How to Screen a Microcap in Ten Minutes

The value of a screening routine is not that it finds you winners. It is that it applies the same standard to every company, so your decision cannot be talked out of you by a good story on a bad balance sheet. Here is one you can run in about ten minutes, in a fixed order, on any US-listed ticker.

Step 1: Does it file?

Start with whether the company has current filings. A company that has gone quiet, with no annual or quarterly report in many months, is telling you something before you read a single number. Late or abandoned filings usually mean trouble: a trading suspension, a deregistration, or a company that can no longer afford its own auditors. If the record has gone stale, stop and ask why.

Step 2: Cash and runway

Pull cash and cash equivalents from the balance sheet and net cash used in operating activities from the cash flow statement. Divide to get runway in months. Write the number down. Short runway plus rising burn is the single most common reason a small company issues shares.

Step 3: Share count over time

Note shares outstanding on the cover page of the last three quarterly reports. Rising means dilution is already happening. Flat is neutral. Falling is rare and usually means a buyback or a reverse split, and you should know which.

Step 4: Recent 8-Ks

Scan the last few 8-Ks for the items that change the story. Item 4.02 (non-reliance on prior financials), Item 3.01 (delisting notice), Item 4.01 (auditor change), Item 3.02 (unregistered share sales), Item 1.03 (bankruptcy) and Item 5.01 (change of control) are the ones to stop on. Everything else is context. The 8-K guide has the full list.

Step 5: Offerings and shelf capacity

Search EDGAR for Form S-3, Form S-1 and Form 424B5. An S-3 means the company has permission to sell shares. A 424B5 means it did. An active at-the-market program means it can keep doing it quietly. The shelf and ATM guide explains the paperwork.

Step 6: Going concern language

Search the latest annual and quarterly report for the phrase "going concern." If it is there, read whether the doubt was alleviated. A first-time warning is a signal that financing, and probably shares, is coming. See Going Concern Warnings.

Step 7: Insiders

Look at the insider flow. Ignore the grants and the tax withholding and ask whether there has been meaningful open-market buying or selling. The Form 4 guide covers the codes.

Step 8: The one judgment call

By now you have six facts: filing cadence, runway, share count trend, recent 8-Ks, offering machinery, and insider behavior. The only subjective question is what the company is doing with the money it raises. A company pouring cash into a business that is growing is a different animal from one pouring cash into a business that is shrinking. The filings tell you the former. The story in the press release tells you the latter. Believe the filing.

Why the order matters

Doing the boring financial steps before reading the optimistic narrative is the whole point. If you read the story first, every number afterward gets bent to fit it. If you read the numbers first, the story has to earn its place. The order is the discipline.

The report runs steps 1 through 7 for any ticker and lays them out with citations, so you can spend your ten minutes on step 8 instead of shuffling through EDGAR.

SOURCES: SEC EDGAR full-text search (sec.gov); company Forms 10-K, 10-Q and 8-K; SEC forms S-1, S-3 and 424B5; SEC Office of Investor Education guidance on insider filings (investor.gov).