Accredited Investor. The definition of the term "accredited investor" that is applicable to Rule 506 is set forth in Rule 501(a) of Regulation D and includes any person who comes within one of the definition's enumerated categories of persons, or whom the issuer "reasonably believes" comes within any of the enumerated categories, at the time of the sale of the securities to that person. For natural persons, Rule 502(a) defines an accredited investor as a person: (1) whose individual net worth, or joint net worth with that person's spouse, exceeds $1 million, excluding the value of the person's primary residence (the "net worth test"): or 2) who had an individual income in excess of $200,000 in each of the two most recent years, or joint income with that person's spouse in excess of $300,000 in each of those years, and has a reasonable expectation of reaching the same income level in the current year (the "income test").

Acquisition. The term referring to one company's buying control of, if not all, the stock of another company.

Active Market. A securities market (NASDAQ, NYSE, AMEX) that has high levels of trading.

Aftermarket. The trading market activity in which traders buy and sell shares in a public company after it has gone public. Orders to buy or sell shares are matched in the over-the-counter market by a securities firm acting as a market maker. For listed shares, a specialist on the stock exchange will match orders. The quality of the after-market is measured by its ability to absorb bid price or asked price orders without major disruptions in the price. That ability is a function of the market's liquidity - the number of shares owned by the public, rather than by company insiders (called the float), and the extent to which the public is active in trading the shares, rather than holding them for the long term.

Allotment. The lead underwriter in a public offering will assemble other underwriters into a syndicate and "allot" each a certain number of shares to sell.

Angels. Angel Investors. Friends, family, or wealthy individuals who invest their money usually in the start-up, or "seed capital" stage, or early-stage companies, before other sources of capital would be available. Angel investors and entrepreneurs often get together through acquaintances or finders. The transaction is usually negotiated as a private placement.

Articles of Incorporation. Two documents must be filed with the Secretary of State in order to establish a corporation; the articles of incorporation and a certificate of acceptance of appointment executed by the resident agent. A minimal amount of information is required; the name of the corporation; the name of the person designated as the corporation's resident agent and the agent's street address where process may be served on the corporation; the number of shares the corporation is authorized to issue. The state permits, but does not require, a number of other matters to be included in the Articles of Incorporation.

Articles of Organization. The initial document filed with the state to form or organize a Limited Liability Company (LLC). It includes basic provisions concerning the duration, nature, owners, management, and so on of the LLC and becomes a matter of public record.

Ask (asking price). Shares traded in the over-the-counter market will have prices quoted by their market makers. The quotations are for the bid price (what the market maker will pay to buy at least 100 shares), or the ask price (what the market maker will take to sell shares). The quote for the ask is the lowest price per share for which prospective sellers are willing to sell their stock.

Asset Protection. The process of taking steps to minimize the risk of creditors or other claimants being able to reach your assets. This can include setting up different entities, such as LLC's or corporations, for each property or business. Thus, if one particular property is subject to a suit, the claimant will be limited to the assets from that particular property or entity. This can prevent a domino effect against your other assets.

Auditors. The certified public accounting firm, which is not connected in any way with a company, that reviews the company's financial records and renders an opinion on their fairness according to specific auditing rules and regulations. Most public offerings of securities require audited financials. In some circumstances, a company may be required to use an accounting firm that qualifies under the Public Company Accounting Oversight Board (PCAOB), which was created in the Sarbanes-Oxley Act of 2002.

Bad Boys. Individuals who have violated securities laws. Reg A and SCOR regulations prohibit bad boys from participating in these offerings unless the Securities and Exchange Commission and state authorities consent. Bad Boy provision is a very broad term. Generally, looking at any director, officer, 10 percent shareholder, promoter, underwriter, or related party who has been convicted within 10 years prior to filing of certain felonies or misdemeanors relating generally to securities; is subject to a court, SEC, or U.S. postal service order enjoining certain activities relating to securities, or use of the mails to make false representations; or is suspended or expelled from membership in certain securities associations.

Balance Sheet. The document that reflects a company's assets, liabilities, and capital at a specific point in time.

Best-Effort Offering. A securities firm's sale of a company's stock to the public without guaranteeing the company any money. The securities firm uses its best effort to sell the stock without being contractually bound to sell it all. See firm commitment.

Bid (bid price). The highest price per share for which a prospective buyer is willing to pay to buy a stock.

Blind Pool. A public offering, also known as a "blank check" offering, wherein the company does not specifically state how it is going to invest the monies received from the offering. Most states have very strict regulations covering this type of offering.

Blue-Sky Laws.. State laws that regulate the issuance of a company's stock offerings. When a stock is "blue-skied" in a given state, it means that the company's stock offering has been reviewed to sell or trade in that state.

Book Value. Also known as net worth and denotes the value the company has placed on its assets less its liabilities to arrive at a shareholders equity figure.

Broker (stockbroker-registered representative). An individual who has registered with the SEC, the exchanges, the NASD, and appropriate states, and who has passed certain tests and requirements allowing her or him to be involved in the business of buying and selling securities.

Broker-Dealer. An individual or, more commonly, a group of individuals who have met certain standards and are licensed to buy and sell securities for others (broker) for their own accounts (dealer).

Capitalization. A company's stock price multiplied by the total number of outstanding shares (e.g., 5 million shares outstanding times $5.00 per share equals a capitalization of $25 million).

Closing. A meeting held between an underwriter and a company following a completed public offering in which the company delivers its stock certificates for transfer to individual investors and the underwriter delivers to the public company the money collected from its efforts in selling the company's stock to the investors.

Common Stock Units representing ownership of a corporation. The owners (shareholders) typically are entitled to vote on the selection of directors and other company matters as well as receive dividends on their holdings. If the company is liquidated, the claims of its creditors and owners of bonds or preferred stock take precedence over the common stockholders; common stock usually has more potential for appreciation.

Control Person. An officer or director of a company or someone who owns five percent or more of the company's stock and is held liable for certain restrictions on buying and selling his or her stock and in passing on information about the company.

Dealer. See broker-dealer.

Deficiency Letter. A letter that may be issued by the SEC or state authorities after reviewing a company's securities filing. The deficiency letter offers suggestions on what to do if the filing information is considered inadequate or insufficient. Although these are so-called suggestions, a company would be risking a possible "cease and desist" order, which prohibits it from selling its securities, if it does not comply with the suggestions for corrections.

Dilution. A term used to describe an increase or decrease in the amount of shareholders equity (net worth/book value) whenever new shares are issued by a company.

Direct Public Offerings. Offerings of new securities by a company made directly to the general public without the services of an underwriter or investment bank.

Directors. Individuals who are elected by the shareholders of a company to set policy and appoint the executive officers of the company.

Dividends. Payments made to shareholders disbursed from a portion of the company's earnings: usually paid in cash but may be paid in additional, newly issued shares.

Due Diligence. The process of gathering and confirming information about a company and its business, management, and financial affairs.

Earnings Per Share. The portion of a company's net profit divided by the total number of shares outstanding. ($5 million in net profit divided by one million shares outstanding equals "earnings per share" of $5.00).

EDGAR. The SEC's Electronic Data Gathering, Analysis and Retrieval system by which a company tiles reports, copies of which the general public can obtain via computer.

Effective Date. The date on which a company's registration statement becomes effective with the regulatory agencies (SEC and state agencies), allowing it to begin selling its securities.

Equity. The investment made in the company. When expressed as shareholders equity, it refers to the assets less liabilities plus or minus earnings or losses (i.e., net worth).

Exchange. The primary stock exchange on which an issue is listed (NYSE, AMEX, or regional exchanges).

Exempt Securities. Usually common stock that are exempt from federal and state full registration laws.

Filing Date. The date when a company files its registration statement with the SEC or state securities commissions.

FINRA. (Financial Industry Regulatory Authority). www.finra.org is a private corporation that acts as a self-regulatory organization for the securities industry in the United States. FINRA is the successor to the NASD (see National Association of Securities Dealers). It is a non-governmental organization which regulates member brokerage firms and exchange markets. FINRA offers regulatory oversight over all securities firms that do business with the public. FINRA oversees about 4,250 brokerage firms, about 162,000 branch officers and approximately 600,000 registered securities representatives.

Firm Commitment. A public offering of a company's securities wherein the underwriter agrees to buy all of the shares. See best-effort offering.

Float (public float). The number of shares owned by the public that doesn't include shares owned by officers, directors, or other inside shareholders, such as those who own five percent or more.

GAAP. An acronym for "generally accepted accounting principles" that are observed by a company's auditors vis-a-vis a company's financial practices. Conforming to GAAP is a must for public companies.

Going Public. The process wherein a privately held company sells registered shares to the general public via an initial public offering (IPO).

High. The highest price at which a stock has traded for a specific time period (a day, week, month, quarter, or year).

Initial Public Offering or IPO. A private company's first public sale of a specific class of registered security, usually common stock.

Insider. A person in a position to control what happens within a company and/or has access to nonpublic company information (commonly, executive officers, directors, and 5 percent or more shareholders).

Institutional investors. Typically refers to pension funds, insurance companies, mutual funds, and endowments with large amounts of money managed by professional investors. The majority of the stock of large companies is held by institutional investors.

Investment Bank (banker). A financial firm or individual, sometimes also a stock broker-dealer, who acts as an intermediary and whose principal functions are to identify companies that need financing and then provide them with advice on the corporate financing functions and methods to obtain both short-term and long-term financing.

Issuer. An entity, usually a corporation, that has the ability to issue and distribute securities.

Lead (head/managing) Underwriter. The firm that takes primary responsi¬bility for selling a company's securities and assembles and manages the other broker-dealers (syndicate members).

Letter of Intent. An agreement between an underwriter and a company about the terms and conditions under which the company's stock will be sold to the general public.

Letter (restricted) Stock. Stock that is purchased in a private offering and has certain restrictions on its sale or transfer.

Listed Stock. Stock of a company that is admitted for trading on the NYSE or the AMEX as opposed to trading over-the-counter (OTC).

Low. The lowest price at which a stock has traded for a specific time period (a day, week, month, quarter, or year).

Market Capitalization. The total number of shares issued and outstanding multiplied by the market price of the shares. See capitalization.

Market Maker. A broker-dealer that quotes firm bid and ask prices in a given security and stands ready to buy or sell a stock at publicly quoted prices in the over-the-counter market in a minimum amount of 100 shares.

Memorandum. A document similar to a prospectus, sometimes also referred to as an offering circular, which is the official document by which private placements are offered and sold.

Minimum/Maximum Offering. Used in a stock offering where a minimum number of shares must be sold before the company receives the money and where a maximum number of shares are offered for sale. If the minimum amount is not received, the monies are returned to the investors.

NASD (National Association of Securities Dealers). A self-regulating organization composed of broker/dealers which the SEC recognizes as a substitute for government regulation. Testing of individual brokers and operating requirements for broker/dealers are administered by the NASD. (See FINRA).

Nasdaq (National Association of Securities Dealers Automated Quota¬tions). A computerized stock display information system, not a stock exchange, that furnishes bid and ask prices as well as certain trading statistics. Trading is usually accomplished via phone, fax, or computer.

NMS (National Market System). The Nasdaq reporting system for trading larger, more highly qualified stocks.

Net Change. The difference between the most recent sale of a stock and its previous close.

New Issue. The stock of a company that is now going, or has just gone, public.

Offering Circular. A disclosure and information document used to furnish information about a company and its stock offering to prospective investors; commonly used for exempt offerings and patterned after a prospectus.

Offering Expenses. Costs incurred by a company to make a public offering that include legal and accounting fees, management time and internal expenses directly attributed to the offering, underwriting commissions, and fees paid to regulatory bodies.

Open. The first trade price of the day for a stock.

OTC. OTC stands for over-the-counter and is associated with OTC companies, their stocks, and the OTC market, where a broker-dealer quotes bid and ask prices at which he or she will buy and sell shares of stock.

Penny Stocks. Low priced stocks. Generally thought of as stocks with a trading price from a penny to $5.00.

Preferred Shares. A separate class of a company's stock with certain preferential features over common stock that often include a right of its owners to be re-paid before shareholders of common stock in the event of liquidation, rights to dividends before owners of common stock, and sometimes certain voting rights superior to those of common stock.

Preliminary Prospectus. A document by which public offerings are made after the filing of the registration statement but before the offering is declared effective. It is also known as a "red-herring" because of the caveats printed in red on the cover warning the reader that the document docs not contain all of the in¬formation about the issue and that some information may be changed before the final prospectus is issued.

Previous Close. The last price at which a stock was traded during the previous trading day

Price-Earnings (PE) Ratio. The price of a stock divided by its earnings per share that is usually expressed on a historical or projected basis and is a common way to compare one company's stock with another.

Private Placement. An offering of securities exempt from full SEC registration requirements that is usually made directly by the issuing company but may also be made by an underwriter.

Proceeds. The net amount of monies received by a company from a public offering; "use of proceeds" describes how a company intends to use the money.

Projections. A company's financial estimates of its future operations.

Prospectus. The official offering document that is part of the registration statement filed with the SEC in conjunction with a public offering of fully registered securities.

Quiet Period. A period of time beginning at the date when a company files its registration statement with the SEC and continuing for 90 days after the effective date of its offering. A company has to take special care in releasing information and discussions about its operations that are not disclosed in its offering prospectus during this period.

Red Herring. See preliminary prospectus.

Registered Representative. See broker.

Registration Statement. The official document that must be filed with the SEC, state securities departments, and trading market/exchanges before a company's securities can be sold to the public. It includes the prospectus.

Regulations A and D, and SCOR. Exemptions made by the SEC from filing a full registration statement under the Securities Act of 1933.

Restricted Shares. Shares of stock usually obtained in a private placement or owned by an insider where their resale has certain restrictions.

Road Show. The process wherein an underwriter accompanies members of the management team of a company to present information about the company and its proposed public offering to prospective investors at various locations, sometimes internationally.

SCOR (Small Corporate Offering Registration). An SEC-exempt offering for the sale of securities up to the amount of $1 million that must be qualified under state blue-sky laws. (Also known as ULOR.)

SEC. The U.S. Securities and Exchange Commission, which is charged with the administration and enforcement of federal securities laws.

Secondary Offering. A term generally applied to an offering made after an initial public offering.

Secondary Market. The trading market (aftermarket) for stocks after they have undergone an initial public offering.

Securities. Broadly includes common or preferred stocks and bonds, but can also include other types of financing instruments such as debentures, warrants, and convertible offerings.

Securities Act of 1933. The federal law, including amendments, pertaining to the offering of securities administered by the SEC.

Securities Exchange Act of 1934. The federal law, including amendments. pertaining to the trading of securities, stock exchanges, firms, and brokers administered by the SEC.

Shareholders. Individuals or entities who own the securities (shares/stocks) of a company.

Shares Outstanding. The total number of shares of stock held by all shareholders.

Shell Corporation. A company (corporation) with publicly owned shares but no active operations: typically, a company that has sold its operating assets or dis¬continued operations without dissolving the corporation as a legal entity. A private, operating company can be reverse-merged into a public shell that will result in the private company becoming a public company.

Specialist. A broker-dealer who maintains a firm bid and offer on a given security by standing ready to buy or sell a minimum of 100 shares at publicly quoted prices on any exchange.

Stickering (a prospectus). The attachment of a paper to the cover of a prospectus (official offering circular/memorandum) that contains new information after an offering's effective date but before the conclusion of the offering.

Stock market. The trading market for publicly held securities that includes the OTC (Nasdaq), the NYSE, the AMEX, and regional and foreign exchanges.

Street Name. A name used for stock certificates held by a nominee on behalf of the true owner. A securities firm usually owns a nominee firm that holds securities on behalf of individual investors to facilitate the quick transfer of stocks for trading.

Tombstone (ad). An ad or formal announcement that a public offering is being held. or has been made. It provides minimal information including the name of the company (issuer), the underwriter's name(s), the amount of the offering, and a statement that an official offering is made only by the prospectus.

Transfer Agent. Usually, a company that keeps records showing who owns, sells, and buys a publicly held company's stock.

ULOR (Uniform Limited Offering Registration). Also known as SCOR, which is an offering exempt from SEC registration for offerings up to $1 million.

Underwriter. A stock brokerage (securities) firm that sells the stock for a new public company.

Underwriting. The process of doing an initial public offering (IPO).

Underwriting Syndicate. The group of broker-dealers (brokerage firms) that sell the stock of an initial public offering.

Venture capital. The money invested to start and develop a company. Traditional venture capital firms that fund emerging growth companies are commonly funded themselves by institutional investors (pension funds, insurance companies, and investment trusts). On a broader basis, venture capital comes from founding company entrepreneurs, friends and family, angels, and other companies that may be strategic partners.
Volume. The total number of shares traded for a specific time period, commonly per day.

Warrant. A certificate giving its holder the right to purchase securities at a defined price within a specified time.