A.
Selected
Financial Data
The
selected historical information presented in the table below for
the years ended December 31, 2020, and 2019 are derived from the
audited consolidated financial statements of Empower for such
periods, and have been prepared in accordance with IFRS as issued
by the IASB. The selected financial information presented below
should be read in conjunction with the audited consolidated
financial statements and the notes thereto of Empower, and with the
information appearing under each of Item 4 –
“Information on the Company” and Item 5 –
“Operating and Financial Review and Prospects” of this
Form 20-F. All financial data presented in this Form 20-F are
qualified in their entirety by reference to the consolidated
financial statements and their notes.
U.S. dollars in thousands, except share and per share
data
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Balance
Sheet Data
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Cash and cash
equivalents
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4,889,824
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179,153
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Total
Assets
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9,230,219
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1,555,719
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Total
Liabilities
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14,720,620
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5,070,632
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Total
Shareholders’ Deficit
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(5,490,401)
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(3,514,913)
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Operating
Data
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Revenues
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3,209,196
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2,031,581
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Expenses
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Direct clinics
expenses
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1,193,560
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826,276
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Operating
expenses
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3,947,408
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2,933,619
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Legal and
professional fees
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1,394,571
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1,015,743
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Depreciation and
amortization expense
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381,492
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327,059
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Share-based
payments
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323,799
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608,944
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Loss from
operations
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(4,031,634)
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(3,680,060)
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Other (gains)
expenses
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13,034,677
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621,603
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Loss before income
taxes
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(17,066,311)
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(4,301,663)
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Deferred tax
recovery
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–
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–
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Net loss and
comprehensive loss
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(17,066,311)
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(4,301,663)
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Basic and diluted
net loss per share
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(0.09)
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(0.04)
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Weighted average
number of common shares used in computing basic and diluted net
loss per share
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182,331,616
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117,289,366
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Empower has never declared or paid any cash or other
dividends.
B. Capitalization
and Indebtedness
Not
applicable.
C. Reasons
for the Offer and Use of Proceeds
Not
applicable.
An
investment in our securities is highly speculative and involves a
high degree of risk. Our Company may face a variety of risks that
may affect our operations or financial results and many of those
risks are driven by factors that we cannot control or predict.
Before investing in our company’s securities, investors
should carefully consider the following risks. The risks and
uncertainties described below are not the only risks and
uncertainties that we face or that an investment in our securities
entails. Additional risks and uncertainties not presently known to
us or that we currently deem immaterial may also impair our
business operations. Any of the following risks could materially
and adversely affect our business, financial condition, prospects
and results of operations. In that case, investors may lose all or
a part of their investment. The risks discussed below also include
forward-looking statements and the out actual results may differ
substantially from those discussed in these forward-looking
statements. See ‘‘Note Regarding Forward Looking
Statements” and “Operating and Financial Review and
Prospects”.
Risks Associated with the Company
Our independent auditors have referred to circumstances which might
result in doubt about our ability to continue as a going concern,
which may hinder our ability to obtain future
financing.
At
December 31, 2020, the Company had a working capital deficiency of
$1,746,818 (December 31, 2019 - $4,185,359), has not yet achieved
profitable operations, has accumulated deficit of $30,078,630
(December 31, 2019 - $13,012,319). The Company has limited revenues
and the ability of the Company to ensure continuing operations is
dependent on the Company’s ability to raise sufficient funds
to finance development activities and expand sales. These
circumstances represent a material uncertainty that cast
substantial doubt on the Company’s ability to continue as a
going concern and ultimately the appropriateness of the use of
accounting principles applicable to a going concern.
Regulatory Risks.
The
Company operates in a new industry which is highly regulated and is
evolving rapidly. Sometimes new risks emerge and management may not
be able to predict all of them, or be able to predict how they may
cause actual results to be different from those contained in any
forward-looking statements. Failure to comply with the requirements
of the State licensing agencies within which the Company operates
would have a material adverse impact on the business, financial
condition and operating results of the Company.
The
Company will incur ongoing costs and obligations related to
regulatory compliance. Failure to comply with regulations may
result in additional costs for corrective measures, penalties or in
restrictions of our operations. In addition, changes in
regulations, more vigorous enforcement thereof or other
unanticipated events could require extensive changes to the
Company's operations, increased compliance costs or give rise to
material liabilities, which could have a material adverse effect on
the business, results of operations and financial condition of the
Company.
The
industry is subject to extensive controls and regulations, which
may significantly affect the financial condition of market
participants. The marketability of any product may be affected by
numerous factors that are beyond the Company's control and which
cannot be predicted, such as changes to government regulations,
including those relating to taxes and other government levies which
may be imposed. Changes in government levies, including taxes,
could reduce the Company's earnings and could make future capital
investments or the Company's operations uneconomic. The industry is
also subject to numerous legal challenges, which may significantly
affect the financial condition of market participants and which
cannot be reliably predicted.
Change in Laws, Regulations and Guidelines.
The
Company operates in an industry that is not recognized as a legal
industry by the US Federal government.
The
Company operates a growing network of physician-staffed medical
cannabis clinics with a primary focus on enabling patients to
improve and protect their health. These clinics operate in those
states where the medicinal use of cannabis produces is
permitted.
The
Company’s operations are subject to a variety of laws,
regulations and guidelines relating to the manufacture, management,
transportation, storage and disposal of medical cannabis and also
including laws and regulations relating to health and safety,
privacy and the conduct of operations. While to the knowledge of
the Company's management, the Company is currently in compliance
with all such laws, changes to such laws, regulations and
guidelines due to matters beyond the control of the Company may
cause adverse effects to the Company's operations and the financial
condition of the Company.
The
industry is subject to extensive controls and regulations, which
may significantly affect the financial condition of market
participants. The marketability of any product may be affected by
numerous factors that are beyond the Company's control and which
cannot be predicted, such as changes to government regulations,
including those relating to taxes and other government levies which
may be imposed. Changes in government levies, including taxes,
could reduce the Company's earnings and could make future capital
investments or the Company's operations uneconomic.
Market Risks.
The
Company’s securities will trade on public markets and the
trading value thereof is determined by the evaluations, perceptions
and sentiments of both individual investors and the investment
community taken as a whole. Such evaluations, perceptions and
sentiments are subject to change, both in short term time horizons
and longer term time horizons. An adverse change in investor
evaluations, perceptions and sentiments could have a material
adverse outcome on the Company and its securities.
Price Risks.
Cannabis
is a developing market, likely subject to volatile and possibly
declining prices year over year, as a result of increased
competition. Because medical cannabis products are a newly
commercialized and regulated industry, historical price data is
either not available or not predictive of future price levels.
There may be downward pressure on the average prices for medical
cannabis products and that price volatility might not be favorable
to the Company. Pricing will depend on the number of patients who
gain physician approval to purchase medical cannabis. An adverse
change in the cannabis prices, or in investors’ beliefs about
trends in those prices, could have a material adverse outcome on
the Company and its securities.
Financing Risks.
The
Company will be dependent on raising capital through a combination
of debt and/or equity offerings. There can be no assurance that the
capital markets will remain favorable in the future, and/or that
the Company will be able to raise the financing needed to continue
its business at favorable terms, or at all. Restrictions on the
Company’s ability to finance could have a material adverse
outcome on the Company and its securities.
Key Personnel Risks.
The
Company’s efforts are dependent to a large degree on the
skills and experience of certain of its key personnel, including
the board of directors. The Company does not maintain “key
man” insurance policies on these individuals. Should the
availability of these persons’ skills and experience be in
any way reduced or curtailed, this could have a material adverse
outcome on the Company and its securities.
Competition.
There
is potential that the Company will face intense competition from
other companies, some of which can be expected to have more
financial resources, industry, manufacturing and marketing
experience than the Company. Additionally, there is potential that
the industry will undergo consolidation, creating larger companies
that may have increased geographic scope and other economies of
scale. Increased competition by larger, better-financed competitors
with geographic or other structural advantages could materially and
adversely affect the business, financial condition and results of
operations of the Company.
To
remain competitive, the Company will require a continued level of
investment in research and development, marketing, sales and client
support. The Company may not have sufficient resources to maintain
research and development, marketing, sales and client support
efforts on a competitive basis which could materially and adversely
affect the business, financial condition and results of operations
of the Company.
History of Net Losses; Accumulated Deficit; Lack of Revenue from
Operations.
The
Company has incurred net losses to date. The Company may continue
to incur losses. There is no certainty that the Company will
operate profitably or provide a return on investment in the
future.
Uninsurable risks.
The
Company may become subject to liability for events, against which
it cannot insure or against which it may elect not to insure. Such
events could result in substantial damage to property and personal
injury. The payment of any such liabilities may have a material,
adverse effect on the Company's financial position.
Financial Instruments & Other Instruments.
The
Company’s financial instruments consist of cash, accounts
payable and accrued liabilities and due to related parties,
convertible debt and loans payable. Cash is classified as fair
value through profit or loss and recorded at fair value. Accounts
payable and accrued liabilities, due to related parties and
shareholder’s loan are classified as other current
liabilities. The fair value of cash, accounts payable and accrued
liabilities, and due to related parties are equal to their carrying
value due to their short-term maturity. Unless otherwise noted, it
is management’s opinion that the Company is not exposed to
significant interest, currency or credit risks arising from these
financial instruments.
The
fair value of arms-length financial instruments approximates their
carrying value due to the relatively short-term to
maturity.
Risks Associated with Our Business
Our future success will be dependent on additional states
legalizing medical marijuana.
Our
future success will depend on the continued development of the
medical marijuana market, and on our ability to penetrate that
market. According to the Marijuana Policy Project, a
pro-legalization group, medical marijuana is legal in 29 states and
Washington, D.C., Puerto Rico and Guam. However, continued
development of the medical marijuana market is dependent upon
continued legislative authorization of marijuana at the state level
for medical purposes and, in certain states, including Oregon,
based on the specifics of the legislation passed in that state, on
local governments authorizing a sufficient number of dispensaries.
Any number of factors could slow or halt the progress. Further,
progress, while encouraging, is not assured and the process
normally encounters set-backs before achieving success. While there
may be ample public support for legislative proposal, key support
must be created in the legislative committee or a bill may never
advance to a vote. Numerous factors impact the legislative process.
Any one of these factors could slow or halt the progress and
adoption of marijuana for medical purposes, which would limit the
market for our products and negatively impact our business and
revenues.
The alternative medicine industry faces strong
opposition.
It is
believed by many that well-funded, significant businesses may have
a strong economic opposition to the medical marijuana industry as
currently formed. We believe that the pharmaceutical industry
clearly does not want to cede control of any compound that could
become a strong selling drug. For example, medical marijuana will
likely adversely impact the existing market for Marinol, the
current “marijuana pill” sold by mainstream
pharmaceutical companies. Further, the medical marijuana industry
could face a material threat from the pharmaceutical industry
should marijuana displace other drugs or simply encroach upon the
pharmaceutical industry’s market share for compounds such as
marijuana and its component parts. The pharmaceutical industry is
well funded with a strong and experienced lobby that eclipses the
funding of the medical marijuana movement. Any inroads the
pharmaceutical industry makes in halting or rolling back the
medical marijuana movement could have a detrimental impact on the
market for our products and thus on our business, operations and
financial condition.
Marijuana remains illegal under U.S. federal law.
Marijuana
remains illegal under U.S. federal law. It is a Schedule-I
controlled substance. Even in those jurisdictions in which the use
of medical marijuana has been legalized at the state level, its
prescription is a violation of federal law. The United States
Supreme Court has ruled in United States v. Oakland Cannabis
Buyers’ Coop. and Gonzales v. Raich that it is the
federal government that has the right to regulate and criminalize
cannabis, even for medical purposes. Therefore, federal law
criminalizing the use of marijuana trumps state laws that legalize
its use for medicinal purposes.
According
to the Marijuana Policy Project, a pro-legalization group, medical
marijuana is legal in 29 states and Washington, D.C., Puerto Rico
and Guam. In addition, eight states and the District of Columbia
have legalized recreational cannabis use. In 2013, the U.S.
Department of Justice issued a memorandum (commonly referred to as
the “Cole
Memorandum”) to the U.S. Attorneys offices (federal
prosecutors) directing that federal prosecution of individuals and
businesses that rigorously comply with state regulatory provisions
in states that have strictly-regulated legalized medical or
recreational cannabis programs be given low priority. This federal
policy was reinforced by the passage of a federal omnibus spending
bill in 2014 (the “2014
Spending Bill”) that included the so-called
Rohrabacher–Farr amendment which prohibits the use of federal
funds to interfere in the implementation of state laws legalizing
cannabis and state medical marijuana laws. The Department of
Justice, which encompasses the Drug Enforcement Agency, was subject
to the 2014 Spending Bill.
The
Rohrabacher–Farr amendment remained in the federal omnibus
spending bill for the 2016 fiscal year that was signed into law by
President Obama on December 18, 2015. In September 2016, the
amendment was included in a short-term spending bill passed by
Congress and signed into law, which allowed it to remain in effect
through December 9, 2016 when it was again renewed pursuant to a
further short-term spending bill until April 28, 2017.
The
2014 Spending Bill has been cited as evidence of the development of
bi-partisan support in the U.S. Congress for legalizing the use of
cannabis. However, it remains unclear whether the federal
government will eventually repeal the federal prohibition on
cannabis, and there is no assurance that the Rohrabacher–Farr
amendment will be extended past April 28, 2017. Political and
regulatory risks also exist due to the recent election of Donald
Trump to the U.S. Presidency, and the appointment of Sen. Jeff
Sessions to the post of Attorney General with effect from February
9, 2017. Mr. Trump’s positions regarding marijuana are remain
unclear. However, Sen. Sessions has been a consistent opponent of
marijuana legalization efforts throughout his political career, and
has publicly commented that the Justice Department will commit to
enforcing federal laws on marijuana in an “appropriate
way”. It remains unclear what stance the Department of
Justice under the new administration might take toward legalization
efforts in U.S. states, but federal enforcement of the Controlled
Substances Act and other applicable laws is possible.
We may have difficulty accessing the service of U.S.
banks.
As
discussed above, the use of marijuana is illegal under federal law.
Therefore, there is a compelling argument that U.S. banks would not
be able to accept for deposit funds from the drug trade and
therefore would not be able to do business with our Company. On
February 14, 2014 the U.S. Department of the Treasury Financial
Crimes Enforcement Network (“FinCEN”) released guidance to
banks “clarifying Bank Secrecy Act expectations for financial
institutions seeking to provide services to marijuana-related
businesses.” Under these guidelines, financial institutions
must submit a “suspicious activity report”
(“SAR”) as
required by federal money laundering laws. These marijuana related
SARs are divided into three categories: marijuana limited,
marijuana priority, and marijuana terminated, based on the
financial institution’s belief that the marijuana business
follows state law, is operating out of compliance with state law,
or where the banking relationship has been terminated. In the
United States, a bill has been tabled in Congress to grant banks
and other financial institutions immunity from federal criminal
prosecution for servicing marijuana-related businesses if the
underlying marijuana business follows state law. This bill has not
been passed and there can be no assurance with that it will be
passed in its current form or at all.
In
addition, U.S. Rep. Jared Polis (D-CO) has recently re-introduced
proposed legislation in Congress that contemplates, among other
things, the removal of marijuana from the Controlled Substance Act
schedules and regulate it like alcohol.
While
these are positive developments in this regard, there can be no
assurance this legislation will be successful, that even with the
FinCEN guidance that banks will decide to do business with medical
marijuana retailers, or that in the absence of actual legislation
state and federal banking regulators will not strictly enforce
current prohibitions on banks handling funds generated from an
activity that is illegal under federal law. If, in the future, we
are unable to open accounts and otherwise use the service of U.S.
banks, our ability to carry on business in the United States may
become untenable.
Our Company is organized under the
laws of Canada.
Our
Company is a Canadian corporation governed by the Canada Business Corporations
Act and as such, its corporate structure, the rights
and obligations of shareholders and its corporate bodies may be
different from those of the home countries of international
investors. Furthermore, non-Canadian residents may find it more
difficult and costly to exercise shareholder rights. International
investors may also find it costly and difficult to effect service
of process and enforce their civil liabilities against us or some
of our directors, controlling persons and officers.
Risks Associated with our Common Shares
The market price of the common shares of our corporation may be
volatile
The
market price of our common shares may experience significant
volatility. Numerous factors, including many over which we have no
control, may have a significant impact on the market price of our
common shares including, among other things: regulatory
developments in target markets affecting us, our customers or our
competitors; actual or anticipated fluctuations in our quarterly
operating results; changes in financial estimates or other material
comments by securities analysts relating to us, our competitors or
the industry in general; announcements by other companies in the
industry relating to their operations, strategic initiatives,
financial condition or financial performance or to the industry in
general; announcements of acquisitions or consolidations involving
industry competitors or industry suppliers; addition or departure
of our executive officers; and sales or perceived sales of
additional common shares of Empower. In addition, the stock market
in recent years has experienced extreme price and trading volume
fluctuations that often have been unrelated or disproportionate to
the operating performance of individual companies. These broad
market fluctuations may adversely affect the price of the common
shares of Empower regardless of our operating performance. There
can be no assurance that an active market for the common shares
will be established or persist and the share price may
decline.
The value of securities issued by us might be affected by matters
not related to our operating performance.
The
value of securities issued by us may be affected by matters not
related to our operating performance or underlying value for
reasons that include the following: general economic conditions in
Canada, the US and globally; industry conditions, including
fluctuations in the price of cannabis flower; governmental
regulation of the cannabis industry; fluctuation in foreign
exchange or interest rates; stock market volatility and market
valuations; competition for, among other things, capital,
acquisition of skilled personnel; the need to obtain required
approvals from regulatory authorities; worldwide supplies and
prices of and demand for cannabis flower and derivatives; political
conditions and developments in Canada, the US, and globally;
revenue and operating results failing to meet expectations in any
particular period; investor perception of the cannabis industry;
limited trading volume of our common shares; change in governmental
regulations; announcements relating to our business or the business
of our competitors; our liquidity; and our ability to raise
additional funds.
In the
past, companies that have experienced volatility in their value
have been the subject of securities class action litigation. We
might become involved in securities class action litigation in the
future. Such litigation often results in substantial costs and
diversion of management’s attention and resources and could
have a material adverse effect on our business, financial condition
and results of operation.
An investment in our Company will likely be diluted.
We may
issue a substantial number of our common shares without investor
approval to raise additional financing and we may consolidate the
current outstanding common shares. Any such issuance or
consolidation of our securities in the future could reduce an
investor’s ownership percentage and voting rights in us and
further dilute the value of your investment.
We do not expect to pay dividends for the foreseeable
future.
We do
not intend to declare dividends for the foreseeable future, as we
anticipate that we will reinvest any future earnings in the
development and growth of our business. Therefore, investors will
not receive any funds unless they sell their common shares, and
shareholders may be unable to sell their common shares on favorable
terms or at all. We cannot assure you of a positive return on
investment or that you will not lose the entire amount of your
investment in our common shares. Prospective investors seeking or
needing dividend income or liquidity should not purchase our common
shares.
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INFORMATION ON THE COMPANY
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We are
a Canadian corporation existing under the CBCA which conducts
business as a medical cannabis clinic company with operations in
the United States of America, as more particularly described below
in Item 4B – “Business Overview”.
A. History
and Development of the Company
Name
Our
legal and commercial name is Empower Clinics Inc.
Principal Office
Our
principal office is located at Suite 505, 1771 Robson Street
Vancouver, BC V6G 1C9.
Incorporation
We are
a Canadian corporation existing under the CBCA.
Our
common shares are registered under Section 12(g) of the Exchange
Act. Our current trading symbol on the OTC Bulletin Board (the
“OTCQB”) is
“EPWCF” and our current trading symbol on the Canadian
Securities Exchange (the “CSE”) is “CBDT”. Our
current trading symbol on the Frankfurt Stock Exchange is
“8EC.F 8EC.MU, 8EC.SG”.
Important Events in the Development of the Company’s
Business
Reverse Take-over
Empower
was originally incorporated as a Nevada corporation on February 20,
1997 under the name “Trans New Zealand Oil Company". Its name
was changed to “AMG Oil Ltd.” on July 27, 1998 and to
Adira on December 17, 2009. On November 25, 2008, the
Company’s shareholders approved the change of its
jurisdiction of incorporation from the State of Nevada to a
federally incorporated Canadian company pursuant to a continuation
under the Canada Business Corporations Act, which was completed on
November 27, 2008. On April 23, 2018, the Company completed the
acquisition of EHC CA, which represented a reverse takeover of the
Company by EHC CA, with EHC CA as the accounting acquirer and the
Company as the accounting acquiree. In connection with the reverse
takeover, the Company changed its name to Empower, and consolidated
its common shares on the basis of one new common share for each
6.726254 old common shares. Prior to the acquisition of EHC CA, the
Company was engaged in oil and gas exploration activities and
following such acquisition the Company became engaged in its
current business, being the operation of medical cannabis
certification clinics and developer of hemp-based CBD products in
the United States.
Acquisitions
Effective
April 30, 2019, the Company acquired 100% of the membership
interest of Sun Valley Certification Clinics Holdings, LLC
(“Sun Valley”),
an Arizona Limited Liability Company (the “Sun Valley Acquisition”). Through
its subsidiaries, Sun Valley operates a network of
professional medical cannabis and pain management practices, with
five clinics in Arizona, one clinic in Las Vegas, a tele-medicine
platform serving California, and a fully developed franchise
business model for the domestic cannabis industry. Subsidiaries
include the following:
-
Sun Valley Alternative Health Centers, LLC;
-
Sun Valley Alternative Health Centers West, LLC;
-
Sun Valley Alternative Health Centers NV, LLC;
-
Sun Valley Alternative Health Centers Tucson, LLC;
-
Sun Valley Alternative Health Centers Mesa, LLC; and
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Sun Valley Certification Clinics Franchising, LLC
(each,
a “Subsidiary” and, collectively the
“Subsidiaries”)
Effective
October 5, 2020, the Company acquired 100% of the membership
interest in Kai Medical Laboratories LLC. (“Kai Medical”). Kai Medical
operates a high-complexity CLIA and COLA accredited laboratory that
provides reliable and accurate testing solutions to hospitals,
medical clinics, pharmacies, and employer groups. KAI has taken an
active role in COVID-19 testing, battling the pandemic through
RT-PCR testing and serology testing with the capacity to process
4,000 RT-PCR test specimens per day. While the RT-PCR test
identifies if a patient has an active virus, the serology or
antibody test detects if a patient has previously been exposed to
the virus. Both of these test results are vital to managing
outbreaks and the potential spread of coronavirus.
On
December 31, 2020, the Company acquired Lawrence Park Health and
Wellness Clinic Inc., and 1100900 Canada Inc. dba Atkinson
(collectively "LP&A").
LP&A operate multidisciplinary health clinics in the Greater
Toronto Area, Ontario. As leading experts in musculoskeletal health
LP&A’s many practitioners provide a variety of
para-medical services that will form an integral component of the
development of the Company’s growth strategy by opening
healthcare centers in key markets comprised of primary care and
para-medical services further supported by virtual care and
telemedicine services.
Capital Expenditures and Divestitures
During
the year ended December 31, 2020, cash used for capital
expenditures of property and equipment was $142,350 (2019 -
$3,828), and net cash used for capital expenditures in the
acquisition of Kai Medical and LP&A was $167,644 (2019 –
$787,318 for the acquisition of Sun Valley).
Takeover Offers
We are
not aware of any indication of any public takeover offers by third
parties in respect of our common shares during our last and current
financial years.
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(a)
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Summary of Operations
|
On June
12, 2015 EHC CA, through its wholly owned subsidiary EHC US,
purchased all of the assets of Presto Quality Care Corporation
(“Presto”), an
Oregon company that had owned and operated the business currently
carried on by EHC CA. The consideration for the purchase was the
assumption by EHC CA of a note payable by Presto to Bayview
Equities Ltd. in the amount of $550,000 plus accrued interest of
$35,893.
Summary
of clinics:
-
The
Portland clinic was opened in 2003
-
The
Grants Pass clinic was opened in 2009
-
The
Spokane, Washington clinic was opened in January 2010
-
The
Riverside California clinic was opened in 2009 and was recently
closed
-
The
Bend, Oregon clinic was opened in 2011 and was recently
closed
-
The
Chicago, Illinois clinic was opened in September 2018 and was
recently closed
-
In
addition, the travelling clinics started operating in various
locations from 2003 onwards and were designed to service the small
markets that could not sustain a full-time clinic. All the clinics
were start-ups and run by local advocates for the medicinal
benefits of Cannabis. Local offices were sourced and clinics were
held for between one to three days a week, eventually being held
for six days a week in Portland. The initial marketing was mainly
word of mouth. The clinics were staffed by doctors or registered
nurses.
-
The
Lawrence Park clinic operates in Toronto, Ontario (acquired on
December 31, 2020)
-
The
Atkinson clinic operates in Thornhill, Ontario (acquired on
December 31, 2021)
On
April 30, 2019, the Company acquired 100% of the membership
interest of Sun Valley, an Arizona Limited Liability Company.
Through its Subsidiaries, Sun Valley operates a network of
professional medical cannabis and pain management practices, with
five clinics in Arizona, one clinic in Las Vegas, a tele-medicine
platform serving California, and a fully developed franchise
business model for the domestic cannabis industry.
Operations
at Sun Valley Health based in Phoenix, AZ saw a reduction in
patient volume in late Q3 2020 and Q4 2020 due to significant
regulatory changes in the state of Arizona that saw the state fully
legalize cannabis in November 2020. This resulted in the
elimination of the need to have medical cannabis certification card
to legally purchase cannabis products from dispensaries in the
state. As a result, the Company determined it was appropriate to
close two of the clinic locations in Q4 2020 and reduce headcount
and operating expenses. Subsequent to December 31, 2020, the
Company closed one of the two remaining clinic locations, resulting
in one remaining clinic location.
On
October 5, 2020, the Company acquired 100% of the membership
interest in Kai Medical Laboratories LLC. (“Kai
Medical”). Kai Medical operates a high-complexity CLIA and
COLA accredited laboratory that provides reliable and accurate
testing solutions to hospitals, medical clinics, pharmacies, and
employer groups. KAI has taken an active role in COVID-19 testing,
battling the pandemic through RT-PCR testing and serology testing
with the capacity to process 4,000 RT-PCR test specimens per day.
While the RT-PCR test identifies if a patient has an active virus,
the serology or antibody test detects if a patient has previously
been exposed to the virus. Both of these test results are vital to
managing outbreaks and the potential spread of
coronavirus.
Empower
is creating a network of physicians and practitioners who integrate
to serve patient needs, in-clinic, through telemedicine, and with
decentralized mobile delivery. A simplified, streamlined care model
bringing key attributes of the healthcare supply chain together,
always focused on patient experience. The Company provides COVID-19
testing services to consumers and businesses as part of a
four-phased nationwide testing initiative in the United States.
Empower recently acquired Kai Medical Laboratory, LLC as a wholly
owned subsidiary with largescale testing capability.
|
(b)
|
Effects
of Government Regulations
|
See
Item 3D - “Risk Factors”.
Our
executive offices located at Suite 505, 1771 Robson Street
Vancouver, BC V6G 1C9.
|
(d)
|
Special
Skill and Knowledge
|
Steven
McAuley, our Chairman and CEO has significant experience in
managing and growing public companies.
During
the fiscal years ended December 31, 2020, and 2019, all of our
operating activities were in the United States of America. On
December 31, 2020, we acquired LP&A, however, there are no
operating results included in the financial statements for the year
ended December 31, 2020.
|
(f)
|
Competitive
Conditions
|
There
is potential that the Company will face intense competition from
other companies, some of which can be expected to have more
financial resources, industry, manufacturing and marketing
experience than the Company. Additionally, there is potential that
the industry will undergo consolidation, creating larger companies
that may have increased geographic scope and other economies of
scale. Increased competition by larger, better-financed competitors
with geographic or other structural advantages could materially and
adversely affect the business, financial condition and results of
operations of the Company.
To
remain competitive, the Company will require a continued level of
investment in research and development, marketing, sales and client
support. The Company may not have sufficient resources to maintain
research and development, marketing, sales and client support
efforts on a competitive basis which could materially and adversely
affect the business, financial condition and results of operations
of the Company.
|
(g)
|
Dependence
on Customers and Suppliers
|
The
Company has over 165,000 patients and as such, we are not dependent
upon a concentration of customers. The Company is not exposed to
concentration of suppliers.
The
following table sets out the current organizational structure of
the Company and its significant subsidiaries:
|
Name
of Subsidiary
|
Status
|
Jurisdiction
of Incorporation
|
|
Empower
Healthcare Corporation (previously S.M.A.A.R.T Holdings
Inc.)
|
Active
|
British
Columbia, Canada
|
|
S.M.A.A.R.T.
Holdings Inc.
|
Inactive
|
Oregon,
USA
|
|
Empower
Healthcare Corporation
|
Active
|
Oregon,
USA
|
|
SMAART
Inc.
|
Inactive
|
Oregon,
USA
|
|
The
Hemp & Cannabis Company
|
Inactive
|
Oregon,
USA
|
|
THCF
Access Points, Inc.
|
Inactive
|
Oregon,
USA
|
|
The
Hemp & Cannabis Company
|
Inactive
|
Washington,
USA
|
|
THCF
Access Points, Inc.
|
Inactive
|
Washington,
USA
|
|
CanMed
Solutions Inc.
|
Inactive
|
Oregon,
USA
|
|
Kai
Medical Laboratory LLC
|
Active
|
Dallas,
Texas
|
|
11000900 Canada
Inc.
|
Active
|
Ontario,
Canada
|
|
Lawrence Park
Health and Wellness Clinic Inc.
|
Active
|
Ontario,
Canada
|
|
Sun
Valley Certification Clinics Holdings, LLC
|
Inactive
|
Arizona,
USA
|
|
Sun
Valley Alternative Health Centers, LLC
|
Active
|
Arizona,
USA
|
|
Sun
Valley Alternative Health Centers West, LLC
|
Inactive
|
Arizona,
USA
|
|
Sun
Valley Alternative Health Centers NV, LLC
|
Inactive
|
Nevada,
USA
|
|
Sun
Valley Alternative Health Centers Tucson, LLC
|
Inactive
|
Arizona,
USA
|
|
Sun
Valley Alternative Health Centers Mesa, LLC
|
Active
|
Arizona,
USA
|
|
Sun
Valley Certification Clinics Franchising, LLC
|
Inactive
|
Arizona,
USA
|
Consideration in
the Sun Valley Acquisition on April 30, 2019 consisted of cash,
common shares of the Company and a promissory note having an
aggregate value of $3,054,593 as summarized
below:
1.
A cash
payment of $775,000, of which $150,000 was held back by the
Company, half of which is to be released six months from the date
of Closing and the other half of which is to be release twelve
months from the date of Closing;
2.
Issuance
of 22,058,823 common shares of the Company at a deemed price of
$0.135 (CDN$0.175) per Share, representing the average daily
closing price of the common shares on the CSE for the 10-day
trading period ended April 26, 2019. Pursuant to an escrow
agreement dated April 30, 2019, 14,705,882 of the common shares
will be held in escrow by Odyssey Trust Company, and will vest in
quarterly installments over 36 months from the date of the
Closing;
3.
A cash
payment of $12,318 and issuance of 350,602 common shares at a
deemed price of $0.13 (CDN$0.175) per Share, representing the
average daily closing price of the common shares on the CSE for the
10-day trading period ended April 26, 2019 to a minority
shareholder of one of the Subsidiaries in order to acquire their
minority interest therein; and
4.
A
promissory note of US$125,000 bearing interest at a rate of 4% per
annum and due July 31, 2019, to a minority shareholder of one of
the Subsidiaries in order to acquire their minority interest
therein.
Consideration in
the Kai Medical Acquisition on October 5, 2020 consisted of 500,000
stock options and 500,000 warrants with a fair value of $10,025 and
$10,025, respectively. The Company acquired cash of
$9,826.
Consideration in
the acquisition of 11000900 Canada Inc. and Lawrence Park Health
and Wellness Clinic Inc. on December 31, 2020 had aggregate fair
value of $1,766,933, consisting of cash of $215,991, cash payable
of $58,907, up to3,750,000 stock options with a fair value of
$344,110 and share consideration with a fair value of
$1,147,925.
Property
and equipment is comprised of furniture and fixtures and leasehold
improvements at the Company’s clinics as well as testing
instruments utilized by Kai Medical. The Company’s leases,
all of which support clinic operations, are summarized
below:
-
Portland,
Oregon – Shared space which is currently on a month-to-month
lease
-
Phoenix,
Arizona – 2,830 square feet which was on a five-year lease
term and expired on February 28, 2021. This clinic is now
closed.
-
Mesa,
Arizona – 1,325 square feet which is currently on a five-year
lease term set to expire on March 31, 2022. The Company terminated
this lease and closed the clinic in February 2021.
-
Surprise,
Arizona – 745 square feet which is currently on a five-year
lease term expiring September 30, 2022.
-
Tucson,
Arizona – 1,400 square feet which was on a five-year lease
term set to expire on August 31, 2022. The Company terminated this
lease and closed the clinic in February 2021.
-
Toronto,
Ontario – 1,274 square feet which is currently on a 13-month
lease expiring on January 31, 2022.
-
Dallas,
Texas – 15,750 square feet which is currently on a lease
expiring June 30, 2022.
-
Dallas,
Texas – 1,360 square feet which is currently on a
month-to-month lease.
We
currently do not have exposure to any environmental protection
requirements and policies.
|
|
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
|
The
following is a discussion and analysis of our activities,
consolidated results of operations and financial condition as of
and for the year ended December 31, 2020. It should be read in
conjunction with our audited consolidated financial statements and
related notes for the year ended December 31, 2020. Our financial
statements have been prepared in accordance with IFRS as issued by
the IASB.
Results of Operations
Consolidated results of operations for the year ended December 31,
2020 compared to the year ended December 31, 2019.
Total Revenues
Clinic
services revenues were $3,154,301, compared to $1,949,549 during
fiscal 2019 as the Company pivoted its medical clinics to
performing COVID-19 testing from April 2020 through to the end of
the year, which offset decreased revenues from patient visits to
Sun Valley Health clinics. Revenues for fiscal 2018 were
$1,091,386 as the Company
received 7,607 patients spending on average $143, noting that
clinics revenues for 2018 were driven primarily by patients seeking
medical cannabis licenses.
Product
revenues were $54,895, compared to $82,032 during fiscal 2019 and
$nil during fiscal 2018 as the Company had expanded into CBD
product sales and the sale of premium wellness products in the
prior year. Product revenues declined as a direct result of the
impact of the COVID-19 pandemic.
Earnings from clinic operations
Cost of
clinic services were $1,157,428, compared to $793,374 during fiscal
2019 and $417,047 during fiscal 2018. These costs represent
physician and clinic support staff expenses that are required to
operate the clinics and provide patient consulting services. These
expenses increased due to the increase in revenues. The Company
continues to monitor and improve its operational controls to align
labor cost with direct patient consultations. The Company employs a
diverse mix of physicians and practitioners.
Cost of
product revenues (changes in finished goods inventory) was $36,132,
compared to $32,902 during fiscal 2019 and $nil during fiscal 2018,
as the Company had expanded into CBD product sales and the sale of
premium wellness products during fiscal 2019, and during fiscal
2020 expanded laboratory testing services with the acquisition of
Kai on October 5, 2020, which resulted in higher run rate cost of
goods sold.
Operating expenses
Operating
expenses were $3,947,408, compared to $2,933,619 during fiscal 2019
and $2,517,681 during fiscal 2018. The increase over the years is
primarily related to additional advertising and promotion expenses
of $1,031,297 due to the launching capital markets and investor
relations marketing programs in order to increase visibility and
awareness to the investment community and prospective shareholders
and to more effectively communicate developments of the Company,
partially offset by savings in salaries and benefits as well as
reductions in rent as the Company closed various offices as part of
its cost-cutting initiatives.
Legal and professional fees
Legal
and professional fees were $1,394,570, compared to $1,015,743 during fiscal 2019 and $
1,450,141 during fiscal 2018.
The increase is primarily related to the acquisitions of Kai and
LP&A in Q4 2020. The decrease from fiscal 2018 to fiscal 2019
was the result of the Company’s public listing transaction
occurring during fiscal 2018 which resulted in higher fees during
that year.
Depreciation and amortization expense
Depreciation
and amortization expense were $381,492, compared to $374,210 during
fiscal 2019 and $123,473 during fiscal 2018. The balance increased
due to the acquisition of Sun Valley in May 2019 which carried
additional leases and the depreciation on the right-of-use
asset.
Share-based payments
Share-based
payments were $323,799, compared to $608,944 during fiscal 2019 and
$892,417 during fiscal 2018.
The share-based payments expense is the fair value of share options
recognized as an expense during the period based on the fair valued
determined by the Black-Scholes option pricing model
valuation.
Change in fair value of warrant liability
The
Company recorded a loss on the change in the fair value of the
warrant liability of $11,886,796 compared to a gain of
$2,065,781 during fiscal 2019
and a gain of $1,598,425 during fiscal
2018.The share purchase warrants are required to be revalued
at every quarter end and the current year loss resulted from the
significant increase in the Company’s share price during
fiscal 2020, which is a key variable in determining the fair value
of the warrant liability per the Black-Scholes valuation
model.
Gain on change in fair value of conversion feature
During
fiscal 2019, the Company recorded a gain on the change in the fair
value of the conversion feature of $587,229, compared to $890,136
during fiscal 2018. The conversion feature relates to the
convertible debentures outstanding during the period and is
required to be revalued at every quarter end and the gain resulted
from the decrease in the Company’s share price during fiscal
2019, which is a key variable in determining the fair value of the
conversion feature. As all the convertible debentures were
converted to common shares during fiscal 2020, the revaluation of
the conversion option during fiscal 2020 was significantly
reduced.
Inflation
During
the years ended December 31, 2020 and 2019, inflation has not had a
material impact on our operations.
Foreign Exchange Risk
We have
limited exposure to financial risk related to the fluctuation of
foreign exchange rates. We operate in the U.S., most of our
monetary assets are held in U.S. dollars and most of our
expenditures are made in U.S. dollars. However, we also have
expenditures in CDN$. We have not hedged our exposure to currency
fluctuations.
|
|
Liquidity
and Capital Resources
|
Liquidity
Liquidity
risk is the risk that the Company will encounter difficulties in
meeting obligations associated with its financial liabilities and
other contractual obligations. The Company’s strategy for
managing liquidity is based on achieving positive cash flows from
operations to internally fund operating and capital
requirements.
Factors
that may affect the Company’s liquidity are continuously
monitored. These factors include the number of patient visits,
average patient spend per visit, operating costs, capital costs,
income tax refunds, foreign currency fluctuations, seasonality,
market immaturity and a highly fluid environment related to state
and federal law passage and regulations.
In the
event that the Company is adversely affected by any of these
factors and, as a result, the operating cash flows are not
sufficient to meet the Company’s working capital requirements
there is no guarantee that the Company would be able to raise
additional capital on acceptable terms to fund a potential cash
shortfall. Consequently, the Company is subject to liquidity
risk.
The
Company will need to procure additional financing in order to fund
its ongoing operation. The Company intends to obtain such financing
through equity financing, and there can be no assurance that the
Company can raise the required capital it needs to build and expand
as expected, nor that the capital markets will fund the business of
the Company. Without this additional financing, the Company may be
unable to achieve positive cash flow and earnings as quickly as
anticipated, these uncertainties cast a significant doubt about the
Company’s ability to continue as a going
concern.
At
December 31, 2020, the Company had cash of $4,889,824 and working
capital of $1,746,818. Subsequent to year end, the Company received
cash of $5,864,336 from the exercise of warrants and stock
options.
Year ended December 31, 2020 compared to year ended
December 31, 2019:
-
Cash
used by operating activities was $1,749,818, compared to $2,273,188
during fiscal 2019 and $2,835,710 during fiscal 2018. Significant
drivers of the change over the prior year relate to additional
operating expenses incurred as a result of the growth of the
Company, partially offset by increased revenues generated from
COVID-19 testing.
-
Cash used in investing activities was
$309,994, compared to $791,146
during fiscal 2019 and $100,227 during fiscal 2018 as a result of
cash spend on the acquisition of Kai and LP&A as well as
intangible assets during fiscal 2020, compared to the cash spend
related to the acquisition of Sun Valley during fiscal
2019.
-
Cash provided by financing activities was
$6,770,483 compared to $3,085,819 during fiscal 2019 and $3,093,604 during
fiscal 2018. Cash provided by
financing activities during fiscal 2020 related to cash proceeds
from the issuance of common shares and cash proceeds from the
exercise of warrants, partially offset by cash spend on lease
payments and repayments of notes payable and loans payable, whereas
cash provided by financial activities during fiscal 2019 related to
cash proceeds from the issuance of common shares, advance of
convertible debentures, advance of notes payable and cash acquired
in the acquisition of Sun Valley which was partially offset by
lease payments and share issue costs. Cash provided by financing
activities during fiscal 2018 was primarily related to cash
proceeds from the issuance of common shares and advance of
convertible debentures.
Capital Resources
The
capital of the Company consists of consolidated equity, notes
payable, convertible debentures, secured loan payable, and
convertible note payable, net of cash.
|
As at December 31,
|
|
|
|
Equity
|
(5,490,401)
|
(3,514,913)
|
|
Notes
payable
|
708,361
|
969,891
|
|
Convertible
debentures
|
-
|
427,320
|
|
Convertible
notes payable
|
200,530
|
192,717
|
|
Current
portion of loans payable
|
992,070
|
761,711
|
|
Non-current
portion of loans payable
|
1,140,157
|
-
|
|
|
(2,449,283)
|
(1,163,274)
|
|
Less:
Cash
|
(4,889,824)
|
(179,153)
|
|
|
(7,339,107)
|
(1,342,427)
|
The
board of directors of the Company has overall responsibility for
the establishment and oversight of the Company’s risk
management policies on an annual basis. The Company’s board
of directors identifies and evaluates the Company’s financial
risks and is charged with the responsibility of establishing
controls and procedures to ensure financial risks are
mitigated.
The
Company’s objectives when managing capital are to pursue and
complete the identification and evaluation of assets, properties or
businesses with a view to acquisition. The Company does not have
any externally imposed capital requirements to which it is
subject.
The
Company manages the capital structure and makes adjustments to it
in light of changes in economic conditions and the risk
characteristics of the underlying assets. To maintain or adjust the
capital structure, the Company may attempt to issue new common
shares or adjust the amount of cash.
The
Company’s investment policy is to invest excess cash in
investment instruments at high credit, quality financial
institutions with terms to maturity selected with regards to the
expected time of expenditures from continuing
operations.
Critical Accounting Policies and Estimates
The
preparation of the Company’s consolidated financial
statements in conformity with IFRS requires management to make
estimates based on assumptions about future events that affect the
reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting period.
The
estimates and associated assumptions are based on historical
experience and various other factors that are believed to be
reasonable under the circumstances, the results of which form the
basis of making the judgements about carrying values of assets and
liabilities that are not readily apparent from other sources.
Actual results could differ from those estimates.
The
estimates and underlying assumptions are reviewed on an ongoing
basis. Revisions to accounting estimates are recognized
prospectively in the period in which the estimate is revised.
Management has made the following critical judgements and
estimates:
Critical judgements in applying accounting policies
Critical
judgements made by management in applying the Company’s
accounting policies, apart from those involving estimations, that
have the most significant effect on the amounts recognized in the
Company’s consolidated financial statements are as
follows:
Functional currency
The
functional currency for each of the Company’s subsidiaries is
the currency of the primary economic environment in which the
respective entity operates; such determination involves certain
judgements to identify the primary economic environment. The
Company reconsiders the functional currency of its subsidiaries if
there is a change in events and/or conditions which determine the
primary economic environment.
Assessment of Cash Generating Units
For
impairment assessment and testing, assets are grouped together into
the smallest group of assets that generates cash inflows from
continuing use that are largely independent of the cash inflows of
other assets or cash generating units (“CGU”). The
Company applies judgement in assessing the smallest group of assets
that comprise a single CGU.
Assessment of useful lives of property and equipment and intangible
assets
Management
reviews its estimate of the useful lives of property and equipment
and intangible assets annually and accounts for any changes in
estimates prospectively. The Company applied judgment in
determining the useful lives of trademarks and patient records with
less than an indefinite life. In addition, the Company applied
judgment in determining the useful lives of the right-of-use assets
and leasehold improvements for purposes of assessing the shorter of
the useful life or lease term.
Assessment of indicators of impairment
At the
end of each reporting period, the Company assesses whether there
are any indicators, from external and internal sources of
information, that an asset or CGU may be impaired, thereby
requiring adjustment to the carrying value.
Revenue recognition
Determination of performance obligations
The
Company applied judgement to determine if a good or service that is
promised to a customer is distinct based on whether the customer
can benefit from the good or service on its own or together with
other readily available resources and whether the good or service
is separately identifiable. Based on these criteria, the Company
determined the primary performance obligation relating to its sales
contracts is the delivery of the medical services or sale of
product, each representing a single performance obligation with
consideration allocated accordingly.
Transfer of control
Judgement
is required to determine when transfer of control occurs relating
to the medical services to its customers. Management based its
assessment on a number of indicators of control, which include, but
are not limited to whether the Company has present right of
payment, whether delivery of medical services has occurred and
whether the physical possession of the goods, significant risks and
rewards and/or legal title have been transferred to the
customer.
Expected credit losses
In
calculating the expected credit loss on financial instruments,
management is required to make a number of judgments including the
probability of possible outcomes with regards to credit losses, the
discount rate to use for time value of money and whether the
financial instrument’s credit risk has increased
significantly since initial recognition.
Business combinations
Judgment
is used in determining whether an acquisition is a business
combination or an asset acquisition.
In a
business combination, all identifiable assets, liabilities and
contingent liabilities acquired are recorded at their fair values,
including the total consideration paid by the Company. One of the
most significant estimates relates to the determination of the fair
value of these assets and liabilities including assessing the fair
value of any favourable or unfavorable lease terms. For any
intangible asset identified or form of consideration paid by the
Company, depending on the type of intangible asset or consideration
paid and the complexity of determining its fair value, an
independent valuation expert or management may develop the fair
value, using appropriate valuation techniques, which are generally
based on a forecast of the total expected future net cash flows.
The evaluations are linked closely to the assumptions made by
management regarding the future performance of the assets concerned
and any changes in the discount rate applied.
Additionally,
as part of a business combination, all forms of consideration paid
(on the date of acquisition or contingent upon achieving certain
milestones) are recorded at their fair values, which is a
significant estimate. For any form of consideration paid by the
Company, depending on the type of consideration paid and the
complexity of determining its fair value, an independent valuation
expert or management may develop the fair value, using appropriate
valuation techniques, which are generally based on a forecast of
the total expected future net cash flows. The evaluations are
linked closely to the assumptions made by management regarding the
future performance of the asset concerned and any changes in the
discount rate applied. In the event that there is contingent
consideration in an acquisition management makes assumptions as to
the probability of the consideration being paid.
Key sources of estimation uncertainty
Significant
assumptions about the future and other major sources of estimation
uncertainty at the end of the reporting period that may result in a
material adjustment to the carrying amounts of the Company’s
assets and liabilities are as follows:
Current and deferred taxes
The
Company’s provision for income taxes is estimated based on
the expected annual effective tax rates (and tax laws) that have
been enacted or substantively enacted by the end of the reporting
period. The current and deferred components of income taxes are
estimated based on forecasted movements in temporary differences.
Changes to the expected annual effective tax rate and differences
between the actual and expected effective tax rate and between
actual and forecasted movements in temporary differences will
result in adjustments to the Company’s provision for income
taxes in the period changes are made and/or differences are
identified.
In
assessing the probability of realizing income tax assets
recognized, management makes estimates related to expectations of
future taxable income, applicable tax planning opportunities,
expected timing of reversals of existing temporary differences and
the likelihood that tax positions taken will be sustained upon
examination by applicable tax authorities. In making its
assessments, management gives additional weight to positive and
negative evidence that can be objectively verified. Estimates of
future taxable income are based on forecasted cash flows from
operations and the application of existing tax laws in each
jurisdiction. Forecasted cash flows from operations are based on
patient visits, which are internally developed and reviewed by
management.
Weight
is attached to tax planning opportunities that are within the
Company’s control and are feasible and implementable without
significant obstacles.
The
likelihood that tax positions taken will be sustained upon
examination by applicable tax authorities is assessed based on
individual facts and circumstances of the relevant tax position
evaluated in light of all available evidence.
Equity-settled share-based payments
Share-based
payments are measured at fair value. Options and warrants are
measured using the Black-Scholes option pricing model based on
estimated fair values of all share-based awards at the date of
grant and are expensed to earnings or loss from operations over
each award’s vesting period. The Black-Scholes option pricing
model utilizes subjective assumptions such as expected price
volatility and expected life of the option. Changes in these input
assumptions can significantly affect the fair value
estimate.
Contingencies
Due to
the nature of the Company’s operations, various legal and tax
matters can arise from time to time. In the event that
management’s estimate of the future resolution of these
matters’ changes, the Company will recognize the effects of
the changes in its consolidated financial statements for the period
in which such changes occur.
Warrant liability and conversion feature
Warrant
liability and conversion feature are measured at fair value using
the Black-Scholes option pricing model based on estimated fair
values at the date of grant and revalued at period end to the
consolidated statement of loss and comprehensive loss over the life
of the instruments. The Black-Scholes option pricing model utilizes
subjective assumptions such as expected price volatility and
expected life of the option. Changes in these input assumptions can
significantly affect the fair value estimate.
Leases as a result of adopting IFRS 16
Identifying whether a contract includes a lease
IFRS 16
applies a control model to the identification of leases,
distinguishing between a lease and a service contract on the basis
of whether the customer controls the asset. The Company had to
apply judgment on certain factors, including whether the supplier
has substantive substitution rights, does the Company obtain
substantially all of the economic benefits and who has the right to
direct the use of that asset.
Incremental borrowing rate
When
the Company recognizes a lease, the future lease payments are
discounted using the Company’s incremental borrowing rate.
This significant estimate impacts the carrying amount of the lease
liabilities and the interest expense recorded on the consolidated
statement of loss and comprehensive loss.
Estimate of lease term
When
the Company recognizes a lease, it assesses the lease term based on
the conditions of the lease and determines whether it will extend
the lease at the end of the lease contract or exercise an early
termination option. As it is not reasonably certain that the
extension or early termination options will be exercised, the
Company determined that the term of its leases are the lesser of
original lease term or the life of the leased asset. This
significant estimate could affect future results if the Company
extends the lease or exercises an early termination
option.
|
|
Research
and Development, Patents and Licenses
|
Not
applicable.
We are
not aware of any trends that have or are reasonably likely to have
a current or future effect on our financial condition, changes in
financial condition, revenues or expenses, results of operations,
liquidity, capital expenditures or capital resources that is
material to investors.
|
|
Off-Balance
Sheet Arrangements
|
The
Company has not entered into any material off-balance sheet
arrangements such as guarantee contracts, contingent interests in
assets transferred to unconsolidated entities, derivative financial
obligations or arrangements with respect to any obligations under a
variable interest equity arrangement.
|
|
Tabular
Disclosure of Contractual Obligations
|
A
summary of undiscounted liabilities and future operating
commitments at December 31, 2020, are as follows:
|
|
|
|
|
|
|
Maturity
analysis of financial liabilities
|
|
|
|
|
|
Accounts payables
and accrued liabilities
|
$3,442,725
|
$3,442,725
|
$-
|
$-
|
|
Loans
payable
|
2,132,227
|
992,070
|
143,624
|
996,533
|
|
Notes
payable
|
708,361
|
708,361
|
-
|
-
|
|
Convertible notes
payable
|
200,530
|
200,530
|
-
|
-
|
|
Lease
payments
|
496,386
|
241,138
|
255,248
|
-
|
|
Total
financial liabilities and commitments
|
$6,980,229
|
$5,584,824
|
$398,872
|
$996,533
|
Various
tax and legal matters are outstanding from time to time. In the
event that management’s estimate of the future resolution of
these matters’ changes, the Company will recognize the
effects of these changes in the consolidated financial statements
in the period such changes occur.
Not
applicable.
|
ITEM 6
|
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
|
|
|
Directors
and Senior Management
|
The
size of Empower’s Board of Directors (the “Board”) is currently set at three.
All of Empower’s directors are elected annually by the
shareholders and hold office until the next annual general meeting
or until their successors are duly elected and qualified, unless
their office is earlier vacated in accordance with the CBCA and
Empower’s articles of incorporation.
The
following table sets forth information relating to the directors
and senior management of the Company as at the date of this Form
20-F:
|
Name(1)
|
Position
|
|
Steven
McAuley (2)
|
Director,
Chairman and Chief Executive Officer
|
|
Andrejs
Bunkse (2)(3)
|
Director
|
|
Dustin
Klein (2)
|
Director,
Senior Vice President of Business Development
|
|
Kyle
Appleby
|
Chief
Financial Officer
|
|
Yoshi
Tyler
|
Director,
President of Kai Medical
|
Notes:
|
(1)
|
|
Neither
age nor date of birth of directors or senior managers is required
to be reported in our home country (Canada) nor otherwise publicly
disclosed.
|
|
(2)
|
|
Member
of Audit Committee.
|
|
(3)
|
|
“Independent”
for purposes of National Instrument 52-110– Audit Committees
(“NI
52-110”).
|
The
following is biographical information on our directors and officers
who are acting in the capacity of director or officer as of the
date hereof:
Steven McAuley – Chairman and Chief Executive
Officer
Mr.
McAuley is our Chairman and CEO. He is also the Chairman
and CEO of Empower. in Vancouver, B.C. Canada, a position he has
held since January 4, 2019. From January 2013 through January 2019,
Mr. McAuley was the Founder & CEO of Privatis Technology
Corporation in Vancouver, B.C. Canada. He is the former SVP,
Financial Services for Penske Automotive Group NYSE: PAG, CEO of
Xpel Technologies TSXV: DAP and former CEO, United Kingdom, GE
Capital Fleet Services.
Kyle Appleby – Chief Financial Officer
Mr.
Appleby has been our Chief Financial Officer since October 2020.
Mr. Appleby is the owner of CFO Advantage Inc., a CFO service
provide for reporting issuers since 2009. Mr. Appleby has acted as
CFO for various reporting issuers.
Dustin Klein – Director and Senior Vice President of
Business Development
Mr.
Klein has been a member of the Board of Directors of Empower since
May 2019. Mr. Klein is currently the co-founder of Sun Valley
Science, LLC, a position he has held since its formation in May
2018. Between September 2013 and May 2019, Mr. Klein was a
co-founder of our Affiliates Sun Valley Health Centers, LLC, Sun
Valley Health Centers West, LLC, Sun Valley Health Centers Mesa,
LLC, Sun Valley Health Centers NV, LLC and Sun Valley Health
Centers Tucson, LLC which operate Sun Valley Health Businesses in
the metropolitan Phoenix, Arizona, Tucson, Arizona and Las Vegas,
Nevada area until April 2019. From September 2012 through July
2013, Mr. Klein was the Manager of Johns 4x4 in Boulder, Colorado.
From January 2012 through August 2012, Mr. Klein was a Regional
Account Manager for Solar City in Denver Colorado. From January 1,
2011 through December 31, 2011, Mr. Klein was the owner of Gutshot
Entertainment in Denver, Colorado.
Andrejs Bunkse – Director
Mr.
Bunkse has been a member of the Board of Directors of Empower since
June 2019. Mr. Bunkse is currently Of Counsel to Nimbus Legal PLLC
in Scottsdale Arizona, a position he has held since May 2018. Mr.
Bunkse is the founder of Rain Legal (Law Offices of Andrejs K.
Bunkse), a position he has held since April 2018. Mr. Bunkse has
been the President of Endurance Strategies Group in Phoenix,
Arizona since May 2013.
Yoshi Tyler – Director
Ms.
Tyler has been a member of the Board of Directors since April 2021.
Ms. Tyler is the President of Kai Medical Laboratory, LLC, a
position she has held since January 2017. With a professional and
entrepreneurial background in healthcare, Ms. Tyler has more than
13 years of experience providing leadership at Pfizer, Inc., a
Fortune 500 pharmaceutical company. This experience has provided
her with in-depth knowledge and industry insights to found and lead
Kai Medical Laboratory towards unprecedented growth.
Cease trade orders, bankruptcies, penalties or
sanctions
For the
purposes of this section, “order” means a cease trade
order; an order similar to a cease trade order; or an order that
denied the relevant company access to any exemption under
securities legislation that was in effect for a period of more than
30 consecutive days.
On May
3, 2021, the Company was granted a management cease trade order
(“MCTO”) by the
British Columbia Securities Commission. The MCTO does not affect
the ability of shareholders who are not insiders of the Company to
trade their securities.
The
MCTO restricted the following individuals from buying or selling
securities of Empower:
-
Steven McAuley
– Chairman and Chief Executive Officer
-
Kyle Appleby
– Chief Financial Officer
-
Dustin Klein
– Director and Senior Vice President of Business
Development
-
Andrejs Bunkse
– Director
The
MCTO was issued in connection with the delay by the Company in
filing its annual financial statements for the year ended December
31, 2020, and the related management’s discussion and
analysis and certificates of its CEO and CFO (collectively, the
"Required Filings") with
Canadian securities regulators until after the April 30, 2021
filing deadline. The delay in filing was primarily due to the
impact of COVID-19 on the audit and associated required travel, of
the Company's recently acquired subsidiaries in both the US and
Canada. The Required Filings were filed on July 2, 2021 and the
MCTO was lifted on July 14, 2021
On May
7, 2019, the Company’s trading was suspended by Canadian
securities regulators due to a delay in filing the Required Filings
with Canadian securities regulators until after the April 30, 2019
filing deadline. The delay was the result of material deficiencies
in the Company’s disclosure controls and procedures as
outlined Item 15 of this 20-F. The Required Filings were filed on
June 6, 2019, at which point the Company’s trading
resumed.
Other
than as disclosed above, to the best of our knowledge, no director
or executive officer of Empower is, as at the date hereof, or has
been, within the 10 years before the date hereof, a director, chief
executive officer or chief financial officer of any corporation
(including Empower) that:
(a)
was
subject to an order that was issued while the director or executive
officer was acting in the capacity as director, chief executive
officer or chief financial officer; or
(b)
was
subject to an order that was issued after the director or executive
officer ceased to be a director, chief executive officer or chief
financial officer and which resulted from an event that occurred
while that person was acting in the capacity as director, chief
executive officer or chief financial officer.
To the
best of our knowledge, no director or executive officer of Empower
or a shareholder holding a sufficient number of securities of
Empower to affect materially the control of Empower:
(a)
is, as
at the date hereof, or has been within the 10 years before the date
hereof, a director or executive officer of any corporation
(including Empower) that, while that person was acting in that
capacity, or within a year of that person ceasing to act in that
capacity, became bankrupt, made a proposal under any legislation
relating to bankruptcy or insolvency or was subject to or
instituted any proceedings, arrangement or compromise with
creditors or had a receiver, receiver manager or trustee appointed
to hold its assets; or
(b)
as,
within the 10 years before the date hereof, become bankrupt, made a
proposal under any legislation relating to bankruptcy or
insolvency, or become subject to or instituted any proceedings,
arrangement or compromise with creditors, or had a receiver,
receiver manager or trustee appointed to hold the assets of the
director, executive officer or shareholder.
To the
best of our knowledge, no director or executive officer of the
Company, or a shareholder holding a sufficient number of the
Company’s securities to affect materially the control the
Company, has been subject to:
(a)
any
penalties or sanctions imposed by a court relating to securities
legislation or by a securities regulatory authority or has entered
into a settlement agreement with a securities regulatory authority;
or
(b)
any
other penalties or sanctions imposed by a court or regulatory body
that would likely be considered important to a reasonable investor
in making an investment decision.
Conflicts of Interest
Our
directors and officers are aware of the existence of laws governing
accountability of directors and officers for corporate opportunity
and requiring disclosures by directors of conflicts of interest and
we will rely upon such laws in respect of any directors and
officers’ conflicts of interest or in respect of any breaches
of duty by any of its directors or officers. All such conflicts
will be disclosed by such directors or officers in accordance with
the CBCA and they will govern themselves in respect thereof to the
best of their ability in accordance with the obligations imposed
upon them by law.
Promoters
None
noted.
During
the year ended December 31, 2020, we paid aggregate remuneration to
our directors and officers as a group who served in the capacity of
director or executive officer during such year $296,815 (2019 -
$1,301,945).
Executive Compensation
Compensation Discussion and Analysis
In
assessing the compensation of our Company’s executive
officers, we do not have in place any formal objectives, criteria
or analysis; instead, we rely mainly on Board discussion.
Currently, any material commitments, inclusive of remuneration, are
required to be pre-approved by the Board.
Our
executive compensation program has three principal components: base
salary, incentive bonus plan and stock options. Base salaries for
all our employees are established for each position through
comparative salary surveys of similar type and size companies. Both
individual and corporate performances are also taken into account.
Incentive bonuses, in the form of cash payments, are designed to
add a variable component of compensation based on corporate and
individual performances for executive officers and employees. No
bonuses were paid to executive officers or employees during the
most recently completed financial year.
We have
no other forms of compensation, although payments may be made from
time to time to individuals or companies they control for the
provision of consulting services. Such consulting services are paid
for at competitive industry rates for work of a similar nature by
reputable arm’s length services providers.
As at
December 31, 2019 we had a compensatory plan, contract or
arrangement where Mr. Craig Snyder is entitled to receive up to two
years salary as a severance payment depending on the date of
termination. His final severance was paid in 2019.
We have
no additional compensatory plans, contracts or arrangements where
an executive officer is entitled to receive in excess of $100,000
in the event of termination, resignation or retirement, a change of
control of Empower or a change in responsibilities following a
change in control, other than as described in this Form
20-F.
Summary Compensation Table
The
following table provides a summary of compensation that we paid to
our senior management during the year ended December 31,
2020:
|
|
|
|
|
|
Non-Equity Incentive Plan Compensation($)
|
|
|
|
|
Names and Principal Position
|
Year
|
Salary ($)
|
Share-Based Awards($)
|
Option-Based Awards($)
|
Annual incentive plans
|
Long-term incentive plans
|
Pension Value($)
|
All Other Compensation($)
|
Total Compensation($)
|
|
Steven
McAuley, President, CEO and Director (1)
|
2020
|
142,499
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
14,556
|
157,055
|
|
Kyle
Appleby, CFO(2)
|
2020
|
6,709
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
6,709
|
|
Dustin
Klein, SVP Business Development, Director (3)
|
2020
|
50,000
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
50,000
|
|
Andrejs
Bunkse, Director(4)
|
2020
|
7,500
|
Nil
|
11,353
|
Nil
|
Nil
|
Nil
|
Nil
|
7,500
|
(1)
Appointed CEO and Director on January 4, 2019.
(2)
Appointed on September 28, 2020
(3)
Appointed on April 30, 2019
(4)
Appointed on May 26, 2019
Option Based Awards
Stock
options are granted to provide an incentive to our directors,
officers, employees and consultants to achieve our longer-term
objectives; to give suitable recognition to the ability and
industry of such persons who contribute materially to our success;
and to attract and retain persons of experience and ability, by
providing them with the opportunity to acquire an increased
proprietary interest in Empower. We award stock options to our
executive officers based upon the recommendation of the Board,
which recommendation is based upon the Compensation
Committee’s review of a proposal from the President and CEO.
Previous grants of incentive stock options are taken into account
when considering new grants.
We have
a stock option plan for the granting of incentive stock options to
the officers, employees, consultants and directors. See Item 6E -
“Share Ownership – Equity Compensation Plans” for
more information.
Director Compensation
We have
no arrangements, standard or otherwise, pursuant to which Directors
are compensated by for their services in their capacity as
Directors, or for committee participation, involvement in special
assignments or for services as consultant or expert during the most
recently completed financial year or subsequently, up to and
including the date of this Form 20-F, except for the consulting
fees described in Item 7.B – “Related Party
Transactions” of this Form 20-F.
Long-Term Incentive Plan Awards
We did
not make any long-term incentive plan awards during the years ended
December 31, 2020 and 2019.
Pension, Retirement or Similar Benefits
We do
not provide for pension, retirement, or similar
benefits.
Employment Agreements
As of
the date of this Annual Report, we have the following agreements
with officers of the Company:
Steven McAuley
Effective
January 4, 2019, the Company entered into an employment agreement
with Mr. Steven McAuley which includes an annual base salary of
$225,000, a variable annual incentive program to be determine by
the Board of Directors, a bonus incentive program to be based on
the satisfaction of certain milestones, including the successful
completion of financing rounds following which the annual base
salary will be increased by an amount equal to 2% of the total
amount raised, the grant of 7,000,000 stock options with a five
year term and in lieu of a signing bonus, the issuance of 2,000,000
fully vested common shares and 5,000,000 common shares which will
be subject to a three year vesting period from the date of grant,
with 11.11% vesting each three months from the date of
grant.
In
2020, Mr. Steven McAuley deferred his salary in order to support
the working capital constraints that the Company was
facing.
Our
Directors have served in their respective capacities since their
election or appointment and will serve until our next annual
general meeting or until a successor is duly elected and qualified,
unless their office is earlier vacated in accordance with the CBCA
and our articles of incorporation. Our officers serve at the
discretion of the Board.
The
Board is responsible for, among other things, identifying suitable
candidates to be recommended for election to the Board by
shareholders or appointment by the Directors, subject to the limits
in Empower’s articles and the CBCA. One of the objectives of
the Board with respect to the nomination is to maintain the
composition of the Directors in a way that provides the best mix of
skills and experience to guide our long-term strategy and ongoing
business operations.
The
Board conducts an annual review and assessment of the performance
of the Chairman and Chief Executive Officer and our other senior
executive officers.
The
Board also reviews and monitors our executive development programs
and the long-range plans and personnel policies for recruiting,
developing and motivating our executives. The Board has reviewed
and approved the qualifications of each of the Board nominees
standing for election.
The
Board’s review of the performance of our company and the
Chief Executive Officer as measured against objectives established
in the prior year by the Board and the CEO. The evaluation is to be
used by the Board in its deliberations concerning the CEO’s
annual compensation. The evaluation of performance against
objectives forms part of the determination of the entire
compensation of senior employees. The Board is also responsible for
reviewing the compensation of the Directors on an annual basis,
taking into account such matters as time commitment, responsibility
and compensation provided by comparable organizations. The
compensation committee will make an annual review of such matters
and make a recommendation to the Board.
The
Board is responsible for making an annual assessment of the overall
performance of the Directors as a group and to reporting its
findings to the full Board. The assessment examines the
effectiveness of the Directors as a whole and specifically reviews
areas that the Directors and/or management believe could be
improved to ensure the continued effectiveness of the Directors in
the execution of their responsibilities.
Term of Office
All
directors have a term of office expiring at our next annual general
meeting, unless a director’s office is earlier vacated in
accordance with our Articles or the provisions of the CBCA. All
officers serve at the discretion of the Board.
Audit Committee
We have
a standing Audit Committee that assists the directors of the
Company in overseeing all material aspects of reporting, control
and audit functions, except those specifically related to the
responsibilities of another standing committee of the Board. The
role of the Audit Committee includes a particular focus on the
qualitative aspects of financial reporting to shareholders and on
our processes for the management of business/financial risk and for
compliance with significant applicable legal, ethical, and
regulatory requirements. The Audit Committee is responsible for,
among other things, the making recommendations to our Board with
respect to the appointment and remuneration of our independent
accountant.
As of
the date hereof, our Audit Committee is comprised of Steven
McAuley, Andrejs Bunkse, and Dustin Klein.
We have
procedures for the review and pre-approval of any services
performed by our auditors. The procedures require that all proposed
engagements of the auditors for audit and non-audit services be
submitted to the Audit Committee for approval prior to the
beginning of any such services. The Audit Committee considers such
requests, and, if acceptable to a majority of the Audit Committee
members, pre-approves such audit and non-audit services by a
resolution authorizing management to engage the auditors for such
audit and non-audit services. During such deliberations, the Audit
Committee assesses, among other factors, whether the services
requested would be considered “prohibited services” as
contemplated by the regulations of the SEC, and whether the
services requested and the fees related to such services could
impair the independence of the auditors.
Pursuant
to section 6.1 of NI 52-110, as adopted by the Canadian Securities
Administrators (the “CSA”), the Company is exempt from
the requirements of Parts 3 and 5 of NI 52-110 for the year ended
December 31, 2020, by virtue of the Company being a “venture
issuer” (as defined in NI 52-110).
Part 3
of NI 52-110 prescribes certain requirements for the composition of
audit committees of non-exempt companies that are reporting issuers
under Canadian provincial securities legislation. Part 3 of NI
52-110 requires, among other things that an audit committee be
comprised of at three directors, each of whom, is, subject to
certain exceptions, independent and financially literate in
accordance with the standards set forth in NI 52-110.
Part 5
of NI 52-110 requires an annual information form that is filed by a
non-exempt reporting issuer under National Instrument 51-102
– Continuous Disclosure
Obligations, as adopted the CSA, to include certain
disclosure about the issuer's audit committee, including, among
other things: the text of the audit committee's charter; the name
of each audit committee member and whether or not the member is
independent and financially literate; whether a recommendation of
the audit committee to nominate or compensate an external auditor
was not adopted by the issuer's board of directors, and the reasons
for the board's decision; a description of any policies and
procedures adopted by the audit committee for the engagement of
non-audit services; and disclosure of the fees billed by the
issuer's external auditor in each of the last two fiscal years for
audit, tax and other services.
As of
December 31, 2020 we employed 58 employees across the entire
operation.
Common Shares
The
shareholdings of our officers and directors are set forth below as
of July 16, 2021.
|
|
|
|
Percentage
of holding on a fully diluted basis(1)
|
|
Holder
name
|
|
|
|
|
|
|
Steven
McAuley (2)
|
17,484,000
|
5.24%
|
5.24%
|
|
|
|
Andrejs
Bunkse (3)
|
-
|
-
|
-
|
-
|
-
|
|
Dustin
Klein (4)
|
6,740,196
|
2.02%
|
2.02%
|
-
|
-
|
|
Kyle Appleby
(5)
|
-
|
-
|
-
|
-
|
-
|
|
Yoshi
Tyler(6)
|
-
|
-
|
-
|
-
|
-
|
Notes:
|
(1)
|
|
“Fully
diluted basis” means with the exercise of all warrants and
options.
|
|
(2)
|
|
Steven
McAuley is an interested party in the Company by virtue of him
serving as Chairman of the Board of Directors, a director and as
the Company’s Chief Executive Officer.
|
|
(3)
|
|
Andrejs
Bunkse is an interested party in the Company by virtue of him
serving as a director.
|
|
(4)
|
|
Dustin
Klein is an interested party in the Company by virtue of him
serving as a director and as the Company’s Senior Vice
President of business development.
|
|
(5)
|
|
Kyle
Appleby is an interested party in the Company by virtue of him
serving as the Company’s Chief Financial
Officer.
|
|
(6)
|
|
Yoshi
Tyler is an interested party in the Company by virtue of her
serving as a director and the President of Kai
Medical.
|
Options
Share
option transactions and the number of share options outstanding
during the three months ended March 31, 2021 and years ended
December 31, 2020, and 2019 are summarized as follows:
|
|
|
Weighted
average exercise price
|
|
Outstanding,
December 31, 2018
|
7,600,000
|
CDN
$0.25
|
|
Granted
|
7,700,000
|
CDN
$0.14
|
|
Cancelled
|
(4,850,000)
|
CDN
$0.27
|
|
Outstanding,
December 31, 2019
|
10,450,000
|
CDN
$0.16
|
|
Granted
|
6,967,761
|
CDN
$0.05
|
|
Exercised
|
(7,583,333)
|
CDN
$0.14
|
|
Outstanding,
December 31, 2020
|
9,834,428
|
CDN
$0.08
|
|
Granted
|
1,761,364
|
CDN
$0.40
|
|
Cancelled
|
(1,936,667)
|
CDN
$0.06
|
|
Exercised
|
(3,339,666)
|
CDN
$0.07
|
|
Outstanding,
March 31, 2021
|
6,319,459
|
CDN
$0.18
|
Of the
share options outstanding, 4,744,459 were exercisable as of March
31, 2021. Ms. Yoshi Tyler holds 775,000 share options and Mr.
Andrejs Bunkse holds 1,100,000 share options that are exercisable
into common shares. No other share options are held by interested
parties.
Warrants
There
were no share purchase warrants, exercisable into common shares of
Empower, held by our officers and directors as of March 31, 2021 or
the date of herein.
Equity Compensation Plans
The
following table summarizes our compensation plans under which
equity securities are authorized for issuance as at March 31,
2021:
|
Plan
Category
|
Number
of securities to be issued upon exercise of outstanding options,
warrants and rights
|
Weighted-average
exercise price of outstanding options, warrants and
rights
|
Number
of securities remaining available for future issuance under equity
compensation plans(1) (excluding
securities reflected in the second column)
|
|
Equity compensation
plans approved by securityholders
|
19,804,364
|
|
26,845,794
|
|
Equity compensation
plans not approved by securityholders
|
N/A
|
N/A
|
N/A
|
|
Total:
|
19,804,364
|
|
26,845,794
|
Notes:
|
(1)
|
|
The
number of securities remaining available for future issuance under
our 10% rolling stock option plan as at the end of our most
recently completed financial year is calculated on the basis of 10%
of our issued and outstanding common shares as at such date (being
10% of 333,402,526 = 33,340,253 less share options of 6,494,459 =
26,845,794). Note that the Company does not have a maximum number
of warrants that can be issued.
|
The
Company has an incentive share option plan (“the Stock Option
Plan”) in place under which it is authorized to grant share
options to executive officers, directors, employees and
consultants.
The
purpose of the Stock Option Plan continues to be to allow us grant
options to our directors, officers, employees and consultants, as
additional compensation, and as an opportunity to participate in
our success. The granting of such options is intended to align the
interests of such persons with that of the shareholders. Options
will be exercisable over periods of up to five years as determined
by the Board and are required to have an exercise price no less
than the fair market value of Empower’s common shares, at the
time of grant. Pursuant to the Stock Option Plan, the Board may,
from time to time, authorize the issue of stock options to our
directors, officers, employees and consultants or employees of
companies providing management or consulting services to
us.
The
maximum number of common shares which may be issued pursuant to
options previously granted and those granted under the Stock Option
Plan will be a maximum of 10% of the issued and outstanding common
shares at the time of the grant. In addition, the number of common
shares which may be reserved for issuance to any one individual may
not exceed 5% of the issued common shares on a yearly basis or 2%
if the optionee is engaged in investor relations activities or is a
consultant. The Stock Option Plan contains no vesting requirements,
but permits the Board to specify a vesting schedule in its
discretion.
|
|
MAJOR SHAREHOLDER AND RELATED PARTY TRANSACTIONS
|
Major Shareholders
We are
a publicly-held corporation, with our common shares held by
residents of the United States, Canada and other countries. To the
best of our knowledge, as of the date of this 20-F, no person,
corporation or other entity beneficially owns, directly or
indirectly, or controls more than 5% of our common shares, except
as follows:
|
Name
|
Number of Common Shares Owned(1)(2)
|
Percentage(3)
|
|
Steven
McAuley
|
17,484,000
|
5.24%
|
Notes:
|
(1)
|
|
Under
Rule 13d–3, a beneficial owner of a security includes any
person who, directly or indirectly, through any contract,
arrangement, understanding, relationship, or otherwise has or
shares: (i) voting power, which includes the power to vote, or to
direct the voting of common shares; and (ii) investment power,
which includes the power to dispose or direct the disposition of
common shares. Certain common shares may be deemed to be
beneficially owned by more than one person (if, for example,
persons share the power to vote or the power to dispose of the
common shares). In addition, common shares are deemed to be
beneficially owned by a person if the person has the right to
acquire the common shares (for example, upon exercise of an option)
within 60 days of the date as of which the information is provided.
In computing the percentage ownership of any person, the amount of
common shares outstanding is deemed to include the amount of common
shares beneficially owned by such person (and only such person) by
reason of these acquisition rights. As a result, the percentage of
outstanding common shares of any person as shown in this table does
not necessarily reflect the person’s actual ownership or
voting power with respect to the number of common shares actually
outstanding on the date hereof.
|
|
(2)
|
|
Each of
our common shares entitles the holder thereof to one
vote.
|
|
(3)
|
|
Based
on 291,520,720 common shares of Empower issued and outstanding as
of the date of this filing.
|
|
(4)
|
|
CDS
& Co. (the registration name for The Canadian Depositary of
Securities Limited, which acts as nominee for many Canadian
brokerage firms).
|
Geographic Breakdown of Shareholders
As of
July 21, 2021, our shareholder register indicates that our common
shares are held as follows:
|
Location
|
Number of Common Shares
|
Percentage of Total Common Shares
|
Number of Registered Shareholders of Record
|
|
United
States
|
9,563,777
|
2.87%
|
42
|
|
Canada
|
323,209,870
|
96.94%
|
26
|
|
Other
|
628,879
|
0.19%
|
5
|
|
Total
|
333,402,526
|
100.00%
|
68
|
Common
shares registered in intermediaries were assumed to be held by
residents of the same country in which the clearing house was
located.
Transfer Agent
Our
securities are recorded in registered form on the books of our
transfer agent, Olympia Trust Company Suite 1900, 925 West Georgia
Street Vancouver, BC V6C 3L2. However, the majority of such shares
are registered in the name of intermediaries such as brokerage
houses and clearing houses (on behalf of their respective brokerage
clients). We do not have knowledge or access to the identities of
the beneficial owners of such common shares registered through
intermediaries.
Control
To the
best of our knowledge, we are not directly or indirectly owned or
controlled by any other corporation, by any foreign government or
by any other natural or legal person, severally or
jointly.
Insider Reports under the British Columbia Securities
Act
Since
the Company is a reporting issuer under the Securities Acts of
British Columbia, Alberta and Ontario, certain
“insiders” of the Company (including its directors,
certain executive officers, and persons who directly or indirectly
beneficially own, control or direct more than 10% of its common
shares) are generally required to file insider reports of changes
in their ownership of Empower’s common shares five days
following the trade under National Instrument 55-104 –
Insider Reporting Requirements and Exemptions, as adopted by the
Canadian Securities Administrators. All insider reports must be
filed electronically five days following the date of the trade at
www.sedi.ca. The public is able to access these reports at
www.sedi.ca.
|
|
Related
Party Transactions
|
None of
our directors or senior officers, no associate or affiliate of the
foregoing persons, and no insider has or had any material interest,
direct or indirect, in any transactions, or in any proposed
transaction, which in either such case has materially affected or
will materially affect us or our predecessors during the year ended
December 31, 2019.
|
|
(a)
|
Compensation
of key management personnel:
|
For the
purpose of related party disclosure in accordance with IASB 24,
directors, the CEO, CFO, COO and executive vice president are
considered key management personnel.
|
|
|
|
|
|
|
|
|
U.S. dollars in
thousands
|
|
|
|
|
|
Salaries and
benefits
|
$341,601
|
$734,655
|
|
Directors
fees
|
7,500
|
11,250
|
|
Share-based
compensation
|
12,159
|
556,040
|
|
|
|
|
|
|
$361,260
|
$1,301,945
|
|
|
Interests
of Experts and Counsel
|
Not
applicable.
|
|
Consolidated
Statements and Other Financial Information
|
Financial Statements
The
financial statements required as part of this Annual Report on Form
20-F are filed under Item 18 of this Annual Report.
Legal Proceedings
As at
the date of this Annual Report on Form 20-F, Empower is not
involved in any legal, arbitration or governmental proceedings and,
to Empower’s knowledge, no material legal, arbitration or
governmental proceedings involving Empower are pending or
contemplated against Empower.
Dividends
We have
not paid any dividends on our common shares since incorporation.
Our management anticipates that we will retain all future earnings
and other cash resources for the future operation and development
of our business. We do not intend to declare or pay any cash
dividends in the foreseeable future. Payment of any future
dividends will be at the Board’s discretion, subject to
applicable law, after taking into account many factors including
our operating results, financial condition and current and
anticipated cash needs.
We have
not experienced any significant changes since the date of the
financial statements included with this Form 20-F except as
disclosed in this Form 20-F.
Cease Trades
On May
3, 2021, the Company was granted a management cease trade order
(“MCTO”) by the
British Columbia Securities Commission. The MCTO does not affect
the ability of shareholders who are not insiders of the Company to
trade their securities. The MCTO was issued in connection with the
delay by the Company in filing its annual financial statements for
the year ended December 31, 2020, and the related
management’s discussion and analysis and certificates of its
CEO and CFO (collectively, the "Required Filings") with Canadian
securities regulators until after the April 30, 2021 filing
deadline. The delay in filing was primarily due to the impact of
COVID-19 on the audit and associated required travel, of the
Company's recently acquired subsidiaries in both the US and Canada.
The Required Filings were filed on July 2, 2021 and the MCTO was
lifted on July 14, 2021.
Common Shares
Our
authorized capital consists of an unlimited number of common shares
without par value, of which 283,811,903 common shares were issued
and outstanding as of December 31, 2020. All common shares are
initially issued in registered form. There are no restrictions on
the transferability of our common shares imposed by our
constituting documents.
The
common shares entitle their holders to: (i) vote at all meetings of
our shareholders except meetings at which only holders of specified
classes of shares are entitled to vote, having one vote per common
share, (ii) receive dividends at the discretion of the Board; and
(iii) receive our remaining property on liquidation, dissolution or
winding up.
Trading Markets
Our
current trading symbol on the CSE is “CBDT”. We also
trade on the OTCQB with the trading symbol “EPWCF” and
on the Frankfurt Stock Exchange with the trading symbol
“8EC”.
As
disclosed elsewhere in this annual report, on April 23, 2018, the
Company completed its previously disclosed reverse takeover
transaction of Adira. As a result, the Company has limited history
of high and low share price progression.
Escrowed Securities
As at
December 31, 2020 10,986,306 common shares were subject to
escrow.
Not
applicable.
|
|
Memorandum
and Articles of Incorporation
|
We were
incorporated under the laws of the Province of British Columbia on
April 28, 2015. We changed our name from S.M.A.A.R.T. Holdings
Inc., to Empower concurrent with the Transaction.
We
currently are not party to any material contracts.
There
are no governmental laws, decrees or regulations in Canada relating
to restrictions on the export or import of capital, or affecting
remittance of interest, dividends or other payments to non-resident
holders of our common shares. However, the Investment Canada
Act (Canada) will prohibit implementation, or if necessary, require
divestiture of an investment deemed “reviewable” under
the Investment Canada Act by an investor that is not a
“Canadian” as defined in the Investment Canada Act,
unless after review the Minister responsible for the Investment
Canada Act is satisfied that the “reviewable”
investment is likely to be of net benefit to Canada.
The
following discussion summarizes the principal features of the
Investment Canada Act for a non-Canadian who proposes to acquire
common shares of the Company. The discussion is general only; it is
not a substitute for independent legal advice from an investor's
own adviser; and, except where expressly noted, it does not
anticipate statutory or regulatory amendments.
The
Investment Canada Act is a federal statute of broad application
regulating the establishment and acquisition of Canadian businesses
by non-Canadians, including individuals, governments or agencies
thereof, corporations, partnerships, trusts or joint ventures,
Investments by non-Canadians to acquire control over existing
Canadian businesses or to establish new ones are either reviewable
or notifiable under the Investment Canada Act. If an investment by
a non-Canadian to acquire control over an existing Canadian
business is reviewable under the Investment Canada Act, the
Investment Canada Act generally prohibits implementation of the
investment unless, after review, the Minister of Industry is
satisfied that the investment is likely to be of net benefit to
Canada.
An
investment in the Company’s common shares by a non-Canadian,
who is not a resident of a World Trade Organization
(“WTO”) member, would be reviewable under the
Investment Canada Act (Canada) if it was an investment to acquire
control of the Company and the value of the assets of the Company
was CAN $5 million or more. An investment in common shares of the
Company by a resident of a WTO member would be reviewable only if
it was an investment to acquire control of the Company and the
enterprise value of the assets of the Company was equal to or
greater than a specified amount, which is published by the Minister
after its determination for any particular year. This amount is
currently CAN $1 billion (unless the WTO member is party to one of
a list of certain free trade agreements, in which case the amount
is currently CAN $1.5 billion); beginning January 1, 2019, both
thresholds will be adjusted annually by a GDP (Gross Domestic
Product) based index.
A
non-Canadian would be deemed to acquire control of the Company for
the purposes of the Investment Canada Act if the non-Canadian
acquired a majority of the outstanding common shares (or less than
a majority but controlled the Company in fact through the ownership
of one-third or more of the outstanding common shares) unless it
could be established that, on the acquisition, the Company is not
controlled in fact by the acquirer through the ownership of such
common shares. Certain transactions in relation to the
Company’s common shares would be exempt from review under the
Investment Canada Act, including, among others, the
following:
(a) the
acquisition of voting shares or other voting interests by any
person in the ordinary course of that person’s business as a
trader or dealer in securities;
(b)
the acquisition of
control of the Company in connection with the realization of
security granted for a loan or other financial assistance and not
for any purpose related to the provisions of the Investment Canada
Act (Canada), if the acquisition is subject to approval under the
Bank Act (Canada), the Cooperative Credit Associations Act
(Canada), the Insurance Companies Act (Canada) or the Trust and
Loan Companies Act (Canada); and
(c)
the acquisition of
control of the Company by reason of an amalgamation, merger,
consolidation or corporate reorganization following which the
ultimate direct or indirect control of the Company, through the
ownership of voting interests, remains unchanged.
Material Canadian Federal Income Tax Consequences for United States
Residents
The
following summarizes the material Canadian federal income tax
considerations generally applicable to the holding and disposition
of our shares by a holder (in this summary, a “U.S. Holder”) who, (a) for the
purposes of the Income Tax
Act (Canada) (the “Tax Act”) and at all relevant
times, (i) is not resident in Canada, (ii) deals at arm’s
length with, and is not affiliated with, us, (iii) holds our shares
as capital property and does not use or hold, and is not deemed to
use or hold, our shares in the course of carrying on, or otherwise
in connection with, a business in Canada, and (b) for the purposes
of the Canada-United States Income Tax Convention (1980) (the
“Treaty”) and at
all relevant times, is a resident solely of the United States, has
never been a resident of Canada, is a “qualifying
person” who is fully entitled to the benefit of the Treaty
and has not held or used (and does not hold or use) our shares in
connection with a permanent establishment or fixed base in Canada.
This summary does not apply to traders or dealers in securities,
limited liability companies, tax-exempt entities, insurers,
authorized foreign bank, financial institutions (including those to
which the mark-to-market provisions of the Tax Act apply), special
financial institutions, or any other holder to which special
circumstances may apply.
This
summary is based on the current provisions of the Tax Act, all
regulations thereunder, the Treaty, all proposed amendments to the
Tax Act, the regulations and the Treaty publicly announced by the
Government of Canada prior to the date hereof, and our
understanding of the current published administrative practices of
the Canada Revenue Agency. It has been assumed that all currently
proposed amendments will be enacted as proposed and that there will
be no other relevant change in any governing law or administrative
practice, although no assurances can be given in this
respect.
The
summary does not take into account Canadian provincial, U.S.
federal (which follows further below), state or other foreign
income tax law or practice. The tax consequences to any particular U.S.
Holder will vary according to the status of that holder as an
individual, trust, corporation, partnership or other entity, the
jurisdictions in which that holder is subject to taxation, and
generally according to that holder’s particular
circumstances. Accordingly, this summary is not, and is not to be
construed as, Canadian tax advice to any particular U.S. Holder.
All U.S. Holders are advised to consult with their own tax advisors
regarding their particular circumstances. The discussion below is
qualified accordingly.
Dividends
Dividends
paid or credited or deemed to be paid or credited to a U.S. Holder
by us will be subject to Canadian withholding tax. The Tax Act
requires a 25% withholding unless reduced under an applicable tax
treaty. Under the Treaty, provided that a holder can demonstrate
that it is a qualifying U.S. Holder, the rate of withholding tax on
dividends paid to a U.S. Holder is generally limited to 15% of the
gross amount of the dividend (or 5% if the U.S. Holder is a
qualified company and beneficially owns at least 10% of our voting
shares). We will be required to withhold the applicable withholding
tax from any dividend and remit it to the Canadian government for
the U.S. Holder’s account.
Disposition
For
purposes of the following discussion, we have assumed that our
shares will remain listed on the TSXV. A U.S. Holder is not subject
to tax under the Tax Act in respect of a capital gain realized on
the disposition of our shares in the open market unless the shares
are “taxable Canadian property” to the holder thereof
and the U.S. Holder is not entitled to relief under the Treaty. Our
shares will be taxable Canadian property to a U.S. Holder (a) if,
at any time during the 60-month period preceding the disposition:
(i) the U.S. Holder, alone or together with persons with whom the
U.S. Holder did not deal at arm’s length, owned 25% or more
of our issued shares of any class or series, and (ii) more
than 50% of the fair market value of the shares was derived,
directly or indirectly, from one or any combination of real
property situated in Canada, timber resource properties, Canadian
resource properties, or an option in respect of, or an interest in,
or for civil law a right in, any of the foregoing, or (b) in other
specific circumstances, including where shares were acquired for
other securities in a tax-deferred transaction for Canadian tax
purposes. If our shares constitute taxable Canadian property to the
holder, the holder will (unless relieved under the Treaty) be
subject to Canadian income tax on any gain. The taxpayer’s
capital gain or loss from a disposition of the share is the amount,
if any, by which the proceeds of disposition exceed (or are
exceeded by) the aggregate of the adjusted cost base of the share
and reasonable expenses of disposition. One-half of a capital gain
(“taxable capital
gain”) from the disposition of taxable Canadian
property (other than treaty protected properties) is included in
computing the income of a U.S. Holder and one-half of a capital
loss (“allowable capital
loss”) is deductible from taxable capital gains from
dispositions of taxable Canadian property realized in the same
year. Unused allowable capital losses from previous taxation years
generally may be carried back three taxation years or forward
indefinitely and applied to reduce net taxable capital gains
realized in those years by a U.S. Holder from the disposition of a
taxable Canadian property.
A U.S.
Holder whose shares constitute taxable Canadian property should
consult with the holder’s own tax advisors regarding any
possible relief (if any) from Canadian tax under the Treaty based
on applicable circumstances at the relevant time.
United States Tax Consequences
United States Federal Income Tax Consequences
The
following is a general summary of certain material U.S. federal
income tax considerations applicable to a U.S. Holder (as defined
below) arising from and relating to the acquisition, ownership, and
disposition of our common shares.
This
summary is for general information purposes only and does not
purport to be a complete analysis or listing of all potential U.S.
federal income tax considerations that may apply to a U.S. Holder
arising from and relating to the acquisition, ownership, and
disposition of our common shares. In addition, this summary does
not take into account the individual facts and circumstances of any
particular U.S. Holder that may affect the U.S. federal income tax
consequences to such U.S. Holder, including without limitation
specific tax consequences to a U.S. Holder under an applicable tax
treaty. Accordingly, this summary is not intended to be, and should
not be construed as, legal or U.S. federal income tax advice with
respect to any U.S. Holder. This summary does not address the U.S.
federal alternative minimum, U.S. federal estate and gift, U.S.
state and local, and foreign tax consequences to U.S. Holders of
the acquisition, ownership, and disposition of our common shares.
Except as specifically set forth below, this summary does not
discuss applicable tax reporting requirements. Each U.S. Holder
should consult its own tax advisor regarding the U.S. federal, U.S.
federal alternative minimum, U.S. federal estate and gift, U.S.
state and local, and foreign tax consequences relating to the
acquisition, ownership, and disposition of our common
shares.
No
legal opinion from U.S. legal counsel or ruling from the Internal
Revenue Service (the “IRS”) has been requested, or will
be obtained, regarding the U.S. federal income tax consequences of
the acquisition, ownership, and disposition of our common shares.
This summary is not binding on the IRS, and the IRS is not
precluded from taking a position that is different from, and
contrary to, the positions taken in this summary. In addition,
because the authorities on which this summary is based are subject
to various interpretations, the IRS and the U.S. courts could
disagree with one or more of the conclusions described in this
summary.
Scope of this Summary
Authorities
This
summary is based on the Internal Revenue Code of 1986, as amended
(the “Code”), Treasury Regulations (whether final,
temporary, or proposed), published rulings of the IRS, published
administrative positions of the IRS, the Convention Between Canada
and the United States of America with Respect to Taxes on Income
and on Capital, signed September 26, 1980, as amended (the
“Canada-U.S. Tax Convention”), and U.S. court decisions
that are applicable and, in each case, as in effect and available,
as of the date of this document. Any of the authorities on which
this summary is based could be changed in a material and adverse
manner at any time, and any such change could be applied on a
retroactive or prospective basis which could affect the U.S.
federal income tax considerations described in this summary. This
summary does not discuss the potential effects, whether adverse or
beneficial, of any proposed legislation that, if enacted, could be
applied on a retroactive or prospective basis.
U.S. Holders
For
purposes of this summary, the term “U.S. Holder” means
a beneficial owner of our common shares that is for U.S. federal
income tax purposes:
●
an individual who
is a citizen or resident of the U.S.;
●
a corporation (or
other entity taxable as a corporation for U.S. federal income tax
purposes) organized under the laws of the U.S., any state thereof
or the District of Columbia;
●
an estate whose
income is subject to U.S. federal income taxation regardless of its
source; or
●
a trust that (1) is
subject to the primary supervision of a court within the U.S. and
the control of one or more U.S. persons for all substantial
decisions or (2) has a valid election in effect under applicable
Treasury Regulations to be treated as a U.S. person.
Non-U.S. Holders
For
purposes of this summary, a “non-U.S. Holder” is a
beneficial owner of our common shares that is not a U.S. Holder.
This summary does not address the U.S. federal income tax
consequences to non-U.S. Holders arising from and relating to the
acquisition, ownership, and disposition of our common shares.
Accordingly, a non-U.S. Holder should consult its own tax advisor
regarding the U.S. federal, U.S. federal alternative minimum, U.S.
federal estate and gift, U.S. state and local, and foreign tax
consequences (including the potential application of and operation
of any income tax treaties) relating to the acquisition, ownership,
and disposition of our common shares.
U.S. Holders Subject to Special U.S. Federal Income Tax Rules Not
Addressed
This
summary does not address the U.S. federal income tax considerations
applicable to U.S. Holders that are subject to special provisions
under the Code, including, but not limited to, the following: (a)
U.S. Holders that are tax-exempt organizations, qualified
retirement plans, individual retirement accounts, or other
tax-deferred accounts; (b) U.S. Holders that are financial
institutions, underwriters, insurance companies, real estate
investment trusts, or regulated investment companies; (c) U.S.
Holders that are broker-dealers, dealers, or traders in securities
or currencies that elect to apply a mark-to-market accounting
method; (d) U.S. Holders that have a “functional
currency” other than the U.S. dollar; (e) U.S. Holders that
own our common shares as part of a straddle, hedging transaction,
conversion transaction, constructive sale, or other arrangement
involving more than one position; (f) U.S. Holders that acquired
our common shares in connection with the exercise of employee stock
options or otherwise as compensation for services; (g) U.S. Holders
that hold our common shares other than as a capital asset within
the meaning of Section 1221 of the Code (generally, property held
for investment purposes); or (h) U.S. Holders that own or have
owned (directly, indirectly, or by attribution) 10% or more of the
total combined voting power of the outstanding shares of the
Company. This summary also does not address the U.S. federal income
tax considerations applicable to U.S. Holders who are: (a) U.S.
expatriates or former long-term residents of the U.S.; (b) persons
that have been, are, or will be a resident or deemed to be a
resident in Canada for purposes of the Tax Act; (c) persons that
use or hold, will use or hold, or that are or will be deemed to use
or hold our common shares in connection with carrying on a business
in Canada; (d) persons whose our common shares constitute
“taxable Canadian property” under the Tax Act; or (e)
persons that have a permanent establishment in Canada for the
purposes of the Canada-U.S. Tax Convention. U.S. Holders that are
subject to special provisions under the Code, including, but not
limited to, U.S. Holders described immediately above, should
consult their own tax advisor regarding the U.S. federal, U.S.
federal alternative minimum, U.S. federal estate and gift, U.S.
state and local, and foreign tax consequences relating to the
acquisition, ownership and disposition of our common
shares.
If an
entity or arrangement that is classified as a partnership (or other
“pass-through” entity) for U.S. federal income tax
purposes holds our common shares, the U.S. federal income tax
consequences to such entity and the partners (or other owners) of
such entity generally will depend on the activities of the entity
and the status of such partners (or owners). This summary does not
address the tax consequences to any such owner. Partners (or other
owners) of entities or arrangements that are classified as
partnerships or as “pass-through” entities for U.S.
federal income tax purposes should consult their own tax advisors
regarding the U.S. federal income tax consequences arising from and
relating to the acquisition, ownership, and disposition of our
common shares.
Ownership and Disposition of our common shares
The
following discussion is subject to the rules described below under
the heading “Passive Foreign Investment Company
Rules.”
Taxation of Distributions
A U.S.
Holder that receives a distribution, including a constructive
distribution, with respect to our common share will be required to
include the amount of such distribution in gross income as a
dividend (without reduction for any foreign income tax withheld
from such distribution) to the extent of the current or accumulated
“earnings and profits” of we, as computed for U.S.
federal income tax purposes. To the extent that a distribution
exceeds the current and accumulated “earnings and
profits” of we, such distribution will be treated first as a
tax-free return of capital to the extent of a U.S. Holder's tax
basis in our common shares and thereafter as gain from the sale or
exchange of such our common shares (see “Sale or Other
Taxable Disposition of Common Shares” below). However, we may
not maintain the calculations of earnings and profits in accordance
with U.S. federal income tax principles, and each U.S. Holder
should therefore assume that any distribution by us with respect to
our common shares will constitute ordinary dividend income.
Dividends received on our common shares generally will not
constitute qualified dividend income eligible for the
“dividends received deduction”. Subject to applicable
limitations and provided that we are eligible for the benefits of
the Canada-U.S. Tax Convention, dividends paid by us to
non-corporate U.S. Holders, including individuals, generally will
be eligible for the preferential tax rates applicable to long-term
capital gains for dividends, provided certain holding period and
other conditions are satisfied, including that we are not
classified as a PFIC (as defined below) in the tax year of
distribution or in the preceding tax year. The dividend rules are
complex, and each U.S. Holder should consult its own tax advisor
regarding the application of such rules.
Sale or Other Taxable Disposition of Common Shares
A U.S.
Holder will recognize gain or loss on the sale or other taxable
disposition of our common shares in an amount equal to the
difference, if any, between (a) the amount of cash plus the fair
market value of any property received and (b) such U.S.
Holder’s tax basis in such our common shares sold or
otherwise disposed of. Any such gain or loss generally will be
capital gain or loss, which will be long-term capital gain or loss
if, at the time of the sale or other disposition, such our common
shares are held for more than one year.
Preferential
tax rates apply to long-term capital gains of a U.S. Holder that is
an individual, estate, or trust. There are currently no
preferential tax rates for long-term capital gains of a U.S. Holder
that is a corporation. Deductions for capital losses are subject to
significant limitations under the Code.
Passive Foreign Investment Company Rules
If we
were to constitute a PFIC for any year during a U.S. Holder’s
holding period, then certain potentially adverse rules would affect
the U.S. federal income tax consequences to a U.S. Holder resulting
from the acquisition, ownership and disposition of our common
shares. We do not believe that we were a PFIC during our tax year
ended December 31, 2018. PFIC classification is fundamentally
factual in nature, generally cannot be determined until the close
of the tax year in question, and is determined annually.
Additionally, the analysis depends, in part, on the application of
complex U.S. federal income tax rules, which are subject to
differing interpretations. Consequently, there can be no assurances
regarding our PFIC status for any tax year during which U.S.
Holders hold our common shares.
In
addition, in any year in which we are classified as a PFIC, such
holder may be required to file an annual report with the IRS
containing such information as Treasury Regulations and/or other
IRS guidance may require. In addition to penalties, a failure to
satisfy such reporting requirements may result in an extension of
the time period during which the IRS can assess a tax. U.S. Holders
should consult their own tax advisors regarding the requirements of
filing such information returns under these rules, including the
requirement to file a revised IRS Form 8621.
We
generally will be a PFIC under Section 1297 of the Code if, for a
tax year, (a) 75% or more of our gross income for such tax year is
passive income (the “income test”) or (b) 50% or more
of the value of our assets either produce passive income or are
held for the production of passive income (the “asset
test”), based on the quarterly average of the fair market
value of such assets. “Gross income” generally includes
all sales revenues less the cost of goods sold, plus income from
investments and from incidental or outside operations or sources,
and “passive income” generally includes, for example,
dividends, interest, certain rents and royalties, certain gains
from the sale of stock and securities, and certain gains from
commodities transactions. Active business gains arising from the
sale of commodities generally are excluded from passive income if
substantially all (85% or more) of a foreign corporation’s
commodities are stock in trade or inventory, depreciable property
used in a trade or business or supplies regularly used or consumed
in a trade or business and certain other requirements are
satisfied.
In
addition, for purposes of the PFIC income test and asset test
described above, if we own, directly or indirectly, 25% or more of
the total value of the outstanding shares of another corporation,
we will be treated as if we (a) held a proportionate share of the
assets of such other corporation and (b) received directly a
proportionate share of the income of such other corporation. In
addition, for purposes of the PFIC income test and asset test
described above, “passive income” does not include any
interest, dividends, rents, or royalties that are received or
accrued by us from a “related person” (as defined in
Section 954(d)(3) of the Code), to the extent such items are
properly allocable to the income of such related person that is not
passive income.
Under
certain attribution rules, if we are a PFIC, U.S. Holders will be
deemed to own their proportionate share of any subsidiary of ours
which is also a PFIC (a ‘‘Subsidiary
PFIC’’), and will be subject to U.S. federal income tax
on (i) a distribution on the shares of a Subsidiary PFIC or (ii) a
disposition of shares of a Subsidiary PFIC, both as if the holder
directly held the shares of such Subsidiary PFIC.
If we
are a PFIC in any tax year in which a U.S. Holder held our common
shares, such holder generally would be subject to special rules
with respect to “excess distributions” made by us on
our common shares and with respect to gain from the disposition of
our common shares. An “excess distribution” generally
is defined as the excess of distributions with respect to our
common shares received by a U.S Holder in any tax year over 125% of
the average annual distributions such U.S. Holder has received from
us during the shorter of the three preceding tax years, or such
U.S. Holder’s holding period for our common shares.
Generally, a U.S. Holder would be required to allocate any excess
distribution or gain from the disposition of our common shares
ratably over its holding period for our common shares. Such amounts
allocated to the year of the disposition or excess distribution
would be taxed as ordinary income, and amounts allocated to prior
tax years would be taxed as ordinary income at the highest tax rate
in effect for each such year and an interest charge at a rate
applicable to underpayments of tax would apply.
While
there are U.S. federal income tax elections that sometimes can be
made to mitigate these adverse tax consequences (including, without
limitation, the “QEF Election” under Section 1295 of
the Code and the “Mark-to-Market Election” under
Section 1296 of the Code), such elections are available in limited
circumstances and must be made in a timely manner.
U.S.
Holders should be aware that, for each tax year, if any, that we
are a PFIC, we can provide no assurances that we will satisfy the
record keeping requirements of a PFIC, or that we will make
available to U.S. Holders the information such U.S. Holders require
to make a QEF Election with respect to us or any Subsidiary PFIC.
U.S. Holders are urged to consult their own tax advisors regarding
the potential application of the PFIC rules to the ownership and
disposition of our common shares, and the availability of certain
U.S. tax elections under the PFIC rules.
Additional Considerations
Additional Tax on Passive Income
Individuals,
estates and certain trusts whose income exceeds certain thresholds
will be required to pay a 3.8% Medicare surtax on “net
investment income” including, among other things, dividends
and net gain from disposition of property (other than property held
in certain trades or businesses). U.S. Holders should consult with
their own tax advisors regarding the effect, if any, of this tax on
their ownership and disposition of our common shares.
Receipt of Foreign Currency
The
amount of any distribution paid to a U.S. Holder in foreign
currency, or on the sale, exchange or other taxable disposition of
our common shares, generally will be equal to the U.S. dollar value
of such foreign currency based on the exchange rate applicable on
the date of receipt (regardless of whether such foreign currency is
converted into U.S. dollars at that time). A U.S. Holder will have
a basis in the foreign currency equal to its U.S. dollar value on
the date of receipt. Any U.S. Holder who converts or otherwise
disposes of the foreign currency after the date of receipt may have
a foreign currency exchange gain or loss that would be treated as
ordinary income or loss, and generally will be U.S. source income
or loss for foreign tax credit purposes. Each U.S. Holder should
consult its own U.S. tax advisor regarding the U.S. federal income
tax consequences of receiving, owning, and disposing of foreign
currency.
Foreign Tax Credit
Subject
to the PFIC rules discussed above, a U.S. Holder that pays (whether
directly or through withholding) Canadian income tax with respect
to dividends paid on our common shares generally will be entitled,
at the election of such U.S. Holder, to receive either a deduction
or a credit for such Canadian income tax. Generally, a credit will
reduce a U.S. Holder’s U.S. federal income tax liability on a
dollar-for-dollar basis, whereas a deduction will reduce a U.S.
Holder’s income subject to U.S. federal income tax. This
election is made on a year-by-year basis and applies to all foreign
taxes paid (whether directly or through withholding) by a U.S.
Holder during a year.
Complex
limitations apply to the foreign tax credit, including the general
limitation that the credit cannot exceed the proportionate share of
a U.S. Holder’s U.S. federal income tax liability that such
U.S. Holder’s “foreign source” taxable income
bears to such U.S. Holder’s worldwide taxable income. In
applying this limitation, a U.S. Holder’s various items of
income and deduction must be classified, under complex rules, as
either “foreign source” or “U.S. source.”
Generally, dividends paid by a foreign corporation should be
treated as foreign source for this purpose, and gains recognized on
the sale of stock of a foreign corporation by a U.S. Holder should
be treated as U.S. source for this purpose, except as otherwise
provided in an applicable income tax treaty, and if an election is
properly made under the Code. However, the amount of a distribution
with respect to our common shares that is treated as a
“dividend” may be lower for U.S. federal income tax
purposes than it is for Canadian federal income tax purposes,
resulting in a reduced foreign tax credit allowance to a U.S.
Holder. In addition, this limitation is calculated separately with
respect to specific categories of income. The foreign tax credit
rules are complex, and each U.S. Holder should consult its own U.S.
tax advisor regarding the foreign tax credit rules.
Backup Withholding and Information Reporting
Under
U.S. federal income tax law and Treasury Regulations, certain
categories of U.S. Holders must file information returns with
respect to their investment in, or involvement in, a foreign
corporation. For example, U.S. return disclosure obligations (and
related penalties) are imposed on individuals who are U.S. Holders
that hold certain specified foreign financial assets in excess
certain threshold amounts. The definition of specified foreign
financial assets includes not only financial accounts maintained in
foreign financial institutions, but also, unless held in accounts
maintained by a financial institution, any stock or security issued
by a non-U.S. person, any financial instrument or contract held for
investment that has an issuer or counterparty other than a U.S.
person and any interest in a foreign entity. U. S. Holders may be
subject to these reporting requirements unless our common shares
are held in an account at certain financial institutions. Penalties
for failure to file certain of these information returns are
substantial. U.S. Holders should consult with their own tax
advisors regarding the requirements of filing information returns,
including the requirement to file an IRS Form 8938.
Payments
made within the U.S. or by a U.S. payor or U.S. middleman, of
dividends on, and proceeds arising from the sale or other taxable
disposition of, our common shares will generally be subject to
information reporting and backup withholding tax, at the rate of
28%, if a U.S. Holder (a) fails to furnish such U.S. Holder’s
correct U.S. taxpayer identification number (generally on Form
W-9), (b) furnishes an incorrect U.S. taxpayer identification
number, (c) is notified by the IRS that such U.S. Holder has
previously failed to properly report items subject to backup
withholding tax, or (d) fails to certify, under penalty of perjury,
that such U.S. Holder has furnished its correct U.S. taxpayer
identification number and that the IRS has not notified such U.S.
Holder that it is subject to backup withholding tax. However,
certain exempt persons generally are excluded from these
information reporting and backup withholding rules. Backup
withholding is not an additional tax. Any amounts withheld under
the U.S. backup withholding tax rules will be allowed as a credit
against a U.S. Holder’s U.S. federal income tax liability, if
any, or will be refunded, if such U.S. Holder furnishes required
information to the IRS in a timely manner. Each U.S. Holder should
consult its own tax advisor regarding the information reporting and
backup withholding rules.
|
|
Dividends
and Paying Agents
|
Not
applicable.
Not
applicable.
Exhibits
attached to this Form 20-F are also available for viewing at our
offices, Suite 505, 1771 Robson Street Vancouver, BC V6G 1C9; or
you may request them by calling our office at 1-888-367-6937.
Copies of our financial statements and other continuous disclosure
documents required under securities rules are available for viewing
on the internet at www.sedar.com.
See
Item 4.C – “Organizational Structure” of this
Annual Report on Form 20-F.
|
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
|
We are
not subject to any material market risks.
|
|
Transaction
Risk and Currency Risk Management
|
Our
operations do not employ complex financial instruments or
derivatives, and given that we keep our excess funds in high-grade
short-term instruments, we do not have significant or unusual
financial market risks. In the event we experience substantial
growth in the future, our business and results of operations may be
materially affected by changes in interest rates on new debt
financings, the granting of credit options to our customers, and
certain other credit risks associated with our
operations.
|
|
Interest
Rate Risk and Equity Price Risk
|
We are
equity financed and do not have material amounts of debt which
could be subject to significant interest rate change risks. We have
raised equity funding through the sale of securities denominated in
CDN$, and will likely raise additional equity funding denominated
in CDN$ in the future.
|
|
Exchange
Rate Sensitivity
|
We are
exposed to financial risk related to the fluctuation of foreign
exchange rates. Most of our monetary assets are held in US dollars
and most of our expenditures are made in US dollars. However, we
also have some monetary assets and expenditures in CDN$. A
significant change in the currency rates between the CDN$ relative
to the US dollar could have an effect on our future results of
operations, financial position or cash flows, depending on our
currency management techniques. We have not hedged our exposure to
currency fluctuations.
The
table below summarizes the net monetary assets and liabilities held
in foreign currencies:
|
|
|
|
|
|
|
|
|
|
|
|
CDN$ net monetary
liabilities
|
$4,195,664
|
$2,434,448
|
|
|
$4,195,664
|
$2,434,448
|
The
effect on loss before income tax for the year ended December 31,
2020, of a 10.0% change in the foreign currencies against the US
dollar on the above-mentioned net monetary assets and liabilities
of the Company is estimated to be an increase/decrease of $534,108
(2018 - $316,186) assuming that all other variables remained
constant.
|
|
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
|
Not
applicable.
PART II
|
|
DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
|
None.
|
|
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS
|
None.
Disclosure Controls and Procedures
Disclosure
controls and procedures are defined in Rule 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934, as amended
(“Exchange Act”)
to mean controls and other procedures of an issuer that are
designed to ensure that information required to be disclosed by the
issuer in the reports that it files or submits under the Exchange
Act is recorded, processed, summarized and reported, within the
time periods specified in the SEC’s rules and forms and
includes, without limitation, controls and procedures designed to
ensure that such information is accumulated and communicated to the
issuer’s management, including its principal executive and
principal financial officers, or persons performing similar
functions, as appropriate to allow timely decisions regarding
required disclosure.
As
required under the Exchange Act, we have carried out an evaluation
of the effectiveness of the design and operation of our
company’s disclosure controls and procedures as of the end of
the period covered by this annual report on Form 20-F, being
December 31, 2020. This evaluation was carried out by our Mr.
Steven McAuley, our Chief Executive Officer, and Kyle Appleby, our
Chief Financial Officer. Based upon that evaluation, our executives
concluded that our disclosure controls and procedures were not
effective as at December 31, 2020.
Material
weaknesses identified include:
-
No
formal server network to maintain Company documents
-
Reconciliations
for material accounts were not completed in a timely
manner
-
Monthly
and quarterly consolidation were not maintained
-
No
segregation of duties in performing reconciliations and financial
reporting
-
Limited
access to the accounting system for key management
personnel
Management’s Annual Report on Internal Control Over Financial
Reporting
Our
management is responsible for establishing and maintaining adequate
internal control over financial reporting. The Exchange Act in Rule
13a-15(f) and 15d-15(f) defines this as a process designed by, or
under the supervision of, the company’s principal executive
and principal financial officers and effected by the Board,
management and other personnel, to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles and
includes those policies and procedures that:
-
pertain
to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of
the assets of the company;
-
provide
reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with
authorizations of management and directors of the company;
and
-
provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the company’s
assets that may have a material effect on the financial
statements.
Under
the supervision and with the participation of Mr. Steven McAuley,
who serves as our Chief Executive Officer and Mr. Kyle Appleby who
serves as our Chief Financial Officer, our management assessed the
effectiveness of our internal control over financial reporting as
at December 31, 2020. In making this assessment, our management
used the criteria, established in Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO). Based upon this assessment, our
management concluded that our internal control over financial
reporting was ineffective as at December 31, 2020.
Because
of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness of internal control
over financial reporting to future periods are subject to risk that
controls may become inadequate because of changes in conditions, or
that the degree of compliance with the policies or procedures may
deteriorate.
This
Annual Report does not include an attestation report of the
Company's registered public accounting firm regarding internal
control over financial reporting. Management's report is not
subject to attestation by the Company's registered public
accounting firm pursuant to rules of the Securities and Exchange
Commission that permit the Company to provide only management's
report in this Annual Report.
Changes in Internal Control over Financial Reporting
During
the period ended December 31, 2020, there were changes which
created ineffective internal controls over financial reporting (as
defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that
have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
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|
AUDIT COMMITTEE FINANCIAL EXPERTS
|
As
disclosed above, as of the date hereof, our Audit Committee is
comprised of Steven McAuley (chair), Andrejs Bunkse and Dustin
Klein.
We have
adopted a Code of Business Conduct that applies to all of our
employees and officers, including our principal executive officer,
principal financial officer, principal accounting officer or
controller, or persons performing similar functions. The Code of
Business Conduct meets the requirements for a “code of
ethics” within the meaning of that term in Item 16B of Form
20-F. A copy of our Code of Business Conduct will be provided to
any person without charge, upon request. All requests for a copy of
our code of ethics should be directed in writing to the attention
of Steven McAuley, c/o Empower Clinics Inc., Suite 505, 1771 Robson
Street Vancouver, BC V6G 1C9, or by email at:
s.mcauley@empowerclinics.com.
During
the most recently completed fiscal year, the Company has neither:
(a) amended its Code of Ethics; nor (b) granted any waiver
(including any implicit waiver) form any provision of its Code of
Ethics.
|
|
PRINCIPAL ACCOUNTANT FEES AND SERVICES
|
The
following table sets forth information regarding the amount billed
to us by our principal independent auditors, MNP LLP for the fiscal
year ended December 31, 2020 and 2019:
|
|
|
|
|
|
|
|
Audit
Fees:
|
$305,000
|
$90,900
|
|
Audit Related
Fees:
|
113,500
|
57,770
|
|
Tax
Fees:
|
|
|
|
Total:
|
$418,500
|
$148,670
|
Audit Fees
This
category includes the aggregate fees billed by our independent
auditor for the audit of our consolidated annual financial
statements, reviews of interim financial statements and attestation
services that are provided in connection with statutory and
regulatory filings or engagements.
Audit Related Fees
This
category includes the aggregate fees billed in each of the last two
fiscal years for assurance and related services by the independent
auditors that are reasonably related to the performance of the
audits or reviews of the financial statements and are not reported
above under “Audit Fees,” and generally consist of fees
for other engagements under professional auditing standards,
accounting and reporting consultations.
Tax Fees
This
category includes the aggregate fees billed in each of the last two
fiscal years for professional services rendered by the independent
auditors for tax compliance, tax planning and tax
advice.
Policy on Pre-Approval by Audit Committee of Services Performed by
Independent Auditors
The
policy of our Audit Committee is to pre-approve all audit and
permissible non-audit services to be performed by our independent
auditors during the fiscal year.
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|
EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT
COMMITTEES
|
Not
applicable.
|
|
PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
PURCHASERS
|
In the
year ended December 31, 2020, the Company did not purchase any of
its issued and outstanding common shares pursuant to any repurchase
program or otherwise.
|
|
CHANGES TO REGISTRANT’S CERTIFYING ACCOUNTANT
|
Not
applicable.
Not
applicable.
PART III
Not
applicable.
Financial Statements Filed as Part of this Annual
Report
●
Report of
Independent Registered Public Accounting Firm dated June 30,
2021;
●
Consolidated
statement of financial position for the fiscal years ended December
31, 2020 and 2019;
●
Consolidated
statements of comprehensive profit and loss for the fiscal years
ended December 31, 2020 and 2019;
●
Consolidated
statements of changes in (deficit) equity for the fiscal years
ended December 31, 2020 and 2019;
●
Consolidated
statements of cash flows for the fiscal years ended December 31,
2020 and 2019; and
●
Notes to
consolidated financial statements
EMPOWER CLINICS INC.
(formerly ADIRA ENERGY LTD.)
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 2020, 2019, 2018
INDEX
|
|
Page
|
|
Independent Auditors’ Report
|
49
|
|
|
|
|
Consolidated Statements of Financial Position
|
52
|
|
|
|
|
Consolidated Statements of Comprehensive Loss
|
53
|
|
|
|
|
Consolidated Statements of Changes in Equity
|
55
|
|
|
|
|
Consolidated Statements of Cash Flows
|
54
|
|
|
|
|
Notes to Consolidated Financial Statements
|
57 - 96
|
Empower
Clinics Inc.
CONSOLIDATED
FINANCIAL STATEMENTS
For
the years ended
December
31, 2020, 2019 and 2018
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the
Board of Directors and Shareholders of Empower Clinics
Inc.
Opinion on the Consolidated Financial Statements
We have
audited the accompanying consolidated statements of financial
position of Empower Clinics Inc. (the Company) as of December 31,
2020 and 2019, and the related consolidated statements of loss and
comprehensive loss, changes in equity, and cash flows for each of
the years in the three year period ended December 31, 2020, and the
related notes (collectively referred to as the consolidated
financial statements).
In our
opinion, the consolidated financial statements present fairly, in
all material respects, the consolidated financial position of the
Company as of December 31, 2020 and 2019, and the results of its
consolidated operations and its consolidated cash flows for each of
the years in the three year period ended December 31, 2020,
in conformity with International Financial Reporting Standards as
issued by the International Accounting Standards
Board.
Material Uncertainty Related to Going Concern
The
accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As
discussed in Note 1 to the consolidated financial statements, the
Company has suffered recurring losses from operations and has a net
working capital deficiency that raise substantial doubt about its
ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 1. The
consolidated financial statements do not include any adjustments
that might result from the outcome of this
uncertainty.
This
matter is also described in the “Critical Audit
Matters” section of our report.
Basis for Opinion
These
consolidated financial statements are the responsibility of the
Company’s management. Our responsibility is to express an
opinion on the Company’s consolidated financial statements
based on our audits. We are a public accounting firm registered
with the Public Company Accounting Oversight Board (United States)
(PCAOB) and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement, whether due
to error or fraud. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial
reporting. As part of our audits, we are required to obtain an
understanding of internal control over financial reporting, but not
for the purpose of expressing an opinion on the effectiveness of
the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our
audits included performing procedures to assess the risks of
material misstatement of the consolidated financial statements,
whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a
test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included
evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation
of the consolidated financial statements. We believe that our
audits provide a reasonable basis for our opinion.
Critical Audit Matters
The
critical audit matters communicated below are matters arising from
the current period audit of the financial statements that were
communicated or required to be communicated to the audit committee
and that: (1) relate to accounts or disclosures that are material
to the financial statements and (2) involved our especially
challenging, subjective, or complex judgments. The communication of
critical audit matters does not alter in any way our opinion on the
financial statements, taken as a whole, and we are not, by
communicating the critical audit matters below, providing separate
opinions on the critical audit matters or on the accounts or
disclosures to which they relate.
|
Critical Audit Matter Description
|
Audit Response
|
|
Going Concern
Refer
to Note 1 to the consolidated financial statements.
The
accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As
discussed in Note 1 to the consolidated financial statements, the
Company has a history of losses and negative cash flows from
operating activities, and as at December 31, 2020, the Company had
a working capital deficiency of $1,746,818 (December 31, 2019 -
$4,185,359) and an accumulated deficit of $30,078,630 (December 31,
2019 - $13,012,319). This matter is also described in the
“Material Uncertainty Related to Going Concern” section
of our report.
We
identified managements judgments and assumptions used to assess the
Company’s ability to continue as a going concern as a
critical audit matter due to inherent complexities and
uncertainties related to the Company’s cash flow forecasts.
Auditing these judgments and assumptions involved especially
challenging auditor judgment due to the nature and extent of audit
evidence and effort required to address these matters.
|
We
responded to this matter by performing procedures over going
concern. Our audit work in relation to this included, but was not
restricted to, the following:
● We obtained and
tested the Company’s forecast cash flows by testing the
completeness and accuracy of the underlying data used by
benchmarking it to externally derived industry data and evaluating
the Company’s historical results.
● We evaluated the
estimates and assumptions by developing an understanding of the
nature of each critical assumption and estimate and then assessed
their sensitivity to reasonably possible changes, including
notably, the probability that management will be able to access
funding by assessing the terms of current year agreements and the
company’s history in obtaining financing.
● We assessed the
adequacy of the disclosures related to the application of the going
concern assumption.
|
|
Acquisitions of Kai Medical Laboratory, LLC and Lawrence Park and
Atkinson
Refer
to Notes 6 and 7 to the consolidated financial
statements.
On
October 5, 2020, the Company entered into a membership interest
purchase agreement to acquire 100% interest in the business of Kai
Medical Laboratory, LLC for total consideration of
$20,050.
On
December 31, 2020, the Company entered into a share purchase
agreement to acquire 100% interest in the businesses of Lawrence
Park Health and Wellness Clinic Inc., 1100900 Canada Inc dba
Atkinson, and Momentum Health Inc. collectively (“Lawrence
Park & Atkinson’”) for total consideration of
$1,771,409.
These
transactions have been accounted for by the Company as business
combinations under IFRS 3 - Business Combinations.
Due to
the complexities involved in the assessment of business combination
versus asset acquisition as well as the significant judgments,
assumptions and estimates, including projected cash flows,
volatility, risk free rate and discount rates, within the
methodology utilized to measure the fair value of the related
assets and liabilities acquired and consideration paid, we have
identified this area as a critical audit matter.
|
We
responded to this matter by performing procedures over the
estimated fair value of the assets acquired and liabilities
assumed. Our audit work in relation to each of these acquisitions
included, but was not restricted to, the following:
● We obtained a copy
of the amended and restated purchase and sale agreement from
management and read the terms in detail to ensure that the
transaction has been appropriately assessed as a business
combination;
● We obtained
management’s analysis and a memo detailing how the fair value
of assets and liabilities acquired have been determined, the
purchase consideration paid, and the resulting goodwill recognized
on the transaction;
● We involved
internal valuation specialists to test the appropriateness of the
methodology used in the valuation of the assets acquired and
liabilities assumed. We also verified the appropriateness of the
key inputs and assumptions used in the above model including
revenue growth rates, operating margins and discount rates by
comparing such items to the industry projections and conditions
found in industry reports as well as historical operating results
of the entity acquired;
● We also involved
external appraisal experts to assess the appropriateness of the
depreciated replacement cost of the property and equipment
acquired, by performing an independent calculation and inspecting
the estimated remaining years of service for the underlying assets
based on the original acquisition dates and condition of
assets;
● We assessed the
qualifications of the valuators engaged by the Company based on
their credentials and experience; and
● We performed
sensitivity analysis of the significant assumptions relating to
forecasted revenue, expenses and discount rates within the
valuation models by varying key assumptions within an observable
range.
|
|
Measurement of Purchase Consideration Payable
Refer to Note 7 in the consolidated financial
statements.
On
December 16, 2020, the Company acquired 100% interest in the
businesses of Lawrence Park & Atkinson for consideration of
$1,771,409.
Pursuant to the Amended and restated share purchase agreement, part
of the consideration comprising 3,750,000 stock options is payable
subject to completion of certain milestones relating to the opening
of new clinics and is required to be measured at fair value.
Therefore, estimating the fair value of the purchase consideration
payable is subject to significant management estimates and
judgment, including the model used, probability of opening of
clinics, risk free rate and volatility. This matter required
significant audit attention during the engagement and accordingly
we have identified this as a critical audit matter.
|
We responded to this matter by performing procedures in relation to
the measurement of purchase consideration payable. Our audit work
in relation to this included, but was not restricted to, the
following:
● We obtained
forecasts prepared by management and assessed reasonableness of
management’s estimated probability of opening clinics over
the milestone period stipulated in the agreement;
● We involved our
internal valuations specialists to evaluate whether the valuation
model used by management is reasonable and to assist in verifying
the reasonability of the volatility input used; and
● We also performed
sensitivity analyses on probability assumptions within the
valuation model.
|
|
Impairment of goodwill and Intangible assets
Refer
to Note 12 to the consolidated financial statements.
During
2019, the Company had recognized goodwill of $2,500,000 on
acquisition of Sun Valley Certification Clinics Holdings, LLC.
Additionally, on October 5, 2020, the Company acquired 100%
interest in Kai Medical Laboratory, LLC and on December 31, 2020,
the Company acquired 100% interest in Lawrence Park Health and
Wellness Clinic Inc., 1100900 Canada Inc dba Atkinson, and Momentum
Health Inc. collectively (“Lawrence Park &
Atkinson”)
Any
goodwill recognized from these acquisitions is subject to
impairment assessments annually, or more frequently to the extent
events or conditions indicate a risk of possible
impairment.
Significant
judgments are made in determining the cash-generating unit to which
such assets belong for purposes of the impairment tests. There
exists high estimation uncertainty due to the significant judgments
used to estimate the future revenues and cash flows, including
growth rates, operating expenses, and cash outflows,
weighted-average cost of capital, future market conditions and the
valuation methodology.
For
these reasons we determined goodwill and intangible asset
impairment assessments to be a critical audit matter.
|
We
responded to this matter by performing procedures over the
impairment of goodwill and intangibles. Our audit work in relation
to this included, but was not restricted to, the
following:
● We obtained cash
flow forecasts prepared by management and assessed critical
management estimates included in the forecast, such as revenue
growth, terminal growth rates, gross margin and discount rates. The
net present value of the forecast cash flows was compared to the
carrying value of the related cash generating unit;
● We validated
management’s assessment of indicators of impairment for
intangibles, including reference to historical performance,
external market data, and assessment of the Company’s future
strategy and budgets;
● We assessed the
accuracy of management’s historical forecasts and, where
there were discrepancies, we evaluated the impact of these on the
current year forecasts;
● We involved our
internal valuations specialists to estimate an appropriate discount
rate with reference to market data and compared that to the rate
used by management;
● We evaluated the
cash flow forecasts in detail, tracing to supporting documentation
for the revenue figures, focusing on market assumptions, including
discussions with the directors and the business unit head as well
as assessment of supporting internal analysis; and
● We
applied sensitivities to calculations prepared by management to
assess the impact on the impairment assessment of reasonable
possible changes to assumptions.
|
Chartered Professional Accountants
Licensed Public Accountants
We have
served as the Company’s auditor since 2015.
Ottawa,
Canada
June
30, 2021
EMPOWER CLINICS INC.
CONSOLIDATED
STATEMENTS OF FINANCIAL POSITION
(in
United States dollars)
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
Current
|
|
|
|
|
Cash
|
|
4,889,824
|
179,153
|
|
Accounts
receivable
|
8
|
264,866
|
24,482
|
|
Prepaid
expenses
|
|
81,748
|
38,382
|
|
Inventory
|
|
17,681
|
21,848
|
|
Total current
assets
|
|
5,254,119
|
263,865
|
|
|
|
|
|
|
Promissory
note
|
10
|
-
|
122,573
|
|
Property and
equipment
|
11
|
1,590,047
|
797,423
|
|
Intangible
assets
|
12
|
303,907
|
254,640
|
|
Goodwill
|
12
|
2,082,146
|
117,218
|
|
|
|
|
|
|
Total
assets
|
|
9,230,219
|
1,555,719
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
Current
|
|
|
|
|
Accounts
payable and accrued liabilities
|
13,25
|
3,442,725
|
1,874,990
|
|
Current
portion of loans payable
|
16
|
992,070
|
761,711
|
|
Current
portion of notes payable
|
14
|
708,361
|
969,891
|
|
Convertible
debentures payable
|
17
|
-
|
427,320
|
|
Convertible
notes payable
|
15
|
200,530
|
192,717
|
|
Current
portion of lease liability
|
18
|
241,138
|
219,800
|
|
Current
portion of warrant liability
|
19
|
1,416,113
|
-
|
|
Conversion
feature
|
17
|
-
|
2,795
|
|
Total
current liabilities
|
|
7,000,937
|
4,449,224
|
|
|
|
|
|
|
Loans
payable
|
16
|
1,140,157
|
-
|
|
Lease
Liability
|
18
|
255,248
|
515,096
|
|
Deferred
revenue
|
|
26,694
|
-
|
|
Warrant
liability
|
19
|
6,297,584
|
106,312
|
|
Total liabilities
|
|
14,720,620
|
5,070,632
|
|
|
|
|
|
|
SHAREHOLDERS’
DEFICIENCY
|
|
|
|
|
Issued
capital
|
20(b)
|
22,969,566
|
7,827,310
|
|
Share subscriptions
receivable
|
20(b)
|
(745,531)
|
-
|
|
Shares to be
issued
|
14(d)
|
60,287
|
22,050
|
|
Contributed
surplus
|
|
2,223,269
|
1,501,361
|
|
Warrant
reserve
|
|
80,638
|
146,685
|
|
Deficit
|
|
(30,078,630)
|
(13,012,319)
|
|
Total
shareholders’ deficiency
|
|
(5,490,401)
|
(3,514,913)
|
|
|
|
|
|
|
Total
liabilities and shareholders’ deficiency
|
|
9,230,219
|
1,555,719
|
Nature
of operations and going concern (note 1)
Commitments
and contingencies (note 28)
Events
after the reporting period (note 29)
Approved
and authorized by the Board of Directors on June 30,
2021:
|
“Steven
McAuley”
|
Director
|
“Yoshi
Tyler”
|
Director
|
The
accompanying notes are an integral part of these consolidated
financial statements.
EMPOWER CLINICS INC.
CONSOLIDATED
STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
For the
years ended December 31, 2020, 2019 and 2018
(in
United States dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
Clinic
services
|
|
3,154,301
|
1,949,549
|
1,091,386
|
|
Product
revenues
|
|
54,895
|
82,032
|
-
|
|
Total
revenues
|
|
3,209,196
|
2,031,581
|
1,091,386
|
|
|
|
|
|
|
Direct
clinic expenses excluding depreciation and
amortization
|
|
|
|
|
|
Cost
of clinic services
|
|
1,157,428
|
793,374
|
417,047
|
|
Cost
of product revenues
|
|
36,132
|
32,902
|
-
|
|
Total direct clinic
expenses
|
|
1,193,560
|
826,276
|
417,047
|
|
|
|
|
|
|
|
2,015,636
|
1,205,305
|
674,339
|
|
|
|
|
|
|
Operating
expenses
|
21,26
|
3,947,408
|
2,933,619
|
2,517,681
|
|
Legal and
professional fees
|
|
1,394,571
|
1,015,743
|
1,450,141
|
|
Depreciation and
amortization expense
|
11,12
|
381,492
|
327,059
|
123,473
|
|
Impairment of
intangible assets
|
12
|
340,575
|
93,757
|
64,200
|
|
Impairment of
goodwill
|
12
|
117,218
|
2,377,397
|
-
|
|
Share-based
payments
|
20(c),26
|
323,799
|
608,944
|
892,417
|
|
Loss from
operations
|
|
(4,489,427)
|
(6,151,214)
|
(4,373,573)
|
|
|
|
|
|
|
|
Other
expenses (income)
|
|
|
|
|
|
Listing
fee
|
4
|
-
|
-
|
1,308,808
|
|
Accretion
expense
|
14,16,17
|
327,301
|
114,515
|
241,521
|
|
Interest
expense
|
14-18
|
212,110
|
240,539
|
126,375
|
|
Issuance costs
allocated to warrants accounted for as liabilities
|
20(b)
|
44,947
|
129,965
|
-
|
|
Interest
income
|
10
|
(7,573)
|
(4,977)
|
-
|
|
Gain on debt
settlement of accounts payable
|
13,20(b)
|
-
|
(15,130)
|
-
|
|
Gain on termination
of leases
|
11
|
(14,049)
|
(76,717)
|
-
|
|
Impairment loss on
write-off of property and equipment
|
|
-
|
196,352
|
-
|
|
Loss (gain) on
change in fair value of warrant liability
|
19
|
11,886,796
|
(2,065,781)
|
(1,598,425)
|
|
Gain on change in
fair value of conversion feature
|
17
|
(2,795)
|
(587,229)
|
(890,136)
|
|
Impairment of
promissory note
|
10
|
130,147
|
-
|
-
|
|
Impairment of
assets held for sale
|
9
|
-
|
-
|
57,072
|
|
Restructuring
expense, net
|
22
|
-
|
88,808
|
110,424
|
|
Other expense
(income), net
|
|
-
|
130,104
|
60,706
|
|
|
|
12,576,884
|
(1,849,551)
|
(583,655)
|
|
|
|
|
|
|
|
Net
loss and comprehensive loss for the year
|
|
(17,066,311)
|
(4,301,663)
|
(3,789,918)
|
|
|
|
|
|
|
|
Loss
per share
|
|
|
|
|
|
Basic
|
|
(0.09)
|
(0.04)
|
(0.06)
|
|
Diluted
|
|
(0.09)
|
(0.04)
|
(0.06)
|
|
|
|
|
|
|
|
Weighted
average number of shares outstanding
|
|
|
|
|
|
Basic
|
|
182,331,616
|
117,289,366
|
66,670,041
|
|
Diluted
|
|
182,331,616
|
117,289,366
|
66,670,041
|
The
accompanying notes are an integral part of these consolidated
financial statements.
EMPOWER CLINICS INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
For the
years ended December 31, 2020, 2019 and 2018
(in
United States dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
|
|
|
|
Net
loss and comprehensive loss for the year
|
|
(17,066,311)
|
(4,301,663)
|
(3,789,918)
|
|
Items
not involving cash:
|
|
|
|
|
|
Depreciation
and amortization expense
|
11,12
|
381,492
|
327,059
|
123,474
|
|
Share-based
payments
|
20(c),26
|
323,799
|
608,944
|
892,417
|
|
Non-cashed
listing fee
|
|
-
|
-
|
942,937
|
|
Accretion
expense
|
14,16,17
|
327,301
|
114,515
|
241,521
|
|
Interest
expense
|
14-18
|
168,459
|
240,539
|
125,904
|
|
Loss
on disposal of property and equipment
|
|
-
|
196,352
|
-
|
|
Gain
on termination of leases
|
11
|
14,049
|
(76,717)
|
-
|
|
(Gain)
loss on change in fair value of warrant liability
|
19
|
11,886,796
|
(2,065,781)
|
(1,598,425)
|
|
Gain
on change in fair value of conversion feature
|
17
|
(2,795)
|
(587,229)
|
(890,136)
|
|
Gain
on debt settlement
|
20
|
-
|
(15,130)
|
-
|
|
Shares
issued for compensation
|
20(b),26
|
-
|
304,721
|
477,180
|
|
Share
issued for restructuring
|
20(b)
|
-
|
-
|
216,873
|
|
Shares
issued for services
|
20(b),24
|
547,641
|
208,153
|
560,980
|
|
Vesting
of escrow shares
|
20(b)
|
193,025
|
-
|
-
|
|
Impairment
of intangible assets
|
12
|
340,575
|
93,757
|
64,200
|
|
Impairment
of goodwill
|
12
|
117,218
|
2,377,397
|
-
|
|
Impairment
of assets held for sale
|
9
|
-
|
-
|
57,072
|
|
Foreign
exchange
|
|
35,826
|
-
|
-
|
|
Other
|
|
(2,900)
|
-
|
-
|
|
|
|
(2,735,825)
|
(2,575,083)
|
(2,575,921)
|
|
Changes in working
capital:
|
|
|
|
|
|
Accounts
receivable
|
|
(239,070)
|
(24,116)
|
847
|
|
Prepaid
expenses
|
|
(31,263)
|
10,846
|
(5,463)
|
|
Inventory
|
|
4,167
|
(21,848)
|
-
|
|
Accounts
payable and accrued liabilities
|
|
1,225,479
|
337,013
|
(255,173)
|
|
Deferred
revenue
|
|
26,694
|
-
|
-
|
|
Net cash used in operating activities
|
|
(1,749,818)
|
(2,273,188)
|
(2,835,710)
|
|
|
|
|
|
|
|
Investing
activities
|
|
|
|
|
|
Investment
in Kai Medical Laboratory LLC, net
|
6
|
9,826
|
-
|
-
|
|
Investment
in LP&A, net
|
7
|
(177,470)
|
-
|
-
|
|
Purchase
of property and equipment
|
11
|
(3,495)
|
-
|
-
|
|
Purchase
of intangible assets
|
12
|
(138,855)
|
(3,828)
|
(100,227)
|
|
Investment
in Sun Valley
|
5
|
-
|
(787,318)
|
-
|
|
Net cash used in investing activities
|
|
(309,994)
|
(791,146)
|
(100,227)
|
|
|
|
|
|
|
|
Financing
activities
|
|
|
|
|
|
Shares
issued on private placement, net
|
20(b)
|
1,879,632
|
1,876,938
|
2,092,295
|
|
Proceeds
from stock options exercised
|
20(c)
|
58,662
|
-
|
-
|
|
Proceeds
from warrants exercised
|
20(d)
|
5,313,064
|
61,287
|
-
|
|
Advance
of loans payable
|
16
|
31,417
|
-
|
(7,148)
|
|
Repayment
of loans payable
|
16
|
(44,379)
|
-
|
-
|
|
Repayment
of notes payable
|
14
|
(197,862)
|
-
|
-
|
|
Interest
paid
|
14-18
|
(43,651)
|
-
|
-
|
|
Lease
Payments
|
18
|
(226,400)
|
(203,712)
|
-
|
|
Repayment
to related parties
|
|
-
|
(12,575)
|
(3,595)
|
|
Proceeds
from issuance of notes payable
|
14
|
-
|
321,935
|
-
|
|
Cash
acquired in acquisition
|
5
|
-
|
94,090
|
-
|
|
Cash
acquired in the Transaction
|
4
|
-
|
-
|
13,000
|
|
Proceeds
from share subscriptions
|
|
-
|
-
|
61,167
|
|
Proceeds
from the issuance of convertible debentures
|
17
|
-
|
753,491
|
442,437
|
|
Proceeds
on sale of assets held for sale
|
9
|
-
|
5,472
|
-
|
|
Proceeds
from issuance of convertible notes payable
|
15
|
-
|
188,893
|
495,449
|
|
Net cash provided by financing activities
|
|
6,770,483
|
3,085,819
|
3,093,605
|
|
|
|
|
|
|
|
Increase
in cash
|
|
4,710,671
|
21,485
|
157,668
|
|
Cash,
beginning of year
|
|
179,153
|
157,668
|
-
|
|
Cash,
end of year
|
|
4,889,824
|
179,153
|
157,668
|
Supplemental
disclosure with respect to cash flows (note 24)
The
accompanying notes are an integral part of these consolidated
financial statements
EMPOWER CLINICS INC.
(Formerly
Adira Energy Ltd.)
CONSOLIDATED
STATEMENTS OF CHANGES IN EQUITY
For the
years ended December 31, 2020, 2019 and 2018
(in
United States dollars, except share numbers)
|
|
|
|
|
|
|
|
Equity component
of convertible debentures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2017
|
|
48,337,225
|
550,744
|
-
|
-
|
-
|
222,417
|
(5,580,023)
|
(4,806,862)
|
|
Shares issued
- Transaction consideration
|
4,20(b)
|
2,544,075
|
614,415
|
-
|
-
|
-
|
-
|
-
|
614,415
|
|
Shares issued
for cash
|
20(b)
|
8,756,376
|
2,092,295
|
-
|
80,280
|
-
|
-
|
-
|
2,172,575
|
|
Shares issued
for conversion of debentures
|
20(b)
|
11,796,046
|
1,010,363
|
-
|
-
|
-
|
(222,417)
|
-
|
787,946
|
|
Shares issued
on conversion of notes payable
|
20(b)
|
785,949
|
157,079
|
-
|
-
|
-
|
-
|
-
|
157,079
|
|
Shares issued
to former CEO
|
20(b)
|
2,000,000
|
477,180
|
-
|
-
|
-
|
-
|
-
|
477,180
|
|
Shares issued
for restructuring
|
20(b)
|
1,204,851
|
216,873
|
-
|
-
|
-
|
-
|
-
|
216,873
|
|
Shares issued
for services
|
20(b)
|
2,423,076
|
282,075
|
-
|
-
|
-
|
-
|
-
|
282,075
|
|
Share-based
payments
|
20(c)
|
-
|
-
|
-
|
-
|
892,417
|
-
|
-
|
892,417
|
|
Net loss and
comprehensive loss for the year
|
|
-
|
-
|
-
|
-
|
-
|
-
|
(3,789,918)
|
(3,789,918)
|
|
Balance, December 31,
2018
|
|
77,847,598
|
5,401,024
|
-
|
80,280
|
892,417
|
-
|
(9,369,941)
|
(2,996,220)
|
|
Adjustment on application of IFRS
16
|
3
|
-
|
-
|
-
|
-
|
|
-
|
(9,951)
|
(9,951)
|
|
Adjusted balance, January 1,
2019
|
|
77,847,598
|
5,401,024
|
-
|
80,280
|
892,417
|
-
|
(9,379,892)
|
(3,006,171)
|
|
Shares issued for Sun Valley
acquisition
|
5,20(b)
|
22,409,425
|
2,143,566
|
-
|
-
|
-
|
-
|
-
|
2,143,566
|
|
Shares issued on private placement,
net
|
20(b)
|
24,452,500
|
52,487
|
-
|
66,405
|
-
|
-
|
-
|
118,892
|
|
Shares issued for conversion of
notes payable
|
20(b)
|
2,500,000
|
7,254
|
-
|
-
|
-
|
-
|
-
|
7,254
|
|
Shares issued for conversion of
debentures
|
20(b)
|
3,991,524
|
55,997
|
-
|
-
|
-
|
-
|
-
|
55,997
|
|
Shares issued for
compensation
|
20(b)
|
7,400,000
|
304,721
|
-
|
-
|
-
|
-
|
-
|
304,721
|
|
Shares issued for
services
|
20(b)
|
1,500,000
|
257,041
|
-
|
-
|
-
|
-
|
-
|
257,041
|
|
Shares for debt
settlement
|
20(b)
|
1,686,861
|
208,153
|
-
|
-
|
-
|
-
|
-
|
208,153
|
|
Shares
cancelled
|
20(b)
|
(4,657,553)
|
(669,236)
|
-
|
-
|
-
|
-
|
669,236
|
-
|
|
Shares cancelled and to be
reissued
|
20(b)
|
-
|
(15,239)
|
15,239
|
|
-
|
-
|
|
-
|
|
Shares issued for exercise of
warrants
|
20(b)
|
431,075
|
61,287
|
-
|
-
|
-
|
-
|
-
|
61,287
|
|
Shares issued to
agents
|
20(b)
|
136,000
|
20,255
|
-
|
-
|
-
|
-
|
-
|
20,255
|
|
Shares to be issued for note
payable
|
20(b)
|
-
|
-
|
6,811
|
-
|
-
|
-
|
-
|
6,811
|
|
Share based
payments
|
20(c)
|
-
|
-
|
-
|
-
|
608,944
|
-
|
-
|
608,944
|
|
Net loss and comprehensive loss for
the year
|
|
-
|
-
|
-
|
-
|
-
|
-
|
(4,301,663)
|
(4,301,663)
|
|
Balance,
December 31, 2019
|
|
137,697,430
|
7,827,310
|
22,050
|
146,685
|
1,501,361
|
-
|
(13,012,319)
|
(3,514,913)
|
The
accompanying notes are an integral part of these consolidated
financial statements
EMPOWER CLINICS INC.
(Formerly
Adira Energy Ltd.)
CONSOLIDATED
STATEMENTS OF CHANGES IN EQUITY
For the
years ended December 31, 2020, 2019 and 2018
(in
United States dollars, except share numbers)
|
|
|
|
|
Share
subscriptions receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31,
2019
|
|
137,697,430
|
7,827,310
|
-
|
22,050
|
146,685
|
1,501,361
|
(13,012,319)
|
(3,514,913)
|
|
Shares issued
to former CEO
|
6,20(b)
|
651,875
|
15,239
|
-
|
(15,239)
|
-
|
-
|
-
|
-
|
|
Shares issued
on private placement, net
|
20(b)
|
55,309,465
|
921,138
|
-
|
-
|
49,782
|
-
|
-
|
970,920
|
|
Shares issued
on debt settlement
|
11,20(b)
|
5,841,586
|
219,150
|
-
|
-
|
-
|
-
|
-
|
219,150
|
|
Vesting of
escrow shares
|
14,20(b)
|
-
|
193,025
|
-
|
-
|
-
|
-
|
-
|
193,025
|
|
Shares issued
for services
|
20(b),23
|
9,500,000
|
487,354
|
-
|
60,287
|
-
|
-
|
-
|
547,641
|
|
Shares issued
on conversion of debentures
|
20(b)
|
11,659,984
|
621,353
|
-
|
-
|
-
|
-
|
-
|
621,353
|
|
Obligation to
issue shares
|
20(b)
|
150,000
|
6,811
|
-
|
(6,811)
|
-
|
-
|
-
|
-
|
|
Exercise of
Options
|
10,20(b)
|
7,583,333
|
840,499
|
(745,531)
|
-
|
-
|
(36,306)
|
-
|
58,662
|
|
Exercise of
Warrants
|
20(b),26
|
50,290,026
|
10,689,762
|
-
|
-
|
(35,549)
|
-
|
-
|
10,654,213
|
|
Lawrence Park
& Atkinson acquisition
|
16,20(b)
|
5,128,204
|
1,147,925
|
-
|
-
|
-
|
344,110
|
-
|
1,492,035
|
|
Kai Medical
acquisition
|
14,20(b)
|
-
|
-
|
-
|
-
|
-
|
10,025
|
-
|
10,025
|
|
Share issue
costs
|
11,20(b)
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Reclassification
of expired warrants
|
11,20(b)
|
-
|
-
|
-
|
-
|
(80,280)
|
80,280
|
-
|
-
|
|
Share based
payments
|
|
-
|
-
|
-
|
-
|
-
|
323,799
|
-
|
323,799
|
|
Net loss and
comprehensive loss for the year
|
20(b)
|
-
|
-
|
-
|
-
|
-
|
-
|
(17,066,311)
|
(17,066,311)
|
|
Balance,
December 31, 2020
|
|
283,811,903
|
22,969,566
|
(745,531)
|
60,287
|
80,638
|
2,223,269
|
(30,078,630)
|
(5,490,401)
|
The
accompanying notes are an integral part of these consolidated
financial statements
EMPOWER CLINICS INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2020, 2019 and 2018
(in
United States dollars, except where noted)
1.
NATURE OF OPERATIONS AND GOING CONCERN
Empower
Clinics Inc. (“Empower” or the “Company”)
was incorporated under the laws of the Province of British Columbia
on April 28, 2015. The Company is a leading owner and operator of
medical cannabis clinics, developer of medical products, and
provides laboratory testing services in the US, focused on enabling
individuals to improve and protect their health.
This
business is conducted through Empower’s wholly-owned Nevada,
USA subsidiary, Empower Healthcare Corp. and on April 16, 2019, the
Company incorporated a wholly-owned Delaware corporation, Empower
Healthcare Assets Inc. (“EHA”). Through a series of
transactions on April 30, 2019, EHA acquired all the outstanding
membership interest of Sun Valley Certification Clinics Holdings,
LLC and its subsidiaries Sun Valley Alternative Health Centers,
LLC, Sun Valley Alternative Health Centers West, LLC, Sun Valley
Alternative Health Centers NV, LLC, Sun Valley Alternative Health
Centers Tucson, LLC, Sun Valley Alternative Health Centers Mesa,
LLC, and Sun Valley Certification Clinics Franchising, LLC
(collectively “Sun Valley”) (note 5). On October 5,
2020 and December 31, 2020, respectively, the Company acquired all
of the outstanding membership interest of Kai Medical Laboratory,
LLC (note 6) and Lawrence Park Health and Wellness Clinic Inc. and
11000900 Canada Inc. (note 7).
The
registered office of the Company is located at Suite 918 - 1030
West Georgia Street, Vancouver, British Columbia, Canada, V6C 1G8.
The Company’s U.S. headquarters are at 105 SE 18th Avenue,
Portland, Oregon.
COVID-19
On
March 11, 2020, the World Health Organization declared the
coronavirus disease ("COVID-19") a global pandemic. During the
remainder of March 2020 and through to December 31, 2020, the
COVID-19 pandemic has negatively impacted global economic and
financial markets. Most industries have been impacted by the
COVID-19 pandemic and are facing operating challenges associated
with the regulations and guidelines resulting from efforts to
contain it.
As a
direct result of the COVID-19 pandemic, the Company realized
significant increases in patient visits and testing, which resulted
in increased revenues and operating expenses. The global response
to the COVID-19 pandemic has resulted in, among other things,
border closures, severe travel restrictions, as well as quarantine,
self-isolation, and other emergency measures imposed by various
governments. Additional government or regulatory actions or
inactions around the world including in jurisdictions where the
Company operates may also have potentially significant economic and
social impacts. If the Company’s business operations are
disrupted or suspended as a result of these or other measures, it
may have a material adverse effect on the Company’s business,
results of operations and financial performance. Factors that may
be impacted, among other things, are the Company’s operating
plan, supply chain and workforce. The Company continues to monitor
the situation closely, including any potential impact on its
operations. The extent to which COVID-19 may impact the
Company’s business and operations will depend on future
developments that are highly uncertain and cannot be accurately
estimated, at this time, including new information which may emerge
concerning the severity of and the actions required to contain
COVID-19 or remedy its impact.
Going
concern
These
consolidated financial statements have ben prepared on the
assumption that the Company will be able to continue operating as a
going concern, which assumes the Company will be able to realize
its assets and discharge its liabilities in the normal course of
operations for the foreseeable future. The Company has a history of
losses and negative cash flows from operating activities, and as at
December 31, 2020, the Company had a working capital deficiency of
$1,746,818 (December 31, 2019 - $4,185,359) and an accumulated
deficit of $30,078,630 (December 31, 2019 - $13,012,319). These
circumstances represent a material uncertainty that cast
substantial doubt on the Company’s ability to continue as a
going concern and ultimately the appropriateness of the use of
going concern assumption.
Subsequent to
December 31, 2020, warrant and option exercises resulted in cash
proceeds of $5,865,335 which the Company plans to use to support
its working capital requirements, allowing it to operate without an
immediate requirement to access new capital. The Company
anticipates that it will continue to actively pursue growth
opportunities through acquisitions, the expansion of clinic
locations and through new product development in order to drive
revenue and generate positive cash flows from operations. The
ability of the Company to continue operating as a going concern is
dependent on its ability to raise sufficient additional funds to
finance development activities and/or its ability to achieve
profitable operations and positive cash flows from operations.
There is no certainty management’s plans described above will
be successful or that sufficient financing will be available on
terms acceptable to the Company.
EMPOWER CLINICS INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2020, 2019 and 2018
(in
United States dollars, except where noted)
These
financial statements do not reflect adjustments (if any) to the
recorded amounts and classification of assets and liabilities,
which could be necessary if the use of the going concern assumption
is ultimately determined to be inappropriate. Such adjustments, if
any, could be material.
2.
BASIS OF PREPARATION
a)
Statement
of compliance
These
consolidated financial statements of Company have been prepared in
accordance with International Financial Reporting Standards
("IFRS") as issued by the International Accounting Standards Board
(“IASB”) and interpretations issued by the
International Reporting Interpretation Committee
(“IFRIC”) for all periods presented. These consolidated
financial statements were approved by the Board of Directors and
authorized for issue on June 30, 2021.
The
consolidated financial statements have been prepared using the
historical cost basis, except for certain financial assets and
liabilities which are measured at fair value, as specified by IFRS
for each type of asset, liability, income and expense as set out in
the accounting policies below.
c)
Functional
and presentation currency
The
consolidated financial statements are presented in United States
(“US”) dollars, except as otherwise noted, which is the
functional currency of the Company and each of the Company’s
subsidiaries, except for Lawrence Park Health and Wellness Clinic
Inc. and 11000900 Canada Inc. for which Canadian dollars is the
functional currency. References to C$ are to Canadian
dollars.
d)
Basis
of consolidation
These
consolidated financial statements include the accounts of the
Company and its subsidiaries. All intercompany transactions and
balances are eliminated on consolidation. Control exists where the
parent entity has power over the investee and is exposed, or has
rights, to variable returns from its involvement with the investee
and has the ability to affect those returns through its power over
the investee. Subsidiaries are included in the consolidated
financial statements from the date control commences until the date
control ceases. These consolidated financial statements incorporate
the accounts of the Company and the following
subsidiaries:
|
Name of subsidiary
|
Country of Incorporation
|
Percentage Ownership
|
Functional Currency
|
Principal Activity
|
|
S.M.A.A.R.T.
Holdings Inc.
|
USA
|
100%
|
USD
|
Holding
company
|
|
Empower
Healthcare Corp.
|
Canada
|
100%
|
USD
|
Holding
company
|
|
Empower
Healthcare Corp.
|
USA
|
100%
|
USD
|
Clinic
operations
|
|
SMAART,
Inc.
|
USA
|
100%
|
USD
|
Holding
company
|
|
The
Hemp and Cannabis Co. (1)
|
USA
|
100%
|
USD
|
Holding
company
|
|
THCF
Access Point (1)
|
USA
|
100%
|
USD
|
Holding
company
|
|
Empower
Healthcare Assets Inc.(2)
|
USA
|
100%
|
USD
|
Holding
company
|
|
Sun
Valley Heath Holdings, LLC (3)
|
USA
|
100%
|
USD
|
Holding
company
|
|
Sun
Valley Health Franchising, LLC (3)
|
USA
|
100%
|
USD
|
Clinic
operations
|
|
Sun
Valley Health, LLC (3)
|
USA
|
100%
|
USD
|
Clinic
operations
|
|
Sun
Valley Health West, LLC (3)
|
USA
|
100%
|
USD
|
Clinic
operations
|
|
Sun
Valley Health Tucson, LLC (3)
|
USA
|
100%
|
USD
|
Clinic
operations
|
|
Sun
Valley Health Mesa, LLC (3)
|
USA
|
100%
|
USD
|
Clinic
operations
|
|
Sun
Valley Alternative Health Centres NV, LLC (3)
|
USA
|
100%
|
USD
|
Clinic
operations
|
|
Kai
Medical Laboratory, LLC (4)
|
USA
|
100%
|
USD
|
Clinic
operations
|
|
Lawrence Park
Health and Wellness Clinic Inc. (5)
|
Canada
|
100%
|
CAD
|
Clinic
operations
|
|
11000900 Canada
Inc. (5)
|
Canada
|
100%
|
CAD
|
Clinic
operations
|
(1)
These companies
were inactive during the years ended December 31, 2020 and
2019
(2)
This Company was
incorporated on April 27, 2019
(3)
These Companies
were acquired as part of the Sun Valley acquisition on April 30,
2019 (note 5)
(4)
Acquired on October
5, 2020 (note 6)
(5)
Acquired on
December 31, 2020 (note 7)
EMPOWER CLINICS INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2020, 2019 and 2018
(in
United States dollars, except where noted)
3. SIGNIFICANT ACCOUNTING POLICIES
a)
Critical
accounting judgments and estimates
The
preparation of the Company’s consolidated financial
statements in conformity with IFRS requires management to make
judgements and estimates based on assumptions about future events
that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses during the reporting period.
The
estimates and associated assumptions are based on historical
experience and various other factors that are believed to be
reasonable under the circumstances, the results of which form the
basis of making the judgements about carrying values of assets and
liabilities that are not readily apparent from other sources.
Actual results could differ from those estimates.
These
critical judgements and estimates and underlying assumptions are
reviewed on an ongoing basis. Revisions to accounting estimates are
recognized prospectively in the period in which the estimate is
revised.
Areas
that require significant judgements and estimates and related
assumptions as the basis for determining the stated amounts
include, but are not limited to, the following:
Functional currency
The
functional currency for each of the Company’s subsidiaries is
the currency of the primary economic environment in which the
respective entity operates; such determination involves certain
judgements to identify the primary economic environment. The
Company reconsiders the functional currency of its subsidiaries if
there is a change in events and/or conditions which determine the
primary economic environment. Note 2(c) contains the
Company’s assessment of the functional currency of each
subsidiary.
Assessment of Cash Generating Units
For
impairment assessment and testing, assets are grouped together into
the smallest group of assets that generates cash inflows from
continuing use that are largely independent of the cash inflows of
other assets or cash generating units (“CGU”). The
Company applies judgement in assessing the smallest group of assets
that comprise a single CGU.
Assessment of useful lives of property and equipment and intangible
assets
Management reviews
its estimate of the useful lives of property and equipment and
intangible assets annually and accounts for any changes in
estimates prospectively. The Company applied judgment in
determining the useful lives of trademarks and patient records with
less than an indefinite life. In addition, the Company applied
judgment in determining the useful lives of the right-of-use assets
and leasehold improvements for purposes of assessing the shorter of
the useful life or lease term.
Assessment of indicators of impairment
At the
end of each reporting period, the Company assesses whether there
are any indicators, from external and internal sources of
information, that an asset or CGU may be impaired, thereby
requiring adjustment to the carrying value.
Revenue recognition
Determination of performance obligations
The Company applied judgement to determine if a good or service
that is promised to a customer is distinct based on whether the
customer can benefit from the good or service on its own or
together with other readily available resources and whether the
good or service is separately identifiable. Based on these
criteria, the Company determined the primary performance obligation
relating to its sales contracts is the delivery of the medical
services or sale of product, each representing a single performance
obligation with consideration allocated accordingly.
EMPOWER CLINICS INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2020, 2019 and 2018
(in
United States dollars, except where noted)
Transfer of control
Judgement is required to determine when transfer of control occurs
relating to the medical services to its customers. Management based
its assessment on a number of indicators of control, which include,
but are not limited to whether the Company has present right of
payment, whether delivery of medical services has occurred and
whether the physical possession of the goods, significant risks and
rewards and/or legal title have been transferred to the
customer.
Expected credit losses
In calculating the expected credit loss
on financial instruments, management is required to make a number
of judgments including the probability of possible outcomes
with regards to credit losses, the discount rate to use for time
value of money and whether the financial instrument’s credit
risk has increased significantly since initial
recognition.
Current and deferred taxes
The
Company’s provision for income taxes is estimated based on
the expected annual effective tax rates (and tax laws) that have
been enacted or substantively enacted by the end of the reporting
period. The deferred components of income taxes are estimated based
on forecasted movements in temporary differences. Changes to the
expected annual effective tax rate and differences between the
actual and expected effective tax rate and between actual and
forecasted movements in temporary differences will result in
adjustments to the Company’s provision for income taxes in
the period changes are made and/or differences are
identified.
In
assessing the probability of realizing income tax assets
recognized, management makes estimates related to expectations of
future taxable income, applicable tax planning opportunities,
expected timing of reversals of existing temporary differences and
the likelihood that tax positions taken will be sustained upon
examination by applicable tax authorities. In making its
assessments, management gives additional weight to positive and
negative evidence that can be objectively verified. Estimates of
future taxable income are based on forecasted cash flows from
operations and the application of existing tax laws in each
jurisdiction. Forecasted cash flows from operations are based on
expected patient visits in future periods, which are internally
developed and reviewed by management.
Weight
is attached to tax planning opportunities that are within the
Company’s control, and are feasible and implementable without
significant obstacles.
The
likelihood that tax positions taken will be sustained upon
examination by applicable tax authorities is assessed based on
individual facts and circumstances of the relevant tax position
evaluated in light of all available evidence.
Equity-settled share-based payments
Share-based
payments are measured at fair value. Options and warrants are
measured using the Black-Scholes option pricing model based on
estimated fair values of all share-based awards at the date of
grant and are expensed to the consolidated statement of loss and
comprehensive loss over each award’s vesting period. The
Black-Scholes option pricing model utilizes subjective assumptions
such as expected price volatility and expected life of the option.
Changes in these input assumptions can significantly affect the
fair value estimate.
Warrant liability and conversion feature
Warrant
liability and conversion features are measured at fair value using
the Black-Scholes option pricing model based on estimated fair
values at the date of grant and revalued at period end with changes
in fair value being charged or credited to the consolidated
statement of loss and comprehensive loss. The Black-Scholes option
pricing model utilizes subjective assumptions such as expected
price volatility and expected life of the option. Changes in these
input assumptions can significantly affect the fair value
estimate.
Contingencies
Due to
the nature of the Company’s operations, various legal and tax
matters can arise from time to time. In the event that
management’s estimate of the future resolution of these
matters’ changes, the Company will recognize the effects of
the changes in its consolidated financial statements for the period
in which such changes occur.
EMPOWER CLINICS INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2020, 2019 and 2018
(in
United States dollars, except where noted)
Leases
a.
Identifying whether a contract includes a lease
IFRS 16 applies a control model to the identification of leases,
distinguishing between a lease and a service contract on the basis
of whether the customer controls the asset. The Company had to
apply judgment on certain factors, including whether the supplier
has substantive substitution rights, whether the Company obtains
substantially all of the economic benefits and who has the right to
direct the use of that asset.
Incremental
borrowing rate
When the Company recognizes a lease, the future lease payments are
discounted using the Company’s incremental borrowing rate.
This significant estimate impacts the carrying amount of the lease
liabilities and the interest expense recorded on the consolidated
statement of loss and comprehensive loss.
Estimate of lease term
When the Company recognizes a lease, it assesses the lease term
based on the conditions of the lease and determines whether it will
extend the lease at the end of the lease contract or exercise an
early termination option. As it is not reasonably certain that the
extension or early termination options will be exercised, the
Company determined that the term of its leases are the lesser of
original lease term or the life of the leased asset. This
significant estimate could affect future results if the Company
extends the lease or exercises an early termination
option.
Business combinations
Judgment is used in
determining whether an acquisition is a business combination or an
asset acquisition.
In a
business combination, all identifiable assets, liabilities and
contingent liabilities acquired are recorded at their fair values,
including the total consideration paid by the Company. One of the
most significant estimates relates to the determination of the fair
value of these assets and liabilities including assessing the fair
value of any favourable or unfavorable lease terms. For any
intangible asset identified or form of consideration paid by the
Company, depending on the type of intangible asset or consideration
paid and the complexity of determining its fair value, an
independent valuation expert or management may develop the fair
value, using appropriate valuation techniques, which are generally
based on a forecast of the total expected future net cash flows.
The evaluations are linked closely to the assumptions made by
management regarding the future performance of the assets concerned
and any changes in the discount rate applied.
Additionally, as
part of a business combination, all forms of consideration paid (on
the date of acquisition or contingent upon achieving certain
milestones) are recorded at their fair values, which is a
significant estimate. For any form of consideration paid by the
Company, depending on the type of consideration paid and the
complexity of determining its fair value, an independent valuation
expert or management may develop the fair value, using appropriate
valuation techniques, which are generally based on a forecast of
the total expected future net cash flows. The evaluations are
linked closely to the assumptions made by management regarding the
future performance of the asset concerned and any changes in the
discount rate applied. In the event that there is contingent
consideration in an acquisition management makes assumptions as to
the probability of the consideration being paid.
b)
Foreign
currency translation
Transactions in
foreign currencies are initially recorded by the Company’s
subsidiaries at their respective functional currency spot rates at
the date the transaction is recognized. Monetary assets and
liabilities denominated in foreign currencies are translated at the
functional currency spot rates of exchange at reporting period
ends. Differences arising on settlement or translation of monetary
items are recognized in profit or loss. Non-monetary items that are
measured in terms of historical cost in a foreign currency are
translated using the exchange rates at the dates of the initial
transactions. Non-monetary items measured at fair value in a
foreign currency are translated using the exchange rates at the
date when the fair value is determined. The gain or loss arising on
translation of non-monetary items measured at fair value is treated
in line with the recognition of the gain or loss on the change in
fair value of the item (i.e., translation differences on items
whose fair value gain or loss is recognized in other comprehensive
income (“OCI”) or profit or loss are also recognized in
OCI or profit or loss, respectively).
EMPOWER CLINICS INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2020, 2019 and 2018
(in
United States dollars, except where noted)
On
consolidation, the assets and liabilities of foreign operations are
translated into US dollars at the rate of exchange prevailing at
the reporting date and their statements of profit or loss are
translated at the average exchange rate prevailing during each
reporting period. Equity balances are translated at historical
exchange rates prevailing at the date of the transactions. The
exchange differences arising on translation for consolidation are
recognized in OCI. On disposal of a foreign operation, the
component of OCI relating to that particular foreign operation is
reclassified to profit or loss.
Cash
consists of cash at banks and on hand.
Inventories are
valued initially at cost and subsequently at the lower of cost and
net realizable value. All direct and indirect costs related to
inventory are capitalized as they are incurred.
Net
realizable value is determined as the estimated selling price in
the ordinary course of business. Cost is determined using the
weighted average cost basis. Products for resale and supplies and
consumables are valued at the lower of cost and net realizable
value. The Company reviews inventory for obsolete and slow-moving
goods and any such inventory is written down to net realizable
value. Inventory consists of consumable laboratory supplies used in
testing.
e)
Property
and equipment
Property and
equipment are measured at cost less accumulated depreciation and
impairment losses. Cost includes the purchase price, any costs
directly attributable to bringing equipment to the location and
condition necessary for it to be capable of operating in the manner
intended by management and the estimated site reclamation and
closure costs associated with removing the asset, and, where
applicable, borrowing costs.
Upon
sale or abandonment of any equipment, the cost and related
accumulated depreciation and impairment losses are written off and
any gains or losses thereon are recognized in profit or loss for
the period. When the parts of an item of equipment have different
useful lives, they are accounted for as separate items (major
components) of equipment.
The
cost of replacing or overhauling a component of an item of
equipment is recognized in the carrying amount of the item if it is
probable that the future economic benefits embodied within the
component will flow to the Company and its cost can be measured
reliably. The carrying amount of the replaced component is
derecognized. Maintenance and repairs of a routine nature are
charged to statement of loss or comprehensive loss as
incurred.
Gains
and losses on disposal of an item of equipment are determined by
comparing the proceeds from disposal with the carrying amount of
the equipment and are recognized in the consolidated statement of
loss and comprehensive loss.
Intangible assets
are stated at cost less accumulated amortization and impairment
losses. Cost includes the purchase price, any costs directly
attributable to bringing the intangible asset to the condition
necessary for it to be capable of operating in the manner intended
by management and, where applicable, borrowing costs.
Upon
sale or abandonment of any intangible asset, the cost and related
accumulated depreciation and impairment losses are written off and
any gains or losses thereon are recognized in the statement of loss
or comprehensive loss for the period.
g)
Depreciation
and amortization
Depreciation and
amortization is provided using the straight-line basis over the
following terms:
|
Furniture and equipment
|
|
3 - 5 years
|
|
Leasehold improvements
|
|
5 years
|
|
Right-of-use assets
|
|
Term of the lease
|
|
Medical lab equipment (testing)
|
|
12 years
|
EMPOWER CLINICS INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2020, 2019 and 2018
(in
United States dollars, except where noted)
Long
lived assets (property and equipment, intangibles, goodwill) are
reviewed for impairment at each reporting period end or whenever
events or changes in circumstances indicate that the carrying
amount of an asset or CGU exceeds its recoverable amount. The
recoverable amount of an asset is the higher of its fair value,
less costs to sell, and its value in use. If the carrying amount of
an asset exceeds its recoverable amount, an impairment charge is
recognized immediately in profit or loss by the amount by which the
carrying amount of the asset exceeds the recoverable amount. If an
impairment loss subsequently reverses, the carrying amount of the
asset is increased to the lesser of the revised estimate of
recoverable amount, and the carrying amount that would have been
recorded had no impairment loss been recognized
previously.
Non-current assets,
or disposal groups comprising assets and liabilities, are
classified as held for sale if it is highly probable that they will
be recovered primarily through sale rather than through continuing
use. Such assets, or disposal groups, are generally measured as the
lower of their carrying amount and fair value less costs to
sell.
A
provision is recognized if, as a result of a past event, the
Company has a present legal or constructive obligation that can be
estimated reliably, and it is probable that an outflow of economic
benefits will be required to settle the obligation.
Constructive
obligations are obligations that derive from the Company’s
actions where:
a.
by an established pattern of past practice, published policies or a
sufficiently specific current statement, the Company has indicated
to other parties that it will accept certain responsibilities;
and,
b.
as a result, the Company has created a valid expectation on the
part of those other parties that it will discharge those
responsibilities.
Provisions are
reviewed at the end of each reporting period and adjusted to
reflect management’s current best estimate of the expenditure
required to settle the present obligation at the end of the
reporting period. If it is no longer probable that an outflow of
resources embodying economic benefits will be required to settle
the obligation, the provision is reversed.
Provisions are
reduced by actual expenditures for which the provision was
originally recognized. Provisions are determined by discounting the
expected future cash flows at a pre-tax rate that reflects the
current market assessments of the time value of money and the risks
specific to the liability. The accretion of the discount is charged
to the consolidated statement of loss and comprehensive
loss.
k)
Convertible
debentures
The
convertible debentures were determined to be compound instruments,
comprising a financial liability (debt obligation) and derivative
liability component (conversion option). As the debentures are
convertible into units, each comprising a common share and a
warrant, the debt and conversion feature are presented separately.
The conversion option is classified as a derivative liability under
the principles of IFRS 9 - Financial Instruments. As the exercise
price of the convertible debenture is fixed in Canadian dollars and
the functional currency of the Company is the US dollar, the
conversion option is considered a derivative liability in
accordance with IAS 32 - Financial
Instruments: Presentation as a variable amount of cash in
the Company’s functional currency will be received upon
exercise.
The
conversion option is recognized at fair value using the
Black-Scholes option pricing model and the listed trading price at
the date of issue. The conversion option is initially recorded as a
liability at fair value with any subsequent changes in fair value
recognized in the consolidated statement of loss and comprehensive
loss.
Using
the residual method, the carrying amount of the financial liability
component is the difference between the principal amount and the
initial carrying value of the conversion option. The debentures,
net of the derivative lability component, are accreted using the
effective interest rate method over the term of the debentures,
such that the carrying amount of the financial liability will equal
the principal balance at maturity.
EMPOWER CLINICS INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2020, 2019 and 2018
(in
United States dollars, except where noted)
Upon
conversion, the conversion option is revalued at the date of
exercise of the conversion feature and the total fair value of the
conversion option and the carrying value of the debt is allocated
between the warranty liability and equity.
During
the year ended December 31, 2020, all convertible debentures were
converted into share capital.
Certain
employees and directors of the Company receive a portion of their
remuneration in the form of share options. The fair value of the
share options, determined at the date of the grant, is charged to
the consolidated statement of loss and comprehensive loss, with an
offsetting credit to contributed surplus, over the vesting period.
If and when the share options are exercised, the applicable
original amounts of contributed surplus are transferred to issued
capital.
The
fair value of a share-based payment is determined at the date of
the grant. The estimated fair value of share options is measured
using the Black-Scholes option pricing model.
These
estimates involve inherent uncertainties and the application of
management’s judgement. The costs of share-based payments are
recognized over the vesting period of the option. The total amount
recognized as an expense is adjusted to reflect the number of
options expected to vest at each reporting date. At each reporting
date prior to vesting, the cumulative compensation expense
representing the extent to which the vesting period has passed and
management’s best estimate of the share options that are
ultimately expected to vest is computed. The movement in cumulative
expense is recognized in the consolidated statement of loss and
comprehensive loss with a corresponding entry to contributed
surplus.
Share-based
payments to non-employees are measured at the fair value of the
goods or services received, or the fair value of the equity
instruments issued if it is determined that the fair value of the
goods or services cannot be reliably measured, and are recorded at
the date the goods or services are received.
No
expense is recognized for share options that do not ultimately
vest. Charges for share options that are forfeited before vesting
are reversed from contributed surplus and credited to the
consolidated statement of loss and comprehensive loss. For those
share options that expire unexercised after vesting, the recorded
value remains in contributed surplus.
m)
Share
purchase warrants
Share
purchase warrants are classified as a derivative liability under
the principles of IFRS 9 - Financial Instruments. As the exercise
price of the share purchase warrant is fixed in Canadian dollars
and the functional currency of the Company is the US dollar, the
share purchase warrants are considered a derivative liability in
accordance with IAS 32 - Financial
Instruments: Presentation as a variable amount of cash in
the Company’s functional currency will be received upon
exercise.
These
types of share purchase warrants are recognized at fair value using
the Black-Scholes option pricing model. Share purchase warrants are
initially recorded as a liability at fair value with any subsequent
changes in fair value recognized in the consolidated statement of
loss and comprehensive loss.
Upon
exercise of the share purchase warrants with exercise prices in a
currency other than the Company’s functional currency, the
share purchase warrants are revalued at the date of exercise with
any gain or loss being charged to the consolidated statement of
loss and comprehensive loss, and the total fair value of the
exercised share purchase warrants is reallocated to equity. The
proceeds generated from the payment of the exercise price are also
allocated to equity.
Common
shares are classified as equity. Incremental costs directly
attributable to the issue of common shares and share options are
recognized as a deduction from equity. Share issue costs incurred
in advance of share subscriptions are recorded as non-current
deferred assets. Share issue costs related to uncompleted share
subscriptions are expensed in the period they are
incurred.
The
Company records proceeds from share issuances net of issue costs
and any tax effects. Common shares issued for non-monetary
consideration are recorded at their fair value based upon the
trading price of the Company’s shares on the Canadian
Securities Exchange on the date of the agreement to issue the
shares or the date of share issuance, whichever is more
appropriate.
The
proceeds from the issue of units is allocated between common shares
and common share purchase warrants as follows: the fair value of
the common share purchase warrants is determined using the
Black-Scholes pricing model and the residual, if any is allocated
to issued capital.
EMPOWER CLINICS INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2020, 2019 and 2018
(in
United States dollars, except where noted)
The Company has issued common shares held in escrow as a part of a
compensation arrangement. The fair value of the escrowed shares is
recognized into profit and loss with a corresponding increase to
capital as the common shares vest.
The Company has issued common shares held in escrow as a part of
the Sun Valley acquisition. The fair value of the escrowed shares
is recognized as consideration.
Classification of financial assets
Amortized cost:
Financial assets
that meet the following conditions are measured subsequently at
amortized cost:
●
The financial asset
is held within a business model whose objective is to hold
financial assets in order to collect contractual cash flows,
and
●
The contractual
terms of the financial asset give rise on specified dates to cash
flows that are solely payments of principal and interest on the
principal amount outstanding.
The
amortized cost of a financial asset is the amount at which the
financial asset is measured at initial recognition minus the
principal repayments, plus the cumulative amortization using
effective interest method of any difference between that initial
amount and the maturity amount, adjusted for any loss allowance.
Interest income is recognized using the effective interest
method.
Financial assets
valued at amortized cost are cash and accounts
receivable.
Fair value through other comprehensive income
("FVTOCI"):
Financial assets
that meet the following conditions are measured at
FVTOCI:
●
The financial asset
is held within a business model whose objective is achieved by both
collecting contractual cash flows and selling financial assets,
and,
●
The contractual
terms of the financial asset give rise on specified dates to cash
flows that are solely payments of principal and interest on the
principal amount outstanding.
The
Company does not currently hold any financial instruments
designated as FVTOCI.
Equity instruments designated as FVTOCI:
On
initial recognition, the Company may make an irrevocable election
(on an instrument-by-instrument basis) to designate investments in
equity instruments that would otherwise be measured at fair value
through profit or loss to present subsequent changes in fair value
in other comprehensive income. Designation at FVTOCI is not
permitted if the equity investment is held for trading or if it is
contingent consideration recognized by an acquirer in a business
combination. Investments in equity instruments at FVTOCI are
initially measured at fair value plus transaction costs.
Subsequently, they are measured at fair value with gains and losses
arising from changes in fair value recognized in other OCI. The
cumulative gain or loss is not reclassified to the consolidated
statement of loss and comprehensive loss on disposal of the equity
instrument, instead, it is transferred to deficit.
The
Company does not currently hold any equity instruments designated
as FVTOCI.
Financial assets measured subsequently at fair value through profit
or loss:
By
default, all other financial assets are measured subsequently at
FVTPL.
The
Company, at initial recognition, may also irrevocably designate a
financial asset as measured at FVTPL if doing so eliminates or
significantly reduces a measurement or recognition inconsistency
that would otherwise arise from measuring assets or liabilities or
recognizing the gains and losses on them on different
bases.
EMPOWER CLINICS INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2020, 2019 and 2018
(in
United States dollars, except where noted)
Financial assets
measured at FVTPL are measured at fair value at the end of each
reporting period, with any fair value gains or losses recognized on
the consolidated statement of loss and comprehensive loss to the
extent they are not part of a designated hedging
relationship.
The
Company currently has no financial assets valued at
FVTL.
q)
Financial
liabilities and equity
Debt
and equity instruments are classified as either financial
liabilities or as equity in accordance with the substance of the
contractual arrangements and the definitions of a financial
liability and an equity instrument.
An
equity instrument is any contract that evidences a residual
interest in the assets of the Company after deducting all its
liabilities. Equity instruments issued by the Company are
recognized at the proceeds received, net of direct issue costs.
Repurchase of the Company’s own equity instruments is
recognized and deducted directly in equity. No gain or loss is
recognized on the consolidated statement of loss and comprehensive
loss on the purchase, sale, issue or cancellation of the
Company’s own equity instruments.
Classification of financial liabilities
Financial
liabilities that are not contingent consideration of an acquirer in
a business combination, held for trading or designated as at FVTPL,
are measured at amortized cost using effective interest method. The
Company’s financial liabilities measured at amortized cost
are accounts payable and accrued liabilities, notes payable,
convertible debentures payable, lease liability, loans payable and
convertible notes payable. The Company measures the warrant
liability at FVTPL.
i.
Financial instruments designated as hedging
instruments
The
Company does not currently apply nor have a past practice of
applying hedge accounting to financial instruments.
ii.
Impairment of financial assets
The
expected loss model (“ECL”) applies to financial assets
measured at amortized cost, contract assets and debt investments
measured at FVOCI. The ECL model applies to the Company’s
promissory note receivable (Note 6).
To
assess credit losses, the Company considers a broad range of
information when assessing credit risk and measuring expected
credit losses, including past events, current conditions and
forecasts that affect the expected collectability of future cash
flows of the instrument.
In
applying this forward-looking approach, the Company separates
instruments into the below categories:
1.
financial instruments that have not deteriorated significantly
since initial recognition or that have low credit
risk;
2.
financial instruments that have deteriorated significantly since
initial recognition and whose credit loss is not low;
or
3.
financial instruments that have objective evidence of impairment at
the reporting date.
12-month expected
credit losses are recognized for the first category while
‘lifetime expected credit losses’ are recognized for
the second category.
For
financial assets carried at amortized cost, the amount of the
impairment is the difference between the asset’s carrying
amount and the present value of the estimated future cash flows,
discounted at the financial asset’s original effective
interest rate.
Financial assets, other than those at FVTPL and
amortized cost, are assessed for indicators of impairment at each
reporting period. Financial assets are impaired when there is
objective evidence that, as a result of one or more events that
occurred after the initial recognition of the financial asset, the
estimated future cash flows of the investment have been
impacted.
r)
Impairment
of non-financial assets
At each
reporting date, the Company reviews the carrying amounts of its
non-financial assets to determine whether there are any indications
of impairment. If any such indication exists such as an increase in
operating costs or a decrease in the number of patient visits, the
recoverable amount of the asset is estimated in order to determine
the extent of the impairment, if any.
EMPOWER CLINICS INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2020, 2019 and 2018
(in
United States dollars, except where noted)
Where
the asset does not generate cash inflows that are independent from
other assets, the Company estimates the recoverable amount of the
CGU to which the asset belongs. A CGU is the smallest identifiable
group of assets that generates cash inflows that are largely
independent of the cash inflows from other assets or group of
assets.
The
recoverable amount is determined as the higher of fair value less
costs of disposal and the asset’s value in use. Fair value is
determined with reference to discounted estimated future cash flow
analysis or to recent transactions involving dispositions of
similar properties. In assessing value in use, the estimated future
cash flows are discounted to their present value.
The
pre-tax discount rate applied to the estimated future cash flows
measured on a value in use basis reflects current market
assessments of the time value of money and the risks specific to
the asset for which the future cash flow estimates have not been
adjusted.
If the
carrying amount of an asset or CGU exceeds its recoverable amount,
the carrying amount of the asset or CGU is reduced to its
recoverable amount. An impairment loss is recognized as a charge to
the consolidated statement of loss and comprehensive loss.
Non-financial assets that have been impaired are tested for
possible reversal of the impairment whenever events or changes in
circumstance indicate that the impairment may have
reversed.
Where
an impairment, other than goodwill impairment, subsequently
reverses, the carrying amount of the asset or CGU is increased to
the revised estimate of its recoverable amount, but only so that
the increased carrying amount does not exceed the carrying amount
that would have been determined (net of depreciation and/or
amortization) had no impairment loss been recognized for the asset
or CGU in prior periods. A reversal of impairment is recognized as
a gain in the consolidated statement of loss and comprehensive
loss. Goodwill impairment losses are not reversed.
Current tax expense
Current
tax is the expected tax payable or receivable on the taxable
earnings or loss for the period.
Current
tax for each taxable entity in the Company is based on the local
taxable income at the local statutory tax rate enacted at the
reporting date and includes adjustments to tax payable or
recoverable in respect of previous periods.
Deferred tax expense
Deferred tax is
accounted for using the balance sheet liability method, providing
for the tax effect of temporary differences between the carrying
amount of assets and liabilities for financial reporting purposes
and their respective tax bases.
Deferred tax
liabilities are recognized for all taxable temporary differences
except where the deferred tax liability arises from the initial
recognition of goodwill, or the initial recognition of an asset or
liability in a transaction that is not a business combination and,
at the time of the transaction, affects neither the accounting
earnings nor taxable earnings or loss.
Deferred tax assets
are recognized for all deductible temporary differences, carry
forwards of unused tax losses and tax credits, to the extent that
it is probable that taxable earnings will be available against
which the deductible temporary differences, and the carry forward
of unused tax losses can be utilized, except where the deferred tax
asset related to the deductible temporary difference arises from
the initial recognition of an asset or liability in a transaction
that is not a business combination and, at the time of the
transaction, affects neither the accounting earnings nor taxable
earnings or loss.
The
carrying amounts of deferred tax assets are reviewed at each
reporting date and are adjusted to the extent that it is no longer
probable that sufficient taxable earnings will be available to
allow all or part of the asset to be utilized. To the extent that
an asset not previously recognized fulfills the criteria for
recognition, a deferred tax asset is recorded.
Deferred tax is
measured on an undiscounted basis using the tax rates that are
expected to apply in the period when the liability is settled or
the asset is realized, based on tax rates and tax laws enacted or
substantially enacted at the reporting date. Current and deferred
tax relating to items recognized directly in equity are recognized
in equity and not in the consolidated statement of loss and
comprehensive loss.
EMPOWER CLINICS INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2020, 2019 and 2018
(in
United States dollars, except where noted)
t)
Earnings
(loss) per share
Basic
earnings (loss) per share (“EPS”) is calculated by
dividing the net earnings (loss) of the Company by the basic
weighted average number of common shares outstanding during the
period.
For
purposes of calculating diluted EPS, the proceeds from the
potential exercise of dilutive share options and share purchase
warrants with exercise prices that are below the average market
price of the underlying shares for the reporting period are assumed
to be used in purchasing the Company’s common shares at their
average market price for the period.
Share
options and share purchase warrants are included in the calculation
of diluted EPS only to the extent that the market price of the
common shares exceeds the exercise price of the share options or
share purchase warrants except where such inclusion would be
anti-dilutive.
Revenue
is recognized in accordance with IFRS 15, Revenue, when a customer
obtains control of promised goods or services. The amount of
revenue reflects the consideration to which the Company expects to
be entitled to receive in exchange for these goods or services. The
Company applies the following five-step analysis to determine
whether, how much and when revenue is recognized: (1) Identify the
contract with the customer; (2) Identify the performance obligation
in the contract; (3) Determine the transaction price; (4) Allocate
the transaction price to the performance obligation in the
contract; and (5) Recognize revenue when or as the Company
satisfies a performance obligation.
The
Company recognizes revenue when delivery of medical services has
occurred and when the physical possession of the goods and
significant risks and rewards and legal title have been transferred
to the customer. The Company recognizes revenue from the rendering
of patient services in the accounting period in which the
physician’s services are rendered and recognizes revenue from
the sale of goods when physical possession of the goods has
transferred to the customer.
Revenues are
recorded net of discounts provided to patients.
v)
Related
party transactions
Parties
are considered to be related if one party has the ability, directly
or indirectly, to control the other party or exercise significant
influence over the other party in making financial and operating
decisions. Parties are also considered to be related if they are
subject to common control or common significant influence, related
parties may be individuals or corporate entities. A transaction is
considered to be a related party transaction when there is a
transfer of resources or obligations between related
parties.
4.
REVERSE TAKEOVER
On
April 23, 2018, S.M.A.A.R.T Holdings Inc (“SMAART”)
completed the merger with Adira Energy Ltd. (“Adira”),
pursuant to which SMAART amalgamated with 1149770 B.C. Ltd., a
wholly-owned subsidiary of Adira, resulting in the indirect
acquisition by SMAART of all of the issued and outstanding
securities of Adira (the “Transaction”). This resulted
in a reverse takeover of Adira by the shareholders of
SMAART.
In
connection with the Transaction completed on April 16, 2018, the
Company changed its name from “Adira Energy Ltd.” to
“Empower Clinics Inc.” and consolidated its existing
common shares on the basis of one common share for each 6.726254
existing common shares of the Company.
At the
time of the Transaction, Adira did not constitute a business as
defined under IFRS 3; therefore, the Transaction was accounted for
under IFRS 2, where the difference between the consideration given
to acquire Adira and the net asset value of Adira was recorded in
the consolidated statement of loss and comprehensive loss as a
listing fee expense. As Empower Healthcare Corporation was deemed
to be the acquirer for accounting purposes, these consolidated
financial statements present the historical financial information
of Adira up to the date of the Transaction.
EMPOWER CLINICS INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2020, 2019 and 2018
(in
United States dollars, except where noted)
|
Consideration
|
|
|
Consideration
– shares
|
614,415
|
|
Legal
and professional fees relating to the Transaction
|
365,871
|
|
Net
liabilities acquired
|
328,522
|
|
Listing fee
|
1,308,808
|
|
|
|
|
|
|
|
Fair value of the net assets (liabilities) of Adira
|
|
|
Cash
|
13,000
|
|
Accounts
payable and accrued liabilities
|
(341,522)
|
|
|
(328,522)
|
The
fair value of 2,544,075 issued common shares of the Company was
estimated using $0.24 (C$0.31) per share.
5.
ACQUISITION OF SUN VALLEY
On
April 30, 2019, the Company obtained control of Sun Valley for
consideration with a fair value of $3,054,593 comprised of cash of
$787,318, 22,409,425 common
shares of the Company, and a promissory note of $125,000 bearing
interest at a rate of 4% per annum and due July 31, 2019. The
promissory note was fair valued at $123,709 using a discount rate
of 6%. In addition, the Company paid a consultant finders fee equal
to 5% of the aggregate purchase price which amounted to $188,750
(C$258,019). The finders fee is recorded within legal and
professional fees on the consolidation statements of loss and
comprehensive loss.
The
transaction has been accounted for by the Company as a business
combination under IFRS 3 - Business Combinations.
Initial
cash payment of $637,318 was made on the Closing Date with
remaining $150,000 held back as security for working capital
adjustments recorded by Sun Valley. Accounts payable and accrued
liabilities include the $150,000 holdback, of which $75,000 is
expected to be released on the six-month anniversary of the Closing
Date with the remaining $75,000 to be released on the one-year
anniversary of the Closing Date. On January 23, 2020, the Company
issued 2,000,000 common shares as settlement of the holdback in the
amount of $100,000.
Common
shares of the Company were issued on the Closing Date with
7,703,543 common shares valued at the closing price on April 30,
2019 of $0.13 (C$0.175) for fair value of $1,001,458 and 14,705,882
common shares being held in escrow (“Escrow Shares”)
with a fair value of $1,142,108. Fair value of the Escrow Shares
was determined by discounting the fair value of the Escrow Shares
using the closing share price on April 30, 2019 of $0.13 (C$0.175),
volatility of 150% and escrow period of 3 to 36 months. The Escrow
Shares will vest in quarterly instalments over 36 months from the
Closing Date.
EMPOWER CLINICS INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2020, 2019 and 2018
(in
United States dollars, except where noted)
The
following table summarizes the final purchase price
allocation:
|
Assets
Acquired
|
|
|
Cash and cash
equivalents
|
94,090
|
|
Accounts
receivable
|
366
|
|
Total current
assets
|
94,456
|
|
|
|
|
|
|
|
Security
deposits
|
19,753
|
|
Property and
equipment
|
124,811
|
|
Right-of-use
assets
|
431,544
|
|
Patient
list
|
171,243
|
|
Brands
|
184,996
|
|
|
1,026,803
|
|
|
|
|
|
|
|
Liabilities
Assumed
|
|
|
Accounts payable
and accrued liabilities
|
35,281
|
|
Lease
liability
|
150,342
|
|
Total current
liabilities
|
185,623
|
|
|
|
|
|
|
|
Lease
liability
|
281,202
|
|
Net
assets at fair value, as at April 30, 2019
|
559,978
|
|
|
|
|
|
|
|
Consideration
|
|
|
Fair value of
7,703,543 common shares issued
|
1,001,458
|
|
Fair value of
14,705,882 Escrow Shares
|
1,142,108
|
|
Cash
|
787,318
|
|
Promissory
note
|
123,709
|
|
Total
Consideration
|
3,054,593
|
|
|
|
|
|
|
|
Goodwill
|
2,494,615
|
During
the year ended December 31, 2019, the business combination resulted
in revenues of $1,526,383 and net loss and comprehensive loss of
$503,235. Had the business combination been affected at January 1,
2019, revenue of the Company would have been $999,968 higher and
the net loss and comprehensive loss of the Company would have
decreased by $153,633 for the year ended December 31,
2019.
As
required under IFRS, the Company assessed goodwill for impairment
at December 31, 2020 and concluded that the recoverable value of
the Sun Valley CGU as a whole (comprising of multiple locations)
was less than its carrying value and an impairment loss of $117,218
(December 31, 2019 – $2,377,397) was recognized on
goodwill.
6.
ACQUISITION OF KAI MEDICAL
On
October 5, 2020, the Company acquired 100% of the membership
interest of Kai Medical Laboratory, LLC (“Kai
Medical”), for consideration with a fair value of $20,050
comprised of 500,000 stock options with a fair value of $10,025 and
500,000 warrants with a fair value of $10,025. The options and
warrants are exercisable at a price of $0.04 (C$0.05) and expire on
October 5, 2023. The options and warrants were valued using a
Black-Scholes option pricing model with the following assumptions:
three year expected life, risk free rate of 0.23%, share price of
$0.03 (C$0.04) and volatility of 119.32%.
The
transaction has been accounted for as a business combination under
IFRS 3 – Business Combinations.
KAI
Medical Laboratory operates a high-complexity CLIA and COLA
accredited laboratory that provides reliable and accurate testing
solutions to hospitals, medical clinics, pharmacies, and employer
groups.
EMPOWER CLINICS INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2020, 2019 and 2018
(in
United States dollars, except where noted)
The
following table summarizes the final purchase price
allocation:
|
Assets Acquired
|
|
|
Cash
|
9,826
|
|
Accounts
receivable
|
1,314
|
|
Prepaid
|
8,002
|
|
Property
and equipment
|
1,422,819
|
|
Intangible
asset
|
245,000
|
|
|
1,686,961
|
|
|
|
|
|
|
|
Liabilities Assumed
|
|
|
Accounts
payable and accrued liabilities
|
406,528
|
|
Loan
payable
|
1,139,577
|
|
Lease
liability
|
294,669
|
|
Disaster
loan
|
59,846
|
|
PPP
loan
|
77,028
|
|
Net assets at fair value, as at October 5, 2020
|
(290,687)
|
|
|
|
|
|
|
|
Consideration
|
|
|
Fair
value of 500,000 stock options issued
|
10,025
|
|
Fair
value of 500,000 warrants issued
|
10,025
|
|
Total Consideration
|
20,050
|
|
|
|
|
Goodwill
|
310,737
|
Accounts receivable
had a fair value of $1,314 while gross contractual accounts
receivable were $32,448 at the date of acquisition.
Property and
equipment acquired included $294,669 of right-of-use
assets.
The
intangible asset is comprised of the laboratory certification
license which was valued at replacement cost which approximates the
costs incurred by Kai Medical to acquire the laboratory
certification license.
The
loan payable had a principal balance of $1,139,577, accrues
interest at the prime rate plus 2% and matures on June 7, 2028. The
prime rate as at October 5, 2020 was 3.25%. The loan
payable’s fair value was determined to be equal to its
carrying value as the loan is collateralized, the borrower did not
breach any of the default provisions, and the lender is an
unrelated third party.
The
disaster loan had a principal balance of $150,000, accrues interest
at 3.75% per annum and matures on June 24, 2040. The disaster loan
was fair valued at $59,846 using a discount rate of
13.83%.
The PPP
loan had a principal balance of $89,379, accrues interest at 1.00%
per annum and matures on April 30, 2022. The PPP loan was fair
valued at $77,028 using a discount rate of 16.63%.
The
lease liability represents four leases with a fair value of
$294,669 on the date of acquisition, which is the net present value
of the minimum future lease payments determined using the following
assumptions:
|
|
|
|
|
|
|
Remaining term
(months)
|
20
|
5
|
55
|
55
|
|
Monthly
payments
|
$3,050 to $3,250
|
$2,850
|
$2,554
|
$2,041
|
|
Incremental
borrowing rate
|
5.5%
|
5.5%
|
5.5%
|
5.5%
|
|
Fair
value on acquisition
|
$60,145
|
$14,039
|
$122,536
|
$97,949
|
The
goodwill generated as a result of this acquisition relates to other
intangible assets that do not qualify for separate
recognition.
The
results of operations are included in the Company’s
consolidated loss and comprehensive loss for the period since the
acquisition date. From the closing date of the acquisition on
October 5, 2020 to December 31, 2020, Kai Medical contributed
revenues of $653,124 and net income of $140,048 to the
Company’s results. If the acquisition occurred on January 1,
2020, management estimates that revenue would have increased by
$608,710 and net loss would have been increased by approximately
$403,288, respectively.
EMPOWER CLINICS INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2020, 2019 and 2018
(in
United States dollars, except where noted)
7.
ACQUISITION OF LAWRENCE PARK & ATKINSON
On
December 31, 2020, the Company acquired 100% ownership of Lawrence
Park Health and Wellness Clinic Inc. (“Lawrence Park”)
and 11000900 Canada Inc. (“Atkinson”, together
“Lawrence Park & Atkinson” or
“LP&A”). Lawrence Park & Atkinson operate
para-medical clinics in the Greater Toronto Area of Ontario,
Canada. The acquisition of these entities is considered one
combined acquisition as the businesses carry on similar activities
in Canada and are evaluated together as one business by management,
so are considered one CGU from the Company’s
perspective.
Consideration in
the transaction had a fair value of $1,766,933 comprised of cash
consideration of $215,991, cash payable of $58,907, up to 3,750,000
stock options with a fair value of $344,110 and share consideration
with a fair value of $1,147,925. Share consideration consisted of
the issuance of 2,564,102 common shares of the Company with a fair
value of $0.2238 (C$0.2850) based on the stock price on December
31, 2020 and 2,564,102 common shares of the Company subject to
voluntary trading restrictions imposed by a contract (and therefore
no discount for lack of marketability) lasting through December 31,
2022 and having an average fair value of $0.2238 (C$0.2850) per
share, which have the following escrow condition: 320,513 common
shares to be released every three months commencing on March 31,
2021.
Pursuant to the
terms of the acquisition of LP&A, the 3,750,000 stock options
are subject to the following milestone issuance
schedule:
●
Milestone 1 - 1/3
exercisable after 10 new clinics are opened within 18 months of the
acquisition date
●
Milestone 2 - 1/3
exercisable after an additional 10 new clinics are
opened
●
Milestone 3 - 1/3
exercisable after a further additional 10 new clinics are
opened
The
stock options will have a term of five years commencing on the date
of issuance and become exercisable at a price equal to the greater
of (a) the volume weighted average trading price ("VWAP") for the
10 trading days prior to the achievement of Milestone 1, and (b)
the greater of the closing market prices of the Empower shares on
(i) the trading day prior to the date of grant of the stock
options; and (ii) in the event that the shares are not publicly
traded, the fair value determined by an independent appraiser. The
Company used the Black-Scholes option pricing model to determine
the $344,110 fair value of the stock options with the following
assumptions:
|
|
Milestone 1
|
Milestone 2
|
Milestone 3
|
|
Milestone
date
|
June
30, 2022
|
December
31, 2023
|
June
30, 2025
|
|
Years
to maturity
|
4.00
|
4.75
|
5.50
|
|
Risk-free
rate
|
0.190%
|
0.250%
|
0.480%
|
|
Exercise
price
|
C$0.2850
|
C$0.2850
|
C$0.2850
|
|
Share
price
|
C$0.2850
|
C$0.2850
|
C$0.2850
|
|
Volatility
|
108.1%
|
108.1%
|
108.1%
|
|
Fair value per option
|
C$0.2056
|
C$0.2173
|
C$0.2273
|
|
Probability
|
90%
|
50%
|
25%
|
|
Fair value per option tranche (1)
|
$181,634 (C$231,256)
|
$106,679 (C$135,824)
|
$55,797 (C$71,041)
|
(1)
Canadian dollar
amount translated using December 31, 2020 foreign exchange rate of
0.7854
The
transaction has been accounted for as a business combination under
IFRS 3 – Business Combinations.
EMPOWER CLINICS INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2020, 2019 and 2018
(in
United States dollars, except where noted)
The
following table summarizes the final purchase price
allocation:
|
Assets Acquired
|
|
|
Cash
and cash equivalents
|
38,521
|
|
Deposit
|
4,103
|
|
Intangible
assets
|
58,907
|
|
Right-of-use
assets
|
39,271
|
|
|
140,802
|
|
|
|
|
|
|
|
Liabilities Assumed
|
|
|
Accounts
payable and accrued liabilities
|
54,396
|
|
Lease
liability
|
45,595
|
|
Loans
payable
|
45,287
|
|
Net assets at fair value, as at December 31, 2020
|
(4,476)
|
|
|
|
|
|
|
|
Consideration
|
|
|
Cash
consideration
|
215,991
|
|
Cash
consideration - withheld
|
58,907
|
|
Stock
options
|
344,110
|
|
Share
consideration
|
1,147,925
|
|
Total Consideration
|
1,766,933
|
|
|
|
|
Goodwill
|
1,771,409
|
The
intangible assets are comprised of the trade name with a fair value
of $43,198 and customer relationships with a fair value of $15,709.
The fair value of the trade name was determined using the relief
from royalty method and the fair value of the customer
relationships was determined using a discounted cash flow analysis.
The key assumptions used in the cash flow projection related to the
trade name include: (1) a discount rate of 20.5%; (2) revenue
growth rates of 3.1% - 35%; (3) royalty rate of 1%; (4) discount
rate of 20.5% and (5) terminal revenue growth of 2% per year. The
key assumptions used in the cash flow projection related to the
customer relationships include (1) customer growth rate of 2%; (2)
customer retention rates of 55% and discount rate of
22.5%.
The
lease liability represents one lease with a fair value of $45,595
on the date of acquisition, which is the net present value of the
minimum future lease payments determined using the following
assumptions: (1) remaining number of payments – 13; (2) rent
payment - $3,631; and (3) incremental borrowing rate –
4.04%.
The
loans payable balance at acquisition consists of two CEBA loans
with a two-year term to maturity that have a fair value of $45,287.
The fair value was determine using a discounted cash flow analysis
with a a discount rate of 10.2%.
The
goodwill generated as a result of this acquisition relates to other
intangible assets that do not qualify for separate
recognition.
If the
acquisition occurred on January 1, 2020, management estimates that
revenue would have increased by $501,745 and net loss would have
been decreased by approximately $8,807, respectively.
8.
ACCOUNTS RECEIVABLE
The
Company had the following in accounts receivable at December 31,
2020 and December 31, 2019:
|
|
|
|
|
|
|
|
|
Trade
receivables, net
|
245,891
|
24,482
|
|
GST
receivable
|
18,975
|
-
|
|
|
264,866
|
24,482
|
The
Company estimates a provision for lifetime expected credit losses
for receivables aged greater than 91 days. As at December 31, 2020,
the Company had $nil (2019 - $nil) recorded as a provision for
expected credit losses.
EMPOWER CLINICS INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2020, 2019 and 2018
(in
United States dollars, except where noted)
9.
ASSETS HELD FOR SALE
During
the year ended December 31, 2018, the Company had listed its
facility and land in Portland, Oregon for sale. Prior to their
classification as assets held for sale, the facility and land in
Portland were reported under property and equipment (note 11). The
assets held for sale were recorded at the lower of their carrying
value and their fair value. The fair value was based on a sales
agreement dated January 17, 2019, whereby the Company would receive
net proceeds of $127,972 after selling costs. During the year ended
December 31, 2018, the Company recorded an impairment loss of
$57,072 to reduce the asset’s carrying value to its fair
market value.
During
the year ended December 31, 2019, the sales agreement dated January
17, 2019, was executed and the facility and land were sold. There
was no gain or loss recorded on the sale as the Company received
proceeds of $127,972 in the form of a promissory note for $122,500
(note 10) and cash of $5,472.
10.
PROMISSORY NOTE
On
January 11, 2019, in connection with the sale of facility and land,
the Company acquired a promissory note in the amount of $122,500
(note 9). The promissory note accrued interest at a rate of 6% per
annum and was due in full on February 1, 2021. Interest income in
the amount of $7,573 was accrued for the year ended December 31,
2020 (December 31, 2019 - $4,977). Subsequent to the sale of the
facility and land, the purchaser became aware of a lien placed on
the facility and land by the Internal Revenue Service related to
taxes owing. The Company has accrued the full amount of taxes owing
which is included in accounts payable and accrued liabilities.
Given the uncertainty surrounding removal of the lien, management
has determined that the promissory note and accrued interest income
were impaired and were both written off to $nil.
11.
PROPERTY AND EQUIPMENT
A
continuity of property and equipment for the years ended December
31, 2020 and 2019 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
|
|
|
|
|
Balance, December
31, 2018
|
-
|
28,360
|
118,465
|
-
|
146,825
|
|
Adoption of IFRS
16
|
324,972
|
-
|
-
|
-
|
324,972
|
|
Acquisition of Sun
Valley
|
431,544
|
32,952
|
91,859
|
-
|
556,355
|
|
Additions
|
425,539
|
3,828
|
-
|
-
|
429,367
|
|
Impairment
|
(324,972)
|
(28,360)
|
(118,466)
|
-
|
(471,798)
|
|
Balance, December
31, 2019
|
857,083
|
36,780
|
91,858
|
-
|
985,721
|
|
Acquisition of Kai
Medical
|
294,669
|
114,000
|
86,000
|
928,149
|
1,422,818
|
|
Acquisition of
LP&A
|
39,271
|
-
|
-
|
-
|
39,271
|
|
Additions
|
-
|
3,495
|
-
|
-
|
3,495
|
|
Disposals
|
(402,533)
|
-
|
-
|
-
|
(402,533)
|
|
Balance,
December 31, 2020
|
788,490
|
154,275
|
177,858
|
928,149
|
2,048,772
|
|
Accumulated
amortization
|
|
|
|
|
|
|
Balance, December
31, 2018
|
-
|
(19,765)
|
-
|
-
|
(19,765)
|
|
Adoption of IFRS
16
|
(196,479)
|
-
|
-
|
-
|
(196,479)
|
|
Amortization
|
(196,563)
|
(13,164)
|
(37,873)
|
-
|
(247,600)
|
|
Write
off
|
245,847
|
25,750
|
3,949
|
-
|
275,546
|
|
Balance, December
31, 2019
|
(147,195)
|
(7,179)
|
(33,924)
|
-
|
(188,298)
|
|
Amortization
|
(222,910)
|
(35,776)
|
(40,881)
|
(29,005)
|
(328,572)
|
|
Disposals
|
58,145
|
-
|
-
|
-
|
58,145
|
|
Balance,
December 31, 2020
|
(311,960)
|
(42,955)
|
(74,805)
|
(29,005)
|
(458,725)
|
|
Carrying
amount
|
|
|
|
|
|
|
Balance, December
31, 2019
|
709,888
|
29,601
|
57,934
|
-
|
797,423
|
|
Balance,
December 31, 2020
|
476,530
|
111,320
|
103,053
|
899,144
|
1,590,047
|
EMPOWER CLINICS INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2020, 2019 and 2018
(in
United States dollars, except where noted)
On May
9, 2019, the Company terminated the lease for the Chicago clinic.
As a result of the lease termination, the Company derecognized the
right-of-use asset with a cost of $255,859 and accumulated
amortization of $184,787 and recorded an impairment loss $71,072
representing the undepreciated portion of the right-of-use asset
above the lease liability which is included as impairment loss on
write-off of property and equipment on the consolidated statements
of loss and comprehensive loss.
The
Company also derecognized the associated lease liability of $76,626
and recorded a gain of $5,549 representing the excess of the
right-of-use asset above the lease liability which is included as
impairment loss on property and equipment on the consolidated
statements of loss and comprehensive loss. In addition, the Company
recognized an impairment loss of $114,516 representing the carrying
value of leasehold improvements written-off for the Chicago clinic
on termination of the lease. This is included as impairment loss on
property and equipment on the consolidated statements of loss and
comprehensive loss.
The
Company defaulted on the Spokane lease and as a result,
derecognized the right-of-use asset with a cost of $69,113 and
accumulated amortization of $61,060 and recorded a loss of $8,053
representing the carrying value of the right-of-use asset which is
included as impairment loss on property and equipment on the
consolidated statements of loss and comprehensive loss. The lease
liability of $9,700 has not been derecognized as the Company
negotiates a settlement with the landlord of the facility. In
addition, the Company recognized a loss on disposal of $2,610
representing the carrying value of the furniture and
equipment.
Through
the acquisition of Kai Medical on October 5, 2020, the Company
acquired testing equipment with a fair value of $829,803 and
right-of-use assets of $294,669. The right-of-use assets relate to
leased office space and equipment.
The
Company defaulted on the right-of-use CBD extraction facility and
as a result, derecognized the right of use asset with a cost of
$402,533 and accumulated depreciation of $58,145. The Company
recognized a gain on lease termination of $14,049. The Company
still has $15,533 in lease liabilities related to unpaid rent for
three months where the Company still had possession of the
facility.
12.
INTANGIBLE ASSETS AND GOODWILL
A
continuity of intangible assets for the years ended December 31,
2020 and 2019 is as follows:
|
|
|
Brands,
trademarks, licenses and domain names
|
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
|
|
|
|
|
Balance, December
31, 2018
|
292,093
|
98,700
|
51,100
|
-
|
441,893
|
|
Additions
|
171,243
|
184,996
|
-
|
-
|
356,239
|
|
Impairment
|
(73,756)
|
(20,001)
|
-
|
-
|
(93,757)
|
|
Balance, December
31, 2019
|
389,580
|
263,695
|
51,100
|
-
|
704,375
|
|
Additions
|
-
|
-
|
-
|
138,855
|
138,855
|
|
Acquisition of Kai
Medical
|
-
|
245,000
|
-
|
-
|
245,000
|
|
Acquisition of
LP&A
|
58,907
|
-
|
-
|
-
|
58,907
|
|
Impairment
|
(69,724)
|
(131,996)
|
-
|
(138,855)
|
(340,575)
|
|
Balance,
December 31, 2020
|
378,763
|
376,699
|
51,100
|
-
|
806,562
|
|
Accumulated
amortization
|
|
|
|
|
|
|
Balance, December
31, 2018
|
(220,476)
|
(98,700)
|
(51,100)
|
-
|
(370,276)
|
|
Amortization
|
(79,459)
|
-
|
-
|
-
|
(79,459)
|
|
Balance, December
31, 2019
|
(299,935)
|
(98,700)
|
(51,100)
|
-
|
(449,735)
|
|
Amortization
|
(52,920)
|
-
|
-
|
-
|
(52,920)
|
|
Balance,
December 31, 2020
|
(352,855)
|
(98,700)
|
(51,100)
|
-
|
(502,655)
|
|
Carrying
amount
|
|
|
|
|
|
|
Balance, December
31, 2019
|
89,645
|
164,995
|
-
|
-
|
254,640
|
|
Balance,
December 31, 2020
|
25,908
|
277,999
|
-
|
-
|
303,907
|
EMPOWER CLINICS INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2020, 2019 and 2018
(in
United States dollars, except where noted)
During
the year ended December 31, 2020, the Company recognized an
impairment loss of $340,575 in relation to patient records, brand
and software (December 31, 2019 - $93,757).
A
continuity of goodwill for the years ended December 31, 2020 and
2019, follows:
|
|
Total
|
|
|
$
|
|
Balance, December
31, 2018
|
-
|
|
Additions
|
2,494,615
|
|
Impairment
|
(2,377,397)
|
|
Balance,
December 31, 2019
|
117,218
|
|
Additions
|
2,082,146
|
|
Impairment
|
(117,218)
|
|
Balance, December 31, 2020
|
2,082,146
|
At
December 31, 2020, the Company assessed the goodwill recorded
through the Sun Valley acquisition for impairment and found that
the entire amount was impaired resulting in an impairment loss of
$117,218 (December 31, 2019 - $2,377,397). The Company assessed
intangible patient records and brand for impairment and found them
to be fully impaired resulting in an impairment loss of $340,575
(December 31, 2019 - $93,757). The impairment losses pertaining to
the Sun Valley goodwill and intangible assets related to a change
in expected future cash flows for the CGU as a result of: 1)
changes in the Arizona licensing regulations on June 7, 2019, which
now requires certification on a two-year period whereas it was on a
one-year basis prior to the change in regulation. The change in
licensing regulations is expected to result in increased attrition
and lower patient totals in Arizona as compared to that considered
at the acquisition date which resulted in an impairment test being
conducted on June 7, 2019, and 2) the negative impact of
legalization of the passage of the Arizona Marijuana Legalization
Initiative on November 3, 2020, which legalized the possession and
use of recreational marijuana for adults (age 21 years or older).
In addition, the legalization allows people to grow no more than
six marijuana plants for personal use in their residence, as long
as the plants are within an enclosed area with a lock and beyond
public view. This legalization in Arizona has had a material
adverse effect on the Company’s operations within the
state.
The
impairment was determined based on value in use calculation which
uses cash flow projections covering a five-year period and a
discount rate of 6% per annum. The cash flows beyond the five-year
period have been extrapolated using a terminal growth rate of 1.5%
per annum. Key assumptions used in the cash flow projection related
to attrition of 59%. The new patient attraction rate was estimated
to be 68% as of acquisition date and 24% post
legalization.
At
December 31, 2020, the Company assessed the goodwill recorded
through the Kai acquisition for impairment. The Company performed a
discounted cash flow analysis to determine Kai’s value in
use, which incorporated the following assumptions: (1) discount
rate - 17%; (2) income tax rate - 27%; (3) terminal growth rate -
2%; (4) working capital - 8% of sales. The Company noted that the
recoverable amount was greater than the carrying value and that no
impairment was required as at December 31, 2020.
13.
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
|
|
|
|
|
|
|
|
|
Trade payables and
accrued liabilities
|
1,920,840
|
1,337,253
|
|
Payroll
liabilities
|
1,521,885
|
537,737
|
|
|
3,442,725
|
1,874,990
|
Included in trade
accounts payable and accrued liabilities is $157,055 due to the CEO
in connection with expenses incurred in the normal course of
business and deferred payroll and $53,914 due to significant
shareholders in connection with the acquisition of Sun
Valley.
EMPOWER CLINICS INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2020, 2019 and 2018
(in
United States dollars, except where noted)
14.
NOTES PAYABLE
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning
of period
|
969,891
|
760,715
|
404,370
|
|
Issue of notes
payable (a)(c)(d)
|
-
|
321,935
|
495,449
|
|
Settled in shares
(b)(c)(d)
|
(148,745)
|
(186,942)
|
(167,000)
|
|
Repayment
|
(197,862)
|
-
|
-
|
|
Realized foreign
exchange loss (gain)
|
4,918
|
(2,267)
|
-
|
|
Unrealized foreign
exchange loss (gain)
|
6,304
|
(9,171)
|
-
|
|
Accretion
expense
|
13,110
|
12,337
|
-
|
|
Interest
expense
|
60,745
|
73,284
|
27,896
|
|
Balance, end of
period
|
708,361
|
969,891
|
760,715
|
|
Less: Current
portion of notes payable
|
708,361
|
-
|
150,271
|
|
Non-current portion
of notes payable
|
-
|
969,891
|
610,444
|
a)
On January 21, 2019
the Company issued a promissory note payable in the amount of
$33,842 (C$45,000). This promissory note payable was due on
December 31, 2020 bearing interest at 6% per annum. On April 1,
2019, the Company converted the promissory note plus $667 (C$892)
of interest into 450,000 units of the Company consisting of one
common share and one share purchase warrant. Each share purchase
warrant entitles the holder to acquire one common share at an
exercise price equal to $0.14 (C$0.19).
b)
On April 1, 2019,
the Company converted a promissory note in the amount of $153,100
(C$205,000) plus $1,984 (C$2,652) of interest into 2,050,000 units
of the Company consisting of one common share and one share
purchase warrant. Each share purchase warrant entitles the holder
to acquire one common share at an exercise price equal to $0.14
(C$0.19).
c)
On April 30, 2019,
the Company issued a promissory note payable in the amount of
$125,000. The promissory note was due July 31, 2019 and bears
interest at a rate of 4% per annum. The Company was in default and
extended the maturity date to August 31, 2020. The default resulted
in a penalty of $15,000 if the loan was not repaid in full by July
31, 2019 and an additional $15,000 if the loan was not paid in full
by August 31, 2019. On July 15, 2020, the Company settled the
promissory note in 4,100,634 units in the private placement on the
same date. The note had a carrying amount of $148,745 which
represented the principal plus interest and $30,000 of late payment
penalties. The Company recorded a loss on debt settlement of $2,380
which is included in general and administrative
expense.
d)
On October 1, 2019,
the Company issued a promissory note payable in the amount of
$188,765 (C$250,000). The promissory note payable was due April 1,
2020, and bears interest at 10% per annum. Pursuant to the issuance
of the note payable the Company incurred transaction costs
including an administrative charge of $18,876 (C$25,000) and an
obligation to issue 150,000 common shares of the Company with a
fair value of $6,811 which was been recorded as shares to be issued
on the consolidated statements of changes in equity. The note
payable has been recognized at amortized cost of $163,093
(C$216,000). On May 20, 2020, the Company issued a total of 844,444
common shares of which 694,444 were to settle an administrative
charge of $18,876 (C$25,000) and the remaining 150,000 common
shares were to settle the obligation to issue shares. The Company
repaid the principal of $250,000 on December 11, 2020. As at
December 31, 2020, the Company had a balance owing of $22,944 for
accrued interest. The interest was repaid on January 11, 2021 (note
29).
15.
CONVERTIBLE NOTE PAYABLE
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning
of period
|
192,717
|
-
|
-
|
|
Issue of notes
payable
|
-
|
188,893
|
-
|
|
Unrealized foreign
exchange loss
|
3,971
|
3,596
|
-
|
|
Interest
expense
|
3,842
|
228
|
-
|
|
Balance, end of
period
|
200,530
|
192,717
|
-
|
|
Less: Current
portion
|
200,530
|
192,717
|
-
|
|
Non-current portion
of convertible note payable
|
-
|
-
|
-
|
EMPOWER CLINICS INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2020, 2019 and 2018
(in
United States dollars, except where noted)
On
December 9, 2019, the Company issued a convertible promissory note
payable in the amount of $188,893 (C$250,000). The convertible
promissory note payable is due December 9, 2021 and bears interest
at 2% per annum. The convertible promissory note is convertible at
a share price equal to the closing share price on the date prior to
conversion for total shares equal to the face value of the note
divided by the closing share price. As the settlement is fixed at
the face value of the obligation, the Company has determined that
the conversion option has $nil value.
16.
LOANS PAYABLE
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning
of period
|
761,711
|
717,460
|
676,849
|
|
Acquisition of Kai
Medical
|
1,276,449
|
-
|
-
|
|
Acquisition of
Lawrence Park
|
27,172
|
-
|
-
|
|
Acquisition of
11000900 Canada Ltd.
|
18,115
|
-
|
-
|
|
CEBA
loan
|
31,417
|
-
|
-
|
|
Accretion
expense
|
1,345
|
-
|
-
|
|
Interest
expense
|
60,397
|
44,251
|
40,611
|
|
Repayment
|
(44,379)
|
-
|
-
|
|
Balance, end of
period
|
2,132,227
|
761,711
|
717,460
|
|
Less: Current
portion of loans payable
|
992,070
|
-
|
-
|
|
Non-current portion
of loans payable
|
1,140,157
|
761,711
|
717,460
|
Loans
payable as at December 31, 2019 and December 31, 2018 consisted
only of a loan with Bayview Equities Ltd. (the “Secured
Party”) with a principal amount of $550,000. The balance as
at December 31, 2019 and December 2018 reflects the principal plus
accrued interest to date. The loan bears interest at 6% per annum
and is due upon demand. The loan is secured by a grant to the
Secured Party of a security interest in all the assets of EHC. On
January 11, 2021, the Company repaid the principal and accrued
interest of $258,293.
On
October 5, 2020, through the acquisition of Kai Medical, the
Company assumed three secured loans with a total fair value of
$1,276,449. The details of these loans are outlined in note 6 of
these consolidated financial statements. From the date of
acquisition to December 31, 2020, the total accretion expense and
interest expense applicable to the Kai loans payable were $13,284
and $1,345, respectively.
On
December 31, 2020, through the acquisition of LP&A, the Company
assumed two CEBA loans with a fair value of $27,172 (C$34,595) and
$18,115 (C$23,064) and amounts due at maturity of C$60,000 and
C$40,000, respectively. The loans are interest free until January
1, 2023, at which time interest accrues at a rate of 5% per annum,
payable monthly on the last day of each month. The loans have a
possibility of forgiveness of 33% of each loan if they are repaid
on or before December 31, 2022. The loans were discounted using an
annual rate of 3.21% and the fair value reflects an estimate that
the amount will be repaid prior to December 31, 2022.
On May
27, 2020, the Company receive a Canada Emergency Business Account
(“CEBA”) loan in the amount of $31,417 (C$40,000). The
loan is interest free until January 1, 2023, at which time accrues
interest at a rate of 5% per annum, payable monthly on the last day
of each month. The loan has a possibility of forgiveness of 33% if
it is repaid on or before December 31, 2022.
In the
year ended December 31, 2020, the Company made scheduled payments
on loans payable of $44,379.
17.
CONVERTIBLE DEBENTURES
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning
of period
|
427,320
|
274,466
|
1,835,225
|
|
Proceeds from
Issuance of convertible debentures
|
-
|
753,491
|
442,437
|
|
Amount allocated to
conversion option
|
-
|
(753,491)
|
(172,386)
|
|
Amount converted to
units
|
(732,796)
|
-
|
(2,129,728)
|
|
Unrealized foreign
exchange (gain) loss
|
(23,378)
|
5,564
|
-
|
|
Interest
expense
|
16,008
|
45,112
|
57,397
|
|
Accretion
expense
|
312,846
|
102,178
|
241,521
|
|
Balance, end of
period
|
-
|
427,320
|
274,466
|
EMPOWER CLINICS INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2020, 2019 and 2018
(in
United States dollars, except where noted)
Conversion feature
consists of the following:
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning
of period
|
2,795
|
22,565
|
1,038,562
|
|
Amount allocated to
conversion option
|
-
|
753,491
|
172,386
|
|
Amount converted to
units
|
-
|
(189,735)
|
(298,247)
|
|
Gain on change in
fair value of conversion feature
|
(2,795)
|
(583,526)
|
(890,136)
|
|
Balance, end of
period
|
-
|
2,795
|
22,565
|
The
fair value of the conversion feature at December 31, 2019 was
determined using a Black-Scholes option pricing model with the
following inputs:
|
Grant
Date
|
Expected
Life (years)
|
Unit
Price
|
Expected
Volatility
|
Expected
dividend yield
|
Risk-Free
Rate
|
Fair
Value
|
|
December
31, 2019
|
0.25
-0.34
|
$0.03
(C$0.04)
|
100.0%
|
0%
|
1.71%
|
$2,795
|
As at
December 31, 2020, all conversion features were exercised or
expired and thus had a fair value of $nil.
On
September 27, 2018, the Company raised $442,437 (C$575,060) through
the issue of convertible debentures, expiring on September 27,
2019. The holder may at any time during the term of the convertible
debenture convert all or part into units of the Company consisting
of one common share and one share purchase warrant. Each warrant
entitles the holder to acquire one common share at an exercise
price equal to $0.14 (C$0.19). The fair value of the conversion
feature at the grant date was estimated at $172,386 using the
Black-Scholes option pricing model. A total of $57,791 (C$75,060)
was converted to 422,678 units on December 14, 2018. The fair value
assigned to the conversion feature was at $nil and the fair value
assigned to the debt component was $18,990 on the conversion
date.
On
April 2, 2019, the Company raised $599,460 (C$799,500) through the
issue of convertible debentures, expiring on April 2, 2020. The
Company incurred transaction costs of $55,669 (C$74,285) comprised
of 40,000 common shares issued to agents with a fair value of $0.14
(C$0.20), based on share price on the date of issuance, for
consideration of $5,995 (C$8,000) (Note 17(a)), 295,590 share
purchase warrants issued to agents with an exercise price of $0.12
(C$0.16) and a fair value of $21,305 (Note 17(c)) and cash of
$28,369 (C$37,855).
As part
of the debenture financing, the Company also issued 295,590 share
purchase warrants to agents. The share purchase warrants have an
exercise price of $0.12 (C$0.16) and expire on April 2, 2021 (note
17(c)). The holder may at any time during the term of the
convertible debenture convert all or part into units of the Company
consisting of one common share and one share purchase warrant. Each
warrant entitles the holder to acquire one common share at an
exercise price equal to $0.16 (C$0.21). The fair value of the
conversion feature at the grant date was estimated at $599,460
using the Black-Scholes option pricing model.
On May
3, 2019, the Company raised $154,031 (C$207,270) through the issue
of convertible debentures, expiring on September 27, 2019. The
holder may at any time during the term of the convertible debenture
convert all or part into units of the Company consisting of one
common share and one share purchase warrant. Each warrant entitles
the holder to acquire one common share at an exercise price equal
to $0.16 (C$0.21). The fair value of the conversion feature at the
grant date was estimated at $154,031 using the Black-Scholes option
pricing model.
During
the year ended December 31, 2019, $326,210 (C$432,000) was
converted into 3,991,524 units of the Company consisting of one
common share and one share purchase warrant (Note 17(a)). The
aggregate fair value assigned to the conversion feature was at
$189,735 and the fair value assigned to the debt component was $nil
on the respective conversion dates (note 20(b)).
On
April 2, 2020, pursuant to the conversion of convertible debentures
with a face value of $268,554 (C$367,500) and accrued interest of
$16,113 (C$22,050), the Company issued 3,541,366 units. Each unit
is comprised of one common share and one common share purchase
warrant. Fair value allocated to share capital at the date of
conversion was $251,871.
EMPOWER CLINICS INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2020, 2019 and 2018
(in
United States dollars, except where noted)
On
April 8, 2020, pursuant to the conversion of convertible debentures
with a face value of $147,691 (C$207,270) and accrued interest of
$8,254 (C$11,584), the Company issued 1,989,588 units. Each unit is
comprised of one common share and one common share purchase
warrant. Fair value allocated to share capital at the date of
conversion was $56,232.
On May
7, 2020, pursuant to the conversion of convertible debentures with
a face value of $178,380 (C$250,000) and accrued interest of
$20,600 (C$28,871), the Company issued 3,064,515 common shares and
3,064,515 common share purchase warrants. Fair value allocated to
share capital at the date of conversion was $313,250.
18.
LEASE LIABILITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December
31, 2018
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Adoption of IFRS
16
|
138,444
|
-
|
-
|
-
|
-
|
138,444
|
|
Additions
|
23,006
|
431,544
|
406,263
|
-
|
-
|
860,813
|
|
Interest
expense
|
4,318
|
13,404
|
7,955
|
-
|
-
|
25,677
|
|
Payments
|
(64,681)
|
(112,798)
|
(26,233)
|
-
|
-
|
(203,712)
|
|
Termination of
leases
|
(86,326)
|
-
|
-
|
-
|
-
|
(86,326)
|
|
Balance, December
31, 2019
|
14,761
|
332,150
|
387,985
|
-
|
-
|
734,896
|
|
Acquisition of Kai
Medical
|
-
|
-
|
-
|
294,669
|
-
|
294,669
|
|
Acquisition of
LP&A
|
-
|
-
|
-
|
-
|
45,595
|
45,595
|
|
Interest
expense
|
568
|
15,669
|
11,103
|
3,969
|
-
|
31,309
|
|
Payments
|
(12,270)
|
(173,139)
|
(15,405)
|
(25,586)
|
-
|
(226,400)
|
|
Termination of
leases
|
-
|
-
|
(383,683)
|
-
|
-
|
(383,683)
|
|
Balance,
December 31, 2020
|
3,059
|
174,680
|
-
|
273,052
|
45,595
|
496,386
|
|
Less: current
portion of lease liability
|
3,059
|
108,645
|
-
|
87,452
|
41,982
|
241,138
|
|
Lease
liability
|
-
|
66,035
|
-
|
185,600
|
3,613
|
255,248
|
The
Company defaulted on the right-of-use CBD extraction facility and
as a result, derecognized the right of us asset associated with the
CBD extraction facility (note 11). In connection with the previous,
the Company extinguished the associated lease liability in the
amount of $383,683.
On
October 5, 2020, through the acquisition of Kai Medical, the
Company assumed a leased premises and the associated lease
liability with a fair value of $294,669. From the date of
acquisition to December 31, 2020, the total interest expense and
payments were $3,969 and $25,586, respectively.
During
the year ended December 31, 2020, the Company recognized an expense
of $46,885 (December 21, 2019 - $92,349) with respect to short-term
and low value leases.
EMPOWER CLINICS INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2020, 2019 and 2018
(in
United States dollars, except where noted)
19.
WARRANT LIABILITY
The
warrants are classified as a financial instrument under the
principles of IFRS 9, as the exercise price is in Canadian dollars
while the functional currency of the Company is the US dollar.
Accordingly, warrants are remeasured to fair value at each
reporting date with the change in fair value charged to change in
fair value of warrant liability in the consolidated statement of
loss and comprehensive loss.
|
|
|
|
|
|
|
|
|
|
|
As at December 31,
2017
|
|
-
|
-
|
|
Issued
|
|
14,894,898
|
1,704,597
|
|
Gain on change in
fair value of warrant liability
|
|
|
(1,598,425)
|
|
As at December 31,
2018
|
|
14,894,898
|
106,172
|
|
Issued
|
$C0.18
|
34,615,104
|
2,084,768
|
|
Exercised
|
$C0.19
|
(422,678)
|
(18,847)
|
|
Expired
|
$C0.36
|
(2,830,035)
|
-
|
|
Gain on change in
fair value of warrant liability
|
|
|
(2,065,781)
|
|
As at December 31,
2019
|
|
46,257,289
|
106,312
|
|
Issued
|
$C0.12
|
69,400,524
|
1,061,738
|
|
Exercised
|
$C0.13
|
(49,800,176)
|
(5,341,149)
|
|
Expired
|
$C0.39
|
(11,642,185)
|
-
|
|
Loss on change in
fair value of warrant liability
|
|
|
11,886,796
|
|
As
at December 31, 2020
|
|
54,215,452
|
7,713,697
|
|
Less: Current
portion of warrant liability
|
|
-
|
1,416,113
|
|
Non-current portion
of warrant liability
|
|
-
|
6,297,584
|
The
following table summarizes the warrants outstanding and exercisable
as at December 31, 2020:
|
Expiry
date
|
|
Weighted
average exercise price ($C)
|
Weighted
average remaining life (in years)
|
|
April
02, 2021
|
7,643,637
|
0.16
|
0.25
|
|
May
03, 2021
|
2,559,470
|
0.16
|
0.34
|
|
July
22, 2021
|
1,018,245
|
0.16
|
0.56
|
|
August
12, 2021
|
928,817
|
0.16
|
0.61
|
|
August
19, 2021
|
929,864
|
0.16
|
0.63
|
|
September
13, 2021
|
102,696
|
0.16
|
0.70
|
|
September
20, 2021
|
102,812
|
0.16
|
0.72
|
|
April
16, 2022
|
5,200,000
|
0.10
|
1.29
|
|
July
15, 2022
|
5,416,700
|
0.12
|
1.54
|
|
August
25, 2022
|
1,500,000
|
0.05
|
1.65
|
|
September
09, 2022
|
3,746,080
|
0.31
|
1.69
|
|
November
09, 2022
|
24,567,131
|
0.12
|
1.86
|
|
October
05, 2023
|
500,000
|
0.05
|
2.76
|
|
|
54,215,452
|
0.14
|
1.39
|
On April 23, 2018, as part of the Transaction, the
Company converted convertible debentures and issued
11,373,368 share purchase warrants (note
20(b)).
On
April 23, 2018, as part of the Transaction, the Company converted
$50,000 of notes payable into 268,817 units; each consists of one
common share and one common share purchase warrant (note
17(a)).
On June
11, 2018, the Company issued 2,000,000 units; each consists of one
common share and one common share purchase warrant (note
20(b)).
On
October 23, 2018, the Company converted $122,030 of notes payable
into 517,132 units; each consists of one common share and one
common share purchase warrant (note 20(b)).
On
October 23, 2018, the Company issued 312,903 units; each consists
of one common share and one common share purchase warrant (note
20(b)).
EMPOWER CLINICS INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2020, 2019 and 2018
(in
United States dollars, except where noted)
On
December 14, 2018, the Company issued 422,678 units; consisting of
422,678 common shares and 422,678 common share purchase warrants
(note 20(b)).
On
April 2, 2019, the Company issued 21,115,000 units; each consists
of one common share and one common share purchase warrant (note
20(b)). The warrants expire April 2, 2021.
On May
3, 2019, the Company issued 5,762,500 units; each consists of one
common share and one common share purchase warrant (note 20(b)).
The warrants expire May 3, 2021.
On July
22, 2019, pursuant to the conversion of convertible debentures, the
Company issued 1,018,245 units; consisting of 1,018,245 common
shares and 1,018,245 common share purchase warrant (note 20(b)).
The warrants expire July 22, 2021.
On
August 12, 2019, pursuant to the conversion of convertible
debentures, the Company issued 928,817 units; consisting of 928,817
common shares and 928,817 common share purchase warrant (note
20(b)). The warrants expire August 12, 2021.
On
August 19, 2019, pursuant to the conversion of convertible
debentures, the Company issued 949,864 units; consisting of 949,864
common shares and 949,864 common share purchase warrant (note
20(b)). The warrants expire August 19, 2021.
On
August 26, 2019, pursuant to the conversion of convertible
debentures, the Company issued 909,090 units; consisting of 909,090
common shares and 909,090 common share purchase warrant (note
20(b)). The warrants expire August 26, 2021.
On
September 13, 2019, pursuant to the conversion of convertible
debentures, the Company issued 102,696 units; consisting of 102,696
common shares and 102,696 common share purchase warrant (note
20(b)). The warrants expire September 13, 2021.
On
September 30, 2019, pursuant to the conversion of convertible
debentures, the Company issued 102,812 units; consisting of 102,812
common shares and 102,812 common share purchase warrant (note
20(b)). The warrants expire September 20, 2021.
On July
30, 2019, pursuant to a prior marketing services agreement entered
into on September 10, 2017, the Company issued 3,746,080 common
share purchase warrants. Each warrant entitles the holder to
acquire one common share at a price of C$0.31 ($0.24) for a period
of thirty-seven months following the date of issuance.
On
April 2, 2020, pursuant to the conversion of convertible debentures
with a face value of $268,554 (C$367,500) and accrued interest of
$16,113 (C$22,050), the Company issued 3,541,366 units. Each unit
is comprised of one common share and one common share purchase
warrant (note 20(b)). Each warrant entitles the holder to acquire
one common share at a price of $0.11 (C$0.16) for a period of two
years following the closing date of the conversion.
On
April 8, 2020, pursuant to the conversion of convertible debentures
with a face value of $147,691 (C$207,270) and accrued interest of
$8,254 (C$11,584), the Company issued 1,989,588 units. Each unit is
comprised of one common share and one common share purchase warrant
(note 20(b)). Each warrant entitles the holder to acquire one
common share at a price of $0.11 ($C0.16) for a period of two years
following the closing date of the conversion.
On
April 16, 2020, pursuant to a private placement financing, the
Company issued 16,325,000 units at a price of C$0.03 (C$0.04) per
unit for gross proceeds of $462,399 (C$653,000).Each unit consists
of one common share and one common share purchase warrant. Each
warrant entitles the holder to acquire one common share at a price
of $0.10 (C$0.07) per share for a period of two years following the
closing date of the financing.
On May
7, 2020, pursuant to the conversion of convertible debentures with
a face value of $178,380 (C$250,000) and accrued interest of
$20,600 (C$28,871), the Company issued 3,064,515 common shares and
3,064,515 common share purchase warrants (note 20(b)). Each warrant
entitles the holder to acquire one common share at a price of $0.09
(C$0.12) for a period of one year following the closing date of the
conversion.
On July
16, 2020, pursuant to a private placement financing, the Company
issued 14,417,334 units for $0.04 (C$0.05) per unit for gross
proceeds of $532,279 (C$720,866). Each unit is comprised of one
common share and one common share purchase warrant. Each warrant
entitles the holder to acquire one common share at a price of $0.09
(C$0.12) per share for a period of 24 months following the closing
date of the financing.
EMPOWER CLINICS INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2020, 2019 and 2018
(in
United States dollars, except where noted)
On
October 5, 2020, the Company issued 500,000 warrants for $0.03
(C$0.05) pursuant to costs in connection with the acquisition of
Kai Medical. Each warrant entitles the holder to acquire one common
share at a price of $0.09 (C$0.12) per share for a period of 36
months following the closing date of the financing.
On
November 9, 2020, pursuant to a private placement financing, the
Company issued 24,567,131 units for $0.04 (C$0.05) per unit for
gross proceeds of $944,257 (C$1,228,366). Each unit is comprised of
one common share and one common share purchase warrant. Each
warrant entitles the holder to acquire one common share at a price
of $0.09 (C$0.12) per share for a period of 24 months following the
closing date of the financing.
20.
EQUITY
a)
Authorized
share capital
Unlimited number of
common shares without nominal or par value. At December 31, 2020,
there were 283,811,903 issued and outstanding common shares
(December 31, 2019 – 137,697,430). The Company does not
currently pay dividends and entitlement will only arise upon
declaration.
b)
Issued
– common shares
During
the year ended December 31, 2018, the Company completed the
following transactions:
i.
On April 19, 2018,
as part of the Transaction (note 4), the common shares of Adira
were consolidated at a ratio of 20:1. In addition, the Company
issued 2,544,075 common shares at a fair value of C$0.31 ($0.24)
per share for purchase consideration of $614,415.
ii.
On April 23, 2018,
pursuant to the conversion of convertible debentures with a face
value of $2,089,495, the Company issued 11,373,368 common shares
and 11,373,368 common share purchase warrants. Each warrant
entitles the holder to acquire one common share at a price of $0.30
(C$0.39) per share for a period of two years following the closing
date of the conversion. At the date of the conversion, the
conversion feature was valued at $298,247 and the debt was valued
at $2,014,197. Consideration of $1,306,894 was recorded to warrant
liability and the residual amount of $1,005,550 was recorded to
issued capital.
iii.
On April 23, 2018,
pursuant to the conversion of $50,000 in promissory notes payable,
the Company issued 268,817 common shares and 268,817 common share
purchase warrants. Each warrant entitles the holder to acquire one
common share at a price of $0.30 (C$0.39) per share for a period of
two years following the closing date of the conversion.
Consideration of $30,822 was recorded to warrant liability and the
residual amount of $19,178 was recorded to issued
capital.
iv.
On April 23, 2018,
pursuant to a shareholder rights offering financing, the Company
issued 8,443,473 common shares at a price of $0.24 (C$0.31) per
share for gross proceeds of $2,020,357 (C$2,617,477).
v.
On June 11, 2018,
pursuant to a marketing services agreement, the Company issued
2,000,000 units at a fair value of $0.24 (C$0.31) per unit for
total fair value consideration of $477,180 (C$620,000). Each unit
consists of one common share and one common share purchase warrant.
Each warrant entitles the holder to acquire one common share at a
price of C$0.36 ($0.28) per share for a period of two years
following the closing date of the financing. Consideration of
$287,961 was recorded to warrant liability and the residual amount
of $189,219 was recorded to issued capital. Subsequent to issuing
the units, the Company cancelled the marketing services agreement
due to non-performance of services by the marketing company. The
units remained outstanding at December 31, 2018, subsequent to
which the Company obtained from the holder the certificates of all
2,000,000 common shares and 2,000,000 common share purchase
warrants. The Company cancelled these securities.
vi.
On June 11, 2018,
pursuant to obligations under employment contract, the Company
issued 2,000,000 common shares to the former CEO, for a fair value
of $0.24 (C$0.31) per common share for total consideration paid to
the former CEO of $477,180 (C$620,000).
vii.
On October 23,
2018, the Company converted notes payable with a face value
$117,000 of the debt plus $7,389 of interest into 517,132 units
(note 11(c)). Each unit is comprised of one common share and one
common share purchase warrant. Each warrant entitles the holder to
acquire one common share at a price of $0.28 (C$0.36) per share for
a period of twelve months following the closing date of the
conversion. Consideration of $52,433 was recorded to warrant
liability and the residual amount of $137,901 was recorded to
issued capital.
EMPOWER CLINICS INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2020, 2019 and 2018
(in
United States dollars, except where noted)
viii.
On October 23,
2018, pursuant to a private placement financing, the Company issued
312,903 units for $0.24 (C$0.31) per unit for gross proceeds of
$71,938 (C$97,000). Each unit is comprised of one common share and
one common share purchase warrant. Each warrant entitles the holder
to acquire one common share at a price of $0.28 (C$0.36) per share
for a period of twelve months following the closing date of the
financing. Consideration of $12,310 was recorded to warrant
liability and the residual amount of $71,938 was recorded to issued
capital.
ix.
On October 23,
2018, the Company issued 423,076 common shares at a fair value of
C$0.29 ($0.22) per common share for services received for total
fair value consideration of $92,856 (C$120,000).
x.
On October 23,
2018, pursuant to restructuring, the Company issued 1,204,851
common shares for $0.18 (C$0.23) per common share.
xi.
On December 14,
2018, pursuant to the conversion of 422,678 units of convertible
debentures with a face value of $57,980 (C$75,060), the Company
issued 422,678 common shares and 422,678 common share purchase
warrants. Each warrant entitles the holder to acquire one common
share at a price of $0.14 (C$0.19) per share for a period of two
years following the closing date of the conversion. At the date of
the conversion, the conversion feature was valued at $nil and the
debt was valued at $18,990. Consideration of $14,177 was recorded
to warrant liability and the residual amount of $4,813 was recorded
to issued capital.
During
the year ended December 31, 2019, the Company completed the
following transactions:
i.
On January 17,
2019, the Company cancelled 422,678 common shares, which had been
issued for $0.14 (C$0.18) per common share and issued 417,000
common shares at a fair value of $0.14 (C$0.18) per common
share.
ii.
On March 3, 2019,
pursuant to the termination agreement with the former CEO, the
Company cancelled 2,000,000 common shares. An additional 651,875
common shares were cancelled in error and reissued on March 11,
2020.
iii.
On March 8, 2019,
pursuant to a service agreement, the Company issued 1,500,000
common shares at a fair value of $0.17 (C$0.23) per common share
for total fair value consideration of $257,041 as settlement of
accounts payable in the amount of $257,041
(C$347,500).
iv.
On March 22, 2019,
pursuant to the exercise of 422,678 common share purchase warrants
and late charges, the Company issued 431,075 common shares for
$0.14 (C$0.19) per common share.
v.
On April 2, 2019,
pursuant to a private placement financing, the Company issued
21,115,000 units for $0.07 (C$0.10) per unit for gross proceeds of
$1,583,189 (C$2,115,000) comprised of cash of $1,396,105
(C$1,865,000) and the settlement of notes payable in the amount of
$184,291 (C$250,000). Each unit is comprised of one common share
and one common share purchase warrant. Each warrant entitles the
holder to acquire one common share at a price of $0.12 (C$0.16) per
share for a period of twelve months following the closing date of
the financing. Share issue costs included cash payments of $63,324
(C$84,499) and the issuance of 363,900 share purchase warrants
valued at $26,229 using the Black-Scholes option pricing model with
the following assumptions: a one year expected average life, share
price of $0.13 (C$0.175); 100% volatility; risk-free interest rate
of 1.57%; and an expected dividend yield of 0%. Consideration of
$1,951,030 was recorded to warrant liability and the residual
amount of $63,127 was recorded to issued capital.
vi.
On April 30, 2019,
pursuant to the acquisition of Sun Valley, the Company issued
22,409,425 common shares at a fair value of $0.136 (C$0.18) per
common share. Of the common shares issued 14,705,882 were Escrow
Shares of which 2,450,978 were released during the year ended
December 31 2019. As at December 31, 2020, there were 7,352,943
Escrow shares remaining.
vii.
On May 3, 2019,
pursuant to a private placement financing, the Company issued
5,762,500 units for $0.07 (C$0.10) per unit for gross proceeds of
$429,109 (C$576,250).Each unit is comprised of one common share and
one common share purchase warrant. Each warrant entitles the holder
to acquire one common share at a price of $0.12 (C$0.16) per share
for a period of twelve months following the closing date of the
financing (note 16). Share issue costs included cash payments of
$24,928 (C$33,428) and the issuance of 217,950 share purchase
warrants valued at $18,870 using the Black-Scholes option pricing
model with the following assumptions: a one year expected average
life, share price of $0.15 (C$0.20); 100% volatility; risk-free
interest rate of 1.67%; and an expected dividend yield of
0%.
EMPOWER CLINICS INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2020, 2019 and 2018
(in
United States dollars, except where noted)
viii.
On May 3, 2019,
pursuant to the terms on the private placement financing, the
Company issued 96,000 common shares to agents for a fair value of
$0.15 (C$0.20) per common share for consideration of $14,298
(C$19,200). The amount is included issued capital.
ix.
On May 3, 2019,
pursuant to the terms on the debenture financing, the Company
issued 40,000 common shares to agents for a fair value of $0.15
(C$0.20) per common share, based on share price on the issuance
date, for consideration of $5,957 (C$8,000). The amount is included
in issued capital.
x.
On June 17, 2019,
pursuant to obligations under an employment contract, the Company
issued 7,000,000 common shares to the CEO, for a fair value of
$0.10 (C$0.14) per common share for total consideration paid to the
CEO of $730,982 (C$980,000). Of the 7,000,000 common shares,
2,000,000 common shares vested immediately, and the remaining
5,000,000 common shares are held in escrow and vest quarterly with
416,666 common shares vesting each quarter commencing on September
17, 2019. The common shares are subject to a four-month holding
period from the date of vesting. As at December 31, 2020, of the
5,000,000 shares initially held in escrow, a total of 2,499,996
common shares had vested (December 31, 2019 – 833,332). In
connection with the vesting of these shares, the Company recorded
$174,463 in professional fees for the year ended December 31, 2020
(December 31, 2019 - $86,594).
xi.
On June 17, 2019,
pursuant to obligations under a consulting agreement, the Company
issued 400,000 common shares to the CIO, for a fair value of $0.10
(C$0.14) per common share for total consideration paid to the CIO
of $41,770 (C$56,000). The 400,000 common shares are held in escrow
and vest quarterly with 44,400 common shares vesting each quarter
commencing September 17, 2019. As at December 31, 2020, of the
400,000 shares initially held in escrow, a total of 266,640 common
shares had vested (December 31, 2019 – 88,880). In connection
with the vesting of these shares, the Company recorded $18,562 in
professional fees for the year ended December 31, 2020 (December
31, 2019 – $9,281)
xii.
On July 3, 2019,
the Company cancelled 2,000,000 common shares with a fair value of
$0.09 ($0.12) per common share. The common shares were reacquired
and cancelled as the Company cancelled the marketing services
agreement, pursuant to which the common shares and warrants were
originally issued, due to non-performance of services by the
marketing company.
xiii.
On July 22, 2019,
pursuant to the conversion of convertible debentures with a face
value of $83,063 (C$110,000) and accrued interest of C$1,529
(C$2,025), the Company issued 1,018,245 common shares and 1,018,245
common share purchase warrants. Each warrant entitles the holder to
acquire one common share at a price of C$0.16 ($0.12) for a period
of two years following the closing date of the conversion. At the
date of the conversion, the conversion feature was valued at
$48,657 and the debt was valued at $nil. Consideration of $42,749
was recorded to warrant liability and the residual amount of $5,908
was recorded to issued capital.
xiv.
On July 30, 2019,
the Company issued 75,000 common shares at a fair value of $0.02
(C$0.03) per common share for consideration received from a June
16, 2016 subscription agreement.
xv.
On July 30, 2019,
the Company issued 1,409,938 common shares at a fair value of $0.13
(C$0.175) per common share for services received for total fair
value consideration of $186,466 (C$246,700) as settlement of
accounts payable in the amount of $198,591 (C$258,019) resulting in
a gain on debt settlement of $12,125.
xvi.
On July 30, 2019,
the Company issued 276,923 common shares at a fair value of $0.10
(C$0.13) per common share for services received for total fair
value consideration of $27,697 (C$36,471) as settlement of accounts
payable in the amount of $24,692 (C$36,000) resulting in a gain on
debt settlement of $3,005.
xvii.
On August 12, 2019,
pursuant to the conversion of convertible debentures with a face
value of $75,512 (C$100,000) and accrued interest of $1,651
(C$2,186), the Company issued 928,817 common shares and 928,817
common share purchase warrants. Each warrant entitles the holder to
acquire one common share at a price of $0.16 (C$0.12) for a period
of two years following the closing date of the conversion. At the
date of the conversion, the conversion feature was valued at
$44,898 and the debt was valued at $nil. Consideration of $33,745
was recorded to warrant liability and the residual amount of
$11,153 was recorded to issued capital.
EMPOWER CLINICS INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2020, 2019 and 2018
(in
United States dollars, except where noted)
xviii.
On August 19, 2019,
pursuant to the conversion of convertible debentures with a face
value of $75,512 (C$100,000) and accrued interest of $1,738
(C$2,301), the Company issued 929,864 common shares and 929,864
common share purchase warrants. Each warrant entitles the holder to
acquire one common share at a price of $0.16 (C$0.12) for a period
of two years following the closing date of the conversion. At the
date of the conversion, the conversion feature was valued at
$51,413 and the debt was valued at $nil. Consideration of $28,973
was recorded to warrant liability and the residual amount of
$22,440 was recorded to issued capital.
xix.
On August 26, 2019,
pursuant to the conversion of convertible debentures with a face
value of $75,512 (C$100,000), the Company issued 909,090 common
shares and 909,090 common share purchase warrants. Each warrant
entitles the holder to acquire one common share at a price of $0.16
(C$0.12) for a period of two years following the closing date of
the conversion. At the date of the conversion, the conversion
feature was valued at $39,892 and the debt was valued at $nil.
Consideration of $23,992 was recorded to warrant liability and the
residual amount of $15,900 was recorded to issued
capital.
xx.
On September 13,
2019, pursuant to the conversion of convertible debentures with a
face value of $8,306 (C$11,000) and accrued interest of C$225
($298), the Company issued 102,696 common shares and 102,696 common
share purchase warrants. Each warrant entitles the holder to
acquire one common share at a price of $0.16 (C$0.12) for a period
of two years following the closing date of the conversion. At the
date of the conversion, the conversion feature was valued at $2,206
and the debt was valued at $nil. Consideration of $1,800 was
recorded to warrant liability and the residual amount of $406 was
recorded to issued capital.
xxi.
On September 30,
2019, pursuant to the conversion of convertible debentures with a
face value of $8,306 (C$11,000) and accrued interest of $249
(C$329), the Company issued 102,812 common shares and 102,812
common share purchase warrants. Each warrant entitles the holder to
acquire one common share at a price of C$0.16 ($0.12) for a period
of two years following the closing date of the conversion. At the
date of the conversion, the conversion feature was valued at $2,669
and the debt was valued at $nil. Consideration of $2,479 was
recorded to warrant liability and the residual amount of $190 was
recorded to issued capital.
During
the year ended December 31, 2020, the Company completed the
following transactions:
Shares issued to former CEO
i.
On March 11, 2020,
pursuant to the incorrect cancellation of common shares of the
former CEO, the Company issued 651,875 common shares.
Shares issued on private placement
ii.
On April 16, 2020,
pursuant to a private placement financing, the Company issued
16,325,000 units for $0.03 (C$0.04) per unit for gross proceeds of
$462,400 (C$653,000) comprised of cash of $219,300 (C$313,000) and
the settlement of accounts payable in the amount of $243,100
(C$340,000). Each unit is comprised of one common share and one
common share purchase warrant. Each warrant entitles the holder to
acquire one common share at a price of $0.07 (C$0.10) per share for
a period of twenty-four months following the closing date of the
financing (note 13). Share issue costs included cash payments of
$1,714 (C$2,400) ($1,026 of which was allocated to the warrant
liability and recorded in the P&L) and the issuance of 60,000
share purchase warrants valued at $1,017 using the Black-Scholes
option pricing model with the following assumptions: a two year
expected average life, share price of $0.04 (C$0.05); 100%
volatility; risk-free interest rate of 0.34%; and an expected
dividend yield of 0%. Consideration of $276,809 was recorded to
warrant liability and the residual amount of $185,590 was recorded
to issued capital.
iii.
On July 15, 2020,
pursuant to a private placement financing, the Company issued
14,417,334 units for $0.04 (C$0.05) per unit for gross proceeds of
$532,280 (C$720,867) comprised of cash of $335,352 (C$454,167) and
the settlement of accounts payable in the amount of $196,928
(C$266,700). Each unit is comprised of one common share and one
common share purchase warrant. Each warrant entitles the holder to
acquire one common share at a price of $0.09 (C$0.12) per share for
a period of twenty-four months following the closing date of the
financing (note 13). Share issue costs included cash payments of
$3,553 (C$4,800) ($1,518 of which was allocated to the warrant
liability and recorded in the P&L) and the issuance of 96,000
share purchase warrants valued at $1,509 using the Black-Scholes
option pricing model with the following assumptions: a two year
expected average life, share price of $0.04 (C$0.06); 100%
volatility; risk-free interest rate of 0.24%; and an expected
dividend yield of 0%. Consideration of $227,402 was recorded to
warrant liability and the residual amount of $304,878 was recorded
to issued capital.
EMPOWER CLINICS INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2020, 2019 and 2018
(in
United States dollars, except where noted)
iv.
On October 27,
2020, pursuant to a private placement financing, the Company issued
1,500,000 units for $0.04 (C$0.05) per unit for gross proceeds of
$56,974 (C$75,000). Each unit consists of one common share and one
common share purchase warrant. Each warrant entitles the holder to
acquire one common share at a price of $0.09 (C$0.12) per share for
a period of twenty-four months. Of gross proceeds, $32,956 was
allocated to share capital and $24,698 was allocated to warrant
liability.
v.
On November 9,
2020, pursuant to a private placement financing, the Company issued
23,067,131 units for $0.04 (C$0.05) per unit for gross proceeds of
$889,250 (C$1,153,357). Each unit consists of one common share and
one common share purchase warrant. Each warrant entitles the holder
to acquire one common share at a price of $0.09 (C$0.12) per share
for a period of twenty-four months ($42,403 of share issuance costs
which was allocated to the warrant liability and recorded in the
P&L). Of gross proceeds, $506,801 was allocated to share
capital and $382,449 was allocated to warrant
liability.
Shares issued on debt settlement
vi.
On January 23,
2020, the Company issued 4,800,000 common shares for $0.03
(C$0.045) per common share for total fair value consideration of
$164,346 (C$216,000) as settlement of accounts payable in the
amount of $182,607 (C$240,000) resulting in a gain on debt
settlement of $18,261.
vii.
On May 7, 2020, the
Company issued 347,142 common shares for $0.06 (C$0.08) per common
share for total fair value consideration of $19,812 (C$27,767) as
settlement of accounts payable in the amount of $23,189 (C$32,500)
resulting in a gain on debt settlement of $4,538.
viii.
On May 20, 2020,
the Company issued 694,444 common shares for $0.05 (C$0.07) per
common share for total fair value consideration of $34,992
(C$48,611) as settlement of accounts payable in the amount of
$17,996 (C$25,000) resulting in a gain on debt settlement of
$500.
Vesting of escrow shares
ix.
For the year ended
December 31, 2020, the Company recognized $193,025 in connection
with the vesting of escrow shares as discussed in note
20(b).
Shares issued for services
x.
On February 11,
2020, the Company issued 4,000,000 common shares for $0.03
(C$0.035) per common share for total fair value consideration of
$190,110 (C$252,276) for marketing services.
xi.
On September 22,
2020, the Company issued 2,500,000 common shares for $0.03 (C$0.04)
per common share for total fair value consideration of $135,529
(C$191,015) for marketing services.
xii.
On September 23,
2020, the Company issued 3,000,000 common shares for $0.03 (C$0.04)
per common share for total fair value consideration of $161,715
(C$214,237) as settlement of accounts payable in the amount of
$184,173 (C$244,103) resulting in a gain on debt settlement of
$22,458.
Shares issued on conversion of debentures
xiii.
On April 2, 2020,
pursuant to the conversion of convertible debentures with a face
value of $268,554 (C$367,500) and accrued interest of $16,113
(C$22,050), the Company issued 3,541,366 common shares and
3,541,366 common share purchase warrants. Each warrant entitles the
holder to acquire one common share at a price of $0.07 (C$0.10) for
a period of two years following the closing date of the conversion.
At the date of the conversion, the conversion feature was valued at
$nil and the debt was valued at $276,478. Consideration of $24,607
was recorded to warrant liability and the residual amount of
$251,871 was recorded to issued capital.
xiv.
On April 8, 2020,
pursuant to the conversion of convertible debentures with a face
value of $147,691 (C$207,270) and accrued interest of $8,254
(C$11,584), the Company issued 1,989,588 common shares and
1,989,588 common share purchase warrants. Each warrant entitles the
holder to acquire one common share at a price of $0.07 (C$0.10) for
a period of two years following the closing date of the conversion.
At the date of the conversion, the conversion feature was valued at
$nil and the debt was valued at $78,213. Consideration of $21,981
was recorded to warrant liability and the residual amount of
$56,232 was recorded to issued capital.
EMPOWER CLINICS INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2020, 2019 and 2018
(in
United States dollars, except where noted)
xv.
On May 7, 2020,
pursuant to the conversion of convertible debentures with a face
value of $356,720 (C$500,000) and accrued interest of $42,180
(C$56,376), the Company issued 6,129,030 common shares and
6,129,030 common share purchase warrants. Each warrant entitles the
holder to acquire one common share at a price of $0.09 (C$0.12) for
a period of one year following the closing date of the conversion.
At the date of the conversion, the conversion feature was valued at
$nil and the debt was valued at $417,815. Consideration of $104,565
was recorded to warrant liability and the residual amount of
$313,250 was recorded to issued capital.
Obligation to issue shares
xvi.
On May 20, 2020,
pursuant to the issuance of a promissory note payable in the amount
of $188,765 (C$250,000), the Company settled its obligation to
issues 150,000 common shares.
Exercise of options
xvii.
On November 3,
2020, the CEO of the Company exercised 7,000,000 stock options with
an exercise price of $0.11 (C$0.14) resulting in the issuance of
7,000,000 common shares. The proceeds of $745,531 (C$980,000) for
the options was not received by December 31, 2020 and the Company
recorded a share subscriptions receivable against the freely
trading common shares.
xviii.
On December 8,
2020, 300,000 options with an exercise price of $0.04 (C$0.05) were
exercised for proceeds of $11,718 (C$15,000) resulting in the
issuance of 300,000 common shares. Upon exercise, $4,047 was
transferred from contributed surplus to equity.
xix.
On December 14,
2020, 83,333 options with an exercise price of $0.08 (C$0.10) were
exercised for proceeds of $6,527 (C$8,333) resulting in the
issuance of 83,333 common shares. Upon exercise, $137 was
transferred from contributed surplus to equity.
xx.
On December 21,
2020, 200,000 options with an exercise price of $0.20 (C$0.26) were
exercised for proceeds of $40,416 (C$52,000) resulting in the
issuance of 200,000 common shares. Upon exercise, $32,125 was
transferred from contributed surplus to equity.
Exercise of warrants
During
the year ended December 31, 2020, the Company issued common shares
as a result of warrant exercises as follows:
|
Issue
date
|
Number
of warrants exercise and shares issued
|
Weighted
average exercise price ($C)
|
Weighted
average exercise price
|
|
Warrant
liability transferred to share capital
|
|
|
December 8,
2020
|
1,000,000
|
0.12
|
0.0937
|
93,691
|
121,464
|
215,156
|
|
December 8,
2020
|
909,090
|
0.16
|
0.1249
|
113,565
|
97,647
|
211,212
|
|
December 9,
2020
|
9,125,000
|
0.10
|
0.0781
|
712,724
|
958,652
|
1,671,375
|
|
December 9,
2020
|
7,364,515
|
0.12
|
0.0937
|
690,262
|
675,387
|
1,365,648
|
|
December 9,
2020
|
5,512,264
|
0.16
|
0.1250
|
688,872
|
308,191
|
997,063
|
|
December 10,
2020
|
2,000,000
|
0.10
|
0.0785
|
157,060
|
267,897
|
424,957
|
|
December 10,
2020
|
4,736,634
|
0.12
|
0.0942
|
446,361
|
607,619
|
1,053,980
|
|
December 10,
2020
|
5,828,618
|
0.16
|
0.1256
|
732,353
|
484,975
|
1,217,328
|
|
December 10,
2020
|
431,075
|
0.19
|
0.1492
|
64,319
|
20,324
|
84,643
|
|
December 14,
2020
|
2,064,515
|
0.12
|
0.0941
|
194,201
|
407,762
|
601,963
|
|
December 14,
2020
|
2,192,728
|
0.16
|
0.1254
|
275,015
|
367,169
|
642,184
|
|
December 15,
2020
|
5,300,000
|
0.16
|
0.1258
|
666,562
|
672,239
|
1,338,801
|
|
December 17,
2020
|
2,063,637
|
0.16
|
0.1258
|
259,618
|
194,262
|
453,880
|
|
December 22,
2020
|
1,700,000
|
0.16
|
0.1240
|
210,722
|
187,746
|
398,468
|
|
December 28,
2020
|
61,950
|
0.16
|
0.1249
|
7,740
|
5,364
|
13,104
|
|
Total
|
50,290,026
|
0.13
|
0.1056
|
5,313,064
|
5,376,697
|
10,689,762
|
EMPOWER CLINICS INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2020, 2019 and 2018
(in
United States dollars, except where noted)
Acquisition
of Lawrence Park & Atkinson
On
December 31, 2020, as part of the consideration in the acquisition
of Lawrence Park & Atkinson (note 7), the Company issued
5,128,204 common shares with a fair value of
$1,147,925.
The
Company has an incentive share option plan (“the plan”)
in place under which it is authorized to grant share options to
executive officers, directors, employees and consultants. The plan
allows the Company to grant share options up to a maximum of 10.0%
of the number of issued shares of the Company.
Share
option transactions and the number of share options outstanding
during the years ended December 31, 2020 and 2019, are summarized
as follows:
|
|
|
Weighted average
exercise price ($C)
|
|
Outstanding,
December 31, 2017
|
3,300,000
|
0.10
|
|
Granted
|
4,300,000
|
0.37
|
|
Outstanding,
December 31, 2018
|
7,600,000
|
0.25
|
|
Cancelled
|
(4,850,000)
|
0.27
|
|
Granted
|
7,700,000
|
0.14
|
|
Outstanding,
December 31, 2019
|
10,450,000
|
0.16
|
|
Granted
|
6,967,761
|
0.07
|
|
Exercised
|
(7,583,333)
|
0.14
|
|
Outstanding,
December 31, 2020
|
9,834,428
|
0.08
|
|
Exercisable,
December 31, 2020
|
9,084,428
|
0.08
|
Share
options outstanding and exercisable at December 31, 2020, are as
follows:
|
Exercise
price (C$)
|
Weighted
average exercise price (C$)
|
Weighted
average life of options (years)
|
Number
of options outstanding
|
Number
of options exercisable
|
|
0.10
|
0.10
|
2.68
|
2,316,667
|
2,316,667
|
|
0.02
|
0.02
|
2.40
|
900,000
|
900,000
|
|
0.26
|
0.26
|
2.80
|
250,000
|
250,000
|
|
0.14
|
0.14
|
1.46
|
700,000
|
700,000
|
|
0.05
|
0.05
|
2.49
|
2,749,666
|
2,374,666
|
|
0.08
|
0.08
|
0.79
|
1,500,000
|
1,500,000
|
|
0.06
|
0.06
|
4.54
|
1,150,000
|
775,000
|
|
0.21
|
0.21
|
4.98
|
18,095
|
18,095
|
|
0.12
|
0.12
|
0.23
|
250,000
|
250,000
|
|
Total
|
|
|
9,834,428
|
9,084,428
|
The
fair value of share options recognized as an expense during the
year ended December 31, 2020, was $323,799 (year ended December 31,
2019 - $608,944, year ended December 31, 2018 - $892,417). The
following are the assumptions used for the Black Scholes option
pricing model valuation of share options granted during the years
ended December 31, 2020, 2019 and 2018:
|
|
|
|
Years
ended December 31,
|
|
|
|
2020
|
2019
|
2018
|
|
Risk-free
interest rate
|
|
0.20%-1.57%
|
1.34%
|
2.19%-2.37%
|
|
Expected
life
|
|
1 - 5 years
|
3 - 5
years
|
5
years
|
|
Expected
volatility
|
|
100%
|
100.0%
|
100.0%
|
|
Forfeiture
rate
|
|
0.0%
|
0.0%
|
0.0%
|
|
Dividend
rate
|
|
0.0%
|
0.0%
|
0.0%
|
The
risk-free rate of periods within the expected life of the share
options is based on the Canadian government bond rate. The
annualized volatility and forfeiture rate assumptions are based on
historical results.
EMPOWER CLINICS INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2020, 2019 and 2018
(in
United States dollars, except where noted)
d)
Agent
share purchase warrants
Agent
share purchase warrant transactions and the number of agent share
purchase warrants outstanding and exercisable during the years
ended December 31, 2020, 2019, and 2018 are summarized as
follows:
|
|
Number of agent share
purchase warrants
|
Weighted average
exercise price ($C)
|
|
Outstanding,
December 31, 2017
|
-
|
-
|
|
Granted
|
627,378
|
0.31
|
|
Outstanding,
December 31, 2018
|
627,378
|
0.31
|
|
Granted
|
877,440
|
0.16
|
|
Outstanding,
December 31, 2019
|
1,504,818
|
0.24
|
|
Granted
|
1,916,000
|
0.12
|
|
Exercised
|
(489,850)
|
0.16
|
|
Expired
|
(627,068)
|
0.31
|
|
Outstanding,
December 31, 2020
|
2,303,900
|
0.13
|
The
following table summarizes the agent share purchase warrants
outstanding and exercisable as at December 31, 2020:
|
Expiry
date
|
|
Weighted average
exercise price ($C)
|
Weighted average
remaining life (in years)
|
|
April 2,
2021
|
363,900
|
0.16
|
0.25
|
|
May 3,
2021
|
60,000
|
0.16
|
0.34
|
|
April 16,
2022
|
60,000
|
0.10
|
1.29
|
|
July 15,
2022
|
60,000
|
0.12
|
1.54
|
|
November 9,
2022
|
1,760,000
|
0.12
|
1.86
|
|
|
2,303,900
|
0.13
|
1.54
|
The
fair value of agent share purchase warrants recognized in warrant
reserve during the year ended December 31, 2020, was $49,782 (year
ended December 31, 2019 - $66,405 and 2018 - $80,280). The
following are the assumptions used for the Black Scholes option
pricing model valuation of share options granted during the years
ended December 31, 2020, 2019, and 2018:
|
|
|
|
Years
ended December 31,
|
|
|
|
2020
|
2019
|
2018
|
|
Risk-free
interest rate
|
|
0.24% - 0.34%
|
1.56
– 1.67%
|
1.87%
|
|
Expected
life
|
|
2 years
|
2
years
|
2
years
|
|
Expected
volatility
|
|
100%
|
100.0%
|
100.0%
|
|
Forfeiture
rate
|
|
0.0%
|
0.0%
|
0.0%
|
|
Dividend
rate
|
|
0.0%
|
0.0%
|
0.0%
|
21.
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
|
Salaries and
benefits
|
1,763,761
|
1,985,735
|
1,786,804
|
|
Rent
|
46,885
|
84,924
|
272,768
|
|
Advertising and
promotion
|
1,031,297
|
313,870
|
306,799
|
|
Telephone and
internet
|
165,107
|
106,841
|
97,028
|
|
Penalties
|
471,000
|
165,000
|
-
|
|
Other
|
469,358
|
277,249
|
54,282
|
|
|
3,947,408
|
2,933,619
|
2,517,681
|
EMPOWER CLINICS INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2020, 2019 and 2018
(in
United States dollars, except where noted)
22.
RESTRUCTURING EXPENSE
Subsequent to the
Transaction, the Company initiated an organization-wide refocusing
and restructuring. Accordingly, the Company incurred $88,808 during
the year ended December 31, 2019 (2018 - $110,424) in net charges
related to reorganization and restructuring headcount which
resulted in multiple one-time severance payments.
23.
INCOME TAXES
Income
tax expense differs from the amount that would result by applying
the combined Canadian federal and provincial income tax rates to
earnings before income taxes. The reconciliation of the combined
Canadian federal and provincial statutory income tax rate of 27%
(2019 - 27%, 2018 – 27%) to the effective tax rate is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before
taxes
|
(17,066,311)
|
(4,301,663)
|
(3,789,918)
|
|
Combined Canadian
federal and provincial income tax rates
|
27%
|
27%
|
27%
|
|
Expected income tax
recovery
|
(4,607,900)
|
(1,161,450)
|
(1,023,280)
|
|
Items that cause an
increase (decrease):
|
|
|
|
|
Effect of different
tax rates in foreign jurisdiction
|
24,800
|
82,490
|
35,690
|
|
Non-deductible
expenses less other permanent differences
|
217,225
|
(367,360)
|
294,780
|
|
Loss on change in
fair value of warrant liability
|
3,209,435
|
-
|
-
|
|
Tax rate
changes
|
(74,050)
|
8,700
|
152,650
|
|
Share issuance
costs and other
|
(1,910)
|
(36,010)
|
1,690
|
|
Change in tax
benefits not recognized
|
1,232,400
|
1,473,630
|
538,470
|
|
Income
tax recovery
|
-
|
-
|
-
|
b)
Unrecognized
deferred tax assets and liabilities
Deferred taxes are
provided as a result of temporary differences that arise due to the
differences between the income tax values and the carrying amount
of assets and liabilities. Deferred tax assets have not been
recognized in respect of the following deductible temporary
differences:
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax
assets:
|
|
|
|
Non-capital
losses
|
19,890,140
|
11,870,240
|
|
Property and
equipment
|
(1,007,630)
|
31,080
|
|
Intangible
assets
|
674,140
|
485,390
|
|
Right-of-use assets
net of lease liability
|
13,530
|
25,060
|
|
Accrued fees and
compensation
|
-
|
264,360
|
|
Share issue
costs
|
308,660
|
340,880
|
|
Capital losses
carried forward
|
5,420
|
5,420
|
|
Unrealized foreign
exchange loss
|
1,880
|
1,880
|
|
Goodwill
|
2,216,710
|
2,266,520
|
|
Deferred
tax assets, net
|
22,102,850
|
15,290,830
|
c)
Expiration
of income tax loss carry forwards
As at
December 31, 2020, the Company has $11,742,879 of Canadian
non-capital income tax losses (unrecognized) which will expire over
2036 through 2040, and $8,147,261 of United States net operating
losses (unrecognized) of which $2,688,420 will expire over 2036
through 2038, and $5,458,841 which are indefinite.
EMPOWER CLINICS INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2020, 2019 and 2018
(in
United States dollars, except where noted)
24.
SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH FLOWS
Significant
non-cash transactions were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for
acquisition of Sun Valley
|
5,20(b)
|
-
|
3,047,682
|
-
|
|
Stock options
granted for acquisition of Kai Medical
|
6
|
10,025
|
-
|
-
|
|
Warrants issued for
acquisition of Kai Medical
|
6
|
10,025
|
-
|
-
|
|
Cash payable for
the acquisition of LP&A
|
7
|
58,907
|
-
|
-
|
|
Stock options
granted for acquisition of LP&A
|
7
|
344,110
|
-
|
-
|
|
Shares issued for
acquisition of LP&A
|
7, 20(b)
|
1,147,925
|
-
|
-
|
|
Share-based
payments
|
|
323,799
|
608,944
|
892,417
|
|
Shares issues for
compensation
|
20(b),26
|
-
|
304,721
|
-
|
|
Shares returned to
treasury (1)
|
20(b),26
|
-
|
(477,180)
|
-
|
|
Shares returned to
treasury (2)
|
20(b)
|
-
|
(477,180)
|
-
|
|
Shares issued on
debt settlement
|
20(b)
|
219,150
|
184,291
|
-
|
|
Shares issued as
settlement of convertible debenture
|
17,20(b)
|
621,353
|
189,735
|
-
|
|
Shares issued as
settlement of accounts payable
|
20(b)
|
-
|
483,098
|
-
|
|
Warrants issued to
agents
|
20(d)
|
49,782
|
66,405
|
-
|
|
Shares issued for
services(3)
|
20(b)
|
547,641
|
122,932
|
-
|
|
Shares issued to
agents
|
20(b)
|
-
|
20,255
|
-
|
|
Vesting of escrow
shares(4)
|
17
|
193,025
|
-
|
-
|
|
Conversion of
convertible debt to share purchase warrants
|
14,16
|
-
|
-
|
1,292,265
|
|
Shares issued to
marketing services company
|
20(b)
|
-
|
-
|
477,180
|
|
Shares issued to
former CEO
|
20(b),26
|
-
|
-
|
477,180
|
|
Conversion of notes
payable into units
|
11
|
-
|
-
|
114,567
|
|
|
|
3,525,742
|
4,073,703
|
3,253,609
|
(1)
Pursuant to the
termination agreement with the former CEO, the Company cancelled
2,651,875 common shares of which 651,875 were incorrectly cancelled
and reissued on March 11, 2020.
(2)
The common shares
were reacquired and cancelled as the Company cancelled the
marketing services agreement, pursuant to which the common shares
and warrants were originally issued, due to non-performance of
services by the marketing company.
(3)
The fair value of
shares issued for services of $547,641 is contained within
advertising and promotion expense (note 21).
(4)
The fair value of
shares issued for vesting of escrow shares of $193,025 is contained
within legal and professional fees.
Income
tax payments for the year ended December 31, 2020 were $nil (2019 -
$nil, 2018 - $nil). As at December 31, 2020, the Company has
accrued $350,000 in late tax filing penalties related to income
taxes in the United States.
25.
FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
a)
Fair
value measurement of financial assets and liabilities
The
Company has established a fair value hierarchy that reflects the
significance of inputs of valuation techniques used in making fair
value measurements as follows:
Level 1
– quoted prices in active markets for identical assets or
liabilities;
Level 2
– inputs other than quoted prices included in Level 1 that
are observable for the asset or liability, either directly (i.e. as
prices) or indirectly (i.e. from derived prices); and
Level 3
– inputs for the asset or liability that are not based on
observable market data.
The
carrying values of cash, accounts receivable, prepaid expenses,
inventory, and accounts payable and accrued liabilities approximate
their carrying values due to their short-term nature.
EMPOWER CLINICS INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2020, 2019 and 2018
(in
United States dollars, except where noted)
The
Company has no assets or liabilities that would be categorized as
Level 2 in the fair value hierarchy.
As at
December 31, 2020 and 2019, there were no financial assets or
liabilities measured and recognized in the consolidated statements
of financial position at fair value that would be categorized as
Level 3 in the fair value hierarchy above with the exception of the
conversion feature liability and warrant liability, which are both
Level 3 fair value measurements.
The
Company examines its various financial risks to which it is exposed
and assesses the impact and likelihood of occurrence. The risks may
include credit risk, currency risk, liquidity risk and interest
rate risk. The Company’s risk management program strives to
evaluate the unpredictability of financial markets and its
objective is to minimize the potential adverse effects of such
risks on the Company’s financial performance., where
financially feasible to do so. When deemed material, these risks
may be monitored by the Company’s finance group and they are
regularly discussed with the Board of Directors.
i. Credit risk
Counterparty credit
risk is the risk that the financial benefits of contracts with a
specific counterparty will be lost if a counterparty defaults on
its obligations under the contract. This includes amounts owed to
the Company by these counterparties, less any amounts owed to the
counterparty by the Company where a legal right of offset exists
and also includes the fair values of contracts with individual
counterparties which are recorded in the consolidated financial
statements.
The
Company’s credit risk is predominantly related to cash
balances held in financial institutions and amounts receivable from
credit card processors. The maximum exposure to credit risk is
equal to the carrying value of such financial assets. At December
31, 2020, the Company expects to recover the full amount of such
assets.
The
objective of managing counterparty credit risk is to minimize
potential losses in financial assets. The Company assesses the
quality of its counterparties, taking into account their credit
worthiness and reputation, past performance and other
factors.
Cash is
only deposited with or held by major financial institutions where
the Company conducts its business. In order to manage credit and
liquidity risk, the Company invests only in highly rated investment
grade instruments that have maturities of one year or less. Limits
are also established based on the type of investment, the
counterparty and the credit rating.
ii. Currency risk
The
Company’s functional currency is the US dollar and therefore
the Company’s income (loss) and comprehensive income (loss)
are impacted by fluctuations in the value of foreign currencies in
relation to the US dollar.
The
table below summarizes the net monetary assets and liabilities held
in foreign currencies:
|
|
|
|
|
|
|
|
|
Canadian dollar net
monetary liabilities
|
2,434,448
|
2,434,448
|
The
effect on net loss and comprehensive loss for the year ended
December 31, 2020, of a 10.0% change in the foreign currencies
against the US dollar on the above-mentioned net monetary
liabilities of the Company is estimated to be an increase/decrease
in foreign exchange gain or loss of $534,108 (2019 - $316,186)
assuming that all other variables remained constant.
EMPOWER CLINICS INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2020, 2019 and 2018
(in
United States dollars, except where noted)
iii.Liquidity risk
Liquidity risk is
the risk that the Company will encounter difficulty in meeting
obligations associated with its financial liabilities that are
settled by delivering cash or another financial asset. The Company
has a planning and budgeting process in place to help determine the
funds required to support the Company’s normal operating
requirements and its expansion plans.
In the
normal course of business, the Company enters into contracts and
performs business activities that give rise to commitments for
future minimum payments. The Company has no concentrations of
liquidity risk. A summary of future operating commitments is
presented in note 28.
As at
December 31, 2020, the Company had a cash balance of $4,889,824 and
current liabilities of $7,000,937 (December 31, 2019 - $179,153 and
$4,449,224 respectively).
vi. Interest rate risk
Interest rate risk
is the risk that future cash flows will fluctuate as a result of
changes in market interest rates. The Company’s notes
payable, secured loan payable, convertible notes payable and
convertible debentures carry fixed interest rates and as such, the
Company is not exposed to interest rate risk.
26.
RELATED PARTY TRANSACTIONS
The
Company’s related parties include subsidiaries, associates,
joint ventures, affiliated entities and key management personnel
and any transactions with such parties for goods and/or services
that are made on regular commercial terms. During the years ended
December 31, 2020 and 2019, the Company did not enter into any
transactions with related parties outside of compensation to key
management personnel as disclosed below.
Key
management are those personnel having the authority and
responsibility for planning, directing, and controlling the
Company. Salaries and benefits, bonuses, and termination benefits
are included in operating expenses and share-based payments are
recorded as share-based payment expense or share
capital.
Key
management compensation for the years ended December 31, 2020, 2019
and 2018 includes:
|
|
|
|
|
|
|
|
|
|
|
Salaries and
benefits
|
341,601
|
734,655
|
1,063,748
|
|
Share-based
payments
|
12,159
|
556,040
|
892,417
|
|
Directors
fees
|
7,500
|
11,250
|
-
|
|
|
361,260
|
1,301,945
|
1,956,165
|
Included in
salaries and benefits for the year ended December 31, 2020 is $nil
(year ended December 31, 2019 - $304,721) related to common shares
awarded to the CEO.
Included in
salaries and benefits for the year ended December 31, 2018, is
$477,180 related to 2,000,000 shares awarded to the former
CEO.
As at
December 31, 2020, $nil (December 31, 2019 - $28,827) is due to the
CEO for advances made on behalf of the Company and $157,055
(December 31, 2019 - 133,444) is due to the CEO for salaries and
benefits. The amounts are unsecured and due on demand.
As at
December 31, 2020, $53,914 (December 31, 2019 - $140,000) is due to
the Senior Vice Present Development and Director and his spouse for
consideration related to the Sun Valley acquisition.
As at
December 31, 2020, share subscriptions receivable consists of
$745,531 (C$980,000) due from the CEO for the exercise of 7,000,000
options at an exercise price of $0.11 (C$0.14). Share subscriptions
receivable reduces shareholders’ equity. The share
subscriptions receivable has no specified interest or terms of
repayment.
EMPOWER CLINICS INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2020, 2019 and 2018
(in
United States dollars, except where noted)
27.
MANAGEMENT OF CAPITAL
The
Company’s objectives of capital management are intended to
safeguard the Company’s normal operating requirements on an
ongoing basis. At December 31, 2020, the capital of the Company
consists of consolidated deficit, notes payable, convertible notes
payable, and loans payable, net of cash.
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
(5,490,401)
|
(3,514,913)
|
|
Notes
payable
|
708,361
|
969,891
|
|
Convertible
debentures payable
|
-
|
427,320
|
|
Convertible
notes payable
|
200,530
|
192,717
|
|
Current
portion of loans payable
|
992,070
|
761,711
|
|
Loans
payable
|
1,140,157
|
-
|
|
|
(2,449,283)
|
(1,163,274)
|
|
Less:
Cash
|
(4,889,824)
|
(179,153)
|
|
|
(7,339,107)
|
(1,342,427)
|
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. Management reviews its capital management approach on
an ongoing basis and believes that this approach, given the
relative size of the Company, is reasonable.
In
order to facilitate the management of its capital requirements, the
Company prepares expenditure budgets that are updated as necessary
depending on various factors, including successful capital
deployment and general industry conditions.
The
Company also has in place a planning, budgeting and forecasting
process which is used to identify the amount of funds required to
ensure the Company has appropriate liquidity to meet short and
long-term operating objectives.
The
Company is dependent on cash flows generated from its clinical
operations and from external financing to fund its activities. In
order to maintain or adjust its capital structure, the Company may
issue new shares or debt.
At
December 31, 2020 and 2019, the Company was not subject to any
externally imposed capital requirements.
EMPOWER CLINICS INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2020, 2019 and 2018
(in
United States dollars, except where noted)
28.
COMMITMENTS AND CONTINGENCIES
Commitments
A
summary of undiscounted liabilities and future operating
commitments at December 31, 2020, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity
analysis of financial liabilities
|
|
|
|
|
|
Accounts
payables and accrued liabilities
|
3,442,725
|
3,442,725
|
-
|
-
|
|
Loans
payable
|
2,132,227
|
992,070
|
143,624
|
996,533
|
|
Notes
payable
|
708,361
|
708,361
|
-
|
-
|
|
Convertible
notes payable
|
200,530
|
200,530
|
-
|
-
|
|
Lease
payments
|
496,386
|
241,138
|
255,248
|
-
|
|
Total
financial liabilities
|
6,980,229
|
5,584,824
|
398,872
|
996,533
|
Contingencies
Various
tax and legal matters are outstanding from time to time. In the
event that management’s estimate of the future resolution of
these matters changes, the Company will recognize the effects of
these changes in the consolidated financial statements in the
period such changes occur.
29.
EVENTS AFTER THE REPORTING PERIOD
On
January 11, 2021, the Company repaid principal of $550,000 and
accrued interest of $258,293 to the Secured Party.
On
January 11, 2021, the Company repaid accrued interest of $22,944
related to the $188,765 (C$250,000) promissory note that was due
April 1, 2020. The principal balance had been repaid on December
11, 2020. As at December 31, 2020, the Company has no continued
obligation with respect to the promissory note.
On
January 11, 2021, the Company repaid a note payable with a balance
of principal and accrued interest of $521,951 as at December 31,
2020.
On
February 26, 2021, the Company issued 1,207,206 common shares
pursuant to an online marketing agreement.
On
March 8, 2021, the Company issued 1,760,000 common shares and
1,760,000 warrants pursuant to the exercise of 1,760,000 agent
share purchase warrants for gross proceeds of $88,000.
On June
17, 2020, the Company issued 13,204 common shares pursuant to a
professional services agreement.
The
Company issued 43,145,547 common shares pursuant to the exercise of
43,145,547 warrants for gross proceeds of $5,517,102.
The
Company issued 3,464,666 common shares pursuant to the exercise of
3,464,666 shares options for gross proceeds of
$259,233.
During
the period from December 31, 2020 to the date of these financial
statements, 63,900 warrants expired.
During
the period from December 31, 2020 to the date of these financial
statements, 2,061,364 stock options were granted and 1,936,667
stock options expired.
The
following exhibits are included in this Form 20-F:
|
Exhibit
Number
|
Description
|
|
1.1
|
|
|
1.2
|
|
|
1.3
|
|
|
1.4
|
|
|
4.1
|
|
|
8.1
|
|
|
12.1
|
|
|
12.2
|
|
|
13.1
|
|
|
13.2
|
|
(1)
Incorporated
by reference from our current report on Form 8-K filed with the SEC
on December 2, 2008.
(2)
Incorporated
by reference from our Form 20-F shell company report filed with the
SEC on September 4, 2009.
(3)
Incorporated
by reference from our Form 20-F report filed with the SEC on
January 22, 2010.
(4)
Incorporated
by reference from our Form 20-F report filed with the SEC on
February 3, 2011.
(5)
Filed
as an exhibit hereto.
SIGNATURES
The
Registrant hereby certifies that it meets all of the requirements
for filing on Form 20-F and that it has duly caused and authorized
the undersigned to sign this Form 20-F on its behalf.
EMPOWER CLINICS INC.
Per: /s/ Steven
McAuley
Name:
Steven McAuley
Title:
Chairman and Chief Executive Officer
Date:
July 21, 2021
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