SEC Filings

What is an SEC Filing?

The U.S. Equities markets are regulated through the United States Securities and Exchange Commission (SEC). All publicly traded companies are required to file certain documents and reports that update the public on any material changes in the business as well as provide updates on the status of the business operations. These filings are what the investors scrutinize in order to assess the health and future prospects of the business operations.

How to Find SEC Filings

General summaries of SEC filings can be found on search engines  under the stock symbol. The most current and full detailed SEC filings can be found through the EDGAR database on the SEC website. You can browse some of the most common SEC Filings below.  

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Form 4

What it is

After filing a Form 144, if the seller proceeds to sell shares, then they must file a Form 4 with the SEC documenting the number of shares sold and the price range. All directors and officers as well as shareholders that own more than 10% of the outstanding shares must file a Form 144 by the 10th of the following month following the trade. Form 4 applies not only to insider selling but also insider buying.

How to Read a Form 4

The Form 4 filing report discloses the insider’s name, relation to the company, date of the transaction, type of transaction (buy or sell), number of shares and the share price at the time of the transaction. It also discloses how many shares the seller has remaining after the transaction.

Things to Look Out For

Since the 10th of the month is the deadline for Form 4 filings, a good bulk of insider trading data hits the market at that time. It is a good idea to prepare for price action on stocks that are indicating insider buying. Insider buying almost always creates a surge in share price, at least initially. Insider selling can be attributed to many factors including a pre-arranged selling arrangement for tax purposes, compensation, retirement, personal issues or any number of reasons that may not be a harbinger to negative company events. If a series of insiders are actively selling large blocks, it could indicate a more serious issue. However, each instance should be analyzed on a case-by-case basis and not generalized.  

Form 144

What it is

This is a notice of proposed sale of company stock filed by company executive insiders (officer, direct or affiliate) of their intention to sell shares of the company. Affiliates must file a Form 144 when the amount of sold exceeds 5,000 shares or $50,000 in proceeds within any three month period. The sale cannot exceed 1% of the total outstanding shares or the daily average trading volume for the shares during the prior four-week trading period. Transactions must be made through unsolicited broker accounts directly to market makers. Keep in mind this form is an intent to sell shares within a three month period. If the seller doesn’t sell any shares, then a new Form 144 must be filed again when they intend to sell. For restricted shares, a six-month holding period is mandatory prior to filing Form 144.

How to Read a Form 144

Form 144 provides the name of the seller, relationship to the issuer, type of securities (restricted or control shares), broker dealer, number of shares, aggregate market value, approximate date of sale and each securities exchange that shares will be sold through. The seller also has to disclose the date the shares were acquired and nature of the acquisition transaction, amount of shares and date of payment for the shares. The seller must also disclose the amount and value of the shares sold in the past three months and gross proceeds received on the sales.

Things to Look Out For

This is legal insider trading. However, since it is only an intent to sell, it’s very much like a bid and ask quote on the level 2 screen. The actual trade transaction is not made until it is printed on the tape or in this case, filed with a Form 4. Traders have to be careful not to over speculate on the filing of Form 144s and why they are filed. Assuming Form 144 filings are a negative indicator can be a big mistake. It’s best to track the Form 4 filings for actual insider sales.

Form 8-K

What it is

These reports are used to notify investors of events that are material to the operations, structure and or status of the business. The 8-K report has to be to be filed with the SEC, by the company within four days of any significant event. Significant events can range from bankruptcy, legal rulings and acquisitions to executive personnel changes.

How to Read a Form 8-K

The 8-K is structures in a format to disclose the event and items the company considers relevant to investors and considers to be material to the business operations. Financial disclosures are also includes in the exhibits should the company feel necessary.

Things to Look Out For

The 8-K reports are often accompanied by a public press release if the company feels it will have a material impact on share price, however, this is not always the case. Many times the disclosure may go unreported on the news wires and only uncovered from the official 8-K filing. This can result in a rapid unexplained price move until the newswires report the information. It is prudent to have a news feed scan for any 8-K filings for stocks you may have in a portfolio to get a jump on the information that is not disclosed with a public press release.  

Form 10-Q

What it is

This is the quarterly earnings report filed by all public companies to better inform investors of business operations. The 10-Q is filed every three months and provides same quarter year over year and subsequent quarter comparison of the financials. The statements are generally unaudited due to time constraints. Often the fourth 10-Q may be combined with the 10-K annual report resulting in three 10-Q filings and a 10-K filing for the fiscal year. Companies issue a press release detailing the summary of the earnings report and then follow up a conference call to review the quarterly performance.

How to Read a form 10-Q

The 10-Q is less detailed than a 10-K report. However, the same things to look for still apply. The most significant is the improvement or digression in the financial performance compared to same quarter year over year. The forward guidance can have the most significant impact on share prices.

Things to Look Out For

The most material impact from an earnings report is the forward revenues and earnings guidance, which can initially be found on the press release. The follow-up conference call allows for investors and analysts to ask questions and provide feedback with company executives. Additional key information regarding material changes in the company operations, structure, and litigation or revenue recognition are also key things to look for.

Form 10-K

What it is

This is the annual report filed by public traded companies to the SEC. Companies with more than $10 million in assets and 500 shareholders are required to file this form. This is not to be confused with the annual report to the shareholders usually mailed to shareholders ahead of the annual shareholders meeting. The 10-K annual report is has to be filed within 75 to 90 days of the end of the fiscal year, contingent on type of filer. The report is comprised of four main parts and 15 subsections.

How to Read a Form 10-K

The 10-K is structured to bring any new investor up to date on the business operations. It’s a good idea to start from the beginning and read about the business and risk factors in the beginning. The properties section should be reviewed to get an idea of tangible real estate and physical assets owned by the company, which help to make up its book value. A review of legal proceedings is prudent to see if company is under any significant lawsuits that could have a material impact on business operations. The financial statements should also be read comparing the results to prior year if possible to gauge the growth in revenues, profits or losses.

Things to Look Out For

The auditor’s opinion can have a material impact if the question of ‘going concern’ is mentioned. Although this can be a standard formality for legal purposes, stocks have been known to sell-off hard when an auditor mentions that it has doubts that the company can continue as a ‘going concern’. Naturally, it’s important to measure the company metrics to see if business is growing, contracting or declining.

Registration Statements

What it is

These are documents filed by prospective private companies that are seeking to proceed with an initial public offering (IPO) to get listed on a public exchange and offer shares to the public. The documents include the prospectus, which is the selling document that includes information about the business operations as well as the legal offering of shares.

How to Read a Registration Statement

Form S-1 is a comprehensive prospectus report filed with the SEC that provides insights into the business for investors to review. It contains the following information: business summary, risk factors, management and compensation, stock offering, use of proceeds and management’s discussion and analysis of financial condition and results of operations.

Things to Look Out For

Just like reading an annual report, investors should read through the S-1 document very closely, especially if they are participating in the IPO. Investors should compare financials to publicly traded industry peers as well as determine if there is a powerful sector theme in play. Make note of any misstatements as these can incur liability on the persons who signed off on the registration statement and the underwriters, which could delay or even derail the IPO.

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