UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 UNDER
THE SECURITIES EXCHANGE ACT OF 1934
For the month of November 2018
Commission File No. 000-30087
EMPOWER CLINICS INC. (formerly ADIRA ENERGY LTD.)
(Translation of registrant's name into English)
1030 West Georgia Street, Suite 918 Vancouver, British Columbia Canada V6E 2Y3
(Address of principal executive office)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F
Form 20-F [X] Form 40-F [ ]
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1) [ ]
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7) [ ]
SUBMITTED HEREWITH
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
EMPOWER CLINICS INC. (formerly ADIRA ENERGY LTD.)
Date: July 24, 2019
| /s/ Mathew Lee | |
| Mathew Lee | |
| Chief Financial Officer |
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Exhibit 99.1
Empower Clinics, Inc. Formerly,
S.M.A.A.R.T Holdings Inc.
INTERIM CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
FOR THE Nine MONTHS ENDED September 30, 2018
(Unaudited)
(IN US DOLLARS)
Notice To Reader
The accompanying unaudited condensed interim consolidated financial statements of Empower Clinics Inc. Formerly S.M.A.A.R.T Holdings Inc, (the "Company") have been prepared by and are the responsibility of management. The unaudited condensed interim consolidated financial statements have not been reviewed by the Company's auditors.
EMPOWER CLINICS INC.,
FORMERLY S.M .A.A.R.T HOLDINGS INC.
Interim Consolidated Unaudited Statements of Financial Position
Expressed in United States dollars
September 30, 2018 (Unaudited) | December 31, 2017 (Audited) | |||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash | $ | 279,792 | $ | 0 | ||||
| Amounts receivable | 124,081 | 847 | ||||||
| Prepaid expense | 613,475 | 24,012 | ||||||
| Due from a related party | 13 | – | 133,775 | |||||
| 1,017,348 | 158,634 | |||||||
| Non-current assets | ||||||||
| Property, plant and equipment | 5 | 134,646 | 36,128 | |||||
| Intangible assets | 6 | 208,536 | 249,996 | |||||
| Assets held for sale | 7 | 185,044 | 185,044 | |||||
| Total assets | $ | 1,545,574 | $ | 629,802 | ||||
| Liabilities and Shareholders’ Equity | ||||||||
| Current liabilities | ||||||||
| Bank Indebtedness | $ | 0 | $ | 7,148 | ||||
| Accounts payable and accruals | 1,102,171 | 1,449,555 | ||||||
| Notes payable | 8 | 598,684 | 404,370 | |||||
| Due to related parties | 12,420 | 16,170 | ||||||
| Convertible debenture payable | 9 | 373,504 | 1,835,225 | |||||
| Secured loan payable | 10 | 696,005 | 676,849 | |||||
| Derivative liability | 9, 11 | 1,588,375 | 1,047,347 | |||||
| Total current liabilities | 4,371,159 | 5,436,664 | ||||||
| Total liabilities | 4,371,159 | 5,436,664 | ||||||
| Shareholders` Equity | ||||||||
| Share capital | 11 | 6,761,240 | 550,744 | |||||
| Reserves | 11, 12 | 933,848 | – | |||||
| Shares to be issued | 192,198 | – | ||||||
| Equity portion of convertible debentures | 9 | – | 222,417 | |||||
| Accumulated deficit | (10,712,871 | ) | (5,580,023 | ) | ||||
| Total shareholders’ equity | (2,825,585 | ) | (4,806,862 | ) | ||||
| Total liabilities and shareholders’ equity | $ | 1,545,574 | $ | 629,802 | ||||
Nature of operations and going concern (Note 1)
Commitments (Note 16)
Contingent liabilities (Note 17)
Subsequent events (Note 18)
Approved and authorized by the Board of Directors on November 29, 2018:
| ”Craig Snyder” | Director | ”Emily Davis” | Director |
The accompanying notes are an integral part of these consolidated financial statements.
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EMPOWER CLINICS INC.,
FORMERLY S.M .A.A.R.T HOLDINGS INC.
Amended Interim Consolidated Unaudited Statements of Equity
Expressed in United States dollars
| Share Capital (Note 12) | Shares to be | Equity portion of convertible debentures | Accumulated | |||||||||||||||||||||||||
| Number | Amount | Reserves | issued | payable | Deficit | Total | ||||||||||||||||||||||
| Balance, December 31, 2016 | 16,100,000 | $ | 248,500 | $ | – | $ | 120,000 | $ | 222,417 | $ | (2,470,102 | ) | $ | (1,879,185 | ) | |||||||||||||
| Shares issued January 2017 | 32,237,225 | 302,244 | – | (120,000 | ) | – | – | 182,244 | ||||||||||||||||||||
| Net loss for the period | – | – | – | – | (2,295,382 | ) | (2,295,382 | ) | ||||||||||||||||||||
| Balance, September 30, 2017 | 48,337,225 | $ | 550,744 | $ | – | $ | – | $ | 222,417 | $ | (4,765,484 | ) | $ | (3,992,323 | ) | |||||||||||||
| Net loss for the period | – | – | – | – | – | (814,359 | ) | (814,359 | ) | |||||||||||||||||||
| Balance, December 31, 2017 | 48,337,225 | $ | 550,744 | $ | – | $ | – | $ | 222,417 | $ | (5,580,023 | ) | $ | (4,806,862 | ) | |||||||||||||
| Shares issued | 26,629,732 | 7,288,791 | – | – | (222,417 | ) | – | 7,066,374 | ||||||||||||||||||||
| Warrant allocation | – | (1,669,223 | ) | 80,848 | (1,588,375 | ) | ||||||||||||||||||||||
| Share based payments | – | 590,928 | 853,000 | 1,443,928 | ||||||||||||||||||||||||
| Shares to be issued | – | – | – | $ | 192,198 | – | – | 192,198 | ||||||||||||||||||||
| Net loss for the period | – | – | – | – | (5,132,848 | ) | (5,132,848 | ) | ||||||||||||||||||||
| Balance, September 30, 2018 | 74,966,957 | $ | 6,761,240 | $ | 933,848 | $ | 192,198 | $ | – | $ | (10,712,871 | ) | $ | (2,825,585 | ) | |||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
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EMPOWER CLINICS INC.,
FORMERLY S.M .A.A.R.T HOLDINGS INC.
Interim Consolidated Unaudited Statements of Operations and Comprehensive Loss
Expressed in United States dollars
| Nine months ended Sept 30, 2018 | Nine months ended Sept 30, 2017 | Three months ended Sept 30, 2018 | Three months ended Sept 30, 2017 | |||||||||||||
| Revenues | ||||||||||||||||
| Clinic operations | ||||||||||||||||
| Clinic revenues | $ | 894,477 | $ | 1,215,329 | $ | 279,850 | $ | 388,898 | ||||||||
| Direct clinic expenses | ||||||||||||||||
| Medical personnel costs | (226,285 | ) | (367,625 | ) | (64,338 | ) | (128,042 | ) | ||||||||
| Travel clinic costs | (75,107 | ) | (156,957 | ) | (24,618 | ) | (48,012 | ) | ||||||||
| Total direct clinic expenses | (301,391 | ) | (524,582 | ) | (88,955 | ) | (176,054 | ) | ||||||||
| Net clinic revenues | 593,085 | 690,747 | 190,894 | 212,844 | ||||||||||||
| Clinic operating expenses | (2,348,451 | ) | (1,894,933 | ) | (504,105 | ) | (584,479 | ) | ||||||||
| Loss from clinic operations | (1,755,366 | ) | (1,204,186 | ) | (313,211 | ) | (371,635 | ) | ||||||||
| Other expenses | ||||||||||||||||
| Legal expense | (371,147 | ) | (441,237 | ) | (671,537 | ) | (82,356 | ) | ||||||||
| Accretion expense | (214,680 | ) | (422,359 | ) | – | (202,901 | ) | |||||||||
| Interest expense | (86,803 | ) | (118,681 | ) | (2,335 | ) | (51,441 | ) | ||||||||
| Depreciation expense | (43,169 | ) | (77,470 | ) | (8,634 | ) | (25,902 | ) | ||||||||
| Other expense | 28,769 | (12,295 | ) | (108,906 | ) | (5,271 | ) | |||||||||
| Gain on debt settlement | – | 106,360 | – | 106,360 | ||||||||||||
| Share based payments | (1,443,928 | ) | – | – | – | |||||||||||
| Listing expense | (1,143,660 | ) | – | – | – | |||||||||||
| Audit fees | (102,864 | ) | (125,514 | ) | (48,364 | ) | (47,799 | ) | ||||||||
| (3,377,439 | ) | (1,091,196 | ) | (839,775 | ) | (309,310 | ) | |||||||||
| Loss before income taxes | (5,132,848 | ) | (2,295,382 | ) | (1,152,987 | ) | (680,945 | ) | ||||||||
| Deferred tax recovery | ||||||||||||||||
| Net loss and comprehensive loss for the period | $ | (5,132,848 | ) | $ | (2,295,382 | ) | (1,152,987 | ) | (680,945 | ) | ||||||
| Loss per share | ||||||||||||||||
| Basic | $ | (0.10 | ) | $ | (0.05 | ) | $ | (0.02 | ) | $ | (0.01 | ) | ||||
| Diluted | $ | (0.10 | ) | $ | (0.05 | ) | $ | (0.02 | ) | $ | (0.01 | ) | ||||
| Weighted average number of shares outstanding | ||||||||||||||||
| Basic | 61,434,286 | 47,982,970 | 74,966,957 | 48,337,225 | ||||||||||||
| Diluted | 61,434,286 | 47,982,970 | 74,966,957 | 48,337,225 | ||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
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EMPOWER CLINICS INC.,
FORMERLY S.M .A.A.R.T HOLDINGS INC.
Interim Consolidated Unaudited Statements of Cash Flows
Expressed in United States dollars
| Nine months ended September 30, 2018 | Nine months ended September 30, 2017 | |||||||
| Operating activities | ||||||||
| Net loss for the period | $ | (5,132,848 | ) | $ | (2,295,382 | ) | ||
| Items not involving cash: Share based payments | 1,443,928 | |||||||
| Shares issued for service | – | 24,647 | ||||||
| Listing expense | 1,143,660 | – | ||||||
| Accretion expense | 214,680 | 422,359 | ||||||
| Interest expense | 86,760 | 111,683 | ||||||
| Depreciation expense | 43,169 | 77,470 | ||||||
| Impairment expense | – | – | ||||||
| Gain on debt settlement | – | (106,360 | ) | |||||
| (2,200,651 | ) | (1,765,583 | ) | |||||
| Changes in working capital: | ||||||||
| Accounts receivable | 10,541 | (2,702 | ) | |||||
| Prepaid expenses | (589,463 | ) | (27,390 | ) | ||||
| Accounts payable and accruals | (350,010 | ) | 399,276 | |||||
| Net cash (used in) operating activities | (3,129,583 | ) | (1,396,276 | ) | ||||
| Investing activities | ||||||||
| Acquisition of property, plant and equipment | (108,800 | ) | (30,582 | ) | ||||
| Cash acquired in reverse take-over transaction | 8,573 | – | ||||||
| Net cash (used in) investing activities | (100,227 | ) | (30,582 | ) | ||||
| Financing activities | ||||||||
| Proceeds from issue of shares | 2,801,996 | 116,522 | ||||||
| Advance of notes payable | 345,000 | – | ||||||
| Repayment of notes payable | – | (31,000 | ) | |||||
| Advance of convertible debentures payable | 373,504 | 1,180,314 | ||||||
| Advance of convertible notes payable | – | 199,323 | ||||||
| Advance from related party | (3,750 | ) | – | |||||
| Repayment to related party | – | – | ||||||
| Bank indebtedness | (7,148 | ) | (42,574 | ) | ||||
| Net cash provided by financing activities | 3,509,602 | 1,422,585 | ||||||
| Increase (Decrease) in cash | 279,792 | (4,273 | ) | |||||
| Cash, beginning of period | – | $ | 5,154 | |||||
| Cash, end of period | $ | 279,792 | 881 | |||||
The accompanying notes are an integral part of these consolidated financial statements.
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EMPOWER CLINICS INC.,
FORMERLY S.M .A.A.R.T HOLDINGS INC.
Interim Unaudited Notes to the Consolidated Financial Statements
Nine Months Ended September 30, 2018
Expressed in United States dollars
| 1. | Nature of Operations and Going Concern |
SMAART Holdings Inc. (“SMAART” or the “Company”) was incorporated under the laws of the Province of British Columbia on April 28, 2015. SMAART owns a Nevada, USA subsidiary, SMAART Holdings Corp., which in turn owns the following subsidiaries (the “Subsidiaries”):
| a) | Empower Healthcare Corporation (“Empower”) is an Oregon based corporation that, through its clinics in Oregon, and Washington State, provides physician services to patients in those states. Empower acquired the operations of Presto Quality Care Corporation (“Presto”) on July 12, 2015. |
| b) | SMAART Inc. is an Oregon based company that currently does not have an active business. |
| c) | The Hemp and Cannabis Company (“THCC Oregon”) and The Hemp and Cannabis Company Access Points Oregon (“THCF Access Points Oregon”), These are Oregon companies that currently do not have active businesses. |
| d) | The Hemp and Cannabis Company (“THCC Washington”) and The Hemp and Cannabis Company Access Points Washington (“THCF Access Points Washington”), Washington companies that currently do not have active businesses. |
| e) | CanMed Solutions Inc., is an Oregon corporation that was incorporated on January 27, 2017. The Company does not have an active business. |
During the period covered by these financial statements, the business of SMAART and its subsidiaries was limited to the provision of physician services through Empower in the states listed above.
At September 30, 2018, the Company had a working capital deficiency of $3,353,811 (2017 - $5,278,030) has not yet achieved profitable operations, has accumulated losses of $10,712,914 (2017 - $5,580,023). The Company has limited revenues and the ability of the Company to ensure continuing operations is dependent on the Company’s ability to raise sufficient funds to finance development activities and expand sales. These circumstances represent a material uncertainty that may cast significant doubt on the Company’s ability to continue as a going concern and ultimately the appropriateness of the use of accounting principles applicable to a going concern. These consolidated financial statements have been prepared using accounting principles applicable to a going concern and do not reflect adjustments, which could be material, to the carrying values of the assets and liabilities. See note 18 for subsequent events.
| 2. | Basis of presentation: |
| a) | Statement of compliance |
The Company applies International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board (“IASB”) and interpretations issued by the IFRS Interpretations Committee. These unaudited interim condensed consolidated financial statements have been prepared in accordance with International Accounting Standard 34 - Interim Financial Reporting. Accordingly, they do not include all of the information required for full annual financial statements.
| b) | Basis of presentation |
These financial statements have been prepared on the historical costs basis except instruments that are measured at fair value, as detailed in the Company’s accounting policies.
| c) | Functional and presentation currency |
The Company’s functional currency, as determined by management is the US dollar. These financial statements are presented in US dollars.
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EMPOWER CLINICS INC.,
FORMERLY S.M .A.A.R.T HOLDINGS INC.
Interim Unaudited Notes to the Consolidated Financial Statements
Nine Months Ended September 30, 2018
Expressed in United States dollars
| 2. | Basis of Presentation (continued): |
| d) | Use of estimates and judgements |
The preparation of these consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities and contingent liabilities at the date of the consolidated financial statements and reported amounts of revenues and expenses during the reporting period. Estimates and assumptions are continuously evaluated and are based on management’s experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. However, actual outcomes can differ from these estimates
Significant assumptions about the future and other sources of estimation uncertainty that management has made at the statement of financial position date, that could result in a material adjustment to the carrying amounts of assets or liabilities in the event that actual results differ from the assumptions made, relate to, but are not limited to the following:
| i) | The inputs used in accounting for share based payments in the consolidate statements of operations and comprehensive loss; |
| ii) | The inputs used in assessing the recoverability of deferred tax assets to the extent that the deductible temporary differences will reverse in the foreseeable future and that the Company will have future taxable income; and |
| iii) | The bifurcation of the convertible debt into liability and equity components and the determination of a market rate of interest. |
Significant judgments used in the preparation of these financial statements include, but are not limited to those relating to the assessment of the Company’s ability to continue as a going concern, useful life of fixed assets, impairment of assets and valuation of the acquisition of the assets of Presto.
| 3. | Significant Accounting Policies: |
| a) | Basis of consolidation |
The consolidated financial statements include the accounts of the Company and the subsidiaries.
The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company. The Company controls an entity when it is exposed, or has the rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. All significant inter-company transactions and balances are eliminated on consolidation
| b) | Revenue Recognition |
Revenue is measured at the fair value of the consideration received or receivable, and represents amounts receivable for services rendered, stated net of discounts. The Company recognizes revenue when the amount of revenue can be reliably measured, when it is probable that future economic benefits will flow to the Company, and when specific criteria have been met for each of the Company's activities, as described below. The Company recognizes revenue from the rendering of patient services in the accounting period in which the physicians services are rendered.
| c) | Clinic Expenses |
The Company includes the costs of medical personal and the travel costs related to the travel medical clinics in Direct Clinic Expenses. The Company includes all other costs related to the clinics including the administrative and overhead costs of running the clinics in Clinic Operating Costs.
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EMPOWER CLINICS INC.,
FORMERLY S.M .A.A.R.T HOLDINGS INC.
Interim Unaudited Notes to the Consolidated Financial Statements
Nine Months Ended September 30, 2018
Expressed in United States dollars
| 3. | Significant Accounting Policies (continued): |
| d) | Property, plant and equipment |
Property, plant and equipment is measured at cost less accumulated amortization and impairment losses. Amortization is provided using the following terms and method:
Building Straight-line 15 years
Farm Equipment Straight-line 3 years
Farm Furniture Straight-line 5 years
Computer software and equipment Straight-line 3 years
Office equipment and furniture Straight-line 3 years
An asset’s residual value, useful life and amortization method are reviewed at each financial year end and adjusted if appropriate. When parts of an item of equipment have different useful lives, they are accounted for as separate items (major components) of equipment. Gains and losses on disposal of an item of equipment are determined by comparing the proceeds from disposal with the carrying amount of the equipment and are recognized in profit or loss.
| e) | Impairment of long-lived assets |
Long-lived assets, including equipment and intangible assets are reviewed for impairment at each statement of financial position date or whenever events or changes in circumstances indicate that the carrying amount of an asset exceeds its recoverable amount. For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the cash generating unit, or “CGU”). The recoverable amount of an asset or a CGU is the higher of its fair value, less costs to sell, and its value in use. If the carrying amount of an asset exceeds its recoverable amount, an impairment charge is recognized immediately in profit or loss by the amount by which the carrying amount of the asset exceeds the recoverable amount. Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the lesser of the revised estimate of recoverable amount, and the carrying amount that would have been recorded had no impairment loss been recognized previously.
Intangible assets with a finite useful life are stated in historical cost, less any accumulated amortization and any accumulated impairment losses. Historical costs includes all costs directly attributable to the acquisition.
The patient records, trademarks, domain names and management software are amortized on a straight line basis over the estimated useful life of five years. Estimated useful lives and the amortization method are reviewed annually with the effect of any changes in estimates accounted for on a prospective basis.
| f) | Income taxes |
Income tax comprises current and deferred tax. Income tax is recognized in the statements of loss and comprehensive loss except to the extent that it relates to items recognized directly in shareholders’ equity, in which case the income tax is also recognized directly in shareholders’ equity.
Current tax is the expected tax payable on the taxable income for the period, using tax rates enacted at the end of the reporting period, and any adjustments to tax payable in respect of previous years.
The Company uses the liability method to account for income taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the carrying amounts of existing assets and liabilities for accounting purposes, and their respective tax bases. Deferred tax assets and liabilities are measured using tax rates that have been enacted or substantively enacted applied to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in statutory tax rates is recognized in profit or loss in the year of change. Deferred tax assets are recorded when their recoverability is considered probable and are reviewed at the end of each reporting period.
Deferred tax assets and liabilities are presented as non-current.
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EMPOWER CLINICS INC.,
FORMERLY S.M .A.A.R.T HOLDINGS INC.
Interim Unaudited Notes to the Consolidated Financial Statements
Nine Months Ended September 30, 2018
Expressed in United States dollars
| 3. | Significant Accounting Policies (continued): |
| g) | Loss per common share, basic and diluted |
The Company presents basic and diluted earnings per share data for its common shares. Basic earnings per share is calculated by dividing the profit or loss attributable to common shareholders of the Company by the weighted average number of common shares outstanding during the period. Diluted earnings per share is determined by adjusting the profit or loss attributable to common shareholders and the weighted average number of common shares outstanding, for the effects of all dilutive potential common shares, which comprise warrants and share options issued. Items with an anti-dilutive impact are excluded from the calculation. The number of shares included with respect to options, warrants and similar instruments is computed using the treasury stock method.
| h) | Financial instruments |
The Company classifies its financial assets and liabilities depending on the purpose for which the financial instruments were acquired, their characteristics, and management intent.
Transaction costs
Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to financial assets or liabilities at fair value through profit or loss are recognized immediately in profit or loss.
Financial assets
The Company initially recognizes financial assets at fair value on the date that they are acquired, adjusted for transaction costs, if applicable. All financial assets (including assets designated at fair value through profit or loss) are recognized initially on the date at which the Company becomes a party to the contractual provisions of the instrument. The Company derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Company is recognized as a separate asset or liability. The Company classifies its financial assets as financial assets at fair value through profit and loss or loans and receivables. A financial asset is classified at fair value through profit or loss if it is classified as held for trading or is designated as such upon initial recognition. Financial assets are designated at fair value through profit or loss if the Company manages such investments and makes purchase and sale decisions based on their fair value in accordance with the Company’s documented risk management or investment strategy. Financial assets at fair value through profit or loss are measured at fair value, and changes therein are recognized in profit or loss. Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognized initially at adjusted fair value, adjusted for applicable transaction costs. Subsequent to initial recognition loans and receivables are measured at amortized cost using the effective interest method, less any impairment losses. The effective interest method is a method of calculating the amortized cost of a financial instrument and of allocating interest over the relevant period. The effective interest rate is the rate that discounts estimated future cash payments through the expected life of the financial instrument, or, where appropriate, a shorter period.
Financial liabilities
The Company initially recognizes financial liabilities at fair value on the date that they are originated, and are adjusted for transaction costs, if applicable. All financial liabilities (including liabilities designated at fair value through profit or loss) are recognized initially on the date at which the Company becomes a party to the contractual provisions of the instrument. The Company derecognizes a financial liability when its contractual obligations are discharged or cancelled or expire. The Company classifies its financial liabilities as either financial liabilities at fair value through profit and loss or other liabilities. Subsequent to initial recognition other liabilities are measured at amortized cost using the effective interest method. Financial liabilities at fair value are stated at fair value with changes being recognized in profit or loss.
| 9 |
EMPOWER CLINICS INC.,
FORMERLY S.M .A.A.R.T HOLDINGS INC.
Interim Unaudited Notes to the Consolidated Financial Statements
Nine Months Ended September 30, 2018
Expressed in United States dollars
| 3. | Significant Accounting Policies (continued): |
Impairment of financial assets
Financial assets, other than those classified at fair value through profit and loss, are assessed for indicators of impairment at the end of the reporting period. Financial assets are considered to be impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, and that the loss event (events) has an impact on the estimated future cash flows of the financial asset that can be reliably estimated.
The amount of the impairment loss in respect of a financial asset measured at amortized cost is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses) discounted at the financial asset’s original effective interest rate. The asset’s carrying amount is reduced and the amount of the loss is recognized in the statements of loss and comprehensive loss.
| i) | Valuation of Equity Units issued in Private Placements |
The Company has adopted a residual value method with respect to the measurement of shares and warrants issued as private placement units. The residual value method first allocates value to the most easily measurable component based on fair value and then the residual value, if any, to the less easily measurable component. The fair value of the common shares issued in private placements is determined to be the more easily measurable.
Compound financial instruments issued by the Company comprise convertible debt that can be converted to share capital at the option of the holder. The liability component of a compound financial instrument is recognized initially at the fair value of a similar liability that does not have an equity convertible option. The equity component is recognized initially as the difference between the fair value of the compound financial instrument as a whole and the fair value of the liability component. Any directly attributable transaction costs are allocated to the liability and equity components in proportion to their initial carrying amounts. Subsequent to initial recognition, the liability component of a compound financial instrument is measured at amortized cost using the effective interest rate method. The equity component of a compound financial instrument is not re-measured subsequent to initial recognition. Interest, dividends, losses and gains relating to the financial liability are recognized in profit or loss.
| j) | Assets Held for Sale |
Non-current assets, or disposal groups comprising assets and liabilities, are classified as held for sale if it is highly probable that they will be recovered primarily through sale rather than through continuing use. Such assets, or disposal groups, are generally measured as the lower of their carrying amount and fair value less costs to sell.
| k) | Related party transactions |
Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence, related parties may be individuals or corporate entities. A transaction is considered to be a related party transactions when there is a transfer of resources or obligations between related parties.
| 10 |
EMPOWER CLINICS INC.,
FORMERLY S.M .A.A.R.T HOLDINGS INC.
Interim Unaudited Notes to the Consolidated Financial Statements
Nine Months Ended September 30, 2018
Expressed in United States dollars
| 3. | Significant Accounting Policies (continued): |
| l) | Convertible Debenture |
The convertible debentures were determined to be compound instruments, comprising liability and equity (common shares and warrants). As the debentures are convertible into common shares, the liability and equity components are presented separately. The initial carrying amount of the equity component of the convertible debentures is determined by using the Black-Scholes option pricing model to estimate the fair value the equity component at the grant date. Using the residual method, the carrying amount of the financial liability component is the difference between the principal amount and the initial carrying value of the equity component. The equity component, and any associated warrants recognized on conversion of the convertible debenture are recorded in reserves on the statement of financial position. The debentures, net of the equity components are accreted using the effective interest rate method over the term of the debentures, such that the carrying amount of the financial liability will equal the principal balance at maturity.
| m) | Business Combinations |
Business combinations are accounted for under the acquisition method. The consideration transferred for the acquisition of a subsidiary is the fair value of the assets transferred, the liabilities incurred and the equity interests issued by the Company, if any, at the date control is obtained. The consideration transferred includes the fair value of any liability resulting from a contingent consideration arrangement. Acquisition-related costs, other than share and debt issue costs incurred to issue financial instruments that form part of the consideration transferred, are expensed as incurred. Identifiable assets acquired and liabilities assumed in a business combination are measured initially at their fair value at the acquisition date. If a business combination is achieved in stages, the Company remeasures its previously held interest in the acquiree at its acquisition-date fair value and recognizes the resulting gain or loss, if any, in net income. Contingent consideration is classified as a provision and is measured at fair value, with subsequent changes recognized in income. If the contingent consideration is classified as equity, it is not remeasured until it is finally settled within equity. New information obtained during the measurement period, up to 12 months following the acquisition date, about facts and circumstances existing at the acquisition date affect the acquisition accounting.
| 4. | New standards, Amendments and Interpretations |
A number of new standards and amendments to standards and interpretations have been issued but have not yet been applied in preparing these financial statements, as set out below:
| · | IFRS 9, Financial Instruments, addresses the classification, measurement and recognition of financial assets and financial liabilities. The complete version of IFRS 9 was issued in July 2014. It replaces the guidance in IAS 39 that relates to the classification and measurement of financial instruments. IFRS 9 retains but simplifies the mixed measurement model and establishes three primary measurement categories for financial assets: amortized cost, fair value through other comprehensive income (OCI) and fair value through profit or loss. The basis of classification depends on the entity’s business model and the contractual cash flow characteristics of the financial asset. Investments in equity instruments are required to be measured at fair value through profit or loss with the irrevocable option at inception to present changes in fair value in OCI not recycling. There is now a new expected credit losses model that replaces the incurred loss impairment model used in IAS 39. For financial liabilities, there were no changes to classification and measurement except for the recognition of changes in own credit risk in other comprehensive income, for liabilities designated at fair value through profit or loss. The standard is effective for accounting periods beginning on or after January 1, 2018. The Company adopted this standard during the period and it did not have a material impact on the consolidated financial statements. |
| 11 |
EMPOWER CLINICS INC.,
FORMERLY S.M .A.A.R.T HOLDINGS INC.
Interim Unaudited Notes to the Consolidated Financial Statements
Nine Months Ended September 30, 2018
Expressed in United States dollars
| 4. | New standards, Amendments and Interpretations (continued) |
| · | IFRS 15, Revenue from Contracts with Customers, deals with revenue recognition and establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. Revenue is recognized when a customer obtains control of goods or services and thus has the ability to direct the use and obtain the benefits from the goods or services. The standard replaces IAS 18, Revenue, and IAS 11, Construction Contracts, and related interpretations. The standard is effective for annual periods beginning on or after January 1, 2018. The Company has adopted this standard during the period and it did not have a material impact on the consolidated financial statements |
A number of new standards and amendments to standards and interpretations have been issued but have not yet been applied in preparing these financial statements, as set out below:
.
| · | In January 2016, the IASB issued IFRS 16, Leases, which will replace IAS 17, Leases. Under IFRS 16, a contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Under IAS 17, lessees were required to make a distinction between a finance lease and an operating lease. IFRS 16 now requires lessees to recognize a lease liability reflecting future lease payments and a right-of-use asset for virtually all lease contracts. There is an optional exemption for certain short-term leases and leases of low value assets; however, this exemption can only be applied by lessees. The standard is effective for annual periods beginning on or after January 1, 2019, with earlier application if IFRS 15 is also applied. |
| 5. | Property, Plant and Equipment |
The Company operates clinics in Oregon and Washington State.
| Furniture and Equipment | Tennant Improvements | Total | ||||||||||
| Cost | ||||||||||||
| Balance, December 31, 2016 | 15,000 | – | 15,000 | |||||||||
| Additions | 11,598 | 20,000 | 31,598 | |||||||||
| Balance, December 31, 2017 | 26,598 | 20,000 | 46,598 | |||||||||
| Additions | 9,279 | 99,522 | 108,801 | |||||||||
| Balance, September 30, 2018 | 35,877 | 119,522 | 155,399 | |||||||||
| Accumulated Amortization | ||||||||||||
| Balance December 31, 2016 | (6,602 | ) | – | (6,602 | ) | |||||||
| Amortization | (3,868 | ) | – | (3,868 | ) | |||||||
| Balance December 31, 2017 | (10,470 | ) | – | (10,470 | ) | |||||||
| Amortization | (9,227 | ) | (1,056 | ) | (10,283 | ) | ||||||
| Balance, September 30, 2018 | (19,697 | ) | (1,056 | ) | (20,752 | ) | ||||||
| Net Book Value | ||||||||||||
| Balance, December 31, 2017 | 16,128 | 20,000 | 36,128 | |||||||||
| Balance, September 30, 2018 | 16,180 | 118,466 | 134,646 | |||||||||
| 12 |
EMPOWER CLINICS INC.,
FORMERLY S.M .A.A.R.T HOLDINGS INC.
Interim Unaudited Notes to the Consolidated Financial Statements
Nine Months Ended September 30, 2018
Expressed in United States dollars
| 6. | Intangible Assets |
| Patient Records | Trademarks and Domain Names | Management Software | Total | |||||||||||||
| Cost | ||||||||||||||||
| Balance, December 31, 2017, and September 30, 2018 | $ | 356,893 | $ | 141,000 | $ | 73,000 | $ | 570,893 | ||||||||
| Accumulated Amortization/Impairment | ||||||||||||||||
| Balance, December 31, 2016 | $ | (35,690 | ) | $ | (14,100 | ) | $ | (7,300 | ) | $ | (57,090 | ) | ||||
| Balance, December 31, 2017 | $ | (213,897 | ) | $ | (70,500 | ) | $ | (36,500 | ) | $ | (320,897 | ) | ||||
| Amortization | (23,627 | ) | (11,750 | ) | (6,083 | ) | (41,460 | ) | ||||||||
| Balance, September 30, 2018 | $ | (237,524 | ) | $ | (82,250 | ) | $ | (42,583 | ) | $ | (362,357 | ) | ||||
| Net Book Value | ||||||||||||||||
| Balance, December 31, 2017 | $ | 142,996 | $ | 70,500 | $ | 36,500 | $ | 249,996 | ||||||||
| Balance, September 30, 2018 | $ | 119,369 | $ | 58,750 | $ | 30,417 | $ | 208,536 | ||||||||
| 7. | Assets Held for Sale |
As at September 30, 2018 the Company has listed the facility and land in Portland, Oregon for sale The following table shows the major classes of assets recorded as held for sale:
| Facility Portland | Land Portland | Total | ||||||||||
| Cost | ||||||||||||
| Additions | – | – | – | |||||||||
| Balance, December 31, 2017 | $ | 70,297 | $ | 119,703 | $ | 190,000 | ||||||
| Additions | – | – | – | |||||||||
| Balance, September 30, 2018 | $ | 70,297 | $ | 119,703 | $ | 190,000 | ||||||
| Accumulated Amortization | ||||||||||||
| Balance, December 31, 2017 | $ | (4,956 | ) | $ | – | $ | (4,956 | ) | ||||
| Amortization | – | – | – | |||||||||
| Balance, September 30, 2018 | $ | (4,956 | ) | $ | – | $ | (4,956 | ) | ||||
| Net Book Value | ||||||||||||
| Balance, December 31, 2017 | $ | 65,341 | $ | 119,703 | $ | 185,044 | ||||||
| Balance, September 30, 2018 | $ | 65,341 | $ | 119,703 | $ | 185,044 | ||||||
Prior to their classification as assets held for sale, the land and facility in Portland were reported under Property, plant and equipment. The assets held for sale are included at the lower of their carrying value and their fair market value. The fair market value was based on comparable assets in the market place and was greater than the carrying value.
| 13 |
EMPOWER CLINICS INC.,
FORMERLY S.M .A.A.R.T HOLDINGS INC.
Interim Unaudited Notes to the Consolidated Financial Statements
Nine Months Ended September 30, 2018
Expressed in United States dollars
| 8. | Notes Payable |
| December 31, 2016 | $ | 87,016 | ||
| Converted to convertible debentures (a) | (62,131 | ) | ||
| Repayment (b) | (31,000 | ) | ||
| Issue of notes payable (c)(d) | 399,985 | |||
| Interest | 10,500 | |||
| December 31, 2017 | $ | 404,370 | ||
| Issue of notes payable (e) | 205,000 | |||
| Converted to shares (d) | (50,000 | ) | ||
| Shares to be issued (e) | (122,394 | ) | ||
| Issue of notes payable (f) | 140,000 | |||
| Interest | 21,708 | |||
| September 30, 2018 | $ | 598,684 |
| a) | During the year ending December 31, 2015, the Company issued three separate notes payable of CDN $20,000, USD $20,000 and CDN $25,000 bearing interest at 6% per annum and repayable on demand. These notes were converted to convertible debentures during the period ended December 31, 2017. See note 9(g). |
| b) | On November 6, 2015, the Company issued a $25,000 promissory note maturing 120 days from the date of issuance. Upon maturity, the promissory note will be repayable on demand and will bear interest at 1.5% compounding monthly. The note was repaid during the period ended December 31, 2017. |
| c) | On September 15, 2017, the Company acquired promissory notes that could be drawn down for up to $150,000 and $75,000 maturing on December 31, 2017. During the period ended December 31, 2017 $232,985 and $117,000 had been drawn respectively. Upon maturity, the promissory note will be repayable on demand and will bear interest at 6% per annum. In October 2018, the Company converted $122,934 of the debt into shares. (See Note 18). |
| d) | On December 29, 2017, the Company acquired a $50,000 promissory note maturing on the date a go public transaction is completed. The unpaid Principal of this promissory note shall not accrue interest, but rather shall convert into common shares in the capital of the Debtor at the maximum permissible discount allowed pursuant to the rules of the Canadian Securities Exchange. The debt was converted and the shares were issued in April 2018 as part of the reverse take-over transaction. See note 11c). |
| e) | On February 5, 2018 and March 12, 2018, the Company acquired promissory notes in the amounts of $55,000 and $150,000 respectively. Upon maturity, the promissory note will be repayable on demand and will bear interest at 6% per annum. |
| f) | On August 10, 2018 the Company acquired a promissory note in the amount of $140,000. The note will be repayable on demand and will bear interest at 7% per annum. |
| 9. | Convertible Notes Payable |
The Company has received the following proceeds net of costs, from the private placement issuance of debentures.
| September 30, 2018 | December 31, 2017 | December 31, 2016 | December 31, 2015 | |||||||||||||||
| June 11, 2015 | $ | – | $ | – | $ | 200,000 | ||||||||||||
| January 1, 2016 | – | 75,000 | – | |||||||||||||||
| February 10, 2016 | – | 200,000 | – | |||||||||||||||
| March 1, 2017 | 1,010,314 | – | – | |||||||||||||||
| June 26,2017 | 130,000 | – | – | |||||||||||||||
| July 31, 2017 | 115,000 | – | – | |||||||||||||||
| August 22, 2017 | 40,000 | – | – | |||||||||||||||
| Sept 27, 2018 | 373,504 | |||||||||||||||||
| Total | $ | 373,504 | $ | 1,295,314 | $ | 275,000 | $ | 200,000 | ||||||||||
The debentures are due one year from the date of issuance and are repayable in full with accrued interest at 7.5% per annum on maturity. The holder may at any time during the term of the debenture convert all or part into equity at a conversion price equal to a 25% discount to the next round of equity financing undertaken by the Company, into units (“Units”) of the Corporation consisting of one common share (each, a "Share") and one share purchase warrant (each, a “Warrant”), with each Warrant entitling the holder thereof to acquire one Share at an exercise price equal to 125% of the price of the next round of equity financing. As part of the reverse take-over transaction all of the debt was converted to shares. See note 11c).
| 14 |
EMPOWER CLINICS INC.,
FORMERLY S.M .A.A.R.T HOLDINGS INC.
Interim Unaudited Notes to the Consolidated Financial Statements
Nine Months Ended September 30, 2018
Expressed in United States dollars
| 9. | Convertible Notes Payable (continued) |
Convertible debentures consist of the following:
Loan component | Derivative liability | Equity component | ||||||||||
| Balance, December 31, 2016 | $ | 468,329 | $ | – | $ | 222,417 | ||||||
| Issue of convertible debt (d)(e)(f)(h)(i) | 582,879 | 1,038,912 | – | |||||||||
| Change in derivative fair value | – | 8,435 | – | |||||||||
| Interest expense | 116,644 | – | – | |||||||||
| Accretion expense | 667,373 | – | – | |||||||||
| Balance, December 31, 2017 | $ | 1,835,225 | $ | 1,047,347 | $ | 222,417 | ||||||
| Interest expense | 43,270 | – | – | |||||||||
| Accretion expense | 214,680 | – | – | |||||||||
| Conversion to shares | (2,093,175 | ) | (1,047,347 | ) | (222,417 | ) | ||||||
| Issue of convertible debt | 373,504 | – | – | |||||||||
| Balance September 30, 2018 | $ | 373,504 | $ | – | $ | – | ||||||
| a) | On June 11, 2015, the Company issued a convertible debenture of $200,000, expiring on June 11, 2016. The debt is past due and due on demand. The fair value of the equity component of the convertible debenture at the grant date was estimated using the Black-Scholes option pricing model with the following assumptions: a one year expected average life, share price of $0.0142; 100% volatility; risk-free interest rate of 0.66%; and an expected dividend yield of 0%. The fair value assigned to the conversion feature was $126,687. The amount was recorded to derivative liability until the conversion price was determined. The amount was moved to equity in 2016. |
| b) | On January 1, 2016, the Company issued a convertible debenture of $75,000, expiring on January 1, 2017. The debt is past due and due on demand. The fair value of the equity component of the convertible debenture at the grant date was estimated using the Black-Scholes option pricing model with the following assumptions: a one year expected average life, share price of $0.0142; 100% volatility; risk-free interest rate of 0.46%; and an expected dividend yield of 0%. The fair value assigned to the conversion feature was $47,446. The amount was recorded to derivative liability until the conversion price was determined. The amount was moved to equity in 2016. |
| c) | In February 10, 2016, the Company issued two convertible debentures totaling $200,000, expiring on February 10, 2017. The debt is past due and due on demand. The fair value of the equity component of the convertible debentures at the grant date was estimated using the Black-Scholes option pricing model with the following assumptions: a one year expected average life, share price of $0.0142; 100% volatility; risk-free interest rate of 0.66%; and an expected dividend yield of 0%. The fair value assigned to the conversion feature was $126,430. The amount was recorded to derivative liability until the conversion price was determined. The amount was moved to equity in 2016. |
| d) | On March 1, 2017, the Company raised $1,010,314 through the issue of convertible debentures net of finder fees, expiring on March 1, 2018. The fair value of the equity component of the convertible debentures at the grant date was estimated using the Black-Scholes option pricing model with the following assumptions: a one year expected average life, share price of $0.0056; 100% volatility; risk-free interest rate of 0.76%; and an expected dividend yield of 0%. The fair value assigned to the conversion feature was $653,626. The amount is recorded to derivative liability until the conversion price is determined. |
| e) | On June 26, 2017, the Company raised $130,000 through the issue of convertible debentures, expiring on June 26, 2018. The fair value of the equity component of the convertible debentures at the grant date was estimated using the Black-Scholes option pricing model with the following assumptions: a one year expected average life, share price of $0.0056; 100% volatility; risk-free interest rate of 0.76%; and an expected dividend yield of 0%. The fair value assigned to the conversion feature was $82,332. The amount is recorded to derivative liability until the conversion price is determined. |
| 15 |
EMPOWER CLINICS INC.,
FORMERLY S.M .A.A.R.T HOLDINGS INC.
Interim Unaudited Notes to the Consolidated Financial Statements
Nine Months Ended September 30, 2018
Expressed in United States dollars
| 9. | Convertible Notes Payable (continued) |
| f) | On July 31, 2017, the Company raised $115,000 through the issue of convertible debentures, expiring on July 31, 2018. The fair value of the equity component of the convertible debentures at the grant date was estimated using the Black-Scholes option pricing model with the following assumptions: a one year expected average life, share price of $0.0056; 100% volatility; risk-free interest rate of 0.76%; and an expected dividend yield of 0%. The fair value assigned to the conversion feature was $72,831. The amount is recorded to derivative liability until the conversion price is determined. |
| g) | On July 31, 2017, there were 3 outstanding notes payable in the aggregate amount of $58,111 that were converted into convertible notes payable in the amount of $55,000 expiring on July 31, 2018. The fair value of the equity component of the convertible debentures at the grant date was estimated using the Black-Scholes option pricing model with the following assumptions: a one year expected average life, share price of $0.0056; 100% volatility; risk-free interest rate of 0.76%; and an expected dividend yield of 0%. The fair value assigned to the conversion feature was $34,832. The amount is recorded to derivative liability until the conversion price is determined. |
| h) | On July 31, 2017, the Company converted accounts payable in the aggregate amount of $268,366 into convertible notes payable expiring on July 31, 2018. The fair value of the equity component of the convertible debentures at the grant date was estimated using the Black-Scholes option pricing model with the following assumptions: a one year expected average life, share price of $0.0056; 100% volatility; risk-free interest rate of 0.76%; and an expected dividend yield of 0%. The fair value assigned to the conversion feature was $169,959. |
| i) | On August 22, 2017, the Company raised $40,000 through the issue of convertible debentures, expiring on August 22, 2018. The fair value of the equity component of the convertible debentures at the grant date was estimated using the Black-Scholes option pricing model with the following assumptions: a one year expected average life, share price of $0.0056; 100% volatility; risk-free interest rate of 0.76%; and an expected dividend yield of 0%. The fair value assigned to the conversion feature was $25,332. The amount is recorded to derivative liability until the conversion price is determined. |
| j) | On September 27, 2018, the Company raised $373,504 USD through the issue of convertible debentures, expiring on September 27, 2019 at a conversion price of $0.18 per share. An additional $29,038 USD was raised in October 2018. |
| 10. | Secured Loan Payable |
On June 12, 2015, the Company through its wholly owned subsidiary Empower acquired all of the assets of Presto in consideration for the assumption by the Company of Presto’s liability to Bayview Equities Ltd (the “Secured Party”) in the amount of $550,000 plus accrued interest of $126,849. The liability is secured by a grant to the Secured Party of a security interest in the assets of Empower. The liability bears interest at 6% per annum.
The amounts payable are:
| Sept 30, 2018 | December 31, 2017 | December 31, 2016 | ||||||||||
| Principal | $ | 550,000 | $ | 550,000 | $ | 550,000 | ||||||
| Interest | 146,005 | 126,849 | $ | 88,537 | ||||||||
| Total | $ | 696,005 | $ | 676,849 | $ | 602,393 | ||||||
| 16 |
EMPOWER CLINICS INC.,
FORMERLY S.M .A.A.R.T HOLDINGS INC.
Interim Unaudited Notes to the Consolidated Financial Statements
Nine Months Ended September 30, 2018
Expressed in United States dollars
| 11. | Share Capital |
Authorized:
Unlimited number of common shares without nominal or par value.
The Issued and outstanding common share are:
| Share Capital | ||||||||
| Number | Amount | |||||||
| Balance, December 31, 2016 | 16,100,000 | $ | 248,500 | |||||
| Shares issued January 2017 (a)(*) | 32,237,225 | 302,244 | ||||||
| Balance, December 31, 2017 | 48,337,225 | $ | 550,744 | |||||
| Shares issued April 2018 (b) | 8,443,473 | 2,617,477 | ||||||
| Shares issued April 2018 (c) | 11,642,184 | 3,412,939 | ||||||
| Shares issued April 2018 (d) | 2,544,075 | 788,663 | ||||||
| Shares issued June 2018 (e) | 2,000,000 | 469,712 | ||||||
| Shares issued June 2018 (f) | 2,000,000 | 590,928 | ||||||
| Warrant allocation (b),(c),(e) | – | (1,669,223 | ) | |||||
| Balance, September 30, 2018 | 74,966,957 | $ | 6,761,240 | |||||
| a) | In January 2017, the Company raised $302,244 through the issue of 32,237,225 shares to its existing shareholders at a cost of $0.0094 per share. |
| b) | In April 2018, The Company completed a reverse take-over of Adira Energy Ltd. and completed the amalgamation and consolidation into Empower Clinics Inc. and as completed the requirements for a public listing on the Canadian Stock Exchange. In connection with the reverse take-over transaction the Company closed a concurrent financing at a cost of CDN$0.31 per share. A total of 8,443,473 shares were issued during the rights offering for proceeds of $2,617,477. As part of the offering the Company issued 627,378 warrants to agents. The warrants can be exercised for a share at a price of CDN$0.31 for two years. The warrants fair value was determined to be $80,848 using the Black-Scholes option pricing model. The following assumptions were used: risk-free interest rate – 2.11%; expected volatility 100%; dividend yield – nil; expected life – 2 years; and share price - CDN$0.31. |
| c) | As part of the reverse take-over transaction the Company converted debt with a face value of $2,165,446 for 11,642,184 units. Each unit is comprised of 11,642,184 shares and 11,642,184 warrants can be exercised for a share at a price of CDN$0.39 for two years. The warrants fair value was determined to be $1,716,058 using the Black-Scholes option pricing model. The following assumptions were used: risk-free interest rate – 2.11%; expected volatility 100%; dividend yield – nil; expected life – 2 years; and share price - CDN$0.31. As the exercise price is in a currency other than the Company’s functional currency the warrants have been recorded as a derivative liability. |
| d) | In connection with the reverse take-over transaction and amalgamation of Adira Energy Limited occurred. The share equity of Adira was converted at a ratio of 20:1, resulting in an issuance of 2,544,075 at $0.31 per share. |
| e) | In June 2018, the company issued 2,000,000 units at a share price of $0.31 for aggregate proceeds of $469,712. Each unit is comprised of 2,000,000 shares and 2,000,000 warrants can be exercised for a share at a price of CDN$0.36 for one year. The warrants fair value was determined to be $244,856 using the Black- Scholes option pricing model. The following assumptions were used: risk-free interest rate – 2.11%; expected volatility 100%; dividend yield – nil; expected life – 1 year; and share price - CDN$0.31. As the exercise price is in a currency other than the Company’s functional currency the warrants have been recorded as a derivative liability. |
| f) | In June 2018, the Company issued 2,000,000 shares to the CEO per their employment contract, at a share price of CDN$0.39 per share, with a fair value of $590,928. |
*On March 16, 2017, the shares of the Company were consolidated on the basis of one share for every three shares held. Following the consolidation, there were 48,337,225 shares outstanding.
The financial statement have incorporated the share split and share consolidation in the number of shares presented and the per share values.
| 17 |
EMPOWER CLINICS INC.,
FORMERLY S.M .A.A.R.T HOLDINGS INC.
Interim Unaudited Notes to the Consolidated Financial Statements
Nine Months Ended September 30, 2018
Expressed in United States dollars
| 12. | Share Based Payments |
In August 2017, the Company issued a Board of Directors resolution to grant 3,050,000 stock options to senior executives and consultants of the Company at an exercise price of $0.10. The vesting commencement dates ranged from February 1, 2016 to February 26, 2017. The options expire five years from their vesting commencement date. 250,000 options vest immediately, 866,667 vest on the first anniversary of their issue date, 866.667 vest on the second anniversary of their issue and 866,667 vest on the third anniversary of their issue date. The fair value was determined to be $NIL using the Black-Scholes option pricing model. The following assumptions were used: risk-free interest rate – 0.76%; expected volatility 100%; dividend yield – nil; expected life – 5 years; and share price - $0.006.
In December 2017, the Company issued a Board of Directors resolution to grant 250,000 stock options to a consultant of the Company at an exercise price of $0.10. The options expire five years from their grant date. 83,333 vest on the first anniversary of their issue date, 83,333 vest on the second anniversary of their issue and 83,333 vest on the third anniversary of their issue date. The fair value was determined to be $NIL using the Black-Scholes option pricing model. The following assumptions were used: risk-free interest rate – 0.76%; expected volatility 100%; dividend yield – nil; expected life – 5 years; and share price - $0.006.
In May 2018, the Company issued a Board of Directors resolution to grant 3,850,000 stock options to senior executives and consultants of the Company at an exercise price of $0.38. The options vested immediately. The fair value was determined to be $1,098,000 using the Black-Scholes option pricing model. The following assumptions were used: risk-free interest rate – 2.11%; expected volatility 100%; dividend yield – nil; expected life – 5 years; and share price - $0.38.
| Number of Stock Options | Weighted Average Exercise Price | |||||||
| Balance, December 31, 2016 | 1,250,000 | $ | 0.10 | |||||
| Stock options with a vesting commencement date during the year | 1,800,000 | 0.10 | ||||||
| Balance, December 31, 2017 | 3,300,000 | $ | 0.10 | |||||
| Stock options with a vesting commencement date during the year | 3,850,000 | 0.38 | ||||||
| Balance, September 30, 2018 | 7,150,000 | $ | 0.25 | |||||
As at September 30, 2018 the Corporation had the following stock options outstanding and exercisable:
| Number of Options | Number of Options | Remaining Contractual | Exercise | |||||||||||||
| Expiry Date | Exercisable | Outstanding | Life (years) | Price | ||||||||||||
| February 1, 2021 | 250,000 | 250,000 | 2.34 | $ | 0.10 | |||||||||||
| December 16, 2021 | – | 1,000,000 | 3.21 | $ | 0.10 | |||||||||||
| January 20, 2022 | – | 200,000 | 3.31 | $ | 0.10 | |||||||||||
| February 20, 2022 | – | 1,200,000 | 3.39 | $ | 0.10 | |||||||||||
| February 26, 2022 | – | 200,000 | 3.41 | $ | 0.10 | |||||||||||
| August 1, 2022 | – | 200,000 | 3.84 | $ | 0.10 | |||||||||||
| December 29, 2022 | – | 250,000 | 4.25 | $ | 0.10 | |||||||||||
| May 25, 2023 | – | 3,850,000 | 4.65 | $ | 0.38 | |||||||||||
| 18 |
EMPOWER CLINICS INC.,
FORMERLY S.M .A.A.R.T HOLDINGS INC.
Interim Unaudited Notes to the Consolidated Financial Statements
Nine Months Ended September 30, 2018
Expressed in United States dollars
| 13. | Related Party Transactions |
The aggregate value of transactions and outstanding balances relating to key management personnel were as follows:
| Related party transactions | Nine months ended Sept 30, | Year ended December 31, | ||||||
| 2018 | 2017 | |||||||
| Remuneration and benefits | $ | 50,000 | $ | 221,700 | ||||
| Share based payments | $ | 1,443,928 | $ | – | ||||
| Amounts owed | $ | – | $ | – | ||||
In June 2018, 3,850,000 stock options were granted at an exercise price of $0.38 per common share, and will expire on June 25, 2023. The fair value was determined to be $853,000 using the Black-Scholes option pricing model.
2,000,000 common shares were granted to CEO Craig Snyder, per his employment contract, with a fair value of $590,928.
| 14. | Capital management |
Capital is comprised of the Company’s shareholder’s equity and any debt it may issue. As at September 30, 2018, the Company’s shareholders’ equity was $(2,825,585). (December 31, 2017 $(4,806,862). The Company’s objective when managing capital is to safeguard its accumulated capital in order to provide adequate return to shareholders by maintaining a sufficient level of funds, in order to support its ongoing activities. 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.
The Company is dependent on cash flows generated from its clinical operations and from external financing to fund its activities. The Company will spend its existing working capital and raise additional amounts as needed. The Company is not subject to any externally imposed capital requirements.
| 15. | Financial risk management |
Financial instruments measured at fair value are classified into one of three levels in the fair value hierarchy according to the relative reliability of the inputs used to estimate the fair values. The three levels of the fair value hierarchy are:
Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities;
Level 2 – Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly; and Level 3 – Inputs that are not based on observable market data.
At September 30, 2018, the Company's financial instruments consist of cash, accounts payable and accrued liabilities, convertible debt, notes payable and amounts due to related parties. The fair values of cash, accounts payable and accrued liabilities, notes payable and amounts due to related parties approximate their carrying values due to the relatively short-term to maturity. The Company classifies its cash as FVTPL and accounts payable and accrued liabilities, convertible debt, notes payable and due to related parties as other financial liabilities. The fair value of cash is based on level 1 inputs of the fair value hierarchy.
The Company is exposed to a variety of financial instrument related risks. The Company’s risk exposures and the impact on the Company’s financial instruments are summarized below:
| 19 |
EMPOWER CLINICS INC.,
FORMERLY S.M .A.A.R.T HOLDINGS INC.
Interim Unaudited Notes to the Consolidated Financial Statements
Nine Months Ended September 30, 2018
Expressed in United States dollars
| 15. | Financial risk management (continued) |
Credit risk
Credit risk is the risk of loss associated with a counterparty’s inability to fulfill its payment obligations. Financial instruments that potentially subject the Company to concentrations of credit risks consist principally of cash. To minimize the credit risk the Company places these instruments with a high credit quality financial institution.
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company typically settles its financial obligations out of cash. As at September 30, 2018, the Company had a cash balance of
$279,972 and current liabilities of $4,371,159. (December 31, 2017 Nil and $5,436,664 respectively). The Company’s current resources are not sufficient to settle its current liabilities.
The Company’s accounts payable and accrued liabilities are due in the short term. The Company’s notes payable are due on demand.
Interest rate risk
Interest rate risk is the risk that future cash flows will fluctuate as a result of changes in market interest rates.
| 16. | Commitments |
The Company has lease commitments as follows:
| Fiscal 2018 | $ | 57,565 | ||
| Fiscal 2019 | $ | 214,616 | ||
| Fiscal 2020 | $ | 46,820 |
| 17. | Contingent liabilities |
The Company is involved in a number of legal actions with the former President and director of its subsidiary companies (the “Litigant”) following the termination for cause of the Litigant in June 2016.
In one action, as the Litigant refused to comply with the termination, the Company received a temporary restraining order (“TRO”) requiring the Litigant to comply with the termination and cease using company property. Later, following a full evidentiary hearing, the court issued a preliminary injunction consistent with the TRO. In June 2017, the Litigant, filed counterclaims against the company and its subsidiaries. The Litigant’s counterclaims broadly allege that his written agreements with the Company and its subsidiaries were induced by fraud or mistake. He claims he believed he was promised that he would own 50% of the Company in perpetuity, and that his lack of control over the Corporation and its subsidiaries has caused him economic harm in the amount of $10 million. The Litigant seeks money damages or rescission of the agreements. The Company and its subsidiaries are prosecuting their claims against the Litigant, and are vigorously defending against all of his counterclaims.
In a second action, the Litigant filed a lawsuit on behalf of The Hemp and Cannabis Foundation (“THCF”) for rescission of an agreement whereby THCF sold a parcel of residential real estate to one of the subsidiaries, The Hemp and Cannabis Company (“THCC”). In that case, THCF claims THCC has failed to make payments on a note. THCF’s lawyer has withdrawn, and THCF has not hired replacement counsel. THCC’s motion to dismiss is pending. THCC is vigorously defending against this.
| 20 |
EMPOWER CLINICS INC.,
FORMERLY S.M .A.A.R.T HOLDINGS INC.
Interim Unaudited Notes to the Consolidated Financial Statements
Nine Months Ended September 30, 2018
Expressed in United States dollars
| 18. | Subsequent Events |
As of October 2018, the Company converted debt a face value of $160,311 CDN for 517,132 units. Each unit is comprised of 517,132 shares and 517,132 warrants which can be exercised for a share at a price of CDN$0.36 for one year.
As of October 2018 the Company issued 112,903 units, and 200,000 units to investors based on raising $31,807 CDN and $47,538 USD respectively. Each unit is comprised of 112,903 shares and 112,903 warrants and 200,000 shares and 200,000 warrants, respectively. Warrants can be exercised for a share at a price of CDN$0.36 for one year. The aggregate amount of $69,804 was raised prior to September 30, 2018 and is included in shares to be issued.
| 21 |
Exhibit 99.2
Management Discussion and Analysis
The following Management Discussion and Analysis (“MD&A”) of Empower Clinics Inc., formerly, S.M.A.A.R.T Holdings Inc., (“the Company” or the “Company”) for the nine months ended September 30, 2018 should be read in conjunction with the Company’s consolidated financial statements and notes for the nine months ended September 30, 2018, and the nine months ended September 30, 2017 (the “Financial Statements”). The Financial Statements, together with this MD&A are intended to provide investors with a reasonable basis for assessing the financial performance of the Company as well as forward-looking statements relating to future performance. The consolidated financial statements are prepared in accordance with International Financial Reporting Standards (“IFRS”). All figures expressed in United States dollars unless indicated.
This MD&A contains disclosure of material changes occurring up to and including June 30, 2018.
Forward-Looking Statements
This MD&A contains certain information that may constitute “forward-looking information” and “forward-looking statements” (collectively, “forward-looking statements”) which are based upon the Company’s current internal expectations, estimates, projections, assumptions and beliefs. Such statements can be identified by the use of forward-looking terminology such as "expect," “likely”, "may," "will," "should," "intend," or "anticipate", “potential”, “proposed”, “estimate” and other similar words, including negative and grammatical variations thereof, or statements that certain events or conditions “may” or “will” happen, or by discussions of strategy. Forward-looking statements include estimates, plans, expectations, opinions, forecasts, projections, targets, guidance, or other statements that are not statements of fact. The forward-looking statements included in this MD&A are made only as of the date of this MD&A. Forward-looking statements in this MD&A include, but are not limited to, statements with respect to:
| · | licensing risks; |
| · | regulatory risks; |
| · | change in laws, regulations and guidelines; |
| · | market risks; |
| · | expansion of facilities; |
| · | history of net losses; and |
| · | competition. |
Certain of the forward-looking statements and forward-looking information and other information contained herein concerning the medical cannabis industry and the general expectations of the Company concerning the medical cannabis industry and concerning the Company are based on estimates prepared by the Company using data from publicly available governmental sources as well as from market research and industry analysis and on assumptions based on data and knowledge of this industry which the Company believe to be reasonable. While the Company is not aware of any misstatement regarding any industry or government data presented herein, the medical cannabis industry involves risks and uncertainties that are subject to change based on various factors and the Company has not independently verified such third party information.
Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. The Company’s forward-looking statements are expressly qualified in their entirety by this cautionary statement. In particular, but without limiting the foregoing, disclosure in this MD&A under “Overview of the Business” as well as statements regarding the Company’s objectives, plans and goals, including future operating results, economic performance and patient acquisition efforts may make reference to or involve forward- looking statements. A number of factors could cause actual events, performance or results to differ materially from what is projected in the forward-looking statements. See “Risk Factors” for further details. The purpose of forward- looking statements is to provide the reader with a description of management’s expectations, and such forward- looking statements may not be appropriate for any other purpose. You should not place undue reliance on forward- looking statements contained in this MD&A. The Company undertakes no obligation to update or revise any forward- looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.
| 1 |
Overview of the Business
The Company is a British Columbia incorporated Canadian company which operates a growing network of physician- staffed medical cannabis clinics with a primary focus on enabling patients to improve and protect their health.
On June 12, 2015 the Company, through its wholly owned subsidiary Empower Healthcare Corp, purchased all of the assets of Presto Quality Care Corporation (“Presto”), an Oregon company that had owned and operated the business of the Company. The consideration for the purchase was the assumption by the Company of a note payable by Presto to Bayview Equities Ltd in the amount of $550,000 plus accrued interest of $146,005. The Company continues to operate the business acquired.
Beyond its primary public service business, the Company’s business plan is to garner royalties from the sale of proprietary medical cannabis products manufactured, dispensed, and delivered by third party channel partners. Through the rapid addition of both physical clinic locations, coupled with third party manufacturer distribution relationships, the Company seeks to create a leading international brand of trusted products and services for the medical cannabis industry. The Company intends to seek M&A opportunities where possible to accelerate these business expansion plans and drive incremental value.
The CEO, a graduate of the U.S. Naval Academy and Georgetown University’s School of International Finance and Global Markets combined with senior leadership experience at Pepsi Cola and Citibank. He brings with him a 20-year career around the opening and rolling out of national franchises, driving same store sales, M&A, and highly successful IPO launches.
The Company currently operates 14 clinics located across the states of Oregon and Washington and has a recently opened a Chicago based clinic. With the sole ownership of an approximate 89,000 person medical cannabis patient database, including any/all historical associated medical data and contact information, the Company’s patient foundation is strong. In the state of Oregon alone, the Company has an active patient base of approximately 24,000 patients, representing over 37% of the total in-state market.
Patients pay on average of $135 USD per visit with a physician to get a medical cannabis license. Generally, the license granted to patients is for one year, upon which time they must return for a visit with a physician and pay the annual fee. Currently, the Company employs 6 medical physicians, and two nurses who, along with a streamlined non-medical clinic staff, consult with patients and provide guidance with regards to medical cannabis healthcare options.
The incentive for patients to acquire a medical cannabis license is three-fold. First, in states where recreational cannabis is not permitted, having a medical cannabis card allows patients to legally access the associated flower and cannabis infused medical products. In states where recreational cannabis is permitted, the products can carry sales taxes of up to 40%. Having a medical cannabis license eliminates these sales taxes, providing significant savings to the cardholder on an annual basis. Third, in some states where recreational cannabis is permitted, by having a medical cannabis license patients are given access to a greater variety of products, higher strengths, and larger quantities of products.
| 2 |
The Company seeks to embark on a national clinic expansion in states where medical cannabis is permitted. The current priority states for expansion over the short to mid-term are Arizona, California, Florida, Illinois, Ohio, and Michigan. This list is highly fluid based on ever-changing state ballot initiatives and license availability.
The Company has developed a leading strategy in the area of medicinal cannabis products. While the company does not “touch the plant” it has developed “processor” relationships that allow it to use its data and knowledge to create a branded line of products that are manufactured, infused, packaged and distributed by licensed state processors. Through its branded product, Sollievo, the company seeks to create processor relationships in each of the 29 states that currently support medical cannabis through which the company will provide the formulas and branding and the processor will provide the manufacture, distribution and merchandising. This allows the company to leverage its learnings and data and reach all medical states, at the outset the clear majority of which do not contain Empower Clinics.
The Company’s history and data represent a valuable resource as it relates to product effectiveness. The Company seeks to partner with the best processing channel partners in each respective state to ensure patients get access to the highest quality products and technology in the market.
Through third party processors, the Company, will provide medical cannabis products under the Sollievo label. The Company’s processing partner uses an exclusive, proprietary, and patentable formula in its medical products, paying the Company a product royalty on the wholesale of the products sold to dispensaries or delivery services. The Company seeks to expand the brand state by state through processor relationships, thereby creating a national line of data driven medical cannabis products tailored to patient’s needs.
The Company will be paid royalties varying between 10% and 25% depending on processor relationship, product type, and the state that the products are being sold in.
The Company seeks to be active and opportunistic with respect to mergers and acquisitions, allowing for the company to advance its business plan or increase shareholder value where possible. Acquiring existing Clinics within states where the Company is either already operating, or seek to operate in the future, can help accelerate the expansion of its geographical presence. Additionally, the Company may seek to acquire third party channel partners to increase its patient base, margin per patient, and to increase shareholder value through the accretion of these operations and/or assets.
Currently, the market for both clinics and medical cannabis products in the United States remains highly fragmented with very few nationwide competitors. The Company seeks to take advantage of this by using its light capital expenditure model around opening clinics, to create highly valuable patient relationships. This will serve to couple customers with channel partners in each state it operates, with the goal of providing medical products. This will allow the Company to create a national brand for both its clinics and medical products. The Company has a unique business model that will allow the company to quickly expand and achieve a coast to coast presence without having to take on the capital expenditures of building facilities from scratch on a state by state basis.
Medical cannabis is regulated on a state by state basis and currently 30 states permit the use of medical cannabis and 9 states permit the use of recreational cannabis. The Company seeks to be at the forefront of this movement toward medical cannabis as a treatment both at the clinical level and on the product side.
| 3 |
Highlights from the period
During the period ended December 31, 2017, the Company raised net proceeds of $1,295,314 from the advance of convertible notes payable. The convertible notes are due one year from the date of issuance and are repayable in full with accrued interest at 7.5% per annum on maturity. The holder may at any time during the term of the convertible notes payable convert all or part into equity at a conversion price equal to a 25% discount to the next round of equity financing undertaken by the Company, into units of the Company consisting of one common share (each, a "Share") and one share purchase warrant (each, a “Warrant”), with each Warrant entitling the holder thereof to acquire one Share at an exercise price equal to 125% of the price of the next round of equity financing.
During the period ended September 30, 2018, The Company completed a reverse takeover of Adira Energy Ltd. and completed the amalgamation and consolidation into Empower Clinics Inc. and as completed the requirements for a public listing on the Canadian Stock Exchange. Additionally, as part of the listing, the Company completed a private placement of 8,443,473 shares of the Company at a price of CDN $0.31 per share for gross proceeds of CDN $2,617,477 and $2,160,866 of the convertible debentures got converted into common shares of the Company.
Share capital
In January 2016, 104,987 shares were issued to the former President and CEO of the Company at a cost of $0.0286 per share, as an inducement to accept the position of President and CEO.
In June 2016, 1,000,000 shares were issued in connection with the sourcing of a shell company for the proposed reverse takeover and listing of the Company at a cost of $0.03 per share.
In June 2016, the Company made a rights offering whereby shareholders of the Company could acquire one share of the Company for each share held, at a cost of $0.025 per share. A total of 7,666,667 shares were issued during the rights offering.
In December 2016, 766,667 shares were issued to the current President and CEO of the Company at a cost of $0.03 per share, as an inducement to accept the position of President and CEO.
In January 2017, the Company raised $302,244 through the issue of 32,237,225 shares to its existing shareholders at a cost of $0.0094 per share.
In May 2016, the shares of the Company were split on the basis of 19.6850 shares for each share held.
On March 31, 2017, the shares of the Company were consolidated on the basis of one share for every three shares held. Following the consolidation, there were 48,337,225 shares outstanding.
In April 2018, in connection with the reverse take-over transaction, the Company closed a concurrent financing at a cost of CDN$0.31 per share. A total of 8,443,473 shares were issued during the rights offering for proceeds of $2,617,477. As part of the offering the Company issued 627,378 warrants to agents.
In April 2018, As part of the reverse take-over transaction the Company converted debt with a face value of $2,165,446 for 11,642,184 units. Each unit is comprised of 11,642,184 shares and 11,642,184 warrants can be exercised for a share at a price of CDN$0.39 for two years
In April 2018, in connection to the reverse take-over transaction and amalgamation of Adira Energy Limited, the share equity of Adira was converted at a ratio of 20:1, resulting in an issuance of 2,544,075 at $0.31CDN per share.
| 4 |
In June 2018, the company issued 2,000,000 shares at a share price of CDN$0.31 for aggregate proceeds of $620,000. In addition, for each share, a warrant was issued at an exercise price of CDN$0.36.
In June 2018, the Company issued 2,000,000 shares to the CEO per employment contract, at a share price of CDN$0.39 per share, with a fair value of $590,928.
Results of Operations
As at September 30, 2018 the Company had a working capital shortfall of $3,353,811. As at September 30, 2017 the company had a working capital shortfall of $4,488,377.
During the year ended December 31, 2017, the Company successfully completed a rights issue for proceeds of $116,522 and raised net proceeds of $895,314 from the advance of convertible notes payable.
During the year ended December 31, 2016, the Company successfully completed a rights issue for gross proceeds of $191,700 and raised $275,000 through the issue of convertible notes payable. The Company also received proceeds of $120,000 on shares to be issued.
During the nine months ended September 30, 2018, the Company incurred a net loss and comprehensive loss of $5,132,848 and had an accumulated deficit of $10,712,914.
During the nine months ended September 30, 2017, the Company incurred a net loss and comprehensive loss of $2,295,382 and had an accumulated deficit of $4,765,484.
During the nine months ended September 30, 2018, the Company’s expenses on legal fees were $371,147 (September 30, 2017: $441,237). The decrease in legal expenses relates primarily to decreased activity around a legal dispute with a former President and CEO of the Company.
During the nine months ended September 30, 2018, the Company recorded an accretion charge of $214,680 in connection with its convertible notes payable. (September 30, 2017: $422,359).
The weighted average number of common shares, basic and diluted, outstanding for the nine months ended September 30, 2018 is 61,434,286 (September 30, 2017: 47,982,970).
For the year ended December 31, 2016, the Company incurred an expense of $64,800 in connection with the write- down of intangible assets as a result of the Company’s change in focus of its business activities.
| 5 |
Selected Annual Information
| Nine months ended September 30, 2018 | Nine months ended September 30, 2017 | year ended December 31, 2017 (Audited) | Year ended December 31, 2016 (Audited) | Period ended December 31, 2015 (Audited) | ||||||||||||||||
| Net Loss before taxes | $ | (5,132,848 | ) | $ | (2,295,382 | ) | $ | (3,109,921 | ) | $ | (1,669,734 | ) | $ | (878,514 | ) | |||||
| Net loss after taxes | $ | (5,132,848 | ) | $ | (2,295,382 | ) | $ | (3,109,921 | ) | $ | (1,591,588 | ) | $ | (878,514 | ) | |||||
| Total assets | $ | 1,545,574 | $ | 647,529 | $ | 629,802 | $ | 553,598 | $ | 951,405 | ||||||||||
| Total long-term liabilities | $ | – | $ | – | $ | – | $ | – | $ | – | ||||||||||
| Dividends declared per share | $ | – | $ | – | $ | – | $ | – | $ | – | ||||||||||
The table below sets out selected quarterly information for the last completed fiscal quarters of the Company:
|
Sept 30 2018 |
June 30 2018 |
Mar 31 2018 |
Dec 31 2017 |
Sept 30 2017 |
June 30 2017 |
Mar 31 2017 |
Dec 31 2016 | |
|
Net Sales/ Revenue |
$279,850 |
$ 312,485 |
$ 302,142 |
$ 291,721 |
$ 388,898 |
$ 417,646 |
$ 408,785 |
$ 340,442 |
|
Net Loss |
$(1,152,987 |
$(2,321,507) |
$ (1,658,354) |
$ (493,755) |
$ (680,945) |
$ (1,158,465) |
$ (776,756) |
$ (859,092) |
| Basic and diluted loss per share |
$(0.10) |
$(0.07) |
(0.01) |
(0.01) |
(0.01) |
$ (0.04) |
$ (0.02) |
$ (0.07) |
The company has a limited operating history, which can make it difficult for investors to evaluate the Issuer’s operations and prospects and may increase the risks associated with investment into the Issuer.
The company has generated revenues since its inception in 2015. The revenue profile reflects Q1 2016 – Q2 2018. Because of this timeframe an investor may have only a limited operating history upon which prospects may be evaluated.
The company is expected to remain subject to many of the risks common to early-stage enterprises for the foreseeable future, including challenges related to laws, regulations, licensing, integrating and retaining qualified employees; making effective use of limited resources; achieving market acceptance of existing and future solutions; competing against companies with greater financial and technical resources; acquiring and retaining customers; and developing new solutions.
REVENUE: Revenues from the company began being generated in June of 2015 and are as follows. For 2015 Q3 & Q4 revenues were $1,162,657. For full year 2016 revenues were $2,314,857. For full year 2017 revenues were $1,507,050. For the nine months ended September 30, 2018 and September 30, 2017 revenues were $894,477 and $1,215,329 respectively. Currently the company receives one revenue stream which is patient visits to existing clinics. The company expects to expand that revenue stream as the Chicago clinic patient base grows and the Sollievo product brand is rolled out. The company has seen a decline in revenues 2016-2018 due to the 3 factors. The introduction of recreational cannabis to Oregon, a reduction in marketing spend while we reposition our brand and its treatment through online, social and mobile upgrades and competitive introduction and pressure. The company believes all three areas are being addressed effectively and will be reflected in future revenues.
OPERATING EXPENSES: The company’s major expense categories include professional service fees, real estate, labor related to its employees and doctors and their associated travel. These costs include professional services incurred to provide legal, accounting and public transaction counsel. These expenditures are consistent with the company’s view that a clear and well protected structure is critical to future growth. The company expects professional service fees to drop markedly over time as many are related to successful prior litigation or “one time” events such as the fees associated
| 6 |
with the expected RTO. Professional fees for the nine months ended September 30, 2018 were 537.870, and Professional fees for the nine months ended September 30, 2017 were $659,432. Real estate costs are directly tied to existing lease obligations and have stayed consistent except for the Chicago lease addition. The company’s future lease obligations are expected to track directly to any new clinic openings for which the company has provided their financial expectations. The company has future lease obligations in 2018 of $57,565. Labor expense is a function of our doctor roster and clinic staff to run their clinics. The company employs both medical doctors and nurses and clinic staff to run their clinics. The company is currently adding doctors and nurses in the clinic operating areas thereby cutting down on medical travel expenses. Medical personnel and travel costs for the nine months ended September 30, 2018 and 2017 were $226,285 and $367,625 respectively. The company did add an experienced management team to their staff throughout 2017 in preparation for RTO including the current CEO, VP of Business Development, VP of Corporate Development and Controller. This staff adds to the labor costs but is essential for the company’s future growth plans.
Liquidity
The company has historically financed its operations through its existing revenue stream, rights offerings to existing shareholders, and equity and convertible debt financing. During the prior nine months ended, sales funded 36% of operating costs.
The company has a working capital deficiency of $3,353,811, and an accumulated deficit of $10,712,914. The company’s goal of this equity financing will be to capitalize the business for profitability and growth. The company anticipates all or majority of the convertible debt to be converted to equity upon the completion of the transaction and expects that the remaining debt will be restructured or eliminated with the proceeds thereof.
The company has begun restructuring internal processes to increase efficiency to drive greater revenue, and reduce operating expenses. The company anticipates the introduction of additional streams of revenue through its product brand, Sollievo, and by expanding to new markets where they do not yet have an existing presence. As the company is in an early stage and is introducing new products, revenues may be materially affected by market risk factors, including, but not limited to, seasonality, market immaturity and a highly fluid environment related to state and federal law passage and regulations. There can be no assurance that the company will be successful in addressing these risks, and the failure to do so in any one area could have a material adverse effect on the company’s business, prospects, financial condition and results of operations.
The company will need to procure additional financing in order to fund its ongoing operation. The company intends to obtain such financing through equity financing, and there can be no assurance that the company can raise the required capital it needs to build and expand as expected, nor that the capital markets will fund the business of the company. Without this additional financing, the company may be unable to achieve positive cash flow and earnings as quickly as anticipated, these uncertainties cast a significant doubt about the company’s ability to continue as a going concern.
Cash used in operating activities during the nine months ended September 30, 2018 is $3,129,583 (September 30, 2017: $1,396,276).
Cash used in investing activities during the nine months ended September 30, 2018 is $100,227 (September 30, 2017: $30,582).
Cash provided by financing activities during the nine months ended September 30, 2018 is $3,509,602 (September 30, 2017: $1,422,585).
| 7 |
Capital Resources
The Company constantly monitors and manages its capital resources to assess the liquidity necessary to fund operations and capacity expansion. As at September 30, 2018 the Company had a cash balance of $279,792 and current liabilities of $4,371,159. (September 30, 2017: $881 and $4,639,852).
The Company expects to complete a reverse takeover arrangement with a company currently listed on the TSX Venture Exchange and transfer this listing to the Canadian Securities Exchange. Concurrent with the reverse takeover, the Company will seek to raise additional funds through the issuance of shares. All of the Company’s liabilities are due within the next twelve months. The Company’s convertible debt is expected to be converted to common shares in conjunction with the reverse takeover.
Related Party Transactions
The aggregate value of transactions and outstanding balances relating to key management personnel were as follows:
| Related party transactions | Six months ended June 30, 2018 | Year ended December 31, 2017 | ||||||
| Remuneration and benefits | $ | 50,000 | $ | 221,700 | ||||
| Share based payments | $ | 1,443,928 | $ | – | ||||
| Amounts owed | $ | – | $ | – | ||||
Risks and Uncertainties
Overview
Regulatory Risks. The Company operates in a new industry which is highly regulated and is evolving rapidly. Sometimes new risks emerge and management may not be able to predict all of them, or be able to predict how they may cause actual results to be different from those contained in any forward- looking statements. Failure to comply with the requirements of the State licensing agencies within which the Company operates would have a material adverse impact on the business, financial condition and operating results of the Company.
The Company will incur ongoing costs and obligations related to regulatory compliance. Failure to comply with regulations may result in additional costs for corrective measures, penalties or in restrictions of our operations. In addition, changes in regulations, more vigorous enforcement thereof or other unanticipated events could require extensive changes to the Company's operations, increased compliance costs or give rise to material liabilities, which could have a material adverse effect on the business, results of operations and financial condition of the Company.
The industry is subject to extensive controls and regulations, which may significantly affect the financial condition of market participants. The marketability of any product may be affected by numerous factors that are beyond the Company's control and which cannot be predicted, such as changes to government regulations, including those relating to taxes and other government levies which may be imposed. Changes in government levies, including taxes, could reduce the Company's earnings and could make future capital investments or the Company's operations uneconomic. The industry is also subject to numerous legal challenges, which may significantly affect the financial condition of market participants and which cannot be reliably predicted.
Change in Laws, Regulations and Guidelines. The Company operates in an industry that is not recognized as a legal industry by the US Federal government. The Company operates a growing network of physician-staffed medical cannabis clinics with a primary focus on enabling patients to improve and protect their health. These clinics operate in those states where the medicinal use of cannabis produces is permitted.
Beyond its primary public service business, the Company also garners royalties from the sale of proprietary medical cannabis products manufactured, dispensed, and delivered by third party channel partners. The Company will be dependent on its third party clients and channel partners for the success of this aspect of its business.
The Company’s operations are subject to a variety of laws, regulations and guidelines relating to the manufacture, management, transportation, storage and disposal of medical cannabis and also including laws and regulations relating to health and safety, privacy and the conduct of operations While to the knowledge of the Company's management, the Company is currently in compliance with all such laws, changes to such laws, regulations and guidelines due to matters beyond the control of the Company may cause adverse effects to the Company's operations and the financial condition of the Company.
| 8 |
The industry is subject to extensive controls and regulations, which may significantly affect the financial condition of market participants. The marketability of any product may be affected by numerous factors that are beyond the Company's control and which cannot be predicted, such as changes to government regulations, including those relating to taxes and other government levies which may be imposed. Changes in government levies, including taxes, could reduce the Company's earnings and could make future capital investments or the Company's operations uneconomic.
Market Risks. The Company’s securities will trade on public markets and the trading value thereof is determined by the evaluations, perceptions and sentiments of both individual investors and the investment community taken as a whole. Such evaluations, perceptions and sentiments are subject to change, both in short term time horizons and longer term time horizons. An adverse change in investor evaluations, perceptions and sentiments could have a material adverse outcome on the Company and its securities.
Price Risks. Cannabis is a developing market, likely subject to volatile and possibly declining prices year over year, as a result of increased competition. Because medical cannabis products are a newly commercialized and regulated industry, historical price data is either not available or not predictive of future price levels. There may be downward pressure on the average prices for medical cannabis products and that price volatility might not be favorable to the Company. Pricing will depend on the number of patients who gain physician approval to purchase medical cannabis. An adverse change in the cannabis prices, or in investors’ beliefs about trends in those prices, could have a material adverse outcome on the Company and its securities.
Financing Risks. The Company will be dependent on raising capital through a combination of debt and/or equity offerings. There can be no assurance that the capital markets will remain favorable in the future, and/or that the Company will be able to raise the financing needed to continue its business at favorable terms, or at all. Restrictions on the Company’s ability to finance could have a material adverse outcome on the Company and its securities.
Share Price Volatility and Price Fluctuations. In recent years, the securities markets in Canada have experienced a high level of price and volume volatility, and the market prices of securities of many corporations have experienced wide fluctuations which have not necessarily been related to the operating performance, underlying asset values or prospects of such companies. Such volatility has been particularly evident with regards to the share price of medical cannabis companies, which are public issuers in Canada.
Key Personnel Risks. The Company’s efforts are dependent to a large degree on the skills and experience of certain of its key personnel, including the board of directors. The Company does not maintain “key man” insurance policies on these individuals. Should the availability of these persons’ skills and experience be in any way reduced or curtailed, this could have a material adverse outcome on the Company and its securities.
Competition. There is potential that the Company will face intense competition from other companies, some of which can be expected to have more financial resources, industry, manufacturing and marketing experience than the Company. Additionally, there is potential that the industry will undergo consolidation, creating larger companies that may have increased geographic scope and other economies of scale. Increased competition by larger, better-financed competitors with geographic or other structural advantages could materially and adversely affect the business, financial condition and results of operations of the Company.
To remain competitive, the Company will require a continued level of investment in research and development, marketing, sales and client support. The Company may not have sufficient resources to maintain research and development, marketing, sales and client support efforts on a competitive basis which could materially and adversely affect the business, financial condition and results of operations of the Company.
History of Net Losses; Accumulated Deficit; Lack of Revenue from Operations. The Company has incurred net losses to date. The Company may continue to incur losses. There is no certainty that the Company will operate profitably or provide a return on investment in the future.
Uninsurable risks. The Company may become subject to liability for events, against which it cannot insure or against which it may elect not to insure. Such events could result in substantial damage to property and personal injury. The payment of any such liabilities may have a material, adverse effect on the Company's financial position.
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Financial Instruments & Other Instruments
The Company’s financial instruments consist of cash, accounts payable and accrued liabilities and due to related parties, convertible debt and loans payable. Cash is classified as fair value through profit or loss and recorded at fair value. Accounts payable and accrued liabilities, due to related parties and shareholder’s loan are classified as other current liabilities, The fair value of cash, accounts payable and accrued liabilities, and due to related parties are equal to their carrying value due to their short-term maturity. Unless otherwise noted, it is management’s opinion that the Company is not exposed to significant interest, currency or credit risks arising from these financial instruments.
The fair value of arms-length financial instruments approximates their carrying value due to the relatively short- term to maturity.
Off-Balance Sheet Arrangements
The Company has no off-balance sheet arrangements that would potentially affect current of future operations or the financial condition of the Company.
Investor Relations
The Company has engaged Pointer PR LLC for public relations services. The Company has not entered into any other investor relations contracts and primarily all investor relation activity is carried out by the directors and officers of the Company.
Critical accounting estimates
The preparation of the financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities and contingent liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Estimates and assumptions are continuously evaluated and are based on management’s experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. However, actual outcomes can differ from these estimates.
Significant assumptions about the future and other sources of estimation uncertainty that management has made at the statements of financial position date, could result in a material adjustment to the carry amounts of assets or liabilities. In the event that actual results differ from the assumptions made, relate to, but are not limited to the following:
a) The inputs used in assessing the recoverability of deferred tax assets to the extent that the deductible temporary differences will reverse in the foreseeable future and that the Company will have future taxable income; and
b) Bifurcation of the convertible debt.
Significant judgments used in the preparation of these financial statements include, but are not limited to those relating to the assessment of the Company’s ability to continue as a going concern and matters relat ed to the acquisition the assets from Presto.
e) Impairment of Intangible Assets
Judgement involved in determining whether an intangible assets useful life is finite or indefinite. The inputs used in assessing the potential impairment of indefinite life intangibles.
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New Standards, Amendments and Interpretations not yet Adopted
A number of new standards and amendments to standards and interpretations have been issued but have not yet been applied in preparing these financial statements, as set out below:
| · | IFRS 9, Financial Instruments, addresses the classification, measurement and recognition of financial assets and financial liabilities. The complete version of IFRS 9 was issued in July 2014. It replaces the guidance in IAS 39 that relates to the classification and measurement of financial instruments. IFRS 9 retains but simplifies the mixed measurement model and establishes three primary measurement categories for financial assets: amortized cost, fair value through other comprehensive income (OCI) and fair value through profit or loss. The basis of classification depends on the entity’s business model and the contractual cash flow characteristics ofthe financial asset. Investments in equity instruments are required to be measured at fair value through profit or loss with the irrevocable option at inception to present changes in fair value in OCI not recycling. There is now a new expected credit losses model that replaces the incurred loss impairment model used in IAS 39. For financial liabilities, there were no changes to classification and measurement except for the recognition of changes in own credit risk in other comprehensive income, for liabilities designated at fair value through profit or loss. The standard is effective for accounting periods beginning on or after January 1, 2018 and earlier adoption is permitted. |
| · | IFRS 15, Revenue from Contracts with Customers, deals with revenue recognition and establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. Revenue is recognized when a customer obtains control of goods or services and thus has the ability to direct the use and obtain the benefits from the goods or services. The standard replaces IAS 18, Revenue, and IAS 11, Construction Contracts, and related interpretations. The standard is effective for annual periods beginning on or after January 1, 2018 and earlier adoption is permitted. |
| · | In January 2016, the IASB issued IFRS 16, Leases, which will replace IAS 17, Leases. Under IFRS 16, a contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Under IAS 17, lessees were required to make a distinction between a finance lease and an operating lease. IFRS 16 now requires lessees to recognize a lease liability reflecting future lease payments and a right-of-use asset for virtually all lease contracts. There is an optional exemption for certain short-term leases and leases of low value assets; however, this exemption can only be applied by lessees. The standard is effective for annual periods beginning on or after January 1, 2019, with earlier application if IFRS 15 is also applied. |
The Company has yet to assess the impact of these standards, however they are not expected to have a significant impact on the Company’s financial statements at this time as the Company does not generate any revenue at this time. Other accounting standards or amendments to existing accounting standards that have been issued, but have future effective dates, are either not applicable or are not expected to have a significant impact on the Company’s financial statements.
Other MD&A requirements
As specified by National Instrument 51-102, the Company advises readers of this MD&A that important additional information about the Company is available on the SEDAR website – www.sedar.com.
The Company’s President & Chief Executive Officer (CEO) and Chief Financial Officer (CFO) are responsible for establishing and maintaining disclosure controls and procedures and internal controls over financial reporting for the Company.
Outstanding share data
The authorized capital of the Company consists of an unlimited number of common shares without par value. The Company had 74,966,958 common shares issued and outstanding as at September 30, 2018.
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Exhibit 99.3
FORM 52-109FV2
CERTIFICATION OF INTERIM FILINGS
VENTURE ISSUER BASIC CERTIFICATE
I, Carly Krivanek, Chief Financial Officer of Empower Clinics Inc., certify the following:
| 1. | Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of Empower Clinics Inc. (the “issuer”) for the interim period ended September 30, 2018. |
| 2. | No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings. |
| 3. | Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings. |
Date: November 29, 2018
“Carly Krivanek"
Carly Krivanek
Chief Financial Officer
NOTE TO READER
In contrast to the certificate required for non-venture issuers under National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings (NI 52-109), this Venture Issuer Basic Certificate does not include representations relating to the establishment and maintenance of disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as defined in NI 52-109. In particular, the certifying officers filing this certificate are not making any representations relating to the establishment and maintenance of
| i) | controls and other procedures designed to provide reasonable assurance that information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and |
| ii) | a process to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP. |
The issuer’s certifying officers are responsible for ensuring that processes are in place to provide them with sufficient knowledge to support the representations they are making in this certificate. Investors should be aware that inherent limitations on the ability of certifying officers of a venture issuer to design and implement on a cost effective basis DC&P and ICFR as defined in NI 52-109 may result in additional risks to the quality, reliability, transparency and timeliness of interim and annual filings and other reports provided under securities legislation.
Exhibit 99.4
FORM 52-109FV2
CERTIFICATION OF INTERIM FILINGS
VENTURE ISSUER BASIC CERTIFICATE
I, Craig Snyder, Chief Executive Officer of Empower Clinics Inc., certify the following:
| 1. | Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of Empower Clinics Inc. (the “issuer”) for the interim period ended September 30, 2018. |
| 2. | No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it |
was made, with respect to the period covered by the interim filings.
| 3. | Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings. |
Date: November 29, 2018
“Craig Snyder"
Craig Snyder
Chief Executive Officer
NOTE TO READER
In contrast to the certificate required for non-venture issuers under National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings (NI 52-109), this Venture Issuer Basic Certificate does not include representations relating to the establishment and maintenance of disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as defined in NI 52-109. In particular, the certifying officers filing this certificate are not making any representations relating to the establishment and maintenance of
| i) | controls and other procedures designed to provide reasonable assurance that information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and |
| ii) | a process to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP. |
The issuer’s certifying officers are responsible for ensuring that processes are in place to provide them with sufficient knowledge to support the representations they are making in this certificate. Investors should be aware that inherent limitations on the ability of certifying officers of a venture issuer to design and implement on a cost effective basis DC&P and ICFR as defined in NI 52-109 may result in additional risks to the quality, reliability, transparency and timeliness of interim and annual filings and other reports provided under securities legislation.