UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended February 28, 2025

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 000-55546

CLS HOLDINGS USA, INC.

(Exact name of registrant as specified in its charter)

Nevada		45-1352286
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

516 S. 4th Street, Las Vegas Nevada, 89101

(Address of principal executive offices) (Zip Code)

(888) 359-4666

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
N/A		N/A		N/A

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☐	Smaller reporting company ☒
Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

State the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date: 164,734,517 shares of $0.0001 par value common stock outstanding as of April 10, 2025.

CLS HOLDINGS USA, INC.

FORM 10-Q

Quarterly Period Ended February 28, 2025

TABLE OF CONTENTS

		Page

FORWARD-LOOKING STATEMENTS		3

AVAILABLE INFORMATION		3

PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	4
	Condensed Consolidated Balance Sheets as of February 28, 2025 (Unaudited) and May 31, 2024 (Audited)	4
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended February 28, 2025 and 2024 (Unaudited)	5
	Condensed Consolidated Statements of Stockholders’ Deficit for the Nine Months Ended February 28, 2025 and 2024 (Unaudited)	6
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended February 28, 2025 and 2024 (Unaudited)	7
	Notes to the Consolidated Financial Statements (Unaudited)	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	39
Item 4.	Controls and Procedures	39

PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	40
Item 1A.	Risk Factors	40
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	40
Item 3.	Defaults Upon Senior Securities	40
Item 4.	Mine Safety Disclosures	40
Item 5.	Other Information	40
Item 6.	Exhibits	40

SIGNATURES		41

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EXPLANATORY NOTE

Unless otherwise noted, references in this report to “CLS Holdings USA, Inc.,” the “Company,” “we,” “our” or “us” means CLS Holdings USA, Inc. and its subsidiaries.

FORWARD-LOOKING STATEMENTS

This document contains forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. These statements relate to, among other things, the impact of the COVID-19 virus on our business, the results of our initiatives to retain our employees and strengthen our relationships with our customers and community, the effect of our initiatives to expand market share and achieve growth, the expected development of our business and joint ventures, results of operations and financial performance, liquidity, working capital and capital requirements, the effects of the additional dilution on our common stock that may occur as a result of the amendments to our convertible debentures, and anticipated future events. These forward-looking statements also relate to our ability to obtain debt or equity capital on reasonable terms, or at all, to finance our operations, and to identify, finance and close potential acquisitions and joint ventures, whether our joint venture partner will make its capital contribution, our ability to comply with applicable cannabis-related regulations and obtain regulatory approvals, market acceptance of our services and product offerings, our ability to protect and commercialize our intellectual property, our ability to use net operating losses to offset certain cannabis-related tax liabilities and our ability to grow our wholesale and processing businesses and joint ventures. In some cases, you can identify forward-looking statements by terminology such as “may,” “might,” “will,” “should,” “intends,” “expects,” “plans,” “goals,” “projects,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” or “continue” or the negative of these terms or other comparable terminology.

These forward-looking statements are only predictions, are uncertain and involve substantial known and unknown risks, uncertainties and other factors which may cause our (or our industry’s) actual results, levels of activity or performance to be materially different from any expected future results, levels of activity or performance expressed or implied by these forward-looking statements.

We cannot guarantee future results, levels of activity or performance. You should not place undue reliance on these forward-looking statements, which speak only as of the date that they were made. These cautionary statements should be considered together with any written or oral forward-looking statements that we may issue in the future. Except as required by applicable law, we do not intend to update any of the forward-looking statements to conform these statements to reflect actual results, later events or circumstances or to reflect the occurrence of unanticipated events.

AVAILABLE INFORMATION

We file certain reports under the Securities Exchange Act of 1934 (the “Exchange Act”). Such filings include annual and quarterly reports. The reports we file with the Securities and Exchange Commission (“SEC”) are available on the SEC’s website at (http://www.sec.gov).

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Item 1. Financial Statements.

CLS HOLDINGS USA, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

	February 28,			May 31,
	2025			2024
ASSETS
Current assets
Cash and cash equivalents	$	220,683		$	600,007
Accounts Receivable		1,232,764			682,894
Inventory		1,379,323			1,968,573
Prepaid expenses and other current assets		61,402			49,309
Total current assets		2,894,172			3,300,783

Property, plant and equipment, net of accumulated depreciation of $3,688,783 and $3,318,550		2,072,230			2,423,553
Right of use assets, operating leases		1,277,125			1,475,351
Intangible assets, net of accumulated amortization of $350,492 and $348,015		7,501			9,978
Goodwill		557,896			557,896
Other assets		157,500			157,500

Total assets	$	6,966,424		$	7,925,061

LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities
Accounts payable and accrued liabilities	$	4,293,446		$	3,356,059
Accrued interest		3,600			3,600
Due to related party		40,000			-
Lease liability - operating leases, current		510,480			443,467
Lease liability - financing leases, current		112,735			96,224
Taxes Payable		10,331,192			8,899,863
Notes payable, current		180,768			139,345
Notes payable - related party, current		2,008,209			988,472
Convertible notes payable, current		-			302,005

Total current liabilities		17,480,430			14,229,035
Noncurrent liabilities
Lease liability - operating leases, non-current		1,054,551			1,318,644
Lease liability - financing leases, non-current		10,040			100,252
Notes payable, non-current, net of discount of $0 and $193,756		44,584			407,951
Notes payable - related party, non-current		921,009			1,078,551
Convertible notes payable, non-current		-			3,699,426

Total Liabilities		19,510,614			20,833,859

Commitments and contingencies		-			-

Stockholder’s deficit
Preferred stock, $0.001 par value; 5,000,000 shares authorized; no shares issued		-			-
Common stock, $0.0001 par value; 345,000,000 shares authorized; 164,734,517 and 124,500,873 shares issued and outstanding at February 28, 2025 and May 31, 2024, respectively		16,474			12,450
Additional paid-in capital		103,067,597			101,519,599
Common stock subscribed		65,702			65,702
Accumulated deficit		(114,554,464	)		(113,367,050	)
Stockholder’s deficit attributable to CLS Holdings, Inc.		(11,404,691	)		(11,769,299	)
Non-controlling interest		(1,139,499	)		(1,139,499	)
Total stockholder’s deficit		(12,544,190	)		(12,908,798	)

Total liabilities and stockholders’ deficit	$	6,966,424		$	7,925,061

See accompanying notes to these financial statements.

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CLS HOLDINGS USA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	For the Three Months Ended			For the Three Months Ended			For the Nine Months Ended			For the Nine Months Ended
	February 28, 2025			February 29, 2024			February 28, 2025			February 29, 2024
Revenue	$	3,854,603		$	4,926,457		$	12,821,038		$	15,238,198
Cost of goods sold		2,311,376			2,799,498			7,457,517			8,665,694
Gross margin		1,543,227			2,126,959			5,363,521			6,572,504

Selling, general and administrative expenses		1,936,396			2,565,239			6,216,328			7,902,057
Total operating expenses		1,936,396			2,565,239			6,216,328			7,902,057

Operating income (loss)		(393,169	)		(438,280	)		(852,807	)		(1,329,553	)

Other (income) expense:
Interest expense, net		114,889			247,961			570,007			1,116,274
Employee retention tax credit income		-			-			(50,103	)		(924,862	)
Loss on extinguishment of debt		-			3,404,910			-			3,404,910
(Gain) on settlement of debt		(671,833	)		(168,837	)		(1,621,626	)		(168,837	)
(Gain) on settlement of accounts payable		-			-			-			(4,375	)
Total other (income) expense		(556,944	)		3,484,034			(1,101,722	)		3,423,110

Income (Loss) before income taxes		163,775			(3,922,314	)		248,915			(4,752,663	)

Provision for income tax		(442,655	)		(446,662	)		(1,436,329	)		(1,380,226	)

Net loss		(278,880	)		(4,368,976	)		(1,187,414	)		(6,132,889	)

Non-controlling interest		-			(168	)		-			(2,368	)

Net loss attributable to CLS Holdings, Inc.	$	(278,880	)	$	(4,369,144	)	$	(1,187,414	)	$	(6,135,257	)

Net loss per share - basic	$	0.00		$	(0.04	)	$	(0.01	)	$	(0.07	)

Net loss per share - diluted	$	(0.00	)	$	(0.04	)	$	(0.01	)	$	(0.07	)

Weighted average shares outstanding - basic		164,734,517			118,630,461			152,207,013			87,849,514

Weighted average shares outstanding - diluted		164,734,517			118,630,461			152,207,013			87,849,514

See accompanying notes to these financial statements.

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CLS HOLDINGS USA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(Unaudited)

	Common Stock						Additional Paid In			Stock		Stock			Accumulated			Non-controlling
	Amount			Value			Capital			Payable		Receivable			Deficit			Interest			Total
Balance, November 30, 2023		72,543,141			7,255			96,210,184			65,702		-			(110,645,559	)		(1,139,667	)		(15,502,085	)
Conversion of notes payable		64,132,135			6,413			2,167,587			-		-			-			-			2,174,000
Discounts on notes payable		-			-			221,712			-		-			-			-			221,712
Shares issued to officer as compensation		1,000,000			100			38,700			-		-			-			-			38,800
Amortization of employee stock options		-			-			6,439			-		-			-			-			6,439
Common stock to be returned in settlement of notes payable		-			-			-			-		(592,848	)		-			-			(592,848	)
Extinguishment of debt		-			-			6,508,269			-		-			-			-			6,508,269
Loss for the three months ended February 29, 2024		-			-			-			-		-			(4,369,144	)		168			(4,368,976	)
Balance, February 29, 2024		137,675,276		$	13,768		$	105,152,891		$	65,702	$	(592,848	)	$	(115,014,703	)	$	(1,139,499	)	$	(11,514,689	)

Balance, May 31, 2023		72,543,141		$	7,255		$	96,147,784		$	65,702	$	-		$	(108,879,446	)	$	(1,141,867	)	$	(13,800,572	)
Conversion of notes payable		64,132,135			6,413			2,167,587			-		-			-			-			2,174,000
Discounts on notes payable		-			-			284,112			-		-			-			-			284,112
Shares issued to officer as compensation		1,000,000			100			38,700			-		-			-			-			38,800
Amortization of employee stock options		-			-			6,439			-		-			-			-			6,439
Common stock to be returned in settlement of notes payable		-			-			-			-		(592,848	)		-			-			(592,848	)
Extinguishment of debt		-			-			6,508,269			-		-			-			-			6,508,269
Loss for the nine months ended February 29, 2024		-			-			-			-		-			(6,135,257	)		2,368			(6,132,889	)
Balance, February 29, 2024		137,675,276		$	13,768		$	105,152,891		$	65,702	$	(592,848	)	$	(115,014,703	)	$	(1,139,499	)	$	(11,514,689	)

Balance, November 30, 2024		164,734,517		$	16,474		$	103,046,249		$	65,702	$	-		$	(114,275,584	)	$	(1,139,499	)	$	(12,286,658	)
Amortization of employee stock options		-			-			21,348			-		-			-			-			21,348
Loss for the three months ended February 28, 2025		-			-			-			-		-			(278,880	)		-			(278,880	)
Balance, February 28, 2025		164,734,517		$	16,474		$	103,067,597		$	65,702	$	-		$	(114,554,464	)	$	(1,139,499	)	$	(12,544,190	)

Balance, May 31, 2024		124,500,873		$	12,450		$	101,519,599		$	65,702	$	-		$	(113,367,050	)	$	(1,139,499	)	$	(12,908,798	)
Conversion of notes payable		56,847,545			5,685			2,194,315			-		-			-			-			2,200,000
Shares purchased from related party		(1,125,000	)		(112	)		(39,888	)		-		-			-			-			(40,000	)
Shares and warrants cancelled in debt settlement		(15,488,901	)		(1,549	)		(679,961	)		-		-			-			-			(681,510	)
Amortization of employee stock options		-			-			73,532			-		-			-			-			73,532
Loss for the nine months ended February 28, 2025		-			-			-			-		-			(1,187,414	)		-			(1,187,414	)
Balance, February 28, 2025		164,734,517		$	16,474		$	103,067,597		$	65,702	$	-		$	(114,554,464	)	$	(1,139,499	)	$	(12,544,190	)

See accompanying notes to these financial statements.

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CLS HOLDINGS USA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	For the Nine			For the Nine
	Months Ended			Months Ended
	February 28, 2025			February 29, 2024
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(1,187,414	)	$	(6,132,889	)
Adjustments to reconcile net loss to net cash used in operating activities:
Share-based compensation		73,532			45,239
Amortization of debt discounts and fees		193,756			393,240
Loss on extinguishment of debt		-			3,404,910
Loss on inventory write-off		205,180			-
Depreciation and amortization expense		372,710			498,131
Gain on settlement of accounts payable		-			(4,375	)
Gain on settlement of debt		(1,621,626	)		(168,837	)
Bad debt expense		-			393
Changes in assets and liabilities:
Accounts receivable		(549,870	)		(523,209	)
Prepaid expenses and other current assets		(12,093	)		66,042
Inventory		384,070			627,208
Right of use asset		318,627			287,717
Accounts payable and accrued expenses		937,387			656,121
Accrued interest		92,945			336,878
Deferred tax liability		1,431,329			1,380,226
Operating lease liability		(317,481	)		(277,945	)
Net cash (used in) provided by operating activities		321,052			588,850

CASH FLOWS FROM INVESTING ACTIVITIES
Payments to purchase property, plant and equipment		(18,910	)		(50,659	)
Payment for construction security deposit		-			(40,000	)
Net cash used in investing activities		(18,910	)		(90,659	)

CASH FLOWS FROM FINANCING ACTIVITIES
Cash received from the issuance of convertible notes payable		2,600,000			2,030,000
Cash received from issuance of note payable - related party		1,325,000			-
Cash received from issuance of note payable		100,000			-
Principal payment on notes and buyback of shares		(2,600,000	)		-
Principal payments on convertible notes payable		(1,054,893	)		(3,758,795	)
Principal payments on notes payable		(115,067	)		(812,807	)
Principal payments on notes payable -related party		(862,805	)		-
Proceeds of loan payable		-			2,290,000
Repayments of loan payable		-			(481,943	)
Principal payments on finance leases		(73,701	)		(64,190	)
Net cash used in financing activities		(681,466	)		(797,735	)

Net decrease in cash and cash equivalents		(379,324	)		(299,544	)

Cash and cash equivalents at beginning of period		600,007			998,421

Cash and cash equivalents at end of period	$	220,683		$	698,877

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid	$	263,875		$	338,529
Income taxes paid	$	-		$	-

NONCASH INVESTING AND FINANCING ACTIVITIES:
Shares issued for conversion of notes payable	$	2,200,000		$	-
Capitalized interest	$	92,945		$	967,872
Initial ROU asset and lease liability - operating	$	120,401		$	224,899
Discount on convertible note payable	$	-		$	62,400
Cancellation of shares held by related party	$	40,000		$	-
Extinguishment of debt - Navy debentures	$	-		$	12,515,830
Gain on restructure of debentures	$	-		$	1,088,308
Conversion of notes payable to common stock	$	-		$	1,745,888
Loss on conversion of debentures to common stock	$	-		$	428,112
Transfer from prepaid expenses to fixed assets	$	-		$	221,712

See accompanying notes to these financial statements.

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CLS HOLDINGS USA, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

February 28, 2025

(Unaudited)

Note 1: Nature of Business and Significant Accounting Policies

Basis of Presentation

These financial statements and related notes are presented in accordance with accounting principles generally accepted in the United States and are expressed in US dollars. The Company has adopted a fiscal year end of May 31st.

Principals of Consolidation

The accompanying consolidated financial statements include the accounts of CLS Holdings USA, Inc.; its direct and indirect wholly owned operating subsidiaries, CLS Nevada, Inc., (“CLS Nevada”), CLS Labs, Inc. (“CLS Labs”), CLS Labs Colorado, Inc. (“CLS Colorado”), CLS Massachusetts, Inc. (“CLS Massachusetts”), and Alternative Solutions, LLC (“Alternative Solutions”); and wholly owned inactive subsidiaries CLS Labs Colorado, Inc. (“CLS Colorado”) and CLS Massachusetts, Inc. (“CLS Massachusetts”). Alternative Solutions is the sole owner of the following three entities (collectively, the “Oasis LLCs”): Serenity Wellness Center, LLC (“Serenity Wellness Center”); Serenity Wellness Products, LLC (“Serenity Wellness Products”); and Serenity Wellness Growers, LLC (“Serenity Wellness Growers”). The accompanying consolidated financial statements also include the accounts of CLS CBD in which the company owns a 95% ownership interest and a variable interest entity, Kealii Okamalu, LLC (“Kealii Okamalu”), in which the Company owns a 50% interest. All material intercompany transactions have been eliminated upon consolidation of these entities.

Nature of Business

CLS Holdings USA, Inc. (the “Company”) was originally incorporated as Adelt Design, Inc. (“Adelt”) on March 31, 2011 to manufacture and market carpet binding art. Production and marketing of carpet binding art never commenced.

We currently operate a retail marijuana dispensary within walking distance to the Las Vegas Strip and a small-scale cultivation facility, as well as a product manufacturing facility and a wholesale distribution operation in North Las Vegas. The vertically integrated business model drives strong margins to the bottom line on a portion of sales at the dispensary.

Our retail dispensary is a single location operation in Nevada and occupies over 5,000 square feet. This location, which is easily accessible by tourists, is currently open 19.5 hours per day for walk-in service. Curbside and in store express pick up is available between the hours of 8:00 AM and 12:00 AM. Oasis dispensary also delivers cannabis to residents between the hours of 8:00 AM and 10:00 PM. The central location provides logistical convenience for delivery to all parts of the Las Vegas valley.

Our wholesale operations, which occupies approximately 10,000 square feet of a 22,000 square foot warehouse, began sales to third parties in August 2017 and completed construction and received a certificate of occupancy for its state-of-the-art extraction facility in December of 2019. We have made sales to over 88 external customers as of February 28, 2025. Our existing product line includes vaporizers, tinctures, ethanol produced THC distillate, and live and cured hydrocarbon concentrates. At present, the City Trees cultivation facility only grows breeding stock to preserve valuable genetics and does not offer its crops for sale or processing. As a result, all raw materials for manufacturing are sourced from third parties.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Reclassification

Certain reclassifications, not affecting previously reported net income or cash flows, have been made to the previously issued financial statements to conform to the current period presentation.

Cash, Cash Equivalents, and Restricted Cash

The Company considers all highly liquid investments with maturities of three months or less to be cash equivalents. The Company had cash and cash equivalents of $220,683 and $600,007 as of February 28, 2025 and May 31, 2024, respectively.

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Allowance for Doubtful Accounts

The Company generates the majority of its revenues and corresponding accounts receivable from the sale of cannabis, and cannabis related products. The Company evaluates the collectability of its accounts receivable considering a combination of factors. In circumstances where it is aware of a specific customer’s inability to meet its financial obligations to it, the Company records a specific reserve for bad debts against amounts due in order to reduce the net recognized receivable to the amount it reasonably believes will be collected. For all other customers, the Company recognizes reserves for bad debts based on past write-off experience and the length of time the receivables are past due. The Company had bad debt expense of $3 and $93 during the three months ended February 28, 2025 and 2024.

Inventory

Inventories are stated at the lower of cost or market. Cost is determined using a perpetual inventory system whereby costs are determined by acquisition costs of individual items included in inventory. Market is determined based on net realizable value. Appropriate consideration is given to obsolescence, excessive levels, deterioration, and other factors in evaluating net realizable values. Our cannabis products consist of prepackaged purchased goods ready for resale, along with produced tinctures and extracts developed under our production license. During the three months ended February 28, 2025, the Company wrote-off inventory in the amount of $205,180 due to quality issues with the Company’s vendor.

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 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

Repairs and maintenance expenditures are charged to operations as incurred. Major improvements and replacements, which extend the useful life of an asset, are capitalized and depreciated over the remaining estimated useful life of the asset. When assets are retired or sold, the cost and related accumulated depreciation are eliminated, and any resulting gain or loss is reflected in operations.

Long-Lived Assets

The Company reviews its property and equipment and any identifiable intangibles including goodwill for impairment on an annual basis utilizing the guidance set forth in the Statement of Financial Accounting Standards Board ASC 350 “Intangibles – Goodwill and Other” and ASC 360 “Property, Plant, and Equipment.” At February 28, 2025, the net carrying value of goodwill on the Company’s balance sheet remained at $557,896.

Employee Retention Tax Credit

Under the provisions of the extension of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), the Company was eligible for a refundable employee retention tax credit (the “ERTC”), subject to certain criteria. As ERTCs are not within the scope of ASC 740, Income Taxes, the Company has chosen to account for the ERTCs by analogizing to the International Standard IAS 20, Accounting/or Government Grants and Disclosure of Government Assistance (“IAS 20”). In accordance with IAS 20, an entity recognizes government grants only when there is reasonable assurance that the entity will comply with the conditions attached to them and the grants will be received. During the three months ended February 28, 2025 and February 29, 2024, the Company received an aggregate of $0 and $0, respectively, and during the nine months ended February 28, 2025 and February 29, 2024, the Company received an aggregate of $50,103 and $924,862, respectively; these amounts were accounted for as other income on the Company’s condensed consolidated statement of operations.

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Comprehensive Income

ASC 220-10-15 “Reporting Comprehensive Income,” establishes standards for reporting and displaying of comprehensive income, its components and accumulated balances. Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, ASC 220-10-15 requires that all items that are required to be recognized under current accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. The Company does not have any items of comprehensive income in any of the periods presented.

Non-Controlling Interests

The Company reports “non-controlling interest in subsidiary” as a component of equity, separate from parent’s equity, on the Consolidated Balance Sheets. In addition, the Company’s Consolidated Statements of Operations includes “net income (loss) attributable to non-controlling interest.” There was no non-controlling interest reported during the three and nine months ended February 28, 2025. During the three and nine months ended February 29, 2024, the Company reported a non-controlling interest in the amount of $(168) and ($2,368), respectively, representing 50% of the income (loss) incurred by its partially owned subsidiary, Kealii Okamalu.

Variable Interest Entities

The Company’s consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries and variable interest entities (“VIE”), where the Company is the primary beneficiary under the provisions of ASC 810, Consolidation (“ASC 810”). A VIE must be consolidated by its primary beneficiary when, along with its affiliates and agents, the primary beneficiary has both: (i) the power to direct the activities that most significantly impact the VIE’s economic performance; and (ii) the obligation to absorb losses or the right to receive the benefits of the VIE that could potentially be significant to the VIE. The Company reconsiders whether an entity is still a VIE only upon certain triggering events and continually assesses its consolidated VIEs to determine if it continues to be the primary beneficiary.

Concentrations of Credit Risk

The Company maintains its cash in bank deposit accounts and other accounts, the balances of which at times may be uninsured or exceed federally insured limits. From time to time, some of the Company’s funds are also held by escrow agents; these funds may not be federally insured. The Company continually monitors its banking relationships and consequently has not experienced any losses in such accounts.

Advertising and Marketing Costs

All costs associated with advertising and promoting products are expensed as incurred. Total recognized advertising and marketing expenses were $75,527 and $125,251 for the three months ended February 28, 2025 and February 29, 2024, respectively, and $250,237 and $352,310 for the nine months ended February 28, 2025 and February 29, 2024, respectively.

Research and Development

Research and development expenses are charged to operations as incurred. The Company incurred research and development costs of $180 and $1,286 for the three months ended February 28, 2025 and February 29, 2024, respectively, and $601 and $3,173 for the nine months ended February 28, 2025 and February 29, 2024, respectively.

Fair Value of Financial Instruments

Pursuant to Accounting Standards Codification (“ASC”) No. 825–- Financial Instruments, the Company is required to estimate the fair value of all financial instruments included on its balance sheets. The carrying amounts of the Company’s cash and cash equivalents, notes receivable, convertible notes payable, accounts payable and accrued expenses, none of which is held for trading, approximate their estimated fair values due to the short-term maturities of those financial instruments.

A three-tier fair value hierarchy is used to prioritize the inputs in measuring fair value as follows:

Level 1–- Quoted prices in active markets for identical assets or liabilities.

Level 2–- Quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable, either directly or indirectly.

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

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Revenue Recognition

Revenue from the sale of cannabis products is recognized by Oasis at the point of sale, at which time payment is received, the product is delivered, and the Company’s performance obligation has been met. Management estimates an allowance for sales returns.

The Company also recognizes revenue from Serenity Wellness Products LLC and Serenity Wellness Growers LLC, d/b/a City Trees (“City Trees”). City Trees recognizes revenue from the sale of the following cannabis products and services to licensed dispensaries, cultivators and distributors within the State of Nevada:

	●	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 commercial sales of products and licensing agreements by applying the following steps: (1) identifying the contract with a customer; (2) identifying the performance obligations in the contract; (3) determining the transaction price; (4) allocating the transaction price to each performance obligation in the contract; and (5) recognizing revenue when each performance obligation is satisfied.

Disaggregation of Revenue

The following table represents a disaggregation of revenue for the three and nine months ended February 28, 2025 and February 29, 2024:

	For the Three		For the Three
	Months Ended		Months Ended
	February 28, 2025		February 29, 2024
Cannabis Dispensary		2,362,343		2,987,224
Cannabis Production		1,492,260		1,939,233
	$	3,854,603	$	4,926,457

	For the Nine		For the Nine
	Months Ended		Months Ended
	February 28, 2025		February 29, 2024
Cannabis Dispensary		8,136,274		9,399,830
Cannabis Production		4,684,764		5,838,368
	$	12,821,038	$	15,238,198

Basic and Diluted Earnings or Loss Per Share

Basic net earnings per share is based on the weighted average number of shares outstanding during the period, while fully diluted net earnings per share is based on the weighted average number of shares of common stock and potentially dilutive securities assumed to be outstanding during the period using the treasury stock method. Potentially dilutive securities consist of options and warrants to purchase common stock, and convertible debt. Basic and diluted net loss per share are computed based on the weighted average number of shares of common stock outstanding during the period. At February 28, 2025 and February 29, 2024, the Company had the following potentially dilutive instruments outstanding: at February 28, 2025, a total of 21,915,669 shares (14,398,169 issuable upon the exercise of warrants, 7,500,000 shares issuable upon the exercise of stock options, and 17,500 in stock to be issued); and at February 29, 2024, a total of 83,709,603 shares (20,726,901 issuable upon the exercise of warrants, 8,250,000 shares issuable upon the exercise of stock options, 57,715,202 issuable upon the conversion of convertible notes payable and accrued interest, and 17,500 in stock 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 calculations.

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A net loss causes all outstanding stock options and warrants to be anti-dilutive. As a result, the basic and dilutive losses per common share are the same for the three months ended February 28, 2025 and 2024. For the three and nine months ended February 28, 2025 and 2024, the Company excluded from the calculation of fully diluted earnings per share the following instruments which were anti-dilutive: shares issuable pursuant to the conversion of notes payable and accrued interest, shares issuable pursuant to the exercise of warrants, and shares of common stock issuable.

Income Taxes

The Company accounts for income taxes under the asset and liability method in accordance with ASC 740. The Company recognizes deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The components of the deferred tax assets and liabilities are classified as current and non-current based on their characteristics. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that the Company will not realize tax assets through future operations.

Section 280E of the Internal Revenue Code, as amended, prohibits businesses from deducting certain expenses associated with trafficking controlled substances (within the meaning of Schedule I and II of the Controlled Substances Act). The IRS has invoked Section 280E in tax audits against various cannabis businesses in the U.S. that are permitted under applicable state laws. Although the IRS has issued a clarification allowing the deduction of certain expenses, the bulk of operating costs and general administrative costs are generally not permitted to be deducted. The operations of certain of the Company’s subsidiaries are subject to Section 280E. This results in permanent differences between ordinary and necessary business expenses deemed non-deductible under IRC Section 280E. Therefore, the effective tax rate can be highly variable and may not necessarily correlate with pre-tax income or loss.

Commitments and Contingencies

Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company’s management and its legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims brought to such legal counsel’s attention as well as the perceived merits of the amount of relief sought or expected to be sought therein.

If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potentially material loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, would be disclosed.

Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the nature of the guarantee would be disclosed.

Recent Accounting Pronouncements

In November 2023, the FASB issued ASU No. 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures”. The amendments improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The ASU is effective for annual reporting periods beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024 with early adoption permitted and can be applied on either a prospective or retroactive basis. The Company does not believe the adoption of this guidance will have a material effect on its Consolidated Financial Statements and segment disclosures.

In November 2024, the FASB issued ASU 2024-03, “Disaggregation of Income Statement Expenses (DISE)” which requires disaggregated disclosure of income statement expenses for public business entities. The ASU does not change the expense captions an entity presents on the face of the income statement; rather, it requires disaggregation of certain expense captions into specified categories in disclosures within the footnotes to the financial statements. ASU 2024-03 is effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. The Company does not believe the adoption of this guidance will have a material effect on its Consolidated Financial Statements and segment disclosures.

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

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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 $114,554,464 as of February 28, 2025. 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 revenues from operations.

Note 3: Accounts Receivable

Accounts receivable was $1,232,764 and $682,894 at February 28, 2025 and May 31, 2024, respectively. The Company had bad debt expense of $3 and $93 during the three months ended February 28, 2025 and February 29, 2024. The Company had bad debt expense of $0 and $393 during the nine months ended February 28, 2025 and February 29, 2024. No allowance for doubtful accounts was necessary during the three months ended February 28, 2025 and February 29, 2024.

Note 4: 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,
	2025		2024
Raw materials	$	347,052	$	386,803
Finished goods		1,032,271		1,581,770
Total	$	1,379,323	$	1,968,573

Raw materials consist of cannabis plants and the materials that are used in our production process prior to being tested and packaged for consumption. Finished goods consist of pre-packaged materials previously purchased from other licensed cultivators and our manufactured edibles and extracts.

Note 5: Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following at February 28, 2025 and May 31, 2024:

	February 28,		May 31,
	2025		2024
Prepaid license fees		4,000		14,659
Other prepaid expenses		57,402		34,650
Total	$	61,402	$	49,309

Prepaid expenses primarily of (i) annual license fees charged by the State of Nevada; (ii) insurance costs; (iii) supplies; (iv) rent; and (v) board fees.

Note 6: Property, Plant and Equipment

Property, plant and equipment consisted of the following at February 28, 2025 and May 31, 2024:

	February 28, 2025			May 31, 2024
Office equipment	$	163,126		$	163,126
Furniture and fixtures		149,478			148,358
Machinery & Equipment		2,526,253			2,519,455
Leasehold improvements		2,922,156			2,911,164
Less: accumulated depreciation		(3,688,783	)		(3,318,550	)
Property, plant, and equipment, net	$	2,072,230		$	2,423,553

The Company made payments in the amounts of $18,910 and $50,659 for property and equipment during the nine months ended February 28, 2025 and February 29, 2024, respectively.

Depreciation expense totaled $115,353 and $157,634 for the three months ended February 28, 2025 and February 29, 2024, respectively. Depreciation expense totaled $370,233 and $474,884 for the nine months ended February 28, 2025 and February 29, 2024, respectively.

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Note 7: Right of Use Assets and Liabilities – Operating Leases

The Company has operating leases for offices and warehouses. The Company’s leases have remaining lease terms of 1 year to 10.5 years, some of which include options to extend.

The Company’s lease expense for the three months ended February 28, 2025 and February 29, 2024 was entirely comprised of operating leases and amounted to $140,612 and $157,634, respectively. The Company’s lease expense for the nine months ended February 28, 2025 and February 29, 2024 was entirely comprised of operating leases and amounted to $418,710 and $474,884, respectively.

The Company’s right of use (“ROU”) asset amortization for the three months ended February 28, 2025 and February 29, 2024 was $108,705 and $89,736, respectively. The Company’s ROU asset amortization for the nine months ended February 28, 2025 and February 29, 2024 was $318,627 and $186,424, respectively.

The Company has recorded total right of use assets of $4,384,520 and liabilities in the amount of $4,341,120 through February 28, 2025.

Right of use assets – operating leases are summarized below:

	February 28, 2025
Amount at inception of leases	$	4,504,921
Amount amortized		(3,021,908	)
Prior Period Impairment of Quinn River Lease		(205,888	)
Balance – February 28, 2025	$	1,277,125

Operating lease liabilities are summarized below:

Amount at inception of leases	$	4,461,521
Amount amortized		(2,896,490	)
Balance – February 28, 2025	$	1,565,031
Warehouse and offices	$	1,356,131
Land		205,888
Office equipment		3,012
Balance – February 28, 2025	$	1,565,031

Lease liability	$	1,565,031
Less: current portion		(510,480	)
Lease liability, non-current	$	1,054,551

Maturity analysis under these lease agreements is as follows:

Twelve months ended February 28, 2025	$	691,606
Twelve months ended February 28, 2026		320,797
Twelve months ended February 28, 2027		327,976
Twelve months ended February 29, 2028		306,876
Twelve months ended February 28, 2029		257,291
Thereafter		91,000
Total	$	1,995,546
Less: Present value discount		(430,515	)
Lease liability	$	1,565,031

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Note 8: Intangible Assets

Intangible assets consisted of the following at February 28, 2025 and May 31, 2024:

	February 28, 2025
			Accumulated
	Gross		Amortization			Impairment		Net
License & Customer Relations	$	110,000	$	(110,000	)		-		-
Tradenames - Trademarks		222,000		(222,000	)		-		-
Domain Names		25,993		(18,492	)		-		7,501
Total	$	357,993	$	(350,492	)		-	$	7,501

	May 31, 2024
			Accumulated
	Gross		Amortization			Impairment		Net
License & Customer Relations		110,000		(110,000	)		-		-
Tradenames - Trademarks		222,000		(222,000	)		-		-
Domain Names		25,993		(16,015	)		-		9,978
Total	$	357,993	$	(348,015	)	$	-	$	9,978

Total amortization expense charged to operations for the three months ended February 28, 2025 and 2024 was $826 and $7,750, respectively. Total amortization expense charged to operations for the nine months ended February 28, 2025 and 2024 was $2,477 and $15,501, respectively.

Remaining amortization expense for intangible assets as of February 28, 2025 is as follows:

2025	$	2,478
2026		3,304
2027		1,719
	$	7,501

Note 9: Goodwill

Goodwill in the amount of $557,896 is carried on the Company’s balance sheet at February 28, 2025 and May 31, 2024 in connection with the acquisition of Alternative Solutions on June 27, 2018.

Goodwill Impairment Test

The Company assessed its intangible assets as of May 31, 2024 for purposes of determining if an impairment existed as set forth in ASC 350 – Intangibles – Goodwill and Other and ASC 360 – Property Plant and Equipment. Pursuant to ASC 360, the Company determined that the fair value of its intangible assets exceeded the carrying value of goodwill at May 31, 2024. As a result, no impairment was recorded. At February 28, 2025 and May 31, 2024, the net amount of goodwill on the Company’s balance sheet was $557,896.

Note 10: Other Assets

Other assets included the following as of February 28, 2025 and May 31, 2024:

	February 28,		May 31,
	2025		2024
Security deposits		157,500		157,500
	$	157,500	$	157,500

Note 11: Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities consisted of the following at February 28, 2025 and May 31, 2024:

	February 28, 2025		May 31, 2024
Trade accounts payable	$	3,729,525	$	2,508,769
Accrued payroll and payroll taxes		263,983		313,296
Accrued liabilities		299,938		533,994
Total	$	4,293,446	$	3,356,059

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Note 12: Due to Related Party

On November 1, 2024, the Company acquired and cancelled 1,125,000 shares of common stock from a board member at a cost of $40,000. These shares were valued at $0.0557 per shares, which was the closing price on the date of the cancellation; a gain in the amount of $22,663 was recorded on this transaction. The purchase price of $40,000 had not been paid at February 28, 2025.

Note 13: Notes Payable

On September 10, 2024, the Company made a payment in the amount of $2,600,000 in full satisfaction of principal in the aggregate amount of $2,868,283 and the return for cancellation of 15,488,901 shares of the Company’s common stock and warrants to purchase 6,177,216 shares of the Company’s common stock. A gain in the amount of $949,793 was recorded on this transaction. See notes 14, 15 and 17. The table below provides the details of this transaction:

U.S. Convertible Debenture 1	$	1,885,556
U.S. Convertible Debenture 2		471,387
Debenture 6		511,340
Common stock and warrants – fair value		681,510
Cash payment		(2,600,000	)
Gain	$	949,793

	February 28, 2025		May 31, 2024
Debenture 2 Debenture in the principal amount of $250,000 (the “Debenture 2”) dated December 21, 2021, which bears interest, payable quarterly commencing six months after issuance, at a rate of 15% per annum. Principal on Debenture 2 is due in two equal installments 18 months after issuance and at maturity on July 10, 2024. With the Debenture, the purchaser received warrants to purchase 75,758 shares of common stock at an exercise price of $1.65 per share of common stock. The Company shall make additional quarterly payments under Debenture 2 beginning 90 days after the end of its first fiscal quarter after January 10, 2025, and for the next five years, on an annual basis, equal to the greater of (a) 15% of the original principal amount, or (b) the purchaser’s pro rata portion of 5% of the distributions the Company receives as a result of the Quinn River Joint Venture during the prior fiscal year. The Company recorded a discount in the amount of $10,428 on Debenture 2. On May 31, 2023, the Debenture 2 was amended as follows: (1) the first payment of principal and interest on June 30, 2023, followed by quarterly payment of principal and interest on September 30, 2023, beginning October 31, 2023, the Company is required to pay the note holder principal and Interest monthly through the maturity date. On December 31, 2023, the Debenture 2 was amended as follows: The original issue discount in the amount of $187,000 was reduced to $37,500. A gain on extinguishment of debt in the amount of $111,807 was recognized in connection with this transaction, and a discount in the amount of $6,501 was recorded. During the three and nine months ended February 28, 2025, the Company amortized discounts on the Debenture 2 in the aggregate amount of $0 and $197, respectively. During the three and nine months ended February 28, 2025, the Company made principal and interest payments in the amount of $0 and $17,917, respectively, on Debenture 2. As of February 28, 2025, Debenture 2 has been paid in full.		-		17,917

Debenture 6 Debenture in the principal amount of $500,000 (the “Debenture 6”) dated January 4, 2022, which bears interest, payable quarterly commencing nine months after issuance, at a rate of 15% per annum. Principal on Debenture 6 is due in two equal installments 18 months after issuance and at maturity on July 10, 2024. With the Debenture, the purchaser received warrants to purchase 151,516 shares of common stock at an exercise price of $1.65 per share of common stock. The Company shall make additional quarterly payments under Debenture 6 beginning 90 days after the end of its first fiscal quarter after January 10, 2025, and for the next five years, on an annual basis, equal to the greater of (a) 15% of the original principal amount, or (b) the purchaser’s pro rata portion of 5% of the distributions the Company receives as a result of the Quinn River Joint Venture during the prior fiscal year. The Company recorded a discount in the amount of $17,154 on Debenture 6. The Company recorded an original issue discount in the amount of $375,000 on Debenture 6. On May 31, 2023, the Debenture 6 was amended as follows: (1) the maturity date was extended to October 31, 2024; (2) the first payment of principal and interest on June 30, 2023, followed by quarterly payment of principal and interest on September 30, 2023, beginning October 31, 2023, the Company is required to pay the note holder principal and interest monthly through the maturity date. On December 31, 2023, the Debenture 6 was amended as follows: The original issue discount in the amount of $375,000 was reduced to $75,000. A gain on extinguishment of debt in the amount of $402,370 was recognized in connection with this transaction, and a discount in the amount of $209,783 was recorded. During the three months and six ended February 28, 2025, the Company amortized discounts in the amount of $183,263 and $193,560, respectively, on Debenture 6. During the three and nine months ended February 28, 2025, the Company capitalized interest in the amount of $10,708 on Debenture 6. During the three months and nine ended February 28, 2025, the Company made principal payments in the amount of $511,340 on Debenture 6 (see notes 13 and 17). At February 28, 2025, all amounts due under Debenture 6 have been paid in full.		-		500,632

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Promissory Note 6 (“PN 6”)

PN6 in the principal amount of $250,000 (the “PN6”) dated February 22, 2024, which bears interest at the rate of 12% per annum. Principal and interest payments are due monthly for 24 months in the amount $11,799 beginning March 31, 2024. During the three and nine months ended February 28, 2025, the Company made principal payments in the amount of $30,796 and $89,698, respectively, on PN6. During the three and nine months ended February 28, 2025, the Company made interest payments on PN6 in the amount of $4,602 and $16,497, respectively.

132,804

222,502

	February 28, 2025		May 31, 2024
Promissory Note 15 (“PN 15”) PN15 in the principal amount of $100,000 (the “PN15”) dated January 7, 2025, which bears interest at the rate of 12% per annum. Principal and interest payments are due monthly for 24 months in the amount $4,707 beginning January 31, 2025. During the three and nine months ended February 28, 2025, the Company made principal payments in the amount of $7,452 on PN6. During the three and nine months ended February 28, 2025, the Company made interest payments on PN6 in the amount of $1,963.		92,548		-
Notes Payable	$	225,352	$	741,052
Less: Discount		-		(193,756	)
Notes Payable, Net of Discount	$	225,352	$	547,296

	February 28, 2025		May 31, 2024
Total Notes Payable, Current Portion	$	180,768	$	139,345
Total Notes Payable, Long-term Portion, net of discount	$	44,584	$	407,951

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Note 14: Convertible Notes Payable

February 28,
2025

May 31,
2024

US Convertible Debenture 2 (Navy Capital Green Fund)

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 was to mature on a date that was three years following issuance. The U.S. Convertible Debenture 2 was convertible into Convertible Debenture Units at a conversion price of $3.20 per Convertible Debenture Unit. Each Convertible Debenture Unit consisted 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 $4.40.

On July 26, 2019, U.S. Convertible Debenture 2 was amended such that, should the Company issue or sell common stock or equity securities convertible into common stock at a price less than the conversion price of the U.S. convertible Debenture 2, the conversion price of U.S. Convertible Debenture 2 would be reduced to such issuance price, and the exercise price of the warrant issuable in connection with U.S. Convertible Debenture 2 would be exercisable at a price equal to 137.5% of the adjusted conversion price at the time of conversion. The U.S. Convertible Debenture 2 has other features, such as mandatory conversion in the event the common stock trades at a particular price over a specified period of time and required redemption in the event of a “Change in Control” of the Company. The U.S. Convertible Debenture 2 is an unsecured obligation of the Company and ranks pari passu in right of payment of principal and interest with all other unsecured obligations of the Company. The Company recorded a discount in the amount of $813,724 on the U.S. Convertible Debenture 2.

On April 15, 2021, the U.S. Convertible Debenture 2 was amended as follows: (i) the conversion price of the debentures was reduced to $1.20 per unit; and (ii) the maturity date was extended from October 31, 2021 to October 31, 2022. This amendment was accounted for as an extinguishment of debt, and the Company recorded a loss in the amount of $509,700 during the year ended May 31, 2021.

On September 15, 2022, the U.S. Convertible Debenture 2 was amended as follows: (i) the conversion price of debentures with a principal amount of $675,668 was reduced to $0.285 per unit, and these debentures along with accrued interest in the amount of $11,261 were converted to 2,410,279 shares of common stock and warrants to purchase 1,205,140 shares of common stock; (ii) the conversion price of the remaining debentures with a principal amount of $450,446 was reduced to $0.40 per share; (iii) the maturity date of 50% of the remaining debentures with a principal amount of $225,223 was extended to December 31, 2023, and the maturity date of 50% of the remaining debentures with a principal amount of $225,223 was extended to December 31, 2024; and (iv) the conversion price of the warrants issuable upon conversion of the debentures was reduced to $0.40. The value of the warrants will be determined when the issuance becomes probable, which the Company believes is unlikely to occur until the conversion price of the debentures is below the market price of the Company’s common stock. This amendment was accounted for as an extinguishment of debt, and a loss in the amount of $422,331 was recorded on this transaction. The fair values of the warrants and conversion options included in the calculation of the loss on extinguishment of debt were $223,515 and $198,816, respectively.

On December 29, 2023, the U.S. Convertible Debenture 2 was amended as follows: (i) the conversion price of the debentures was reduced to $0.07 per unit; (ii) the conversion price of warrants underlying the units issuable upon conversion was reduced to $0.10 per share; (iii) principal payments in the amount of $8,000 per month are due for 48 months beginning January 31, 2024, and a balloon payment in the amount of $235,658 will be due on January 31, 2028; (iv) accrued interest in the amount of $54,053 was added to the principal balance. A loss on extinguishment of debt in the amount of $344,036 was charged to operations in connection with this transaction. During the years ended May 31, 2024 and 2024, the Company accrued interest in the amounts of $37,526 and $27,717, on the U.S. Convertible Debenture 2, respectively. During the three and nine months ended February 28, 2025, the Company made principal payments in the amount of $0 and $481,005, respectively, on the U.S. Convertible Debenture 2 (see notes 13 and 17). During the three and nine months ended February 28, 2025, the Company made interest payments in the amount of $0 and $6,381, respectively, on the U.S. Convertible Debenture 2. At February 28, 2025, all amounts due under U.S. Convertible Debenture 2 have been paid in full.

481,005

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February 28,
2025

May 31,
2024

Canaccord Debentures

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 were to mature on a date that was three years following issuance. The Canaccord Debentures were convertible into Convertible Debenture Units at a conversion price of $3.20 per Convertible Debenture Unit. Each Convertible Debenture Unit consisted 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 $4.40. 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 8,081 shares of the Company’s common stock, and warrants to purchase 4,040 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.

On March 31, 2021, the Canaccord Debentures were amended as follows: (i) the conversion price of the debentures was reduced to $1.20 per unit; (ii) the maturity date was extended from December 12, 2021 to December 12, 2022; (iii) the mandatory conversion threshold was reduced from a daily volume weighted average trading price of greater than $4.80 per share to $2.40 per share for the preceding ten consecutive trading days; and (iv) the exercise price of the warrants issuable upon conversion was reduced from $4.40 to $1.60 and the expiration of the warrants extended until March 31, 2024. This amendment was accounted for as an extinguishment of debt, and the Company recorded a loss in the amount of $3,286,012 during the year ended May 31, 2021. During the year ended May 31, 2022, principal in the aggregate amount of $281,000 was converted into an aggregate of 234,167 shares of the Company’s common stock, and warrants to purchase 117,084 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.

On September 15, 2022, the Canaccord Debentures were further amended as follows: (i) the conversion price of debentures with a principal amount of $7,965,278 was reduced to $0.285 per unit, and these debentures along with accrued interest in the amount of $132,755 were converted to 28,414,149 shares of common stock and warrants to purchase 14,207,075 shares of common stock; (ii) the conversion price of the remaining debentures with a principal amount of $52,53,873 was reduced to $0.40 per share; (iii) the maturity date of 50% of the remaining debentures with a principal amount of $2,626,936.50 was extended to December 31, 2023, and the maturity date of 50% of the remaining debentures with a principal amount of $2,626,936.50 was extended to December 31, 2024; and (iv) the conversion price of the warrants issuable upon conversion of the debentures was reduced to $0.40. The value of the warrants will be determined when the issuance becomes probable, which the Company believes is unlikely to occur until the conversion price of the debentures is below the market price of the Company’s common stock. This amendment was accounted for as an extinguishment of debt, and a loss in the amount of $4,547,660 was recorded on this transaction. The fair values of the warrants and conversion options included in the calculation of the loss on extinguishment of debt were $2,623,852 and $1,923,808, respectively.

On December 28, 2023, the Canaccord Debentures were amended as follows: (i) the conversion price of the debentures was reduced to $0.07 per unit; (ii) the conversion price of warrants underlying the units issuable upon conversion was reduced to $0.10 per share; (iii) the maturity date was extended to January 31, 2028; (iv) accrued interest in the amount of $186,111 was added to the principal balance and accrued interest in the amount of $465,012 was forgiven (v) Put Rights (the “Put Rights”) were granted to the debenture holders granting each debenture holder the right to require the Company to redeem all or any part of the debenture in cash at a redemption price of 60% of face value (a loss on extinguishment of debt in the amount of $1,727,071 was charged to operations in connection with this transaction); (vi) interest accruing through February 28, 2025 will be added to the principal balance rather than paid to debenture holders; (v) debenture holders were granted an additional put right in the event the Company’s cash available for debt service for any fiscal quarter exceeds $750,000, subject to pro ration, to require the Company to redeem all or any part of such debenture holder’s outstanding Canaccord Debentures in cash at a redemption price equal to the aggregate principal amount of the Canaccord Debentures being so redeemed, (vi) a provision that the Company shall redeem on the last day of each calendar month beginning March 31, 2025 a portion of the outstanding Canaccord Debentures less the amount of interest paid on such date was added; and (vii) subject to the receipt of regulatory approvals, a security interest in certain of the Company’s assets (such as licenses, inventory (including work in process), equipment (excluding equipment subject to purchase money financing) and contract rights (excluding investments in entities other than wholly owned subsidiaries)) to the holders of the Canaccord Debentures and to other holders of the Company’s debt, now or in the future, as the Company may elect was granted.

On January 4, 2024, debenture holders exercised Put Rights with regard to the Canaccord Debentures with a principal amount of $3,875,095, the Company made a cash payment to the debenture holders in the amount of $2,325,056 representing 60% of the principal amount of these debentures, and the principal amount of $1,550,039 representing 40% of the principal amount of these debentures was forgiven. The principal balance of the Canaccord Dentures subsequent to the January 4 Put Rights exercise was $1,544,231. Interest at the rate of 8.0% per annum on this amount will be capitalized monthly through February 28, 2025. Principal and interest payments in the amount of $28,522 will be due monthly beginning March 31, 2025 and continuing through December 31, 2027; on January 31, 2028 a balloon payment in the amount of $1,038,777 will be due. A gain on settlement of debt in the amount of $2,015,051 was recognized in connection with this transaction. During the three and nine months ended February 28, 2025, the Company capitalized interest in the amounts of $32,788 and $64,930 on the Canaccord Debentures.

On December 27, 2024, the Company executed a Supplemental Indenture to amend that certain debenture indenture by and between the Company and Odyssey Trust Company, as Trustee, dated as of December 12, 2018, as supplemented March 31, 2021, as supplemented September 15, 2022, and as supplemented December 28, 2023, in order to amended the terms of its outstanding $1,378,778 original principal amount unsecured convertible debentures Canaccord Debentures issued December 12, 2018 to provide the Company an option to redeem all outstanding Canaccord Debentures in cash at a redemption price equal to $600 per $1,000 principal amount of Canaccord Debentures; any accrued but unpaid interest through to and including the redemption date shall not be paid and shall be cancelled. See note 22.

During the three and nine months ended February 28, 2025, the Company capitalized interest in the amount of $17,307 and $82,237, respectively. On January 17, 2025, the Company exercised the option to redeem all outstanding Canaccord Debentures in the amount of $1,678,633 including capitalized interest for cash in the amount of $1,006,800. The Company recorded a gain in the amount of $671,833 on this transaction. At February 28, 2025, all amounts due under Canaccord Debenture have been paid in full.

1,596,396

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	February 28, 2025		May 31, 2024
US Convertible Debenture 1 (Navy Capital Green Co-Invest Fund) Convertible debenture in the principal amount of $4,000,000 to a related party (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 was to mature on a date that was three years following issuance. The U.S. Convertible Debenture 1 was convertible into units (the “Convertible Debenture Units”) at a conversion price of $3.20 per Convertible Debenture Unit. Each Convertible Debenture Unit consisted 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 $4.40. 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 would be reduced to such issuance price, and the exercise price of the warrant Issuable in connection with U.S. Convertible Debenture 1 would be exercisable at a price equal to 137.5% of the adjusted conversion price at the time of conversion. The U.S. Convertible Debenture 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. On April 15, 2021, the U.S. Convertible Debenture 1 was amended as follows: (i) the conversion price of the debenture was reduced to $1.20 per unit; and (ii) the maturity date was extended from October 31, 2021 to October 31, 2022. This amendment was accounted for as an extinguishment of debt, and the Company recorded a loss in the amount of $2,038,803 during the year ended May 31, 2021 in connection with the amendment. On September 15, 2022, the U.S. Convertible Debenture 1 was further amended as follows: (i) the conversion price of debentures with a principal amount of $2,702,674 was reduced to $0.285 per unit, and these debentures along with accrued interest in the amount of $45,044 were converted to 9,641,118 shares of common stock and warrants to purchase 4,820,560 shares of common stock; (ii) the conversion price of the remaining debentures with a principal amount of $1,801,783 was reduced to $0.40 per share; (iii) the maturity date of 50% of the remaining debentures with a principal amount of $900,891.50 was extended to December 31, 2023, and the maturity date of 50% of the remaining debentures with a principal amount of $900,891.50 was extended to December 31, 2024; and (iv) the conversion price of the warrants issuable upon conversion of the debentures was reduced to $0.40. The value of the warrants will be determined when the issuance becomes probable, which the Company believes is unlikely to occur until the conversion price of the debentures is below the market price of the Company’s common stock. This amendment was accounted for as an extinguishment of debt, and a loss in the amount of $1,689,368 was recorded on this transaction. The fair values of the warrants and conversion options included in the calculation of the loss on extinguishment of debt were $894,090 and $795,278, respectively. On December 29, 2023, the U.S. Convertible Debenture 1 was amended as follows: (i) the conversion price of the debentures was reduced to $0.07 per unit; (ii) the conversion price of warrants underlying the units issuable upon conversion was reduced to $0.10 per share; (iii) the maturity date was extended to January 31, 2028; (iv) accrued interest in the amount of $215,414 was added to the principal balance. A loss on extinguishment of debt in the amount of $1,376,083 was charged to operations in connection with this transaction. During the three and nine months ended February 28, 2025, the Company made principal payments in the amount of $0 and $1,924,030, respectively, on the U.S. Convertible Debenture 1 (see notes 13 and 17). During the three and nine months ended February 28, 2025, the Company made interest payments in the amount of $0 and $25,226 on the U.S. Convertible Debenture 1. At February 28, 2025, all amounts due under U.S. Convertible Debenture 1 have been paid in full.		-		1,924,030

Total Convertible Notes Payable	$	-	$	4,001,431

	February 28, 2025		May 31, 2024
Total – Convertible Notes Payable, Current Portion	$	-	$	302,005
Total – Convertible Notes Payable, Long-term Portion	$	-	$	3,699,426

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Note 15: Notes Payable – Related Party

	February 28, 2025		May 31, 2024
Promissory Note 1 (“APN1”) PN1 Debenture in the principal amount of $475,000 (the “PN1”) dated January 2, 2024, which bears interest at a rate of 12% per annum. Principal and interest payments are due monthly for 36 months in the amount $15,917 beginning February 29, 2024. During the three and nine months ended February 28, 2025, the Company made principal payments on the PN1 in the amount of $37,237 and $108,458, respectively. During the three and nine months ended February 28, 2025, the Company made interest payments on the PN1 in the amount of $10,515 and $34,799, respectively.	$	325,603	$	434,061

Promissory Note 2 (“PN2”) PN2 in the principal amount of $465,000 (the “PN2”) dated January 2, 2024, which bears interest at the rate of 12% per annum. Principal and interest payments are due monthly for 36 months in the amount $15,582 beginning February 29, 2024. During the three and nine months ended February 28, 2025, the Company made principal payments on the PN2 in the amount of $36,453 and $106,175, respectively. During the three and nine months ended February 28, 2025, the Company made interest payments on the PN2 in the amount of $10,294 and $34,066, respectively.		318,748		424,923

Promissory Note 3 (“PN3”) PN3 in the principal amount of $450,000 (the “PN3”) dated February 22, 2024, which bears interest at the rate of 12% per annum. Principal and interest payments are due monthly for 24 months in the amount $21,239 beginning March 31, 2024. During the three and nine months ended February 28, 2025, the Company made principal payments on the PN3 in the amount of $55,433 and $161,456, respectively. During the three and nine months ended February 28, 2025, the Company made interest payments on the PN3 in the amount of $8,284 and $29,694, respectively.		239,047		400,503

Promissory Note 4 (“PN4”) PN4 in the principal amount of $300,000 (the “PN4”) dated February 22, 2024, which bears interest at the rate of 12% per annum. Principal and interest payments are due monthly for 24 months in the amount $14,159 beginning March 31, 2024. During the three and nine months ended February 28, 2025, the Company made principal payments on the PN4 in the amount of $36,955 and $107,637, respectively. During the three and nine months ended February 28, 2025, the Company made interest payments on the PN4 in the amount of $5,522 and $19,796, respectively.		159,365		267,002

Promissory Note 5 (“PN5”) PN5 in the principal amount of $350,000 (the “PN5”) dated February 22, 2024, which bears interest at the rate of 12% per annum. Principal and interest payments are due monthly for 24 months in the amount $16,519 beginning March 31, 2024. During the three and nine months ended February 28, 2025, the Company made principal payments on the PN5 in the amount of $43,115 and $125,577, respectively. During the three and nine months ended February 28, 2025, the Company made interest payments on the PN5 in the amount of $6,443 and $23,095, respectively.		185,926		311,503

Promissory Note 7 (“PN7”) PN7 in the principal amount of $100,000 (the “PN7”) dated March 6, 2024, which bears interest at the rate of 12% per annum. Interest only payments are due quarterly in the amount of $3,500 for four quarters beginning March 29, 2024. The loan is due on February 28, 2025. During the three and nine months ended February 28, 2025, the Company made principal payments on PN7 in the amount of $100,000. During the three and nine months ended February 28, 2025, the Company made interest payments on the PN7 in the amount of $3,500 and $10,500, respectively.		-		100,000

Promissory Note 8 (“PN8”) PN8 in the principal amount of $134,000 (the “PN8”) dated April 30, 2024, which bears interest at the rate of 12% per annum. Principal and interest payments are due monthly for 24 months in the amount $6,308 beginning May 31, 2024. During the three and nine months ended February 28, 2025, the Company made principal payments on the PN8 in the amount of $16,139 and $47,006, respectively. During the three and nine months ended February 28, 2025, the Company made interest payments on the PN8 in the amount of $2,785 and $9,764, respectively.		82,025		129,031

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	February 28, 2025		May 31, 2024
Promissory Note 9 (“PN9”) PN9 in the principal amount of $2,600,000 (the “PN9”) dated August 28, 2024. Principal in the amount of $2,200,000 automatically converted into 56,847,545 shares of the Company’s common stock on August 30, 2024; the remaining principal in the amount of $400,000 bears interest at the rate of 12% per annum and is due on August 28, 2025. The conversion of the $2,200,000 in principal was at the market price per share of $0.0387 on the date of the note, and no gain or loss was recognized on this transaction. See note 17. No interest was accrued on this note during the three months ended February 28, 2025. During the three and nine months ended February 28, 2025, the Company made interest payments on the PN9 in the amount of $24,000.		400,000		-

Promissory Note 10 (“PN10”) PN10 in the principal amount of $150,000 (the “PN10”) dated October 15, 2024, which bears interest at the rate of 12% per annum. Principal and interest payments are due monthly for 24 months in the amount $7,061 beginning November 30, 2024. During the three and nine months ended February 28, 2025, the Company made principal payments on the PN10 in the amount of $17,019 and $22,580, respectively. During the three and nine months ended February 28, 2025, the Company made interest payments on the PN10 in the amount of $4,164 and $5,664, respectively.		127,420		-

Promissory Note 11 (“PN11”) PN11 in the principal amount of $150,000 (the “PN11”) dated December 6, 2024, which bears interest at the rate of 12% per annum. Principal and interest payments are due monthly for 24 months in the amount $7,061 beginning December 31, 2024. During the three and nine months ended February 28, 2025, the Company made principal payments on the PN11 in the amount of $16,851. During the three and nine months ended February 28, 2025, the Company made interest payments on the PN11 in the amount of $4,333.		133,149		-

Promissory Note 12 (“PN12”) PN12 in the principal amount of $300,000 (the “PN12”) dated January 7, 2025, which bears interest at the rate of 12% per annum. Principal and interest payments are due monthly for 24 months in the amount $14,122 beginning January 31, 2025. During the three and nine months ended February 28, 2025, the Company made principal payments on the PN12 in the amount of $22,355. During the three and nine months ended February 28, 2025, the Company made interest payments on the PN12 in the amount of $5,889.		277,645		-

Promissory Note 13 (“PN13”) PN13 in the principal amount of $300,000 (the “PN13”) dated January 7, 2025, which bears interest at the rate of 12% per annum. Principal and interest payments are due monthly for 24 months in the amount $14,122 beginning January 31, 2025. During the three and nine months ended February 28, 2025, the Company made principal payments on the PN13 in the amount of $22,355. During the three and nine months ended February 28, 2025, the Company made interest payments on the PN13 in the amount of $5,889.		277,645		-

Promissory Note 14 (“PN14”) PN14 in the principal amount of $300,000 (the “PN13”) dated January 7, 2025, which bears interest at the rate of 12% per annum. Principal and interest payments are due monthly for 24 months in the amount $14,122 beginning January 31, 2025. During the three and nine months ended February 28, 2025, the Company made principal payments on the PN14 in the amount of $22,355. During the three and nine months ended February 28, 2025, the Company made interest payments on the PN14 in the amount of $5,889.		277,645		-

Promissory Note 16 (“PN16”) PN16 in the principal amount of $125,000 (the “PN16”) dated January 7, 2025, which bears interest at the rate of 12% per annum. Principal and interest payments are due monthly for 24 months in the amount $5,884 beginning March 31, 2025. During the three and nine months ended February 28, 2025, the Company made principal payments on the PN16 in the amount of $0. During the three and nine months ended February 28, 2025, the Company made interest payments on the PN16 in the amount of $0.		125,000		-

Total	$	2,929,218	$	2,067,023

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	February 28, 2025		May 31, 2024
Total Notes Payable – Related Party, Current Portion	$	2,008,209	$	988,472
Total Notes Payable – Related Party, Long Term Portion	$	921,009	$	1,078,551

Aggregate maturities of notes payable, convertible notes payable, and notes payable – related parties as of February 28, 2025 are as follows:

For the twelve months ended February 28,

2026	$	2,188,976
2027		965,594
Total	$	3,154,570

Note 16: Lease Liabilities - Financing Leases

	February 28, 2025		May 31, 2024
Financing lease obligation under a lease agreement for extraction equipment dated March 14, 2022 in the original amount of $359,900 payable in forty-eight monthly installments of $10,173 including interest at the rate of 15.89%. During the three and nine months ended February 28, 2025, the Company made principal payments on this lease obligation in the amounts of $25,066 and $72,332, respectively. During the three and nine months ended February 28, 2025, the Company made interest payments on this lease obligation in the amounts of $5,453 and $19,225, respectively.	$	120,785	$	193,117

Financing lease obligation under an agreement for equipment dated June 20, 2022 in the original amount of $12,400 payable in forty-eight monthly installments of $350 including interest at a rate of 15.78%. During the three and nine months ended February 28, 2025, the Company made principal payments on this lease obligation in the amounts of $468 and $1,369, respectively. During the three and nine months ended February 28, 2025, the Company made interest payments on this lease obligation in the amounts of $57 and $206, respectively.	$	1,990		3,359

Total	$	122,775	$	196,476

Current portion	$	112,735	$	96,224
Long-term maturities		10,040		100,252
Total	$	122,775	$	196,476

Aggregate maturities of lease liabilities – financing leases as of February 28, 2025 are as follows:

For the period ended February 28,

2026	$	112,735
2027		10,040
Total	$	122,775

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Note 17: Stockholders’ Equity

The Company’s authorized capital stock consists of 345,000,000 shares of common stock, par value $0.0001 per share, and 5,000,000 shares of preferred stock, par value $0.001 per share.

Common stock transactions for the nine months ended February 28, 2025

On August 30, 2024, the Company issued 56,847,545 shares of common stock pursuant to the conversion $2,200,000 of the principal amount of a note payable (see note 15). No gain or loss was recorded on this transaction as the conversion occurred according to the terms of the note.

On September 10, 2024, the Company settled three notes payable in the aggregate principal amount of $2,868,282 for a cash payment in the amount of $2,600,000. In addition, the noteholders returned for cancellation a total of 15,488,901 shares of the Company’s common stock and warrants to purchase 6,177,216 shares of the Company’s common stock. The cancelled shares were valued at the closing price of the Company’s common stock on the date of the cancellation, or $0.044 per share for a total value of $681,510. The warrants were valued at $4,136 using the Black-Sholes valuation model. A gain in the amount of $949,793 was recorded on this transaction. See note 18.

On November 1, 2024, the Company acquired and cancelled 1,125,000 shares of common stock from a board member at a cost of $40,000. These shares were valued at $0.0557 per shares, which was the closing price on the date of the cancellation; the amount of $22,663 was charged to additional paid-in capital on this related party transaction. The purchase price of $40,000 was unpaid at February 28, 2025. (see note 12)

Common stock transactions for the nine months ended February 29, 2024

None.

Warrants

Warrants for the nine months ended February 28, 2025:

The following table summarizes the significant terms of warrants outstanding at February 28, 2025. 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
$	0.40		14,398,169		0.55	$	0.40		14,398,169	$	0.40
			14,398,169		0.55	$	0.40		14,398,169	$	0.40

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

	Number of Shares			Weighted Average Exercise Price
Warrants outstanding at May 31, 2023		21,181,449		$	0.40
Granted		-		$	-
Exercised		-		$	-
Cancelled / Expired		(454,548	)	$	0.41
Warrants outstanding at May 31, 2024		20,726,901		$	0.40
Granted
Exercised		-		$	-
Cancelled / Expired		(6,328,732	)	$	0.40
Warrants outstanding at February 28, 2025		14,398,169		$	0.40

Stock Options

Stock options for the nine months ended February 28, 2025

During the nine months ended February 28, 2025, 41,667 options issued to the Company’s previous Chief Science Officer expired, and 500,000 options issued to the Company’s previous Chief Operating Officer expired.

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The following table summarizes the significant terms of options outstanding at February 28, 2025.

Range of exercise Prices				Number of options Outstanding				Weighted average remaining contractual life (years)				Weighted average exercise price of outstanding Options				Number of Options Exercisable				Weighted average exercise price of exercisable Option
$	0.039				7,500,000				8.93			$	0.039				2,916,666			$	0.039

Transactions involving options are summarized as follows.

	Number of Shares			Weighted Average Exercise Price
Options outstanding at May 31, 2024		8,041,667		$	0.039
Granted		-		$	-
Exercised		-		$	-
Cancelled / Expired		(541,667	)	$	0.039
Options outstanding at February 28, 2025		7,500,000		$	0.039

The Company valued options using the Black-Scholes valuation model utilizing the following variables during the nine months ended February 28, 2025:

	February 28,
	2025
Volatility		269.44	%
Dividends	$	-
Risk-free interest rates		3.8	%
Expected term (years)		5.00

Stock options for the nine months ended February 29, 2024

None.

During the three and nine months ended February 28, 2025, the Company charged $28,802 and $73,532, respectively, to stock-based compensation expense, in connection with the vesting of stock options. During the three and nine months ended February 29, 2024, the Company charged $6,489 to stock-based compensation expense, in connection with the vesting of stock options.

The aggregate intrinsic value of options outstanding and exercisable at February 28, 2025 and February 29, 2024 was $0 and $3,678, respectively. Aggregate intrinsic value represents the difference between the fair value of the Company’s stock on the last day of the fiscal period, which was $0.031 as of February 28, 2025, and the exercise price multiplied by the number of options outstanding and exercisable.

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Note 18: Gain on Settlement of Debt

On August 28, 2024, the Company raised $2,600,000 in cash from the issuance of PN9. See note 13. On August 30, 2024, the Company issued 56,847,545 shares of common stock pursuant to the conversion $2,200,000 of the principal amount of a note payable (see note 15). No gain or loss was recorded on this transaction as the conversion occurred according to the terms of the note.

On September 10, 2024, the Company utilized the proceeds of PN9 to settle three notes payable in the aggregate principal amount of $2,868,282 for a cash payment in the amount of $2,600,000. See note 17. In addition, the noteholders returned for cancellation a total of 15,488,901 shares of the Company’s common stock and warrants to purchase 6,177,216 shares of the Company’s common stock. The cancelled shares were valued at the closing price of the Company’s common stock on the date of the cancellation, or $0.044 per share for a total value of $681,510. The warrants were valued at $4,136 using the Black-Sholes valuation model. A gain in the amount of $949,793 was recorded on this transaction.

The Company valued the warrants using the Black-Scholes valuation model utilizing the following variables during the nine months ended February 28, 2025:

	February 28,
	2025
Volatility		104.68	%
Dividends	$	-
Risk-free interest rates		4.36	%
Expected term (years)		1.05

On December 27, 2024, the Company executed a Supplemental Indenture to amend that certain debenture indenture by and between the Company and Odyssey Trust Company in order to amended the terms of its outstanding $1,378,778 original principal amount unsecured convertible debentures Canaccord Debentures issued December 12, 2018 to provide the Company an option to redeem all outstanding Canaccord Debentures in cash at a redemption price equal to $600 per $1,000 principal and capitalized interest of Canaccord Debentures. See note 14.

On January 17, 2025, the Company exercised the option to redeem all outstanding Canaccord Debentures in the amount of $1,678,633 for cash in the amount of $1,006,800. A gain in the amount of $671,833 was recorded on this transaction.

Note 19: Related Party Transactions

As of February 28, 2025 and May 31, 2024, 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.

During the three months ended February 28, 2025, the Company made payments of $10,000 to one of its three directors for their participation on the Board. During the nine months ended February 28, 2025, the Company made payments of $30,000 to one of its three directors and $15,000 to one of its directors for their participation on the Board, for a total of $45,000; the Company also made a payment of $5,000 to one of its directors for consulting fees.

The Company’s CEO has waived his board fees for the period.

On November 1, 2024, the Company acquired and cancelled 1,125,000 shares of common stock from a board member at a cost of $40,000 for a per share price of $0.0355. These shares were valued at $0.0557 per shares, which was the closing price on the date of the cancellation. The amount of $22,663 was charged to additional paid-in capital on this transaction. The purchase price of $40,000 had not been paid at February 28, 2025.

On August 28, 2024 the Company issued PN9, a note payable to a related party, in the principal amount of $2,600,000. Principal in the amount of $2,200,000 automatically converted into 56,847,545 shares of the Company’s common stock on August 30, 2024; the remaining principal in the amount of $400,000 bears interest at the rate of 12% per annum and matures on August 28, 2025. See note 15.

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On October 15, 2024 the Company issued PN10, a note payable to a related party, in the principal amount of $150,000. PN10 bears interest at the rate of 12% per annum. Principal and interest payments are due monthly for 24 months in the amount $7,061 per month beginning November 30, 2024. See note 15.

On December 6, 2024 the Company issued PN11, a note payable to a related party, in the principal amount of $150,000. PN11 bears interest at the rate of 12% per annum. Principal and interest payments are due monthly for 24 months in the amount $7,061 per month beginning December 31, 2025. See note 15.

On January 7, 2025 the Company issued PN12, a note payable to a related party, in the principal amount of $300,000. PN12 bears interest at the rate of 12% per annum. Principal and interest payments are due monthly for 24 months in the amount $14,122 per month beginning January 31, 2025. See note 15.

On January 7, 2025 the Company issued PN13, a note payable to a related party, in the principal amount of $300,000. PN13 bears interest at the rate of 12% per annum. Principal and interest payments are due monthly for 24 months in the amount $14,122 per month beginning January 31, 2025. See note 15.

On January 7, 2025 the Company issued PN14, a note payable to a related party, in the principal amount of $300,000. PN14 bears interest at the rate of 12% per annum. Principal and interest payments are due monthly for 24 months in the amount $14,122 per month beginning January 31, 2025. See note 15.

On February 26, 2025 the Company issued PN16, a note payable to a related party, in the principal amount of $125,000. PN16 bears interest at the rate of 12% per annum. Principal and interest payments are due monthly for 24 months in the amount $5,884 per month beginning March 31, 2025. See note 15.

At February 28, 2025, there are 14 related party notes outstanding with a total principal amount of $2,929,218. See note 15.

Note 20: Income Taxes

The following table summarizes the Company’s income tax accrued for the three and nine months ended February 28, 2025 and 2024:

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.

The components of the income tax provision include:

	Three Months Ended
	February 28, 2025			February 29, 2024
Revenue	$	3,854,603		$	4,926,457
Directly attributable costs		(1,746,724	)		(2,799,498	)
Deferred		2,107,879			2,126,959
Tax rate		21	%		21	%
Tax expense	$	442,655		$	446,662

	Nine Months Ended
	February 28, 2025			February 29, 2024
Revenue	$	12,821,038		$	15,238,198
Directly attributable costs		(5,981,378	)		(8,665,694	)
Deferred		6,839,660			6,572,504
Tax rate		21	%		21	%
Tax expense	$	1,436,329		$	1,380,226

Note: Change in uncertain tax position with all tax expense recorded in current year due to change in estimate. No prior year net operating loss was considered.

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Due to the accrual of taxes related to Section 280E of the Internal Revenue Code, as amended, the Company has an uncertain tax accrual that is currently being expensed as a change in estimate. The Company has net operating losses that it believes are available to it to offset this expense; however, there can be no assurance under current interpretations of tax laws for cannabis companies that the Company will be allowed to use these net operating losses to offset Section 280E tax expenses.

During the three months ended February 28, 2025, the Company received a notification from the Internal Revenue Service (“IRS”) that the Company has been assessed the amount of $111,441, consisting of estimated tax owed of $71,959, penalties of $26,771, and interest of $12,711 for failure to file its tax return for the year ended May 31, 2022. The Company made a good faith payment to the IRS in the amount of $5,000 pursuant to this notice during the three months ended February 28, 2025. The accounting firm responsible for this tax filing on behalf of the Company has been terminated, and the Company is pursuing this firm for recovery of penalties and interest assessed.

Note 21: Commitments and Contingencies

Legal Matters

From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business. As of the date of filing of this report, there were no pending or threatened lawsuits.

Lease Arrangements

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

	●	A lease that commenced in February 2019 for 1,400 square feet of office space located at 1718 Industrial Road, Las Vegas, NV 89102, for a term of eighteen months, and for rent of $1,785 per month. In June 2020, this lease was extended to November 30, 2022, with the monthly rent increasing to $1,867 until September 2021, after which time it will be subject to annual increases of 3%. The lease was extended again on April 1, 2022, effective September 1, 2022 until February 28, 2025. The monthly rent increased on September 1, 2022 to $2,084. Effective September 1, 2024, the monthly rent was increased to $2,310, and the term of the lease was extended to November 30, 2029.

	●	A lease that commenced January 2018 for 1,000 square feet of storefront space plus 5,900 square feet of warehouse space located at 1800 Industrial Road, Suites 102, 160, and 180, Las Vegas, NV 89102, for a term of five years and for initial base rent of $7,500 per month, with annual increases of 3%. In February 2020, this lease was extended to February 28, 2030 and the monthly rent was increased by $600. At February 28, 2025, the monthly rent on this lease was $10,679.

	●	A lease that commenced in February 2019 for 2,504 square feet of office space located at 1800 Industrial Road, Suite 100, Las Vegas, NV 89102 for a term of eighteen months and for initial rent 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 rent increases of 3%. At February 28, 2025, the monthly rent on this lease was $3,758.

	●	A lease that commenced in January 2016 for 22,000 square feet of warehouse space located at 203 E. Mayflower Avenue, North Las Vegas, NV 89030 for a term of five years and initial rent of $11,000 per month, which amount increased to $29,000 per month on January 1, 2020. In June 2020, this lease was extended to February 28, 2026, and the monthly rent was amended as follows: $25,000 for the months of April, May, and June 2020; $22,500 for the months of March 2021 through February 2022; $23,175 for the months of March 2022 through February 2023; 23,870 for the months of March 2023 through February 2024; $24,586 for the months of March 2024 through February 2025; and $25,323 for the months of March 2025 through February 2026.

	●	A lease that commenced in October 2023 for 2,547 square feet of office space located at 516 S. 4^th Street, Las Vegas, NV 89101 for a term of five years and initial rent of $5,083 per month through September 30, 2024. The monthly rent will increase to $5,236 for the months of October 2024 through September 2025; $5,393 for the months of October 2025 through September 2026; $5,554 for the months of October 2026 through September 2027; and $5,721 for the months of October 2027 through September 2028.

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.

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. The $50,000 security deposit was forfeited to the Landlord and the Landlord has made no additional demands for payment or attempts at collection since August of 2017. These expenses, which are a liability of the Company’s Colorado subsidiary, have been accrued on the balance sheet as of February 28, 2025.

Note 22: Subsequent Events

During March and April 2025, the Company received a total of $139,523 in tax credits under the provisions of the CARES Act.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

History

We were incorporated on March 31, 2011 as Adelt Design, Inc. to manufacture and market carpet binding art. Production and marketing of carpet binding art never commenced. On November 20, 2014, we adopted amended and restated articles of incorporation, thereby changing our name to CLS Holdings USA, Inc. On April 29, 2015, we entered into a merger agreement with CLS Labs and a newly-formed, wholly owned subsidiary of the Company (the “Merger Sub”) and effected the Merger (the “Merger”). Upon the consummation of the Merger, the separate existence of the Merger Sub ceased and CLS Labs, the surviving corporation in the Merger, became a wholly owned subsidiary of the Company, with the Company acquiring the stock of CLS Labs. As a result of the Merger, we acquired the business of CLS Labs and abandoned our previous business.

CLS Labs was originally incorporated in the state of Nevada on May 1, 2014 under the name RJF Labs, Inc. before changing its name to CLS Labs, Inc. on October 24, 2014. It was formed to commercialize a proprietary method of extracting cannabinoids from cannabis plants and converting the resulting cannabinoid extracts into concentrates such as oils, waxes, edibles and shatter.

We have been issued a U.S. patent with respect to our proprietary method of extracting cannabinoids from cannabis plants and converting the resulting cannabinoid extracts into concentrates such as oils, waxes, edibles and shatter. We have not commercialized our proprietary process and due to the current Nevada State laws governing these types of extraction methods, we do not intend to commercialize the proprietary process in the future. CLSH is engaged in attempting to find a buyer for the patent who may be able to use it in another state or another application.

Current Business and Outlook

We generate revenues through: (i) our retail dispensary (Oasis), and (ii) our City Trees cultivation and processing of cannabis and wholesale of cannabis-related products for Oasis and third-parties. We continue to explore opportunities for growth through the acquisition of companies, the creation of joint ventures, licensing agreements, and fee-for-service arrangements with growers and dispensaries of cannabis products. We believe that we can ultimately establish a position as one of the premier cannabinoid extraction and processing companies in the industry. We have created our own brand of concentrates for consumer use, which we sell wholesale to cannabis dispensaries. We are attempting to create a “gold standard” national brand by standardizing the testing, compliance and labeling of our products in an industry currently comprised of small, local businesses with erratic and unreliable product quality, testing practices and labeling.

Finally, we intend to grow through select acquisitions in secondary and tertiary markets, targeting newly regulated states that we believe offer a competitive advantage. Our goal at this time is to become a successful regional cannabis company.

Results of Operations for the Three Months Ended February 28, 2025 and 2024

The table below sets forth our selected expenses as a percentage of revenue for the applicable periods:

	Three Months Ended			Three Months Ended
	February 28, 2025			February 29, 2024
Revenue		100	%		100	%
Cost of Goods Sold		60	%		57	%
Gross Margin		40	%		43	%
Selling, General, and Administrative Expenses		50	%		52	%

Interest expense		3	%		5	%
Provision for Income Tax		11	%		9	%

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The table below sets forth certain statistical and financial highlights for the applicable periods:

	Three Months Ended		Three Months Ended
	February 28, 2025		February 29, 2024
Number of Customers Served (Dispensary)		48,978		64,368
Revenue	$	3,854,603	$	4,926,457
Gross Profit	$	1,543,227	$	2,126,959
Selling, General, and Administrative Expenses	$	1,936,396	$	2,565,239

Revenues

We had revenue of $3,854,603 during the three months ended February 28, 2025, a decrease of $1,071,854, or 22%, compared to revenue of $4,926,457 during the three months ended February 29, 2024. Our cannabis dispensary accounted for $2,362,343, or 61%, of our revenue for the three months ended February 28, 2025, a decrease of $624,881, or 21%, compared to $2,987,224 during the three months ended February 29, 2024. Dispensary revenue decreased during the third quarter of fiscal year 2025 because our average sales per day decreased from $32,827 during the third quarter of fiscal year 2024 to $26,248 during the third quarter of fiscal year 2025. Our cannabis production accounted for $1,492,260, or 39%, of our revenue for the three months ended February 28, 2025, a decrease of $446,973 or 23%, compared to $1,939,223 for the three months ended February 29, 2024.

Cost of Goods Sold

Our cost of goods sold for the three months ended February 28, 2025 was $2,311,376, a decrease of $488,122, or 17%, compared to cost of goods sold of $2,799 498 for the three months ended February 29, 2024. The decrease in cost of goods sold for the three months ended February 28, 2025 was primarily due to a decrease in sales. Cost of goods sold was 60% of sales during the three months ended February 28, 2025 resulting in a gross margin of 40%. Cost of goods sold was 56.8% of sales during the three months ended February 29, 2024 resulting in a gross margin of 43.2%. Cost of goods sold during the third quarter of the 2025 fiscal year primarily consisted of product cost of $1,477,131, labor and overhead of $564,652, supplies and materials of $61,413, and licenses and fees of $3,000. We also wrote-off inventory in the amount of $205,180 due to quality control issues with a vendor; without this write-off, our gross margin would have been 45.4%. Cost of goods sold during the third quarter of the 2024 fiscal year primarily consisted of product cost of $2,210,390, labor and overhead of $467,486, supplies and materials of $113,147, and licenses and fees of $8,475.

Selling, General and Administrative Expenses

Selling, general and administrative expenses, or SG&A, decreased by $628,843, or approximately 25%, to $1,936,396 during the three months ended February 28, 2025, compared to $2,565,239 for the three months ended February 29, 2024. The decrease in SG&A expenses for the three months ended February 28, 2025 was primarily due to our across-the-board cost-cutting efforts.

SG&A expense during the three months ended February 28, 2025 was primarily attributable to an aggregate of $1,502,892 in costs associated with operating the Oasis LLCs, a decrease of $414,648 compared to $1,917,540 during the three months ended February 29, 2024. The major components of the decrease were as follows: payroll and related costs of $1,025,150 compared to $1,181,169; office and facilities cost of $399,201 compared to $490,314; professional fees of $41,955 compared to $103,886; taxes and licenses of $138,245 compared to $174,409; sales and marketing costs of $75,527 compared to $103,356; and travel and entertainment of $77,525 compared to $95,572. The amount of SG&A expense allocated to cost of goods sold decreased by $10,944 during the current quarter compared to the prior year, from $413,221 to $402,777.

Finally, SG&A decreased by $214,194 during the three months ended February 28, 2025 as a result of an increase in the expenses associated with the ongoing implementation of other aspects of our business plan and our general corporate overhead to $433,506 from $647,700 during the three months ended February 29, 2024. The major component of this increase compared to the third quarter of fiscal 2024 was a decrease professional fees in the amount of $171,571 which were incurred in relation to our refinancing efforts during the prior year. Other components of the decrease in SG&A during the current year include a decrease in marketing and investor relations of $24,596 and a decrease in non-cash compensation in the amount of $23,891.

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Interest Expense, Net

Our interest expense was $114,889 for the three months ended February 28, 2025, a decrease of $133,072, or 54%, compared to $247,961 for the three months ended February 29, 2024. The decrease consisted primarily of a decrease in the amount of $72,032 related to interest on our notes and debentures due to decreased principal balances, and a decrease of $61,040 in the amortization of the discounts on notes payable. These discounts have been fully amortized.

Loss on Extinguishment of Debt

During the three months ended February 29, 2024, we restructured and / or redeemed certain of our convertible debentures, as follows: (A) The terms of certain convertible debenture were restructured, including (i) the conversion price of the debentures was reduced to $0.07 per unit; (ii) the conversion price of warrants underlying the units issuable upon conversion was reduced to $0.10 per share; (iii) the maturity date was extended to January 31, 2028. This restructuring included the redemption of convertible debentures in the principal amount of $3,875,095 at a discount of 40% for a cash payment in the amount of $2,325,036. These transactions resulted in a net loss on extinguishment of debt in the amount of $4,493,218 due to the increase in the calculated value of the conversion features and warrants of the remaining debentures at the reduced exercise prices. We also restructured the principal amounts and due dates of six additional debentures with an aggregate principal amount of $3,897,916 resulting in a gain on extinguishment of debt in the amount of $1,088,308. There were no comparable transactions in the current period.

Gain on settlement of debt

During the three months ended February 28, 2025, the Company executed a Supplemental Indenture to amend that certain debenture indenture by and between the Company and Odyssey Trust Company, as Trustee, dated as of December 12, 2018, as supplemented March 31, 2021, as supplemented September 15, 2022, and as supplemented December 28, 2023, in order to amended the terms of its outstanding $1,378,778 original principal amount unsecured convertible debentures Canaccord Debentures issued December 12, 2018 to provide the Company an option to redeem all outstanding Canaccord Debentures in cash at a redemption price equal to $600 per $1,000 principal amount of Canaccord Debentures; any accrued but unpaid interest through to and including the redemption date shall not be paid and shall be cancelled. See note 22. On January 17, 2025, the Company exercised the option to redeem all outstanding Canaccord Debentures in the amount of $1,678,633 including capitalized interest for cash in the amount of $1,006,800. The Company recorded a gain in the amount of $671,833 on this transaction.

During the three months ended February 29, 2024, we redeemed certain other debentures and convertible debentures as follows: (A) We redeemed three debentures with an aggregate principal amount of $1,325,000 along with 13,174,402 shares of our common stock and warrants to purchase 454,548 shares of common stock for a cash payment in the amount of $1,250,000; we recognized a gain on extinguishment of debt in the amount of $596,949 in connection with this transaction. (B) We also converted eight debentures with an aggregate principal amount of $2,030,000 into a total of 64,132,135 shares of common stock. A loss on settlement of debt in the aggregate amount of $428,112 was recorded on these transactions. There were no comparable transactions in the previous period.

Provision for Income Taxes

We recorded a provision for income taxes in the amount of $442,655 during the three months ended February 28, 2025 compared to $446,662 during the three months ended February 29, 2024, an increase of $4,007 or 1%. Although we have net operating losses that we believe are available to us to offset this entire tax liability, which arises under Section 280E of the Code because we are a cannabis company, as a conservative measure, we have accrued this liability.

Net Loss

For the reasons above, our net loss for the three months ended February 28, 2025 was $278,880 compared to a net loss of $4,368,975 for the three months ended February 29, 2025, a decrease of $4,090,096, or 94%.

Non-Controlling Interest

During the three months ended February 28, 2025 and 2024, the loss associated with the non-controlling interest in Kealii Okamalu was $0 and $1668, respectively. This amount is comprised of the third-party portion of the operating loss of the Quinn River Joint Venture and our loss on equity investment.

Net Loss Attributable to CLS Holdings USA, Inc.

Our net loss attributable to CLS Holdings USA, Inc. for the three months ended February 28, 2025 was $278,880 compared to a net loss of $4,369,144 for the three months ended February 29, 2024, a decrease of $4,090,264 or 94%.

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Results of Operations for the Nine months Ended February 28, 2025 and February 29, 2024

The table below sets forth our selected expenses as a percentage of revenue for the applicable periods:

	Nine Months Ended			Nine Months Ended
	February 28, 2025			February 29, 2024
Revenue		100	%		100	%
Cost of Goods Sold		58	%		57	%
Gross Margin		42	%		43	%
Selling, General, and Administrative Expenses		48	%		52	%

Interest expense		4	%		7	%
Provision for Income Tax		11	%		9	%

The table below sets forth certain statistical and financial highlights for the applicable periods:

	Nine Months Ended		Nine Months Ended
	February 28, 2025		February 29, 2024
Number of Customers Served (Dispensary)		172,387		204,520
Revenue	$	12,821,038	$	15,238,198
Gross Profit	$	5,363,521	$	6,572,504
Selling, General, and Administrative Expenses	$	6,216,328	$	7,902,057

Revenues

We had revenue of $12,821,038 during the nine months ended February 28, 2025, a decrease of $2,417,160, or 16%, compared to revenue of $15,238,198 during the nine months ended February 29, 2024. Our cannabis dispensary accounted for $8,136,274, or 63%, of our revenue for the nine months ended February 28, 2025, a decrease of $1,263,556, or 13%, compared to $9,399,830 during the nine months ended February 29, 2024. Dispensary revenue decreased during the third quarter of fiscal year 2025 because our average sales per day decreased from $34,432 during the third quarter of fiscal year 2024 to $29,803 during the third quarter of fiscal year 2025. Our cannabis production accounted for $4,684,764, or 37%, of our revenue for the nine months ended February 28, 2025, a decrease of $1,153,604 or 20%, compared to $5,838,368 for the nine months ended February 29, 2024.

Cost of Goods Sold

Our cost of goods sold for the nine months ended February 28, 2025 was $7,457,517, a decrease of $1,208,177, or 14%, compared to cost of goods sold of $8,665,694 for the nine months ended February 29, 2024. The decrease in cost of goods sold for the nine months ended February 28, 2025 was primarily due to a decrease in sales. Cost of goods sold was 58.2% of sales during the nine months ended February 28, 2025 resulting in a gross margin of 41.8%. Cost of goods sold was 56.9% of sales during the nine months ended February 29, 2024 resulting in a gross margin of 43.1%. Cost of goods sold during the third quarter of the 2025 fiscal year primarily consisted of product cost of $5,531,518, labor and overhead of $1,476,136, supplies and materials of $234,025, and licenses and fees of $10,658. We also wrote-off inventory in the amount of $205,180 due to quality control issues with a vendor; without this write-off, our gross margin would have been 43.4%. Cost of goods sold during the nine months ended February 29, 2024 primarily consisted of product cost of $7,088,792, labor and overhead of $1,215,867, supplies and materials of $335,610, and licenses and fees of $24,425.

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Selling, General and Administrative Expenses

Selling, general and administrative expenses, or SG&A, decreased by $1,685,729, or approximately 21%, to $6,216,328 during the nine months ended February 28, 2025, compared to $7,902,057 for the nine months ended February 29, 2024. The decrease in SG&A expenses for the nine months ended February 28, 2025 was primarily due to our across-the-board cost-cutting efforts.

SG&A expense during the nine months ended February 28, 2025 was primarily attributable to an aggregate of $4,783,607 in costs associated with operating the Oasis LLCs, a decrease of $1,544,930 compared to $6,358,982 during the nine months ended February 29, 2024. The major components of the decrease were as follows: professional fees of $124,508 compared to $520,902; payroll and related costs of $3,241,045 compared to $3,523,653; office and facilities expenses of $1,366,322 compared to $1,565,653; taxes and licenses of $430,863 compared to $543,452; depreciation and amortization of $226,452 compared to $337,830; travel of $230,845 compared to $327,368; sales, marketing, and advertising of $248,692 compared to $321,865; and insurance of $223,438 compared to $288,557. The amount of SG&A expense allocated to cost of goods sold decreased by $10,944 during the nine months ended February 28, 2025 compared to the nine months ended February 29, 2024 current quarter compared to the prior year, from $413,221 to $402,777.

Finally, SG&A decreased by $140,797 during the nine months ended February 28, 2025 as a result of a decrease in the expenses associated with the ongoing implementation of other aspects of our business plan and our general corporate overhead to $1,432,724 from $1,573,521 during the nine months ended February 29, 2024. The major components of this decrease compared to the third quarter of fiscal 2024 was a decrease in payroll and related costs of $122,596, a decrease in professional fees in the amount of $42,177, and a decrease of $31,601 related to sales and marketing costs.

Interest Expense, Net

Our interest expense was $570,007 for the nine months ended February 28, 2025, a decrease of $546,267, or 48.9%, compared to $1,116,274 for the nine months ended February 29, 2024. The decrease consisted of a decrease in the amount of $288,366 related to interest on our notes and debentures due to decreased principal balances; a decrease of $199,484 in amortization of the discount on notes payable due to decreased principal balances; a decrease of $57,950 in interest on short-term financing due to decreased principal balances; and a decrease of $11,007 in the amortization of discounts on notes payable. These discounts have been fully amortized as of February 28, 2025.

Employee Retention Tax Credit

During the nine months ended February 28, 2025, the Company received the amount of $50,103 under the provisions of the extension of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) compared to $924,862 during the prior period, a decrease of $874,759 or 95%.

Loss on Extinguishment of Debt

During the nine months ended February 29, 2024, we restructured and / or redeemed certain of our convertible debentures, as follows: (A) The terms of certain convertible debenture were restructured, including (i) the conversion price of the debentures was reduced to $0.07 per unit; (ii) the conversion price of warrants underlying the units issuable upon conversion was reduced to $0.10 per share; (iii) the maturity date was extended to January 31, 2028. This restructuring included the redemption of convertible debentures in the principal amount of $3,875,095 at a discount of 40% for a cash payment in the amount of $2,325,036. These transactions resulted in a net loss on extinguishment of debt in the amount of $4,493,218 due to the increase in the calculated value of the conversion features and warrants of the remaining debentures at the reduced exercise prices. We also restructured the principal amounts and due dates of six additional debentures with an aggregate principal amount of $3,897,916 resulting in a gain on extinguishment of debt in the amount of $1,088,308. There were no comparable transactions in the current period.

Gain on settlement of debt

During the nine months ended February 28, 2025, we recorded a gain on settlement of debt in the amount of $949,793 related to the payment of notes payable in the principal amount of $2,868,282 for a cash payment in the amount of $2,600,000. In addition, the noteholders returned for cancellation a total of 15,488,901 shares of the Company’s common stock and warrants to purchase 6,177,216 shares of the Company’s common stock. The cancelled shares were valued at the closing price of the Company’s common stock on the date of the cancellation, or $0.044 per share for a total value of $677,374.

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During the nine months ended February 28, 2025, the Company executed a Supplemental Indenture to amend that certain debenture indenture by and between the Company and Odyssey Trust Company, as Trustee, dated as of December 12, 2018, as supplemented March 31, 2021, as supplemented September 15, 2022, and as supplemented December 28, 2023, in order to amended the terms of its outstanding $1,378,778 original principal amount unsecured convertible debentures Canaccord Debentures issued December 12, 2018 to provide the Company an option to redeem all outstanding Canaccord Debentures in cash at a redemption price equal to $600 per $1,000 principal amount of Canaccord Debentures; any accrued but unpaid interest through to and including the redemption date shall not be paid and shall be cancelled. See note 22. On January 17, 2025, the Company exercised the option to redeem all outstanding Canaccord Debentures in the amount of $1,678,633 including capitalized interest for cash in the amount of $1,006,800. The Company recorded a gain in the amount of $671,833 on this transaction.

Gain on settlement of accounts payable

During the nine months ended February 29, 2024, we settled an outstanding vendor account in the amount of $8,375 for a cash payment of $4,000 representing a gain in the amount of $4,375. There was no comparable transaction in the current period.

Provision for Income Taxes

We recorded a provision for income taxes in the amount of $1,436,329 during the nine months ended February 28, 2025 compared to $1,380,226 during the nine months ended February 29, 2024, an increase of $56,103 or 4%. Although we have net operating losses that we believe are available to us to offset this entire tax liability, which arises under Section 280E of the Code because we are a cannabis company, as a conservative measure, we have accrued this liability.

Net Loss

For the reasons above, our net loss for the nine months ended February 28, 2025 was $1,187,414 compared to a net loss of $6,132,889 for the nine months ended February 29, 2024, a decrease of $4,945,475, or 81%.

Non-Controlling Interest

During the nine months ended February 28, 2025 and February 29, 2024, the income (loss) associated with the non-controlling interest in Kealii Okamalu was $0 and ($2,368), respectively. This amount is comprised of the third-party portion of the operating loss of the Quinn River Joint Venture and our loss on equity investment.

Net Loss Attributable to CLS Holdings USA, Inc.

Our net loss attributable to CLS Holdings USA, Inc. for the nine months ended February 28, 2025 was $1,187,414 compared to a net loss of $6,135,257 for the nine months ended February 29, 2024, a decrease of $4,947,843 or 81%.

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Non-GAAP Measures

EBITDA and Adjusted EBITDA are non-GAAP financial performance measures and should not be considered as alternatives to net income(loss) or any other measure derived in accordance with GAAP. These non-GAAP measure have limitations as analytical tools and should not be considered in isolation or as substitutes for analysis of our financial results as reported in accordance with GAAP. Because not all companies use identical calculations, these presentations may not be comparable to other similarly titled measures of other companies. As required by the rules of the SEC, we provide below a reconciliation of these non-GAAP financial measures contained herein to the most directly comparable measure under GAAP. Management believes that EBITDA provides relevant and useful information, which is widely used by analysts, investors and competitors in our industry as well as by our management. Management also believes that adjusting EBITDA for the effects of non-recurring transactions may provide insight into the nature of the core business. By providing these non-GAAP profitability measure, management intends to provide investors with a meaningful, consistent comparison of our profitability measures for the periods presented.

	Three Months Ended February 28, 2025			Three Months Ended February 29, 2024
Net Loss attributable to CLS Holdings, Inc.	$	(278,880	)	$	(4,369,144	)
Add:
Interest expense, net		114,889			247,961
Provision for taxes		442,655			446,662
Depreciation and amortization		116,180			165,874
EBITDA (1)	$	394,844		$	(3,508,647	)
Less non-recurring gains and losses:
Loss on extinguishment of debt	$	-		$	3,404,910
Loss on impairment of inventory		205,180			-
Gain on settlement of debt		(671,833	)		(168,837	)
Adjusted EBITDA (2)	$	(71,809	)	$	(272,574	)

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	Nine Months Ended February 28, 2025			Nine Months Ended February 29, 2024
Net Loss attributable to CLS Holdings, Inc.	$	(1,187,414	)	$	(6,135,257	)
Add:
Interest expense, net		570,007			1,116,274
Provision for taxes		1,436,329			1,380,226
Depreciation and amortization		372,710			498,131
EBITDA (1)	$	1,191,632		$	(3,140,626	)
Less non-recurring gains and losses:
Gain on settlement of accounts payable	$	-		$	(4,375	)
Loss on impairment of inventory		205,180			-
Gain on settlement of debt		(1,621,626	)	$	(168,837	)
Employee retention tax credit		(50,103	)		(924,862	)
Loss on extinguishment of debt		-			3,404,910
Adjusted EBITDA (2)	$	(274,917	)	$	(833,790	)

(1)	Net loss plus interest, taxes, depreciation, and amortization.
(2)	EBITDA adjusted for non-recurring gains, losses, and impairments.

Liquidity and Capital Resources

Since our inception we have funded our operations and capital spending primarily through the issuance of debt and common stock. At February 28, 2025, we had cash of $220,683 and a working capital deficit of $14,586,258; at April 2, 2025, we had cash of $507,638. We generated cash flow from operating activities of $321,052 for the nine months ended February 28, 2025, compared to $588,850 for the nine months ended February 29, 2024. As of February 28, 2025, we had an accumulated deficit of $114,554,464. The Company’s auditors have included a going concern qualification in their audit report for the years ended May 31, 2024 and 2023.

During the past two years, we have been involved in a focused effort to reduce our debt burden through a combination of settlements, restructurings, principal payments, and conversions of debt to common stock. The following table illustrates the results of these efforts:

Principal balance of debt:

	February 28, 2025		November 30, 2024		August 31, 2024		May 31, 2024		May 31, 2023		May 31, 2022
Convertible notes payable including related party	$	-	$	1,661,326	$	3,985,481	$	4,001,431	$	7,606,102	$	19,448,821
Current portion	$	-	$	126,043	$	375,025	$	302,005	$	3,853,051	$	9,448,821

Notes Payable and Debentures	$	225,352	$	163,600	$	704,830	$	741,052	$	3,472,661	$	4,375,000
Current portion	$	180,768	$	128,898	$	125,107	$	139,345	$	1,439,584	$	-

Notes Payable, Related Party	$	2,929,218	$	2,180,484	$	2,254,750	$	2,067,023	$	-	$	-
Current portion	$	2,008,209	$	1,514,362	$	1,415,392	$	988,472	$	-	$	-

Total	$	3,154,570	$	4,005,410	$	6,945,061	$	6,809,506	$	11,078,763	$	23,823,821
Current portion	$	2,188,977	$	1,769,303	$	1,915,524	$	1,429,822	$	5,292,635	$	9,448,821

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We have continued and intend to continue these efforts to further reduce our debt burden in the coming year. During the nine months ended February 28, 2025, we raised $2,600,000 from the issuance of a note payable to a related party; $2,200,000 of this amount was converted to 56,847,545 shares of common stock during the period, and $400,000 remains on the balance sheet as a note payable at February 28, 2025. The $2,600,000 was used to retire debt in the aggregate principal amount of $2,868,282 in September 2024. We believe we have resources in place with existing and prospective lenders to continue to reduce our debt burden, though there can be no guarantee that this will be the case. We also raised an additional $1,275,000 from the issuances of debentures to related parties; these proceeds were used to retire $1,678,633 of convertible debt at a 60% discount with a net payment of $1,006,800.

Our working capital deficit is due primarily to accruals for taxes payable under Section 280E of the Internal Revenue Code in the amount of $10,331,192 at February 28, 2025. It is the Company’s position that these taxes will not ultimately be owed. Removing this amount from the calculation of net working capital results in a working capital deficit of $4,255,066 at February 28, 2025.

The Company continues to generate positive cash flow from operating activities, which were $321,052 for the nine months ended February 28, 2025 compared to $588,850 for the nine months ended February 29, 2024. We intend to continue to focus on operational activities in order to further improve our cash flow.

We have one potential capital expenditure project planned for fiscal 2025, which is our proposed 3,700 square foot cannabis consumption lounge and 300 square foot outdoor patio area to be attached to the Oasis dispensary. We expect this project to require a capital expenditure in the range of $500,000 to $1,000,000, depending upon various buildout decisions.

We believe the resources are available to execute our business plan in the coming year from existing and prospective investors and from internally generated cash flow, though there is no guarantee that this will be the case.

Going Concern

Our financial statements were prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplate the realization of assets and liquidation of liabilities in the normal course of business. With the exception of the first quarter of fiscal 2022, we have incurred losses from operations since inception, and have an accumulated deficit of $114,554,464 as of February 28, 2025, compared to $113,367,050 as of May 31, 2024. We had a working capital deficit of $14,586,258 as of February 28, 2025, compared to a working capital deficit of $10,928,252 as of May 31, 2024. The report of our independent auditors for the year ended May 31, 2024 contained a going concern qualification.

Our ability to continue as a going concern must be considered in light of the problems, expenses, and complications frequently encountered by early-stage companies.

Our ability to continue as a going concern is dependent on our ability to generate sufficient cash from operations to meet our cash needs and finance our ongoing operations. There can be no assurance that cash generated by our future operations will be adequate to meet our needs.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

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Critical Accounting Estimates

Management uses various estimates and assumptions in preparing our financial statements in accordance with generally accepted accounting principles. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Accounting estimates that are the most important to the presentation of our results of operations and financial condition, and which require the greatest use of judgment by management, are designated as our critical accounting estimates. We have the following critical accounting estimates:

	●	Estimates and assumptions regarding the deductibility of expenses for purposes of Section 280E of the Internal Revenue Code: Management evaluates the expenses of its manufacturing and retail operations and makes certain judgments regarding the deductibility of various expenses under Section 280E of the Internal Revenue Code based on its interpretation of this regulation and its subjective assumptions about the categorization of these expenses.

	●	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.

Recently Issued Accounting Standards

Accounting standards promulgated by the Financial Accounting Standards Board (the “FASB”) are subject to change. Changes in such standards may have an impact on our future financial statements. The following are a summary of recent accounting developments.

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 have a material impact on our consolidated financial position, results of operations or cash flows.

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Item 3. Quantitative and Qualitative Disclosure about Market Risk.

This item is not applicable as we are currently considered a smaller reporting company.

Item 4. Controls and Procedures.

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit pursuant to the requirements of the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, among other things, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file under the Securities Exchange Act is accumulated and communicated to our management, including our principal executive and financial officers, as appropriate, to allow timely decisions regarding required disclosure.

Evaluation of Disclosure Controls and Procedures

Andrew Glashow, our Chief Executive Officer, and Principal Financial and Accounting Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. The Company believes it now has an adequate number of trained personnel to resolve any segregation of duties deficiencies. Based on the evaluation, Mr. Glashow concluded that:

●

We do not have an independent body to oversee our internal controls over financial reporting due to our limited resources.

We plan to rectify these weaknesses by hiring additional accounting personnel once we have additional resources to do so.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal controls over financial reporting that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

None.

Item 1A. Risk Factors.

The Effects of Climate Change Could Adversely Affect the Quantity and Quality of Our Crops and the Cost and Availability of Energy to Our Dispensary Operations.

The effect of climate change is causing an increase in the cost of electricity to operate our dispensary operation and if temperatures remain high, could result in rationing of electricity, which could necessitate a reduction in operating hours at our dispensary.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

None.

Item 5. Other Information.

None.

Item 6. Exhibits.

31.1		Certification by the Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1		Certification by the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS		Inline XBRL Instance Document

101.SCH		Inline XBRL Taxonomy Extension Schema

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase

104		Cover Page Interactive Data File (formatted as Inline XBRL)

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	CLS HOLDINGS USA, INC.

Date: April 14, 2025	By:	/s/ Andrew Glashow
		Andrew Glashow
		Chairman of the Board of Directors and Chief Executive Officer
		(Principal Executive, Financial and Accounting Officer)

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