Q: what is the main sec md&a rule?
A: The main SEC MD&A rule is outlined in Regulation S-K, Item 303. This rule requires a discussion and analysis of the financial condition and results of operations of the registrant. The objective is to provide material information relevant to an assessment of the financial condition and results of operations, including an evaluation of the amounts and certainty of cash flows from operations and from outside sources. The discussion and analysis must focus on material events and uncertainties known to management that are reasonably likely to cause reported financial information not to be necessarily indicative of future operating results or of future financial condition. This includes descriptions and amounts of matters that have had a material impact on reported operations, as well as matters that are reasonably likely based on management's assessment to have a material impact on future operations. The discussion and analysis must be of the financial statements and other statistical data that the registrant believes will enhance a reader's understanding of the registrant's financial condition, cash flows and other changes in financial condition and results of operations.
(1) If an SEC issuer that is a reporting issuer is filing its annual or interim MD&A prepared in accordance with Item 303 of Regulation S-K under the 1934 Act, the SEC issuer must file that document on or before the earlier of
(a) the date the SEC issuer would be required to file that document under section 5.1; and
(b) the date the SEC issuer files that document with the SEC.
OSC Rule 14-501, s. 1.1(2):
In a rule, unless otherwise defined in the rule…“MD&A” means management’s discussion and analysis of financial condition and results of operations prepared in accordance with Ontario securities law;
NI 51-102 s. 1.1(1):
In this Instrument:…”MD&A” means a completed Form 51-102F1 Management’s Discussion & Analysis or, in the case of an SEC issuer, a completed Form 51-102F1 or management’s discussion and analysis prepared in accordance with Item 303 of Regulation S-K under the 1934 Act;
The definitions of “MD&A” in NI 52-109, NI 52-112 and proposed NI 51-107 cross-reference to the above definition in NI 51-102.
The objective of the discussion and analysis is to provide material information relevant to an assessment of the financial condition and results of operations of the registrant including an evaluation of the amounts and certainty of cash flows from operations and from outside sources. The discussion and analysis must focus specifically on material events and uncertainties known to management that are reasonably likely to cause reported financial information not to be necessarily indicative of future operating results or of future financial condition. This includes descriptions and amounts of matters that have had a material impact on reported operations, as well as matters that are reasonably likely based on management’s assessment to have a material impact on future operations. The discussion and analysis must be of the financial statements and other statistical data that the registrant believes will enhance a reader’s understanding of the registrant’s financial condition, cash flows and other changes in financial condition and results of operations. A discussion and analysis that meets the requirements of this paragraph (a) is expected to better allow investors to view the registrant from management’s perspective.
Reporting issuers are not required to send a request form to their securityholders under Part 5 of the Instrument. This is because the request form that must be delivered under section 4.6 of the Instrument relates to both a reporting issuer’s financial statements, and the MD&A applicable to those financial statements.
(1) The annual MD&A that a reporting issuer is required to file under this Part must be approved by the board of directors before being filed.
(2) The interim MD&A that a reporting issuer is required to file under this Part must be approved by the board of directors before being filed.
(3) In fulfilling the requirement in subsection (2), the board of directors may delegate the approval of the interim MD&A required to be filed under this Part to the audit committee of the board of directors.
Section 5.4 of the Instrument requires disclosure of information relating to the outstanding securities of the reporting issuer as of the latest practicable date. The “latest practicable date” should be current, as close as possible, to the date of filing of the MD&A. Disclosing the number of securities outstanding at the period end is generally not sufficient to meet this requirement.
(1) A reporting issuer must file MD&A relating to its annual financial statements and each interim financial report required under Part 4.
(1.1) Despite subsection (1), a reporting issuer does not have to file MD&A relating to the annual financial statements and interim financial reports required under sections 4.7 and 4.10 for financial years and interim periods that ended before the issuer became a reporting issuer.
(2) Subject to section 5.2, the MD&A required to be filed under subsection (1) must be filed on or before the earlier of
(a) the filing deadlines for the annual financial statements and each interim financial report set out in sections 4.2 and 4.4, as applicable; and
(b) the date the reporting issuer files the financial statements under subsections 4.1(1) or 4.3(1), as applicable.
Write the MD&A so that readers are able to understand it. Refer to the plain language principles listed in section 1.5 of Companion Policy 51-102CP for further guidance. If you use technical terms, explain them in a clear and concise manner.
Despite section 3.1, if a non-venture issuer determines that it has a material weakness which exists as at the end of the period covered by its annual or interim filings, as the case may be, it must disclose in its annual or interim MD&A for each material weakness
(a) a description of the material weakness;
(b) the impact of the material weakness on the issuer’s financial reporting and its ICFR; and
(c) the issuer’s current plans, if any, or any actions already undertaken, for remediating the material weakness.
(1) If a registered holder or beneficial owner of securities, other than debt instruments, of a reporting issuer requests the reporting issuer’s annual or interim MD&A, the reporting issuer must send a copy of the requested MD&A to the person or company that made the request, without charge, by the delivery deadline set out in subsection 4.6(3) for the annual financial statements or interim financial report to which the MD&A relates.
(2) A reporting issuer is not required to send copies of any MD&A under subsection (1) that was filed more than two years before the issuer receives the request.
(3) The requirement to send annual MD&A under subsection (1) does not apply to a reporting issuer that sends its annual MD&A to its securityholders, other than holders of debt instruments, within 140 days of the issuer’s financial year-end and in accordance with NI 54-101.
(4) If a reporting issuer sends MD&A under this section, the reporting issuer must also send, at the same time, the annual financial statements or interim financial report to which the MD&A relates.
Focus your MD&A on material information. You do not need to disclose information that is not material. Exercise your judgment when determining whether information is material.
In preparing the MD&A, you must take into account information available up to the date of the MD&A. If the date of the MD&A is not the date it is filed, you must ensure the disclosure in the MD&A is current so that it will not be misleading when it is filed.
(a) Your MD&A must disclose that additional information relating to your company, including your company’s AIF if your company files an AIF, is on SEDAR at www.sedar.com.
(b) Your MD&A must also provide the information required in the following sections of National Instrument 51-102, if applicable:
(i) Section 5.3 – Additional Disclosure for Venture Issuers without Significant Revenue;
(ii) Section 5.4 – Disclosure of Outstanding Share Data; and
(iii) Section 5.7 – Additional Disclosure for Reporting Issuers with Significant Equity Investees.
(c) Your MD&A must include the MD&A disclosure required by National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings and, as applicable, Form 52-109F1 Certification of Annual Filings – Full Certificate, Form 52-109F1R Certification of Refiled Annual Filings, or Form 52-109F1 AIF Certification of Annual Filings in Connection with Voluntarily Filed AIF.
Section 5.3 of the Instrument requires certain venture issuers to provide in their annual or interim MD&A (unless the information is included in their annual financial statements or interim financial report), a breakdown of material costs whether expensed or recognized as assets. A component of cost is generally considered to be a material component if it exceeds the greater of
(a) 20% of the total amount of the class; and
(b) $25,000.
The financial statements filed for persons to which Section 210.6-01 through 210.6-11 are applicable shall be prepared in accordance with the following special rules in addition to the general rules in Section 210.1-01 to 210.4-10 (Articles 1, 2, 3, and 4). Where the requirements of a special rule differ from those prescribed in a general rule, the requirements of the special rule shall be met.
(a) Content of financial statements. The financial statements shall be prepared in accordance with the requirements of this part (Regulation S-X) notwithstanding any provision of the articles of incorporation, trust indenture or other governing legal instruments specifying certain accounting procedures inconsistent with those required in Section 210.6-01 through 210.6-11.
(b) Audited financial statements. Where, under Article 3 of this part, financial statements are required to be audited, the independent accountant shall have been selected and ratified in accordance with section 32 of the Investment Company Act of 1940 (15 U.S.C. 80a-31).
(c) Consolidated and combined statements.
(1) Consolidated and combined statements filed for registered investment companies and business development companies shall be prepared in accordance with Section 210.3A-02 and 210.3A-03 (Article 3A), except that:
(i) [Reserved]
(ii) A consolidated statement of the registrant and any of its investment company subsidiaries shall not be filed unless accompanied by a consolidating statement which sets forth the individual statements of each significant subsidiary included in the consolidated statement: Provided, however, That a consolidating statement need not be filed if all included subsidiaries are totally held; and
(iii) Consolidated or combined statements filed for subsidiaries not consolidated with the registrant shall not include any investment companies unless accompanied by consolidating or combining statements which set forth the individual statements of each included investment company which is a significant subsidiary.
(2) If consolidating or combining statements are filed, the amounts included under each caption in which financial data pertaining to affiliates is required to be furnished shall be subdivided to show separately the amounts:
(i) Eliminated in consolidation; and
(ii) Not eliminated in consolidation.
(d) Valuation of investments. The balance sheets of registered investment companies, other than issuers of face-amount certificates, and business development companies, shall reflect all investments at value, with the aggregate cost of each category of investment reported under Section 210.6-04 subsection 1, 2, 3, and 9 or the aggregate cost of each category of investment reported under Section 210.6-05 subsection 1 shown parenthetically. State in a note the methods used in determining the value of investments. As required by section 28(b) of the Investment Company Act of 1940 (15 U.S.C. 80a-28(b)), qualified assets of faceamount certificate companies shall be valued in accordance with certain provisions of the Code of the District of Columbia.
(e) Qualified assets. State in a note the nature of any investments and other assets maintained or required to be maintained, by applicable legal instruments, in respect of outstanding face-amount certificates. If the nature of the qualifying assets and amount thereof are not subject to the provisions of section 28 of the Investment Company Act of 1940 (15 U.S.C. 80a-28), a statement to that effect shall be made.
(f) Restricted securities. State in a note unless disclosed elsewhere the following information as to investment securities which cannot be offered for public sale without first being registered under the Securities Act of 1933 (15 U.S.C. 77a et seq.) (restricted securities):
(1) The policy of the person with regard to acquisition of restricted securities.
(2) The policy of the person with regard to valuation of restricted securities. Specific comments shall be given as to the valuation of an investment in one or more issues of securities of a company or group of affiliated companies if any part of such investment is restricted and the aggregate value of the investment in all issues of such company or affiliated group exceeds five percent of the value of total assets. (As used in this paragraph, the term affiliated shall have the meaning given in Section 210.6-02(a).)
(3) A description of the person’s rights with regard to demanding registration of any restricted securities held at the date of the latest balance sheet.
(g) Income recognition. Dividends shall be included in income on the ex-dividend date; interest shall be accrued on a daily basis. Dividends declared on short positions existing on the record date shall be recorded on the ex-dividend date and included as an expense of the period.
(h) Federal income taxes.
(1) The company’s status as a regulated investment company as defined in subtitle A, chapter 1, subchapter M of the Internal Revenue Code, as amended, shall be stated in a note referred to in the appropriate statements. Such note shall also indicate briefly the principal assumptions on which the company relied in making or not making provisions for income taxes. However, a company which retains realized capital gains and designates such gains as a distribution to shareholders in accordance with section 852(b)(3)(D) of the Internal Revenue Code shall, on the last day of its taxable year (and not earlier), make provision for taxes on such undistributed capital gains realized during such year.
(2) State the following amounts based on cost for Federal income tax purposes:
(i) Aggregate gross unrealized appreciation for all investments in which there is an excess of value over tax cost;
(ii) The aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost over value;
(iii) The net unrealized appreciation or depreciation; and
(iv) The aggregate cost of investments for Federal income tax purposes.
(i) Issuance and repurchase by a registered investment company or business development company of its own securities. Disclose for each class of the company’s securities:
(1) The number of shares, units, or principal amount of bonds sold during the period of report, the amount received therefor, and, in the case of shares sold by closed-end management investment companies, the difference, if any, between the amount received and the net asset value or preference in involuntary liquidation (whichever is appropriate) of securities of the same class prior to such sale; and
(2) The number of shares, units, or principal amount of bonds repurchased during the period of report and the cost thereof. Closed-end management investment companies shall furnish the following additional information as to securities repurchased during the period of report:
(i) As to bonds and preferred shares, the aggregate difference between cost and the face amount or preference in involuntary liquidation and, if applicable net assets taken at value as of the date of repurchase were less than such face amount or preference, the aggregate difference between cost and such net asset value;
(ii) As to common shares, the weighted average discount per share, expressed as a percentage, between cost of repurchase and the net asset value applicable to such shares at the date of repurchases. Note to paragraphs (h)(2)(i) and (ii): The information required by paragraphs (h)(2)(i) and (ii) of this section may be based on reasonable estimates if it is impracticable to determine the exact amounts involved.
(j) Series companies.
(1) The information required by this part shall, in the case of a person which in essence is comprised of more than one separate investment company, be given as if each class or series of such investment company were a separate investment company; this shall not prevent the inclusion, at the option of such person, of information applicable to other classes or series of such person on a comparative basis, except as to footnotes which need not be comparative.
(2) If the particular class or series for which information is provided may be affected by other classes or series of such investment company, such as by the offset of realized gains in one series with realized losses in another, or through contingent liabilities, such situation shall be disclosed.
(k) Certificate reserves.
(1) For companies issuing face-amount certificates subsequent to December 31, 1940 under the provisions of section 28 of the Investment Company Act of 1940 (15 U.S.C. 80a-28), balance sheets shall reflect reserves for outstanding certificates computed in accordance with the provisions of section 28(a) of the Act.
(2) For other companies, balance sheets shall reflect reserves for outstanding certificates determined as follows:
(i) For certificates of the installment type, such amount which, together with the lesser of future payments by certificate holders as and when accumulated at a rate not to exceed 3.5 per centum per annum (or such other rate as may be appropriate under the circumstances of a particular case) compounded annually, shall provide the minimum maturity or face amount of the certificate when due.
(ii) For certificates of the fully-paid type, such amount which, as and when accumulated at a rate not to exceed 3.5 per centum per annum (or such other rate as may be appropriate under the circumstances of a particular case) compounded annually, shall provide the amount or amounts payable when due.
(iii) Such amount or accrual therefor, as shall have been credited to the account of any certificate holder in the form of any credit, or any dividend, or any interest in addition to the minimum maturity or face amount specified in the certificate, plus any accumulations on any amount so credited or accrued at rates required under the terms of the certificate.
(iv) An amount equal to all advance payments made by certificate holders, plus any accumulations thereon at rates required under the terms of the certificate.
(v) Amounts for other appropriate contingency reserves, for death and disability benefits or for reinstatement rights on any certificate providing for such benefits or rights.
(l) Inapplicable captions. Attention is directed to the provisions of Section 210.4-02 and 210.4-03 which permit the omission of separate captions in financial statements as to which the items and conditions are not present, or the amounts involved not significant. However, amounts involving directors, officers, and affiliates shall nevertheless be separately set forth except as otherwise specifically permitted under a particular caption.
(m) Swing pricing. For a registered investment company that has adopted swing pricing policies and procedures, state in a note to the company’s financial statements:
(1) The general methods used in determining whether the company’s net asset value per share will swing;
(2) Whether the company’s net asset value per share has swung during the year; and
(3) A general description of the effects of swing pricing.
(1) Provide MD&A for
(a) the most recent annual financial statements of the issuer included in the prospectus under Part 32, and
(b) the most recent interim financial report of the issuer included in the prospectus under Part 32.
(2) If the prospectus includes the issuer’s annual statements of comprehensive income, statements of changes in equity, and statements of cash flow for three financial years under Part 32, provide MD&A for the second most recent annual financial statements of the issuer included in the prospectus under Part 32.
(3) Despite subsection (2), MD&A for the second most recent annual financial statements of the issuer included in the prospectus under Part 32 may omit disclosure regarding statement of financial position Parts.
GUIDANCE
Under section 2.2.1 of Form 51-102F1, for financial years beginning on or after July 1, 2015, venture issuers, or IPO venture issuers, have the option of meeting the requirement to provide interim MD&A under section 2.2 of Form 51-102F1 by providing quarterly highlights disclosure.
If interim period financial statements are included or are required to be included by 17 CFR 210.3 [Article 3 of Regulation S-X], a management’s discussion and analysis of the financial condition and results of operations must be provided so as to enable the reader to assess material changes in financial condition and results of operations between the periods specified in paragraphs (c)(1) and (2) of this section. The discussion and analysis must include a discussion of material changes in those items specifically listed in paragraph (b) of this section.
(1) Material changes in financial condition. Discuss any material changes in financial condition from the end of the preceding fiscal year to the date of the most recent interim balance sheet provided. If the interim financial statements include an interim balance sheet as of the corresponding interim date of the preceding fiscal year, any material changes in financial condition from that date to the date of the most recent interim balance sheet provided also must be discussed. If discussions of changes from both the end and the corresponding interim date of the preceding fiscal year are required, the discussions may be combined at the discretion of the registrant.
(2) Material changes in results of operations.
(i) Discuss any material changes in the registrant’s results of operations with respect to the most recent fiscal year-to-date period for which a statement of comprehensive income is provided and the corresponding year-to-date period of the preceding fiscal year.
(ii) Discuss any material changes in the registrant’s results of operations with respect to either the most recent quarter for which a statement of comprehensive income is provided and the corresponding quarter for the preceding fiscal year or, in the alternative, the most recent quarter for which a statement of comprehensive income is provided and the immediately preceding sequential quarter. If the latter immediately preceding sequential quarter is discussed, then provide in summary form the financial information for that immediately preceding sequential quarter that is subject of the discussion or identify the registrant’s prior filings on EDGAR that present such information. If there is a change in the form of presentation from period to period that forms the basis of comparison from previous periods provided pursuant to this paragraph, the registrant must discuss the reasons for changing the basis of comparison and provide both comparisons in the first filing in which the change is made.
Instructions to paragraph (c): 1. If interim financial statements are presented together with financial statements for full fiscal years, the discussion of the interim financial information must be prepared pursuant to this paragraph (c) and the discussion of the full fiscal year’s information must be prepared pursuant to paragraph (b) of this section. Such discussions may be combined. Instructions 2, 3, 4, 6, 8, and 11 to paragraph (b) of this section apply to this paragraph (c).
2. The registrant’s discussion of material changes in results of operations must identify any significant elements of the registrant’s income or loss from continuing operations which do not arise from or are not necessarily representative of the registrant’s ongoing business.
(1) For the purposes of this Part, MD&A means a completed Form 51-102F1 or, in the case of an SEC issuer, a completed Form 51-102F1 or management’s discussion and analysis prepared in accordance with Part 303 of Regulation S-K under the 1934 Act.
(2) For MD&A in the form of Form 51-102F1, the issuer
(a) must read the references to a “venture issuer” in Form 51-102F1 to include an IPO venture issuer,
(b) must disregard
(i) the Instruction to section 1.11 of Form 51-102F1, and
(ii) section 1.15 of Form 51-102F1, and
(c) must include the disclosure required by section 1.10 of Form 51-102F1 in the prospectus.
INSTRUCTION
For the purposes of paragraph (2)(c), an issuer cannot satisfy the requirement in section 1.10 of Form 51-102F1 by incorporating by reference its fourth quarter MD&A into the prospectus.
(1) Where a reporting issuer is complying with the requirements of the laws of the jurisdiction under which it is incorporated, organized or continued and the requirements are substantially similar to the requirements of this Part, the requirements of this Part do not apply.
MD&A is a narrative explanation, through the eyes of management, of how your company performed during the period covered by the financial statements, and of your company’s financial condition and future prospects. MD&A complements and supplements your financial statements, but does not form part of your financial statements.
Your objective when preparing the MD&A should be to improve your company’s overall financial disclosure by giving a balanced discussion of your company’s financial performance and financial condition including, without limitation, such considerations as liquidity and capital resources – openly reporting bad news as well as good news. Your MD&A should
If you have not presented comparative financial information in your financial statements, in your MD&A you must provide prior period information relating to financial performance that is available.
Q: Since my MD&A is filed with my financial statements, do my auditors have to review my MD&A before I file it?
A: NI 51-102 does not include a direct requirement for MD&A to be reviewed by an issuer’s auditor. However, under CICA Handbook section 7500 Auditor association with annual reports, interim reports and other public documents, an auditor is deemed to be associated with MD&A corresponding to annual financial statements on which the auditor has issued an auditor’s report. Also, an auditor is deemed to be associated with interim MD&A if the auditor has been engaged to audit or review the corresponding interim financial statements.
If an auditor is deemed to be associated with MD&A, the auditor must perform the procedures specified in section 7500 of the Handbook. The auditor’s specific aims when performing those procedures are to: (a) determine whether the financial statements, and when applicable, the report of the auditor, have been accurately reproduced; and (b) consider whether any of the other information in the document raises questions regarding, or appears to be otherwise inconsistent with, the financial statements.
Handbook section 7500 specifies that the auditor should arrange to obtain the MD&A prior to its release and perform the procedures set out in the section. Further, when circumstances prevent the auditor from obtaining the MD&A prior to its release, the auditor should perform the procedures required by Handbook as soon as possible after its release, and consider advising the audit committee of the circumstances.
If the reporting issuer’s annual financial statements are audited in accordance with auditing standards other than Canadian GAAS, then the auditor’s association with, and the requirement for procedures relating to, annual and interim MD&A would be determined by those other auditing standards.
The discussion of financial condition, changes in financial condition and results of operations must provide information as specified in paragraphs (b)(1) through (3) of this section and such other information that the registrant believes to be necessary to an understanding of its financial condition, changes in financial condition and results of operations. Where the financial statements reflect material changes from period-to-period in one or more line items, including where material changes within a line item offset one another, describe the underlying reasons for these material changes in quantitative and qualitative terms. Where in the registrant’s judgment a discussion of segment information and/or of other subdivisions (e.g., geographic areas, product lines) of the registrant’s business would be necessary to an understanding of such business, the discussion must focus on each relevant reportable segment and/or other subdivision of the business and on the registrant as a whole.
(1) Liquidity and capital resources. Analyze the registrant’s ability to generate and obtain adequate amounts of cash to meet its requirements and its plans for cash in the short-term (i.e., the next 12 months from the most recent fiscal period end required to be presented) and separately in the long-term (i.e., beyond the next 12 months). The discussion should analyze material cash requirements from known contractual and other obligations. Such disclosures must specify the type of obligation and the relevant time period for the related cash requirements. As part of this analysis, provide the information in paragraphs (b)(1)(i) and (ii) of this section.
(i) Liquidity. Identify any known trends or any known demands, commitments, events or uncertainties that will result in or that are reasonably likely to result in the registrant’s liquidity increasing or decreasing in any material way. If a material deficiency is identified, indicate the course of action that the registrant has taken or proposes to take to remedy the deficiency. Also identify and separately describe internal and external sources of liquidity, and briefly discuss any material unused sources of liquid assets.
(ii) Capital resources.
(A) Describe the registrant’s material cash requirements, including commitments for capital expenditures, as of the end of the latest fiscal period, the anticipated source of funds needed to satisfy such cash requirements and the general purpose of such requirements.
(B) Describe any known material trends, favorable or unfavorable, in the registrant’s capital resources. Indicate any reasonably likely material changes in the mix and relative cost of such resources. The discussion must consider changes among equity, debt, and any off-balance sheet financing arrangements.
(2) Results of operations.
(i) Describe any unusual or infrequent events or transactions or any significant economic changes that materially affected the amount of reported income from continuing operations and, in each case, indicate the extent to which income was so affected. In addition, describe any other significant components of revenues or expenses that, in the registrant’s judgment, would be material to an understanding of the registrant’s results of operations.
(ii) Describe any known trends or uncertainties that have had or that are reasonably likely to have a material favorable or unfavorable impact on net sales or revenues or income from continuing operations. If the registrant knows of events that are reasonably likely to cause a material change in the relationship between costs and revenues (such as known or reasonably likely future increases in costs of labor or materials or price increases or inventory adjustments), the change in the relationship must be disclosed.
(iii) If the statement of comprehensive income presents material changes from period to period in net sales or revenue, if applicable, describe the extent to which such changes are attributable to changes in prices or to changes in the volume or amount of goods or services being sold or to the introduction of new products or services.
(3) Critical accounting estimates. Critical accounting estimates are those estimates made in accordance with generally accepted accounting principles that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on the financial condition or results of operations of the registrant. Provide qualitative and quantitative information necessary to understand the estimation uncertainty and the impact the critical accounting estimate has had or is reasonably likely to have on financial condition or results of operations to the extent the information is material and reasonably available. This information should include why each critical accounting estimate is subject to uncertainty and, to the extent the information is material and reasonably available, how much each estimate and/or assumption has changed over a relevant period, and the sensitivity of the reported amount to the methods, assumptions and estimates underlying its calculation.
Instructions to paragraph (b): 1. Generally, the discussion must cover the periods covered by the financial statements included in the filing and the registrant may use any presentation that in the registrant’s judgment enhances a reader’s understanding. A smaller reporting company’s discussion must cover the two-year period required in Section 210.8-01 through 210.8-08 of this chapter (Article 8 of Regulation S-X) and may use any presentation that in the registrant’s judgment enhances a reader’s understanding. For registrants providing financial statements covering three years in a filing, discussion about the earliest of the three years may be omitted if such discussion was already included in the registrant’s prior filings on EDGAR that required disclosure in compliance with Section 229.303 (Item 303 of Regulation S-K), provided that registrants electing not to include a discussion of the earliest year must include a statement that identifies the location in the prior filing where the omitted discussion may be found. An emerging growth company, as defined in Section 230.405 of this chapter (Rule 405 of the Securities Act) or Section 240.12b-2 of this chapter (Rule 12b-2 of the Exchange Act), may provide the discussion required in paragraph (b) of this section for its two most recent fiscal years if, pursuant to Section 7(a) of the Securities Act of 1933 (15 U.S.C. 77g(a)), it provides audited financial statements for two years in a Securities Act registration statement for the initial public offering of the emerging growth company’s common equity securities.
2. If the reasons underlying a material change in one line item in the financial statements also relate to other line items, no repetition of such reasons in the discussion is required and a line-by-line analysis of the financial statements as a whole is neither required nor generally appropriate. Registrants need not recite the amounts of changes from period to period if they are readily computable from the financial statements. The discussion must not merely repeat numerical data contained in the financial statements.
3. Provide the analysis in a format that facilitates easy understanding and that supplements, and does not duplicate, disclosure already provided in the filing. For critical accounting estimates, this disclosure must supplement, but not duplicate, the description of accounting policies or other disclosures in the notes to the financial statements.
4. For the liquidity and capital resources disclosure, discussion of material cash requirements from known contractual obligations may include, for example, lease obligations, purchase obligations, or other liabilities reflected on the registrant’s balance sheet. Except where it is otherwise clear from the discussion, the registrant must discuss those balance sheet conditions or income or cash flow items which the registrant believes may be indicators of its liquidity condition.
5. Where financial statements presented or incorporated by reference in the registration statement are required by Section 210.4-08(e)(3) of this chapter (Rule 4-08(e)(3) of Regulation S-X) to include disclosure of restrictions on the ability of both consolidated and unconsolidated subsidiaries to transfer funds to the registrant in the form of cash dividends, loans or advances, the discussion of liquidity must include a discussion of the nature and extent of such restrictions and the impact such restrictions have had or are reasonably likely to have on the ability of the parent company to meet its cash obligations.
6. Any forward-looking information supplied is expressly covered by the safe harbor rule for projections. See 17 CFR 230.175 [Rule 175 under the Securities Act], 17 CFR 240.3b-6 [Rule 3b-6 under the Exchange Act], and Securities Act Release No. 6084 (June 25, 1979).
7. All references to the registrant in the discussion and in this section mean the registrant and its subsidiaries consolidated.
8. Discussion of commitments or obligations, including contingent obligations, arising from arrangements with unconsolidated entities or persons that have or are reasonably likely to have a material current or future effect on a registrant’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, cash requirements or capital resources must be provided even when the arrangement results in no obligations being reported in the registrant’s consolidated balance sheets. Such off-balance sheet arrangements may include: Guarantees; retained or contingent interests in assets transferred; contractual arrangements that support the credit, liquidity or market risk for transferred assets; obligations that arise or could arise from variable interests held in an unconsolidated entity; or obligations related to derivative instruments that are both indexed to and classified in a registrant’s own equity under U.S. GAAP.
9. If the registrant is a foreign private issuer, briefly discuss any pertinent governmental economic, fiscal, monetary, or political policies or factors that have materially affected or could materially affect, directly or indirectly, its operations or investments by United States nationals. The discussion must also consider the impact of hyperinflation if hyperinflation has occurred in any of the periods for which audited financial statements or unaudited interim financial statements are filed. See Section 210.3-20(c) of this chapter (Rule 3-20(c) of Regulation S-X) for a discussion of cumulative inflation rates that may trigger the requirement in this instruction 9 to this paragraph (b).
10. If the registrant is a foreign private issuer, the discussion must focus on the primary financial statements presented in the registration statement or report. The foreign private issuer must refer to the reconciliation to United States generally accepted accounting principles and discuss any aspects of the difference between foreign and United States generally accepted accounting principles, not discussed in the reconciliation, that the registrant believes are necessary for an understanding of the financial statements as a whole, if applicable.
11. The term statement of comprehensive income is as defined in section 210.1-02 of this chapter (Rule 1-02 of Regulation S-X).
(1) The role that analysts play in seeking out information, analyzing and interpreting it and making recommendations can contribute to a more efficient marketplace. Companies should be sensitive though to the risks involved in private meetings with analysts. We are not suggesting that companies should stop having private briefings with analysts or that these private meetings are somehow illegal. Companies should have a firm policy of providing only non-material information and publicly disclosed information to analysts.
(2) Companies should not disclose significant data, and in particular financial information such as sales and profit figures, to analysts, institutional investors and other market professionals selectively rather than to the market as a whole. Earnings forecasts are in the same category. Even within these constraints there is plenty of scope to hold a useful dialogue with analysts and other interested parties about a company’s prospects, business environment, management philosophy and long term strategy.
(3) Another way to avoid selective disclosure is to include, in the company’s regular periodic disclosures, details about topics of interest to analysts. For example, companies should expand the scope of their interim management’s discussion and analysis disclosure (“MD&A”). More comprehensive MD&A can have practical benefits including: greater analyst following; more accurate forecasts with fewer revisions; a narrower range between analysts’ forecasts; and increased investor interest.
(4) A company cannot make material information immaterial simply by breaking the information into seemingly non-material pieces. At the same time, a company is not prohibited from disclosing non-material information to analysts, even if these pieces help the analyst complete a “mosaic” of information that, taken together, is material undisclosed information about the company.[FN 33]
FN 33 See also SEC’s adopting release to Regulation FD.
(1) Subsection 5.8(2) of the Instrument requires a reporting issuer to discuss certain events and circumstances that occurred during the period to which its MD&A relates. The events to be discussed are those that are reasonably likely to cause actual results to differ materially from material forward-looking information for a period that is not yet complete. This discussion is only required if the reporting issuer previously disclosed the forward-looking information to the public. Subsection 5.8(2) also requires a reporting issuer to discuss the expected differences.
For example, assume that a reporting issuer published FOFI for the current year assuming no change in the prime interest rate, but by the end of the second quarter the prime interest rate went up by 2%. In its MD&A for the second quarter, the reporting issuer should discuss the interest rate increase and its expected effect on results compared to those indicated in the FOFI.
A reporting issuer should consider whether the events and circumstances that trigger MD&A disclosure under subsection 5.8(2) of the Instrument might also trigger material change reporting requirements under Part 7 of the Instrument.
(2) Subsection 5.8(4) of the Instrument requires a reporting issuer to disclose and discuss material differences between actual results for the annual or interim period to which its MD&A relates and any FOFI or financial outlook for that period that the reporting issuer previously disclosed to the public. A reporting issuer should disclose and discuss material differences for material individual items included in the FOFI or financial outlook, including assumptions.
For example, if the actual dollar amount of revenue approximates forecasted revenue but the sales mix or sales volume differs materially from what the reporting issuer expected, the reporting issuer should explain the differences.
(3) Subsection 5.8(5) of the Instrument addresses a reporting issuer’s decision to withdraw previously disclosed material forward-looking information. The subsection requires the reporting issuer to disclose that decision and discuss the events and circumstances that led the reporting issuer to the decision to withdraw the material forward-looking information, including a discussion of the assumptions included in the material forward-looking information that are no longer valid. A reporting issuer should consider whether the events and circumstances that trigger MD&A disclosure under subsection 5.8(5) of the Instrument might also trigger material change reporting requirements under Part 7 of the Instrument. We encourage all reporting issuers to promptly communicate to the market a decision to withdraw material forward-looking information, even if the material change reporting requirements are not triggered.
(a) For a period of seven years after an accountant concludes an audit or review of an issuer’s financial statements to which section 10A(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78j-1(a)) applies, or of the financial statements of any investment company registered under section 8 of the Investment Company Act of 1940 (15 U.S.C. 80a-8), the accountant shall retain records relevant to the audit or review, including workpapers and other documents that form the basis of the audit or review, and memoranda, correspondence, communications, other documents, and records (including electronic records), which:
(1) Are created, sent or received in connection with the audit or review, and
(2) Contain conclusions, opinions, analyses, or financial data related to the audit or review.
(b) For the purposes of paragraph (a) of this section, workpapers means documentation of auditing or review procedures applied, evidence obtained, and conclusions reached by the accountant in the audit or review engagement, as required by standards established or adopted by the Commission or by the Public Company Accounting Oversight Board.
(c) Memoranda, correspondence, communications, other documents, and records (including electronic records) described in paragraph (a) of this section shall be retained whether they support the auditor’s final conclusions regarding the audit or review, or contain information or data, relating to a significant matter, that is inconsistent with the auditor’s final conclusions regarding that matter or the audit or review.
Significance of a matter shall be determined based on an objective analysis of the facts and circumstances. Such documents and records include, but are not limited to, those documenting a consultation on or resolution of differences in professional judgment.
(d) For the purposes of paragraph (a) of this section, the term issuer means an issuer as defined in section 10A(f) of the Securities Exchange Act of 1934 (15 U.S.C. 78j-1(f)).
…
(5) An audit committee must review the issuer’s financial statements, MD&A and annual and interim profit or loss press releases before the issuer publicly discloses this information.
(6) An audit committee must be satisfied that adequate procedures are in place for the review of the issuer’s public disclosure of financial information extracted or derived from the issuer’s financial statements, other than the public disclosure referred to in subsection (5), and must periodically assess the adequacy of those procedures.
(7) An audit committee must establish procedures for:
(a) the receipt, retention and treatment of complaints received by the issuer regarding accounting, internal accounting controls, or auditing matters; and
(b) the confidential, anonymous submission by employees of the issuer of concerns regarding questionable accounting or auditing matters.
In this Instrument,…
“MD&A” has the meaning ascribed to it in NI 51-102;
(a) Financial statements required.
(1) Financial statements described in Section 210.3-01 and 210.3-02, or Section 210.3-18, as applicable, including the schedules specified in Section 210.12-01 through 210.12-29 (Article 12), prepared and audited in accordance with Regulation S-X (including the independence standards in Section 210.2-01 or, alternatively if the fund is not a registrant, the applicable independence standards) for the periods specified in paragraph (b) of this section and the supplemental information specified in paragraph (d) of this section must be filed if any of the following conditions exist:
(i) During the most recent fiscal year or subsequent interim period for which a balance sheet is required by Section 210.3-01 or Section 210.3-18, a fund acquisition has occurred; or
(ii) After the date of the most recent balance sheet filed pursuant to Section 210.3-01 or Section 210.3-18 or, if no relevant balance sheet has been filed in connection with a post-effective amendment for a new series submitted pursuant to Section 230.485(a)(2) of this chapter (Rule 485(a)(2) under the Securities Act), the filing of such amendment, consummation of a fund acquisition has occurred or is probable.
(2) For purposes of this section:
(i) The term fund includes any investment company as defined in section 3(a) of the Investment Company Act of 1940, including a business development company, or any company that would be an investment company but for the exclusions provided by sections 3(c)(1) or 3(c)(7) of that Act, or any private account managed by an investment adviser.
(ii) The determination of whether a fund has been acquired or will be acquired should be evaluated in light of the facts and circumstances involved. Among the facts and circumstances which should be considered in evaluating whether a fund acquisition has occurred or will occur are whether it will result in the acquisition by the registrant of all or substantially all of the portfolio investments held by another fund.
(3) Acquisitions of a group of related funds that are probable or that have occurred subsequent to the latest fiscal year-end for which audited financial statements of the registrant have been filed will be treated under this section as if they are a single acquisition. For purposes of this section, funds will be deemed to be related if:
(i) They are under common control or management;
(ii) The acquisition of one fund is conditional on the acquisition of each other fund; or
(iii) Each acquisition is conditioned on a single common event.
(4) This section does not apply to a fund which is totally held by the registrant prior to consummation of the transaction.
(b) Periods to be presented.
(1) If securities are being registered to be offered to the security holders of the fund to be acquired, the financial statements specified in Section 210.3-01 and 210.3-02 or Section 210.3-18 for the fund to be acquired and the supplemental information specified in paragraph (d) of this section must be filed, except as provided otherwise for filings on Form N-14 ( Section 239.23 of this chapter). The financial statements covering the fiscal year must be audited except as provided in Item 14 of Schedule 14A ( Section 240.14a-101 of this chapter) with respect to certain proxy statements or in registration statements filed on Form N-14 ( Section 239.23 of this chapter).
(2) In all cases not specified in paragraph (b)(1) of this section, financial statements of the fund acquired or to be acquired for the periods specified in this paragraph (b)(2) or such shorter period as the fund has been in existence and the supplemental information specified in paragraph (d) of this section must be filed. Whether such financial statements and supplemental information are to be filed must be determined using the conditions specified in the definition of significant subsidiary in Section 210.1-02(w)(2)(i) and (w)(2)(ii)(B) as follows:
(i) If none of the conditions set forth in Section 210.1-02(w)(2)(i) and (w)(2)(ii)(B), substituting 20 percent for 10 percent each place it appears therein, are satisfied, the financial statements and supplemental financial information in paragraph (d) of this section are not required.
(ii) If any of the conditions set forth in Section 210.1-02(w)(2)(i) and (w)(2)(ii)(B), substituting 20 percent for 10 percent each place it appears therein, are satisfied, the financial statements of the acquired fund must be filed. If the acquired fund is subject to Section 210.3-18, then the financial statements for the periods described therein must be filed. For all other acquired funds, the financial statements for the most recent fiscal year and the most recent interim period must be filed. The registrant must also provide the supplemental financial information in paragraph (d) of this section.
(iii) If the aggregate impact of funds acquired or to be acquired since the date of the most recent audited balance sheet filed for the registrant, for which financial statements are not required by paragraph (b)(2)(i) of this section, satisfies any of the conditions set forth in Section 210.1-02(w)(2)(i) and (w)(2)(ii)(B), substituting 50 percent for 10 percent each place it appears therein, the registrant must provide financial statements for any fund acquired or to be acquired for which financial statements are not yet required by paragraph (b)(2)(i) of this section. If any of the acquired funds are subject to Section 210.3-18, then the financial statements for the periods described therein must be filed. For any other acquired funds, the financial statements for the most recent fiscal year and the most recent interim period must be filed. The registrant must also provide the supplemental financial information in paragraph (d) of this section for such funds.
(3) The determination must be made by comparing the most recent annual financial statement of each such fund, or for acquisitions each group of related funds on a combined basis, to the registrant’s most recent annual financial statements filed at or prior to the date of acquisition. However, the determination may be made by using pro forma amounts as calculated by the registrant for the periods specified in Section 210.1-02(w)(2) that only give effect to an acquisition consummated after the latest fiscal year-end for which the registrant’s financial statements are required to be filed when the registrant has filed audited financial statements of such acquired fund and provided the supplemental financial information for the periods required by this section.
(4) Separate financial statements of the acquired fund and the supplemental information specified in paragraph (d) of this section need only to be filed once and not included in any subsequent filing or shareholder report.
(c) Acquisitions involving private funds or private accounts. If the fund acquired or to be acquired would be an investment company under the Investment Company Act but for the exclusion provided from that definition by either sections 3(c)(1) or 3(c)(7) of that Act, then the required financial statements may comply with U.S. Generally Accepted Accounting Principles and only Article 12. In situations of any private account managed by an investment adviser provide the schedules specified in Article 12 for the assets acquired or to be acquired.
(d) Supplemental financial information.
(1) Supplemental financial information must consist of:
(i) A table showing the current fees for the registrant and the acquired fund and pro forma fees, if different, for the registrant after giving effect to the acquisition using the format prescribed in the appropriate registration statement under the Investment Company Act;
(ii) If the transaction will result in a material change in the acquired fund’s investment portfolio due to investment restrictions, a schedule of investments of the acquired fund modified to reflect such change and accompanied by narrative disclosure describing the change; and
(iii) Narrative disclosure about material differences in accounting policies of the acquired fund when compared to the registrant.
(2) With respect to any fund acquisition, registered investment companies and business development companies must provide the supplemental financial information required in this section in lieu of any pro forma financial information required by Section 210.11-01 through 210.11-03.
Sections 210.6-01 through 210.6-11shall be applicable to financial statements filed for registered investment companies and business development companies.
If an acquisition is a reverse takeover, the MD&A should be based on the reverse takeover acquirer’s financial statements.
(1) A reporting issuer must disclose in its annual MD&A and, if the issuer is not providing disclosure in accordance with section 2.2.1 of Form 51-102F1, its interim MD&A, the designation and number or principal amount of
(a) each class and series of voting or equity securities of the reporting issuer for which there are securities outstanding;
(b) each class and series of securities of the reporting issuer for which there are securities outstanding if the securities are convertible into, or exercisable or exchangeable for, voting or equity securities of the reporting issuer; and
(c) subject to subsection (2), each class and series of voting or equity securities of the reporting issuer that are issuable on the conversion, exercise or exchange of outstanding securities of the reporting issuer.
(2) If the exact number or principal amount of voting or equity securities of the reporting issuer that are issuable on the conversion, exercise or exchange of outstanding securities of the reporting issuer is not determinable, the reporting issuer must disclose the maximum number or principal amount of each class and series of voting or equity securities that are issuable on the conversion, exercise or exchange of outstanding securities of the reporting issuer and, if that maximum number or principal amount is not determinable, the reporting issuer must describe the exchange or conversion features and the manner in which the number or principal amount of voting or equity securities will be determined.
(3) The disclosure under subsections (1) and (2) must be prepared as of the latest practicable date.
“MD&A” has the meaning ascribed to it in National Instrument 51-102 Continuous Disclosure Obligations;
Section 5.7 of the Instrument requires issuers with significant equity investees to provide in their annual or, if the issuer is an issuer that is not providing disclosure in accordance with section 2.2.1 of Form 51-102F1, their interim MD&A (unless the information is included in their annual financial statements or interim financial report), summarized information about the equity investee. Generally, we will consider that an equity investee is significant if, using the financial statements of the equity investee and the issuer as at the issuer’s financial year-end, either of the following apply:
(a) for a reporting issuer that is not a venture issuer, the equity investee would meet the thresholds for the significance tests in Part 8;
(b) for a venture issuer, the equity investee would meet the thresholds for the significance tests in Part 8 if 100 percent” is read as “40 percent”.”
If the certifying officers identify a weakness relating to the design or operation of DC&P that is significant existing as at the period-end date, the certifying officers could not conclude that the issuer’s DC&P is effective. Certifying officers may not qualify their assessment by stating that the issuer’s DC&P is effective subject to certain qualifications or exceptions unless the qualification pertains to one of the permitted scope limitations available in section 3.3 of the Instrument. A certifying officer could not conclude that the issuer’s DC&P is effective if there is a deficiency, or combination of deficiencies, in DC&P such that there is a reasonable possibility that the issuer will not disclose material information required to be disclosed under securities legislation, within the time periods specified in securities legislation. As required by paragraph 6(a) in Form 52-109F1, the certifying officers must ensure the issuer has disclosed in its annual MD&A the certifying officers’ conclusions about the effectiveness of DC&P. The MD&A disclosure about the effectiveness of DC&P will be useful to investors if it discusses any identified weaknesses that are significant, whether the issuer has committed, or will commit, to a plan to remediate the identified weaknesses, and whether there are any mitigating procedures that reduce the risks that have not been addressed as a result of the identified weaknesses.
Your interim MD&A must include the interim MD&A disclosure required by National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings and, as applicable, Form 52-109F2 Certification of Interim Filings – Full Certificate or Form 52-109F2R Certification of Refiled Interim Filings.
(1) An issuer must not disclose a capital management measure in a document, other than financial statements about the entity to which the measure relates, unless all of the following apply:
(a) the capital management measure is presented with no more prominence in the document than that of similar financial measures disclosed in the primary financial statements of the entity;
(b) in proximity to the first instance of the capital management measure in the document, the document,
(i) if the capital management measure was calculated using one or more non-GAAP financial measures, discloses each such non-GAAP financial measure;
(ii) discloses, directly or by incorporating it by reference as permitted under section 5,
(A) for any capital management measure that is disclosed in the form of a ratio, fraction, percentage or similar representation, an explanation of its composition,
(B) an explanation of how the capital management measure provides useful information to an investor and explains the additional purposes, if any, for which management uses the capital management measure, and
(C) for any capital management measure that is not disclosed as a ratio, fraction, percentage or similar representation, a quantitative reconciliation of the capital management measure for its current and comparative period, if disclosed under paragraph (c), to the most directly comparable financial measure disclosed in the primary financial statements of the issuer;
(c) if the capital management measure is disclosed in MD&A or in an earnings release of the issuer, the capital management measure for a comparative period, determined using the same composition, is disclosed in the document, unless it has not been previously disclosed.
(2) Subparagraph (1)(b)(ii) does not apply if the disclosure required under that subparagraph is made in the notes to the financial statements of the entity to which the measure relates.
The requirements of this section shall apply to each security registered or being registered that is issued on or after January 4, 2021, and to each registered security issued and outstanding before January 4, 2021, for which the registrant had prior to that date provided the financial statements specified in Section 210.3-16.
(a) For each security subject to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and for each security the offer and sale of which is being registered under the Securities Act of 1933, that is collateralized by a security of the registrant’s affiliate or affiliates, provide the following disclosures to the extent material:
(1) A description of the securities pledged as collateral and the affiliates whose securities are pledged as collateral;
(2) A description of the terms and conditions of the collateral arrangement, including the events or circumstances that would require delivery of the collateral;
(3) A description of the trading market for the affiliate’s security pledged as collateral or a statement that there is no market;
(4) Summarized financial information as specified in Section 210.1-02(bb)(1) of each affiliate whose securities are pledged as collateral as follows, with an accompanying note that briefly describes the basis of presentation:
(i) The summarized financial information of each such affiliate consolidated in the registrant’s financial statements may be presented on a combined basis;
(ii) Intercompany balances and transactions between affiliates whose summarized financial information is presented on a combined basis shall be eliminated; (iii) An affiliate’s amounts due from, amounts due to, and transactions with any of the following shall be presented in separate line items:
(A) The registrant;
(B) Any of the registrant’s subsidiaries not included in the summarized financial information of the affiliate(s); and
(C) Related parties;
(iv) If the information provided in response to the requirements of this section (e.g., the trading market for the affiliate’s security pledged as collateral or a statement that there is no market) is applicable to one or more, but not all, affiliates, separately disclose the summarized financial information applicable to those affiliates. In limited circumstances (i.e., where the separate financial information applicable to those affiliates can be easily explained and understood), narrative disclosure may be provided in lieu of the separate summarized financial information otherwise required by this paragraph (a)(4)(iv);
(v) Disclose this summarized financial information as of and for the most recently ended fiscal year and year-to-date interim period included in the registrant’s consolidated financial statements; and
(vi) Notwithstanding that a registrant may omit this summarized financial information if not material, it may also be omitted if one of the following in paragraph (a)(4)(vi)(A) or (B) of this section is true and disclosed. However, paragraph (a)(4)(vi)(A) does not apply if separate disclosure of summarized financial information applicable to one or more, but not all, affiliates is required by paragraph (a)(4)(iv) of this section:
(A) The assets, liabilities and results of operations of the combined affiliates whose securities are pledged as collateral are not materially different than the corresponding amounts presented in the consolidated financial statements of the registrant; or
(B) The combined affiliates whose securities are pledged as collateral have no material assets, liabilities or results of operations;
(5) In a Securities Act registration statement filed in connection with the offer and sale of the collateralized security, if the registrant acquired a significant business after the date of the registrant’s most recent balance sheet included in its consolidated financial statements and the acquired business, one or more of the acquired business’s subsidiaries, or the acquired business and one or more of its subsidiaries are affiliates whose securities collateralize the registrant’s collateralized security, disclose pre-acquisition summarized financial information as specified in paragraph (a)(4) of this section for each such affiliate. The acquired business is significant if it meets any of the conditions specified in the definition of significant subsidiary in Section 210.1-02(w), substituting 20 percent for 10 percent each place it appears therein, based on a comparison of the most recent annual financial statements of the acquired business and the registrant’s most recent annual consolidated financial statements filed at or prior to the date of acquisition. The determination of whether a business has been acquired shall be made in accordance with the guidance set forth in Section 210.11-01(d). Acquisitions of a group of related businesses shall be treated as if they are a single business acquisition for purposes of this comparison. The determination of whether a group of businesses are related shall be made in a manner consistent with Section 210.3-05(a)(3);
(6) Any financial and narrative information about each such affiliate if the information would be material for investors to evaluate the pledge of the affiliate’s securities as collateral; and
(7) Sufficient information so as to make the financial and non-financial information presented not misleading.
(b) The registrant may elect to provide the disclosures required by this section in a footnote to its consolidated financial statements or alternatively, in management’s discussion and analysis of financial condition and results of operations described in Section 229.303 (Item 303 of Regulation S-K) of this chapter. If not otherwise included in the consolidated financial statements or in management’s discussion and analysis of financial condition and results of operations, the registrant must include the disclosures in its prospectus immediately following “Risk Factors,” if any, or otherwise, immediately following pricing information described in Section 229.105 (Item 105 of Regulation S-K) of this chapter.
Q: Do I have to duplicate in my MD&A information already included in the notes to the financial statements?
A: Information specifically required by Form 51-102F1 must be included in the MD&A, and simply cross-referencing to a note in the financial statements would not be sufficient. For example, although the notes to the financial statements may include information about contractual obligations, Form 51-102F1 requires an issuer that is not a venture issuer to include in the MD&A a summary, in tabular form, of contractual obligations. In this example a cross-reference would not meet the Form 51-102F1 requirement.
Issuers should use their judgment to ensure the MD&A complements and supplements the financial statements. This may include a discussion and analysis, but not a repetition of details disclosed in notes to the financial statements that are not specifically required by Form 51-102F1.
(a) For filings by registered management investment companies, the following financial statements shall be filed:
(1) An audited balance sheet or statement of assets and liabilities as of the end of the most recent fiscal year;
(2) An audited statement of operations for the most recent fiscal year conforming to the requirements of Section 210.6-07.
(3) An audited statement of cash flows for the most recent fiscal year if necessary to comply with generally accepted accounting principles. (Further references in this rule to the requirement for such statement are likewise applicable only to the extent that they are consistent with the requirements of generally accepted accounting principles.)
(4) Audited statements of changes in net assets conforming to the requirements of Section 210.6-09 for the two most recent fiscal years.
(b) If the filing is made within 60 days after the end of the registrant’s fiscal year and audited financial statements for the most recent fiscal year are not available, the balance sheet or statement of assets and liabilities may be as of the end of the preceding fiscal year and the filing shall include an additional balance sheet or statement of assets and liabilities as of an interim date within 245 days of the date of filing. In addition, the statements of operations and cash flows (if required by generally accepted accounting principles) shall be provided for the preceding fiscal year and the statement of changes in net assets shall be provided for the two preceding fiscal years and each of the statements shall be provided balance sheet or statement of assets and liabilities being filed. Financial statements for the corresponding period of the preceding fiscal year need not be provided.
(c) If the most current balance sheet or statement of assets and liabilities in a filing is as of a date 245 days or more prior to the date the filing is expected to become effective, the financial statements shall be updated with a balance sheet or statement of assets and liabilities as of an interim date within 245 days. In addition, the statements of operations, cash flows, and changes in net assets shall be provided for the interim period between the end of the most recent fiscal year for which a balance sheet or statement of assets and liabilities is presented and the date of the most recent interim balance sheet or statement of assets and liabilities filed.
(d) Interim financial statements provided in accordance with these requirements may be unaudited but shall be presented in the same detail as required by Section 210.6-01 through 210.6-11 . When unaudited financial statements are presented in a registration statement, they shall include the statement required by Section 210.3-03(d).
(a) This part (together with the Financial Reporting Releases (part 211 of this chapter)) sets forth the form and content of and requirements for financial statements required to be filed as a part of:
(1) Registration statements under the Securities Act of 1933 (part 239 of this chapter), except as otherwise specifically provided in the forms which are to be used for registration under this Act;
(2) Registration statements under section 12 (subpart C of part 249 of this chapter), annual or other reports under sections 13 and 15(d) (subparts D and E of part 249 of this chapter), and proxy and information statements under section 14 of the Securities Exchange Act of 1934 except as otherwise specifically provided in the forms which are to be used for registration and reporting under these sections of this Act; and
(3) Registration statements and shareholder reports under the Investment Company Act of 1940 (part 274 of this chapter), except as otherwise specifically provided in the forms which are to be used for registration under this Act.
(b) The term financial statements as used in this part shall be deemed to include all notes to the statements and all related schedules.
(c) In addition to filings pursuant to the Federal securities laws, Section 210.4-10 applies to the preparation of accounts by persons engaged, in whole or in part, in the production of crude oil or natural gas in the United States pursuant to section 503 of the Energy Policy and Conservation Act of 1975 (42 U.S.C. 6383) (EPCA) and section 1(c) of the Energy Supply and Environmental Coordination Act of 1974 (15 U.S.C. 796), as amended by section 505 of EPCA.
(1) A venture issuer that has not had significant revenue from operations in either of its last two financial years, must disclose in its MD&A, for each period referred to in subsection (2), a breakdown of material components of
(a) exploration and evaluation assets or expenditures;
(b) expensed research and development costs;
(c) intangible assets arising from development;
(d) general and administration expenses; and
(e) any material costs, whether expensed or recognized as assets, not referred to in paragraphs (a) through (d);
and if the venture issuer’s business primarily involves mining exploration and development, the analysis of exploration and evaluation assets or expenditures must be presented on a property-by-property basis.
(2) The disclosure in subsection (1) must be provided for the following periods:
(a) in the case of annual MD&A, for the two most recently completed financial years; and
(b) in the case of interim MD&A for an issuer that is not providing disclosure in accordance with section 2.2.1 of Form 51-102F1, for the most recent year-todate interim period and the comparative year-to-date period presented in the interim financial report.
(3) Subsection (1) does not apply if the information required under that subsection has been disclosed in the financial statements to which the MD&A relates.
(a) If an issuer or guarantor of a guaranteed security that is registered or being registered is required to file financial statements required by Regulation S-X with respect to the guarantee or guaranteed security, such financial statements may be omitted if the issuer or guarantor is a consolidated subsidiary of the parent company, the parent company’s consolidated financial statements have been filed, and the conditions in paragraphs (a)(1) and (2) of this section have been met:
(1) The guaranteed security is debt or debt-like; and
(i) The parent company issues the security or co-issues the security, jointly and severally, with one or more of its consolidated subsidiaries; or
(ii) A consolidated subsidiary issues the security or co-issues the security with one or more other consolidated subsidiaries of the parent company, and the security is guaranteed fully and unconditionally by the parent company; and
(2) The parent company provides the disclosures specified in Section 210.13-01.
(b) For the purposes of this section and Section 210.13-01:
(1) The “parent company” is the entity that:
(i) Is an issuer or guarantor of the guaranteed security;
(ii) Is, or as a result of the subject Securities Act registration statement will be, an Exchange Act reporting company; and
(iii) Consolidates each subsidiary issuer and/or subsidiary guarantor of the guaranteed security in its consolidated financial statements.
(2) A security is “debt or debt-like” if it has the following characteristics:
(i) The issuer has a contractual obligation to pay a fixed sum at a fixed time; and
(ii) Where the obligation to make such payments is cumulative, a set amount of interest must be paid.
Note 1 to paragraph (b)(2). Neither the form of the security nor its title will determine whether a security is debt or debt-like. Instead, the substance of the obligation created by the security will be determinative.
Note 2 to paragraph (b)(2). The phrase “set amount of interest” is not intended to mean “fixed amount of interest.” Floating and adjustable rate securities, as well as indexed securities, may meet the criteria specified in paragraph (b)(2)(ii) of this section as long as the payment obligation is set in the debt instrument and can be determined from objective indices or other factors that are outside the discretion of the obligor.
(3) A guarantee is “full and unconditional,” if, when an issuer of a guaranteed security has failed to make a scheduled payment, the guarantor is obligated to make the scheduled payment immediately and, if it does not, any holder of the guaranteed security may immediately bring suit directly against the guarantor for payment of all amounts due and payable.
This section is applicable to balance sheets filed by registered investment companies and business development companies except for persons who substitute a statement of net assets in accordance with the requirements specified in Section 210.6-05, and issuers of face-amount certificates which are subject to the special provisions of Section 210.6-06. Balance sheets filed under this rule shall comply with the following provisions:
Assets
1. Investments in securities of unaffiliated issuers.
2. Investments in and advances to affiliates. State separately investments in and advances to: (a) Controlled companies and (b) other affiliates.
3. Other investments. State separately amounts of assets related to (a) variation margin receivable on futures contracts, (b) forward foreign currency contracts; (c) swap contracts; and (d) investments – other than those presented in Section 210.12-12, 12-12A, 12-12B, 12-13, 12-13A, 12-13B, and 12-13C.
4. Cash. Include under this caption cash on hand and demand deposits. Provide in a note to the financial statements the information required under Section 210.5-02.1 regarding restrictions and compensating balances.
5. Receivables. (a) State separately amounts receivable from (1) sales of investments; (2) subscriptions to capital shares; (3) dividends and interest; (4) directors and officers; and (5) others.
(b) If the aggregate amount of notes receivable exceeds 10 percent of the aggregate amount of receivables, the above information shall be set forth separately, in the balance sheet or in a note thereto, for accounts receivable and notes receivable.
6. Deposits for securities sold short and other investments. State separately amounts held by others in connection with: (a) Short sales; (b) open option contracts (c) futures contracts, (d) forward foreign currency contracts; (e) swap contracts; and (f) investments – other than those presented in Section 210.12-12, 12-12A, 12-12B, 12-13, 12-13A, 12-13B, and 12-13C.
7. Other assets. State separately (a) prepaid and deferred expenses; (b) pension and other special funds; (c) organization expenses; and (d) any other significant item not properly classified in another asset caption.
8. Total assets.
Liabilities
9. Other investments. State separately amounts of liabilities related to: (a) Securities sold short; (b) open option contracts written; (c) variation margin payable on futures contracts, (d) forward foreign currency contracts; (e) swap contracts; and (f) investments – other than those presented in Section 210.12-12, 12-12A, 12-12B, 12-13, 12-13A, 12-13B, and 12-13C.
10. Accounts payable and accrued liabilities. State separately amounts payable for: (a) Other purchases of securities; (b) capital shares redeemed; (c) dividends or other distributions on capital shares; and (d) others. State separately the amount of any other liabilities which are material.
11. Deposits for securities loaned. State the value of securities loaned and indicate the nature of the collateral received as security for the loan, including the amount of any cash received.
12. Other liabilities. State separately (a) amounts payable for investment advisory, management and service fees; and (b) the total amount payable to: (1) Officers and directors; (2) controlled companies; and (3) other affiliates, excluding any amounts owing to noncontrolled affiliates which arose in the ordinary course of business and which are subject to usual trade terms.
13. Notes payable, bonds and similar debt. (a) State separately amounts payable to: (1) Banks or other financial institutions for borrowings; (2) controlled companies; (3) other affiliates; and (4) others, showing for each category amounts payable within one year and amounts payable after one year.
(b) Provide in a note the information required under Section 210.5-02.19(b) regarding unused lines of credit for short-term financing and Section 210.5-02.22(b) regarding unused commitments for long-term financing arrangements.
14. Total liabilities.
15. Commitments and contingent liabilities.
Net Assets
16. Units of capital. (a) Disclose the title of each class of capital shares or other capital units, the number authorized, the number outstanding, and the dollar amount thereof.
(b) Unit investment trusts, including those which are issuers of periodic payment plan certificates, also shall state in a note to the financial statements: (1) The total cost to the investors of each class of units or shares; (2) the adjustment for market depreciation or appreciation; (3) other deductions from the total cost to the investors for fees, loads and other charges, including an explanation of such deductions; and (4) the net amount applicable to the investors.
17. Total distributable earnings (loss). Disclose total distributable earnings (loss), which generally comprise:
(a) Accumulated undistributed investment income-net,
(b) accumulated undistributed net realized gains (losses) on investment transactions, and (c) net unrealized appreciation (depreciation) in value of investments at the balance sheet date.
18. Other elements of capital. Disclose any other elements of capital or residual interests appropriate to the capital structure of the reporting entity.
19. Net assets applicable to outstanding units of capital. State the net asset value per share.
If the amount which would otherwise be required to be shown with respect to any item is not material, it need not be separately set forth. The combination of insignificant amounts is permitted.
If a note covering substantially the same subject matter is required with respect to two or more financial statements relating to the same or affiliated persons, for which separate sets of notes are presented, the required information may be shown in a note to only one of such statements: Provided, That a clear and specific reference thereto is made in each of the other statements with respect to which the note is required.
(1) In this Instrument:
“SEC issuer” means an issuer that
(a) has a class of securities registered under section 12 of the 1934 Act or is required to file reports under section 15(d) of the 1934 Act; and
(b) is not registered or required to be registered as an investment company under the Investment Company Act of 1940 of the United States of America, as amended;
(1) Application – This section applies to material forward-looking information that is disclosed by a reporting issuer other than
(a) forward-looking information contained in an oral statement; or
(b) disclosure that is
(i) subject to the requirements in National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities or National Instrument 43-101 Standards of Disclosure for Mineral Projects; or
(ii) made to comply with the conditions of any exemption from the requirements referred to in subparagraph (i) that a reporting issuer received from a regulator or securities regulatory authority unless the regulator or securities regulatory authority orders that this Part applies to disclosure made under the exemption.
(2) Update – A reporting issuer must discuss in its MD&A
(a) events and circumstances that occurred during the period to which the MD&A relates that are reasonably likely to cause actual results to differ materially from material forward-looking information for a period that is not yet complete that the reporting issuer previously disclosed to the public; and
(b) the expected differences referred to in paragraph (a).
(3) Exemption – Subsection (2) does not apply if the reporting issuer
(a) includes the information required by subsection (2) in a news release issued and filed by the reporting issuer before the filing of the MD&A referred to in subsection (2); and
(b) includes disclosure in the MD&A referred to in subsection (2) that
(i) identifies the news release referred to in paragraph (a);
(ii) states the date of the news release; and
(iii) states that the news release is available at www.sedar.com.
(4) Comparison to Actual – A reporting issuer must disclose and discuss in its MD&A material differences between
(a) actual results for the annual or interim period to which the MD&A relates; and
(b) any FOFI or financial outlook for the period referred to in paragraph (a) that the reporting issuer previously disclosed.
(5) Withdrawal – If during the period to which its MD&A relates, a reporting issuer decides to withdraw previously disclosed material forward-looking information,
(a) the reporting issuer must disclose in its MD&A the decision and discuss the events and circumstances that led the reporting issuer to that decision, including a discussion of the assumptions underlying the forward-looking information that are no longer valid; and
(b) subsection (4) does not apply to the reporting issuer with respect to the MD&A
(i) if the reporting issuer complies with paragraph (a); and
(ii) the MD&A is filed before the end of the period covered by the forward-looking information.
(6) Exemption – Paragraph 5(a) does not apply if the reporting issuer
(a) includes the information required by paragraph (5)(a) in a news release issued and filed by the reporting issuer before the filing of the MD&A referred to in subsection (5); and
(b) includes disclosure in the MD&A referred to in subsection (5) that
(i) identifies the news release referred to in paragraph (a);
(ii) states the date of the news release; and
(iii) states that the news release is available at www.sedar.com.
(1) A reporting issuer that has a significant equity investee must disclose in its MD&A for each period referred to in subsection (2),
(a) summarized financial information of the equity investee, including the aggregated amounts of assets, liabilities, revenue and profit or loss; and
(b) the reporting issuer’s proportionate interest in the equity investee and any contingent issuance of securities by the equity investee that might significantly affect the reporting issuer’s share of profit or loss.
(2) The disclosure in subsection (1) must be provided for the following periods:
(a) in the case of annual MD&A, for the two most recently completed financial years; and
(b) in the case of interim MD&A for an issuer that is not providing disclosure in accordance with section 2.2.1 of Form 51-102F1, for the most recent year-todate interim period and the comparative year-to-date period presented in the interim financial report.
(3) Subsection (1) does not apply if
(a) the information required under that subsection has been disclosed in the financial statements to which the MD&A relates; or
(b) the issuer files separate financial statements of the equity investee for the periods referred to in subsection (2).
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