The SEC allows foreign entities an additional 30 days to file form 20-F vs. US-based 10-K filers, or 120 days after the fiscal year (December 31, 2013 in NQ Mobile's case) vs. 90 days for a US company 10-K filing deadline. So the 20-F report statutory deadline was April 30, 2014, but what appears clear and troublesome is the behavior of NQ executives during the Q4 earnings call on April 10, 2014. Management not only avoided the 20-F and audit topic in their prepared remarks, but also evaded discussion during the conference call, and only addressed it under pressure of questioning:
Michael Walkley - Cannacord Genuity: Okay, that's helpful. And I guess just last question from me and I'll pass it on, is, any updated timing on just when the 20-F might be filed? Is there a certain date in mind or is there a certain deadline you have to have that filed by just to -- just that'd be helpful. Thank you.
Omar Khan - Co-CEO: Yes. Thanks, Mike. So based on the current fully integrated schedule that all the parties associated with the process are working from, we are planning on meeting the statutory deadline for the 20-F.
Well, it appears that NQ's $50 million co-CEO Khan knows as much about the current state of affairs surrounding the audit and 20-F filing as he knows about the number of Chinese provinces NQ Mobile does business in.
The 20-F was not filed by the statutory deadline and form NT 20-F (15 day extension) was filed on April 30, 2014 with a statement reading: b) The subject annual report, semi-annual report, transition report on Form 10-K, Form 20-F, Form 11-K, Form N-SAR or Form N-CSR, or portion thereof, will be filed on or before the fifteenth calendar day following the prescribed due date;
While NQ publicly discloses that the 20-F WILL BE filed ON OR BEFORE the fifteenth calendar day following the prescribed due date of April 30, 2014, May 15th arrives and of course, no 20-F is filed or audit results disclosed.
Now, the SEC policy regarding the 15 day extension is a clear and present danger to NQ Mobile and any other company who fails this requirement:
If a company fails to file the missing report within the extended time period, no further extensions will be available and the SEC will consider the company to be delinquent as of the original due date of such report. For instance, if a company misses the extended deadline for a 20-F by a 4 days, the SEC will consider the company to be delinquent for 19 days. Furthermore, The failure to file a required SEC report on time constitutes a violation of Section 13(a) of the Exchange Act and the SEC could institute an administrative proceeding against the late filer, among other things, seeking revocation (IE de-listing) of the company's registration under the Exchange Act.
Recall that in Longtop Financial's (LTF) case, the SEC announced on November 10, 2011 that it had commenced administrative proceedings against Longtop Financial based on its failure to make it's required periodic filings with the SEC. In addition to seeking relief against Longtop for violations of the reporting provisions located in Section 12(a) of the Securities and Exchange Act of 1934, the SEC also sought to suspend, or revoke, the registration of Longtop's securities under Section 12(j) of the Exchange Act, for its failure to file periodic reports. Revoking the registration of Longtop's securities would preclude the trading of Longtop's securities in any US public securities market (including over-the-counter market), thus substantially destroying shareholder value. While devastating in effect, a de-registration order does not require proof of fraud, only that the company has failed to file periodic reports. In addition, the filing of these administrative charges does not preclude the future filing by the SEC of securities fraud charges.
In fairness to NQ's current SEC delinquency status of 18 days, it is important to note that the SEC action in LTF's case was announced short of 90 days following the missed 20-F filing extension date of August 15, 2011 for fiscal year ending March 31, 2011.
The problem is: The SEC has no required timeline to adhere to before taking any action, and thus, each day that NQ delays the 20-F report is another potential bullet in the game of Russian Roulette.
Disclosure: This blog post represents my own opinion and information was gathered from publicly available material. This blog post is not a recommendation to buy or sell any security, and as always, investors must perform their own due diligence. I may be holding positions in equity or options, both long or short in securities of the company or companies mentioned herein.