SQI Diagnostics Inc. (Re), 2011 CanLII 57304

Headnote Multilateral Instrument 11-102 Passport System and National Policy 11-203 Process for Exemptive Relief applications in Multiple Jurisdictions – Exemption from requirements in subsection 4.11(4), 4.12(1) and 4.12(2)(a) of National Instrument 52-107 Acceptable Accounting Principles and Auditing Standards (NI 52-107) to reconcile acquisition statements to the issuer’s GAAP and permit the use of ISAs without a reconciliation to Canadian GAAS – The issuer wants relief from the requirement to include a reconciliation to Canadian GAAP in annual financial statements of the acquired business and to have those statements audited in accordance with Canadian or US GAAS – The issuer will prepare pro forma financial statements in accordance with the guidance set out in section 8.7(9) of Companion Policy 51-102CP as it applies to financial years beginning on or after January 1, 2011 for all periods presented. Applicable Legislative Provisions

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

lN THE MATTER OF THE SECURlTIES LEGISLATION OF ONTARIO (the Jurisdiction)

AND

IN THE MATTER OF

PROCESS FOR EXEMPTIVE RELIEF

APPLICATIONS IN MULTIPLE JURISDICTIONS

AND

lN THE MATTER OF SQI DIAGNOSTICS INC. (the Filer)

DECISION

Background

The principal regulator in the Jurisdiction (the Decision Maker) has received an application from the Filer for a decision under the securities legislation of the Jurisdiction (the Legislation)

(i) that the Canadian GAAP reconciliation requirements under section 4.11(4) of National Instrument 52-107, Acceptable Accounting Principles and Auditing Standards (NI 52-107) do not apply to the final short form base PREP prospectus (Prospectus) and business acquisition report (BAR) financial statements (Acquisition Statements) of a company to be acquired required to be filed by the Filer;

(ii) that the Acquisition Statements may be audited in accordance with International Standards on Auditing (ISA) notwithstanding section 4.12(1) of NI 52-107; and

(iii) that the requirement under section 4.12 (2)(a) of NI 52-107 that the auditor’s report for the Acquisition Statements, if prepared in accordance with ISA, be accompanied by a statement of the auditor describing any material differences in the form and content of the auditor’s report as compared to an auditor’s report prepared in accordance with Canadian GAAS and indicating that an auditor’s report prepared in accordance with Canadian GAAS would express an unmodified opinion does not apply to the Acquisition Statements (the Exemptions Sought).

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 subsection 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in British Columbia and Alberta.

Interpretation

Terms defined in National Instrument 14-101 Definitions have the same meaning as is used in this decision, unless otherwise defined.

Representations

This decision is based on the following facts and representations made by the Filer:

1The predecessor to the Filer was incorporated on September 11, 2003 under the Canada Business Corporations Act and filed articles of amendment to change its name to “SQI Diagnostics Inc.” on April 20, 2007.

2The Filer’s principal and registered office is located at 36 Meteor Drive, Toronto, ON M9W 1A4.

3The Filer is a life sciences company that develops and commercializes proprietary technologies and products for advanced microarray diagnostics.

4The Filer is a reporting issuer in British Columbia, Alberta and Ontario, and is not in default of its reporting issuer obligations in any of those jurisdictions.

5The Filer’s common shares are listed on the TSX Venture Exchange under the symbol “SQD”.

6The Filer’s annual financial statements for the years up to and including the financial year ended September 30, 2010 have been prepared in accordance with Canadian GAAP determined with reference to Part V of the Handbook applicable to public enterprises and audited in accordance with Canadian GAAS.

7The Filer’s annual financial statements for the years commencing on or after January 1, 2011 will be prepared in accordance with IFRS and will be audited in accordance with Canadian GAAS.

8As disclosed in a press release dated July 4, 2011, and a material change report (as amended) dated July 14, 2011, on July 4, 2011 the Filer entered into an agreement to acquire (the Acquisition) all of the share capital of Scienion AG (Scienion), a German-based microarray manufacturing equipment and microarray print and development services company.

9The completion of the Acquisition is subject to the satisfaction of certain closing conditions including the closing of a public offering, pursuant to the Prospectus, for gross proceeds of at least $30,000,000.

10Scienion is a company incorporated under the laws of Germany.

11Scienion’s auditor is an Ernst and Young member firm in Germany (the Auditor).

12Scienion has or will have prepared their annual financial statements in accordance with IFRS and has or will have such financial statements audited in accordance with ISA.

13Since the Acquisition, if completed, will constitute a “significant acquisition” for the Filer within the meaning of section 8.3 of NI 51-102 Continuous Disclosure Obligations (NI 51-102), the Filer is required to include in the Prospectus, pursuant to section 10.2 of Form 44-101F1, and in the BAR, pursuant to section 8.4 of National Instrument 51-102, among other things:

(a) the audited annual financial statements of Scienion for the financial year ended December 31, 2010, with comparative information for the financial year ended December 31, 2009, including an opening balance sheet as at January 1, 2009;

(b) the interim financial statements of Scienion for the interim period ended June 30, 2011 (which, for greater certainty, will not include the comparative financial information for the interim period ended June 30, 2010); and

(c) pro forma financial statements consisting of the following:

(i) a balance sheet as at June 30, 2011;

(ii) pro forma income statements for (i) the year ended September 30, 2010 (the year ended December 31, 2010 for Scienion) and (ii) the nine month period ended June 30, 2011 (the six month period ended June 30, 2011 for Scienion);

(iii) pro forma earnings per share based on the pro forma income statements; and

(iv) notes setting out the underlying assumptions on which the pro forma financials are prepared, cross-referenced to each related pro forma adjustment,

which reflect the completion of the Acquisition as if it had occurred as of October 1, 2009 for the purpose of the pro forma income statements, and as of June 30, 2011 for the purposes of the pro forma balance sheet (the Required Pro Forma Statements).

14The Required Pro Forma Statements will be prepared in accordance with the guidance in section 8.7(9) of Companion Policy 51-102CP as it applies to financial years beginning on or after January 1, 2011. As part of the preparation of the Required Pro Forma Statements, the Filer will identify accounting policy differences between Canadian GAAP and IFRS that would potentially have a material impact and which could be reasonably estimated and will describe such differences in the notes to the Required Pro Forma Statements in the course of describing the adjustments presented relating to the financial results of Scienion.

15The Filer will include in the Prospectus and the BAR clear disclosure as to the basis of presentation of the Acquisition Statements and the fact that the Acquisition Statements have been audited in accordance with ISA.

16The CSA have amended NI 52-107 to permit acquisition statements to be audited in accordance with ISA, regardless of whether or not the issuer is a “foreign issuer” for financial statements relating to financial years beginning on or after January 1, 2011, with no requirement to include with such acquisition statements a statement by the auditor that:

(a) describes any material differences in the form and content of the auditor’s report prepared in accordance with ISA as compared to an auditor’s report prepared in accordance with Canadian GAAS, and

(b) indicates that the auditor’s report prepared in accordance with Canadian GAAS would express an unmodified opinion.

17Paragraph 20 of Part 1 of the Assurance Handbook of the Canadian Institute of Chartered Accountants provides that the ISA have been adopted as Canadian Auditing Standards for audits of financial statements for periods ending on or after December 14, 2010.

Decision

The Decision Maker 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 Maker under the Legislation is that the Exemption Sought is granted provided that:

(a) the Filer includes in the Prospectus and the BAR Acquisition Statements for Scienion for the years ended December 31, 2010 and 2009 that are prepared in accordance with IFRS and are audited in accordance with ISA;

(b) the Required Pro Forma Statements are prepared in accordance with the guidance in section 8.7(9) of Companion Policy 51-102CP as it applies to financial years beginning on or after January 1, 2011. As part of the preparation of the Required Pro Forma Statements, the Filer will identify accounting policy differences between Canadian GAAP and IFRS that would potentially have a material impact and which could be reasonably estimated and will describe such differences in the notes to the Required Pro Forma Statements in the course of describing the adjustments presented relating to the financial results of Scienion; and

(c) the Prospectus otherwise complies with the requirements of Form 44-101F1 and the BAR otherwise complies with the requirements of Form 51-102F4.