How Are Microcap Stocks Different From Other Stocks? Lack of Public Information  Often, the biggest difference between a microcap stock and other stocks is the amount of publicly available information about the company. Most large public companies file reports with the SEC that any investor can get for free from the SEC's website. Professional stock analysts regularly research and write about larger public companies, and it's easy to find their stock prices on the Internet or in newspapers and other publications. In contrast, information about microcap companies can be extremely difficult to find, making them more vulnerable to investment fraud schemes and making it less likely that quoted prices in the market will be based on full and complete information about the company. No Minimum Listing Standards  Companies that trade their stocks on exchanges must meet minimum listing standards. For example, they must have minimum amounts of net assets and minimum numbers of shareholders. In contrast, companies on the OTCBB or OTC Link generally do not have to meet any minimum standards, although companies quoted in OTC Link’s OTCQX marketplace are subject to initial and ongoing requirements and companies quoted in the OTCQB marketplace must be SEC reporting companies. Risk  While all investments involve risk, microcap stocks are among the most risky. Many microcap companies are new and have no proven track record. Some of these companies have no assets, operations, or revenues. Others have products and services that are still in development or have yet to be tested in the market. Another risk that pertains to microcap stocks involves the low volumes of trades. Because many microcap stocks trade in low volumes, any size of trade can have a large percentage impact on the price of the stock. Which Companies File Reports With the SEC? In general, the federal securities laws require all but the smallest of public companies to file reports with the SEC. A company can become "public" in one of two ways - by issuing securities in an offering or transaction that's registered with the SEC or by registering a class of the company’s securities with the SEC. Both types of registration trigger ongoing reporting obligations, meaning the company must file periodic reports that disclose important information to investors about its business, financial condition, and management. This information is a treasure trove for investors: it tells you whether a company is making money or losing money and why. You'll find this information in the company's quarterly reports on Form 10-Q, annual reports (with audited financial statements) on Form 10-K, and periodic reports of significant events on Form 8-K. A company must file reports with the SEC if: it has 2,000 or more investors or more than 500 investors that do not qualify as 'accredited investors,' and $10 million or more in assets; or   it lists its securities on any 'national securities exchange,'; or its securities are quoted on the OTCBB or in the OTCQB marketplace of OTC Link; or it has registered an offering of its securities under the Securities Act of 1933 and has more than 300 holders of record or more than 1,200 holders of record if a bank or bank holding company. If you'd like to learn more about the SEC's registration and reporting requirements, read Small Business and the SEC. All OTCBB and OTCQB companies must file updated financial reports with the SEC or with their banking or insurance regulator. Any company that does not file timely reports with the SEC or their banking or insurance regulator is removed from the OTCBB OTCQB. Tip: Tip: When an OTCBB company fails to file its reports on time, filed an incomplete filing or for those companies that file with a banking or insurance regulator, has not provided FINRA a copy of the report, FINRA will add a fifth letter "E" to the OTCBB trading symbol. The company then has 30 days to file with the SEC or 60 days to file with its banking or insurance regulator. If it's still delinquent after the grace period, the company will be removed from the OTCBB. You'll find a list of securities that have been removed from the OTCBB at http://www.otcbb.com/DailyListContent/delistings/OTCBBDelOpenReport.pdf. OTC Markets require companies to be current in their SEC or other regulatory disclosure to be quoted in the OTCQB marketplace. Companies must also be current in providing disclosure to be quoted in the OTCQX marketplace, though that requirement can be met by providing information in accordance with OTC Link's proprietary Alternative Reporting Standard rather than through filing with the SEC or a banking or insurance regulator. Companies quoted in the OTC Pink tier are assigned different symbols by OTC Markets, depending on whether they have provided "current" information, "limited" information or "no information." You can find the symbol currently assigned to a stock by OTC Markets and read more about the OTC Market marketplaces at www.otcmarkets.com. With few exceptions, companies that file reports with the SEC must do so electronically using the SEC's EDGAR system. EDGAR stands for electronic data gathering and retrieval. The EDGAR database is available on the SEC's website at www.sec.gov. You'll find many corporate filings in the EDGAR database, including annual and quarterly reports and registration statements. Any investor can access and download this information for free from the SEC's website. View Researching Public Companies Through EDGAR: A Guide for Investors. Caution: By law, the reports that companies file with the SEC must be truthful and complete, presenting the facts investors find important in making decisions to buy, hold, or sell a security. But the SEC cannot guarantee the accuracy of the reports companies file. Some dishonest companies break the law and file false reports. Every year, the SEC brings enforcement actions against companies who've "cooked their books" or failed to provide important information to investors. Read SEC filings - and all other information - with a questioning and critical mind. Which Companies Don't Have to File Reports With the SEC? Smaller companies - those with less than $10 million in assets, or fewer than 2,000 shareholders of record - generally do not have to file reports with the SEC. But some smaller companies, including microcap companies, may choose voluntarily to file reports with the SEC. As described above, companies that register with the SEC must also file quarterly, annual, and other reports. A Word About Offering Requirements Any company that wants to offer or sell securities to the public must either register with the SEC or meet an exemption. Here are two of the most common exemptions that many microcap companies use: "Reg D" Offerings  Some smaller companies offer and sell securities without registering the transaction under an exemption known as Regulation D. Reg D exempts from registration companies that seek to raise less than $1 million in a twelve-month period. It also exempts companies seeking to raise up to $5 million, as long as the companies sell only to 35 or fewer individuals or any number of "accredited investors" who must meet high net worth or income standards. Reg D also exempts some larger private offerings of securities that are sold exclusively to accredited investors and other sophisticated investors. In general, offerings under Reg D are not permitted to use the internet, broadcast media or other means of 'general solicitation and general advertising' to attract investors.  In legislation enacted in 2012 called the 'JOBS Act,' Congress required the SEC to permit public advertising in Reg D offerings where securities are sold only to accredited investors and the issuer takes reasonable steps to verify that they are accredited. While companies claiming an exemption under Reg D don't have to register or file reports with the SEC, they must still file what's known as a "Form D" within a few days after they first sell their securities. Form D is a brief notice that includes the names and addresses of owners and stock promoters, but little other information about the company. You may be able to find out more about Reg D companies by contacting your state securities regulator. You will find contact information for your state securities regulator at http://www.nasaa.org/about-us/contact-us/contact-your-regulator/.   "Reg A" Companies raising less than $5 million in a 12-month period may be exempt from registering their securities under a rule known as Regulation A. Instead of filing a registration statement through EDGAR, these companies file a printed copy of an "offering circular" with the SEC containing financial statements and other information. Unless they otherwise file reports with the SEC, companies that are exempt from registration under Reg A, Reg D, or another offering exemption do not have to file reports with the SEC. For more information about the registration requirements and offering exemptions, read Small Business and the SEC.

Microcap Stock: A Guide for Investors

FROM Sec.gov Sept. 18, 2013

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