OTC Updated Pink Basic Disclosure Guidelines & Attorney Letter Guidelines — republished by Ronald Woessner

OTC Markets has updated the Pink Basic Disclosure Guidelines and the Attorney Letter Guidelines for companies and their attorneys that publish disclosure and financial information to the market through OTCIQ.com. See here for the information on the OTC website.

Federal securities laws, such as Rules 10b-5 and 15c2-11 of the Securities Exchange Act of 1934 (“Exchange Act”) as well as Rule 144 of the Securities Act of 1933 (“Securities Act”), and state Blue Sky laws, require issuers to provide adequate current information to the public markets. With a view to encouraging compliance with these laws, OTC Markets Group has created these Pink Basic Disclosure Guidelines (“Guidelines”).[1] These Guidelines set forth the disclosure obligations that make up the “Alternative Reporting Standard” for Pink companies. These Guidelines have not been reviewed by the U.S. Securities and Exchange Commission or any state securities regulator, although OTC Markets Group as a matter of policy welcomes comments from these and other regulators. We use information provided by companies under these Guidelines to designate the appropriate tier in the Pink Market: Current Information, Limited Information or No Information.[2] The information provided by companies under these Guidelines is subject to our Privacy Policy.

These Guidelines may be amended from time to time, in the sole and absolute discretion of OTC Markets Group, with or without notice.

Qualifications for the Pink Current Information Tier

Companies that make the information described below publicly available on a timely basis (90 days after fiscal year end for Annual Reports; 45 days after each fiscal quarter end for Quarterly Reports) may qualify for the Current Information Tier. Financial reports must be prepared according to U.S. GAAP or International Financial Reporting Standards (IFRS) but are not required to be audited.

Initial Qualification:

  1. Subscribe to the OTC Disclosure & News Service by submitting an OTCIQ Order Form.
  2. Create the following documents, save them in PDF format and upload them via OTCIQ.com (note financial statements may be included within a disclosure statement or included by reference):
  • Disclosure Statements: Disclosure information pursuant to these Guidelines for the company’s latest fiscal year end and each subsequent quarter for which reports are due. Disclosure statements should include all information in accordance with these Pink Basic Disclosure Guidelines (see the fillable form staring on Page 4).
  • Financial Statements: Annual and quarterly financial statements (including a balance sheet, income statement, statement of cash flows, and notes to financial statements) for the previous two completed fiscal years and each subsequent quarter. If the annual financial statements are audited, please attach the audit letter from the audit firm. Financial statements may be included within the disclosure statement for corresponding periods or posted separately and incorporated in the disclosure statement by reference.
  1. If financial statements are not audited by a PCAOB registered firm:
  • Attorney Letter Agreement: Submit a signed Attorney Letter Agreement (first two pages of the Attorney Letter Guidelines) to OTC Markets Group via email to issuers@otcmarkets.com or fax (212-652-5920).
  • Attorney Letter: After following the appropriate procedures with a qualified attorney, submit an Attorney Letter in accordance with the Attorney Letter Guidelines through OTCIQ.
  1. Allow OTC Markets Group to process the posted documents (typically three to five business days) and provide any comments.

Ongoing Qualification for the Pink Current Information Tier:

  1. For each Fiscal Quarter End, file a Quarterly Report through OTCIQ within 45 days of the quarter end. (A separate Quarterly Report is not required for the 4th) The Quarterly Report should include:
  • Disclosure Statement: Disclosure information pursuant to these Guidelines. Use the fillable form beginning on page 4.
  • Financial Statements: Quarterly financial statements (including a balance sheet, income statement, statement of cash flows, and notes to financial statements). 
  1. For each Fiscal Year End, file an Annual Report through OTCIQ within 90 days of the fiscal year end. The Annual Report should include:

 Disclosure Statement: Disclosure information pursuant to these Guidelines. Use the fillable form beginning on page 4.

  • Financial Statements: Annual financial statements (including a balance sheet, income statement, statement of cash flows, and notes to financial statements).
  • Attorney Letter: If the annual financial statements are not audited by a PCAOB registered firm, submit an Attorney Letter in accordance with the Attorney Letter Guidelines through OTCIQ within 120 days of the fiscal year end.

Qualifications for the Pink Limited Information Tier

Companies that make the information described below publicly available within the prior 6 months may qualify for the Limited Information Tier.

  1. Subscribe to the OTC Disclosure & News Service by submitting an OTCIQ Order Form.
  2. Create a Quarterly Report or Annual Report for a fiscal period ended within the previous 6 months, save it in PDF format and file through OTCIQ. The Quarterly Report or Annual Report must include:
  • Financial Statements: A balance sheet and income statement for a period within the previous 6 months. The financial statements must be prepared in accordance with US GAAP or IFRS but are not required to be audited.[3]
  • Outstanding Shares: The current number of outstanding shares from a period no later than the financial statements above.
  • A company in the Pink Limited Information tier may, but is not required to, include information in accordance with these Pink Basic Disclosure Guidelines using the fillable form beginning on page 4.

Current Reporting of Material Corporate Events

Companies are expected to release quickly to the public any news or information regarding corporate events that may be material to the issuer and its securities.  Persons with knowledge of such events would be considered to be in possession of material nonpublic information and may not buy or sell the issuer’s securities until or unless such information is made public. If not included in the issuer’s previous public disclosure documents or if any of the following events occur after the publication of such disclosure documents, the issuer shall publicly disclose such events by disseminating a news release within 4 business days following their occurrence and posting such news release through an Integrated Newswire or OTCIQ.[4]

Material corporate events include:

    • Entry into or termination of a material definitive agreement
    • Completion of an acquisition or disposition of assets, including but not limited to merger transactions
    • Creation of a direct financial obligation or an obligation under an off-balance sheet arrangement of an issuer
    • Triggering events that accelerate or increase a direct financial obligation or an obligation under an off-balance sheet arrangement
    • Costs associated with exit or disposal activities
    • Material impairments
    • Sales of equity securities
    • Material modification to rights of security holders
    • Changes in issuer’s certifying accountant
    • Non-reliance on previously issued financial statements or a related audit report or completed interim review
  • Changes in control of issuer
  • Departure of directors or principal officers; election of directors; appointment of principal officers
  • Amendments to articles of incorporation or bylaws; change in fiscal year
  • Amendments to the issuer’s code of ethics, or waiver of a provision of the code of ethics
  • Any changes to litigation the issuer may be involved in, or any new litigation surrounding the issuer
  • Officer, director, or insider transactions in the issuer’s securities
  • Disclosure regarding stock promotion campaigns deemed material by the issuer
  • Other events the issuer considers to be of importance

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Author: Ron

Ron Woessner of Dallas, Texas is former Senior Counsel to the Financial Services Committee of the US House of Representatives where he was special advisor to the Chairman for capital markets and fintech matters. He founded Microcap Strategies building upon his 25+ years' legal and operational experience in the smaller-cap and startup company ecosphere in the capacity of General Counsel to two NASDAQ-listed companies and CEO of an OTC-traded company that he up-listed to NASDAQ.  Mr. Woessner, a certified Toastmaster, currently lectures and writes on the inhospitability of the US public markets to smaller cap companies and other capital markets topics. His articles are published by equities.com and elsewhere. He also advocates in Washington DC for policies that create a more hospitable public company environment for smaller-cap companies, enhance capital formation, promote entrepreneurship, and increase upward mobility for all Americans, particularly minorities.