Spongetech may sound familiar to you, until recently you could not turn on your TV without seeing their commercial. SPNG is selling those sponges you wash your car with, they have the soap and wax already built into the sponge, all you need to do is add water and wash away. But wait! If you call now, you get not one, but two sponges for the price of one!
This story began in March of 2009, SPNG was then trading below a penny (stocks in this range are known as sub penny stocks). Earnings were picking up and so was demand for their product from their existing distributors and internet sales.
In April the stock got its first big price jump from sub penny land to over 2c. From there the momentum of sales and interest from speculators got the ball rolling.
A press release on May 15th 2009 boosted the stock price to the $0.05 level after announcing $10M in new orders for month of May, all while the market cap was $20M.
The afterburners kicked in, ads where to be seen on prime time slots like CNBC where the ticker SPNG was displayed so all investors knew this was a public company, the stock took off and hit a high of $0.28 on June 12th.
Investors were giddy, and rightly so, everything seemed to be going perfect, except for a small issue, that of the capital structure of SPNG.
All questions about the share structure were revealed when SPNG surprised investors on the morning of September 8th with a press release announcing a 1-100 reverse split. Details mention that post split, the company will have 900 million shares of common stock, a number that is not particularly attractive.
Shareholders started selling hard and the stock now sits in the lower teens, and falling. The discussions at PennyStockPicker.com echoed the dismal views at HSM.
Good story, good execution, lousy share structure. It is tough getting the right combination going in the land of penny stocks.
