Otcbb Suspension Of Late Filers - 3 Strikes Rule

On May 10, 2005, the National Association of Securities Dealers, Inc., now known as the Financial Industry Regulatory Authority ("FINRA"), through its subsidiary, the Nasdaq Stock Market, Inc. ("Nasdaq"), filed with the Securities and Exchange Commission (the "Commission") a proposed rule change to limit the eligibility for quotation on the OTCBB of the securities of an issuer that is repeatedly late in filing required periodic reports. This is known as the "three-strikes rule."

On November 16, 2005, the Commission approved the change to Rule 6530 (the "Eligibility Rule").

The rule change makes those OTCBB issuers that are delinquent three times in a 24-month period, and those OTCBB issuers that are removed for failure to file two times in a 24-month period, ineligible for quotation on the OTCBB for a period of one year following their removal. Reports filed within the extension period permitted by SEC Rule 12b-25 are considered timely filed.

Historically, Nasdaq has reported that approximately 80% of issuers achieve compliance within the grace period, but that 20% of issuers fail to comply and are eventually de-listed.

Once removed, the issuer cannot re-list on the OTCBB for a period of at least one year, and must file at least one Form 10-K and three Forms 10-Qs. If at any time prior to being relisted, the issuer is late in filing a periodic report, the one year period restarts.

If an issuer is late with more than one filing in a row, the sequence of late filings will only count as one "strike" until such time as the issuer gets back current in its filings. Because of this, there is some strategy in how you get back current once you have become delinquent in a filing. For example, if an issuer has missed a filing and has had an "e" appended to their stock symbol, there will be a temptation to file the delinquent filing as soon as possible to get the "e" removed. However, if it is likely that the next filing will also be late, the issuer might consider waiting and doing both filings at the same time in order to incur only one "strike" under this new rule amendment. This strategy has to be weighed against the possibility that, after the "e" period, the issuer will need to submit a new Form 211 to move back up to the OTCBB from the Pink Sheets.

NASDAQ implemented the proposed rule in connection with filings for periods ending on or after October 1, 2005. Delinquent filings prior to that period do not count towards the new rule.