Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
| ☐ | | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) or 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| ☒ | | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
For the fiscal year ended December 31,
2017
2019
| ☐ | | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| ☐ | | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number 000-30087
EMPOWER CLINICS INC. (formerly ADIRA ENERGY LTD.)
(Exact name of Registrant specified in its charter)
CANADA
(Jurisdiction of incorporation or organization)
400-570 Granville
918-1030 West Georgia Street
Vancouver BC
Canada V6C 3P1
V6E 2Y3
(Address of principal executive offices)
Contact Person: Craig Snyder
Steven McAuley
Address: 400-570 Granville918-1030 West Georgia Street
Vancouver BC
Canada V6C 3P1
V6E 2Y3
Email: c.snyder@empoweclinics.com
s.mcauley@empowerclinics.com
Telephone: (206) 718-3288
(604) 789-2146
(Name, Telephone, Email and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of Each Class
| | Name of each exchange on which registered
|
None | | Not applicable |
Title of Each Class
None
Securities registered or to be registered pursuant to Section 12(g) of the Act:
COMMON SHARES
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: NoneThe number of outstanding shares of the Company’s only class of capital or common stock as at December 31, 20172019 was 17,112,022137,697,430 common shares.
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
If this is an annual report or a transition report, indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Indicate by check mark whether Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether Registrant has submitted electronically,
and posted on its corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit
and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer ☒ Emerging growth company ☐
| Large accelerated filer ☐ | Accelerated filer ☐ | |
| Non-accelerated filer ☒ | Emerging growth company ☐ | |
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark which basis of accounting the Registrant has used to prepare the financial statements included in this filing:
| U.S. GAAP ☐ | | International Financial Reporting Standards as issued by the International Accounting Standards Board ☒ | Other ☐ | |
If “other” has been checked in response to the previous question, indicate by check mark which financial statement item the Registrant has elected to follow:
If this is an annual report, indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Indicate by checkmark whether the Registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
YES ☐ NO ☐
This Form 20-F is being filed as an annual report under the Exchange Act.
In this Form 20-F, references to:
“Adira” means Adira Energy Ltd., a Canadian federal corporation (formerly AMG Oil Ltd.);
“BCBCA” means the Business Corporations Act (British Columbia);
“CBCA” means the Canadian Business Corporations Act;
“CBD” means Cannabidoil, a non-psychoactive constituent of cannabis which contains less than 0.3% THC content;
“Empower” means Empower Clinics Inc., a corporation incorporated pursuant to the BCBCA;
“IFRS” means generally accepted accounting principles approved by the IASB;
“IASB” means the International Accounting Standards Board;
“SMAART” means S.M.A.A.R.T Holdings Inc., a corporation incorporated pursuant to the BCBCA
“SMAART US” means S.M.A.A.R.T Holdings Corp., a wholly owned subsidiary of SMAART incorporated pursuant to the laws of Nevada;
“THC” means tetrahydrocannabinol, a chemical responsible for most of marijuana's psychological effects;
“Transaction” means SMAART completing the acquisition with Adira, Barbados” means Adira Energy Investments (Barbados)pursuant to which SMAART amalgamated with 1149770 B.C. Ltd., a Barbados corporation that was dissolved on December 31, 2013;“Adira Energy” means Adira Energy Holding Corp., an Ontario corporation (formerly Adira Energy Corp.);
“Adira Geo” means Adira Geo Global Ltd., an Israeli corporation that was voluntarily deregistered and liquidated in December 2015;
“Adira Group” means Adira together with: (a) its wholly-owned subsidiary of Adira, Energy; (b) its wholly-ownedto form Empower Healthcare Corporation, resulting in the indirect (throughacquisition by SMAART of all of the issued and outstanding securities of Adira Energy) subsidiaries, Adira Israel, Adira Services (voluntarily dissolved in February 2016)
“We”, Adira Technologies (voluntarily dissolved in July 2015)“us”, Adira Energy CBM Ltd.“our”, and Adira Energy Holdings (Barbados) Ltd. (which wholly owned Adira Barbados until Adira Barbados was dissolved on December 31, 2013); and (c) Adira’s 60% indirect (through Adira Energy) subsidiary, Adira Geo (voluntarily dissolved in December 2015);“Adira Israel” means Adira Energy Israel Ltd., an Israeli corporation;
“Adira Services” means Adira Energy Israel Services Ltd., an Israeli corporation that was voluntarily deregistered and liquidated in February 2016;
“Adira Technologies” means Adira Oil Technologies Ltd., an Israeli corporation that was voluntarily deregistered and liquidated in July 2015;
“We”, “us”, “our”,
and the “Company” means Empower, a Company” mean collectively currently listed for trading on the Canadian Securities Exchange and individually, the companies that form the Adira Group;Frankfurt Stock Exchange Empower and
“AMG” refers to AMG Oil Ltd. which was the name of Adira prior to its change of name to Adira Energy Ltd. on December 17, 2009.
Adira and Adira Energysubsidiaries have historically used U.S. dollar as their reporting currency. All references in this document to “dollars” or “$” are to United States dollars and all references to “CDN$” are to Canadian dollars, unless otherwise indicated.
Unless otherwise provided, all references in this annual report to numbers of Adira’s common shares reflect the 1-for-3 reverse stock split which took place on August 9, 2013.
Except as noted, the information set forth in this Form 20-F is as of December 31,
20172019 and all information included in this document should only be considered correct as of such date.
NOTE REGARDING FORWARD LOOKING STATEMENTS
Much of the information included in this Form 20-F includes or is based upon estimates, projections or other “forward looking statements”. Such forward looking statements include any projections or estimates made by us and our management in connection with our business operations. These statements relate to future events or our future financial performance. Generally, any statements contained herein that are not statements of historical facts may be forward–looking statements. In some cases you can identify forward-looking statements by terminology such as “may”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue or the negative of those terms or other comparable terminology. While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested herein. Such estimates, projections or other forward looking statements involve various risks and uncertainties and other factors, including the risks in the section titled “Risk Factors”, below, that may cause our actual results, levels of activities, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. We caution the reader that important factors in some cases have affected and, in the future, could materially affect actual results and cause actual results to differ materially from the results expressed in any such estimates, projections or other forward looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform those statements to actual results.
In particular, without limiting the generality of the foregoing disclosure, the statements contained in Item 4.B. – “Business Overview”, Item 5 – “Operating and Financial Review and Prospects” and Item 11 – “Quantitative and Qualitative Disclosures About Market Risk” are inherently subject to a variety of risks and uncertainties that could cause actual results, performance or achievements to differ significantly.
PART I
ITEM 1 - IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
| IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS |
Not applicable.
ITEM 2 - OFFER STATISTICS AND EXPECTED TIMETABLE
| OFFER STATISTICS AND EXPECTED TIMETABLE |
ITEM 3 - KEY INFORMATIONA. Selected Financial Data
Adira Energy
Until recently, Adira was carrying on business as an oil and gas exploration company with a focus on early-stage exploration in the State of Israel. The focus of the Company has changed as detailed below. The Company’s current trading symbol on the TSX Venture Exchange (the “Exchange”) is “ADL”. The Company also trades on the OTC Bulletin Board with the trading symbol “ADENF” and on the Frankfurt Stock Exchange with the trading symbol “OAM1”.
Our Company had an option (the “Yam Hadera Option”) to acquire up to a 15% participating interest in the Yam Hadera license (the “Yam Hadera License”) from Modiin Energy LP (“MELP”). The Yam Haera license is located 30 kilometers offshore Israel, between Hadera and Haifa. The Yam Hadera Option was exercisable until 14 days prior to the signing of a rig contract for the Yam Hadera License. On September 22, 2014, the Petroleum Commissioner advised MELP that the Yam Hadera License had expired, without further extension being granted, due to the milestones in their work program not being achieved. On October 22, 2014, MELP sent a letter of appeal to the decision with the Minister of Energy and Water; however, in December 2015, MELP was notified that their appeal was denied and that the license has expired.
In light of the expiry of the Yam Hadera License, we have determined that we should terminate our oil and gas exploration business as of December 31, 2015. Prior to the completion of the Transaction (as defined below), we were a shell company as defined in Rule 12b-2 of the Exchange Act.
Reverse Take over
On November 5, 2015, the Company and SMAART Holdings Inc. (“SMAART”) and the shareholders of SMAART entered into a letter of intent (the “LOI”) pursuant to which SMAART and Adira will complete a transaction (the “Transaction”), pursuant to which the resulting corporation (the “Resulting Issuer”) will seek listing on a Canadian stock exchange.
Management has recently become aware that, as a matter of policy and subject to very limited exceptions, the TSX Venture Exchange (the “TSXV”) will not accept for listing any company that engages in a cannabis-related business in any jurisdiction where such business is prohibited under applicable federal law, including the United States. Currently, the Canadian Securities Exchange (the “CSE”) does not have a similar policy, and may provide an alternative to the TSXV as a stock market for the Resulting Issuer’s common shares, provided that the Resulting Issuer would meet the listing standards prescribed by the CSE.
The Target's business operates under the name Empower Clinics ("Empower") in the United States and is a growing national network of physician-staffed medical cannabis clinics with a primary focus on enabling patients to improve and protect their health. In addition to the clinic business, Empower also garners royalties from the sale of proprietary medical cannabis products manufactured, dispensed, and delivered by third party channel partners. Through the rapid addition of both physical clinic locations, coupled with third party manufacturer distribution relationships, Empower seeks to create a leading nationwide brand of trusted products and services for the medical cannabis industry, enabling patients to more effectively and affordably address areas such as chronic pain, Epilepsy, PTSD, and more. Empower also intends to seek merger and acquisition opportunities where possible to accelerate its business expansion plans and drive value.
On April 27, 2018, the Company completed its previously disclosed transaction with SMAART Holdings Inc. (“SMAART”) to acquire assets which constituted a reverse take-over of the Company (the “Transaction”). Pursuant to the Transaction, a subsidiary of the Company amalgamated with SMAART to form the wholly owned subsidiary, Empower Clinics Inc. In return, all of the issued and outstanding securities of SMAART were exchanged for equivalent securities, including Common Shares, of Empower. In connection with the Transaction, the Company also changed its name to “Empower Clinics Inc.” and underwent a 6.726254 to one share consolidation. In addition, a private placement was completed whereby 8,443,473 Common Shares were issued at a price of CDN$0.31 per share for aggregate gross proceeds of CDN$2,617,476, approximately $2,037,000. As a result, Empower will have 70,966,958 Common Shares issued and outstanding.
The net proceeds will be available as working capital for the Company.
On August 9, 2013, we completed a reverse stock split (the “Consolidation”) of our common shares on the basis of one new common share for every three old common shares. The Consolidation was effective for trading purposes on August 13, 2013.
Effective September 29, 2014, we completed a second reverse stock split (the “Second Consolidation”) of our common shares on the basis of one new common share for every five old common shares.
The selected historical information presented in the table below for the years ended December 31,
2017, 2016, 2015, 20142019, and
2013and 20122018 are derived from the audited consolidated financial statements of
AdiraEmpower for such
period,periods, and have been prepared in accordance with
International Financial Reporting Standards (“IFRS”) as issued by the
International Accounting Standards Board (“IASB”).IASB. The selected financial information presented below should be read in conjunction with the audited consolidated financial statements and the notes thereto of
Adira Group,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
| | | | | Year Ended December 31, |
| | | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
| | | | | |
| Balance Sheet Data | | | | | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | | | 14 | | | | 19 | | | | 124 | | | | 334 | | | | 617 | |
| Total Assets | �� | | 14 | | | | 52 | | | | 163 | | | | 409 | | | | 3,226 | |
| Total Liabilities | | | 378 | | | | 341 | | | | 237 | | | | 223 | | | | 3,803 | |
| Total Shareholders’ Equity (deficit) | | | (364 | ) | | | (289 | ) | | | (74 | ) | | | 186 | | | | (577 | ) |
| | | | | Year ended December 31 | | |
| | | 2017 | | 2016 | | 2015 | | 2014 | | 2013
($ thousands) |
| | | | | | | |
| Operating Data | | | | | | | | | | | | | | | | | | | | |
| Revenues and other income | | | - | | | | - | | | | - | | | | - | | | | 17 | |
| | | | | | | | | | | | | | | | | | | | | |
| Expenses: | | | | | | | | | | | | | | | | | | | | |
| Exploration expenses | | | - | | | | - | | | | - | | | | - | | | | 677 | |
| General and administrative expenses | | | 113 | | | | 268 | | | | 349 | | | | 602 | | | | 2,813 | |
| Gain on settlement of accounts payable and others payables | | | - | | | | - | | | | (25 | ) | | | (1,374 | ) | | | - | |
| Impairment charge | | | - | | | | - | | | | - | | | | - | | | | 5,168 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total expenses | | | 113 | | | | 268 | | | | 324 | | | | (772 | ) | | | 8,658 | |
| | | | | | | | | | | | | | | | | | | | | |
| Operating profit (loss) | | | 113 | | | | 268 | | | | 324 | | | | 772 | | | | (8,641 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Financing income | | | - | | | | - | | | | - | | | | - | | | | 3,027 | |
| Loss on foreign exchange | | | - | | | | (8 | ) | | | (23 | ) | | | (37 | ) | | | (30 | ) |
| Gain on revaluation of warrant liability | | | 38 | | | | 45 | | | | 78 | | | | - | | | | - | |
| | | | | | | | | | | | | | | | | | | | | |
| Profit (loss) before income taxes | | | (75 | ) | | | (215 | ) | | | (269 | ) | | | 735 | | | | (5,644 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Income taxes | | | - | | | | - | | | | - | | | | - | | | | - | |
| | | | | | | | | | | | | | | | | | | | | |
| Net profit (loss) and comprehensive profit (loss) | | | (75 | ) | | | (215 | ) | | | (269 | ) | | | 735 | | | | (5,644 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Basic and diluted net (loss) profit per share attributable to equity holders of the parent | | | (0.00 | ) | | | (0.01 | ) | | | (0.02 | ) | | | 0.06 | | | | (0.47 | ) |
| | | | | | | | | | | | | | | | | | | | | |
Weighted average number of common shares used in computing basic and diluted net loss per share
| | | 17,112,022 | | | | 17,112,022 | | | | 15,439,508 | | | | 12,158,302 | | | | 12,052,073 | |
Adira
| | |
| | | |
| | | |
| Balance Sheet Data | | |
| Cash and cash equivalents | $179,153 | $157,668 |
| Total Assets | 1,555,719 | 513,792 |
| Total Liabilities | 5,070,632 | 3,510,012 |
| Total Shareholders’ Deficit | (3,514,913 | (2,996,220) |
| | | |
| Operating Data | | |
| Revenues | 2,031,581 | 1,091,386 |
| | | |
| Expenses | | |
| Direct clinics expenses | 826,276 | 417,047 |
| Operating expenses | 2,933,619 | 2,517,681 |
| Legal and professional fees | 1,015,743 | 1,450,141 |
| Depreciation and amortization expense | 327,059 | 123,473 |
| Share-based payments | 608,944 | 892,417 |
| | | |
| Loss from operations | (3,680,060 | (4,309,373) |
| | | |
| Other (gains) expenses | 621,603 | (519,455) |
| | | |
| Loss before income taxes | (4,301,663 | (3,789,918) |
| | | |
| Deferred tax recovery | – | – |
| | | |
| Net loss and comprehensive loss | (4,301,663 | (3,789,918) |
| | | |
| Basic and diluted net loss per share | (0.0 | (0.06) |
| Weighted average number of common shares used in computing basic and diluted net loss per share | 117,289,366 | 66,670,041 |
Empower has never declared or paid any cash or other dividends.
B. Capitalization and Indebtedness C. Reasons for the Offer and Use of Proceeds 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, 2017, we2019, the Company had ana working capital deficiency of $4,185,359 (December 31, 2018 - $3,070,900), has not yet achieved profitable operations, has accumulated deficit of $34.4 million.$13,012,319 (December 31, 2018 - $9,369,941). 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 raiserepresent a material uncertainty that cast substantial doubt about ouron the Company’s ability to continue as a going concern as described inand ultimately the Note 1appropriateness of the use of accounting principles applicable to our consolidated financial statements for the year ended December 31, 2017, which are included herein. Although our consolidated financial statements refer to circumstances which might raise doubt about our ability to continue as a going concern, they doconcern.
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
reflect any adjustments that might result if we are unablebe able to
continue our business.As a holding company, our ability to make payments will eventually depend on the cash flows of our subsidiaries.
We have historically been a holding company and we plan to conduct substantiallypredict all of our operations through subsidiaries. We have no direct operations and, other than remaining cashthem, or cash equivalents andbe 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 shares of our subsidiaries, no significant assets. Assuming our holding company structure remains, we will be dependent on the cash flows from our subsidiaries to meet our obligations, including payment of principal and interest on any debt we incur. The ability of certain of our subsidiaries to provide us with payments may be constrained by the following factors:
| · | the cash flows, if any, generated by operations, investment activities and financing activities; and |
| · | the level of taxation, particularly corporate profits and withholding taxes. |
In addition, we cannot guarantee that the current fiscal regime that allows for repatriation of funds in eachrequirements of the countries where we do business will remain in effect, nor can we guarantee that arbitrary changes in exchange controls in each ofState licensing agencies within which the countries where we do business will not take place, which may adverselyCompany operates would have a material adverse impact on the abilitybusiness, financial condition and operating results of investorsthe Company.
The Company will incur ongoing costs and obligations related to
recover their investment.We may be adversely affected by current global financial conditions.
Current global financial conditions have been characterized by increased volatility and several financial institutions have either gone into bankruptcy or have hadregulatory compliance. Failure to be rescued by governmental authorities. Access to public financing and bank credit has been negatively impacted by both the rapid decline in value of sub-prime mortgages and the liquidity crisis affecting the asset-backed commercial paper market. These and other factors may affect our ability to obtain equity or debt financing in the future on favorable terms. Additionally, these factors, as well as other related factors, may cause decreases in our asset values that may be other than temporary, whichcomply with regulations may result in impairment losses. If such increased levels of volatility and market turmoil continue,additional costs for corrective measures, penalties or if more extensive disruptions of the global financial markets occur, our operations could be adversely impacted and the market valuein restrictions of our common shares may be adversely affected.
Our financial reporting may be subject to weaknessesoperations. In addition, changes in internal controls.
Internal controls over financial reporting are procedures designed to provide reasonable assurance that transactions are properly authorized, assets are safeguarded against unauthorizedregulations, more vigorous enforcement thereof or improper use, and transactions are properly recorded and reported. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance with respectother unanticipated events could require extensive changes to the reliability of financial reporting and financial statement preparation.
We cannot be certain that current expected expenditures and completion/testing programs will be realized.
We believe that theCompany's operations, increased compliance costs usedor give rise to prepare internal budgets are reasonable; however, there are assumptions, uncertainties, and risk that may cause our allocated funds onmaterial liabilities, which could have a per well basis to change as a result of having to alter certain activities from those originally proposed or programmed to reduce and mitigate uncertainties and risks. These assumptions, uncertainties, and risks are inherent in the completion and testing of wells and can include but are not limited to: pipe failure, casing collapse, unusual or unexpected formation pressure, environmental hazards, and other operating or production risk intrinsic in oil and/or gas activities. Any of the above may cause a delay in our completion program and its ability to determine reserve potential.
We may no effectively manager the cannabis business of SMAART currently carried on in the United States..
there are uncertainties surrounding the Resulting Issuer carryingmaterial adverse effect on the existing medical cannabis business, of SMAART currently carried on in the United States. Currently, there are 29 states of the United States, including the District of Columbia, that have laws or regulations that recognize, in one form or another, legitimate medical uses for cannabis and consumer use of cannabis in connection with medical treatment. Many other states are considering similar legislation. Conversely, under the Controlled Substance Act (the “CSA”), the policies and regulations of the Federal government and its agencies are that cannabis has no medical benefit and a range of activities including cultivation and the personal use of cannabis is prohibited. Unless and until Congress amends the CSA with respect to medical marijuana, as to the timing or scope of any such potential amendments there can be no assurance, there is a risk that federal authorities may enforce current federal law, and we may be deemed to be producing, cultivating or dispensing marijuana in violation of federal law or we may be deemed to be facilitating the selling or distribution of drug paraphernalia in violation of federal law with respect to our current or proposed business operations. Active enforcement of the current federal regulatory position on cannabis may thus indirectly and adversely affect the Resulting Issuer’s future cash flows, earnings, results of operations and financial condition.
The risk of strict enforcementcondition of the CSA in lightCompany.
The industry is subject to extensive controls and regulations, which may significantly affect the financial condition of
Congressional activity, judicial holdings and stated federal policy remains uncertain.We have agreed to indemnify our directors against liabilities incurred by them as directors.
We have agreed to indemnify our directors from and against all costs, charges and expenses reasonably incurred by them in respectmarket participants. The marketability of any civil, criminalproduct 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 administrative action or proceedingthe Company's operations uneconomic. The industry is also subject to numerous legal challenges, which they are mademay 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 party or with which they are threatenedlegal industry by reasonthe US Federal government.
The Company operates a growing network of being or having been a director of Adira, provided that (a) they have acted honestly and in good faithphysician-staffed medical cannabis clinics with a viewprimary 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.
Beyond its primary public service business, the Company also garners royalties from the sale of proprietary medical cannabis products manufactured, dispensed, and delivered by third party channel partners. The Company will be dependent on its third party clients and channel partners for the success of this aspect of its business.
The Company’s operations are subject to a variety of laws, regulations and guidelines relating to the best interestsmanufacture, management, transportation, storage and disposal of Adira;medical cannabis and (b)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 casecannabis 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 criminalmaterial 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 administrative actioncurtailed, 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 proceedingother 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 enforced by a monetary penalty, they had reasonable grounds for believingclassified 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
conduct was lawful. This indemnity may reducecarrying value due to the
likelihood of derivative litigation against our directors and may discourage or deter our shareholders from suing the directors.relatively short-term to maturity. Risks Associated with Our Business
The consummation of our proposed acquisition of SMAART is subject to a number of contingencies and cannot be assured.
Our
proposed acquisition of SMAART is contemplated by a non-binding letter of intent, and the transaction is subject to a number of conditions typical in a transaction of this nature, including without limitation, the approval by at least 66 2/3% of the votes cast by Adira shareholders at a special meeting of Adira shareholders to approve the transaction and the approval of the TSXV (and/or any other Canadian stock exchange on which the Resulting Issuer may seek listing). There is no assurance that our acquisition of SMAART will proceed. We have no other business prospects at this time, and if we are not successful in completing our proposed acquisition of SMAART, our Company may be left with inadequate resources to seek out and evaluate other opportunities.Assuming we are successful in consummating our acquisition of SMAART, our future success will be dependent on additional states legalizing medical marijuana.
Assuming we are successful in consummating our acquisition of SMAART, our
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, if we are successful in consummating our acquisition of SMAART, 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.
We may be treated as a U.S. corporation and taxed by the U.S. on our worldwide income.
We continued from Nevada to Canada in 2008. Such continuance is for corporate purposes a migration of us from Nevada to Canada. Transactions whereby a U.S. corporation migrates to a foreign jurisdiction are considered by the U.S. Congress to be a potential abuse of the U.S. tax rules because thereafter the foreign entity is not subject to U.S. tax on its worldwide income. As a result, Section 7874(b) of the Internal Revenue Code of 1986, as amended, was enacted to address this potential abuse. Section 7874(b) provides generally that a corporation that migrates from the U.S. will nonetheless remain subject to U.S. tax on its worldwide income unless the migrating entity has substantial business activities in the foreign country in which it is migrating when compared to its total business activities.
If Section 7874(b) were to apply to our migration from Nevada to Canada, it would cause us to be subject to U.S. federal income taxation on our worldwide income. Section 7874(b) of the Code will apply to our migration unless we had substantial business activities in Canada when compared to our total business activities at the time of our migration.
Based on the fact that substantially all of our activities were taking place in Canada and all of our assets were located in Canada at the time of our migration, we have taken the position that we had substantial business activity in Canada in relation to our worldwide activities at the time of the migration and that Section 7874(b) did not apply to cause us, after the migration, to be subject to U.S. federal income tax on our worldwide income. There is limited guidance as to what “substantial business activity” is “when compared to our worldwide activities.” Accordingly, the position adopted by us may be challenged by the U.S. tax authorities with the result that we may be subject to U.S. federal income taxes on our worldwide activities. In addition to U.S. federal income taxes, were Section 7874(b) to apply to us, we could be subject to penalties for failure to file U.S. federal income tax returns, late fees and interest on past due taxes. Furthermore, if Section 7874(b) were to apply to us, our non-U.S. shareholders may be subject to adverse U.S. federal income tax consequences such as the assessment of U.S. federal income withholding taxes on dividends paid by us. Each shareholder should consult its own tax advisor regarding the foregoing rules.
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
Adira.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
AdiraEmpower regardless of our operating performance. There can be no assurance that an active market for the
Common Sharescommon shares will be established or persist and the share price may decline.
We are now considered a shell company; as such our stock cannot be sold pursuant to Rule 144 at this time.
We are now a shell company as defined in Rule 405 under the Securities Act. As such, pursuant to Rule 144(i) under the Securities Act, our shares will not be able to be sold pursuant to Rule 144 until we cease to be considered a shell company and twelve months have elapsed from the date we have filed adequate information (Form 10 information) with the SEC disclosing that we are not longer a shell company.
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
Israel and globally; industry conditions, including fluctuations in the price of
oil and natural gas;cannabis flower; governmental regulation of the
oil and gas industry, including environmental regulation;cannabis industry; fluctuation in foreign exchange or interest rates;
liabilities inherent in oil and natural gas operations; geological, technical, drilling and processing problems; assuming we achieve production, unanticipated operating events which can reduce production or cause production to be shut-in or delayed; failure to obtain industry partner and other third party consents and approvals, when required; stock market volatility and market valuations; competition for, among other things, capital, acquisition of
reserves, undeveloped land and skilled personnel; the need to obtain required approvals from regulatory authorities; worldwide supplies and prices of and demand for
natural gascannabis flower and
oil;derivatives; political conditions and developments in
Israel, Canada, the US, and globally;
political conditions in natural gas and oil producing regions; revenue and operating results failing to meet expectations in any particular period; investor perception of the
oil and gascannabis industry; limited trading volume of our common shares; change in
environmental and other 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.
If we are a “passive foreign investment company” at any time that a U.S. shareholder holds our common shares, such U.S. shareholder may be subject to adverse U.S. federal income tax consequences
Acquiring, holding or disposing of our common shares may have tax consequences under the laws of Canada and the United States that are not disclosed in this Form 20-F. In particular, potential investors that are U.S. taxpayers should be aware that we may be considered a “passive foreign investment company” (a “PFIC”) under Section 1297(a) of the U.S. Internal Revenue Code (the “Code”) with respect to U.S. shareholders. A non-U.S. corporation is classified as a PFIC under the Code for each tax year in which (i) 75% or more of its gross income is passive income (as defined for U.S. federal income tax purposes) or (ii) on average for such tax year, 50% or more (by value) of its assets either produces or is held for the production of passive income. The tax rules applicable to PFICs are very complex and, in some cases, uncertain. Each U.S. investor should consult its own tax advisor with respect to such rules. If our Company is a PFIC for any year during a U.S. taxpayer’s holding period, then such taxpayer may be required to treat any gain recognized by such person upon a sale or disposition of our common shares as ordinary (rather than capital) income, and any resulting U.S. federal income tax may be increased by an interest charge. Rules similar to those applicable to dispositions will generally apply to certain amounts treated as “excess distributions” in respect of the common shares.
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,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.common shares. Prospective investors seeking or needing dividend income or liquidity should not purchase our
Common Shares.common shares. | | INFORMATION ON THE COMPANY |
We are a Canadian corporation existing under the
Canada Business Corporations Act (the “CBCA”) which conducts business as
an oil and gas explorationa medical cannabis clinic company with operations in the
StateUnited States of
Israel. We have been granted certain petroleum licenses from the State of Israel,America, as more particularly described below in Item 4B – “Business Overview”.
We presently do not have any oil and gas reserves, do not produce any oil or gas and do not earn any significant revenues.
A. History and Development of the Company Our legal and commercial name is
Adira Energy Ltd.Empower Clinics Inc.
Our principal office
prior to the completion of the Transaction wasis located at
4101 Yonge Street, Suite 706, Toronto, Ontario, Canada, M2P 1N6. We are no located at 400-570 Granville918-1030 West Georgia Street, Vancouver BC V6C 3P1.V6E 2Y3.
Incorporation
and ContinuationWe are a Canadian corporation existing under the CBCA.
We were incorporated on February 20, 1997 under the name “Trans New Zealand Oil Company” by filing our Articles of Incorporation with the Secretary of State of Nevada. We changed our name to “AMG Oil Ltd.” on July 27, 1998. On December 17, 2009, we changed our name to “Adira Energy Ltd.” Our fiscal year end is December 31.
On November 25, 2008, our shareholders approved the change of our jurisdiction of incorporation from the State of Nevada to the Canadian federal jurisdiction under the CBCA by way of continuation. We completed the filing of our Articles of Conversion with the Nevada Secretary of State on November 25, 2008, and our Articles of Continuance were accepted for filing by Industry Canada effective November 27, 2008. The effect of these filings was to transfer our jurisdiction of incorporation from the State of Nevada to the Canadian federal jurisdiction under the CBCA. Copies of the Articles of Conversion, Articles of Continuance, Certificate of Continuance and By-Laws, are incorporated by reference into this Form 20-F as exhibits.
Our common shares are registered under Section 12(g) of the Exchange Act. Our current trading symbol on the OTC Bulletin Board (the “OTCBBOTCQB”) is “ADENF”“EPWCF” and our current trading symbol on the TSX Venture Exchange (the “TSXV”) is “ADL”. Our current trading symbol on the Canadian Securities Exchange (the “CSE”) is “EPW”“CBDT”.Acquisition 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
EnergyWeon 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 Adira Energy,SMAART, which represented a company incorporated in the Province of Ontario, on August 31, 2009. As a result, we are now the owner of all the issued and outstanding shares of Adira Energy and we ceased to be a “shell company”, as defined in Rule 12b-2reverse takeover of the Exchange Act. The acquisition was completed pursuantCompany by SMAART, with SMAART as the accounting acquirer and the Company as the accounting acquiree. In connection with the reverse takeover, the Company changed its name to a securities exchange agreement dated August 4, 2009 among Adira, Adira EnergyEmpower, and Dennis Bennie, Ilan Diamond and Alan Friedman, as principal shareholders, and concurrent securities exchange agreements among Adira and each of the minority shareholders of Adira Energy. We issued an aggregate of 39,040,001 pre-Consolidationconsolidated its common shares toon the shareholdersbasis of Adira Energy as considerationone new common share for each 6.726254 old common shares. Prior to the acquisition of Adira Energy.
SMAART, 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.
Acquisition
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 “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
- 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 2, 2010, our common shares commenced trading on31, 2020, the TSXV following approvalCompany acquired Lawrence Park Health and Wellness Clinic Inc., 1100900 Canada Inc. dba Atkinson, and Momentum Health Inc. (collectively "Momentum Health"). Momentum Health operates a network of its listingmedical clinics with a team of healthcare professionals who provide para-medical care by applying a holistic and hands-on approach working with patients to unlock potential well-being. Key services include physiotherapy, chiropractic, massage therapy, traditional Chinese medicine, athletic therapy and others. The full range of services can be viewed at www.momentumhealthclinic.com. The acquisition will include two standalone wellness clinics and five new co-located clinics in November 2010.the Greater Toronto Area of Ontario, Canada, with immediate access to in excess of 20,000 patients. Reporting Issuer Status under Canadian Securities Laws
On February 1, 2006, the British Columbia Securities Commission granted our application to be designated as a reporting issuer under the Securities Act (British Columbia). Accordingly, we and our insiders became subject to the continuous disclosure requirements under the securities laws of the Province of British Columbia, Canada. We received final approval for listing on the TSXV on December 1, 2010, and on December 2, 2010, our common shares commenced trading on the TSXV. We are also a reporting issuer under the securities legislation of the provinces of Alberta and Ontario.
Capital Expenditures and Divestitures
During the year ended December 31,
2017,2019, we
did not incur anyincurred $3,828 (2018 - $100,227) in capital
expenditures.expenditures for the acquisition of property and equipment, and another $556,355 through the acquisition of Sun Valley.
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.
B. Business OverviewWe were formerly an oil and gas exploration company focused on early-stage exploration in the State of Israel. During 2015 Oil and Gas Offshore Israel licenses in which we held options, all expired, and we determined that we should terminate our oil and gas exploration business as of December 31, 2015. As a result, we became a shell company. As discussed above, we Completed the Transaction with Smart on April 27, 2018.
On June 12, 2015 SMAART, Holdings Inc., through its wholly owned subsidiary Empower Healthcare Corp, purchased all of the assets of Presto Quality Care Corporation (“Presto”Presto”), an Oregon company that had owned and operated the business currently carried on by SMAART. The consideration for the purchase was the assumption by SMAART 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 to service the then fledgling medical cannabis market.
-
The Grants Pass clinic was opened in 2009 as was the Riverside California clinic which was recently closed.
-
The Bend, Oregon clinic was opened by Ricky Gilliland, the current manager, in 2011 while the Spokane, Washington clinic was opened in January 2010. 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 stared 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 Empower team
On April 30, 2019, the Company acquired 100% of six doctors and one nurse have over 115 yearsthe membership interest of collective medical experience with 40 yearsSun Valley, an Arizona Limited Liability Company. Through its Subsidiaries, Sun Valley operates a network of combinedprofessional medical cannabis experience. In addition, they written over 12 books and published over 300 articles onpain 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.
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 cannabis. Empower’s doctors are recruitedclinics, 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 variety of methods including referral, recruiting and outreach. Currently doctors are paid on competitive hourly contracts which provide maximum flexibility for bothpatient has an active virus, the clinics and doctors personal schedule. Hourly rates may be different base on state, required doctor training and education and relevant experience levels. The respective qualificationsserology or antibody test detects if a patient has previously been exposed to the virus. Both of these doctorstest 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
follows:Dr. Jack McCue. A graduatepart of Harvard University and Case Western Reserve University Schools of Medicine, Dr. McCue did his residency training at Johns Hopkins and Harvarda four-phased nationwide testing initiative in internal medicine and geriatrics. He has traveled the world and workedUnited States. Empower recently acquired Kai Medical Laboratory, LLC as a wholly owned subsidiary with patients and other medical professionals in a science-based blending of traditional medical treatment and appropriate use of cannabis. As a distinguished and award-winning physician, Dr. McCue has written 14 books and over 300 articles, in addition to speaking internationally at conferences on many topics including the informed use of medical cannabis. Dr. Shaun Hedmann. Dr. Hedmann completed his medical training at Johns Hopkins in Baltimore MD, Baylor in Houston TX and Brown University in Providence RI and before accepting a position with Kaiser Permanente where he practiced Cardiology for 25 years. He has been involved with patients and their need for medical cannabis for nearly 6 years and appreciates the depth and breath of debilitating conditions that impact their lives.
largescale testing capability. - 12 -(b) | Effects of Government Regulations |
Dr. David Dodge. Dr. Dodge is a retired pathologist and nuclear medicine doctor in Portland, Oregon. He received his medical degree from Washington University School of Medicine in St. Louis and served as staff pathologist at Providence Medical Center for more than 20 years. He has helped Oregon cannabis patients at Empower Clinics since 2003.
Dr. Leorra Britvan. Dr. Britvan is a board certified internal medicine physician. She studied medicine at University of Southern California Medical School and trained at Harbor- UCLA for internal medicine. Most of her professional career includes working as an Hospitalist in both California and Oregon for the past twenty years--caring for patients from admission in the emergency room to stay in hospital. She has been evaluating patients for medical cannabis treatment since 2015.
Dr. David Lemmon. Dr. Lemmon is a Naturopathic Physician with expertise in natural, nutritional, and plant-based medicine. He received his Doctorate from the National College of Natural Medicine in Portland, Oregon. He has been studying the benefits and uses of medicinal plants including Cannabis for over 15 years.
Dr. Heather Krantz. Dr. Krantz is an obstetrician-gynecologist in Bend, Oregon. She received her medical degree from University of Kansas School of Medicine and has been in practice for more than 20 years.
Effects of Government Regulations
See Item 3D - “Risk Factors”.
C. Organizational Structure
Our executive offices located at 918-1030 West Georgia Street, Vancouver BC V6E 2Y3.
| (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, 2019, and 2018, all of our operating activities were in the United States of America.
| (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, all wholly owned through SMAART,
Holdings Corp.:except for Kai Medical which is owned by Empower Healthcare:| Name of Subsidiary | Jurisdiction of Incorporation |
| Empower Healthcare Corporation | Oregon, USA |
| SMAART US. | Oregon, USA |
| The Hemp & Cannabis Company | Oregon, USA |
| THCF Access Points, Inc. | Oregon, USA |
| The Hemp & Cannabis Company | Washington, USA |
| THCF Access Points, Inc. | Oregon, USA |
The Hemp & Cannabis Company | Oregon,Washington, USA |
| CanMed Solutions Inc. | Oregon, USA |
| Kai Medical Laboratory LLC | Dallas, Texas |
| 11000900 Canada Inc. | Canada |
| Lawrence Park Health and Wellness Clinic Inc. | Ontario, Canada |
| Sun Valley Certification Clinics Holdings, LLC | Arizona, USA |
| Sun Valley Alternative Health Centers, LLC | Arizona, USA |
| Sun Valley Alternative Health Centers West, LLC | Arizona, USA |
| Sun Valley Alternative Health Centers NV, LLC | Nevada, USA |
| Sun Valley Alternative Health Centers Tucson, LLC | Arizona, USA |
| Sun Valley Alternative Health Centers Mesa, LLC | Arizona, USA |
| Sun Valley Certification Clinics Franchising, LLC | Arizona, USA |
D. Property, Plant
Sun Valley Acquisition on April 30, 2019 consisted of cash, common shares of the Company and
Equipment(a) Corporate Office
Our executive offices locateda 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
400-570 Granville Street, Vancouver BC V6C 3P1.(b) Special Skilla 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 Knowledge
Craig Snyder, our Chairmanwill vest in quarterly installments over 36 months from the date of the Closing;
3.
A cash payment of $12,318 and CEO has significant experienceissuance 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 managingorder 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
SMAART business.(c) Foreign Operations
During the fiscal years endedSubsidiaries in order to acquire their minority interest therein.
Kai Medical Acquisition on October 5, 2020 consisted of 1,000,000 stock options at $0.05.
The acquisition of 11000900 Canada Inc. and Lawrence Park Health and Wellness Clinic Inc., on December 31, 2015,2020, consisted of $275,000 cash at closing (including $44,648 to settle an outstanding debt) with an additional $75,000 to be withheld as a holdback for adjustments, for an aggregate cash payment of $350,000. In addition, at closing, Empower issued 5,128,204 common shares in the capital of Empower, 2,564,102 of which are subject to contractual resale restrictions resulting in them being released quarterly from the date of closing in eight (8) equal instalments.
As at September 30, 2020, Property and 2014,equipment is comprised of furniture and fixtures at the clinics and leasehold improvements to the Company’s clinics. The Company’s leases, all of our oilwhich support clinic operations, are summarized below:
-
Portland, Oregon – Shared space which is currently on a month-to-month lease
-
Spokane, Washington – 1,150 square feet which is currently on a lease extension to July 31, 2020
-
Bend, Oregon –1,700 square feet which is on a single lease term expiring on July 30, 2019
-
Chicago, Illinois – 3,000 square feet which is currently on a three year lease term expiring March 31, 2020
-
Phoenix, Arizona – 2,830 square feet which is currently on a five year lease term expiring February 28, 2021
-
Mesa, Arizona – 1,325 square feet which is currently on a five year lease term expiring March 31, 2022
-
Phoenix, Arizona – 930 square feet which is currently on a five year lease term expiring January 31, 2021
-
Surprise, Arizona – 745 square feet which is currently on a five year lease term expiring September 30, 2022
-
Las Vegas, Nevada –1,024 square feet which is currently on a thirty seven month lease term expiring September 30, 2019
-
Tucson, Arizona – 1,400 square feet which is currently on a five year lease term expiring August 31, 2022
The Company intends to open a fully functioning hemp-based CBD extraction facility in Sandy, Oregon 2019. The 5,000 sq. ft. facility in Sandy, Oregon has now been secured through a 5-year lease agreement and
gas exploration activities werepreparations are underway to begin licensing and permit requirements to commence operations in
2019. Expenditures for the
State of Israel. We terminated our oil and gas exploration business as of December 31, 2015.During the year ended December 31, 2017, we have focused on advancing our proposed transaction with SMAART.
(d) Competitive Conditions
Weexpansion are currently a shell company, and do not have exposure to any competitive conditions.
(e) Dependence on Customers and Suppliers
We have no active business operations. As such, we are not dependent upon a concentration of customers or suppliers.
(f) Environmental Protection and Policies
being discovered.
We currently do not have exposure to any environmental protection requirements and policies.
In particular, we are now aware of any exposure to environmental protection requirements in relation to our discontinued oil and gas exploration activities. | ITEM 5 | 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,
2017.2019. It should be read in conjunction with our audited consolidated financial statements and related notes for the year ended December 31,
2017.2019. Our financial statements have been prepared in accordance with IFRS as issued by the IASB.
A. Operating Results
Consolidated results of operations for the year ended December 31,
20172019 compared to the year ended December 31,
2016.General and Administrative Expenses
For the year ended December 31, 2017, general and administrative expenses amounted to $113 thousand as2018.
Clinic Revenues
Revenues were $1,949,549, compared to
$268 thousand$1,091,386 during fiscal 2018 as the Company received 15,920 patients spending on average approximately $122, compared to 7,607 patients spending on average $143 during fiscal 2018. Revenues for
year ended December 31, 2016.fiscal 2017 were $1,507,050 as the Company received 9,705 patients spending on average $155. The
decreaseCompany receives revenue streams from patient visits to existing clinics throughout the network. The increase in
generalclinic revenues and
administrative expenses in 2017 resultedpatient count is primarily
fromdue to the
continued significant reduction in compensation to officersaddition of the
Company and cessation of all activities, expect for the completion of the Transaction.Financing Income/Expense and Gain on Foreign Exchange
For the year ended December 31, 2017, gain on foreign exchange was Nil asSun Valley clinics beginning May 1, 2019.
Product revenues
Product revenues were $82,032, compared to a gain of $8 thousand for the year ended December 31, 2016. The Company is exposed to financial risk related to the fluctuation of foreign exchange rates. Most of its monetary assets are held in Canadian, however, the Company inures expenditures in NIS, US Dollars$nil during fiscal 2018 and Canadian dollars.fiscal 2017. The Company has not hedgedexpanded into CBD product sales and the sale of premium wellness products. The Company expects to expand its exposurerevenue streams as the Company patient base grows, as branded CBD products are further rolled out and, the CBD extraction and product production facility becomes fully operational.
Direct clinic expenses
Direct clinic expenses were $793,374, compared to
currency fluctuations.$417,047 during fiscal 2018 and $638,834 during fiscal 2017. 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 gain on revaluationCompany continues to improve its operational controls to align labor cost with direct patient consultations. The Company employs a diverse mix of warrant liability forphysicians and practitioners.
Cost of goods sold
Cost of goods sold (comprising changes in finished goods inventory) was $32,903, compared to $nil during fiscal 2018 and fiscal 2017. The Company expanded into CBD product sales and the year ended December 31,sale of premium wellness products in 2019.
Operating expenses
Operating expenses were $2,933,619, compared to $2,517,681 during fiscal 2018 and $2,037,008 during fiscal 2017, was $38 as compares to $45 thousand forand includes fully burdening the year ended December 31, 2016inclusion of the Sun Valley acquisition and resultsSun Valley Health Franchising start-ups costs. The increase in operating expenses from the warrants issuedinclusion of Sun Valley was partially offset by the following reductions in May 2015costs:
- Lower operating costs in Oregon and Washington state as a result of aggressive headcount cuts and facility changes.
- Compensation expense of $304,721 in non-cash share-based payments to the CEO compared to $477,180 to the former CEO during YTD 2018.
- Lower rent expense due to the adoption of IFRS 16 which resulted in a reclassification of rent expense from operating expenses to depreciation expense and interest expense.
Legal and professional fees
Legal and professional fees were $1,015,743, compared to $1,450,141 during fiscal 2018 and $1,131,041 during fiscal 2017. The Company expects professional service fees to drop markedly over time as many are related to successful prior litigation or “one time” events such as the fees associated with the RTO that are denominatedcompleted in Canadian dollars, while our functional currencyApril 2018.
Depreciation and amortization expense
Depreciation and amortization expense was $327,059, compared to $123,473 during fiscal 2018 and $103,372 during fiscal 2017. This increase is US dollars; therefore,due to the addition of the Sun Valley clinics and the depreciation on the right-of-use asset resulting from the adoption of IFRS 16 effective January 1, 2019.
Share-based payments
Share-based payments expense was $608,944, compared to $892,417 during fiscal 2018 and $5,433 during fiscal 2017. The share-based payments expense was for the fair value of share options recognized as an expense during the year based on the fair valued determined the Black Scholes option pricing model valuation of share options granted during the years ended December 31, 2019 and 2018.
Listing fee
Listing fee expense was $nil, compared to $1,308,808 during fiscal 2018 and $nil fiscal 2017, in connection with the Company’s acquisition with Adira. The listing fee expense is comprised of $614,415 share consideration, $365,871 legal and professional fees, and $328,522 of net liabilities acquired.
Accretion expense
Accretion expense was $114,515, compared to $241,521 during fiscal 2018 and $667,373 during fiscal 2017, in connection with the Company’s convertible debentures and convertible notes payable. The decrease is due to an increase in the value attributable to the conversion feature which resulted in a recovery of previously recognized accretion expense. Using the effective interest rate method, the accretion is lower at issuance and increases as maturity approaches.
Interest expense
Interest expense increased to $240,539, compared to $126,375 during fiscal 2018 and $186,001 during fiscal 2017, owing to increased interest expense on the lease liability resulting from the adoption of IFRS 16 effective January 1, 2019 and issuance of convertible debentures during April and May 2019 and convertible notes payable in October and December 2019.
Share issuance costs
Share issuance costs increased to $129,965, compared to $nil during fiscal 2018 and fiscal 2017, owing to costs incurred in relation to the April 2019 and May 2019 private placements. The private placements resulted in the issuance of units of the Company comprised of one common share and one warrant. The Company determines the value of the warrants
are classifiedissued using the Black-Scholes option pricing model and allocates the residual to issued capital. As the share issuance costs exceeded the value allocated to issued capital, the excess was recorded as
a financial liability which is re-measured to fair value atan expense on the
endconsolidation statement of
each period. The changes in fair value are included in gain on revaluation of warrant liability.Net Loss
The Company reported a net loss and comprehensive loss for the year ended December 31, 2017 of $75 thousand asloss.
Interest income
Interest income increased to $4,977, compared to
$215 thousand for year ended December 31, 2016. The losses in$nil during fiscal 2018 and fiscal 2017,
and 2016 is as a resultowing to the promissory note receivable from the sale of the
Company incurring general and administrative expenses with no corresponding income.Consolidated results of operations for the year ended December 31, 2016
Gain on debt settlement or accounts payable
Gain on debt settlement was $15,130, compared to
the year ended December 31, 2015.General$nil during fiscal 2018 and Administrative Expenses
For$106,360 during fiscal 2017, owing to the year ended December 31, 2016, general and administrative expenses amounted to $268 thousand as compared to $349 thousand for year ended December 31, 2015. The decrease in general and administrative expenses in 2015 resulted primarily from significant reduction in compensation to officers of the Company and a decrease in rent.
Gain on settlement of accounts payable through the issuance of 1,686,861 common shares of the Company. The fair value of the common share, determined as the share price on the date of agreement to settle, was less than the carrying value of the accounts payable of $223,283 (C$294,019) and others payables
For the year ended December 31, 2015thus the Company recorded a gain on debt settlement. The gain recorded in fiscal 2017 was the result of settlement of $25 thousand, arising from settlement agreements reacheddebt balances with suppliers.
Financing Income/Expensedebt holders during fiscal 2017.
Impairment on write off of property and
Gain on Foreign ExchangeFor the year ended December 31, 2016,equipment (net of gain on foreign exchange was $8 thousand as compared totermination of leases)
The Company recorded a loss of $23 thousand$119,635, compared to $nil during fiscal 2018 and fiscal 2017, related primarily to leasehold improvements for the year ended December 31, 2015. Our Company is exposed to financial risk related toChicago clinic when the fluctuation of foreign exchange rates. Most of our monetary assets are heldlease was terminated in Canadian dollars; however, the Company inures expendituresMay 2019.
Gain on change in
NIS, US Dollars and Canadian dollars. The Company has not hedged its exposure to currency fluctuations.The gain on revaluationfair value of warrant liability for
The Company recorded a gain on the year ended December 31, 2016 was $45 thousand as compared to $78 thousand forchange in the year ended December 31, 2015, and results from the warrants issued in May 2015 being denominated in Canadian dollars while our functional currency is US dollars. The fair value of the warrant liability of $2,065,781, compared to $1,598,425 during fiscal 2018 and $nil during fiscal 2017. The share purchase warrants are classified as a financial liabilityrequired to be revalued at every quarter end and the gain resulted from the decrease in the Company’s share price during Q4 2019, which is re-measured toa variable in determining the fair value atof the end of each period. The changesconversion option per the Black-Scholes valuation model.
Gain on change in fair value of conversion feature
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 and $nil during fiscal 2017. The conversion feature is required to be revalued at every quarter end and the gain resulted from the decrease in the Company’s share price during Q4 2019, which is a variable in determining the fair value of the conversion feature.
Impairment of intangible assets
Due to changes in the Arizona licensing regulations on June 7, 2019, the Company recognized an impairment loss of $93,757 related to patient records and brands acquired in the Sun Valley acquisition. With the Company going through the process of rebranding and changing its internal management software infrastructure, the Company fully impaired the carrying value of its trademarks and management software intangible assets for $64,200 during fiscal 2018.
Impairment of goodwill
Due to changes in the Arizona licensing regulations on June 7, 2019, the Company recognized an impairment loss of $2,377,397 related to the Sun Valley acquisition.
Impairment of asset held for sale
At December 31, 2018, the Company has listed the facility and land in Portland, Oregon for sale. Prior to their classification as assets held for sale, the land and facility in Portland were reported under property and equipment. The assets held for sale are included at the lower of their carrying value and their fair market value. The fair market value was based on a sales agreement dated January 17, 2019 whereby the Company will receive net proceeds of $127,972 after selling costs. An impairment loss of $57,072 has been recognized to reduce the asset’s carrying value to its fair market value.
Restructuring expense, net
Restructuring expense was $88,808 compared to $110,424 during fiscal 2018 and $nil during fiscal 2017, in
gain on revaluation of warrant liability.Net Profit
connection with the Company’s restructuring activities that commenced in Q4 2018.
Other expense (income), net
The Company
reported a net loss and comprehensive loss for the year ended December 31, 2016recorded other expense of
$215 thousand as$130,104, compared to
$269 thousand for year ended December 31, 2015.$60,706 during fiscal 2018 and a recovery of $45,731 during fiscal 2017. The
amount relates primarily to foreign exchange losses
due to the decrease in
2016 and 2015 is as a result of the
Company incurring general and administrative expenses with no corresponding income.US dollar relative to the Canadian dollar during Q4 2019.
During the years ended December 31,
2017, 20162019 and
2015,2018, inflation has not had a material impact on our operations.
We
are exposedhave limited exposure to financial risk related to the fluctuation of foreign exchange rates. We operate in
Israel,the U.S., most of our monetary assets are held in U.S. dollars and most of our expenditures are made in U.S. dollars. However, we also have expenditures in
NIS and Canadian dollars.CDN$. We have not hedged our exposure to currency fluctuations.
B.
| 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
Capital ResourcesLiquidity
Liquidityother contractual obligations. The Company’s strategy for managing liquidity is a measure of a company’s ability to meet potential cash requirements. We have historically met our capital requirements through the issuance of common shares.
We have an accumulated deficit of $34.4 million as of December 31, 2017 ($34,3 as at December 31, 2016), and had negativebased 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 $34 thousandpatient 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.
Subsequent to year end, the Company issued 30,742,334 units for the year endedgross proceeds of $994,678 (C$1,373,866).
At December 31,
2017 ($105 thousand for2019, the
year ended December 31, 2016). We no longer hold any interests in any oil and gas exploration projects.Company had a working capital deficit of $4,185,359.
Year ended December 31, 2017 9 compared to year ended December 31, 2016During the year ended December 31, 2017, the Company’s overall position of cash and cash equivalents decreased by $5 thousand.
The Company’s net cash
Cash used in operating activities during the year ended December 31, 2017 was $34 thousand as$2,273,188 compared to $105 thousand for the year ended December 31, 2016. This decrease is primarily as$2,835,710 during fiscal 2018:
–
Loss before taxes was $4,301,663 compared to a resultloss before taxes of an increase$3,789,918.
–
Movements in non-cash items increased cash by $1,726,580 compared to increasing cash by
–
$1,213,996 during fiscal 2018.
–
Movements in accounts
payable.receivables decreased cash by $24,116 compared to increasing cash by
–
$847 during fiscal 2018.
–
Movements in prepaid expenses increased cash by $10,846 compared to decreasing cash by
–
$5,463 during fiscal 2018.
–
Movements in inventory decreased cash by $21,848 compared to $nil during fiscal 2018.
–
Movements in accounts payable and accrued liabilities increased cash by $337,013 compared to
–
a decrease of $255,173 during fiscal 2018.
Cash used in investing activities was $791,146 compared to $100,227 during fiscal 2018:
–
Net investment in Sun Valley was $787,318 compared to $nil during fiscal 2018.
–
Cash used in the
year ended December 31, 2017acquisition of property and equipment was
$29 thousand as$3,828, compared
$Nilto $100,227 during
the year ended December 31, 2016. The cash provided in 201 7relates primarily to a repayment of a loan given to SMAART and the provision of a loan from SMAART to the Company. Cash provided by financing activities was $3,085,819, compared to $3,093,604 during fiscal 2018:
–
Proceeds from the issuance of common shares increased cash by $1,876,938 compared to
–
$2,092,295 during fiscal 2018.
–
Advances from notes payable issuances increased cash by $510,828 compared to $495,449 during
–
Advances from convertible debenture issuances increased cash by $753,491 compared to
–
$442,437 during fiscal 2018.
–
The acquisition of Sun Valley provided cash of $94,090 compared to $nil during fiscal 2018.
–
Lease payments were $203,712 compared to $nil during fiscal 2018 due to the adoption of IFRS16.
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, | 2019 | |
| Equity | $(3,514,913) | $(2,996,220) |
Notes payable
| 969,891 | 760,715 |
| Convertible debentures | 427,320 | 274,466 |
Secured loan payable
| 761,711 | 717,460 |
Convertible notes payable
| 192,717 | - |
| (1,163,274) | (1,243,579) |
| (179,153) | (157,668) |
| Less: cash | $(1,342,427) | $(1,401,247) |
The board of directors of the Company has overall responsibility for the
year ended December 31, 2017 was Nil as compared to $Nil during the year ended December 31, 2016.Year ended December 31, 2016 compared to year ended December 31, 2015
During the year ended December 31, 2016,establishment and oversight of the Company’s overall position of cash and cash equivalents decreased by $105 thousand.
risk management policies on an annual basis. The Company’s net cash usedboard 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
operating activities duringlight of changes in economic conditions and the
year ended December 31, 2016 was $105 thousand as comparedrisk characteristics of the underlying assets. To maintain or adjust the capital structure, the Company may attempt to
$391 thousand for the year ended December 31, 2015. This decrease is primarily as a result of an increase in accounts payable.Cash used in investing activities during the year ended December 31, 2016 was $Nil as compared $15 thousand during the year ended December 31, 2015. The use of cash in 2015 relates primarily to the granting of a loan receivable inissue new common shares or adjust the amount of $25 thousandcash.
The Company’s investment policy is to
SMAARTinvest excess cash in
contemplation of the Transaction, offset by the decrease of restricted cash during the year. SMAART repaid this loan subsequentinvestment instruments at high credit, quality financial institutions with terms to maturity selected with regards to the
year ended December 31, 2016.Cash provided by financing activities for the year ended December 31, 2016 was $Nil as compared to $196 thousand during the year ended December 31, 2015. The cash provided in 2015 is as a resultexpected time of the completion of a private placements of shares.
Year ended December 31, 2015 compared to year ended December 31, 2014
During the year ended December 31, 2015, the Company’s overall position of cash and cash equivalents decreased by $210 thousand.
The Company’s net cash used in operating activities during the year ended December 31, 2015 was $441 thousand as compared to $380 thousand for the year ended December 31, 2014. This increase is primarily as a result of a decrease in accounts payable.
Cash used in investing activities during the year ended December 31, 2015 was $15 thousand as compared to cash generatedexpenditures from investing activities of $37 thousand during the year ended December 31, 2014. The use of cash in 2015 relates primarily to the granting of a loan in the amount of $25 thousand to SMAART in contemplation of the Transaction, offset by the decrease of restricted cash during the same period.
Cash provided by financing activities for the year ended December 31, 2015 was $196 thousand as compared to $60 thousand during the year ended December 31, 2014. The cash provided in 2015 and 2014 is as a result of the completion of two separate private placements of shares.
There are no legal restrictions on transferring funds between Canada and Israel.
Capital Resources
At December 31, 2017, the Company’s cash and cash equivalents were $14 thousand (December 31, 2016 - $19 thousand). The majority of this balance is being held in Canadian Dollars. Our working capital at December 31, 2017 was negative $329 thousand as compared to negative $272 thousand at December 31, 2016. The Company decreased its working capital as a result of increase in accrued liabilities and decrease of current receivables. During 2017 a significant service provider has agreed to accept settle their accounts payable balance in the amount $155 in return for shares to be issued as part of the SMAART transaction. On April 27, 2018, The Company completed the Transaction and raised $2 million.
Critical Accounting Policies and Estimates
Our results
The preparation of operation and financial condition are based on ourthe Company’s consolidated financial statements which are presented in accordanceconformity with IFRS. Certain accounting principles require usIFRS requires management to make certain estimates judgments and assumptions. We believebased on assumptions about future events that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at that time. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities and the disclosuredisclosures of contingent assets and liabilities as ofat the date of the financial statements as well asand the reported amounts of revenues and expenses during the periods presented. Toreporting period.
The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the extent therecircumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are material differences between thesenot readily apparent from other sources. Actual results could differ from those estimates.
The estimates judgments orand 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 actual results, our financial statements will be affected. The significantestimates:
Critical judgements in applying accounting policies
Critical judgements made by management in applying the Company’s accounting policies,
and estimatesapart from those involving estimations, that
we believe arehave the most
critical to aid in fully understanding and evaluating our reported financial results includesignificant effect on the
following: | · | Share-based payment transactions; |
| · | Impairment of financial assets; and |
Share-based payment transactions
Our employees and other service providers are entitled to remunerationamounts recognized in the form of equity-settled share-based payment transactions.
Company’s consolidated financial statements are as follows:
Functional currency
The cost of equity-settled transactions with employees is measured at the fair valuefunctional currency for each of the equity instruments granted at grant date. The fair valueCompany’s subsidiaries is determined using an appropriate pricing model. As for other service providers, the costcurrency of the transactionsprimary economic environment in which the respective entity operates; the Company has determined the functional currency of each entity to be the US dollar. Such determination involves certain judgements to identify the primary economic environment. The Company reconsiders the functional currency of its subsidiaries if there is measured ata change in events and/or conditions which determine the fair valueprimary 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
goodscash inflows of other assets or
services received as consideration for equity instruments. In cases where the fair value of the goods or services received as consideration of equity instruments cannot be measured, they are measured by reference to the fair value of the equity instruments granted.The cost of equity-settled transactions is recognized in profit or loss, together with a corresponding increase in equity, during the period which the performance and service conditions are to be satisfied, ending on the date on which the relevant employees become fully entitled to the award (the “vesting period”cash generating unit (“CGU”). The cumulative expense recognized for equity-settled transactions atCompany applies judgement in assesses the endsmallest group of assets that comprise a single CGU. As each reporting period until the vesting date reflects the extent to which the vesting periodclinic has expiredits own cash inflows, each clinic is considered a separate CGU.
Assessment of useful lives of property and our bestequipment and intangible assets
Management reviews its estimate of the
numberuseful life of
equity instruments that will ultimately vest.property and equipment and intangible assets annually and accounts for any changes in estimates prospectively. The
expense or income recognizedCompany applied judgment in
profit or loss representsdetermining the
movementuseful lives of trademarks and patient records with less than an indefinite life. In addition, the Company applied judgment in
determining the
cumulative expense recognized at the enduseful lives of the
reporting period. No expense is recognizedright of use assets and leasehold improvements for
awards that do not ultimately vest.If we modifypurposes of assessing the conditions on which equity-instruments were granted, an additional expense is recognized for any modification that increases the total fair valueshorter of the share-based payment arrangementuseful life or is otherwise beneficial to the employee/other service provider at the modification date. If a grantlease term.
Assessment of
an equity instrument is cancelled, it is accounted for as if it had vested on the cancellation date, and any expense not yet recognized for the grant is recognized immediately. However, if a new grant replaces the cancelled grant and is identified as a replacement grant on the grant date, the cancelled and new grants are accounted for as a modificationindicators of
the original grant, as described above.Impairment of financial assets
impairment
At the end of each reporting period, we assessthe Company assesses whether there is objective evidenceare any indicators, from external and internal sources of information, that an asset or CGU may be impaired, thereby requiring adjustment to the carrying value. The Company identified the sustained decrease in market capitalization and change in Arizona licensing regulations as an indicator of impairment during the year ended December 31, 2019. As a result of these impairment indicators, the Company assessed the intangible assets and goodwill for impairment and concluded the recoverable value of each CGU was less than its carrying value and an impairment loss was recognized on intangible assets and goodwill.
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 sale of the Company's services to its patients. 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, and whether the physical possession of the goods, significant risks and rewards and legal title have been transferred to the customer.
Business combinations
Judgment is used in determining whether an acquisition is a business combination or an asset acquisition.
Estimates are made as to the fair value of assets and liabilities acquired. In certain circumstances, such as the valuation of property and equipment, intangible assets and goodwill acquired, the Company may rely on independent third-party valuators. The determination of these fair values involves a variety of assumptions, including revenue growth rates, expected operating income, and discount rates.
The Company measures all the assets acquired and liabilities assumed at their acquisition-date fair values.
Acquisition-related costs are recognized as expenses in the periods in which the costs are incurred and the services are received (except for the costs to issue debt or equity securities which are recognized according to specific requirements). The excess of the aggregate of (a) the consideration transferred to obtain control over (b) the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed, is recognized as goodwill as of the acquisition date. Consideration paid for business combinations is measured at fair value.
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 asset or groupstatements 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
financial assets carriedgrant and revalued at
amortized cost.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. Objective evidence of impairment of debt instruments and receivables exists
Leases as a result of one or more events thatadopting 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 occurred aftersubstantive substitution rights, does the initial recognitionCompany obtain substantially all of the asseteconomic benefits and who has the right to direct the use of that loss event has an impact onasset.
Incremental borrowing rate
When the estimatedCompany recognizes a lease, the future cash flows. Evidence of impairment may include indications thatlease payments are discounted using the debtor is experiencing financial difficulties, including liquidity difficulty and default in interest or principal payments. The amount ofCompany’s incremental borrowing rate. This significant estimate impacts the loss recorded in profit or loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not yet been incurred) discounted at the financial asset's original effective interest rate (the effective interest rate computed at initial recognition). If the financial asset has a variable interest rate, the discount rate is the current effective interest rate. The carrying amount of the asset is reduced throughlease liabilities and the useinterest expense recorded on the consolidated statement of an allowance account (see allowance for doubtful accounts above). Inloss and comprehensive loss.
Estimate of lease term
When the Company recognizes a
subsequent period,lease, it assesses the
amountlease term based on the conditions of the
impairment losslease and determines whether it will extend the lease at the end of the lease contract or exercise an early termination option. As it is
reversednot 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
recovery ofCompany extends the
asset can be related objectively tolease or exercises an
event occurring after the impairment was recognized. The amount of the reversal, up to the amount of any previous impairment, is recorded in profit or loss.Warrant liability
As the warrants have an exercise and presentation price denominated in Canadian dollars which differs from the Company’s functional currency they do not qualify for classification as equity. These warrants have been classified as warrant liability and are recorded initially at the fair value and revalued at each reporting date, using the Black-Scholes valuation method. Changes in fair value for each period are included in comprehensive profit and loss for the period.
C. Research and Development, Patents and Licences
early termination option.
| Research and Development, Patents and Licenses |
Not applicable.
D. Trend Information
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.
E. Off-Balance Sheet Arrangements
We do
| Off-Balance Sheet Arrangements |
The Company has not haveentered 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, 2019, are as follows:
| | | | 2 - 5 years | |
| Maturity analysis of financial liabilities | | | | | |
| Accounts payables and accrued liabilities | $1,874,990 | $1,874,990 | $– | $- | – |
| Notes payable | 969,891 | 969,891 | - | - | – |
| Convertible debentures payable | 427,320 | 427,320 | – | - | – |
| Lease liability | 734,896 | 219,800 | 515,096 | - | |
| Secured loan payable | 761,711 | 761,711 | – | - | – |
| Total financial liabilities and commitments | $4,768,808 | $4,253,712 | $515,096 | $- | – |
Various tax and legal matters are outstanding from time to time. In the event that
have or are reasonably likely to have a current ormanagement’s estimate of the future
effect on our financial condition,resolution of these matters’ changes, the Company will recognize the effects of these changes in
the consolidated financial
condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.F. Tabular Disclosure of Contractual Obligations
We have no contractual obligations as of December 31, 2017.
G. Safe Harbor
statements in the period such changes occur.
| ITEM 6 | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES |
A. Directors and Senior Management
| Directors and Senior Management |
The size of Adira’sEmpower’s Board of Directors (the “Board”) is currently set at
four.three. All of
Adira’sEmpower’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
Adira’sEmpower’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 |
Craig Snyder Steven McAuley (2) | Director, Chairman and CEOChief Executive Office |
Lorne Gertner Andrejs Bunkse (2)(3) | Director |
Alan RootenbergDustin Klein (2)(3)
| CFODirector, Senior Vice President of Business Development |
Dan BallisterKyle Appleby | DirectorChief Financial Officer |
Emily DavisJoseph Cohen | Corporate SecretaryChief Technology Officer |
| Andrea Klein | Vice President of Operations |
| (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 offers who are acting in the capacity of director or officer as of the date hereof:
Craig Snyder- President, CEO
Steven McAuley – Chairman and
DirectorCraigChief Executive Office
Mr. McAuley is
a senior leader with over 20 years of success in driving growthour Chairman and
development of high tech and emerging technology organizations. He has significant experience leading disruptive strategies in new markets and building corporate reputation on a national scale. He has held senior leadership positions at two Fortune 100 companies (Pepsi Cola & Citibank) combined with executive leadership experience in two Nasdaq startup to IPO success stories (Go2Net & Marchex). He has deep experience in M&A and P&L Management with experience in over 20 acquisitions and most recently had direct responsibility for two successful company sales as CEO (SnapNames & Moniker).CEO. He is
a graduate ofalso the
United States Naval Academy and a former Naval Officer.Alan Rootenberg- CFO
Alan is a Certified Public Accountant with extensive Canadian public markets experience. He has over 30 years of capital markets experience serving as CEO, President and CFO of TSX, TSXV and OTCBB listed companies in the technology and extraction industries. He is a graduate of Witwatersrand University in Johannesburg, South Africa.
Emily Davis- Corporate Secretary
Ms. Davis has more than 20 years of experience providing a variety of administrative and corporate services to publicly listed companies in the financial, technology and natural resource sectors. Prior to joining current employers Venture One Corp. and TY Management Corp., she worked in administration with Silver Standard. She has also worked with several merchant banks, managing portfolios of private and public companies, focused on mining, energy and technology. Ms. Davis will devote her time as needed to the Resulting Issuer.
Lorne Gertner- Director
In addition to being a founding partnerChairman and CEO of HillEmpower. 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 & Gertner, LorneCEO of Privatis Technology Corporation in Vancouver, B.C. Canada. He is the former SVP, Financial Services for Penske Automotive Group NYSE: PAG, CEO of Hill & Gertner Retail Partners, an affiliate of Hill & Gertner. Since co-founding Hill & Gertner, heXpel Technologies TSXV: DAP and former CEO, United Kingdom, GE Capital Fleet Services.
Andrejs Bunkse – Director
Mr. Bunkse has been
involved in over $1 billion worth of transactions in the retail sector, most notably, with Eaton’s Dylex and Hip Interactive. From 1981 to 1996, Lorne was president and owner of Mister Leonard Inc., one of Canada’s largest women’s apparel manufacturers. He has a Bachelor of Architecture from the University of Toronto and practiced architecture in the early 1980’s. Lorne is a member of
World President’s Organization andthe Board of Directors of Empower since June 2019. Mr. Bunkse is currently Of Counsel to Nimbus Legal PLLC in Scottsdale Arizona, a
founder of the Gertner Charitable Foundation.Dan Ballister - Director
Dan Ballister is the co-founder and CEO of Smoke Hall Foods L3C, a veteran-owned CPG startup focused on manufacturing ultra-high quality American-made products, creating employment opportunities for veterans, and donating a meaningful percentage of the company’s profits to organizations that directly support military and veteran families. The company launched in 2015 with the introduction of The General’s Hot Sauce. Concurrently, Danposition he has held since May 2018. Mr. Bunkse is the founder of Over The Wall Ventures,Rain Legal (Law Offices of Andrejs K. Bunkse), a digital media consulting firm that advises buy and sell side media clients on strategic planning, M&A, and programmatic infrastructure. Previously, Dan wasposition he has held since April 2018. Mr. Bunkse has been the co-founder and President of online media buying marketplace TRAFFIQ Inc. (sold to Talus Holdings),Endurance Strategies Group in Phoenix, Arizona since May 2013.
Dustin Klein – Director and
held executive positions over a 20-year period at the National Basketball Association, Go2Net/InfoSpace.com, Cendant, Hallmark Cards, and Reckitt Benckiser. He served five years as a Surface Warfare Officer in the U.S. Navy, and is a graduate of the United States Naval Academy in Annapolis, MD.Paul Uhlir- Director
Paul serves as Chief Executive Officer of Add3 Media, one of the largest digital marketing agencies in Seattle. Paul leverages over 20 years of successful business development, sales and marketing experience in the online interactive space. Prior to Add 3 Paul founded Don't Blink Media, Inc., in 2005 and served as its President andSenior Vice President of Business Development. PaulDevelopment
Mr. Klein has vast experience originating, buildingbeen 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 managing Fortune 500 relationshipsMay 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.
Kyle Appleby – Chief Financial Officer
Mr. Appleby has been our Chief Financial Officer since October 2020. Mr. Appleby is responsiblethe owner of CFO Advantage Inc., a CFO service provide for establishingreporting issuers since 2009. Mr. Appleby has acted as CFO for various reporting issuers.
Joseph Cohen – Chief Technology Officer
Mr. Cohen has been our Chief Technology Officer since March 2019. Mr. Cohen is also the Chief Technology Officer for our ultimate parent Empower a position he has held since February 2019. From January 2013 through January 2019, Mr. Cohen was the Chief Technology Officer for Privatis Technology Corporation in Valley Village, CA.
Andrea Klein – Vice President of Operations
Since September 2013, Mrs. Klein has been 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
promoting strategic partnerships with direct clientsSun Valley Health Centers Tucson, LLC which operate Sun Valley Health Businesses in the metropolitan Phoenix, Arizona, Tucson, Arizona and
large publisher’s websites. His experiences, bothLas Vegas, Nevada area until April 2019. From November 2012 through August 2013, Mrs. Klein was self-employed as a
seller andSearch Engine Marketing Manager in Denver, Colorado. From January 2012 through October 2012, Mrs. Klein was a
business development manager have helped Paul develop expertiseSearch Engine Marketing Manager for Keyword Search Pros in
the analytics of online media buying. Prior to Don't Blink Agency, he has workedLos Angeles, California. From January 1, 2011 through December 31, 2011, Mrs. Klein was a Practice Manager for
Marchex, uDate.com, Infospace and Go2NetDr. Christopher Verbin's plastic surgery practice in
both senior business development and sales roles. He holds an undergraduate degree in history from the University of Washington, Seattle.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.
To the best of our knowledge, other than as disclosed below, no director or executive officer of
AdiraEmpower 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
Adira)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., other than in the case of Alan Rootenberg where in April 2008, he resigned as interim Chief Financial Officer of Talware Networx Inc., a TSXV listed company. Thirteen months later, in May 2009, the common shares of Talware Networx Inc. were the subject of a cease trade order and the company was delisted from the TSXV. |
(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
AdiraEmpower or a shareholder holding a sufficient number of securities of
AdiraEmpower to affect materially the control of
Adira: | (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 Adira) 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. |
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
Cyompan’sCompany’s securities to affect materially the control the
Compnay,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. |
(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
Some of our officers and directors are directors or officers of other oil and gas exploration companies. Consequently, potential conflicts of interest may arise in the event that these companies compete in respect of the sale or option of oil and gas properties in which we are or may be interested.
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.
Promoters
Alan Friedman, Ilan Diamond (formerly the Chief Executive Officer and a director of the Company,) and Dennis Bennie took the initiative in organizing the Company and may be considered to have been promoters of the Company. See Item 6E - Share Ownership for details of the shareholdings of such individuals.
B. Compensation
During the year ended December 31,
2017,2019, 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
nil (2016$1,301,945 (2018 -
$5 thousand, 2015 - $84 thousand of which $39 thousand relates to salaries and share based compensation to executive officers and $45 thousand relates to consulting fees and share based compensation to directors)$1,479,975).
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.
We have no
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
more thanin excess of $100,000
to compensate such executive officers in the event of
termination, resignation
retirement or
other termination,retirement, a change of control of
AdiraEmpower or a change in responsibilities following a change in control, other than as described in this Form 20-F.
Summary Compensation Table
The following table provides a summary of compensation that we paid to our senior management during the
fiscal year
then ended December 31,
2017 (in thousands of US Dollars):Names and Principal Position | Salary
($) | Share-Based Awards
($) | Option-Based Awards
($) | Non-Equity Incentive Plan Compensation
($) | Pension Value
($) | All Other Compensation
($) | Total Compensation
($) |
Annual incentive plans | Long-term incentive plans |
Gadi Levin, Chief Executive Officer and Chief Financial Officer(1) | - | - | - | - | - | - | - | - |
Alan Friedman, Executive Vice President, Corporate Development(1) | - | - | - | - | - | - | - | - |
| Names and Principal Position | Year | Salary ($) | Share-Based Awards($) | Option-Based Awards($) | Non-Equity Incentive Plan Compensation($) | Pension Value($) | All Other Compensation($) | Total Compensation($) | |
| Annual incentive plans | Long-term incentive plans |
Steven McAuley, President, CEO and Director (1) | 2019 | 259,785 | 324,869 | 544,688 | Nil | Nil | Nil | Nil | 1,129,342 |
Dustin Klein, SVP Business Development, Director (2) | 2019 | 66,667 | Nil | Nil | Nil | Nil | Nil | Nil | 66,667 |
Andrea Klein, VP Operations(2) | 2019 | 83,333 | Nil | Nil | Nil | Nil | Nil | Nil | 83,333 |
Andrejs Bunkse, Director(3) | 2019 | 11,250 | Nil | 11,353 | Nil | Nil | Nil | Nil | 22,603 |
(1) Resigned
Appointed CEO and Director on January 4, 2019.
Appointed on April 27, 201830, 2019
(3)
Appointed on May 26, 2019
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
Adira.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.
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,
20172019 and
2016.Pension, Retirement or Similar Benefits
We
have amounts set aside todo not provide for pension, retirement or similar benefits.
As of the date of this Annual Report, we have no employmentthe following agreements with anyofficers of the officersCompany:
Steven McAuley
Effective January 4, 2019, the Company entered into an employment agreement with Mr. Steven McAuley which includes an annual base salary of
Adira.C.$225,000, a variable annual incentive program to be determine by the Board Practices
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.
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
Adira’sEmpower’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
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, Compensation and Disclosure Committees
We have a standing Audit Committee that assists the directors of
Adirathe 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.
A copy of our Audit Committee Charter was filed as an exhibit to our Form 10-KSB filed for our 2003 fiscal year.As of the date hereof, our Audit Committee is comprised of
Dennis Bennie, Alan RootenbergSteven McAuley, Andrejs Bunkse, and
Alan Friedman.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”),
Adirathe Company is exempt from the requirements of Parts 3 and 5 of NI 52-110 for the year ended December 31,
2013,2019, by virtue of
Adirathe 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.
Compensation Committee
Adira has a Compensation Committee comprised of Dennis Bennie, Alan Rootenberg and Alan Friedman. Currently, any material commitments, inclusive of remuneration, are required to be pre-approved by the Board, following recommendation of the Compensation Committee
Disclosure Committee
Adira has a Disclosure Committee comprised of Dennis Bennie and Alan Friedman. The purpose of the Disclosure Committee is to provide assistance to the Chief Executive Officer and the Chief Financial Officer in fulfilling their responsibilities regarding the identification and disclosure of material information about us, and the accuracy, completeness and timeliness of our financial reports.
D. Employees
As of December 31,
2017,2019 we employed
no18 employees.
On April 30, 2019, with the acquisition of Sun Valley, we employed 70 employees.
E. Share Ownership
The shareholdings of our officers and directors are set forth below as of
December 31, 2017.| Holder name | No. of Shares held | Percentage of holding | Percentage of holding on a fully diluted basis(1) |
| % in capital | % in voting | % in capital | % in voting |
| Dennis Bennie(2) | 2,886,929 | 16.87% | 16.87% | 20.50% | 20.50% |
| Alan Friedman(3) | 330,273 | 1.93% | 1.93% | 1.85% | 1.85% |
| Gadi Levin(4) | - | | 0.00% | 0.35% | 0.35% |
| Alan Rootenberg(5) | 303,333 | 1.77% | 1.77% | 2.72% | 2.72% |
January 27, 2021.
| Holder name | No. of Common Shares held | Percentage of holding | Percentage of holding on a fully diluted basis(1) | | |
| % in capital | % in voting | % in capital | % in voting |
Steven McAuley (2) | 16,950,002 | 5.81% | 5.81% | | |
Andrejs Bunkse (3) | - | - | - | - | - |
Dustin Klein (4) | 11,029,411 | 3.79% | 3.79% | | |
Kyle Appleby (5) | - | - | - | - | - |
Joseph Cohen (6) | - | - | - | | |
Andrea Klein (7) | 8,529,411 | 2.92% | 2.92% | | |
| (1) | | “Fully diluted basis” means with the exercise of all warrants and options. |
| (2) | | Mr. Dennis BennieSteven McAuley is an interested party in Adira by virtue of his share holdings andthe Company by virtue of him serving as the chairmanChairman of the Board. Mr. Bennie indirectly holds allBoard of Directors, a director and as the shares through companies controlled by himself and through his spouse. He resigned on April 27, 2018Company’s Chief Executive Officer. |
| (3) | | Mr. Alan FriedmanAndrejs Bunkse is an interested party in Adirathe Company by virtue of his share holdings andhim serving as a director. |
| (4) | | Dustin Klein is an interested party in the Company by virtue of him serving as a director and as Adira’s chiefthe Company’s Senior Vice President of business development officer. He resigneddevelopment. Include the following which were issued on April 27, 201830, 2019, 3,676,470 common shares which vested immediately and 7,352,941 common shares which vest quarterly over 36 months from the issuance date. |
(4)(5) | | Mr. LevinKyle Appleby is an interested party in Adirathe Company by virtue of him serving as an officer in Adira. He resigned on April 27, 2018the Company’s Chief Financial Officer. |
(5)(6) | | Mr. RootenbergJoseph Cohen is an interested party in Adira by virtue of his share holdings andthe Company by virtue of him serving as a directorthe Company’s Chief Technology Officer. |
| (7) | | Andrea Klein is an interested party in Adira. He resignedthe Company by virtue of her serving as a director and was appointed the CFOCompany’s Vice President of Operations. Include the following which were issued on April 27,30, 2019, 3,676,470 common shares which vested immediately and 7,352,92 common shares which vest quarterly over 36 months from the issuance date. |
Options
Share option transactions and the number of share options outstanding during the nine months ended September 30, 2020 and years ended December 31, 2019, and 2018 are summarized as follows:
| | Weighted average exercise price |
| Outstanding, December 31, 2017 | 3,300,000 | CDN$0.10 |
| Granted | 4,300,000 | CDN$0.37 |
| 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 30, 2019 | 10,450,000 | CDN$0.16 |
| Granted | 1,470,000 | CDN$0.05 |
| Outstanding, September 30, 2020 | 11,920,000 | CDN$0.15 |
Options
Warrants
There are no
stock options,share purchase warrants, exercisable into common shares of
Adira,Empower, held by our officers and directors as of
December 31, 2017Warrants
Warrants, exercisable into common shares of Adira, held by our officers and directors are set forth below as of December 31, 2017.
Name | Position | Allotment date | Expiration date | Exercise price | Total |
Dennis Bennie(1) | Co-Chairman of the Board | May 7, 2015 | May 6, 2018 | US$0.04 | 2,000,000 |
Alan Rootenberg(1) | Director | May 7, 2015 | May 6, 2018 | US$0.04 | 300,000 |
(1) Resigned April 27, 2018
Equity Compensation Plans
The following table summarizes our compensation plans under which equity securities are authorized for issuance as at
December 31, 2017.
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 | Nil | N/A | 1,711,202 |
| Equity compensation plans not approved by securityholders | N/A | N/A | N/A |
| Total: | Nil | 0.14 | 1,711,202 |
September 30, 2020.
| 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 | 11,920,000 | CDN$0.15 | 7,154,320 |
| Equity compensation plans not approved by securityholders | N/A | N/A | N/A |
| Total: | 11,920,000 | CDN$0.15 | 7,154,320 |
| (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 17,112,022190,743,209 = 1,711,202)19,074,320 less 11,920,000 = 7,154,320). |
On August 31, 2009, the Board adopted a new 10% rolling stock
The Company has an incentive share option plan
(the “(“the Stock Option Plan”Plan”)
in place under which it is authorized to
replace the existing plan. The Stock Option Plan was ratified by the shareholders of Adira on December 17, 2009,grant share options to executive officers, directors, employees and
has since been approved by the shareholders of Adira on an annual basis.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
tenfive years as determined by the Board and are required to have an exercise price no less than the fair market value of
Adira’sEmpower’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.
On January 11, 2011, the Board adopted an annex to the Stock Option Plan applicable to optionees who are residents of the State of Israel at the date of grant or those who are deemed to be residents of the state of Israel for the payment of tax at the date of grant. The provisions specified therein form an integral part of the Stock Option Plan and is to be read as a continuation of the Stock Option Plan and only modifies options granted to Israeli optionees so that they comply with the requirements set by the Israeli law in general, and in particular with the provisions of Section 102 of the Israeli Income Tax Ordinance, as may be amended or replaced from time to time. In connection with options granted to Israeli optionees under the Stock Option Plan, the Board selected the capital gains tax track pursuant to the Israeli tax legislation which came into effect on January 1, 2003.
- 27 - | MAJOR SHAREHOLDER AND RELATED PARTY TRANSACTIONS |
| ITEM 7A. | Major Shareholder and Related Party TransactionsShareholders |
A.
Major Shareholders
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 at
December 31, 2017,September 30, 2020, 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) |
Dennis Bennie | 2,886,929(4) | 16.87% |
Goodman Investment Counsel Inc. | 1,055,180(5) | 6.17% |
| Name | Number of Common Shares Owned(1)(2) | Percentage(3) |
| Steven McAuley | 16,950,002 | 5.81% |
| CDS & CO | 225,218,768 | 77.26% |
| (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 17,112,022291,520,720 common shares of AdiraEmpower issued and outstanding as of the date of this filing. |
| (4) | | Includes shares held by spouse.CDS & Co. (the registration name for The Canadian Depositary of Securities Limited, which acts as nominee for many Canadian brokerage firms). |
(5) | | Includes shares held by Goodman Investment Counsel Inc. and associated companies that are controlled by Mr. Nathan Goodman. |
Geographic Breakdown of Shareholders
As of
December 31, 2017,January 27, 2021, our shareholder register indicates that our common shares are held as follows:
| Location | Number of Shares | Percentage of Total Shares | Number of Registered Shareholders of Record |
| United States | 107,622 | 0.63 | 57 |
| Canada | 16,265,784 | 95.05 | 40 |
| Other | 738,616 | 4.32 | 21 |
| Total | 17,112,022 | 100 | 118 |
Shares
| Location | Number of Common Shares | Percentage of Total Common Shares | Number of Registered Shareholders of Record |
| United States | 22,014,166 | 7.55% | 39 |
| Canada | 268,877,675 | 92.2% | 51 |
| Other | 628,879 | 0.00% | 5 |
| Total | 291,520,720 | 100% | 95 |
Common shares registered in intermediaries were assumed to be held by residents of the same country in which the clearing house was located.
Our securities are recorded in registered form on the books of our transfer agent,
ComputershareOlympia Trust Company
of Canada, located at 3rd Floor, 510 BurrardSuite 1900, 925 West Georgia Street Vancouver, BC V6C
3B9.3L2. 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.
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
Adira’sEmpower’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.
B. Related Party Transactions
| 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,
2017 except as follows:2019. | (a) | During the year ended December 31, 2017, we incurred $Nil in consulting fees and operating expenses to private companies which are controlled by some of our directors or officers (year ended December 31, 2016 - $6 thousand). |
These transactions are in the normal course of operations and are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties.
| (b) | 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.
| | | Year ended December 31, | | |
| | | 2017 | | 2016 | | 2015 |
| | | U.S. dollars in thousands |
| | | | | | | |
| Short-term employee benefits | | $ | - | | | $ | - | | | $ | 38 | |
| Share based compensation | | | - | | | | - | | | | 1 | |
| | | | | | | | | | | | | |
| | | $ | - | | | $ | - | | | $ | 39 | |
| | |
| | | |
| | U.S. dollars in thousands |
| |
| |
| Salaries and benefits | $734,655 | $587,558 |
| Directors fees | 11,250 | - |
| Share-based compensation | 556,040 | 892,417 |
| | | |
| | $1,301,945 | $1,479,975 |
- 29 - | Interests of Experts and Counsel |
Benefits in respect of key management persons (including directors) who are not employed by us:
| | | Year ended December 31, | | |
| | | 2017 | | 2016 | | 2015 |
| | | U.S. dollars in thousands |
| | | | | | | | | | | | | |
| Share based compensation | | $ | - | | | $ | 5 | | | $ | 45 | |
C. Interests of Experts and Counsel
| ITEM 8 | FINANCIAL INFORMATION |
A. Consolidated Statements and Other Financial Information
| Consolidated Statements and Other Financial Information |
The financial statements required as part of this Annual Report on Form 20-F are filed under Item 18 of this Annual Report.
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
Adira'sEmpower’s knowledge, no material legal, arbitration or governmental proceedings involving
AdiraEmpower are pending or contemplated against
Adira.Empower.
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.
B. Significant Changes
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.
| ITEM 9 | THE OFFER AND LISTING |
Cease Trades
On May 7, 2019, the Company’s trading was suspended by Canadian securities regulators due to a delay in filing the audited annual financial statements for the year ended December 31, 2018, 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, 2019 filing deadline. The delay was the result of material deficiencies in the Company’s disclosure controls and procedures as outlines Item 15 of this 20-F. The Required Filings were filed on June 6, 2019 at which point the Company’s trading resumed.
Our authorized capital consists of an unlimited number of common shares without par value, of which
17,112,022137,697,430 common shares were issued and outstanding as of December 31,
2017.2019. 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.
A. Offer and Listing Details – Price History
Our current trading symbol on the
TSXVCSE is
“ADL”“CBDT”. We also trade on the
OTCBBOTCQB with the trading symbol
“ADENF”“EPWCF” and on the Frankfurt Stock Exchange with the trading symbol
“0AM1”“8EC”.
As disclosed elsewhere in this annual report,
weon April 23, 2018, the Company completed
its previously disclosed reverse takeover transaction of Adira. As a result, the
ConsolidationCompany has limited history of
our common shares on August 9, 2013, on the basis of one new common share for every three old common shares. The Consolidation was effective for trading purposes on August 13, 2013; for a period of approximately two weeks thereafter, our common shares traded on the OTCBB under the symbol “ADEND”.The following table shows the progression in the high and low closing trading prices of our common shares on the OCTBB, on a post-Consolidation basis, for the periods listed.
| | | High ($) | | Low ($) |
| Annual (fiscal year) | | | | | | | | |
| 2017 | | | 0.01 | | | | 0.01 | |
| 2016 | | | 0.01 | | | | 0.01 | |
| 2015 | | | 0.085 | | | | 0.03 | |
| 2014 | | | 0.20 | | | | 0.01 | |
| 2013 | | | 1.78 | | | | 0.06 | |
| 2012 | | | 5.10 | | | | 1.37 | |
| | | | | | | | | |
| | | | | | | | | |
| Quarterly | | | | | | | | |
| Fiscal 2017 | | | | | | | | |
| Fourth Quarter | | | 0.01 | | | | 0.01 | |
| Third Quarter | | | 0.01 | | | | 0.01 | |
| Second Quarter | | | 0.01 | | | | 0.01 | |
| First Quarter | | | 0.01 | | | | 0.01 | |
| Fiscal 2016 | | | | | | | | |
| Fourth Quarter | | | 0.01 | | | | 0.01 | |
| Third Quarter | | | 0.01 | | | | 0.01 | |
| Second Quarter | | | 0.01 | | | | 0.01 | |
| First Quarter | | | 0.01 | | | | 0.01 | |
| Fiscal 2015 | | | | | | | | |
| Fourth Quarter | | | 0.03 | | | | 0.02 | |
| Third Quarter | | | 0.04 | | | | 0.02 | |
| Second Quarter | | | 0.06 | | | | 0.03 | |
| First Quarter | | | 0.06 | | | | 0.03 | |
| | | | | | | | | |
| Monthly | | | | | | | | |
| April 1, 2018 to April 24, 2018 | | | 0.01 | | | | 0.01 | |
| March 2018 | | | 0.01 | | | | 0.01 | |
| February 2018 | | | 0.01 | | | | 0.01 | |
| January 2018 | | | 0.01 | | | | 0.01 | |
| December 2017 | | | 0.01 | | | | 0.01 | |
| November 2017 | | | 0.01 | | | | 0.01 | |
The following table shows the progression in the high and low closing trading prices of our common shares on the TSXV, on post-Consolidation bases, for the periods listed.
| | | High ($) | | Low ($) |
| Annual (fiscal year) | | | | | | | | |
| 2017 | | | 0.04 | | | | 0.04 | |
| 2016 | | | 0.04 | | | | 0.04 | |
| 2015 | | | 0.04 | | | | 0.04 | |
| 2014 | | | 0.20 | | | | 0.03 | |
| 2013 | | | 1.73 | | | | 0.05 | |
| 2012 | | | 5.10 | | | | 1.35 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Quarterly | | | | | | | | |
| Fiscal 2017 | | | | | | | | |
| Fourth Quarter | | | 0.04 | | | | 0.04 | |
| Third Quarter | | | 0.04 | | | | 0.04 | |
| Second Quarter | | | 0.04 | | | | 0.04 | |
| First Quarter | | | 0.04 | | | | 0.04 | |
| Fiscal 2016 | | | | | | | | |
| Fourth Quarter | | | 0.04 | | | | 0.04 | |
| Third Quarter | | | 0.04 | | | | 0.04 | |
| Second Quarter | | | 0.04 | | | | 0.04 | |
| First Quarter | | | 0.04 | | | | 0.04 | |
| Fiscal 2015 | | | | | | | | |
| Fourth Quarter | | | 0.05 | | | | 0.04 | |
| Third Quarter | | | 0.06 | | | | 0.03 | |
| Second Quarter | | | 0.08 | | | | 0.04 | |
| First Quarter | | | 0.09 | | | | 0.04 | |
| | | | | | | | | |
| Monthly | | | | | | | | |
| April 1, 2018 to April 27, 2018 | | | 0.04 | | | | 0.04 | |
| March 2018 | | | 0.04 | | | | 0.04 | |
| February 2018 | | | 0.04 | | | | 0.04 | |
| January 2018 | | | 0.04 | | | | 0.04 | |
| December 2017 | | | 0.04 | | | | 0.04 | |
| November 2017 | | | 0.04 | | | | 0.04 | |
As at December 31,
2017 and 2016, none of our securities2019 14,602,954 common shares were subject to escrow.
B. Plan of Distribution
Not applicable.
C. Markets
Our common shares are traded on the TSXV under the symbol “ADL”, in the United States on the OTC Bulletin Board under the symbol “ADENF” and on the Frankfurt Stock Exchange under the symbol “0AM1”.
- 32 - | ADDITIONAL INFORMATION |
D. Selling Shareholders
Not applicable.
E. Dilution
Not applicable.
F. Expenses of the Issue
Not applicable.
| item 10 | additional informationMemorandum and Articles of Incorporation |
A. Share Capital
Not applicable.
B. Memorandum and Articles of Incorporation
We were incorporated
on February 20, 1997 as “Trans New Zealand Oil Company” under the laws of the
StateProvince of
Nevada, U.S.A.British Columbia on April 28, 2015. We changed our name
from SMAART, to
“AMG Oil Ltd.” on July 27, 1998.On November 27, 2008, we changed our jurisdiction of incorporation from Nevada to the Canadian federal jurisdiction under the Canada Business Corporation Act (the “CBCA”) through a process known as a conversion under Nevada corporate law, and known as a continuation under Canadian corporate law. A continuance or continuation is a process by which a corporation which is not incorporated under the laws of Canada may change its jurisdiction of incorporation to Canada. Under the CBCA, if the laws of its home jurisdiction allow for it, a company may be “continued” as a Canadian corporation by filing Articles of ContinuanceEmpower concurrent with the Director under the CBCA. In order to give effect to the continuation, the Board adopted a plan of conversion under Chapter 92A of the Nevada Revised Statutes which was subsequently approved and adopted by our shareholders. After the completion of the continuation, we became a Canadian corporation governed by the CBCA.
With effect from our continuation under the CBCA, our corporate constituting documents are comprised of our Articles of Continuance (“Articles”) and our By-Laws (“By-Laws”). Information regarding our Articles and By-laws is incorporated by reference from Amendment No. 3 to our registration statement on Form S-4, which was filed with the SEC on October 10, 2010. The forms of our Articles and By-Laws were included as Appendices C and D, respectively, to the proxy statement/prospectus included in the registration statement, and the proxy statement/prospectus contained a summary, under the heading “Comparative Rights of Stockholders,” of the more significant differences between the Nevada Revised Statutes and the CBCA which resulted in various changes in the rights of our shareholders as a result of our continuance.
We changed our name to “Adira Energy Ltd.” pursuant to Articles of Amendment dated December 17, 2009, and filed with the Director under the CBCA. Such amendment to our Articles was certified by a Certificate of Amendment dated December 17, 2009. The Certificate and Articles of Amendment were filed as Exhibit 1.4 to our annual report on Form 20-F for the year ended September 30, 2009, filed with the SEC on January 1, 2010.
C. Material Contracts
Transaction.
We currently are not party to any material contracts.
D. Exchange Controls
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.
E. Taxation
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 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.
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.
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.
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. |
●
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.
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
years ended September 30, 2010 and December 31, 2010, 2011, 2012, and 2013; we have made no determination as to whether we were a PFIC during our tax year ended December 31,
2014. However, we believe we were a PFIC in prior tax years.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.
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.
F. Dividends and Paying Agents
| Dividends and Paying Agents |
Not applicable.
G. Statement by Experts
Not applicable.
H. Documents on Display
Exhibits attached to this Form 20-F are also available for viewing at our offices,
4101 Yonge1030 West Georgia Street, Suite
706, Toronto, Ontario,918, Vancouver, BC, Canada
M2P 1N6;V6E 2Y3; or you may request them by calling our office at
(416) 361-2216.1-888-367-6937. 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.
I. Subsidiary Information
See Item 4.C – “Organizational Structure” of this Annual Report on Form 20-F.
| ITEM 11 | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
We are not subject to any material market risks.
A. Transaction Risk and Currency Risk Management
| 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.
B. Interest Rate Risk and Equity Price Risk
| Interest Rate Risk and Equity Price Risk |
We are equity financed and do not have
anymaterial 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
Canadian dollars,CDN$, and will likely raise additional equity funding denominated in
Canadian dollarsCDN$ in the future.
C. Exchange Rate Sensitivity
| Exchange Rate Sensitivity |
We are exposed to financial risk related to the fluctuation of foreign exchange rates. Our oil and gas operations are in Israel. 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 NIS and Canadian dollars.CDN$. A significant change in the currency rates between the NIS and the Canadian dollarsCDN$ 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. An increase or
The table below summarizes the net monetary assets and liabilities held in foreign currencies:
| | |
| | | |
| | | |
| CDN$ net monetary liabilities | $2,434,448 | $171,578 |
| | $2,434,448 | $171,578 |
The effect on loss before income tax for the year ended December 31, 2019, 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
5% of the NIS and Canadian dollars relative to the U.S dollar would not have a significant effect on.$316,186 (2018 - $17,157) assuming that all other variables remained constant. D. Commodity Price RiskWhile the value of our exploration properties can always be said to relate to the price of the commodity and the outlook for same, we do not have any operating mines nor economic ore and therefore do not have any hedging arrangements.
| ITEM 12 | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES |
| ITEM 13 | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES |
| ITEM 14 | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS |
| ITEM 15 | CONTROLS AND PROCEDURES |
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,
2017.2018. This evaluation was carried out by our Mr.
Gadi Levin, who service asSteven McAuley, our Chief Executive Officer, and
Mathew Lee, our Chief Financial Officer. Based upon that evaluation, our executives concluded that our disclosure controls and procedures were
not effective as at December 31,
2017.2018.
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 )13a-15(f) and
15d-15(f )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. |
-
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.
Gadi Levin,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,
2017.2019. 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
effectiveineffective as at December 31,
2017.2019.
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,
2017,2019, there were
no changes
in ourwhich created ineffective internal
controlcontrols 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.
| ITEM 16A | AUDIT COMMITTEE FINANCIAL EXPERTS |
As disclosed above, as of the date hereof, our Audit Committee is comprised of
Dan BallisterSteven McAuley (chair),
Craig SnyderAndrejs Bunkse and
Lorne Gertner,The Board has determined that each of Messrs. Ballister and Gertner (i) qualifies as an audit committee financial expert pursuant to Items 16A(b) and (c) of Form 20-F and (ii) is independent as defined in section 803 of the NYSE MKT Company Guide and Rule 10A-3 of the Exchange Act. In addition, all members of the audit committee are considered financially literate under applicable Canadian laws.
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.
The text of our Code of Business Conduct is also posted on our website at www.adiraenergy.com, under the “Company” tab. In addition, aA 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
Gadi Levin,Steven McAuley, c/o
Adira Energy Ltd.Empower Clinics Inc.,
4101 Yonge1030 West Georgia Street, Suite
706, Toronto, Ontario,918, Vancouver, BC, Canada
M2P 1N6,V6E 2Y3, or by email at:
glevin@adiraenergy.com.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.
| ITEM 16C | 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,
20172019 and
2016:| | Year Ended December 31 |
| | 2017 | 2016 |
| Audit Fees: | $10,000 | $10,000 |
| Audit Related Fees: | - | - |
| Tax Fees: | | |
| Total: | $10,000 | $10,000 |
2018:
| | |
| | | |
| Audit Fees: | $135,000 | $71,310 |
| Audit Related Fees: | 57,770 | nil |
| Tax Fees: | nil | nil |
| Total: | $192,770 | $71,310 |
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.
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,consultations.
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.
| ITEM 16D | EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES |
| ITEM 16E | PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS |
In the year ended December 31,
2017,2018, the Company did not purchase any of its issued and outstanding common shares pursuant to any repurchase program or otherwise.
| ITEM 16F | CHANGES TO REGISTRANT’S CERTIFYING ACCOUNTANT |
| ITEM 16G | CORPORATE GOVERNANCE |
PART III
| ITEM 16H | MINE SAFETY DISCLOSURE |
Not applicable.
PART III
| ITEM 17 | FINANCIAL STATEMENTS |
| ITEM 18 | FINANCIAL STATEMENTS |
Financial Statements Filed as Part of this Annual Report
| · | Report of Independent Registered Public Accounting Firm dated April 30, 2018; |
| · | Consolidated statement of financial position for the fiscal years ended December 31, 2017 and 2016; |
| · | Consolidated statements of comprehensive profit and loss for the fiscal years ended December 31, 2017, 2015 and 2014; |
| · | Consolidated statements of changes in (deficit) equity for the fiscal years ended December 31, 2017, 2016 and 2015; |
| · | Consolidated statements of cash flows for the fiscal years ended December 31, 2017, 2016 and 2015; and |
| · | Notes to consolidated financial statements |
●
Report of Independent Registered Public Accounting Firm dated July 23, 2020;
●
Consolidated statement of financial position for the fiscal years ended December 31, 2019 and 2018;
●
Consolidated statements of comprehensive profit and loss for the fiscal years ended December 31, 2019 and 2018;
●
Consolidated statements of changes in (deficit) equity for the fiscal years ended December 31, 2019 and 2018;
●
Consolidated statements of cash flows for the fiscal years ended December 31, 2019 and 2018; and
●
Notes to consolidated financial statements
(formerly ADIRA ENERGY LTD.)
CONSOLIDATED FINANCIAL STATEMENTS
AS OF
FOR THE YEARS ENDED
DECEMBER 31,
2019, 2018, 2017
2016 and 2015U.S. DOLLARS IN THOUSANDS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Empower Clinics Inc.
(Formerly Adira Energy Ltd.)Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated
statements of financial
statementsposition of Empower Clinics Inc.
(formerly Adira Energy Ltd.) (the
“Company”), which compriseCompany) as of December 31, 2019 and 2018, and the
related consolidated statements of
financial position as at December 31, 2017loss and
2016, and the consolidated statements of comprehensive loss, changes in
deficitequity, and cash flows for
each of the years
in the three year period ended December 31,
2017, 2016 and 2015,2019, and the related notes
comprising a summary of significant accounting policies and other explanatory information (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
atof December 31,
20172019 and
2016,2018, and
the results of its consolidated
financial performanceoperations and its consolidated cash flows for
each of the years
in the three year period ended December 31,
2017, 2016 and 20152019, in
accordanceconformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.
Material Uncertainty Related to Going Concern
Without modifying our opinion, we draw attention to Note 1 of the
The accompanying consolidated financial statements
which indicateshave been prepared assuming that the Company
incurredwill continue as a
net loss of $75 during the year ended December 31, 2017 and, as of that date, the Company’s current liabilities exceeded its total assets by $335.going concern. As
stateddiscussed in Note 1 to the consolidated financial statements,
these events or conditions, along with other matters as set forth in Note 1, indicate the
existence ofCompany has suffered recurring losses from operations and has a
material uncertaintynet working capital deficiency that
castsraise substantial doubt
on the Company’sabout its ability to continue as a going concern.
Basis for Opinion
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of Management's plans in regard to these matters are also described in Note 1. The consolidated financial statements in accordance with International Financial Reporting Standards as issued bydo not include any adjustments that might result from the International Accounting Standards Board, andoutcome of this uncertainty.
Basis for such internal control as management determines is necessary to enable the preparation ofOpinion
These consolidated financial statements
that are
free from material misstatement, whether due to error or fraud.Auditors’ Responsibility
the responsibility of the Company’s management. Our responsibility is to express an opinion on thesethe Company’s consolidated financial statements based on our audits. We conducted our audits in accordanceare a public accounting firm registered with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”). Those standards require that we plan(PCAOB) and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement, whether due to error or fraud. Those standards also require that we comply with ethical requirements, including independence. We are required to be independent with respect to the Company in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements in Canada, the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We
are a public accounting firm registeredconducted our audits in accordance with the
standards of the PCAOB.
An Those standards require that we plan and perform the audit includes performing procedures to assess the risks of material misstatements ofobtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures include obtaining and examining, on a test basis, audit evidence regarding the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to error or fraud. In making those risk assessments, we consider internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. 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.
An audit
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
includesincluded evaluating the
appropriateness of accounting
policies and principles used and
the reasonableness of accountingsignificant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a reasonable basis for our audit opinion.
Chartered Professional Accountants
Licensed Public Accountants
We have served as the Company’s auditor since
September 30, 2010.Mississauga, Canada
April 30, 2018
Toronto, Ontario
July 23, 2020
EMPOWER CLINICS INC. (formerly ADIRA ENERGY LTD.
(Formerly Adira Energy Ltd.)
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
U.S. dollars
(in
thousandsUnited States dollars) | | | Notes | | | December 31, 2017 | | | December 31, 2016 | |
| Assets | | | | | | | | | | | | |
| Current assets | | | | | | | | | | | | |
| Cash and cash equivalents | | | 4 | | | $ | 14 | | | $ | 19 | |
| Loan Receivable | | | 8 | | | | - | | | | 25 | |
| Other receivables and prepaid expenses | | | 5 | | | | - | | | | 8 | |
| | | | | | | $ | 14 | | | $ | 52 | |
| | | | | | | | | | | | | |
Liabilities | | | | | | | | | | | | |
| Current liabilities | | | | | | | | | | | | |
| Trade payables | | | 6 | | | $ | 38 | | | $ | 11 | |
| Accrued liabilities | | | 7 | | | | 307 | | | | 263 | |
| Loan Payable | | | 8 | | | | 4 | | | | - | |
| | | | | | | | 349 | | | | 274 | |
| Non-current Liabilities | | | | | | | | | | | | |
| Warrant liability | | | 9 | | | | 29 | | | | 67 | |
| | | | | | | | 378 | | | | 341 | |
| Equity | | | | | | | | | | | | |
| Share capital | | | 12 | | | | - | | | | - | |
| Additional paid-in capital | | | 12 | | | | 34,060 | | | | 34,060 | |
| Accumulated deficit | | | | | | | (34,424 | ) | | | (34,349 | ) |
| Total deficit | | | | | | | (364 | ) | | | (289 | ) |
| Total liabilities and deficit | | | | | | $ | 14 | | | $ | 52 | |
| | | |
| ASSETS | | | |
| Current | | | |
| Cash | | $179,153 | $157,668 |
| Accounts receivable | | 24,482 | - |
| Prepaid expenses | | 38,382 | 29,475 |
| Inventory | 2 | 21,848 | - |
| Total current assets | | 263,865 | 187,143 |
| | | | |
| Promissory note | 6 | 122,573 | - |
| Property and equipment | 7 | 797,423 | 127,060 |
| Intangible assets | 8 | 254,640 | 71,617 |
| Assets held for sale | 9 | - | 127,972 |
| Goodwill | 8 | 117,218 | - |
| | | | |
| Total assets | | $1,555,719 | $513,792 |
| | | | |
| LIABILITIES | | | |
| Current | | | |
| Accounts payable and accrued liabilities | 10,22 | $1,874,990 | $1,554,892 |
| Share subscriptions | | - | 61,167 |
| Current portion of notes payable | 11 | 969,891 | 610,444 |
| Due to related parties | 23 | - | 12,575 |
| Convertible debentures payable | 14 | 427,320 | 274,466 |
| Conversion feature | 14 | 2,795 | 22,565 |
| Convertible notes payable | 12 | 192,717 | - |
| Secured loan payable | 13 | 761,711 | 717,460 |
| Current portion of lease liability | 15 | 219,800 | - |
| Current portion of warrant liability | 16 | - | 4,474 |
| Total current liabilities | | 4,449,224 | 3,258,043 |
| | | | |
| Lease liability | 15 | 515,096 | - |
| Notes payable | 11 | - | 150,271 |
| Warrant liability | 16 | 106,312 | 101,698 |
| Total liabilities | | 5,070,632 | 3,510,012 |
| | | | |
| EQUITY | | | |
| Issued capital | 17(a) | 7,827,310 | 5,401,024 |
| Shares to be issued | 11(k) | 22,050 | - |
| Contributed surplus | | 1,501,361 | 892,417 |
| Warrant reserve | | 146,685 | 80,280 |
| Deficit | | (13,012,319) | (9,369,941) |
| Total shareholders’ equity (deficit) | | (3,514,913) | (2,996,220) |
| | | | |
| Total liabilities and shareholders’ deficit | | $1,555,719 | $513,792 |
Nature of operations and going concern
(Note (note 1)
Commitments and contingencies (note 25)
Events after the reporting period (note 26)
Approved
and authorized by the Board of Directors on
Behalf of the Board:July 23, 2020:April30, 2018“Steven McAuley” | Director | “Craig Snyder” | | “Lorne Gertner” |
Date of approval of the | | Craig Snyder | | Lorne Gertner |
financial statements | | Chairman of theBoard | Dustin Klein” | Director |
The accompanying notes are an integral part of these consolidated financial statements
EMPOWER CLINICS INC. (formerly ADIRA ENERGY LTD.)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
U.S. dollars in thousands, except share and per share data
| | | Years ended December 31, |
| | | Notes | | 2017 | | 2016 | | 2015 |
| Expenses: | | | | | | | | | | | | | | | | |
| General and administrative expenses | | | 14,16 | | | $ | 119 | | | $ | 268 | | | $ | 349 | |
| Gain on settlement of accounts payable and other payables | | | | | | | - | | | | - | | | | (25 | ) |
| Interest income | | | | | | | (6 | ) | | | - | | | | - | |
| | | | | | | | | | | | | | | | | |
| Total expenses | | | | | | | 113 | | | | 268 | | | $ | 324 | |
| Loss from operations | | | | | | | (113 | ) | | | (268 | ) | | | (324 | ) |
| Gain on foreign exchange | | | | | | | - | | | | 8 | | | | (23 | ) |
| Gain on revaluation of warrant liability | | | 9 | | | | 38 | | | | 45 | | | | 78 | |
| Loss before income taxes | | | | | | | (75 | ) | | | (215 | ) | | | (269 | ) |
| Income taxes | | | | | | | - | | | | - | | | | - | |
| Net loss and comprehensive loss | | | | | | $ | (75 | ) | | $ | (215 | ) | | $ | (269 | ) |
| | | | | | | | | | | | | | | | | |
| Basic and diluted net loss per share attributable to equity holders of the parent | | | | | | $ | - | | | $ | (0.01 | ) | | $ | (0.02 | ) |
| | | | | | | | | | | | | | | | | |
| Weighted average number of ordinary shares used in computing basic and diluted net loss per share | | | | | | | 17,112,022 | | | | 17,112,022 | | | | 15,439,508 | |
The accompanying notes are an integral part of these consolidated financial statements.
EMPOWER CLINICS INC. (formerly ADIRA ENERGY LTD.
(Formerly Adira Energy Ltd.)
CONSOLIDATED STATEMENTS OF
CHANGES IN DEFICITU.S. dollars LOSS AND COMPREHENSIVE LOSS
For the years ended December 31, 2019, 2018 and 2017
(in
thousands, except share dataUnited States dollars) | | | Notes | | Number of shares | | | Share Capital | | | Additional paid-in capital | | | Accumulated deficit | | | Total Deficit | |
| Balance - December 31, 2014 | | | | | 12,292,022 | | | $ | - | | | $ | 34,051 | | | $ | (33,865 | ) | | $ | 186 | |
| Shares and warrants issued in private placement, net | | 12b(ii) | | | 4,820,000 | | | | - | | | | 7 | | | | - | | | | 7 | |
| Share based compensation | | 12c | | | - | | | | - | | | | 2 | | | | - | | | | 2 | |
| Net loss | | | | | - | | | | - | | | | - | | | | (269 | ) | | | (269 | ) |
| Balance - December 31, 2015 | | | | | 17,112,022 | | | | - | | | $ | 34,060 | | | $ | (34,134 | ) | | $ | (74 | ) |
| Net loss | | | | | - | | | | - | | | | - | | | | (215 | ) | | | (215 | ) |
| Balance - December 31, 2016 | | | | | 17,112,022 | | | $ | - | | | $ | 34,060 | | | $ | (34,349 | ) | | $ | (289 | ) |
| Net loss | | | | | - | | | | - | | | | - | | | | (75 | ) | | | (75 | ) |
| Balance - December 31, 2017 | | | | | 17,112,022 | | | $ | - | | | $ | 34,060 | | | $ | (34,424 | ) | | $ | (364 | ) |
| | | | |
| | | | | |
| Revenues | | | | |
| Clinic services | 23 | $1,949,549 | $1,091,386 | $1,507,050 |
| Product revenues | | 82,032 | - | - |
| Total revenues | | 2,031,581 | 1,091,386 | 1,507,050 |
| | | | | |
| Direct clinic expenses | | | | |
| Medical personnel costs | | 693,150 | 268,905 | 456,645 |
| Travel clinic costs | | 100,224 | 148,142 | 182,189 |
| Cost of goods sold | 2 | 32,902 | - | - |
| Total direct clinic expenses | | 826,276 | 417,047 | 638,834 |
| | | | | |
| Earnings from clinic operations | | 1,205,305 | 674,339 | 868,216 |
| | | | | |
| Operating expenses | 18,23 | 2,933,619 | 2,517,681 | 2,037,008 |
| Legal and professional fees | 5 | 1,015,743 | 1,450,141 | 1,131,041 |
| Depreciation and amortization expense | 7,8 | 327,059 | 123,473 | 103,372 |
| Share-based payments | 17(c),23 | 608,944 | 892,417 | 5,433 |
| Loss from operations | | (3,680,060) | (4,309,373) | (2,408,638) |
| | | | | |
| Other expenses (income) | | | | |
| Listing fee | 4 | - | 1,308,808 | - |
| Accretion expense | 11,14 | 114,515 | 241,521 | 667,373 |
| Interest expense | 11-15 | 240,539 | 126,375 | 186,001 |
| Share issuance costs | 17 | 129,965 | - | - |
| Interest income | 6 | (4,977) | - | - |
| Gain on debt settlement or accounts payable | 10,17(a) | (15,130) | - | (106,360) |
| Gain on termination of leases | 7 | (76,617) | - | - |
| Impairment loss on write off of property and equipment | 7 | 196,252 | - | - |
| Gain on change in fair value of warrant liability | 16 | (2,065,781) | (1,598,425) | - |
| Gain on change in fair value of conversion feature | 14 | (587,229) | (890,136) | - |
| Impairment of intangible assets | 8 | 93,757 | 64,200 | - |
| Impairment of goodwill | 8 | 2,377,397 | - | - |
| Impairment of assets held for sale | 9 | - | 57,072 | - |
| Restructuring expense, net | 19 | 88,808 | 110,424 | - |
| Other expense (income), net | | 130,104 | 60,706 | (45,731) |
| | | 621,603 | (519,455) | 701,283 |
| | | | | |
| Net loss and comprehensive loss for the year | | $(4,301,663) | $(3,789,918) | $(3,109,921) |
| | | | | |
| Loss per share | | | | |
| Basic | | $(0.04) | $(0.06) | $(0.06) |
| Diluted | | $(0.04) | $(0.06) | $(0.06) |
| | | | | |
| Weighted average number of shares outstanding | | | | |
| Basic | | 117,289,366 | 66,670,041 | 48,072,262 |
| Diluted | | 117,289,366 | 66,670,041 | 48,072,262 |
The accompanying notes are an integral part of these consolidated financial statements.
EMPOWER CLINICS INC. (formerly ADIRA ENERGY LTD.
(Formerly Adira Energy Ltd.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars
For the years ended December 31, 2019, 2018 and 2017
(in
thousandsUnited States dollars) | | | For the years ended December 31, | |
| | | 2017 | | | 2016 | | | 2015 | |
| Cash flow from operating activities | | | | | | | | | | | | |
| Net loss for the year | | $ | (75 | ) | | $ | (215 | ) | | $ | (269 | ) |
| Items not affecting cash: | | | | | | | | | | | | |
| Loss on sale of fixed assets | | | - | | | | - | | | | 2 | |
| Revaluation of warrants | | | (38 | ) | | | (45 | ) | | | (78 | ) |
| Share-based compensation | | | - | | | | - | | | | 2 | |
| Gain on settlement of trade payables | | | - | | | | - | | | | (25 | ) |
| Changes in non-cash working capital: | | | | | | | | | | | | |
| Decrease in other receivables and prepaid expenses | | | 8 | | | | 6 | | | | 50 | |
| Increase in trade payables | | | 27 | | | | (49 | ) | | | (82 | ) |
| Increase in accrued liabilities | | | 44 | | | | 198 | | | | 9 | |
| | | | (34 | ) | | | (105 | ) | | | (391 | ) |
| Cash flow from investing activities | | | | | | | | | | | | |
| Proceeds from sale of equipment | | | - | | | | - | | | | 1 | |
| Cash provided from loan received from SMAART | | | 4 | | | | - | | | | (25 | ) |
| Cash provided from repayment of loan from SMAART | | | 25 | | | | - | | | | 9 | |
| | | | 29 | | | | - | | | | (15 | ) |
| | | | | | | | | | | | | |
| Cash flow from financing activities | | | | | | | | | | | | |
| Proceeds from issue of shares, net of share issuance costs | | | - | | | | - | | | | 196 | |
| | | | | | | | | | | | | |
| Decrease in cash and cash equivalents | | | (5 | ) | | | (105 | ) | | | (210 | ) |
| Cash and cash equivalents, beginning of year | | | 19 | | | | 124 | | | | 334 | |
| | | | | | | | | | | | | |
| Cash and cash equivalents, end of year | | $ | 14 | | | $ | 19 | | | $ | 124 | |
| | | | | |
| Operating activities | | | | |
| Net loss and comprehensive loss | | $(4,301,663) | $(3,789,918) | $(3,109,921) |
| Items not involving cash: | | | | |
| Depreciation and amortization expense | 7,8 | 327,059 | 123,474 | 103,372 |
| Share-based payments | 17(c),23 | 608,944 | 892,417 | 5,433 |
| Non-cash listing fee | 4 | - | 942,937 | - |
| Accretion expense | 11,14 | 114,515 | 241,521 | 667,373 |
| Interest expense | 11-15 | 240,539 | 125,904 | 168,467 |
| Impairment loss on write off of property and equipment | 7 | 196,252 | - | - |
| Gain on termination of leases | | (76,617) | - | - |
| (Gain) loss on change in fair value of warrant liability | 16 | (2,065,781) | (1,598,425) | 8,435 |
| Gain on change in fair value of conversion feature | 14 | (587,229) | (890,136) | - |
| Gain on debt settlement | 17 | (15,130) | - | (106,360) |
| Shares issued for compensation | 17(a),23 | 304,721 | 477,180 | 65,722 |
| Shares issued for restructuring | | - | 216,873 | - |
| Shares issued for services | 17(a) | 208,153 | 560,980 | - |
| Warrants issued for services | 16 | - | - | - |
| Impairment of intangible assets | 8 | 93,757 | 64,200 | - |
| Impairment of goodwill | 8 | 2,377,397 | - | - |
| Impairment of assets held for sale | 9 | - | 57,072 | - |
| | | (2,575,083) | (2,575,921) | (2,197,479) |
| Changes in working capital: | | | | |
| Accounts receivable | | (24,116) | 847 | 1,155 |
| Prepaid expenses | | 10,846 | (5,463) | (20,512) |
| Inventory | | (21,848) | - | - |
| Accounts payable and accrued liabilities | | 337,013 | (255,173) | 629,076 |
| Net cash used in operating activities | | (2,273,188) | (2,835,710) | (1,587,760) |
| | | | | |
| Investing activities | | | | |
| Acquisition of property and equipment | 7 | (3,828) | (100,227) | (31,598) |
| Investment in Sun Valley, net | 5 | (787,318) | - | - |
| Net cash used in investing activities | | (791,146) | (100,227) | (31,598) |
| | | | | |
| Financing activities | | | | |
| Proceeds from issue of shares | 17(a) | 1,876,938 | 2,092,295 | 116,522 |
| Repayment to related parties | 23 | (12,575) | - | - |
| Proceeds from issuance of notes payable | | 321,935 | - | |
| Proceeds from exercise of warrants | 17(a) | 61,287 | - | - |
| Proceeds from share subscriptions | | - | 61,167 | - |
| Proceeds from issuance of convertible debenture | 14 | 753,491 | 442,437 | 1,180,314 |
| Proceeds from issuance of convertible notes payable | 11 | 188,893 | 495,449 | 399,985 |
| Repayment of notes payable | 11 | - | - | (31,000) |
| Cash acquired in acquisition | 5 | 94,090 | - | - |
| Proceeds on sale of assets held for sale | 9 | 5,472 | - | - |
| Repayment to related party | 23 | - | (3,595) | (58,765) |
| Lease payments | 15 | (203,712) | - | - |
| Cash acquired in the Transaction | 4 | - | 13,000 | - |
| Bank indebtedness | | - | (7,148) | 7,148 |
| Net cash provided by financing activities | | 3,085,819 | 3,093,604 | 1,614,204 |
| | | | | |
| Increase (decrease) in cash | | 21,485 | 157,668 | (5,154) |
| Cash, beginning of year | | 157,668 | - | 5,154 |
| Cash, end of year | | $179,153 | $157,668 | $- |
Supplemental disclosure with respect to cash flows (note 21)
The accompanying notes are an integral part of these consolidated financial statements.
EMPOWER CLINICS INC. (formerly ADIRA ENERGY LTD.
(Formerly Adira Energy Ltd.)
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the years ended December 31, 2019, 2018 and 2017
(in United States dollars, except share numbers)
| | | | | | | Equity component of convertible debentures | | |
| | | | | | | | | | |
| Balance, December 31, 2016 | | 16,100,000 | $248,500 | $120,000 | $- | $- | $222,417 | $(2,470,102) | $(1,879,185) |
| Shares issued for cash | | 32,237,225 | 302,244 | (120,000) | - | - | - | - | 182,244 |
| Net loss and comprehensive loss for the year | | - | - | - | - | - | - | (3,109,921) | (3,109,921) |
| Balance, December 31, 2017 | | 48,337,225 | 550,744 | - | - | - | 222,417 | (5,580,023) | (4,806,862) |
| Shares issued - Transaction consideration | 4,17(a) | 2,544,075 | 614,415 | - | - | - | - | - | 614,415 |
| Shares issued for cash | 17(a) | 8,756,376 | 2,092,295 | - | 80,280 | - | - | - | 2,224,717 |
| Shares issued on conversion of convertible debentures | 14,17 | 11,796,046 | 1,010,363 | - | - | - | (222,417) | - | 790,286 |
| Shares issued on conversion of notes payable | 11,17 | 785,949 | 157,079 | - | - | - | - | - | 102,597 |
| Shares issued to former CEO | 17 | 2,000,000 | 477,180 | - | - | - | - | - | 477,180 |
| Shares issued for restructuring | 17 | 1,204,851 | 216,873 | - | - | - | - | - | 216,873 |
| Shares issued for services | 17 | 2,423,076 | 282,075 | - | - | - | - | - | 282,075 |
| Share-based payments | 17 | - | - | - | - | 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) |
The accompanying notes are an integral part of these consolidated financial statements.
| | | | | | | | Equity component of convertible debentures | | |
| | | | | | | | | | |
| 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 | 5,17 | 22,409,425 | 2,143,566 | - | - | - | - | - | 2,143,566 |
| Shares issued for cash | 17 | 24,452,500 | 55,873 | - | - | - | - | - | 55,873 |
| Shares issued for conversion of notes payable | 11,17 | 2,500,000 | 7,254 | - | - | - | - | - | 7,254 |
| Shares issued for conversion of debentures | 14,17 | 3,991,524 | 55,997 | - | - | - | - | - | 55,997 |
| Shares issued for compensation | 17,23 | 7,400,000 | 304,721 | - | - | - | - | - | 304,721 |
| Shares issued for services | | 1,500,000 | 257,041 | - | - | - | - | - | 257,041 |
| Shares issued to settle accounts payable | 17 | 1,686,861 | 208,153 | - | - | - | - | - | 208,153 |
| Shares cancelled | 10,17 | (4,657,553) | (669,236) | - | - | - | - | 669,236 | - |
| Shares cancelled and to be reissued | 17,26 | - | (15,239) | 15,239 | - | - | - | - | - |
| Shares issued for exercise of warrants | 16,17 | 431,075 | 61,287 | - | - | - | - | - | 61,287 |
| Shares issued to agents | 14,17 | 136,000 | 20,255 | - | - | - | - | - | 20,255 |
| Shares to be issued for note payable | 11,17 | - | - | 6,811 | - | - | - | - | 6,811 |
| Share issue costs | 11,17 | - | (3,386) | - | 66,405 | - | - | - | 63,019 |
| Share based payments | 17 | - | - | - | - | 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.)
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
December 31,
2017, 20162019, 2018 and
2015U.S.2017
(in United States dollars,
in thousands, except
share and per share datawhere noted) 1.
NATURE OF OPERATIONS AND GOING CONCERN
Empower Clinics Inc (formerly Adira Energy Ltd., “Empower”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 and developer of medical products in the US, focused on enabling individuals to improve and protect their health. The Company
This business is a limited company, incorporatedconducted through Empower’s wholly-owned Nevada, USA subsidiary, Empower Healthcare Corp. and on April 8, 2009,16, 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 domiciled in Toronto, Ontario, Canada. 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).
The registered
head office
of the Company is located at
400-570 GranvilleSuite 918 - 1030 West Georgia Street, Vancouver,
BCBritish Columbia, Canada, V6C
3P1.1G8. The
Company's sharesCompany’s U.S. headquarters are
currently traded on the OTC market in the U.S. the TSX Venture Exchange (“TSX”) and as of April 30, 2018, on the Canadian Securities Exchange in Canada.The consolidated financial statements of the Company for the year ended December 31, 2017 were authorized for issue in accordance with a resolution of the directors on April 30, 2018.
at 105 SE 18th Avenue, Portland, Oregon.
Reverse takeover
On April 27,23, 2018, the Company completed its previously disclosed reverse takeover transaction with SMAART Holdings Inc. (“SMAART”RTO”) of Adira Energy Ltd. (note 4). Following the RTO, on April 30, 2018 the Company listed on the Canadian Securities Exchange (the “CSE”) under ticker symbol “EPW” then subsequently changed its ticker symbol on April 10, 2019 to acquire assets which constituted a reverse take-over“CBDT”, on the OTC, part of the Company (the “Transaction”)OTC Markets Group, under the ticker “EPWCF” and on the Frankfurt Stock Exchange under the ticker “8EC”. Pursuant to the Transaction, a subsidiaryOn closing of the Company amalgamated with SMAARTRTO, the Company’s name was changed from Adira Energy Ltd to form the wholly owned subsidiary, Empower Clinics Inc. In return, all
Share consolidation
On April 19, 2018, in anticipation of the
completion of the RTO, Adira filed articles of amendment to complete an approved share consolidation of the Adira’s issued and outstanding
securitiescommon shares on the basis of
SMAART were exchanged6.726254 pre-consolidated common shares for
equivalent securities, including Common Shares, of Empower. In connection with the Transaction, the Company also changed its nameone post-consolidated common share. The share consolidation affects all issued and outstanding common shares, options and warrants. All information relating to
“Empower Clinics Inc.”basic and
underwent a 6.726254 to one share consolidation. In addition, a private placement was completed whereby 8,443,473 Common Shares were issued at a price of CDN$0.31diluted earnings per share,
for aggregate gross proceeds of CDN$2,617,476. As a result, Empower will have 70,966,958 Common Shares issued and
outstanding.The accompanyingoutstanding common shares (note 17), share options (note 17(b)) and warrants (note 17(c)), and per share amounts in these consolidated financial statements have been prepared onadjusted retrospectively to reflect the basis of a goingshare consolidation.
Going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. As at
At December 31, 2017,2019, the Company had ana working capital deficiency of $4,185,359 (December 31, 2018 - $3,070,900), has not yet achieved profitable operations, and has accumulated deficit of $34,424 (2016$13,012,319 (December 31, 2018 - $34,349)$9,369,941). 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.
Further, the Arizona Marijuana Legalization Initiative may appear on the ballot in Arizona as an initiated state statute on November 3, 2020. The ballot initiative would legalize the possession and use of recreational marijuana for adults (age 21 years or older). The ballot initiative would allow 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. The legalization in Arizona could have a material adverse affect on the Company’s operations within the state. Management of the Company cannot be certain as to the impact that legalization of recreational adult use would have on their clinic operations; however, it is not yet generating operating cash flows. As such, there is substantialexpected that it reasonably possible that it would result in a decline in patient visits and thus patient revenue, as was experienced in Oregon.
EMPOWER CLINICS INC.
(Formerly Adira Energy Ltd.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017
(in United States dollars, except where noted)
1.
NATURE OF OPERATIONS AND GOING CONCERN (continued)
These circumstances represent a material uncertainty that may cast significant doubt regardingon the Company’s ability to continue as a going concern. In assessing whetherconcern and ultimately the going concern assumption is appropriate, management takes into account all available information about the future, which is at least, but not limited to, twelve months from the endappropriateness of the reporting period. The Company’s abilityuse of accounting principles applicable to continue operations is dependent on management’s ability to secure additional financing. Management is actively pursuing such additional sources of financing, and while it has been successful in doing so in the past, there can be no assurance it will be able to do so in the future. Accordingly, thea going concern.
These consolidated financial statements do not give effecthave been prepared using accounting principles applicable to adjustments that would be necessary should the Company be unable to continue as a going concern and thereforedo not reflect adjustments, which could be material, to realize itsthe carrying values of the assets and liquidate its liabilities and commitments in other thanliabilities. See note 26 for events after the normal course of business and at amounts different from those in the accompanying consolidated financial statements.
EMPOWER CLINICS INC. (formerly ADIRA ENERGY LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015
U.S. dollars in thousands, except share and per share data
NOTE 2:
2.
BASIS OF PREPARATION
a. | | Statement of compliance |
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
IFRS InterpretationsInternational Reporting Interpretation Committee (“IFRIC”)
. for all periods presented. These consolidated financial statements were approved by the Board of Directors and authorized for issue on July 23, 2020.
The consolidated financial statements have been prepared on ausing 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 U.S.United States (“US”) dollars, except as otherwise noted, which is the functional currency of the Company and each of the Company’s subsidiaries. References to C$ are to Canadian dollars. All values are rounded to
On April 16, 2018, the
nearest thousand ($000), except share and per share data or when otherwise indicated.TheseCompany completed a reverse takeover transaction with Adira Energy Ltd. The transaction was structured as a series of transactions, including a Canadian three-cornered amalgamation transaction as explained further in note 4. As a result of these reorganizations described above, the accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries Adira Energy Holdings Corp.subsidiaries.
Control exists where the parent entity has power over the investee and
Adira Energy Israel Ltd.The resultsis 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 of comprehensive loss up tofrom the effective date of dissolution.
control commences until the date control ceases.
EMPOWER CLINICS INC.
(Formerly Adira Energy Israel Ltd. was sold subsequent to the year-end.)
NOTE 3: SIGNIFICANT ACCOUNTING POLICIES
a. | | Significant judgments and estimates |
The preparation of theNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017
(in United States dollars, except where noted)
2.
BASIS OF PREPARATION (continued)
All inter-company balances, transactions, revenues and expenses have been eliminated on consolidation. 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 |
(1)
These companies were inactive during the year ended December 31, 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)
3.
SIGNIFICANT ACCOUNTING POLICIES
a)
New and amended IFRS standards that are effective for the year ended December 31, 2019
Leases
Effective January 1, 2019, the Company adopted IFRS 16 -Leases(IFRS 16) using the modified retrospective approach. The new standard requires managementa lessee to recognize a liability to make judgments, estimateslease payments (the lease liabilities) and assumptions that have an asset to recognize the right to use the underlying asset during the lease term (the right-of-use assets) in the statement of financial position. The Company recognized the after-tax cumulative effect of initially applying IFRS 16 as an adjustment to opening retained earnings at January 1, 2019. Comparative information has not been restated and continues to be reported under IAS 17 -Leases(IAS 17) and IFRIC 4 -Determining Whether an Arrangement Contains a Lease(IFRIC 4).
The Company used the practical expedient not to reassess whether a contract is or contains a lease at January 1, 2019. Instead, the Company applied IFRS 16 only to contracts previously identified as leases under IAS 17 and IFRIC 4.
The Company also used the following practical expedients to account for leases at January 1, 2019:
●
Applied a single discount rate to a portfolio of leases with similar characteristics.
●
Relied on the applicationCompany’s assessment of whether leases are onerous immediately before January 1, 2019.
●
Applied recognition exemptions for operating leases when the underlying asset was of low value or the lease term ends within 12 months. The payments associated with these leases are recognized as an expense in operating expenses.
EMPOWER CLINICS INC.
(Formerly Adira Energy Ltd.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017
(in United States dollars, except where noted)
3.
SIGNIFICANT ACCOUNTING POLICIES (continued)
●
Excluded initial direct costs when measuring the right-of-use asset at January 1, 2019.
●
Used hindsight to determine the lease term when the contract contained options to extend or terminate the lease.
These policies apply to contracts entered into or changed on or after January 1, 2019. A contract is a lease or contains a lease if it conveys the right to control the use of an asset for a time period in exchange for consideration.
To identify a lease, the Company (1) considers whether an explicit or implicit asset is specified in the contract and (2) determines whether the Company obtains substantially all the economic benefits from the use of the accounting policiesunderlying asset by assessing numerous factors, including but not limited to substitution rights and the right to determine how and for what purpose the asset is used.
When assessing the lease term, management considers all facts and circumstances that create an economic incentive to exercise an extension option or to not exercise a termination option. This judgment is based on factors such as contract rates compared to market rates, economic reasons, significance of leasehold improvements, termination and relocation costs, installation of specialized assets, residual value guarantees, and any sublease term.
The Company has elected not to recognize right-of-use assets and lease liabilities for low-value assets or short-term leases with a term of 12 months or less. These lease payments are recognized in operating expenses over the reported amounts of assets, liabilities, revenues and expenses. These estimates and underlying assumptions are reviewed regularly. Changes in accounting estimates are reported inlease term.
The lease liability is initially measured at the
period of the change in estimate.Fair value of derivative financial instruments: Management assesses the fairpresent value of the Company’s financial derivatives in accordance withlease payments that are not paid. The Company elected to not separate non-lease components from lease components and to account for the accounting policy stated in Note 3(i) to the consolidated financial statements. Fair value of the warrantnon-lease and lease components as a single lease component. Lease payments generally include fixed payments less any lease incentives receivable. The lease liability has been measuredis discounted using the Black-Scholes model, taking into accountinterest rate implicit in the terms and conditions upon whichlease or, if that rate cannot be readily determined, the warrants are granted. These calculations requireCompany’s incremental borrowing rate. The Company estimates the use of estimates and assumptions. Changes in assumptions concerning volatilities, interest rates, foreign exchange rates, and expected life could have a significant impactincremental borrowing rate based on the fair value attributed to the Company’s financial derivatives.
b. | | Translation of foreign currencies |
The Company’s presentation currency is the U.S. dollar. The functional currency is the currency that best reflectslease term, collateral assumptions, and the economic environment in which the Company operates and conducts its transactions,lease is separately determined for the Company and each of its subsidiaries, anddenominated. The lease liability is used to measure the financial position and operating results. The functional currency of the Company and its subsidiaries is the U.S. dollar. Transactions denominated in foreign currency (other than the functional currency) are recorded on initial recognition at the exchange rate at the date of the transaction. After initial recognition, monetary assets and liabilities denominated in foreign currency are translated at the end of each reporting period into the functional currency at the exchange rate at that date. Exchange differences, are recognized in income or loss. Non-monetary assets and liabilities measured at cost are translated at the exchange rate at the date of the transaction.
EMPOWER CLINICS INC. (formerly ADIRA ENERGY LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015
U.S. dollars in thousands, except share and per share data
NOTE 3: SIGNIFICANT ACCOUNTING POLICIES (Continued)
c. | | Cash and cash equivalents |
Cash and cash equivalents are defined as highly liquid investments, including unrestricted short-term bank deposits with an original maturity of three months or less from the date of acquisition or with a maturity of more than three months, but which are redeemable on demand without penalty and which form part of the Company's cash management.
The Company’s financial instruments consist of the following summarized accounts included within the consolidated statements of financial position:
Financial assets and liabilities | Classification |
Cash and cash equivalents | Loans and receivables |
Loan receivable | Loans and receivables |
Trade payables | Other financial liabilities |
Accrued liabilities | Other financial liabilities |
Loan payable | Other financial liabilities |
Warrant liability | Fair value through income and loss |
Loans and receivables: Loans and receivables are financial assets with fixed or determinable payments not quoted in an active market. These assets are initially recognized at fair value plus transaction costs. Subsequent to initial recognition, loans and receivables are measured at amortized cost using the effective interest method, less any impairment loss. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial instrument to the net carrying amount on initial recognition.
Other financial liabilities: Other financial liabilities are recognized initially at fair value net of any directly attributable transaction costs. Subsequent to initial recognition, these other financial liabilities aresubsequently measured at amortized cost using the effective interest method. OtherThe lease liability is remeasured when the expected lease payments change as a result of new assessments of contractual options and residual value guarantees.
The right-of-use asset is recognized at the present value of the liability at the commencement date of the lease less any incentives received from the lessor. Added to the right-of-use asset are initial direct costs, payments made before the commencement date, and estimated restoration costs. The right-of-use asset is subsequently depreciated on a straight-line basis from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. The right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.
For leases previously classified as operating leases, lease liabilities were measured at the present value of the remaining lease payments, discounted using the Company’s weighted-average incremental borrowing rate, calculated in accordance with IFRS 16, at January 1, 2019, of 6%. Associated right-of-use assets for certain property leases, elected on a lease-by-lease basis, were measured retrospectively as though IFRS 16 had been applied since the commencement date. The right-of-use asset was adjusted by the amount of any prepaid, accrued lease payments, or acquisition lease advantages or disadvantages relating to that lease and recognized in the statements of financial position as at December 31, 2018.
EMPOWER CLINICS INC.
(Formerly Adira Energy Ltd.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017
(in United States dollars, except where noted)
3.
SIGNIFICANT ACCOUNTING POLICIES (continued)
The lease liabilities as at January 1, 2019 can be reconciled to the operating lease commitments as of December 31, 2018 as follows:
| Operating lease commitments as at December 31, 2018 | $180,696 |
| Weighted average incremental borrowing rate as at January 1, 2019 | 6% |
| Lease liability as at January 1, 2019 | $138,444 |
As a result of the initial application of IFRS 16, in relation to the leases that were previously classified as operating leases, the Company recognized right-of-use assets with a cost of $324,972 and accumulated depreciation of $196,479 and lease liabilities of $138,444 as at January 1, 2019. The difference of $9,951 was recorded as a direct charge to deficit.
b)
Significant estimates and assumptions
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.
Areas that require significant estimates and assumptions as the basis for determining the stated amounts include, but are not limited to, the following:
The functional currency for each of the Company’s subsidiaries is the currency of the primary economic environment in which the respective entity operates; the Company has determined the functional currency of each entity to be the US dollar. 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.
ii.
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 unit (“CGU”). The Company applies judgement in assesses the smallest group of assets that comprise a single CGU. As each clinic has its own cash inflows, each clinic is considered a separate CGU.
EMPOWER CLINICS INC.
(Formerly Adira Energy Ltd.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017
(in United States dollars, except where noted)
3.
SIGNIFICANT ACCOUNTING POLICIES (continued)
iii.
Assessment of useful lives of property and equipment and intangible assets
Management reviews its estimate of the useful life 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.
iv.
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. The Company identified the sustained decrease in market capitalization and change in Arizona licensing regulations as an indicator of impairment during the year ended December 31, 2019. As a result of these impairment indicators, the Company assessed the intangible assets and goodwill for impairment at the group of synergistic CGUs level 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 was recognized on intangible assets and goodwill.
a.
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.
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 legal title have been transferred to the customer.
vi.
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 loss, the discount rate to use for time value of money and whether the financial instrument’s credit risk has increased significantly since initial recognition.
EMPOWER CLINICS INC.
(Formerly Adira Energy Ltd.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017
(in United States dollars, except where noted)
3.
SIGNIFICANT ACCOUNTING POLICIES (continued)
vii.
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.
viii.
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.
ix.
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.
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.
(Formerly Adira Energy Ltd.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017
(in United States dollars, except where noted)
3.
SIGNIFICANT ACCOUNTING POLICIES (continued)
xi.
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.
xii.
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. 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, depending on the type of intangible asset 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.
c)
Foreign currency translation
In preparing the financial statements of each individual group entity, transactions in currencies other than the entity's functional currency (“foreign currencies”) are translated at the rates of exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary assets and liabilities denominated in foreign currencies are translated at the exchange rates prevailing at that date. Exchange gains and losses are recognized on a net basis in on the consolidated statement of loss and comprehensive loss for the year.
Cash consists of cash at banks and on hand.
EMPOWER CLINICS INC.
(Formerly Adira Energy Ltd.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017
(in United States dollars, except where noted)
3.
SIGNIFICANT ACCOUNTING POLICIES (continued)
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 less the estimated costs of completion and the estimated costs necessary to make the sale. 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 entirely of finished goods, there are no reserves taken against inventory and the amount of inventory expensed in cost of goods sold is $12,985.
Equipment is 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 profit or loss as incurred.
Intangible assets are stated at cost less accumulated depreciation 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 profit or loss for the period.
h)
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
| 1 – 5 years |
| Patient records | 5 years |
| Trademarks and domain names | 5 years |
| Management software | 5 years |
EMPOWER CLINICS INC.
(Formerly Adira Energy Ltd.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017
(in United States dollars, except where noted)
3.
SIGNIFICANT ACCOUNTING POLICIES (continued)
Depreciation commences on the date the asset is available for use. An asset’s residual value, useful life and amortization method are reviewed at each financial year end and adjusted if appropriate. When parts of an item of equipment have different useful lives, they are accounted for as separate items (major components) of equipment. 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 consolidated statement of loss and comprehensive loss.
Non-current assets, or disposal groups comprising assets and liabilities, are derecognizedclassified 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:
●
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,
●
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.
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.
EMPOWER CLINICS INC.
(Formerly Adira Energy Ltd.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017
(in United States dollars, except where noted)
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
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 is 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.
Upon exercise of the convertible debentures, the conversion option is revalued at the date of exercise and the total fair value of the conversion option and the carrying value of debt is allocated between the warranty liability and equity.
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 reserves, over the vesting period. If and when the obligationsshare options are discharged, cancelledexercised, the applicable original amounts of reserves 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. The Black-Scholes option pricing model requires the input of subjective assumptions, including the expected term of the option and share price volatility. The expected term of options granted is determined based on historical data on the average hold period before exercise, expiry or
expired.cancellation. Expected volatility is estimated with reference to the historical volatility of the share price of the Company.
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 on the consolidated statement of loss and comprehensive loss with a corresponding entry to reserves.
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 reserves 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 reserves.
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 or the listed trading price at the date of issue. Share purchase warrants are initially recorded as a liability at fair value with any subsequent changes in fair value recognized on the consolidated statement of loss and comprehensive loss.
EMPOWER CLINICS INC.
(Formerly Adira Energy Ltd.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017
(in United States dollars, except where noted)
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
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 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 market 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.
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 as salaries and benefits expense with a corresponding credit to reserves as the common shares vest. Upon release from escrow, the amounts previously recognized in reserves are recorded as an increase to share capital.
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.
The Company has classified cash at FVTPL and promissory note at amortized cost.
EMPOWER CLINICS INC.
(Formerly Adira Energy Ltd.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017
(in United States dollars, except where noted)
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
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 loss: Derivativeselling 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 includedesignated as FVTOCI.
Equity instruments designated as FVTOCI:
On initial recognition, the warrant liability which is recordedCompany 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 on initial recognitionthrough 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 at each subsequent reporting period. Any gains or 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 recordedmeasured 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.
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.
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 statementsstatement of loss and comprehensive incomeloss on the purchase, sale, issue or cancellation of the Company’s own equity instruments.
EMPOWER CLINICS INC.
(Formerly Adira Energy Ltd.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and loss2017
(in United States dollars, except where noted)
3.
SIGNIFICANT ACCOUNTING POLICIES (continued)
Classification of financial liabilities
Financial liabilities that are not contingent consideration of an acquirer in a business combination, held for
the year.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, notes payable, convertible debentures payable, secured loan payable and convertible notes payable. The Company’s financial liabilities measured at FVTPL are warrant liability and conversion feature.
r)
Financial instruments designated as hedging instruments
The Company does not currently apply nor have a past practice of applying hedge accounting to financial instruments.
s)
Impairment of financial assets: 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 the end of 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 investmentsinvestment have been negatively impacted. Evidenceimpacted.
t)
Impairment of impairment could include financial difficultynon-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
counterparty, default or delinquencyasset is estimated in
interest or principal payment ororder to determine the
likelihood thatextent of the
borrower will enter bankruptcy or financial reorganization.EMPOWER CLINICS INC. (formerly ADIRA ENERGY LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015
U.S. dollars in thousands, except share and per share data
NOTE 3: SIGNIFICANT ACCOUNTING POLICIES (Continued)
d. | | Financial instruments (Continued) |
The carryingimpairment, if any. In determining the recoverable amount, of financial assets is reduced by any impairment loss directly for all financial assets with the exception of accounts receivable, where the carrying amount is reduced through the use of an allowance account. When an accounts receivable balance is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes inCompany compares the carrying amount of the allowance accountasset or CGU.
EMPOWER CLINICS INC.
(Formerly Adira Energy Ltd.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017
(in United States dollars, except where noted)
3.
SIGNIFICANT ACCOUNTING POLICIES (continued)
Where the asset does not generate cash inflows that are
recognized in income or loss.Financial instruments recorded at fair value: Theindependent from other assets, the Company classifies its financial instruments according to a three-level hierarchy that reflectsestimates the significancerecoverable amount of the inputs used in making fair value measurements. The three levelsCGU to which the asset belongs. A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the fair value hierarchy are as follows:
• Level 1 - Unadjusted quoted prices in active markets for identical assets and liabilities;
• Level 2 - Inputscash inflows from other than quoted prices that are observable for assets or liabilities directly or indirectly; and
• Level 3 - Inputs for assets or liabilities that are not based on observable market data.
Management has determined that the warrant liability represents a level 2 input.
f. | | Impairment of non-financial assets |
The Company evaluates the need to record an impairmentgroup of the carrying amount of non-financial assets whenever events or changes in circumstances indicate that the carrying amount is not recoverable. If the carrying amount of non-financial assets exceeds their recoverable amount, the assets are reduced to their recoverable amount. 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 measuringassessing value in use, the expectedestimated future cash flows are discounted using ato their present value.
The pre-tax discount rate thatapplied 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. The recoverableasset 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 profit or 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
generate independent cash flows isexceed the carrying amount that would have been determined
(net of depletion and depreciation) had no impairment loss been recognized for the
cash-generating unit to whichasset or CGU in prior periods. A reversal of impairment is recognized as a gain in the
asset belongs. Impairmentstatement of loss or comprehensive loss. Goodwill impairment losses are
recognized in income or loss.Incomenot reversed.
i.
Current tax expense
consists of current and deferred tax expense. Current and deferred tax are recognized in income or loss except to the extent they relate to items recognized directly in equity or other comprehensive income. Current tax is recognized and measured at the amount expected to be recovered fromtax payable or payable toreceivable on the taxation authoritiestaxable 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 ratesrate enacted or substantively enacted at the end of the reporting perioddate and includes any adjustmentadjustments to taxestax payable or recoverable in respect of previous years. periods.
Deferred tax is recognized on anyaccounted for using the balance sheet liability method, providing for the tax effect of temporary differences between the carrying amountsamount of assets and liabilities in the consolidatedfor financial statementsreporting purposes and the correspondingtheir respective tax bases used in the computation of taxable earnings. bases.
Deferred tax
assets and liabilities are
measuredrecognized 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
tax rates that are expected to apply intime of the
period whentransaction, affects neither the
asset is realized and the liability is settled. The effect of a change in the enactedaccounting earnings nor taxable earnings or
substantively enacted tax rates is recognized in net earnings and comprehensive income or equity depending on the item to which the adjustment relates.EMPOWER CLINICS INC. (formerly ADIRA ENERGY LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015
U.S. dollars in thousands, except share and per share data
NOTE 3: SIGNIFICANT ACCOUNTING POLICIES (Continued)
g. | | Income taxes (Continued) |
Deferred tax assets are recognized for all deductible temporary differences, carry forwards of unused tax losses and tax credits, to the extent future recoverythat it is probable. At each reporting period end,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.
EMPOWER CLINICS INC.
(Formerly Adira Energy Ltd.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017
(in United States dollars, except where noted)
3.
SIGNIFICANT ACCOUNTING POLICIES (continued)
The carrying amounts of deferred tax assets are
reducedreviewed 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
recovered.h. | | Share-based payment transactions |
The Company's employees and other service providersutilized. 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
entitledexpected to
remunerationapply in the
form of equity-settled share-based payment transactions.The cost of equity-settled transactions with employeesperiod when the liability is measuredsettled or the asset is realized, based on tax rates and tax laws enacted or substantially enacted at the fair value of thereporting date. Current and deferred tax relating to items recognized directly in equity instruments granted at grant date. Fair value measurement of all options and warrants granted is determined using an appropriate pricing model. As for other service providers, the cost of the transactions is measured at the fair value of the goods or services received as consideration for equity instruments. In cases where the fair value of the goods or services received as consideration of equity instruments cannot be measured, they are measured by reference to the fair value of the equity instruments granted.
The cost of equity-settled transactions is recognized in incomeequity and not in earnings or loss, together with a corresponding increase in equity, during the period which the performance and service conditions are to be satisfied, ending on the date on which the relevant employees become fully entitled to the award ("the vesting period"). The cumulative expense recognized for equity-settled transactions at the end of each reporting period until the vesting date reflects the extent to which the vesting period has expired and the Company's best estimate of the number of equity instruments that will ultimately vest. The expense or income recognized in income or loss represents the movement in the cumulative expense recognized at the end of the reporting period. No expense is recognized for awards that do not ultimately vest.
As the warrants have an exercise price denominated in Canadian dollars which differs from the Company’s functional currency they do not qualify for classification as equity. These warrants have been classified as warrant liability and are recorded initially at the fair value and revalued at each reporting date, using the Black-Scholes valuation method. Changes in fair value for each period are included in comprehensive income and loss for the year.
j. | | Loss / income per share |
loss.
v)
Income (loss) per share
Basic loss / incomeearnings (loss) per share (“EPS”) is computedcalculated by dividing the income or loss for(loss) and comprehensive income (loss) of the yearCompany by the basic weighted average number of common shares outstanding during the year. Stockperiod.
For purposes of calculating diluted EPS, the proceeds from the potential exercise of dilutive share options and common share purchase warrants with exercise prices that are notbelow the average market price of the underlying shares 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
loss perEPS only to the extent that the market price of the common shares exceeds the exercise price of the share
if their inclusionoptions or share purchase warrants except where such conversion would be
antidilutive.EMPOWER CLINICS INC. (formerly ADIRA ENERGY LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015
U.S. dollars in thousands, except share and per share data
NOTE 3: SIGNIFICANT ACCOUNTING POLICIES (Continued)
k. | | Standards and amendments issued but not yet effective |
The IASB issued new standards and amendments not yet effective.
IFRS 9, Financial Instruments (“IFRS 9”) was initially issued by the IASB on November 12, 2009 and issued in its completed version in July 2014, and will replace IAS 39, "Financial Instruments: Recognition and Measurement" (“IAS 39”). IFRS 9 replaces the multiple rules in IAS 39 with a single approach to determine whether a financial asset
Revenue is measured at amortized cost orthe fair value of the consideration received or receivable, and a new mixed measurement modelrepresents amounts receivable for debt instruments having only two categories: amortized costservices rendered, stated net of discounts. The Company recognizes revenue when delivery of medical services has occurred and fair value.when the physical possession of the goods and significant risks and rewards and legal title have been transferred to the customer. The approach in IFRS 9 is based on how an entity manages its financial instrumentsCompany recognizes revenue from the rendering of patient services in the contextaccounting period in which the physician’s services are rendered and recognizes revenue from the sale of its business model and the contractual cash flow characteristicsgoods when physical possession of the financial assets. The new standard also requires a single impairment methodgoods has transferred to the customer.
Revenues are recorded net of discounts provided to patients.
x)
Related party transactions
Parties are considered to be used, replacingrelated if one party has the multiple impairment methodsability, directly or indirectly, to control the other party or exercise significant influence over the other party in IAS 39. IFRS 9making 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 effective for financial years beginning onconsidered to be a related party transaction when there is a transfer of resources or after January 1, 2018. The Company assesses that there will be no material impact asobligations between related parties.
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
resultwholly-owned subsidiary of Adira, resulting in the indirect acquisition by SMAART of all of the
adoptionissued and outstanding securities of
IFRS 9.IFRS 15, Revenue from Contracts with Customers (“IFRS 15”Adira (the “Transaction”) was issued. This resulted in a reverse takeover of Adira by the IASB in May 2014 and clarifies the principles for recognizing revenue from contracts with customers. IFRS 15 will result in enhanced disclosures about revenue, provide guidance for transactions that were not previously addressed comprehensively (i.e. service revenue and contract modifications) and improve guidance for multiple-element arrangements. IFRS 15 is effective for periods beginning on or after January 1, 2018 and is to be applied retrospectively. The Company's preliminary assessmentshareholders of IFRS 15 has determined there will not be a significant impact to the consolidated financial statements as a result of the adoption of this standard
IFRS 16, Leases (“IFRS 16”) was issued by the IASB in January 2016 and specifies how an IFRS reporter will recognize, measure, present and disclose leases. The standard provides a single lessee accounting model, requiring lessees to recognize assets and liabilities for all leases unless the lease term is 12 months or less or the underlying asset has a low value. Lessors continue to classify leases as operating or finance, with IFRS 16’s approach to lessor accounting substantially unchanged from its predecessor, IAS 17. An entity applies IFRS 16 for annual periods beginning on or after January 1, 2019. Earlier application is permitted if IFRS 15 Revenue from Contracts with Customers has also been applied. A lessee shall either apply IFRS 16 with full retrospective effect or alternatively not restate comparative information but recognize the cumulative effect of initially applying IFRS 16 as an adjustment to opening equity at the date of initial application. The Company is currently assessing the effects of IFRS 16 and intends to adopt on its effective date.
NOTE 4: CASH AND CASH EQUIVALENTS
| | | December 31, |
| | | 2017 | | 2016 |
| US dollars | | $ | 11 | | | $ | 17 | |
| Canadian dollars | | | 1 | | | | 1 | |
| New Israeli Shekels (“NIS”) | | | 2 | | | | 1 | |
| | | $ | 14 | | | $ | 19 | |
EMPOWER CLINICS INC. (formerly ADIRA ENERGY LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015
U.S. dollars in thousands, except share and per share data
NOTE 5: OTHER RECEIVABLES AND PREPAID EXPENSES
| | | December 31, |
| | | 2017 | | 2016 |
| Government authorities | | $ | - | | | $ | 1 | |
| Prepaid expenses | | | - | | | | 7 | |
| | | $ | - | | | $ | 8 | |
NOTE 6: TRADE PAYABLES
Trade payables are non-interest bearing and are normally settled on 60-day terms.
NOTE 7: ACCRUED LIABILITIES
| | | December 31, |
| | | 2017 | | 2016 |
| Accrued professional fees | | $ | 22 | | | $ | 26 | |
| Accrued transaction fees | | | 285 | | | | 237 | |
| | | $ | 307 | | | $ | 263 | |
NOTE 8: LOAN RECEIVABLE AND LOANS PAYABLE
In connection with the Transaction completed on April 16, 2018, the Company had advanced $25changed its name from “Adira Energy Ltd.” to SMAART“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.
EMPOWER CLINICS INC.
(Formerly Adira Energy Ltd.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017
(in United States dollars, except where noted)
4.
THE TRANSACTION (continued)
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 meet its ongoingacquire Adira and the net asset value of Adira was recorded as a listing fee expense to net loss. 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.
| 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 requirements pendingadjustments recorded by Sun Valley. Accounts payable and accrued liabilities include the completion$150,000 holdback, of which $75,000 is expected to be released on the six-month anniversary of the transaction. 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 (note 26(b)(i)).
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.
(Formerly Adira Energy Ltd.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017
(in United States dollars, except where noted)
5.
ACQUISITION OF SUN VALLEY (continued)
The following table summarizes the final purchase price allocation:
| Assets Acquired | |
| Cash and cash equivalents | $94,090 |
| Accounts receivable | 366 |
| 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 liabilities | 431,544 |
| |
| 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 issued | 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, 2017, SMAART repaid2019, the $25 loanbusiness combination resulted in revenues of $1,526,383 and advancednet loss and comprehensive loss of $503,235. Had the business combination been affected at January 1, 2019, revenue of the Company a loanwould have been $999,968 higher and the net loss and comprehensive loss of $4. SMAART paid the Company interest of $6 in relation to the loan receivable.
NOTE 9: WARRANT LIABILITY
On May 7, 2015, the Company issued 4,820,000 warrants in conjunction with a private placement (Note 13(b) (ii)). The warrantswould have an expiry period of 3 years from date of issuance and an exercise price of $0.05 CDN per common share.
The warrants were valued at $189 at the time of issuance and were revalued at $67 as at December 31, 2016 and $29 as at December 31, 2017. A gain of $38 was recorded in the consolidated statement of comprehensive lossdecreased by $153,633 for the year ended December 31, 2017 (20162019.
On January 11, 2019, pursuant to the completion of the sale of assets held for sale, the Company acquired a promissory note in the amount of $122,500. Interest revenue for the year ended December 31, 2019 was $4,977 (year ended December 31, 2018 - $45)$nil) of which $4,904 was collected during the year ended December 31, 2019 (year ended December 31, 2018 - $nil). The promissory note accrues interest at a rate of 6% per annum and is due in full on February 1, 2021.
The maximum credit exposure related to the promissory note is $122,500. The land is being developed by the purchaser into a duplex which will be sold upon completion. The promissory note is secured by the land and building sold. Despite the negative impacts of COVID-19 on the global economy, the Oregon Real Estate Board sales figures show a four percent annual median sale price increase in April 2020 as compared to April 2019. Company has not provided for credit losses with respect to the promissory note as full recovery is anticipated and in the event of default, the value of the collateral has increased since the time of sale and therefore is anticipated to be sufficient to recover the principal and interest balances.
EMPOWER CLINICS INC.
(Formerly Adira Energy Ltd.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017
(in United States dollars, except where noted)
A continuity of property and equipment for the years ended December 31, 2019, 2018 and 2017 is as follows:
| | Right of use Empower clinics | Right of use Sun Valley clinics | Right of use CBD extraction facility | | | |
| | | | | | | |
| Cost | | | | | | |
| Balance, December 31, 2016 | $- | $- | $- | $15,000 | $- | $15,000 |
| Expenditures | - | - | - | 11,598 | 20,000 | 31,598 |
| Balance, December 31, 2017 | - | - | - | 26,598 | 20,000 | 46,598 |
| Expenditures | - | - | - | 1,762 | 98,465 | 100,227 |
| 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 during the year | 23,006 | - | 402,533 | 3,828 | - | 429,367 |
| Impairment | (79,125) | - | - | (2,610) | (114,517) | (196,252) |
| Write off | (245,847) | - | - | (25,750) | (3,949) | (275,546) |
| Balance, December 31, 2019 | $23,006 | $431,544 | $402,533 | $36,780 | $91,858 | $985,721 |
| Accumulated amortization | | | | | | |
| Balance, December 31, 2016 | $- | $- | $- | $(6,602) | $- | $(6,602) |
| Amortization | - | - | - | (3,868) | - | (3,868) |
| Balance, December 31, 2017 | - | - | - | (10,470) | - | (10,470) |
| Amortization | - | - | - | (9,295) | - | (9,295) |
| Balance, December 31, 2018 | - | - | - | (19,765) | - | (19,765) |
| Adoption of IFRS 16 | (196,479) | - | - | - | - | (196,479) |
| Amortization | (57,991) | (107,265) | (31,307) | (13,164) | (37,873) | (247,600) |
| Write off | 245,847 | - | - | 25,750 | 3,949 | 275,546 |
| Balance, December 31, 2019 | $(8,623) | $(107,265) | $(31,307) | $(7,179) | $(33,924) | $(188,298) |
| Carrying amount | | | | | | |
| Balance, December 31, 2017 | $- | $- | $- | $16,128 | $20,000 | $36,128 |
| Balance, December 31, 2018 | - | - | - | 8,595 | 118,465 | 127,060 |
| Balance, December 31, 2019 | $14,383 | $324,279 | $371,226 | $29,601 | $57,934 | $797,423 |
EMPOWER CLINICS INC.
(Formerly Adira Energy Ltd.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017
(in United States dollars, except where noted)
7.
PROPERTY AND EQUIPMENT (continued)
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 write off of 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 write off of property and equipment on the consolidated statements of loss and comprehensive loss
The Company defaulted on the Spokane lease and as a result, lost access to the facility. As a result of this default, the Company 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 write off of 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, recognized a loss on disposal of $2,610 representing the carrying value of the furniture and equipment.
Below are the details of leases terminated during the year and related assets written off and impairment losses recognized on undepreciated amounts:
| | | |
| | | | |
| Cost | $255,859 | $69,113 | $324,972 |
| Less: Accumulated depreciation | (184,787) | (61,060) | (245,847) |
| Impairment | $71,072 | $8,053 | $79,125 |
EMPOWER CLINICS INC.
(Formerly Adira Energy Ltd.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017
(in United States dollars, except where noted)
8.
INTANGIBLE ASSETS AND GOODWILL
A continuity of intangible assets the years ended December 31, 2019, 2018 and 2017 is as follows:
| | | Brands, trademarks and domain names | | |
| | | | | |
| Cost | | | | |
| Balance, December 31, 2016 and 2017 | $292,093 | $141,000 | $73,000 | $506,093 |
| Impairment | - | (42,300) | (21,900) | (64,200) |
| Balance, December 31, 2018 | 292,093 | 98,700 | 51,100 | 441,893 |
| Additions during the year | 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 |
| Accumulated amortization | | | | |
| Balance, December 31, 2016 | $(92,393) | $(42,300) | $(21,900) | $(156,593) |
| Amortization | (56,704) | (28,200) | (14,600) | (99,504) |
| Balance, December 31, 2017 | (149,097) | (70,500) | (36,500) | (256,097) |
| Amortization | (71,379) | (28,200) | (14,600) | (114,179) |
| 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) |
| Carrying amount | | | | |
| Balance, December 31, 2017 | $142,996 | $70,500 | $36,500 | $249,996 |
| Balance, December 31, 2018 | $71,617 | $- | $- | $71,617 |
| Balance, December 31, 2019 | $89,645 | $164,995 | $- | $254,640 |
During the year ended December 31, 2019, the Company recognized an impairment loss of $93,757 in relation to patient records and brand. During the year ended December 31, 2018, the Company recognised an impairment loss of $64,200 in relation to trademarks, domain names and management software.
A continuity of goodwill for the years ended December 31, 2019, 2018 and 2017 is as follows:
| |
| |
| Balance, December 31, 2016, 2017 and 2018 | $- |
| Additions during the year | 2,494,615 |
| Impairment | (2,377,397) |
| Balance, December 31, 2019 | $117,218 |
At December 31, 2019, the estimated recoverable amount of the Sun Valley CGU was lower than the segment’s carrying value. The Company recognized a goodwill impairment loss totalling $2,377,397 and an intangible asset impairment loss totalling $93,757 related to patient records and brands. The impairment loss on the Sun Valley CGU goodwill and intangible assets related to a change in expected future cash flows as a result of 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. Further, management also considered the impact of potential legalization of recreational cannabis as an indicator of impairment.
EMPOWER CLINICS INC.
(Formerly Adira Energy Ltd.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017
(in United States dollars, except where noted)
8.
INTANGIBLE ASSETS AND GOODWILL (continued)
The impairment was determined based on value in use calculation which uses cash flow projection covering a five-year period and a discount rate of 22% per annum. The cash flow beyond five-year period has been extrapolated using terminal growth rate of 1.5% per annum. Key assumptions used in the cash flow projection both as of acquisition date and as at June 7, 2019, the impairment trigger date, related to attrition of 59%. The new patient attraction rate was estimated to be 68% as of acquisition date and 24% post legalization
During the year ended December 31, 2018, the Company had listed the facility and land in Portland, Oregon for sale. Prior to their classification as assets held for sale, the land and facility in Portland were reported under property and equipment (note 7). The assets held for sale are included at the lower of their carrying value and their fair market value. The fair market value was based on a sales agreement dated January 17, 2019 whereby the Company will 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 6) and cash of $5,472.
| | | | |
| | | | |
| Cost | | | |
| Balance, December 31, 2016 | $70,297 | $119,703 | $190,000 |
| Expenditures | - | - | - |
| Balance, December 31, 2017 | 70,297 | 119,703 | 190,000 |
| Impairment loss | (20,151) | (36,921) | (57,072) |
| Balance, December 31, 2018 | 50,146 | 82,782 | 132,928 |
| Disposal | (50,146) | (82,782) | (132,928) |
| Balance, December 31, 2019 | $- | $- | $- |
| Accumulated amortization | | | |
| Balance, December 31, 2016, 2017 and 2018 | $(4,956) | $- | $(4,956) |
| Disposal | 4,956 | - | 4,956 |
| Balance, December 31, 2019 | $- | $- | $- |
| Carrying amount | | | |
| Balance, December 31, 2017 | $65,341 | $119,703 | $185,044 |
| Balance, December 31, 2018 | 45,190 | 82,782 | 127,972 |
| Balance, December 31, 2019 | $- | $- | $- |
10.
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
| | |
| | | |
| Trade payables and accrued liabilities | $1,367,253 | $1,274,885 |
| Payroll liabilities | 507,737 | 280,007 |
| | $1,874,990 | $1,554,892 |
On July 30, 2019, the Company issued 1,686,861 common shares as settled for accounts payable in the amount of $223,283 (C$294,019). The Company recorded a gain on debt settlement of $15,130 representing the excess of the carrying value of the accounts payable above the fair value of common shares issued (note 17(a)(xv) and note 17(a)(xvi)).
EMPOWER CLINICS INC.
(Formerly Adira Energy Ltd.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017
(in United States dollars, except where noted)
| | | |
| | | | |
| Balance, beginning of period | $760,715 | $404,370 | $87,016 |
| Converted to convertible debentures (a) | - | - | (62,131) |
| Repayment (b) | - | - | (31,000) |
| Issue of notes payable (c)(d)(e)(f)(g)(h)(i)(j) | 321,935 | 495,449 | 399,985 |
| Converted to shares (c)(d) | (186,942) | (167,000) | - |
| Realized foreign exchange gain | (2,267) | - | - |
| Unrealized foreign exchange gain | (10,916) | - | - |
| Accretion expense | 12,337 | - | - |
| Interest expense | 75,029 | 27,896 | 10,500 |
| Balance, end of period | 969,891 | 760,715 | 404,370 |
| Less: non-current portion of notes payable (g) | - | (150,271) | - |
| Current portion of notes payable | $969,891 | $610,444 | $404,370 |
a)
During the year ended December 31, 2015, the Company issued three separate notes payable of $16,938 (C$20,000), $20,000 (C$23,615) and $21,173 (C$25,000) bearing interest at 6% per annum and repayable on demand. These notes payable were converted to convertible debentures during the period ended December 31, 2017 (note 14(e)).
b)
On November 6, 2015, the Company issued a $25,000 promissory note payable maturing 120 days from the date of issuance. Upon maturity, the promissory note payable will be repayable on demand and will bear interest at 1.5% compounding monthly. This promissory note payable and interest was repaid during the period ended December 31, 2017.
c)
On September 15, 2017, the Company issued promissory notes payable that could be drawn down for up to $150,000 and $75,000 maturing on December 31, 2017. During the period ended December 31, 2017, $232,985 and $117,000 had been drawn respectively. Upon maturity, the promissory note payable will be repayable on demand and will bear interest at 6% per annum. On October 23, 2018, the Company converted $117,000 of the debt plus $7,389 of interest into 517,132 units. Each unit is comprised of one common share and one common share purchase warrant (note 17(a)(xxviii)).
d)
On December 29, 2017, the Company issued a $50,000 promissory note payable maturing on the date a go public transaction is completed. The unpaid principal of this promissory note payable shall not accrue interest, but rather shall convert into common shares of the Company at the maximum permissible discount allowed pursuant to the rules of the Canadian Securities Exchange. On April 23, 2018, as part of the Transaction, the debt of $50,000 was converted into 268,817 units of the Company consisting of one common share and one share purchase warrant (note 17(a)).
e)
On February 5, 2018 and March 12, 2018, the Company issued promissory notes payable in the amounts of $55,000 and $150,000, respectively. Upon December 31, 2020, the promissory notes payable will be repayable on demand and will bear interest at 6% per annum.
f)
On August 10, 2018 the Company issued a promissory note payable in the amount of $140,000. This promissory note payable will be repayable on demand and will bear interest at 7% per annum.
g)
On December 31, 2018 the Company issued a promissory note payable in the amount of $150,449 (C$205,000). This promissory note payable is due December 31, 2020 and will bear interest at 6% per annum. On April 1, 2019, the Company converted the promissory note 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) (note 17(a)).
EMPOWER CLINICS INC.
(Formerly Adira Energy Ltd.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017
(in United States dollars, except where noted)
11.
NOTES PAYABLES (continued)
i)
On January 21, 2019 the Company issued a promissory note payable in the amount of $33,842 (C$45,000). This promissory note payable is due December 31, 2020 and bears 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) (note 17(a)).
j)
On April 30, 2019, the Company issued a promissory note payable in the amount of $125,000. The promissory note is due July 31, 2019 and bears interest at a rate of 4% per annum (note 5). 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 in the loan was not paid in full by August 31, 2019. As at December 31, 2019, the Company remained in default on the note.
k)
On October 1, 2019, the Company issued a promissory note payable in the amount of $188,765 (C$250,000). This promissory note payable is 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 has 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). During the year ended December 31, 2019, the Company recorded interest expense of $4,722 and accretion expense of $12,337 with respect to the promissory note payable.
On May 20, 2020, the Company issued a total of 844,444 common shares of which 694,444 were to settle the administrative charge of $18,876 (C$25,000) and the remaining 150,000 common shares were to settle the obligation to issues shares. of the Company (note 26(b)(viii)). As of the date of these financial statements, the note has not been repaid and the Company is in default.
12.
CONVERTIBLE NOTES PAYABLE
| | | |
| | | | |
| Balance, beginning of period | $- | $- | $- |
| Issue of notes payable | 188,893 | - | - |
| Unrealized foreign exchange loss | 3,596 | - | - |
| Interest expense | 228 | - | - |
| Balance, end of period | 192,717 | - | - |
| Less: non-current portion of notes payable | - | - | - |
| Current portion of notes payable | $192,717 | $- | $- |
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.
EMPOWER CLINICS INC.
(Formerly Adira Energy Ltd.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017
(in United States dollars, except where noted)
On June 12, 2015, the Company, through its wholly owned subsidiary EHC, acquired all of the assets of Presto in consideration for the assumption by the Company of Presto’s liability to Bayview Equities Ltd (the “Secured Party”) in the amount of $550,000 plus accrued interest of $35,893. The liability is secured by a grant to the Secured Party of a security interest in all the assets of EHC. The liability bears interest at 6% per annum and is due upon demand.
| | | |
| | | | |
| Balance, beginning of period | $717,460 | $676,849 | $638,537 |
| Interest | 44,251 | 40,611 | 38,312 |
| Balance, end of period | $761,711 | $717,460 | $676,849 |
14.
CONVERTIBLE DEBENTURES
Convertible debentures consist of the following:
| | | |
| | | | |
| Balance, beginning of period | $274,466 | $1,835,225 | $468,329 |
| Proceeds from Issuance of convertible debentures (a)(b)(c)(d)(e)(f)(g)(h)(i) | 753,491 | 442,437 | 1,621,791 |
| Amount allocated to conversion option (a)(b)(c)(d)(e)(f)(g)(h) (i) | (753,491) | (172,386) | (1,047,347) |
| Amount converted to units (a)(b)(c)(d)(e)(f)(g)(h) | - | (2,129,728) | - |
| Unrealized foreign exchange loss | 5,564 | - | - |
| Interest expense | 45,112 | 57,397 | 125,079 |
| Accretion expense | 102,178 | 241,521 | 667,373 |
| | $427,320 | $274,466 | $1,835,225 |
Conversion feature consists of the following:
| | | For the year ended December 31, |
| | | | |
| Balance, beginning of period | $22,565 | $1,015,997 | $- |
| Amount allocated to conversion option (a)(b)(c)(d)(e)(f)(g)(h) (i) | 753,491 | 172,386 | 1,015,997 |
| Amount converted to units (a)(b)(c)(d)(e)(f)(g)(h) | (189,735) | (298,247) | - |
| Gain on change in fair value of conversion feature | (583,526) | (890,136) | - |
| | $2,795 | $22,565 | $1,015,997 |
Fair value of the conversion feature is based on the following assumptions for the Black-Scholes option pricing on the respective grant dates:
| Grant Date | | | | | |
| March 1, 2017 | 1 | $0.0056 | $(C0.0075) | 100.0% | 0.76% | $662,061 |
| June 26, 2017 | 1 | $0.0056 | $(C0.0075) | 100.0% | 0.76% | $82,332 |
| July 31, 2017 | 1 | $0.0056 | $(C0.0075) | 100.0% | 0.76% | $72,831 |
| July 31, 2017 | 1 | $0.0056 | $(C0.0075) | 100.0% | 0.76% | $169,959 |
| July 31, 2017 | 1 | $0.0056 | $(C0.0075) | 100.0% | 0.76% | $34,832 |
| August 22, 2017 | 1 | $0.0056 | $(C0.0075) | 100.0% | 0.76% | $25,332 |
| September 27, 2018 | 1 | $0.14 | $(C0.18) | 100.0% | 1.85% | $172,386 |
| April 2, 2019 | 1 | $0.20 | $(C0.27) | 100.0% | 1.57% | $599,460 |
| May 3, 2019 | 1 | $0.24 | $(C0.32) | 100.0% | 1.67% | $154,031 |
EMPOWER CLINICS INC.
(Formerly Adira Energy Ltd.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017
(in United States dollars, except where noted)
14. CONVERTIBLE DEBENTURES (continued)
Fair value of the conversion feature is based on the following assumptions for the Black-Scholes option pricing on the respective revaluation dates:
| Grant Date | | | | | |
| December 31, 2018 | 0.74 | $0.07 | $(C0.095) | 100.0% | 1.85% | $22,565 |
| December 31, 2019 | 0.25 -0.34 | $0.03 | $(C0.04) | 100.0% | 1.71% | $2,795 |
Expected dividend yield is 0% for all measurement dates.
i.
On March 1, 2017, the Company raised $1,010,314 through the issue of convertible debentures net of finder fees, expiring on March 1, 2018. 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 C$0.39 ($0.30). The fair value of the conversion feature at the grant date was estimated at $662,061 using the Black-Scholes option pricing model. The convertible debenture was converted into 5,548,819 units of the Company on April 23, 2018 as part of the Transaction. Each unit is comprised of one common share and one common share purchase warrant. The fair value assigned to the conversion feature was at $298,247 and the fair value assigned to the debt component was $1,010,314 on the conversion date (note 17(a)(xxiii)).
ii.
On June 26, 2017, the Company raised $130,000 through the issue of convertible debentures, expiring on June 26, 2018. 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 C$0.39 ($0.30). The fair value of the conversion feature at the grant date was estimated at $82,332 using the Black-Scholes option pricing model. The convertible debenture was converted into 698,925 common shares of the Company on April 23, 2018 as part of the Transaction. Each unit is comprised of one common share and one common share purchase warrant. The fair value assigned to the conversion feature was at $nil and the fair value assigned to the debt component was $130,000 on the conversion date (note 17(a)(xxiii)).
iii.
On July 31, 2017, the Company raised $115,000 through the issue of convertible debentures, expiring on July 31, 2018. 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 C$0.39 ($0.30). The fair value of the conversion feature at the grant date was estimated at $72,831 using the Black-Scholes option pricing model. The convertible debenture was converted into 618,280 common shares of the Company on April 23, 2018 as part of the Transaction. Each unit is comprised of one common share and one common share purchase warrant. The fair value assigned to the conversion feature was at $nil and the fair value assigned to the debt component was $115,000 on the conversion date (note 17(a)(xxiii)).
iv.
On July 31, 2017, the Company converted accounts payable in the aggregate amount of $268,366 into convertible debentures expiring on July 31, 2018. 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 C$0.39 ($0.30). The fair value of the conversion feature at the grant date was estimated at $169,959 using the Black-Scholes option pricing model. The convertible debenture was converted into 1,348,426 common shares of the Company on April 23, 2018 as part of the Transaction. Each unit is comprised of one common share and one common share purchase warrant. The fair value assigned to the conversion feature was at $nil and the fair value assigned to the debt component was $268,366 on the conversion date (note 17(a)(xxiii)).
EMPOWER CLINICS INC.
(Formerly Adira Energy Ltd.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017
(in United States dollars, except where noted)
14. CONVERTIBLE DEBENTURES (continued)
v.
On July 31, 2017, three outstanding notes payable in the aggregate amount of $58,111 were converted into convertible debentures expiring on July 31, 2018. 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 C$0.39 ($0.30). The fair value of the conversion feature at the grant date was estimated at $34,832 using the Black-Scholes option pricing model. The convertible debenture was converted into 295,669 units of the Company on April 23, 2018 as part of the Transaction. Each unit is comprised of one common share and one common share purchase warrant. The fair value assigned to the conversion feature was at $nil and the fair value assigned to the debt component was $58,111 on the conversion date (note 17(a)(xxiii)).
vi.
On August 22, 2017, the Company raised $40,000 through the issue of convertible debentures, expiring on August 22, 2018. 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 C$0.39 ($0.30). The fair value of the conversion feature at the grant date was estimated at $25,332 using the Black-Scholes option pricing model. The convertible debenture was converted into 215,054 units of the Company on April 23, 2018 as part of the Transaction. Each unit is comprised of one common share and one common share purchase warrant. The fair value assigned to the conversion feature was at $nil and the fair value assigned to the debt component was $40,000 on the conversion date (note 17(a)(xxiii)).
vii.
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 (note 17(a)(xxxii)).
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 26(b)(vi)).
viii.
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.
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 cumulative 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 17(a)(xiii - xxi)).
EMPOWER CLINICS INC.
(Formerly Adira Energy Ltd.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017
(in United States dollars, except where noted)
14. CONVERTIBLE DEBENTURES (continued)
On April 7, 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 26(b)(iv)).
ix.
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. 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 26(b)(v)).
x.
The conversion features were not revalued at December 31, 2017 as the conversion price was dependent on completion of the Transaction. As a result of the Transaction, the fair value of the conversion features associated with the convertible debenture issuances during the year ended December 31, 2017 were deemed to be $nil as the convertible debentures outstanding on the date of the Transaction were all converted to common shares of the Company. Accordingly, the Company recognized a gain on change on change in fair value of conversion feature of $1,047,347 for the year ended December 31, 2018.
The lease liabilities as at January 1, 2019 can be reconciled to the operating lease commitments as of December 31, 2018 as follows:
| Operating lease commitments as at December 31, 2018 | $180,696 |
| Weighted average incremental borrowing rate as at January 1, 2019 | 6% |
| Lease liability as at January 1, 2019 | $138,444 |
The lease liability consists of the following:
| | | | | |
| | | | | |
| 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, September 30, 2019 | $14,761 | $332,150 | $387,985 | $734,896 |
| Less: non-current portion of lease liability | 3,060 | 174,681 | 337,355 | 515,096 |
| Current portion of lease liability | $11,701 | $157,469 | $50,630 | $219,800 |
During the year ended December 31, 2019, the Company recognized an expense of $92,349 with respect to short-term and low value leases.
EMPOWER CLINICS INC.
(Formerly Adira Energy Ltd.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017
(in United States dollars, except where noted)
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.
| Issuance | Expiry Date | | | |
Convertible Debt Conversion (1) | April 23, 2020 | $C0.39 $0.30 | 11,373,368 | 1,306,894 |
Note conversion (2) | April 23, 2020 | $C0.39 $0.30 | 268,817 | 30,822 |
Shares issued (3) | June 11, 2019 | $C0.36 $0.28 | 2,000,000 | 287,961 |
Note conversion (4) | October 22, 2019 | $C0.36 $0.28 | 517,132 | 52,433 |
Shares issued (5) | October 22, 2019 | $C0.36 $0.28 | 312,903 | 12,310 |
Convertible Debt Conversion (6) | December 14, 2020 | $C0.19 $0.14 | 422,678 | 14,177 |
| Change in fair value of warrant liability | | | | (1,598,425) |
| As at December 31, 2018 | June 11, 2019 | $C0.36 $0.28 | 14,894,898 | 106,172 |
Expiry (3) | October 22, 2019 | $C0.36 $0.28 | (2,000,000) | - |
Expiry (4) | October 22, 2019 | $C0.36 $0.28 | (517,132) | - |
Expiry (5) | December 14, 2020 | $C0.19 $0.14 | (312,903) | - |
Exercise (6) | June 11, 2019 | $C0.36 $0.28 | (422,678) | (18,847) |
Shares issued (7) | April 2, 2021 | $C0.16 $0.12 | 21,115,000 | 1,521,921 |
Shares issued (8) | May 3, 2021 | $C0.16 $0.12 | 5,762,500 | 429,109 |
Convertible Debt Conversion (9) | July 22, 2021 | $C0.16 $0.12 | 1,018,245 | 42,749 |
Convertible Debt Conversion (10) | August 12, 2021 | $C0.16 $0.12 | 928,817 | 33,745 |
Convertible Debt Conversion (11) | August 19, 2021 | $C0.16 $0.12 | 929,864 | 28,973 |
Convertible Debt Conversion (12) | August 26, 2021 | $C0.16 $0.12 | 909,090 | 23,992 |
Convertible Debt Conversion (13) | September 13, 2021 | $C0.16 $0.12 | 102,696 | 1,800 |
Convertible Debt Conversion (14) | September 20, 2021 | $C0.16 $0.12 | 102,812 | 2,479 |
Marketing services agreement (15) | September 22, 2022 | $C0.31 $0.24 | 3,746,080 | - |
| Change in fair value of warrant liability | | | | (2,065,781) |
| As at December 31, 2019 | | | 46,257,289 | 106,312 |
(1)
On April 23, 2018, as part of the Transaction, the Company converted convertible debentures and issued 11,373,368 share purchase warrants (note 17(a)).
(2)
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)).
EMPOWER CLINICS INC.
(Formerly Adira Energy Ltd.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017
(in United States dollars, except where noted)
16.
WARRANT LIABILITY (continued)
(3)
On June 11, 2018, the Company issued 2,000,000 units; each consists of one common share and one common share purchase warrant (note 17(a), note 23).
(4)
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 17(a)).
(5)
On October 23, 2018, the Company issued 312,903 units; each consists of one common share and one common share purchase warrant (note 17(a)).
(6)
On December 14, 2018, the Company issued 422,678 units; consisting of 422,678 common shares and 422,678 common share purchase warrants (note 17(a)(xxii)).
(7)
On April 2, 2019, the Company issued 21,115,000 units; each consists of one common share and one common share purchase warrant (note 17(a)). The warrants expire April 2, 2021
(8)
On May 3, 2019, the Company issued 5,762,500 units; each consists of one common share and one common share purchase warrant (note 17(a)). The warrants expire May 3, 2021.
(9)
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 17(a)). The warrants expire July 22, 2021.
(10)
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 17(a)). The warrants expire August 12, 2021.
(11)
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 17(a)). The warrants expire August 19, 2021.
(12)
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 17(a)). The warrants expire August 26, 2021.
(13)
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 17(a)). The warrants expire September 13, 2021.
(14)
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 17(a)). The warrants expire September 20, 2021.
(15)
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.
EMPOWER CLINICS INC.
(Formerly Adira Energy Ltd.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017
(in United States dollars, except where noted)
a)
Authorized share capital
Unlimited number of common shares without nominal or par value.
At December 31, 2019, there were 137,697,430 issued and outstanding common shares (December 31, 2018 - 77,847,598). The Company does not currently pay dividends and entitlement will only arise upon declaration.
A continuity of share capital is as follows:
| Issuance | Note | | | | |
| Balance, December 31, 2016 | | 16,100,000 | |
| $248,500 |
| January 2017 rights offering | (xxxiii) | 32,237,225 | $302,244 | $- | 302,244 |
| Balance, December 31, 2017 | | 48,337,225 | | | 550,744 |
| RTO Issuance | (xxii) | 2,544,075 | 614,415 | - | 614,415 |
| April 23, 2018 Rights offering | (xxv) | 8,443,473 | 2,020,357 | - | 2,020,357 |
| October 23, 2018 private placement | (xxix) | 312,903 | 84,248 | 12,310 | 71,938 |
| Conversion of convertible debt | (xxiii) | 11,373,368 | 2,312,444 | 1,306,894 | 1,005,550 |
| Conversion of convertible debt | (xxxii) | 422,678 | 18,990 | 14,177 | 4,813 |
| Conversion of promissory notes payable | (xxiv) | 268,817 | 50,000 | 30,822 | 19,178 |
| Conversion of notes payable | (xxviii) | 517,132 | 190,334 | 52,433 | 137,901 |
| Shares issued for marketing services agreement | (xxvi) | 2,000,000 | 477,180 | 287,961 | 189,219 |
| Shares issued for services | (xxx) | 423,076 | 92,856 | - | 92,856 |
| Shares issued to former CEO | (xxvii) | 2,000,000 | 477,180 | - | 477,180 |
| Restructuring | (xxxi) | 1,204,851 | 216,873 | - | 216,873 |
| Balance, December 31, 2018 | | 77,847,598 | | | 5,401,024 |
| Share issued for Sun Valley acquisition | (vi) | 22,409,425 | 2,143,566 | - | 2,143,566 |
| Share issued for cash | (v)(vii)(xiv) | 24,452,500 | 1,829,866 | 1,773,993 | 55,873 |
| Share issued for conversion of notes payable | (v) | 2,500,000 | 184,291 | 177,037 | 7,254 |
Shares issued for convertible debentures | (xiii)(xvii) (xviii)(xix) (xx)(xxi) | 3,991,524 | 189,735 | 133,738 | 55,997 |
| Shares issued for compensation | (x)(xi) | 7,400,000 | 304,721 | - | 304,721 |
| Shares issued for services | (vi) | 1,500,000 | 257,041 | - | 257,041 |
| Shares issued for settlement of accounts payable | (xv)(xvi) | 1,686,861 | 208,153 | | 208,153 |
| Shares cancelled | (i)(ii)(xii) | (4,657,553) | - | - | (669,236) |
| Shares cancelled and to be reissued | (ii) | - | (15,239) | - | (15,239) |
| Shares issued for exercise of warrants | (iv) | 431,075 | 42,440 | (18,847) | 61,287 |
| Shares issued to agents | (vii)(ix) | 136,000 | 20,255 | - | 20,255 |
| Share issue costs | | - | - | - | (3,386) |
| Balance, December 31, 2019 | | 137,697,430 | | | 7,827,310 |
EMPOWER CLINICS INC.
(Formerly Adira Energy Ltd.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017
(in United States dollars, except where noted)
The Company had the following common share transactions during the year ended December 31, 2019:
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 deemed price 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 (note 26(b)(iii)).
iii.
On March 8, 2019, pursuant to a service agreement, the Company issued 1,500,000 common shares at a deemed price 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) (Note 11(g)(h)). 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 17). 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
was used to measure the derivative warrant liability with the following assumptions:
| | | May 7, 2015 | | December 31, 2016 | | December 31, 2017 |
| Expected life (years) | | | 3 | | | | 1.35 | | | | 1.35 | |
| Risk-free interest rate | | | 0.64 | % | | | 0.87 | % | | | 1.64 | % |
| Dividend yield | | | 0.00 | % | | | 0.00 | % | | | 0.00 | % |
| Foreign exchange rate (USD/CAD) | | | 0.8276 | | | | 0.77 | | | | 0.79 | |
| Expected volatility | | | 222.04 | % | | | 147.70 | % | | | 140.00 | % |
EMPOWER CLINICS INC. (formerly ADIRA ENERGY LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 release during the year ended December 31
2017, 2016 and 2015U.S. dollars in thousands, except share and per share data
NOTE 10: FINANCIAL INSTRUMENTS
The Company's activities expose it to various financial risks, such as market risks (foreign currency risk, consumer price index risk, interest risk and price risk), credit risk and liquidity risk. The Company's comprehensive risk management program focuses on actions to minimize potential adverse effects on the Company's financial performance.
Concentration of credit risk exists with respect to the Company's cash and cash equivalents, other receivables and prepaid expenses and loans receivable. The Company’s exposure as2019. As at December 31, 20172019, there were 12,254,904 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 2016 wasone 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 $14a 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 $52 respectively, which consistedthe issuance of $14 (2016 - $19) 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%.
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.
EMPOWER CLINICS INC.
(Formerly Adira Energy Ltd.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017
(in cashUnited States dollars, except where noted)
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 deemed 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 bank accountsescrow and $nilvest 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, 2019 a total of 324,852 common shares had vested,
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
loan receivables (2016 - $25).escrow and vest quarterly with 44,400 common shares vesting each quarter commencing September 17, 2019. The Company manages credit risk, in respectwill record a quarterly expense of cash$47,937 to operating expenses on the consolidated statements loss and cash equivalents, and restricted cash, by holding them at major Canadian and Israeli financial institutions in accordance withcomprehensive loss as the Company's investment policy. The Company places its temporary cash and cash equivalents with high credit quality financial institutions. The Company regularly monitors credit extended to customers and their general financial condition. The Company historically has not had significant past-due receivables.
Liquidity risk is the risk thatshares vest.
xii.
On July 3, 2019, the Company will encounter difficulty in obtaining funds to meet current obligationscancelled 2,000,000 common shares with a fair value of $0.09 ($0.12) per common share. The common shares were reacquired and future commitments. The Company's approach to managing liquidity risk is to forecast cash requirements to determine whether it will have sufficient funds to meet its current liabilities when due. As of December 31, 2017,cancelled as the Company had cashcancelled the marketing services agreement, pursuant to which the common shares and cash equivalentswarrants were originally issued, due to non-performance of $14 (2016 - $19)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), other receivables,the Company issued 1,018,245 common shares and prepaid expenses1,018,245 common share purchase warrants. Each warrant entitles the holder to acquire one common share at a price of $nil (2016 – $8)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 loan receivablethe debt was valued at $nil. Consideration of $nil (2016 - $25)$42,749 was recorded to settle current liabilitieswarrant 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
$349 (2016 – $274).Market risk is$198,591 (C$258,019) resulting in a gain on debt settlement of $12,125.
xvi.
On July 30, 2019, the risk that theCompany issued 276,923 common shares at a fair value or future cash flows 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 financial instrument will fluctuate becausegain on debt settlement of changes $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.
(Formerly Adira Energy Ltd.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017
(in market prices. Market riskUnited 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.
The Company had the following common share transactions during the year ended December 31, 2018:
xxii.
On April 19, 2018, as part of the Transaction (note 5), 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 deemed price of C$0.31 ($0.24) per share for purchase consideration of $614,415.
xxiii.
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 (note 16). 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.
xxiv.
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 (note 16). Consideration of $30,822 was recorded to warrant liability and the residual amount of $19,178 was recorded to issued capital.
xxv.
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).
EMPOWER CLINICS INC.
(Formerly Adira Energy Ltd.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017
(in United States dollars, except where noted)
xxvi.
On June 11, 2018, pursuant to a marketing services agreement, the Company issued 2,000,000 units at a deemed price 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.
xxvii.
On June 11, 2018, pursuant to obligations under employment contract, the Company issued 2,000,000 common shares to the former CEO, for a deemed value of $0.24 (C$0.31) per common share for total consideration paid to the former CEO of $477,180 (C$620,000) (note 23).
xxviii.
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 (note 16). Consideration of $52,433 was recorded to warrant liability and the residual amount of $137,901 was recorded to issued capital.
xxix.
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 (note 16). Consideration of $12,310 was recorded to warrant liability and the residual amount of $71,938 was recorded to issued capital.
xxx.
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).
xxxi.
On October 23, 2018, pursuant to restructuring, the Company issued 1,204,851 common shares for $0.18 (C$0.23) per common share.
xxii.
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
typesyears following the closing date of
risk: interest rate riskthe conversion (note 16). At the date of the conversion, the conversion feature was valued at $nil and
foreign currency risk.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.
The Company is not exposedhad the following common share transactions during the year ended December 31, 2017:
xxxii.
In January 2017, pursuant to
significant interest rate risk due toa shareholder rights offering financing, the
short-term maturityCompany issued 32,237,225 common shares for $0.0094 per common share for gross proceeds of
its cash equivalents.The Company is exposed to financial risk related to the fluctuation of foreign exchange rates. Most of the Company's monetary assets are held $302,244 (C$375,000).
EMPOWER CLINICS INC.
(Formerly Adira Energy Ltd.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017
(in U.S.United States dollars, and most of the Company's expenditures are made in Canadian dollars. except where noted)
The Company has
not hedged its exposurean incentive share option plan (“the plan”) in place under which it is authorized to
currency fluctuations. An increase or decreasegrant share options to executive officers, directors, employees and consultants. The plan allows the Company to grant share options up to a maximum of
5%10.0% of the
Canadian dollar would not have a significant effect onnumber of issued shares of the Company.
EMPOWER CLINICS INC. (formerly ADIRA ENERGY LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Share option transactions and the number of share options outstanding during the years ended December 31, 2019 and 2018, are summarized as follows:
| | | Weighted average exercise price ($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 |
| Exercisable, December 31, 2019 | 9,839,573 | 0.16 |
Share options outstanding and exercisable at December 31, 2019, are as follows:
| Number of options outstanding | Weighted average exercise price (C$) | Weighted average life of options (years) | Number of options exercisable | Weighted average exercise price (C$) | Weighted average life of options (years) |
0.10 | 1,400,000 | 0.10 | 2.01 | 1,133,333 | 0.10 | 1.98 |
0.14 | 7,700,000 | 0.14 | 4.28 | 7,400,000 | 0.14 | 4.46 |
0.26 | 450,000 | 0.26 | 3.80 | 406,240 | 0.26 | 3.80 |
| 900,000 | 0.38 | 3.40 | 900,000 | 0.38 | 3.40 |
| 10,450,000 | 0.16 | 3.88 | 9,839,573 | 0.16 | 4.04 |
The fair value of share options recognized as an expense during the year ended December 31, 2019, was $608,944 (year ended December 31, 2018 - $892,417, year ended December 31, 2017 - $5,433). The following are the assumptions used for the Black Scholes option pricing model valuation of share options granted during the years ended December 31, 2019 and 2018:
| | | |
| | | | |
| Risk-free interest rate | 1.34% | 2.19%-2.37% | 0.76% |
| Expected life | 3-5 years | 5 years | 5 years |
| Expected volatility | 100.0% | 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.
(Formerly Adira Energy Ltd.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017
(in United States dollars, except where noted)
c)
Agent share purchase warrants
Agent share purchase warrant transactions and the number of agent share purchase warrants outstanding during the years ended December 31, 2019 and 2018, are summarized as follows:
| Number of agent share purchase warrants | Weighted average exercise price |
| Outstanding, December 31, 2017 | - | - |
Granted (1) | 627,378 | $0.31 |
| Outstanding, December 31, 2018 | 627,378 | $0.31 |
Granted (2)(3)(4) | 877,440 | $0.16 |
| Outstanding, December 31, 2019 | 1,504,818 | $0.24 |
| Exercisable, December 31, 2019 | 1,504,818 | $0.24 |
(1)
On April 23, 2018, as part of the Transaction, the Company issued 627,378 share purchase warrants to agents involved in the transaction. The share purchase warrants have an exercise price of $0.24 (C$0.31) ) and expire on April 23, 2020.
(2)
On April 2, 2019, as part of a private placement financing, the Company issued 363,900 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.
(3)
On April 2, 2019, as part of a debenture financing, the Company issued 659,490 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.
(4)
On May 3, 2019, as part of a private placement financing, the Company issued 217,950 share purchase warrants to agents. The share purchase warrants have an exercise price of $0.12 (C$0.16) and expire on May 3, 2021.
The fair value of agent share purchase warrants recognized in reserves during the year ended December 31, 2019, was $66,405 (year ended December 31, 2017 - $80,280 and 2016
- $nil). The following are the assumptions used for the Black Scholes option pricing model valuation of share options granted during the years ended December 31, 2019, 2018 and
2015U.S.2017:
| | | |
| | | | |
| Risk-free interest rate | 1.56-1.67% | 1.87% | - |
| Expected life | 2 years | 2 years | - |
| Expected volatility | 100.0% | 100.0% | - |
| Forfeiture rate | 0.0% | 0.0% | - |
| Dividend rate | 0.0% | 0.0% | - |
| | | | |
| | | | | |
| Salaries and benefits | 23 | $1,985,735 | $1,786,804 | $1,205,514 |
| Rent | | 84,924 | 272,768 | 267,272 |
| Advertising and promotion | | 313,870 | 306,799 | 171,814 |
| Telephone and internet | | 106,841 | 97,028 | - |
| Penalties | | 165,000 | - | - |
| Other | | 277,249 | 54,282 | 392,408 |
| | | $2,933,619 | $2,517,681 | $2,037,008 |
EMPOWER CLINICS INC.
(Formerly Adira Energy Ltd.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017
(in United States dollars, except where noted)
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; 2017; $nil) in
thousands, except sharenet charges related to reorganization and
per share datarestructuring headcount which resulted in multiple one-time severance payments. 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
26.5% (201527% (2018 - 27%, 2017 –
26.5%26%) to the effective tax
rates for the years ended December 31rate is as follows:
| | | 2017 | | | 2016 | |
| Loss before recovery of income taxes | | $ | (75 | ) | | $ | (215 | ) |
| Expected income tax recovery | | $ | (20 | ) | | $ | (57 | ) |
| Tax rate changes and other adjustments | | | - | | | | (1,159 | ) |
| Difference in tax rates | | | (145 | ) | | | - | |
| Non-deductible expenses | | | (12 | ) | | | (17 | ) |
| Change in tax benefits not recognized | | | 177 | | | | 1,232 | |
| Income tax (recovery) expense | | $ | - | | | $ | - | |
| | | |
| | | | |
| Loss before taxes | $(4,301,663) | $(3,789,918) | $(3,109,921) |
| Combined Canadian federal and provincial income tax rates | 27% | 27% | 26% |
| Expected income tax recovery | (1,161,450) | (1,023,280) | (808,580) |
| Items that cause an increase (decrease): | | | |
| Effect of different tax rates in foreign jurisdiction | 82,490 | 35,690 | (219,020) |
| Non-deductible expenses less other permanent differences | (367,360) | 294,780 | 10,990 |
| Tax rate changes | 8,700 | 152,650 | 233,990 |
| Change in prior year estimates | (413,020) | - | 165,540 |
| Share issuance costs and other | (36,010) | 1,690 | (560) |
| Change in tax benefits not recognized | 1,886,650 | 538,470 | 617,640 |
| Income tax recovery | $- | $- | $- |
b)
Unrecognized
Deferred Tax Assetsdeferred 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:
| | | 2017 | | | 2016 | |
| Property and equipment | | $ | 3 | | | $ | 1 | |
| Share issuance costs | | | 2 | | | | 4 | |
| Deferred expenses | | | 66 | | | | 150 | |
| Non-capital losses carried forward | | | 3,979 | | | | 7,714 | |
| Unrealized foreign exchange loss on debt | | | 4,360 | | | | - | |
The Canadian non-capital
| | |
| | | |
| Deferred tax assets: | | |
| Non-capital losses | $11,870,240 | $7,291,370 |
| Property and equipment | 31,080 | 59,640 |
| Intangible assets | 485,390 | 366,070 |
| Right of use assets net of lease liability | 25,060 | - |
| Accrued fees and compensation | 264,360 | 57,380 |
| Share issue costs | 340,880 | 179,640 |
| Capital losses carried forward | 5,420 | 5,420 |
| Unrealized foreign exchange loss | 1,880 | 1,880 |
| Goodwill | 2,266,520 | - |
| Deferred tax assets, net | $15,290,830 | $7,961,400 |
c)
Expiration of income tax loss carry-forwards expire as noted incarry forwards
As at December 31, 2019, the
table below. Share issue and financing costs will be fully amortized in 2018. The remaining deductible temporary differences may be carried forward indefinitely. Deferred tax assets have not been recognized in respectCompany has $6,158,650 of
these items because it is not probable that future taxable income will be available against which the group can utilize the benefits therefrom.The Company’s Canadian non-capital income tax losses (unrecognized) which will expire as follows:
| 2027 | | $ | 81 | |
| 2028 | | | 107 | |
| 2029 | | | 1,104 | |
| 2030 | | | 1,076 | |
| 2031 | | | 2,103 | |
| 2032 | | | 665 | |
| 2033 | | | 1,027 | |
| 2034 | | | 903 | |
| 2035 | | | 740 | |
| 2036 | | | 321 | |
| 2037 | | | 212 | |
| | | $ | 8,339 | |
over 2035 through 2039, and $5,711,590 of United States net operating losses (unrecognized) of which $2,688,420 will expire over 2035 through 2037, and $3,023,170 which are indefinite. EMPOWER CLINICS INC. (formerly ADIRA ENERGY LTD.
(Formerly Adira Energy Ltd.)
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017
(in United States dollars, except where noted)
21.
SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH FLOWS
Significant non-cash transactions were as follows:
| | | | |
| | | | | |
| Shares issued for acquisition of Sun Valley | 5,17(a) | $3,047,682 | $- | $- |
| Shares issues for compensation | 17(a),23 | 304,721 | - | - |
Shares returned to treasury (1) | 17(a),23 | (477,180) | - | - |
Shares returned to treasury (2) | 17(a) | (477,180) | - | - |
| Shares issued as settlement of note payable | 11,17(a) | 184,291 | - | - |
| Shares issued as settlement of convertible debenture | 13,17(a) | 189,735 | - | - |
| Shares issued as settlement of accounts payable | 10,17(a) | 483,098 | - | - |
| Warrants issued to agents | 17(a) | 66,405 | - | - |
| Shares issued for services | 17(a) | 122,932 | - | - |
| Shares issued to agents | 17(a) | 20,255 | - | - |
| Conversion of convertible debt to share purchase warrants | 14,16 | - | 1,292,265 | - |
| Shares issued to marketing services company | 17(a) | - | 477,180 | - |
| Shares issued to former CEO | 17(a),23 | - | 477,180 | - |
| Conversion of notes payable into units | 11 | - | 114,567 | - |
| | | $3,464,759 | $2,361,192 | $- |
(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 (note 26).
(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.
Interest payments for the year ended December 31, 2019 were $nil (year ended December 31, 2018 - $nil, year ended December 31, 2017 2016- $nil).
Income tax payments for the year ended December 31, 2019 were $nil (year ended December 31, 2018 - $nil, year ended December 31, 2017 - $nil).
22.
FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
a)
Fair value measurement of financial assets and
2015U.S. dollarsliabilities
The Company has established a fair value hierarchy that reflects the significance of inputs of valuation techniques used in
thousands, except share and per share datamaking fair value measurements as follows: NOTE 12: CAPITAL
Unlimited number of Common shares without nominal
Level 1 – quoted prices in active markets for identical assets or
par value.b. | | Issued and outstanding Common shares |
(i) | | As at December 31, 2017 and 2016, the Company had 17,112,022 shares issued and outstanding. |
(ii) | | On May 7, 2015, the Company completed a non-brokered private placement of 4,820,000 units (“Units”) for gross proceeds of $202 ($241,000 CDN). Each Unit consisted of one Common Share and one warrant. Each warrant is exercisable to acquire one Common Share at a price of CDN$0.05 per Common Share until May 6, 2018. |
As the warrants are exercisable in a currencyliabilities;
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.
EMPOWER CLINICS INC.
(Formerly Adira Energy Ltd.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017
(in United States dollars, except where noted)
22.
FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)
The carrying values of cash, accounts receivable, due from related parties, promissory note receivable, accounts payable and accrued liabilities, share subscriptions and amounts due to related parties approximate their carrying values due to their short-term nature.
The secured loan payable, notes payable, convertible note payable and convertible debentures are categorized as Level 2 and have been recorded at amortized cost. The carrying value approximates their carrying values due to their relatively short-term nature.
As at December 31, 2019 and 2018, 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 (note 14) and warrant liability (note 16), which are a Level 3 fair value measurement.
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 and 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, amounts receivable from credit card processor and promissory note receivable. The maximum exposure to the credit risk is equal to the carrying value of such financial assets. At December 31, 2019 and 2018, 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 theyis the US dollar and therefore the Company’s income (loss) and comprehensive income (loss) are treated as a derivative liability (Note 9). The fairimpacted by fluctuations in the value of the warrants was $189 and was first allocatedforeign currencies in relation to the liability withUS dollar.
The table below summarizes the residual balancenet monetary assets and liabilities held in foreign currencies:
| | |
| | | |
| | | |
| Canadian dollar net monetary liabilities | $2,434,448 | $171,578 |
| | $2,434,448 | $171,578 |
EMPOWER CLINICS INC.
(Formerly Adira Energy Ltd.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017
(in United States dollars, except where noted)
22.
FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)
The effect on loss before income tax for the year ended December 31, 2019, of
$7,a 10.0% change in the foreign currencies against the US dollar on the above-mentioned net
of $6 in share issuance costs, recorded in additional paid-in capital.Under the Company's August 31, 2009 Stock Option Plan ("the Incentive Stock Option Plan"), options may be granted to employees, officers, consultants, service providersmonetary assets and directorsliabilities of the Company or its subsidiaries.
Stock options may be issued up to 10% of the Company's outstanding Common shares at a term and an exercise priceis estimated to be determinedan increase/decrease of $316,186 (2017 - $12,577) assuming that all other variables remained constant.
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 Company's Boardfunds required to support the Company’s normal operating requirements and its expansion plans.
In the normal course of
Directors. The maximum term ofbusiness, the
options is ten years from the date of grant.As of December 31, 2017, an aggregate of 1,711,202 of the Company's options were still availableCompany enters into contracts and performs business activities that give rise to commitments for future grant.
minimum payments. The Company typically grants stock options with vesting periodshas no concentrations of between two to four years, generally with the exercise price at the closing price of the stock on the date of the grant and an expiration date of five years from the date of grant.
liquidity risk. A summary of future operating commitments is presented in note 25.
As at December 31, 2019, the stock option planCompany had a cash balance of $179,153 and current liabilities of $4,183,022. (December 31, 2018 - $157,668 and $5,436,664 respectively). The Company’s current resources are not sufficient to settle its current liabilities.
vi. Interest rate risk
Interest rate risk is the risk that future cash flows will fluctuate as a result of changes duringin 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.
23.
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,
20172019 and
2016 were2018, the Company did not enter into any transactions with related parties outside of compensation to key management personnel as
follows:| | | Number of options outstanding | | Weighted average exercise price |
| Balance, December 31, 2015 | | | 271,334 | | | $ | 2.85 | |
| Options forfeited | | | (35,334 | ) | | | 7.68 | |
| Balance, December 31, 2016 | | | 236,000 | | | $ | 2.23 | |
| Options forfeited | | | (236,000 | ) | | $ | 2.23 | |
| Balance, December 31, 2017 | | | - | | | $ | - | |
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 includes:
| | | |
| | | | |
| Salaries and benefits | $734,655 | $1,063,748 | $221,700 |
| Share-based payments | 556,040 | 892,417 | - |
| Directors fees | 11,250 | - | - |
| | $1,301,945 | $1,956,165 | $221,700 |
Included in cost of goods sold for the year ended December 31, 2019 is $31,609 (year ended December 31, 2018 - $nil) in product purchases made from Sun Valley Science LLC, an entity controlled by the Senior Vice President Development and Director.
Included in salaries and benefits for the year ended December 30, 2019 is $304,721 (year ended December 31, 2018 - $nil) related to common shares awarded to the CEO (note 17(a)).
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 (note 17(a)).
EMPOWER CLINICS INC. (formerly ADIRA ENERGY LTD.
(Formerly Adira Energy Ltd.)
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
December 31,
2017, 20162019, 2018 and
2015U.S.2017
(in United States dollars,
in thousands, except
share and per share dataNOTE 12: CAPITAL (Continued)
d. | | Share purchase warrants |
The following tables summarize information applicable to warrants outstanding as ofwhere noted)
23.
RELATED PARTY TRANSACTIONS (continued)
As at December 31,
20172019, $28,827 (December 31, 2018 - $nil) is due to the CEO for advances made on behalf of the Company and
2016:$133,444 (December 31, 2018 - $nil) is due to the CEO for salaries and benefits. The amounts are unsecured and due on demand. | Issue date | | Expiry date | | Grant date fair value | | Exercise price (*) | | Number of warrants |
| May 7, 2015 | | May 6, 2018 | | $ | 0.04 | | | $ | 0.04 | | | | 4,820,000 | |
(*) | | The exercise price of these warrants is denominated in Canadian dollars and was translated to USD in the table above using the exchange rate as of December 31, 2017. |
As at December 31, 2029, $140,000 (December 31, 2018 - $nil) 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, 2019, $nil (December 31, 2018 - $12,575) is due to related parties for final settlement of the purchase of Presto operations. Following the dismissal of legal actions with the former President and director of its subsidiary companies the Company determined that there is no longer an obligation with respect to the final settlement and as such, the amount has been credited to restructuring expense. The outstanding balance was non-interest bearing, unsecured and due on demand.
24.
MANAGEMENT OF CAPITAL
MANAGEMENT The Company’s objectives of capital management are intended to safeguard the Company’s normal operating requirements on an ongoing basis. At December 31, 2019, the capital of the Company consists of consolidated equity, notes payable, convertible debentures payable, secured loan payable, and bank indebtedness, net of cash.
| | |
| | | |
| Equity | $(3,514,913) | $(2,996,220) |
| Notes payable | 969,891 | 760,715 |
| Convertible debentures payable | 427,320 | 274,466 |
| Secured loan payable | 761,711 | 717,460 |
| | (1,355,991) | (1,243,579) |
| Less: Cash | (179,153) | (157,668) |
| | $(1,535,144) | $(1,401,247) |
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 in the early stage of gas and petroleum exploration. The Company has negativedependent on cash flows generated from current operations. The Company's primary source of funds comesits clinical operations and from external financing to fund its activities. In order to maintain or adjust its capital structure, the issuance of share capital. The Company does not use other sources of financing that require fixed payments of interestmay issue new shares or debt.
At December 31, 2019 and
principal and is2018, the Company was not subject to any externally imposed capital requirements.
The Company defines its capital
EMPOWER CLINICS INC.
(Formerly Adira Energy Ltd.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017
(in United States dollars, except where noted)
25.
COMMITMENTS AND CONTINGENCIES
Commitments
A summary of undiscounted liabilities and future operating commitments at December 31, 2019, are as share capital. To effectively managefollows:
| | | | | |
| Maturity analysis of financial liabilities | | | | |
| Accounts payables and accrued liabilities | $1,874,990 | $1,874,990 | $- | $- |
| Notes payable | 969,891 | 969,891 | - | - |
| Convertible debentures payable | 427,320 | 427,320 | - | - |
| Lease liability | 734,896 | 219,800 | 515,096 | - |
| Secured loan payable | 761,711 | 761,711 | - | - |
| Total financial liabilities | $4,768,808 | $4,253,712 | $515,096 | $- |
Contingencies
Various tax and legal matters are outstanding from time to time. In the
Company's capital requirements,event that management’s estimate of the future resolution of these matters changes, the Company
has a planning and budgeting process in place. The Company superviseswill recognize the
actual expenditure against the budget to manage its costs and commitments.The Company's capital management objective is to maximize investment returns for shareholders within the contexteffects of relevant opportunities and risks associated with the Company's operating segment. Achieving this objective requires management to consider the underlying nature of exploration activities, availability of capital, the cost of various capital alternatives and other factors. Establishing and adjusting capital requirements is a continuous administrative process.
NOTE 14: RELATED PARTY TRANSACTIONS
a. | | For the year ended December 31, 2017, the Company recognized $nil for advisory fees and operating expenses to private companies controlled by the directors or by officers of the Company (2016 - $6). |
These transactions arethese changes in the ordinary courseconsolidated financial statements in the period such changes occur.
26.
EVENTS AFTER THE REPORTING PERIOD
On April 16, 2020, pursuant to a private placement financing, the Company issued 16,325,000 units at a price of
business and are measured at the amountC$0.03 (C$0.04) per unit for gross proceeds of
consideration set and agreed by the related parties.b. | | Compensation to directors and key management personnel: |
The CEO, CFO, and V.P. Business Development, and the directors are considered key management personnel.
| | | Years ended December 31, |
| | | 2017 | | 2016 | | 2015 |
| Short-term employee benefits | | $ | - | | | $ | - | | | $ | 38 | |
| Share-based compensation | | | - | | | | - | | | | 1 | |
| | | $ | - | | | $ | - | | | $ | 39 | |
| Number of people | | | 2 | | | | 2 | | | | 2 | |
EMPOWER CLINICS INC. (formerly ADIRA ENERGY LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015
U.S. dollars in thousands, except$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 $0.07 (C$0.10) per share data
NOTE 14: RELATED PARTY TRANSACTIONS(CONTINUED)
c. | | Benefits in respect of key management persons (including directors) who are not employed by the Company: |
| | | Years ended December 31, |
| | | 2017 | | 2016 | | 2015 |
| Board of Directors fees | | $ | - | | | $ | 5 | | | $ | 45 | |
| Number of people | | | 3 | | | | 3 | | | | 3 | |
Forfor a period of two years following the year ended December 31, 2015,closing date of the financing.
On July 16, 2020, pursuant to a private placement financing, the Company recordedissued 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 gain onprice of $0.09 (C$0.12) per share for a period of twenty-four months following the closing date of the financing.
b)
Other Share Transactions
i.
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.
ii.
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 $105,327 (C$140,000) as settlement of amounts payable for marketing services.
iii.
On March 11, 2020, pursuant to the incorrect cancellation of common shares of the former CEO, the Company issued 651,875 common shares (note 17(a)(iii)).
iv.
On April 7, 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. 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.
EMPOWER CLINICS INC.
(Formerly Adira Energy Ltd.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017
(in United States dollars, except where noted)
26.
EVENTS AFTER THE REPORTING PERIOD (continued)
v.
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. Each warrant entitles the holder to acquire one common share at a price of $0.07 ($C0.10) for a period of two years following the closing date of the conversion.
vi.
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. 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.
vii.
On May 7, 2020, the Company issued 347,142 common shares for $0.06 (C$0.085) per common share for total fair value consideration of $21,054 (C$29,507) as settlement of amounts payable for legal services.
viii.
On May 20, 2020, the Company issued 844,444 common shares. The issuance settled the obligation to issue 150,000 common shares of the Company (note 11(k)). In addition, the Company issued 694,444 common shares to settle the administrative charge of $18,876 (C$25,000) (note 11(k)).
On January 22, 2020, the Company issued 870,000 share options. Each share option entitles the holder to acquire one common share at a price of $0.04 ($0.05) for a period of three years following the issuance date.
On March 30, 2020, the Company issued 600,000 share options. Each share option entitles the holder to acquire one common share at a price of $0.04 ($0.05) for a period of three years following the issuance date.
On April 23, 2020, a total of 11,642,185 warrants with an exercise price of $0.30 (C$0.39) expired.
On January 21, 2020, the Company sold its first franchise agreement whereby the franchisee will pay an upfront franchise fee to the Company, an ongoing monthly royalty based on revenue, a variable monthly technology and marketing support fee, and are required to purchase Sun Valley Health CBD product lines for their clinic location.
On March 4, 2020, the Company incorporated a wholly owned subsidiary named Empower Healthcare Facility Assets Inc. On March 4, 2020, the Company also incorporated Empower Heritage Sandy Assets Corp. Both entities are US based Delaware corporations.
On May 15, 2020, the Company incorporated a British Columbia, Canada entity named Dosed Wellness Ltd.
Subsequent to year-end, there was a global outbreak of COVID-19 (coronavirus), which has had a significant impact on businesses through the restrictions put in place by the United States, state and municipal governments regarding travel, business operations and isolation/quarantine orders. At this time, it is unknown the extent of the impact the COVID-19 outbreak may have on the Company as this will depend on future developments that are highly uncertain and that cannot be predicted with confidence. These uncertainties arise from the inability to predict the ultimate geographic spread of the disease, and the duration of the outbreak, including the duration of travel restrictions, business closures or disruptions, and quarantine/isolation measures that are currently, or may be put, in place by the United States and other payablescountries to fight the virus.
f)
Arizona Recreational Legalization Ballot
The Arizona Marijuana Legalization Initiative may appear on the ballot in Arizona as an initiated state statute on November 3, 2020. The ballot initiative would legalize the amountpossession and use of $25, arising from settlement agreements reachedrecreational marijuana for adults (age 21 years or older). The ballot initiative would allow 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 related parties.
NOTE 15: COMMITMENTS AND CONTINGENCIES
As at December 31, 2017a lock and 2016, the Company had no commitments or contingencies.
beyond public view.NOTE 16: GENERAL AND ADMINISTRATIVE EXPENSES
| | | Year ended December 31, |
| | | 2017 | | 2016 | | 2015 |
| Share-based compensation (recovery) | | | - | | | | - | | | | 2 | |
| Professional fees | | | 104 | | | | 225 | | | | 247 | |
| Rent and office expenses | | | - | | | | 7 | | | | 46 | |
| Insurance | | | 7 | | | | 16 | | | | 25 | |
| Others | | | 2 | | | | 20 | | | | 29 | |
| | | $ | 113 | | | $ | 268 | | | $ | 349 | |
The following exhibits are included in this Form 20-F:
| (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. |
(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.
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.
ADIRA ENERGY LTD.
EMPOWER CLINICS INC.
Per: /s/ Craig Snyder
Steven McAuley
Name: Craig Snyder
Steven McAuley
Title: Chairman and Chief Executive Officer
Date:
June 1, 2018- 66 -
February 4, 2021