Tag Archives: OTCQX

What is a Penny Stock?

Penny Stocks are Quoted on the OTC Markets Pink Sheets

Penny Stocks are securities that are not listed on a national securities exchange like the NYSE or NASDAQ, and are also priced under Five Dollars ($5.00) Per Share.  The SEC’s definition of a Penny Stock is found in SEC Rule 3a51-1.  Penny Stocks are usually quoted on the over-the-counter (OTC) Markets on the Pink Sheets.  As a practical matter, most Penny Stocks trade well under a dollar, and many trade below a penny.

Penny Stocks Can Be Quoted on the OTCQB

OTCMarkets has three market tiers where OTC stocks are quoted.  These include Pink Sheets, OTCQB and OTCQX.  While stock price is a criteria for uplisting on the OTCMarkets.com to OTCQB, the minimum share price is One Penny ($0.01), well below the Five Dollars ($5.00) per share used by the SEC to define a penny stock. Since there is no minimum asset or revenue criteria for uplisting to the OTCQB, many OTCQB stocks are considered Penny Stocks.

OTCQX Companies Are Not Technically Penny Stocks

Stock price is not the only criteria for Penny Stocks. Although OTCQX, the highest market tier on OTCMarkets.com, has an initial minimum bid price criteria for US OTCQX companies of only Twenty-Five Cents ($0.25) and an ongoing minimum price of Ten Cents ($.10), OTCQX companies are not technically Penny Stocks because they meet at least One (1) of the exceptions to the Penny Stock Rule below.

Exceptions to the Penny Stock Rules

OTCQX securities are not Penny Stocks, because the criteria for quotation on the OTCQX requires these securities meet One (1) of these exclusions from the Penny Stock Rules:

  1. Net tangible assets  greater than Two Million Dollars ($2,000,000) if the company has been in operation at least Three (3) Years; or
  2. Net tangible assets of greater than Five Million Dollars ($5,000,000) if the company has been in operation less than Three (3) Years; or
  3. Revenue of at least Six Million Dollars ($6,000,000) for the last Three (3) Years.

Legal Opinion Letters for Shareholders with Restricted Penny Stocks

OTC Markets and Bulletin Board securities lawyer Matt Stout issues Rule 144 legal opinions and Section 4(a)(1) opinions for shareholders who own penny stocks and over-the-counter stocks, as well as OTC Markets Pink Sheets seeking to become current or to uplist on the OTCQB.

Contact OTCLawyers at (410) 429-7076 or mstout@otclawyers.com today.

S-1Registration Statements

We File S-1 Registration Statements

We represent OTC Bulletin Board and OTC Markets Pink Sheet public companies in the preparation and filing of S-1 Registration Statements with the SEC.

This includes private companies seeking to “go public” via S-1 and those established OTCBB, OTCQB and Pink Sheet companies that are registering a class of securities previously sold through a private placement.

PCAOB Auditors

We work closely with several PCAOB Auditors and can recommend an auditing firm to prepare financials to accompany the S-1 when needed.

If an Issuer already has an auditor, we can work with that firm to prepare the S-1 filing, and to coordinate the timing of the S-1 with the completion of the audit.

Market Makers

We work alongside several market makers that sponsor microcap companies which seek to “go public” through the filing of an SEC S-1 Registration Statement.

In these cases, in order to obtain a trading symbol, and become DTC eligible, the company will need a relationship with a broker-dealer acting as a “market maker” that will complete Form 211 on the company’s behalf.

If a company already has a market maker lined up, chances are good we have worked with the broker-dealer before, and that I can assist with due diligence and issue the legal opinion which accompanies the 15c2-11.

Business Plan

Sometimes companies seeking to file an S-1 worry too much about polishing their “business plan” and would do well to get the process of preparing their S-1 started before the business plan presentation is polished and SEC ready.

This is because PCAOB audits take time, and these S-1 audits should be addressed first.   Until the auditor has been provided with all of the financials needed to complete the SEC audit, the clock has not started ticking on the S-1.

The business plan can be polished while the auditor is at work and when needed we can refer management to specialists who edit business plans for S-1 filings.

We help Coordinate the S-1 Process

We help coordinate the S-1 process by serving as a liaison between the company, its auditors and the market maker, and in the meantime, I can assist with the review of the company’s business plan.

As a practical matter, because the format of an S-1 Registration Statement demands answers to specific questions, the very process of beginning the S-1 will help management complete the business plan.

Matt Stout, OTC securities lawyer, welcomes inquires from both current and future OTC Bulletin Board and OTC Markets Pink Sheet companies with questions on the S-1 process at (410) 429-7076 or mstout@otclawyers.com.

What is OTCQX?

OTCQX is the highest market tier on OTCMarkets.com, and is reserved for “established, investor-focused U.S. and global companies.”  The OTCQX marketplace attracts the best public companies since it has relatively high financial requirements, and only accepts those with a history of compliance with U.S. securities laws that are current in their disclosure.   OTCQX companies must also be sponsored by a professional third-party advisor known as “DAD/PAL.”

Because of these requirements, OTCQX can be a logical step toward a future uplisting onto the NYSE MKT or NASDAQ.

There are Three Types of OTCQX Companies

 OTCQX International

OTCQX International is the marketplace for global companies whose securities are already listed on an international stock exchange.   The platform provides visibility to US investors and a recognized forum for disclosure and transparency.

OTCQX US

OTCQX US is the OTCMarkets’ tier for smaller and high-growth United States based public companies which exceed certain high financial requirements and operating standards.  These OTCQX Issuers are demonstrating a commitment to full disclosure and transparency.

OTCQX for Banks

OTCQX for Banks is the marketplace for well capitalized regional and community banks with strong management.  OTCQX for Banks accepts both SEC reporting banks and non reporting banks, and the platform gives each the ability to increase their investor visibility while meeting existing regulatory requirements.

 

Beneficial Ownership Reporting Under Exchange Act Sections 13(d) and 13(g)

Many Affiliate Shareholders of OTC microcap companies are familiar with the Rule 144 reporting requirements and volume trading limitations for the beneficial owners of greater than 10% of an Issuer’s securities.

Section 13 Applies to Exchange Act Reporting Issuers

However, many are unaware that all owners of greater than 5% in any Issuer which has registered a class of its equity securities under Section 240.13 of the Securities Exchange Act of 1934 (“Exchange Act”), are supposed to file Beneficial Ownership Reports with the SEC.

Investors Owning Greater than 5% Must File Schedule 13 Reports

Under Regulation 13D-G, beneficial owners must continue to file these Schedule 13D or the more abbreviated 13G reports as long as their holdings exceed 5%. These Beneficial Ownership Reports provide the SEC with certain background information as well as the investor’s “intentions” which is why these Schedule 13 reports are filed in connection with a tender offer.

Investors seeking further information on the reporting requirements in connection with a tender offer, or with questions on securities law compliance in general, can contact Matt Stout, securities lawyer at (410) 429-7076 or mstout@otclawyers.com.

 

Do OTC Markets Issuers Need Audited Financials?

Public companies quoted on the OTC Markets OTCQX and OTCQB marketplaces require financials audited by a PCAOB auditor.  Those securities quoted on the OTC Markets Pink Sheet market tier do not required audits, though many Pink Sheets do have audited financials.

Audited Financials Not Required for Non Sec Reporting Companies

FINRA does not require the financial statements of Pink Sheets, which are not SEC reporting companies, to be audited for the Form 211 in the 15c2-11 process. Non SEC reporting companies are those that do not publish their financials and disclosures using the 10-Q, 10-K and 8-K using the SEC’s EDGAR filing system.

Unaudited Financials of US Issuers Must Be Prepared in Accordance with GAAP

However, OTC Markets Pink Sheet Issuers that are US companies should have financials that are prepared in accordance with GAAP. Foreign Issuers, meaning those Issuers that are incorporated offshore as opposed to US corporations that have business headquarters or operations outside of the US, are allowed to post financials that do not follow GAAP if they are prepared in accordance with their home country’s accepted accounting standards.

PInk Current Issuers Without Audits Require an Attorney Letter

Whether a US or foreign Issuer, a public company that wants to maintain Pink Current status on OTCMarkets.com will require an Attorney Letter  with Respect to Current Information at least annually, if they do not file reports with the SEC and do not publish audited financials. Companies that want to maintain Pink Limited Information (Pink Yield Sign) are not required to have audited financials.

Issuers with questions regarding PCAOB audits or questions about filing Form 15 with the SEC to transfer to the OTC Markets Alternative Reporting Standard (thus avoiding audits) can contact Matheau J. W. Stout, Esq. at (410) 429-7076 or mstout@otclawyers.com.

What is the Alternative Reporting Standard for OTCQX Issuers?

Most public companies that qualify for the OTCQX market tier are SEC reporting companies and already file the typical 10-Q, 10-K and 8-K forms.  In other words, they are the same fully reporting Issuers you would see on the OTCQX or OTC Bulletin Board….but they make more money and have more assets.

However, even when SEC registration is not required, OTCQX companies must still make information publicly available pursuant to Rule 10b-5 under the Securities Exchange Act of 1934 (“Exchange Act”) and pursuant to Rule 144(c)(2) under the Securities Act of 1933 (“Securities Act”).

In order to comply with these requirements, OTC Markets Group offers the Alternative Reporting Standard for companies that elect to make material information publicly available to investors.

To qualify for OTCQX, U.S., companies not already fully reporting to the SEC can follow the Alternative Reporting Standard.  These companies submit information to OTC Markets per the OTCQX U.S. Disclosure Guidelines and are then subject to the eligibility requirements, terms and conditions of the OTCQX Rules for U.S. Companies.

Under the Alternative Reporting Standard, OTCQX Issuers provide investors with all material information necessary for the investor to make an informed investment decision.  This essentially amounts to the same information SEC reporting companies put in their Form 10 filings.