and annual report. Everywhere you go to look at key statistics, valuations, analyst
recommendations, earnings estimates and more, you can bet that everything you see has
been calculated from quarterly and annual reports. These reports are generated by
independent accounting firms, so in theory, they are unbiased and investors have a
reasonable expectation of truthfulness, although certainly not a guarantee. If a shareholder
class action or other similar lawsuit is filed against a company, the only real way to win is to
prove material inaccuracies and willful deception in their quarterly and annual reports. In
other words, they may not be perfect, but they are the absolute very best we can do.
The 10Q and 10K are pretty
standard, and very few variants
exist. One is the 10QSB and 10KSB
that very small companies use.
This form is very similar to the
regular filing, but contains a little bit
less information. Another variant
exists among foreign companies
that issue stock in the U.S.
Because they file quarter, annual
and similar reports in their country,
they are only required to submit the
quarterly or annual information in an
8K or other filing with the SEC.
penny stocks. Listed stocks that trade on the NASDAQ, NYSE and AMEX have very strict
standards with respect to SEC filings. If they are late, they do not have a whole lot of time
before they are delisted. The next step down is the OTC BB, where all stocks quoted on this
over the counter exchange are still required to file all reports, but have a bit more flexibility
with respect to being late. The Pink Sheets used to be the lowest level, where companies
were not required to file at all. Things are changing over at the Pink Sheets, however, as they
have recently implemented a sort of voluntary compliance with respect to different levels of
timely filing. They have rolled out several new tiers of quality so to speak, providing investors
with a bit more transparency. Because of this, many believe that the OTC BB will soon cease
Late and inadequate filings from small companies is primarily a function of two possibilities.
The first is that smaller companies have to hire smaller accounting firms, and have less
resources available to do so. The other possible function is fraud, whether legal or not. The
only way to quickly determine which category a small company may fit into is to read whatever
reports they have filed with the SEC.
When we look at a quarterly or annual report, we soon begin to realize how much knowledge
is available to the average Joe. At the very top, and after reading only a few lines, we learn
exactly where the company is located, how to contact them, what time period the report is for
and on what time schedule they file, whether or not they are late with any previous filings,
whether or not they are a shell company, and exactly how many shares of the companies
stock are issued and outstanding as of a specific and recent date. This is all essential
information, and we haven't even scratched the surface yet.
In part two, we'll examine what key bits of data to pull from the companies Income
statements, Balance Sheet and Cash Flow statements, and how to extrapolate that data and
tailor it to the particular stock or industry.
January 20, 2011 PSW Staff
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