EXHIBIT 99.1
Empower Clinics Inc.
Condensed Interim Consolidated Financial Statements
For the three and nine months ended September 30, 2022 and 2021
Unaudited - Expressed in US dollars
Notice of Disclosure of Non-Auditor Review of the Condensed Interim Consolidated Financial Statements for the three and nine months ended September 30, 2022 and 2021
Pursuant to subsection 4.3(3)(a) of National Instrument 51-102 - Continuous Disclosure Obligations, issued by the Canadian Securities Administrators, if an auditor has not performed a review of the interim financial statements, they must be accompanied by a notice indicating that the financial statements have not been reviewed by an auditor.
The accompanying unaudited condensed interim consolidated financial statements of Empower Clinics Inc. (the “Company”) for the interim periods ended September 30, 2022 and 2021, have been prepared in accordance with the International Accounting Standard 34 Interim Financial Reporting as issued by the International Accounting Standards Board, and are the responsibility of the Company’s management.
The Company’s independent auditors, MNP LLP, have not performed a review of these condensed interim consolidated financial statements.
November 28, 2022
EMPOWER CLINICS INC. CONDENSED INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION As at September 30, 2022 and December 31, 2021 (Unaudited - Expressed in US dollars) |
|
| Note |
|
| September 30, 2022 |
|
| December 31, 2021 |
| |||
|
|
|
|
| $ |
|
| $ |
| |||
ASSETS |
|
|
|
|
|
|
|
|
| |||
Current assets |
|
|
|
|
|
|
|
|
| |||
Cash |
|
|
|
|
| 469,712 |
|
|
| 866,170 |
| |
Restricted cash |
|
|
|
|
| - |
|
|
| 1,238,366 |
| |
Assets classified as held for sale |
|
| 5 |
|
|
| - |
|
|
| 97,314 |
|
Accounts receivable |
|
| 6 |
|
|
| 471,471 |
|
|
| 565,575 |
|
Inventory |
|
| 7 |
|
|
| 612,769 |
|
|
| 205,048 |
|
Prepaid expenses |
|
|
|
|
|
| 142,711 |
|
|
| 187,868 |
|
|
|
|
|
|
|
| 1,696,663 |
|
|
| 3,160,341 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment |
|
| 8 |
|
|
| 1,007,960 |
|
|
| 1,131,504 |
|
Other assets |
|
| 17(b),22 |
|
| 745,531 |
|
|
| 745,531 |
| |
Total assets |
|
|
|
|
|
| 3,450,154 |
|
|
| 5,037,376 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
|
| 10,22 |
|
|
| 3,576,581 |
|
|
| 3,725,430 |
|
Consideration payable |
|
| 4 |
|
|
| 180,803 |
|
|
| 200,363 |
|
Liabilities classified as held for sale |
|
| 5 |
|
|
| - |
|
|
| 61,520 |
|
Current portion of loans payable |
|
| 11 |
|
|
| 206,479 |
|
|
| 128,480 |
|
Notes payable |
|
| 12 |
|
|
| 180,596 |
|
|
| 173,266 |
|
Conversion feature |
|
| 13 |
|
|
| 89,639 |
|
|
| - |
|
Convertible note payable |
|
| 14 |
|
|
| - |
|
|
| 205,406 |
|
Current portion of lease liability |
|
| 15 |
|
|
| 387,303 |
|
|
| 387,100 |
|
Warrant liability |
|
| 16 |
|
|
| 71,501 |
|
|
| 1,504,703 |
|
Subscription deposits |
|
| 17(b) |
|
| - |
|
|
| 1,316,825 |
| |
|
|
|
|
|
|
| 4,692,902 |
|
|
| 7,703,093 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans payable |
|
| 11 |
|
|
| 870,804 |
|
|
| 1,053,983 |
|
Convertible debentures |
|
| 13 |
|
|
| 1,018,225 |
|
|
| - |
|
Lease liability |
|
| 15 |
|
|
| 2,202,893 |
|
|
| 2,650,367 |
|
Deferred revenue |
|
|
|
|
|
| 17,612 |
|
|
| 22,874 |
|
Total liabilities |
|
|
|
|
|
| 8,802,436 |
|
|
| 11,430,317 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS’ DEFICIENCY |
|
|
|
|
|
|
|
|
|
|
|
|
Issued capital |
|
| 17(b) |
|
| 53,515,212 |
|
|
| 52,875,084 |
| |
Shares to be issued |
|
|
|
|
|
| 60,287 |
|
|
| 60,287 |
|
Contributed surplus |
|
|
|
|
|
| 3,159,395 |
|
|
| 2,908,315 |
|
Warrant reserve |
|
|
|
|
|
| 586,384 |
|
|
| 58,380 |
|
Accumulated other comprehensive income |
|
|
|
|
|
| 117,606 |
|
|
| 39,938 |
|
Deficit |
|
|
|
|
|
| (62,791,166 | ) |
|
| (62,334,945 | ) |
Total shareholders’ deficiency |
|
|
|
|
|
| (5,352,282 | ) |
|
| (6,392,941 | ) |
Total liabilities and shareholders’ deficiency |
|
|
|
|
|
| 3,450,154 |
|
|
| 5,037,376 |
|
Nature of operations and going concern (Note 1)
Commitments and contingencies (Note 24)
Events after the reporting period (Note 25)
Approved and authorized for issue on behalf of the Board of Directors:
/s/ “Steven McAuley” | Director | /s/ “Andreis Bunkse” | Director |
The accompanying notes are an integral part of these condensed interim consolidated financial statements
1 |
EMPOWER CLINICS INC. CONDENSED INTERIM CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS For the three and nine months ended September 30, 2022 and 2021 (Unaudited - Expressed in US dollars, except number of shares outstanding) |
|
|
|
| Three months ended September 30, |
|
| Nine months ended September 30, |
| ||||||||||||
|
| Note |
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| |||||
|
|
|
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||
Revenue |
|
|
|
|
| 1,573,809 |
|
|
| 405,707 |
|
|
| 4,234,739 |
|
|
| 3,226,335 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Direct expenses excluding depreciation and amortization |
|
|
|
|
| 642,187 |
|
|
| 18,377 |
|
|
| 2,333,834 |
|
|
| 1,592,338 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Gross margin |
|
|
|
|
| 931,622 |
|
|
| 387,330 |
|
|
| 1,900,905 |
|
|
| 1,633,997 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Operating expenses |
|
| 18,22 |
|
|
| 1,317,585 |
|
|
| 695,005 |
|
|
| 4,190,502 |
|
|
| 2,321,957 |
|
Legal and professional fees (recovery) |
|
|
|
|
|
| 419,671 |
|
|
| (104,000 | ) |
|
| 1,054,898 |
|
|
| 1,134,318 |
|
Depreciation and amortization expense |
|
| 8 |
|
|
| 55,115 |
|
|
| 162,103 |
|
|
| 163,458 |
|
|
| 416,329 |
|
Share-based payments |
|
| 17(c),22 |
|
| 45,566 |
|
|
| 236,201 |
|
|
| 251,491 |
|
|
| 841,759 |
| |
Loss from operations |
|
|
|
|
|
| (906,315 | ) |
|
| (601,979 | ) |
|
| (3,759,444 | ) |
|
| (3,080,366 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses (income) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses |
|
|
|
|
|
| 15,301 |
|
|
| - |
|
|
| 34,593 |
|
|
| - |
|
Accretion expense |
| 11-13 |
|
|
| 167,911 |
|
|
| 8,151 |
|
|
| 357,216 |
|
|
| 18,761 |
| |
Interest expense |
| 11-15 |
|
|
| 101,951 |
|
|
| 55,105 |
|
|
| 293,892 |
|
|
| 101,355 |
| |
Gain on termination of leases |
|
|
|
|
|
| - |
|
|
| (2,831 | ) |
|
| - |
|
|
| (3,983 | ) |
(Gain) loss on change in fair value of warrant liability |
|
| 16 |
|
|
| (354,582 | ) |
|
| (3,121,006 | ) |
|
| (3,115,803 | ) |
|
| 19,721,807 |
|
Gain on change in fair value of conversion feature |
|
| 13 |
|
|
| (334,822 | ) |
|
| - |
|
|
| (1,105,876 | ) |
|
| - |
|
Impairment of property and equipment |
|
| 8 |
|
|
| - |
|
|
| 1,297,625 |
|
|
| 20,432 |
|
|
| 1,297,625 |
|
Impairment of intangible assets |
|
| 9 |
|
|
| - |
|
|
| 354,550 |
|
|
| - |
|
|
| 354,550 |
|
Impairment of goodwill |
|
| 9 |
|
|
| - |
|
|
| 2,690,198 |
|
|
| - |
|
|
| 2,690,198 |
|
Financing expense |
|
| 13,17(b) |
|
| - |
|
|
| - |
|
|
| 700,542 |
|
|
| - |
| |
Other income, net |
|
|
|
|
|
| (45,008 | ) |
|
| (172,112 | ) |
|
| (354,304 | ) |
|
| (208,548 | ) |
|
|
|
|
|
|
| (449,249 | ) |
|
| 1,109,680 |
|
|
| (3,169,308 | ) |
|
| 23,971,765 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations |
|
|
|
|
|
| (457,066 | ) |
|
| (1,711,659 | ) |
|
| (590,136 | ) |
|
| (27,052,131 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income from discontinued operations |
|
|
|
|
|
| - |
|
|
| (60,527 | ) |
|
| 133,915 |
|
|
| (512,931 | ) |
Net loss for the period |
|
|
|
|
|
| (457,066 | ) |
|
| (1,772,186 | ) |
|
| (456,221 | ) |
|
| (27,565,062 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
|
|
|
|
| 9,053 |
|
|
| (3,251 | ) |
|
| 77,668 |
|
|
| (3,163 | ) |
Comprehensive loss for the period |
|
|
|
|
|
| (448,013 | ) |
|
| (1,775,437 | ) |
|
| (378,553 | ) |
|
| (27,568,225 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share from continuing operations, basic and diluted |
|
|
|
|
|
| (0.00 | ) |
|
| (0.01 | ) |
|
| (0.00 | ) |
|
| (0.08 | ) |
Income (loss) per share from discontinued operations, basic and diluted |
|
|
|
|
|
| 0.00 |
|
|
| (0.00 | ) |
|
| 0.00 |
|
|
| (0.00 | ) |
Loss per share, basic and diluted |
|
|
|
|
|
| (0.00 | ) |
|
| (0.01 | ) |
|
| (0.00 | ) |
|
| (0.09 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
|
|
| 348,508,658 |
|
|
| 336,581,932 |
|
|
| 347,464,708 |
|
|
| 324,310,350 |
|
Diluted |
|
|
|
|
|
| 348,508,658 |
|
|
| 336,581,932 |
|
|
| 347,464,708 |
|
|
| 324,310,350 |
|
The accompanying notes are an integral part of these condensed interim consolidated financial statements
2 |
EMPOWER CLINICS INC. CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS For the nine months ended September 30, 2022 and 2021 (Unaudited - Expressed in US dollars) |
|
| Nine months ended September 30, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
|
| $ |
|
| $ |
| ||
Operating activities |
|
|
|
|
|
| ||
Net loss from continuing operations |
|
| (590,136 | ) |
|
| (27,052,131 | ) |
Items not involving cash: |
|
|
|
|
|
|
|
|
Depreciation and amortization expense |
|
| 163,458 |
|
|
| 416,329 |
|
Share-based payments |
|
| 251,491 |
|
|
| 841,758 |
|
Provision for credit losses |
|
| 34,593 |
|
|
| - |
|
Accretion expense |
|
| 357,216 |
|
|
| 18,761 |
|
Interest expense |
|
| 293,892 |
|
|
| 101,355 |
|
Gain on termination of leases |
|
| - |
|
|
| (3,983 | ) |
(Gain) loss on change in fair value of warrant liability |
|
| (3,115,803 | ) |
|
| 19,721,807 |
|
Gain on change in fair value of conversion feature |
|
| (1,105,876 | ) |
|
| - |
|
Vesting of escrow shares |
|
| 87,020 |
|
|
| - |
|
Impairment of property and equipment |
|
| 20,432 |
|
|
| 1,297,625 |
|
Impairment of intangible assets |
|
| - |
|
|
| 354,550 |
|
Impairment of goodwill |
|
| - |
|
|
| 2,690,198 |
|
Financing expense |
|
| 700,542 |
|
|
| - |
|
Other income |
|
| (327,926 | ) |
|
| (71,494 | ) |
Net changes in non-cash working capital items |
|
| (483,161 | ) |
|
| (1,173,056 | ) |
Net cash used in operating activities of continuing operations |
|
| (3,714,258 | ) |
|
| (2,858,281 | ) |
Net cash used in operating activities of discontinued operations |
|
| (7,482 | ) |
|
| (427,632 | ) |
|
|
|
|
|
|
|
|
|
Investing activities |
|
|
|
|
|
|
|
|
Investment in MediSure, net |
|
| - |
|
|
| (794,803 | ) |
Purchase of property and equipment |
|
| (53,723 | ) |
|
| (1,611,379 | ) |
Proceeds from disposal of Sun Valley |
|
| 181,664 |
|
|
| - |
|
Net cash provided by (used in) investing activities of continuing operations |
|
| 127,941 |
|
|
| (2,406,182 | ) |
|
|
|
|
|
|
|
|
|
Financing activities |
|
|
|
|
|
|
|
|
Proceeds from issue of convertible debentures |
|
| 3,170,980 |
|
|
| - |
|
Proceeds from issue of units |
|
| 745,625 |
|
|
| - |
|
Transaction costs in private placements |
|
| (209,133 | ) |
|
| - |
|
Proceeds from stock options exercised |
|
| 19,656 |
|
|
| 211,535 |
|
Proceeds from warrants exercised |
|
| 224,479 |
|
|
| 4,433,443 |
|
Advance of loans payable |
|
| - |
|
|
| 49,942 |
|
Repayment of loans payable |
|
| (96,836 | ) |
|
| (664,050 | ) |
Repayment of notes payable |
|
| (198,851 | ) |
|
| (437,985 | ) |
Repayment of consideration payable |
|
| (19,560 | ) |
|
| - |
|
Lease payments |
|
| (279,962 | ) |
|
| (122,963 | ) |
Interest payments |
|
| (236,725 | ) |
|
| (453,562 | ) |
Net cash provided by financing activities of continuing operations |
|
| 3,119,673 |
|
|
| 3,016,360 |
|
Net cash used in financing activities of discontinued operations |
|
| - |
|
|
| (50,339 | ) |
|
|
|
|
|
|
|
|
|
Effect of foreign exchange on cash |
|
| 77,668 |
|
|
| (3,163 | ) |
Net change in cash |
|
| (396,458 | ) |
|
| (2,729,237 | ) |
Cash, beginning of the period |
|
| 866,170 |
|
|
| 4,889,824 |
|
Cash, end of the period |
|
| 469,712 |
|
|
| 2,160,587 |
|
Supplemental disclosure with respect to cash flows (Note 20)
The accompanying notes are an integral part of these condensed interim consolidated financial statements
3 |
EMPOWER CLINICS INC. CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ DEFICIENCY For the nine months ended September 30, 2022 and 2021 (Unaudited - Expressed in US dollars, except share numbers) |
|
| Number of common shares |
|
| Issued capital |
|
| Share subscriptions receivable |
|
| Shares to be issued |
|
| Contributed surplus |
|
| Warrant reserve |
|
| Accumulated other comprehensive income |
|
| 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 |
|
| - |
|
|
| 144,454 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 144,454 |
|
Shares issued for services |
|
| 1,275,676 |
|
|
| 86,812 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 86,812 |
|
Shares issued for acquisition of MediSure |
|
| 4,582,483 |
|
|
| 1,726,141 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1,726,141 |
|
Exercise of options |
|
| 3,589,666 |
|
|
| 308,469 |
|
|
| - |
|
|
| - |
|
|
| (96,934 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 211,535 |
|
Exercise of warrants presented within warrant liability |
|
| 42,725,547 |
|
|
| 29,062,433 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 29,062,433 |
|
Exercise of warrants presented within warrant reserve |
|
| 2,180,000 |
|
|
| 71,933 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (70,838 | ) |
|
| - |
|
|
| - |
|
|
| 1,095 |
|
Share-based payments |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 697,304 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 697,304 |
|
Reclassification of expired warrants |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 9,800 |
|
|
| (9,800 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
Foreign currency translation adjustment |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (3,163 | ) |
|
| - |
|
|
| (3,163 | ) |
Net loss for the period |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (27,565,062 | ) |
|
| (27,565,062 | ) |
Balance, September 30, 2021 |
|
| 338,165,275 |
|
|
| 54,369,808 |
|
|
| (745,531 | ) |
|
| 60,287 |
|
|
| 2,833,439 |
|
|
| - |
|
|
| (3,163 | ) |
|
| (57,643,692 | ) |
|
| (1,128,852 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 | ) |
Vesting of escrow shares |
|
| - |
|
|
| 87,020 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 87,020 |
|
Shares issued in private placement |
|
| 5,500,000 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Shares issued for services |
|
| 775,000 |
|
|
| 95,091 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 95,091 |
|
Issuance of warrants presented within warrant reserve |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 528,004 |
|
|
| - |
|
|
| - |
|
|
| 528,004 |
|
Exercise of options |
|
| 250,000 |
|
|
| 20,067 |
|
|
| - |
|
|
| - |
|
|
| (411 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 19,656 |
|
Exercise of warrants presented within warrant liability |
|
| 2,238,637 |
|
|
| 421,108 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 421,108 |
|
Shares issued on conversion of convertible debentures |
|
| 300,000 |
|
|
| 16,842 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 16,842 |
|
Share-based payments |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 251,491 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 251,491 |
|
Foreign currency translation adjustment |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 77,668 |
|
|
| - |
|
|
| 77,668 |
|
Net loss for the period |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (456,221 | ) |
|
| (456,221 | ) |
Balance, September 30, 2022 |
|
| 348,508,658 |
|
|
| 53,515,212 |
|
|
| - |
|
|
| 60,287 |
|
|
| 3,159,395 |
|
|
| 586,384 |
|
|
| 117,606 |
|
|
| (62,791,166 | ) |
|
| (5,352,282 | ) |
The accompanying notes are an integral part of these condensed interim consolidated financial statements
4 |
EMPOWER CLINICS INC. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS For the three and nine months ended September 30, 2022 and 2021 (Unaudited - Expressed in US 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 “EPW”.
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 sale of medical devices.
Going concern
These condensed interim 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 September 30, 2022, the Company had a working capital deficiency of $2,996,239 (December 31, 2021 - $4,542,752) and an accumulated deficit of $62,791,166 (December 31, 2021 - $62,334,945). These circumstances present a material uncertainty that casts significant doubt over the Company’s ability to continue as a going concern.
The Company anticipates that it will 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 that 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 condensed interim 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 condensed interim consolidated financial statements were approved by the Company’s Board of Directors and authorized for issue on November 28, 2022.
These condensed interim consolidated financial statements have been prepared in accordance with International Accounting Standard 34 Interim Financial Reporting, using accounting policies consistent with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and interpretations of the International Financial Reporting Interpretations Committee (“IFRIC”). As such, these condensed interim consolidated financial statements do not contain all the disclosures required by IFRS for annual financial statements and should be read in conjunction with the Company’s audited annual financial statements for the years ended December 31, 2021, 2020 and 2019.
b) Basis of presentation
These condensed interim consolidated financial statements have been prepared using the historical cost basis, except for certain financial assets and liabilities which are measured at fair value, as specified by IFRS for each type of asset, liability, income and expense as set out in the accounting policies below.
c) Functional and presentation currency
These condensed interim consolidated financial statements are presented in United States dollars (“USD”), except as otherwise noted, which is the functional currency of the Company. The functional currency of each subsidiary is listed below. References to C$ or CAD are to Canadian dollars.
5 |
EMPOWER CLINICS INC. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS For the three and nine months ended September 30, 2022 and 2021 (Unaudited - Expressed in US dollars, except where noted) |
2. BASIS OF PREPARATION (Continued)
d) Reclassification of prior year amounts
The Company has reclassified certain items on the condensed interim consolidated statements of cash flows, and the condensed interim consolidated statements of changes in shareholders’ deficiency to conform with current period presentation.
Reclassification in the condensed interim consolidated statement of cash flows for the nine months ended September 30, 2021 is as follows:
Former classification |
| Reclassified to |
|
| Amount reclassified |
|
|
|
|
|
| $ |
|
Other income |
| Gain on termination of leases |
|
| 15,219 |
|
Proceeds from agent warrants exercised |
| Proceeds from warrants exercised |
|
| 48,346 |
|
Proceeds from agent compensation warrants exercised |
| Proceeds from warrants exercised |
|
| 69,510 |
|
Repayment of loans payable |
| Interest payments |
|
| 301,921 |
|
Repayment of notes payable |
| Interest payments |
|
| 115,339 |
|
Lease payments |
| Interest payments |
|
| 36,302 |
|
Lease payments |
| Net cash used in financing activities of discontinued operations |
|
| 50,339 |
|
Reclassification in the condensed interim consolidated statement of changes in shareholders’ deficiency for the nine months ended September 30, 2021 includes the reclassification of agent share purchase warrants and agent compensation warrants to warrants presented within warrant reserve. As a result, the effects from exercise of agent share purchase warrants and exercise of agent compensation warrants are now presented under exercise of warrants classified within warrant reserve.
e) Basis of consolidation
These condensed interim 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 consolidated from the date control commences until the date control ceases.
6 |
EMPOWER CLINICS INC. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS For the three and nine months ended September 30, 2022 and 2021 (Unaudited - Expressed in US dollars, except where noted) |
2. BASIS OF PREPARATION (Continued)
These condensed interim 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. (4) |
| 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 |
| Disposed |
Sun Valley Health Franchising, LLC (8) |
| USA |
| 100% |
| USD |
| Disposed |
Sun Valley Health Mesa, LLC (8) |
| USA |
| 100% |
| USD |
| Disposed |
Sun Valley Health Tucson, LLC (8) |
| USA |
| 100% |
| USD |
| Disposed |
Sun Valley Health West, LLC (8) |
| USA |
| 100% |
| USD |
| Disposed |
Sun Valley Health, LLC (8) |
| USA |
| 100% |
| USD |
| Disposed |
Sun Valley Heath Holdings, LLC (8) |
| USA |
| 100% |
| USD |
| Disposed |
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. |
(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. |
(5) | Medi + Sure Canada Inc. was acquired on July 30, 2021 (Note 4). |
(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) | These entities (together “Sun Valley”) were acquired on April 30, 2019 and results were consolidated until disposal on March 8, 2022. |
(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. |
3. SIGNIFICANT ACCOUNTING POLICIES
The accounting policies applied in the preparation of these condensed interim consolidated financial statements are consistent with those applied and disclosed in Note 3 to the annual consolidated financial statements for the years ended December 31, 2021, 2020 and 2019.
4. 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 matured on July 30, 2022 and is now due on demand. 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.
7 |
EMPOWER CLINICS INC. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS For the three and nine months ended September 30, 2022 and 2021 (Unaudited - Expressed in US dollars, except where noted) |
4. ACQUISITION OF MEDISURE (Continued)
The following table summarizes the 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 |
|
The acquired accounts receivable contained $3,338 of GST receivable and $119,961 of trades receivable. Acquired property and equipment was comprised of right-of-use assets with a fair value of $124,640 office equipment with a fair value of $5,357. 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.
The shareholder loan balance at acquisition consisted of a vehicle loan with a payout balance of $10,715 (C$13,407).
The goodwill generated as a result of this acquisition related to other intangible assets that did not qualify for separate recognition. During the Company’s annual recoverability test on December 31, 2021, the goodwill was found to be fully impaired and was written off.
During the nine months ended September 30, 2022, the Company repaid $19,560 (C$25,010) of the consideration payable.
5. DISCONTINUED OPERATIONS OF SUN VALLEY
On March 8, 2022, the Company completed the sale of Sun Valley for total cash consideration of $181,664. Discontinued operations are comprised of Sun Valley’s operations until the date of disposal. Sun Valley’s results of operations, and details of the sale are set out below.
8 |
EMPOWER CLINICS INC. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS For the three and nine months ended September 30, 2022 and 2021 (Unaudited - Expressed in US dollars, except where noted) |
5. DISCONTINUED OPERATIONS OF SUN VALLEY (Continued)
Results of discontinued operations for the three and nine months ended September 30, 2022 and 2021:
|
| Three months ended September 30, |
|
| Nine months ended September 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Revenue |
|
| - |
|
|
| 71,915 |
|
|
| 73,042 |
|
|
| 193,583 |
|
Direct expenses excluding depreciation and amortization |
|
| - |
|
|
| 2,415 |
|
|
| 2,007 |
|
|
| 6,201 |
|
Gross margin |
|
| - |
|
|
| 69,500 |
|
|
| 71,035 |
|
|
| 187,382 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clinic operating expenses |
|
| - |
|
|
| 135,389 |
|
|
| 100,877 |
|
|
| 610,834 |
|
Provision for credit losses |
|
| - |
|
|
| - |
|
|
| 12,000 |
|
|
| - |
|
Legal and professional fees (recovery) |
|
| - |
|
|
| (10,474 | ) |
|
| 276 |
|
|
| 4,180 |
|
Depreciation and amortization expense |
|
| - |
|
|
| 7,318 |
|
|
| - |
|
|
| 67,432 |
|
Interest expense (recovery) |
|
| - |
|
|
| (2,206 | ) |
|
| - |
|
|
| 3,610 |
|
Loss (gain) on termination of leases |
|
| - |
|
|
| - |
|
|
| 21,329 |
|
|
| (4,471 | ) |
Impairment of property and equipment |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 18,728 |
|
Other income, net |
|
| - |
|
|
| - |
|
|
| (12,675 | ) |
|
| - |
|
Loss from discontinued operations |
|
| - |
|
|
| 60,527 |
|
|
| 50,772 |
|
|
| 512,931 |
|
Gain on sale of discontinued operations |
|
| - |
|
|
| - |
|
|
| 184,687 |
|
|
| - |
|
Net (loss) income from discontinued operations |
|
| - |
|
|
| (60,527 | ) |
|
| 133,915 |
|
|
| (512,931 | ) |
Details of the sale of discontinued operations are presented as follows:
|
| March 8, 2022 |
| |
|
| $ |
| |
Assets |
|
|
| |
Property and equipment |
|
| 23,139 |
|
|
|
|
|
|
Liabilities |
|
|
|
|
Deferred revenue |
|
| 1,694 |
|
Accounts payable and accrued liabilities |
|
| 23,509 |
|
Bank indebtedness |
|
| 959 |
|
Net liabilities |
|
| (3,023 | ) |
Cash consideration received |
|
| 181,664 |
|
Gain on sale of discontinued operations |
|
| 184,687 |
|
6. ACCOUNTS RECEIVABLE
The Company had the following in accounts receivable at September 30, 2022 and December 31, 2021:
|
| September 30, 2022 |
|
| December 31, 2021 |
| ||
|
| $ |
|
| $ |
| ||
Trade receivables, net |
|
| 269,618 |
|
|
| 333,002 |
|
Lease receivables, net |
|
| 56,059 |
|
|
| - |
|
GST receivable |
|
| 110,534 |
|
|
| 193,853 |
|
Other receivables |
|
| 35,260 |
|
|
| 38,720 |
|
|
|
| 471,471 |
|
|
| 565,575 |
|
The Company estimates a provision for lifetime expected credit losses for receivables aged greater than 90 days. As at September 30, 2022, trade receivables are presented net of a provision for lifetime expected credit losses of $129,646 (December 31, 2021 - 121,479) and lease receivables are presented net of a provision for lifetime expected credit losses of $24,732 (December 31, 2021 - $nil).
9 |
EMPOWER CLINICS INC. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS For the three and nine months ended September 30, 2022 and 2021 (Unaudited - Expressed in US dollars, except where noted) |
7. INVENTORY
At September 30, 2022 and December 31, 2021, inventory was comprised of the following:
|
| September 30, 2022 |
|
| December 31, 2021 |
| ||
|
| $ |
|
| $ |
| ||
Diagnostics, COVID-19 testing supplies and reagents |
|
| 442,647 |
|
|
| 325 |
|
Diabetes diagnostic products |
|
| 170,122 |
|
|
| 204,723 |
|
|
|
| 612,769 |
|
|
| 205,048 |
|
8. PROPERTY AND EQUIPMENT
The following table presents a continuity of property and equipment for the nine months ended September 30, 2022 and the year ended December 31, 2021:
|
| Right-of-use assets |
|
| Furniture and equipment |
|
| Leasehold improvements |
|
| Testing equipment |
|
| Asset under Construction |
|
| Total |
| ||||||
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||
Cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
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 |
|
Additions |
|
| - |
|
|
| 13,435 |
|
|
| 20,884 |
|
|
| 45,550 |
|
|
| - |
|
|
| 79,813 |
|
Impairment |
|
| - |
|
|
| - |
|
|
| (20,884 | ) |
|
| - |
|
|
| - |
|
|
| (20,884 | ) |
Foreign exchange loss |
|
| - |
|
|
| (16,779 | ) |
|
| - |
|
|
| (6,761 | ) |
|
| - |
|
|
| (23,484 | ) |
Balance, September 30, 2022 |
|
| - |
|
|
| 428,230 |
|
|
| - |
|
|
| 1,009,581 |
|
|
| - |
|
|
| 1,437,811 |
|
Accumulated depreciation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
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 | ) |
Depreciation |
|
| - |
|
|
| (71,792 | ) |
|
| (452 | ) |
|
| (91,214 | ) |
|
| - |
|
|
| (163,458 | ) |
Impairment |
|
| - |
|
|
| - |
|
|
| 452 |
|
|
| - |
|
|
| - |
|
|
| 452 |
|
Foreign exchange gain |
|
| - |
|
|
| 3,665 |
|
|
| - |
|
|
| 352 |
|
|
| - |
|
|
| 4,017 |
|
Balance, September 30, 2022 |
|
| - |
|
|
| (193,389 | ) |
|
| - |
|
|
| (236,462 | ) |
|
| - |
|
|
| (429,851 | ) |
Carrying amount |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Balance, December 31, 2021 |
|
| - |
|
|
| 306,312 |
|
|
| - |
|
|
| 825,192 |
|
|
| - |
|
|
| 1,131,504 |
|
Balance, September 30, 2022 |
|
| - |
|
|
| 234,841 |
|
|
| - |
|
|
| 773,119 |
|
|
| - |
|
|
| 1,007,960 |
|
Events during the nine months ended September 30, 2022:
Additions to property and equipment primarily relate to purchases of assets and the costs of renovating leased clinics in Medi-Collective.
As a result of identification of indicators of impairment, leasehold improvements were found to have a carrying value greater than their recoverable value and as such, net book value of $20,432 was impaired (2021 - $1,297,625).
10 |
EMPOWER CLINICS INC. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS For the three and nine months ended September 30, 2022 and 2021 (Unaudited - Expressed in US dollars, except where noted) |
8. PROPERTY AND EQUIPMENT (Continued)
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 for one of the Company’s clinics was modified which resulted in a substantial modification of the cash flows associated with the lease. In accordance with IFRS 16 Leases, 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 cash-generating unit (“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 4). 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.
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, the Company transferred right of use assets with 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.
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, 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.
11 |
EMPOWER CLINICS INC. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS For the three and nine months ended September 30, 2022 and 2021 (Unaudited - Expressed in US dollars, except where noted) |
9. INTANGIBLE ASSETS AND GOODWILL
Intangible assets
The following table presents a continuity of intangible assets for the nine months ended September 30, 2022 and the year ended December 31, 2021:
|
| Patient records |
|
| Customer relationships |
|
| Brands, trademarks, licenses and domain names |
|
| Management software |
|
| Total |
| |||||
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||
Cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
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, September 30, 2022 and December 31, 2021 |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Accumulated amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, September 30, 2022 and December 31, 2021 |
|
| - |
|
|
| - |
|
|
| - |
| �� |
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying amount |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2022 and 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 4) 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 were found to exceed the recoverable amounts 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.
Goodwill
A continuity of goodwill for the nine months ended September 30, 2022 and the year ended December 31, 2021 is as follows:
|
|
| $ |
|
Balance, December 31, 2020 |
|
| 2,082,146 |
|
Acquisition of MediSure |
|
| 2,379,461 |
|
Impairment |
|
| (4,461,607 | ) |
Balance, December 31, 2021 and September 30, 2022 |
|
| - |
|
Events during 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.
12 |
EMPOWER CLINICS INC. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS For the three and nine months ended September 30, 2022 and 2021 (Unaudited - Expressed in US dollars, except where noted) |
9. INTANGIBLE ASSETS AND GOODWILL (Continued)
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 (Note 4). 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.
10. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
The Company had the following in accounts payable and accrued liabilities as at September 30, 2022 and December 31, 2021:
|
| September 30, 2022 |
|
| December 31, 2021 |
| ||
|
| $ |
|
| $ |
| ||
Trade payables |
|
| 2,065,897 |
|
|
| 1,896,895 |
|
Accrued liabilities |
|
| 121,766 |
|
|
| 423,475 |
|
Accrued payroll liabilities |
|
| 590,028 |
|
|
| 618,378 |
|
Accrued tax liabilities |
|
| 798,890 |
|
|
| 786,682 |
|
|
|
| 3,576,581 |
|
|
| 3,725,430 |
|
11. LOANS PAYABLE
A continuity of loans payable for the period of nine months ended September 30, 2022 and the year end December 31, 2021 is as follows:
|
| September 30, 2022 |
|
| December 31, 2021 |
| ||
|
| $ |
|
| $ |
| ||
Balance, beginning of the period |
|
| 1,182,463 |
|
|
| 2,132,227 |
|
PPP loan addition |
|
| - |
|
|
| 86,378 |
|
Accretion expense |
|
| 7,409 |
|
|
| 33,324 |
|
Interest expense |
|
| 43,352 |
|
|
| 63,676 |
|
Repayment |
|
| (134,998 | ) |
|
| (1,008,721 | ) |
Gain on loan forgiveness |
|
| - |
|
|
| (124,047 | ) |
Gain on remeasurement |
|
| (14,984 | ) |
|
| - |
|
Unrealized foreign exchange gain |
|
| (5,959 | ) |
|
| (374 | ) |
Balance, end of the period |
|
| 1,077,283 |
|
|
| 1,182,463 |
|
Less: Current portion |
|
| 206,479 |
|
|
| 128,480 |
|
Non-current portion |
|
| 870,804 |
|
|
| 1,053,983 |
|
During the three and nine months ended September 30, 2022, the Company made scheduled payments on loans payable of $45,792 and $134,998, respectively (2021 - $44,706 and $965,971, respectively). Of the total amount paid during the three months and nine months ended September 30, 2022, $11,686 and $38,162, respectively, (2021 - $14,070 and $301,921, respectively) were for interest payments.
13 |
EMPOWER CLINICS INC. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS For the three and nine months ended September 30, 2022 and 2021 (Unaudited - Expressed in US dollars, except where noted) |
11. LOANS PAYABLE (Continued)
CEBA loans
As at September 30, 2022, the Company and its subsidiaries have three CEBA loans with principal amounts of $29,182 (C$40,000), $43,773 (C$60,000) and $29,182 (C$40,000), respectively. All three loans mature on December 31, 2025. The loans are interest free until December 31, 2023, at which time they accrue interest at 5% per annum. The loans have a possibility of forgiveness of 33% of their principal amounts if they are repaid on or before December 31, 2023. These loans currently do not incur any interest expense. For the three and nine months ended September 30, 2022, accretion expense was $386 and $1,168 (2021 - $386 and $2,725), respectively.
Kai Medical Secured Loans
During the year ended December 31, 2021, a loan held in Kai Medical with carrying value of $87,611 was forgiven by the U.S Small Business Administration (the “SBA”). For the three and nine months ended September 30, 2021, accretion expense recorded on this loan was $5,614 and $11,566, respectively, and interest expense was $146 and $582, respectively.
As at September 30 2022, the Company has three outstanding secured loans through Kai Medical as follows:
· | The Company has a bank loan with principal amount of $1,585,000. The loan has floating interest rate that equals Wall Street Journal Prime rate plus 2.00% per annum, payable each month, and matures on June 7, 2028. This loan does not incur any accretion expense. During the three and nine months ended September 30, 2022, interest expense was $11,685 and $38,162 (2021 - $27,004 and $43,628), respectively. |
|
|
· | The Company has a loan from the SBA with the principal amount of $150,000 and interest rate of 3.75% per annum. The loan matures on June 24, 2050. On March 15, 2022, the loan was announced by the SBA to have payment deferment extension. As a result of the change, the Company recognized $14,984 as gain on remeasurement of the loan’s carrying value and included this in clinic operating expense. During the three and nine months ended September 30, 2022, accretion expense was $551 and $1,659 (2021 - $824 and $2,283), respectively, and interest expense recorded on the loan was $1,526 and $4,536 (2021 - $1,470 and $4,369), respectively. |
|
|
· | The Company has a Payback Protection Program (“PPP”) loan from the SBA with principal amount of $86,378 and interest rate of 1.00% per annum. The loan matures on March 1, 2026. For the three and nine months ended September 30, 2022, accretion expense was $1,554 and $4,582 (2021 - $1,327 and $2,187), respectively, and interest expense recorded on the loan was $223 and $654 (2021 - $216 and $361), respectively. |
12. NOTES PAYABLE
A continuity of notes payable for the periods of the nine months ended September 30, 2022 and the year end December 31, 2021 is as follows:
|
| September 30, 2022 |
|
| December 31, 2021 |
| ||
|
| $ |
|
| $ |
| ||
Balance, beginning of period |
|
| 173,266 |
|
|
| 708,361 |
|
Interest expense |
|
| 7,330 |
|
|
| 14,443 |
|
Repayment |
|
| - |
|
|
| (553,324 | ) |
Realized foreign exchange loss |
|
| - |
|
|
| 3,786 |
|
Balance, end of the period |
|
| 180,596 |
|
|
| 173,266 |
|
Less: Current portion |
|
| 180,596 |
|
|
| 173,266 |
|
Non-current portion |
|
| - |
|
|
| - |
|
During the year ended December 31, 2021, the Company repaid a promissory note with the principal of $437,985 and its accrued interest of $94,636. For the three and nine months ended September 30, 2021, interest expense on this loan was $nil and $4,643, respectively. During the year ended December 31, 2021, the Company also repaid $20,703 for the accrued interest from a separate promissory note.
14 |
EMPOWER CLINICS INC. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS For the three and nine months ended September 30, 2022 and 2021 (Unaudited - Expressed in US dollars, except where noted) |
12. NOTES PAYABLE (Continued)
As at September 30, 2022 and December 31, 2021, the Company had one remaining note payable with a principal balance of $140,000. Interest accrues at a rate of 7% per annum and is repayable on demand. During the three and nine months ended September 30, 2022, interest expense on notes payable was $2,470 and $7,330 (2021 - $3,625 and $8,485), respectively. As at September 30, 2022, the notes payable includes accrued interest of $40,596 (December 31, 2021 - $33,266).
13. CONVERTIBLE DEBENTURES
The continuity of convertible debentures for the nine months ended September 30, 2022 is as follows:
|
|
| $ |
|
Balance, December 31, 2021 |
|
| - |
|
Additions from private placements, net of transaction costs |
|
| 703,199 |
|
Interest expense |
|
| 114,583 |
|
Accretion expense |
|
| 349,807 |
|
Repayment |
|
| (61,653 | ) |
Reclassification to share capital |
|
| (9,719 | ) |
Unrealized foreign exchange gain |
|
| (77,992 | ) |
Balance, September 30, 2022 |
|
| 1,018,225 |
|
Less: Current portion |
|
| - |
|
Non-current portion |
|
| 1,018,225 |
|
The continuity of the conversion feature associated with convertible debentures for the nine months ended September 30, 2022 is as follows:
|
|
| $ |
|
Balance, December 31, 2021 |
|
| - |
|
Amount allocated to the conversion features |
|
| 1,202,638 |
|
Gain on change in fair value of conversion features |
|
| (1,105,876 | ) |
Reclassification to share capital |
|
| (7,123 | ) |
Balance, September 30, 2022 |
|
| 89,639 |
|
Less: Current portion |
|
| 89,639 |
|
Non-current portion |
|
| - |
|
On January 6, 2022, the Company closed a private placement financing, in which the Company issued 1,900 convertible debenture units at a price of C$1,000 per convertible debenture unit for gross proceeds of $1,491,249 (C$1,900,000). Each convertible debenture unit consists of a convertible debenture and 5,000 warrants. Each warrant entitles the holder to acquire one common share at a price of C$0.30 per share until January 6, 2024. The attached warrants were classified as derivative liabilities and measured at $532,398 (Note 16). Each convertible debenture matures on January 6, 2024, and bears interest at 6% per annum. The convertible debentures are convertible to common shares at the conversion price of C$0.20. The fair value of the conversion feature at the grant date was estimated at $616,992. The fair value of the debt component on inception was estimated to be $341,859.
In connection with the issuance, the Company incurred total transaction costs of $468,720, of which $127,934 (C$163,000) was paid in cash. The Company settled $88,690 (C$113,000) of the transaction costs by issuing 565,000 units to the finders. 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 C$0.30 per share until January 6, 2024. As a result, $56,457 was allocated to share capital and $32,233 was allocated to warrant reserve (Note 17(d)). The Company also issued to certain eligible finders 1,330,000 warrants that entitles the holder to acquire one common share at a price of C$0.20 per share until January 6, 2024. The fair value of these warrants was estimated at $252,096 using the Black-Scholes model and was allocated to warrant reserve (Note 17(d)). Of the total transaction costs, $361,269 was allocated to the warrant and conversion feature liabilities and recorded as financing expense on the statements of loss and comprehensive loss. The remaining $107,451 was attributed to the debt component of the convertible debenture and will be accreted over the term of the debt.
During the three and nine months ended September 30, 2022, the accretion expense on these convertible debentures was $81,064 and $190,623, respectively (2021 - $nil and $nil, respectively). During the three and nine months ended September 30, 2022, the interest expense on these convertible debentures was $21,329 and $63,970, respectively (2021 - $nil and $nil, respectively).
15 |
EMPOWER CLINICS INC. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS For the three and nine months ended September 30, 2022 and 2021 (Unaudited - Expressed in US dollars, except where noted) |
13. CONVERTIBLE DEBENTURES (Continued)
On March 25, 2022, the Company closed a private placement, in which the Company issued 2,100 convertible debenture units at a price of C$1,000 per convertible debenture unit for gross proceeds of $1,679,731 (C$2,100,000). Each convertible debenture unit consists of a convertible debenture and 5,000 warrants. Each warrant entitles the holder to acquire one common share at a price of C$0.30 per share until March 25, 2024. The attached warrants were classified as derivative liabilities and measured at $483,477 (Note 16). Each convertible debenture matures on March 25, 2024, and bears interest at 6% per annum. The convertible debentures are convertible to common shares at the conversion price of C$0.20. The fair value of the conversion feature at the grant date was estimated at $585,646. The fair value of the debt component at the grant date was estimated to be $610,608.
In connection with the issuance, the Company incurred total transaction costs of $390,129, of which $157,577 (C$197,000) was to be settled in cash. The Company issued 210,000 common shares and 1,890,000 warrants to a finder. Each warrant issued to the finder entitles the holder to acquire one common share at a price of C$0.20 per share until March 25, 2024. The fair value of common shares issued to the finder was $38,634. The fair value of warrants issued to the finder was estimated at $193,918 using the Black-Scholes model, which was allocated to warrant reserve (Note 17(d)). Of the total transaction costs, $248,312 was allocated to the warrant and conversion feature liabilities and recorded as a finance expense on the statements of loss and comprehensive loss. The remaining $141,817 was attributed to the debt component of the convertible debenture and will be accreted over the term of the debt.
During the three and nine months ended September 30, 2022, the accretion expense on these convertible debentures was $84,356 and $159,184, respectively (2021 - $nil and $nil, respectively). During the three and nine months ended September 30, 2022, the interest expense on these convertible debentures was $24,343 and $50,613, respectively (2021 - $nil and $nil, respectively).
During the nine months ended September 30, 2022, there were 60 convertible debentures converted into common shares. As a result, an amount of $9,719 of convertible debentures and $7,123 of conversion feature liability were extinguished and reclassified to equity (Note 17(b)).
14. CONVERTIBLE NOTE PAYABLE
On January 21, 2022, the Company repaid a convertible note with principal of $198,851 (C$250,000) and accrued interest of $8,283 (C$10,414). The convertible note accrued interest at 2% per annum. At initial recognition, the conversion feature was determined to have $nil value as the note was 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 and as such, the settlement value was fixed at the face value of the obligation.
During the three and nine months ended September 30, 2022, the Company incurred interest of $nil and $nil, respectively (2021 - $999 and $2,985, respectively) on the convertible note payable.
16 |
EMPOWER CLINICS INC. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS For the three and nine months ended September 30, 2022 and 2021 (Unaudited - Expressed in US dollars, except where noted) |
15. LEASE LIABILITY
The following table presents a continuity of the Company’s lease liability:
|
| Health & Wellness |
|
| Diagnostics & Technology |
|
| Corporate |
|
| Discontinued operations |
|
| Total |
| |||||
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||
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 |
|
| 5,675 |
|
|
| (1,662 | ) |
|
| - |
|
|
| - |
|
|
| 4,013 |
|
Balance, December 31, 2021 |
|
| 2,288,156 |
|
|
| 749,311 |
|
|
| - |
|
|
| - |
|
|
| 3,037,467 |
|
Interest expense |
|
| 96,992 |
|
|
| 31,635 |
|
|
| - |
|
|
| - |
|
|
| 128,627 |
|
Payments |
|
| (283,885 | ) |
|
| (124,704 | ) |
|
| - |
|
|
| - |
|
|
| (408,589 | ) |
Foreign exchange gain |
|
| (159,276 | ) |
|
| (8,033 | ) |
|
| - |
|
|
| - |
|
|
| (167,309 | ) |
Balance, September 30, 2022 |
|
| 1,941,987 |
|
|
| 648,209 |
|
|
| - |
|
|
| - |
|
|
| 2,590,196 |
|
Less: Current portion |
|
| 244,750 |
|
|
| 142,553 |
|
|
| - |
|
|
| - |
|
|
| 387,303 |
|
Lease liability |
|
| 1,697,237 |
|
|
| 505,656 |
|
|
| - |
|
|
| - |
|
|
| 2,202,893 |
|
During the three and nine months ended September 30, 2022, lease interest expense was $40,375 and $128,627, respectively (2021 - $21,645 and $36,302, respectively).
For the nine months ended September 30, 2022, clinic operating expenses include $195,418 (2021 - $47,573) in relation to short-term and low value leases.
16. WARRANT LIABILITY
Certain warrants issued by the Company are classified as derivative liabilities under the principles of IFRS 9 Financial instruments, as the exercise price is in Canadian dollar while the functional currency of the Company is the US dollar. Accordingly, warrants are remeasured to fair value at each reporting date with the change in fair value charged to change in fair value of warrant liability in the consolidated statement of loss and comprehensive loss.
|
| Weighted average exercise price |
|
| Number of warrants |
|
| Warrant liability |
| |||
|
| C$ |
|
| # |
|
| $ |
| |||
Balance, December 31, 2020 |
|
| 0.14 |
|
|
| 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 |
|
| 0.18 |
|
|
| 11,289,097 |
|
|
| 1,504,703 |
|
Issued |
|
| 0.30 |
|
|
| 25,500,000 |
|
|
| 1,879,230 |
|
Exercised |
|
| 0.13 |
|
|
| (2,238,637 | ) |
|
| (196,629 | ) |
Expired |
|
| 0.23 |
|
|
| (6,350,460 | ) |
|
| - |
|
Loss on change in fair value of warrant liability |
|
|
|
|
|
|
|
|
|
| (3,115,803 | ) |
Balance, September 30, 2022 |
|
| 0.17 |
|
|
| 28,200,000 |
|
|
| 71,501 |
|
Less: Current portion |
|
|
|
|
|
|
|
|
|
| 71,501 |
|
Warrant liability |
|
|
|
|
|
|
|
|
|
| - |
|
17 |
EMPOWER CLINICS INC. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS For the three and nine months ended September 30, 2022 and 2021 (Unaudited - Expressed in US dollars, except where noted) |
16. WARRANT LIABILITY (Continued)
On January 6, 2022, the Company closed a private placement financing of 5,500,000 units at $0.16 (C$0.20) per unit comprised one common share and one common share purchase warrant. Of the total units issued, 750,000 units were used to settle accounts payable to the Chief Executive Officer (“CEO”) of the Company (Note 22). Each common share purchase warrant entitles holder to acquire one common share at a price of C$0.30 until January 6, 2024. The fair value of the warrants on initial recognition was estimated to be $863,355, of which $745,625 was cash proceeds and $117,730 related to the settlement with the related party.
In connection with the issuance of convertible debenture units on January 6, 2022, the Company classified the attached warrants as derivative liabilities. The fair value of these warrants on initial recognition was estimated at $532,398.
In connection with the issuance of convertible debenture units on March 25, 2022, the Company classified the attached warrants as derivative liabilities. The fair value of these warrants on initial recognition was estimated at $483,477.
The following table summarizes the warrants outstanding and exercisable as at September 30, 2022:
Expiry date |
| Number of warrants |
|
| Weighted average exercise price |
|
| Weighted average remaining life |
| |||
|
| # |
|
| C$ |
|
| Years |
| |||
November 9, 2022 |
|
| 2,200,000 |
|
|
| 0.12 |
|
|
| 0.11 |
|
October 5, 2023 |
|
| 500,000 |
|
|
| 0.05 |
|
|
| 1.01 |
|
January 6, 2024 |
|
| 15,000,000 |
|
|
| 0.30 |
|
|
| 1.27 |
|
March 25, 2024 |
|
| 10,500,000 |
|
|
| 0.30 |
|
|
| 1.48 |
|
|
|
| 28,200,000 |
|
|
| 0.28 |
|
|
| 1.25 |
|
17. EQUITY
a) Authorized share capital
Unlimited number of common shares without nominal or par value. At September 30, 2022, there were 348,508,658 issued and outstanding common shares (December 31, 2021 - 339,445,021). The Company does not currently pay dividends and entitlement will only arise upon declaration.
b) Issued - common shares
During the nine months ended September 30, 2022, the Company completed the following transactions:
Vesting of escrow shares
i. | For the nine months ended September 30, 2022, legal and professional fees includes a share-based payment of $87,020 in connection with the vesting of escrow shares. |
Shares issued in private placement
ii. | On January 6, 2022, the Company closed a private placement financing of 5,500,000 units at $0.16 (C$0.20) per unit for gross proceeds of $863,355 (C$1,100,000) comprised of one common share and one common share purchase warrant. Each warrant entitles holder to acquire one common share at a price of C$0.30 until January 6, 2024. Of the total units issued, 750,000 units with a fair value of $117,730 (C$150,000) were used to settle accounts payable to the CEO of the Company (Note 22). Total fair value of the warrant liabilities was measured at $863,355, of which $117,730 was related to the settlement with the related party (Note 16). The fair value of the warrant liability was estimated to be the full value of the transaction and accordingly, $nil was allocated to share capital. In connection with the issuance of units in this private placement, the Company incurred cash transaction costs of $41,204 (C$52,500) and issued 262,500 common share purchase warrants to a finder with fair value of $49,757 (Note 17(d)). These transaction costs were recorded as a financing expense. |
18 |
EMPOWER CLINICS INC. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS For the three and nine months ended September 30, 2022 and 2021 (Unaudited - Expressed in US dollars, except where noted) |
17. EQUITY (Continued)
Shares issued for services
iii. | In connection with the private placement financing on January 6, 2022 related to the issuance of the convertible debenture units, the Company incurred $468,720 in transaction costs, of which $88,690 (C$113,000) was settled by issuance of 565,000 units to a finder. Each unit comprises one common share and one common share purchase warrant. Each common share purchase warrant entitles the holder to purchase one common share at C$0.20 until January 6, 2024. The allocated values of common share and common share purchase warrant were determined using the relative fair value method. As a result, $56,457 was allocated to share capital and $32,233 to warrant reserve. |
|
|
iv. | In connection with the issuance of convertible debenture units in private placement financing on March 25, 2022, the Company issued 210,000 common shares to a finder as compensation for services. As a result, share capital increased by $38,634. |
Exercise of options
v. | On January 10, 2022, the Company issued 250,000 common shares pursuant to the exercise of 250,000 options. The options had an exercise price of $0.08 (C$0.10) and proceeds totalled of $19,656 (C$25,000). Upon exercise, $411 was transferred from contributed surplus to share capital. |
Exercise of warrants presented within warrant liability
vi. | During the nine months ended September 30, 2022, the Company issued common shares as a result of warrant exercises as follows: |
Issue date |
| Number of warrants exercised and shares issued |
|
| Weighted average exercise price |
|
| Weighted average exercise price |
|
| Cash received |
|
| Warrant liability transferred to issued capital |
|
| Issued capital |
| ||||||
|
| # |
|
| C$ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||
March 23, 2022 |
|
| 1,313,637 |
|
|
| 0.14 |
|
|
| 0.11 |
|
|
| 150,491 |
|
|
| 100,405 |
|
|
| 250,896 |
|
March 25, 2022 |
|
| 925,000 |
|
|
| 0.10 |
|
|
| 0.08 |
|
|
| 73,988 |
|
|
| 96,224 |
|
|
| 170,212 |
|
|
|
| 2,238,637 |
|
|
| 0.23 |
|
|
| 0.10 |
|
|
| 224,479 |
|
|
| 196,629 |
|
|
| 421,108 |
|
Shares issued on conversion of convertible debentures
vii. | On May 16, 2022, the Company issued 300,000 common shares and extinguished the converted convertible debentures pursuant to the conversion of 60 convertible debentures that were issued in the private placement on January 6, 2022. As a result of the conversion, share capital increased by $16,842. |
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 and recorded it within legal and professional fees on consolidated statements of loss and comprehensive loss. |
Subscription deposits
ii. | 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. |
|
|
iii. | 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. |
19 |
EMPOWER CLINICS INC. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS For the three and nine months ended September 30, 2022 and 2021 (Unaudited - Expressed in US dollars, except where noted) |
17. EQUITY (Continued)
Share subscription receivable
iv. | 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 22) to other asset. |
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 presented 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. |
|
|
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, $58,380 was transferred from warrant reserve to share capital. |
20 |
EMPOWER CLINICS INC. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS For the three and nine months ended September 30, 2022 and 2021 (Unaudited - Expressed in US dollars, except where noted) |
17. EQUITY (Continued)
Exercise of warrants presented within warrant liability
xiv. | During the year ended December 31, 2021, the Company issued common shares as a result of warrant exercises as follows: |
Issue date |
| Number of warrants exercise and shares issued |
|
| Weighted average exercise price |
|
| Weighted average exercise price |
|
| Cash received |
|
| Warrant liability transferred to issued capital |
|
| Issued capital |
| ||||||
|
| # |
|
| C$ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||
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 12, 2021 |
|
| 550,000 |
|
|
| 0.16 |
|
|
| 0.13 |
|
|
| 69,041 |
|
|
| 79,362 |
|
|
| 148,403 |
|
January 14, 2021 |
|
| 1,059,000 |
|
|
| 0.16 |
|
|
| 0.13 |
|
|
| 133,902 |
|
|
| 140,479 |
|
|
| 274,381 |
|
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 |
|
|
|
| 42,982,247 |
|
|
| 0.13 |
|
|
| 0.10 |
|
|
| 4,293,250 |
|
|
| 23,029,605 |
|
|
| 27,322,855 |
|
Acquisition of MediSure
xv. | 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 $1,726,141 (Note 4). |
c) Share options
The Company has an incentive share option plan in place under which it is authorized to grant share options to executive officers, directors, employees, and consultants. The stock option plan allows the Company to grant share options up to a maximum of 10% of the number of issued shares of the Company.
21 |
EMPOWER CLINICS INC. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS For the three and nine months ended September 30, 2022 and 2021 (Unaudited - Expressed in US dollars, except where noted) |
17. EQUITY (Continued)
Share option transactions and the number of share options outstanding during the nine months ended September 30, 2022 and the year ended December 31, 2021 are summarized as follows:
|
| Number of share options |
|
| Weighted average exercise price |
| ||
|
| # |
|
| C$ |
| ||
Outstanding, December 31, 2020 |
|
| 9,834,428 |
|
|
| 0.08 |
|
Issued |
|
| 3,061,364 |
|
|
| 0.46 |
|
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 |
|
Issued |
|
| 2,000,000 |
|
|
| 0.17 |
|
Expired |
|
| (840,000 | ) |
|
| 0.13 |
|
Forfeited |
|
| (475,000 | ) |
|
| 0.11 |
|
Exercised |
|
| (250,000 | ) |
|
| 0.10 |
|
Outstanding, September 30, 2022 |
|
| 7,249,459 |
|
|
| 0.24 |
|
Exercisable, September 30, 2022 |
|
| 5,948,765 |
|
|
| 0.25 |
|
The following table summarizes the options outstanding as at September 30, 2022:
Expiry date |
| Number of share options |
|
| Weighted average exercise price |
|
| Weighted average remaining life |
| |||
|
| # |
|
| C$ |
|
| Years |
| |||
March 4, 2023 |
|
| 120,000 |
|
|
| 0.05 |
|
|
| 0.42 |
|
March 24, 2023 |
|
| 200,000 |
|
|
| 0.47 |
|
|
| 0.48 |
|
March 30, 2023 |
|
| 300,000 |
|
|
| 0.05 |
|
|
| 0.50 |
|
July 21, 2023 |
|
| 425,000 |
|
|
| 0.19 |
|
|
| 0.81 |
|
October 5, 2023 |
|
| 775,000 |
|
|
| 0.05 |
|
|
| 1.01 |
|
October 19, 2023 |
|
| 250,000 |
|
|
| 0.26 |
|
|
| 1.05 |
|
November 12, 2023 |
|
| 200,000 |
|
|
| 0.06 |
|
|
| 1.12 |
|
December 13, 2024 |
|
| 100,000 |
|
|
| 0.25 |
|
|
| 2.21 |
|
December 7, 2025 |
|
| 1,000,000 |
|
|
| 0.10 |
|
|
| 3.19 |
|
December 22, 2025 |
|
| 18,095 |
|
|
| 0.21 |
|
|
| 3.23 |
|
February 3, 2026 |
|
| 950,000 |
|
|
| 0.25 |
|
|
| 3.35 |
|
February 26, 2026 |
|
| 11,364 |
|
|
| 0.22 |
|
|
| 3.41 |
|
March 4, 2026 |
|
| 800,000 |
|
|
| 0.57 |
|
|
| 3.43 |
|
May 7, 2026 |
|
| 300,000 |
|
|
| 0.57 |
|
|
| 3.60 |
|
September 22, 2026 |
|
| 100,000 |
|
|
| 0.43 |
|
|
| 3.98 |
|
November 8, 2026 |
|
| 200,000 |
|
|
| 0.37 |
|
|
| 4.11 |
|
January 20, 2027 |
|
| 200,000 |
|
|
| 0.30 |
|
|
| 4.31 |
|
February 11, 2027 |
|
| 500,000 |
|
|
| 0.28 |
|
|
| 4.37 |
|
February 14, 2027 |
|
| 200,000 |
|
|
| 0.27 |
|
|
| 4.38 |
|
July 5, 2027 |
|
| 600,000 |
|
|
| 0.08 |
|
|
| 4.76 |
|
|
|
| 7,249,459 |
|
|
| 0.24 |
|
|
| 2.82 |
|
As at September 30, 2022, there were 1,875,000 options outstanding that had been granted to related parties, of which 1,739,583 were exercisable.
The weighed average remaining contractual life of share options outstanding as at September 30, 2022 was 2.82 years (December 31, 2021 - 3.03 years). The weighted average fair value of options granted for the nine months ended September 30, 2022 was $0.08 (2021 - $0.32). The range of exercise prices for options outstanding at September 30, 2022 was C$0.05 to C$0.57 (December 31, 2021 - C$0.05 to C$0.57). The weighted average share price on exercise date for the option exercises during the nine months ended September 30, 2022 was C$0.37 (2021 - C$0.91).
22 |
EMPOWER CLINICS INC. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS For the three and nine months ended September 30, 2022 and 2021 (Unaudited - Expressed in US dollars, except where noted) |
17. EQUITY (Continued)
The fair value of share options recognized as an expense during the three and nine months ended September 30, 2022, was $45,566 and $251,491, respectively (2021 - $236,201 and $841,759, respectively). During the nine months ended September 30, 2022, there were 475,000 options were forfeited as a result of the resignation of the Chief Financial Officer (“CFO”) of the Company.
The following are the assumptions used for the Black Scholes option pricing model valuation of share options granted during the nine months ended September 30, 2022 and 2021:
|
| 2022 |
|
| 2021 |
| ||
Risk-free interest rate |
|
| 0.84 | % |
| 0.17%-0.30 | % | |
Expected life |
| 3-5 years |
|
| 5 years |
| ||
Expected volatility |
|
| 100 | % |
|
| 100.0 | % |
Forfeiture rate |
|
| 0.0 | % |
|
| 0.0 | % |
Dividend rate |
|
| 0.0 | % |
|
| 0.0 | % |
The risk-free rate of periods within the expected life of the share options is based on the Canadian government bond rate. The annualized volatility and forfeiture rate assumptions are based on historical results.
d) Warrants presented within warrant reserve
Warrants presented within warrant reserve consist of warrants issued as share-based payments. Outstanding and exercisable warrants presented within warrant reserve for the nine months ended September 30, 2022 and the year ended December 31, 2021 are summarized as follows:
|
| Number of warrants |
|
| Weighted average exercise price |
| ||
|
| # |
|
| C$ |
| ||
Outstanding, December 31, 2020 |
|
| 2,303,900 |
|
|
| 0.13 |
|
Issued |
|
| 1,760,000 |
|
|
| 0.12 |
|
Exercised |
|
| (3,060,000 | ) |
|
| 0.12 |
|
Expired |
|
| (123,900 | ) |
|
| 0.16 |
|
Outstanding, December 31, 2021 |
|
| 880,000 |
|
|
| 0.12 |
|
Issued |
|
| 4,047,500 |
|
|
| 0.20 |
|
Outstanding, September 30, 2022 |
|
| 4,927,500 |
|
|
| 0.19 |
|
The following table summarizes the warrants outstanding and exercisable as at September 30, 2022:
Expiry date |
| Number of warrants |
|
| Weighted average exercise price |
|
| Weighted average remaining life |
| |||
|
| # |
|
| C$ |
|
| Years |
| |||
March 8, 2023 |
|
| 880,000 |
|
|
| 0.12 |
|
|
| 0.44 |
|
March 25, 2024 |
|
| 4,047,500 |
|
|
| 0.20 |
|
|
| 1.37 |
|
|
|
| 4,927,500 |
|
|
| 0.19 |
|
|
| 1.20 |
|
In connection with the issuance of units in the private placement closed on January 6, 2022, the Company issued 262,500 common share purchase warrants to a finder. Each warrant entitles the holder to acquire one common share at the exercise price of C$0.20 until January 6, 2024. The fair value of these warrants was estimated at $49,757 using Black-Scholes model.
In connection with the issuance of debenture units in the private placement closed on January 6, 2022, the Company settled an amount of $88,690 (C$113,000) of transaction costs by issuing 565,000 units to a finder, leading to the issuance of 565,000 warrants. Each warrant entitles the holder to acquire one common share at a price of C$0.30 per share until January 6, 2024. As a result, warrant reserve increased by $32,233. The Company also issued 1,330,000 warrants to certain eligible finders. Each warrant entitles the holder to acquire one common share at a price of C$0.20 per share until January 6, 2024. The fair value of these warrants was estimated at $252,096 using Black-Scholes model.
23 |
EMPOWER CLINICS INC. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS For the three and nine months ended September 30, 2022 and 2021 (Unaudited - Expressed in US dollars, except where noted) |
17. EQUITY (Continued)
In connection with issuance of debenture units in the private placement closed on March 25, 2022, the Company issued 1,890,000 warrants to a finder. Each warrant issued to the finder entitles the holder to acquire one common share at a price of C$0.20 per share until March 25, 2024. The fair value of warrants issued to the finder was estimated at $193,918 using Black-Scholes model.
The assumptions used in Black-Scholes option pricing model to measure warrants issued during the nine months ended September 30, 2022, presented within warrant reserve were as follow:
|
| 2022 |
| |
Expected life |
| 2 years |
| |
Annualized volatility |
|
| 100 | % |
Dividend rate |
|
| 0 | % |
Risk-free rate |
|
| 0.84 | % |
18. OPERATING EXPENSES
For the three and nine months ended September 30, 2022 and 2021, operating expenses comprised of the following:
|
| Three months ended September 30, |
|
| Nine months ended September 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Salaries and benefits |
|
| 807,387 |
|
|
| 301,996 |
|
|
| 2,382,972 |
|
|
| 983,533 |
|
Rent |
|
| 89,892 |
|
|
| 20,135 |
|
|
| 195,418 |
|
|
| 47,573 |
|
Advertising and promotion |
|
| 216,588 |
|
|
| 202,848 |
|
|
| 575,814 |
|
|
| 508,439 |
|
Telephone and internet |
|
| 42,231 |
|
|
| 50,230 |
|
|
| 134,208 |
|
|
| 215,824 |
|
Office supplies and expenses |
|
| 85,453 |
|
|
| 42,048 |
|
|
| 342,095 |
|
|
| 119,244 |
|
Recruiting fees |
|
| 2,847 |
|
|
| - |
|
|
| 122,777 |
|
|
| - |
|
Other |
|
| 73,187 |
|
|
| 77,748 |
|
|
| 437,218 |
|
|
| 447,344 |
|
|
|
| 1,317,585 |
|
|
| 695,005 |
|
|
| 4,190,502 |
|
|
| 2,321,957 |
|
19. SEGMENT INFORMATION
The Company’s business activities for the nine months ended September 30, 2022, were conducted through three 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 5). Financial performance and balances by operating segments are displayed below:
24 |
EMPOWER CLINICS INC. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS For the three and nine months ended September 30, 2022 and 2021 (Unaudited - Expressed in US dollars, except where noted) |
19. SEGMENT INFORMATION (Continued)
For the nine months ended September 30, 2022 |
| Health & Wellness |
|
| Diagnostics & Technology |
|
| Corporate |
|
| Consolidated |
| ||||
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Total revenue |
|
| 989,642 |
|
|
| 3,245,097 |
|
|
| - |
|
|
| 4,234,739 |
|
Total operating expenses1 |
|
| (2,060,431 | ) |
|
| (3,194,381 | ) |
|
| (2,739,371 | ) |
|
| (7,994,183 | ) |
Total other expenses, net |
|
| 99,042 |
|
|
| (79,594 | ) |
|
| 3,149,860 |
|
|
| 3,169,308 |
|
Net (loss) income from continuing operations |
|
| (971,747 | ) |
|
| (28,878 | ) |
|
| 410,489 |
|
|
| (590,136 | ) |
For the nine months ended September 30, 2021 |
| Health & Wellness |
|
| Diagnostics & Technology |
|
| Corporate |
|
| Consolidated |
| ||||
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Total revenue |
|
| 750,698 |
|
|
| 2,475,637 |
|
|
| - |
|
|
| 3,226,335 |
|
Total operating expenses1 |
|
| (556,987 | ) |
|
| (2,619,799 | ) |
|
| (3,129,915 | ) |
|
| (6,306,701 | ) |
Total other expenses, net |
|
| (3,168 | ) |
|
| (4,231,746 | ) |
|
| (19,736,851 | ) |
|
| (23,971,765 | ) |
Net loss from continuing operations |
|
| (11,947 | ) |
|
| (4,375,908 | ) |
|
| (22,664,276 | ) |
|
| (27,052,131 | ) |
As at September 30, 2022 |
| Health & Wellness |
|
| Diagnostics & Technology |
|
| Corporate |
|
| Consolidated |
| ||||
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Assets |
|
| 528,437 |
|
|
| 1,297,633 |
|
|
| 1,624,084 |
|
|
| 3,450,154 |
|
Liabilities |
|
| 2,146,452 |
|
|
| 2,704,149 |
|
|
| 3,951,835 |
|
|
| 8,802,436 |
|
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 |
|
1Includes direct expenses, operating expenses, legal and professional fees, depreciation and amortization, and share-based payments
20. SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH FLOWS
Additional disclosure with respect to cash flows for the nine months ended September 30, 2022 and 2021 is presented in the table below:
|
| 2022 |
|
| 2021 |
| ||
|
| $ |
|
| $ |
| ||
Changes in non-cash working capital items: |
|
|
|
|
|
| ||
Accounts receivable |
|
| 59,511 |
|
|
| (70,448 | ) |
Inventory |
|
| (407,721 | ) |
|
| (674,796 | ) |
Prepaid expenses |
|
| 19,011 |
|
|
| (32,806 | ) |
Accounts payable and accrued liabilities |
|
| (148,700 | ) |
|
| (368,312 | ) |
Deferred revenue |
|
| (5,262 | ) |
|
| (26,694 | ) |
Net changes in non-cash working capital items |
|
| (483,161 | ) |
|
| (1,173,056 | ) |
|
|
|
|
|
|
|
|
|
Non-cash transactions that do not impact profit or loss: |
|
|
|
|
|
|
|
|
Non-cash additions of property and equipment |
|
| 26,146 |
|
|
| - |
|
Units issued as settlement of accounts payable |
|
| 117,730 |
|
|
| - |
|
Shares issued for services, net of shares returned to treasury |
|
| 95,091 |
|
|
| 86,812 |
|
Shares issued on conversion of convertible debentures |
|
| 16,842 |
|
|
| - |
|
25 |
EMPOWER CLINICS INC. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS For the three and nine months ended September 30, 2022 and 2021 (Unaudited - Expressed in US dollars, except where noted) |
20. SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH FLOWS (Continued)
During the nine months ended September 30, 2022, addition to property and equipment was $79,813, of which $26,146 was related to medical and lab equipment that had been paid in advance during the year ended December 31, 2021.
Income tax payments for the nine months ended September 30, 2022 were $nil (2021 - $nil). As at September 30, 2022, the Company has accrued $635,000 (December 31, 2021 - $635,000) in late tax filing penalties related to income taxes in the United States.
Total interest paid for the nine months ended September 30, 2022 was $236,725 (2021 - $457,172), of which $8,283 was from accrued interest prior to December 31, 2021.
21. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
a) Fair value measurement of financial assets and liabilities
The Company has established a fair value hierarchy that reflects the significance of inputs of valuation techniques used in making fair value measurements as follows:
Level 1 - quoted prices in active markets for identical assets or liabilities;
Level 2 - inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. from derived prices); and
Level 3 - inputs for the asset or liability that are not based on observable market data.
The carrying values of cash, restricted cash, accounts receivable, accounts payable and accrued liabilities, consideration payable, and notes payable approximate their respective fair values due to their short-term nature. These financial instruments are measured at amortized cost.
As at September 30, 2022 and December 31, 2021, the warrant liability and conversion feature of convertible debentures were categorized as Level 3 in the fair value hierarchy and they are measured at fair value through profit or loss.
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.
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 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. As at September 30, 2022, 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.
26 |
EMPOWER CLINICS INC. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS For the three and nine months ended September 30, 2022 and 2021 (Unaudited - Expressed in US dollars, except where noted) |
21. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (Continued)
ii. Currency risk
The Company’s functional currency is the USD 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 USD.
The table below summarizes the net monetary assets and liabilities held in foreign currencies:
|
| September 30, 2022 |
|
| December 31, 2021 |
| ||
|
| $ |
|
| $ |
| ||
Canadian dollar net monetary liabilities |
|
| 1,875,116 |
|
|
| 594,561 |
|
The effect on net loss and comprehensive loss for the nine months ended September 30, 2022, of a 10% change in the foreign currencies against the USD on the above-mentioned net monetary liabilities of the Company is estimated to have an increase or decrease in foreign exchange gain or loss of $187,512 (December 31, 2021 - $54,051).
iii. Liquidity risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Company has a planning and budgeting process in place to help determine the funds required to support the Company’s normal operating requirements and its expansion plans.
In the normal course of business, the Company enters into contracts and performs business activities that give rise to commitments for future minimum payments. The Company has no concentrations of liquidity risk. A summary of future operating commitments is presented in Note 24.
As at September 30, 2022, the Company had a cash balance of $469,712 (December 31, 2021 - $866,170) and current liabilities of $4,692,902 (December 31, 2021 - $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. As at September 30, 2022, the Company had a bank loan with carrying amount of $881,498 that has floating interest rate and therefore, the Company is exposed to interest rate risk. An increase or decrease of 100 basis points in the interest rates would result in an increase of $7,212 or decrease of $7,163 in interest expense on condensed interim consolidated statements of loss and comprehensive loss.
22. 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 nine months ended September 30, 2022 and 2021, 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.
27 |
EMPOWER CLINICS INC. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS For the three and nine months ended September 30, 2022 and 2021 (Unaudited - Expressed in US dollars, except where noted) |
22. RELATED PARTY TRANSACTIONS (Continued)
Key management compensation for the three and nine months ended September 30, 2022 and 2021 includes:
|
| Three months ended September 30, |
|
| Nine months ended September 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Salaries and benefits |
|
| 171,288 |
|
|
| 75,565 |
|
|
| 629,725 |
|
|
| 504,839 |
|
Share-based payment (recovery) expense |
|
| (4,509 | ) |
|
| - |
|
|
| 33,471 |
|
|
| 346,375 |
|
Directors’ fees |
|
| 11,000 |
|
|
| 7,500 |
|
|
| 33,000 |
|
|
| 20,000 |
|
|
|
| 177,779 |
|
|
| 83,065 |
|
|
| 696,196 |
|
|
| 871,214 |
|
In connection with the issuance of units via private placement closed on January 6, 2022, the Company issued 750,000 units to settle an amount of $117,730 that was due to the CEO.
During the nine months ended September 30, 2022, there were 475,000 options forfeited due to the resignation of the CFO. The Company recognized $57,189 in share-based payments related to vesting of these options and recognized a recovery of $24,753 on the unvested portion upon termination of the CFO’s employment.
As at September 30, 2022, $113,833 (December 31, 2021 - $172,934) was due to the CEO and a director for salaries and benefits, and director’s fee. The amounts are unsecured and due on demand.
As at September 30, 2022 and December 31, 2021, the other assets 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.
23. MANAGEMENT OF CAPITAL
The Company’s objectives of capital management are intended to safeguard the Company’s normal operating requirements on an ongoing basis. As at September 30, 2022 and December 31, 2021, the capital of the Company comprised of the following:
|
| September 30, 2022 |
|
| December 31, 2021 |
| ||
|
| $ |
|
| $ |
| ||
Total shareholder’s deficiency |
|
| (5,352,282 | ) |
|
| (6,392,941 | ) |
Notes payable |
|
| 180,596 |
|
|
| 173,266 |
|
Convertible notes payable |
|
| - |
|
|
| 205,406 |
|
Current portion of loans payable |
|
| 206,479 |
|
|
| 128,480 |
|
Loans payable |
|
| 870,804 |
|
|
| 1,053,983 |
|
Convertible debentures |
|
| 1,018,225 |
|
|
| - |
|
|
|
| (3,076,178 | ) |
|
| (4,831,806 | ) |
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 September 30, 2022 and December 31, 2021, the Company was not subject to any externally imposed capital requirements.
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EMPOWER CLINICS INC. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS For the three and nine months ended September 30, 2022 and 2021 (Unaudited - Expressed in US dollars, except where noted) |
24. COMMITMENTS AND CONTINGENCIES
A summary of undiscounted liabilities and future operating commitments as at September 30, 2022 are as follows:
|
| Total |
|
| Within 1 year |
|
| 2 - 5 years |
|
| Greater than 5 years |
| ||||
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Maturity analysis of liabilities |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Accounts payables and accrued liabilities |
|
| 3,576,581 |
|
|
| 3,576,581 |
|
|
| - |
|
|
| - |
|
Consideration payable |
|
| 180,803 |
|
|
| 180,803 |
|
|
| - |
|
|
| - |
|
Loans payable |
|
| 1,467,368 |
|
|
| 221,824 |
|
|
| 867,145 |
|
|
| 378,399 |
|
Notes payable |
|
| 180,596 |
|
|
| 180,596 |
|
|
| - |
|
|
| - |
|
Convertible debentures |
|
| 3,126,341 |
|
|
| 173,200 |
|
|
| 2,953,142 |
|
|
| - |
|
Lease payments |
|
| 3,134,800 |
|
|
| 531,164 |
|
|
| 1,823,218 |
|
|
| 780,418 |
|
Total liabilities |
|
| 11,666,489 |
|
|
| 4,864,168 |
|
|
| 5,643,505 |
|
|
| 1,158,817 |
|
25. EVENTS AFTER THE REPORTING PERIOD
Subsequent to September 30, 2022, there were 2,200,000 warrants that expired unexercised.
On November 21, 2022, the Company announced a proposed private placement of:
| i. | secured convertible debenture units (each a “Debenture Unit”) at a price of $1,000 per Debenture Unit for aggregate proceeds of $250,000, and |
|
|
|
| ii. | common shares units (each a “Share Unit”) at a price of $0.05 per Share Unit, for aggregate proceeds of $1,000,000. |
Each Debenture Unit will be comprised of one senior secured convertible debenture with principal of $1,000 (each, a “Debenture”) and 20,000 warrants of the Company (each a “Warrant”). The Debentures bear interest at a rate of 10.0% per annum and mature two years following the date of issuance. The principal amount of each Debenture may be converted into common shares of the Company at any time prior to maturity at a conversion price of $0.05 per common share. Each Warrant is exercisable into common shares of the Company at $0.075 per common share for two years following the date of issuance.
The Company also announced the settlement of all amounts owing under 3,700 outstanding convertible debentures, plus accrued interest thereon, in the aggregate amount of $3,786,400 (the “Outstanding Debentures”) in exchange for the issuance of a new secured convertible debenture having a principal amount of the Outstanding Debenture (the “New Debenture”). The New Debenture bears interest at a rate of 10% per annum and matures two years following the date of issuance. The Outstanding Debentures were convertible into Shares at a conversion price of $0.20 per common share. The New Debenture will be convertible at $0.05 per common share. The Company also modified the terms of 18,500,000 warrants that were issued with the Outstanding Debentures to reduce the exercise price per common share from $0.30 to $0.075 per common share and extended the expiry date to two years from the date of issuance of the New Debentures.
29 |