The Clock is Ticking for Spongetech ®

One of our old favorites Spongetech® has had a rough few weeks.  They have gone from a shining star to an ever dimming light in the OTC market.  Everyone that has followed this little jewel is sitting on pins and needles waiting for the late 10k which should answer many, if not hundreds of questions.

Keep in mind; this was one of our strong picks based on the company’s products, innovation and growth.  If this thing “crashes” we will not only be sad, but shocked as well.

Spongetech® has gone from a bright new company with fantastic products, to an all out Drama Scene between the company, SEC, management, investors, class action lawsuits, trademark lawsuits, shareholders, subsidiary / “somehow connected” companies, potential investment ventures, and so on and so on.

Much of this “drama” however will end when the late 10k finally hits. We see only three outcomes in our opinion.

1)      Good news. The 10k is accurate with stated figures showing roughly 50 million in revenue. If the auditors verify sales and figures, the company will have a strong victory and much of this will clear.

2)      Very bad news. The auditors find that the sales numbers are false and greatly inflated. Not only will this cause the demise of the stock, but could lead to the collapse of the company, and prosecution of its executives.

3)      We are not even sure if this one can exist. If the 10k shows misinformation and possible wrong doing by company execs, can the company continue with business? Keep in mind a “corporation” is treated like an individual. The officers are there simply to run it. They could be removed, and replacements appointed. The company is selling product and the products are good. Obviously this would tarnish the company and the stock for some time, but it could continue and limp along. However, there would be a swarm of legal filings and suits that could eventually drive them under.

One of the biggest red flags currently outstanding is the verification of their largest customers. Many have seen this as a “minor detail” but we think this is the biggest item that needs explaining.  The NY Post was given, via Spongetech’s® outside investor relations firm, names, phone numbers, and addresses of their largest customers that in some quarters comprised over 80% of their business.  When they (NY Post) tried to verify them, they led to dead ends and apparently non-existent companies.

Many have disputed this “angle” but we can’t help wondering….

If one of the fiduciary duties of the CEO is to protect the shareholders and the value of the company’s stock, why didn’t he immediately pick up the phone and offer corrected information to the Post?  This would have immediately cleared the air about “hyped” sales figures and caused a ‘rebuttal article’ to be written. If nothing else, a public statement could have been released stating, “we have provided the information to the Post’s reporter and encourage them to contact our distributors to verify their existence”. (End of questions.)

For most involved this has been a great learning experience and reveals that ANYTHING is possible.

Our Forward Looking Statement:

Never believe ANYTHING we report without verifying the information yourself. Making decisions on “news” is risky and leads to many people losing large amounts of money. Never and we repeat NEVER make investment decisions based on what we other people tell you. Do your own research and be skeptical of everyone.

Also…

This news may contain “forward-looking statements” as that term is defined in Section 27A of the United States Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Statements in this article which are not purely historical are forward-looking statements and include any statements regarding beliefs, plans, expectations or intentions regarding the future. These forward-looking statements are made as of the date of this article, and we assume no obligation to update the forward-looking statements, or to update the reasons why actual results could differ from those projected in the forward-looking statements. Although we believe that the beliefs, plans, expectations and intentions contained in this article are reasonable, there can be no assurance that such beliefs, plans, expectations or intentions will prove to be accurate. Investors should consult all of the information set forth herein and should also refer to the risk factors disclosure outlined in annual reports on Form 10-K for the most recent fiscal year, our quarterly reports on Form 10-Q and other periodic reports filed from time to time with the Securities and Exchange Commission.

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