Before you Invest, Investigate™ ...

THE BASICS - A GLOSSARY FOR INVESTORS

We help our readers navigate the investment landscape by offering brief descriptions of some common terms.

ASK
The price at which a customer can buy a share of stock.

BID
The price at which a customer can sell a share of stock.

BROKER-DEALER
A licensed stock brokerage firm.

CALL
An Option to buy stock.

CHURNING
This occurs when a broker who controls the customer's account engages in an excessive rate of trading for the customer for the purpose of generating commissions. A broker may control the account where the broker has been given discretion to trade for the customer or where the broker exerts such influence over the customer that he or she in effect controls the customer's trading.

CLEARING BROKER
A brokerage firm which processes trades for the customers of another, generally smaller, broker-dealer (called the Introducing Broker).

COLD CALLING
Stock brokers routinely telephone strangers to solicit business. This is known as cold calling. Cold calling is permitted under existing securities laws but can be abused by unscrupulous brokers who use high pressure tactics to open accounts and try to "strongarm" or intimidate customers into buying securities. Cold callers may only solicit new customers between 8:00am and 9:00PM.

DAY TRADING
Rapid fire, fast paced trading of stocks throughout the day. Day traders attempt to profit from small movements in stock prices by acting quickly, often buying and selling a given stock within seconds or minutes.

DO NOT CALL LIST
Any individual who receives unsolicited calls (cold calls) from a broker may ask to be placed on that firm's "Do Not Call" list. The caller is then required to put that person's name and telephone number on the Do Not Call List. If someone from that firm telephones the individual after that, he or she should report this conduct to the SEC and his or her state securities regulator.

EDGAR
The EDGAR system is the SEC's electronic filing system for public companies. All companies required to file regular reports with the SEC must use the EDGAR system. This includes companies traded on the New York Stock Exchange, American Stock Exchange and NASDAQ. Rules were recently enacted that will also require OTC Bulletin Board companies to file reports in the future. Certain small companies (such as those traded on the pink sheets) and companies whose securities have not been registered for public sale, are not required to file through EDGAR.

FORM 8K
This is the form that reporting companies file with the SEC to report certain material developments (like acquisitions, sales of substantial assets, mergers and changes of accountants).

FORM 10Q
This is the quarterly financial report filed by reporting companies with the SEC.

FORM 10K
This is the annual report, including audited financial statements, that reporting companies file with the SEC.

INSIDE STOCKHOLDERS
This generally refers to stockholders who are officers, directors, or holders of 10% or more of the shares of a company.

IPO
This is shorthand for an Initial Public Offering. An IPO represents the first time a Company files a Registration Statement with the SEC and offers shares of its stock for sale to members of the general public.

ISSUER
The Company issuing its securities is commonly called the Issuer.

LIMIT ORDERS
A limit order is an order to buy or sell a security at a specified price.

LOCKUP
An agreement by stockholders not to sell their shares of stock for a specified period of time. Underwriters often require officers, directors, and principal stockholders of a company to agree to lockup all, or a portion of, their shares for a designated period after the public offering. Selling Stockholders may also be required to lockup their shares for an agreed upon period. A lockup may be absolute (i.e., for a specified period of time with no exceptions) or subject to the underwriter's discretion. When it is subject to the underwriter's discretion, the lockup may be released by the underwriter earlier than the agreed upon expiration date

MARKET ORDER
A market order is an order to buy or sell a security at the prevailing market price.

MARGIN
Margin refers to the ability of a customer to borrow money from his or her brokerage firm to buy securities. When customers buy stock on margin they pay a portion of the purchase price (generally 50%) and borrow the balance from the brokerage firm. After a investor purchases a stock on margin the NASD and NYSE requires such investor to have at least 25% of the value of the securities in his or her account at all times. Many firms require that equity level to remain even higher, at 30-40% of the account.

MARKET MAKER
A market maker is a brokerage firm that agrees to purchase or sell a particular stock, on a regular and continuous basis, at disclosed, published prices. NASDAQ stocks and stocks traded on the OTC Bulletin Board each have one or more market makers. Under existing regulations, market makers must generally accept orders to buy or sell up to 100 shares of any stock in which they make a market.

MEDIATION
In a mediation an impartial third-party attempts to negotiate the settlement of a dispute. Many mediations (including NASD-sponsored mediations between customers and their brokers) are non-binding, which means that the parties can still arbitrate their differences if they are unable to come to an understanding. Mediations give the parties an opportunity to resolve matters more quickly, and generally at less expense, than an arbitration or court proceeding.

MICROCAP STOCK
A microcap stock is the security of a company with "micro" capitalization. That means that the company generally has very limited earnings, limited operating history and few assets. Microcap stocks tend to be traded at low prices and in high volume. Generally, they are traded on either the OTC Bulletin Board or in the Pink Sheets.

NASD
The National Association of Securities Dealers regulates and polices broker-dealers. The NASD is a self-regulatory organization, which means that it is comprised of, and governed by members of the brokerage firms that are subject to its jurisdiction. The NASD establishes standards for the registration of brokerage firms, makes sure that brokerage firms have sufficient "net capital" and maintains a forum for the arbitration of disputes between customers and brokers and among brokers or brokerage firms.

NASDAQ NATIONAL MARKET
Stocks that trade on the NASDAQ National market must meet certain listing and maintenance requirements. For a complete list of those requirements, visit NASDAQ at www.nasdaq.com

NASDAQ SMALL CAPMARKET
Stocks that trade on the NASDAQ Small Cap Market must meet certain listing requirements. Generally, these companies are smaller than those listed on the NASDAQ National Market. NASDAQ Small Cap Markets tend to be start-up companies and companies in early stages of development. For all of the listing requirements visit NASDAQ at www.nasdaq.com.

NASDR
NASD Regulation is the enforcement arm of the NASD. NASDR investigates and disciplines improper or unlawful conduct by brokers and brokerage firms.

OTC BULLETIN BOARD
The OTC Bulletin Board is an electronic quotation system for certain securities that are not eligible for quotation on NASDAQ or any national stock exchange. Real-time stock quotes and volume information are available for OTC Bulletin Board Stocks. The OTC Bulletin Board is not part of NASDAQ. It is operated separately by the NASD.

OPTION
An option is the right to purchase a security at a specified price for a specific period of time.

PENNY STOCK
A penny stock is any security that does not meet at least one of the following criteria:

1. Have net tangible assets in excess of $2 million, if the issuer has been in continuous business for at least three years, or net tangible assets of $5 million if the issuer has been in continuous business for less than three years.
2. A bid price of $5 or more
3. Average revenue during the last three years of $6 million; or
4. Listing on a major stock exchange (this would not include the OTC Bulletin Board or the Pink Sheets).

Before a broker can sell shares of penny stock to a customer the broker must either have a preexisting relationship with the customer or provide the customer with detailed information concerning penny stock investments and receive a completed questionnaire from the customer.

THE PINK SHEETS
The "pink sheets" are published weekly and list the names and telephone numbers of market makers for certain securities that are not listed on NASDAQ, the OTC Bulletin Board or a national stock exchange. A stockbroker can contact one of the listed market makers in order to find the current price for a pink sheet stock. The pink sheets are not affiliated with the NASD or any stock exchange. They are published by the National Quotation Bureau, a private company. And yes, they are printed on pink paper.

PROSPECTUS
When a company seeks to sell stock to the general public it first must file a Registration Statement with the SEC. The prospectus is that part of the Registration Statement that is distributed to investors. The Prospectus includes critical information about a company's business, , the amount of money it is seeking to raise, its financial condition, its principal stockholders, the potential risks for investors, the background of management and the manner in which the company intends to spend its funds.

PUT
An Option to sell stock.

RED HERRING
The prospectus that is sent to prospective investors before the actual public offering of a company's stock. It is called a red herring because it contains a legend, printed in red, that advises investors of its preliminary nature.

REGISTERED REPRESENTATIVE
A registered representative is a licensed securities broker.

REGISTRATION STATEMENT
This is the document filed by a company to register securities with the SEC for sale to the public. It describes the business of the company, the amount of money it is seeking to raise, its financial condition, its principal stockholders, the potential risks for investors, the background of management and the manner in which the company intends to spend its funds. Once the Registration Statement becomes "effective" -- that is after the SEC has advised the company that it may proceed - the securities are offered for sale to the public.

REPORTING COMPANY
A public company that is required to file periodic financial statements and other material information with the SEC.

RESTRICTED SHARES
Shares of stock held by private investors that have not been registered for sale to the public.

RULE 10b-5
Rule 10b-5 is a Rule enacted under Section 10 (b) of the Securities-Exchange Act of 1934. It prohibits anyone from making untrue statements of material facts, omitting material facts, or engaging in any fraud or deceit in connection with the purchase or sale of any security.

RULE 144
Rule 144 provides for the sale of certain securities that have not been registered with the SEC. Under Rule 144 certain restricted shares acquired from a company, or an affiliate of a company (that is, stock that has not been registered) may be sold after they have been held for a period of one year. Rule 144 also provides for sales of unregistered shares by affiliates of such companies, and the manner and timing of those sales. For purposes of Rule 144, an affiliate is someone who controls, or is controlled by, the company issuing the securities.

SECONDARY OFFERING
After a company has completed its IPO, it engages in a secondary offering whenever additional shares of the company's stock are offered for sale to public investors. In a secondary offering, shares may be offered for sale either by the public company or by some of its "inside" selling stockholders, or both.

SELLING STOCKHOLDERS
These are individuals whose previously restricted shares of a company's stock are being registered for sale to the public.

SELLING STOCKHOLDERS' PROSPECTUS
The prospectus used in connection with the sale of stock by selling stockholders. It contains the same information as a typical offering prospectus, plus the names of the selling stockholders and the amount of shares each is selling. Note carefully, the company generally will not receive any proceeds from the sale of stock by selling stockholders.

SHORT SELLING
This transaction begins with the sale of stock and concludes with a purchase. Also known as "shorting" a stock. Short selling occurs when an investor sells stock that he or she does not own (almost always with the expectation that the price of the stock will decrease). In order to sell short, an individual investor must be able to borrow the shares that are being sold short (standards are different when brokerage firms are shorting stock for their own accounts). This is generally done by the customer's brokerage firm. The customer "covers" the short position when he or she subsequently buys an equal number of the company's shares.

SHORTING A STOCK
See "Short Selling."

SUITABILITY
Before a broker can recommend an investment to a customer, the broker must determine whether that investment is suitable. In making that determination the broker must ascertain and consider the customer's objectives, income, financial condition and age.

UNDERWRITER
A broker-dealer that has agreed to offer a company's securities for sale to the public.

UNDERWRITING
The offer of a company's securities for sale to the public. An underwriting can be a firm commitment or a best efforts offering. In a firm commitment offering the underwriter is obligated to raise a specified amount of money for the company. In a best efforts offering the underwriter agrees to use its "best effort" to sell a specified amount of a company's securities within an agreed-upon time period.

WARRANTS
Warrants are securities that entitle their holders to purchase shares of a company's stock at a specific price, for a specified period of time. Warrants are registered by a public company and are then may be traded like shares of stock.