OTCQX Eligibility Requirements
Posted by Attorney Laura Anthony on August 09, 2016
To be eligible to trade on the OTCQX tier of OTC Markets, all companies must meet one of the following exemptions to the penny stock definition: (i) have a bid price of $5 or more as of the close of business on each of the 30 consecutive calendar days immediately preceding the company’s application, and as of the most recent fiscal year-end have at least one of the following: (w) net income of $500,000; (x) net tangible assets of $1,000,000; (y) revenues of $2,000,000; or (z) total assets of $5,000,000; or (ii) have net tangible assets of $2 million if the company has been in continuous operation for at least three years, or $5,000,000 if the company has been in continuous operation for less than three years, which qualification can be satisfied as of the end of a fiscal period or as a result of an interim capital raise; or (iii) have average revenue of at least $6,000,000 for the last three years.
The OTCQX recently amended its eligibility requirements to allow for the use of CEO or CFO certified pro forma financial statements to satisfy the financial criteria associated with the $5 bid price penny stock exemption, where the company has not had a prior public market for its securities and where the company has an approved Form 211 with a bid price greater than $5 per share.
A company seeking to rely on pro forma financial statements must file such statements through the EDGAR database or on OTC Markets, which are certified by the company CEO or CFO. A company may also rely on its annual, quarterly or current financial statements filed with EDGAR under the Securities Act of 1933 (such as a Form S-1) or Securities Exchange Act of 1934 (such as Form 10-Q or 10-K) as long as such financial statements reflect information as of the most recent fiscal year-end.
In addition, a company must make a written request to OTC Markets for a waiver of the requirement that it maintain a bid price over $5 per share as of the close of business on each of the 30 consecutive days prior to the date of the application. OTC Markets may grant or deny the waiver at its sole discretion. This amendment will allow a company that is completing the IPO process and has an approved 15c2-11 at $5.00 or greater to meet the penny stock exemption for OTCQX eligibility. In addition, such company will not need to wait until its current fiscal year-end audit is completed to satisfy the qualification criteria. This will be especially helpful for a company that is completing an IPO in Q1 of its fiscal year.