Cosmo Ventures Earnings 2020-05-31

Large accelerated filer

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Accelerated filer

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Non-accelerated filer

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Smaller reporting company

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Emerging growth company

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PART I—FINANCIAL INFORMATION

Item 1.

Financial Statements.

3

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

33

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

45

Item 4.

Controls and Procedures.

45

PART II—OTHER INFORMATION

Item 1.

Legal Proceedings.

46

Item 1A.

Risk Factors.

46

Item 2.

Unregistered Sales of Securities and Use of Proceeds.

46

Item 3.

Defaults Upon Senior Securities.

46

Item 4.

Mining Safety Disclosure.

46

Item 5.

Other Information.

46

Item 6.

Exhibits.

47

Condensed consolidated interim balance sheets at May 31, 2020 (unaudited) and August 31, 2019

4

Condensed consolidated interim statements of operations and comprehensive loss for the three and nine months ended May 31, 2020 and the period ended May 31, 2019 (unaudited)

5

Condensed consolidated interim statement of stockholders’ equity (deficiency) for the three and nine months ended May 31, 2020 and the period ended May 31, 2019 (unaudited)

6

Condensed consolidated statement interim of cash flows for the nine months ended May 31, 2020 and the period ended May 31, 2019 (unaudited)

7

Notes to the unaudited condensed consolidated interim financial statements

8

Assets

Current assets

Cash

Accounts receivable

Inventory

Amounts due from related parties (Note 12 (b))

Prepaid expenses

Loan receivable (Note 15 (f))

Total current assets

Deposits and advances (Note 5)

Right-of-use assets (Note 8)

Property, plant and equipment (Note 6)

Intangible assets (Note 7)

Total assets

Liabilities

Current liabilities

Accounts payable and accrued liabilities

Loan payable to Allied (Note 12 (d))

Due to related party (Note 12 (b))

Current portion of lease liabilities (Note 8)

Notes payable (Note 9)

Convertible note payable (Note 10)

Total current liabilities

Lease liabilities, net of current portion (Note 8)

Total liabilities

Stockholders’ equity (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; 83,930,780 shares issued and outstanding (93,228,000 – par value $0.0001 – August 31, 2019)

Additional paid in capital

Common stock issuable (Note 11)

Stock subscription receivable

Accumulated deficit

Accumulated other comprehensive income

Total stockholders’ equity (deficiency)

Total liabilities and stockholders’ equity (deficiency)

Expenses

Amortization

Charitable donations

Consulting fees

Foreign exchange loss (gain)

Office and miscellaneous

Professional fees

Rent

Research and development

Travel

Operating expenses

Loss before other expenses

Other expenses

Write-off of receivables

Accretion

Total other expense

Net loss

Other comprehensive income (loss) item:

Foreign currency translation adjustments

Comprehensive loss

Basic and diluted loss per share

Weighted average number of common shares outstanding

Balance, August 31, 2019

Cancellation of common stock

Shares reacquired by treasury

Effect of reverse acquisition

Common stock subscribed

Comprehensive loss for the period

Balance, November 30, 2019

Shares issued for cash

Shares issued on acquisition of assets

Share subscriptions received

Beneficial conversion feature

Comprehensive loss for the period

Balance, February 29, 2020

Shares issued for cash

Shares issued for finders fees

Comprehensive loss for the period

Balance, May 31, 2020

Cash provided by (used in):

Operating activities

Net loss for the period

Adjustments to reconcile net loss to net cash used in operating activities:

Amortization

Accretion

Write-off of receivables

Consulting services paid by shares issuable

Change in operating assets and liabilities:

Increase in accounts receivable

Increase in inventory

Increase in prepaid expenses

Increase in deposits and advances

Increase in due from related parties

Increase of due to related party

Increase in accounts payable and accrued liabilities

Investing activities

Purchase of intangible assets

Purchase of property plant and equipment

Cash obtained from acquisition of assets (Note 3 & 4)

Cash paid and advances for the acquisition of assets (Note 4)

Financing activities

Proceeds from the convertible note payable

Proceeds from related party loan

Proceeds from the issuance of common stock, net

Lease payments

Effect of exchange rate on changes on cash

(Decrease) Increase in cash

Cash, beginning of period

Cash, end of period

Supplemental cash flow disclosures:

Income taxes paid

Interest paid

Non-cash activities: See Note 17

1.

a)

Allied Corp. (the “Company or Allied”) (formerly named Cosmo Ventures Inc.) was incorporated in the State of Nevada on February 3, 2013. On July 1, 2019, the Company changed its name to “Allied Corp.”

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 any operations or obtained the required permits to begin operations. The head office and the registered office of the Company are located at 1405 St. Paul Street, Kelowna BC V1Y 2E4.

On September 10, 2019, the Company was acquired in a reverse take over (“RTO”) transaction (see Note 1b) and the RTO is considered a purchase of the Company’s net assets (see Note 3) 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.

On February 17, 2020, the Company acquired all the issued and outstanding share capital of a Colombian company, Medicolombia’s Cannabis S.A.S (Medicolombia), see Note 4. The assets, liabilities and results of Medicolombia are consolidated in these financial statements beginning from the February 17, 2020 acquisition date.

b)

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 65.25% 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. Further, as part of the transaction, the Allied Shareholder submitted for cancellation and return to treasury 10,459,220 shares of common stock. As a consequence, immediately subsequent to the close of the Reorganization Agreement, Allied had 78,468,780 shares of common stock outstanding.

Pursuant to the Reorganization Agreement, effective on September 10, 2019, the Company acquired 100% of the issued and outstanding equity of AM Biosciences. As consideration for the equity of AM Biosciences, the Allied Shareholder issued and delivered 51,200,014 shares of common stock, representing approximately 65.25% of the outstanding equity of the Company to SECFAC Exchange Corp. on behalf of the previous shareholders of AM Biosciences and other designees of AM Biosciences.

The Reorganization Agreement constitutes a reverse merger, such that AM Biosciences acquired control of Allied Corp. At the time of the Reorganization Agreement the operations of both Allied Corp. and AM Biosciences 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 condensed consolidated financial statements of the Company and the reported operating results prior to the acquisition will be those of AM Biosciences.

1.

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

c)

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company incurred a net loss for the nine month period ended of $2,708,660, has no operations at this time which will generate revenue and as at May 31, 2020 has a working capital deficit of $2,153,475. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. The 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)

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, it assumes certain risks due to conflicting state and federal laws. The federal law relating to cannabis could be enforced at any time and this would put the Company at risk of being prosecuted and having its assets seized.

On January 4, 2018, 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. In response to the Sessions Memorandum, on April 13, 2018, the United States President Donald Trump promised Colorado Senator Cory Gardner that he will support efforts to protect states that have legalized cannabis. 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 Canada in order to support continuing operations.

2.

Significant accounting policies

Basis Presentation

These unaudited condensed consolidated interim 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 unaudited condensed consolidated interim financial statements have been prepared in accordance with US GAAP for interim financial information and with the instructions to Securities and Exchange Commission (“SEC”) Form 10-Q. They do not include all of the information and footnotes required by US GAAP to complete financial statements. Therefore, these unaudited condensed consolidated interim financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto for the year ended August 31, 2019 included in the Company’s Annual Report on Form 10-K filed with the SEC.

The unaudited condensed consolidated interim financial statements included herein are unaudited; however, they contain all normal recurring accruals and adjustments that, in the opinion of management, are necessary to present fairly the Company’s financial position at May 31, 2020, and the results of its operations for the nine months ended May 31, 2020 and cash flows for the nine months ended May 31, 2020. The results of operations for the period ended May 31, 2020 are not necessarily indicative of the results to be expected for future quarters or the full year.

The significant accounting policies followed are:

a)

The unaudited condensed consolidated interim financial statements include accounts of Allied Corp. and its subsidiaries.  Subsidiaries are consolidated from the date of acquisition and control and continue to be consolidated until the date that such control ceases.  Control is achieved when the Company is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect these returns through its power over the investee.  All intercompany balances, income, expenses, and unrealized gains and losses resulting from intercompany transactions are eliminated on consolidation.

b)

Cash 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 nine months when acquired. The Company did not have any cash equivalents as of May 31, 2020.

c)

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

2.

Significant accounting policies (continued)

e)

At May 31, 2020, intangible assets include a purchased brand name and nine product assets, license application, product formulas and licenses which are being amortized over their estimated useful lives of 3 to 10 years. The Company’s purchased brand name and product formulas are amortized beginning from the date the products begin to be sold on a straight-line basis. The Company’s licenses are amortized over their economic or legal life on a straight-line basis, whichever is shorter. As the products have not yet been commercially manufactured or distributed for sale, no amortization has been recorded of the purchased brand name or product formulas. 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)

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. There were no impairment charges recorded during the nine months ended May 31, 2020.

g)

Items included in these unaudited condensed consolidated interim financial statements of each of the Company’s entities are measured using the currency of the primary economic environment in which the entities operate (the “functional currency”).

Prior to September 10, 2019, the Company’s functional currency was the Canadian dollar. Translation gains and losses from the application of the U.S. dollar as the reporting currency during the period that the Canadian dollar was the functional currency are included as part of cumulative currency translation adjustment, which is reported as a component of shareholders’ equity under accumulated other comprehensive loss.

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

2.

Significant accounting policies (continued)

g)

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 transaction. 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 Medicolombia, a wholly owned subsidiary acquired by the Company on February 17, 2020 (see Note 4) to be Colombian peso.

h)

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 are expensed as incurred.

j)

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.

k)

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.

The Company does not have any liabilities measured at fair value on a recurring basis presented on the Company’s balance sheet as of May 31, 2020.

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.

Cash is carried at fair value using a level 1 fair value measurement. The carrying value of accounts payable approximates its fair value because of the short-term nature of the instrument.

o)

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.

2.

Significant accounting policies (continued)

o)

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 condensed consolidated financial statements at their pre-combination carrying amounts (see ASC 805-40-45-2(a)).

Presentation of Condensed Consolidated Financial Statements Post Reverse Acquisition

Pursuant to ASC 805-40-45-1 and 45-2, condensed 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 condensed consolidated financial statements also is retroactively adjusted to reflect the legal capital of the legal parent (accounting acquiree). The condensed 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 condensed 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.

2.

Significant accounting policies (continued)

o)

Pursuant to ASC 805-40-45-4 and 45-5, in calculating the weighted-average number of common shares outstanding (the denominator of the earnings-per-share (“EPS”) calculation) during the period in which the reverse acquisition occurs: (a) The number of common shares outstanding from the beginning of that period to the acquisition date shall be computed on the basis of the weighted-average number of common shares of the legal acquiree (accounting acquirer) outstanding during the period multiplied by the exchange ratio established in the merger agreement; and (b) the number of common shares outstanding from the acquisition date to the end of that period shall be the actual number of common shares of the legal acquirer (the accounting acquiree) outstanding during that period. The basic EPS for each comparative period before the acquisition date presented in the condensed consolidated financial statements following a reverse acquisition shall be calculated by dividing (a) by (b): (a) The income of the legal acquiree attributable to common shareholders in each of those periods; and (b) the legal acquiree’s historical weighted-average number of common shares outstanding multiplied by the exchange ratio established in the acquisition agreement.

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

These consolidated financial statements include the financial statements of the Company and its wholly owned subsidiaries AM Biosciences effective from the date of the reverse take—over transaction on September 10, 2019 and Medicolombia (from the date of acquisition, February 17, 2020). All intercompany balances and transactions have been eliminated upon consolidation.

p)

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, “Leases (Topic 842)” (“ASU 2016-02”), which requires lessees to put most leases on their balance sheets but recognize the expenses on their income statements in a manner similar to current practice. The standard states that a lessee would recognize a lease liability for the obligation to make lease payments and a right-to-use asset for the right to use the underlying asset for the lease term. The standard is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2018. The Company adopted ASU 2016-02 on September 1, 2019, using the transition relief to the modified retrospective approach, presenting prior year information based on the previous standard. The Company did not have any leases until the acquisition of its wholly owned subsidiary, Medicolombia Cannabis S.A.S. on February 17, 2020 (Note 4). The adoption of ASU 2016-02 did not result in any adjustment to retained earnings. Also see Note 8.

3.

Reverse Take-over Transaction

Pursuant to the Reorganization Agreement (see Note 1 (b)), effective on September 10, 2019, the Company acquired 100% of the issued and outstanding equity of AM Biosciences (the “Acquisition”). As consideration for the equity of AM Biosciences, the Allied Shareholder issued and delivered 51,200,014 shares of common stock, representing approximately 65.42% of the outstanding equity of the Company to SECFAC Exchange Corp. on behalf of the previous shareholders of AM Biosciences and other designees of AM Biosciences.

The Acquisition, was accounted for as a reverse asset acquisition pursuant to Topic 805, Business Combinations, as substantially all of the fair value of the assets acquired were concentrated in a group of similar non-financial assets, and the acquired assets did not have outputs or employees.

The total purchase price paid in the Acquisition has been allocated to the net assets acquired and liabilities assumed based on their fair values as of the completion of the Acquisition. The following summarizes the purchase price paid in the Acquisition:

Number of shares of the combined organization owned by the Company’s pre-Merger stockholders

Multiplied by the fair value per share of AM Bioscience’s common stock

Fair value of consideration issued to effect the Merger

Cash

Other current assets

Advances receivable

Current liabilities

Effect of RTO on equity

Purchase price

4.

 Acquisition of Medicolombia

On August 29, 2019, the Company entered into a Share Purchase Agreement (“Purchase Agreement”) with Dorson Commercial Corp. (“Dorson”) as the sole owner of Baleno Ltd. to purchase all of the issued and outstanding shares of Baleno Ltd., the sole owner of Medicolombia Cannabis S.A.S. (“Medicolombia”). Pursuant to the Purchase Agreement, the purchase price of Baleno Ltd. is $700,000 and 4,500,000 shares of Allied. The Company closed and completed the acquisition of Medicolombia through Baleno Ltd. on February 17, 2020. During the period leading up to the acquisition, the Company made additional advances to Dorson and Medicolombia totaling $310,630.

The Company determined that Medicolombia did not meet the definition of a business found in ASC 805 Business Combinations. As the purchase of Medicolombia did not qualify as a business acquisition, the Company accounted for the transaction as an asset acquisition. As the fair value of the purchase price consideration paid was more reliably measurable than the assets acquired, the cost of the non-cash assets received was based on the fair value of the consideration given.

The cost of the asset acquisition was allocated on a fair value basis to the net assets acquired. The Company allocated the cost of the assets as follows:

Purchase Price

Cash

Cash advances

Common stock issued

Liabilities assumed

Total Purchase Price

Fair Value of Assets Acquired

Cash

Other assets

Right of use asset

Property, plant and equipment

Licenses

Total assets acquired

a) Towards the purchase of prefabricated buildings

b) Acquisition of shares on Dorson Commercial Corp

c) Acquisition of Activated Nano

d) Acquisition of BwellMED

e) Refundable deposits towards future land acquisitions

f) Vitalis equipment deposit

Total deposits and advances

a)

b)

c)

d)

e)

At May 31, 2020, Company had paid $233,496 to purchase equipment as described in Note 15(d). At May 31, 2020, the Company had not yet received the equipment and the amount paid has been recorded as a deposit.

Construction in progress