UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 20-F
 
 
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) or 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
 
OR
 
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 2020
 
OR
 
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
OR
 
 
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
Commission file number 000-30087
 
EMPOWER CLINICS INC. (formerly ADIRA ENERGY LTD.)
(Exact name of Registrant specified in its charter)
 
CANADA
(Jurisdiction of incorporation or organization)
 
Suite 505, 1771 Robson Street
Vancouver, BC
Canada V6G 1C9
(Address of principal executive offices)
 
Contact Person: Steven McAuley
Address: Suite 505, 1771 Robson Street
Vancouver, BC
Canada V6G 1C9
Email: s.mcauley@empowerclinics.com
Telephone: (604) 789-2146
(Name, Telephone, Email and/or Facsimile number and Address of Company Contact Person)
 
Securities registered or to be registered pursuant to Section 12(b) of the Act:
 
Title of Each Class
 
 
None
 
Securities registered or to be registered pursuant to Section 12(g) of the Act:
 
COMMON SHARES
(Title of Class)
 
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
 
 
 
The number of outstanding shares of the Company’s only class of capital or common stock as at December 31, 2020 was 283,811,903 common shares.
 
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes                  No
 
If this is an annual report or a transition report, indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Yes                  No
 
Indicate by check mark whether Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes                  No
 
Indicate by check mark whether Registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes                  No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
 
Large accelerated filer  
Accelerated filer
 
 
Non-accelerated filer  
Emerging growth company
 
 
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
 
Indicate by check mark which basis of accounting the Registrant has used to prepare the financial statements included in this filing:
 
U.S. GAAP
 
International Financial Reporting Standards as issued
by the International Accounting Standards Board    
Other 
 
 
If “other” has been checked in response to the previous question, indicate by check mark which financial statement item the Registrant has elected to follow:
Item 17                  Item 18
 
If this is an annual report, indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes                  No
 
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
 
Indicate by checkmark whether the Registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
YES                  NO
 

 
 
 
TABLE OF CONTENTS
 
GENERAL
 
 - 5 -

 - 7 -
ITEM 1 -
- 7 -
ITEM 2 -
- 7 -
ITEM 3 -
- 7 -
A.
- 7 -
B.
- 8 -
C.
- 8 -
D.
- 8 -
ITEM 4
- 13 -
A.
- 13 -
B.
- 14 -
C.
- 16 -
D.
- 17 -
ITEM 5
- 17 -
A.
- 17 -
B.
- 19 -
C.
- 23 -
D.
- 23 -
E.
- 23 -
F.
- 24 -
G.
- 24 -
ITEM 6
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
- 24 -
A.
- 24 -
B.
- 27 -
C.
- 28 -
D.
-30 -
E.
-30 -
ITEM 7
- 32 -
A.
- 32 -
B.
- 33 -
C.
- 33 -
ITEM 8
- 33 -
A.
- 33 -
B.
- 34 -
ITEM 9
- 34 -
ITEM 10
- 34 -
A.
Share Capital
- 34 -
B.
- 34 -
C.
- 34 -
D.
- 35 -
E.
- 36 -
F.
- 41 -
G.
- 41 -
H.
- 41 -
I.
- 41 -
ITEM 11
- 41 -
A.
- 41 -
B.
- 41 -
C.
- 41 -
ITEM 12
- 42 -
 
 
3
 
 
 
 
 
 
 
4
 
 
GENERAL
 
This Form 20-F is being filed as an annual report under the Exchange Act.
 
In this Form 20-F, references to:
 
Adira” means Adira Energy Ltd., a Canadian federal corporation (formerly AMG Oil Ltd.);
 
“BCBCA” means the Business Corporations Act (British Columbia);
 
“CBCA” means the Canadian Business Corporations Act;
 
“CBD” means Cannabidiol, a non-psychoactive constituent of cannabis which contains less than 0.3% THC content;
 
“Empower” means Empower Clinics Inc., a corporation incorporated pursuant to the BCBCA;
 
“IFRS” means generally accepted accounting principles approved by the IASB;
 
“IASB” means the International Accounting Standards Board;
 
“EHC CA” means Empower Healthcare Corp., previously S.M.A.A.R.T Holdings Inc., a corporation incorporated pursuant to the BCBCA;
 
“SMAART US” means S.M.A.A.R.T Holdings Inc., a wholly owned subsidiary of EHC CA incorporated pursuant to the laws of Nevada;
 
“EHC US” means Empower Healthcare Corp., a wholly owned subsidiary of EHC CA incorporated pursuant to the laws of Oregon;
 
“THC” means tetrahydrocannabinol, a chemical responsible for most of marijuana's psychological effects;
 
“Transaction” means EHC CA completing the acquisition with Adira, pursuant to which EHC CA amalgamated with 1149770 B.C. Ltd., a wholly-owned subsidiary of Adira, to form Empower Healthcare Corporation, resulting in the indirect acquisition by EHC CA of all of the issued and outstanding securities of Adira
 
We”, “us”, “our”, and the “Company” means Empower, a Company currently listed for trading on the Canadian Securities Exchange and Frankfurt Stock Exchange
 
Empower and its subsidiaries have historically used U.S. dollar as their reporting currency. All references in this document to “dollars” or “$” are to United States dollars and all references to “CDN$” are to Canadian dollars, unless otherwise indicated.
 
Except as noted, the information set forth in this Form 20-F is as of December 31, 2020 and all information included in this document should only be considered correct as of such date.
 
 
5
 
 
NOTE REGARDING FORWARD LOOKING STATEMENTS
 
Much of the information included in this Form 20-F includes or is based upon estimates, projections or other “forward looking statements”. Such forward looking statements include any projections or estimates made by us and our management in connection with our business operations. These statements relate to future events or our future financial performance. Generally, any statements contained herein that are not statements of historical facts may be forward–looking statements. In some cases you can identify forward-looking statements by terminology such as “may”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue or the negative of those terms or other comparable terminology. While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested herein. Such estimates, projections or other forward looking statements involve various risks and uncertainties and other factors, including the risks in the section titled “Risk Factors”, below, that may cause our actual results, levels of activities, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. We caution the reader that important factors in some cases have affected and, in the future, could materially affect actual results and cause actual results to differ materially from the results expressed in any such estimates, projections or other forward looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform those statements to actual results.
 
In particular, without limiting the generality of the foregoing disclosure, the statements contained in Item 4.B. – “Business Overview”, Item 5 – “Operating and Financial Review and Prospects” and Item 11 – “Quantitative and Qualitative Disclosures About Market Risk” are inherently subject to a variety of risks and uncertainties that could cause actual results, performance or achievements to differ significantly.
 
 
 
 
6
 
 
PART I
 
ITEM 1
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
 
Not applicable.
 
ITEM 2
OFFER STATISTICS AND EXPECTED TIMETABLE
 
Not applicable.
 
ITEM 3
KEY INFORMATION
 
A.        Selected Financial Data
 
The selected historical information presented in the table below for the years ended December 31, 2020, and 2019 are derived from the audited consolidated financial statements of Empower for such periods, and have been prepared in accordance with IFRS as issued by the IASB. The selected financial information presented below should be read in conjunction with the audited consolidated financial statements and the notes thereto of Empower, and with the information appearing under each of Item 4 – “Information on the Company” and Item 5 – “Operating and Financial Review and Prospects” of this Form 20-F. All financial data presented in this Form 20-F are qualified in their entirety by reference to the consolidated financial statements and their notes.
 
U.S. dollars in thousands, except share and per share data
 
 
Year Ended December 31,
 
 
 
2020  
 
 
2019    
 
 
 
$
 
 
$
 
Balance Sheet Data
 
 
 
 
 
 
Cash and cash equivalents
  4,889,824 
  179,153 
Total Assets
  9,230,219 
  1,555,719 
Total Liabilities
  14,720,620 
  5,070,632 
Total Shareholders’ Deficit
  (5,490,401)
  (3,514,913)
 
    
    
Operating Data
    
    
Revenues
  3,209,196 
  2,031,581 
 
    
    
Expenses
    
    
Direct clinics expenses
  1,193,560 
  826,276 
Operating expenses
  3,947,408 
  2,933,619 
Legal and professional fees
  1,394,571 
  1,015,743 
Depreciation and amortization expense
  381,492 
  327,059 
Share-based payments
  323,799 
  608,944 
 
    
    
Loss from operations
  (4,031,634)
  (3,680,060)
 
    
    
Other (gains) expenses
  13,034,677 
  621,603 
 
    
    
Loss before income taxes
  (17,066,311)
  (4,301,663)
 
    
    
Deferred tax recovery
   
   
 
    
    
Net loss and comprehensive loss
  (17,066,311)
  (4,301,663)
 
    
    
Basic and diluted net loss per share
  (0.09)
  (0.04)
Weighted average number of common shares used in computing basic and diluted net loss per share
  182,331,616 
  117,289,366 
 Empower has never declared or paid any cash or other dividends.
 
 
7
 
B.       Capitalization and Indebtedness
 
Not applicable.
 
C.       Reasons for the Offer and Use of Proceeds
 
Not applicable.
 
D.       Risk Factors
 
An investment in our securities is highly speculative and involves a high degree of risk. Our Company may face a variety of risks that may affect our operations or financial results and many of those risks are driven by factors that we cannot control or predict. Before investing in our company’s securities, investors should carefully consider the following risks. The risks and uncertainties described below are not the only risks and uncertainties that we face or that an investment in our securities entails. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations. Any of the following risks could materially and adversely affect our business, financial condition, prospects and results of operations. In that case, investors may lose all or a part of their investment. The risks discussed below also include forward-looking statements and the out actual results may differ substantially from those discussed in these forward-looking statements. See ‘‘Note Regarding Forward Looking Statements” and “Operating and Financial Review and Prospects”.
 
Risks Associated with the Company
 
Our independent auditors have referred to circumstances which might result in doubt about our ability to continue as a going concern, which may hinder our ability to obtain future financing.
 
At December 31, 2020, the Company had a working capital deficiency of $1,746,818 (December 31, 2019 - $4,185,359), has not yet achieved profitable operations, has accumulated deficit of $30,078,630 (December 31, 2019 - $13,012,319). 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 cast substantial 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.
 
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.
 
 
8
 
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.
 
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.
 
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.
 
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.
 
 
9
 
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.
 
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.
 
Risks Associated with Our Business
 
Our future success will be dependent on additional states legalizing medical marijuana.
 
Our future success will depend on the continued development of the medical marijuana market, and on our ability to penetrate that market. According to the Marijuana Policy Project, a pro-legalization group, medical marijuana is legal in 29 states and Washington, D.C., Puerto Rico and Guam. However, continued development of the medical marijuana market is dependent upon continued legislative authorization of marijuana at the state level for medical purposes and, in certain states, including Oregon, based on the specifics of the legislation passed in that state, on local governments authorizing a sufficient number of dispensaries. Any number of factors could slow or halt the progress. Further, progress, while encouraging, is not assured and the process normally encounters set-backs before achieving success. While there may be ample public support for legislative proposal, key support must be created in the legislative committee or a bill may never advance to a vote. Numerous factors impact the legislative process. Any one of these factors could slow or halt the progress and adoption of marijuana for medical purposes, which would limit the market for our products and negatively impact our business and revenues.
 
 
10
 
 
The alternative medicine industry faces strong opposition.
 
It is believed by many that well-funded, significant businesses may have a strong economic opposition to the medical marijuana industry as currently formed. We believe that the pharmaceutical industry clearly does not want to cede control of any compound that could become a strong selling drug. For example, medical marijuana will likely adversely impact the existing market for Marinol, the current “marijuana pill” sold by mainstream pharmaceutical companies. Further, the medical marijuana industry could face a material threat from the pharmaceutical industry should marijuana displace other drugs or simply encroach upon the pharmaceutical industry’s market share for compounds such as marijuana and its component parts. The pharmaceutical industry is well funded with a strong and experienced lobby that eclipses the funding of the medical marijuana movement. Any inroads the pharmaceutical industry makes in halting or rolling back the medical marijuana movement could have a detrimental impact on the market for our products and thus on our business, operations and financial condition.
 
Marijuana remains illegal under U.S. federal law.
 
Marijuana remains illegal under U.S. federal law. It is a Schedule-I controlled substance. Even in those jurisdictions in which the use of medical marijuana has been legalized at the state level, its prescription is a violation of federal law. The United States Supreme Court has ruled in United States v. Oakland Cannabis Buyers’ Coop. and Gonzales v. Raich that it is the federal government that has the right to regulate and criminalize cannabis, even for medical purposes. Therefore, federal law criminalizing the use of marijuana trumps state laws that legalize its use for medicinal purposes.
 
According to the Marijuana Policy Project, a pro-legalization group, medical marijuana is legal in 29 states and Washington, D.C., Puerto Rico and Guam. In addition, eight states and the District of Columbia have legalized recreational cannabis use. In 2013, the U.S. Department of Justice issued a memorandum (commonly referred to as the “Cole Memorandum”) to the U.S. Attorneys offices (federal prosecutors) directing that federal prosecution of individuals and businesses that rigorously comply with state regulatory provisions in states that have strictly-regulated legalized medical or recreational cannabis programs be given low priority. This federal policy was reinforced by the passage of a federal omnibus spending bill in 2014 (the “2014 Spending Bill”) that included the so-called Rohrabacher–Farr amendment which prohibits the use of federal funds to interfere in the implementation of state laws legalizing cannabis and state medical marijuana laws. The Department of Justice, which encompasses the Drug Enforcement Agency, was subject to the 2014 Spending Bill.
 
The Rohrabacher–Farr amendment remained in the federal omnibus spending bill for the 2016 fiscal year that was signed into law by President Obama on December 18, 2015. In September 2016, the amendment was included in a short-term spending bill passed by Congress and signed into law, which allowed it to remain in effect through December 9, 2016 when it was again renewed pursuant to a further short-term spending bill until April 28, 2017.
 
The 2014 Spending Bill has been cited as evidence of the development of bi-partisan support in the U.S. Congress for legalizing the use of cannabis. However, it remains unclear whether the federal government will eventually repeal the federal prohibition on cannabis, and there is no assurance that the Rohrabacher–Farr amendment will be extended past April 28, 2017. Political and regulatory risks also exist due to the recent election of Donald Trump to the U.S. Presidency, and the appointment of Sen. Jeff Sessions to the post of Attorney General with effect from February 9, 2017. Mr. Trump’s positions regarding marijuana are remain unclear. However, Sen. Sessions has been a consistent opponent of marijuana legalization efforts throughout his political career, and has publicly commented that the Justice Department will commit to enforcing federal laws on marijuana in an “appropriate way”. It remains unclear what stance the Department of Justice under the new administration might take toward legalization efforts in U.S. states, but federal enforcement of the Controlled Substances Act and other applicable laws is possible.
 
We may have difficulty accessing the service of U.S. banks.
 
As discussed above, the use of marijuana is illegal under federal law. Therefore, there is a compelling argument that U.S. banks would not be able to accept for deposit funds from the drug trade and therefore would not be able to do business with our Company. On February 14, 2014 the U.S. Department of the Treasury Financial Crimes Enforcement Network (“FinCEN”) released guidance to banks “clarifying Bank Secrecy Act expectations for financial institutions seeking to provide services to marijuana-related businesses.” Under these guidelines, financial institutions must submit a “suspicious activity report” (“SAR”) as required by federal money laundering laws. These marijuana related SARs are divided into three categories: marijuana limited, marijuana priority, and marijuana terminated, based on the financial institution’s belief that the marijuana business follows state law, is operating out of compliance with state law, or where the banking relationship has been terminated. In the United States, a bill has been tabled in Congress to grant banks and other financial institutions immunity from federal criminal prosecution for servicing marijuana-related businesses if the underlying marijuana business follows state law. This bill has not been passed and there can be no assurance with that it will be passed in its current form or at all.
 
 
11
 
 
In addition, U.S. Rep. Jared Polis (D-CO) has recently re-introduced proposed legislation in Congress that contemplates, among other things, the removal of marijuana from the Controlled Substance Act schedules and regulate it like alcohol.
 
While these are positive developments in this regard, there can be no assurance this legislation will be successful, that even with the FinCEN guidance that banks will decide to do business with medical marijuana retailers, or that in the absence of actual legislation state and federal banking regulators will not strictly enforce current prohibitions on banks handling funds generated from an activity that is illegal under federal law. If, in the future, we are unable to open accounts and otherwise use the service of U.S. banks, our ability to carry on business in the United States may become untenable.
 
Our Company is organized under the laws of Canada.
 
Our Company is a Canadian corporation governed by the Canada Business Corporations Act and as such, its corporate structure, the rights and obligations of shareholders and its corporate bodies may be different from those of the home countries of international investors. Furthermore, non-Canadian residents may find it more difficult and costly to exercise shareholder rights. International investors may also find it costly and difficult to effect service of process and enforce their civil liabilities against us or some of our directors, controlling persons and officers.
 
Risks Associated with our Common Shares
 
The market price of the common shares of our corporation may be volatile
 
The market price of our common shares may experience significant volatility. Numerous factors, including many over which we have no control, may have a significant impact on the market price of our common shares including, among other things: regulatory developments in target markets affecting us, our customers or our competitors; actual or anticipated fluctuations in our quarterly operating results; changes in financial estimates or other material comments by securities analysts relating to us, our competitors or the industry in general; announcements by other companies in the industry relating to their operations, strategic initiatives, financial condition or financial performance or to the industry in general; announcements of acquisitions or consolidations involving industry competitors or industry suppliers; addition or departure of our executive officers; and sales or perceived sales of additional common shares of Empower. In addition, the stock market in recent years has experienced extreme price and trading volume fluctuations that often have been unrelated or disproportionate to the operating performance of individual companies. These broad market fluctuations may adversely affect the price of the common shares of Empower regardless of our operating performance. There can be no assurance that an active market for the common shares will be established or persist and the share price may decline.
   
The value of securities issued by us might be affected by matters not related to our operating performance.
 
The value of securities issued by us may be affected by matters not related to our operating performance or underlying value for reasons that include the following: general economic conditions in Canada, the US and globally; industry conditions, including fluctuations in the price of cannabis flower; governmental regulation of the cannabis industry; fluctuation in foreign exchange or interest rates; stock market volatility and market valuations; competition for, among other things, capital, acquisition of skilled personnel; the need to obtain required approvals from regulatory authorities; worldwide supplies and prices of and demand for cannabis flower and derivatives; political conditions and developments in Canada, the US, and globally; revenue and operating results failing to meet expectations in any particular period; investor perception of the cannabis industry; limited trading volume of our common shares; change in governmental regulations; announcements relating to our business or the business of our competitors; our liquidity; and our ability to raise additional funds.
 
In the past, companies that have experienced volatility in their value have been the subject of securities class action litigation. We might become involved in securities class action litigation in the future. Such litigation often results in substantial costs and diversion of management’s attention and resources and could have a material adverse effect on our business, financial condition and results of operation.
 
An investment in our Company will likely be diluted.
 
We may issue a substantial number of our common shares without investor approval to raise additional financing and we may consolidate the current outstanding common shares. Any such issuance or consolidation of our securities in the future could reduce an investor’s ownership percentage and voting rights in us and further dilute the value of your investment.
 
 
12
 
 
We do not expect to pay dividends for the foreseeable future.
 
We do not intend to declare dividends for the foreseeable future, as we anticipate that we will reinvest any future earnings in the development and growth of our business. Therefore, investors will not receive any funds unless they sell their common shares, and shareholders may be unable to sell their common shares on favorable terms or at all. We cannot assure you of a positive return on investment or that you will not lose the entire amount of your investment in our common shares. Prospective investors seeking or needing dividend income or liquidity should not purchase our common shares.
 
ITEM 4
INFORMATION ON THE COMPANY
 
We are a Canadian corporation existing under the CBCA which conducts business as a medical cannabis clinic company with operations in the United States of America, as more particularly described below in Item 4B – “Business Overview”.
 
A.       History and Development of the Company
 
Name
 
Our legal and commercial name is Empower Clinics Inc.
 
Principal Office
 
Our principal office is located at Suite 505, 1771 Robson Street Vancouver, BC V6G 1C9.
 
Incorporation
 
We are a Canadian corporation existing under the CBCA.
 
Our common shares are registered under Section 12(g) of the Exchange Act. Our current trading symbol on the OTC Bulletin Board (the “OTCQB”) is “EPWCF” and our current trading symbol on the Canadian Securities Exchange (the “CSE”) is “CBDT”. Our current trading symbol on the Frankfurt Stock Exchange is “8EC.F 8EC.MU, 8EC.SG”.
 
Important Events in the Development of the Company’s Business
 
Reverse Take-over
 
Empower was originally incorporated as a Nevada corporation on February 20, 1997 under the name “Trans New Zealand Oil Company". Its name was changed to “AMG Oil Ltd.” on July 27, 1998 and to Adira on December 17, 2009. On November 25, 2008, the Company’s shareholders approved the change of its jurisdiction of incorporation from the State of Nevada to a federally incorporated Canadian company pursuant to a continuation under the Canada Business Corporations Act, which was completed on November 27, 2008. On April 23, 2018, the Company completed the acquisition of EHC CA, which represented a reverse takeover of the Company by EHC CA, with EHC CA as the accounting acquirer and the Company as the accounting acquiree. In connection with the reverse takeover, the Company changed its name to Empower, and consolidated its common shares on the basis of one new common share for each 6.726254 old common shares. Prior to the acquisition of EHC CA, the Company was engaged in oil and gas exploration activities and following such acquisition the Company became engaged in its current business, being the operation of medical cannabis certification clinics and developer of hemp-based CBD products in the United States.
 
Acquisitions
 
Effective April 30, 2019, the Company acquired 100% of the membership interest of Sun Valley Certification Clinics Holdings, LLC (“Sun Valley”), an Arizona Limited Liability Company (the “Sun Valley Acquisition”). Through its subsidiaries, Sun Valley operates a network of professional medical cannabis and pain management practices, with five clinics in Arizona, one clinic in Las Vegas, a tele-medicine platform serving California, and a fully developed franchise business model for the domestic cannabis industry. Subsidiaries include the following:
 
-                Sun Valley Alternative Health Centers, LLC;
-                Sun Valley Alternative Health Centers West, LLC;
-                Sun Valley Alternative Health Centers NV, LLC;
 
 
13
 
 
-                Sun Valley Alternative Health Centers Tucson, LLC;
-                Sun Valley Alternative Health Centers Mesa, LLC; and
-                Sun Valley Certification Clinics Franchising, LLC
 
(each, a “Subsidiary” and, collectively the “Subsidiaries”)
 
Effective October 5, 2020, the Company acquired 100% of the membership interest in Kai Medical Laboratories LLC. (“Kai Medical”). Kai Medical operates a high-complexity CLIA and COLA accredited laboratory that provides reliable and accurate testing solutions to hospitals, medical clinics, pharmacies, and employer groups. KAI has taken an active role in COVID-19 testing, battling the pandemic through RT-PCR testing and serology testing with the capacity to process 4,000 RT-PCR test specimens per day. While the RT-PCR test identifies if a patient has an active virus, the serology or antibody test detects if a patient has previously been exposed to the virus. Both of these test results are vital to managing outbreaks and the potential spread of coronavirus.
 
On December 31, 2020, the Company acquired Lawrence Park Health and Wellness Clinic Inc., and 1100900 Canada Inc. dba Atkinson (collectively "LP&A"). LP&A operate multidisciplinary health clinics in the Greater Toronto Area, Ontario. As leading experts in musculoskeletal health LP&A’s many practitioners provide a variety of para-medical services that will form an integral component of the development of the Company’s growth strategy by opening healthcare centers in key markets comprised of primary care and para-medical services further supported by virtual care and telemedicine services.
 
Capital Expenditures and Divestitures
 
During the year ended December 31, 2020, cash used for capital expenditures of property and equipment was $142,350 (2019 - $3,828), and net cash used for capital expenditures in the acquisition of Kai Medical and LP&A was $167,644 (2019 – $787,318 for the acquisition of Sun Valley).
 
Takeover Offers
 
We are not aware of any indication of any public takeover offers by third parties in respect of our common shares during our last and current financial years.
 
B.       Business Overview
 
(a)
Summary of Operations
 
On June 12, 2015 EHC CA, through its wholly owned subsidiary EHC US, purchased all of the assets of Presto Quality Care Corporation (“Presto”), an Oregon company that had owned and operated the business currently carried on by EHC CA. The consideration for the purchase was the assumption by EHC CA of a note payable by Presto to Bayview Equities Ltd. in the amount of $550,000 plus accrued interest of $35,893.
 
Summary of clinics:
-
The Portland clinic was opened in 2003
 
-
The Grants Pass clinic was opened in 2009
 
-
The Spokane, Washington clinic was opened in January 2010
 
-
The Riverside California clinic was opened in 2009 and was recently closed
 
-
The Bend, Oregon clinic was opened in 2011 and was recently closed
 
-
The Chicago, Illinois clinic was opened in September 2018 and was recently closed
 
-
In addition, the travelling clinics started operating in various locations from 2003 onwards and were designed to service the small markets that could not sustain a full-time clinic. All the clinics were start-ups and run by local advocates for the medicinal benefits of Cannabis. Local offices were sourced and clinics were held for between one to three days a week, eventually being held for six days a week in Portland. The initial marketing was mainly word of mouth. The clinics were staffed by doctors or registered nurses.
 
 
14
 
 
-
The Lawrence Park clinic operates in Toronto, Ontario (acquired on December 31, 2020)
 
-
The Atkinson clinic operates in Thornhill, Ontario (acquired on December 31, 2021)
 
On April 30, 2019, the Company acquired 100% of the membership interest of Sun Valley, an Arizona Limited Liability Company. Through its Subsidiaries, Sun Valley operates a network of professional medical cannabis and pain management practices, with five clinics in Arizona, one clinic in Las Vegas, a tele-medicine platform serving California, and a fully developed franchise business model for the domestic cannabis industry.
 
Operations at Sun Valley Health based in Phoenix, AZ saw a reduction in patient volume in late Q3 2020 and Q4 2020 due to significant regulatory changes in the state of Arizona that saw the state fully legalize cannabis in November 2020. This resulted in the elimination of the need to have medical cannabis certification card to legally purchase cannabis products from dispensaries in the state. As a result, the Company determined it was appropriate to close two of the clinic locations in Q4 2020 and reduce headcount and operating expenses. Subsequent to December 31, 2020, the Company closed one of the two remaining clinic locations, resulting in one remaining clinic location.
 
On October 5, 2020, the Company acquired 100% of the membership interest in Kai Medical Laboratories LLC. (“Kai Medical”). Kai Medical operates a high-complexity CLIA and COLA accredited laboratory that provides reliable and accurate testing solutions to hospitals, medical clinics, pharmacies, and employer groups. KAI has taken an active role in COVID-19 testing, battling the pandemic through RT-PCR testing and serology testing with the capacity to process 4,000 RT-PCR test specimens per day. While the RT-PCR test identifies if a patient has an active virus, the serology or antibody test detects if a patient has previously been exposed to the virus. Both of these test results are vital to managing outbreaks and the potential spread of coronavirus.
 
Empower is creating a network of physicians and practitioners who integrate to serve patient needs, in-clinic, through telemedicine, and with decentralized mobile delivery. A simplified, streamlined care model bringing key attributes of the healthcare supply chain together, always focused on patient experience. The Company provides COVID-19 testing services to consumers and businesses as part of a four-phased nationwide testing initiative in the United States. Empower recently acquired Kai Medical Laboratory, LLC as a wholly owned subsidiary with largescale testing capability.
  
(b)
Effects of Government Regulations
 
See Item 3D - “Risk Factors”.
 
(c)
Corporate Office
 
Our executive offices located at Suite 505, 1771 Robson Street Vancouver, BC V6G 1C9.
 
(d)
Special Skill and Knowledge
 
Steven McAuley, our Chairman and CEO has significant experience in managing and growing public companies.
 
(e)
Foreign Operations
 
During the fiscal years ended December 31, 2020, and 2019, all of our operating activities were in the United States of America. On December 31, 2020, we acquired LP&A, however, there are no operating results included in the financial statements for the year ended December 31, 2020.
 
(f)
Competitive Conditions
 
There is potential that the Company will face intense competition from other companies, some of which can be expected to have more financial resources, industry, manufacturing and marketing experience than the Company. Additionally, there is potential that the industry will undergo consolidation, creating larger companies that may have increased geographic scope and other economies of scale. Increased competition by larger, better-financed competitors with geographic or other structural advantages could materially and adversely affect the business, financial condition and results of operations of the Company.
 
 
15
 
 
To remain competitive, the Company will require a continued level of investment in research and development, marketing, sales and client support. The Company may not have sufficient resources to maintain research and development, marketing, sales and client support efforts on a competitive basis which could materially and adversely affect the business, financial condition and results of operations of the Company.
 
(g)
Dependence on Customers and Suppliers
 
The Company has over 165,000 patients and as such, we are not dependent upon a concentration of customers. The Company is not exposed to concentration of suppliers.
 
C.
Organizational Structure
 
The following table sets out the current organizational structure of the Company and its significant subsidiaries:
 
 
 
Name of Subsidiary
 Status
Jurisdiction of Incorporation
Empower Healthcare Corporation (previously S.M.A.A.R.T Holdings Inc.)
  Active
British Columbia, Canada
S.M.A.A.R.T. Holdings Inc.
  Inactive
Oregon, USA
Empower Healthcare Corporation
  Active
Oregon, USA
SMAART Inc.
  Inactive
Oregon, USA
The Hemp & Cannabis Company
  Inactive
Oregon, USA
THCF Access Points, Inc.
  Inactive
Oregon, USA
The Hemp & Cannabis Company
  Inactive
Washington, USA
THCF Access Points, Inc.
  Inactive
Washington, USA
CanMed Solutions Inc.
  Inactive
Oregon, USA
Kai Medical Laboratory LLC
  Active
Dallas, Texas
11000900 Canada Inc.
  Active
Ontario, Canada
Lawrence Park Health and Wellness Clinic Inc.
  Active
Ontario, Canada
Sun Valley Certification Clinics Holdings, LLC
  Inactive
Arizona, USA
Sun Valley Alternative Health Centers, LLC
  Active
Arizona, USA
Sun Valley Alternative Health Centers West, LLC
  Inactive
Arizona, USA
Sun Valley Alternative Health Centers NV, LLC
  Inactive
Nevada, USA
Sun Valley Alternative Health Centers Tucson, LLC
  Inactive
Arizona, USA
Sun Valley Alternative Health Centers Mesa, LLC
  Active
Arizona, USA
Sun Valley Certification Clinics Franchising, LLC
  Inactive
Arizona, USA
 
Consideration in the Sun Valley Acquisition on April 30, 2019 consisted of cash, common shares of the Company and a promissory note having an aggregate value of $3,054,593 as summarized below:
 
1.
A cash payment of $775,000, of which $150,000 was held back by the Company, half of which is to be released six months from the date of Closing and the other half of which is to be release twelve months from the date of Closing;
 
2.
Issuance of 22,058,823 common shares of the Company at a deemed price of $0.135 (CDN$0.175) per Share, representing the average daily closing price of the common shares on the CSE for the 10-day trading period ended April 26, 2019. Pursuant to an escrow agreement dated April 30, 2019, 14,705,882 of the common shares will be held in escrow by Odyssey Trust Company, and will vest in quarterly installments over 36 months from the date of the Closing;
 
3.
A cash payment of $12,318 and issuance of 350,602 common shares at a deemed price of $0.13 (CDN$0.175) per Share, representing the average daily closing price of the common shares on the CSE for the 10-day trading period ended April 26, 2019 to a minority shareholder of one of the Subsidiaries in order to acquire their minority interest therein; and
 
4.
A promissory note of US$125,000 bearing interest at a rate of 4% per annum and due July 31, 2019, to a minority shareholder of one of the Subsidiaries in order to acquire their minority interest therein.
 
 
16
 
Consideration in the Kai Medical Acquisition on October 5, 2020 consisted of 500,000 stock options and 500,000 warrants with a fair value of $10,025 and $10,025, respectively. The Company acquired cash of $9,826.
 
Consideration in the acquisition of 11000900 Canada Inc. and Lawrence Park Health and Wellness Clinic Inc. on December 31, 2020 had aggregate fair value of $1,766,933, consisting of cash of $215,991, cash payable of $58,907, up to3,750,000 stock options with a fair value of $344,110 and share consideration with a fair value of $1,147,925.
 
D.
Property and Equipment
 
Property and equipment is comprised of furniture and fixtures and leasehold improvements at the Company’s clinics as well as testing instruments utilized by Kai Medical. The Company’s leases, all of which support clinic operations, are summarized below:
 
-
Portland, Oregon – Shared space which is currently on a month-to-month lease
 
-
Phoenix, Arizona – 2,830 square feet which was on a five-year lease term and expired on February 28, 2021. This clinic is now closed.
 
-
Mesa, Arizona – 1,325 square feet which is currently on a five-year lease term set to expire on March 31, 2022. The Company terminated this lease and closed the clinic in February 2021.
  
-
Surprise, Arizona – 745 square feet which is currently on a five-year lease term expiring September 30, 2022.
 
-
Tucson, Arizona – 1,400 square feet which was on a five-year lease term set to expire on August 31, 2022. The Company terminated this lease and closed the clinic in February 2021.
 
-
Toronto, Ontario – 1,274 square feet which is currently on a 13-month lease expiring on January 31, 2022.
 
-
Dallas, Texas – 15,750 square feet which is currently on a lease expiring June 30, 2022.
 
-
Dallas, Texas – 1,360 square feet which is currently on a month-to-month lease.
 
We currently do not have exposure to any environmental protection requirements and policies.
 
ITEM 5
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
 
The following is a discussion and analysis of our activities, consolidated results of operations and financial condition as of and for the year ended December 31, 2020. It should be read in conjunction with our audited consolidated financial statements and related notes for the year ended December 31, 2020. Our financial statements have been prepared in accordance with IFRS as issued by the IASB.
 
A.
Operating Results
 
Results of Operations
 
Consolidated results of operations for the year ended December 31, 2020 compared to the year ended December 31, 2019.
 
Total Revenues
 
Clinic services revenues were $3,154,301, compared to $1,949,549 during fiscal 2019 as the Company pivoted its medical clinics to performing COVID-19 testing from April 2020 through to the end of the year, which offset decreased revenues from patient visits to Sun Valley Health clinics. Revenues for fiscal 2018 were $1,091,386 as the Company received 7,607 patients spending on average $143, noting that clinics revenues for 2018 were driven primarily by patients seeking medical cannabis licenses.
 
 
17
 
 
Product revenues were $54,895, compared to $82,032 during fiscal 2019 and $nil during fiscal 2018 as the Company had expanded into CBD product sales and the sale of premium wellness products in the prior year. Product revenues declined as a direct result of the impact of the COVID-19 pandemic.
 
Earnings from clinic operations
 
Cost of clinic services were $1,157,428, compared to $793,374 during fiscal 2019 and $417,047 during fiscal 2018. These costs represent physician and clinic support staff expenses that are required to operate the clinics and provide patient consulting services. These expenses increased due to the increase in revenues. The Company continues to monitor and improve its operational controls to align labor cost with direct patient consultations. The Company employs a diverse mix of physicians and practitioners.
 
Cost of product revenues (changes in finished goods inventory) was $36,132, compared to $32,902 during fiscal 2019 and $nil during fiscal 2018, as the Company had expanded into CBD product sales and the sale of premium wellness products during fiscal 2019, and during fiscal 2020 expanded laboratory testing services with the acquisition of Kai on October 5, 2020, which resulted in higher run rate cost of goods sold.
 
Operating expenses
 
Operating expenses were $3,947,408, compared to $2,933,619 during fiscal 2019 and $2,517,681 during fiscal 2018. The increase over the years is primarily related to additional advertising and promotion expenses of $1,031,297 due to the launching capital markets and investor relations marketing programs in order to increase visibility and awareness to the investment community and prospective shareholders and to more effectively communicate developments of the Company, partially offset by savings in salaries and benefits as well as reductions in rent as the Company closed various offices as part of its cost-cutting initiatives.
 
Legal and professional fees
 
Legal and professional fees were $1,394,570, compared to $1,015,743 during fiscal 2019 and $ 1,450,141 during fiscal 2018. The increase is primarily related to the acquisitions of Kai and LP&A in Q4 2020. The decrease from fiscal 2018 to fiscal 2019 was the result of the Company’s public listing transaction occurring during fiscal 2018 which resulted in higher fees during that year.
 
Depreciation and amortization expense
 
Depreciation and amortization expense were $381,492, compared to $374,210 during fiscal 2019 and $123,473 during fiscal 2018. The balance increased due to the acquisition of Sun Valley in May 2019 which carried additional leases and the depreciation on the right-of-use asset.
 
Share-based payments
 
Share-based payments were $323,799, compared to $608,944 during fiscal 2019 and $892,417 during fiscal 2018. The share-based payments expense is the fair value of share options recognized as an expense during the period based on the fair valued determined by the Black-Scholes option pricing model valuation.
 
Change in fair value of warrant liability
 
The Company recorded a loss on the change in the fair value of the warrant liability of $11,886,796 compared to a gain of $2,065,781 during fiscal 2019 and a gain of $1,598,425 during fiscal 2018.The share purchase warrants are required to be revalued at every quarter end and the current year loss resulted from the significant increase in the Company’s share price during fiscal 2020, which is a key variable in determining the fair value of the warrant liability per the Black-Scholes valuation model.
 
 
18
 
Gain on change in fair value of conversion feature
 
During fiscal 2019, the Company recorded a gain on the change in the fair value of the conversion feature of $587,229, compared to $890,136 during fiscal 2018. The conversion feature relates to the convertible debentures outstanding during the period and is required to be revalued at every quarter end and the gain resulted from the decrease in the Company’s share price during fiscal 2019, which is a key variable in determining the fair value of the conversion feature. As all the convertible debentures were converted to common shares during fiscal 2020, the revaluation of the conversion option during fiscal 2020 was significantly reduced.
 
Inflation
 
During the years ended December 31, 2020 and 2019, inflation has not had a material impact on our operations.
 
Foreign Exchange Risk
 
We have limited exposure to financial risk related to the fluctuation of foreign exchange rates. We operate in the U.S., most of our monetary assets are held in U.S. dollars and most of our expenditures are made in U.S. dollars. However, we also have expenditures in CDN$. We have not hedged our exposure to currency fluctuations.
 
B.
Liquidity and Capital Resources
 
Liquidity
 
Liquidity risk is the risk that the Company will encounter difficulties in meeting obligations associated with its financial liabilities and other contractual obligations. The Company’s strategy for managing liquidity is based on achieving positive cash flows from operations to internally fund operating and capital requirements.
 
Factors that may affect the Company’s liquidity are continuously monitored. These factors include the number of patient visits, average patient spend per visit, operating costs, capital costs, income tax refunds, foreign currency fluctuations, seasonality, market immaturity and a highly fluid environment related to state and federal law passage and regulations.
 
In the event that the Company is adversely affected by any of these factors and, as a result, the operating cash flows are not sufficient to meet the Company’s working capital requirements there is no guarantee that the Company would be able to raise additional capital on acceptable terms to fund a potential cash shortfall. Consequently, the Company is subject to liquidity risk.
 
The Company will need to procure additional financing in order to fund its ongoing operation. The Company intends to obtain such financing through equity financing, and there can be no assurance that the Company can raise the required capital it needs to build and expand as expected, nor that the capital markets will fund the business of the Company. Without this additional financing, the Company may be unable to achieve positive cash flow and earnings as quickly as anticipated, these uncertainties cast a significant doubt about the Company’s ability to continue as a going concern.
 
At December 31, 2020, the Company had cash of $4,889,824 and working capital of $1,746,818. Subsequent to year end, the Company received cash of $5,864,336 from the exercise of warrants and stock options.
 
Year ended December 31, 2020 compared to year ended December 31, 2019:
 
-
Cash used by operating activities was $1,749,818, compared to $2,273,188 during fiscal 2019 and $2,835,710 during fiscal 2018. Significant drivers of the change over the prior year relate to additional operating expenses incurred as a result of the growth of the Company, partially offset by increased revenues generated from COVID-19 testing.
 
-
Cash used in investing activities was $309,994, compared to $791,146 during fiscal 2019 and $100,227 during fiscal 2018 as a result of cash spend on the acquisition of Kai and LP&A as well as intangible assets during fiscal 2020, compared to the cash spend related to the acquisition of Sun Valley during fiscal 2019.
 
 
19
 
 
-
Cash provided by financing activities was $6,770,483 compared to $3,085,819 during fiscal 2019 and $3,093,604 during fiscal 2018. Cash provided by financing activities during fiscal 2020 related to cash proceeds from the issuance of common shares and cash proceeds from the exercise of warrants, partially offset by cash spend on lease payments and repayments of notes payable and loans payable, whereas cash provided by financial activities during fiscal 2019 related to cash proceeds from the issuance of common shares, advance of convertible debentures, advance of notes payable and cash acquired in the acquisition of Sun Valley which was partially offset by lease payments and share issue costs. Cash provided by financing activities during fiscal 2018 was primarily related to cash proceeds from the issuance of common shares and advance of convertible debentures.
 
Capital Resources
 
The capital of the Company consists of consolidated equity, notes payable, convertible debentures, secured loan payable, and convertible note payable, net of cash.
 
As at December 31,
 
2020
 
 
2019
 
Equity
  (5,490,401)
  (3,514,913)
Notes payable
  708,361 
  969,891 
Convertible debentures
  - 
  427,320 
Convertible notes payable
  200,530 
  192,717 
Current portion of loans payable
  992,070 
  761,711 
Non-current portion of loans payable
  1,140,157 
  - 
 
  (2,449,283)
  (1,163,274)
Less: Cash
  (4,889,824)
  (179,153)
 
  (7,339,107)
  (1,342,427)
 
The board of directors of the Company has overall responsibility for the establishment and oversight of the Company’s risk management policies on an annual basis. The Company’s board of directors identifies and evaluates the Company’s financial risks and is charged with the responsibility of establishing controls and procedures to ensure financial risks are mitigated.
 
The Company’s objectives when managing capital are to pursue and complete the identification and evaluation of assets, properties or businesses with a view to acquisition. The Company does not have any externally imposed capital requirements to which it is subject.
 
The Company manages the capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. To maintain or adjust the capital structure, the Company may attempt to issue new common shares or adjust the amount of cash.
 
The Company’s investment policy is to invest excess cash in investment instruments at high credit, quality financial institutions with terms to maturity selected with regards to the expected time of expenditures from continuing operations.
 
Critical Accounting Policies and Estimates
 
The preparation of the Company’s consolidated financial statements in conformity with IFRS requires management to make estimates based on assumptions about future events that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
 
The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates.
 
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized prospectively in the period in which the estimate is revised. Management has made the following critical judgements and estimates: 
 
 
20
 
 
Critical judgements in applying accounting policies
 
Critical judgements made by management in applying the Company’s accounting policies, apart from those involving estimations, that have the most significant effect on the amounts recognized in the Company’s consolidated financial statements are as follows:
 
Functional currency
 
The functional currency for each of the Company’s subsidiaries is the currency of the primary economic environment in which the respective entity operates; such determination involves certain judgements to identify the primary economic environment. The Company reconsiders the functional currency of its subsidiaries if there is a change in events and/or conditions which determine the primary economic environment.
 
Assessment of Cash Generating Units
 
For impairment assessment and testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or cash generating units (“CGU”). The Company applies judgement in assessing the smallest group of assets that comprise a single CGU.
 
Assessment of useful lives of property and equipment and intangible assets
 
Management reviews its estimate of the useful lives of property and equipment and intangible assets annually and accounts for any changes in estimates prospectively. The Company applied judgment in determining the useful lives of trademarks and patient records with less than an indefinite life. In addition, the Company applied judgment in determining the useful lives of the right-of-use assets and leasehold improvements for purposes of assessing the shorter of the useful life or lease term.
 
Assessment of indicators of impairment
 
At the end of each reporting period, the Company assesses whether there are any indicators, from external and internal sources of information, that an asset or CGU may be impaired, thereby requiring adjustment to the carrying value.
 
Revenue recognition
 
Determination of performance obligations
The Company applied judgement to determine if a good or service that is promised to a customer is distinct based on whether the customer can benefit from the good or service on its own or together with other readily available resources and whether the good or service is separately identifiable. Based on these criteria, the Company determined the primary performance obligation relating to its sales contracts is the delivery of the medical services or sale of product, each representing a single performance obligation with consideration allocated accordingly.
 
Transfer of control
Judgement is required to determine when transfer of control occurs relating to the medical services to its customers. Management based its assessment on a number of indicators of control, which include, but are not limited to whether the Company has present right of payment, whether delivery of medical services has occurred and whether the physical possession of the goods, significant risks and rewards and/or legal title have been transferred to the customer.
 
Expected credit losses
 
In calculating the expected credit loss on financial instruments, management is required to make a number of judgments including the probability of possible outcomes with regards to credit losses, the discount rate to use for time value of money and whether the financial instrument’s credit risk has increased significantly since initial recognition.
 
Business combinations
 
Judgment is used in determining whether an acquisition is a business combination or an asset acquisition.
 
 
21
 
 
In a business combination, all identifiable assets, liabilities and contingent liabilities acquired are recorded at their fair values, including the total consideration paid by the Company. One of the most significant estimates relates to the determination of the fair value of these assets and liabilities including assessing the fair value of any favourable or unfavorable lease terms. For any intangible asset identified or form of consideration paid by the Company, depending on the type of intangible asset or consideration paid and the complexity of determining its fair value, an independent valuation expert or management may develop the fair value, using appropriate valuation techniques, which are generally based on a forecast of the total expected future net cash flows. The evaluations are linked closely to the assumptions made by management regarding the future performance of the assets concerned and any changes in the discount rate applied.
 
Additionally, as part of a business combination, all forms of consideration paid (on the date of acquisition or contingent upon achieving certain milestones) are recorded at their fair values, which is a significant estimate. For any form of consideration paid by the Company, depending on the type of consideration paid and the complexity of determining its fair value, an independent valuation expert or management may develop the fair value, using appropriate valuation techniques, which are generally based on a forecast of the total expected future net cash flows. The evaluations are linked closely to the assumptions made by management regarding the future performance of the asset concerned and any changes in the discount rate applied. In the event that there is contingent consideration in an acquisition management makes assumptions as to the probability of the consideration being paid.
 
Key sources of estimation uncertainty
 
Significant assumptions about the future and other major sources of estimation uncertainty at the end of the reporting period that may result in a material adjustment to the carrying amounts of the Company’s assets and liabilities are as follows:
 
Current and deferred taxes
 
The Company’s provision for income taxes is estimated based on the expected annual effective tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The current and deferred components of income taxes are estimated based on forecasted movements in temporary differences. Changes to the expected annual effective tax rate and differences between the actual and expected effective tax rate and between actual and forecasted movements in temporary differences will result in adjustments to the Company’s provision for income taxes in the period changes are made and/or differences are identified.
 
In assessing the probability of realizing income tax assets recognized, management makes estimates related to expectations of future taxable income, applicable tax planning opportunities, expected timing of reversals of existing temporary differences and the likelihood that tax positions taken will be sustained upon examination by applicable tax authorities. In making its assessments, management gives additional weight to positive and negative evidence that can be objectively verified. Estimates of future taxable income are based on forecasted cash flows from operations and the application of existing tax laws in each jurisdiction. Forecasted cash flows from operations are based on patient visits, which are internally developed and reviewed by management.
 
Weight is attached to tax planning opportunities that are within the Company’s control and are feasible and implementable without significant obstacles.
 
The likelihood that tax positions taken will be sustained upon examination by applicable tax authorities is assessed based on individual facts and circumstances of the relevant tax position evaluated in light of all available evidence.
 
Equity-settled share-based payments
 
Share-based payments are measured at fair value. Options and warrants are measured using the Black-Scholes option pricing model based on estimated fair values of all share-based awards at the date of grant and are expensed to earnings or loss from operations over each award’s vesting period. The Black-Scholes option pricing model utilizes subjective assumptions such as expected price volatility and expected life of the option. Changes in these input assumptions can significantly affect the fair value estimate.
 
 
22
 
 
Contingencies
 
Due to the nature of the Company’s operations, various legal and tax matters can arise from time to time. In the event that management’s estimate of the future resolution of these matters’ changes, the Company will recognize the effects of the changes in its consolidated financial statements for the period in which such changes occur.
 
Warrant liability and conversion feature
 
Warrant liability and conversion feature are measured at fair value using the Black-Scholes option pricing model based on estimated fair values at the date of grant and revalued at period end to the consolidated statement of loss and comprehensive loss over the life of the instruments. The Black-Scholes option pricing model utilizes subjective assumptions such as expected price volatility and expected life of the option. Changes in these input assumptions can significantly affect the fair value estimate.
 
Leases as a result of adopting IFRS 16
 
Identifying whether a contract includes a lease
IFRS 16 applies a control model to the identification of leases, distinguishing between a lease and a service contract on the basis of whether the customer controls the asset. The Company had to apply judgment on certain factors, including whether the supplier has substantive substitution rights, does the Company obtain substantially all of the economic benefits and who has the right to direct the use of that asset.
 
Incremental borrowing rate
When the Company recognizes a lease, the future lease payments are discounted using the Company’s incremental borrowing rate. This significant estimate impacts the carrying amount of the lease liabilities and the interest expense recorded on the consolidated statement of loss and comprehensive loss.
 
Estimate of lease term
When the Company recognizes a lease, it assesses the lease term based on the conditions of the lease and determines whether it will extend the lease at the end of the lease contract or exercise an early termination option. As it is not reasonably certain that the extension or early termination options will be exercised, the Company determined that the term of its leases are the lesser of original lease term or the life of the leased asset. This significant estimate could affect future results if the Company extends the lease or exercises an early termination option.
 
C.
Research and Development, Patents and Licenses
 
Not applicable.
 
D.
Trend Information
 
We are not aware of any trends that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
 
E.
Off-Balance Sheet Arrangements
 
The Company has not entered into any material off-balance sheet arrangements such as guarantee contracts, contingent interests in assets transferred to unconsolidated entities, derivative financial obligations or arrangements with respect to any obligations under a variable interest equity arrangement. 
 
 
23
 
 
F.
Tabular Disclosure of Contractual Obligations
 
A summary of undiscounted liabilities and future operating commitments at December 31, 2020, are as follows:
 
 
 
Total  
 
 
   Within 1 year
 
 
2 - 5 years
 
 
   Greater than 5 years
 
Maturity analysis of financial liabilities
 
 
 
 
 
 
 
 
 
 
 
 
Accounts payables and accrued liabilities
 $3,442,725 
 $3,442,725 
 $- 
 $- 
Loans payable
  2,132,227 
  992,070 
  143,624 
  996,533 
Notes payable
  708,361 
  708,361 
  - 
  - 
Convertible notes payable
  200,530 
  200,530 
  - 
  - 
Lease payments
  496,386 
  241,138 
  255,248 
  - 
Total financial liabilities and commitments
 $6,980,229 
 $5,584,824 
 $398,872 
 $996,533 
 
Various tax and legal matters are outstanding from time to time. In the event that management’s estimate of the future resolution of these matters’ changes, the Company will recognize the effects of these changes in the consolidated financial statements in the period such changes occur.
 
G.
Safe Harbor
 
Not applicable.
 
ITEM 6
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
 
A.
Directors and Senior Management
 
The size of Empower’s Board of Directors (the “Board”) is currently set at three. All of Empower’s directors are elected annually by the shareholders and hold office until the next annual general meeting or until their successors are duly elected and qualified, unless their office is earlier vacated in accordance with the CBCA and Empower’s articles of incorporation.
 
The following table sets forth information relating to the directors and senior management of the Company as at the date of this Form 20-F:
 
Name(1)
Position
Steven McAuley (2)
Director, Chairman and Chief Executive Officer
Andrejs Bunkse (2)(3)
Director
Dustin Klein (2)
Director, Senior Vice President of Business Development
Kyle Appleby
Chief Financial Officer
Yoshi Tyler
Director, President of Kai Medical
 
Notes:
 
(1)
 
Neither age nor date of birth of directors or senior managers is required to be reported in our home country (Canada) nor otherwise publicly disclosed.
 
(2)
 
Member of Audit Committee.
 
(3)
 
“Independent” for purposes of National Instrument 52-110– Audit Committees (“NI 52-110”).
 
The following is biographical information on our directors and officers who are acting in the capacity of director or officer as of the date hereof:
 
 
24
 
Steven McAuley – Chairman and Chief Executive Officer
 
Mr. McAuley is our Chairman and CEO.  He is also the Chairman and CEO of Empower. in Vancouver, B.C. Canada, a position he has held since January 4, 2019. From January 2013 through January 2019, Mr. McAuley was the Founder & CEO of Privatis Technology Corporation in Vancouver, B.C. Canada. He is the former SVP, Financial Services for Penske Automotive Group NYSE: PAG, CEO of Xpel Technologies TSXV: DAP and former CEO, United Kingdom, GE Capital Fleet Services. 
 
Kyle Appleby – Chief Financial Officer
 
Mr. Appleby has been our Chief Financial Officer since October 2020. Mr. Appleby is the owner of CFO Advantage Inc., a CFO service provide for reporting issuers since 2009. Mr. Appleby has acted as CFO for various reporting issuers.
 
Dustin Klein – Director and Senior Vice President of Business Development
 
Mr. Klein has been a member of the Board of Directors of Empower since May 2019. Mr. Klein is currently the co-founder of Sun Valley Science, LLC, a position he has held since its formation in May 2018. Between September 2013 and May 2019, Mr. Klein was a co-founder of our Affiliates Sun Valley Health Centers, LLC, Sun Valley Health Centers West, LLC, Sun Valley Health Centers Mesa, LLC, Sun Valley Health Centers NV, LLC and Sun Valley Health Centers Tucson, LLC which operate Sun Valley Health Businesses in the metropolitan Phoenix, Arizona, Tucson, Arizona and Las Vegas, Nevada area until April 2019. From September 2012 through July 2013, Mr. Klein was the Manager of Johns 4x4 in Boulder, Colorado. From January 2012 through August 2012, Mr. Klein was a Regional Account Manager for Solar City in Denver Colorado. From January 1, 2011 through December 31, 2011, Mr. Klein was the owner of Gutshot Entertainment in Denver, Colorado. 
 
Andrejs Bunkse – Director
 
Mr. Bunkse has been a member of the Board of Directors of Empower since June 2019. Mr. Bunkse is currently Of Counsel to Nimbus Legal PLLC in Scottsdale Arizona, a position he has held since May 2018. Mr. Bunkse is the founder of Rain Legal (Law Offices of Andrejs K. Bunkse), a position he has held since April 2018. Mr. Bunkse has been the President of Endurance Strategies Group in Phoenix, Arizona since May 2013.
 
Yoshi Tyler – Director
Ms. Tyler has been a member of the Board of Directors since April 2021. Ms. Tyler is the President of Kai Medical Laboratory, LLC, a position she has held since January 2017. With a professional and entrepreneurial background in healthcare, Ms. Tyler has more than 13 years of experience providing leadership at Pfizer, Inc., a Fortune 500 pharmaceutical company. This experience has provided her with in-depth knowledge and industry insights to found and lead Kai Medical Laboratory towards unprecedented growth.
 
  
Cease trade orders, bankruptcies, penalties or sanctions
 
For the purposes of this section, “order” means a cease trade order; an order similar to a cease trade order; or an order that denied the relevant company access to any exemption under securities legislation that was in effect for a period of more than 30 consecutive days.
 
On May 3, 2021, the Company was granted a management cease trade order (“MCTO”) by the British Columbia Securities Commission. The MCTO does not affect the ability of shareholders who are not insiders of the Company to trade their securities.
 
The MCTO restricted the following individuals from buying or selling securities of Empower:
 
-
Steven McAuley – Chairman and Chief Executive Officer
-
Kyle Appleby – Chief Financial Officer
-
Dustin Klein – Director and Senior Vice President of Business Development
-
Andrejs Bunkse – Director
-
Yoshi Tyler – Director
 
 
25
 
The MCTO was issued in connection with the delay by the Company in filing its annual financial statements for the year ended December 31, 2020, and the related management’s discussion and analysis and certificates of its CEO and CFO (collectively, the "Required Filings") with Canadian securities regulators until after the April 30, 2021 filing deadline. The delay in filing was primarily due to the impact of COVID-19 on the audit and associated required travel, of the Company's recently acquired subsidiaries in both the US and Canada. The Required Filings were filed on July 2, 2021 and the MCTO was lifted on July 14, 2021
 
On May 7, 2019, the Company’s trading was suspended by Canadian securities regulators due to a delay in filing the Required Filings with Canadian securities regulators until after the April 30, 2019 filing deadline. The delay was the result of material deficiencies in the Company’s disclosure controls and procedures as outlined Item 15 of this 20-F. The Required Filings were filed on June 6, 2019, at which point the Company’s trading resumed.
 
Other than as disclosed above, to the best of our knowledge, no director or executive officer of Empower is, as at the date hereof, or has been, within the 10 years before the date hereof, a director, chief executive officer or chief financial officer of any corporation (including Empower) that: 
 
(a)
was subject to an order that was issued while the director or executive officer was acting in the capacity as director, chief executive officer or chief financial officer; or
 
(b)
was subject to an order that was issued after the director or executive officer ceased to be a director, chief executive officer or chief financial officer and which resulted from an event that occurred while that person was acting in the capacity as director, chief executive officer or chief financial officer.
 
To the best of our knowledge, no director or executive officer of Empower or a shareholder holding a sufficient number of securities of Empower to affect materially the control of Empower:
 
(a)
is, as at the date hereof, or has been within the 10 years before the date hereof, a director or executive officer of any corporation (including Empower) that, while that person was acting in that capacity, or within a year of that person ceasing to act in that capacity, became bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency or was subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold its assets; or
 
(b)
as, within the 10 years before the date hereof, become bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency, or become subject to or instituted any proceedings, arrangement or compromise with creditors, or had a receiver, receiver manager or trustee appointed to hold the assets of the director, executive officer or shareholder.
 
To the best of our knowledge, no director or executive officer of the Company, or a shareholder holding a sufficient number of the Company’s securities to affect materially the control the Company, has been subject to:
 
(a)
any penalties or sanctions imposed by a court relating to securities legislation or by a securities regulatory authority or has entered into a settlement agreement with a securities regulatory authority; or
 
(b)
any other penalties or sanctions imposed by a court or regulatory body that would likely be considered important to a reasonable investor in making an investment decision.
 
Conflicts of Interest
 
Our directors and officers are aware of the existence of laws governing accountability of directors and officers for corporate opportunity and requiring disclosures by directors of conflicts of interest and we will rely upon such laws in respect of any directors and officers’ conflicts of interest or in respect of any breaches of duty by any of its directors or officers. All such conflicts will be disclosed by such directors or officers in accordance with the CBCA and they will govern themselves in respect thereof to the best of their ability in accordance with the obligations imposed upon them by law.
 
 
26
 
 
Promoters
 
None noted.
 
B.
Compensation
 
During the year ended December 31, 2020, we paid aggregate remuneration to our directors and officers as a group who served in the capacity of director or executive officer during such year $296,815 (2019 - $1,301,945).
 
Executive Compensation
 
Compensation Discussion and Analysis
 
In assessing the compensation of our Company’s executive officers, we do not have in place any formal objectives, criteria or analysis; instead, we rely mainly on Board discussion. Currently, any material commitments, inclusive of remuneration, are required to be pre-approved by the Board.
 
Our executive compensation program has three principal components: base salary, incentive bonus plan and stock options. Base salaries for all our employees are established for each position through comparative salary surveys of similar type and size companies. Both individual and corporate performances are also taken into account. Incentive bonuses, in the form of cash payments, are designed to add a variable component of compensation based on corporate and individual performances for executive officers and employees. No bonuses were paid to executive officers or employees during the most recently completed financial year.
 
We have no other forms of compensation, although payments may be made from time to time to individuals or companies they control for the provision of consulting services. Such consulting services are paid for at competitive industry rates for work of a similar nature by reputable arm’s length services providers.
 
As at December 31, 2019 we had a compensatory plan, contract or arrangement where Mr. Craig Snyder is entitled to receive up to two years salary as a severance payment depending on the date of termination. His final severance was paid in 2019.
 
We have no additional compensatory plans, contracts or arrangements where an executive officer is entitled to receive in excess of $100,000 in the event of termination, resignation or retirement, a change of control of Empower or a change in responsibilities following a change in control, other than as described in this Form 20-F.
 
Summary Compensation Table
 
The following table provides a summary of compensation that we paid to our senior management during the year ended December 31, 2020:
 
 
 
 
 
 
Non-Equity Incentive Plan Compensation($)
 
 
 
Names and Principal Position
Year
Salary ($)
Share-Based Awards($)
Option-Based Awards($)
Annual incentive plans
Long-term incentive plans
Pension Value($)
All Other Compensation($)
Total Compensation($)
Steven McAuley, President, CEO and Director (1)
2020
142,499
 
Nil
Nil
Nil
 
Nil
 
Nil
 
14,556
 
157,055
 
Kyle Appleby, CFO(2)
2020
6,709
Nil
 
Nil
 
Nil
 
Nil
 
Nil
 
Nil
 
6,709
Dustin Klein, SVP Business Development, Director (3)
2020
50,000
 
Nil
 
Nil
 
Nil
 
Nil
 
Nil
 
Nil
 
50,000
 
Andrejs Bunkse, Director(4)
2020
7,500
Nil
11,353
 
Nil
 
Nil
 
Nil
 
Nil
 
7,500
 
 
 
27
 
 
(1)
Appointed CEO and Director on January 4, 2019.
(2)
Appointed on September 28, 2020
(3)
Appointed on April 30, 2019
(4)
Appointed on May 26, 2019
 
Option Based Awards
 
Stock options are granted to provide an incentive to our directors, officers, employees and consultants to achieve our longer-term objectives; to give suitable recognition to the ability and industry of such persons who contribute materially to our success; and to attract and retain persons of experience and ability, by providing them with the opportunity to acquire an increased proprietary interest in Empower. We award stock options to our executive officers based upon the recommendation of the Board, which recommendation is based upon the Compensation Committee’s review of a proposal from the President and CEO. Previous grants of incentive stock options are taken into account when considering new grants.
 
We have a stock option plan for the granting of incentive stock options to the officers, employees, consultants and directors. See Item 6E - “Share Ownership – Equity Compensation Plans” for more information.
 
Director Compensation
 
We have no arrangements, standard or otherwise, pursuant to which Directors are compensated by for their services in their capacity as Directors, or for committee participation, involvement in special assignments or for services as consultant or expert during the most recently completed financial year or subsequently, up to and including the date of this Form 20-F, except for the consulting fees described in Item 7.B – “Related Party Transactions” of this Form 20-F.
 
Long-Term Incentive Plan Awards
 
We did not make any long-term incentive plan awards during the years ended December 31, 2020 and 2019.
 
Pension, Retirement or Similar Benefits
 
We do not provide for pension, retirement, or similar benefits.
 
Employment Agreements
 
As of the date of this Annual Report, we have the following agreements with officers of the Company:
 
Steven McAuley
 
Effective January 4, 2019, the Company entered into an employment agreement with Mr. Steven McAuley which includes an annual base salary of $225,000, a variable annual incentive program to be determine by the Board of Directors, a bonus incentive program to be based on the satisfaction of certain milestones, including the successful completion of financing rounds following which the annual base salary will be increased by an amount equal to 2% of the total amount raised, the grant of 7,000,000 stock options with a five year term and in lieu of a signing bonus, the issuance of 2,000,000 fully vested common shares and 5,000,000 common shares which will be subject to a three year vesting period from the date of grant, with 11.11% vesting each three months from the date of grant.
 
In 2020, Mr. Steven McAuley deferred his salary in order to support the working capital constraints that the Company was facing.
 
C.
Board Practices
 
Our Directors have served in their respective capacities since their election or appointment and will serve until our next annual general meeting or until a successor is duly elected and qualified, unless their office is earlier vacated in accordance with the CBCA and our articles of incorporation. Our officers serve at the discretion of the Board.
 
The Board is responsible for, among other things, identifying suitable candidates to be recommended for election to the Board by shareholders or appointment by the Directors, subject to the limits in Empower’s articles and the CBCA. One of the objectives of the Board with respect to the nomination is to maintain the composition of the Directors in a way that provides the best mix of skills and experience to guide our long-term strategy and ongoing business operations.
 
 
28
 
The Board conducts an annual review and assessment of the performance of the Chairman and Chief Executive Officer and our other senior executive officers.
 
The Board also reviews and monitors our executive development programs and the long-range plans and personnel policies for recruiting, developing and motivating our executives. The Board has reviewed and approved the qualifications of each of the Board nominees standing for election.
 
The Board’s review of the performance of our company and the Chief Executive Officer as measured against objectives established in the prior year by the Board and the CEO. The evaluation is to be used by the Board in its deliberations concerning the CEO’s annual compensation. The evaluation of performance against objectives forms part of the determination of the entire compensation of senior employees. The Board is also responsible for reviewing the compensation of the Directors on an annual basis, taking into account such matters as time commitment, responsibility and compensation provided by comparable organizations. The compensation committee will make an annual review of such matters and make a recommendation to the Board.
 
The Board is responsible for making an annual assessment of the overall performance of the Directors as a group and to reporting its findings to the full Board. The assessment examines the effectiveness of the Directors as a whole and specifically reviews areas that the Directors and/or management believe could be improved to ensure the continued effectiveness of the Directors in the execution of their responsibilities.
 
Term of Office
 
All directors have a term of office expiring at our next annual general meeting, unless a director’s office is earlier vacated in accordance with our Articles or the provisions of the CBCA. All officers serve at the discretion of the Board.
 
Audit Committee
 
We have a standing Audit Committee that assists the directors of the Company in overseeing all material aspects of reporting, control and audit functions, except those specifically related to the responsibilities of another standing committee of the Board. The role of the Audit Committee includes a particular focus on the qualitative aspects of financial reporting to shareholders and on our processes for the management of business/financial risk and for compliance with significant applicable legal, ethical, and regulatory requirements. The Audit Committee is responsible for, among other things, the making recommendations to our Board with respect to the appointment and remuneration of our independent accountant.
 
As of the date hereof, our Audit Committee is comprised of Steven McAuley, Andrejs Bunkse, and Dustin Klein.
 
We have procedures for the review and pre-approval of any services performed by our auditors. The procedures require that all proposed engagements of the auditors for audit and non-audit services be submitted to the Audit Committee for approval prior to the beginning of any such services. The Audit Committee considers such requests, and, if acceptable to a majority of the Audit Committee members, pre-approves such audit and non-audit services by a resolution authorizing management to engage the auditors for such audit and non-audit services. During such deliberations, the Audit Committee assesses, among other factors, whether the services requested would be considered “prohibited services” as contemplated by the regulations of the SEC, and whether the services requested and the fees related to such services could impair the independence of the auditors.
 
Pursuant to section 6.1 of NI 52-110, as adopted by the Canadian Securities Administrators (the “CSA”), the Company is exempt from the requirements of Parts 3 and 5 of NI 52-110 for the year ended December 31, 2020, by virtue of the Company being a “venture issuer” (as defined in NI 52-110).
 
Part 3 of NI 52-110 prescribes certain requirements for the composition of audit committees of non-exempt companies that are reporting issuers under Canadian provincial securities legislation. Part 3 of NI 52-110 requires, among other things that an audit committee be comprised of at three directors, each of whom, is, subject to certain exceptions, independent and financially literate in accordance with the standards set forth in NI 52-110.
 
Part 5 of NI 52-110 requires an annual information form that is filed by a non-exempt reporting issuer under National Instrument 51-102 – Continuous Disclosure Obligations, as adopted the CSA, to include certain disclosure about the issuer's audit committee, including, among other things: the text of the audit committee's charter; the name of each audit committee member and whether or not the member is independent and financially literate; whether a recommendation of the audit committee to nominate or compensate an external auditor was not adopted by the issuer's board of directors, and the reasons for the board's decision; a description of any policies and procedures adopted by the audit committee for the engagement of non-audit services; and disclosure of the fees billed by the issuer's external auditor in each of the last two fiscal years for audit, tax and other services.
 
 
29
 
 
D.
Employees
 
As of December 31, 2020 we employed 58 employees across the entire operation.
 
E.
Share Ownership
 
Common Shares
 
The shareholdings of our officers and directors are set forth below as of July 16, 2021.
 
 
 
No. of Common
 
 
Percentage of holding
 
 
Percentage of holding on a fully diluted basis(1)
 
Holder name
 
Shares held
 
 
% in capital
 
 
% in voting
 
 
% in capital
 
 
% in voting
 
Steven McAuley (2)
  17,484,000 
  5.24%
  5.24%
 
 
 
 
 
 
Andrejs Bunkse (3)
  - 
  - 
  - 
  - 
  - 
Dustin Klein (4)
  6,740,196 
  2.02%
  2.02%
  - 
  - 
Kyle Appleby (5)
  - 
  - 
  - 
  - 
  - 
Yoshi Tyler(6)
  - 
  - 
  - 
  - 
  - 
 
Notes:
 
(1)
 
“Fully diluted basis” means with the exercise of all warrants and options.
 
(2)
 
Steven McAuley is an interested party in the Company by virtue of him serving as Chairman of the Board of Directors, a director and as the Company’s Chief Executive Officer.
 
(3)
 
Andrejs Bunkse is an interested party in the Company by virtue of him serving as a director.
 
(4)
 
Dustin Klein is an interested party in the Company by virtue of him serving as a director and as the Company’s Senior Vice President of business development.
 
(5)
 
Kyle Appleby is an interested party in the Company by virtue of him serving as the Company’s Chief Financial Officer.
 
(6)
 
Yoshi Tyler is an interested party in the Company by virtue of her serving as a director and the President of Kai Medical.
 
 
Options
 
Share option transactions and the number of share options outstanding during the three months ended March 31, 2021 and years ended December 31, 2020, and 2019 are summarized as follows:
 
 
 
Number of share options  
 
 Weighted average exercise price
Outstanding, December 31, 2018
  7,600,000 
CDN $0.25
Granted
  7,700,000 
CDN $0.14
Cancelled
  (4,850,000)
CDN $0.27
Outstanding, December 31, 2019
  10,450,000 
CDN $0.16
Granted
  6,967,761 
CDN $0.05
Exercised
  (7,583,333)
CDN $0.14
Outstanding, December 31, 2020
  9,834,428 
CDN $0.08
Granted
  1,761,364 
CDN $0.40
Cancelled
  (1,936,667)
CDN $0.06
Exercised
  (3,339,666)
CDN $0.07
Outstanding, March 31, 2021
  6,319,459 
CDN $0.18
 
 
30
 
Of the share options outstanding, 4,744,459 were exercisable as of March 31, 2021. Ms. Yoshi Tyler holds 775,000 share options and Mr. Andrejs Bunkse holds 1,100,000 share options that are exercisable into common shares. No other share options are held by interested parties.
 
Warrants
 
There were no share purchase warrants, exercisable into common shares of Empower, held by our officers and directors as of March 31, 2021 or the date of herein.
 
Equity Compensation Plans
 
The following table summarizes our compensation plans under which equity securities are authorized for issuance as at March 31, 2021:
 
Plan Category
 
Number of securities to be issued upon exercise of outstanding options, warrants and rights
 
 
Weighted-average exercise price of outstanding options, warrants and rights
 
 
Number of securities remaining available for future issuance under equity compensation plans(1) (excluding securities reflected in the second column)
 
Equity compensation plans approved by securityholders
  19,804,364 
 
CDN$0.15
 
  26,845,794 
Equity compensation plans not approved by securityholders
    N/A 
    N/A 
    N/A 
Total:
  19,804,364 
 
CDN$0.17
 
  26,845,794 
 
Notes:
 
(1)
 
The number of securities remaining available for future issuance under our 10% rolling stock option plan as at the end of our most recently completed financial year is calculated on the basis of 10% of our issued and outstanding common shares as at such date (being 10% of 333,402,526 = 33,340,253 less share options of 6,494,459 = 26,845,794). Note that the Company does not have a maximum number of warrants that can be issued.
 
The Company has an incentive share option plan (“the Stock Option Plan”) in place under which it is authorized to grant share options to executive officers, directors, employees and consultants.
 
The purpose of the Stock Option Plan continues to be to allow us grant options to our directors, officers, employees and consultants, as additional compensation, and as an opportunity to participate in our success. The granting of such options is intended to align the interests of such persons with that of the shareholders. Options will be exercisable over periods of up to five years as determined by the Board and are required to have an exercise price no less than the fair market value of Empower’s common shares, at the time of grant. Pursuant to the Stock Option Plan, the Board may, from time to time, authorize the issue of stock options to our directors, officers, employees and consultants or employees of companies providing management or consulting services to us.
 
The maximum number of common shares which may be issued pursuant to options previously granted and those granted under the Stock Option Plan will be a maximum of 10% of the issued and outstanding common shares at the time of the grant. In addition, the number of common shares which may be reserved for issuance to any one individual may not exceed 5% of the issued common shares on a yearly basis or 2% if the optionee is engaged in investor relations activities or is a consultant. The Stock Option Plan contains no vesting requirements, but permits the Board to specify a vesting schedule in its discretion.
  
 
31
 
 
ITEM 7
MAJOR SHAREHOLDER AND RELATED PARTY TRANSACTIONS
 
A.
Major Shareholders
 
Major Shareholders
 
We are a publicly-held corporation, with our common shares held by residents of the United States, Canada and other countries. To the best of our knowledge, as of the date of this 20-F, no person, corporation or other entity beneficially owns, directly or indirectly, or controls more than 5% of our common shares, except as follows:
 
Name
Number of Common Shares Owned(1)(2)
Percentage(3)
Steven McAuley
17,484,000
5.24%
 
Notes:
 
(1)
 
Under Rule 13d–3, a beneficial owner of a security includes any person who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise has or shares: (i) voting power, which includes the power to vote, or to direct the voting of common shares; and (ii) investment power, which includes the power to dispose or direct the disposition of common shares. Certain common shares may be deemed to be beneficially owned by more than one person (if, for example, persons share the power to vote or the power to dispose of the common shares). In addition, common shares are deemed to be beneficially owned by a person if the person has the right to acquire the common shares (for example, upon exercise of an option) within 60 days of the date as of which the information is provided. In computing the percentage ownership of any person, the amount of common shares outstanding is deemed to include the amount of common shares beneficially owned by such person (and only such person) by reason of these acquisition rights. As a result, the percentage of outstanding common shares of any person as shown in this table does not necessarily reflect the person’s actual ownership or voting power with respect to the number of common shares actually outstanding on the date hereof.
 
(2)
 
Each of our common shares entitles the holder thereof to one vote.
 
(3)
 
Based on 291,520,720 common shares of Empower issued and outstanding as of the date of this filing.
 
 
(4)
 
CDS & Co. (the registration name for The Canadian Depositary of Securities Limited, which acts as nominee for many Canadian brokerage firms).
 
 
Geographic Breakdown of Shareholders
 
As of July 21, 2021, our shareholder register indicates that our common shares are held as follows:
 
Location
Number of Common Shares
Percentage of Total Common Shares
Number of Registered Shareholders of Record
United States
9,563,777
2.87%
42
Canada
323,209,870
96.94%
26
Other
628,879
0.19%
5
Total
333,402,526
100.00%
68
 
Common shares registered in intermediaries were assumed to be held by residents of the same country in which the clearing house was located.
 
Transfer Agent
 
Our securities are recorded in registered form on the books of our transfer agent, Olympia Trust Company Suite 1900, 925 West Georgia Street Vancouver, BC V6C 3L2. However, the majority of such shares are registered in the name of intermediaries such as brokerage houses and clearing houses (on behalf of their respective brokerage clients). We do not have knowledge or access to the identities of the beneficial owners of such common shares registered through intermediaries.
 
 
32
 
Control
 
To the best of our knowledge, we are not directly or indirectly owned or controlled by any other corporation, by any foreign government or by any other natural or legal person, severally or jointly.
 
Insider Reports under the British Columbia Securities Act
 
Since the Company is a reporting issuer under the Securities Acts of British Columbia, Alberta and Ontario, certain “insiders” of the Company (including its directors, certain executive officers, and persons who directly or indirectly beneficially own, control or direct more than 10% of its common shares) are generally required to file insider reports of changes in their ownership of Empower’s common shares five days following the trade under National Instrument 55-104 – Insider Reporting Requirements and Exemptions, as adopted by the Canadian Securities Administrators. All insider reports must be filed electronically five days following the date of the trade at www.sedi.ca. The public is able to access these reports at www.sedi.ca.
 
 
B.
Related Party Transactions
 
None of our directors or senior officers, no associate or affiliate of the foregoing persons, and no insider has or had any material interest, direct or indirect, in any transactions, or in any proposed transaction, which in either such case has materially affected or will materially affect us or our predecessors during the year ended December 31, 2019.
  
 
(a)
Compensation of key management personnel:
 
For the purpose of related party disclosure in accordance with IASB 24, directors, the CEO, CFO, COO and executive vice president are considered key management personnel.
 
 
Year ended December 31,
 
 
 
2020  
 
 
 2019
 
 
 
U.S. dollars in thousands
 
 
 
 
 
 
 
 
Salaries and benefits
 $341,601 
 $734,655 
Directors fees
  7,500 
  11,250 
Share-based compensation
  12,159 
  556,040 
 
    
    
 
 $361,260 
 $1,301,945 
 
C.
Interests of Experts and Counsel
 
Not applicable.
 
ITEM 8
FINANCIAL INFORMATION
 
A.
Consolidated Statements and Other Financial Information
 
Financial Statements
 
The financial statements required as part of this Annual Report on Form 20-F are filed under Item 18 of this Annual Report.
 
Legal Proceedings
 
As at the date of this Annual Report on Form 20-F, Empower is not involved in any legal, arbitration or governmental proceedings and, to Empower’s knowledge, no material legal, arbitration or governmental proceedings involving Empower are pending or contemplated against Empower.
 
Dividends
 
We have not paid any dividends on our common shares since incorporation. Our management anticipates that we will retain all future earnings and other cash resources for the future operation and development of our business. We do not intend to declare or pay any cash dividends in the foreseeable future. Payment of any future dividends will be at the Board’s discretion, subject to applicable law, after taking into account many factors including our operating results, financial condition and current and anticipated cash needs.
 
 
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B.
Significant Changes
 
We have not experienced any significant changes since the date of the financial statements included with this Form 20-F except as disclosed in this Form 20-F.
 
ITEM 9
THE OFFER AND LISTING
 
Cease Trades
 
On May 3, 2021, the Company was granted a management cease trade order (“MCTO”) by the British Columbia Securities Commission. The MCTO does not affect the ability of shareholders who are not insiders of the Company to trade their securities. The MCTO was issued in connection with the delay by the Company in filing its annual financial statements for the year ended December 31, 2020, and the related management’s discussion and analysis and certificates of its CEO and CFO (collectively, the "Required Filings") with Canadian securities regulators until after the April 30, 2021 filing deadline. The delay in filing was primarily due to the impact of COVID-19 on the audit and associated required travel, of the Company's recently acquired subsidiaries in both the US and Canada. The Required Filings were filed on July 2, 2021 and the MCTO was lifted on July 14, 2021.
 
Common Shares
 
Our authorized capital consists of an unlimited number of common shares without par value, of which 283,811,903 common shares were issued and outstanding as of December 31, 2020. All common shares are initially issued in registered form. There are no restrictions on the transferability of our common shares imposed by our constituting documents.
 
The common shares entitle their holders to: (i) vote at all meetings of our shareholders except meetings at which only holders of specified classes of shares are entitled to vote, having one vote per common share, (ii) receive dividends at the discretion of the Board; and (iii) receive our remaining property on liquidation, dissolution or winding up.
 
Trading Markets
 
Our current trading symbol on the CSE is “CBDT”. We also trade on the OTCQB with the trading symbol “EPWCF” and on the Frankfurt Stock Exchange with the trading symbol “8EC”.
 
As disclosed elsewhere in this annual report, on April 23, 2018, the Company completed its previously disclosed reverse takeover transaction of Adira. As a result, the Company has limited history of high and low share price progression.
 
Escrowed Securities
 
As at December 31, 2020 10,986,306 common shares were subject to escrow.
 
ITEM 10
ADDITIONAL INFORMATION
 
A.
Share Capital
 
Not applicable.
 
B.
Memorandum and Articles of Incorporation
 
We were incorporated under the laws of the Province of British Columbia on April 28, 2015. We changed our name from S.M.A.A.R.T. Holdings Inc., to Empower concurrent with the Transaction.
 
C.
Material Contracts
 
We currently are not party to any material contracts.
 
 
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D.
Exchange Controls
 
There are no governmental laws, decrees or regulations in Canada relating to restrictions on the export or import of capital, or affecting remittance of interest, dividends or other payments to non-resident holders of our common shares.  However, the Investment Canada Act (Canada) will prohibit implementation, or if necessary, require divestiture of an investment deemed “reviewable” under the Investment Canada Act by an investor that is not a “Canadian” as defined in the Investment Canada Act, unless after review the Minister responsible for the Investment Canada Act is satisfied that the “reviewable” investment is likely to be of net benefit to Canada.
 
The following discussion summarizes the principal features of the Investment Canada Act for a non-Canadian who proposes to acquire common shares of the Company. The discussion is general only; it is not a substitute for independent legal advice from an investor's own adviser; and, except where expressly noted, it does not anticipate statutory or regulatory amendments.
 
The Investment Canada Act is a federal statute of broad application regulating the establishment and acquisition of Canadian businesses by non-Canadians, including individuals, governments or agencies thereof, corporations, partnerships, trusts or joint ventures, Investments by non-Canadians to acquire control over existing Canadian businesses or to establish new ones are either reviewable or notifiable under the Investment Canada Act. If an investment by a non-Canadian to acquire control over an existing Canadian business is reviewable under the Investment Canada Act, the Investment Canada Act generally prohibits implementation of the investment unless, after review, the Minister of Industry is satisfied that the investment is likely to be of net benefit to Canada.
 
An investment in the Company’s common shares by a non-Canadian, who is not a resident of a World Trade Organization (“WTO”) member, would be reviewable under the Investment Canada Act (Canada) if it was an investment to acquire control of the Company and the value of the assets of the Company was CAN $5 million or more. An investment in common shares of the Company by a resident of a WTO member would be reviewable only if it was an investment to acquire control of the Company and the enterprise value of the assets of the Company was equal to or greater than a specified amount, which is published by the Minister after its determination for any particular year. This amount is currently CAN $1 billion (unless the WTO member is party to one of a list of certain free trade agreements, in which case the amount is currently CAN $1.5 billion); beginning January 1, 2019, both thresholds will be adjusted annually by a GDP (Gross Domestic Product) based index.
 
A non-Canadian would be deemed to acquire control of the Company for the purposes of the Investment Canada Act if the non-Canadian acquired a majority of the outstanding common shares (or less than a majority but controlled the Company in fact through the ownership of one-third or more of the outstanding common shares) unless it could be established that, on the acquisition, the Company is not controlled in fact by the acquirer through the ownership of such common shares. Certain transactions in relation to the Company’s common shares would be exempt from review under the Investment Canada Act, including, among others, the following:
 
(a)       the acquisition of voting shares or other voting interests by any person in the ordinary course of that person’s business as a trader or dealer in securities;
 
(b)        the acquisition of control of the Company in connection with the realization of security granted for a loan or other financial assistance and not for any purpose related to the provisions of the Investment Canada Act (Canada), if the acquisition is subject to approval under the Bank Act (Canada), the Cooperative Credit Associations Act (Canada), the Insurance Companies Act (Canada) or the Trust and Loan Companies Act (Canada); and
 
(c)        the acquisition of control of the Company by reason of an amalgamation, merger, consolidation or corporate reorganization following which the ultimate direct or indirect control of the Company, through the ownership of voting interests, remains unchanged.
 
 
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E.
Taxation
 
Material Canadian Federal Income Tax Consequences for United States Residents
 
The following summarizes the material Canadian federal income tax considerations generally applicable to the holding and disposition of our shares by a holder (in this summary, a “U.S. Holder”) who, (a) for the purposes of the Income Tax Act (Canada) (the “Tax Act”) and at all relevant times, (i) is not resident in Canada, (ii) deals at arm’s length with, and is not affiliated with, us, (iii) holds our shares as capital property and does not use or hold, and is not deemed to use or hold, our shares in the course of carrying on, or otherwise in connection with, a business in Canada, and (b) for the purposes of the Canada-United States Income Tax Convention (1980) (the “Treaty”) and at all relevant times, is a resident solely of the United States, has never been a resident of Canada, is a “qualifying person” who is fully entitled to the benefit of the Treaty and has not held or used (and does not hold or use) our shares in connection with a permanent establishment or fixed base in Canada. This summary does not apply to traders or dealers in securities, limited liability companies, tax-exempt entities, insurers, authorized foreign bank, financial institutions (including those to which the mark-to-market provisions of the Tax Act apply), special financial institutions, or any other holder to which special circumstances may apply.
 
This summary is based on the current provisions of the Tax Act, all regulations thereunder, the Treaty, all proposed amendments to the Tax Act, the regulations and the Treaty publicly announced by the Government of Canada prior to the date hereof, and our understanding of the current published administrative practices of the Canada Revenue Agency. It has been assumed that all currently proposed amendments will be enacted as proposed and that there will be no other relevant change in any governing law or administrative practice, although no assurances can be given in this respect.
 
The summary does not take into account Canadian provincial, U.S. federal (which follows further below), state or other foreign income tax law or practice. The tax consequences to any particular U.S. Holder will vary according to the status of that holder as an individual, trust, corporation, partnership or other entity, the jurisdictions in which that holder is subject to taxation, and generally according to that holder’s particular circumstances. Accordingly, this summary is not, and is not to be construed as, Canadian tax advice to any particular U.S. Holder. All U.S. Holders are advised to consult with their own tax advisors regarding their particular circumstances. The discussion below is qualified accordingly.
 
Dividends
 
Dividends paid or credited or deemed to be paid or credited to a U.S. Holder by us will be subject to Canadian withholding tax. The Tax Act requires a 25% withholding unless reduced under an applicable tax treaty. Under the Treaty, provided that a holder can demonstrate that it is a qualifying U.S. Holder, the rate of withholding tax on dividends paid to a U.S. Holder is generally limited to 15% of the gross amount of the dividend (or 5% if the U.S. Holder is a qualified company and beneficially owns at least 10% of our voting shares). We will be required to withhold the applicable withholding tax from any dividend and remit it to the Canadian government for the U.S. Holder’s account.
 
Disposition
 
For purposes of the following discussion, we have assumed that our shares will remain listed on the TSXV. A U.S. Holder is not subject to tax under the Tax Act in respect of a capital gain realized on the disposition of our shares in the open market unless the shares are “taxable Canadian property” to the holder thereof and the U.S. Holder is not entitled to relief under the Treaty. Our shares will be taxable Canadian property to a U.S. Holder (a) if, at any time during the 60-month period preceding the disposition: (i) the U.S. Holder, alone or together with persons with whom the U.S. Holder did not deal at arm’s length, owned 25% or more of our issued shares of any class or series, and (ii) more than 50% of the fair market value of the shares was derived, directly or indirectly, from one or any combination of real property situated in Canada, timber resource properties, Canadian resource properties, or an option in respect of, or an interest in, or for civil law a right in, any of the foregoing, or (b) in other specific circumstances, including where shares were acquired for other securities in a tax-deferred transaction for Canadian tax purposes. If our shares constitute taxable Canadian property to the holder, the holder will (unless relieved under the Treaty) be subject to Canadian income tax on any gain. The taxpayer’s capital gain or loss from a disposition of the share is the amount, if any, by which the proceeds of disposition exceed (or are exceeded by) the aggregate of the adjusted cost base of the share and reasonable expenses of disposition. One-half of a capital gain (“taxable capital gain”) from the disposition of taxable Canadian property (other than treaty protected properties) is included in computing the income of a U.S. Holder and one-half of a capital loss (“allowable capital loss”) is deductible from taxable capital gains from dispositions of taxable Canadian property realized in the same year. Unused allowable capital losses from previous taxation years generally may be carried back three taxation years or forward indefinitely and applied to reduce net taxable capital gains realized in those years by a U.S. Holder from the disposition of a taxable Canadian property.
 
 
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A U.S. Holder whose shares constitute taxable Canadian property should consult with the holder’s own tax advisors regarding any possible relief (if any) from Canadian tax under the Treaty based on applicable circumstances at the relevant time.
 
United States Tax Consequences
 
United States Federal Income Tax Consequences
 
The following is a general summary of certain material U.S. federal income tax considerations applicable to a U.S. Holder (as defined below) arising from and relating to the acquisition, ownership, and disposition of our common shares.
 
This summary is for general information purposes only and does not purport to be a complete analysis or listing of all potential U.S. federal income tax considerations that may apply to a U.S. Holder arising from and relating to the acquisition, ownership, and disposition of our common shares. In addition, this summary does not take into account the individual facts and circumstances of any particular U.S. Holder that may affect the U.S. federal income tax consequences to such U.S. Holder, including without limitation specific tax consequences to a U.S. Holder under an applicable tax treaty. Accordingly, this summary is not intended to be, and should not be construed as, legal or U.S. federal income tax advice with respect to any U.S. Holder. This summary does not address the U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, and foreign tax consequences to U.S. Holders of the acquisition, ownership, and disposition of our common shares. Except as specifically set forth below, this summary does not discuss applicable tax reporting requirements. Each U.S. Holder should consult its own tax advisor regarding the U.S. federal, U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, and foreign tax consequences relating to the acquisition, ownership, and disposition of our common shares.
 
No legal opinion from U.S. legal counsel or ruling from the Internal Revenue Service (the “IRS”) has been requested, or will be obtained, regarding the U.S. federal income tax consequences of the acquisition, ownership, and disposition of our common shares. This summary is not binding on the IRS, and the IRS is not precluded from taking a position that is different from, and contrary to, the positions taken in this summary. In addition, because the authorities on which this summary is based are subject to various interpretations, the IRS and the U.S. courts could disagree with one or more of the conclusions described in this summary.
 
Scope of this Summary
 
Authorities
 
This summary is based on the Internal Revenue Code of 1986, as amended (the “Code”), Treasury Regulations (whether final, temporary, or proposed), published rulings of the IRS, published administrative positions of the IRS, the Convention Between Canada and the United States of America with Respect to Taxes on Income and on Capital, signed September 26, 1980, as amended (the “Canada-U.S. Tax Convention”), and U.S. court decisions that are applicable and, in each case, as in effect and available, as of the date of this document. Any of the authorities on which this summary is based could be changed in a material and adverse manner at any time, and any such change could be applied on a retroactive or prospective basis which could affect the U.S. federal income tax considerations described in this summary. This summary does not discuss the potential effects, whether adverse or beneficial, of any proposed legislation that, if enacted, could be applied on a retroactive or prospective basis.
 
U.S. Holders
 
For purposes of this summary, the term “U.S. Holder” means a beneficial owner of our common shares that is for U.S. federal income tax purposes:
 
an individual who is a citizen or resident of the U.S.;
 
a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) organized under the laws of the U.S., any state thereof or the District of Columbia;
 
an estate whose income is subject to U.S. federal income taxation regardless of its source; or
 
a trust that (1) is subject to the primary supervision of a court within the U.S. and the control of one or more U.S. persons for all substantial decisions or (2) has a valid election in effect under applicable Treasury Regulations to be treated as a U.S. person.
 
 
 
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Non-U.S. Holders
 
For purposes of this summary, a “non-U.S. Holder” is a beneficial owner of our common shares that is not a U.S. Holder. This summary does not address the U.S. federal income tax consequences to non-U.S. Holders arising from and relating to the acquisition, ownership, and disposition of our common shares. Accordingly, a non-U.S. Holder should consult its own tax advisor regarding the U.S. federal, U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, and foreign tax consequences (including the potential application of and operation of any income tax treaties) relating to the acquisition, ownership, and disposition of our common shares.
 
U.S. Holders Subject to Special U.S. Federal Income Tax Rules Not Addressed
 
This summary does not address the U.S. federal income tax considerations applicable to U.S. Holders that are subject to special provisions under the Code, including, but not limited to, the following: (a) U.S. Holders that are tax-exempt organizations, qualified retirement plans, individual retirement accounts, or other tax-deferred accounts; (b) U.S. Holders that are financial institutions, underwriters, insurance companies, real estate investment trusts, or regulated investment companies; (c) U.S. Holders that are broker-dealers, dealers, or traders in securities or currencies that elect to apply a mark-to-market accounting method; (d) U.S. Holders that have a “functional currency” other than the U.S. dollar; (e) U.S. Holders that own our common shares as part of a straddle, hedging transaction, conversion transaction, constructive sale, or other arrangement involving more than one position; (f) U.S. Holders that acquired our common shares in connection with the exercise of employee stock options or otherwise as compensation for services; (g) U.S. Holders that hold our common shares other than as a capital asset within the meaning of Section 1221 of the Code (generally, property held for investment purposes); or (h) U.S. Holders that own or have owned (directly, indirectly, or by attribution) 10% or more of the total combined voting power of the outstanding shares of the Company. This summary also does not address the U.S. federal income tax considerations applicable to U.S. Holders who are: (a) U.S. expatriates or former long-term residents of the U.S.; (b) persons that have been, are, or will be a resident or deemed to be a resident in Canada for purposes of the Tax Act; (c) persons that use or hold, will use or hold, or that are or will be deemed to use or hold our common shares in connection with carrying on a business in Canada; (d) persons whose our common shares constitute “taxable Canadian property” under the Tax Act; or (e) persons that have a permanent establishment in Canada for the purposes of the Canada-U.S. Tax Convention. U.S. Holders that are subject to special provisions under the Code, including, but not limited to, U.S. Holders described immediately above, should consult their own tax advisor regarding the U.S. federal, U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, and foreign tax consequences relating to the acquisition, ownership and disposition of our common shares.
 
If an entity or arrangement that is classified as a partnership (or other “pass-through” entity) for U.S. federal income tax purposes holds our common shares, the U.S. federal income tax consequences to such entity and the partners (or other owners) of such entity generally will depend on the activities of the entity and the status of such partners (or owners). This summary does not address the tax consequences to any such owner. Partners (or other owners) of entities or arrangements that are classified as partnerships or as “pass-through” entities for U.S. federal income tax purposes should consult their own tax advisors regarding the U.S. federal income tax consequences arising from and relating to the acquisition, ownership, and disposition of our common shares.
 
Ownership and Disposition of our common shares
 
The following discussion is subject to the rules described below under the heading “Passive Foreign Investment Company Rules.”
 
Taxation of Distributions
 
A U.S. Holder that receives a distribution, including a constructive distribution, with respect to our common share will be required to include the amount of such distribution in gross income as a dividend (without reduction for any foreign income tax withheld from such distribution) to the extent of the current or accumulated “earnings and profits” of we, as computed for U.S. federal income tax purposes. To the extent that a distribution exceeds the current and accumulated “earnings and profits” of we, such distribution will be treated first as a tax-free return of capital to the extent of a U.S. Holder's tax basis in our common shares and thereafter as gain from the sale or exchange of such our common shares (see “Sale or Other Taxable Disposition of Common Shares” below). However, we may not maintain the calculations of earnings and profits in accordance with U.S. federal income tax principles, and each U.S. Holder should therefore assume that any distribution by us with respect to our common shares will constitute ordinary dividend income. Dividends received on our common shares generally will not constitute qualified dividend income eligible for the “dividends received deduction”. Subject to applicable limitations and provided that we are eligible for the benefits of the Canada-U.S. Tax Convention, dividends paid by us to non-corporate U.S. Holders, including individuals, generally will be eligible for the preferential tax rates applicable to long-term capital gains for dividends, provided certain holding period and other conditions are satisfied, including that we are not classified as a PFIC (as defined below) in the tax year of distribution or in the preceding tax year. The dividend rules are complex, and each U.S. Holder should consult its own tax advisor regarding the application of such rules.
 
 
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Sale or Other Taxable Disposition of Common Shares
 
A U.S. Holder will recognize gain or loss on the sale or other taxable disposition of our common shares in an amount equal to the difference, if any, between (a) the amount of cash plus the fair market value of any property received and (b) such U.S. Holder’s tax basis in such our common shares sold or otherwise disposed of. Any such gain or loss generally will be capital gain or loss, which will be long-term capital gain or loss if, at the time of the sale or other disposition, such our common shares are held for more than one year.
 
Preferential tax rates apply to long-term capital gains of a U.S. Holder that is an individual, estate, or trust. There are currently no preferential tax rates for long-term capital gains of a U.S. Holder that is a corporation. Deductions for capital losses are subject to significant limitations under the Code.
 
Passive Foreign Investment Company Rules
 
If we were to constitute a PFIC for any year during a U.S. Holder’s holding period, then certain potentially adverse rules would affect the U.S. federal income tax consequences to a U.S. Holder resulting from the acquisition, ownership and disposition of our common shares. We do not believe that we were a PFIC during our tax year ended December 31, 2018. PFIC classification is fundamentally factual in nature, generally cannot be determined until the close of the tax year in question, and is determined annually. Additionally, the analysis depends, in part, on the application of complex U.S. federal income tax rules, which are subject to differing interpretations. Consequently, there can be no assurances regarding our PFIC status for any tax year during which U.S. Holders hold our common shares.
 
In addition, in any year in which we are classified as a PFIC, such holder may be required to file an annual report with the IRS containing such information as Treasury Regulations and/or other IRS guidance may require. In addition to penalties, a failure to satisfy such reporting requirements may result in an extension of the time period during which the IRS can assess a tax. U.S. Holders should consult their own tax advisors regarding the requirements of filing such information returns under these rules, including the requirement to file a revised IRS Form 8621.
 
We generally will be a PFIC under Section 1297 of the Code if, for a tax year, (a) 75% or more of our gross income for such tax year is passive income (the “income test”) or (b) 50% or more of the value of our assets either produce passive income or are held for the production of passive income (the “asset test”), based on the quarterly average of the fair market value of such assets. “Gross income” generally includes all sales revenues less the cost of goods sold, plus income from investments and from incidental or outside operations or sources, and “passive income” generally includes, for example, dividends, interest, certain rents and royalties, certain gains from the sale of stock and securities, and certain gains from commodities transactions. Active business gains arising from the sale of commodities generally are excluded from passive income if substantially all (85% or more) of a foreign corporation’s commodities are stock in trade or inventory, depreciable property used in a trade or business or supplies regularly used or consumed in a trade or business and certain other requirements are satisfied.
 
In addition, for purposes of the PFIC income test and asset test described above, if we own, directly or indirectly, 25% or more of the total value of the outstanding shares of another corporation, we will be treated as if we (a) held a proportionate share of the assets of such other corporation and (b) received directly a proportionate share of the income of such other corporation. In addition, for purposes of the PFIC income test and asset test described above, “passive income” does not include any interest, dividends, rents, or royalties that are received or accrued by us from a “related person” (as defined in Section 954(d)(3) of the Code), to the extent such items are properly allocable to the income of such related person that is not passive income.
 
Under certain attribution rules, if we are a PFIC, U.S. Holders will be deemed to own their proportionate share of any subsidiary of ours which is also a PFIC (a ‘‘Subsidiary PFIC’’), and will be subject to U.S. federal income tax on (i) a distribution on the shares of a Subsidiary PFIC or (ii) a disposition of shares of a Subsidiary PFIC, both as if the holder directly held the shares of such Subsidiary PFIC.
 
If we are a PFIC in any tax year in which a U.S. Holder held our common shares, such holder generally would be subject to special rules with respect to “excess distributions” made by us on our common shares and with respect to gain from the disposition of our common shares. An “excess distribution” generally is defined as the excess of distributions with respect to our common shares received by a U.S Holder in any tax year over 125% of the average annual distributions such U.S. Holder has received from us during the shorter of the three preceding tax years, or such U.S. Holder’s holding period for our common shares. Generally, a U.S. Holder would be required to allocate any excess distribution or gain from the disposition of our common shares ratably over its holding period for our common shares. Such amounts allocated to the year of the disposition or excess distribution would be taxed as ordinary income, and amounts allocated to prior tax years would be taxed as ordinary income at the highest tax rate in effect for each such year and an interest charge at a rate applicable to underpayments of tax would apply.
 
 
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While there are U.S. federal income tax elections that sometimes can be made to mitigate these adverse tax consequences (including, without limitation, the “QEF Election” under Section 1295 of the Code and the “Mark-to-Market Election” under Section 1296 of the Code), such elections are available in limited circumstances and must be made in a timely manner.
 
U.S. Holders should be aware that, for each tax year, if any, that we are a PFIC, we can provide no assurances that we will satisfy the record keeping requirements of a PFIC, or that we will make available to U.S. Holders the information such U.S. Holders require to make a QEF Election with respect to us or any Subsidiary PFIC. U.S. Holders are urged to consult their own tax advisors regarding the potential application of the PFIC rules to the ownership and disposition of our common shares, and the availability of certain U.S. tax elections under the PFIC rules.
 
Additional Considerations
 
Additional Tax on Passive Income
 
Individuals, estates and certain trusts whose income exceeds certain thresholds will be required to pay a 3.8% Medicare surtax on “net investment income” including, among other things, dividends and net gain from disposition of property (other than property held in certain trades or businesses). U.S. Holders should consult with their own tax advisors regarding the effect, if any, of this tax on their ownership and disposition of our common shares.
 
Receipt of Foreign Currency
 
The amount of any distribution paid to a U.S. Holder in foreign currency, or on the sale, exchange or other taxable disposition of our common shares, generally will be equal to the U.S. dollar value of such foreign currency based on the exchange rate applicable on the date of receipt (regardless of whether such foreign currency is converted into U.S. dollars at that time). A U.S. Holder will have a basis in the foreign currency equal to its U.S. dollar value on the date of receipt. Any U.S. Holder who converts or otherwise disposes of the foreign currency after the date of receipt may have a foreign currency exchange gain or loss that would be treated as ordinary income or loss, and generally will be U.S. source income or loss for foreign tax credit purposes. Each U.S. Holder should consult its own U.S. tax advisor regarding the U.S. federal income tax consequences of receiving, owning, and disposing of foreign currency.
 
Foreign Tax Credit
 
Subject to the PFIC rules discussed above, a U.S. Holder that pays (whether directly or through withholding) Canadian income tax with respect to dividends paid on our common shares generally will be entitled, at the election of such U.S. Holder, to receive either a deduction or a credit for such Canadian income tax. Generally, a credit will reduce a U.S. Holder’s U.S. federal income tax liability on a dollar-for-dollar basis, whereas a deduction will reduce a U.S. Holder’s income subject to U.S. federal income tax. This election is made on a year-by-year basis and applies to all foreign taxes paid (whether directly or through withholding) by a U.S. Holder during a year.
 
Complex limitations apply to the foreign tax credit, including the general limitation that the credit cannot exceed the proportionate share of a U.S. Holder’s U.S. federal income tax liability that such U.S. Holder’s “foreign source” taxable income bears to such U.S. Holder’s worldwide taxable income. In applying this limitation, a U.S. Holder’s various items of income and deduction must be classified, under complex rules, as either “foreign source” or “U.S. source.” Generally, dividends paid by a foreign corporation should be treated as foreign source for this purpose, and gains recognized on the sale of stock of a foreign corporation by a U.S. Holder should be treated as U.S. source for this purpose, except as otherwise provided in an applicable income tax treaty, and if an election is properly made under the Code. However, the amount of a distribution with respect to our common shares that is treated as a “dividend” may be lower for U.S. federal income tax purposes than it is for Canadian federal income tax purposes, resulting in a reduced foreign tax credit allowance to a U.S. Holder. In addition, this limitation is calculated separately with respect to specific categories of income. The foreign tax credit rules are complex, and each U.S. Holder should consult its own U.S. tax advisor regarding the foreign tax credit rules.
 
Backup Withholding and Information Reporting
 
Under U.S. federal income tax law and Treasury Regulations, certain categories of U.S. Holders must file information returns with respect to their investment in, or involvement in, a foreign corporation. For example, U.S. return disclosure obligations (and related penalties) are imposed on individuals who are U.S. Holders that hold certain specified foreign financial assets in excess certain threshold amounts. The definition of specified foreign financial assets includes not only financial accounts maintained in foreign financial institutions, but also, unless held in accounts maintained by a financial institution, any stock or security issued by a non-U.S. person, any financial instrument or contract held for investment that has an issuer or counterparty other than a U.S. person and any interest in a foreign entity. U. S. Holders may be subject to these reporting requirements unless our common shares are held in an account at certain financial institutions. Penalties for failure to file certain of these information returns are substantial. U.S. Holders should consult with their own tax advisors regarding the requirements of filing information returns, including the requirement to file an IRS Form 8938.
 
 
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Payments made within the U.S. or by a U.S. payor or U.S. middleman, of dividends on, and proceeds arising from the sale or other taxable disposition of, our common shares will generally be subject to information reporting and backup withholding tax, at the rate of 28%, if a U.S. Holder (a) fails to furnish such U.S. Holder’s correct U.S. taxpayer identification number (generally on Form W-9), (b) furnishes an incorrect U.S. taxpayer identification number, (c) is notified by the IRS that such U.S. Holder has previously failed to properly report items subject to backup withholding tax, or (d) fails to certify, under penalty of perjury, that such U.S. Holder has furnished its correct U.S. taxpayer identification number and that the IRS has not notified such U.S. Holder that it is subject to backup withholding tax. However, certain exempt persons generally are excluded from these information reporting and backup withholding rules. Backup withholding is not an additional tax. Any amounts withheld under the U.S. backup withholding tax rules will be allowed as a credit against a U.S. Holder’s U.S. federal income tax liability, if any, or will be refunded, if such U.S. Holder furnishes required information to the IRS in a timely manner. Each U.S. Holder should consult its own tax advisor regarding the information reporting and backup withholding rules.
 
F.
Dividends and Paying Agents
 
Not applicable.
 
G.
Statement by Experts
 
Not applicable.
 
H.
Documents on Display
 
Exhibits attached to this Form 20-F are also available for viewing at our offices, Suite 505, 1771 Robson Street Vancouver, BC V6G 1C9; or you may request them by calling our office at 1-888-367-6937. Copies of our financial statements and other continuous disclosure documents required under securities rules are available for viewing on the internet at www.sedar.com.
 
I.
Subsidiary Information
 
See Item 4.C – “Organizational Structure” of this Annual Report on Form 20-F.
 
ITEM 11
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
We are not subject to any material market risks.
 
A.
Transaction Risk and Currency Risk Management
 
Our operations do not employ complex financial instruments or derivatives, and given that we keep our excess funds in high-grade short-term instruments, we do not have significant or unusual financial market risks. In the event we experience substantial growth in the future, our business and results of operations may be materially affected by changes in interest rates on new debt financings, the granting of credit options to our customers, and certain other credit risks associated with our operations.
 
B.
Interest Rate Risk and Equity Price Risk
 
We are equity financed and do not have material amounts of debt which could be subject to significant interest rate change risks. We have raised equity funding through the sale of securities denominated in CDN$, and will likely raise additional equity funding denominated in CDN$ in the future.
 
C.
Exchange Rate Sensitivity
 
We are exposed to financial risk related to the fluctuation of foreign exchange rates. Most of our monetary assets are held in US dollars and most of our expenditures are made in US dollars. However, we also have some monetary assets and expenditures in CDN$. A significant change in the currency rates between the CDN$ relative to the US dollar could have an effect on our future results of operations, financial position or cash flows, depending on our currency management techniques. We have not hedged our exposure to currency fluctuations.
 
 
41
 
The table below summarizes the net monetary assets and liabilities held in foreign currencies:
 
 
 
As at December 31,
 
 
 
2020
 
 
2019
 
 
 
 
 
 
 
 
CDN$ net monetary liabilities
 $4,195,664 
 $2,434,448 
 
 $4,195,664 
 $2,434,448 
 
The effect on loss before income tax for the year ended December 31, 2020, of a 10.0% change in the foreign currencies against the US dollar on the above-mentioned net monetary assets and liabilities of the Company is estimated to be an increase/decrease of $534,108 (2018 - $316,186) assuming that all other variables remained constant.
  
ITEM 12
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
 
Not applicable.
 
 
 
 
42
 
 
PART II
 
ITEM 13
DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
 
None.
 
ITEM 14
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
 
None.
 
ITEM 15
CONTROLS AND PROCEDURES
 
Disclosure Controls and Procedures
 
Disclosure controls and procedures are defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”) to mean controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and includes, without limitation, controls and procedures designed to ensure that such information is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
 
As required under the Exchange Act, we have carried out an evaluation of the effectiveness of the design and operation of our company’s disclosure controls and procedures as of the end of the period covered by this annual report on Form 20-F, being December 31, 2020. This evaluation was carried out by our Mr. Steven McAuley, our Chief Executive Officer, and Kyle Appleby, our Chief Financial Officer. Based upon that evaluation, our executives concluded that our disclosure controls and procedures were not effective as at December 31, 2020.
 
Material weaknesses identified include:
-
No formal server network to maintain Company documents
 
-
Reconciliations for material accounts were not completed in a timely manner
 
-
Monthly and quarterly consolidation were not maintained
 
-
No segregation of duties in performing reconciliations and financial reporting
 
-
Limited access to the accounting system for key management personnel
 
Management’s Annual Report on Internal Control Over Financial Reporting
 
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. The Exchange Act in Rule 13a-15(f) and 15d-15(f) defines this as a process designed by, or under the supervision of, the company’s principal executive and principal financial officers and effected by the Board, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
 
-
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;
 
-
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and
 
-
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that may have a material effect on the financial statements.
 
 
43
 
Under the supervision and with the participation of Mr. Steven McAuley, who serves as our Chief Executive Officer and Mr. Kyle Appleby who serves as our Chief Financial Officer, our management assessed the effectiveness of our internal control over financial reporting as at December 31, 2020. In making this assessment, our management used the criteria, established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based upon this assessment, our management concluded that our internal control over financial reporting was ineffective as at December 31, 2020.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness of internal control over financial reporting to future periods are subject to risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
This Annual Report does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting. Management's report is not subject to attestation by the Company's registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management's report in this Annual Report.
 
Changes in Internal Control over Financial Reporting
 
During the period ended December 31, 2020, there were changes which created ineffective internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
ITEM 16A
AUDIT COMMITTEE FINANCIAL EXPERTS
 
As disclosed above, as of the date hereof, our Audit Committee is comprised of Steven McAuley (chair), Andrejs Bunkse and Dustin Klein.
 
ITEM 16B
CODE OF ETHICS
 
We have adopted a Code of Business Conduct that applies to all of our employees and officers, including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. The Code of Business Conduct meets the requirements for a “code of ethics” within the meaning of that term in Item 16B of Form 20-F. A copy of our Code of Business Conduct will be provided to any person without charge, upon request. All requests for a copy of our code of ethics should be directed in writing to the attention of Steven McAuley, c/o Empower Clinics Inc., Suite 505, 1771 Robson Street Vancouver, BC V6G 1C9, or by email at: s.mcauley@empowerclinics.com.
 
During the most recently completed fiscal year, the Company has neither: (a) amended its Code of Ethics; nor (b) granted any waiver (including any implicit waiver) form any provision of its Code of Ethics.
 
ITEM 16C
PRINCIPAL ACCOUNTANT FEES AND SERVICES
 
The following table sets forth information regarding the amount billed to us by our principal independent auditors, MNP LLP for the fiscal year ended December 31, 2020 and 2019:
 
 
 
Year Ended December 31,
 
 
 
2020
 
 
2019
 
Audit Fees:
 $305,000 
 $90,900 
Audit Related Fees:
  113,500 
  57,770 
Tax Fees:
 
nil
 
 
nil
 
Total:
 $418,500 
 $148,670 
 
Audit Fees
 
This category includes the aggregate fees billed by our independent auditor for the audit of our consolidated annual financial statements, reviews of interim financial statements and attestation services that are provided in connection with statutory and regulatory filings or engagements.
 
 
44
 
 
Audit Related Fees
 
This category includes the aggregate fees billed in each of the last two fiscal years for assurance and related services by the independent auditors that are reasonably related to the performance of the audits or reviews of the financial statements and are not reported above under “Audit Fees,” and generally consist of fees for other engagements under professional auditing standards, accounting and reporting consultations.
 
Tax Fees
 
This category includes the aggregate fees billed in each of the last two fiscal years for professional services rendered by the independent auditors for tax compliance, tax planning and tax advice.
 
Policy on Pre-Approval by Audit Committee of Services Performed by Independent Auditors
 
The policy of our Audit Committee is to pre-approve all audit and permissible non-audit services to be performed by our independent auditors during the fiscal year.
 
ITEM 16D
EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
 
Not applicable.
 
ITEM 16E
PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
 
In the year ended December 31, 2020, the Company did not purchase any of its issued and outstanding common shares pursuant to any repurchase program or otherwise.
 
ITEM 16F
CHANGES TO REGISTRANT’S CERTIFYING ACCOUNTANT
 
Not applicable.
 
ITEM 16G
CORPORATE GOVERNANCE
 
Not applicable.
  
 
45
 
 
 
PART III
 
ITEM 17
FINANCIAL STATEMENTS
 
Not applicable.
 
ITEM 18
FINANCIAL STATEMENTS
 
Financial Statements Filed as Part of this Annual Report
 
Report of Independent Registered Public Accounting Firm dated June 30, 2021;
 
Consolidated statement of financial position for the fiscal years ended December 31, 2020 and 2019;
 
Consolidated statements of comprehensive profit and loss for the fiscal years ended December 31, 2020 and 2019;
 
Consolidated statements of changes in (deficit) equity for the fiscal years ended December 31, 2020 and 2019;
 
Consolidated statements of cash flows for the fiscal years ended December 31, 2020 and 2019; and
 
Notes to consolidated financial statements
 
 
 
46
 
 
 
EMPOWER CLINICS INC.
(formerly ADIRA ENERGY LTD.)
 
CONSOLIDATED FINANCIAL STATEMENTS
 
FOR THE YEARS ENDED
DECEMBER 31, 2020, 2019, 2018
 
INDEX
 
 
Page
Independent Auditors’ Report
49
 
 
Consolidated Statements of Financial Position
52
 
 
Consolidated Statements of Comprehensive Loss
53
 
 
Consolidated Statements of Changes in Equity
55
 
 
Consolidated Statements of Cash Flows
54
 
 
Notes to Consolidated Financial Statements
57 - 96
 
 
 
 
47
 
 
 
 
 

 
 
 
Empower Clinics Inc.
 
CONSOLIDATED FINANCIAL STATEMENTS
 
For the years ended
December 31, 2020, 2019 and 2018
 
 
 
48
 
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 
To the Board of Directors and Shareholders of Empower Clinics Inc.
 
Opinion on the Consolidated Financial Statements
 
We have audited the accompanying consolidated statements of financial position of Empower Clinics Inc. (the Company) as of December 31, 2020 and 2019, and the related consolidated statements of loss and comprehensive loss, changes in equity, and cash flows for each of the years in the three year period ended December 31, 2020, and the related notes (collectively referred to as the consolidated financial statements).
 
In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2020 and 2019, and the results of its consolidated operations and its consolidated cash flows for each of the years in the three year period ended December  31, 2020, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.
 
Material Uncertainty Related to Going Concern
 
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring losses from operations and has a net working capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 
This matter is also described in the “Critical Audit Matters” section of our report.
 
Basis for Opinion
 
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
 
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
 
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
 
Critical Audit Matters
 
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
 
 
49
 
 
Critical Audit Matter Description
Audit Response  
Going Concern
Refer to Note 1 to the consolidated financial statements.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has a history of losses and negative cash flows from operating activities, and as at December 31, 2020, the Company had a working capital deficiency of $1,746,818 (December 31, 2019 - $4,185,359) and an accumulated deficit of $30,078,630 (December 31, 2019 - $13,012,319). This matter is also described in the “Material Uncertainty Related to Going Concern” section of our report.
 
We identified managements judgments and assumptions used to assess the Company’s ability to continue as a going concern as a critical audit matter due to inherent complexities and uncertainties related to the Company’s cash flow forecasts. Auditing these judgments and assumptions involved especially challenging auditor judgment due to the nature and extent of audit evidence and effort required to address these matters.
 
 
 
We responded to this matter by performing procedures over going concern. Our audit work in relation to this included, but was not restricted to, the following:
 
 We obtained and tested the Company’s forecast cash flows by testing the completeness and accuracy of the underlying data used by benchmarking it to externally derived industry data and evaluating the Company’s historical results.
 
 
 We evaluated the estimates and assumptions by developing an understanding of the nature of each critical assumption and estimate and then assessed their sensitivity to reasonably possible changes, including notably, the probability that management will be able to access funding by assessing the terms of current year agreements and the company’s history in obtaining financing.
 
 
 We assessed the adequacy of the disclosures related to the application of the going concern assumption.
 
 
Acquisitions of Kai Medical Laboratory, LLC and Lawrence Park and Atkinson
Refer to Notes 6 and 7 to the consolidated financial statements.
On October 5, 2020, the Company entered into a membership interest purchase agreement to acquire 100% interest in the business of Kai Medical Laboratory, LLC for total consideration of $20,050.
On December 31, 2020, the Company entered into a share purchase agreement to acquire 100% interest in the businesses of Lawrence Park Health and Wellness Clinic Inc., 1100900 Canada Inc dba Atkinson, and Momentum Health Inc. collectively (“Lawrence Park & Atkinson’”) for total consideration of $1,771,409.
These transactions have been accounted for by the Company as business combinations under IFRS 3 - Business Combinations.
Due to the complexities involved in the assessment of business combination versus asset acquisition as well as the significant judgments, assumptions and estimates, including projected cash flows, volatility, risk free rate and discount rates, within the methodology utilized to measure the fair value of the related assets and liabilities acquired and consideration paid, we have identified this area as a critical audit matter.
 
 
We responded to this matter by performing procedures over the estimated fair value of the assets acquired and liabilities assumed. Our audit work in relation to each of these acquisitions included, but was not restricted to, the following:
 
 We obtained a copy of the amended and restated purchase and sale agreement from management and read the terms in detail to ensure that the transaction has been appropriately assessed as a business combination;
 
 We obtained management’s analysis and a memo detailing how the fair value of assets and liabilities acquired have been determined, the purchase consideration paid, and the resulting goodwill recognized on the transaction;
 
 We involved internal valuation specialists to test the appropriateness of the methodology used in the valuation of the assets acquired and liabilities assumed. We also verified the appropriateness of the key inputs and assumptions used in the above model including revenue growth rates, operating margins and discount rates by comparing such items to the industry projections and conditions found in industry reports as well as historical operating results of the entity acquired;
 
 We also involved external appraisal experts to assess the appropriateness of the depreciated replacement cost of the property and equipment acquired, by performing an independent calculation and inspecting the estimated remaining years of service for the underlying assets based on the original acquisition dates and condition of assets;
 We assessed the qualifications of the valuators engaged by the Company based on their credentials and experience; and
 We performed sensitivity analysis of the significant assumptions relating to forecasted revenue, expenses and discount rates within the valuation models by varying key assumptions within an observable range.
 
 
 
50
 
 
 
Measurement of Purchase Consideration Payable
 
Refer to Note 7 in the consolidated financial statements.
On December 16, 2020, the Company acquired 100% interest in the businesses of Lawrence Park & Atkinson for consideration of $1,771,409.
Pursuant to the Amended and restated share purchase agreement, part of the consideration comprising 3,750,000 stock options is payable subject to completion of certain milestones relating to the opening of new clinics and is required to be measured at fair value. Therefore, estimating the fair value of the purchase consideration payable is subject to significant management estimates and judgment, including the model used, probability of opening of clinics, risk free rate and volatility. This matter required significant audit attention during the engagement and accordingly we have identified this as a critical audit matter.
 
We responded to this matter by performing procedures in relation to the measurement of purchase consideration payable. Our audit work in relation to this included, but was not restricted to, the following:
 We obtained forecasts prepared by management and assessed reasonableness of management’s estimated probability of opening clinics over the milestone period stipulated in the agreement;
 
 We involved our internal valuations specialists to evaluate whether the valuation model used by management is reasonable and to assist in verifying the reasonability of the volatility input used; and
 
 We also performed sensitivity analyses on probability assumptions within the valuation model.
 
Impairment of goodwill and Intangible assets
Refer to Note 12 to the consolidated financial statements.
During 2019, the Company had recognized goodwill of $2,500,000 on acquisition of Sun Valley Certification Clinics Holdings, LLC. Additionally, on October 5, 2020, the Company acquired 100% interest in Kai Medical Laboratory, LLC and on December 31, 2020, the Company acquired 100% interest in Lawrence Park Health and Wellness Clinic Inc., 1100900 Canada Inc dba Atkinson, and Momentum Health Inc. collectively (“Lawrence Park & Atkinson”)
Any goodwill recognized from these acquisitions is subject to impairment assessments annually, or more frequently to the extent events or conditions indicate a risk of possible impairment.
Significant judgments are made in determining the cash-generating unit to which such assets belong for purposes of the impairment tests. There exists high estimation uncertainty due to the significant judgments used to estimate the future revenues and cash flows, including growth rates, operating expenses, and cash outflows, weighted-average cost of capital, future market conditions and the valuation methodology.
For these reasons we determined goodwill and intangible asset impairment assessments to be a critical audit matter.
 
 
 
We responded to this matter by performing procedures over the impairment of goodwill and intangibles. Our audit work in relation to this included, but was not restricted to, the following:
 
 We obtained cash flow forecasts prepared by management and assessed critical management estimates included in the forecast, such as revenue growth, terminal growth rates, gross margin and discount rates. The net present value of the forecast cash flows was compared to the carrying value of the related cash generating unit;
 
 We validated management’s assessment of indicators of impairment for intangibles, including reference to historical performance, external market data, and assessment of the Company’s future strategy and budgets;
 
 We assessed the accuracy of management’s historical forecasts and, where there were discrepancies, we evaluated the impact of these on the current year forecasts;
 
 We involved our internal valuations specialists to estimate an appropriate discount rate with reference to market data and compared that to the rate used by management;
 We evaluated the cash flow forecasts in detail, tracing to supporting documentation for the revenue figures, focusing on market assumptions, including discussions with the directors and the business unit head as well as assessment of supporting internal analysis; and
 We applied sensitivities to calculations prepared by management to assess the impact on the impairment assessment of reasonable possible changes to assumptions.
 
 
 
Chartered Professional Accountants
Licensed Public Accountants
 
We have served as the Company’s auditor since 2015.
 
Ottawa, Canada
 
June 30, 2021
 
 
51
EMPOWER CLINICS INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(in United States dollars)
 
 
 
 
 
 
December 31,
2020
 
 
December 31,
2019
 
 
 
Notes
 
 
$
 
 
$
 
ASSETS
 
 
 
 
 
 
 
 
 
Current
 
 
 
 
 
 
 
 
 
  Cash
 
 
 
  4,889,824 
  179,153 
  Accounts receivable
    8 
  264,866 
  24,482 
  Prepaid expenses
       
  81,748 
  38,382 
  Inventory
       
  17,681 
  21,848 
Total current assets
       
  5,254,119 
  263,865 
 
       
    
    
Promissory note
    10 
  - 
  122,573 
Property and equipment
    11 
  1,590,047 
  797,423 
Intangible assets
    12 
  303,907 
  254,640 
Goodwill
    12 
  2,082,146 
  117,218 
 
       
    
    
Total assets
       
  9,230,219 
  1,555,719 
 
       
    
    
LIABILITIES
       
    
    
Current
       
    
    
Accounts payable and accrued liabilities
    13,25 
  3,442,725 
  1,874,990 
Current portion of loans payable
    16 
  992,070 
  761,711 
Current portion of notes payable
    14 
  708,361 
  969,891 
Convertible debentures payable
    17 
  - 
  427,320 
Convertible notes payable
    15 
  200,530 
  192,717 
Current portion of lease liability
    18 
  241,138 
  219,800 
Current portion of warrant liability
    19 
  1,416,113 
  - 
Conversion feature
    17 
  - 
  2,795 
Total current liabilities
       
  7,000,937 
  4,449,224 
 
       
    
    
Loans payable
    16 
  1,140,157 
  - 
Lease Liability
    18 
  255,248 
  515,096 
Deferred revenue
       
  26,694 
  - 
Warrant liability
    19 
  6,297,584 
  106,312 
Total liabilities
       
  14,720,620 
  5,070,632 
 
       
    
    
SHAREHOLDERS’ DEFICIENCY
       
    
    
Issued capital
    20(b)
  22,969,566 
  7,827,310 
Share subscriptions receivable
    20(b)
  (745,531)
  - 
Shares to be issued
    14(d)
  60,287 
  22,050 
Contributed surplus
       
  2,223,269 
  1,501,361 
Warrant reserve
       
  80,638 
  146,685 
Deficit
       
  (30,078,630)
  (13,012,319)
Total shareholders’ deficiency
       
  (5,490,401)
  (3,514,913)
 
       
    
    
Total liabilities and shareholders’ deficiency
       
  9,230,219 
  1,555,719 
 
Nature of operations and going concern (note 1)
Commitments and contingencies (note 28)
Events after the reporting period (note 29)
 
Approved and authorized by the Board of Directors on June 30, 2021:
 
 
Steven McAuley
Director
Yoshi Tyler
Director
 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
52
EMPOWER CLINICS INC.
CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
For the years ended December 31, 2020, 2019 and 2018
(in United States dollars)
 
 
 
 
 
 
2020
 
 
2019
 
 
2018
 
 
 
Notes
 
 
$
 
 
$
 
 
$
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
 
 
 
 
 
 
Clinic services
 
 
 
  3,154,301 
  1,949,549 
  1,091,386 
Product revenues
 
 
 
  54,895 
  82,032 
  - 
Total revenues
 
 
 
  3,209,196 
  2,031,581 
  1,091,386 
 
 
 
    
    
    
Direct clinic expenses excluding depreciation and amortization
 
 
 
    
    
    
Cost of clinic services
 
 
 
  1,157,428 
  793,374 
  417,047 
Cost of product revenues
 
 
 
  36,132 
  32,902 
  - 
Total direct clinic expenses
 
 
 
  1,193,560 
  826,276 
  417,047 
 
 
 
    
    
    
 
 
 
  2,015,636 
  1,205,305 
  674,339 
 
 
 
    
    
    
Operating expenses
    21,26 
  3,947,408 
  2,933,619 
  2,517,681 
Legal and professional fees
       
  1,394,571 
  1,015,743 
  1,450,141 
Depreciation and amortization expense
    11,12 
  381,492 
  327,059 
  123,473 
Impairment of intangible assets
    12 
  340,575 
  93,757 
  64,200 
Impairment of goodwill
    12 
  117,218 
  2,377,397 
  - 
Share-based payments
    20(c),26
  323,799 
  608,944 
  892,417 
Loss from operations
    
  (4,489,427)
  (6,151,214)
  (4,373,573)
 
    
    
    
    
Other expenses (income)
    
    
    
    
Listing fee
    4 
  - 
  - 
  1,308,808 
Accretion expense
    14,16,17 
  327,301 
  114,515 
  241,521 
Interest expense
    14-18 
  212,110 
  240,539 
  126,375 
Issuance costs allocated to warrants accounted for as liabilities
    20(b)
  44,947 
  129,965 
  - 
Interest income
    10 
  (7,573)
  (4,977)
  - 
Gain on debt settlement of accounts payable
    13,20(b)
  - 
  (15,130)
  - 
Gain on termination of leases
    11 
  (14,049)
  (76,717)
  - 
Impairment loss on write-off of property and equipment
    
  - 
  196,352 
  - 
Loss (gain) on change in fair value of warrant liability
    19 
  11,886,796 
  (2,065,781)
  (1,598,425)
Gain on change in fair value of conversion feature
    17 
  (2,795)
  (587,229)
  (890,136)
Impairment of promissory note
    10 
  130,147 
  - 
  - 
Impairment of assets held for sale
    9 
  - 
  - 
  57,072 
Restructuring expense, net
    22 
  - 
  88,808 
  110,424 
Other expense (income), net
    
  - 
  130,104 
  60,706 
 
    
  12,576,884 
  (1,849,551)
  (583,655)
 
    
    
    
    
Net loss and comprehensive loss for the year
    
  (17,066,311)
  (4,301,663)
  (3,789,918)
 
    
    
    
    
Loss per share
    
    
    
    
Basic