Transactions With Public Markets

1
Transactions With Public Markets

• Accounting and tax considerations

2
Types of Transactions

• IPOs
• Acquisition by public company
• Reverse takeover
• Certain private placements (OM)

3
Financial Statements

• Securities legislation prescribes an array of
  financial information to be disclosed in a
  prospectus including
• Previously audited financial statements
• Unaudited interim financial statements
• Audited annual and unaudited interim financial
  statements of an acquired business
• Pro-forma financial statements

4
Financial Statements

• General rule for financial statements previously
  reported on included in a long form prospectus
• Two audited balance sheets
• Three audited statements of operations, retained
  earnings (deficit) and cash flows
• Full note disclosure
• For years ended more than 90 days before the date
  of the prospectus generally if audited
  statements are otherwise required

5
Financial Statements

• Generally unaudited interim financial statements
  for period ended more than 60 days of filing date
  of the prospectus - generally if quarterly
  statements are otherwise required
• Interim period is defined as a completed three,
  six or nine month period that commence
  immediately following the end of the the most
  recently completed financial year
• Comparative statements required for preceding
  year
• Limited note disclosure

6
Financial Statements

• Financial statements of an acquired business
• Required if acquisition meets certain thresholds
  of significance (Assets, Revenues, Investments)
• lt 20 - 0
• gt 20 - 40 - 1 year
• gt 40 - 50 - 2 years
• gt 50 - 3 years
• Comparative statements required for preceding
  year
• Limited note disclosure

7
Financial Statements

• Pro forma financial statements are required to
  assist investors understand the impact of a
  business combination
• Pro forma balance sheet (sometimes)
• Pro forma income statement for the year-to-date
  interim period covered by the issuers most
  recent interim financial statements
• Pro forma income statement for the most recently
  completed financial year (of the issuer)
• Limited note disclosure

8
Tax Issues

• CCPC status
• Impact on SRED claim for current year
• Loss of refundable ITC
• Reduction of ITC in future years
• Change in control triggers tax year end
• Restriction on losses and SRED pools going
  forward
• Loss of capital losses

9
Tax Issues

• Loss of CCPC Status has the following impacts to
  shareholders
• Loss of QSBC exemption
• Option holders effects ability to apply certain
  deductions which are beneficial to option holders
• Acquisitions require comprehensive tax planning,
  especially when there is foreign share holder
  involved (acquirer or seller)