Consider Fortunet (FNET), creator of gaming platforms and networks for casinos and other customers. Fortunet trades for just $13 million, but is profitable, has no debt, and shows a cash balance of $25 million. This cash balance, however, is as of the latest financial statements. An investor buying in using this information would get a rude awakening in the company's future statements: since the cut-off date for the last financials, the company has issued a special dividend of $28 million!
Existing shareholders have already received this payment. Shareholders buying in now, however, are buying into a company that's $28 million poorer.
To avoid falling prey to such a situation, there are two items investors should check. First, even though the quarterly financial statements have a cutoff date, the text of the quarterly report will contain a section labelled "subsequent events" that contains material information that occurred just after the cutoff date. Secondly, investors should read the company's subsequent disclosures since the quarterly report was issued so that they can include any material changes that have occurred since the quarterly report was issued.