Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of Each Class
None
Securities registered or to be registered pursuant to Section 12(g) of the Act:
COMMON SHARES
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
The number of outstanding shares of the Company’s only class of capital or common stock as at December 31, 20162018 was 17,112,02277,847,598 common shares.
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☐ No ☒
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.
Yes ☐ No ☒
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.
Yes ☒ No ☐
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).
Yes ☒ No ☐
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 ☐ |
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:
Item 17 ☐
Item 18 ☐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).
Yes ☒
(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 ☐| GENERAL | - | |||
| PART I | - | |||
| ITEM 1 - | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS | |||
| - 6 - | ||||
| ITEM 2 - | OFFER STATISTICS AND EXPECTED TIMETABLE | - 6 - | ||
| ITEM 3 - | KEY INFORMATION | - 6 - | ||
| A. | Selected Financial Data | -6 - | ||
| B. | Capitalization and Indebtedness | -7 - | ||
| C. | Reasons for the Offer and Use of Proceeds | |||
| D. | Risk Factors | |||
| ITEM 4 | INFORMATION ON THE COMPANY | - 12 - | ||
| A. | History and Development of the Company | - 12 - | ||
| B. | Business Overview | |||
| - 14 - | ||||
| C. | Organizational Structure | - 15 - | ||
| D. | Property, Plant and Equipment | - | ||
| ITEM 5 | OPERATING AND FINANCIAL REVIEW AND PROSPECTS | - | ||
| A. | Operating Results | - | ||
| B. | Liquidity and Capital Resources | |||
| C. | Research and Development, Patents and | |||
| - 23 - | ||||
| D. | - | |||
| E. | - | |||
| F. | - | |||
| G. | Safe Harbor | - 24 - | ||
| ITEM 6 | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES | - 24 - | ||
| A. | Directors and Senior Management | - 24 - | ||
| B. | Compensation | - 26 - | ||
| C. | Board Practices | - 28 - | ||
| D. | Employees | -30 - | ||
| E. | Share Ownership | -30 - | ||
| ITEM 7 | MAJOR SHAREHOLDER AND RELATED PARTY TRANSACTIONS | |||
| - 32 - | ||||
| A. | - 32 - | |||
| B. | Related Party Transactions | - 33 - | ||
| C. | Interests of Experts and Counsel | - 34 - | ||
| ITEM 8 | FINANCIAL INFORMATION | - 34 - | ||
| A. | Consolidated Statements and Other Financial Information | |||
| - 34 - | ||||
| B. | - 34 - | |||
| ITEM 9 | - 34 - | |||
| ITEM 10 | ||||
| - 35 - | ||||
| A. | - 35 - | |||
| B. | - 35 - | |||
| C. | - 35 - | |||
| D. | - 35 - | |||
| E. | Taxation | - 36 - | ||
| F. | Dividends and Paying Agents | - 42 - | ||
| G. | Statement by Experts | - 43 - | ||
| H. | Documents on Display | - 43 - | ||
| I. | Subsidiary Information | - 43 - | ||
| 3 |
| ITEM 11 | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | - 43 - | |||
| A. | Transaction Risk and Currency Risk Management | - 43 - | |||
| B. | Interest Rate Risk and Equity Price Risk | - 43 - | |||
| C. | Exchange Rate Sensitivity | - 43 - | |||
| ITEM 12 | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES | - 43 - | |||
| - 44 - | ||||
| DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES | - 44 - | |||
| ITEM 14 | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS | - 44 - | ||
| ITEM 15 | CONTROLS AND PROCEDURES | - 44 - | ||
| ITEM 16A | AUDIT COMMITTEE FINANCIAL EXPERTS | - 45 - | ||
| ITEM 16B | CODE OF ETHICS | - 45 - | ||
| ITEM 16C | PRINCIPAL ACCOUNTANT FEES AND SERVICES | - 45 - | ||
| ITEM 16D | EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES | - 46 - | ||
| ITEM 16E | PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS | - 46 - | ||
| ITEM 16F | CHANGES TO REGISTRANT’S CERTIFYING ACCOUNTANT | - 46 - | ||
| ITEM 16G | CORPORATE GOVERNANCE | - 46 - | ||
| PART III | ||||
| ITEM 17 | - 47 - | |||
| FINANCIAL STATEMENTS | - 47 - | |||
| ITEM 19 | - | |||
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;
“We”, “us”, “our”,and the“Company” means Empower, a Company currently listed for trading on the Canadian Securities Exchange and Frankfurt Stock Exchange
Empower and its change of name to Adira Energy Ltd. on December 17, 2009.
Except as noted, the information set forth in this Form 20-F is as of December 31, 20162018 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.
| 5 |
| ITEM 1 | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS |
Not applicable.
Not applicable.
The selected historical information presented in the table below for the years ended December 31, 2016, 2015, 2014, 2013,2018, 2017 and 20122016 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, | ||||||||||||||||||||
| 2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||
| ($ thousands) | ||||||||||||||||||||
| Balance Sheet Data | ||||||||||||||||||||
| Cash and cash equivalents | 19 | 124 | 334 | 617 | 2,394 | |||||||||||||||
| Total Assets | 52 | 163 | 409 | 3,226 | 15,340 | |||||||||||||||
| Total Liabilities | 341 | 237 | 223 | 3,803 | 10,330 | |||||||||||||||
| Total Shareholders’ Equity (deficit) | (289 | ) | (74 | ) | 186 | (577 | ) | 5,010 | ||||||||||||
Year ended December 31 | ||||||||||||||||||||
| 2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||
| ($ thousands) | ||||||||||||||||||||
| Operating Data | ||||||||||||||||||||
| Revenues and other income | - | - | - | 17 | 1,889 | |||||||||||||||
| Expenses: | ||||||||||||||||||||
| Exploration expenses | - | - | - | 677 | 1,026 | |||||||||||||||
| General and administrative expenses | 268 | 349 | 602 | 2,813 | 5,304 | |||||||||||||||
| Gain on settlement of accounts payable and others payables | - | (25 | ) | (1,374 | ) | - | - | |||||||||||||
| Impairment charge | - | - | - | 5,168 | 7,810 | |||||||||||||||
| Total expenses | 268 | 324 | (772 | ) | 8,658 | 14,140 | ||||||||||||||
| Operating profit (loss) | 268 | 324 | 772 | (8,641 | ) | (12,251 | ) | |||||||||||||
| Financing income | - | - | - | 3,027 | 2,480 | |||||||||||||||
| Loss on foreign exchange | (8 | ) | (23 | ) | (37 | ) | (30 | ) | (745 | ) | ||||||||||
| Gain on revaluation of warrant liability | 45 | 78 | - | - | - | |||||||||||||||
| Profit (loss) before income taxes | (215 | ) | (269 | ) | 735 | (5,644 | ) | (10,516 | ) | |||||||||||
| Income taxes | - | - | - | - | (41 | ) | ||||||||||||||
| Net profit (loss) and comprehensive profit (loss) | (215 | ) | (269 | ) | 735 | (5,644 | ) | (10,557 | ) | |||||||||||
| Basic and diluted net (loss) profit per share attributable to equity holders of the parent | (0.01 | ) | (0.02 | ) | 0.06 | (0.47 | ) | (1.19 | ) | |||||||||||
Weighted average number of common shares used in computing basic and diluted net loss per share | 17,112,022 | 15,439,508 | 12,158,302 | 12,052,073 | 2,954,241 | |||||||||||||||
| Year Ended December 31, | ||||||||
| 2018 | 2017 | |||||||
| $ | $ | |||||||
| Balance Sheet Data | ||||||||
| Cash and cash equivalents | 157,668 | – | ||||||
| Total Assets | 513,792 | 629,802 | ||||||
| Total Liabilities | 3,510,012 | 5,436,664 | ||||||
| Total Shareholders’ Deficit | (2,996,220 | ) | (4,806,862 | ) | ||||
| Operating Data | ||||||||
| Revenues and other income | 1,091,386 | 1,507,050 | ||||||
| Expenses | ||||||||
| Direct clinics expenses | 417,047 | 638,834 | ||||||
| Operating expenses | 2,517,681 | 2,037,008 | ||||||
| Legal and professional fees | 1,450,141 | 1,131,041 | ||||||
| Depreciation and amortization expense | 123,473 | 103,372 | ||||||
| Share-based payments | 892,417 | 5,433 | ||||||
| Loss from operations | (4,309,373 | ) | (2,408,638 | ) | ||||
| Other (gains) expenses | (519,455 | ) | 701,283 | |||||
| Loss before income taxes | (3,789,918 | ) | (3,109,921 | ) | ||||
| Deferred tax recovery | – | – | ||||||
| Net loss and comprehensive loss | (3,789,918 | ) | (3,109,921 | ) | ||||
| Basic and diluted net loss per share | (0.06 | ) | (0.06 | ) | ||||
| Weighted average number of common shares used in computing basic and diluted net loss per share | 66,670,041 | 48,072,262 | ||||||
Empower has never declared or paid any cash or other dividends.
| 6 |
Not applicable.
Not applicable.
An investment in our securities is highly speculative and involves a high degree of risk. Our Company may face a variety of risks that may affect our operations or financial results and many of those risks are driven by factors that we cannot control or predict. Before investing in our company’s securities, investors should carefully consider the following risks. The risks and uncertainties described below are not the only risks and uncertainties that we face or that an investment in our securities entails. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations. Any of the following risks could materially and adversely affect our business, financial condition, prospects and results of operations. In that case, investors may lose all or a part of their investment. The risks discussed below also include forward-looking statements and the out actual results may differ substantially from those discussed in these forward-looking statements. See ‘‘Note Regarding Forward Looking Statements” and “Operating and Financial Review and Prospects”.
Risks Associated with the Company
Our independent auditors have referred to circumstances which might result in doubt about our ability to continue as a going concern, which may hinder our ability to obtain future financing.
At December 31, 2016, we2018, the Company had ana working capital deficiency of $3,070,900 (December 31, 2017 - $5,278,030), has not yet achieved profitable operations, has accumulated deficit of $34.3 million.$9,369,941 (December 31, 2017 - $5,580,023). 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, 2016, 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 do not reflect any adjustments that might result if we are unable to continue our business.
Regulatory Risks.
The Company operates in a holding company, our ability to make payments will eventually depend on the cash flows of our subsidiaries.
The Company will incur ongoing costs and obligations related to regulatory compliance. Failure to comply with regulations may result in additional costs for corrective measures, penalties or in restrictions of our operations. In addition, changes in regulations, more vigorous enforcement thereof or other unanticipated events could require extensive changes to the Company's operations, increased compliance costs or give rise to material liabilities, which could have a material adverse effect on the business, results of operations and financial condition of the Company.
The industry is subject to extensive controls and regulations, which may significantly affect the financial condition of market participants. The marketability of any product may be affected by numerous factors that are beyond the Company's control our costs, continue complyingand which cannot be predicted, such as changes to government regulations, including those relating to taxes and other government levies which may be imposed. Changes in government levies, including taxes, could reduce the Company's earnings and could make future capital investments or the Company's operations uneconomic. The industry is also subject to numerous legal challenges, which may significantly affect the financial condition of market participants and which cannot be reliably predicted.
| 7 |
Change in Laws, Regulations and Guidelines.
The Company operates in an industry that is not recognized as a legal industry by the US Federal government.
The Company operates a growing network of physician-staffed medical cannabis clinics with a primary focus on enabling patients to improve and protect their health. These clinics operate in those states where the medicinal use of cannabis produces is permitted.
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 manufacture, management, transportation, storage and disposal of medical cannabis and also including laws and regulations relating to health and safety, privacy and the conduct of operations. While to the knowledge of the Company's management, the Company is currently in compliance with all applicablesuch laws, changes to such laws, regulations and expand our internal management, technical informationguidelines due to matters beyond the control of the Company may cause adverse effects to the Company's operations and accounting systemsthe financial condition of the Company.
The industry is subject to support our desired growth. If we failextensive 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 manage our anticipated growth effectively, ourgovernment regulations, including those relating to taxes and other government levies which may be imposed. Changes in government levies, including taxes, could reduce the Company's earnings and could make future capital investments or the Company's operations uneconomic.
Market Risks.
The Company’s securities will trade on public markets and the trading value thereof is determined by the evaluations, perceptions and sentiments of both individual investors and the investment community taken as a whole. Such evaluations, perceptions and sentiments are subject to change, both in short term time horizons and longer term time horizons. An adverse change in investor evaluations, perceptions and sentiments could have a material adverse outcome on the Company and its securities.
Price Risks.
Cannabis is a developing market, likely subject to volatile and possibly declining prices year over year, as a result of increased competition. Because medical cannabis products are a newly commercialized and regulated industry, historical price data is either not available or not predictive of future price levels. There may be downward pressure on the average prices for medical cannabis products and that price volatility might not be favorable to the Company. Pricing will depend on the number of patients who gain physician approval to purchase medical cannabis. An adverse change in the cannabis prices, or in investors’ beliefs about trends in those prices, could have a material adverse outcome on the Company and its securities.
Financing Risks.
The Company will be dependent on raising capital through a combination of debt and/or equity offerings. There can be no assurance that the capital markets will remain favorable in the future, and/or that the Company will be able to raise the financing needed to continue its business at favorable terms, or at all. Restrictions on the Company’s ability to finance could be adversely affected.
| 8 |
Key Personnel Risks.
The Company’s efforts are dependent to a large degree on the skills and experience of certain of its key personnel, including the board of directors. The Company does not maintain “key man” insurance policies on these individuals. Should the availability of these persons’ skills and experience be in any way reduced or curtailed, this could have agreeda 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 indemnify our directorshave more financial resources, industry, manufacturing and marketing experience than the Company. Additionally, there is potential that the industry will undergo consolidation, creating larger companies that may have increased geographic scope and other economies of scale. Increased competition by larger, better-financed competitors with geographic or other structural advantages could materially and adversely affect the business, financial condition and results of operations of the Company.
To remain competitive, the Company will require a continued level of investment in research and development, marketing, sales and client support. The Company may not have sufficient resources to maintain research and development, marketing, sales and client support efforts on a competitive basis which could materially and adversely affect the business, financial condition and results of operations of the Company.
History of Net Losses; Accumulated Deficit; Lack of Revenue from Operations.
The Company has incurred net losses to date. The Company may continue to incur losses. There is no certainty that the Company will operate profitably or provide a return on investment in the future.
Uninsurable risks.
The Company may become subject to liability for events, against liabilities incurred by them as directors.
Financial Instruments & Other Instruments.
The Company’s financial instruments consist of cash, accounts payable and accrued liabilities and due to related parties, convertible debt and loans payable. Cash is classified as fair value through profit or administrative actionloss 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 proceeding to which they are made a party or with which they are threatened by reasoncredit risks arising from these financial instruments.
The fair value of being or having been a director of Adira, provided that (a) they have acted honestly and in good faith with a viewarms-length financial instruments approximates their carrying value due to the best interests of Adira; and (b) in the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, they had reasonable grounds for believing that their conduct was lawful. This indemnity may reduce the likelihood of derivative litigation against our directors and may discourage or deter our shareholders from suing the directors.
Risks Associated with Our Business
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.
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.
| 9 |
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.
| 10 |
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.
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.
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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.
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.
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”.
Name
Our legal and commercial name is Adira Energy Ltd.
Principal Office
Our principal office is located at 4101 Yonge918-1030 West Georgia Street, Suite 706, Toronto, Ontario, Canada, M2P 1N6. Our telephone number is (416) 361 2216.Vancouver BC V6E 2Y3.
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Incorporation and Continuation
We are a Canadian corporation existing under the CBCA.
Our common shares are registered under Section 12(g) of the Exchange Act. Our current trading symbol on the OTC Bulletin Board (the “OTCBBOTCQB”) is “ADENF”“EPWCF” and our current trading symbol on the TSX VentureCanadian Securities Exchange (the “TSXVCSE”) is “ADL”“CBDT”.
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 Energy
Acquisition
Effective April 30, 2019, the Securities Act (British Columbia). Accordingly, we and our insiders became subject to the continuous disclosure requirements under the securities lawsCompany acquired 100% of the Provincemembership interest of British Columbia, Canada. We received final approvalSun 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 listing on the TSXV on December 1, 2010,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 on December 2, 2010, our common shares commenced trading on
- Sun Valley Certification Clinics Franchising, LLC
(each, a “Subsidiary” and, collectively 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, 2016,2018, we did not incur anyincurred $100,227 in capital expenditures.
Takeover Offers
We are not aware of any indication of any public takeover offers by third parties in respect of our common shares during our last and current financial years.
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| (a) | Summary of Operations |
On June 12, 2015 SMAART, through its wholly owned subsidiary Empower Healthcare Corp, purchased all of the assets of Presto Quality Care Corporation (“Presto”), an oilOregon company that had owned and gas exploration company focusedoperated the business currently carried on early-stage explorationby SMAART. The consideration for the purchase was the assumption by SMAART of a note payable by Presto to Bayview Equities Ltd. in the Stateamount of Israel. During 2015 Oil$550,000 plus accrued interest of $35,893.
Summary of clinics:
| - | The Portland clinic was opened in 2003 |
| - | The Grants Pass clinic was opened in 2009 |
| - | The Spokane, Washington clinic was opened in January 2010 |
| - | The Riverside California clinic was opened in 2009 and was recently closed |
| - | The Bend, Oregon clinic was opened in 2011 and was recently closed |
| - | The Chicago, Illinois clinic was opened in September 2018 and was recently closed |
| - | In addition, the travelling clinics 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. |
On April 30, 2019, the Company acquired 100% of the membership interest of Sun Valley, an Arizona Limited Liability Company. Through its Subsidiaries, Sun Valley operates a network of professional medical cannabis and Gas Offshore Israel licensespain management practices, with five clinics in which we held options, all expired,Arizona, one clinic in Las Vegas, a tele-medicine platform serving California, and we determined that we should terminate our oil and gas explorationa fully developed franchise business as of December 31, 2015. As a result, we became a shell company. As discussed above, we are focusing on advancing our proposed transaction with SMAART.
| (b) | Effects of Government Regulations |
See Item 3D - “Risk Factors”.
| Corporate Office |
Our executive offices located at 4101 Yonge918-1030 West Georgia Street, Suite 706, Toronto, Ontario, Canada, M2P 1N6.
| (e) | Special Skill and Knowledge |
Steven McAuley, our Chairman and Alan Friedman, our Executive Vice President – Corporate Development, haveCEO has significant experience in evaluatingmanaging and executing transaction similar to the one with SMAART.
| (f) | Foreign Operations |
During the fiscal years ended December 31, 2015,2018, and 2014,2017, all of our oil and gas explorationoperating activities were in the StateUnited States of Israel. We terminated our oilAmerica.
| (g) | 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 gas explorationmarketing 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, asfinancial condition and results of December 31, 2015.operations of the Company.
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To remain competitive, the year ended December 31, 2016, we have focused on advancing our proposed transaction with SMAART.
| (h) | Dependence on Customers and Suppliers |
The Company has over 165,000 patients and as such, we are not dependent upon a concentration of customers orcustomers. The Company is not exposed to concentration of suppliers.
| C. | Organizational Structure |
The following table sets out the current organizational structure of the Company and its significant subsidiaries, all wholly owned through SMAART:
| 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. | Washington, USA |
| CanMed Solutions Inc. | Oregon, USA |
| 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 |
Sun Valley Acquisition on April 30, 2019 consisted of cash, common shares of the Company and a promissory note having an aggregate value of $3,960,000 as summarized below:
| 1. | A cash payment of $775,000, of which $150,000 is being held back by the Company, half of which is to be released six months from the date of Closing and the other half of which is to be release twelve months from the date of Closing; |
| 2. | Issuance of 22,058,823 common shares of the Company at a deemed price of $0.136 (CDN$0.183) per Share, representing the average daily closing price of the common shares on the CSE for the 10-day trading period ended April 26, 2019. Pursuant to an escrow agreement dated April 30, 2019, 14,705,882 of the common shares will be held in escrow by Odyssey Trust Company, and will vest in quarterly installments over 36 months from the date of the Closing; |
| 3. | A cash payment of $12,318 and issuance of 350,602 common shares at a deemed price of $0.136 (CDN$0.183) per Share, representing the average daily closing price of the common shares on the CSE for the 10-day trading period ended April 26, 2019 to a minority shareholder of one of the Subsidiaries in order to acquire their minority interest therein; and |
| 4. | A promissory note of US$125,000 bearing interest at a rate of 4% per annum and due July 31, 2019, to a minority shareholder of one of the Subsidiaries in order to acquire their minority interest therein. |
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| D. | Property and Equipment |
Property and Policies
| - | 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 preparations are underway to begin licensing and permit requirements to commence operations in 2019. Expenditures for the expansion are currently 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.
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, 2016.2018. It should be read in conjunction with our audited consolidated financial statements and related notes for the year ended December 31, 2016.2018. Our financial statements have been prepared in accordance with IFRS as issued by the IASB.
Consolidated results of operations for the year ended December 31, 20162018 compared to the year ended December 31, 2015.2017.
Clinic Revenues
Revenues were $1,091,386, compared to $1,507,050 during fiscal 2017 as the Company received 7,607 patients spending on average $143, compared to 9,705 patients spending on average $155 during fiscal 2017.
Currently the Company receives one revenue stream which is patient visits to existing clinics. The Company expects to expand that revenue stream as the Chicago clinic patient base grows and the Sollievo product brand is rolled out.
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The Company has seen a decline in revenues from 2016 through to 2018 due to three factors. The introduction of recreational cannabis to Oregon, a reduction in marketing spend while we reposition our brand and Administrative Expensesits treatment through online, social and mobile upgrades and competitive introduction and pressure. The Company believes all three areas are being addressed effectively and will be reflected in future revenues.
Direct clinic expenses
Direct clinic expenses were $417,047, compared to $638,834 during fiscal 2017. These costs are a function of our doctor roster and clinic staff to run their clinics. The Company employs both medical doctors and nurses and clinic staff to run their clinics. The Company is currently adding doctors and nurses in the clinic operating areas thereby cutting down on medical travel expenses.
Operating expenses
Operating expenses were $2,517,681, compared to $2,037,008 during fiscal 2017, which is primarily due to additional staff and management being required since the acquisition of Adira. Specifically, salaries and benefits were $1,786,804, compared to $1,205,514 during fiscal 2017. Other significant components of the increases in operating expenses since fiscal 2016 include: rent of $272,768, in line with $267,272 during fiscal 2017; advertising and promotion of $306,799 compared to $171,814 during fiscal 2017; telecommunications of $97,028 compared to $nil during fiscal 2017; and other expenses of $54,282 compared to $392,408 during fiscal 2017.
Legal and professional fees
Legal and professional fees were $1,450,141, compared to $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 completed in April 2018.
Depreciation and amortization expense
Depreciation and amortization expense was $123,473, compared to $103,372 during fiscal 2017. This increase is in line with the increase in property and equipment during fiscal 2018.
Share-based payments
Share-based payments expense was $892,417, compared to $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, 2016, general2018 and administrative expenses amounted to $268 thousand as2017.
Listing fee
Listing fee expense was $1,308,808, compared to $349 thousand for year ended December 31, 2015.$nil during fiscal 2017, in connection with the Company’s acquisition with Adira. The decrease in generallisting fee expense is comprised of $614,415 share consideration, $365,871 legal and administrative expenses in 2016 resulted primarily fromprofessional fees, and $328,522 of net liabilities acquired.
Accretion expense
Accretion expense was $241,521, compared to $667,373 during fiscal 2017. Accretion expense decreased due to the continued significantmajority of convertible debentures converting during fiscal 2018.
Interest expense
Interest expense decreased to $126,375, compared to $186,001 during fiscal 2017, owing to a reduction in compensation to officersthe amount of the Company.notes payable and convertible debenture liabilities outstanding.
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Gain on debt settlement
Gain on debt settlement was $nil, compared to $106,360 during fiscal 2017 as a result of settlement of accounts payable and others payablesdebt balances with debt holders during fiscal 2017.
(Gain) loss on change in fair value of warrant liability
The Company recorded a gain on settlementthe change in the fair value of $Nil asthe warrant liability of $1,598,425, compared to $25 thousand for year ended December 31, 2015.$nil during fiscal 2017. The amount in 2015 was from settlement agreements reached with suppliers which were lower than the obligations recorded as of December 31, 2014.
Gain on change in fair value of conversion option
The Company recorded a gain on the change in the fair value of the conversion option of $890,136, compared to $nil during fiscal 2017. The conversion option is required to be revalued at every quarter end and the gain resulted from the decrease in the Company’s share price during Q4 2018, which is a variable in determining the fair value of the conversion option.
As a result of the Transaction, the fair value of the conversion options associated with the convertible debenture issuances during fiscal 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 $890,136 for fiscal 2018.
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
Restructuring expense was $110,424, compared to $nil during fiscal 2017, in gain on revaluationconnection with the Company’s restructuring activities that commenced in Q4 2018.
Consolidated results of warrant liability. For the year ended December 31, 2014, the amount was Nil.
Clinic Revenues
Revenues were $1,507,050 as the Company received 7,607 patients spending on average $143, compared to $2,134,857 during fiscal 2016 as the Company received 7,784 patients spending on average $274.
The lossCompany has seen a decline in 2015 isrevenues from 2016 through to 2018 due to three factors. The introduction of recreational cannabis to Oregon, a reduction in marketing spend while we reposition our brand and its treatment through online, social and mobile upgrades and competitive introduction and pressure. The Company believes all three areas are being addressed effectively and will be reflected in future revenues.
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Direct clinic expenses
Direct clinic expenses were $638,834, compared to $718,108 during fiscal 2016. These costs are a function of our doctor roster and clinic staff to run their clinics. The Company employs both medical doctors and nurses and clinic staff to run their clinics.
Operating expenses
Operating expenses were $2,037,008, compared to $1,588,007 during fiscal 2016. Specifically, salaries and benefits were $1,205,514, compared to $1,053,305 during fiscal 2016. Other significant components of the increases in operating expenses since fiscal 2016 include: rent of $267,272 compared to 160,135 during fiscal 2016 as a result of additional locations being opened; advertising and promotion of $171,814 compared to $60,353 during fiscal 2016; telecommunications of $nil during compared to $88,485 during fiscal 2016; and other expenses of $392,408 compared to $225,729 during fiscal 2016.
Legal and professional fees
Legal and professional fees were $1,131,041, compared to $942,959 during fiscal 2016. 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 Company incurring generalfees associated with the RTO that completed in April 2018.
Depreciation and administrative expensesamortization expense
Depreciation and amortization expense was $103,372, compared to $120,768 during fiscal 2016. This increase is in line with no corresponding income.
Accretion expense
Accretion expense was $667,373, compared to $189,922 during fiscal 2016. This increase is due to the issuance of convertible notes payable and convertible debentures during fiscal 2017.
Interest expense
Interest expense increased to $186,001, compared to $83,705 during fiscal 2016, due to the issuance of notes payable and convertible debentures during fiscal 2017.
Gain on debt settlement
Gain on debt settlement was $106,360, compared to $nil during fiscal 2016. The increase is the result of settlement of debt balances with debt holders during fiscal 2017.
Impairment of equipment
Gain on debt settlement was $nil, compared to $14,500 during fiscal 2016. During Fiscal 2016 an impairment loss of $14,500 was recognized to reduce generalfurniture and administration expenses,equipment carrying values to their fair market value.
Impairment of intangible assets
Gain on debt settlement was $nil, compared to $64,800 during fiscal 2016. During Fiscal 2016 an impairment loss of $64,800 was recognized to reduce trademarks, domain names and Adira Israel obtaining significant discounts from settlement agreements reached with suppliers which were lower than the obligations recorded as of December 31, 2013.management software carrying values to their fair market value.
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Inflation
During the years ended December 31, 2016, 20152018, 2017 and 2014,2016, inflation has not had a material impact on our operations.
Foreign Exchange Risk
We are exposedhave limited exposure to financial risk related to the fluctuation of foreign exchange rates. We operate in Israel,the U.S., most of our monetary assets are held in U.S. dollars and most of our expenditures are made in U.S. dollars. However, we also have expenditures in NIS and Canadian dollars.CDN$. 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 Resources
Factors that may affect the Company’s liquidity are continuously monitored. These factors include the number of patient visits, average patient spend per visit, operating costs, capital costs, income tax refunds, foreign currency fluctuations, seasonality, market immaturity and a measurehighly 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 company’sresult, 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 meet potential cash requirements. We have historically met our capital requirements through the issuance of common shares.
We have an accumulated deficit of $34.3 million$9,369,941 as of December 31, 20162018 ($34,1345,580,023 as at December 31, 2015)2017), and had negative cash flows from operations of $105 thousand$2,835,710 for the year ended December 31, 20162018 ($391 thousand1,587,760 for the year ended December 31, 2015)2017). We no longer hold any interests in any oil and gas exploration projects. Our ability to continue as a going concern depends upon our ability to complete our acquisition of SMAART and to obtain financing to continue our operations.
Year ended December 31, 2016 2018 compared to year ended December 31, 2015
During the year ended December 31, 2016,2018, the Company’s overall position of cash and cash equivalents decreasedincreased by $105 thousand.
The Company’s net cash used in operating activities during the year ended December 31, 20162018 was $105 thousand$2,835,710 as compared to $391 thousand$1,587,760 for the year ended December 31, 2015.2017. This decreaseincrease is primarily as a result of a decrease in revenues, an increase in accounts payable.
Cash used in investing activities during the year ended December 31, 20162018 was $Nil$100,227 as compared $15 thousand$31,598 during the year ended December 31, 2015. The use of cash in 20152017. This spending primary relates primarily to the granting of a loan receivable in the amount of $25 thousand to SMAART in contemplation of the Transaction, offset by the decrease of restricted cash during the year. SMAART repaid this loan subsequent to the year ended December 31, 2016.
Cash provided by financing activities for the year ended December 31, 20162018 was $Nil$3,093,604 as compared to $196 thousand$1,614,204 during the year ended December 31, 2015.2017. The cash provided in 2015 is as a resultprimary source of funding during both years was the issuance of common shares of the completion of a private placements of shares.company.
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Year ended December 31, 20152017 compared to year ended December 31, 2014
During the year ended December 31, 2015,2017, 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, 20152017 was $441 thousand$1,587,760 as compared to $380 thousand$523,827 for the year ended December 31, 2014.2016. This increasedecrease is primarily as a result of a decrease in accounts payable.
Cash used in investing activities during the year ended December 31, 20152017 was $15 thousand$31,598 as compared to cash generated from investing activities of $37 thousand$nil during the year ended December 31, 2014. The use2016. This spending primary relates to property and equipment expenditures, none 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 cashwhich was required during the same period.
Cash provided by financing activities for the year ended December 31, 20152017 was $196 thousand$1,614,204 as compared to $60 thousand$522,075 during the year ended December 31, 2014.2016. The cash provided in 2015 and 2014 is as a resultprimary source of funding during both years was the issuance of common shares of the completion of two separate private placements of shares.
Capital Resources
At December 31, 2016, our2018, the Company’s cash and cash equivalents were $19 thousandwas $157,668 (December 31, 20152017 - $124 thousand)$nil). The majority of this balance is being held in Canadian Dollars. OurCDN$. The Company had a working capital deficiency at December 31, 2016 was negative $222 thousand2018 of $3,070,900 as compared to positive $38 thousand$5,278,030 at December 31, 2015. We decreased our2017. The Company improved its working capital position over fiscal 2018 as a result of a large increasesignificant drop in accounts payable. Subsequent to the year-endconvertible debentures outstanding, which were converted into common shares of the Company during fiscal 2018, as well as a significant service provider has agreed to settle its accounts payable balancedecrease in the amount $155 thousand in return for shares to be issued concurrentlyconversion feature obligation associated with the closing of the SMAART Transaction.
Critical Accounting Policies and Estimates
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
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:
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 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.
Assessment of each reporting period until the vesting date reflects the extent to which the vesting period has expired and our best estimateindicators of the number of equity instruments that will ultimately vest. The expense or income recognized in profit 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.
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 cash generating unit (“CGU”) may be impaired, thereby requiring adjustment to the carrying value. The Company identified the sustained decrease in market capitalization as an indicator of impairment during the year ended December 31, 2018.
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As a result of a financial asset or groupthese impairment indicators, the Company assessed the intangible assets and assets held for sale CGUs for impairment and concluded the recoverable value of financialeach CGU was less than its carrying value and an impairment loss was recognized on intangible assets carried at amortized cost.
Revenue recognition as a result of oneadopting IFRS 15
Determination of performance obligations
The Company applied judgement to determine if a good or more eventsservice that has occurred afteris promised to a customer is distinct based on whether the initial recognitioncustomer 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 service to its patients.
Transfer of control
Judgement is required to determine when transfer of control occurs relating to the sale of the assetCompany'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.
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 loss event has an impactmay 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 estimated future cash flows. Evidence of impairment may include indicationsexpected annual effective tax rates (and tax laws) that have been enacted or substantively enacted by the debtor is experiencing financial difficulties, including liquidity difficulty and default in interest or principal payments. The amountend of the loss recordedreporting period. The current and deferred components of income taxes are estimated based on forecasted movements in profittemporary 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 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.
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Where applicable tax laws and regulations are either unclear or subject to ongoing varying interpretations, it is reasonably possible that changes in these estimates can occur that materially affect the amounts of income tax assets recognized. At the end of each reporting period, the Company reassesses unrecognized income tax assets.
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 is measuredfrom operations over each award’s vesting period. The Black-Scholes option pricing model utilizes subjective assumptions such as the difference between the asset's carrying amountexpected price volatility 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 amountexpected life of the asset is reduced through the use of an allowance account (see allowance for doubtful accounts above). In a subsequent period, the amount of the impairment loss is reversed if the recovery of the assetoption. Changes in these input assumptions can be related objectively to 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.
Contingencies
Due to the nature of the Company’s operations, various legal and revalued at each reporting date, usingtax matters can arise from time to time. In the Black-Scholes valuation method. Changesevent that management’s estimate of the future resolution of these matters’ changes, the Company will recognize the effects of the changes in fair value for each period are included in comprehensive profit and lossits consolidated financial statements for the period.
| 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 |
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.
| F. | Tabular Disclosure of Contractual Obligations |
A summary of undiscounted liabilities and future operating commitments at December 31, 2018, are as follows:
| Total | Within 1 year | 2 - 5 years | Greater than 5 years | |||||||||||||
| Maturity analysis of financial liabilities | ||||||||||||||||
| Accounts payables and accrued liabilities | $ | 1,554,892 | $ | 1,554,892 | $ | – | $ | – | ||||||||
| Notes payable | 760,715 | 610,444 | 150,271 | – | ||||||||||||
| Convertible debentures payable | 274,466 | 274,466 | – | – | ||||||||||||
| Secured loan payable | 717,460 | 717,460 | – | – | ||||||||||||
| 3,307,533 | 3,157,262 | 150,271 | – | |||||||||||||
| Commitments | ||||||||||||||||
| Future operating commitments | 180,696 | 146,036 | 34,660 | – | ||||||||||||
| Total financial liabilities and commitments | $ | 3,488,229 | $ | 3,303,298 | $ | 184,931 | $ | – | ||||||||
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.
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| G. | Safe Harbor |
Not applicable.
| ITEM 6 | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES |
| A. | 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 Adirathe Company as at the date of this Form 20-F:
Name(1) | Position |
| Director, Chairman and Chief Executive Office | |
| Andrejs Bunkse(2)(3) | Director |
Director, | |
Chief Financial Officer | |
Joseph Cohen | Chief Technology Officer |
| Andrea Klein | Vice President of Operations |
Notes:
| (1) | Neither age nor date of birth of directors or senior managers is required to be reported in our home country (Canada) nor otherwise publicly disclosed. |
| (2) | Member of Audit Committee. |
| (3) | “Independent” for purposes of National Instrument 52-110– Audit Committees (“NI 52-110”). |
The following is biographical information on our directors and offers who are acting in the capacity of director or officer as of the date hereof:
Steven McAuley – Chairman and Chief Executive Officer of Delrina Corporation, which was listed on both the Toronto Stock ExchangeOffice
Mr. McAuley is our Chairman and NASDAQ. Mr. Bennie serves on several boards and also regularly serves on various charitable boards.
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Andrejs Bunkse – Director
Mr. Bunkse has been a member of the Board of Directors of Empower since June 2019. Mr. Bunkse is currently Of Counsel to Nimbus Legal PLLC in Scottsdale Arizona, a position he has held since May 2018. Mr. Bunkse is the founder of Rain Legal (Law Offices of Andrejs K. Bunkse), a TSXV listed oil and gas exploration company, developing various oil assets offshore and onshore Namibia. He was also a director and co‐founder of Auryx Gold Corp., a TSX listed Namibian gold exploration company havingposition he has held since April 2018. Mr. Bunkse has been sold to B2 Gold for more than $150 million. Mr. Friedman is the President of Endurance Strategies Group in Phoenix, Arizona since May 2013.
Dustin Klein – Director and Chief Executive OfficerSenior Vice President of Rivonia Capital Inc. andBusiness Development
Mr. Klein has been a directormember of the Canada-South Africa ChamberBoard of Business.
Mathew Lee – Chief Financial Officer of Adira’s subsidiaries in July 2010, Secretary of Adira in August 2010, and was appointed as Adira’s
Mr. Lee has been our Chief Financial Officer since our formation in March 2019. Mr. Lee is also a self-employed consultant, a position he has held since November 2017. Between November 2016 and November 2017, Mr. Lee was the Controller of AP Capital in Vancouver, British Columbia. From December 2014 through November 2016, Mr. Lee was the Manager of Operations for Raymond James, Ltd. in Vancouver, British Columbia. From September 2007 to December 2014, Mr. Lee was the Audit Manager for Smythe LLP in Vancouver, British Columbia.
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 2011. He served as2013 through January 2019, Mr. Cohen was the Acting Principal ExecutiveChief Technology Officer of Adira during the interim period from the effective date of the termination of February 24, 2012, to February 27, 2012. Mr. Levin previously served as thefor Privatis Technology Corporation in Valley Village, CA.
Andrea Klein – Vice President of FinanceOperations
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 Chief Financial Officer for two Israeli investment housesSun Valley Health Centers Tucson, LLC which operate Sun Valley Health Businesses in the fields of private equity, hedge fundsmetropolitan Phoenix, Arizona, Tucson, Arizona and real estate (July 2008 to December 2009 and January 2010 to June 2010, respectively). For the five years prior to that he workedLas Vegas, Nevada area until April 2019. From November 2012 through August 2013, Mrs. Klein was self-employed as a financial consultant. Mr. Levin began his career at the accounting firm, Arthur Andersen, where he workedSearch Engine Marketing Manager in the Cape Town, London and Tel Aviv officesDenver, Colorado. From January 2012 through October 2012, Mrs. Klein was a Search Engine Marketing Manager for nine years. He hasKeyword Search Pros in Los Angeles, California. From January 1, 2011 through December 31, 2011, Mrs. Klein was a Bachelor of Commerce degreePractice Manager for Dr. Christopher Verbin's plastic surgery practice in Accounting and Information Systems from the University of the Cape Town, South Africa, and a post graduate diploma in Accounting from the University of South Africa. He received his Chartered Accountant designation in South Africa and has an MBA from Bar Ilan University in Israel.
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.
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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. |
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 |
| (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 Adira,the Company, or a shareholder holding a sufficient number of Adira’sthe Company’s securities to affect materially the control Adira,the Company, has been subject to:
| (a) | any penalties or sanctions imposed by a court relating to securities legislation or by a securities regulatory authority or has entered into a settlement agreement with a securities regulatory authority; or |
| (b) | any other penalties or sanctions imposed by a court or regulatory body that would likely be considered important to a reasonable investor in making an investment decision. |
Conflicts of Interest
Our directors and officers are aware of the existence of laws governing accountability of directors and officers for corporate opportunity and requiring disclosures by directors of conflicts of interest and we will rely upon such laws in respect of any directors and officers’ conflicts of interest or in respect of any breaches of duty by any of its directors or officers. All such conflicts will be disclosed by such directors or officers in accordance with the CBCA and they will govern themselves in respect thereof to the best of their ability in accordance with the obligations imposed upon them by law.
Promoters
None noted.
| B. | Compensation |
During the year ended December 31, 2016,2018, 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 of approximately $5 all of which relates to consulting fees and share based compensation to directors (2015$1,127,654 (2017 - $84 thousand of which $39 thousand relates to salaries and share based compensation to executive officers and $45 thousand relates to consulting fees and share based compensation to directors, 2 014$nil, 2016 - $272 thousand of which $234 thousand relates to salaries and share based compensation to executive officers and $38 thousand relates to consulting fees and share based compensation to directors)$nil).
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Executive Compensation
Compensation Discussion and Analysis
In assessing the compensation of our Company’s executive officers, we do not have in place any formal objectives, criteria or analysis; instead, we rely mainly on Board discussion. Currently, any material commitments, inclusive of remuneration, are required to be pre-approved by the Board.
Our executive compensation program has three principal components: base salary, incentive bonus plan and stock options. Base salaries for all our employees are established for each position through comparative salary surveys of similar type and size companies. Both individual and corporate performances are also taken into account. Incentive bonuses, in the form of cash payments, are designed to add a variable component of compensation based on corporate and individual performances for executive officers and employees. No bonuses were paid to executive officers or employees during the most recently completed financial year.
We have no other forms of compensation, although payments may be made from time to time to individuals or companies they control for the provision of consulting services. Such consulting services are paid for at competitive industry rates for work of a similar nature by reputable arm’s length services providers.
As at December 31, 2018 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 $100,000 to compensate such executive officers in the event of termination, resignation retirement or other termination,retirement, a change of control of AdiraEmpower or a change in responsibilities following a change in control, other than as described in this Form 20-F.
Summary Compensation Table
The following table provides a summary of compensation that we paid to our senior management during the three most recently completed fiscal year then ended December 31, 2016years (in thousands of US Dollars):
Names and Principal Position | Year | Salary ($) | 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 | ||||||||
Craig Snyder, Chief Executive Officer(1) | 2018 2017 2016 | 206,666 Nil | 477,180 Nil Nil | 153,888 Nil Nil | 75,000 Nil Nil | Nil Nil Nil | Nil Nil Nil | Nil Nil Nil | 912,734 Nil Nil |
| Carly Krivanek, Chief Financial Officer(2) | 2018 2017 2016 | 95,000 Nil | Nil Nil Nil | 109,920 Nil Nil | 10,000 Nil Nil | Nil Nil Nil | Nil Nil Nil | Nil Nil Nil | 214,920 Nil Nil |
| Gadi Levin, Chief Executive Officer and Chief Financial Officer(3) | 2018 2017 2016 | Nil Nil | Nil Nil Nil | Nil Nil Nil | Nil Nil Nil | Nil Nil Nil | Nil Nil Nil | Nil Nil Nil | Nil Nil Nil |
Alan Rootenberg, Chief Financial Officer(3) | 2018 2017 2016 | Nil Nil | Nil Nil Nil | Nil Nil Nil | Nil Nil Nil | Nil Nil Nil | Nil Nil Nil | Nil Nil Nil | Nil Nil Nil |
| (1) | Employment commenced on April 27, 2018; employment terminated on December 31, 2018 |
| (2) | Appointed CFO on April 27, 2018, Resigned on February 5, 2019 |
| (3) | Resigned on April 27, 2018 |
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Option Based Awards
Stock options are granted to provide an incentive to our directors, officers, employees and consultants to achieve our longer-term objectives; to give suitable recognition to the ability and industry of such persons who contribute materially to our success; and to attract and retain persons of experience and ability, by providing them with the opportunity to acquire an increased proprietary interest in 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.
Director Compensation
We have no arrangements, standard or otherwise, pursuant to which Directors are compensated by for their services in their capacity as Directors, or for committee participation, involvement in special assignments or for services as consultant or expert during the most recently completed financial year or subsequently, up to and including the date of this Form 20-F, except for the consulting fees described in Item 7.B – “Related Party Transactions” of this Form 20-F.
Long-Term Incentive Plan Awards
We did not make any long-term incentive plan awards during the years ended December 31, 20162018 and 2015.
Pension, Retirement or Similar Benefits
We have amounts set aside todo not provide for pension, retirement or similar benefits.
Employment Agreements
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. | Board Practices |
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.
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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
Term of Office
All directors have a term of office expiring at our next annual general meeting, unless a director’s office is earlier vacated in accordance with our Articles or the provisions of the CBCA. All officers serve at the discretion of the Board.
Audit Committee
We have a standing Audit Committee that assists the directors of 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.
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.
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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, 2013,2018, 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.
| E. | Share Ownership |
Common Shares
The shareholdings of our officers and directors are set forth below as of the date hereof.
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% |
| 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) | 14,000,000 | 10.45% | 10.45% | ||
| Andrejs Bunkse (3) | - | - | - | - | - |
| Dustin Klein (4) | 11,029,411 | 8.23% | 8.23% | ||
| Mathew Lee(5) | - | - | - | - | - |
| Joseph Cohen(6) | 800,000 | 0.58% | 0.58% | ||
| Andrea Klein(7) | 11,029,412 | 8.23% | 8.23% | ||
Notes:
(1) | “Fully diluted basis” means with the exercise of all warrants and options. |
(2) | Steven McAuley is an interested party in |
(3) | Andrejs Bunkse is an interested party in |
| (4) | Dustin Klein is an interested party in the Company by virtue of him serving as a director and as |
| (5) | Mathew Lee is an interested party in |
| Joseph Cohen is an interested party in |
| (7) | Andrea Klein is an interested party in the Company by virtue of her serving as the Company’s Vice President of Operations. Include the following which were issued on April 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 six months ended June 30, 2019 and years ended December 31, 2018, 2017 and 2016 are summarized as follows:
| Number of share options | Weighted average exercise price | |||||||
| Outstanding, December 31, 2015 | – | – | ||||||
| Granted | 1,250,000 | CDN $0.10 | ||||||
| Outstanding, December 31, 2016 | 1,250,000 | CDN $0.10 | ||||||
| Granted | 2,050,000 | CDN $0.10 | ||||||
| Outstanding, December 31, 2017 | 3,300,000 | CDN $0.10 | ||||||
| Granted | 4,300,000 | CDN $0.38 | ||||||
| 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, June 30, 2019 | 10,450,000 | CDN $0.16 | ||||||
Warrants
There are no share purchase warrants, exercisable into common shares of Adira,Empower, held by our officers and directors are set forth below as of the date hereof.
Name | Position | Allotment Date | Expiration Date | Exercise Price (US Dollar)(1) | Vesting Details | Total(2) | ||||||||
Dennis Bennie | Chairman | Aug. 22, 2012 | Aug. 21, 2017 | $ | 2.176 | R | (3) | 101,333 | ||||||
Alan Rootenberg | Director | Aug. 22, 2012 | Aug. 21, 2017 | $ | 2.16 | R | (3) | 667 | ||||||
Alan Friedman | Executive Vice President, Corporate Development and Director | Aug. 22, 2012 | Aug. 21, 2017 | $ | 0.86 | R | (3) | 70,667 | ||||||
Gadi Levin | Chief Executive Officer and Chief Financial Officer | Aug. 22, 2012 | Aug. 21, 2017 | $ | 2.16 | R | (3) | 60,667 | ||||||
Notes (1) The exercise prices of employee stock options in 2010 were set in US Dollars and as of 2011, in Canadian Dollars. The tables show all amounts in US Dollars. (2) Each stock option may be exercised to purchase one of our common shares at the exercise price. (3) Type R stock options vest 33.33% every twelve months over two years with the initial vesting on August 22, 2012. | ||||||||||||||
Equity Compensation Plans
The following table summarizes our compensation plans under which equity securities are authorized for issuance as at December 31, 2016.
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 | 5,056,00 | 0.14 | 1,475,203 |
Equity compensation plans not approved by securityholders | N/A | N/A | N/A |
Total: | 5,056,00 | 0.14 | 1,475,202 |
Notes: (1) The number of securities remaining available for future issuance under our 10% rolling stock option plan as at the end of our most recently completed financial year is calculated on the basis of 10% of our issued and outstanding common shares as at such date (being 10% of 17,112,022 – 236,000 = 1,475,202). | |||
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 | 10,450,000 | CDN$0.16 | 2,944,404 |
| Equity compensation plans not approved by securityholders | N/A | N/A | N/A |
| Total: | 10,450,000 | CDN$0.16 | 2,944,404 |
Notes:
| (1) | The number of securities remaining available for future issuance under our 10% rolling stock option plan as at the end of our most recently completed financial year is calculated on the basis of 10% of our issued and outstanding common shares as at such date (being 10% of 133,944,045 = 13,394,404 less 10,450,000 = 2,944,404). |
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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.
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.
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, 2016,June 30, 2019, 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) |
| Andrea Klein | 11,029,412 | 8.23% |
| Dustin Klein | 11,029,411 | 8.23% |
| Agraflora Organics International Inc. | 10,000,000 | 7.47% |
| Steven McAuley | 7,000,000 | 5.23% |
| Ty & Sons Investment Inc. | 6,752,314 | 5.04% |
Notes:
| 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 |
Geographic Breakdown of Shareholders
As of December 31, 2016,June 30, 2019, 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 | 95.0.5 | 40 |
Other | 738,616 | 4.32 | 21 |
Total | 17,112,022 | 100 | 118 |
| Location | Number of Common Shares | Percentage of Total Common Shares | Number of Registered Shareholders of Record |
| United States | 26,580,591 | 19.84% | 35 |
| Canada | 107,002,506 | 79.89% | 73 |
| Other | 360,948 | 0.27% | 5 |
| Total | 133,944,045 | 100.0% | 113 |
Common shares registered in intermediaries were assumed to be held by residents of the same country in which the clearing house was located.
Transfer Agent
Our securities are recorded in registered form on the books of our transfer agent, Computershare Trust Company of Canada, located at 3rd Floor, 510 Burrard Street, Vancouver, BC V6C 3B9. However, the majority of such shares are registered in the name of intermediaries such as brokerage houses and clearing houses (on behalf of their respective brokerage clients). We do not have knowledge or access to the identities of the beneficial owners of such common shares registered through intermediaries.
Control
To the best of our knowledge, we are not directly or indirectly owned or controlled by any other corporation, by any foreign government or by any other natural or legal person, severally or jointly.
Insider Reports under the British Columbia Securities Act
Since the Company is a reporting issuer under the Securities Acts of British Columbia, Alberta and Ontario, certain “insiders” of the Company (including its directors, certain executive officers, and persons who directly or indirectly beneficially own, control or direct more than 10% of its common shares) are generally required to file insider reports of changes in their ownership of 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.www.sedi.ca. The public is able to access these reports at www.sedi.ca.
| B. | 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, 2016 except as follows:
| (a) | Compensation of key management personnel: |
For the purpose of related party disclosure in accordance with IASB 24, directors, the CEO, CFO, COO and executive vice president are considered key management personnel.
Year ended December 31, | ||||||||||||
| 2016 | 2015 | 2014 | ||||||||||
| U.S. dollars in thousands | ||||||||||||
| Short-term employee benefits | $ | - | $ | 38 | $ | 212 | ||||||
| Share based compensation | - | 1 | 22 | |||||||||
| $ | - | $ | 39 | $ | 234 | |||||||
Year ended December 31, | ||||||||||||
| 2016 | 2015 | 2014 | ||||||||||
| U.S. dollars in thousands | ||||||||||||
| Share based compensation | $ | 5 | $ | 45 | $ | 38 | ||||||
| Year ended December 31, | ||||||||||||
| 2018 | 2017 | 2016 | ||||||||||
| U.S. dollars in thousands | ||||||||||||
| Salaries and benefits | $ | 1,063,748 | $ | 221,700 | $ | 195,000 | ||||||
| Share-based compensation | 892,417 | – | – | |||||||||
| $ | 1,956,165 | $ | 221,700 | $ | 195,000 | |||||||
| C. | Interests of Experts and Counsel |
Not applicable.
The financial statements required as part of this Annual Report on Form 20-F are filed under Item 18 of this Annual Report.
Legal Proceedings
As at the date of this Annual Report on Form 20-F, Empower is not involved in any legal, arbitration or governmental proceedings and, to Adira'sEmpower’s knowledge, no material legal, arbitration or governmental proceedings involving AdiraEmpower are pending or contemplated against Adira.
Dividends
We have not paid any dividends on our common shares since incorporation. Our management anticipates that we will retain all future earnings and other cash resources for the future operation and development of our business. We do not intend to declare or pay any cash dividends in the foreseeable future. Payment of any future dividends will be at the Board’s discretion, subject to applicable law, after taking into account many factors including our operating results, financial condition and current and anticipated cash needs.
| 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.
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Common Shares
Our authorized capital consists of an unlimited number of common shares without par value, of which 17,112,02277,847,598 common shares were issued and outstanding as of December 31, 2016.2018. All common shares are initially issued in registered form. There are no restrictions on the transferability of our common shares imposed by our constituting documents.
The common shares entitle their holders to: (i) vote at all meetings of our shareholders except meetings at which only holders of specified classes of shares are entitled to vote, having one vote per common share, (ii) receive dividends at the discretion of the Board; and (iii) receive our remaining property on liquidation, dissolution or winding up.
Trading Markets
Our current trading symbol on the 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”.
High ($) | Low ($) | |
| Annual (fiscal year) | ||
| 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 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, 2017 to April 24, 2017 | 0.01 | 0.01 |
| March 2017 | 0.01 | 0.01 |
| February 2017 | 0.01 | 0.01 |
| January 2017 | 0.01 | 0.01 |
| December 2016 | 0.01 | 0.01 |
| November 2016 | 0.01 | 0.01 |
| High ($) | Low ($) | |
| Annual (fiscal year) | ||
| 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 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, 2017 to April 27, 2017 | 0.04 | 0.04 |
| March 2017 | 0.04 | 0.04 |
| February 2017 | 0.04 | 0.04 |
| January 2017 | 0.04 | 0.04 |
| December 2016 | 0.04 | 0.04 |
| November 2016 | 0.04 | 0.04 |
Escrowed Securities
As at December 31, 20162018 and 2015,2017, none of our securities were subject to escrow.
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.
| 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 ourthe 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.
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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 ourthe Company’s common shares by a non-Canadian, who is not a resident of a World Trade Organization (“WTO”WTO”) member, would be reviewable under the Investment Canada Act (Canada) if it was an investment to acquire control of ourthe Company and the value of the assets of ourthe Company was CAN$5CAN $5 million or more. An investment in our common shares of the Company by residentsa resident of a WTO membersmember would be reviewable only if it was an investment to acquire control of ourthe Company and the enterprise value of the assets of ourthe 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 $600 million; it will increase to CAN $800 million starting April 24, 2017 and CAN $1 billion starting April 24, 2019.
A non-Canadian would be deemed to acquire control of ourthe Company for the purposes of the Investment Canada Act if the non-Canadian acquired a majority of ourthe outstanding common shares (or less than a majority but controlled ourthe Company in fact through the ownership of one-third or more of ourthe outstanding common shares) unless it could be established that, on the acquisition, we werethe Company is not controlled in fact by the acquirer through the ownership of such common shares. Certain transactions in relation to ourthe 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. |
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.
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This summary is based on the current provisions of the Tax Act, all regulations thereunder, the Treaty, all proposed amendments to the Tax Act, the regulations and the Treaty publicly announced by the Government of Canada prior to the date hereof, and our understanding of the current published administrative practices of the Canada Revenue Agency. It has been assumed that all currently proposed amendments will be enacted as proposed and that there will be no other relevant change in any governing law or administrative practice, although no assurances can be given in this respect.
The summary does not take into account Canadian provincial, U.S. federal (which follows further below), state or other foreign income tax law or practice. The tax consequences to any particular U.S. Holder will vary according to the status of that holder as an individual, trust, corporation, partnership or other entity, the jurisdictions in which that holder is subject to taxation, and generally according to that holder’s particular circumstances. Accordingly, this summary is not, and is not to be construed as, Canadian tax advice to any particular U.S. Holder. All U.S. Holders are advised to consult with their own tax advisors regarding their particular circumstances. The discussion below is qualified accordingly.
Dividends
Dividends paid or credited or deemed to be paid or credited to a U.S. Holder by us will be subject to Canadian withholding tax. The Tax Act requires a 25% withholding unless reduced under an applicable tax treaty. Under the Treaty, provided that a holder can demonstrate that it is a qualifying U.S. Holder, the rate of withholding tax on dividends paid to a U.S. Holder is generally limited to 15% of the gross amount of the dividend (or 5% if the U.S. Holder is a qualified company and beneficially owns at least 10% of our voting shares). We will be required to withhold the applicable withholding tax from any dividend and remit it to the Canadian government for the U.S. Holder’s account.
Disposition
For purposes of the following discussion, we have assumed that our shares will remain listed on the TSXV. A U.S. Holder is not subject to tax under the Tax Act in respect of a capital gain realized on the disposition of our shares in the open market unless the shares are “taxable Canadian property” to the holder thereof and the U.S. Holder is not entitled to relief under the Treaty. Our shares will be taxable Canadian property to a U.S. Holder (a) if, at any time during the 60-month period preceding the disposition: (i) the U.S. Holder, alone or together with persons with whom the U.S. Holder did not deal at arm’s length, owned 25% or more of our issued shares of any class or series, and (ii) more than 50% of the fair market value of the shares was derived, directly or indirectly, from one or any combination of real property situated in Canada, timber resource properties, Canadian resource properties, or an option in respect of, or an interest in, or for civil law a right in, any of the foregoing, or (b) in other specific circumstances, including where shares were acquired for other securities in a tax-deferred transaction for Canadian tax purposes. If our shares constitute taxable Canadian property to the holder, the holder will (unless relieved under the Treaty) be subject to Canadian income tax on any gain. The taxpayer’s capital gain or loss from a disposition of the share is the amount, if any, by which the proceeds of disposition exceed (or are exceeded by) the aggregate of the adjusted cost base of the share and reasonable expenses of disposition. One-half of a capital gain (“taxable capital gain”) from the disposition of taxable Canadian property (other than treaty protected properties) is included in computing the income of a U.S. Holder and one-half of a capital loss (“allowable capital loss”) is deductible from taxable capital gains from dispositions of taxable Canadian property realized in the same year. Unused allowable capital losses from previous taxation years generally may be carried back three taxation years or forward indefinitely and applied to reduce net taxable capital gains realized in those years by a U.S. Holder from the disposition of a taxable Canadian property.
A U.S. Holder whose shares constitute taxable Canadian property should consult with the holder’s own tax advisors regarding any possible relief (if any) from Canadian tax under the Treaty based on applicable circumstances at the relevant time.
United States Tax Consequences
United States Federal Income Tax Consequences
The following is a general summary of certain material U.S. federal income tax considerations applicable to a U.S. Holder (as defined below) arising from and relating to the acquisition, ownership, and disposition of our common shares.
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This summary is for general information purposes only and does not purport to be a complete analysis or listing of all potential U.S. federal income tax considerations that may apply to a U.S. Holder arising from and relating to the acquisition, ownership, and disposition of our common shares. In addition, this summary does not take into account the individual facts and circumstances of any particular U.S. Holder that may affect the U.S. federal income tax consequences to such U.S. Holder, including without limitation specific tax consequences to a U.S. Holder under an applicable tax treaty. Accordingly, this summary is not intended to be, and should not be construed as, legal or U.S. federal income tax advice with respect to any U.S. Holder. This summary does not address the U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, and foreign tax consequences to U.S. Holders of the acquisition, ownership, and disposition of our common shares. Except as specifically set forth below, this summary does not discuss applicable tax reporting requirements. Each U.S. Holder should consult its own tax advisor regarding the U.S. federal, U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, and foreign tax consequences relating to the acquisition, ownership, and disposition of our common shares.
No legal opinion from U.S. legal counsel or ruling from the Internal Revenue Service (the “IRS”) has been requested, or will be obtained, regarding the U.S. federal income tax consequences of the acquisition, ownership, and disposition of our common shares. This summary is not binding on the IRS, and the IRS is not precluded from taking a position that is different from, and contrary to, the positions taken in this summary. In addition, because the authorities on which this summary is based are subject to various interpretations, the IRS and the U.S. courts could disagree with one or more of the conclusions described in this summary.
Scope of this Summary
Authorities
This summary is based on the Internal Revenue Code of 1986, as amended (the “Code”), Treasury Regulations (whether final, temporary, or proposed), published rulings of the IRS, published administrative positions of the IRS, the Convention Between Canada and the United States of America with Respect to Taxes on Income and on Capital, signed September 26, 1980, as amended (the “Canada-U.S. Tax Convention”), and U.S. court decisions that are applicable and, in each case, as in effect and available, as of the date of this document. Any of the authorities on which this summary is based could be changed in a material and adverse manner at any time, and any such change could be applied on a retroactive or prospective basis which could affect the U.S. federal income tax considerations described in this summary. This summary does not discuss the potential effects, whether adverse or beneficial, of any proposed legislation that, if enacted, could be applied on a retroactive or prospective basis.
U.S. Holders
For purposes of this summary, the term “U.S. Holder” means a beneficial owner of our common shares that is for U.S. federal income tax purposes:
| · | an individual who is a citizen or resident of the U.S.; |
| · | a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) organized under the laws of the U.S., any state thereof or the District of Columbia; |
| · | an estate whose income is subject to U.S. federal income taxation regardless of its source; or |
| · | a trust that (1) is subject to the primary supervision of a court within the U.S. and the control of one or more U.S. persons for all substantial decisions or (2) has a valid election in effect under applicable Treasury Regulations to be treated as a U.S. person. |
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Non-U.S. Holders
For purposes of this summary, a “non-U.S. Holder” is a beneficial owner of our common shares that is not a U.S. Holder. This summary does not address the U.S. federal income tax consequences to non-U.S. Holders arising from and relating to the acquisition, ownership, and disposition of our common shares. Accordingly, a non-U.S. Holder should consult its own tax advisor regarding the U.S. federal, U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, and foreign tax consequences (including the potential application of and operation of any income tax treaties) relating to the acquisition, ownership, and disposition of our common shares.
U.S. Holders Subject to Special U.S. Federal Income Tax Rules Not Addressed
This summary does not address the U.S. federal income tax considerations applicable to U.S. Holders that are subject to special provisions under the Code, including, but not limited to, the following: (a) U.S. Holders that are tax-exempt organizations, qualified retirement plans, individual retirement accounts, or other tax-deferred accounts; (b) U.S. Holders that are financial institutions, underwriters, insurance companies, real estate investment trusts, or regulated investment companies; (c) U.S. Holders that are broker-dealers, dealers, or traders in securities or currencies that elect to apply a mark-to-market accounting method; (d) U.S. Holders that have a “functional currency” other than the U.S. dollar; (e) U.S. Holders that own our common shares as part of a straddle, hedging transaction, conversion transaction, constructive sale, or other arrangement involving more than one position; (f) U.S. Holders that acquired our common shares in connection with the exercise of employee stock options or otherwise as compensation for services; (g) U.S. Holders that hold our common shares other than as a capital asset within the meaning of Section 1221 of the Code (generally, property held for investment purposes); or (h) U.S. Holders that own or have owned (directly, indirectly, or by attribution) 10% or more of the total combined voting power of the outstanding shares of the Company. This summary also does not address the U.S. federal income tax considerations applicable to U.S. Holders who are: (a) U.S. expatriates or former long-term residents of the U.S.; (b) persons that have been, are, or will be a resident or deemed to be a resident in Canada for purposes of the Tax Act; (c) persons that use or hold, will use or hold, or that are or will be deemed to use or hold our common shares in connection with carrying on a business in Canada; (d) persons whose our common shares constitute “taxable Canadian property” under the Tax Act; or (e) persons that have a permanent establishment in Canada for the purposes of the Canada-U.S. Tax Convention. U.S. Holders that are subject to special provisions under the Code, including, but not limited to, U.S. Holders described immediately above, should consult their own tax advisor regarding the U.S. federal, U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, and foreign tax consequences relating to the acquisition, ownership and disposition of our common shares.
If an entity or arrangement that is classified as a partnership (or other “pass-through” entity) for U.S. federal income tax purposes holds our common shares, the U.S. federal income tax consequences to such entity and the partners (or other owners) of such entity generally will depend on the activities of the entity and the status of such partners (or owners). This summary does not address the tax consequences to any such owner. Partners (or other owners) of entities or arrangements that are classified as partnerships or as “pass-through” entities for U.S. federal income tax purposes should consult their own tax advisors regarding the U.S. federal income tax consequences arising from and relating to the acquisition, ownership, and disposition of our common shares.
Ownership and Disposition of our common shares
The following discussion is subject to the rules described below under the heading “Passive Foreign Investment Company Rules.”
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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.
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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.
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Foreign Tax Credit
Subject to the PFIC rules discussed above, a U.S. Holder that pays (whether directly or through withholding) Canadian income tax with respect to dividends paid on our common shares generally will be entitled, at the election of such U.S. Holder, to receive either a deduction or a credit for such Canadian income tax. Generally, a credit will reduce a U.S. Holder’s U.S. federal income tax liability on a dollar-for-dollar basis, whereas a deduction will reduce a U.S. Holder’s income subject to U.S. federal income tax. This election is made on a year-by-year basis and applies to all foreign taxes paid (whether directly or through withholding) by a U.S. Holder during a year.
Complex limitations apply to the foreign tax credit, including the general limitation that the credit cannot exceed the proportionate share of a U.S. Holder’s U.S. federal income tax liability that such U.S. Holder’s “foreign source” taxable income bears to such U.S. Holder’s worldwide taxable income. In applying this limitation, a U.S. Holder’s various items of income and deduction must be classified, under complex rules, as either “foreign source” or “U.S. source.” Generally, dividends paid by a foreign corporation should be treated as foreign source for this purpose, and gains recognized on the sale of stock of a foreign corporation by a U.S. Holder should be treated as U.S. source for this purpose, except as otherwise provided in an applicable income tax treaty, and if an election is properly made under the Code. However, the amount of a distribution with respect to our common shares that is treated as a “dividend” may be lower for U.S. federal income tax purposes than it is for Canadian federal income tax purposes, resulting in a reduced foreign tax credit allowance to a U.S. Holder. In addition, this limitation is calculated separately with respect to specific categories of income. The foreign tax credit rules are complex, and each U.S. Holder should consult its own U.S. tax advisor regarding the foreign tax credit rules.
Backup Withholding and Information Reporting
Under U.S. federal income tax law and Treasury Regulations, certain categories of U.S. Holders must file information returns with respect to their investment in, or involvement in, a foreign corporation. For example, U.S. return disclosure obligations (and related penalties) are imposed on individuals who are U.S. Holders that hold certain specified foreign financial assets in excess certain threshold amounts. The definition of specified foreign financial assets includes not only financial accounts maintained in foreign financial institutions, but also, unless held in accounts maintained by a financial institution, any stock or security issued by a non-U.S. person, any financial instrument or contract held for investment that has an issuer or counterparty other than a U.S. person and any interest in a foreign entity. U. S. Holders may be subject to these reporting requirements unless our common shares are held in an account at certain financial institutions. Penalties for failure to file certain of these information returns are substantial. U.S. Holders should consult with their own tax advisors regarding the requirements of filing information returns, including the requirement to file an IRS Form 8938.
Payments made within the U.S. or by a U.S. payor or U.S. middleman, of dividends on, and proceeds arising from the sale or other taxable disposition of, our common shares will generally be subject to information reporting and backup withholding tax, at the rate of 28%, if a U.S. Holder (a) fails to furnish such U.S. Holder’s correct U.S. taxpayer identification number (generally on Form W-9), (b) furnishes an incorrect U.S. taxpayer identification number, (c) is notified by the IRS that such U.S. Holder has previously failed to properly report items subject to backup withholding tax, or (d) fails to certify, under penalty of perjury, that such U.S. Holder has furnished its correct U.S. taxpayer identification number and that the IRS has not notified such U.S. Holder that it is subject to backup withholding tax. However, certain exempt persons generally are excluded from these information reporting and backup withholding rules. Backup withholding is not an additional tax. Any amounts withheld under the U.S. backup withholding tax rules will be allowed as a credit against a U.S. Holder’s U.S. federal income tax liability, if any, or will be refunded, if such U.S. Holder furnishes required information to the IRS in a timely manner. Each U.S. Holder should consult its own tax advisor regarding the information reporting and backup withholding rules.
| F. | Dividends and Paying Agents |
Not applicable.
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| 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.
We are not subject to any material market risks.
| A. | 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-
| B. | 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 |
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:
| As at December 31, | ||||||||
| 2018 | 2017 | |||||||
| CDN$ net monetary liabilities | $ | 171,578 | $ | 420,704 | ||||
| $ | 171,578 | $ | 420,704 | |||||
The effect on loss before income tax for the year ended December 31, 2018, 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.
| ITEM 12 | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES |
Not applicable.
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None.
None.
Disclosure Controls and Procedures
Disclosure controls and procedures are defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”) to mean controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and includes, without limitation, controls and procedures designed to ensure that such information is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
As required under the Exchange Act, we have carried out an evaluation of the effectiveness of the design and operation of our company’s disclosure controls and procedures as of the end of the period covered by this annual report on Form 20-F, being December 31, 2016.2018. 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, 2016.
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. |
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Under the supervision and with the participation of Mr. Gadi Levin,Steven McAuley, who serves as our Chief Executive Officer and Mr. Mathew Lee who serves as our Chief Financial Officer, our management assessed the effectiveness of our internal control over financial reporting as at December 31, 2016.2018. 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, 2016.
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, 2016,2018, 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.
As disclosed above, as of the date hereof, our Audit Committee is comprised of Dennis Bennie, Alan RootenbergSteven McAuley (chair), Andrejs Bunkse and Alan Friedman.
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
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, 20162018 and 2015:2017:
| Year Ended December 31 | ||||||||
| 2018 | 2017 | |||||||
| Audit Fees: | $ | 81,250 | $ | 48,150 | ||||
| Audit Related Fees: | $nil | $ | 10,700 | |||||
| Tax Fees: | $nil | $nil | ||||||
| Total: | $ | 81,250 | $ | 58,850 | ||||
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| Year Ended December 31 | ||||||||
| 2016 | 2015 | |||||||
| Audit Fees: | $ | 10,000 | $ | 25,000 | ||||
| Audit Related Fees: | - | - | ||||||
| Tax Fees: | $ | 5,000 | ||||||
| Total: | $ | 10,000 | $ | 30,000 | ||||
Audit Fees
This category includes the aggregate fees billed by our independent auditor for the audit of our consolidated annual financial statements, reviews of interim financial statements and attestation services that are provided in connection with statutory and regulatory filings or engagements.
Audit Related Fees
This category includes the aggregate fees billed in each of the last two fiscal years for assurance and related services by the independent auditors that are reasonably related to the performance of the audits or reviews of the financial statements and are not reported above under “Audit Fees,” and generally consist of fees for other engagements under professional auditing standards, accounting and reporting consultations,
Tax Fees
This category includes the aggregate fees billed in each of the last two fiscal years for professional services rendered by the independent auditors for tax compliance, tax planning and tax advice.
Policy on Pre-Approval by Audit Committee of Services Performed by Independent Auditors
The policy of our Audit Committee is to pre-approve all audit and permissible non-audit services to be performed by our independent auditors during the fiscal year.
Not applicable.
In the year ended December 31, 2016,2018, 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 |
Not applicable.
| ITEM 16G | CORPORATE GOVERNANCE |
Not applicable.
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| ITEM 17 | FINANCIAL STATEMENTS |
Not applicable.
Financial Statements Filed as Part of this Annual Report
| · | Report of Independent Registered Public Accounting Firm dated |
| · | Consolidated statement of financial position for the fiscal years ended December 31, |
| · | Consolidated statements of comprehensive profit and loss for the fiscal years ended December 31, |
| · | Consolidated statements of changes in (deficit) equity for the fiscal years ended December 31, |
| · | Consolidated statements of cash flows for the fiscal years ended December 31, |
| · | Notes to consolidated financial statements |
| 47 |
EMPOWER CLINICS INC.
(formerly ADIRA ENERGY LTD.)
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 2018, 2017, 2016
INDEX
| Page | |
| Independent Auditors’ Report | 49 |
| Consolidated Statements of | |
| Consolidated Statements of | |
| Consolidated Statements of | |
| Notes to Consolidated Financial Statements | 54 - |
| 48 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Adira Energy Ltd.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statements of financial position of Adira Energy Ltd.Empower Clinics Inc. and its subsidiaries (the “Company”)Company) as of December 31, 20162018, and 2015,2017, and the related consolidated statements of loss and comprehensive profit and loss, changes in (deficit) equity, and cash flows for each of the years in the three-year period ended December 31, 2016, 20152018, and 2014. The Company’s management is responsible for thesethe related notes (collectively referred to as the consolidated financial statements.statements).
In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2018 and 2017, and the results of its consolidated operations and its consolidated cash flows for each of the years in the three-year period ended December 31, 2018 in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.
Material Uncertainty Related to Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raise substantial doubt about its ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are 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 accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the auditsaudit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. OurAs part of our audits, included considerationwe are required to obtain an understanding of internal control over financial reporting, as a basis for designing audit procedures that are appropriate in the circumstances, 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 also includes
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 supportingregarding the amounts and disclosures in the consolidated financial statements, assessingstatements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statement presentation.statements. We believe that our audits provide a reasonable basis for our opinion.
Chartered Professional Accountants
Licensed Public Accountants
We have served as the Company’s auditor since 2015.
Toronto, Ontario
June 3, 2019
| 49 |
EMPOWER CLINICS INC.
(Formerly Adira Energy Ltd.)
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(in United States dollars)
| Note | December 31, 2018 | December 31, 2017 | ||||||||||
| ASSETS | ||||||||||||
| Current | ||||||||||||
| Cash | $ | 157,668 | $ | – | ||||||||
| Accounts receivable | – | 847 | ||||||||||
| Prepaid expenses | 29,475 | 24,012 | ||||||||||
| Due from related parties | 20 | – | 133,775 | |||||||||
| Total current assets | $ | 187,143 | $ | 158,634 | ||||||||
| Property and equipment | 6 | 127,060 | 36,128 | |||||||||
| Intangible assets | 7 | 71,617 | 249,996 | |||||||||
| Assets held for sale | 8 | 127,972 | 185,044 | |||||||||
| Total assets | $ | 513,792 | $ | 629,802 | ||||||||
| LIABILITIES | ||||||||||||
| Current | ||||||||||||
| Bank indebtedness | $ | – | $ | 7,148 | ||||||||
| Accounts payable and accrued liabilities | 9 | 1,554,892 | 1,449,555 | |||||||||
| Share subscriptions | 61,167 | – | ||||||||||
| Current portion of notes payable | 10 | 610,444 | 404,370 | |||||||||
| Due to related parties | 20 | 12,575 | 16,170 | |||||||||
| Convertible debentures payable | 12 | 274,466 | 1,835,225 | |||||||||
| Secured loan payable | 11 | 717,460 | 676,849 | |||||||||
| Conversion feature | 12 | 22,565 | 1,047,347 | |||||||||
| Current portion of warrant liability | 13 | 4,474 | – | |||||||||
| Total current liabilities | 3,258,043 | 5,436,664 | ||||||||||
| Notes Payable | 10 | 150,271 | – | |||||||||
| Warrant Liability | 13 | 101,698 | – | |||||||||
| Total Liabilities | 3,510,012 | 5,436,664 | ||||||||||
| EQUITY | ||||||||||||
| Issued Capital | 14 | 5,401,024 | 550,744 | |||||||||
| Reserves | 14 | 972,697 | – | |||||||||
| Equity component of convertible debentures | 12 | – | 222,417 | |||||||||
| Deficit | (9,369,941 | ) | (5,580,023 | ) | ||||||||
| Total shareholders’ deficit | (2,996,220 | ) | (4,806,862 | ) | ||||||||
| Total liabilities and shareholders’ deficit | $ | 513,792 | $ | 629,802 | ||||||||
Nature of operations and going concern (note 1)
Commitments and contingencies (note 22)
Events after the reporting period (note 23)
Approved and authorized by the Board of Directors:
| “Steven McAuley” | Director | “Dustin Klein” | Director |
The accompanying notes are an integral part of these consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2016 and 2015 and the results of its operations and its cash flows for
| 50 |
EMPOWER CLINICS INC. (formerly Adira Energy Ltd.)
CONSOLIDATED STATEMENT OF COMPREHENSIVE LOSS
For the years ended December 31, 2018, 2017, 2016 2015
(in United States dollars, except share numbers and 2014 in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.
| December 31 | December 31 | |||||||||||
| Note | 2016 | 2015 | ||||||||||
| Assets | ||||||||||||
| Current assets | ||||||||||||
| Cash and cash equivalents | 4 | $ | 19 | $ | 124 | |||||||
| Loan | 5 | 25 | 25 | |||||||||
| Other receivables and prepaid expenses | 6 | 8 | $ | 14 | ||||||||
| $ | 52 | $ | 163 | |||||||||
| Liabilities | ||||||||||||
| Current liabilities | ||||||||||||
| Trade payables | 7 | $ | 11 | $ | 60 | |||||||
| Accrued liabilities | 8 | 263 | 65 | |||||||||
| 274 | 125 | |||||||||||
| Non-curremt Liabilities | ||||||||||||
| Warrant liability | 9 | 67 | 112 | |||||||||
| 341 | 237 | |||||||||||
| Equity | ||||||||||||
| Share capital | 12 | - | - | |||||||||
| Additional paid-in capital | 12 | 34,060 | 34,060 | |||||||||
| Accumulated deficit | (34,349 | ) | (34,134 | ) | ||||||||
| Total deficit | (289 | ) | (74 | ) | ||||||||
| Total liabilities and deficit | $ | 52 | $ | 163 | ||||||||
| Note | 2018 | 2017 | 2016 | |||||||||||||
| Revenues | ||||||||||||||||
| Clinic services | $ | 1,091,386 | $ | 1,507,050 | $ | 2,134,857 | ||||||||||
| Direct clinic expenses | ||||||||||||||||
| Medical personnel costs | 268,905 | 456,645 | 556,246 | |||||||||||||
| Travel clinic costs | 148,142 | 182,189 | 161,862 | |||||||||||||
| Total direct clinic expenses | 417,047 | 638,834 | 718,108 | |||||||||||||
| Earnings from clinic operations | 674,339 | 868,216 | 1,416,749 | |||||||||||||
| Operating expenses | 15 | 2,517,681 | 2,037,008 | 1,588,007 | ||||||||||||
| Legal and professional fees | 1,450,141 | 1,131,041 | 942,959 | |||||||||||||
| Depreciation and amortization expense | 6,7 | 123,473 | 103,372 | 120,768 | ||||||||||||
| Share-based payments | 14,20 | 892,417 | 5,433 | – | ||||||||||||
| Loss from operations | (4,309,373 | ) | (2,408,638 | ) | (1,234,985 | ) | ||||||||||
| Other expenses (income) | ||||||||||||||||
| Listing fee | 5 | 1,308,808 | – | – | ||||||||||||
| Accretion expense | 12 | 241,521 | 667,373 | 189,922 | ||||||||||||
| Interest expense | 10,11,12 | 126,375 | 186,001 | 83,705 | ||||||||||||
| Gain on debt settlement | – | (106,360 | ) | – | ||||||||||||
| (Gain) loss on change in fair value of warrant liability | 13 | (1,598,425 | ) | – | – | |||||||||||
| Gain on change in fair value of conversion feature | 12 | (890,136 | ) | – | – | |||||||||||
| Impairment of equipment | 6 | – | – | 14,500 | ||||||||||||
| Impairment of intangible assets | 7 | 64,200 | – | 64,800 | ||||||||||||
| Impairment of assets held for sale | 8 | 57,072 | – | – | ||||||||||||
| Restructuring expense, net | 16 | 110,424 | – | – | ||||||||||||
| Other expense (income), net | 60,706 | (45,731 | ) | 81,822 | ||||||||||||
| (519,455 | ) | 701,283 | 434,749 | |||||||||||||
| Loss before income taxes | (3,789,918 | ) | (3,109,921 | ) | (1,669,734 | ) | ||||||||||
| Deferred tax recovery | 17 | – | – | 78,146 | ||||||||||||
| Net loss and comprehensive loss for the year | $ | (3,789,918 | ) | $ | (3,109,921 | ) | $ | (1,591,588 | ) | |||||||
| Loss per share | ||||||||||||||||
| Basic | $ | (0.06 | ) | $ | (0.06 | ) | $ | (0.14 | ) | |||||||
| Diluted | $ | (0.06 | ) | $ | (0.06 | ) | $ | (0.14 | ) | |||||||
| Weighted average number of shares outstanding | ||||||||||||||||
| Basic | 66,670,041 | 48,072,262 | 11,746,166 | |||||||||||||
| Diluted | 66,670,041 | 48,072,262 | 11,746,166 | |||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 51 | |||||
EMPOWER CLINICS INC. (formerly Adira Energy Ltd.)
For the years ended December 31, 2018, 2017, 2016
(in United States dollars, in thousands, except share numbers and per share data
| Year ended | ||||||||||||||||
| December 31 | ||||||||||||||||
| Notes | 2016 | 2015 | 2014 | |||||||||||||
| Expenses: | ||||||||||||||||
| General and administrative costs | 14,16 | $ | 268 | $ | 349 | $ | 602 | |||||||||
| Gain on settlement of accounts payable and other payables | 14 | - | (25 | ) | (1,374 | ) | ||||||||||
| Total expenses | 268 | 324 | (772 | ) | ||||||||||||
| (Loss) income before financing income, (loss) gain on foreign exchange and gain on revaluation warrant liability | (268 | ) | (324 | ) | 772 | |||||||||||
| Gain (Loss) on foreign exchange | 8 | (23 | ) | (37 | ) | |||||||||||
| Gain on revaluation of warrant liability | 9 | 45 | 78 | - | ||||||||||||
| (Loss) income before income taxes | (215 | ) | (269 | ) | 735 | |||||||||||
| Income taxes | 11 | - | - | - | ||||||||||||
| Net (loss) income and comprehensive (loss) income | $ | (215 | ) | $ | (269 | ) | $ | 735 | ||||||||
| Basic and diluted net (loss) income per share attributable to equity holders of the parent | $ | (0.01 | ) | $ | (0.02 | ) | $ | 0.06 | ||||||||
| Weighted average number of ordinary shares used in computing basic and diluted net loss per share | 17,112,022 | 15,439,508 | 12,158,302 | |||||||||||||
| Note | Number | Issued capital | Shares to be issued | Reserves | Equity component of convertible debentures | Deficit | Total | |||||||||||||||||||||||||
| Balance, December 31, 2015 | 6,561,680 | $ | 800 | $ | – | $ | – | $ | – | $ | (878,514 | ) | $ | (877,714 | ) | |||||||||||||||||
| Shares issued for cash | 14 | 9,538,320 | 247,700 | – | – | – | – | 247,700 | ||||||||||||||||||||||||
| Issuance of convertible debentures | – | – | – | – | 222,417 | – | 222,417 | |||||||||||||||||||||||||
| Unissued share subscription | – | – | 120,000 | – | – | – | 120,000 | |||||||||||||||||||||||||
| Net loss and comprehensive loss for the year | – | – | – | – | – | (1,591,588 | ) | (1,591,588 | ) | |||||||||||||||||||||||
| Balance, December 31, 2016 | 16,100,000 | 248,500 | 120,000 | – | 222,417 | (2,470,102 | ) | (1,879,185 | ) | |||||||||||||||||||||||
| Shares issued for cash | 14 | 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 | 5,14 | 2,544,075 | 614,415 | – | – | – | – | 614,415 | ||||||||||||||||||||||||
| Shares issued for cash | 14 | 8,756,376 | 2,092,295 | – | 80,280 | – | – | 2,172,575 | ||||||||||||||||||||||||
| Shares issued on conversion of convertible debentures | 12,14 | 11,796,046 | 1,010,363 | – | – | (222,417 | ) | – | 787,946 | |||||||||||||||||||||||
| Shares issued on conversion of notes payable | 10,14 | 785,949 | 157,079 | – | – | – | – | 157,079 | ||||||||||||||||||||||||
| Shares issued to former CEO | 14 | 2,000,000 | 477,180 | – | – | – | – | 477,180 | ||||||||||||||||||||||||
| Shares issued for restructuring | 14 | 1,204,851 | 216,873 | – | – | – | – | 216,873 | ||||||||||||||||||||||||
| Shares issued for services | 14 | 2,423,076 | 282,075 | – | – | – | – | 282,075 | ||||||||||||||||||||||||
| Share-based payments | 14 | – | – | – | 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 | $ | – | $ | 972,697 | $ | – | $ | (9,369,941 | ) | $ | (2,996,220 | ) | |||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 52 |
| Attributable to equity holders of the parent | ||||||||||||||||||||
| Number of | Share | Additional paid-in | Accumulated | Total (Deficit) | ||||||||||||||||
| shares | capital | capital | deficit | equity | ||||||||||||||||
| Balance as of December 31, 2013 | 12,052,022 | $ | - | $ | 34,023 | $ | (34,600 | ) | $ | (577 | ) | |||||||||
| Shares and warrants issued in private placement, net | 240,000 | - | 60 | - | 60 | |||||||||||||||
| Share-based compensation recovery | - | - | (32 | ) | - | (32 | ) | |||||||||||||
| Net income | - | - | - | 735 | 735 | |||||||||||||||
| Balance as of December 31, 2014 | 12,292,022 | $ | - | $ | 34,051 | $ | (33,865 | ) | $ | 186 | ||||||||||
| Shares and warrants issued in private placement, net (Note 12(b)(ii)) | 4,820,000 | - | 7 | - | 7 | |||||||||||||||
| Share-based compensation (Note 12(c)) | - | - | 2 | - | 2 | |||||||||||||||
| Net loss | - | - | - | (269 | ) | (269 | ) | |||||||||||||
| Balance as of December 31, 2015 | 17,112,022 | $ | - | $ | 34,060 | $ | (34,134 | ) | $ | (74 | ) | |||||||||
| Net loss | - | - | - | (215 | ) | (215 | ) | |||||||||||||
| Balance as of December 31, 2016 | 17,112,022 | $ | - | $ | 34,060 | $ | (34,349 | ) | $ | (289 | ) | |||||||||
| Note | 2018 | 2017 | 2016 | |||||||||||||
| Operating activities | ||||||||||||||||
| Net loss and comprehensive loss | $ | (3,789,918 | ) | $ | (3,109,921 | ) | $ | (1,591,588 | ) | |||||||
| Items not involving cash: | ||||||||||||||||
| Deferred tax recovery | 17 | – | – | (78,146 | ) | |||||||||||
| Depreciation and amortization expense | 6,7 | 123,474 | 103,372 | 120,768 | ||||||||||||
| Share-based payments | 14,20 | 892,417 | 5,433 | – | ||||||||||||
| Non-cash listing fee | 5 | 942,937 | – | – | ||||||||||||
| Accretion expense | 12 | 241,521 | 667,373 | 189,922 | ||||||||||||
| Interest expense | 10,11,12 | 125,904 | 168,467 | 83,705 | ||||||||||||
| Gain on debt settlement | – | (106,360 | ) | – | ||||||||||||
| (Gain) loss on change in fair value of warrant liability | 13 | (1,598,425 | ) | 8,435 | – | |||||||||||
| Gain on change in fair value of conversion feature | 12 | (890,136 | ) | – | – | |||||||||||
| Impairment of equipment | – | 14,500 | ||||||||||||||
| Impairment of intangible assets | 7 | 64,200 | – | 64,800 | ||||||||||||
| Impairment of assets held for sale | 8 | 57,072 | – | – | ||||||||||||
| Shares issued for compensation | 14, 20 | 477,180 | 65,722 | – | ||||||||||||
| Shares issued for restructuring | 14 | 216,873 | – | – | ||||||||||||
| Shares issued for services | 14 | 560,980 | – | 56,000 | ||||||||||||
| Other | – | – | 18,176 | |||||||||||||
| (2,575,921 | ) | (2,197,479 | ) | (1,121,863 | ) | |||||||||||
| Changes in working capital: | ||||||||||||||||
| Accounts receivable | 847 | 1,155 | 5,316 | |||||||||||||
| Prepaid expenses | (5,463 | ) | (20,512 | ) | (3,500 | ) | ||||||||||
| Accounts payable and accrued liabilities | 9 | (255,173 | ) | 629,076 | 596,220 | |||||||||||
| Net cash used in operating activities | (2,835,710 | ) | (1,587,760 | ) | (523,827 | ) | ||||||||||
| Investing activities | ||||||||||||||||
| Acquisition of property and equipment | 6 | (100,227 | ) | (31,598 | ) | – | ||||||||||
| Net cash used in investing activities | (100,227 | ) | (31,598 | ) | – | |||||||||||
| Financing activities | ||||||||||||||||
| Proceeds from issue of shares | 14 | 2,092,295 | 116,522 | 191,700 | ||||||||||||
| Advance of notes payable | 10 | 495,449 | 399,985 | – | ||||||||||||
| Repayment of notes payable | 10 | – | (31,000 | ) | – | |||||||||||
| Repayment of secured loan | – | – | (12,600 | ) | ||||||||||||
| Advance of convertible debentures payable | 12 | 442,437 | 1,180,314 | 275,000 | ||||||||||||
| Proceeds from share subscriptions | 13 | 61,167 | – | 120,000 | ||||||||||||
| Cash acquired in the Transaction | 5 | 13,000 | – | – | ||||||||||||
| Repayment to related party | 20 | (3,595 | ) | (58,765 | ) | – | ||||||||||
| Bank indebtedness | (7,148 | ) | 7,148 | (52,025 | ) | |||||||||||
| Net cash provided by financing activities | 3,093,604 | 1,614,204 | 522,075 | |||||||||||||
| Increase (decrease) in cash | 157,668 | (5,154 | ) | (1,752 | ) | |||||||||||
| Cash, beginning of year | – | 5,154 | 6,906 | |||||||||||||
| Cash, end of year | 157,668 | – | 5,154 | |||||||||||||
Supplemental disclosure with respect to cash flows (note 18)
The accompanying notes are an integral part of these consolidated financial statements.
| Year ended | ||||||||||||
| December 31 | ||||||||||||
| 2016 | 2015 | 2014 | ||||||||||
| Cash flow from operating activities | ||||||||||||
| Net (loss) income for the year | $ | (215 | ) | $ | (269 | ) | $ | 735 | ||||
| Items not affecting cash: | ||||||||||||
| Depreciation | - | - | 45 | |||||||||
| Loss on sale of fixed assets | - | 2 | 3 | |||||||||
| Revaluation of warrants | (45 | ) | (78 | ) | - | |||||||
| Share-based compensation | - | 2 | (32 | ) | ||||||||
| Gain on settlement of accounts payable and other payables | - | (25 | ) | (1,374 | ) | |||||||
| Changes in non‑cash working capital: | ||||||||||||
| Decrease in accounts receivable, other receivables and prepaid expenses | 6 | 50 | 2,449 | |||||||||
| Decrease in trade payables | (49 | ) | (82 | ) | (1,276 | ) | ||||||
| Increase (decrease) in other accounts payable and accrued liabilities | 198 | 9 | (930 | ) | ||||||||
| (105 | ) | (391 | ) | (380 | ) | |||||||
| Cash flow from investing activities | ||||||||||||
| Proceeds from sale of equipment | - | 1 | 11 | |||||||||
| Cash provided for loan receivable | - | (25 | ) | - | ||||||||
| Decrease in restricted cash | - | 9 | 26 | |||||||||
| - | (15 | ) | 37 | |||||||||
| Cash flow from financing activities | ||||||||||||
| Proceeds from issue of shares, net of share issuance costs | - | 196 | 60 | |||||||||
| - | 196 | 60 | ||||||||||
| Decrease in cash and cash equivalents | (105 | ) | (210 | ) | (283 | ) | ||||||
| Cash and cash equivalents, beginning of year | 124 | 334 | 617 | |||||||||
| Cash and cash equivalents, end of year | $ | 19 | $ | 124 | $ | 334 | ||||||
| 53 |
EMPOWER CLINICS INC. (formerly Adira Energy Ltd. and its subsidiaries ("Adira" or "the Company"), was an oil and gas exploration company with operations in Israel. Given
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the increasing challenging market conditions for oil and gas exploration throughout 2015 and 2016, the Company’s management has been looking for additional business opportunities (see below). Adira is a limited company, incorporated on April 8, 2009, and domiciled in Toronto, Ontario, Canada. The registered head office is located at 4101 Yonge Street, Suite 706, Toronto,. Ontario, M2P 1N6. The Company's shares are currently traded on the OTC market in the U.S. and the TSX Venture Exchange (“TSX”) in Canada. The consolidated financial statements of the Company for the yearyears ended December 31, 2018, 2017, 2016 were authorized for issue
(in accordance with a resolutionUnited States dollars, except share numbers and per share amounts)
NOTE 1: NATURE OF OPERATIONS AND GOING CONCERN
Empower Clinics Inc. (“Empower” or the “Company”) was incorporated under the laws of the directorsProvince of British Columbia on April 25, 2017.
| i. | Empower Healthcare Corporation (“EHC”) is an Oregon based |
| SMAART Inc. is an Oregon |
| iii. | The Hemp and Cannabis Company (“THCC Oregon”) and The Hemp and Cannabis Company Access Points Oregon (“THCF Access Points Oregon”), These are Oregon based companies that do not have active businesses. |
| iv. | The Hemp and Cannabis Company (“THCC Washington”) and The Hemp and Cannabis Company Access Points Washington (“THCF Access Points Washington”), are Washington based companies that do not have active businesses. |
| v. | CanMed Solutions Inc., is an Oregon based company that was incorporated on January 27, 2017. The Company does not have an active business. |
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%registered office of the votes cast by Adira shareholdersCompany is located at a special meetingSuite 918 1030 West Georgia Street, Vancouver, British Columbia, Canada, V6C 1G8. The Company’s U.S. headquarters are at 105 SE 18th Avenue, Portland, Oregon.
Reverse takeover
On April 23, 2018, the Company completed its previously disclosed reverse takeover transaction (“RTO”) of Adira shareholdersEnergy Ltd. (note 5). 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 approve“CBDT”, on the Transaction and the approvalOTC, part of the TSX Venture Exchange.OTC Markets Group, under the ticker “EPWCF” and on the Frankfurt Stock Exchange under the ticker “8EC”. On closing of the Transaction, it is expected that current shareholdersRTO, the Company’s name was changed from Adira Energy Ltd to Empower Clinics Inc.
Share consolidation
On April 19, 2018, in anticipation of Adira will own 10% of the Resulting Issuer, while the current shareholders of the SMAART will own the remaining 90%.
Going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. As at
At December 31, 2016,2018, the Company had ana working capital deficiency of $3,070,900 (December 31, 2017 - $5,278,030), has not yet achieved profitable operations, has accumulated deficit of $34,349 (2015$9,369,941 (December 31, 2017 - $34,134)$5,580,023). The Company has limited revenues and the ability of the Company to ensure continuing operations is not yet generating operating cash flows. As such, there isdependent on the Company’s ability to raise sufficient funds to finance development activities and expand sales. These circumstances represent a material uncertainty that cast substantial doubt regardingon the Company’s ability to continue as a going concern.
EMPOWER CLINICS INC. (formerly Adira Energy Ltd.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018, 2017, 2016
(in United States dollars, except share numbers and per share amounts)
NOTE 2: BASIS OF PREPARATION
| a) | Statement of compliance |
These consolidated financial statements of Company have been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board (“IASB”) and interpretations issued by the IFRS InterpretationsInternational Reporting Interpretation Committee (“IFRIC”).
| Basis of presentation |
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. dollars. All values are rounded toUnited States (“US”) dollars, except as otherwise noted, which is the nearest thousand ($000), except share and per share data or when otherwise indicated.
| d) | Judgements |
The critical judgements that the Company’s management has made in the application of the accounting policies presented in note 3 that have the most significant effect on the amounts recognized in these consolidated financial statements are as follows:
| i. | Functional currency |
The functional currency for each of the Company’s subsidiaries is the currency of the primary economic environment in which the respective entity operates; 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 wholly-owned subsidiaries if there is a change in events and/or conditions which determine the primary economic environment.
| ii. | 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 cash generating unit (“CGU”) may be impaired, thereby requiring adjustment to the carrying value. The Company identified the sustained decrease in market capitalization as an indicator of impairment during the year ended December 31, 2018. As a result of these impairment indicators, the Company assessed the intangible assets and assets held for sale CGUs 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 assets held for sale.
| iii. | Revenue recognition as a result of adopting IFRS 15 |
| 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.
| 55 |
EMPOWER CLINICS INC. (formerly Adira Energy Holdings Corp.Ltd.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018, 2017, 2016
(in United States dollars, except share numbers and per share amounts)
NOTE 2: BASIS OF PREPARATION (continued)
| b. | Transfer of control |
Judgement is required to determine when transfer of control occurs relating to the medical services to its customers. Management based its assessment on a number of indicators of control, which include, but are not limited to whether the Company has present right of payment, and whether the physical possession of the goods, significant risks and rewards and legal title have been transferred to the customer.
| e) | 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:
| i. | Current and deferred taxes (note 17) |
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.
| 56 |
EMPOWER CLINICS INC. (formerly Adira Energy Israel Ltd.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018, 2017, 2016
(in United States dollars, except share numbers and December 2015,per share amounts)
NOTE 2: BASIS OF PREPARATION (continued)
| i. | Equity-settled share-based payments (note 14) |
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.
| ii. | Contingencies (note 22) |
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 voluntarily liquidated and deregistered Adira Oil Technologies, andwill recognize the effects of the changes in its 60% ownershipconsolidated financial statements for the period in Adira Geo Global Limited, respectively.
| f) | Reclassification of prior year amounts |
The Company has reclassified certain immaterial items on the Company voluntarily liquidated and deregistered Adira Energy Israel Services Ltd.
NOTE 3: SIGNIFICANT ACCOUNTING POLICIES
New and amended IFRS standards that are effective for the year ended December 31, 2018
On January 1, 2018, the Company adopted IFRS 9 -Financial Instruments ("IFRS 9") which replaced IAS 39 -Financial Instruments: Recognition and Measurement (“IAS 39”). IFRS 9 provides a revised model for recognition and measurement of financial instruments and a single, forward-looking 'expected loss' impairment model. IFRS 9 also includes significant changes to hedge accounting. The preparationstandard is effective for annual periods beginning on or after January 1, 2018. The Company adopted the standard using the modified retrospective approach. IFRS 9 did not impact the Company's classification and measurement of the consolidated financial statements requires management to make judgments, estimatesassets and assumptions that have an effectliabilities. The standard also had negligible impact on the application of the accounting policies and on the reportedcarrying amounts of assets, liabilities, revenues and expenses. These estimates and underlying assumptions are reviewed regularly. Changes in accounting estimates are reported in the period of the change in estimate.
The following summarizes the significant changes in accordance with the accounting policy stated in Note 3(i)IFRS 9 compared to the consolidatedcurrent standard:
| · | IFRS 9 uses a single approach to determine whether a financial asset is classified and measured at amortized cost or fair value. The classification and measurement of financial assets is based on the Company's business models for managing its financial assets and whether the contractual cash flows represent solely payments for principal and interest. Most of the requirements in IAS 39 for classification and measurement of financial liabilities were carried forward in IFRS 9. The change did not impact the carrying amounts of any of the Company’s financial assets on transition date. |
| · | The adoption of the new "expected credit loss" impairment model under IFRS 9, as opposed to an incurred credit loss model under IAS 39, had a negligible impact on the carrying amounts of the Company’s financial assets on the transition date given the Company transacts exclusively with large established commodity trading firms and other organizations with strong credit ratings and the negligible historical level of customer default. |
| 57 |
EMPOWER CLINICS INC. (formerly Adira Energy Ltd.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018, 2017, 2016
(in United States dollars, except share numbers and per share amounts)
NOTE 3: SIGNIFICANT ACCOUNTING POLICIES (continued)
| · | The new general hedge accounting requirements retain the three types of hedge accounting mechanisms previously available under IAS 39. Under IFRS 9, greater flexibility has been introduced to the types of transactions eligible for hedge accounting, specifically broadening the types of instruments that qualify for hedging instruments and the types of risk components of non-financial items that are eligible for hedge accounting. In addition, the effectiveness test has been replaced with the principle of an "economic relationship". Retrospective assessment of hedge effectiveness is also no longer required. Enhanced disclosure requirements about an entity's risk management activities have also been introduced. The Company had not designated any of its financial instruments as hedges as at December 31, 2018 and 2017, or upon adoption of IFRS 9. |
| ii. | Revenue recognition |
On January 1, 2018, the Company adopted IFRS 15 -Revenue from Contracts with Customers ("IFRS 15") which supersedes IAS 18 -Revenue ("IAS 18"). IFRS 15 establishes a single five-step model framework for determining the nature, amount, timing and uncertainty of revenue and cash flows arising from a contract with a customer. The standard is effective for annual periods beginning on or after January 1, 2018. The Company adopted the standard on January 1, 2018, using the full retrospective approach without applying any practical expedients.
IFRS 15 requires entities to recognize revenue when ‘control’ of goods or services transfers to the customer whereas the previous standard, IAS 18, required entities to recognize revenue when the ‘risks and rewards’ of the goods or services transfer to the customer. The Company concluded there is no change in the timing of revenue recognition of its patient revenue under IFRS 15 compared to the previous standard as the point of transfer of risks and rewards of goods and services and transfer of control occur at the same time. As such, no adjustment was required to the Company's financial statements. Fair value
Additionally, IFRS 15 requires entities to apportion the transaction price attributable to contracts from customers to distinct performance obligations on a relative standalone selling price basis. The Company has evaluated its sales agreements and concluded the delivery of patient services is the warrant liabilityonly performance obligation in the contracts and accordingly there was no change in the amount or timing of revenue recognition under the new standard.
| iii. | Other narrow scope amendments/interpretations |
The Company has been measured using the Black-Scholes model, taking into account the termsadopted amendments to IFRS 2 -Share Based Payments and conditions uponIFRIC 22 -Foreign Currency Transactions and Advance Consideration, which the warrants are granted. These calculations require the use of estimates and assumptions. Changes in assumptions concerning volatilities, interest rates, foreign exchange rates, and expected life coulddid not have a significantan impact on the fair value attributed toCompany's consolidated financial statements.
The significant accounting policies used in the Company’spreparation of these consolidated financial derivatives.
These consolidated financial statements include the U.S. dollar. The functional currency is the currency that best reflects the economic environment in which the Company operates and conducts its transactions, is separately determined for the Company and each of its subsidiaries, and is used to measure the financial position and operating results. The functional currencyaccounts of the Company and its wholly-owned subsidiaries disclosed in note 1. All inter-company balances, transactions, revenues and expenses have been eliminated on consolidation.
On April 16, 2018, the Company 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 5. As a result of these reorganizations described above, the accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries.
Control exists where the parent entity has power over the investee and is exposed, or has rights, to variable returns from its involvement with the U.S. dollar. Transactions denominatedinvestee and has the ability to affect those returns through its power over the investee. Subsidiaries are included in foreign currency (otherthe consolidated financial statements from the date control commences until the date control ceases.
| 58 |
EMPOWER CLINICS INC. (formerly Adira Energy Ltd.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018, 2017, 2016
(in United States dollars, except share numbers and per share amounts)
NOTE 3: SIGNIFICANT ACCOUNTING POLICIES (continued)
| b) | Foreign currency translation |
In preparing the financial statements of each individual group entity, transactions in currencies other than the entity's functional currency)currency (“foreign currencies”) are recorded on initial recognitiontranslated at the rates of exchange rateprevailing at the datedates of the transaction. After initial recognition,transactions. At the end of each reporting period, monetary assets and liabilities denominated in foreign currencycurrencies are translated at the exchange rates prevailing at that date. Exchange gains and losses are recognized on a net basis in earnings or loss from operations for the period.
| c) | Cash |
Cash consists of cash at banks and on hand.
| d) | Property and equipment |
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.
| e) | Intangible assets |
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.
| f) | Depreciation |
Depreciation is provided using the straight-line basis over the following terms:
| Building | 15 years | |
| Equipment | 3 years | |
| Furniture | 5 years | |
| Computer software and equipment | 3 years | |
| Office furniture and equipment | 3 years | |
| Patient records | 5 years | |
| Trademarks | 5 years | |
| Domain names | 5 years | |
| Management software | 5 years |
| 59 |
EMPOWER CLINICS INC. (formerly Adira Energy Ltd.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018, 2017, 2016
(in United States dollars, except share numbers and per share amounts)
NOTE 3: SIGNIFICANT ACCOUNTING POLICIES (continued)
As at December 31, 2018, tenant improvements were not available for use and therefore no amortization has been taken.
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 profit or loss.
| g) | Assets held for sale |
Non-current assets, or disposal groups comprising assets and liabilities, are classified as held for sale if it is highly probable that they will be recovered primarily through sale rather than through continuing use. Such assets, or disposal groups, are
| h) | Provisions |
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 intoand adjusted to reflect management’s current best estimate of the functional currencyexpenditure required to settle the present obligation at the exchangeend 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 at that date. Exchange differences, are recognized inreflects 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 profit or loss. Non-monetary assetsloss for the period.
| i) | Convertible debentures |
The convertible debentures were determined to be compound instruments, comprising liability and liabilities measured at costequity (common shares and warrants). As the debentures are translatedconvertible into common shares, the liability and equity components are presented separately. The initial carrying amount of the equity component of the convertible debentures is determined by using the Black-Scholes option pricing model to estimate the fair value the equity component at the exchangegrant date. 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 equity component. The equity component, and any associated warrants recognized on conversion of the convertible debenture are recorded in reserves on the statement of financial position. The debentures, net of the equity components are accreted using the effective interest rate method over the term of the debentures, such that the carrying amount of the financial liability will equal the principal balance at maturity.
| j) | Share-based payments |
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 transaction.
EMPOWER CLINICS INC. (formerly Adira Energy Ltd.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018, 2017, 2016
(in United States dollars, except share numbers and per share amounts)
NOTE 3: SIGNIFICANT ACCOUNTING POLICIES (continued)
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 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 in profit or loss with a corresponding entry to share-based payment reserve.
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 share-based payment reserve and credited to profit or loss. For those share options that expire unexercised after vesting, the recorded value remains in share-based payment reserve.
| k) | 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 in profit or loss.
Upon exercise of the share purchase warrants with exercise prices in a currency other than the Company’s functional currency, the share purchase warrants are revalued at the date of exercise 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.
| l) | Issued capital |
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.
| 61 |
EMPOWER CLINICS INC. (formerly Adira Energy Ltd.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018, 2017, 2016
(in United States dollars, except share numbers and receivables: Loansper share amounts)
NOTE 3: SIGNIFICANT ACCOUNTING POLICIES (continued)
The proceeds from the issue of units is allocated between common shares and receivablescommon share purchase warrants on a prorated basis on relative fair values as follows: the fair value of common shares is based on the market close on the date the units are issued; and the fair value of the common share purchase warrants is determined using the Black-Scholes pricing model.
| m) | Financial Instruments |
Implementation
In July 2014, the IASB issued the final version of IFRS 9 to replace IAS 39, Financial Instruments: Recognition and Measurement. IFRS 9 provides a revised model for recognition and measurement of financial instruments and a single, forward looking “expected loss” impairment model. IFRS 9 also includes a substantially reformed approach to hedge accounting. The standard is effective for annual periods beginning on or after January 1, 2018, with early adoption permitted.
As a result of the adoption of IFRS 9, the Company has changed its accounting policy for financial instruments retrospectively, for financial instruments that were recognized at the date of application, which was January 1, 2018. The change did not impact the carry value of any financial instruments on this date.
In implementing IFRS 9, the Company updated the financial instruments classification within its accounting policy. The following table shows the original classification under IAS 39 and the new classification under IFRS 9:
| Financial assets and | Original classification | New classification | |
| and liabilities | under IAS 39 | under IFRS 9 | |
| Cash | Loans and receivables | Financial assets at amortized cost | |
| Trade receivables | Loans and receivables | Financial assets at amortized cost | |
| Accounts payable | Other financial liabilities | Financial liabilities at amortized cost | |
| Long-term debt | Other financial liabilities | Financial liabilities at amortized cost |
The Company recognizes financial assets with fixedand liabilities on its consolidated statement of financial position when it becomes a party to the contract creating the asset or determinableliability. On initial recognition, all financial assets and liabilities are recorded by the Company at fair value, net of attributable transaction costs, except for financial assets and liabilities classified as FVTPL for which transaction costs are expensed in the period in which they are incurred.
| n) | Financial assets |
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 and trade receivables as amortized cost.
| 62 |
EMPOWER CLINICS INC. (formerly Adira Energy Ltd.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018, 2017, 2016
(in United States dollars, except share numbers and per share amounts)
NOTE 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 selling financial assets, and, |
| · | The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. |
The Company does not quotedcurrently hold any financial instruments designated as FVTOCI.
Equity instruments designated as FVTOCI:
On initial recognition, the Company may make an irrevocable election (on an instrument-by-instrument basis) to designate investments in equity instruments that would otherwise be measured at fair value through profit or loss to present subsequent changes in fair value in other comprehensive income. Designation at FVTOCI is not permitted if the equity investment is held for trading or if it is contingent consideration recognized by an active market. These assetsacquirer in a business combination. Investments in equity instruments at FVTOCI are initially recognizedmeasured at fair value plus transaction costs. Subsequent to initial recognition, loans and receivablesSubsequently, they 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.
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 assessed for indicators of impairmentmeasured 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. Financial assets are impaired when there is objective evidence that, as a result of oneperiod, with any fair value gains or more events that occurred after the initial recognition, the estimated future cash flows of the investments have been negatively impacted. Evidence of impairment could include financial difficulty of the counterparty, default or delinquency in interest or principal payment or the likelihood that the borrower will enter bankruptcy or financial reorganization.
| 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 in profit or loss on the purchase, sale, issue or cancellation of the Company’s own equity instruments.
Classification of financial liabilities
Financial liabilities that are not contingent consideration of an acquirer in a business combination, held for trading or designated as at FVTPL, are measured at amortized cost using effective interest method.
| 63 |
EMPOWER CLINICS INC. (formerly Adira Energy Ltd.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the significance of the inputs used years ended December 31, 2018, 2017, 2016
(in making fair value measurements. The three levels of the fair value hierarchy are as follows:
NOTE 3: SIGNIFICANT ACCOUNTING POLICIES (continued)
| Financial instruments designated as hedging instruments |
The Company does not currently apply nor have a past practice of applying hedge accounting to financial instruments
| q) | Impairment |
The Company recognizes a loss allowance for expected credit losses on its financial assets. The amount of expected credit losses is updated at each reporting period to reflect changes in credit risk since initial recognition of the respective financial instruments.
| r) | Impairment of non-financial assets |
At each reporting date, the Company evaluatesreviews the needcarrying amounts of its non-financial assets to recorddetermine whether there are any indications of impairment. If any such indication exists such as an impairmentincrease in operating costs, a decrease in the number of patient visits or a change in foreign exchange rate, the recoverable amount of the asset is estimated in order to determine the extent of the impairment, if any. In determining the recoverable amount, the Company also considers the net carrying amount of the asset, the ongoing costs required to maintain and operate the asset, and the use, value and condition of the asset.
Where the asset does not generate cash inflows that are independent with other assets, the Company estimates the recoverable amount of the cash-generating unit (“CGU”) to which the asset belongs. A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or group of assets. This generally results in the Company evaluating its 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. on a property by property basis.
The recoverable amount is determined as the higher of fair value less costs of saledisposal 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 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 which the asset belongs. Impairment losses areor CGU in prior periods. A reversal of impairment is recognized as a gain in profit or loss.
| i. | Current tax expense |
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.
| 64 |
EMPOWER CLINICS INC. (formerly Adira Energy Ltd.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018, 2017, 2016
(in United States dollars, except share numbers and per share amounts)
NOTE 3: SIGNIFICANT ACCOUNTING POLICIES (continued)
| ii. | Deferred tax expense |
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.
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.
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.
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.
Basic loss / incomeearnings (loss) per share (“EPS”) is computedcalculated by dividing the profit or loss forincome (loss) and comprehensive income (loss) of the periodCompany by the basic weighted average number of common shares outstanding during the period. Stock
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.
Revenue is measured at the fair value of the consideration received or receivable, and represents amounts receivable for services rendered, stated net of discounts. The Company recognizes revenue when the amount of revenue can be reliably measured, when it is probable that future economic benefits will flow to the Company, and when specific criteria have been met for each of the Company's activities, as described below. The Company recognizes revenue from the rendering of patient services in the accounting period in which the physician’s services are rendered.
| v) | Related party transactions |
Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence, related parties may be individuals or corporate entities. A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties.
| 65 |
EMPOWER CLINICS INC. (formerly Adira Energy Ltd.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018, 2017, 2016
(in United States dollars, except share numbers and amendments not yet effective.
NOTE 4: RECENT ACCOUNTING PRONOUNCEMENTS
Certain pronouncements were issued by the IASB on November 12, 2009 andInternational Accounting Standards Board (“IASB”) or the IFRS Interpretations Committee (“IFRIC”) that are mandatory for accounting periods after December 31, 2018. Pronouncements that are not applicable to the Company have been excluded from this note.
The following pronouncements have been issued in itsbut are not yet effective:
| i. | In January 2016, the IASB published a new accounting standard, IFRS 16 -Leases ("IFRS 16") which supersedes IAS 17 -Leases. IFRS 16 specifies how to recognize, measure, present and disclose leases. The standard provides a single lessee accounting model, requiring the recognition of assets and liabilities for all leases, unless the lease term is 12 months or less or the underlying asset has a low value. The standard is effective for annual periods beginning on or after January 1, 2019, with early adoption permitted if IFRS 15 has also been applied. The Company will adopt IFRS 16 effective January 1, 2019. | |
| Upon the adoption of IFRS 16, the Company expects to record a material balance of right of use assets and associated lease liabilities related to leases with a term of 12 months or more previously classified as operating leases on the consolidated statements of financial position at January 1, 2019. Due to the recognition of additional lease assets and liabilities, a higher amount of depreciation expense and interest expense on lease assets and liabilities, respectively, will be recorded under IFRS 16 compared to the current standard. Additionally, a corresponding reduction in production costs is expected. Lastly, the Company expects a positive impact on operating cash flows with a corresponding increase in financing cash outflows under IFRS 16. The Company has not quantified these impacts. The Company is currently evaluating the impact of applying IFRS |
NOTE 5: THE TRANSACTION
On April 23, 2018, S.M.A.A.R.T Holdings Inc (“SMAART”) completed version in July 2014, and will replace IAS 39, "Financial Instruments: Recognition and Measurement"the acquisition with Adira Energy Ltd. (“IAS 39”Adira”). IFRS 9 replaces the multiple rules in IAS 39, pursuant to which SMAART amalgamated with 1149770 B.C. Ltd., a single approachwholly-owned subsidiary of Adira, to determine whether a financial asset is measured at amortized cost or fair value and a new mixed measurement model for debt instruments having only two categories: amortized cost and fair value. The approach in IFRS 9 is based on how an entity manages its financial instrumentsform Empower Healthcare Corporation, resulting in the contextindirect acquisition by SMAART of its business model and the contractual cash flow characteristicsall of the financial assets. The new standard also requiresissued and outstanding securities of Adira (the “Transaction”). This resulted in a single impairment method to be used, replacing the multiple impairment methods in IAS 39. IFRS 9 is effective for financial years beginning on or after January 1, 2018. The Company is currently assessing the effectsreverse takeover of IFRS 9 and intends to adopt on its effective date.
| December 31, | ||||||||
| 2016 | 2015 | |||||||
| In US dollars | $ | 17 | $ | 2 | ||||
| In Canadian dollars | 1 | 102 | ||||||
| In new Israeli shekels (“NIS”) | 1 | 20 | ||||||
| $ | 19 | $ | 124 | |||||
In connection with the Transaction Adira has advanced $25completed on April 16, 2018, the Company changed its name from “Adira Energy Ltd.” to SMAART to meet it's ongoing working capital requirements pending“Empower Clinics Inc.” and consolidated its existing common shares on the completionbasis of one common share for each 6.726254 existing common shares of the transaction. SubsequentCompany.
At the time of the Transaction, Adira did not constitute a business as defined under IFRS 3; therefore, the Transaction was accounted for under IFRS 2, where the difference between the consideration given to acquire Adira and the net asset value of Adira was recorded 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 year-end, SMAART repaiddate of the $25 loan (Note 17(a)).
| 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 C$0.31 ($0.24) per share.
| December 31, | ||||||||
| 2016 | 2015 | |||||||
| Government authorities | $ | 1 | $ | 2 | ||||
| Prepaid expenses | 7 | 12 | ||||||
| $ | 8 | $ | 14 | |||||
EMPOWER CLINICS INC. (formerly Adira Energy Ltd.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018, 2017, 2016
(in United States dollars, except share numbers and per share amounts)
NOTE 6: PROPERTY AND EQUIPMENT
The Company operates clinics in Oregon and Washington State. A continuity of property and equipment for the years ended December 31, 2018, 2017 and 2016 is as follows:
| Facilities | Land | Furniture and equipment | Tenant improvements |
Total | ||||||||||||||||
| Cost | ||||||||||||||||||||
| Balance, December 31, 2015 | $ | 249,282 | $ | 146,822 | $ | 42,500 | $ | – | $ | 438,604 | ||||||||||
| Transfer to assets held for sale | (70,297 | ) | (119,703 | ) | – | – | (190,000 | ) | ||||||||||||
| Disposals | (178,985 | ) | (27,119 | ) | (13,000 | ) | – | (219,104 | ) | |||||||||||
| Impairment loss | – | – | (14,500 | ) | – | (14,500 | ) | |||||||||||||
| 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 | ||||||||||
| Facilities | Land | Furniture and equipment | Tenant improvements | Total | ||||||||||||||||
| Accumulated amortization | ||||||||||||||||||||
| Balance, December 31, 2015 | $ | (8,309 | ) | $ | – | $ | (6,917 | ) | $ | – | $ | (15,226 | ) | |||||||
| Amortization | (5,966 | ) | – | (27,185 | ) | – | (33,151 | ) | ||||||||||||
| Transfer to assets held for sale | 2,343 | – | – | – | 2,343 | |||||||||||||||
| Disposals | 11,932 | – | 27,500 | – | 39,432 | |||||||||||||||
| 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 | ) | ||||||||
| Carrying amount | ||||||||||||||||||||
| Balance, December 31, 2016 | $ | – | $ | $ | 8,398 | $ | – | $ | 8,398 | |||||||||||
| Balance, December 31, 2017 | – | 16,128 | 20,000 | 36,128 | ||||||||||||||||
| Balance, December 31, 2018 | $ | – | $ | $ | 8,595 | $ | 118,465 | $ | 127,060 | |||||||||||
| December 31, | ||||||||
| 2016 | 2015 | |||||||
| Accrued expenses | $ | 263 | $ | 65 | ||||
| $ | 263 | $ | 65 | |||||
EMPOWER CLINICS INC. (formerly Adira Energy Ltd.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018, 2017, 2016 2015 and 2014
(in United States dollars, in thousands, except share numbers and per share data
NOTE 7: INTANGIBLE ASSETS
| Patient records | Trademarks and domain names | Management software | Total | |||||||||||||
| Cost | ||||||||||||||||
| Balance, December 31, 2015 | 356,893 | $ | 141,000 | $ | 73,000 | $ | 570,893 | |||||||||
| Impairment loss | (64,800 | ) | – | – | (64,800 | ) | ||||||||||
| Balance, December 31, 2016 | 292,093 | 141,000 | 73,000 | 506,093 | ||||||||||||
| Expenditures | – | – | – | – | ||||||||||||
| Balance, December 31, 2017 | 292,093 | 141,000 | 73,000 | 506,093 | ||||||||||||
| Impairment loss | – | (42,300 | ) | (21,900 | ) | (64,200 | ) | |||||||||
| Balance, December 31, 2018 | 292,093 | $ | 98,700 | $ | 51,100 | $ | 441,893 | |||||||||
| Patient records | Trademarks and domain names | Management software | Total | |||||||||||||
| Accumulated amortization | ||||||||||||||||
| Balance, December 31, 2015 | (35,690 | ) | $ | (14,100 | ) | $ | (7,300 | ) | $ | (57,090 | ) | |||||
| Amortization | (56,703 | ) | (28,200 | ) | (14,600 | ) | (99,503 | ) | ||||||||
| 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 | ) | |||||
| Patient records | Trademarks and domain names |
Management software |
Total | |||||||||||||
| Carrying amount | ||||||||||||||||
| Balance, December 31, 2016 | 199,700 | $ | 98,700 | $ | 51,100 | $ | 349,500 | |||||||||
| Balance, December 31, 2017 | 142,996 | 70,500 | 36,500 | 249,996 | ||||||||||||
| Balance, December 31, 2018 | 71,617 | $ | – | $ | 8,595 | $ | 71,617 | |||||||||
During the year ended December 31, 2018, the Company issued 4,820,000 warrants in conjunction with a private placement (Note 13(b) (ii)). The warrants haverecognized an expiry periodimpairment loss of 3 years from date of issuance and an exercise price of $0.05 CDN per common share.
| May 7, 2015 | December 31, 2015 | December 31, 2016 | ||
| Expected life | 3 years | 2.35 years | 1.35 years | |
| Risk-free interest rate | 0.64% | 0.50% | 0.87% | |
| Dividend yield | 0.00% | 0.00% | 0.00% | |
| Foreign exchange rate (USD/CAD) | 0.8276 | 0.7209 | 0.7437 | |
| Expected volatility | 222.04% | 177.23% | 147.70% |
EMPOWER CLINICS INC. (formerly Adira Energy Ltd.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the risk thatyears ended December 31, 2018, 2017, 2016
(in United States dollars, except share numbers and per share amounts)
NOTE 8: ASSETS 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 (note 6). 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 encounter difficulty in obtaining fundsreceive net proceeds of $127,972 after selling costs (note 23). An impairment loss of $57,072 has been recognized to meet current obligations and future commitments. The Company's approachreduce the asset’s carrying value 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 offair market value.
| Facility Portland | Land Portland | Total | ||||||||||
| Cost | ||||||||||||
| Balance, December 31, 2015 | $ | – | $ | – | $ | – | ||||||
| Transfer from property and equipment | 70,297 | 119,703 | 190,000 | |||||||||
| 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 | ||||||
| Facility Portland | Land Portland | Total | ||||||||||
| Accumulated amortization | ||||||||||||
| Balance, December 31, 2015 | $ | (2,343 | ) | $ | – | $ | (2,343 | ) | ||||
| Amortization | (2,613 | ) | – | (2,613 | ) | |||||||
| Balance, December 31, 2016 | (4,956 | ) | – | (4,956 | ) | |||||||
| Amortization | – | – | – | |||||||||
| Balance, December 31, 2017 and 2018 | (4,956 | ) | – | (4,956 | ) | |||||||
| Faculty Portland |
Land Portland |
Total | ||||||||||
| Carrying amount | ||||||||||||
| Balance, December 31, 2016 | $ | 65,341 | $ | 119,703 | $ | 185,044 | ||||||
| Balance, December 31, 2017 | 65,341 | 119,703 | 185,044 | |||||||||
| Balance, December 31, 2018 | $ | 45,190 | $ | 82,782 | $ | 127,972 | ||||||
NOTE 9: ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
| As of December 31, | ||||||||
| 2018 | 2017 | |||||||
| Trade payables and accrued liabilities | $ | 1,274,885 | $ | 1,039,166 | ||||
| Payroll liabilities | 280,007 | 410,389 | ||||||
| $ | 1,554,892 | $ | 1,449,555 | |||||
| 69 |
EMPOWER CLINICS INC. (formerly Adira Energy Ltd.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018, 2017, 2016
(in United States dollars, except share numbers and per share amounts)
NOTE 10: NOTES PAYABLE
| As at December 31, | ||||||||||||
| 2018 | 2017 | 2016 | ||||||||||
| Balance, beginning of period | $ | 404,370 | 87,016 | $ | 78,463 | |||||||
| Converted to convertible debentures (a) | – | (62,131 | ) | – | ||||||||
| Repayment (b) | – | (31,000 | ) | – | ||||||||
| Issue of notes payable (c)(d)(e)(f)(g) | 495,449 | 399,985 | – | |||||||||
| Converted to shares (c)(d) | (167,000 | ) | – | – | ||||||||
| Interest expense | 27,896 | 10,500 | 8,553 | |||||||||
| Balance, end of period | 760,715 | 404,370 | 87,016 | |||||||||
| Less: non-current portion of notes payable (g) | (150,271 | ) | – | – | ||||||||
| Current portion of notes payable | $ | 610,444 | 404,370 | $ | 87,016 | |||||||
| 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 12(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 shares (note 14(a)). |
| 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 was converted into units of the Company consisting of one common share and one share purchase warrant (note 14(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 maturity, the promissory note 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 C$205,000 ($150,449). This promissory note payable is due December 31, 2020 and will bear interest at 6% per annum |
| 70 |
EMPOWER CLINICS INC. (formerly Adira Energy Ltd.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018, 2017, 2016
(in United States dollars, except share numbers and per share amounts)
NOTE 11: SECURED LOAN PAYABLE
| As at December 31, | ||||||||||||
| 2018 | 2017 | 2016 | ||||||||||
| Principal | $ | 550,000 | $ | 550,000 | $ | 550,000 | ||||||
| Interest | 167,460 | 126,849 | 88,537 | |||||||||
| $ | 717,460 | $ | 676,849 | $ | 638,537 | |||||||
On June 12, 2015, the Company, had cash and cash equivalentsthrough its wholly owned subsidiary EHC, acquired all of $19 (2015 - $124), other receivables, and prepaid expensesthe assets of $8 (2015 – $14) and loan receivablePresto in consideration for the assumption by the Company of $25 (2015 - $25)Presto’s liability to settle current liabilitiesBayview Equities Ltd (the “Secured Party”) in the amount of $263 (2015 – $125) (Note 1(b)).
NOTE 12: CONVERTIBLE DEBENTURES
Convertible debentures consist of the following:
| As at December 31, | ||||||||||||
| 2018 | 2017 | 2016 | ||||||||||
| Balance, beginning of period | $ | 1,835,225 | $ | 468,329 | $ | 143,341 | ||||||
| Proceeds from Issuance of convertible debentures (a)(b)(c)(d)(e)(f)(g) | 442,437 | 1,621,791 | 101,124 | |||||||||
| Amount allocated to conversion option (g)(h) | (172,386 | ) | (1,047,347 | ) | ||||||||
| Amount converted to units (a)(b)(c)(d)(e)(f)(g) | (2,129,728 | ) | – | – | ||||||||
| Interest expense | 57,397 | 125,079 | 33,942 | |||||||||
| Accretion expense | 241,521 | 667,373 | 189,922 | |||||||||
| $ | 274,466 | $ | 1,835,225 | $ | 468,329 | |||||||
During the year ended December 31, 2018, the Company recognized a $890,136 gain (2017 - $nil, 2016 2015 and 2014
| a) | 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 $653,626 using the Black-Scholes option pricing model with the following assumptions: a one year expected average life, share price of $0.0056 (C$0.0075); 100% volatility; risk-free interest rate of 0.76%; and an expected dividend yield of 0%. |
| b) | 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 with the following assumptions: a one year expected average life, share price of $0.0056 (C$0.0075); 100% volatility; risk-free interest rate of 0.76%; and an expected dividend yield of 0%. |
EMPOWER CLINICS INC. (formerly Adira Energy Ltd.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018, 2017, 2016
(in United States dollars, except share numbers and per share amounts)
NOTE 12: CONVERTIBLE DEBENTURES (continued)
| d) | 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 with the following assumptions: a one year expected average life, share price of $0.0056 (C$0.0075); 100% volatility; risk-free interest rate of 0.76%; and an expected dividend yield of 0%. |
| e) | 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 with the following assumptions: a one year expected average life, share price of $0.0056 (C$0.0075); 100% volatility; risk-free interest rate of 0.76%; and an expected dividend yield of 0%. |
| f) | 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 with the following assumptions: a one year expected average life, share price of $0.0056 (C$0.0075); 100% volatility; risk-free interest rate of 0.76%; and an expected dividend yield of 0%. |
| g) | 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 with the following assumptions: a one year expected average life, share price of $0.14 (C$0.18); 100% volatility; risk-free interest rate of 1.66%; and an expected dividend yield of 0%. The conversion feature as at December 31, 2018 was valued at $22,565 using the Black Scholes option pricing model with the following assumptions: 0.75 year expected average life, share price of C$0.095; 100% volatility; risk-free interest rate of 1.85%; and an expected dividend yield of 0%. The gain on change in fair value of conversion feature of $146,201 has been recorded on the statement of loss and comprehensive loss. |
| h) | The conversion feature was 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 options 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. |
| 72 |
EMPOWER CLINICS INC. (formerly Adira Energy Ltd.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the risk that the fair value or future cash flows ofyears ended December 31, 2018, 2017, 2016
(in United States dollars, except share numbers and per share amounts)
NOTE 13: WARRANT LIABILITY
| Warrants Outstanding as at December 31, | ||||||||||||||||||||
| Issuance | Expiry Date | Exercise Price | Warrants issued | Common shares upon exercise | 2018 | 2017 | ||||||||||||||
| Convertible Debt Conversion(1) | April 23, 2020 | C $0.39 $0.30 | 11,373,368 | 11,373,368 | 11,373,368 | – | ||||||||||||||
| Note conversion(2) | April 23, 2020 | C $0.39 $0.30 | 268,817 | 268,817 | 268,817 | – | ||||||||||||||
| Shares issued(3) | June 11, 2019 | C $0.36 $0.28 | 2,000,000 | 2,000,000 | 2,000,000 | – | ||||||||||||||
| Note conversion(4) | October 22, 2019 | C $0.36 $0.28 | 517,132 | 517,132 | 517,132 | – | ||||||||||||||
| Shares issued(5) | October 22, 2019 | C $0.36 $0.28 | 312,903 | 312,903 | 312,903 | – | ||||||||||||||
| Convertible Debt Conversion(6) | December 14, 2020 | C $0.36 $0.28 | 422,678 | 422,678 | 422,678 | – | ||||||||||||||
| 14,894,898 | 14,894,898 | 14,894,898 | – | |||||||||||||||||
The warrants are classified as a financial instrument will fluctuate becauseunder the principles of changesIFRS 9, as the exercise price is in market prices. Market risk is comprisedCanadian dollars while the functional currency of two types of risk: interest rate risk and foreign currency risk.
| (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 14(a)). |
| (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 14(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 14(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 14(a)). |
| (6) | On December 31, 2018, the Company issued 422,678 units; consisting of 422,678 common shares and 422,678 common share purchase warrants (note 14(a)). |
| 73 |
EMPOWER CLINICS INC. (formerly Adira Energy Ltd.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018, 2017, 2016
(in United States dollars, except share numbers and per share amounts)
NOTE 13: WARRANT LIABILITY (continued)
The Company is exposed to financial risk related to the fluctuation of foreign exchange rates. Mosttotal fair values of the Company's monetary assetswarrants at their respective issue dates and December 31, 2018 are held in U.S. dollarsas follows:
| As at December 31, | ||||||||
| 2018 | 2017 | |||||||
| Balance, beginning of period | $ | – | $ | – | ||||
| Convertible Debt Conversion(1) | 1,317,916 | – | ||||||
| Shares issued(1) | 303,427 | – | ||||||
| Note conversion(1) | 83,254 | – | ||||||
| Change in fair value of warrant liability(2) | (1,598,425 | ) | – | |||||
| Total warrant liability | 106,172 | – | ||||||
| Less: non-current portion | (101,698 | ) | – | |||||
| Current portion of warrant liability | $ | 4,474 | $ | – | ||||
During the year ended December 31, 2018, 2017 and most2016, the Company recognized the following gain on revaluation of the Company's expenditures are made in Canadian dollars. The Company has not hedged its exposure to currency fluctuations. An increase or decrease of 5% of the Canadian dollar would not have a significant effect on the Company.
| Years ended December 31, | ||||||||||||
| 2018 | 2017 | 2016 | ||||||||||
| Convertible Debt Conversion | 1,247,038 | $ | – | $ | – | |||||||
| Shares issued | 300,798 | – | – | |||||||||
| Note conversion | 50,589 | – | – | |||||||||
| 1,598,425 | $ | – | $ | – | ||||||||
| (1) | Fair value at issuance based on the following assumptions for the Black-Scholes option pricing: |
| Risk-free interest rate | 1.80% - 2.25% | |
| Expected life | 1 - 2 years | |
| Expected volatility | 100.0% | |
| Forfeiture rate | 0.0% | |
| Dividend rate | 0.0% |
| (2) | Fair value at December 31, 2018 based on the following assumptions for the Black-Scholes option pricing: |
| Risk-free interest rate | 1.85% | |
| Expected life | 0.44 - 1.96 years | |
| Expected volatility | 100.0% | |
| Forfeiture rate | 0.0% | |
| Dividend rate | 0.0% |
EMPOWER CLINICS INC. (formerly Adira Energy Ltd.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018, 2017, 2016
(in United States dollars, except share numbers and per share amounts)
NOTE 14: EQUITY
| a) | Authorized share capital |
| · | Unlimited number of common shares without nominal or par value. |
The Company had the following common share transactions during the year ended December 31, 2018:
| · | 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. |
| · | On April 23, 2018, pursuant to the conversion of 11,373,368 units 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 13). |
| · | 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 13). |
| · | 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). |
| · | On June 11, 2018, pursuant to a marketing services agreement, the Company issued 2,000,000 units at a deemed price of C$0.31 ($0.24) per unit for total fair value consideration of C$620,000 ($477,180). 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. 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 is in the process of cancelling these securities. |
| · | 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 18, 19). |
| · | On October 23, 2018, pursuant to the conversion of $122,030 notes payable, the Company issued 517,132 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 $0.28 (C$0.36) per share for a period of twelve months following the closing date of the conversion (note 13). |
| · | 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 13). |
| · | On October 23, 2018, the Company issued 423,076 common shares at a deemed price of C$0.29 ($0.22) per common share for services received for total fair value consideration of C$120,000 ($92,856). |
| 75 |
EMPOWER CLINICS INC. (formerly Adira Energy Ltd.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018, 2017, 2016
(in United States dollars, except share numbers and per share amounts)
NOTE 14: EQUITY (continued)
| · | On October 23, 2018, pursuant to restructuring, the Company issued 1,204,851 common shares for $0.18 (C$0.23) per common share. |
| · | On December 14, 2018, pursuant to the conversion of 422,678 units of convertible debentures with a face value of $57,980 (C$75,060), the Company issued 422,678 common shares and 422,678 common share purchase warrants. Each warrant entitles the holder to acquire one common share at a price of $0.14 (C$0.19) per share for a period of two years following the closing date of the conversion (note 13). |
The Company had the following common share transactions during the year ended December 31, 2017:
| · | In January 2017, pursuant to a shareholder rights offering financing, the Company issued 32,237,225 common shares for $0.0094 per common share for gross proceeds of $302,244 (C$375,000). |
At December 31, 2018, there were 77,847,598 issued and outstanding common shares (December 31, 2017 - 48,337,225). The Company does not currently pay dividends and entitlement will only arise upon declaration.
| b) | Share options |
The Company has an incentive share option plan (“the plan”) in place under which it is authorized to grant share options to executive officers, directors, employees and consultants. The plan allows the Company to grant share options up to a maximum of 10.0% of the number of issued shares of the Company.
Share option transactions and the number of share options outstanding during the years ended December 31, 2018 and 2017, are summarized as follows:
| Number of share options | Weighted average exercise price | |||||||
| Outstanding, December 31, 2015 | – | – | ||||||
| Granted | 1,250,000 | C$0.10 | ||||||
| Outstanding, December 31, 2016 | 1,250,000 | C$0.10 | ||||||
| Granted | 2,050,000 | C$0.10 | ||||||
| Outstanding, December 31, 2017 | 3,300,000 | C$0.10 | ||||||
| Granted | 4,300,000 | C$0.38 | ||||||
| Outstanding, December 31, 2018 | 7,600,000 | C$0.25 | ||||||
| Exercisable, December 31, 2018 | 5,650,000 | C$0.30 | ||||||
Share options outstanding and exercisable at December 31, 2018, are as follows:
| Exercise price (C$) | 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 | 3,300,000 | 0.10 | 2.55 | 1,600,000 | 0.10 | 2.95 | ||||||||||||||||||||
| 0.26 | 450,000 | 0.26 | 4.80 | 200,000 | 0.26 | 4.80 | ||||||||||||||||||||
| 0.38 | 3,850,000 | 0.38 | 4.40 | 3,850,000 | 0.38 | 4.40 | ||||||||||||||||||||
| 7,600,000 | 0.25 | 3.85 | 5,650,000 | 0.30 | 4.00 | |||||||||||||||||||||
| 76 |
EMPOWER CLINICS INC. (formerly Adira Energy Ltd.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018, 2017, 2016
(in United States dollars, except share numbers and per share amounts)
NOTE 14: EQUITY (continued)
| Years ended December 31, | ||||||||||
| 2018 | 2017 | 2016 | ||||||||
| Risk-free interest rate | 2.19% - 2.37% | 0.76% | – | |||||||
| Expected life | 5 years | 5 years | – | |||||||
| Expected volatility | 100.0% | 100.0% | – | |||||||
| Forfeiture rate | 0.0% | 0.0% | – | |||||||
| Dividend rate | 0.0% | 0.0% | – | |||||||
The fair value of share options recognized as an expense during the year ended December 31, 2018, was $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, 2018 and 2017:
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.
| c) | Share purchase warrants |
Share purchase warrant transactions and the number of share purchase warrants outstanding during the years ended December 31, 2018 and 2017, are summarized as follows:
| Number of share options | Weighted average exercise price | |||||||
| Outstanding, December 31, 2017, 2016 and 2015 | – | – | ||||||
| Granted(1) | 627,378 | C$0.31 | ||||||
| Outstanding, December 31, 2018 | 627,378 | C$0.31 | ||||||
| Exercisable, December 31, 2018 | 627,378 | C$0.31 | ||||||
| (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). |
| The fair value of share purchase warrants recognized in reserves during the year ended December 31, 2018, was $80,280 (year ended December 31, 2017 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, 2018, 2017 and 2016: |
| Years ended December 31, | ||||||||||||
| 2018 | 2017 | 2016 | ||||||||||
| Risk-free interest rate | 1.87% | – | – | |||||||||
| Expected life | 2 years | – | – | |||||||||
| Expected volatility | 100.0% | – | – | |||||||||
| Forfeiture rate | 0.0% | – | – | |||||||||
| Dividend rate | 0.0% | – | – | |||||||||
| 77 |
EMPOWER CLINICS INC. (formerly Adira Energy Ltd.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018, 2017, 2016
(in United States dollars, except share numbers and per share amounts)
NOTE 15: OPERATING EXPENSES
| Years ended December 31, | ||||||||||||||
| Note | 2018 | 2017 | 2016 | |||||||||||
| Salaries and benefits | 20 | 1,786,804 | $ | 1,205,514 | $ | 1,053,305 | ||||||||
| Rent | 272,768 | 267,272 | 160,135 | |||||||||||
| Advertising and promotion | 306,799 | 171,814 | 60,353 | |||||||||||
| Telephone and internet | 97,028 | – | 88,485 | |||||||||||
| Other | 54,282 | 392,408 | 225,729 | |||||||||||
| 2,517,681 | $ | 2,037,008 | $ | 1,588,007 | ||||||||||
NOTE 16: RESTRUCTURING EXPENSE
Subsequent to the Transaction, the Company initiated an organization-wide refocusing and restructuring. Accordingly, the Company incurred $110,424 during the year ended December 31, 2018 (2017 - $nil; 2016; $nil) in net charges related to reorganization and restructuring.
NOTE 17: INCOME TAXES
| a) | Rate reconciliation |
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% (2017 - 26%, 2016 – 26.5%26%) to the effective tax rates forrate is as follows:
| Years ended December 31, | ||||||||||||
| 2018 | 2017 | 2016 | ||||||||||
| Loss before taxes | $ | (3,789,918 | ) | $ | (3,109,921 | ) | $ | (1,669,736 | ) | |||
| Combined Canadian federal and provincial income tax rates | 27% | 26% | 26% | |||||||||
| Expected income tax recovery | (1,023,280 | ) | (808,580 | ) | (434,130 | ) | ||||||
| Items that cause an increase (decrease): | ||||||||||||
| Effect of different tax rates in foreign jurisdiction | 35,690 | (219,015 | ) | (52,060 | ) | |||||||
| Non-deductible expenses | 294,780 | 10,988 | 32,390 | |||||||||
| Tax rate changes | 152,650 | 233,990 | 1,834 | |||||||||
| Change in prior year estimates | – | 165,538 | – | |||||||||
| Other | 1,690 | (561 | ) | – | ||||||||
| Change in unrecognized deferred income tax assets | 538,470 | 617,640 | 295,670 | |||||||||
| Income tax recovery | $ | – | $ | – | $ | 78,146 | ||||||
| 78 |
EMPOWER CLINICS INC. (formerly Adira Energy Ltd.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, is as follows:
| 2016 | 2015 | |||||||
| Loss before recovery of income taxes | $ | (215 | ) | $ | (269 | ) | ||
| Expected income tax recovery | $ | (57 | ) | $ | (71 | ) | ||
| Tax rate changes and other adjustments | (1,159 | ) | (7,423 | ) | ||||
| Non-deductible expenses | (17 | ) | (16 | ) | ||||
| Unrealized foreign exchange | - | 1,290 | ||||||
| Change in tax benefits not recognized | 1,232 | 6,220 | ||||||
| Income tax (recovery) expense | $ | - | $ | - | ||||
(in United States dollars, in thousands, except share numbers and per share data
NOTE 17: INCOME TAXES (continued)
| Unrecognized deferred tax assets and liabilities |
Deferred taxes are provided as a result of temporary differences that arise due to the differences between the income tax values and the carrying amount of assets and liabilities. Deferred tax assets have not been recognized in respect of the following deductible temporary differences:
| 2016 | 2015 | |||||||
| Property and equipment | $ | 1 | $ | 1 | ||||
| Share issuance costs | $ | 4 | $ | 286 | ||||
| Deferred expenses | $ | 150 | $ | - | ||||
| Non-capital losses carried forward | $ | 7,714 | $ | 2,931 | ||||
| As at December 31, | ||||||||
| 2018 | 2017 | |||||||
| Deferred tax assets: | ||||||||
| Non-capital losses | 7,291,370 | $ | 4,357,960 | |||||
| Property and equipment | 59,640 | 7,010 | ||||||
| Intangible assets | 366,070 | 225,750 | ||||||
| Accrued professional fees | 23,000 | – | ||||||
| Accrued compensation | 34,378 | – | ||||||
| Convertible debenture | – | 569,010 | ||||||
| Share issue costs | 179,640 | 12,000 | ||||||
| Capital losses carried forward | 5,417 | – | ||||||
| Unrealized foreign exchange loss issuance costs | 1,880 | 1,880 | ||||||
| Deferred tax assets, net | 7,961,384 | $ | 5,173,610 | |||||
NOTE 18: SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH FLOWS
Significant non-cash transactions were as noted in 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 respect of these items because it is not probable that future taxable profit will be available against which the group can utilize the benefits therefrom.
| 2027 | $ | 76 | ||
| 2028 | 412 | |||
| 2029 | 764 | |||
| 2030 | 963 | |||
| 2031 | 2,003 | |||
| 2032 | 591 | |||
| 2033 | 975 | |||
| 2034 | 825 | |||
| 2035 | 694 | |||
| 2036 | 411 | |||
| $ | 7,714 |
| Years ended December 31, | ||||||||||||||||
| Note | 2018 | 2017 | 2016 | |||||||||||||
| Conversion of convertible debt to share purchase warrants | 13 | $ | 1,292,265 | $ | – | $ | – | |||||||||
| Shares issued to marketing services company | 14(a) | 477,180 | – | – | ||||||||||||
| Shares issued to former CEO | 14(a) | 477,180 | ��� | – | ||||||||||||
| Conversion of notes payable into units | 13 | 114,567 | – | – | ||||||||||||
| $ | 2,361,192 | $ | – | $ | – | |||||||||||
EMPOWER CLINICS INC. (formerly Adira Energy Ltd.), options may be granted to employees, officers, consultants, service providers and directors of the Company or its subsidiaries.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018, 2017, 2016 and 2015 were as follows:
Number of options outstanding | Weighted average exercise price | |||||||
| Balance, January 1, 2015 | 416,000 | $ | 5.37 | |||||
| Options forfeited | (144,666 | ) | 8.34 | |||||
| Balance, December 31, 2015 | 271,334 | $ | 2.85 | |||||
| Options forfeited | (35,334 | ) | 7.68 | |||||
| Balance, December 31, 2016 | 236,000 | $ | 2.23 | |||||
(in United States dollars, in thousands, except share numbers and per share data
NOTE 19: FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
The Company has established a fair value hierarchy that reflects the significance of inputs of valuation techniques used in making fair value measurements as follows:
Level 1 – quoted prices in active markets for identical assets or liabilities;
Level 2 – inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. from derived prices); and
Level 3 – inputs for the asset or liability that are not based on observable market data.
At December 31, 2018 and 2017, none of the Company's financial assets and liabilities are measured and recognized in the consolidated statements of financial position at fair value with the exception of the conversion feature liability (note 12) and warrant liability (note 13).
The carrying values of cash, accounts receivable, due from related parties, bank indebtedness, accounts payable and accrued liabilities, share subscriptions and amounts due to related parties approximate their carrying values due to their short-term nature.
As at December 31, 2018 and 2017, 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 2 or Level 3 in the fair value hierarchy above with the exception of the conversion feature liability (note 12) and warrant liability (note 13), which are a Level 3 fair value measurement.
| b) | Risk Management |
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.
| a) | 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 and cash 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.
| 80 |
EMPOWER CLINICS INC. (formerly Adira Energy Ltd.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2016:
| Grant date | Expiry date | Grant date fair value | Exercise price | Number of options outstanding | Number of options exercisable | Average remaining contractual life | |||||||||||||||
| August 22, 2012 (*) | August 21, 2017 | $ | 1.05 | $ | 2.23 | 236,000 | 236,000 | 0.64 | |||||||||||||
| 236,000 | 236,000 | ||||||||||||||||||||
(in United States dollars, except share numbers and per share amounts)
NOTE 19: FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)
The Company’s credit risk is predominantly related to cash balances held in financial institutions and amounts receivable from credit card processor. The maximum exposure to the credit risk is equal to the carrying value of such financial assets. At December 31, 2018 and 2017, 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.
The Company’s functional currency is the US dollar and therefore the Company’s income (loss) and comprehensive income (loss) are expensed as share-based payments. For grants made until December 31, 2011,impacted by fluctuations in the Company usedvalue of foreign currencies in relation to the Black-Scholes option pricing model to value stock options granted. For grants made from January 1, 2012,US dollar.
The table below summarizes the Company uses the Binominal option pricing model to value stock options granted.
| As at December 31, | ||||||||
| 2018 | 2017 | |||||||
| Canadian dollar net monetary liabilities | $ | 171,578 | $ | 420,704 | ||||
| $ | 171,578 | $ | 420,704 | |||||
The effect on loss before income tax for the year ended December 31, 20162018, 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 recorded a share-based compensation expenseis estimated to be an increase/decrease of $Nil (2015$12,577 (2017 - $2) as a result of the vesting of previously granted stock options.
Liquidity risk is the risk that the Company has share purchase warrants outstanding entitling the holders to acquire Common shares as follows:
| Number of warrants (*) | Weighted average exercise price | |||||||
| Balance as of December 31, 2014 | 79,012,640 | $ | 0.17 | |||||
| Warrants granted during 2014 | 4,820,000 | 0.04 | ||||||
| Warrants expired during 2015 | (79,012,640 | ) | 0.14 | |||||
| Balance as of December 31, 2015 and 2016 | 4,820,000 | $ | 0.04 | |||||
| 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 |
In the normal course of business, the Company enters into contracts and performs business activities that give rise to commitments for future minimum payments. The Company superviseshas no concentrations of liquidity risk. A summary of future operating commitments is presented in note 22.
As at December 31, 2018, the actual expenditure againstCompany had a cash balance of $157,668 and current liabilities of $3,258,043. (December 31, 2017 - $nil and $5,436,664 respectively). The Company’s current resources are not sufficient to settle its current liabilities.
| d) | Interest rate risk |
Interest rate risk is the budget to manage its costs and commitments.risk that future cash flows will fluctuate as a result of changes in market interest rates.
| 81 |
EMPOWER CLINICS INC. (formerly Adira Energy Ltd.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the context of relevant opportunitiesyears ended December 31, 2018, 2017, 2016
(in United States dollars, except share numbers 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 20: RELATED PARTY TRANSACTIONS
The Company’s related parties.
Key management compensation includes:
| Years ended December 31, | ||||||||||||
| 2018 | 2017 | 2016 | ||||||||||
| Salaries and benefits | $ | 1,063,748 | $ | 221,700 | $ | 195,000 | ||||||
| Share-based payments | 892,417 | – | – | |||||||||
| $ | 1,956,165 | $ | 221,700 | $ | 195,000 | |||||||
| Year ended December 31, | ||||||||||||
| 2016 | 2015 | 2014 | ||||||||||
| Short-term employee benefits | $ | - | $ | 38 | $ | 212 | ||||||
| Share-based compensation | - | 1 | 22 | |||||||||
| $ | - | $ | 39 | $ | 234 | |||||||
| Number of people | 2 | 2 | 2 | |||||||||
| Year ended December 31, | ||||||||||||
| 2016 | 2015 | 2014 | ||||||||||
| Board of Directors fees | $ | 5 | $ | 45 | $ | 38 | ||||||
| Number of people | 3 | 3 | 3 | |||||||||
As at December 31, 2018, $nil (December 31, 2017 - $133,775), is due from related parties for the Transaction. The outstanding balance was non-interest bearing, unsecured and due on demand.
As at December 31, 2018, $12,575 (December 31, 2017 - $16,170) is due to related parties for final settlement of the purchase of Presto operations. The outstanding balance is non-interest bearing, unsecured and due on demand.
NOTE 21: MANAGEMENT OF CAPITAL
The Company’s objectives of capital management are intended to safeguard the Company’s normal operating requirements on an ongoing basis. At December 31, 2018, the capital of the Company consists of consolidated equity, notes payable, convertible debentures payable, secured loan payable, and bank indebtedness, net of cash.
| As at December 31, | ||||||||
| 2018 | 2017 | |||||||
| Equity | $ | (2,996,220 | ) | $ | (4,806,862 | ) | ||
| Notes payable | 760,715 | 404,370 | ||||||
| Convertible debentures payable | 274,466 | 1,835,225 | ||||||
| Secured loan payable | 717,460 | 676,849 | ||||||
| Bank indebtedness | – | 7,148 | ||||||
| (1,243,579 | ) | (1,883,270 | ) | |||||
| Less: Cash | (157,668 | ) | – | |||||
| $ | (1,401,247 | ) | $ | (1,883,270 | ) | |||
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.
| 82 |
EMPOWER CLINICS INC. (formerly Adira Energy Ltd recordedLtd.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018, 2017, 2016
(in United States dollars, except share numbers and per share amounts)
NOTE 21: MANAGEMENT OF CAPITAL (continued)
The Company also has in place a gain on settlement of accounts payableplanning, budgeting and other payables inforecasting process which is used to identify the amount of $25, arisingfunds required to ensure the Company has appropriate liquidity to meet short and long-term operating objectives.
The Company is dependent on cash flows generated from settlement agreements reached with related parties.
At December 31, 2018 and 2017, the Company was not subject to any externally imposed capital requirements.
NOTE 22: COMMITMENTS AND CONTINGENCIES Commitments
A summary of undiscounted liabilities and future operating commitments at December 31, 2018, are as follows: Various tax and legal matters are outstanding from time to time. In the event that management’s estimate of the future resolution of these matters changes, the Company will recognize the effects of these changes in the consolidated financial statements in the period such changes occur. Contingent liabilities The Company is involved in a number of legal actions with the former President and director of its subsidiary companies (the “Litigant”) following the termination for cause of the Litigant in June 2016. In one action, as the Litigant refused to comply with the termination, the Company received a temporary restraining order (“TRO”) requiring the Litigant to comply with the termination and cease using company property. Later, following a full evidentiary hearing, the court issued a preliminary injunction consistent with the TRO. In June 2017, the Litigant, filed counterclaims against the Company and its subsidiaries. The Litigant’s counterclaims broadly allege that his written agreements with the Company and its subsidiaries were induced by fraud or mistake. He claims he believed he was promised that he would own 50% of the Company in perpetuity, and that his lack of control over the Company and its subsidiaries has caused him economic harm in the amount of $10 million. The Litigant seeks money damages or rescission of the agreements.
EMPOWER CLINICS INC. (formerly Adira Energy Ltd.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2018, 2017, 2016 (in United States dollars, except share numbers and per share amounts) NOTE 22: COMMITMENTS AND CONTINGENCIES (continued) In a second action, the Litigant filed a lawsuit on behalf of The Hemp and Cannabis Foundation (“THCF”) for rescission of an agreement whereby THCF sold a parcel of residential real estate to one of the subsidiaries, The Hemp and Cannabis Company (“THCC”). In that case, THCF claims THCC has failed to make payments on a note. THCF’s lawyer has withdrawn, and THCF has not hired replacement counsel. The Company and its subsidiaries are prosecuting their claims against the Litigant, and are vigorously defending against all of his counterclaims and no liability has been recognized in the consolidated financial statements. On April 23, 2019, both actions were ordered dismissed without prejudice. NOTE 23: EVENTS AFTER THE REPORTING PERIOD Private Placements On April 2, 2019, the Company raised $599,145 (C$799,500) through the issue of convertible debentures, expiring on April 2, 2020. 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 $0.12 (C$0.16). On April 2, 2019, pursuant to a private placement financing, the Company issued 21,115,000 units at a price of C$0.10 ($0.08) per unit for gross proceeds of C$2,111,500 ($1,582,359). 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$0.16 ($0.12) per share for a period of two years following the closing date of the financing. On May 3, 2019, the Company raised $154,345 (C$207,270) through the issue of convertible debentures, expiring on May 3, 2020. 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 $0.12 (C$0.16). On May 3, 2019, pursuant to a private placement financing, the Company issued 5,762,500 units at a price of $0.08 (C$0.10) per unit for gross proceeds of $429,109 (C$576,250). 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 $0.12 (C$0.16) per share for a period of two years following the closing date of the financing. Sun Valley Acquisition On April 30, 2019, the Company completed the acquisition of Sun Valley Certification Clinics Holdings LLC ("Sun Valley"), for consideration of $3,835,000 (C$5,160,376) comprised of cash of $829,853 (C$1,005,451) and 22,409,425 common shares of the company at a price of $0.14 (C$0.183) per share for consideration of $3,005,147 (C$4,100,925) (the "Purchase"). 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. In connection with the Purchase, the Company may also acquired the 30% minority membership interests held by Green Global Properties Inc., a subsidiary of Aura Health Inc., in three partially-owned subsidiaries of Sun Valley, operating clinics in Mesa and Phoenix, Arizona, and Las Vegas, Nevada, such that Empower now indirectly owns all of the membership interests in each of such subsidiaries.
EMPOWER CLINICS INC. (formerly Adira Energy Ltd.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2018, 2017, 2016 (in United States dollars, except share numbers and per share amounts) NOTE 23: EVENTS AFTER THE REPORTING PERIOD (continued) Other Share Transactions On January 17, 2019, pursuant to the conversion of convertible debt on December 14, 2018, the Company cancelled 422,678 common shares, which had been issued for $0.14 (C$0.18) per common and reissued 417,000 common shares for $0.14 (C$0.18) per common share. On March 3, 2019, pursuant to the termination agreement with the former CEO, the Company cancelled 2,651,875 common shares. On March 8, 2019, the Company issued 1,500,000 common shares for $0.17 (C$0.23) per common share as settlement of amounts payable for marketing and professional services of $254,728 (C$347,500). On March 22, 2019, pursuant to the exercise of common share purchase warrants, the Company issued 431,075 common shares for $0.14 (C$0.19) per common share for gross proceeds of $61,617 (C$79,230). As at December 31, On June 11, 2018, the Company entered into an agreement with an unrelated company for marketing services. As compensation for these services, the Company issued 2,000,000 units to a related party of the marketing company, with each unit comprising one common share and one common share purchase warrant with an exercise price of $0.28 (C$0.36). 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 is in the process of cancelling these securities. Assets Held for Sale On January 17, 2019, the Company completed the sale of a facility and land in Portland, Oregon which had been classified as assets held for sale. The Company received net proceeds of $127,972 comprised of $5,472 and a promissory note in the amount of $122,500 which accrues interest at a rate of 6% per annum and is due in full on February 1, 2021. The promissory note is secured by the facility and land in Portland, Oregon.
The following exhibits are included in this Form 20-F:
The Registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Form 20-F on its behalf. EMPOWER CLINICS INC. Per: /s/ Steven McAuleyName: Title: Chairman and Chief Executive Officer Date:
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