51-102F2 - Management Discussion & Analysis [F Proposed - Lapsed]

Table of Contents

Part 1 — General Instructions and Interpretation
(a) What is MD&A?
(b) What must you discuss?
(c) Use of “Company”
(d) Explain your analysis
(e) Focus on material information
(f) What is material?
(g) Forward-looking information
(h) Development stage issuers
(i) Reverse take-over transactions
(j) Foreign accounting principles
(k) Resource issuers
(l) Numbering / Headings

Part 2 - Content of MD&A

Item 1 — Annual MD&A
1.1 Analyze your overall performance
1.2 Summary of quarterly results
1.3 Results of operations
1.4 Liquidity
1.5 Capital resources
1.6 Transactions with related parties
1.7 Fourth quarter
1.8 Proposed transactions
1.9 Critical Accounting Policies
1.10 Changes in accounting policies
1.11 Financial instruments

(a) What is MD&A?

MD&A provides an opportunity to explain to your shareholders and other investors how your company performed during the period covered by the financial statements, along with your company’s financial condition and future prospects.

MD&A supplements but does not form part of your financial statements. Your MD&A must discuss material information that may not be fully reflected in the financial statements. Some examples are legal proceedings, contingent liabilities and defaults under debt, off-balance sheet financing arrangements or other contractual obligations.

(b) What must you discuss?

You must discuss your company’s results of operations, financial condition, liquidity and capital resources.

(c) Use of “Company”

Wherever this Form uses the word “company”, the term includes other types of business organizations such as partnerships, trusts and other unincorporated business entities.

(d) Explain your analysis

Explain the nature of and reasons for changes in your company’s performance. Do not simply disclose the amount of change in a financial statement item from period to period. Avoid the use of boilerplate language. Your discussion should assist the reader to understand trends, events, transactions or expenditures.

(e) Focus on material information

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.

(f) What is material?

Would a reasonable investor’s decision whether or not to buy, sell or hold securities in your company likely be influenced or changed if the information in question was omitted or misstated? If so, the information is likely material. This concept of materiality is consistent with the financial reporting notion of materiality contained in the Handbook.

(g) Forward-looking information

You are encouraged to provide forward-looking information provided you have a reasonable basis for making the statements. Preparing your MD&A necessarily involves some degree of prediction or projection. For example, MD&A requires a discussion of known trends or uncertainties that have had or that your company reasonably expects will have favourable or unfavourable effects on net sales or revenues or income or loss from continuing operations. However, MD&A does not require that your company provide a detailed forecast of future revenues, income or loss or other information.

All forward-looking information must contain a statement that the information is forward-looking, a description of the factors that may cause actual results to differ materially from the forward-looking information, your material assumptions and appropriate risk disclosure and cautionary language.

You must discuss any forward-looking information disclosed in MD&A for a prior period which in light of intervening events and absent further explanation, may be misleading. Forward looking statements may be considered misleading when they are unreasonably optimistic or aggressive, or lack objectivity, or are not adequately explained. Your timely disclosure obligations might also require you to issue a news release and file a material change report.

(h) Development stage issuers

If your company is a development stage issuer focus your discussion and analysis of results of operations on expenditures and progress towards achieving your business objectives and milestones.

(i)Reverse take-over transactions

When an acquisition is accounted for as a reverse take-over, the business acquired is the legal subsidiary which, for accounting purposes, is the continuing entity. Accordingly, the MD&A should generally be based on the legal subsidiary’s financial statements for the year. If the reverse takeover occurred subsequent to the most recently completed financial year, the financial information disclosed in the quarterly MD&A should be of the legal parent; however, separate information about the legal subsidiary must be provided.

(j) Foreign accounting principles

If your company’s primary financial statements have been prepared using accounting principles other than Canadian GAAP and a reconciliation is provided, your MD&A must focus on the primary financial statements.

(k) Resource issuers

If your company has mineral projects, your disclosure must comply with National Instrument 43-101 Standards of Disclosure for Mineral Projects, including ensuring all scientific and technical disclosure is based on a technical report or other information prepared by or under the supervision of a qualified person.

If your company has oil and gas activities, your disclosure must comply with National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities.

(l) Numbering / Headings

The numbering, headings and ordering of items included in this Form are guidelines only. You do not need to include the headings or numbering or follow the order of items in this Form. Disclosure provided in response to any item need not be repeated elsewhere.

(m) Omitting Information

You do not need to respond to any item in this Form that is inapplicable and you may omit negative answers.

Part 2 - Content of MD&A

Item 1 — Annual MD&A

1.1 Analyze your overall performance

Provide an analysis of your company’s financial condition, results of operations and cash flows. Compare your company’s performance in the most recently completed financial year to the prior year’s performance. Analyze and compare at least the following:

(a) operating segments that are reportable segments as those terms as are used in the Handbook or other parts of your business if:

(i) any part of the business has a disproportionate effect on revenues, income or cash needs;

(ii) there are any legal or other restrictions on the flow of funds from one part of your company’s business to another; or

(iii) known trends, demands, commitments, events or uncertainties within a part of the business are reasonably likely to have an effect on the business as a whole;

(b) industry and economic factors affecting your company’s performance;

(c) why changes have occurred or expected changes have not occurred in your company’s financial condition and results of operations; and

(d) the effect of discontinued operations on current operations.

INSTRUCTIONS

(i) When explaining changes in your company’s financial condition and results, include an analysis of the impact on your continuing operations of any asset acquisition, disposition, write-off, abandonment or other similar transaction.

(ii) Financial condition includes your company’s financial position (as shown on the balance sheet) and other factors that may affect your company’s liquidity and capital resources.

(iii) Include information for a period longer than two financial years if it will help the reader to better understand a trend.

1.2 Summary of quarterly results

Provide the following information for each of the eight most recently completed quarters at the end of the most recently completed financial year:

(a) Net sales and total revenues;

(b) Income from continuing operations; and

(c) Net income or loss.

Development stage issuers must also provide:

(d) Exploration and development expenditures;

(e) Research and development expenditures, and

(f) General and administrative expenditures.

Discuss the factors that have caused variations over the quarters.

INSTRUCTIONS

(i) You do not have to provide information for a quarter prior to your company becoming a reporting issuer if your company has not prepared quarterly financial statements for those quarters.

(ii)Present the information in (b) and (c) in total and on a per share and fully diluted basis, as required by the Handbook.

1.3 Results of operations

Discuss your analysis of your company’s operations including:

(a) net sales or total revenues by operating business segment, including any changes in such amounts caused by selling prices, volume or quantity of goods or services being sold, or the introduction of new products or services;

(b) any other significant factors that caused changes in net sales or total revenues;

(c) cost of sales or gross profit;

(d) expenditures for exploration, research, development, marketing or administration, whether expensed or deferred, and any other material expense or deferred cost;

(e) if your company is a development stage issuer, a discussion of the expenditure breakdown included in your financial statements;

(f) factors that caused a change in the relationship between costs and revenues, including changes in costs of labour or materials, price changes or inventory adjustments;

(g) known trends, commitments, events, risks or uncertainties that you reasonably believe will materially affect your company’s future performance including net sales, total revenue and income from continuing operations;

(h) effect of inflation and specific price changes on your company’s net sales and total revenues and on income from continuing operations;

(i) a comparison in tabular form of disclosure you previously made about how your company was going to use proceeds (other than working capital) from any financing, an explanation of variances and the impact of the variances, if any, on your company’s ability to achieve its business objectives and milestones; and

(j) unusual or infrequent events or transactions.

INSTRUCTIONS

(i) For sections 1.1, 1.2 and 1.3, consider identifying, discussing and analyzing the following factors:

(A) changes in customer buying patterns, including changes due to new technologies and changes in demographics;

(B) changes in selling practices, including changes due to new distribution arrangements or a reorganization of a direct sales force;

(C) changes in competition, including an assessment of the issuer’s resources, strengths and weaknesses relative to those of its competitors;

(D) the impact of exchange rates;

(E) changes in pricing of inputs, constraints on supply, order backlog, or other input-related matters;

(F) changes in production capacity, including changes due to plant closures and work stoppages;

(G) changes in volume of discounts granted to customers, volumes of returns and allowances, excise and other taxes or other amounts reflected on a net basis against revenues; and

(H) changes in the terms and conditions of service contracts.

(ii) Your discussion under paragraphs (d) and (e) should enable the reader to understand the nature and purpose of the expenditures.

1.4 Liquidity

Provide an analysis of your company’s liquidity including:

(a) its ability to generate sufficient amounts of cash and cash equivalents, in the short term and the long term, to maintain capacity to provide for planned growth;

(b) trends or expected fluctuations in your company’s liquidity, taking into account demands, commitments, events or uncertainties;

(c) its working capital requirements;

(d) liquidity risks associated with financial instruments;

(e) if your company has or expects to have a working capital deficiency, discuss its ability to meet obligations as they become due and how you expect it to remedy the deficiency;

(f) balance sheet conditions or income or cash flow items that may affect your company’s liquidity;

(g) legal or practical restrictions on the ability of subsidiaries to transfer funds to your company and the effect these restrictions have had or may have on the ability of your company to meet its obligations; and

(h) defaults or arrears or anticipated defaults or arrears on:

(i) dividend payments, interest or principal payment on debt;

(i) In discussing your company’s ability to generate sufficient amounts of cash and cash equivalents you should describe sources of funding and the circumstances that could affect those sources that are reasonably likely to occur. Examples of circumstances that could affect liquidity would be market price changes, economic downturns, defaults on guarantees and contractions of operations.

(ii) In discussing trends or expected fluctuations in your company’s liquidity and liquidity risks associated with financial instruments you should discuss:

(A) provisions in debt, lease or other arrangements that could trigger an additional funding requirement or early payment. Examples of such situations would be provisions linked to credit rating, earnings, cash flows or share price; and

(B) circumstances that could impair your company’s ability to undertake transaction considered essential to operations. Examples of such circumstances would be the inability to maintain investment grade credit, earnings per share, cash flow or share price.

(iii) In discussing your company’s balance sheet conditions or income or cash flow items you should present a summary, in tabular form, of all contractual obligations including payments due for each of the next five years and thereafter. An example that can be adapted to your company’s particular facts is as follows:

Contractual Obligations	Payments Due by Period
	Total	Less than 1 year	1 - 3 years	4 - 5 years	After 5 years
Long Term Debt
Capital Lease Obligations
Operating Leases
Unconditional Purchase Obligations
Other Long Term Obligations
Total Contractual Obligations

(iv) In discussing your company’s working capital requirements you should discuss situations where your company must maintain significant inventory to meet customers’ delivery requirements or any situations involving extended payment terms.

1.5 Capital resources

Provide an analysis of your company’s capital resources including:

(a) commitments for capital expenditures as of the date of your company’s financial statements including:

(i) the amount, nature and purpose of these commitments;

(ii) the expected source of funds to meet these commitments;

(iii) expenditures not yet committed but required to maintain your company’s capacity and meet your company’s planned growth;

(b) known trends or expected fluctuations in your company’s capital resources, including expected changes in the mix and relative cost of these resources; and

(c) sources of financing that your company has arranged but not yet used.

INSTRUCTIONS

(i) Capital resources are financing resources available to your company and include debt, equity and any other financing arrangements, including off-balance sheet financing arrangements, that you reasonably consider will provide financial resources to your company.

(ii) In discussing your company’s capital resources you should discuss off-balance sheet arrangements such as their business purpose and activities, their economic substance, risks associated with the arrangements, and the key terms and conditions associated with any commitments. Your discussion of the risks associated with an off-balance sheet arrangement should include:

(A) a description of the other contracting party(ies);

(B) the effects of terminating the arrangement;

(C) the amounts receivable or payable, revenues, expenses and cash flows resulting from the arrangement; and

(D) the amounts of any guarantees, lines of credit, stand-by letters of credit or other arrangements that could require your company to provide funding under the arrangement.

(iii) In discussing your company’s capital resources you should present a summary, in tabulur form, of all contractual commitments as at your latest balance sheet date and detailing the expiry date for each of the next 5 years and thereafter. An example that can be adapted to your company’s particular facts is as follows:

Amount of commitment expiration per period
Contractual Commitments	Total Amounts Committed	Less than 1 year	1 - 3 years	4 - 5 years	Over 5 years
Lines of Credit
Standby Letters of Credit
Guarantees
Standby Repurchase Obligations
Other Contractual Commitments
Total Contractual Commitments

(iv) In discussing your company’s commitments you should discuss any exploration and development, and research and development expenditures required to maintain properties or agreements in good standing.

1.6 Transactions with related parties

Discuss all transactions involving related persons or entities including arrangements that involve transaction terms that differ from those that would likely be negotiated with clearly independent third parties.

Discuss transactions with related persons or entities including all related parties as defined by the Handbook and any parties that do not meet the Handbook definition of “related parties”, but with whom you have a relationship that enables you to negotiate terms of transactions that may not be available from other, more clearly independent third parties.

INSTRUCTION

(i) In discussing your company’s transactions with related persons or entities you should discuss:

(A) the business purpose of the arrangement;

(B) the identification of the related person or entities;

(C) how the transaction prices were determined;

(D) if disclosures represent that transactions have been evaluated for fairness, a description of how the evaluation was made and by whom; and

(E) any ongoing contractual or other commitments resulting from the arrangement.

(ii) Specific disclosure may be necessary regarding relationships with unconsolidated, non-independent, limited purpose entities often referred to as structured finance or special purpose entities.

1.7 Fourth quarter

Discuss and analyze fourth quarter events or items that affected your company’s financial condition, cash flows or results of operations, including extraordinary items, year-end and other adjustments, seasonal aspects of your company’s business and dispositions of business segments.

1.8 Proposed transactions

Discuss the expected impact on financial condition, results of operations and cash flows of any proposed asset or business acquisition or disposition if your company’s board of directors, or senior management who expect the board to agree, have decided to proceed with the transaction. Include the status of any required shareholder or regulatory approvals.

INSTRUCTION

You do not have to disclose this information if your company has filed a confidential material change report regarding the transaction and the transaction has not yet been publicly disclosed.

1.9Critical Accounting Policies

Discuss and explain critical accounting policies that impact on the financial condition, results of operations and cash flows, including:

(a) judgments and uncertainties affecting the application of those policies; and

(b) the likelihood that materially different amounts would be reported under different policies or using different assumptions.

Discuss and analyze any changes in your company’s accounting policies that you have adopted or expect to adopt subsequent to the date of your company’s financial statement. Changes include changes you voluntarily made and those due to a change in an accounting standard, or a new accounting standard, that you do not have to adopt until a future date. Your disclosure should include:

(a) a brief description of the new standard, the date you are required to adopt it and, if determined, the date you plan to adopt it;

(b) the methods of adoption permitted by the accounting standard and the method you expect to use;

(c) the expected impact on the financial statements, or if applicable, a statement that you cannot reasonably estimate the impact; and

(d) the potential impact on your business, for example technical violations or default of debt covenants or changes in business practices.

1.11 Financial instruments

Provide:

(a) a discussion of the nature and extent of your company’s use of, including relationships among, financial instruments and the business purposes that they serve;

(b) a description and an analysis of the risks associated with the financial instruments;

(c) a description of how you manage the risks in (b), including a discussion of the objectives, general strategies and instruments used to manage the risks, including any hedging activities;

(d) disclosure of the financial statement classification and amounts of income, expenses, gains and losses associated with the financial instrument; and

(e) significant assumptions made in determining the fair value of financial instruments, the total amount and financial statement classification of the change in fair value of financial instruments recognized in income for the period, and the total amount and financial statement classification of deferred or unrecognized gains and losses on financial instruments.

INSTRUCTIONS

(i) Also discuss other instruments including contractual rights and obligations that may be settled by delivery of non-financial assets, for example a commodity futures contract.

(ii) Your discussion under paragraph (a) should enhance a reader’s understanding of the significance of recognized and unrecognized financial instruments on your company’s financial position, results of operations and cash flows. The information should also assist a reader in assessing the amounts, timing, and certainty of future cash flows associated with those instruments. Also discuss the relationship between liability and equity components of convertible debt instruments.

(iii) For purposes of paragraph (c), if your company is exposed to significant price, credit or liquidity risks, consider providing a sensitivity analysis or tabular information to help readers assess the degree of exposure. For example, an analysis of the effect of a hypothetical change in the prevailing level of interest or currency rates on the fair value of financial instruments and future earnings and cash flows may be useful in describing your company’s exposure to price risk.

(iv) For purposes of paragraph (d), disclose and explain the income, expenses, gains and losses from hedging activities separately from other activities.

Item 2 — Interim MD&A

2.1 Interim MD&A

Interim MD&A must update your company’s annual MD&A for all disclosure required by Item 1. This disclosure must include:

(a) a discussion of your analysis of:

(i) current quarter and year-to-date results including a comparison of results of operations and cash flows to the corresponding periods in the previous year;

(ii) changes in results of operations and elements of income or loss that are not related to ongoing business operations;

(iii) any seasonal aspects of your company’s business that affect its financial condition, results of operations or cash flows; and

(b) a comparison of your company’s interim financial condition to your company’s financial condition as at the most recently completed financial year-end.

INSTRUCTION

(i) For the purposes of paragraph (b), you may assume the reader has access to your annual MD&A. You do not have to duplicate the discussion and analysis of financial condition in your annual MD&A. For example, if economic and industry factors are substantially unchanged you may make a statement to this effect.

(ii) For the purposes of subparagraph (a)(i), you should generally give prominence to the current quarter.