We’ve worked with a few companies recently that are OTC. Oftentimes private companies will execute reverse mergers into public shells with the hopes of better access to the capital markets. In the “mezzanine” stage, where they’re too nascent to be listed on an exchange, they live in the netherworld, under the purview of the SEC yet no real market exists for their equity. Our role in these situations usually has something to do with a valuation of the equity (or some equity linked instrument) that is rendered as compensation to executives and employees. It’s a bit different from your private company because you have the looming spectre of an identical interest (or one that is very close) that may have changed hands around the time of the valuation date. The problem is, the circumstances surrounding these trades are poor at best. One can obtain data on the trading activity of the stock from the OTCBB. In the case of our client, the cumulative trading volume over the prior twelve months was 167,000 shares, with a float of approximately 9.8 million shares. Price volatility was extreme over the period, fluctuating between $0.35 and $15.00, and bid ask spreads understandably wide. After a fair amount of research, delving into FSPs (157‐3, 157‐4) we determined that what was going on in the financial institutions realm in the credit crisis may have implications here. To us, clearly whatever the closing price was the day before the issuance of the common stock wasn’t relevant. Aside from the required filings, the company didn’t really have much to share, and nothing material had taken place at the company. However, in the parlance of fair value, that closing price was a level I input, no doubt about it. So we made our case to evaluate other fair value inputs (level II, level III) on the basis of an inactive market – miniscule trading volume, significant price volatility, wide bid ask spreads, etc. And yet the company still received comments from the SEC on the matter. While we historically haven’t had much involvement in the mark to market arguments surrounding financial instruments, this issue in particular certainly seemed to bring us closer.