10 Pa. Code § 609.010 - Use of prospective financial statements
(a) Except as set forth in subsection (b),
the use of prospective financial statements , including those contained in
feasibility studies, is prohibited in connection with offerings registered
under sections 205 and 206 of the act (70 P.S. §§
1-205 and
1-206) or in offerings exempt
from registration under section 202(a) or 203(d) of the act (70 P.S. §§
1-202(a) and
1-203(d)), unless the
prospective financial statements used or distributed comply with the act and
this section.
(b) The use or
distribution of prospective financial statements in connection with the
following securities offerings is permissible if it complies with section 401
of the act (70 P.S. §
1-401):
(1) Offers or sales of securities of
reporting companies as the term is defined in section 102(q) of the act
(70 P.S. §
1-102(q)).
(2) Offers and sales of securities made under
an exemption not set forth in subsection (b).
(3) Offers and sales of securities made to
experienced private placement investors.
(4) Offers and sales of securities to an
individual, and spouse when purchasing as joint tenants or as tenants by the
entireties, if the minimum amount of securities to be purchased in the offering
by the individual is $500,000 or more and the purchase of the securities is for
cash or an unconditional obligation to pay cash which obligation is to be
discharged within 5 years from the date of sale of the securities.
(5) Offers and sales of securities to a
person which is organized primarily to purchase, in nonpublic offerings,
securities of corporations or issuers engaged in research and development
activities in conjunction with a corporation and one of the following exists:
(i) The person has purchased $450,000 or more
of the securities for cash or for an unconditional obligation to pay cash which
obligation is to be discharged within 5 years from the date of sale of the
securities, excluding a purchase of securities of a corporation in which the
affiliates of the person directly or beneficially own more than 50% of the
corporation's voting securities.
(ii) The person is purchasing $500,000 or
more of the securities being offered for cash or an unconditional obligation to
pay cash which obligation is to be discharged within 5 years from the date of
sale of the securities being purchased.
(6) Offers and sales of securities made to
accredited investors as that term is defined in Rule 501(a) (17 CFR
230.501(a)) (relating to
definitions and terms used in Regulation D) in Regulation D of the Securities
Act of 1933 (15 U.S.C.A.
§§
77a-77aa).
(c) Except as set forth in
subsection (d), prospective financial statements used or distributed in
connection with the securities offerings described in subsection (a) must
comply with the following requirements:
(1)
Assumptions. Assumptions include:
(i) Prospective financial statements must be
based on reasonable assumptions and clearly set forth the assumptions made with
respect to all material features of the presentation.
(ii) With respect to financial projections,
the hypothetical assumptions used must be clearly identified and be consistent
with the purpose of the presentation. With respect to multiple presentations
there must be a preponderance of information to suitably support the amount
presented being within the range of the hypothetical assumptions.
(2)
Preparation.
Preparation includes:
(i) Prospective
financial statements shall either be prepared by an independent qualified
person-preparer or reviewed by an independent qualified person reviewer. The
preparer or reviewer may rely on another preparer or reviewer for the
preparation or review of the underlying assumptions or other aspects of the
prospective financial statement if the report complies with paragraph
(3).
(ii) The Department will not
recognize a person as a qualified independent reviewer or preparer unless that
person can demonstrate adequate knowledge of the industry and the accounting
principles and practices of the industry portrayed in the prospective financial
statements .
(3)
Report. The report must include:
(i) Prospective financial statements
accompanied by a report of each preparer or reviewer of the following:
(A) The prospective financial
statements .
(B) The underlying
assumptions.
(C) Other material
aspects of the prospective financial statements .
(ii) With respect to prospective financial
statements , the preparer or reviewer's report:
(A) Must include a statement of the work
performed, including a review of the assumptions.
(B) May not contain a disclaimer with respect
to the reasonableness of the assumptions or the reasonableness of the
prospective financial statements .
(C) May not contain language that suggests or
implies that the preparer or reviewer vouches for the achievability of the
prospective financial statements .
(iii) A report on the preparation or review
of the financial projections explicitly describing the hypothetical assumptions
on which the projection is based, for example, "assuming the granting of the
requested loan to expand the Company's plant as described in the summary of
significant assumption(s)."
(4)
Contents of reports with more
than one preparer or reviewer. Collectively, the reports described in
paragraph (3) must include a statement of the work performed by each preparer
or reviewer and the degree of responsibility each is taking.
(5)
Professional
responsibility. A preparer or reviewer of a prospective financial
statement or of the underlying assumptions shall follow the requirements of
§
401.020 (relating to professional
responsibility).
(6)
Fair
presentation. Prospective financial statements must include material
information necessary for a fair presentation including, if applicable:
(i) Sales or gross revenue by sources for
each period presented.
(ii)
Expenses by classifications for each period presented.
(iii) Provision for income taxes for each
period presented.
(iv) Net income
for each period presented.
(v)
Primary and fully diluted earnings per share of common stock for each period
presented.
(vi) A cash flow
analysis or a statement of significant changes in financial position for each
period presented, including the sources and uses of cash.
(vii) Balance sheets at the beginning and end
of the entire period for which prospective financial statements are
presented.
(viii) Forecasted or
projected annual taxable income or loss with a discussion of the assumptions
affecting tax benefits and, if appropriate, alternative forecasted or projected
results based on alternative tax treatment.
(ix) Significant accounting principles and
policies followed.
(7)
Minimum period. Prospective financial statements shall cover a
minimum period of 3 years. The period must be extended if appropriate to
evaluate properly the investment consequences.
(8)
Explanatory notes.
Prospective financial statements must be accompanied by explanatory notes
describing significant assumptions made and, if appropriate, referenced to
tabular and numerical data and risk factors.
(9)
Conspicuous statement.
Prospective financial statements must be clearly distinguished from historical
financial statements and contain a conspicuous statement indicating that it is
based on assumptions of the future.
(d) The Department will consider prospective
financial statements examined in accordance with the Statement of Standards for
Attestation Engagements promulgated by the American Institute of Certified
Public Accountants, Inc. (SSAE Statement) to comply with this section if a
standard report on an examination prepared in accordance with the SSAE
Statement is issued by an independent person.
(e) The primary responsibility for
prospective financial statements used or distributed under this section rests
with management.
Notes
The provisions of this § 609.010 amended under sections
203(d), (o) and (p), 205, 206, 301, 303, 504, 603(a) and 609 of the
Pennsylvania Securities
This section cited in 10 Pa. Code § 203.186 (relating to employee takeovers).
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