OTC & Penny Stock Glossary

A comprehensive annual report filed with the SEC that includes audited financial statements, management discussion, risk factors, and executive compensation. For penny stocks, the 10-K is the most reliable source of financial data.

A quarterly financial report filed with the SEC containing unaudited financial statements. Penny stock investors use 10-Q filings to track cash burn rate, revenue trends, and upcoming dilution.

An SEC filing used to announce material events such as new contracts, management changes, bankruptcies, or offerings. In penny stocks, 8-K filings often trigger sharp price moves.

The maximum number of shares a company is legally permitted to issue. When authorized shares are much higher than outstanding shares, it signals room for dilution.

A shelf offering where shares are sold directly into the open market at prevailing prices. ATMs allow continuous dilution without announcement — particularly insidious for penny stock investors.

The difference between the highest buy price (bid) and lowest sell price (ask). Penny stocks typically have wide spreads — sometimes 20-50%+ of the share price — meaning significant cost just to enter and exit.

A development-stage company with no specific business plan, formed to merge with an unidentified target. Similar to SPACs but typically smaller and less regulated.

Slang for an investor holding a stock that has declined significantly, often after a pump and dump. Avoiding this requires strict stop losses and position sizing.

A warning designation placed on OTC stocks by OTC Markets when there is a public interest concern such as spam campaigns, questionable disclosures, or known fraud. The skull-and-crossbones symbol signals extreme risk. Many brokers restrict buying CE-flagged stocks.

A legal process where a third party takes control of an abandoned shell company. The custodian can reinstate SEC filings and arrange a reverse merger. A popular speculative niche.

Short-term debt that converts into equity. In penny stocks, conversion terms frequently include steep discounts to market price, making them the most dangerous form of financing. Check 8-K and 10-Q footnotes for terms.

A restriction placed by the Depository Trust Company that limits electronic clearing of a stock's shares. Can prevent deposits, withdrawals, or transfers, effectively trapping shareholders. Often a precursor to a full global lock.

The reduction in existing shareholders' ownership percentage caused by the issuance of new shares. In penny stocks, dilution is extremely common and is the primary mechanism through which shareholder value is destroyed. Sources include offerings, warrant exercises, and convertible note conversions.

A convertible note where the conversion ratio adjusts based on current market price, guaranteeing the lender a fixed dollar value regardless of price declines. Creates a downward spiral that often ends near zero.

The process of researching a company before investing. For penny stocks: review SEC filings, check share structure, investigate management, analyze cash burn, and verify promotional claims.

An SEC filing that must be submitted when a company insider (officer, director, or 10%+ shareholder) buys or sells shares. Form 4 filings are due within two business days of the transaction and are the primary way investors track insider activity.

A notice filed with the SEC when an insider intends to sell restricted or control securities under Rule 144. Unlike Form 4 (which reports completed transactions), Form 144 signals a planned future sale. Heavy Form 144 filings on a penny stock often precede price declines.

Shares available for public trading — outstanding shares minus restricted and insider-held shares. Penny stocks with a small float ('low float') can move dramatically on small volume.

The most severe DTC restriction — all electronic transactions are halted. Shares cannot be bought, sold, deposited, or withdrawn. Effectively renders shares worthless until lifted.

When a public company stops filing SEC reports. May still trade on Pink sheets but investors lose access to audited financials and insider transaction reports. Almost always bearish.

Trading based on material, non-public information. Legal insider transactions (buying/selling with proper disclosure via Form 4) can provide valuable signals about management confidence.

The process of removing the restrictive legend from stock certificates, making restricted shares eligible for public trading. Bulk legend removals often precede large-scale selling.

The ease with which a security can be traded without significantly affecting its price. Penny stocks are typically illiquid — large orders can move the price dramatically. Always check volume and spread before entering.

A broker-dealer that provides liquidity by maintaining bid and ask quotes. In OTC markets, market makers are essential — without them, there is no one to trade with. More market makers means better liquidity.

Any event that could reasonably affect an investor's decision. Must be disclosed via 8-K filings. Includes management changes, contracts, mergers, bankruptcies, and financial condition changes.

Total market value of outstanding shares (price × shares outstanding). Penny stocks are typically micro-cap (<$300M) or nano-cap (<$50M). Market cap is more meaningful than share price alone.

The marketplace operator for over-the-counter securities not listed on major exchanges. OTC Markets has three tiers: OTCQX (highest standards), OTCQB (venture market), and Pink (open market with minimal requirements). Most penny stocks trade on the Pink tier.

The middle tier of OTC Markets for early-stage companies. Requires SEC-reporting current status and a minimum bid price of $0.01. Generally safer than Pink tier.

The highest tier of OTC Markets for established companies meeting high financial standards and ongoing disclosure requirements. Cannot be shell companies or in bankruptcy.

Total shares currently issued and held by all shareholders. Market capitalization equals outstanding shares multiplied by share price. Compare to authorized shares to assess dilution risk.

Issuance of new shares after the IPO. In penny stocks, secondary offerings are the primary tool for raising cash — and the most common cause of price declines.

The lowest tier of OTC Markets with minimal disclosure requirements. Companies may not file financial reports with the SEC. Subdivided into Current Information, Limited Information, and No Information tiers.

An illegal scheme where promoters inflate a penny stock's price through misleading statements, then sell at the peak. The most common form of penny stock fraud.

When a company or shareholders pay third parties to promote the stock. SEC rules require compensation disclosure under Section 17(b). If you learn about a penny stock through a promotional email or ad, assume someone is paying to create buying pressure.

SEC rules requiring additional disclosures and written consent before executing penny stock transactions. Defines a penny stock as any equity under $5.00 not listed on a national exchange.

An SEC rule that provides conditions under which restricted, unregistered, and control securities can be sold publicly. Key conditions include a minimum holding period (typically 6 months for reporting companies) and volume limitations.

A transaction where a private company acquires a public shell company to gain a public listing without a traditional IPO. Can create explosive gains for shell shareholders but carries high fraud risk.

A corporate action that reduces outstanding shares while proportionally increasing per-share price. A 1-for-100 reverse split turns 1M shares at $0.001 into 10K shares at $0.10. In penny stocks, reverse splits almost always precede new dilutive issuances.

Shares acquired in unregistered, private sales that cannot be freely traded until conditions are met (typically a holding period under Rule 144). Legend removal often leads to selling pressure.

A registration statement filed with the SEC before a company can offer securities to the public. An S-1 signals that a company plans to issue new shares — which means dilution for existing shareholders.

A simplified registration form that allows a company to register securities for future issuance. An active S-3 means the company can sell new shares at any time without additional SEC approval — a standing dilution threat.

A company with no or minimal operations, existing primarily as a corporate entity for a reverse merger. 'Clean shells' (no debt, low share count, SEC-current) are valuable to private companies seeking a quick path to public markets.

A registered offering where the company has SEC approval to sell shares over time. Filed via S-3, the company can issue shares whenever it needs cash — a constant overhang on price.

Securities Act provision requiring anyone paid to promote a security to disclose compensation received. Absence of this disclaimer in a stock promotion is illegal.

The SEC can suspend trading for up to 10 business days for concerns about information accuracy or market manipulation. Suspensions frequently result in significant price declines when trading resumes.

A financing arrangement (typically a convertible note) where the conversion price is set at a steep discount to the market price at the time of conversion. This creates a death spiral: as the lender converts and sells, the price drops, giving more shares on the next conversion. The single most destructive force in penny stocks.

A company appointed to maintain records of stock ownership, handle issuance and cancellation of shares. The definitive source for exact share count. A questionable transfer agent is a red flag.

The number of shares traded during a given period. In penny stocks, volume is arguably the most important indicator — it signals interest, liquidity, and the ability to exit positions. A penny stock with no volume is untradeable.

A security giving the holder the right to purchase stock at a specific price before expiration. Frequently attached to penny stock offerings. When exercised, new shares are created — causing dilution.