On January 29, 2014 the TSX Venture Exchange (TSXV) published a bulletin providing some guidance to facilitate the listing process for issuers intending to list on the TSXV in the “Industrial, Technology and Life Science” category (Non-Resource Issuers). The TSXV’s guidance is focused on two areas:
- clarifying the “history of operations/validation of business” initial listing requirement (Operations ILR) for Non-Resource Issuers; and
- enhancing the utility of pre-filing applications for all issuers by assessing an issuer’s ability to satisfy the Operations ILR at an earlier stage in the listing process.
Interpretative Guidance for “History of Operations/Validation of Business” Initial Listing Requirement
The bulletin clarifies the Operations ILR applicable to Non-Resource Issuers pursuant to section 2.6 of Policy 2.1 – Initial Listing Requirements. The policy currently provides minimal guidance in this area, stating that in order to meet the standard for “Prior Expenditures and Work Program”, Tier 1 and Tier 2 issuers must have a “history of operations or validation of business”. The TSXV now clarifies what this means.
Tier 1 Issuers – Revenue Generating / Commercialization Stage
Tier 1 or Tier 2 Non-Resource Issuers will satisfy the Operations ILR if the issuer has:
- a product/service that is at the commercialization stage and has been so for at least 12 months. (i.e., at the time of listing, the issuer has developed a product or service that it is able to provide and offer for sale and has at least 12 months of revenues);
- aggregate revenues from the sale of the product/service since commercialization of at least $500,000 (with no time limit on when these revenues were generated); and
- reasonable evidence (such as the existence of sales/service contracts) that the level of revenues from the sale of the product/service over the 12 months pre-listing will be maintained or increased in the 12 months post-listing.
Revenues may have been generated by the issuer, a target company or a vendor.
Tier 2 Issuers – Non-Revenue Generating/Development Stage / Early Commercialization Stage
Tier 2 Non-Resource Issuers generally satisfy the Operations ILR if three of the following criteria are satisfied:
- Either: (a) development of the issuer’s product/service has been ongoing for at least 12 months; or (b) not less than an aggregate of $250,000 has been expended on the development of the issuer’s product/service (excluding general and administrative expenses).
- The issuer will expend not less than $500,000 on the development or commercialization of the product/service over the 12 months post-listing.
- A working prototype or beta version of the issuer’s product (or service) has been created which reasonably demonstrates that development of the final product (or delivery of the final service) with expected functionality is possible.
- There is a reasonable expectation that: (a) within 12 months of listing the issuer will have a product/service at the commercialization stage; and (b) within 24 months of listing, the issuer will be generating revenues from the sale of such product/service.
- The issuer has a joint venture or collaborating arrangement with a credible third party in respect of the development of its product or service. For a research and development issuer (Life Sciences), this may include having its research programs supported by a credible third party institute such as a university.
- The issuer has principals/founders who have a successful track record in developing products or services in the same or similar industry as may be evidenced by: (a) the commercial sale of such products or services; (b) positive cash flow being generated from the sale of such products or services; and (c) where applicable, technical expertise in the industry sector.
Enhancing the Utility of Pre-Filing Applications
Issuers may submit a “pre-filing application” to the TSXV in advance of filing a full listing application. This is done as a means of obtaining the TSXV’s views and position on the merits of the application.
The TSXV strongly encourages Non-Resource Issuers to submit a pre-filing application requesting a preliminary assessment of the issuer’s ability to satisfy the Operations ILR. This prevents the issuer from incurring the time and expense of preparing and submitting a full application to list. A pre-filing application is recommended whether or not the issuer believes it satisfies the Operations ILR based on the above-stated criteria. The TSXV suggests that the issuer should provide the following information (as applicable) with the pre-filing application:
- The particulars of the proposed listing transaction, if known.
- The identity of the sponsor or agent/underwriter that will be involved with the proposed listing transaction, if known.
- A brief description of the issuer’s product/service and its stage of development. Specifically, indicate whether the issuer currently has a product/service at the commercialization stage or if it is in the process of developing its product/service.
- A brief description of the development of the product/service to date including an itemized breakdown of development costs that discloses the entity that incurred the costs.
- A summary of the revenues, if any, derived from the sale of the product/service in each fiscal year to date (including interim figures for the current fiscal year).
- A brief description of any existing sales/service contracts.
- For issuers with a product/service at the commercialization stage:
- For product sellers, a brief description of the manner in which the product is and will be produced (i.e. description of production facilities, costs of production, etc.).
- For service providers, a brief description of the manner in which the service is and will be provided (i.e. staffing requirements, cost of providing service, etc.).
8. For issuers without a product/service at the commercialization stage:
- A brief description of the remaining steps necessary for the issuer to have a product/service at the commercialization stage including a timeframe and an itemized breakdown of remaining costs.
- Confirmation as to whether there is a working prototype or beta version of the issuer’s product (or, where applicable, the issuer’s service) which reasonably demonstrates that development of the final product (or delivery of the final service) with expected functionality is possible.
9. For issuers with no history of revenues (or that do not otherwise satisfy the criteria of Tier 1 set out above):
- A summary of the qualifications of the issuer’s principals in terms of developing products or services within the same or similar industry.
- A brief description of any joint venture or collaborating arrangement with a credible third party in respect of the development of its product or service.
10. Any other information the issuer considers relevant to the TSXV’s assessment of the issuer’s business and history of operations.
By providing the additional guidance noted above, the TSXV has indicated that it believes that Non-Resource Issuers will, from the outset of the listing process, have a better understanding of the TSXV’s expectations and relevant considerations applicable to its listing requirements.