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The OTCBB - What it is, How it Works, and Why you Should be on it


What is the Over-the-Counter Bulletin Board?

The Over-the-Counter Bulletin Board (OTCBB) is a regulated quotation service that displays real-time quotes, last-sale prices, and volume information in over-the-counter (OTC) securities. An OTC equity security generally is any equity that is not listed or traded on the NASDAQ® or a national securities exchange.
It has most of the perks of the bigger national exchanges like the AMEX, but businesses don't need to have as many assets as a GM or a Microsoft to participate in the service - just the opposite. This service can function as a place to increase your company's assets. By going public and joining the OTCBB, your company can raise up to $1 million in new capital, and at a much lower expense than by doing a conventional IPO. There's no "magic" to the process. Because this is a smaller service, its rules are designed to accommodate smaller businesses. Your company can be listed, traded, and raise capital, all at a fraction of the cost of doing the same thing on the larger exchanges.

Because it is an SEC-regulated exchange, you will need to follow more rigorous reporting rules - mostly the same rules that firms on the AMEX and the NASDAQ follow. Companies on this exchange are subject to many of the same provisions required by the Sarbanes-Oxley Act of 2002. One provision to take note of is Section 302, which specifies the timely, full submission of required filings to the SEC or applicable regulatory authority. If you miss your filings, you can be de-listed from the OTCBB, the same thing that would happen on the AMEX, NASDAQ or NYSE. For more information on the requirements of Section 302 of the Act, please refer to the following:
SEC Prepares to Implement Sarbanes-Oxley Act Requirement for CEO And CFO Certification of SEC Filings. <http://www.sec.gov/news/press/2002-119.htm> Final Rule: Certification of Disclosure in Companies' Quarterly and Annual Reports <http://www.sec.gov/rules/final/33-8124.htm>

If one of your goals is to graduate to the biggest trading floors in the world, a "half-way" step up to the OTCBB is the smart way to get there. You can master the SEC filing, accounting and reporting procedures there, then make an easier transition to a bigger board.

OTCBB securities include national, regional, and foreign equity issues, warrants, units, American Depositary Receipts (ADRs), and Direct Participation Programs (DPPs).


What's the best way get my company listed?

There are several different methods, including the conventional IPO, but the least expensive method is available in the State of Nevada. It's called a Registration by Qualification, and is completed in five steps, broadly outlined as follows:

1. Register your corporation in Nevada. While this process is available to corporations domiciled elsewhere, Nevada's business-friendly laws make it more cost-effective to apply as a Nevada corporation.

2. Prepare prospectus and audit. The prospectus is a complete overview of the company, its business model, competitors, management, history, and risks, along with a summary of the offering and capitalization of the company following the issuance of shares. Audited financial statements, together with a legal opinion, must also be submitted to the state. During its review process, the state will often provide comment letters, which ask questions or point out elements of the prospectus that need to be clarified or explained in more detail. Issues raised in the comment letters must be addressed before the process can move forward.

3. Conduct the offering. The offering circular and other required documents must be filed with the state, and specified fees paid. After the documents have been cleared by the state, the small business issuer may then go out to the general Nevada public and make its securities offering. Each company has a minimum and a maximum offering amount. All funds are held in escrow until the minimum is reached; if the minimum is not reached, then funds are returned to investors.

Only an officer or director of the company, a Series 63-licensed Agent of the Issuer, or a NASD-licensed broker/dealer can represent your offering and sell securities in your behalf. To qualify as an Agent of the Issuer, an individual must pass Nevada's licensed security Series 63 or 66 examination, complete and file its Form U-4 (Uniform Application for Securities Industry Registration or Transfer), and pay a filing fee determined by state regulations, currently $110. Licensed agents and broker/dealers may charge a commission of up to 10% on each stock sale; officers and directors of the company may not receive a commission.

4. Complete the paperwork. Once the offering is closed and funds have been released to the issuing company, the company must promptly sign all executed stock subscription agreements, returning a copy to each investor.

Typically, additional forms and paperwork must also be completed and filed. It is important to find a reputable stock transfer agent who is experienced at working with small, publicly traded companies to avoid problems and assure that your offering goes as cleanly and smoothly as possible.

5. Become a listed company. When the offering has been completed and the company has accepted the subscription agreements, you will want to become a fully reporting company with the SEC by the filing of a form 10-SB, and finding a market maker to sponsor your company for trade on the OTCBB.

There are other filing requirements, too. They are obligatory no matter what method you use to take your company public and list on an SEC-regulated service. Many of the filings need to be continued on a quarterly or annual basis in order to fulfill the Sarbanes-Oxley and SEC requirements. It's best to use an experienced consultant/company to take your corporation through this process.


What Else do I Need to Know?

Whatever process you use, there are several points to remember regarding listing on the OTCBB.

The first is that the
OTCBB is a quotation medium for subscribing members, not an issuer listing service, and should not be confused with The Nasdaq Stock MarketSM.

Only Market Makers can apply to quote securities on the OTCBB. Issuers may contact an authorized OTCBB Market Maker for sponsorship of a security on the OTCBB.
This is where having a strong company guide you through the process can make a difference. It's important to have the right Market Maker working with you.

The OTCBB does not charge issuers a fee for being quoted on the service. Market Makers are billed $6.00 per month for each security in which they make a market on the OTCBB. NASD® Rules prohibit Market Makers from accepting any remuneration in return for quoting issuers' securities on the OTCBB or any similar medium.

The NASDAQ has no business relationship with the issuers quoted on the OTCBB.

New
eligibility requirements <http://www.otcbb.com/aboutOTCBB/rulesindex.stm> were approved January 4, 1999. As of June 2000, issuers of all securities quoted on the OTCBB are subject to periodic reporting of financial information to the SEC, banking, or insurance regulators. Issuers who file with the SEC via EDGAR are not required to submit hard copy filings with the OTCBB or the NASD. However, the OTCBB must receive hard copy filings for issuers which do not file via EDGAR or those which file with other regulatory agencies. For information on how to submit filings to the OTCBB, click here <http://www.otcbb.com/news/EligibilityRule/bankfilingreminder.stm>.


How do I keep my company on the OTCBB?

Keep in mind that
the OTCBB is not an issuer listing service, market or exchange. What it does best is to help companies raise capital and go public. Although the OTCBB does not have any listing requirements per se, to be eligible for quotation on the OTCBB issuers must remain current in their filings with the SEC or applicable regulatory authority, as mentioned above. That's most of the requirement.

What if you miss your filings? Market Makers will not be permitted to begin quotation of a security whose issuer does not meet the filing requirements. Securities already quoted on the OTCBB that become delinquent in their required filings will be removed following a 30 or 60 day grace period if they do not make their required filing during that time. A fifth character of "E" in a security's trading symbol is used to denote securities that the NASD believes are delinquent in their required filings; securities so denoted will be removed from the OTCBB after the applicable grace period expires. Note that an issuer can request review of the decision to remove the issuer's securities by an independent hearings panel. Additional information regarding that process can be found in our FAQs <http://www.otcbb.com/faqs/otcbb_faq.stm>. To provide evidence of compliance with the filing requirement, contact the OTCBB Issuer Filings Department <http://www.otcbb.com/help/contacts.stm>. For more information regarding the eligibility requirements for the OTCBB, refer to Rule 6530 <%20http://www.nasd.com/RulesRegulation/RuleFilings/1998RuleFilings/NASDW_001301>.


The Nuts and Bolts of Your Listing on the OTCBB

As a public company on an SEC-regulated exchange, there are several standard rules you'll need to follow when dealing with your shareholders. They are basically the same rules that companies on the AMEX and NASDAQ follow. They include


        Stock splits
Pursuant to Exchange Act
Rule 10b-17 <http://www.otcbb.com/aboutOTCBB/rulesindex.stm>, issuers must send notification of stock splits, reverse splits, dividends, and rights or other subscription offerings at least ten [calendar] days prior to the record date to the OTCBB Coordinator. You can contact Market Data Integrity at (203) 375-9609 with any questions regarding these notifications.
                                                        
[Note: deleted the mailing address]
Reporting corporate actions
Issuers should provide notification of a corporate action, which may include mergers, acquisitions, or name changes in a letter sent prior to the effective date. All details of the action and any pertinent documents (prospectus, proxy, information statement, offering circular, or 8-K) should be included. Once again, you can contact Market Data Integrity at (203) 375-9609 with any questions regarding reporting a corporate action.
                                                        
[Note: deleted the mailing address]

Reporting address or phone number changes
The OTCBB maintains a database of each issuer's address, telephone number and fax number. This information is provided via the Address link on the
Symbol Directory http://www.otcbb.com/static/symbol.stm and Get Quotes <http://www.otcbb.com> areas of this site. An OTCBB issuer may report changes in their address, phone or fax number or provide a corporate website address by sending e-mail to OTCBBFeedback@nasdaq.com <mailto:OTCBBFeedback@Nasdaq.com>.

Reporting a change in fiscal year end
In order to facilitate continued compliance monitoring efforts, the OTCBB requests direct notification of changes in a company's fiscal year end. These changes may be reported via facsimile to OTCBB Filings at (301) 978-8099 or by calling the OTCBB Filings Hotline at (301) 978-8095.

Submitting copies of regulatory filings to the NASD
Pursuant to the OTC Bulletin Board Eligibility Rule, OTCBB issuers must be registered with the SEC under Section 13 or 15(d) of the Securities and Exchange Act of 1934 ("Act"), an investment company registered under the Investment Company Act, an insurance company described in Section 12(g) (2)(G) of the Act, or a bank or savings association that is not required to file reports with the SEC, and be current in its required filings. To be current, an issuer must have filed its latest required annual filing and any subsequent quarterly filings. It should be noted that for issuers who file a Form 10 or Form 10SB with the SEC to register under Section 12(g) of the Act, the registration statement must be effective and all SEC comments, if any, must be cleared with the SEC before securities can be quoted on the OTCBB.

Issuers that file with the SEC electronically through EDGAR are not required to submit copies of their filings to the NASD. However, to demonstrate compliance with the Eligibility Rule, non-EDGAR filers such as banks, thrifts and insurance companies that file periodically with other regulatory agencies must provide the NASD OTCBB Filings Department copies of their regulatory filings by mailing them to the address below.
National Association of Securities DealersOTCBB Filings9600 Blackwell Road, 5th FloorRockville, MD 20850(301) 978-8095



Do De-listed NASDAQ companies end up on the OTCBB?

The answer is "maybe."
Because the OTCBB is a quotation medium for subscribing members and not an issuer listing service, a de-listed NASDAQ issuer cannot "list" themselves on the OTCBB. A de-listed NASDAQ Issuer that wishes to be quoted on the OTCBB should contact their market makers to request that they complete a Form 211 for review and processing.


S&P Company Insights

I
f you're looking into going public, you are probably already familiar with the financial markets and the services that report on them.
Standard & Poor's has partnered with The OTC Bulletin Board to offer issuers a unique investor relations service - Standard & Poor's Company Insights - designed to increase a company's visibility among the investors, analysts, bankers, researchers, and other capital market participants that visit www.otcbb.com. If you are looking to grow your company, the S&P is worth considering.

Standard & Poor's Company Insights are among the most detailed, comprehensive, and timely profiles of OTC Bulletin Board issuers available anywhere on the web and are excellent tools for researching the financial status, management, and business activities of OTC Bulletin Board companies.

Each Standard & Poor's Company Insight includes:

        A detailed business description of the issuer including address and telephone #s, subsidiaries, Standard & Poor's industry classification (GIC), officers and directors, employees, auditor, transfer agent and more.
        Annual Reports including Income Statement and Balance Sheet (2 years as reported data).
        Interim and Pro Forma Financial Reports.
        Quarterly revenue, net income, and EPS statistics (3 years as reported data).
        Capitalization and corporate financing including detailed stock and bond descriptions.
        Standard & Poor's Company Insights are currently available on all OTCBB issuers participating in The Standard & Poor's Market Access Program - S&P's premier investor relations service for issuers of over-the-counter securities. The Standard & Poor's Market Access Program helps ensure that a company gets the attention it deserves by placing key information about the firm at the fingertips of investors.
        Subscribers to the Standard & Poor's Market Access Program receive:
        A detailed company profile "Standard & Poor's Company Insight" on OTCBB.com <http://www.otcbb.com/asp/SP_Search.asp>.
        A company description in Standard & Poor's Corporation Records - a recognized securities manual for purposes of Blue Sky / manual exemption in up to 35 states. Standard & Poor's Corporation Records is considered the premier source for information on U.S. and international public companies by investors and compliance professionals.
        A customized web profile on Standard & Poor's popular retail brokerage information service - www.advisorinsight.com.
        Guaranteed coverage in Standard & Poor's MarketScope - S&P's real-time broker news and information service. Showcases the company to thousands of brokers, traders, researchers, and financial advisors in the U.S. and Canada.
        Inclusion in the Standard & Poor's Stock Guide database which delivers fundamental financial information on companies to thousands of investment professionals via popular quote vendors such as Standard & Poor's Comstock, ADP, and Reuters.
To learn how your company can participate in The Standard & Poor's Market Access Program, contact Darrell Stone of the Standard & Poor's Investor Relations Services Department at (888) 477-5478 or visit
Standard and Poor's website. <http://www2.standardandpoors.com/servlet/Satellite?pagename=OpenMarket/Xcelerate/Preview&c=sp_product&cid=1112727683667&t=ProductBodyTemplate>

About Standard & Poor's Standard & Poor's, a division of The McGraw-Hill Companies, provides independent financial information, analytical services, and credit ratings to the world's financial markets. Among the company's many products are the S&P Global 1200, the world's first global, equity, real time index; the S&P 500, the premier U.S. portfolio index; and credit ratings on more than 220,000 securities and funds worldwide. With more than 5,000 employees located in 21 countries, Standard & Poor's is an integral part of the global financial infrastructure. For more information, visit us on the web at
<http://www.standardandpoors.com>.
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