Reading OTC Filings: 7 Red Flags We Always Check
Filings are where the real story lives. These seven checks have saved us from more bad ideas than any chart ever has.
Micro-cap filings are short and often ugly — which is exactly why they're useful. Here's the shortlist we run, every time.
1. The going-concern paragraph
If the auditors doubt the company can continue as a going concern, that's the single loudest warning in the document.
2. Dilution history
Compare share counts year over year. Relentless increases mean shareholders are being diluted to fund operations.
3. Convertible debt terms
Variable-rate "death spiral" converts can dump shares at a discount. Read the conversion terms, not just the headline amount.
4. Related-party transactions
Money moving between the company and the people who run it deserves a hard look.
5. Revenue quality
One-off gains and non-cash revenue are not a business. Look for recurring, cash-generating sales.
6. Insider selling
Insiders selling into strength tells you what management really thinks.
7. The auditor
A revolving door of small auditors is a smell. Consistency and independence matter.
Education only — not investment advice. See our Methodology.
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