TOWER ONE WIRELESS CORP.
Yearly Report
December 31, 2018
MANAGEMENT DISCUSSION AND ANALYSIS
| 1.1 | Date of Report May 13, 2019 |
The following amended management’s discussion and analysis (“MD&A”) has been prepared as of May 13, 2019 and should be read in conjunction with the consolidated financial statements and accompanying notes for the quarter ended December 31, 2018 and 2017, which are prepared in accordance with International Financial Reporting Standards (“IFRS”). All amounts are stated in Canadian dollars unless otherwise indicated.
This MD&A includes certain statements that may be deemed “forward-looking statements”. Forward-looking statements are often, but not always, identified by the use of words such as "anticipate", "plan", "estimate", "expect", "may", "project", "predict", "potential", "could", "might", "should" and other similar expressions. Although the Company believes the expectations expressed in such forward-looking statements are based on reasonable assumptions, such statements are not guarantees of future performance and actual results or developments may differ materially from those in the forward-looking statements. Factors that could cause actual results to differ materially from those in forward-looking statements include market prices, continued availability of capital and financing and general economic, market or business conditions. Investors are cautioned that any such statements are not guarantees of future performance and actual results or developments may differ materially from those projected in the forward-looking statements.
1.2 Nature of Business
Tower One Wireless Corp. (“Tower One” or the “Company") is a pure-play, build-to-suit (“BTS”) tower owner, operator and developer of multitenant communications real estate. The Company’s primary business is the leasing of space on communications sites to mobile network operators (“MNOs”). The Company offers tower-related services in the largest Spanish speaking countries in Latin America: Argentina, Colombia and Mexico. These tower-related services include site acquisition, zoning and permitting, structural analysis, and construction which primarily supports the Company’s site leasing business, including the addition of new tenants and equipment on its sites. BTS is where a long-term site lease is in hand with a tenant prior to undergoing construction. As of December 31, 2018, the Company had a total of 7 signed MLA agreements with major MNOs in Argentina, Colombia and Mexico and a total backlog of over 300 sites. In Argentina, the Company had executed MLAs with Claro and Telecom and a backlog of more than 190 sites. In Colombia, the Company had executed MLAs with Claro, Telefónica and Avantel and a backlog of approximately 60 sites. In Mexico, the Company had executed MLAs with Altan and AT&T and a backlog of approximately 50 sites
Tower One Wireless Corp. (“Tower One” or the “Company") was incorporated under the laws of the Province of British Columbia, Canada on September 12, 2005. On October 14, 2011, the Company became a reporting company in British Columbia and was approved by the Canadian Securities Exchange (“CSE”) and commenced trading on November 16, 2011. The Company’s registered office is located at Suite 605, 815 Hornby Street, Vancouver, BC, Canada V6Z 2E6.
On January 17, 2017, Tower One completed a Share Exchange Agreement (the “Agreement”) with Tower Three SAS (“Tower Three”) and the shareholders of Tower Three SAS. According to the Agreement, Tower One acquired Tower Three by issuing shares which resulted in the shareholders of Tower Three obtaining control of the Company (the “Acquisition”). Accordingly, this transaction was recorded as a reverse acquisition for accounting purposes, with Tower Three being identified as the accounting acquirer. The condensed consolidated interim financial statements are a continuation of the financial statements of Tower Three while the capital structure is that of the Company. The historical operation assets and liabilities of Tower Three are included in the condensed consolidated interim financial statements and the comparative figures are those of Tower Three.
Tower Three SAS was incorporated on December 30, 2015 under the Laws of Colombia. Tower Three has secured 4G LTE cellular tower development contracts in Colombia. The Company focuses primarily on building cellular towers in municipalities where there currently is very limited or no cellular coverage, which enhances the probability of multiple carriers sharing the tower and minimizes competitive risk.
On March 31, 2017, the Company entered into a Share Purchase Offer Agreement with the shareholders of Evolution Technology SA ("Evotech") to acquire 65% ownership interest in Evotech. Evotech is a private company incorporated under the laws of Argentina. Evotech's intended business is to obtain rights and permits for approval of constructing the towers in various locations in Argentina. It has a Master Lease Agreement (the”MLA”) with a single Mobile Network Operator. The MLA in place allows for the Company to be granted Cellular Search Rings, which are desired coordinates for a tower, and outlines the terms for each tower build.
On October 18, 2017, the Company acquired a 70% ownership interest in Tower Construction & Technical Services, Inc. ("TCTS"). TCTS is a private company incorporated in Florida, USA. The Company has decided to divest itself of TCTS.
On April 3, 2018, the Company acquired a 90% ownership interest in Comercializadora Mexmaken, S.A. de C.V. (“Mexmaken”). Mexmaken is a private company incorporated under the laws of the United Mexican State on September 9, 2015.
1.3 Overall Performance
Highlights during the year ending December 31, 2018:
| • | The Company announced achievements from its first year operating as a public company. They include: 25 towers constructed, master lease agreements/ collocation agreements, 200 cellular search rings provided by mobile network Operators, and three collocations. |
| • | The Company announced that it has completed five additional towers in Argentina. An additional 50 sites await construction crews to commence construction. 20 of those sites for immediate future tower builds are in Colombia and 30 are in Argentina. |
| • | The Company announced that tower demand in Argentina has remained strong with the company receiving an additional 50 search rings for new Build-To-Suit locations. In addition, the Company is currently constructing 10 towers in Argentina. |
| • | The Company announced that it intends to spin-out its 70% owned subsidiary, Tower Construction & Services Company (“TCTS”) or its 70% interest in TCTS, as a separate operating entity to create a standalone publicly traded company (the “Proposed Spin-Out”). TCTS is headquartered in Miami, USA and actively operates in multiple states throughout the eastern United States. |
| • | The Company announced the site acquisition of 80 new wireless tower sites in Argentina. Each wireless tower site consists of leasing of the underlying real-estate as well as the rights to build wireless cell towers. The Company anticipates that construction on these sites will commence shortly and will significantly add to its current portfolio of over 40 wireless towers in Colombia and Argentina and backlog of over 300 search rings. |
| • | The Company entered into an acquisition agreement to acquire a 90% ownership interest in a Mexican-based private tower company. In consideration for the acquisition, the Company issued 7,500,000 Class A common shares at $0.185 per share for an aggregate value of $1,387,500. Following completion of the acquisition, the Company acquired 90% of the issued and outstanding share capital of the Mexican-based private tower company, which is now a subsidiary of the Company. |
| • | The Company announced a comprehensive update on recent company milestones throughout Argentina, Colombia, and Mexico. The Company now has a total of forty (40) completed wireless towers throughout Argentina and Colombia with twelve (12) collocations hosting up to three (3) Mobile Network Operators per tower; and eight (8) additional towers are now under construction in Argentina. Tower One has a backlog of over four hundred sites awarded for Build To Suit “BTS” tower construction and intends to aggressively expand its portfolio of completed and tenanted towers throughout 2018-2019. |
| • | During the year, 16,070,029 warrants expired unexercised. |
| • | During the year, the Company issued several secured convertible debentures (the “Debenture”) with an aggregate principal amount of $1,500,000 (the “Original Principal Amount”) and bearing interest at 1% per month, paid in cash, paid monthly on the first business day of each month, maturing twelve months from the date of issuance. The Debenture is convertible, in whole or in part, at any time before maturity, into common shares of the Company (the “Shares”) at $0.20 per Share. Each Subscriber shall receive one warrant (a “Warrant”) for each $0.20 Original Principal Amount. Each Warrant entitles the holder to exercise one common share at $0.25 per share for one year from the date of issuance of the Warrant. |
| • | During the year, the Company and the related parties, as described in Section 1.10, have agreed to amend the loan terms. In accordance with the proposed amendments, the 10% monthly penalty fee in the original loan agreements will be changed to a one-time penalty and the 10% monthly penalty will be removed going forward. The amendments to the loan agreements have not yet been finalized. No penalty of the loans was recorded for this year. |
| • | During the year, the Company issued 9,663 bonds with an aggregate principal amount of $966,300 (“Principal Amount”). The bonds mature on August 31, 2021, bear simple interest on the Principal Amount at a fixed rate of 10% per annum payable monthly on the last day of each month, and are secured by all of the Company’s assets. |
| • | The Company filed its amended and restated condensed consolidated interim financial statements for the three and six months ended June 30, 2018 and 2017 (the "Restated Financial Statements") and corresponding management’s discussion and analysis for the period ended June 30,2018. |
| • | The Company announced that it has filed a preliminary short form prospectus (“Prospectus”) with the securities regulatory authorities in each of the provinces of Canada, except Québec, to qualify the distribution of Class A common shares (the “Common Shares”) of the Company for aggregate gross proceeds of up to $30 million (the “Offering”). The number of Common Shares to be sold and the price per Common Share have not yet been determined. |
| • | The Company announced it has begun the construction of 16 towers in Mexico. The Company is completing additional site acquisitions and expects additional sites to commence in November. |
| • | The Company announced the closing of secured convertible debentures (the “Debentures”) on a private placement basis for aggregate principal amount of $500,000.00 CAD (the “Offering”). In connection with the closing of the Offering, the Company paid a $15,000.00 CAD placement fee representing 3% of the proceeds of the Offering. |
| • | The Company announced it has begun the construction of 60 towers in Argentina, Colombia and Mexico. The company is completing additional site acquisitions and collocation applications in December. |
| • | Management continued to actively focus on capital raising to support the Company’s tower business, marketing initiatives and general working capital. |
1.4 Results of Operations
Selected Annual Information and Results of Operations
| | | December 31, 2018 $ | | | December 31, 2017 $ | | | December 31, 2016 $ | |
| Net loss | | | (8,687,707 | ) | | | (9,863,677 | ) | | | (292,004 | ) |
| Basic and diluted loss per share | | | (0.10 | ) | | | (0.16 | ) | | | (29.20 | ) |
| Cash | | | 346,103 | | | | 284,225 | | | | 9,864 | |
| Total Assets | | | 12,581,840 | | | | 5,301,044 | | | | 372,374 | |
| Non-Current Liabilities | | | 1,188,226 | | | | 588,824 | | | Nil | |
During the year ended December 31, 2018, the Company incurred net loss from the operations of $8,687,707 (December 31, 2017- $9,863,677). The total net loss includes share-based compensation of $1,913,692, which was $3,693,799 in December 31, 2017. The decrease in net loss is mainly due to the one-time listing expense, as well as impairment of investments in 2017 which did not incur again in 2018. These decreases were offset by increased operating expenses, share-based compensation for stock options granted and interest expense on loans from related parties.
As at December 31, 2018, the Company had a negative working capital of $10,107,344 from continuing operations (December 31, 2017- $1,800,269) and an accumulated deficit of $18,789,710 (December 31, 2017 - $9,896,705). The decrease in the working capital during the year was as a result of increase in loans payable, building towers and operation activities.
Total revenue increased to $1,556,742 for the year ended December 31, 2018 compared to $200,498 as of December 31, 2017, as a result of placing BTS towers in-service and commencing service during the year. The Company expects to generate revenues in 2019 mostly from monthly lease payments by MNOs on existing and future tower sites.
During the year, the Company incurred professional fees in the amount of $1,834,575 (December 31, 2017 – $1,710,312) due to a decrease from third party consulting services, corporate activities and operational activities of the Company. Professional fees include consulting services, legal fees and related expenses.
Office and miscellaneous expenses increased to $675,553 from $128,184 compared to December 31, 2017 mainly due to more activities in prior year related to start-up expenses for the business and commencement of operational activities in Colombia, Mexico and Argentina.
Advertising and promotion increased to $1,403,269 compared to December 31, 2017 of $1,199,150 mainly due to more marketing and promotional efforts and actively promoting its business and market awareness during the year.
During the year ended December 31, 2018, the Company incurred travel expense in the amount of $201,888 (December 31, 2017 – $333,666) related to extensive travel throughout Colombia, Mexico and Argentina to find out optimal locations for cellphone towers.
The Company incurred transfer agent fees in the amount of $44,983 mainly due to exercise of options and warrants in the year. The Company incurred $1,080,743 in interest, financing charges and bank charges during the year compared to $380,864 in the prior year due to interest and penalties for the previous and existing loans, bank fees and transfer charges in Colombia, Mexico and Argentina.
Maintenance and operation expenses increased to $1,517,698 from $301,915 compared to December 31, 2017 mainly due to the Company incurring operating costs in order to generate revenue.
During the year ended December 31, 2018, the Company recorded $480,132 in unrealized foreign exchange loss to its cumulative translation account. The Company’s functional currency reporting is the Canadian Dollar, Tower Three is the Colombian Peso, Evotech is the Argentina Peso, TCTS is the US Dollar and Mexico is the Mexican Peso. The Company records a cumulative translation adjustment due to the changes resulting from the fluctuation of foreign exchange rates.
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Selected Quarterly Information
| | | December 31, 2018 $ | | | September 30, 2018 $ | | | June 30, 2018 $ | | | March 31, 2018 $ | | | December 31 2017 $ | | | September 30 2017 $ | | | June 30 2017 $ | | | March 31, 2017 $ | |
| Revenue | | | 1,210,225 | | | | 138,067 | | | | 116,095 | | | | | | | | 105,240 | | | | 49,856 | | | | 22,553 | | | | 22,849 | |
| Net loss from continuing operations | | | (4,137,971 | ) | | | (87,721 | ) | | | (1,396,524 | ) | | | (3,065,491 | ) | | | (2,459,051 | ) | | | (1,734,378 | ) | | | (4,057,801 | ) | | | (1,612,447 | ) |
| Basic and diluted loss per share from continuing operations | | | (0.10 | ) | | | (0.00 | ) | | | (0.02 | ) | | | (0.04 | ) | | | (0.04 | ) | | | (0.03 | ) | | | (0.06 | ) | | | (0.04 | ) |
| Cash | | | 346,103 | | | | 53,843 | | | | 62,128 | | | | 433,063 | | | | 284,225 | | | | 1,405,406 | | | | 514,955 | | | | 79,743 | |
| Total Assets | | | 12,581,840 | | | | 7,997,727 | | | | 6,940,929 | | | | 6,998,547 | | | | 5,301,044 | | | | 3,062,506 | | | | 1,820,904 | | | | 1,387,137 | |
| Non-Current Liabilities | | | 1,188,226 | | | | 823,224 | | | | 548,324 | | | | 588,824 | | | | 588,824 | | | Nil | | | Nil | | | Nil | |
Significant factors and trends that have impacted Tower One’s results during the years presented above include the following:
| a) | The impairment of investments in the total amount of $2,358,674 incurred in the fourth quarter of 2018 was a one-time expense; |
| b) | The gain on net monetary position in the total amount of $924,340 was recorded due to Argentina being in a hyper-inflationary economy. |
| c) | The listing expense of $1,144,167 incurred in the first quarter of 2017 due to the reverse acquisition transaction was a one-time expense; |
| d) | The impairment of investments in the total amount of $175,000 incurred in the second quarter of 2017 was a one-time expense; |
| e) | The Company incurred significant amount in advertising and promotion in the first two quarters of 2017 due to the reverse acquisition which was a one-time event; |
1.5 Liquidity and Capital Resources
As at December 31, 2018, the Company has total assets of $12,581,840, cash of $346,103 and a negative working capital from operations of $10,107,344. The decrease in working capital is primarily due to building towers and operation activities.
During the year ended December 31, 2018, the Company used $263,691 in operating activities for continuing operations compared to $5,170,127 in December 31, 2017.
During the year ended December 31, 2018, the Company spent $8,418,197 primarily on building towers for continuing operations, compared to $1,970,597 in December 31, 2017.
During the year, the Company received cash in the amount of $3,226,300 from exercising stock options and warrants, proceeds from convertible debts, net of $1,376,914, proceeds from bonds payable of $888,996, loans of $1,324,601 and promissory note received of $1,728,480.
At December 31, 2018, share capital was $16,876,382 comprising 93,389,446 issued and outstanding common shares.
At present, the Company’s operations generate minimal cash inflows and its financial success after December 31, 2018 is dependent on management’s ability to continue to obtain sufficient funding to sustain operations of building towers in municipalities where there currently is very limited or no cellular coverage, which enhances the probability of multiple carriers sharing the tower and minimizes competitive risk.
The Company may not be able to generate sufficient cash flows from its operations in the foreseeable future to support its working capital needs. As a result, the Company will have to rely on funding through future equity issuances and through short-term and long term borrowing in order to finance ongoing operations and the construction of cellular towers. The ability of the Company to raise capital will depend on market conditions and it may not be possible for the Company to issue shares on acceptable terms or at all.
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