CLS Holdings USA, Inc. General form of registration statement for all companies including face-amount certificate companies

General form of registration statement for all companies including face-amount certificate companies

FAIR VALUE OF FINANCIAL INSTRUMENTS

FAIR VALUE OF FINANCIAL INSTRUMENTS

6 Months Ended

12 Months Ended

Nov. 30, 2018

May 31, 2018

Fair Value Disclosures [Abstract]

Fair Value Disclosures [Text Block]

Note 16 – Fair Value of Financial Instruments

The Company has issued convertible notes containing beneficial conversion features to Darling, Efrat, David Lamadrid and YA II PN Notes. One of the features is a ratchet reset provision which, in general, reduces the conversion price should the Company issue equity with an effective price per share that is lower than the stated conversion price in the note. The Company accounts for the fair value of the conversion feature in accordance with ASC 815- Accounting for Derivatives and Hedging and Emerging Issues Task Force (“EITF”) 07-05- Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock (“EITF 07-05”). The Company carries the embedded derivative on its balance sheet at fair value and accounts for any unrealized change in fair value as a component of its results of operations. The Company also has a contingent liability in connection with the acquisition of Alternative Solutions, LLC (see note 3).

The following summarizes the Company’s financial liabilities that are recorded at fair value on a recurring basis at November 30, 2018 and May 31, 2018:

	November 30, 2018
	Level 1		Level 2		Level 3		Total
Liabilities
Contingent liabilities	$	-	$	-	$	678,111	$	678,111

	May 31, 2018
	Level 1		Level 2		Level 3		Total
Liabilities
Derivative liabilities	$	-	$	-	$	1,265,751	$	1,265,751

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

	Derivative
	Liability
Liabilities Measured at Fair Value

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

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

Balance as of November 30 2018	$	-

NOTE 15 – FAIR VALUE OF FINANCIAL INSTRUMENTS

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

	May 31, 2018
	Level 1		Level 2		Level 3		Total
Liabilities
Derivative liabilities	$	-	$	-	$	1,265,751	$	1,265,751

	May 31, 2017
	Level 1		Level 2		Level 3		Total
Liabilities
Derivative liabilities	$	-	$	-	$	95,276	$	95,276

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

	Derivative
	Liability
Liabilities Measured at Fair Value

Balance as of May 31, 2016	$	418,537

Issuances		600,564

Convert or Redeem		(612,850	)

Revaluation gain		(310,975	)

Balance as of May 31, 2017	$	95,276

Issuances		3,671,505

Convert or Redeem		(2,696,755	)

Revaluation loss		195,725

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

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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