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10 Pa. Code § 609.010. Use of prospective financial statements.

§ 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.


   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 Act of 1972 (70 P.S. § §  1-203(d), (o) and (p), 1-205, 1-206, 1-301, 1-303, 1-504, 1-603(a) and 1-609); sections 4 and 9(b) of the Takeover Disclosure Law (70 P.S. § §  74 and 79(b)); and section 202.C of the Department of Banking and Securities Code (71 P.S. §  733-202.C).


   The provisions of this §  609.010 adopted December 18, 1981, effective December 19, 1981, 11 Pa.B. 4310; amended November 4, 1983, effective November 5, 1983, 13 Pa.B. 3389; amended July 25, 1986, effective July 26, 1986, 16 Pa.B. 2721; amended June 26, 1987, June 27, 1987, 17 Pa.B. 2607; amended April 28, 1989, effective April 29, 1989, 19 Pa.B. 1848; amended December 8, 2006, effective December 9, 2006, 36 Pa.B. 7456; transferred and renumbered from 64 Pa. Code §  609.010, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364839) to (364843).

Cross References

   This section cited in 10 Pa. Code §  203.186 (relating to employee takeovers).

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