51-701 - Continuous Disclosure Review Program - April 2000 Staff Report (Previously NIN 2000/15) [BCN - Rescinded]

A copy of the Continuous Disclosure Review Program - April 2000 Staff Report, which we first published on April 25, 2000 (see NIN 2000/15), is attached to this Notice. The Report can also be found on the Industry Information section of the Commission website at www.bcsc.bc.ca.

Background

On June 1, 1998, we introduced the Continuous Disclosure Review Program to monitor compliance with BC’s continuous disclosure requirements and to help companies improve their public disclosure.

We prepared the Report to help directors and officers of companies and their professional advisers achieve and maintain a high standard of disclosure.  We are referring you to the Report again to remind you of the types of deficiencies we find to help ensure these deficiencies do not occur in the future. 

We reviewed forty-eight companies for the Report.  Most of the companies had no significant revenues and would be considered development stage companies.  The resource companies that we reviewed generally had neither resources nor reserves.

Summary of Report

We have listed below the most significant findings in the Report and, in some cases, have suggested ways for you to better meet your disclosure obligations.  The Report itself contains more detailed suggestions for future compliance.

The Report reveals:

• a significant number of companies did not comply with the management discussion and analysis requirements (Schedule C) of Form 61 (now BC Form 51-901F Quarterly and Year End Report).  The Report suggests a number of ways for you to improve your MD&A.  For example, you should provide more specific disclosure and make sure to discuss things like significant expenditures, subsequent events and related party transactions. 
• a significant number of companies did not comply with the annual information form disclosure requirements for companies offering private placement securities under the System for a Shorter Hold with Annual Information Form (SHAIF).  One way to improve your AIF disclosure is to make sure the information it contains is consistent with your company’s financial statements.
• a material decline in working capital for a number of companies completing prospectus distributions after the date of the final prospectus and before completion of the distribution, calling into question whether the company should have amended the prospectus.  Remember that s. 67(1) of the Securities Act requires companies to amend a prospectus if a “material change” in the company’s affairs occurs before a distribution is completed.  A material decline in a company’s working capital during a distribution may constitute a material change.
• inappropriate use of the term “deemed value” to describe the value assigned for accounting purposes to transactions involving the issuance of shares in exchange for assets of indeterminate value.  The basis for valuing any transaction should be clearly disclosed in the financial statements.
• failure to write-down the value of resource properties where an impairment in value has occurred.
• failure to file material change reports and, even when filed, failure to follow the correct format (formerly Form 27, now BC Form 53-901F).
• non-compliance with section 3(9)(b) of the Securities Rules.  Remember that development stage companies must include in their financial statements, or in a supporting note or schedule to those statements, a breakdown of significant expenditures, whether capitalized or deferred.  See Appendix A to the Report for a discussion of the level of expenditure we generally consider to be significant.

We placed a number of companies on our defaulting issuers’ list.  This list is available on the Commission website and is often disseminated by commercial news organizations.  We also advised some companies that their securities were no longer eligible for the shorter hold period available under SHAIF.  In a few cases, the Executive Director issued cease trade orders where a company’s disclosure was so deficient that we did not consider it to be in the required form.   In all cases, we required the selected company to file one or more revised disclosure documents.

Conclusion

The Report identifies a number of disclosure problems that may be common to other development stage companies.  We have suggested, both in this Notice and in the Report, some ways for you to avoid these problems in the future. 

A company that files materially deficient disclosure documents will face significant consequences.  Possible consequences include placement on our defaulting issuers’ list, loss of access to the shorter hold period, or the issuance of a cease trade order.  The Commission’s Enforcement Division may also review the suitability of directors and officers of reporting issuers with inadequate disclosure. 

Updates

We are also publishing today Continuous Disclosure Update No. 1 (see BCN 51-702), which supplements the Report.  We will continue to publish Updates as new disclosure issues arise.

May 15, 2001

Steve Wilson
Executive Director

Ref: NIN 2000/15
BC Form 51-901F (formerly Form 61)
Securities Act, section 67 (1)
BC Form 53-901F (formerly Form 27)
Securities Rules, section 3(9)(b)
BCN 51-702

This Notice may refer to other documents. These documents can be found at the B.C. Securities Commission public website at www.bcsc.bc.ca in the Commission Documents database or the Historical Documents database.