agreement with Archie Perry (“First Perry Note”) for $300,000, consisting of an unsecured promissory note convertible into Class B LLC Units at the option of the Subscriber only between January 1, 2019 and February 28, 2019, subject to the execution of the Company’s operating agreement and pursuant to the State and local jurisdictions’ authorization. The Note bears interest at 15%, due and payable on November 30, 2023, and the principal is convertible into Class B LLC Units of the Company at a price based upon a total Company valuation of twenty million dollars ($20,000,000). Interest is to be paid quarterly, in arrears.

-

-

~~F-83~~

~~Table of Contents~~

~~ALTERNATIVE SOLUTIONS L.L.C.~~

~~Notes to Consolidated Financial Statements~~

~~Note 10 – Convertible Notes Payable (Continued)~~

December 31,

December 31,

2017

2016

On June 29, 2015, we entered into a Subscription Agreement with MYJ Holdings, LLC (“First MYJ Note”) for $100,000, consisting of an unsecured promissory note convertible into Class B LLC Units at the option of the Subscriber only between January 1, 2019 and February 28, 2019, subject to the execution of the Company’s operating agreement and pursuant to the State and local jurisdictions’ authorization. The Note bears interest at 15%, due and payable on November 30, 2023, and the principal is convertible into Class B LLC Units of the Company at a price based upon a total Company valuation of twenty million dollars ($20,000,000). Interest is to be paid quarterly, in arrears.

-

-

On June 23, 2015, we entered into a Subscription Agreement with Jeffrey Hellman (“First Hellman Note”) for $125,000, consisting of an unsecured promissory note convertible into Class B LLC Units at the option of the Subscriber only between January 1, 2019 and February 28, 2019, subject to the execution of the Company’s operating agreement and pursuant to the State and local jurisdictions’ authorization. The Note bears interest at 15%, due and payable on November 30, 2023, and the principal is convertible into Class B LLC Units of the Company at a price based upon a total Company valuation of twenty million dollars ($20,000,000). Interest is to be paid quarterly, in arrears.

-

125,000

On June 10, 2015, we entered into a Subscription Agreement with the Nevins Family Trust (“First Nevins Note”) for $200,000, consisting of an unsecured promissory note convertible into Class B LLC Units at the option of the Subscriber only between January 1, 2019 and February 28, 2019, subject to the execution of the Company’s operating agreement and pursuant to the State and local jurisdictions’ authorization. The Note bears interest at 15%, due and payable on November 30, 2023, and the principal is convertible into Class B LLC Units of the Company at a price based upon a total Company valuation of twenty million dollars ($20,000,000). Interest is to be paid quarterly, in arrears.

-

200,000

On June 5, 2015, we entered into a Subscription Agreement with Sandra (Smith) Johnson (“First Johnson Note”) for $100,000, consisting of an unsecured promissory note convertible into Class B LLC Units at the option of the Subscriber only between January 1, 2019 and February 28, 2019, subject to the execution of the Company’s operating agreement and pursuant to the State and local jurisdictions’ authorization. The Note bears interest at 15%, due and payable on November 30, 2023, and the principal is convertible into Class B LLC Units of the Company at a price based upon a total Company valuation of twenty million dollars ($20,000,000). Interest is to be paid quarterly, in arrears.

100,000

100,000

Convertible notes payable

$
200,000

$
625,000

The notes have been presented as current liabilities as they are expected to be converted or repaid within the next twelve months pursuant to the pending acquisition by CLS Holdings USA, Inc. The Company recorded interest expense pursuant to the stated interest rates on the convertible notes in the amount of $87,110 and $140,024 for the years ended December 31, 2017 and 2016, respectively.

~~F-84~~

~~Table of Contents~~

~~ALTERNATIVE SOLUTIONS L.L.C.~~

~~Notes to Consolidated Financial Statements~~

~~Note 11 – Short Term Loans, Related Parties~~

~~Notes payable, related parties consist of the following at December 31, 2017 and 2016, respectively:~~

December 31,

December 31,

2017

2016

On various dates, the Company received non-interest bearing, unsecured loan advances, due on demand from Todd Swanson, one of the Company’s partners. Aggregate proceeds of $573,270 and $950,000 were contributed to capital on August 31, 2016 and January 1, 2016, respectively.

$
10,000

$
10,000

On various dates, the Company received non-interest bearing, unsecured loan advances, due on demand from Deb Freeman, one of the Company’s partners. Aggregate proceeds of $31,098 and $60,836 were contributed to capital on August 31, 2016 and January 1, 2016, respectively.

47,557

47,557

Short term loans, related parties

$
57,557

$
57,557

~~Note 12 – Changes in Partners’ Capital~~

Alternative Solutions is a Limited Liability Company organized under the partnership laws of the State of Nevada on April 14, 2014. The original operating agreement authorized to issue up to 5,000 Common Units. A total of 1,000 Units were awarded to four original members, with one (1) additional unit awarded for each one thousand dollars ($1,000) of capital contributed thereafter. Debra Freeman served as the initial Managing Member, and Todd Swanson, Ben Sillitoe and Gary Schnitzer were subsequently added, by amendment, as Managing Members, with Todd Swanson designated as the Principal Manager. The operating agreement, as most recently amended on August 31, 2016, authorizes the issuance of up to 5,000,000 Common Units, which can be divided into multiple types, classes or series. The current capital structure carries three membership classes, as follows:

~~Class A LLC Units: Carries voting rights equal to the percentage of LLC Interest held by such Member.~~

Class B LLC Units: May be added by a Super Majority vote of Class A Members (Members holding 66 2/3% or more). Class B Members carry no voting rights and are not subject to dilution prior to March 1, 2019.

~~Class C LLC Units: May be added by a Super Majority vote of Class A Members, and carry no voting rights.~~

~~Unallocated Advance (2017)~~

On December 4, 2017, the Company received a non-refundable contribution of $250,000 pursuant to the Membership Interest Purchase Agreement with CLS Holdings USA, Inc. The ownership contribution will be allocated at the scheduled closing in 2018.

~~Class A LLC Units Contributed (2017)~~

During the year ended December 31, 2017, Class A Members contributed a total of $250,000 in cash. The Class A Members agreed not to add new Units to their ownership percentage so as to not dilute minority interests.

~~Class A LLC Units Contributed (2016)~~

~~During the year ended December 31, 2016, Class A Members contributed a total of $63,303 in cash, representing 13,590 Units.~~

~~Class A LLC Units Contributed via Debt Exchange (2016)~~

~~During the year ended December 31, 2016, two Class A Members exchanged an aggregate $1,615,204 of outstanding debt for a total of 1,457 Class A LLC Units.~~

~~F-85~~

~~Table of Contents~~

~~ALTERNATIVE SOLUTIONS L.L.C.~~

~~Notes to Consolidated Financial Statements~~

~~Note 12 – Changes in Partners’ Capital (Continued)~~

~~Class B LLC Units Contributed via Debt Conversion (2017)~~

On November 22, 2017, a Convertible Noteholder converted $200,000 of outstanding debt for 30,556 Class B LLC Units, based on a total Company valuation of $20,000,000, as approved by a super majority of voting members. The debt conversion resulted in a gain of $34,998 over the $165,002 fair value of the units converted. The related party gain was recognized back against equity and had no effect on the Company’s Statements of Operations. The Class B LLC Units are not subject to dilution prior to March 1, 2019.

On November 22, 2017, another Convertible Noteholder converted $225,000 of outstanding debt for 34,375 Class B LLC Units, based on a total Company valuation of $20,000,000, as approved by a super majority of voting members. The debt conversion resulted in a gain of $39,375 over the $185,625 fair value of the units converted. The related party gain was recognized back against equity and had no effect on the Company’s Statements of Operations. The Class B LLC Units are not subject to dilution prior to March 1, 2019.

~~Class B LLC Units Contributed via Debt Conversion (2016)~~

On August 15, 2016, a Convertible Noteholder converted $400,000 of outstanding debt for 69,422 Class B LLC Units, based on a total Company valuation of $15,000,000, as approved by a super majority of voting members. The debt conversion resulted in a gain of $25,121 over the $374,879 fair value of the units converted. The related party gain was recognized back against equity and had no effect on the Company’s Statements of Operations. The Class B LLC Units are not subject to dilution prior to March 1, 2019.

On August 15, 2016, another Convertible Noteholder converted $100,000 of outstanding debt for 17,355 Class B LLC Units, based on a total Company valuation of $15,000,000, as approved by a super majority of voting members. The debt conversion resulted in a gain of $6,283 over the $93,717 fair value of the units converted. The related party gain was recognized back against equity and had no effect on the Company’s Statements of Operations. The Class B LLC Units are not subject to dilution prior to March 1, 2019.

~~Class C LLC Units Contributed (2017)~~

~~On March 16, 2017, a new Class C Member contributed $162,000 in cash, representing 30,000 Units.~~

~~Class C LLC Units Contributed (2016)~~

~~During the year ended December 31, 2016, a total of seven new partners contributed an aggregate $1,115,000 of capital for an aggregate 206,484 Class C LLC Units.~~

~~Note 13 – Loss on Early Extinguishment of Loan Receivable, Related Party~~

On various dates between August 1, 2014 and August 25, 2016, the Company paid an aggregate total of $525,630 on the acquisition of property on behalf of SWC Real Estate, LLC, an entity under the control of Todd Swanson, the Company’s managing member. On August 25, 2016, the Company and Mr. Swanson agreed to modify the loan to the estimated present value of the property, resulting in a loss of $375,630 recognized during the year ended December 31, 2016, as presented in other expense within the Statements of Operations. Commensurate with the modification of the loan receivable, Mr. Swanson repaid the balance of $150,000.

~~Note 14 – Income Taxes~~

The Company is a partnership for tax purposes and all taxable gains and losses are passed through to the individual partners, therefore there is no tax asset or liability to be presented by the Company.

~~F-86~~

~~Table of Contents~~

~~ALTERNATIVE SOLUTIONS L.L.C.~~

~~Notes to Consolidated Financial Statements~~

~~Note 15 – Future Minimum Lease Payments~~

Effective January 1, 2015, we leased our office/dispensary space in Las Vegas, Nevada under a 5-year operating lease expiring December 31, 2019, and is renewable for an additional five years upon expiration. The lease provides for increases in future minimum annual rental payments based on defined annual increases beginning with monthly payments of $7,500 and culminating in a monthly payment of $8,441 in 2019. The total amount of rental payments due over the lease term is being charged to rent expense according to the straight-line method over the term of the lease. The difference between rent expense recorded and the amount paid was credited or charged to “Deferred rent obligation,” in the accompanying Balance Sheets. The deferred rent obligation attributable to this lease was $8,512 and $8,429 at December 31, 2017 and 2016, respectively.

Effective January 11, 2016, SWG leased a commercial building for its cannabis production and cultivation business in North Las Vegas. The 5-year operating lease expires on February 28, 2021, and is renewable for another 5 year term. The lease provides for increases in future minimum annual rental payments based on defined annual increases beginning with monthly payments of $22,000 and culminating in a monthly payment of $29,000 in 2021. The total amount of rental payments due over the lease term is being charged to rent expense according to the straight-line method over the term of the lease. The difference between rent expense recorded and the amount paid will be credited or charged to “Deferred rent obligation,” in the Balance Sheets. The deferred rent obligation attributable to this lease was $125,529 and $76,748 at December 31, 2017 and 2016, respectively.

~~Future minimum lease payments required under operating leases according to our fiscal year-end are as follows:~~

Year Ending

December 31,

Amount

2018
$ 356,345
2019
401,296
2020
348,000
2021
58,000
Thereafter
-
$ 1,163,641

~~Rent expense was $389,520 and $329,218 for the years ended December 31, 2017 and 2016, respectively.~~

~~Note 16 – Subsequent Events~~

During the first quarter of 2018, the Company received $1,800,000 pursuant to the Membership Interest Purchase Agreement with CLS Holdings USA, Inc., in consideration for ten percent (10%) of the ownership interests in Alternative Solutions and its subsidiaries. The ownership change has been submitted to the State of Nevada for approval and the parties are awaiting approval pursuant to the terms of the sale.

~~On May 23, 2018, the Class A Members voted to use $100,000 of the $1,800,000 deposit for working capital to support ongoing operations and to finance growth in wholesale inventory.~~

~~F-87~~

~~Table of Contents~~

~~ALTERNATIVE~~ ~~SOLUTIONS L.L.C.~~

~~UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

~~For the Three and Six Months Ended June 30, 2018 and 2017~~

~~F-88~~

~~Table of Contents~~

~~ALTERNATIVE SOLUTIONS L.L.C.~~

~~CONSOLIDATED~~ ~~STATEMENTS OF FINANCIAL CONDITION~~

June 30,

December 31,

2018

2017

ASSETS

(Unaudited)

Current assets:

Cash
$ 14,612 $ 332,060
Accounts receivable
35,437 47,529
Inventory
405,953 307,881
Prepaid expenses
105,188 197,409
Total current assets
561,190 884,879

Other assets
158,500 198,500
Property and equipment, net
933,143 992,091

Total assets
$ 1,652,833 $ 2,075,470

LIABILITIES AND PARTNERS' CAPITAL

Current liabilities:

Accounts payable
$ 342,293 $ 395,202
Accrued expenses
$ 579,349 $ 550,030
Deferred rent obligation
$ 136,040 $ 134,041
Convertible notes payable
- $ 200,000
Short term loans, related parties
- $ 57,557
Total current liabilities
$ 1,057,682 $ 1,336,830

Total liabilities
$ 1,057,682 $ 1,336,830

Partners capital:

Class A partner, 2,644,653 Units
- $ (1,309,293
)
Class B partner, 101,851 Units
- $ 775,128
Class C partner, 301,415 Units
- $ 1,022,805
Partner's Capital, CLS
$ 595,151 $ 250,000
Total partners' capital
$ 595,151 $ 738,640

Total liabilities and partners' capital
$ 1,652,833 $ 2,075,470

~~See accompanying notes to financial statements.~~

~~F-89~~

~~Table of Contents~~

~~ALTERNATIVE SOLUTIONS L.L.C.~~

~~CONDENSED~~ ~~CONSOLIDATED STATEMENTS OF OPERATIONS~~

~~(Unaudited)~~

For the Three Months

For the Six Months

Ended June 30,

Ended June 30,

2018

2017

2018

2017

Revenue
$ 1,672,483 $ 428,060 $ 3,679,327 $ 765,374
Cost of goods sold
1,025,439 251,258 2,291,857 448,907
Gross Profit
647,044 176,802 1,387,470 316,467

Operating expenses:

General and administrative
898,840 494,737 1,671,802 861,486
Professional fees
26,550 15,067 63,835 28,174
Guaranteed payments to members
28,333 18,600 58,333 40,500
Depreciation and amortization
43,804 38,691 87,046 71,491
Total operating expenses
997,527 567,095 1,881,016 1,001,651

Net operating loss
(350,483
)
(390,293
)
(493,546
)
(685,184
)

Other income (expense):

Interest expense
(7,500
)
(23,438
)
(15,000
)
(46,875
)
Loss on early extinguishment of debt
(15,000
)
- (15,000
)
-
Total other income (expense)
(22,500
)
(23,438
)
(30,000
)
(46,875
)

Net loss
$ (372,983
)
$ (413,731
)
$ (523,546
)
$ (732,059
)

~~See accompanying notes to financial statements.~~

~~F-90~~

~~Table of Contents~~

~~ALTERNATIVE SOLUTIONS L.L.C.~~

~~CONDENSED~~ ~~CONSOLIDATED STATEMENTS OF CASH FLOWS~~

~~Ended June 30,~~

~~For the Six Months~~

~~(Unaudited)~~

For the Six Months

Ended June 30,

2018

2017

CASH FLOWS FROM OPERATING ACTIVITIES

Net loss
$ (523,546
)
$ (732,059
)
Adjustments to reconcile net loss

to net cash used in operating activities:

Depreciation and amortization
$ 87,046 $ 71,491
Loss on early extinguishment of debt
$ 15,000 -
Decrease (increase) in assets:

Accounts receivable
$ 12,092 $ (78,442
)
Notes receivable
$ 40,000 -
Inventory
$ (98,072
)
$ (192,319
)
Prepaid expenses
$ 92,221 $ (195,708
)
Other assets
- $ 249,000
Increase (decrease) in liabilities:

Accounts payable
$ (52,909
)
$ 78,317
Accrued expenses
$ 36,819 $ (13,883
)
Deferred rent obligations
$ 1,999 $ 24,432
Net cash used in operating activities
$ (389,350
)
$ (789,171
)

CASH FLOWS FROM INVESTING ACTIVITIES

Purchases of property and equipment
$ (28,098
)
$ (249,920
)
Net cash used in investing activities
$ (28,098
)
$ (249,920
)

CASH FLOWS FROM FINANCING ACTIVITIES

Cash contributions from partners
$ 1,800,000 $ 167,775
Cash distributions from partners
$ (1,700,000
)
-
Net cash provided by financing activities
$ 100,000 $ 167,775

NET CHANGE IN CASH
$ (317,448
)
$ (871,316
)
CASH AT BEGINNING OF PERIOD
$ 332,060 $ 919,879

CASH AT END OF PERIOD
$ 14,612 $ 48,563

SUPPLEMENTAL INFORMATION:

Interest paid
$ 31,655 $ 46,875
Income taxes paid
$ - $ -

NON-CASH INVESTING AND FINANCING ACTIVITIES:

Repayment of convertible notes payable from proceeds of partnership sale
$ 222,500 $ -
Repayment of short term loans from proceeds of partnership sale
$ 57,557 $ -

~~See accompanying notes to financial statements.~~

~~F-91~~

~~Table of Contents~~

~~ALTERNATIVE SOLUTIONS L.L.C.~~

~~Notes~~ ~~to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~Note 1 – Basis of Presentation~~

~~Basis of Presentation~~

The interim condensed consolidated financial statements of Alternative Solutions L.L.C. included herein, presented in accordance with United States generally accepted accounting principles and stated in US dollars, have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to not make the information presented misleading.

These statements reflect all adjustments, which in the opinion of management, are necessary for fair presentation of the information contained therein. Except as otherwise disclosed, all such adjustments are of a normal recurring nature. It is suggested that these interim condensed consolidated financial statements be read in conjunction with the financial statements of the Company for the year ended December 31, 2017 and notes thereto. The Company follows the same accounting policies in the preparation of interim reports.

~~Our consolidated financial statements are prepared using the accrual method of accounting as generally accepted in the United States of America (U.S. GAAP) and the rules of the SEC.~~

~~Principles of Consolidation~~

~~The accompanying consolidated financial statements include the accounts of the following entities, all of which are under common control and ownership:~~

	~~State of~~		~~Abbreviated~~
~~Name of Entity~~⁽¹⁾	~~Incorporation~~	~~Relationship~~	~~Reference~~
~~Alternative Solutions L.L.C.~~⁽²⁾	~~Nevada~~	~~Parent~~	~~Alternative Solutions~~
~~Serenity Wellness Center LLC~~	~~Nevada~~	~~Subsidiary~~	~~SWC~~
~~DBA/ Oasis Cannabis~~	~~Nevada~~	~~DBA~~	~~Oasis~~
~~Serenity Wellness Products LLC~~	~~Nevada~~	~~Subsidiary~~	~~SWP~~
~~DBA/ City Trees~~	~~Nevada~~	~~DBA~~	~~City Trees~~
~~Serenity Wellness Growers LLC~~	~~Nevada~~	~~Subsidiary~~	~~SWG~~
~~DBA/ City Trees~~	~~Nevada~~	~~Subsidiary~~	~~City Trees~~

⁽¹⁾~~Each entity is in the form of a domestic limited liability company.~~

⁽²⁾~~Alternative Solutions L.L.C. is the parent company of each wholly-owned subsidiary.~~

~~These statements reflect all adjustments, consisting of normal recurring adjustments, which in the opinion of management are necessary for fair presentation of the information contained therein.~~

~~Fair Value of Financial Instruments~~

~~F-92~~

~~Table of Contents~~

~~ALTERNATIVE SOLUTIONS L.L.C.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~Note 1 – Basis of Presentation and Significant Accounting Policies (Continued)~~

~~Cash in Excess of FDIC Insured Limits~~

The Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. Accounts are guaranteed by the Federal Deposit Insurance Corporation (FDIC) up to $250,000, under current regulations. The Company had $1,550,000 of funds in excess of FDIC insured limits at various times during the year, but not any as of June 30, 2018. The Company has not experienced any losses in such accounts.

~~Inventory~~

~~Deferred Rent Obligation~~

~~Revenue Recognition~~

Effective January 1, 2018, the Company adopted ASC 606 — Revenue from Contracts with Customers. Under ASC 606, the Company recognizes revenue from the commercial sales of products, licensing agreements and contracts to perform pilot studies by applying the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied. For the comparative periods, revenue has not been adjusted and continues to be reported under ASC 605 — Revenue Recognition. Under ASC 605, revenue is recognized when the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) the performance of service has been rendered to a customer or delivery has occurred; (3) the amount of fee to be paid by a customer is fixed and determinable; and (4) the collectability of the fee is reasonably assured.

~~There was no impact on the Company’s financial statements as a result of adopting Topic 606 for the six months ended June 30, 2018 and 2017, or the twelve months ended December 31, 2017.~~

Revenue is primarily generated through our subsidiary, Serenity Wellness LLC, DBA/ Oasis Cannabis. Oasis operates a 24-hour cannabis dispensary that recognizes revenue from the sale of cannabis products within the state of Nevada.

~~Revenue from the sale of our cannabis products is recognized by our subsidiary at the point of sale, at which time payment is received. Management estimates an allowance for sales returns.~~

The Company also recognizes revenue from Serenity Wellness Products LLC and Serenity Wellness Growers LLC, DBA/ City Trees. City Trees recognizes revenue from the sale of the following cannabis products and services to licensed dispensaries within the state of Nevada:

●

~~Premium organic medical cannabis sold wholesale to licensed retailers~~

●

~~Recreational marijuana cannabis products sold wholesale to distributors and retailers~~

●

~~Extraction products such as oils and waxes derived from in-house cannabis production~~

●

~~Processing and extraction services for licensed medical cannabis cultivators in Nevada~~

●

~~High quality cannabis strains in the form of vegetative cuttings for sale to licensed medical cannabis cultivators in Nevada~~

~~F-93~~

~~Table of Contents~~

~~ALTERNATIVE SOLUTIONS L.L.C.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~Note 1 – Basis of Presentation (Continued)~~

~~Advertising and Promotion~~

All costs associated with advertising and promoting products are expensed as incurred with the exception of the amortization of the cost of two major video productions. A music video and reality/lifestyle video were both produced in 2017. The remaining amount that has not been expensed is listed on the schedule in Note 5. Total recognized advertising and promotion expenses were $288,725 and $99,951 for the six months ended June 30, 2018 and 2017, respectively, and $351,841 and $180,227 for the years ended December 31, 2017 and 2016, respectively.

~~Recent Accounting Pronouncements~~

In June 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-07, Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. An entity should apply the requirements of Topic 718 to nonemployee awards except for specific guidance on inputs to an option pricing model and the attribution of cost (that is, the period of time over which share-based payment awards vest and the pattern of cost recognition over that period). The new guidance is effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017, with early adoption permitted. The Company does not expect the adoption of this ASU to have a material impact on its consolidated financial statements.

In March 2018, the FASB issued ASU No. 2018-05, Income Taxes (Topic 740) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118. The amendment provides guidance on accounting for the impact of the Tax Cuts and Jobs Act (the “Tax Act”) and allows entities to complete the accounting under ASC 740 within a one-year measurement period from the Tax Act enactment date. This standard is effective upon issuance. The Tax Act has several significant changes that impact all taxpayers, including a transition tax, which is a one-time tax charge on accumulated, undistributed foreign earnings. The calculation of accumulated foreign earnings requires an analysis of each foreign entity’s financial results going back to 1986. The Company does not expect the adoption of this ASU to have a material impact on its consolidated financial statements.

In February 2018, the FASB issued ASU No. 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The guidance permits entities to reclassify tax effects stranded in Accumulated Other Comprehensive Income as a result of tax reform to retained earnings. This new guidance is effective for annual and interim periods in fiscal years beginning after December 15, 2018. Early adoption is permitted in annual and interim periods and can be applied retrospectively or in the period of adoption. The Company is currently in the process of evaluating the impact of adoption on its consolidated financial statements.

~~F-94~~

~~Table of Contents~~

~~ALTERNATIVE SOLUTIONS L.L.C.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~Note 1 – Basis of Presentation (Continued)~~

~~Recent Accounting Pronouncements (Continued)~~

~~In May 2017, the FASB issued Accounting Standard Update (“ASU”) 2017-09~~~~, Compensation — Stock Compensation (Topic 718): Scope of Modification Accounting.~~ ASU 2017-09, which provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. Per ASU 2017-9, an entity should account for the effects of a modification unless all the following are met: (1) the fair value (or calculated value or intrinsic value, if such an alternative measurement method is used) of the modified award is the same as the fair value (or calculated value or intrinsic value, if such an alternative measurement method is used) of the original award immediately before the original award is modified. If the modification does not affect any of the inputs to the valuation technique that the entity uses to value the award, the entity is not required to estimate the value immediately before and after the modification, (2) the vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified, and (3) the classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified. The current disclosure requirements in Topic 718 apply regardless of whether an entity is required to apply modification accounting under the amendments in ASU 2017-9. ASU 2017-9 is effective for public business entities for annual and interim periods in fiscal years beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period, for (1) public business entities for reporting periods for which financial statements have not yet been issued and (2) all other entities for reporting periods for which financial statements have not yet been made available for issuance. The amendments in this ASU should be applied prospectively to an award modified on or after the adoption date. The adoption of ~~ASU 2017-9~~ ~~is not expected to have a material impact on the Company’s financial statements or related disclosures.~~

~~No other new accounting pronouncements, issued or effective during the six months ended June 30, 2018, have had or are expected to have a significant impact on the Company’s financial statements.~~

~~Note 2 – Going Concern~~

As shown in the accompanying financial statements, the Company incurred net losses from operations resulting in an accumulated deficit of $5,288,877 that has been distributed to the partners’ capital accounts, and used $389,350 of cash from operations during the six months ended June 30, 2018. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The Company is currently seeking additional sources of capital to fund short term operations. The Company, however, is dependent upon its ability to secure equity and/or debt financing and there are no assurances that the Company will be successful; therefore, without sufficient financing it would be unlikely for the Company to continue as a going concern.

~~Note 3 – Change in Ownership~~

On June 27, 2018, CLS Holdings USA, Inc. (“CLS”) closed on the purchase of all of the membership interests in Alternative Solutions and its three operating subsidiaries (collectively, the “Oasis LLCs”) from the members of such entities (other than Alternative Solutions). The closing occurred pursuant to a Membership Interest Purchase Agreement (the “Acquisition Agreement”) entered into between CLS and Alternative Solutions on December 4, 2017, as amended.

Pursuant to the Acquisition Agreement, CLS paid a non-refundable deposit of $250,000 upon signing, which was followed by an additional payment of $1,800,000 paid in February 2018, for an initial 10% of each of the Oasis LLCs. At that time, CLS applied for regulatory approval to own an interest in the Oasis LLCs, which approval was subsequently received. On June 27, 2018, CLS made the remaining payments to indirectly acquire the remaining 90% of the Oasis LLCs, which were equal to cash in the amount of $6,200,000, a $4.0 million promissory note due in December 2019 (the “Oasis Note”), and 22,058,823 shares of its common stock (the “Purchase Price Shares”) (collectively, the “Closing Consideration”). CLS then applied for regulatory approval to own the additional 90% in membership interests in the Oasis LLCs, which we expect to receive in due course. The change of ownership in the Oasis LLCs to CLS will be recorded with the State upon receipt of such regulatory approvals. The closing was executed for accounting purposes as of June 30, 2018.

~~F-95~~

~~Table of Contents~~

~~ALTERNATIVE SOLUTIONS L.L.C.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~Note 4 – Fair Value of Financial Instruments~~

~~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.~~

~~Level 3 - Unobservable inputs that reflect our assumptions about the assumptions that market participants would use in pricing the asset or liability.~~

~~The following schedule summarizes the valuation of financial instruments at fair value on a recurring basis in the balance sheets as of March 31, 2018 and December 31, 2017, respectively:~~

Fair Value Measurements at June 30, 2018

Level 1

Level 2

Level 3

Assets

Cash

$
14,612

$
-

$
-

Total assets

14,612

-

-

Liabilities

None

-

-

Total liabilities

-

257,557

-

$
14,612

$
-

$
-

~~The fair values of our related party debts are deemed to approximate book value, and are considered Level 2 inputs as defined by ASC Topic 820-10-35.~~

~~There were no transfers of financial assets or liabilities between Level 1 and Level 2 inputs for the six months ended June 30, 2018 and the year ended December 31, 2017.~~

~~F-96~~

~~Table of Contents~~

~~ALTERNATIVE SOLUTIONS L.L.C.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~Note 5 – Accounts Receivable~~

Accounts receivable was $35,437 and $47,529 at June 30, 2018 and December 31, 2017, respectively. No allowance for doubtful accounts was necessary during the six months ended June 30, 2018 and the year ended December 31, 2017, respectively.

~~Note 5 – Inventory~~

~~Inventories, consisting of material, overhead, labor, and manufacturing overhead, are stated at the lower of cost (first-in, first-out) or market and consist of the following:~~

June 30,

December 31,

2018

2017

Raw materials
$ 91,084 $ 41,375
Finished goods
314,869 266,506
$ 405,953 $ 307,881

~~Note 6 – Prepaid Expenses~~

~~Prepaid expenses included the following as of June 30, 2018 and December 31, 2017, respectively:~~

June 30, 2018

December 31, 2017

Prepaid insurance
$ 8,604 $ 11,119
Prepaid advertising
46,092 113,017
Prepaid license fees
48,417 61,961
Prepaid general and administrative expenses
2,075 11,312
$ 105,188 $ 197,409

~~Note 7 – Other Assets~~

~~Other assets included the following as of June 30, 2018 and December 31, 2017, respectively:~~

June 30, 2018

December 31, 2017

Advance to ATM Provider
$ - $ 40,000
Security deposits
158,500 158,500
$ 158,500 $ 198,500

~~F-97~~

~~Table of Contents~~

~~ALTERNATIVE SOLUTIONS L.L.C.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~Note 9 – Property and Equipment~~

~~Property and equipment consist of the following at June 30, 2018 and December 31, 2017, respectively:~~

June 30, 2018

December 31, 2017

Office equipment
$ 196,521 $ 191,424
Furniture and fixtures
19,491 18,991
Website development costs
2,324 2,324
Leasehold improvements
1,085,782 1,063,281
Total
1,304,118 1,276,020
Less accumulated depreciation
(370,975
)
(283,929
)
Property and equipment, net
$ 933,143 $ 992,091

~~Depreciation and amortization expense totaled $87,046 and $71,491 for the six months ended June 30, 2018 and 2017, respectively.~~

~~Note 10 – Accrued Expenses~~

~~Accrued expenses included the following as of June 30, 2018 and December 31, 2017, respectively:~~

June 30, 2018

December 31, 2017

Accrued state and city taxes
$ 225,899 $ 173,456
Accrued payroll and payroll taxes
78,450 84,919
Accrued interest
- 16,655
Accrued consulting fees
275,000 275,000
$ 579,349 $ 550,030

~~F-98~~

~~Table of Contents~~

~~ALTERNATIVE SOLUTIONS L.L.C.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~Note 11 – Convertible Notes Payable~~

~~Convertible notes payable consist of the following at June 30, 2018 and December 31, 2017, respectively:~~

June 30, 2018

December 31, 2017

On January 6, 2016, we entered into a Subscription Agreement with Jeffrey Sloane (“First Sloane Note”) for $100,000, consisting of an unsecured promissory note convertible into Class B LLC Units at the option of the Subscriber only between January 1, 2019 and February 28, 2019, subject to the execution of the Company’s operating agreement and pursuant to the State and local jurisdictions’ authorization. The Note bears interest at 15%, due and payable on November 30, 2023, and the principal is convertible into Class B LLC Units of the Company at a price based upon a total Company valuation of twenty million dollars ($20,000,000). Interest is to be paid quarterly, in arrears. A total of $111,250 was repaid on June 27, 2018 out of the proceeds of the sale to CLS Holdings USA in satisfaction of $100,000 of principal and $3,750 of accrued interest, resulting in a $7,500 loss on early extinguishment of debt.
$ - $ 100,000

On June 5, 2015, we entered into a Subscription Agreement with Sandra (Smith) Johnson (“First Johnson Note”) for $100,000, consisting of an unsecured promissory note convertible into Class B LLC Units at the option of the Subscriber only between January 1, 2019 and February 28, 2019, subject to the execution of the Company’s operating agreement and pursuant to the State and local jurisdictions’ authorization. The Note bears interest at 15%, due and payable on November 30, 2023, and the principal is convertible into Class B LLC Units of the Company at a price based upon a total Company valuation of twenty million dollars ($20,000,000). Interest is to be paid quarterly, in arrears. A total of $111,250 was repaid on June 27, 2018 out of the proceeds of the sale to CLS Holdings USA in satisfaction of $100,000 of principal and $3,750 of accrued interest, resulting in a $7,500 loss on early extinguishment of debt.
- 100,000

Convertible notes payable
$ - $ 200,000

The Company recorded interest expense pursuant to the stated interest rates on the convertible notes in the amount of $15,000 and $46,875 for the six months ended June 30, 2018 and 2017, respectively.

On June 27, 2018, the Company repaid a total of $222,500 of convertible notes, consisting of $200,000 of principal, $7,500 of interest and an additional $15,000 recognized as a loss on early extinguishment of the debt, out of the proceeds received by the partners from CLS Holdings USA, Inc. commensurate with the Membership Interest Purchase Agreement with CLS Holdings USA, Inc.

~~F-99~~

~~Table of Contents~~

~~ALTERNATIVE SOLUTIONS L.L.C.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~Note 12 – Short Term Loans, Related Parties~~

~~Notes payable, related parties consist of the following at June 30, 2018 and December 31, 2017, respectively:~~

June 30, 2018

December 31, 2017

On various dates, the Company received non-interest bearing, unsecured loan advances, due on demand from Todd Swanson, one of the Company’s partners. Aggregate proceeds of $573,270 and $950,000 were contributed to capital on August 31, 2016 and January 1, 2016, respectively. A total of $10,000 of outstanding principal was repaid on June 27, 2018 out of the proceeds of the sale to CLS Holdings USA, Inc.
$ - $ 10,000

On various dates, the Company received non-interest bearing, unsecured loan advances, due on demand from Deb Freeman, one of the Company’s partners. Aggregate proceeds of $31,098 and $60,836 were contributed to capital on August 31, 2016 and January 1, 2016, respectively. A total of $47,557 of outstanding principal was repaid on June 27, 2018 out of the proceeds of the sale to CLS Holdings USA, Inc.
- 47,557

Short term loans, related parties
$ - $ 57,557

~~Note 13 – Changes in Partners’ Capital~~

~~Class A LLC Units: Carries voting rights equal to the percentage of LLC Interest held by such Member.~~

~~Class C LLC Units: May be added by a Super Majority vote of Class A Members, and carry no voting rights.~~

~~Unallocated Advance~~

In February 2018, the Company received $1,800,000 pursuant to the Membership Interest Purchase Agreement with CLS Holdings USA, Inc., in consideration for ten percent (10%) of the ownership interests in Alternative Solutions and its subsidiaries. The ownership change was submitted to the State of Nevada for approval and subsequently approved by the State pursuant to the terms of the sale.

~~Distributions~~

~~On June 27, 2018, the Company’s Managing Member was paid a distribution of $1,700,000 pursuant to the closing of the Membership Interest Purchase Agreement with CLS Holdings USA, Inc.~~

~~Transfer of Ownership~~

As disclosed in Note 3, above, on June 27, 2018, CLS closed on the remaining purchase of 100% of the membership interests in Alternative Solutions and its three operating subsidiaries from the members of such entities (other than Alternative Solutions), at which time, the entities became single member LLCs. The entities are also going to adopt the parent Company’s fiscal year-end of May 31^st.

~~F-100~~

~~Table of Contents~~

~~ALTERNATIVE SOLUTIONS L.L.C.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~Note 14 – Income Taxes~~

~~Note 15 – Subsequent Events~~

~~As of the date of this filing, there have been no subsequent events to report.~~

~~F-101~~

~~Table of Contents~~

~~Unaudited~~ ~~Pro Forma Financial Information of the Company~~

~~And Alternative Solutions for the 12-Month Period Ended May 31, 2018~~

~~F-102~~

~~Table of Contents~~

On June 27, 2018, the Company completed the purchase of all of the membership interests in Alternative Solutions and the Oasis LLCs from the members of such entities. The closing occurred pursuant to a Membership Interest Purchase Agreement entered into between the Company and Alternative Solutions on December 4, 2017, as amended (the “Acquisition Agreement”). Pursuant to the Acquisition Agreement, the Company initially contemplated acquiring all of the membership interests in the Oasis LLCs from Alternative Solutions. Just prior to closing, the parties agreed that the Company would instead acquire all of the membership interests in Alternative Solutions, the parent of the Oasis LLCs, from its members, and the membership interests in the Oasis LLCs owned by members other than Alternative Solutions (the “Oasis Acquisition”). The revised structure of the transaction is referenced in the Oasis Note, which modified the Acquisition Agreement.

The total cost of the Oasis Acquisition was $27,297,539. The consideration for and in connection with the Oasis Acquisition consisted of: (a) A cash payment in the amount of $8,045,543; (b) a note payable with a fair value of $3,810,820 (net of original issue discount of $189,180); and (c) 22,058,823 shares of the Company’s common stock with a fair value of $15,441,176.

The following unaudited pro forma condensed combined balance sheet at May 31, 2018 and the unaudited pro forma condensed combined statements of operations for the year ended May 31, 2018 presented herein are based on the historical financial statements of The Company and its subsidiaries, and Alternative Solutions, LLC and subsidiaries, after giving effect to the Oasis Acquisition of all of the assets and liabilities of Alternative Solutions, LLC and its subsidiaries by the Company

The unaudited condensed combined pro forma balance sheet data assumes that the Acquisition took place on May 31, 2018 and combines unaudited consolidated balance sheets of the Company and Alternative Solutions, LLC as of May 31, 2018.

The unaudited pro forma condensed combined statement of operations for the year ended May 31, 2018 combines the historical consolidated statement of operations of the Company and Alternative Solutions, LLC for the year ended May 31, 2018. The unaudited pro forma condensed combined statement of operations for the fiscal year ended May 31, 2018 give effect to the Oasis Acquisition as if it occurred on June 1, 2017.

The unaudited pro forma condensed combined financial statements include adjustments, which are based upon preliminary estimates, to reflect the allocation of the purchase price to the acquired assets and assumed liabilities of Alternative solutions, LLC. The final allocation of the purchase price will be determined after the completion of the Oasis Acquisition and will be based upon actual net tangible and intangible assets acquired as well as liabilities assumed. The preliminary purchase price allocation for Alternative Solutions, LLC is subject to revision as more detailed analysis is completed and additional information on the fair values of its assets and liabilities becomes available. Any change in the fair value of the net assets of Alternative Solutions, LLC will change the amount of the purchase price allocable to goodwill. Final purchase accounting adjustments may differ materially from the pro forma adjustments presented here.

The unaudited pro forma condensed combined financial statements do not give effect to the potential impact of current financial conditions, regulatory matters or any anticipated synergies, operating efficiencies or cost savings that may be associated with the Oasis Acquisition. The unaudited pro forma condensed combined financial data also does not include any integration costs, cost overlap or estimated future transaction costs, except for fixed contractual transaction costs that the companies expect to incur as a result of the Oasis Acquisition.

The historical financial information has been adjusted to give effect to events that are directly attributable to the Oasis Acquisition, factually supportable and, with respect to the statements of operations, expected to have a continuing impact on the results of the combined company. This unaudited pro forma combined financial information should be read in conjunction with the historical financial statements and accompanying notes of Alternative Solutions, LLC (contained elsewhere in this Prospectus), and the historical financial statements and accompanying footnotes of the Company appearing in its periodic SEC filings and elsewhere in this Prospectus. The adjustments that are included in the following unaudited pro forma combined financial statements are described in the notes below, which include the numbered notes that are marked in those financial statements.

~~F-103~~

~~Table of Contents~~

~~Unaudited~~ ~~Pro Forma Condensed Combined Balance Sheet~~

~~As of May 31, 2018~~

ASSETS

CLS Holdings USA, Inc.

Alternative

and

Solutions, LLC

Pro forma

Pro forma

Subsidiaries

and Subsidiaries

Adjustments

Note

Combined

Current assets:

Cash
$ 52,964 $ 1,716,235 $ 430,000
D
$ 2,199,199
Accounts Receivable
- 18,126 - 18,126
Inventory
- 411,658 - 411,658
Prepaid expenses
1,410 192,244 - 193,654
Total current assets
54,374 2,338,263 2,822,637

Investment
2,050,000 - 15,441,176
A
-
5,995,543
D

3,810,820
H

(27,297,539
)

I

Other assets
- 160,318 - 160,318
Property and equipment, net
- 945,959 -
I
945,959
Intangible assets
898 - 1,637,600
I
1,638,498
Goodwill
- - 25,742,899 I 25,742,899
Total assets
$ 2,105,272 $ 3,444,540 $ 31,310,311

LIABILITIES AND PARTNERS' CAPITAL

Current liabilities:

Accounts payable and accrued liabilities
$ 826,621 925,360 (443,179
)

I
1,308,802
Accrued compensation, related party
120,417 - - 120,417
Due to related party
17,930 - - 17,930
Accrued interest
24,748 - - 24,748
Accrued interest, related party
5,143 - - 5,143
Notes payable, related parties
75,137 - - 75,137
Notes payable
310,000 - 3,810,820
H
4,120,820
Convertible notes payable, net of discount
43,401 - - 43,401
Deferred rent obligation
- 135,707 - 135,707
Convertible notes payable
- 200,000 - 200,000
Short term loans, related parties
- - - -
Derivative liability
1,265,751 - - 1,265,751
Contingent liability
- - 678,111 M 678,111
Total current liabilities
2,689,148 1,261,067 7,995,967

Convertible notes payable, related parties, long term, net of discount
2,832 - - 2,832
Convertible notes payable, long term, net of discount
41,072 - - 41,072
Total liabilities
2,733,052 1,261,067 8,039,871

Partners' capital
2,183,473 (2,183,473
)

N
-
Common Stock
5,013 - 2,206
A
7,289
70
B

Additional paid-in capital
17,628,717 - 15,438,970
A
50,736,353
489,930
B

9,785,978
D

1,359,152
E

1,329,736
F

4,703,870
G

Stock payable
307,584 - 69,458
C
377,042
Accumulated deficit
(18,569,094
)
- (9,281,150
)

B,C,D,E,F,G,I
(27,850,244
)
Total equity
(627,780
)
2,183,473 23,270,440

Total liabilities and equity
$ 2,105,272 $ 3,444,540 $ 31,310,311

~~F-104~~

~~Table of Contents~~

~~Unaudited~~ ~~Pro Forma Condensed Combined Statement of Operations~~

~~For the Year Ended May 31, 2018~~

CLS Holdings USA, Inc.

Alternative

and

Solutions, LLC

Pro forma

Pro forma

Subsidiaries

and Subsidiaries

Adjustments

Note

Combined

Revenue
$ - $ 7,258,443 $ 7,258,443
Cost of goods sold
- 4,586,221 4,586,221
Gross profit
- 2,672,222 2,672,222

Sales, general, and administrative expenses
3,116,040 3,877,117 125,060
J
7,118,217
Total operating expenses
3,116,040 3,877,117 7,118,217

Net operating loss
(3,116,040
)
(1,204,895
)
(4,445,995
)

Other (income) expense:

Interest expense
4,709,940 67,641 372,606
K
5,150,187
Gain on settlement of debt
(3,480
)
- (3,480
)
Loss on modification of debt
29,145 - 29,145
Loss on note exchange
404,082 - 404,082
Loss on extinguishment of debt
989,032 - 989,032
Prepayment Penalty
137,000 - 137,000
Change in fair value of derivative
195,725 - 195,725
Total other expense
6,461,444 67,641 6,901,691

Net loss
$ (9,577,484
)
$ (1,272,536
)
$ (11,347,686
)

Net loss per share - basic and diluted
$ (0.24
)
$ (0.12
)

22,058,823
A

700,000
B

575,000
C

Weighted average shares outstanding - basic and diluted
39,224,613 33,463,868
L
96,022,304

~~F-105~~

~~Table of Contents~~

~~Note~~ ~~1 – Basis of Pro Forma Presentation~~

The accompanying unaudited pro forma condensed combined financial statements are based on the historical condensed consolidated financial statements of the Company and Alternative Solutions, LLC, as adjusted to give effect to the Oasis Acquisition of Alternative Solutions, LLC by the Company The unaudited pro forma condensed consolidated statement of income for the year ended May 31, 2018 gives effect to the Oasis Acquisition of Alternative Solutions, LLC as if it had occurred on June 1, 2017. The unaudited pro forma condensed consolidated balance sheet as of May 31, 2018 gives effect to the Oasis Acquisition of Alternative Solutions, LLC as if it occurred on May 31, 2018.

The unaudited pro forma combined financial information is based on the assumption that the Oasis Acquisition is accounted for using the acquisition accounting method in accordance with the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 805, Business Combinations, and includes all adjustments that are directly attributable to the transactions, and are factually supportable regardless of whether they have continuing impact or are nonrecurring. In accordance with ASC 805, the Company allocated the purchase price of the Oasis Acquisition to the tangible assets, liabilities, and identifiable intangible assets acquired based on their estimated fair values. The excess of the purchase price over those fair values is recorded as goodwill. During the measurement period, as additional information becomes available about facts and circumstances that existed as of acquisition date, the Company may further revise its preliminary valuation of assets acquired and liabilities assumed with the corresponding offset to goodwill. After the measurement period, which could be up to one year after the initial transaction date, the Company may record subsequent adjustments to its statement of operations.

The unaudited pro forma combined financial information does not give effect to the potential impact of current financial conditions, regulatory matters, operating efficiencies or other savings or expenses that may be associated with the Oasis Acquisition. The unaudited pro forma condensed combined financial information also does not include any future integration costs. The unaudited pro forma condensed combined financial information has been prepared by management for illustrative purposes only in accordance with Article 11 of SEC Regulation S-X and is not necessarily indicative of the combined financial position or results of operations in future periods or the results that actually would have been realized had the Company and Alternative Solutions, LLC been reporting operations on a consolidated basis during the specified periods presented.

~~Note 2 – Pro Forma Adjustments~~

The pro forma condensed combined financial information is based upon the historical consolidated financial statements of the Company and Alternative Solutions, LLC and certain adjustments that the Company believes are reasonable to give effect to the Oasis Acquisition. These adjustments are based upon currently available information and certain assumptions, and therefore the actual adjustments will likely differ from the pro forma adjustments. The pro forma condensed combined financial statements were prepared using the acquisition method of accounting for the business combination.

~~The following pro forma adjustments are included in the unaudited pro forma condensed combined balance sheet and statements of operations:~~

~~A – Common stock issued in connection with the Oasis Acquisition.~~

~~B – Common stock issued to consultant for assisting with the Oasis Acquisition.~~

~~C – Common stock to be issued to certain officers of the Oasis LLCs.~~

D – Special warrants sold for cash in connection with the Oasis Acquisition. Each special warrant is exercisable, for no additional consideration, into one share of common stock and one three-year warrant to purchase one share of common stock at a price of C$0.65 per shares. Each special warrant is automatically exercisable on the earlier of: (i) the date that is five business days following the date on which the Company obtains a receipt from the applicable securities regulatory authorities in each of the jurisdictions in Canada in which the special warrants were sold for a final prospectus qualifying the distribution of the units, and (ii) November 30, 2018. The special warrants are deemed exercised for purposes of the pro forma statement of operations.

E - Special warrants issued to a placement agent in connection with the Oasis Acquisition. These warrants have the same terms as the special warrants described in note D, above. The placement agent special warrants are deemed exercised for purposes of the pro forma statement of operations.

~~F-106~~

~~Table of Contents~~

~~F – Warrants issued as compensation to a placement agent in connection with the Oasis Acquisition.~~

G – Special warrants issued due to a registration statement filing penalty in connection with the Oasis Acquisition. These warrants have the same terms as the special warrants described in note D, above. These special warrants are deemed exercised for purposes of the pro forma statement of operations.

~~H – Note payable issued in connection with the Oasis Acquisition.~~

~~I – Acquired in connection with the Oasis Acquisition.~~

~~J – Amortization of intangible assets acquired in the Oasis Acquisition.~~

~~K – Interest and amortization of discount on note payable issued in connection with the Oasis Acquisition.~~

L – Exercise of special warrants issued in connection with the Oasis Acquisition, including special warrants sold for cash, special warrants issued to the placement agent, and special warrants issued for a registration statement filing penalty. These warrants are automatically exercisable for no additional consideration.

~~M – Fair value of contingent consideration payable in connection with the Oasis Acquisition.~~

~~N – Elimination of the equity of Alternative Solutions, LLC and Subsidiaries.~~

~~F-107~~

~~Table of Contents~~

CLS HOLDINGS USA, INC.

PROSPECTUS

~~31,192,324~~31,148,358 Shares of Common Stock

____________, ~~2019~~2021

Until ____________, ~~2019,~~2021, all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

Table of Contents

PART II - INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13.Other Expenses of Issuance and Distribution

The following table sets forth the costs and expenses payable by us in connection with the issuance and distribution of the securities being registered hereunder. No expenses will be borne by the Selling Stockholders. All of the amounts shown are estimates, except for the SEC registration fee.

SEC registration fee	$	1,181.03	$	611.69
Accounting fees and expenses*	$	10,000	$	5,000.00
Legal fees and expenses*	$	50,000	$	50,000.00
Printing expenses*	$	10,000	$	5,000.00
Miscellaneous fees and expenses*	$	10,000	$	5,000.00
Total*	$	81,181.03	$	65,611.69

* Estimated

Item 14.Indemnification of Officers and Directors

Nevada Law

Section 78.7502 of the Nevada Revised Statutes permits a corporation to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, except an action by or in the right of the corporation, by reason of the fact that he is or was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee, or agent of another corporation, partnership joint venture, trust, or other enterprise, against expenses, including attorneys’ fees, judgments, fines, and amounts paid in settlement actually and reasonably incurred by him in connection with the action, suit or proceeding if he:

(a) is not liable pursuant to Nevada Revised Statute 78.138, or

(b) acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful.

In addition, Section 78.7502 of the Nevada Revised Statutes permits a corporation to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending, or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise against expenses, including amounts paid in settlement and attorneys’ fees actually and reasonably incurred by him in connection with the defense or settlement of the action or suit if he:

(a) is not liable pursuant to Nevada Revised Statute 78.138; or

(b) acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation.

To the extent that a director, officer, employee, or agent of a corporation has been successful on the merits or otherwise in defense of any action, suit, or proceeding referred to above, or in defense of any claim, issue, or matter, the corporation is required to indemnify him against expenses, including attorneys’ fees, actually and reasonably incurred by him in connection with the defense.

Section 78.751 of the Nevada Revised Statutes provides that such indemnification may also include payment by the Company of expenses incurred in defending a civil or criminal action or proceeding in advance of the final disposition of such action or proceeding upon receipt of an undertaking by the person indemnified to repay such payment if he shall be ultimately found not to be entitled to indemnification under Section 78.751 of the Nevada Revised Statutes. Indemnification may be provided even though the person to be indemnified is no longer a director, officer, employee, or agent of the Company or such other entities.

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Table of Contents

Section 78.752 of the Nevada Revised Statutes allows a corporation to purchase and maintain insurance or make other financial arrangements on behalf of any person who is or was a director, officer, employee, or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise for any liability asserted against him and liability and expenses incurred by him in his capacity as a director, officer, employee, or agent, or arising out of his status as such, whether or not the corporation has the authority to indemnify him against such liability and expenses.

Other financial arrangements made by the corporation pursuant to Section 78.752 of the Nevada Revised Statutes may include the following:

(a) the creation of a trust fund;

(b) the establishment of a program of self-insurance;

(c) the securing of its obligations of indemnification by granting a security interest or other lien on any assets of the corporation; and

(d) the establishment of a letter of credit, guaranty or surety.

No financial arrangement made pursuant to Section 78.752 may provide protection for a person adjudged by a court of competent jurisdiction, after exhaustion of all appeals, to be liable for intentional misconduct, fraud or a knowing violation of law, except with respect to the advancement of expenses of indemnification ordered by a court.

Any discretionary indemnification pursuant to Section 78.7502 of the Nevada Revised Statutes, unless ordered by a court or advanced pursuant to an undertaking to repay the amount if it is determined by a court that the indemnified party is not entitled to be indemnified by the corporation, may be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee, or agent is proper in the circumstances. The determination must be made:

(a) by the stockholders;

(b) by the board of directors by a majority vote of a quorum consisting of directors who were not parties to the action, suit, or proceeding;

(c) if a majority vote of a quorum consisting of directors who were not parties to the action, suit, or proceeding so orders, by independent legal counsel in a written opinion, or

(d) if a quorum consisting of directors who were not parties to the action, suit, or proceeding cannot be obtained, by independent legal counsel in a written opinion.

Subsection 7 of Section 78.138 of the Nevada Revised Statutes provides that, subject to certain very limited statutory exceptions, a director or officer is not individually liable to the corporation or its stockholders or creditors for any damages as a result of any act or failure to act in his or her capacity as a director or officer, unless it is proven that the act or failure to act constituted a breach of his or her fiduciary duties as a director or officer and such breach of those duties involved intentional misconduct, fraud or a knowing violation of law. The statutory standard of liability established by Section 78.138 controls even if there is a provision in the corporation’s articles of incorporation unless a provision in the corporation’s articles of incorporation provides for greater individual liability.

Charter Provisions and Other Arrangements

Pursuant to the provisions of Nevada Revised Statutes, we have adopted indemnification provisions in our Amended and Restated Articles of Incorporation with respect to our officers and directors which state that, among other things, each person who was or is made a party or is threatened to be made a party to or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he or she is or was an officer or director shall be indemnified and held harmless by the Company to the fullest extent authorized by Nevada law against all expense, liability, damage, claim and loss (including attorneys’ fees, judgments, fines, ERISA excise taxes and penalties and amounts paid in settlement) reasonably incurred or suffered by such indemnitee in connection therewith, and such indemnification shall continue as to an indemnitee who has ceased to be such a director, officer, employee or agent and shall inure to the benefit of the indemnitee’s heirs, executors and administrators.

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Table of Contents

Effective December 18, 2015, ~~the Company~~we entered into an indemnification agreement with ~~each of~~ Jeffrey Binder, ~~its~~our Chairman and Chief Executive Officer, and ~~director and Frank Koretsky, a director. On~~on June 28, 2018, ~~the Company~~we entered into an indemnification agreement with ~~each~~Andrew Glashow, one of ~~David Lamadrid, its former~~our directors and our current President and Chief ~~Financial Officer and Andrew Glashow, a director (and current officer) of the Company.~~Operating Officer. Pursuant to the indemnification agreements, we are obligated to indemnify the Indemnitees to the fullest extent permitted by applicable law and to advance all reasonable expenses incurred by or on behalf of the Indemnitees in connection with any proceeding covered by the indemnification agreement, subject to certain restrictions and repayment provisions. In connection with our appointment of Ross Silver to our Board of Directors, our Board of Directors plans to enter into an indemnification agreement with Mr. Silver.

Item 15.Recent Sales of Unregistered Securities

During the past three years, the following securities were sold or otherwise issued by the Company and were not registered under the Securities Act:

~~On July 20, 2016, we issued convertible promissory notes to Frank Koretsky and Jeffrey Binder in amounts up to $210,000 and $262,750, respectively, in exchange for cash.~~

~~On August 3, 2016, we issued a convertible promissory note to CLS CO 2016, LLC in the amount of $150,000 in exchange for cash.~~

~~On January 10, 2017, we issued convertible promissory notes to Newcan Investment Partners LLC in the amounts of $410,000 and $50,000 in exchange for cash.~~

~~On March 27, 2017, we issued a convertible promissory note to Newcan Investment Partners LLC in the amount of $120,000 in exchange for cash.~~

~~On March 27, 2017, we issued a convertible promissory note to Mr. Binder in the amount of $159,000 in exchange for unpaid accrued salary due to Mr. Binder and cash.~~

On May 31, 2017, we issued an aggregate of 10,816,960 shares of Common Stock to Mr. Binder, Mr. Koretsky, Newcan Investment Partners LLC and CLS CO 2016 LLC in exchange for their conversion of certain convertible promissory notes totaling $2,537,750 and $166,490 in accrued interest under such notes.

~~On July 13, 2017, we issued 24,000 shares of Common Stock to a consultant in exchange for a $6,000 accrued liability for services previously provided.~~

~~On August 23, 2017, we issued convertible promissory notes to Newcan Investment Partners LLC in the amounts of $621,658 and $70,000 in exchange for cash.~~

~~On August 23, 2017, we issued convertible promissory notes to Mr. Binder in the amounts of $115,050 and $72,767 in exchange for unpaid accrued salary due to Mr. Binder and cash.~~

On September 20, 2017, we issued 1,500,000 shares of our Common Stock to StarForce Media, Inc. in exchange for a convertible promissory note in the original principal amount of $200,000, which note was originally issued by the Company on April 29, 2015 and subsequently purchased by Starforce Media, Inc.

On September 25, 2017, we agreed to issue up to 4,500,000 shares of our Common Stock to Andrew Glashow, as representative and nominee, in exchange for a convertible promissory note in the original principal amount of $200,000 issued to Old Main Capital, LLC on March 18, 2016.

~~On October 9, 2017, we issued a convertible promissory note to Newcan Investment Partners LLC in the amount of $29,999.50 in exchange for cash.~~

~~On October 9, 2017, we issued a convertible promissory note to Mr. Binder in the amount of $39,520.56 in exchange for unpaid accrued salary due to Mr. Binder and cash.~~

On November 15, 2017, we issued to FirstFire Global Opportunities Fund, LLC, in exchange for cash, a senior convertible promissory note in the amount of $363,000 and a warrant to purchase 350,000 shares of Common Stock.

~~On January 5, 2017 we issued a convertible promissory note to Newcan Investment Partners LLC in the amount of $115,000 in exchange for cash.~~

~~II-3~~

~~Table of Contents~~

~~On January 5, 2018, we issued a convertible promissory note to Mr. Binder in the amount of $165,360.19 in exchange for unpaid accrued salary due to Mr. Binder and cash.~~

~~On February 5, 2018, we issued to Darling Capital LLC, in exchange for cash, a convertible promissory note in the amount of $550,000 and a warrant to purchase 400,000 shares of Common Stock.~~

~~On February 12, 2018, we issued to Efrat Investments, LLC, in exchange for cash, a convertible promissory note in the amount of $55,000 and a warrant to purchase 40,000 shares of Common Stock.~~

~~On February 20, 2018, we issued to David Lamadrid, in exchange for cash, a convertible promissory note in the amount of $31,250 and a warrant to purchase 25,000 shares of Common Stock.~~

On February 7, 21 and 28, 2018 and March 29, 2018, we effected closings of our private securities offering conducted by WestPark Capital, Inc., as placement agent, whereby we sold an aggregate of 1,368,250 units to a total of 29 investors in a private offering exempt from registration under Rule 506(c) of Regulation D, promulgated under the Securities Act of 1933, as amended. Each unit consisted of four shares of our Common Stock and one warrant to purchase one share of Common Stock for $0.75. The price per unit was $1.25. We also issued WestPark Capital, Inc., as placement agent, a five-year warrant to purchase 205,238 units at a price of $1.25 per unit. The unit warrant was valued at $503,655,

On March 29, 2018, we issued three-year Common Stock purchase warrants to purchase an aggregate of 2,736,500 shares of our Common Stock at an exercise price of $0.75 per share, to investors in the WestPark Offering.

~~On February 8, 2018, we agreed to issue 31,250 shares of Common Stock to a consultant. The shares were valued at $25,313, and are recorded on the balance sheet as stock payable.~~

On March 2, 2018, we issued 350,000 shares of Common Stock to a consultant pursuant to the terms of a consulting agreement. The shares issued for services were valued on the date of grant at $261,800.

On March 2, 2018, we issued three-year Common Stock purchase warrants to purchase an aggregate of 412,500 shares of our Common Stock at an exercise price of $0.75 per share to a consultant. These warrants were value at $294,173.

On May 9, 2018, in connection with the Amendment to the FirstFire Note, we amended the FirstFire three-year Common Stock purchase warrant to provide that the holder could purchase an additional 25,000 shares of our Common Stock at an initial exercise price of $0.75 per share. These additional warrants were valued to $15,977.

On May 11, 2018, we entered into a securities purchase agreement with YA II PN, Ltd., a Cayman Island exempted limited partnership, pursuant to which we agreed to sell to YA II PN, in two closings, (i) convertible debentures in the aggregate principal amount of $1,250,000, plus accrued interest, which may be converted into shares of Common Stock, at the discretion of either the investor or the Company in accordance with the terms of the debentures, and (ii) five-year warrants to purchase an aggregate of 3,125,000 shares of Common Stock at $0.60 per share. At the first closing, which occurred on May 14, 2018, we issued a $750,000 debenture and a warrant to purchase 1,875,000 shares of Common Stock. At the second closing, which occurred on July 20, 2018, we issued a $500,000 debenture and a warrant to purchase 1,250,000 additional shares of Common Stock. During the six months ended November 30, 2018, YA II converted a total of $280,247, which consisted of $250,000 of principal and $30,247 of accrued interest, into 700,616 shares of Common Stock. On January 8, 2019, YA II converted $256,027, of which $250,000 was principal and $6,027 was accrued interest, into 640,068 shares of Common Stock.

~~II-4~~

~~Table of Contents~~

~~During the year ended May 31, 2018, we agreed to issue 600,000 shares of Common Stock to an officer. These shares were valued at $213,321, and are recorded on the balance sheet as stock payable.~~

On June 20, 2018, we closed the Canaccord Special Warrant Offering for aggregate gross proceeds of CAD$13,037,859. Canaccord Genuity Corp. acted as the sole agent and sole bookrunner in connection with the Offering. Pursuant to the Canaccord Special Warrant Offering, we issued 28,973,014 Special Warrants, at a price of CAD$0.45 per Special Warrant. Each Special Warrant was automatically exercisable, for no additional consideration, for one Unit consisting of one share of Common Stock and one Warrant on November 30, 2018. On August 20, 2018, the number of Units acquirable upon deemed exercise of the Special Warrants was automatically adjusted from one Unit per Special Warrant to 1.1 Units per Special Warrant due to the Company not having obtained that required Receipt from the applicable securities commissions to qualify the distribution of the Units by that date. All Special Warrants were automatically exercised on November 30, 2018. The sale of the Special Warrants in Canada was exempt from registration under the Securities Act because the Special Warrants were sold in a private offering in accordance with the requirements of Category 3 of Rule 903 of Regulations S under the Securities Act. The sale of the Special Warrants in the United States was exempt from registration under the Securities Act because the units were sold in a private offering to verified accredited investors pursuant to Rule 506(c) under the Securities Act.

On July 24, 2018, we issued 700,000 shares of our Common Stock to Star Associates, LLC, a limited liability company previously owned by Andrew Glashow, one of our directors (and current officers), in recognition of Mr. Glashow’s efforts, through Star Associates, in successfully assisting us in negotiating and obtaining the financing necessary to acquire Alternative Solutions.

On July 31, 2018, we agreed to issue 500,000 shares of Common Stock to Ben Sillitoe, the former Chief Executive Officer of CLS Nevada, Inc., in connection with his employment agreement.

On July 31, 2018, we agreed to issue 50,000 shares of Common Stock to Don Decatur, the former Chief Operating Officer of CLS Nevada, Inc., in connection with his employment agreement.

On August 6, 2018, we issued a convertible promissory note to Newcan Investment Partners LLC in the amount of ~~$75,000.00,~~$75,000.00.

Between July 31 and August 10, 2018, we entered into six subscription agreements with accredited investors in connection with the Navy Capital Offering, pursuant to which we agreed to sell, for an aggregate purchase price of $5,750,000, 14,375,000 units ($0.40 per unit), representing (i) 14,375,000 shares of Common Stock and (ii) three-year warrants to purchase an aggregate of 14,375,000 shares of Common Stock at an exercise price of $0.60 per share.

Between October ~~25,~~22, 2018 and November 2, 2018, we entered into six subscription agreements with accredited investors pursuant to which we agreed to sell, for an aggregate purchase price of $5,857,000 in connection with the 2018 U.S. Convertible Debenture Offering, $5,857,000 in original principal amount of convertible debentures. ~~The~~Initially, the debentures ~~will be~~were convertible into units at a conversion price of $0.80 ~~(U.S.)~~ per ~~unit. Each~~ unit, ~~consists~~with each unit consisting of (i) one (1) share of our Common Stock, and (ii) one-half of one (1) warrant, with each warrant exercisable for three years to purchase one share of our Common Stock at a price of $1.10. On April 15, 2021 and April 19, 2021, we amended convertible debentures in the aggregate principal amount of $5,532,000 in order to (i) reduce the conversion price of the debentures from $0.80 per unit to $0.30 per unit, and (ii) extend the maturity date of the debentures by one year to four (4) years from the execution date of the debentures; which reduced the exercise price of the related warrants from $1.10 ~~(U.S.).~~per share of our common stock to $0.4125 per share of our common stock.

On November 30, 2018, the Special Warrants were automatically converted into 33,463,826 shares of Common Stock and warrants to purchase 33,463,826 shares of Common Stock for CD$0.65 per share.

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On December 12, 2018, we issued $12,012,000 in 8% senior unsecured convertible debentures in connection with the 2018 Convertible Debenture Offering. The debentures were ~~issue~~issued at a price of $1,000 per debenture, convertible into units of the Company at the option of the holder at a conversion price of ~~US$0.80~~$0.80 per unit at any time prior to the close of business on the earlier of: (i) the last business day immediately preceding the maturity date of the debentures, being the date that is three (3) years from the closing date of the offering. Each unit consists of one share of our Common Stock, and (ii) one-half of one (1) warrant, with each warrant exercisable for three years to purchase one share of our Common Stock at a price of ~~$1.10 (U.S.).~~$1.10. The sale of the convertible debentures in Canada was exempt from registration under the Securities Act because the convertible debentures were sold in a private offering in accordance with the requirements of Category 3 of Rule 903 of Regulations S under the Securities Act. The sale of the convertible debentures in the United States was exempt from registration under the Securities Act because the units were sold in a private offering to verified accredited investors pursuant to Rule 506(c) under the Securities Act.

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~~Table~~ On March 31, 2021, we amended the debentures to, among other things: (i) extend the maturity date to December 12, 2022 and (ii) reduce the conversion price from $0.80 per unit to $0.30 per unit; which also included a reduction of ~~Contents~~

the exercise price of each issuable warrant to $0.40 per share of our common stock.

On December 12, 2018, Canaccord was issued (i) 447,800 shares of Common Stock and warrants to purchase 223,900 shares of Common Stock for $1.10 per share and (ii) a broker warrant exercisable for $0.80 per unit to purchase 1,074,720 shares of Common Stock and warrants to purchase 537,360 shares of Common Stock for $1.10 per share, where each unit consists of one share of Common Stock and a warrant to purchase one-half of one share of Common Stock for $1.10 per whole share as compensation as an agent in connection with the 2018 Convertible Debenture Offering. On the same date, Gravitas Securities Inc. was issued (i) 111,950 shares of Common Stock and warrants to purchase 55,975 shares of Common Stock for $1.10 per share and (ii) a broker warrant exercisable for $0.80 per unit to purchase 268,680 shares of Common Stock and warrants to purchase 134,340 shares of Common Stock for $1.10 per share, where each unit consists of one share of Common Stock and a warrant to purchase one-half of one share of Common Stock for $1.10 per whole share as compensation as an agent in connection with the 2018 Convertible Debenture Offering.

On March 1, 2019, we agreed to issue 500,000 shares of Common Stock to Andrew Glashow, our President and Chief Operating Officer, in connection with his employment agreement, all of which have vested. 250,000 vested shares were issued effective February 5, 2021 and 250,000 vested shares were issued effective May 19, 2021.

On April 8,7, 2019, we agreed to issue 50,000 shares of Common ~~stock~~Stock to Gregg Carlson, our former Chief Financial Officer, in connection with his employment ~~agreement.~~agreement, which vested and were issued effective April 8, 2020.

On April 12, 2019, we issued 25,000 shares of Common Stock to our former Chief Financial Officer, Frank Tarantino, in connection with his employment agreement.

On July 22, 2019, we issued 500,000 shares of Common Stock to Ben Sillitoe, former Chief Executive Officer of CLS Nevada, in connection with his employment agreement. The issuance of these shares was exempt from registration under the U.S. Securities Act because the shares were issued in a private offering.

On July 22, 2019, we issued 50,000 shares of Common Stock to Don Decatur, former Chief Operating Officer of CLS Nevada, in connection with his employment agreement. The issuance of these shares was exempt from registration under the U.S. Securities Act because the shares were issued in a private offering.

Except as noted above, all of the issuances of securities set forth above were deemed exempt from registration under the Securities Act in reliance on Section 4(a)(2) and/or Regulation D.

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Item 16.Exhibit Index

The following exhibits are included as part of this ~~Registration Statement~~Prospectus by reference:

Exhibit		Description

2.1		Agreement and Plan of Merger dated April ~~28,~~29, 2015 by and among CLS Holdings USA, Inc., CLS Merger, Inc., and CLS Labs, Inc. (incorporated by reference from Exhibit 2.1 in the Company’s Current Report on Form 8-K filed with the SEC on April 30, 2015).

2.2		Membership Interest Purchase Agreement dated December 4, 2017 between CLS Holdings USA, Inc. and Alternative Solutions, LLC (incorporated by reference from Exhibit 2.1 in the Company’s Current Report on Form 8-K filed with the SEC on December 7, 2017).

2.3		First Amendment to the Membership Interest Purchase Agreement by and between CLS Holdings USA, Inc. and Alternative Solutions, LLC dated January 16, 2018 (incorporated by reference from Exhibit 2.1 in the Company’s Current Report on Form 8-K filed with the SEC on January 19, 2018).

2.4		Second Amendment to the Membership Interest Purchase Agreement by and between CLS Holdings USA, Inc. and Alternative Solutions, LLC dated January 25, 2018 (incorporated by reference from Exhibit 2.1 in the Company’s Current Report on Form 8-K filed with the SEC on January 26, 2018).

2.5		Third Amendment to the Membership Interest Purchase Agreement by and between CLS Holdings USA, Inc. and Alternative Solutions, LLC effective as of March 27, 2018 (incorporated by reference from Exhibit 2.1 in the Company’s Current Report on Form 8-K filed with the SEC on April 4, 2018).

2.6		Fourth Amendment to the Membership Interest Purchase Agreement by and between CLS Holdings USA, Inc. and Alternative Solutions, LLC effective as of March 27, 2018 (incorporated by reference from Exhibit 2.2 in the Company’s Current Report on Form 8-K filed with the SEC on April 4, 2018).

2.7		Fifth Amendment to the Membership Interest Purchase Agreement by and between CLS Holdings USA, Inc. and Alternative Solutions, LLC effective as of May 17, 2018 (incorporated by reference from Exhibit 2.1 in the Company’s Current Report on Form 8-K filed with the SEC on May 21, 2018).

~~2.8~~
2.8		Membership Interest Purchase Agreement, dated March 11, 2019, by and among CLS Massachusetts, Inc., CannAssist, LLC, the Members of CannAssist, LLC party thereto, and David Noble, in his capacity as Member Representative (incorporated by reference from Exhibit 2.1 in the Company’s Current Report on Form 8-K filed with the SEC on March 15, 2019).

2.9		First Amendment to Secured Promissory Note and Security Agreement and Termination of Membership Interest Purchase Agreement, dated August 26, 2019, by and among CannAssist and CLS Holdings USA, Inc. (incorporated by reference from Exhibit 2.9 in the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2019 filed with the SEC on August 29, 2019).

3.1		Articles of Incorporation of Adelt Design, Inc. (incorporated by reference from Exhibit 3.1 in the Company’s Registration Statement filed with the SEC on June 3, 2011).

3.2		Amended and Restated Articles of Incorporation of CLS Holdings USA, Inc. (incorporated by reference from Exhibit 1.1 in the Company’s Current Report on Form 8-K filed with the SEC on November 26, 2014).

~~3.3~~
3.3		Certificate of Amendment to Amended and Restated Articles of Incorporation of CLS Holdings USA, Inc. (incorporated by reference from Annex A to the Company’s Proxy Statement on Schedule 14A filed with the SEC on April 29, 2019).

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3.4		Bylaws of Adelt Design, Inc. (incorporated by reference from Exhibit 3.2 in the Company’s Registration Statement filed with the SEC on June 3, 2011).

3.5		Amended and Restated Bylaws of CLS Holdings USA, Inc. (incorporated by reference from Exhibit 1.2 in the Company’s Current Report on Form 8-K filed with the SEC on November 26, 2014).

3.6		Certificate of Designation effective July 18, 2017. (incorporated by reference from Exhibit 3.1 in the Company’s Current Report on Form 8-K filed with the SEC on July 24, 2017).

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4.1		Form of Stock Certificate (incorporated by reference from Exhibit 4.1 in the Company’s Current Report on Form 8-K filed with the SEC on April 30, 2015).

4.2		Special Warrant Indenture dated June 20, 2018 between CLS Holdings USA, Inc. and Odyssey Trust Company (incorporated by reference from Exhibit 4.1 in the Company’s Current Report on Form 8-K filed with the SEC on June 26, 2018).

4.3		Warrant Indenture dated June 20, 2018 between CLS Holdings USA, Inc. and Odyssey Trust Company (incorporated by reference from Exhibit 4.2 in the Company’s Current Report on Form 8-K filed with the SEC on June 26, 2018).

~~4.4~~
4.4		Debenture Indenture dated December 12, 2018 by and between the Company and Odyssey Trust Company (incorporated by reference from Exhibit 4.1 in the Company’s Current Report on Form 8-K filed with the SEC on December 18, 2018).

~~4.5~~ 4.4.A		Supplemental Indenture dated March 31, 2021 to Debenture Indenture dated December 12, 2018 by and between the Company and Odyssey Trust Company (incorporated by reference from Exhibit 4.1 in the Company’s Current Report on Form 8-K filed with the SEC on March 31, 2021).

4.5		Warrant Indenture dated December 12, 2018 by and between the Company and Odyssey Trust Company (incorporated by reference from Exhibit 4.2 in the Company’s Current Report on Form 8-K filed with the SEC on December 18, 2018).

4.5.A		Supplemental Indenture dated March 31, 2021 to Warrant Indenture dated December 12, 2018 by and between the Company and Odyssey Trust Company (incorporated by reference from Exhibit 4.2 in the Company’s Current Report on Form 8-K filed with the SEC on March 31, 2021).

4.6		Description of Registrant’s Securities (incorporated by reference from Exhibit 4.6 in the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2020 filed with the SEC on August 31, 2020).

5.1**		Opinion of Connor ~~and~~& Connor ~~LLP~~PLLC

~~10.1~~10.1.A		Employment Agreement dated October 1, 2014 between CLS Labs, Inc. and Jeffrey Binder (incorporated by reference from Exhibit 10.1 in the Company’s Current Report on Form 8-K filed with the SEC on April 30, 2015) (1).

~~10.2~~10.1.B		Addendum to Employment Agreement dated April 28, 2015 between CLS Labs, Inc., CLS Holdings USA, Inc. and Jeffrey Binder (incorporated by reference from Exhibit 10.2 in the Company’s Current Report on Form 8-K filed with the SEC on April 30, 2015) (1).

10.1.C		Amendment to Employment Agreement, dated October 14, 2019 but effective October 1, 2019, by and among CLS Holdings, Inc., CLS Labs, Inc. and Jeffrey I. Binder (incorporated by reference from Exhibit 10.1 in the Company’s Quarterly Report on Form 10-Q for the quarter ended August 31, 2019 filed with the SEC on October 15, 2019). (1)

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~~10.3~~10.2		Lease dated April 17, 2015 between Casimir-Quince, LLC, and CLS Labs Colorado, Inc. (incorporated by reference from Exhibit 10.5 in the Company’s Current Report on Form 8-K filed with the SEC on April 30, 2015).

~~10.4~~10.3		Sublease Agreement dated April 17, 2015 between CLS Labs Colorado, Inc. and Picture Rock Holdings, LLC (incorporated by reference from Exhibit 10.6 in the Company’s Current Report on Form 8-K filed with the SEC on April 30, 2015).

10.5**		Licensing Agreement dated April 17, 2015 between CLS Labs Colorado, Inc. and Picture Rock Holdings, LLC (incorporated by reference from Exhibit 10.7 in the Company’s Current Report on Form 8-K filed with the SEC on April 30, 2015).

10.6**		Equipment Lease dated April 17, 2015, between CLS Labs Colorado, Inc. and Picture Rock Holdings, LLC (incorporated by reference from Exhibit 10.8 in the Company’s Current Report on Form 8-K filed with the SEC on April 30, 2015).

~~10.7~~		Promissory Note dated April 17, 2015, between CLS Labs Colorado, Inc. and Picture Rock Holdings, LLC (incorporated by reference from Exhibit 10.11 in the Company’s Current Report on Form 8-K filed with the SEC on April 30, 2015).

~~10.8~~10.4		Confidentiality, Non-Compete and Proprietary Rights Agreement dated July 16, ~~2104~~2014 between CLS Labs, Inc. and Raymond Keller (incorporated by reference from Exhibit ~~2.1~~10.12 in the Company’s Current Report on Form 8-K filed with the SEC on April 30, 2015).

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~~10.9~~		Employment Agreement dated August 18, 2015 between CLS Holdings USA, Inc. and Alan Bonsett (incorporated by reference from Exhibit 10.1 on the Company’s Current Report on Form 8-K filed with the SEC on August 20, 2015) (1).
10.5
~~10.10~~		Form of Indemnification Agreement (incorporated by reference from Exhibit 10.1 in the Company’s Current Report on Form 8-K filed with the SEC on December 22, 2015).

~~10.11~~10.6		Omnibus Loan Amendment Agreement, dated May 31, 2017, by and among CLS Holdings USA, Inc., Jeffrey I. Binder, Frank Koretsky, Newcan Investment Partners LLC and CLS CO 2016 LLC (incorporated by reference from Exhibit 10.1 in the Company’s Current Report on Form 8-K filed with the SEC on June 2, 2017).

~~10.12~~		Amendment No.4 to Equity Purchase Agreement dated October 6, 2016 between the Company and Old Main Capital, LLC (incorporated by reference from Exhibit 10.1 in the Company’s Current Report on Form 8-K filed with the SEC on July 7, 2017).

~~10.13~~		Amendment No.5 to Equity Purchase Agreement dated October 6, 2016 between the Company and Old Main Capital, LLC (incorporated by reference from Exhibit 10.1 in the Company’s Current Report on Form 8-K filed with the SEC on August 24, 2017).

~~10.14~~		Convertible Promissory Note dated August 23, 2017 in favor of Newcan Investment Partners LLC (incorporated by reference from Exhibit 10.1 in the Company’s Current Report on Form 8-K filed with the SEC on August 24, 2017).

~~10.15~~		Convertible Promissory Note dated August 23, 2017 in favor of Newcan Investment Partners LLC (incorporated by reference from Exhibit 10.2 in the Company’s Current Report on Form 8-K filed with the SEC on August 24, 2017).

~~10.16~~		Convertible Promissory Note dated August 23, 2017 in favor of Jeffrey Binder (incorporated by reference from Exhibit 10.3 in the Company’s Current Report on Form 8-K filed with the SEC on August 24, 2017).

~~10.17~~		Convertible Promissory Note dated August 23, 2017 in favor of Jeffrey Binder (incorporated by reference from Exhibit 10.4 in the Company’s Current Report on Form 8-K filed with the SEC on August 24, 2017).

~~10.18~~		Exchange Agreement dated September 20, 2017 between CLS Holdings USA, Inc. and StarForce Media, Inc. (incorporated by reference from Exhibit 10.1 in the Company’s Current Report on Form 8-K filed with the SEC on September 26, 2017).

~~10.19~~		Exchange Agreement dated September 25, 2017 between CLS Holdings USA, Inc. and Andrew J. Glashow, as representative and nominee (incorporated by reference from Exhibit 10.2 in the Company’s Current Report on Form 8-K filed with the SEC on September 26, 2017).

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~~10.20~~		Convertible Promissory Note dated October 9, 2017 in favor of Newcan Investment Partners LLC (incorporated by reference from Exhibit 10.1 in the Company’s Current Report on Form 8-K filed with the SEC on October 12, 2017).

~~10.21~~		Convertible Promissory Note dated October 9, 2017 in favor of Jeffrey Binder (incorporated by reference from Exhibit 10.2 in the Company’s Current Report on Form 8-K filed with the SEC on October 12, 2017).

~~10.22~~		Senior Convertible Promissory Note dated November 15, 2017 by the Company in favor of FirstFire Global Opportunities Fund, LLC ((incorporated by reference from Exhibit 10.1 in the Company’s Current Report on Form 8-K filed with the SEC on November 20, 2017).

~~10.23~~		Securities Purchase Agreement dated November 15, 2017 by the Company and FirstFire Global Opportunities Fund, LLC (incorporated by reference from Exhibit 10.2 in the Company’s Current Report on Form 8-K filed with the SEC on November 20, 2017).

~~10.24~~		Employment Agreement dated November 30, 2017 between the Company and David Lamadrid (incorporated by reference from Exhibit 10.2 in the Company’s Current Report on Form 8-K filed with the SEC on December 6, 2017).

~~10.25~~		Convertible Promissory Note dated January 5, 2018 in favor of Newcan Investment Partners LLC (incorporated by reference from Exhibit 10.1 in the Company’s Current Report on Form 8-K filed with the SEC on January 5, 2018).

~~10.26~~		Convertible Promissory Note dated January 5, 2018 in favor of Jeffrey Binder (incorporated by reference from Exhibit 10.2 in the Company’s Current Report on Form 8-K filed with the SEC on January 5, 2018).

~~10.27~~		Omnibus Amendment to Convertible Notes dated January 10, 2018, effective December 1, 2017, among CLS Holdings USA, Inc., Jeffrey I. Binder and Newcan Investment Partners, LLC (incorporated by reference from Exhibit 10.1 in the Company’s Current Report on Form 8-K filed with the SEC on January 12, 2018).

~~10.28~~		Convertible Promissory Note dated February 5, 2018 in favor of Darling Capital LLC (incorporated by reference from Exhibit 10.1 in the Company’s Current Report on Form 8-K filed with the SEC on February 9, 2018).

~~10.29~~		Securities Purchase Agreement dated February 5, 2018 by and between CLS Holdings USA, Inc. and Darling Capital LLC (incorporated by reference from Exhibit 10.2 in the Company’s Current Report on Form 8-K filed with the SEC on February 9, 2018).

~~10.30~~		Convertible Promissory Note dated February 12, 2018 in favor of Efrat Investments, LLC (incorporated by reference from Exhibit 10.1 in the Company’s Current Report on Form 8-K filed with the SEC on February 16, 2018).

~~10.31~~		Securities Purchase Agreement dated February 12, 2018 by and between CLS Holdings USA, Inc. and Efrat Investments, LLC (incorporated by reference from Exhibit 10.2 in the Company’s Current Report on Form 8-K filed with the SEC on February 16, 2018).

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~~10.32~~		Convertible Promissory Note dated February 20, 2018 in favor of David Lamadrid (incorporated by reference from Exhibit 10.1 in the Company’s Current Report on Form 8-K filed with the SEC on February 26, 2018).

~~10.33~~		Securities Purchase Agreement dated February 20, 2018 by and between CLS Holdings USA, Inc. and David Lamadrid (incorporated by reference from Exhibit 10.2 in the Company’s Current Report on Form 8-K filed with the SEC on February 26, 2018).

~~10.34~~		Convertible Promissory Note dated April 6, 2018 in favor of Jeffrey Binder in the original principal amount of $37,500.00 (incorporated by reference from Exhibit 10.1 in the Company’s Current Report on Form 8-K filed with the SEC on April 11, 2018).

~~10.35~~10.7		Securities Purchase Agreement dated May 11, 2018 by and between CLS Holdings USA, Inc. and YA II PN, Ltd (incorporated by reference from Exhibit 10.1 in the Company’s Current Report on Form 8-K filed with the SEC on May 17, 2018).

~~10.36~~		~~Convertible Promissory Note dated May 14, 2018 in favor of YAII PN, Ltd. (incorporated by reference from Exhibit 10.2 in the Company’s Current Report on Form 8-K filed with the SEC on May 17, 2018).~~

~~10.37~~		Warrant to Purchase 1,875,000 shares of Common Stock issued May 14, 2018 by CLS Holdings USA, Inc. in favor of YA II PN, Ltd. (incorporated by reference from Exhibit 10.3 in the Company’s Current Report on Form 8-K filed with the SEC on May 17, 2018).

~~10.38~~10.8		Registration Rights Agreement dated May 11, 2018 by and between CLS Holdings USA, Inc. and YA II PN, Ltd (incorporated by reference from Exhibit 10.4 in the Company’s Current Report on Form 8-K filed with the SEC on May 17, 2018).

~~10.39~~		Agency Agreement dated June 20, 2018 by and between CLS Holdings USA, Inc. and Canaccord Genuity Corp. (incorporated by reference from Exhibit 10.1 in the Company’s Current Report on Form 8-K filed with the SEC on June 26, 2018).

~~10.40~~10.9		Indemnification Agreement by and between CLS Holdings USA, Inc. and David Lamadrid dated June 28, 2018 (incorporated by reference from Exhibit 10.1 in the Company’s Current Report on Form 8-K filed with the SEC on June 29, 2018).

~~10.41~~		Indemnification Agreement by and between CLS Holdings USA, Inc. and Andrew Glashow dated June 28, 2018 (incorporated by reference from Exhibit 10.2 in the Company’s Current Report on Form 8-K filed with the SEC on June 29, 2018).

~~10.42~~		6% Secured Promissory Note of CLS Holdings USA, Inc. in favor of Serenity Wellness Enterprises, LLC, as nominee, in the aggregate principal amount of $4,000,000 dated June 27, 2018 (incorporated by reference from Exhibit 10.1 in the Company’s Current Report on Form 8-K filed with the SEC on June 29, 2018).

~~10.43~~10.10		Convertible Debenture dated July 20, 2018 in the original principal amount of $500,000 made by CLS Holdings USA, Inc. in favor of YA II PN, Ltd. (incorporated by reference from Exhibit 10.1 in the Company’s Current Report on Form 8-K filed with the SEC on July 24, 2018).

~~10.44~~10.11		Warrant to Purchase 1,250,000 shares of Common Stock issued July 20, 2018 by CLS Holdings USA, Inc. in favor of YA II PN, Ltd (incorporated by reference from Exhibit 10.2 in the Company’s Current Report on Form 8-K filed with the SEC on July 24, 2018).

~~10.45~~10.12		Bonus Award Letter to Star Associates, LLC dated July 24, 2018 (incorporated by reference from Exhibit 10.1 in the Company’s Current Report on Form 8-K filed with the SEC on July 30, 2018) (1).

10.13

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~~10.46~~		Employment Agreement dated July 31, 2018 between CLS Nevada, Inc. and Benjamin Sillitoe (incorporated by reference from Exhibit 10.1 in the Company’s Current Report on Form 8-K filed with the SEC on August 1, 2018) (1).

~~10.47~~10.14		Employment Agreement dated July 31, 2018 between CLS Nevada, Inc. and Don Decatur (incorporated by reference from Exhibit 10.2 in the Company’s Current Report on Form 8-K filed with the SEC on August 1, 2018) (1).

10.48*
10.15	��	First Amendment to Employment Agreement, dated May 14, 2019, by and between CLS Nevada, Inc. and Don ~~Decatur(1)~~Decatur (incorporated by reference from Exhibit 10.48 in the Company’s Registration Statement (File No. 333-232553) on Form S-1 filed with the SEC on July 3, 2019) (1).

~~10.49~~10.16		~~Subscription Agreement and Form of Warrant (incorporated by reference from Exhibit 10.1 in the Company’s Current Report on Form 8-K filed with the SEC on August 6, 2018).~~

~~10.50~~		Convertible Promissory Note dated August 6, 2018 in favor of Newcan Investment Partners LLC in the original principal amount of $75,000.00 (incorporated by reference from Exhibit 10.1 in the Company’s Current Report on Form 8-K filed with the SEC on August 7, 2018).

~~10.51~~		Form of Subscription Agreement and Warrant with six accredited investors of Units, each consisting of one share and one warrant to purchase one share, in the aggregate amount of $5,750,000 (incorporated by reference from Exhibit 10.1 in the Company’s Current Report on Form 8-K filed with the SEC on August 6, 2018).

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~~10.52~~10.17		Convertible Promissory Note dated August 6, 2018 in favor of Newcan Investment Partners LLC in the original principal amount of $75,000.00 (incorporated by reference from Exhibit 10.1 in the Company’s Current Report on Form 8-K filed with the SEC on August 7, 2018).

10.18		Form of Subscription Agreement and Warrant with six accredited investors for the purchase of 8% convertible debentures in the aggregate amount of $5,857,000 (incorporated by reference from Exhibit 10.1 in the Company’s Current Report on Form 8-K filed with the SEC on November 6, 2018).

~~10.53~~10.18.A		First Amendment to Subscription Agreement, dated April 15, 2021, by CLS Holdings USA, Inc. in favor of Navy Capital Green Fund, LP (incorporated by reference from Exhibit 10.1 in the Company’s Current Report on Form 8-K filed with the SEC on April 21, 2021).

10.18.B		First Amendment to Subscription Agreement, dated April 15, 2021, by CLS Holdings USA, Inc. in favor of Navy Capital Green Co-Invest Fund, LLC (incorporated by reference from Exhibit 10.2 in the Company’s Current Report on Form 8-K filed with the SEC on April 21, 2021).

10.18.C		First Amendment to Subscription Agreement, dated April 19, 2021, by CLS Holdings USA, Inc. in favor of Darling Capital, LLC (incorporated by reference from Exhibit 10.3 in the Company’s Current Report on Form 8-K filed with the SEC on April 21, 2021).

10.19		Option Agreement, dated October 31, 2018, by and among CLS Holdings USA, Inc., CLS Massachusetts, Inc. and In Good Health, Inc. (incorporated by reference from Exhibit 10.4 in the Company’s Current Report on Form 8-K filed with the SEC on November 6, 2018).

~~10.54~~10.20		Loan Agreement, dated October 31, 2018, by and between CLS Holdings USA, Inc. and In Good Health, Inc. (incorporated by reference from Exhibit 10.5 in the Company’s Current Report on Form 8-K filed with the SEC on November 6, 2018).

~~10.55~~10.21		Secured Promissory Note, dated October 31, 2018, issued by In Good Health, Inc. in favor of CLS Holdings USA, Inc. (incorporated by reference from Exhibit 10.6 in the Company’s Current Report on Form 8-K filed with the SEC on November 6, 2018).

~~10.56~~10.22		Security Agreement, dated October 31, 2018, by and between CLS Holdings USA, Inc. and In Good Health, Inc. (incorporated by reference from Exhibit 10.7 in the Company’s Current Report on Form 8-K filed with the SEC on November 6, 2018).

~~10.57~~ 10.23		Agency Agreement dated December 12, 2018 by and between the Company and Canaccord Genuity Corp (incorporated by reference from Exhibit 10.1 in the Company’s Current Report on Form 8-K filed with the SEC on December 18, 2018).

~~10.58~~ 10.24		Loan Agreement, dated January 29, 2019, by and between CLS Holdings USA, Inc. and CannAssist, LLC (incorporated by reference from Exhibit 10.1 in the Company’s Current Report on Form 8-K filed with the SEC on February 4, ~~2019~~2019).

~~10.59~~ 10.25		Secured Promissory Note, dated January 29, 2019, issued by CannAssist, LLC in favor of CLS Holdings USA, Inc. (incorporated by reference from Exhibit 10.2 in the Company’s Current Report on Form 8-K filed with the SEC on February 4, 2019).

~~10.60~~ 10.26		Security Agreement, dated January 29, 2019, by and between CLS Holdings USA, Inc. and CannAssist, LLC (incorporated by reference from Exhibit 10.3 in the Company’s Current Report on Form 8-K filed with the SEC on February 4, 2019).

~~10.61~~ 10.27.A		Employment Agreement dated March 1, 2019 between CLS Holdings USA, Inc. and Andrew Glashow (incorporated by reference from Exhibit 10.1 in the Company’s Current Report on Form 8-K filed with the SEC on March 7, 2019) (1).

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10.27.B		Amendment to Employment Agreement, dated October 14, 2019 but effective October 1, 2019, by and among CLS Holdings USA, Inc., and Andrew Glashow (incorporated by reference from Exhibit 10.2 in the Company’s Quarterly Report on Form 10-Q for the quarter ended August 31, 2019 filed with the SEC on October 15, 2019) (1).

10.62* 10.28		Employment Agreement, dated April 8, 2019, by and between Alternative Solutions, LLC and Gregg ~~Carlson(1)~~Carlson (incorporated by reference from Exhibit 10.62 in the Company’s Registration Statement (File No. 333- 232553) on Form S-1 filed with the SEC on July 3, 2019 (1).

10.29		Form of First Amendment to Convertible Debenture with Navy Capital Green International, Ltd., Darling Capital, LLC and Murray FO, LLC (incorporated by reference from Exhibit 10.1 in the Company’s Current Report on Form 8-K filed with the SEC on August 1, 2019).

10.29.A		Amended and Restated Convertible Debenture, dated April 15, 2021, issued to Navy Capital Green Fund, LP in the principal amount of $1,126,114 (incorporated by reference from Exhibit 10.4 in the Company’s Current Report on Form 8-K filed with the SEC on April 21, 2021).

10.29.B		Amended and Restated Convertible Debenture, dated April 15, 2021, issued to Navy Capital Green Co-Invest Fund, LLC in the principal amount of $4,504,457 (incorporated by reference from Exhibit 10.5 in the Company’s Current Report on Form 8-K filed with the SEC on April 21, 2021).

10.29.C		Amended and Restated Convertible Debenture, dated April 19, 2021, issued to Darling Capital, LLC in the principal amount of $599,101 (incorporated by reference from Exhibit 10.6 in the Company’s Current Report on Form 8-K filed with the SEC on April 21, 2021).

10.30		First Amendment to Option Agreement, dated August 26, 2019, by and among CLS Massachusetts, Inc., CLS Holdings USA, Inc., and In Good Health, Inc. (incorporated by reference from Exhibit 10.61 in the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2019 filed with the SEC on August 29, 2019).

10.31		Lease Agreement by and between 1800 Industrial, LLC and Alternative Solutions, L.L.C. dated July 6, 2014 for premises located at 1800 Industrial Road, Suites 102, 160 and 180 (incorporated by reference from Exhibit 10.71 in the Company’s Annual Report on Form 10-K filed with the SEC on August 29, 2018).

10.31.A		Lease Addendum dated June 13, 2018 to Lease Agreement by and between 1800 Industrial, L.L.C. and Alternative Solutions, L.L.C. dated July 6, 2014 (incorporated by reference from Exhibit 10.31.A in the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2020 filed with the SEC on August 31, 2020).

10.32		Standard Industrial/Commercial Single-Tenant Lease by and between SFC Leasing, LP and Serenity Wellness Growers, LLC dated December 3, 2015, as amended by that certain First Amendment dated January 12, 2016, and that certain Second Amendment dated August 22, 2016 (incorporated by reference from Exhibit 10.72 in the Company’s Annual Report on Form 10-K filed with the SEC on August 29, 2018).

10.33		Lease Agreement by and between 1800 Industrial, LLC and CLS Nevada Inc. dated February 1, 2019 for premises located at 1800 Industrial Road, Suite 100 (incorporated by reference from Exhibit 10.33 in the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2020 filed with the SEC on August 31, 2020).

10.34		Lease Agreement by and between 1800 Industrial, LLC and CLS Nevada Inc. dated February 1, 2019 for premises located at 1718 Industrial Road (incorporated by reference from Exhibit 10.34 in the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2020 filed with the SEC on August 31, 2020).

10.35		Lease Addendum dated February 25, 2020 to Leases dated July 6, 2014 and February 1, 2019 for or premises located at 1800 Industrial Road, Suites 100, 102, 160 and 180 (incorporated by reference from Exhibit 10.35 in the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2020 filed with the SEC on August 31, 2020).

~~II-12~~II-9

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21.1		Subsidiaries of CLS Holdings USA, Inc. (incorporated by reference from Exhibit 21.1 in the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2020 filed with the SEC on August 31, 2020).

23.1*		Consent of M&K CPAS PLLC for CLS Holdings USA Year End Audit Report

23.2**		~~Consent of M&K CPAS PLLC for Alternative Solutions Year End Audit Report~~

23.3*		Consent of Connor ~~and~~& Connor ~~LLP~~PLLC (included in exhibit 5.1)

24.1*		Power of Attorney of Directors of the Registrant (set forth on signature page to this filing).

101.INS*		XBRL Instance Document

101.SCH*		XBRL Taxonomy Extension Schema Document

101.CAL*		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF*		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB*		XBRL Taxonomy Extension Label Linkbase Document

101.PRE*		XBRL Taxonomy Extension Presentation Linkbase Document

(1) Management Contract or Compensation Plan

*	Filed herewith

**	~~Portions of this document are omitted pursuant to a confidential treatment order granted pursuant to Rule 24(b)-2 under the Exchange Act. Confidential portions of this document have been~~To be filed ~~separately with the Securities and Exchange Commission~~by amendment.

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Item 17.Undertakings

(a) The undersigned registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:

(i) To include any prospectus required by Section 10(a)(3) of the Securities Act;

(ii) To reflect in the prospectus any facts or events arising after the effective date of this registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in this registration statement;

(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.

provided, however, Paragraphs (a)(1)(i), (ii) and (iii) of this section do not apply if the registration statement is on Form S-1 and the information required to be included in a post-effective amendment by those paragraphs is contained in reports filed with or furnished to the SEC by the registrant pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement, or is contained in a form of prospectus filed pursuant to Rule 424(b) that is part of the registration statement.

(2) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at the time shall be deemed to be the initial bona fide offering thereof.

(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

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(4) That, for purposes of determining liability under the Securities Act to any purchaser:

(i) If the registrant is relying on Rule 430B:

(A) Each prospectus filed by the registrant pursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and

(B) Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) (§ 230.424(b)(2), (b)(5), or (b)(7) of this chapter) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) (§ 230.415(a)(1)(i), (vii), or (x) of this chapter) for the purpose of providing the information required by section 10(a) of the Securities Act of 1933 shall be deemed to be part of and included in the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in the offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities in the registration statement to which that prospectus relates, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such effective date.

(b) The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the ~~registrant's~~registrant’s annual report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit ~~plan's~~plan’s annual report pursuant to section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

(c) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

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(d) The undersigned registrant hereby undertakes that:

(1) For the purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b) or under the securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities as that time shall be deemed to be the initial bona fide offering thereof.

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SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement on Form S-1 to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Miami, State of Florida, on ~~July 3, 2019.~~June 10, 2021.

CLS HOLDINGS USA, INC.



By:	/s/ Jeffrey I. Binder
	Jeffrey I. Binder
	Chairman and Chief Executive Officer (Principal Executive Officer)


By:	/s/ ~~Gregg Carlson~~Andrew Glashow
	~~Gregg Carlson~~Andrew Glashow
	President and Chief ~~Financial~~Operating Officer (Principal Financial Officer)


By:	/s/ Ross Silver
	Ross Silver
	Director

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POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Jeffrey I. Binder and ~~Gregg Carlson,~~Andrew Glashow, and each of them, as his or her true and lawful attorney-in-fact and agent with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any or all amendments (including post-effective amendments) to this Registration Statement on Form S-1 of CLS Holdings USA, Inc., and to file the same with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, grant unto said attorney-in-fact and agents, and each of them, full power and authority to do and perform each and every act an thing requisite and necessary to be done in and about the foregoing, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agents, or his substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement on Form S-1 has been signed by the following persons in the capacities and on the date indicated.

Signatures	Title	Date

/s/ Jeffrey I Binder	Chairman, Chief Executive Officer and Director	~~July 3, 2019~~June 10, 2021
Jeffrey I. Binder	(~~principal executive officer)~~Principal Executive Officer)

~~/s/ Frank Koretsky~~	~~Director~~	~~July 3, 2019~~
~~Frank Koretsky~~

~~/s/ Gregg Carlson~~	~~Chief Financial Officer~~	~~July 3, 2019~~
~~Gregg Carlson~~	~~(principal financial officer)~~

/s/ Andrew Glashow	President, Chief Operating Officer and Director	~~July 3, 2019~~June 10, 2021
Andrew Glashow	(Principal Financial Officer)

/s/ Ross Silver	Director	June 10, 2021
Ross Silver

~~II-17~~

II-13

11767 South Dixie Highway, Suite 115
Miami, Florida		33156
(Address of principal executive offices)	(Zip Code)

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☒
		Emerging growth company	☐

Title of Each Class of Securities to be Registered	Amount to be Registered(1)		Proposed Maximum Aggregate Offering Price Per Share			Proposed Maximum Aggregate Offering Price		Amount of Registration Fee			Amount to be Registered ⁽¹⁾		Proposed Maximum Aggregate Offering Price Per Share ⁽²⁾		Proposed Maximum Aggregate Offering Price ⁽²⁾		Amount of Registration Fee

Shares of common stock, par value $0.0001, held by selling stockholders		31,192,324	$	0.3124	(2)	$	9,744,482	$	1,181.03
Shares of common stock, par value $0.0001, underlying convertible debentures held by selling stockholders												20,765,573	$	0.18	$	3,737,803	$	407.79

Shares of common stock, par value $0.0001, issuable upon exercise of warrants underlying convertible debentures held by selling stockholders												10,382,785	$	0.18	$	1,868,901	$	203.90

TOTAL		31,192,324		--		$	9,744,482	$	1,181.03	(3)		31,148,358		--	$	5,606,704	$	611.69	⁽³⁾

GENERAL MATTERS	i
CAUTIONARY NOTE TO INVESTORS	i
FORWARD-LOOKING STATEMENTS	ii
MARKET AND INDUSTRY DATA	viv
FINANCIAL STATEMENT PRESENTATION IN THIS PROSPECTUS	viv
PROSPECTUS SUMMARY	1
RISK FACTORS	85
USE OF PROCEEDS	3126
SELLING STOCKHOLDERS	3127
DIVIDEND POLICY	3329
PLAN OF DISTRIBUTION	3429
DESCRIPTION OF SECURITIES TO BE REGISTERED	3531
OUR BUSINESS	3632
PROPERTIES	5856
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	5957
DIRECTORS AND EXECUTIVE OFFICERS	7975
EXECUTIVE COMPENSATION	8478
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT	8782
RELATED PARTY TRANSACTIONS AND DIRECTOR INDEPENDENCE	9084
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS	9284
PRINCIPAL ACCOUNTANT FEES AND SERVICES	9386
LEGAL PROCEEDINGS	9487
LEGAL MATTERS	9487
EXPERTS	9487
TRANSFER AGENT	9487
INTERESTS OF NAMED EXPERTS AND COUNSEL	9487
DISCLOSURE OF THE SEC POSITION OF INDEMNIFICATION FOR SECURITIES ACT LIABILITIES	9487
WHERE YOU CAN FIND MORE INFORMATION	9588
INCORPORATION BY REFERENCE	88
INDEX TO FINANCIAL STATEMENTS	9689

The Offering

Shares of Common Stock Offered By the Selling Stockholders		~~31,192,324~~31,148,358 shares of Common Stock, including: - 20,765,573 Unit Shares; and - 10,382,785 Warrant Shares.

Offering Price		Determined at the time of sale by the Selling Stockholders.

Use of Proceeds		The Company will not receive any proceeds from the sale of the shares of Common Stock by Selling Stockholders covered by this Prospectus.

Common Stock Outstanding as of ~~June 28, 2019~~May 31, 2021		~~125,839,095~~127,221,416 shares of Common ~~Stock.~~Stock

OTCQB		The shares are quoted on the OTCQB under the symbol “CLSH”.

Canadian Listing		The shares are listed on the CSE under “CLSH”.

Risk Factors		Investing in our Common Stock involves a high degree of risk. See “Risk Factors” beginning on page 85 of this ~~prospectus.~~Prospectus.

Dividend Policy		The Company currently intends to retain any future earnings to fund the development and growth of our business. Therefore, the Company does not currently anticipate paying cash dividends.

	(1)	Pursuant to Rule 416 under the Securities Act, the shares of common stock being registered hereunder include such indeterminate number of shares as may be issuable with respect to the shares of common stock being registered hereunder as a result of stock splits, stock dividends or similar transactions.
	(2)	Estimated solely for the purpose of calculating the amount of registration fee pursuant to Rule 457(c) under the Securities Act. The proposed maximum offering price per share and proposed maximum aggregate offering price are based upon the average of the high and low bid prices of the shares of common stock as of June ~~28, 2019~~9, 2021 as quoted on the OTCQB of ~~$0.3124.~~$0.18.
	(3)	The filing fee of ~~$1,181.03~~$611.69 is being paid concurrently with the filing of this registration statement on Form S-1.

	●	our expectations regarding our revenue, expenses and operations
	●	our anticipated cash needs and our needs for additional financing ~~changes to our dividend policies~~
	●	our intention to grow our business and our operations, including the addition of retail stores, grow operation expansion and the ~~Greenhouse Expansion~~expansion of our production operation
	●	~~our anticipated phases and timing of the expansion at the Warehouse Facility and the Greenhouse Expansion and the production capacity thereof~~
	●	the expected growth in the number of consumers using our products
	●	the expected growth of the cannabis industry in Nevada ~~Massachusetts~~ and in the U.S.
	●	our ability to finance our planned operations and ~~proposed~~future acquisitions ~~including the transactions contemplated by the Option Agreement and the CannAssist Purchase Agreement~~
	●	~~medical benefits, viability,~~ safety ~~efficacy~~ and dosing of cannabis
	●	expectations with respect to future production costs and capacity
	●	expectations with respect to the renewal and/or extension of our licenses
	●	expectations with respect to our plan to apply for additional retail store licenses
	●	~~expectations with respect to the effects our patent will have on costs and revenues~~
	●	market reception of our current product offerings and other new delivery mechanisms produced by us for use by consumers
	●	our competitive position and the regulatory environment in which we operate

	●	any commentary or legislative changes related to the legalization of medical or recreational cannabis and the timing related to such commentary or legalization
	●	any changes to U.S. federal policies regarding the enforcement of the Controlled Substances Act

	●	Shutdowns or operational disruptions related to COVID-19
	●	ongoing compliance with regulatory requirements relating to our business

	●	changes in laws, regulations and guidelines relating to our business
	●	difficulties in obtaining bank accounts and transferring money
	●	risk of prosecution of the cannabis business at the federal level in the U.S. due to the ambiguity of laws in relation to medical cannabis and the cannabis business
	●	accuracy of current research regarding the medical benefits, viability, safety, efficacy and dosing of cannabis
	●	our history of losses
	●	failure or delay ~~in the growth~~ of ~~the business and~~ our operations, including the addition of retail stores, grow operation expansion, ~~the Warehouse Facility Expansion~~ and the ~~Greenhouse Expansion~~expansion of processing operations
	●	~~failure~~our ability to utilize or ~~delay in the anticipated phases and timing of the expansion at the Warehouse Facility and the Greenhouse Expansion and a consequently reduced~~monetize our patented production ~~capacity~~process
	●	reliance on management and loss of members of management or other key personnel or an inability to attract new management team members
	●	inability to raise financing to fund on-going operations, capital expenditures or acquisitions
	●	inability to realize growth targets
	●	requirements of additional financing
	●	competition in our industry
	●	inability to acquire and retain new clients
	●	inability to develop new technologies and products and the obsolescence of existing technologies and products
	●	vulnerability to rising energy costs

	●	vulnerability to increasing costs and obligations related to investment in infrastructure, growth and regulatory compliance
	●	dependence on third party transportation services to deliver our products
	●	unfavorable publicity or consumer perception
	●	product liability claims and product recalls
	●	reliance on key inputs and their related costs
	●	dependence on suppliers and skilled labor
	●	difficulty associated with forecasting demand for products
	●	operating risk and insurance coverage
	●	inability to manage growth
	●	conflicts of interest among our officers and directors
	●	environmental regulations and risks
	●	managing damage to our reputation and third party reputational risks
	●	inability to adequately protect our intellectual property due to cannabis being illegal under U.S. federal law
	●	potential reclassification/re-categorization of cannabis as a controlled substance in the U.S.
	●	changes to safety, health and environmental regulations
	●	exposure to information systems security threats and breaches
	●	management of additional regulatory burdens
	●	volatility in the market price for our Common Stock
	●	potential imposition of additional sales practice requirements by the SEC
	●	no dividends for the foreseeable future
	●	future sales of Common Stock by existing ~~shareholders~~stockholders causing the market price for our Common Stock to fall
	●	the issuance of Common Stock in the future causing dilution

	February 28 (unaudited)					May 31 (audited)
Balance Sheet Data	2019		2018			2018			2017			February 28, 2021 (unaudited)			February 29, 2020 (unaudited)		May 31, 2020 (audited)			May 31, 2019 (audited)

Cash	$	11,972,015	$	22,733		$	52,964		$	78,310		$	2,231,934		$	3,039,095	$	2,925,568		$	10,525,791
Current assets	$	14,550,351	$	58,762		$	54,374		$	79,720		$	3,872,068		$	9,655,781	$	7,941,808		$	12,677,566
Total assets	$	48,827,826	$	2,109,989		$	2,105,272		$	131,940		$	10,601,057		$	41,183,874	$	15,267,301		$	46,503,317
Current liabilities	$	7,144,138	$	2,794,538		$	2,689,148		$	1,826,478		$	20,583,518		$	2,779,166	$	1,882,216		$	6,924,543
Total Liabilities	$	17,334,286	$	3,410,112		$	2,733,052		$	2,018,478
Total liabilities												$	21,648,726		$	19,861,354	$	20,662,849		$	21,465,763
Stockholders’ equity (deficit)	$	31,493,540	$	(1,300,123	)	$	(627,780	)	$	(1,886,538	)	$	(11,047,669	)	$	21,322,520	$	(5,395,548	)	$	25,037,554
Total liabilities and stockholders’ equity	$	48,827,826	$	2,109,989		$	2,105,272		$	131,940		$	10,601,057		$	41,183,874	$	15,267,301		$	46,503,317

	Three Months Ended (unaudited)						Nine Months Ended (unaudited)						Years Ended (audited)
Statements of Operations Data:	February 28, 2021			February 29, 2020			February 28, 2021			February 29, 2020			May 31, 2020			May 31, 2019

Total Revenues	$	4,554,082		$	3,224,170		$	13,232,840		$	9,139,616		$	11,917,629		$	8,459,048
Cost of goods sold	$	2,488,906		$	1,537,960		$	6,487,089		$	4,537,164		$	5,959,286		$	4,836,166
Net income (loss)	$	(3,712,772	)	$	(1,251,999	)	$	(5,707,184	)	$	(3,910,473	)	$	(30,657,973	)	$	(27,619,057	)
Net loss per share attributable to common stockholders, basic and diluted	$	(0.03	)	$	(0.01	)	$	(0.05	)	$	(0.03	)	$	(0.24	)	$	(0.27	)
Weighted average shares used to compute net loss per share attributable to common stockholders, basic and diluted		126,635,303			126,470,865			126,568,117			126,343,206			126,390,105			102,869,612

	Three Months Ended February 28 (unaudited)						Nine Months Ended February 28 (unaudited)						Years Ended May 31 (audited)
Statements of Operations Data:	2019			2018			2019			2018			2018			2017

Total Revenues	$	2,372,790		$	-		$	5,529,053		$	-		$	-		$	-
Cost of goods sold	$	1,438,424		$	-		$	3,245,035		$	-		$	-		$	-
Net income (loss)	$	(4,831,466	)	$	(2,501,058	)	$	(24,187,649	)	$	(5,592,341	)	$	(9,577,484	)	$	(4,865,724	)
Net loss per share attributable to common stockholders, basic and diluted	$	(0.04	)	$	(0.06	)	$	(0.25	)	$	(0.16	)	$	(0.24	)	$	(0.23	)
Weighted average shares used to compute net loss per share attributable to common stockholders, basic and diluted		124,346,650			39,126,944			95,132,835			35,654,299			39,224,613			20,778,785

Name	Number of shares of Common Stock Beneficially Owned Prior to this Offering ⁽¹⁾		Beneficial Ownership Before this Offering (%)⁽¹⁾		Number of shares of Common Stock Offered Hereby		Number of shares of Common Stock after Offering		��	Beneficial Ownership after this Offering (%)⁽¹⁾
Navy Capital Green Fund, LP ⁽²⁾		20,630,569		14.7%		5,630,569		15,000,000			11.1%
Navy Capital Green Co-Invest Fund, LLC ⁽³⁾		35,022,285		22.5%		22,522,285		12,500,000			9.4%
Darling Capital LLC ⁽⁴⁾		4,201,477		3.2%		2,995,504		1,205,973			**
TOTAL		59,854,331				31,148,358		28,705,973

⁽¹⁾	This table is based upon information supplied by the Selling Stockholders. While the Company believes the information is accurate as of ~~June 28, 2019,~~May 25, 2021, changes in beneficial ownership may have occurred that were not reported to the Company and therefore some of the information may not be accurate as of the date hereof. We have determined beneficial ownership in accordance with the rules of the SEC. Beneficial ownership includes ~~shares~~the Unit Shares held by the Selling Stockholders and shares ~~acquirable~~issuable upon exercise of ~~warrants that are currently exercisable.~~the Warrants. Except as indicated by the footnotes below, we believe, based on the information furnished to us, that the Selling Stockholders named in the table above have sole voting and investment power with respect to all shares of Common Stock that they beneficially own, subject to applicable community property laws. Applicable percentages are based on ~~125,839,095~~127,221,416 shares of Common Stock outstanding on ~~June 28, 2019,~~May 31, 2021, 2021, adjusted as required by rules promulgated by the SEC.
⁽²⁾	Beneficial ownership includes (i) ~~8,717,971~~3,753,713 Unit Shares and 1,876,856 Warrant Shares; (ii) 7,500,000 shares of our ~~common stock directly held by Mr. Binder, 244,444~~Common Stock; and (iii) 7,500,000 shares ~~of which have previously been registered for resale by Mr. Binder under a separate Prospectus; and (ii) 244,444 shares acquirable~~issuable upon exercise of warrants ~~that are currently exercisable,~~at $0.60 per share. Navy Capital Green Fund, LP is a Delaware limited partnership, of which ~~have also been registered for resale by Mr. Binder under~~Navy Capital Green Management, LLC, a ~~separate Prospectus. Mr. Binder~~New York limited liability company, is the ~~Chairman~~investment manager. The investment manager has shared power with Chetan Gulati, John Kaden and ~~CEO~~Sean Stiefel, the managers of the ~~Company.~~investment manager, to vote and dispose of the shares.
⁽³⁾	Beneficial ownership includes (i) ~~13,474,821~~15,014,857 Unit Shares and 7,507,428 Warrant Shares; (ii) 6,250,000 shares of our Common ~~Stock directly held by Mr. Koretsky, 1,198,568~~Stock; and (iii) 6,250,000 shares ~~of which have previously been registered for resale by Mr. Koretsky under a separate Prospectus; (ii) 1,198,568 shares acquirable~~issuable upon exercise of warrants ~~that are currently exercisable,~~at $0.60 per share. Navy Capital Green Co-Invest Fund, LLC is a Delaware limited liability company, of which ~~have also been registered for resale by Mr. Koretsky under~~Navy Capital Green Management, LLC, a ~~separate Prospectus;~~New York limited liability company, is the investment manager. The investment manager has shared power with Chetan Gulati, John Kaden and ~~(iii) 5,442,544~~Sean Stiefel, the managers of the investment manager, to vote and dispose of the shares.
⁽⁴⁾	Beneficial ownership includes (i) 1,997,003 Unit Shares and 998,501 Warrant Shares; and (ii) 1,205,973 shares of our Common ~~Stock held of record by Newcan. Mr. Koretsky is the beneficial owner and has voting and investment power over the securities held by Newcan Investment Partners LLC.~~
~~(4)~~	~~Beneficial ownership represents shares directly held by Newcan Investment Partners LLC.~~
~~(5)~~	~~Beneficial ownership represents shares directly held by Mr. Keller.~~Stock.

Raw Material Item	Description	~~Sources~~	# of Suppliers	Pricing	Internal Sourcing
Raw Cannabis Trim	Raw cannabis leaf that is trimmed from raw flowers that will be sold directly to consumers. Trim makes up the majority of what is extracted into oil.	~~Nevada Licensed Cultivators~~ ~~(115 active licenses as of April 2018)~~	5+	Wholesale prices are currently in the range of ~~$500~~$200 - ~~$750~~$450 per pound. Target pricing is ~~$350~~$220 per pound in order to match the cost of sourcing finished bulk oil.	Gradually increasing amount will be sourced internally upon completion of Phase 1 and Phase 2.
Raw Cannabis Flower	Raw cannabis flower is typically trimmed, packaged and sold to consumers or it is rolled into pre-rolled joints, packaged and sold to consumers. City Trees is currently not purchasing or harvesting flower.	~~Nevada Licensed Cultivators~~ ~~(115 active licenses as of April 2018)~~	5+	Wholesale prices currently range from ~~$2,000~~$1,200 - $3,000 per pound.	Gradually increasing amount will be sourced internally for City Trees upon completion of Phase 1 and Phase 2.
Bulk Distillate Cannabis Oil	Cannabis oil refined through distillation processes that maximize potency and remove impurities.	~~Nevada Licensed Product Manufacturers~~ ~~(80 active licenses as of April 2018)~~	4+	Wholesale prices currently range from ~~$16~~$8 - ~~$18~~$11 per gram.	Gradually increasing amount will be sourced and processed internally upon completion of ~~Greenhouse~~Warehouse Expansion.

Custom All-in-One Disposable Vaporizer Pens	Cannabis oil vaporizer “pens” with ceramic heating that contain a single use battery charge customized with City Trees logos and imagery.	~~Distributors of Chinese Manufacturing Products~~	2	$~~3.35~~4.23 each	N/A
Vaporizer Pen Cartridges and Custom Batteries	Cannabis oil vaporizer cartridges with ceramic heating that attach to a rechargeable battery customized with City Trees logos and imagery.	~~Distributors of Chinese Manufacturing Products~~	2	Cartridges: ~~$2.50~~$2.94 each Custom Batteries: ~~$3.25~~$3.21 each	~~N/A~~
~~Vegan Capsules~~	~~Empty capsules that are filled with proprietary blends of cannabis oil and terpenes~~	~~Online Medical Supply Companies~~	2	~~1.3 cents per capsule~~	N/A
Botanical Terpenes	Natural compounds found in essential oils of plants with strong fragrance and flavor. Some terpenes have been shown to be biologically active with specific effects	~~Domestic online suppliers of cannabis-derived and non-cannabis derived terpenes.~~	2	Isolated Terpenes: ~~$290~~$130-$770 per kilogram	Some terpenes will be sourced internally through a fractional distillation process.
CBD Isolate	Cannabidiol (CBD) in powder form that is 99.9% pure CBD	~~Domestic Industrial Hemp Growers and Processors~~	2	Wholesale prices range from ~~$7,000 - $10,000~~$600 ‑ $900 per kilogram	N/A

Nevada Market Administration		Number~~Number~~ of Employees
Administrative ~~Accounting~~		3 35
~~Executive~~ Accounting		15

Oasis Cannabis Retail
Product Sales and Customer Service		27
Inventory Control		6
Dispatch / Delivery		7
Safety / Security		6
Management / Leadership		2
Communications / Marketing		26 5 6 9 6 1

City Trees Wholesale
Wholesale Sales and Distribution		3
Leadership		5
Cultivation / Product Manufacturing		8
Fulfillment		8
Inventory Control		2
1 Safety / Security		72 1

Total Employees		7187

Holding Entity	Permit/License	Location City	Expiration/Renewal Date	Description
Serenity Wellness Center LLC ~~dba~~d/b/a Oasis Cannabis	~~Dual Use~~D90 - Medical Marijuana ~~License~~Dispensary License #: ~~M62-00010~~M66-00051	Las Vegas	~~6/30/20~~07/01/2021	City of Las Vegas ~~Dual-Use~~ Marijuana Business License for a Medical ~~and Recreational~~ Dispensary
Serenity Wellness Center LLC d/b/a Oasis Cannabis	R90 - Retail Marijuana Store (Rec Sales) License # M66-00052	Las Vegas	07/01/2021	City of Las Vegas Marijuana Business License for a Retail Marijuana Store
Serenity Wellness Center LLC d/b/a Oasis Medical Cannabis	Medical Marijuana Registration Certificate: # 02916424476864783141 MEMME Code: D046		6/06/30/202021	State of NV Final Registration Certificate – Medical Marijuana Dispensary Establishment

Nevada Market Administration		Numberof Employees
Administrative		5
Accounting		5

Oasis Cannabis Retail
Product Sales and Customer Service		27
Inventory Control		6
Dispatch / Delivery		7
Safety / Security		6
Management / Leadership		2
Communications / Marketing		1

City Trees Wholesale
Wholesale Sales and Distribution		3
Leadership		5
Cultivation / Product Manufacturing		8
Fulfillment		8
Inventory Control		2
Safety / Security		2

Total Employees		87

	Year Ended			Year Ended
	May 31, 2020			May 31, 2019
Revenue		100	%		100	%
Cost of Goods Sold		50	%		57	%
Gross Margin		50	%		43	%
Selling, General, and Administrative Expenses		74	%		313	%
Interest expense, net		25	%		53	%

	Three Months Ended		Three Months Ended		Nine Months Ended		Nine Months Ended
	February 28, 2021		February 29, 2020		February 28, 2021		February 29, 2020
Revenue		100%		100%		100%		100%
Cost of Goods Sold		55%		48%		49%		50%
Gross Margin		45%		52%		51%		50%
Selling, General, and Administrative Expenses		55%		69%		58%		71%
Impairment of note receivable		55%		-		19%		-
Interest expense, net		17%		22%		17%		25%

	February 28, 2019		May 31, 2018			February 28, 2021			May 31, 2020
Current Assets	$	14,550,351	$	54,374		$	3,872,068		$	7,941,808
Current Liabilities	$	7,144,138	$	2,689,148		$	20,583,518		$	1,882,216
Working Capital (Deficit)	$	7,406,213	$	(2,634,774	)	$	(16,711,450	)	$	6,059,592

Name of Note	Original Principal Amount		Outstanding or Repaid	Payment Details

April 2015 Note	$	200,000	Repaid	Repaid in part and exchanged in part

Old Main 8% Note	$	200,000	Repaid	Exchanged for 4,500,000 shares

FirstFire Note	$	363,000	Repaid	Repaid

Darling Capital Note	$	550,000	Repaid	Converted into 1,808,000 shares

Efrat Investments Note	$	55,000	Repaid	Converted into 183,040 shares

Todd Blatt	$	210,000	Repaid	Repaid

AJG Group	$	100,000	Repaid	Repaid

YA II PN Note	$	750,000	Repaid	Repaid
	$	250,000	Repaid	$250,000 plus interest converted into 700,616 shares of common stock.
	$	250,000	Repaid	$250,000 plus interest converted into 640,068 shares of common stock.

Oasis Note	$	4,000,000	Outstanding	Due December 2019

2018 U.S. Convertible Debentures	$	5,857,000	Outstanding	Due October 26- 31, 2021

Canaccord Debentures	$	12,012,000	Outstanding	Due December 2021

Name of Note	Principal Amount		Outstanding or Repaid	Payment Details

Oasis Note	$	4,000,000	Repaid	Repaid

2018 U.S. Convertible Debentures	$	365,991	Outstanding	Due October 26-31, 2021. Amount due includes capitalized interest of $40,991.

Amended and Restated 2018 U.S. Convertible Debentures	$	6,229,672	Outstanding	Due October 22-25, 2022. Amount due includes capitalized interest of $697,672.

2018 Convertible Debentures	$	13,500,150	Outstanding	Due December 2022. Amount includes capitalized interest of $1,514,006 less conversion of principal in the amount of $25,856.

●	Estimates and assumptions used in the valuation of derivative liabilities: Management utilizes a lattice model to estimate the fair value of derivative liabilities. The model includes subjective assumptions that can materially affect the fair value estimates.

●	Estimates and assumptions used in the valuation of intangible assets. In order to value our intangible assets, management prepares multi-year projections of revenue, costs of goods sold, gross margin, operating expenses, taxes and after tax margins relating to the operations associated with the intangible assets being valued. These projections are based on the estimates of management at the time they are prepared and include subjective assumptions regarding industry growth and other matters.

~~Name, Age, State and Country of Residence~~	~~Position~~	~~Date First Elected or Appointed~~	~~Occupation for Last 5 Years~~
~~Frank Koretsky (57)~~Ross Silver (43) ~~Florida,~~Oregon, United States	Director⁽¹⁾⁽²⁾	~~2014~~2021	Mr. Koretsky is a founder and has served as a director of CLS Labs since its formation in 2014. Upon consummation of the Merger, Mr. Koretsky was also appointed a director of the Company. Since 1995, Mr. Koretsky has served as the President of East Coast News Corp., a leading company in the adult product distribution industry. As a result of Mr. Koretsky’s business experience, he brings a strong background in management, marketing and branding to the Company.
~~Ben Sillitoe (42)~~ ~~Las Vegas, Nevada~~	~~Chief Executive Officer of CLS Nevada, Inc.~~⁽²⁾	~~2018~~	~~Mr. Sillitoe~~Silver was appointed to serve as ~~Chief Executive Officer~~a member of CLS Nevada, Inc. commencing on July 1, 2018. Mr. Sillitoe co-founded Oasis Cannabis Center, LLC, a premier cannabis dispensary, in 2014 where he first served as the Finance Director and then as its CEO beginning in 2015. CLS acquired all of the membership interests in Alternative Solutions, L.L.C., the owner of Oasis Cannabis Center, LLC, in June 2018. Mr. Sillitoe has been a leader in the local Las Vegas cannabis industry since its inception, having served on theour Board of Directors ~~for~~commencing February 18, 2021. In 2016, Mr. Silver founded Sylva International LLC, a marketing and consulting firm doing business as Sylvacap Media. Sylva International is a Registered Investment Advisor in the ~~Nevada Dispensary Association, the largest cannabis trade association in Nevada, for over two years. Between 2012 and 2014, Mr. Sillitoe was the Finance Director~~State of ~~Proficio Mortgage, a subsidiary of Proficio Bank. Mr. Sillitoe earned a Bachelor of Science in Business Administration with a major in Managerial Finance from the University of Las Vegas.~~
~~Don Decatur (36)~~ ~~Las Vegas, Nevada~~	~~Chief Operating Officer of CLS Nevada, Inc.~~⁽²⁾	~~2018~~	~~Mr. Decatur was appointed to serve as the Chief Operating Officer of CLS Nevada, Inc. commencing on July 1, 2018.~~Oregon. Prior to ~~this appointment,~~founding Sylva International, Mr. ~~Decatur was the Director of Operations of Alternative Solutions, L.L.C., which CLS acquired in June 2018. Between 2015~~Silver founded Vista Partners, a hedge fund and ~~2016, Mr. Decatur was the Director of Product Development for Nevada Medical Group, LLC, d/b/a Body and Mind (BaM), a cannabis company. From 2010 until 2015, Mr. Decatur owned~~independent equity research firm, and served as Principal Analyst and CEO from 2005-2016. Prior to starting Vista, Mr. Silver was a Research Analyst for Trinity Capital Advisors, Inc., a San Francisco-based hedge fund, and a research associate for Dresdner RCM (now Allianz) covering consumer discretionary and consumer staple companies. Prior to working for Dresdner, Mr. Silver was a member of ~~SinCity Style, LLC,~~Canadian Imperial Bank of Commerce’s technology, media, and telecom investment banking group, where he worked primarily on M&A but also on equity and debt offerings. Mr. Silver served as a ~~cannabis merchandise~~consultant for government agencies including the National Institutes of Health (NIH), actively speaks at conferences globally as well as at universities, was a Board Member for his local American Red Cross chapter and ~~apparel company.~~was a member of 100 Men Who Care, a Bend, Oregon local non-profit. Mr. Decatur has over 18 years of experience in the cannabis and horticulture business. He is responsible for the creation of numerous strains of cannabis, has won numerous industry awards, and has been honored by High Times magazine for creating two “Top Ten Strains of the Year.”Silver holds a Series 65 securities license.

	~~(2)~~	Messrs. Binder and Glashow work full time for the Company. Mr. Carlson works full time for Alternative Solutions and the Company and Messrs. Sillitoe and Decatur work full time for CLS Nevada, Inc. Each is an employee of the Company or one of its subsidiaries. Messrs. Binder and Glashow ~~Carlson, Sillitoe and Decatur~~ haveentered into employment agreements with the ~~Company or one of its subsidiaries.~~ Company.
	(2)	Mr. ~~Koretsky~~Silver devotes time to the Company solely as a director and is not an employee nor ~~and~~an independent contractor of the Company.

Name and Principal Position	Fiscal Year	Salary ($)		Bonus ($)		Stock Awards ($)		Non-Equity Incentive Plan Compensation ($)		Non-Qualified Deferred Compensation ($)		All Other Compensation ($)		Total ($)

Jeffrey Binder,	2018		150,000		—		—		—		—		—		150,000
Chairman, and Chief Executive Officer(1)	2017		150,000		—		—		—		—		—		150,000

David Lamadrid,
President and Chief Financial Officer (2)	2018		87,500	–––			(3)	–––		–––			---		87,500

Name and Principal Position	Fiscal Year	Salary ($)		Bonus ($)		Stock Awards ($)			Non-Equity Incentive Plan Compensation ($)		Non-Qualified Deferred Compensation ($)		All Other Compensation ($)			Total ($)

Jeffrey Binder,	2020		183,333		—		—			—		—		—			183,333
Chairman, and Chief Executive Officer	2019		150,000		—		—			—		—		—			150,000

Andrew Glashow,	2020		229,667		65,000		26,938	⁽²⁾		—		—		22,800	⁽³⁾		344,405
President and Chief Operating Officer ⁽¹⁾	2019		58,333		—		26,938	⁽²⁾		—		—		357,800	⁽³⁾⁽⁴⁾		443,071

Benjamin Sillitoe	2020		75,000		—		29,583	⁽⁶⁾		—		—		—			104,583
Former Chief Executive Officer of CLS Nevada, Inc. ⁽⁵⁾	2019		138,750		—		325,417	⁽⁶⁾		—		—					464,167

2	~~Mr. Lamadrid~~Glashow and the Company entered into an employment agreement ~~effective December~~on March 1, ~~2017 and~~2019 at which time he was appointed President and Chief ~~Financial Officer~~Operating Officer. Mr. Glashow had previously served as a consultant to and director of the ~~Company effective December 1, 2017.~~Company.

2	Pursuant to his employment agreement, Mr. ~~Lamadrid resigned effective July 13, 2018.~~Glashow was granted 500,000 shares of restricted common stock with a fair value of $215,500, which fully vested in two equal annual installments.


3	~~Pursuant~~Represents an automobile allowance of $1,000 per month and health insurance costs equal to $900 per month.

4	Amount represents payments made to Mr. Glashow as a consultant to the ~~terms~~Company, including a bonus earned in connection with the closing of our acquisition of Alternative Solutions, LLC, in the amount of $250,000.

5	Mr. Sillitoe and the Company entered into an employment agreement on July 31, 2018 and he was appointed Chief Executive Officer of CLS Nevada, Inc. effective July 1, 2018. Mr. Sillitoe’s employment was terminated effective June 30, 2020.

6	Pursuant to his employment agreement, Mr. ~~Lamadrid~~Sillitoe was ~~to be issued~~granted 500,000 shares of restricted ~~Common Stock~~common stock with a fair value of $355,000, which fully vested on ~~December~~July 1, 2017, the effective date of the employment agreement. In July 2018, in connection with his separation, the Company and Mr. Lamadrid agreed to issue him 600,000 shares of Common Stock in satisfaction of this obligation as well as other obligations the Company had or allegedly had to issue him Common Stock.2019.

	Option Awards										Restricted Stock Awards
	Number of Securities Underlying Unexercised Options (#) Exercisable		Number of Securities Underlying Unexercised Options (#) Unexercisable		Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#)		Option Exercise Price ($)		Option Expiration Date		Number of Shares or Units of Stock That Have Not Vested (#)			Market Value of Shares or Units of Stock That Have Not Vested ($)			Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)		Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)
Jeffrey Binder		—		—		—		—		—		—			—			—		—

Andrew Glashow		—		—		—		—		—		250,000	⁽¹⁾		15,000	⁽²⁾		—		—

Benjamin Sillitoe		—		—		—		—		—		—			—			—		—

1	As of May 31, 2020, Mr. Glashow had 250,000 shares of restricted stock (pursuant to his employment agreement) that vested on March 1, 2020.
2	The market value of our Common Stock is computed using the per share closing price of our Common Stock on last trading day of our fiscal year ended May 31, 2020.