Allied Corp. [ALID] Filings

10-Q 1 alid_10q.htm FORM 10-Q alid_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended February 28, 2023

Commission File Number 000-56002

ALLIED CORP.

(Exact name of registrant as specified in its charter)

Nevada

33-1227173

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

1405 St. Paul St., Suite 201, Kelowna, BC, Canada V1Y 9N2

(Address of principal executive offices) (Zip Code)

877-255-4337

(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

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. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

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

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

As of April 19, 2023, there were 97,038,154 shares of common stock issued and outstanding.

TABLE OF CONTENTS

PART I—FINANCIAL INFORMATION

Item 1.	Financial Statements.	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	52
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	64
Item 4.	Controls and Procedures.	64

PART II—OTHER INFORMATION

Item 1.	Legal Proceedings.	65
Item 1A.	Risk Factors.	65
Item 2.	Unregistered Sales of Securities and Use of Proceeds.	66
Item 3.	Defaults Upon Senior Securities.	66
Item 4.	Mining Safety Disclosure.	66
Item 5.	Other Information.	66
Item 6.	Exhibits.

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ALLIED CORP.

CONSOLIDATED FINANCIAL STATEMENTS

Condensed consolidated interim balance sheets at February 28, 2023 (unaudited) and August 31, 2022.		4

Condensed consolidated interim statements of operations and comprehensive loss for the three and six months ended February 28, 2023 and 2022 (unaudited).		5

Condensed consolidated interim statements of stockholders’ deficit for the six months ended February 28, 2023 and 2022 (unaudited).		6-7

Condensed consolidated interim statements of cash flows for the six months ended February 28, 2023 and 2022 (unaudited)		8

Notes to the unaudited condensed consolidated interim financial statements.		9

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ALLIED CORP.

Condensed Consolidated Interim Balance Sheets

(Expressed in US Dollars)

	February 28, 2023			August 31, 2022
	(Unaudited)
Assets
Current assets
Cash	$	164,940		$	96,043
Inventory (Note 3)		1,388,926			998,988
Other receivables		127,461			121,428
Prepaid expenses		18,149			25,187
Total current assets		1,699,476			1,241,646

Deposits and advances (Note 4)		2,840,744			2,869,825
Right-of-use assets (Note 7)		161,580			189,325
Property, plant and equipment (Note 5)		1,366,240			1,444,038
Intangible assets (Note 6)		42,196			44,773
Total assets	$	6,110,236		$	5,789,607

Liabilities
Current liabilities
Accounts payable and accrued liabilities	$	2,024,744		$	1,607,862
Due to related parties (Note 11)		467,575			384,272
Current portion of lease liabilities (Note 7)		24,259			24,725
Loans payable (Note 8)		1,791,501			1,555,654
Secured convertible notes payable (Note 9)		3,714,891			3,334,891
Total current liabilities		8,022,970			6,907,404

Lease liabilities, net of current portion (Note 7)		137,321			164,600
Total liabilities	$	8,160,291		$	7,072,004

Stockholders’ deficit
Preferred stock – 50,000,000 shares authorized, $0.0001 par value Nil shares issued and outstanding	$	-		$	-
Common stock – 300,000,000 shares authorized, $0.0001 par value; 97,038,154 shares issued and outstanding (93,967,594 – par value $0.0001 – August 31, 2022)		9,704			9,397
Additional paid in capital		36,361,809			33,999,090
Common stock issuable		240,952			540,000
Accumulated deficit		(38,306,443	)		(34,932,665	)
Accumulated other comprehensive loss		(356,077	)		(898,219	)

Total stockholders’ deficit		(2,050,055	)		(1,282,397	)
Total liabilities and stockholders’ deficit	$	6,110,236		$	5,789,607

Nature of operations and going concern (Note 1)

Commitments (Note 14)

Subsequent events (Note 19)

The accompanying notes form an integral part of these unaudited condensed consolidated interim financial statements.

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ALLIED CORP.

Condensed Consolidated Interim Statements of Operations and Comprehensive Loss

(Expressed in US dollars)

(Unaudited)

	For the Three Months Ended February 28, 2023			For the Three Months Ended February 28, 2022			For the Six Months Ended February 28, 2023			For the Six Months Ended February 28, 2022
Revenues
Sales	$	-		$	23,378		$	69,625		$	42,556
Cost of sales (Note 3)		-			(245,836	)		(25,958	)		(508,753	)
Gross margin		-			(222,458	)		43,667			(466,197	)

Expenses
Amortization		31,269			56,729			57,429			70,028
Consulting fees (Note 10 and 11)		813,878			1,024,464			1,660,535			9,973,412
Foreign exchange (gain) loss		365			(698	)		(2,865	)		(555	)
Interest expense and bank charges		121,304			120,066			240,046			234,475
Office and miscellaneous		887,106			402,623			957,112			704,913
Professional fees		119,906			310,266			297,096			554,054
Research and development		-			12,062			-			12,062
Travel		2,588			3,574			10,029			16,274
Operating expenses		1,976,416			1,929,086			3,219,382			11,564,663
Loss before other items		(1,976,416	)		(2,151,544	)		(3,175,715	)		(12,030,860	)
Other expenses
Accretion		-			(112,082	)		-			(244,115	)
Interest expense		(87,821	)		(61,519	)		(171,020	)		(118,251	)
Loss on debt extinguishment		-			-			(27,043	)		-
Total other expenses		(87,821	)		(173,601	)		(198,063	)		(362,366	)
Net loss		(2,064,237	)		(2,325,145	)		(3,373,778	)		(12,393,226	)

Other comprehensive loss
Foreign currency translation adjustments		696,142			(18,709	)		542,142			(69,750	)
Comprehensive loss	$	(1,368,095	)	$	(2,343,854	)	$	(2,831,636	)	$	(12,462,976	)

Basic and diluted loss per share	$	(0.02	)	$	(0.03	)	$	(0.03	)	$	(0.14	)

Weighted average number of common shares outstanding		97,038,154			92,359,427			96,529,807			90,599,466

The accompanying notes form an integral part of these unaudited condensed consolidated interim financial statements.

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ALLIED CORP.

Condensed Consolidated Interim Statements of Stockholders’ Deficit

(Expressed in US dollars)

(Unaudited)

	Common stock				Treasury stock						Additional						Stock						Accumulated other
	Number of shares		Amount		Number of shares			Amount			paid in capital			Stock issuable			subscription receivable			Accumulated deficit			comprehensive loss			Total

Balance, August 31, 2021		79,858,867	$	7,986		7,073,170		$	707		$	18,099,226		$	929,985		$	-		$	(19,393,812	)	$	(614,873	)	$	(970,781	)

Shares issued from treasury		7,073,170		707		(7,073,170	)		(707	)		7,957,316			-			-			-			-			7,957,316
Shares issued for cash		4,566,389		456		-			-			3,426,404			(873,735	)		(250,000	)		-			-			2,303,125
Share issuance costs		-		-		-			-			(253,390	)		-			-			-			-			(253,390	)
Shares subscribed		-		-		-			-			-			85,126			-			-			-			85,126
Shares issued for finders fees		8,000		1		-			-			5,999			-			-			-			-			6,000
Shares issued in error not yet cancelled		634,667		64		-			-			(64	)		-			-			-			-			-
Detachable warrants issued with convertible notes payable		-		-		-			-			120,310			-			-			-			-			120,310
Beneficial conversion feature		-		-		-			-			80,247			-			-			-			-			80,247
Stock-based compensation		-		-		-			-			531,255			-			-			-			-			531,255
Comprehensive loss for the period		-		-		-			-			-			-			-			(10,068,081	)		(51,041	)		(10,119,122	)

Balance, November 30, 2021		92,141,093		9,214		-			-			29,967,303			141,376			(250,000	)		(29,461,893	)		(665,914	)		(259,914	)
Subscriptions received		-		-		-			-			-			-			250,000			-			-			250,000
Shares issued for stock issuable		188,501		19		-			-			141,357			(141,376	)		-			-			-			-
Shares issued for cash		933,601		94		-			-			1,078,107			-			-			-			-			1,078,201
Share issuance costs		-		-		-			-			(81,900	)		-			-			-			-			(81,900	)
Shares subscribed		-		-		-			-			-			20,800			-			-			-			20,800
Shares issued in error not yet cancelled		93,334		9		-			-			(9	)		-			-			-			-			-
Beneficial conversion feature		-		-		-			-			201,200			-			-			-			-			201,200
Stock-based compensation		-		-		-			-			702,683			-			-			-			-			702,683
Comprehensive loss for the period		-		-		-			-			-			-			-			(2,325,145	)		(18,709	)		(2,343,854	)

Balance, February 28, 2022		93,356,529		9,336		-			-			32,008,741			20,800			-			(31,787,038	)		(684,623	)		(432,784	)

The accompanying notes form an integral part of these unaudited condensed consolidated interim financial statements.

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ALLIED CORP.

Condensed Consolidated Interim Statements of Stockholders’ Deficit

(Expressed in US dollars)

(Unaudited)

	Common stock				Additional									Accumulated other
	Number of shares		Amount		paid in capital			Stock issuable			Accumulated deficit			comprehensive loss			Total

Balance, August 31, 2022		93,967,594	$	9,397	$	33,999,090		$	540,000		$	(34,932,665	)	$	(898,219	)	$	(1,282,397	)

Shares issued for cash		2,925,000		292		1,169,708			(540,000	)		-			-			630,000
Share issuance costs		-		-		(12,792	)		-			-			-			(12,792	)
Shares issued to settle debts		145,560		15		86,557			-			-			-			86,572
Stock-based compensation		-		-		545,171			-			-			-			545,171
Comprehensive loss for the period		-		-		-			-			(1,309,541	)		(154,000	)		(1,463,541	)

Balance, November 30, 2022		97,038,154		9,704		35,787,734			-			(36,242,206	)		(1,052,219	)		(1,496,987	)
Shares subscribed		-		-		-			240,952			-			-			240,952
Stock-based compensation		-		-		574,075			-			-			-			574,075
Comprehensive loss for the period		-		-		-			-			(2,064,237	)		696,142			(1,368,095	)

Balance, February 28, 2023		97,038,154		9,704		36,361,809			240,952			(38,306,443	)		(356,077	)		(2,050,055	)

The accompanying notes form an integral part of these unaudited condensed consolidated interim financial statements.

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ALLIED CORP.

Condensed Consolidated Interim Statements of Cash Flows

(Expressed in US dollars)

(Unaudited)

	For the Six Months Ended February 28, 2023			For the Six Months Ended February 28, 2022
Cash provided by (used in):

Operating activities
Net loss for the period	$	(3,373,778	)	$	(12,393,226	)
Adjustment to net loss for the period for non-cash items
Accretion		-			244,115
Accrued interest		406,867			102,065
Amortization		57,429			70,028
Inventory write-down to net realizable value		-			471,549
Loss on debt extinguishment		27,043			-
Stock-based compensation - consulting services		-			3,584,392
Stock-based compensation - bonus shares		-			4,585,425
Stock-based compensation - options		1,119,246			1,233,938
Changes in non-cash working capital balance:
Decrease (increase) in other receivables		85,993			49,024
Decrease (increase) in prepaid expenses		7,038			(68,240	)
Decrease in deposits and advances		24,086			233,496
Increase (decrease) in accounts payable and accrued liabilities		266,810			(55,966	)
Increase (decrease) in due to related parties		113,303			-
Increase in inventory		(459,605	)		(506,799	)
		(1,725,568	)		(2,450,199	)
Investing activities
Purchase of intangible assets		(3,964	)		(10,008	)
Purchase of property, plant, and equipment		(80,858	)		(972,947	)
		(84,822	)		(982,955	)
Financing activities
Proceeds of convertible notes payable		380,000			650,000
Repayment of loans payable		-			(387,750	)
Proceeds from the issuance of common stock		617,208			3,407,961
Proceeds from subscriptions received		240,952			-
		1,238,160			3,670,211

Increase (decrease) in cash		(575,230	)		237,057
Effect of exchange rate on changes of cash		641,127			(38,270	)
Cash, beginning of period		96,043			419,825
Cash, end of period	$	164,940		$	618,612

Supplemental cash flow disclosures:
Income taxes paid		-			-
Interest paid		-			264,493
Non-cash activities: See Note 18

The accompanying notes form an integral part of these unaudited condensed consolidated interim financial statements

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ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

February 28, 2023

(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 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 February 28, 2023, 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 six months ended February 28, 2023 of $3,373,778, has generated minimal revenue and as at February 28, 2023 has a working capital deficit of $6,323,494. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. The consolidated financial statements of the Company do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company’s ability to continue as a going concern is dependent upon the Company’s ability to raise sufficient financing to acquire or develop a profitable business. Management intends on financing its operations and future development activities largely from the sale of equity securities with some additional funding from other traditional financing sources, including related party loans until such time that funds provided by future planned operations are sufficient to fund working capital requirements.

c) COVID-19 impact

In March 2020, the World Health Organization declared COVID-19 a global pandemic. This contagious disease outbreak and the related adverse public health developments have adversely affected workforces, economies, and financial markets globally, leading to uncertainty and an economic downturn. Although some product distribution was delayed by COVID-19, management has determined that there has been no significant impact to the Company’s operations, however management continues to monitor the situation.

d) 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.

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ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

February 28, 2023

(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 condensed consolidated financial statements and related notes are presented in accordance with accounting principles generally accepted in the United States of America (“US GAAP”), and are expressed in United States dollars. The Company’s fiscal year end is August 31.

These interim unaudited financial statements have been prepared in accordance with US GAAP for interim financial information and with the instructions to Securities and Exchange Commission (“SEC”) Form 10-Q. They do not include all of the information and footnotes required by US GAAP for complete financial statements. Therefore, these interim financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto for the year ended August 31, 2022, 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 February 28, 2023, and the results of its operations for the six months ended February 28, 2023, and cash flows for the six months ended February 28, 2023. The results of operations for the period ended February 28, 2023 are not necessarily indicative of the results to be expected for future quarters or the full year.

The significant accounting policies followed are:

a) Principles of consolidation

The consolidated financial statements include accounts of Allied Corp. and its wholly-owned subsidiaries, including AM Biosciences, Allied US Products LLC, Tactical Relief LLC, Baleno Ltd. and Allied Colombia. Subsidiaries are consolidated from the date of acquisition and control and continue to be consolidated until the date that such control ceases. Control is achieved when the Company is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect these returns through its power over the investee. All intercompany balances, income, expenses, and unrealized gains and losses resulting from intercompany transactions are eliminated on consolidation.

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ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

February 28, 2023

(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 February 28, 2023 and August 31, 2022.

c) Property, plant and equipment

Property, plant and equipment are stated at cost. The Company depreciates the cost of property, plant and equipment over their estimated useful lives at the following annual rates and methods:

Farm facility and equipment		1 - 10 years straight-line basis
Office and computer equipment		5 - 10 years straight-line basis
Land equipment		10 years straight-line basis

d) Inventory

Inventory is comprised of raw materials, supplies, vegetative and flowering plants, dried flower, diluted crude and CBD isolates available for sale, and purchased cannabis products.

Inventory is stated at the lower of cost or net realizable value, determined using weighted average cost. Net realizable value is defined as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. At the end of each reporting period, the Company performs an assessment of inventory and records write-downs for excess and obsolete inventories based on the Company’s estimated forecast of product demand, production requirements, market conditions, regulatory environment, and spoilage. Actual inventory losses may differ from management’s estimates and such differences could be material to the Company’s consolidated balance sheets, statements of net loss and comprehensive loss and statements of cash flows.

e) Intangible assets

Intangible assets include licenses which are being amortized over their estimated useful lives of 10 years. The Company’s licenses are amortized over their economic or legal life on a straight-line basis, whichever is shorter. The licenses have been amortized from the date of acquisition.

The Company periodically evaluates the reasonableness of the useful lives of these assets. Once these assets are fully amortized, they are removed from the accounts. These assets are reviewed for impairment or obsolescence when events or changes in circumstances indicate that the carrying amount may not be recoverable. If impaired, intangible assets are written down to fair value based on discounted cash flows or other valuation techniques. The Company has no intangibles with indefinite lives.

For long-lived assets, impairment losses are only recorded if the asset’s carrying amount is not recoverable through its undiscounted, probability-weighted future cash flows. The Company measures the impairment loss based on the difference between the carrying amount and the estimated fair value. When an impairment exists, the related assets are written down to fair value.

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ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

February 28, 2023

(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.

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ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

February 28, 2023

(Expressed in US dollars)

j) Advertising costs

Advertising costs are expensed as incurred. During the six months ended February 28, 2023, the Company incurred advertising costs of $4,913 (February 28, 2022– $301,449) which was included as a part of office and miscellaneous expense.

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.

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ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

February 28, 2023

(Expressed in US dollars)

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.

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.

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ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

February 28, 2023

(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) Embedded Conversion Features

The Company evaluates embedded conversion features within convertible debt under ASC 815 Derivatives and Hedging to determine whether the embedded conversion feature(s) should be bifurcated from the host instrument and accounted for as a derivative at fair value with changes in fair value recorded in earnings. If the conversion feature does not require derivative treatment under ASC 815, the instrument is evaluated under ASC 470-20 Debt with Conversion and Other Options for consideration of any beneficial conversion features. On September 1, 2022 the Company adopted ASU 2020-06 using the modified retrospective method and reviewed and calculated the impact on the outstanding financial instruments as of this adoption date concluding there was no impact.

s) Reverse Acquisitions

Identification of the accounting acquirer

The Company considers factors in ASC 805-10-55-10 through 55-15 in identifying the accounting acquirer. The Company uses the existence of a controlling financial interest to identify the acquirer - the entity that obtains control of the acquiree. Other pertinent facts and circumstances also shall be considered in identifying the acquirer in a business combination effected by exchanging equity interests, including the following: (a) The relative voting rights in the combined entity after the business combination, where the acquirer usually is the combining entity whose owners as a group retain or receive the largest portion of the voting rights in the combined entity taking into consideration the existence of any unusual or special voting arrangements and options, warrants, or convertible securities; (b) the existence of a large minority voting interest in the combined entity if no other owner or organized group of owners has a significant voting interest, and where the acquirer usually is the combining entity whose single owner or organized group of owners holds the largest minority voting interest in the combined entity; (c) the composition of the governing body of the combined entity, where the acquirer usually is the combining entity whose owners have the ability to elect or appoint or to remove a majority of the members of the governing body of the combined entity; (d) the composition of the senior management of the combined entity, where the acquirer usually is the combining entity whose former management dominates the management of the combined entity; and (e) the terms of the exchange of equity interests, where the acquirer usually is the combining entity that pays a premium over the pre-combination fair value of the equity interests of the other combining entity or entities, where the acquirer usually is the combining entity whose relative size (measured in, for example, assets, revenues, or earnings) is significantly larger than that of the other combining entity or entities.

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ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

February 28, 2023

(Expressed in US dollars)

Pursuant to ASC Paragraph 805-40-05-2, as one example of a reverse acquisition, a private operating entity may arrange for a public entity to acquire its equity interests in exchange for the equity interests of the public entity. In this situation, the public entity is the legal acquirer because it issued its equity interests, and the private entity is the legal acquiree because its equity interests were acquired. However, application of the guidance in ASC 805-10-55-11 through 55-15 results in identifying: (a) The public entity as the acquiree for accounting purposes (the accounting acquiree); and (b) the private entity as the acquirer for accounting purposes (the accounting acquirer).

Measuring the consideration transferred

Pursuant to ASC 805-40-30-2 and 30-3 in a reverse acquisition, the accounting acquirer usually issues no consideration for the acquiree. Instead, the accounting acquiree usually issues its equity shares to the owners of the accounting acquirer. Accordingly, the acquisition-date fair value of the consideration transferred by the accounting acquirer for its interest in the accounting acquiree is based on the number of equity interests the legal subsidiary would have had to issue to give the owners of the legal parent the same percentage equity interest in the combined entity that results from the reverse acquisition. The fair value of the number of equity interests calculated in that way can be used as the fair value of consideration transferred in exchange for the acquiree. The assets and liabilities of the legal acquiree are measured and recognized in the consolidated financial statements at their pre-combination carrying amounts (see ASC 805-40-45-2(a)).

Presentation of consolidated financial statements post reverse acquisition

Pursuant to ASC 805-40-45-1 and 45-2, consolidated financial statements following a reverse acquisition are issued under the name of the legal parent (accounting acquiree) but described in the notes as a continuation of the financial statements of the legal subsidiary (accounting acquirer), with one adjustment, which is to retroactively adjust the accounting acquirer’s legal capital to reflect the legal capital of the accounting acquiree. That adjustment is required to reflect the capital of the legal parent (the accounting acquiree). Comparative information presented in those consolidated financial statements also is retroactively adjusted to reflect the legal capital of the legal parent (accounting acquiree). The consolidated financial statements reflect all of the following: (a) The assets and liabilities of the legal subsidiary (the accounting acquirer) recognized and measured at their pre-combination carrying amounts; (b) the assets and liabilities of the legal parent (the accounting acquiree) recognized and measured in accordance with the guidance in Topic 805 "Business Combinations"; (c) the retained earnings and other equity balances of the legal subsidiary (accounting acquirer) before the business combination; (d) the amount recognized as issued equity interests in the consolidated financial statements determined by adding the issued equity interest of the legal subsidiary (the accounting acquirer) outstanding immediately before the business combination to the fair value of the legal parent (accounting acquiree) determined in accordance with the guidance in this topic applicable to business combinations. However, the equity structure (that is, the number and type of equity interests issued) reflects the equity structure of the legal parent (the accounting acquiree), including the equity interests the legal parent issued to effect the combination.

Accordingly, the equity structure of the legal subsidiary (the accounting acquirer) is restated using the exchange ratio established in the acquisition agreement to reflect the number of shares of the legal parent (the accounting acquiree) issued in the reverse acquisition; and (e) the non-controlling interest’s proportionate share of the legal subsidiary’s (accounting acquirer’s) pre-combination carrying amounts of retained earnings and other equity interests as discussed in ASC 805-40-25-2 and 805-40-30-3.

Pursuant to ASC 805-40-45-4 and 45-5, in calculating the weighted-average number of common shares outstanding (the denominator of the earnings-per-share (“EPS”) calculation) during the period in which the reverse acquisition occurs: (a) The number of common shares outstanding from the beginning of that period to the acquisition date shall be computed on the basis of the weighted-average number of common shares of the legal acquiree (accounting acquirer) outstanding during the period multiplied by the exchange ratio established in the acquisition agreement; and (b) the number of common shares outstanding from the acquisition date to the end of that period shall be the actual number of common shares of the legal acquirer (the accounting acquiree) outstanding during that period.

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ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

February 28, 2023

(Expressed in US dollars)

The basic EPS for each comparative period before the acquisition date presented in the consolidated financial statements following a reverse acquisition shall be calculated by dividing (a) by (b): (a) The income of the legal acquiree attributable to common shareholders in each of those periods; and (b) the legal acquiree’s historical weighted average number of common shares outstanding multiplied by the exchange ratio established in the acquisition agreement.

As a result of the controlling financial interest of the former stockholders of AMBI, for financial statement reporting purposes, the asset acquisition has been treated as a reverse acquisition with AMBI deemed the accounting acquirer and the Company deemed the accounting acquiree under the acquisition method of accounting in accordance with ASC 805-10-55 of the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC). The reverse acquisition is deemed a capital transaction and the net assets of AMBI (the accounting acquirer) are carried forward to the Company (the legal acquirer and the reporting entity) at their carrying value before the acquisition. The acquisition process utilizes the capital structure of the Company and the assets and liabilities of AMBI which are recorded at their historical cost. The equity of the Company is the historical equity of AMBI.

These consolidated financial statements include the financial statements of the Company and its wholly owned subsidiaries, AM Biosciences effective from the date of the reverse take—over transaction on September 10, 2019 and Allied Colombia (from the date of acquisition, February 18, 2020). All intercompany balances and transactions have been eliminated upon consolidation.

t) Recent accounting pronouncements

The Company does not expect that recent accounting pronouncements or changes in accounting pronouncements during the six months ended February 28, 2023, are of significance or potential significance to the Company.

3. Inventory

Inventory is comprised of the following items:

	February 28, 2023		August 31, 2022

Work in progress	$	274,243	$	326,556
Finished goods		779,286		383,459
Inventory in transit		335,397		288,973
Total inventory	$	1,388,926	$	998,988

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 current period, the Company recorded $174,376 of rent, amortization expenses, and certain overhead costs to the costs of inventory.

During the current period, the Company recorded a $nil (August 30, 2022 - $31,737) write-off of inventory costs for products purchased for resale to reduce inventory to its net realizable value of $1,188,963 (August 30, 2022 - $998,988).

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ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

February 28, 2023

(Expressed in US dollars)

4. Deposits and advances

	February 28, 2023		August 31, 2022

a) Towards the purchase of prefabricated buildings	$	2,656,695	$	2,656,695
b) Deposit towards a license acquisition		150,000		150,000
c) Prepayments for construction facility in Colombia		34,049		63,130
Total deposits and advances	$	2,840,744	$	2,869,825

a) In 2019, the Company entered to a modular building purchase agreement to acquire and construct an 8,700 square foot facility to be used as a certified Cannabis Cultivation and extraction facility. At February 28, 2023, Company had deposits of $2,656,695 (August 31, 2022 - $2,656,695) to purchase prefabricated buildings. As of February 28, 2023, the Company had not yet received the buildings and the amounts have been recorded as deposits.

b) At February 28, 2023 and August 31, 2022, the Company had paid $150,000 to acquire a license through an asset purchase agreement as described in Note 20(a). At February 28, 2023, the asset purchase has not closed and the amount paid has been recorded as a deposit.

c) The Company paid certain vendors for the construction of farm facilities in Colombia in advance. As at February 28, 2023, the prepayments totaled $34,049.

5. Property, plant and equipment

At February 28, 2023, property, plant and equipment consisted of:

	Construction in process			Farm facility and equipment			Office and computer equipment			Land equipment			Total
Cost
August 31, 2022	$	460,648		$	1,152,822		$	21,348		$	27,150		$	1,661,968
Additions		30,270			44,591			5,870			127			80,858
Transfer		(89,638	)		89,638			-			-			-
Foreign exchange		(39,588	)		(48,401	)		(2,059	)		(2,428	)		(92,476	)
February 28, 2023	$	361,692		$	1,238,650		$	25,159		$	24,849		$	1,650,350

Accumulated depreciation
August 31, 2022	$	-		$	210,899		$	4,084		$	2,947		$	217,930
Additions		-			81,410			1,417			1,263			84,090
Foreign exchange		-			(17,212	)		(402	)		(296	)		(17,910	)
February 28, 2023	$	-		$	275,097		$	5,099		$	3,914		$	284,110

Net book value
August 31, 2022	$	460,648		$	941,923		$	17,264		$	24,203		$	1,444,038
February 28, 2023	$	361,692		$	963,553		$	20,060		$	20,935		$	1,366,240

As of February 28, 2023 and August 31, 2022, the construction in process has not been in use.

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ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

February 28, 2023

(Expressed in US dollars)

6. Intangible assets

At February 28, 2023, intangible assets consisted of:

Cost

Foreign exchange

Accumulated amortization

Accumulated impairment

February 28, 2023

Net carrying value

August 31, 2022

Net carrying value

Cannabis licenses

5,451,409

(470,429

)

(1,137,117

)

(3,801,667

)

42,196

44,773

On February 17, 2020, the Company acquired $5,435,334 of licenses as part of the acquisition of Allied Colombia. The licenses acquired are issued by the Republic of Colombia and include the use of seeds for growing Cannabis, production of derivatives from Cannabis for medicinal and scientific use, cultivation of Cannabis plants, and producer of seeds. The Company recorded amortization of these licenses of $658,836 for the year ended August 31, 2021, of which $158,121 was included in cost of inventory.

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 $2,687,695.

During the six months ended February 28, 2023, the Company acquired $3,964 (COP 19,254,199) (2022 - $10,008 (COP 39,014,526)) of licenses and recorded amortization of $5,683 (COP 26,881,413) (2022 - $1,861 (COP 3,938,776)).

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 $82,398 of operating lease assets and liabilities. During the year ended August 31, 2021, the Company re-measured its lease liabilities under this lease as the criteria was met for additional monthly payment when the Company started production as outlined in the lease agreement, resulting in additional lease liabilities of $70,705.

On August 10, 2021, the Company entered into another lease for additional land in Colombia with monthly payment of $2,647 (COP9,970,675) for 12.5 hectares which is intended for use of outdoor cultivation, resulting in additional lease liabilities of $104,902. The lease is for 5 years, and expires in July 2026. Management has assessed the lease as an operating lease.

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ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

February 28, 2023

(Expressed in US dollars)

The Company entered into an agreement to lease the land described in 14(e) with a commencement date of June 1, 2020. The lease requires the Company to make monthly payments of $4,501 (CAD$5,870) per month. The lease is for a 10-year term, expiring on May 31, 2030, with one 10-year renewal option and an option for the Company to purchase the land for approximately $920,000 (CAD$1,200,000). Effective November 1, 2020, the Company terminated the lease. Pursuant to ASC 842-20 upon the termination of the lease, the Company derecognized the lease related asset and liability and included any consideration paid or received upon termination that was not already included in the lease payments in the gain or loss on termination of the lease. After recording the proceeds from the landlord and derecognizing the capitalized building costs as well as the right of use asset and liability, the Company recorded a loss of $65,565 on the termination of the lease.

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 February 28, 2023, the Company did not have any finance leases.

At February 28, 2023, the weighted average remaining operating lease term was 6 years and the weighted average discount rate associated with operating leases was 15%.

The components of lease expenses were as follows:

	$
Operating lease cost:
Amortization of right-of-use assets		11,129
Interest on lease liabilities		12,934

Total operating lease cost		24,063

The following table provides supplemental cash flow and other information related to leases for the six months ended February 28, 2023:

	$

Lease payments		24,063

Supplemental balance sheet information related to leases as of February 28, 2023 are as below:

	$

Cost		282,273
Accumulated amortization		(42,270	)
Foreign exchange		(78,423	)

Net carrying value at February 28, 2023		161,580

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ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

February 28, 2023

(Expressed in US dollars)

Future minimum lease payments related to lease obligations are as follows:

	$

2023		23,487
2024		46,873
2025		46,873
2026		44,820
2027		22,237
2028		22,237
2029		22,237
2030		11,118

Total minimum lease payments		239,832

Less: amount of lease payments representing effects of discounting		(78,252	)

Present value of future minimum lease payments		161,580

Less: current obligations under leases		(24,259	)

Lease liabilities, net of current portion		137,321

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 $1,253,772 of the purchase price. The Company paid $71,023 at commencement date on May 29, 2020 and would make six monthly interest payments of $37,613 commencing June 20, 2020 and repay the principal of $1,253,772 on November 20, 2020. The loan was extended after the initial maturity date. On December 27, 2021, the Company entered into an amendment agreement. Pursuant to the amendment, the Company will make 27 monthly payments starting on January 20, 2022. For the first 3 months, the Company will make monthly payments of $37,613. For the remaining 24 months, the Company will make monthly payments of $66,288. If the first 6 monthly payments are made on time, the Company may prepay the unamortized loan balance with a 2% penalty of the remaining balance. During the six months ended February 28, 2023, the Company paid interest in the amount of $nil (2022 - $225,679). As of February 28, 2023, the Company has missed eight monthly payments and the balance owing is $1,516,969 (August 31, 2022 - $1,291,290).

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 $295,543 of the purchase price with an interest rate of 8% per annum. The Company will make 21 monthly principal and interest payments of $15,000 and a final payment of $633 in September 2023. During the six months ended February 28, 2023, the Company paid interest in the amount of $nil (2022 - $3,814). As of February 28, 2023, the Company has missed twelve monthly payments and the balance owing is $274,532 (August 31, 2022 - $264,364).

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 a right of set-off against all existing and future assets and property under the terms of a security agreement.

a) On January 23, 2020, the Company issued two convertible notes with principal amounts of $400,000 and $200,000, respectively, with a total face value of $600,000 (the “Notes”) and warrants to purchase 240,000 shares of the Company’s common stock at $1.25 per share for 1 year. The Notes were issued with an original discount of $12,000, and bear interest at 10% per annum compounded monthly. The notes mature on July 20, 2020 and are convertible into shares of the Company’s common stock at any time prior to maturity at a conversion price of $1.25 per share.

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ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

February 28, 2023

(Expressed in US dollars)

The Company determined that there was no derivative liability associated with the Notes or warrants under ASC 815-15, Derivatives and Hedging. Per ASC 815-10-15-74(a), contracts that are both indexed to its own stock and classified in stockholders’ equity in its statement of financial position are not considered to be derivative instruments. The conversion features are indexed to the Company’s own stock and are classified in stockholders’ equity in the Company’s statement of financial position. As the conversion features would meet the scope exception as described in paragraphs ASC 815-15-74(a), the conversion features are not required to be separated from the host instrument and accounted for separately. As a result, at February 28, 2023, the conversion features and warrants do not meet derivative classification.

The relative fair values of the convertible notes and the warrants were $470,467 and $117,533 respectively. The effective conversion price was then determined to be $0.98. As the stock price at the issuance date was greater than the effective conversion price, it was determined that there was a beneficial conversion feature (“BCF”). The Company recognized the relative fair value of the BCF of $115,383 and an equivalent discount. The Company then recognized the relative fair value of the warrants of $108,100 as additional-paid-in capital and an equivalent discount that further reduced the carrying value of the convertible debt to $364,517. The beneficial conversion feature of $115,383, the original issue discount of $12,000 and the relative fair value of the warrants of $108,100 discounted the carrying value of the convertible debt on the date of issue. The discount is being expensed over the term of the loan to increase the carrying value to the face value of the loan using effective interest rate method. On June 30, 2020, the Company repaid $200,000 of the $600,000 note which left $200,000 outstanding on each note.

i. First Modification:

On July 1, 2020, the Company entered into amendments to the convertible notes. Pursuant to the amendments, the convertible notes bear simple interest at 5% per annum. The maturity date of the convertible notes was amended to due on demand on or before October 31, 2020. In consideration for extending the maturity date, the Company issued to the convertible note holders 16,000 common shares of the Company and warrants to purchase additional 320,000 common shares of the Company at $1.25 per share expiring October 31, 2021. Each note holder received 8,000 common shares and 160,000 warrants.

The Company evaluated the transaction under the guidance found in ASC 470-50 Modification and Extinguishment. The Company concluded that the Company is experiencing financial difficulty and that a concession was not granted. As the creditor has not granted a concession, the guidance contained in ASC 470-60 was applied. As present value of the cash flows under the new debt instrument differed by more than 10% from the present value of the remaining cash flows under the terms of the original debt instrument, it was determined that the debt was substantially different which resulted in extinguishment accounting.

The extended convertible notes had a total carrying value of $400,000. As the common shares and warrants were issued as consideration for extending the convertible notes, the fair value of the common share and warrants of $218,397 were expensed under extinguishment accounting. The fair value of these costs were included in the calculation of the loss on extinguishment of $220,065.

ii. Second Modification:

On November 1, 2020, the Company entered into amendments to the convertible notes. Pursuant to the amendments, the maturity date of the convertible notes was amended to due on demand on or before March 31, 2021. In consideration for extending the maturity date, the Company agreed to issue to the convertible note holders 100,000 common shares of the Company. Each note holder received 50,000 common shares.

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ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

February 28, 2023

(Expressed in US dollars)

The extended convertible notes had a total carrying value of $400,000. As the common shares were issued as consideration for extending the convertible notes, the fair value of the common share of $110,000 were expensed under extinguishment accounting. The fair value of these costs were included in the calculation of the loss on extinguishment of $110,000.

iii. Third Modification:

On March 31, 2021, the Company entered into amendments to the convertible notes. Pursuant to the amendments, the convertible notes bear simple interest at 10% per annum. Pursuant to the amendments, the maturity date of the convertible notes was amended to due on demand on or before September 30, 2021. In consideration for extending the maturity date, the Company agreed to issue to the convertible note holders 20,000 common shares of the Company. Each note holder received 10,000 common shares.

The extended convertible notes had a total carrying value of $400,000. As the common shares were issued as consideration for extending the convertible notes, the fair value of the common share of $20,000 were expensed under extinguishment accounting. The fair value of these costs were included in the calculation of the loss on extinguishment of $20,000.

iv. Fourth Modification:

On October 1, 2021, the Company entered into amendments to the convertible notes. Pursuant to the amendments, the convertible notes bear simple interest at 10% per annum. Pursuant to the amendments, the maturity date of the convertible notes was amended to due on demand on or after March 31, 2022 for no additional consideration.

As the future undiscounted cash flows are greater than or equal to the net carrying value of the original debt, the carrying amount of the debt at the time of the restructuring was not changed and a new effective interest rate was calculated as the discount rate that equates the present value of the future cash payments specified by the new terms with the carrying amount of the debt. Interest expense will be recognized prospectively such that a constant effective interest rate is applied to the carrying amount of the debt at the beginning of each period between restructuring and maturity, consistent with the interest method.

v. Fifth Modification:

On March 31, 2022, the Company entered into amendments to the convertible notes. Pursuant to the amendments, the convertible notes bear simple interest at 10% per annum. Pursuant to the amendments, the maturity date of the convertible notes was amended to due on demand on or after September 30, 2022 for no additional consideration.

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ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

February 28, 2023

(Expressed in US dollars)

During the six months ended February 28, 2023, the Company made interest payment of $nil (2021 - $20,000). As at February 28, 2023, the Company has recorded accrued interest of $30,302, which is included in accounts payable and accrued liabilities on the consolidated balance sheets.

As of February 28, 2023, the outstanding principal owing is $400,000 (August 31, 2022- $400,000).

On September 30, 2022, the Company defaulted on the Note and is in process of amending the maturity date and exercise price.

b) On September 29, 2020, the Company issued a convertible note with a fair value of $163,341 (the “Note”) and warrants to purchase 130,673 shares of the Company’s common stock at $1.25 per share for 2 years. The Note bears interest at 10% per annum. The Note is due on demand after March 27, 2021. The Note was convertible into shares of the Company’s common stock at any time prior to March 27, 2021 at a conversion price of $1.25 per share.

The Company determined that there was no derivative liability associated with the Note or warrants under ASC 815-15, Derivatives and Hedging. Per ASC 815-10-15-74(a), contracts that are both indexed to its own stock and classified in stockholders’ equity in its statement of financial position are not considered to be derivative instruments. The conversion feature is indexed to the Company’s own stock and is classified in stockholders’ equity in the Company’s statement of financial position. As the conversion feature would meet the scope exception as described in paragraphs ASC 815-15-74(a), the conversion feature is not required to be separated from the host instrument and accounted for separately. As a result, at February 28, 2023, the conversion feature and warrants do not meet derivative classification.

The relative fair values of the convertible note and the warrants were $85,330 and $78,011 respectively. The effective conversion price was then determined to be $0.65. As the stock price at the issuance date was greater than the effective conversion price, it was determined that there was a beneficial conversion feature (“BCF”). The Company recognized the relative fair value of the BCF of $85,330 and an equivalent discount. The Company then recognized the relative fair value of the warrants of $78,011 as additional-paid-in capital and an equivalent discount that further reduced the carrying value of the convertible debt to $Nil. The discount is being expensed over the term of the loan to increase the carrying value to the face value of the loan using effective interest rate method.

i. First Modification:

On March 31, 2021, the Company entered into amendment to the convertible note. Pursuant to the amendment, the convertible note bears simple interest at 10% per annum. The maturity date of the convertible note was amended to due on demand on or before September 30, 2021. In consideration for extending the maturity date, the Company issued to the convertible note holder 8,268 common shares of the Company.

The extended convertible note had a total carrying value of $163,341. As the common shares were issued as consideration for extending the convertible note, the fair value of the common shares of $8,268 was expensed under extinguishment accounting. The fair value of these costs were included in the calculation of the loss on extinguishment of $8,268.

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ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

February 28, 2023

(Expressed in US dollars)

ii. Second Modification:

On June 1, 2021, the Company entered into amendment to the convertible note. Pursuant to the amendment, the convertible note bears simple interest at 10% per annum. The maturity date of the convertible note was amended to due on demand on or before November 30, 2021 for no additional consideration.

iii. Third Modification:

On November 1, 2021, the Company entered into amendment to the convertible note. Pursuant to the amendment, the convertible note bears simple interest at 10% per annum. The maturity date of the convertible note was amended to due on demand on or before March 31, 2022 for no additional consideration.

iv. Fourth Modification:

On March 31, 2022, the Company entered into amendment to the convertible note. Pursuant to the amendment, the convertible note bear simple interest at 10% per annum. Pursuant to the amendment, the maturity date of the convertible note was amended to due on demand on or after September 30, 2022 for no additional consideration.

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ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

February 28, 2023

(Expressed in US dollars)

As at February 28, 2023, the Company has recorded accrued interest of $30,347, which is included in accounts payable and accrued liabilities on the consolidated balance sheets.

As of February 28, 2023, the outstanding principal owing is $63,341 (August 31, 2022 - $63,341).

On September 30, 2022, the Company defaulted on the Note and is in process of amending the maturity date and exercise price.

c) On October 26, 2020, the Company issued a convertible note with a face value of $37,613 (the “Note”) and warrants to purchase 30,090 shares of the Company’s common stock at $1.25 per share for 2 years. The Note bears interest at 10% per annum. The Note is due on demand after April 23, 2021. The Note was convertible into shares of the Company’s common stock at any time prior to April 23, 2021 at a conversion price of $1.25 per share.

The relative fair values of the convertible note and the warrants were $20,176 and $17,437 respectively. The effective conversion price was then determined to be $0.65. As the stock price at the issuance date was greater than the effective conversion price, it was determined that there was a beneficial conversion feature (“BCF”). The Company recognized the relative fair value of the BCF of $20,176 and an equivalent discount. The Company then recognized the relative fair value of the warrants of $17,437 as additional-paid-in capital and an equivalent discount that further reduced the carrying value of the convertible debt to $Nil. The discount is being expensed over the term of the loan to increase the carrying value to the face value of the loan using effective interest rate method.

i. First Modification:

ii. Second Modification:

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ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

February 28, 2023

(Expressed in US dollars)

iii. Third Modification:

As at February 28, 2023, the Company has recorded accrued interest of $8,810, which is included in accounts payable and accrued liabilities on the consolidated balance sheets.

As of February 28, 2023, the outstanding principal owing is $37,613 (August 31, 2022 - $37,613).

On September 30, 2022, the Company defaulted on the Note and is in process of amending the maturity date and exercise price.

d) On November 11, 2020, the Company issued a convertible note with a face value of $85,937 (the “Note”) and warrants to purchase 68,750 shares of the Company’s common stock at $1.25 per share for 2 years. The Note bears interest at 10% per annum. The Note is due on demand after May 9, 2021. The Note was convertible into shares of the Company’s common stock at any time prior to April 23, 2021 at a conversion price of $1.25 per share.

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ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

February 28, 2023

(Expressed in US dollars)

The relative fair values of the convertible note and the warrants were $48,258 and $37,679 respectively. The effective conversion price was then determined to be $0.70. As the stock price at the issuance date was greater than the effective conversion price, it was determined that there was a beneficial conversion feature (“BCF”). The Company recognized the relative fair value of the BCF of $48,258 and an equivalent discount. The Company then recognized the relative fair value of the warrants of $37,679 as additional-paid-in capital and an equivalent discount that further reduced the carrying value of the convertible debt to $Nil. The discount is being expensed over the term of the loan to increase the carrying value to the face value of the loan using effective interest rate method.

i. First Modification:

ii. Second Modification:

iii. Third Modification:

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ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

February 28, 2023

(Expressed in US dollars)

As at February 28, 2023, the Company has recorded accrued interest of $19,754, which is included in accounts payable and accrued liabilities on the consolidated balance sheets.

As of February 28, 2023, the outstanding principal owing is $85,937 (August 31, 2022 - $85,937).

On September 30, 2022, the Company defaulted on the Note and is in process of amending the maturity date and exercise price.

e) On December 2, 2020, the Company issued a convertible note with a face value of $600,000 (the “Note”) and warrants to purchase 240,000 shares of the Company’s common stock at $1.25 per share for 2 years. The Note bears interest at 10% per annum. The Note is due on demand after November 27, 2021. The Note was convertible into shares of the Company’s common stock at any time prior to November 27, 2021 at a conversion price of $1.25 per share.

The relative fair values of the convertible note and the warrants were $457,436 and $142,564 respectively. The effective conversion price was then determined to be $0.95. As the stock price at the issuance date was greater than the effective conversion price, it was determined that there was a beneficial conversion feature (“BCF”). The Company recognized the relative fair value of the BCF of $457,436 and an equivalent discount. The Company then recognized the relative fair value of the warrants of $22,564 as additional-paid-in capital and an equivalent discount that further reduced the carrying value of the convertible debt to $Nil. The discount is being expensed over the term of the loan to increase the carrying value to the face value of the loan using effective interest rate method.

i. First Modification:

On October 1, 2021, the Company entered into amendment to the convertible note. Pursuant to the amendment, the convertible note bears simple interest at 10% per annum. The maturity date of the convertible note was amended to due on demand on or before March 31, 2022 for no additional consideration.

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ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

February 28, 2023

(Expressed in US dollars)

ii. Second Modification:

As at February 28, 2023, the Company has recorded accrued interest of $134,465, which is included in accounts payable and accrued liabilities on the consolidated balance sheets.

As of February 28, 2023, the outstanding principal owing is $600,000 (August 31, 2022 - $600,000).

On September 30, 2022, the Company defaulted on the Note and is in process of amending the maturity date and exercise price.

f) On January 7, 2021, the Company issued a convertible note with a face value of $300,000 (the “Note). The Note bears interest at 10% per annum and is due on demand after November 27, 2021. The Note was convertible into shares of the Company’s common stock at any time prior to April 23, 2021 at a conversion price of 1.25 per share.

The Company determined that there was no derivative liability associated with the Note under ASC 815-15, Derivatives and Hedging. Per ASC 815-10-15-74(a), contracts that are both indexed to its own stock and classified in stockholders’ equity in its statement of financial position are not considered to be derivative instruments. The conversion feature is indexed to the Company’s own stock and is classified in stockholders’ equity in the Company’s statement of financial position. As the conversion feature would meet the scope exception as described in paragraphs ASC 815-15-74(a), the conversion feature is not required to be separated from the host instrument and accounted for separately. As a result, at February 28, 2023, the conversion feature does not meet derivative classification. In addition, it was determined that there was no beneficial conversion feature (“BCF”) as the stock price at the issuance date was less than the conversion price.

i. First Modification:

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ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

February 28, 2023

(Expressed in US dollars)

ii. Second Modification:

As at February 28, 2023, the Company has recorded accrued interest of $57,479, which is included in accounts payable and accrued liabilities on the consolidated balance sheets.

As of February 28, 2023, the outstanding principal owing is $300,000 (August 31, 2022 - $300,000).

On September 30, 2022, the Company defaulted on the Note and is in process of amending the maturity date and exercise price.

g) On March 26, 2021, the Company issued a convertible note with a face value of $18,000 (the “Note”) and warrants to purchase 18,000 shares of the Company’s common stock at $0.50 per share for 1 year. The Note bears interest at 10% per annum. The Note is due on demand after September 26, 2021. The Note was convertible into shares of the Company’s common stock at any time prior to September 26, 2021 at a conversion price of $1.25 per share.

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ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

February 28, 2023

(Expressed in US dollars)

The relative fair values of the convertible note and the warrants were $10,096 and $7,904 respectively. The effective conversion price was then determined to be $0.70. As the stock price at the issuance date was greater than the effective conversion price, it was determined that there was a beneficial conversion feature (“BCF”). The Company recognized the relative fair value of the BCF of $4,016 and an equivalent discount. The Company then recognized the relative fair value of the warrants of $7,904 as additional-paid-in capital and an equivalent discount that further reduced the carrying value of the convertible debt to $6,080. The discount is being expensed over the term of the loan to increase the carrying value to the face value of the loan using effective interest rate method.

i. First Modification:

ii. Second Modification:

As at February 28, 2023, the Company has recorded accrued interest of $3,472, which is included in accounts payable and accrued liabilities on the consolidated balance sheets.

As of February 28, 2023, the outstanding principal owing is $18,000 (August 31, 2022 - $18,000).

On September 30, 2022, the Company defaulted on the Note and is in process of amending the maturity date and exercise price.

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ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

February 28, 2023

(Expressed in US dollars)

h) On March 26, 2021, the Company issued a convertible note with a face value of $100,000 (the “Note”) and warrants to purchase 100,000 shares of the Company’s common stock at $0.50 per share for 1 year. The Note bears interest at 10% per annum. The Note is due on demand after September 26, 2021. The Note is convertible into shares of the Company’s common stock at any time prior to September 26, 2021 at a conversion price of $1.25 per share.

The relative fair values of the convertible note and the warrants were $56,086 and $43,914 respectively. The effective conversion price was then determined to be $0.70. As the stock price at the issuance date was greater than the effective conversion price, it was determined that there was a beneficial conversion feature (“BCF”). The Company recognized the relative fair value of the BCF of $22,314 and an equivalent discount. The Company then recognized the relative fair value of the warrants of $43,914 as additional-paid-in capital and an equivalent discount that further reduced the carrying value of the convertible debt to $33,772. The discount is being expensed over the term of the loan to increase the carrying value to the face value of the loan using effective interest rate method.

i. First Modification:

ii. Second Modification:

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ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

February 28, 2023

(Expressed in US dollars)

As at February 28, 2023, the Company has recorded accrued interest of $19,233, which is included in accounts payable and accrued liabilities on the consolidated balance sheets.

As of February 28, 2023, the outstanding principal owing is $100,000 (August 31, 2022 - $100,000).

On September 30, 2022, the Company defaulted on the Note and is in process of amending the maturity date and exercise price.

i) On April 30, 2021, the Company issued a convertible note with a face value of $100,000 (the “Note”) and warrants to purchase 100,000 shares of the Company’s common stock at $1.00 per share for 1 year. The Note bears interest at 10% per annum. The Note is due on demand after October 31, 2021. The Note is convertible into shares of the Company’s common stock at any time prior to October 31, 2021 at a conversion price of $1.00 per share.

The relative fair values of the convertible note and the warrants were $61,493 and $38,507 respectively. The effective conversion price was then determined to be $0.61. As the stock price at the issuance date was greater than the effective conversion price, it was determined that there was a beneficial conversion feature (“BCF”). The Company recognized the relative fair value of the BCF of $27,272 and an equivalent discount. The Company then recognized the relative fair value of the warrants of $38,507 as additional-paid-in capital and an equivalent discount that further reduced the carrying value of the convertible debt to $34,221. The discount is being expensed over the term of the loan to increase the carrying value to the face value of the loan using effective interest rate method.

i. First Modification:

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ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

February 28, 2023

(Expressed in US dollars)

ii. Second Modification:

As at February 28, 2023, the Company has recorded accrued interest of $18,329, which is included in accounts payable and accrued liabilities on the consolidated balance sheets.

As of February 28, 2023, the outstanding principal owing is $100,000 (August 31, 2022 - $100,000).

On September 30, 2022, the Company defaulted on the Note and is in process of amending the maturity date and exercise price.

j) On April 29, 2021, the Company issued a convertible note with a face value of $180,000 (the “Note”) and warrants to purchase 180,000 shares of the Company’s common stock at $1.00 per share for 1 year. The Note bears interest at 10% per annum. The Note is due on demand after October 29, 2021. The Note was convertible into shares of the Company’s common stock at any time prior to October 29, 2021 at a conversion price of $1.00 per share.

The relative fair values of the convertible note and the warrants were $111,422 and $68,578 respectively. The effective conversion price was then determined to be $0.62. As the stock price at the issuance date was greater than the effective conversion price, it was determined that there was a beneficial conversion feature (“BCF”). The Company recognized the relative fair value of the BCF of $46,078 and an equivalent discount. The Company then recognized the relative fair value of the warrants of $68,578 as additional-paid-in capital and an equivalent discount that further reduced the carrying value of the convertible debt to $65,344. The discount is being expensed over the term of the loan to increase the carrying value to the face value of the loan using effective interest rate method.

i. First Modification:

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ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

February 28, 2023

(Expressed in US dollars)

ii. Second Modification:

As at February 28, 2023, the Company has recorded accrued interest of $32,942, which is included in accounts payable and accrued liabilities on the consolidated balance sheets.

As of February 28, 2023, the outstanding principal owing is $180,000 (August 31, 2022 - $180,000).

On September 30, 2022, the Company defaulted on the Note and is in process of amending the maturity date and exercise price.

k) On July 25, 2021, the Company issued a convertible note with a face value of $35,000 (the “Note). The Note bears interest at 10% per annum and is due on demand after January 25, 2022. The Note was convertible into shares of the Company’s common stock at any time prior to January 25, 2022 at a conversion price of $1.25 per share.

The Company determined that there was no derivative liability associated with the Note under ASC 815-15, Derivatives and Hedging. Per ASC 815-10-15-74(a), contracts that are both indexed to its own stock and classified in stockholders’ equity in its statement of financial position are not considered to be derivative instruments. The conversion feature is indexed to the Company’s own stock and is classified in stockholders’ equity in the Company’s statement of financial position. As the conversion features would meet the scope exception as described in paragraphs ASC 815-15-74(a), the conversion features are not required to be separated from the host instrument and accounted for separately. As a result, at February 28, 2023, the conversion feature does not meet derivative classification. In addition, it was determined that there was no beneficial conversion feature (“BCF”) as the stock price at the issuance date was less than the conversion price.

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ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

February 28, 2023

(Expressed in US dollars)

i. First Modification:

On November 1, 2021, the Company entered into amendment to the convertible note. Pursuant to the amendment, the convertible note bears simple interest at 10% per annum. Pursuant to the amendment, the maturity date of the convertible note was amended to due on demand on or after March 31, 2022 for no additional consideration.

The Company evaluated the transaction under the guidance found in ASC 470-50 Modification and Extinguishment. The Company concluded that the Company is experiencing financial difficulty and that a concession was not granted. As the creditor has not granted a concession, the guidance contained in ASC 470-50 was applied. As present value of the cash flows under the new debt instrument differed by less than 10% from the present value of the remaining cash flows under the terms of the original debt instrument, it was determined that the debt was not substantially different which resulted in modification accounting.

If a convertible debt instrument is modified or exchanged in a transaction that is not accounted for as an extinguishment, an increase in the fair value of the embedded conversion option (calculated as the difference between the fair value of the embedded conversion option immediately before and after the modification or exchange) shall reduce the carrying amount of the debt instrument (increasing a debt discount or reducing a debt premium) with a corresponding increase in additional paid-in capital.

The Company recognized the increase in the fair value of the embedded beneficial conversion feature of $1,090 as additional-paid-in capital and an equivalent discount that reduced the carrying value of the convertible debt to $33,910 at November 1, 2021.

ii. Second Modification:

As at February 28, 2023, the Company has recorded accrued interest of $5,571, which is included in accounts payable and accrued liabilities on the consolidated balance sheets.

As of February 28, 2023, the outstanding principal owing is $35,000 (August 31, 2022 - $35,000).

On September 30, 2022, the Company defaulted on the Note and is in process of amending the maturity date and exercise price.

l) On July 25, 2021, the Company issued a convertible note with a face value of $15,000 (the “Note). The Note bears interest at 10% per annum and is due on demand after January 25, 2022. The Note was convertible into shares of the Company’s common stock at any time prior to January 25, 2022 at a conversion price of $1.25 per share.

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ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

February 28, 2023

(Expressed in US dollars)

The Company determined that there was no derivative liability associated with the Note under ASC 815-15, Derivatives and Hedging. Per ASC 815-10-15-74(a), contracts that are both indexed to its own stock and classified in stockholders’ equity in its statement of financial position are not considered to be derivative instruments. The conversion feature is indexed to the Company’s own stock and is classified in stockholders’ equity in the Company’s statement of financial position. As the conversion features would meet the scope exception as described in paragraphs ASC 815-15-74(a), the conversion features are not required to be separated from the host instrument and accounted for separately. As a result, at February 28, 2023, the conversion feature does not meet derivative classification. In addition, it was determined that there was no beneficial conversion feature (“BCF”) as the stock price at the issuance date was less than the conversion price.

i. First Modification:

The Company recognized the increase in the fair value of the embedded beneficial conversion feature of $467 as additional-paid-in capital and an equivalent discount that reduced the carrying value of the convertible debt to $14,533 at November 1, 2021.

ii. Second Modification:

As at February 28, 2023, the Company has recorded accrued interest of $2,388, which is included in accounts payable and accrued liabilities on the consolidated balance sheets.

As of February 28, 2023, the outstanding principal owing is $15,000 (August 31, 2022 - $15,000).

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ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

February 28, 2023

(Expressed in US dollars)

On September 30, 2022, the Company defaulted on the Note and is in process of amending the maturity date and exercise price.

m) On October 1, 2021, the Company issued a convertible note with a face value of $100,000 (the “Note”) and warrants to purchase 100,000 shares of the Company’s common stock at $1.25 per share for 1 year. The Note bears interest at 10% per annum. The Note is due on demand after March 31, 2022. The Note was convertible into shares of the Company’s common stock at any time prior to March 31, 2022 at a conversion price of $1.25 per share.

The relative fair values of the convertible note and the warrants were $40,117 and $59,883 respectively. The effective conversion price was then determined to be $0.40. As the stock price at the issuance date was greater than the effective conversion price, it was determined that there was a beneficial conversion feature (“BCF”). The Company recognized the relative fair value of the BCF of $40,117 and an equivalent discount. The Company then recognized the relative fair value of the warrants of $59,883 as additional-paid-in capital and an equivalent discount that further reduced the carrying value of the convertible debt to $Nil. The discount is being expensed over the term of the loan to increase the carrying value to the face value of the loan using effective interest rate method.

i. First Modification:

There was no change in the fair value of the embedded beneficial conversion feature immediately before and after the modification. As a result, the Company did not adjust the carrying amount of $1,546 of the convertible debt at November 1, 2021.

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ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

February 28, 2023

(Expressed in US dollars)

ii. Second Modification:

As at February 28, 2023, the Company has recorded accrued interest of $14,082, which is included in accounts payable and accrued liabilities on the consolidated balance sheets.

As of February 28, 2023, the outstanding principal owing is $100,000 (August 31, 2022 - $100,000).

On September 30, 2022, the Company defaulted on the Note and is in process of amending the maturity date and exercise price.

n) On October 25, 2021, the Company issued a convertible note with a face value of $100,000 (the “Note”) and warrants to purchase 100,000 shares of the Company’s common stock at $1.25 per share for 1 year. The Note bears interest at 10% per annum. The Note is due on demand after March 31, 2022. The Note was convertible into shares of the Company’s common stock at any time prior to March 31, 2022 at a conversion price of $1.25 per share.

The relative fair values of the convertible note and the warrants were $39,573 and $60,427 respectively. The effective conversion price was then determined to be $0.40. As the stock price at the issuance date was greater than the effective conversion price, it was determined that there was a beneficial conversion feature (“BCF”). The Company recognized the relative fair value of the BCF of $39,573 and an equivalent discount. The Company then recognized the relative fair value of the warrants of $60,427 as additional-paid-in capital and an equivalent discount that further reduced the carrying value of the convertible debt to $Nil. The discount is being expensed over the term of the loan to increase the carrying value to the face value of the loan using effective interest rate method.

Modification:

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ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

February 28, 2023

(Expressed in US dollars)

As at February 28, 2023, the Company has recorded accrued interest of $13,425, which is included in accounts payable and accrued liabilities on the consolidated balance sheets.

As of February 28, 2023, the outstanding principal owing is $100,000 (August 31, 2022 - $100,000).

On September 30, 2022, the Company defaulted on the Note and is in process of amending the maturity date and exercise price.

o) On December 23, 2021, the Company issued a convertible note with a face value of $100,000 (the “Note). The Note bears interest at 10% per annum and is due on demand after June 23, 2022. The Note is convertible into shares of the Company’s common stock at any time prior to June 23, 2022 at a conversion price of $1.25 per share.

The Company determined that there was no derivative liability associated with the Note under ASC 815-15, Derivatives and Hedging. Per ASC 815-10-15-74(a), contracts that are both indexed to its own stock and classified in stockholders’ equity in its statement of financial position are not considered to be derivative instruments. The conversion feature is indexed to the Company’s own stock and is classified in stockholders’ equity in the Company’s statement of financial position. As the conversion features would meet the scope exception as described in paragraphs ASC 815-15-74(a), the conversion features are not required to be separated from the host instrument and accounted for separately. As a result, at February 28, 2023, the conversion feature does not meet derivative classification.

It was determined that there was a beneficial conversion feature (“BCF”) as the stock price at the issuance date was greater than the effective conversion price. The Company recognized the relative fair value of the BCF of $40,800 as additional-paid-in capital and an equivalent discount that reduced the carrying value of the convertible debt to $59,200. The discount is being expensed over the term of the loan to increase the carrying value to the face value of the loan using effective interest rate method.

As at February 28, 2023, the Company has recorded accrued interest of $11,836, which is included in accounts payable and accrued liabilities on the consolidated balance sheets.

As of February 28, 2023, the outstanding principal owing is $100,000 (August 31, 2022 - $100,000).

On June 23, 2022, the Company defaulted on the Note and is in process of amending the maturity date and exercise price.

p) On December 23, 2021, the Company issued a convertible note with a face value of $100,000 (the “Note). The Note bears interest at 10% per annum and is due on demand after June 23, 2022. The Note is convertible into shares of the Company’s common stock at any time prior to June 23, 2022 at a conversion price of $1.25 per share.

Table of Contents

ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

February 28, 2023

(Expressed in US dollars)

The Company determined that there was no derivative liability associated with the Note under ASC 815-15, Derivatives and Hedging. Per ASC 815-10-15-74(a), contracts that are both indexed to its own stock and classified in stockholders’ equity in its statement of financial position are not considered to be derivative instruments. The conversion feature is indexed to the Company’s own stock and is classified in stockholders’ equity in the Company’s statement of financial position. As the conversion features would meet the scope exception as described in paragraphs ASC 815-15-74(a), the conversion features are not required to be separated from the host instrument and accounted for separately. As a result, at February 28, 2023, the conversion feature does not meet derivative classification.

As at February 28, 2023, the Company has recorded accrued interest of $11,836, which is included in accounts payable and accrued liabilities on the consolidated balance sheets.

As of February 28, 2023, the outstanding principal owing is $100,000 (August 31, 2022 - $100,000).

On June 23, 2022, the Company defaulted on the Note and is in process of amending the maturity date and exercise price.

q) On January 11, 2022, the Company issued a convertible note with a face value of $150,000 (the “Note). The Note bears interest at 10% per annum and is due on demand after July 10, 2022. The Note is convertible into shares of the Company’s common stock at any time prior to July 10, 2022 at a conversion price of $1.25 per share.

The Company determined that there was no derivative liability associated with the Note under ASC 815-15, Derivatives and Hedging. Per ASC 815-10-15-74(a), contracts that are both indexed to its own stock and classified in stockholders’ equity in its statement of financial position are not considered to be derivative instruments. The conversion feature is indexed to the Company’s own stock and is classified in stockholders’ equity in the Company’s statement of financial position. As the conversion features would meet the scope exception as described in paragraphs ASC 815-15-74(a), the conversion features are not required to be separated from the host instrument and accounted for separately. As a result, at February 28, 2023, the conversion feature does not meet derivative classification.

It was determined that there was a beneficial conversion feature (“BCF”) as the stock price at the issuance date was greater than the effective conversion price. The Company recognized the relative fair value of the BCF of $75,600 as additional-paid-in capital and an equivalent discount that reduced the carrying value of the convertible debt to $74,400. The discount is being expensed over the term of the loan to increase the carrying value to the face value of the loan using effective interest rate method.

As at February 28, 2023, the Company has recorded accrued interest of $16,973, which is included in accounts payable and accrued liabilities on the consolidated balance sheets.

As of February 28, 2023, the outstanding principal owing is $150,000 (August 31, 2022 - $150,000).

On July 10, 2022, the Company defaulted on the Note and is in process of amending the maturity date and exercise price.

r) On January 31, 2022, the Company issued a convertible note with a face value of $100,000 (the “Note). The Note bears interest at 10% per annum and is due on demand after July 31, 2022. The Note is convertible into shares of the Company’s common stock at any time prior to July 31, 2022 at a conversion price of $1.25 per share.

Table of Contents

ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

February 28, 2023

(Expressed in US dollars)

The Company determined that there was no derivative liability associated with the Note under ASC 815-15, Derivatives and Hedging. Per ASC 815-10-15-74(a), contracts that are both indexed to its own stock and classified in stockholders’ equity in its statement of financial position are not considered to be derivative instruments. The conversion feature is indexed to the Company’s own stock and is classified in stockholders’ equity in the Company’s statement of financial position. As the conversion features would meet the scope exception as described in paragraphs ASC 815-15-74(a), the conversion features are not required to be separated from the host instrument and accounted for separately. As a result, at February 28, 2023, the conversion feature does not meet derivative classification.

It was determined that there was a beneficial conversion feature (“BCF”) as the stock price at the issuance date was greater than the effective conversion price. The Company recognized the relative fair value of the BCF of $75,600 as additional-paid-in capital and an equivalent discount that reduced the carrying value of the convertible debt to $74,400. The discount is being expensed over the term of the loan to increase the carrying value to the face value of the loan using effective interest rate method.

As at February 28, 2023, the Company has recorded accrued interest of $10,767, which is included in accounts payable and accrued liabilities on the consolidated balance sheets.

As of February 28, 2023, the outstanding principal owing is $100,000 (August 31, 2022 - $100,000).

On July 31, 2022, the Company defaulted on the Note and is in process of amending the maturity date and exercise price.

s) On March 29, 2022, the Company issued a convertible note with a face value of $500,000 (the “Note). The Note bears interest at 10% per annum and is due on demand after September 30, 2022. The Note is convertible into shares of the Company’s common stock at any time prior to September 30, 2022 at a conversion price of $1.25 per share.

The Company determined that there was no derivative liability associated with the Note under ASC 815-15, Derivatives and Hedging. Per ASC 815-10-15-74(a), contracts that are both indexed to its own stock and classified in stockholders’ equity in its statement of financial position are not considered to be derivative instruments. The conversion feature is indexed to the Company’s own stock and is classified in stockholders’ equity in the Company’s statement of financial position. As the conversion features would meet the scope exception as described in paragraphs ASC 815-15-74(a), the conversion features are not required to be separated from the host instrument and accounted for separately. As a result, at February 28, 2023, the conversion feature does not meet derivative classification. In addition, it was determined that there was no beneficial conversion feature (“BCF”) as the stock price at the issuance date was less than the conversion price.

As at February 28, 2023, the Company has recorded accrued interest of $46,028, which is included in accounts payable and accrued liabilities on the consolidated balance sheets.

As of February 28, 2023, the outstanding principal owing is $500,000 (August 31, 2022 - $500,000).

On September 30, 2022, the Company defaulted on the Note and is in process of amending the maturity date and exercise price.

t) On June 16, 2022, the Company issued a convertible note with a face value of $250,000 (the “Note). The Note bears interest at 10% per annum and is due on demand after December 16, 2022. The Note is convertible into shares of the Company’s common stock at any time prior to December 16, 2022 at a conversion price of $1.25 per share.

Table of Contents

ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

February 28, 2023

(Expressed in US dollars)

Allied Corp. [ALID] Filings
10-Q	[2023-04-19]
10-Q	[2023-01-24]
10-K	[2022-12-14]
10-Q	[2022-07-20]
10-Q	[2022-04-18]
10-Q	[2022-01-19]
10-K	[2021-12-14]
10-Q	[2021-07-20]
10-Q	[2021-04-15]
10-Q	[2021-01-20]
10-K	[2020-12-16]
10-Q	[2020-07-15]
10-Q	[2020-06-02]
10-Q	[2020-01-21]
10-Q	[2019-08-19]
10-K	[2019-06-28]
10-Q	[2019-02-13]
10-Q	[2018-11-14]
10-Q	[2018-08-14]
10-K	[2018-06-27]
10-Q	[2018-02-14]
10-Q	[2017-11-14]
10-Q	[2017-09-14]
10-K	[2017-08-21]
10-Q	[2017-06-07]
10-Q	[2017-05-15]
10-Q	[2017-03-16]
10-K	[2017-02-17]
10-Q	[2017-01-31]
10-Q	[2017-01-25]
10-Q	[2017-01-18]
10-K	[2017-01-13]
10-Q	[2015-02-25]
10-Q	[2014-11-18]
10-Q	[2014-08-27]
10-K	[2014-07-14]
10-Q	[2014-02-14]
S-1	[2013-05-28]