CSA issues prospectus disclosure guidance for issuers with
short-term liquidity concerns or raising insufficient proceeds.
On March 2, 2012, the Canadian Securities Administrators (CSA)
issued a notice setting out the CSA's approach
regarding disclosure of the financial condition of an issuer and
the sufficiency of proceeds in the context of a prospectus
The notice is intended for issuers that have filed a prospectus
and either (i) it appears that the prospectus inadequately
discloses the issuer's financial condition and going concern
risk or (ii) there is adequate disclosure about the issuer's
financial condition, but it appears that the proceeds from the
proposed offering may be insufficient to accomplish the stated
purpose of the offering. In these circumstances, a receipt for a
prospectus may not be issued.
The CSA identified five areas in which the staff may raise
comments where it identifies concerns in respect to an issuer's
financial condition and/or sufficiency of proceeds: (i) missing
information regarding offering amount and pricing, (ii) offering
structure, (iii) use of proceeds disclosure, (iv) risk factors
disclosure and (v) representations to support ability to continue
operations. For each of these areas, the notice identifies
disclosure that will likely be required before the issuer receives
a receipt for a final prospectus. However, for issuers with real
short-term liquidity concerns, it is possible that a receipt may
not be issued, regardless of disclosure.
The notice does not set out a specific test to determine under
what circumstances the proceeds will be considered insufficient or
when an issuer will be deemed to not have sufficient funds to
continue as a going concern. As a practical matter, it would appear
that the determination as to the sufficiency of proceeds to achieve
the purposes identified in the prospectus will often be clear. In
respect of issuer with liquidity concerns, the notice provides
general guidance based on the type of issuer in question:
Exploration stage issuer: Sufficient to reach completion
of next phase of a project
Development stage issuer: Sufficient to achieve the
issuer's next significant milestone
Research & Development issuer: Sufficient to achieve
progress on the development of a key product
Issuer with active operations: Ability to continue
operations for the short term
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