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 November 30, 2023

 

Commission File Number 000-56002

 

ALLIED CORP.

(Exact name of registrant as specified in its charter)

 

Nevada

 

33-1227173

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

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

(Address of principal executive offices) (Zip Code)

 

877-255-4337

(Registrant’s telephone number, including area code)

 

_____________________________________________

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

 

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

 

Title of Each Class

 

Trading Symbol(s)

 

Name of each Exchange on which registered

N/A

 

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 November 30, 2023, there were 101,842,914 shares of common stock issued and outstanding.

 

 

 

 

TABLE OF CONTENTS

 

PART I—FINANCIAL INFORMATION

 

Item 1.

Financial Statements.

3

Item 2.

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

50

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

59

Item 4.

Controls and Procedures.

59

 

 

PART II—OTHER INFORMATION

 

 

 

Item 1.

Legal Proceedings.

60

Item 1A.

Risk Factors.

61

Item 2.

Unregistered Sales of Securities and Use of Proceeds.

61

Item 3.

Defaults Upon Senior Securities.

61

Item 4.

Mining Safety Disclosure.

61

Item 5.

Other Information.

61

Item 6.

Exhibits.

 

 

 
2

Table of Contents

 

ALLIED CORP.

 

CONSOLIDATED FINANCIAL STATEMENTS

 

Condensed consolidated interim balance sheets at November 30, 2023 (unaudited) and August 31, 2023

 

4

 

 

 

 

 

Condensed consolidated interim statements of operations and comprehensive loss for the three months ended November 30, 2023 and 2022 (unaudited)

 

5

 

 

 

 

 

Condensed consolidated interim statements of stockholders’ deficit for the three months ended November 30, 2023 and 2022 (unaudited)

 

6

 

  

 

 

 

Condensed consolidated interim statements of cash flows for the three months ended November 30, 2023 and 2022 (unaudited)

 

7

 

 

 

 

 

Notes to the unaudited condensed consolidated interim financial statements

 

8

 

 

 
3

Table of Contents

 

ALLIED CORP.

Condensed Consolidated Interim Balance Sheets

(Expressed in US Dollars)

 

 

 

 

November 30,

2023

 

 

August 31,

2023

 

 

 

 

 

 

 

 

 

 

(Unaudited)

 

 

 

 

Assets

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash

 

$39,594

 

 

$209,736

 

Inventory (Note 3)

 

 

246,014

 

 

 

107,510

 

Other receivables

 

 

154,931

 

 

 

134,482

 

Prepaid expenses

 

 

19,528

 

 

 

18,852

 

Total current assets

 

 

460,067

 

 

 

470,580

 

 

 

 

 

 

 

 

 

 

Deposits and advances (Note 4)

 

 

24,396

 

 

 

26,354

 

Right-of-use assets (Note 7)

 

 

108,894

 

 

 

109,301

 

Property, plant and equipment (Note 5)

 

 

1,376,728

 

 

 

1,417,192

 

Intangible assets (Note 6)

 

 

38,809

 

 

 

40,301

 

Total assets

 

$2,008,894

 

 

$2,063,728

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$2,465,731

 

 

$2,393,359

 

Due to related parties (Note 11)

 

 

812,212

 

 

 

693,292

 

Current portion of lease liabilities (Note 7)

 

 

11,376

 

 

 

10,745

 

Loans payable (Note 8)

 

 

2,145,271

 

 

 

2,027,348

 

Secured convertible notes payable (Note 9)

 

 

3,724,891

 

 

 

3,724,891

 

Total current liabilities

 

 

9,159,481

 

 

 

8,849,635

 

 

 

 

 

 

 

 

 

 

Lease liabilities, net of current portion (Note 7)

 

 

97,518

 

 

 

98,556

 

Total liabilities

 

$9,256,999

 

 

$8,948,191

 

 

 

 

 

 

 

 

 

 

Stockholders’ deficiency

 

 

 

 

 

 

 

 

Preferred stock – 50,000,000 shares authorized, $0.0001 par value Nil shares issued and outstanding

 

$-

 

 

$-

 

Common stock – 300,000,000 shares authorized, $0.0001 par value; 101,842,914 shares issued and outstanding (101,592,914 – par value $0.0001 – August 31, 2023)

 

 

10,185

 

 

 

10,160

 

Additional paid in capital

 

 

39,598,295

 

 

 

39,404,667

 

Common stock issuable

 

 

376,000

 

 

 

80,000

 

Accumulated deficit

 

 

(46,445,009)

 

 

(45,608,336)

Accumulated other comprehensive loss

 

 

(787,576)

 

 

(770,954)

 

 

 

 

 

 

 

 

 

Total stockholders’ deficit

 

 

(7,248,105)

 

 

(6,884,463)

Total liabilities and stockholders’ deficit

 

$2,008,894

 

 

$2,063,728

 

 

Nature of operations and going concern (Note 1)

Commitments (Note 14)

Subsequent events (Note 19)

 

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

 

 
4

Table of Contents

 

ALLIED CORP.

Condensed Consolidated Interim Statements of Operations and Comprehensive Loss

(Expressed in US dollars)

(Unaudited)

 

 

 

 

For the

Three Months

Ended

November 30,

2023

 

 

For the

Three Months

Ended

November 30,

2022

 

Revenues

 

 

 

 

 

 

Sales

 

$19,039

 

 

$69,625

 

Cost of sales (Note 3)

 

 

(2,003)

 

 

(25,958)

Gross margin

 

 

17,036

 

 

 

43,667

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

Amortization and depreciation

 

 

35,419

 

 

 

26,160

 

Consulting fees (Note 10 and 11)

 

 

441,487

 

 

 

846,657

 

Foreign exchange loss (gain)

 

 

(48,321)

 

 

(3,230)

Interest expense and bank charges

 

 

118,646

 

 

 

118,742

 

Office and miscellaneous 

 

 

150,975

 

 

 

70,006

 

Professional fees

 

 

60,789

 

 

 

177,190

 

Travel

 

 

1,847

 

 

 

7,441

 

Operating expenses

 

 

760,842

 

 

 

1,242,966

 

Loss before other items

 

 

(743,806)

 

 

(1,199,299)

Other income and expenses

 

 

 

 

 

 

 

 

Interest expense

 

 

(92,867)

 

 

(83,199)

Loss on debt extinguishment

 

 

-

 

 

 

(27,043)

Total other expenses

 

 

(92,867)

 

 

(110,242)

Net loss

 

 

(836,673)

 

 

(1,309,541)

 

 

 

 

 

 

 

 

 

Other comprehensive loss

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(16,622)

 

 

(154,000)

Comprehensive loss

 

$(853,295)

 

$(1,463,541)

 

 

 

 

 

 

 

 

 

Basic and diluted loss per share

 

$(0.01)

 

$(0.01)

 

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding

 

 

102,861,018

 

 

 

96,027,047

 

 

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

 

 
5

Table of Contents

 

ALLIED CORP.

Condensed Consolidated Interim Statements of Stockholders’ Deficit

(Expressed in US dollars)

(Unaudited)

 

 

 

 

Common stock

 

 

Additional

 

 

 

 

 

 

Accumulated

other

 

 

 

 

 

Number of

shares

 

 

Amount

 

 

paid in

capital

 

 

Stock

issuable

 

 

Accumulated deficit

 

 

comprehensive loss

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, August 31, 2022

 

 

93,967,594

 

 

$9,397

 

 

$33,999,090

 

 

$540,000

 

 

$(34,932,665)

 

$(898,219)

 

$(1,282,397)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares issued for cash

 

 

2,925,000

 

 

 

292

 

 

 

1,169,708

 

 

 

(540,000)

 

 

-

 

 

 

-

 

 

 

630,000

 

Share issuance costs

 

 

-

 

 

 

-

 

 

 

(12,792)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(12,792)

Shares issued to settle debts

 

 

145,560

 

 

 

15

 

 

 

86,557

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

86,572

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

545,171

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

545,171

 

Comprehensive loss for the year

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,309,541)

 

 

(154,000)

 

 

(1,463,541)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, November 30, 2022

 

 

97,038,154

 

 

 

9,704

 

 

 

35,787,734

 

 

 

-

 

 

 

(36,242,206)

 

 

(1,052,219)

 

 

(1,496,987)

 

 

 

Common stock

 

 

Additional

 

 

 

 

 

 

Accumulated

other

 

 

 

 

 

Number of

shares

 

 

Amount

 

 

paid in

capital

 

 

Stock

issuable

 

 

Accumulated deficit

 

 

comprehensive loss

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, August 31, 2023

 

 

101,592,914

 

 

$10,160

 

 

$39,404,667

 

 

$80,000

 

 

$(45,608,336)

 

$(770,954)

 

$(6,884,463)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares issued for cash

 

 

250,000

 

 

 

25

 

 

 

49,975

 

 

 

(50,000)

 

 

-

 

 

 

-

 

 

 

-

 

Shares subscribed

 

 

-

 

 

 

-

 

 

 

-

 

 

 

346,000

 

 

 

-

 

 

 

-

 

 

 

346,000

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

143,653

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

143,653

 

Comprehensive loss for the year

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(836,673)

 

 

(16,622)

 

 

(853,295)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, November 30, 2023

 

 

101,842,914

 

 

 

10,185

 

 

 

39,598,295

 

 

 

376,000

 

 

 

(46,445,009)

 

 

(787,576)

 

 

(7,248,105)

 

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

 

 
6

Table of Contents

 

ALLIED CORP.

Condensed Consolidated Interim Statements of Cash Flows

(Expressed in US dollars)

(Unaudited)

 

 

 

 

For the

Three Months

Ended

November 30,

2023

 

 

For the

Three Months

Ended

November 30,

2022

 

Cash provided by (used in):

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating activities

 

 

 

 

 

 

Net loss for the period

 

$(836,673)

 

$(1,309,541)

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

 

 

 

 

 

 

 

 

Accrued interest

 

 

210,790

 

 

 

201,122

 

Amortization and depreciation

 

 

35,419

 

 

 

26,160

 

Loss on debt extinguishment

 

 

-

 

 

 

27,043

 

Stock-based compensation - options

 

 

143,653

 

 

 

545,171

 

Changes in non-cash working capital balance:

 

 

 

 

 

 

 

 

(Increase) decrease in other receivables

 

 

(20,277)

 

 

7,369

 

(Increase) decrease in prepaid expenses

 

 

(676)

 

 

532

 

Decrease in deposits and advances

 

 

2,437

 

 

 

10,675

 

(Decrease) increase in accounts payable and accrued liabilities

 

 

(37,695)

 

 

142,028

 

Increase in due to related parties

 

 

118,920

 

 

 

15,368

 

Increase in inventory

 

 

(82,277)

 

 

(261,783)

 

 

 

(466,379)

 

 

(595,856)

Investing activities

 

 

 

 

 

 

 

 

Purchase of property, plant, and equipment

 

 

-

 

 

 

(66,210)

 

 

 

-

 

 

 

(66,210)

Financing activities

 

 

 

 

 

 

 

 

Proceeds of convertible notes payable

 

 

-

 

 

 

100,000

 

Proceeds from the issuance of common stock

 

 

-

 

 

 

617,208

 

Proceeds for subscriptions of stock issuable

 

 

346,000

 

 

 

-

 

 

 

 

346,000

 

 

 

717,208

 

 

 

 

 

 

 

 

 

 

(Decrease) increase in cash

 

 

(120,379)

 

 

55,142

 

Effect of exchange rate on changes of cash

 

 

(49,763)

 

 

(33,515)

Cash, beginning of period

 

 

209,736

 

 

 

96,043

 

Cash, end of period

 

$39,594

 

 

$117,670

 

 

 

 

 

 

 

 

 

 

Supplemental cash flow disclosures:

 

 

 

 

 

 

 

 

Income taxes paid

 

 

-

 

 

 

-

 

Interest paid

 

 

-

 

 

 

-

 

Non-cash activities: See Note 17

 

 

 

 

 

 

 

 

 

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

 

 
7

Table of Contents

 

ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

November 30, 2023

(Expressed in US dollars)

 

1.

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

 

a)

Nature of operations

 

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

 

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

 

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

 

On February 18, 2020, the Company acquired all the issued and outstanding share capital of a Colombian company, Allied Colombia S.A.S (“Allied Colombia”). The assets, liabilities and results of Allied Colombia are consolidated in these financial statements beginning from the February 18, 2020 acquisition date. As at November 30, 2023, Allied Colombia has a licensed cannabis farm in Colombia.

 

b)

Going concern

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company incurred a net loss for the three months ended November 30, 2023 of $836,673, has generated minimal revenue and as at November 30, 2023 has a working capital deficit of $8,699,414. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. The consolidated financial statements of the Company do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company’s ability to continue as a going concern is dependent upon the Company’s ability to raise sufficient financing to acquire or develop a profitable business. Management intends on financing its operations and future development activities largely from the sale of equity securities with some additional funding from other traditional financing sources, including related party loans until such time that funds provided by future planned operations are sufficient to fund working capital requirements.

 

c)

Business Risks

 

While some states in the United States have authorized the use and sale of cannabis, it remains illegal under federal law and the approach to enforcement of U.S. federal laws against cannabis is subject to change. The Company plans to engage in cannabis-related activities in the United States, only if and when cannabis operations are federally legalized.

 

 
8

Table of Contents

 

ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

November 30, 2023

(Expressed in US dollars)

 

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

 

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

 

2.

Significant accounting policies

 

Business Presentation

 

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

 

These interim unaudited financial statements have been prepared in accordance with US GAAP for interim financial information and with the instructions to Securities and Exchange Commission (“SEC”) Form 10-Q. They do not include all of the information and footnotes required by US GAAP for complete financial statements. Therefore, these interim financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto for the year ended August 31, 2023, included in the Company’s Annual Report on Form 10-K filed with the SEC.

 

The consolidated financial statements included herein are unaudited; however, they contain all normal recurring accruals and adjustments that, in the opinion of management, are necessary to present fairly the Company’s financial position at November 30, 2023, and the results of its operations for the three months ended November 30, 2023, and cash flows for the three months ended November 30, 2023. The results of operations for the period ended November 30, 2023 are not necessarily indicative of the results to be expected for future quarters or the full year.

 

The significant accounting policies followed are:

 

 

a)

Principles of consolidation

 

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

 

 
9

Table of Contents

 

ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

November 30, 2023

(Expressed in US dollars)

 

 

b)

Cash and cash equivalents

 

Cash is comprised of cash on hand, cash held in trust accounts and demand deposits. Cash equivalents are short-term, highly liquid investments with maturities within three months when acquired. The Company did not have any cash equivalents as of November 30, 2023 and August 31, 2023.

 

 

c)

Property, plant and equipment

 

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

 

Farm facility and equipment

 

1 - 10 years straight-line basis

Office and computer equipment

 

5 - 10 years straight-line basis

Land equipment

 

10 years straight-line basis

 

 

d)

Inventory

 

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

 

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

 

 

e) 

Intangible assets

 

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

 

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

 

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

 

 
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ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

November 30, 2023

(Expressed in US dollars)

 

 

f) 

Long-lived assets

 

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

 

 

g)

Foreign currency translation and functional currency conversion

 

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

 

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

 

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

 

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

 

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

 

 

h)

Share issuance costs

 

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

 

 

i) 

Research and development costs

 

Research and development costs are expensed as incurred. During the three months ended November 30, 2023, the Company incurred research and development costs of $nil (November 30, 2022 – $nil).

 

 
11

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ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

November 30, 2023

(Expressed in US dollars)

 

 

j)

Advertising costs

 

Advertising costs are expensed as incurred. During the three months ended November 30, 2023, the Company incurred advertising costs of $195 (November 30, 2022 – $3,026).

 

 

k)

Revenue recognition

 

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

 

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

 

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

 

 

l)

Net income (loss) per common share

 

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

 

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

 

 

m)

Income taxes

 

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

 

 

n)

Related party transactions

 

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

 

 
12

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ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

November 30, 2023

(Expressed in US dollars)

 

 

o)

Significant accounting estimates and judgments

 

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

 

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

 

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

 

 

p)

Financial instruments

 

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

 

Level 1

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

 

Level 2

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

 

Level 3

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

 

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

 

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

 

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 November 30, 2023 and August 31, 2023 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.

 

 
13

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ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

November 30, 2023

(Expressed in US dollars)

 

 

q) 

Leases

 

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

 

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

 

 

r)

Recent accounting pronouncements

 

In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”) to simplify accounting for certain financial instruments. ASU 2020-06 eliminates the current models that require separation of beneficial conversion and cash conversion features from convertible instruments and simplifies the derivative scope exception guidance pertaining to equity classification of contracts in an entity’s own equity. The new standard also introduces additional disclosures for convertible debt and freestanding instruments that are indexed to and settled in an entity’s own equity. ASU 2020-06 amends the diluted earnings per share guidance, including the requirement to use the if-converted method for all convertible instruments. ASU 2020-06 is effective for fiscal years beginning after December 15, 2023, and should be applied on a full or modified retrospective basis, with early adoption permitted beginning on January 1, 2021. The Company adopted ASU 2020-06 effective January 1, 2022. The adoption of ASU 2020-06 did not have an impact on the Company’s financial statements.

 

The Company does not expect that recent accounting pronouncements or changes in accounting pronouncements during the three months ended November 30, 2023, are of significance or potential significance to the Company.

 

3.

Inventory

 

Inventory is comprised of the following items:

 

 

 

November 30,

2023

 

 

August 31,

2023

 

 

 

 

 

 

 

 

Work in progress

 

$65,125

 

 

$80,094

 

Finished goods

 

 

180,889

 

 

 

27,416

 

Inventory in transit

 

 

-

 

 

 

 

 

Total inventory

 

$246,014

 

 

$107,510

 

 

 
14

Table of Contents

 

ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

November 30, 2023

(Expressed in US dollars)

 

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

 

During the three months ended November 30, 2023, the Company recorded a $nil write-off of inventory costs to its net realizable value of $246,014.

 

During the year ended August 31, 2023, the Company recorded a $43,861 write-off of inventory costs for CBD isolates and other derivative products to reduce to its net realizable value of $nil. In addition, the Company recorded additional $1,463,157 write-off of inventory costs to its net realizable value of $107,510.

 

4.

Deposits and advances

 

 

 

November 30,

2023

 

 

August 31,

2023

 

 

 

 

 

 

 

 

Prepayments for construction facility in Colombia

 

$24,396

 

 

$26,354

 

Total deposits and advances

 

$24,396

 

 

$26,354

 

 

The Company paid certain vendors for the construction of farm facilities in Colombia in advance. At November 30, 2023, the prepayments totaled $24,396 (August 31, 2023 – $26,354).

 

5.

Property, plant and equipment

 

At November 30, 2023, property, plant and equipment consisted of:

 

 

 

Construction in

process

 

 

Farm facility and equipment

 

 

Office and computer equipment

 

 

Land equipment

 

 

Total

 

Cost

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

August 31, 2023

 

$429,749

 

 

$1,346,373

 

 

$29,952

 

 

$29,525

 

 

$1,835,599

 

Foreign exchange

 

 

8,577

 

 

 

13,601

 

 

 

598

 

 

 

589

 

 

 

23,365

 

November 30, 2023

 

$438,326

 

 

$1,359,974

 

 

$30,550

 

 

$30,114

 

 

$1,858,964

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated depreciation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

August 31, 2023

 

$-

 

 

$404,559

 

 

$7,700

 

 

$6,148

 

 

$418,407

 

Additions

 

 

-

 

 

 

54,970

 

 

 

973

 

 

 

733

 

 

 

56,676

 

Foreign exchange

 

 

-

 

 

 

6,844

 

 

 

172

 

 

 

137

 

 

 

7,153

 

November 30, 2023

 

$-

 

 

$466,373

 

 

$8,845

 

 

$7,018

 

 

$482,236

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net book value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

August 31, 2023

 

$429,749

 

 

$941,814

 

 

$22,252

 

 

$23,377

 

 

$1,417,192

 

November 30, 2023

 

$438,326

 

 

$893,601

 

 

$21,705

 

 

$23,096

 

 

$1,376,728

 

 

As of November 30, 2023 and August 31, 2023, the construction in process has not been in use.

 

 
15

Table of Contents

 

ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

November 30, 2023

(Expressed in US dollars)

 

6.

Intangible assets

 

At November 30, 2023, intangible assets consisted of:

 

 

 

Cost

$

 

 

Foreign exchange

$

 

 

Accumulated amortization

$

 

 

Accumulated impairment

$

 

 

November 30, 2023

Net carrying value

$

 

 

August 31, 2023

Net carrying value

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cannabis licenses

 

 

5,451,409

 

 

 

(468,965)

 

 

(1,141,968)

 

 

(3,801,667)

 

 

38,809

 

 

 

40,301

 

 

 

 

5,451,409

 

 

 

(468,965)

 

 

(1,141,968)

 

 

(3,801,667)

 

 

38,809

 

 

 

40,301

 

 

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

 

Management acquired the licenses with a plan to operate in Colombia and believed the amounts paid for the licenses would be recovered from future operations. The Company has only recently started its operations in Colombia and has limited history on which to base future outcomes from operations including cash flows. Cannabis and hemp are considered to be an emerging industry and Colombia does not yet have a sufficiently established observable legal market in which the Company could sell its Cannabis or hemp flower and CBD or THC extracts. Laws and regulations in Colombia are evolving and there is uncertainty in what will be legally permissible in a future market and what prices and demand there would be in Colombia for the Company’s products. At the present, the Company’s export activities are regulated and restricted by Colombian law and it is uncertain whether future changes in law would favorably impact the Company’s operations. Due to the uncertainty in the timing and amount of future cash flows from operations the Company has written down its licenses to the estimated recoverable amount. During the year ended August 31, 2021, the Company recorded impairment of intangible assets in the amount of $2,687,695.

 

During the three months ended November 30, 2023, the Company recorded amortization of $1,437 (COP 6,523,994) (November 30, 2022 - $2,951 (COP 13,860,163)).

 

7.

Leases

 

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

 

The Company did not have any leases until the acquisition of Allied Colombia during the year ended August 31, 2020. The acquisition resulted in the addition of $82,398 of operating lease assets and liabilities. During the year ended August 31, 2021, the Company re-measured its lease liabilities under this lease as the criteria was met for additional monthly payment when the Company started production as outlined in the lease agreement, resulting in additional lease liabilities of $70,705.

 

On August 10, 2021, the Company entered into another lease for additional land in Colombia with monthly payment of $2,647 (COP9,970,675) for 12.5 hectares which is intended for use of outdoor cultivation, resulting in additional lease liabilities of $104,902. The lease is for 5 years, and expires in July 2026. Management has assessed the lease as an operating lease. Effective August 31, 2023, 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.

 

 
16

Table of Contents

 

ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

November 30, 2023

(Expressed in US dollars)

 

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 November 30, 2023, the Company did not have any finance leases.

 

At November 30, 2023, the weighted average remaining operating lease term was 6 years and the weighted average discount rate associated with operating leases was 15%.

 

The components of lease expenses were as follows:

 

Operating lease cost:

 

$

 

Amortization of right-of-use assets

 

 

4,070

 

Interest on lease liabilities

 

 

2,540

 

 

 

 

 

 

Total operating lease cost

 

 

6,610

 

 

The following table provides supplemental cash flow and other information related to leases for the three months ended November 30, 2023:

 

 

 

$

 

Lease payments

 

 

6,610

 

 

Supplemental balance sheet information related to leases as of November 30, 2023 are as below:

 

 

 

$

 

Cost

 

 

159,870

 

Accumulated amortization

 

 

(27,092)

Foreign exchange

 

 

(23,884)

 

 

 

 

 

Net carrying value at November 30, 2023

 

 

108,894

 

 

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

 

 

 

$

 

2024

 

 

20,212

 

2025

 

 

26,949

 

2026

 

 

26,949

 

2027

 

 

26,949

 

2028

 

 

26,949

 

2029

 

 

26,949

 

2030

 

 

13,473

 

 

 

 

 

 

Total minimum lease payments

 

 

168,430

 

 

 

 

 

 

Less: amount of lease payments representing effects of discounting

 

 

(59,536)

 

 

 

 

 

Present value of future minimum lease payments

 

 

108,894

 

 

 

 

 

 

Less: current obligations under leases

 

 

(11,376)

 

 

 

 

 

Lease liabilities, net of current portion

 

 

97,518

 

 

17

Table of Contents

 

ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

November 30, 2023

(Expressed in US dollars)

 

8.

Loans payable

 

a)

In June 2020, the Company entered into a financing agreement to finance the buildings described in Note 4(a). Pursuant to the agreement, the Company financed $1,253,772 of the purchase price. The Company paid $71,023 at commencement date on May 29, 2020 and would make six monthly interest payments of $37,613 commencing June 20, 2020 and repay the principal of $1,253,772 on November 20, 2020. The loan was extended after the initial maturity date. On December 27, 2021, the Company entered into an amendment agreement. Pursuant to the amendment, the Company will make 27 monthly payments starting on January 20, 2022. For the first 3 months, the Company will make monthly payments of $37,613. For the remaining 24 months, the Company will make monthly payments of $66,288. If the first 6 monthly payments are made on time, the Company may prepay the unamortized loan balance with a 2% penalty of the remaining balance. During the three months ended November 30, 2023, the Company paid interest in the amount of $nil (2022 - $nil). As of November 30, 2023, the Company has missed 17 monthly payments and the balance owing is $1,855,488 (August 31, 2023 - $1,742,648).

 

 

b)

On December 17, 2021, the Company entered into a financing agreement to finance an equipment purchase. On March 31, 2022, the agreement was amended to remove shipping charges. Pursuant to the amended agreement, the Company financed $295,543 of the purchase price with an interest rate of 8% per annum. The Company will make 21 monthly principal and interest payments of $15,000 and a final payment of $633 in September 2023. During the three months ended November 30, 2023, the Company paid interest in the amount of $nil (2022 - $nil). As of November 30, 2023, the Company has missed 21 monthly payments and the balance owing is $289,783 (August 31, 2023 - $284,700).

  

9.

Secured convertible notes payable

  

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

 

a)

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

  

The Company determined that there was no derivative liability associated with the Notes or warrants under ASC 815-15, Derivatives and Hedging. Per ASC 815-10-15-74(a), contracts that are both indexed to its own stock and classified in stockholders’ equity in its statement of financial position are not considered to be derivative instruments. The conversion features are indexed to the Company’s own stock and are classified in stockholders’ equity in the Company’s statement of financial position. As the conversion features would meet the scope exception as described in paragraphs ASC 815-15-74(a), the conversion features are not required to be separated from the host instrument and accounted for separately. As a result, at November 30, 2023, the conversion features and warrants do not meet derivative classification.

 

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

 

 
18

Table of Contents

 

ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

November 30, 2023

(Expressed in US dollars)

 

 

i.

First Modification:

  

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

 

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

 

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

 

 

ii.

Second Modification:

  

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

 

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

 

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

 

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

 

 
19

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ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

November 30, 2023

(Expressed in US dollars)

 

 

iv.

Fourth Modification:

  

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

 

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

 

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

 

 

v.

Fifth Modification:

  

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

 

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

 

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

 

As at November 30, 2023, the Company has recorded accrued interest of $107,179 (August 31, 2023 - $97,205), which is included in accounts payable and accrued liabilities on the consolidated balance sheets.

 

As of November 30, 2023, the outstanding principal owing is $400,000 (August 31, 2023 - $400,000).

 

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

 

 
20

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ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

November 30, 2023

(Expressed in US dollars)

 

b)

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

  

The Company determined that there was no derivative liability associated with the Note or warrants under ASC 815-15, Derivatives and Hedging. Per ASC 815-10-15-74(a), contracts that are both indexed to its own stock and classified in stockholders’ equity in its statement of financial position are not considered to be derivative instruments. The conversion feature is indexed to the Company’s own stock and is classified in stockholders’ equity in the Company’s statement of financial position. As the conversion feature would meet the scope exception as described in paragraphs ASC 815-15-74(a), the conversion feature is not required to be separated from the host instrument and accounted for separately. As a result, at November 30, 2023, the conversion feature and warrants do not meet derivative classification.

 

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

 

 

i.

First Modification:

  

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

 

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

 

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

 

 

ii.

Second Modification:

  

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

 

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

 

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

 

 
21

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ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

November 30, 2023

(Expressed in US dollars)

 

 

iii.

Third Modification:

  

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

 

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

 

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

 

 

iv.

Fourth Modification:

  

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

 

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

 

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

 

As at November 30, 2023, the Company has recorded accrued interest of $35,119 (August 31, 2023 - $33,540), which is included in accounts payable and accrued liabilities on the consolidated balance sheets.

 

As of November 30, 2023, the outstanding principal owing is $63,341 (August 31, 2023 - $63,341).

 

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

 

 
22

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ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

November 30, 2023

(Expressed in US dollars)

 

c)

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

  

The Company determined that there was no derivative liability associated with the Note or warrants under ASC 815-15, Derivatives and Hedging. Per ASC 815-10-15-74(a), contracts that are both indexed to its own stock and classified in stockholders’ equity in its statement of financial position are not considered to be derivative instruments. The conversion feature is indexed to the Company’s own stock and is classified in stockholders’ equity in the Company’s statement of financial position. As the conversion feature would meet the scope exception as described in paragraphs ASC 815-15-74(a), the conversion feature is not required to be separated from the host instrument and accounted for separately. As a result, at November 30, 2023, the conversion feature and warrants do not meet derivative classification.

 

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

 

 

i.

First Modification:

  

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

 

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

 

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

 

 

ii.

Second Modification:

  

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

 

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

 

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

 

 
23

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ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

November 30, 2023

(Expressed in US dollars)

 

 

iii.

Third Modification:

  

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

 

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

 

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

 

As at November 30, 2023, the Company has recorded accrued interest of $11,644 (August 31, 2023 - $10,706), which is included in accounts payable and accrued liabilities on the consolidated balance sheets.

 

As of November 30, 2023, the outstanding principal owing is $37,613 (August 31, 2023 - $37,613).

 

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

 

d)

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

  

The Company determined that there was no derivative liability associated with the Note or warrants under ASC 815-15, Derivatives and Hedging. Per ASC 815-10-15-74(a), contracts that are both indexed to its own stock and classified in stockholders’ equity in its statement of financial position are not considered to be derivative instruments. The conversion feature is indexed to the Company’s own stock and is classified in stockholders’ equity in the Company’s statement of financial position. As the conversion feature would meet the scope exception as described in paragraphs ASC 815-15-74(a), the conversion feature is not required to be separated from the host instrument and accounted for separately. As a result, at November 30, 2023, the conversion feature and warrants do not meet derivative classification.

 

 
24

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ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

November 30, 2023

(Expressed in US dollars)

 

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

 

 

i.

First Modification:

  

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

 

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

 

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

 

 

ii.

Second Modification:

  

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

 

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

 

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

 

 
25

Table of Contents

 

ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

November 30, 2023

(Expressed in US dollars)

 

 

iii.

Third Modification:

  

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

 

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

 

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

 

As at November 30, 2023, the Company has recorded accrued interest of $26,229 (August 31, 2023 - $24,087), which is included in accounts payable and accrued liabilities on the consolidated balance sheets.

 

As of November 30, 2023, the outstanding principal owing is $85,937 (August 31, 2023 - $85,937).

 

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

 

e)

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

  

The Company determined that there was no derivative liability associated with the Note or warrants under ASC 815-15, Derivatives and Hedging. Per ASC 815-10-15-74(a), contracts that are both indexed to its own stock and classified in stockholders’ equity in its statement of financial position are not considered to be derivative instruments. The conversion feature is indexed to the Company’s own stock and is classified in stockholders’ equity in the Company’s statement of financial position. As the conversion feature would meet the scope exception as described in paragraphs ASC 815-15-74(a), the conversion feature is not required to be separated from the host instrument and accounted for separately. As a result, at November 30, 2023, the conversion feature and warrants do not meet derivative classification.

 

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

 

 

i.

First Modification:

  

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

 

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

 

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

 

 
26

Table of Contents

 

ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

November 30, 2023

(Expressed in US dollars)

 

 

ii.

Second Modification:

  

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

 

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

 

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

 

As at November 30, 2023, the Company has recorded accrued interest of $179,671 (August 31, 2023 - $164,712), which is included in accounts payable and accrued liabilities on the consolidated balance sheets.

 

As of November 30, 2023, the outstanding principal owing is $600,000 (August 31, 2023 - $600,000).

 

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

 

f)

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

  

The Company determined that there was no derivative liability associated with the Note under ASC 815-15, Derivatives and Hedging. Per ASC 815-10-15-74(a), contracts that are both indexed to its own stock and classified in stockholders’ equity in its statement of financial position are not considered to be derivative instruments. The conversion feature is indexed to the Company’s own stock and is classified in stockholders’ equity in the Company’s statement of financial position. As the conversion feature would meet the scope exception as described in paragraphs ASC 815-15-74(a), the conversion feature is not required to be separated from the host instrument and accounted for separately. As a result, at November 30, 2023, the conversion feature does not meet derivative classification. In addition, it was determined that there was no beneficial conversion feature (“BCF”) as the stock price at the issuance date was less than the conversion price.

 

 
27

Table of Contents

 

ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

November 30, 2023

(Expressed in US dollars)

 

 

i.

First Modification:

  

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

 

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

 

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

 

 

ii.

Second Modification:

  

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

 

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

 

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

 

As at November 30, 2023, the Company has recorded accrued interest of $60,000 (August 31, 2023 - $52,521), which is included in accounts payable and accrued liabilities on the consolidated balance sheets.

 

As of November 30, 2023, the outstanding principal owing is $300,000 (August 31, 2023 - $300,000).

 

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

 

g)

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

  

 
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ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

November 30, 2023

(Expressed in US dollars)

 

The Company determined that there was no derivative liability associated with the Note or warrants under ASC 815-15, Derivatives and Hedging. Per ASC 815-10-15-74(a), contracts that are both indexed to its own stock and classified in stockholders’ equity in its statement of financial position are not considered to be derivative instruments. The conversion feature is indexed to the Company’s own stock and is classified in stockholders’ equity in the Company’s statement of financial position. As the conversion feature would meet the scope exception as described in paragraphs ASC 815-15-74(a), the conversion feature is not required to be separated from the host instrument and accounted for separately. As a result, at November 30, 2023, the conversion feature and warrants do not meet derivative classification.

 

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

 

 

i.

First Modification:

  

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

 

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

 

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

 

 

ii.

Second Modification:

  

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

 

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

 

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

 

 
29

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ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

November 30, 2023

(Expressed in US dollars)

 

As at November 30, 2023, the Company has recorded accrued interest of $4,828 (August 31, 2023 - $4,379), which is included in accounts payable and accrued liabilities on the consolidated balance sheets.

 

As of November 30, 2023, the outstanding principal owing is $18,000 (August 31, 2023 - $18,000).

 

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

 

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 determined that there was no derivative liability associated with the Note or warrants under ASC 815-15, Derivatives and Hedging. Per ASC 815-10-15-74(a), contracts that are both indexed to its own stock and classified in stockholders’ equity in its statement of financial position are not considered to be derivative instruments. The conversion feature is indexed to the Company’s own stock and is classified in stockholders’ equity in the Company’s statement of financial position. As the conversion feature would meet the scope exception as described in paragraphs ASC 815-15-74(a), the conversion feature is not required to be separated from the host instrument and accounted for separately. As a result, at November 30, 2023, the conversion feature and warrants do not meet derivative classification.

 

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

 

 

i.

First Modification:

  

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

 

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

 

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

 

 
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ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

November 30, 2023

(Expressed in US dollars)

 

 

ii.

Second Modification:

  

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

 

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

 

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

 

As at November 30, 2023, the Company has recorded accrued interest of $26,767 (August 31, 2023 - $24,274), which is included in accounts payable and accrued liabilities on the consolidated balance sheets.

 

As of November 30, 2023, the outstanding principal owing is $100,000 (August 31, 2023 - $100,000).

 

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

 

i)

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

  

The Company determined that there was no derivative liability associated with the Note or warrants under ASC 815-15, Derivatives and Hedging. Per ASC 815-10-15-74(a), contracts that are both indexed to its own stock and classified in stockholders’ equity in its statement of financial position are not considered to be derivative instruments. The conversion feature is indexed to the Company’s own stock and is classified in stockholders’ equity in the Company’s statement of financial position. As the conversion feature would meet the scope exception as described in paragraphs ASC 815-15-74(a), the conversion feature is not required to be separated from the host instrument and accounted for separately. As a result, at November 30, 2023, the conversion feature and warrants do not meet derivative classification.

 

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

 

 
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ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

November 30, 2023

(Expressed in US dollars)

 

 

i.

First Modification:

  

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

 

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

 

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

 

 

ii.

Second Modification:

  

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

 

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

 

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

 

As at November 30, 2023, the Company has recorded accrued interest of $25,863 (August 31, 2023 - $23,370), which is included in accounts payable and accrued liabilities on the consolidated balance sheets.

 

As of November 30, 2023, the outstanding principal owing is $100,000 (August 31, 2023 - $100,000).

 

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

 

j)

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

  

 
32

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ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

November 30, 2023

(Expressed in US dollars)

 

The Company determined that there was no derivative liability associated with the Note or warrants under ASC 815-15, Derivatives and Hedging. Per ASC 815-10-15-74(a), contracts that are both indexed to its own stock and classified in stockholders’ equity in its statement of financial position are not considered to be derivative instruments. The conversion feature is indexed to the Company’s own stock and is classified in stockholders’ equity in the Company’s statement of financial position. As the conversion feature would meet the scope exception as described in paragraphs ASC 815-15-74(a), the conversion feature is not required to be separated from the host instrument and accounted for separately. As a result, at November 30, 2023, the conversion feature and warrants do not meet derivative classification.

 

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

 

 

i.

First Modification:

  

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

 

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

 

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

 

 

ii.

Second Modification:

  

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

 

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

 

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

 

 
33

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ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

November 30, 2023

(Expressed in US dollars)

 

As at November 30, 2023, the Company has recorded accrued interest of $46,504 (August 31, 2023 - $42,016), which is included in accounts payable and accrued liabilities on the consolidated balance sheets.

 

As of November 30, 2023, the outstanding principal owing is $180,000 (August 31, 2023 - $180,000).

 

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

 

k)

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

  

The Company determined that there was no derivative liability associated with the Note under ASC 815-15, Derivatives and Hedging. Per ASC 815-10-15-74(a), contracts that are both indexed to its own stock and classified in stockholders’ equity in its statement of financial position are not considered to be derivative instruments. The conversion feature is indexed to the Company’s own stock and is classified in stockholders’ equity in the Company’s statement of financial position. As the conversion features would meet the scope exception as described in paragraphs ASC 815-15-74(a), the conversion features are not required to be separated from the host instrument and accounted for separately. As a result, at November 30, 2023, the conversion feature does not meet derivative classification. In addition, it was determined that there was no beneficial conversion feature (“BCF”) as the stock price at the issuance date was less than the conversion price.

 

 

i.

First Modification:

  

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

 

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

 

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

 

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

 

 
34

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ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

November 30, 2023

(Expressed in US dollars)

 

 

ii.

Second Modification:

  

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

 

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

 

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

 

As at November 30, 2023, the Company has recorded accrued interest of $8,208 (August 31, 2023 - $7,336), which is included in accounts payable and accrued liabilities on the consolidated balance sheets.

 

As of November 30, 2023, the outstanding principal owing is $35,000 (August 31, 2023 - $35,000).

 

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

 

l)

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

  

The Company determined that there was no derivative liability associated with the Note under ASC 815-15, Derivatives and Hedging. Per ASC 815-10-15-74(a), contracts that are both indexed to its own stock and classified in stockholders’ equity in its statement of financial position are not considered to be derivative instruments. The conversion feature is indexed to the Company’s own stock and is classified in stockholders’ equity in the Company’s statement of financial position. As the conversion features would meet the scope exception as described in paragraphs ASC 815-15-74(a), the conversion features are not required to be separated from the host instrument and accounted for separately. As a result, at November 30, 2023, the conversion feature does not meet derivative classification. In addition, it was determined that there was no beneficial conversion feature (“BCF”) as the stock price at the issuance date was less than the conversion price.

 

 

i.

First Modification:

  

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

 

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

 

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

 

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

 

 
35

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ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

November 30, 2023

(Expressed in US dollars)

 

 

ii.

Second Modification:

  

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

 

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

 

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

 

As at November 30, 2023, the Company has recorded accrued interest of $3,518 (August 31, 2023 - $3,144), which is included in accounts payable and accrued liabilities on the consolidated balance sheets.

 

As of November 30, 2023, the outstanding principal owing is $15,000 (August 31, 2023 - $15,000).

 

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

 

m)

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

  

The Company determined that there was no derivative liability associated with the Note or warrants under ASC 815-15, Derivatives and Hedging. Per ASC 815-10-15-74(a), contracts that are both indexed to its own stock and classified in stockholders’ equity in its statement of financial position are not considered to be derivative instruments. The conversion feature is indexed to the Company’s own stock and is classified in stockholders’ equity in the Company’s statement of financial position. As the conversion feature would meet the scope exception as described in paragraphs ASC 815-15-74(a), the conversion feature is not required to be separated from the host instrument and accounted for separately. As a result, at November 30, 2023, the conversion feature and warrants do not meet derivative classification.

 

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

 

 
36

Table of Contents

 

ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

November 30, 2023

(Expressed in US dollars)

 

 

i.

First Modification:

  

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

 

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

 

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

 

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

 

 

ii.

Second Modification:

  

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

 

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

 

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

 

As at November 30, 2023, the Company has recorded accrued interest of $21,616 (August 31, 2023 - $19,123), which is included in accounts payable and accrued liabilities on the consolidated balance sheets.

 

As of November 30, 2023, the outstanding principal owing is $100,000 (August 31, 2023 - $100,000).

 

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

 

 
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ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

November 30, 2023

(Expressed in US dollars)

 

n)

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

  

The Company determined that there was no derivative liability associated with the Note or warrants under ASC 815-15, Derivatives and Hedging. Per ASC 815-10-15-74(a), contracts that are both indexed to its own stock and classified in stockholders’ equity in its statement of financial position are not considered to be derivative instruments. The conversion feature is indexed to the Company’s own stock and is classified in stockholders’ equity in the Company’s statement of financial position. As the conversion feature would meet the scope exception as described in paragraphs ASC 815-15-74(a), the conversion feature is not required to be separated from the host instrument and accounted for separately. As a result, at November 30, 2023, the conversion feature and warrants do not meet derivative classification.

 

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

 

Modification:

 

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

 

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

 

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

 

As at November 30, 2023, the Company has recorded accrued interest of $20,959 (August 31, 2023 - $18,466), which is included in accounts payable and accrued liabilities on the consolidated balance sheets.

 

As of November 30, 2023, the outstanding principal owing is $100,000 (August 31, 2023 - $100,000).

 

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

 

 
38

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ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

November 30, 2023

(Expressed in US dollars)

 

o)

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

  

The Company determined that there was no derivative liability associated with the Note under ASC 815-15, Derivatives and Hedging. Per ASC 815-10-15-74(a), contracts that are both indexed to its own stock and classified in stockholders’ equity in its statement of financial position are not considered to be derivative instruments. The conversion feature is indexed to the Company’s own stock and is classified in stockholders’ equity in the Company’s statement of financial position. As the conversion features would meet the scope exception as described in paragraphs ASC 815-15-74(a), the conversion features are not required to be separated from the host instrument and accounted for separately. As a result, at November 30, 2023, the conversion feature does not meet derivative classification.

 

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

 

As at November 30, 2023, the Company has recorded accrued interest of $19,370 (August 31, 2023 - $16,877), which is included in accounts payable and accrued liabilities on the consolidated balance sheets.

 

As of November 30, 2023, the outstanding principal owing is $100,000 (August 31, 2023 - $100,000).

 

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

 

p)

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

  

The Company determined that there was no derivative liability associated with the Note under ASC 815-15, Derivatives and Hedging. Per ASC 815-10-15-74(a), contracts that are both indexed to its own stock and classified in stockholders’ equity in its statement of financial position are not considered to be derivative instruments. The conversion feature is indexed to the Company’s own stock and is classified in stockholders’ equity in the Company’s statement of financial position. As the conversion features would meet the scope exception as described in paragraphs ASC 815-15-74(a), the conversion features are not required to be separated from the host instrument and accounted for separately. As a result, at November 30, 2023, the conversion feature does not meet derivative classification.

 

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

 

As at November 30, 2023, the Company has recorded accrued interest of $19,370 (August 31, 2023 - $16,877), which is included in accounts payable and accrued liabilities on the consolidated balance sheets.

 

As of November 30, 2023, the outstanding principal owing is $100,000 (August 31, 2023 - $100,000).

 

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

 

 
39

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ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

November 30, 2023

(Expressed in US dollars)

 

q)

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

  

The Company determined that there was no derivative liability associated with the Note under ASC 815-15, Derivatives and Hedging. Per ASC 815-10-15-74(a), contracts that are both indexed to its own stock and classified in stockholders’ equity in its statement of financial position are not considered to be derivative instruments. The conversion feature is indexed to the Company’s own stock and is classified in stockholders’ equity in the Company’s statement of financial position. As the conversion features would meet the scope exception as described in paragraphs ASC 815-15-74(a), the conversion features are not required to be separated from the host instrument and accounted for separately. As a result, at November 30, 2023, the conversion feature does not meet derivative classification.

 

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

 

As at November 30, 2023, the Company has recorded accrued interest of $28,274 (August 31, 2023 - $24,534), which is included in accounts payable and accrued liabilities on the consolidated balance sheets.

 

As of November 30, 2023, the outstanding principal owing is $150,000 (August 31, 2023 - $150,000).

 

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

 

r)

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

  

The Company determined that there was no derivative liability associated with the Note under ASC 815-15, Derivatives and Hedging. Per ASC 815-10-15-74(a), contracts that are both indexed to its own stock and classified in stockholders’ equity in its statement of financial position are not considered to be derivative instruments. The conversion feature is indexed to the Company’s own stock and is classified in stockholders’ equity in the Company’s statement of financial position. As the conversion features would meet the scope exception as described in paragraphs ASC 815-15-74(a), the conversion features are not required to be separated from the host instrument and accounted for separately. As a result, at November 30, 2023, the conversion feature does not meet derivative classification.

 

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

 

As at November 30, 2023, the Company has recorded accrued interest of $18,301 (August 31, 2023 - $15,808), which is included in accounts payable and accrued liabilities on the consolidated balance sheets.

 

As of November 30, 2023, the outstanding principal owing is $100,000 (August 31, 2023 - $100,000).

 

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

 

 
40

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ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

November 30, 2023

(Expressed in US dollars)

 

s)

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

  

The Company determined that there was no derivative liability associated with the Note under ASC 815-15, Derivatives and Hedging. Per ASC 815-10-15-74(a), contracts that are both indexed to its own stock and classified in stockholders’ equity in its statement of financial position are not considered to be derivative instruments. The conversion feature is indexed to the Company’s own stock and is classified in stockholders’ equity in the Company’s statement of financial position. As the conversion features would meet the scope exception as described in paragraphs ASC 815-15-74(a), the conversion features are not required to be separated from the host instrument and accounted for separately. As a result, at November 30, 2023, the conversion feature does not meet derivative classification. In addition, it was determined that there was no beneficial conversion feature (“BCF”) as the stock price at the issuance date was less than the conversion price.

 

As at November 30, 2023, the Company has recorded accrued interest of $83,699 (August 31, 2023 - $71,233), which is included in accounts payable and accrued liabilities on the consolidated balance sheets.

 

As of November 30, 2023, the outstanding principal owing is $500,000 (August 31, 2023 - $500,000).

 

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

 

t)

On June 16, 2022, the Company issued a convertible note with a face value of $250,000 (the “Note). The Note bears interest at 10% per annum and is due on demand after December 16, 2022. The Note is convertible into shares of the Company’s common stock at any time prior to December 16, 2022 at a conversion price of $1.25 per share.

  

The Company determined that there was no derivative liability associated with the Note under ASC 815-15, Derivatives and Hedging. Per ASC 815-10-15-74(a), contracts that are both indexed to its own stock and classified in stockholders’ equity in its statement of financial position are not considered to be derivative instruments. The conversion feature is indexed to the Company’s own stock and is classified in stockholders’ equity in the Company’s statement of financial position. As the conversion features would meet the scope exception as described in paragraphs ASC 815-15-74(a), the conversion features are not required to be separated from the host instrument and accounted for separately. As a result, at November 30, 2023, the conversion feature does not meet derivative classification. In addition, it was determined that there was no beneficial conversion feature (“BCF”) as the stock price at the issuance date was less than the conversion price.

 

As at November 30, 2023, the Company has recorded accrued interest of $36,438 (August 31, 2023 - $30,206), which is included in accounts payable and accrued liabilities on the consolidated balance sheets.

 

As of November 30, 2023, the outstanding principal owing is $250,000 (August 31, 2023 - $250,000).

 

On December 16, 2022, the Company defaulted on the Note and is in process of amending the maturity date and conversion price.

 

u)

On November 28, 2022, the Company issued a convertible note with a face value of $100,000 (the “Note). The Note bears interest at 10% per annum and is due on demand after June 30, 2023. The Note is convertible into shares of the Company’s common stock at any time prior to June 30, 2023 at a conversion price equal to the lesser of 80% of the twenty-day average closing price per share (but not less than $0.20 per share) or $0.50 per share.

  

As at November 30, 2023, the Company has recorded accrued interest of $10,110 (August 31, 2023 - $7,616), which is included in accounts payable and accrued liabilities on the consolidated balance sheets.

 

As of November 30, 2023, the outstanding principal owing is $100,000 (August 31, 2023 - $100,000).

 

On June 30, 2023, the Company defaulted on the Note and is in process of amending the maturity date and conversion price.

 

 
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ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

November 30, 2023

(Expressed in US dollars)

 

v)

On December 1, 2022, the Company issued a convertible note with a face value of $70,000 (the “Note). The Note bears interest at 10% per annum and is due on demand after June 30, 2023. The Note is convertible into shares of the Company’s common stock at any time prior to June 30, 2023 at a conversion price equal to the lesser of 80% of the twenty-day average closing price per share (but not less than $0.20 per share) or $0.50 per share.

  

As at November 30, 2023, the Company has recorded accrued interest of $6,981 (August 31, 2023 - $5,236), which is included in accounts payable and accrued liabilities on the consolidated balance sheets.

 

As of November 30, 2023, the outstanding principal owing is $70,000 (August 31, 2023 - $70,000).

 

On June 30, 2023, the Company defaulted on the Note and is in process of amending the maturity date and conversion price.

 

w)

On December 7, 2022, the Company issued a convertible note with a face value of $60,000 (the “Note). The Note bears interest at 10% per annum and is due on demand after June 30, 2023. The Note is convertible into shares of the Company’s common stock at any time prior to June 30, 2023 at a conversion price equal to the lesser of 80% of the twenty-day average closing price per share (but not less than $0.20 per share) or $0.50 per share.

  

As at November 30, 2023, the Company has recorded accrued interest of $5,885 (August 31, 2023 - $4,389), which is included in accounts payable and accrued liabilities on the consolidated balance sheets.

 

As of November 30, 2023, the outstanding principal owing is $60,000 (August 31, 2023 - $60,000).

 

On June 30, 2023, the Company defaulted on the Note and is in process of amending the maturity date and conversion price.

 

x)

On February 28, 2023, the Company issued a convertible note with a face value of $150,000 (the “Note). The Note bears interest at 10% per annum and is due on demand after April 30, 2023. The Note is convertible into shares of the Company’s common stock at any time prior to April 30, 2023 at a conversion price equal to the lesser of 80% of the twenty-day average closing price per share (but not less than $0.20 per share) or $0.50 per share.

  

As at November 30, 2023, the Company has recorded accrued interest of $11,301, (August 31, 2023 - $7,562), which is included in accounts payable and accrued liabilities on the consolidated balance sheets.

 

As of November 30, 2023, the outstanding principal owing is $150,000 (August 31, 2023 - $150,000).

 

On April 30, 2023, the Company defaulted on the Note and is in process of amending the maturity date and conversion price.

 

y)

On May 17, 2023, the Company issued a convertible note with a face value of $10,000 (the “Note). The Note bears interest at 10% per annum and is due on demand after September 17, 2023. The Note is convertible into shares of the Company’s common stock at any time prior to September 17 at a conversion price equal to the lesser of 80% of the twenty-day average closing price per share (but not less than $0.20 per share) or $0.50 per share.

  

As at November 30, 2023, the Company has recorded accrued interest of $754 (August 31, 2023 - $504), which is included in accounts payable and accrued liabilities on the consolidated balance sheets.

 

As of November 30, 2023, the outstanding principal owing is $10,000 (August 31, 2023 - $10,000).

 

On September 17, 2023, the Company defaulted on the Note and is in process of amending the maturity date and conversion price.

 

 
42

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ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

November 30, 2023

(Expressed in US dollars)

 

10.

Equity

  

During the three months ended November 30, 2022:

 

On September 21, 2022, the Company issued 1,350,000 shares of common stock at $0.40 per share for $540,000 subscriptions received during the year ended August 31, 2022.

 

On October 7, 2022, the Company issued 1,575,000 shares of common stock at $0.40 per share for proceeds of $630,000. In connection with the financing, the Company incurred finder’s fee of $10,000 and share issuance costs of $2,792.

 

On October 7, 2022, the Company issued 75,000 shares of common stock with a fair value of $44,606 to settle related party accounts payable of $30,000, resulting in a loss on settlement of $14,606.

 

On October 7, 2022, the Company issued 70,560 shares of common stock with a fair value of $41,966 to settle $29,529 in debt, resulting in a loss on settlement of $12,437.

 

During the three months ended November 30, 2023:

 

On September 5, 2023, the Company issued 150,000 shares of common stock at $0.20 per share for $30,000 subscriptions received during the year ended August 31, 2023.

 

On October 20, 2023, the Company issued 100,000 shares of common stock at $0.20 per share for $20,000 subscriptions received during the year ended August 31, 2023.

 

At November 30, 2023, the Company had received $376,000 in cash for shares subscriptions at $0.20 per share.

 

11.

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:

 

 

 

Three Months

Ended

November 30,

2023

 

 

Three Months

Ended

November 30,

2022

 

 

 

 

 

 

 

 

Consulting fees and benefits

 

$125,640

 

 

$97,041

 

Signing bonus

 

 

44,214

 

 

 

-

 

 

 

$169,854

 

 

$97,041

 

 

 
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ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

November 30, 2023

(Expressed in US dollars)

 

 

b)

Amounts due to 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 due to related parties:

 

 

 

November 30,

2023

 

 

August 31,

2023

 

 

 

 

 

 

 

 

Chief Executive Officer and Director

 

$168,607

 

 

$156,028

 

Chief Operating Officer and Director

 

 

212,981

 

 

 

201,612

 

An entity controlled by the Chief Financial Officer

 

 

94,559

 

 

 

84,962

 

Chief Business Development Officer

 

 

64,716

 

 

 

-

 

An entity controlled by a Director

 

 

174,690

 

 

 

159,690

 

Director

 

 

96,660

 

 

 

91,000

 

 

 

$812,212

 

 

$693,292

 

 

As of November 30, 2023, the Company had $812,212 (August 31, 2023 - $693,292) payable to related parties. From this amount, $738,622 (August 31, 2023 - $623,292) was for expenses incurred or expensed paid on behalf of the Company by the parties and $70,000 (August 31, 2023 - $70,000) was for advances received from the parties.

 

12.

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.

 

 
44

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ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

November 30, 2023

(Expressed in US dollars)

 

 

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:

 

 

 

November 30,

2023

 

 

November 30,

2022

 

Balance in Canadian dollars:

 

 

 

 

 

 

Cash and cash equivalents

 

$-

 

 

$20,119

 

Accounts receivable

 

 

-

 

 

 

5,088

 

Accounts payable and accrued liabilities

 

 

(1,090,094)

 

 

(759,049)

Net exposure

 

 

(1,090,094)

 

 

(733,842)

Balance in US dollars:

 

$(802,602)

 

$(543,264)

 

A 10% change in the US dollar to the Canadian dollar exchange rate would impact the Company’s net loss by approximately $80,260 for the three months ended November 30, 2023 (November 30, 2022 – $54,326).

 

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

 

 

 

November 30,

2023

 

 

November 30,

2022

 

Balance in Colombian Pesos dollars:

 

 

 

 

 

 

Cash and cash equivalents

 

$161,740,742

 

 

$497,503,203

 

Other receivables

 

 

610,896,830

 

 

 

464,905,150

 

Accounts payable

 

 

(3,517,841,261)

 

 

(3,507,701,444)

Net exposure

 

 

(2,745,203,689)

 

 

(2,545,290,091)

Balance in US dollars:

 

$(685,005)

 

$(527,303)

 

A 10% change in the US dollar to the Colombian Peso exchange rate would impact the Company’s net loss by approximately $68,500 for the three months ended November 30, 2023 (November 30, 2022 - $52,730).

 

13.

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.

 

14.

Commitments

  

a)

As of November 30, 2023, the Company recorded a contingent liability of $547,190 (CAD$700,000) for expenses in connection with Allied Colombia acquisition, which is included in the balance of accounts payable and accrued liabilities on the consolidated balance sheet.

 

 

b)

The Company has entered into leases for farm land in Colombia. See Note 7 for details.

  

 
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ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

November 30, 2023

(Expressed in US dollars)

 

c)

In June 2019, the Company’s wholly owned subsidiary, AM Biosciences, signed a production and manufacturing contract to begin the manufacturing of the full building initially intended for the Canada extraction and production facility. The Company had determined to utilize these building assets in connection with potential United States operations in the State of Nevada upon on the occurrence or waiver of the changes in U.S. federal law to permit the general cultivation, distribution, and possession of marijuana or to remove the regulation of such activities from the federal laws of the United States. In connection with that determination, on March 30, 2021, the Company’s wholly owned subsidiary, Allied US Products LLC, entered into a contingent asset purchase agreement (“Agreement”) to acquire two privileged licenses issued by the Nevada Department of Taxation purposed for the cultivation of cannabis (the “Licenses”). In consideration for the licenses, the Company agreed to pay $150,000, issue a $1,350,000 promissory note and assume certain liabilities. Concurrent with the execution of the Agreement, the Company’s wholly owned subsidiary, Tactical Relief LLC, agreed to enter into a 25-year land lease with the Fiore Subsidiary.

  

As the Company made payments towards the purchase of the prefabricated buildings, various parts of the building were delivered to the property on the land lease. In December 2022, the Company was advised that the Fiore Subsidiary had become insolvent and that a trustee’s sale had been scheduled for the property which the Company had agreed to lease. In order to protect the Company’s interests, the Company filed a complaint in the Eighth Judicial District Court in Clark County, Nevada seeking injunctive relief to terminate the trustee’s sale or alternatively money damages. The Company filed a lis pendens against the property to reflect this complaint and to protect its interests in the building. However, the trustee’s sale went forward and the successful bidder claimed that the buildings were part of the real property and that it became the owner of the buildings. As a result, the Company filed suit, seeking a declaration of the Company’s ownership of the buildings as the buildings were personal property and not a part of the real property. A status conference was held for December 13, 2023 and the Company is currently waiting for the next court date.

 

15.

Share purchase warrants

  

The following table summarizes the continuity of share purchase warrants:

 

 

 

Number of

warrants

 

 

Weighted average exercise price

$

 

 

 

 

 

 

 

 

Balance, August 31, 2023

 

 

5,459,000

 

 

 

1.06

 

 

 

 

 

 

 

 

 

 

Expired

 

 

(3,486,999)

 

 

1.25

 

Balance, November 30, 2023

 

 

1,972,001

 

 

 

0.72

 

 

 
46

Table of Contents

 

ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

November 30, 2023

(Expressed in US dollars)

 

As at November 30, 2023, the following share purchase warrants were outstanding:

 

Number of warrants

 

 

Exercise price $

 

 

  Expiry date

 

 

 

 

 

 

 

 

 

 

66,667

 

 

 

1.25

 

 

January 29, 2024

 

 

66,667

 

 

 

1.25

 

 

February 7, 2024

 

 

113,334

 

 

 

1.25

 

 

February 12, 2024

 

 

40,000

 

 

 

1.25

 

 

February 20, 2024

 

 

300,000

 

 

 

1.25

 

 

February 21, 2024

 

 

177,600

 

 

 

1.25

 

 

February 26, 2024

 

 

120,000

 

 

 

1.25

 

 

February 28, 2024

 

 

20,000

 

 

 

1.25

 

 

March 7, 2024

 

 

67,733

 

 

 

1.25

 

 

May 27, 2024

 

 

1,000,000

 

 

 

0.20

 

 

July 30, 2025

 

 

1,972,001

 

 

 

 

 

 

 

 

 

16.

Stock options

  

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

 

 

 

Number of

Options

 

 

Weighted Average Exercise Price

$

 

 

Weighted Average Remaining

Contractual Term

 

 

Aggregate Intrinsic Value

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, August 31, 2023

 

 

12,140,000

 

 

 

0.25

 

 

 

3.70

 

 

 

55,900

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Granted

 

 

300,000

 

 

 

0.22

 

 

 

4.84

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding, November 30, 2023

 

 

12,440,000

 

 

 

0.25

 

 

 

3.48

 

 

 

-

 

Exercisable, November 30, 2023

 

 

11,456,667

 

 

 

0.25

 

 

 

3.45

 

 

 

-

 

 

During the three months ended November 30, 2023, the Company recorded stock-based compensation of $143,653 (2022 - $545,171) for options granted and vested during the period as consulting fees on the consolidated statement of operations. 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:

 

 

 

Three Months

Ended

November 30,

2023

 

 

Three Months

Ended

November 30,

2022

 

 

 

 

 

 

 

 

Expected dividend yield

 

 

0%

 

 

0%

Expected volatility

 

 

165%

 

 

150%

Expected life (in years)

 

 

5.00

 

 

 

4.05

 

Risk-free interest rate

 

 

4.60%

 

 

3.38%

 

At November 30, 2023, there was $276,661 of unrecognized compensation costs related to non-vested stock-based compensation arrangements granted under the Plan.

 

 
47

Table of Contents

 

ALLIED CORP.

Notes to the unaudited condensed consolidated interim financial statements

November 30, 2023

(Expressed in US dollars)

 

17.

Non-cash activities

  

 

 

Three Months

Ended

November 30,

2023

 

 

Three Months Ended

November 30,

2022

 

Non-cash activities:

 

 

 

 

 

 

Shares issued to settle debt

 

 

-

 

 

 

59,529

 

 

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