Company Quick10K Filing
Cosmo Ventures
Price-0.00 EPS-0
Shares87 P/E0
MCap-0 P/FCF0
Net Debt-0 EBIT-0
TEV-0 TEV/EBIT0
TTM 2019-06-30, in MM, except price, ratios
10-Q 2020-05-31 Filed 2020-07-15
10-Q 2020-02-29 Filed 2020-06-02
10-Q 2019-11-30 Filed 2020-01-21
10-Q 2019-06-30 Filed 2019-08-19
10-K 2019-03-31 Filed 2019-06-28
10-Q 2018-12-31 Filed 2019-02-13
10-Q 2018-09-30 Filed 2018-11-14
10-Q 2018-06-30 Filed 2018-08-14
10-K 2018-03-31 Filed 2018-06-27
10-Q 2017-12-31 Filed 2018-02-14
10-Q 2017-09-30 Filed 2017-11-14
10-Q 2017-06-30 Filed 2017-09-14
10-K 2017-03-31 Filed 2017-08-21
10-Q 2016-12-31 Filed 2017-06-07
10-Q 2016-09-30 Filed 2017-05-15
10-Q 2016-06-30 Filed 2017-03-16
10-K 2016-03-31 Filed 2017-02-17
10-Q 2015-12-31 Filed 2017-01-31
10-Q 2015-09-30 Filed 2017-01-25
10-Q 2015-06-30 Filed 2017-01-18
10-K 2015-03-31 Filed 2017-01-13
10-Q 2014-12-31 Filed 2015-02-25
10-Q 2014-09-30 Filed 2014-11-18
10-Q 2014-06-30 Filed 2014-08-27
10-K 2014-03-31 Filed 2014-07-14
10-Q 2013-12-31 Filed 2014-02-14
8-K 2020-05-20
8-K 2020-05-02
8-K 2020-04-15
8-K 2020-03-24
8-K 2020-03-18
8-K 2019-11-12
8-K 2019-10-02
8-K 2019-09-10
8-K 2018-08-07
8-K 2018-06-08
8-K 2018-02-28

CSMO 10Q Quarterly Report

Part I - Financial Information
Item 1. Financial Statements.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part II - Other Information
Item 1. Legal Proceedings.
Item 1A. Risk Factors.
Item 2. Unregistered Sales of Securities and Use of Proceeds.
Item 3. Defaults Upon Senior Securities.
Item 4. Mine Safety Disclosures
Item 5. Other Information.
Item 6. Exhibits.
EX-31.1 alid_ex311.htm
EX-31.2 alid_ex312.htm
EX-32.1 alid_ex321.htm
EX-32.2 alid_ex322.htm

Cosmo Ventures Earnings 2020-05-31

Balance SheetIncome StatementCash Flow

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

 

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

 

For the quarterly period ended May 31, 2020

 

Commission File Number 000-56002

 

ALLIED CORP.

(Exact name of registrant as specified in its charter)

 

Nevada

33-1227173

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

 

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

(Address of principal executive offices) (Zip Code)

 

877-255-4337

(Registrant’s telephone number, including area code)

 

_______________________________________________________

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (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 July 14, 2020, there were 84,890,780 shares of common stock issued and outstanding.

   

 

 

 

TABLE OF CONTENTS

 

  

 
2

 

  

PART I—FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

ALLIED CORP.

(Formerly Cosmo Ventures Inc.)

CONSOLIDATED FINANCIAL STATEMENTS

 

  

3

Table of Contents

  

ALLIED CORP.

Condensed Consolidated Interim Balance Sheets

(Expressed in US Dollars)

 

 

 

May 31,

2020

 

 

August 31,

2019

 

 

 

(Unaudited)

 

 

 

 

Assets

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash

 

$ 39,384

 

 

$ 1,080,882

 

Accounts receivable

 

 

69,382

 

 

 

-

 

Inventory

 

 

46,839

 

 

 

-

 

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

 

 

20,596

 

 

 

23,517

 

Prepaid expenses

 

 

144,318

 

 

 

2,313

 

Loan receivable (Note 15 (f))

 

 

101,728

 

 

 

-

 

Total current assets

 

 

422,247

 

 

 

1,106,712

 

 

 

 

 

 

 

 

 

 

Deposits and advances (Note 5)

 

 

2,125,933

 

 

 

2,158,658

 

Right-of-use assets (Note 8)

 

 

90,002

 

 

 

-

 

Property, plant and equipment (Note 6)

 

 

220,887

 

 

 

-

 

Intangible assets (Note 7)

 

 

6,678,706

 

 

 

1,116,932

 

Total assets

 

$ 9,537,775

 

 

$ 4,382,302

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$ 1,500,504

 

 

$ 163,287

 

Loan payable to Allied (Note 12 (d))

 

 

-

 

 

 

4,051,162

 

Due to related party (Note 12 (b))

 

 

51,584

 

 

 

-

 

Current portion of lease liabilities (Note 8)

 

 

5,728

 

 

 

-

 

Notes payable (Note 9)

 

 

507,725

 

 

 

523,854

 

Convertible note payable (Note 10)

 

 

510,181

 

 

 

-

 

Total current liabilities

 

 

2,575,722

 

 

 

4,738,303

 

 

 

 

 

 

 

 

 

 

Lease liabilities, net of current portion (Note 8)

 

 

85,217

 

 

 

-

 

Total liabilities

 

$ 2,660,939

 

 

$ 4,738,303

 

 

 

 

 

 

 

 

 

 

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)

 

 

8,393

 

 

 

9,323

 

Additional paid in capital

 

 

10,851,729

 

 

 

908,762

 

Common stock issuable (Note 11)

 

 

-

 

 

 

24,135

 

Stock subscription receivable

 

 

-

 

 

 

(364 )

Accumulated deficit

 

 

(4,009,463 )

 

 

(1,300,803 )

Accumulated other comprehensive income

 

 

26,177

 

 

 

2,946

 

 

 

 

 

 

 

 

 

 

Total stockholders’ equity (deficiency)

 

 

6,876,836

 

 

 

(356,001 )

Total liabilities and stockholders’ equity (deficiency)

 

$ 9,537,775

 

 

$ 4,382,302

 

 

Going Concern (Note 1(c))

Commitments (Note 15)

Subsequent events (Note 19)

 

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

 

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

May 31,

2020

 

 

For the

Three

Months

Ended

May 31,

2019

 

 

For the

Nine

Months

Ended

May 31,

2020

 

 

From

Inception on September 10,

2018 to

May 31,

2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

Amortization

 

$ 263,885

 

 

$ -

 

 

$ 297,865

 

 

$ -

 

Charitable donations

 

 

51,930

 

 

 

52,341

 

 

 

151,473

 

 

 

52,341

 

Consulting fees

 

 

262,152

 

 

 

401,203

 

 

 

753,666

 

 

 

493,059

 

Foreign exchange loss (gain)

 

 

(53,314 )

 

 

886

 

 

 

(57,233 )

 

 

971

 

Office and miscellaneous

 

 

338,849

 

 

 

30,559

 

 

 

689,616

 

 

 

63,098

 

Professional fees

 

 

161,680

 

 

 

91,454

 

 

 

501,030

 

 

 

113,960

 

Rent

 

 

9,884

 

 

 

10,944

 

 

 

18,824

 

 

 

38,040

 

Research and development

 

 

-

 

 

 

-

 

 

 

8,009

 

 

 

-

 

Travel

 

 

48,787

 

 

 

74,417

 

 

 

116,157

 

 

 

94,022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

1,083,853

 

 

 

661,804

 

 

 

2,479,107

 

 

 

855,491

 

Loss before other expenses

 

 

(1,083,853 )

 

 

(661,804 )

 

 

(2,479,107 )

 

 

(855,491 )

Other expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Write-off of receivables

 

 

-

 

 

 

-

 

 

 

(54,765 )

 

 

-

 

Accretion

 

 

(130,371 )

 

 

-

 

 

 

(174,788 )

 

 

-

 

Total other expense

 

 

(130,371 )

 

 

-

 

 

 

(229,553 )

 

 

-

 

Net loss

 

 

(1,214,224 )

 

 

(661,804 )

 

 

(2,708,660 )

 

 

(855,491 )

Other comprehensive income (loss) item:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

17,492

 

 

 

(5,389 )

 

 

23,231

 

 

 

(2,299 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive loss

 

$ (1,196,732 )

 

$ (667,193 )

 

$ (2,685,429 )

 

$ (857,790 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted loss per share

 

$ (0.01 )

 

$ (0.01 )

 

$ (0.03 )

 

$ (0.01 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding

 

 

83,717,650

 

 

 

57,989,497

 

 

 

83,164,240

 

 

 

43,350,224

 

 

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

  

5

Table of Contents

 

ALLIED CORP.

Condensed Consolidated Interim Statements of Stockholders’ of Equity (Deficiency)

(Expressed in US Dollars)

(Unaudited)  

 

 

 

Common stock

 

 

Treasury Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Accumulated

 

 

 

 

 

 

Number of shares

 

 

Amount

 

 

Number of Shares

 

 

Amount

 

 

Additional Paid in Capital

 

 

Stock issuable

 

 

Stock subscription receivable

 

 

Accumulated Deficit

 

 

Other Comprehensive Income (loss)

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, August 31, 2019

 

 

93,228,000

 

 

$ 9,323

 

 

 

-

 

 

$ -

 

 

$ 908,762

 

 

$ 24,135

 

 

$ (364 )

 

$ (1,300,803 )

 

$ 2,946

 

 

$ (356,001 )

Cancellation of common stock

 

 

(10,459,220 )

 

 

(1,046 )

 

 

-

 

 

 

-

 

 

 

1,046

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Shares reacquired by treasury

 

 

(4,500,000 )

 

 

(450 )

 

 

4,500,000

 

 

 

450

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Effect of reverse acquisition

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

3,953,972

 

 

 

15,772

 

 

 

364

 

 

 

-

 

 

 

-

 

 

 

3,970,108

 

Common stock subscribed

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

301,093

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

301,093

 

Comprehensive loss for the period

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(458,167 )

 

 

(5,680 )

 

 

(463,847 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, November 30, 2019

 

 

78,268,780

 

 

$ 7,827

 

 

 

4,500,000

 

 

$ 450

 

 

$ 4,863,780

 

 

$ 341,000

 

 

$ -

 

 

$ (1,758,970 )

 

$ (2,734 )

 

$ 3,451,353

 

Shares issued for cash

 

 

370,000

 

 

 

37

 

 

 

-

 

 

 

-

 

 

 

340,963

 

 

 

(341,000 )

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Shares issued on acquisition of assets

 

 

4,500,000

 

 

 

450

 

 

 

(4,500,000 )

 

 

(450 )

 

 

4,500,000

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

4,500,000

 

Share subscriptions received

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

200,000

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

200,000

 

Beneficial conversion feature

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

247,065

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

247,065

 

Comprehensive loss for the period

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,036,269 )

 

 

11,419

 

 

 

(1,024,850 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, February 29, 2020

 

 

83,138,780

 

 

$ 8,314

 

 

 

-

 

 

 

-

 

 

$ 9,951,808

 

 

$ 200,000

 

 

$ -

 

 

$ (2,795,239 )

 

$ 8,685

 

 

$ 7,373,568

 

Shares issued for cash

 

 

720,000

 

 

 

72

 

 

 

-

 

 

 

-

 

 

 

899,928

 

 

 

(200,000 )

 

 

-

 

 

 

-

 

 

 

-

 

 

 

700,000

 

Shares issued for finders fees

 

 

72,000

 

 

 

7

 

 

 

-

 

 

 

-

 

 

 

(7 )

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Comprehensive loss for the period

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,214,224 )

 

 

17,492

 

 

 

(1,196,732 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, May 31, 2020

 

 

83,930,780

 

 

$ 8,393

 

 

 

-

 

 

 

-

 

 

$ 10,851,729

 

 

$ -

 

 

$ -

 

 

$ (4,009,463 )

 

$ 26,177

 

 

$ 6,876,836

 

 

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

 

6

Table of Contents

  

ALLIED CORP.

Condensed Consolidated Interim Statements of Cash Flows

(Expressed in US Dollars)

(Unaudited)   

 

 

 

For the

Nine

Months

Ended

May 31,

2020

 

 

From

Inception on September 10,

2018 to

May 31,

2019

 

Cash provided by (used in):

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating activities

 

 

 

 

 

 

Net loss for the period

 

$ (2,708,660 )

 

$ (855,491 )

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

 

 

 

 

 

 

 

 

Amortization

 

 

297,865

 

 

 

 

 

Accretion

 

 

174,788

 

 

 

-

 

Write-off of receivables

 

 

54,765

 

 

 

-

 

Consulting services paid by shares issuable

 

 

-

 

 

 

24,135

 

Change in operating assets and liabilities:

 

 

 

 

 

 

 

 

Increase in accounts receivable

 

 

(58,217 )

 

 

-

 

Increase in inventory

 

 

(46,839 )

 

 

-

 

Increase in prepaid expenses

 

 

(133,301 )

 

 

-

 

Increase in deposits and advances

 

 

(105,839 )

 

 

(1,444,179 )

Increase in due from related parties

 

 

(14,185 )

 

 

-

 

Increase of due to related party

 

 

-

 

 

 

44,379

 

Increase in accounts payable and accrued liabilities

 

 

813,863

 

 

 

1,472,701

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,725,760 )

 

 

(758,456 )

Investing activities

 

 

 

 

 

 

 

 

Purchase of intangible assets

 

 

-

 

 

 

(182,509 )

Purchase of property plant and equipment

 

 

(96,097 )

 

 

-

 

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

 

 

24,668

 

 

 

-

 

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

 

 

(1,010,630 )

 

 

-

 

 

 

 

(1,082,059 )

 

 

(182,509 )

 

 

 

 

 

 

 

 

 

Financing activities

 

 

 

 

 

 

 

 

Proceeds from the convertible note payable

 

 

588,000

 

 

 

-

 

Proceeds from related party loan

 

 

-

 

 

 

493,068

 

Proceeds from the issuance of common stock, net

 

 

1,176,000

 

 

 

671,052

 

Lease payments

 

 

(3,507 )

 

 

-

 

 

 

 

1,760,493

 

 

 

1,164,120

 

 

 

 

 

 

 

 

 

 

Effect of exchange rate on changes on cash

 

 

5,828

 

 

 

(2,299 )

(Decrease) Increase in cash

 

 

(1,041,498 )

 

 

220,856

 

Cash, beginning of period

 

 

1,080,882

 

 

 

-

 

Cash, end of period

 

$ 39,384

 

 

$ 220,856

 

 

 

 

 

 

 

 

 

 

Supplemental cash flow disclosures:

 

 

 

 

 

 

 

 

Income taxes paid

 

 

-

 

 

 

-

 

Interest paid

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Non-cash activities: See Note 17

 

 

 

 

 

 

 

 

 

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

 

7

Table of Contents

 

ALLIED CORP.

Notes to the Unaudited Condensed Consolidated Interim Financial Statements

(Expressed in US Dollars)

May 31, 2020

 

1.

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

 

 

 

 

 

a)

Nature of operations

 

 

 

 

 

 

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)

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 65.25% 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.

 

8

Table of Contents

   

ALLIED CORP.

Notes to the Unaudited Condensed Consolidated Interim Financial Statements

(Expressed in US Dollars)

May 31, 2020

 

1.

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

 

 

 

 

 

c)

Going concern

 

 

 

 

 

 

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)

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, 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.

 

 
9

 

  

ALLIED CORP.

Notes to the Unaudited Condensed Consolidated Interim Financial Statements

(Expressed in US Dollars)

May 31, 2020

  

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)

Principles of consolidation

 

 

 

 

 

 

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

 

 

 

 

 

c)

Property and Equipment

 

 

 

 

 

 

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:

 

 

Equipment

 

10 years straight-line basis

 

Office and computer equipment

 

5 years straight-line basis

 

Agricultural equipment

 

10 years straight-line basis

 

 

d)

Inventory

 

 

 

 

Inventories are stated at the lower of cost or market. As of May 31, 2020, the inventory consisted of supplies of containers and packaging.

 

10

Table of Contents

  

ALLIED CORP.

Notes to the Unaudited Condensed Consolidated Interim Financial Statements

(Expressed in US Dollars)

May 31, 2020

   

2.

Significant accounting policies (continued)

 

 

 

 

 

e)

Intangible assets

 

 

 

 

 

 

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)

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

 

 

 

 

 

g)

Foreign currency translation and functional currency conversion

 

 

 

 

 

 

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.

  

11

Table of Contents

 

ALLIED CORP.

Notes to the Unaudited Condensed Consolidated Interim Financial Statements

(Expressed in US Dollars)

May 31, 2020

   

2.

Significant accounting policies (continued)

 

 

 

 

 

g)

Foreign currency translation and functional currency conversion (continued)

 

 

 

 

 

 

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)

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)

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.

 

 

 

 

 

k)

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.

 

12

Table of Contents

  

ALLIED CORP.

Notes to the Unaudited Condensed Consolidated Interim Financial Statements

(Expressed in US Dollars)

May 31, 2020

   

2.

Significant accounting policies (continued)

 

 

 

 

 

l)

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.

 

 

 

 

 

m)

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.

 

 

 

 

 

n)

Financial instruments

 

 

 

 

 

 

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

 

 

 

 

 

 

Level 1

 

 

 

 

 

 

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

 

 

 

 

 

 

Level 2

 

 

 

 

 

 

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

 

 

 

 

 

 

Level 3

 

 

 

 

 

 

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

 

 

 

 

 

 

The financial instruments consist principally of cash, accounts receivable, due from related parties, accounts payable, note payable, loan payable to Allied, due to related party and convertible note 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.

 

13

Table of Contents

  

 

    

ALLIED CORP.

Notes to the Unaudited Condensed Consolidated Interim Financial Statements

(Expressed in US Dollars)

May 31, 2020

 

2.

Significant accounting policies (continued)

 

 

 

 

n)

Financial instruments (continued)

 

 

 

 

 

Assets measured at fair value on a recurring basis were presented on the Company’s balance sheet as May 31, 2020:

 

 

 

Fair Value Measurements Using

 

 

 

Quoted Prices in

Active Markets

For Identical

Instruments

(Level 1)

 

 

Significant

Other

Observable

Inputs

(Level 2)

 

 

Significant

Unobservable

Inputs

(Level 3)

 

 

Balance as of

May 31,

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Cash

 

 

39,384

 

 

 

 

 

 

 

 

 

39,384

 

 

 

 

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)

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.

 

14

Table of Contents

 

ALLIED CORP.

Notes to the Unaudited Condensed Consolidated Interim Financial Statements

(Expressed in US Dollars)

May 31, 2020

  

 

2.

Significant accounting policies (continued)

 

 

 

 

 

o)

Reverse Acquisitions (continued)

 

 

 

 

 

 

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.

 

15

Table of Contents

  

ALLIED CORP.

Notes to the Unaudited Condensed Consolidated Interim Financial Statements

(Expressed in US Dollars)

May 31, 2020

    

2.

Significant accounting policies (continued)

 

 

 

 

 

o)

Reverse Acquisitions (continued)

 

 

 

 

 

 

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)

Leases

 

 

 

 

 

 

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

  

16

Table of Contents

 

ALLIED CORP.

Notes to the Unaudited Condensed Consolidated Interim Financial Statements

(Expressed in US Dollars)

May 31, 2020

   

2.

Significant accounting policies (continued)

 

 

 

 

 

p)

Leases (continued)

 

 

 

 

 

 

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 8 – Leases.

 

17

Table of Contents

 

ALLIED CORP.

Notes to the Unaudited Condensed Consolidated Interim Financial Statements

(Expressed in US Dollars)

May 31, 2020

   

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

 

 

27,068,766

 

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

 

$ 0.1142

 

Fair value of consideration issued to effect the Merger

 

$ 3,091,253

 

 

The total purchase price of $3,091,253 was allocated to the fair value of the net assets of Allied as follows:

 

Cash

 

$ 12,894

 

Other current assets

 

 

9,527

 

Advances receivable

 

 

4,072,166

 

Current liabilities

 

 

(99,386 )

Effect of RTO on equity

 

 

(903,948 )

Purchase price

 

$ 3,091,253

 

 

18

Table of Contents

        

ALLIED CORP.

Notes to the Unaudited Condensed Consolidated Interim Financial Statements

(Expressed in US Dollars)

May 31, 2020

 

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

 

$ 700,000

 

Cash advances

 

 

310,630

 

Common stock issued

 

 

4,500,000

 

Liabilities assumed

 

 

576,273

 

Total Purchase Price

 

$ 6,086,903

 

 

 

 

 

 

Fair Value of Assets Acquired

 

 

 

 

Cash

 

$ 11,774

 

Other assets

 

 

11,165

 

Right of use asset

 

 

100,720

 

Property, plant and equipment

 

 

125,957

 

Licenses

 

 

5,837,287

 

Total assets acquired

 

$ 6,086,903

 

 

19

Table of Contents

 

ALLIED CORP.

Notes to the Unaudited Condensed Consolidated Interim Financial Statements

(Expressed in US Dollars)

May 31, 2020

 

5.

Deposits and advances

 

  

 

 

May 31,

2020

 

 

August 31,

2019

 

 

 

 

 

 

 

 

a) Towards the purchase of prefabricated buildings

 

$ 1,821,206

 

 

$ 1,199,081

 

b) Acquisition of shares on Dorson Commercial Corp

 

 

-

 

 

 

871,645

 

c) Acquisition of Activated Nano

 

 

36,151

 

 

 

35,547

 

d) Acquisition of BwellMED

 

 

-

 

 

 

37,418

 

e) Refundable deposits towards future land acquisitions

 

 

35,080

 

 

 

14,967

 

f) Vitalis equipment deposit

 

 

233,496

 

 

 

-

 

Total deposits and advances

 

$ 2,125,933

 

 

$ 2,158,658

 

 

 

a)

At May 31, 2020, Company had deposits of $1,821,206 (August 31, 2019 - $1,199,081) to purchase prefabricated buildings. $509,770 of the deposits has not been paid as at May 31, 2020 and is included in accounts payable and accrued liabilities on the unaudited condensed consolidated balance sheets. As of May 31, 2020, the Company has not yet received the buildings and the amounts have been recorded as deposits.

 

 

 

 

b)

At May 31, 2020, the Company recorded $Nil (August 31, 2019 - $871,645) of deposits and advances relating to the acquisition described in Note 4. On February 17, 2020, the acquisition closed and the deposits and advances were applied to the purchase price and eliminated against intercompany accounts.

 

 

 

 

c)

At May 31, 2020, the Company recorded $36,151 (August 31, 2019 - $35,547) of deposits and advances relating to the acquisition of manufacturing equipment designed to produce pharmaceutical grade medicines as described in Note 15(a).

 

 

 

 

d)

On March 1, 2019, the Company entered into a Binding Letter of Intent with BwellMED International Holdings Ltd. (“BwellMED”), pursuant to which, the Company and BwellMED will amalgamate under the laws of the province of British Columbia to form Amalco (the “Amalgamation”). The stock holders of both companies will receive shares of the amalgamated company, and prior to the Amalgamation, the Company intends to advance BwellMED up to CAD$290,000 for working capital purposes. At May 31, 2020, the Company has advanced $38,054 (CAD$50,000) (August 31, 2019 - $37,418) to BwellMED which is refundable if the amalgamation does not close and has been recorded as a deposit. The Amalgamation is subject to entering into a definitive agreement and the Amalgamation has not occurred as of the date of these financial statements. During the nine months ended May 31, 2020, the Company wrote off $36,836 of advances and recognized a foreign exchange loss of $582.

 

 

 

 

e)

At May 31, 2020, the Company has entered into two purchase and sale agreements to acquire land as described in note 15(c). At May 31, 2020, Company had paid deposits totaling $35,080 (August 31, 2019 - $14,967).

 

 

 

 

 

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.

 

20

Table of Contents

   

ALLIED CORP.

Notes to the Unaudited Condensed Consolidated Interim Financial Statements

(Expressed in US Dollars)

May 31, 2020

 

6.

Property, plant and equipment

 

 

 

At May 31, 2020, property, plant and equipment consisted of:

 

 

 

 

Cost
$

 

 

Foreign exchange

$

 

 

Accumulated amortization
$

 

 

Impairment
$

 

 

May 31, 2020

Net carrying value
$

 

 

August 31, 2019

Net carrying value
$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction in progress

 

 

142,411

 

 

 

(3,797 )

 

 

 

 

 

 

 

 

138,614

 

 

 

 

Equipment

 

 

78,628

 

 

 

(675 )

 

 

960

 

 

 

 

 

 

76,993

 

 

 

 

Office equipment

 

 

420

 

 

 

(15 )

 

 

5

 

 

 

-

 

 

 

400

 

 

 

 

 

Computer equipment

 

 

2,984

 

 

 

(65 )

 

 

133

 

 

 

 

 

 

2,786

 

 

 

 

Agricultural equipment

 

 

2,246

 

 

 

(83 )

 

 

69

 

 

 

 

 

 

2,094

 

 

 

 

 

 

 

226,689

 

 

 

(4,635 )

 

 

1,167

 

 

 

 

 

 

220,887

 

 

 

 

 

7.

Intangible assets

 

 

 

At May 31, 2020, intangible assets consisted of:

  

 

 

Cost
$

 

 

Foreign exchange

$

 

 

Accumulated amortization
$

 

 

Impairment
$

 

 

May 31, 2020

Net carrying value
$

 

 

August 31, 2019

Net carrying value
$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cannabis license application (b)

 

 

1,004,678

 

 

 

17,073

 

 

 

 

 

 

 

 

 

1,021,751

 

 

 

1,004,678

 

Formulas (a)

 

 

56,127

 

 

 

954

 

 

 

 

 

 

 

 

 

57,081

 

 

 

56,127

 

Brand name (a)

 

 

56,127

 

 

 

954

 

 

 

 

 

 

 

 

 

57,081

 

 

 

56,127

 

Cannabis licenses (c)

 

 

5,837,287

 

 

 

 

 

 

(294,494 )

 

 

 

 

 

5,542,793

 

 

 

 

 

 

 

6,954,219

 

 

 

18,981

 

 

 

(294,494 )

 

 

 

 

 

6,678,706

 

 

 

1,116,932

 

 

 

a)

On February 13, 2019, the Company entered into an Asset Purchase Agreement (“APA”) to acquire the property and assets of Bud’s Pure Naturals Inc. for total consideration of up to 2,000,000 shares of the Company’s common stock. Pursuant to the APA, the Company has issued 1,000,000 shares of common stock on February 13, 2019. The remaining 1,000,000 shares of common stock are contingent upon the receipt of greater than $500,000 of gross profits by the Company from the acquired assets, and obtaining Cosmetic Notification Numbers from Health Canada for the products. If these events do not occur prior to February 13, 2021 then the additional shares are forfeited.

 

 

 

 

 

The Company assessed the acquisition and determined that the acquisition did not meet the definition of a business found in ASU 2017-01. As the acquisition does not qualify as a business acquisition, the Company accounted for the transaction as an asset acquisition. As the fair value of the consideration was more reliably measurable than the intangible assets acquired the cost of the noncash asset received was based on the fair value of the consideration given. The cost of the assets acquired was the 1,000,000 shares issued which had an estimated fair value of $112,254 (CAD$150,000).

 

21

Table of Contents

  

ALLIED CORP.

Notes to the Unaudited Condensed Consolidated Interim Financial Statements

(Expressed in US Dollars)

May 31, 2020

  

7.

Intangible assets (continued)

 

 

 

 

 

 

The cost of the asset acquisition is allocated on a relative fair value basis to the net assets acquired. Based on their estimated relative fair values, the brand name had a fair value $56,127 (CAD$75,000) and the formulas acquired had a fair value of $56,127 (CAD$75,000).

 

 

 

 

 

 

The additional 1,000,000 shares issuable upon the achievement of milestones represent contingent consideration for which the contingency is yet to be resolved. As the contingent consideration did not qualify for recognition at the acquisition date or at August 31, 2019 under ASC 480 or ASC 815, the Company will recognize the additional payment when the contingency is resolved, and the additional shares are paid or become payable.

 

 

 

 

 

b)

On February 13, 2019, the Company entered into two Share Purchase Agreements with the same vendors to acquire 100% of the outstanding shares of Falcon Ridge Naturals Ltd and 473650 B.C. Ltd. In consideration for the all the issued and outstanding shares of two entities, the Company paid $374,182 (CAD$500,000) cash, issued a $523,854 (CAD$700,000) promissory note and 950,000 common shares with a fair value of $106,642 (CAD$142,500). The note is non-interest bearing and due within 5 days of the date the Company receives the Health Canada License. The primary purpose of the acquisitions was to acquire a cannabis license, and the license is in the application stage and submitted to Health Canada, however approval for the license has not been received to date.

 

 

 

 

 

 

The Company assessed the acquisition and determined that the acquisitions did not meet the definition of a business found in ASU 2017-01.  As the acquisitions did not qualify as business acquisitions, the Company accounted for the transactions as an asset acquisition. The cost of the asset acquisition is allocated on a relative fair value basis to the net assets acquired. The Company is required to allocate the cost to the individual assets acquired or liabilities assumed, based on their relative fair values. As the sole asset acquired by the Company was a cannabis license application the entire $1,004,678 (CAD $1,342,500) cost of the acquisition was allocated to the license application. The cost of the license was the $374,182 (CAD$500,000) paid the $523,854 (CAD$700,000) promissory note issued and the fair value of the 950,000 common shares issued of $106,642 (CAD$142,500).   

 

 

 

 

 

c)

On February 17, 2020, the Company acquired $5,837,287 of licenses as part of the Medicolumbia acquisition described in Note 4. 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 has recorded amortization of these licenses of $294,494 for the period ended May 31, 2020.

 

 

 

8.

Leases

 

 

 

 

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which establishes a ROU model that requires a lessee to record a 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 adoption of Topic 842 did not result in any adjustment to retained earnings.

 

 

 

The Company did not have any leases until the acquisition of Medicolombia during the nine months ended May 31, 2020. The acquisition resulted in the addition of $97,014 of operating lease assets and liabilities.

 

22

Table of Contents

  

ALLIED CORP.

Notes to the Unaudited Condensed Consolidated Interim Financial Statements

(Expressed in US Dollars)

May 31, 2020

 

8.

Leases (continued)

 

 

 

 

 

ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or the Company’s incremental borrowing rate. Lease liabilities are increased by interest and reduced by payments each period, and the ROU asset is amortized over the lease term. For operating leases, interest on the lease liability and the amortization of the ROU asset result in straight-line rent expense over the lease term. For finance leases, interest on the lease liability and the amortization of the ROU asset results in front-loaded expense over the lease term. ROU assets and liabilities are recognized at the commencement date of the lease based on the present value of lease payments over the lease term. At May 31, 2020, the Company did not have any finance leases.

 

 

 

 

 

At May 31, 2020, the weighted average remaining operating lease term was 10 years and the weighted average discount rate associated with operating leases was 10%.

 

 

 

The components of lease expenses were as follows:

 

Operating lease cost:

 

$

 

Amortization of right-of-use assets

 

 

2,204

 

Interest on lease liabilities

 

 

2,212

 

Total operating lease cost

 

 

4,416

 

 

 

The following table provides supplemental cash flow and other information related to leases for the period ended May 31, 2020:

 

 

 

$

 

Lease payments

 

 

3,507

 

 

Supplemental balance sheet information related to leases as of May 31, 2020 are as below:

 

Right-of-use assets

 

$

 

Cost

 

 

97,014

 

Accumulated amortization

 

 

(7,012 )

 

 

 

90,002

 

 

 

 

 

 

Current portion of lease liabilities

 

 

5,728

 

Lease liabilities, net of current portion

 

 

85,217

 

Total lease liabilities

 

 

90,945

 

 

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

 

 

 

 

$

 

2020

 

 

3,641

 

2021

 

 

14,565

 

2022

 

 

14,565

 

2023

 

 

14,565

 

2024

 

 

14,565

 

Thereafter

 

 

81,321

 

 

 

 

 

 

Total minimum lease payments

 

 

143,222

 

 

 

 

 

 

Less: amount of lease payments representing effects of discounting

 

 

(52,277 )

 

 

 

 

 

Present value of future minimum lease payments

 

 

90,945

 

 

9.

Promissory Note

 

 

 

 

On May 31, 2019, as part of the asset acquisition described in Note 4 the Company issued a $507,725 (CAD$700,000) promissory note. The note is unsecured, non-interest bearing and due 5 days following the Company’s receipt of the Health Canada License.

 

23

Table of Contents

   

ALLIED CORP.

Notes to the Unaudited Condensed Consolidated Interim Financial Statements

(Expressed in US Dollars)

May 31, 2020

 

10.

Convertible Note

 

 

On January 23, 2020, the Company issued two convertible notes with an 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 matures 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 has evaluated whether separate financial instruments with the same terms as the conversion features above would meet the characteristics of a derivative instrument as described in paragraphs ASC 815-15-25. The Company determined that there was no derivative liability associated with the debenture or warrants under ASC 815-15 Derivatives and Hedging. The terms of the contracts do not permit net settlement, as the shares delivered upon conversion are not readily convertible to cash. The Company’s trading history indicated that the shares are thinly traded and the market would not absorb the sale of the shares issued upon conversion without significantly affecting the price. As the conversion features would not meet the characteristics of a derivative instrument as described in paragraphs ASC 815-15-25, the conversion features are not required to be separated from the host instrument and accounted for separately. As a result, at May 31, 2020, the conversion features and warrants would not meet derivative classification.

 

 

The relative fair values of the convertible note 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. The Company recognized the relative fair value of the shares issuable of $129,533 and an equivalent discount. The Company then recognized the relative fair value of the warrants of $117,534 as additional-paid-in capital and an equivalent discount that further reduced the carrying value of the convertible debt to $352,933. The beneficial conversion feature of $129,533, the original issue discount of $12,000 and the relative fair value of the warrants of $117,534 discounted the convertible debenture such that the carrying value of the convertible debt on the date of issue was $340,933. The discount is being expensed over the term of the loan to increase the carrying value to the face value of the loan. During the nine months ended May 31, 2020, the Company recorded accretion of discount of $169,248 increasing the carrying value of the loan to $510,181. As at May 31, 2020, the Company has recorded accrued interest of $21,609, which is included in the balance of accounts payable and accrued liabilities on the unaudited condensed consolidated interim balance sheets.

 

 

11.

Equity

 

 

On July 10, 2019, the Shareholders of the Company and the Board of Directors approved the of Amendment to Our Articles of Incorporation (i) changing the name of the Corporation to Allied Corp. and (ii) increasing the authorized capital stock of the Corporation from 75,000,000 to 300,000,000 shares of common stock, par value $0.0001 per share and 50,000,000 shares of preferred stock, par value $0.0001 per share; and the approval of a 6.666 shares for each one share stock dividend on the Corporation’s common stock which became effective August 7, 2019 when it was accepted by FINRA. The effects of the stock split have been reflected in the financial statements.

 

 

On July 1, 2019, the Company amended the articles of incorporation to change the par value of the authorized common stock and preferred stock from $0.001 to $0.0001.

 

 

Pursuant to the Acquisition described in Note 1, the Allied Shareholder submitted for cancellation and return to treasury 10,459,220 shares of common stock, a further 4,500,000 shares a common stock were returned to treasury for re-issuance as consideration for the acquisition of assets described in Note 4.

 

 

On December 1, 2019, the Company issued 130,000 common shares at $0.50 per share, for which gross cash proceeds of $65,000 had previously been received.

 

 

In January 2020, the Company issued 240,000 shares of common stock at $1.25 per share for gross cash proceeds of $300,000. The Company paid cash finders fees of $24,000 as part of the financing.

 

24

Table of Contents

 

ALLIED CORP.

Notes to the Unaudited Condensed Consolidated Interim Financial Statements

(Expressed in US Dollars)

May 31, 2020

  

11.

Equity (continued)

 

 

 

 

 

On March 6, 2020, the Company issued 240,000 shares of common stock at $1.25 per share for gross cash proceeds of $300,000.

 

 

 

 

 

On March 9, 2020, the Company issued 200,000 shares of common stock at $1.25 per share for gross proceeds of $250,000

 

 

 

 

 

On March 12, 2020, the Company issued 120,000 common shares at $1.25 per share for cash proceeds of $150,000, and 56,000 shares were paid as a finder’s fee.

 

 

 

 

 

On May 20, 2020, the Company issued 160,000 common shares at $1.25 per share for cash proceeds of $200,000, and 16,000 shares were paid as a finder’s fee.

 

 

 

 

 

At May 31, 2020, the Company had nil (August 31, 2019 - 215,000) shares of common stock issuable for gross proceeds of $Nil (August 31, 2019 – 32,250).

 

 

 

 

12.

Related party transactions and balances

 

 

 

 

 

All transactions with related parties have occurred in the normal course of operations and are recorded at the exchange amount which is the amount agreed to by the Company and the related party.

 

 

 

 

 

a)

Key management compensation and related party transactions

 

 

 

 

 

 

The Company has identified its directors and certain senior officers as its key management personnel. The compensation costs for key management personnel for the nine months ended May 31, 2020 and 2019 were as follows:

  

 

 

May 31,

2020

 

 

May 31,

2019

 

 

 

 

 

 

 

 

Consulting fees and benefits

 

$ 437,341

 

 

$ 143,647

 

 

 

b)

Amounts due to/from related parties

 

 

 

 

In the normal course of operations the company shares certain administrative resources with companies related by common management and directors. The administrative resources and services, which were provided in the normal course of operations, were measured at the exchange amount. All amounts payable and receivable are non-interest bearing, unsecured and due on demand. The following table summarizes the amounts were due from related parties:

 

 

 

May 31,

2020

 

 

August 31,

2019

 

1206217 B.C. Ltd

 

$ -

 

 

$ 1,105

 

Equilibrium Bio Canada Corp.

 

 

-

 

 

 

3,461

 

Inca Hemp Corp.

 

 

-

 

 

 

5,706

 

International Animal Care

 

 

-

 

 

 

6,953

 

Tactical Relief LLC

 

 

20,596

 

 

 

3,205

 

Tayrona Biosciences Inc.

 

 

-

 

 

 

3,087

 

 

 

$ 20,596

 

 

$ 23,517

 

 

 

As of May 31, 2020, the Company advanced $20,596 (August 31, 2019 - $23,517) to related parties for future expenses. During the nine months ended May 31, 2020, the Company wrote off $17,929 of amounts due from related parties. At May 31, 2020, the Company owed $51,584 to shareholders (August 31, 2019 - $nil).

  

25

Table of Contents

 

ALLIED CORP.

Notes to the Unaudited Condensed Consolidated Interim Financial Statements

(Expressed in US Dollars)

May 31, 2020

 

12.

Related party transactions and balances (continued)

 

 

 

 

 

c)

Other related party transactions

 

 

 

 

 

 

During the period ended May 31, 2019, the Company entered into a lease agreement with a company controlled by an officer of the Company. The Company and the lessor agreed to terminate this lease agreement effective May 1, 2019. During the period ended May 31, 2019 the Company paid $15,302 in relation to these leased premises.

 

 

 

 

 

d)

Loan payable to Allied

 

 

 

 

 

 

At August 31, 2019, the Company had received advances of $4,051,162 from Allied prior to the Acquisition described in Note 11. The amount was unsecured, non-interest bearing and was due on demand. On September 10, 2019, the Acquisition closed, and the loan was eliminated upon consolidation.

 

 

 

 

13.

Financial risk factors

 

 

 

 

 

The Company is exposed in varying degrees to a variety of financial instrument related risks. The Board of Directors approves and monitors the risk management processes, inclusive of documented investment policies, counterparty limits, and controlling and reporting structures. The type of risk exposure and the way in which such exposure is managed is provided as follows:

 

 

 

 

 

a)

Credit risk:

 

 

 

 

 

 

Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss.  The Company’s primary exposure to credit risk is on its cash account, accounts receivable and loan receivable. Cash accounts are held with major banks in Canada.  The Company has deposited its cash with a bank from which management believes the risk of loss is low.  The management has assessed the risk of loss for accounts receivable and loan receivable to be low.

 

 

 

 

 

b)

Liquidity risk:

 

 

 

 

 

 

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due. The Company’s approach to managing liquidity is to ensure that it will have sufficient liquidity to meet liabilities when due. Accounts payable are due within the current operating period. The Company has a working capital deficit and requires additional financing to meet its current obligations (see Note 1).

 

 

 

 

 

c)

Market risk:

 

 

 

 

 

 

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Company’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return. The Company is not exposed to market risk.

 

 

 

 

 

d)

Interest rate risk:

 

 

 

 

 

 

Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company is exposed to interest rate risk, from time to time, on its cash balances. Surplus cash, if any, is placed on call with financial institutions and management actively negotiates favorable market related interest rates.

 

26

Table of Contents

 

ALLIED CORP.

Notes to the Unaudited Condensed Consolidated Interim Financial Statements

(Expressed in US Dollars)

May 31, 2020

 

13.

Financial risk factors (continued)

 

 

 

 

 

e)

Foreign exchange risk:

 

 

 

 

 

 

Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss.  The Company’s primary exposure to credit risk is on its cash account, accounts receivable and loan receivable. Cash accounts are held with major banks in Canada.  The Company has deposited its cash with a bank from which management believes the risk of loss is low.  The management has assessed the risk of loss for accounts receivable and loan receivable to be low.

  

 

 

May 31,

2020

 

Balance in Canadian dollars:

 

 

Cash and cash equivalents

 

$ -

 

Accounts receivable

 

 

90,000

 

Accounts payable

 

 

(205,133 )

Net exposure

 

 

(115,133 )

Balance in US dollars:

 

$ (95,713 )

 

 

 

A 10% change in the US dollar to the Canadian dollar exchange rate would impact the Company’s net loss by approximately $9,571 for the period ended May 31, 2020 (August 31, 2019 – $92,226).

 

 

 

 

 

The Company is exposed to foreign currency risk to the extent that the following monetary assets and liabilities are denominated in Colombian Pesos:

   

 

 

May 31,

2020

 

Balance in Colombian Pesos dollars:

 

 

 

Cash and cash equivalents

 

$ 40,000,000

 

Accounts receivable

 

 

21,992,228

 

Accounts payable

 

 

(2,166,127,248 )

Net exposure

 

 

(2,104,135,020 )

Balance in US dollars:

 

$ (567,528 )

  

 

 

A 10% change in the US dollar to the Colombian Peso exchange rate would impact the Company’s net loss by approximately $56,753 for the period ended May 31, 2020 (August 31, 2019 – $Nil).

 

14.

Capital management

 

 

 

 

The Company manages its capital structure and makes adjustments to it, based on the funds available to the Company, in order to support the business and continue as a going concern. The Company considers capital to be all accounts in equity. The Board of Directors does not establish quantitative return on capital criteria for management, but rather relies on the expertise of the Company’s management to sustain future development of the business. The Company has a working capital deficit and requires additional capital to finance is future business plans. The Company is not subject to any externally imposed capital requirements.

 
27

Table of Contents

  

ALLIED CORP.

Notes to the Unaudited Condensed Consolidated Interim Financial Statements

(Expressed in US Dollars)

May 31, 2020

  

15.

Commitments

  

 

a)

On May 22, 2019, the Company entered into an agreement to purchase manufacturing equipment designed to produce pharmaceutical grade medicines. Pursuant to the agreement the Company will acquire the equipment in exchange for CAD$125,000 and 250,000 common shares. The Company also agreed to pay the vendor a royalty equal to CAD$0.01 per milligram of product produced by the equipment for three years following the effective date. The maximum royalty payable is CAD$250,000 and the Company can prepay the CAD$250,000 maximum royalty at any time. As of May 31, 2020, the Company had issued 250,000 common shares with a fair value of CAD$37,500 and paid CAD$10,000. At May 31, 2020, the $36,151 (CAD$47,500) has been recorded as a deposit until the remaining purchase price is paid and the equipment is received.

 

 

 

 

b)

On May 31, 2019, the Company entered into a consulting agreement. Pursuant to the agreement, the consultant will provide services in exchange for CAD$210,000 (paid), 215,000 shares of common stock and CAD$30,000 per month until January 1, 2020. The consulting agreement was amended in November 2019 and as result the monthly cash amount was amended to $6,041 per month and no further fees were paid. At May 31, 2020 the Company was owed $69,367 (CAD $90,000).

 

 

 

 

c)

On November 6, 2018, the Company signed an assignment to purchase two separate lots located at 8999 Jim Bailey Road in Kelowna British Columbia, Canada. The land is zoned I2 General Industrial and allow for “Cannabis Production Facilities” as a principal use. The Company has also 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.

 

 

 

 

 

The total commitment for the two parcels of land are CAD$1,942,250 (US$ 1,457,367) (Lot 1 - $988,550, Lot 2 - CAD$953,700). During the period ended August 31, 2019, the Company executed several “offer to purchase amendments” to defer the assignment and close of the two parcels of land. On November 11, 2019, the Company executed an additional offer to purchase amendment to extend the assignment and close of the land parcels no later than February 10, 2020 and there was an additional amendment to extend the close of the purchase to May 2020. On May 7, 2020, the Company assigned the purchase of Lot 1 to a third party. In June 2020, the Company entered into a lease agreement to lease Lot 1 from the third party for an annual rent of CAD$70,442 for 10 years commencing June 1, 2020 until May 31, 2030. Also see Note 19(a).

 

 

 

 

 

In November 2019, the board of directors determined the Company would not close on Lot 2 as the parcel of land will not be required for future operations. As a result, the Company does not have a commitment to pay the value of CAD$953,700 for the land and will eligible to receive or assign the initial refundable deposit of CAD$10,000 as well as the return of the CAD$15,000 security deposit paid to access the land early. During the nine months ended May 31, 2020, this contract of purchase and sale for LOT 2 – 8999 Jim Bailey Road was assigned to another non related party.

 

28

Table of Contents

 

ALLIED CORP.

Notes to the Unaudited Condensed Consolidated Interim Financial Statements

(Expressed in US Dollars)

May 31, 2020

 

15.

Commitments (continued)

 

 

d)

On August 30, 2019, the Company entered into sales agreement to purchase an extraction system to for future operational use in Colombia. (Note 15(b)) The equipment has a value of CAD$658,260. The terms of the agreement require the Company full amount in monthly installments starting September 1, 2019 and will continue to February 2020. The equipment will be paid in full before the equipment is shipped to Colombia and title transfers to the Company. At May 31, 2020, the $233,496 has been recorded as a deposit until the remaining purchase price is paid and the equipment is received.

 

 

 

 

e)

In September 2019, the Company entered into a letter of intent to form a 50:50 owned joint venture (“CBD Asia”) to purchase and distribute the Company’s products into Asia. Pursuant to the letter of intent the Company would own 50% of the proposed joint venture and the Company provided a loan of $100,000 to set up the joint venture and fund initial operations. This amount will be repaid from the initial revenues of the joint venture prior to distributing dividends. In December 2019, the Company signed a definitive agreement consistent to the terms of the letter of intent. At May 31, 2020, the Company had advanced $101,728 which has been recorded as a loan.

 

 

 

 

f)

On May 29, 2020, the Company entered into a research and consultancy agreement to contract a third party in research and development services. Pursuant to the agreement, the Company shall pay a total of €200,000 (approximately $221,000) to the third party in three installments according to the milestones as outlined in the agreement with an upfront payment of €75,000 (approximately $83,000) on the agreement date. As of May 31, 2020, the upfront payment has not been paid and is included in the balance of accounts payable and accrued liabilities on the unaudited condensed consolidated interim balance sheets.

 

 

 

 

g)

On June 3, 2020, the Company entered into a financing agreement with a third party to obtain funds to pay for the prefabricated buildings (Note 5(a)) in the amount of $1,253,772. Pursuant to the agreement, the Company is obligated to pay $71,023 at commencement date effective May 29, 2020, and a monthly interest of $37,613 for six months starting on June 29, 2020. The principal is due on November 26, 2020. As of May 31, 2020, the amount of $71,023 due at commencement date has not been paid and is included in the balance of accounts payable and accrued liabilities on the unaudited condensed consolidated interim balance sheets.

 

29

Table of Contents

 

ALLIED CORP.

Notes to the Unaudited Condensed Consolidated Interim Financial Statements

(Expressed in US Dollars)

May 31, 2020

 

16.

Share purchase warrants

 

 

 

The following table summarizes the continuity of share purchase warrants:

  

 

 

Number of
warrants

 

 

Weighted

average

exercise

price
$

 

 

 

 

 

 

 

 

Balance, August 31, 2019

 

 

 

 

 

-

 

Issued

 

 

240,000

 

 

 

1.25

 

Balance, May 31, 2020

 

 

240,000

 

 

 

1.25

 

  

As at May 31, 2020, the following share purchase warrants were outstanding:

 

Number of warrants

 

 

Exercise
price
$

 

 

Expiry date

 

 

 

 

 

 

 

 

 

 

240,000

 

 

 

1.25

 

 

January 23, 2021

 

  

17.

Non-cash activities

  

 

 

For the

Nine Months

Ended

May 31,

2020

 

 

From

Inception on September 10,

2018 to

May 31,

2019

 

Non-cash activities:

 

 

 

 

 

 

Common stock issued pursuant to asset acquisitions

 

 

4,500,000

 

 

 

113,351

 

Beneficial conversion feature

 

 

129,533

 

 

 

-

 

Relative fair value of warrants issued with convertible note

 

 

117,534

 

 

 

-

 

Original debt discount against convertible notes

 

 

12,000

 

 

 

-

 

Net liabilities acquired in Medicolombias Acquisition

 

 

(301,328 )

 

 

-

 

 

30

Table of Contents

 

ALLIED CORP.

Notes to the Unaudited Condensed Consolidated Interim Financial Statements

(Expressed in US Dollars)

May 31, 2020

 

18.

Segment information

 

 

 

 

During the period ended May 31, 2019 and as of August 31, 2019, the Company had only one operating segment.

 

 

 

 

During the nine months ended May 31, 2020, the Company had two operating segments including:

 

 

 

 

a)

Medicolombia Cannabis S.A.S., a Columbian based company through which the Company intends to commence commercial production in Colombia (Medicolombia).

 

 

 

 

b)

Allied Corp. which consists of the rest of the Company’s operations (Allied).

 

 

 

 

Factors used to identify the Company’s reportable segments include the organizational structure of the Company and the financial information available for evaluation by the chief operating decision-maker in making decisions about how to allocate resources and assess performance. The Company’s operating segments have been broken out based on similar economic and other qualitative criteria. The Company operates the Allied reporting segment in one geographical area (Canada), and the Medicolombia reporting segment in one geographical area (Colombia).

 

 

 

 

Financial statement information by operating segment for the three months ended May 31, 2020 is presented below:

  

 

 

Allied

$

 

 

Medicolombia

$

 

 

Total

$

 

Net Sales

 

 

-

 

 

 

-

 

 

 

-

 

Net (Loss)

 

 

(787,737 )

 

 

(426,487 )

 

 

(1,214,224 )

Accretion

 

 

124,831

 

 

 

5,540

 

 

 

130,371

 

Depreciation and amortization

 

 

-

 

 

 

263,885

 

 

 

263,885

 

 

 

Financial statement information by operating segment for the nine months ended May 31, 2020 is presented below:

  

 

 

Allied

$

 

 

Medicolombia

$

 

 

Total

$

 

Net Sales

 

 

-

 

 

 

-

 

 

 

-

 

Net (Loss)

 

 

(2,222,918 )

 

 

(485,742 )

 

 

(2,708,660 )

Accretion

 

 

169,248

 

 

 

5,540

 

 

 

174,788

 

Depreciation and amortization

 

 

-

 

 

 

297,865

 

 

 

297,865

 

Total Assets as of May 31, 2020

 

 

3,616,770

 

 

 

5,921,005

 

 

 

9,537,775

 

 

31

Table of Contents

  

ALLIED CORP.

Notes to the Unaudited Condensed Consolidated Interim Financial Statements

(Expressed in US Dollars)

May 31, 2020

 

18.

Segment Disclosure (continued)

 

 

 

 

Geographic information for the three and nine months ended and as at May 31, 2020 is presented below:

 

 

 

Revenues

$

 

 

Total

Assets

$

 

 

 

 

 

 

 

 

Canada

 

 

-

 

 

 

3,616,770

 

Colombia

 

 

-

 

 

 

5,921,005

 

Total

 

 

-

 

 

 

9,537,775

 

 

19.

Subsequent events

  

 

a)

Subsequent to May 31, 2020, the Company entered into an agreement to lease the land described in Note 5(e) and 15(c). 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 CAD$1,200,000. The base rent due under the lease agreement is CAD$5,870 per month.

 

 

 

 

b)

On June 8, 2020, the Company issued 960,000 shares of common stock at $1.25 per share for gross cash proceeds of $1,200,000.

 

 

 

 

c)

In June 2020, the Company entered into a financing agreement to finance the buildings described in Note 5(a). Pursuant to the agreement, the Company financed $1,253,772 of the purchase price. The Company will pay $71,023 at commencement date on May 29, 2020, make six monthly interest payments of $37,613 commencing June 20, 2020 and repay the principal of $1,253,772 on November 20, 2020. Also see Note 15(g).

 

 

 

 

d)

On July 1, 2020, the Company entered into amendments to the convertible notes described in Note 10. Pursuant to the amendments, beginning on July 1, 2020, the convertible notes will 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 notes 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, 2020.

 

32

Table of Contents

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

The following discussion relates to the historical operations and financial statements of Allied Corp. for the period from September 10, 2018 through and including May 31, 2019 and for the three and nine months ended May 31, 2020.

 

Forward-Looking Statements

 

The following Management’s Discussion and Analysis should be read in conjunction with our financial statements and the related notes thereto included elsewhere in this Annual Report. The Management’s Discussion and Analysis contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. Any statements that are not statements of historical fact are forward-looking statements. When used, the words “believe,” “plan,” “intend,” “anticipate,” “target,” “estimate,” “expect,” and the like, and/or future-tense or conditional constructions (“will,” “may,” “could,” “should,” etc.), or similar expressions, identify certain of these forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements in this Annual Report. Our actual results and the timing of events could differ materially from those anticipated in these forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include, without limitation, those specifically addressed under the heading “Risks Factors” in our various filings with the Securities and Exchange Commission. We do not undertake any obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this Annual Report.

 

As a result of the Reorganization Agreement and the change in business and operations of the Company, a discussion of the past financial results of the Company, formally known as Cosmo Ventures, Inc., is not pertinent, and, under generally accepted accounting principles in the United States the historical financial results of AM Biosciences, the acquirer for accounting purposes, prior to the Reorganization Agreement are considered the historical financial results of the Company.

 

The following discussion highlights the Company’s results of operations and the principal factors that have affected its consolidated financial condition as well as its liquidity and capital resources for the periods described, and provides information that management believes is relevant for an assessment and understanding of the Company’s consolidated financial condition and results of operations presented herein. The following discussion and analysis are based Allied Corp’s audited and unaudited financial statements contained in this Current Report, which have been prepared in accordance with generally accepted accounting principles in the United States. You should read the discussion and analysis together with such financial statements and the related notes thereto.

 

Overview

 

Allied (or “Allied” or “the Company”) is a public Nevada corporation focused on bringing to market medical cannabis in Canada initially, via our wholly-owned subsidiary AM (Advanced Micro) Biosciences, Inc. that has end stage national license applications.

 

Allied has expanded internationally into South America via acquisitions of national license holders. As a research and development company, Allied’s focus is on creating and providing targeted cannabinoid health solutions for today’s medical issues. One of our top R&D priorities is developing effective Post Traumatic Stress Disorder (PTSD)/Post Traumatic Stress Injury (PTSI) solutions.

 

Led by a team of experienced Industry experts, Allied will use that valuable data to properly select and secure the appropriate products and business activities to ensure the company’s success.

 

 
33

Table of Contents

 

The Company’s vertically integrated approach focuses on sufferers of PTSD. This market includes:

 

·

Canadian Veterans, with initially an approximate 6,000 veterans available for first contact and onboarding, and a veteran base of approximately 650,000 in Canada from the War Service and Canadian Armed Forces

 

 

 

·

An additional 2,000,000+ Canadian veterans who also suffer in certain numbers from PTSD, including estimates of:

 

 

 

·

740,000 RCMP/Police Officers

 

 

 

·

925,000 Correctional Services Canada/Canadian Border Services Agency/Canadian Peace Officers

 

 

 

·

280,000 Firefighters (not including volunteers)

 

 

 

·

75,000 Paramedics

 

 

 

·

Potential South American market

 

 

 

·

Potential United States market: approximately 15 million veterans.

 

The Company’s additional focus is on neutraceutical products for veterans and general public through bringing hemp derived nano-technology products to market in the United States. Differentiators from our competitors potentially include the low cost, high margin production that Allied has available via Colombian Production.

 

Critical Accounting Policies

 

Basis of 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. Principles of consolidation

 

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

 

 
34

Table of Contents

 

c. Property and Equipment

 

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:

 

Equipment

 

10 years straight-line basis

Office and computer equipment

 

5 years straight-line basis

Agricultural equipment

 

10 years straight-line basis

 

d. Inventory

 

Inventories are stated at the lower of cost or market. As of May 31, 2020, the inventory consisted of supplies of containers and packaging.

  

e. Intangible assets

 

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

 

g. Foreign currency translation and functional currency conversion

 

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”).

 

 
35

Table of Contents

 

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.

 

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. 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. 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.

 

k. 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.

 

 
36

Table of Contents

  

l. 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.

  

m. 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.

 

n. Financial instruments

 

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

 

Level 1

 

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

 

Level 2

 

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

 

Level 3

 

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

 

The financial instruments consist principally of cash, accounts receivable, due from related parties, accounts payable, note payable, loan payable to Allied, due to related party and convertible note 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.

 

 
37

Table of Contents

 

Assets measured at fair value on a recurring basis were presented on the Company’s balance sheet as May 31, 2020:

 

 

 

Fair Value Measurements Using

 

 

 

Quoted

Prices in

 

 

 

 

 

 

 

 

 

 

 

Active

Markets

 

 

Significant

Other

 

 

Significant

 

 

 Balance

 

 

 

For Identical

 

 

Observable

 

 

Unobservable

 

 

as of 

 

 

 

Instruments

 

 

Inputs

 

 

Inputs

 

 

May 31,

 

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

 

2020

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Cash

 

 

39,384

 

 

 

 

 

 

 

 

 

39,384

 

 

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. 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).

 

 
38

Table of Contents

 

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)).

  

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.

 

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.

 

Presentation of Condensed Consolidated Financial Statements Post Reverse Acquisition (continued)

 

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.

 

 
39

Table of Contents

 

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. Leases

  

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

  

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.

   

 
40

Table of Contents

 

Change in Fiscal Year End

 

Effective November 12, 2019 our Board of Directors determined to change the Company’s fiscal year end from March 31 to August 31 for each year. This Quarterly Report on Form 10-Q reflects the three and nine month period from the Company’s most recently filed Form 10-K for the fiscal year ended August 31, 2019 through the quarter ended May 31, 2020.

 

Financial Condition and Results of Operations

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company incurred a net loss for the nine months ended May 31, 2020 of $2,708,660 and has no operations at this time which will generate revenue. 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.

 

Results of Operations

 

Nine Months Ended May 31, 2020

 

For the nine-month period ended May 31, 2020 and for the period ended May 31, 2019, we had no revenue. Operating expenses for the nine-month period ended May 31, 2020 totaled $2,479,107. Operating expenses for the nine-month period ended May 31, 2020 is mainly a result of office and general expense of $689.616, professional fees of $501,030 and consulting fees of $753,666. Operating expenses for the period ended May 31, 2019 totaled $855,491. Operating expenses for the period ended May 31, 2019 is mainly a result of office and general expense of $63,098, professional fees of $113,960 and consulting fees of $493,059. These expenses consisted principally of consulting fees in the development of the Company’s cannabis business, general office expenses, professional fees and rent. The overall increase in operating expenses during the nine-month period ended May 31, 2020 is the result in change of business and an increase in business activities.

 

During the nine-month period ended May 31, 2020, the Company wrote off receivables of $54,765 and recorded accretion of $174,788. The Company did not have comparable expenses during the period ended May 31, 2019.

 

As a result of the changes described above, net loss from operations after income taxes increased to $2,479,107 during the nine months ended May 31, 2020 compared to $855,491 during the period ended May 31, 2019.

 

Three Months Ended May 31, 2020

 

For the three-month period ended May 31, 2020 and for the three-month period ended May 31, 2019, we had no revenue. Operating expenses for the three-month period ended May 31, 2020 totaled $1,083,853. Operating expenses for the three-month period ended May 31, 2020 is mainly a result of office and general expense of $338,849, professional fees of $161,680 and consulting fees of $262,152. Operating expenses for the three-month period ended May 31, 2019 totaled $661,804. Operating expenses for the three-month period ended May 31, 2019 is mainly a result of office and general expense of $30,559, professional fees of $91,454 and consulting fees of $401.203. These expenses consisted principally of consulting fees in the development of the Company’s cannabis business, general office expenses, professional fees and rent. The overall increase in operating expenses during the three-month period ended May 31, 2020 is the result in change of business and an increase in business activities.

 

During the three-month period ended May 31, 2020, the Company recorded accretion of $130.371. The Company did not have comparable expenses during the three-month period ended May 31, 2019.

 

As a result of the changes described above, net loss from operations after income taxes increased to $1,083,853 during the three months ended May 31, 2020 compared to $661,804 during the three months ended May 31, 2019.

 

 
41

Table of Contents

 

Liquidity and Capital Resources

 

As of May 31, 2020, the Company had $422,247 in current assets, consisting mainly of $39,384 in cash, $69,382 in accounts receivable, $144,318 in prepaid expenses and $101,728 in current loan receivable. Other assets mainly include deposits and advances of $2,125,933, property plant and equipment of $220,887 and intangible assets of $6,678,706..

 

In connection with the Reorganization, during the period May 7, 2019 through June 15, 2019, a total of $1,325,000 in proceeds was raised in a private placement to 11 accredited investors at a price of $0.50 per share. In connection with this offering, the Company issued 2,650,000 shares of common stock.

 

During July 2019, a total of $3,000,000 in proceeds was raised in a private placement to one accredited investor at a price of $0.75 per share. In connection with this offering, the Company issued 4,000,000 shares of common stock.

 

On December 1, 2019, the Company issued 130,000 common shares including 50,000 to a director of the Company at $0.50 per share for cash proceeds of $65,000.

 

In January 2020, the Company issued 240,000 shares of common stock at $1.25 per share for cash proceeds of $300,000. The Company paid cash finders fees of $24,000 as part of the financing.

 

 

On March 6, 2020, the Company issued 240,000 shares of common stock at $1.25 per share for gross cash proceeds of $300,000.

 

On March 9, 2020, the Company issued 200,000 shares of common stock at $1.25 per share for gross proceeds of $250,000

 

On March 12, 2020, the Company issued 120,000 common shares at $1.25 per share for cash proceeds of $150,000, and 56,000 shares were paid as a finder’s fee.

 

On May 20, 2020, the Company issued 160,000 common shares at $1.25 per share for cash proceeds of $200,000, and 16,000 shares were paid as a finder’s fee.

 

On June 8, 2020, the Company issued 960,000 shares of common stock at $1.25 per share for gross cash proceeds of $1,200,000.

 

In connection with its proposed business plan and currently ongoing and proposed acquisitions, the Company will be required to complete substantial and significant additional capital formation. Such formation could be through additional equity offerings, debt, bank financings or a combination of any source of financing. There can be no assurance that the Company will be successful in completion of such financings.

 

Capital Expenditures

 

For the nine month period ended May 31, 2020 the company purchased property plant and equipment of $96,097 and paid net cash of $1,010,630 pursuant to an asset acquisition. During the period ended May 31, 2019, the Company purchased intangible assets with cash of $182,509.

 

 
42

Table of Contents

 

MediColombias Acquisition (Colombia Licensed Producer)

 

On August 29, 2019, the Company entered into a Share Purchase Agreement (“Purchase Agreement”) with Dorson Commercial Corp. (“Dorson”) as the sole owner of Baleno Ltd. to purchase all of the issued and outstanding shares of Baleno Ltd., the sole owner of Medicolombia Cannabis S.A.S. (“Medicolombia”). Medicolombia is based in Colombia with a full set of licenses and a lease agreement in place to begin production on a 5 hectare parcel of land. We have the ability to scale production to over hundreds of hectares. This is located in the area of Bucamaranga, Colombia.

 

This acquisition includes a team of experts and significant expenditures spent on an irrigation holding pond, security towers, fencing, etc. to meet the Colombia minister of justice and minister of agriculture requirements.

 

Pursuant to the agreement the Company acquired all of the issued and outstanding shares of Medicolombia in exchange for $700,000 and 4,500,000 shares of Allied valued at $1.00 per share. The Company closed and completed the acquisition on February 17, 2020.

 

Falcon Ridge Acquisition (Canadian end-stage Licensed Producer applicant).

 

In May 2019, AM Biosciences closed a share purchase agreement and made the first installment payments for the acquisition of late stage Canadian Licensed Producer applicant: Falcon Ridge (the “Falcon Ridge Acquisition”).

 

The purchase is for a total of CDN $1,342,500. This payment will be paid (a) $250,000 CDN due May 31, 2019 (this has been paid out of the proceeds of the $0.50 cent private placement); (b) $250,000 CDN due on or before July 01, 2019 (this has also been paid out of the proceeds of the $0.50 cent private placement); (c) $700,000 CDN due within five days of receiving full license (which we anticipate in the fourth quarter of 2019); and (d) 950,000 shares with a fair value of CDN $142,500.

 

We were given the approval from Health Canada as “Confirmation of Readiness” for this application.

 

Assignment; Assumption of contract of purchase and sale and lease of 8999 Jim Bailey Rd.

 

In November 2018, the Company assumed the contract of purchase and sale of real property located at 8999 Jim Bailey Rd. This is for the purchase of two real lots (Lot 1 and Lot 2) of approximately 1.1 acres each. This contract of purchase and sale is set to close in the second quarter of 2020. This land will be where the Canadian Licensed Producer and product processing and extraction facility will be located/ In November 2019, the Company decided not to close on Lot 2 as the land will not be required for future operations. The purchase was assigned to another nonrelated party. On May 7, 2020, the Company assigned the purchase of Lot 1 to a third party. In June 2020, the Company entered into a lease agreement to lease Lot 1 from the third party for an annual rent of CAD$70,442 for 10 years commencing June 1, 2020 until May 31, 2030.Land preparation is well underway and is expected to be ready for when the building arrives in the fourth quarter of 2020.

 

Natural Health Products Acquisition

 

In May 2019, as a part of the Falcon Ridge Acquisition, the management team of AM Biosciences were able to negotiate the inclusion of a natural health products catalogue of products. This includes 50 products in the natural health vertical market. Three of these products are of particular interest as they have Natural Health Products registration numbers with Health Canada. AM Biosciences can add these to the product offerings both in Canada and the United States.

 

Natural health vertical run of first product: “Tactical Relief™

 

In June 2019, AM Biosciences was able to source, negotiate and execute and agreement to do the first packaging run of the “Tactical Relief” product that is targeted at veterans in the United States. This product is not based on THC, but rather a Hemp-derived CBD product that is targeted at the veteran community. We anticipate selling through a small 500 product launch in the fourth quarter of 2020. We have been able to secure distribution in Indiana, Kentucky, Tennessee and Illinois. The management and sales of this product is handled through a licensing deal with a company called Savage Consulting, LLC. Due to the national legislation in the United Sates, Allied has licensed the management of the hemp derived CBD product, Tactical Relief™ to Savage Consulting, LLC.

 

 
43

Table of Contents

 

Xtreme Cubes construction has begun

 

In June 2019, AM Biosciences signed the production and manufacturing contract to begin the manufacturing of the full building for the Canada extraction and production facility. This building will be a fully scalable, modular building. This building is expected to come off of the production line in Nevada in the fourth quarter of 2020. We anticipate being able to extract and produce additional strain development in this building beginning third or fourth quarters 2020. The Company made an upfront payment of $230,000 USD in June 2019, an additional payment of $903,385 in August 2019 and an additional payment of $92,000 in March 2020.

 

Commitments and Contractual Obligations

 

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide this information.

 

Off-balance Sheet Arrangements

 

The Company has no off-balance sheet arrangements.

 

Going Concern

 

The independent auditors’ report accompanying our August 31, 2019 financial statements contains an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern.

 

As reflected in the accompanying financial statements, the Company had an accumulated deficit of approximately $4,009,463 at May 31, 2020 and net loss of $2,708,660.

 

The Company does not yet have a history of financial stability. Historically, the principal source of liquidity has been the issuance of equity securities. In addition, the Company is in the development stage and has generated no revenues since inception. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

 

The ability of the Company to continue operations is dependent on the success of Management’s plans, which include the raising of capital through the issuance of equity securities, until such time that funds provided by operations are sufficient to fund working capital requirements.

 

The Company will require additional funding to finance the growth of its current and expected future operations as well as to achieve its strategic objectives. The Company believes its current available cash will be sufficient to meet its cash needs for the near future. There can be no assurance that financing will be available in amounts or terms acceptable to the Company, if at all.

 

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. These financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.

 

Risks

 

As a “smaller reporting company,” as defined in Rule 12b-2 of the Exchange Act, we are not required to provide the information called for by this Item.

 

 
44

Table of Contents

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

 

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.

 

Item 4. Controls and Procedures.

 

Disclosure Controls and Procedures

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes of accounting principles generally accepted in the United States.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives.

 

Our management evaluated the effectiveness of the Company’s internal control over financial reporting as of May 31, 2020. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework. Based on this evaluation, our management concluded that, as of May 31, 2020, our internal control over financial reporting was effective.

 

This quarterly report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to rules of the SEC that permits us to provide only management’s report in this quarterly report.

 

Changes in Internal Control over Financial Reporting. There were no changes in our internal control over financial reporting that occurred during the interim period from August 31, 2019 through May 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 
45

Table of Contents

  

PART II—OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

We have commenced litigation against certain former officers and directors of the Company.  The Company intends to vigorously pursue this litigation.

 

Otherwise, we are not currently involved in any pending litigation or legal proceeding.

 

Item 1A. Risk Factors.

 

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.

 

Item 2. Unregistered Sales of Securities and Use of Proceeds.

 

On May 20, 2020, the Company issued 160,000 common shares to an accredited investor in a private placement at $1.25 per share for cash proceeds of $200,000, and 16,000 shares were paid as a finder’s fee.

 

On June 8, 2020, the Company issued 960,000 shares of common stock to an accredited investor in a private placement at $1.25 per share for gross cash proceeds of $1,200,000.

 

Item 3. Defaults Upon Senior Securities.

 

None

 

Item 4. Mine Safety Disclosures

 

None

 

Item 5. Other Information.

 

 
46

Table of Contents

 

Item 6. Exhibits.

 

 

 
47

Table of Contents

 

SIGNATURES*

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

Allied Corp.

(Registrant)

 

Date: July 15, 2020

By:

/s/ Calum Hughes

Calum Hughes

Chief Executive Officer and Director

Principal and Executive Officer

 

Date: July 15, 2020

By:

/s/ Ryan Maarschalk

Ryan Maarschalk

Chief Financial Officer

Principal Financial Officer

Principal Accounting Officer

 

 
47