Spongetech Delivery Systems, Inc. (fka SPNGQ)

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Teri Buhl Please read carefully!! dated
Teri Buhl is a Wall Street investigative reporter.
About Teri Buhl
About Teri BuhlHow real are Metter’s SpongeTech new sales?February 8, 2010 at 6:26 pm by Teri Buhl
Update Two

Last week this newspaper reported on the SEC investigation into Michael Metter’s penny stock company SpongeTech for alleged securities fraud along with a class action suit alleging securities fraud by investors in the stock. Metter is also the president and owner of the radio licenses for a Greenwich radio station. Stock investor boards lit up after we reported that Metter said he had an national reorder with CVS and a new national order with Walmart for his SpongeTech products, questioning if the contracts were real.

A spokesperson for CVS confirmed Monday that the drugstore chain placed a national reorder for the SpongeBob kids bath product that is expected to arrive in stores at the end of March. During an interview last week with Greenwich Time Metter claimed this was big reorder. Yet investors in the stock, who now hold a stock worth only three cents, questioned if the order had been placed through a reseller or was sold to retailers at a deep discount. CVS would not confirm the size of the order or if it was negotiated at a discounted loss but did confirm that it was made directly with SpongeTech. CVS also said the product would retail for $5.99.

Multiple calls to Walmart were made to determined the status of a new national Walmart contract with SpongeTech for its SpongeBob product. A internal spokeswomen for Walmart, Mellissa O’Brien, responded late Monday that while SpongeTech has been a vendor in the past, there is currently no new national order for its SpongeBob product. Metter sent a photo of his product on a Walmart shelf to Greenwich Time but did not supply a copy of his contract or sales order.

Questions about the actual number of sales the firm has made are at the heart of the SEC investigation and the class action investor lawsuit. Metter’s company filed press releases saying it has $50 million in revenue and reiterated this number when he spoke with the Greenwich Time last week. Yet communication with investors has been virtually non-existent. The investor lawsuit says SpongeTech has yet to file its 2009 financials (10-K) with the SEC and was also accused of forging opinion letters on the issuance of the stock. A call to the company’s investor hot-line says at this time its only communication with investors will be through press releases because of recent negative media reports.

Considering the lawsuit’s first claim alleges that Metter, as CEO of SpongeTech, “employed schemes to defraud, while in possession of material adverse non-public information … in an effort to assure investors of SpongTech’s value and continue substantial growth,” it’s no wonder that Internet stock boards, such as investorhub.com, are lit up asking Metter to back up his claim about new sales with CVS and Walmart. But since we still don’t know the terms of the newest SpongeTech sales orders , it is difficult to determine if this is just a move to shore up needed cash to defend lawsuits or if real revenue growth is occurring in a stock that is now trading at a deep discounted low. Last week Metter said in a confident tone that he plans to remain a publicly held company. Yet it appears SpongeTech is still searching for an accredited auditor to sign off on it’s end of year financials so they can file them with the SEC.

Last week, court documents show Metter has now added a expert in class-action securities fraud attorney, Jesse Weise of the Texas office of Greenberg Traurig LLP, to his defense. Weise told the Greenwich Time that the litigation is ongoing but noted it has not made it through the stages of the legal process that would allow them to file a motion to dismiss. Weise said investors are still joining the suit and a lead plaintiff is yet to be determined. Gary Graifman, of Kantrowitz,Goldhamer & Graifman, who filed the initial complaint told Greenwich Time they plan to pursue the case against Metter and SpongeTech vigorously.

Updated 2/10/2010 2:30 p.m.

Walmart spokeswoman Mellissa O’Brein has called into Greenwich Time to change her comments. O’Brein says after repeated e-mails and phone calls about the SpongeTech products yesterday she uncovered that a distributor, Dicon, is in the retailer’s order system as selling the SpongeBob product to Walmart, and the product is in a select number of stores but not distributed nationally. According to an SEC filing SpongeTech bought Dicon last July making it a fully owned subsidiary. Metter told the Greenwich Time, this week, they still own Dicon.

O’Brein wants to add that Walmart does not comment about or provide information about future sales. She did confirm, again, that in the past SpongeTech was a vendor. Last week Michael Metter, CEO of SpongeTech, excitedly told the Greenwich Time that he had a national order with WalMart. As evident from the above statement, that national order is not in Walmart’s system yet. If Dicon is selling the product to Walmart at a discount, how would that affect the net profits of the penny-stock company? Stay tuned as we watch to see if a national Walmart contract with SpongeTech surfaces in the future.
http://blog.ctnews.com/teribuhl/2010/02/08/how-real-are-metters-spongetech-new-sales/
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