The Pitfalls Of Prospectus Forecasting

Article by Sean K. Boyle

What happens when a prospectus forecast is not met? The Ontario Court of Appeal recently provided some guidance to public company directors and officers on this issue in a case where the prospectus forecast was actually achieved in the end (Kerr v. Danier Leather Inc.).

Financial forecasts were included with a company’s final prospectus prior to its initial public offering (IPO). At the time the final prospectus was issued, the company had the financial results for the first 3 quarters of the year and a forecast of results for the fourth quarter. Between the time the prospectus was issued and the closing of the IPO two weeks later, sales were slower than expected. The company’s CEO and CFO were aware of the slowdown but believed that if the company took aggressive measures, the forecasted sales might still be achieved. No steps were taken to issue a public statement about the