Nerium Biotechnology, Inc
Headnote
Multilateral Instrument 11-102 Passport System and National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- National Instrument 52-107, Acceptable Accounting Principles and Auditing Standards, ss. 3.2 and 3.3 -- An issuer that is not yet an 'SEC issuer' wants to file financial statements prepared in accordance with U.S. GAAP and audited in accordance with U.S. GAAS, as applicable -- the issuer intends to become an SEC registrant -- the issuer has filed a registration statement with the SEC -- the issuer will meet all the elements of the definition of 'SEC issuer' once the SEC accepts its registration statement -- the issuer will file financial statements and MD&A that comply with the requirements for SEC issuers in NI 52-107 and NI 51-102 -- if the issuer does not become an SEC issuer by a set date, it will re-file its financial statements in accordance with Canadian GAAP and Canadian GAAS and its MD&A in the Canadian form.
Applicable Legislative Provisions
National Instrument 52-107 Acceptable Accounting Principles and Auditing Standards, ss 3.2, 3.3.
November 12, 2020
IN THE MATTER OF THE SECURITIES LEGISLATION OF ONTARIO (the Jurisdiction) AND IN THE MATTER OF NERIUM BIOTECHNOLOGY, INC. (the Filer)
DECISION
Background
The Ontario Securities Commission (the Decision Maker) has received an application from the Filer for a decision under the securities legislation of the Jurisdiction (the Legislation) exempting the Filer from the requirements of (i) subsection 3.2 of National Instrument 52-107 Acceptable Accounting Principles and Auditing Standards (NI 52-107) that the Filer's financial statements, other than acquisition statements, be prepared in accordance with Canadian generally accepted accounting principles (Canadian GAAP) applicable to publicly accountable enterprises to permit the Filer to prepare its financial statements in accordance with United States generally accepted accounting principles (as defined in NI 52-107) (U.S. GAAP) for the year ended December 31, 2019, the three-month period ended March 31, 2020 and the three-- and six-month periods ended June 30, 2020; and (ii) subsection 3.3 of NI 52-107 that the Filer's financial statements be audited in accordance with Canadian generally accepted auditing standards (Canadian GAAS) to permit the Filer's financial statements to be audited in accordance with Public Company Accounting Oversight Board (United States of America) generally accepted auditing standards (U.S. PCAOB GAAS) for the year ended December 31, 2019 (collectively, the Exemption Sought).
Interpretation
Terms defined in National Instrument 14-101 Definitions and NI 52-107 have the same meaning if used in this decision unless otherwise defined herein.
Representations
This decision is based upon the following facts represented by the Filer:
1. The Filer was incorporated on June 1, 2006 pursuant to the Canada Business Corporations Act.
2. The Filer's head office is located at 1147 Huebner Road, Suite 175, San Antonio, Texas, United States, 78230.
3. The Filer's registered and records office is located at 199 Bay Street, Suite 4000, Toronto, Ontario, Canada, M5L 1A9.
4. The primary business of the Filer is the research, development, manufacturing, and marketing of oleander-based products for the treatment of certain forms of proliferative diseases and viral infections.
5. The Filer is a reporting issuer in Ontario. The Filer is not a reporting issuer in any other jurisdiction of Canada.
6. The Filer's financial year end is December 31.
7. No securities of the Filer have ever been listed for trading on any Canadian or other stock exchange.
8. The Filer is not eligible to cease to be a reporting issuer in Ontario.
9. The Filer's authorized share capital consists of the following as at the date of this application:
(i) an unlimited number of Common shares, of which 36,469,181 are issued and outstanding; and
(ii) an unlimited number of Preferred shares issuable in series, of which none are issued and outstanding.
10. To the knowledge of the Filer, approximately 90.16% of the Filer's outstanding Common shares are directly or beneficially held by United States residents and approximately 9.84% of the outstanding Common shares are directly or beneficially held by Canadian residents.
11. All of the executive officers and the majority of the directors of the Filer are residents in the United States.
12. The majority of the consolidated assets of the Filer are located in the United States.
13. The business of the Filer is administered principally in the United States.
14. The Filer's financial statements are stated in United States dollars.
15. On June 28, 2011, the Filer's registration statement on Form 20-F (the Prior Registration) with the U.S. Securities Exchange Commission (SEC) was declared effective and, as a result, the Filer became a SEC Issuer (as defined in NI 52-107).
16. In connection with the Prior Registration and the Filer's status as a SEC Issuer, the Filer began preparing its financial statements in accordance with U.S. GAAP and having its financial statements audited in accordance with U.S. PCAOB GAAS, as applicable.
17. On December 14, 2012, the Filer filed a Form 15 with the SEC to terminate its registration and, as a result, the Filer ceased to be a SEC Issuer; however, the Filer did not cease to prepare its financial statements in accordance with U.S. GAAP and have its financial statements audited in accordance with U.S. PCAOB GAAS, as applicable.
18. The Filer is not in default of securities legislation in Ontario, other than, as discussed above, with respect to its annual financial statements for the year ended December 31, 2012, its annual and interim financial statements for the years ended December 31, 2013 to 2019 and its interim financial statements for the three-month period ended March 30, 2020 and the three-- and six-month periods ended June 30, 2020 having been prepared in accordance with U.S. GAAP and having been audited in accordance with U.S. PCAOB GAAS, as applicable.
19. In order to again become a SEC Issuer, the Filer filed a new registration statement on Form 10 on June 15, 2020 (the Initial Form 10).
20. On July 21, 2020, the SEC requested that the Filer withdraw the Initial Form 10 and re-file once the Filer was in a position to submit its financial statements for the year ended December 31, 2019 (the Annual Financial Statements) and the applicable interim period. The Filer had been delayed in submitting such financial statements to the SEC as it was informed by its auditors that the auditors would have to complete a review of the applicable interim financial statements prior to consenting to the release of their opinion with respect to the Annual Financial Statements. The Initial Form 10 was withdrawn by the Filer on July 21, 2020.
21. The Filer's auditors completed their review of the interim financial statements for the three-- and six-month period ended June 30, 2020 (the Interim Financial Statements) and consented to the release of their report on September 18, 2020. The Filer then re-filed the registration statement on Form 10 (the Refiled Form 10) on September 18, 2020, which included the Annual Financial Statements and the Interim Financial Statements prepared in accordance with U.S. GAAP and audited in accordance with U.S. PCAOB GAAS, as applicable (the Financial Statements).
22. Subsequent to the filing of the Refiled Form 10, the Filer received confirmation from the SEC that the Refiled Form 10 was complete.
23. Upon becoming a SEC Issuer, the Filer may (i) under Part 3.7 of NI 52-107, prepare its financial statements, other than acquisition statements, in accordance with U.S. GAAP, and (ii) under Part 3.8 of NI 52-107, have its annual financial statements audited in accordance with U.S. PCAOB GAAS.
24. On June 18, 2020, the Decision Maker issued a decision (the Initial Order) granting relief substantially similar to the Exemptions Sought (the Existing Relief).
25. In accordance with the terms and conditions of the Existing Relief, the Filer has filed on SEDAR the Financial Statements and the related management's discussion and analysis.
26. Under the terms of the Existing Relief, if the Filer did not become a SEC Issuer by September 30, 2020, the Filer was required to immediately re-file on SEDAR:
(i) the financial statements for the year ended December 31, 2019, the three-month period ended March 31, 2020 and the three-- and six-month periods ended June 30, 2020 prepared in accordance with Canadian GAAP applicable to publicly accountable enterprises and audited in accordance with Canadian GAAS, as applicable;
(ii) the financial statements for the years ended December 31, 2018 and 2017, prepared in accordance with Canadian GAAP applicable to publicly accountable enterprises and audited in accordance with Canadian GAAS;
(iii) the related management's discussion and analysis amended to reflect the re-filed financial statements; and
(iv) a news release explaining the nature and purpose of the re-filings.
27. At the time of the Initial Order, the Filer anticipated that it would become a SEC Issuer by September 30, 2020.
28. As a result of the delay associated with the re-filing of the Initial Form 10, the Filer did not become a SEC Issuer by September 30, 2020, but it anticipates that it will become a SEC Issuer by November 17, 2020, 60 days from the date of filing.
29. The Exemption Sought will extend the deadline of the Existing Relief such that the Filer is required to make the filings described in paragraph 26 above if the Filer does not become a SEC Issuer by November 30, 2020.
30. The Filer will not issue any securities until the earlier of it (i) qualifying as a SEC Issuer or (ii) having filed the documents referenced in paragraph 26 above.
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 Existing Relief is revoked and the Exemption Sought is granted provided that:
(a) the Filer files financial statements prepared in accordance with U.S. GAAP for the three-- and nine-month periods ended September 30, 2020;
(b) if the Filer does not become a SEC Issuer by November 30, 2020, the Filer will immediately file on SEDAR:
i. the financial statements for the interim periods ended March 31, 2020, June 30, 2020, and September 30, 2020, prepared in accordance with Canadian GAAP applicable to publicly accountable enterprises;
ii. the financial statements for the year ended December 31, 2019, prepared in accordance with Canadian GAAP applicable to publicly accountable enterprises and audited in accordance with Canadian GAAS;
iii. the related management's discussion and analysis amended to reflect the re-filed financial statements; and
iv. a news release explaining the nature and purpose of the re-filings; and
(c) the Filer does not issue any securities until the earlier of it (i) qualifying as a SEC Issuer; or (ii) filing the documents referenced in paragraph (b) above.
"Mark Pinch"
Associate Chief Accountant
Ontario Securities Commission