Spongetech Delivery Systems, Inc. (fka SPNGQ)

[loanranger]

Mingy,
"It is my understanding that while we are on the greys, since we are not traded on an exchange, but rather traded among broker dealers, we do not have to file."

We all know people who can be described as "someone who’s judgment I trust" and my purpose is not to suggest that your friend can't be trusted, but rather to suggest that his advice to you was incomplete.
I'm going to start by addressing the law and follow with its application in the real world......the latter presumably being the source of your feeling that it "Seems like a pretty grey area." (Please note that I'm not familiar with the rules that apply to foreign companies and that they may differ.)

First, the short version of the rule requiring filing, highlighted in my previous post:
Every issuer of a security registered pursuant to section 12 (which SPNG is) shall file with the Commission such annual reports and such quarterly reports (and such copies thereof), as the Commission may prescribe.

I hope that you can understand and accept that the above requires SPNG to file.

Next, if a company does not comply with that rule, they RISK the following penalty (From Securities Exchange Act of 1934 Section 12(j)):
The Commission is authorized......to revoke the registration of a security, if the Commission finds, on the record after notice and opportunity for hearing, that the issuer, of such security has failed to comply with any provision of this title....

I hope that you can understand and accept that the above exposes SPNG to the possibility of revocation if the company fails to file.

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1. "It is my understanding that while we are on the greys, since we are not traded on an exchange, but rather traded among broker dealers, we do not have to file."
I would hope that the above addresses this issue in a way that you understand it. The rules applies to ALL companies that are registered under Section 12 of the 1934 Act, REGARDLESS of whether they trade on the NYSE or no exchange at all. Spongetech is registered under Section 12.

2. "I have also found several companies who’ve been trading on the gerys for years, without any financials."
Several? There are probably dozens. This is not because they "do not have to file". They do. These companies generally fall into two categories:
The first, and by far the largest group, represents companies that no longer have any viable operations and trading in their stock has dried up accordingly. The SEC, which had been slow to address this group in the past because it represents a relatively small risk to the investing public, has within the last few years been revoking the registrations of these companies en masse. The process requires the Commission to notify the company of a hearing and allow them to provide reasons why they shouldn't be revoked. Most in this group don't respond to the hearing notification at all and are revoked by default as a result. There are still a number of companies that the SEC just hasn't gotten around to......the "several companies who’ve been trading on the gerys for years, without any financials" almost certainly fall into this group.
The second, much smaller group, is primarily comprised of companies who have not filed...sometimes for a period of years....but do have ongoing operations and/or active stock trading and, when notified by the SEC, elect to attend the hearing and provide what they feel are reasons why they should not be revoked. However, since the reason for the SEC action is lack of filing, the only reason historically found to be acceptable by the hearing judge, is some version of "we're working on them and they should be ready by __/__/____." Often there is an issue as to the proper accounting for a complicated transaction or maybe even "the dog ate my filing", but it is strictly up to the discretion of the judge as to whether to allow an extension or immediately revoke. Judges have been known to provide multiple extensions based on their assessment of the legitimacy of the reasons for the delay and the credibility of the issuer.

3. "I also have not been able to find any rule, where after a set period of time of no filing, a company is revoked."
That's because there is no such rule. The timing of the decision to request a revocation hearing varies.

Theoretically the SEC is engaged in an ongoing process of trying to determine whether the lack of current information (filings) available to the investing public regarding ANY company (registered under Section 12) results in an undue risk to any POTENTIAL investors. Historically, the decision to revoke is weighted in favor of these potential new investors even in light of the obvious cost to existing shareholders. Apparently the SEC's mission has been interpreted to be the protection of the investING public versus the preservation of the investED public.


I hope that you've read the above carefully and that it has been helpful. No one can say when a revocation hearing might be called. As long as a company is not in compliance with their requirement to file it is at risk of being required to justify their failure to file at a hearing. And based on the adequacy of that justification in the eyes of the hearing judge and his feelings regarding the likelihood of the company achieving compliance in a reasonable time (which he alone defines), a company can be revoked. It can happen today or it could happen in the year 2015, but as long as they don't file it can happen.


ps. An operations' "theoretical" revenues and profitability place a distant second in these considerations. The following link is to the appeal (unsuccessful) of Nature's Sunshine to the revocation of their registration wherein the 10K filed PRIOR TO the period of non-filing began reflected "net sales revenue of about $331 million and net income of about $17 million."
They also argued the following to no avail:
"Nature’s Sunshine argues that revocation is unwarranted because it is not a “shell company,” but a “healthy, viable company with substantial revenues, assets, and operations.”

and perhaps the most important excerpt is:
"Nature’s Sunshine argues that revocation is unwarranted because it will harm existing shareholders. We have stated that any harm to existing shareholders is not the determining factor in evaluating whether an issuer’s securities registration should be revoked. We have also stated that existing and prospective shareholders alike are harmed where, as here, the required filings about the issuer are not available and, as a result, existing and prospective shareholders cannot make informed investment decisions:
We previously have recognized, however, that, in any deregistration, current shareholders could be harmed by a diminution in the liquidity and value of their stock by virtue of the deregistration. We also have held that the extent of any harm that may result to existing shareholders cannot be the determining factor in our analysis. In evaluating what is necessary or appropriate to protect investors, regard must be had not only for existing stockholders of the issuer, but also for potential investors. Indeed, we have emphasized the significant interests of prospective investors who can be substantially hindered in their ability to evaluate an issuer in the absence of current filings. In any event, both existing and prospective investors are harmed by the continuing lack of current and reliable information for the Company."
http://www.sec.gov/litigation/opinions/2009/34-59268.pdf


If I have left any "grey areas" in your mind on this issue please let me know. My purpose is to provide you clarity once and for all. I can't help but pointing out that I don't pretend to any expertise on these issues beyond that which I picked up in the reading of the rules and if I am mistaken in any of my understandings I welcome their correction. It is not my purpose to mislead.