EVERYBODY READY..............................................
Part I.
The evidence available implies that SpongeTech (SPNG) is a massive pump and dump being orchestrated by the insiders. The next major event in this scheme will be later this month when the company executes a 100:1 reverse split. The pump and dump involves the use of a PR campaign identifying a massive attack by short sellers in the market due to the company listing on the Reg SHO list. Circumstantial public data however would support the SHO Listing as being associated with the company CEO selling 144 stock through a shell finance company (RM Enterprise International) that the CEO set up to orchestrate this scheme.
Red Flags towards this claim are:
1. SpongeTech has posted a share structure of 722 Million shares. The problem is, their last 10Q reveals that more than 722 Million shares have been issued to a sole third party investor under 3 separate financing deals. All the financing came from a single private party which is run by the CEO of SpongeTech.
From the 4/20/2009 SPNG filing:
In July 2008, RM Enterprises International, Inc., a company that is our majority stockholder and which is controlled by our officers and directors, agreed to grant the Company the right, exercisable by the Company at any time on or prior to February 28, 2010, to=2 0repurchase all or any portion of the 267,154,132 shares issued that RM Enterprises International, Inc. had purchased from the Company since January 1, 2008 at the original price paid by RM Enterprises International, Inc. to the Company for such shares, or an aggregate of $4,918,432.46 for all of such shares. Such shares were issued in tranches at the time of each of the advances of funds to the Company at a 40% discount from the market price on the date of each such advance. The average per share issuance price for the shares was $0.0184.
During the three months period ended November 30, 2008, the Company issued an aggregate of 409,953,442 shares of common stock to RM Enterprises International, Inc., a related party, in consideration for the conversion of an aggregate of $6,319,569 in debt or an average of $0.015per share.
During the three months period ended February 28, 2009, the Company issued an aggregate of 306,412,290 shares of common stock to RM Enterprises International, Inc., a related party, in consideration for the conversion of an aggregate of $1,188,970 in debt or an average of $0.0039 per share.
Michael Metter has been President, Chief Executive Officer and a Director since May 2001. Mr. Metter has served as President of RM Enterprises International, Inc., our majority stockholder, since April, 2001, and as its Chief Executive Officer since March 2, 2004.
If you add up these three dealings, it is clear that more than 722 Million shares have been issued to RM=2 0Enterprise alone. This brings into question the accuracy of the reported share structure. I similarly question why, if Metter is the President of RM Enterpises, why these are not listed or considered insider shares if Metter has control of these shares and is CEO of SpongeTech at the same time.
2. The company is delinquent on the latest 10K filing and has filed in July that they have terminated their auditor, their replacement auditor, and are now on their third auditor.
Part II
3. On May 26, 2009 SPNG amended their Certificate of Incorporation to increase the authorized shares from 1.8 Billion shares to 2 Billion shares. A second press release dated July 27, 2009 identified that the company planned on reducing their shares authorized to 900 Million shares while engaging in a process to reduce the outstanding shares issued to 500 million shares. And then, after notifying shareholders that this reduction would not be done by way of a reverse split, the company on September 3, 2009 identified that a 100:1 reverse split will be executed on September 22, 2009. Shareholders at this time do not know what the real issued share level is but based on the decision to hold off on reducing the shares authorized to 900 million until after the reverse split, it is clear that the present shares issued exceeds 900 million shares.
I believe that while RM Enterpri ses was dumping shares, the company put out a press release on July 20, 2009 identifying that the officers of the company were purchasing shares and in that release they deceivingly presented that the company remained at 722 million shares. The intent of this release was to convince shareholders that this was a good buy and intent on deceiving them of the additional dilution since the last 10Q.
SpongeTech® Delivery Systems, Inc., The Smarter Sponge™, (OTCBB: SPNG - News) is pleased to announce that its Chief Executive Officer, Chief Operating Officer and Board Members have been purchasing SpongeTech®’s common shares in the open market. Together the team has purchased approximately 18.2 million (eighteen million two hundred thousand) shares of the 722.86 millions shares issued and outstanding as reported in the Company's 3rd Quarter 2009 filing. The purchasing of the Company's stock in the open market reflects the management's confidence in the Company's long-term prospects.
If Metter, the Chairman and CEO is purchasing shares here while dumping shares in his shell investment company (RM Enterprises) it does not reflect the managements confidence in the company’s long term prospects.
4. On February 28, 2009 the company reported cash and cash equivalents of $34,000 despite the money raised up to February 28th form M Enterprises. On July 15, 2009 the company reported the purchase of Dicon Technologies for $2.35 million with an obligation to pay off Dicon’s $2.2 Million debt to Wachovia. On September 8, 2009 the company further announced the investment of $4 Million into another OTCBB company called GetFugu inc. With limited revenues received it would be impossible to maintain the financing of present business obligations and still have sufficient operating capital to invest an additional $8.5 Million into outside enterprises without once again tapping into the financing of RM Enterprises. All of these activities have taken place in a single quarter of time when the company is delinquent in their filings.
5. Up until May 2009, SPNG traded relatively flat at around $0.02 or less per share. Then between early May and June 11, 2009, without explanation, the market began to run and on June 11, 2009 it peaked at $0.24. On June 12, 2009 SPNG began a massive PR campaign to present their sales contacts received in what is believed to be a concerted effort to maintain interest in the stock until all of the newly available 144-stock had been dumped into the hype. With the massive dilution all going to a single third party and the CEO of SpongeTech also being the CEO of that shell third party it is clear that a conflict of interest exists.
Part III.
6. Using a tactic with preferred shares, the company has issued preferred Class B shares to the company officers and directors with the right for each Class B preferred share to be worth 100 voting shar es in a proxy vote. By doing this, and with the level of shares issued, the officers are guaranteed to maintain a majority vote on any corporate actions. This has allowed them free reign on stock dilution and increases in authorized share counts without going out for shareholder proxy vote. This was part of the scheme used by Nanosignal (NNOS) in diluting shares between quarterly filings.
Soon, as was the case with past scams such as this, SPNG will have their large and dedicated shareholder base and the magnitude of this scam will each the same proportions of others like it. CMKX, PCBM, NNOS, Etc…are all similar scams where the officers of the company print shares to themselves through shell third parties and then dump those shares into the market while hyping the public company.
On September 22, 2009 a reverse split will dump the share structure adequately enough for the sequence to start all over again. I urge the Commission to look quickly into these allegations and this operation to protect the future investors who will be harmed by this scam. The relationship between Spongetech and RM Enterprises certainly raises significant red flag and only more so when you consider that outside of this affiliation with Spongetech, there is no other public information available about any other business dealings they have had since incorporation in 2001.
Please, do not wait until there are the same 50,000 victims that existed in CMKX before that scam was shut down. Please act swiftly=2 0and minimize the level of victims this company plans on creating. This company is on the Reg SHO list and the message boards are claiming this is about naked shorts and short sale abuse. They expect a short squeeze and thus continue to invest in this pump and dump. I think a quick search of why there are millions of fails listed you will quickly confirm that it is the company insiders selling through RM Enterprises.
