Allied Corp. - FORM 10-Q

Attached files

file	filename
EX-32.2 - CERTIFICATION - Allied Corp.	alid_ex322.htm
EX-32.1 - CERTIFICATION - Allied Corp.	alid_ex321.htm
EX-31.2 - CERTIFICATION - Allied Corp.	alid_ex312.htm
EX-31.1 - CERTIFICATION - Allied Corp.	alid_ex311.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended May 31, 2021

Commission File Number 000-56002

ALLIED CORP.

(Exact name of registrant as specified in its charter)

Nevada

33-1227173

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

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

(Address of principal executive offices) (Zip Code)

877-255-4337

(Registrant’s telephone number, including area code)

_________________________________________________________

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

Securities registered pursuant to Section 12(b) of the Act

Title of Each Class		Trading Symbol(s)		Name of each Exchange on which registered
N/A		N/A		N/A

Indicate by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

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

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

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

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

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

As of July 19, 2021, there were 80,308,867 shares of common stock issued and outstanding.

TABLE OF CONTENTS

PART I—FINANCIAL INFORMATION

Item 1.	Financial Statements.	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	40
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	51
Item 4.	Controls and Procedures.	52

PART II—OTHER INFORMATION

Item 1.	Legal Proceedings.	53
Item 1A.	Risk Factors.	53
Item 2.	Unregistered Sales of Securities and Use of Proceeds.	54
Item 3.	Defaults Upon Senior Securities.	55
Item 4.	Mining Safety Disclosure.	55
Item 5.	Other Information.	55
Item 6.	Exhibits.	55

Table of Contents

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

ALLIED CORP.

CONSOLIDATED FINANCIAL STATEMENTS

Condensed consolidated interim balance sheets at May 31, 2021 (unaudited) and August 31, 2020	4

Condensed consolidated interim statements of operations and comprehensive loss for the three and nine months ended May 31, 2021 and May 31, 2020 (unaudited)	5

Condensed consolidated interim statements of stockholders’ equity (deficit) for the three and nine months ended May 31, 2021 and May 31, 2020 (unaudited)	6-8

Condensed consolidated interim statements of cash flows for the nine months ended May 31, 2021 and May 31, 2020 (unaudited)	9

Notes to the unaudited condensed consolidated interim financial statements	10

Table of Contents

ALLIED CORP.

Condensed Consolidated Interim Balance Sheets

(Expressed in US Dollars)

	May 31, 2021			August 31, 2020

	(Unaudited)
Assets
Current assets
Cash	$	822,586		$	94,047
Inventory (Note 4)		299,379			52,585
Other receivables		4,487			-
Amounts due from related parties (Note 12)		11,498			-
Prepaid expenses		436,608			51,682
Total current assets		1,574,558			198,314

Deposits and advances (Note 5)		2,968,516			3,008,246
Right-of-use assets (Note 8)		71,295			374,997
Property, plant and equipment (Note 6)		209,269			223,020
Intangible assets (Note 7)		2,888,583			3,300,000
Total assets	$	7,712,221		$	7,104,577

Liabilities
Current liabilities
Accounts payable and accrued liabilities	$	1,551,666		$	1,396,495
Current portion of lease liabilities (Note 8)		4,196			17,073
Loan payable (Note 9)		1,596,522			1,253,772
Convertible notes payable (Note 10)		1,678,191			400,000
Total current liabilities		4,830,575			3,067,340

Lease liabilities, net of current portion (Note 8)		67,099			333,073
Total liabilities	$	4,897,674		$	3,400,413

Stockholders’ equity
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; 78,662,201 shares issued and outstanding (85,105,780 – par value $0.0001 – August 31, 2020)		7,866			8,511
Treasury stock		707			-
Additional paid in capital		16,909,381			12,226,382
Common stock issuable		943,268			19,952
Accumulated deficit		(14,557,353	)		(7,908,566	)
Accumulated other comprehensive loss		(489,332	)		(642,115	)

Total stockholders’ equity		2,814,547			3,704,164
Total liabilities and stockholders’ equity	$	7,712,221		$	7,104,577

Nature of operations and going concern (Note 1)

Commitments (Note 15)

Subsequent events (Note 21)

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

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, 2021			For the Three Months Ended May 31, 2020			For the Nine Months Ended May 31, 2021			For the Nine Months Ended May 31, 2020
Revenues
Sales	$	-		$	-		$	5,260		$	-

Expenses
Amortization		117,851			263,885			483,872			297,865
Charitable donations		-			51,930			15,000			151,473
Consulting fees		232,651			262,152			724,386			753,666
Stock-based compensation		696,103			-			2,076,223			-
Foreign exchange		27,535			(53,314	)		11,279			(57,233	)
Interest expense		153,942			-			412,370			-
Office and miscellaneous		721,234			338,849			1,035,806			689,316
Production costs		-			-			227,257			-
Professional fees		223,106			161,680			595,885			501,030
Rent		6,331			9,884			37,221			18,824
Research and development		-			-			-			8,009
Travel		728			48,787			6,334			116,157
Operating expenses		2,179,481			1,083,853			5,625,633			2,479,107
Loss from operations		(2,179,481	)		(1,083,853	)		(5,620,373	)		(2,479,107	)
Other expenses
Impairment of assets (Note 16)		(245,500	)		-			(245,500	)		-
Loss on termination of lease		-			-			(65,565	)		-
Settlement payments		-			-			(105,000	)		-
Loss on debt extinguishment		(28,268	)		-			(118,448	)		-
Write-off of receivables		-			-			-			(54,765	)
Accretion		(300,240	)		(130,371	)		(493,901	)		(174,788	)
Total other expenses		(574,008	)		(130,371	)		(1,028,414	)		(229,553	)
Net loss		(2,753,489	)		(1,214,224	)		(6,648,787	)		(2,708,660	)
Other comprehensive income (loss)

Foreign currency translation adjustments		(7,779	)		17,492			152,793			23,231
Comprehensive loss	$	(2,761,268	)	$	(1,196,732	)	$	(6,495,994	)	$	(2,685,429	)

Basic and diluted loss per share	$	(0.03	)	$	(0.01	)	$	(0.08	)	$	(0.03	)

Weighted average number of common shares outstanding		78,096,032			83,717,650			82,856,781			83,164,240

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

Table of Contents

ALLIED CORP.

Condensed Consolidated Interim Statements of Stockholders’ Equity (Deficit)

(Expressed in US dollars)

(Unaudited)

	Common stock						Treasury Stock						Additional						Stock						Accumulated Other
	Number of shares			Amount			Number of shares			Amount			Paid in Capital			Stock issuable			subscription receivable			Accumulated Deficit			Comprehensive Income (loss)			Total

Balance, August 31, 2019		51,200,014		$	5,120			-		$	-		$	912,965		$	24,135		$	(364	)	$	(1,300,803	)	$	(30,491	)	$	(389,438	)
Cancellation of common stock		(10,459,220	)		(1,046	)		-			-			1,046			-			-			-			-			-
Effect of reverse acquisition		42,027,986			4,203			-			-			3,925,542			65,092			364			-			-			3,995,201
Shares reacquired by treasury		(4,500,000	)		(450	)		4,500,000			450			-			-			-			-			-			-
Common stock subscribed		-			-			-			-			-			275,908			-			-			-			275,908
Comprehensive loss for the period		-			-			-			-			-			-			-			(458,167	)		(5,680	)		(463,847	)

Balance, November 30, 2019		78,768,780		$	7,827			4,500,000			450		$	4,839,553		$	365,135		$	-		$	(1,758,970	)	$	(36,171	)	$	3,417,824
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			-			-			-			-			247,066
Comprehensive loss for the period		-			-			-			-			-			-			-			(1,036,269	)		11,419			(1,024,850	)

Balance, February 29, 2020		83,138,780		$	8,314			-			-		$	9,927,582		$	224,135		$	-		$	(2,795,239	)	$	8,685		$	7,340,040
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			-			-		$	10,827,556		$	24,135		$	-		$	(4,009,463	)	$	26,177		$	6,843,308

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

Table of Contents

ALLIED CORP.

Condensed Consolidated Interim Statements of Stockholders’ Equity (Deficit)

(Expressed in US dollars)

(Unaudited)

	Common stock				Additional				Stock					Accumulated Other
	Number of shares		Amount		Paid in Capital		Stock issuable		subscription receivable		Accumulated Deficit			Comprehensive Income			Total
Balance, August 31, 2020		85,105,780	$	8,511	$	12,226,382	$	19,952	$	-	$	(7,908,566	)	$	(642,115	)	$	3,704,164
Shares issued for cash		200,000		20		249,980		-		-		-			-			250,000
Detachable warrants issued with convertible notes payable		-		-		153,764		-		-		-			-			153,764
Shares issuable upon modification of debt		-		-		133,127		-		-		-			-			133,127
Common stock subscribed		-		-				110,000		-		-			-			110,000
Comprehensive loss for the period		-		-				-		-		(1,195,862	)		118,923			(1,076,939	)
Balance, November 30, 2020		85,305,780	$	8,531	$	12,763,253	$	129,952	$	-	$	(9,104,428	)	$	(523,192	)	$	3,274,116
Detachable warrants issued with convertible notes payable		-		-		142,564		-		-		-			-			142,564
Beneficial conversion feature		-		-		22,564		-		-		-			-			22,564
Stock-based compensation		-		-		1,380,120		-		-		-			-			1,380,120
Common stock issuable to settle debt		-		-		-		92,664		-		-			-			92,664
Common stock subscribed for cash		-		-		-		250,000		-		-			-			250,000
Comprehensive loss for the period		-		-		-		-		-		(2,699,436	)		41,649			(2,657,787	)
Balance, February 28, 2021		85,305,780	$	8,531	$	14,308,501	$	472,616	$	-	$	(11,803,864	)	$	(481,543	)	$	2,504,241

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

Table of Contents

ALLIED CORP.

Condensed Consolidated Interim Statements of Stockholders’ Equity (Deficit)

(Expressed in US dollars)

(Unaudited)

	Common stock						Treasury Stock						Additional					Stock					Accumulated Other
	Number of shares			Amount			Number of shares			Amount			Paid in Capital		Stock issuable			subscription receivable		Accumulated Deficit			Comprehensive Income (loss)			Total

Balance, February 28, 2021		85,305,780		$	8,531			-			-		$	14,308,501	$	472,616		$	-	$	(11,803,864	)	$	(481,543	)	$	2,504,241
Shares returned to treasury		(8,123,170	)		(812	)		8,123,170			812			-		-			-		-			-			-
Shares issued for cash		1,350,001			135			-			-			749,865		(250,000	)		-		-			-			500,000
Shares issued to settle debts		142,790			14			-			-			124,396		(92,664	)		-		-			-			31,746
Shares issued upon modification of debt		136,000			13			-			-			149,938		(129,952	)		-		-			-			19,999
Shares issued for finders fees		800			-			-			-			-		-			-		-			-			-
Cancellation of shares for no consideration		(1,200,000	)		(120	)		-			-			120		-			-		-			-			-
Detachable warrants issued with convertible notes payable		-			-			-			-			158,903		-			-		-			-			158,903
Beneficial conversion feature		-			-			-			-			99,680		-			-		-			-			99,680
Shares re-issued for asset acquisition		200,000			20			(200,000	)		(20	)		160,000		-			-		-			-			160,000
Shares issuable for promissory note		100,000			10			(100,000	)		(10	)		90,000		-			-		-			-			90,000
Stock-based compensation		-			-			-			-			430,478		-			-		-			-			430,478
Shares issuable upon modification of debt		-			-			-			-			-		8,268			-		-			-			8,268
Common stock subscribed for cash		-			-			-			-			-		935,000			-		-			-			935,000
Shares issued for consulting services		750,000			75			(750,000	)		(75	)		637,500		-			-		-			-			637,500
Comprehensive loss for the period		-			-			-			-			-		-			-		(2,753,489	)		(7,779	)		(2,761,268	)

Balance, May 31, 2021		78,662,201		$	7,866			7,073,170		$	707		$	16,909,381	$	943,268		$	-	$	(14,557,353	)	$	(489,322	)	$	2,814,547

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

Table of Contents

ALLIED CORP.

Condensed Consolidated Interim Statement of Cash Flows

(Expressed in US dollars)

(Unaudited)

	For the Nine Months Ended May 31, 2021			For the Nine Months Ended May 31, 2020
Cash provided by (used in):

Operating activities
Net loss for the period	$	(6,648,787	)	$	(2,708,660	)
Adjustments to net loss for the period for non-cash items
Accretion		493,901			174,788
Amortization		483,872			297,865
Impairment of acquired assets		245,500			-
Loss on debt extinguishment		118,448			-
Write-off of receivables		-			54,765
Loss on termination of lease		65,565			-
Stock-based compensation		2,076,223			-
Changes in non-cash working capital balance:
Increase in other receivables		(4,487	)		(58,217	)
Increase in prepaid expenses		(13,051	)		(133,301	)
Increase in deposits and advances		-			(105,839	)
Increase in due from related parties		(11,498	)		(14,185	)
Increase in accounts payable and accrued liabilities		299,419			813,863
Increase in inventory		(199,337	)		(46,839	)

		(3,094,232	)		(1,725,760	)
Investing activities
Cash paid and advances for the acquisition of assets (Notes 1, 3 & 16)		(131,544	)		(1,010,630	)
Cash paid for acquisition of subsidiary		(42,750	)		-
Refunds (payments) of deposits		129,897			-
Purchase of property, plant and equipment		(33,209	)		(96,097	)
Cash obtained from acquisition of assets		-			24,668
		(77,606	)		(1,082,059	)
Financing activities
Proceeds of convertible notes		1,584,892			588,000
Proceeds from loan		300,000			-
Repayment of finance lease obligations		(16,315	)		(3,507	)
Proceeds from the issuance of common stock		999,980			1,176,000
Proceeds for subscriptions of stock issuable		935,000			-
		3,803,557			1,760,493

Effect of exchange rate on changes of cash		96,820			5,828
Increase (decrease) in cash		728,539			(1,041,498	)
Cash, beginning of period		94,047			1,080,882
Cash, end of period	$	822,586		$	39,384

Supplemental cash flow disclosures:
Income taxes paid		-			-
Interest paid		338,519			-

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

Table of Contents

ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

May 31, 2021

(Expressed in US dollars)

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

	a)	Nature of operations

		Allied Corp. (the “Company or Allied”) was incorporated in the State of Nevada on February 3, 2013. On July 1, 2019, the Company changed its name to Allied Corp. The 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 takeover (“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. On February 18, 2020, the Company acquired all the issued and outstanding share capital of Baleno Ltd. and its wholly-owned subsidiary, Allied Colombia S.A.S (formerly Medicolombia’s Cannabis S.A.S) (“Allied Colombia”). On March 5, 2021, the Company acquired all the issued and outstanding common shares of Pacific Sun Fungi Inc. (“PSF”) (Note 16).

	b)	Reverse take-over transaction (RTO)

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

Table of Contents

ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

May 31, 2021

(Expressed in US dollars)

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 months ended May 31, 2021 of $6,648,787, has generated minimal revenue and as at May 31, 2021 has a working capital deficit of $3,256,017. 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 (refer to note 14 for details).

	d)	COVID-19 impact

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

	e)	Business Risks

		While some states in the United States have authorized the use and sale of cannabis, it remains illegal under federal law and the approach to enforcement of U.S. federal laws against cannabis is subject to change. Because the Company plans to engage in cannabis-related activities in the United States, 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, the then United States Attorney General Jeff Sessions issued a memorandum to United States district attorneys (the “Sessions Memorandum”) which rescinded previous guidance from the United States Department of Justice specific to cannabis enforcement in the United States, including the Cole Memorandum. With the Cole Memorandum rescinded, United States federal prosecutors no longer have guidance relating to the exercise of their discretion in determining whether to prosecute cannabis related violations of United States federal law. Since that time, United States district attorneys have taken no legal action against state law compliant entities, and the Biden administration is generally anticipated to seek federal decriminalization of state legal cannabis activity. Nevertheless, a significant change in the federal government’s enforcement policy with respect to current federal laws applicable to cannabis could cause significant financial damage to the Company. The Company may be irreparably harmed by a change in enforcement policies of the federal government depending on the nature of such change. Given the current illegality of cannabis under United States federal law, the Company’s ability to access both public and private capital may be hindered by the fact that certain financial institutions are regulated by the United States federal government and are thus prohibited from providing financing to companies engaged in cannabis related activities. The Company’s ability to access public capital markets in the United States is directly hindered as a result. The Company may, however, be able to access public and private capital markets in Canada in order to support continuing operations.

Table of Contents

ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

May 31, 2021

(Expressed in US dollars)

Significant accounting policies

Business 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 for complete financial statements. Therefore, these interim financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto for the year ended August 31, 2020 included in the Company’s Annual Report on Form 10-K filed with the SEC.

The 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, 2021, and the results of its operations for the three and nine months ended May 31, 2021, and cash flows for the nine months ended May 31, 2021. The results of operations for the period ended May 31, 2021 are not necessarily indicative of the results to be expected for future quarters or the full year.

The significant accounting policies followed are:

	a)	Principles of consolidation

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

	b)	Cash and cash equivalents

		Cash is comprised of cash on hand, cash held in trust accounts and demand deposits. Cash equivalents are short-term, highly liquid investments with maturities within three months when acquired. The Company did not have any cash equivalents as of May 31, 2021 and August 31, 2020.

	c)	Property, plant and equipment

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

Farm facility and equipment		1 - 10 years straight-line basis

Office and computer equipment		5 years straight-line basis

Land equipment		10 years straight-line basis

Table of Contents

ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

May 31, 2021

(Expressed in US dollars)

2.	Significant accounting policies (continued)

	d)	Inventory

		Inventory is comprised of raw materials, work-in-progress, and finished goods. Cost includes expenditures directly related to the manufacturing process as well as suitable portions of related production overheads, based on normal operating capacity. Inventory costs include pre-harvest costs or costs of purchases. Pre-harvest costs include labor and direct materials to grow cannabis, which includes water, electricity, nutrients, integrated pest management, growing supplies and allocated overhead. Inventory is stated at the lower of cost or net realizable value, determined using weighted average cost. Net realizable value is defined as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. At the end of each reporting period, the Company performs an assessment of inventory and records write-downs for excess and obsolete inventories based on the Company’s estimated forecast of product demand, production requirements, market conditions, regulatory environment, and spoilage. Actual inventory losses may differ from management’s estimates and such differences could be material to the Company’s balance sheets, statements of net loss and comprehensive loss and statements of cash flows.

	e)	Intangible assets

		At May 31, 2021 and August 31, 2020, intangible assets include licenses which are being amortized over their estimated useful lives of 10 years. The Company’s licenses are amortized over their economic or legal life on a straight-line basis, whichever is shorter. The licenses have been amortized from the date of acquisition. The Company periodically evaluates the reasonableness of the useful lives of these assets. Once these assets are fully amortized, they are removed from the accounts. These assets are reviewed for impairment or obsolescence when events or changes in circumstances indicate that the carrying amount may not be recoverable. If impaired, intangible assets are written down to fair value based on discounted cash flows or other valuation techniques. The Company has no intangibles with indefinite lives. For long-lived assets, impairment losses are only recorded if the asset’s carrying amount is not recoverable through its undiscounted, probability-weighted future cash flows. The Company measures the impairment loss based on the difference between the carrying amount and the estimated fair value. When an impairment exists, the related assets are written down to fair value.

	f)	Long-lived assets

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

Table of Contents

ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

May 31, 2021

(Expressed in US dollars)

2.	Significant accounting policies (continued)

	g)	Foreign currency translation and functional currency conversion

		Items included in these consolidated financial statements of each of the Company’s entities are measured using the currency of the primary economic environment in which the entities operate (the “functional currency”). Prior to September 10, 2019, the Company’s functional currency was the Canadian dollar. Translation gains and losses from the application of the U.S. dollar as the reporting currency during the period that the Canadian dollar was the functional currency are included as part of cumulative currency translation adjustment, which is reported as a component of shareholders’ equity under accumulated other comprehensive loss. The Company re-assessed its functional currency and determined as at September 10, 2019, its functional currency changed from the Canadian dollar to the U.S. dollar based on management’s analysis of changes in our organization. The change in functional currency was accounted for prospectively from September 10, 2019 and prior period financial statements were not restated for the change in functional currency. For periods commencing September 10, 2019, monetary assets and liabilities denominated in foreign currencies are translated into U.S. dollars using exchange rates in effect at the balance sheet date. Opening balances related to non-monetary assets and liabilities are based on prior period translated amounts, and non-monetary assets and non-monetary liabilities incurred after September 10, 2019 are translated at the approximate exchange rate prevailing at the date of the transaction. Revenue and expense transactions are translated at the approximate exchange rate in effect at the time of the transactions. Foreign exchange gains and losses are included in the statement of operations and comprehensive loss as foreign exchange gains. The Company assessed the functional currency for Allied Colombia to be the Colombian peso. The functional currency for Baleno Ltd. (inactive), Tactical Relief LLC, Allied U.S Products LLC and PSF is the U.S. dollar.

	h)	Share issuance costs

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

	i)	Research and development costs

		Research and development costs are expensed as incurred.

Table of Contents

ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

May 31, 2021

(Expressed in US dollars)

2.	Significant accounting policies (continued)

	j)	Revenue recognition

		The Company’s revenue is comprised of sales of cannabis products. The Company’s revenue-generating activities have a single performance obligation and revenue is recognized at the point in time when control of the product transfers and the Company’s obligations have been fulfilled. This generally occurs when the product is shipped or delivered to the customer, depending upon the method of distribution and shipping terms set forth in the customer contract. Revenue is measured as the amount of consideration the Company expects to receive in exchange for the sale of the Company’s product. Certain of the Company’s customer contracts may provide the customer with a right of return. In certain circumstances the Company may also provide a retrospective price adjustment to a customer. These items give rise to variable consideration, which is recognized as a reduction of the transaction price based upon the expected amounts of the product returns and price adjustments at the time revenue for the corresponding product sale is recognized. The determination of the reduction of the transaction price for variable consideration requires that the Company make certain estimates and assumptions that affect the timing and amounts of revenue recognized. Sales of products are for cash or otherwise agreed-upon credit terms. The Company’s payment terms vary by location and customer; however, the time period between when revenue is recognized and when payment is due is not significant. The Company estimates and reserves for its bad debt exposure based on its experience with past due accounts and collectability, write-off history, the aging of accounts receivable and an analysis of customer data. For the nine months ended May 31, 2021, the Company generated sales of $5,260.

	k)	Net income (loss) per common share

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

	l)	Income taxes

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

Table of Contents

ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

May 31, 2021

(Expressed in US dollars)

2.	Significant accounting policies (continued)

	m)	Related party transactions

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

	n)	Significant accounting estimates and judgments

		The preparation of the financial statements in conformity with US GAAP requires management to make judgments, estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Although management uses historical experience and its best knowledge of the amount, events or actions to for the basis for judgments and estimates, actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and further periods if the review affects both current and future periods. Significant estimates and assumptions included in these financial statements relate to the valuation assumptions related to the estimated useful lives and recoverability of long-lived assets, stock-based compensation, and deferred income tax assets and liabilities. Judgments are required in the assessment of the Company’s ability to continue to as going concern as described in Note 1.

	o)	Financial instruments

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

		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.

Table of Contents

ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

May 31, 2021

(Expressed in US dollars)

2.	Significant accounting policies (continued)

		For certain of the Company’s financial instruments, including accounts payable, due from related parties, notes and loans payable, the carrying amounts approximate their fair values due to the short maturities. The Company does not have any assets or liabilities measured at fair value on a recurring basis presented on the Company’s balance sheet as of May 31, 2021 and August 31, 2020 other than cash. Financial instruments that potentially subject the Company to a concentration of credit risk consist primarily of cash. The Company limits its exposure to credit loss by placing its cash with high credit quality financial institutions.

	p)	Leases

		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, Allied Colombia S.A.S. on February 18, 2020. 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.

	q)	Reclassification

		Certain reclassifications have been made to conform the prior period’s consolidated financial statements and notes to the current period’s presentation.

	r)	Recent accounting pronouncements

		The Company does not expect that recent accounting pronouncements or changes in accounting pronouncements during the nine months ended May 31, 2021, are of significance or potential significance to the Company.

Table of Contents

ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

May 31, 2021

(Expressed in US dollars)

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 62.12% 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.

4.	Inventory

	Inventory is comprised of the following items:

	May 31, 2021		August 31, 2020

Raw materials	$	27,175	$	52,585
Work-in-progress		161,664
Finished goods		110,540		-
Total inventory	$	299,379	$	52,585

5.	Deposits and advances

	May 31, 2021		August 31, 2020

a) Towards the purchase of prefabricated buildings	$	2,585,540	$	2,600,720
b) Refundable deposits towards future land acquisitions		-		174,030
c) Vitalis equipment deposit		233,496		233,496
d) Deposit towards a license acquisition		50,000		-
Other		99,480		-
Total deposits and advances	$	2,968,516	$	3,008,246

	a)	In 2019, the Company entered to a separate modular building purchase agreement to acquire and construct an 8,700 square foot facility to be used as a certified Cannabis Cultivation and extraction facility. At May 31, 2021, Company had deposits of $2,585,540 (August 31, 2020 - $2,600,720) to purchase prefabricated buildings. As of May 31, 2021, the Company had not yet received the buildings and the amounts have been recorded as deposits.

	b)	At May 31, 2021, the Company has entered into two purchase and sale agreements to acquire land as described in Note 15(a). At May 31, 2021, Company had deposits totaling $Nil (August 31, 2020 - $174,030).

	c)	At May 31, 2021 and August 31, 2020, the Company had paid $233,496 to purchase equipment as described in Note 15(b). At May 31, 2021, the Company had not yet received the equipment and the amount paid has been recorded as a deposit.

	d)	At May 31, 2021 and August 31, 2020, the Company had paid $50,000 to acquire a license through an asset purchase agreement as described in Note 21(a). At May 31, 2021, the asset purchase has not been closed and the amount paid has been recorded as a deposit.

Table of Contents

ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

May 31, 2021

(Expressed in US dollars)

6.	Property, plant and equipment

	At May 31, 2021, property, plant and equipment consisted of:

	Construction in process			Farm facility and equipment		Office and computer equipment			Land equipment			Total
Cost
August 31, 2020	$	136,114		$	79,956	$	3,161		$	6,000		$	225,231
Additions		10,374			11,087		7,766			-			29,227
Transfer		(141,775	)		141,775		-			-			-
Foreign exchange		1,447			3,781		(71	)		70			5,227
May 31, 2021	$	6,160		$	236,599	$	10,856		$	6,070		$	259,685

Accumulated depreciation
August 31, 2020	$	-		$	2,211	$	-		$	-		$	2,211
Additions		-			37,332		1,663			669			39,663
Foreign exchange		-			8,574		(23	)		(9	)		8,542
May 31, 2021	$	-		$	48,117	$	1,640		$	660		$	50,416

Net book value
August 31, 2020	$	136,114		$	77,745	$	3,161		$	6,000		$	223,020
May 31, 2021	$	6,160		$	188,482	$	9,216		$	5,410		$	209,269

	During the nine months ended May 31, 2021, the Company had amortization expense of $7,655 reclassified to inventory production costs.

7.	Intangible assets

	At May 31, 2021, intangible assets consisted of:

	Cost $		Foreign exchange $			Accumulated amortization $			Impairment $			May 31, 2021 Net carrying value $		August 31, 2020 Net carrying value $

Cannabis licenses		5,435,334		(477,255	)		(955,524	)		(1,113,972	)		2,888,583		3,300,000
		5,435,334		(477,255	)		(955,524	)		(1,113,972	)		2,888,583		3,300,000

On February 17, 2020, the Company acquired $5,435,334 of licenses as part of the acquisition of Medicolumbia. 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 $160,780 and $491,666 for the three and nine months ended May 31, 2021, respectively. During the nine months ended May 31, 2021, the Company had amortization of licenses of $39,802 reclassified to inventory production costs.

Leases

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which establishes a right-of-use (“ROU”) model that requires a lessee to record an ROU asset and a lease liability, measured on a discounted basis, on the balance sheet for all leases with terms longer than 12 months. The Company also elected to keep all leases with an initial term of 12 months or less off the balance sheet.

The Company did not have any leases until the acquisition of Allied Colombia during the year ended August 31, 2020. The acquisition resulted in the addition of $82,398 of operating lease assets and liabilities.

Table of Contents

ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

May 31, 2021

(Expressed in US dollars)

Leases (continued)

The Company entered into an agreement to lease the land described in Note 5(b) and 15(a) with a commencement date of June 1, 2020. The lease requires the Company to make monthly payments of $4,501 (CAD$5,870) per month. The lease is for a 10-year term, expiring on May 31, 2030, with one 10-year renewal option and an option for the Company to purchase the land for approximately $920,000 (CAD$1,200,000). Effective November 1, 2020, the Company terminated the lease. Pursuant to ASC 842-20 upon the termination of the lease, the Company derecognized the lease related asset and liability and included any consideration paid or received upon termination that was not already included in the lease payments in the gain or loss on termination of the lease. After recording the proceeds from the landlord and derecognizing the capitalized building costs as well as the right of use asset and liability, the Company recorded a loss of $65,565 on the termination of the lease.

ROU assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or the Company’s incremental borrowing rate. Lease liabilities are increased by interest and reduced by payments each period, and the ROU asset is amortized over the lease term. For operating leases, interest on the lease liability and the amortization of the ROU asset result in straight-line rent expense over the lease term. For finance leases, interest on the lease liability and the amortization of the ROU asset results in front-loaded expense over the lease term. ROU assets and liabilities are recognized at the commencement date of the lease based on the present value of lease payments over the lease term. At May 31, 2021, the Company did not have any finance leases.

At May 31, 2021, the weighted average remaining operating lease term was 8.84 years and the weighted average discount rate associated with operating leases was 15%.

The Components of lease expenses were as follows:

	$
Operating lease cost:
Amortization of right-of-use assets		5,480
Interest on lease liabilities		15,133

Total operating lease cost		20,613

The following table provides supplemental cash flow and other information related to leases for the nine months ended May 31, 2021:

		$
Lease payments			19,998

Supplemental balance sheet information related to leases as of May 31, 2021 are as below:

	$
Cost		387,573
Accumulated amortization		(10,560	)
Lease termination		(299,115	)
Foreign exchange		(6,603	)

Net carrying value at May 31, 2021		71,295

Table of Contents

ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

May 31, 2021

(Expressed in US dollars)

8.	Leases (continued)

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

	$

2021		3,650
2022		14,610
2023		14,610
2024		14,610
Thereafter		81,570

Total minimum lease payments		129,050

Less: amount of lease payments representing effects of discounting		(57,755	)

Present value of future minimum lease payments		71,295

Less: current obligations under leases		(4,196	)

Lease liabilities, net of current portion		67,099

9.	Loans payable

	a)	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 paid $71,023 at commencement date on May 29, 2020, and will make six monthly interest payments of $37,613 commencing June 20, 2020 and repay the principal of $1,253,772 on November 20, 2020. During the nine months ended May 31, 2021, the Company amended the loan agreement to extend the repayment due date to May 20, 2021. During the nine months ended May 31, 2021, the Company paid interest in the amount of $338,519.

	b)	On January 24, 2021, the Company entered into an acquisition agreement to acquire all common shares of PSF in consideration for the issuance of a promissory note of $85,500 and 200,000 the Company’s common shares with a fair value of $160,000 (Note 16). The note is non-interest bearing and is due 10 days after demand. During the nine months ended May 31, 2021, the Company paid $42,750 towards the promissory note, leaving a balance owing of $42,750.

	c)	On March 1, 2021, the Company entered into a $300,000 promissory note with simple interest of 10% per annum. The note matures on June 1, 2021. As additional compensation the Company issued 100,000 shares of SECFAC Exchange Corp. with a fair value of $90,000, which was treated as discount on the promissory note. During the nine months ended May 31, 2021, the accretion on the promissory note totaled $90,000.

10.

Convertible notes payable

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

Table of Contents

ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

May 31, 2021

(Expressed in US dollars)

10.

Convertible notes payable (continued)

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 February 28, 2021, 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 (“BCF”). The Company recognized the relative fair value of the BCF of $115,383 and an equivalent discount. The Company then recognized the relative fair value of the warrants of $108,100 as additional-paid-in capital and an equivalent discount that further reduced the carrying value of the convertible debt to $364,517. The beneficial conversion feature of $115,383, the original issue discount of $12,000 and the relative fair value of the warrants of $108,100 discounted the carrying value of the convertible debt on the date of issue. The discount is being expensed over the term of the loan to increase the carrying value to the face value of the loan using the effective interest rate method. On June 30, 2020, the Company repaid $200,000 of the $600,000 note which left $200,000 outstanding on each note.

First Modification:

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

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

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

Table of Contents

ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

May 31, 2021

(Expressed in US dollars)

10.

Convertible notes payable (continued)

	ii.	Second Modification:

		On November 1, 2020, the Company entered into amendments to the convertible notes. Pursuant to the amendments, the maturity date of the convertible notes was amended to due on demand on or before March 31, 2021. In consideration for extending the maturity date, the Company agreed to issue to the convertible note holders 100,000 common shares of the Company. Each note holder received 50,000 common shares. The Company evaluated the transaction under the guidance found in ASC 470-50 Modification and Extinguishment. The Company concluded that the Company is experiencing financial difficulty and that a concession was not granted. As the creditor has not granted a concession, the guidance contained in ASC 470-60 was applied. As present value of the cash flows under the new debt instrument differed by more than 10% from the present value of the remaining cash flows under the terms of the original debt instrument, it was determined that the debt was substantially different which resulted in extinguishment accounting. The extended convertible notes had a total carrying value of $400,000. As the common shares were issued as consideration for extending the convertible notes, the fair value of the common share of $110,000 were expensed under extinguishment accounting. The fair value of these costs were included in the calculation of the loss on extinguishment of $110,000.

	iii.	Third Modification:

		On March 31, 2021, the Company entered into amendments to the convertible notes. Pursuant to the amendments, beginning on April 1, 2021, the convertible notes bear simple interest at 10% per annum. Pursuant to the amendments, the maturity date of the convertible notes was amended to due on demand on or before September 30, 2021. In consideration for extending the maturity date, the Company agreed to issue to the convertible note holders 20,000 common shares of the Company. Each note holder received 10,000 common shares. The Company evaluated the transaction under the guidance found in ASC 470-50 Modification and Extinguishment. The Company concluded that the Company is experiencing financial difficulty and that a concession was not granted. As the creditor has not granted a concession, the guidance contained in ASC 470-60 was applied. As present value of the cash flows under the new debt instrument differed by more than 10% from the present value of the remaining cash flows under the terms of the original debt instrument, it was determined that the debt was substantially different which resulted in extinguishment accounting. The extended convertible notes had a total carrying value of $400,000. As the common shares were issued as consideration for extending the convertible notes, the fair value of the common share of $20,000 were expensed under extinguishment accounting. The fair value of these costs were included in the calculation of the loss on debt extinguishment of $20,000.

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

Table of Contents

ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

May 31, 2021

(Expressed in US dollars)

10.

Convertible notes (continued)

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, 2021, the conversion features and warrants do not meet derivative classification.

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

First Modification:

On March 31, 2021, the Company entered into an amendment to the convertible note. Pursuant to the amendment, beginning on April 1, 2021, the convertible note bears simple interest at 10% per annum. Pursuant to the amendment, the maturity date of the convertible note was amended to due on demand on or before September 30, 2021. In consideration for extending the maturity date, the Company agreed to issue to the convertible note holder 2,286 common shares of the Company.

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

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

Table of Contents

ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

May 31, 2021

(Expressed in US dollars)

10.

Convertible notes (continued)

		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, 2021, the conversion features and warrants do not meet derivative classification. The relative fair values of the convertible note and the warrants were $20,176 and $17,437 respectively. The effective conversion price was then determined to be $0.65. As the stock price at the issuance date was greater than the effective conversion price, it was determined that there was a beneficial conversion feature (“BCF”). The Company recognized the relative fair value of the BCF of $20,176 and an equivalent discount. The Company then recognized the relative fair value of the warrants of $17,437 as additional-paid-in capital and an equivalent discount that further reduced the carrying value of the convertible debt to $Nil. The discount is being expensed over the term of the loan to increase the carrying value to the face value of the loan using the effective interest rate method. As at May 31, 2021, the Company has recorded accrued interest of $2,236, which is included in accounts payable and accrued liabilities on the consolidated balance sheets.

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

		The Company 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, 2021, the conversion features and warrants do not meet derivative classification. The Note was subsequent extended on June 1, 2021 (Note 21).

Table of Contents

ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

May 31, 2021

(Expressed in US dollars)

10.

Convertible notes (continued)

		The relative fair values of the convertible note and the warrants were $48,258 and $37,679 respectively. The effective conversion price was then determined to be $0.70. As the stock price at the issuance date was greater than the effective conversion price, it was determined that there was a beneficial conversion feature (“BCF”). The Company recognized the relative fair value of the BCF of $48,258 and an equivalent discount. The Company then recognized the relative fair value of the warrants of $37,679 as additional-paid-in capital and an equivalent discount that further reduced the carrying value of the convertible debt to $Nil. The discount is being expensed over the term of the loan to increase the carrying value to the face value of the loan using the effective interest rate method. The Note was subsequent extended on June 1, 2021 (Note 21). As at May 31, 2021, the Company has recorded accrued interest of $4,732, which is included in accounts payable and accrued liabilities on the consolidated balance sheets.

	e)	On December 2, 2020, the Company issued a convertible note with a face value of $600,000 (the “Note”) and warrants to purchase 240,000 shares of the Company’s common stock at $1.25 per share for 2 years. The Note bears interest at 10% per annum. The Note is due on demand after November 27, 2021. The Note was convertible into shares of the Company’s common stock at any time prior to April 23, 2021 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, 2021, the conversion features and warrants do not meet derivative classification. The relative fair values of the convertible note and the warrants were $457,436 and $142,564 respectively. The effective conversion price was then determined to be $0.95. As the stock price at the issuance date was greater than the effective conversion price, it was determined that there was a beneficial conversion feature (“BCF”). The Company recognized the relative fair value of the BCF of $457,436 and an equivalent discount. The Company then recognized the relative fair value of the warrants of $22,564 as additional-paid-in capital and an equivalent discount that further reduced the carrying value of the convertible debt to $Nil. The discount is being expensed over the term of the loan to increase the carrying value to the face value of the loan using the effective interest rate method. As at May 31, 2021, the Company has recorded accrued interest of $29,589, which is included in accounts payable and accrued liabilities on the consolidated balance sheets.

Table of Contents

ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

May 31, 2021

(Expressed in US dollars)

10.

Convertible notes (continued)

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

		The Company 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, 2021, the conversion features do not meet derivative classification. As the stock price at the issuance date was less than the conversion price, it was determined that there was no beneficial conversion feature (“BCF”). As at May 31, 2021, the Company has recorded accrued interest of $11,836, which is included in accounts payable and accrued liabilities on the consolidated balance sheets.

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

		The Company 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, 2021, the conversion features and warrants do not meet derivative classification. The relative fair values of the convertible note and the warrants were $10,096 and $7,904 respectively. The effective conversion price was then determined to be $0.70. As the stock price at the issuance date was greater than the effective conversion price, it was determined that there was a beneficial conversion feature (“BCF”). The Company recognized the relative fair value of the BCF of $4,016 and an equivalent discount. The Company then recognized the relative fair value of the warrants of $7,904 as additional-paid-in capital and an equivalent discount that further reduced the carrying value of the convertible debt to $6,080. The discount is being expensed over the term of the loan to increase the carrying value to the face value of the loan using the effective interest rate method. As at May 31, 2021, the Company has recorded accrued interest of $325, which is included in accounts payable and accrued liabilities on the consolidated balance sheets.

Table of Contents

ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

May 31, 2021

(Expressed in US dollars)

10.

Convertible notes (continued)

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

		The 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, 2021, the conversion features and warrants do not meet derivative classification. The relative fair values of the convertible note and the warrants were $56,086 and $43,914 respectively. The effective conversion price was then determined to be $0.70. As the stock price at the issuance date was greater than the effective conversion price, it was determined that there was a beneficial conversion feature (“BCF”). The Company recognized the relative fair value of the BCF of $22,314 and an equivalent discount. The Company then recognized the relative fair value of the warrants of $43,914 as additional-paid-in capital and an equivalent discount that further reduced the carrying value of the convertible debt to $33,772. The discount is being expensed over the term of the loan to increase the carrying value to the face value of the loan using the effective interest rate method. As at May 31, 2021, the Company has recorded accrued interest of $1,808, which is included in accounts payable and accrued liabilities on the consolidated balance sheets.

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

		The 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, 2021, the conversion features and warrants do not meet derivative classification.

Table of Contents

ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

May 31, 2021

(Expressed in US dollars)

10.

Convertible notes (continued)

		The relative fair values of the convertible note and the warrants were $111,422 and $68,578 respectively. The effective conversion price was then determined to be $0.62. As the stock price at the issuance date was greater than the effective conversion price, it was determined that there was a beneficial conversion feature (“BCF”). The Company recognized the relative fair value of the BCF of $46,078 and an equivalent discount. The Company then recognized the relative fair value of the warrants of $68,578 as additional-paid-in capital and an equivalent discount that further reduced the carrying value of the convertible debt to $65,344. The discount is being expensed over the term of the loan to increase the carrying value to the face value of the loan using the effective interest rate method. As at May 31, 2021, the Company has recorded accrued interest of $1,578, which is included in accounts payable and accrued liabilities on the consolidated balance sheets.

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

		The 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, 2021, the conversion features and warrants do not meet derivative classification. The relative fair values of the convertible note and the warrants were $61,493 and $38,507 respectively. The effective conversion price was then determined to be $0.61. As the stock price at the issuance date was greater than the effective conversion price, it was determined that there was a beneficial conversion feature (“BCF”). The Company recognized the relative fair value of the BCF of $27,272 and an equivalent discount. The Company then recognized the relative fair value of the warrants of $38,507 as additional-paid-in capital and an equivalent discount that further reduced the carrying value of the convertible debt to $34,221. The discount is being expensed over the term of the loan to increase the carrying value to the face value of the loan using the effective interest rate method. As at May 31, 2021, the Company has recorded accrued interest of $849, which is included in accounts payable and accrued liabilities on the consolidated balance sheets.

11.

Equity

During the nine months ended May 31, 2020:

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.

On September 9, 2019, the Company returned 4,500,000 common shares to treasury and reserved for acquisition of Allied Colombia. On February 14, 2020, the 4,500,000 common shares were re-issued to the previous shareholders of Allied Colombia with a fair value of $4,500,000.

On December 1, 2019, the Company issued 130,000 common shares at $0.50 per share, for which gross cash proceeds of $265,000 had previously been received.

Table of Contents

ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

May 31, 2021

(Expressed in US dollars)

11.

Equity (continued)

During the nine months ended May 31, 2020 (continued):

On January 21, 2020, the Company issued 240,000 common shares at $1.25 per share for total net proceeds of $276,000 in cash.

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.

During the nine months ended May 31, 2021:

On September 21, 2020, the Company issued 80,000 shares of common stock at $1.25 per share for gross cash proceeds of $100,000.

On September 30, 2020, the Company issued 120,000 shares of common stock at $1.25 per share for gross cash proceeds of $150,000.

During the nine month ended May 31, 2021, the Company submitted for received 8,123,170 shares of common stock from previous management for no consideration, and the shares were returned to treasury.

During the nine-month period, the Company re-issued 750,000 shares of common stock with total fair value of $637,500 for consulting services, out of which, $265,625 was expensed as consulting fees and $371,875 was deferred compensation included in prepaid expenses on the consolidated interim balance sheet.

On March 1, 2021, the Company re-issued 100,000 common shares from treasury with fair value of $90,000 for the promissory note of $300,000 (Note 9).

On March 5, 2021, the Company re-issued 200,000 shares of common stock with fair value of $160,000 from treasury for acquisition of PSF (Note 16).

On March 17, 2021, the Company issued 500,000 shares of common stock at $0.50 per share for gross proceeds of $250,000.

On March 17, 2021, the Company issued 86,044 shares of common stock with a fair value of $70,164 to settle $87,483 of accounts payable, which resulted in a gain on settlement of debt of $17,319.

On March 22, 2021, the Company issued 25,000 shares of common stock with a fair value of $22,500 to settle $25,000 of accounts payable, which resulted in a gain on settlement of debt of $2,500.

On April 7, 2021, the Company issued 100,000 shares of common stock at $0.50 per share for gross proceeds of $50,000.

On April 20, 2021, the Company issued 250,000 shares of common stock at $0.50 per share for gross proceeds of $125,000.

On May 12, 2021, the Company issued 31,746 shares of common stock with a fair value of $31,746 to settle $31,746 of accounts payable, which resulted in a gain on settlement of debt of $nil.

On May 13, 2021, the Company received 1,200,000 shares of common stock from the counterparties of certain previous cancelled asset acquisitions for no consideration. The shares were cancelled upon being returned to treasury.

On May 14, 2021, the Company issued 200,000 shares of common stock at $0.50 per share for gross proceeds of $100,000.

On May 14, 2021, the Company issued 300,001 shares of common stock at $0.75 per share for gross proceeds of $225,000.

Table of Contents

ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

May 31, 2021

(Expressed in US dollars)

11.

Equity (continued)

On May 17, 2021, the Company issued 800 shares of common stock as a finder’s fee.

On May 27, 2021, the Company issued 136,000 shares of common stock with a fair value of $149,952 in connection with modifications of a convertible note payable (Note 10(a)).

At May 31, 2021, the Company had received $935,000 for the purchase of 1,246,666 common shares which were issued subsequent to May 31, 2021.

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 were as follows:

May 31,

2021

May 31,

2020

Consulting fees and benefits

300,234

437,341

	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. 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, 2021			August 31, 2020

CEO and Director	$	(59,541	)	$	(12,588	)
COO and Director		(48,092	)		(42,059	)
An entity controlled by the CFO		(22,005	)		(10,797	)
An entity controlled by a director		-			(5,142	)
	$	(129,638	)	$	(70,586	)

As of May 31, 2021, the Company advanced $11,498 to related parties for future expenses. As of May 31, 2021, the Company had $129,638 (August 31, 2020 - $70,586) payable to related parties for expenses incurred or expensed paid on behalf of the Company by the parties which has been presented in accounts payable and accrued liabilities.

Table of Contents

ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

May 31, 2021

(Expressed in US dollars)

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. Cash accounts are held with major banks in Canada. The Company has deposited its cash with a bank from which management believes the risk of loss is low.

	b)	Liquidity risk:

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

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

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

	e)	Foreign exchange risk: Foreign currency risk is limited to the portion of the Company’s business transactions denominated in currencies other than the Canadian dollar. The Company has not entered into any foreign currency contracts to mitigate risk, but manages the risk my minimizing the value of financial instruments denominated in foreign currency. The Company is exposed to foreign currency risk to the extent that the following monetary assets and liabilities are denominated in Canadian dollars:

	May 31, 2021
Balance in Canadian dollars:
Cash and cash equivalents	$	52,872
Accounts payable		(371,680	)
Net exposure		(318,808	)
Balance in US dollars:	$	(264,183	)

Table of Contents

ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

May 31, 2021

(Expressed in US dollars)

13.

Financial risk factors (continued)

A 10% change in the US dollar to the Canadian dollar exchange rate would impact the Company’s net loss by approximately $26,418 for the nine months ended May 31, 2021 (May 31, 2020 – $9,571).

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, 2021
Balance in Colombian Pesos dollars:
Cash and cash equivalents	$	1,060,753,113
Accounts payable		(2,714,014,056	)
Net exposure		(1,653,260,943	)
Balance in US dollars:	$	(418,982	)

A 10% change in the US dollar to the Colombian Peso exchange rate would impact the Company’s net loss by approximately $41,898 for the nine months ended May 31, 2021 (May 31, 2020 - $56,753).

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.


15.	Commitments

	a)	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 allows for “Cannabis Production Facilities” as a principal use. 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 year 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. On November 1, 2020, the lease agreement was terminated. 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. During the year ended August 31, 2020, this contract of purchase and sale for LOT 2 – 8999 Jim Bailey Road was assigned to another non-related party.

Table of Contents

ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

May 31, 2021

(Expressed in US dollars)

15.	Commitments (continued)

	b)	On August 30, 2019, the Company entered into sales agreement to purchase an extraction system to be use in future at its operation in Colombia. The equipment has a value of CAD$658,260. The terms of the agreement require the Company to pay the 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, 2021, the $233,496 (Note 5(c)) has been recorded as a deposit until the remaining purchase price is paid and the equipment is received.

	c)	As of May 31, 2021, the Company recorded a contingent liability of $536,727 for expenses in connection with Allied Colombia acquisition, which is included in the balance of accounts payable and accrued liabilities on the consolidated balance sheets.

Table of Contents

ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

May 31, 2021

(Expressed in US dollars)

16.	Acquisition
	On January 24, 2021, the Company entered into an acquisition agreement to acquire all common shares of Pacific Sun Fungi Inc. (“PSF”) in consideration for the issuance of a promissory note of $85,500 and 200,000 common shares of SECFAC Exchange Corp. with a fair value of $160,000. The primary business of PSF is the production and commercialization of organic, vegan and non-genetically modified psilocybin micro dosing products. The Company analyzed the acquisition under ASU 2017-01 and determined that PSF did not meet the definition of a business. Therefore, the transaction has been accounted for as an asset acquisition. The Company analyzed the gross assets acquired and determined that there were no identifiable assets acquired. As no assets were identified, the Company measured the acquisition at the cost of the consideration and impaired the value of the acquisition immediately, resulting in an impairment loss of $245,500 during the nine months ended May 31, 2021.

17.	Share purchase warrants
	The following table summarizes the continuity of share purchase warrants:

	Number of warrants			Weighted average exercise price $

Balance, August 31, 2020		560,000			1.25
Issued		867,513			1.07
Expired		(240,000	)		1.25
Balance, May 31, 2021		1,187,513			1.12

	As at May 31, 2021, the following share purchase warrants were outstanding:

Number of warrants		Exercise price $		Expiry date

	320,000		1.25	October 31 2021
	130,673		1.25	September 29, 2022
	30,090		1.25	October 16, 2022
	68,750		1.25	November 11, 2022
	240,000		1.25	November 27, 2022
	118,000		0.50	March 26, 2022
	180,000		1.00	April 29, 2022
	100,000		1.00	April 30, 2022

Table of Contents

ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

May 31, 2021

(Expressed in US dollars)

18.

Stock Options

On February 1, 2021, the Company granted 4,900,000 stock options to directors, officers and employees of the Company. The options expire five years after the grant date and 1,200,000 options are exercisable at $0.825 per share and 3,700,000 options are exercisable at $0.75 per share. The options vest one third on the grant date and one third on the first and second years after the grant date. The weighted average grant date fair value of stock options granted was $0.77 per share. During the nine months ended May 31, 2021, the Company recorded stock-based compensation of $1,810,598 on the consolidated statement of operations.

A summary of the Company’s stock option activity is as follow:

	Number of Options		Weighted Average Exercise Price $		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value $

Balance, August 31, 2020		–		–		–		–

Granted		4,900,000		0.77		4.93

Outstanding, May 31, 2021		4,900,000		0.77		4.68		2,110,100
Exercisable, May 31, 2021		1,633,333		0.77		4.68		703,367

The fair value of each option granted was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions:

	Nine Months Ended May 31, 2021			Nine Months Ended May 31, 2020

Expected dividend yield		0	%		-
Expected volatility		182	%		-
Expected life (in years)		5			-
Risk-free interest rate		0.42	%		-

At May 31, 2021, there was $1,720,354 of unrecognized compensation costs related to non-vested stock-based compensation arrangements granted under the Plan.

Table of Contents

ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

May 31, 2021

(Expressed in US dollars)

19.	Non-cash activities

	For the Nine Months Ended May 31, 2021		For the Nine Months Ended May 31, 2020
Non-cash activities:
Common stock issued pursuant to asset acquisitions		-		4,500,000
Debt settled with issuance of common shares		144,229		-
Beneficial conversion feature		276,008		129,533
Relative fair value of warrants issued with convertible note		434,594		117,533
Original debt discount against convertible notes		-		12,000
Net liabilities acquired in Medicolombias Acquisition		-		(301,328	)
Common stocks issued for consulting services		637,500		-
Common stocks issued for acquisition of PSF		160,000		-
Common shares issued for acquisition of promissory note		90,000		-
Relative fair value of shares issued on modification of convertible notes		130,000		-

20.	Segment disclosure The Company has two operating segments including:

	a) Allied Columbia SAS, a Columbian based company through which the Company intends to commence commercial production in Colombia. (Allied Colombia) b) Allied Corp. which consists of the rest of the Company’s operations. (Allied)
	Factors used to identify the Company’s reportable segments include the organizational structure of the Company and the financial information available for evaluation by the chief operating decision-maker in making decisions about how to allocate resources and assess performance. The Company’s operating segments have been broken out based on similar economic and other qualitative criteria. The Company operates the Allied reporting segment in one geographical area (Canada), and the Allied Colombia reporting segment in one geographical area (Colombia).

Table of Contents

ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

May 31, 2021

(Expressed in US dollars)

20.

Segment disclosure (continued)

Financial statement information by operating segment for the three months ended May 31, 2021 is presented below:

	Allied $			Allied Colombia $			Total $
Net loss		(2,392,227	)		(361,262	)		(2,753,489	)
Accretion		300,240			-			300,240
Depreciation and amortization		-			117,851			165,308
Total assets as of May 31, 2021		3,575,117			4,137,104			7,712,221

Financial statement information by operating segment for the nine months ended May 31, 2021 is presented below:

	Allied $			Medicolombia $			Total $
Net sales		5,260			-			5,206
Net loss		(5,447,999	)		(1,200,788	)		(6,648,787	)
Accretion		493,901			-			493,901
Depreciation and amortization		-			483,872			483,872

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

	Allied $			Medicolombia $			Total $
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 loss		(2,222,918	)		(485,742	)		(2,708,660	)
Accretion		169,248			5,540			174,788
Depreciation and amortization		-			297,865			297,865

Table of Contents

ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

May 31, 2021

(Expressed in US dollars)

20.

Segment disclosure (continued)

Geographic information for the nine months ended and as at May 31, 2021 is presented below:

	Revenues $		Total long-lived assets $

Canada		5,260		2,968,516
Colombia		-		3,169,147
Total		5,260		6,137,663

21.

Subsequent events

a. Subsequent to May 31, 2021, the Company entered into loan amendment agreements for the convertible notes issued on October 26, 2020 of $37,613 and on November 11, 2020 of $85,937. The amended term for the two convertible notes is from July 1, 2021 to November 30, 2021.

b. Subsequent to May 31, 2021, the Company received $37,500 for subscription to 50,000 units at $0.75 per unit. Each unit consists of one common share of the Company and one warrant to purchase the Company’s one common shares at $1.25 for a period of two years.

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 three and nine months ended May 31, 2020 and May 31, 2021.

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.

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 Corp. (“Allied” or the “Company”) is a Nevada corporation, based in Kelowna, British Columbia, Canada. Allied Corp. (“Allied”) is an international medical cannabis production company with a mission to address today’s medical issues by researching, creating and producing targeted cannabinoid health solutions. Allied Corp. uses what it considers to be an evidence-informed scientific approach to make this mission possible, through cutting-edge pharmaceutical research and development, innovative plant-based production and unique development of therapeutic products.

References in this periodic report on Form 10-Q to “Allied” or the “Company” may include references to the operations of our subsidiaries AM (Advanced Micro) Biosciences, Inc., Allied Colombia S.A.S., Tactical Relief, LLC, Allied US Products, LLC, and Pacific Sun Fungi Inc. Each of these corporations is a 100% wholly owned subsidiary of Allied and consequentially reports quarterly financials up to a consolidated quarterly submission.

Allied’s focus is on the development of medicinal cannabis and psilocybin products for patients with conditions potentially suitable for treatment therewith. Such conditions include anxiety, insomnia, anorexia, chronic pain, epilepsy, chemotherapy-induced nausea and vomiting, post-traumatic stress disorder (PTSD), Parkinson’s disease, Tourette syndrome, irritable bowel syndrome (IBS) and spasticity associated with multiple sclerosis (MS) and spinal cord injury (SCI)1.

Table of Contents

Allied’s objective is to be a company that controls its own international vertically integrated supply chain or CBD, cannabis, and psilocybin products in order to maximize cash flow and profit margins. Our management team believes that having control over our supply chain should enable us to provide a consistent, rolling-harvest supply to the global cannabis community.

Given the average cost of production in North America being approximately $1.00 to $2.00 per gram, we believe our anticipated cash cost of $0.05 per gram (non-GAAP) of cannabis production based on historical production of our operations and other companies growing raw flowers in Columbia afforded by our Colombian production and cultivation should provide us a competitive advantage.

In addition to what we consider our demonstrated ability to cultivate low-cost, high margin cannabis in Colombia primarily for use in proprietary cannabinoid drug and natural health products for international distribution, we have hemp derived CBD natural health products for sale in the United States, have received commercial approval for sale of medical cannabis being produced in Colombia for export to nations other than the United States, and have initiated human clinical phase I trial for our psilocybin-based pharma products ALID 11, ALID 12 and Psilonex™ which are protected under provisional patent and trademarks in the United States.

Effects of COVID-19

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

Critical Accounting Policies

Business Presentation

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

These interim unaudited financial statements have been prepared in accordance with US GAAP for interim financial information and with the instructions to Securities and Exchange Commission (“SEC”) Form 10-Q. They do not include all of the information and footnotes required by US GAAP for complete financial statements. Therefore, these interim financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto for the year ended August 31, 2020 included in the Company’s Annual Report on Form 10-K filed with the SEC.

The 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, 2021, and the results of its operations for the three and nine months ended May 31, 2021, and cash flows for the nine months ended May 31, 2021. The results of operations for the period ended May 31, 2021 are not necessarily indicative of the results to be expected for future quarters or the full year.

The significant accounting policies followed are:

a) Principles of consolidation

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

Table of Contents

b) Cash and cash equivalents

Cash is comprised of cash on hand, cash held in trust accounts and demand deposits. Cash equivalents are short-term, highly liquid investments with maturities within three months when acquired. The Company did not have any cash equivalents as of May 31, 2021 and August 31, 2020.

c) Property, plant and equipment

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

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

d) Inventory

Inventory is comprised of raw materials, work-in-progress and finished goods. Cost includes expenditures directly related to the manufacturing process as well as suitable portions of related production overheads, based on normal operating capacity.

Inventory costs include pre-harvest costs or cost of purchase for purchased inventory. Pre-harvest costs include labor and direct materials to grow cannabis, which includes water, electricity, nutrients, integrated pest management, growing supplies and allocated overhead.

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

e) Intangible assets

At May 31, 2021 and August 31, 2020, intangible assets include licenses which are being amortized over their estimated useful lives of 10 years. The Company’s licenses are amortized over their economic or legal life on a straight-line basis, whichever is shorter. The licenses have been amortized from the date of acquisition.

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

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

f) Long-lived assets

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

Table of Contents

g) Foreign currency translation and functional currency conversion

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

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

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

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

The Company assessed the functional currency for Allied Colombia, a wholly-owned subsidiary acquired by the Company on February 18, 2020 to be the Colombian peso.

The functional currency for Tactical Relief LLC, Allied U.S. Products LLC and Pacific Sun Fungi, Inc. is the U.S. dollar.

h) Share issuance costs

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

i) Research and development cost

Research and development costs are expensed as incurred.

j) Revenue recognition

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

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

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

For the nine months ended May 31, 2021, the Company generated sales of $9,502.

k) Net income (loss) per common share

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

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

Table of Contents

l) Income taxes

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

m) Related party transactions

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

n) Significant accounting estimates and judgments

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

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

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

o) Financial instruments

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

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.

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

Table of Contents

The Company does not have any assets or liabilities measured at fair value on a recurring basis presented on the Company’s balance sheet as of May 31, 2021 and August 31, 2020 other than cash.

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

p) Leases

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, Allied Colombia S.A.S. on February 18, 2020.

The Company determines if an arrangement contains a lease in whole or in part at the inception of the contract. Right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term while lease liabilities represent our obligation to make lease payments arising from the lease. All leases with terms greater than twelve months result in the recognition of a ROU asset and a liability at the lease commencement date based on the present value of the lease payments over the lease term. Unless a lease provides all of the information required to determine the implicit interest rate, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of the lease payments. The Company uses the implicit interest rate in the lease when readily determinable.

Our lease terms include all non-cancelable periods and may include options to extend (or to not terminate) the lease when it is reasonably certain that we will exercise that option. Leases with terms of twelve months or less at the commencement date are expensed on a straight-line basis over the lease term and do not result in the recognition of an asset or liability. See Note 7 – Leases.

q) Reclassification

Certain reclassifications have been made to conform the prior period’s consolidated financial statements and notes to the current period’s presentation.

r) Recent accounting pronouncements

The Company does not expect that recent accounting pronouncements or changes in accounting pronouncements during the nine months ended May 31, 2021, are of significance or potential significance to the Company.

Financial Condition and Results of Operations

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company incurred a net loss for the nine months ended May 31, 2021 of $6,648,787, has generated minimal revenue and as at May 31, 2021 has a working capital deficit of $3,256,017. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent upon the Company’s ability to raise sufficient financing to 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.

Table of Contents

Results of Operations

Comparison of Unaudited Results for the Three Months Ended May 31, 2021 compared to the Three Months Ended May 31, 2020

Sales and Revenue

For the three-month period ended May 31, 2021 we had no revenue. We had no revenue for the three-month period ended May 31, 2020.

We are just at the beginning of sales of our products which we expect to improve during the current fiscal year.

Operating Expenses

Operating expenses for the three-month period ended May 31, 2021 totaled $2,179,481. Operating expenses for the three-month period ended May 31, 2021 is related to $696,103 in stock-based compensation in connection with the development of our products, and also consisted of office and miscellaneous expense of $721,234, professional fees of $223,106 and interest expense of $153,942. Operating expenses for the three-month period ended May 31, 2020 totaled $1,083,853. The increase in operating expense during the quarter ended May 31, 2021 is principally the result of an increase in stock-based compensation of $696,103 which was necessary to develop our product lines and office and miscellaneous expense of $382,385.

Net Loss

As a result of the changes described above, net loss from operations after income taxes increased to $2,753,489 during the three months ended May 31, 2021 compared to $1,214,224 during the three-month period ended May 31, 2020.

Comparison of Unaudited Results for the Nine Months Ended May 31, 2021 compared to the Nine Months Ended May 31, 2020

Sales and Revenue

For the nine-month period ended May 31, 2021 we had $5,260 in revenue. We had no revenue for the nine-month period ended May 31, 2020. We are just at the beginning of sales of our products which we expect to improve during the current fiscal year.

Operating Expenses

Operating expenses for the nine-month period ended May 31, 2021 totaled $5,625,633. Operating expenses for the nine-month period ended May 31, 2021 is principally related to $2,076,223 in stock-based compensation in connection with the development of our products. Operating expense also consisted of office and miscellaneous expense of $1,035,806, production costs of $227,257, professional fees of $595,885 and interest expense of $412,370. Operating expenses for the nine-month period ended May 31, 2020 totaled $2,479,107. The increase in operating expense during the nine months ended May 31, 2021 is principally the result of an increase in office and miscellaneous expense to $346,490, production costs of $227,257 and decrease in professional fees of $29,280. The overall increase in operating expenses during the nine-month period ended May 31, 2021 is the result of acquisitions, a change of business and an increase in business activities.

Net Loss

As a result of the changes described above, net loss from operations after income taxes increased to $6,648,787 during the nine months ended May 31, 2021 compared to $2,708,660 during the nine-month period ended May 31, 2020.

Table of Contents

Liquidity and Capital Resources

The following table sets forth the major components of our statements and consolidated statements of cash flows for the periods presented.

	Year Ended August 31, 2020			Year Ended August 31, 2019			Nine Months Ended May 31, 2021
Cash used in operating activities	$	(3,160,802	)	$	(1,316,256	)	$	(3,094,232	)
Cash from financing activities	$	4,017,681		$	4,800,894		$	3,803,557
Cash from (used in) investing activities	$	(1,820,598	)	$	(2,345,551	)	$	(77,606	)
Effect of exchange rate change	$	(23,116	)	$	(58,205	)	$	96,820
Change in cash during the period	$	(986,835	)	$	1,080,882		$	728,539
Cash, beginning of period	$	1,080,882		$	-		$	94,047
Cash, end of period	$	94,047		$	1,080,882		$	822,586

As of May 31, 2021, the Company had $1,574,558 in current assets, consisting of $822,586 in cash, $299,379 in inventory, $4,487 in receivables, $11,498 in due from related parties and $436,608 in prepaid expenses. Other assets mainly include deposits and advances of $2,968,516 (principally related to our building to be located in Nevada), property plant and equipment of $209,269, right-of-use assets of $71,295 and intangible assets of $2,888,583. Our intangible assets are cannabis licenses.

To date, the Company has financed its operations through equity sales and through the sale of convertible notes. The Company has recently entered into an agreement with a broker-dealer to complete a public offering of shares.

Convertible Notes

On January 23, 2020, the Company issued two convertible notes with principal amounts of $400,000 and $200,000, respectively, with a total face value of $600,000 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 initially matured 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. On July 1, 2020, the Company entered into amendments to the convertible notes. Pursuant to the amendments, beginning on July 1, 2020, the convertible notes bear simple interest at 5% per annum. The maturity date of the convertible notes was amended to due on demand on or before October 31, 2020. In consideration for extending the maturity date, the Company issued to the convertible note holders 16,000 common shares of the Company and warrants to purchase additional 320,000 common shares of the Company at $1.25 per share expiring October 31, 2021. Each note holder received 8,000 common shares and 160,000 warrants. On November 1, 2020, the Company entered into further amendments to the convertible notes. Pursuant to the amendments, the maturity date of the convertible notes was amended to due on demand on or before March 31, 2021. In consideration for extending the maturity date, the Company agreed to issue to the convertible note holders 100,000 common shares of the Company. Each note holder will receive 50,000 common shares. Finally effective on March 31, 2021, the Company entered into further amendments to the convertible notes. Pursuant to the amendments, the maturity date of the convertible notes was amended to due on demand on or before September 30, 2022. In consideration for extending the maturity date, the Company agreed to issue to the convertible note holders 20,000 common shares of the Company.

On September 29, 2020, the Company issued a convertible note with a fair value of $163,341 and warrants to purchase 130,673 shares of the Company’s common stock at $1.25 per share for 2 years. The Note bears interest at 10% per annum. The Note is due on demand after March 27, 2021.The Note is convertible into shares of the Company’s common stock at any time at a conversion price of $1.25 per share. Effective April 1, 2021, the Company entered into an amendment to the convertible note. Pursuant to the amendment, the maturity date of the convertible notes was amended to due on demand on or before October 31, 2021. In consideration for extending the maturity date, the Company agreed to issue to the convertible note holders 8,268 common shares of the Company.

Table of Contents

On October 26, 2020, the Company issued a convertible note with a face value of $37,613 and warrants to purchase 30,090 shares of the Company’s common stock at $1.25 per share for 2 years. The Note bears interest at 10% per annum. The Note is due on demand after April 23, 2021.The Note is convertible into shares of the Company’s common stock at any time at a conversion price of $1.25 per share. Effective June 1, 2021, the Company entered into an amendment to the convertible note. Pursuant to the amendment, the maturity date of the convertible notes was amended to due on demand on or before November 30, 2021.

On November 11, 2020, the Company issued a convertible note with a face value of $85,937 and warrants to purchase 68,750 shares of the Company’s common stock at $1.25 per share for 2 years. The Note bears interest at 10% per annum. The Note is due on demand after May 9, 2021.The Note is convertible into shares of the Company’s common stock at any time at a conversion price of $1.25 per share. Effective June 1, 2021, the Company entered into an amendment to the convertible note. Pursuant to the amendment, the maturity date of the convertible notes was amended to due on demand on or before November 30, 2021.

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

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

$1.25 per share.

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

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

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

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

Table of Contents

Equity Transactions

On September 21, 2020, the Company issued 80,000 shares to an accredited investor who purchased such shares in a private placement at a purchase price of $1.25 per share for gross cash proceeds of $100,000.

On September 30, 2020, the Company issued 120,000 shares to two accredited investors who purchased such shares in a private placement at a purchase price of $1.25 per share for gross cash proceeds of $150,000.

During the nine month ended May 31, 2021, the Company received 8,123,170 shares of common stock from previous management for no consideration, and the shares were returned to treasury.

On February 15, 2021 the Company issued 66,146 shares to three accredited investors in consideration for foregiveness of debt of $66,146.

On February 25, 2021 the Company issued 100,000 shares to an accredited investor who purchased such shares in a private placement at a purchase price of $0.50 per share for gross cash proceeds of $50,000.

On March 1, 2021, the Company re-issued 100,000 common shares from treasury with fair value of $90,000 for the promissory note of $300,000.

On March 4, 2021 the Company issued 25,000 shares to an affiliate of the Company in consideration for foregiveness of debt of $25,000,

On March 5, 2021, the Company re-issued 200,000 shares of common stock with fair value of $160,000 from treasury for acquisition of Pacific Sun Fungi Inc.

On March 8, 2021 the Company issued 19,898 shares to an affiliate of the Company investor in consideration for forgiveness of debt of $19,898.

On March 17, 2021, the Company issued 500,000 shares of common stock at $0.50 per share for gross proceeds of $250,000.

On March 17, 2021, the Company issued 86,044 shares of common stock with a fair value of $70,164 to settle $87,483 of accounts payable, which resulted in a gain on settlement of debt of $17,319.

On March 22, 2021, the Company issued 25,000 shares of common stock with a fair value of $22,500 to settle $25,000 of accounts payable, which resulted in a gain on settlement of debt of $2,500.

On March 22, 2021 the Company issued 100,000 shares to an accredited investor who purchased such shares in a private placement at a purchase price of $0.50 per share for gross cash proceeds of $50,000.

On April 6, 2021 the Company issued 250,000 shares to an accredited investor who purchased such shares in a private placement at a purchase price of $0.50 per share for gross cash proceeds of $125,000.

On May 12, 2021, the Company issued 31,746 shares of common stock with a fair value of $31,746 to settle $31,746 of accounts payable, which resulted in a gain on settlement of debt of $nil.

On May 14, 2021, the Company issued 200,000 shares of common stock at $0.50 per share for gross proceeds of $100,000.

On May 14, 2021, the Company issued 300,000 shares of common stock at $0.75 per share for gross proceeds of $225,000.

On May 17, 2021, the Company issued 800 shares of common stock as a finder’s fee.

On May 17, 2021 the Company commenced a private placement pursuant to Rule 506(c) promulgated under Regulation D of the Securities Exchange Act of 1934, as amended. The private placement sought to raise $5,250,000 through the sale of Units at $0.75 per Unit, each consisting of one share of common stock and one warrant to purchase one share of common stock for two years at an exercise price of $1.25 per share. Boustead Securities LLC has acted as the exclusive Placement Agent for this offering on a best efforts basis. Boustead receives compensation in cash of 7 percent of the proceeds from such Offering, and also receives warrants to purchase common stock equal to 7 percent of the Units sold, exercisable for five years at $1.25 per share. As of May 31, 2021, the date of this Quarterly Report on Form 10-Q, the Company had not yet sold Units in this offering but has subsequently resulted in funding.

On May 27, 2021, the Company issued 136,000 shares of common stock with a fair value of $149,952 in connection with modifications of a convertible note payable.

At May 31, 2021, the Company had received $935,000 for the purchase of 1,246,666 common shares which were issued subsequent to May 31, 2021.

Table of Contents

Future Financing

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

Plan of Operations

As noted above, the continuation of our current plan of operations requires us to raise significant additional capital. If we are successful in raising capital through the sale of Common Shares offered for sale in our current private placement as well as a proposed public offering, we believe that we will have sufficient cash resources to fund our plan of operations through 2022. If we are unable to do so, we may have to curtail and possibly cease some operations. We intend to use the net proceeds from the offering for operating capacity in Colombia, Canada and the United States, regulatory compliance, intellectual property, working capital and general corporate purposes.

We continually evaluate our plan of operations to determine the manner in which we can most effectively utilize our limited cash resources. The timing of completion of any aspect of our plan of operations is highly dependent upon the availability of cash to implement that aspect of the plan and other factors beyond our control. There is no assurance that we will successfully obtain the required capital or revenues, or, if obtained, that the amounts will be sufficient to fund our ongoing operations.

Capital Expenditures

As of May 31, 2021 the company had purchased property plant and equipment of $209,269 and paid net cash of $2,968,516 in deposits for an asset acquisition. As of August 31, 2020, the Company purchased property plant and equipment of $223,020 and paid net cash of $3,008,246 in deposits and advances for an asset acquisition.

MediColombias Acquisition (Colombia Licensed Producer)

On August 29, 2019, the Company entered into a Share Purchase Agreement (“Purchase Agreement”) with Dorson Commercial Corp. (“Dorson”) as the sole owner of Baleno Ltd. to purchase all of the issued and outstanding shares of Baleno Ltd., the sole owner of Medicolombia Cannabis S.A.S. (“Medicolombia”). Medicolombia is based in Colombia with a full set of licenses and a lease agreement in place to 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. The Company closed and completed the acquisition on February 17, 2020. Medicolombia has subsequently changed its name to Allied Colombia S.A.S.

Natural Health Products Acquisition

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

Table of Contents

Xtreme Cubes Building

In June 2019, AM Biosciences signed the production and manufacturing contract to begin the manufacturing of a building for an extraction and production facility. This building will be a fully scalable, modular building. The Company made an upfront payment of $230,000 USD in June 2019, an additional payment of $903,385 in August 2019 and an additional payment of $92,000 in March 2020. At May 31, 2021, Company had deposits of $2,968,516 (August 31, 2020 - $2,600,720) to purchase prefabricated buildings. As of May 31, 2021, the Company had not yet received the building and the amounts have been recorded as deposits.

Pacific Sun Fungi Inc.

On March 5, 2021, the Company acquired all the issued and outstanding common shares of Pacific Sun Fungi Inc. for re-issuance of 200,000 common shares of the Company from treasury and a promissory note of $85,500.

Commitments and Contractual Obligations

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

Off-balance Sheet Arrangements

The Company has no off-balance sheet arrangements.

Going Concern

As reflected in the accompanying financial statements, the Company had an accumulated deficit of approximately $14,557,353 at May 31, 2021 and a net loss of $6,648,787 for the nine months ended May 31, 2021.

The Company does not yet have a history of financial stability. Historically, the principal source of liquidity has been the issuance of convertible notes and equity securities. In addition, the Company has generated 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.

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.

Table of Contents

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, 2021. 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, 2021, 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 period from August 31, 2020 through May 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Table of Contents

PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

We are not aware of any legal proceedings contemplated by any governmental authority or any other party involving us or our properties other than the following:

On or about April 30, 2020 the Company filed a complaint entitled ALLIED CORP., a Nevada corporation, Plaintiff, v. MALCOLM DAVIDSON, an individual, ANTHONY ZELEN, an individual, and DAVID WEINKAUF, an individual, Defendants, and TACTICAL RELIEF, LLC, a Delaware limited liability company, Nominal Party, filed in the Delaware Chancery Court as Case No. 2020-0321 – PAF (the “Delaware Action”).

On or about May 28, 2020 the Company filed that a complaint entitled ALLIED CORP., a Nevada corporation, and AM (ADVANCED MICRO) BIOSCIENCES, INC., an ALLIED CORP., a Nevada corporation, and AM (ADVANCED MICRO) BIOSCIENCES, INC., a British Columbian corporation, Plaintiffs, vs. MALCOLM DAVIDSON, an individual, ANTHONY ZELEN, an individual, and DAVID WEINKAUF, an individual, Defendants filed on May 28, 2020 in the District Court of Clark County Nevada as Case No. A-20-815610-B (The “Nevada Action”, and collectively with the Delaware action the “CLAIMS”).

On or about September 30, 2020 but effective September 21, 2020 the parties entered into three separate settlement agreements resolving the claims of both the Delaware Action and the Nevada Action.

In December 2018, the Company’s subsidiary AM Biociences had issued 5,000,000 shares of its common stock to both Mr. Zelen and Mr. Weinkauf as an investment at $0.0001cents. These were converted to 4,311,585 shares (the “SECFAC Shares”) of SECFAC Exchange Corp. (“SECFAC”) at the time of the acquisition of AM Biosciences by Allied Corp. Pursuant to the settlement agreements, Mr. Zelen and Mr. Weinkauf both returned 4,061,585 of the SECFAC Shares to be immediately returned to SECFAC’s treasury. As the SEFAC Shares were readily converted to common shares of the Company at 1:1 at the option of the holders, the return of the SECFAC Exchangeable Shares was treated as return of equivalent unit of common shares of the Company to treasury upon receipt of the SECFAC Exchangeable Shares during the nine months ended May 31, 2021.

Table of Contents

Further, in March 2019, Mr. Calum Hughes and each of Mr. Zelen and Mr. Weinkauf entered into an agreement for the sale of 6,250,000 shares of common stock of AM Biosciences to be sold to Mr. Zelen and Mr. Weinkauf from Mr. Calum Hughes for $0.0001cents each (the “Repudiated Shares”). These were issued back to Calum Hughes after the non-payment and issuance of a letter of acceptance of repudiation in April 2020. (the “Repudiation Letter”).As part of the settlement, each of Mr. Zelen and Mr. Weinkauf acknowledged and accepted the repudiation letter.

Pursuant to the settlement with Mr. Zelen, Allied agreed to pay through his counsel a total of USD$30,000 as a flat fee settlement cash portion, payable in three installments as follows: a. The first installment of $10,000.00 USD is to be paid on or before October 31, 2020, b. The second installment of $10,000 USD is to be paid on or before November 30, 2020; and c. The third installment of $10,000USD is to be paid on or before December 30, 2020. These payments have not been made as of the date of this report on Form 10-Q.

Pursuant to the settlement with Mr. Weinkauf, Allied agreed to pay through his counsel a total of USD$60,000 as a flat fee settlement cash portion, payable in three installments as follows: a. The first installment of $30,000.00 USD is to be paid on or before October 31, 2020, b. The second installment of $20,000 USD is to be paid on or before November 30, 2020; and c. The third installment of $10,000USD is to be paid on or before December 30, 2020. These payments have not been made as of the date of this report on Form 10-Q.

Pursuant to the original settlement with Mr. Davidson, Allied agreed to pay through his counsel a total of USD$15,000 as a flat fee settlement cash portion payable on or before October 31, 2020. This was paid during the period ending May 31, 2021.

In addition, each of the defendants agreed to certain confidentiality and non-solicitation covenants in addition to other terms.

Item 1A. Risk Factors.

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

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

On February 15, 2021 the Company issued 66,146 shares to three accredited investors in consideration for foregiveness of debt of $66,146.

On March 4, 2021 the Company issued 25,000 shares to an affiliate of the Company in consideration for foregiveness of debt of $25,000

On March 8, 2021 the Company issued 19,898 shares to an affiliate of the Company investor in consideration for foregiveness of debt of $19,898.

Table of Contents

On May 12, 2021, the Company issued 31,746 shares of common stock with a fair value of $31,746 to settle $31,746 of accounts payable, which resulted in a gain on settlement of debt of $nil.

On May 14, 2021, the Company issued 200,000 shares of common stock at $0.50 per share for gross proceeds of $100,000.

On May 14, 2021, the Company issued 300,000 shares of common stock at $0.75 per share for gross proceeds of $225,000.

On May 27, 2021, the Company issued 136,000 shares of common stock with a fair value of $149,952 in connection with modifications of a convertible note payable.

Item 3. Defaults Upon Senior Securities.

None

Item 4. Mine Safety Disclosures

None

Item 5. Other Information.

Not applicable

Item 6. Exhibits.

31.1		Rule 13(a)-14(a)/15(d)-14(a) Certification of Chief Executive Officer

31.2		Rule 13(a)-14(a)/15(d)-14(a) Certification of Chief Financial Officer

32.1		Section 1350 Certification of Chief Executive Officer

32.2		Section 1350 Certification of Chief Financial Officer

101		Interactive data files pursuant to Rule 405 of Regulation S-T.

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 20, 2021	By:	/s/ Calum Hughes
		Calum Hughes
		Chief Executive Officer and Director {Principal and Executive Officer}

Date: July 20, 2021	By:	/s/ Ryan Maarschalk
		Ryan Maarschalk
		Chief Financial Officer (Principal Financial Officer Principal Accounting Officer)

Allied Corp. - FORM 10-Q - July 20, 2021

Attached files

Allied Corp. Reports