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, 2022

 

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, BCCanada  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

 

N/A

 

N/A

 

Indicate by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ 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 18, 2022, there were 93,376,529 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.

50

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

63

Item 4.

Controls and Procedures.

63

 

PART II—OTHER INFORMATION

 

Item 1.

Legal Proceedings.

64

Item 1A.

Risk Factors.

64

Item 2.

Unregistered Sales of Securities and Use of Proceeds.

64

Item 3.

Defaults Upon Senior Securities.

65

Item 4.

Mining Safety Disclosure.

65

Item 5.

Other Information.

65

Item 6.

Exhibits.

66

 

2

Table of Contents

 

ALLIED CORP.

 

CONSOLIDATED FINANCIAL STATEMENTS

    

Condensed consolidated interim balance sheets at February 28, 2022 (unaudited) and August 31, 2021

 

 

4

 

 

 

 

 

 

Condensed consolidated interim statements of operations and comprehensive loss for the three and six months ended February 28, 2022 and 2021 (unaudited)

 

 

5

 

 

 

 

 

 

Condensed consolidated interim statements of stockholders’ equity (deficit) for the six months ended February 28, 2022 and 2021 (unaudited)

 

 

6-7

 

 

 

 

 

 

Condensed consolidated interim statements of cash flows for the six months ended February 28, 2022 and 2021 (unaudited)

 

 

8

 

 

 

 

 

 

Notes to the unaudited condensed consolidated interim financial statements

 

 

9

 

 

3

Table of Contents

 

ALLIED CORP.

Condensed Consolidated Interim Balance Sheets

(Expressed in US Dollars)

  

 

 

February 28,

2022

 

 

August 31,

2021

 

 

 

(Unaudited)

 

 

 

Assets

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash

 

$618,612

 

 

$419,825

 

Inventory (Note 3)

 

 

171,511

 

 

 

136,261

 

Other receivables

 

 

33,813

 

 

 

82,837

 

Prepaid expenses

 

 

133,269

 

 

 

277,529

 

Total current assets

 

 

957,205

 

 

 

916,452

 

 

 

 

 

 

 

 

 

 

Deposits and advances (Note 4)

 

 

2,951,779

 

 

 

3,156,163

 

Right-of-use assets (Note 7)

 

 

225,335

 

 

 

247,325

 

Property, plant and equipment (Note 5)

 

 

1,422,739

 

 

 

267,835

 

Intangible assets (Note 6)

 

 

50,974

 

 

 

46,000

 

Total assets

 

$5,608,032

 

 

$4,633,775

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$1,913,944

 

 

$1,871,659

 

Current portion of lease liabilities (Note 7)

 

 

25,808

 

 

 

25,013

 

Loan payable (Note 8)

 

 

1,520,129

 

 

 

1,596,522

 

Secured convertible notes payable (Note 9)

 

 

2,381,408

 

 

 

1,889,050

 

Total current liabilities

 

 

5,841,289

 

 

 

5,382,244

 

 

 

 

 

 

 

 

 

 

Lease liabilities, net of current portion (Note 7)

 

 

199,527

 

 

 

222,312

 

Total liabilities

 

$6,040,816

 

 

$5,604,556

 

 

 

 

 

 

 

 

 

 

Stockholders’ deficiency

 

 

 

 

 

 

 

 

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; 92,898,929 shares issued and outstanding (79,858,867 – par value $0.0001 – August 31, 2021)

 

 

9,336

 

 

 

7,986

 

Treasury stock

 

 

-

 

 

 

707

 

Additional paid in capital

 

 

32,008,741

 

 

 

18,099,226

 

Common stock issuable

 

 

20,800

 

 

 

929,985

 

Accumulated deficit

 

 

(31,787,038)

 

 

(19,393,812)

Accumulated other comprehensive loss

 

 

(684,623)

 

 

(614,873)

 

 

 

 

 

 

 

 

 

Total stockholders’ deficiency

 

 

(432,784)

 

 

(970,781)

Total liabilities and stockholders’ deficiency

 

$5,608,032

 

 

$4,633,775

 

 

Nature of operations and going concern (Note 1)

Commitments (Note 14)

Subsequent events (Note 19)

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

 

4

Table of Contents

 

ALLIED CORP.

Condensed Consolidated Interim Statements of Operations and Comprehensive Loss

(Expressed in US dollars)

(Unaudited)

 

 

 

For the Three Months

 Ended

 February 28,

 2022

 

 

For the Three Months

 Ended

 February 28,

2021

 

 

For the Six

Months

 Ended

 February 28,

2022

 

 

For the Six

Months

Ended

February 28,

2021

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

Sales

 

$23,378

 

 

$1,060

 

 

$42,556

 

 

$5,260

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization

 

 

56,729

 

 

 

196,341

 

 

 

70,028

 

 

 

366,021

 

Charitable donations

 

 

-

 

 

 

15,000

 

 

 

-

 

 

 

15,000

 

Consulting fees

 

 

268,655

 

 

 

163,892

 

 

 

569,657

 

 

 

491,735

 

Foreign exchange loss (gain)

 

 

(698)

 

 

(11,291)

 

 

(555)

 

 

(16,256)

Interest expense and bank charges

 

 

181,585

 

 

 

145,588

 

 

 

352,726

 

 

 

258,428

 

Inventory cost

 

 

26,926

 

 

 

-

 

 

 

37,204

 

 

 

-

 

Office and miscellaneous

 

 

402,623

 

 

 

446,075

 

 

 

704,913

 

 

 

572,719

 

Professional fees

 

 

310,266

 

 

 

242,148

 

 

 

554,054

 

 

 

372,779

 

Research and development

 

 

12,062

 

 

 

-

 

 

 

12,062

 

 

 

-

 

Stock-based compensation – bonus shares (Note 11)

 

 

-

 

 

 

-

 

 

 

4,585,425

 

 

 

-

 

Stock-based compensation – consulting services (Note 10)

 

 

53,126

 

 

 

-

 

 

 

3,584,392

 

 

 

-

 

Stock-based compensation – options

 

 

702,683

 

 

 

1,380,120

 

 

 

1,233,938

 

 

 

1,380,120

 

Travel

 

 

3,574

 

 

 

4,265

 

 

 

16,274

 

 

 

5,606

 

Write-down of inventory to net realizable value (Note 3)

 

 

218,910

 

 

 

-

 

 

 

471,549

 

 

 

-

 

Operating expenses

 

 

2,236,441

 

 

 

2,582,138

 

 

 

12,191,667

 

 

 

3,446,152

 

Loss before other items

 

 

(2,213,063)

 

 

(2,581,078)

 

 

(12,149,111)

 

 

(3,440,892)

Other expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss on termination of lease

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(65,565)

Settlement payments (Note 14)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(105,000)

Gain (loss) on debt extinguishment

 

 

-

 

 

 

19,820

 

 

 

-

 

 

 

(90,180)

Accretion

 

 

(112,082)

 

 

(138,178)

 

 

(244,115)

 

 

(193,661)

Total other expenses

 

 

(112,082)

 

 

(118,358)

 

 

(244,115)

 

 

(454,406)

Net loss

 

 

(2,325,145)

 

 

(2,699,436)

 

 

(12,393,226)

 

 

(3,895,298)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(18,709)

 

 

42,354

 

 

 

(69,750)

 

 

160,572

 

Comprehensive loss

 

$(2,343,854)

 

$(2,657,082)

 

$(12,462,976)

 

$(3,734,726)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted loss per share

 

$(0.03)

 

$(0.03)

 

$(0.14)

 

$(0.05)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding

 

 

92,359,427

 

 

 

85,276,609

 

 

 

90,599,466

 

 

 

85,305,780

 

 

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

 

5

Table of Contents

 

ALLIED CORP.

Condensed Consolidated Interim Statements of Stockholders’ Equity (Deficit)

(Expressed in US dollars)

(Unaudited)

  

 

 

Common stock

 

 

Additional

 

 

 

 

 

Stock

 

 

 

 

 

Accumulated other

 

 

 

 

 

 

Number of shares

 

 

Amount

 

 

paid in

capital

 

 

Stock issuable

 

 

subscription receivable

 

 

Accumulated deficit

 

 

comprehensive income (loss)

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, August 31, 2020

 

 

85,105,780

 

 

$8,511

 

 

$12,226,382

 

 

$19,952

 

 

 

-

 

 

$(7,908,566)

 

$(642,115)

 

$3,704,164

 

Shares issued for cash

 

 

200,000

 

 

 

20

 

 

 

249,980

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

250,000

 

Detachable warrants issued with convertible notes payable

 

 

-

 

 

 

-

 

 

 

153,764

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

153,764

 

Shares issuable upon modification of debt

 

 

-

 

 

 

-

 

 

 

133,127

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

133,127

 

Common stock subscribed

 

 

-

 

 

 

-

 

 

 

 

 

 

 

110,000

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

110,000

 

Comprehensive loss for the period

 

 

-

 

 

 

-

 

 

 

 

 

 

 

-

 

 

 

-

 

 

 

(1,195,862)

 

 

118,923

 

 

 

(1,076,939)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, November 30, 2020

 

 

85,305,780

 

 

$8,531

 

 

$12,763,253

 

 

$129,952

 

 

 

-

 

 

$(9,104,428)

 

$(523,192)

 

$3,274,116

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Detachable warrants issued with convertible notes payable

 

 

-

 

 

 

-

 

 

 

142,564

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

142,564

 

Beneficial conversion feature

 

 

-

 

 

 

-

 

 

 

22,564

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

22,564

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

1,380,120

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,380,120

 

Common stock issuable to settle debt

 

 

-

 

 

 

-

 

 

 

-

 

 

 

92,664

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

92,664

 

Common stock subscribed

 

 

-

 

 

 

-

 

 

 

-

 

 

 

250,000

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

250,000

 

Comprehensive loss for the period

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,699,436)

 

 

41,649

 

 

 

(2,657,787)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, February 28, 2021

 

 

85,305,780

 

 

$8,531

 

 

$14,308,501

 

 

$472,616

 

 

 

-

 

 

$(11,803,864)

 

$(481,543)

 

$2,504,241

 

 

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

 

6

Table of Contents

  

ALLIED CORP.

Condensed Consolidated Interim Statements of Stockholders’ Equity (Deficit)

(Expressed in US dollars)

(Unaudited)

 

 

 

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.

 

7

Table of Contents

  

ALLIED CORP.

Condensed Consolidated Interim Statements of Cash Flows

(Expressed in US dollars)

(Unaudited)

 

 

 

For the Six Months Ended February 28, 2022

 

 

For the Six Months Ended February 28, 2021

 

Cash provided by (used in):

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating activities

 

 

 

 

 

 

Net loss for the period

 

$(12,393,226)

 

$(3,895,298)

Adjustment to net loss for the period for non-cash items

 

 

 

 

 

 

 

 

Accretion

 

 

244,115

 

 

 

193,661

 

Accrued interest

 

 

102,065

 

 

 

-

 

Inventory write-down to net realizable value

 

 

471,549

 

 

 

-

 

Amortization

 

 

70,028

 

 

 

366,021

 

Loss on debt extinguishment

 

 

-

 

 

 

90,180

 

Loss on termination of lease

 

 

-

 

 

 

65,566

 

Stock-based compensation - consulting services (Note 10)

 

 

3,584,392

 

 

 

-

 

Stock-based compensation - bonus shares (Note 11)

 

 

4,585,425

 

 

 

-

 

Stock-based compensation - options

 

 

1,233,938

 

 

 

1,380,120

 

Changes in non-cash working capital balance:

 

 

 

 

 

 

 

 

Decrease in other receivables

 

 

49,024

 

 

 

-

 

Increase (decrease) in prepaid expenses

 

 

(68,240)

 

 

34,179

 

Decrease in deposits and advances

 

 

233,496

 

 

 

-

 

Increase in due from related parties

 

 

-

 

 

 

(11,738)

Increase (decrease) in accounts payable and accrued liabilities

 

 

(55,966)

 

 

95,637

 

Increase in inventory

 

 

(506,799)

 

 

(51,388)

 

 

 

 

 

 

 

 

 

 

 

 

(2,450,199)

 

 

(1,733,060)

Investing activities

 

 

 

 

 

 

 

 

Refunds of deposits

 

 

-

 

 

 

129,897

 

Purchase of intangible assets

 

 

(10,008)

 

 

-

 

Purchase of property, plant, and equipment

 

 

(972,947)

 

 

(33,209)

 

 

 

(982,955)

 

 

96,688

 

Financing activities

 

 

 

 

 

 

 

 

Proceeds of convertible notes payable

 

 

650,000

 

 

 

1,186,892

 

Repayment of loan payable

 

 

(387,750)

 

 

-

 

Repayment of finance lease obligations

 

 

-

 

 

 

(16,315)

Proceeds from the issuance of common stock

 

 

-

 

 

 

250,000

 

Proceeds for subscriptions of stock issuable

 

 

3,407,961

 

 

 

250,000

 

 

 

 

3,670,211

 

 

 

1,670,577

 

 

 

 

 

 

 

 

 

 

Increase (decrease) in cash      

 

 

237,057

 

 

 

34,205

 

Effect of exchange rate on changes of cash

 

 

(38,270)

 

 

20,732

 

Cash, beginning of period

 

 

419,825

 

 

 

94,047

 

Cash, end of period

 

$618,612

 

 

$148,984

 

 

 

 

 

 

 

 

 

 

Supplemental cash flow disclosures:

 

 

 

 

 

 

 

 

Income taxes paid

 

 

-

 

 

 

-

 

Interest paid

 

 

264,493

 

 

 

225,679

 

Non-cash activities: See Note 17

 

 

 

 

 

 

 

 

 

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

 

8

Table of Contents

 

ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

February 28, 2022

(Expressed in US dollars)

 

1.

Nature of operations, reverse take-over transaction and going concern

   

a) Nature of operations

 

Allied Corp. (the “Company or Allied”) was incorporated in the State of Nevada on February 3, 2013. On July 1, 2019, the Company changed its name to Allied Corp. The head office and the registered office of the Company are located at 1405 St. Paul Street, Kelowna BC V1Y 2E4.

 

The Company’s business plan is to discover new medical technologies some of which are cannabis derived to target full scope therapy and support for trauma survivors, military veterans and first responders, however the Company has not begun such operations nor obtained the required permits to begin such operations.

 

On September 10, 2019, the Company was acquired in a reverse takeover (“RTO”) transaction (see Note 1b) and the RTO is considered a purchase of the Company’s net assets by AM (Advanced Micro) Biosciences, Inc. (“AM Biosciences”). For accounting purposes, the legal subsidiary, AM Biosciences has been treated as the acquirer and Allied Corp., the legal parent, has been treated as the acquiree. Accordingly, these consolidated financial statements reflect a continuation of the financial position, operating results, and cash flow of the Company’s legal subsidiary, AM Biosciences from the date of incorporation on September 13, 2018.

 

On February 18, 2020, the Company acquired all the issued and outstanding share capital of a Colombian company, Allied Colombia S.A.S (“Allied Colombia”). The assets, liabilities and results of Allied Colombia are consolidated in these financial statements beginning from the February 18, 2020 acquisition date. As at February 28, 2022, Allied Colombia has a licensed cannabis farm in Colombia.

 

b) Reverse take-over transaction (RTO)

 

On July 25, 2019, as amended effective August 27, 2019, the Company entered into a reorganization and stock purchase agreement (the “Reorganization Agreement”) to acquire 100% of the issued and outstanding equity of AM (Advanced Micro) Biosciences, Inc (“AM Biosciences”). Effective September 10, 2019, the parties closed the Reorganization Agreement (the “Acquisition”). As part of the transaction, Pacific Capital Investment Group, Inc., the then majority shareholder of Allied (the “Allied Shareholder”) delivered 51,200,014 shares of common stock, representing approximately 65.42% of the outstanding equity of Allied Corp. to SECFAC Exchange Corp. on behalf of the prior shareholders of AM Biosciences and certain other designees of AM Biosciences as a consideration to acquire 100% of the issued and outstanding equity of AM Biosciences. Further, as part of the transaction, the Allied Shareholder submitted for cancellation and return to treasury 10,459,220 and 4,500,000 shares of common stock. As a consequence, immediately subsequent to the close of the Reorganization Agreement, Allied had 78,268,780 shares of common stock outstanding.

 

The Reorganization Agreement constitutes a reverse acquisition, such that AM Biosciences acquired control of Allied Corp. At the time of the Reorganization Agreement, the operations of Allied Corp. did not constitute businesses under ASC 805 Business Combinations and accordingly the transaction is considered a reverse asset acquisition in accordance with generally accepted accounting principles in the United States of America (“US GAAP”). Under this method of accounting, AM Biosciences was deemed to be the accounting acquirer for financial reporting purposes. This determination was primarily based on the facts that, immediately following the acquisition: (i) AM Biosciences’ stockholders owned a substantial majority of the voting rights in the combined company, (ii) AM Biosciences designated a majority of the members of the initial board of directors of the combined company, and (iii) AM Biosciences’ senior management holds all key positions in the senior management of the combined company. As a result, as of the closing date of the acquisition, the net assets of the Company were recorded at their acquisition-date relative fair values in the consolidated financial statements of the Company and the reported operating results prior to the acquisition will be those of AM Biosciences.

 

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ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

February 28, 2022

(Expressed in US dollars)

 

1.

Nature of operations, reverse take-over transaction and going concern (continued)

 

 

c) 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, 2022 of $12,372,006, has generated minimal revenue and as at February 28, 2022 has a working capital deficit of $4,884,084. 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.

 

d) 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.

 

e) 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. Because the Company plans to engage in cannabis-related activities in the United States, only if and when cannabis operations are federally legalized.

 

On January 4, 2018, the then United States Attorney General Jeff Sessions issued a memorandum to United States district attorneys (the “Sessions Memorandum”) which rescinded previous guidance from the United States Department of Justice specific to cannabis enforcement in the United States, including the Cole Memorandum. With the Cole Memorandum rescinded, United States federal prosecutors no longer have guidance relating to the exercise of their discretion in determining whether to prosecute cannabis related violations of United States federal law. Since that time, United States district attorneys have taken no legal action against state law compliant entities, and the Biden administration is generally anticipated to seek federal decriminalization of state legal cannabis activity. Nevertheless, a significant change in the federal government’s enforcement policy with respect to current federal laws applicable to cannabis could cause significant financial damage to the Company. The Company may be irreparably harmed by a change in enforcement policies of the federal government depending on the nature of such change.

 

Given the current illegality of cannabis under United States federal law, the Company’s ability to access both public and private capital may be hindered by the fact that certain financial institutions are regulated by the United States federal government and are thus prohibited from providing financing to companies engaged in cannabis related activities. The Company’s ability to access public capital markets in the United States is directly hindered as a result. The Company may, however, be able to access public and private capital markets in the United States through institutions which are not regulated by the United States federal government, in Canada, and in many other countries in order to support continuing operations.

  

10

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ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

February 28, 2022

(Expressed in US dollars)

 

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, 2021 included in the Company’s Annual Report on Form 10-K filed with the SEC.

 

The consolidated financial statements included herein are unaudited; however, they contain all normal recurring accruals and adjustments that, in the opinion of management, are necessary to present fairly the Company’s financial position at February 28, 2022, and the results of its operations for the three months and six months ended February 28, 2022, and cash flows for the six months ended February 28, 2022. The results of operations for the period ended February 28, 2022 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.

 

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, 2022 and August 31, 2021.

 

c)   Property, plant and equipment

 

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

 

Farm facility and equipment

 

1 - 10 years straight-line basis

Office and computer equipment

 

5 - 10 years straight-line basis

Land equipment

 

10 years straight-line basis

      

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.

 

11

Table of Contents

 

ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

February 28, 2022

(Expressed in US dollars)

 

2.

Significant accounting policies (continued)

 

 

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

 

e)  Intangible assets

 

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

 

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

 

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

 

f) Long-lived assets

 

In accordance with ASC 360, Property, Plant and Equipment, the Company tests long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will more likely than not be sold or disposed significantly before the end of its estimated useful life. Recoverability is assessed based on the carrying amount of the asset and its fair value, which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances. An impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value.

 

g) Foreign currency translation and functional currency conversion

 

Items included in 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.

 

12

Table of Contents

 

ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

February 28, 2022

(Expressed in US dollars)

 

2.

Significant accounting policies (continued)

 

 

The Company re-assessed its functional currency and determined as at September 10, 2019, its functional currency changed from the Canadian dollar to the U.S. dollar based on management’s analysis of changes in our organization. The change in functional currency was accounted for prospectively from September 10, 2019 and prior period financial statements were not restated for the change in functional currency.

 

For periods commencing September 10, 2019, monetary assets and liabilities denominated in foreign currencies are translated into U.S. dollars using exchange rates in effect at the balance sheet date. Opening balances related to non-monetary assets and liabilities are based on prior period translated amounts, and non-monetary assets and non-monetary liabilities incurred after September 10, 2019 are translated at the approximate exchange rate prevailing at the date of the transaction. Revenue and expense transactions are translated at the approximate exchange rate in effect at the time of the transactions. Foreign exchange gains and losses are included in the statement of operations and comprehensive loss as foreign exchange gains.

 

The Company assessed the functional currency for Allied Colombia to be the Colombian peso. The functional currency for all other subsidiaries is the U.S. dollar.

 

h) Share issuance costs

 

Costs directly attributable to the raising of capital are charged against the related share capital. Costs related to shares not yet issued are recorded as deferred share issuance costs. These costs are deferred until the issuance of the shares to which the costs relate, at which time the costs will be charged against the related share capital or charged to operations if the shares are not issued.

 

i) Research and development costs

 

Research and development costs are expensed as incurred.

 

j) Revenue recognition

 

The Company’s revenue is comprised of sales of cannabis products.

 

The Company’s revenue-generating activities have a single performance obligation and revenue is recognized at the point in time when control of the product transfers and the Company’s obligations have been fulfilled. This generally occurs when the product is shipped or delivered to the customer, depending upon the method of distribution and shipping terms set forth in the customer contract. Revenue is measured as the amount of consideration the Company expects to receive in exchange for the sale of the Company’s product. Certain of the Company’s customer contracts may provide the customer with a right of return. In certain circumstances the Company may also provide a retrospective price adjustment to a customer. These items give rise to variable consideration, which is recognized as a reduction of the transaction price based upon the expected amounts of the product returns and price adjustments at the time revenue for the corresponding product sale is recognized. The determination of the reduction of the transaction price for variable consideration requires that the Company make certain estimates and assumptions that affect the timing and amounts of revenue recognized.

 

Sales of products are for cash or otherwise agreed-upon credit terms. The Company’s payment terms vary by location and customer; however, the time period between when revenue is recognized and when payment is due is not significant. The Company estimates and reserves for its bad debt exposure based on its experience with past due accounts and collectability, write-off history, the aging of accounts receivable and an analysis of customer data.

 

13

Table of Contents

 

ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

February 28, 2022

(Expressed in US dollars)

 

2.

Significant accounting policies (continued)

 

 

k) Net income (loss) per common share

 

Net income (loss) per share is calculated in accordance with ASC 260, Earnings per Share. The weighted-average number of common shares outstanding during each period is used to compute basic earning or loss per share. Diluted earnings or loss per share is computed using the weighted average number of shares and diluted potential common shares outstanding to the extent the effect would not be antidilutive. Dilutive potential common shares are additional common shares assumed to be exercised.

 

Basic net income (loss) per common share is based on the weighted average number of shares of common stock outstanding.

 

l) Income taxes

 

The Company accounts for income taxes under ASC 740, Income Taxes. Under the asset and liability method of ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC 740, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the enactment occurs. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that the Company will not realize tax assets through future operations.

 

m) Related party transactions

 

Related parties are any entities or individuals that, through employment, ownership or other means, possess the ability to direct or cause the direction of the management and policies of the Company. The Company discloses related party transactions that are outside of normal compensatory agreements, such as salaries. Related party transactions are measured at the exchange amounts.

 

n) Significant accounting estimates and judgments

 

The preparation of the financial statements in conformity with US GAAP requires management to make judgments, estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Although management uses historical experience and its best knowledge of the amount, events or actions to for the basis for judgments and estimates, actual results may differ from these estimates.

 

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and further periods if the review affects both current and future periods.

 

Significant estimates and assumptions included in these financial statements relate to the valuation assumptions related to the estimated useful lives and recoverability of long-lived assets, stock-based compensation, and deferred income tax assets and liabilities. Judgments are required in the assessment of the Company’s ability to continue to as going concern as described in Note 1.

 

o) Financial instruments

 

ASC 825, Financial Instruments, requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 825 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 825 prioritizes the inputs into three levels that may be used to measure fair value:

 

14

Table of Contents

 

ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

February 28, 2022

(Expressed in US dollars)

 

2.

Significant accounting policies (continued)

 

 

Level 1

Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.

 

Level 2

Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.

 

Level 3

Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.

 

The financial instruments consist principally of cash, due from related parties, accounts payable, note payable, and convertible notes payable. The fair value of cash when applicable is determined based on “Level 1” inputs, which consist of quoted prices in active markets for identical assets. The Company believes that the recorded values of all other financial instruments which are categorized as loans and receivables approximate their current fair values because of their nature and respective relatively short maturity dates or current market rates of interest for similar instruments.

 

For certain of the Company’s financial instruments, including accounts payable, due from related parties, notes and loans payable, the carrying amounts approximate their fair values due to the short maturities.

 

The Company does not have any assets or liabilities measured at fair value on a recurring basis presented on the Company’s balance sheet as of February 28, 2022 and August 31, 2021 other than cash.

 

Financial instruments that potentially subject the Company to a concentration of credit risk consist primarily of cash. The Company limits its exposure to credit loss by placing its cash with high credit quality financial institutions.

 

p)  Leases

 

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.

 

15

Table of Contents

 

ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

February 28, 2022

(Expressed in US dollars)

 

2.

Significant accounting policies (continued)

 

 

q) Reverse Acquisitions

 

Identification of the accounting acquirer

 

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

 

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

 

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)).

 

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ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

February 28, 2022

(Expressed in US dollars)

 

2.

Significant accounting policies (continued)

 

 

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.

 

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.

 

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ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

February 28, 2022

(Expressed in US dollars)

 

2.

Significant accounting policies (continued)

 

 

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.

 

r) Recent accounting pronouncements

 

The Company does not expect that recent accounting pronouncements or changes in accounting pronouncements during the six months ended February 28, 2022, are of significance or potential significance to the Company.

 

3.

Inventory

 

Inventory is comprised of the following items:

 

 

 

February 28,

2022

 

 

August 31,

2021

 

 

 

 

 

 

 

 

Work in progress

 

$82,289

 

 

$51,831

 

Finished goods

 

 

89,222

 

 

 

84,430

 

Total inventory

 

$171,511

 

 

$136,261

 

 

The costs of inventory include but are not limited to labor, utilities, nutrition and irrigation, overhead and the depreciation of manufacturing equipment and production facilities, and amortization of licenses determined at normal capacity. Manufacturing overhead and related expenses include salaries, wages, employee benefits, utilities, maintenance and rent of grow facility. The Company began productions in Colombia in late 2020, when the Company obtained approval for its strains of products. During the current period, certain costs were determined based on the actual usage of production space as compared to the normal predetermined operational production of the facility based on capacity as the Company gradually started to grow products and prepared the facility ready. Management determined that during the current period, the Company was operating at 24% of predesigned capacity and as a result 24% of rent, amortization expenses, and certain overhead costs are included in costs of inventory.

 

During the current period, the Company recorded a $471,549 write-off of inventory costs which include labor, utilities, nutrition, and irrigation, overhead and depreciation to reduce inventory to its net realizable value of $171,511.

 

4.

Deposits and advances

 

 

 

February 28,

2022

 

 

August 31,

2021

 

 

 

 

 

 

 

 

a) Towards the purchase of prefabricated buildings

 

$2,656,695

 

 

$2,656,695

 

b) Vitalis equipment deposit

 

 

-

 

 

 

233,496

 

c) Deposit towards a license acquisition

 

 

150,000

 

 

 

150,000

 

d) Prepayments for construction facility in Colombia

 

 

29,384

 

 

 

115,972

 

e) Eteros equipment deposit

 

 

115,700

 

 

 

-

 

Total deposits and advances

 

$2,951,779

 

 

$3,156,163

 

 

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ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

February 28, 2022

(Expressed in US dollars)

 

4.

Deposits and advances (continued)

 

 

a) In 2019, the Company entered to a separate 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, 2022, Company had deposits of $2,656,695 (August 31, 2021 - $2,656,695) to purchase prefabricated buildings. As of February 28, 2022, the Company had not yet received the buildings and the amounts have been recorded as deposits.

 

b) At August 31, 2021, the Company had paid $233,496 to purchase equipment. The Company entered into a financing agreement for this equipment as described in Note 8 d)). At February 28, 2022, the Company received the equipment and the deposit was applied to the purchase price.

 

c) At February 28, 2022 and August 31, 2021, the Company had paid $150,000 to acquire a license through an asset purchase agreement as described in Note 19(a). At February 28, 2022, the asset purchase has not closed and the amount paid has been recorded as a deposit.

 

d) The Company paid certain vendors for the construction of farm facilities in Colombia in advance. As at February 28, 2022, the prepayments totaled $29,384.

 

e) At February 28, 2022, the Company had paid $115,700 to purchase equipment. At February 28, 2022, the Company had not yet received the equipment and the amount paid has been recorded as a deposit.

 

5.

Property, plant and equipment

 

At February 28, 2022, property, plant and equipment (“PPE”) consisted of:

 

 

 

Construction in process

 

 

Farm facility and equipment

 

 

Office and computer equipment

 

 

Land

equipment

 

 

Total

 

Cost

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

August 31, 2021

 

$27,469

 

 

$274,776

 

 

$10,653

 

 

$16,310

 

 

$329,208

 

Additions

 

 

594,944

 

 

 

636,394

 

 

 

7,778

 

 

 

11,325

 

 

 

1,250,441

 

Transfer

 

 

(212,736)

 

 

212,736

 

 

 

-

 

 

 

-

 

 

 

-

 

Foreign exchange

 

 

(16,154)

 

 

(12,174)

 

 

(586)

 

 

(917)

 

 

(29,831)

February 28, 2022

 

$393,523

 

 

$1,111,732

 

 

$17,845

 

 

$26,718

 

 

$1,549,818

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated depreciation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

August 31, 2021

 

$-

 

 

$58,519

 

 

$1,935

 

 

$919

 

 

$61,373

 

Additions

 

 

-

 

 

 

66,000

 

 

 

1,097

 

 

 

1,070

 

 

 

68,167

 

Foreign exchange

 

 

-

 

 

 

(2,327)

 

 

(90)

 

 

(44)

 

 

(2,461)

February 28, 2022

 

$-

 

 

$122,192

 

 

$2,942

 

 

$1,945

 

 

$127,079

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net book value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

August 31, 2021

 

$27,469

 

 

$216,257

 

 

$8,718

 

 

$15,391

 

 

$267,835

 

February 28, 2022

 

$393,523

 

 

$989,540

 

 

$14,903

 

 

$24,773

 

 

$1,422,739

 

 

As of February 28, 2022 and August 31, 2021, the construction in process has not been in use.

 

During the period ended February 28, 2022, the Company included depreciation of PPE of $9,100 in cost of inventory.

 

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ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

February 28, 2022

(Expressed in US dollars)

 

6.

Intangible assets

 

At February 28, 2022, intangible assets consisted of:

 

 

 

Cost

$

 

 

Foreign exchange

$

 

 

Accumulated amortization

$

 

 

Accumulated impairment

$

 

 

February 28, 2022

Net carrying value

$

 

 

August 31, 2021

Net carrying value

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cannabis licenses

 

 

5,445,342

 

 

 

(468,146)

 

 

(1,124,555)

 

 

(3,801,667)

 

 

50,974

 

 

 

46,000

 

 

 

 

5,445,342

 

 

 

(468,146)

 

 

(1,124,555)

 

 

(3,801,667)

 

 

50,974

 

 

 

46,000

 

 

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 of $46,000. [JB3] 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, 2022, the Company acquired $10,008 (COP 39,014,526) of licenses and Company recorded amortization of $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. The 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, 2022

(Expressed in US dollars)

 

7.

Leases (continued

 

 

The Company entered into an agreement to lease the land described in 14(a) with a commencement date of June 1, 2020. The lease requires the Company to make monthly payments of $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, 2022, the Company did not have any finance leases.

 

At February 28, 2022, the weighted average remaining operating lease term was 6.68 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

 

 

11,634

 

Interest on lease liabilities

 

 

17,565

 

 

 

 

 

 

Total operating lease cost

 

 

29,199

 

 

The following table provides supplemental cash flow and other information related to leases for six months ended February 28, 2022:

 

 

 

 

$

 

Lease payments

 

 

29,199

 

 

Supplemental balance sheet information related to leases as of February 28, 2022 are as below:

 

 

 

 

$

 

Cost

 

 

282,273

 

Accumulated amortization

 

 

(19,064)

Foreign exchange

 

 

(37,874)

 

 

 

 

 

Net carrying value at February 28, 2022

 

 

225,335

 

 

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ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

February 28, 2022

(Expressed in US dollars)

 

 

7.

Leases (continued

 

 

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

 

 

 

 

$

 

2022

28,941

2023

57,881

2024

57,881

Thereafter

209,337

Total minimum lease payments

354,040

Less: amount of lease payments representing effects of discounting

(128,705)

Present value of future minimum lease payments

225,335

Less: current obligations under leases

(25,808)

Lease liabilities, net of current portion

199,527

 

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, 2022, the Company paid interest in the amount of $225,679 (2021 - $225,679). As of February 28, 2022, the balance owing is $1,253,772 (August 31, 2021 - $1,253,772).

 

b) On January 24, 2021, the Company entered into an acquisition agreement to acquire all common shares of Pacific Sun Fungi Inc. (“PSF”) in consideration for the issuance of a promissory note of $85,500 and 200,000 common shares of the Company with a fair value of $74,000. The note is non-interest bearing and is due 10 days after demand. During the six months ended February 28, 2022, the Company made the final $42,750 payment towards the promissory note. As of February 28, 2022, the balance owing is $nil (August 31, 2021 - $42,750).

 

c) On March 1, 2021, the Company entered into a $300,000 promissory note with simple interest of 10% per annum and maturity date of June 1, 2021. As additional compensation the Company issued 100,000 shares of the Company with a fair value of $90,000, which was treated as discount on the promissory note. During the year ended August 31, 2021, the accretion on the promissory note totalled $90,000. During the six months ended February 28, 2022, the Company made the final payment of $315,000 which included interest payment of $15,000. As of February 28, 2022, the balance owing is $nil (August 31, 2021 - $300,000).

 

d) On December 17, 2021, the Company entered into a financing agreement to finance an equipment as described in Note 14(c). Pursuant to the agreement, the Company financed $307,543 of the purchase price with an interest rate of 8% per annum. The Company will make 20 monthly principal and interest payments of $15,000 and a final payment of $14,434 in September 2023. During the six months ended February 28, 2022, the Company paid interest in the amount of $3,814 (2021 - $nil). As of February 28, 2022, the balance owing is $266,357 (August 31, 2021 - $nil).

 

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ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

February 28, 2022

(Expressed in US dollars)

 

9.

Secured convertible notes payable

 

The Company has granted each and every of the secured convertible note holders a continuing security interest in, a general lien upon, and aright of set-off against all existing and future assets and property under the terms of a security agreement.

 

a) On 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.

 

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, 2022, 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, beginning on July 1, 2020, 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.

 

23

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ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

February 28, 2022

(Expressed in US dollars)

 

9.

Secured convertible notes payable (continued)

 

 

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.

 

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

 

The Company evaluated the transaction under the guidance found in ASC 470-50 Modification and Extinguishment. The Company concluded that the Company is experiencing financial difficulty and that a concession was granted. As the creditor has granted a concession, the guidance contained in ASC 470-60-35 was applied.

 

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ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

February 28, 2022

(Expressed in US dollars)

 

9.

Secured convertible notes payable (continued)

 

 

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

 

During the six months ended February 28, 2022, the Company made interest payments of $20,000. As at February 28, 2022, the Company has recorded accrued interest of $36,493, which is included in accounts payable and accrued liabilities on the consolidated balance sheets.

 

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, 2022, 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, beginning on April 1, 2021, the convertible note bears simple interest at 10% per annum. The maturity date of the convertible note was amended to due on demand on or before 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 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 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.

 

25

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ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

February 28, 2022

(Expressed in US dollars)

 

9.

Secured convertible notes payable(continued)

 

 

ii. Second Modification:

 

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

 

The Company evaluated the transaction under the guidance found in ASC 470-50 Modification and Extinguishment. The Company concluded that the Company is experiencing financial difficulty and that a concession was granted. As the creditor has granted a concession, the guidance contained in ASC 470-60-35 was applied.

 

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

 

iii. Third Modification:

 

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

 

The Company evaluated the transaction under the guidance found in ASC 470-50 Modification and Extinguishment. The Company concluded that the Company is experiencing financial difficulty and that a concession was granted. As the creditor has granted a concession, the guidance contained in ASC 470-60-35 was applied.

 

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

 

As at February 28, 2022, the Company has recorded accrued interest of $23,136, which is included in accounts payable and accrued liabilities on the consolidated balance sheets.

 

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.

 

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ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

February 28, 2022

(Expressed in US dollars)

 

9.

Secured convertible notes payable(continued)

 

 

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, 2022, the conversion feature and warrants do not meet derivative classification.

 

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:

 

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

 

The Company evaluated the transaction under the guidance found in ASC 470-50 Modification and Extinguishment. The Company concluded that the Company is experiencing financial difficulty and that a concession was granted. As the creditor has granted a concession, the guidance contained in ASC 470-60-35 was applied.

 

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

 

ii. Second Modification:

 

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

 

The Company evaluated the transaction under the guidance found in ASC 470-50 Modification and Extinguishment. The Company concluded that the Company is experiencing financial difficulty and that a concession was granted. As the creditor has granted a concession, the guidance contained in ASC 470-60-35 was applied.

 

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ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

February 28, 2022

(Expressed in US dollars)

 

9.

Secured convertible notes payable(continued)

 

 

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

 

As at February 28, 2022, the Company has recorded accrued interest of $5,050, which is included in accounts payable and accrued liabilities on the consolidated balance sheets.

 

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.

 

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, 2022, the conversion feature and warrants do not meet derivative classification.

 

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:

 

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

 

The Company evaluated the transaction under the guidance found in ASC 470-50 Modification and Extinguishment. The Company concluded that the Company is experiencing financial difficulty and that a concession was granted. As the creditor has granted a concession, the guidance contained in ASC 470-60-35 was applied.

 

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

 

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ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

February 28, 2022

(Expressed in US dollars)

 

9.

Secured convertible notes payable(continued)

 

 

ii. Second Modification:

 

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

 

The Company evaluated the transaction under the guidance found in ASC 470-50 Modification and Extinguishment. The Company concluded that the Company is experiencing financial difficulty and that a concession was granted. As the creditor has granted a concession, the guidance contained in ASC 470-60-35 was applied.

 

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

 

As at February 28, 2022, the Company has recorded accrued interest of $11,160, which is included in accounts payable and accrued liabilities on the consolidated balance sheets.

 

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 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, 2022, the conversion feature and warrants do not meet derivative classification.

 

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.

 

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.

 

29

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ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

February 28, 2022

(Expressed in US dollars)

 

9.

Secured convertible notes payable (continued)

 

 

The Company evaluated the transaction under the guidance found in ASC 470-50 Modification and Extinguishment. The Company concluded that the Company is experiencing financial difficulty and that a concession was granted. As the creditor has granted a concession, the guidance contained in ASC 470-60-35 was applied.

 

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

 

As at February 28, 2022, the Company has recorded accrued interest of $74,466, which is included in accounts payable and accrued liabilities on the consolidated balance sheets.

 

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, 2022, 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.

 

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.

 

The Company evaluated the transaction under the guidance found in ASC 470-50 Modification and Extinguishment. The Company concluded that the Company is experiencing financial difficulty and that a concession was granted. As the creditor has granted a concession, the guidance contained in ASC 470-60-35 was applied.

 

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

 

As at February 28, 2022, the Company has recorded accrued interest of $37,644, which is included in accounts payable and accrued liabilities on the consolidated balance sheets.

 

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ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

February 28, 2022

(Expressed in US dollars)

 

9.

Secured convertible notes payable(continued)

 

 

g) On March 26, 2021, the Company issued a convertible note with a face value of $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 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 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, 2022, the conversion feature and warrants do not meet derivative classification.

 

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.

 

Modification:

 

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

 

The Company evaluated the transaction under the guidance found in ASC 470-50 Modification and Extinguishment. The Company concluded that the Company is experiencing financial difficulty and that a concession was granted. As the creditor has granted a concession, the guidance contained in ASC 470-60-35 was applied.

 

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

 

As at February 28, 2022, the Company has recorded accrued interest of $1,672, which is included in accounts payable and accrued liabilities on the consolidated balance sheets.

 

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.

 

31

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ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

February 28, 2022

(Expressed in US dollars)

 

9.

Secured convertible notes payable(continued)

 

 

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, 2022, the conversion feature and warrants do not meet derivative classification.

 

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.

 

Modification:

 

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

 

The Company evaluated the transaction under the guidance found in ASC 470-50 Modification and Extinguishment. The Company concluded that the Company is experiencing financial difficulty and that a concession was granted. As the creditor has granted a concession, the guidance contained in ASC 470-60-35 was applied.

 

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

 

As at February 28, 2022, the Company has recorded accrued interest of $9,288, which is included in accounts payable and accrued liabilities on the consolidated balance sheets.

 

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.

 

32

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ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

February 28, 2022

(Expressed in US dollars)

 

9.

Secured convertible notes payable (continued)

 

 

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, 2022, the conversion feature and warrants do not meet derivative classification.

 

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.

 

Modification:

 

On November 1, 2021, the Company entered into amendment to the convertible note. Pursuant to the amendments, beginning on April 1, 2021, 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 granted. As the creditor has granted a concession, the guidance contained in ASC 470-60-35 was applied.

 

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

 

As at February 28, 2022, the Company has recorded accrued interest of $8,329, which is included in accounts payable and accrued liabilities on the consolidated balance sheets.

 

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.

 

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ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

February 28, 2022

(Expressed in US dollars)

 

9.

Secured convertible notes payable (continued)

 

 

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, 2022, the conversion feature and warrants do not meet derivative classification.

 

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.

 

Modification:

 

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

 

The Company evaluated the transaction under the guidance found in ASC 470-50 Modification and Extinguishment. The Company concluded that the Company is experiencing financial difficulty and that a concession was granted. As the creditor has granted a concession, the guidance contained in ASC 470-60-35 was applied.

 

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

 

As at February 28, 2022, the Company has recorded accrued interest of $15,041, which is included in accounts payable and accrued liabilities on the consolidated balance sheets.

 

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. 

 

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Table of Contents

 

ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

February 28, 2022

(Expressed in US dollars)

 

9.

Secured convertible notes payable (continued)

 

 

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, 2022, 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.

 

Modification:

 

On November 1, 2021, the Company entered into amendment to the convertible note. Pursuant to the amendment, beginning on April 1, 2021, the convertible note bears simple interest at 10% per annum. Pursuant to the amendments, 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.

 

As at February 28, 2022, the Company has recorded accrued interest of $2,071, which is included in accounts payable and accrued liabilities on the consolidated balance sheets.

 

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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Table of Contents

 

ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

February 28, 2022

(Expressed in US dollars)

 

9.

Secured convertible notes payable (continued)

 

 

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, 2022, 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.

 

Modification:

 

On November 1, 2021, the Company entered into amendment to the convertible note. Pursuant to the amendment, beginning on April 1, 2021, 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 $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.

 

As at February 28, 2022, the Company has recorded accrued interest of $887, which is included in accounts payable and accrued liabilities on the consolidated balance sheets.

 

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. 

 

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Table of Contents

 

ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

February 28, 2022

(Expressed in US dollars)

 

9.

Secured convertible notes payable (continued)

 

 

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, 2022, the conversion feature and warrants do not meet derivative classification.

 

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.

 

Modification:

 

On November 1, 2021, the Company entered into amendment to the convertible note. Pursuant to the amendment, beginning on April 1, 2021, 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.

 

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.

 

As at February 28, 2022, the Company has recorded accrued interest of $4,110, which is included in accounts payable and accrued liabilities on the consolidated balance sheets.

 

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. 

 

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