UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
_________________________________________
WASHINGTON, D.C. 20549
FORM 20-F
(Mark One)
[ ]REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
[ X ]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934
For the fiscal year ended __________December 31 2014
OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
OR
[ X ]SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report _____________report: January 12, 2017
Commission file number [ ]000-55103
_________________________________________
PACIFIC THERAPEUTICS LTD.
TOWER ONE WIRELESS CORP.
(Exact name of registrant as specified in its charter)
N/A
(Translation of registrant’s name into English)
British Columbia, Canada
(Jurisdiction of incorporation or organization)
1500 – 409 Granville St. in600-535 Howe Street, Vancouver, BC V6C 1T22Z4 Canada
(Address of principal executive offices)
Tel:604-559-8051Fax:604-559-8051
(Name, Telephone, E-Mail and/or Facsimile Number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
NONE
Securities registered or to be registered pursuant to Section 12(g) of the Act:
Title of each class: | Name of each exchange on which registered: |
CLASS A COMMON SHARES, | Canadian |
NO PAR VALUE |
Securities registered or to be registered pursuant to Section 12(g) of the Act:
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NONE_________________________________________
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
NONE
Indicate the number of outstanding shares of each of the Company’s classes of capital or common stock as of the close of the period covered by the annual report:38,976,825
6,735,885 Class A Common Shares, no par value as of December 31, 2014.2016.
Indicate by check mark if the registrant is a well-known seasoned Company, as defined in Rule 405 of the Securities Act.
YES [ ] NO [ X ]
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
YES [ ] NO [ X ]
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES [ X ] NO [ X ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site: www.pacifictherapeutics.com,www.toweronewireless.com, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
YES [ ] NO [ X ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 in the Exchange Act. (Check one):
Large Accelerated Filer [ ] | Accelerated Filer [ ] | Non-Accelerated Filer [ X ] |
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
[ ] U.S. GAAP |
If "Other" has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow:
[ ] Item 17 [ ] Item 18 [ X ]
If this is an annual report indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act:
YES [ ] NO [ ]
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PACIFIC THERAPEUTICS LTD.
Table of Contents
PART I | |||
Item 1. | Identity of Directors, Senior Management and Advisors | 1 | |
Item 2. | Offer Statistics and Expected Timetable | ||
Item 3. | Key Information | ||
Item 4. | Information on the Company | ||
Item 4A | Unresolved Staff Comments | 17 | |
Item 5. | Operating and Financial Review | ||
Item 6. | Directors, Senior Management and Employees | ||
Item 7. | Major Shareholders and Related Party Transactions | ||
Item 8. | Financial Information | ||
Item 9. | The Offer and Listing | ||
Item 10. | Additional Information | ||
Item 11. | Quantitative and Qualitative Disclosures about Market Risk | ||
Item 12. | Description of Securities Other Than Equity Securities | ||
PART II | |||
Item 13. | Defaults, Dividend Arrearages and Delinquencies | ||
Item 14. | Material Modifications to the Rights of Security Holders and Use of Proceeds | ||
Item 15. | Controls and Procedures | ||
Item 16A. | Audit Committee Financial Experts | ||
Item 16B. | Code of Ethics | ||
Item 16C. | Principal Accountant Fees and Services | ||
Item 16D. | Exemptions from the Listing Standards for Audit Committees | ||
Item 16E. | Purchases of Equity Securities by the Company and Affiliated Purchasers | ||
Item 16F. | Change in Registrant’s Certifying Accountant | ||
Item 16G. | Corporate Governance | ||
42 | |||
PART III | |||
Item 17. | Financial Statements | ||
Item 18. | Financial Statements | ||
Item 19. | Exhibits | ||
SIGNATURES |
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Part I
References in this Shell Company Report on Form 20-F to “we,” “our” and the “Company” refer to Tower One Wireless Corp. and its predecessor, as applicable, individually and collectively with its subsidiaries as the context requires.
Brief Introduction
Pacific Therapeutics Ltd. (the “Company”, “Issuer” or “PTL”)Tower One Wireless Corp. is a British Columbia, Canada corporation, incorporated on September 12, 2005.2005, under the British Columbia Business Corporations Act (“BCBCA”). It is a reporting Company in British Columbia and Ontario, and its shares are listed for trading on the Canadian NationalSecurities Exchange (“CSE”), the Frankfort Stock Exchange and are quoted on the OTCQB Venture Market.
The Company was initially incorporated as “Pacific Therapeutics Ltd.” On January 12, 2017, in connection with the completion of the Tower Three Transaction (defined below) the Company changed its name to “Tower One Wireless Corp.”
Before the completion of the Tower Three Transaction, the Company was a development stage specialty pharmaceutical company focused on developing late stage clinical therapies and in-licensed novel compounds for fibrosis, erectile dysfunction (ED) and other conditions. On July 24, 2015 the Company entered into a purchase and sale agreement (the “Forge Agreement”) with Forge Therapeutics Inc. (“CNSX”Forge”). of Wyoming, pursuant to which the Company agreed to sell certain of its technology assets (related to fibrosis and erectile dysfunction) to Forge in return for 15,000,000 common shares of Forge. The Company also entered into a 50-50 joint-venture with Truevita Supplements in March 2016 to develop an early stage immune boosting herbal supplement, known as BP120. This herbal supplement is aimed at the treatment of immune deficiency and hypertension.
On March 6, 2016, the company incorporated Cabbay Holdings Corp. (“Cabbay”) as a wholly-owned subsidiary. The Company entered into an arrangement agreement with Cabbay, dated April 18, 2016 and amended on April 21, 2016 (the “Arrangement Agreement”) in order to effect a plan of arrangement (the “Arrangement”) under the BCBCA. As part of the Arrangement, Cabbay issued its common shares in exchange for a special class of reorganization shares of the Company held by shareholders of the Company, which were subsequently redeemed by the Company in exchange for the assignment of the Forge Agreement and $1,000. The Arrangement Agreement and the Arrangement were approved by the Company’s shareholders on May 20, 2016 and approved by the British Columbia Supreme Court on May 31, 2016. Upon completion of the Arrangement, Cabbay was no longer a subsidiary of the Company. The Arrangement effectively resulted in the spin out of Cabbay to the Company’s shareholders and the transfer of the Forge Agreement to Cabbay. In connection with the restructuring, $440,549 of the Company’s debt in the form of accounts payable, convertible note and amounts due to related parties was assigned to Cabbay.
On January 12, 2017, the Company completed a “fundamental change” transaction (the “Tower Three Transaction”), with Tower Three, a limited liability company formed under the laws of the Republic of Colombia, pursuant to a share exchange agreement made effective as of October 19, 2016, as amended (the “Acquisition Agreement”) among the Company, Tower Three and the shareholders of Tower Three (the “Selling Shareholders”), whereby the Company acquired 100% of the securities of Tower Three from the Selling Shareholders, by issuing 30,000,000 common shares of the Company to the Selling Shareholders on a pro-rata basis. Following the completion of the Tower Three Transaction, Tower Three became a wholly-owned subsidiary of the Company, and the Company began conducting the principal business of Tower Three.
The Company was a shell company prior to the Tower Three Transaction. Since, as a result of the Tower Three Transaction, the Company ceased to be a shell company, the Company is required pursuant to Rule 13a-19 under the Securities Exchange Act of 1934 (the “Exchange Act”) to disclose the information in this Form 20-F that would be required to be disclosed if it were registering securities under the Exchange Act within four days following the consummation of the Tower Three Transaction.
Item 1. Identity of Directors, Senior Management and Advisers
A.A. Directors and Senior Management.Management
The termCompany’s board of officedirectors (the Board”) was reconstituted in conjunction with the closing of the Company’s directors expires annually atTower Three Transaction.
Immediately prior to the time of the Company’s annual general meeting. The term of the office of the officers expires at the discretion of the Company’s directors. Below is a list ofTower Three Transaction, the Company’s directors and senior management:management included the following individuals:
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Name | Function | Business Address |
Brian Gusko | Director | 600-535 Howe Street, Vancouver, BC V6C 2Z4 Canada |
Robert Horsley | Director and Chief Executive Officer | 600-535 Howe Street, Vancouver, BC V6C 2Z4 Canada |
Christine Mah | Director | 600-535 Howe Street, Vancouver, BC V6C 2Z4 Canada |
Derick Sinclair | Director and Chief Financial Officer | 600-535 Howe Street, Vancouver, BC V6C 2Z4 Canada |
Upon closing the Tower Three Transaction, the directors and officers of the Company who were either not continuing with the Company or who were continuing with the Company in a different capacity delivered their resignations, and the new directors and senior management were appointed and remain in office as set forth below:
Name | ||
Director, President | ||
Director | ||
Director | ||
Director | 600-535 Howe Street, Vancouver, BC V6C 2Z4 Canada | |
Chief Financial Officer | 600-535 Howe Street, Vancouver, BC V6C 2Z4 Canada | |
Octavio De La Espriella | Chief Operating Officer | |
5301 NW 74th Ave, Miami, FL, 33166, USA |
Please also see Item 6 of this Form 20-F for more information about the directors and senior management.
B.Advisers.
The Company’s outside legal counsel in the United States is Hunter Taubman WeissDavis Wright Tremaine LLP, at 130 w. 42nd865 South Figueroa Street, Suite 1050, New York, NY 10023; Tel: (212) 732-7184.2400, Los Angeles, CA 90017.
C.Auditors.
The Company’s auditors areauditor is Manning Elliott LLP, 1100 - 1050 W Pender St, Vancouver, British Columbia, Canada, V6E 3S. The former auditor, Davidson & CompanyChartered Professional Accountants at LLP, 1200-609 Granville Street, Vancouver, BCBritish Columbia, Canada V7Y 1G6; Tel: (604) 687-0947.1G6,of Vancouver, British Columbia. served as the Company’s auditor from April 2015 until they resigned on March 9, 2017, at which time Manning Elliott LLP was appointed auditor of the Company.
Item 2. Offer Statistics and Expected Timetable
Not Applicableapplicable
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Item 3. Key Information
A.A. Selected financial data
Selected financial data For the Years Ended December 31, 2014, 2013 and 2012for Tower One
The following selected information should be read in conjunction with the Company’s financial statements, and notes, filed with this Form 20-F. This information, and all other financial information in this Form 20-F, is stated in Canadian dollars unless otherwise noted.
The financial information is presented on the basis of International Financial Reporting Standards. With respectStandards as issued by the International Accounting Standards Board.
On March 15, 2016, the Company completed a share consolidation on the basis of thirty pre-consolidation common shares for each post consolidation common share. As such, all current and comparative share amounts have been restated to account
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for the Company’s30 to 1 common share consolidation.
Period ended | FYE 2016 (IFRS) | FYE 2015 (IFRS) | FYE 2014 (IFRS) | FYE 2013 (IFRS | FYE 2012 (IFRS) |
Total Revenues | $Nil | $Nil | $Nil | $Nil | $Nil |
Net loss and Comprehensive Loss | ($452,288) | $179,673 | ($693,645) | ($740,846) | ($605,468) |
Basic and diluted loss per share | (0.09) | $0.13 | ($0.56) | ($0.81) | ($0.84) |
Weighted average shares | 5,175,946 | 1,351,500 | 1,248,561 | 918,732 | 721,240 |
Year ended | FYE 2016 (IFRS) | FYE 2015 (IFRS) | FYE 2014 (IFRS) | FYE 2013 (IFRS) | FYE 2012 (IFRS) |
Total assets | $1,608,280 | $14,696 | $67,315 | $287,004 | $206,533 |
Net Assets | 1,468,473 | (609,410) | ($875,761) | ($440,144) | ($430,990) |
Share capital | $3,292,175 | $2,800,010 | $2,760,010 | $2,669,210 | $1,995,716 |
Shares committed for issuance | $Nil | $4,800 | $Nil | $Nil | $Nil |
Equity component of convertible note | $Nil | $1,080 | $Nil | $Nil | $Nil |
Share subscriptions received | $1,602,257 | $Nil | $30,000 | $Nil | $30,000 |
Contributed surplus | $563,568 | $121,939 | $289,766 | $123,704 | $206,212 |
Deficit accumulated | ($3,989,527) | ($3,537,239) | ($3,955,537) | ($3,263,058) | ($2,662,918) |
Common Shares Issued and Outstanding | 6,735,885 | 1,365,887 | 1,299,221 | 1,248,554 | 761,894 |
Dividends | $Nil | $Nil | $Nil | $Nil | $Nil |
Selected financial data for Tower Three
The following selected information should be read in conjunction with the financial statements, there are no material differences from applying these principles compared to applying United States generally accepted accounting principles.and notes for Tower Three, filed with this Form 20-F. This information, and all other financial information in this Form 20-F, is stated in Canadian dollars unless otherwise noted. Tower Three was incorporated on December 30, 2015 under the Business Corporation Act of Colombia.
The financial information is presented on the basis of International Financial Reporting Standards as issued by the International Accounting Standards Board.
Period ended | FYE 2014 (IFRS) | FYE 2013 (IFRS) | FYE 2012 (IFRS) | FYE 2016 | Period from |
Net Sales | $Nil | ||||
(IFRS) | incorporation on | ||||
December 30, 2015 to | |||||
December 31, 2015 | |||||
(IFRS) | |||||
Total Revenues | $19,406 | $Nil | |||
Net loss and Comprehensive Loss | ($693,645) | ($740,846) | ($605,468) | ($301,183) | ($21,151) |
Basic and diluted loss per share | ($0.02) | ($0.03) | (29.20) | (2.12) | |
Weighted average shares | 37,830,595 | 27,561,948 | 21,637,193 | 10,000 |
Year ended | FYE 2014 (IFRS) | FYE 2013 (IFRS) | FYE 2012 (IFRS) |
Total assets | $67,315 | $287,044 | $206,533 |
Net Assets | ($875,761) | ($440,144) | ($430,990) |
Share capital | $2,760,010 | $2,699,210 | $1,995,716 |
Contributed surplus | $289,766 | $123,704 | $206,212 |
Deficit accumulated during the development stage | ($3,955,537 | ($3,263,058) | ($2,662,918) |
Common Shares Issued | 38,976,825 | 37,456,825 | 22,586,825 |
Dividends | $Nil | $Nil | $Nil |
Year ended | FYE 2016 | FYE 2015 |
(IFRS) | (IFRS) | |
Current Assets | ||
Cash | $9,864 | $Nil |
Due from related parties | $Nil | $4,300 |
Prepaid expenses and deposits | $114,032 | $Nil |
$123,896 | $4,300 | |
Equipment | $248,478 | $Nil |
$372,374 | $4,300 | |
Current Liabilities | ||
Accounts payable and accrued liabilities | $70,406 | $Nil |
Deferred revenue | $4,480 | $Nil |
Due to related parties | $615,522 | $21,151 |
$690,408 | $21,151 |
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Shareholders’ Deficiency | ||
Chare capital | $4,300 | $4,300 |
Deficit | $(313,155) | $21,151 |
Accumulated other comprehensive loss | $(9,179) | Nil |
$(318,034) | $(16,851) | |
$372,374 | $4,300 |
Currency
The following table sets out exchange rates, based on the noon buying rates in New York City, for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York, referred to as the "Noon Buying Rate", for the conversion of dollars to Canadian dollars in effect at the end of the following periods, the average exchange rates during these periods (based on daily Noon Buying Rates) and the range of high and low exchange rates for the periods indicated:
Years Ended December 31, | |||||||||
2016 | 2015 | 2014 | 2013 | 2012 | |||||
($/C$) | |||||||||
End of period | 0.7448 | �� | 0.7226 | 0.8620 | 0.9401 | 1.0042 | |||
High for period | 0.6853 | 0.7148 | 0.8588 | 0.9348 | 0.9600 | ||||
Low for period | 0.7972 | 0.8529 | 0.9423 | 1.0164 | 1.0299 | ||||
Average for period | 0.7558 | 0.7830 | 0.9060 | 0.9712 | 1.0007 |
The most recent weekly publication of the Noon Buying Rate before the date that the Tower Three Transaction was completed reported that, as of January 12, 2017, the Noon Buying Rate for the conversion of dollars to Canadian dollars was $0.7616 per Canadian dollar.
The most recent weekly publication of the Noon Buying Rate before the date of this Form 20-F was filed reported that, as of October 20, 2017, the Noon Buying Rate for the conversion of dollars to Canadian dollars was $0.7925 per Canadian dollar.
B. Capitalization and indebtedness.
The following table sets forth ourCompany’s audited financial statements for fiscal year ended December 31, 2016 as required under Item 18 are attached hereto starting on page F-1 of this Form 20-F. All of the financial information is presented herein in accordance with International Financial Reporting Standards, as issued by the International Accounting Standards Board.
Below is a statement of the capitalization and indebtedness (including indirect and contingent indebtedness) of the Company as at December 31, 2016, showing the company’s capitalization on a pro forma basis as if the Tower Three Transaction had been completed as of December 31, 2014that date (expressed in Canadian dollars). It is important that you read this table together with, and December 31, 2013. This table should be read in conjunction with “Item 5. Operating and Financial Review and Prospects” andit is qualified by reference to, our audited consolidated financial statements and related notes included elsewhere inthe Tower Three audited financial statements attached hereto starting on page F-1 of this Registration Statement on Form 20-F.
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As ofDecember31, 2014 | As of December 31, 2013 | |
Current Liabilities: | ||
Accounts payable and accruals: | $943,076 | $727,188 |
Non-Current Liabilities: | $Nil | $Nil |
Equity: | ||
Common shares | $2,760,010 | $2,699,210 |
Subscriptions Received | $30,000 | $Nil |
Contributed Surplus | $289,766 | $123,704 |
Accumulated deficit | $3,955,537 | ($3,263,058) |
Total equity | ($875,761) | ($440,144) |
Liabilities and equity: | $67,315 | $287,044 |
As at December 31, 2016 | |||
Pacific Therapeutics | Tower Three | Pro Forma | |
($/C$) | |||
Current Assets | |||
Cash | 1,378,183 | 9,864 | 1,388,047 |
Amounts receivable | 14,439 | — | 14,439 |
Due from related parties | 189,468 | — | 189,468 |
Prepaid expenses and deposits | 26,190 | 114,032 | 140,222 |
1,608,280 | 123,896 | 1,732,176 | |
Equipment | — | 248,478 | 248,478 |
— | 372,374 | 372,374 | |
Current liabilities | |||
Accounts payable and accrued liabilities | 133,507 | 70,406 | 203,913 |
Deferred revenue | — | 4,480 | 4,480 |
Due to related parties | 6,300 | 615,522 | 621,822 |
139,807 | 690,408 | 830,215 | |
Shareholders’ Equity (Deficiency) | |||
Share capital | 3,292,175 | 4,300 | 3,296,475 |
Share subscriptions received | 1,602,257 | — | 1,602,257 |
Contributed surplus | 563,568 | — | 563,568 |
Deficit | (3,989,527) | (313,155) | (4,302,682) |
Accumulated other comprehensive loss | — | (9,179) | (9,179) |
1,468,473 | (318,034) | 1,150,439 | |
1,608,280 | 372,374 | 1,980,654 |
C. Reasons for the offer and use of proceeds.
Not Applicable.
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D. Forward-Looking Statement and Risk factors.
Forward-Looking Statements
This Form 20-F and the documents to which we refer youincorporated herein by reference contain forward-looking statements. In addition, from time to time, we or our representatives may make forward-looking statements orally or in writing. We base these forward-looking statements on our expectations and projections about future events, which we derive from the information currently available to us. Such forward-looking statements relate to future events or our future performance. You can identify forward-looking statements by those that are not historical in nature, particularly those that use terminology such as “may,” “will,” “should,” “expects,” “anticipates,” “contemplates,” “estimates,” “believes,” “plans,” “projected,” “predicts,” “potential” or “continue” or the negative of these or similar terms.
In evaluating these forward-looking statements, you should consider variousthe following factors, includingas well as those described in “Risk Factors” below. below:
changes to existing or new tax laws or methodologies impacting the Company’s international operations, fees directed specifically at the ownership and operation of communications sites or international acquisitions, any of which may be applied or enforced retroactively, or failure to obtain an expected tax status for which the Company has applied;
laws or regulations that tax or otherwise restrict repatriation of earnings or other funds or otherwise limit distributions of capital;
changes in a specific country’s or region’s political or economic conditions, including inflation or currency devaluation;
changes to zoning regulations or construction laws, which could be applied retroactively to existing communications sites;
expropriation or governmental regulation restricting foreign ownership or requiring reversion or divestiture;
actions restricting or revoking the Company’s customers’ spectrum licenses or suspending or terminating business under prior licenses;
failure to comply with anti-bribery laws or similar local anti-bribery laws;
material site security issues;
significant increase in or implementation of new license surcharges on the Company’s revenue;
price setting or other similar laws or regulations for the sharing of passive infrastructure;
uncertain or inconsistent laws, regulations, rulings or results from legal or judicial systems, which may be enforced
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changes in foreign currency exchange rates, including those arising from the Company’s operations, investments and financing transactions related to its international business.
These and other factors may cause our actual results to differ materially from any forward-looking statement. Forward-looking statements are only predictions. The forward-looking events discussed in this Form 20-F and the documents to which we refer you and other statements made from time to timeincorporated by us or our representatives,reference herein may not occur, and actual events and results may differ materially and are subject to risks, uncertainties and assumptions about us. Unless required by applicable law, we undertake no obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Risk Factors
An investment in the Common Shares of the Company must be considered highly speculative due to the nature of the Company’s business. The risk and uncertainties below are not the only risks and uncertainties the Company may have. Additional risks and uncertainties not presently known to the Company or that the Company currently considers immaterial may also impair the business, operations and future prospects of the Company and cause the price of the Common Shares to decline. If any of the following risks actually occur, the business of the Company may be harmed and its financial condition and results of operations may suffer significantly. In addition to the risks described elsewhere and the other information in this Form 20-F, the Company notes the following risk factors:
Issuer Risk -Company Risks that are specific to the Company
Insufficient FundsThe Company’s business depends on the demand for wireless communication services and wireless infrastructure, and it may be adversely affected by any slowdown in such demand. Additionally, a reduction in carrier network investment may materially and adversely affect the Company’s business (including reducing demand for new tenant additions or network services).
Demand for the Company’s wireless infrastructure depends on the demand for antenna space from its customers, which, in turn, depends on the demand for wireless communication services by their customers. The willingness of the Company’s customers to Accomplishutilize its wireless infrastructure, or renew or extend existing leases on its wireless infrastructure, is affected by numerous factors, including:
consumer demand for wireless connectivity;
availability or capacity of wireless infrastructure or associated land interests;
location of wireless infrastructure;
financial condition of customers, including their profitability and availability or cost of capital;
willingness of customers to maintain or increase their network investment or changes in their capital allocation strategy;
availability and cost of spectrum for commercial use;
increased use of network sharing, roaming, joint development, or resale agreements by customers;
mergers or consolidations among customers;
changes in, or success of, customers’ business models;
governmental regulations, including local or state restrictions on the Company's Business Objectivesproliferation of wireless infrastructure;
cost of constructing wireless infrastructure;
technological changes, including those (1) affecting the number or type of wireless infrastructure needed to provide wireless connectivity to a given geographic area or which may otherwise serve as substitute or alternative to wireless infrastructure or (2) resulting in the obsolescence or decommissioning of certain existing wireless networks; or
the ability to efficiently satisfy customers’ service requirements.
A slowdown in demand for wireless connectivity or wireless infrastructure may negatively impact the Company’s growth or otherwise have a material adverse effect on the Company. If the Company’s customers or potential customers are unable to raise adequate capital to fund their business plans, as a result of disruptions in the financial and credit markets or otherwise, they may reduce their spending, which could adversely affect the Company’s anticipated growth or the demand for the Company’s wireless infrastructure or network services. The amount, timing, and mix of the Company’s customers’ network investment is variable and can be significantly impacted by the various matters described in these risk factors. Changes in carrier network investment typically impact the demand for its wireless infrastructure. As a result, changes in carrier plans such as delays in the implementation of new systems, new technologies (including small cells), or plans to expand coverage or capacity may reduce demand for its wireless infrastructure. Furthermore, the wireless industry could experience a slowdown or slowing growth rates as a result of numerous factors, including a reduction in consumer demand for wireless connectivity or general economic conditions. There can be no assurances that weakness or uncertainty in the economic
6
environment will not adversely impact the wireless industry, which may materially and adversely affect the Company’s business, including by reducing demand for its wireless infrastructure or network services. In addition, a slowdown may increase competition for site rental customers or network services. A wireless industry slowdown or a reduction in carrier network investment may materially and adversely affect the Company’s business.
New technologies may reduce demand for wireless infrastructure or negatively impact revenues.
Improvements in the efficiency, architecture, and design of wireless networks may reduce the demand for the Company’s wireless infrastructure. For example, new technologies that may promote network sharing, joint development, or resale agreements by its customers, such as signal combining technologies or network functions virtualization, may reduce the need for the Company’s wireless infrastructure. In addition, other technologies, such as WiFi, DAS, femtocells, other small cells, or satellite (such as low earth orbiting) and mesh transmission systems may, in the future, serve as substitutes for, or alternatives to, leasing that might otherwise be anticipated or expected on wireless infrastructure had such technologies not existed. In addition, new technologies that enhance the range, efficiency, and capacity of wireless equipment could reduce demand for the Company’s wireless infrastructure. Any significant reduction in demand for the Company’s wireless infrastructure resulting from the new technologies may negatively impact the Company’s revenues or otherwise have a material adverse effect on the Company.
The expansion or development of the Company’s business, including through acquisitions, increased product offerings or other strategic growth opportunities, may cause disruptions in the Company’s business, which may have an adverse effect on the Company’s operations or financial results.
The Company remains under constant working capital pressures. Asmay seek to expand and develop its business, including through acquisitions, increased product offerings (such as small cells and fiber), or other strategic growth opportunities. In the ordinary course of December 31, 2014,business, the Company had a working capital deficit of $940,241. In the near future,may review, analyze, and evaluate various potential revenues cannot support existing and upcoming expensestransactions or other capital requirements. Whenactivities in which it may engage. Such transactions or activities could cause disruptions in, increase risk or otherwise negatively impact its business. Among other things, such transactions and activities may:
disrupt the Company’s business relationships with its customers, depending on the nature of or counterparty to such transactions and activities;
direct the time or attention of management away from other business operations;
fail to achieve revenue or margin targets, operational synergies or other benefits contemplated;
increase operational risk or volatility in the Company’s business; or
result in current funding has been expended,or prospective employees experiencing uncertainty about their future roles with the Company, will require and is planning for additional funding. There is no assurance that this funding will be available when required bywhich might adversely affect the Company’s ability to retain or attract key managers or other employees.
If the Company and/fails to retain rights to its wireless infrastructure, including the land interests, the Company’s business may be adversely affected. The property interests on which the Company’s wireless infrastructure resides, including the land interests under its towers, consist of leasehold interests. A loss of these interests may interfere with the Company’s ability to conduct its business or available on suitable terms. Furthermore,generate revenues. For various reasons, the Company expects negative operating cash flows formay not always have the immediately foreseeable future.
Substantial Capital Requirements for Research and Development
The Company anticipates that it may make substantial research and development expenditures for clinical trials in the future. Asability to access, analyze, or verify all information regarding titles or other issues prior to purchasing wireless infrastructure. Further, the Company has no operating revenue being generated from its research and development activities, the Company doesmay not expectbe able to generate any revenue in the near future and may have limitedrenew ground leases on commercially viable terms. The Company’s ability to expend the capital necessary to undertake or complete future research and development work. There can be no assurance that debt or equity financing will be available or sufficient to meet these requirements or for other corporate purposes or, if debt or equity financing is available, that it will be on terms acceptableretain rights to the Company. Moreover, future activities may requireland interests on which its towers reside depends on its ability to purchase such land, including fee interests and perpetual easements, or renegotiate or extend the Companyterms of the leases relating to alter its capitalization significantly.such land. If the Company is unable to obtain additional financing, itretain rights to the property interests on which its wireless infrastructure resides, its business may be unable to complete the development and commercialization of PTL-202 and PTL-303 or continue its research and development programs.adversely affected.
Unanticipated CostsPolitical, economic and Delaysother uncertainties in countries where the Company operates could negatively effect the company’s business.
The CompanyCompany’s business operations are currently located in Colombia. Although Colombia has a long-standing tradition of respecting the rule of law, which has been bolstered in recent years by the present government’s policies and programs, no assurance can be given that the Company’s plans and operations will not be adversely affected by future developments in Colombia. The Company’s existing assets and proposed activities in Colombia are subject to political, economic and other uncertainties, including the risk of expropriation, nationalization, renegotiation or nullification of existing contracts, licenses and permits or other agreements, changes in laws or taxation policies, currency exchange restrictions, changing political conditions, and international monetary fluctuations. Future government actions concerning the economy, taxation, or the operation and regulation of nationally important facilities such as communications could have a significant effect on the Company. Any changes in regulations or shifts in political attitudes are beyond the Company’s control and may adversely affect its business. The Company’s business may be subjectaffected in varying degrees by government regulations with respect to unanticipated costs or delays that would accelerate its need for additional capital or increase the costs of individual clinical trials. If the Company is unable to raise additional capital when required orrestrictions on acceptable terms, it may have to significantly delay, scale back or discontinue the development and/or commercialization of one or more of its product candidates. The Company may also be required to:future expansion, price controls, export controls, foreign exchange controls, earnings repatriation, income
seek collaborators for our product candidates at an earlier stage than otherwise would be desirable and on terms that are less favorable than might otherwise be available; or
relinquish or license on unfavorable terms its rights to technologies or product candidates that it otherwise would seek to develop or commercialize itself.
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and/or business taxes or expropriations.
In particular, operating in Colombia presents the following unique risks to the Company’s business and operations:
UncertaintyLegal System
As a civil law jurisdiction, Colombia has a legal system different from the common law jurisdictions of Additional FinancingCanada and the United States. There can be no assurance that licenses, permits, applications or other legal arrangements will not be adversely affected by changes in governments, the actions of government authorities or others, or the effectiveness and enforcement of such arrangements.
Permits and Licenses
The Company does not have the existing capital resourcesCompany’s business activities in Colombia are dependent on receipt of government approvals or permits to fund operations to complete a pivotal bio-availability study of PTL-202 providing information for future development studies. The Company anticipates that it will need to raise additional capital, through private placementsdevelop its business. Any delays in receiving government approvals or public offerings of its equitypermits or debt securities, in addition to the capital on hand, to complete the long-term development and commercialization of its current product candidates. The inability of the Company to access sufficient additional capital for its operations could have a material adverse effect onno objection certificates may delay the Company’s financial condition, results of operations or prospects. In particular, failure to obtain such financing on a timely basis could causemay affect the Company to miss certain acquisition opportunities and reduce or terminate its business.
Dilution
To date the Company’s sources of cash have been limited primarily to proceeds from the founders, friends and retail investors. It is likely that the Company will enter into more agreements to issue Common Shares and warrants and options to purchase Common Shares.
The impact of the issuance of a significant amount of Common Shares from the exercisestatus of the Company’s outstanding warrants and options could place downward pressurecontractual arrangements or its ability to meet its contractual obligations.
Repatriation of Earnings
Currently there are no restrictions on the market pricerepatriation from Colombia of capital and distribution of earnings from Colombia to foreign entities. However, there can be no assurance that restrictions on repatriation of capital or distributions of earnings from Colombia will not be imposed in the Common Shares.future.
Foreign Currency Fluctuations
The Company’s current and proposed business operations in Colombia render it subject to foreign currency fluctuations, which may materially affect its financial position. The Company cannotholds Canadian and U.S. dollars and sends funds to Colombia in U.S. dollars, which are then converted into Colombian pesos. The important exchange rates for the Company are those for the U.S. dollar, Canadian dollar and Colombian peso. While the Company is funding operations in Colombia, its results could be certain that additional funding will be available on acceptable terms,impaired by adverse changes in the U.S. dollar and Canadian dollar relative to the Colombian peso exchange rate. Prior and future equity financings result in the generation of Canadian dollar proceeds to fund the Company’s activities, which are mostly incurred in U.S. dollars or at all.Colombian pesos. To the extent that the Company raises additional funds by issuing equity securities, its shareholders may experience significant dilution. Any debt financing, if available, may involve restrictive covenants,from such as limitations onfinancings are maintained in Canadian dollars, the Company’s ability to incur additional indebtedness, limitations on its ability to acquire or license intellectual property rightsresults can be significantly impacted by adverse changes in exchange rates between the Canadian dollar, the U.S. dollar and other operating restrictions that could adversely impact its ability to conduct business.
No History of Sales or Profitsthe Colombian peso.
The Company does not haveCompany’s operations may also be adversely affected by laws and policies of Canada affecting foreign trade, taxation and investment. In the event of a history of earnings or profit, has never had any products available for commercial sale and has not generated any revenue from product sales. The Company does not anticipate that it will generate revenue from the sale of products for the foreseeable future and has not yet submitted any products for approval by regulatory authorities. The Company continues to incur research and development and general and administrative expenses related to its operations. There is no assurance thatdispute arising in the future the Company will develop revenues, operate profitably or provide a return on investment. Therefore, investors should not invest on the expectation of receiving dividends or any guaranteed return on their investment of any nature. The Company is expected to continue to incur losses for the foreseeable future and expects these losses to increase as it continues research activities and development of its product candidates, seeks regulatory approvals for its product candidates, and acquires rights to additional products for development. Ifconnection with the Company’s product candidates failoperations in clinical trials or do not gain regulatory approval, or if its product candidates do not achieve market acceptance,Colombia, the Company may never become profitable. Even ifbe subject to the exclusive jurisdiction of foreign courts or tribunals, or may not be successful in subjecting foreign persons to the jurisdictions of the courts of Canada or enforcing Canadian judgments in such other jurisdictions. Company achieves profitabilitymay also be hindered or prevented from enforcing its rights with respect to a governmental body because of the doctrine of sovereign immunity. Accordingly, the Company’s business activities in Colombia could be substantially affected.
Security and guerrilla activity in Colombia could negatively impact the Company’s business.
Colombia has had a publicized history of security problems associated with certain narcotics crime organizations and other terrorist groups. A 40-year armed conflict between the government forces of Colombia and anti-government insurgent groups and illegal paramilitary groups, both thought to be funded by the drug trade, continues in Colombia. Insurgents continue to attack civilians and violent guerrilla activity continues in many parts of the country.
There have been peace negotiations between the government and the Fuerzas Armadas Revolucionarias de Colombia (FARC) guerrillas for many years. A recent settlement has been reached to end the conflict, which is intended to bring further institutional strengthening and development, particularly to rural regions. The government’s biggest challenge is to maintain a lasting peace and that demobilized members of the FARC rejoin civilian life, rather than regrouping in criminal bands.
Continuing attempts to reduce or prevent guerrilla activity may disrupt the Company’s operations in the future, itfuture. The Company may not be able to sustain profitabilityestablish or maintain the safety of its operations and personnel in subsequent periods.
No History of Paying Dividends
AnColombia, and this violence may affect its operations in the future. Any increase in the market price of the Company’s Common Shares, which is uncertainkidnapping and/or terrorist activity in Colombia generally may disrupt supply chains and unpredictable, may be an investor’s sole source of gaindiscourage qualified individuals from an investmentbeing involved in the Company’s Common Shares. An investmentoperations. Additionally, the perception that matters have not improved in Colombia may hinder the Company’s Common Shares may not be appropriate for investors who require dividend income.
No dividends have been paid on the Company's Common Shares since inception and there is no assurance that such dividends will be earned or paid in the future. For the foreseeable future, the Company expects to re-invest in its operations all cash flow that might otherwise be available for distribution to shareholders in the form of cash dividends. While the payment of stock dividends is an alternative, there is no assurance that these will be paid in the foreseeable future. The Company does not anticipate paying any dividends on the Shares in the foreseeable future. As a result, capital appreciation, if any, of the Company’s Common Shares will be the shareholder’s sole source of gain for the foreseeable future.
Influence of Principal Shareholders
As at the date of this filing, Directors and Officers will own approximately 20.7% of the issued and outstanding Common Shares of the Company. As a result, these shareholders, together or individually will have the ability to controlaccess capital in a timely or influence the outcome of most corporate actions requiring shareholder approval, including the election of directors of the Company and the approval of certain corporate transactions. The concentration of ownership of the Company may also have the effect of delaying or preventing a change in control of the Company.cost effective
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manner.
Commercializing of Drug CandidatesSocial Disruptions and Instability in Colombia could disrupt the Company’s Operations.
In order to successfully commercialize drugs, the Company must enter into collaborations with partners to develop a capable sales, marketing and distribution infrastructure. The Company intends to enter into partnering, co-promotion and other distribution arrangements to commercialize products in most markets. However, the Company may not be able to enter into collaborations on acceptable terms, if at all, and may face competition in its search for partners with whom to collaborate. If the Company is unable to develop collaborations with one or more partners to perform these functions, it may not be able to successfully commercialize its products, which could cause the Company to cease operations.
Dependence on the Success of PTL-202
PTL-202, the Company’s lead product candidate, has been tested in pre-clinical models of lung Fibrosis. These tests indicate that PTL-202 may be an effective drug to treat Pulmonary Fibrosis. PTL-202 was cleared by regulators to begin Phase 1 clinical trials during 2012. This drug/drug interaction trial was concluded in September 2012.
In order to market PTL-202, the Company, in conjunction with its collaborators, will have to conduct additional clinical trials, including bioequivelency, Phase 2 proof of principal clinical trials as well as Phase 3 clinical trials, to demonstrate safety and efficacy. The Company has not initiated any Phase 2 or Phase 3 clinical trials with any of its product candidates. If the proposed clinical trials generate safety concerns or demonstrate a lack of efficacy, or competitive products developed by third parties show significant benefitGenerally, companies operating in the indicationstelecommunications industry in which the Company is developing product candidates, any planned clinical trial may be delayed, altered or not initiated and PTL-202 may never receive regulatory approval or be successfully commercialized.
The Company’s other product candidate, PTL-303, has only been tested in cellular assaysColombia have experienced various degrees of interruptions to determine a signaltheir operations as a possible drug candidate. PTL-303 has not been testedresult of social instability. This uncertainty may affect operations in animals or humans.
Even if the Company’s product candidates receive regulatory approval, the Company or its collaborators may not be successful in marketing them for a numberunpredictable ways, including disruptions of reasons, including the introduction by competitors of more clinically-effective or cost-effective alternatives or failure in the Company or collaborator’s sales and marketing efforts.
Any failure to obtain approval of PTL-202 or PTL-303, and successfully commercialize them, would have a material and adverse impact on the Company’s business, which could cause the Company to cease operations.
Reliance on the Company’s management
Investors will in large part entrust their funds to the directors, management, and other professional advisors in whose judgment investors must depend with only limited information about their specific evaluation of the “sound business reasons” on which any reallocation of funds would be based. The Company's financing and enterprise acquisition/development policies and practices may be changed at the discretion of the Board of Directors. Persons who are not willing to rely on the Company’s management and/or Directors should not purchase the Company’s Shares.
Attraction and Retentionaccess of the Company’s Management
The Company will need to expand and effectively manage its managerial, operational, financial, development and other resources in order to successfully pursue its research, development and commercialization efforts of existing and future product candidates. The Company's success depends on its continued ability to attract, retain and motivate highly qualified management, pre-clinical and clinical personnel. The loss of the services of any of the Company’s senior management could delay or prevent the commercialization of its product candidates. Although the Company has entered into an employment agreement with Douglas H. Unwin, its Chief Executive Officer, the agreement permits Mr. Unwin to terminate his employment with the Company at any time, subject to providing the Company with advance written notice.
The Company may not be able to attract or retain qualified management and scientific personnel in the future due to the intense competition for qualified personnel among specialty pharmaceutical, biotechnology, pharmaceutical and other businesses. If the Company is not able to attract and retain the necessary personnel to accomplish its business objectives, the achievement of its development objectives, its ability to raise additional capital and its ability to implement its business strategy may be significantly reduced. In particular, if the Company loses any members of its senior management team, it may not be able to find suitable replacements in a timely fashion, or at all, and the business may be harmed as a result.
Use of Contract Personnel
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From time to time the Company will need to contract additional personnel to continue its expansion. The Company uses scientific, clinical and regulatory advisors extensively to assist in formulating its development and clinical strategies. These advisors are not the Company’s employees and may have commitments to, or consulting or advisory contracts with, other entities that may limit their availability to the Company. In addition, these advisors may have arrangements with other companies to assist those companies in developing products or technologies that may compete with the Company’s. If the Company is unable to contract the correct personnel, it may be unable to implement or complete its product development programs, resulting in the inability to commercialize its product candidates or generate sufficient revenue to continue in business.
Dependence on key employees, suppliers or agreements
Executive management of the Company's business is primarily provided by the Company's CEO, CFO, and Board of Directors. At this stage of its corporate development, the Company has necessarily limited the establishment of extensive administrative and operating infrastructure. Instead, the Company may rely, for necessary skills, on external adviser/consultants with extensive senior level management experience in such fields as formulation, drug development, pharmaceutical regulations, finance, manufacturing, marketing, law, and investment. The future success of the Company is very dependent upon the ongoing availability and commitment of its directors, officers and advisor consultants, not all of whom are or will be bound by formal contractual employment agreements. The absence of these formal contractual relationships may be considered to represent an area of risk.
Dependence on Third Parties to Conduct Clinical Trials
The Company will hire third parties to conduct clinical trials. If these third parties do not perform as contracted or expected, the Company may not be able to obtain regulatory approval for its drug candidates, preventing the Company from becoming profitable.
The Company relies on third parties, such as contract research organizations, medical institutions, clinical investigators and contract laboratories, to conduct its pre-clinical research and clinical trials. Although the Company relies on these third parties to conduct its clinical trials, it is responsible for ensuring that each of its clinical trials is conducted in accordance with its investigational plan and protocol, as approved by the FDA and non-U.S. regulatory authorities. Moreover, the FDA and non-U.S. regulatory authorities require the Company to comply with regulations and standards, commonly referred to as Good Clinical Practices (“GCPs”), for conducting, monitoring, recording and reporting the results of clinical trials to ensure that the data and results are scientifically credible and accurate and that the clinical trial subjects are adequately informed of the potential risks of participating in clinical trials.
The Company’s reliance on third parties does not relieve it of the above responsibilities and regulatory requirements. If the third parties conducting the Company’s clinical trials do not perform their contractual duties or obligations, do not meet expected deadlines or need to be replaced, or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to GCPs or for any other reason, the Company may need to enter into new arrangements with alternative third parties, and its clinical trials may be extended, delayed or terminated. In addition, a failure by third parties to perform their obligations in compliance with GCPs may cause the Company’s clinical trials to fail to meet regulatory requirements, which may require the Company to repeat its clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, the Company may be unable to obtain regulatory approval for or commercialize its current and future product candidates.
Marketing and Distribution Risk
If the Company is unable to develop its sales and marketing and distribution capability on its own or through collaborations with marketing partners, it will not be successful in commercializing its product candidates. The Company currently does not have a marketing staff nor a sales or distribution organization. The Company does not intend to develop a sales or distribution organization internally.
The Company currently does not have marketing, sales or distribution capabilities. The Company has decided to collaborate with third parties that have direct sales forces and established distribution systems, either to augment or substitute in lieu of its own sales force and distribution systems. To the extent that the Company enters into co-promotion or other licensing arrangements, its product revenue is likely to be lower than if the Company directly marketed or sold its products, when and if it has any. In addition, any revenue received will depend in whole or in part upon the efforts of such third parties, which may not be successful and will generally not be within the Company’s control. If the Company is unable to enter into such arrangements on acceptable terms or at all, it may not be able to successfully commercialize its existing and future product candidates. If the Company is not successful in commercializing its existing and future product candidates, either on its own
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or through collaborations with one or more third parties, future product revenue will suffer and the Company may incur significant additional losses.
Industry Risk - Risks faced by the Company because of the industry in which it operates
Research and Development
The Company is developing new, proprietary substances, methods and processes intended to enhance the therapeutic effects of existing drugs in the treatment of diseases characterized by progressive Fibrosis. The existing drugs that form the basis of the Company’s efforts to develop new substances, methods and processes are well known, yet any scientific evidence that may exist to support the feasibility of the Company’s goals is not conclusive. If the Company is not successful in developing and marketing any new drugs, combinations of existing drugs or reformulation and repurposing of existing approved drugs it may never generate revenues and the business may fail.
Clinical Trial Design
The Company’s business strategy is to combine, reformulate and repurpose existing drugs for the treatment of new indications, and these new drug combinations or formulations may have the ability to treat many indications. The Company may incorrectly assess the market opportunities of an indication or may incorrectly estimate or fail to fully appreciate the scientific and technological difficulties associated with treating a specific indication. Furthermore, the quality and robustness of the results and data of any clinical study the Company conducts will depend upon the selection of a patient population for clinical testing. If the selected population is not representative of the intended population, further clinical testing of product candidates or termination of research and development activities related to the selected indication may be required. The Company’s ability to commence clinical testing or the choice of clinical development path could compromise business prospects and prevent the achievement of revenue.
Product Failure in Clinical Trials
Clinical trials may fail to adequately demonstrate the safety and efficacy of product candidates. The Company will be required to demonstrate with substantial evidence through well-controlled clinical trials that its product candidates are safe and effective for use in a diverse population before the Company can seek regulatory approvals for their commercial sale. Negative results from clinical trials will prevent the commercialization of a drug candidate. If the Company cannot show that its product candidates are both safe and effective in clinical trials, it will need to re-evaluate its strategic plans.
Positive results from pre-clinical studies and early clinical trials should not be relied upon as evidence that later-stage or large-scale clinical trials will succeed. Success in early clinical trials does not mean that future clinical trials will be successful because product candidates in later-stage clinical trials may fail to demonstrate sufficient safety and efficacy to the satisfaction of the FDA and other non-U.S. regulatory authorities, despite having progressed through initial clinical trials.
Even after the completion of Phase 3 clinical trials, the FDA or other non-U.S. regulatory authorities may disagree with the Company’s clinical trial design and its interpretation of data, and may require the Company to conduct additional clinical trials to demonstrate the efficacy of its product candidates.
Regulatory Risk and Market Approval
Any products that the Company develops will be subject to extensive government regulations relating to development, clinical trials, manufacturing and commercialization. In the United States, for example, the drug combinations that the Company intends to develop and market are regulated by the FDA under its new drug development and review process. Before any therapeutic products can be marketed, the sponsor company must obtain clearance from the FDA by submitting an investigational new drug application, then by successfully completing human testing under three phases of clinical trials, and finally by submitting a new drug application.
The time required to obtain approvals for drug combinations or reformulations from the FDA and other agencies in foreign locales with similar processes is unpredictable. There is no assurance that the Company will ever receive regulatory approval to use its proprietary drug combinations or reformulations as human therapeutics. If such regulatory approval is not obtained, the Company may never become profitable.
Failure to Receive Regulatory Approval f or Clinical Trials
The Company’s clinical development programs for PTL-202 and PTL-303 may not receive regulatory approval for clinical
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trials if the Company fails to demonstrate that they are safe and effective in pre-clinical trials. Consequently, failure to obtain necessary approvals from the FDA or similar non-U.S. regulatory agencies to operate clinical trials for the Company’s product candidates could result in delaysoperators to the Company’s product development efforts.
Manufacture and Supply of Drug Candidates
The Company does not own or operate manufacturing facilities, and it depends on third-party contract manufacturers for production of its product candidates. The Company has no experience in drug formulation or manufacturing, and it lacks the resources and the capability to manufacture any of its product candidates. Product candidates have been purchased in limited quantities for pre-clinical studies from scientific supply houses. For Phase 1 and 2 clinical trials of PTL-202, the Company will need to obtain additional quantities of active pharmaceutical ingredients. The Company will need to contract with a manufacturer for a supply of PTL-303 for pre-clinical, and Investigational New Drug-enabling toxicology studies and initial clinical trials (Phase 1 and 2). If, in the future, one of the Company’s product candidates is approved for commercial sale, the Company or its collaborator will need to manufacture that product candidate in commercial quantities. The Company cannot guarantee that the third-party manufacturers with which it has previously contracted will have sufficient capacity to satisfy future manufacturing needs of PTL-202 or PTL-303, or that the Company will be able to negotiate additional purchases of active pharmaceutical ingredients or drug products from these or alternative manufacturers on terms favourable to the Company, or at all.
Third party manufacturers may fail to perform under their contractual obligations, or may fail to deliver the required commercial quantities of bulk active ingredients or finished product on a timely basis and at commercially reasonable prices. Any performance failure on the part of the Company’s contract manufacturers could delay clinical development or regulatory approval of the Company’s product candidates or commercialization of its future product candidates, depriving the Company of potential product revenue and resulting in additional losses.
If the Company is required to identify and qualify an alternate manufacturer, it may be forced to delay or suspend its clinical trials, regulatory submissions, required approvals or commercialization of its product candidates, which may cause it to incur higher costs and could prevent the successfully commercializing its product candidates. If the Company is unable to find one or more replacement manufacturers capable of production at a reasonably favourable cost, in enough volume, of adequate quality, and on a timely basis, the Company would likely be unable to meet demand for its product candidates and its clinical trials could be delayed or it could lose potential revenue. The Company’s ability to replace an existing active pharmaceutical ingredient manufacturer may be difficult because the number of potential manufacturers may be limited and the FDA or non-US regulator must approve any replacement manufacturer before it can begin manufacturing the Company’s product candidates. Such approval would require new testing and compliance inspections. It may be difficult or impossible for the Company to identify and engage a replacement manufacturer on acceptable terms in a timely manner, or at all.
The Company expects to continue to depend on third-party contract manufacturers for the foreseeable future. The Company’s product candidates require precise, high quality manufacturing. Any of the Company’s contract manufacturers will be subject to ongoing periodic unannounced inspection by the FDA and non-U.S. regulatory authorities to ensure strict compliance with current Good Manufacturing Practice (“cGMP”), and other applicable government regulations and corresponding standards. If the Company’s contract manufacturers fail to achieve and maintain high manufacturing standards in compliance with cGMP regulations, the Company may experience manufacturing errors resulting in patient injury or death, product recalls or withdrawals, delays or interruptions of production or failures in product testing or delivery, delay or prevention of filing or approval of marketing applications for the Company’s product candidates, cost overruns or other problems that could seriously harm its business.
Significant scale-up of manufacturing may require additional validation studies, which the FDA must review and approve. Additionally, any third party manufacturers the Company retains to manufacture its product candidates on a commercial scale must pass an FDA or non-US regulator pre-approval inspection for conformance to the cGMPs before the Company can obtain approval of its product candidates. If the Company is unable to successfully increase the manufacturing capacity for a product candidate in conformance with cGMPs, the regulatory approval or commercial launch of any related products may be delayed or there may be a shortage in supply.
Market Acceptance of the Company’s Products
Even if the Company receives the necessary regulatory approvals to commercially sell its drug candidates, the success of these candidates will depend on their acceptance by physicians and patients, and reimbursement among other things.
In the United States and elsewhere, the Company’s product revenues will depend principally upon the reimbursement rates established by third-party payors, including government health administration authorities, managed-care providers, public
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health insurers, private health insurers and other organizations. These third-party payors are increasingly challenging the price, and examining the cost effectiveness, of medical products and services. In addition, significant uncertainty exists as to the reimbursement status, if any, of newly approved drugs, pharmaceutical products or product indications. The Company may need to conduct post-marketing clinical trials in order to demonstrate the cost-effectiveness of products. Such clinical trials may require the Company to commit a significant amount of management time, financial and other resources. If reimbursement of the Company’s product candidates is unavailable or limited in scope or amount or if pricing is set at unsatisfactory levels, the Company’s revenues could be reduced.
In some countries other than the United States, particularly the countries of the European Union and Canada, the pricing of prescription pharmaceuticals is subject to government controls. In these countries, obtaining pricing approval from government authorities can take six to twelve months or longer after the receipt of regulatory marketing approval of a product for an indication. To obtain reimbursement or pricing approval in some countries, the Company may be required to conduct a clinical trial that compares the cost-effectiveness of its product candidate to other available therapies. The Company’s revenues could be reduced if reimbursement of a product candidate is unavailable or limited in scope or amount or if pricing is set at unsatisfactory levels.
Canadian, US, European and other foreign governments continue to propose and pass legislation designed to reduce the cost of healthcare, including drugs. In the United States, there have been, and the Company expects that there will continue to be, federal and state proposals to implement similar government control. In addition, increasing emphasis on managed care in the United States will continue to put pressure on the pricing of pharmaceutical products. For example, theMedicare Prescription Drug Improvement and Modernization Actof 2003 reforms the way Medicare will cover and reimburse for pharmaceutical products. The legislation expands Medicare coverage for drug purchases by the elderly and eventually will introduce a new reimbursement methodology based on average sales prices for certain drugs. In addition, the new legislation provides authority for limiting the number of outpatient drugs that will be covered in any therapeutic class. As a result of the new legislation and the expansion of federal coverage of drug products, the Company expects that there will be additional pressure to contain and reduce costs.
The Medicaid program and state healthcare laws and regulations in the USA may also be modified to change the scope of covered products and/or reimbursement methodology. Cost control initiatives could decrease the established reimbursement rates that the Company receives for any products in the future, which would limit its revenues and profitability. Legislation and regulations affecting the pricing of pharmaceutical products, including PTL-202 and PTL-303, may change at any time, which could further limit or eliminate reimbursement rates for PTL-202 or other product candidates.
If the Company’s drug candidates fail to gain market acceptance, it may be unable to generate sufficient revenue to continue in business.
Failure to Obtain Regulatory Approval Outside the United States
The Company intends to market certain of its existing and future product candidates in non-North American markets. In order to market its existing and future product candidates in the European Union and many other non-North American jurisdictions, the Company must obtain separate regulatory approvals. The Company has had no interactions with non-North American regulatory authorities, and the approval procedures vary among countries and can involve additional testing, and the time required to obtain approval may differ from that required to obtain FDA approval.
Approval by the FDA or other regulatory authorities does not ensure approval by regulatory authorities in other countries, and approval by one or more non-North American regulatory authorities does not ensure approval by regulatory authorities in other countries or by the FDA. The non-North American regulatory approval process may include all of the risks associated with obtaining FDA approval. The Company may not obtain non-North American regulatory approvals on a timely basis, if at all. In addition, the Company may not be able to file for non-North American regulatory approvals and may not receive necessary approvals to commercialize its existing and future product candidates in any market. If such regulatory approval is not obtained, the Company may never become profitable.
Product Liability
The use of the Company’s drug candidates in clinical trials and the sale of any products for which regulatory approval is obtained may expose the Company to product liability claims from consumers, health care providers, pharmaceutical companies or other entities. Any claim brought against the Company may cause the diversion of resources from normal operations or cause the Company to cease the sale, distribution and marketing of its products that have received regulatory approval. This may cause the Company to cease operations.
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Intellectual Property Rights
The Company’s commercial success will depend, in part, on obtaining and maintaining patent protection, trade secret protection and regulatory protection of its proprietary technology and information as well as successfully defending third-party challenges to its proprietary technology and information. The Company will be able to protect its proprietary technology and information from use by third parties only to the extent that valid and enforceable patents, trade secrets or regulatory protection cover them and the Company has exclusive rights to utilize them. The ability of the Company’s licensors, collaborators and suppliers to maintain their patent rights against third-party challenges to their validity, scope or enforceability will also play an important role in determining the Company’s future.
Reliance on Licensors to Maintain Patent Rights
The Company’s commercial success may also depend, in part, on maintaining patent rights that have been licensed related to products that the Company may market in the future. Since the Company will not fully control the patent prosecution of any licensed patent applications, it is possible that the licensors will not devote the same resources or attention to the prosecution of the licensed patent applications as the Company would if it controlled the prosecution of the applications. The licensor may not pursue and successfully prosecute any potential patent infringement claim, may fail to maintain their patent applications, or may pursue any litigation less aggressively than the Company would. Consequently, the resulting patent protection, if any, may not be as strong or comprehensive.
Uncertainty of Patent Protection
The patent positions of life science companies including specialty pharmaceutical companies can be highly uncertain and involve complex legal and factual questions that include unresolved principles and issues. No consistent policy regarding the breadth of claims allowed in such companies’ patents has emerged to date in the United States, and the patent situation outside the United States is even more uncertain. Changes in either the patent laws or in interpretations of patent laws in the United States or other countries may diminish the value of the Company’s intellectual property rights. Therefore, the Company cannot predict with any certainty the range of claims that may be allowed or enforced in its patents or in-licensed patents.
Reliance on Trade Secrets
The Company also relies on trade secrets to protect its technology, especially where the Company does not believe patent protection is appropriate or obtainable. However, trade secrets are difficult to protect. While the Company seeks to protect confidential information, in part, through confidentiality agreements with employees, consultants, contractors, or scientific and other advisors, they may unintentionally or wilfully disclose the Company’s confidential information to competitors. Enforcing a claim against a third party related to the illegal acquisition and use of trade secrets can be expensive and time consuming, and the outcome is often unpredictable. If the Company is not able to maintain patent or trade secret protection on its technologies and product candidates, then the Company may not be able to exclude competitors from developing or marketing competing products, and the Company may not be able to operate profitability.
Intellectual Property Infringement Claims
There has been, and there will continue to be, significant litigation and demands for licenses in the life sciences industry regarding patent and other intellectual property rights. Although the Company anticipates having a valid defence to any allegation that its current product candidates, production methods and other activities infringe the valid and enforceable intellectual property rights of any third parties, the Company cannot be certain that a third party will not challenge this position in the future. Other parties may own patent rights that the Company might infringe with its drug candidates, products or other activities, and the Company’s competitors or other patent holders may assert that the Company’s products and the methods employed are covered by their patents. These parties could bring claims against the Company causing substantial litigation expenses and, if successful, may require payment of substantial damages. Some of the Company’s potential competitors may be better able to sustain the costs of complex patent litigation, and depending on the circumstances, the Company could be forced to stop or delay its research, development, manufacturing or sales activities. Any of these costs could cause the Company to go out of business.
Licensed Patent Rights
The Company has licensed patents and plans to license technologies and other patents if it believes it is necessary or useful to use third party intellectual property to develop its products, or if its product development threatens to infringe upon the intellectual property rights of third parties. The Company may be required to pay license fees or royalties or both to obtain such licenses, and there is no guarantee that such licenses will be available on acceptable terms, if at all. Even if the Company is
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able to successfully obtain a license, the rights may be non-exclusive, which would give the Company’s competitors’ access to the same intellectual property it has rights to, which could prevent the Company from commercializing a product.
The Company’s licensors may terminate the license. Without protection for the intellectual property that is licensed, other companies may be able to offer substantially similar products for sale, the Company may not be able to market or sell the planned products or generate any revenues.
Licenses and Permits to Operate
The operations of the Company may require licenses and permits from various governmental authorities, in both domestic and foreign jurisdictions.towers. There can be no assurance that the Company will be ablesuccessful in protecting itself against these risks and the related financial consequences. Further, these risks may not in any part be insurable in the event the Company does suffer damage.
The application of anti-bribery or corruption laws could impact the Company’s operations.
The Company’s operations are governed by the laws of many jurisdictions, which generally prohibit bribery and other forms of corruption. It is possible that the Company, or some of its subsidiaries, employees or contractors, could be charged with bribery or corruption as a result of the unauthorized actions of its employees or contractors. If the Company is found guilty of such a violation, which could include a failure to obtaintake effective steps to prevent or address corruption by its employees or contractors, the Company could be subject to onerous penalties and reputational damage. A mere investigation itself could lead to significant corporate disruption, high legal costs and forced settlements (such as the imposition of an internal monitor). In addition, bribery allegations or bribery or corruption convictions could impair the Company’s ability to work with governments or nongovernmental organizations. Such convictions or allegations could result in the formal exclusion of the Company from a country or area, national or international lawsuits, government sanctions or fines, project suspension or delays, reduced market capitalization and increased investor concern.
If the Company fails to comply with laws or regulations which regulate its business and which may change at any time, the Company may be fined or even lose its right to conduct some of its business.
A variety of laws and regulations apply to the Company’s business, including the laws of Colombia. Failure to comply with applicable requirements may lead to civil penalties or require the Company to assume indemnification obligations or breach contractual provisions. The Company cannot guarantee that existing or future laws or regulations will not adversely affect its business, or result in additional costs. These factors may have a material adverse effect on the Company.
The Company’s industry is heavily regulated and thus the Company is subject to substantial regulatory risks.
The activities of the Company are subject to intense regulation by governmental authorities. Achievement of the Company’s business objectives are contingent, in part, upon compliance with regulatory requirements enacted by these governmental authorities and obtaining all necessary licensesregulatory approvals. The Company cannot predict the time required to secure all appropriate regulatory approvals for its products, or the extent of testing and permitsdocumentation that may be required by governmental authorities. Any delays in obtaining, or failure to carry out its researchobtain regulatory approvals could have a material adverse effect on the business, results of operations and developmentfinancial condition of its projects. Without these licenses and permitsthe Company. The business of the Company is subject to rapid regulatory changes. Failure to keep up with such changes may not be able to market or selladversely affect the planned products or generate any revenues.business of the Company and have a detrimental impact on the Company’s business.
CompetitionChanges in current or future laws or regulations could restrict its ability to operate its business as it currently does.
The pharmaceutical industry is intensely competitive in allCompany’s business and that of its phases,tenants are subject to various laws and regulations. In certain jurisdictions, these regulations could be applied or enforced retroactively, which could require that the Company competesmodify or dismantle existing towers. Since the Company’s operating subsidiary, Tower Three SAS (“Tower Three”), is incorporated in Colombia it is thus subject to the laws of such jurisdiction. The Colombian Ministry of Communications has a protocol aimed to explain to local authorities and communities the existence of environmental impacts and negative effects on the health of the people. Zoning authorities and community organizations are often opposed to construction of communications sites in their communities, which can delay, prevent or increase the cost of new tower construction, modifications, additions of new antennas to a site or site upgrades, thereby limiting the Company’s ability to respond to tenant demands. The regulations about distance of cell towers to schools, hospitals, and residences, depend on local authorities, as in Colombia the mayors of municipalities have the power to regulate in an autonomous way the matters related to telecommunication infrastructure. Existing regulatory policies may materially and adversely affect the timing or cost of construction projects associated with the Company’s communications sites and new regulations may be adopted that increase delays or result in additional costs to the Company, or that prevent such projects in certain locations, and noncompliance could result in the imposition of fines or an award of damages to private litigants. In certain jurisdictions, there may be changes to zoning regulations or construction laws based on site location, which may result in increased costs to modify certain of the Company’s existing towers or decreased revenue due to the removal of certain towers to ensure compliance with such changes. These factors could materially and adversely
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affect the Company’s business, results of operations or financial condition.
Changes to the tax laws in Colombia could negatively impact the Company’s business and operations.
The introduction of new tax laws, regulations or rules, or changes to, or differing interpretation of, or application of, existing tax laws, regulations or rules in Colombia, could result in an increase in the Company’s taxes, or other companiesgovernmental charges, duties or impositions. No assurance can be given that new tax laws, regulations or rules will not be enacted or that existing tax laws, regulations or rules will not be changed, interpreted or applied in a manner which could result in any of the Company’s profits being subject to additional taxation or which could otherwise have greater financial resource and technical facilities. Competitiona material adverse effect on the Company.
If radio frequency emissions from wireless handsets or equipment on wireless infrastructure are demonstrated to cause negative health effects, potential future claims could adversely affect the Company’s abilityoperations, costs or revenues.
The potential connection between radio frequency emissions and certain negative health effects, including some forms of cancer, has been the subject of substantial study by the scientific community in recent years. The Company cannot guarantee that claims relating to acquire suitable projectsradio frequency emissions will not arise in the future.
Significant and increasing competition exists for pharmaceutical opportunities internationally. There are a numberfuture or that the results of large established pharmaceutical companies with substantial capabilities and far greater financial and technical resources thansuch studies will not be adverse to the Company. Public perception of possible health risks associated with cellular or other wireless connectivity services may slow or diminish the growth of wireless companies, which may in turn slow or diminish the Company’s growth. In particular, negative public perception of, and regulations regarding, these perceived health risks may slow or diminish the market acceptance of wireless services. If a connection between radio frequency emissions and possible negative health effects were established, the Company’s operations, costs, or revenues may be materially and adversely affected. The Company currently does not maintain any significant insurance with respect to these matters.
The Company may be vulnerable to security breaches that could adversely affect its operations, business, operations, and reputation.
The Company’s wireless infrastructure may be vulnerable to damage, disruptions, or shutdowns due to unauthorized access, computer viruses, cyber-attacks, and other security breaches. An attack attempt or security breach could potentially result in (1) interruption or cessation of certain of the Company’s services to its customers, (2) the Company’s inability to meet expected levels of service, or (3) data transmitted over the Company’s customers’ networks being compromised. The Company cannot guarantee that its security measures will not be circumvented, resulting in customer network failures or interruptions that could impact its customers’ network availability and have a material adverse effect on its business, financial condition, or operational results. The Company may be required to expend significant resources to protect against or recover from such threats. If an actual or perceived breach of its security occurs, the market perception of the effectiveness of its security measures could be harmed, and the Company could lose customers. Further, the perpetrators of cyber-attacks are not restricted to particular groups or persons. These attacks may be committed by the Company’s employees, contractors or external actors operating in any geography. Any such events could result in legal claims or penalties, disruption in operations, misappropriation of sensitive data, damage to the Company’s reputation, negative market perception, or costly response measures, which could adversely affect its business.
If the Company is unable to acquireprotect its rights to the land under its towers, its business and operating results would be adversely effected.
The Company’s real property interests relating to its towers consist primarily of leasehold and sub-leasehold interests. A loss of these interests at a particular tower site may interfere with the Company’s ability to operate tower sites and generate revenues. For various reasons, the Company may not always have the ability to access, analyze and verify all information regarding titles and other issues prior to completing an acquisition of communications sites, which can affect its rights to access and operate a site. From time to time the Company may also experience disputes with landowners regarding the terms of ground agreements for land under towers, which may affect the Company’s ability to access and operate tower sites. Further, for various reasons, landowners may not want to renew their ground agreements with the Company, they may lose their rights to the land, or they may transfer their land interests to third parties, including ground lease aggregators, which could affect the Company’s ability to renew ground agreements on commercially viable terms. The Company’s inability to protect its rights to the land under its towers may have a material adverse effect on its business and operating results.
The Company could have liability under environmental and occupational safety and health laws.
The Company’s operations are subject to the requirements of environmental and occupational safety and health laws and regulations, including municipal zoning regulations and height restrictions imposed by the Colombian DAAC-FAN (Colombia’s FAA). Many of these laws and regulations contain information reporting and record keeping requirements. The
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Company may not be at all times in compliance with all environmental requirements. The Company may be subject to potentially significant fines or penalties if it fail to comply with any of these requirements. The requirements of these laws and regulations are complex, change frequently and could become more stringent in the future. In certain jurisdictions these laws and regulations could be applied or enforced retroactively. It is possible that these requirements will change or that liabilities will arise in the future in a manner that could have a material adverse effect on the Company’s business, results of operations or financial condition.
The Company’s towers, data centers or computer systems may be affected by natural disasters and other unforeseen events for which the Company’s insurance may not provide adequate coverage.
The Company’s towers are subject to risks associated with natural disasters, such as ice and wind storms, tornadoes, floods, hurricanes and earthquakes, as well as other unforeseen events, such as acts of terrorism. Any damage or destruction to, or inability to access, its towers or data centers may impact its ability to provide services to its tenants and lead to tenant loss, which could have a material adverse effect on its business, results of operations or financial condition.
As part of the Company’s normal business activities, it relies on information technology and other computer resources to carry out important operational, reporting and compliance activities and to maintain its business records. The Company’s computer systems could fail on their own accord and are subject to interruption or damage from power outages, computer and telecommunications failures, computer viruses, security breaches (including through cyber-attack and data theft), usage errors, catastrophic events such as natural disasters and other events beyond its control. Although the Company has disaster recovery programs and security measures in place, if the Company’s computer systems and its backup systems are compromised, degraded, damaged, or breached, or otherwise cease to function properly, it could suffer interruptions in its operations or unintentionally allow misappropriation of proprietary or confidential information (including information about its tenants or landlords), which could damage the Company’s reputation and require the Company to incur significant costs to remediate or otherwise resolve these issues.
While the Company maintains insurance coverage for natural disasters, the Company may not have adequate insurance to cover the associated costs of repair or reconstruction for a major future event. Further, the Company may be liable for damage caused by towers that collapse for any number of reasons including structural deficiencies, which could harm the Company’s reputation and require it to incur costs for which it may not have adequate insurance coverage.
The Company’s operations are primarily in jurisdictions outside of Canada or the United States and consequently the Company is subject to the risks of foreign operations generally.
Currently the Company’s operations are conducted in foreign jurisdictions including, but not limited to Colombia. The Company expects that receivables with respect to foreign sales will continue to account for a significant portion of its total accounts and receivables outstanding. As such, the Company’s operations may be adversely affected by changes in foreign government policies and legislation or social instability and other factors which are not within the control of the Company including, but not limited to, recessions in foreign economies, expropriation, nationalization and limitation or restriction on repatriation of earnings, longer receivables collection periods and greater difficulty in collecting accounts receivable, changes in consumer tastes and trends, renegotiation or nullification of existing contracts or licenses, regulatory requirements or the personnel administering them, currency fluctuations and devaluations, exchange controls, economic sanctions and royalty and tax increases, risk of terrorist activities, revolution, border disputes, implementation of tariffs and other trade barriers and protectionist practices, taxation policies, including royalty and tax increases and retroactive tax claims, volatility of financial markets and fluctuations in foreign exchange rates, difficulties in the protection of intellectual property, labor disputes and other risks arising out of foreign governmental sovereignty over the areas in which the Company’s operations are conducted. The Company’s operations may also be adversely affected by social, political and economic instability and by laws and policies of such foreign jurisdictions affecting foreign trade, taxation and investment. If the Company’s operations are disrupted and/or the economic integrity of its contracts is threatened for unexpected reasons, its business may be harmed.
In the event of a dispute arising in connection with the Company’s operations in a foreign jurisdiction where the Company conducts its business, the Company may be subject to the exclusive jurisdiction of foreign courts or may not be successful in subjecting foreign persons to the jurisdictions of the courts of Canada or enforcing Canadian judgments in such other jurisdictions. The Company may also be hindered or prevented from enforcing its rights with respect to a governmental instrumentality because of the doctrine of sovereign immunity. Accordingly, the Company’s activities in foreign jurisdictions could be substantially affected by factors beyond the Company’s control, any of which could have a material adverse effect on the Company.
Some countries in which the Company may operate may be considered politically and economically unstable, and in some cases, failure to follow certain formalities or obtain relevant evidence may call into question the validity of the entity or the
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actions taken by the Company. Management of the Company is unable to predict the effect of additional attractive pharmaceutical development opportunitiescorporate and regulatory formalities which may be adopted in the future including whether any such laws or regulations would materially increase the Company’s cost of doing business or affect its operations in any area.
The Company may in the future enter into agreements and conduct activities outside of the jurisdictions where it currently carries on termsbusiness, which expansion may present challenges and risks that the Company has not faced in the past, any of which could adversely affect the results of operations and/or financial condition of the Company.
The Company has a limited operating history.
The Company will be subject to all of the business risks and uncertainties associated with any new business enterprise, including under-capitalization, cash shortages, limitations with respect to personnel, financial and other resources, lack of revenue, and the risk that it considers acceptable and therewill not achieve its growth objective. There can be no assurance that the Company's research and development programsCompany’s operations will yield any new drugsbe profitable in the future or result in any commercially viable compounds or technologies.will generate sufficient cash flow to satisfy its working capital requirements. Even if the Company does achieve profitability, it cannot predict the level of such profitability. If the Company sustains losses over an extended period of time, it may be unable to continue its business.
ConflictsA substantial portion of Interest
Certain of the directors and officers of the Company will be engaged in, and will continue to engage in, other business activities on their own behalf and on behalf of other companies (including life science companies) and, as a result of these and other activities, such directors and officers may become subject to conflicts of interest. The British Columbia Business Corporation Act (“BCBCA”) provides that in the event that a director has a material interest in a contract or proposed contract or agreement thatour revenue is material to the Company, the director shall disclose his interest in such contract or agreement and shall refrainderived from voting on any matter in respect of such contract or agreement, subject to and in accordanceour relationship with the BCBCA. To the extent that conflicts of interest arise, such conflicts will be resolved in accordance with the provisions of the BCBCA. To the knowledge of the management of the Company, there are no existing or potential material conflicts of interest between the Company and a proposed director or officer of the Company except as otherwise disclosed herein.
Foreign Currency Riskone tenant.
A substantial portion of our total operating revenues is derived from our leasing agreements with Millicom International Cellular SA. If they are unwilling or unable to perform their obligations under our agreements with them, our revenues, results of operations, financial condition and liquidity would be materially and adversely affected. Additionally, due to the Company’s expenseslong-term nature of our tenant leases with Millicom International Cellular SA, we depend on their continued financial strength. If our current tenant or any future tenants are unable to raise adequate capital to fund their business plans, they may reduce their spending, which could materially and adversely affect demand for our communications sites and our services business. If, as a result of a prolonged economic downturn or otherwise, one or more of our significant tenants experiences financial difficulties or files for bankruptcy, it could result in uncollectible accounts receivable. The loss of our current tenant, or the loss of all or a portion of our anticipated lease revenues from this tenant or future revenues may be incurred in foreign currencies. The Company’s business will be subject to risks typical of an international business including, but not limited to, differing tax structures, regulations and restrictions and general foreign exchange rate volatility. Fluctuations in the exchange rate between the Canadian dollar and such other currencies maytenants, could have a material adverse effect on our business, results of operations or financial condition.
The Company is reliant on its management and key personnel.
The success of the Company is dependent upon the ability, expertise, judgment, discretion, and good faith of its senior management. While employment agreements are customarily used as a primary method of retaining the services of key employees, these agreements cannot assure the continued services of such employees. The Company attempts to enhance its management and technical expertise by recruiting qualified individuals who possess desired skills and experience in certain targeted areas. The Company’s inability to retain employees and attract and retain sufficient additional employees as well as, engineering, and technical support resources could have a material adverse impact on the Company’s financial condition and results of operation. Any loss of the services of such individuals could have a material adverse effect on the Company’s business, operating results or financial condition and results of operations and could result in downward pressure for the Company’s products or in losses from currency exchange rate fluctuations. condition.
The Company does not actively hedge againstconducts business in countries with a history of corruption and transactions with foreign currency fluctuations.governments and doing so increases the risks associated with our international activities.
Public Company Risk - Risks relatedAs we operate internationally, we are subject to the Company’s shares being listed on a stock exchange
Price VolatilityUnited States’ Foreign Corrupt Practices Act and other laws that prohibit improper payments or offers of Publicly Traded Securities
In recent years,payments to foreign governments and their officials and political parties by the United States and other business entities that have securities marketsregistered in the United States and Canada have experienced a high level of price and volume volatility, and the market prices of securities of many companies have experiences wide fluctuations in price which have not necessarily been related to the operating performance, underlying asset values or prospects of such companies. It may be anticipated that any quoted market for the Common Shares willpurpose of obtaining or retaining business. We have operations and agreements with third parties in countries known to experience corruption. Further international expansion may involve more exposure to such practices. Our activities in these countries create the risk of unauthorized payments or offers of payments by our employees or consultants that could be in violation of various laws including the Foreign Corrupt Practices Act, even though these parties are not always subject to our control. It is our policy to implement safeguards to discourage these practices by our employees and consultants. However, our existing safeguards and any future improvements may prove to be less than effective and our employees or consultants may engage in conduct for which we might be held responsible. Violations of the Foreign Corrupt Practices Act may result in criminal or civil sanctions and we may be subject to market trends generally, notwithstanding any potential successother liabilities, which could negatively affect our business, operating results and financial condition.
The Company has never paid dividends and has no intention of the Company in creating revenues, cash flows or earnings. The value of the Company’s Common Shares will be affected by such volatility.paying dividends.
An active public market for the Common Shares might not develop or be sustained. If an active public market for the Common Shares does not develop, the liquidity of a shareholder’s investment may be limited and the share price may decline below the
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initial price shareholders paid for their shares.
Certain Canadian Laws Could DelayThe Company has no earnings or Deter a Change of Control
Limitationsdividend record, and does not anticipate paying any dividends on the abilitycommon shares in the foreseeable future. Dividends paid by the Company would be subject to acquiretax and, holdpotentially, withholdings. The payment of future cash dividends, if any, will be reviewed periodically by the Company’s Common Shares may be imposed by the Competition Act(Canada). This legislation permits the Commissionerboard of Competition (Canada) to review any acquisition of a significant interestdirectors and will depend upon, among other things, conditions then existing including earnings, financial condition and capital requirements, restrictions in the Company. This legislation grants the Commissioner jurisdiction to challenge such an acquisition before the Canadian Competition Tribunal if the Commissioner believes that it would, or would be likely to, result in a substantial lessening or prevention of competition in any market in Canada.
TheInvestment Canada Act(Canada) subjects an acquisition of control of a company by a non-Canadian to government review if the value of the Company’s assets as calculated pursuant to the legislation exceeds a threshold amount. A reviewable acquisition may not proceed unless the relevant minister is satisfied that the investment is likely to be a net benefit to Canada.
Any of the foregoing could prevent or delay a change of controlfinancing agreements, business opportunities and may deprive or limit strategic opportunities for the Company’s shareholders to sell their Common Shares.conditions and other factors.
The Company is at Risk of Securities Class Action Litigationsubject to a going-concern risk.
In the past, securities class action litigation has oftenThe Company’s financial statements have been brought againstprepared on a company following a declinegoing concern basis under which an entity is considered to be able to realize its assets and satisfy its liabilities in the market priceordinary course of its securities. This risk is especially relevant forbusiness. The Company’s future operations are dependent upon the identification and successful completion of equity or debt financing and the achievement of profitable operations at an indeterminate time in the future. There can be no assurances that the Company because biotechnology, specialty pharmaceuticalwill be successful in completing an equity or debt financing or in achieving profitability. The financial statements do not give effect to any adjustments relating to the carrying values and biopharmaceutical companies have experienced significant stock price volatility in recent years. Ifclassification of assets and liabilities that would be necessary should the Company faces such litigation, it could result in substantial costs andbe unable to continue as a diversion of management’s attention and resources, which could harm the Company’s business.going concern.
Item 4. Information on the Company
A. History and developmentDevelopment of the company.Company
Name and Incorporation
The Company was incorporated under the British Columbia Business Corporations Act (“BCBCA”)BCBCA on September 12, 2005 as “Pacific Therapeutics Ltd.”. On January 12, 2017, in connection with the completion of the Tower Three Transaction (defined below) the Company changed its name to “Tower One Wireless Corp.”
The head office of the Company is located at Suite 1500, 409 Granville Street, Vancouver, British Columbia, V6C 1T2, and the registered and records office of the Company is located at Suite 1023, 409 Granville600-535 Howe Street, Vancouver, British Columbia,BC V6C 1T2.2Z4 Canada. The Company’s phone number is (604) 738-1049559-8051, and its web site is www.pacifictherapeutics.com.www.toweronewireless.com. The information on our website does not form a part of this Form 20-F.
The Company is a reporting Company in British Columbia and Ontario and its shares wereare listed for trading on the Canadian NationalCSE and the Frankfort Stock Exchange and are quoted on November 16, 2011.the OTCQB Venture Market.
Inter-Corporate RelationshipsGeneral Development of Business
Before the completion of the Tower Three Transaction, the Company was a development stage specialty pharmaceutical company focused on developing late stage clinical therapies and in-licensed novel compounds for fibrosis, erectile dysfunction (ED) and other conditions. On July 24, 2015 the Company entered into a purchase and sale agreement (the “Forge Agreement”) with Forge Therapeutics Inc. (“Forge”) of Wyoming, pursuant to which the Company agreed to sell certain of its technology assets (related to fibrosis and erectile dysfunction) to Forge in return for 15,000,000 common shares of Forge. The Company does not have any inter-corporate relationships.also entered into a 50-50 joint-venture with Truevita Supplements in March 2016 to develop an early stage immune boosting herbal supplement, known as BP120. This herbal supplement is aimed at the treatment of immune deficiency and hypertension.
Significant Acquisitions and Dispositions
OtherOn March 6, 2016, the company incorporated Cabbay Holdings Corp. (“Cabbay”) as a wholly-owned subsidiary. The Company entered into an arrangement agreement with Cabbay, dated April 18, 2016 and amended on April 21, 2016 (the “Arrangement Agreement”) in order to effect a plan of arrangement (the “Arrangement”) under the BCBCA. As part of the Arrangement, Cabbay issued its common shares in exchange for a special class of reorganization shares of the Company held by shareholders of the Company, which were subsequently redeemed by the Company in exchange for the assignment of the Forge Agreement and $1,000. The Arrangement Agreement and the Arrangement were approved by the Company’s shareholders on May 20, 2016 and approved by the British Columbia Supreme Court on May 31, 2016. Upon completion of the Arrangement, Cabbay was no longer a subsidiary of the Company. The Arrangement effectively resulted in the spin out of Cabbay to the Company’s shareholders and the transfer of the Forge Agreement to Cabbay. In connection with the restructuring, $440,549 of the Company’s debt in the form of accounts payable, convertible note and amounts due to related parties was assigned to Cabbay.
The Tower Three Transaction
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On January 12, 2017, the Company completed a “fundamental change” transaction (the “Tower Three Transaction”), with Tower Three, a limited liability company formed under the laws of the Republic of Colombia on December 30, 2015, pursuant to a share exchange agreement made effective as of October 19, 2016, as amended (the “Acquisition Agreement”) among the Company, Tower Three and the shareholders of Tower Three (the “Selling Shareholders”), whereby the Company acquired 100% of the securities of Tower Three from the Selling Shareholders, by issuing 30,000,000 common shares of the Company to the Selling Shareholders on a pro-rata basis, following the completion of which, Tower Three is now a wholly-owned subsidiary of the Company. The Company’s common shares issued to the Selling Shareholders in the Tower Three Transaction were to be held in escrow pursuant to the terms of an escrow agreement which provided they were to subject to the following escrow restrictions: (i) restrictions based on certain performance milestones; (ii) time-based release restrictions prescribed under Canadian securities laws, and (iii) voluntary escrow restrictions. The preceding description of the Acquisition Agreement is not complete and you should refer to the actual Acquisition Agreement which is filed as an exhibit to this Form 20-F. Following the completion of the Tower Three Transaction, the Company ceased to be a “shell company” as defined under applicable United States securities laws as the Company began conducting the principal business of Tower Three.
The Company’s board of directors (the Board”) was reconstituted in conjunction with the closing of the Tower Three Transaction. The Board is now comprised of four (4) members, being Alejandro Ochoa, Fabio Alexander Vasquez, Robert Horsley, and Brian Gusko. The Company’s senior management now consists of Alejandro Ochoa (President and Chief Executive Officer), Abbey Abdiye (Chief Financial Officer), and Octavio De La Espriella (Chief Operating Officer). See “Directors and Officers” below for further information.
Inter-Corporate Relationships
Upon the completion of the Tower Three Transaction, Tower Three became a wholly-owned subsidiary of the Company. Tower Three also has a wholly-owned subsidiary, Fundacion Communicar Para Educar” (“FCPE”), a Colombia Foundation, which is a non-profit initiative established with the goal of creating and distributing educational devices for the developing world.
Additionally, in February 2017, the Company incorporated a wholly-owned subsidiary in Argentina called Tower Three SAS, and in March 2017, the Company incorporated a subsidiary in Colombia called Tower Two SAS, which is intended to purchase and own the real estate on which the Company’s planned cellular towers in Colombia will be built.
Private Placement
Concurrent with the closing of the Tower Three Transaction, the Company completed a private placement (the “Private Placement”) of units (the “Units”), at a price of $0.15 (Cdn) per Unit for gross proceeds of $2,322,737 (Cdn). Each Unit consisted of one share of the Company’s common stock ( a “Common Share”) and one transferable Common Share purchase warrant ( a “Warrant”), with each whole Warrant entitling the holder to purchase, for a period of 12 months from the date of issue, one additional Common Share at an exercise price of $0.40 (Cdn) per Common Share. The Warrants also have an acceleration clause whereby if the closing price of the Common Shares is greater than $0.60 (Cdn) per Common Share for a period of ten (10) consecutive trading days, the potential licensingCompany will have the right to accelerate the expiry of the Warrants by giving notice to the holders of the Warrants by news release or other form of notice permitted by the certificate representing the Warrants that the Warrants will expire at 4:30 p.m. (Vancouver time) on a date that is not less than ten (10) days from the date notice is given. As compensation for raising proceeds under the Private Placement, eligible finders and brokers received cash commission of 8% of the gross proceeds raised in the Private Placement and compensation Warrants (the “Financing Warrants”) entitling the finder or broker to purchase Common Shares up to 8% of the number of Placement Units sold in the Private Placement, exercisable at a price of $0.40(Cdn) per Common Share for a period of 12 months from the date of issuance of the Financing Warrants, subject to an acceleration provision.
B. Business Overview
Current Operations
Upon the closing of the Tower Three Transaction, Tower Three became a wholly-owned subsidiary of the Company. The primary business of the Company is now the business of Tower Three, which is to develop, own and operate multitenant communications real estate primarily in Latin America. Tower Three was founded in 2015 as a Colombian corporation with a mission to own and operate cellular network infrastructure sites in specific Latin and South American markets that Tower Three believes are experiencing strong usage growth. Tower Three currently has six (6) cellular towers with four (4) located in Velledupar, Colombia, one (1) in Soledad, Colombia, and one (1) in Bogota, Colombia. Tower Three focuses primarily on
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building towers in municipalities where there is limited or no cellular coverage and is currently focused on 4G LTE infrastructure expansion in Colombia.
The Company’s revenues primarily come from the leasing of space on its communications sites to wireless service providers, radio and television broadcast companies, wireless data providers, government agencies and municipalities and tenants in a number of other industries. Tower Three has established a business relationship with Millicom International Cellular SA (“Millicom”) a large international telecommunications and media company, whereby Millicom has agreed to rent each of the Company’s six cellular towers for a period of 13 years. Since the rental contracts are non-exclusive, Tower Three can enter into additional rental agreements for each tower so that multiple service providers can rent space on the same tower, thereby increasing the revenue generated per tower.
The Company also operates FCPE, a wholly-owned subsidiary of Tower Three, which is a non-profit initiative established with the goal of creating and distributing educational devices for the developing world.
Products and Services
Our revenue is primarily derived from tenant leases on the six cellular towers we own and operate in Colombia. The amount of rental payments we receive from these towers depend upon tower location, amount, type and position of tenant equipment on the tower, ground space required by the tenant and remaining tower capacity. Our costs typically include ground rent and power and fuel costs, some or all of which may be passed through to our tenants, as well as property taxes and repairs and maintenance expenses. We currently have leased each of our six towers to Millicom under separate 13 year leases, which expire in 2029. Under the terms of each of these leases Millicom pays a monthly $1,000 (USD) per tower fee to Tower Three to use the towers by installing antennas on such towers.
Currently, all of the Company’s operating revenues are derived from Tower Three’s operations in Colombia.
Business Strategy
Tower Development
After the completion of the Tower Three Transaction, the Company now focuses primarily on building cellular towers in municipalities where there is limited or no cellular coverage and is currently focused on 4G LTE infrastructure expansion in Colombia. The Company currently intends to complete the construction of a technologytotal of 15 cellular towers at a total cost $800,000 by the end of December 2017. Tower Three works with local and regional government departments to ensure that its locations and properties can be licensed quickly and effectively by carriers and operators or even shared. Tower Three’s objective is to build each site within thirty days and have the operator hopefully up and running within sixty days. Tower Three’s towers and sites will be home to cellular and wireless, radio and television broadcast, microwave and two-way radio communications equipment.
Tower Three has identified the coverage needs of a variety of Colombia-based cellular operators, and intends to develop cellular site plans in several target cities in Colombia including the following:
Cali;
Cartagena;
Santa Marta;
Bucaramanga; and
Cucuta / Barranquilla.
The Company intends to use the proceeds from the Private Placement for oral disintegration,tower construction, sales and marketing and general working capital. This funding is expected to enable Tower Three to hire full time employees and consultants immediately and over the next 12 months.
Vertical Partnerships
We believe that demand for our communication services is primarily driven by incumbent wireless service providers investing in existing voice networks to improve or expand their coverage and increase capacity and increasing the availability of lower cost smartphones. It is our belief that in order to invest in the coverage, quality and capacity of their networks, wireless carriers in Latin America will continue to outsource their communications site infrastructure needs as a means to accelerate network development, rather than construct and operate their own communications sites.
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The Company plans to continue to build joint venture “market vertical” partners with wireless service providers such as Millicom. The Company intends to leverage its relationship with Millicom, which has operations throughout the world, and other wireless carriers so as to enable them to deploy 4G LTE networks in Colombia as quickly and cost-effectively as possible.
Community Involvement
In addition, it is the intention of the Company that every Tower Three tower will offer the local community free WiFi and help to create community websites so as to enhance community well-being and integration. Integral to Tower Three’s business penetration strategy is its planned role as being a leading corporate citizen helping local markets. Consequently, Tower Three attempts to combine social and community efforts (free Wifi, programs, prizes, etc.) with its current business operations in local cities and towns so as to bolster its reputation and community involvement.
The Telecommunications Market in Latin America
General
Despite considerable progress in building out mobile broadband networks in Latin America over recent years (there are currently over 160,000 towers in Latin America), approximately 10% of the population, or approximately 64 million people, still have no access to a mobile broadband network in the region. Latin America is characterized by densely populated and sprawling cities, but also by vast, sparsely populated areas, mountain ranges, rainforests and islands. Although most people live in urban or suburban areas, it is the small proportion of people living in rural areas (20% of the population) that are most likely to currently be without access to mobile broadband. Although the business model utilized by mobile carriers has not completed any acquisitionsso far proven effective in expanding coverage to current levels, the Company believes that moving further into remote areas through traditional network deployment is a much greater challenge, owing to the sparsely populated unconnected areas, the difficult economic situation in many Latin American countries, the high cost of investment with limited potential for return, and a challenging market environment that often makes coverage expansion uneconomical. As a result, mobile operators are increasingly adopting alternative methods, notably infrastructure sharing and partnerships with other ecosystem players, to complement traditional network deployments. The Company believes that governments in the region want to make access to and use of mobile broadband universal, a goal shared by mobile operators, which the Company expects will require a multidimensional approach and collaboration between governments and the mobile industry, with the former supporting industry-led initiatives with policies and programs that create the right incentives and an enabling environment for extending connectivity to underserved areas. The Company also believes that in many cases mobile operators’ efforts to improve coverage are hampered by inefficient and arduous regulation from governments and policymakers, including onerous coverage obligations, strict quality-of-service (“QoS”) expectations, and restrictive planning laws around new infrastructure deployment which, together, make for a challenging regulatory environment.
Additionally, of the 90% of the population of Latin America who have access to mobile broadband services, just over 160 million people, or dispositions since its dateapproximately a quarter of incorporation and isthe population, subscribed to such services. This means that three-quarters of the population do not currently subscribe to mobile broadband services, primarily due to affordability and/or consumer challenges.
The Colombian Market
With an estimated 48 million people in negotiations2015, Colombia is the third-most populous country in Latin America, after Brazil and Mexico. It is also home to the third-largest number of Spanish speakers in the world after Mexico and the United States.
Mobile operators in Latin America face a tough balancing act in allocating capital across multiple divergent needs: investing in network expansion projects to meet coverage obligations, or boosting network capacity in existing service areas to address QoS expectations (most countries in Latin America have more than 3,500 connections per base station, compared to around 1,000 or fewer in the US and other developed markets). The Company believes that this puts an additional burden on mobile operators and inadvertently weakens the business case for investment in coverage expansion. We believe that tower firms –like Tower Three – have a role to play in creating and sustaining an enabling environment for effective investment in infrastructure deployment for carriers and operators. Tower Three’s infrastructure sharing is intended to enable mobile operators to deploy networks more efficiently, optimize asset utilization and reduce running costs compared with respectstandalone deployment by the carrier. It is also designed to minimizes duplication of infrastructure, which has come under the spotlight in many countries due to growing environmental and public safety concerns. There are two broad forms of infrastructure sharing: passive and active. With passive infrastructure sharing, tower firms allow operators to share physical components of a cell site (e.g., installing multiple antennas on a single tower). With active infrastructure sharing, tower firms enable operators to share the radio access network (RAN) or, at a more advanced level, the core network. Tower Three engages in
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both types of infrastructure sharing.
Competition
The Company operates in a very competitive industry, with a number of competitors who vary in size from very small organizations to large public companies. We believe that price, network density, speed of service, quality and site location and capacity are the primary competitive factors affecting companies in our industry. Although some of the Company’s competitors, such as American Tower Corp. (“AMT”), have invested large amounts of money in telecommunications infrastructure in Latin America (AMT has 3,500 towers in Colombia and more than 12,000 across Latin America), the Company’s management believes there is ample room for its business to serve clients in certain districts of Colombia and Latin America where local issues and situations make Tower Three’s locations more suitable than our competitors.
Seasonality
Not Applicable
Legal Proceedings
We are not currently a party to any potential material acquisitionslegal proceeding. From time to time, we may bring against others or dispositions..be subject to various claims and legal actions arising in the ordinary course of business.
C. Organizational structure
The Company has the following wholly-owned subsidiaries:
Tower Three
Tower Three SAS (Argentina); and
Tower Two SAS (Colombia)
D. Property, plant and equipment.
The Company has six cellular towers with four located in Valledupar, Colombia, one in Soledad, Colombia, and one in Bogota, Colombia.
Our interests in our communications sites are comprised of a variety of ownership interests, including leases created by long-term ground lease agreements, easements, licenses or rights-of-way granted by government entities. A typical tower site consists of a compound enclosing the tower site, a tower structure and one or more equipment shelters that house a variety of transmitting, receiving and switching equipment. In addition, our sites typically include backup or auxiliary power generators and batteries. The principal types of our towers are guyed and monopole towers. A guyed tower includes a series of cables attaching separate levels of the tower to anchor foundations in the ground and can reach heights of up to 2,000 feet. A guyed tower site for a typical broadcast tower can consist of a tract of land of up to 20 acres, while a monopole tower is a tubular structure that is used primarily to address space constraints or aesthetic concerns. Monopoles typically have heights ranging from 50 to 200 feet. A monopole tower site used in metropolitan areas for a typical wireless communications tower can consist of a tract of land of fewer than 2,500 square feet
Our head office is located at 600-535 Howe Street, Vancouver, BC V6C 2Z4 Canada. We currently lease this office location.
We also maintain regional offices in Colombia at: 8A #99-22 Unit 903, Bogota, Colombia, and in Argentina at: 555 TTe. Gral Juan Domingo Peron, Piso 2, Buenos Aires, Argentina. We currently lease these office locations.
Item 4A. Unresolved Staff Comments
Not applicable.
Item 5. Operating and Financial Review and Prospects
FromA. Operating Results
The following discussion of our financial condition and results of operations is based upon and should be read in conjunction with our financial statements for the fiscal years ended December 31, 2016, December 31, 2015 and December 31, 2014, and
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have been prepared in accordance with International Financial Reporting Standards (“IFRS”). This discussion contains forward-looking statements that involve certain risks and uncertainties. We caution you that our businesses and financial performance are subject to substantial risks and uncertainties. See Item 3.D, “Key Information — Risk Factors”.
General
Prior to the Completion of the Tower Three Transaction, the Company was a development stage specialty pharmaceutical company focused on developing late stage clinical therapies and in-licensed novel compounds for Fibrosis, Erectile Dysfunction (ED) and other conditions. The Company’s lead compound for Fibrosis, PTL-202 is a combination of already approved drugs which have well established safety profiles. PTL-202 had completed a phase 1 drug/ drug interaction clinical trial. The Company’s previous lead product for Erectile Dysfunction PTL-2015 was an oral dissolving version of a top selling therapy for ED. PTL-2015 had completed a pilot bioavailability study in humans. Forge has committed to issue to the Company.
As discussed above, as a result of the sale of its technology assets pursuant to the Forge Agreement and the acquisitions of Tower Three’s assets in the Tower Three Transaction, the Company now focuses primarily on building cellular towers in municipalities where there is limited or no cellular coverage and is currently focused on 4G LTE infrastructure expansion in Colombia. The Company currently has six (6) cellular towers with four (4) located in Velledupar, Colombia, one (1) in Soledad, Colombia, and one (1) in Bogota, Colombia and currently intends to complete the construction of a total of 15 cellular towers at a total cost $800,000 by the end of December 2017. The Company’s current revenue is primarily derived from tenant leases on the six cellular towers they own and operate in Colombia (the Company currently has leased each of its six towers to Millicom under separate 13 year leases, which expire in 2029).
Corporate Highlights
During the twelve months of 2016 the Issuer accomplished the following:
On February 1, 2016 the Company announced it appointed Robert “Nick” Horsley to the Company’s Board of Directors.
On March 7, 2016 the Company announced it entered into a joint-venture to develop an early stage immune boosting herbal supplement with TrueVita Supplements.
On March 15, 2016, the Company completed a share consolidation on the basis of thirty pre-consolidation shares of common stock for each post consolidation common share. Following such consolidation, the Company had approximately 1,379,887 common shares issued and outstanding, and continued to trade on the CSE under the existing symbol “PT”.
On March 30, 2016, the Company completed a private placement of 4,089,332 shares at $0.06 per share for gross proceeds of $245,360.
On March 30, 2016, the Company appointed Robert “Nick” Horsley as the chief executive officer, replacing Derick Sinclair who remained a director and the Company’s chief financial officer.
On July 26, 2016, the Company entered into a letter of intent (the “LOI”) with Tower Three to acquire all of the issued and outstanding membership interests of Tower Three.
On October 14, 2016, the Company announced that the previously announced Arrangement with Cabbay was completed. In connection with the Arrangement, $440,549 of indebtedness was assigned to and assumed by Cabbay.
On October 20, 2016, the Company announced that it has entered into a definitive agreement in connection with the Tower Three Transaction.
On January 12, 2017, the Company completed the Tower Three Transaction.
Results of Operations
The following table sets forth certain selected operating results and other financial information for each of the years ended December 31, 2016, 2015 and 2014:
Change | |||||
Change | from | ||||
2016 | 2015 | from2015 | 2014 | 2014 to | |
to 2016 | 2015 | ||||
$ | $ | $ | $ | $ | |
Revenue | Nil | Nil | Nil | Nil | Nil |
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Gain on debt forgiveness | - | 535,077 | (535,077) | - | 535,077 |
Wages and Benefits | - | 106,667 | (106,667) | 160,947 | (54,280) |
Professional Fees | 307,414 | 85,486 | 221,928 | 168,490 | (83,004) |
Advertising and Promotion | - | 22,386 | (22,386) | 67,923 | (45,537) |
Share based Payments | 75,505 | 11,998 | 63,507 | 152,028 | (140,030) |
Insurance | 19,631 | 9,707 | 9,924 | 30,194 | (20,488) |
Rent and Occupancy | - | 3,172 | (3,172) | 14,543 | (11,371) |
Bank Charges and Interest Expense | 766 | 4,077 | (3,311) | 10,047 | (5,970) |
Total Other Income (Expenses) | 521 | 464,536 | 464,015 | (2,612) | 467,148 |
Net and Comprehensive income (loss) | (452,288) | 179,673 | (631,961) | (693,645) | 873,318 |
The Company’s net loss for the year ended December 31, 2016, totaled $452,288 or $0.09 per share compared to net income of $179,673 or $0.13 per share for the year ended December 31, 2015 and a net loss of $693,645 or $0.56 per share for the year ended December 31, 2014. The decrease in net income in 2016 from 2015 (and the increase in net income in 2015 compared to 2014) was primarily the result of the Company assigning a significant amount of its debt to Forge, which resulted in income recognized by a one-time $535,077 forgiveness of debt in 2015.
Revenues
The Company has not generated any revenue from the sale of drug therapies. The Company has not recognized any revenue since inception through to December 31, 2012,2016. As a result of the Tower Three Transaction, the Company expects to generate revenues in 2017 mostly through monthly fees paid by Millicom in connection with the six towers currently leased to Millicom, as well as from similar lease agreements for other towers the Company plans to construct in 2017.
Expenses
Prior to the completion of the Tower Three Transaction, the Company’s expenses consisted primarily of general and administrative costs such as personnel related costs, non-intellectual property related legal costs, accounting costs and other professional and administrative costs associated with general corporate activities.
During the year ended December 31, 2016, total expenses for the Company were $452,809 as compared to the year ended December 31, 2015 where total expenses were $284,863. The increased expenses in 2016 compared to the prior year was mainly the result of increased professional fees of $221,928, increased office and miscellaneous expenses of $30,509 and share based payments of $63,507, being partially offset by reduced wages and benefits of $106,667 during the current year compared to 2015. Expenses incurred from share based payments in 2016 primarily resulted from the issuance of 500,000 stock options to employees in August 2016, while the increase in professional fees in 2016 compared to the prior year was mainly the result of increased, financial, accounting and legal fees incurred by the Company in connection with the Tower Three Transaction, the Arrangement and the Private Placement. The increase in office and miscellaneous expenses in 2016 compared to the prior year was primarily the result of expenses related to permits and related expenses in connection with the building the Company’s towers in 2016.
During the year ended December 31, 2014, total expenses for the Company were $691,033, which was $406,170 higher than the total expenses incurred during the year ended December 31, 2015. Expenses decreased in 2015 compared to 2014 primarily due to a decrease in share based payments of $140,030 in 2015 compared to 2014, a decrease in professional fees of $83,004 in 2015 compared to 2014 and a decrease in wages in benefits of $54,280 in 2015 compared to 2014. These decreases in expenses were mostly the result of a reduction in the Company’s operating activities in 2015, primarily the result of the sale of certain of the Company’s technological assets to Forge during that year.
Intellectual Property and Intangible Assets
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All license and option fees paid to licensors for intellectual property licenses are capitalized to intangible assets on the Company’s financial statements. In addition, any expenses for intellectual property protection including patent lawyers services fees and any filing fees with government agencies or the World Intellectual Property Organization are accrued to intangible assets. Since all of the Company’s patents were assigned to Forge, and the Company completed the Tower Three Transaction, the Company does not anticipate patent costs to be a significant expense of the Company moving forward.
Interest Income
Interest income consists of interest earned on the Company’s cash and cash equivalents. There was interest income in 2016 of $Nil (2015- $Nil, 2014 – $Nil).
Impact of Inflation
We do not believe that inflation has had a material impact on our revenues or income over the past two fiscal years. However, increases in inflation could result in increases in our expenses, which may not be readily recoverable in the price of goods or services provided to our clients. To the extent that inflation results in rising interest rates and has other adverse effects on capital markets, it could adversely affect our financial position and profitability.
Foreign Currency Fluctuations
Foreign exchange risk is the risk arising from changes in foreign currency fluctuations. Foreign currency fluctuations have not previously had a material impact on the Company’s financial results. Consequently, the Company does not use any derivative instruments to reduce its exposure to fluctuations in foreign currency rates. It is the opinion of management that the foreign exchange risk to which the Company is exposed is currently minimal.
However, with the completion of the Tower Three Transaction, the Company anticipates that the fluctuations of the Colombian Peso may impact the Company’s financial results moving forward. The Company intends to monitor such potential impact and will possibly develop a hedging policy if such fluctuations become material.
Critical Accounting Estimates
The Company’s accounting policies are presented in Note 3 of the audited financial statements for the years ended December 31, 2016 and 2015. The preparation of financial statements in accordance with International Financial Reporting Standards (IFRS) requires management to select accounting policies and make estimates. Such estimates may have a significant impact on the financial statements. Actual amounts could differ materially from the estimates used and, accordingly, affect the results of the operations. These include:
the assumptions used for the determination of the impairment of intangible assets;
the assumptions used for the determination of the useful life of intangible assets; and
the assumptions used for the determination of the value share based payments and compensation.
Regulation
Our tower leasing business is subject to Colombian national, state and local regulatory requirements with respect to the construction, registration, marking and maintenance of our towers. Colombia is divided into 32 departments and one capital district, which is treated as a department (Bogotá also serves as the capital of the department of Cundinamarca). Departments are subdivided into municipalities, each of which is assigned a municipal seat, and municipalities are in turn subdivided into corregimientos in rural areas and into comunas in urban areas. Each department has a local government with a governor and assembly directly elected to four-year terms, and each municipality is headed by a mayor and council. There is a popularly elected local administrative board in each of the corregimientos or comunas. In addition to the capital four other cities have been designated districts (in effect special municipalities), on the basis of special distinguishing features. These are Barranquilla, Cartagena, Santa Marta and Buenaventura. Some departments have local administrative subdivisions, where towns have a large concentration of population and municipalities are near each other (for example in Antioquia and Cundinamarca). Where departments have a low population (for example Amazonas, Vaupés and Vichada), special administrative divisions are employed, such as “department corregimientos”, which are a hybrid of a municipality and a corregimiento. The majority of existing infrastructure in remote areas, including buildings, open spaces such as parks and squares, legacy fixed-line telecoms infrastructure and public utilities, is owned by governments and public institutions.
For infrastructure deployment and antenna siting, mobile operators and tower companies need to obtain local approvals from
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municipalities for each antenna or tower site. The absence of a clear national policy can lead to each municipality adopting its own policy and procedures that are sometimes in conflict with the technical requirements of deploying mobile networks.
B. Liquidity and Capital Resources.
Overview
The Company is a development stage company and prior to the completion of the Tower Three Transaction in 2017 had no regular cash inflows. Selected financial data pertaining to liquidity and capital resources for the fiscal years ended December 31, 2016, 2015 and 2014 is presented below.
Comparison of Years Ended December 31, 2016, 2015 and 2014
2016 | 2015 | 2014 | |||
Period ended | $ Change | $ Change | |||
between | between 2015 | ||||
$ | $ | 2016 and | $ | and 2014 | |
2015 | |||||
Cash and Cash Equivalents | 1,378,183 | Nil | $1,378,183 | 1,513 | (1,513) |
Current Assets | 1,608,280 | 14,695 | 1,593,585 | 2,825 | 11,871 |
Current Liabilities | 139,807 | 624,106 | (484,299) | 943,076 | (318,970) |
Working Capital | 1,468,473 | (609,411) | 2,077,883 | (940,251) | 330,841 |
Accumulated deficit | 3,989,527 | 3,537,239 | 452,288 | 3,955,537 | (418,298) |
Cash used in operations | 396,259 | 161,460 | 234,799 | 366,769 | (205,309) |
Cash flows from financing Activities | 1,774,582 | 165,376 | 1,609,206 | 197,785 | (32,409) |
Interest Income | Nil | Nil | Nil | Nil | Nil |
As of December 31, 2016, the Company had cash and cash equivalents of $1,378,183 (compared with $nil for fiscal year 2015 and $1,513 for fiscal year 2014) and working capital of $1,468,473 (compared with ($609,410) for fiscal year 2015 and ($940,251) for fiscal year 2014). Working capital is calculated as current assets less current liabilities.
Since prior to the completion of the Tower Three Transaction the Company had not generated cash from its operations, the Company’s cash inflows primarily resulted from financing activities that included cash proceeds from the issuance of shares of our common stock, cash subscriptions received for shares of our common stock, the repayment of a convertible note, a new convertible note and amounts loaned to the Company from the Company’s shareholders. Cash and cash equivalents increased by $1,378,183 in fiscal year 2016 compared to 2015 primarily due to cash subscriptions received combined with the cash proceeds received from the issuance of shares of our common stock during 2016 in connection with several private placements of our shares of common stock we completed in 2016. Cash and cash equivalents decreased slightly in 2015 compared to 2014.
Working Capital increased by $2,077,883 in fiscal year 2016 compared to fiscal year 2015 primarily due to cash received through share subscriptions received and shares issued for cash during 2016. Working capital increased by $330,841 in 2015 compared to 2014 mainly as a result of a decrease in current liabilities in 2015 compared to the prior year. Current liabilities decreased by $484,299 for the fiscal year ended December 31, 2016 when compared to the current liabilities for the fiscal year ended December 31, 2015 primarily due to the assignment of $440,549 of the Company’s debt to Cabbay as part of the Arrangement. Current liabilities decreased in 2015 compared to 2014 by $318,970, mainly as a result of the forgiveness of certain debts owed by the Company to the Company’s Chief Financial Officer and former Chief Executive Officer in 2015.
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Contributed Surplus
Contributed Surplus, which arises from the recognition of the estimated fair value of stock options and warrants, was $563,568 for fiscal year 2016, compared with $121,939 for fiscal year 2015 and $289,766 for fiscal year 2014. The increase in contributed surplus in 2016 from the prior year periods was primarily due to $440,549 in debt forgiveness being recorded in 2016 mostly in connection with the assignment of the Company’s debt to Cabbay as part of the Arrangement, being partially offset by the exercise of options during the year. Additionally, in 2015 contributed surplus was reduced by $238,625 in connection with the expiration of unexercised options and warrants during the year.
Convertible Notes
On September 11, 2014, the Company issued a convertible note for $50,000 due on September 11, 2015 with an interest rate of 1% per month payable quarterly. On September 11, 2015, the Company was unable to repay the amount owing consisting of principal of $50,000 and unpaid interest of $6,000. The note holder and the Company agreed to accept a penalty of $5,000 bringing the total owing to $61,000. On September 11, 2015 the Company issued an unsecured convertible note in the amount of $61,000 due on September 11, 2016 convertible at the option of the holder into shares of the Company’s common stock at $1.50 per share with the same term. During the year ended December 31, 2016, the Company repaid $5,000 to the note holder. The remaining balance of the note was assigned to Cabbay as part of the Arrangement.
Share Capital
At December 31, 2016, the Company’s share capital was $3,292,175 comprising 6,735,885 issued and outstanding common shares and Nil issued and outstanding preferred shares (FYE 2015 - $2,800,010 comprising 1,365,887 issued and outstanding common shares and Nil issued and outstanding preferred shares).
Operating Activities
Cash utilized in operating activities during fiscal year 2016 was $396,259 (compared with $161,460 for fiscal year 2015 and $366,769 for fiscal year 2014). The increase in cash utilized in operations during fiscal year 2016 as compared to fiscal year 2015 was primarily due to an increase in professional fees mostly related to the Company the completion of several significant transactions during that year, being partially offset by reductions in cash used in connection with the Company’s ongoing operation functions such as wages and benefits, travel, research and development, as well as computer expenses, mostly as a result of the sale of the Company’s technology assets in Forge in 2015. The decrease in cash utilized in operations during 2015 as compared to 2014 was primarily due to a decrease in advertising and promotion, investor relations and professional fees in 2015. This decrease was partially offset by an increase in expenses for insurance and transfer agent fees during 2015 compared to the prior year
Investing Activities
Investing activities primarily include additions to fixed assets and intangible assets. Net cash used in investing activities was $Nil, $5,570, and $10,195 in fiscal year ended December 31, 2016, 2015 and 2014, respectively.
Financing Activities
The Company’s cash inflows from financing activities was $1,774,582 and comprised proceeds from issuances of our shares of common stock and cash share subscriptions received in several private placements during the year, as well as stock options exercises for cash. Cash flows from financing activities in 2015 and 2014 was $165,376 and $197,785, respectively, and mostly consisted of cash received in connection with related party transactions during those years.
Capital Expenditures
There was no capital expenditure incurred in 2016, 2015 and 2014.
Future Liquidity
Prior to the completion of the Tower Three Transaction, the Company’s operations did not generate cash inflows and its financial success was dependent on management’s ability to continue to obtain sufficient funding to sustain operations through the development stage and successfully bring the Company’s technologies to the point that they may be out licensed. As a result of the Tower three Transaction, the Company now expects to generate revenues from its operations, while also incurring additional costs in connection with the operations of Tower Three.
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Based upon the current level of our operations and our current expectations for future periods in light of the current economic environment, we believe that cash flow from our operations and available cash, together with available borrowings, will be adequate to finance the capital requirements for our business during the next 12 months. In the future we may make acquisitions of businesses or assets or commitments to additional capital projects. To achieve the long-term goals of expanding our assets and earnings, including through acquisitions, capital resources will be required. Depending on the size of a transaction, the capital resources that will be required can be substantial. The necessary resources will be generated from cash flow from operations, cash on hand, borrowing against our assets or the issuance of securities.
In order to finance the Company’s future operations and to cover administrative and overhead expenses the Company may raise money through equity sales. Many factors influence the Company’s ability to raise funds, including the Company’s track record, and the experience and caliber of its management. Actual funding requirements may vary from those planned due to a number of factors. Management believes it will be able to raise equity capital as required in the long term, but recognizes there will be risks involved that may be beyond their control. Should those risks fully materialize, it may not be able to raise adequate funds to continue its operations.
C. Research & Development, Patents and Licenses.
Prior to the Tower Three Transaction, research and development expense consisted primarily of salaries for management of research contracts and research contracts for pre-clinical studies, clinical studies and assay development as well as the development of clinical trial protocols and application to government agencies to conduct clinical trials, including consulting services fees related to regulatory issues and business development expenses related to the identification and evaluation of new drug candidates. Research and development costs are expensed as they are incurred.
Comparison of Years Ended December 31, 2016, 2015 and 2014
The Company incurred total expenses in the development of its intellectual property in the years ended December 31, 2016, 2015, and 2014 as follows:
Year ended | Year ended | Year ended | |
December 31, 2016 | December 31, 2015 | December 31, 2014 | |
Research and Development Expenses | |||
Personnel, Consulting, and Stock-based Compensation | $Nil | $Nil | $Nil |
License Fees and Subcontract research | $Nil | $Nil | $Nil |
Facilities and Operations | $Nil | $Nil | $Nil |
Less: Government contributions | $Nil | $Nil | $Nil |
Total | $Nil | $Nil | $Nil |
D. Trend Information
Other than as disclosed elsewhere in this Form 20-F, we are not aware of $1,836,405, which includes $548,204any trends, uncertainties, demands, commitments or events that are reasonably likely to have a material adverse effect on our revenues, income, profitability, liquidity or capital resources, or that caused the disclosed financial information to be not necessarily indicative of research and development expenses (research and development expenses on thefuture operating results or financial statements have been offset by $53,277 in funding from the Industrial Research Assistance Program (“IRAP”) and $187,427 in Scientific Research and Experimental Development ("SR&ED") tax credits), $398,431 of professional fees and $889,770 of wages and benefits.conditions.
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B. Business overview
Business StrategyE. Off Balance Sheet Arrangements
The Company is focusednot a party to any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on combing, reformulating and repurposing approved drugs. It is initially developing drugs for diseases of progressive excessive scarring, including Idiopathic Pulmonary Fibrosis, Liver Cirrhosis, Pulmonary Fibrosis associated with Scleroderma and Post Lung Transplant Bronchiolitis Obliterans. The Company assumes the clinical, regulatory and commercial development activities of its product candidates and advances them through the regulatory and clinical pathways toward commercial approval. This strategy reduces the risk, time and cost of developing therapies for Fibrosis by avoiding the risks associated with basic research and using compounds with unknown safety and toxicity. The Company leverages its expertise to manage and perform critical steps in drug development including the design and conduct of clinical trials, the development and execution of intellectual property strategies, the recruitment and selection of development partners and the interaction with drug regulatory authorities.
Its strategy includes reformulating approved drugs to increase efficacy and patient compliance, and completing the further clinical testing, manufacturing and other regulatory requirements sufficient to seek marketing authorizations via the filing of a New Drug Application (“NDA”) with the FDA and/or a potential Marketing Application Authorization (“MAA”) with the European Medicines Evaluation Agency (“EMEA”) or similar marketing authorizations by regulators in other countries including Canada.
The main elements of the Company’s strategy are as follows:financial condition, changes in financial condition, revenues, expenses, results of operations, liquidity, capital expenditures or capital resources.
1) IdentificationF. Tabular Disclosure of Product Candidates
The Company performs scientific evaluations and market assessments of drugs and drug combinations and research from academics and other drug development companies. As part of this process, the Company will evaluate the clinical and pre-clinical research and the intellectual property rights associated with the potential products and research to determine the commercial potential of the product candidate.
The Company intends to mitigate the risks associated with development and commercialization of drug candidates by targeting drug candidates that:
are combinations of already approved compounds;
have well established safety records;
have potential to be reformulated to a once a day oral dose;
have potential to be reformulated to an oral dissolving technology;
are already marketed in countries other than the United States or Europe; and
have pre-clinical animal data or clinical data of potential efficacy in Fibrosis additional indications.
The Company has initially focused on Fibrosis indications as it believes there is a large unmet medical need in this area. As an example, Idiopathic Pulmonary Fibrosis (IPF) affects more than 130,000 Americans (IPF Summit 2011). An estimated 48,000 cases of IPF are diagnosed annually (Am J Respir Crit Care Med. 2006;174(7):810-816). In addition, patients with IPF have poor prognosis; an estimated 40,000 people die each year from IPF. Further, there are no FDA approved treatments for IPF (IPF Summit 2011).Contractual Obligations
The Company has developed the Scientific and Advisory Board (“SAB”) to support this strategy. The members of both of this group are very experiencedno known contractual obligations specified in the clinical development of drug candidates for Pulmonary Fibrosis, lung transplant, airway disease and Scleroderma. In the future, the Company may develop product candidates for other indications but the current strategy is to leverage the expertise and skills the Company has in Fibrosis, particularly Idiopathic Pulmonary Fibrosis.
2) In-licensing
In identifying a promising product candidate, the Company seeks to negotiate a license to the rights for the candidate from the holder of those rights. Typically the goal is to secure licenses that permit the Company to conduct further research, development and clinical trialsItem 5.F.1 as well as engage in additional intellectual property protection. The Company will also seek terms that provide it with the rights to further licensing of manufacturing and marketing rights to any resulting products. This process is known as in-licensing.
3) Product Development
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Upon securing the appropriate rights to the product candidate, the Company will advance the candidate through the regulatory and commercialization pathways for marketing approval in major markets. This process includes implementing intellectual property strategies, formulation and reformulation strategies, making regulatory submissions, conducting or managing clinical trials, and performing or managing the collection, collation and interpretation of clinical and field data and the submission of this data to relevant regulatory authorities.
4) Partnering
To enhance its capabilities to develop and market its product candidates, the Company may enter into agreements or partnerships with companies that have formulation, drug development, sales or marketing expertise, or all of the above. Entering into such an agreement may provide cash to develop other products or advance other products in the Company’s portfolio. In addition, entering into a partnership with a company that has complementary skillslatest fiscal year end balance sheet date.
Item 6. Directors, Senior Management and using that company’s expertise to further accelerate development of its product candidates, may enhance the returns to the Company from the product candidate.
5) Outsourcing
In order to optimize return on investment and the development of product candidates, the Company uses a virtual company business model which includes outsourcing all non-core business activities. Factors that the Company considers to determine core and non-core activities include:
Infrastructure cost
Operating cost
Frequency of use
Regulatory protocol
Requirement for third party verification
Capacity
Quality control
Management has determined that having its own laboratory and staff for conducting infrequent pre-clinical studies is not a core capacity that is required and, therefore, it has to develop relationships with labs that it may outsource this work to. In order to maintain quality control, these projects are managed very closely by the Company’s staff and the Company develops all protocols for the completion of this work. Other functions the Company has decided to outsource include analytical assay development, formulation, clinical trials and manufacturing. It is currently more cost-effective to outsource these tasks due to the Company’s sporadic requirements. As these requirements become less sporadic the Company may develop internal capabilities to complete currently outsourced tasks.
6) Principal Products
PTL-202
The Company’s lead product candidate, PTL-202, is a combination of drugs that have been separately approved for marketing by the FDA for sale in the United States. In animal trials, the combination was more effective than either of its components at reducing indicators of Fibrosis. The Company is planning to complete development of a once a day pill of the combination using proprietary in licensed technologies. The Company conducted a drug/drug interaction study in 2012 and plans to conduct a bioequivalence study in 2013 with PTL-202 in humans.
The Company found a combination of two compounds developed in France that showed efficacy in human Fibrosis. The efficacy of this combination to prevent further Fibrosis in humans was confirmed in two separate independent proofs of principal Phase 2 clinical trials in Radiation Induced Fibrosis. The Company took one of the compounds, Pentoxifylline, and combined it with a powerful antioxidant and then conducted experiments in a mouse. These experiments showed that the new combination was effective at reducing the progression of the Fibrosis in the mouse lung. This new combination is being developed as the Company’s lead drug candidate, PTL-202. A provisional patent was filed in the United States by the Company in October 2007 to cover the composition of matter and method of use of this combination. In October 2008, the Company filed an application under the Patent Cooperation Treaty based on the above provisional application. The Company received a positive preliminary examination of the PCT application in the spring of 2009. During 2012 the patent prosecution continued and the Company filed Reponses to patent examiners in Europe and the US.
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The combination has now been formulated into a once a day tablet and the drugs included in PTL-202 have been successfully tested in a drug/drug interaction study in humans in 2012.
PTL-303
The Company’s other product candidate, PTL-303, is a combination of drugs including one that has been approved for use in Japan and other jurisdictions. This combination may have a wide range of uses, including treating, preventing and reducing disorders of progressive scarring in humans.
The Company does not have any funds allocated for the further development of PTL-303 at this time.
The composition, including a cytokine modifier and anti-oxidant which is a precursor of Glutathione, was investigated for its antifibrotic activity by employing two In Vitro collagen synthesis assays. The Company discovered that the combination PTL-303 brings about substantial synergistic anti-fibrotic effects in a TGF-Beta1 mediated collagen synthesis assay, when compared to the individual drugs.
The composition can be administered in any convenient manner, such as a pill, or inhalation, and may be formulated for injection.
A provisional patent titled “Composition and Method for Treating Fibrosis” was filed by the Company with the United States patent office on October 29, 2008. The application number is 61/109,446. A PCT application covering the technology of PTL-303 was filed by the Company in October 2009.
7) Oral Dissolving Technology
The Company has executed a letter of intent with Globe Labs Ltd. Of Vancouver, BC for the potential in-license of an oral dissolving tablet technology. The technology may be used for the delivery of up to three different compounds. The initial use of the technology maybe for the delivery of sildenafil citrate for the treatment of erectile dysfunction.
Principal Products
1) PTL-202
Once a Day Formulation Combination of Pan-phosphodiesterase inhibitor, Pentoxifylline, with N-acetylcysteine
Idiopathic Pulmonary Fibrosis (“IPF”) is a long term, progressive form of lung disease characterized by progressive buildup of scar tissue on the supporting framework (interstitium) of the lungs. The term Idiopathic is used only when the cause of the Fibrosis is unknown. Despite extensive investigation, the cause of IPF remains unknown. The disease involves abnormal and excessive deposition of scar tissue (Fibrosis) in the Pulmonary Interstitium (mainly the walls of the Alveoli) with minimal associated inflammation (Figure 1). The symptoms initially develop slowly. The most common symptom is progressive difficulty in breathing, but also includes dry cough.
Figure 1 - Human Airways
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The Company’s lead product, PTL-202, is a combination of two compounds designed to treat IPF: Pentoxifylline (PTX) and NAC (N-acetylcysteine). The Company has completed pre-clinical studies on PTL-202, development of a pill that can be taken once a day and completed a drug/drug interaction study in humans in 2012. A pivotal bio-equivalency study is planned for 2013 and maybe followed by a Phase 2 Proof-of-Principle clinical trial beginning in 2014.
Therapeutic Approach
The combination of drugs in PTL-202 is intended to stop the progression of IPF by reducing the amount of several messenger molecules that are known to be associated with scarring. In addition, the combination has anti-oxidant properties that protect the lung cells from further damage caused by the Fibrosis.
PTX increases the diameter of blood vessels and enhances blood flow. PTX has been successfully and safely used for many years for treatment of vascular diseases such as cramping in the leg.
There is growing evidence that PTX is an anti-inflammatory and may inhibit scarring in the lung.
NAC (N-acetylcysteine), the second compound in the PTL-202 combination, has been shown in animals to prevent some of the effects of IPF, including the progressive deterioration of patients.
Pre-clinical Studies
The Company has conducted a number of pre-clinical studies using PTL-202 for the treatment of lung Fibrosis in a mouse. The Company believes that these studies show that PTL-202 has the potential to be a safe and effective treatment for IPF.
The Company conducted proof-of-concept animal studies to evaluate the relative efficacy of stand-alone or combination treatments of PTX and NAC in lung Fibrosis. In the initial experiment, wet lung weight was measured under various treatments. From this early experiment, it was determined that PTL-202 may be more effective than its separate components.In further pre-clinical experiments, PTL-202 treatment was more effective than either PTX or NAC alone on lung Fibrosis in mice. In addition, treatment with PTL-202 caused a significant reduction in TNF-alpha in the lung fluid. This finding indicates that PTL-202 may act by reducing the amount of TNF-alpha. TNF-alpha is thought to stimulate the formation of scar tissue. Moreover, there were no deaths or abnormal reactions with a daily administration of PTL-202 during the experiments, indicating a lack of side effects which is consistent with the data from earlier clinical trials in humans for PTX and NAC separately.
The results of these extensive pre-clinical studies suggest that PTL-202 may be safe and effective agent for the treatment of Pulmonary Fibrosis.
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DEVELOPMENT PLANS OF PTL-202
Formulation Development
The goal of the Company is to develop a pill containing both drugs that only needs to be taken once per day. Existing, marketed, modified release versions of the drugs will be evaluated as a simple daily or twice daily fixed dose combination formulation. Given, the preliminary dose ranges/strengths of 600-1200mg of PTX combination with 600mg-1200mg NAC once a day, the physical size for an ingestible tablet will be a barrier to success. Current formulation of PTX, with Vitamin E rather than NAC, in a Phase 2 study has shown inhibition of messenger molecules and a reduction in scar tissue. Both PTX and NAC are water soluble molecules, with short resident time in the bloodstream. This high water solubility presents a challenge to once-a-day administration as both molecules are rapidly absorbed and metabolized quickly by the body. The goal from a development perspective is to deliver an appropriately formulated controlled release product, reducing the absolute amount of drug per tablet needed to achieve a clinically effective blood level. To accomplish this goal formulation development prototypes will target release of the drugs to provide sustained levels of the drug in the blood.
A controlled release formulation of PTL-202, a fixed dose combination of pentoxifylline (PTX) and N-acetylcysteine (NAC), for the potential treatment of idiopathic pulmonary fibrosis (IPF), Liver Cirrhosis and other fibrotic diseases was completed in 2012.
Phase 1: Clinical Studies
The Company has completed the initial clinical study of PTL-202. The study was a drug/drug interaction study. This study, conducted in humans was intended to determine if any new by products are created by the combination of the drugs in PTL-202 and to determine if the combination is bio-equivalent to its generic counter parts. The study included 12 healthy males. The bio-analytical portion (PK assay development and good laboratory practice validation) of the above-mentioned study was completed by a lab contracted by the Company. Therefore, following the Company’s stated business strategy, the Company acted as a sponsor of the study and the CROs were hired to execute the objectives of the study. Successful completion of this Phase 1 study of PTL-202 is a major milestone because as many as 30% of Phase 1 drug trials are failures.
A further pivotal bio-equivalency study is planned for 2013. This study would include up to 20 individuals and take about 2 months to complete.
Phase 2: Proof- of-Concept in Humans
The proposed Phase 2 study is a proof-of-concept or proof-of-relevance trial. The proposed study utilizes principles of adaptive design approach and has two interconnected parts. The proof-of-concept trial will be designed to assess the safety and efficacy of PTL-202 in patients with IPF. Study patients will receive formulated PTL-202 or individual components of PTL-202. Neither the patient or the physician will know if they are getting PTL-202 or a component.
The objectives of the study are:
To evaluate the safety and tolerability of 12 months of treatment with PTL-202 in patients with IPF versus placebo and individual components of PTL-202 (PTX and NAC);
To compare changes in forced vital volume capacity in IPF patients treated with PTL-202 versus treatment with PTX and NAC alone and placebo;
To compare changes in the following parameters in IPF patients treated with PTL-202;
Diffusion capacity for carbon monoxide;
Extent and nature of IPF-related abnormalities on high resolution CT; and
To compare quality of life evaluations in IPF patients treated with PTL-202 and individual components of PTL- 202 versus placebo.
The cost to complete the Phase 2 study is estimated at $8 million. Additional funds will be required to complete this phase of the development of PTL-202. On completion of this proof-of-principal study the Company will look to out-license PTL-202 to a larger company capable of completing the development and commercialization of PTL-202. Such additional funds would likely be raised through a private placement of securities. There is no assurance that such funding will be available. See also “Risk Factors” in this filing.
2) PIPELINE PRODUCT: PTL-303
Fixed Dose Combination of TGF-ß Inhibitor and NAC - Pre-clinical
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The Company has completed In Vitro studies of this combination that have confirmed the compounds method of action. This data has been included in the provisional patent application for PTL-303 to support the composition of matter and methods claims.
The Company does not have any funds allocated for the further development of PTL-303 at this time.
In the future, as funds are available, the Company will initiate animal studies using lung Fibrosis in mice to generate additional data to assess the efficacy of PTL-303. The pre-clinical work will also focus on the delivery of the compound to the liver and the efficacy of the compound in a liver Fibrosis model.
Efficacy in the liver Fibrosis model will lead to further Investigational New Drug application (IND) enabling studies when funds are available.
Manufacturing
The Company has limited experience in, and does not own facilities for, manufacturing any products or product candidates. The Company, in partnership with IntelGenx Corp. (IntelGenx), will utilize contract manufacturers to produce clinical supplies of any components of its products that are not commercially available. Although the Company intends to continue to rely on contract manufacturers to produce certain of its products for both clinical and commercial supplies, the Company and IntelGenx will oversee the production of those products.
Sales, Marketing and Distribution
The Company currently has no sales or distribution capabilities and limited marketing capabilities. In order to commercialize its products, the Company must develop sales, marketing and distribution capabilities or make arrangements with other parties to perform these services for us. The Company’s intention is to out-license its products once Phase 2 testing has been completed. It is anticipated the licensee will have the capability to market, sell and distribute the Company’s products.
Intellectual Property
We believe we are developing a valuable portfolio of intellectual property rights to protect the technologies, inventions and improvements that we believe are significant to our business, which includes patent applications in the United States, Europe and Canada.
Our success in the specialty pharmaceutical industry depends in substantial part on effective management of both intellectual property assets and infringement risks. In particular, we must be able to protect our own intellectual property as well as minimize the risk that any of our products infringes on the intellectual property rights of others.
We enter into agreements with all our employees involved in research and development, under which all intellectual property during their employment belongs to us, and they waive all relevant rights or claims to such intellectual property. All our employees involved in research and development are also bound by a confidentiality obligation, and have agreed to disclose and assign to us all inventions conceived by them during their term of employment. Despite measures we take to protect our intellectual property, unauthorized parties may attempt to copy aspects of our products or our proprietary technology or to obtain and use information that we regard as proprietary. If we fail to protect our intellectual property rights, it could harm our business and competitive position. For more information, see “Risk Factors” in this Form 20-F.
The Company has filed the below patent:
Patent Cooperation Treaty Patent Application No. PCT/CA2008/001880Filed 23 October 2008COMPOSITIONS AND METHODS FOR TREATING FIBROPROLIFERATIVE DISORDERS
The patent is filed under the Patent Cooperation Treaty in Canada, the United States and Europe.
Specialized Skills and Knowledge
All aspects of the Company’s business require specialized skills and knowledge. Such skills and knowledge include pre-clinical research, clinical drug development, regulatory, intellectual property management, business development, licensing, legal, corporate finance and accounting. Below is a list of the Company’s consultants and advisors.
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Dr. Lola Maksumova MD, PhD -Consultant, Former VP of Drug DevelopmentDr. Maksumova joined the Company in June 2007 as Vice President of Drug Development and held that position until November 2008. She rejoined the Company as a part time consultant in January 2009. Dr. Maksumova brings many years of bio-medical research experience, an understanding of disease processes in the areas of inflammation and Fibrosis, and expertise in cell signaling of immune disorders. Prior to her current position, Dr. Maksumova worked as Senior Scientist with Chemokine Therapeutics. Dr. Maksumova is a co-inventor of PTL-202 and PTL-303. Dr. Maksumova earned her medical degree from Tashkent Medical School and PhD in Medical Biochemistry from Hamamatsu University School of Medicine, Japan. Her professional training includes post-doctoral fellowships at Virginia Mason Research center in Seattle (2001) and with the Faculty of Medicine at University of British Columbia (2002-2006). Dr. Maksumova is compensated on an hourly basis for the time she spends consulting for the Issuer.
Scientific Advisory Board (“SAB”)
The members of the Company’s strategic advisory board, none of whom are officers or employees, provide advice, assistance and consultation in the fields of drug development, clinical trials and Fibrosis. The SAB consists of clinical advisors considered to be known opinion leaders in their respective fields, and they offer the Company advice and feedback regarding the following:
the Company’s drug development programs;
the opportunities provided by unmet needs and market opportunities; and
the existence of new products and technologies among other things.
The following is a brief biography of each of the Company’s Pulmonary Fibrosis and Bronchiolitis Obliterans clinical advisors, which includes a description of each individual’s credentials and recent professional experience.
Daryl Knight, Ph.D.Dr. Darryl Knight is a professor at University of Newcastle, Australia. Dr. Knight obtained his PhD at the University of Western Australia in 1993 and did post-doctoral training at the University of British Columbia. From 1997 to 2001 he was a Senior Research Officer in the Asthma & Allergy Research Institute of the University of Western Australia and was Head of the Experimental Biology division of the Institute from 2002 to 2004. He was also an Adjunct Senior Lecturer in the Department of Medicine at the University of Western Australia. Dr. Daryl Knight was the Canada Research Chair in Airway Disease and Associate Director of the James Hogg iCAPTURE Centre for Cardiovascular and Pulmonary Research. He was a tenured Professor of Pharmacology and Therapeutics at the University of British Columbia, Vancouver. Dr Knight sits on the Respiratory Science Grant Review panel at the CIHR, the Basic Science Review Panel of the Canadian Lung Association and is on the editorial board of 5 Respiratory Journals.
Ganesh Raghu MD, FCCP, FACPDr. Ganesh Raghu MD, FCCP, FACP is a specialist in Idiopathic Pulmonary Fibrosis (IPF). He is a professor of Pulmonary Medicine at the University Of Washington Medical Centre and a Director of the Lung transplant program there. He has conducted several clinical trials for the treatment of IPF with antifibrotic drugs. His current research interests include quality of life measures in IPF and lung transplantation, as well as the treatment of rejection and infection in lung transplants. Dr. Raghu received his M.D. in 1973 from Mysore Medical College, University of Mysore, Mysore, India. He Interned at University Hospitals, University of Mysore in 1974 and was a resident in General Medicine and Chest Medicine, Hartlepool General Hospital and Postgraduate Medical Center (University of Newcastle Upon Tyne), Hartlepool, England in 1977. In 1980 he conducted his residency in Internal Medicine at State University of New York in Buffalo. He was the Chief Medical Resident at the State University of New York, Buffalo from 1980 to 1981. Dr. Raghu moved to Seattle in 1983 to complete fellowships in Pulmonary and Critical Care Medicine as well as Lung Cell Biology at the University of Washington.
Dr. Andreas Zuckermann, MDDr. Zuckermann’s specialties include heart and lung transplantation. He is a Staff Surgeon in the Department of Cardiothoracic Surgery at University of Vienna in Austria and Co-Director of the Cardiac Transplantation Program there. He is also a Director the International Society for Heart and Lung Transplantation. He has been involved in over 170 thoracic transplantations and has conducted clinical research in post-transplant patients. His current interests are focused on heart lung transplantation and beating heart transplants. Dr. Zuckermann received his MD from Vienna Medical School, University of Vienna in 1991. From 1991 – 1993 he was the transplant coordinator in the Department of Cardiothoracic Surgery at the University of Vienna. From 1993 to 2000 prior to his appointment as a Staff Surgeon he trained in Cardio-thoracic surgery at St. Polten Hospital in Vienna where he assisted in over 30 lung transplants.
James R. Seibold,MD, FACP, FACRDr. Seibold is the past Director of the Scleroderma Program University of Michigan. He had been on the faculty of UMDNJ from 1980-2004 where he had served as Chief of the Division of Rheumatology, Director of the Clinical Research Center and as the W.H. Conzen Chair of Clinical Pharmacology. Author of more than 300 scientific publications, his medical practice specializes in Scleroderma, Raynaud’s phenomenon andEmployees
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interventional research in the rheumatologic diseases. He has received multiple awards from arthritisDirectors and Scleroderma patient organizations. Dr. Seibold is currently the President of the Scleroderma Clinical Trials Consortium.
Competitive ConditionsSenior Management
Current TherapiesThe following table sets forth certain information relating to our directors and executive officers:
Name and | Principal Occupation for Past Five | Date of | Common Shares | Percentage of |
Position | Years | Appointment to | Held(1) | Common |
Office | Shares | |||
Outstanding(2) | ||||
Alejandro Ochoa President, Chief Executive Officer & Director | Founder and CEO of Tower Three SAS; and consultant to Mackie Research Capital Corporation’s investment banking practice with a Latin American focus | January 12, 2017 | 12,000,000 | 17.69% |
Abbey Abdiye, Chief Financial Officer and Corporate Secretary | CFO of Biomark Diagnostics Inc. from 2014 to present | Chief Financial Officer since March 30, 2016 April 27, 2016; | Nil | Nil |
Fabio Alexander Vasquez Director | Co-founder of Tower Three, and has been engaged in the Florida aviation business for over 25 years. | January 12, 2017 | 12,000,000 | 17.69% |
Brian Gusko, Director, Chairman of the Board | Partner at Howe & Bay Financial Corporation; CFO of Vodis Pharmaceuticals; Director of Lomiko Metals; Director Arco Resources Corp.; Director Robix Alternative Fuels; Director Newnote Financial Corporation and Director of Cloud Nine Education Group. | August 25, 2015 | 2,434,964 | 3.59% |
Octavio De La Espriella Chief Operating Officer | Chief Operating Officer of Tower Three SAS; former Chief Operating Officer of Continental Towers Company. | January 12, 2017 | Nil | Nil |
Robert Horsley Director | Director of Evolving Gold Corp (Since March 4, 2014) Owner of Marksman Geological Ltd Owner of Cervus Business Management Inc. Partner in Howe And Bay Financial Corp Former Chief Executive Officer of the Company. | February 1, 2016 | 2,655,332 | 3.91% |
(1) | Figures as of October 28, 2017. |
(2) | As of October 28, 2017 we had 67,825,698 shares of common stock outstanding. |
Each of our directors will serve until the next annual meeting of our shareholders. None of our directors have service contracts with the Company or any of its subsidiaries providing for Idiopathic Pulmonary Fibrosisbenefits upon termination of employment.
In North America the current therapy for Idiopathic Pulmonary Fibrosis is based on the premise that recruitment and activation of inflammatory cells leads to the progressive development of IPF. However, massive doses of immunosuppressive agents meant to decrease the number or activity of inflammatory cells do not alter the development of IPF. Instead, patients develop serious side effects leading to a shortened lifespan. Since the current therapy is not successful, there is an urgent need to develop alternative potent, non-toxic, long lasting therapy for these unmet medical needs. PTL-202 works by inhibiting messenger molecules that are active in the development of IPF, specifically TNF-alpha.
Until recently treatment for IPF in North AmericaThe Company’s Audit Committee consists of using immunosuppressantsAlejandro Ochoa, Robert Horsley, and anti-oxidants. In an attemptBrian Gusko.
The Company’s Compensation Committee consists of Robert Horsley, Brian Gusko and Fabio Alexander Vasquez.
Set forth below is certain biographical information furnished to minimize side effects many patients are prescribed drugs to prevent GI side effects, osteoporosisus by our directors and infection. A clinical study during 2012 concluded that this treatment using immunosuppressants was actually harmful to IPF patients. Supplemental oxygen is prescribed to patients who are unable to maintain a satisfactory amount of oxygen in the blood. This treatment remains unsatisfactory as the median survival is 2 – 4 years once diagnosis is made and the 5 year survival rate ranges from 20% – 40% (Olson AL, Swigris JJ, Lezotte DC, Norris JM, Wilson CG, Brown KK. “Mortality from pulmonary fibrosis increased in the United States from 1992 to 2003”. Am J Respir Crit Care Med. 2007;176(3):277-284).
InterMune Inc.’s (“InterMune”) Pirfenidone represents the most advanced therapy being developed to treat IPF. Pirfenidone is a synthetic small molecule that is orally available for the prevention of fibrotic lesions in general. Pirfenidone has gastrointestinal side effects and will darken the skin and cover from the sun is required with its use. In contrast to PTL-202, Pirfenidone works by reducing the activity of an enzyme.
Both InterMune and Shinogi & Co., Ltd. (“Shinogi”) have conducted Phase 3 trials of Pirfenidone to treat IPF. InterMune has recently received approval to market Pirfenidone for IPF in the European Union and Canada, Shinogi recently received approval to market Pirfenidone for IPF in Japan. Pirfenidone is currently undergoing clinical trials for uterine fibrosis (PhII), scleroderma (PhII), proliferative vitreoretinopathy (PhII), multiple sclerosis (PhII), liver fibrosis (PhII), wound healing (PhI), and benign prostatic hyperplasia (PhI). Pirfenidone is not approved for use in either the United States.executive officer. There are no therapies for IPF approved in the United States.
Current Therapies for Scleroderma
Treatmentfamily relationships among any of Scleroderma is directed toward the individual feature(s) affecting different areasour current directors or executive officers. No director or executive officer was appointed as a director or officer of the body:
Aggressive treatment of elevations in blood pressure have been extremely important in preventing kidney failure;
Blood-pressure medications, such as captopril, are frequently used; and
Serious inflammation of the lungs (alveolitis) can require immune suppressionCompany pursuant to any arrangement or understanding with cyclophosphamide (Cytoxan) along with prednisone.
Additionally, medications are used to suppress the overly active immune system that seems to be spontaneously causing the disease in organs affected. Medications used for this purpose include penicillamine, azathioprine, and methotrexate. The optimal treatment of Scleroderma lung disease is an area of active research. Stem-cell transplantation is being explored as a possible option. There are no effective treatments for lung fibrosis associated with Scleroderma.
No medication has been found to be universally effective for all patients with scleroderma. In an individual patient, the illness may be mild and not require treatments. In some, the disease is ravaging and relentless. Lung fibrosis in Scleroderma may be fatal. PTL-202’s main focus in Scleroderma is treating patients with lung fibrosis.
Current Therapies for Post Lung Transplant Bronchiolitis Obliterans
The current therapy for Post Lung Transplant Bronchiolitis Obliterans (“PLT-BO”) is based on the same premise as in IPF, recruitment and activation of inflammatory cells leads to the development and progression of PLT-BO. However, massive doses of immunosuppressive agents meant to decrease the numberany major shareholder, customer, supplier or activity of inflammatory cells do not alter the course of IPF or PLT-BO. Instead, patients develop serious side effects leading to a shortened lifespan. There are no FDA-approved treatments for IPF. Despite these advances, optimal therapy for IPF remains elusive and has yet to be identified (http://www.ipfsummit.org/pdf/Needs-Assessment.pdf)other person.
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Competing IPF Drugs Currently Under DevelopmentAlejandro Ochoa – President & Chief Executive Officer and Director (Age: 36)
ACTIVE PHASE III CLINICAL TRIALS
BIBF 1120 - Manufactured by Boehringer Ingelheim: A Phase III, double-blind trialMr. Ochoa has over 18 years of experience working within the financial services industry. He has worked with such firms as Morgan Stanley, Prudential Securities and Raymond James. Mr. Ochoa currently serves as consultant to Mackie Research Capital Corporation’s Investment Banking Practice with a Latin America focus. Mr. Ochoa is fluent in patientsSpanish and has an understanding of the South American capital markets.
Dedicated to Latin America, his areas of expertise include mining and energy transactions in advisory, capital raisings and strategic assets sales with PFLatin American transactions in Colombia, Mexica, 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. Ochoa is a citizen of Colombia who decades of experience working in Colombia
Abbey Abdiye, Chief Financial Officer and Corporate Secretary (Age: 42)
Mr. Abdiye has extensive experience in the financial sector in both public and private companies. He is currently the chief financial officer of the following Canadian public companies: Ceylon Graphite Corp. (since January 20, 2017), Biomark Diagnostics Inc. (since October 30, 2014), and Fortify Resources Inc. (since November 15, 2016) He is also a Chartered Professional Accountant (CPA). As the Company’s Chief Financial Officer, Mr. Abdiye provides leadership and coordination in the administrative, business planning, reporting, and budgeting efforts of the Company. He oversees the Company’s financial reporting, internal controls, corporate governance management systems, annual audit and regulatory compliance matters. Mr. Abdiye is also on the board of directors of Lomiko Metals (since October 2012) a TSX-V listed company. He obtained Bachelor of Business Administration degree from Simon Fraser University and a Co-op Education certificate.
Fabio Alexander Vasquez, Director (Age: 50)
Mr. Vasquez, a co-founder of Tower Three and has been engaged in the Florida aviation business for over 25 years. He has been instrumental in the development and expansion of Miami Executive Aviation, a successful luxury charter aviation business which services Latin American clients. Mr. Vasquez is a citizen of Colombia who has decades of experience working in Colombia.
Robert Horsley, Director (Age: 35)
Mr. Robert “Nick” Horsley has over 10 years of public markets experience focused in finance, investor relations, marketing management and merger & acquisitions. Mr. Horsley has served as a director and a consultant to investigate the effect of Oral BIBF 1120, 150 mg Twice Daily, on Annual Forced Vital Capacity Decline. A primary outcome measure will be the annual rate of decline in in FVC over 32 weeks;
Cyclosporine Inhalation Solution (CIS) - Manufactured by APT Pharmaceuticals - (For lung transplant recipients only): A Phase III multi-center, randomized, controlled study to demonstrate the efficacyseveral public and safety of cyclosporine inhalation solution (CIS) in Improving Bronchiolitis Obliterans Syndrome-Free Survival Following Lung Transplantation. The study seeks to demonstrate the efficacyprivate companies and safety of CIS in improving survival, and preventing BOS when given prophylactically to lung transplant recipients in addition to their standard immunosuppressive regimen. The study is no longer recruiting patients;
Pirfenidone - Manufactured by InterMune: A Phase III, double-blind, placebo-controlled trial to evaluate the treatment effect of pirfenidone on changehas worked in a lung function measure (percent predicted forced vital capacity, or %FVC)variety of industries including: consumer goods, energy, mining, oil & gas, nutraceuticals & pharmaceuticals, and to evaluatetechnology. He is also a director of Evolving Gold Corp. (since March 15, 2015) and is the safetychief executive officer of treatment with pirfenidone compared with placebo; andFortify Resources Inc. (since November 15, 2015), each a CSE listed company.
Thalomid (Thalidomide) - Manufactured by Celgene: A Phase III, double-blind, placebo-controlled safety and efficacy study investigatingBrian Gusko, Director (Age: 50)
Mr. Gusko has significant international telecommunication business experience at the Treatment of Chronic Coughhighest level. His international experience includes working in Idiopathic Pulmonary Fibrosis with Thalidomide.Please visit www.clinicaltrials.gov and search "IPF" for a complete description of this trial, including inclusion/exclusion criteria. The study is sponsored by Johns Hopkins Medical Center (Baltimore, MD).
ACTIVE PHASE II CLINICAL TRIALS
CNTO 888 (Manufactured by Centocor, Inc.): A Phase 2, Multicenter, Multinational, Randomized, Double-Blind, Placebo-Controlled, Parallel-Group, Dose-Ranging Study Evaluating the Efficacy and Safety of CNTO 888 Administered Intravenously. The primary objective is to determine the efficacy (as measured by pulmonary function) and safety of CNTO 888 in patients with IPF. The secondary outcome measures are to assess the effect of CNTO 888 on measures of disease progression, patient reported outcomes, functional capacity and health- related quality of life, and to assess the pharmacokinetics and pharmacodynamics of CNTO 888 in IPF. The study began recruiting patients in October, 2008,Corporate Planning with a goal of recruiting 120 patients. Patients will beMitsubishi group company in Tokyo, Product Management at a Vodafone spin-off in the studyNetherlands, and being Managing Director of Palm’s South African wireless affiliate; he helped launched wireless data services in Africa for about 74 weeks;
FG-3019 (Manufactured by FibroGen, Inc.): A Phase II studyPalm’s new smart phones. He also was a research associate with the U.S. Department of FG-3019 (therapeutic antibody against connective tissue growth factor) for patients with IPF. The study is a Phase 2a, Open-Label, Single Arm Study to Evaluate the Safety, Tolerability,Commerce at an embassy posting, researching telecom and Efficacy of FG-3019technology companies. Mr. Gusko held management positions at Telus Advanced Communications, and Telus Planet Internet in Subjects With Idiopathic Pulmonary Fibrosis;
Interferon alpha (Amarillo Biosciences): A Phase II, randomized, double-blind, placebo-controlled trial to determine whether interferon-alpha, delivered in low doses via orally dissolving lozenges given 3 times per day for 4 weeks, can reduce the frequency and severity of chronic cough in patients with COPD or IPF. Cough frequency will be assessed via 24-hour digital audio recordings made prior to entry, and at weeks 2 and 4 of treatment. Patients will also complete questionnaires regarding cough frequency, duration and intensity, QOL, dyspnea, and antitussive medication usage weekly during treatment. The study is seeking 80 patients however it is only recruiting patients at Texas Tech University (Lubbock, TX). THIS IS TEMPORARILY ON HOLD; and
STX-100 (Stromedix, Inc.): STX-100 is a monoclonal antibody being developedAlberta Canada where his portfolio was responsible for the treatmentmajority of idiopathic pulmonary fibrosis (IPF)TELUS web hosting and internet traffic, respectively. He is also currently on the Board of Directors of Lomiko Metals and Cloud Nine Education Group, Ltd. Previously he has served on the boards of Robix Alternative Fuels, Inc. (from February 2014 to February 2015), Vodis Pharmaceuticals Inc. (from July 2014 to September 2014) and Arco Resources (from June 2015 to May 2016) . This multi-center, randomized, double-blind, placebo-controlled study will evaluate the safety, tolerability, pharmacokinetics, and pharmacodynamics of STX-100 in patients with IPF. The study began recruitment in Q4 11 and will enroll patients at sites across the United States.
ACTIVE PHASE I CLINICAL TRIALS
GS 6624 (formerly AB0024) - Developed by Gilead Sciences, Inc. Phase 1 drug candidate (humanized monoclonal antibody targeting the human LOXL2 protein) for patients with IPF. An ongoing Phase 1 study is designed to evaluate the safety, tolerability, pharmacokinetics and pharmacodynamics of GS 6624 in adult patients with IPF;
IW001 - Manufactured by Immuneworks. A Phase I studyPreviously he has served as chief financial officer of the safetyfollowing Canadian public companies: UC Resources Ltd. (from August 2007 to August 2009), Vodis Pharmaceuticals Inc. (from July 2014 to November 2015), and tolerabilityFirst Choice Products Inc. from September 2015 to November 2015).
Octavio De La Espriella, Chief Operating Officer (Age: 50)
Mr. De La Espriella is the Chief Operating Officer of 3 dosesTower Three. He was formerly the Chief Operating Officer of IW001 per day in patients with IPFContinental Towers Company where he helped expand the portfolio to over a 24 week treatment period. To explore the biologic effects of IW001 on T-cell and B-cell reactivity. This study will also explore relationships between Collagen V reactivity and clinical measures of lung function in patients with IPF. This study is now recruiting; and
PRM-151 - Manufactured by Promedior, Inc. A Phase 1b study of the safety, tolerability, pharmacokinetics, and pharmacodynamics of IV PRM-151 in patients with idiopathic pulmonary fibrosis has initiated in the US and the Netherlands. This study is now recruiting patients. PRM-151 is being developed for potential therapeutic uses to prevent, treat, and reduce fibrosis200 towers in a numbertwo-year period. His role today is the interface of disease settings.Tower Three with the four principal carriers/operators within Colombia (i.e., Claro, Tigo, Avantel, and
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Movistar). He has a Bachelor of Science degree in Finance from Colegio de Estudios Superiores de Administración CESA.
B. Compensation.
Economic DependenceRemuneration and Borrowing
The Company’s business is substantially dependent on its own patent applicationsBoard of Directors (the “Board”) may determine remuneration to use intellectual property protected by patent, trade secret and know-how owned bybe paid to the Company. It is not expected that the Company’s business will be affected in the current financial year by the terminationdirectors. The Compensation Committee of the Dalhousie license.
The Company’s business is substantially dependent on contracts to purchaseBoard (the “Compensation Committee”) assists the major part of its requirements for researchBoard in reviewing and development servicesapproving the compensation structure for the developmentdirectors. The Board may exercise all the powers of assays, formulation, pre-clinical research, clinical research and/the Company to borrow money and to mortgage or raw materialscharge its undertaking, property and manufactured product upon which its business depends. Theuncalled capital, and to issue debentures or other securities whether outright or as security for any debt obligations of the Company expects that its business will be affected in the current financial year by the negotiationor of new contracts and renegotiation or termination of contracts or sub-contracts.any third party.
SeasonalityCompensation of Directors and Executive Officers
Not Applicable
InsuranceIn 2016, we paid aggregate cash compensation of approximately $nil to our directors and executive officers as a group. We do not pay or set aside any amounts for pension, retirement or other benefits for our officers and directors.
We maintain commercial general liability insurance coverage to cover product liability claims arising from the use of our products. We also maintain liability insurance to cover specific clinical trials risks. Our insurance coverage, however, may not be sufficient to cover any claim for product liability.
We are subject to product liability exposureprovide directors and have limited insurance coverage. Any product liability claims or potential safety-related regulatory actions could damage our reputation and materially and adversely affect our business, financial condition and results of operations.
We also provide directors’ and officers’officer’s liability and company reimbursement insurance to cover all of our directors and officers against losses arising from claims we indemnify for. Our current officers and directors insurance coverage expiresis scheduled to expired on July 22, 2014. We plan to renewJanuary 24, 2018, and we renewed the insurance upon its expiration.expiration
Stock Option Plan
The Board adopted a stock option plan (the “Option Plan”), which was approved by shareholders on May 20, 2016 at the Company’s Annual General Meeting. The purpose of the Option Plan is to provide incentives to attract, retain and motivate executive officers, directors and employees whose present and future contributions are important to the Company. The maximum number of the Company’s shares of common stock reserved for issuance pursuant to stock options granted under the Option Plan will, at any time, be 10% of the number of the Company’s shares of common stock then outstanding. The number of the Company’s shares of common stock that may be issued to any one person shall not exceed 5% of the Company’s total issued and outstanding shares of common stock on a non-diluted basis. The price at which the Company’s shares may be issued under the stock option plan will be determined from time to time by the Board in compliance with the rules and policies of any stock exchange upon which the Company’s shares of common stock are listed. The vesting of options granted under the Option Plan will be determined by the Board at the time of the grant. Options granted under the Option Plan may be exercisable over a maximum period of five years. They will generally have a term of 5 years and vest over four years, 25% on each of the first four anniversaries of the date of grant, provided the optionee is in continuous service to the Company. The Board may amend the terms of the Option Plan from time to time, to the extent permitted by the Option Plan and any rules and policies of any stock exchange on which the Company’s shares of common stock are listed, or terminate it at any time. If the Company accepts any offer to amalgamate, merge or consolidate with any other company (other than a wholly-owned subsidiary) or if holders of greater than 50% of the Company’s shares of commons stock accept an offer made to all or substantially all of the holders of the Company’s shares of common stock to purchase in excess of 50% of our current issued and outstanding shares of commons stock, any then-unvested options will automatically vest in full.
FacilitiesEquity Compensation Plan Information as of December 31, 2016
Plan Category | Column (a) | Column (b) | Column (c) |
Number of securities to | Weighted-average | Number of securities remaining | |
be issued upon exercise | exercise price of | available for future issuance | |
of outstanding options | outstanding options | under equity compensation plans | |
Equity compensation plans approved by security holders | Nil | Nil | 673,588 |
Equity compensation plans not approved by security holders | N/A | N/A | N/A |
Total | Nil | Nil | 673,588 |
Employment Agreements
See Item 4D, “InformationThe Company currently does not have any employment agreements with any of its executive officers.
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Corporate Governance
Composition of the Board
The Board facilitates its exercise of independent supervision over management by ensuring that the Board is composed of a majority of independent directors. Directors are considered to be independent if they have no direct or indirect material relationship with the Company. A “material relationship” is a relationship which could, in the view of the Board, be reasonably expected to interfere with the exercise of a director’s independent judgment. The Board has four directors, of which Mr. Gusko is considered to be independent for the purposes of NI 58-101.
The mandate of the Board is to act in the best interests of the Company and to supervise management. The Board is responsible for approving long-term strategic plans and annual operating budgets recommended by management. Board consideration and approval is also required for material contracts and business transactions, and all debt and equity financing transactions. Any responsibility which is not delegated to management or to the committees of the Board remains with the Board. The Board meets on a regular basis consistent with the state of the Company’s affairs and also from time to time as deemed necessary to enable it to fulfill its responsibilities.
The Chairman of the Board is Brian Gusko, who is an independent director.
Duties of Directors
Under British Columbia law, our directors have a duty of loyalty to act honestly in good faith with a view to our best interest. Our directors also have a duty to exercise the care, diligence and skills that a reasonably prudent person would exercise in comparable circumstances. In fulfilling their duty of care to us, our directors must ensure compliance with our amended and restated memorandum and articles of association. A shareholder has the right to seek damages if a duty owed by our directors is breached.
The functions and powers of our Board include, among others:
convening shareholders’ annual general meetings and reporting its work to shareholders at such meetings;
issuing authorized but unissued shares of common stock and redeeming or purchasing outstanding shares of common stock of our Company;
declaring dividends and distributions;
appointing officers and determining the term of office and compensation of officers;
exercising the borrowing powers of our Company and mortgaging the property of our Company; and
approving the transfer of shares of common stock of our company, including the registering of such shares of common stock in our share register.
Position Descriptions
The Board has not developed written position descriptions for the chair or the chair of any Board committees or for the CEO. Given the size of the Company and the existence of only a small number of officers, the Board does not feel that it is necessary at this time to formalize position descriptions in order to delineate their respective responsibilities.
Nomination of Directors
The Company does not have a formal process or committee for proposing new nominees for election to the Board. The nominees are generally the result of recruitment efforts by the Board members, including both formal and informal discussions among Board members.
Qualification
There is no shareholding qualification for directors.
Orientation and Continuing Education
When new directors are appointed, they receive orientation, commensurate with their previous experience, on the Company’s technologies, business and industry and on the responsibilities of directors. New directors also receive historical public information about the Company — Property, Plant and Equipment.”the mandates of the committees of the Board. Board meetings may also include presentations by the Company’s management and employees to give the directors additional insight into the Company’s business. In addition, new directors are encouraged to visit and meet with management on a regular basis and to pursue
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continuing education opportunities where appropriate.
Assessments
The Board regularly assesses its own effectiveness and the effectiveness and contribution of each Board committee member and director.
Interested Transactions
A director may vote with respect to any contract or transaction in which he or she is interested, provided that the nature of the interest of any director in such contract or transaction is disclosed by him or her at or prior to its consideration and any vote in that matter.
Board Committees
Our Board has established an Audit Committee and a Compensation Committee.
Audit Committee
The Audit Committee has various responsibilities as set forth in Multilateral Instrument 52-110 (“MI 52-110”). The Audit Committee oversees the accounting and financial reporting practices and procedures of the Company and the audits of the Company’s financial statements. The principal responsibilities of the Audit Committee include: (i) overseeing the quality, integrity and appropriateness of the internal controls and accounting procedures of the Company, including reviewing the Company’s procedures for internal control with the Company’s auditors and Chief Financial Officer; (ii) reviewing and assessing the quality and integrity of the Company’s internal and external reporting processes, its annual and quarterly financial statements and related management discussion and analysis, and all other material continuous disclosure documents; (iii) establishing separate reviews with management and external auditors of significant changes in procedures or financial and accounting practices, difficulties encountered during auditing, and significant judgments made in management's preparation of financial statements; (iv) monitoring compliance with legal and regulatory requirements related to financial reporting; (v) reviewing and pre-approving the engagement of the auditor of the Company and independent audit fees; and (vi) assessing the Company’s accounting policies, and considering, approving, and monitoring significant changes in accounting principles and practices recommended by management and the auditor.
Audit Committee Charter
The Audit Committee Charter is filed as an exhibit to this Form 20-F.
Composition of the Audit Committee
As noted above, the members of the Audit Committee are Alejandro Ochoa, Robert Horsley, and Brian Gusko, all of whom are considered independent pursuant to NI 52-110, except for Mr. Ochoa. All members of the Audit Committee are considered to be financially literate.
A member of the Audit Committee isindependentif the member has no direct or indirect material relationship with the Company. A material relationship means a relationship which could, in the view of the Board, reasonably interfere with the exercise of a member’s independent judgment.
A member of the Audit Committee is consideredfinancially literateif he or she has the ability to read and understand a set of financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of the issues that can reasonably be expected to be raised by the Company.
Relevant Education and Experience
Please see above for the biographies of Alejandro Ochoa, Robert Horsley, and Brian Gusko.
Pre-Approval Policies on Certain Exemptions
The Audit Committee has not adopted specific policies and procedures for the engagement of non-audit services. The Company’s auditors have not provided any material non-audit services.
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Compensation Committee
The Company current does not have a compensation committee as the Board performs the functions that a compensation committee would normally perform.
D. Employees
As of December 31, 2016 the Company had the following number of employees and contractors:
Location | Full Time Employees | Contractors |
Vancouver, British Columbia | 0 | 2 |
The Company has previously utilized consultants and contractors to carry on many of its activities and, in particular, to supervise and conduct pre-clinical scientific experiments, assay development and validation. Other functions the Company have previously decided to outsource include assay development, formulation, clinical trials and manufacturing. As the Company expands its activities, it is probable that it will hire additional employees, especially in connection with its operations upon completion of the Tower three Transaction. .
E. Share Ownership.
The following table sets forth, as of October 28, 2017: (a) the names of each beneficial owner of more than five percent (5%) of our common stock known to us, the number of shares of common stock beneficially owned by each such person, and (b) the names of each director and officer, the number of shares our common stock beneficially owned, and the percentage of our common stock so owned, by each such person, and by all of our directors and executive officers as a group. Each person has sole voting and investment power with respect to the shares of our common stock, except as otherwise indicated. Beneficial ownership consists of a direct interest in the shares of common stock, except as otherwise indicated. Individual beneficial ownership also includes shares of common stock that a person has the right to acquire within 60 days from October 28, 2017. Unless otherwise indicated, the address of the person’s below is the Company’s address at 600-535 Howe Street, Vancouver, BC V6C 2Z4 Canada.
Name and Municipality of Residence and | Common Shares | Percentage of Common | Percentage of |
Position | Held(1) | Shares Outstanding(2) | Votes Held |
Alejandro Ochoa President, Chief Executive Officer & Director | 12,000,000 | 17.69% | 17.69% |
Abbey Abdiye, Chief Financial Officer and Corporate Secretary | Nil | Nil | Nil |
Fabio Alexander Vasquez Director | 12,000,000 | 17.69% | 17.69% |
Brian Gusko, Director | 1,911,971 | 3.59% | 3.59% |
Octavio De La Espriella Chief Operating Officer | Nil | Nil | Nil |
Robert Horsley Director | 1,841,666 | 3.91% | 3.91% |
Directors and Officers as a Group | 27,753,637 | 42.89% | 42.89% |
(1) | Figures as of October 28, 2017. |
(2) | Based on 67,825,698 shares of common stock outstanding on October 28, 2017. |
Item 7. Major Shareholders and Related Party Transactions
A . Major Shareholders.
Please refer to Item 6.E, “Share Ownership”.
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B. Related Party Transactions.
Other than as disclosed herein, to the best of our knowledge, in the years ended December 31, 2016, 2015 and 2014, there were no material transactions or loans between our company and: (a) enterprises that directly or indirectly through one or more intermediaries control or are controlled by, or are under common control with, our company; (b) associates; (c) individuals owning, directly or indirectly, an interest in the voting power of our company that gives them significant influence over our company, and close members of any such individual’s family; (d) key management personnel of our company, including directors and senior management of our company and close members of such individuals’ families; or (e) enterprises in which a substantial interest in the voting power is owned, directly or indirectly, by any person described in (c) or (d) or over which such a person is able to exercise significant influence.
In the normal course of operations, we enter into transactions with related parties, which include, among others, affiliates whereby we have a significant equity interest (10% or more) in the affiliates or have the ability to influence the affiliates’ or our operating and financing policies through significant shareholding, representation on the board of directors, corporate charter and/or bylaws. The affiliates also include certain of our directors, President and Chief Executive Officer, Chief Financial Officer, Chief Operating Officer and their close family members.
Payments or accruals for related party services provided to the Company during the years ended December 31, 2016, 2015 and 2014 were:
2016 | 2015 | 2014 | ||||
$ | $ | $ | ||||
Salary paid to a former chief executive officer and director | - | 106,667 | 160,000 | |||
Consulting fees paid to a Director or to a company controlled by a director | 78,571 | 24,000 | 39,121 | |||
Accounting fees paid to a company controlled by the CFO | 15,714 | 7,500 | 6,000 | |||
Legal fees paid to a director | - | 1,334 | 3,121 | |||
Share-based payments for options issued to a director | - | 4,500 | 67,835 | |||
94,285 | 144,001 |
The consulting fees described above were paid to Howe and Bay Financial Corp., (“Howe and Bay”) a related party of the Company, of which Brian Gusko and Robert Horsley are directors in connection with services provided to the Company from Howe and Bay consisting of corporate communication advice and office services management.
The Company incurred legal fees from a consultant and director of the Company in the amount of $3,121 for the year ended December 31, 2014.
The Company incurred salaries, directors’ fees and other benefits relating to directors and officers of the company in the amount of $205,121 for the year ended December 31, 2014.
During the year ended December 31, 2014 the Company issued 1,000,000 common shares and warrants to settle $50,000 of outstanding debt owing to a director of the Company.
During the year ended December 31, 2015, the Company assigned certain loans from related parties to Cabbay pursuant to the Arrangement.
The Issuer incurred legal fees from a consultant and director of the Issuer in the amount of $1,334 for the year ended December 31, 2015.
During the year ended December 31, 2015, the Company issued 39,333 common shares and warrants to settle $59,000 of outstanding debt owing to officers and directors of the Company.
During the year ended December 31, 2015, the Company entered into debt settlement agreements with officers and directors of the Company, through which an aggregate of $535,077 due to related parties was forgiven.
On March 21, 2016 the Company entered settlement agreements with related parties that included as well as other parties whereby the Company would issue Common Shares at a deemed price of $0.06 per Common Share for the settlement amounts owing to such creditors. Pursuant to these settlement agreements, $43,000 would be settled and a total of approximately 716,666 Common Shares would be issued to these creditors. Of the 716,666 Common Shares to be issued in connection with the debt settlement, 666,666 Common Shares were issued to Howe and Bay. The indebtedness settled or
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released related to consulting services and money owed to the Creditors. The disinterested directors of the Company approved this debt settlement with the related party.
As at December 31, 2016, the only balances the Company had with related parties were $189,468 due from Tower Three. These balances reflected short term loans to Tower Three by the related parties in order to fund the construction of Tower Three’s towers.These short term loans were all unsecured, non-interest bearing and payable on demand. As of March 31, 2017, those balances were all $nil. There are no further proposed related party transactions.
There are no amounts due to the Company from companies that have directors in common with the Company or have a partner who is a director of the Company.
C . Interests of Experts and Counsel.
Not applicable.
Item 8. Financial Information
A. Consolidated Statements and Other Financial Information
The consolidated financial statements of the Company included with this Form 20-F have been prepared in compliance with International Financial Reporting Standards, as adopted by the International Accounting Standards Board. See “Item 18: Financial Statements”.
Legal Proceedings
We are not currently a party toinvolved in any material legal proceeding. From time to time, we may bring against othersactions or be subject to various claims and legalto our knowledge no such actions arising in the ordinary course of business.or claims are pending.
RegulationDividend Distributions
Government Regulations
We did not declare or pay any dividends to our shareholders in 2016. The currentactual timing, payment and future operations and research and development activitiesamount of the Company are or will be subject to various laws and regulations in the countries in which the Company conducts or plans to conduct activities, including but not limited to the United States, Canada and the European Union. These laws and regulations govern the research, development, sale and marketingdividends paid on our shares of pharmaceuticals, taxes, labor standards, occupational health and safety, toxic substances, chemical products and materials, waste management and other matters relating to the pharmaceutical industry. Permits, registrations or other authorizations may also be required to maintain operations and to carry out the Company’s future research and development activities, and these permits, registrations or authorizations will be subject to revocation, modification and renewal.
Governmental authorities have the power to enforce compliance with lease conditions, regulatory requirements and the provisions of required permits, registrations or other authorizations, and violators may be subject to civil and criminal penalties including fines, injunctions, or both. The failure to obtain or maintain a required permit may also result in the imposition of civil and criminal penalties, and third parties may have the right to sue to enforce compliance.
The Company expects to be able to comply with all applicable laws and regulations and does not believe that such compliance will have a material adverse effect on its competitive position. The Company has obtained and intends to obtain all permits, licenses and approvals requiredcommon stock is determined by all applicable regulatory agencies to maintain current operations and to carry out future research and development activities.
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U.S. Pharmaceutical Regulatory Agency
Regulation by governmental authorities in the United States and other countries is a significant factor in the development, manufacture and marketing of pharmaceuticals. All of the Company’s product candidates will require regulatory approval by government agencies prior to commercialization. In particular, product candidates are subject to rigorous pre-clinical testing and clinical trials and other premarketing approval requirements of the FDA and regulatory authorities in other countries. Various federal, state and foreign statutes and regulations govern the manufacturing, safety, labeling, storage, record-keeping and marketing of pharmaceutical products. The lengthy process of seeking required approvals and the continuing need for compliance with applicable statutes and regulations require the expenditure of substantial resources. When and if regulatory approval is obtained for any of the Company’s product candidates, the approval may be limited in scope, which may significantly limit the indicated uses for which the product candidates may be marketed, promoted and advertised. In addition, approved pharmaceuticals and manufacturers are subject to ongoing review and discovery of previously unknown problems that may result in restrictions on the manufacture, sale or use of approved pharmaceuticals or in their withdrawal from the market.
Pre-clinical Studies
Before testing any compounds with potential therapeutic value in human subjects in the United States, stringent governmental requirements for pre-clinical data must be satisfied. Pre-clinical testing includes both in vitro and in vivo laboratory evaluation and characterization of the safety and efficacy of a drug and its formulation. Pre-clinical testing results obtained from these studies, including tests in several animal species, are submitted to the FDA as part of an investigational new drug application, or IND, and are reviewed by the FDA prior to the commencement of human clinical trials. These pre-clinical data must provide an adequate basis for evaluating both the safety and the scientific rationale for the initial trials in human volunteers.
Clinical Trials
If a company wants to conduct clinical trials in the United States to test a new drug in humans, an IND must be prepared and submitted to the FDA. The IND becomes effective if not rejected or put on clinical hold by the FDA within 30 days of filing the application. The IND process can result in substantial delay and expense.
Clinical Trial Phases
Clinical trials typically are conducted in three sequential phases, Phases 1, 2 and 3, with Phase 4 trials potentially conducted after marketing approval. These phases may be compressed, may overlap or may be omitted in some circumstances.
Phase 1 clinical trials: After an IND becomes effective, Phase 1 human clinical trials can begin. These trials evaluate a drug’s safety profile and the range of safe dosages that can be administered to healthy volunteers or patients, including the maximum tolerated dose that can be given to a trial subject. Phase 1 trials also determine how a drug is absorbed, distributed, metabolized and excreted by the body, and duration of its action.
Phase 2 clinical trials: Phase 2 clinical trials are generally designed to establish the optimal dose, to evaluate the potential effectiveness of the drug in patients who have the target disease or condition and to further ascertain the safety of the drug at the dosage given in a larger patient population.
Phase 3 clinical trials: In Phase 3 clinical trials, the drug is usually tested in a controlled, randomized trial comparing the investigational new drug to a control (which may be an approved form of therapy) in an expanded and well-defined patient population and at multiple clinical sites. The goal of these trials is to obtain definitive statistical evidence of safety and effectiveness of the investigational new drug regime as compared to control in defined patient populations with a given disease and stage of illness.
New Drug Application
After completion of clinical trials, if there is substantial evidence that the drug is both safe and effective, a New Drug Application, is prepared and submitted for the FDA to review. The New Drug Application must contain all of the essential information on the drug gathered to that date, including data from pre-clinical studies and clinical trials, and the content and format of a New Drug Application must conform with all FDA regulations and guidelines. Accordingly, the preparation and submission of a New Drug Application is an expensive and major undertaking for a company.
The FDA reviews all New Drug Applications submitted before it accepts them for filing and may request additional information from the sponsor rather than accepting a New Drug Application for filing. In such an event, the New Drug Application must be submitted with the additional information and, again, is subject to review before filing. Once the submission is accepted for
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filing, the FDA begins an in-depth review of the New Drug Application. By law, the FDA has 180 days in which to review the New Drug Application and respond to the applicant. The review process is often significantly extended by the FDA through requests for additional information and clarification. The FDA may refer the application to an appropriate advisory committee, typically a panel of clinicians, for review, evaluation and a recommendation as to whether the application should be approved and the scope of any approval. The FDA is not bound by the recommendation, but gives great weight to it. If the FDA evaluations of both the New Drug Application and the manufacturing facilities are favorable, the FDA may issue either an approval letter or an approvable letter, which usually contains a number of conditions that must be satisfied in order to secure final approval. If the FDA’s evaluation of the New Drug Application submission or manufacturing facility is not favorable, the FDA may refuse to approve the New Drug Application or issue a not approvable letter.
Fast Track Designation and Priority Review
The FDA’s fast track program is intended to facilitate the development and expedite the review of drugs that are intended for the treatment of a serious or life-threatening condition for which there is no effective treatment and which demonstrate the potential to address unmet medical needs for their condition. Under the fast track program, the sponsor of a new drug may request the FDA to designate the drug for a specific indication as a fast track product at any time during the clinical development process.
In some cases, the FDA may designate a product for priority review. A product is eligible for priority review, or review within a targeted six-month time frame from the time a New Drug Application is accepted for filing, if the product provides a significant improvement compared to marketed products in the treatment, diagnosis or prevention of a disease. The Company regularly assesses its products for fast track potential but cannot guarantee any of its products will receive a priority review designation, or if a priority designation is received, that review or approval will be faster than conventional FDA procedures.
Orphan Drug Designation
The FDA may grant orphan drug designation to drugs intended to treat a rare disease or condition that affects fewer than 200,000 individuals in the United States,our Board, based upon things such as IPF. If the FDA grants orphan drug designation, the generic identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA. Orphan drug designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process. If a product that has orphan drug designation subsequently receives FDA approval for the indication for which it has such designation, the product is entitled to orphan exclusivity, which means the FDA may not approve any other applications to market the same drug for the same indication, except in very limited circumstances, for up to seven years after receiving FDA approval.
When appropriate, the Company will seek orphan status for certain indications that may be treated with its products.
Other Regulatory Requirements
Any products manufactured or distributed under FDA approvals are subject to continuing regulation by the FDA, including record-keeping requirements and reporting of adverse experiences with the products. Drug manufacturers and their subcontractors are required to register with the FDA and, where appropriate, state agencies, and are subject to periodic unannounced inspections by the FDA and state agencies for compliance with current good manufacturing practices and regulations which impose procedural and documentation requirements upon drug developers and each third party manufacturer they utilize.
The FDA closely regulates the marketing and promotion of drugs. A company can make only those claims relating to safety and efficacy that are approved by the FDA. Failure to comply with these requirements can result in adverse publicity, warning letters, corrective advertising and potential civil and criminal penalties. Physicians may prescribe legally available drugs for uses that are not described in the product’s labeling and that differ from those tested by us and approved by the FDA. Such off-label uses are common across medical specialties. Physicians may believe that such off-label uses are the best treatment for many patients in varied circumstances. The FDA does not regulate the behavior of physicians in their choice of treatments. The FDA does, however, restrict manufacturers from communicating on the subject of off-label use.
European Union
Clinical Trials
In common with the United States, the various phases of pre-clinical and clinical research in the European Union are subject to significant regulatory controls. The regulatory controls on clinical research in the European Union are now largely harmonized following the implementation of the Clinical Trials Directive 2001/20/EC, or CTD. Compliance with the national
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implementations of the CTD has been mandatory from May 1, 2004. However, variations in the member state review agencies continue to exist, particularly in the small number of member states that have yet to implement the CTD fully.
All member states currently require regulatory and independent ethics committee approval of interventional clinical trials. European regulators and ethics committees also require the submission of adverse event reports during a study and a copy of the final study report.
Marketing Authorization
In the European Union, approval of new medicinal products can be obtained through the mutual recognition procedure or the centralized procedure. The mutual recognition procedure entails initial assessment by the national authorities of a single member state and subsequent review by national authorities in other member states based on the initial assessment. The centralized procedure entails submission of a single Marketing Authorization Application (“MAA”) to the European Medicines Agency (“EMEA”) leading to an approval that is valid in all European Union member states. EMEA approval is required for certain medicinal products, such as biotechnology products and certain new chemical entities, and optional, or available at the EMEA’s discretion for other new chemical entities or innovative medicinal products with novel characteristics.
Under the centralized procedure, an MAA is submitted to the EMEA. Two European Union member states are appointed to conduct an initial evaluation of each MAA. These countries each prepare an assessment report, which are then used as the basis of a scientific opinion of the Committee for Medicinal Products for Human Use (“CHMP”). If this opinion is favorable, it is sent to the European Commission which drafts a decision. After consulting with the member states, the European Commission adopts a decision and grants a marketing authorization, which is valid throughout the European Union and confers the same rights and obligations in each of the member states as a marketing authorization granted by that member state.
The European Union expanded its membership by ten in May 2004. Two more countries joined on January 1, 2007. Several other European countries outside of the European Union, particularly those intending to accede to the European Union, accept European Union review and approval as a basis for their own national approval.
Advertising
In the European Union, the promotion of prescription medicines is subject to intense regulation and control, including a prohibition on direct-to-consumer advertising. Some jurisdictions require that all promotional materials for prescription medicines be subjected to either prior internal or regulatory review and approval.
Data Exclusivity
For applications filed after October 30, 2005, European Union regulators offer eight years data exclusivity during which generic drug manufacturers cannot file abridged applications. This is followed by two years market exclusivity during which generic applications may be reviewed and approved but during which generic drug manufacturers cannot launch products.
Other Regulatory Requirements
If a marketing authorization is granted for the Company’s products in the European Union, the holder of the marketing authorization will be subject to ongoing regulatory obligations. A holder of a marketing authorization for the Company’s products is legally obliged to fulfill a number of obligations by virtue of its status as a Marketing Authorization Holder. While the associated legal responsibility and liability cannot be delegated, the Marketing Authorization Holder can delegate the performance of related tasks to third parties, provided that this delegation is appropriately documented. A Marketing Authorization Holder can therefore either ensure that it has adequate resources, policies and procedures to fulfill its responsibilities, or can delegate the performance of some or all of its obligations to others, such as distributors or marketing partners.
The obligations of a Marketing Authorization Holder include:
Manufacturing and Batch Release: Marketing Authorization Holders should guarantee that all manufacturing operations comply with relevant laws and regulations, applicable good manufacturing practices, with the product specifications and manufacturing conditions set out in the marketing authorization and that each batch of product is subject to appropriate release formalities;
Pharmaco-vigilance: Marketing Authorization Holders are obliged to monitor the safety of products post-approval and to submit to the regulators safety reports on an expedited and periodic basis. There is an obligation to notify
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regulators of any other information that may affect the risk benefit ratio for the product;
Advertising and Promotion: Marketing Authorization Holders remain responsible for all advertising and promotion of its products in the relevant jurisdiction, including promotional activities by other companies or individuals on their behalf. Some jurisdictions require that a Marketing Authorization Holder subject all promotional materials to either internal or prior regulatory review and approval;
Medical Affairs/Scientific Service: Marketing Authorization Holders are required to have a function responsible for disseminating scientific and medical information on its medicinal products, predominantly to healthcare professionals, but also to regulators and patients;
Legal Representation and Distributor Issues: Marketing Authorization Holders are responsible for regulatory actions or inactions of their distributors and agents, including the failure of distributors to provide a Marketing Authorization Holder with safety data within a timeframe that allows the Marketing Authorization Holder to fulfill its reporting obligations; and
Preparation, Filing and Maintenance of the Application and Subsequent Marketing Authorization: Marketing Authorization Holders have general obligations to maintain appropriate records, to comply with the marketing authorization’s terms and conditions, to submit renewal applications and to pay all appropriate fees to the authorities. There are also general reporting obligations, such as an obligation to inform regulators of any information that may lead to the modification of the marketing authorization dossier or product labeling, and of any action to suspend, revoke or withdraw an approval or to prohibit or suspend the marketing of a product.
The Company may hold marketing authorizations for products in its own name, or appoint an affiliate or a collaboration partner to hold the marketing authorization on its behalf. Any failure by a Marketing Authorization Holder to comply with these obligations may result in regulatory action against the Marketing Authorization Holder and its approvals and ultimately threaten our ability to commercialize our products.
Canada
In Canada, applications for a marketing authorization, known as a notice of compliance, are submitted to the Health Canada Therapeutic Products Directorate, which is the federal regulatory body that oversees the approval of pharmaceutical products for human use. Under the Food and Drugs Act (Canada) and the regulations there under, a manufacturer must present substantive scientific evidence of a product’s safety, efficacy and quality. At present, Health Canada targets 355 days for application review and approvals. Once the application is approved and the applicant receives a notice of compliance, the applicant has the right to sell the product in Canada.
In addition to regulations in the United States, Europe and Canada, the Company is subject to a variety of foreign regulations governing clinical trials and commercial distribution of our future product candidates in other jurisdictions.
Approvals Outside of the United States, Canada and the European Union
The Company and its products will also be subject to a wide variety of foreign regulations governing development, manufacture and marketing. Whether or not FDA approval or European marketing authorization has been obtained, approval of a product by the comparable regulatory authorities of other foreign countries must still be obtained prior to manufacturing or marketing the product in those countries. The approval process varies from country to country and the time needed to secure approval may be longer or shorter than that required for FDA approval or a European marketing authorization. The Company cannot assure investors that clinical trials conducted in one country will be accepted by other countries or that approval in one country will result in approval in any other country.
C. Organizational structure
Not Applicable.
D. Property, plant and equipment.
As we operate as a virtual company and we have no products approved for marketing, and no research and development facilities or manufacturing plant, we therefore have no PP&E relating to manufacturing equipment at this time. However, we do have minimal amounts of lab equipment, computer equipment, furniture and fixtures and leasehold improvements relating to our head office. See the financial statements for the fiscal year ended December 31, 2014 included in this Form 20-F. Our
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head office is located at 1500 – 409 Granville St. in Vancouver BC, Canada.
Item 5. Operating and Financial Review and Prospects
A. Operating Results
The following discussion of our financial condition andcash flow, results of operations is based upon and should be read in conjunction with our financial statements for the fiscal years ended December 31, 2014, December 31, 2013 and December 31, 2012, and the opening statement of financial position as at January 1, 2011, have been prepared in accordance with International Financial Reporting Standards (“IFRS”). This discussion contains forward-looking statements that involve certain risks and uncertainties. We caution you that our businesses and financial performance are subject to substantial risks and uncertainties. See Item 3.D, “Key Information — Risk Factors”.
The Company’s net losscondition, the need for the year ended December 31, 2014, totaled $693,645 or $0.02 per share (FYE 2013 – $740,846 or $0.03 per share, FYE 2012 - $605,468 or $0.03 per share). The main contributor to this decreased loss in 2014 is the decrease in research and development, advertising and promotion and investor relations as well as the incurrence of a loss on the derivative liability.
Revenues
The Company has not generated any revenue from the sale of drug therapies. The Company has not recognized any revenue since inception through December 31, 2014. The Company does not expect to receive any revenues until after the completion of the Phase 2 trial of PTL-202.
The Company’s revenues will be earned through upfront payments from licenses, milestone payments included in-licenses and royalty income from licenses. The Company’s revenues will depend on out licensing the Company’s drug candidates to suitable development and commercialization partners and its partners’ abilities to successfully complete clinical trials and commercialize the Company’s drug candidates worldwide.
General and Administrative Expenses
General and administrative costs consist primarily of personnel related costs, non-intellectual property related legal costs, accounting costs and other professional and administrative costs associated with general corporate activities.
General and administrative costs consist primarily of personnel related costs, non-intellectual property related legal costs, accounting costs and other professional and administrative costs associated with general corporate activities.
During the year ended December 31, 2014, the total general and administrative costs were $202,809 as compared to the year ended December 31, 2013 during which period the total general and administrative costs were $90,084. The decreased loss is largely due to an increase in advertising and promotion of $119,588, investor relations of $36,175 and professional fees of $9,757 in the year ended December 31, 2014 as compared to the year ended December 31, 2013.
From 2013 and beyond, as PTL-202 begins clinical development and as operations are developed to move PTL-202 and other drug candidates through the clinical trial process, general and administrative expenses will increase. Increases in personnel costs, professional fees and contract services will make up a significant portion of these planned expenditures.
Intellectual Property and Intangible Assets
All license and option fees paid to licensors for intellectual property licenses are accrued to intangible assets on the Company’s financial statements. In addition, any expenses for intellectual property protection including patent lawyers services fees and any filing fees with government agencies or the World Intellectual Property Organization are accrued to intangible assets. This cost will decrease in the twelve months following the date of this prospectus as no new filings are anticipated.
Interest Income
Interest income consists of interest earned on the Company’s cash and cash equivalents. There was interest income in 2014 of $Nil (2013- $16,861, 2012 – $104,378).
Profits
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At this time, the Company is not anticipating profit from operations. Until such time as the Company is able to realize profits from the out licensing of products under development, the Company will report an annual deficit and will rely on its ability to obtain equity and/or debt financing to fund on-going operations. For information concerning the business of the Company, please see “Item 4. Information on the Company”.
Contributed Surplus, which arises from the recognition of the estimated fair value of stock options and warrants, was $289,766 for fiscal year 2014, compared with $123,704 for fiscal year 2013 and $206,212 for fiscal year 2012. The increase in contributed surplus was due to the issuance of stock options to officers and directors.
As a result of the net and comprehensive loss for the fiscal year 2014 of $693,645 (compared with $740,846 for fiscal year 2013 and $605,468 for fiscal year 2012), the deficit as of December 31, 2014 increased to $3,955,537 from $3,263,058 as of December 31, 2013, for an increase of $692,479. The deficit as of December 31, 2013 increased to $3,263,058 from $2,662,918 as of December 31, 2012, for an increase of $600,140.
During the fiscal year 2014, the Company’s net cash provided by financing activities increased to $197,785, compared with $731,273 for fiscal year 2013 and $315,518 for fiscal year 2012.
At present, the Company’s operations do not generate cash inflows and its financial success after 2012 is dependent on management’s ability to continue to obtain sufficient funding to sustain operations through the development stage and successfully bring the Company’s technologies to the point that they may be out licensed so that the Company achieves profitable operations. The research and development process can take many years and is subject to factors that are beyond the Company’s control.
In orderfunds to finance the Company’s future researchongoing operations and development and to cover administrative and overhead expenses in the coming years the Company may raise money through equity sales. Many factors influence the Company’s ability to raise funds, including the Company’s track record, and the experience and caliber of its management. Actual funding requirements may vary from those planned due to a number of factors, including the progress of research activities. Management believes it will be able to raise equity capitalsuch other business considerations as required in the long term, but recognizes there will be risks involved that may be beyond their control. Should those risks fully materialize, it may not be able to raise adequate funds to continue its operations.
Comparison of Years Ended December 31, 2014 and 2013
31-Dec-14 $ | 31-Dec-13 $ | Change $ | Change % | |
Revenue | Nil | Nil | 0 | N/A |
Research and Development* | Nil | Nil | 0 | N/A |
Wages and Benefits | 160,947 | 157,916 | 3,031 | 2% |
Professional Fees | 168,490 | 178,247 | -9,757 | -5% |
Advertising and Promotion | 67,923 | 187,511 | -119,588 | -64% |
Investor Relations | 25,075 | 61,250 | -36,175 | -59% |
General and Administrative | 202,809 | 90,084 | 112,725 | 125% |
Insurance | 30,194 | 22,461 | 7,733 | 34% |
Rent and Occupancy Cost | 14,543 | 13,284 | 1,259 | 9% |
Interest Expense (Income) | 22,877 | 16,861 | 6,016 | 36% |
Other Expense | 787 | 12,532 | -11,745 | -94% |
Net and Comprehensive Loss | 693,645 | 740,146 | -46,501 | -15% |
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|
Comparison of Quarters EndedDecember31, 2014 and 2013
December | September | June | March | December | September | June | March | |
31, 2014 | 31, 2014 | 30, 2014 | 31, 2014 | 31, 2013 | 31, 2013 | 30, 2013 | 31, 2013 | |
$ | $ | $ | $ | $ | $ | $ | $ | |
Total Revenues | Nil | Nil | Nil | Nil | Nil | Nil | Nil | Nil |
Net Loss | (234,287) | (135,543) | (149,592) | (174,225) | (308,768) | (104,895) | (152,648) | (174,535) |
Loss per Share basic and diluted | (0.01) | (0.00) | (0.00) | (0.00) | (0.01) | (0.00) | (0.01) | (0.01) |
Cash | 1,513 | 8,370 | 1,905 | 10,220 | 180,692 | 7,523 | 1,927 | 7,220 |
Total Assets | 67,315 | 87,769 | 81,660 | 122,296 | 287,043 | 136,900 | 78,413 | 121,075 |
Non-Current Liabilities | Nil | Nil | Nil | Nil | Nil | Nil | Nil | Nil |
Critical Accounting Estimates
The Company’s accounting policies are presented in Note 3 of the December 31, 2012 audited financial statements. The preparation of financial statements in accordance with International Financial Reporting Standards (IFRS) requires management to select accounting policies and make estimates. Such estimates may have a significant impact on the financial statements. Actual amounts could differ materially from the estimates used and, accordingly, affect the results of the operations. These include:
the assumptions used for the determinations of the timing of future income tax events;
the carrying values of property, plant and equipment, intangible assets such as technology licenses and patents, derivative liability, convertible note, and the valuation of stock-based compensation expense.
Changes in Accounting Policies including Initial Adoption
The Company has adopted IFRS, as of January 1, 2010, as discussed in Note 2(a) of the December 31, 2014 Financial Statements.
Financial Instruments
The Company’s financial instruments consist of cash and cash equivalents, accounts payable and accrued liabilities, amounts due to shareholders, shareholder demand loan, the liability portion of the convertible note and the derivative liability. Cash and cash equivalents are classified as financial assets. Unless otherwise noted, it is management’s opinion that the Company is not exposed to significant interest, currency or credit risks arising from financial instruments. The fair value of cash and cash equivalents and accounts payable and accrued liabilities approximates their carrying values due to their short-term maturity or capacity for prompt liquidation.
Accounts payable and accrued liabilities, amounts due to shareholders, shareholder demand loan, the liability portion of the convertible note and the derivative liability are classified as financial liabilities. Accounts payable and accrued liabilities, shareholder demand loan, balances due to shareholder and the liability portion of the convertible note are recognized initially at fair value, and subsequently stated at amortized cost. The derivative financial liability is initially measured at fair value, with subsequent measurement to fair value at the end of each reporting period.
Foreign exchange risk is the risk arising from changes in foreign currency fluctuations. The Company does not use any derivative instruments to reduce its exposure to fluctuations in foreign currency rates. It is the opinion of management that the foreign exchange risk to which the Company is exposed is minimal.
Limitations of Controls and Procedures
The Company’s management, including the Chief Executive Officer and Chief Financial Officer, believe that any disclosure
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controls and procedures or internal controls over financial reporting, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, they cannot provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been prevented or detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by unauthorized override of the control. The design of any systems of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Accordingly, because of the inherent limitations in a cost effective control system, misstatements due to error or fraud may occur and not be detected.our Board considers relevant.
B. Liquidity and Capital Resources.
Overview
The Company is a development stage company and therefore has no regular cash inflows. Selected financial data pertaining to liquidity and capital resources for the fiscal years ended December 31, 2014 and December 31, 2013 is presented below.
Comparison of Years Ended December 31, 2014 and 2013
%Chang | ||||
$ Change | e | |||
Year ended | 2014 | 2013 | between two | between |
years | two | |||
years | ||||
$ | $ | |||
Cash and Cash Equivalents | 1,513 | 180,692 | -179,179 | -99% |
Current Assets | 2,825 | 224,688 | -221,863 | -99% |
Current Liabilities | 943,076 | 727,188 | 215,888 | 30% |
Working Capital | - 940,251 | -502,500 | -437,751 | 87% |
Accumulated Deficit | 3,955,537 | 3,263,058 | 692,479 | 21% |
Cash used in Operations | 366,769 | 546,866 | -180,097 | -33% |
Cash flows from Financing Activities | 197,785 | 731,273 | -533,488 | -73% |
Interest Income | $Nil | $Nil | $Nil | %Nil |
As of December 31, 2014, the Company had cash and cash equivalents of $1,513 (compared with $180,692 for fiscal year 2013 and $9,854 for fiscal year 2012) and negative working capital of ($940,251) (compared with ($502,500) for fiscal year 2012 and ($529,416) for fiscal year 2012). Working capital is calculated as current assets less current liabilities.
Cash and cash equivalents decreased by $179,179 between fiscal year 2014 and fiscal year 2013 due to an increase in financing during the period.
Working Capital decreased by $437,751 from fiscal year 2014 to fiscal year 2013 due to the decrease in restricted cash from the irrevocable subscription agreements upon the cancellation of those agreements and a reclassification of amounts due to shareholders from non-current to current liabilities. Total liabilities only increased by $215,888 for the fiscal year ended December 31, 2014 when compared to the total liabilities for the fiscal year ended December 31, 2013.
Operating Activities
Cash utilized in operating activities during fiscal year 2014 was $366,769 (compared with $546,866 for fiscal year 2013 and $304,683 for fiscal year 2012). The increase in cash utilized in operations during fiscal year 2014 as compared to fiscal year 2013 was due to an increase in advertising and promotion, research and development and investor relations. This increase was
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offset by a decrease in expenses for Professional Fees. The increase in cash utilized in operations during fiscal year 2014 as compared to fiscal year 2013 was due to an increase in professional fees related to the company becoming a reporting Company. This increase in the fiscal year 2014 was offset by reductions in wages and benefits, travel, research and development, as well as computer expenses.
Investing Activities
Investing activities primarily include additions to fixed assets and intangible assets. Net cash used in investing activities was $10,195, $13,569 and $6,775 in fiscal year ended December 31, 2014, 2013 and 2012, respectively.
In 2014, 2013 and 2012 the investing activities represent mainly investment in patents and the development of intellectual property.
Financing Activities
The Company’s cash inflows from financing activities comprised proceeds from common share issuances, warrants and warrant exercises for cash during fiscal year ended December 31, 2014 totaling $197,785. The Company’s cash inflows from financing activities comprised proceeds from common share issuances, warrant exercises, re-pricing of shares for cash and cash subscriptions received under the terms of the irrevocable subscription agreements during fiscal year ended December 31, 2013 totaling $731,273, compared with $315,788 for fiscal year ended December 31, 2012. Cash from financing activities increased by $533,488 between fiscal year 2014 and fiscal year 2013 and decreased by $415,485 between fiscal year 2013 and fiscal year 2012.
Capital Expenditures
Capital expenditures include $nil to acquire laboratory equipment in 2014, $Nil in 2013 and $Nil in 2012.
There were no capital expenditures during the quarters ended December 31, 2014 or 2013.
C. Research and Development
Research and development expense consists primarily of salaries for management of research contracts and research contracts for pre-clinical studies, clinical studies and assay development as well as the development of clinical trial protocols and application to government agencies to conduct clinical trials, including consulting services fees related to regulatory issues and business development expenses related to the identification and evaluation of new drug candidates. Research and development costs are expensed as they are incurred.
Comparison of Years Ended December 31, 2014, 2013 and 2012
From inception through to December 31, 2014, the Company incurred total expenses in the development of its intellectual property of $1,836,405, which includes $548,204 of research and development expenses (research and development expenses on the financial statements have been offset by $53,277 in IRAP funding and $187,427 in SR&ED tax credits), $398,431 of professional fees and $889,770 of wages and benefits.
The increase in research expense in 2012 is due to the initiation of clinical trials of PTL-202. The fees paid to the contract
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research operation for the drug/drug interaction trial in India was $47,134. There is no research and development expense for 2014 and 2013 as all research and development was conducted by IntelGenx Corp. under the agreement the Company has with them.
The decrease in R&D expenses in fiscal year 2013 as compared to fiscal year 2012 is a reflection of the development of the bio-analytical assay for Pentoxifylline and NAC in fiscal year ended December 31, 2012. In fiscal year 2010 the R&D expense for personnel, consulting and stock based compensation was offset by $10,000 that was received from a potential development partner on the signing of a letter of intent for the development of PTL-202.
Additional financing will be required to complete the development and commercialize PTL-202. There is no assurance that such financing will be available or that the Company will have the capital to complete this proposed development and commercialization.
The Company was able to complete the formulation, drug/drug interaction study of PTL-202, analyzing the blood samples and analyzing the data from the drug/drug interaction trial in 2012 as planned. The Company’s clinical development studies and regulatory considerations relating to PTL-202 are subject to risks and uncertainties that may significantly impact its expense estimates and development schedules, including:
the scope, rate of progress and cost of the development of PTL-202;
uncertainties as to future results of the pivotal bio equivalency study of PTL-202;
the Company’s ability to enroll subjects in clinical trials for current and future studies;
the Company’s ability to raise additional capital; and
the expense and timing of the receipt of regulatory approvals.
In addition to the formulation and clinical development plans for PTL-202 the Company may begin development of PTL-303 for the treatment of Liver Cirrhosis. The Company will only be able to begin development of PTL-303 if additional funds are available. There is no guarantee that these funds will be available to the Company and, if they are available, they may not be available on acceptable terms. Development of PTL-303 may significantly impact the Company’s expense projections and development timelines.
D. Trend Information
Other than as disclosed elsewhere in this Form 20-F, we are not aware of any trends, uncertainties, demands, commitments or events for the period from January 1, 2010 to December 31, 2014 that are reasonably likely to have a material adverse effect on our revenues, income, profitability, liquidity or capital resources, or that caused the disclosed financial information to be not necessarily indicative of future operating results or financial conditions.
E. Off Balance Sheet Arrangements
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.
F. Tabular Disclosure of Contractual Obligations
The Company has no known contractual obligations specified in Item 5.F.1 as of the latest fiscal year end balance sheet date, other than the license agreement with Dalhousie University which was cancelled on January 9, 2013.
Item 6. Directors, Senior Management and Employees
Directors and Senior Management
The following table sets forth certain information relating to our directors and executive officers as of July 23, 2015:
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Name and | Principal Occupation for Past Five | Date of | Common Shares | Percentage of |
Position | Years | Appointment to | Held | Common |
Office | Shares | |||
Outstanding(2) | ||||
Douglas H. | President & CEO of the Company since | September 12, 2005 | 4,539,667 | 12.1% |
Unwin, B.Sc., | September 2005 | |||
BA | ||||
President, CEO, | ||||
Director | ||||
Douglas Wallis | Partner,Smyth Ratcliffe Chartered | May 10, 2011 | 350,510 | 0.9% |
Director, CA | Accountants | |||
M. Greg | Senior Legal Counsel,CHC Helicopter | Chairman since | 400,000 | 1.1% |
Beniston, BA, | May 2006 to present,Sole Practitioner, | October 31, 2007; | ||
LLB | January 2004 to present | Corporate Secretary: | ||
Chairman | from September | |||
2005 to October 31, | ||||
2007 | ||||
Wendi | VP Product Development,ProNAi | November 5, 2009 | 100,000 | 0.27% |
Rodrigueza, | Therapeutics, Inc. September 2006 to | |||
PhD | present, Director Project Management, | |||
Director | NovartisSeptember 2005, to September | |||
2008, Sr. | ||||
Derick Sinclair, | CFO,Cadan Resource Corporation, May | Chief Financial | 435,510 | 1.2% |
CA | 2007 to present, CFOMadeira Minerals | Officer since | ||
CFO and | Ltd2009 to present, CFO Viscount | September 1, 2007; | ||
Corporate | Mining Ltd 2010 to present. | Corporate Secretary | ||
Secretary | Since October 31, | |||
2007 |
The Company’s Audit Committee consists of Doug Unwin, Greg Beniston and Douglas Wallis.
The Company’s Compensation Committee consists of Doug Unwin, Greg Beniston and Douglas Wallis.
The following is a brief description of the background of the key management, directors and the promoters of the Company:
Douglas H. Unwin, B.Sc., MBAPresident and Chief Executive Officer& Director -Mr. Unwin is the Company’s founder and has served as President and Chief Executive Officer since the Company’s inception in September 2005. Mr. Unwin graduated from the University of British Columbia with a B.Sc. in Biology in 1981. In 1985 he graduated from the University of Saskatchewan with a Master’s in Business Administration. He is a full time employee of the Company and devotes the majority of his working hours to the Company’s business. Mr. Unwin is responsible for the Company’s overall strategic direction and the implementation of that strategy. He is based at the Company’s head office in Vancouver, British Columbia. Mr. Unwin is an experienced executive with 27 years of diverse experience including 22 years as an entrepreneur in life sciences, aquaculture and telecommunications. He has spent his last 12 years focused on life science start-ups, technology commercialization and venture capital financing. Mr. Unwin was an associate with Neuro Discovery Inc. a venture capital company focused on investing in therapies for neurological disorders. During his tenure Mr. Unwin reviewed numerous business plans and assisted in the structuring of investments. Prior to founding the Company, Mr. Unwin was the CEO of Med BioGene Inc. a start-up medical device company.
Derick Sinclair, B.Comm., CAChief Financial Officer- Mr. Sinclair, is an experienced CFO having worked with US and Canadian public and private companies for over 20 years. He is a contractor and devotes approximately 15% of his time to the Company. His duties with the Company include, bookkeeping, financial management and reporting, assisting the CEO where necessary and liaising between the board and the Company’s auditors. Mr. Sinclair began his accounting career in 1982 as an auditor with KPMG Peat Marwick Thorne. He received his CA designation in 1985 and his Bachelor of Commerce (Honours) University of Windsor in 1982. From 1985 to 2003, Mr. Sinclair was employed by BC Rail and its subsidiaries and their successors. He began at BC Rail as a Manager in General Accounting rising in 1998 to the role of CFO & VP Administration Westel Telecommunications Ltd. Mr. Sinclair currently operates DR Financial Services Limited focused on providing controller services to small and medium size public companies. He is also CFO of Cadan Resources Corporation, Madeir Minerals Ltd, and Viscount Mining Ltd publicly traded exploration companies on the TSX Venture Exchange.
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M. Greg Beniston, BA, LLBChairman Of the Board & Director- Mr. Beniston, is an experienced counsel with expertise in technology, corporate/commercial, securities, corporate governance and aviation. Mr. Beniston received his BA (Honours) with a major in Commerce from Simon Fraser University in 1979. Greg received his LLB from the University of British Columbia in 1987. Mr. Beniston devotes less than 10% of his time to the affairs of the Company. He was Legal Counsel and Corporate Secretary for Xillix Technologies Corp. (TSX) a cancer imaging company from 1993 until 2000 and was Vice President Legal and Corporate Secretary of MDSI Mobile Data Solutions Inc. (TSX, NASDQ) from 1996 to 2003. Since 2007 Mr. Beniston has been employed by The CHC Helicopter Group Of Companies as Senior Legal Counsel. Mr. Beniston also served as the Company’s Corporate Secretary from inception through October 2007.
Douglas Wallis, CADirector-A Chartered Accountant for over 30 years, Doug Wallis specializes in work with Canadian and US public companies. Doug received his CA after completing a five-year post-secondary education articling program. His work involves everything from assisting in the structure of initial public offerings to comprehensive audit services. Doug's extensive experience in accounting and the rules of professional conduct are also highly valued at Smythe Ratcliffe LLP. As a partner heavily involved in Professional Standards, he brings a commitment to integrity, professionalism and quality that permeates throughout the entire leadership team. Previously, Doug was the Director of Professional Advisory Services, Institute of Chartered Accountants of BC. Mr. Wallis devotes less than 10% of his time to the affairs of the Company. Besides his work at Smythe Ratcliffe, Doug is the Past Chairman of the Board for the Canadian Network for International Surgery (CNIS).
Wendi Rodrigueza, PhD.Director– Dr. Rodrigueza brings over 16 years of drug development experience to the Company’s Board of Directors. Ms. Rodrigueza devotes less than 10% of her time to the affairs of the Company.From 1994 – 1998 she conducted post doctorate fellow studies at Thomas Jefferson University and The Medical College of Pennsylvania. Wendi received her Ph.D. from the University of British Columbia in 1994. From 1998 to 2003, she was employed by Esperion Therapeutics Inc. culminating in the position of Director, Product Development. Dr. Rodrigueza was a co-inventor of the technology Esperion was founded on. Esperion was sold to Pfizer Global Research and Development for $1.3 billion in 2003. She is currently VP of Drug Development for ProNAi Therapeutics and since 2003 has been a consultant to several companies including CuraGen Corporation and Novartis Institute of Biomedical Research.
Other Reporting Company Experience
The following table sets out the directors, officers and promoters of the Company that are, or have been within the last five years, directors, officers or promoters of other companies that are or were reporting companies in any Canadian jurisdiction:
B. Compensation.
Remuneration and Borrowing
The Board of Directors may determine remuneration to be paid to the directors. The Compensation Committee assists the Board of Directors in reviewing and approving the compensation structure for the directors. The Board of Directors may exercise all the powers of the Company to borrow money and to mortgage or charge its undertaking, property and uncalled capital, and to issue debentures or other securities whether outright or as security for any debt obligations of the Company or of any third party.
Compensation of Directors and Executive Officers
In 2014, we paid aggregate cash compensation of approximately $272,956 to our directors and executive officers as a group. We do not pay or set aside any amounts for pension, retirement or other benefits for our officers and directors.
We provide directors and officer’s liability and company reimbursement insurance to cover all of our directors and officers against losses arising from claims we indemnify for. Our current insurance coverage will expire on November 9, 2014. We plan to renew the insurance upon its expiration.
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Approval of 2015 Stock Option Plan
The Policies of the CSE require all incentive stock option grants to be made pursuant to a stock option plan approved by the Corporation’s Shareholders. The Corporation's Stock Option Plan is a “rolling” stock option plan pursuant to which directors, officers, employees and consultants of the Corporation are awarded options to purchase Shares (the “Options”). The 2014 Stock Option Plan was last approved by the Shareholders at the Corporation’s previous annual and special meeting of the Shareholders held on September 22, 2014. Pursuant to the policies of the CSE, a "rolling" plan must receive yearly Shareholder approval. The Stock Option Plan is identical to the one previously approved by Shareholders. Accordingly, Shareholders are being asked to approve the current Option Plan known as the “2015 Stock Option Plan” or the “Plan” in accordance with policies of CSE.
The 2015 Stock Option Plan has been established to advance the interests of the Corporation or any of its subsidiaries and affiliates by encouraging the directors, officers, employees and consultants of the Corporation, or any of its subsidiaries or affiliates, to acquire Shares thereby increasing their proprietary interest in the Corporation, encouraging them to remain with the Corporation, or its subsidiaries or affiliates, and providing them with additional incentive in the conduct of their affairs for and on behalf of the Corporation, its subsidiaries and affiliates.
A full copy of the2015 StockOption Plan will be available at the Meeting for review by shareholders. Shareholders may also obtain copies of the Plan from the Corporation prior to the Meeting on written request. The following is a summary of the material terms of the Plan:
This stock option plan was approved by shareholders on August 25, 2015 at the Company’s Annual General Meeting.
Equity Compensation Plan Information as of December 31, 2014
Plan Category | Column (a) | Column (b) | Column (c) |
Number of securities to | Weighted-average | Number of securities remaining | |
be issued upon exercise | exercise price of | available for future issuance | |
of outstanding options | outstanding options | under equity compensation plans | |
Equity compensation plans approved by security holders | 4,197,682 | N/A | 1,097,682 |
Equity compensation plans not approved by security holders | Nil | N/A | Nil |
Total | 4,197,682 | N/A | 1,097,682 |
Outstanding Options as ofJuly 23, 2015
Name | Number of securities underlying | Option exercise | Option expiration date |
unexercised options (#) | price ($) | (d) | |
(a) | (b) | (c) | |
Douglas H. Unwin - CEO | 500,000 | $0.06 | June 11, 2015 |
150,000 | $0.10 | December 21, 2017 | |
75,000 | $0.10 | July 3, 2017 | |
100,000 | $0.10 | April 4, 2018 | |
100,000 | $0.10 | March 2, 2019 | |
Derick Sinclair - CFO | 150,000 | $0.10 | December 21, 2017 |
100,000 | $0.10 | April 4, 2018 | |
100,000 | $0.10 | March 2, 2019 |
| |
| |
|
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Employment Agreements
The Company entered into an employment agreement with Mr. Unwin effective as of January 1, 2010. This is the only employment agreement the Company has entered into. Under the agreement, Mr. Unwin is to receive an annual base salary of $160,000, subject to increases at the discretion of the Company’s Board of Directors. Mr. Unwin is also eligible for a discretionary performance bonus as determined by the Company’s Board of Directors. Under the agreement, other than in the event of a change in control of the Company, Mr. Unwin may terminate his employment at any time by giving three months prior written notice of the effective date of his resignation. If the Company terminates Mr. Unwin’s employment without cause, the Company is obligated to pay to him a lump sum of up to 12 months of his then current base salary plus such other sums owed for arrears of salary, vacation pay and any performance bonus. The Company is also obligated to maintain Mr. Unwin’s benefits during the notice period. If Mr. Unwin obtains a new source of remuneration for personal services, the payment of benefits will cease six months from the date of termination of his employment, excluding the notice period.
As of March 1, 2011 Mr. Unwin voluntarily reduced his annual base salary to $120,000. This reduction will remain in place until January 31, 2013. On June 1, 2011, Mr. Unwin took a further annual base salary reduction to $100,000. As of February 1, 2012, Mr. Unwin’s salary has been returned to $160,000 per year.
As of March 1, 2011 Mr. Sinclair voluntarily reduced his base annual fee to $18,000. This reduction remained in place until January 31, 2013. Mr. Sinclair’s base annual fee was returned to $36,000 as of February 1, 2012.
Change in Control Agreements
As part of his Employment Agreement, the Company entered into a change of control agreement with Mr. Unwin effective as of January 1, 2010. This is the only change of control agreement the Company has entered into. In the event of a potential change in control and until 12 months after a change in control, unless Mr. Unwin terminates his employment with the Company for good reason, Mr. Unwin will continue to diligently carry out his duties and obligations under his employment agreement. If within 12 months following a change of control of the Company, Mr. Unwin terminates his employment for good reason, or the Company terminates his employment other than for cause, the Company is obligated to pay to Mr. Unwin a lump sum equal to 12 months of his then current base salary plus other sums owed for arrears of salary, vacation pay and any performance bonus. In such case, The Company is also obligated to maintain Mr. Unwin’s benefits for the 12-month period and his unvested stock options will immediately vest.
Board Practices
Duties of Directors
Under British Columbia law, our directors have a duty of loyalty to act honestly in good faith with a view to our best interest. Our directors also have a duty to exercise the care, diligence and skills that a reasonably prudent person would exercise in comparable circumstances. In fulfilling their duty of care to us, our directors must ensure compliance with our amended and restated memorandum and articles of association. A shareholder has the right to seek damages if a duty owed by our directors is breached.
The functions and powers of our Board of Directors include, among others:
convening shareholders’ annual general meetings and reporting its work to shareholders at such meetings;
issuing authorized but unissued shares and redeem or purchase outstanding shares of our company;
declaring dividends and distributions;
appointing officers and determining the term of office and compensation of officers;
exercising the borrowing powers of our company and mortgaging the property of our company; and
approving the transfer of shares of our company, including the registering of such shares in our share register.
Qualification
There is no shareholding qualification for directors.
Board Committees
Our Board of Directors has established an Audit Committee and a Compensation Committee.
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AUDIT COMMITTEE
The Audit Committee has various responsibilities as set forth in Multilateral Instrument 52-110 (“MI 52-110”). The Audit Committee oversees the accounting and financial reporting practices and procedures of the Company and the audits of the Company’s financial statements. The principal responsibilities of the Audit Committee include: (i) overseeing the quality, integrity and appropriateness of the internal controls and accounting procedures of the Company, including reviewing the Company’s procedures for internal control with the Company’s auditors and Chief Financial Officer; (ii) reviewing and assessing the quality and integrity of the Company’s internal and external reporting processes, its annual and quarterly financial statements and related management discussion and analysis, and all other material continuous disclosure documents; (iii) establishing separate reviews with management and external auditors of significant changes in procedures or financial and accounting practices, difficulties encountered during auditing, and significant judgments made in management's preparation of financial statements; (iv) monitoring compliance with legal and regulatory requirements related to financial reporting; (v) reviewing and pre-approving the engagement of the auditor of the Company and independent audit fees; and (vi) assessing the Company’s accounting policies, and considering, approving, and monitoring significant changes in accounting principles and practices recommended by management and the auditor.
Audit Committee Charter
There is no change in audit committee charter for the year.
Composition of the Audit Committee
As noted above, the members of the Audit Committee are Douglas Unwin, Greg Beniston and Douglas Wallis, all of whom are considered independent pursuant to NI 52-110, except Mr. Unwin who is also an officer of the Company. All members of the Audit Committee are considered to be financially literate.
A member of the Audit Committee isindependentif the member has no direct or indirect material relationship with the Company. A material relationship means a relationship which could, in the view of the Board, reasonably interfere with the exercise of a member’s independent judgment.
A member of the Audit Committee is consideredfinancially literateif he or she has the ability to read and understand a set of financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of the issues that can reasonably be expected to be raised by the Company.
Relevant Education and Experience
Please see above for the biographies of Douglas Unwin, Greg Beniston and Douglas Wallis.
Audit Committee Oversight
The Audit Committee has not made any recommendations to the Board to nominate or compensate any external auditor.
Reliance of Certain Exemptions
The Company’s auditors have not provided any material non-audit services.
The Company is relying on the exemptions provided for in Section 6.1 of NI 52-110 in respect of the composition of its Audit Committee and in respect of certain of its reporting obligations under NI 52-110.
Pre-Approval Policies on Certain Exemptions
The Audit Committee has not adopted specific policies and procedures for the engagement of non-audit services.
Compensation Committee
Our Compensation Committee consists of Mr. Beniston, Mr. Wallis and Mr. Unwin. Mr. Beniston is the chairman of our Compensation Committee. Our Board of Directors has determined that Mr. Wallis and Mr. Beniston are “independent directors” within the meaning of NYSE Manual Section 303A.
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Our Compensation Committee is responsible for, among other things:
reviewing and approving corporate goals and objectives relevant to the compensation of our co-chief executive officers, evaluating the performance of our co-chief executive officers in light of those goals and objectives, and setting the compensation level of our co-chief executive officers based on this evaluation;
reviewing and making recommendations to our Board of Directors regarding our compensation policies and forms of compensation provided to our directors and officers;
reviewing and making recommendations to our co-chief executive regarding the compensation level, share-based compensation and bonuses for our officers other than our co-chief executive officers;
reviewing and determining cash and share-based compensation for our directors;
administering our equity incentive plans in accordance with the terms thereof; and
such other matters that are specifically delegated to the Compensation Committee by our Board of Directors from time to time.
Corporate Governance
General
Effective June 30, 2005, NI 58-101 and NP 58-201 were adopted in each of the provinces and territories of Canada. NI 58-101 requires companies to disclose the corporate governance practices that they have adopted. NP 58-201 provides guidance on corporate governance practices.
The Board believes that good corporate governance improves corporate performances and benefits all shareholders. The Canadian Securities Administrators (“CSA”) have adopted NP 58-201, which provides non-prescriptive guidelines on corporate governance practices for reporting companies such as the Company. In addition, the CSA have implemented NI 58-101, which prescribes certain disclosure by the Company of its corporate governance practices. This section sets out the Company’s approach to corporate governance and addresses the Company’s compliance with NI 58-101.
Composition of the Board
The Board of Directors facilitates its exercise of independent supervision over management by ensuring that the Board is composed of a majority of independent directors. Directors are considered to be independent if they have no direct or indirect material relationship with the Company. A “material relationship” is a relationship which could, in the view of the Board, be reasonably expected to interfere with the exercise of a director’s independent judgment. The Board has four directors, three of which are considered to be independent. Mr. Beniston, Mr. Wallis, and Ms. Rodrigueza are considered to be independent directors for the purposes of NI 58-101, and Mr. Unwin is not considered to be independent as he is also a senior officer of the Company.
The mandate of the Board is to act in the best interests of the Company and to supervise management. The Board is responsible for approving long-term strategic plans and annual operating budgets recommended by management. Board consideration and approval is also required for material contracts and business transactions, and all debt and equity financing transactions. Any responsibility which is not delegated to management or to the committees of the Board remains with the Board. The Board meets on a regular basis consistent with the state of the Company’s affairs and also from time to time as deemed necessary to enable it to fulfill its responsibilities.
The Chairman of the Board is Mr. Greg Beniston, LLB, who is an independent director.
Directorship
None of the directors of the Company is also a director of other reporting companies (or equivalent) in a Canadian or foreign jurisdiction as of the date of this listing statement.
Position Descriptions
The Board has not developed written position descriptions for the chair or the chair of any board committees or for the CEO. Given the size of the Company’s infrastructure and the existence of only a small number of officers, the Board does not feel that it is necessary at this time to formalize position descriptions in order to delineate their respective responsibilities.
Meetings of Independent Directors
The Board has appointed two committees, the Audit Committee and the Compensation Committee. The Audit committee is
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comprised of a majority of independent directors and meets regularly. Additional information concerning the committee is found in ‘Audit Committee’ above and in the disclosure below in this ‘Corporate Governance’ section.
The Compensation Committee is comprised of two independent directors plus the CEO. This committee meets as required. The members of the Compensation Committee are Mr. Beniston, Mr. Wallis and Mr. Unwin.
Orientation and Continuing Education
When new directors are appointed, they receive orientation, commensurate with their previous experience, on the Company’s technologies, product candidates, business and industry and on the responsibilities of directors. New directors also receive historical public information about the Company and the mandates of the committees of the Board. Board meetings may also include presentations by the Company’s management and employees to give the directors additional insight into the Company’s business. In addition, new directors are encouraged to visit and meet with management on a regular basis and to pursue continuing education opportunities where appropriate.
Ethical Business Conduct
The Board has approved a Code of Business Conduct and Ethics (the “Code”, filed herewith as Exhibit 11.1) 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. In the event that a director, officer or employee departs from the Code, the Company is authorized to file a material change report. 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.
When proposed transactions or agreements in which directors or officers may have an interest, material or not, are presented to the Board, such interest is disclosed and the persons who have such an interest are excluded from all discussion on the matter and are not allowed to vote on the proposal.
Nomination of Directors
The Company does not have a formal process or committee for proposing new nominees for election to the Board of Directors. The nominees are generally the result of recruitment efforts by the Board members, including both formal and informal discussions among Board members.
Compensation
The Board has established a Compensation Committee. The Compensation Committee is responsible for reviewing the adequacy and form of compensation paid to the Company’s executives and key employees, and ensuring that such compensation realistically reflects the responsibilities and risks of such positions. In fulfilling its responsibilities, the Board evaluates the performance of the chief executive officer and other senior management in light of corporate goals and objectives, and makes recommendations with respect to compensation levels based on such evaluations.
Other Board Committees
Other than the Audit Committee and Compensation Committee described in this Form 20-F, the Board has no other committees.
Assessments
The Board regularly assesses its own effectiveness and the effectiveness and contribution of each Board committee member and Director.
Interested Transactions
A director may vote with respect to any contract or transaction in which he or she is interested, provided that the nature of the interest of any director in such contract or transaction is disclosed by him or her at or prior to its consideration and any vote in that matter.
D. Employees
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As of December 31, 2014 the Company had the following number of employees and contractors:
Location | Full Time Employees | Contractors |
Vancouver, British Columbia | 1 | 1 |
The Company utilizes consultants and contractors to carry on many of its activities and, in particular, to supervise and conduct pre-clinical scientific experiments, assay development and validation. In addition, the Company’s Chief Financial Officer is a contractor not a full time employee. Other functions the Company has decided to outsource include assay development, formulation, clinical trials and manufacturing. It is currently more cost-effective to outsource these functions due to the Company’s sporadic requirements. As the Company expands its activities, it is probable that it will hire additional employees. In addition, contractors and employees may move between locations from time to time as conditions and business opportunities warrant.
E. Share Ownership.
As of August 25, 2015, the Company has 38,976,825 shares of Common stock outstanding.
The following table sets forth, as of July 23, 2015: (a) the names of each beneficial owner of more than five percent (5%) of our Common Stock known to us, the number of shares of Common Stock beneficially owned by each such person, and the percent of our Common Stock so owned before and after the Share Exchange; and (b) the names of each director, executive officer and significant employee, the number of shares our Common Stock beneficially owned, and the percentage of our Common Stock so owned, by each such person, and by all of our directors and executive officers as a group. Each person has sole voting and investment power with respect to the shares of our Common Stock, except as otherwise indicated. Beneficial ownership consists of a direct interest in the shares of Common Stock, except as otherwise indicated. Individual beneficial ownership also includes shares of Common Stock that a person has the right to acquire within 60 days from July 23, 2015.
Name and Municipality of Residence and | Common Shares | Percentage of Common | Percentage of |
Position | Held | Shares Outstanding(2) | Votes Held |
Douglas H. Unwin | 4,539,667(3)(4) | 12.1% | 12.1% |
North Vancouver, BC | |||
President, CEO, Director(1) | |||
Douglas Wallis Vancouver, BC | 350,510 | 0.9% | 0.9% |
Director(1) | |||
M. Greg Beniston, BA, LLB | 400,000 | 1.1% | 1.1% |
Vancouver, BC | |||
Chairman(1) | |||
Wendi Rodrigueza Boston, Mass | 100,000 | 0.34% | 0.34% |
Director | |||
Derick Sinclair, CA | 435,510 | 1.2% | 1.2% |
North Vancouver, BC | |||
CFO and Corp. Secretary | |||
Directors and Officers as a Group | 15.6% | 15.6% |
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| |
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Item 7. Major Shareholders and Related Party Transactions
A . Major Shareholders.Significant Changes
Please refer to Item 6.E, “Directors, Senior Management“Item 4: Information on the Company – A. History and Employees — Share Ownership”.
B. Related Party Transactions.
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Transactions with related parties are inDevelopment of the normal courseCompany” for a discussion of operations and are measured at the exchange amount, which is the consideration agreed to by the parties. During the years endedsignificant events that have occurred after December 31, 2014, December 31, 2013, December 31, 2012, the Issuer entered into the following transactions with related parties:
• During the year ended December 31, 2014, the CEO of the Company exercised Nil common share purchase warrants, [FYE 2013 – Nil, FYE 2012 – 66,000];
• The Issuer incurred consulting and accounting fees for the year ended December 31, 2014, to a company controlled by its CFO, in the amount of $36,000 [FYE 2012 - $34,500, FYE 2012 – $18,000];
• The Issuer incurred legal fees from a consultant and director of the Issuer in the amount of $3,121 for the year ended December 31, 2014, [FYE 2013 -$8,575, FYE 2012 – $3,200];
• The Issuer incurred salaries, directors fees and other benefits relating to directors and officers of the company in the amount of $205,121 for the year ended December 31, 2014 [FYE 2013 – $187,824, FYE 2012 - $142,788];
• During FYE 2014 the Company issued 1,000,000 common shares and warrants to settle $50,000 of outstanding debt owing to a director of the Company [FYE 2013 - $24,000, FYE 2012– $7,500].
There are no amounts due to the Issuer from companies that have directors in common with the Issuer or have a partner who is a director of the Issuer.
There were no amounts due to the Issuer from shareholders in either fiscal year.
C . Interests of Experts and Counsel.
Not applicable.
Item 8. Financial Information
A . Financial statements and other financial information.
We have appended financial statements filed as part of this Form 20-F. See Item 18, “Financial Statements.”2016.
Item 9. The Offer and Listing
A. Offer and Listing Details
The Company’s capital consists of an unlimited number of Class A common shares without par value, of which 67,825,698 were issued and outstanding as of October 28, 2017.
On January 12, 2017, the Company completed a “fundamental change” transaction (the “Tower Three Transaction”), with Tower Three, a limited liability company formed under the laws of the Republic of Colombia on December 30, 2015, pursuant to a share exchange agreement made effective as of October 19, 2016, as amended (the “Acquisition Agreement”) among the Company, Tower Three and the shareholders of Tower Three (the “Selling Shareholders”), whereby the Company acquired 100% of the securities of Tower Three from the Selling Shareholders, by issuing 30,000,000 common shares of the Company to the Selling Shareholders on a pro-rata basis at a deemed issuance price of $0.10 per common share, following the completion of which, Tower Three is now a wholly-owned subsidiary of the Company.
The common shares issued to the Selling Shareholders that were outside the United States were issued in “offshore transactions” (as such term is defined in Regulation S under the U.S. Securities Act) in reliance on Regulation S under the U.S. Securities Act, and the common shares issued to the Selling Shareholders that were in the United States were issued to
31
Accredited Investors in reliance on Rule 506(b) of Regulation D under the U.S. Securities Act. The common shares issued to Selling Shareholders in the United States in connection with the Tower Three Transaction were “restricted securities” within the meaning of Rule 144(a)(3) under the U.S. Securities Act.
Following the completion of the Tower Three Transaction, the Company began conducting the principal business of Tower Three.
The Company’s Common Shares are listed for trading on the Canadian National Stock ExchangeCSE under the symbol of “PT”“TO”.
The quarterly high and low sale prices foron the CSE of our ordinary sharesCommon Shares for the twofive most recent full financial years and any subsequent period are:
Item 9. The Offer and Listing - Continuedyears:
Year Ended | High Sales Price | Low Sales Price | High Sales Price | Low Sales Price |
2012 | $0.17 | $0.03 | $0.17 | $0.03 |
2013 | $0.16 | $0 04 | $0.16 | $0.04 |
2014 | $0.08 | $0.02 | $0.08 | $0.02 |
2015 | $0.04 | $0.01 | ||
2016 | $0.44 | $0.01 |
The quarterly high and low sales prices on the CSE for out ordinary sharesour Common Shares for the two most recent fullyrecently completed full financial years and any subsequent quarters are:
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Quarters Ended | High Sales Price | Low Sales Price |
March 31, 2015 | $ 0.03 | $ 0.01 |
June 30, 2015 | $ 0.02 | $ 0.01 |
September 30, 2015 | $ 0.02 | $ 0.01 |
December 31, 2015 | $ 0.01 | $ 0.01 |
March 31, 2016 | $ 0.10 | $ 0.10 |
June 30, 2016 | $ 0.16 | $ 0.16 |
September 30, 2016 | $ 0.32 | $ 0.32 |
December 31, 2016 | $ 0.40 | $ 0.40 |
March 31, 2017 | $ 0.51 | $ 0.33 |
June 30, 2017 | $ 0.42 | $ 0.19 |
September 30, 2017 | $ 0.30 | $ 0.19 |
Quarters Ended | High Sales Price | Low Sales Price | ||
March 31, 2013 | $ | 0.08 | $ | 0.04 |
June 30, 2013 | $ | 0.12 | $ | 0.05 |
September 30, 2013 | $ | 0.10 | $ | 0.05 |
December 31, 2013 | $ | 0.16 | $ | 0.05 |
March 31, 2014 | $ | 0.08 | $ | 0.06 |
June 30, 2014 | $ | 0.08 | $ | 0.05 |
September 30, 2014 | $ | 0.05 | $ | 0.02 |
December 31, 2014 | $ | 0.03 | $ | 0.02 |
The monthly high and low sales prices for out ordinary shareson the CSE of our Common Shares for the 12six most recent monthmonths are:
Month | High Sales Price | Low Sales Price | ||
January 2014 | $ | 0.08 | $ | 0.07 |
February 2014 | $ | 0.08 | $ | 0.06 |
March 2014 | $ | 0.08 | $ | 0.06 |
April 2014 | $ | 0.08 | $ | 0.06 |
May 2014 | $ | 0.08 | $ | 0.06 |
June 2014 | $ | 0.08 | $ | 0.05 |
July 2014 | $ | 0.06 | $ | 0.04 |
August 2014 | $ | 0.05 | $ | 0.01 |
September 2014 | $ | 0.05 | $ | 0.02 |
October 2014 | $ | 0.04 | $ | 0.02 |
November 2014 | $ | 0.06 | $ | 0.04 |
December 2014 | $ | 0.03 | $ | 0.02 |
Month | High Sales Price | Low Sales Price |
May 2017 | $ 0.29 | $ 0.19 |
June 2017 | $ 0.34 | $ 0.22 |
July 2017 | $ 0.28 | $ 0.23 |
August 2017 | $ 0.24 | $ 0.19 |
September 2017 | $ 0.30 | $ 0.21 |
October 2017 | $ 0.38 | $ 0.26 |
On April 30, 2015,October 31, 2017, the closing price of our Common Shares was $0.02$0.34 per share
The company’stransfer of our shares doof common stock is managed by our transfer agent, Computershare Trust Company of Canada.
Restrictions on Transfer
Note that shares issued in the Tower Three Transaction are, unless registered for resale, subject to restrictions on transfer, in accordance with the securities laws of the United States.
Dividends
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The Company has no earnings or dividend record, and does not trade regularlyanticipate paying any dividends on the common shares in the foreseeable future. Dividends paid by the Company would be subject to tax and, are illiquid.potentially, withholdings. The payment of future cash dividends, if any, will be reviewed periodically by the Company’s board of directors and will depend upon, among other things, conditions then existing including earnings, financial condition and capital requirements, restrictions in financing agreements, business opportunities and conditions and other factors.
B. Plan of Distribution
Not applicable.
C. Markets
Please see “OfferThe Company’s shares of Common Stock are currently traded on the CSE under the symbol “TO”, the Frankfort Stock Exchange under the symbol “1PSN” and Listing Details” above in this Item 9.are quoted on the OTCQB Venture Market under the symbol “TOWTF”.
D. Selling Shareholders
Not applicable.
E. Dilution
Not Applicable.
F. Expense of the Issue
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Not Applicable.
Item 10. Additional Information
A. Share Capital
As of December 31, 2014,2016, the Company has the following shares authorized and issued:
Class of Share | Number of Authorized Shares | Number of Issued Shares |
Class A common shares without par value | Unlimited | |
As of October 28, 2017, the Company had 67,825,698 Common Shares outstanding, 16,070,029 warrants outstanding and 919,565 stock options outstanding.
The Company has financed its operations through the issuance of Common Shares through private placement, the exercise of warrants issued in the private placements, and the exercise of stock options. The changes in the Company’s share capital during the last 3 fiscal years are as follows:
On January 6, 2014, the Company extended the expiry date of 224,333 share purchase warrants exercisable to purchase one Common Share of the Company at an exercise price of $4.50 per share from the original expiry date of January 31, 2014 to July 31, 2014;
On January 6, 2014, the Company extended the expiry date of 600,000 share purchase warrants exercisable to purchase one Common Share of the Company at an exercise price of $0.15 per share from the original expiry date of May 16, 2014 to November 16, 2014;
On January 6, 2014, the Company extended the expiry date 2,000 share purchase warrants exercisable to purchase one Common Share of the Company at an exercise price of $7.50 per share from the original expiry date of February 28, 2014 to August 28, 2014;
On January 10, 2014, the Company granted 13,333 stock options to advisors and consultants of the Company to purchase Common Shares of the Company for proceeds of $0.10 per common share expiring January 10, 2017;
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On March 7, 2014 the Company issued 525,000 stock options to directors, officers, advisors and consultants of the Company to purchase common shares of the Company for proceeds of $3.00 per common share expiring March 7, 2019;
On May 7, 2014 the Company announced that it had entered into an advisory agreement with TriPoint Global Equities LLC (“TriPoint”) and issued to TriPoint warrants to purchase 23,333 shares at a price of $3.00 per share.
The warrants expire on February 28, 2016;
On June 14, 2014 the Company issued 16,667 options to purchase Common Shares to a director and officer. The options may be exercised at a price of $1.80 per share for a period of one (1) year;
On October 2, 2014 the Company closed the first tranche of a non-brokered private placement and issued 50,667 units for gross proceeds of $76,000 (including $6,000 in cash proceeds and $70,000 to settle outstanding accounts payable). 50,667 warrants were issued with an expiration date of October 3, 2015. Each unit is comprised of one Common Share and one share purchase warrant, each warrant being exercisable for one common share at an exercise price of $0.15;
On October 28, 2014 the Company issued to consultants a total of 16,667 stock options to purchase Common Shares with an exercise price of $3.00, 6,667 of the options will expire on October 28, 2015; 3,333 of the options will expire on October 28, 2018; and 6,667 will expire October 28, 2020;
On February 2, 2015, the Company issued a total of 13,333 stock options to purchase Common Shares to a director and a consultant;
On March 20, 2015 the Company closed the second tranche of a non-brokered private placement and issued 66,666 units at $1.50 per unit for cash proceeds of $41,000 (of which $30,000 was received in 2014 and $11,000 received in 2015) and to retire debts totaling $59,000. Each unit is comprise of one common share and one share purchase warrant exercisable for one common share at an exercise price of $4.50 until March 20, 2016;
On April 1, 2015, the Company received regulatory approval to re-price its warrants outstanding as at March 30, 2015 to an exercise price of $0.90 for a period of 30 days;
On May 20, 2015, the Company received $3,600 for the exercise of 4,000 warrants at an exercise price of $0.90. The shares were not issued until after December 31, 2015;
On February 16, 2016, the Company issued 4,000 Common Shares in connection with the exercise of warrants for $0.90 per share for gross proceeds of $3,600;
On March 4, 2016, the Company issued 10,000 Common Shares at price of $0.45 per share pursuant to an agreement with an unrelated third party that was not pursued;
On March 30, 2016, the Company completed a private placement of 4,855,998 Common Shares at $0.06 per share for gross proceeds of $291,360 (including $245,360 in cash proceeds and $46,000 to settle outstanding debt);
In September 2016, the Company issued 500,000 Common Shares in connection with the exercise of stock options at $0.25 per share for gross proceeds of $120,000;
During the year ended December 31, 2016 13,333 stock options and 458,333 warrants outstanding were cancelled;
On January 9, 2017, in connection with the Tower Three Transaction, the Company completed a private placement of 15,484,912 Units at a price of $0.15 per Unit for gross proceeds of $2,322,737. Each Unit consisted of one Common Share and one warrant with each whole warrant entitling the holder to purchase, for a period of 12 months from the date of issue, one additional Common Share at an exercise price of $0.40 per Common Share. The Company paid finders and brokers cash commissions of $87,767 and issued 585,177 broker warrants;
On January 11, 2017, the Company issued 30,000,000 Common Shares in connection with the Tower Three Transaction;
On March 17, 2017, the Company issued a total of 700,000 stock options to directors, officers and consultants of the Company with an expiry of five years and an exercise price of $0.45 per share;
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On April 18, 2017, the Company issued 500,000 Common Shares pursuant to an agreement with an unrelated company to take assignment of the company’s assets, trade secrets and receivables;
On May 4, 2017, the Company issued a total of 1,050,000 stock options to consultants and an officer of the Company with an expiry date of five years and an exercise price of $0.23 per share;
On June 13, 2017, the Company issued a total of 4,000,000 stock options to consultants of the Company with an expiry date of five years and an exercise price of $0.23 per share;
On June 19, 2017, the Company issued 1,500,000 Common Shares to consultants of the Company who assisted in the transaction with Evolution Technology SA;
On June 21, 2017, the Company issued 1,000,000 Common Shares to a consultant of the Company to settle outstanding debt of $230,000;
From May to July 2017, the Company issued 4,980,435 Common Shares for the exercise of stock options at an exercise price of $0.24 and for total proceeds of $1,145,450; and
In July 2017, the Company issued 3,494,466 Common Shares for the exercise of warrants at an exercise price of $0.30 and for total proceeds of $1,048,340.
Stock Options:
As at December 31, 2016 and 2015 the following stock options were outstanding and exercisable:
December 31, 2016 | December 31, 2015 | |||||||
Weighted | Weighted | |||||||
Underlying | Average Exercise | Underlying | Average Exercise | |||||
Shares | Price | Shares | Price | |||||
$ | $ | |||||||
Stock options outstanding, beginning | 13,333 | 3.00 | 122,500 | 3.36 | ||||
Granted | 500,000 | 0.24 | 13,333 | 3.00 | ||||
Exercised | (500,000) | 0.24 | - | - | ||||
Expired / Cancelled | (13,333) | 3.00 | (122,500) | (3.66) | ||||
Stock options outstanding, ending | - | - | 13,333 | 3.00 |
Warrants
As at December 31, 2016 and 2015 the following share purchase warrants were issued and outstanding:
December 31, 2016 | December 31, 2015 | |||||||
Weighted | Weighted | |||||||
Underlying | Average Exercise | Underlying | Average Exercise | |||||
Shares | Price | Shares | Price | |||||
$ | $ | |||||||
Warrants outstanding, beginning | 458,333 | 3.22 | 519,000 | 3.68 | ||||
Issued | - | - | 66,667 | 4.50 | ||||
Exercised | - | - | (4,000) | 4.50 | ||||
Expired / Cancelled | (458,333) | (3.22) | (123,334) | 5.24 | ||||
Warrants outstanding, ending | - | - | 458,333 | 3.22 |
B. Memorandum and Articles of Association
We are organized under the laws of the Province of British Columbia, Canada and have been assigned the number BC1056802.
Our Articles do not contain a description of our objects and purposes.
Our Articles do not restrict a director’s power to vote on a proposal, arrangement or contract in which the director is materially interested, vote on compensation to themselves or any other members of their body in the absence of an
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independent quorum or exercise borrowing powers. There is no mandatory retirement age for our directors and our directors are not required to own securities of our company in order to serve as directors.
Our authorized capital consists of an unlimited number of Class A Common Shares
common shares without par value. The holders of Common Shares are entitled to receive notice of and to attend and vote at all meetings of shareholders of the Issuer and each Common Share shall confer the right to one vote in person or by proxy at all meetings of theCompany’s shareholders, of the Issuer. The holders of the Common Shares, are entitled to receive dividends, if, as and when declared by the directorsBoard, and, subject to the rights of holders of any shares ranking in priority to, or on a parity with the Common Shares, to participate ratably in any distribution of property or assets upon the liquidation, winding-up, or other dissolution of the Issuer.
Class B Series I Preferred Shares
Each Series I Class B Preferred Share automatically converted into one (1) Common Share when theCompany. The Common Shares are not subject to any future call or assessments and do not have any pre-emptive rights or redemption rights.
There are no limitations specific to the rights of non-Canadians to hold or vote our common shares under the laws of Canada or British Columbia, or in our charter documents.
Our Articles provide for the election of directors at each annual general meeting. Each director holds office until the next annual general meeting of our shareholders or until his successor is elected or appointed, unless his office is earlier vacated in accordance with our Articles or with the provisions of the Issuer were listedBCBCA.
An annual meeting of shareholders must be held at such time in each year that is not later than 15 months after the last preceding annual meeting and at such place as our Board may from time to time determine. The quorum for trading on the CNSX.transaction of business at any meeting of shareholders is two persons who are entitled to vote at the meeting in person or by proxy and who hold in aggregate at least 5% of the issued shares entitled to be voted at the meeting. Only persons entitled to vote, our directors and auditors and others who, although not entitled to vote, are otherwise entitled or required to be present, are entitled to be present at a meeting of shareholders.
In the eventOther than not specifically providing a mechanism for shareholders to call a special meeting, our do Articles contain any provisions that would have an effect of delaying, deferring or preventing a change in control of our Company. Our Articles also do not contain any provisions that would operate only with respect to a merger, acquisition or corporate restructuring of our Company.
Our Articles do not contain any provisions governing the Issuer involving greater than fifty percent (50%)ownership threshold above which shareholder ownership must be disclosed.
Our Articles are not significantly different from the requirements of the issuedBCBCA and outstanding Common Shares of the Company at a valuation of lessconditions imposed by our Articles governing changes in capital are not more stringent than $0.40 per share, or the liquidation, dissolution or wind-up of the Issuer or any other distribution of the assets of the Company among its shareholders for the purpose of winding up its affairs, the holders of the Series I Preferred Shares shall be entitled to receive, in preference and priority to any payment or distribution to the holders of the Common Shares or any other class of shares ranking junior to the Series I Preferred Shares, an amount equal to $0.20 per share, together with all accrued and unpaid dividends thereon. After payment to the holders of the Series I Preferred Shares of the amounts so payable to them, they shall be entitled to share in any further distribution of the property or assets of the Issuer. There are no Series I Preferred shares issued.
Subject to the rights, privileges, restrictions and conditions attaching to any other class or series of shares of the Issuer, the holders of the Series I Preferred Shares shall be entitled to receive any dividends declared and payablewhat is required by the Issuer on the Series I Preferred Shares. No dividend shall be declared or paid or set apart for the Common Shares then issued and outstanding until an equal or greater dividend on all Series I Preferred Shares then issued and outstanding shall have been declared or paid or provided for at the date of such declaration or payment or setting apart. No dividend has been declared on the Series I Preferred Shares.
Class B Series 2 Preferred Shares
Subject to the rights, privileges, restrictions and conditions attaching to any other class or series of shares of the Company, the holders of the Series II Preferred Shares shall be entitled to receive any dividends declared and payable by the Issuer on the Series II Preferred Shares. No dividend shall be declared or paid or set apart for the Common Shares then issued and outstanding until an equal or greater dividend on all Series I Preferred Shares and all Series II Preferred Shares then issued and outstanding shall have been declared or paid or provided for at the date of such declaration or payment or setting apart. A 12% annual cumulative dividend shall be paid on the Series II Preferred Shares. This dividend shall be paid “in-kind” to the holders in the form of Common Shares of the Issuer converted at the Transaction Price at the time of a Transaction. For greater certainty, any unpaid cumulative dividend(s) due to the holders of Series II Preferred Shares shall be paid to the holders at the time of the Transaction in that number Common Shares equal to the amount of any unpaid cumulative dividend(s) due to the holders divided by the Transaction Price. No fractional shares shall be issued upon the granting of any dividend in-kind of Common Shares. There are no Series 2 Preferred Shares issued.
Each Series II Preferred Share automatically converted upon the listing of the Issuers Common Shares on the CNSX.
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Each Series II Preferred Share converted into Common Shares at the Conversion Rate plus one-half (1/2) of a purchase warrant in the capital of the Issuer where one (1) full Series II Purchase Warrant may be exercised at the Transaction Price for a period of two (2) years from its date of issue to purchase one (1) Common Share. No fractional shares shall be issued under any conversion into Common Shares.
Stock Options:
As of December 31, 2014, 2013 and 2012, the following stock options of the Company were outstanding:
Expiry Date | Exercise | |||
Price $ | 31 Dec 14 | 31 Dec 13 | 31 Dec 12 | |
13-Aug-13 | 0.27 | - | - | 225,000 |
04-Nov-14 | 0.27 | - | 150,000 | 150,000 |
05-Mar-15 | 0.27 | 375,000 | 375,000 | 375,000 |
11-Jun-15 | 0.06 | 500,000 | - | - |
30-Oct-15 | 0.10 | 200,000 | - | - |
10-Jan-17 | 0.10 | 400,000 | - | - |
03-Jul-17 | 0.10 | 475,000 | 475,000 | 475,000 |
21-Dec-17 | 0.10 | 450,000 | 450,000 | 450,000 |
04-Apr-18 | 0.10 | 350,000 | 350,000 | - |
16-Sep-18 | 0.10 | 100,000 | 100,000 | - |
30-Oct-18 | 0.10 | 100,000 | - | - |
07-Mar-19 | 0.10 | 525,000 | - | - |
30-Oct-20 | 0.10 | 200,000 | - | - |
Balance | 0.11 | 3,675,000 | 1,900,000 | 1,675,000 |
Warrants
As of December 31, 2014, 2013 and 2012, the following share purchase warrants were issued and outstanding:
Expiry | Exercise | |||
Date | Price $ | 31 Dec 14 | 31 Dec 13 | 31 Dec 12 |
15-Nov-13 | $0.15 | - | - | 602,223 |
19-Jun-14 | $0.22 | - | 56,666 | 56,666 |
20-Jun-14 | $0.22 | - | 732,670 | 732,670 |
31-Jul-14 | $0.15 | - | 2,473,334 | 2,473,334 |
28-Aug-14 | $0.25 | - | 60,000 | 60,000 |
21-Sep-14 | $0.22 | - | 747,166 | 747,166 |
24-Sep-14 | $0.22 | - | 200,000 | - |
16-Nov-14 | $0.15 | - | 600,000 | 600,000 |
12-Feb-15 | $0.22 | 1,000,000 | 1,000,000 | - |
01-May-15 | $0.22 | 1,300,000 | 1,300,000 | - |
03-Oct-15 | $0.15 | 1,520,000 | - | - |
28-Feb-16 | $0.10 | 700,000 | - | - |
01-Oct-16 | $0.10 | 2,160,000 | 2,160,000 | - |
08-Oct-16 | $0.10 | 90,000 | 90,000 | - |
18-Oct-16 | $0.10 | 1,980,000 | 1,980,000 | - |
18-Oct-16 | $0.10 | 40,000 | 40,000 | - |
05-Nov-16 | $0.10 | 6,730,000 | 6,730,000 | - |
05-Nov-16 | $0.10 | 50,000 | 50,000 | - |
15,570,000 | 18,219,836 | 5,272,059 |
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B. Memorandum and Articles of Association
The Company’s Articles of Incorporation are filed herewith as Exhibit 1.1BCBCA.
C. Material Contracts
Except as otherwise disclosed in this Form 20-F,for contracts entered into by the Company has no otherin the ordinary course of business, the only material contracts.
Escrow Agreements
The Company is classified as an “emerging issuer” under National Policy 46-201. An “emerging issuer” is one that does not meet the “established issuer” criteria based on the Issuer being an “emerging issuer”, the Escrowed Securities (as hereinafter defined) will be subject to a three year escrow.
Ifcontracts entered into by the Company achieves “established issuer” status duringin the term ofprevious two years are the 46-201 Escrow Agreement (as hereinafter defined), it will ‘graduate’, resulting in a catch-up release and an accelerated release of any securities remaining in escrow under the 18 month schedule applicable to established issuers as if the Company had originally been classified as an established issuer.
The Principals of the Company and holders of Shares having an issuance price of less than $0.02 per share have entered into an escrow agreement dated August 30, 2011 (the “46-201 Escrow Agreement”) among the Company, the Transfer Agent, the Principals of the Company and holders of shares having an issuance price of less than $0.02 per share (collectively with the Principals, the “Escrow Holders”), as required pursuant to the policies of the CNSX. The Escrow Holders will agree to deposit in escrow their shares (the “Escrowed Securities”) with the Transfer Agent. Under the 46-201 Escrow Agreement, 10% of the Escrowed Securities will be released from escrow on the Listing Date (the “Initial Release”) and an additional 15% will be released on the dates which are 6 months, 12 months, 18 months, 24 months, 30 months and 36 months following the Initial Release.
Pursuant to the terms of the Escrow Agreement, the Escrowed Securities may not be transferred or otherwise dealt with during the term of the 46-201 Escrow Agreement unless the transfers or dealings within escrow are:following:
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Tenders of Escrowed Securities36
pursuant to a take-over bid are permitted provided that, if the tenderer is a Principal of the successor corporation upon completion of the take-over bid, securities receivedwhich 666,666 Common Shares were to be issued to Howe in exchange for tendered Escrow securities are substitute in escrow on the basisrelease of the successor corporation’s escrow classification.
Where the Common Shares of the Issuer which are requiredmonies owing to be held in escrow are heldHowe for consulting services previously provided by a non-individual (a “holding company”), each holding company pursuantHowe to the 46-201 Escrow Agreement, has agreed, or will agree, not to carry out any transactions during the currency of the 46-201 Escrow Agreement which would result in a change of control of the holding company, without the consent of the Exchange. Any holding company must sign an undertaking to the Exchange that, to the extent reasonably possible, it will not permit or authorize any issuance of securities or transfer of securities could reasonably result in a change of control of the holding company. In addition, the Exchange may require an undertaking from any control person of the holding company not to transfer the shares of that company.Company.
D. Exchange Controls
There are no laws, decrees or regulations in Canada relating to restrictions on the export or import of capital, or affecting the remittance of interest, dividends or other payments to non-resident holders of our shares of common stock.Common Stock.
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E. Taxation
Canada
Canadian Federal Income Tax Information for United States Residents
The following is a discussion of material Canadian federal income tax considerations generally applicable to holders of our common shares who, for purposes of the Income Tax Act (Canada) and the regulations thereunder, or the Canadian Tax Act:
deal at arm’s length and are not affiliated with us;
hold such shares as capital property;
do not use or hold (and will not use or hold) and are not deemed to use or hold our common shares, in or in the course of carrying on business in Canada;
have not been at any time residents of Canada; and
are, at all relevant times, residents of the United States, or U.S. Residents, under the Canada-United States Income Tax Convention (1980), or the Convention.
TAX MATTERS ARE VERY COMPLICATED AND THE CANADIAN FEDERAL INCOME TAX CONSEQUENCES OF PURCHASING, OWNING AND DISPOSING OF OUR COMMON SHARES WILL DEPEND UPON THE STOCKHOLDER’S PARTICULAR SITUATION. THE SUMMARY OF MATERIAL CANADIAN FEDERAL INCOME TAX CONSEQUENCES SET FORTH BELOW IS INTENDED TO PROVIDE ONLY A GENERAL SUMMARY AND IS NOT INTENDED TO BE A COMPLETE ANALYSIS OR DESCRIPTION OF ALL POTENTIAL CANADIAN FEDERAL INCOME TAX CONSEQUENCES.
THIS DISCUSSION DOES NOT INCLUDE A DESCRIPTION OF THE TAX LAWS OF ANY PROVINCE OR TERRITORY WITHIN CANADA. ACCORDINGLY, HOLDERS AND PROSPECTIVE HOLDERS OF OUR COMMON SHARES ARE ENCOURAGED TO CONSULT WITH THEIR OWN TAX ADVISERS ABOUT THE TAX CONSEQUENCES TO THEM HAVING REGARD TO THEIR OWN PARTICULAR CIRCUMSTANCES, INCLUDING ANY CONSEQUENCES OF PURCHASING, OWNING OR DISPOSING OF OUR COMMON SHARES ARISING UNDER CANADIAN FEDERAL, CANADIAN PROVINCIAL OR TERRITORIAL, U.S. FEDERAL, U.S. STATE OR LOCAL TAX LAWS OR TAX LAWS OF JURISDICTIONS OUTSIDE THE UNITED STATES OR CANADA.
This summary is based on the current provisions of the Canadian Income Tax Act, proposed amendments to the Canadian Income Tax Act publicly announced by the Minister of Finance (Canada) prior to the date hereof (the “Proposed Amendments”), and the provisions of the Convention as in effect on the date hereof. No assurance can be given that the Proposed Amendments will be entered into law in the manner proposed, or at all. No advance income tax ruling has been requested or obtained from the Canada Revenue Agency to confirm the tax consequences of any of the transactions described herein.
This summary is not exhaustive of all possible Canadian federal income tax consequences for U.S. Residents, and other than the Proposed Amendments, does not take into account or anticipate any changes in law, whether by legislative, administrative, governmental or judicial decision or action, nor does it take into account Canadian provincial, U.S. or foreign tax considerations which may differ significantly from those discussed herein. No assurances can be given that subsequent changes in law or administrative policy will not affect or modify the opinions expressed herein.
A U.S. Resident will not be subject to tax under the Canadian Tax Act in respect of any capital gain on a disposition of our common shares unless such shares constitute “taxable Canadian property”, as defined in the Canadian Tax Act, of the U.S. Resident and the U.S. Resident is not eligible for relief pursuant to the Convention. Our common shares will not constitute “taxable Canadian property” if, at any time during the 60-month period immediately preceding the disposition of the common shares, the U.S. Resident, persons with whom the U.S. Resident did not deal at arm’s length, or the U.S. Resident together with all such persons, did not own 25% or more of the issued shares of any class or series of shares of
37
our capital stock. In addition, the Convention generally will exempt a U.S. Resident who would otherwise be liable to pay Canadian income tax in respect of any capital gain realized by the U.S. Resident on the disposition of our common shares, from such liability provided that the value of our common shares is not derived principally from real property situated in Canada, Canadian Resource Property and Canadian Timber Resource Property. However, where the US resident and purchaser are related the purchaser must generally report the transaction to the Canada Revenue Agency within 30 days of the transaction date to benefit from the Convention. The Convention may not be available to a U.S. Resident that is a U.S. LLC which is not subject to tax in the U.S.
Amounts in respect of our common shares paid or credited or deemed to be paid or credited as, on account or in lieu of payment of, or in satisfaction of, dividends to a U.S. Resident will generally be subject to Canadian non-resident withholding tax at the
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rate of 25%. Currently, under the Convention the rate of Canadian non-resident withholding tax will generally be reduced to:
5% of the gross amount of dividends if the beneficial owner is a company that is resident in the U.S. and that owns at least 10% of our voting shares; or
15% of the gross amount of dividends if the beneficial owner is some other resident of the U.S.
Generally, the Convention does not apply to US resident LLC’s that are fiscally transparent. However, the Convention may apply to afford reduced withholding tax rates on dividends attributed to a US resident member of a US resident fiscally transparent LLC to the extent of the dividend being consider to have been received by that member.
United States Federal Income Tax Information for United States Holders.
The following is a general discussion of material U.S. federal income tax consequences of the ownership and disposition of our common sharesCommon Shares by U.S. Holders (as defined below). This discussion is based on the United States Internal Revenue Code of 1986, as amended, Treasury regulations promulgated thereunder, and judicial and administrative interpretations thereof, all as in effect at the date hereof and all of which are subject to change, possibly with retroactive effect. This discussion only addresses the tax consequences for U.S. Holders that will hold their common shares as a “capital asset” and does not address U.S. federal income tax consequences that may be relevant to particular U.S. Holders in light of their individual circumstances or U.S. Holders that are subject to special treatment under certain U.S. federal income tax laws, such as:
tax-exempt organizations and pension plans;
persons subject to alternative minimum tax;
banks and other financial institutions;
insurance companies;
partnerships and other pass-through entities (as determined for United States federal income tax purposes);
broker-dealers;
persons who hold their common shares as a hedge or as part of a straddle, constructive sale, conversion transaction, and other risk management transaction; and
persons who acquired their common shares through the exercise of employee stock options or otherwise as compensation.
As used herein, the term “U.S. Holder” means a beneficial owner of our common shares that is:
an individual citizen or resident of the United States;
a corporation, a partnership or entity treated as a corporation or partnership for U.S. federal income tax purposes, that is created or organized in or under the laws of the United States or any political subdivision thereof;
an estate the income of which is subject to U.S. federal income taxation regardless of its source; and
a trust if both: a United States court is able to exercise primary supervision over the administration of the trust; and one or more United States persons have the authority to control all substantial decisions of the trust.
TAX MATTERS ARE VERY COMPLICATED AND THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF PURCHASING, OWNING AND DISPOSING OF OUR COMMON SHARES WILL DEPEND UPON THE STOCKHOLDER’S PARTICULAR SITUATION. THE SUMMARY OF MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES SET FORTH BELOW IS INTENDED TO PROVIDE ONLY A GENERAL SUMMARY AND IS NOT INTENDED TO BE A COMPLETE ANALYSIS OR DESCRIPTION OF ALL POTENTIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES.
NOTE THAT THIS DISCUSSION DOES NOT INCLUDE A DESCRIPTION OF THE TAX LAWS OF ANY
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STATE OR LOCAL GOVERNMENT WITHIN THE UNITED STATES. ACCORDINGLY, HOLDERS AND PROSPECTIVE HOLDERS OF OUR COMMON SHARES ARE ENCOURAGED TO CONSULT THEIR TAX ADVISORS ABOUT THE U.S. FEDERAL, STATE, LOCAL, AND FOREIGN TAX CONSEQUENCES OF PURCHASING, OWNING AND DISPOSING OF OUR COMMON SHARES.
Ownership of Shares
The gross amount of any distribution received by a U.S. Holder with respect to our common shares generally will be included in the U.S. Holder’s gross income as a dividend to the extent attributable to our current and accumulated earnings and profits (as determined under U.S. federal income tax principles). To the extent a distribution received by a U.S. Holder is not a dividend because it exceeds the U.S. Holder’s pro rata share of our current and accumulated earnings and profits, it will be treated first as a tax-free return of capital and reduce (but not below zero) the adjusted tax basis of the U.S. Holder’s shares. To the extent
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the distribution exceeds the adjusted tax basis of the U.S. Holder’s shares, the remainder will be taxed as capital gain (the taxation of capital gain is discussed under the heading “Sale of Shares” below).
For taxable years beginning before January 1, 2009, dividends received by non-corporate U.S. Holders from a qualified foreign corporation are taxed at the same preferential rates that apply to long-term capital gains. A foreign corporation is a “qualified foreign corporation” if it is eligible for the benefits of a comprehensive income tax treaty with the United States (the income tax treaty between Canada and the United States is such a treaty) or the shares with respect to which such dividend is paid is readily tradable on an established securities market in the United States (such as the Nasdaq Capital Market). Notwithstanding satisfaction of one or both of these conditions, a foreign corporation is not a qualified foreign corporation if it is a passive foreign investment company (“PFIC”) for the taxable year of the corporation in which the dividend is paid or the preceding taxable year. (Whether a foreign corporation is a PFIC is discussed below under the heading “Passive Foreign Investment Companies”). A foreign corporation that is a PFIC for any taxable year within a U.S. person’s holding period generally is treated as a PFIC for all subsequent years in the U.S. person’s holding period. Although we have not been, are not now, and do not expect to be a PFIC, and we don’t expect to pay dividends, you should be aware of the following matters in the event that we do become a PFIC and do pay dividends.
If we were to become a PFIC, then U.S. Holders who acquire our common shares may be treated as holding shares of a PFIC throughout their holding period for the purpose of determining whether dividends received from us are dividends from a qualified foreign corporation. As a consequence, dividends received by U.S. Holders may not be eligible for taxation at the preferential rates applicable to long-term capital gains.
If a distribution is paid in Canadian dollars, the U.S. dollar value of such distribution on the date of receipt is used to determine the amount of the distribution received by a U.S. Holder. A U.S. Holder who continues to hold such Canadian dollars after the date on which they are received, may recognize gain or loss upon their disposition due to exchange rate fluctuations. Generally such gains and losses will be ordinary income or loss from U.S. sources.
U.S. Holders may deduct Canadian tax withheld from distributions they receive for the purpose of computing their U.S. federal taxable income (or alternatively a credit may be claimed against the U.S. Holder’s U.S. federal income tax liability as discussed below under the heading “Foreign Tax Credit”). Corporate U.S. Holders generally will not be allowed a dividend received deduction with respect to dividends they receive from us.
Foreign Tax Credit
Generally, the dividend portion of a distribution received by a U.S. Holder will be treated as income in the passive income category for foreign tax credit purposes. Subject to a number of limitations, a U.S. Holder may elect to claim a credit against its U.S. federal income tax liability (in lieu of a deduction) for Canadian withholding tax deducted from its distributions. The credit may be claimed only against U.S. federal income tax attributable to a U.S. Holder’s passive income that is from foreign sources.
If we were to become a qualified foreign corporation with respect to a non-corporate U.S. Holder, dividends received by such U.S. Holder will qualify for taxation at the same preferential rates that apply to long-term capital gains. In such case, the dividend amount that would otherwise be from foreign sources is reduced by multiplying the dividend amount by a fraction, the numerator of which is the U.S. Holder’s preferential capital gains tax rate and the denominator of which is the U.S. Holder’s ordinary income tax rate. The effect is to reduce the dividend amount from foreign sources, thereby reducing the U.S. federal income tax attributable to foreign source income against which the credit may be claimed. Canadian withholding taxes that cannot be claimed as a credit in the year paid may be carried back to the preceding year and then forward 10 years and claimed as a credit in those years, subject to the same limitations referred to above.
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The rules relating to the determination of the foreign tax credit are very complex. U.S. Holders and prospective U.S. Holders should consult their own tax advisors to determine whether and to what extent they would be entitled to claim a foreign tax credit.
Sale of Shares
Subject to the discussion of the “passive foreign investment company” rules below, a U.S. Holder generally will recognize capital gain or loss upon the sale of our shares equal to the difference between: (a) the amount of cash plus the fair market value of any property received; and (b) the U.S. Holder’s adjusted tax basis in such shares. This gain or loss generally will be capital gain or loss from U.S. sources, and will be long-term capital gain or loss if the U.S. Holder held its shares for more than 12 months. Generally, the net long-term capital gain of a non-corporate U.S. Holder from the sale of shares is subject to taxation at a top marginal rate of 15%. A Capital gain that is not long-term capital gain is taxed at ordinary income rates. The
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deductibility of capital losses is subject to certain limitations.
Passive Foreign Investment Companies
We will be a PFIC if, in any taxable year either: (a) 75% or more of our gross income consists of passive income; or (b) 50% or more of the value of our assets is attributable to assets that produce, or are held for the production of, passive income. Subject to certain limited exceptions, if we meet the gross income test or the asset test for a particular taxable year, our shares held by a U.S. Holder in that year will be treated as shares of a PFIC for that year and all subsequent years in the U.S. Holder’s holding period, even if we fail to meet either test in a subsequent year.
If we were a PFIC in the future, gain realized by a U.S. Holder from the sale of PFIC Shares and certain dividends received on such shares would be subject to tax under the excess distribution regime, unless the U.S. Holder made one of the elections discussed below. Under the excess distribution regime, federal income tax on a U.S. Holder’s gain from the sale of PFIC Shares would be calculated by allocating the gain ratably to each day the U.S. Holder held its shares. Gain allocated to years preceding the first year in which we were a PFIC in the U.S. Holder’s holding period, if any, and gain allocated to the year of disposition would be treated as gain arising in the year of disposition and taxed as ordinary income. Gain allocated to all other years would be taxed at the highest tax rate in effect for each of those years. Interest for the late payment of tax would be calculated and added to the tax due for each of the PFIC Years, as if the tax was due and payable with the tax return filed for that year. A distribution that exceeds 125% of the average distributions received on PFIC Shares by a U.S. Holder during the 3 preceding taxable years (or, if shorter, the portion of the U.S. Holder’s holding period before the taxable year) would be taxed in a similar manner.
A U.S. Holder may avoid taxation under the excess distribution regime by making a qualified electing fund (“QEF”) election. For each year that we would meet the PFIC gross income test or asset test, an electing U.S. Holder would be required to include in gross income, its pro rata share of our net ordinary income and net capital gains, if any. The U.S. Holder’s adjusted tax basis in our shares would be increased by the amount of such income inclusions. An actual distribution to the U.S. Holder out of such income generally would not be treated as a dividend and would decrease the U.S. Holder’s adjusted tax basis in our shares. Gain realized from the sale of our shares covered by a QEF election would be taxed as a capital gain. U.S. Holders will be eligible to make QEF elections, only if we agree to provide to the U.S. Holders, which we do, the information they will need to comply with the QEF rules. Generally, a QEF election should be made by the due date of the U.S. Holder’s tax return for the first taxable year in which the U.S. Holder held our shares that includes the close of our taxable year for which we met the PFIC gross income test or asset test. A QEF election is made on IRS Form 8621.
A U.S. Holder may also avoid taxation under the excess distribution regime by timely making a mark-to-market election. An electing U.S. Holder would include in gross income the increase in the value of its PFIC Shares during each of its taxable years and deduct from gross income the decrease in the value of its PFIC Shares during each of its taxable years. Amounts included in gross income or deducted from gross income by an electing U.S. Holder are treated as ordinary income and ordinary deductions from U.S. sources. Deductions for any year are limited to the amount by which the income inclusions of prior years’ exceed the income deductions of prior years. Gain from the sale of PFIC Shares covered by an election is treated as ordinary income from U.S. sources while a loss is treated as an ordinary deduction from U.S. sources only to the extent of prior income inclusions. Losses in excess of such prior income inclusions are treated as capital losses from U.S. sources. A mark-to-market election is timely if it is made by the due date of the U.S. Holder’s tax return for the first taxable year in which the U.S. Holder held our shares that includes the close of our taxable year for which we met the PFIC gross income test or asset test. A mark-to-market election is also made on IRS Form 8621.
As noted above, a PFIC is not a qualified foreign corporation and hence dividends received from a PFIC are not eligible for taxation at preferential long-term capital gain tax rates. Similarly, ordinary income included in the gross income of a U.S. Holder who has made a QEF election or a market-to-market election, and dividends received from corporations subject
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to such election, are not eligible for taxation at preferential long-term capital gain rates. The PFIC rules are extremely complex and could, if they apply, have significant, adverse effects on the taxation of dividends received and gains realized by a U.S. Holder. Accordingly, prospective U.S. Holders are strongly urged to consult their tax adviser concerning the potential application of these rules to their particular circumstances.
Controlled Foreign Corporation
Special rules apply to certain U.S. Holders that own stock in a foreign corporation that is classified as a “controlled foreign corporation” (“CFC”). We do not expect to be classified as a CFC. However, future ownership changes could cause us to become a CFC. Prospective U.S. Holders are urged to consult their tax advisor concerning the potential application of the CFC rules to their particular circumstances.
53
Information Reporting and Backup Withholding
United States information reporting and backup withholding requirements may apply with respect to distributions to U.S. Holders, or the payment of proceeds from the sale of shares, unless the U.S. Holder: (a) is an exempt recipient (including a corporation); (b) complies with certain requirements, including applicable certification requirements; or (c) is described in certain other categories of persons. The backup withholding tax rate is currently 28%. Any amounts withheld from a payment to a U.S. Holder under the backup withholding rules may be credited against any U.S. federal income tax liability of the U.S. Holder and may entitle the U.S. Holder to a refund.
F. Dividends and Paying Agents
Not applicable.
G. Statements by Experts
Not applicable.
H. Documents on Display
Not applicable.
I. Subsidiary Information
None.Not applicable
Item 11. Quantitative and Qualitative Disclosures about Market Risk
Not applicable.Market risk is the risk of loss related to changes in market prices, including interest rates and foreign exchange rates, of financial instruments that may adversely impact our consolidated financial position, results of operations or cash flows.
Inflation-related risks
We do not believe that inflation has had a material impact on our revenues or income over the past two fiscal years. However, increases in inflation could result in increases in our expenses, which may not be readily recoverable in the price of goods or services provided to our clients. To the extent that inflation results in rising interest rates and has other adverse effects on capital markets, it could adversely affect our financial position and profitability.
Foreign currency exchange risk
Foreign exchange risk is the risk arising from changes in foreign currency fluctuations. Foreign currency fluctuations have not previously had a material impact on the Company’s financial results. Consequently, the Company does not use any derivative instruments to reduce its exposure to fluctuations in foreign currency rates. It is the opinion of management that the foreign exchange risk to which the Company is exposed is currently minimal.
However, with the completion of the Tower Three Transaction, the Company anticipates that the fluctuations of the Colombian Peso may impact the Company’s financial results moving forward. The Company intends to monitor such potential impact and will possibly develop a hedging policy if such fluctuations become material.
41
Item 12. Description of Securities Other Than Equity Securities
Not applicable.
Part II
Item 13. Defaults, Dividend Arrearages and Delinquencies
Not applicable.
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
Not applicable.
Item 15. Controls and Procedures
Not applicable.
Item 16A. Audit Committee Financial Experts
A Chartered Accountant for over 30 years, Doug Wallis specializes in work with Canadian and US public companies. This work involves everything from assisting in the structure of initial public offerings to comprehensive audit services. Doug’s extensive experience in accounting and the rules of professional conduct are also highly valued at Smythe Ratcliffe. Previously, Doug served as the Director of Professional Advisory Services for the Institute of Chartered Accountants of BC.Not applicable.
Item 16B. Code of Ethics
Our Board of Directors has approved a Code of Business Conduct and Ethics, which is filed herewith as Exhibit 11.1.Not applicable.
Item 16C. Principal Accountant Fees and Services
54
Audit fees for the year ended December 31, 2014 were $15,000.Not applicable.
Item 16D. Exemptions from the Listing Standards for Audit Committees
Not applicable.
Item 16E. Purchases of Equity Securities by the Company and Affiliated Purchasers
None.
Item 16F. Change in Registrant’s Certifying Accountant
None.Not applicable.
Item 16G. Corporate Governance
Not applicable.
For information regarding the Company’s corporate governance, please refer to “Item 6. Directors, Senior Management and Employees – Corporate Governance.”Item 16H. Mine Safety Disclosure
55Not applicable.
42
Part III
Item 17. Financial Statements
In lieu of responding to this item, we have responded to Item 18 of this annualshell company report.
Item 18. Financial Statements
The Company’s audited financial statements for the Company and for Tower Three for the fiscal year ended December 31, 20142016, and the condensed interim consolidated financial statements of the Company for the six month period ended June 30, 2017, as required under Item 18 are filed as Exhibit 1.1 withattached hereto starting on page F-1 of this Form 20-F. All of the financial information is presented herein in accordance with International Financial Reporting Standards, as issued by the International Accounting Standards Board.
Item 19. Exhibits
Exhibit | Description of Exhibit |
Number | |
1.1 | Articles of the Company.* |
4.1 | Stock Option Plan.*** |
4.2 | The Arrangement Agreement between the Company and Cabbay Holdings Corp. dated April 18, 2016 and amended on April 21, 2016.** |
4.3 | Share Exchange Agreement dated October 19, 2016, between the Company, Tower Three SAS, and the shareholders of Tower Three SAS.** |
8.1 | List of significant subsidiaries of the Company as of |
15.1 | Audit Committee Charter* |
56* Incorporated by reference to our registration statement pursuant to section 12(b) or (g) of the Exchange Act on Form 20-F (No. 001-35970) filed on June 17, 2013.
** Incorporated by reference to our annual report on Form 20-F for the fiscal year ended December 31, 2016 (No. 000-55103), as amended, filed on September 12, 2017.
*** Incorporated by reference to our annual report on Form 20-F for the fiscal year ended December 31, 2015 (No. 000-55103), as amended, filed on September 12, 2017.
43
SIGNATURE
The Registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this registration statement on its behalf.
Date: | By:/s/ |
Name: | |
Title: Chief Executive Officer | |
By:/s/ | |
Name: | |
Title: Chief Financial Officer |
5744
TOWER ONE WIRELESS CORP.
(Formerly PACIFIC THERAPEUTICS LTD.)
FINANCIAL STATEMENTS
Years Ended
December 31, 2016, 2015 and 2014
(Expressed in Canadian Dollars)
INDEPENDENT AUDITORS’ REPORT |
To the Shareholders of
Tower One Wireless Corp. (formerly Pacific Therapeutics Ltd.)
We have audited the accompanying financial statements of Tower One Wireless Corp. which comprise the statement of financial position as at December 31, 2016, and the statements of comprehensive income (loss), changes in equity and cash flows for the year then ended, and the related notes comprising a summary of significant accounting policies and other explanatory information.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we comply with ethical requirements, and plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained based on our audit is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements present fairly, in all material respects, the financial position of Tower One Wireless Corp. as at December 31, 2016, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.
Emphasis of Matter
Without qualifying our opinion, we draw attention to Note 1 in the financial statements which indicates the existence of a material uncertainty that may cast significant doubt on the ability ofTower One Wireless Corp.to continue as a going concern.
Other Matter
The financial statements of Tower One Wireless Corp. 20F filing for the years ended December 31, 2015 and 2014 were audited by another auditor who expressed unmodified opinions on those statements on April 4, 2016 and April 30, 2015 respectively.
/s/ Manning Elliot LLP
CHARTERED PROFESSIONAL ACCOUNTANTS
Vancouver, British Columbia
August 23, 2017
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Directors of
Tower One Wireless Corp. (formerly Pacific Therapeutics Ltd.)
We have audited the accompanying financial statements of Tower One Wireless Corp. (formerly Pacific Therapeutics Ltd.), which comprise the statements of financial position as of December 31, 2015 and 2014, and the related statements of comprehensive income (loss), changes in shareholders’ deficiency, and cash flows for the years then ended, and a summary of significant accounting policies and other explanatory information.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, these financial statements present fairly, in all material respects, the financial position of Tower One Wireless Corp. (formerly Pacific Therapeutics Ltd.) as at December 31, 2015 and 2014 and its financial performance and its cash flows for the years then ended in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.
Emphasis of Matter
Without qualifying our opinion, we draw attention to Note 1 in the financial statements which indicates that Tower One Wireless Corp. (formerly Pacific Therapeutics Ltd.) has suffered recurring losses from operations and has a net capital deficiency. These matters, along with the other matters set forth in Note 1, indicate the existence of material uncertainties that raises substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
“DAVIDSON & COMPANY LLP”
Chartered Professional Accountants
Vancouver, Canada
September 7, 2017
TOWER ONE WIRELESS CORP. |
(formerly PACIFIC THERAPEUTICS LTD.) |
Statements of Financial Position |
As at December 31, 2016 and 2015 |
(Expressed in Canadian Dollars) |
Note | 2016 | 2015 | |||||||
$ | $ | ||||||||
Current Assets | |||||||||
Cash | 1,378,183 | - | |||||||
Amounts receivable | 14,439 | 1,744 | |||||||
Due from related parties | 7 | 189,468 | - | ||||||
Prepaid expenses and deposits | 26,190 | 12,951 | |||||||
1,608,280 | 14,695 | ||||||||
Other receivable | 5 | - | 1 | ||||||
1,608,280 | 14,696 | ||||||||
Current Liabilities | |||||||||
Bank overdraft | - | 141 | |||||||
Accounts payable and accrued liabilities | 133,507 | 333,034 | |||||||
Convertible note | 6 | - | 62,460 | ||||||
Due to related parties | 7 | 6,300 | 228,472 | ||||||
139,807 | 624,106 | ||||||||
Shareholders’ Equity (Deficiency) | |||||||||
Share capital | 8 | 3,292,175 | 2,800,010 | ||||||
Shares committed for issuance | 8 | - | 4,800 | ||||||
Shares subscriptions received | 13(b) | 1,602,257 | - | ||||||
Equity component of convertible note | 6 | - | 1,080 | ||||||
Contributed surplus | 563,568 | 121,939 | |||||||
Deficit | (3,989,527 | ) | (3,537,239 | ) | |||||
1,468,473 | (609,410 | ) | |||||||
1,608,280 | 14,696 |
Nature of operations and going concern (Note 1)
Subsequent events (Note 13)
Approved on behalf of the Board of Directors:
“Alejandro Ochoa” | “Brian Gusko” |
The accompanying notes are an integral part of these financial statements.
TOWER ONE WIRELESS CORP. |
(formerly PACIFIC THERAPEUTICS LTD.) |
Statements of Comprehensive Income (Loss) |
For the Years Ended December 31, 2016, 2015 and 2014 |
(Expressed in Canadian Dollars) |
Note | 2016 | 2015 | 2014 | |||||||||
$ | $ | $ | ||||||||||
Expenses | ||||||||||||
Advertising and promotion | - | 22,386 | 67,923 | |||||||||
Amortization of property and equipment | - | - | 1,216 | |||||||||
Amortization of intangible assets | - | 2,993 | 5,618 | |||||||||
Bank charges and interest | 766 | 4,077 | 10,047 | |||||||||
Donation | - | - | 500 | |||||||||
Insurance | 19,631 | 9,707 | 30,194 | |||||||||
Interest accretion | 6 | - | 25,503 | 11,005 | ||||||||
Investor relations | - | - | 25,075 | |||||||||
Office and miscellaneous | 32,175 | 1,666 | 5,428 | |||||||||
Professional fees | 307,414 | 85,486 | 168,490 | |||||||||
Rent and occupancy costs | - | 3,172 | 14,543 | |||||||||
Share-based payments | 8 | 75,505 | 11,998 | 152,028 | ||||||||
Telephone and utilities | - | 1,516 | 2,006 | |||||||||
Transfer agent | 17,318 | 9,462 | 24,107 | |||||||||
Travel | - | 230 | 11,906 | |||||||||
Wages and benefits | - | 106,667 | 160,947 | |||||||||
(452,809 | ) | (284,863 | ) | (691,033 | ) | |||||||
Other Income (Expenses) | ||||||||||||
Foreign exchange | 5,711 | (28,269 | ) | 440 | ||||||||
Gain on debt settlement | 7 | - | 535,077 | - | ||||||||
Gain on derivative liability | - | 36,188 | - | |||||||||
Impairment of intangible assets | - | (67,065 | ) | - | ||||||||
Interest on convertible notes | 6 | (5,190 | ) | (6,395 | ) | (1,825 | ) | |||||
Loss on retirement assets | 6 | - | - | (1,227 | ) | |||||||
Loss on settlement of convertible note | 6 | - | (5,000 | ) | - | |||||||
521 | 464,536 | (2,612 | ) | |||||||||
Net income (loss) and comprehensive income (loss) | (452,288 | ) | 179,673 | (693,645 | ) | |||||||
Income (loss) per common share – basic and diluted | (0.09 | ) | 0.13 | (0.56 | ) | |||||||
Weighted average number of common shares | 5,175,946 | 1,351,500 | 1,248,561 |
The accompanying notes are an integral part of these financial statements.
TOWER ONE WIRELESS CORP. |
(formerly PACIFIC THERAPEUTICS LTD.) |
Statement of Changes in Equity |
(Expressed in Canadian Dollars) |
Shares | Equity | |||||||||||||||||||||||
Number of | Share | committed | component | |||||||||||||||||||||
Common | Share | subscriptions | for | of convertible | Contributed | |||||||||||||||||||
shares | capital | received | issuance | note | surplus | Deficit | Total | |||||||||||||||||
$ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
Balance at December 31, 2013 | 1,248,554 | 2,699,210 | - | - | - | 123,704 | (3,263,058 | ) | (440,144 | ) | ||||||||||||||
Shares issued for cash | 4,000 | 4,800 | - | - | - | 1,200 | - | 6,000 | ||||||||||||||||
Shares exchanged for debt | 46,667 | 56,000 | - | - | - | 14,000 | - | 70,000 | ||||||||||||||||
Subscription received for shares | - | - | 30,000 | - | - | - | - | 30,000 | ||||||||||||||||
Share-based payments | - | - | - | - | - | 152,028 | - | 152,028 | ||||||||||||||||
Options expired unexercised | - | - | - | - | - | (1,166 | ) | 1,166 | - | |||||||||||||||
Comprehensive loss | - | - | - | - | - | - | (693,645 | ) | (693,645 | ) | ||||||||||||||
Balance at December 31, 2014 | 1,299,221 | 2,760,010 | 30,000 | - | - | 289,766 | (3,955,537 | ) | (875,761 | ) | ||||||||||||||
Units issued for debt @$1.50 | 39,333 | 23,600 | - | - | - | 35,400 | - | 59,000 | ||||||||||||||||
Units issued for cash @$1.50 | 27,333 | 16,400 | (30,000 | ) | - | - | 24.600 | - | 11,000 | |||||||||||||||
Shares committed for issuance on exercise of warrants | - | - | - | 4,800 | - | (1,200 | ) | - | 3,600 | |||||||||||||||
Share-based payments | - | - | - | - | - | 11,998 | - | 11,998 | ||||||||||||||||
Fair value of conversion feature on convertible note | - | - | - | - | 1,080 | - | - | 1,080 | ||||||||||||||||
Options and warrants expired and unexercised | - | - | - | - | - | (238,625 | ) | 238,625 | - | |||||||||||||||
Comprehensive income | - | - | - | - | - | - | 179,673 | 179,673 | ||||||||||||||||
Balance at December 31, 2015 | 1,365,887 | 2,800,010 | - | 4,800 | 1,080 | 121,939 | (3,537,239 | ) | (609,410 | ) | ||||||||||||||
Shares issued for cash @$0.06 | 4,089,332 | 245,360 | - | - | - | - | - | 245,360 | ||||||||||||||||
Shares issued for debt settlement | 766,666 | 46,000 | - | - | - | - | - | 46,000 | ||||||||||||||||
Exercise of warrants | 4,000 | 4,800 | - | (4,800 | ) | - | - | - | - | |||||||||||||||
Shares issued to True Vita | 10,000 | 500 | - | - | - | - | - | 500 | ||||||||||||||||
Exercise of options | 500,000 | 195,505 | - | - | - | (75,505 | ) | - | 120,000 | |||||||||||||||
Share-based payments | - | - | - | - | - | 75,505 | - | 75,505 | ||||||||||||||||
Subscriptions received | - | - | 1,602,257 | - | - | - | - | 1,602,257 | ||||||||||||||||
Transfer of convertible note | - | - | - | - | (1,080 | ) | 1,080 | - | - | |||||||||||||||
Debt forgiveness | - | - | - | - | - | 440,549 | - | 440,549 | ||||||||||||||||
Comprehensive loss | - | - | - | - | - | - | (452,288 | ) | (452,288 | ) | ||||||||||||||
Balance at December 31, 2016 | 6,735,885 | 3,292,175 | 1,602,257 | - | - | 563,568 | (3,989,527 | ) | 1,468,473 |
The accompanying notes are an integral part of these financial statements.
TOWER ONE WIRELESS CORP. |
(formerly PACIFIC THERAPEUTICS LTD.) |
Statements of Cash Flows |
For the Years Ended December 31, 2016, 2015 and 2014 |
(Expressed in Canadian Dollars) |
2016 | 2015 | 2014 | |||||||
$ | $ | $ | |||||||
Cash flows from operating activities | |||||||||
Net (loss) income | (452,288 | ) | 179,673 | (693,645 | ) | ||||
Items not affection cash: | |||||||||
Amortization of property and equipment | - | - | 1,216 | ||||||
Amortization of intangible assets | - | 2,993 | 5,618 | ||||||
Accretion | - | 25,503 | 11,005 | ||||||
Interest expense on convertible note | 3,730 | 6,395 | 1,825 | ||||||
Gain on derivative liability | - | (36,188 | ) | - | |||||
Share-based payments | 75,505 | 11,998 | 152,028 | ||||||
Impairment of intangible assets | - | 67,065 | - | ||||||
Gain on forgiveness of debt | - | (535,077 | ) | - | |||||
Loss on investment | 500 | - | - | ||||||
Loss on retirement of assets | - | - | 1,227 | ||||||
Loss on settlement of convertible note | - | 5,000 | - | ||||||
(372,553 | ) | (272,638 | ) | (520,726 | ) | ||||
Changes in non-cash working capital item: | |||||||||
Amounts receivable | (12,695 | ) | (432 | ) | 6,079 | ||||
Prepaid expenses | (13,239 | ) | (12,951 | ) | 36,605 | ||||
Accounts payable and accrued liabilities | 2,228 | 124,561 | 111,273 | ||||||
(396,259 | ) | (161,460 | ) | (366,769 | ) | ||||
Cash flows from investing activity | |||||||||
Additions to intangible assets | - | (5,570 | ) | (10,195 | ) | ||||
Cash flows from financing activities | |||||||||
Advances from (to) related parties | (188,035 | ) | 150,776 | 142,685 | |||||
Exercise of stock options | 120,000 | - | - | ||||||
Repayment of convertible note | (5,000 | ) | - | - | |||||
Shares issued for cash | 245,360 | 14,600 | 6,000 | ||||||
Subscriptions received | 1,602,257 | - | 30,000 | ||||||
Convertible note | - | - | 50,000 | ||||||
Repayment of convertible note | - | - | (30,900 | ) | |||||
1,774,582 | 165,376 | 197,785 | |||||||
Change in cash and cash equivalents | 1,378,324 | (1,654 | ) | (179,179 | ) | ||||
Cash and cash equivalents (bank overdraft), beginning | (141 | ) | 1,513 | 180,692 | |||||
Cash and cash equivalents (bank overdraft), ending | 1,378,183 | (141 | ) | 1,513 | |||||
Supplemental disclosure of cash flow information: | |||||||||
Cash paid for interest | - | - | - | ||||||
Cash paid for income taxes | - | - | - |
Supplemental Cash Flow Information (Note 12)
The accompanying notes are an integral part of these financial statements.
TOWER ONE WIRELESS CORP. |
(formerly PACIFIC THERAPEUTICS LTD.) |
Notes to Financial Statements |
Years Ended December 31, 2016, 2015 and 2014 |
1. | NATURE OF OPERATIONS AND GOING CONCERN |
Tower One Wireless Corp. (formerly Pacific Therapeutics Ltd.) (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 March 6, 2016, the Company incorporated Cabbay Holdings Corp. (“Cabbay”), a wholly owned subsidiary. On April 21, 2016, the Company entered into a plan of arrangement (“Arrangement”) with Cabbay and its shareholders. Under the Arrangement, Cabbay issued its common shares in exchange for special Class of reorganization shares of the Company held by the shareholders of the Company. The Company then redeemed the special Class of reorganization shares held by Cabbay in exchange for the Asset Purchase Agreement with Forge Therapeutics Inc., described in Note 5 and $1,000. The Arrangement was approved by the Company’s shareholders on May 20, 2016 and by the Supreme Court of British Columbia on May 31, 2016. Upon completion of the Arrangement, Cabbay was no longer a subsidiary of the Company. In connection with the restructuring, $440,549 of the Company’s debt in the form of accounts payable, convertible note and amounts due to related parties was assigned to Cabbay. As a result of the assignment and the Arrangement, the Company recorded $440,549 in contributed surplus for the year ended December 31, 2016.
These 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 financial statements should the Company be unable to realize its assets and discharge its liabilities in the normal course of business. At December 31, 2016, the Company had an accumulated deficit of $3,989,527 which has been funded primarily by the issuance of equity. Ongoing operations of the Company are dependent upon the Company’s ability to receive continued financial support, complete equity financings and ultimately the generation profitable operations in the future. These factors raise significant doubt about the Company’s ability to continue as a going concern.
2. | STATEMENT OF COMPLIANCE AND BASIS OF PRESENTATION |
(a) | Statement of Compliance |
These financial statements of the Company for the years ended December 31, 2016 and 2015 have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).
These financial statements were approved and authorized for issue by the Board of Directors on August 23, 2017.
(b) | Basis of Presentation |
These financial statements were prepared on a historical cost basis, except for financial instruments classified as fair value through profit or loss. In addition, these financial statements have been prepared using the accrual basis of accounting, except for cash flow information. The financial statements are presented in Canadian dollars which is the Company’s functional currency.
7
TOWER ONE WIRELESS CORP. |
(formerly PACIFIC THERAPEUTICS LTD.) |
Notes to Financial Statements |
Years Ended December 31, 2016, 2015 and 2014 |
2. | STATEMENT OF COMPLIANCE AND BASIS OF PRESENTATION(CONTINUED) |
(c) | Use of 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. In the future, actual experience may differ from these estimates and assumptions.
The effect of a change in an accounting estimate is recognized prospectively by including it in comprehensive income in the period of the change, if the change affects that period only, or in the period of the change and future periods, if the change affects both. Significant assumptions about the future and other sources of estimation uncertainty that management has made at the statement of financial position date, that could result in a material adjustment to the carrying amounts of assets and liabilities, in the event that actual results differ from assumptions that have been made that relate to the following key estimates:
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.
Intangible Assets – useful lives
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.
Share-based payments and compensation
The Company has applied estimates with respect to the valuation of shares issued for non-cash consideration. Shares are valued 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 the equity instruments at the date at which they are granted. Estimating fair value for share-based payment 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 and making assumptions about them. The fair value of the underlying common shares is assessed as the most recent issuance price per common share for cash proceeds. The assumptions and models used for estimating fair value for share-based payment transactions are discussed in Note 8.
8
TOWER ONE WIRELESS CORP. |
(formerly PACIFIC THERAPEUTICS LTD.) |
Notes to Financial Statements |
Years Ended December 31, 2016, 2015 and 2014 |
3. | SIGNIFICANT ACCOUNTING POLICIES |
The following is a summary of significant accounting policies used in the preparation of these financial statements:
(a) | Cash and cash equivalents |
Cash and cash equivalents are comprised of cash on hand, deposits in banks and highly liquid investments having original terms to maturity of 90 days or less.
(b) | Income per share |
Basic income 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 periods presented, this calculation proved to be anti-dilutive.
(c) | Intangible assets |
Technology licenses acquired from third parties that include licenses and rights to technologies are initially recorded at fair value based on consideration paid and amortized on a straight-line basis over the estimated useful life of the underlying technologies.
Patent costs associated with the preparation, filing, and obtaining of patents are capitalized and amortized on a straight-line basis over the useful lives of the underlying technologies and patents, usually for a period not exceeding 15 years.
Management evaluates the recoverability of technology licenses and patents on an annual basis based on the expected utilization of the underlying technologies. If the estimated net recoverable value for each cash-generating unit, calculated based on undiscounted future cash flows, is less than the carrying value, the asset is written down to its fair value. The amounts shown for technology licenses and patent costs do not necessarily reflect present or future values and the ultimate amount recoverable will be dependent upon the successful development and commercialization of products based on these rights.
9
TOWER ONE WIRELESS CORP. |
(formerly PACIFIC THERAPEUTICS LTD.) |
Notes to Financial Statements |
Years Ended December 31, 2016, 2015 and 2014 |
3. | SIGNIFICANT ACCOUNTING POLICIES(CONTINUED) |
(d) | 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 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 cash-generating units (CGUs), 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 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.
(e) | 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 reserves.
(f) | Share-based payments |
Share-based payments to employees are measured at the fair value of the instruments issued and amortized over the vesting periods. Share-based payments to non-employees are measured at the fair value of the goods or services received or the fair value of the equity instruments issued, if it is determined 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 warrants and options reserve. Consideration received on the exercise of stock options is recorded as share capital and the related amount in warrants and options reserve is transferred to share capital. Charges for options that are forfeited before vesting are reversed from share-based payments reserve. For those options that expire or are forfeited after vesting, the recorded value is transferred to deficit.
10
TOWER ONE WIRELESS CORP. |
(formerly PACIFIC THERAPEUTICS LTD.) |
Notes to Financial Statements |
Years Ended December 31, 2016, 2015 and 2014 |
3. | SIGNIFICANT ACCOUNTING POLICIES(CONTINUED) |
(g) | Income taxes |
The Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using substantively enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred income tax assets result from unused loss carry-forwards, resource related pools and other deductions. A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences to the extent that it is probable that future taxable profits will be available against which they can be utilized.
Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.
(h) | 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 resourced 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.
(i) | Financial instruments |
(a) | Financial assets |
The Company classifies its financial assets in the following categories: held-to-maturity, fair value through profit or loss (“FVTPL”), loans and receivables, and available-for-sale (“AFS”). The classification depends on the purpose for which the financial assets were acquired. The Company's accounting policy for each category is as follows:
Fair value through profit or loss
This category comprises derivatives, or assets acquired or incurred principally for the purpose of selling or repurchasing it in the near term. They are carried in the statement of financial position at fair value with changes in fair value recognized through profit or loss.
Loans and receivables
These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are carried at amortized cost less any provision for impairment. Individually significant receivables are considered for impairment when they are past due or when other objective evidence is received that a specific counterparty will default.
11
TOWER ONE WIRELESS CORP. |
(formerly PACIFIC THERAPEUTICS LTD.) |
Notes to Financial Statements |
Years Ended December 31, 2016, 2015 and 2014 |
3. | SIGNIFICANT ACCOUNTING POLICIES(CONTINUED) |
(i) | Financial instruments(continued) |
(a) | Financial assets (continued) |
Held-to-maturity
These assets are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Company's management has the positive intention and ability to hold to maturity. These assets are measured at amortized cost using the effective interest method. If there is objective evidence that the investment is impaired, determined by reference to external credit ratings and other relevant indicators, the financial asset is measured at the present value of estimated future cash flows. Any changes to the carrying amount of the investment, including impairment losses, are recognized through profit or loss.
Available-for-sale
Non-derivative financial assets not included in the above categories are classified as available-for- sale. They are carried at fair value with changes in fair value recognized directly in equity. Where a decline in the fair value of an available-for-sale financial asset constitutes objective evidence of impairment, the amount of the loss is removed from equity and recognized through other comprehensive income (loss).
The Company has classified its cash and cash equivalents at fair value through profit or loss. The Company’s due from related parties are classified as loans and receivables.
Impairment of financial assets
A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset could be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset.
An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows, discounted at the original effective interest rate.
Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics.
An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognized. For financial assets measured at amortized cost, this reversal is recognized in profit or loss.
12
TOWER ONE WIRELESS CORP. |
(formerly PACIFIC THERAPEUTICS LTD.) |
Notes to Financial Statements |
Years Ended December 31, 2016, 2015 and 2014 |
3. | SIGNIFICANT ACCOUNTING POLICIES(CONTINUED) |
(i) | Financial instruments(continued) |
(b) | Financial liabilities |
The Company classifies its financial liabilities into one of two categories, depending on the purpose for which the liability was acquired. The Company's accounting policy for each category is as follows:
Fair value through profit or loss- This category comprises derivatives, or liabilities acquired or incurred principally for the purpose of selling or repurchasing it in the near term. They are carried in the statement of financial position at fair value with changes in fair value recognized through profit or loss.
Other financial liabilities:This category consists of liabilities carried at amortized cost using the effective interest method.
The Company’s accounts payable, convertible note and due to related parties are classified as other financial liabilities. The Company’s derivative liability component of the convertible note is classified as fair value through profit or loss.
(j) | Adoption of new pronouncements |
The Company did not adopt any new or amended accounting standards during the year ended December 31, 2016 which had a significant impact on the Financial Statements.
4. | RECENT ACCOUNTING PRONOUNCEMENTS |
Certain new standards, interpretations and amendments to existing standards have been issued by the IASB that are mandatory for future accounting periods. Some updates that are not applicable or are not consequential to the Company may have been excluded from the list below.
Standard effective for annual periods beginning on or after January 1, 2018
IFRS 9Financial Instruments- In November 2009, as part of the IASB project to replace IAS 39Financial Instruments: Recognition and Measurement, the IASB issued the first phase of IFRS 9, that introduces new requirements for the classification and measurement of financial assets. The standard was revised in October 2010 to include requirements regarding classification and measurement of financial liabilities. In November 2013 the standard was revised to add the new general hedge accounting requirements. The standard was finalized in July 2014 and was revised to add a new expected loss impairment model and amends the classification and measurement model for financial assets by adding a new fair value through other comprehensive income (“FVOTCI”) category for certain debt instruments and additional guidance on how to apply the business model and contractual cash flow characteristics test.
13
TOWER ONE WIRELESS CORP. |
(formerly PACIFIC THERAPEUTICS LTD.) |
Notes to Financial Statements |
Years Ended December 31, 2016, 2015 and 2014 |
4. | RECENT ACCOUNTING PRONOUNCEMENTS(CONTINUED) |
IFRS 15 -Revenue from Contracts with Customers-On May 28, 2014 the IASB issued IFRS 15, “Revenue from contracts with customers”. IFRS 15 will replace IAS 11, “Construction contracts”, IAS 18, “Revenue”, IFRIC 13, “Customer loyalty programmes”, IFRIC 15, “Agreements for the construction of real estate”, IFRIC 18, “Transfers of assets from customers” and SIC 31, “Revenue – barter transactions involving advertising services”. The standard contains a single model that applies to contracts with customers and two approaches to recognizing revenue: at a point in time; or over time. The model features a contract-based five-step analysis of transactions to determine whether, how much and when revenue is recognized. New estimates and judgmental thresholds have been introduced, which may affect the amount and/or timing of revenue recognized. The new standard applies to contracts with customers. It does not apply to insurance contracts, financial instruments or lease contracts, which fall in the scope of other IFRSs.
Standard effective for annual periods beginning on or after January 1, 2019
IFRS 16– Leases-On January 13, 2016 the IASB issued IFRS 16, “Leases”. This standard introduces a single lessee accounting model and requires a lessee to recognize assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. A lessee is required to recognize a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. This standard substantially carries forward the lessor accounting requirements of IAS 17, while requiring enhanced disclosures to be provided by lessors. Other areas of the lease accounting model have been impacted, including the definition of a lease.
The new standard is effective for annual periods beginning on or after January 1, 2019. Earlier application is permitted for entities that apply IFRS 15, “Revenue from contracts with customers” at or before the date of initial adoption of IFRS 16.
The extent of the impact of adoption of these above standards on the financial statements of the Company has not yet been determined.
5. | SALE OF INTANGIBLE ASSETS |
On July 24, 2015 (effective on August 25, 2015 with shareholder approval) the Company entered into a definitive agreement (the “Agreement”) with Forge Therapeutics Inc. ("Forge") - a private US company -to sell the Company’s patents in the area of the development of therapies for fibrosis and erectile dysfunction. Proceeds from the sale were a commitment by Forge to issue 15,000,000 common shares.
Subject to the terms of the Agreement, if the 15,000,000 shares are not issued to the Company within 3 years, then the Company may trigger the issuance of the shares, and if at the end of 5 years the shares have not been issued then Forge must return the assets to the Company. In the event of a sale by Forge to a third party of the assets purchased under the Agreement, the Company will receive 6% of the value of that transaction, subject to certain conditions. The Company has assessed that the fair value of the right to receive the shares from Forge is not determinable and accordingly has recorded a nominal value of $1. As a result of the disposal, the Company recognized impairment on its intangible assets in the amount of $67,065 for the year ended December 31, 2015.
A condition of the sale was that Forge will pay to the Company an annual maintenance fee of $50,000. In the Company’s judgement, no portion of this amount will be recognized until collection can be assured. During the year ended December 31, 2016, no maintenance fee was collected. This Agreement has been assigned to Cabbay upon the Arrangement as described in Note 1.
14
TOWER ONE WIRELESS CORP. |
(formerly PACIFIC THERAPEUTICS LTD.) |
Notes to Financial Statements |
Years Ended December 31, 2016, 2015 and 2014 |
6. | CONVERTIBLE NOTES AND DERIVATIVE LIABILITY |
On September 11, 2014, the Company issued a convertible note for $50,000 due on September 11, 2015 with an interest rate of 1% per month payable quarterly. On September 11, 2015, the Company was unable to repay the amount owing consisting of principal of $50,000 and unpaid interest of $6,000. The note holder and the Company agreed to accept a penalty of $5,000 bringing the total owing to $61,000. On September 11, 2015 the Company issued an unsecured convertible note in the amount of $61,000 due on September 11, 2016 convertible at the option of the holder into common shares at $1.50 per share with the same term. The fair value of the conversion feature was classified as equity and valued at $1,080. The present value of the debenture was assessed as $59,920 based on the face value of $61,000, term of 1 year, interest of 12% per annum and the discount rate of 14%.
During the year ended December 31, 2016, the Company repaid $5,000 to the note holder. The remaining balance of the note was assigned to Cabbay as part of the Arrangement described in Note 1. At December 31, 2016 and 2015 the Company’s convertible notes were valued as follows:
2016 | 2015 | |||||
$ | $ | |||||
Opening balance | 62,460 | 26,642 | ||||
Accrued interest | 5,190 | 6,395 | ||||
Repayment | (5,000 | ) | - | |||
Penalty on settlement of convertible note | - | 5,000 | ||||
Amount transferred on Arrangement Agreement | (62,560 | ) | - | |||
Equity component | - | (1,080 | ) | |||
Accretion | - | 25,503 | ||||
Ending balance | - | 62,460 |
7. | RELATED PARTY TRANSACTIONS AND BALANCES |
Due from (to) related Parties
Due from (to) related parties consists of short term amounts loaned, services rendered and expenses paid on behalf of the Company by shareholders of the Company that are unsecured, non-interest bearing, and payable on demand. As at December 31, 2016 and 2015, the Company has the following balances with related parties:
2016 | 2015 | |||||
Due to related parties: | $ | $ | ||||
Amounts owing to the CFO and director | (6,300 | ) | (23,986 | ) | ||
Amounts owing to former directors | - | (31,328 | ) | |||
Amounts owing to a former CEO and director | - | (173,157 | ) | |||
(6,300 | ) | (228,471 | ) | |||
Due from related party: | ||||||
Tower Three SAS | 189,468 | - |
Included in prepaid expense was the prepaid consulting fee to a company controlled by a director.
15
TOWER ONE WIRELESS CORP. |
(formerly PACIFIC THERAPEUTICS LTD.) |
Notes to Financial Statements |
Years Ended December 31, 2016, 2015 and 2014 |
7. | RELATED PARTY TRANSACTIONS AND BALANCES |
Related Party Transactions and Key Management and Personnel Compensation
Payment or accruals for related party services provided to the company were:
2016 | 2015 | 2014 | |||||||
$ | $ | $ | |||||||
Salary paid to a former CEO and director | - | 106,667 | 160,000 | ||||||
Consulting fees paid to a company controlled by a director | 78,571 | 24,000 | 36,000 | ||||||
Accounting fees paid to a company controlled by the CFO | 15,714 | 7,500 | 6,000 | ||||||
Legal fees paid to a director | - | 1,334 | 3,121 | ||||||
Share-based payments for options issued to a director | - | 4,500 | 67,835 | ||||||
94,285 | 144,001 | 272,956 |
During the year ended December 31, 2015, the Company assigned certain loans from related parties to Cabbay. See Note 1.
During the year ended December 31, 2015, the Company entered into debt settlement agreements with officers and directors of the Company through which $535,077 in due to related parties was forgiven.
8. | SHARE CAPITAL |
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 |
Issued and outstanding during 2016 and 2015:
During the year ended December 31, 2016, the Company issued the following common shares:
(a) | On March 15, 2016, the Company completed a share consolidation on the basis of thirty pre- consolidation common shares for each post consolidation common share. As such, all current and comparative share amounts have been restated to account for the 30 to 1 common share consolidation. |
(b) | In September 2016, 500,000 common shares were issued for the exercise of stock options at $0.25 per option for total proceeds of $120,000. $75,505 was also reversed from contributed surplus. |
(c) | On March 30, 2016, the Company completed a private placement of 4,089,332 common shares at $0.06 per share for gross proceeds of $245,360. In addition 766,666 common shares were issued to settle debt of $46,000. |
(d) | The Company entered into a Joint Venture agreement dated March 4, 2016 with 0829489 B.C. Ltd. (“Truevita”). In connection with the agreement, the Company issued 10,000 common shares of the Company. The value of the shares was $500 and was included in office and miscellaneous expense. There was no activity associated with the Joint Venture and the agreement terminated during the year ended December 31, 2016. |
16
TOWER ONE WIRELESS CORP. |
(formerly PACIFIC THERAPEUTICS LTD.) |
Notes to Financial Statements |
Years Ended December 31, 2016, 2015 and 2014 |
8. | SHARE CAPITAL(CONTINUED) |
Issued and outstanding during 2016 and 2015(continued):
(e) | On February 16, 2016, 4,000 common shares were issued for exercise of warrants at $0.90 per warrant for total proceeds of $3,600. Contributed surplus in the amount of $1,200 was adjusted in 2015 for this exercise of warrants. |
During the year ended December 31, 2015, the Company issued the following common shares:
(f) | On March 20, 2015 the Company closed the second tranche of a non-brokered private placement and issued 66,666 units at $1.50 per unit for cash proceeds of $41,000 (of which $30,000 was received in 2014 and $11,000 received in 2015) and to retire debts totaling $59,000. Each unit is comprised of one common share and one share purchase warrant exercisable for one common share at an exercise price of $4.50 until March 20, 2016. Each share purchase warrant included was assessed a value of $0.90 based on the residual value method. As such, a total of $60,000 was allocated to warrant reserves. |
Stock options and share based payments:
The Company has a Stock Option Plan (the “Plan) which provides that the number of options granted may not exceed 10% of the issued and outstanding shares. Options granted under the Plan generally have a five-year term and are granted at a price no lower than the market price of the common shares at the time of the grant.
On August 12, 2016, the Company granted 500,000 stock options to employees. All options vested immediately upon grant. Share-based compensation of $75,505 was recorded (2015 - $11,998). All these options were exercised in September 2016.
During the year ended December 31, 2015, the Company granted a total of 13,333 options to a former director of the Company. The Company also cancelled 93,333 options due to termination of consulting agreements with various consultants. In addition, 29,167 options were expired unexercised.
The fair value of share based awards is determined using the Black-Scholes Option Pricing model. The model utilizes certain subjective assumptions including the expected life of the option and expected future stock price volatility. Changes in these assumptions can materially affect the estimated fair value of the Company’s stock options. The fair value of the stock options granted during 2016 and 2015 was determined using the Black-Scholes option pricing model with the following weighted average assumptions:
2016 | 2015 | |||||
Grant date fair value per option | $0.15 | $1.50 - $2.40 | ||||
Risk-free interest rate | 0.53% | 0.78% - 1.63% | ||||
Expected dividend yield | 0% | 0% | ||||
Forfeiture rate | 0% | 4% | ||||
Expected option life | 1 year | 5 years | ||||
Expected stock price volatility | 179% | 299%-308% |
17
TOWER ONE WIRELESS CORP. |
(formerly PACIFIC THERAPEUTICS LTD.) |
Notes to Financial Statements |
Years Ended December 31, 2016, 2015 and 2014 |
8. | SHARE CAPITAL(CONTINUED) |
Stock options and share based payments(continued):
As at December 31, 2016 and 2015 the following stock options were outstanding and exercisable:
December 31, 2016 | December 31, 2015 | |||||||||||
Weighted | Weighted | |||||||||||
Underlying | Average | Underlying | Average | |||||||||
Shares | Exercise Price | Shares | Exercise Price | |||||||||
$ | $ | |||||||||||
Stock options outstanding, beginning | 13,333 | 3.00 | 122,500 | 3.36 | ||||||||
Granted | 500,000 | 0.24 | 13,333 | 3.00 | ||||||||
Exercised | (500,000 | ) | 0.24 | - | - | |||||||
Expired / Cancelled | (13,333 | ) | 3.00 | (122,500 | ) | (3.66 | ) | |||||
Stock options outstanding, ending | - | - | 13,333 | 3.00 |
The following table summarizes the stock options outstanding and exercisable at December 31, 2015:
Weighted Average | ||||||||||
Number of Options | Remaining Life of | |||||||||
Outstanding and Exercisable | Exercise Price | Options | Expiry Date | |||||||
$ | ||||||||||
833 | 3.00 | 0.03 | July 3, 2017 | |||||||
5,000 | 3.00 | 0.36 | December 21, 2017 | |||||||
3,333 | 3.00 | 0.31 | April 4, 2018 | |||||||
4,167 | 3.00 | 0.68 | March 7, 2019 | |||||||
13,333 | 1.72 |
Warrants:
As at December 31, 2016 and 2015 the following share purchase warrants were issued and outstanding:
December 31, 2016 | December 31, 2015 | |||||||||||
Weighted | Weighted | |||||||||||
Underlying | Average | Underlying | Average | |||||||||
Shares | Exercise Price | Shares | Exercise Price | |||||||||
$ | $ | |||||||||||
Warrants outstanding, beginning | 458,333 | 3.22 | 519,000 | 3.68 | ||||||||
Issued | - | - | 66,667 | 4.50 | ||||||||
Exercised | - | - | (4,000 | ) | 4.50 | |||||||
Expired / Cancelled | (458,333 | ) | (3.22 | ) | (123,334 | ) | 5.24 | |||||
Warrants outstanding, ending | - | - | 458,333 | 3.22 |
18
TOWER ONE WIRELESS CORP. |
(formerly PACIFIC THERAPEUTICS LTD.) |
Notes to Financial Statements |
Years Ended December 31, 2016, 2015 and 2014 |
9. | INCOME TAXES |
Deferred taxes are recognized for the future income tax consequences attributable to differences between the carrying values of assets and liabilities and their respective income tax bases. Deferred tax assets are evaluated periodically and if realization is not considered likely, a valuation allowance is provided.
The reconciliation of income tax attributable to continuing operations computed at the statutory tax rate of 26% (2015 – 26%) to income tax expense is:
2016 | 2015 | 2014 | |||||||
Canadian statutory income tax rate | 26% | 26% | 26% | ||||||
$ | $ | $ | |||||||
Income tax recovery at statutory rate | (117,000 | ) | 47,000 | (180,000 | ) | ||||
Effect on income taxes of: | |||||||||
Change in income tax rate | - | 8,000 | (24,000 | ) | |||||
Permanent differences | 53,000 | (147,000 | ) | 40,000 | |||||
Losses not recognized | 64,000 | 92,000 | 164,000 | ||||||
Income taxes recoverable | - | - | - |
The nature and effect of the Company’s unrecognized deferred tax assets is as follows:
2016 | 2015 | |||||
$ | $ | |||||
Equipment | 1,000 | 1,000 | ||||
Non-capital losses carried forward | 1,062,000 | 995,000 | ||||
Capital losses carried forward | 8,000 | 8,000 | ||||
Share issue costs | 2,000 | 5,000 | ||||
1,073,000 | 1,009,000 |
As at December 31, 2016, the Company had non-capital losses carried forward of approximately $4,084,000 (2015 - $3,827,000) which may be applied to reduce future years’ taxable income, expiring as follows:
$ | |||
2027 | 451,000 | ||
2028 | 245,000 | ||
2029 | 254,000 | ||
2030 | 283,000 | ||
2031 | 402,000 | ||
2032 | 436,000 | ||
2033 | 743,000 | ||
2034 | 553,000 | ||
2035 | 331,000 | ||
2036 | 386,000 | ||
4,084,000 |
19
TOWER ONE WIRELESS CORP. |
(formerly PACIFIC THERAPEUTICS LTD.) |
Notes to Financial Statements |
Years Ended December 31, 2016, 2015 and 2014 |
10. | CAPITAL DISCLOSURE |
The Company considers its capital under management to be comprised of shareholders’ equity and any debt that it may issue. The Company’s objectives when managing capital are to continue as a going concern and to maximize returns for shareholders over the long term. The Company is not subject to any capital restrictions. There has been no change in the Company’s objectives in managing its capital.
11. | FINANCIAL INSTRUMENTS AND RISK |
As at December 31, 2016, the Company’s financial instruments consist of cash, accounts payable and due from (to) related parties. The carrying value of these financial instruments approximates their fair values because of the short term nature of these instruments.
Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents. To minimize the credit risk the Company places these instruments with a high credit quality financial institution.
Liquidity Risk
Liquidity risk is the risk that the Company will not meet its obligations associated with its financial liabilities as they fall due. The Company manages liquidity risk through the management of its capital structure and financial leverage, as outlined in Note 10. Management closely monitors the liquidity position and expects to have adequate sources of funding to finance the Company’s projects and operations. As at December 31, 2016, the Company had a working capital surplus of $1,515,974. All of the Company’s financial liabilities are classified as current.
Foreign Exchange Risk
The Company is not exposed to foreign exchange risk on its financial instruments.
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. The Company is not exposed to interest rate risk as no financial instruments are interest-bearing. It is management's opinion that the Company is not exposed to significant interest, currency or credit risk arising from the financial statements.
Fair Value
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 and cash equivalents and due from related parties are measured using level 1 fair value inputs.
20
TOWER ONE WIRELESS CORP. |
(formerly PACIFIC THERAPEUTICS LTD.) |
Notes to Financial Statements |
Years Ended December 31, 2016, 2015 and 2014 |
12. | SUPPLEMENTAL CASH FLOW INFORMATION |
During the year ended December 31, 2016, the Company had the following non-cash transactions:
Issuance of 766,666 common shares for debt settlement (Note 8).
During the year ended December 31, 2015 the Company had the following non-cash transactions:
Issuance of 39,333 units to retire $59,000 in debt to related parties (Note 8).
Recognition of an equity component of $1,080 on issuance of a convertible note.
13. | SUBSEQUENT EVENTS |
(a) | On January 25, 2017, the Company acquired 100% of Tower Three SAS (“Tower Three”) by issuing 30,000,000 common shares of the Company to the Tower Three shareholders. The common shares will be subject to an escrow agreement and released from escrow based on certain performance conditions. Tower Three is a privately held limited liability company formed under the laws of Colombia. Tower Three focuses primarily on building towers in municipalities where there is limited or no cellular coverage in Latin and South American markets. The transaction will result in a reverse take-over for accounting purposes and Tower Three will be the continuing entity. Concurrent with this transaction, the Company changed its name from Pacific Therapeutics Ltd. to Tower One Wireless Corp., and effected a change in directors, management and business. On January 26, 2017, its common shares resumed trading on the Canadian Securities Exchange under the symbol “TO”. |
(b) | On January 9, 2017, the Company closed a non-brokered private placement and issued 15,484,912 units at $0.15 per unit for gross proceeds of $2,322,737. Each unit is comprised of one common share and one share purchase warrant exercisable for one common share at an exercise price of $0.40 for 12 months following the transaction. If the share price trades at $0.60 for 10 consecutive trading days then the warrant holders will receive notice from the Company to accelerate the exercise of the warrants within 10 days or they will expire. The Company paid finders and brokers cash commissions of $87,767 and issued 585,117 broker warrants with the same terms as the warrants in the private placement. As at December 31, 2016, the Company received shares subscriptions in the amount of $1,602,257 for this private placement. |
(c) | In February, 2017, the Company incorporated a 100% owned subsidiary in Argentina. |
(d) | On February 2, 2017, the Company entered into an agreement with an unrelated company whereby for the issuance of 500,000 Common Shares, the Company has taken assignment of all the company’s assets, trade secrets and receivables. |
(e) | On March 15, 2017, the Company incorporated a subsidiary in Columbia called Tower Two SAS which will purchase and own the real estate on which its cellular towers will be built. |
21
TOWER ONE WIRELESS CORP. |
(formerly PACIFIC THERAPEUTICS LTD.) |
Notes to Financial Statements |
Years Ended December 31, 2016, 2015 and 2014 |
13. | SUBSEQUENT EVENTS(CONTINUED) |
(f) | On March 31, 2017, the Company signed a share purchase agreement with Evolution Technology S.A. (“Evotech”) whereby the Company purchased sixty-five percent of the issued and outstanding shares of Evotech. As consideration the Company paid US$350,000 and transferred an additional US$400,000 for operating expenses and advances of work. The Company also agreed to transfer an additional US$250,000 no later than April 17, 2017 and took on the responsibility to negotiate an outstanding debt Evotech has with a third-party. In connection with the transaction the Company issued 1,500,000 common shares to consultants of the Company. |
(g) | On June 19, 2016, the Company announced a warrant price reduction and exercise incentive program. Under the incentive program, the exercise price of the warrants will be reduced to $0.30 if exercised prior to July 21, 2017 and one Incentive Warrant will be granted for each warrant exercised. Each Incentive Warrant will be exercisable to acquire one common share at a price of $0.50 for one year. In July 2017, 3,774,466 warrants were exercised under this program and as a result, 3,774,466 Incentive Warrants were issued. As of August 23, 2017, proceeds of $1,048,340 were received for the exercise of warrants. |
(h) | On June 21, 2017, the Company granted 1,000,000 Common Shares to a third party consultant to settle an outstanding debt balance of $230,000. |
(i) | Subsequent to the year ended December 31, 2016, the Company granted a total of 5,750,000 stock options to directors, officers and consultants of the Company of which 5,050,000 are exercisable at $0.23 and 700,000 are exercisable at $0.45. All stock options granted have a term of five years. |
(j) | Subsequent to the year ended December 31, 2016, the Company issued 4,780,435 common shares for the exercise of stock options at $0.23 for total proceeds of $1,099,500. |
22
TOWER THREE SAS
FINANCIAL STATEMENTS
Year Ended December 31, 2016 and
Period from Incorporation on December 30, 2015 to December 31, 2015
(Expressed in Canadian Dollars)
INDEPENDENT AUDITORS’ REPORT |
To the Directors of
Tower Three SAS
We have audited the accompanying financial statements of Tower Three SAS which comprise the statement of financial position as at December 31, 2016 and 2015, and the statements of comprehensive loss, changes in deficiency and cash flows for the year ended December 31, 2016 and for the period from incorporation on December 30, 2015 to December 31, 2015, and the related notes comprising a summary of significant accounting policies and other explanatory information.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we comply with ethical requirements and plan and perform the audits to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained based on our audits is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements present fairly, in all material respects, the financial position of Tower Three SAS as at December 31, 2016 and 2015, and its financial performance and its cash flows for the year ended December 31, 2016 and for the period from incorporation on December 30, 2015 to December 31, 2015 in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.
Emphasis of Matter
Without qualifying our opinion, we draw attention to Note 1 in the financial statements which indicates the existence of a material uncertainty that may cast significant doubt on the ability ofTower Three SASto continue as a going concern.
CHARTERED PROFESSIONAL ACCOUNTANTS
Vancouver, British Columbia
November 2, 2017
TOWER THREE SAS |
Statements of Financial Position |
As at December 31, 2016 and 2015 |
(Expressed in Canadian Dollars) |
Note | 2016 | 2015 | |||||||
$ | $ | ||||||||
Current Assets | |||||||||
Cash | 9,864 | - | |||||||
Due from related parties | 5 | - | 4,300 | ||||||
Prepaid expenses and deposits | 114,032 | - | |||||||
123,896 | 4,300 | ||||||||
Equipment | 6 | 248,478 | - | ||||||
372,374 | 4,300 | ||||||||
Current Liabilities | |||||||||
Accounts payable and accrued liabilities | 70,406 | - | |||||||
Deferred revenue | 4,480 | - | |||||||
Due to related parties | 5 | 615,522 | 21,151 | ||||||
690,408 | 21,151 | ||||||||
Shareholders’ Deficiency | |||||||||
Share capital | 7 | 4,300 | 4,300 | ||||||
Deficit | (313,155 | ) | (21,151 | ) | |||||
Accumulated other comprehensive loss | (9,179 | ) | - | ||||||
(318,034 | ) | (16,851 | ) | ||||||
372,374 | 4,300 |
Nature of operations and going concern (Note 1)
Subsequent event (Note 12)
Approved on behalf of the Board of Directors:
“Robert Horsley” | “Brian Gusko” |
The accompanying notes are an integral part of these financial statements.
TOWER THREE SAS |
Statements of Comprehensive Loss |
(Expressed in Canadian Dollars) |
Period from | ||||||
incorporation on | ||||||
December 30, | ||||||
Year Ended | 2015 to | |||||
December 31, | December 31, | |||||
2016 | 2015 | |||||
$ | $ | |||||
Revenues | 19,403 | - | ||||
Expenses | ||||||
Amortization | 3,440 | - | ||||
Bank charges and interest | 4,491 | - | ||||
Commission | 7,125 | - | ||||
Insurance | 1,081 | - | ||||
Lease | 1,911 | - | ||||
Office and miscellaneous | 54,472 | - | ||||
Permits and licenses | 2,046 | - | ||||
Professional fees | 204,561 | 21,151 | ||||
Telephone and utilities | 2,649 | - | ||||
Travel | 29,631 | - | ||||
311,407 | 21,151 | |||||
Net loss | (292,004 | ) | (21,151 | ) | ||
Other comprehensive loss | ||||||
Item that will not be reclassified to profit or loss: | ||||||
Foreign exchange translation adjustment | (9,179 | ) | - | |||
Comprehensive loss | (301,183 | ) | (21,151 | ) | ||
Loss per common share – basic and diluted | (29.20 | ) | (2.12 | ) | ||
Weighted average number of common shares outstanding | 10,000 | 10,000 |
The accompanying notes are an integral part of these financial statements.
TOWER THREE SAS |
Statement of Changes in Deficiency |
(Expressed in Canadian Dollars) |
Accumulated | |||||||||||||||
Number of | other | ||||||||||||||
Common | comprehensive | ||||||||||||||
shares | Share capital | Deficit | income | Total | |||||||||||
$ | $ | $ | $ | ||||||||||||
Balance at December 30, 2015 | - | - | - | - | - | ||||||||||
Shares issued on incorporation | 10,000 | 4,300 | - | - | 4,300 | ||||||||||
Comprehensive loss | - | - | (21,151 | ) | - | (21,151 | ) | ||||||||
Balance at December 31, 2015 | 10,000 | 4,300 | (21,151 | ) | - | (16,851 | ) | ||||||||
Net loss | - | - | (292,004 | ) | - | (292,004 | ) | ||||||||
Comprehensive loss | - | - | - | (9,179 | ) | (9,179 | ) | ||||||||
Balance at December 31, 2016 | 10,000 | 4,300 | (313,155 | ) | (9,179 | ) | (318,034 | ) |
The accompanying notes are an integral part of these financial statements.
TOWER THREE SAS |
Statements of Cash Flows |
(Expressed in Canadian Dollars) |
Period from | ||||||
incorporation on | ||||||
December 30, | ||||||
2015 to | ||||||
Year Ended | December 31, | |||||
December 31, 2016 | 2015 | |||||
$ | $ | |||||
Cash flows from operating activities | ||||||
Net loss | (292,004 | ) | (21,151 | ) | ||
Item not affection cash: | ||||||
Amortization of intangible assets | 3,440 | - | ||||
(288,564 | ) | (21,151 | ) | |||
Changes in non-cash working capital items: | ||||||
Prepaid expenses | (110,723 | ) | - | |||
Accounts payable and accrued liabilities | 68,363 | - | ||||
Deferred revenue | 4,350 | - | ||||
Due to related parties | (32,841 | ) | 21,151 | |||
(359,415 | ) | - | ||||
Cash flows from investing activities | ||||||
Equipment | (244,708 | ) | - | |||
Loans payable | 34,800 | - | ||||
(209,908 | ) | - | ||||
Cash flows from financing activities | ||||||
Advances from (to) related parties | 578,901 | - | ||||
Effect of changes in exchange rates on cash | 286 | - | ||||
Change in cash | 9,864 | - | ||||
Cash, beginning | - | - | ||||
Cash, ending | 9,864 | - | ||||
Supplemental disclosure of cash flow information: | ||||||
Cash paid for interest | - | - | ||||
Cash paid for income taxes | - | - |
The accompanying notes are an integral part of these financial statements.
TOWER THREE SAS |
Notes to Financial Statements |
Year Ended December 31, 2016 and period from |
incorporation on December 30, 2015 to December 31, 2015 |
(Expressed in Canadian Dollars) |
1. | NATURE OF OPERATIONS AND GOING CONCERN |
Tower Three SAS (the “Company") was incorporated on December 30, 2015 under the Business Corporation Act of Colombia. The Company’s head office is located at Carrera 8A #99-22 Unit 903, Bogota, 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.
These 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 financial statements should the Company be unable to realize its assets and discharge its liabilities in the normal course of business. At December 31, 2016, the Company had an accumulated deficit of $313,155 which has been funded primarily by the funding from related parties. Ongoing operations of the Company are dependent upon the Company’s ability to receive continued financial support, complete equity financings and ultimately the generation profitable operations in the future. These factors raise significant doubt about the Company’s ability to continue as a going concern.
2. | STATEMENT OF COMPLIANCE AND BASIS OF PRESENTATION |
(a) | Statement of Compliance |
These financial statements of the Company for the year ended December 31, 2016 have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).
These financial statements were approved and authorized for issue by the Board of Directors on November 2, 2017.
(b) | Basis of Presentation |
These financial statements were prepared on a historical cost basis, except for financial instruments classified as fair value through profit or loss. In addition, these financial statements have been prepared using the accrual basis of accounting, except for cash flow information. The financial statements are presented in Canadian dollars. The Company’s functional currency is the Colombian Peso.
7
TOWER THREE SAS |
Notes to Financial Statements |
Year Ended December 31, 2016 and period from |
incorporation on December 30, 2015 to December 31, 2015 |
(Expressed in Canadian Dollars) |
2. | STATEMENT OF COMPLIANCE AND BASIS OF PRESENTATION(CONTINUED) |
(c) | Use of Estimates |
The preparation of these financial statements in accordance with IFRS requires management to make estimates and assumptions about the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities, and the results of operations. Significant areas requiring the use of management estimates include the recognition of revenue, useful lives and impairment of long-lived assets, deferred income tax assets and liabilities. Actual results could differ from the estimates made.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates is 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.
Use of judgements
Critical accounting judgements are accounting policies that have been identified as being complex or involving subjective judgements or assessments with a significant risk of material adjustment in the year:
(i) | Going concern |
The assessment of the Company’s ability to execute its strategy by effectively operating the Company involves judgement. Management closely monitors the operations and cash flows in the Company. Further information regarding going concern is outlined in Note 1.
(ii) | Income taxes |
Management exercises judgment to determine the extent to which deferred tax assets are recoverable, and can therefore be recognized in the statements of financial position and comprehensive income or loss.
3. | SIGNIFICANT ACCOUNTING POLICIES |
The following is a summary of significant accounting policies used in the preparation of these financial statements:
(a) | 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 periods presented, this calculation proved to be anti-dilutive.
8
TOWER THREE SAS |
Notes to Financial Statements |
Year Ended December 31, 2016 and period from |
incorporation on December 30, 2015 to December 31, 2015 |
(Expressed in Canadian Dollars) |
3. | SIGNIFICANT ACCOUNTING POLICIES(CONTINUED) |
(b) | Revenue recognition |
The Company’s revenue is derived from leasing of towers to various telecommunication companies. Leasing revenue is recognized on a straight-line basis over the terms of the leases. The term of existing lease agreements is between five to thirteen years.
(c) | Foreign currency translation |
The reporting currency of the Company is the Canadian dollar. The functional currency of the Company is Columbian Peso.
Items included in the financial statements are measured using the currency of the primary economic environment in which the entity operates (the "functional currency"). Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transaction. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities not denominated in the functional currency of an entity are recognized in the profit or loss.
Assets and liabilities of entities with functional currencies other than Canadian dollars are translated at the year end rates of exchange, and the results of their operations are translated at average rates of exchange for the year. The resulting translation adjustments are included in accumulated other comprehensive income in shareholders' equity.
For the year ended December 31, 2016, an unrealized foreign exchange translation loss of $9,179 was recorded under accumulated other comprehensive loss as a result of changes in the value of the Columbian Peso with respect to the Canadian dollar.
(d) | 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 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 cash-generating units (CGUs), 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.
9
TOWER THREE SAS |
Notes to Financial Statements |
Year Ended December 31, 2016 and period from |
incorporation on December 30, 2015 to December 31, 2015 |
(Expressed in Canadian Dollars) |
3. | SIGNIFICANT ACCOUNTING POLICIES(CONTINUED) |
(e) | 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 reserves.
(f) | Share-based payments |
Share-based payments to employees are measured at the fair value of the instruments issued and amortized over the vesting periods. Share-based payments to non-employees are measured at the fair value of the goods or services received or the fair value of the equity instruments issued, if it is determined 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 warrants and options reserve. Consideration received on the exercise of stock options is recorded as share capital and the related amount in warrants and options reserve is transferred to share capital. Charges for options that are forfeited before vesting are reversed from share-based payments reserve. For those options that expire or are forfeited after vesting, the recorded value is transferred to deficit.
(g) | Income taxes |
The Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using substantively enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred income tax assets result from unused loss carry-forwards, resource related pools and other deductions. A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences to the extent that it is probable that future taxable profits will be available against which they can be utilized.
Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.
(h) | Long-lived assets |
Long-lived assets are stated at cost which includes the acquisition price and any direct costs to bring the asset into productive use at its intended location.
Amortization for equipment is recognized using the straight line method over their estimated useful lives at a rate of 5% per year.
10
TOWER THREE SAS |
Notes to Financial Statements |
Year Ended December 31, 2016 and period from |
incorporation on December 30, 2015 to December 31, 2015 |
(Expressed in Canadian Dollars) |
3. | SIGNIFICANT ACCOUNTING POLICIES(CONTINUED) |
(i) | 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 resourced 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.
(j) | Financial instruments |
(a) | Financial assets |
The Company classifies its financial assets in the following categories: held-to-maturity, fair value through profit or loss (“FVTPL”), loans and receivables, and available-for-sale (“AFS”). The classification depends on the purpose for which the financial assets were acquired. The Company's accounting policy for each category is as follows:
Fair value through profit or loss
This category comprises derivatives, or assets acquired or incurred principally for the purpose of selling or repurchasing it in the near term. They are carried in the statement of financial position at fair value with changes in fair value recognized through profit or loss.
Loans and receivables
These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are carried at amortized cost less any provision for impairment. Individually significant receivables are considered for impairment when they are past due or when other objective evidence is received that a specific counterparty will default.
These assets are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Company's management has the positive intention and ability to hold to maturity. These assets are measured at amortized cost using the effective interest method. If there is objective evidence that the investment is impaired, determined by reference to external credit ratings and other relevant indicators, the financial asset is measured at the present value of estimated future cash flows. Any changes to the carrying amount of the investment, including impairment losses, are recognized through profit or loss.
Available-for-sale
Non-derivative financial assets not included in the above categories are classified as available-for- sale. They are carried at fair value with changes in fair value recognized directly in other comprehensive income (loss). Where a decline in the fair value of an available-for-sale financial asset constitutes objective evidence of impairment, the amount of the loss is removed from other comprehensive income (loss) and recognized in profit or loss.
The Company has classified its cash at fair value through profit or loss. The Company’s due from related parties are classified as loans and receivables.
11
TOWER THREE SAS |
Notes to Financial Statements |
Year Ended December 31, 2016 and period from |
incorporation on December 30, 2015 to December 31, 2015 |
(Expressed in Canadian Dollars) |
3. | SIGNIFICANT ACCOUNTING POLICIES(CONTINUED) |
(j) | Financial instruments(continued) |
(a) | Financial assets (continued) |
Impairment of financial assets
A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset could be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset.
An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows, discounted at the original effective interest rate.
Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics.
An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognized. For financial assets measured at amortized cost, this reversal is recognized in profit or loss.
(b) | Financial liabilities |
The Company classifies its financial liabilities into one of two categories, depending on the purpose for which the liability was acquired. The Company's accounting policy for each category is as follows:
Fair value through profit or loss- This category comprises derivatives, or liabilities acquired or incurred principally for the purpose of selling or repurchasing it in the near term. They are carried in the statement of financial position at fair value with changes in fair value recognized through profit or loss.
Other financial liabilities:This category consists of liabilities carried at amortized cost using the effective interest method.
The Company’s accounts payable and due to related parties are classified as other financial liabilities.
(k) | Adoption of new pronouncements |
The Company did not adopt any new or amended accounting standards during the year ended December 31, 2016 which had a significant impact on the Financial Statements.
12
TOWER THREE SAS |
Notes to Financial Statements |
Year Ended December 31, 2016 and period from |
incorporation on December 30, 2015 to December 31, 2015 |
(Expressed in Canadian Dollars) |
4. | RECENT ACCOUNTING PRONOUNCEMENTS |
Certain new standards, interpretations and amendments to existing standards have been issued by the IASB that are mandatory for future accounting periods. Some updates that are not applicable or are not consequential to the Company may have been excluded from the list below.
Standard effective for annual periods beginning on or after January 1, 2018
IFRS 9Financial Instruments- In November 2009, as part of the IASB project to replace IAS 39Financial Instruments: Recognition and Measurement, the IASB issued the first phase of IFRS 9, that introduces new requirements for the classification and measurement of financial assets. The standard was revised in October 2010 to include requirements regarding classification and measurement of financial liabilities. In November 2013 the standard was revised to add the new general hedge accounting requirements. The standard was finalized in July 2014 and was revised to add a new expected loss impairment model and amends the classification and measurement model for financial assets by adding a new fair value through other comprehensive income (“FVOTCI”) category for certain debt instruments and additional guidance on how to apply the business model and contractual cash flow characteristics test.
IFRS 15 -Revenue from Contracts with Customers-On May 28, 2014 the IASB issued IFRS 15, “Revenue from contracts with customers”. IFRS 15 will replace IAS 11, “Construction contracts”, IAS 18, “Revenue”, IFRIC 13, “Customer loyalty programmes”, IFRIC 15, “Agreements for the construction of real estate”, IFRIC 18, “Transfers of assets from customers” and SIC 31, “Revenue – barter transactions involving advertising services”. The standard contains a single model that applies to contracts with customers and two approaches to recognizing revenue: at a point in time; or over time. The model features a contract-based five-step analysis of transactions to determine whether, how much and when revenue is recognized. New estimates and judgmental thresholds have been introduced, which may affect the amount and/or timing of revenue recognized. The new standard applies to contracts with customers. It does not apply to insurance contracts, financial instruments or lease contracts, which fall in the scope of other IFRSs.
Standard effective for annual periods beginning on or after January 1, 2019
IFRS 16– Leases-On January 13, 2016 the IASB issued IFRS 16, “Leases”. This standard introduces a single lessee accounting model and requires a lessee to recognize assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. A lessee is required to recognize a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. This standard substantially carries forward the lessor accounting requirements of IAS 17, while requiring enhanced disclosures to be provided by lessors. Other areas of the lease accounting model have been impacted, including the definition of a lease.
The new standard is effective for annual periods beginning on or after January 1, 2019. Earlier application is permitted for entities that apply IFRS 15, “Revenue from contracts with customers” at or before the date of initial adoption of IFRS 16.
The extent of the impact of adoption of these above standards on the financial statements of the Company has not yet been determined.
13
TOWER THREE SAS |
Notes to Financial Statements |
Year Ended December 31, 2016 and period from |
incorporation on December 30, 2015 to December 31, 2015 |
(Expressed in Canadian Dollars) |
5. | RELATED PARTY TRANSACTIONS AND BALANCES |
Due from (to) related Parties
Due from (to) related parties consists of short term amounts advanced to, services rendered and expenses paid on behalf of the Company by shareholders of the Company. These amounts are unsecured, non-interest bearing, and payable on demand. As at December 31, 2016 and 2015, the Company has the following balances with related parties:
2016 | 2015 | |||||
Due to related parties: | $ | $ | ||||
Tower One Wireless Corp. | 189,589 | - | ||||
Amounts owing to a company controlled by a director | 356,268 | 21,151 | ||||
Amounts owing to the parent of the CEO | 69,665 | - | ||||
615,522 | 21,151 |
Included in accounts payable was the commission payables in the amount of $6,531 to the officers of the company (2015 - $nil).
As at December 31, 2015, there was $4,300 due fro related parties for the issuance of common shares..
Related Party Transactions and Key Management and Personnel Compensation
During the year ended December 31, 2016, legal fees of $nil (2015 - $21,151) was paid to a director of the company.
6. | EQUIPMENT |
$ | |||
Cost | |||
December 31, 2015 | - | ||
Construction | 244,708 | ||
Foreign exchange movement | 7,313 | ||
December 31, 2016 | 252,021 | ||
Accumulated amortization | |||
December 31, 2015 | - | ||
Additions | 3,440 | ||
Foreign exchange movement | 103 | ||
December 31, 2016 | 3,543 | ||
Net book value | |||
December 31, 2015 | - | ||
December 31, 2016 | 248,478 |
14
TOWER THREE SAS |
Notes to Financial Statements |
Year Ended December 31, 2016 and period from |
incorporation on December 30, 2015 to December 31, 2015 |
(Expressed in Canadian Dollars) |
7. | SHARE CAPITAL |
Authorized:
10,000 common shares with a par value at COP$1,000 per common share.
Issued and outstanding:
On December 30, 2015 the Company issued 10,000 common shares at COP$1,000 ($0.43) per share for gross proceeds of COP$10,000,000 ($4,300). The proceeds were included in due from related parties at December 31, 2015 and 2016.
8. | INCOME TAXES |
Deferred taxes are recognized for the future income tax consequences attributable to differences between the carrying values of assets and liabilities and their respective income tax bases. Deferred tax assets are evaluated periodically and if realization is not considered likely, a valuation allowance is provided.
The reconciliation of income tax attributable to continuing operations computed at the statutory tax rate of 25% (2015 – 25%) to income tax expense is:
For the years ended December 31, | ||||||
2016 | 2015 | |||||
Colombia statutory income tax rate | 25 | % | 25% | |||
$ | $ | |||||
Income tax recovery at statutory rate | 73,000 | 5,000 | ||||
Effect on income taxes of: | ||||||
Losses not recognized | (73,000 | ) | (5000 | ) | ||
Income taxes recoverable | - | - |
The nature and effect of the Company’s unrecognized deferred tax assets is as follows:
2016 | 2015 | |||||
$ | $ | |||||
Non-capital losses carried forward | 78,000 | 5,000 |
As at December 31, 2016, the Company had non-capital losses carried forward of approximately $313,000 (2015 - $21,000) which may be applied to reduce future years’ taxable income.
9. | CAPITAL DISCLOSURE |
The Company considers its capital under management to be comprised of shareholders’ equity and any debt that it may issue. The Company’s objectives when managing capital are to continue as a going concern and to maximize returns for shareholders over the long term. The Company is not subject to any capital restrictions. There has been no change in the Company’s objectives in managing its capital.
15
TOWER THREE SAS |
Notes to Financial Statements |
Year Ended December 31, 2016 and period from |
incorporation on December 30, 2015 to December 31, 2015 |
(Expressed in Canadian Dollars) |
10. | FINANCIAL INSTRUMENTS AND RISK |
As at December 31, 2016, the Company’s financial instruments consist of cash, accounts payable and due to related parties. The carrying value of these financial instruments approximates their fair values because of the short term nature of these instruments.
Credit Risk
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.
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 and maintain sufficient cash on hand.
Currency Risk
The Company generates revenues and incurs expenses and capital expenditures primarily in Colombia 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 could have an effect on the Company's results of operations, financial position and/or cash flows. The Company has not hedged its exposure to currency fluctuations.
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. The Company is not exposed to interest rate risk as no financial instruments are interest-bearing. It is management's opinion that the Company is not exposed to significant interest, currency or credit risk arising from the financial statements.
Fair Value
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.
16
TOWER THREE SAS |
Notes to Financial Statements |
Year Ended December 31, 2016 and period from |
incorporation on December 30, 2015 to December 31, 2015 |
(Expressed in Canadian Dollars) |
11. | ECONOMIC DEPENDENCE |
For the year ended December 31, 2016, all the sales were generated by one customer. The loss of this customer could have a material adverse effect on the Company’s financial position and results of operations.
12. | SUBSEQUENT EVENT |
On January 25, 2017, the Company was acquired by Tower One Wireless Corp. (“Tower One”), a Company incorporated under the Province of British Columbia, Canada and listed on the Canadian Securities Exchange (“CSE”). As the consideration for the acquisition, Tower One will issue 30,000,000 common shares to the Tower Three shareholders. The transaction will result in a reverse take-over for accounting purposes and Tower Three will be the continuing entity, Tower One effected a change in directors, management and business whereby the shareholders of the Company will be the controlling shareholders. On January 26, 2017, its common shares resumed trading in Canadian Securities Exchange under the symbol “TO”.
17
Exhibit 99.23
TOWER ONE WIRELESS CORP.
(Formerly Pacific Therapeutics Ltd.)
CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the Three and Six Months Ended
June 30, 2017 and 2016
(Unaudited)
(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, 2017, the condensed consolidated interim statements of comprehensive loss for the three and six months ended June 30, 2017 and 2016, the condensed consolidated interim statement of changes in equity as at June 30, 2017 and 2016, and the condensed consolidated interim statement of cash flows for the six months ended June 30, 2017 and 2016. The Company's independent auditors have not audited, reviewed or otherwise attempted to verify the accuracy or completeness of the June 30, 2017 and 2016 condensed consolidated interim financial statements. Readers are cautioned that these statements may not be appropriate for their intended purposes.
TOWER ONE WIRELESS CORP.
Condensed Consolidated Statements of Financial Position
(Expressed in Canadian Dollars)
Note | June 30, 2017 | December 31, 2016 | |||
(Unaudited) | (Audited) | ||||
$ | $ | ||||
Current Assets | |||||
Cash | 514,955 | 9,864 | |||
Amounts receivable | 193,296 | - | |||
Advances and deposits | 88,397 | - | |||
Due from related parties | 7 | 246,325 | |||
Prepaid expenses and deposits | 157,588 | 114,032 | |||
1,200,561 | 123,896 | ||||
Equipment | 8 | 620,343 | 248,478 | ||
1,820,904 | 372,374 | ||||
Current Liabilities | |||||
Accounts payable and accrued liabilities | 155,126 | 70,406 | |||
Deferred revenue | 4,270 | 4,480 | |||
Due to related parties | 7 | - | 615,522 | ||
159,396 | 690,408 | ||||
Shareholders’ Deficiency | |||||
Share capital | 9 | 6,219,253 | 4,300 | ||
Subscriptions received | 9 | 776,840 | - | ||
Contributed surplus | 531,793 | - | |||
Non-controlling interest | 10 | (56,774 | ) | - | |
Deficit | (5,834,801 | ) | (313,155 | ) | |
Accumulated other comprehensive loss | 25,197 | (9,179 | ) | ||
1,661,508 | (318,034 | ) | |||
1,820,904 | 372,374 |
Nature of operations and going concern (Note 1)
Commitment (Note 14)
Subsequent event (Note 15)
Approved on behalf of the Board of Directors:
“Alejandro Ochoa” | “Brian Gusko” |
The accompanying notes are an integral part of these condensed consolidated financial statements.
TOWER ONE WIRELESS CORP.
Condensed Consolidated Statements of Comprehensive Loss
(Expressed in Canadian Dollars)
(Unaudited)
Three months ended | Six months ended | ||||||||
June 30, | June 30, | June 30, | June 30, | ||||||
2017 | 2016 | 2017 | 2016 | ||||||
Note | $ | $ | $ | $ | |||||
Revenues | 22,553 | 782 | 45,402 | 1,564 | |||||
Expenses | |||||||||
Advertising and promotion | 767,251 | - | 872,231 | - | |||||
Amortization | 3,175 | - | 6,542 | - | |||||
Insurance | 2,629 | 166 | 4,344 | 331 | |||||
Office and miscellaneous | 345,667 | 24,366 | 423,449 | 48,732 | |||||
Permits and licenses | 2,463 | - | 9,753 | - | |||||
Professional fees | 446,709 | 38,184 | 703,243 | 76,367 | |||||
Share-based compensation | 9(c) | 1,406,893 | - | 1,406,893 | - | ||||
Transfer agent and filing fees | 7,714 | - | 17,104 | - | |||||
Travel | 55,763 | 8,346 | 85,833 | 16,693 | |||||
Wages and benefits | 83,383 | - | 83,383 | - | |||||
3,121,647 | 71,062 | 3,612,775 | 142,123 | ||||||
Loss before other expense | 3,099,094 | (70,280 | ) | (3,567,373 | ) | (140,559 | ) | ||
Other expenses | - | ||||||||
Listing expense | 3 | - | - | (1,144,167 | ) | - | |||
Impairment of goodwill | 4 | (783,708 | ) | - | (783,708 | ) | - | ||
Impairment of investments | 9(a) | (175,000 | ) | - | (175,000 | ) | - | ||
(958,708 | ) | - | (2,102,875 | ) | - | ||||
Net loss | (4,057,802 | ) | (70,280 | ) | (5,670,248 | ) | (140,559 | ) | |
Other comprehensive income (loss) | |||||||||
Item that will not be reclassified to profit or loss | |||||||||
Foreign exchange translation adjustment | 47,719 | (3,059 | ) | 38,676 | (6,118 | ) | |||
Comprehensive loss | (4,010,082 | ) | (73,339 | ) | (5,631,572 | ) | (146,677 | ) | |
Net loss attributable to: | |||||||||
Shareholders of the Company | (3,909,200 | ) | (70,280 | ) | (5,521,646 | ) | (140,559 | ) | |
Non-controlling interest | (148,602 | ) | - | (148,602 | ) | - | |||
(4,057,802 | ) | (70,280 | ) | (5,670,248 | ) | (140,559 | ) | ||
Other comprehensive income (loss) attributable to: | |||||||||
Shareholders of the Company | 43,419 | (3,059 | ) | 34,376 | (6,118 | ) | |||
Non-controlling interest | 4,300 | - | 4,300 | - | |||||
47,719 | (3,059 | ) | 38,676 | (6,118 | ) | ||||
Loss per common share - basic and diluted | (0.07 | ) | (7.03 | ) | (0.11 | ) | (14.06 | ) | |
Weighted average number of common shares outstanding | 53,731,093 | 10,000 | 49,775,284 | 10,000 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
TOWER ONE WIRELESS CORP.
Condensed Consolidated Statement of Changes in Deficiency
(Expressed in Canadian Dollars)
(Unaudited)
Deficiency | ||||||||||||||||||
Attributable | ||||||||||||||||||
Accumulated | to Equity | |||||||||||||||||
Number of | other | Shareholder | Non- | |||||||||||||||
Common | Share | Subscriptions | Contributed | comprehensive | s of the | controlling | ||||||||||||
shares | capital | Received | Surplus | Deficit | income | Company | Interest | Total | ||||||||||
$ | $ | $ | $ | $ | $ | $ | $ | |||||||||||
Balance at December 31, 2015 | 10,000 | 4,300 | - | - | (21,151 | ) | - | (16,851 | ) | - | (16,851 | ) | ||||||
Comprehensive loss | - | - | - | - | (140,559 | ) | (6,118 | ) | (146,677 | ) | - | (146,677 | ) | |||||
Balance at June 30, 2016 | 10,000 | 4,300 | - | - | (161,710 | ) | (6,118 | ) | (163,528 | ) | - | (163,528 | ) | |||||
Balance at 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 for cash, net | 15,484,912 | 2,026,759 | - | 208,211 | - | - | 2,234,970 | - | 2,234,970 | |||||||||
Subscriptions received | - | - | 776,840 | - | - | - | 776,840 | - | 776,840 | |||||||||
Shares issued to Rojo (Note 9(a)) | 500,000 | 175,000 | - | - | - | - | 175,000 | - | 175,000 | |||||||||
Stock options granted | - | - | - | 1,406,893 | - | - | 1,406,893 | - | 1,406,893 | |||||||||
Share issued for Evotech | 1,500,000 | 480,000 | - | - | - | - | 480,000 | 480,000 | ||||||||||
Share issued for debt settlement | 1,000,000 | 340,000 | - | - | - | - | 340,000 | - | 340,000 | |||||||||
Share issued for stock options | 4,780,435 | 2,182,811 | - | (1,083,311 | ) | - | - | 1,099,500 | 1,099,500 | |||||||||
Acquisition of Evotech | - | - | - | - | - | - | - | 87,528 | 87,528 | |||||||||
Net loss | - | - | - | - | (5,521,646 | ) | - | (5,521,646 | ) | (148,602 | ) | (5,670,248 | ) | |||||
Other comprehensive loss | - | - | - | - | - | 34,376 | 34,376 | 4,300 | 38,676 | |||||||||
Balance at June 30, 2017 | 60,001,232 | 6,219,253 | 776,840 | 531,793 | (5,834,801 | ) | 25,197 | 1,718,282 | (56,774 | ) | 1,661,508 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
TOWER ONE WIRELESS CORP.
Condensed Consolidated Statements of Cash Flows
(Expressed in Canadian Dollars)
(Unaudited)
Six Months Ended | ||||
June 30, 2017 | June 30, 2016 | |||
$ | $ | |||
Cash flows from operating activities | ||||
Net loss | (5,670,248 | ) | (140,559 | ) |
Item not affection cash: | ||||
Amortization | 6,542 | - | ||
Impairment of goodwill | 783,708 | - | ||
Impairment of investments | 175,000 | - | ||
Listing expense | 1,144,167 | - | ||
Share-based compensation | 1,406,893 | - | ||
Shares issued for services | 340,000 | - | ||
Unrealized foreign exchange gain | - | 1,712 | ||
(1,813,938 | ) | (138,847 | ) | |
Changes in non-cash working capital items: | ||||
Amounts receivable | (150,181 | ) | (221 | ) |
Prepaid expenses | (25,147 | ) | - | |
Accounts payable and accrued liabilities | (44,910 | ) | (659 | ) |
Due to related parties | - | (15,934 | ) | |
(2,034,176 | ) | (155,661 | ) | |
Cash flows from investing activities | ||||
Cash received from reverse acquisition | 1,378,183 | - | ||
Cash paid for acquisition of Evotech | (466,260 | ) | - | |
Cash in Evotech upon acquisition | 4,676 | - | ||
Advances and deposits | (88,397 | ) | - | |
Equipment | (223,365 | ) | - | |
604,837 | - | |||
Cash flows from financing activities | ||||
Shares issued for cash, net | 632,713 | - | ||
Subscriptions received | 776,840 | - | ||
Exercise of options | 1,099,500 | - | ||
Advances to related parties | (566,032 | ) | 214,268 | |
1,943,021 | 214,268 | |||
Effect of changes in exchange rates on cash | (8,591 | ) | (7,830 | ) |
Change in cash | 505,091 | 50,777 | ||
Cash, beginning | 9,864 | - | ||
Cash, ending | 514,955 | 50,777 | ||
Supplemental disclosure of cash flow information: | ||||
Cash paid for interest | 24,399 | - | ||
Cash paid for income taxes | - | - | ||
Non-cash transactions: | ||||
Shares issued for services (Note 9(a)) | 340,000 | - |
The accompanying notes are an integral part of these condensed consolidated financial statements.
TOWER ONE WIRELESS CORP. |
Notes to Condensed Consolidated Interim Financial Statements |
For the Three and Six Months Ended June 30, 2017 and 2016 |
(Expressed in Canadian Dollars) |
(Unaudited) |
1. NATURE OF OPERATIONS AND GOING CONCERN
Tower One Wireless Corp. (formerly Pacific Therapeutics Ltd.) (“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 October 19, 2016, 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. These 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 this condensed consolidated interim financial statements and the comparative figures as at and for the period ended June 30, 2016 are those of Tower Three.
Tower Three SAS was incorporated on December 30, 2015 under the Business Corporation Act 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 30, 2017, the Company acquired 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. See Note 4
These condensed consolidated interim 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 condensed consolidated interim financial statements should the Company be unable to realize its assets and discharge its liabilities in the normal course of business. At June 30, 2017, the Company had an accumulated deficit of $5,834,801 which has been funded primarily by the raising equity funding. 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 significant doubt about the Company’s ability to continue as a going concern.
2. STATEMENT OF COMPLIANCE AND BASIS OF PRESENTATION
These condensed consolidated interim financial statements should be read in conjunction with the Company’s annual financial statements and accompanying notes for the year ended December 31, 2016. These condensed interim financial statements have been prepared using the same accounting policies and judgments and estimates as described in the Company’s December 31, 2016 annual financial statements.
7
TOWER ONE WIRELESS CORP. |
Notes to Condensed Consolidated Interim Financial Statements |
For the Three and Six Months Ended June 30, 2017 and 2016 |
(Expressed in Canadian Dollars) |
(Unaudited) |
2. STATEMENT OF COMPLIANCE AND BASIS OF PRESENTATION(CONTINUED)
(a) Statement of Compliance
These condensed consolidated interim financial statements have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting (“IAS 34”) using accounting policies consistent with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and Interpretations of the IFRS Interpretations Committee (“IFRIC”). These condensed consolidated interim financial statements were approved and authorized for issue by the Board of Directors on August 29, 2017.
(b) Basis of Presentation
These condensed consolidated interim financial statements were prepared on a historical cost basis, except for financial instruments classified as fair value through profit or loss. In addition, these financial statements have been prepared using the accrual basis of accounting, except for cash flow information. Thefinancial statements are presented in Canadian dollars. The functional currency of Tower One is Canadian, Tower Three is Colombian Peso and Evotech is Argentina Peso.
(c) Basis of Consolidation
These condensed consolidated interim financial statements include the assets and operations of the Tower One, its 100% wholly owned Columbia subsidiary Tower Three and its 65% Argentina subsidiary Evotech since April 2017.
For the year ended December 31, 2016 and three months ended March 31, 2017, the financial statements include Tower One and Tower Three only.
All significant inter-company balances and transactions have been eliminated on consolidation.
(d) Use of Estimates
The preparation of these condensed consolidated interim financial statements in accordance with IFRS requires management to make estimates and assumptions about the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities, and the results of operations. Significant areas requiring the use of management estimates include the valuation of listing expense, recognition of revenue, useful lives and impairment of long-lived assets, impairment of investments, deferred income tax assets and liabilities and share-based payment calculations. Actual results could differ from the estimates made.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates is 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.
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 the Company’s ability to execute its strategy by effectively operating the Company involves judgement. Management closely monitors the operations and cash flows in the Company. Further information regarding going concern is outlined in Note 1.
8
TOWER ONE WIRELESS CORP. |
Notes to Condensed Consolidated Interim Financial Statements |
For the Three and Six Months Ended June 30, 2017 and 2016 |
(Expressed in Canadian Dollars) |
(Unaudited) |
2. STATEMENT OF COMPLIANCE AND BASIS OF PRESENTATION(CONTINUED) (d) Use of Judgments
(ii) Income taxes
Management exercises judgment to determine the extent to which deferred tax assets are recoverable, and can therefore be recognized in the statements of financial position and comprehensive income or loss.
(iii) Accounting for long-term investments
The accounting for long-term investments involves judgment in the determination of control and power held by the Company.
3. 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 3Business Combinationssince Tower One was not considered as a business 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 2Share-based Paymentwhereby 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 share based compensation in the amount of $1,010,383 included in the listing expense is comprised of the fair value of the existing shares prior to the Acquisition at $0.15 per share retained by 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 | |
133,784 | ||
Total listing expense | 1,144,167 |
9
TOWER ONE WIRELESS CORP. |
Notes to Condensed Consolidated Interim Financial Statements |
For the Three and Six Months Ended June 30, 2017 and 2016 |
(Expressed in Canadian Dollars) |
(Unaudited) |
4. ACQUISITION OF EVOLUTION TECHNOLOGY SA
On March 30, 2017, the Company entered into an Share Purchase Offer Agreement with the shareholders of Evotech to acquire 65% ownership interest in Evotech. Since its incorporation on March 10, 2016, it has obtained various permits for constructing the towers for cellular coverage. The purpose and business scope of Evotech includes constructing towers for the telecommunication services.
To obtain the 65% ownership interest, the Company paid US$350,000 to the original shareholders of Evotech and transferred US$400,000 to Evotech for operating expenses. The Company also issued 1,500,000 common shares at fair value of $480,000 to the consultants for this transaction. In addition, the Company committed to contribute the funds necessary for Evotech to construct 50 towers, or a lower number of towers to be agreed between the parties, for up to a total maximum amount of US$3,500,000. Sellers have the options to exchange all and not less than all of the remaining 35% ownership interest for 7,000,000 common shares of the Company, subject to the option is exercised on or before June 30, 2018 and by the time of exercise, Evotech has constructed 50 towers.
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:
$ | ||
Cash | 4,676 | |
Other receivables | 43,042 | |
Due from shareholders | 6,490 | |
Construction in progress | 203,312 | |
Goodwill | 1,205,705 | |
Less: liabilities assumed | ||
Accounts payable | (7,440 | ) |
Net assets of Evotech | 1,455,785 | |
Net assets attributed to non-controlling interest | (509,525 | ) |
Total consideration | 946,260 |
As of June 30, 2017, Evotech was still in the progress of constructing the towers as required in the acquisition agreements. As a result, the Company determined to fully impaired as the indication of generating revenue is uncertain.
5. SIGNIFICANT ACCOUNTING POLICIES
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 periods presented, this calculation proved to be anti-dilutive.
10
TOWER ONE WIRELESS CORP. |
Notes to Condensed Consolidated Interim Financial Statements |
For the Three and Six Months Ended June 30, 2017 and 2016 |
(Expressed in Canadian Dollars) |
(Unaudited) |
5. SIGNIFICANT ACCOUNTING POLICIES(CONTINUED)
Revenue recognition
The Company’s revenue is derived from leasing of towers to various telecommunication companies. Leasing revenue is recognized on a straight-line basis over the terms of the leases. The term of existing lease agreements is between five to thirteen years.
Foreign currency translation
The functional currencies of Tower Three is Columbian Peso and Evotech is Argentina Peso.
Items included in the financial statements are measured using the currency of the primary economic environment in which the entity operates (the "functional currency"). Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transaction. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities not denominated in the functional currency of an entity are recognized in the profit or loss.
Assets and liabilities of entities with functional currencies other than Canadian dollars are translated at the year end rates of exchange, and the results of their operations are translated at average rates of exchange for the year. The resulting translation adjustments are included in accumulated other comprehensive income in shareholders' equity.
For the period ended June 30, 2017, an unrealized foreign exchange translation gain of $47,719 was recorded under accumulated other comprehensive loss as a result of changes in the value of the Columbian Peso and Argentina Peso with respect to the Canadian dollar.
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 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 cash-generating units (CGUs), 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.
11
TOWER ONE WIRELESS CORP. |
Notes to Condensed Consolidated Interim Financial Statements |
For the Three and Six Months Ended June 30, 2017 and 2016 |
(Expressed in Canadian Dollars) |
(Unaudited) |
5. SIGNIFICANT ACCOUNTING POLICIES(CONTINUED)
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 reserves.
Share-based payments
Share-based payments to employees are measured at the fair value of the instruments issued and amortized over the vesting periods. Share-based payments to non-employees are measured at the fair value of the goods or services received or the fair value of the equity instruments issued, if it is determined 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 warrants and options reserve. Consideration received on the exercise of stock options is recorded as share capital and the related amount in warrants and options reserve is transferred to share capital. Charges for options that are forfeited before vesting are reversed from share-based payments reserve. For those options that expire or are forfeited after vesting, the recorded value is transferred to deficit.
Income taxes
The Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using substantively enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred income tax assets result from unused loss carry-forwards, resource related pools and other deductions. A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences to the extent that it is probable that future taxable profits will be available against which they can be utilized.
Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.
Long-lived assets
Long-lived assets are stated at cost which includes the acquisition price and any direct costs to bring the asset into productive use at its intended location.
Amortization for equipment is recognized using the straight line method over their estimated useful lives at a rate of 5% per year.
12
TOWER ONE WIRELESS CORP. |
Notes to Condensed Consolidated Interim Financial Statements |
For the Three and Six Months Ended June 30, 2017 and 2016 |
(Expressed in Canadian Dollars) |
(Unaudited) |
5. SIGNIFICANT ACCOUNTING POLICIES(CONTINUED)
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 resourced 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(a) Financial assets
The Company classifies its financial assets in the following categories: held-to-maturity, fair value through profit or loss (“FVTPL”), loans and receivables, and available-for-sale (“AFS”). The classification depends on the purpose for which the financial assets were acquired. The Company's accounting policy for each category is as follows:
Fair value through profit or loss
This category comprises derivatives, or assets acquired or incurred principally for the purpose of selling or repurchasing it in the near term. They are carried in the statement of financial position at fair value with changes in fair value recognized through profit or loss.
Loans and receivables
These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are carried at amortized cost less any provision for impairment. Individually significant receivables are considered for impairment when they are past due or when other objective evidence is received that a specific counterparty will default.
These assets are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Company's management has the positive intention and ability to hold to maturity. These assets are measured at amortized cost using the effective interest method. If there is objective evidence that the investment is impaired, determined by reference to external credit ratings and other relevant indicators, the financial asset is measured at the present value of estimated future cash flows. Any changes to the carrying amount of the investment, including impairment losses, are recognized through profit or loss.
Available-for-sale
Non-derivative financial assets not included in the above categories are classified as available-for-sale. They are carried at fair value with changes in fair value recognized directly in other comprehensive income (loss). Where a decline in the fair value of an available-for-sale financial asset constitutes objective evidence of impairment, the amount of the loss is removed from other comprehensive income (loss) and recognized in profit or loss.
The Company has classified its cash at fair value through profit or loss. The Company’s amounts receivable and due from related parties are classified as loans and receivables.
13
TOWER ONE WIRELESS CORP. |
Notes to Condensed Consolidated Interim Financial Statements |
For the Three and Six Months Ended June 30, 2017 and 2016 |
(Expressed in Canadian Dollars) |
(Unaudited) |
5. SIGNIFICANT ACCOUNTING POLICIES(CONTINUED)
Financial instruments (continued)(a) Financial assets (continued)
Impairment of financial assets
A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset could be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset.
An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows, discounted at the original effective interest rate.
Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics.
An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognized. For financial assets measured at amortized cost, this reversal is recognized in profit or loss.
(b) Financial liabilities
The Company classifies its financial liabilities into one of two categories, depending on the purpose for which the liability was acquired. The Company's accounting policy for each category is as follows:
Fair value through profit or loss- This category comprises derivatives, or liabilities acquired or incurred principally for the purpose of selling or repurchasing it in the near term. They are carried in the statement of financial position at fair value with changes in fair value recognized through profit or loss.
Other financial liabilities:This category consists of liabilities carried at amortized cost using the effective interest method.
The Company’s accounts payable is classified as other financial liabilities.
Adoption of new pronouncements
The Company did not adopt any new or amended accounting standards during the period ended June 30, 2017 which had a significant impact on the condensed consolidated interim Financial Statements.
14
TOWER ONE WIRELESS CORP. |
Notes to Condensed Consolidated Interim Financial Statements |
For the Three and Six Months Ended June 30, 2017 and 2016 |
(Expressed in Canadian Dollars) |
(Unaudited) |
6. RECENT ACCOUNTING PRONOUNCEMENTS
Certain new standards, interpretations and amendments to existing standards have been issued by the IASB that are mandatory for future accounting periods. Some updates that are not applicable or are not consequential to the Company may have been excluded from the list below.
Standard effective for annual periods beginning on or after January 1, 2018
IFRS 9Financial Instruments- In November 2009, as part of the IASB project to replace IAS 39Financial Instruments: Recognition and Measurement, the IASB issued the first phase of IFRS 9, that introduces new requirements for the classification and measurement of financial assets. The standard was revised in October 2010 to include requirements regarding classification and measurement of financial liabilities. In November 2013 the standard was revised to add the new general hedge accounting requirements. The standard was finalized in July 2014 and was revised to add a new expected loss impairment model and amends the classification and measurement model for financial assets by adding a new fair value through other comprehensive income (“FVOTCI”) category for certain debt instruments and additional guidance on how to apply the business model and contractual cash flow characteristics test.
IFRS 15 -Revenue from Contracts with Customers -On May 28, 2014 the IASB issued IFRS 15, “Revenue from contracts with customers”. IFRS 15 will replace IAS 11, “Construction contracts”, IAS 18, “Revenue”, IFRIC 13, “Customer loyalty programmes”, IFRIC 15, “Agreements for the construction of real estate”, IFRIC 18, “Transfers of assets from customers” and SIC 31, “Revenue – barter transactions involving advertising services”. The standard contains a single model that applies to contracts with customers and two approaches to recognizing revenue: at a point in time; or over time. The model features a contract-based five-step analysis of transactions to determine whether, how much and when revenue is recognized. New estimates and judgmental thresholds have been introduced, which may affect the amount and/or timing of revenue recognized. The new standard applies to contracts with customers. It does not apply to insurance contracts, financial instruments or lease contracts, which fall in the scope of other IFRSs. The Company’s preliminary assessment is that the standard is not expected to have a significant impact on the recognition or measurement of revenue. As facts and circumstances may change during the period leading up to the initial date of recognition, the Company’s assessment of the potential impact is subject to change.
Standard effective for annual periods beginning on or after January 1, 2019
IFRS 16– Leases-On January 13, 2016 the IASB issued IFRS 16, “Leases”. This standard introduces a single lessee accounting model and requires a lessee to recognize assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. A lessee is required to recognize a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. This standard substantially carries forward the lessor accounting requirements of IAS 17, while requiring enhanced disclosures to be provided by lessors. Other areas of the lease accounting model have been impacted, including the definition of a lease.
The new standard is effective for annual periods beginning on or after January 1, 2019. Earlier application is permitted for entities that apply IFRS 15, “Revenue from contracts with customers” at or before the date of initial adoption of IFRS 16.
The Company has not early adopted these standards, amendments and interpretations and anticipates that the application of these standards, amendments and interpretations will not have a material impact on the financial position and financial performance of the Company.
15
TOWER ONE WIRELESS CORP. |
Notes to Condensed Consolidated Interim Financial Statements |
For the Three and Six Months Ended June 30, 2017 and 2016 |
(Expressed in Canadian Dollars) |
(Unaudited) |
7. RELATED PARTY TRANSACTIONS
Due to related parties consists of short term amounts advanced to, services rendered and expenses paid on behalf of the Company by shareholders of the Company. These amounts are unsecured, non-interest bearing, and payable on demand. As at June 30, 2017 and December 31, 2016, the Company has the following balances with related parties:
June 30, | December | ||
2017 | 31, 2016 | ||
Due from (to) related parties: | $ | $ | |
Tower One Wireless Corp. | - | (189,589 | ) |
Amounts owing to a director or a company controlled by the director | 240,249 | (356,268 | ) |
Amounts owing to the parent of the CEO | - | (69,665 | ) |
Amounts owing from shareholders | 5,896 | - | |
246,325 | (615,522 | ) |
During the period ended June 30, 2017, the Company granted 275,000 stock options to directors and officers and recorded share-based compensation of $43,843.
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 directors of the Company. The remuneration of key management is as follows:
June 30, 2017 | June 30, 2016 | |||
$ | $ | |||
Consulting fees - CEO | 39,000 | - | ||
Consulting fees - CFO | 19,667 | - |
8. EQUIPMENT
$ | ||
Cost | ||
December 31, 2015 | - | |
Construction | 244,708 | |
Foreign exchange movement | 7,313 | |
December 31, 2016 | 252,021 | |
Construction | 424,750 | |
Foreign exchange movement | (47,004 | ) |
June 30, 2017 | 629,767 | |
Accumulated amortization | ||
December 31, 2015 | - | |
Additions | 3,440 | |
Foreign exchange movement | 103 | |
December 31, 2016 | 3,543 | |
Additions | 6,500 | |
Foreign exchange movement | (619 | ) |
June 30, 2017 | 9,424 | |
Net book value | ||
December 31, 2016 | 248,478 | |
June 30, 2017 | 620,343 |
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TOWER ONE WIRELESS CORP. |
Notes to Condensed Consolidated Interim Financial Statements |
For the Three and Six Months Ended June 30, 2017 and 2016 |
(Expressed in Canadian Dollars) |
(Unaudited) |
9. 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 |
Issued and outstanding:
On January 12, 2017, the Company closed a non-brokered private placement and issued 15,484,912 units at $0.15 per unit for gross proceeds of $2,322,737. Each unit is comprised of one common share and one share purchase warrant exercisable for one common share at an exercise price of $0.40 for 12 months following the transaction. If the share price trades at $0.60 for 10 consecutive trading days then the warrant holders will receive notice from the Company to accelerate the exercise of the warrants within 10 days or they will expire. The Company paid finders and brokers cash commissions of $87,767 and issued 585,117 broker warrants with the same terms as the warrants in the private placement. The broker warrants have the same terms as those issued as part of the units.
On April 18, 2017, the Company issued 500,000 common shares to Rojo Resources Ltd. (Rojo). Under the Assignment Agreement, the Company has taken assignment of all the Company’s assets, trade secrets and receivables for a consideration of issuing 500,000 common shares to Rojo. This Assignment Agreement was subsequently terminated and as a result, the fair value of the investment in the amount of $175,000 was fully written off.
On June 19, 2016, the Company announced warrant price reduction and exercise incentive program. Under the incentive program, the exercise price of the warrants reduced to $0.30 if exercise prior to July 21, 2017 and one Incentive Warrant will be granted for each warrant exercised. Each Incentive Warrant will be exercisable to acquire one common share at a price of $0.50 for one year. Subsequent to the quarter ended June 30, 2017, 3,941,133 warrants were exercised under this program and as a result, 3,941,133 Incentive Warrants were issued. As of June 30, 2017, proceeds of $746,840 were received for the exercise of warrants. In addition, the Company received $30,000 for exercise of warrants which the Company has not issued the shares as of June 30, 2017.
During the period ended June 30, 2017, the Company received $1,099,500 for exercise of 4,780,435 stock options. Fair value of $531,793 was transferred from contributed surplus to share capital.
On June 19, 2017, the Company issued 1,500,000 common shares as consulting fees for the Evotech transaction at a fair value of $480,000.
On June 21, 2017, the Company issued a total of 1,000,000 common shares to settle accounts payable of $340,000. As the fair value of the shares was $340,000, no gain or loss on debt settlement has been recorded by the Company.
b) Escrowed shares
Pursuant to an escrow agreement dated, the 30,000,000 common shares issued pursuant to the Acquisition are subject to escrow restrictions. The escrow shares will be released based on certain performance conditions. At June 30, 2017, all the 30,000,000 common shares remain in escrow.
9. SHARE CAPITAL(CONTINUED)
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 June 30, 2017, there were 450,000 common shares remain in escrow.
17
TOWER ONE WIRELESS CORP. |
Notes to Condensed Consolidated Interim Financial Statements |
For the Three and Six Months Ended June 30, 2017 and 2016 |
(Expressed in Canadian Dollars) |
(Unaudited) |
c) Warrants
As part of the January 12, 2017 private placement, the Company issued 15,484,912 warrants. Each warrant allows 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, which requires management to make estimates that are subjective and may not be representative of the actual results. Changes in assumptions can materially affect estimates of fair value. The following assumptions were used for the calculation:
Risk free interest rate | 0.76% |
Expected life (in years) | 2 years |
Expected volatility | 225% |
Expected dividend yield | 0% |
Expected forfeiture rate | 0% |
Information regarding the Company’s outstanding warrants is summarized below:
Expiry date | Number | Exercise price | ||||
Balance, December 31, 2016 | - | - | - | |||
Granted | January 12, 2018 | 16,070,029 | $ | 0.40 | ||
Balance, June 30, 2017 | 16,070,029 | $ | 0.40 |
The following table summarizes the share purchase warrants outstanding and exercisable as at June 30, 2017:
Remaining contractual | |||
Warrants outstanding | Exercise price | life (years) | Expiry date |
16,070,029 | $0.40 | 0.79 | January 12, 2018 |
c) 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. The options vest on the date of grant.
18
TOWER ONE WIRELESS CORP. |
Notes to Condensed Consolidated Interim Financial Statements |
For the Three and Six Months Ended June 30, 2017 and 2016 |
(Expressed in Canadian Dollars) |
(Unaudited) |
9. SHARE CAPITAL(CONTINUED)
c) Stock options (continued)
As at June 30, 2017, the following options were outstanding and exercisable:
Options | Options | Exercise | Remaining life | Expiry |
outstanding | exercisable | price | (years) | date |
475,000 | 475,000 | $0.45 | 4.72 | March 17, 2022 |
225,000 | - | $0.45 | 4.72 | March 17, 2022 |
269,565 | 269,565 | $0.23 | 4.85 | May 4, 2022 |
969,565 | 744,565 |
A summary of changes of stock options outstanding is as follows:
Weighted average | ||||
Options | exercise price | |||
Balance, December 31, 2015 and 2016 | - | - | ||
Granted, March 17, 2017 | 700,000 | $0.45 | ||
Granted, May 4, 2017 | 1,050,000 | $0.23 | ||
Granted, June 13, 2017 | 4,000,000 | $0.23 | ||
Exercised | (4,780,435 | ) | $0.23 | |
Balance outstanding, June 30, 2017 | 969,565 | $0.39 |
These options entitle the holder thereof the right to acquire one common share for each option held. The weighted average remaining life of outstanding options is 4.75 years.
On March 17, 2017, the Board of Directors of the Company approved the issuance 475,000 stock options to various consultants at an exercise price of $0.45. These options were granted for a period of five years and vest upon issuance. The estimated fair value, $229,870, was calculated using the Black-Scholes option pricing model based on the following assumptions: risk-free interest rate of 1.24%, no annual dividends, expected volatility of 221% and a market price of shares at grant date $0.49.
On March 17, 2017, the Board of Directors of the Company approved the issuance 225,000 stock options to various directors and management at an exercise price of $0.45. These options were granted for a period of five years and vest 25% every 6 months. The estimated fair value for the period ended June 30, 2017 was $32,487, calculated using the Black-Scholes option pricing model based on the following assumptions: risk-free interest rate of 1.24%, no annual dividends, expected volatility of 221% and a market price of shares at grant date $0.49.
19
TOWER ONE WIRELESS CORP. |
Notes to Condensed Consolidated Interim Financial Statements |
For the Three and Six Months Ended June 30, 2017 and 2016 |
(Expressed in Canadian Dollars) |
(Unaudited) |
9. SHARE CAPITAL(CONTINUED)
c) Stock options (continued)
On May 4, 2017, the Board of Directors of the Company approved the issuance 1,050,000 stock options to various consultants at an exercise price of $0.23. These options were granted for a period of five years and vest upon issuance. The estimated fair value, $238,485, was calculated using the Black-Scholes option pricing model based on the following assumptions: risk-free interest rate of 1.24%, no annual dividends, expected volatility of 222% and a market price of shares at grant date $0.23.
On June 13, 2017, the Board of Directors of the Company approved the issuance 4,000,000 stock options to a consultant at an exercise price of $0.23. These options were granted for a period of five years and vest upon issuance. The estimated fair value, $906,051, was calculated using the Black-Scholes option pricing model based on the following assumptions: risk-free interest rate of 1.24%, forfeiture rate of 0%, no annual dividends, expected volatility of 216% and a market price of shares at grant date $0.23.
The weighted average fair value of the options at grant date was $0.26.
10. NON-CONTROLLING INTEREST
The continuity of the non-controlling interest is comprised as follows:
June 30, | ||
2017 | ||
$ | ||
Balance, beginning | 87,528 | |
Allocation of interest in net loss | (148,602 | ) |
Allocation of other comprehensive income | 4,300 | |
(56,774 | ) |
The Company has 65% equity interest of Evotech, which the remaining 35% is holding by the non-controlling interest. The following summarized the financial information of Evotech at 100% prior to elimination upon consolidation:
June 30, | ||
2017 | ||
$ | ||
Current assets | 273,639 | |
Non-current assets | 389,172 | |
Total assets | 662,811 | |
Current liabilities | 825,023 | |
Non-current assets | - | |
Total liabilities | 825,023 |
20
TOWER ONE WIRELESS CORP. |
Notes to Condensed Consolidated Interim Financial Statements |
For the Three and Six Months Ended June 30, 2017 and 2016 |
(Expressed in Canadian Dollars) |
(Unaudited) |
10. NON-CONTROLLING INTEREST(CONTINUED)
Revenue | - | |
Expenses | 424,577 | |
Net loss | (424,577 | ) |
Other comprehensive income | 12,285 | |
Comprehensive loss | (412,292 | ) |
Cash flows from operating activities | (360,535 | ) |
Cash flows from investing activities | (222,945 | ) |
Cash flows from financing activities | 585,091 | |
Effect of changes in exchange rates on cash | (555 | ) |
Change in cash | 1,056 | |
Cash, beginning | 4,676 | |
Cash, ending | 5,732 |
11. CAPITAL DISCLOSURE
The Company considers its capital under management to be comprised of shareholders’ equity and any debt that it may issue. The Company’s objectives when managing capital are to continue as a going concern and to maximize returns for shareholders over the long term. The Company is not subject to any capital restrictions. There has been no change in the Company’s objectives in managing its capital.
12. FINANCIAL INSTRUMENTS AND RISK
Fair values
The Company’s financial instruments include cash, accounts receivable, due from a related parties and accounts payable. The carrying amounts of these financial instruments are a reasonable estimate of their fair values because of their current nature.
The following table summarizes the carrying values of the Company’s financial instruments:
June 30, | December 31, | |||
2017 | 2016 | |||
$ | $ | |||
Financial assets at fair value through profit or loss (i) | 514,955 | 9,864 | ||
Loans and receivables (ii) | 255,422 | - | ||
Other financial liabilities (iii) | 155,126 | 70,406 |
(i) Cash
(ii) Accounts receivable and due from related parties
(iii) Accounts payable
21
TOWER ONE WIRELESS CORP. |
Notes to Condensed Consolidated Interim Financial Statements |
For the Three and Six Months Ended June 30, 2017 and 2016 |
(Expressed in Canadian Dollars) |
(Unaudited) |
12. FINANCIAL INSTRUMENTS AND RISK(CONTINUED)
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.
Credit Risk
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.
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 and maintain sufficient cash on hand.
Currency Risk
The Company generates revenues and incurs expenses and capital expenditures primarily in Colombia and Argentina 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 or Argentina Peso could have an 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, 2017, through Tower Three, the Company had cash of $101,801, accounts receivable of $9,097, due to related parties of $240,249 and accounts payable of $43,696, all of which were denominated in Colombia Peso. In addition, through Evotech, the Company had cash of $5,732, due from related party of $5,896 and accounts payable of $109,205, all of which were denominated in Argentina Peso.
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. The Company is not exposed to interest rate risk as no financial instruments are interest-bearing. It is management's opinion that the Company is not exposed to significant interest, currency or credit risk arising from the financial statements.
22
TOWER ONE WIRELESS CORP. |
Notes to Condensed Consolidated Interim Financial Statements |
For the Three and Six Months Ended June 30, 2017 and 2016 |
(Expressed in Canadian Dollars) |
(Unaudited) |
13. ECONOMIC DEPENDENCE
For the period ended June 30, 2017, all the sales were generated by one customer. The loss of this customer could have a material adverse effect on the Company’s financial position and results of operations.
14. COMMITMENT
The Company is committed to construct 50 towers in Argentina as described in Note 4.
15. SUBSEQUENT EVENT
Subsequent to the period ended June 30, 2017, the Company issued 3,774,466 common shares for the exercise of warrants. As at August 29, 2017, proceeds of $1,048,340 has been received. As described in Note 9, 3,774,466 Incentive Warrants were issued as a result of exercising the warrants.
23