I'm sure they would have to report it, but few OTC companies actually take that step. There's little incentive for a company with negative book value and a large working capital deficit. The company has no assets to speak of that would pay back creditors in a liquidation so the creditors incentive is to try to keep the company limping along and hope the company figures out a way to stay in business and pay them back one day.
My WAG is that at some point the suppliers and manufacturers told SKNN that they would not produce any more goods unless they got cash upfront and JED and the other financing sources said they would no longer fund SKNN. That would likely lead to a stalemate where everything grinds to a halt but the company remains technically in business (i.e. not BK).
It could just slowly fade away as all the employees leave/are terminated, but more likely (IMHO) is that it undergoes massive dilution with new stock issued and sold at a small fraction of a cent providing however enough funds to either limp along waiting for a new opportunity (basically becoming a shell company) or to push ahead with the product line (if there really is hope for it). Either way, it requires investors who are willing to take a chance even though they are paying far less than the current price for the shares. JED's debentures won't be hurt because their price is based on past value, so even massive dilution just reduces their cost per share and increases the number of shares they can convert to.
So (again, all MHO) they can't "keep dragging you along" forever, but they can sit tight until they find someone willing to provide funds or limp along as a shell without filing for bankruptcy. They could become a non-filer (PK) which would basically keep shareholders pretty much guessing as to what was going on I guess.
No matter what, I don't see much hope for current shareholders to see other than significant decreases in their holdings, but with 1% of the company now worth $10k, there probably isn't a huge incentive to get out unless you want a tax loss, IMHO.
Those who cannot learn from history are doomed to repeat it.
GEORGE SANTAYANA
