National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- request for relief from the requirement that financial statements be prepared in accordance with Canadian GAAP for periods ending on or after a qualifying transaction so long as the issuer prepares its financial statements in accordance with IFRS-IASB -- first fully compliant IFRS-IASB financial statements will be for the interim period ending September 30, 2010 -- relief granted, subject to conditions.
Applicable Legislative Provisions
National Instrument 52-107 Acceptable Accounting Principles, Auditing Standards and Reporting Currency.
Citation: Oil Optimization Inc., Re, 2010 ABASC 491
October 20, 2010
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
ALBERTA AND ONTARIO
IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF
APPLICATIONS IN MULTIPLE JURISDICTIONS
IN THE MATTER OF
Oil Optimization Inc.
The securities regulatory authority or regulator in each of the Jurisdictions (the Decision Maker) has received an application from the Filer for a decision under the securities legislation of the Jurisdictions (the Legislation) exempting the Filer from the requirement in section 3.1 of National Instrument 52-107 Acceptable Accounting Principles, Auditing Standards and Reporting Currency (NI 52-107) that financial statements be prepared in accordance with Canadian GAAP (the Exemption Sought), in order that the following financial statements may be prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IFRS-IASB):
(a) the Filer's financial statements for annual and interim periods ending on or after the date of the Proposed Transaction (as defined below); and
(b) Red Stag Resources Inc.'s financial statements for annual and interim periods ending before the date of the Proposed Transaction (as defined below) and after the date of the financial statements included in the Prospectus (as defined below).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a dual application):
(a) the Alberta Securities Commission (the Commission) is the principal regulator for this application;
(b) the Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in British Columbia, Saskatchewan, Manitoba, New Brunswick, Nova Scotia, Prince Edward Island and Newfoundland and Labrador (the Passport Jurisdictions); and
(c) the decision is the decision of the principal regulator and evidences the decision of the securities regulatory authority or regulator in Ontario.
Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.
This decision is based on the following facts represented by the Filer:
1. The Filer is a corporation incorporated pursuant to the Business Corporations Act (Alberta).
2. The Filer is a reporting issuer in the Jurisdictions and the Passport Jurisdictions.
3. The Filer is not in default of its reporting issuer obligations under the Legislation or the securities legislation of the Passport Jurisdictions.
4. The Filer's head office is located in Calgary, Alberta.
5. The authorized capital of the Filer consists of an unlimited number of common shares (the Oil Shares) and an unlimited number of preferred shares.
6. The Filer is a capital pool company listed on the NEX board of the TSX Venture Exchange (TSXV).
7. Red Stag Resources Inc. (Red Stag) is a corporation incorporated pursuant to the Canada Business Corporations Act.
8. Red Stag is not a reporting issuer or its equivalent in any jurisdiction of Canada.
9. Red Stag's head office is located in Calgary, Alberta.
10. The authorized capital of Red Stag consists of an unlimited number of common shares (the Red Stag Shares) and an unlimited number of shares designated as class A shares, issuable in series.
11. Red Stag is an oil and gas exploration company with its principal assets located in Thailand.
12. The Filer entered into a letter of intent dated July 23, 2010 with Red Stag pursuant to which the Filer and Red Stag agreed to effect a reverse take-over transaction (the Proposed Transaction) whereby Red Stag will become a wholly-owned subsidiary of the Filer (the post-transaction entity being the Resulting Issuer).
13. The Proposed Transaction, if completed, is intended to serve as the Filer's qualifying transaction under TSXV Policy 2.4 Capital Pool Companies.
14. Pursuant to the Proposed Transaction and following the proposed subdivision of the Oil Shares on the basis of 1.8 post-subdivision Oil Shares for each Oil Share outstanding, the holders of Red Stag Shares are expected to exchange such shares for Oil Shares on a 1:1 basis such that the holders of Red Stag Shares will control the Resulting Issuer.
15. Following completion of the Proposed Transaction, it is anticipated that:
(a) the Resulting Issuer's head office will be located in Calgary, Alberta;
(b) the Resulting Issuer will carry on the business currently carried on by Red Stag;
(c) all or substantially all of the executive officers of the Resulting Issuer will be comprised of current officers of Red Stag and a majority of the board of directors of the Resulting Issuer will be comprised of current directors of Red Stag; and
(d) the common shares of the Resulting Issuer will be listed for trading on the TSXV.
16. The Proposed Transaction will be a recapitalization of Red Stag and, accordingly, the financial statements of the Filer subsequent to the Proposed Transaction will be those of Red Stag.
17. On August 26, 2010 and in connection with the Proposed Transaction, the Filer filed a preliminary long form prospectus dated August 23, 2010 in each of the provinces of Canada other than Quebec with the intention of filing a final long form prospectus (the Prospectus) to qualify the distribution of up to 33,333,333 Oil Shares therein.
18. On October 15, 2010, the Filer filed the Prospectus in each of the provinces of Canada other than Quebec and the Commission issued a receipt for the Prospectus.
19. The Filer became a reporting issuer in Saskatchewan, Manitoba, New Brunswick, Nova Scotia, Prince Edward Island and Newfoundland and Labrador upon the Decision Makers issuing a final receipt for the Prospectus.
20. The Filer prepares its financial statements in accordance with Canadian GAAP.
21. The Canadian Accounting Standards Board has confirmed that publicly accountable enterprises will be required to prepare their financial statements in accordance with IFRS-IASB for financial statements relating to fiscal years beginning on or after January 1, 2011.
22. NI 52-107 sets out acceptable accounting principles for financial reporting under the Legislation by domestic issuers, foreign issuers, registrants and other market participants. Under NI 52-107, a domestic issuer must use Canadian GAAP with the exception that an SEC registrant may use US GAAP. Under NI 52-107, only foreign issuers may use IFRS-IASB.
23. In CSA Staff Notice 52-321 Early Adoption of International Financial Reporting Standards, Use of US GAAP and Reference to IFRS-IASB, staff of the Canadian Securities Administrators recognized that some issuers may wish to prepare their financial statements in accordance with IFRS-IASB for periods beginning prior to January 1, 2011 and indicated that staff were prepared to recommend exemptive relief on a case by case basis to permit a domestic issuer to do so, despite section 3.1 of NI 52-107.
24. Red Stag adopted IFRS-IASB with a date of transition to IFRSs of January 1, 2007 and has been preparing its financial statements, including its audited annual statements for the years ended December 31, 2009, 2008 and 2007 and its interim statements for the six months ended June 30, 2010, all of which are included in the Prospectus, in accordance with IFRS-IASB , in anticipation of the adoption of IFRS-IASB.
25. Red Stag's audited annual financial statements which are included in the Prospectus include:
(a) the first-time adoption disclosures required by International Financial Reporting Standard 1 First-time Adoption of International Financial Reporting Standards (IFRS 1); and
(b) an opening IFRS statement of financial position as of the date of the transition to IFRSs, January 1, 2007, that is presented with equal prominence to other statements and, in the case of the annual financial statements, such opening statement of financial position was audited.
26. Subject to obtaining the Exemption Sought and closing of the Proposed Transaction, the Filer intends to use IFRS-IASB to prepare its financial statements for annual and interim periods ending on or after the date of the Proposed Transaction.
27. The Filer believes the adoption of IFRS-IASB by the Filer will avoid potential confusion for the users of the Filer's financial statements as all financial statements reporting on the business of Red Stag will have been prepared using the same accounting standards.
28. Since Red Stag currently prepares its financial statements under IFRS-IASB, it has assessed the readiness of and believes the staff, board of directors, audit committee, auditors, investors and other market participants of the Resulting Issuer are adequately prepared for the adoption of IFRS-IASB by the Resulting Issuer.
29. The Filer has considered the implications of adopting IFRS-IASB for financial periods ending on or after the date of the Proposed Transaction on its obligations under securities legislation including, but not limited to, those relating to CEO and CFO certifications, business acquisition reports, offering documents, and previously released material forward looking information, and has concluded that if the Exemption Sought is granted the Filer will continue to be able to fulfill these obligations; and
30. The Filer included in the Prospectus information about its transition to IFRS-IASB, including:
(a) an explanation that the Proposed Transaction is a recapitalization;
(b) an explanation that the Filer's accounting will be a continuation of Red Stag's accounting which has been IFRS-IASB since inception;
(c) the accounting policy and implementation decisions Red Stag made;
(d) the exemptions available under IFRS 1 that Red Stag applied in preparing financial statements in accordance with IFRS-IASB; and
(e) major identified differences between Red Stag's previous accounting policies and those that Red Stag applied in preparing financial statements in accordance with IFRS-IASB.
Each of the Decision Makers is satisfied that the decision meets the test set out in the Legislation for the Decision Maker to make the decision.
The decision of the Decision Makers under the Legislation is that the Exemption Sought is granted provided that:
(a) the Proposed Transaction is completed;
(b) the Filer prepares its financial statements for periods ending on or after the date of the Proposed Transaction in accordance with IFRS-IASB;
(c) Red Stag prepares its financial statements for periods ending before the date of the Proposed Transaction and after the date of the financial statements included in the Prospectus in accordance with IFRS-IASB;
(d) if the Filer or Red Stag presents the components of profit or loss in a separate income statement, the separate income statement is displayed immediately before the statement of comprehensive income;
(e) the Filer and Red Stag's annual IFRS-IASB financial statements disclose an explicit and unreserved statement of compliance with IFRS; and
(f) the Filer and Red Stag's IFRS-IASB interim financial statements disclose compliance with International Accounting Standard 34 Interim Financial Reporting.