Securities Law & Instruments

Headnote

Multilateral Instrument 11-102 Passport System and National Policy 11-203 Process for Exemptive Relief applications in Multiple Jurisdictions -- Exemption from requirement in section 4.3(a) of National Instrument 52-107 Acceptable Accounting Principles and Auditing Standards (NI 52-107) that an auditor's report filed in connection with certain financial statements must express an unmodified opinion

Applicable Legislative Provisions

National Instrument 52-107 Acceptable Accounting Principles and Auditing Standards, s. 5.1.

April 18, 2013


IN THE MATTER OF
THE SECURITIES LEGISLATION OF
ONTARIO
(the "Jurisdiction")

AND

IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF
APPLICATIONS IN MULTIPLE JURISDICTIONS

AND

IN THE MATTER OF
PENFOLD CAPITAL ACQUISITION IV CORPORATION
(the "Filer")

DECISION



Background

The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction of the principal regulator (the "Legislation") for an exemption from the requirements set out in subsection 4.3(a) of National Instrument 52-107 -- Acceptable Accounting Principles and Auditing Standards ("NI 52-107") that an auditor's report filed in connection with certain financial statements must express an unmodified opinion, in order that the Filer may file audited financial statements of SLM Logistics Corporation ("SLM") containing a qualification with respect to the opening and closing inventory of SLM (the "Requested Relief").

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):

(a) the Ontario Securities Commission is the principal regulator for this application; and

(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 the Provinces of British Columbia and Alberta, (collectively, the "Passport Jurisdictions").

Interpretation

Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.

Representations

The decision is based on the following facts represented by the Filer:

1. The Filer was incorporated on March 31, 2010 under the laws of the Business Corporations Act (Ontario) (the "OBCA").

2. The Filer is a Capital Pool Company ("CPC") as this term is defined in the policies of the TSX Venture Exchange ("TSXV"). The Filer is a reporting issuer in the Provinces of British Columbia, Alberta and Ontario.

3. The common shares of the Filer (the "Common Shares") began trading on the TSXV effective March 10, 2011 under the trading symbol "PLD.P".

4. Currently, there are unlimited Shares authorized for issuance, without par value. To date, there are 12,600,000 Common Shares issued and outstanding..

5. Pursuant to the CPC policies of the TSXV to date the Filer has not carried on any operations. The principal business of the Filer has been to identify and evaluate businesses and assets with a view to completing a qualifying transaction as that term is defined in the policies of the TSXV (the "Qualifying Transaction").

6. The Filer does not have business operations or assets other than cash, and currently has no written or oral agreements in principle for the acquisition of an asset or business other than a letter of intent dated February 22, 2012 and amended and restated as of May 31, 2012, between the Filer and SLM in respect of the Qualifying Transaction.

7. SLM is a private company that was incorporated on September 27, 2004 pursuant to the OBCA.

8. SLM is not a reporting issuer in any jurisdiction in Canada and is not in default of securities legislation in any jurisdiction.

9. In connection with the Qualifying Transaction the Filer will be filing its filing statement (the "Filing Statement") in the form of TSXV Form 3B2 -Information Required in a Filing Statement for a Qualifying Transaction ("Form 3B2") pursuant to the policies of the TSXV. Form 3B2 also requires disclosure of financial statements for SLM.

10. SLM's year end is September 30, and the audited financial statements for the years ended 2010, 2011 and 2012, and the unaudited financial statements for the 3 months period ended December 31, 2012 will be included in the Filing Statement.

11. The auditor's report for the 2010 SLM audited financial statements (the "2010 Financial Statements") contains the following paragraphs:

We were not able to observe the counting of physical inventories at the beginning and end of the year or satisfy ourselves concerning those inventory quantities by alternative means. Since opening and ending inventories enter into the determination of the results of operations and cash flows, we were unable to determine whether adjustments to cost of sales, income taxes, net income for the year, opening retained earnings and cash provided from operations might be necessary.

In our opinion, except for the effect of adjustments, if any, which we might have determined to be necessary had we been able to examine opening and ending inventory quantities, as described in the preceding paragraph, the statements of income, retained earnings and cash flows present fairly, in all material respects, the result of operations and cash flows of the company for the year ended September 30, 2010 in accordance with Canadian generally accepted accounting principles. Further, in our opinion, the balance sheet presents fairly, in all material respects, the financial position of the company as at September 30, 2010 in accordance with Canadian generally accepted accounting principles.

12. It is the position of the TSXV that this is a modified opinion and therefore contravenes subsection 4.3(a) of NI 52-107.

Exemption Sought

13. Item 46 of Form 3B2 requires that certain financial statements be submitted in the Filing Statement, these financial statements include the 2010 Financial Statements (statement of income, retained earnings and cash flows) and subsection 4.3(a) of NI 52-107 requires that all financial statements that must be audited must be accompanied by an unmodified opinion.

14. On the basis of the foregoing, the Filer applied for a decision granting the Requested Relief and submitted that the granting of such decision would not be prejudicial to the public interest for the following reasons:

(a) The modified opinion is not a departure from accounting principles permitted by the NI 52-107;

(b) the modified opinion is not imposed or could not reasonably be eliminated by management;

(c) the modified opinion could not reasonably be expected to be recurring;

(d) the modified opinion in the Auditor's Report accompanying the 2010 financial statements is limited to the ability to verify the opening and closing inventory in the 2010 financial statements, the SLM auditors were able to verify the 2010 closing inventory in 2011 by examining ending inventory quantities as at September 30, 2011 and auditing transactions affecting inventory balances throughout the 2011 fiscal year, thereby verifying the opening inventory balances as at October 1, 2010. Further, the auditor's report for the 2012 and 2011 audited financial statements contain no such modified opinion, thus nullifying any modified opinion that was contained in the 2010 Financial Statements; and

(e) in accordance with policies of the TSXV, only the balance sheets of the 2011 and 2012 need to be included in the Filing Statement and such statements are not affected by the modified opinion. The modified opinion only affects the adjustments related to the 2010 inventory on the statement of income, retained earnings and cash flows of the year ended September 30, 2010.

15. To the best of the Filer's knowledge, the Filer believes that the 2010 Financial Statements present fairly, in all material respects, the consolidated position of SLM as at September 30, 2010 and its statement of income, retained earnings and cash flows for the year then ended in accordance with Canadian generally accepted accounting principles.

Decision

The principal regulator in the Jurisdiction is satisfied that the decision meets the test set out in the Legislation for the principal regulator in the Jurisdiction to make the decision.

The decision of the principal regulator in the Jurisdiction under the Legislation is that the Requested Relief is granted.

DATED at Toronto this 18th day of April, 2013

"Cameron McInnis"
Chief Accountant, Chief Accountant's Office
Ontario Securities Commission