Securities Law & Instruments

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- National Instrument 52-107 Acceptable Accounting Principles and Auditing Standards, s. 5.1 -- An issuer wants 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 -- The issuer is making a significant acquisition for which it requires shareholder approval and for which it must file a business acquisition report (BAR); the financial statements of the target company must be included in the information circular and the BAR; the auditor's report will contain a qualification related to the accounting methods the target company used to record a historical investment; the target company disposed of the investment prior to being acquired by the issuer; the issuer will otherwise comply with the financial statement requirements for the information circular and the acquisition statement requirements for the business acquisition report.

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- National Instrument 51-102 Continuous Disclosure Obligations, s.13.1 -- Information Circular -- An issuer wants relief from the requirement to include prospectus-level disclosure in an information circular to be circulated in connection with an arrangement, reorganization, acquisition or amalgamation -- The issuer will provide alternate financial information about the target company that is consistent with the information required in the continuous disclosure context for significant acquisitions; information will be provided about the parties to the transaction sufficient for shareholders to assess the transaction as a whole.

Applicable Legislative Provisions

National Instrument 52-107 Acceptable Accounting Principles and Auditing Standards, ss. 3.3(1)(a), 5.1.

National Instrument 51-102 Continuous Disclosure Obligations, ss. 9.1, 13.1.

Form 51-102F5 Information Circular, s. 14.2.

May 22, 2014

IN THE MATTER OF THE SECURITIES LEGISLATION OF BRITISH COLUMBIA AND ONTARIO (THE JURISDICTIONS) AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF CARMANAH TECHNOLOGIES CORPORATION (THE FILER)

DECISION

Background

1 The securities regulatory authority or regulator in each of the Jurisdictions (the Decision Maker) has received an application from the Filer for a decision under the securities legislation of the Jurisdictions (the Legislation) exempting the Filer from the requirements in:

(a) National Instrument 52-107 Acceptable Accounting Principles and Auditing Standards (NI 52-107) that an auditor's report accompanying audited financial statements to be included in both an information circular and business acquisition report must express an unmodified opinion; and

(b) Item 14.2 of Form 51-102F5 Information Circular (Form 51-102F5) to include in an information circular financial statements of an acquired business prescribed by the form of prospectus that the acquired business would be eligible to use immediately prior to the sending of the information circular to shareholders of the Filer (the Required Sol Statements);

(together, the Exemption Sought).

Under the Process for Exemptive Relief in Multiple Jurisdictions (for a dual application):

(a) the British Columbia Securities Commission is the principal regulator for this application,

(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 Alberta, and

(c) the decision is the decision of the principal regulator and evidences the decision of the securities regulatory authority or regulator in Ontario.

Interpretation

2 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

3 This decision is based on the following facts represented by the Filer:

1. the Filer is a company existing under the Business Corporations Act (British Columbia);

2. the Filer's head office is located in Victoria, British Columbia;

3. the Filer's common shares are listed and posted for trading on the Toronto Stock Exchange (TSX) under the symbol CMH;

4. the Filer is a reporting issuer under the securities laws of British Columbia, Alberta and Ontario;

5. Michael Sonnenfeldt is a director of the Filer; he currently holds or controls, directly or indirectly, approximately 23.4% of the total outstanding common shares of the Filer and, as such, is a control person of the Filer under applicable Canadian securities laws;

6. SOL, Inc. (Sol) is a private company incorporated under Florida Business Corporations Act;

7. on March 21, 2014, the Filer announced that it had entered into a binding letter of intent with Michael Sonnenfeldt (who currently owns approximately 84.5% of the outstanding shares of Sol) to acquire Sol (the Acquisition);

8. since the Acquisition constitutes a significant acquisition for purposes of section 8.3 of National Instrument 51-102 Continuous Disclosure Obligations, the Filer will be required to prepare and file a business acquisition report in respect of the Acquisition (the BAR);

9. the common shares of the Filer issuable in connection with the Acquisition exceed 25% of the number of common shares issued prior to the Acquisition; as such, the Acquisition is subject to shareholder approval requirements under the rules of the TSX;

10. the Acquisition also constitutes a related party transaction for purposes of Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions (MI 61-101); as such, for purposes of securities laws in Ontario, the Acquisition must, among other things, be approved by a majority of the minority of shareholders voting at a meeting of shareholders of the Filer;

11. during the course of preparing an information circular (the Circular) for a meeting of shareholders required to consider and approve the Acquisition under both MI 61-101 and the rules of the TSX, Sol's auditors advised that they would be unable to deliver an unmodified audit opinion in respect of Sol's historical financial statements for the following reasons:

(a) Sol previously had an investment in Phocos AG (Phocos), an unrelated private company based in Germany; Sol's investment in Phocos represented approximately a 32% interest in Phocos;

(b) Sol accounted for its investment in Phocos using the cost method of accounting, rather than the equity method of accounting which is required under U.S. GAAP (as that term is defined in NI 52-107);

(c) Sol's auditors will include a qualification in their auditor's report for the years ended December 31, 2013, December 31, 2012 and December 31, 2011 due to the fact that the method used to account for the Phocos investment was not in accordance with U.S. GAAP;

(d) on April 23, 2013, Sol sold its entire investment in Phocos; accordingly, Sol no longer holds any interest in Phocos and historical financial information about Phocos would be of little value to investors or shareholders assessing the Acquisition given that the Filer will not be acquiring any interest in Phocos when it acquires Sol;

(e) the financial statements of Phocos itself were never audited; and

(f) without access to audited financial statements or the relevant underlying information of Phocos, Sol is currently unable to make the changes to its historical financial statements to ensure they comply with U.S. GAAP;

12. under NI 52-107, financial statements that are required by securities legislation to be audited must be accompanied by an auditor's report that expresses an unmodified opinion;

13. under Item 14.2 of Form 51-102F5, the Filer is required to include in the Circular the Required Sol Statements on the basis that Sol is an issuer rather than an acquired business;

14. under subsection 3.2(1)(a) of NI 52-107, the Required Sol Statements are required to be prepared using Canadian GAAP (as that term is used in NI 52-107);

15. subsection 3.11 of NI 52-107 permits financial statements of a business to be acquired to be prepared in accordance with U.S. GAAP;

16. the Filer proposes to include in the Circular financial statements of Sol for its years ended December 31, 2013, December 31, 2012 and December 31, 2011 which are U.S. GAAP compliant other than as set out in paragraph 11 (the Alternative Financial Statements);

17. the Alternative Financial Statements will provide information in respect of Sol that is sufficient to enable a shareholder of the Filer to make an informed decision regarding the Acquisition;

18. except for the Exemption Sought, the Alternative Financial Statements to be included in the Circular and the BAR will comply with the requirements of NI 51-102 and NI 52-107; and

19. the Filer is not in default of any requirement of Canadian securities laws.

Decision

4 Each of the Decision Makers is satisfied that the decision meets the test set out in the Legislation for the Decision Maker to make this decision.

The decision of the Decision Makers under the Legislation is that the Exemption Sought is granted.

"Andrew S. Richardson"
Acting Director, Corporate Finance
British Columbia Securities Commission