UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of August 2020
Commission File Number 000-55103
Tower One Wireless Corp.
(Translation of registrant's name into English)
Suite 600 - 535 Howe Street, Vancouver, BC V6C 2Z4
(Address of principal executive office)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F [X] Form 40-F [ ]
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1) [ ]
Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders.
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ____
Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a Form 6-K if submitted to furnish a report or other document that the registrant foreign private issuer must furnish and make public under the laws of the jurisdiction in which the registrant is incorporated, domiciled or legally organized (the registrant's "home country"), or under the rules of the home country exchange on which the registrant's securities are traded, as long as the report or other document is not a press release, is not required to be and has not been distributed to the registrant's security holders, and, if discussing a material event, has already been the subject of a Form 6-K submission or other Commission filing on EDGAR.
SUBMITTED HEREWITH
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
TOWER ONE WIRELESS CORP.
"Santiago Rossi"
_______________________________
Santiago Rossi, CFO and Corporate Secretary
Date: September 16, 2020
TOWER ONE WIRELESS CORP.
CERTIFICATE
Section 2.20(c) of National Instrument 54‐101 ("NI 54‐101")
TO: British Columbia Securities Commission
Ontario Securities Commission
RE: Annual General and Special Meeting of the shareholders of Tower One Wireless Corp. (the "Corporation")
to be held on September 9, 2020 (the "Meeting").
In connection with the Meeting, the undersigned, being an officer of the Corporation, hereby certifies for and on behalf of the Corporation and not in a personal capacity, that:
(a) the Corporation has made arrangements to have proxy‐related materials for the Meeting sent in compliance with NI 54‐101 to all beneficial owners at least 21 days before the date fixed for the Meeting;
(b) the Corporation has arranged to have carried out all of the requirements of NI 54‐101 in addition to those described in paragraph (a) above; and
(c) the Corporation is relying upon section 2.20 of NI 54‐101 to abridge the time periods prescribed by sections 2.2(1) and 2.5(1) of NI 54‐101 applicable to the Meeting.
DATED the 13th day of August, 2020.
TOWER ONE WIRELESS CORP.
"Santiago Rossi"
________________________________
Santiago Rossi
Chief Financial Officer
TOWER ONE WIRELESS CORP.
NOTICE OF ANNUAL GENERAL AND SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON SEPTEMBER 9, 2020
AND
INFORMATION CIRCULAR
August 3, 2020
This document requires immediate attention. If you are in doubt as to how to deal with the documents or matters referred to in this notice and information circular, you should immediately contact your advisor.
TOWER ONE WIRELESS CORP.
Suite 600 - 535 Howe Street
Vancouver, BC V6C 2Z4
Telephone: 604-559-8051
NOTICE OF ANNUAL GENERAL AND SPECIAL MEETING
TO THE SHAREHOLDERS:
NOTICE IS HEREBY GIVEN that the annual general and special meeting (the "Meeting") of shareholders of Tower One Wireless Corp. (the "Company") will be held in a virtual only format, which will be conducted via telephone conference, on September 9, 2020, at the hour of 10:00 a.m. (Pacific Standard Time) for the following purposes:
(1) to receive the audited financial statements of the Company for the fiscal year ended December 31, 2019, and the accompanying report of the auditors;
(2) to set the number of directors of the Company at four (4);
(3) to elect Robert Horsely, Alejandro Ochoa, Fabio Alexander Vasquez and Hugo Ochoa as directors of the Company;
(4) to appoint Smythe LLP, Chartered Professional Accountants as the auditors of the Company for the fiscal year ending December 31, 2020;
(5) to authorize the directors of the Company to fix the remuneration to be paid to the auditors for the fiscal year ending December 31, 2020;
(6) to consider, and if thought fit, to approve an ordinary resolution to ratify the adoption of the Advance Notice Policy for the nomination of directors by shareholders in certain circumstances, all as described in the accompanying Information Circular; and
(7) to transact such further or other business as may properly come before the Meeting and any adjournment or postponement thereof.
Registered Shareholders and validly appointed proxyholders may attend the meeting by calling 877-407-2991 (Event 14) (toll-free in Canada and the United States) or 201-389-0925 (Event 14) (international). Registered Shareholders who attend the virtual meeting will have an equal opportunity to participate at the Meeting, regardless of their geographical location.
The accompanying Information Circular provides additional information relating to the matters to be dealt with at the Meeting and is supplemental to, and expressly made a part of, this Notice of Meeting.
The board of directors of the Company has fixed August 3, 2020 as the record date for the determination of shareholders entitled to notice of and to vote at the Meeting and at any adjournment or postponement thereof. Each registered shareholder at the close of business on that date is entitled to such notice and to vote at the Meeting in the circumstances set out in the accompanying Information Circular.
If you are a registered shareholder of the Company and unable to attend the Meeting in person, please vote by proxy by following the instructions provided in the form of proxy at least 48 hours (excluding Saturdays, Sundays and holidays recognized in the Province of British Columbia) before the time and date of the Meeting or any adjournment or postponement thereof.
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If you are a non-registered shareholder of the Company and received this Notice of Meeting and accompanying materials through a broker, a financial institution, a participant, or a trustee or administrator of a retirement savings plan, retirement income fund, education savings plan or other similar savings or investment plan registered under the Income Tax Act (Canada), or a nominee of any of the foregoing that holds your securities on your behalf (each, an "Intermediary"), please complete and return the materials in accordance with the instructions provided to you by your Intermediary.
DATED at Vancouver, British Columbia, this 3rd day of August, 2020.
By Order of the Board of Directors of
TOWER ONE WIRELESS CORP.
"Alejandro Ochoa"
Alejandro Ochoa
Chief Executive Officer, President and Director
PLEASE VOTE. YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED FORM OF PROXY AND PROMPTLY RETURN IT IN THE ENVELOPE PROVIDED.
TOWER ONE WIRELESS CORP.
Suite 600 - 535 Howe Street
Vancouver, BC V6C 2Z4
Telephone: 604-559-8051
INFORMATION CIRCULAR
August 3, 2020
INTRODUCTION
This information circular (the "Information Circular") accompanies the notice of annual general and special meeting of shareholders (the "Notice") of Tower One Wireless Corp.. (the "Company") and is furnished to shareholders (each, a "Shareholder") holding common shares (the "Shares") of the Company in connection with the solicitation by the management of the Company of proxies to be voted at the annual general meeting (the "Meeting") of the Shareholders to be held at 10:00 a.m. (Pacific Standard Time) on September 9, 2020 in a virtual only format, which will be conducted via telephone conference, or at any adjournment or postponement thereof. Registered Shareholders and validly appointed proxyholders may attend the meeting by calling 877-407-2991 (Event 14) (toll-free in Canada and the United States) or 201-389-0925 (Event 14) (international). Registered Shareholders who attend the virtual meeting will have an equal opportunity to participate at the Meeting, regardless of their geographical location.
Date and Currency
The date of this Information Circular is August 3, 2020. Unless otherwise stated, all amounts herein are in Canadian dollars.
PROXIES AND VOTING RIGHTS
Management Solicitation
The solicitation of proxies by management of the Company will be conducted by mail and may be supplemented by telephone or other personal contact to be made without special compensation to any of the directors, officers and employees of the Company. The Company does not reimburse Shareholders, nominees or agents for costs incurred in obtaining from their principals authorization to execute forms of proxy, except that the Company has requested brokers and nominees who hold stock in their respective names to furnish this proxy material to their customers who are NOBOs (as defined below), and the Company will reimburse such brokers and nominees for their related out of pocket expenses. No solicitation will be made by specifically engaged employees or soliciting agents. The cost of solicitation will be borne by the Company.
No person has been authorized to give any information or to make any representation other than as contained in this Information Circular in connection with the solicitation of proxies. If given or made, such information or representations must not be relied upon as having been authorized by the Company. The delivery of this Information Circular shall not create, under any circumstances, any implication that there has been no change in the information set forth herein since the date of this Information Circular. This Information Circular does not constitute the solicitation of a proxy by anyone in any jurisdiction in which such solicitation is not authorized, or in which the person making such solicitation is not qualified to do so, or to anyone to whom it is unlawful to make such an offer of solicitation.
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Appointment of Proxy
Registered Shareholders are entitled to vote at the Meeting. A Shareholder is entitled to one vote for each common share that such Shareholder holds on the record date of August 3, 2020 on the resolutions to be voted upon at the Meeting, and any other matter to come before the Meeting.
The persons named as proxyholders (the "Designated Persons") in the enclosed form of proxy are directors and/or officers of the Company.
A SHAREHOLDER HAS THE RIGHT TO APPOINT A PERSON OR COMPANY (WHO NEED NOT BE A SHAREHOLDER) OTHER THAN THE DESIGNATED PERSONS NAMED IN THE ENCLOSED FORM OF PROXY TO ATTEND AND ACT FOR OR ON BEHALF OF THAT SHAREHOLDER AT THE MEETING.
A SHAREHOLDER MAY EXERCISE THIS RIGHT BY INSERTING THE NAME OF SUCH OTHER PERSON IN THE BLANK SPACE PROVIDED ON THE FORM OF PROXY. SUCH SHAREHOLDER SHOULD NOTIFY THE NOMINEE OF THE APPOINTMENT, OBTAIN THE NOMINEE'S CONSENT TO ACT AS PROXY AND SHOULD PROVIDE INSTRUCTION TO THE NOMINEE ON HOW THE SHAREHOLDER'S SHARES SHOULD BE VOTED. THE NOMINEE SHOULD BRING PERSONAL IDENTIFICATION TO THE MEETING.
The Shareholder may vote by mail or via the Internet by following instructions provided in the form of proxy at least 48 hours (excluding Saturdays, Sundays and holidays recognized in the Province of British Columbia) prior to the scheduled time of the Meeting, or any adjournment or postponement thereof. The Chairman of the Meeting, in his sole discretion, may accept completed forms of proxy on the day of the Meeting or any adjournment or postponement thereof.
A proxy may not be valid unless it is dated and signed by the Shareholder who is giving it or by that Shareholder's attorney-in-fact duly authorized by that Shareholder in writing or, in the case of a corporation, dated and executed by a duly authorized officer or attorney-in-fact for the corporation. If a form of proxy is executed by an attorney-in-fact for an individual Shareholder or joint Shareholders, or by an officer or attorney-in-fact for a corporate Shareholder, the instrument so empowering the officer or attorney-in-fact, as the case may be, or a notarially certified copy thereof, must accompany the form of proxy.
Revocation of Proxies
A Shareholder who has given a proxy may revoke it at anytime before it is exercised by an instrument in writing: (a) executed by that Shareholder or by that Shareholder's attorney-in-fact authorized in writing or, where the Shareholder is a corporation, by a duly authorized officer of, or attorney-in-fact for, the corporation; and (b) delivered either: (i) to the Company at the address set forth above, at any time up to and including the last business day preceding the day of the Meeting or, if adjourned or postponed, any reconvening thereof, (ii) to the Chairman of the Meeting prior to the vote on matters covered by the proxy on the day of the Meeting or, if adjourned or postponed, any reconvening thereof, or (iii) in any other manner provided by law.
Also, a proxy will automatically be revoked by either: (i) attendance at the Meeting and participation in a poll (ballot) by a Shareholder, or (ii) submission of a subsequent proxy in accordance with the foregoing procedures. A revocation of a proxy does not affect any matter on which a vote has been taken prior to any such revocation.
Voting of Shares and Proxies and Exercise of Discretion by Designated Persons
A Shareholder may indicate the manner in which the Designated Persons are to vote with respect to a matter to be voted upon at the Meeting by marking the appropriate space on the proxy. The Shares represented by a proxy will be voted or withheld from voting in accordance with the instructions of the Shareholder on any ballot that may be called for and if the Shareholder specifies a choice with respect to any matter to be acted upon, the Shares will be voted accordingly.
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IF NO CHOICE IS SPECIFIED IN THE PROXY WITH RESPECT TO A MATTER TO BE ACTED UPON, THE PROXY CONFERS DISCRETIONARY AUTHORITY WITH RESPECT TO THAT MATTER UPON THE DESIGNATED PERSONS NAMED IN THE FORM OF PROXY. IT IS INTENDED THAT THE DESIGNATED PERSONS WILL VOTE THE SHARES REPRESENTED BY THE PROXY IN FAVOUR OF EACH MATTER IDENTIFIED IN THE PROXY.
The enclosed form of proxy confers discretionary authority upon the persons named therein with respect to other matters which may properly come before the Meeting, including any amendments or variations to any matters identified in the Notice. At the date of this Information Circular, management of the Company is not aware of any such amendments, variations or other matters to come before the Meeting.
In the case of abstentions from, or withholding of, the voting of the Shares of a Shareholder on any matter, the Shares that are the subject of the abstention or withholding will be counted for determination of a quorum, but will not be counted as affirmative or negative on the matter to be voted upon.
ADVICE TO BENEFICIAL SHAREHOLDERS
The information set out in this section is of significant importance to those Shareholders who do not hold Shares in their own name. Shareholders who do not hold their Shares in their own name (referred to in this Information Circular as "Beneficial Shareholders") should note that only proxies deposited by Shareholders whose names appear on the records of the Company as the registered holders of Shares can be recognized and acted upon at the Meeting. If Shares are listed in an account statement provided by a broker, then in almost all cases those Shares will not be registered in the Beneficial Shareholder's name on the records of the Company. Such Shares will more likely be registered under the names of the Beneficial Shareholder's broker or an agent of that broker. In the United States, the vast majority of such Shares are registered under the name of Cede & Co. as nominee for The Depository Trust Company (which acts as depositary for many U.S. brokerage firms and custodian banks), and in Canada, under the name of CDS & Co. (the registration name for The Canadian Depository for Securities Limited, which acts as nominee for many Canadian brokerage firms). Beneficial Shareholders should ensure that instructions respecting the voting of their Shares are communicated to the appropriate person well in advance of the Meeting.
The Company does not have access to the names of all Beneficial Shareholders. Applicable regulatory policy requires intermediaries/brokers to seek voting instructions from Beneficial Shareholders in advance of Shareholders' meetings. Every intermediary/broker has its own mailing procedures and provides its own return instructions to clients, which should be carefully followed by Beneficial Shareholders in order to ensure that their Shares are voted at the Meeting. The form of proxy supplied to a Beneficial Shareholder by his, her or its broker (or the agent of the broker) is similar to the form of proxy provided to registered Shareholders by the Company. However, its purpose is limited to instructing the registered Shareholder (the broker or agent of the broker) how to vote on behalf of the Beneficial Shareholder. The majority of brokers now delegate responsibility for obtaining instructions from clients to Broadridge Financial Solutions, Inc. ("Broadridge") in the United States and in Canada. Broadridge typically prepares a special voting instruction form, mails this form to the Beneficial Shareholders and asks for appropriate instructions regarding the voting of Shares to be voted at the Meeting. If Beneficial Shareholders receive the voting instruction forms from Broadridge, they are requested to complete and return the voting instruction forms to Broadridge by mail or facsimile. Alternatively, Beneficial Shareholders can call a toll-free number and access Broadridge's dedicated voting website (each as noted on the voting instruction form) to deliver their voting instructions and to vote the Shares held by them. Broadridge then tabulates the results of all instructions received and provides appropriate instructions respecting the voting of Shares to be represented at the Meeting. A Beneficial Shareholder receiving a Broadridge voting instruction form cannot use that form as a proxy to vote Shares directly at the Meeting - the voting instruction form must be returned to Broadridge well in advance of the Meeting in order to have the applicable Shares voted at the Meeting.
Although a Beneficial Shareholder may not be recognized directly at the Meeting for the purposes of voting Shares registered in the name of his, her or its broker (or agent of the broker), a Beneficial Shareholder may attend at the Meeting as proxyholder for the registered Shareholder and vote the Shares in that capacity. Beneficial Shareholders who wish to attend at the Meeting and indirectly vote their Shares as proxyholder for the registered Shareholder should enter their own names in the blank space on the instrument of proxy provided to them and return the same to their broker (or the broker's agent) in accordance with the instructions provided by such broker (or agent), well in advance of the Meeting.
- 4 -
Alternatively, a Beneficial Shareholder may request in writing that his, her or its broker send to the Beneficial Shareholder a legal proxy which would enable the Beneficial Shareholder to attend at the Meeting and vote his, her or its Shares.
Beneficial Shareholders consist of non-objecting beneficial owners and objecting beneficial owners. A non-objecting beneficial owner is a beneficial owner of securities that has provided instructions to an intermediary holding the securities in an account on behalf of the beneficial owner that the beneficial owner does not object, for that account, to the intermediary disclosing ownership information about the beneficial owner under National Instrument 54-101 - Communication with Beneficial Owners of Securities of a Reporting Issuer ("NI 54-101") of the Canadian Securities Administrators. An objecting beneficial owner means a beneficial owner of securities that has provided instructions to an intermediary holding the securities in an account on behalf of the beneficial owner that the beneficial owner objects, for that account, to the intermediary disclosing ownership information about the beneficial owner under NI 54-101.
The Company is sending proxy-related materials directly to non-objecting beneficial owners of the Shares. The Company will not pay for the delivery of proxy-related materials to objecting beneficial owners of the Shares under NI 54-101 and Form 54-107F1 - Request for Voting Instructions Made by Intermediary. The objecting beneficial owners of the Shares will not receive the materials unless their intermediary assumes the costs of delivery.
All references to Shareholders in this Information Circular are to registered Shareholders, unless specifically stated otherwise.
VOTING SECURITIES AND PRINCIPAL HOLDERS OF VOTING SECURITIES
The Company is authorized to issue an unlimited number of Class A common shares without par value (the "Shares"). As of the record date, determined by the board of directors of the Company (the "Board") to be the close of business on August 3, 2020, a total of 94,103,732 Shares were issued and outstanding. Each Share carries the right to one vote at the Meeting.
Only registered Shareholders as of the record date are entitled to receive notice of, and to attend and vote at, the Meeting or any adjournment or postponement of the Meeting.
To the knowledge of the directors and executive officers of the Company, only the following beneficially own, directly or indirectly, or exercise control or direction over, shares carrying more than 10% of the voting rights attached to all outstanding shares of the Company:
|
Name of Shareholder |
Number of Shares |
Percentage of Issued |
|
Alejandro Ochoa |
12,000,000 |
12.75% |
|
Fabio Alexander Vasquez |
12,000,000(1) |
12.75% |
(1) These 12,000,000 Shares are held indirectly through Executive Investment Partners LLC., a company controlled by Fabio Alexander Vasquez.
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FINANCIAL STATEMENTS
The audited financial statements of the Company for the year ended December 31, 2019, together with the auditor's report thereon, will be presented to the Shareholders at the Meeting. The Company's financial statements and management discussion and analysis are available on SEDAR at www.sedar.com.
NUMBER OF DIRECTORS
At the Meeting, Shareholders will be asked to pass an ordinary resolution to set the number of directors of the Company at four (4). An ordinary resolution needs to be passed by a simple majority of the votes cast by the Shareholders present in person or represented by proxy and entitled to vote at the Meeting.
Management of the Company recommends the approval of setting the number of directors of the Company at four (4).
ELECTION OF DIRECTORS
At present, the directors of the Company are elected at each annual general meeting and hold office until the next annual general meeting, or until their successors are duly elected or appointed in accordance with the Company's Articles or until such director's earlier death, resignation or removal.
Management of the Company proposes to nominate all of the current directors of the Company, as set out in the table below, for election by the shareholders as directors of the Company. Information concerning such persons, as furnished by the individual nominees, is as follows:
|
Name, |
Principal Occupation, |
Director Since |
Number of |
|
Alejandro Ochoa(2) |
Founder and CEO of Tower Three SAS; and ex-consultant to Mackie Research Capital Corporation's Investment Banking Practice with a Latin American focus. |
January 12, 2017 |
12,000,000 |
|
Robert Horsely(2) |
Director of Evolving Gold Corp.; CEO of Fortify Resources Inc.; Partner of Howe and Bay Financial Corp.; and CEO and director of Pacific Therapeutics Ltd.; Owner of Marksman Geological Ltd Owner of Cervus Business Management Inc.; former CEO of the Company.
|
January 12, 2016 |
6,000,000(3) |
|
Fabio Alexander Vasquez |
Co-founder of Tower Three SAS, and has been engaged in the Florida aviation business for over 25 years. |
January 12, 2017 |
12,000,000 |
|
Hugo Ochoa |
Self-made entrepreneur in operating international operations in both a commercial truck/auto parts business, SAP Truck & Auto Parts Corp., and a real estate holding company, Equilatero SAS. Mr. Ochoa has successfully run SAP Truck & Auto Parts Corp. for over 40 years. |
Nominee |
8,898,055 |
(1) Information has been furnished by the respective nominees individually.
(2) Member of the Audit Committee. The Company does not currently have a Compensation Committee.
(3) These Shares are held indirectly through Howe and Bay Financial Corp.
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Management does not contemplate that any of its nominees will be unable to serve as directors. If any vacancies occur in the slate of nominees listed above before the Meeting, then the Designated Persons intend to exercise discretionary authority to vote the Shares represented by proxies for the election of any other persons as directors.
Management recommends the election of each of the nominees listed above as a director of the Company.
Orders
To the best of management's knowledge, no proposed director of the Company is, or within the ten (10) years before the date of this Information Circular has been, a director, chief executive officer or chief financial officer of any company that:
(a) was subject to 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 that was issued while the proposed director was acting in the capacity as director, chief executive officer or chief financial officer; or
(b) was subject to 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 that was issued after the proposed director 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.
Bankruptcies
To the best of management's knowledge, no proposed director of the Company has, within 10 years before the date of this Information Circular, been a director or an executive officer of any company 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.
To the best of management's knowledge, no proposed director of the Company has, within the ten (10) years before the date of this Information Circular, 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 proposed director.
Mr. Luis Parra, an executive officer of the Company, co-founded Ingeant SA ("Ingeant"), a corporation incorporated pursuant to the laws of Colombia. He is currently a partner of Ingeant, and served as technical director and board member of Ingeant from July, 1995 until his resignation in early December, 2014. On October 31, 2014, Ingeant filed a voluntary petition for relief to reorganize under Article 47 of Colombian Law 1116 de 2006 of the Business Insolvency Regime of Colombia in the "Super Intendencia de Sociedades" in the city of Medellin, Colombia. On December 19, 2014, Ingeant's petition was accepted.
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Penalties and Sanctions
To the best of management's knowledge, no proposed director of 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 securityholder in deciding whether to vote for a proposed director.
STATEMENT OF EXECUTIVE COMPENSATION
General
For the purpose of this Statement of Executive Compensation:
"compensation securities" includes stock options, convertible securities, exchangeable securities and similar instruments including stock appreciation rights, deferred share units and restricted stock units granted or issued by the Company or one of its subsidiaries (if any) for services provided or to be provided, directly or indirectly to the Company or any of its subsidiaries (if any);
"NEO" or "named executive officer" means:
(a) each individual who served as chief executive officer ("CEO") of the Company, or who performed functions similar to a CEO, during any part of the most recently completed financial year,
(b) each individual who served as chief financial officer ("CFO") of the Company, or who performed functions similar to a CFO, during any part of the most recently completed financial year,
(c) the most highly compensated executive officer of the Company or any of its subsidiaries (if any) other than individuals identified in paragraphs (a) and (b) at the end of the most recently completed financial year whose total compensation was more than $150,000 for that financial year, and
(d) each individual who would be an NEO under paragraph (c) but for the fact that the individual was neither an executive officer of the Company or its subsidiaries (if any), nor acting in a similar capacity, at the end of that financial year;
"plan" includes any plan, contract, authorization or arrangement, whether or not set out in any formal document, where cash, compensation securities or any other property may be received, whether for one or more persons; and
"underlying securities" means any securities issuable on conversion, exchange or exercise of compensation securities.
Explanatory Note
Unless otherwise indicated, all dollar ($) amounts set for in this Statement of Executive Compensation Form are expressed in US dollars.
Director and Named Executive Officer Compensation, excluding Compensation Securities
The following table sets forth all direct and indirect compensation paid, payable, awarded, granted, given or otherwise provided, directly or indirectly, by the Company thereof to each NEO and each director of the Company, in any capacity, including, for greater certainty, all plan and non-plan compensation, direct and indirect pay, remuneration, economic or financial award, reward, benefit, gift or perquisite paid, payable, awarded, granted, given or otherwise provided to the NEO or director for services provided and for services to be provided, directly or indirectly, to the Company:
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|
Name and Position |
Fiscal |
Salary, |
Bonus |
Committee |
Value of |
Value of all |
Total |
|
Alejandro Ochoa, Director, President and CEO |
2019 |
204,000 |
Nil |
Nil |
Nil |
Nil |
204,000 165,605 |
|
Santiago Rossi, CFO |
2019 |
170,000 |
Nil |
Nil |
Nil |
Nil |
170,000 Nil |
|
Luis Parra, COO |
2019 |
204,000 |
Nil |
Nil |
Nil |
Nil |
204,000 114,546 |
|
Fabio Alexander Fasquez, Director |
2019 |
Nil |
Nil |
Nil |
Nil |
Nil |
Nil |
|
Robert Horsely, Director |
2019 |
Nil |
Nil |
Nil |
Nil |
Nil |
Nil |
|
Abbey Abdiye, Former CFO |
2019 |
92,100 |
Nil |
Nil |
Nil |
Nil |
92,100 |
(1) Alejandor Ochoa was appointed as the President, CEO and a director of the Company on January 12, 2017.
(2) Santiago Rossi was appointed as the CFO of the Company on March 1, 2019.
(3) Luis Parra was appointed as the COO of the Company on August 15, 2017.
(4) Fabio Alexander Fasquez was appointed as a director of the Company on January 12, 2017.
(5) Robert Horsely was appointed as a director of the Company on February 2, 2016.
(6) Abbey Abdiye was appointed the CFO of the Company on January 12, 2017 and subsequently resigned on March 1, 2019.
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Stock Options and Other Compensation Securities
The following table sets out all compensation securities granted or issued to each director and NEO by the Company or any subsidiary thereof in the year ended December 31, 2019 for services provided, or to be provided, directly or indirectly, to the Company or any subsidiary thereof:
|
Compensation Securities |
|||||||
|
Name and |
Type of |
Number of |
Date of |
Issue, |
Closing Price |
Closing Price |
Expiry Date |
|
Alejandro Ochoa, Director, President and CEO |
Stock Options |
N/A |
Nil |
Nil |
Nil |
Nil |
Nil |
|
Santiago Rossi, CFO |
Stock Options |
N/A |
Nil |
Nil |
Nil |
Nil |
Nil |
|
Luis Parra, COO |
Stock Options |
N/A |
Nil |
Nil |
Nil |
Nil |
Nil |
|
Fabio Alexander Fasquez, Director |
Stock Options |
N/A |
Nil |
Nil |
Nil |
Nil |
Nil |
|
Robert Horsely, Director |
Stock Options |
N/A |
Nil |
Nil |
Nil |
Nil |
Nil |
|
Abbey Abdiye, Former CFO |
Stock Options |
N/A |
Nil |
Nil |
Nil |
Nil |
Nil |
Exercise of Compensation Securities by Directors and NEOs
The following table sets out each exercise by a director or NEO of compensation securities during the year ended December 31, 2019:
|
Name and Position |
Type of |
Number of |
Exercise |
Date of |
Closing Price |
Difference |
Total Value on |
|
Alejandro Ochoa, Director, President and CEO |
Stock Options |
N/A |
Nil |
Nil |
Nil |
Nil |
Nil |
|
Santiago Rossi, CFO |
Stock Options |
N/A |
Nil |
Nil |
Nil |
Nil |
Nil |
|
Luis Parra, COO |
Stock Options |
N/A |
Nil |
Nil |
Nil |
Nil |
Nil |
|
Fabio Alexander Fasquez, Director |
Stock Options |
N/A |
Nil |
Nil |
Nil |
Nil |
Nil |
|
Robert Horsely, Director |
Stock Options |
N/A |
Nil |
Nil |
Nil |
Nil |
Nil |
|
Abbey Abdiye, Former CFO |
Stock Options |
N/A |
Nil |
Nil |
Nil |
Nil |
Nil |
- 10 -
Stock Option Plans and Other Incentive Plans
The Company's current incentive stock option plan (the "Plan") was adopted by the by the Board in September 2016.
The purpose of the Plan is to attract and retain directors, officers, employees and consultants and to motivate them to advance the interests of the Company by affording them with the opportunity acquire an equity interest in the Company through options granted under the Plan.
The Stock Option Plan provides that unless authorized by the shareholders in accordance with applicable securities laws, the aggregate number of Shares reserved for issuance under the Plan, together with all of the Company's other previously established or proposed stock options, stock option plans, employee stock purchase plans or any other compensation or incentive mechanisms involving the issuance or potential issuance of Shares, is subject to the restrictions imposed under applicable securities laws.
The Plan is intended to emphasize management's commitment to the growth of the Company. The grant of stock options, as a key component of the executive compensation package, enables the Company to attract and retain qualified executives. Stock option grants are based on the total of stock options available under the Plan. In granting stock options, the Board reviews the total of stock options available under the Plan and recommends grants to newly retained executive officers at the time of their appointment, and considers recommending further grants to executive officers from time to time thereafter. The amount and terms of outstanding options held by an executive are taken into account when determining whether and how new option grants should be made to the executive. The exercise periods are to be set at the date of grant. Options granted under the Plan will have an exercise price of not less than the minimum prevailing price of the Company's Shares permitted by the Canadian Securities Exchange on the day prior to the date of the grant.
The Board establishes the expiry date for each option at the time such option is granted. The expiry date cannot be longer than the maximum exercise period as determined by the applicable securities laws and the policies of the Canadian Securities Exchange. No Option is exercisable until it has vested. The Board establishes a vesting period or periods at the time each option is granted to an optionee, subject to the compliance with applicable securities laws and the policies of the Canadian Securities Exchange. An optionee who wishes to exercise an Option must pay the exercise price in cash, a certified cheque or a bank draft payable to the Company for the aggregate exercise price for the optioned Shares being acquired.
Employment, Consulting and Management Agreements
For the year ended December 31, 2019, other than as set forth below, the Company does not have any employment, consulting or management agreements or arrangements with any of the Company's current NEOs or directors.
The Company entered into an employment agreement with Mr. Alejandro Ochoa effective October 31, 2018 with regards to his employment as the President and Chief Executive Officer of the Company. The agreement is for an indefinite term and will continue until such time unless earlier terminated. Pursuant to the agreement, the Company has agreed to pay Mr. Ochoa a base salary of $240,000 annually. Mr. Ochoa is also eligible, on each anniversary of the agreement, commencing on January 1, 2019, to (a) the equivalent of one (1%) percent of the total issued common shares of the Company, or (b) two (2%) percent of the total issued common shares of the Company, for any complete year that the Company (including Affiliates) has three hundred (300) or more Co-location Tenants (as that term is defined in the employment agreement).
- 11 -
The Company entered into an employment agreement with Mr. Luis Parra effective October 31, 2018 with regards to his employment as the Chief Operating Officer of the Company. The agreement is for an indefinite term and will continue until such time unless earlier terminated. Pursuant to the agreement, the Company has agreed to pay Mr. Parra a base salary of $180,000 annually. Mr. Parra is also eligible to earn a cash bonus for each completed tower and Co-location Tenants (as that term is defined in the employment agreement) that are in place as at December 31st each year. In addition, on each anniversary of the agreement, commencing on January 1, 2019, Mr. Parra is eligible to earn the equivalent of one (1%) percent of the total issued common shares of the Company.
The Company entered into an employment agreement with Mr. Santiago Rossi on October 31, 2018 and effective March 31, 2019 with regards to his employment as the Chief Financial Officer of the Company. The agreement is for an indefinite term and will continue until such time unless earlier terminated. Pursuant to the agreement, the Company has agreed to pay Mr. Rossi a base salary of $180,000 annually. Mr. Rossi is also eligible to earn a cash bonus for each completed tower and Co-location Tenants (as that term is defined in the employment agreement) that are in place as at December 31st each year. In addition, on each anniversary of the agreement, commencing on January 1, 2019, Mr. Rossi is eligible to earn the equivalent of one (1%) percent of the total issued common shares of the Company.
Oversight and Description of Director and NEO Compensation
The Company's compensation program is intended to attract, motivate, reward and retain the management talent needed to achieve the Company's business objectives of improving overall corporate performance and creating long-term value for the Company's shareholders. The compensation program is intended to reward executive officers on the basis of individual performance and achievement of corporate objectives, including the advancement of the exploration and development goals of the Company. The Company's current compensation program is comprised of base salary or fees, short term incentives such as discretionary bonuses and long term incentives such as stock options.
The Board has not created or appointed a compensation committee given the Company's current size and stage of development. All tasks related to developing and monitoring the Company's approach to the compensation of the Company's NEOs and directors are performed by the members of the Board. The compensation of the NEOs, directors and the Company's employees or consultants, if any, is reviewed, recommended and approved by the Board without reference to any specific formula or criteria. NEOs that are also directors of the Company are involved in discussion relating to compensation, and disclose their interest in and abstain from voting on compensation decisions relating to them, as applicable, in accordance with the applicable corporate legislation.
Pension Plan Benefits
The Company does not have any pension, defined benefit, defined contribution or deferred compensation plans in place.
- 12 -
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
The following table sets forth details of the Plan, being the Company's only equity compensation plan, as of December 31, 2019.
|
Plan Category |
Column (a) |
Column (b) |
Column (c) |
|
Equity compensation plans approved by shareholders |
1,275,000 |
$0.30 |
8,063,944 |
|
Equity compensation plans not approved by shareholders |
Nil |
Nil |
Nil |
|
Total |
1,275,000 |
$0.30 |
8,063,944 |
(1) The Company does not have any warrants or rights outstanding under any equity compensation plans.
(2) Based on the Company's issued and outstanding common shares of 93,389,446 as at December 31, 2019.
APPOINTMENT OF AUDITOR
On March 11, 2020 the Company changed its auditor from Manning Elliott LLP, Chartered Professional Accountants to Smythe LLP, Chartered Professional Accountants. Information regarding the change of auditor is available on SEDAR. See in particular the Notice of Change of Auditor filed by the Company on March 13, 2020, a copy of which is available at www.sedar.com. At the Meeting, Shareholders will be asked to pass an ordinary resolution to appoint Smythe LLP, Chartered Professional Accountants, as auditors of the Company for the fiscal year ending December 31, 2020, and to authorize the directors of the Company to fix the remuneration to be to be paid to the auditors for the fiscal year ending December 31, 2020. An ordinary resolution needs to be passed by a simple majority of the votes cast by the Shareholders present in person or represented by proxy and entitled to vote at the Meeting.
Management recommends that Shareholders vote FOR the appointment of Smythe LLP, Chartered Professional Accountants, as the Company's auditors for the Company's fiscal year ending December 31, 2020 and the authorization of the directors of the Company to fix the remuneration to be paid to the auditors for the fiscal year ending December 31, 2020.
AUDIT COMMITTEE DISCLOSURE
Under National Instrument 52-110 Audit Committees ("NI 52-110"), a reporting issuer is required to provide disclosure annually with respect to its audit committee, including the text of its audit committee charter, information regarding the composition of the audit committee, and information regarding fees paid to its external auditor. The Company provides the following disclosure with respect to its audit committee (the "Audit Committee"):
The Audit Committee Charter
The full text of the Company's audit committee charter (the "Audit Committee Charter") is attached as Schedule "A" to this information circular.
- 13 -
Composition of the Audit Committee
The Company's Audit Committee is comprised of three directors consisting of Alejandro Ochoa, Robert Horsley and Fabio Alexander Vasquez. As defined in NI 52-110, Mr. Ochoa, the Company's Chief Executive Officer and President, is not "independent", as he is an executive officer of the Company, and Messrs. Horsley and Vasquez are independent. All of the Audit Committee members are "financially literate", as defined in NI 52-110, as all have the industry experience necessary to understand and analyze financial statements of the Company, as well as the understanding of internal controls and procedures necessary for financial reporting.
The Audit Committee is responsible for review of both interim and annual financial statements for the Company. For the purposes of performing their duties, the members of the Audit Committee have the right, at all times, to inspect all the books and financial records of the Company and any subsidiaries and to discuss with management and the external auditors of the Company any accounts, records and matters relating to the financial statements of the Company. The Audit Committee members meet periodically with management and annually with the external auditors.
Relevant Education and Experience
The following sets out the education and experience of each Audit Committee member that is relevant to the performance of his responsibilities as an Audit Committee member and that provides each member with: (i) an understanding of the accounting principles used by the Company to prepare its financial statements; (ii) the ability to assess the general application of such accounting principles in connection with the accounting for estimates, accruals and provisions, (iii) experience preparing, auditing, analyzing or evaluating financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of issues that can reasonably be expected to be raised by the Company's financial statements, or experience actively supervising one or more individuals engaged in such activities; and (iv) an understanding of internal controls and procedures for financial reporting:
Mr. Ochoa
Alejandro Ochoa has over 20 years of experience within the financial services industry, having worked at such firms as Morgan Stanley, Prudential Securities, Raymond James and Mackie Research Capital Corp. Mr. Ochoa has extensive experience with publicly traded companies and has an understanding of the accounting principles used by the Company to prepare its financial statements. Dedicated to Latin America, his areas of expertise include mining and energy transactions in advisory, capital raisings and strategic assets sales with Latin American transactions in Colombia, Mexico, and Peru. He has also covered telecom infrastructure companies from the United States, Argentina, and Colombia. Mr. Ochoa has a Bachelors in Science with a focus in Finance from Florida International University.
Mr. Horsley
Robert Nick Horsley has over 10 years of public markets experience focused in finance, investor relations, marketing management, and mergers and acquisitions. Mr. Horsley has served as a director and a consultant to several public and private companies, and has worked in a variety of industries including consumer goods, energy, mining, oil and gas, nutraceuticals and pharmaceuticals, and technology. Mr. Horsley has an understanding of the accounting principles used by the Company to prepare its financial statements.
Mr. Vasquez
Fabio Alexander Vasquez has over 25 years' experience in the aviation FBO industry, including 18 years spent leading Miami Executive Aviation (MEA) since its inception, as the company's owner and CEO. Mr. Vasquez brought considerable marketing experience that he used to grow MEA including creating strategic industry partnerships with key partners, developing and hosting special events with Fortune 500 clients, such as Chevron, Enterprise Rent A Car and Merrill Lynch at his facilities to leverage awareness. Mr. Alexander currently leads Executive Investment Partners, which is a diverse investment company with holdings in the aviation, banking, and real estate sectors.
- 14 -
Audit Committee Oversight
Since the commencement of the Company's most recently completed financial year, the Board has not failed to adopt a recommendation of the Audit Committee to nominate or compensate an external auditor.
Reliance on Certain Exemptions
Since the commencement of the Company's most recently completed financial year, the Company has not relied on the exemptions in Sections 2.4, 6.1.1(4), 6.1.1(5), or 6.1.1(6) or Part 8 of NI 52-110. Section 2.4 (De Minimis Non-Audit Services) which provide an exemption from the requirement that the Audit Committee must pre-approve all non-audit services to be provided by the auditor, where the total amount of fees related to the non-audit services are not expected to exceed 5% of the total fees payable to the auditor in the financial year in which the non-audit services were provided. Sections 6.1.1(4) (Circumstance Affecting the Business or Operations of the Venture Issuer), 6.1.1(5) (Events Outside Control of Member) and 6.1.1(6) (Death, Incapacity or Resignation) provide exemptions from the requirement that a majority of the members of the Company's Audit Committee must not be executive officers, employees or control persons of the Company or of an affiliate of the Company. Part 8 (Exemptions) permits a company to apply to a securities regulatory authority or regulator for an exemption from the requirements of NI 52-110 in whole or in part.
Pre-Approval Policies and Procedures
Formal policies and procedures for the engagement of non-audit services have yet to be formulated and adopted. Subject to the requirements of NI 52-110, the engagement of non-audit services is considered by the Board and the Audit Committee, on a case-by-case basis, as applicable.
External Auditor Service Fees
In the following table, "audit fees" are fees billed by the Company's external auditor for services provided in auditing the Company's annual financial statements for the subject year. "Audit-related fees" are fees not included in audit fees that are billed by the auditor for assurance and related services that are reasonably related to the performance of the audit review of the Company's financial statements. "Tax fees" are fees billed by the auditor for professional services rendered for tax compliance, tax advice and tax planning. "All other fees" are fees billed by the auditor for products and services not included in the foregoing categories.
The aggregate fees billed by the Company's external auditor in the last two fiscal years by category, are as follows:
|
Year Ended |
Audit Fees |
Audit Related Fees |
Tax Fees |
All Other Fees |
|
2019 |
USD$80,800 |
Nil |
Nil |
Nil |
|
2018 |
USD$152,700 |
Nil |
Nil |
Nil |
- 15 -
Exemption
The Company is relying on the exemption provided by section 6.1 of National Instrument 52-110 which provides that the Company, as a venture issuer, is not required to comply with Part 3 (Composition of the Audit Committee) and Part 5 (Reporting Obligations) of National Instrument 52-110.
INDEBTEDNESS OF DIRECTORS AND EXECUTIVE OFFICERS
No current or former director, executive officer, proposed nominee for election to the Board, or associate of such persons is, or at any time since the beginning of the Company's most recently completed financial year has been, indebted to the Company or any of its subsidiaries.
No indebtedness of current or former director, executive officer, proposed nominee for election to the Board, or associate of such person is, or at any time since the beginning of the most recently completed financial year has been, the subject of a guarantee, support agreement, letter of credit or other similar arrangement or understanding provided by the Company or any of its subsidiaries.
INTEREST OF INFORMED PERSONS IN MATERIAL TRANSACTIONS
Except as otherwise disclosed herein, no: (a) director, proposed director or executive officer of the Company; (b) person or company who beneficially owns, directly or indirectly, Shares or who exercises control or direction of Shares, or a combination of both, carrying more than ten percent of the voting rights attached to the Shares outstanding (each, an "Insider"); (c) director or executive officer of an Insider; or (d) associate or affiliate of any of the directors, executive officers or Insiders, has had any material interest, direct or indirect, in any transaction since the commencement of the Company's most recently completed financial year or in any proposed transaction which has materially affected or would materially affect the Company, except with an interest arising from the ownership of Shares where such person or company will receive no extra or special benefit or advantage not shared on a pro rata basis by all holders of the same class of Shares.
MANAGEMENT CONTRACTS
There were no management functions of the Company, which were, to any substantial degree, performed by a person other than the directors or executive officers of the Company, except as otherwise described in this Information Circular.
CORPORATE GOVERNANCE
Pursuant to National Instrument 58-101 Disclosure of Corporate Governance Practices, the Company is required to disclose its corporate governance practices as follows:
Board of Directors
The Board facilitates its exercise of independent supervision over the Company's management through frequent meetings of the Board.
Robert Horsely and Fabio Alexander Vasquez are "independent" in that each are independent and free from any interest and any business or other relationship which could, or could reasonably be perceived to, materially interfere with the director's ability to act with the best interests of the Company, other than the interests and relationships arising from being Shareholders. Alejandro Ochoa is the CEO and President of the Company.
- 16 -
Directorships
Certain directors of the Company are currently also directors of other reporting issuers, as described in the table below:
|
Name |
Name of Reporting Issuer |
Trading Market |
|
Robert Horsley |
Evolving Gold Corp. |
CSE |
Orientation and Continuing Education
The Board briefs all new directors with respect to the policies of the Board and other relevant corporate and business information. The Board does not provide any continuing education.
Ethical Business Conduct
The Board has approved a Code of Business Conduct and Ethics (the "Code") to be followed by the Company's directors, officers, employees and principal consultants and those of its subsidiaries. The Code is also to be followed, where appropriate, by the Company's agents and representatives, including consultants where specifically required. The purpose of the Code is to, among other things, promote honest and ethical conduct, avoid conflicts of interest, protect confidential or proprietary information and comply with the applicable government laws and securities rules and regulations. The Board does not actively monitor compliance with the Code, but requires prompt notification of apparent or actual breaches so that it may investigate and take action. The Code has been circulated to all employees.
Nomination of Directors
The Company does not have a formal process or committee for proposing new nominees for election to the Board. The full Board has responsibility for identifying potential Board candidates. The Board assesses potential Board candidates to fill perceived needs on the Board for required skills, expertise, independence and other factors. Members of the Board and representatives of the industry are consulted for possible candidates.
Compensation
The Company does not currently have a compensation committee as the Board performs the functions that a compensation committee would normally perform. The Company has not provided compensation to members of the Board or the Company's Chairman at any time and does not intend to provide compensation to any director or the Chairman in the near term other than through awards of Stock Options pursuant to the Company's Stock Option Plan. See "Statement of Executive Compensation."
Other Board Committees
The Company has no other committees other than the Audit Committee.
Assessments
The Board regularly monitors the adequacy of information given to directors, communications between the Board and management and the strategic direction and processes of the Board and its committees.
- 17 -
INTEREST OF CERTAIN PERSONS OR COMPANIES IN MATTERS TO BE ACTED UPON
Except as disclosed elsewhere in this Information Circular, no director or executive officer of the Company who was a director or executive officer since the beginning of the Company's last financial year, no proposed nominee for election as a director of the Company, nor any associate or affiliates of any such directors, officers or nominees, has any material interest, direct or indirect, by way of beneficial ownership of Shares or other securities in the Company or otherwise, in any matter to be acted upon at the Meeting, other than the election of directors.
PARTICULARS OF MATTERS TO BE ACTED UPON
RATIFICATION OF ADVANCE NOTICE POLICY
Prior to the Meeting, the Board adopted a policy requiring advance notice of the nomination of directors in certain circumstances (the "Advance Notice Policy"). The full text of the Advance Notice Policy is attached hereto as Schedule "B". Although the Company is not required to seek Shareholder approval of the Advance Notice Policy, the Board is asking the Shareholders to ratify the adoption of the Advance Notice Policy as a matter of good corporate governance. If the Shareholders vote against such ratification, the Advance Notice Policy will cease to have effect after the Meeting.
The Board has determined that it is in the best interests of the Company to adopt the Advance Notice Policy as it:
(a) facilitates orderly and efficient annual general or, where the need arises, special meetings;
(b) ensures that all shareholders receive adequate notice of director nominations and sufficient information with respect to all nominees; and
(c) allows shareholders to register an informed vote.
At the Meeting, Shareholders will be asked to consider, and if thought advisable, to pass an ordinary resolution, the full text of which is set out below, to ratify the Advance Notice Policy.
PURPOSE OF THE ADVANCE NOTICE POLICY
The purpose of the Advance Notice Policy is to provide shareholders, directors and management of the Company with direction on the procedure for shareholder nomination of directors. The Advance Notice Policy is the framework by which the Company seeks to fix a deadline by which shareholders of the Company must submit director nominations to the Company prior to any annual or special meeting of shareholders and sets forth the information that a shareholder must include in the notice to the Company for the notice to be in proper written form.
EFFECT OF THE ADVANCE NOTICE POLICY
Subject only to the BCBCA and the Company's Articles, only persons who are nominated in accordance with the procedures set out in the Advance Notice Policy shall be eligible for election as directors of the Company. Nominations of persons for election to the Board may be made at any annual meeting of shareholders, or at any special meeting of shareholders (if one of the purposes for which the special meeting was called was the election of directors):
(a) by or at the direction of the Board, including pursuant to a notice of meeting;
(b) by or at the direction or request of one or more shareholders pursuant to a proposal made in accordance with the provisions of the BCBCA, or a requisition of the shareholders made in accordance with the provisions of the BCBCA; or
- 18 -
(c) by any person (a "Nominating Shareholder"):
(i) who, at the close of business on the date of the giving of the notice provided for below in the Advance Notice Policy and on the record date for notice of such meeting, is entered in the securities register as a holder of one or more shares carrying the right to vote at such meeting or who beneficially owns shares that are entitled to be voted at such meeting; and
(ii) who complies with the notice procedures set forth in the Advance Notice Policy.
In addition to any other applicable requirements, for a nomination to be made by a Nominating Shareholder, the Nominating Shareholder must have given timely notice thereof in proper written form to the Secretary of the Company at the principal executive offices of the Company.
To be timely, a Nominating Shareholder's notice to the Secretary of the Company must be made:
(a) in the case of an annual meeting of shareholders, not less than 30 and not more than 65 days prior to the date of the annual meeting of shareholders; provided, however, that in the event that the annual meeting of shareholders is to be held on a date that is less than 50 days after the date (the "Notice Date") on which the first public announcement of the date of the annual meeting was made, notice by the Nominating Shareholder is to be made not later than the close of business on the 10th day after the Notice Date in respect of such meeting; and
(b) in the case of a special meeting (which is not also an annual meeting) of shareholders called for the purpose of electing directors (whether or not called for other purposes), not later than the close of business on the 15th day following the day on which the first public announcement of the date of the special meeting of shareholders was made.
In no event shall any adjournment or postponement of a meeting of shareholders or the announcement thereof commence a new time period for the giving of a Nominating Shareholder's notice as described above.
To be in proper written form, a Nominating Shareholder's notice to the Secretary of the Company must set forth:
(a) as to each person whom the Nominating Shareholder proposes to nominate for election as a director:
(i) the name, age, business address and residential address of the person;
(ii) the principal occupation or employment of the person during the past five years;
(iii) the class or series and number of shares in the capital of the Company which are controlled or which are owned beneficially or of record by the person as of the record date for the meeting of shareholders (if such date shall then have been made publicly available and shall have occurred) and as of the date of such notice;
(iv) a statement as to whether such person would be "independent" of the Company (as such term is defined under Applicable Securities Laws (as defined below)) if elected as a director at such meeting and the reasons and basis for such determination;
(v) a description of all direct and indirect compensation and other material monetary agreements, arrangements and understandings during the past three years, and any other material relationships, between or among such Nominating Shareholder and beneficial owner, if any, and their respective affiliates and associates, or others acting jointly or in concert therewith, on the one hand, and such nominee, and his or her respective associates, or others acting jointly or in concert therewith, on the other hand; and
- 19 -
(vi) any other information relating to the person that would be required to be disclosed in a dissident's proxy circular in connection with solicitations of proxies for election of directors pursuant to the BCBCA and Applicable Securities Laws (as defined below);
(b) as to the Nominating Shareholder giving the notice:
(i) any proxy, contract, arrangement, understanding or relationship pursuant to which such Nominating Shareholder has a right to vote any shares of the Company;
(ii) the class or series and number of shares in the capital of the Company which are controlled or which are owned beneficially or of the record by the Nominating Shareholder as of the record date for the meeting of shareholders (if such date shall then have been made publicly available and shall have occurred) and as of the date of such notice, and
(iii) any other information relating to such Nominating Shareholder that would be required to be made in a dissident's proxy circular in connection with solicitations of proxies for election of directors pursuant to the BCBCA and Applicable Securities Laws (as defined below);
The Company may require any proposed nominee to furnish such other information as may reasonably be required by the Company to determine the eligibility of such proposed nominee to serve as an independent director of the Company or that could be material to a reasonable shareholder's understanding of the independence, or lack thereof, of such proposed nominee.
The chair of the meeting shall have the power and duty to determine whether a nomination was made in accordance with the provisions set forth in the Advance Notice Provision and, if any proposed nomination is not in compliance with such provisions, to declare that such defective nomination shall be disregarded.
No person shall be eligible for election as a director of the Company unless nominated in accordance with the provisions of the Advance Notice Policy; provided, however, that nothing in the Advance Notice Policy shall be deemed to preclude discussion by a shareholder (as distinct from the nomination of directors) at a meeting of shareholders of any matter in respect of which it would have been entitled to submit a proposal pursuant to the provisions of the BCBCA. The Chairman of the meeting shall have the power and duty to determine whether a nomination was made in accordance with the procedures set forth in the foregoing provisions and, if any proposed nomination is not in compliance with such foregoing provisions, to declare that such defective nomination shall be disregarded.
For purposes of the Advance Notice Policy:
(a) "Applicable Securities Laws" means the applicable securities legislation of each relevant province and territory of Canada, as amended from time to time, the rules, regulations and forms made or promulgated under any such statute and the published national instruments, multilateral instruments, policies, bulletins and notices of the securities commission and similar regulatory authority of each province and territory of Canada; and
(b) "public announcement" shall mean disclosure in a press release reported by a national news service in Canada, or in a document publicly filed by the Company under its profile on SEDAR at www.sedar.com.
- 20 -
The remaining capitalized terms used in this summary of the effect of the Advance Notice Policy have the meaning set forth in the Advance Notice Policy, the full text of which is set out in Schedule "B"
Notwithstanding any other provision of the Advance Notice Policy, notice given to the Secretary of the Company pursuant to the Advance Notice Policy may only be given by personal delivery, facsimile transmission or by email (at such email address as stipulated from time to time by the Secretary of the Company for purposes of this notice), and shall be deemed to have been given and made only at the time it is served by personal delivery, email (at the address as aforesaid, provided that receipt of confirmation of such transmission has been received) or sent by facsimile transmission (provided that receipt of confirmation of such transmission has been received) to the Secretary at the address of the principal executive offices of the Company; provided that if such delivery or electronic communication is made on a day which is a not a business day or later than 5:00 p.m. (Vancouver time) on a day which is a business day, then such delivery or electronic communication shall be deemed to have been made on the subsequent day that is a business day.
Notwithstanding the foregoing, the Board may, in its sole discretion, waive any requirement of the Advance Notice Policy.
At the Meeting, Shareholders will be asked to approve the following ordinary resolution (the "Advance Notice Resolution"), which must be approved by at least a simple majority of the votes cast by Shareholders represented in person or by proxy at the Meeting who vote in respect of the Advance Notice Policy:
"RESOLVED, AS AN ORDINARY RESOLUTION THAT:
1. The Advance Notice Policy as more particularly described in the Information Circular be and is hereby ratified, confirmed and approved;
2. The Board is hereby authorized, at any time in its absolute discretion, to determine whether or not to proceed with the foregoing without further approval, ratification or confirmation by the shareholders of the Company; and
3. Any one director or officer of the Company be and is hereby authorized and directed to execute and deliver for and in name of and on behalf of the Company, whether under its corporate seal or not, all such certificates, instruments, agreements, notices and others documents and to do all such other acts and things as in such person's opinion as may be necessary or desirable for the purpose of giving effect to this resolution."
The form of the Advance Notice Resolution set forth above is subject to such amendments as management may propose at the Meeting, but which do not materially affect the substance of the Advance Notice Resolution.
Management of the Company recommends that Shareholders vote in favour of the Advance Notice Resolution at the Meeting. It is the intention of the Designated Persons named in the enclosed form of proxy, if not expressly directed otherwise in such form of proxy, to vote such proxy FOR the Advance Notice Resolution.
ADDITIONAL INFORMATION
Shareholders may contact the Company at its office by mail at Suite 600 - 535 Howe Street, Vancouver, British Columbia V6C 2Z4, to request copies of the Company's financial statements and related Management's Discussion and Analysis (the "MD&A"). Financial information is provided in the Company's audited financial statements and MD&A for the most recently completed financial year and in the financial statements and MD&A for subsequent financial periods, which are available on SEDAR.
- 21 -
OTHER MATTERS
Other than the above, management of the Company know of no other matters to come before the Meeting other than those referred to in the Notice. If any other matters that are not currently known to management should properly come before the Meeting, the accompanying form of proxy confers discretionary authority upon the Designated Persons named therein to vote on such matters in accordance with their best judgment.
APPROVAL OF THE BOARD OF DIRECTORS
The contents of this Information Circular have been approved, and the delivery of it to each shareholder of the Company entitled thereto and to the appropriate regulatory agencies has been authorized, by the Board.
Dated at Vancouver, British Columbia this 3rd day of August, 2020.
ON BEHALF OF THE BOARD OF DIRECTORS OF
TOWER ONE WIRELESS CORP.
"Alejandro Ochoa"
Alejandro Ochoa
Chief Executive Officer, President and Director
SCHEDULE "A"
AUDIT COMMITTEE CHARTER
Charter of the Audit Committee of the Board of Directors of
Tower One Wireless Corp. (the "Company")
This Charter establishes the composition, the authority, roles and responsibilities and the general objectives of the Company's audit committee, or its Board of Directors in lieu thereof (the "Audit Committee"). The roles and responsibilities described in this Charter must at all times be exercised in compliance with the legislation and regulations governing the Company and any subsidiaries.
1. Composition
(a) Number of Members. The Audit Committee must be comprised of a minimum of three directors of the Company, a majority of whom will be independent. Independence of the board members will be as defined by applicable legislation.
(b) Chair. If there is more than one member of the Audit Committee, members will appoint a chair of the Audit Committee (the "Chair") to serve for a term of one (1) year on an annual basis. The Chair may serve as the chair of the Audit Committee for any number of consecutive terms.
(c) Financially Literacy. All members of the audit committee will be financially literate as defined by applicable legislation. If upon appointment a member of the Audit Committee is not financially literate as required, the person will be provided with a period of three months to acquire the required level of financial literacy.
2. Meetings
(a) Quorum. The quorum required to constitute a meeting of the Audit Committee is set at a majority of members.
(b) Agenda. The Chair will set the agenda for each meeting, after consulting with management and the external auditor. Agenda materials such as draft financial statements must be circulated to all Audit Committee members for members to have a reasonable amount of time to review the materials prior to the meeting.
(c) Notice to Auditors. The Company's auditors (the "Auditors") will be provided with notice as necessary of any Audit Committee meeting, will be invited to attend each such meeting and will receive an opportunity to be heard at those meetings on matters related to the Auditor's duties.
(d) Minutes. Minutes of the Audit Committee meetings will be accurately recorded, with such minutes recording the decisions reached by the committee.
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3. Roles and Responsibilities
The roles and responsibilities of the Audit Committee include the following:
External Auditor
The Audit Committee will:
(a) Selection of the external auditor. Select, evaluate and recommend to the Board, for shareholder approval, the Auditor to examine the Company's accounts, controls and financial statements.
(b) Scope of Work. Evaluate, prior to the annual audit by the Auditors, the scope and general extent of the Auditor's review, including the Auditor's engagement letter.
(c) Compensation. Recommend to the Board the compensation to be paid to the external auditors.
(d) Replacement of Auditor. If necessary, recommend the replacement of the Auditor to the
Board of Directors.
(e) Approve Non-Audit Related Services. Pre-approve all non-audit services to be provided by the Auditor to the Company or its subsidiaries.
(f) Direct Responsibility for Overseeing Work of Auditors. Must directly oversee the work of the Auditor. The Auditor must report directly to the Audit Committee.
(g) Resolution of Disputes. Assist with resolving any disputes between the Company's management and the Auditors regarding financial reporting.
Consolidated Financial Statements and Financial Information
The Audit Committee will:
(h) Review Audited Financial Statements. Review the audited consolidated financial statements of the Company, discuss those statements with management and with the Auditor, and recommend their approval to the Board.
(i) Review of Interim Financial Statements. Revie and discuss with management the quarterly consolidated financial statements, and if appropriate, recommend their approval by the Board.
(j) MD&A, Annual and Interim Earnings Press Releases, Audit Committee Reports. Review the Company's management discussion and analysis, interim and annual press releases, and audit committee reports before the Company publicly discloses this information.
(k) Auditor Reports and Recommendations. Review and consider any significant reports and recommendations issued by the Auditor, together with management's response, and the extent to which recommendations made by the Auditor have been implemented.
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Risk Management, Internal Controls and Information Systems
The Audit Committee will:
(l) Internal Control. Review with the Auditors and with management, the general policies and procedures used by the Company with respect to internal accounting and financial controls. Remain informed, through communications with the Auditor, of any weaknesses in internal control that could cause errors or deficiencies in financial reporting or deviations from the accounting policies of the Company or from applicable laws or regulations.
(m) Financial Management. Periodically review the team in place to carry out financial reporting functions, circumstances surrounding the departure of any officers in charge of financial reporting, and the appointment of individuals in these functions.
(n) Accounting Policies and Practices. Review management plans regarding any changes in accounting practices or policies and the financial impact thereof.
(o) Litigation. Review with the Auditors and legal counsel any litigation, claim or contingency, including tax assessments, that could have a material effect upon the financial position of the Company and the manner in which these matters are being disclosed in the consolidated financial statements.
(p) Other. Discuss with management and the Auditors correspondence with regulators, employee complaints, or published reports that raise material issues regarding the Company's financial statements or disclosure.
Complaints
(q) Accounting, Auditing and Internal Control Complaints. The Audit Committee must establish a procedure for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal controls or auditing matters.
(r) Employee Complaints. The Audit Committee must establish a procedure for the confidential transmittal on condition of anonymity by the Company's employees of concerns regarding questionable accounting or auditing matters.
4. Authority
(a) Auditor. The Auditors, and any internal auditors hired by the company, will report directly to the Audit Committee.
(b) To Retain Independent Advisors. The Audit Committee may, at the Company's expense and without the approval of management, retain the services of independent legal counsels and any other advisors it deems necessary to carry out its duties and set and pay the monetary compensation of these individuals.
5. Reporting
The Audit Committee will report to the Board on:
(a) the Auditor's independence;
(b) the performance of the Auditor and any recommendations of the Audit Committee in
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relation thereto;
(c) the reappointment and termination of the Auditor;
(d) the adequacy of the Company's internal controls and disclosure controls;
(e) the Audit Committee's review of the annual and interim consolidated financial statements;
(f) the Audit Committee's review of the annual and interim management discussion and analysis;
(g) the Company's compliance with legal and regulatory matters to the extent they affect the financial statements of the Company; and
(h) all other material matters dealt with by the Audit Committee.
SCHEDULE "B"
ADVANCE NOTICE POLICY
TOWER ONE WIRELESS CORP.
(the "Company")
Advance Notice Policy for Nomination of Directors
1. Only persons who are nominated in accordance with the following procedures shall be eligible for election as directors of the Company.
2. Nominations of persons for election to the board may be made at any annual meeting of shareholders or at any special meeting of shareholders (if one of the purposes for which the special meeting was called was the election of directors):
(a) by or at the direction of the board, including pursuant to a notice of meeting;
(b) by or at the direction or request of one or more shareholders pursuant to a proposal made in accordance with the provisions of the Business Corporations Act, or a requisition of the shareholders made in accordance with the provisions of the Business Corporations Act; or
(c) by any person (a "Nominating Shareholder"): (A) who, at the close of business on the date of the giving of the notice provided for below in this policy and on the record date for notice of such meeting, is entered in the securities register as a holder of one or more shares carrying the right to vote at such meeting or who beneficially owns shares that are entitled to be voted at such meeting; and (B) who complies with the notice procedures set forth below in this policy.
3. In addition to any other applicable requirements, for a nomination to be made by a Nominating Shareholder, the Nominating Shareholder must have given timely notice thereof (as provided for in Section 4) in proper written form to the secretary of the Company at the principal executive offices of the Company.
4. To be timely, a Nominating Shareholder's notice to the secretary of the Company must be given:
(a) in the case of an annual meeting of shareholders, not less than 30 nor more than 65 days prior to the date of the annual meeting of shareholders; provided, however, that in the event that the annual meeting of shareholders is to be held on a date that is less than 50 days after the date (the "Notice Date") on which the first public announcement (as defined below) of the date of the annual meeting was made, notice by the Nominating Shareholder may be given not later than the close of business on the tenth (10th) day after the Notice Date in respect of such meeting; and
(b) in the case of a special meeting (which is not also an annual meeting) of shareholders called for the purpose of electing directors (whether or not called for other purposes), not later than the close of business on the fifteenth (15th) day following the day on which the first public announcement of the date of the special meeting of shareholders was made.
In no event shall any adjournment or postponement of a meeting of shareholders or the announcement thereof commence a new time period for the giving of a Nominating Shareholder's notice as described above.
5. To be in proper written form, a Nominating Shareholder's notice to the secretary of the Company must set forth:
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(a) as to each person whom the Nominating Shareholder proposes to nominate for election as a director: (A) the name, age, business address and residential address of the person; (B) the principal occupation or employment of the person during the past five years; (C) the class or series and number of shares in the capital of the Company which are controlled or which are owned beneficially or of record by the person as of the record date for the meeting of shareholders (if such date shall then have been made publicly available and shall have occurred) and as of the date of such notice; (D) a statement as to whether such person would be "independent" of the Company (as such term is defined under Applicable Securities Laws (as defined below)) if elected as a director at such meeting and the reasons and basis for such determination; (E) a description of all direct and indirect compensation and other material monetary agreements, arrangements and understandings during the past three years, and any other material relationships, between or among such Nominating Shareholder and beneficial owner, if any, and their respective affiliates and associates, or others acting jointly or in concert therewith, on the one hand, and such nominee, and his or her respective associates, or others acting jointly or in concert therewith, on the other hand; and (F) any other information relating to the person that would be required to be disclosed in a dissident's proxy circular in connection with solicitations of proxies for election of directors pursuant to the Business Corporations Act and Applicable Securities Laws (as defined below); and
(b) as to the Nominating Shareholder giving the notice: (A) any proxy, contract, arrangement, understanding or relationship pursuant to which such Nominating Shareholder has a right to vote any shares of the Company; (B) the class or series and number of shares in the capital of the Company which are controlled or which are owned beneficially or of the record by the Nominating Shareholder as of the record date for the meeting of shareholders (if such date shall then have been made publicly available and shall have occurred) and as of the date of such notice; and (C) any other information relating to such Nominating Shareholder that would be required to be made in a dissident's proxy circular in connection with solicitations of proxies for election of directors pursuant to the Business Corporations Act and Applicable Securities Laws (as defined below). The Company may require any proposed nominee to furnish such other information as may reasonably be required by the Company to determine the eligibility of such proposed nominee to serve as a director of the Company or that could be material to a reasonable shareholder's understanding of the independence, or lack thereof, of such proposed nominee. The Nominating Shareholder's notice must be accompanied by a written consent of each proposed nominee to being named as a nominee and to serve as a director if elected.
6. The Company may require any proposed nominee to furnish such other information as may reasonably be required by the Company to determine the eligibility of such proposed nominee to serve as an independent director of the Company or that could be material to a reasonable shareholder's understanding of the independence, or lack thereof, of such proposed nominee.
7. The chair of the meeting shall have the power and duty to determine whether a nomination was made in accordance with the provisions set forth in this policy and, if any proposed nomination is not in compliance with such provisions, to declare that such defective nomination shall be disregarded.
8. For purposes of this policy:
(a) "Affiliate", when used to indicate a relationship with a person, means a person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such specified person;
(b) "Applicable Securities Laws" means the applicable securities legislation of each relevant province and territory of Canada, as amended from time to time, the rules, regulations and forms made or promulgated under any such statute and the published national instruments, multilateral instruments, policies, bulletins and notices of the securities commission and similar regulatory authority of each province and territory of Canada;
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(c) "Associate", when used to indicate a relationship with a specified person, means:
(i) any corporation or trust of which such person beneficially owns, directly or indirectly, voting securities carrying more than 10% of the voting rights attached to all voting securities of such corporation or trust for the time being outstanding,
(ii) any partner of that person,
(iii) any trust or estate in which such person has a substantial beneficial interest or as to which such person serves as trustee or in a similar capacity,
(iv) a spouse of such specified person,
(v) any person of either sex with whom such specified person is living in a conjugal relationship outside marriage, or
(vi) any relative of such specified person or of a person mentioned in clauses (iv) or (v) of this definition if that relative has the same residence as the specified person;
(d) "Derivatives Contract" means a contract between two parties (the "Receiving Party" and the "Counterparty") that is designed to expose the Receiving Party to economic benefits and risks that correspond substantially to the ownership by the Receiving Party of a number of shares in the capital of the Company or securities convertible into such shares specified or referenced in such contract (the number corresponding to such economic benefits and risks, the "Notional Securities"), regardless of whether obligations under such contract are required or permitted to be settled through the delivery of cash, shares in the capital of the Company or securities convertible into such shares or other property, without regard to any short position under the same or any other Derivatives Contract. For the avoidance of doubt, interests in broad-based index options, broad-based index futures and broad-based publicly traded market baskets of stocks approved for trading by the appropriate governmental authority shall not be deemed to be Derivatives Contracts;
(e) "owned beneficially" or "owns beneficially" means, in connection with the ownership of shares in the capital of the Company by a person:
(i) any such shares as to which such person or any of such person's Affiliates or Associates owns at law or in equity, or has the right to acquire or become the owner at law or in equity, where such right is exercisable immediately or after the passage of time and whether or not on condition or the happening of any contingency or the making of any payment, upon the exercise of any conversion right, exchange right or purchase right attaching to any securities, or pursuant to any agreement, arrangement, pledge or understanding whether or not in writing,
(ii) any such shares as to which such person or any of such person's Affiliates or Associates has the right to vote, or the right to direct the voting, where such right is exercisable immediately or after the passage of time and whether or not on condition or the happening of any contingency or the making of any payment, pursuant to any agreement, arrangement, pledge or understanding whether or not in writing,
(iii) any such shares which are beneficially owned, directly or indirectly, by a Counterparty (or any of such Counterparty's Affiliates or Associates) under any Derivatives Contract (without regard to any short or similar position under the same or any other Derivatives Contract) to which such person or any of such person's Affiliates or Associates is a Receiving Party; provided, however, that the number of shares that a person owns beneficially pursuant to this clause in connection with a particular Derivatives Contract shall not exceed the number of Notional Securities with respect to such Derivatives Contract; provided, further, that the number of securities owned beneficially by each Counterparty (including their respective Affiliates and Associates) under a Derivatives Contract shall for purposes of this clause be deemed to include all securities that are owned beneficially, directly or indirectly, by any other Counterparty (or any of such other Counterparty's Affiliates or Associates) under any Derivatives Contract to which such first Counterparty (or any of such first Counterparty's Affiliates or Associates) is a Receiving Party and this proviso shall be applied to successive Counterparties as appropriate, and
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(iv) any such shares which are owned beneficially within the meaning of this definition by any other person with whom such person is acting jointly or in concert with respect to the Company or any of its securities; and
(f) "public announcement" shall mean disclosure in a press release reported by a national news service in Canada, or in a document publicly filed by the Company under its profile on the System of Electronic Document Analysis and Retrieval at www.sedar.com.
9. Notwithstanding any other provision of this policy, notice given to the secretary of the Company pursuant to this policy may only be given by personal delivery, facsimile transmission or by email (at such email address as stipulated from time to time by the secretary of the Company for purposes of this notice), and shall be deemed to have been given and made only at the time it is served by personal delivery, email (at the address as aforesaid, provided that receipt of confirmation of such transmission has been received) or sent by facsimile transmission (provided that receipt of confirmation of such transmission has been received) to the secretary at the address of the principal executive offices of the Company; provided that if such delivery or electronic communication is made on a day which is to a business day or later than 5:00 p.m. (Vancouver time) on a day which is a business day, then such delivery or electronic communication shall be deemed to have been made on the subsequent day that is a business day.
10. Notwithstanding the foregoing, the board may, in its sole discretion, waive any requirement in this policy.
TOWER ONE WIRELESS CORP.
CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the Three and Six Months Ended
June 30, 2020 (Unaudited)
and 2019 (Audited)
(Expressed in Canadian Dollars)
NOTICE TO READER
Under National Instrument 51-102, Part 4, subsection 4.3(3)(a), if an auditor has not performed a review of the condensed consolidated interim financial statements, they must be accompanied by a notice to this effect.
The accompanying unaudited condensed consolidated interim financial statements have been prepared by management of the Company. Management have compiled the condensed consolidated interim statement of financial position of Tower One Wireless Corp. as at June 30, 2020, the condensed consolidated interim statements of comprehensive loss for the three and six months ended June 30, 2020 and full year 2019, the condensed consolidated interim statement of changes in equity as at June 30, 2020 and full year 2019, and the condensed consolidated interim statement of cash flows for the six months ended June 30, 2020 and June 30, 2019. The Company's independent auditors have not audited, reviewed or otherwise attempted to verify the accuracy or completeness of the June 30, 2020 condensed consolidated interim financial statements. Readers are cautioned that these statements may not be appropriate for their intended purposes.
TOWER ONE WIRELESS CORP.
Consolidated Statements of Financial Position
As at June 30, 2020 and 2019
(Expressed in Canadian Dollars)
| Note | June 30, 2020 | December 31, 2019 | |||||
| (Unaudited) | (Audited) | ||||||
| $ | $ | ||||||
| ASSETS | |||||||
| Current Assets | |||||||
| Cash | 256,976 | 56,629 | |||||
| Amounts receivable | 1,513,779 | 1,808,397 | |||||
| Prepaid expenses and deposits | 277,764 | 234,091 | |||||
| Unbilled revenues | - | 109,064 | |||||
| Assets held for sale | 13 | - | 751,726 | ||||
| 2,048,520 | 2,959,907 | ||||||
| Intangible assets | 10 | 1,492,152 | 1,602,728 | ||||
| Right-of-use assets | 12 | 2,285,421 | 2,706,368 | ||||
| Inventory | 3,474 | - | |||||
| Property and equipment | 11 | 5,481,406 | 8,732,046 | ||||
| Total Assets | 11,310,973 | 16,001,049 | |||||
| LIABILITIES AND SHAREHOLDERS' DEFICIENCY | |||||||
| Current Liabilities | |||||||
| Accounts payable and accrued liabilities | 3,532,067 | 4,035,983 | |||||
| Income tax payable | 349,608 | 380,863 | |||||
| Interest payable | 593,371 | 357,913 | |||||
| Deferred revenue | 211,484 | 443,500 | |||||
| Customer deposits | 20 | 6,018,686 | 8,526,085 | ||||
| Current portion of lease liabilities | 12 | 109,283 | 206,079 | ||||
| Convertible debentures | 14 | - | 745,000 | ||||
| Loans payable | 15 | 1,074,472 | 1,263,055 | ||||
| Loans from related parties | 17 | 4,380,352 | 4,060,187 | ||||
| 16,269,323 | 20,018,665 | ||||||
| Long-term portion of lease liabilities | 12 | 2,242,568 | 2,497,050 | ||||
| Bonds payable | 16 | 1,787,351 | 1,787,351 | ||||
| Total Liabilities | 20,299,242 | 24,303,066 | |||||
| Shareholders' Deficiency | |||||||
| Share capital | 18 | 16,876,382 | 16,876,382 | ||||
| Share subscriptions | (30,000 | ) | (30,000 | ) | |||
| Contributed surplus | 2,303,721 | 2,303,721 | |||||
| Non-controlling interest | 9 | (3,862,489 | ) | (3,357,287 | ) | ||
| Deficit | (24,095,809 | ) | (23,585,459 | ) | |||
| Accumulated other comprehensive loss | (180,074 | ) | (509,374 | ) | |||
| Total Shareholders' Deficiency | (8,988,269 | ) | (8,302,017 | ) | |||
| Total Equity and Liabilities | 11,310,973 | 16,001,049 | |||||
Approved on behalf of the Board of Directors:
|
"Alejandro Ochoa" |
|
"Robert Nicholas Peter Horsley" |
The accompanying notes are an integral part of these consolidated financial statements.
TOWER ONE WIRELESS CORP.
Consolidated Statements of Comprehensive Loss
(Expressed in Canadian Dollars)
| Three months ended | Six months ended | ||||||||||||
| Note | June 30, 2020 |
June 30, 2019 |
June 30, 2020 |
June 30, 2019 |
|||||||||
| $ | $ | $ | $ | ||||||||||
| Revenues | 22 | 4,150,141 | 266,724 | 6,784,927 | 4,757,709 | ||||||||
| Cost of sales | 2,901,692 | 600,417 | 3,879,616 | 2,569,557 | |||||||||
| 1,248,449 | (333,693 | ) | 2,905,311 | 2,188,152 | |||||||||
| Expenses | |||||||||||||
| Advertising and promotion | 1,206 | - | 4,351 | - | |||||||||
| Amortization | 10, 11, 12 | 345,539 | 168,253 | 688,122 | 240,040 | ||||||||
| Bad debts | (5,400 | ) | - | (5,400 | ) | - | |||||||
| Bank Charges | - | 11,162 | - | 23,754 | |||||||||
| Insurance | - | 22,638 | - | 48,627 | |||||||||
| Interest, financing charges and accretion | 312,447 | 647,347 | 654,753 | 1,045,915 | |||||||||
| Office and miscellaneous | 88,059 | 18,512 | 326,451 | 538,796 | |||||||||
| Permits and licenses | - | 2,705 | - | 4,034 | |||||||||
| Professional fees and consulting | 177,803 | (273,975 | ) | 270,625 | 157,285 | ||||||||
| Travel | 50,700 | 18,175 | 64,526 | 100,127 | |||||||||
| Foreign Exchange | 1,079,367 | - | 1,007,904 | - | |||||||||
| Salaries & Wages | 17 | 540,100 | 900,747 | 1,112,697 | 1,049,196 | ||||||||
| 2,589,821 | 1,515,564 | 4,124,029 | 3,207,774 | ||||||||||
| Loss before other items | (1,341,372 | ) | (1,849,257 | ) | (1,218,718 | ) | (1,019,622 | ) | |||||
| Other items | |||||||||||||
| Other Income/Expense | - | (1,343,717 | ) | - | (1,451,882 | ) | |||||||
| Impairment | 8, 11 | (30,365 | ) | - | (29,994 | ) | - | ||||||
| Gain on net monetary position | 4 | - | 594,007 | 88,147 | 1,174,521 | ||||||||
| (30,365 | ) | (749,711 | ) | 58,153 | (277,361 | ) | |||||||
| Net loss before income taxes | (1,371,737 | ) | (2,598,967 | ) | (1,160,565 | ) | (1,296,983 | ) | |||||
| Current income tax expense | - | - | - | - | |||||||||
| Deferred income tax recovery | - | - | - | - | |||||||||
| Net loss | (1,371,737 | ) | (2,598,967 | ) | (1,160,565 | ) | (1,296,983 | ) | |||||
| Other comprehensive loss: | |||||||||||||
| Item that will not be reclassified to profit or loss | |||||||||||||
| Foreign exchange translation adjustment | 639,644 | 3,217 | 474,313 | 3,217 | |||||||||
| Comprehensive loss | (732,092 | ) | (2,595,750 | ) | (686,252 | ) | (1,293,766 | ) | |||||
| Net loss attributable to: | |||||||||||||
| Shareholders of the Company | (1,052,337 | ) | (2,073,654 | ) | (510,350 | ) | (771,671 | ) | |||||
| Non-controlling interest | (319,400 | ) | (525,312 | ) | (650,215 | ) | (525,312 | ) | |||||
| Net loss | (1,371,737 | ) | (2,598,967 | ) | (1,160,565 | ) | (1,296,983 | ) | |||||
| Other comprehensive loss attributable to: | |||||||||||||
| Shareholders of the Company | 438,520 | (2,898 | ) | 329,300 | (2,898 | ) | |||||||
| Non-controlling interest | 201,124 | (319 | ) | 145,013 | (319 | ) | |||||||
| Other comprehensive loss | 639,644 | (3,217 | ) | 474,313 | (3,217 | ) | |||||||
| Loss per common share - basic and diluted | (0.01 | ) | (0.03 | ) | (0.01 | ) | (0.01 | ) | |||||
| Weighted average common shares outstanding | 94,103,732 | 93,389,446 | 94,103,732 | 93,389,446 | |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
TOWER ONE WIRELESS CORP.
Consolidated Statement of Changes in Equity (Deficiency)
(Expressed in Canadian Dollars)
| Number of Common Shares |
Share Capital |
Subscriptions Receivable |
Contributed Surplus |
Deficit | Accumulated Other Comprehensive Income |
Deficiency Attributable to Equity Shareholders of the Company |
Non- controlling Interest |
Total | |||||||||||||||||||
| $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Balance, December 31, 2016 | 10,000 | 4,300 | - | - | (313,155 | ) | (9,179 | ) | (318,034 | ) | - | (318,034 | ) | ||||||||||||||
| Derecognition of Tower Three shares | (10,000 | ) | - | - | - | - | - | - | - | - | |||||||||||||||||
| Shares issuance to Tower Three shareholders | 30,000,000 | - | - | - | - | - | - | - | - | ||||||||||||||||||
| Recognition of shares issued to Tower One shareholders | 6,735,885 | 1,010,383 | - | - | - | - | 1,010,383 | - | 1,010,383 | ||||||||||||||||||
| Shares issued to Rojo | 500,000 | 175,000 | - | - | - | - | 175,000 | - | 175,000 | ||||||||||||||||||
| Share issued for acquisition of Evolution | 1,500,000 | 480,000 | - | - | - | - | 480,000 | - | 480,000 | ||||||||||||||||||
| Acquisition of Evolution | - | - | - | - | - | - | - | 509,524 | 509,524 | ||||||||||||||||||
| Shares issued for services | 1,000,000 | 340,000 | - | - | - | - | 340,000 | - | 340,000 | ||||||||||||||||||
| Shares issued for cash, net | 15,484,912 | 2,092,651 | - | 142,319 | - | - | 2,234,970 | - | 2,234,970 | ||||||||||||||||||
| Share subscriptions received | - | - | 170,000 | - | - | - | 170,000 | - | 170,000 | ||||||||||||||||||
| Share-based compensation | - | - | - | 3,917,778 | - | - | 3,917,778 | - | 3,917,778 | ||||||||||||||||||
| Exercise of warrants | 3,774,466 | 1,132,340 | - | - | - | - | 1,132,340 | - | 1,132,340 | ||||||||||||||||||
| Exercise of stock options | 11,130,435 | 5,401,212 | - | (2,715,213 | ) | - | - | 2,685,999 | - | 2,685,999 | |||||||||||||||||
| Net loss | - | - | - | - | (9,583,550 | ) | - | (9,583,550 | ) | (280,127 | ) | (9,863,677 | ) | ||||||||||||||
| Other comprehensive loss | - | - | - | - | - | (18,120 | ) | (18,120 | ) | (41,241 | ) | (59,361 | ) | ||||||||||||||
| Balance, December 31, 2017 | 70,125,698 | 10,635,886 | 170,000 | 1,344,884 | (9,896,705 | ) | (27,299 | ) | 2,226,766 | 188,156 | 2,414,922 |
The accompanying notes are an integral part of these consolidated financial statements.
TOWER ONE WIRELESS CORP.
Consolidated Statement of Changes in Equity (Deficiency)
(Expressed in Canadian Dollars)
| Number of Common Shares |
Share Capital |
Subscriptions Received |
Contributed Surplus |
Deficit | Accumulated Other Comprehensive Income |
Deficiency Attributable to Shareholders of the Company |
Non- controlling Interest |
Total | |||||||||||||||||||
| $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||
| Balance, December 31, 2017 | 70,125,698 | 10,635,886 | 170,000 | 1,344,884 | (9,896,705 | ) | (27,299 | ) | 2,226,766 | 188,156 | 2,414,922 | ||||||||||||||||
| Exercise of stock options | 5,600,000 | 2,460,301 | (200,000 | ) | (1,200,301 | ) | - | - | 1,060,000 | - | 1,060,000 | ||||||||||||||||
| Exercise of warrants | 8,665,201 | 2,166,300 | - | - | - | - | 2,166,300 | - | 2,166,300 | ||||||||||||||||||
| Shares issued for services | 525,690 | 110,395 | - | - | - | - | 110,395 | - | 110,395 | ||||||||||||||||||
| Shares issued for subscriptions received | 142,857 | 30,000 | (30,000 | ) | - | - | - | - | - | - | |||||||||||||||||
| Shares issued for debt | 780,000 | 156,000 | - | - | - | - | 156,000 | - | 156,000 | ||||||||||||||||||
| Shares issued for acquisition of Mexmaken | 7,500,000 | 1,312,500 | - | - | - | - | 1,312,500 | 145,833 | 1,458,333 | ||||||||||||||||||
| Share-based compensation | - | - | - | 1,913,692 | - | - | 1,913,692 | - | 1,913,692 | ||||||||||||||||||
| Subscriptions received | - | - | 30,000 | - | - | - | 30,000 | - | 30,000 | ||||||||||||||||||
| Shares issued | 50,000 | 5,000 | - | - | - | - | 5,000 | - | 5,000 | ||||||||||||||||||
| Fair value of warrants issued for bond issuance cost | - | - | - | 28,514 | - | - | 28,514 | - | 28,514 | ||||||||||||||||||
| Equity portion of convertible debentures | - | - | - | 2,673 | - | - | 2,673 | - | 2,673 | ||||||||||||||||||
| Net loss | - | - | - | - | (9,112,971 | ) | - | (9,112,971 | ) | (18,314 | ) | (9,131,285 | ) | ||||||||||||||
| Other comprehensive loss | - | - | - | - | - | (326,928 | ) | (326,928 | ) | (153,204 | ) | (480,132 | ) | ||||||||||||||
| Balance, December 31, 2018 | 93,389,446 | 16,876,382 | (30,000 | ) | 2,089,462 | (19,009,676 | ) | (354,227 | ) | (428,059 | ) | 162,471 | (265,588 | ) | |||||||||||||
| Warrants issued | - | - | - | 608,440 | - | - | 608,440 | - | 608,440 | ||||||||||||||||||
| Obligation to issue warrants | - | - | - | 180,714 | - | - | 180,714 | - | 180,714 | ||||||||||||||||||
| Extinguishment of convertible debenture | - | - | - | (574,895 | ) | - | - | (574,895 | ) | - | (574,895 | ) | |||||||||||||||
| Adjustment on acquisition of controlled subsidiary (note 6) | - | - | - | - | (106,990 | ) | - | (106,990 | ) | 869 | (106,121 | ) | |||||||||||||||
| Adjustment on disposition of controlled subsidiary (note 6) | - | - | - | - | 508,444 | - | 508,444 | (178,047 | ) | 330,397 | |||||||||||||||||
| Net loss | - | - | - | - | (4,977,237 | ) | - | (4,977,237 | ) | (3,170,031 | ) | (8,147,268 | ) | ||||||||||||||
| Other comprehensive loss | - | - | - | - | - | (155,147 | ) | (155,147 | ) | (172,549 | ) | (327,696 | ) | ||||||||||||||
| Balance, December 31, 2019 | 93,389,446 | 16,876,382 | (30,000 | ) | 2,303,721 | (23,585,459 | ) | (509,374 | ) | (4,944,730 | ) | (3,357,287 | ) | (8,302,017 | ) |
TOWER ONE WIRELESS CORP.
Consolidated Statement of Changes in Equity (Deficiency)
(Expressed in Canadian Dollars)
| Number of Common Shares |
Share Capital |
Subscriptions Received |
Contributed Surplus |
Deficit | Accumulated Other Comprehensive Income |
Deficiency Attributable to Shareholders of the Company |
Non- controlling Interest |
Total | |||||||||||||||||||
| $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||
| Balance, December 31, 2019 | 93,389,446 | 16,876,382 | (30,000 | ) | 2,303,721 | (23,585,459 | ) | (509,374 | ) | (4,944,730 | ) | (3,357,287 | ) | (8,302,017 | ) | ||||||||||||
| Net loss | - | - | - | - | 541,987 | - | 541,987 | (330,815 | ) | 211,172 | |||||||||||||||||
| Other comprehensive loss | - | - | - | - | - | (109,220 | ) | (109,220 | ) | (56,111 | ) | (165,331 | ) | ||||||||||||||
| Balance, March 31, 2020 | 93,389,446 | 16,876,382 | (30,000 | ) | 2,303,721 | (23,043,472 | ) | (618,594 | ) | (4,511,963 | ) | (3,744,213 | ) | (8,256,177 | ) | ||||||||||||
| Shares Issued | 714,286 | ||||||||||||||||||||||||||
| Net loss | - | - | - | - | (1,052,337 | ) | - | (1,052,337 | ) | (319,400 | ) | (1,371,737 | ) | ||||||||||||||
| Other comprehensive loss | - | - | - | - | - | 438,520 | 438,520 | 201,124 | 639,644 | ||||||||||||||||||
| Balance, June 30, 2020 | 94,103,732 | 16,876,382 | (30,000 | ) | 2,303,721 | (24,095,809 | ) | (180,074 | ) | (5,125,780 | ) | (3,862,489 | ) | (8,988,269 | ) |
TOWER ONE WIRELESS CORP.
Consolidated Statements of Cash Flows
(Expressed in Canadian Dollars)
| Six months ended | ||||||
| June 30, 2020 | June 30, 2019 | |||||
| $ | $ | |||||
| Cash flows from operating activities | ||||||
| Net loss from continuing operations | (1,160,561 | ) | (1,293,768 | ) | ||
| Item not affection cash: | ||||||
| Amortization | 688,122 | 240,040 | ||||
| Foreign exchange | 1,007,902 | - | ||||
| Gain on net monetary position | (88,147 | ) | - | |||
| Other non cash effect | (414,521 | ) | (66,224 | ) | ||
| Impairment | (38,276 | ) | - | |||
| Changes in non-cash working capital items (Note 23) | (1,767,576 | ) | 1,256,156 | |||
| Cash provided by (used in) operating activities | (1,773,058 | ) | 136,204 | |||
| Cash flows from investing activities | ||||||
| IFRS16 | 306,703 | - | ||||
| Addition of property and equipment | 2,280,119 | (1,993,444 | ) | |||
| Cash provided by (used in) investing activities | 2,586,822 | (1,993,444 | ) | |||
| Cash flows from financing activities | ||||||
| Repayment of convertible debts | (745,000 | ) | - | |||
| Repayment of loans | (425,256 | ) | 472,138 | |||
| Loans from related parties | 556,838 | 1,087,356 | ||||
| Cash provided by (used in) financing activities | (613,418 | ) | 1,559,494 | |||
| Foreign exchange on cash | - | - | ||||
| Change in cash | 200,347 | (297,746 | ) | |||
| Cash, beginning | 56,629 | 346,071 | ||||
| Cash, ending | 256,976 | 48,325 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
|
TOWER ONE WIRELESS CORP. Notes to Consolidated Financial Statements For the Three and Six months ended June 30, 2020 and 2019 (Expressed in Canadian Dollars) |
1. NATURE OF OPERATIONS AND GOING CONCERN
Tower One Wireless Corp. ("Tower One" or the "Company") is a pure-play, build-to-suit ("BTS") tower owner, operator and developer of multitenant communications structures. The Company's primary business is the leasing of space on communications sites to mobile network operators ("MNOs"). The Company offers tower-related services in the largest Spanish speaking countries in Latin America: Argentina, Colombia and Mexico. These tower-related services include site acquisition, zoning and permitting, structural analysis, and construction which primarily supports the Company's site leasing business, including the addition of new tenants and equipment on its sites. A long-term site lease is in hand with a tenant prior to undergoing construction.
Tower One was incorporated under the laws of the Province of British Columbia, Canada on September 12, 2005. On October 14, 2011, the Company became a reporting company in British Columbia and was approved by the Canadian Securities Exchange ("CSE") and commenced trading on November 16, 2011. The Company's registered office is located at Suite 605, 815 Hornby Street, Vancouver, BC, Canada V6Z 2E6.
On January 17, 2017, Tower One completed a Share Exchange Agreement (the "Agreement") with Tower Three SAS ("Tower Three") and the shareholders of Tower Three. According to the Agreement, Tower One acquired Tower Three by issuing shares which resulted in the shareholders of Tower Three obtaining control of the Company (the "Acquisition"). Accordingly, this transaction was recorded as a reverse acquisition for accounting purposes, with Tower Three being identified as the accounting acquirer (Note 5).
These consolidated financial statements have been prepared on the basis of accounting principles applicable to a going concern, and accordingly, do not purport to give effect to adjustments which may be required should the Company be unable to achieve the objectives above as a going concern. The net realizable value of the Company's assets may be materially less than the amounts recorded in these consolidated financial statements should the Company be unable to realize its assets and discharge its liabilities in the normal course of business. At June 30, 2020, the Company had a working capital deficiency of $14,220,803 (2019 - $17,058,758) and an accumulated deficit of $24,095,809 (2019 - $23,585,459) which has been funded primarily by advances from customers related to the development deals in Mexico and Colombia in addition to the profit generated by the sales of towers in Argentina and in Mexico. Ongoing operations of the Company are dependent upon the Company's ability to generate sufficient revenues in the future, receive continued financial support and complete equity financings. These factors raise substantial doubt about the Company's ability to continue as a going concern.
These consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. Such adjustments could be material.
|
TOWER ONE WIRELESS CORP. Notes to Consolidated Financial Statements For the Three and Six months ended June 30, 2020 and 2019 (Expressed in Canadian Dollars) |
2. STATEMENT OF COMPLIANCE AND BASIS OF PRESENTATION
(a) Statement of Compliance
These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB"). These consolidated financial statements were approved and authorized for issue by the Board of Directors on June 15, 2020.
Effective January 1, 2019, the Company adopted IFRS 16 Leases ("IFRS 16"). IFRS 16 was adopted retrospectively with no restatement of comparative periods, as permitted by the transition provisions of the standard (Note 3).
(b) Basis of Presentation and Consolidation
These consolidated financial statements were prepared on a historical cost basis, except for financial instruments classified as fair value through profit or loss. In addition, these consolidated financial statements have been prepared using the accrual basis of accounting, except for cash flow information.
These consolidated financial statements include the accounts of the following entities as at June 30, 2020:
|
Entity |
Country |
Percentage of |
Functional |
|
Tower One Wireless Corp. ("Tower One") |
Canada |
Parent |
Canadian dollar |
|
Tower Two SAS ("Tower Two") |
Argentina |
100% |
Argentina Peso |
|
Tower Three SAS ("Tower Three") |
Colombia |
100% |
Colombian Peso |
|
Tower 3 SA ("Tower 3") |
Argentina |
100% |
Argentina Peso |
|
Innervision SAS ("Innervision") |
Colombia |
100% |
Colombian Peso |
|
Evolution Technology SA ("Evolution") |
Argentina |
65% |
Argentina Peso |
|
Tower Construction & Technical Services, LLC ("TCTS") |
USA |
50% |
US dollar |
|
Comercializadora Mexmaken, S.A. de C.V. ("Mexmaken") |
Mexico |
90% |
Mexican Peso |
These consolidated financial statements include the accounts of the Company and the following subsidiaries as at December 31, 2019:
|
Entity |
Country |
Percentage of |
Functional |
|
Tower One Wireless Corp. ("Tower One") |
Canada |
Parent |
Canadian dollar |
|
Tower Two SAS ("Tower Two") |
Argentina |
100% |
Argentina Peso |
|
Tower Three SAS ("Tower Three") |
Colombia |
100% |
Colombian Peso |
|
Tower 3 SA ("Tower 3") |
Argentina |
100% |
Argentina Peso |
|
Innervision SAS ("Innervision") |
Colombia |
100% |
Colombian Peso |
|
Evolution Technology SA ("Evolution") |
Argentina |
65% |
Argentina Peso |
|
Tower Construction & Technical Services, LLC ("TCTS") |
USA |
50% |
US dollar |
|
Comercializadora Mexmaken, S.A. de C.V. ("Mexmaken") |
Mexico |
90% |
Mexican Peso |
All significant inter-company balances and transactions have been eliminated on consolidation. Subsidiaries are entities controlled by the Company. Control is based on whether an investor has power over the investee, exposure or rights to variable returns from its involvement with the investee, and the ability to use its power over the investee to affect the amount of returns. Non-controlling interests in the net assets are identified separately from the Company's deficiency. The non-controlling interest consists of the non-controlling interest as at the date of the original acquisition plus the noncontrolling interest's share of changes in equity or deficiency since the date of acquisition.
|
TOWER ONE WIRELESS CORP. Notes to Consolidated Financial Statements For the Three and Six months ended June 30, 2020 and 2019 (Expressed in Canadian Dollars) |
2. STATEMENT OF COMPLIANCE AND BASIS OF PRESENTATION (CONTINUED)
(c) Use of Estimates and Judgments
The Company makes estimates and assumptions about the future that affect the reported amounts of assets and liabilities. Estimates and judgments are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Significant areas requiring the use of management estimates include the following:
(i) Intangible Assets - useful lives
The Company records intangible assets purchased in a business combination at their fair value. Determining fair value requires management to use estimates that could be material. Following initial recognition, the Company carries the value of intangible assets at cost less accumulated amortization and any accumulated impairment losses. Amortization is recorded on a straight-line basis based upon management's estimate of the useful life and residual value. The estimates are reviewed at least annually and are updated if expectations change as a result of technical obsolescence or legal and other limits to use. A change in the useful life or residual value will impact the reported carrying value of the intangible assets resulting in a change in related amortization expense.
(ii) Inputs into Black-Scholes model
The Company has applied estimates with respect to the valuation of shares issued for non-cash consideration. Shares are valued first at the fair value of services received, and if this not readily determinable, at the fair value of the equity instruments granted at the date the Company receives the goods or services.
The Company measures the cost of equity-settled transactions with employees by reference to the fair value of services performed, and if the fair value of the services performed is not readily determinable, at the fair value of the equity instruments at the date at which they are granted. Estimating fair value for share-based compensation transactions requires determining the most appropriate valuation model, which is dependent on the terms and conditions of the grant. This estimate also requires determining the most appropriate inputs to the valuation model including the fair value of the underlying common shares, the expected life of the share option, volatility and dividend yield. The fair value of the underlying common shares is assessed as the quoted market price on grant date. The assumptions and models used for estimating fair value for share-based compensation transactions are discussed in Note 18. Actual results may differ from these estimates and assumptions.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised if the revision affects only that period or in the period of the revision and further periods if the review affects both current and future periods.
|
TOWER ONE WIRELESS CORP. Notes to Consolidated Financial Statements For the Three and Six months ended June 30, 2020 and 2019 (Expressed in Canadian Dollars) |
2. STATEMENT OF COMPLIANCE AND BASIS OF PRESENTATION (CONTINUED)
(c) Use of Estimates and Judgments (Continued)
(iii) Property and Equipment - useful lives
Amortization is recorded on a declining balance basis based upon management's estimate of the useful life and residual value. The estimates are reviewed at least annually and are updated if expectations change as a result of the physical condition, technical obsolescence or legal and other limits to use. A change in the useful life or residual value will impact the reported carrying value of towers and equipment resulting in a change in related amortization expense.
(iv) Incremental borrowing rate
The Company uses estimation in determining the incremental borrowing rate used to measure the lease liabilities. This rate represents the rate that the Company would incur to obtain the funds necessary to purchase the asset of a similar value, with similar payment terms and security in similar economic environment.
(v) Allowance for credit losses
The Company provides for doubtful debts by analyzing the historical default experience and current information available about a customer's credit worthiness on an account by account basis. Uncertainty relates to the actual collectability of customer balances that can vary from the Company's estimation. At June 30, 2020, the Company has an allowance for doubtful accounts of $129,101 (2019 - $179,868).
(vi) Discount rate used for convertible debentures
The carrying value of the convertible debentures is subject to management's estimates in determining an appropriate discount rate based on similar instruments with no conversion features.
(vii) Recoverability of asset carrying values
Determining the amount of impairment of goodwill, intangible assets, and property and equipment requires an estimation of the recoverable amount, which is defined as the higher of fair value less the cost of disposal or value in use. Many factors used in assessing recoverable amounts are outside of the control of management and it is reasonably likely that assumptions and estimates will change from period to period.
(viii) Fair value of assets acquired in a business combination
The determination of fair value of assets acquired requires management to make assumptions and estimates about future events. The assumptions and estimates with respect to determining the fair value of the assets acquired require judgment and include estimates of future cash flows.
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TOWER ONE WIRELESS CORP. Notes to Consolidated Financial Statements For the Three and Six months ended June 30, 2020 and 2019 (Expressed in Canadian Dollars) |
2. STATEMENT OF COMPLIANCE AND BASIS OF PRESENTATION (CONTINUED)
(c) Use of Estimates and Judgments (Continued)
Use of Judgments
Critical accounting judgments are accounting policies that have been identified as being complex or involving subjective judgments or assessments with a significant risk of material adjustment in the year:
(i) Going concern
The assessment of whether the going concern assumption is appropriate requires management to take into account all available information about the future, which is at least, but not limited to, twelve months from the end of the reporting period. The Company is aware that material uncertainties related to events or conditions may cast significant doubt upon the Company's ability to continue as a going concern. Further information regarding going concern is outlined in Note 1.
(ii) Income taxes
The measurement of income taxes payable and deferred income tax assets and liabilities requires management to make judgments in the interpretation and application of the relevant tax laws. The actual amount of income taxes only becomes final upon filing and acceptance of the tax return by the relevant tax authorities, which occurs subsequent to the issuance of the consolidated financial statements.
(iii) Determination of control in business acquisitions
The determination of the acquirer in business acquisitions is subject to judgment and requires the Company to determine which party obtains control of the combining entities. Management applies judgment in determining control by assessing the following three factors: whether the Company has power; whether the Company has exposure or rights to variable returns; and whether the Company has the ability to use its power to affect the amount of its returns. In exercising this judgment, management reviewed the representation on the Board of Directors and key management personnel, the party that initiated the transaction, and each of the entities' activities.
The assessment of whether an acquisition constitutes a business is also subject to judgment and requires the Company to review whether the acquired entity contains all three elements of a business, including inputs, processes and the ability to create output.
(iv) Intangible Assets - impairment
The application of the Company's accounting policy for intangible assets expenditures requires judgment in determining whether it is likely that future economic benefits will flow to the Company, which may be based on assumptions about future events or circumstances. Estimates and assumptions may change if new information becomes available. If, after expenditures are capitalized, information becomes available suggesting that the recovery of expenditures is unlikely, the amount capitalized is written off in profit or loss in the period the new information becomes available.
|
TOWER ONE WIRELESS CORP. Notes to Consolidated Financial Statements For the Three and Six months ended June 30, 2020 and 2019 (Expressed in Canadian Dollars) |
2. STATEMENT OF COMPLIANCE AND BASIS OF PRESENTATION (CONTINUED)
(c) Use of Estimates and Judgments (Continued)
(v) Compound financial instruments
In accordance with the substance of the contractual arrangement, convertible debentures are compound financial instruments that are accounted for separately by their components: a financial liability and an equity instrument.
The identification of convertible debenture components is based on interpretations of the substance of the contractual arrangement and therefore requires judgment from management. The separation of the components affects the initial recognition of the convertible debenture at issuance and the subsequent recognition of interest on the liability component. The determination of the fair value of the liability is also based on a number of assumptions, including contractual future cash flows, discount factors and the presence of any derivative financial instruments.
(vi) Asset held-for-sale and discontinued operations
Judgment is required in determining whether an asset meets the criteria for classification as "assets held for sale" in the consolidated statements of financial position. Criteria considered by management include the existence of and commitment to a plan to dispose of the assets, the expected selling price of the assets, the expected timeframe of the completion of the anticipated sale and the period of time any amounts have been classified within assets held for sale. The Company reviews the criteria for assets held for sale each period and reclassifies such assets to or from this financial position category as appropriate. In addition, there is a requirement to periodically evaluate and record assets held for sale at the lower of their carrying value and fair value less costs to sell.
Judgment is applied in determining whether disposal groups represent a component of the entity, the results of which should be recorded as discontinued operations in the consolidated statements of comprehensive loss.
(vii) Property and Equipment and intangibles - impairment
At the end of each reporting period, management makes a judgment whether there are any indications of impairment of its property and equipment and intangibles. If there are indications of impairment, management performs an impairment test on a cash-generating unit basis. The impairment test compares the recoverable amount of the asset to its carrying amount. The recoverable amount is the higher of the asset's value in use (present value of the estimated future cash flows) and its estimated fair value less costs of disposal.
(viii) Determination of functional currency and hyperinflationary economies
The determination of the functional currency for the Company and its subsidiaries was based on management's judgment of the underlying transactions, events and conditions relevant to each entity. The determination of whether an entity operates in a hyperinflationary economy was based on management's judgment of the underlying economic condition of the country the entity operates in.
(ix) Application of IFRS 16
The Company applies judgment in determining whether the contract contains an identified asset, whether the Company has the right to control the asset, and the lease term. The lease term is based on considering facts and circumstances, both qualitative and quantitative, that can create economic incentive to exercise renewal options.
|
TOWER ONE WIRELESS CORP. Notes to Consolidated Financial Statements For the Three and Six months ended June 30, 2020 and 2019 (Expressed in Canadian Dollars) |
2. STATEMENT OF COMPLIANCE AND BASIS OF PRESENTATION (CONTINUED)
(c) Use of Estimates and Judgments (Continued)
(x) Modification versus extinguishment of financial liability
Judgment is required in applying IFRS 9 Financial Instruments to determine whether the amended terms of the loan agreement is a substantial modification of an existing financial liability and whether it should be accounted for as an extinguishment of the original financial liabilities.
3. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies used in the preparation of these consolidated financial statements:
Loss per share
Basic loss per share is computed by dividing the net loss for the period by the weighted average number of common shares outstanding during the period. To compute diluted loss per share, adjustments are made to common shares outstanding. The weighted average number of common shares outstanding is adjusted to include the number of additional common shares that would be outstanding if, at the beginning of the period or at time of issuance, all options and warrants were exercised. The proceeds from exercise are assumed to be used to purchase the Company's common shares at their average market price during the period. For the years presented, this calculation proved to be anti-dilutive.
Revenue recognition
The Company's leasing revenue is derived from lease arrangements to obtain rights to use the Company's equipment.
Leases in which a significant portion of the risks and rewards of ownership are retained by the Company are classified as operating leases. Assets under operating leases are included in property and equipment. Leasing revenue from operating leases is recognized as the leasing services are provided.
The Company earns revenue from tower sales. Tower sales revenue is recognized when the control over goods is transferred to the customer. As such, the revenue is recognized after: the contract is identified; performance obligations are identified; the transaction price is determined; the transaction price is allocated to the various performance obligations (if multiple performance obligations are identified); and ultimately, once the performance obligation is satisfied.
The Company also earns revenues from installation, technical and maintenance services. Unbilled revenues represents services performed but not yet billed.
|
TOWER ONE WIRELESS CORP. Notes to Consolidated Financial Statements For the Three and Six months ended June 30, 2020 and 2019 (Expressed in Canadian Dollars) |
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Foreign currency translation
The results and financial position of a subsidiary whose functional currency is not the currency of a hyperinflationary economy is translated into the presentation currency using the following procedures:
i. Assets and liabilities for each statement of financial position presented (i.e. including comparatives) are translated at the closing rate at the date of the statement of financial position;
ii. Income and expenses for each statement presenting profit or loss and other comprehensive income (i.e. including comparatives) are translated at exchange rates at the dates of the transactions; and
iii. All resulting exchange differences are recognized in other comprehensive income.
For practical reasons, a rate that approximates the exchange rates at the dates of the transactions, for example an average rate for the period, is often used to translate income and expense items.
For the period ended June 30, 2020, an unrealized foreign exchange translation loss of $639,644(for the period ended June 30 2019 - $3,217) was recorded under accumulated other comprehensive loss as a result of changes in the value of the Colombian Peso, Argentina Peso, Mexican Peso and US dollars with respect to the Canadian dollar.
The results and financial position of a subsidiary whose functional currency is the currency of a hyperinflationary economy are translated into the presentation currency using the following procedures:
i. All amounts (i.e. assets, liabilities, equity items, income and expenses, including comparatives) are translated at the closing rate at the date of the statement of financial position, except that
ii. When amounts are translated into a non-hyperinflationary presentation currency (i.e. CAD), comparative amounts remain unchanged from those reported in the prior periods.
When an entity's functional currency is the currency of a hyperinflationary economy, the entity shall restate its financial statements in accordance with IAS 29 Financial Reporting in Hyperinflationary Economies before applying the translation method described above. When the economy ceases to be hyperinflationary and the entity no longer restates its financial statements in accordance with IAS 29, it shall use as the historical costs for translation into the presentation currency the amounts restated to the price level at the date the entity ceased restating its financial statements.
Property and equipment
Property and equipment is stated at cost less accumulated amortization and accumulated impairment loss. Amortization expense for towers begins in the month of transfer of each tower from construction in progress to towers. Costs not clearly related to the procurement, manufacturing and implementation are expensed as incurred.
Towers represent cellular towers owned by the Company. The towers are operated at various sites and under contractual license agreements.
Costs of assets in the course of construction are capitalized as construction in progress. Upon completion, the cost of construction is transferred to the appropriate category of property and equipment and amortization commences when the asset is available for its intended use.
An asset's residual value, useful life and amortization method are reviewed at each financial year end and adjusted if appropriate. When parts of an item of equipment have different useful lives, they are accounted for as separate items (major components) of equipment.
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TOWER ONE WIRELESS CORP. Notes to Consolidated Financial Statements For the Three and Six months ended June 30, 2020 and 2019 (Expressed in Canadian Dollars) |
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Gains and losses on disposal of an item of equipment are determined by comparing the proceeds from disposal with the carrying amount of the equipment and are recognized in profit or loss.
Intangible assets
Intangible assets consist of master lease agreement acquired by the Company. Acquired lease agreements are carried at cost less accumulated amortization and impairment. Intangible assets with indefinite lives are not amortized but are tested annually for impairment. Any impairment of intangible assets is recognized in the consolidated statement of comprehensive loss but increases in intangible asset values are not recognized.
Amortization expense for intangible assets is calculated on the straight-line basis over its estimated useful life. Estimated useful lives of intangible assets are the shorter of the economic life and the period the right is legally enforceable. The assets' useful lives are reviewed, and adjusted if appropriate, at each statement of financial position date. The useful life of the Company's intangible assets, consisting of master lease agreements, is estimated to be 10 years.
Impairment
Non-financial assets are tested for impairment whenever events or changes in circumstances indicate that an asset's carrying amount may be less than its recoverable amount. Management uses its judgment to estimate these inputs and any changes to these inputs could have a material impact on the impairment calculation. For impairment testing, non-financial assets that do not generate independent cash flows are grouped together into CGU, which represent the levels at which largely independent cash flows are generated. An impairment loss is recognized in earnings to the extent that the carrying value of an asset, CGU or group of CGU's exceeds its estimated recoverable amount. The recoverable amount of an asset, CGU or group of CGU's is the greater of its value in use and its fair value less cost to sell. Value in use is calculated as the present value of the estimated future cash flows discounted at appropriate pre-tax discount rates. An impairment loss relating to a specific asset reduces the carrying value of the asset. An impairment loss relating to a group of CGU's is allocated on a pro-rata basis to reduce the carrying value of the assets in the units comprising the group. A previously recognized impairment loss related to non-financial assets is assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss related to non-financial assets is reversed if there is a subsequent increase in the recoverable amount. An impairment loss is reversed only to the extent that the asset's carrying value does not exceed the carrying value that would have been determined, net of depreciation or amortization, if no loss had been recognized.
Share capital
Common shares are classified as equity. Transaction costs directly attributable to the issue of common shares and share options are recognized as a deduction from equity, net of any tax effects. Common shares issued for consideration other than cash, are valued based on their market value at the date the shares are issued.
The Company has adopted a residual value method with respect to the measurement of shares and warrants issued as private placement units. The residual value method first allocates value to the more easily measurable component based on fair value and then the residual value, if any, to the less easily measurable component. The Company considers the fair value of common shares issued in a private placement to be the more easily measurable component and the common shares are valued at their fair value, as determined by the closing quoted bid price on the announcement date. The balance, if any, is allocated to the attached warrants. Any fair value attributed to the warrants is recorded as contributed surplus.
Share-based compensation
Share-based compensation to employees are measured at the fair value of the instruments issued and amortized over the vesting periods. Share-based compensation to non-employees are measured at the fair value of the goods or services received or the fair value of the equity instruments issued, if it is determined the fair value of the goods or services cannot be reliably measured, and are recorded at the date the goods or services are received. The amount recognized as an expense is adjusted to reflect the number of awards expected to vest. The offset to the recorded cost is to contributed surplus. Consideration received on the exercise of stock options is recorded as share capital and the related amount in contributed surplus is transferred to share capital. Charges for options that are forfeited before vesting are reversed from contributed surplus. For those options that expire or are forfeited after vesting, the recorded value is transferred to deficit.
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TOWER ONE WIRELESS CORP. Notes to Consolidated Financial Statements For the Three and Six months ended June 30, 2020 and 2019 (Expressed in Canadian Dollars) |
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income taxes
Income tax expense consisting of current and deferred tax expense is recognized in the consolidated statement of comprehensive loss. Current tax expense is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at period-end, adjusted for amendments to tax payable with regard to previous years.
Deferred tax assets and liabilities and the related deferred income tax expense or recovery are recognized for deferred tax consequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using the enacted or substantively enacted tax rates expected to apply when the asset is realized or the liability settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that substantive enactment occurs.
A deferred tax asset is recognized to the extent that it is probable that future taxable profits will be available against which the asset can be utilized. To the extent that the Company does not consider it probable that a deferred tax asset will be recovered, the deferred tax asset is reduced. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Company intends to settle its current tax assets and liabilities on a net basis.
Provisions
Provisions are recorded when a present legal or constructive obligation exists as a result of past events where it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be made. The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the statement of financial position date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows. When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, the receivable is recognized as an asset if it is virtually certain that reimbursement will be received and the amount receivable can be measured reliably.
Financial instruments
Financial assets - Classification
The Company classifies its financial assets in the following categories:
The classification depends on the Company's business model for managing the financial assets and the contractual terms of the cash flows. For assets measured at fair value, gains and losses are either recorded in profit or loss or OCI.
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TOWER ONE WIRELESS CORP. Notes to Consolidated Financial Statements For the Three and Six months ended June 30, 2020 and 2019 (Expressed in Canadian Dollars) |
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Financial assets - Measurement
At initial recognition, the Company measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss ("FVTPL"), transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at FVTPL are expensed in profit or loss. Financial assets are considered in their entirety when determining whether their cash flows are solely payment of principal and interest.
Subsequent measurement of financial assets depends on their classification.
The Company has classified its cash, amounts receivables and other receivable as FVTPL.
Financial liabilities
The Company classifies its financial liabilities into the following categories:
A financial liability is classified as at FVTPL if it is classified as held-for-trading or is designated as such on initial recognition. Directly attributable transaction costs are recognized in profit or loss as incurred. The fair value changes to financial liabilities at FVTPL are presented as follows:
The Company does not designate any financial liabilities at FVTPL.
Other non-derivative financial liabilities are initially measured at fair value less any directly attributable transaction costs. Subsequent to initial recognition, these liabilities are measured at amortized cost using the effective interest method.
The Company has classified its bank indebtedness, accounts payable and accrued liabilities, interest payable, convertible debentures, loans payable, loans from related parties, customer deposits, bonds payable and lease liability as amortized cost.
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TOWER ONE WIRELESS CORP. Notes to Consolidated Financial Statements For the Three and Six months ended June 30, 2020 and 2019 (Expressed in Canadian Dollars) |
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Financial instruments (Continued)
Convertible debentures
The component parts of compound instruments (convertible debentures) issued by the Company are classified separately as financial liabilities and equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.
Conversion option that will be settled by the exchange of a fixed amount of cash or another financial asset for a fixed number of the Company's own equity instruments is an equity instrument.
At the date of issue, the fair value of the liability component is estimated using the prevailing market interest rate for similar non-convertible instruments. This amount is recorded as a liability on an amortized cost basis using the effective interest method until extinguished upon conversion or at the instrument's maturity date.
The conversion option classified as equity is determined by deducting the amount of the liability component from the fair value of the compound instrument as a whole. This is recognized and included in equity, net of income tax effects, and is not subsequently remeasured. In addition, the conversion option classified as equity will remain in equity until the conversion option is exercised, in which case, the balance recognized in equity will be transferred to share capital. When the conversion option remains unexercised at the maturity date of the convertible note, the balance recognized in equity will be transferred to retained earnings. No gain or loss is recognized in the profit or loss upon conversion or expiration of the conversion option.
Transaction costs that relate to the issue of the convertible notes are allocated to the liability and equity components in proportion to the allocation of the gross proceeds. Transaction costs relating to the equity component are recognized directly in equity. Transaction costs relating to the liability component are included in the carrying amount of the liability component and are amortized over the lives of the convertible notes using the effective interest method.
Substantial modification of convertible debentures
Modification is deemed to be substantial if the net present value of the cash flows under the modified terms, including any fees paid or received, is a least 10 percent different from the net present value of the remaining cash flows of the liability prior to the modification, both discounted at the original effective interest rate of the liability prior to the modification. A substantial modification of the terms of an existing financial liability is accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability.
The consideration paid, represented by the fair value of the modified convertible debentures are allocated to the liability and equity components of the original convertible debentures at the date of the extinguishment. The method used in allocating the consideration paid and transaction costs to the separate components of the original convertible debentures is consistent with that used in the original allocation to the separate components of the original convertible debentures of the proceeds received by the Company when the original convertible debentures were issued.
Once the allocation of the consideration is made, any resulting gain or loss is treated as follows:
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TOWER ONE WIRELESS CORP. Notes to Consolidated Financial Statements For the Three and Six months ended June 30, 2020 and 2019 (Expressed in Canadian Dollars) |
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
On January 1, 2019, the Company adopted the following accounting pronouncements retrospectively with no restatement of comparative periods:
IFRS 16 Leases
The following is the new accounting policy for leases under IFRS 16.
At inception, the Company assesses whether a contract contains an embedded lease. A contract contains a lease when the contract conveys a right to control the use of an identified asset for a period of time in exchange for consideration.
The Company, as lessee, is required to recognize a right-of-use asset ("ROU asset"), representing its right to use the underlying asset, and a lease liability, representing its obligation to make lease payments.
The Company recognizes a ROU asset and a lease liability at the commencement of the lease. The ROU asset is initially measured based on the present value of lease payments, plus initial direct cost, less any incentives received. It is subsequently measured at cost less accumulated amortization, impairment losses and adjusted for certain remeasurements of the lease liability. The ROU asset is amortized from the commencement date over the shorter of the lease term or the useful life of the underlying asset. The ROU asset is subject to testing for impairment if there is an indicator of impairment.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted by the interest rate implicit in the lease, or if that rate cannot be readily determined, the incremental borrowing rate. The incremental borrowing rate is the rate which the operation would have to pay to borrow over a similar term and with similar security, the funds necessary to obtain an asset of similar value to the ROU asset in a similar economic environment.
Lease payments included in the measurement of the lease liability are comprised of:
• fixed payments, including in-substance fixed payments;
• variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date;
• amounts expected to be payable under a residual value guarantee;
• the exercise price under a purchase option that the Company is reasonably certain to exercise;
• lease payments in an optional renewal period if the Company is reasonably certain to exercise an extension option;
• penalties for early termination of a lease unless the Company is reasonably certain not to terminate early; and
• restoration costs that will incur at the end of the lease term.
The lease liability is subsequently increased by the interest cost on the lease liability and decreased by lease payments made. It is remeasured when there is a change in future lease payments arising from a change in an index or a rate, a change in the estimate of the amount expected to be payable under a residual value guarantee, or as appropriate, changes in the assessment of whether a purchase or extension option is reasonably certain to be exercised or a termination option is reasonably certain not to be exercised.
Variable lease payments that do not depend on an index or a rate not included in the initial measurement of the ROU asset and lease liability are recognized as an expense in profit or loss the in the period in which they are incurred.
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TOWER ONE WIRELESS CORP. Notes to Consolidated Financial Statements For the Three and Six months ended June 30, 2020 and 2019 (Expressed in Canadian Dollars) |
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
IFRS 16 Leases (Continued)
The ROU assets are presented within "Right-of-use assets" and the lease liabilities are presented in "Lease liability" on the consolidated statements of financial position.
The comparative figures for the 2018 reporting period have not been restated and are accounted for under IAS 17 Leases, and IFRIC 4 Determining Whether an Arrangement Contains a Lease, as permitted under the specific transitional provisions in the standard.
The Company applied the exemption not to recognize ROU assets and lease liabilities for leases with less than 12 months of lease term and leases for low-value assets when applying IFRS 16 to leases previously classified as operating leases under IAS 17.
The Company has land leases for its towers built on them and is classified as operating leases under IAS 17. Upon transition to IFRS 16, these lease liabilities were measured at the present value of the remaining lease payments and discounted using an incremental borrowing rate of 15% for Tower 3 and Mexmaken, and 35% for Evolution as of January 1, 2019. As a result, the Company, as a lessee, has recognized $1,374,800 as a lease liability, representing its obligation to make lease payments. A ROU asset of the same amount was recognized as a Right-of-use Asset, representing its right to use the underlying asset.
The following table summarizes the difference between the operating lease commitments disclosed immediately preceding the date of initial application and lease liability recognized on the consolidated statements of financial position at the date of initial application:
| Operating lease liability as at December 31, 2018 | $ | 3,657,296 | |
| Effect of discounting at incremental borrowing rate | (2,282,496 | ) | |
| Lease liability recognized as of January 1, 2019 | $ | 1,374,800 |
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TOWER ONE WIRELESS CORP. Notes to Consolidated Financial Statements For the Three and Six months ended June 30, 2020 and 2019 (Expressed in Canadian Dollars) |
4. HYPERINFLATION
In July 2018, the Argentine three-year cumulative rate of inflation for consumer prices and wholesale prices reached a level in excess of 100%. As a result, in accordance with IAS 29, Financial Reporting in Hyperinflationary Economies ("IAS 29") Argentina was considered a hyperinflationary economy, effective July 1, 2018. Accordingly, the presentation of the Company's consolidated financial statements includes adjustments and reclassifications for the changes in the general purchasing power of the Argentine peso.
On the application of IAS 29, the Company used the conversion coefficient derived from the combination of the "IPC Nacional and the IPIM" (the national consumer price index and the national wholesale price index) published by the National Statistics and Census Institution in Argentina. Furthermore, a formal resolution (number 539/018) from de "FACPCE" (Federación Argentina de Consejos Profesionales de Ciencias Económicas) was issued and has been followed in the calculations.
As the consolidated financial statements of the Company have been previously presented in Canadian dollars, a stable currency, the comparative period amounts do not require restatement.
The level of the IPC at June 30, 2020 was 321.99 (2019 - 283.44), which represents an increase of 13.6% over the IPC at December 31, 2019.
Monetary assets and liabilities are not restated because they are already expressed in terms of the monetary unit current as at June 30, 2020. Non-monetary assets, liabilities, equity, and expenses (items that are not already expressed in terms of the monetary unit as at June 30, 2020) are restated by applying the index at the end of the reporting period. The effect of inflation on the Argentine subsidiary's net monetary position is included in the consolidated statements of loss as a gain on net monetary position.
The application of IAS 29 results in the adjustment for the loss of purchasing power of the Argentine peso recorded in the consolidated statements of comprehensive loss. In a period of inflation, an entity holding an excess of monetary assets over monetary liabilities loses purchasing power, which results in a loss on the net monetary position. This loss/gain is derived as the difference resulting from the restatement of non-monetary assets, liabilities and equity.
As per IAS 21, The Effects of Changes in Foreign Exchange Rates, all amounts (i.e. assets, liabilities, equity and expenses) are translated at the closing foreign exchange rate at the date of the most recent consolidated statement of financial position, except that comparative amounts are not adjusted for subsequent changes in the price level or subsequent changes in exchange rates. Similarly, in the period during which the functional currency of a foreign subsidiary becomes hyperinflationary and applies IAS 29 for the first time, the parent's consolidated financial statements for the comparative period are not restated for the effects of hyperinflation.
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TOWER ONE WIRELESS CORP. Notes to Consolidated Financial Statements For the Three and Six months ended June 30, 2020 and 2019 (Expressed in Canadian Dollars) |
5. REVERSE ACQUISITION AND LISTING EXPENSE
On January 12, 2017, the Company completed the transactions described in Note 1 by issuing 30,000,000 common shares to the shareholders of Tower Three. For accounting purposes, the Acquisition is considered to be outside the scope of IFRS 3 Business Combinations since Tower One was inactive prior to the Acquisition and were limited to the management of cash resources and the maintenance of its listing and accordingly did not constitute a business. The Acquisition is accounted for in accordance with IFRS 2 Share-based Payment whereby Tower Three is deemed to have issued shares in exchange for the net assets or liabilities of Tower One together with its listing status at the fair value of the consideration received by Tower Three.
Since the share and share-based consideration allocated to the former shareholders of the Company on closing the Acquisition is considered within the scope of IFRS 2, and the Company cannot identify specifically some or all of the goods or service received in return for the allocation of the shares, the value in excess of the net identifiable assets or obligations plus liabilities assumed by the Company acquired on closing was expensed in the statement of comprehensive loss as listing expense.
The Company is deemed to have issued 6,735,885 common shares of Tower Three at $0.15 per common share for a fair value of $1,010,383, which is included as consideration to the former shareholders of the Company. The $0.15 value for the above-mentioned shares was based on the fair value from the concurrent private placement. The fair value of all the consideration given and charged to listing expense was comprised of:
| $ | |||
| Fair value of share based consideration allocated: | |||
| Deemed share issuance | 1,010,383 | ||
| Identifiable net obligations assumed: | |||
| Cash and cash equivalent | 1,378,183 | ||
| Subscriptions received for private placement | (1,602,257 | ) | |
| Other assets | 230,097 | ||
| Liabilities | (139,807 | ) | |
| Total | (133,784 | ) | |
| Total listing expense | 1,144,167 |
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TOWER ONE WIRELESS CORP. Notes to Consolidated Financial Statements For the Three and Six months ended June 30, 2020 and 2019 (Expressed in Canadian Dollars) |
6. TOWER CONSTRUCTION & TECHNICAL SERVICES, INC.
On October 18, 2017, the Company entered into an Escrow Agreement with the shareholders of Tower Construction & Technical Services, Inc. ("TCTS") to acquire 70% ownership interest in TCTS.
To obtain the 70% ownership interest, the Company committed to operate the business and manage its financial affairs. No cash consideration or equity instruments were issued on this acquisition. The Company determined that the acquisition of TCTS constituted a business combination as it has inputs, processes and outputs. As such, the Company has applied the acquisition method of accounting.
The following table presents assets and liabilities based on their estimated fair values, which is the same as the carrying values, at the date of the acquisition of 70% ownership interests:
| $ | |||
| Liabilities assumed: | |||
| Bank indebtedness | (52,042 | ) | |
| Accounts payable | (5,201 | ) | |
| Due to related parties | (127,655 | ) | |
| Net liabilities of TCTS | (184,898 | ) | |
| Net assets attributed to non-controlling interest | - | ||
| Net liabilities assumed | (184,898 | ) |
The excess of net liabilities over consideration paid was written off to loss on investments as the future profitability of TCTS is uncertain.
On March 1, 2019, the Company entered into an agreement to acquire the remaining 30% ownership interest of TCTS for total purchase price of $106,121 (US$80,000). As the Company previously controlled TCTS, the transaction resulted in a change to the Company ownership stake and was accounted for as an equity transaction. The $106,990 difference between the acquisition of $869 non-controlling interest and $106,121 fair value of consideration paid was recognized directly in deficit.
On August 1, 2019, the Company entered into a Joint Venture Agreement with a third party, Enervisa US LLC ("Enervisa") and sold 50% of outstanding shares of TCTS for $330,397 (US$250,000) to fund the operation of TCTS. The Company determines that the sale of the 50% of TCTS shares did not constitute a loss of control. The issuance of the shares is accounted for an equity transaction and resulting a non-controlling interest of $698,030. The non-controlling interest consists of $519,983 of Enervisa's share of TCTS's net loss for the period from January 1, 2019 to August 1, 2019 which is included in net attributable to non-controlling interests on the consolidated statement of changes in equity (deficiency). As at June 30, 2020, the Company has received $330,397 for the sale of 50% of the outstanding shares of TCTS.
7. ACQUISITION OF INNERVISION TELECOM S.A.S ("INNERVISION")
As at December 31, 2018, the Company owned 90% of Innervision through its wholly owned subsidiary Tower Three S.A.S ("Tower Three").
In October 2019, the Company completed the acquisition of the remaining common shares of Innervision not previously owned by Tower Three. The Company acquired the remaining 10% interest for total purchase price of $2,685 ($7,000,000 Colombian Peso). As the Company previously controlled Innervision, the transaction resulted in a change to the Company's ownership stake and was accounted for as an equity transaction. The difference between the non-controlling interest and the fair value of consideration paid was recognized directly in deficit.
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TOWER ONE WIRELESS CORP. Notes to Consolidated Financial Statements For the Three and Six months ended June 30, 2020 and 2019 (Expressed in Canadian Dollars) |
8. ACQUISITION OF COMERCIALIZADORA MEXMAKEN, S.A. DE C.V.
On April 3, 2018, the Company entered into a Share Purchase Offer Agreement with the shareholders of Comercializadora Mexmaken, S.A. de C.V. ("Mexmaken") to acquire a 90% ownership interest. Since its incorporation on September 9, 2015, Mexmaken has obtained two Master Lease Agreement ("MLA") with major Mexican telecom operators, one of which was acquired prior to the Company's acquisition of Mexmaken.
To obtain the 90% ownership interest, the Company issued 7,500,000 common shares with a fair value of $1,312,500 to the shareholders of Mexmaken. As part of the acquisition of Mexmaken, the Company also issued common shares to a related party, who was a controlling shareholder of Mexmaken.
The Company determined that the acquisition of Mexmaken constituted a business combination as Mexmaken has inputs, processes and outputs. As such the Company has applied the acquisition method of accounting. As part of the acquisition of Mexmaken, the Company acquired Mexmaken's master lease agreement, which was recorded as an intangible asset.
The following table presents the allocation of the purchase price to the assets acquired and liabilities assumed based on their estimated fair values, which is the same as the carrying values, at the date of acquisition and resulting goodwill:
| $ | |||
| Fair value of common shares issued | 1,312,500 | ||
| Total consideration | 1,312,500 | ||
| Assets acquired: | |||
| Cash | 18,436 | ||
| Amounts receivable and prepaid expenses | 20,463 | ||
| Construction in progress | 91,339 | ||
| Furniture and equipment | 2,741 | ||
| Intangible assets | 428,000 | ||
| Goodwill | 1,315,258 | ||
| Less: liabilities assumed | |||
| Accounts payable | (356,404 | ) | |
| Deferred income tax liability | (61,500 | ) | |
| Net assets of Mexmaken | 1,458,333 | ||
| Net assets attributed to non-controlling interest | (145,833 | ) | |
| Net assets acquired | 1,312,500 |
As at December 31, 2018, the Company completed an impairment analysis in accordance with IAS 36 and determined that the carrying value of the Mexmaken CGU exceeded its fair value based on its value in use. As a result, the Company recognized impairment of $2,132,942, including $1,315,258 of goodwill, $461,597 of property and equipment, $417,587 of intangible asset, and recorded a recovery of deferred income taxes of $61,500.
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TOWER ONE WIRELESS CORP. Notes to Consolidated Financial Statements For the Three and Six months ended June 30, 2020 and 2019 (Expressed in Canadian Dollars) |
9. NON-CONTROLLING INTEREST (NCI)
The following table presents the summarized financial information for Evolution, TCTS and Mexmaken, the Company's subsidiaries which have NCI's. This information represents amounts before intercompany eliminations.
| June 30, 2020 | |||
| $ | |||
| Current assets | 1,290,724 | ||
| Non-current assets | 6,018,940 | ||
| Current liabilities | 12,754,360 | ||
| Non-current liabilities | 1,464,737 | ||
| Revenues for the period ended | 3,996,096 | ||
| Net loss for the period ended | 1,054,612 | ||
| The net change in non-controlling interest is as follows: | Total | ||
| $ | |||
| Balance, December 31, 2019 | (3,357,287 | ) | |
| Share of loss for the period | (330,815 | ) | |
| Currency translation adjustment | (56,111 | ) | |
| Balance, March 31, 2020 | (3,744,213 | ) | |
| Change in ownership interest | - | ||
| Share of loss for the period | (319,400 | ) | |
| Currency translation adjustment | 201,124 | ||
| Balance, June 30, 2020 | (3,862,489 | ) |
As of June 30, 2020, the Company held a 50% ownership in TCTS, 90% ownership in Mexmaken and 65% ownership in Evolution with $998,004, $28,551 and $2,835,935 NCI balance, respectively.
The Company has recasted comparative information as at December 31, 2018 for the non-controlling interest, to correct losses attributed to non-controlling interests during the year ended December 31, 2019. As a result, the deficiency attributable to shareholders of the company decreased by $223,612 and the non-controlling interest increased by the same amount. There was no impact to the Company's cash flows or profit or loss for the year ended December 31, 2018 and no impact to the consolidated financial statements for the year ended December 31, 2017.
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TOWER ONE WIRELESS CORP. Notes to Consolidated Financial Statements For the Three and Six months ended June 30, 2020 and 2019 (Expressed in Canadian Dollars) |
10. INTANGIBLE ASSETS
| Master lease agreements |
|||
| $ | |||
| Cost | |||
| Balance, December 31, 2017 | 1,982,354 | ||
| Acquired through the acquisition of Mexmaken | 428,000 | ||
| Impairment | (428,000 | ) | |
| Balance, December 31, 2018 and 2019 | 1,982,354 | ||
| - | |||
| Balance, June 30, 2020 | 1,982,354 | ||
| Accumulated amortization | |||
| Balance, December 31, 2017 | 59,471 | ||
| Additions | 89,707 | ||
| Impairment | (10,413 | ) | |
| Balance, December 31, 2018 | 138,765 | ||
| Additions | 240,861 | ||
| Balance, December 31, 2019 | 379,626 | ||
| Additions | 110,576 | ||
| Balance, June 30, 2020 | 490,202 | ||
| Net book value | |||
| December 31, 2019 | 1,602,728 | ||
| June 30, 2020 | 1,492,152 |
During the year ended December 31, 2018, due primarily to the lack of revenue generated from the acquired intangible assets, an indicator of impairment existed leading to a test of recoverable amount of the asset. A value in use calculation is not applicable as the Company does not have any expected cash flows from using the asset. In estimating the fair value less costs of disposal, management did not have observable or unobservable inputs to estimate the recoverable amount greater than $nil. As this valuation technique requires management's judgment and estimates of the recoverable amount, it is classified within Level 3 of the fair value hierarchy.
11. PROPERTY AND EQUIPMENT
During the periods ended June 30, 2020 and June 30, 2019, due primarily to the cancellation of tenant lease agreements, an indicator of impairment existed leading to a test of recoverable amount of the assets. A value in use calculation is not applicable as the Company does not have any expected cash flows from using the assets. In estimating the fair value less costs of disposal, management did not have observable or unobservable inputs to estimate the recoverable amount greater than $nil. As this valuation technique requires management's judgment and estimates of the recoverable amount, it is classified within Level 3 of the fair value hierarchy.
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TOWER ONE WIRELESS CORP. Notes to Consolidated Financial Statements For the Three and Six months ended June 30, 2020 and 2019 (Expressed in Canadian Dollars) |
11. PROPERTY AND EQUIPMENT (CONTINUED)
| Towers | Construction in progress | Furniture and equipment | Total | |||||||||
| Cost | ||||||||||||
| Balance, December 31, 2018 | 4,767,745 | 3,652,130 | 68,797 | 8,488,672 | ||||||||
| Monetary adjustment for hyperinflationary economy | 1,301,174 | 68,942 | 180,070 | 1,550,186 | ||||||||
| Additions | 71,929 | 4,405,289 | 176,507 | 4,653,725 | ||||||||
| Transfer from CIP to towers | 6,031,951 | (6,031,951 | ) | - | - | |||||||
| Reclassification to assets held for sale | (845,737 | ) | - | - | (845,737 | ) | ||||||
| Towers sold | - | (167,896 | ) | - | (167,896 | ) | ||||||
| Impaired/cancelled towers | (500,764 | ) | (786,617 | ) | (19,386 | ) | (1,306,767 | ) | ||||
| Foreign exchange movement | (2,180,040 | ) | (654,677 | ) | (24,580 | ) | (2,859,297 | ) | ||||
| Balance, December 31, 2019 | 8,646,258 | 485,220 | 381,408 | 9,512,886 | ||||||||
| Additions | 214,387 | 737,901 | 7,306 | 959,594 | ||||||||
| Transfer from CIP to towers | 863,064 | (863,064 | ) | - | - | |||||||
| Reclassification to assets held for sale | - | - | - | |||||||||
| Towers sold | (2,801,638 | ) | - | - | (2,801,638 | ) | ||||||
| Foreign exchange movement | (979,337 | ) | (197,228 | ) | (9,355 | ) | (1,185,920 | ) | ||||
| Consolidation Adjustment | (146,839 | ) | - | - | (146,839 | ) | ||||||
| Balance, June 30, 2020 | 5,795,894 | 162,830 | 379,359 | 6,338,083 | ||||||||
| Accumulated Amortization | ||||||||||||
| Balance, December 31, 2018 | 254,314 | - | 12,881 | 267,195 | ||||||||
| Monetary adjustment for hyperinflationary economy | 71,970 | - | 1,778 | 73,748 | ||||||||
| Additions | 673,106 | - | 30,789 | 703,895 | ||||||||
| Reclassification to assets held for sale | (94,011 | ) | - | - | (94,011 | ) | ||||||
| Impairment/cancelled towers | - | - | (4,151 | ) | (4,151 | ) | ||||||
| Foreign exchange movement | (164,131 | ) | - | (1,705 | ) | (165,836 | ) | |||||
| Balance, December 31, 2019 | 741,248 | - | 39,592 | 780,840 | ||||||||
| Monetary adjustment for hyperinflationary economy | -- | - | - | - | ||||||||
| Additions | 373,667 | - | 19,602 | 393,629 | ||||||||
| Towers Sold | (231,613 | ) | - | - | (231,613 | ) | ||||||
| Impairment/cancelled towers | - | - | - | - | ||||||||
| Foreign exchange movement | (82,810 | ) | - | (3,008 | ) | (85,819 | ) | |||||
| Balance, June 30, 2020 | 800,492 | - | 56,185 | 856,677 | ||||||||
| Net Book Value | ||||||||||||
| December 31, 2019 | 7,905,010 | 485,220 | 341,816 | 8,732,046 | ||||||||
| June 30, 2020 | 4,995,402 | 162,830 | 323,174 | 5,481,406 |
|
TOWER ONE WIRELESS CORP. Notes to Consolidated Financial Statements For the Three and Six months ended June 30, 2020 and 2019 (Expressed in Canadian Dollars) |
12. RIGHT-OF-USE ASSETS AND LEASE LIABILITIES
The continuity of the ROU asset and lease liability for the period ended June 30, 2020 is as follows:
| Right-of-use asset | |||
| As at December 31, 2019 | $ | 2,706,368 | |
| Additions | - | ||
| Depreciation | (91,381 | ) | |
| Impact of foreign exchange | (329,566 | ) | |
| Monetary adjustment for hyperinflationary economy | - | ||
| As at June 30, 2020 | $ | 2,285,421 | |
| Lease liability | |||
| As at December 31, 2019 | $ | 2,703,129 | |
| Additions | - | ||
| Lease payments | (74,472 | ) | |
| Lease interest | 4,922 | ||
| Impact of foreign exchange | (281,728 | ) | |
| As at June 30, 2020 | $ | 2,351,851 | |
| Current portion | $ | 109,283 | |
| Long-term portion | 2,242,568 | ||
| $ | 2,351,851 |
13. ASSETS HELD FOR SALE
The company entered into an asset purchase agreement with a third party whereby the Company agreed to sell 28 towers in Mexico. The sale was completed as of June 30, 2020 for proceeds of $3,497,083.
During the year ended December 31, 2019, the Company entered into an asset purchase agreement with a third party whereby the Company agreed to sell certain towers in Argentina. The sale was completed as of March 31, 2020, and accordingly the Company has reclassified the towers from property and equipment to assets held for sale on the consolidated statement of financial position as of December 2019 and during the period ended March 31, 2020 the revenue was recognized. The carrying value reported represents the lower of the net book value and fair value less costs to sell. During the period ended March 31, 2020, the Company sold the assets held for sale towers of $751,726 for proceeds of $1,851,992.
During the year ended December 31, 2018, the Company entered into an asset purchase agreement ("Agreement") with a third party (the "Purchaser") whereby the Company has agreed to sell certain tower assets in Colombia. The sale was not completed as of December 31, 2018, and accordingly the Company has reclassified the towers from property and equipment to assets held for sale on the consolidated statement of financial position. The carrying value reported represents the lower of the net book value and fair value less costs to sell.
In connection with the Agreement signed in 2018, the Company received an advance of US$1,300,000 from the Purchaser in the form of a promissory note. The amount is subject to an annual interest rate of 10%, due on demand and is secured by a personal guarantee from the Company's Chief Executive Officer. During the year ended December 31, 2018, the Company incurred interest expense of $14,840 on this promissory note, which remains payable and is recorded within interest payable on the consolidated statement of financial position. The promissory note was cancelled after the tower sale completed in January 2019. As at June 30, 2020, the balance of the promissory note outstanding is $nil.
|
TOWER ONE WIRELESS CORP. Notes to Consolidated Financial Statements For the Three and Six months ended June 30, 2020 and 2019 (Expressed in Canadian Dollars) |
14. CONVERTIBLE DEBENTURES
June 2018 Convertible Debenture
In June 2018, the Company issued secured convertible debentures to a third party for gross proceeds of $1,000,000 under the following terms:
In connection with the convertible debentures, the Company also issued 5,000,000 share purchase warrants to the holders exercisable at a price of $0.25 per common share for a period of one year. The Company also incurred cash debt issuance costs of $76,791.
In November 2018, the terms of these convertible debentures were modified as follows:
The convertible debentures are secured against the assets of the Company and its subsidiaries pursuant to the terms of a general security agreement of the Company issued in favor of the holders.
November 2018 Convertible Debenture
In November 2018, the Company issued secured convertible debentures to a third party for gross proceeds of $500,000 under the following terms:
In connection with the convertible debentures, the Company also issued 5,000,000 share purchase warrants to the purchasers exercisable at a price of $0.125 per common share for a period of one year until November 13, 2019. The Company also incurred cash debt issuance costs of $46,295.
The convertible debentures are secured against the assets of the Company and its subsidiaries pursuant to the terms of a general security agreement of the Company issued in favor of the holders.
For accounting purposes, the convertible debentures are separated into their liability and equity components using the residual method. The fair value of the liability component at the time of issue was determined based on an estimated discount rate of 17% for debentures. The fair value of the equity component was determined as the difference between the face value of the convertible debentures and the fair value of the liability component. After initial recognition the liability component is carried on an amortized cost basis and will be accreted to its face value over the term to maturity of the convertible debentures at the effective rate of 25%.
|
TOWER ONE WIRELESS CORP. Notes to Consolidated Financial Statements For the Three and Six months ended June 30, 2020 and 2019 (Expressed in Canadian Dollars) |
14. CONVERTIBLE DEBENTURES (CONTINUED)
During the year ended December 31, 2018, the Company determined the fair value of the equity component of the convertible debentures to be $53,583, offset by transaction costs of $4,397 and a deferred tax liability of $46,513.
June 2019
In June 2019, the Company repaid $750,000 of the convertible debentures and extended the term with the existing lenders.
In consideration for the extension of financing terms with existing lenders, the Company reached an agreement with such lenders to amend existing warrants (the "Amended Warrants") that were issued to such lenders on (i) June 12, 2018 (as previously amended on November 13, 2018) and (ii) November 13, 2018. The Amended Warrants were amended as follows:
Concurrent with the Amended Warrants, the Company also issued new common share purchase warrants (the "New Warrants") to each holder of the Amended Warrants, resulting in an aggregate of 15,000,000 New Warrants being issued. Each New Warrant entitles the holder thereof to acquire one common share of the Company at an exercise price of $0.09 per common share, with each New Warrant set to expire on November 13, 2020. The fair value of the New Warrants is $287,272.
The fair value of the share purchase warrants was calculated using the Black-Scholes model and the following weighted average assumptions:
|
|
|
|
Share price at date of grant |
$0.08 |
|
Exercise price |
$0.09 |
|
Expected life |
1.42 years |
|
Expected volatility |
58.15% |
|
Risk free interest rate |
1.49% |
|
Expected dividend yield |
0% |
|
Expected forfeiture rate |
0% |
The Company has the right to repurchase all of the Amended Warrants and New Warrants for $300,000 in aggregate at any time before their respective expiry dates.
The amendment of the convertible debenture was deemed to be an extinguishment of the original liabilities. As such, the equity portion of the original convertible debentures of $2,673 was derecognized and the Amended Warrants were revalued at the extinguishment date using the Black-Scholes model and the weighted average assumptions disclosed above. The fair value of the Amended Warrants at the date of extinguishment was determined to be $287,623. Consequently, $572,222 was recorded as a loss on extinguishment to contributed surplus.
September 2019
In September 2019, the Company further extended the term with the existing lenders.
In consideration for the extension of financing terms with existing lenders, the Company reached an agreement with such lenders to pay a 10% penalty on the total outstanding amounts under the principal. During the year ended December 31, 2019, the Company paid the penalty of $75,000 and recorded the penalty as interest expense in the consolidated statements of comprehensive loss.
|
TOWER ONE WIRELESS CORP. Notes to Consolidated Financial Statements For the Three and Six months ended June 30, 2020 and 2019 (Expressed in Canadian Dollars) |
14. CONVERTIBLE DEBENTURES (CONTINUED)
December 2019
In December 2019, the Company further extended the term with the existing lenders.
In consideration for the extension of financing terms with existing lenders, the Company reached an agreement with such lenders to pay a 1% penalty on the total outstanding amounts under the principal, as well as an additional 2% penalty on the total outstanding amounts under the principal to be added to the principal if the outstanding amounts are not repaid by January 14, 2020.
During the year ended December 31, 2019, the Company paid the penalty of $7,500 and recorded the penalty as interest expense in the consolidated statements of comprehensive loss.
A reconciliation of the convertible debentures is as follows:
| Balance, December 31, 2017 | $ | - | |
| Cash items | |||
| Issuance of convertible debt | 1,500,000 | ||
| Non-cash items | |||
| Equity portion of convertible debt | (53,583 | ) | |
| Transaction costs | (118,689 | ) | |
| Accreted interest | 64,896 | ||
| Debt conversion | (5,000 | ) | |
| Balance at December 31, 2018 | $ | 1,387,624 | |
| Cash items | |||
| Repayment of convertible debt | (750,000 | ) | |
| Non-cash items | |||
| Accreted interest | 107,376 | ||
| Extinguishment of debt | (745,000 | ) | |
| Issuance of debt | 745,000 | ||
| Balance at December 31, 2019 | $ | 745,000 |
During the period ended December 31, 2019, the Company has incurred interest expense of $127,500 (2018 - $71,836) on the convertible debentures, of which $15,000 (2018 - $21,836) remains payable and has been recorded within interest payable on the consolidated statement of financial position.
March 2020
During the period ended in March 31 2020, the Company repaid $524,000 of the convertible debentures and extended the term with the existing lenders.
In consideration for the extension of financing terms with existing lenders, the Company reached an agreement with such lenders to pay $50,000 penalty to be satisfied by issuing 714,286 at $0.07 per share, the remaining balance of $226,000 was agreed to be repaid no later to March 31 2020.
During the period ended March 31, 2020, the Company paid the penalty of $7,500 and recorded the penalty as interest expense in the consolidated statements of comprehensive loss.
|
TOWER ONE WIRELESS CORP. Notes to Consolidated Financial Statements For the Three and Six months ended June 30, 2020 and 2019 (Expressed in Canadian Dollars) |
14. CONVERTIBLE DEBENTURES (CONTINUED)
June 2020
During the period ended in June 30 2020, the Company repaid the outstanding balance of the convertible debentures.
With this repayment, Tower One repaid in full the convertible debenture loan agreement and discharged the security interest associated with the loan.
15. LOANS PAYABLE
During the period ended June 30, 2020, the loans payable are summarized as follows:
|
June 30 |
December 31 |
|
|
|
2020 |
2019 |
Currency |
Terms |
|
CAD $ |
CAD $ |
|
|
|
913,880 |
731,606 |
USD |
Unsecured, due on demand |
|
160,592 |
148,158 |
Colombian Pesos |
Unsecured, due on demand |
|
- |
32,545 |
Argentina Pesos |
Unsecured, due on demand |
|
- |
350,746 |
Argentina Pesos |
Unsecured, due January 2020 |
|
1,074,472 |
1,263,055 |
|
|
During the year ended December 31, 2019, the loans payable are summarized as follows:
|
Balance, December 31, |
|
|
|
|
2019 |
2018 |
Currency |
Terms |
|
CAD $ |
CAD $ |
|
|
|
731,606 |
1,002,199 |
USD |
Unsecured, due on demand |
|
148,158 |
220,500 |
Colombian Pesos |
Unsecured, due on demand |
|
32,545 |
315,231 |
Argentina Pesos |
Unsecured, due on demand |
|
350,746 |
- |
Argentina Pesos |
Unsecured, due January 2020 |
|
1,263,055 |
1,537,930 |
|
|
During the year ended December 31, 2018, in connection with a loan, the Company issued 300,000 incentive share purchase warrants exercisable at $0.15 per common share for a period of two years from the date of grant.
During the year ended December 31, 2018, the interest rates on the loans payable ranged from 0% to 61%. During the year ended December 31, 2018, the Company has incurred interest expense of $20,052 (US$15,472) on the loans payable, which remains payable and has been recorded within interest payable on the consolidated statement of financial position.
The Company has recasted comparative information as at December 31, 2018 for the loans payable, to correct balances received during the year ended December 31, 2018. As a result, the loans payable and foreign exchange expense increased by $431,708. The recast of comparative information had no impact on cash flows. The loans payable balances arose during the year ended December 31, 2018; accordingly, there was no impact to the consolidated financial statements for the year ended December 31, 2017.
During the year ended December 31, 2019, the interest rates on the loans payable ranged from 0% to 61%.
|
TOWER ONE WIRELESS CORP. Notes to Consolidated Financial Statements For the Three and Six months ended June 30, 2020 and 2019 (Expressed in Canadian Dollars) |
15. LOANS PAYABLE (CONTINUED)
During the year ended December 31, 2019, the Company has incurred interest expense of $336,817 (US$253,840) on the loans payable, of which $73,615 (US$56,549) remains payable and has been recorded within interest payable on the consolidated statement of financial position.
During the period ended June 30, 2020, the interest rates on the loans payable ranged from 0% to 30%.
During the period ended June 30, 2020, the Company has incurred interest expense of ($28,161) (US$21,398) on the loans payable, of which $24,304 (US$17,782) remains payable and has been recorded within interest payable on the consolidated statement of financial position.
16. BONDS PAYABLE
During the period ended June 30, 2020, the Company issued a total of nil bonds.
During the year ended December 31, 2019, the Company issued a total of 9,880 bonds (2018 - 9,663) at a price of $100 each for gross proceeds of $988,000 (2018 - $966,300). The bonds are secured against all present and after-acquired personal property of the Company, incur interest at a rate of 10% paid monthly, and mature September 21, 2021. In connection with the bonds issued, the Company paid cash debt issuance costs to an agent of $128,440 (2018 - $77,304) and issued 921,780 (2018 - 740,240) share purchase warrants to the agent with a fair value of $33,545 (2018 - $28,514). The share purchase warrants are exercisable at prices ranging from $0.08 to $0.14 per common share for a period of two years.
The fair value of the share purchase warrants was calculated using the Black-Scholes model and the following weighted average assumptions:
|
|
2019 |
2018 |
|
Share price at date of grant |
$0.09 |
$0.10 |
|
Exercise price |
$0.09 |
$0.10 |
|
Expected life |
2 years |
2 years |
|
Expected volatility |
76.65% |
92.85% |
|
Risk free interest rate |
1.68% |
2.12% |
|
Expected dividend yield |
0% |
0% |
|
Expected forfeiture rate |
0% |
0% |
The cash debt issuance costs and fair value of the share purchase warrants were applied against the carrying value of the bond. During the period ended June 30, 2020, the Company recorded an amortization expense related to the debt issuance costs of $nil (2019 - $95,399).
As at June 30, 2020, the carrying value of the bonds are $1,787,351 (2019 - $1,787,351). During the period quarter June 30, 2020, the Company has incurred interest expense of $47,221 on the bonds payable, of which $32,177remains payable and has been recorded within interest payable on the consolidated statement of financial position.
|
TOWER ONE WIRELESS CORP. Notes to Consolidated Financial Statements For the Three and Six months ended June 30, 2020 and 2019 (Expressed in Canadian Dollars) |
17. RELATED PARTY TRANSACTIONS AND BALANCES
Loans payable to related parties include loans and advances received from related individuals and companies related to directors and officers of the Company. As at June 30, 2020, the Company has the following loan balances with related parties:
|
June 30, |
December 31, |
|
|
|
|
2020 |
2019 |
Currency |
Rate |
Terms |
|
CAD $ |
CAD $ |
|
% |
|
|
4,362,103 |
4,047,119 |
USD |
12% - 18% |
Unsecured, due on demand |
|
18,249 |
- |
Colombian Pesos |
0% |
Unsecured, due on demand |
|
- |
13,068 |
Argentina Pesos |
18% |
Unsecured, due on demand |
|
4,380,352 |
4,060,187 |
|
|
|
As at December 31, 2019, the Company has the following loan balances with related parties:
|
Balance, December 31, |
|
|
|
|
|
2019 |
2018 |
Currency |
Rate |
Terms |
|
CAD $ |
CAD $ |
|
% |
|
|
4,047,119 |
2,283,937 |
USD |
12% - 24% |
Unsecured, due on demand |
|
- |
207,803 |
Colombian Pesos |
0% |
Unsecured, due on demand |
|
13,068 |
124,844 |
Argentina Pesos |
18% |
Unsecured, due on demand |
|
4,060,187 |
2,616,584 |
|
|
|
In connection with a related party loan, the Company issued 250,000 incentive share purchase warrants exercisable at $0.15 per common share for a period of two years from the date of grant.
During the year ended December 31, 2018, the Company has incurred interest expense of $311,102 (US$240,043) (2017 - $114,719) in connection with the related party loans noted above. As at December 31, 2018, $335,330 of unpaid interest and loan penalties have been included within interest payable on the consolidated statement of financial position.
As at December 31, 2018, the Company had advanced $224,976 to related parties in connection with costs to be incurred on behalf of the Company. This amount was included within other receivables on the consolidated statement of financial position. The amounts advanced are unsecured, non-interest bearing and due on demand. During the year ended December 31, 2019, the Company applied the advances to the corresponding outstanding costs and expenses that were incurred on behalf of it.
|
TOWER ONE WIRELESS CORP. Notes to Consolidated Financial Statements For the Three and Six months ended June 30, 2020 and 2019 (Expressed in Canadian Dollars) |
17. RELATED PARTY TRANSACTIONS AND BALANCES (CONTINUED)
The Company has recasted comparative information as at December 31, 2018 for the loans from related parties, to correct balances received during the year ended December 31, 2019. As a result, the loans from related parties increased by $506,804, the interest payable decreased by $494,934 and foreign exchange expense increased by $11,870. The recast of comparative information had no impact on cash flows. The impacted loans from related parties arose during the year ended December 31, 2018; accordingly, there was no impact to the consolidated financial statements for the year ended December 31, 2017.
During the year ended December 31, 2019, the Company has incurred interest expense of $492,729 (US$371,342) in connection with the related party loans noted above. As at December 31, 2019, $252,144 of unpaid interest and loan penalties have been included within interest payable on the consolidated statement of financial position.
During the period ended June 30, 2020, the Company has incurred interest expense of $126,713 (US$93,240) in connection with the related party loans noted above
January 2019
In January 2019, the Company renegotiated the loans with three of the related party lenders to extend the maturity date of the loans.
In consideration for the extension of the maturity date of the loans, the Company agreed to incur total penalties of $212,312 (US$160,000) which were added to the principal balance of the loans. In addition, the Company agreed to add the interest accrued as of the date of renegotiation of $539,236 (US$395,259) to the principal balance of the loans. The renegotiation of the loans was deemed to be an extinguishment of the original liabilities and $212,312 was recorded as a loss on extinguishment.
September 2019
In January 2019, the Company consolidated loan balances with certain related party lenders and extended the maturity date of these amounts to March 30, 2020.
In consideration for the extension of the maturity date of the loans, the Company agreed to issue 2,381,301 share purchase warrants to the holders with a fair value of $180,714. The share purchase warrants are exercisable at a price of $0.09 per common share for a period of five years. As at December 31, 2019, these warrants have not yet been issued. The fair value of the obligation to issue the share purchase warrants was calculated using the Black-Scholes model and the following weighted average assumptions:
|
|
|
|
Share price at date of grant |
$0.08 |
|
Exercise price |
$0.09 |
|
Expected life |
5 years |
|
Expected volatility |
174.99% |
|
Risk free interest rate |
1.49% |
|
Expected dividend yield |
0% |
|
Expected forfeiture rate |
0% |
The consolidation of the loans and the issuance of the warrants was deemed to be an extinguishment of the original liabilities and $180,714 was recorded as a loss on extinguishment.
|
TOWER ONE WIRELESS CORP. Notes to Consolidated Financial Statements For the Three and Six months ended June 30, 2020 and 2019 (Expressed in Canadian Dollars) |
17. RELATED PARTY TRANSACTIONS AND BALANCES (CONTINUED)
Key management personnel receive compensation in the form of short-term employee benefits, share-based compensation, and post-employment benefits. Key management personnel include the Chief Executive Officer, Chief Financial Officer, and Chief Operating Officer. The remuneration of key management is as follows (expressed in USD):
| Six months period ended | ||||||
| June 30, 2020 | June 30, 2019 | |||||
| $ | $ | |||||
| Consulting fees paid to the CEO | 132,000 | 132,0000 | ||||
| Consulting fees paid to the COO | 102,000 | 102,000 | ||||
| Consulting fees paid to the CFO | 102,000 | 68,000 | ||||
| 336,000 | 302,000 | |||||
The remuneration of the CEO/COO/CFO are included in professional fees and consulting in the consolidated statements of comprehensive loss.
As at June 30, 2020, $264,100 (as at June 30 2019 - Nil) of related party payables are included in accounts payable and accrued liabilities in the consolidated statement of financial position.
18. SHARE CAPITAL
a) Authorized:
Unlimited Class A common shares without par value
1,500,000 Class B Series I preferred shares without par value
1,000,000 Class B Series II preferred shares without par value
b) Issued and outstanding:
During the period ended June 30, 2020:
No shares were issued during the year ended December 31, 2019.
During the year ended December 31, 2018:
|
TOWER ONE WIRELESS CORP. Notes to Consolidated Financial Statements For the Three and Six months ended June 30, 2020 and 2019 (Expressed in Canadian Dollars) |
18. SHARE CAPITAL (CONTINUED)
b) Issued and outstanding (continued):
8,665,201 warrants were exercised under this program and consequently, 8,665,201 Incentive Warrants were issued. The Company received proceeds of $2,166,300 for the exercise of warrants.
During the year ended December 31, 2017:
On June 19, 2017, the Company announced warrant price reduction and exercise incentive program. Under the incentive program, the exercise price of the warrants issued on January 12, 2017 were reduced to $0.30 if exercised prior to July 21, 2017 and one Incentive Warrant was granted for each warrant exercised. Each Incentive Warrant was exercisable to acquire one common share at a price of $0.50 for one year. As a result, 3,774,466 warrants were exercised under this program and consequently, 3,774,466 Incentive Warrants were issued. The Company received proceeds of $1,132,340 for the exercise of warrants.
|
TOWER ONE WIRELESS CORP. Notes to Consolidated Financial Statements For the Three and Six months ended June 30, 2020 and 2019 (Expressed in Canadian Dollars) |
18. SHARE CAPITAL (CONTINUED)
b) Issued and outstanding (continued):
c) Escrowed Shares:
(i) Pursuant to an escrow agreement dated January 26, 2017, the 30,000,000 common shares issued pursuant to the Acquisition (Note 5) are subject to escrow restrictions. The escrow shares will be released based on certain performance conditions. At December 31, 2019, 30,000,000 (2018 - 30,000,000 common shares) remains in escrow. The escrow shares were released subsequent to the year ended December 31, 2019 upon achieving the performance obligations.
(ii) In addition, the 500,000 common shares issued to Rojo are subject to escrow restrictions. These escrow shares will be released 10% on the issuance date, with the remaining to be released 15% every six months. As of December 31, 2019, there were 75,000 common shares remain in escrow (2018 - 225,000 common shares).
d) Warrants:
As part of the January 12, 2017 private placement, the Company issued 15,484,912 warrants. Each warrant allowed the holder of the unit to acquire one additional Common Share until January 12, 2018 at an exercise price of $0.40. In addition, the Company issued 585,117 agent warrants as part of the share issue costs. The fair value of the warrants was determined to be $208,211 or $0.36 per warrant using the Black-Scholes option pricing model. The following assumptions were used for the calculation:
|
Exercise price |
$0.40 |
|
Expected life |
2 years |
|
Expected volatility |
225% |
|
Risk free interest rate |
0.76% |
|
Expected dividend yield |
0% |
|
Expected forfeiture rate |
0% |
|
TOWER ONE WIRELESS CORP. Notes to Consolidated Financial Statements For the Three and Six months ended June 30, 2020 and 2019 (Expressed in Canadian Dollars) |
18. SHARE CAPITAL (CONTINUED)
d) Warrants (continued):
On January 8, 2018, the Company modified the expiry date of all existing warrants to July 21, 2018. Share-based compensation of $10,410 was recorded on the agents warrants, based on the following assumptions:
|
Exercise price |
$0.40 |
|
Expected life |
0.5 years |
|
Expected volatility |
81% |
|
Risk free interest rate |
1.32% |
|
Expected dividend yield |
0% |
|
Expected forfeiture rate |
0% |
A continuity of warrants for the period ended June 30, 2020 and the years ended December 31, 2019 and 2018 is as follows:
| Number | Weighted average exercise price |
|||||
| $ | ||||||
| Balance, December 31, 2017 | 16,070,029 | 0.42 | ||||
| Granted | 24,952,622 | 0.22 | ||||
| Exercised | (8,665,201 | ) | 0.25 | |||
| Expired | (16,066,877 | ) | 0.43 | |||
| Balance, December 31, 2018 | 16,290,573 | 0.12 | ||||
| Granted | 15,924,860 | 0.09 | ||||
| Balance, December 31, 2019 | 32,215,433 | 0.11 | ||||
| Granted | - | - | ||||
| Balance, June 30, 2020 | 32,215,433 | 0.11 |
|
TOWER ONE WIRELESS CORP. Notes to Consolidated Financial Statements For the Three and Six months ended June 30, 2020 and 2019 (Expressed in Canadian Dollars) |
18. SHARE CAPITAL (CONTINUED)
d) Warrants (continued):
The following table summarizes the share purchase warrants outstanding and exercisable as at June 30, 2020:
|
Number of warrants outstanding |
Exercise price $ |
Expiry date |
|
113,829 |
0.14 |
September 20, 2020 |
|
48,448 |
0.13 |
September 27, 2020 |
|
550,000 |
0.15 |
September 30, 2020 |
|
31,491 |
0.11 |
October 24, 2020 |
|
141,913 |
0.12 |
October 11, 2020 |
|
5,000,000 |
0.09 |
November 13, 2020 |
|
10,000,000 |
0.09 |
November 13, 2020 |
|
15,000,000 |
0.09 |
November 13, 2020 |
|
90,164 |
0.09 |
November 26, 2020 |
|
25,219 |
0.11 |
November 2, 2020 |
|
111,700 |
0.08 |
December 2, 2020 |
|
180,889 |
0.09 |
December 30, 2020 |
|
921,780 |
0.09 |
October 1, 2021 |
|
32,215,433 |
|
|
e) Stock options
The Company has established a stock option plan for directors, employees, and consultants. Under the Company's stock option plan, the exercise price of each option is determined by the Board, subject to the Discounted Market Price policies of the Canadian Stock Exchange. The aggregate number of shares issuable pursuant to options granted under the plan is limited to 10% of the Company's issued shares at the time the options are granted. The aggregate number of options granted to any one optionee in a 12-month period is limited to 5% of the issued shares of the Company.
There were no stock options granted during the period ended June 30, 2020. During the years ended December 31, 2018 and 2017, the Company granted stock options to certain directors, officers and consultants of the Company. The weighted average fair value of the stock options during the year ended December 31, 2018 was determined to be $1.50 (2017 - $0.80) using the Black-Scholes option pricing model. The following weighted average assumptions were used for the calculation:
|
|
2019 |
2018 |
2017 |
|
Share price at grant date |
- |
$0.22 |
$0.25 |
|
Exercise price |
- |
$0.23 |
$0.26 |
|
Expected life (in years) |
- |
5 |
2 |
|
Expected volatility |
- |
202% |
215% |
|
Risk free interest rate |
- |
2.07% |
0.76% |
|
Expected dividend yield |
- |
0% |
0% |
|
Expected forfeiture rate |
- |
0% |
0% |
|
TOWER ONE WIRELESS CORP. Notes to Consolidated Financial Statements For the Three and Six months ended June 30, 2020 and 2019 (Expressed in Canadian Dollars) |
18. SHARE CAPITAL (CONTINUED)
e) Stock options (continued):
A continuity of stock options for the period ended June 30, 2020 and years ended December 31, 2019 and 2018 is as follows:
| Number | Weighted average exercise price |
|||||
| $ | ||||||
| Balance, December 31, 2017 | 4,564,565 | 0.28 | ||||
| Granted | 8,690,000 | 0.24 | ||||
| Exercised | (5,600,000 | ) | 0.23 | |||
| Cancelled or forfeited | (6,379,565 | ) | 0.25 | |||
| Balance, December 31, 2018, December 31 2019 and June 30, 2020 | 1,275,000 | 0.30 |
As at June 30, 2020, the following stock options were outstanding and exercisable:
|
Options Outstanding |
Options exercisable |
Exercise |
Remaining life (years) |
Expiry date |
|
|
|
$ |
|
|
|
325,000 |
325,000 |
0.45 |
2.21 |
March 17, 2022 |
|
950,000 |
950,000 |
0.25 |
3.13 |
February 17, 2023 |
|
1,275,000 |
1,275,000 |
0.30 |
2.90 |
|
As at December 31, 2019, the following stock options were outstanding and exercisable:
|
Options Outstanding |
Options exercisable |
Exercise |
Remaining life (years) |
Expiry date |
|
|
|
$ |
|
|
|
325,000 |
325,000 |
0.45 |
3.21 |
March 17, 2022 |
|
950,000 |
950,000 |
0.25 |
4.13 |
February 17, 2023 |
|
1,275,000 |
1,275,000 |
0.30 |
3.90 |
|
19. CAPITAL DISCLOSURE
The Company manages its shareholders' deficiency as capital. The Company's objective when managing capital is to safeguard the Company's ability to continue as a going concern in order to pursue the development of its assets and to maintain a flexible capital structure which optimizes the cost of capital at an acceptable risk. The Company manages the capital structure and adjusts it considering 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 shares, issue debt or acquire or dispose of assets. In order to facilitate the management of its capital requirements, the Company prepares expenditure budgets that are updated as necessary depending on various factors, including successful capital deployment and general industry conditions. As at June 30, 2020, the shareholders' deficiency was $24,095,809 (as at December 31, 2019 - $23,585,459). The Company is not subject to any externally imposed capital requirements. The Company did not change its approach to capital management during the period ended June 30, 2020.
|
TOWER ONE WIRELESS CORP. Notes to Consolidated Financial Statements For the Three and Six months ended June 30, 2020 and 2019 (Expressed in Canadian Dollars) |
20. FINANCIAL INSTRUMENTS AND RISK
As at June 30, 2020, the Company's financial instruments consist of cash, amounts receivable, other receivables, bank indebtedness, accounts payable and accrued liabilities, customer deposits, interest payable, promissory note payable, convertible debentures, loans payable, loans from related parties, bonds payable and lease liabilities.
The Company provides information about financial instruments that are measured at fair value, grouped into Level 1 to 3 based on the degree to which the inputs used to determine the fair value are observable.
Cash is measured using level 1 fair value inputs. The carrying values of the amounts receivable, other receivables, bank indebtedness, accounts payable and accrued liabilities, customer deposits, interest payable, promissory note payable, convertible debentures, loans payable and loans from related parties approximate their fair values because of the short-term nature of these instruments. The bond payable and lease liabilities is classified as level 3.
The Company is exposed in varying degrees to a variety of financial instrument related risks. The Board of Directors approves and monitors the risk management processes, inclusive of documented investment policies, counterparty limits, and controlling and reporting structures. The type of risk exposure and the way in which such exposure is managed is provided as follows:
Credit Risk
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations. Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash. To minimize the credit risk the Company places cash with a high credit quality financial institution.
With respect to its accounts receivable, the Company assesses the credit rating of all customers and maintains provisions for potential credit losses, and any such losses to date have been within management's expectations. The Company's credit risk with respect to accounts receivable and maximum exposure thereto is $1,513,779 (2019 - $1,808,397). Accounts receivable are shown net of provision of credit losses of $129,101 (2019 - $179,868)
Liquidity Risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company's objective in managing liquidity risk is to ensure that it has sufficient liquidity available to meet its liabilities when due. The Company uses cash to settle its financial obligations as they fall due. The ability to do this relies on the Company's ability to collect its revenue in a timely manner, continuous support from shareholders and investors and maintain sufficient cash on hand. To the extent that the Company does not believe it has sufficient liquidity to meet its current obligations, the Board of Directors considers securing additional funds through issuances of equity and debt or partnering transactions.
|
TOWER ONE WIRELESS CORP. Notes to Consolidated Financial Statements For the Three and Six months ended June 30, 2020 and 2019 (Expressed in Canadian Dollars) |
20. FINANCIAL INSTRUMENTS AND RISK (CONTINUED)
The Company monitors its risk of shortage of funds by monitoring the maturity dates of existing trade and other accounts payable. The following table summarizes the maturities of the Company's financial liabilities as at June 30, 2020 based on the undiscounted contractual cash flows:
| Carrying amount |
Contractual cash flows |
Less than 1 year |
1 - 3 years |
4 - 5 years |
After 5 years |
|||||||||||||
| $ | $ | $ | $ | $ | $ | |||||||||||||
| Accounts payable and accrued liabilities | 3,532,067 | 3,532,067 | 3,532,067 | - | - | - | ||||||||||||
| Interest payable | 593,371 | 593,371 | 593,371 | - | - | - | ||||||||||||
| Convertible debentures | - | - | - | - | - | - | ||||||||||||
| Loans payable | 1,074,472 | 1,074,472 | 1,074,472 | - | - | - | ||||||||||||
| Loans from related parties | 4,362,103 | 4,362,103 | 4,362,103 | - | - | - | ||||||||||||
| Bonds payable | 1,787,351 | 1,954,300 | - | 1,954,300 | - | - | ||||||||||||
| Lease liability | 2,351,851 | 5,587,147 | 197,853 | 1,801,543 | 1,169,009 | 2,418,742 | ||||||||||||
| Total | 11,349,364 | 17,103,460 | 9,759,866 | 3,755,843 | 1,169,009 | 2,418,742 |
The Company has a working capital deficiency as of June 30, 2020 of $14,220,803. Customer deposits consist of funds received from customers in advance of towers sold. As of June 30, 2020, the Company has a balance of $6,018,686 (2019 - $8,526,085) in customer deposits, the decreased is related to the towers sold in Mexico.
Currency Risk
The Company generates revenues and incurs expenses and capital expenditures primarily in Canada, Colombia, Argentina, USA and Mexico and is exposed to the resulting risk from changes in foreign currency exchange rates. Some administrative and head office related expenses are incurred in Canada. In addition, the Company holds financial assets and liabilities in foreign currencies that expose the Company to foreign exchange risks. The Company has not hedged its exposure to currency fluctuations.
At June 30, 2020, the Company had the following financial instruments denominated in foreign currencies:
| Argentina Pesos |
Colombian Pesos |
Mexican Pesos |
United States Dollars |
Total | |||||||||||
| $ | $ | $ | $ | $ | |||||||||||
| Cash | 49,669 | 34,812 | 109,106 | (4,721 | ) | 188,866 | |||||||||
| Amounts receivable | 126,034 | 441,529 | 245,445 | 32,828 | 845,836 | ||||||||||
| Accounts payable and accrued liabilities | (288,505 | ) | (443,469 | ) | (777,399 | ) | (105,188 | ) | (1,614,561 | ) | |||||
| Customer deposits | - | (5,040,347 | ) | (978,338 | ) | - | (6,018,685 | ) | |||||||
| Interest payable | - | - | - | - | - | ||||||||||
| Lease liability | (488,860 | ) | (802,640 | ) | (1,060,351 | ) | - | (2,351,851 | ) | ||||||
| Loans payable | - | (160,592 | ) | - | - | (160,592 | ) | ||||||||
| Loans from related parties | - | (18,249 | ) | - | - | (18,249 | ) | ||||||||
| Net | (601,662 | ) | (5,988,956 | ) | (2,461,537 | ) | (77,081 | ) | (9,129,236 | ) |
|
TOWER ONE WIRELESS CORP. Notes to Consolidated Financial Statements For the Three and Six months ended June 30, 2020 and 2019 (Expressed in Canadian Dollars) |
20. FINANCIAL INSTRUMENTS AND RISK (CONTINUED)
Interest Rate Risk
Interest rate risk is the risk that future cash flows of the Company's assets and liabilities can change due to a change in interest rates. Loans payable have a fixed interest rate between 12% and 18%, and cash earns interest at a nominal rate. The Company is not exposed to significant interest rate risk.
Fair value estimates of financial instruments are made at a specific point in time, based on relevant information about financial markets and specific financial instruments. As these estimates are subjective in nature, involving uncertainties and matters of significant judgment, they cannot be determined with precision. Changes in assumptions can significantly affect estimated fair values.
COVID-19
Since March 2020, the outbreak of the novel strain of coronavirus, specifically identified as "COVID-19", has resulted in governments worldwide enacting emergency measures to combat the spread of the virus. These measures, which include the implementation of travel bans, self-imposed quarantine periods and physical distancing, have caused material disruption to business globally resulting in an economic slowdown. Global equity markets have experienced significant volatility and weakness. The duration and impact of the COVID-19 outbreak is unknown at this time, as is the efficacy of the government and central bank interventions. It is not possible to reliably estimate the length and severity of these developments and the impact on the financial results and condition of the Company in future periods.
21. ECONOMIC DEPENDENCE
For the year ended June 30, 2020, all revenues were generated with fifteen customers (2019 - ten customers). The loss of one or more of these customers could have a material adverse effect on the Company's financial position and results of operations.
|
TOWER ONE WIRELESS CORP. Notes to Consolidated Financial Statements For the Three and Six months ended June 30, 2020 and 2019 (Expressed in Canadian Dollars) |
22. SEGMENTED INFORMATION
The Company has four operating segments, which are the locations in which the Company operates. The reportable segments are the Company's Argentinian, Colombian, American and Mexican operations. A breakdown of revenues, short-term assets, long-term assets and net income for each reportable segment as at and for the period ended June 30, 2020 and the year ended December 31, 2019 is reported below.
| Argentina | Colombia | Mexico | United States of America |
Other | Total | |||||||||||||
| $ | $ | $ | $ | $ | $ | |||||||||||||
| June 30, 2020: | ||||||||||||||||||
| Current assets | 757,093 | 665,847 | 470,586 | 63,045 | 78,861 | 2,035,432 | ||||||||||||
| Property and equipment | 3,438,394 | 1,978,202 | 937,651 | 85,370 | (958,211 | ) | 5,481,406 | |||||||||||
| Other non-current assets | 591,954 | 741,255 | 965,571 | - | 1,495,356 | 3,794,136 | ||||||||||||
| Total assets | 4,787,441 | 3,385,304 | 2,378,808 | 148,415 | 616,006 | 11,310,974 | ||||||||||||
| Revenues: | ||||||||||||||||||
| Tower rental revenue | 521,798 | 283,951 | 263,077 | - | - | 1,068,826 | ||||||||||||
| Service revenue | - | - | - | 365,160 | - | 365,160 | ||||||||||||
| Sales revenue | 1,278,279 | - | 3,497,083 | - | 575,579 | 5,350,940 | ||||||||||||
| Total revenues | 1,800,076 | 283,951 | 3,760,160 | 365,160 | 575,579 | 6,784,927 | ||||||||||||
| Net income (loss) | (2,139,125 | ) | 494,486 | 595,013 | 1,408,613 | (1,835,759 | ) | (1,476,771 | ) | |||||||||
| December 31, 2019: | ||||||||||||||||||
| Current assets | 1,846,046 | 532,959 | 298,605 | 268,518 | 13,779 | 2,959,907 | ||||||||||||
| Property and equipment | 3,390,632 | 1,997,048 | 3,243,634 | 85,612 | 15,120 | 8,732,046 | ||||||||||||
| Other non-current assets | 669,687 | 808,973 | 1,204,380 | 5,328 | 1,620,728 | 4,309,096 | ||||||||||||
| Total assets | 5,930,365 | 3,338,980 | 4,746,619 | 359,458 | 1,649,627 | 16,001,049 | ||||||||||||
| Revenues: | ||||||||||||||||||
| Tower rental revenue | 1,102,810 | 292,848 | 244,978 | - | - | 1,640,636 | ||||||||||||
| Service revenue | - | - | - | 561,759 | - | 561,759 | ||||||||||||
| Sales revenue | - | 3,069,670 | 141,529 | - | - | 3,211,199 | ||||||||||||
| Total revenues | 1,102,810 | 3,362,518 | 386,507 | 561,759 | - | 5,413,594 | ||||||||||||
| Net income (loss) | (4,042,521 | ) | 1,249,291 | (994,550 | ) | (1,322,940 | ) | (3,036,548 | ) | (8,147,268 | ) |
|
TOWER ONE WIRELESS CORP. Notes to Consolidated Financial Statements For the Three and Six months ended June 30, 2020 and 2019 (Expressed in Canadian Dollars) |
23. SUPPLEMENTAL CASH FLOW INFORMATION
| Six months ended | ||||||
| June 30, 2020 | June 30, 2019 | |||||
| $ | $ | |||||
| Changes in non-cash working capital items: | ||||||
| Amounts receivable | 128,403 | (301,352 | ) | |||
| Prepaid expenses and deposits | (25,682 | ) | (93,859 | ) | ||
| Tax Credit | - | - | ||||
| Other receivable | 1,520,109 | (824,212 | ) | |||
| Bank indebtedness | - | - | ||||
| Other assets | - | - | ||||
| Inventory | - | (581,781 | ) | |||
| Accounts payable and accrued liabilities | (903,989 | ) | (616,111 | ) | ||
| Interest payable | 235,457 | 126,727 | ||||
| Deferred revenue | (232,016 | ) | 446,831 | |||
| Customer deposits | (2,507,399 | ) | 3,099,913 | |||
| Other liabilities | 48,797 | - | ||||
| Income tax payable | (31,255 | ) | - | |||
| (1,767,576 | ) | 1,256,156 | ||||
24. LEGAL DISCLOSURE
The cities of Quilmes, Bolivar and San Rafael filed claims against Evolution for dismantling towers in the respective cities. Quilmes is claiming a fine of $29,780 (1,489,005 Argentina Pesos) and San Rafael is claiming a fine of $4,200 (420,000 Argentina Pesos). Both fines have been accrued by the Company. The outcome of these legal proceeding cannot be determined at June 30, 2020 and no additional amounts have been accrued.
25. SUBSEQUENT EVENTS
Subsequent to the period ended June 30, 2020,
(1) In July 2020, the Company received COP 1,937,000,000 ($531,997) from an individual investor. The funds will be used to fund the construction of towers and general working capital purposes. The Company and the investor are negotiating a share issuance to capitalize such funds.
TOWER ONE WIRELESS CORP.
Quarterly Report
June 30, 2020
MANAGEMENT DISCUSSION AND ANALYSIS
1.1 Date of Report August 31, 2020
The following amended management's discussion and analysis ("MD&A") has been prepared as of August 31, 2020 and should be read in conjunction with the consolidated financial statements and accompanying notes for the quarter ended June 30, 2020, which are prepared in accordance with International Financial Reporting Standards ("IFRS"). All amounts are stated in Canadian dollars unless otherwise indicated.
This MD&A includes certain statements that may be deemed "forward-looking statements". Forward-looking statements are often, but not always, identified by the use of words such as "anticipate", "plan", "estimate", "expect", "may", "project", "predict", "potential", "could", "might", "should" and other similar expressions. Although the Company believes the expectations expressed in such forward-looking statements are based on reasonable assumptions, such statements are not guarantees of future performance and actual results or developments may differ materially from those in the forward-looking statements. Factors that could cause actual results to differ materially from those in forward-looking statements include market prices, continued availability of capital and financing and general economic, market or business conditions. Investors are cautioned that any such statements are not guarantees of future performance and actual results or developments may differ materially from those projected in the forward-looking statements.
1.2 Nature of Business
Tower One Wireless Corp. ("Tower One" or the "Company") is a pure-play, build-to-suit ("BTS") tower owner, operator and developer of multitenant communications real estate. The Company's primary business is the leasing of space on communications sites to mobile network operators ("MNOs"). The Company offers tower-related services in the largest Spanish speaking countries in Latin America: Argentina, Colombia and Mexico. These tower-related services include site acquisition, zoning and permitting, structural analysis, and construction which primarily supports the Company's site leasing business, including the addition of new tenants and equipment on its sites. BTS is where a long-term site lease is in hand with a tenant prior to undergoing construction. As of June 30, 2020, the Company had a total of 10 signed master lease agreements ("MLAs") with major MNOs in Argentina, Colombia and Mexico and a total backlog of over 100 sites. In Argentina, the Company had executed MLAs with Claro, Telecom and DirecTV and a backlog of more than 30 sites. In Colombia, the Company had executed MLAs with Claro, Telefónica, Avantel and DirecTV and a backlog of approximately 60 sites. In Mexico, the Company had executed MLAs with Altan and AT&T and a backlog of approximately 10 sites
Tower One Wireless Corp. ("Tower One" or the "Company") was incorporated under the laws of the Province of British Columbia, Canada on September 12, 2005. On October 14, 2011, the Company became a reporting company in British Columbia and was approved by the Canadian Securities Exchange ("CSE") and commenced trading on November 16, 2011. The Company's registered office is located at Suite 605, 815 Hornby Street, Vancouver, BC, Canada V6Z 2E6.
On January 17, 2017, Tower One completed a Share Exchange Agreement (the "Agreement") with Tower Three SAS ("Tower Three") and the shareholders of Tower Three SAS. According to the Agreement, Tower One acquired Tower Three by issuing shares which resulted in the shareholders of Tower Three obtaining control of the Company (the "Acquisition"). Accordingly, this transaction was recorded as a reverse acquisition for accounting purposes, with Tower Three being identified as the accounting acquirer. The condensed consolidated interim financial statements are a continuation of the financial statements of Tower Three while the capital structure is that of the Company. The historical operation assets and liabilities of Tower Three are included in the condensed consolidated interim financial statements and the comparative figures are those of Tower Three.
Tower Three SAS was incorporated on December 30, 2015 under the Laws of Colombia. Tower Three has secured 4G LTE cellular tower development contracts in Colombia. The Company focuses primarily on building cellular towers in municipalities where there currently is very limited or no cellular coverage, which enhances the probability of multiple carriers sharing the tower and minimizes competitive risk.
On March 31, 2017, the Company entered into a Share Purchase Offer Agreement with the shareholders of Evolution Technology SA ("Evotech") to acquire 65% ownership interest in Evotech. Evotech is a private company incorporated under the laws of Argentina. Evotech's intended business is to obtain rights and permits for approval of constructing the towers in various locations in Argentina. At the time of the acquisition, Evotech had a MLA with a single MNO. The MLA in place allows for the Company to be granted Cellular Search Rings, which are desired coordinates for a tower, and outlines the terms for each tower build.
On October 18, 2017, the Company acquired a 70% ownership interest in Tower Construction & Technical Services, Inc. ("TCTS"). TCTS is a private company incorporated in Florida, USA. The Company has decided to divest itself of TCTS.
On April 3, 2018, the Company acquired a 90% ownership interest in Comercializadora Mexmaken, S.A. de C.V. ("Mexmaken"). Mexmaken is a private company incorporated under the laws of the United Mexican State on September 9, 2015.
On March 1, 2019, the Company entered into an agreement to buy the remaining 30% ownership interest of TCTS from its previous shareholders for US$ 80,000. With this agreement, Tower One Wireless owns 100% of the shares of TCTS.
On August 1, 2019, the Company entered into a 50% joint venture with an international operator (the "JV Partner") that has experience in running over 600 crews in their markets and installing Ericsson and Nokia equipment in Latin America. The strategic decision was made to enhance TCTS's ability to provide quality service to its customers and to leverage on the expertise in managing construction crews efficiently. As part of the agreement, the JV Partner made an investment of US$250,000 into TCTS for a 50% ownership interest in the subsidiary. These funds were used for operations.
On October 18, 2019, the Company entered into a Share Purchase Agreement with the shareholder of Innervisions Telecom S.A.S. ("Innervisions") to acquire the remaining 10% ownership interest, through its Colombian Subsidiary, Tower Three S.A.S. To obtain the 10% ownership interest, the Company received the remaining 300 shares in exchange for a purchase price of COP $7,000,000.
1.3 Overall Performance
Highlights during the quarter ending June 30, 2020:
A total of 3 new towers were constructed during this period, and 1 new collocation was signed.
As of June 30, 2020, an additional 63 sites were in different stages of Work in Progress (29 in Argentina, 31 in Colombia and 3 in Mexico).
During the second quarter of 2020, 28 towers were sold in Mexico.
Following the sale of towers in Argentina and Mexico, the Company has a total of eighty nine (89) completed wireless towers throughout Argentina, Colombia and Mexico, with twenty two (22) collocations hosting up to three (3) Mobile Network Operators per tower; and sixty three (63) additional towers are now under construction in Argentina, Colombia and Mexico. Tower One has a backlog of over one hundred sites awarded for Build To Suit "BTS" tower construction and intends to aggressively expand its portfolio of completed and tenanted towers throughout 2020-2021.
During the quarter ended on June 2020, the Company repaid $235,040 (outstanding indebtedness) of the convertible debentures and discharged all security interests registered thereunder.
In June 2020 the Company received a new Master Lease Agreement from "Partners Telecom Colombia", a new telecom operator in Colombia with brand name "WOM", and received the first assignments for new sites.
1.4 Results of Operations
Selected Quarterly Information and Results of Operations
| June 30, 2020 $ |
March 31, 2020 $ |
December 31, 2019 $ |
September 30, 2019 $ |
June 30, 2019 $ |
|
| Revenue | 4,150,141 | 2,634,786 | (185,606) | 841,491 | 266,724 |
| Net loss from continuing operations | (1,371,737) | 211,172 | (4,272,091) | (2,578,192) | (2,598,967) |
| Basic and diluted loss per share from continuing operations | (0.00) | (0.00) | (0.09) | (0.02) | (0.03) |
| Cash | 256,976 | 55,586 | 56,629 | 166,943 | 48,325 |
| Total Assets | 11,310,973 | 14,097,343 | 16,001,049 | 15,243,472 | 15,857,084 |
| Non-Current Liabilities | 4,029,920 | 4,020,786 | 4,284,401 | 1,894,082 | 3,027,561 |
Significant factors and trends that have impacted Tower One's results during the quarters presented above include the following:
The impairment of investments in the total amount of $1,531,742 incurred in the fourth quarter of 2019 was a one-time expense; in 2018 the amount recorded in the fourth quarter related to impairment of investments was $2,358,674
During the quarter ended June 30, 2020, the Company incurred net loss from the operations of $(1,371,737) (June 30, 2019- net loss - $(2,598,967)). The result is mainly due to currency transaction loss of $ (1,079,365).
As at June 30, 2020, the Company had a negative working capital of $14,220,803 from continuing operations (June 30, 2019- $11,411,017) and an accumulated deficit of $24,095,809 (June 30, 2019 - $19,557,847). The decrease in the working capital during the period was as a result of the increase in the advances received under the Development Deal which are recorded under Customer Deposits in the Consolidated Statements of Financial Position ($1,137,951) and an increase in the accrued expenses ($1,101,558).
Total revenue increased to $4,150,141 for the quarter ended June 30, 2020 compared to $266,724 for the quarter ended June 30, 2019. The revenue increase is a result of the sale of 28 towers in Mexico for $3,497,083 during the second quarter of 2020 versus no tower sales in the corresponding period of the previous year, and tower rent of $331,687 during the second quarter of 2020 versus $223,675 during the corresponding period of previous year.
During the quarter ended June 30, 2020, the Company incurred professional fees in the amount of $177,803 (June 30, 2019 - $157,285) the main difference is due to an adjustment recorded to reflect the accrued compensation accurately in addition to a reclassification from maintenance and operations.
During the quarter ended June 30, 2020, office and miscellaneous expenses increased to $88,059 compared to $18,512 for the quarter ended June 30, 2019 mainly due to the penalties accrual for taxes in Colombia.
During the quarter ended June 30, 2020, the Company incurred travel expense in the amount of $50,700 (June 30, 2019 - $18,175) related to an adjustment on expenses that were not reported in the period ending March 31, 2020.
During the period ended June 30, 2020, the Company recorded $639,644 in unrealized foreign exchange loss due to differences in functional and presentation currency which has been booked to accumulated other comprehensive loss. The Company's presentation currency is the Canadian Dollar. The functional currency of each of the entities included in the consolidated group is as follows: Tower One Wireless Corp. Canadian Dollar; Tower Three and Innervisions is the Colombian Peso; Evolution Technology S.A. and Tower 3 is the Argentina Peso; TCTS is the US Dollar; and Mexmaken is the Mexican Peso.
The results and financial position of a subsidiary whose functional currency is not the currency of a hyperinflationary economy is translated into the presentation currency using the following procedures:
i. Assets and liabilities for each statement of financial position presented (i.e. including comparatives) are translated at the closing rate at the date of the statement of financial position;
ii. Income and expenses for each statement presenting profit or loss and other comprehensive income (i.e. including comparatives) are translated at exchange rates at the dates of the transactions; and
iii. All resulting exchange differences are recognized in other comprehensive income.
The results and financial position of a subsidiary whose functional currency is the currency of a hyperinflationary economy are translated into the presentation currency using the following procedures:
i. All amounts (i.e. assets, liabilities, equity items, income and expenses, including comparatives) are translated at the closing rate at the date of the most recent statement of financial position, except that
ii. When amounts are translated into a non-hyperinflationary presentation currency (i.e. CAD), comparative amounts remain unchanged from those reported in the prior periods.
When an entity's functional currency is the currency of a hyperinflationary economy, the entity shall restate its financial statements in accordance with IAS 29 - Financial Reporting in Hyperinflationary Economies before applying the translation method described above. When the economy ceases to be hyperinflationary and the entity no longer restates its financial statements in accordance with IAS 29, it shall use as the historical costs for translation into the presentation currency the amounts restated to the price level at the date the entity ceased restating its financial statements.
1.5 Liquidity and Capital Resources
As at June 30, 2020, the Company has total assets of $11,310,973, cash of $256,976 and a negative working capital from operations of $14,220,803. The increase in working capital compared to the previous quarter is primarily due to the decrease of advances from customers that were applied against the revenue for the 28 towers sold in Mexico.
During the period ended June 30, 2020, the Company used $1,773,058 in operating activities compared to the $2,897,485 during the period ended June 30, 2019.
During the period ended June 30, 2020, the Company received cash from bonds payable of $nil ($988,000 - June 30, 2019), loans of $nil ($499,334 - June 30, 2019), loans from related parties of $556,838 ($1,087,356 - June 30, 2019); repaid loans for $425,256 ($nil - June 30, 2019), loans from related parties for $nil ($nil - June 30, 2019) and convertible debt for $750,000 ($750,000 - June 30, 2019).
At June 30, 2020 and 2019, share capital was $16,876,382 comprising 94,103,732 issued and outstanding common shares.
At present, the Company's operations generate minimal cash inflows and its financial success after June 30, 2020 is dependent on management's ability to continue to obtain sufficient funding to sustain operations of building towers in municipalities where there currently is very limited or no cellular coverage, which enhances the probability of multiple carriers sharing the tower and minimizes competitive risk.
The Company may not be able to generate sufficient cash flows from its operations in the foreseeable future to support its working capital needs. As a result, the Company will have to rely on funding through future equity issuances and through short-term and long term borrowing in order to finance ongoing operations and the construction of cellular towers. The ability of the Company to raise capital will depend on market conditions and it may not be possible for the Company to issue shares on acceptable terms or at all.
1.6 Share Capital
As at June 30, 2020, the Company had 94,103,732 common shares issued and outstanding.
1.7 Share Purchase Warrants
As at June 30, 2020, the Company had 32,215,433 warrants issued and outstanding.
1.8 Stock Options
As at June 30, 2020, the Company had 1,275,000 stock options issued and outstanding of which all the options are exercisable.
1.9 Off Balance Sheet Arrangements
There are no off-balance sheet arrangements to which the Company is committed. The Company is not a party to any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on the Company's financial condition, changes in financial condition, revenues, expenses, results of operations, liquidity, capital expenditures or capital resources.
1.10 Transactions with Related Parties
Loans payable to related parties include loans and advances received from related individuals and companies. As at June 30, 2020 and December 31, 2019, the Company has the following loan balances with related parties:
|
June 30, |
December 31, |
|
|
|
|
2020 |
2019 |
Currency |
Rate |
Terms |
|
$ |
$ |
|
% |
|
|
4,362,103 |
4,047,119 |
US$ |
12% - 18% |
Unsecured, due on demand |
|
18,249 |
- |
Colombian Pesos |
0% |
Unsecured, due on demand |
|
- |
13,068 |
Argentinian Pesos |
18% |
Unsecured, due on demand |
|
4,380,352 |
4,060,187 |
|
|
|
During the period ended June 30, 2020, the Company has incurred interest expense of $126,713 (US$93,240) in connection with the related party loans noted above.
Key management personnel receive compensation in the form of short-term employee benefits, share-based payments, and post-employment benefits. Key management personnel include the Chief Executive Officer, Chief Financial Officer, and Chief Operating Officer. The remuneration of key management is as follows (expressed in US$):
| Six months period ended | ||||||
| June 30, 2020 | June 31, 2019 | |||||
| $ | $ | |||||
| Consulting fees paid to the CEO | 132,000 | 132,000 | ||||
| Consulting fees paid to the COO | 102,000 | 102,000 | ||||
| Consulting fees paid to the CFO | 102,000 | 68,000 | ||||
| 336,000 | 302,000 | |||||
1.11 Subsequent Events
1.12 Changes in Accounting Policies
The preparation of financial data is based on accounting principles and practices consistent with those used in the preparation of the audited financial statements of the Company as at December 31, 2019.
The condensed consolidated interim financial statements should be read in conjunction with the Company's audited financial statements for the period ended December 31, 2019.
The following is a summary of significant accounting policies used in the preparation of the consolidated financial statements:
The mandatory adoption of IFRS 16 on January 1, 2019 resulted in increase to the Company's assets and liabilities from the initial recognition of a right-of-use asset and lease liability of $1,374,800.
1.13 Financial Instruments and Other Instruments
As at June 30, 2020, the Company's financial instruments consist of cash, amounts receivable, other receivables, bank indebtedness, accounts payable and accrued liabilities, customer deposits, interest payable, promissory note payable, convertible debentures, loans payable, loans from related parties, bonds payable and lease liabilities.
The Company provides information about financial instruments that are measured at fair value, grouped into Level 1 to 3 based on the degree to which the inputs used to determine the fair value are observable.
• Level 1 fair value measurements are those derived from quoted prices in active markets for identical assets or liabilities.
• Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1, that are observable either directly or indirectly.
• Level 3 fair value measurements are those derived from valuation techniques that include inputs that are not based on observable market data.
Cash is measured using level 1 fair value inputs. The carrying values of the amounts receivable, other receivables, bank indebtedness, accounts payable and accrued liabilities, customer deposits, interest payable, promissory note payable, convertible debentures, loans payable and loans from related parties approximate their fair values because of the short-term nature of these instruments. The bond payable and lease liabilities is classified as level 3.
The Company is exposed to varying degrees to a variety of financial instrument related risks:
Credit risk
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations. Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash. To minimize the credit risk the Company places cash with a high credit quality financial institution.
With respect to its accounts receivable, the Company assesses the credit rating of all customers and maintains provisions for potential credit losses, and any such losses to date have been within management's expectations. The Company's credit risk with respect to accounts receivable and maximum exposure thereto is $1,513,779 (2019 - $1,808,397). Accounts receivable are shown net of provision of credit losses of $129,101 (2019 - $179,868)
Interest rate risk
Interest rate risk is the risk that future cash flows of the Company's assets and liabilities can change due to a change in interest rates. Loans payable have a fixed interest rate between 12% and 18%, and cash earns interest at a nominal rate. The Company is not exposed to significant interest rate risk.
Fair value estimates of financial instruments are made at a specific point in time, based on relevant information about financial markets and specific financial instruments. As these estimates are subjective in nature, involving uncertainties and matters of significant judgment, they cannot be determined with precision. Changes in assumptions can significantly affect estimated fair values.
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company's objective in managing liquidity risk is to ensure that it has sufficient liquidity available to meet its liabilities when due. The Company uses cash to settle its financial obligations as they fall due. The ability to do this relies on the Company's ability to collect its revenue in a timely manner, continuous support from shareholders and investors and maintain sufficient cash on hand. To the extent that the Company does not believe it has sufficient liquidity to meet its current obligations, the Board of Directors considers securing additional funds through issuances of equity and debt or partnering transactions.
The Company monitors its risk of shortage of funds by monitoring the maturity dates of existing trade and other accounts payable. The following table summarizes the maturities of the Company's financial liabilities as at June 30, 2020 based on the undiscounted contractual cash flows:
| Carrying amount |
Contractual cash flows |
Less than 1 year |
1 - 3 years |
4 - 5 years |
After 5 years |
|||||||||||||
| $ | $ | $ | $ | $ | $ | |||||||||||||
| Accounts payable and accrued liabilities | 3,532,067 | 3,532,067 | 3,532,067 | - | - | - | ||||||||||||
| Interest payable | 593,371 | 593,371 | 593,371 | - | - | - | ||||||||||||
| Convertible debentures | - | - | - | - | - | - | ||||||||||||
| Loans payable | 1,074,472 | 1,074,472 | 1,074,472 | - | - | - | ||||||||||||
| Loans from related parties | 4,362,103 | 4,362,103 | 4,362,103 | - | - | - | ||||||||||||
| Bonds payable | 1,787,351 | 1,954,300 | - | 1,954,300 | - | - | ||||||||||||
| Lease liability | 2,351,851 | 5,587,147 | 197,853 | 1,801,543 | 1,169,009 | 2,418,742 | ||||||||||||
| Total | 11,349,364 | 17,103,460 | 9,759,866 | 3,755,843 | 1,169,009 | 2,418,742 |
The Company has a working capital deficiency as of June 30, 2020 of $14,220,803. Customer deposits consist of funds received from customers in advance of towers sold. As of June 30, 2020, the Company received $6,018,686 (2019 - $8,526,085) in customer deposits, the decreased is related to the sold towers in Mexico.
Currency Risk
The Company generates revenues and incurs expenses and capital expenditures primarily in Canada, Colombia, Argentina, USA and Mexico and is exposed to the resulting risk from changes in foreign currency exchange rates. Some administrative and head office related expenses are incurred in Canada. In addition, the Company holds financial assets and liabilities in foreign currencies that expose the Company to foreign exchange risks. A significant change in the currency exchange rates between the Canadian dollar relative to the Colombia Peso, Argentina Peso US dollars or Mexican Peso could have a material adverse effect on the Company's results of operations, financial position and/or cash flows. The Company has not hedged its exposure to currency fluctuations.
At June 30, 2020, the Company had the following financial instruments denominated in foreign currencies:
| Argentinian Pesos | Colombian Pesos | Mexican Pesos | United States Dollars | Total | |||||||||||
| $ | $ | $ | $ | $ | |||||||||||
| Cash | 49,669 | 34,812 | 109,106 | (4,721 | ) | 188,866 | |||||||||
| Amounts receivable | 126,034 | 441,529 | 245,445 | 32,828 | 845,836 | ||||||||||
| Accounts payable and accrued liabilities | (288,505 | ) | (443,469 | ) | (777,399 | ) | (105,188 | ) | (1,614,561 | ) | |||||
| Customer deposits | - | (5,040,347 | ) | (978,338 | ) | - | (6,018,685 | ) | |||||||
| Interest payable | - | - | - | - | - | ||||||||||
| Lease liability | (488,860 | ) | (802,640 | ) | (1,060,351 | ) | - | (2,351,851 | ) | ||||||
| Loans payable | - | (160,592 | ) | - | - | (160,592 | ) | ||||||||
| Loans from related parties | - | (18,249 | ) | - | - | (18,249 | ) | ||||||||
| Net | (601,662 | ) | (5,988,956 | ) | (2,461,537 | ) | (77,081 | ) | (9,129,236 | ) |
1.14 Estimates
The Company makes estimates and assumptions about the future that affect the reported amounts of assets and liabilities. Estimates and judgments are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Significant areas requiring the use of management estimates include the following:
(i) Intangible Assets - useful lives
The Company records intangible assets purchased in a business combination at their fair value. Determining fair value requires management to use estimates that could be material. Following initial recognition, the Company carries the value of intangible assets at cost less accumulated amortization and any accumulated impairment losses. Amortization is recorded on a straight-line basis based upon management's estimate of the useful life and residual value. The estimates are reviewed at least annually and are updated if expectations change as a result of technical obsolescence or legal and other limits to use. A change in the useful life or residual value will impact the reported carrying value of the intangible assets resulting in a change in related amortization expense.
(ii) Inputs into Black-Scholes model
The Company has applied estimates with respect to the valuation of shares issued for non-cash consideration. Shares are valued first at the fair value of services received, and if this not readily determinable, at the fair value of the equity instruments granted at the date the Company receives the goods or services.
The Company measures the cost of equity-settled transactions with employees by reference to the fair value of services performed, and if the fair value of the services performed is not readily determinable, at the fair value of the equity instruments at the date at which they are granted. Estimating fair value for share-based compensation transactions requires determining the most appropriate valuation model, which is dependent on the terms and conditions of the grant. This estimate also requires determining the most appropriate inputs to the valuation model including the fair value of the underlying common shares, the expected life of the share option, volatility and dividend yield. The fair value of the underlying common shares is assessed as the quoted market price on grant date. The assumptions and models used for estimating fair value for share-based compensation transactions are discussed in Note 18. Actual results may differ from these estimates and assumptions.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised if the revision affects only that period or in the period of the revision and further periods if the review affects both current and future periods.
(iii) Property and Equipment - useful lives
Amortization is recorded on a declining balance basis based upon management's estimate of the useful life and residual value. The estimates are reviewed at least annually and are updated if expectations change as a result of the physical condition, technical obsolescence or legal and other limits to use. A change in the useful life or residual value will impact the reported carrying value of towers and equipment resulting in a change in related amortization expense.
(iv) Incremental borrowing rate
The Company uses estimation in determining the incremental borrowing rate used to measure the lease liabilities. This rate represents the rate that the Company would incur to obtain the funds necessary to purchase the asset of a similar value, with similar payment terms and security in similar economic environment.
v) Allowance for credit losses
The Company provides for doubtful debts by analyzing the historical default experience and current information available about a customer's credit worthiness on an account by account basis. Uncertainty relates to the actual collectability of customer balances that can vary from the Company's estimation. At June 30, 2020, the Company has an allowance for doubtful accounts of $129,101 (at December 31 2019 - $179,868).
vi) Discount rate used for convertible debentures
The carrying value of the convertible debentures is subject to management's estimates in determining an appropriate discount rate based on similar instruments with no conversion features.
vii) Recoverability of asset carrying values
Determining the amount of impairment of goodwill, intangible assets, and property and equipment requires an estimation of the recoverable amount, which is defined as the higher of fair value less the cost of disposal or value in use. Many factors used in assessing recoverable amounts are outside of the control of management and it is reasonably likely that assumptions and estimates will change from period to period.
viii) Fair value of assets acquired in a business combination
The determination of fair value of assets acquired requires management to make assumptions and estimates about future events. The assumptions and estimates with respect to determining the fair value of the assets acquired require judgment and include estimates of future cash flows.
Use of Judgments
Critical accounting judgments are accounting policies that have been identified as being complex or involving subjective judgments or assessments with a significant risk of material adjustment in the year:
(i) Going concern
The assessment of whether the going concern assumption is appropriate requires management to take into account all available information about the future, which is at least, but not limited to, twelve months from the end of the reporting period. The Company is aware that material uncertainties related to events or conditions may cast significant doubt upon the Company's ability to continue as a going concern.
(ii) Income taxes
The measurement of income taxes payable and deferred income tax assets and liabilities requires management to make judgments in the interpretation and application of the relevant tax laws. The actual amount of income taxes only becomes final upon filing and acceptance of the tax return by the relevant tax authorities, which occurs subsequent to the issuance of the consolidated financial statements.
(iii) Determination of control in business acquisitions
The determination of the acquirer in business acquisitions is subject to judgment and requires the Company to determine which party obtains control of the combining entities. Management applies judgment in determining control by assessing the following three factors: whether the Company has power; whether the Company has exposure or rights to variable returns; and whether the Company has the ability to use its power to affect the amount of its returns. In exercising this judgment, management reviewed the representation on the Board of Directors and key management personnel, the party that initiated the transaction, and each of the entities' activities.
The assessment of whether an acquisition constitutes a business is also subject to judgment and requires the Company to review whether the acquired entity contains all three elements of a business, including inputs, processes and the ability to create output.
(iv) Intangible Assets - impairment
The application of the Company's accounting policy for intangible assets expenditures requires judgment in determining whether it is likely that future economic benefits will flow to the Company, which may be based on assumptions about future events or circumstances. Estimates and assumptions may change if new information becomes available. If, after expenditures are capitalized, information becomes available suggesting that the recovery of expenditures is unlikely, the amount capitalized is written off in profit or loss in the period the new information becomes available.
(v) Compound financial instruments
In accordance with the substance of the contractual arrangement, convertible debentures are compound financial instruments that are accounted for separately by their components: a financial liability and an equity instrument.
The identification of convertible debenture components is based on interpretations of the substance of the contractual arrangement and therefore requires judgment from management. The separation of the components affects the initial recognition of the convertible debenture at issuance and the subsequent recognition of interest on the liability component. The determination of the fair value of the liability is also based on a number of assumptions, including contractual future cash flows, discount factors and the presence of any derivative financial instruments.
(vi) Asset held-for-sale and discontinued operations
Judgment is required in determining whether an asset meets the criteria for classification as "assets held for sale" in the consolidated statements of financial position. Criteria considered by management include the existence of and commitment to a plan to dispose of the assets, the expected selling price of the assets, the expected timeframe of the completion of the anticipated sale and the period of time any amounts have been classified within assets held for sale. The Company reviews the criteria for assets held for sale each period and reclassifies such assets to or from this financial position category as appropriate. In addition, there is a requirement to periodically evaluate and record assets held for sale at the lower of their carrying value and fair value less costs to sell.
Judgment is applied in determining whether disposal groups represent a component of the entity, the results of which should be recorded as discontinued operations in the consolidated statements of comprehensive loss.
(vii) Property and Equipment and intangibles - impairment
At the end of each reporting period, management makes a judgment whether there are any indications of impairment of its property and equipment and intangibles. If there are indications of impairment, management performs an impairment test on a cash-generating unit basis. The impairment test compares the recoverable amount of the asset to its carrying amount. The recoverable amount is the higher of the asset's value in use (present value of the estimated future cash flows) and its estimated fair value less costs of disposal.
(viii) Determination of functional currency and hyperinflationary economies
The determination of the functional currency for the Company and its subsidiaries was based on management's judgment of the underlying transactions, events and conditions relevant to each entity. The determination of whether an entity operates in a hyperinflationary economy was based on management's judgment of the underlying economic condition of the country the entity operates in.
(ix) Application of IFRS 16
The Company applies judgment in determining whether the contract contains an identified asset, whether the Company has the right to control the asset, and the lease term. The lease term is based on considering facts and circumstances, both qualitative and quantitative, that can create economic incentive to exercise renewal options.
(x) Modification versus extinguishment of financial liability
Judgment is required in applying IFRS 9 Financial Instruments to determine whether the amended terms of the loan agreement is a substantial modification of an existing financial liability and whether it should be accounted for as an extinguishment of the original financial liabilities
1.15 Other MD&A Requirements
For more information about the Company, see http://www.toweronewireless.com/. The Company has not filed an AIF Annual Information Form.
Disclosure of Outstanding Share Data
As of the reporting date, there were 94,103,732 common shares issued and outstanding.
Risk Factors
The Company is focused on more select market introduction and development primarily on building towers in municipalities while instituting cost control of product development. The failure to generate future sales in the Company's main products could have a significant and adverse effect on the Company.
The Company success will depend in large measure on certain key personnel. The loss of the services of such key personnel could have a material adverse effect on the Company. The Company does not anticipate having key person insurance in effect for management. The contributions of these individuals to the immediate operations of the Company are of central importance. In addition, there can be no assurance that the Company will be able to continue to attract and retain all personnel necessary for the development and operation of its business.
The Company has incurred a net loss for the period ended June 30, 2020 of $(1,371,737) and has a deficit of $24,095,809. Management is continuing efforts to attract additional equity and capital investors and implement cost control measures to maintain adequate levels of working capital. Nevertheless, there can be no assurance provided with respect to the successful outcome of these ongoing actions. If the Company is unable to obtain additional financing on reasonable terms, the Company may be required to curtail or reduce its operations to continue as a going concern.
Since March 2020, the outbreak of the novel strain of coronavirus, specifically identified as "COVID-19", has resulted in governments worldwide enacting emergency measures to combat the spread of the virus. These measures, which include the implementation of travel bans, self-imposed quarantine periods and physical distancing, have caused material disruption to business globally resulting in an economic slowdown. Global equity markets have experienced significant volatility and weakness. The duration and impact of the COVID-19 outbreak is unknown at this time, as is the efficacy of the government and central bank interventions. It is not possible to reliably estimate the length and severity of these developments and the impact on the financial results and condition of the Company in future periods.
Form 52-109FV2
Certification of Interim Filings
Venture Issuer Basic Certificate
I, Alejandro Ochoa, Chief Executive Officer of Tower One Wireless Corp., certify the following:
1. Review: I have reviewed the interim financial report and interim MD&A (together, the "interim filings") of Tower One Wireless Corp. (the "issuer") for the interim period ended June 30, 2020.
2. No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.
3. Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.
Date: August 31, 2020
"Alejandro Ochoa"
__________________________________
Alejandro Ochoa
Chief Executive Officer
NOTE TO READER
In contrast to the certificate required for non-venture issuers under National Instrument 52-109 Certification of Disclosure in Issuers' Annual and Interim Filings (NI 52-109), this Venture Issuer Basic Certificate does not include representations relating to the establishment and maintenance of disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as defined in NI 52-109. In particular, the certifying officers filing this certificate are not making any representations relating to the establishment and maintenance of
i) controls and other procedures designed to provide reasonable assurance that information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and
ii) a process to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer's GAAP.
The issuer's certifying officers are responsible for ensuring that processes are in place to provide them with sufficient knowledge to support the representations they are making in this certificate. Investors should be aware that inherent limitations on the ability of certifying officers of a venture issuer to design and implement on a cost effective basis DC&P and ICFR as defined in NI 52-109 may result in additional risks to the quality, reliability, transparency and timeliness of interim and annual filings and other reports provided under securities legislation.
Form 52-109FV2
Certification of Interim Filings
Venture Issuer Basic Certificate
I, Santiago F. Rossi, Chief Financial Officer of Tower One Wireless Corp., certify the following:
1. Review: I have reviewed the interim financial report and interim MD&A (together, the "interim filings") of Tower One Wireless Corp. (the "issuer") for the interim period ended June 30, 2020.
2. No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.
3. Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.
Date: August 31, 2020
"Santiago F. Rossi"
________________________________
Santiago F. Rossi
Chief Financial Officer
NOTE TO READER
In contrast to the certificate required for non-venture issuers under National Instrument 52-109 Certification of Disclosure in Issuers' Annual and Interim Filings (NI 52-109), this Venture Issuer Basic Certificate does not include representations relating to the establishment and maintenance of disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as defined in NI 52-109. In particular, the certifying officers filing this certificate are not making any representations relating to the establishment and maintenance of
i) controls and other procedures designed to provide reasonable assurance that information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and
ii) a process to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer's GAAP.
The issuer's certifying officers are responsible for ensuring that processes are in place to provide them with sufficient knowledge to support the representations they are making in this certificate. Investors should be aware that inherent limitations on the ability of certifying officers of a venture issuer to design and implement on a cost effective basis DC&P and ICFR as defined in NI 52-109 may result in additional risks to the quality, reliability, transparency and timeliness of interim and annual filings and other reports provided under securities legislation.