Notice 2018-005 - Guidance -Listing Applications – Financial Statements and Disclosure
August 8, 2018
CNSX Markets Inc. (CSE or the Exchange) is publishing this guidance notice to clarify certain requirements related to financial statements to be provided with a listing application, and the financial disclosure to be provided within the Form 2A Listing Statement (“Form 2A”).
Review of unaudited interim statements
The financial statement requirements of Form 2A generally reflect prospectus requirements. One recurring exception relates to the review of unaudited interim financial statements. National Instrument 41-101 – General Prospectus Requirements (“NI41-101”) Part 4.3 and National Instrument 44-101 Short Form Prospectus Distributions (“NI44-101”) Part 4.3 require that any unaudited financial statements included in or incorporated into a long-form or short-form prospectus respectively must have been reviewed in accordance with the relevant standards set out in the Handbook for a review of financial statements by the person’s or company’s auditor or a review of financial statements by a public accountant. However, we do not require such a review for unaudited interim financial statements included in a listing statement if those unaudited financial statements were previously filed by a reporting issuer in compliance with its obligations under National Instrument 51-102 (“NI51-102”) Continuous Disclosure Obligations.
In the case of a reverse takeover, and particularly for issuers requalifying for listing following a fundamental change, section 25.2 of Form 2A specifically requires providing financial statements for the target prepared in accordance with the requirements of NI41-101 as if the target were the Issuer. The unaudited interim financial statements of the target will typically not previously have been filed in compliance with NI51-102. Therefore we require that these be reviewed in accordance with the specified standard. Any previously-issued “notice to reader” highlighting the absence of a review should be removed from the interim statements when they are included in the listing statement.
Updating financial statements
As already noted, in the case of a reverse takeover, and particularly for issuers requalifying for listing following a fundamental change, section 25.2 of Form 2A specifically requires providing financial statements for the target prepared in accordance with the requirements of NI41-101 as if the target were the Issuer.
Under NI41-101, the annual and interim financial statements required of an issuer are determined with reference to the date of the prospectus. The determination made at the date of the final prospectus may differ from that made at the date of the preliminary prospectus, requiring updated financial statements. Similar requirements apply to our Form 2A. During the process of reviewing a listing application, it may become clear that the date of the final listing statement will be later than originally anticipated, and that updated annual and interim statements of the issuer (and, if relevant, the target) will be required. It is the applicant’s responsibility to monitor these requirements and to submit any updated financial statements required on a timely basis, to avoid delays in the review process.
While the Listing Statement is intended to provide the most current information available at the time of listing, the Exchange may exercise discretion when financial statements become “stale” between the dates of a conditional and a final approval or listing, to allow the issuer to omit an update that would otherwise be required.
Pro forma financial statements
For Issuers re-qualifying for listing following a fundamental change, Form 2A requires providing pro-forma consolidated financial statements for the new Issuer giving effect to the transaction for the last full fiscal year of the Issuer, and for any completed interim period of the current fiscal year.
Whenever any of the financial statements described above are updated, the pro forma statements should be updated as well. To avoid any doubt, we require that the pro-forma statements be updated for any newly-completed annual or interim period of either the issuer or the target (or of any other entity for which financial information is being provided). That is, the pro forma statements should reflect all of the most recent financial statements included in the listing statement.
Where the issuer has no significant operations during any of the periods for which it provides income statements, a pro forma income statement will not provide any meaningful information beyond what is already provided by the target’s own income statement. In these circumstances, we will not object to the omission of a pro forma income statement.
MD&A of the target
While Form 2A addresses the financial statements required for the target, it does not specifically require preparing an MD&A for the target. However, we recommend that this should usually be done. The Listing Statement should contain whatever information is necessary to provide comprehensive disclosure about the target. Form 51-102F1 Management’s Discussion and Analysis is an important reference point in assessing whether this requirement has been met, and we expect the substance of its contents to be reflected in the Listing Statement, whether or not in the format typical for an MD&A.
For questions about content of this CSE Notice, please contact:
John Hughes, Manager Financial Disclosure & Compliance
John.Hughes@thecse.com, or 647-729-8326
For questions about CSE Listings Policies or procedures, please contact:
Listings@thecse.com, or 416-367-7340.
Mark Faulkner, Vice President Listings & Regulation