For the years ended December 31, 2021, 2020 and 2019
Expressed in United States dollars
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Empower Clinics Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statements of financial position of Empower Clinics Inc. (the Company) as of December 31, 2021 and 2020, and the related consolidated statements of loss and comprehensive loss, changes in equity, and cash flows for each of the years in the three year period ended December 31, 2021, and the related notes (collectively referred to as the consolidated financial statements).
In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2021 and 2020, and its consolidated financial performance and its consolidated cash flows for each of the years in the three year period ended December 31, 2021, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.
Material Uncertainty Related to Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring losses from operations and has a net working capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
This matter is also described in the “Critical Audit Matters” section of our report.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Critical Audit Matter Description
Audit Response
Going Concern
Refer to Note 1 to the consolidated financial statements.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has a history of losses and negative cash flows from operating activities, and as at December 31, 2021, the Company had a working capital deficiency of $4,542,752 (December 31, 2020 - $1,746,818) and an accumulated deficit of $62,334,945 (December 31, 2020 - $30,078,630). This matter is also described in the “Material Uncertainty Related to Going Concern” section of our report.
We responded to this matter by performing procedures over going concern. Our audit work in relation to this included, but was not restricted to, the following:
·
We obtained and tested the Company’s forecast cash flows by testing the completeness and accuracy of the underlying data used by evaluating the Company’s historical results;
·
We evaluated the estimates and assumptions by developing an understanding of the nature of each critical assumption and estimate and then assessed their sensitivity to reasonably possible changes, including notably, the probability that management will be able to access funding by assessing the terms of current year agreements and the company’s history in obtaining financing; and
·
We assessed the adequacy of the disclosures related to the application of the going concern assumption.
Acquisition of Medi+Sure Canada Inc. (“Medisure”)
Refer to Note 6 to the consolidated financial statements.
On July 30, 2021, the Company acquired 100% ownership of Medi + Sure Canada Inc. (“MediSure”). Founded in 2010, MediSure produces diabetes testing products for sale in the Canadian market.
Consideration in the transaction had an aggregate fair value of $2,720,525 comprised of cash consideration of $794,021, a promissory note of $200,363, and 4,582,483 common shares with a fair value of $1,726,141. The promissory note is payable on July 30, 2022. Of the total common shares issued, 2,036,659 shares are subject to contractually imposed trading restrictions through July 2023 with 254,582 common shares released from escrow every three months commencing on October 30, 2021 (the “restricted trading shares”). The fair value of the restricted trading shares was not subject to a discount for lack of marketability as the trading restrictions are imposed via a contract as opposed to via securities legislation.
The transaction has been accounted for by the Company as business combinations under IFRS 3 - Business Combinations.
Due to the complexities involved in the assessment of business combination versus asset acquisition as well as the significant judgments, assumptions and estimates, including projected cash flows, volatility, risk free rate and discount rates, within the methodology utilized to measure the fair value of the related assets and liabilities acquired and consideration paid, we have identified this area as a critical audit matter.
We responded to this matter by performing procedures over the estimated fair value of the assets acquired and liabilities assumed. Our audit work in relation to each of these acquisitions included, but was not restricted to, the following:
·
We obtained a copy of the purchase and sale agreement from management and read the terms in detail to ensure that the transaction has been appropriately assessed as a business combination;
·
We obtained management’s analysis and a memo detailing how the fair value of assets and liabilities acquired have been determined, the purchase consideration paid, and the resulting goodwill recognized on the transaction;
·
We involved internal valuation specialists to test the appropriateness of the methodology used in the valuation of the assets acquired and liabilities assumed. We also verified the appropriateness of the key inputs and assumptions used in the above model including revenue growth rates, operating margins and discount rates by comparing such items to the industry projections and conditions found in industry reports as well as historical operating results of the entity acquired; and
·
We performed sensitivity analysis of the significant assumptions relating to forecasted revenue, expenses and discount rates within the valuation models by varying key assumptions within an observable range.
Revenue
The Company has three streams of revenue:
We responded to this matter by performing procedures in relation to the cut-off for revenue. Our audit work in relation to this included, but was not restricted to, the following:
·
Clinics: involving provision of medical and para-medical services to patients;
·
We discussed and obtained an understanding of the Company’s revenue recognition policies and assessed any changes in the accounting policy from the prior year;
·
Product Income: involving sale of home COVID-19 testing kits and diabetes testing materials;
·
We performed substantive test procedures targeting cut-off wherein revenue recorded on either side of year end was assessed based on supporting documentation related to completion of the performance obligation to ensure recognition occurred in the appropriate period;
·
COVID-19 Testing: involving provision of live testing and laboratory processed test results for individual and larger commercial customers.
·
We circulated and obtained confirmations from customers for material revenue earned from COVID-19, for material product sales made close to year end, and also confirmed directly with a sample of practitioners at clinics to ensure that the underlying service for which revenue was recorded was provided in 2021; and
We identified management’s judgments and assumptions made in regards to recognition of revenue where product sales, clinic or testing services were provided around year-end to be a critical audit matter due to the presumed risk whereby management has an ability to override controls around journal entries and book revenue for services and sales where the underlying performance obligation was still not completed.
·
We included criteria in our manual journal entry testing to assess unusual transactions related to revenue.
Impairment of goodwill and Intangible assets
Refer to Note 11 to the consolidated financial statements.
During 2019, the Company had recognized goodwill on acquisition of Sun Valley Certification Clinics Holdings, LLC. Additionally, on October 5, 2020, the Company acquired 100% interest in Kai Medical Laboratory, LLC and on December 31, 2020, the Company acquired 100% interest in Lawrence Park Health and Wellness Clinic Inc., 1100900 Canada Inc dba Atkinson, and Momentum Health Inc. collectively (“Lawrence Park & Atkinson”).
On July 30, 2021, the Company acquired 100% ownership of MediSure and recognized intangible assets of $146,300 and goodwill of $2,379,461.
Any goodwill recognized from these acquisitions is subject to impairment assessments annually, or more frequently to the extent events or conditions indicate a risk of possible impairment.
Significant judgments are made in determining the cash-generating unit to which such assets belong for purposes of the impairment tests. There exists high estimation uncertainty due to the significant judgments used to estimate the future revenues and cash flows, including growth rates, operating expenses, and cash outflows, weighted-average cost of capital, future market conditions and the valuation methodology.
For these reasons we determined goodwill and intangible asset impairment assessments to be a critical audit matter.
We responded to this matter by performing procedures over the impairment of goodwill and intangibles. Our audit work in relation to this included, but was not restricted to, the following:
·
We obtained cash flow forecasts prepared by management and assessed critical management estimates included in the forecast, such as revenue growth, terminal growth rates, gross margin and discount rates. The net present value of the forecast cash flows was compared to the carrying value of the related cash generating unit;
·
We validated management’s assessment of indicators of impairment for intangibles, including reference to historical performance and where applicable, to external market data and the Company’s future strategy and budgets;
·
We assessed the accuracy of management’s historical forecasts and, where there were discrepancies, we evaluated the impact of these on the current year forecasts;
·
We evaluated the cash flow forecasts in detail, tracing to supporting documentation for the revenue figures, focusing on market assumptions, including discussions with the directors and the business unit head as well as assessment of supporting internal analysis; and
·
We applied sensitivities to calculations prepared by management to assess the impact on the impairment assessment of reasonably possible changes to assumptions.
Chartered Professional Accountants
Licensed Public Accountants
We have served as the Company’s auditor since 2015.
Ottawa, Canada
October 26, 2022
EMPOWER CLINICS INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
As at December 31, 2021 and 2020
(in United States dollars)
Note
December 31,
2021
December 31,
2020
$
$
ASSETS
Current assets
Cash
866,170
4,889,824
Restricted cash
1,238,366
-
Assets classified as held for sale
7
97,314
-
Accounts receivable
8
565,575
264,866
Inventory
9
205,048
17,681
Prepaid expenses
187,868
81,748
3,160,341
5,254,119
Property and equipment
10
1,131,504
1,590,047
Intangible assets
11
-
303,907
Goodwill
4,5,6,11
-
2,082,146
Other asset
18(b),24
745,531
-
Total assets
5,037,376
9,230,219
LIABILITIES
Current liabilities
Accounts payable and accrued liabilities
12,24
3,725,430
3,442,725
Consideration payable
6
200,363
-
Liabilities classified as held for sale
7
61,520
-
Current portion of loans payable
13
128,480
992,070
Current portion of notes payable
14
173,266
708,361
Convertible notes payable
15
205,406
200,530
Current portion of lease liability
16
387,100
241,138
Current portion of warrant liability
17
1,504,703
1,416,113
Subscription deposits
18(b)
1,316,825
-
7,703,093
7,000,937
Loans payable
13
1,053,983
1,140,157
Lease liability
16
2,650,367
255,248
Deferred revenue
22,874
26,694
Warrant liability
17
-
6,297,584
Total liabilities
11,430,317
14,720,620
SHAREHOLDERS’ DEFICIENCY
Issued capital
18(b)
52,875,084
22,969,566
Share subscriptions receivable
18(b)
-
(745,531
)
Shares to be issued
60,287
60,287
Contributed surplus
2,908,315
2,223,269
Warrant reserve
58,380
80,638
Accumulated other comprehensive income
39,938
-
Deficit
(62,334,945
)
(30,078,630
)
Total shareholders’ deficiency
(6,392,941
)
(5,490,401
)
Total liabilities and shareholders’ deficiency
5,037,376
9,230,219
Nature of operations and going concern (Note 1)
Commitments and contingencies (Note 26)
Events after the reporting period (Note 27)
Approved and authorized by the Board of Directors on October 26, 2022:
“Steven McAuley”
Director
“Andrejs Bunkse”
Director
The accompanying notes are an integral part of these consolidated financial statements.
1
EMPOWER CLINICS INC.
CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
For the years ended December 31, 2021, 2020 and 2019
(in United States dollars, except number of shares outstanding)
Note
2021
2020
2019
$
$
$
Revenue
4,368,916
961,099
505,198
Direct expenses excluding depreciation and amortization
3,020,412
526,840
249,485
Gross margin
1,348,504
434,259
255,713
Operating expenses
19
3,597,122
2,240,444
1,726,467
Legal and professional fees
1,876,185
1,368,305
971,457
Depreciation and amortization expense
10,11
539,872
178,927
167,410
Share-based payments
18(c),24
777,277
323,799
608,944
Loss from operations
(5,441,952
)
(3,677,216
)
(3,218,565
)
Other expenses (income)
Provision for credit losses
52,259
-
-
Accretion expense
13,14
33,324
327,301
114,515
Interest expense
13-16
152,083
196,441
227,135
Interest income
-
(7,573
)
(4,977
)
Issuance cost on warrant liabilities
-
44,947
129,965
Gain on debt settlement of accounts payable
-
-
(15,130
)
Gain on termination of leases
16
(3,983
)
(14,049
)
-
Loss (gain) on change in fair value of warrant liability
17
16,820,611
11,886,796
(2,065,781
)
Gain on change in fair value of conversion feature
-
(2,795
)
(587,229
)
Impairment of promissory note
-
130,147
-
Impairment of property and equipment
10
4,699,802
-
119,635
Impairment of intangible assets
11
403,213
340,575
-
Impairment of goodwill
11
4,461,607
117,218
2,377,397
Other (income) expenses, net
(324,623
)
-
164,417
26,294,293
13,019,008
459,947
Net loss from continuing operations
(31,736,245
)
(16,696,224
)
(3,678,512
)
Net loss from discontinued operations
7
(520,070
)
(370,087
)
(623,151
)
Net loss for the year
(32,256,315
)
(17,066,311
)
(4,301,663
)
Other comprehensive income
Foreign currency translation adjustment
39,938
-
-
Comprehensive loss for the year
(32,216,377
)
(17,066,311
)
(4,301,663
)
Loss per share from continuing operations,
basic and diluted
(0.10
)
(0.14
)
(0.03
)
Loss per share from discontinued operations,
basic and diluted
(0.00
)
(0.00
)
(0.00
)
Loss per share, basic and diluted
(0.10
)
(0.14
)
(0.03
)
Weighted average number of shares outstanding
Basic and diluted
328,008,702
182,331,616
117,289,366
The accompanying notes are an integral part of these consolidated financial statements.
2
EMPOWER CLINICS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 2021, 2020 and 2019
(in United States dollars)
2021
2020
2019
$
$
$
Operating activities
Net loss from continuing operations
(31,736,245
)
(16,696,224
)
(3,678,512
)
Items not involving cash:
Depreciation and amortization expense
539,872
178,927
167,410
Share-based payments
777,277
323,799
608,944
Accretion expense
33,324
327,301
114,515
Interest expense
152,083
152,790
227,135
Gain on debt settlement of accounts payable
-
-
(15,130
)
Gain on termination of leases
(3,983
)
(14,049
)
-
Loss (gain) on change in fair value of warrant liability
16,820,611
11,886,796
(2,065,781
)
Gain on change in fair value of conversion feature
-
(2,795
)
(587,229
)
Shares issued for compensation
-
-
304,721
Shares issued for services
-
547,641
208,153
Vesting of escrow shares
187,964
193,025
-
Impairment of property and equipment
4,699,802
-
119,635
Impairment of intangible assets
403,213
340,575
-
Impairment of goodwill
4,461,607
117,218
2,377,397
Other expense (income), net
(19,931
)
32,926
-
Changes in non-cash working capital items
47,226
1,014,105
301,895
Net cash used in operating activities of continuing operations
(3,637,180
)
(1,597,965
)
(1,916,847
)
Net cash used in operating activities of discontinued operations
(432,680
)
(151,853
)
(356,341
)
Investing activities
Investment in Kai Medical Laboratory LLC, net
-
9,826
-
Investment in LP&A, net
-
(177,470
)
-
Investment in MediSure, net
(794,021
)
-
-
Investment in Sun Valley, net
-
-
(787,318
)
Purchase of property and equipment
(2,152,186
)
(3,495
)
-
Acquisition of intangible assets
-
(138,855
)
-
Net cash used in investing activities of continuing operations
(2,946,207
)
(309,994
)
(787,318
)
Net cash used in investing activities of discontinued operations
-
-
(3,828
)
Financing activities
Proceeds from issue of shares
-
1,879,632
1,876,938
Proceeds from stock options exercised
264,624
58,662
-
Proceeds from warrants exercised
4,496,696
5,313,064
61,287
Payments to related parties
-
-
(12,575
)
Advance of loans payable
86,378
31,417
321,935
Advance of convertible debentures payable
-
-
753,491
Advance of convertible notes payable
-
-
188,893
Cash acquired in acquisition of Sun Valley
-
-
94,090
Cash on sale of assets held for sale
-
-
5,472
Repayment of loans payable
(693,233
)
(44,379
)
-
Repayment of notes payable
(441,771
)
(197,862
)
-
Interest paid
(496,955
)
(59,291
)
(12,273
)
Lease payments
(183,918
)
(37,621
)
(78,641
)
Net cash provided by financing activities of continuing operations
3,031,821
6,943,622
3,198,617
Net cash used in financing activities of discontinued operations
(79,346
)
(173,139
)
(112,798
)
Effect of foreign exchange on cash
39,938
-
-
Net change in cash
(4,023,654
)
4,710,671
21,485
Cash, beginning of year
4,889,824
179,153
157,668
Cash, end of year
866,170
4,889,824
179,153
Supplemental disclosure with respect to cash flows (Note 22)
The accompanying notes are an integral part of these consolidated financial statements.
3
EMPOWER CLINICS INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ DEFICIENCY
(in United States dollars, except share numbers)
Number
Issued capital
Share subscriptions receivable
Shares to be issued
Contributed surplus
Warrant reserves
Accumulated other comprehensive loss
Deficit
Total
#
$
$
$
$
$
$
$
$
Balance, December 31, 2018
77,847,598
5,401,024
-
-
892,417
80,280
-
(9,369,941
)
(2,996,220
)
Adjustment on application of IFRS 16
-
-
-
-
-
-
-
(9,951
)
(9,951
)
Adjusted balance, January 1, 2019
77,847,598
5,401,024
-
-
892,417
80,280
-
(9,379,892
)
(3,006,171
)
Shares issued for Sun Valley acquisition
22,409,425
2,143,566
-
-
-
-
-
-
2,143,566
Shares issued on private placement, net
24,452,500
52,487
-
-
-
66,405
-
-
118,892
Shares issued for conversion of notes payable
2,500,000
7,254
-
-
-
-
-
-
7,254
Shares issued for conversion of debentures
3,991,524
55,997
-
-
-
-
-
-
55,997
Shares issued for compensation
7,400,000
304,721
-
-
-
-
-
-
304,721
Shares issued for services
1,500,000
257,041
-
-
-
-
-
-
257,041
Shares for debt settlement
1,686,861
208,153
-
-
-
-
-
-
208,153
Shares cancelled
(4,657,553
)
(669,236
)
-
-
-
-
-
669,236
-
Shares cancelled and to be reissued
-
(15,239
)
-
15,239
-
-
-
Shares issued for exercise of warrants
431,075
61,287
-
-
-
-
-
-
61,287
Shares issued to agents
136,000
20,255
-
-
-
-
-
-
20,255
Shares to be issued for note payable
-
-
-
6,811
-
-
-
-
6,811
Share-based payments
-
-
-
-
608,944
-
-
-
608,944
Net loss and comprehensive loss
-
-
-
-
-
-
-
(4,301,663
)
(4,301,663
)
Balance, December 31, 2019
137,697,430
7,827,310
-
22,050
1,501,361
146,685
-
(13,012,319
)
(3,514,913
)
Shares issued to former CEO
651,875
15,239
-
(15,239
)
-
-
-
-
-
Shares issued on private placement, net
55,309,465
921,138
-
-
-
-
-
-
921,138
Shares issued on debt settlement
5,841,586
219,150
-
-
-
49,782
-
-
268,932
Vesting of escrow shares
-
193,025
-
-
-
-
-
-
193,025
Shares issued for services
9,500,000
487,354
-
60,287
-
-
-
-
547,641
Shares issued on conversion of debentures
11,659,984
621,353
-
-
-
-
-
-
621,353
Obligation to issue shares
150,000
6,811
-
(6,811
)
-
-
-
-
-
Exercise of options
7,583,333
840,499
(745,531
)
-
(36,306
)
-
-
-
58,662
Exercise of warrants
50,290,026
10,689,762
-
-
-
(35,549
)
-
-
10,654,213
Lawrence Park & Atkinson acquisition
5,128,204
1,147,925
-
-
344,110
-
-
-
1,492,035
Kai Medical acquisition
-
-
-
-
10,025
-
-
-
10,025
Share issue costs
-
-
-
-
-
-
-
-
-
Reclassification of expired warrants
-
-
-
-
80,280
(80,280
)
-
-
-
Share-based payments
-
-
-
-
323,799
-
-
-
323,799
Net loss and comprehensive loss
-
-
-
-
-
-
-
(17,066,311
)
(17,066,311
)
Balance, December 31, 2020
283,811,903
22,969,566
(745,531
)
60,287
2,223,269
80,638
-
(30,078,630
)
(5,490,401
)
The accompanying notes are an integral part of these consolidated financial statements.
4
EMPOWER CLINICS INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ DEFICIENCY
(in United States dollars, except share numbers)
Number
Issued capital
Share subscriptions receivable
Shares to be issued
Contributed surplus
Warrant reserves
Accumulated other comprehensive loss
Deficit
Total
#
$
$
$
$
$
$
$
$
Balance, December 31, 2020
283,811,903
22,969,566
(745,531
)
60,287
2,223,269
80,638
-
(30,078,630
)
(5,490,401
)
Vesting of escrow shares
-
187,964
-
-
-
-
-
-
187,964
Shares issued for services
1,306,926
92,681
-
-
-
-
-
-
92,681
Shares returned to the treasury
(13,204
)
(6,682
)
-
-
-
-
-
-
(6,682
)
Shares issued for acquisition of
MediSure
4,582,483
1,726,141
-
-
-
-
-
-
1,726,141
Exercise of options
3,714,666
366,655
-
-
(102,031
)
-
-
-
264,624
Exercise of warrants classified within
warrant liability
42,982,247
27,322,855
-
-
-
-
-
-
27,322,855
Exercise of warrants classified within
warrant reserve
3,060,000
215,904
-
-
-
(12,458
)
-
-
203,446
Share-based payments
-
-
-
-
777,277
-
-
-
777,277
Reclassification of expired warrants
-
-
-
-
9,800
(9,800
)
-
-
-
Reclassification of share
subscriptions receivable
-
-
745,531
-
-
-
-
-
745,531
Foreign translation adjustment
-
-
-
-
-
-
39,938
-
39,938
Net loss and comprehensive loss
-
-
-
-
-
-
-
(32,256,315
)
(32,256,315
)
Balance, December 31, 2021
339,445,021
52,875,084
-
60,287
2,908,315
58,380
39,938
(62,334,945
)
(6,392,941
)
The accompanying notes are an integral part of these consolidated financial statements.
5
EMPOWER CLINICS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 30, 2021, 2020, and 2019
(in United States dollars, except where noted)
1. NATURE OF OPERATIONS AND GOING CONCERN
Empower Clinics Inc. (“Empower” or the “Company”) was incorporated under the laws of the State of Nevada on February 20, 1997 and subsequently continued as a federally incorporated Canadian company pursuant to a continuation under the Canada Business Corporations Act on November 27, 2008. The registered office of the Company is located at Suite 505 - 1771 Robson Street, Vancouver, British Columbia, Canada, V6G 1C9. The Company’s shares are traded on the Canadian Securities Exchange under the symbol “CBDT”.
The Company is an integrated healthcare company that provides body and mind wellness for patients through its medical clinics, digital and telemedicine care, medical diagnostics laboratories and distribution of medical devices.
COVID-19
On March 11, 2020, the World Health Organization declared the coronavirus disease ("COVID-19") a global pandemic, which continues to impact the international economy. As a direct result of the COVID-19 pandemic, the Company has realized both increases and decreases in patient visits and testing from time to time during the course of the pandemic, due to fluctuations in the severity of the pandemic, and implementations and reversals of government policies, regulations and responses from time to time, which resulted in fluctuating revenues and operating expenses. The Company continues to monitor the latest developments with respect to the pandemic globally, while also keeping a close eye on the more immediate impacts on the Company's North American operations. The Company remains committed to satisfying consumer and patient needs, and the Company's dedicated team of clinicians and educators continue to be available and provide support.
Going concern
These consolidated financial statements have been prepared under the assumption that the Company will be able to continue operating as a going concern, which assumes the Company will be able to realize its assets and discharge its liabilities in the normal course of operations for the foreseeable future. The Company has a history of losses and negative cash flows from operating activities, and as at December 31, 2021, the Company had a working capital deficiency of $4,542,752 (December 31, 2020 - $1,746,818) and an accumulated deficit of $62,334,945 (December 31, 2020 - $30,078,630). These circumstances present a material uncertainty and cast significant doubt over the Company’s ability to continue as a going concern.
The Company anticipates that it will continue to actively pursue growth opportunities through acquisitions, the expansion of clinic locations and through new product development in order to drive revenue and generate positive cash flows from operations. The ability of the Company to continue operating as a going concern is dependent on its ability to raise sufficient additional funds to finance development activities and/or its ability to achieve profitable operations and positive cash flows from operations. There is no certainty management’s plans described above will be successful or that sufficient financing will be available on terms acceptable to the Company or at all.
These consolidated financial statements do not reflect adjustments (if any) to the recorded amounts and classification of assets and liabilities, which could be necessary if the use of the going concern assumption is ultimately determined to be inappropriate. Such adjustments, if any, could be material.
2. BASIS OF PREPARATION
a) Statement of compliance
These consolidated financial statements were approved by the Company’s Board of Directors and authorized for issue on October 26, 2022.
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 and interpretations issued by the International Reporting Interpretation Committee for all periods presented.
b) Basis of presentation
The consolidated financial statements have been prepared using the historical cost basis, except for certain financial assets and liabilities which are measured at fair value, as specified by IFRS for each type of asset, liability, income and expense as set out in the accounting policies below.
6
EMPOWER CLINICS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 30, 2021, 2020, and 2019
(in United States dollars, except where noted)
2. BASIS OF PREPARATION (continued)
c) Functional and presentation currency
The consolidated financial statements are presented in United States (“USD”) dollars, except as otherwise noted, which is the functional currency of the Company. The functional currency of each subsidiary is listed below. References to C$ are to Canadian dollars.
d) Reclassification of prior year amounts
The Company has reclassified certain items on the consolidated statements of loss and comprehensive loss, and on the consolidated statements of cash flows to conform with current year presentation.
e) Basis of consolidation
These consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany transactions and balances are eliminated on consolidation. Control exists where the parent entity has power over the investee and is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Subsidiaries are included in the consolidated financial statements from the date control commences until the date control ceases.
These consolidated financial statements incorporate the accounts of the Company and the following subsidiaries:
Name of subsidiary
Country of
Incorporation
Percentage
Ownership
Functional
Currency
Principal
Activity
11000900 Canada Inc. (1)
Canada
100%
CAD
Clinic operations
Empower Healthcare Assets Inc. (2)
USA
100%
USD
Holding company
Empower Healthcare Corp.
Canada
100%
USD
Holding company
Empower Healthcare Corp.
USA
100%
USD
Clinic operations
Kai Medical Canada Corp. (3)
Canada
100%
CAD
Product sales
Kai Medical Laboratory, LLC (4)
USA
100%
USD
Diagnostic testing
Lawrence Park Health and Wellness Clinic Inc. (1)
Canada
100%
CAD
Clinic operations
Medi + Sure Canada Inc. (5)
Canada
100%
CAD
Product sales
Medi Collective Corp. (6)
Canada
100%
CAD
Clinic operations
Medi-Collective: Brown’s Line FHO Inc. (7)
Canada
100%
CAD
Clinic operations
S.M.A.A.R.T. Holding Co. (9)
USA
100%
USD
Inactive
SMAART, Inc. (9)
USA
100%
USD
Inactive
Sun Valley Alternative Health Centres NV, LLC (8)
USA
100%
USD
Held for sale
Sun Valley Health Franchising, LLC (8)
USA
100%
USD
Held for sale
Sun Valley Health Mesa, LLC (8)
USA
100%
USD
Held for sale
Sun Valley Health Tucson, LLC (8)
USA
100%
USD
Held for sale
Sun Valley Health West, LLC (8)
USA
100%
USD
Held for sale
Sun Valley Health, LLC (8)
USA
100%
USD
Held for sale
Sun Valley Heath Holdings, LLC (8)
USA
100%
USD
Held for sale
THCF Access Point (9)
USA
100%
USD
Inactive
The Hemp and Cannabis Co. (9)
USA
100%
USD
Inactive
(1)
Lawrence Park Health and Wellness Clinic Inc. and 11000900 Canada Inc. were acquired on December 31, 2020 (Note 5).
(2)
Empower Healthcare Assets Inc. was incorporated in the state of Delaware on April 16, 2019.
(3)
Kai Medical Canada Corp. was incorporated on June 17, 2021.
(4)
Kai Medical Laboratory, LLC was acquired on October 5, 2020 (Note 4).
(5)
Medi + Sure Canada Inc. was acquired on July 30, 2021 (Note 6).
(6)
Medi Collective Corp. was incorporated on May 12, 2021.
(7)
Medi-Collective: Brown’s Line FHO Inc. was incorporated on June 17, 2021.
(8)
Acquired as part of the Sun Valley acquisition on April 30, 2019. Results of operations have been presented as discontinued operations in these consolidated financial statements (Note 7).
(9)
The Hemp and Cannabis Co., THCF Access Point S.M.A.A.R.T Holding Co., and SMAART, Inc have been inactive since 2018.
7
EMPOWER CLINICS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 30, 2021, 2020, and 2019
(in United States dollars, except where noted)
3. SIGNIFICANT ACCOUNTING POLICIES
a) Critical accounting judgments and estimates
The preparation of the Company’s consolidated financial statements in conformity with IFRS requires management to make judgements and estimates based on assumptions about future events that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates.
These critical judgements and estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized prospectively in the period in which the estimate is revised.
Areas that require significant judgements and estimates and related assumptions as the basis for determining the stated amounts include, but are not limited to, the following:
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; such determination involves certain judgements to identify the primary economic environment. The Company reconsiders the functional currency of its subsidiaries if there is a change in events and/or conditions which determine the primary economic environment. Note 2(e) contains the Company’s assessment of the functional currency of each subsidiary.
ii. Assessment of cash generating units
For impairment assessment and testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or cash generating units (“CGU”). The Company applies judgement in assessing the smallest group of assets that comprise a single CGU.
iii. Assessment of useful lives of property and equipment and intangible assets
Management reviews its estimate of the useful lives of property and equipment and intangible assets annually and accounts for any changes in estimates prospectively. The Company applied judgment in determining the useful lives of trademarks and patient records with less than an indefinite life. In addition, the Company applied judgment in determining the useful lives of the right-of-use assets and leasehold improvements for purposes of assessing the shorter of the useful life or lease term.
iv. Assessment of indicators of impairment
At the end of each reporting period, the Company assesses whether there are any indicators, from external and internal sources of information, that an asset or CGU may be impaired, thereby requiring adjustment to the carrying value.
v. Revenue recognition
Determination of performance obligations
The Company applied judgement to determine if a good or service that is promised to a customer is distinct based on whether the customer can benefit from the good or service on its own or together with other readily available resources and whether the good or service is separately identifiable. Based on these criteria, the Company determined the primary performance obligation relating to its sales contracts is the delivery of the medical services or sale of product, each representing a single performance obligation with consideration allocated accordingly.
8
EMPOWER CLINICS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 30, 2021, 2020, and 2019
(in United States dollars, except where noted)
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
Transfer of control
Judgement is required to determine when transfer of control occurs relating to the medical services to its customers. Management based its assessment on a number of indicators of control, which include, but are not limited to whether the Company has present right of payment, whether delivery of medical services has occurred and whether the physical possession of the goods, significant risks and rewards and/or legal title have been transferred to the customer.
vi. Expected credit losses
In calculating the expected credit loss on financial instruments, management is required to make a number of judgments including the probability of possible outcomes with regards to credit losses, the discount rate to use for time value of money and whether the financial instrument’s credit risk has increased significantly since initial recognition.
vii. Current and deferred taxes
The Company’s provision for income taxes is estimated based on the expected annual effective tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The deferred components of income taxes are estimated based on forecasted movements in temporary differences. Changes to the expected annual effective tax rate and differences between the actual and expected effective tax rate and between actual and forecasted movements in temporary differences will result in adjustments to the Company’s provision for income taxes in the period changes are made and/or differences are identified.
In assessing the probability of realizing income tax assets recognized, management makes estimates related to expectations of future taxable income, applicable tax planning opportunities, expected timing of reversals of existing temporary differences and the likelihood that tax positions taken will be sustained upon examination by applicable tax authorities. In making its assessments, management gives additional weight to positive and negative evidence that can be objectively verified. Estimates of future taxable income are based on forecasted cash flows from operations and the application of existing tax laws in each jurisdiction. Forecasted cash flows from operations are based on expected patient visits in future periods, which are internally developed and reviewed by management.
Weight is attached to tax planning opportunities that are within the Company’s control and are feasible and implementable without significant obstacles.
The likelihood that tax positions taken will be sustained upon examination by applicable tax authorities is assessed based on individual facts and circumstances of the relevant tax position evaluated in light of all available evidence.
viii. Equity-settled share-based payments
Share-based payments are measured at fair value. Options and warrants are measured using the Black-Scholes option pricing model based on estimated fair values of all share-based awards at the date of grant and are expensed to the consolidated statement of loss and comprehensive loss over each award’s vesting period. The Black-Scholes option pricing model utilizes subjective assumptions such as expected price volatility and expected life of the option. Changes in these input assumptions can significantly affect the fair value estimate.
ix. Warrant liability and conversion feature
Warrant liability and conversion features are measured at fair value using the Black-Scholes option pricing model based on estimated fair values at the date of grant and revalued at period end with changes in fair value being charged or credited to the consolidated statement of loss and comprehensive loss. The Black-Scholes option pricing model utilizes subjective assumptions such as expected price volatility and expected life of the option. Changes in these input assumptions can significantly affect the fair value estimate.
x. Contingencies
Due to the nature of the Company’s operations, various legal and tax matters can arise from time to time. In the event that management’s estimate of the future resolution of these matters’ changes, the Company will recognize the effects of the changes in its consolidated financial statements for the period in which such changes occur.
9
EMPOWER CLINICS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 30, 2021, 2020, and 2019
(in United States dollars, except where noted)
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
xi. Leases
Identifying whether a contract includes a lease
IFRS 16 applies a control model to the identification of leases, distinguishing between a lease and a service contract on the basis of whether the customer controls the asset. The Company had to apply judgment on certain factors, including whether the supplier has substantive substitution rights, whether the Company obtains substantially all of the economic benefits and who has the right to direct the use of that asset.
Incremental borrowing rate
When the Company recognizes a lease, the future lease payments are discounted using the Company’s incremental borrowing rate. This significant estimate impacts the carrying amount of the lease liabilities and the interest expense recorded on the consolidated statement of loss and comprehensive loss.
Estimate of lease term
When the Company recognizes a lease, it assesses the lease term based on the conditions of the lease and determines whether it will extend the lease at the end of the lease contract or exercise an early termination option. As it is not reasonably certain that the extension or early termination options will be exercised, the Company determined that the term of its leases are the lesser of original lease term or the life of the leased asset. This significant estimate could affect future results if the Company extends the lease or exercises an early termination option.
xii. Business combinations
Judgment is used in determining whether an acquisition is a business combination or an asset acquisition.
In a business combination, all identifiable assets, liabilities and contingent liabilities acquired are recorded at their fair values, including the total consideration paid by the Company. One of the most significant estimates relates to the determination of the fair value of these assets and liabilities including assessing the fair value of any favourable or unfavorable lease terms. For any intangible asset identified or form of consideration paid by the Company, depending on the type of intangible asset or consideration paid and the complexity of determining its fair value, an independent valuation expert or management may develop the fair value, using appropriate valuation techniques, which are generally based on a forecast of the total expected future net cash flows. The evaluations are linked closely to the assumptions made by management regarding the future performance of the assets concerned and any changes in the discount rate applied.
Additionally, as part of a business combination, all forms of consideration paid (on the date of acquisition or contingent upon achieving certain milestones) are recorded at their fair values, which is a significant estimate. For any form of consideration paid by the Company, depending on the type of consideration paid and the complexity of determining its fair value, an independent valuation expert or management may develop the fair value, using appropriate valuation techniques, which are generally based on a forecast of the total expected future net cash flows. The evaluations are linked closely to the assumptions made by management regarding the future performance of the asset concerned and any changes in the discount rate applied. In the event that there is contingent consideration in an acquisition management makes assumptions as to the probability of the consideration being paid.
b) Foreign currency translation
Transactions in foreign currencies are initially recorded by the Company’s subsidiaries at their respective functional currency spot rates at the date the transaction is recognized. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency spot rates of exchange at reporting period ends. Differences arising on settlement or translation of monetary items are recognized in profit or loss. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined. The gain or loss arising on translation of non-monetary items measured at fair value is treated in line with the recognition of the gain or loss on the change in fair value of the item (i.e., translation differences on items whose fair value gain or loss is recognized in other comprehensive income (“OCI”) or profit or loss are also recognized in OCI or profit or loss, respectively).
10
EMPOWER CLINICS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 30, 2021, 2020, and 2019
(in United States dollars, except where noted)
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
On consolidation, the assets and liabilities of foreign operations are translated into US dollars at the rate of exchange prevailing at the reporting date and their statements of profit or loss are translated at the average exchange rate prevailing during each reporting period. Equity balances are translated at historical exchange rates prevailing at the date of the transactions. The exchange differences arising on translation for consolidation are recognized in OCI. On disposal of a foreign operation, the component of OCI relating to that particular foreign operation is reclassified to profit or loss.
c) Cash
Cash consists of cash at banks and on hand.
d) Restricted cash
Restricted cash consist of subscription deposits held in a trust account.
e) Inventory
Inventories are valued initially at cost and subsequently at the lower of cost and net realizable value. All direct and indirect costs related to inventory are capitalized as they are incurred.
Net realizable value is determined as the estimated selling price in the ordinary course of business. Cost is determined using the weighted average cost basis. Products for resale and supplies and consumables are valued at the lower of cost and net realizable value. The Company reviews inventory for obsolete and slow-moving goods and any such inventory is written down to net realizable value. Inventory consists of consumable laboratory supplies used in testing.
f) Property and equipment
Property and equipment are measured at cost less accumulated depreciation and impairment losses. Cost includes the purchase price, any costs directly attributable to bringing equipment to the location and condition necessary for it to be capable of operating in the manner intended by management and the estimated site reclamation and closure costs associated with removing the asset, and, where applicable, borrowing costs.
Upon sale or abandonment of any equipment, the cost and related accumulated depreciation and impairment losses are written off and any gains or losses thereon are recognized in profit or loss for the period. When the parts of an item of equipment have different useful lives, they are accounted for as separate items (major components) of equipment.
The cost of replacing or overhauling a component of an item of equipment is recognized in the carrying amount of the item if it is probable that the future economic benefits embodied within the component will flow to the Company and its cost can be measured reliably. The carrying amount of the replaced component is derecognized. Maintenance and repairs of a routine nature are charged to statement of loss or comprehensive loss as incurred.
Gains and losses on disposal of an item of equipment are determined by comparing the proceeds from disposal with the carrying amount of the equipment and are recognized in the consolidated statement of loss and comprehensive loss.
g) Intangible assets
Intangible assets are stated at cost less accumulated amortization and impairment losses. Cost includes the purchase price, any costs directly attributable to bringing the intangible asset to the condition necessary for it to be capable of operating in the manner intended by management and, where applicable, borrowing costs.
Upon sale or abandonment of any intangible asset, the cost and related accumulated depreciation and impairment losses are written off and any gains or losses thereon are recognized in the statement of loss or comprehensive loss for the period.
11
EMPOWER CLINICS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 30, 2021, 2020, and 2019
(in United States dollars, except where noted)
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
h) Depreciation and amortization
Depreciation and amortization is provided using the straight-line basis over the following terms:
Furniture and equipment
3 - 5 years
Leasehold improvements
5 years
Right-of-use assets
Term of the lease
Testing equipment
12 years
i) Impairment
Long lived assets (property and equipment, intangibles, goodwill) are reviewed for impairment at each reporting period end or whenever events or changes in circumstances indicate that the carrying amount of an asset or CGU exceeds its recoverable amount. The recoverable amount of an asset is the higher of its fair value, less costs to sell, and its value in use. If the carrying amount of an asset exceeds its recoverable amount, an impairment charge is recognized immediately in profit or loss by the amount by which the carrying amount of the asset exceeds the recoverable amount. If an impairment loss subsequently reverses, the carrying amount of the asset is increased to the lesser of the revised estimate of recoverable amount, and the carrying amount that would have been recorded had no impairment loss been recognized previously.
j) 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 generally measured as the lower of their carrying amount and fair value less costs to sell.
k) 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:
1.
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,
2.
as a result, the Company has created a valid expectation on the part of those other parties that it will discharge those responsibilities.
Provisions are reviewed at the end of each reporting period and adjusted to reflect management’s current best estimate of the expenditure required to settle the present obligation at the end of the reporting period. If it is no longer probable that an outflow of resources embodying economic benefits will be required to settle the obligation, the provision is reversed.
Provisions are reduced by actual expenditures for which the provision was originally recognized. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects the current market assessments of the time value of money and the risks specific to the liability. The accretion of the discount is charged to the consolidated statement of loss and comprehensive loss.
l) Convertible debentures
The convertible debentures were determined to be compound instruments, comprising a financial liability (debt obligation) and derivative liability component (conversion option). As the debentures are convertible into units, each comprising a common share and a warrant, the debt and conversion feature are presented separately. The conversion option is classified as a derivative liability under the principles of IFRS 9 - Financial Instruments. As the exercise price of the convertible debenture is fixed in Canadian dollars and the functional currency of the Company is the US dollar, the conversion option is considered a derivative liability in accordance with IAS 32 - Financial Instruments: Presentation as a variable amount of cash in the Company’s functional currency will be received upon exercise.
12
EMPOWER CLINICS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 30, 2021, 2020, and 2019
(in United States dollars, except where noted)
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
The conversion option is recognized at fair value using the Black-Scholes option pricing model and the listed trading price at the date of issue. The conversion option is initially recorded as a liability at fair value with any subsequent changes in fair value recognized in the consolidated statement of loss and comprehensive loss.
Using the residual method, the carrying amount of the financial liability component is the difference between the principal amount and the initial carrying value of the conversion option. The debentures, net of the derivative lability component, are accreted using the effective interest rate method over the term of the debentures, such that the carrying amount of the financial liability will equal the principal balance at maturity.
Upon conversion, the conversion option is revalued at the date of exercise of the conversion feature and the total fair value of the conversion option and the carrying value of the debt is allocated between the warranty liability and equity.
During the year ended December 31, 2020, all convertible debentures were converted into share capital.
m) 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 grant, using the Black-Scholes option pricing model is charged to the consolidated statement of loss and comprehensive loss, with an offsetting credit to contributed surplus, over the vesting period. If and when the share options are exercised, the applicable original amounts of contributed surplus are transferred to issued capital.
These estimated fair value of share options involves inherent uncertainties and the application of management’s judgement. The costs of share options are recognized over the vesting period of the option. The total amount recognized as an expense is adjusted to reflect the number of options expected to vest at each reporting date. At each reporting date prior to vesting, the cumulative compensation expense representing the extent to which the vesting period has passed and management’s best estimate of the share options that are ultimately expected to vest is computed. The movement in cumulative expense is recognized in the consolidated statement of loss and comprehensive loss with a corresponding entry to contributed surplus.
No expense is recognized for share options that do not ultimately vest. Charges for share options that are forfeited before vesting are reversed from contributed surplus and credited to the consolidated statement of loss and comprehensive loss. For those share options that expire unexercised after vesting, the recorded value remains in contributed surplus.
From time to time, the Company makes share-based payments as consideration for goods or services to non-employees. Share-based payments to non-employees may be in the form of common shares, and common share purchase warrants, or units comprised of common shares and common share purchase warrants.
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.
The fair value of share-based payments to non-employees is determined at the date of the grant, using the Black-Scholes option pricing model, and is charged to the consolidated statement of loss and comprehensive loss, with an offsetting credit to contributed surplus, in a manner consistent with the transfer of goods or services.
The fair value of share-based payments of units comprised of common shares and common share purchase warrants is allocated as follows: the fair value of the common share purchase warrants is determined using the Black-Scholes pricing model and the residual, if any, is allocated to issued capital.
n) Share purchase warrants
Share purchase warrants that are not classified as share-based payments 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.
13
EMPOWER CLINICS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 30, 2021, 2020, and 2019
(in United States dollars, except where noted)
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
These types of share purchase warrants are recognized at fair value using the Black-Scholes option pricing model. Share purchase warrants are initially recorded as a liability at fair value with any subsequent changes in fair value recognized in the consolidated statement of loss and comprehensive loss.
Upon exercise of the share purchase warrants with exercise prices in a currency other than the Company’s functional currency, the share purchase warrants are revalued at the date of exercise with any gain or loss being charged to the consolidated statement of loss and comprehensive loss, and the total fair value of the exercised share purchase warrants is reallocated to equity. The proceeds generated from the payment of the exercise price are also allocated to equity.
o) 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 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.
Proceeds from the issue of units comprised of common shares and common share purchase warrants is allocated as follows: the fair value of the common share purchase warrants is determined using the Black-Scholes pricing model and the residual, if any, is allocated to issued capital.
p) Shares held in escrow
The Company has issued common shares held in escrow as a part of a compensation arrangement. The fair value of the escrowed shares is recognized into profit and loss with a corresponding increase to capital as the common shares vest.
The Company has issued common shares held in escrow as a part of the Sun Valley acquisition. The fair value of the escrowed shares is recognized as consideration.
q) 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.
Financial assets valued at amortized cost are cash and accounts receivable.
14
EMPOWER CLINICS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 30, 2021, 2020, and 2019
(in United States dollars, except where noted)
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
Fair value through other comprehensive income ("FVTOCI"):
Financial assets that meet the following conditions are measured at FVTOCI:
·
The financial asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets, and,
·
The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
The Company does not currently hold any financial instruments designated as FVTOCI.
Equity instruments designated as FVTOCI:
On initial recognition, the Company may make an irrevocable election (on an instrument-by-instrument basis) to designate investments in equity instruments that would otherwise be measured at fair value through profit or loss to present subsequent changes in fair value in other comprehensive income. Designation at FVTOCI is not permitted if the equity investment is held for trading or if it is contingent consideration recognized by an acquirer in a business combination. Investments in equity instruments at FVTOCI are initially measured at fair value plus transaction costs. Subsequently, they are measured at fair value with gains and losses arising from changes in fair value recognized in other OCI. The cumulative gain or loss is not reclassified to the consolidated statement of loss and comprehensive loss on disposal of the equity instrument, instead, it is transferred to deficit.
The Company does not currently hold any equity instruments designated as FVTOCI.
Financial assets measured subsequently at fair value through profit or loss:
By default, all other financial assets are measured subsequently at FVTPL.
The Company, at initial recognition, may also irrevocably designate a financial asset as measured at FVTPL if doing so eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise from measuring assets or liabilities or recognizing the gains and losses on them on different bases.
Financial assets measured at FVTPL are measured at fair value at the end of each reporting period, with any fair value gains or losses recognized on the consolidated statement of loss and comprehensive loss to the extent they are not part of a designated hedging relationship.
The Company currently has no financial assets valued at FVTL.
r) Financial liabilities and equity
Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.
An equity instrument is any contract that evidences a residual interest in the assets of the Company after deducting all its liabilities. Equity instruments issued by the Company are recognized at the proceeds received, net of direct issue costs. Repurchase of the Company’s own equity instruments is recognized and deducted directly in equity. No gain or loss is recognized on the consolidated statement of loss and comprehensive loss on the purchase, sale, issue or cancellation of the Company’s own equity instruments.
Classification of financial liabilities
Financial liabilities that are not contingent consideration of an acquirer in a business combination, held for trading or designated as at FVTPL, are measured at amortized cost using effective interest method. The Company’s financial liabilities measured at amortized cost are accounts payable and accrued liabilities, notes payable, convertible debentures payable, lease liability, loans payable and convertible notes payable. The Company measures the warrant liability at FVTPL.
15
EMPOWER CLINICS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 30, 2021, 2020, and 2019
(in United States dollars, except where noted)
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.
Impairment of financial assets
The expected loss model (“ECL”) applies to financial assets measured at amortized cost, contract assets and debt investments measured at FVOCI. The ECL model applies to the Company’s accounts receivable (Note 8).
To assess credit losses, the Company considers a broad range of information when assessing credit risk and measuring expected credit losses, including past events, current conditions and forecasts that affect the expected collectability of future cash flows of the instrument.
In applying this forward-looking approach, the Company separates instruments into the below categories:
·
financial instruments that have not deteriorated significantly since initial recognition or that have low credit risk;
·
financial instruments that have deteriorated significantly since initial recognition and whose credit loss is not low; or
·
financial instruments that have objective evidence of impairment at the reporting date.
12-month expected credit losses are recognized for the first category while ‘lifetime expected credit losses’ are recognized for the second category.
For financial assets carried at amortized cost, the amount of the impairment is the difference between the asset’s carrying amount and the present value of the estimated future cash flows, discounted at the financial asset’s original effective interest rate.
Financial assets, other than those at FVTPL and amortized cost, are assessed for indicators of impairment at each reporting period. Financial assets are impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been impacted.
s) Impairment of non-financial assets
At each reporting date, the Company reviews the carrying amounts of its non-financial assets to determine whether there are any indications of impairment. If any such indication exists such as an increase in operating costs or a decrease in the number of patient visits, the recoverable amount of the asset is estimated in order to determine the extent of the impairment, if any.
Where the asset does not generate cash inflows that are independent from other assets, the Company estimates the recoverable amount of the CGU to which the asset belongs. A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or group of assets.
The recoverable amount is determined as the higher of fair value less costs of disposal and the asset’s value in use. Fair value is determined with reference to discounted estimated future cash flow analysis or to recent transactions involving dispositions of similar properties. In assessing value in use, the estimated future cash flows are discounted to their present value.
The pre-tax discount rate applied to the estimated future cash flows measured on a value in use basis reflects current market assessments of the time value of money and the risks specific to the asset for which the future cash flow estimates have not been adjusted.
If the carrying amount of an asset or CGU exceeds its recoverable amount, the carrying amount of the asset or CGU is reduced to its recoverable amount. An impairment loss is recognized as a charge to the consolidated statement of loss and comprehensive loss. Non-financial assets that have been impaired are tested for possible reversal of the impairment whenever events or changes in circumstance indicate that the impairment may have reversed.
Where an impairment, other than goodwill impairment, subsequently reverses, the carrying amount of the asset or CGU is increased to the revised estimate of its recoverable amount, but only so that the increased carrying amount does not exceed the carrying amount that would have been determined (net of depreciation and/or amortization) had no impairment loss been recognized for the asset or CGU in prior periods. A reversal of impairment is recognized as a gain in the consolidated statement of loss and comprehensive loss. Goodwill impairment losses are not reversed.
16
EMPOWER CLINICS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 30, 2021, 2020, and 2019
(in United States dollars, except where noted)
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
t) Taxes
Current tax expense
Current tax is the expected tax payable or receivable on the taxable earnings or loss for the period.
Current tax for each taxable entity in the Company is based on the local taxable income at the local statutory tax rate enacted at the reporting date and includes adjustments to tax payable or recoverable in respect of previous periods.
Deferred tax expense
Deferred tax is accounted for using the balance sheet liability method, providing for the tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and their respective tax bases.
Deferred tax liabilities are recognized for all taxable temporary differences except where the deferred tax liability arises from the initial recognition of goodwill, or the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting earnings nor taxable earnings or loss.
Deferred tax assets are recognized for all deductible temporary differences, carry forwards of unused tax losses and tax credits, to the extent that it is probable that taxable earnings will be available against which the deductible temporary differences, and the carry forward of unused tax losses can be utilized, except where the deferred tax asset related to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting earnings nor taxable earnings or loss.
The carrying amounts of deferred tax assets are reviewed at each reporting date and are adjusted to the extent that it is no longer probable that sufficient taxable earnings will be available to allow all or part of the asset to be utilized. To the extent that an asset not previously recognized fulfills the criteria for recognition, a deferred tax asset is recorded.
Deferred tax is measured on an undiscounted basis using the tax rates that are expected to apply in the period when the liability is settled or the asset is realized, based on tax rates and tax laws enacted or substantially enacted at the reporting date. Current and deferred tax relating to items recognized directly in equity are recognized in equity and not in the consolidated statement of loss and comprehensive loss.
u) Earnings (loss) per share
Basic earnings (loss) per share (“EPS”) is calculated by dividing the net earnings (loss) of the Company by the basic weighted average number of common shares outstanding during the period.
For purposes of calculating diluted EPS, the proceeds from the potential exercise of dilutive share options and share purchase warrants with exercise prices that are below the average market price of the underlying shares for the reporting period are assumed to be used in purchasing the Company’s common shares at their average market price for the period.
Share options and share purchase warrants are included in the calculation of diluted EPS only to the extent that the market price of the common shares exceeds the exercise price of the share options or share purchase warrants except where such inclusion would be anti-dilutive.
v) Revenue recognition
Revenue is recognized in accordance with IFRS 15 Revenue from Contracts with Customers, when a customer obtains control of promised goods or services. The amount of revenue reflects the consideration to which the Company expects to be entitled to receive in exchange for these goods or services. The Company applies the following five-step analysis to determine whether, how much and when revenue is recognized:
1.
Identify the contract with the customer;
2.
Identify the performance obligation in the contract;
3.
Determine the transaction price;
4.
Allocate the transaction price to the performance obligation in the contract; and
5.
Recognize revenue when or as the Company satisfies a performance obligation.
17
EMPOWER CLINICS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 30, 2021, 2020, and 2019
(in United States dollars, except where noted)
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
The Company recognizes revenue when delivery of medical services has occurred and when the physical possession of the goods and significant risks and rewards and legal title have been transferred to the customer. The Company recognizes revenue from the rendering of patient services in the accounting period in which the physician’s services are rendered and recognizes revenue from the sale of goods when physical possession of the goods has transferred to the customer.
Revenues are recorded net of discounts provided to patients.
w) Related party transactions
Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence, related parties may be individuals or corporate entities. A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties.
4. ACQUISITION OF KAI MEDICAL
On October 5, 2020, the Company acquired 100% of the membership interest of Kai Medical Laboratory, LLC (“Kai Medical”), for consideration with a fair value of $20,050 comprised of 500,000 stock options with a fair value of $10,025 and 500,000 warrants with a fair value of $10,025. The options and warrants are exercisable at a price of $0.04 (C$0.05) and expire on October 5, 2023. The options and warrants were valued using a Black-Scholes option pricing model with the following assumptions: three year expected life, risk free rate of 0.23%, share price of $0.03 (C$0.04) and volatility of 119.32%.
The transaction has been accounted for as a business combination under IFRS 3 - Business Combinations.
KAI Medical Laboratory operates a high-complexity CLIA and COLA accredited laboratory that provides reliable and accurate testing solutions to hospitals, medical clinics, pharmacies, and employer groups.
The following table summarizes the final purchase price allocation:
$
Assets acquired
Cash
9,826
Accounts receivable
1,314
Prepaid
8,002
Property and equipment
1,422,819
Intangible asset
245,000
1,686,961
Liabilities assumed
Accounts payable and accrued liabilities
406,528
Loan payable
1,139,577
Lease liability
294,669
Disaster loan
59,846
PPP loan
77,028
Net assets at fair value, as at October 5, 2020
(290,687
)
Consideration
Fair value of 500,000 stock options issued
10,025
Fair value of 500,000 warrants issued
10,025
Total consideration
20,050
Goodwill
310,737
Accounts receivable had a fair value of $1,314 while gross contractual accounts receivable were $32,448 at the date of acquisition.
18
EMPOWER CLINICS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 30, 2021, 2020, and 2019
(in United States dollars, except where noted)
4. ACQUISITION OF KAI MEDICAL (continued)
Property and equipment acquired included $294,669 of right-of-use assets.
The intangible asset is comprised of the laboratory certification license which was valued at replacement cost which approximates the costs incurred by Kai Medical to acquire the laboratory certification license.
The loan payable had a principal balance of $1,139,577, accrues interest at the prime rate plus 2% and matures on June 7, 2028. The prime rate as at October 5, 2020 was 3.25%. The loan payable’s fair value was determined to be equal to its carrying value as the loan is collateralized, the borrower did not breach any of the default provisions, and the lender is an unrelated third party.
The disaster loan had a principal balance of $150,000, accrues interest at 3.75% per annum and matures on June 24, 2040. The disaster loan was fair valued at $59,846 using a discount rate of 13.83%.
The PPP loan had a principal balance of $89,379, accrues interest at 1.00% per annum and matures on April 30, 2022. The PPP loan was fair valued at $77,028 using a discount rate of 12.00%.
The lease liability represents four leases with a fair value of $294,669 on the date of acquisition, which is the net present value of the minimum future lease payments determined using the following assumptions:
Lease 1
Lease 2
Lease 3
Lease 4
Remaining term (months)
20
5
55
55
Monthly payments
$3,050 to $3,250
$
2,850
$
2,554
$
2,041
Incremental borrowing rate
5.5
%
5.5
%
5.5
%
5.5
%
Fair value on acquisition
$
60,145
$
14,039
$
122,536
$
97,949
The goodwill generated as a result of this acquisition related to other intangible assets that did not qualify for separate recognition.
5. ACQUISITION OF LAWRENCE PARK & ATKINSON
On December 31, 2020, the Company acquired 100% ownership of Lawrence Park Health and Wellness Clinic Inc. (“Lawrence Park”) and 11000900 Canada Inc. (“Atkinson”, together “Lawrence Park & Atkinson” or “LP&A”). Lawrence Park & Atkinson operate para-medical clinics in the Greater Toronto Area of Ontario, Canada. The acquisition of these entities is considered one combined acquisition as the businesses carry on similar activities in Canada and are evaluated together as one business by management, so are considered one CGU from the Company’s perspective.
Consideration in the transaction had a fair value of $1,766,933 comprised of cash consideration of $215,991, cash payable of $58,907, up to 3,750,000 stock options with a fair value of $344,110 and share consideration with a fair value of $1,147,925. Share consideration consisted of the issuance of 2,564,102 common shares of the Company with a fair value of $0.2238 (C$0.2850) based on the stock price on December 31, 2020 and 2,564,102 common shares of the Company subject to voluntary trading restrictions imposed by a contract (and therefore no discount for lack of marketability) lasting through December 31, 2022 and having an average fair value of $0.2238 (C$0.2850) per share, which have the following escrow condition: 320,513 common shares to be released every three months commencing on March 31, 2021.
Pursuant to the terms of the acquisition of LP&A, the 3,750,000 stock options are subject to the following milestone issuance schedule:
·
Milestone 1 - 1/3 exercisable after 10 new clinics are opened within 18 months of the acquisition date
·
Milestone 2 - 1/3 exercisable after an additional 10 new clinics are opened
·
Milestone 3 - 1/3 exercisable after a further additional 10 new clinics are opened
The stock options will have a term of five years commencing on the date of issuance and become exercisable at a price equal to the greater of (a) the volume weighted average trading price ("VWAP") for the 10 trading days prior to the achievement of Milestone 1, and (b) the greater of the closing market prices of the Empower shares on (i) the trading day prior to the date of grant of the stock options; and (ii) in the event that the shares are not publicly traded, the fair value determined by an independent appraiser.
19
EMPOWER CLINICS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 30, 2021, 2020, and 2019
(in United States dollars, except where noted)
5. ACQUISITION OF LAWRENCE PARK & ATKINSON (continued)
The Company used the Black-Scholes option pricing model to determine the $344,110 fair value of the stock options with the following assumptions:
Milestone 1
Milestone 2
Milestone 3
Milestone date
June 30,
2022
December 31, 2023
June 30,
2025
Years to maturity
4.00
4.75
5.50
Risk-free rate
0.190%
0.250%
0.480%
Exercise price
C$0.2850
C$0.2850
C$0.2850
Share price
C$0.2850
C$0.2850
C$0.2850
Volatility
108.1%
108.1%
108.1%
Fair value per option
C$0.2056
C$0.2173
C$0.2273
Probability
90%
50%
25%
Fair value per option tranche (1)
$181,634 (C$231,256)
$106,679 (C$135,824)
$55,797 (C$71,041)
(1) Canadian dollar amount translated using the December 31, 2020 foreign exchange rate of 0.7854
The transaction has been accounted for as a business combination under IFRS 3 - Business Combinations. The following table summarizes the final purchase price allocation:
$
Assets acquired
Cash and cash equivalents
38,521
Deposit
4,103
Intangible assets
58,907
Right-of-use assets
39,271
140,802
Liabilities assumed
Accounts payable and accrued liabilities
54,396
Lease liability
45,595
Loans payable
45,287
Net assets at fair value, as at December 31, 2020
(4,476
)
Consideration
Cash consideration
215,991
Cash consideration - withheld
58,907
Stock options
344,110
Share consideration
1,147,925
Total consideration
1,766,933
Goodwill
1,771,409
The intangible assets are comprised customer relationships with a fair value of $58,907. The fair value of the customer relationships was determined using a discounted cash flow analysis. The key assumptions used in the cash flow projection related to the trade name include: (1) a discount rate of 20.5%; (2) revenue growth rates of 3.1% - 35%; (3) royalty rate of 1%; (4) discount rate of 20.5% and (5) terminal revenue growth of 2% per year. The key assumptions used in the cash flow projection related to the customer relationships include (1) customer growth rate of 2%; (2) customer retention rates of 55% and discount rate of 22.5%.
The lease liability represents one lease with a fair value of $45,595 on the date of acquisition, which is the net present value of the minimum future lease payments determined using the following assumptions: (1) remaining number of payments - 13; (2) rent payment - $3,631; and (3) incremental borrowing rate - 4.04%.
The loans payable balance at acquisition consists of two CEBA loans with a two-year term to maturity that have a fair value of $45,287. The fair value was determine using a discounted cash flow analysis with a discount rate of 10.2%.
20
EMPOWER CLINICS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 30, 2021, 2020, and 2019
(in United States dollars, except where noted)
5. ACQUISITION OF LAWRENCE PARK & ATKINSON (continued)
The goodwill generated as a result of this acquisition related to other intangible assets that did not qualify for separate recognition.
6. ACQUISITION OF MEDISURE
On July 30, 2021, the Company acquired 100% ownership of Medi + Sure Canada Inc. (“MediSure”). Founded in 2010, MediSure produces diabetes testing products for sale in the Canadian market.
Consideration in the transaction had an aggregate fair value of $2,720,525 (C$3,403,767) comprised of cash consideration of $794,021 (C$1,000,000), a promissory note of $200,363 (C$250,000), and 4,582,483 common shares with a fair value of $1,726,141 (C$2,153,767). The promissory note is payable on July 30, 2022. Due to the short-term nature of the note, effects of discounting were deemed to be immaterial. Of the total common shares issued, 2,036,659 shares are subject to contractually imposed trading restrictions through July 2023 with 254,582 common shares released from escrow every three months commencing on October 30, 2021 (the “restricted trading shares”). The fair value of the restricted trading shares was not subject to a discount for lack of marketability as the trading restrictions are imposed via a contract as opposed to via securities legislation.
The transaction has been accounted for as a business combination under IFRS 3 - Business Combinations.
The following table summarizes the preliminary purchase price allocation:
$
Assets acquired
Accounts receivable
123,299
Inventory
161,209
Prepaid expense
4,841
Property and equipment
129,997
Intangible assets
146,300
565,646
Liabilities assumed
Bank indebtedness
782
Accounts payable and accrued liabilities
88,445
Lease liability
124,640
Shareholder loan
10,715
Net assets at fair value, as at July 30, 2021
341,064
Consideration
Cash consideration
794,021
Fair value of promissory note (consideration payable)
200,363
Fair value of 2,545,824 share consideration
958,967
Fair value of 2,036,659 restricted share consideration
767,174
Total consideration
2,720,525
Goodwill
2,379,461
Accounts receivable contains $3,338 of GST receivable and $119,961 of trades receivable.
Property and equipment are comprised of $124,640 of right-of-use assets and $5,357 of office equipment.
The intangible assets are comprised of customer relationships with a fair value of $146,300.
The lease liability represents one lease with a fair value of $124,640 on the date of acquisition, which is the net present value of the minimum future lease payments determined using the following assumptions: (1) remaining number of payments - 60; (2) monthly payment - $2,405 (C$3,000); and (3) incremental borrowing rate - 6.00% per annum.
21
EMPOWER CLINICS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 30, 2021, 2020, and 2019
(in United States dollars, except where noted)
6. ACQUISITION OF MEDISURE (continued)
The shareholder loan balance at acquisition consists of a vehicle loan with a payout balance of $10,715 (C$13,407). The goodwill generated as a result of this acquisition relates to other intangible assets that do not qualify for separate recognition. Goodwill was allocated to the Diagnostics & Technology CGU (Note 11).
The result of operations are included in the Company ‘s consolidated loss and comprehensive loss for the period since the acquisition date. From the closing date of the acquisition on July 31, 2021 to December 31, 2021, MediSure contributed revenues of $604,052 (C$757,195) and net loss of $215,417 (C$269,691) to the Company’s results. If the acquisition occurred on January 1, 2021, management estimates that revenue would increased by $848,881 (C$1,064,094) and net loss would have been increased by approximately $26,270 (C$32,931), respectively.
7. DISCONTINUED OPERATIONS - SUN VALLEY
On July 21, 2021, the Company entered into a non-binding agreement with a related party for the sale of 100% of the Company’s interest in Sun Valley. For the years ended December 31, 2021, 2020 and 2019, Sun Valley’s operating results were classified as discontinued operations and its remaining assets and liabilities at December 31, 2021 were classified as held for sale.
The following table summarizes the asset and liabilities classified as held for sale related to the discontinued operations of Sun Valley:
December 31,
2021
$
Cash
7,482
Prepaid
2,344
Property and equipment
87,488
Asset classified as held for sale
97,314
Accounts payable and accrued liabilities
(18,500
)
Lease liability
(43,020
)
Liabilities classified as held for sale
(61,520
)
Loss from discontinued operations, net of tax is comprised of the following operating results from the years ended December 31, 2021, 2020 and 2019:
2021
2020
2019
$
$
$
Revenue
280,919
2,248,097
1,526,383
Direct expenses excluding depreciation and amortization
8,936
666,719
576,791
Gross margin
271,983
1,581,378
��
949,592
Operating expenses
700,483
1,706,962
1,207,152
Legal and professional fees
4,180
26,269
44,286
Depreciation and amortization expense
67,751
202,565
159,649
Interest expense
5,382
15,669
13,404
Gain on termination of leases
(4,471
)
-
-
Impairment of property and equipment
18,728
-
-
Impairment of intangible assets
-
-
93,757
Other expenses
-
-
54,495
Net loss from discontinued operations
(520,070
)
(370,087
)
(623,151
)
22
EMPOWER CLINICS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 30, 2021, 2020, and 2019
(in United States dollars, except where noted)
7. DISCONTINUED OPERATIONS - SUN VALLEY (continued)
The cash flows associated with the discontinued operations for the years ended December 31, 2021, 2020 and 2019 were as follows:
2021
2020
2019
Operating activities
$
$
$
Net loss from discontinued operations
(520,070
)
(370,087
)
(623,151
)
Adjustments to non-cash items:
Depreciation and amortization expense
67,751
202,565
159,649
Interest expense
5,382
15,669
13,404
Gain on lease termination
(4,471
)
-
-
Impairment of property and equipment
18,728
-
-
Impairment of intangible assets
-
-
93,757
Net cash used in operating activities
(432,680
)
(151,853
)
(356,341
)
Investing activities
Acquisition of property, plant, and equipment
-
-
(3,828
)
Net cash used in investing activities
-
-
(3,828
)
Financing activities
Interest paid
(5,382
)
(15,669
)
(13,404
)
Lease payments
(73,964
)
(157,470
)
(99,394
)
Net cash used in financing activities
(79,346
)
(173,139
)
(112,798
)
Net cash used in discontinued operations
(512,026
)
(324,992
)
(472,967
)
8. ACCOUNT RECEIVABLE
At December 31, 2021 and 2020, accounts receivable was comprised of the following:
2021
2020
$
$
Trade receivables
454,481
245,891
Expected credit losses
(121,479
)
-
GST receivable
193,853
18,975
Other receivables
38,720
-
Total
565,575
264,866
The Company estimates a provision for lifetime expected credit losses for receivables aged greater than 91 days. As at December 31, 2021, the Company had $121,479 (2020 - $nil) recorded as a provision for expected credit losses.
For the years ended December 31, 2021 and 2020, and 2019, the Company had one customer that individually represented 35%, 26% and 0% of revenue, respectively. The next largest proportion of sales to one customer was 6% for the year ended 2021 ($nil with that customer for the years ended December 31, 2020 and 2019).
9. INVENTORY
At December 31, 2021 and 2020, inventory was comprised of the following:
2021
2020
$
$
Diagnostics, COVID-19 testing supplies and reagents
325
17,681
Diabetes diagnostic products
204,723
-
Total
205,048
17,681
Included in direct expenses excluding depreciation and amortization for the year ended December 31, 2021 is $163,079 (2020 - $nil, 2019 - $nil) pertaining to a write down of COVID-19 testing inventory to its net realizable value.
23
EMPOWER CLINICS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 30, 2021, 2020, and 2019
(in United States dollars, except where noted)
10. PROPERTY AND EQUIPMENT
The following table presents a continuity of property and equipment for the years ended December 31, 2021 and 2020:
Right-of-use assets
Furniture and equipment
Leasehold improvements
Testing equipment
Asset under construction
Total
$
$
$
$
$
$
Cost
Balance, December 31, 2019
857,083
36,780
91,858
-
-
985,721
Acquisition of Kai Medical
294,669
114,000
86,000
928,149
-
1,422,818
Acquisition of LP&A
39,271
-
-
-
-
39,271
Additions
-
3,495
-
-
-
3,495
Disposals
(402,533
)
-
-
-
-
(402,533
)
Balance, December 31, 2020
788,490
154,275
177,858
928,149
-
2,048,772
Additions
2,959,976
333,979
1,077,418
42,320
573,829
4,987,522
Disposals
(275,677
)
(15,180
)
(32,086
)
-
-
(322,943
)
Impairment
(3,206,016
)
(8,917
)
(1,171,224
)
-
(580,363
)
(4,966,520
)
Foreign exchange gain (loss)
29,884
(1,958
)
(2,005
)
323
6,534
32,778
Transferred to assets held for sale
(296,657
)
(30,625
)
(49,961
)
-
-
(377,243
)
Balance, December 31, 2021
-
431,574
-
970,792
-
1,402,366
Accumulated depreciation
Balance, December 31, 2019
(147,195
)
(7,179
)
(33,924
)
-
-
(188,298
)
Depreciation
(222,910
)
(35,776
)
(40,881
)
(29,005
)
-
(328,572
)
Disposals
58,145
-
-
-
-
58,145
Balance, December 31, 2020
(311,960
)
(42,955
)
(74,805
)
(29,005
)
-
(458,725
)
Depreciation
(255,200
)
(106,785
)
(81,117
)
(116,602
)
-
(559,704
)
Disposals
162,421
15,180
32,086
-
-
209,687
Impairment
172,437
-
75,553
-
-
247,990
Foreign exchange loss (gain)
(6
)
134
-
7
-
135
Transferred to assets held for sale
232,308
9,164
48,283
-
-
289,755
Balance, December 31, 2021
-
(125,262
)
-
(145,600
)
-
(270,862
)
Carrying amount
Balance, December 31, 2020
476,530
111,320
103,053
899,144
-
1,590,047
Balance, December 31, 2021
-
306,312
-
825,192
-
1,131,504
Events during the year ended December 31, 2021:
Right-of-use assets
During the year ended December 31, 2021, the Company entered into several lease agreements for clinics in the Medi-Collective which resulted in the recognition of right-of-use assets in the amount of $2,142,721. The right-of-use assets were measured as the present value of the minimum contractual lease payments discounted at the Company’s estimated incremental borrowing rate of 6%.
On August 31, 2021, a lease agreement in LP&A was modified which resulted in a substantial modification of the cash flows of the lease. In accordance with IFRS 16, the lease was de-recognized and recorded at its present value on the date of modification. As a result of the lease modification, the disposal of previous lease contains $39,513 of cost and $24,590 of accumulated depreciation, and the new right-of-use asset was recognized at $180,664. Following an impairment test conducted on the CGU to which the right-of-use asset was assigned, the asset was found to be impaired, and the Company recognized impairment loss of $182,375.
On April 1, 2021, the Company amended the terms of its lease agreement for the Kai Medical testing laboratory. As a result of the amendment, the Company derecognized the right-of-use asset with cost of $74,183 and accumulated depreciation of $29,075; these amounts are included in disposals of right-of-use assets. The Company recorded the right-of-use asset for the amended lease term and payments discounted at a rate of 6% per annum in the amount of $511,951. Following an impairment test conducted on the CGU to which the right-of-use asset was assigned, the asset was found to be impaired, and the Company recognized impairment loss of $732,437.
The acquisition of MediSure resulted in the recognition of a right-of-use asset with a value of $124,640 (Note 6). Following an impairment test conducted on the September 30, 2021 balances of the CGU to which the right-of-use asset was assigned, the right-of use asset was found to be impaired, and the Company recognized impairment loss of $118,543.
24
EMPOWER CLINICS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 30, 2021, 2020, and 2019
(in United States dollars, except where noted)
10. PROPERTY AND EQUIPMENT (continued)
As a result of the closure of Sun Valley clinics during the year ended December 31, 2021, the Company disposed of right-of-use assets with cost of $134,887 and accumulated depreciation of $81,662.
As a result of the non-binding agreement entered into on July 21, 2021 for the sale of 100% of the Company’s interest in Sun Valley (Note 7), the Company transferred right of use assets with a cost of $296,657 and accumulated depreciation of $232,308 to assets held for sale.
Furniture and equipment, leasehold improvements, testing equipment and assets under construction
For the year ended December 31, 2021, additions to furniture and equipment primarily relate to purchases of assets to furnish the Company’s new clinic openings in the Medi-Collective and additions to testing equipment primarily relates to purchases of additional testing equipment in Kai Medical.
For the year ended December 31, 2021, additions to leasehold improvements primarily relates to renovations conducted at the Kai Medical laboratory and costs of renovating leased clinics in the Medi-Collective.
For the year ended December 31, 2021, additions to assets under construction primarily represents costs of renovating clinics that are not yet available for use.
During the year ended December 31, 2021, closures of Sun Valley clinics resulted in disposals in furniture and equipment and leasehold improvements with cost of $15,180 and $32,086, respectively, and accumulated depreciation of $15,180 and $32,086, respectively. The closures also resulted in the recognition of impairment of $8,917 and $9,811 in furniture and equipment and leasehold improvements, respectively which is included in net loss from discontinued operations (Note 7).
As a result of the non-binding agreement entered into on July 21, 2021 for the sale of 100% of the Company’s interest in Sun Valley (Note 7), the Company transferred furniture and equipment with costs of $30,625 and accumulated depreciation of $9,164 and leasehold improvements with cost of $49,961 and accumulated depreciation of $48,283 to assets held for sale.
As a result of an impairment test conducted on the September 30, 2021 balances of the Diagnostics & Technology CGU, the Company recognized impairment of leasehold improvements of $547,064. As a result of an impairment test conducted on the December 31, 2021, balances of the Health & Wellness CGU, the Company recognized further impairment of leasehold improvements of $1,119,159.
Events during the year ended December 31, 2020:
Through the acquisition of LP&A on December 31, 2020, the Company recognized a right-of-use asset with a fair value of $39,271 (Note 5).
Through the acquisition of Kai Medical on October 5, 2020, the Company recognized right-of-use assets, furniture and equipment, leasehold improvements, and testing equipment in the amounts of $294,669, $114,000, $86,000, and $928,149, respectively. The right-of-use assets relate to leased office space and equipment.
During the year ended December 31, 2020, the Company defaulted on a right-of-use CBD extraction facility and as a result, derecognized the right of use asset with a cost of $402,533 and accumulated depreciation of $58,145. The Company recognized a gain on lease termination of $14,049. Included in accounts payable and accrued liabilities is $15,533 in accrued unpaid rent for three months where the Company still had possession of the facility.
25
EMPOWER CLINICS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 30, 2021, 2020, and 2019
(in United States dollars, except where noted)
11. INTANGIBLE ASSETS AND GOODWILL
Intangible assets
The following table presents a continuity of intangible assets for the years ended December 31, 2021, and 2020:
Patient records
Customer relationships
Brands, trademarks, licenses and domain names
Management software
Software
Total
$
$
$
$
$
$
Cost
Balance, December 31, 2019
389,580
-
263,695
51,100
-
704,375
Additions
-
-
-
-
138,855
138,855
Acquisition of Kai Medical
-
-
245,000
-
-
245,000
Acquisition of LP&A
58,907
-
-
-
-
58,907
Impairment
(69,724
)
-
(131,996
)
-
(138,855
)
(340,575
)
Balance, December 31, 2020
378,763
-
376,699
51,100
-
806,562
Acquisition of MediSure
-
146,300
-
-
-
146,300
Impairment
(379,688
)
(146,300
)
(376,699
)
(51,100
)
-
(953,787
)
Foreign exchange gain
925
-
-
-
-
925
Balance, December 31, 2021
-
-
-
-
-
-
Accumulated amortization
Balance, December 31, 2019
(299,935
)
-
(98,700
)
(51,100
)
-
(449,735
)
Amortization
(19,921
)
-
(32,999
)
-
-
(52,920
)
Balance, December 31, 2020
(319,856
)
-
(131,699
)
(51,100
)
-
(502,655
)
Amortization
(11,169
)
-
(36,750
)
-
-
(47,919
)
Impairment
331,025
168,449
51,100
550,574
Balance, December 31, 2021
-
-
-
-
-
-
Carrying amount
Balance, December 31, 2020
58,907
-
245,000
-
-
303,907
Balance, December 31, 2021
-
-
-
-
-
-
Events during the year ended December 31, 2021:
The acquisition of MediSure resulted in the recognition of an intangible customer relationship asset with a fair value of $146,300 (Note 6) which was assigned to the Diagnostics & Technology CGU. Following identification of indicators of impairment in both Diagnostics & Technology CGU and Health & Wellness CGU, the carrying amounts for all intangible assets was found to exceed the recoverable amount and the intangible assets assigned to the CGUs were found to be fully impaired. As a result, the Company recognized $146,300 in impairment charges related to the MediSure customer relationships and recognized total impairment loss of $403,213.
Events during the year ended December 31, 2020:
The acquisition of Kai Medical resulted in the recognition of an intangible asset with a fair value of $245,000 which was assigned to the Diagnostics & Technology CGU (Note 4).
The acquisition of LP&A resulted in the recognition of intangible assets comprised of patient records with fair values of $58,907 (Note 5).
During the year ended December 31, 2020, the Company assessed the Sun Valley CGU for impairment and found the intangible patient records, brand and software to be fully impaired, resulting in total impairment loss of $340,575.
26
EMPOWER CLINICS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 30, 2021, 2020, and 2019
(in United States dollars, except where noted)
11. INTANGIBLE ASSETS AND GOODWILL (continued)
Goodwill
A continuity of goodwill for the years ended December 31, 2021 and 2020 is as follows:
$
Balance, December 31, 2019
117,218
Acquisition of Kai Medical
310,737
Acquisition of LP&A
1,771,409
Impairment
(117,218
)
Balance, December 31, 2020
2,082,146
Acquisition of MediSure
2,379,461
Impairment
(4,461,607
)
Balance, December 31, 2021
-
Annual impairment tests for cash generating units containing goodwill
For the year ended December 31, 2021:
During the year ended December 31, 2021, goodwill from the Lawrence Park & Atkinson acquisition was allocated to a group of CGUs within the Health & Wellness operating segment while goodwill from the Kai Medical acquisition was allocated to a group of CGUs within the Diagnostics & Technology operating segment. Goodwill from MediSure acquisition on July 30, 2021, was allocated to a group of CGUs within the Diagnostics & Technology operating segment.
As a result of indicators of impairment in Diagnostics & Technology CGU, the Company performed an impairment assessment of the CGU for the period ended September 30, 2021. The Company determined that the CGU’s carrying amount exceeded its recoverable amount and found that the entire amount of goodwill allocated to the CGU of $2,690,198 was impaired. The goodwill was comprised of $310,737 resulting from the acquisition of Kai Medical and $2,379,461 resulting from the acquisition of MediSure. The CGU’s recoverable amount was determined using a value in use calculation with the following key assumptions: (1) discount rate - 17%; (2) income tax rate - 27%; (3) terminal growth rate - 2%; (4) working capital - 8% of sales.
The Company conducted an annual impairment test on the Health & Wellness CGU by preparing a value in use calculation to determine its recoverable amount. The Company determined that the CGU’s carrying amount exceeded its recoverable amount and found that the entire amount of goodwill allocated to the CGU of $1,771,409 was impaired. Significant assumptions in the value in use calculation were based on the number of clinics to be opened in the next two years and the expected revenues and margins from these clinics as well as the following key assumptions: (1) discount rate - 17%; (2) income tax rate - 27%; (3) terminal growth rate - 3%; (4) working capital - 5% of sales.
For the year ended December 31, 2020:
At December 31, 2020, the Company assessed the Sun Valley CGU for impairment and found that the goodwill recorded through the Sun Valley acquisition was impaired resulting in an impairment loss of $117,218.
The impairment losses pertaining to the Sun Valley CGU related to a change in expected future cash flows for the CGU as a result of 1) changes in the Arizona licensing regulations on June 7, 2019, which now requires certification on a two-year period whereas it was on a one-year basis prior to the change in regulation. The change in licensing regulations is expected to result in increased attrition and lower patient totals in Arizona as compared to that considered at the acquisition date which resulted in an impairment test being conducted on June 7, 2019, and 2) the negative impact of legalization of the passage of the Arizona Marijuana Legalization Initiative on November 3, 2020, which legalized the possession and use of recreational marijuana for adults (age 21 years or older). In addition, the legalization allows people to grow no more than six marijuana plants for personal use in their residence, as long as the plants are within an enclosed area with a lock and beyond public view. This legalization in Arizona has had a material adverse effect on the Company’s operations within the state.
The impairment was determined based on a value in use calculation which used cash flow projections covering a five-year period and a discount rate of 6% per annum. The cash flows beyond the five-year period have been extrapolated using a terminal growth rate of 1.5% per annum. Key assumptions used in the cash flow projection related to attrition of 59%. The new patient attraction rate was estimated to be 68% as of acquisition date and 24% post legalization.
27
EMPOWER CLINICS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 30, 2021, 2020, and 2019
(in United States dollars, except where noted)
11. INTANGIBLE ASSETS AND GOODWILL (continued)
At December 31, 2020, the Company tested the goodwill recorded through the acquisition of Kai Medical and the acquisition of LP&A for impairment by comparing their respective recoverable amounts to their carrying values. The Company concluded that the recoverable amount was greater than the carrying value for both amounts and that no impairment was required as at December 31, 2020.
12. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
The Company had the following in accounts payable and accrued liabilities at December 31, 2021 and 2020:
2021
2020
$
$
Trade payables
1,896,895
1,920,840
Accrued liabilities
423,475
1,521,885
Accrued payroll liabilities
618,378
-
Accrued tax liabilities
786,682
-
Total
3,725,430
3,442,725
13. LOANS PAYABLE
A continuity of loans payable for the years end December 31, 2021 and 2020 is as follows:
2021
2020
$
$
Balance, beginning of year
2,132,227
761,711
Acquisition of Kai Medical
-
1,276,449
Acquisition of LP&A
-
45,287
CEBA loan
-
31,417
PPP loan addition
86,378
-
Accretion expense
33,324
1,345
Interest expense
63,676
60,397
Repayment
(1,008,721
)
(44,379
)
Gain on loan forgiveness
(124,047
)
-
Unrealized foreign exchange gain
(374
)
-
Balance, end of year
1,182,463
2,132,227
Less: Current portion of loans payable
128,480
992,070
Loans payable
1,053,983
1,140,157
On May 27, 2020, the Company received a Canada Emergency Business Account (“CEBA”) loan in the amount of $31,417 (C$40,000). The loan was interest free until January 1, 2023, which has been extended December 31, 2023, at which time interest accrues at a rate of 5% per annum, payable monthly on the last day of each month. The loan has a possibility of forgiveness of 33% if it is repaid prior to maturity.
On October 5, 2020, through the acquisition of Kai Medical, the Company assumed three secured loans with a total fair value of $1,276,451 (Note 4). The total accretion expense and interest expense applicable to the Kai loans payable was $26,644 and $63,098, respectively for the year ended December 31, 2021 (2020 - $13,284 and $1,345, respectively).
On December 31, 2020, through the acquisition of LP&A, the Company assumed two CEBA loans with a fair value of $27,172 (C$34,595) and $18,115 (C$23,064) and amounts due at the maturity of C$60,000 and C$40,000, respectively. The loans were interest free until January 1, 2023, which have been extended to December 31, 2023, at which time interest accrues at a rate of 5% per annum, payable monthly on the last day of each month. The loans have a possibility of forgiveness of 33% of each loan if they are repaid before the maturity date. The loans were discounted using an annual rate of 3.21% and the fair value reflects an estimate that the amount will be repaid prior to maturity. For the year ended December 31, 2021, accretion expense recorded on these loans was $3,119 (2020 - $nil).
28
EMPOWER CLINICS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 30, 2021, 2020, and 2019
(in United States dollars, except where noted)
13. LOANS PAYABLE (continued)
On January 11, 2021, the Company repaid the principal of $550,000 and accrued interest of $258,293, for a total payment of $808,293 to Bayview Equities Ltd. The loan bore interest at 6% per annum and was due on demand.
On March 31, 2021, through its subsidiary Kai Medical, the Company entered into a loan agreement for $86,378 with the US Small Business Administration issued under the CARES Act program: “Paycheck Protection Program” (the “PPP loan”). The loan bears interest at 1% per annum and matures on March 31, 2026. The loan was discounted at an estimated market rate of 16.63% recorded at its present value of $49,942. As a result, $36,436 was recorded as government grant income and is included in other income for the year ended December 31, 2021. For the year ended December 31, 2021, accretion expense and interest expense recorded on this loan were $3,561 and $578, respectively (2020 - $nil and $nil).
On August 31, 2021, a loan held in Kai Medical with a carrying amount of $87,611 was forgiven by the U.S. Small Business Administration. As a result of the loan forgiveness, the Company recorded $124,047 as income from loan forgiveness and is included in other income on the consolidated statement of loss and comprehensive loss for the year ended December 31, 2021.
During the year ended December 31, 2021, the Company made scheduled payments on loans payable of $1,008,721 (2020 - $44,379), of which $56,664 was for interest payments.
14. NOTES PAYABLE
A continuity of notes payable for the years end December 31, 2021 and 2020 is as follows:
2021
2020
$
$
Balance, beginning of year
708,361
969,891
Settled in shares
-
(148,745
)
Repayment
(553,324
)
(197,862
)
Realized foreign exchange loss
-
4,918
Unrealized foreign exchange loss
3,786
6,304
Accretion expense
-
13,110
Interest expense
14,443
60,745
Balance, end of year
173,266
708,361
On July 15, 2020, the Company settled a promissory note with a carrying amount of $148,745 comprised of principal of $125,000 and accrued interest of $23,745 through the issuance of 4,100,634 units in a private placement on the same date. In connection with the settlement, the Company recorded a loss on debt settlement of $2,380 which is included in general and administrative expense.
On October 1, 2019, the Company issued a promissory note payable in the amount of $188,765 (C$250,000). The promissory note payable was due April 1, 2020 and bore interest at 10% per annum. Pursuant to the issuance of the note payable the Company incurred transaction costs including an administrative charge of $18,876 (C$25,000) and an obligation to issue 150,000 common shares of the Company with a fair value of $6,811 which was been recorded as shares to be issued on the consolidated statements of changes in equity. The note payable has been recognized at amortized cost of $163,093 (C$216,000). On May 20, 2020, the Company issued a total of 844,444 common shares of which 694,444 were to settle an administrative charge of $18,876 (C$25,000) and the remaining 150,000 common shares were to settle the obligation to issue shares. The Company repaid the principal of $250,000 on December 11, 2020. As at December 31, 2020, the Company had a balance owing of $22,944 (C$29,212) for accrued interest. The interest was repaid on January 11, 2021.
On February 23, 2021, the Company repaid a promissory note with principal of $437,985 and accrued interest of $94,636.
At December 31, 2021, the Company has one remaining note payable with a principal balance of $140,000 and accrued interest of $33,266.
29
EMPOWER CLINICS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 30, 2021, 2020, and 2019
(in United States dollars, except where noted)
15. CONVERTIBLE NOTES PAYABLE
December 31,
December 31,
2021
2020
$
$
Balance, beginning of period
200,530
192,717
Unrealized foreign exchange loss
826
3,971
Interest expense
4,050
3,842
Balance, end of period
205,406
200,530
On December 9, 2019, the Company issued a convertible promissory note payable in the amount of $188,893 (C$250,000). The convertible promissory note payable was due December 9, 2021 and bears interest at 2% per annum. The convertible promissory note is convertible at a share price equal to the closing share price on the date prior to conversion for total shares equal to the face value of the note divided by the closing share price. As the settlement is fixed at the face value of the obligation, the Company has determined that the conversion option has $nil value.
16. LEASE LIABILITY
Health &
Wellness
Diagnostics & Technology
Corporate
Discontinued operations
Total
$
$
$
$
$
Balance, December 31, 2019
387,985
-
14,761
332,150
734,896
Acquisition of Kai Medical
-
294,669
-
-
294,669
Acquisition of LP&A
45,595
-
-
-
45,595
Interest expense
11,103
3,969
568
15,669
31,309
Payments
(15,405
)
(25,586
)
(12,270
)
(173,139
)
(226,400
)
Termination of leases
(383,683
)
-
-
-
(383,683
)
Balance, December 31, 2020
45,595
273,052
3,059
174,680
496,386
Additions
2,323,385
636,591
-
-
2,959,976
Interest expense
32,330
37,553
31
5,382
75,296
Payments
(100,779
)
(149,963
)
(3,090
)
(79,346
)
(333,178
)
Termination of leases
(18,050
)
(46,260
)
-
(57,696
)
(122,006
)
Lease liabilities classified as held for sale
-
-
-
(43,020
)
(43,020
)
Foreign exchange loss (gain)
5,675
(1,662
)
-
-
4,013
Balance, December 31, 2021
2,288,156
749,311
-
-
3,037,467
Less: current portion of lease liability
250,853
136,247
-
-
387,100
Lease liability
2,037,303
613,064
-
-
2,650,367
During the year ended December 31, 2020, the Company defaulted on the right-of-use CBD extraction facility and as a result, derecognized the right-of-use asset associated with the CBD extraction facility (Note 10). As a result, the Company extinguished the associated lease liability of $383,683.
On December 31, 2020, the Company acquired LP&A. LP&A had one lease with a fair value of $45,595 on the date of acquisition, which was measured as the net present value of minimum future lease payments determined using the following assumptions: (1) remaining number of payments - 13; (2) rent payment - $3,631; and (3) incremental borrowing rate - 4.04%. During the year ended December 31, 2021, the Company agreed to an extension on this lease until February 1, 2026. As a result of the extension, the Company disposed of the original right-of-use asset with a cost of $39,271 and accumulated depreciation of $24,590 and extinguished the lease liability with a carrying value $18,050. The Company recorded a gain on termination of $2,831. The lease liability was re-measured to be $180,664 on the extension date by discounting the amended future lease payments at a rate of 6% per annum and is included in the Health & Wellness segment.
30
EMPOWER CLINICS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 30, 2021, 2020, and 2019
(in United States dollars, except where noted)
16. LEASE LIABILITY (continued)
On April 1, 2021, the Company amended the terms of its lease agreement for the Kai Medical testing laboratory to extend the term to August 31, 2027 and doubled the space that it occupied. As a result of the amendment, the Company disposed of right-of-use assets with cost of $74,183 and accumulated depreciation of $29,075 and extinguished the lease liability with a carrying amount of $46,260. The Company recorded a gain on termination of $1,152. The lease liability was re-measured to be $511,951 on the modification date by discounting the amended future lease payments at a rate of 6% per annum and is included in the Diagnostics & Technology segment.
As a result of the closure of Sun Valley clinics during the year ended December 31, 2021, the Company disposed of right-of-use assets with cost of $134,887 and accumulated depreciation of $81,662 and extinguished the lease liability with a carrying amount of $57,696. The Company recorded a gain on termination of $4,471 which has been included in net loss from discontinued operations. A remaining lease with a lease liability of $43,020 was classified as held for sale.
On May 15, 2021, the Company entered into a new lease agreement for its subsidiary Medi-Collective: Brown’s Line FHO Inc. The Company recorded a lease liability of $275,384, which represents the future lease payments discounted at a rate of 6% per annum and is included in the Health & Wellness segment.
On July 30, 2021, the Company acquired MediSure. MediSure had one lease with a fair value of $124,640 on the date of acquisition, which is the net present value of the minimum future lease payments determined using the following assumptions: (1) remaining number of payments - 60; (2) monthly payment - $2,410 (C$3,000); and (3) incremental borrowing rate - 6.00% per annum. This amount has been allocated to the Diagnostics & Technology segment.
During the year ended December 31, 2021, the Company entered various leases for clinic openings in the Medi-Collective which resulted in the recognition of lease liabilities of $1,867,337, which represents the future lease payments discounted at a rate of 6% per annum. These lease liabilities are allocated to the Health & Wellness segment.
For the year ended December 31, 2021, the Company recognized an expense of $61,434 (2020 - $46,885) with respect to short-term and low value leases which is included in clinic operating expenses.
17. WARRANT LIABILITY
The warrants are classified as a financial instrument under the principles of IFRS 9, as the exercise price is in Canadian dollars while the functional currency of the Company is the US dollar. Accordingly, warrants are remeasured to fair value at each reporting date with the change in fair value charged to change in fair value of warrant liability in the consolidated statement of loss and comprehensive loss.
Weighted average exercise price
Warrants
Warrant
liability
C$
#
$
As at December 31, 2019
46,257,289
106,312
Issued
0.12
69,400,524
1,061,738
Exercised
0.13
(49,800,176
)
(5,341,149
)
Expired
0.39
(11,642,185
)
-
Loss on change in fair value of warrant liability
11,886,796
As at December 31, 2020
54,215,452
7,713,697
Issued
0.13
350,000
-
Exercised
0.16
(42,982,247
)
(23,029,605
)
Expired
0.13
(294,108
)
-
Loss on change in fair value of warrant liability
16,820,611
As at December 31, 2021
11,289,097
1,504,703
Current portion of warrant liability
1,504,703
Non-current portion of warrant liability
-
31
EMPOWER CLINICS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 30, 2021, 2020, and 2019
(in United States dollars, except where noted)
17. WARRANT LIABILITY (continued)
On April 2, 2020, pursuant to the conversion of convertible debentures with a face value of $268,554 (C$367,500) and accrued interest of $16,113 (C$22,050), the Company issued 3,541,366 units. Each unit is comprised of one common share and one common share purchase warrant (Note 18(b)). Each warrant entitles the holder to acquire one common share at a price of $0.11 (C$0.16) for a period of two years following the closing date of the conversion.
On April 8, 2020, pursuant to the conversion of convertible debentures with a face value of $147,691 (C$207,270) and accrued interest of $8,254 (C$11,584), the Company issued 1,989,588 units. Each unit is comprised of one common share and one common share purchase warrant (Note 18(b)). Each warrant entitles the holder to acquire one common share at a price of $0.11 ($C0.16) for a period of two years following the closing date of the conversion.
On April 16, 2020, pursuant to a private placement financing, the Company issued 16,325,000 units at a price of C$0.03 (C$0.04) per unit for gross proceeds of $462,399 (C$653,000). Each unit consists of one common share and one common share purchase warrant. Each warrant entitles the holder to acquire one common share at a price of $0.10 (C$0.07) per share for a period of two years following the closing date of the financing.
On May 7, 2020, pursuant to the conversion of convertible debentures with a face value of $178,380 (C$250,000) and accrued interest of $20,600 (C$28,871), the Company issued 3,064,515 common shares and 3,064,515 common share purchase warrants (Note 18(b)). Each warrant entitles the holder to acquire one common share at a price of $0.09 (C$0.12) for a period of one year following the closing date of the conversion.
On July 16, 2020, pursuant to a private placement financing, the Company issued 14,417,334 units for $0.04 (C$0.05) per unit for gross proceeds of $532,279 (C$720,866). Each unit is comprised of one common share and one common share purchase warrant. Each warrant entitles the holder to acquire one common share at a price of $0.09 (C$0.12) per share for a period of 24 months following the closing date of the financing.
On October 5, 2020, the Company issued 500,000 warrants for $0.03 (C$0.05) pursuant to costs in connection with the acquisition of Kai Medical. Each warrant entitles the holder to acquire one common share at a price of $0.09 (C$0.12) per share for a period of 36 months following the closing date of the financing.
On November 9, 2020, pursuant to a private placement financing, the Company issued 24,567,131 units for $0.04 (C$0.05) per unit for gross proceeds of $944,257 (C$1,228,366). Each unit is comprised of one common share and one common share purchase warrant. Each warrant entitles the holder to acquire one common share at a price of $0.09 (C$0.12) per share for a period of 24 months following the closing date of the financing.
Included in warrants issued and exercised is 350,000 warrants resulting from the reinstatement of expired warrants for certain holders which were immediately exercised. There was no profit or loss associated with the warrants as the derivative component had a fair value of $nil as a result of a zero-term expected life.
The following table summarizes the warrants outstanding and exercisable as at December 31, 2021:
Expiry date
Number of
warrants
Weighted average exercise price
Weighted average remaining life
#
C$
Years
April 8, 2022
1,158,017
0.16
0.27
April 16, 2022
2,525,000
0.10
0.29
July 15, 2022
1,160,000
0.12
0.54
September 9, 2022
3,746,080
0.31
0.69
November 9, 2022
2,200,000
0.12
0.86
October 5, 2023
500,000
0.05
1.76
Total
11,289,097
0.18
0.62
32
EMPOWER CLINICS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 30, 2021, 2020, and 2019
(in United States dollars, except where noted)
18. EQUITY
a) Authorized share capital
Unlimited number of common shares without nominal or par value. At December 31, 2021, there were 339,445,021 issued and outstanding common shares (December 31, 2020 - 283,811,903). The Company does not currently pay dividends and entitlement will only arise upon declaration.
b) Issued - common shares
During the year ended December 31, 2021, the Company completed the following transactions:
Vesting of escrow shares
i.
For the year ended December 31, 2021, the Company recognized a share-based payment of $187,964 in connection with the vesting of escrow shares.
Share subscriptions receivable
ii.
As at December 31, 2021, the Company reclassified the share subscriptions receivable of $745,531 arising from the exercise of 7,000,000 share options by the CEO (Note 24) to other asset.
Subscription deposits
iii.
On December 30, 2021, the Company received $78,459 (C$100,000) subscription deposit in advance for an on-going financing. The financing was subsequently closed on January 6, 2022.
iv.
As at December 31, 2021, the Company had $1,238,366 (C$1,570,000) in restricted cash held in trust pertaining to proceeds received in advance of the closing of the private placement of convertible debentures and units that subsequently closed on January 6, 2022 (Note 27).
Shares issued for services
v.
On February 26, 2021, the Company issued 1,207,206 common shares for $0.05 (C$0.06) per common share for total fair value consideration of $59,598 (C$75,600) for marketing services.
vi.
On June 11, 2021, the Company issued 13,204 common shares for $0.52 (C$0.63) per common share for total fair value consideration of $6,847 (C$7,500) for marketing services. The shares were subsequently returned to the treasury and cancelled on November 8, 2021 for the total fair value of $6,682 (C$7,500), with the difference going to operating expense.
vii.
On July 22, 2021, the Company issued 21,176 common shares for $0.41 (C$0.51) per common share for total fair value consideration of $8,594 (C$10,800) for marketing services.
viii.
On September 29, 2021, the Company issued 34,090 common shares for $0.35 (C$0.44) per common share for total fair value consideration of $11,773 (C$15,000) for marketing services.
ix.
On December 6, 2021, the Company issued 31,250 common shares for $0.19 (C$0.24) per common share for total fair value consideration of $5,869 (C$7,500) for marketing services.
Exercise of options
x.
During the year ended December 31, 2021, 3,714,666 stock options with a weighted average exercise price of $0.06 (C$0.07) were exercised for proceeds of $217,403 (C$271,233) resulting in the issuance of 3,714,666 common shares. Upon exercise, $102,031 was transferred from contributed surplus to issued capital.
Exercise of warrants classified within warrant reserve
xi.
420,000 agent purchase warrants with a weighted average exercise price of $0.12 (C$0.15) were exercised for proceeds of $48,346 (C$61,200) resulting in the issuance of 420,000 common shares. Upon exercise, $23,588 was transferred from warrant reserve to issued capital.
33
EMPOWER CLINICS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 30, 2021, 2020, and 2019
(in United States dollars, except where noted)
18. EQUITY (continued)
xii.
1,760,000 agent compensation warrants with an exercise price of $0.05 (C$0.04) were exercised for proceeds of $69,510 (C$88,000) resulting in the issuance of units comprised of 1,760,000 common shares and 1,760,000 warrants. Using the Black-Scholes option pricing model, the Company determined that the fair value of warrants issued as part of the units was $1,056,940, which exceeded the total of the initial agent purchase warrants reserve amount of $47,251 and cash of $69,510 equal to $116,761. Accordingly, applying the residual method, the Company allocated $116,761 to warrant reserve and $nil to share capital. The fair value of warrants issued as part of units was determined using the Black-Scholes option pricing model with the following assumptions: a 1.67 year expected average life, exercise price of $0.09 (C$0.12), share price of $0.69 (C$0.87); 100% volatility; risk-free interest rate of 0.29%; and an expected dividend yield of 0%. The fair value of these agent purchase warrants was recorded to warrant liability.
xiii.
On October 25, 2021, 880,000 warrants with an exercise price of $0.10 (C$0.12) were exercised for proceeds of $85,591 (C$$105,600) resulting in the issuance of 880,000 common shares. Upon exercise, $58,380 was transferred from warrant reserve to share capital.
Exercise of warrants classified within warrant liability
xiv.
During the year ended December 31, 2021, the Company issued common shares as a result of warrant exercises as follows:
Issue date
Number of warrants exercised and shares issued
Weighted average exercise price
Weighted average exercise price
Cash received
Warrant liability transferred to issued capital
Issued capital
#
C$
$
$
$
$
January 4, 2021
856,000
0.16
0.13
107,411
76,582
183,993
January 6, 2021
2,178,817
0.16
0.13
274,821
253,452
528,273
January 14, 2021
1,059,000
0.16
0.13
133,902
140,479
274,381
January 12, 2021
550,000
0.16
0.13
69,041
79,362
148,403
January 14, 2021
1,000,000
0.10
0.08
79,026
188,759
267,785
January 14, 2021
1,000,000
0.12
0.09
94,832
182,209
277,041
January 19, 2021
500,000
0.16
0.13
62,819
71,449
134,268
January 25, 2021
400,000
0.16
0.13
50,243
63,176
113,419
January 27, 2021
863,911
0.16
0.13
108,200
111,363
219,563
February 4, 2021
450,000
0.16
0.12
56,127
58,811
114,938
February 8, 2021
500,000
0.16
0.13
62,730
65,118
127,848
February 11, 2021
150,000
0.16
0.13
18,918
49,666
68,584
February 16, 2021
1,201,400
0.16
0.13
151,548
729,646
881,194
February 17, 2021
268,245
0.16
0.13
33,763
204,737
238,500
February 19, 2021
1,250,000
0.16
0.13
158,554
1,394,935
1,553,489
February 24, 2021
1,500,000
0.05
0.04
59,770
25,396
85,166
February 24, 2021
1,000,000
0.10
0.08
79,694
1,235,875
1,315,569
February 24, 2021
1,369,864
0.16
0.13
174,672
1,626,802
1,801,474
February 24, 2021
200,000
0.12
0.10
19,127
244,251
263,378
February 26, 2021
2,500,000
0.12
0.09
236,500
2,117,056
2,353,556
February 26, 2021
211,179
0.16
0.13
26,637
171,488
198,125
March 2, 2021
500,000
0.10
0.08
39,601
357,139
396,740
March 2, 2021
2,000,000
0.12
0.10
190,084
1,407,808
1,597,892
March 8, 2021
225,000
0.16
0.13
28,436
126,190
154,626
March 8, 2021
5,500,000
0.12
0.09
521,327
4,203,738
4,725,065
March 10, 2021
10,750,000
0.12
0.09
1,020,815
5,963,892
6,984,707
March 12, 2021
1,867,131
0.12
0.10
179,345
1,224,589
1,403,934
March 17, 2021
250,000
0.12
0.10
24,067
160,329
184,396
March 10, 2021
1,500,000
0.08
0.06
94,959
-
94,959
April 5, 2021
150,000
0.16
0.13
19,162
-
19,162
April 5, 2021
300,000
0.12
0.10
28,743
147,856
176,599
April 30, 2021
175,000
0.10
0.08
14,245
75,910
90,155
May 20, 2021
250,000
0.12
0.10
24,855
100,054
124,909
June 23, 2021
150,000
0.12
0.10
14,650
67,161
81,811
June 24, 2021
100,000
0.12
0.10
9,742
43,871
53,613
October 25, 2021
256,700
0.12
0.10
24,884
60,456
85,340
Total
42,982,247
0.13
0.10
4,293,250
23,029,605
27,322,855
34
EMPOWER CLINICS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 30, 2021, 2020, and 2019
(in United States dollars, except where noted)
18. EQUITY (continued)
Acquisition of MediSure
On July 30, 2021, as part of the consideration in the acquisition of MediSure, the Company issued 4,582,483 common shares with a fair value of $1,726,141 (Note 6).
During the year ended December 31, 2020, the Company completed the following transactions:
Shares issued to former CEO
i.
On March 11, 2020, pursuant to the incorrect cancellation of common shares of the former CEO, the Company issued 651,875 common shares.
Shares issued on private placement
ii.
On April 16, 2020, pursuant to a private placement financing, the Company issued 16,325,000 units for $0.03 (C$0.04) per unit for gross proceeds of $462,400 (C$653,000) comprised of cash of $219,300 (C$313,000) and the settlement of accounts payable in the amount of $243,100 (C$340,000). Each unit is comprised of one common share and one common share purchase warrant. Each warrant entitles the holder to acquire one common share at a price of $0.07 (C$0.10) per share for a period of twenty-four months following the closing date of the financing. Share issue costs included cash payments of $1,714 (C$2,400) ($1,026 of which was allocated to the warrant liability and recorded in the profit and loss) and the issuance of 60,000 share purchase warrants valued at $1,017 using the Black-Scholes option pricing model with the following assumptions: a two year expected average life, share price of $0.04 (C$0.05); 100% volatility; risk-free interest rate of 0.34%; and an expected dividend yield of 0%. Consideration of $276,809 was recorded to warrant liability and the residual amount of $185,590 was recorded to issued capital.
iii.
On July 15, 2020, pursuant to a private placement financing, the Company issued 14,417,334 units for $0.04 (C$0.05) per unit for gross proceeds of $532,280 (C$720,867) comprised of cash of $335,352 (C$454,167) and the settlement of accounts payable in the amount of $196,928 (C$266,700). Each unit is comprised of one common share and one common share purchase warrant. Each warrant entitles the holder to acquire one common share at a price of $0.09 (C$0.12) per share for a period of twenty-four months following the closing date of the financing. Share issue costs included cash payments of $3,553 (C$4,800) ($1,518 of which was allocated to the warrant liability and recorded in the profit and loss) and the issuance of 96,000 share purchase warrants valued at $1,509 using the Black-Scholes option pricing model with the following assumptions: a two year expected average life, share price of $0.04 (C$0.06); 100% volatility; risk-free interest rate of 0.24%; and an expected dividend yield of 0%. Consideration of $227,402 was recorded to warrant liability and the residual amount of $304,878 was recorded to issued capital.
iv.
On October 27, 2020, pursuant to a private placement financing, the Company issued 1,500,000 units for $0.04 (C$0.05) per unit for gross proceeds of $56,974 (C$75,000). Each unit consists of one common share and one common share purchase warrant. Each warrant entitles the holder to acquire one common share at a price of $0.09 (C$0.12) per share for a period of twenty-four months. Of gross proceeds, $32,956 was allocated to share capital and $24,698 was allocated to warrant liability.
v.
On November 9, 2020, pursuant to a private placement financing, the Company issued 23,067,131 units for $0.04 (C$0.05) per unit for gross proceeds of $889,250 (C$1,153,357). Each unit consists of one common share and one common share purchase warrant. Each warrant entitles the holder to acquire one common share at a price of $0.09 (C$0.12) per share for a period of twenty-four months ($42,403 of share issuance costs which was allocated to the warrant liability and recorded in the profit and loss). Of gross proceeds, $506,801 was allocated to share capital and $382,449 was allocated to warrant liability.
Shares issued on debt settlement
vi.
On January 23, 2020, the Company issued 4,800,000 common shares for $0.03 (C$0.045) per common share for total fair value consideration of $164,346 (C$216,000) as settlement of accounts payable in the amount of $182,607 (C$240,000) resulting in a gain on debt settlement of $18,261.
vii.
On May 7, 2020, the Company issued 347,142 common shares for $0.06 (C$0.08) per common share for total fair value consideration of $19,812 (C$27,767) as settlement of accounts payable in the amount of $23,189 (C$32,500) resulting in a gain on debt settlement of $4,538.
35
EMPOWER CLINICS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 30, 2021, 2020, and 2019
(in United States dollars, except where noted)
18. EQUITY (continued)
viii.
On May 20, 2020, the Company issued 694,444 common shares for $0.05 (C$0.07) per common share for total fair value consideration of $34,992 (C$48,611) as settlement of accounts payable in the amount of $17,996 (C$25,000) resulting in a gain on debt settlement of $500.
Vesting of escrow shares
ix.
For the year ended December 31, 2020, the Company recognized share-based payment of $193,025 in connection with the vesting of escrow shares.
Shares issued for services
x.
On February 11, 2020, the Company issued 4,000,000 common shares for $0.03 (C$0.035) per common share for total fair value consideration of $190,110 (C$252,276) for marketing services.
xi.
On September 22, 2020, the Company issued 2,500,000 common shares for $0.03 (C$0.04) per common share for total fair value consideration of $135,529 (C$191,015) for marketing services.
xii.
On September 23, 2020, the Company issued 3,000,000 common shares for $0.03 (C$0.04) per common share for total fair value consideration of $161,715 (C$214,237) as settlement of accounts payable in the amount of $184,173 (C$244,103) resulting in a gain on debt settlement of $22,458.
Shares issued on conversion of debentures
xiii.
On April 2, 2020, pursuant to the conversion of convertible debentures with a face value of $268,554 (C$367,500) and accrued interest of $16,113 (C$22,050), the Company issued 3,541,366 common shares and 3,541,366 common share purchase warrants. Each warrant entitles the holder to acquire one common share at a price of $0.07 (C$0.10) for a period of two years following the closing date of the conversion. At the date of the conversion, the conversion feature was valued at $nil and the debt was valued at $276,478. Consideration of $24,607 was recorded to warrant liability and the residual amount of $251,871 was recorded to issued capital.
xiv.
On April 8, 2020, pursuant to the conversion of convertible debentures with a face value of $147,691 (C$207,270) and accrued interest of $8,254 (C$11,584), the Company issued 1,989,588 common shares and 1,989,588 common share purchase warrants. Each warrant entitles the holder to acquire one common share at a price of $0.07 (C$0.10) for a period of two years following the closing date of the conversion. At the date of the conversion, the conversion feature was valued at $nil and the debt was valued at $78,213. Consideration of $21,981 was recorded to warrant liability and the residual amount of $56,232 was recorded to issued capital.
xv.
On May 7, 2020, pursuant to the conversion of convertible debentures with a face value of $356,720 (C$500,000) and accrued interest of $42,180 (C$56,376), the Company issued 6,129,030 common shares and 6,129,030 common share purchase warrants. Each warrant entitles the holder to acquire one common share at a price of $0.09 (C$0.12) for a period of one year following the closing date of the conversion. At the date of the conversion, the conversion feature was valued at $nil and the debt was valued at $417,815. Consideration of $104,565 was recorded to warrant liability and the residual amount of $313,250 was recorded to issued capital.
Obligation to issue shares
xvi.
On May 20, 2020, pursuant to the issuance of a promissory note payable in the amount of $188,765 (C$250,000), the Company settled its obligation to issues 150,000 common shares.
Exercise of options
xvii.
On November 3, 2020, the CEO of the Company exercised 7,000,000 stock options with an exercise price of $0.11 (C$0.14) resulting in the issuance of 7,000,000 common shares. The proceeds of $745,531 (C$980,000) for the options were not received by December 31, 2020 and the Company recorded a share subscriptions receivable against the freely trading common shares.
36
EMPOWER CLINICS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 30, 2021, 2020, and 2019
(in United States dollars, except where noted)
18. EQUITY (continued)
xviii.
On December 8, 2020, 300,000 options with an exercise price of $0.04 (C$0.05) were exercised for proceeds of $11,718 (C$15,000) resulting in the issuance of 300,000 common shares. Upon exercise, $4,047 was transferred from contributed surplus to equity.
xix.
On December 14, 2020, 83,333 options with an exercise price of $0.08 (C$0.10) were exercised for proceeds of $6,527 (C$8,333) resulting in the issuance of 83,333 common shares. Upon exercise, $137 was transferred from contributed surplus to equity.
xx.
On December 21, 2020, 200,000 options with an exercise price of $0.20 (C$0.26) were exercised for proceeds of $40,416 (C$52,000) resulting in the issuance of 200,000 common shares. Upon exercise, $32,125 was transferred from contributed surplus to equity.
Exercise of warrants
xxi.
During the year ended December 31, 2020, the Company issued common shares as a result of warrant exercises as follows:
Issue date
Number of warrants exercised and shares issued
Weighted average exercise
price
Weighted average exercise
price
Cash
received
Warrant liability transferred to issued capital
Issued
capital
#
C$
$
$
$
$
December 8, 2020
1,000,000
0.12
0.0937
93,691
121,464
215,156
December 8, 2020
909,090
0.16
0.1249
113,565
97,647
211,212
December 9, 2020
9,125,000
0.10
0.0781
712,724
958,652
1,671,375
December 9, 2020
7,364,515
0.12
0.0937
690,262
675,387
1,365,648
December 9, 2020
5,512,264
0.16
0.1250
688,872
308,191
997,063
December 10, 2020
2,000,000
0.10
0.0785
157,060
267,897
424,957
December 10, 2020
4,736,634
0.12
0.0942
446,361
607,619
1,053,980
December 10, 2020
5,828,618
0.16
0.1256
732,353
484,975
1,217,328
December 10, 2020
431,075
0.19
0.1492
64,319
20,324
84,643
December 14, 2020
2,064,515
0.12
0.0941
194,201
407,762
601,963
December 14, 2020
2,192,728
0.16
0.1254
275,015
367,169
642,184
December 15, 2020
5,300,000
0.16
0.1258
666,562
672,239
1,338,801
December 17, 2020
2,063,637
0.16
0.1258
259,618
194,262
453,880
December 22, 2020
1,700,000
0.16
0.1240
210,722
187,746
398,468
December 28, 2020
61,950
0.16
0.1249
7,740
5,364
13,104
Total
50,290,026
0.13
0.1056
5,313,065
5,376,698
10,689,762
Acquisition of Lawrence Park & Atkinson
On December 31, 2020, as part of the consideration in the acquisition of Lawrence Park & Atkinson, the Company issued 5,128,204 common shares with a fair value of $1,147,925 (Note 5).
c) Share options
The Company has an incentive share option plan (“the plan”) in place under which it is authorized to grant share options to executive officers, directors, employees and consultants. The plan allows the Company to grant share options up to a maximum of 10.0% of the number of issued shares of the Company.
37
EMPOWER CLINICS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 30, 2021, 2020, and 2019
(in United States dollars, except where noted)
18. EQUITY (continued)
Share option transactions and the number of share options outstanding during the years ended December 31, 2021 and 2020 are summarized as follows:
Number of share options
Weighted average
exercise price
#
C$
Outstanding, December 31, 2019
10,450,000
0.16
Granted
6,967,761
0.07
Exercised
(7,583,333
)
0.14
Outstanding, December 31, 2020
9,834,428
0.08
Granted
3,061,364
0.43
Cancelled
(1,936,667
)
0.06
Expired
(430,000
)
0.05
Exercised
(3,714,666
)
0.07
Outstanding, December 31, 2021
6,814,459
0.16
Exercisable, December 31, 2021
5,245,709
0.23
During the year ended December 31, 2021, 1,936,667 share options were cancelled following the termination of certain employment contracts.
The weighed average remaining contractual life of share options outstanding as at December 31, 2021 was 3.03 years (2020 - 3.04 years). The weighted average fair value of options granted year ended December 31, 2021 was $0.23 (2020 - $0.02). The range of exercise prices for options outstanding at December 31, 2021 was C$0.05 to C$0.57 (2020 - C$0.05 to C$0.57).
The fair value of share options recognized as an expense during the year ended December 31, 2021, was $777,277 (2020 - $323,799, 2019 - $608,944). The following are the assumptions used for the Black Scholes option pricing model valuation of share options granted during the years ended December 31, 2021 and 2020:
2021
2020
Risk-free interest rate
0.17%-0.93%
0.20%-1.57%
Expected life
5 years
1 - 5 years
Expected volatility
100
%
100
%
Forfeiture rate
0.0
%
0.0
%
Dividend rate
0.0
%
0.0
%
The risk-free rate of periods within the expected life of the share options is based on the Canadian government bond rate. The annualized volatility and forfeiture rate assumptions are based on historical results.
d) Warrants classified within warrant reserve
Warrants classified within warrant reserve consist of warrants issued as share-based payments. Outstanding and exercisable warrants classified within warrant reserve for the years ended December 31, 2021 and 2020 are summarized as follows:
Number of
warrants
Weighted average exercise price
#
C$
Outstanding, December 31, 2019
1,504,818
0.24
Granted
1,916,000
0.12
Exercised
(489,850
)
0.16
Expired
(627,068
)
0.31
Outstanding, December 31, 2020
2,303,900
0.13
Granted
1,760,000
0.12
Exercised
(3,060,000
)
0.12
Expired
(123,900
)
0.16
Outstanding, December 31, 2021
880,000
0.12
38
EMPOWER CLINICS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 30, 2021, 2020, and 2019
(in United States dollars, except where noted)
18. EQUITY (continued)
In connection with warrants that expired in the year ended December 31, 2021, $9,800 (2020 - $80,280) was reclassified from warrant reserve to contributed surplus.
19. OPERATING EXPENSES
For the years ended December 31, 2021, 2020 and 2019, operating expenses comprised of the following:
2021
2020
2019
$
$
$
Salaries and benefits
1,691,162
516,822
906,710
Rent
61,434
6,175
57,572
Advertising and promotion
751,514
931,072
229,565
Telephone and internet
252,737
130,143
13,289
Penalties
26,325
470,000
165,000
Other
813,950
186,232
354,331
3,597,122
2,240,444
1,726,467
20. SEGMENT INFORMATION
The Company’s business activities for the year ended December 31, 2021, were conducted through four reportable segments corresponding with its business model. The segments are as follows: (a) Health & Wellness, comprising clinic operations with revenue resulting from patient visits and telemedicine services; (b) Diagnostics & Technology, comprising the diagnostic testing services provided by Kai Medical, and the sale of medical equipment by Kai Medical Canada Corp. and MediSure; and (c) corporate costs. The operations related to Sun Valley have been disclosed as discontinued operations (Note 7). Financial performance and balances by operating segments are displayed below:
For the year ended December 31, 2021
Health &
Wellness
Diagnostics & Technology
Corporate
Consolidated
$
$
$
$
Total revenue
1,006,952
3,361,964
-
4,368,916
Total operating expenses1
(1,467,478
)
(4,389,796
)
(3,953,594
)
(9,810,868
)
Total other expenses, net
(3,405,564
)
(6,069,654
)
(16,819,075
)
(26,294,293
)
Net loss from continuing operations
(3,866,090
)
(7,097,486
)
(20,772,669
)
(31,736,245
)
For the year ended December 31, 2020
Health &
Wellness
Diagnostics & Technology
Corporate
Consolidated
$
$
$
$
Total revenue
307,974
653,125
-
961,099
Total operating expenses1
(741,275
)
(598,464
)
(3,298,576
)
(4,638,315
)
Total other expenses, net
(120,195
)
(84,866
)
(12,813,947
)
(13,019,008
)
Net loss from continuing operations
(553,496
)
(30,205
)
(16,112,523
)
(16,696,224
)
For the year ended December 31, 2019
Health &
Wellness
Diagnostics & Technology
Corporate
Consolidated
$
$
$
$
Total revenue
-
-
505,198
505,198
Total operating expenses1
-
-
(3,723,763
)
(3,723,763
)
Total other expenses, net
-
-
(459,947
)
(459,947
)
Net loss from continuing operations
-
-
(3,678,512
)
(3,678,512
)
1Includes direct expenses, operating expenses, legal and professional fees, depreciation and amortization, and share-based payments
39
EMPOWER CLINICS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 30, 2021, 2020, and 2019
(in United States dollars, except where noted)
20. SEGMENT INFORMATION (continued)
As at December 31, 2021
Health &
Wellness
Diagnostics & Technology
Corporate
Consolidated
$
$
$
$
Assets
602,473
1,487,963
2,849,626
4,940,062
Liabilities
2,677,910
2,840,420
5,850,467
11,368,797
As at December 31, 2020
Health &
Wellness
Diagnostics & Technology
Corporate
Consolidated
$
$
$
$
Assets
724,227
2,490,081
5,644,570
8,858,878
Liabilities
914,437
1,923,346
11,603,622
14,441,405
As at December 31, 2019
Health &
Wellness
Diagnostics & Technology
Corporate
Consolidated
$
$
$
$
Assets
-
-
1,185,789
1,185,789
Liabilities
-
-
4,276,196
4,276,196
For the years ended December 31, 2021, 2020, and 2019, the geographic distribution of revenue is presented as follow:
2021
2020
2019
$
$
$
Canada
1,390,738
-
-
USA
2,978,178
961,099
505,198
Total
4,368,916
961,099
505,198
As at December 31, 2021 and 2020, the geographic distribution of long-lived assets is presented as follow:
2021
2020
$
$
Canada
241,588
1,782,871
USA
889,916
2,193,229
Total
1,131,504
3,976,100
40
EMPOWER CLINICS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 30, 2021, 2020, and 2019
(in United States dollars, except where noted)
21. 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 27% (2020 - 27%, 2019 - 27%) to the effective tax rate is as follows:
Years ended December 31,
2021
2020
2019
$
$
$
Loss from continuing operations before income taxes
(31,736,245
)
(16,696,224
)
(3,678,512
)
Combined Canadian federal and provincial income tax rates
27
%
27
%
27
%
Expected income tax recovery
(8,568,790
)
(4,507,980
)
(993,200
)
Items that cause an increase (decrease):
Effect of different tax rates in foreign jurisdiction
132,050
24,800
82,490
Non-deductible expenses less other permanent differences
5,929,980
217,225
(367,360
)
Loss on change in fair value of warrant liability
-
3,209,435
-
Tax rate changes
-
(74,050
)
8,700
Share issuance costs and other
(1,000
)
(1,910
)
(36,010
)
Change in tax benefits not recognized
2,507,760
1,132,480
1,305,380
Income tax expense (recovery)
-
-
-
b) Unrecognized deferred tax assets and liabilities
Deferred taxes are provided as a result of temporary differences that arise due to the differences between the income tax values and the carrying amount of assets and liabilities. Deferred tax assets have not been recognized in respect of the following deductible temporary differences:
As at December 31,
2021
2020
$
$
Deferred tax assets (liabilities):
Non-capital losses
24,615,430
19,890,140
Property and equipment
391,190
(1,007,630
)
Intangible assets
857,670
674,140
Right-of-use assets net of lease liability
3,016,140
13,530
Share issue costs
205,450
308,660
Capital losses carried forward
-
5,420
Unrealized foreign exchange loss
-
1,880
Goodwill
2,335,970
2,216,710
Deferred tax assets, net
31,421,850
22,102,850
c) Expiration of income tax loss carry forwards
As at December 31, 2021, the Company has $15,348,020 of Canadian non-capital income tax losses (unrecognized) which will expire over 2034 through 2041.
41
EMPOWER CLINICS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 30, 2021, 2020, and 2019
(in United States dollars, except where noted)
22. SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH FLOWS
Additional disclosure with respect to cash flows for the years ended December 31, 2021, 2020 and 2019 is presented in the table below:
2021
2020
2019
$
$
$
Changes in non-cash working capital items:
Accounts receivable
(177,410
)
(239,070
)
(24,116
)
Prepaid expenses
(103,623
)
(31,263
)
10,846
Inventory
(26,158
)
4,167
(21,848
)
Accounts payable and accrued liabilities
358,237
1,253,577
337,013
Deferred revenue
(3,820
)
26,694
-
Non-cash transactions:
Vesting of escrow shares
187,964
144,454
95,874
Shares issued as settlement of convertible debentures payable
-
-
600,323
Shares issued as settlement of accounts payable
-
-
181,842
Shares issued for services, net of shares returned to treasury
85,999
86,812
105,327
Shares issued to former CEO
-
-
15,239
Vesting of escrow shares during the year ended December 31, 2021 is contained within legal and professional fees.
Income tax payments for the year ended December 31, 2021 were $nil (2020 - $nil, 2019 - $nil). As at December 31, 2021, the Company has accrued $635,000 (December 31, 2020 - $350,000) in late tax filing penalties related to income taxes in the United States.
Interest paid for the year ended December 31, 2021 was $502,337 (2020 - $43,651, 2019 - $nil), of which $365,734 was from accrued interest on loans and note payables prior to December 31, 2020.
23. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
a) Fair value measurement of financial assets and liabilities
The Company has established a fair value hierarchy that reflects the significance of inputs of valuation techniques used in making fair value measurements as follows:
Level 1 - quoted prices in active markets for identical assets or liabilities;
Level 2 - inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. from derived prices); and
Level 3 - inputs for the asset or liability that are not based on observable market data.
The fair values of cash, restricted cash, accounts receivable, and accounts payable and accrued liabilities approximate their carrying values due to their short-term nature.
The Company has no assets or liabilities that would be categorized as level 2 in the fair value hierarchy.
As at December 31, 2021 and 2020, warrant liability was categorized as level 3 in the fair value hierarchy. No other financial assets or liabilities were categorized as level 3.
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.
42
EMPOWER CLINICS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 30, 2021, 2020, and 2019
(in United States dollars, except where noted)
23. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)
i. Credit risk
Counterparty credit risk is the risk that the financial benefits of contracts with a specific counterparty will be lost if a counterparty defaults on its obligations under the contract. This includes amounts owed to the Company by these counterparties, less any amounts owed to the counterparty by the Company where a legal right of offset exists and also includes the fair values of contracts with individual counterparties which are recorded in the consolidated financial statements.
The Company’s credit risk is predominantly related to cash balances held in financial institutions and amounts receivable from credit card processors. The maximum exposure to credit risk is equal to the carrying value of such financial assets. At December 31, 2021, the Company expects to recover the full amount of such assets.
The objective of managing counterparty credit risk is to minimize potential losses in financial assets. The Company assesses the quality of its counterparties, taking into account their credit worthiness and reputation, past performance and other factors.
Cash is only deposited with or held by major financial institutions where the Company conducts its business. In order to manage credit and liquidity risk, the Company invests only in highly rated investment grade instruments that have maturities of one year or less. Limits are also established based on the type of investment, the counterparty and the credit rating.
ii. Currency risk
The Company’s functional currency is the US dollar and therefore the Company’s income (loss) and comprehensive income (loss) are impacted by fluctuations in the value of foreign currencies in relation to the US dollar.
The table below summarizes the net monetary assets and liabilities held in foreign currencies:
December 31,
2021
December 31,
2020
$
$
Canadian dollar net monetary liabilities
594,561
2,434,448
The effect on net loss and comprehensive loss for the year ended December 31, 2021, of a 10.0% change in the foreign currencies against the US dollar on the above-mentioned net monetary liabilities of the Company is estimated to be an increase/decrease in foreign exchange gain or loss of $54,051 (2020 - $534,108), given all other variables remained constant.
iii. Liquidity risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Company has a planning and budgeting process in place to help determine the funds required to support the Company’s normal operating requirements and its expansion plans.
In the normal course of business, the Company enters contracts and performs business activities that give rise to commitments for future minimum payments. The Company has no concentrations of liquidity risk. A summary of future operating commitments is presented in note 26.
As at December 31, 2021, the Company had a cash balance of $866,170, restricted cash of $1,238,366 and current liabilities of $7,703,093.
vi. Interest rate risk
Interest rate risk is the risk that future cash flows will fluctuate as a result of changes in market interest rates. The Company’s notes payable, secured loan payable, convertible notes payable and convertible debentures carry fixed interest rates and as such, the Company is not exposed to interest rate risk.
43
EMPOWER CLINICS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 30, 2021, 2020, and 2019
(in United States dollars, except where noted)
24. RELATED PARTY TRANSACTIONS
The Company’s related parties include subsidiaries, associates, joint ventures, affiliated entities and key management personnel and any transactions with such parties for goods and/or services that are made on regular commercial terms. During the year ended December 31, 2021 and 2020, the Company did not enter into any transactions with related parties outside of compensation to key management personnel as disclosed below.
Key management are those personnel having the authority and responsibility for planning, directing, and controlling the Company. Salaries and benefits, bonuses, and termination benefits are included in operating expenses and share-based payments are recorded as share-based payment expense or share capital. Key management compensation for the years ended December 31, 2021, 2020 and 2019 includes:
2021
2020
2019
$
$
$
Salaries and benefits
881,430
341,601
734,655
Share-based payments
360,716
12,159
556,040
Directors’ fees
41,250
7,500
11,250
1,283,396
361,260
1,301,945
Included in salaries and benefits for the year ended December 31, 2021 is $nil (2020 - $nil, 2019 - $304,721) related to common shares awarded to the Chief Executive Officer (“CEO”).
As at December 31, 2021, $172,934 (December 31, 2020 - $157,055) is due to the CEO, Chief Financial Officer and a director for salaries and benefits, and director’s fees. The amounts are unsecured and due on demand.
As at December 31, 2021, the other asset balance of $745,531 represents a loan with the CEO resulting from share subscriptions receivable. The amount was previously classified within equity as the loan was previously collateralized by the common shares of the Company owned by the CEO. During the year ended December 31, 2021, the terms of the loan were modified such that the loan is no longer collateralized by the CEO’s common shares. The receivable has no specified interest or terms of repayment. Management assessed credit risk of the share subscription receivable as low as the Company has offsetting payables to the CEO and an ongoing service contract.
25. 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 30, 2021 and 2020, the capital of the Company comprised of the following:
December 31,
December 31,
2021
2020
$
$
Total shareholders’ deficiency
(7,138,472
)
(5,490,401
)
Notes payable
173,266
708,361
Convertible notes payable
205,406
200,530
Current portion of loans payable
128,480
992,070
Loans payable
1,053,983
1,140,157
(5,577,337
)
(2,449,283
)
Less: Cash
(866,170
)
(4,889,824
)
(6,443,507
)
(7,339,107
)
The Board of Directors does not establish quantitative return on capital criteria for management, but rather relies on the expertise of the Company’s management to sustain future development of the business. Management reviews its capital management approach on an ongoing basis and believes that this approach, given the relative size of the Company, is reasonable. In order to facilitate the management of its capital requirements, the Company prepares expenditure budgets that are updated as necessary depending on various factors, including successful capital deployment and general industry conditions. The Company also has in place a planning, budgeting and forecasting process which is used to identify the amount of funds required to ensure the Company has appropriate liquidity to meet short and long-term operating objectives. The Company is dependent on cash flows generated from its clinical operations and from external financing to fund its activities. In order to maintain or adjust its capital structure, the Company may issue new shares or debt. At December 31, 2021 and 2020, the Company was not subject to any externally imposed capital requirements.
44
EMPOWER CLINICS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 30, 2021, 2020, and 2019
(in United States dollars, except where noted)
26. COMMITMENTS AND CONTINGENCIES
A summary of undiscounted liabilities and future operating commitments at December 31, 2021 are as follows:
Total
Within 1 year
2 - 5
years
Greater than
5 years
$
$
$
$
Maturity analysis of financial liabilities
Accounts payables and accrued liabilities
3,725,430
3,725,430
-
-
Loans payable
1,719,216
178,822
730,679
809,716
Notes payable
173,266
173,266
-
-
Convertible notes payable
205,406
205,406
-
-
Lease payments
3,270,692
601,561
2,027,711
641,420
Consideration payable
200,363
200,363
-
-
Total financial liabilities
9,294,373
5,084,848
2,758,390
1,451,136
The Company is involved in an ongoing litigation matter with the former President of Kai Medical Laboratory, LLC over the terms of the former President’s dismissal. Management and its legal counsel are unable to estimate the likelihood of an unfavourable outcome for the Company and management is unable to establish a sufficiently reliable estimate of a settlement amount, if any. As such, no provision has been made in these consolidated financial statements.
27. EVENTS AFTER THE REPORTING PERIOD
On January 6, 2022, pursuant to a private placement financing, the Company issued 5,500,000 units for C$0.20 per unit for gross proceeds of $863,355 (C$1,100,0000). Each unit was comprised of one common share and one common share purchase warrant. Each warrant entitles the holder to purchase one common share at a price of C$0.30 per share until January 6, 2024. Share issue costs were comprised of cash payments of $41,206 (C$52,500) and the issuance of 262,500 broker warrants.
In relation to the financing on January 6, 2022, the Company issued 1,900 convertible debenture units (“Debenture Unit”) at a price of C$1,000 per debenture unit for gross proceeds of $1,491,249 (C$1,900,000). Each Debenture Unit consists of a convertible debenture and 5,000 warrants. The convertible debenture matures on January 6, 2024 and bears interest at 6% per annum. Each warrant entitles the holder to acquire one common share at a price of C$0.30 per share until January 6, 2024. The debenture units are convertible at the conversion price of C$0.20. The Company incurred financing costs of $216,623 (C$276,000), of which $88,690 (C$113,000) was settled with the issuance of 565,000 units of the Company and issued 1,330,000 warrants to certain eligible finders. Each unit issued to the finders 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 C$0.30 per share until January 6, 2024.
On January 10, 2022, pursuant to the exercise of 250,000 stock options at an exercise price of C$0.10 per stock option, the Company issued 250,000 common shares for gross proceeds of $19,718 (C$25,000).
On January 20, 2022, the Company granted 200,000 stock options to a consultant. Each stock option is exercisable into one common share of the Company at an exercise price of C$0.295 per share until January 20, 2027. The stock options vest quarterly over 9 months.
On February 11, 2022, the Company granted 500,000 stock options to a director of the Company. Each stock option is exercisable into one common share of the Company at an exercise price of C$0.275 per share until February 11, 2027. The stock options vest one-twelfth (1/12th) of the total number of options at the end of each month for the duration of service on the Board of Directors.
On February 14, 2022, the Company granted 200,000 stock options to an employee. Each stock option is exercisable into one common share of the Company at an exercise price of C$0.27 per share until February 14, 2027. The stock options vest monthly over 36 months.
Pursuant to the non-binding agreement for the sale of Sun Valley on October 28, 2021, the Company completed the sale of Sun Valley on March 8, 2022 to the previous owners of Sun Valley. Consideration was amended from shares to cash of $181,664.
On March 23, 2022, pursuant to the exercise of 350,000 warrants at an exercise price of C$0.10 per warrant, the Company issued 350,000 common shares for gross proceeds of $27,843 (C$35,000).
45
EMPOWER CLINICS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 30, 2021, 2020, and 2019
(in United States dollars, except where noted)
27. EVENTS AFTER THE REPORTING PERIOD (continued)
On March 23, 2022, pursuant to the exercise of 963,637 warrants at an exercise price of C$0.16 per warrant, the Company issued 963,637 common shares for gross proceeds of $122,652 (C$154,182).
On March 25, 2022, the Company closed a private placement of 2,100 debenture units at a price of C$1,000 per debenture unit for gross proceeds of $1,679,731 (C$2,100,000). Each debenture unit consists of a convertible debenture and 5,000 warrants. Each convertible debenture matures on March 25, 2024 and bears interest at 6% per annum. Each warrant entitles the holder to acquire one common share at a price of C$0.30 per share until March 25, 2024. The debenture units are convertible at the conversion price of C$0.20. The Company incurred a cash finder’s fee of $157,575 (C$197,000), issued 210,000 common shares to finders and granted 1,890,000 finder’s warrants. Each warrants entitles the holder to acquire one common share at a share price of C$0.20 until March 25, 2024.
On March 25, 2022, pursuant to exercise of 925,000 warrants at an exercise price of C$0.10 per warrant, the Company issued 925,000 common shares for gross proceeds of $73,991 (C$92,500).
On May 16, 2022, pursuant to the conversion of 60 convertible debentures that were issued in the private placement on January 6, 2022, the Company issued 300,000 common shares and extinguished the converted convertible debentures.
On July 5, 2022, the Company granted 1,100,000 stock options to various employees and consultants. Each stock option is exercisable into one common share of the Company at an exercise price of C$0.08 per share until July 5, 2027, of which 800,000 stock options vest quarterly over 9 months, and 300,000 stock options vest monthly over 36 months.
Subsequent to December 31, 2021, 6,350,460 warrants and 840,000 options expired unexercised, and 475,000 options were forfeited upon termination of employment. The Company received approval to reinstate 1,250,000 of the warrants that expired (the “Reinstated Warrants”). The warrants were originally issued to the CEO of the Company, had an exercise price of C$0.10, and an original expiry date of April 16, 2022. The Reinstated Warrants have an exercise price of C$0.10 and an expiry date to be determined by the Exchange upon removal of a cease trade order imposed on the Company’s common shares.
46
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