10-Q 1 v128905.htm QUARTERLY REPORT Unassociated Document
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q

x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
   
for the quarterly period ended August 31, 2008

o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934
 
Commission file No. 333-123015

Spongetech Delivery Systems, Inc.
(Exact name of registrant as specified in its charter)
     
Delaware
 
54-2077231
(State of incorporation)
 
(I.R.S. Employer Identification Number)

43 West 33 rd Street, Suite 600
New York, New York 10001
(address of principal executive offices) (Zip Code)

(212) 695-7850
(Registrant's telephone number, including area code)

The Empire State Building, 350 Fifth Avenue
Suite 2204, New York, New York 10118
(former address of principal executive offices) (Zip Code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x           No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
   
 Large accelerated filer o
Accelerated filer o
Non-accelerated filer o
Smaller reporting company þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o             No x
 
As of October 14, 2008, 2008, the Company had 809,885,873 shares of common stock issued and outstanding.
 
 
 



 
FINANCIAL INFORMATION
 
 
INDEX TO FINANCIAL STATEMENTS
 



 
SPONGETECH DELIVERY SYSTEMS, INC.
 
   
August 31, 2008
  
May 31, 2008
  
ASSETS
  
Unaudited
      
CURRENT ASSETS
          
Cash and cash equivalents
  
$
165,919
  
$
208,709
  
Accounts receivable
    
3,560,049
    
3,974,810
  
Inventory
    
539,588
    
387,531
  
Deposits on inventory production
    
2,512,871
    
0
  
Prepaid advertising and commissions
    
3,156,240
    
637,875
  
Total current assets
    
9,934,667
    
5,208,925
  
               
PROPERTY AND EQUIPMENT, net
    
33,186
    
32,554
  
               
OTHER ASSETS
              
Intangible assets, net
    
341,075
    
369,243
  
Security deposit
    
8,000
    
8,000
  
Total other assets
    
349,075
    
377,243
  
TOTAL ASSETS
  
$
10,316,928
  
$
5,618,722
  
               
LIABILITIES AND STOCKHOLDERS’ EQUITY
              
               
CURRENT LIABILITIES
              
Accounts payable
  
$
418,338
  
$
202,562
  
Accrued expenses
    
78,975
    
78,975
  
Loan payable-related party
    
133,870
    
7,021
  
Income taxes payable
    
1,000
    
1,000
  
Total current liabilities
    
632,183
    
289,558
  
             
LONG-TERM LIABILITIES
    
0
    
0
  
               
STOCKHOLDERS’ EQUITY
             
Preferred stock, $0.001 par value, 50,000,000 shares authorized,
              
0 shares issued and outstanding
   
0
    
0
  
Common stock, $0.001 par value, 750,000,000 shares authorized,
              
533,085,873 and 46,842,406 shares issued and outstanding at
             
August 31, 2008 and May 31, 2008
    
533,086
    
365,473
  
Additional paid-in-capital
    
10,483,869
    
7,371,954
  
Deficit
    
(1,332,210
)
  
(2,408,263
)
Total stockholders’ equity
    
9,684,745
    
5,329,164
  
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
  
$
10,316,928
  
$
5,618,722
  
             
               
The accompanying notes are an integral part of these statements.
 
 
SPONGETECH DELIVERY SYSTEMS, INC.
Unaudited
 
   
For the three months ended
  
   
August 31, 2008
  
August 31, 2007
  
 
          
Revenue
  
$
5,544,619
  
$
64,076
  
Cost of goods sold
    
1,668,552
    
13,566
  
Gross profit
    
3,876,067
    
50,510
  
               
Operating Expenses
              
Advertising and promotion
    
2,325,042
    
34,145
  
Selling, general and administrative
   
299,354
    
22,641
  
Research and development
   
142,502
    
0
  
Depreciation and amortization
    
33,118
    
3,985
  
Total operating expenses
    
2,800,016
    
60,771
  
               
Net income (loss) from operations
    
1,076,051
    
(10,261
)
               
Other expenses-interest
    
2
    
0
  
Net income (loss)
 
$
1,076,053
  
$
(10,261
)
               
Net income (loss) per share from continuing operations:
              
Basic and diluted
  
$
.00
  
$
(.00
)
               
Weighted average number of shares outstanding:
             
 Basic and diluted
    
481,415,845
    
46,842,406
  
               
               
The accompanying notes are an integral part of these statements
 
 
SPONGETECH DELIVERY SYSTEMS, INC.
Unaudited
 
   
For the three
  
For the three
  
   
months ended
  
months ended
  
   
August 31, 2008
  
August 31, 2007
  
OPERATING ACTIVITIES
         
Net income (loss)
  
$
1,076,053
  
$
(10,261
)
Adjustments for noncash and nonoperating items:
              
Depreciation and amortization
    
33,118
    
3,985
  
Issuance of common stock for consulting fees, loan payments,
              
advertising, and other
    
3,279,528
    
0
  
Changes in operating assets and liabilities:
              
Receivables
    
414,761
    
(59,304
)
Inventory
    
(152,057
)
  
0
  
Deposits on inventory production
    
(2,512,871
)
  
0
  
Prepaid adverting and commissions
    
(2,518,365
)
  
0
  
Accounts payable and accrued expenses
    
215,776
    
6,895
  
Loans payable
    
126,849
    
87,424
  
Cash provided (used) by operating activities
    
(37,208
)
  
28,739
  
               
INVESTING ACTIVITIES
              
Capital expenditures
    
(2,132
)
  
0
  
Intangible assets
    
(3,450
)
  
(26,577
)
Cash (used) by investing activities
    
(5,582
)
  
(26,577
)
               
FINANCING ACTIVITIES
    
0
    
0
  
               
NET INCREASE (DECREASE) IN CASH
    
(42,790
)
  
2,162
  
               
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    
208,709
    
387
  
               
CASH AND CASH EQUIVALENTS, END OF PERIOD
  
$
165,919
  
$
2,549
  
               
Supplemental Disclosures:
              
Interest
  
$
0
  
$
0
  
Taxes
  
$
0
  
$
0
  
               
             
The accompanying notes are an integral part of these statements
 
 
SPONGETECH DELIVERY SYSTEMS, INC.
August 31, 2008
 
NOTE A - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
1.
Nature of Operations/ Basis of Presentation
 
Nature of Operations

Spongetech Delivery Systems, Inc. (the "Company") was formed on June 18, 1999, as Romantic Scents, Inc. On June 12, 2001, the Company changed its name to RSI Enterprises, Inc., and, on October 2, 2002, changed its name to Spongetech International Ltd. ("SIL"). On July 15, 2002, the Company was acquired by Spongetech Delivery Systems, Inc. ("SDS") (formerly Nexgen Acquisitions VIII, Inc.). The transaction was accounted for as a reverse acquisition using the purchase method of accounting, whereby the shareholder of SIL retained approximately 63% of the Company's outstanding common stock. On December 16, 2002, SIL changed its domicile to Delaware by merging with and into Spongetech Sub, Inc. ("SUB"). SUB's parent, Spongetech Delivery Systems, Inc. then merged with and into SUB so that SUB became the surviving corporation, and changed its name to Spongetech Delivery Systems, Inc. The Company distributes a line of hydrophilic polyurethane sponge-like cleaning and waxing products.

Basis of Presentation

 The accompanying interim unaudited condensed financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial statements and in the opinion of management contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position as of August 31, 2008, and the results of operations for the three months ended August 31, 2008 and 2007, and cash flows for the three months ended August 31, 2008 and 2007. These results have been determined on the basis of accounting principles generally accepted in the United States and applied consistently as those used in the preparation of the Company's 2008 Annual Report on Form 10-K.

2.
Inventories
 
Inventories are stated at the lower of cost (first-in, first-out) or market (net realizable value). They consist mainly of sponges and packing supplies.
 
3.
Cash Equivalents

Investments having an original maturity of 90 days or less that are readily convertible into cash are considered cash equivalents. The Company has no cash equivalents as of August 31, 2008 and May 31, 2008.

4.
Property and Equipment
 
Property and equipment are stated at cost and are depreciated principally on methods and at rates designed to amortize their costs over their estimated useful lives.
 
 
 
Property and equipment is summarized as follows:
 
   
 Estimated
Useful Lives
Years
  
 August 31,
2008
  
May 31,
2007
  
               
Furniture, fixtures and office equipment
    
5 - 10
  
$
21,469
  
$
19,337
  
Machinery and equipment
    
5 - 10
    
17,828
    
17,828
  
Molds
    
3 - 5
    
38,312
    
38,312
  
 
        
77,609
    
75,477
  
Less: Accumulated depreciation
        
44,423
    
42,925
  
 
      
$
33,186
  
$
32,554
  

Depreciation expense for the three months ended August 31, 2008 and 2007 was $1,500 and $1,071, respectively.
 
5.
Accounts Receivable

Accounts receivable have been adjusted for all known uncollectible accounts. As of August 31, 2008 and May 31, 2008 there were no doubtful accounts.
 
6.
Deferred Income Taxes

As of August 31, 2008 and May 31, 2008, the Company had approximately $1,332,210 and $2,408,263 respectively, of net operating loss carryforwards available, which expire in various years through May 31, 2022. The significant component of the Company's deferred tax asset as of August 31, 2008 and May 31, 2008 is as follows:
 
   
August 31,
  
May 31,
  
 
2008
  
2008
  
Non-Current
          
Net operating loss carryforwards
  
$
1,332,210
  
$
2,408,263
  
Valuation allowance for deferred tax asset
    
(1,332,210
)
  
(2,408,263
)
   
$
0
  
$
0
  
 
SFAS No. 109 requires a valuation allowance to be recorded when it is more likely than not that some or all of the deferred tax asset will not be realized.
At August 31, 2008 and May 31, 2008, a valuation allowance for the full amount of the net deferred tax asset was recorded.
 
 
 
7.
Revenue Recognition

Sales and services are recorded when products are delivered to the customers. Provision for discounts, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded. In instances where products are configured to customer requirements, revenue is recorded upon the successful completion of the Company’s final test procedures. For the first quarter ended August 31, 2008, three customers, SA Trading Company, US Asia Trading and Dubai Export Import Company, accounted for 67.6 percent of sales.

8.
Advertising and Promotion Cost

Advertising and promotion costs are expensed as incurred. For the three months ended August 31, 2008 and 2007, advertising and promotion costs totaled $2,325,042 and $34,145, respectively.

9.
Intangible assets

Intangible assets consists of infomercials and trademark cost aggregating $382,867. The estimated useful life of three to five years is being amortized on a straight-line basis. Amortization expense for the three months ended August 31, 2008 and 2007 was $31,618 and $ 0, respectively. Intangible assets, net of accumulated amortization, was $341,075 and $369,243 as of August 31, 2008 and May 31, 2008.

10.
Recent Accounting Pronouncements

New accounting statements issued, and adopted by the Company, include the following:
 
In July 2006, the Financial Accounting Standards Board issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—an Interpretation of FASB Statement No. 109”. This interpretation clarifies the accounting for uncertainty in income taxes recognized in a company’s financial statements and establishes guidelines for recognition and measurement of a tax position taken or expected to be taken in a tax return. We have adopted this statement which became effective on January 1, 2007.   The Company has not made any adjustments as a result of the adoption of this interpretation.

In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS 157”). This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. We are currently evaluating the impact on our financial statements of SFAS 157, which will become effective for us on January 1, 2008 for financial assets and January 1, 2009 for non-financial assets.

In February 2007, the Financial Accounting Standards Board issued SFAS 159, “The Fair Value Option for Financial Assets and Financial Liabilities”. SFAS No. 159 amends SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities”. SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value. The objective of SFAS No. 159 is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS No. 159 is expected to expand the use of fair value measurement, which is consistent with the Board’s long-term measurement objectives for accounting for financial instruments. SFAS No. 159 applies to all entities, including not-for-profit organizations. Most of the provisions of SFAS No. 159 apply only to entities that elect the fair value option. However, the amendment to SFAS No. 115 applies to all entities with available-for-sale and trading securities. Some requirements apply differently to entities that do not report net income. This statement is effective as of the beginning of each reporting entity’s first fiscal year that begins after November 15, 2007. The Company has not yet determined the effect of SFAS No. 159 on its financial position, operations or cash flows.

In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations.” It will require an acquirer to recognize, at the acquisition date, the assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree at their full fair values as of that date. In a business combination achieved cost of the acquired entity but will be required to be accounted for separately in accordance with applicable generally accepted accounting principles in the U.S. SFAS No. 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008.
 
In April 2008, the FASB issued FSP FAS 142-3, “Determination of the Useful Life of Intangible Assets” (“FSP FAS 142-3”). FSP FAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a
 


 
recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS No. 142”) in order to improve the consistency between the useful life of a recognized intangible asset under SFAS No. 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS No. 141(R) and other GAAP. FSP FAS 142-3 is effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2008 and is to be applied prospectively to intangible assets acquired after the effective date. Disclosure requirements are to be applied prospectively to all intangible assets recognized as of, and subsequent to, the effective date. Early adoption is not permitted. The Company is currently evaluating the impact of adopting FSP FAS 142-3 on its Financial Statements.
 
In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (“SFAS No. 162”). SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the accounting principles used in preparing financial statements of nongovernmental entities that are presented in conformity with GAAP. Currently, GAAP hierarchy is provided in the American Institute of Certified Public Accountants U.S. Auditing Standards (“AU”) Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles” (“AU Section 411”). SFAS No. 162 is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board’s amendments to AU Section 411. The Company does not expect the adoption of SFAS No. 162 to have an impact on its Financial Statements.
 
11.
Estimates
 
Preparing the Company’s financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
 
12.
Shipping and Handling Costs

Shipping and handling costs are included in selling expenses. For the three months ended August 31, 2008 and 2007, shipping and handling costs totaled $24,107 and $0 respectively.

13.
Net Income (Loss) Per Share

Per share data has been computed and presented pursuant to the provisions of SFAS No. 128, earnings per share. Net income (loss) per common share - basic is calculated by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Net income (loss) per common share - diluted is calculated by dividing net income (loss) by the weighted average number of common shares and common equivalent shares for stock options outstanding during the period.
 
14.
Research and Development

Research and development costs are expensed in the year incurred. For the three months ended August 31, 2008 and 2007, these costs aggregated $ 142,502 and $ 0, respectively.
 
NOTE B - LOAN PAYABLE-RELATED PARTY 
 
As of August 31, 2008 a related party advanced the Company $133,870 with no interest. We no longer owe this money.

NOTE C - RELATED PARTY TRANSACTIONS

 On December 3, 2007, the Company entered into a lease for an office located at 43W 33rd Street, Suite 600, New York, New York 10001 (the “Premises”). The Premises consist of 1500 square feet of office space. The lease term commences on February 1, 2008 and expires January 30, 2011. However, the Company has an option to renew the lease for an additional 3 years at an increased rent of 5% for each additional year. Rent on the Premises is $4,000 per month plus 35% of the cost of electricity for the entire floor.
 
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 repurchase 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.
 
 
 
On July 16, 2008, the Company entered into an employment agreement with Steven Moskowitz pursuant to which Mr. Moskowitz agreed to act as the Chief Operating Officer and Chief Financial Officer for a three-year term. In consideration for his agreeing to act as Chief Operating Officer and Chief Financial Officer and in lieu of any salary payable in cash for the three-year term, the Company agreed to issue an aggregate of 4,000,000 shares of Class B Stock to Mr. Moskowitz. Such Class B Stock is entitled to 100 votes per share on all matters for each share of Class B Stock owned, and vote together with the holders of common stock on all matters. Further, each share of Class B Stock is convertible at the option of the holder, into one fully paid and nonassessable share of Common Stock.
 
On July 16, 2008, the Company entered into an employment agreement with Michael L. Metter pursuant to which Mr. Metter agreed to act as the Chief Executive Officer for a three-year term. In consideration for his agreeing to act as Chief Executive Officer and in lieu of any salary payable in cash for the three-year term, the Company agreed to issue an aggregate of 4,000,000 shares of Class B Stock to Mr. Metter. Such Class B Stock is entitled to 100 votes per share on all matters for each share of Class B Stock owned, and vote together with the holders of common stock on all matters. Further, each share of Class B Stock is convertible at the option of the holder, into one fully paid and nonassessable share of Common Stock.
 
On July 16, 2008, the Company entered into a consulting agreement with Frank Lazauskas pursuant to which Mr. Lazauskas agreed to act as a consultant to the Company for a three-year term. In consideration for his agreeing to act as a consultant, and in lieu of any compensation payable in cash for the three-year term, the Company agreed to issue an aggregate of 2,000,000 shares of Class B Stock to Mr. Lazauskas. Such Class B Stock is entitled to 100 votes per share on all matters for each share of Class B Stock owned, and vote together with the holders of common stock on all matters. Further, each share of Class B Stock is convertible at the option of the holder, into one fully paid and nonassessable share of Common Stock.

NOTE D - COMMITMENTS AND CONTINGENCIES
 
On January 30, 2008, the Company entered into a production agreement with an unrelated party (“Marketer”) to produce and manage a television campaign of a broadcast quality commercial for various broadcast lengths in consideration for the payment of royalties aggregating 5% on all worldwide retail sales less loss on any returns or uncollectible accounts from orders obtained through the Marketer’s efforts.
 
On June 2, 2008, the Company entered into a consulting agreement with R.F. Lafferty & Co., Inc. pursuant to which R.F. Lafferty & Co., Inc. agreed to provide certain strategic financial and advisory services to the Company for a two-year term. In consideration for their agreeing to act as a consultant, the Company agreed to issue an aggregate of 2,000,000 shares of common Stock to R.F. Lafferty & Co., Inc.
 
On July 16, 2008, the Company issued an aggregate of 2,253,436 shares of common stock to Sichenzia Ross Friedman Ference LLP as compensation for legal services rendered to the Company.
 
Effective October 8, 2008, the Board of Directors of the Company amended the Company’s Certificate of Incorporation to increase its authorized capital to 1,000,000,000 shares consisting of 950,000,000 shares of common stock, par value $0.001, 40,000,000 shares of preferred stock, par value $0.001, and 10,000,000 shares of Class B Stock, par value $0.001. The Class B Stock is a newly created designation.


 
NOTE E - COMMITMENTS AND CONTINGENCIES (continued)
 
Description of Class B Stock

Holders of Class B Stock are entitled to vote on all matters submitted to shareholders of the Company and are entitled to 100 votes for each share of Class B Stock owned. Holders of Class B Stock vote together with the holders of common stock on all matters.
 
Each share of Class B Stock is convertible at the option of the holder, into one fully paid and nonassessable share of Common Stock.
 
Holders of the Class B Stock shall be entitled to receive such dividends and other distributions in cash, stock or property of the Company as may be declared thereon by the Board of Directors from time to time out of assets or funds of the Company legally available. In the case of cash dividends, if at any time a cash dividend is paid on the Common Stock, a cash dividend will also be paid on the Class B Stock in an amount per share Class B Stock equal to 90% of the amount of the cash dividends paid on each share of the Common Stock (rounded down, if necessary, to the nearest one-hundredth of a cent).
 
No person holding shares of Class B Stock of record may transfer, and the Company shall not register the transfer of, such shares of Class B Stock, as Class B Stock, whether by sale, assignment, gift, bequest, appointment or otherwise, except to a permitted transferee (as described in the Certificate of Amendment) and any attempted transfer of shares not permitted shall be converted into Common Stock as provided by subsection.
 
On July 16, 2008, the Company formed six wholly-owned subsidiaries under the laws of the State of Nevada: (1) Spongetech Kitchen & Bath, Inc.; (2) Spongetech Health & Beauty, Inc.; (3) Spongetech Auto, Inc.; (4) Spongetech Medical, Inc.; (5) Spongetech Pets, Inc.; and (6) America’s Cleaning Company. The Company plans to engage in its proposed different lines of business through each of the subsidiaries and to hold all intellectual property in its America’s Cleaning Company subsidiary.

 

 
 
Forward-Looking Statements
 
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this report. References in this section to "Spongetech Delivery Systems, Inc.," the "Company," "we," "us," and "our" refer to Spongetech Delivery Systems, Inc. and our direct and indirect subsidiaries on a consolidated basis unless the context indicates otherwise.

This report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These include statements about our expectations, beliefs, intentions or strategies for the future, which we indicate by words or phrases such as "anticipate," "expect," "intend," "plan," "will," "we believe," "our company believes," "management believes" and similar language. These forward-looking statements are based on our current expectations and are subject to certain risks, uncertainties and assumptions, including those set forth in the following discussion and under the heading "- Risk Factors" in our Form 10-Q for the quarter ended August 31, 2008. Our actual results may differ materially from results anticipated in these forward-looking statements. We base our forward-looking statements on information currently available to us, and we assume no obligation to update them. In addition, our historical financial performance is not necessarily indicative of the results that may be expected in the future and we believe that such comparisons cannot be relied upon as indicators of future performance.
 
To the extent that statements in the report is not strictly historical, including statements as to revenue projections, business strategy, outlook, objectives, future milestones, plans, intentions, goals, future financial conditions, future collaboration agreements, the success of the Company's development, events conditioned on stockholder or other approval, or otherwise as to future events, such statements are forward-looking, All forward-looking statements, whether written or oral, and whether made by or on behalf of the company, are expressly qualified by the cautionary statements and any other cautionary statements which may accompany the forward-looking statements, and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The forward-looking statements contained in this annual report are subject to certain risks and uncertainties that could cause actual results to differ materially from the statements made. Other important factors that could cause actual results to differ materially include the following: business conditions and the amount of growth in the Company's industry and general economy; competitive factors; ability to attract and retain personnel; the price of the Company's stock; and the risk factors set forth from time to time in the Company's SEC reports, including but not limited to its annual report on Form 10-KSB; its quarterly reports on Forms 10-QSB; and any reports on Form 8-K. In addition, the company disclaims any obligation to update or correct any forward-looking statements in all the Company's annual reports and SEC filings to reflect events or circumstances after the date hereof.
 
Overview
 
We design, produce, market, and distribute cleaning products for vehicular and pet cleaning, utilizing patented technology relating to sponges containing hydrophilic, or liquid absorbing, foam polyurethane matrices and other technologies. Our products can be pre-loaded with detergents and waxes, which are absorbed in their core then gradually released during use. We have designed and are conducting additional research and development for products and applications using hydrophilic technology and other technologies for kitchen and bath, health and beauty, auto, and medical use, which we intend to market and sell as part of our product offering. There is no assurance that we will successfully be able to market and sell products for kitchen and bath, health and beauty, auto, and/o medical use.
 
Events and Uncertainties that are critical to our business
 
From our inception through the fiscal year ended May 31, 2006 we had limited operations, and, like all new businesses, faced certain uncertainties, including expenses, difficulties, complications and delays frequently encountered in connection with conducting operations, including capital requirements and management's potential underestimation of initial and ongoing costs. Specifically, from our inception in 1999 through the fiscal year ended May 31, 2003, we had sales of $342,019. Between June 1, 2004 and the fiscal year ended May 31, 2006, we had minimal sales (an aggregate of $15,768) and instead focused on product development. For the fiscal year ended May 31, 2007 we had sales of $55,112 and incurred net losses of $817,217.

For the fiscal year ending May 31, 2008 we had sales of $5,633,084 and net income of $1,244,455. During the three months ended August 31, 2008, we had sales of $5,544,619 and net income of $1,096,130. For the three months ended August 31, 2007, we had sales of $64,076 and incurred net losses of $10,261. While it is management’s expectation that the significant increase in sales experienced during the fiscal year ended May 31, 2007, and the related development of our business and operations will continue into second, third, and fourth quarters of the current fiscal year, no assurance can be given that this will continue or that we would not incur any setbacks, delays or other interruptions of our business or operations.


Additionally, prior to the last fiscal year, we had historically depended on one customer for almost all of our sales. Specifically, in 2003, we sold an aggregate of 183,000 sponges to TurtleWax, which represented approximately 75% of our orders. These sales to TurtleWax resulted in net sales of approximately $291,000 during the year ended May 31, 2003. Accordingly, during the fiscal year ended May 31, 2007, and the three months ended August 31, 2008, we significantly developed our business and sales, reduced our dependence on one large customer, and diversified our sales by adding other accounts.
 
We have also historically depended primarily on one manufacturer for the production of our products. Such manufacturer was H.H. Brown Shoe Technologies, Inc. (d/b/a Dicon Technologies), and closed its manufacturing operations in 2007. In 2007, an investment company bought Dicon Technologies from H.H .Brown Shoe Technologies, Inc.. From that time until recently some products were manufactured in China by partners of our manufacturer under an oral agreement using encapsulation technology instead of technology relating to hydrophilic sponges. In June 2008, Dicon began manufacturing at a temporary plant in the United States. Dicon is constructing a new facility in the United State that is planned to be completed around the end of calendar year 2008 and will manufacture products for us.
 
There is significant lead time required on products manufactured abroad. As a result, to the extent that we are unable to obtain products manufactured locally or in the United States, there is no assurance that we will be able to maintain sufficient inventory on hand to fulfill orders which require delivery in short time frames. If we are unable to deliver products to customers timely, we may lose these customers.
 
We have not entered into any agreement with Dicon or its partners for the manufacture of our products. We may still use China facilities for Pacific Rim distribution (South Korea, Japan, China, Thailand, Vietnam, etc). We have also been contacted by the third parties that have purchased Dicon's equipment, however, we have not entered into any agreements with these parties for the manufacture of our products. There can also be no assurance that we will be able to enter into agreements with these parties on the same terms and conditions as we have previously obtained from Dicon.
 
During the last two fiscal years, we received some essential services at no charge due to certain business relationships established by our management. Had we been charged for all these services, these costs would be reflected as expenses in our financial statements. Some of the areas where these services were provided include, but are not limited to, art work, packaging, design and consulting. We anticipate that this arrangement will continue at least through the current fiscal year if and when this arrangement ceases, we expect that our costs of doing business will increase.
 
Our business model is to outsource our operations when possible. We look to hire to outsource our sales team who will devote their efforts to promoting and selling our products and fostering relationships with distributors who can assist us with getting our products on the shelves of large retailers such as Wal-Mart and Costco. However, there is no guarantee that with this outsourced sales team, our businesses will be profitable.
 
Subsequent Events
 
We introduced the Gold Bar Tub & Tile Cleaning System™ on The Balancing Act TV show on October 6, 2008. This is the initial announcement for the Kitchen & Bath Care wholly owned subsidiary of Spongetech. Three SKUs are available on the Spongetech website.
 
The new website www.spongetech.comwas launched on October 10, 2008. Also on October 11, 2008, we moved the content from the old website to www.sponget.com.
 
Critical Accounting Policies
 
Our financial statements are prepared in accordance with accounting principles generally accepted in the United States, which require management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The critical accounting policies that affect our more significant estimates and assumptions used in the preparation of our financial statements are reviewed and any required adjustments are recorded on a monthly basis.
 
Results of Operations

Three Months Ended August 31, 2008 Compared to Three Months Ended August 31, 2007
 
Revenues

During the three months ended August 31, 2008 we had sales of $5,544,619 as compared to sales of $64,076 the same period in 2007, an


increase of $5,480,543. Shipments were begun to retail outlets and distributors to domestic companies. Some of the domestic shipments were to Bashas’, Kroger and Price Chopper. The 3 Pack Car Sponge Kit is available in these stores. Management attributes this increase to the Company’s expanded and improved marketing campaign, including sales from our website, www.spongetech.com.
 
We initially launched our website, www.spongetech.com, in February 2004, to sell our car cleaning kit directly to the public. From inception through the first quarter 2009 ending August 31, 2008, we sold approximately 5,100 kits for an aggregate sales price of approximately $68,200. We pay the website hosting company, Harbor Enterprises, an average of 20% royalty from the sales price on all Internet sales. We have not entered into a contract with Harbor Enterprises. Either party may terminate the relationship at any time. We ship directly to customers.
 
We launched Uncle Norman’s Pet Sponge for sale on July 11, 2008.
 
We had historically depended on few customers for almost all of our sales. For the first quarter ended August 31, 2008 , three customers, SA Trading Company, US Asia Trading, and Dubai Export Import Company, accounted for 67.6 percent of our sales.
 
Cost of Goods Sold
 
Cost of goods sold was $1,668,552 or approximately 30 percent of sales, for the three months ended August 31, 2008 as compared to $13,566 or approximately 21 percent of sales, for the three months ended August 31, 2007. While the cost of goods sold increased significantly as a result of our increase in sales, we also benefitted from greater economies of scale. During the three months ended August 31, 2008, a portion of our cost of goods sold, including costs related to warehousing, packaging, and shipping of products, were borne by (and not charged back to the Company) a privately-held company controlled by our Chief Operating Officer.
 
Operating Expenses
 
Operating expenses for the three months ended August 31, 2008 increased to $2,800,016 from $60,711 for the three months ended August 31, 2007. This increase of $2,739,245 was primarily a result of advertising and promotion expenses ($2,325,042) associated with the Company’s increased presence at trade shows, as well as the numerous media, advertising and sponsorships projects entered into during the first quarter ending August 31, 2008, as compared to the media and advertising expenses from the three months ended August 31, 2007 (which totaled $34,145). The increase in operating expenses can also be attributed to an increase in research in development, to $142,502 for the three months ended August 31, 2008, from $0 for the three months ended August 31, 2007. The increase in research and development is attributed to the development of new product developments, revised and new packaging designs, graphics and marketing costs associated with this effort. Depreciation and amortization expense increased to $33,118 for the three months ened August 31, 2008, an increae from $3,985 for the three-months ended August 31, 2007. Selling, general, and administrative expenses for the three months ended August 31, 2008 were $299,354, an increase from $34,145 for the three months ended August 31, 2007. Selling, general, and administrative expenses were much lower in the 2007 fiscal year due to the fact that a portion of our selling, general and administrative expenses, including costs related to product and package design as well as certain consultants, were borne by (and not charged back to the Company) a privately-held company controlled by the family of our Chief Operating Officer. In the fiscal year ending May 31, 2008, this same practice continued. For the first quarter ending August 31, 2008, some of these costs are still being borne by (and not charged back to the Company) a privately-held company controlled by our Chief Operating Officer.
 
Net Income (Loss)
 
Net income for the three months ended August 31, 2008 was $1,076,053 as compared to a net loss of $10,261 for the three months ended August 31, 2007, an increase of $1,086,314.
 
Liquidity and Capital Resources
 
As of August 31, 2008, we had cash in the amount of $165,919 as compared to $2,549 at August 31, 2007. The increase was due primarily to cash generated by operating activities.
 
Our working capital at August 31, 2008 was $9,302,484 as compared to a working capital (deficiency) of ($425,057) at August 31, 2007.
 
For the three months ended August 31, 2008, cash used by operating activities was $37,208 primarily attributable to our $1,076,053 net income and increased by $3,279,528 from issuance of common stock for consulting fees, loan payments and advertising, offset by $2,518,365 for prepaid advertising and commissions and $2,512,871 for deposits on inventory production. For the three months ended August 31, 2007, cash provided by operating activities was $28,739. This was primarily because our net loss was $10,261 and no income from the issuance of common stock for consulting fees, loan payments, etc.

 
For the three months ended August 31, 2008, net cash used in investing activities was $5,582. For the three months ended August 31, 2007, net provided (used) by investing activities was approximately $26,577. Both expenses were primarily related to equipment purchases and intangible assets.
 
For the three months ended August 31, 2008, the Company issued an aggregate of 14,830,000 shares of common stock to RM Enterprises International, Inc., a company that is our majority stockholder and which is controlled by our officers and directors, in consideration of the advance to the Company of an aggregate of $2,746,442 by RM Enterprises International, Inc. 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 $0.0195.
 
 Existing balances of cash, cash experienced significant revenue growth between the three months ended August 31, 2007 and the three months ended August 31, 2008. This trend, if it continues, may result in higher accounts receivable levels and may require increased production and/or higher inventory levels.  Should our cash requirements to fund these requirements as well as other operating or investing cash requirements over the next twelve months be greater than our current cash on hand, we may seek to obtain additional financing. We do not currently have commitments for these funds and no assurance can be given that additional financing will be available, or if available, will be on acceptable terms. While we have historically funded our operations primarily through investments and/or advances made by officer, directors and/or affiliates of the Company, there are no formal or written agreements with respect to the advance of funds to the Company by our officers, directors and affiliates, and there can be no assurance that they will continue to do so.
 
The Company has no outside debt. The Company is working with vendors to prepay for product to assist them in their operations.
 
Recent Accounting Pronouncements
 
In July 2006, the Financial Accounting Standards Board issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—an Interpretation of FASB Statement No. 109”. This interpretation clarifies the accounting for uncertainty in income taxes recognized in a company’s financial statements and establishes guidelines for recognition and measurement of a tax position taken or expected to be taken in a tax return. We have adopted this statement which became effective on January 1, 2007.   The Company has not made any adjustments as a result of the adoption of this interpretation.
 
In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS 157”). This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. We are currently evaluating the impact on our financial statements of SFAS 157, which will become effective for us on January 1, 2008 for financial assets and January 1, 2009 for non-financial assets.
 
In February 2007, the Financial Accounting Standards Board issued SFAS 159, “The Fair Value Option for Financial Assets and Financial Liabilities”. SFAS No. 159 amends SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities”. SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value. The objective of SFAS No. 159 is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS No. 159 is expected to expand the use of fair value measurement, which is consistent with the Board’s long-term measurement objectives for accounting for financial instruments. SFAS No. 159 applies to all entities, including not-for-profit organizations. Most of the provisions of SFAS No. 159 apply only to entities that elect the fair value option. However, the amendment to SFAS No. 115 applies to all entities with available-for-sale and trading securities. Some requirements apply differently to entities that do not report net income. This statement is effective as of the beginning of each reporting entity’s first fiscal year that begins after November 15, 2007. The Company has not yet determined the effect of SFAS No. 159 on its financial position, operations or cash flows.
 
In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations.” It will require an acquirer to recognize, at the acquisition date, the assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree at their full fair values as of that date. In a business combination achieved cost of the acquired entity but will be required to be accounted for separately in accordance with applicable generally accepted accounting principles in the U.S. SFAS No. 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008.
 
In April 2008, the FASB issued FSP FAS 142-3, “Determination of the Useful Life of Intangible Assets” (“FSP FAS 142-3”). FSP FAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS No. 142”) in order to improve the consistency between the useful life of a recognized intangible asset under SFAS No. 142 and the period of expected cash flows used to measure the fair value of the


asset under SFAS No. 141(R) and other GAAP. FSP FAS 142-3 is effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2008 and is to be applied prospectively to intangible assets acquired after the effective date. Disclosure requirements are to be applied prospectively to all intangible assets recognized as of, and subsequent to, the effective date. Early adoption is not permitted. The Company is currently evaluating the impact of adopting FSP FAS 142-3 on its Financial Statements.
 
In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (“SFAS No. 162”). SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the accounting principles used in preparing financial statements of nongovernmental entities that are presented in conformity with GAAP. Currently, GAAP hierarchy is provided in the American Institute of Certified Public Accountants U.S. Auditing Standards (“AU”) Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles” (“AU Section 411”). SFAS No. 162 is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board’s amendments to AU Section 411. The Company does not expect the adoption of SFAS No. 162 to have an impact on its Financial Statements.
 
 
N/A.
 
 
(a) Evaluation of Disclosure Controls and Procedures. As of the end of the period covered by this report, we conducted an evaluation, under the supervision and with the participation of our chief executive officer and chief financial officer, of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon this evaluation, we have concluded that our disclosure controls and procedures are effective to ensure that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the Commission's rules and forms, and (ii) is accumulated and communicated to our management, including our chief executive officer and chief financial officer, to allow timely decisions on required disclosure.
 
(b) Changes in internal controls. There was no change in our internal controls or in other factors that could affect these controls during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
 
PART II
 
 
We are not currently a party to, nor are any of our property currently the subject of, any pending legal proceeding. None of our directors, officers or affiliates is involved in a proceeding adverse to our business or has a material interest adverse to our business.
 
 
Our business involves a high degree of risk. Any of the following risks could materially and adversely affect our business, financial condition, and results of operations. This could cause the trading price of our common stock to decline, with the loss of part or all of an investment in our common stock.
 
Risks relating to our Business
 
We have a limited history of profitability which may not continue.
 
While we had net income of $1,244,455 and $1,076,051 for the fiscal year ended May 31, 2007 and the three months ended August 31, 2008, respectively, we incurred a net loss of $817,217 for the fiscal year ended May 31, 2006. There can be no assurance that we will sustain profitability or generate positive cash flow from operating activities in the future. If we cannot achieve operating profitability or positive cash flow from operating activities, we may not be able to meet our working capital requirements. If we are unable to meet our working capital requirements, we may need to reduce or cease all or part of our operations.
 
 

Our resources may not be sufficient to manage our expected growth; failure to properly manage our potential growth would be detrimental to our business.

We may fail to adequately manage our anticipated future growth. Any growth in our operations will place a significant strain on our administrative, financial and operational resources, and increase demands on our management and on our operational and administrative systems, controls and other resources. We cannot assure you that our existing personnel, systems, procedures or controls will be adequate to support our operations in the future or that we will be able to successfully implement appropriate measures consistent with our growth strategy. As part of this growth, we may have to implement new operational and financial systems, procedures and controls to expand, train and manage our employee base, and maintain close coordination among our technical, accounting, finance, marketing, sales and editorial staff. We cannot guarantee that we will be able to do so, or that if we are able to do so, we will be able to effectively integrate them into our existing staff and systems. To the extent we acquire other businesses, we will also need to integrate and assimilate new operations, technologies and personnel. If we are unable to manage growth effectively, such as if our sales and marketing efforts exceed our capacity to deliver our products or if new employees are unable to achieve performance levels, our business, operating results and financial condition could be materially adversely affected.
 
We derive a significant portion of our revenues from a limited number of customers, the loss of which would significantly reduce our revenues.
 
We have derived, and believe that we will continue to derive, a significant portion of our revenues from a limited number of customers. To the extent that any significant customer purchases less of our products or terminates its relationship with us, our revenues could decline significantly. As a result, the loss of any significant customer could seriously harm our business. For the fiscal year ended May 31, 2008, we had three separate customers which accounted for 31.6%, 29.3% and 9.7% of our revenues. Other than under existing contractual obligations, none of our customers is obligated to purchase additional products from us. As a result, the volume of sales that we make to a specific customer is likely to vary from period to period, and a significant customer in one period may not purchase our products in a subsequent period.

We have historically been dependent on a single manufacturing source for our products.

We have historically depended primarily on one manufacturer for the production of our products. If our manufacturer experiences any significant disruption in the operation of the manufacturing facility or a serious failure of a critical piece of equipment, we may be unable to supply products to our customers. Interruptions in production of our products could be caused by manufacturing equipment problems, the introduction of new equipment into the manufacturing process or delays in the delivery of new manufacturing equipment to our manufacturer.

 
We depend on products made using one technology and products using different technologies may attract customers jeopardizing our business prospects.
 
Our cleaning products depend on the use of licensed technology relating to sponge like products incorporating a hydrophilic (liquid absorbing) polyurethane matrix. A number of factors could limit our sales of these products, or the profitability of such sales, including competitive efforts by other manufacturers of similar products, shifts in consumer preferences or the introduction and acceptance of alternative product offerings. We have developed products using other technologies; and, thus, if our existing products or others based on the same technology fail in the marketplace, we may be able to sustain our operations or we may be forced to cease all operations.
  
We depend, in part, on the efforts of independent sales persons to generate sales of our products.

We do not have a sales staff devoted to generating sales of our products. Instead, we rely, in part, on the efforts of independent sales groups, who are retained on a non-exclusive basis. These independent sales persons may not devote a significant amount of time to promoting our products or may focus their efforts on other products which may result in them receiving a bigger sales commission. We have no control over these sales persons. If these sales persons are not able to generate significant sales for our products and we do not generate sales from our other efforts, we may be forced to curtail our operations and go out of business.
 
The marketplace may be indifferent to our products; in which case our business will fail.
 
Our products, as well as other technologies used, feature an internal structure which holds detergents and waxes or soap, conditioners and other components which are released only when squeezed. However, potential users may be satisfied with the cleaners, waxes and applicators they are presently using. Thus, we may expend our financial and personnel resources on design, marketing and advertising without generating concomitant revenues. If we cannot generate sufficient revenues to cover our overhead, manufacturing and operating costs, our business will fail.
 
Compliance with governmental regulations and implementation of any law or construction of any current law which has the effect of making it more costly to produce our products may detrimentally affect our ability to produce and sell our products which will cause us to curtail our operations and cease our business.
 
Our cleaning products may be regulated by the Consumer Product Safety Commission under authority of the Hazardous Substances Act. The Consumer Product Safety Commission's jurisdiction covers most non-cosmetic, non-drug substances used in the home. The Federal agency develops voluntary standards with industry and issues and enforces mandatory standards or bans consumer products if no feasible standard would adequately protect the public. It conducts research on potential product hazards and obtains the recall of products that it believes pose potential risk for serious injury or death, or arranges for their repair. Additionally, the Consumer Product Safety Commission informs and educates consumers through the media, state and local governments, private organizations and by responding to consumer inquiries on, among other things, what safety features to look for in products. We do not believe that we are currently subject to any other direct federal, state or local regulation except in connection with regulations applicable to businesses generally or directly applicable to retailing or electronic commerce. However, from time to time in the future, Congress, the FDA or any other federal, state, local or foreign legislative and regulatory authorities may impose additional laws or regulations that apply to us, repeal laws or regulations that we consider favorable to us or impose more stringent interpretations of current laws or regulations. If these agencies determine to implement any law, or construe any current law in such a way which will make it more costly to produce our products, we may be forced to reduce our business and cease operations. In addition, if any of these agencies determine that there is no feasible way to adequately protect the public from any of our products, we will immediately be forced to curtail our business. Any such developments could detrimentally affect our ability to sell our products and become profitable and cause our business to fail.

Our officers and directors are involved in other businesses which may cause them to devote less time to our business.
 
Michael Metter, our President and Chief Executive Officer, serves a director and officer for other companies. In addition to serving as our President and Chief Executive Officer, Mr. Metter also serves as the President and Chief Executive Officer of BusinessTalk Radio.net, Chairman of Tiburon Capital Group, a privately held holding corporation. Mr. Metter devotes approximately 20 hours each week, constituting 30% of his time, to our business.

Mr. Moskowitz, our Chief Operating Officer, Chief Financial Officer and Secretary, also serves as a director and officer for other companies. Mr. Moskowitz is the Chief Executive Officer, President and Director of Vanity Events Holdings, Inc., and President, Chief Executive Officer, and Chairman of the Board of Directors of International Brand Group Management, Inc., both publicly traded companies. He also serves as Chief Executive Officer, President and Director of MAP VI Acquisition, Inc, Inc, a public reporting company. Mr. Moskowitz devotes 40 hours each week, constituting approximately 75% of his time, to our business.
 

Mr. Lazauskas, one of our directors, serves also as President of FJL Enterprises, Inc. and TNJ Enterprises, Inc., which own and operate eight Dominos Pizza Stores, and serves as a director of Vanity Holdings, Inc. Our officers' and directors' involvement with other businesses may cause them to allocate their time and services between us and other entities. Consequently, they may give priority to other matters over our needs which may materially cause us to lose their services temporarily which could affect our operations and profitability.
 
Risks Related to Our Common Stock
 
Our controlling shareholders may exercise significant control over us depriving other stockholders of the ability to elect directors or effect other corporate actions, and investors may not have a voice in our management.
 
Our directors and executive officers with their ownership of 10 million of the Class B shares have over 1,000,000 voting shares that provides a majority of the shares and therefore control the Company. Our shareholders do not have cumulative voting rights with respect to the election of directors.
 
Our common stock is subject to the "penny stock" rules of the SEC and the trading market in our securities is limited, which makes transactions in our common stock cumbersome and may reduce the value of an investment in our stock.
 
The Securities and Exchange Commission has adopted Rule 3a51-1 which establishes the definition of a "penny stock," for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, Rule 15g-9 requires:
 
-
that a broker or dealer approve a person's account for transactions in penny stocks; and
 
-
the broker or dealer receives from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.
 
In order to approve a person's account for transactions in penny stocks, the broker or dealer must:
 
-
obtain financial information and investment experience objectives of the person; and
 
-
make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.
 
The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, in highlight form:
 
-
sets forth the basis on which the broker or dealer made the suitability determination; and
 
-
that the broker or dealer received a signed, written agreement from the investor prior to the transaction.
 
Generally, brokers may be less willing to execute transactions in securities subject to the "penny stock" rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our stock.
 
Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.
 
 
For the three-month period covered by this report, we issued the following securities that were not registered under the Securities Act:
 
In June 2008, we issued an aggregate of 25,482,659 shares of our common stock to RM Enterprises International, Inc., a related party, in consideration for an aggregate of $738,349.56 in debt, or $0.0290 per share. The control persons of RM Enterprises International are Michael Metter, Steven Moskowitz and Frank Lazauskas, all of whom are directors of RM Enterprises International.
 
In June 2008, we issued 2,000,000 shares of our common stock to R.F. Lafferty & Co. Inc. in consideration for financial, advisory, and consulting services provided under the Consulting Agreement dated June 2, 2008.

 
In July 2008, we issued an aggregate of 2,253,436 shares of our common stock to Sichenzia Ross Friedman Ference LLP as compensation for legal services rendered to the Company.
 
In July 2008, we issued an aggregate of 61,230,000 shares of our common stock to RM Enterprises International, Inc. in consideration for advances of an aggregate of $1,490,322 in debt or $0.0243 per share.
 
In August 2008, we issued an aggregate of 74,900,000 shares of our common stock to RM Enterprises International, Inc., in consideration for an aggregate of $1,494,175 in debt or $0.0189 per share.
 
 
None.
 
 
On October 7, 2008, our shareholders approved a resolution to amend our certificate of incorporation to increase our authorized capital to 950,000,000 shares of common stock from 750,000,000. We maintained our current authorized 40,000,000 shares of preferred stock and 10,000,000 shares of Class B stock. Stockholders Steven Moskowitz, Michael Metter and Frank Lazauskas cast a total of 1,000,000,000 votes in favor of increasing the authorized shares of common stock. No other matters were addressed at this special meeting.
 
 
None.
 
 
3.1
Certificate of Incorporation of Nexgen VIII, Inc. (Previously filed as an exhibit to registration statement on Form SB-2 filed November 1, 2002)
3.2
Certificate of Amendment of Nexgen VIII, Inc. changing name to Spongetech Delivery Systems, Inc. (Previously filed as an exhibit to registration statement on Form SB-2 filed November 1, 2002)
3.3
By-Laws of Spongetech Delivery Systems, Inc. (Previously filed as an exhibit to registration statement on Form SB-2 filed November 1, 2002)
3.4
Certificate of Incorporation of Romantic Scents, Inc. (filed as an exhibit to first amendment to registration statement on Form SB-2 filed January 13, 2003)
3.5
Certificate of Amendment changing name of Romantic Scents, Inc. to RSI Enterprises, Inc. (filed as an exhibit to first amendment to registration statement on Form SB-2 filed January 13, 2003)
3.6
Certificate of Amendment changing name of RSI Enterprises, Inc. to Spongetech Enterprises International, Inc. (filed as an exhibit to first amendment to registration statement on Form SB-2 filed January 13, 2003)
3.7
Certificate of Incorporation of Merger Sub, Inc. (filed as an exhibit to first amendment to registration statement on Form SB-2 filed January 13, 2003)
3.8
Merger Certificate between Spongetech Delivery Systems and Merger Sub, Inc. (filed as an exhibit to first amendment to registration statement on Form SB-2 filed January 13, 2003)
3.9
Merger Certificate between Spongetech Enterprises International, Inc. and Merger Sub, Inc. (Previously filed as an exhibit to first amendment to registration statement on Form SB-2 filed January 13, 2003)
3.10
Certificate of Amendment changing name of Merger Sub, Inc. to Spongetech Delivery Systems, Inc. (Previously filed as an exhibit to first amendment to registration statement on Form SB-2 filed January 13, 2003)
3.11
Amended and Restated Certificate of Incorporation of Spongetech Delivery Systems, Inc. (Previously filed as an exhibit to the Company’s 10-QSB filed on April 16, 2007)
3.12
Certificate of Amendment increasing authorized capital (filed as an exhibit to Form 10QSB filed April 15. 2007).
3.13
Certificate of Amendment increasing authorized capital (filed as an exhibit to Form 8K filed July 28, 2008)
Certificate of Amendment increasing authorized capital.*
4.1
Specimen Certificate of Common Stock (Previously filed as an exhibit to registration statement on Form SB-2 filed November 1, 2002)
4.2
Warrant Certificate (Previously filed as an exhibit to second amendment to registration statement on Form SB-2 filed April 11, 2003)
 
 
 
 
4.3
Warrant Agreement with Colebrook, Inc. and Olde Monmouth Stock Transfer Co., Inc. (Previously filed as an exhibit to second amendment to registration statement on Form SB-2 filed April 11, 2003)
4.4
Oral Understanding with Dicon (Previously filed as an exhibit to fourth amendment to registration statement on Form SB-2 filed January 12, 2004)
4.5
The Spongetech Delivery Systems, Inc. 2007 Incentive Stock Plan (Previously filed as an exhibit to Form 10KSB filed on August 29, 2007.
10.1
Stock Purchase Agreement by and among Nexgen Acquisitions VIII, Inc., RM Enterprises International, Inc. and RSI Enterprises, Inc.
10.2
Stock Purchase Agreement by and between Spongetech Delivery Systems, Inc. and Colebrook, Inc. (Previously filed as an exhibit to first amendment to registration statement on Form SB-2 filed January 13, 2003)
10.3
Extension of debt letter by Romantic Moments, Inc. dated August 15, 2002 (Previously filed as an exhibit to third amendment to registration statement on Form SB-2 filed July 8, 2003)
10.4
Factoring Agreement with Westgate (Previously filed as an exhibit to third amendment to registration statement on Form SB-2 filed July 8, 2003)
10.5
Agreement with Paradigm (Previously filed as an exhibit to fifth amendment to registration statement on Form SB-2 filed March 15, 2004)
10.6
Short Form Spot Production Agreement dated June 13, 2007 (previously filed as an exhibit to the 10KSB filed August 29, 2007)
10.7
Sublease dated December 3, 2007 (previously filed as an exhibit to the 8-K filed on January 1, 2008.
10.8
Agreement dated March 25, 2008 between New York Yankees Partnership and Spongetech Delivery Systems (filed as an exhibit to the Form 10QSB filed on April 15, 2008).
10.9
Consulting Agreement dated March 31, 2008 by and among Spongetech Delivery Systems, Inc., Straw Marketing and Darryl Strawberry (filed as an exhibit to the Form 10QSB filed on April 15, 2008).
10.10
Letter Agreement between Spongetech Delivery Systems, Inc., and Sterling Mets, L.P. dated April 11, 2008 (filed as an exhibit to the Form 10QSB on April 15, 2008).
10.11
Employment Agreement between Spongetech Delivery Systems, Inc. and Michael L. Metter dated July 16, 2008 (filed as an exhibit to Form 8K filed July 28, 2008).
10.12
Employment Agreement between Spongetech Delivery Systems, Inc. and Steven Moskowitz, dated July 16, 2008 ((filed as an exhibit to Form 8K filed July 28, 2008).
10.13
Consulting Agreement between Spongetech Delivery Systems, Inc. and Frank Lazauskas dated July 16, 2008 (filed as an exhibit to Form 8K filed July 28, 2008).
10.14
Consulting Agreement between Spongetech Delivery Systems, Inc. and R.F Lafferty, dated June 2, 2008 (filed as an exhibit to Form 8K filed July 28, 2008).
10.15
Letter Agreement between Spongetech Delivery Systems, Inc. and R.M, Enterprises International, Inc. dated July 24, 2008 (filed as an exhibit to Form 8K filed July 28, 2008).
Certificate of Chief Executive Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended, promulgated pursuant to the Section 302 of the Sarbanes Oxley Act of 2002.*
Certificate of Chief Financial Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended, as amended, promulgated pursuant to the Section 302 of the Sarbanes Oxley Act of 2002.*
Certificate of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
Certificate of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

*
Filed Herewith.
 

 
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
Dated: October 14, 2008

 
Spongetech Delivery Systems, Inc.
 
 
 
 
By:
/s/ Michael L. Metter
 
 
Michael L. Metter
 
 
Chief Executive Officer
 
 
 
 
 
 
 
By:
/s/ Steven Moskowitz
 
 
Steven Moskowitz
 
 
Chief Financial Officer and Chief
 
 
Operating Officer
     
     
     
     
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