UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
Commission File Number
(Exact name of registrant as specified in its charter) |
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(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) |
(Address of principal executive offices) (Zip Code)
(Registrant’s telephone number, including area code)
_____________________________________________
(Former name, former address and former fiscal year, if changed since last report)
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 issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒
Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
☐ | Smaller reporting company | ||
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| 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).
As of January 18, 2022, there were
TABLE OF CONTENTS
PART I—FINANCIAL INFORMATION | ||||
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Item 1. | Financial Statements. | 3 | ||
Management’s Discussion and Analysis of Financial Condition and Results of Operations. | 46 | |||
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ALLIED CORP.
CONSOLIDATED FINANCIAL STATEMENTS
Condensed consolidated interim balance sheets at November 30, 2021 (unaudited) and August 31, 2021 |
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Notes to the unaudited condensed consolidated interim financial statements |
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3 |
Table of Contents |
ALLIED CORP. Condensed Consolidated Interim Balance Sheets (Expressed in US Dollars) |
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| November 30, 2021 |
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| August 31, 2021 |
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Assets |
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Current assets |
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Cash |
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Inventory (Note 3) |
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Other receivables |
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Prepaid expenses |
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Total current assets |
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Deposits and advances (Note 4) |
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Right-of-use assets (Note 7) |
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Property, plant and equipment (Note 5) |
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Intangible assets (Note 6) |
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Total assets |
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Liabilities |
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Current liabilities |
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Accounts payable and accrued liabilities |
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Current portion of lease liabilities (Note 7) |
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Loan payable (Note 8) |
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Secured convertible notes payable (Note 9) |
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Total current liabilities |
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Lease liabilities, net of current portion (Note 7) |
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Total liabilities |
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Stockholders’ deficiency |
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Preferred stock – |
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Common stock – |
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Treasury stock |
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Additional paid in capital |
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Common stock issuable |
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Common stock subscription receivable |
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Accumulated deficit |
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Accumulated other comprehensive loss |
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Total stockholders’ deficiency |
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Total liabilities and stockholders’ deficiency |
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Nature of operations and going concern (Note 1)
Commitments (Note 14)
Subsequent events (Note 19)
The accompanying notes form an integral part of these unaudited condensed consolidated interim financial statements.
4 |
Table of Contents |
ALLIED CORP. Condensed Consolidated Interim Statements of Operations and Comprehensive Loss (Expressed in US dollars) (Unaudited) |
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| For the Three Months Ended November 30, 2021 |
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| For the Three Months Ended November 30, 2020 |
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Revenues |
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Sales |
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Expenses |
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Amortization |
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Purchase of inventory |
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Consulting fees |
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Stock-based compensation - consulting services |
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Stock-based compensation - bonus shares (Note 11) |
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Stock-based compensation - options |
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Foreign exchange loss (gain) |
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Interest expense and bank charges |
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Office and miscellaneous |
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Professional fees |
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Travel |
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Inventory costs write-down to net realizable value (Note 3) |
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Expenses before other items |
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Loss before other items |
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Other expenses |
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Loss on termination of lease |
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Settlement payments (Note 14) |
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Loss on extinguishment of convertible debt |
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Accretion |
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Total other expenses |
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Net loss |
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Other comprehensive income (loss) |
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Foreign currency translation adjustments |
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Comprehensive loss |
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Basic and diluted loss per share |
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Weighted average number of common shares outstanding |
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The accompanying notes form an integral part of these unaudited condensed consolidated interim financial statements.
5 |
Table of Contents |
ALLIED CORP. Condensed Consolidated Interim Statements of Stockholders’ Equity (Deficit) (Expressed in US dollars) (Unaudited) |
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| Number of shares |
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| Stock issuable |
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| subscription receivable |
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| Accumulated deficit |
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| comprehensive income (loss) |
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| Total |
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Balance, August 31, 2020 |
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Shares issued for cash |
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Detachable warrants issued with convertible notes payable |
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Shares issuable upon modification of debt |
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Common stock subscribed |
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Comprehensive loss for the period |
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Balance, November 30, 2020 |
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The accompanying notes form an integral part of these unaudited condensed consolidated interim financial statements.
6 |
Table of Contents |
ALLIED CORP. Condensed Consolidated Interim Statements of Stockholders’ Equity (Deficit) (Expressed in US dollars) (Unaudited) |
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| Number of shares |
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| Amount |
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| Number of shares |
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| Amount |
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| paid in capital |
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| Stock issuable |
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| subscription receivable |
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| Accumulated deficit |
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| comprehensive loss |
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| Total |
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Balance, August 31, 2021 |
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Shares issued from treasury |
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Shares issued for cash |
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Share issuance costs |
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Shares subscribed |
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Shares issued for finders fees |
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Shares issued in error not yet cancelled |
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Detachable warrants issued with convertible notes payable |
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Beneficial conversion feature |
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Stock-based compensation |
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Comprehensive loss for the period |
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Balance, November 30, 2021 |
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| $ | ( | ) |
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The accompanying notes form an integral part of these unaudited condensed consolidated interim financial statements.
7 |
Table of Contents |
ALLIED CORP. Condensed Consolidated Interim Statements of Cash Flows (Expressed in US dollars) (Unaudited) |
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| For the Three Months Ended November 30, 2021 |
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Cash provided by (used in): |
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Operating activities |
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Net loss for the period |
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Adjustment to net loss for the period for non-cash items |
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Accretion |
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Accrued interest |
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Inventory write-down to net realizable value |
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Amortization |
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Loss on debt extinguishment |
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Loss on termination of lease |
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Stock-based compensation - consulting services |
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Stock-based compensation - bonus shares (Note 11) |
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Stock-based compensation – options |
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Changes in non-cash working capital balance: |
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Decrease in other receivables |
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Decrease (increase) in prepaid expenses |
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Increase in due from related parties |
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Increase (decrease) in accounts payable and accrued liabilities |
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Increase in inventory |
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Investing activities |
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Refunds of deposits |
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Purchase of property, plant, and equipment |
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Financing activities |
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Proceeds of convertible notes payable |
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Repayment of loan payable |
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Repayment of finance lease obligations |
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Proceeds from the issuance of common stock |
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Decrease in cash |
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Effect of exchange rate on changes of cash |
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Cash, beginning of period |
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Cash, end of period |
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Supplemental cash flow disclosures: |
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Income taxes paid |
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Interest paid |
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Non-cash activities: See Note 17
The accompanying notes form an integral part of these unaudited condensed consolidated interim financial statements
8 |
Table of Contents |
ALLIED CORP. Notes to the unaudited condensed consolidated interim financial statements November 30, 2021 (Expressed in US dollars) |
1. | Nature of operations, reverse take-over transaction and going concern |
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a) | Nature of operations |
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| Allied Corp. (the “Company or Allied”) was incorporated in the State of Nevada on February 3, 2013. On July 1, 2019, the Company changed its name to Allied Corp. The head office and the registered office of the Company are located at 1405 St. Paul Street, Kelowna BC V1Y 2E4.
The Company’s business plan is to discover new medical technologies some of which are cannabis derived to target full scope therapy and support for trauma survivors, military veterans and first responders, however the Company has not begun such operations nor obtained the required permits to begin such operations.
On September 10, 2019, the Company was acquired in a reverse takeover (“RTO”) transaction (see Note 1b) and the RTO is considered a purchase of the Company’s net assets by AM (Advanced Micro) Biosciences, Inc. (“AM Biosciences”). For accounting purposes, the legal subsidiary, AM Biosciences has been treated as the acquirer and Allied Corp., the legal parent, has been treated as the acquiree. Accordingly, these consolidated financial statements reflect a continuation of the financial position, operating results, and cash flow of the Company’s legal subsidiary, AM Biosciences from the date of incorporation on September 13, 2018.
On February 18, 2020, the Company acquired all the issued and outstanding share capital of a Colombian company, Allied Colombia S.A.S (“Allied Colombia”). The assets, liabilities and results of Allied Colombia are consolidated in these financial statements beginning from the February 18, 2020 acquisition date. As at November 30, 2021, Allied Colombia has a licensed cannabis farm in Colombia. |
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b) | Reverse take-over transaction (RTO) |
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| On July 25, 2019, as amended effective August 27, 2019, the Company entered into a reorganization and stock purchase agreement (the “Reorganization Agreement”) to acquire
The Reorganization Agreement constitutes a reverse acquisition, such that AM Biosciences acquired control of Allied Corp. At the time of the Reorganization Agreement, the operations of Allied Corp. did not constitute businesses under ASC 805 Business Combinations and accordingly the transaction is considered a reverse asset acquisition in accordance with generally accepted accounting principles in the United States of America (“US GAAP”). Under this method of accounting, AM Biosciences was deemed to be the accounting acquirer for financial reporting purposes. This determination was primarily based on the facts that, immediately following the acquisition: (i) AM Biosciences’ stockholders owned a substantial majority of the voting rights in the combined company, (ii) AM Biosciences designated a majority of the members of the initial board of directors of the combined company, and (iii) AM Biosciences’ senior management holds all key positions in the senior management of the combined company. As a result, as of the closing date of the acquisition, the net assets of the Company were recorded at their acquisition-date relative fair values in the consolidated financial statements of the Company and the reported operating results prior to the acquisition will be those of AM Biosciences. |
9 |
Table of Contents |
ALLIED CORP. Notes to the unaudited condensed consolidated interim financial statements November 30, 2021 (Expressed in US dollars) |
1. | Nature of operations, reverse take-over transaction and going concern (continued) |
c) | Going concern |
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| The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company incurred a net loss for the three months ended November 30, 2021 of $ |
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d) | COVID-19 impact |
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| In March 2020, the World Health Organization declared COVID-19 a global pandemic. This contagious disease outbreak and the related adverse public health developments have adversely affected workforces, economies, and financial markets globally, leading to uncertainty and an economic downturn. Although some product distribution was delayed by COVID-19, management has determined that there has been no significant impact to the Company’s operations, however management continues to monitor the situation. |
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e) | Business Risks |
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| While some states in the United States have authorized the use and sale of cannabis, it remains illegal under federal law and the approach to enforcement of U.S. federal laws against cannabis is subject to change. Because the Company plans to engage in cannabis-related activities in the United States, only if and when cannabis operations are federally legalized.
On January 4, 2018, the then United States Attorney General Jeff Sessions issued a memorandum to United States district attorneys (the “Sessions Memorandum”) which rescinded previous guidance from the United States Department of Justice specific to cannabis enforcement in the United States, including the Cole Memorandum. With the Cole Memorandum rescinded, United States federal prosecutors no longer have guidance relating to the exercise of their discretion in determining whether to prosecute cannabis related violations of United States federal law. Since that time, United States district attorneys have taken no legal action against state law compliant entities, and the Biden administration is generally anticipated to seek federal decriminalization of state legal cannabis activity. Nevertheless, a significant change in the federal government’s enforcement policy with respect to current federal laws applicable to cannabis could cause significant financial damage to the Company. The Company may be irreparably harmed by a change in enforcement policies of the federal government depending on the nature of such change.
Given the current illegality of cannabis under United States federal law, the Company’s ability to access both public and private capital may be hindered by the fact that certain financial institutions are regulated by the United States federal government and are thus prohibited from providing financing to companies engaged in cannabis related activities. The Company’s ability to access public capital markets in the United States is directly hindered as a result. The Company may, however, be able to access public and private capital markets in the United States through institutions which are not regulated by the United States federal government, in Canada, and in many other countries in order to support continuing operations. |
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Table of Contents |
ALLIED CORP. Notes to the unaudited condensed consolidated interim financial statements November 30, 2021 (Expressed in US dollars) |
2. | Significant accounting policies |
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| Business Presentation
These unaudited condensed consolidated financial statements and related notes are presented in accordance with accounting principles generally accepted in the United States of America (“US GAAP”), and are expressed in United States dollars. The Company’s fiscal year end is August 31.
These interim unaudited financial statements have been prepared in accordance with US GAAP for interim financial information and with the instructions to Securities and Exchange Commission (“SEC”) Form 10-Q. They do not include all of the information and footnotes required by US GAAP for complete financial statements. Therefore, these interim financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto for the year ended August 31, 2021 included in the Company’s Annual Report on Form 10-K filed with the SEC.
The consolidated financial statements included herein are unaudited; however, they contain all normal recurring accruals and adjustments that, in the opinion of management, are necessary to present fairly the Company’s financial position at November 30, 2021, and the results of its operations for the three months ended November 30, 2021, and cash flows for the three months ended November 30, 2021. The results of operations for the period ended November 30, 2021 are not necessarily indicative of the results to be expected for future quarters or the full year.
The significant accounting policies followed are: |
| a) | Principles of consolidation |
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| The consolidated financial statements include accounts of Allied Corp. and its wholly-owned subsidiaries, including AM Biosciences, Allied US Products LLC, Tactical Relief LLC, Baleno Ltd. and Allied Colombia. Subsidiaries are consolidated from the date of acquisition and control and continue to be consolidated until the date that such control ceases. Control is achieved when the Company is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect these returns through its power over the investee. All intercompany balances, income, expenses, and unrealized gains and losses resulting from intercompany transactions are eliminated on consolidation. |
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| b) | Cash and cash equivalents |
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| Cash is comprised of cash on hand, cash held in trust accounts and demand deposits. Cash equivalents are short-term, highly liquid investments with maturities within three months when acquired. The Company did not have any cash equivalents as of November 30, 2021 and August 31, 2021. |
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| c) | Property, plant and equipment |
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| Property, plant and equipment are stated at cost. The Company depreciates the cost of property, plant and equipment over their estimated useful lives at the following annual rates and methods: |
| Farm facility and equipment |
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| Office and computer equipment |
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| Land equipment |
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| d) | Inventory |
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| Inventory is comprised of raw materials, supplies, vegetative and flowering plants, dried flower, diluted crude and CBD isolates available for sale, and purchased cannabis products. |
11 |
Table of Contents |
ALLIED CORP. Notes to the unaudited condensed consolidated interim financial statements November 30, 2021 (Expressed in US dollars) |
2. | Significant accounting policies (continued) |
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| Inventory is stated at the lower of cost or net realizable value, determined using weighted average cost. Net realizable value is defined as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. At the end of each reporting period, the Company performs an assessment of inventory and records write-downs for excess and obsolete inventories based on the Company’s estimated forecast of product demand, production requirements, market conditions, regulatory environment, and spoilage. Actual inventory losses may differ from management’s estimates and such differences could be material to the Company’s consolidated balance sheets, statements of net loss and comprehensive loss and statements of cash flows. |
e) | Intangible assets | |
Intangible assets include licenses which are being amortized over their estimated useful lives of
The Company periodically evaluates the reasonableness of the useful lives of these assets. Once these assets are fully amortized, they are removed from the accounts. These assets are reviewed for impairment or obsolescence when events or changes in circumstances indicate that the carrying amount may not be recoverable. If impaired, intangible assets are written down to fair value based on discounted cash flows or other valuation techniques. The Company has no intangibles with indefinite lives.
For long-lived assets, impairment losses are only recorded if the asset’s carrying amount is not recoverable through its undiscounted, probability-weighted future cash flows. The Company measures the impairment loss based on the difference between the carrying amount and the estimated fair value. When an impairment exists, the related assets are written down to fair value.
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f) | Long-lived assets | |
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| In accordance with ASC 360, Property, Plant and Equipment, the Company tests long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will more likely than not be sold or disposed significantly before the end of its estimated useful life. Recoverability is assessed based on the carrying amount of the asset and its fair value, which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances. An impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value. |
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Table of Contents |
ALLIED CORP. Notes to the unaudited condensed consolidated interim financial statements November 30, 2021 (Expressed in US dollars) |
2. | Significant accounting policies (continued) |
| g) | Foreign currency translation and functional currency conversion |
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| Items included in these consolidated financial statements of each of the Company’s entities are measured using the currency of the primary economic environment in which the entities operate (the “functional currency”).
Prior to September 10, 2019, the Company’s functional currency was the Canadian dollar. Translation gains and losses from the application of the U.S. dollar as the reporting currency during the period that the Canadian dollar was the functional currency are included as part of cumulative currency translation adjustment, which is reported as a component of shareholders’ equity under accumulated other comprehensive loss.
The Company re-assessed its functional currency and determined as at September 10, 2019, its functional currency changed from the Canadian dollar to the U.S. dollar based on management’s analysis of changes in our organization. The change in functional currency was accounted for prospectively from September 10, 2019 and prior period financial statements were not restated for the change in functional currency.
For periods commencing September 10, 2019, monetary assets and liabilities denominated in foreign currencies are translated into U.S. dollars using exchange rates in effect at the balance sheet date. Opening balances related to non-monetary assets and liabilities are based on prior period translated amounts, and non-monetary assets and non-monetary liabilities incurred after September 10, 2019 are translated at the approximate exchange rate prevailing at the date of the transaction. Revenue and expense transactions are translated at the approximate exchange rate in effect at the time of the transactions. Foreign exchange gains and losses are included in the statement of operations and comprehensive loss as foreign exchange gains.
The Company assessed the functional currency for Allied Colombia to be the Colombian peso. The functional currency for all other subsidiaries is the U.S. dollar. |
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| h) | Share issuance costs |
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| Costs directly attributable to the raising of capital are charged against the related share capital. Costs related to shares not yet issued are recorded as deferred share issuance costs. These costs are deferred until the issuance of the shares to which the costs relate, at which time the costs will be charged against the related share capital or charged to operations if the shares are not issued. |
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| i) | Research and development costs |
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| Research and development costs are expensed as incurred. |
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| j) | Revenue recognition |
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| The Company’s revenue is comprised of sales of cannabis products.
The Company’s revenue-generating activities have a single performance obligation and revenue is recognized at the point in time when control of the product transfers and the Company’s obligations have been fulfilled. This generally occurs when the product is shipped or delivered to the customer, depending upon the method of distribution and shipping terms set forth in the customer contract. Revenue is measured as the amount of consideration the Company expects to receive in exchange for the sale of the Company’s product. Certain of the Company’s customer contracts may provide the customer with a right of return. In certain circumstances the Company may also provide a retrospective price adjustment to a customer. These items give rise to variable consideration, which is recognized as a reduction of the transaction price based upon the expected amounts of the product returns and price adjustments at the time revenue for the corresponding product sale is recognized. The determination of the reduction of the transaction price for variable consideration requires that the Company make certain estimates and assumptions that affect the timing and amounts of revenue recognized. |
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Table of Contents |
ALLIED CORP. Notes to the unaudited condensed consolidated interim financial statements November 30, 2021 (Expressed in US dollars) |
2. | Significant accounting policies (continued) |
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| Sales of products are for cash or otherwise agreed-upon credit terms. The Company’s payment terms vary by location and customer; however, the time period between when revenue is recognized and when payment is due is not significant. The Company estimates and reserves for its bad debt exposure based on its experience with past due accounts and collectability, write-off history, the aging of accounts receivable and an analysis of customer data. |
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| k) | Net income (loss) per common share |
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| Net income (loss) per share is calculated in accordance with ASC 260, Earnings per Share. The weighted-average number of common shares outstanding during each period is used to compute basic earning or loss per share. Diluted earnings or loss per share is computed using the weighted average number of shares and diluted potential common shares outstanding to the extent the effect would not be antidilutive. Dilutive potential common shares are additional common shares assumed to be exercised.
Basic net income (loss) per common share is based on the weighted average number of shares of common stock outstanding. |
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| l) | Income taxes |
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| The Company accounts for income taxes under ASC 740, Income Taxes. Under the asset and liability method of ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC 740, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the enactment occurs. 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. |
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| m) | Related party transactions |
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| Related parties are any entities or individuals that, through employment, ownership or other means, possess the ability to direct or cause the direction of the management and policies of the Company. The Company discloses related party transactions that are outside of normal compensatory agreements, such as salaries. Related party transactions are measured at the exchange amounts. |
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| n) | Significant accounting estimates and judgments |
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| The preparation of the financial statements in conformity with US GAAP requires management to make judgments, estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Although management uses historical experience and its best knowledge of the amount, events or actions to for the basis for judgments and estimates, actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and further periods if the review affects both current and future periods.
Significant estimates and assumptions included in these financial statements relate to the valuation assumptions related to the estimated useful lives and recoverability of long-lived assets, stock-based compensation, and deferred income tax assets and liabilities. Judgments are required in the assessment of the Company’s ability to continue to as going concern as described in Note 1. |
14 |
Table of Contents |
ALLIED CORP. Notes to the unaudited condensed consolidated interim financial statements November 30, 2021 (Expressed in US dollars) |
2. | Significant accounting policies (continued) |
| o) | Financial instruments |
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| ASC 825, Financial Instruments, requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 825 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 825 prioritizes the inputs into three levels that may be used to measure fair value:
Level 1
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2
Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3
Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
The financial instruments consist principally of cash, due from related parties, accounts payable, note payable, and convertible notes payable. The fair value of cash when applicable is determined based on “Level 1” inputs, which consist of quoted prices in active markets for identical assets. The Company believes that the recorded values of all other financial instruments which are categorized as loans and receivables approximate their current fair values because of their nature and respective relatively short maturity dates or current market rates of interest for similar instruments.
For certain of the Company’s financial instruments, including accounts payable, due from related parties, notes and loans payable, the carrying amounts approximate their fair values due to the short maturities.
The Company does not have any assets or liabilities measured at fair value on a recurring basis presented on the Company’s balance sheet as of November 30, 2021 and August 31, 2021 other than cash.
Financial instruments that potentially subject the Company to a concentration of credit risk consist primarily of cash. The Company limits its exposure to credit loss by placing its cash with high credit quality financial institutions. |
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| p) | Leases |
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| In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, “Leases (Topic 842)” (“ASU 2016-02”), which requires lessees to put most leases on their balance sheets but recognize the expenses on their income statements in a manner similar to current practice. The standard states that a lessee would recognize a lease liability for the obligation to make lease payments and a right-to-use asset for the right to use the underlying asset for the lease term. The standard is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2018. The Company adopted ASU 2016-02 on September 1, 2019, using the transition relief to the modified retrospective approach, presenting prior year information based on the previous standard. The Company did not have any leases until the acquisition of its wholly owned subsidiary, Allied Colombia S.A.S. on February 18, 2020. |
15 |
Table of Contents |
ALLIED CORP. Notes to the unaudited condensed consolidated interim financial statements November 30, 2021 (Expressed in US dollars) |
2. | Significant accounting policies (continued) |
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| The Company determines if an arrangement contains a lease in whole or in part at the inception of the contract. Right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term while lease liabilities represent our obligation to make lease payments arising from the lease. All leases with terms greater than twelve months result in the recognition of a ROU asset and a liability at the lease commencement date based on the present value of the lease payments over the lease term. Unless a lease provides all of the information required to determine the implicit interest rate, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of the lease payments. The Company uses the implicit interest rate in the lease when readily determinable.
Our lease terms include all non-cancelable periods and may include options to extend (or to not terminate) the lease when it is reasonably certain that we will exercise that option. Leases with terms of twelve months or less at the commencement date are expensed on a straight-line basis over the lease term and do not result in the recognition of an asset or liability. See Note 7 – Leases. |
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| q) | Reverse Acquisitions |
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| Identification of the accounting acquirer
The Company considers factors in ASC 805-10-55-10 through 55-15 in identifying the accounting acquirer. The Company uses the existence of a controlling financial interest to identify the acquirer - the entity that obtains control of the acquiree. Other pertinent facts and circumstances also shall be considered in identifying the acquirer in a business combination effected by exchanging equity interests, including the following: (a) The relative voting rights in the combined entity after the business combination, where the acquirer usually is the combining entity whose owners as a group retain or receive the largest portion of the voting rights in the combined entity taking into consideration the existence of any unusual or special voting arrangements and options, warrants, or convertible securities; (b) the existence of a large minority voting interest in the combined entity if no other owner or organized group of owners has a significant voting interest, and where the acquirer usually is the combining entity whose single owner or organized group of owners holds the largest minority voting interest in the combined entity; (c) the composition of the governing body of the combined entity, where the acquirer usually is the combining entity whose owners have the ability to elect or appoint or to remove a majority of the members of the governing body of the combined entity; (d) the composition of the senior management of the combined entity, where the acquirer usually is the combining entity whose former management dominates the management of the combined entity; and (e) the terms of the exchange of equity interests, where the acquirer usually is the combining entity that pays a premium over the pre-combination fair value of the equity interests of the other combining entity or entities, where the acquirer usually is the combining entity whose relative size (measured in, for example, assets, revenues, or earnings) is significantly larger than that of the other combining entity or entities.
Pursuant to ASC Paragraph 805-40-05-2, as one example of a reverse acquisition, a private operating entity may arrange for a public entity to acquire its equity interests in exchange for the equity interests of the public entity. In this situation, the public entity is the legal acquirer because it issued its equity interests, and the private entity is the legal acquiree because its equity interests were acquired. However, application of the guidance in ASC 805-10-55-11 through 55-15 results in identifying: (a) The public entity as the acquire for accounting purposes (the accounting acquiree); and (b) the private entity as the acquirer for accounting purposes (the accounting acquirer). |
16 |
Table of Contents |
ALLIED CORP. Notes to the unaudited condensed consolidated interim financial statements November 30, 2021 (Expressed in US dollars) |
2. | Significant accounting policies (continued) |
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| Measuring the consideration transferred
Pursuant to ASC 805-40-30-2 and 30-3 in a reverse acquisition, the accounting acquirer usually issues no consideration for the acquiree. Instead, the accounting acquiree usually issues its equity shares to the owners of the accounting acquirer. Accordingly, the acquisition-date fair value of the consideration transferred by the accounting acquirer for its interest in the accounting acquiree is based on the number of equity interests the legal subsidiary would have had to issue to give the owners of the legal parent the same percentage equity interest in the combined entity that results from the reverse acquisition. The fair value of the number of equity interests calculated in that way can be used as the fair value of consideration transferred in exchange for the acquiree. The assets and liabilities of the legal acquiree are measured and recognized in the consolidated financial statements at their pre-combination carrying amounts (see ASC 805-40-45-2(a)).
Presentation of consolidated financial statements post reverse acquisition
Pursuant to ASC 805-40-45-1 and 45-2, consolidated financial statements following a reverse acquisition are issued under the name of the legal parent (accounting acquiree) but described in the notes as a continuation of the financial statements of the legal subsidiary (accounting acquirer), with one adjustment, which is to retroactively adjust the accounting acquirer’s legal capital to reflect the legal capital of the accounting acquiree. That adjustment is required to reflect the capital of the legal parent (the accounting acquiree). Comparative information presented in those consolidated financial statements also is retroactively adjusted to reflect the legal capital of the legal parent (accounting acquiree). The consolidated financial statements reflect all of the following: (a) The assets and liabilities of the legal subsidiary (the accounting acquirer) recognized and measured at their pre-combination carrying amounts; (b) the assets and liabilities of the legal parent (the accounting acquiree) recognized and measured in accordance with the guidance in Topic 805 “Business Combinations”; (c) the retained earnings and other equity balances of the legal subsidiary (accounting acquirer) before the business combination; (d) the amount recognized as issued equity interests in the consolidated financial statements determined by adding the issued equity interest of the legal subsidiary (the accounting acquirer) outstanding immediately before the business combination to the fair value of the legal parent (accounting acquiree) determined in accordance with the guidance in this topic applicable to business combinations. However, the equity structure (that is, the number and type of equity interests issued) reflects the equity structure of the legal parent (the accounting acquiree), including the equity interests the legal parent issued to effect the combination.
Accordingly, the equity structure of the legal subsidiary (the accounting acquirer) is restated using the exchange ratio established in the acquisition agreement to reflect the number of shares of the legal parent (the accounting acquiree) issued in the reverse acquisition; and (e) the non-controlling interest’s proportionate share of the legal subsidiary’s (accounting acquirer’s) pre-combination carrying amounts of retained earnings and other equity interests as discussed in ASC 805-40-25-2 and 805-40-30-3.
Pursuant to ASC 805-40-45-4 and 45-5, in calculating the weighted-average number of common shares outstanding (the denominator of the earnings-per-share (“EPS”) calculation) during the period in which the reverse acquisition occurs: (a) The number of common shares outstanding from the beginning of that period to the acquisition date shall be computed on the basis of the weighted-average number of common shares of the legal acquiree (accounting acquirer) outstanding during the period multiplied by the exchange ratio established in the acquisition agreement; and (b) the number of common shares outstanding from the acquisition date to the end of that period shall be the actual number of common shares of the legal acquirer (the accounting acquiree) outstanding during that period. |
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Table of Contents |
ALLIED CORP. Notes to the unaudited condensed consolidated interim financial statements November 30, 2021 (Expressed in US dollars) |
2. | Significant accounting policies (continued) |
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| The basic EPS for each comparative period before the acquisition date presented in the consolidated financial statements following a reverse acquisition shall be calculated by dividing (a) by (b): (a) The income of the legal acquiree attributable to common shareholders in each of those periods; and (b) the legal acquiree’s historical weighted average number of common shares outstanding multiplied by the exchange ratio established in the acquisition agreement.
As a result of the controlling financial interest of the former stockholders of AMBI, for financial statement reporting purposes, the asset acquisition has been treated as a reverse acquisition with AMBI deemed the accounting acquirer and the Company deemed the accounting acquire under the acquisition method of accounting in accordance with ASC 805-10-55 of the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC). The reverse acquisition is deemed a capital transaction and the net assets of AMBI (the accounting acquirer) are carried forward to the Company (the legal acquirer and the reporting entity) at their carrying value before the acquisition. The acquisition process utilizes the capital structure of the Company and the assets and liabilities of AMBI which are recorded at their historical cost. The equity of the Company is the historical equity of AMBI.
These consolidated financial statements include the financial statements of the Company and its wholly owned subsidiaries, AM Biosciences effective from the date of the reverse take—over transaction on September 10, 2019 and Allied Colombia (from the date of acquisition, February 18, 2020). All intercompany balances and transactions have been eliminated upon consolidation. |
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| r) | Recent accounting pronouncements |
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| The Company does not expect that recent accounting pronouncements or changes in accounting pronouncements during the three months ended November 30, 2021, are of significance or potential significance to the Company. |
3. | Inventory | |
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| Inventory is comprised of the following items: |
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| The costs of inventory include but are not limited to labor, utilities, nutrition and irrigation, overhead and the depreciation of manufacturing equipment and production facilities, and amortization of licenses determined at normal capacity. Manufacturing overhead and related expenses include salaries, wages, employee benefits, utilities, maintenance and rent of grow facility. The Company began productions in Colombia in late 2020, when the Company obtained approval for its strains of products. During the current period, certain costs were determined based on the actual usage of production space as compared to the normal predetermined operational production of the facility based on capacity as the Company gradually started to grow products and prepared the facility ready. Management determined that during the current period, the Company was operating at 24% of predesigned capacity and as a result 24% of rent, amortization expenses, and certain overhead costs are included in costs of inventory.
During the current period, the Company recorded a write-down of inventory costs which include labor, utilities, nutrition, and irrigation, overhead and depreciation to net realizable value of $
The Company’s sales were generated from cannabis products purchased from certain third-party supplier during the three month periods ended November 30, 2021 and November 30, 2020. |
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Table of Contents |
ALLIED CORP. Notes to the unaudited condensed consolidated interim financial statements November 30, 2021 (Expressed in US dollars) |
4. | Deposits and advances |
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a) Towards the purchase of prefabricated buildings |
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c) Deposit towards a license acquisition |
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d) Prepayments for construction facility in Colombia |
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e) Eteros equipment deposit |
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| a) | In 2019, the Company entered to a separate modular building purchase agreement to acquire and construct an |
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| b) | At November 30, 2021 and August 31, 2021, the Company had paid $ |
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| c) | At November 30, 2021 and August 31, 2021, the Company had paid $ |
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| d) | The Company paid certain vendors for the construction of farm facilities in Colombia in advance. As at November 30, 2021, the prepayments totaled $ |
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| e) | At November 30, 2021, the Company had paid $ |
5. | Property, plant and equipment | |
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| At November 30, 2021, property, plant and equipment (“PPE”) consisted of: |
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| Construction in process | Farm facility and equipment | Office and computer equipment | Land equipment | Total | ||||||||||||||
August 31, 2021 | $ | $ | $ | $ | $ | |||||||||||||||
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November 30, 2021 | $ | $ | $ | $ |
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| As of November 30, 2021 and August 31, 2021, the construction in process has not been in use.
During the period ended November 30, 2021, the Company included depreciation of PPE of $ |
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Table of Contents |
ALLIED CORP. Notes to the unaudited condensed consolidated interim financial statements November 30, 2021 (Expressed in US dollars) |
6. | Intangible assets |
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| At November 30, 2021, intangible assets consisted of: |
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| Accumulated impairment |
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| November 30, 2021 Net carrying value |
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Cannabis licenses |
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| On February 17, 2020, the Company acquired $
Management acquired the licenses with a plan to operate in Colombia and believed the amounts paid for the licenses would be recovered from future operations. The Company has only recently started its operations in Colombia and has limited history on which to base future outcomes from operations including cash flows. Cannabis and hemp are considered to be an emerging industry and Colombia does not yet have a sufficiently established observable legal market in which the Company could sell its Cannabis or hemp flower and CBD or THC extracts. Laws and regulations in Colombia are evolving and there is uncertainty in what will be legally permissible in a future market and what prices and demand there would be in Colombia for the Company’s products. At the present, the Company’s export activities are regulated and restricted by Colombian law and it is uncertain whether future changes in law would favorably impact the Company’s operations. Due to the uncertainty in the timing and amount of future cash flows from operations the Company has written down its licenses to the estimated recoverable amount of $ |
7. | Leases |
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| In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which establishes a right-of-use (“ROU”) model that requires a lessee to record an ROU asset and a lease liability, measured on a discounted basis, on the balance sheet for all leases with terms longer than 12 months. The Company also elected to keep all leases with an initial term of 12 months or less off the balance sheet.
The Company did not have any leases until the acquisition of Allied Colombia during the year ended August 31, 2020. The acquisition resulted in the addition of $
On August 10, 2021, the Company entered into another lease for additional land in Colombia with monthly payment of $ |
20 |
Table of Contents |
ALLIED CORP. Notes to the unaudited condensed consolidated interim financial statements November 30, 2021 (Expressed in US dollars) |
7. | Leases (continued) |
| The Company entered into an agreement to lease the land described in 14(a) with a commencement date of June 1, 2020. The lease requires the Company to make monthly payments of $
ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or the Company’s incremental borrowing rate. Lease liabilities are increased by interest and reduced by payments each period, and the ROU asset is amortized over the lease term. For operating leases, interest on the lease liability and the amortization of the ROU asset result in straight-line rent expense over the lease term. For finance leases, interest on the lease liability and the amortization of the ROU asset results in front-loaded expense over the lease term. ROU assets and liabilities are recognized at the commencement date of the lease based on the present value of lease payments over the lease term. At November 30, 2021, the Company did not have any finance leases.
At November 30, 2021, the weighted average remaining operating lease term was
The components of lease expenses were as follows: |
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Operating lease cost: |
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Amortization of right-of-use assets |
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Interest on lease liabilities |
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Total operating lease cost |
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| The following table provides supplemental cash flow and other information related to leases for three months ended November 30, 2021: |
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| Supplemental balance sheet information related to leases as of November 30, 2021 are as below: |
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Accumulated amortization |
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Net carrying value at November 30, 2021 |
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21 |
Table of Contents |
ALLIED CORP. Notes to the unaudited condensed consolidated interim financial statements November 30, 2021 (Expressed in US dollars) |
7. | Leases (continued) |
| Future minimum lease payments related to lease obligations are as follows: |
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2024 |
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Less: amount of lease payments representing effects of discounting |
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Less: current obligations under leases |
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Lease liabilities, net of current portion |
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8. | Loans payable | |
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| a) | In June 2020, the Company entered into a financing agreement to finance the buildings described in Note 4(a). Pursuant to the agreement, the Company financed $ |
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| b) | On January 24, 2021, the Company entered into an acquisition agreement to acquire all common shares of Pacific Sun Fungi Inc. (“PSF”) in consideration for the issuance of a promissory note of $ |
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| c) | On March 1, 2021, the Company entered into a $300,000 promissory note with simple interest of |
9. | Secured convertible notes payable | |
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| The Company has granted each and every of the secured convertible note holders a continuing security interest in, a general lien upon, and a right of set-off against all existing and future assets and property under the terms of a security agreement. | |
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| a) | On January 23, 2020, the Company issued two convertible notes with principal amounts of $ |
22 |
Table of Contents |
ALLIED CORP. Notes to the unaudited condensed consolidated interim financial statements November 30, 2021 (Expressed in US dollars) |
9. | Secured convertible notes payable (continued) |
| The Company has evaluated whether separate financial instruments with the same terms as the conversion features above would meet the characteristics of a derivative instrument as described in paragraphs ASC 815-15-25. The Company determined that there was no derivative liability associated with the debenture or warrants under ASC 815-15 Derivatives and Hedging. The terms of the contracts do not permit net settlement, as the shares delivered upon conversion are not readily convertible to cash. The Company’s trading history indicated that the shares are thinly traded and the market would not absorb the sale of the shares issued upon conversion without significantly affecting the price. As the conversion features would not meet the characteristics of a derivative instrument as described in paragraphs ASC 815-15-25, the conversion features are not required to be separated from the host instrument and accounted for separately. As a result, at November 30, 2021, the conversion features and warrants would not meet derivative classification.
The relative fair values of the convertible notes and the warrants were $ | ||
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| i. | First Modification: |
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| On July 1, 2020, the Company entered into amendments to the convertible notes. Pursuant to the amendments, beginning on July 1, 2020, the convertible notes bear simple interest at
The Company evaluated the transaction under the guidance found in ASC 470-50 Modification and Extinguishment. The Company concluded that the Company is experiencing financial difficulty and that a concession was not granted. As the creditor has not granted a concession, the guidance contained in ASC 470-60 was applied.
The extended convertible notes had a total carrying value of $ |
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| ii. | Second Modification: |
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| On November 1, 2020, the Company entered into amendments to the convertible notes. Pursuant to the amendments, the maturity date of the convertible notes was amended to due on demand on or before March 31, 2021. In consideration for extending the maturity date, the Company agreed to issue to the convertible note holders |
23 |
Table of Contents |
ALLIED CORP. Notes to the unaudited condensed consolidated interim financial statements November 30, 2021 (Expressed in US dollars) |
9. | Secured convertible notes payable (continued) |
|
| The Company evaluated the transaction under the guidance found in ASC 470-50 Modification and Extinguishment. The Company concluded that the Company is experiencing financial difficulty and that a concession was not granted. As the creditor has not granted a concession, the guidance contained in ASC 470-60 was applied.
The extended convertible notes had a total carrying value of $ |
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| iii. | Third Modification: |
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| On March 31, 2021, the Company entered into amendments to the convertible notes. Pursuant to the amendments, beginning on April 1, 2021, the convertible notes bear simple interest at
The Company evaluated the transaction under the guidance found in ASC 470-50 Modification and Extinguishment. The Company concluded that the Company is experiencing financial difficulty and that a concession was not granted. As the creditor has not granted a concession, the guidance contained in ASC 470-60 was applied.
The extended convertible notes had a total carrying value of $ |
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| iv. | Fourth Modification: |
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| On October 1, 2021, the Company entered into amendments to the convertible notes. Pursuant to the amendments, beginning on April 1, 2021, the convertible notes bear simple interest at 10% per annum. Pursuant to the amendments, the maturity date of the convertible notes was amended to due on demand on or after March 31, 2022 for no additional consideration.
The Company evaluated the transaction under the guidance found in ASC 470-50 Modification and Extinguishment. The Company concluded that the Company is experiencing financial difficulty and that a concession was granted. As the creditor has granted a concession, the guidance contained in ASC 470-60-35 was applied.
As the future undiscounted cash flows are greater than or equal to the net carrying value of the original debt, the carrying amount of the debt at the time of the restructuring was not changed and a new effective interest rate was calculated as the discount rate that equates the present value of the future cash payments specified by the new terms with the carrying amount of the debt. Interest expense will be recognized prospectively such that a constant effective interest rate is applied to the carrying amount of the debt at the beginning of each period between restructuring and maturity, consistent with the interest method. |
24 |
Table of Contents |
ALLIED CORP. Notes to the unaudited condensed consolidated interim financial statements November 30, 2021 (Expressed in US dollars) |
9. | Secured convertible notes payable (continued) |
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| During the three months ended November 30, 2021, the Company made interest payments of 20,000. As at November 30, 2021, the Company has recorded accrued interest of $ |
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| b) | On September 29, 2020, the Company issued a convertible note with a fair value of $ |
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| The Company has evaluated whether separate financial instruments with the same terms as the conversion features above would meet the characteristics of a derivative instrument as described in paragraphs ASC 815-15-25. The Company determined that there was no derivative liability associated with the debenture or warrants under ASC 815-15 Derivatives and Hedging. The terms of the contracts do not permit net settlement, as the shares delivered upon conversion are not readily convertible to cash. The Company’s trading history indicated that the shares are thinly traded and the market would not absorb the sale of the shares issued upon conversion without significantly affecting the price. As the conversion features would not meet the characteristics of a derivative instrument as described in paragraphs ASC 815-15-25, the conversion features are not required to be separated from the host instrument and accounted for separately. As a result, at November 30, 2021, the conversion features and warrants do not meet derivative classification.
The relative fair values of the convertible note and the warrants were $ |
| i. | First Modification: |
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| On March 31, 2021, the Company entered into an amendment to the convertible note. Pursuant to the amendment, beginning on April 1, 2021, the convertible note bears simple interest at
The Company evaluated the transaction under the guidance found in ASC 470-50 Modification and Extinguishment. The Company concluded that the Company is experiencing financial difficulty and that a concession was not granted. As the creditor has not granted a concession, the guidance contained in ASC 470-60 was applied.
The extended convertible note had a total carrying value of $ |
25 |
Table of Contents |
ALLIED CORP. Notes to the unaudited condensed consolidated interim financial statements November 30, 2021 (Expressed in US dollars) |
9. | Secured convertible notes payable (continued) |
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| ii. | Second Modification: |
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| On June 1, 2021, the Company entered into an amendment to the convertible note. Pursuant to the amendment, beginning on June 1, 2021, the note bears simple interest at 10% per annum. The maturity date of the convertible note was amended to due on demand on or before November 30, 2021 for no additional consideration.
The Company evaluated the transaction under the guidance found in ASC 470-50 Modification and Extinguishment. The Company concluded that the Company is experiencing financial difficulty and that a concession was granted. As the creditor has granted a concession, the guidance contained in ASC 470-60-35 was applied.
As the future undiscounted cash flows are greater than or equal to the net carrying value of the original debt, the carrying amount of the debt at the time of the restructuring was not changed and a new effective interest rate was calculated as the discount rate that equates the present value of the future cash payments specified by the new terms with the carrying amount of the debt. Interest expense will be recognized prospectively such that a constant effective interest rate is applied to the carrying amount of the debt at the beginning of each period between restructuring and maturity, consistent with the interest method. |
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| iii. | Third Modification: |
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| On November 1, 2021, the Company entered into an amendment to the convertible note. Pursuant to the amendment, beginning on April 1, 2021, the note bears simple interest at 10% per annum. The maturity date of the convertible note was amended to due on demand on or before March 31, 2022 for no additional consideration.
The Company evaluated the transaction under the guidance found in ASC 470-50 Modification and Extinguishment. The Company concluded that the Company is experiencing financial difficulty and that a concession was granted. As the creditor has granted a concession, the guidance contained in ASC 470-60-35 was applied.
As the future undiscounted cash flows are greater than or equal to the net carrying value of the original debt, the carrying amount of the debt at the time of the restructuring was not changed and a new effective interest rate was calculated as the discount rate that equates the present value of the future cash payments specified by the new terms with the carrying amount of the debt. Interest expense will be recognized prospectively such that a constant effective interest rate is applied to the carrying amount of the debt at the beginning of each period between restructuring and maturity, consistent with the interest method. |
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| As at November 30, 2021, the Company has recorded accrued interest of $ | ||
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| c) | On October 26, 2020, the Company issued a convertible note with a face value of $ |
26 |
Table of Contents |
ALLIED CORP. Notes to the unaudited condensed consolidated interim financial statements November 30, 2021 (Expressed in US dollars) |
9. | Secured convertible notes payable (continued) |
|
| The Company has evaluated whether separate financial instruments with the same terms as the conversion features above would meet the characteristics of a derivative instrument as described in paragraphs ASC 815-15-25. The Company determined that there was no derivative liability associated with the debenture or warrants under ASC 815-15 Derivatives and Hedging. The terms of the contracts do not permit net settlement, as the shares delivered upon conversion are not readily convertible to cash. The Company’s trading history indicated that the shares are thinly traded and the market would not absorb the sale of the shares issued upon conversion without significantly affecting the price. As the conversion features would not meet the characteristics of a derivative instrument as described in paragraphs ASC 815-15-25, the conversion features are not required to be separated from the host instrument and accounted for separately. As a result, at November 30, 2021, the conversion features and warrants do not meet derivative classification.
The relative fair values of the convertible note and the warrants were $20,176 and $ | |
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| i. | First Modification: |
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| On June 1, 2021, the Company entered into an amendment to the convertible note. Pursuant to the amendment, beginning on June 1, 2021, the convertible note bears simple interest at 10% per annum. The maturity date of the convertible note was amended to due on demand on or before November 30, 2021 for no additional consideration
The Company evaluated the transaction under the guidance found in ASC 470-50 Modification and Extinguishment. The Company concluded that the Company is experiencing financial difficulty and that a concession was granted. As the creditor has granted a concession, the guidance contained in ASC 470-60-35 was applied.
As the future undiscounted cash flows are greater than or equal to the net carrying value of the original debt, the carrying amount of the debt at the time of the restructuring was not changed and a new effective interest rate was calculated as the discount rate that equates the present value of the future cash payments specified by the new terms with the carrying amount of the debt. Interest expense will be recognized prospectively such that a constant effective interest rate is applied to the carrying amount of the debt at the beginning of each period between restructuring and maturity, consistent with the interest method. |
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| ii. | Second Modification: |
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| On November 1, 2021, the Company entered into an amendment to the convertible note. Pursuant to the amendment, beginning on April 1, 2021, the note bears simple interest at
The Company evaluated the transaction under the guidance found in ASC 470-50 Modification and Extinguishment. The Company concluded that the Company is experiencing financial difficulty and that a concession was granted. As the creditor has granted a concession, the guidance contained in ASC 470-60-35 was applied. |
27 |
Table of Contents |
ALLIED CORP. Notes to the unaudited condensed consolidated interim financial statements November 30, 2021 (Expressed in US dollars) |
9. | Secured convertible notes payable (continued) |
| As the future undiscounted cash flows are greater than or equal to the net carrying value of the original debt, the carrying amount of the debt at the time of the restructuring was not changed and a new effective interest rate was calculated as the discount rate that equates the present value of the future cash payments specified by the new terms with the carrying amount of the debt. Interest expense will be recognized prospectively such that a constant effective interest rate is applied to the carrying amount of the debt at the beginning of each period between restructuring and maturity, consistent with the interest method.
As at November 30, 2021, the Company has recorded accrued interest of $ |
| d) | On November 11, 2020, the Company issued a convertible note with a face value of $ |
|
|
|
|
| The Company has evaluated whether separate financial instruments with the same terms as the conversion features above would meet the characteristics of a derivative instrument as described in paragraphs ASC 815-15-25. The Company determined that there was no derivative liability associated with the debenture or warrants under ASC 815-15 Derivatives and Hedging. The terms of the contracts do not permit net settlement, as the shares delivered upon conversion are not readily convertible to cash. The Company’s trading history indicated that the shares are thinly traded and the market would not absorb the sale of the shares issued upon conversion without significantly affecting the price. As the conversion features would not meet the characteristics of a derivative instrument as described in paragraphs ASC 815-15-25, the conversion features are not required to be separated from the host instrument and accounted for separately. As a result, at November 30, 2021, the conversion features and warrants do not meet derivative classification.
The relative fair values of the convertible note and the warrants were $ |
| i. | First Modification: |
|
|
|
|
| On June 1, 2021, the Company entered into an amendment to the convertible note. Pursuant to the amendment, beginning on June 1, 2021, the note bears simple interest at 10% per annum. The maturity date of the convertible note was amended to due on demand on or before November 30, 2021 for no additional consideration.
The Company evaluated the transaction under the guidance found in ASC 470-50 Modification and Extinguishment. The Company concluded that the Company is experiencing financial difficulty and that a concession was granted. As the creditor has granted a concession, the guidance contained in ASC 470-60-35 was applied.
As the future undiscounted cash flows are greater than or equal to the net carrying value of the original debt, the carrying amount of the debt at the time of the restructuring was not changed and a new effective interest rate was calculated as the discount rate that equates the present value of the future cash payments specified by the new terms with the carrying amount of the debt. Interest expense will be recognized prospectively such that a constant effective interest rate is applied to the carrying amount of the debt at the beginning of each period between restructuring and maturity, consistent with the interest method. |
28 |
Table of Contents |
ALLIED CORP. Notes to the unaudited condensed consolidated interim financial statements November 30, 2021 (Expressed in US dollars) |
9. | Secured convertible notes payable (continued) |
| ii. | Second Modification: |
|
|
|
|
| On November 1, 2021, the Company entered into an amendment to the convertible note. Pursuant to the amendment, beginning on April 1, 2021, the note bears simple interest at 10% per annum. The maturity date of the convertible note was amended to due on demand on or before March 31, 2022 for no additional consideration.
The Company evaluated the transaction under the guidance found in ASC 470-50 Modification and Extinguishment. The Company concluded that the Company is experiencing financial difficulty and that a concession was granted. As the creditor has granted a concession, the guidance contained in ASC 470-60-35 was applied.
As the future undiscounted cash flows are greater than or equal to the net carrying value of the original debt, the carrying amount of the debt at the time of the restructuring was not changed and a new effective interest rate was calculated as the discount rate that equates the present value of the future cash payments specified by the new terms with the carrying amount of the debt. Interest expense will be recognized prospectively such that a constant effective interest rate is applied to the carrying amount of the debt at the beginning of each period between restructuring and maturity, consistent with the interest method.
As at November 30, 2021, the Company has recorded accrued interest of $ |
| e) | On December 2, 2020, the Company issued a convertible note with a face value of $ |
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|
|
|
| The Company has evaluated whether separate financial instruments with the same terms as the conversion features above would meet the characteristics of a derivative instrument as described in paragraphs ASC 815-15-25. The Company determined that there was no derivative liability associated with the debenture or warrants under ASC 815-15 Derivatives and Hedging. The terms of the contracts do not permit net settlement, as the shares delivered upon conversion are not readily convertible to cash. The Company’s trading history indicated that the shares are thinly traded and the market would not absorb the sale of the shares issued upon conversion without significantly affecting the price. As the conversion features would not meet the characteristics of a derivative instrument as described in paragraphs ASC 815-15-25, the conversion features are not required to be separated from the host instrument and accounted for separately. As a result, at November 30, 2021, the conversion features and warrants do not meet derivative classification.
The relative fair values of the convertible note and the warrants were $
Modification:
On October 1, 2021, the Company entered into an amendment to the convertible note. Pursuant to the amendment, the note bears simple interest at 10% per annum. The maturity date of the convertible note was amended to due on demand on or before March 31, 2022 for no additional consideration. |
29 |
Table of Contents |
ALLIED CORP. Notes to the unaudited condensed consolidated interim financial statements November 30, 2021 (Expressed in US dollars) |
9. | Secured convertible notes payable (continued) |
|
| The Company evaluated the transaction under the guidance found in ASC 470-50 Modification and Extinguishment. The Company concluded that the Company is experiencing financial difficulty and that a concession was granted. As the creditor has granted a concession, the guidance contained in ASC 470-60-35 was applied.
As the future undiscounted cash flows are greater than or equal to the net carrying value of the original debt, the carrying amount of the debt at the time of the restructuring was not changed and a new effective interest rate was calculated as the discount rate that equates the present value of the future cash payments specified by the new terms with the carrying amount of the debt. Interest expense will be recognized prospectively such that a constant effective interest rate is applied to the carrying amount of the debt at the beginning of each period between restructuring and maturity, consistent with the interest method.
As at November 30, 2021, the Company has recorded accrued interest of $ |
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| f) | On January 7, 2021, the Company issued a convertible note with a face value of $ |
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| The Company has evaluated whether separate financial instruments with the same terms as the conversion features above would meet the characteristics of a derivative instrument as described in paragraphs ASC 815-15-25. The Company determined that there was no derivative liability associated with the debenture or warrants under ASC 815-15 Derivatives and Hedging. The terms of the contracts do not permit net settlement, as the shares delivered upon conversion are not readily convertible to cash. The Company’s trading history indicated that the shares are thinly traded and the market would not absorb the sale of the shares issued upon conversion without significantly affecting the price. As the conversion features would not meet the characteristics of a derivative instrument as described in paragraphs ASC 815-15-25, the conversion features are not required to be separated from the host instrument and accounted for separately. As a result, at November 30, 2021, the conversion features do not meet derivative classification. As the stock price at the issuance date was less than the conversion price, it was determined that there was no beneficial conversion feature (“BCF”).
Modification:
On October 1, 2021, the Company entered into an amendment to the convertible note. Pursuant to the amendment, the note bears simple interest at 10% per annum. The maturity date of the convertible note was amended to due on demand on or before March 31, 2022 for no additional consideration.
The Company evaluated the transaction under the guidance found in ASC 470-50 Modification and Extinguishment. The Company concluded that the Company is experiencing financial difficulty and that a concession was granted. As the creditor has granted a concession, the guidance contained in ASC 470-60-35 was applied.
As the future undiscounted cash flows are greater than or equal to the net carrying value of the original debt, the carrying amount of the debt at the time of the restructuring was not changed and a new effective interest rate was calculated as the discount rate that equates the present value of the future cash payments specified by the new terms with the carrying amount of the debt. Interest expense will be recognized prospectively such that a constant effective interest rate is applied to the carrying amount of the debt at the beginning of each period between restructuring and maturity, consistent with the interest method.
As at November 30, 2021, the Company has recorded accrued interest of $ |
30 |
Table of Contents |
ALLIED CORP. Notes to the unaudited condensed consolidated interim financial statements November 30, 2021 (Expressed in US dollars) |
9. | Secured convertible notes payable (continued) |
| g) | On March 26, 2021, the Company issued a convertible note with a face value of $ |
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| The Company has evaluated whether separate financial instruments with the same terms as the conversion features above would meet the characteristics of a derivative instrument as described in paragraphs ASC 815-15-25. The Company determined that there was no derivative liability associated with the debenture or warrants under ASC 815-15 Derivatives and Hedging. The terms of the contracts do not permit net settlement, as the shares delivered upon conversion are not readily convertible to cash. The Company’s trading history indicated that the shares are thinly traded and the market would not absorb the sale of the shares issued upon conversion without significantly affecting the price. As the conversion features would not meet the characteristics of a derivative instrument as described in paragraphs ASC 815-15-25, the conversion features are not required to be separated from the host instrument and accounted for separately. As a result, at November 30, 2021, the conversion features and warrants do not meet derivative classification.
The relative fair values of the convertible note and the warrants were $
Modification:
On November 1, 2021, the Company entered into an amendment to the convertible note. Pursuant to the amendment, beginning on April 1, 2021, the note bears simple interest at 10% per annum. Pursuant to the amendment, the maturity date of the convertible note was amended to due on demand on or after March 31, 2022 for no additional consideration.
The Company evaluated the transaction under the guidance found in ASC 470-50 Modification and Extinguishment. The Company concluded that the Company is experiencing financial difficulty and that a concession was granted. As the creditor has granted a concession, the guidance contained in ASC 470-60-35 was applied.
As the future undiscounted cash flows are greater than or equal to the net carrying value of the original debt, the carrying amount of the debt at the time of the restructuring was not changed and a new effective interest rate was calculated as the discount rate that equates the present value of the future cash payments specified by the new terms with the carrying amount of the debt. Interest expense will be recognized prospectively such that a constant effective interest rate is applied to the carrying amount of the debt at the beginning of each period between restructuring and maturity, consistent with the interest method.
As at November 30, 2021, the Company has recorded accrued interest of $1,228, which is included in accounts payable and accrued liabilities on the consolidated balance sheets. |
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| h) | On March 26, 2021, the Company issued a convertible note with a face value of $ |
31 |
Table of Contents |
ALLIED CORP. Notes to the unaudited condensed consolidated interim financial statements November 30, 2021 (Expressed in US dollars) |
9. | Secured convertible notes payable (continued) |
|
| The Company has evaluated whether separate financial instruments with the same terms as the conversion features above would meet the characteristics of a derivative instrument as described in paragraphs ASC 815-15-25. The Company determined that there was no derivative liability associated with the debenture or warrants under ASC 815-15 Derivatives and Hedging. The terms of the contracts do not permit net settlement, as the shares delivered upon conversion are not readily convertible to cash. The Company’s trading history indicated that the shares are thinly traded and the market would not absorb the sale of the shares issued upon conversion without significantly affecting the price. As the conversion features would not meet the characteristics of a derivative instrument as described in paragraphs ASC 815-15-25, the conversion features are not required to be separated from the host instrument and accounted for separately. As a result, at November 30, 2021, the conversion features and warrants do not meet derivative classification.
The relative fair values of the convertible note and the warrants were $
Modification:
On November 1, 2021, the Company entered into an amendment to the convertible note. Pursuant to the amendment, beginning on April 1, 2021, the note bears simple interest at 10% per annum. Pursuant to the amendment, the maturity date of the convertible note was amended to due on demand on or after March 31, 2022 for no additional consideration.
The Company evaluated the transaction under the guidance found in ASC 470-50 Modification and Extinguishment. The Company concluded that the Company is experiencing financial difficulty and that a concession was granted. As the creditor has granted a concession, the guidance contained in ASC 470-60-35 was applied.
As the future undiscounted cash flows are greater than or equal to the net carrying value of the original debt, the carrying amount of the debt at the time of the restructuring was not changed and a new effective interest rate was calculated as the discount rate that equates the present value of the future cash payments specified by the new terms with the carrying amount of the debt. Interest expense will be recognized prospectively such that a constant effective interest rate is applied to the carrying amount of the debt at the beginning of each period between restructuring and maturity, consistent with the interest method.
As at November 30, 2021, the Company has recorded accrued interest of $ |
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|
|
| i) | On April 30, 2021, the Company issued a convertible note with a face value of $ |
32 |
Table of Contents |
ALLIED CORP. Notes to the unaudited condensed consolidated interim financial statements November 30, 2021 (Expressed in US dollars) |
9. | Secured convertible notes payable (continued) |
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| The Company has evaluated whether separate financial instruments with the same terms as the conversion features above would meet the characteristics of a derivative instrument as described in paragraphs ASC 815-15-25. The Company determined that there was no derivative liability associated with the debenture or warrants under ASC 815-15 Derivatives and Hedging. The terms of the contracts do not permit net settlement, as the shares delivered upon conversion are not readily convertible to cash. The Company’s trading history indicated that the shares are thinly traded and the market would not absorb the sale of the shares issued upon conversion without significantly affecting the price. As the conversion features would not meet the characteristics of a derivative instrument as described in paragraphs ASC 815-15-25, the conversion features are not required to be separated from the host instrument and accounted for separately. As a result, at November 30, 2021, the conversion features and warrants do not meet derivative classification.
The relative fair values of the convertible note and the warrants were $
Modification:
On November 1, 2021, the Company entered into an amendment to the convertible note. Pursuant to the amendment, beginning on April 1, 2021, the note bears simple interest at 10% per annum. Pursuant to the amendment, the maturity date of the convertible note was amended to due on demand on or after March 31, 2022 for no additional consideration.
The Company evaluated the transaction under the guidance found in ASC 470-50 Modification and Extinguishment. The Company concluded that the Company is experiencing financial difficulty and that a concession was granted. As the creditor has granted a concession, the guidance contained in ASC 470-60-35 was applied.
As the future undiscounted cash flows are greater than or equal to the net carrying value of the original debt, the carrying amount of the debt at the time of the restructuring was not changed and a new effective interest rate was calculated as the discount rate that equates the present value of the future cash payments specified by the new terms with the carrying amount of the debt. Interest expense will be recognized prospectively such that a constant effective interest rate is applied to the carrying amount of the debt at the beginning of each period between restructuring and maturity, consistent with the interest method.
As at November 30, 2021, the Company has recorded accrued interest of $ |
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| j) | On April 29, 2021, the Company issued a convertible note with a face value of $ |
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Table of Contents |
ALLIED CORP. Notes to the unaudited condensed consolidated interim financial statements November 30, 2021 (Expressed in US dollars) |
9. | Secured convertible notes payable (continued) |
|
| The Company has evaluated whether separate financial instruments with the same terms as the conversion features above would meet the characteristics of a derivative instrument as described in paragraphs ASC 815-15-25. The Company determined that there was no derivative liability associated with the debenture or warrants under ASC 815-15 Derivatives and Hedging. The terms of the contracts do not permit net settlement, as the shares delivered upon conversion are not readily convertible to cash. The Company’s trading history indicated that the shares are thinly traded and the market would not absorb the sale of the shares issued upon conversion without significantly affecting the price. As the conversion features would not meet the characteristics of a derivative instrument as described in paragraphs ASC 815-15-25, the conversion features are not required to be separated from the host instrument and accounted for separately. As a result, at November 30, 2021, the conversion features and warrants do not meet derivative classification.
The relative fair values of the convertible note and the warrants were $
Modification:
On November 1, 2021, the Company entered into an amendment to the convertible note. Pursuant to the amendment, beginning on April 1, 2021, the note bears simple interest at 10% per annum. Pursuant to the amendment, the maturity date of the convertible note was amended to due on demand on or after March 31, 2022 for no additional consideration.
The Company evaluated the transaction under the guidance found in ASC 470-50 Modification and Extinguishment. The Company concluded that the Company is experiencing financial difficulty and that a concession was granted. As the creditor has granted a concession, the guidance contained in ASC 470-60-35 was applied.
As the future undiscounted cash flows are greater than or equal to the net carrying value of the original debt, the carrying amount of the debt at the time of the restructuring was not changed and a new effective interest rate was calculated as the discount rate that equates the present value of the future cash payments specified by the new terms with the carrying amount of the debt. Interest expense will be recognized prospectively such that a constant effective interest rate is applied to the carrying amount of the debt at the beginning of each period between restructuring and maturity, consistent with the interest method.
As at November 30, 2021, the Company has recorded accrued interest of $ |
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| k) | On July 25, 2021, the Company issued a convertible note with a face value of $ |
34 |
Table of Contents |
ALLIED CORP. Notes to the unaudited condensed consolidated interim financial statements November 30, 2021 (Expressed in US dollars) |
9. | Secured convertible notes payable (continued) |
| The Company has evaluated whether separate financial instruments with the same terms as the conversion features above would meet the characteristics of a derivative instrument as described in paragraphs ASC 815-15-25. The Company determined that there was no derivative liability associated with the debenture or warrants under ASC 815-15 Derivatives and Hedging. The terms of the contracts do not permit net settlement, as the shares delivered upon conversion are not readily convertible to cash. The Company’s trading history indicated that the shares are thinly traded and the market would not absorb the sale of the shares issued upon conversion without significantly affecting the price. As the conversion features would not meet the characteristics of a derivative instrument as described in paragraphs ASC 815-15-25, the conversion features are not required to be separated from the host instrument and accounted for separately. As a result, at November 30, 2021, the conversion features do not meet derivative classification. As the stock price at the issuance date was less than the conversion price, it was determined that there was no beneficial conversion feature (“BCF”).
Modification:
On November 1, 2021, the Company entered into an amendment to the convertible note. Pursuant to the amendment, beginning on April 1, 2021, the note bears simple interest at 10% per annum. Pursuant to the amendment, the maturity date of the convertible note was amended to due on demand on or after March 31, 2022 for no additional consideration.
The Company evaluated the transaction under the guidance found in ASC 470-50 Modification and Extinguishment. The Company concluded that the Company is experiencing financial difficulty and that a concession was not granted. As the creditor has not granted a concession, the guidance contained in ASC 470-50 was applied. As present value of the cash flows under the new debt instrument differed by less than 10% from the present value of the remaining cash flows under the terms of the original debt instrument, it was determined that the debt was not substantially different which resulted in modification accounting.
If a convertible debt instrument is modified or exchanged in a transaction that is not accounted for as an extinguishment, an increase in the fair value of the embedded conversion option (calculated as the difference between the fair value of the embedded conversion option immediately before and after the modification or exchange) shall reduce the carrying amount of the debt instrument (increasing a debt discount or reducing a debt premium) with a corresponding increase in additional paid-in capital.
The Company recognized the increase in the fair value of the embedded beneficial conversion feature of $
As at November 30, 2021, the Company has recorded accrued interest of $ |
| l) | On July 25, 2021, the Company issued a convertible note with a face value of $ |
35 |
Table of Contents |
ALLIED CORP. Notes to the unaudited condensed consolidated interim financial statements November 30, 2021 (Expressed in US dollars) |
9. | Secured convertible notes payable (continued) |
|
| The Company has evaluated whether separate financial instruments with the same terms as the conversion features above would meet the characteristics of a derivative instrument as described in paragraphs ASC 815-15-25. The Company determined that there was no derivative liability associated with the debenture or warrants under ASC 815-15 Derivatives and Hedging. The terms of the contracts do not permit net settlement, as the shares delivered upon conversion are not readily convertible to cash. The Company’s trading history indicated that the shares are thinly traded and the market would not absorb the sale of the shares issued upon conversion without significantly affecting the price. As the conversion features would not meet the characteristics of a derivative instrument as described in paragraphs ASC 815-15-25, the conversion features are not required to be separated from the host instrument and accounted for separately. As a result, at November 30, 2021, the conversion features do not meet derivative classification. As the stock price at the issuance date was less than the conversion price, it was determined that there was no beneficial conversion feature (“BCF”).
Modification:
On November 1, 2021, the Company entered into an amendment to the convertible note. Pursuant to the amendment, beginning on April 1, 2021, the note bears simple interest at 10% per annum. Pursuant to the amendment, the maturity date of the convertible note was amended to due on demand on or after March 31, 2022 for no additional consideration.
The Company evaluated the transaction under the guidance found in ASC 470-50 Modification and Extinguishment. The Company concluded that the Company is experiencing financial difficulty and that a concession was not granted. As the creditor has not granted a concession, the guidance contained in ASC 470-50 was applied. As present value of the cash flows under the new debt instrument differed by less than 10% from the present value of the remaining cash flows under the terms of the original debt instrument, it was determined that the debt was not substantially different which resulted in modification accounting.
If a convertible debt instrument is modified or exchanged in a transaction that is not accounted for as an extinguishment, an increase in the fair value of the embedded conversion option (calculated as the difference between the fair value of the embedded conversion option immediately before and after the modification or exchange) shall reduce the carrying amount of the debt instrument (increasing a debt discount or reducing a debt premium) with a corresponding increase in additional paid-in capital.
The Company recognized the increase in the fair value of the embedded beneficial conversion feature of $
As at November 30, 2021, the Company has recorded accrued interest of $518, which is included in accounts payable and accrued liabilities on the consolidated balance sheets. |
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| m) | On October 1, 2021, the Company issued a convertible note with a face value of $ |
36 |
Table of Contents |
ALLIED CORP. Notes to the unaudited condensed consolidated interim financial statements November 30, 2021 (Expressed in US dollars) |
9. | Secured convertible note payable (continued) |
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| The Company determined that there was no derivative liability associated with the debenture or warrants under ASC 815-15 Derivatives and Hedging. Per ASC 815-10-15-74(a), contracts that are both indexed to its own stock and classified in stockholders’ equity in its statement of financial position are not considered to be derivative instruments. The conversion feature is indexed to the Company’s own stock and is classified in stockholders’ equity in the Company’s statement of financial position. As the conversion features would meet the scope exception as described in paragraphs ASC 815-15-74(a), the conversion features are not required to be separated from the host instrument and accounted for separately. As a result, at November 30, 2021, the conversion features and warrants do not meet derivative classification.
The relative fair values of the convertible note and the warrants were $
Modification:
On November 1, 2021, the Company entered into an amendment to the convertible note. note bearsPursuant to the amendment, the maturity date of the convertible note was amended to due on demand on or after March 31, 2022 for no additional consideration.
The Company evaluated the transaction under the guidance found in ASC 470-50 Modification and Extinguishment. The Company concluded that the Company is experiencing financial difficulty and that a concession was not granted. As the creditor has not granted a concession, the guidance contained in ASC 470-50 was applied. As present value of the cash flows under the new debt instrument differed by less than 10% from the present value of the remaining cash flows under the terms of the original debt instrument, it was determined that the debt was not substantially different which resulted in modification accounting.
If a convertible debt instrument is modified or exchanged in a transaction that is not accounted for as an extinguishment, an increase in the fair value of the embedded conversion option (calculated as the difference between the fair value of the embedded conversion option immediately before and after the modification or exchange) shall reduce the carrying amount of the debt instrument (increasing a debt discount or reducing a debt premium) with a corresponding increase in additional paid-in capital.
There was no change in the fair value of the embedded beneficial conversion feature immediately before and after the modification. As a result, the Company did not adjust the carrying amount of $
As at November 30, 2021, the Company has recorded accrued interest of $ |
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| n) | On October 25, 2021, the Company issued a convertible note with a face value of $ |
37 |
Table of Contents |
ALLIED CORP. Notes to the unaudited condensed consolidated interim financial statements November 30, 2021 (Expressed in US dollars) |
9. | Secured convertible notes payable (continued) |
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| The Company determined that there was no derivative liability associated with the debenture or warrants under ASC 815-15 Derivatives and Hedging. Per ASC 815-10-15-74(a), contracts that are both indexed to its own stock and classified in stockholders’ equity in its statement of financial position are not considered to be derivative instruments. The conversion feature is indexed to the Company’s own stock and is classified in stockholders’ equity in the Company’s statement of financial position. As the conversion features would meet the scope exception as described in paragraphs ASC 815-15-74(a), the conversion features are not required to be separated from the host instrument and accounted for separately. As a result, at November 30, 2021, the conversion features and warrants do not meet derivative classification.
The relative fair values of the convertible note and the warrants were $
As at November 30, 2021, the Company has recorded accrued interest of $ |
10. | Equity | |
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| |
| During the three months ended November 30, 2020:
On September 30, 2020, the Company issued
In connection with the extension of convertible notes payable, as of November 30, 2020, the Company has common stock issuable of $
During the three months ended November 30, 2021:
On September 2, 2021, the Company issued
On September 2, 2021, the Company issued
During the year ended August 31, 2021, the Company re-issued
On October 20, 2021, the Company issued
On November 5, 2021, the Company issued
During the three months ended November 30, 2021, the Company issued |
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Table of Contents |
ALLIED CORP. Notes to the unaudited condensed consolidated interim financial statements November 30, 2021 (Expressed in US dollars) |
11. | Related party transactions and balances |
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| All transactions with related parties have occurred in the normal course of operations and are recorded at the exchange amount which is the amount agreed to by the Company and the related party. |
| a) | Key management compensation and related party transactions |
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| The Company has identified its directors and certain senior officers as its key management personnel. The compensation costs for key management personnel were as follows: |
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| November 30, 2021 |
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Consulting fees and benefits |
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| b) | Amounts due to/from related parties |
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| In the normal course of operations, the company shares certain administrative resources with companies related by common management and directors. The administrative resources and services, which were provided in the normal course of operations, were measured at the exchange. All amounts payable and receivable are non-interest bearing, unsecured and due on demand. The following table summarizes the amounts were due from related parties: |
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CEO and Director |
| $ | ( | ) |
| $ | ( | ) |
COO and Director |
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An entity controlled by the CFO |
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| As of November 30, 2021, the Company had $ |
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| c) | Stock-based compensation |
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| On September 2, 2021, the Company issued
On September 2, 2021, the Company issued |
12. | Financial risk factors |
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| The Company is exposed in varying degrees to a variety of financial instrument related risks. The Board of Directors approves and monitors the risk management processes, inclusive of documented investment policies, counterparty limits, and controlling and reporting structures. The type of risk exposure and the way in which such exposure is managed is provided as follows: |
| a) | Credit risk: |
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| Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The Company’s primary exposure to credit risk is on its cash account. Cash accounts are held with major banks in Canada. The Company has deposited its cash with a bank from which management believes the risk of loss is low. |
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Table of Contents |
ALLIED CORP. Notes to the unaudited condensed consolidated interim financial statements November 30, 2021 (Expressed in US dollars) |
12. | Financial risk factors (continued) |
| b) | Liquidity risk: |
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| Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due. The Company’s approach to managing liquidity is to ensure that it will have sufficient liquidity to meet liabilities when due. Accounts payable are due within the current operating period. The Company has a working capital deficit and requires additional financing to meet its current obligations (see Note 1). |
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| c) | Market risk: |
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| Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Company’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return. The Company is not exposed to market risk. |
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| d) | Interest rate risk: |
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| Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company is exposed to interest rate risk, from time to time, on its cash balances. Surplus cash, if any, is placed on call with financial institutions and management actively negotiates favorable market related interest rates. |
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| e) | Foreign exchange risk: |
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| Foreign currency risk is limited to the portion of the Company’s business transactions denominated in currencies other than the Canadian dollar. The Company has not entered into any foreign currency contracts to mitigate risk, but manages the risk my minimizing the value of financial instruments denominated in foreign currency. The Company is exposed to foreign currency risk to the extent that the following monetary assets and liabilities are denominated in Canadian dollars: |
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| November 30, 2021 |
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Balance in Canadian dollars: |
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Cash and cash equivalents |
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Accounts payable |
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Net exposure |
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Balance in US dollars: |
| $ | ( | ) |
| A
The Company is exposed to foreign currency risk to the extent that the following monetary assets and liabilities are denominated in Colombian Pesos: |
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Balance in Colombian Pesos dollars: |
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Accounts payable |
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Net exposure |
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Balance in US dollars: |
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| A |
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Table of Contents |
ALLIED CORP. Notes to the unaudited condensed consolidated interim financial statements November 30, 2021 (Expressed in US dollars) |
13. | Capital management |
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| The Company manages its capital structure and makes adjustments to it, based on the funds available to the Company, in order to support the business and continue as a going concern. The Company considers capital to be all accounts in equity. The Board of Directors does not establish quantitative return on capital criteria for management, but rather relies on the expertise of the Company’s management to sustain future development of the business. The Company has a working capital deficit and requires additional capital to finance is future business plans. The Company is not subject to any externally imposed capital requirements. |
14. | Commitments |
| a) | In August 2019, the Company entered into an agreement for the construction and installation of equipment (Note 4a), as of August 31, 2021, $ |
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| b) | On August 30, 2019, the Company entered into sales agreement to purchase an extraction system to be use in future at its operation in Colombia. The equipment has a value of CAD$ |
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| c) | On June 30, 2021, the Company entered into certain construction agreements for building an energy network and transformer and a water treatment system with an aggregated cost of $ |
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| d) | As of November 30, 2021, the Company recorded a contingent liability of $ |
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| e) | During the year ended August 31, 2021, the Company settled amounts owed to certain previous management of $ |
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| f) | The Company has entered into leases for farm land in Colombia. See Note 7 for details. |
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ALLIED CORP. Notes to the unaudited condensed consolidated interim financial statements November 30, 2021 (Expressed in US dollars) |
15. | Share purchase warrants |
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| The following table summarizes the continuity of share purchase warrants: |
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Balance, August 31, 2021 |
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Issued |
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Balance, November 30, 2021 |
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| As at November 30, 2021, the following share purchase warrants were outstanding: |
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16. | Stock options |
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| A summary of the Company’s stock option activity is as follows: |
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| Weighted Average Exercise Price $ |
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| Aggregate Intrinsic Value $ |
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Balance, August 31, 2021 |
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Outstanding, November 30, 2021 |
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Exercisable, November 30, 2021 |
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Table of Contents |
ALLIED CORP. Notes to the unaudited condensed consolidated interim financial statements November 30, 2021 (Expressed in US dollars) |
16. | Stock options (continued) |
| During the three months ended November 30, 2021, the Company recorded stock-based compensation of $ |
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| Three Months Ended November 30, 2021 |
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Expected dividend yield |
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Expected volatility |
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Risk-free interest rate |
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| At November 30, 2021, there was $ |
17. | Non-cash activities |
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| For the Three Months Ended November 30, 2021 |
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Non-cash activities: |
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Shares issued from treasury for services and bonuses |
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Relative fair value of warrants issuable with convertible note |
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Relative fair value of shares issued on modification of convertible notes |
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Table of Contents |
ALLIED CORP. Notes to the unaudited condensed consolidated interim financial statements November 30, 2021 (Expressed in US dollars) |
18. | Segment disclosure |
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| The Company has two operating segments including: |
| a) | Allied Colombia, a Colombian based company through which the Company intends to commence commercial production in Colombia. (Allied Colombia) |
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| b) | Allied Corp. which consists of the rest of the Company’s operations. (Allied) |
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| Factors used to identify the Company’s reportable segments include the organizational structure of the Company and the financial information available for evaluation by the chief operating decision-maker in making decisions about how to allocate resources and assess performance. The Company’s operating segments have been broken out based on similar economic and other qualitative criteria. The Company operates the Allied reporting segment in one geographical area (Canada), and the Allied Colombia reporting segment in one geographical area (Colombia).
Financial statement information by operating segment for the three month period ended November 30, 2021 is presented below: |
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| Allied $ |
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Net sales |
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Accretion |
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Depreciation and amortization |
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Total assets as of November 30, 2021 |
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Colombia |
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Total |
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Table of Contents |
ALLIED CORP. Notes to the unaudited condensed consolidated interim financial statements November 30, 2021 (Expressed in US dollars) |
19. | Subsequent events |
| a) | On March 30, 2021, the Company entered into an asset purchase agreement (“APA”) to acquire two privileged licenses issued by the Nevada Department of Taxation purposed for the cultivation of cannabis (the “Licenses”). In consideration for the licenses, the Company agreed to pay $ |
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| The promissory note bears interest at the Short Term Applicable Federal Rate of
As of November 30, 2021, the Company has not issued any considerations under the APA. The Company has not received any assets outlined in the APA. The asset purchase has not been closed.
Concurrent with the APA, the Company entered into a services agreement (the “Services Agreement”) and a land lease agreement (the “Lease Agreement”) with the seller of the Licenses. Pursuant to the Services agreement the seller of the licenses will provide consulting services to the Company in exchange for the reimbursement of expenses incurred.
Pursuant to the Lease Agreement, the Company leased land in North Las Vegas to accommodate an approximately 9,000 square foot building to be used for the cultivation, marketing or sale of cannabis for a period of 25 years. Lease payments shall commence on the date which the first cannabis plant is planted, and monthly lease payments are as follows: |
| · | $ |
| · | $ |
| · | $ |
| · | $ |
| · | $ |
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| In addition, for the term of the lease, the Company shall pay the landlord 50% of the net operating income derived from the cannabis cultivation operation located at the leased premises. |
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| The Company is currently negotiating to significantly revise this agreement and structure. Effectively the APA, the Lease Agreement and the Service Agreement will be terminated and replaced by an Option to Purchase Agreement.
Our wholly owned subsidiary, Allied US Products LLC, a Nevada limited liability company, intends to revise the structure to enter into an Option to Purchase Agreement (the “ Option Purchase Agreement”) which allows for the purchase of a Nevada State US-based cannabis license from a subsidiary of Fiore Cannabis, Ltd. only upon on the occurrence or waiver of the changes in U.S. federal law to permit the general cultivation, distribution and possession of marijuana or to remove the regulation of such activities from the federal laws of the United States (the “Triggering Event”).
While the Company has begun to enter into arrangements with United States based companies that may themselves participate in the United States cannabis market, we do not hold any US assets, but rather have a call option to purchase that can be exercisable or exchangeable upon cannabis becoming legal or permissible in the United States under Federal law.
The Company will only conduct business activities related to growing or processing cannabis in jurisdictions, including the United States, when it is federally permissible to do so. The Company is not considered a United States Marijuana Issuer (as defined in the Canadian Securities Administrators Staff Notice 51-352 – Issuers with United States Marijuana-Related Activities (the “Staff Notice”)) nor does it have material ancillary involvement in the United States. cannabis industry in accordance with the Staff Notice. While the Company has several arrangements with United States based companies that may themselves participate in the United States cannabis market, these relationships do not violate the federal laws of the United States respecting cannabis and in no manner involve the Company in any activities in the United States respecting cannabis. | |
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| b) | On December 23, 2021, the Company issued two secured convertible notes with a face value of $ |
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| c) | On January 11, 2022, the Company issued a secured convertible note with a face value of $ |
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| d) | Subsequent to November 30, 2021, the Company received $ |
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| e) | Subsequent to November 30, 2021, the Company entered into an amendment agreement for the financing agreement as described in Note 8 a). Pursuant to the amendment, the Company will make monthly payments of $ |
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion relates to the historical operations and financial statements of Allied Corp. for the three months ended November 30, 2021 and 2020.
Forward-Looking Statements
The following Management’s Discussion and Analysis should be read in conjunction with our financial statements and the related notes thereto included elsewhere in this Quarterly Report. The Management’s Discussion and Analysis contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. Any statements that are not statements of historical fact are forward-looking statements. When used, the words “believe,” “plan,” “intend,” “anticipate,” “target,” “estimate,” “expect,” and the like, and/or future-tense or conditional constructions (“will,” “may,” “could,” “should,” etc.), or similar expressions, identify certain of these forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements in this Annual Report. Our actual results and the timing of events could differ materially from those anticipated in these forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include, without limitation, those specifically addressed under the heading “Risks Factors” in our various filings with the Securities and Exchange Commission. We do not undertake any obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this Annual Report.
The following discussion highlights the Company’s results of operations and the principal factors that have affected its consolidated financial condition as well as its liquidity and capital resources for the periods described, and provides information that management believes is relevant for an assessment and understanding of the Company’s consolidated financial condition and results of operations presented herein. The following discussion and analysis are based upon Allied Corp’s unaudited financial statements contained in this Current Report on Form 10-Q, which have been prepared in accordance with generally accepted accounting principles in the United States. You should read the discussion and analysis together with such financial statements and the related notes thereto.
Overview
Allied Corp. (“Allied” or the “Company”) is a Nevada corporation, based in Kelowna, British Columbia, Canada. Allied is an international medical cannabis production company with a mission to address today’s medical issues by researching, creating and producing targeted cannabinoid health solutions. Allied uses what it considers to be an evidence-informed scientific approach to make this mission possible, through cutting-edge pharmaceutical research and development, innovative plant-based production and unique development of therapeutic products.
References in this periodic report on Form 10-Q to “Allied” or the “Company” may include references to the operations of our subsidiaries AM (Advanced Micro) Biosciences, Inc., Allied Colombia S.A.S., Baleno Ltd., Tactical Relief, LLC, Allied US Products, LLC, and Pacific Sun Fungi Inc. Each of these corporations is a 100% wholly owned subsidiary of Allied and consequentially reports quarterly financials up to a consolidated quarterly submission.
Allied’s focus is on the development of medicinal cannabis and psilocybin products for patients with conditions potentially suitable for treatment therewith. Such conditions include anxiety, insomnia, anorexia, chronic pain, epilepsy, chemotherapy-induced nausea and vomiting, post-traumatic stress disorder (PTSD), Parkinson’s disease, Tourette syndrome, irritable bowel syndrome (IBS) and spasticity associated with multiple sclerosis (MS) and spinal cord injury (SCI).
Allied’s objective is to be a company that controls its own international vertically integrated supply chain or CBD, cannabis, and psilocybin products in order to maximize cash flow and profit margins. Our management team believes that having control over our supply chain should enable us to provide a consistent, rolling-harvest supply to the global cannabis community.
Given the average cost of production in North America being approximately $1.00 to $2.00 per gram, we believe our anticipated cash cost of $0.05 per gram (non-GAAP) of cannabis production based on historical production of our operations and other companies growing raw flowers in Columbia afforded by our Colombian production and cultivation should provide us a competitive advantage.
In addition to what we consider our demonstrated ability to cultivate low-cost, high margin cannabis in Colombia primarily for use in proprietary cannabinoid drug and natural health products for international distribution, we have hemp derived CBD natural health products for sale in the United States, have received commercial approval for sale of medical cannabis being produced in Colombia for export to nations other than the United States, and have initiated human clinical phase I trial for our psilocybin-based pharma products ALID 11, ALID 12 and Psilonex™ which are protected under provisional patent and trademarks in the United States.
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Effects of COVID-19
In March 2020, the World Health Organization declared COVID-19 a global pandemic. This contagious disease outbreak and the related adverse public health developments have adversely affected workforces, economies, and financial markets globally, leading to an economic downturn. While COVID-19 delayed shipment of some of our products, management has determined that there has been no significant impact to the Company’s operations, however management continues to monitor the situation.
Critical Accounting Policies
Business Presentation
The unaudited condensed consolidated interim financial statements and related notes in this Quarterly Report on Form 10-Q are presented in accordance with accounting principles generally accepted in the United States of America (“US GAAP”), and are expressed in United States dollars. The Company’s fiscal year end is August 31.
The unaudited condensed consolidated interim financial statements have been prepared in accordance with US GAAP for interim financial information and with the instructions to Securities and Exchange Commission (“SEC”) Form 10-Q. They do not include all of the information and footnotes required by US GAAP for complete financial statements. Therefore, the unaudited condensed consolidated interim financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto for the year ended August 31, 2021 included in the Company’s Annual Report on Form 10-K filed with the SEC.
The unaudited condensed consolidated interim financial statements included herein are unaudited; however, they contain all normal recurring accruals and adjustments that, in the opinion of management, are necessary to present fairly the Company’s financial position at November 30, 2021, and the results of its operations for the three months ended November 30, 2021, and cash flows for the three months ended November 30, 2021. The results of operations for the period ended November 30, 2021 are not necessarily indicative of the results to be expected for future quarters or the full year.
The significant accounting policies followed are:
a) Principles of consolidation
The consolidated financial statements include accounts of Allied Corp. and its majority owned subsidiaries. Subsidiaries are consolidated from the date of acquisition and control and continue to be consolidated until the date that such control ceases. Control is achieved when the Company is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect these returns through its power over the investee. All intercompany balances, income, expenses, and unrealized gains and losses resulting from intercompany transactions are eliminated on consolidation.
b) Cash and cash equivalents
Cash is comprised of cash on hand, cash held in trust accounts and demand deposits. Cash equivalents are short-term, highly liquid investments with maturities within three months when acquired. The Company did not have any cash equivalents as of November 30, 2021 and August 31, 2021.
c) Property, plant and equipment
Property, plant and equipment are stated at cost. The Company depreciates the cost of property, plant and equipment over their estimated useful lives at the following annual rates and methods:
| Farm facility and equipment |
| 1 - 10 years straight-line basis |
| Office and computer equipment |
| 5 - 10 years straight-line basis |
| Land equipment |
| 10 years straight-line basis |
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d) Inventory
Inventory is comprised of raw materials, supplies, vegetative and flowering plants, dried flower, diluted crude and CBD isolates available for sale, and purchased cannabis products.
Inventory is stated at the lower of cost or net realizable value, determined using weighted average cost. Net realizable value is defined as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. At the end of each reporting period, the Company performs an assessment of inventory and records write-downs for excess and obsolete inventories based on the Company’s estimated forecast of product demand, production requirements, market conditions, regulatory environment, and spoilage. Actual inventory losses may differ from management’s estimates and such differences could be material to the Company’s consolidated balance sheets, statements of net loss and comprehensive loss and statements of cash flows.
e) Intangible assets
Intangible assets include licenses which are being amortized over their estimated useful lives of 10 years. The Company’s licenses are amortized over their economic or legal life on a straight-line basis, whichever is shorter. The licenses have been amortized from the date of acquisition.
The Company periodically evaluates the reasonableness of the useful lives of these assets. Once these assets are fully amortized, they are removed from the accounts. These assets are reviewed for impairment or obsolescence when events or changes in circumstances indicate that the carrying amount may not be recoverable. If impaired, intangible assets are written down to fair value based on discounted cash flows or other valuation techniques. The Company has no intangibles with indefinite lives.
For long-lived assets, impairment losses are only recorded if the asset’s carrying amount is not recoverable through its undiscounted, probability-weighted future cash flows. The Company measures the impairment loss based on the difference between the carrying amount and the estimated fair value. When an impairment exists, the related assets are written down to fair value.
f) Long-lived assets
In accordance with ASC 360, Property, Plant and Equipment, the Company tests long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will more likely than not be sold or disposed significantly before the end of its estimated useful life. Recoverability is assessed based on the carrying amount of the asset and its fair value, which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances. An impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value.
g) Foreign currency translation and functional currency conversion
Items included in the consolidated financial statements of each of the Company’s entities are measured using the currency of the primary economic environment in which the entities operate (the “functional currency”).
Prior to September 10, 2019, the Company’s functional currency was the Canadian dollar. Translation gains and losses from the application of the U.S. dollar as the reporting currency during the period that the Canadian dollar was the functional currency are included as part of cumulative currency translation adjustment, which is reported as a component of shareholders’ equity under accumulated other comprehensive loss.
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The Company re-assessed its functional currency and determined as at September 10, 2019, its functional currency changed from the Canadian dollar to the U.S. dollar based on management’s analysis of changes in our organization. The change in functional currency was accounted for prospectively from September 10, 2019 and prior period financial statements were not restated for the change in functional currency.
For periods commencing September 10, 2019, monetary assets and liabilities denominated in foreign currencies are translated into U.S. dollars using exchange rates in effect at the balance sheet date. Opening balances related to non-monetary assets and liabilities are based on prior period translated amounts, and non-monetary assets and non-monetary liabilities incurred after September 10, 2019 are translated at the approximate exchange rate prevailing at the date of the transaction. Revenue and expense transactions are translated at the approximate exchange rate in effect at the time of the transactions. Foreign exchange gains and losses are included in the statement of operations and comprehensive loss as foreign exchange gains.
The Company assessed the functional currency for Allied Colombia to be the Colombian peso. The functional currency for all other subsidiaries is the U.S. dollar.
h) Share issuance costs
Costs directly attributable to the raising of capital are charged against the related share capital. Costs related to shares not yet issued are recorded as deferred share issuance costs. These costs are deferred until the issuance of the shares to which the costs relate, at which time the costs will be charged against the related share capital or charged to operations if the shares are not issued.
i) Research and development costs
Research and development costs are expensed as incurred.
j) Revenue recognition
The Company’s revenue is comprised of sales of cannabis products.
The Company’s revenue-generating activities have a single performance obligation and revenue is recognized at the point in time when control of the product transfers and the Company’s obligations have been fulfilled. This generally occurs when the product is shipped or delivered to the customer, depending upon the method of distribution and shipping terms set forth in the customer contract. Revenue is measured as the amount of consideration the Company expects to receive in exchange for the sale of the Company’s product. Certain of the Company’s customer contracts may provide the customer with a right of return. In certain circumstances the Company may also provide a retrospective price adjustment to a customer. These items give rise to variable consideration, which is recognized as a reduction of the transaction price based upon the expected amounts of the product returns and price adjustments at the time revenue for the corresponding product sale is recognized. The determination of the reduction of the transaction price for variable consideration requires that the Company make certain estimates and assumptions that affect the timing and amounts of revenue recognized.
Sales of products are for cash or otherwise agreed-upon credit terms. The Company’s payment terms vary by location and customer; however, the time period between when revenue is recognized and when payment is due is not significant. The Company estimates and reserves for its bad debt exposure based on its experience with past due accounts and collectability, write-off history, the aging of accounts receivable and an analysis of customer data.
k) Net income (loss) per common share
Net income (loss) per share is calculated in accordance with ASC 260, Earnings per Share. The weighted-average number of common shares outstanding during each period is used to compute basic earning or loss per share. Diluted earnings or loss per share is computed using the weighted average number of shares and diluted potential common shares outstanding to the extent the effect would not be antidilutive. Dilutive potential common shares are additional common shares assumed to be exercised.
Basic net income (loss) per common share is based on the weighted average number of shares of common stock outstanding.
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l) Income taxes
The Company accounts for income taxes under ASC 740, Income Taxes. Under the asset and liability method of ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC 740, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the enactment occurs. 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.
m) Related party transactions
Related parties are any entities or individuals that, through employment, ownership or other means, possess the ability to direct or cause the direction of the management and policies of the Company. The Company discloses related party transactions that are outside of normal compensatory agreements, such as salaries. Related party transactions are measured at the exchange amounts.
n) Significant accounting estimates and judgments
The preparation of the financial statements in conformity with US GAAP requires management to make judgments, estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Although management uses historical experience and its best knowledge of the amount, events or actions to for the basis for judgments and estimates, actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and further periods if the review affects both current and future periods.
Significant estimates and assumptions included in these financial statements relate to the valuation assumptions related to the estimated useful lives and recoverability of long-lived assets, stock-based compensation, and deferred income tax assets and liabilities. Judgments are required in the assessment of the Company’s ability to continue to as going concern.
o) Financial instruments
ASC 825, Financial Instruments, requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 825 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 825 prioritizes the inputs into three levels that may be used to measure fair value:
Level 1
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2
Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3
Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
The financial instruments consist principally of cash, due from related parties, accounts payable, note payable, and convertible notes payable. The fair value of cash when applicable is determined based on “Level 1” inputs, which consist of quoted prices in active markets for identical assets. The Company believes that the recorded values of all other financial instruments which are categorized as loans and receivables approximate their current fair values because of their nature and respective relatively short maturity dates or current market rates of interest for similar instruments.
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For certain of the Company’s financial instruments, including accounts payable, due from related parties, notes and loans payable, the carrying amounts approximate their fair values due to the short maturities.
The Company does not have any assets or liabilities measured at fair value on a recurring basis presented on the Company’s balance sheet as of November 30, 2021 and August 31, 2021 other than cash.
Financial instruments that potentially subject the Company to a concentration of credit risk consist primarily of cash. The Company limits its exposure to credit loss by placing its cash with high credit quality financial institutions.
p) Leases
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, “Leases (Topic 842)” (“ASU 2016-02”), which requires lessees to put most leases on their balance sheets but recognize the expenses on their income statements in a manner similar to current practice. The standard states that a lessee would recognize a lease liability for the obligation to make lease payments and a right-to-use asset for the right to use the underlying asset for the lease term. The standard is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2018. The Company adopted ASU 2016-02 on September 1, 2019, using the transition relief to the modified retrospective approach, presenting prior year information based on the previous standard. The Company did not have any leases until the acquisition of its wholly owned subsidiary, Allied Colombia S.A.S. on February 18, 2020.
The Company determines if an arrangement contains a lease in whole or in part at the inception of the contract. Right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term while lease liabilities represent our obligation to make lease payments arising from the lease. All leases with terms greater than twelve months result in the recognition of a ROU asset and a liability at the lease commencement date based on the present value of the lease payments over the lease term. Unless a lease provides all of the information required to determine the implicit interest rate, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of the lease payments. The Company uses the implicit interest rate in the lease when readily determinable.
Our lease terms include all non-cancelable periods and may include options to extend (or to not terminate) the lease when it is reasonably certain that we will exercise that option. Leases with terms of twelve months or less at the commencement date are expensed on a straight-line basis over the lease term and do not result in the recognition of an asset or liability.
q) Reverse Acquisitions
Identification of the accounting acquirer
The Company considers factors in ASC 805-10-55-10 through 55-15 in identifying the accounting acquirer. The Company uses the existence of a controlling financial interest to identify the acquirer - the entity that obtains control of the acquiree. Other pertinent facts and circumstances also shall be considered in identifying the acquirer in a business combination effected by exchanging equity interests, including the following: (a) The relative voting rights in the combined entity after the business combination, where the acquirer usually is the combining entity whose owners as a group retain or receive the largest portion of the voting rights in the combined entity taking into consideration the existence of any unusual or special voting arrangements and options, warrants, or convertible securities; (b) the existence of a large minority voting interest in the combined entity if no other owner or organized group of owners has a significant voting interest, and where the acquirer usually is the combining entity whose single owner or organized group of owners holds the largest minority voting interest in the combined entity; (c) the composition of the governing body of the combined entity, where the acquirer usually is the combining entity whose owners have the ability to elect or appoint or to remove a majority of the members of the governing body of the combined entity; (d) the composition of the senior management of the combined entity, where the acquirer usually is the combining entity whose former management dominates the management of the combined entity; and (e) the terms of the exchange of equity interests, where the acquirer usually is the combining entity that pays a premium over the pre-combination fair value of the equity interests of the other combining entity or entities, where the acquirer usually is the combining entity whose relative size (measured in, for example, assets, revenues, or earnings) is significantly larger than that of the other combining entity or entities.
Pursuant to ASC Paragraph 805-40-05-2, as one example of a reverse acquisition, a private operating entity may arrange for a public entity to acquire its equity interests in exchange for the equity interests of the public entity. In this situation, the public entity is the legal acquirer because it issued its equity interests, and the private entity is the legal acquiree because its equity interests were acquired. However, application of the guidance in ASC 805-10-55-11 through 55-15 results in identifying: (a) The public entity as the acquiree for accounting purposes (the accounting acquiree); and (b) the private entity as the acquirer for accounting purposes (the accounting acquirer).
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Measuring the consideration transferred
Pursuant to ASC 805-40-30-2 and 30-3 in a reverse acquisition, the accounting acquirer usually issues no consideration for the acquiree. Instead, the accounting acquiree usually issues its equity shares to the owners of the accounting acquirer. Accordingly, the acquisition-date fair value of the consideration transferred by the accounting acquirer for its interest in the accounting acquiree is based on the number of equity interests the legal subsidiary would have had to issue to give the owners of the legal parent the same percentage equity interest in the combined entity that results from the reverse acquisition. The fair value of the number of equity interests calculated in that way can be used as the fair value of consideration transferred in exchange for the acquiree. The assets and liabilities of the legal acquiree are measured and recognized in the consolidated financial statements at their pre-combination carrying amounts (see ASC 805-40-45-2(a)).
Presentation of consolidated financial statements post reverse acquisition
Pursuant to ASC 805-40-45-1 and 45-2, consolidated financial statements following a reverse acquisition are issued under the name of the legal parent (accounting acquiree) but described in the notes as a continuation of the financial statements of the legal subsidiary (accounting acquirer), with one adjustment, which is to retroactively adjust the accounting acquirer’s legal capital to reflect the legal capital of the accounting acquiree. That adjustment is required to reflect the capital of the legal parent (the accounting acquiree). Comparative information presented in those consolidated financial statements also is retroactively adjusted to reflect the legal capital of the legal parent (accounting acquiree). The consolidated financial statements reflect all of the following: (a) The assets and liabilities of the legal subsidiary (the accounting acquirer) recognized and measured at their pre-combination carrying amounts; (b) the assets and liabilities of the legal parent (the accounting acquiree) recognized and measured in accordance with the guidance in Topic 805 “Business Combinations”; (c) the retained earnings and other equity balances of the legal subsidiary (accounting acquirer) before the business combination; (d) the amount recognized as issued equity interests in the consolidated financial statements determined by adding the issued equity interest of the legal subsidiary (the accounting acquirer) outstanding immediately before the business combination to the fair value of the legal parent (accounting acquiree) determined in accordance with the guidance in this topic applicable to business combinations. However, the equity structure (that is, the number and type of equity interests issued) reflects the equity structure of the legal parent (the accounting acquiree), including the equity interests the legal parent issued to effect the combination.
Accordingly, the equity structure of the legal subsidiary (the accounting acquirer) is restated using the exchange ratio established in the acquisition agreement to reflect the number of shares of the legal parent (the accounting acquiree) issued in the reverse acquisition; and (e) the non-controlling interest’s proportionate share of the legal subsidiary’s (accounting acquirer’s) pre-combination carrying amounts of retained earnings and other equity interests as discussed in ASC 805-40-25-2 and 805-40-30-3.
Pursuant to ASC 805-40-45-4 and 45-5, in calculating the weighted-average number of common shares outstanding (the denominator of the earnings-per-share (“EPS”) calculation) during the period in which the reverse acquisition occurs: (a) The number of common shares outstanding from the beginning of that period to the acquisition date shall be computed on the basis of the weighted-average number of common shares of the legal acquiree (accounting acquirer) outstanding during the period multiplied by the exchange ratio established in the merger agreement; and (b) the number of common shares outstanding from the acquisition date to the end of that period shall be the actual number of common shares of the legal acquirer (the accounting acquiree) outstanding during that period.
The basic EPS for each comparative period before the acquisition date presented in the consolidated financial statements following a reverse acquisition shall be calculated by dividing (a) by (b): (a) The income of the legal acquiree attributable to common shareholders in each of those periods; and (b) the legal acquiree’s historical weighted average number of common shares outstanding multiplied by the exchange ratio established in the acquisition agreement.
As a result of the controlling financial interest of the former stockholders of AMBI, for financial statement reporting purposes, the asset acquisition has been treated as a reverse acquisition with AMBI deemed the accounting acquirer and the Company deemed the accounting acquiree under the acquisition method of accounting in accordance with ASC 805-10-55 of the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC). The reverse acquisition is deemed a capital transaction and the net assets of AMBI (the accounting acquirer) are carried forward to the Company (the legal acquirer and the reporting entity) at their carrying value before the acquisition. The acquisition process utilizes the capital structure of the Company and the assets and liabilities of AMBI which are recorded at their historical cost. The equity of the Company is the historical equity of AMBI.
These consolidated financial statements include the financial statements of the Company and its wholly owned subsidiaries, AM Biosciences effective from the date of the reverse take—over transaction on September 10, 2019 and Allied Colombia (from the date of acquisition, February 18, 2020). All intercompany balances and transactions have been eliminated upon consolidation.
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r) Recent accounting pronouncements
The Company does not expect that recent accounting pronouncements or changes in accounting pronouncements during the three months ended November 30, 2021, are of significance or potential significance to the Company.
Financial Condition and Results of Operations
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company incurred a net loss for the three months ended November 30, 2021 of $10,068,081, has generated minimal revenue and as at November 30, 2021 has a working capital deficit of $4,229,248. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent upon the Company’s ability to raise sufficient financing to acquire or develop a profitable business. Management intends on financing its operations and future development activities largely from the sale of equity securities with some additional funding from other traditional financing sources, including related party loans until such time that funds provided by future planned operations are sufficient to fund working capital requirements.
Results of Operations
Comparison of Unaudited Results for the Three Months Ended November 30, 2021 compared to the Three Months Ended November 30, 2020
Sales and Revenue
For the three-month periods ended November 30, 2021 we had $10,082 in revenue compared to $4,200 for the three-month period ended November 30, 2020. We are just at the beginning of sales of our products which we expect to improve during the current fiscal year.
Operating Expenses
Operating expenses for the three-month period ended November 30, 2021 totaled $9,946,130 compared to $864,014 for the three-month period ended November 30, 2020. Operating expenses for the three-month period ended November 30, 2021 is mainly a result of stock-based compensation (for consulting services) of $3,531,266, stock-based compensation (bonus shares issued) of $4,585,425, stock-based compensation (options) of $531,255, inventory write-off to net realizable value of $252,639, office and miscellaneous expense of $302,290, professional fees of $243,788, and interest expense of $171,141. Operating expenses for the three-month period ended November 30, 2020 is mainly a result of office and general expense of $105,812, professional fees of $130,631 and consulting fees of $327,843. The increase in operating expense during the quarter ended November 30, 2021 is principally the result of an increase in stock-based compensation of $8,647,946, which was necessary to develop our product lines and inventory write-off to net realizable value of $252,639.
Net Loss
As a result of the changes described above, net loss from operations after income taxes increased to $10,068,081 during the three months ended November 30, 2021 compared to $1,195,862 during the three-month period ended November 30, 2020.
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Liquidity and Capital Resources
The following table sets forth the major components of our statements and consolidated statements of cash flows for the periods presented.
|
| Three Months Ended November 30, 2021 |
|
| Three Months Ended November 30, 2020 |
| ||
Cash used in operating activities |
| $ | (1,715,953 | ) |
| $ | (694,160 | ) |
Cash from financing activities |
| $ | 1,998,111 |
|
| $ | 524,412 |
|
Cash from (used in) investing activities |
| $ | (375,413 | ) |
| $ | 107,965 |
|
Change in cash during the period |
| $ | (93,255 | ) |
| $ | (61,783 | ) |
Effect of exchange rate change |
| $ | (51,041 | ) |
| $ | (20,869 | ) |
Cash, beginning of period |
| $ | 419,825 |
|
| $ | 94,047 |
|
Cash, end of period |
| $ | 275,529 |
|
| $ | 11,395 |
|
As of November 30, 2021, the Company had $674,965 in current assets, consisting of $275,529 in cash, $155,481 in inventory, $34,522 in receivables, and $209,433 in prepaid expenses. Other assets mainly include deposits and advances of $3,233,720 (principally related to our building to be located in Nevada), property, plant and equipment of $665,119, right-of-use assets of $277,780 and intangible assets of $46,000.
To date, the Company has financed its operations through equity sales and through the sale of convertible notes as reflected below.
On May 17, 2021 the Company commenced a private placement pursuant to Rule 506(c) promulgated under Regulation D of the Securities Exchange Act of 1934, as amended. The private placement terminated on November 5, 2021. The private placement sought to raise $5,250,000 through the sale of Units at $0.75 per Unit, each consisting of one share of common stock and one warrant to purchase one share of common stock for two years at an exercise price of $1.25 per share. Boustead Securities LLC acted as the exclusive Placement Agent for this offering on a best efforts basis. Boustead received compensation in cash of 10 percent of the proceeds from such Offering up to $1,000,000 and 7 percent of the proceeds from such Offering thereafter. We obtained $3,178,572 in gross proceeds from this offering.
Convertible Notes during the Quarter ended November 30, 2020
The Company has granted each and every one of the secured convertible note holders referenced below a continuing security interest in, a general lien upon, and a right of setoff against all existing and future assets and property under the terms of a security agreement.
On September 29, 2020, the Company issued a convertible note with a fair value of $163,341 and warrants to purchase 130,673 shares of the Company’s common stock at $1.25 per share for 2 years. The note bears interest at 10% per annum. The note was due on demand after March 27, 2021. The note was convertible into shares of the Company’s common stock at any time prior to March 27, 2021 at a conversion price of $1.25 per share. On March 31, 2021, the Company amended the note. Pursuant to the amendment, beginning on April 1, 2021, the note bears simple interest at 10% per annum and is due on demand on or before September 30, 2021. In consideration for extending the maturity date, the Company issued to the convertible note holder 8,268 common shares of the Company. On June 1, 2021, the Company again amended the note. Pursuant to the amendment, beginning on June 1, 2021, the note bears simple interest at 10% per annum and was due on demand on or before November 30, 2021 for no additional consideration. On November 1, 2021, the Company again amended the note. Pursuant to the amendment, beginning on April 1, 2021, the note bears simple interest at 10% per annum and is due on demand on or before March 31, 2022 for no additional consideration.
On October 26, 2020, the Company issued a convertible note with a face value of $37,613 and warrants to purchase 30,090 shares of the Company’s common stock at $1.25 per share for 2 years. The note bears interest at 10% per annum. The note was due on demand after April 23, 2021. The note was convertible into shares of the Company’s common stock at any time prior to April 23, 2021 at a conversion price of $1.25 per share. On June 1, 2021, the Company amended the note. Pursuant to the amendment, beginning on June 1, 2021, the note bears simple interest at 10% per annum and was due on demand on or before November 30, 2021 for no additional consideration. On November 1, 2021, the Company again amended the note. Pursuant to the amendment, beginning on April 1, 2021, the note bears simple interest at 10% per annum and is due on demand on or before March 31, 2022 for no additional consideration.
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On November 11, 2020, the Company issued a convertible note with a face value of $85,937 and warrants to purchase 68,750 shares of the Company’s common stock at $1.25 per share for 2 years. The note bears interest at 10% per annum and is due on demand after May 9, 2021. The note was convertible into shares of the Company’s common stock at any time prior to April 23, 2021 at a conversion price of $1.25 per share. On June 1, 2021, the Company amended the note. Pursuant to the amendment, beginning on June 1, 2021, the notes bears simple interest at 10% per annum and was due on demand on or before November 30, 2021 for no additional consideration. On November 1, 2021, the Company again amended the note. Pursuant to the amendment, beginning on April 1, 2021, the convertible notes bear simple interest at 10% per annum and is due on demand on or before March 31, 2022 for no additional consideration.
On December 2, 2020, the Company issued a convertible note with a face value of $600,000 and warrants to purchase 240,000 shares of the Company’s common stock at $1.25 per share for 2 years. The note bears interest at 10% per annum and is due on demand after November 27, 2021. The note is convertible into shares of the Company’s common stock at any time prior to November 27, 2021 at a conversion price of $1.25 per share. On October 1, 2021, the Company amended the note. Pursuant to the amendment, the note bears simple interest at 10% per annum and is due on demand on or before March 31, 2022 for no additional consideration.
Convertible Notes during the Quarter ended November 30, 2021
On October 1, 2021, the Company issued a convertible note with a face value of $100,000 and warrants to purchase 100,000 shares of the Company’s common stock at $1.25 per share for 1 year. The note bears interest at 10% per annum and is due on demand after March 31, 2022. The note is convertible into shares of the Company’s common stock at any time prior to March 31, 2022 at a conversion price of $1.25 per share. On November 1, 2021, the Company amended the note. Pursuant to the amendment, beginning on April 1, 2021, the note bears simple interest at 10% per annum and is due on demand on or after March 31, 2022 for no additional consideration.
On October 25, 2021, the Company issued a convertible note with a face value of $100,000 and warrants to purchase 100,000 shares of the Company’s common stock at $1.25 per share for 1 year. The note bears interest at 10% per annum and is due on demand after March 31, 2022. The note is convertible into shares of the Company’s common stock at any time prior to March 31, 2022 at a conversion price of $1.25 per share
Equity Transactions during the Quarter ended November 30, 2020
On September 30, 2020, the Company issued 120,000 shares of common stock at $1.25 per share for gross cash proceeds of $150,000.
At November 30, 2020, the Company had common stock issuable of $129,952 in connection with the extension of convertible notes payable.
Equity Transactions during the Quarter ended November 30, 2021
On September 2, 2021, the Company issued 2,175,933 common shares at fair value of $2,447,925 on issuance date from treasury to the CFO and COO (Note 11) and 1,900,000 common shares at fair value of $2,137,500 to certain employees of the Company as bonuses for past services, which is recorded as stock-based compensation.
On September 2, 2021, the Company issued 2,997,237 common shares measured at fair value on issuance date of $3,371,892 from treasury for consulting services related to business development for a 12-month period from the issuance date. As the future benefit of the services to be performed cannot be determined, the entire amount was expensed during the three months ended November 30, 2021.
During the year ended August 31, 2021, the Company re-issued 750,000 shares of common stock with total fair value of $637,500 for consulting services, out of which, $425,000 was expensed as consulting fees during the prior year and $159,374 was expensed during the three months ended November 30, 2021. As at November 30, 2021, $53,126 was deferred compensation included in prepaid expenses on the consolidated balance sheet.
On October 20, 2021, the Company issued 3,753,094 units at $0.75 per unit for proceeds of $2,814,821, of which $790,467 was received during the year ended August 31, 2021, and $250,000 was receivable at November 30, 2021. Each unit consists of one common share of the Company and one warrant to purchase the Company’s one common shares at $1.25 for a period of two years. During the three months ended November 30, 2021, the Company received an additional $85,146 in cash for units subscribed at $0.75 per unit. In connection with the financing, the Company incurred brokerage commission fees of $205,735.
On November 5, 2021, the Company issued 705,000 units at $0.75 per unit for proceeds of $528,750. Each unit consists of one common share of the Company and one warrant to purchase the Company’s one common shares at $1.25 for a period of two years. In connection with the financing, the Company issued 8,000 shares of common stock with a fair value of $6,000 as a finder’s fee and incurred other finders’ fees of $41,654.
During the three months ended November 30, 2021, the Company issued 268,000 common shares to certain investors for no consideration by error. The Company is in the process of retracting the shares.
At November 30, 2021, the Company had received $224,664 in cash for shares subscriptions and has subscriptions receivable of $250,000 for shares issued.
Future Financing
In connection with its proposed business plan and currently ongoing and proposed acquisitions, in addition to the possible proceeds from this offering the Company will be required to complete substantial and significant additional capital formation. Such formation could be through additional equity offerings, debt, bank financings or a combination of any source of financing. There can be no assurance that the Company will be successful in completion of such financings.
Plan of Operations
As noted above, the continuation of our current plan of operations requires us to raise significant additional capital. If we are successful in raising capital through the sale of convertible notes or common shares, we believe that we will have sufficient cash resources to fund our plan of operations through 2022. If we are unable to do so, we may have to curtail and possibly cease some operations. We intend to use the net proceeds from the offering for operating capacity in Colombia, Canada and the United States, regulatory compliance, intellectual property, working capital and general corporate purposes.
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We continually evaluate our plan of operations to determine the manner in which we can most effectively utilize our limited cash resources. The timing of completion of any aspect of our plan of operations is highly dependent upon the availability of cash to implement that aspect of the plan and other factors beyond our control. There is no assurance that we will successfully obtain the required capital or revenues, or, if obtained, that the amounts will be sufficient to fund our ongoing operations.
Capital Expenditures
As of November 30, 2021 the company had purchased property plant and equipment of $665,119 and paid net cash of $3,233,720 in deposits for asset acquisitions. As of August 31, 2021, the Company purchased property plant and equipment of $267,835 and paid net cash of $3,156,163 in deposits and advances for an asset acquisition.
Xtreme Cubes Building
In June 2019, AM Biosciences signed the production and manufacturing contract to begin the manufacturing of a building for an extraction and production facility. This building will be a fully scalable, modular building. The Company made an upfront payment of $230,000 USD in June 2019, an additional payment of $903,385 in August 2019 and an additional payment of $92,000 in March 2020. At November 30, 2021, Company had deposits of $2,656,695 to purchase prefabricated buildings. As of November 30, 2021, the Company had not yet received the building and the amounts have been recorded as deposits.
Commitments and Contractual Obligations
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide this information.
Off-balance Sheet Arrangements
The Company has no off-balance sheet arrangements.
Going Concern
As reflected in the accompanying financial statements, the Company had an accumulated deficit of approximately $29,461,893 at November 30, 2021 and a net loss of $10,068,081 for the three months ended November 30, 2021.
The Company does not yet have a history of financial stability. Historically, the principal source of liquidity has been the issuance of convertible notes and equity securities. In addition, the Company has generated no revenues since inception. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
The ability of the Company to continue operations is dependent on the success of Management’s plans, which include the raising of capital through the issuance of equity securities, until such time that funds provided by operations are sufficient to fund working capital requirements.
The Company will require additional funding to finance the growth of its current and expected future operations as well as to achieve its strategic objectives. The Company believes its current available cash will be sufficient to meet its cash needs for the near future. There can be no assurance that financing will be available in amounts or terms acceptable to the Company, if at all.
The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. These financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.
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Item 3. Quantitative and Qualitative Disclosures about Market Risk.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.
Item 4. Controls and Procedures.
Disclosure Controls and Procedures
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes of accounting principles generally accepted in the United States.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives.
Our management evaluated the effectiveness of the Company’s internal control over financial reporting as of November 30, 2021. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework. Based on this evaluation, our management concluded that, as of November 30, 2021, our internal control over financial reporting was effective.
This quarterly report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to rules of the SEC that permits us to provide only management’s report in this quarterly report.
Changes in Internal Control over Financial Reporting.
There were no changes in our internal control over financial reporting that occurred during the period from August 31, 2021 through November 30, 2021 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.
We are not aware of any legal proceedings contemplated by any governmental authority or any other party involving us or our properties other than the following:
On or about April 30, 2020 the Company filed a complaint entitled ALLIED CORP., a Nevada corporation, Plaintiff, v. MALCOLM DAVIDSON, an individual, ANTHONY ZELEN, an individual, and DAVID WEINKAUF, an individual, Defendants, and TACTICAL RELIEF, LLC, a Delaware limited liability company, Nominal Party, filed in the Delaware Chancery Court as Case No. 2020-0321 – PAF (the “Delaware Action”).
On or about May 28, 2020 the Company filed that a complaint entitled ALLIED CORP., a Nevada corporation, and AM (ADVANCED MICRO) BIOSCIENCES, INC., an ALLIED CORP., a Nevada corporation, and AM (ADVANCED MICRO) BIOSCIENCES, INC., a British Columbian corporation, Plaintiffs, vs. MALCOLM DAVIDSON, an individual, ANTHONY ZELEN, an individual, and DAVID WEINKAUF, an individual, Defendants filed on May 28, 2020 in the District Court of Clark County Nevada as Case No. A-20-815610-B (The “Nevada Action”, and collectively with the Delaware action the “CLAIMS”).
On or about September 30, 2020 but effective September 21, 2020 the parties entered into three separate settlement agreements resolving the claims of both the Delaware Action and the Nevada Action.
In December 2018, the Company’s subsidiary AM Biosciences had issued 5,000,000 shares of its common stock to both Mr. Zelen and Mr. Weinkauf as an investment at $0.0001cents. These were converted to 4,311,585 shares (the “SECFAC Shares”) of SECFAC Exchange Corp. (“SECFAC”) at the time of the acquisition of AM Biosciences by Allied Corp. Pursuant to the settlement agreements, Mr. Zelen and Mr. Weinkauf both returned 4,061,585 of the SECFAC Exchangeable Shares to be immediately returned to SECFAC’s treasury. As the SECFAC Exchangeable Shares were readily converted to common shares of the Company at 1:1 at the option of the holders, the return of the SECFAC Exchangeable Shares were treated as return of equivalent unit of common shares of the Company to treasury upon receipt of the SECFAC Exchangeable Shares.
Further, in March 2019, Mr. Calum Hughes and each of Mr. Zelen and Mr. Weinkauf entered into an agreement for the sale of 6,250,000 shares of common stock of AM Biosciences to be sold to Mr. Zelen and Mr. Weinkauf from Mr. Calum Hughes for $0.0001cents each (the “Repudiated Shares”). These were issued back to Calum Hughes after the non-payment and issuance of a letter of acceptance of repudiation in April 2020. (the “Repudiation Letter”). As part of the settlement, each of Mr. Zelen and Mr. Weinkauf acknowledged and accepted the repudiation letter.
Pursuant to the settlement with Mr. Zelen, Allied agreed to pay through his counsel a total of USD$30,000 as a flat fee settlement cash portion, payable in three installments as follows: a. The first installment of $10,000.00 USD is to be paid on or before October 31, 2020, b. The second installment of $10,000 USD is to be paid on or before November 30, 2020; and c. The third installment of $10,000USD is to be paid on or before December 30, 2020. These payments have not been made.
Pursuant to the settlement with Mr. Weinkauf, Allied agreed to pay through his counsel a total of USD$60,000 as a flat fee settlement cash portion, payable in three installments as follows: a. The first installment of $30,000.00 USD is to be paid on or before October 31, 2020, b. The second installment of $20,000 USD is to be paid on or before November 30, 2020; and c. The third installment of $10,000USD is to be paid on or before December 30, 2020. These payments have not been made.
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Pursuant to the original settlement with Mr. Davidson, Allied agreed to pay through his counsel a total of USD$15,000 as a flat fee settlement cash portion payable on or before October 31, 2020 (which is now fully paid).
In addition, each of the defendants agreed to certain confidentiality and non-solicitation covenants in addition to other terms.
As of the date of this report, no director, officer or affiliate is (i) a party adverse to us in any legal proceeding, or (ii) has an adverse interest to us in any legal proceedings. We are not aware of any other legal proceedings pending or that have been threatened against us or our properties.
From time to time the Company may be named in claims arising in the ordinary course of business. Currently, no legal proceedings or claims, other than those disclosed above, are pending against or involve the Company that, in the opinion of management, could reasonably be expected to have a material adverse effect on its business and financial condition.
As of the date of this report, no director, officer or affiliate is (i) a party adverse to us in any legal proceeding, or (ii) has an adverse interest to us in any legal proceedings. We are not aware of any other legal proceedings pending or that have been threatened against us or our properties.
From time to time the Company may be named in claims arising in the ordinary course of business. Currently, no legal proceedings or claims, other than those disclosed above, are pending against or involve the Company that, in the opinion of management, could reasonably be expected to have a material adverse effect on its business and financial condition.
Item 1A. Risk Factors.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
On September 2, 2021, the Company issued 2,175,933 common shares at fair value of $2,447,925 on issuance date from treasury to the CFO and COO and 1,900,000 common shares at fair value of $2,137,500 to certain employees of the Company as bonuses for past services, which is recorded as stock-based compensation.
On September 2, 2021, the Company issued 2,997,237 common shares measured at fair value on issuance date of $3,371,892 from treasury for consulting services related to business development for a 12-month period from the issuance date. As the future benefit of the services to be performed cannot be determined, the entire amount was expensed during the three months ended November 30, 2021.
During the year ended August 31, 2021, the Company re-issued 750,000 shares of common stock with total fair value of $637,500 for consulting services, out of which, $425,000 was expensed as consulting fees during the prior year and $159,374 was expensed during the three months ended November 30, 2021. As at November 30, 2021, $53,126 was deferred compensation included in prepaid expenses on the consolidated balance sheet.
On October 20, 2021, the Company issued 3,753,094 units at $0.75 per unit for proceeds of $2,814,821, of which $790,467 was received during the year ended August 31, 2021, and $250,000 was receivable at November 30, 2021. Each unit consists of one common share of the Company and one warrant to purchase the Company’s one common shares at $1.25 for a period of two years. During the three months ended November 30, 2021, the Company received an additional $85,146 in cash for units subscribed at $0.75 per unit. In connection with the financing, the Company incurred brokerage commission fees of $205,735.
On November 5, 2021, the Company issued 705,000 units at $0.75 per unit for proceeds of $528,750. Each unit consists of one common share of the Company and one warrant to purchase the Company’s one common shares at $1.25 for a period of two years. In connection with the financing, the Company issued 8,000 shares of common stock with a fair value of $6,000 as a finder’s fee and incurred other finders’ fees of $41,654.
Item 3. Defaults Upon Senior Securities.
None
Item 4. Mine Safety Disclosures
None
Item 5. Other Information.
Not applicable
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Item 6. Exhibits.
Rule 13(a)-14(a)/15(d)-14(a) Certification of Chief Executive Officer | |
Rule 13(a)-14(a)/15(d)-14(a) Certification of Chief Financial Officer | |
101 | Interactive data files pursuant to Rule 405 of Regulation S-T. |
101.INS | Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document). |
101.SCH | Inline XBRL Taxonomy Extension Schema Document. |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. |
101.PRE | Inline XBRL Taxonomy Extension Labels Linkbase Document. |
101.LAB | Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). |
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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.
Allied Corp. (Registrant) | |||
Date: January 19, 2022 | By: | /s/ Calum Hughes | |
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| Calum Hughes | |
Chief Executive Officer and Director {Principal and Executive Officer} | |||
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Date: January 19, 2022 | By: | /s/ Ryan Maarschalk |
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| Ryan Maarschalk |
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| Chief Financial Officer |
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| (Principal Financial Officer Principal Accounting Officer) |
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