Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion relates to the historical operations and financial statements of Allied Corp. for the three and nine months ended May 31, 2020 and May 31, 2021.
Forward-Looking Statements
The following Management’s Discussion and Analysis should be read in conjunction with our financial statements and the related notes thereto included elsewhere in this Annual Report. The Management’s Discussion and Analysis contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. Any statements that are not statements of historical fact are forward-looking statements. When used, the words “believe,” “plan,” “intend,” “anticipate,” “target,” “estimate,” “expect,” and the like, and/or future-tense or conditional constructions (“will,” “may,” “could,” “should,” etc.), or similar expressions, identify certain of these forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements in this Annual Report. Our actual results and the timing of events could differ materially from those anticipated in these forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include, without limitation, those specifically addressed under the heading “Risks Factors” in our various filings with the Securities and Exchange Commission. We do not undertake any obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this Annual Report.
The following discussion highlights the Company’s results of operations and the principal factors that have affected its consolidated financial condition as well as its liquidity and capital resources for the periods described, and provides information that management believes is relevant for an assessment and understanding of the Company’s consolidated financial condition and results of operations presented herein. The following discussion and analysis are based Allied Corp’s audited and unaudited financial statements contained in this Current Report, which have been prepared in accordance with generally accepted accounting principles in the United States. You should read the discussion and analysis together with such financial statements and the related notes thereto.
Overview
Allied Corp. (“Allied” or the “Company”) is a Nevada corporation, based in Kelowna, British Columbia, Canada. Allied Corp. (“Allied”) is an international medical cannabis production company with a mission to address today’s medical issues by researching, creating and producing targeted cannabinoid health solutions. Allied Corp. uses what it considers to be an evidence-informed scientific approach to make this mission possible, through cutting-edge pharmaceutical research and development, innovative plant-based production and unique development of therapeutic products.
References in this periodic report on Form 10-Q to “Allied” or the “Company” may include references to the operations of our subsidiaries AM (Advanced Micro) Biosciences, Inc., Allied Colombia S.A.S., Tactical Relief, LLC, Allied US Products, LLC, and Pacific Sun Fungi Inc. Each of these corporations is a 100% wholly owned subsidiary of Allied and consequentially reports quarterly financials up to a consolidated quarterly submission.
Allied’s focus is on the development of medicinal cannabis and psilocybin products for patients with conditions potentially suitable for treatment therewith. Such conditions include anxiety, insomnia, anorexia, chronic pain, epilepsy, chemotherapy-induced nausea and vomiting, post-traumatic stress disorder (PTSD), Parkinson’s disease, Tourette syndrome, irritable bowel syndrome (IBS) and spasticity associated with multiple sclerosis (MS) and spinal cord injury (SCI)1.
Allied’s objective is to be a company that controls its own international vertically integrated supply chain or CBD, cannabis, and psilocybin products in order to maximize cash flow and profit margins. Our management team believes that having control over our supply chain should enable us to provide a consistent, rolling-harvest supply to the global cannabis community.
Given the average cost of production in North America being approximately $1.00 to $2.00 per gram, we believe our anticipated cash cost of $0.05 per gram (non-GAAP) of cannabis production based on historical production of our operations and other companies growing raw flowers in Columbia afforded by our Colombian production and cultivation should provide us a competitive advantage.
In addition to what we consider our demonstrated ability to cultivate low-cost, high margin cannabis in Colombia primarily for use in proprietary cannabinoid drug and natural health products for international distribution, we have hemp derived CBD natural health products for sale in the United States, have received commercial approval for sale of medical cannabis being produced in Colombia for export to nations other than the United States, and have initiated human clinical phase I trial for our psilocybin-based pharma products ALID 11, ALID 12 and Psilonex™ which are protected under provisional patent and trademarks in the United States.
Effects of COVID-19
In March 2020, the World Health Organization declared COVID-19 a global pandemic. This contagious disease outbreak and the related adverse public health developments have adversely affected workforces, economies, and financial markets globally, leading to an economic downturn. Management has determined that there has been no significant impact to the Company’s operations, however management continues to monitor the situation.
Critical Accounting Policies
Business Presentation
The unaudited condensed consolidated financial statements included in this Quarterly Report and related notes are presented in accordance with accounting principles generally accepted in the United States of America (“US GAAP”), and are expressed in United States dollars. The Company’s fiscal year end is August 31.
These interim unaudited financial statements have been prepared in accordance with US GAAP for interim financial information and with the instructions to Securities and Exchange Commission (“SEC”) Form 10-Q. They do not include all of the information and footnotes required by US GAAP for complete financial statements. Therefore, these interim financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto for the year ended August 31, 2020 included in the Company’s Annual Report on Form 10-K filed with the SEC.
The financial statements included herein are unaudited; however, they contain all normal recurring accruals and adjustments that, in the opinion of management, are necessary to present fairly the Company’s financial position at May 31, 2021, and the results of its operations for the three and nine months ended May 31, 2021, and cash flows for the nine months ended May 31, 2021. The results of operations for the period ended May 31, 2021 are not necessarily indicative of the results to be expected for future quarters or the full year.
The significant accounting policies followed are:
a) Principles of consolidation
The consolidated financial statements include accounts of Allied Corp. and its majority owned subsidiaries. Subsidiaries are consolidated from the date of acquisition and control and continue to be consolidated until the date that such control ceases. Control is achieved when the Company is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect these returns through its power over the investee. All intercompany balances, income, expenses, and unrealized gains and losses resulting from intercompany transactions are eliminated on consolidation.
b) Cash and cash equivalents
Cash is comprised of cash on hand, cash held in trust accounts and demand deposits. Cash equivalents are short-term, highly liquid investments with maturities within three months when acquired. The Company did not have any cash equivalents as of May 31, 2021 and August 31, 2020.
c) Property, plant and equipment
Property and equipment are stated at cost. The Company depreciates the cost of property, plant and equipment over their estimated useful lives at the following annual rates and methods:
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Farm facility and equipment
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1 - 10 years straight-line basis
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Office and computer equipment
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5 years straight-line basis
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Land equipment
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10 years straight-line basis
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d) Inventory
Inventory is comprised of raw materials, work-in-progress and finished goods. Cost includes expenditures directly related to the manufacturing process as well as suitable portions of related production overheads, based on normal operating capacity.
Inventory costs include pre-harvest costs or cost of purchase for purchased inventory. Pre-harvest costs include labor and direct materials to grow cannabis, which includes water, electricity, nutrients, integrated pest management, growing supplies and allocated overhead.
Inventory is stated at the lower of cost or net realizable value, determined using weighted average cost. Net realizable value is defined as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. At the end of each reporting period, the Company performs an assessment of inventory and records write-downs for excess and obsolete inventories based on the Company’s estimated forecast of product demand, production requirements, market conditions, regulatory environment, and spoilage. Actual inventory losses may differ from management’s estimates and such differences could be material to the Company’s balance sheets, statements of net loss and comprehensive loss and statements of cash flows.
e) Intangible assets
At May 31, 2021 and August 31, 2020, intangible assets include licenses which are being amortized over their estimated useful lives of 10 years. The Company’s licenses are amortized over their economic or legal life on a straight-line basis, whichever is shorter. The licenses have been amortized from the date of acquisition.
The Company periodically evaluates the reasonableness of the useful lives of these assets. Once these assets are fully amortized, they are removed from the accounts. These assets are reviewed for impairment or obsolescence when events or changes in circumstances indicate that the carrying amount may not be recoverable. If impaired, intangible assets are written down to fair value based on discounted cash flows or other valuation techniques. The Company has no intangibles with indefinite lives.
For long-lived assets, impairment losses are only recorded if the asset’s carrying amount is not recoverable through its undiscounted, probability-weighted future cash flows. The Company measures the impairment loss based on the difference between the carrying amount and the estimated fair value. When an impairment exists, the related assets are written down to fair value.
f) Long-lived assets
In accordance with ASC 360, Property, Plant and Equipment, the Company tests long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will more likely than not be sold or disposed significantly before the end of its estimated useful life. Recoverability is assessed based on the carrying amount of the asset and its fair value, which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances. An impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value.
g) Foreign currency translation and functional currency conversion
Items included in these consolidated financial statements of each of the Company’s entities are measured using the currency of the primary economic environment in which the entities operate (the “functional currency”).
Prior to September 10, 2019, the Company’s functional currency was the Canadian dollar. Translation gains and losses from the application of the U.S. dollar as the reporting currency during the period that the Canadian dollar was the functional currency are included as part of cumulative currency translation adjustment, which is reported as a component of shareholders’ equity under accumulated other comprehensive loss.
The Company re-assessed its functional currency and determined as at September 10, 2019, its functional currency changed from the Canadian dollar to the U.S. dollar based on management’s analysis of changes in our organization. The change in functional currency was accounted for prospectively from September 10, 2019 and prior period financial statements were not restated for the change in functional currency.
For periods commencing September 10, 2019, monetary assets and liabilities denominated in foreign currencies are translated into U.S. dollars using exchange rates in effect at the balance sheet date. Opening balances related to non-monetary assets and liabilities are based on prior period translated amounts, and non-monetary assets and non-monetary liabilities incurred after September 10, 2019 are translated at the approximate exchange rate prevailing at the date of the transaction. Revenue and expense transactions are translated at the approximate exchange rate in effect at the time of the transactions. Foreign exchange gains and losses are included in the statement of operations and comprehensive loss as foreign exchange gains.
The Company assessed the functional currency for Allied Colombia, a wholly-owned subsidiary acquired by the Company on February 18, 2020 to be the Colombian peso.
The functional currency for Tactical Relief LLC, Allied U.S. Products LLC and Pacific Sun Fungi, Inc. is the U.S. dollar.
h) Share issuance costs
Costs directly attributable to the raising of capital are charged against the related share capital. Costs related to shares not yet issued are recorded as deferred share issuance costs. These costs are deferred until the issuance of the shares to which the costs relate, at which time the costs will be charged against the related share capital or charged to operations if the shares are not issued.
i) Research and development cost
Research and development costs are expensed as incurred.
j) Revenue recognition
The Company’s revenue is comprised of sales of cannabis products.
The Company’s revenue-generating activities have a single performance obligation and revenue is recognized at the point in time when control of the product transfers and the Company’s obligations have been fulfilled. This generally occurs when the product is shipped or delivered to the customer, depending upon the method of distribution and shipping terms set forth in the customer contract. Revenue is measured as the amount of consideration the Company expects to receive in exchange for the sale of the Company’s product. Certain of the Company’s customer contracts may provide the customer with a right of return. In certain circumstances the Company may also provide a retrospective price adjustment to a customer. These items give rise to variable consideration, which is recognized as a reduction of the transaction price based upon the expected amounts of the product returns and price adjustments at the time revenue for the corresponding product sale is recognized. The determination of the reduction of the transaction price for variable consideration requires that the Company make certain estimates and assumptions that affect the timing and amounts of revenue recognized.
Sales of products are for cash or otherwise agreed-upon credit terms. The Company’s payment terms vary by location and customer; however, the time period between when revenue is recognized and when payment is due is not significant. The Company estimates and reserves for its bad debt exposure based on its experience with past due accounts and collectability, write-off history, the aging of accounts receivable and an analysis of customer data.
For the nine months ended May 31, 2021, the Company generated sales of $9,502.
k) Net income (loss) per common share
Net income (loss) per share is calculated in accordance with ASC 260, Earnings per Share. The weighted-average number of common shares outstanding during each period is used to compute basic earning or loss per share. Diluted earnings or loss per share is computed using the weighted average number of shares and diluted potential common shares outstanding to the extent the effect would not be antidilutive. Dilutive potential common shares are additional common shares assumed to be exercised.
Basic net income (loss) per common share is based on the weighted average number of shares of common stock outstanding.
l) Income taxes
The Company accounts for income taxes under ASC 740, Income Taxes. Under the asset and liability method of ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC 740, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the enactment occurs. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that the Company will not realize tax assets through future operations.
m) Related party transactions
Related parties are any entities or individuals that, through employment, ownership or other means, possess the ability to direct or cause the direction of the management and policies of the Company. The Company discloses related party transactions that are outside of normal compensatory agreements, such as salaries. Related party transactions are measured at the exchange amounts.
n) Significant accounting estimates and judgments
The preparation of the financial statements in conformity with US GAAP requires management to make judgments, estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Although management uses historical experience and its best knowledge of the amount, events or actions to for the basis for judgments and estimates, actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and further periods if the review affects both current and future periods.
Significant estimates and assumptions included in these financial statements relate to the valuation assumptions related to the estimated useful lives and recoverability of long-lived assets, stock-based compensation, and deferred income tax assets and liabilities. Judgments are required in the assessment of the Company’s ability to continue to as going concern as described in Note 1.
o) Financial instruments
ASC 825, Financial Instruments, requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 825 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 825 prioritizes the inputs into three levels that may be used to measure fair value:
Level 1
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2
Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3
Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
For certain of the Company’s financial instruments, including accounts payable, due from related parties, notes and loans payable, the carrying amounts approximate their fair values due to the short maturities.
The Company does not have any assets or liabilities measured at fair value on a recurring basis presented on the Company’s balance sheet as of May 31, 2021 and August 31, 2020 other than cash.
Financial instruments that potentially subject the Company to a concentration of credit risk consist primarily of cash. The Company limits its exposure to credit loss by placing its cash with high credit quality financial institutions.
p) Leases
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, “Leases (Topic 842)” (“ASU 2016-02”), which requires lessees to put most leases on their balance sheets but recognize the expenses on their income statements in a manner similar to current practice. The standard states that a lessee would recognize a lease liability for the obligation to make lease payments and a right-to-use asset for the right to use the underlying asset for the lease term. The standard is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2018. The Company adopted ASU 2016-02 on September 1, 2019, using the transition relief to the modified retrospective approach, presenting prior year information based on the previous standard. The Company did not have any leases until the acquisition of its wholly owned subsidiary, Allied Colombia S.A.S. on February 18, 2020.
The Company determines if an arrangement contains a lease in whole or in part at the inception of the contract. Right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term while lease liabilities represent our obligation to make lease payments arising from the lease. All leases with terms greater than twelve months result in the recognition of a ROU asset and a liability at the lease commencement date based on the present value of the lease payments over the lease term. Unless a lease provides all of the information required to determine the implicit interest rate, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of the lease payments. The Company uses the implicit interest rate in the lease when readily determinable.
Our lease terms include all non-cancelable periods and may include options to extend (or to not terminate) the lease when it is reasonably certain that we will exercise that option. Leases with terms of twelve months or less at the commencement date are expensed on a straight-line basis over the lease term and do not result in the recognition of an asset or liability. See Note 7 – Leases.
q) Reclassification
Certain reclassifications have been made to conform the prior period’s consolidated financial statements and notes to the current period’s presentation.
r) Recent accounting pronouncements
The Company does not expect that recent accounting pronouncements or changes in accounting pronouncements during the nine months ended May 31, 2021, are of significance or potential significance to the Company.
Financial Condition and Results of Operations
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company incurred a net loss for the nine months ended May 31, 2021 of $6,648,787, has generated minimal revenue and as at May 31, 2021 has a working capital deficit of $3,256,017. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent upon the Company’s ability to raise sufficient financing to acquire or develop a profitable business. Management intends on financing its operations and future development activities largely from the sale of equity securities with some additional funding from other traditional financing sources, including related party loans until such time that funds provided by future planned operations are sufficient to fund working capital requirements.
Results of Operations
Comparison of Unaudited Results for the Three Months Ended May 31, 2021 compared to the Three Months Ended May 31, 2020
Sales and Revenue
For the three-month period ended May 31, 2021 we had no revenue. We had no revenue for the three-month period ended May 31, 2020.
We are just at the beginning of sales of our products which we expect to improve during the current fiscal year.
Operating Expenses
Operating expenses for the three-month period ended May 31, 2021 totaled $2,179,481. Operating expenses for the three-month period ended May 31, 2021 is related to $696,103 in stock-based compensation in connection with the development of our products, and also consisted of office and miscellaneous expense of $721,234, professional fees of $223,106 and interest expense of $153,942. Operating expenses for the three-month period ended May 31, 2020 totaled $1,083,853. The increase in operating expense during the quarter ended May 31, 2021 is principally the result of an increase in stock-based compensation of $696,103 which was necessary to develop our product lines and office and miscellaneous expense of $382,385.
Net Loss
As a result of the changes described above, net loss from operations after income taxes increased to $2,753,489 during the three months ended May 31, 2021 compared to $1,214,224 during the three-month period ended May 31, 2020.
Comparison of Unaudited Results for the Nine Months Ended May 31, 2021 compared to the Nine Months Ended May 31, 2020
Sales and Revenue
For the nine-month period ended May 31, 2021 we had $5,260 in revenue. We had no revenue for the nine-month period ended May 31, 2020. We are just at the beginning of sales of our products which we expect to improve during the current fiscal year.
Operating Expenses
Operating expenses for the nine-month period ended May 31, 2021 totaled $5,625,633. Operating expenses for the nine-month period ended May 31, 2021 is principally related to $2,076,223 in stock-based compensation in connection with the development of our products. Operating expense also consisted of office and miscellaneous expense of $1,035,806, production costs of $227,257, professional fees of $595,885 and interest expense of $412,370. Operating expenses for the nine-month period ended May 31, 2020 totaled $2,479,107. The increase in operating expense during the nine months ended May 31, 2021 is principally the result of an increase in office and miscellaneous expense to $346,490, production costs of $227,257 and decrease in professional fees of $29,280. The overall increase in operating expenses during the nine-month period ended May 31, 2021 is the result of acquisitions, a change of business and an increase in business activities.
Net Loss
As a result of the changes described above, net loss from operations after income taxes increased to $6,648,787 during the nine months ended May 31, 2021 compared to $2,708,660 during the nine-month period ended May 31, 2020.
Liquidity and Capital Resources
The following table sets forth the major components of our statements and consolidated statements of cash flows for the periods presented.
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Year Ended
August 31,
2020
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Year Ended
August 31,
2019
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Nine Months
Ended
May 31,
2021
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Cash used in operating activities
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$
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(3,160,802
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)
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$
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(1,316,256
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)
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$
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(3,094,232
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)
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Cash from financing activities
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$
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4,017,681
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|
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$
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4,800,894
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$
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3,803,557
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Cash from (used in) investing activities
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|
$
|
(1,820,598
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)
|
|
$
|
(2,345,551
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)
|
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$
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(77,606
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)
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Effect of exchange rate change
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$
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(23,116
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)
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$
|
(58,205
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)
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$
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96,820
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|
|
Change in cash during the period
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|
$
|
(986,835
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)
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|
$
|
1,080,882
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|
|
$
|
728,539
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|
Cash, beginning of period
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|
$
|
1,080,882
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|
|
$
|
-
|
|
|
$
|
94,047
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|
Cash, end of period
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|
$
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94,047
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|
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$
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1,080,882
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$
|
822,586
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|
As of May 31, 2021, the Company had $1,574,558 in current assets, consisting of $822,586 in cash, $299,379 in inventory, $4,487 in receivables, $11,498 in due from related parties and $436,608 in prepaid expenses. Other assets mainly include deposits and advances of $2,968,516 (principally related to our building to be located in Nevada), property plant and equipment of $209,269, right-of-use assets of $71,295 and intangible assets of $2,888,583. Our intangible assets are cannabis licenses.
To date, the Company has financed its operations through equity sales and through the sale of convertible notes. The Company has recently entered into an agreement with a broker-dealer to complete a public offering of shares.
Convertible Notes
On January 23, 2020, the Company issued two convertible notes with principal amounts of $400,000 and $200,000, respectively, with a total face value of $600,000 and warrants to purchase 240,000 shares of the Company’s common stock at $1.25 per share for 1 year. The Notes were issued with an original discount of $12,000, and bear interest at 10% per annum compounded monthly. The notes initially matured on July 20, 2020 and are convertible into shares of the Company’s common stock at any time prior to maturity at a conversion price of $1.25 per share. On July 1, 2020, the Company entered into amendments to the convertible notes. Pursuant to the amendments, beginning on July 1, 2020, the convertible notes bear simple interest at 5% per annum. The maturity date of the convertible notes was amended to due on demand on or before October 31, 2020. In consideration for extending the maturity date, the Company issued to the convertible note holders 16,000 common shares of the Company and warrants to purchase additional 320,000 common shares of the Company at $1.25 per share expiring October 31, 2021. Each note holder received 8,000 common shares and 160,000 warrants. On November 1, 2020, the Company entered into further amendments to the convertible notes. Pursuant to the amendments, the maturity date of the convertible notes was amended to due on demand on or before March 31, 2021. In consideration for extending the maturity date, the Company agreed to issue to the convertible note holders 100,000 common shares of the Company. Each note holder will receive 50,000 common shares. Finally effective on March 31, 2021, the Company entered into further amendments to the convertible notes. Pursuant to the amendments, the maturity date of the convertible notes was amended to due on demand on or before September 30, 2022. In consideration for extending the maturity date, the Company agreed to issue to the convertible note holders 20,000 common shares of the Company.
On September 29, 2020, the Company issued a convertible note with a fair value of $163,341 and warrants to purchase 130,673 shares of the Company’s common stock at $1.25 per share for 2 years. The Note bears interest at 10% per annum. The Note is due on demand after March 27, 2021.The Note is convertible into shares of the Company’s common stock at any time at a conversion price of $1.25 per share. Effective April 1, 2021, the Company entered into an amendment to the convertible note. Pursuant to the amendment, the maturity date of the convertible notes was amended to due on demand on or before October 31, 2021. In consideration for extending the maturity date, the Company agreed to issue to the convertible note holders 8,268 common shares of the Company.
On October 26, 2020, the Company issued a convertible note with a face value of $37,613 and warrants to purchase 30,090 shares of the Company’s common stock at $1.25 per share for 2 years. The Note bears interest at 10% per annum. The Note is due on demand after April 23, 2021.The Note is convertible into shares of the Company’s common stock at any time at a conversion price of $1.25 per share. Effective June 1, 2021, the Company entered into an amendment to the convertible note. Pursuant to the amendment, the maturity date of the convertible notes was amended to due on demand on or before November 30, 2021.
On November 11, 2020, the Company issued a convertible note with a face value of $85,937 and warrants to purchase 68,750 shares of the Company’s common stock at $1.25 per share for 2 years. The Note bears interest at 10% per annum. The Note is due on demand after May 9, 2021.The Note is convertible into shares of the Company’s common stock at any time at a conversion price of $1.25 per share. Effective June 1, 2021, the Company entered into an amendment to the convertible note. Pursuant to the amendment, the maturity date of the convertible notes was amended to due on demand on or before November 30, 2021.
On December 2, 2020, the Company issued a convertible note with a face value of $600,000 and warrants to purchase 240,000 shares of the Company’s common stock at $1.25 per share for 2 years. The Note bears interest at 10% per annum. The Note is due on demand after November 27, 2021.The Note is convertible into shares of the Company’s common stock at any time at a conversion price of $1.25 per share.
On January 7, 2021, the Company issued a convertible note with a face value of $300,000. The Note bears interest at 10% per annum and is due on demand after November 27, 2021.The Note is convertible into shares of the Company’s common stock at any time at a conversion price of
$1.25 per share.
On March 26, 2021, the Company issued a convertible note with a face value of $18,000 and warrants to purchase 18,000 shares of the Company’s common stock at $0.50 per share for one year. The Note bears interest at 10% per annum and is due on demand on September 26, 2021.The Note is convertible into shares of the Company’s common stock at any time at a conversion price of $1.25 per share.
On March 26, 2021, the Company issued a convertible note with a face value of $100,000 and warrants to purchase 100,000 shares of the Company’s common stock at $0.50 per share for one year. The Note bears interest at 10% per annum and is due on demand on September 26, 2021.The Note is convertible into shares of the Company’s common stock at any time at a conversion price of $1.25 per share.
On April 29, 2021, the Company issued a convertible note with a face value of $180,000 and warrants to purchase 180,000 shares of the Company’s common stock at $1.00 per share for one year. The Note bears interest at 10% per annum and is due on demand on October 29, 2021.The Note is convertible into shares of the Company’s common stock at any time at a conversion price of $1.00 per share.
On April 30, 2021, the Company issued a convertible note with a face value of $100,000 and warrants to purchase 100,000 shares of the Company’s common stock at $1.00 per share for one year. The Note bears interest at 10% per annum and is due on demand on October 31, 2021.The Note is convertible into shares of the Company’s common stock at any time at a conversion price of $1.00 per share.
Equity Transactions
On September 21, 2020, the Company issued 80,000 shares to an accredited investor who purchased such shares in a private placement at a purchase price of $1.25 per share for gross cash proceeds of $100,000.
On September 30, 2020, the Company issued 120,000 shares to two accredited investors who purchased such shares in a private placement at a purchase price of $1.25 per share for gross cash proceeds of $150,000.
During the nine month ended May 31, 2021, the Company received 8,123,170 shares of common stock from previous management for no consideration, and the shares were returned to treasury.
During the nine-month period, the Company re-issued 750,000 shares of common stock with total fair value of $637,500 for consulting services, out of which, $265,625 was expensed as consulting fees and $371,875 was deferred compensation included in prepaid expenses on the consolidated interim balance sheet.
On February 15, 2021 the Company issued 66,146 shares to three accredited investors in consideration for foregiveness of debt of $66,146.
On February 25, 2021 the Company issued 100,000 shares to an accredited investor who purchased such shares in a private placement at a purchase price of $0.50 per share for gross cash proceeds of $50,000.
On March 1, 2021, the Company re-issued 100,000 common shares from treasury with fair value of $90,000 for the promissory note of $300,000.
On March 4, 2021 the Company issued 25,000 shares to an affiliate of the Company in consideration for foregiveness of debt of $25,000,
On March 5, 2021, the Company re-issued 200,000 shares of common stock with fair value of $160,000 from treasury for acquisition of Pacific Sun Fungi Inc.
On March 8, 2021 the Company issued 19,898 shares to an affiliate of the Company investor in consideration for forgiveness of debt of $19,898.
On March 17, 2021, the Company issued 500,000 shares of common stock at $0.50 per share for gross proceeds of $250,000.
On March 17, 2021, the Company issued 86,044 shares of common stock with a fair value of $70,164 to settle $87,483 of accounts payable, which resulted in a gain on settlement of debt of $17,319.
On March 22, 2021, the Company issued 25,000 shares of common stock with a fair value of $22,500 to settle $25,000 of accounts payable, which resulted in a gain on settlement of debt of $2,500.
On March 22, 2021 the Company issued 100,000 shares to an accredited investor who purchased such shares in a private placement at a purchase price of $0.50 per share for gross cash proceeds of $50,000.
On April 6, 2021 the Company issued 250,000 shares to an accredited investor who purchased such shares in a private placement at a purchase price of $0.50 per share for gross cash proceeds of $125,000.
On May 12, 2021, the Company issued 31,746 shares of common stock with a fair value of $31,746 to settle $31,746 of accounts payable, which resulted in a gain on settlement of debt of $nil.
On May 13, 2021, the Company received 1,200,000 shares of common stock from the counterparties of certain previous cancelled asset acquisitions for no consideration. The shares were cancelled upon being returned to treasury.
On May 14, 2021, the Company issued 200,000 shares of common stock at $0.50 per share for gross proceeds of $100,000.
On May 14, 2021, the Company issued 300,000 shares of common stock at $0.75 per share for gross proceeds of $225,000.
On May 17, 2021, the Company issued 800 shares of common stock as a finder’s fee.
On May 17, 2021 the Company commenced a private placement pursuant to Rule 506(c) promulgated under Regulation D of the Securities Exchange Act of 1934, as amended. The private placement sought to raise $5,250,000 through the sale of Units at $0.75 per Unit, each consisting of one share of common stock and one warrant to purchase one share of common stock for two years at an exercise price of $1.25 per share. Boustead Securities LLC has acted as the exclusive Placement Agent for this offering on a best efforts basis. Boustead receives compensation in cash of 7 percent of the proceeds from such Offering, and also receives warrants to purchase common stock equal to 7 percent of the Units sold, exercisable for five years at $1.25 per share. As of May 31, 2021, the date of this Quarterly Report on Form 10-Q, the Company had not yet sold Units in this offering but has subsequently resulted in funding.
On May 27, 2021, the Company issued 136,000 shares of common stock with a fair value of $149,952 in connection with modifications of a convertible note payable.
At May 31, 2021, the Company had received $935,000 for the purchase of 1,246,666 common shares which were issued subsequent to May 31, 2021.
Future Financing
In connection with its proposed business plan and currently ongoing and proposed acquisitions, in addition to the possible proceeds from this offering the Company will be required to complete substantial and significant additional capital formation. Such formation could be through additional equity offerings, debt, bank financings or a combination of any source of financing. There can be no assurance that the Company will be successful in completion of such financings.
Plan of Operations
As noted above, the continuation of our current plan of operations requires us to raise significant additional capital. If we are successful in raising capital through the sale of Common Shares offered for sale in our current private placement as well as a proposed public offering, we believe that we will have sufficient cash resources to fund our plan of operations through 2022. If we are unable to do so, we may have to curtail and possibly cease some operations. We intend to use the net proceeds from the offering for operating capacity in Colombia, Canada and the United States, regulatory compliance, intellectual property, working capital and general corporate purposes.
We continually evaluate our plan of operations to determine the manner in which we can most effectively utilize our limited cash resources. The timing of completion of any aspect of our plan of operations is highly dependent upon the availability of cash to implement that aspect of the plan and other factors beyond our control. There is no assurance that we will successfully obtain the required capital or revenues, or, if obtained, that the amounts will be sufficient to fund our ongoing operations.
Capital Expenditures
As of May 31, 2021 the company had purchased property plant and equipment of $209,269 and paid net cash of $2,968,516 in deposits for an asset acquisition. As of August 31, 2020, the Company purchased property plant and equipment of $223,020 and paid net cash of $3,008,246 in deposits and advances for an asset acquisition.
MediColombias Acquisition (Colombia Licensed Producer)
On August 29, 2019, the Company entered into a Share Purchase Agreement (“Purchase Agreement”) with Dorson Commercial Corp. (“Dorson”) as the sole owner of Baleno Ltd. to purchase all of the issued and outstanding shares of Baleno Ltd., the sole owner of Medicolombia Cannabis S.A.S. (“Medicolombia”). Medicolombia is based in Colombia with a full set of licenses and a lease agreement in place to begin production on a 5 hectare parcel of land. We have the ability to scale production to over hundreds of hectares. This is located in the area of Bucamaranga, Colombia.
This acquisition includes a team of experts and significant expenditures spent on an irrigation holding pond, security towers, fencing, etc. to meet the Colombia minister of justice and minister of agriculture requirements.
Pursuant to the agreement the Company acquired all of the issued and outstanding shares of Medicolombia in exchange for $700,000 and 4,500,000 shares of Allied. The Company closed and completed the acquisition on February 17, 2020. Medicolombia has subsequently changed its name to Allied Colombia S.A.S.
Natural Health Products Acquisition
In May 2019 the management team of AM Biosciences were able to negotiate the inclusion of a natural health products catalogue of products. This includes 50 products in the natural health vertical market. Three of these products are of particular interest as they have Natural Health Products registration numbers with Health Canada. AM Biosciences can add these to the product offerings both in Canada and the United States.
Xtreme Cubes Building
In June 2019, AM Biosciences signed the production and manufacturing contract to begin the manufacturing of a building for an extraction and production facility. This building will be a fully scalable, modular building. The Company made an upfront payment of $230,000 USD in June 2019, an additional payment of $903,385 in August 2019 and an additional payment of $92,000 in March 2020. At May 31, 2021, Company had deposits of $2,968,516 (August 31, 2020 - $2,600,720) to purchase prefabricated buildings. As of May 31, 2021, the Company had not yet received the building and the amounts have been recorded as deposits.
Pacific Sun Fungi Inc.
On March 5, 2021, the Company acquired all the issued and outstanding common shares of Pacific Sun Fungi Inc. for re-issuance of 200,000 common shares of the Company from treasury and a promissory note of $85,500.
Commitments and Contractual Obligations
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide this information.
Off-balance Sheet Arrangements
The Company has no off-balance sheet arrangements.
Going Concern
As reflected in the accompanying financial statements, the Company had an accumulated deficit of approximately $14,557,353 at May 31, 2021 and a net loss of $6,648,787 for the nine months ended May 31, 2021.
The Company does not yet have a history of financial stability. Historically, the principal source of liquidity has been the issuance of convertible notes and equity securities. In addition, the Company has generated no revenues since inception. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
The ability of the Company to continue operations is dependent on the success of Management’s plans, which include the raising of capital through the issuance of equity securities, until such time that funds provided by operations are sufficient to fund working capital requirements.
The Company will require additional funding to finance the growth of its current and expected future operations as well as to achieve its strategic objectives. The Company believes its current available cash will be sufficient to meet its cash needs for the near future. There can be no assurance that financing will be available in amounts or terms acceptable to the Company, if at all.
The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. These financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.