UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
Commission File Number
(Exact name of registrant as specified in its charter) |
| ||
(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 | ||
|
| 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 May 31, 2024, there were
TABLE OF CONTENTS
PART I—FINANCIAL INFORMATION | ||||
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3 | ||||
Management’s Discussion and Analysis of Financial Condition and Results of Operations. | 28 | |||
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Item 6. | Exhibits. |
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2 |
Table of Contents |
ALLIED CORP.
CONSOLIDATED FINANCIAL STATEMENTS
Condensed consolidated interim balance sheets at May 31, 2024 (unaudited) and August 31, 2023 |
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Notes to the unaudited condensed consolidated interim financial statements |
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Table of Contents |
ALLIED CORP. Condensed Consolidated Interim Balance Sheets (Expressed in US Dollars) |
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| August 31, 2023 |
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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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Due to related parties (Note 11) |
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Current portion of lease liabilities (Note 7) |
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Loans 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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Additional paid in capital |
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Common stock issuable |
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Accumulated deficit |
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Accumulated other comprehensive loss |
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Total stockholders’ deficit |
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Total liabilities and stockholders’ deficit |
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Nature of operations and going concern (Note 1)
Commitments (Note 14)
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 May 31, 2024 |
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| For the Three Months Ended May 31, 2023 |
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| For the Nine Months Ended May 31, 2024 |
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| For the Nine Months Ended May 31, 2023 |
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Revenues |
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Sales |
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Cost of sales (Note 3) |
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Gross margin |
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Expenses |
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Amortization and depreciation |
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Consulting fees (Note 11 and 16) |
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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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Operating expenses |
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Loss before other items |
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Other income and expenses |
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Interest expense |
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Loss on debt extinguishment (Note 11) |
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Total other income (expenses) |
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Net loss |
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Other comprehensive loss |
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Foreign currency translation adjustments |
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Comprehensive loss |
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| $ | ( | ) |
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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’ Deficit (Expressed in US dollars) (Unaudited) |
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| Common stock |
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| Additional |
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| Accumulated other |
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| Number of shares |
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| Amount |
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| Stock issuable |
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| Accumulated deficit |
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| comprehensive loss |
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| Total |
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Balance, August 31, 2022 |
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Shares issued for cash |
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Share issuance costs |
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Shares issued to settle debts |
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Stock-based compensation |
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Comprehensive loss for the year |
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Balance, November 30, 2022 |
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Shares subscribed |
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Stock-based compensation |
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Comprehensive loss for the period |
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Balance, February 28, 2023 |
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Shares subscribed |
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Shares cancelled |
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Stock-based compensation |
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Comprehensive loss for the period |
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Balance, May 31, 2023 |
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| $ |
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| $ |
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| $ |
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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’ Deficit (Expressed in US dollars) (Unaudited) |
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| Common stock |
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| Additional |
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| Accumulated other |
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| Number of shares |
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| Amount |
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| Stock issuable |
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| Accumulated deficit |
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| comprehensive loss |
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| Total |
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Balance, August 31, 2023 |
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Shares issued for cash |
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Shares subscribed |
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Stock-based compensation |
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Comprehensive loss for the year |
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Balance, November 30, 2023 |
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Shares issued for cash |
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Share issuance costs |
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Stock-based compensation |
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Comprehensive loss for the period |
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Balance, February 29, 2024 |
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| $ |
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| $ |
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| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) | ||||
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Shares issued for cash |
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Share issuance costs |
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Stock-based compensation |
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Related party debt forgiveness |
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Comprehensive loss for the period |
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Balance, May 31, 2024 |
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| $ |
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| $ |
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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 Nine Months Ended May 31, 2024 |
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| For the Nine Months Ended May 31, 2023 |
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Cash provided by (used in): |
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Operating activities |
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Net loss for the period |
| $ | ( | ) |
| $ | ( | ) |
Adjustment to net loss for the period for non-cash items |
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Accrued interest |
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Amortization and depreciation |
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Loss on debt extinguishment |
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Stock-based compensation - options |
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Fair value of finder’s shares |
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Changes in non-cash working capital balance: |
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(Increase) decrease in other receivables |
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(Increase) decrease in prepaid expenses |
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Decrease in deposits and advances |
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(Decrease) increase in accounts payable and accrued liabilities |
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Increase in due to related parties |
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Increase in inventory |
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Investing activities |
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Purchase of intangible assets |
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| ( | ) |
|
| ( | ) |
Purchase of property, plant, and equipment |
|
| ( | ) |
|
| ( | ) |
|
|
| ( | ) |
|
| ( | ) |
Financing activities |
|
|
|
|
|
|
|
|
Advance from related parties |
|
|
|
|
|
| ||
Proceeds from loan payable |
|
|
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|
|
| ||
Proceeds from convertible notes payable |
|
|
|
|
|
| ||
Proceeds from the issuance of common stock |
|
|
|
|
|
| ||
Proceeds for subscriptions of stock issuable |
|
|
|
|
|
| ||
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash |
|
|
|
|
| ( | ) | |
Effect of exchange rate on changes of cash |
|
| ( | ) |
|
|
| |
Cash, beginning of period |
|
|
|
|
|
| ||
Cash, end of period |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Supplemental cash flow disclosures: |
|
|
|
|
|
|
|
|
Income taxes paid |
|
|
|
|
|
| ||
Interest paid |
|
|
|
|
|
| ||
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 May 31, 2024 (Expressed in US dollars) |
1. Nature of operations, reverse take-over transaction and going concern
a) Nature of operations
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 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 May 31, 2024, Allied Colombia has a licensed cannabis farm in Colombia.
b) Going concern
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 nine months ended May 31, 2024 of $
c) Business Risks
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. The Company plans to engage in cannabis-related activities in the United States, only if and when cannabis operations are federally legalized.
9 |
Table of Contents |
ALLIED CORP. Notes to the unaudited condensed consolidated interim financial statements May 31, 2024 (Expressed in US dollars) |
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.
2. Significant accounting policies
Business Presentation
These unaudited condense 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, 2023, 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 May 31, 2024, and the results of its operations for the nine months ended May 31, 2024, and cash flows for the nine months ended May 31, 2024. The results of operations for the period ended May 31, 2024 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
These 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.
10 |
Table of Contents |
ALLIED CORP. Notes to the unaudited condensed consolidated interim financial statements May 31, 2024 (Expressed in US dollars) |
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 May 31, 2024 and August 31, 2023.
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 | |
Office and computer equipment | |
Land equipment |
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
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.
11 |
Table of Contents |
ALLIED CORP. Notes to the unaudited condensed consolidated interim financial statements May 31, 2024 (Expressed in US dollars) |
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 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.
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. During the nine months ended May 31, 2024, the Company incurred research and development costs of $nil (May 31, 2023 – $nil).
12 |
Table of Contents |
ALLIED CORP. Notes to the unaudited condensed consolidated interim financial statements May 31, 2024 (Expressed in US dollars) |
j) Advertising costs
Advertising costs are expensed as incurred. During the nine months ended May 31, 2024, the Company incurred advertising costs of $
k) 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.
l) 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.
m) 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.
n) 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.
13 |
Table of Contents |
ALLIED CORP. Notes to the unaudited condensed consolidated interim financial statements May 31, 2024 (Expressed in US dollars) |
o) 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 as described in Note 1.
p) 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.
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 May 31, 2024 and August 31, 2023 other than cash.
14 |
Table of Contents |
ALLIED CORP. Notes to the unaudited condensed consolidated interim financial statements May 31, 2024 (Expressed in US dollars) |
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.
q) Leases
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.
r) Recent accounting pronouncements
In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”) to simplify accounting for certain financial instruments. ASU 2020-06 eliminates the current models that require separation of beneficial conversion and cash conversion features from convertible instruments and simplifies the derivative scope exception guidance pertaining to equity classification of contracts in an entity’s own equity. The new standard also introduces additional disclosures for convertible debt and freestanding instruments that are indexed to and settled in an entity’s own equity. ASU 2020-06 amends the diluted earnings per share guidance, including the requirement to use the if-converted method for all convertible instruments. ASU 2020-06 is effective for fiscal years beginning after December 15, 2023, and should be applied on a full or modified retrospective basis, with early adoption permitted beginning on January 1, 2021. The Company adopted ASU 2020-06 effective September 1, 2022. The adoption of ASU 2020-06 did not have an impact on the Company’s financial statements.
The Company does not expect that recent accounting pronouncements or changes in accounting pronouncements during the nine months ended May 31, 2024, are of significance or potential significance to the Company.
3. Inventory
Inventory is comprised of the following items:
|
| May 31, 2024 |
|
| August 31, 2023 |
| ||
|
|
|
|
|
|
| ||
Work in progress |
| $ |
|
| $ |
| ||
Finished goods |
|
|
|
|
|
| ||
Total inventory |
| $ |
|
| $ |
|
15 |
Table of Contents |
ALLIED CORP. Notes to the unaudited condensed consolidated interim financial statements May 31, 2024 (Expressed in US dollars) |
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 production 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.
During the nine months ended May 31, 2024, the Company recorded a $nil write-off of inventory costs to its net realizable value of $
During the year ended August 31, 2023, the Company recorded a $
4. Deposits and advances
|
| May 31, 2024 |
|
| August 31, 2023 |
| ||
|
|
|
|
|
|
| ||
Prepayments for construction facility in Colombia |
| $ |
|
| $ |
| ||
Total deposits and advances |
| $ |
|
| $ |
|
The Company paid certain vendors for the construction of farm facilities in Colombia in advance. At May 31, 2024, the prepayments totaled $
5. Property, plant and equipment
At May 31, 2024, property, plant and equipment consisted of:
|
| Construction in process |
|
| Farm facility and equipment |
|
| Office and computer equipment |
|
| Land equipment |
|
| Total |
| |||||
Cost |
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| |||||
August 31, 2023 |
| $ |
|
| $ |
|
| $ |
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| $ |
|
| $ |
| |||||
Additions |
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| |||||
Foreign exchange |
|
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| |||||
May 31, 2024 |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||
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Accumulated depreciation |
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August 31, 2023 |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||
Additions |
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| |||||
Foreign exchange |
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| |||||
May 31, 2024 |
| $ |
|
| $ |
|
| $ |
|
| $ |
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| $ |
| |||||
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Net book value |
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|
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August 31, 2023 |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||
May 31, 2024 |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
As of May 31, 2024 and August 31, 2023, the construction in process has not been in use.
16 |
Table of Contents |
ALLIED CORP. Notes to the unaudited condensed consolidated interim financial statements May 31, 2024 (Expressed in US dollars) |
6. Intangible assets
At May 31, 2024, intangible assets consisted of:
|
| Cost $ |
|
| Foreign exchange $ |
|
| Accumulated amortization $ |
|
| Accumulated impairment $ |
|
| May 31, 2024 Net carrying value $ |
|
| August 31, 2023 Net carrying value $ |
| ||||||
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Cannabis licenses |
|
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|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
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| |||
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| ( | ) |
|
| ( | ) |
|
| ( | ) |
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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. During the year ended August 31, 2021, the Company recorded impairment of intangible assets in the amount of $
During the nine months ended May 31, 2024, the Company recorded amortization of $
7. Leases
The Company accounts for leases under ASC 842, Leases, 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 $
17 |
Table of Contents |
ALLIED CORP. Notes to the unaudited condensed consolidated interim financial statements May 31, 2024 (Expressed in US dollars) |
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 May 31, 2024, the Company did not have any finance leases.
At May 31, 2024, the remaining operating lease term was
The components of lease expenses were as follows:
|
| $ |
| |
Operating lease cost: |
|
|
| |
Amortization of right-of-use assets |
|
|
| |
Interest on lease liabilities |
|
|
| |
|
|
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|
|
Total operating lease cost |
|
|
|
The following table provides supplemental cash flow and other information related to the lease for the nine months ended May 31, 2024:
|
| $ |
| |
Lease payments |
|
|
|
Supplemental balance sheet information related to the lease as of May 31, 2024 are as below:
|
| $ |
| |
Cost |
|
|
| |
Accumulated amortization |
|
| ( | ) |
Foreign exchange |
|
| ( | ) |
|
|
|
|
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Net carrying value at May 31, 2024 |
|
|
|
Future minimum lease payments related to lease obligations are as follows:
|
| $ |
| |
2024 |
|
|
| |
2025 |
|
|
| |
2026 |
|
|
| |
2027 |
|
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| |
2028 |
|
|
| |
2029 |
|
|
| |
2030 |
|
|
| |
|
|
|
|
|
Total minimum lease payments |
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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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18 |
Table of Contents |
ALLIED CORP. Notes to the unaudited condensed consolidated interim financial statements May 31, 2024 (Expressed in US dollars) |
8. Loans payable
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 $
b) On December 17, 2021, the Company entered into a financing agreement to finance an equipment purchase. On March 31, 2022, the agreement was amended to remove shipping charges. Pursuant to the amended agreement, the Company financed $
c) On January 3, 2024, a holder of the Company’s convertible notes provided a short-term loan of $
9. Secured convertible notes payable
The Company has granted each and every of the secured convertible note holders a continuing security interest in, a general lien upon, and aright of set-off against all existing and future assets and property under the terms of a security agreement.
a) On May 17, 2023, the Company issued a convertible note with a face value of $
As at May 31, 2024, the Company has recorded accrued interest of $
As of May 31, 2024, the outstanding principal owing is $
On September 17, 2023, the Company defaulted on the Note and is in process of amending the maturity date and conversion price.
b) On December 4, 2023, the Company issued a convertible note with a face value of $
As at May 31, 2024, the Company has recorded accrued interest of $
As of May 31, 2024, the outstanding principal owing is $
19 |
Table of Contents |
ALLIED CORP. Notes to the unaudited condensed consolidated interim financial statements May 31, 2024 (Expressed in US dollars) |
c) On March 15, 2024 the Company amended the maturity dates of 25 convertible notes in default to
The following table provide a summary of the Company’s convertible notes:
Original issue date |
| Default date |
| Maturity date |
| Principal Balance May 31, 2024 |
|
| Accrued Interest May 31, 2024 |
|
| Principal Balance August 31, 2023 |
|
| Accrued Interest August 31, 2023 |
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20 |
Table of Contents |
ALLIED CORP. Notes to the unaudited condensed consolidated interim financial statements May 31, 2024 (Expressed in US dollars) |
10. Equity
During the nine months ended May 31, 2023:
On September 21, 2022, the Company issued
On October 7, 2022, the Company issued
On October 7, 2022, the Company issued
On October 7, 2022, the Company issued
During the nine months ended May 31, 2024:
On September 5, 2023, the Company issued
On October 20, 2023, the Company issued
On December 1, 2023, the Company issued
On December 1, 2023, the Company issued
On April 9, 2024, the Company entered into a securities purchase agreement and agreed to sell
At May 31, 2024, the Company had received $
21 |
Table of Contents |
ALLIED CORP. Notes to the unaudited condensed consolidated interim financial statements May 31, 2024 (Expressed in US dollars) |
11. Related party transactions and balances
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
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:
|
| Nine Months Ended May 31, 2024 |
|
| Nine Months Ended May 31, 2023 |
| ||
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Consulting fees and benefits |
| $ |
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| $ |
| ||
Signing bonus |
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| $ |
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| $ |
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b) Amounts due to related parties
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 due to related parties:
|
| May 31, 2024 |
|
| August 31, 2023 |
| ||
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Chief Executive Officer and Director |
| $ |
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| $ |
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Chief Operating Officer and Director |
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An entity controlled by the Chief Financial Officer |
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Chief Business Development Officer |
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An entity controlled by a Director |
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During the nine months ended May 31, 2024, the Chief Executive Officer and the Chief Operating Officer each forgave $
As of May 31, 2024, the Company had $
22 |
Table of Contents |
ALLIED CORP. Notes to the unaudited condensed consolidated interim financial statements May 31, 2024 (Expressed in US dollars) |
12. Financial risk factors
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:
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.
b) Liquidity risk:
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).
c) Market risk:
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.
d) Interest rate risk:
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.
e) Foreign exchange risk:
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:
|
| May 31, 2024 |
|
| May 31, 2023 |
| ||
Balance in Canadian dollars: |
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Cash and cash equivalents |
| $ |
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| $ |
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Accounts payable and accrued liabilities |
|
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Net exposure |
|
| ( | ) |
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| ( | ) |
Balance in US dollars: |
| $ | ( | ) |
| $ | ( | ) |
A
23 |
Table of Contents |
ALLIED CORP. Notes to the unaudited condensed consolidated interim financial statements May 31, 2024 (Expressed in US dollars) |
The Company is exposed to foreign currency risk to the extent that the following monetary assets and liabilities are denominated in Colombian Pesos:
|
| May 31, 2024 |
|
| May 31, 2023 |
| ||
Balance in Colombian Pesos dollars: |
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Cash and cash equivalents |
| $ |
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Other receivables |
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Accounts payable |
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Net exposure |
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Balance in US dollars: |
| $ | ( | ) |
| $ | ( | ) |
A
13. Capital management
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) As of May 31, 2024, the Company recorded a contingent liability of $
b) The Company has entered into a lease for farm land in Colombia. See Note 7 for details.
c) In June 2019, the Company’s wholly owned subsidiary, AM Biosciences, signed a production and manufacturing contract to begin the manufacturing of the full building initially intended for the Canada extraction and production facility. The Company had determined to utilize these building assets in connection with potential United States operations in the State of Nevada 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. In connection with that determination, on March 30, 2021, the Company’s wholly owned subsidiary, Allied US Products LLC, entered into a contingent asset purchase agreement (“Agreement”) 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 $
24 |
Table of Contents |
ALLIED CORP. Notes to the unaudited condensed consolidated interim financial statements May 31, 2024 (Expressed in US dollars) |
As the Company made payments towards the purchase of the prefabricated buildings, various parts of the building were delivered to the property on the land lease. In December 2022, the Company was advised that the Fiore Subsidiary had become insolvent and that a trustee’s sale had been scheduled for the property which the Company had agreed to lease. In order to protect the Company’s interests, the Company filed a complaint in the Eighth Judicial District Court in Clark County, Nevada seeking injunctive relief to terminate the trustee’s sale or alternatively money damages. The Company filed a lis pendens against the property to reflect this complaint and to protect its interests in the building. However, the trustee’s sale went forward and the successful bidder claimed that the buildings were part of the real property and that it became the owner of the buildings. As a result, the Company filed suit, seeking a declaration of the Company’s ownership of the buildings as the buildings were personal property and not a part of the real property. A status conference was held for December 13, 2023 and during a further status conference on April 3, 2024 the court strongly suggested to proceed with the litigation. As a consequence, further discussions are ongoing.
15. Share purchase warrants
The following table summarizes the continuity of share purchase warrants:
|
| Number of warrants |
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| Weighted average exercise price $ |
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Balance, August 31, 2023 |
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Expired |
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As at May 31, 2024, the following share purchase warrants were outstanding:
Number of warrants |
|
| Exercise price $ |
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| Expiry date | |||
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16. Stock options
A summary of the Company’s stock option activity is as follows:
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| Number of Options |
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| Weighted Average Exercise Price $ |
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| Weighted Average Remaining Contractual Term |
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| Aggregate Intrinsic Value $ |
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25 |
Table of Contents |
ALLIED CORP. Notes to the unaudited condensed consolidated interim financial statements May 31, 2024 (Expressed in US dollars) |
On December 20, 2024 the Company modified the exercise prices and maturity dates for previously granted and unexercised options as follows:
Number of stock options | Exercise price before modification | Maturity date before modification | Modified exercise price | Modified maturity date |
1,500,000 | $ | $ | ||
600,000 | $ | $ | ||
300,000 | $ | $ | ||
450,000 | $ | $ | ||
6,000,000 | $ | $ | ||
140,000 | $ | $ |
There was no other modification to the vesting schedule of the previously issued options. As a result,
On January 1, 2024, the Company modified the exercise price and vesting terms for previously granted and unexercised options as follows:
Number of stock options | Exercise price before modification | Vesting terms before modification | Modified exercise price | Modified vesting terms |
$ | $ |
In addition, the Company granted additional
During the nine months ended May 31, 2024, the Company recorded stock-based compensation of $
26 |
Table of Contents |
ALLIED CORP. Notes to the unaudited condensed consolidated interim financial statements May 31, 2024 (Expressed in US dollars) |
17. Non-cash activities
|
| Nine Months Ended May 31, 2024 |
|
| Nine Months Ended May 31, 2023 |
| ||
Non-cash activities: |
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Shares issued to settle debt |
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Related party debt forgiveness |
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18. Segment disclosure
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)
b) Allied Corp. which consists of the rest of the Company’s operations. (Allied)
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 nine months ended May 31, 2024 is presented below:
|
| Allied $ |
|
| Allied Colombia $ |
|
| Total $ |
| |||
Gross margin |
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Net loss |
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Depreciation and amortization |
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Total assets as of May 31, 2024 |
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Geographic information for the three months ended and as at May 31, 2024 is presented below:
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| Gross Margin $ |
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| Total Assets $ |
| ||
Canada |
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Colombia |
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Total |
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Note 11 – Subsequent Events
Subsequent events have been evaluated through July 15, 2024, the date these financial statements were available to be released and noted no other events requiring disclosure.
27 |
Table of Contents |
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 nine months ended May 31, 2024 and May 31, 2023.
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, and Allied US Products, LLC. Each of these corporations is a 100% wholly owned subsidiary of Allied and consequently report quarterly financials up to a consolidated quarterly submission.
We focus on the development of Colombian produced medicinal cannabis for patients with conditions potentially suitable for treatment. Such conditions include anxiety, insomnia, anorexia, chronic pain, epilepsy, chemotherapy-induced nausea and vomiting, post-traumatic stress disorder (PTSD), Parkinson’s disease, Tourette’s syndrome, irritable bowel syndrome (IBS) and spasticity associated with multiple sclerosis (MS) and spinal cord injury (SCI).
Our objective is to be a company that controls its own international vertically integrated supply chain, 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 direct agricultural cost of raw flower to be in the range of $0.05 – $0.075 per gram. Based on historical production of ours and other companies in the same region of cannabis these savings are a production afforded by our Colombian production and cultivation which should provide us a competitive advantage.
In addition to what we consider as our demonstrated ability to cultivate low-cost and high margin cannabis in Colombia primarily for international distribution, we have received commercial approval for sale of medical cannabis being produced in Colombia for export internationally. Allied Corp’s commitment to building and maintaining strong relationships with its partners and customers around the world has been a driving force behind its recent successes. The Company is dedicated to meeting the evolving needs of patients and healthcare professionals with its high-quality medical cannabis products, underpinned by rigorous quality standards and ethical cultivation & processing practices.
28 |
Table of Contents |
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, 2023 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 May 31, 2024, and the results of its operations for the nine months ended May 31, 2024, and cash flows for the nine months ended May 31, 2024. The results of operations for the period ended May 31, 2024 are not necessarily indicative of the results to be expected for future quarters or the full year.
The significant accounting policies followed are:
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.
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 May 31, 2024 and August 31, 2023.
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:
Equipment | 1-10 years straight-line basis |
Office and computer equipment | 5-10 years straight-line basis |
Land equipment | 10 years straight-line basis |
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.
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.
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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.
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.
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.
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.
Research and development costs
Research and development costs are expensed as incurred.
Advertising costs
Advertising costs are expensed as incurred.
Revenue recognition
The Company’s revenue is comprised of sales of cannabis and CBD 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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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.
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.
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.
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.
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.
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.
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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 May 31, 2024 and August 31, 2023 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.
Leases
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.
Recent accounting pronouncements
In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”) to simplify accounting for certain financial instruments. ASU 2020-06 eliminates the current models that require separation of beneficial conversion and cash conversion features from convertible instruments and simplifies the derivative scope exception guidance pertaining to equity classification of contracts in an entity’s own equity. The new standard also introduces additional disclosures for convertible debt and freestanding instruments that are indexed to and settled in an entity’s own equity. ASU 2020-06 amends the diluted earnings per share guidance, including the requirement to use the if-converted method for all convertible instruments. ASU 2020-06 is effective for fiscal years beginning after December 15, 2023, and should be applied on a full or modified retrospective basis, with early adoption permitted beginning on January 1, 2021. The Company adopted ASU 2020-06 effective September 1, 2022. The adoption of ASU 2020-06 did not have an impact on the Company’s financial statements.
The Company does not expect that recent accounting pronouncements or changes in accounting pronouncements during the nine months ended May 31, 2024, 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 nine months ended May 31, 2024 of $2,593,922, has generated minimal revenue and as at May 31, 2024 has a working capital deficit of $9,083,174. 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 develop a profitable business. Management intends on financing its operations and future development activities largely from the sale of equity securities and debt financing 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.
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Results of Operations
Comparison of Unaudited Results for the Three Months ended May 31, 2024 compared to the Three Months Ended May 31, 2023
Sales
For the three-month period ended May 31, 2024, the Company had revenue of $77,141 compared to no revenue for the three-month period ended May 31, 2023.
Gross margin
For the three-month period ended May 31, 2024, the Company had a gross margin of $55,477 compared to no gross margin for the three-month period ended May 31, 2023.
Expenses
For the three-month period ended May 31, 2024, the Company had total expenses of $968,564, compared to total expenses of $2,166,104 for the three-month period ended May 31, 2023. Of the total expenses for the three-month period ended May 31, 2024, a total of $850,932 (May 31, 2023 - $2,072,468) was operating expenses and the remainder was non-recurring expenses which included interest expense of $95,968 (May 31, 2023 - $93,636). The operating expenses consisted principally of consulting fees in the development of the Company’s cannabis business, general office expenses, professional fees and rent. The decrease in total expenses is primarily attributed to the decrease in consulting fees of $1,571,922, offset by an increase of foreign exchange gain of $345,253 from the three-month period ended May 31, 2023 to three-month period ended May 31, 2024.
Net Loss
For the three-month period ended May 31, 2024, the Company had a net loss of $891,423 compared to a net loss of $2,166,104 for the three-month period ended May 31, 2023. This was principally related to the expenses referenced in the previous paragraph.
Comparison of Unaudited Results for the Nine months ended May 31, 2024 compared to the Nine months Ended May 31, 2023
Sales
For the nine-month period ended May 31, 2024, the Company had revenue of $96,180 compared to revenue of $69,625 for the nine-month period ended May 31, 2023.
Gross margin
For the nine-month period ended May 31, 2024, the Company had a gross margin of $72,513 compared to a gross margin of $43,667 for the nine-month period ended May 31, 2023.
Expenses
For the nine-month period ended May 31, 2024, the Company had total expenses of $2,666,435, compared to total expenses of $5,609,507 for the nine-month period ended May 31, 2023. Of the total expenses for the nine-month period ended May 31, 2024, a total of $2,384,575 (May 31, 2023 - $5,291,850) was operating expenses and the remainder was non-recurring expenses which included interest expense of $281,860 (May 31, 2023 - $264,656). The operating expenses consisted principally of consulting fees in the development of the Company’s cannabis business, general office expenses, professional fees and rent. The decrease in total expenses is primarily attributed to the decrease in consulting fees of $2,309,141, offset by an increase of foreign exchange gain of $489,356 from the nine-month period ended May 31, 2023 to nine-month period ended May 31, 2024.
Net Loss
For the nine-month period ended May 31, 2024, the Company had a net loss of $2,593,922 compared to a net loss of $5,539,882 for the nine-month period ended May 31, 2023. This was principally related to the expenses referenced in the previous paragraph.
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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.
|
| Nine months Ended May 31, 2024 |
|
| Nine months Ended May 31, 2023 |
| ||
Cash used in operating activities |
| $ | (1,387,909 | ) |
| $ | (2,010,141 | ) |
Cash used in investing activities |
| $ | (9,064 | ) |
| $ | (85,531 | ) |
Cash from financing activities |
| $ | 1,411,998 |
|
| $ | 1,513,160 |
|
Increase (decrease) in cash during the period |
| $ | 15,025 |
|
| $ | (582,512 | ) |
Effect of exchange rate change |
| $ | (133,175 | ) |
| $ | 489,985 |
|
Cash, beginning of period |
| $ | 209,736 |
|
| $ | 96,043 |
|
Cash, end of period |
| $ | 91,586 |
|
| $ | 3,516 |
|
As at May 31, 2024, we had working capital deficit of $9,083,174. Our primary cash flow needs are for the development of our cannabis products, operating costs, administrative expenses and for general working capital.
As of May 31, 2024, the Company had $717,251 in current assets, consisting of $91,586 in cash, $342,646 in inventory, $234,573 in other receivables, and $48,446 in prepaid expenses. Other assets mainly include property, plant and equipment of $1,321,318, right-of-use assets of $107,507 and intangible assets of $43,048.
To date, the Company has financed its operations through equity sales and through the sale of convertible notes.
Secured Convertible Notes
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.
On May 17, 2023, the Company issued a convertible note with a face value of $10,000. The note bears interest at 10% per annum and is due on demand after September 17, 2023. The note is convertible into shares of the Company’s common stock at any time prior to September 17 at a conversion price equal to the lesser of 80% of the twenty-day average closing price per share (but not less than $0.20 per share) or $0.50 per share. On September 17, 2023, the Company defaulted on the note and is in process of amending the maturity date and conversion price.
On December 4, 2023, the Company issued a convertible note with a face value of $50,000. The note bears interest at 10% per annum and is due on demand after December 31, 2024. The note is convertible into shares of the Company’s common stock at any time prior to December 31, 2024 at a conversion price equal to $0.20 per share.
On March 15, 2024 the Company amended the maturity dates of 25 convertible notes in default to December 31, 2024, and the conversion prices to the lesser of 80% of the twenty-day average closing price per share (but not less than $0.20 per share) or $0.50 per share. The convertible notes bear interest at 10% per annum. In addition, the Company consolidated the 25 convertible notes with common note holders to 8 convertible notes.
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The following table summarizes the Company’s secured convertible notes payable as of May 31, 2024 and August 31, 2023.
Original issue date |
| Default date |
| Maturity date |
| Principal Balance May 31, 2024 |
|
| Accrued Interest May 31, 2024 |
|
| Principal Balance August 31, 2023 |
|
| Accrued Interest August 31, 2023 |
| ||||
1/23/2020 |
| 9/30/2022 |
|
|
| $ | - |
|
| $ | - |
|
| $ | 200,000 |
|
| $ | 48,603 |
|
1/23/2020 |
| 9/30/2022 |
|
|
|
| - |
|
|
| - |
|
|
| 200,000 |
|
|
| 48,602 |
|
9/29/2020 |
| 9/30/2022 |
|
|
|
| - |
|
|
| - |
|
|
| 63,341 |
|
|
| 33,540 |
|
10/26/2020 |
| 9/30/2022 |
|
|
|
| - |
|
|
| - |
|
|
| 37,613 |
|
|
| 10,706 |
|
11/11/2020 |
| 9/30/2022 |
|
|
|
| - |
|
|
| - |
|
|
| 85,937 |
|
|
| 24,087 |
|
12/2/2020 |
| 9/30/2022 |
|
|
|
| - |
|
|
| - |
|
|
| 600,000 |
|
|
| 164,712 |
|
1/7/2021 |
| 9/30/2022 |
|
|
|
| - |
|
|
| - |
|
|
| 300,000 |
|
|
| 52,521 |
|
3/26/2021 |
| 9/30/2022 |
|
|
|
| - |
|
|
| - |
|
|
| 18,000 |
|
|
| 4,379 |
|
3/26/2021 |
| 9/30/2022 |
|
|
|
| - |
|
|
| - |
|
|
| 100,000 |
|
|
| 24,274 |
|
4/29/2021 |
| 9/30/2022 |
|
|
|
| - |
|
|
| - |
|
|
| 180,000 |
|
|
| 42,016 |
|
4/30/2021 |
| 9/30/2022 |
|
|
|
| - |
|
|
| - |
|
|
| 100,000 |
|
|
| 23,370 |
|
7/25/2021 |
| 9/30/2022 |
|
|
|
| - |
|
|
| - |
|
|
| 35,000 |
|
|
| 7,336 |
|
7/25/2021 |
| 9/30/2022 |
|
|
|
| - |
|
|
| - |
|
|
| 15,000 |
|
|
| 3,144 |
|
10/1/2021 |
| 9/30/2022 |
|
|
|
| - |
|
|
| - |
|
|
| 100,000 |
|
|
| 19,123 |
|
10/25/2021 |
| 9/30/2022 |
|
|
|
| - |
|
|
| - |
|
|
| 100,000 |
|
|
| 18,466 |
|
12/23/2021 |
| 6/23/2022 |
|
|
|
| - |
|
|
| - |
|
|
| 100,000 |
|
|
| 16,877 |
|
12/23/2021 |
| 6/23/2022 |
|
|
|
| - |
|
|
| - |
|
|
| 100,000 |
|
|
| 16,877 |
|
1/11/2022 |
| 7/10/2022 |
|
|
|
| - |
|
|
| - |
|
|
| 150,000 |
|
|
| 24,534 |
|
1/31/2022 |
| 7/31/2022 |
|
|
|
| - |
|
|
| - |
|
|
| 100,000 |
|
|
| 15,808 |
|
3/29/2022 |
| 9/30/2022 |
|
|
|
| - |
|
|
| - |
|
|
| 500,000 |
|
|
| 71,233 |
|
6/16/2022 |
| 12/16/2022 |
|
|
|
| - |
|
|
| - |
|
|
| 250,000 |
|
|
| 30,206 |
|
11/28/2022 |
| 6/30/2023 |
|
|
|
| - |
|
|
| - |
|
|
| 100,000 |
|
|
| 7,616 |
|
12/1/2022 |
| 6/30/2023 |
|
|
|
| - |
|
|
| - |
|
|
| 70,000 |
|
|
| 5,236 |
|
12/7/2022 |
| 6/30/2023 |
|
|
|
| - |
|
|
| - |
|
|
| 60,000 |
|
|
| 4,389 |
|
2/28/2023 |
| 4/30/2023 |
|
|
|
| - |
|
|
| - |
|
|
| 150,000 |
|
|
| 7,562 |
|
5/17/2023 |
| 9/17/2023 |
| On demand |
|
| 10,000 |
|
|
| 1,041 |
|
|
| 10,000 |
|
|
| 504 |
|
12/4/2023 |
|
|
| 12/31/2024 |
|
| 50,000 |
|
|
| 2,452 |
|
|
| 50,000 |
|
|
| - |
|
3/15/2024 |
|
|
| 12/31/2024 |
|
| 570,000 |
|
|
| 159,121 |
|
|
| - |
|
|
| - |
|
3/15/2024 |
|
|
| 12/31/2024 |
|
| 200,000 |
|
|
| 53,644 |
|
|
| - |
|
|
| - |
|
3/15/2024 |
|
|
| 12/31/2024 |
|
| 286,891 |
|
|
| 97,486 |
|
|
| - |
|
|
| - |
|
3/15/2024 |
|
|
| 12/31/2024 |
|
| 660,000 |
|
|
| 218,646 |
|
|
| - |
|
|
| - |
|
3/15/2024 |
|
|
| 12/31/2024 |
|
| 1,015,000 |
|
|
| 252,190 |
|
|
| - |
|
|
| - |
|
3/15/2024 |
|
|
| 12/31/2024 |
|
| 233,000 |
|
|
| 65,261 |
|
|
| - |
|
|
| - |
|
3/15/2024 |
|
|
| 12/31/2024 |
|
| 500,000 |
|
|
| 108,767 |
|
|
| - |
|
|
| - |
|
3/15/2024 |
|
|
| 12/31/2024 |
|
| 250,000 |
|
|
| 48,973 |
|
|
| - |
|
|
| - |
|
|
|
|
|
|
| $ | 3,774,891 |
|
| $ | 1,007,581 |
|
| $ | 3,774,891 |
|
| $ | 725,721 |
|
Equity Transactions during the nine months ended May 31, 2023
On September 21, 2022, the Company issued 1,350,000 shares of common stock at $0.40 per share for $540,000 subscriptions received during the year ended August 31, 2022.
On October 7, 2022, the Company issued 1,575,000 shares of common stock at $0.40 per share for proceeds of $630,000. In connection with the financing, the Company incurred finder’s fee of $10,000 and share issuance costs of $2,792.
On October 7, 2022, the Company issued 75,000 shares of common stock with a fair value of $44,606 to settle related party accounts payable of $30,000, resulting in a loss on settlement of $14,606.
On October 7, 2022, the Company issued 70,560 shares of common stock with a fair value of $41,966 to settle $29,529 in debt, resulting in a loss on settlement of $12,437.
Equity Transactions during the nine months ended May 31, 2024
On September 5, 2023, the Company issued 150,000 shares of common stock at $0.20 per share for $30,000 subscriptions received during the year ended August 31, 2023.
On October 20, 2023, the Company issued 100,000 shares of common stock at $0.20 per share for $20,000 subscriptions received during the year ended August 31, 2023.
On December 1, 2023, the Company issued 1,730,000 shares of common stock at $0.20 per share for $346,000 subscriptions received during the year ended August 31, 2023.
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On December 1, 2023, the Company issued 2,201,990 shares of common stock at $0.20 per share for proceeds of $440,398. In connection with the financing, the Company issued 42,000 shares with a fair value of $3,024 as a finder’s fee.
On April 9, 2024, the Company entered into a securities purchase agreement and agreed to sell 2,500,000 shares of common stock at $0.20 per share. Pursuant to the agreement, the purchaser shall have the option to designate a member of the Board of Directors upon an additional investment of $750,000 over a period of twelve months. On April 26, 2024, the Company issued 1,250,000 shares of common stock at $0.20 per share for proceeds of $250,000. On May 24, 2024, the Company issued 1,250,000 shares of common stock at $0.20 per share for proceeds of $250,000. In connection with the financing, the Company incurred finder’s fee of $50,000.
At May 31, 2024, the Company had received $30,000 in cash for shares subscriptions at $0.20 per share.
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 2024. 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.
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 May 31, 2024 the company had purchased property plant and equipment of $1,321,318 and paid net cash of $2,833,049 for an asset acquisition. As of August 31, 2023 the company had purchased property plant and equipment of $1,417,192 and paid net cash of $2,833,049 for an asset acquisition.
MediColombias Acquisition (Colombia Licensed Producer)
On August 29, 2019, the Company entered into a Share Purchase Agreement (“Purchase Agreement”) with Dorson Commercial Corp. (“Dorson”) as the sole owner of Baleno Ltd. to purchase all of the issued and outstanding shares of Baleno Ltd., the sole owner of Medicolombia Cannabis S.A.S. (“Medicolombia”). Medicolombia is based in Colombia with a full set of licenses and a lease agreement in place to produce product on a 5 hectare parcel of land. We have the ability to scale production to over hundreds of hectares. This is located in the area of Bucamaranga, Colombia.
Pursuant to the agreement the Company acquired all of the issued and outstanding shares of Medicolombia in exchange for $700,000 and 4,500,000 shares of Allied. The Company closed and completed the acquisition on February 17, 2020. Medicolombia has subsequently changed its name to Allied Colombia S.A.S.
Natural Health Products Acquisition
In May 2019 the management team of AM Biosciences were able to negotiate the inclusion of a natural health products catalogue of products. This includes 50 products in the natural health vertical market. Three of these products are of particular interest as they have Natural Health Products registration numbers with Health Canada. AM Biosciences can add these to the product offerings both in Canada and the United States.
Since the Board of Directors of the Company has determined to currently focus on the cannabis product, this project is currently on hold.
Xtreme Cubes Building
In June 2019, AM Biosciences signed the production and manufacturing contract to begin the manufacturing of the full building initially intended for the Canada extraction and production facility.
In June 2019, AM Biosciences signed the production and manufacturing contract to begin the manufacturing of the full building for the Canada extraction and production facility. 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 August 31, 2022, Company had deposits of $2,656,695 to purchase prefabricated buildings. During the year ended August 31, 2023, the Company recorded a loss on impairment of deposit of $2,656,695 due to the legal proceedings described below.
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In 2020, Allied signed a purchase agreement to acquire a Nevada state license and had the 9800 sq ft. modular building built in Nevada as well. Allied signed a 25 year lease with a publicly listed company called FIORE cannabis. In December 2022, FIORE cannabis went insolvent so the business assets were seized by the debt holders of that company. The Allied building was on that land. Needless to say the lease was cancelled and Allied submitted an application to gain possession of the building back and have it be excluded from the bankruptcy proceedings of FIORE. This is in process with the state of Nevada. We are not aware of any other legal proceedings contemplated by any governmental authority or any other party involving us or our properties.
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 $48,202,258 at May 31, 2024 and a net loss of $2,593,922 for the nine months ended May 31, 2024.
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 minimal 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.
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.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Exchange Act, as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon that evaluation, the Chief Financial Officer and Chief Executive Officer concluded that our disclosure controls and procedures were effective.
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PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
In June 2019, AM Biosciences signed the production and manufacturing contract to begin the manufacturing of the full building initially intended for the Canada extraction and production facility.
The Company had determined to utilize these building assets in connection with potential United States operations in the State of Nevada 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”). In connection with that determination, our wholly owned subsidiary, Allied US Products LLC, a Nevada limited liability company, entered into a contingent asset purchase agreement (the “Contingent Asset Purchase Agreement”) which allows for the purchase of a Nevada State US-based cannabis license from a subsidiary of Fiore Cannabis, Ltd. (“Fiore Subsidiary”). We also entered into a 25 year land lease with the Fiore Subsidiary which we intended originally to use for this operation.
We 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. While we have 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 us in any activities in the United States respecting cannabis.
As the Company made payments towards the purchase of the prefabricated buildings, various parts of the building were delivered to the property on the land lease. In December 2022, the Company was advised that the Fiore Subsidiary had become insolvent and that a trustee’s sale had been scheduled for the property which the Company had agreed to lease. In order to protect the Company’s interests, the Company filed a complaint in the Eighth Judicial District Court in Clark County, Nevada seeking injunctive relief to terminate the trustee’s sale or alternatively obtain money damages. The Company filed a lis pendens against the property to reflect this complaint and to protect its interests in the building. However, the trustee’s sale went forward and the successful bidder claimed that the buildings were part of the real property and that it became the owner of the buildings. As a result, the Company filed suit, seeking a declaration of the Company’s ownership of the buildings as the buildings were personal property and not a part of the real property. A status conference was held for December 13, 2023 and during a further status conference on April 3, 2024 the court strongly suggested to proceed with the litigation. As a consequence, further discussions are ongoing.
We are not aware of any other legal proceedings contemplated by any governmental authority or any other party involving us or our properties.
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.
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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 5, 2023, the Company issued 150,000 shares of common stock at $0.20 per share for $30,000 subscriptions received during the year ended August 31, 2023.
On October 20, 2023, the Company issued 100,000 shares of common stock at $0.20 per share for $20,000 subscriptions received during the year ended August 31, 2023.
On December 1, 2023, the Company issued 1,730,000 shares of common stock at $0.20 per share for $346,000 subscriptions received during the year ended August 31, 2023.
On December 1, 2023, the Company issued 2,201,990 shares of common stock at $0.20 per share for proceeds of $440,398. In connection with the financing, the Company issued 42,000 shares with a fair value of $3,024 as a finder’s fee.
On April 9, 2024, the Company entered into a securities purchase agreement and agreed to sell 2,500,000 shares of common stock at $0.20 per share. Pursuant to the agreement, the purchaser shall have the option to designate a member of the Board of Directors upon an additional investment of $750,000 over a period of twelve months. On April 26, 2024, the Company issued 1,250,000 shares of common stock at $0.20 per share for proceeds of $250,000. On May 24, 2024, the Company issued 1,250,000 shares of common stock at $0.20 per share for proceeds of $250,000. In connection with the financing, the Company incurred finder’s fee of $50,000.
At May 31, 2024, the Company had received $30,000 in cash for shares subscriptions at $0.20 per share.
Item 3. Defaults Upon Senior Securities.
None
Item 4. Mine Safety Disclosures
None
Item 5. Other Information.
Not applicable
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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: July 18, 2024 | By: | /s/ Calum Hughes | |
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| Calum Hughes | |
Chief Executive Officer and Director {Principal and Executive Officer} | |||
Date: July 18, 2024 | By: | /s/ Ryan Maarschalk |
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| Ryan Maarschalk |
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| Chief Financial Officer (Principal Financial Officer Principal Accounting Officer) |
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