Transactions With Public Markets Accounting and tax considerations

Types of Transactions IPO’s Acquisition by public company Reverse takeover Certain private placements (OM)

Financial Statements Securities legislation prescribes an array of financial information to be disclosed in a prospectus including: –Previously audited financial statements –Unaudited interim financial statements –Audited annual and unaudited interim financial statements of an acquired business –Pro-forma financial statements

Financial Statements General rule for financial statements previously reported on included in a long form prospectus –Two audited balance sheets –Three audited statements of operations, retained earnings (deficit) and cash flows –Full note disclosure –For years ended more than 90 days before the date of the prospectus – generally if audited statements are otherwise required

Financial Statements Generally unaudited interim financial statements for period ended more than 60 days of filing date of the prospectus - generally if quarterly statements are otherwise required –Interim period is defined as a completed three, six or nine month period that commence immediately following the end of the the most recently completed financial year –Comparative statements required for preceding year –Limited note disclosure

Financial Statements Financial statements of an acquired business –Required if acquisition meets certain thresholds of significance (Assets, Revenues, Investments) < 20% - 0 > 20% - 40% - 1 year > 40% - 50% - 2 years > 50% - 3 years –Comparative statements required for preceding year –Limited note disclosure

Financial Statements Pro forma financial statements are required to assist investors understand the impact of a business combination –Pro forma balance sheet (sometimes) –Pro forma income statement for the year-to-date interim period covered by the issuer’s most recent interim financial statements –Pro forma income statement for the most recently completed financial year (of the issuer) –Limited note disclosure

Tax Issues CCPC status –Impact on SR&ED claim for current year –Loss of refundable ITC –Reduction of ITC in future years Change in control triggers tax year end Restriction on losses and SR&ED pools going forward Loss of capital losses

Tax Issues Loss of CCPC Status has the following impacts to shareholders: –Loss of QSBC exemption –Option holders – effects ability to apply certain deductions which are beneficial to option holders Acquisitions require comprehensive tax planning, especially when there is foreign share holder involved (acquirer or seller)