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Certain disclosure is required to be included in a prospectus which is set out in:
We also remind issuers that under subsection 61(2)(c) of the Securities Act (Ontario), the Director will refuse to issue a receipt for a prospectus if it appears to the Director that the proceeds from the offering and the issuer’s other resources are insufficient to accomplish the purpose of the offering stated in the prospectus.
Issuers are required to describe in reasonable detail each of the principal purposes, with approximate amounts, for which the issuer will use the net proceeds of an offering. The following are examples of disclosure that is generally not sufficient to describe the use of proceeds:
In those rare instances where an allocation of proceeds is not appropriate, issuers should explain management’s reasons for not allocating the funds and the purpose of the offering.
Issuers in the mining sector must also provide disclosure about mineral projects that supports the disclosure in their NI 43-101 technical reports. Issuers are asked to enhance the disclosure in the prospectus when:
A critical part of every prospectus review is considering an issuer's financial condition and intended use of proceeds. A prospectus must contain clear disclosure on how the issuer intends to use the proceeds raised in the offering as well as disclosure of the issuer's financial condition, including any liquidity concerns.
In some instances, an issuer's representations about its ability to continue as a going concern and the period during which it expects to be able to continue operations may be inconsistent with the issuer's historical statement of cash flows (in particular, its cash flows from operating activities). In these cases, we may request that the issuer provide us with a cash flow forecast or financial outlook-type disclosure to support its assumed period of liquidity (i.e., ability to continue operations). However, disclosure on its own may not be sufficient to satisfy receipt refusal concerns in certain circumstances.
For issuers filing a base shelf prospectus, we may take the view that the structure of a base shelf prospectus is not appropriate given the issuer's financial condition and uncertainty of financing. Typically, receipt refusal concerns on financial condition arise if the issuer does not appear to have sufficient cash resources to continue operations for the next 12 months or to meet concrete developmental milestones expected to be completed in the next 12 months. In these cases, to address our concern that incremental drawdowns may be insufficient to satisfy the issuer's short term liquidity requirements, we may request that the issuer:
Issuers, including those filing a base shelf or non-offering prospectus, should review CSA Staff Notice 41-307 Corporate Finance Prospectus Guidance -- Concerns regarding an issuer's financial condition and the sufficiency of proceeds from a prospectus offering.
We often encounter during our reviews prospectuses that indicate that a principal purpose of the offering is for potential acquisitions, but contain little or no disclosure about these potential acquisitions. Instead, the prospectuses have contained disclosure to the effect that:
For disclosure relating to potential acquisitions that are otherwise not described in the prospectus, we may request details such as: