SPOOZ Inc (SPZI)

[alliecorp]

Common Questions Regarding Pink Sheets and OTC:BB

What is the OTC Market?

In essence, the OTC market exists to make the securities marketplace fairer for smaller, lower capitalized companies. The OTC market affords these smaller companies with some of the benefits of being publicly traded, even though they may fall short on NASDAQ or stock exchange listing requirements. Stock quotes for thee companies are features on the Pink Sheets Electronic Quotation Service or NASDAQ OTC Bulletin Board Service (if they are SEC reporting companies).

What does Pink Sheets mean?

For starters, the Pink Sheets is not an exchange, but moreso a centralized quotation service that collates and features for OTC securities. The Pink Sheet system is intended for non-reporting companies and does not list bid and ask prices of securities.

The Pink Sheet system’s web site provides price quotes, financial news and relevant information pertaining to OTC companies. Theoretically, the Pink Sheets system offers a fair and equal forum for OTC companies in order to give them a fighting chance against larger, better capitalized, publicly-traded companies.

The mission of the Pink Sheets is to create greater transparency in the OTC markets, by using state-of-the-art Internet technology to give investors the information they need to make informed investment decisions. The Pink Sheets is not a stock exchange or a regulated entity. Price quotations are provided by OTC market makers and company information is provided by the OTC companies.

What is the difference between trading shells and non-trading shells?

The difference between a non-trading or thinly traded public shell and a trading public shell can be as simple as marketing and market awareness. A non-trading or thinly traded public shell has very little volume in the trading of its stock, and accordingly the stock price can be extremely volatile. The price of the stock will be affected by small amounts of trading activity. In addition, non-trading public shell is sometimes used to describe a company which has filed a registration statement but never made application for a trading symbol and is not traded over the counter or on any exchange.

How does the stock of non-trading shells begin trading?

If a stock is not trading due to a lack of market awareness and promotion, an Issuer can contract with an investor relations firm that will disseminate reports on the company’s activities in order to build investor awareness. These reports can be distributed to brokerage firms, financial professionals, the media or directly to investors. It is imperative that the accuracy and wording of these reports be reviewed by experienced corporate legal counsel before being disseminated. The investor relations aspect of the securities industry has become increasingly regulated over the past five years.

In addition, a Company must be aware of its obligations under Regulation FD (Fair Disclosure). Regulation FD provides that information may not be selectively disclosed. Accordingly, if information is provided to an investor relations firm for public dissemination; such information must be issued via business wire or other mass press release company, at the same time it is distributed to brokerage firms or financial professionals. With the inception of Regulation FD, it is very important that any Company embarking on a campaign to bring attention to its business and/or its stock, consult with legal counsel.

In the event that a stock is not trading because the Company has not applied for a symbol or taken other measures to initiate the services a market maker, it may be necessary to file a 15c2-11 with the NASD. A 15c2-11 is an application to trade on the over the counter markets. The same application is used to apply to trade on the pink sheets and the bulletin board. The 15c2-11 application is filed by a market maker on behalf of an issuer. Although the application is relatively short and simple, the market maker is required to provide numerous exhibits, including financial statements, shareholder lists and officer and director questionnaires. Market makers are prohibited from charging a fee for the filing of the application, and accordingly, the Company's counsel usually assists in completing the application and its exhibits.

Upon approval of the 15c2-11 application a market maker is allowed to "make a market" in a security including soliciting buy and sell orders. A stock is not prohibited from trading on the pink sheet exchange prior to the filing of a 15c2-11 application, however any such trading must be unsolicited. A Company that trades on the pink sheets without the filing of a 15c2-11 application has become known as a Grey Sheet.

What are the benefits of being traded on the OTC Bulletin Board as opposed to being on the Pink Sheets?

Full reporting are indeed held to a higher level of scrutiny than non-reporting Pinks, but the fact that OTC Bulletin Board companies must file reports to the SEC means that investors and institutions have access to more information on those companies. More information in circulation has a tendency to build investor awareness. In addition, many financial firms and institutions have guidelines that prohibit them from trading in Pink Sheets or recommending them to their clients.

If being traded as a Bulletin Board is more desirable, then why do companies opt to be non-reporting and trade on the Pink Sheets?

Non-reporting companies still have some serious attributes and spend less time and money keeping up with filing requirements than their OTC Bulletin Board counterparts. Non-reporting Pink Sheet companies can still conduct Reg D 504 Offerings and raise up to $1,000,000 in any twelve month period. The Securities Act of 1933 established Regulation D or “Reg D” which is simply an exemption from registration requirements when raising equity within specific guidelines. Bulletin Board companies do not enjoy the benefits of this provision and must meet filing requirements because they are held to a higher standard.

How does a 15c2-11 work?

A 15c2-11 is a legal filing that allows a corporation with a market for its securities to begin trading registered securities. Rule 15c2-11 requires that broker-dealers include certain pieces of information in the 211 application that is, in turn, reviewed by the National Association of Securities Dealers (NASD). Although audited financials (which can cost thousands of dollars) are not required much of the information required is similar to that included in a registration statement. Even though audited financials are not required, a financial statement must be provided in accordance with Generally Accepted Accounting Principles (GAAP).

Broker-dealers perform due diligence on the company filing the 15c2-11 and specifically review:

The issuance of outstanding shares
To whom and at what price they were issued
The ration of free trading versus restricted shares
Once due diligence is completed, the broker-dealer files a Form 2-11 with the NASD and the NASD is compelled to return comments in less than 30 days. Once the NASD comments have been satisfied the NASD declares the filing effective and the begins trading the OTC-Bulletin Board subject to company becoming a reporting company under the Securities Exchange Act of 1934 or on the Pink Sheets if there are no reporting requirements. From start to finish the process typically takes less than 120 days.

What are the responsibilities of a Market Maker?

A market maker submits a 15c2-11 application to the NASD to allow solicited buying and selling of a company's stock. In addition, a market maker obtains a trading symbol on behalf of a Company. The market maker stands ready to buy or sell a particular security. Market makers generally must be ready to buy and sell at least 100 shares of a stock they make a market in.

How do stocks become listed on the NASDAQ?

Pinks and/or Bulletin Board stocks can evolve and eventually apply for listing on the NASDAQ market, American Stock Exchange (AMEX) or the New York Stock Exchange (NYSE). There are two levels of the NASDAQ markets, each with different requirements. The first level is the NASDAQ Small Cap market. The next tier up is the NASDAQ National Market System which has the highest standards. The AMEX and NYSE have their own requirements as well. Where a stock is listed is determined by a variety of factors including the company’s assets and how long they been in existence.

This site is intended as a public resource for those gathering information and conducting due diligence for reverse mergers and public shells. It is not a solicitation to buy or sell securities and should not be construed as legal advice or considered to be a replacement for retaining securities legal counsel. For more resources, use our search box below.

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