Magen Ventures I Inc.
Headnote
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- National Instrument 52-107 Acceptable Accounting Principles and Auditing Standards, ss. 3.3(1)(a) and 5.1 -- An issuer requires relief from the requirement that financial statements required by securities legislation to be audited must be accompanied by an auditor's report that expresses an unmodified opinion.
Applicable Legislative Provisions
National Instrument 52-107 Acceptable Accounting Principles and Auditing Standards, s. 3.1.
June 28, 2022
IN THE MATTER OF THE SECURITIES LEGISLATION OF ONTARIO (the Jurisdiction) AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF MAGEN VENTURES I INC. (the Filer)
DECISION
Background
The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) that the requirement in National Instrument 52-107 Acceptable Accounting Principles and Auditing Standards (NI 52-107) that financial statements required to be audited must be accompanied by an auditor's report that expresses an unmodified opinion does not apply to the auditor's report that accompanies the audited financial statements of Trutina Pharmacy Inc. (Trutina), a subsidiary of Grey Wolf Animal Health Inc. (Grey Wolf) as at December 31, 2020 (the Exemption 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 section 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 and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.
Representations
This decision is based on the following facts represented by the Filer:
1. The Filer is a corporation existing under the laws of the Province of Ontario and a "Capital Pool Company" pursuant to Policy 2.4 -- Capital Pool Companies (Policy 2.4) of the TSX Venture Exchange (the TSXV). The Filer was formed for the purpose of effecting a "Qualifying Transaction" pursuant to Policy 2.4.
2. On June 17, 2021, the Filer completed its initial public offering of common shares pursuant to a final long-form prospectus dated May 17, 2021.
3. The Filer's common shares are listed and posted for trading on the TSXV under the symbol "MAGN.P".
4. On March 16, 2022, the Filer entered into a definitive agreement with Grey Wolf pursuant to which Grey Wolf would be indirectly acquired by the Filer, which transaction would constitute the Filer's Qualifying Transaction.
5. Grey Wolf is a corporation existing under the laws of the Province of Ontario and was amalgamated on December 31, 2020. The head office and registered office of Grey Wolf is located at 65 Front St. E., Suite 201, Toronto, Ontario M5E 1B5.
6. Grey Wolf is not a reporting issuer in any jurisdiction nor is any class of its securities listed on a stock exchange.
7. Neither the Filer nor Grey Wolf are in default of securities legislation in any jurisdiction of Canada.
8. Pursuant to Policy 2.4, the Filer is required to file a Filing Statement on TSXV Form 3B2 (the Filing Statement) providing disclosure on the business or businesses being acquired pursuant to the Qualifying Transaction and the business of the resulting issuer from the Qualifying Transaction.
9. In accordance with the Filing Statement, financial statement disclosure concerning Grey Wolf is required to be in accordance with National Instrument 41-101 -- General Prospectus Requirements (NI 41-101), which states that issuers like Grey Wolf are required to include two years of audited financial statements as well as comparative interim financial statements for the most recently completed interim period and MD&A related thereto (similar to what is required for an IPO venture issuer).
10. On September 1, 2021, Grey Wolf completed an acquisition of Trutina (the Trutina Acquisition) for which the Filer is proposing to include the following Trutina financial statements on the basis that the subject matter of the Trutina Acquisition constitutes a "primary business" within the meaning of Form 41-101F1 -- Information Required in a Prospectus (Form 41-101F1):
(a) audited financial statements for the year ended December 31, 2020; and
(b) audited financial statements for the eight month period ended August 31, 2021.
11. Trutina is a leading equine compounding pharmacy supplying custom medications to vets and patients across Canada. Although historically Trutina has experienced increased sales in the spring and summer due to equine breeding and horse racing seasons, the business is not seasonal and has stable demand throughout the year.
12. As Trutina was not previously audited prior to the Trutina Acquisition, Grey Wolf's auditors (the Auditors) are unable to express an unmodified audit opinion specific to inventory balances as at January 1, 2020. As a result, the Auditors intend to express a modified opinion (scope limitation) relating to the physical verification of inventory on Trutina's statement of financial position as at January 1, 2020 and the related effects on the financial performance and cash flows for the year ended December 31, 2020 (the Inventory Qualification). The only modification in the auditor's report on the audited statement of financial position as at January 1, 2020 and the audited annual financial statements for the year ended December 31, 2020 is the Inventory Qualification. The statement of financial position as at December 31, 2020 contains an unmodified opinion The auditor's report for the audited annual financial statements for the eight month period ended August 31, 2021 contains an unmodified opinion.
13. A modified opinion is contrary to subsection 3.3(1)(a)(i) of NI 52-107.
14. Subsection 5.8(2) of Companion Policy 41-101CP to NI 41-101 contemplates that relief may be granted to non-reporting issuers in appropriate circumstances to permit the auditor's report on financial statements to contain a qualified opinion relating to opening inventory if there is a subsequent audited period of at least six months on which the auditor's report expresses an unmodified opinion and the business is not seasonal.
Decision
The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.
The decision of the principal regulator under the Legislation is that the Exemption Sought is granted provided that:
(a) Grey Wolf includes in the Filing Statement the audited annual financial statements of Trutina for the year ended December 31, 2020 and the audited financial statements of Trutina for the eight month period ended August 31, 2021; and
(b) the only modification in the Auditor's report on the audited annual financial statements of Trutina for the year ended December 31, 2020 is the Inventory Qualification.