Company Overview
Spongetech Delivery Systems Inc. (OTCBB: SPNG) designs, produces, markets and distributes cleaning products for vehicular use. The Company has a patented technology based on sponges that contain hydrophilic (liquid absorbing) foam polyurethane matrices. SPNG’s sponges are specially configured with an outer contact layer and an inner matrix, which is loaded with custom formulated soaps and waxes that are released when the sponge is applied to a surface.
At present, the Company’s product line focuses on vehicular cleaning uses. However, SPNG is applying its patented technology to the development of sponges for additional applications, including sponges with anti-bacterial, bath and kitchen soaps for household uses, as well as a children’s bath foam sponge.
During FY 2008, SPNG reported robust growth with revenues approaching $5.5 million. The sales gain is attributable to an expanded marketing campaign, including sales from the Web site. Going forward, the Company continues to experience strong demand in the United States and abroad, and is entering FY 2009 with order backlog in a $27 million range.
Investment Highlights
A business model capitalizing on innovative product offering
SPNG manufactures and distributes specially configured sponges containing an outer contact layer and an inner matrix, which is loaded with formulated soaps or soap and wax. When the sponge is applied to a surface with minimal pressure, the soap is applied to the surface. When the sponge is not in use, the hydrophilic matrix contains the soap and prevents leeching.
Product characteristics drive rapid adoption
SPNG’s technology offers significant cost savings to consumers since the wash and wax are built into the sponge; the consumer doesn’t need to purchase these products separately. In addition, the Company’s sponges are biodegradable, gentle enough for all surfaces, yet tough enough to remove stubborn dirt. SPNG’s automotive/vehicle sponge was named one of the seven best new products at the Automotive Aftermarket Product Expo in Las Vegas this year.
Robust revenue growth evidences strong product demand
During FY 2008, SPNG reported robust sales growth with revenue approaching $5.5 million, up from $0.06 million in FY 2007. An expanded marketing campaign, development of sales from the Web site and extended distribution channels fueled FY 2008 sales growth. The Company continues to report strong interest from U.S. and international buyers and enters FY 2009 with confirmed order backlog in a $27 million range.
Product line extension broaden revenue potential
The Company's primary product line has been designed for automotive/vehicle applications, including boats, airplanes, ATVs, jet skis and motorcycles. SPNG also markets Uncle Norman's™ Pet Sponge, designed for use with dogs, cats and other pets. Additional applications are in development. These include anti-bacterial, kitchen and bath cleaners and a unique foaming bath sponge for children.
Effective marketing campaign accelerates growth pace
During FY 2008, SPNG significantly expanded its sales and marketing, began airing a TV commercial for its auto wash & wax system, and produced a new commercial for the Pet Sponge Care Kit. The commercials are expected to run through February 2010 in all 50 U.S. states. SPNG’s commercials will air on LOGO, Inspiration, Hallmark Movie Channel, Discovery Science, NBATV, ESPN University, CBS College Sports, Sports New England, Sports Mid-Atlantic, Sports South, Fox Sports Pittsburgh, Fox Sports Southwest, and other cable and satellite TV channels.
The Company has also signed advertising agreements with several magazines and retailer catalogs, including Eastwood Co Automotive, JC Whitney, Mid-America Motorworks, Publisher's Clearinghouse, Quadratec Essentials for Jeep, Speedgear, Doubleday Military Book Club, Handyman Club of America, Carol Wright, Heartland America, Overstock.com, Reiman Country Store, Seventh Avenue, Fingerhut and Cabela's Catalog. This campaign complements SPNG’s ongoing radio and TV advertising on WFAN-AM Radio, SportsNet New York, BusinessTalkRadio and LifestyleTalkRadio.
Other promotional agreements include sponsorship by the New York Yankees and New York Mets and promotions on QVC’s “Keep It Clean” broadcast and on The Price is Right Game Show Prime Time Specials.
Large purchase orders from major U.S. and Latin America retailers
The Company is in discussions with several major retailers who are evaluating and test marketing its products. SPNG is also negotiating with a major supplier of brand name household cleaning products.
The Company has secured several orders, which together exceed $11 million, from well-known chain stores. SPNG received initial orders totaling $4.95 million from Winn Dixie, Ollie's, and Price Chopper, as well as Wal-Mart Mexico and Wal-Mart South America. The second order from Wal-Mart South America totaled $2.25 million and is scheduled for December 2008 delivery. A third order totaled $4.16 million and will ship to South America in January 2009.
Recent Developments
Background
SPNG designs, produces, markets and distributes cleaning products. The Company owns a patented technology based on sponges containing hydrophilic, which are liquid absorbing, foam polyurethane matrices. These products can be pre-loaded with detergents and waxes, which are absorbed in the core of the sponge, then gradually released during use.
SPNG also began marketing products based on hydrophilic sponge technology for bath, pet and home use in 2008. Other opportunities for broadening SPNG’s product lines and distribution channels are being explored.
The Company plans to operate through five business segments:
1) Car Care Products
2) Pet Care Products
3) Child Care Products
4) Home Care Products
5) Pharma and Beauty Products
Its products are produced in the United States by independent subcontractors using SPNG’s patented technology and brand names. The Company believes these sub-contractors have adequate manufacturing capacity to meet anticipated future demand.
Products
The Company markets specially configured sponges containing an outer contact layer and an inner matrix. SPNG’s manufacturer, H.H. Brown Shoe Technologies, loads the inner matrix of the sponge with custom formulated soaps and, in the case of the automotive cleaning and polishing product, soap and wax. When the sponge is applied to a surface with minimal pressure, the soap and wax are released. When the sponge is not in use, the hydrophilic matrix holds the soap and wax in so that these products don’t leech.
Automotive/vehicle product line
The Company's primary product line is designed for automotive/vehicle applications. It can be used to clean and polish boats, airplanes, ATVs, jet skis, motorcycles and other vehicles. SPNG’s patented Super Absorbent Polymer technology locks the car soap and wax into the sponge when it is formed. Sufficient cleanser is loaded for eight or more washes and waxes. The technology also holds the soap and wax safely inside the sponge until it is activated by a combination of water and squeezing pressure. As a result, the soap and wax doesn’t leech or dry up between uses.
With this technology, SPNG offers significant savings and convenience to consumers since the wash and wax are already built into the sponge. In addition, the Company’s sponge system is biodegradable, gentle enough for all surfaces, yet tough enough to remove most dirt.
SPNG’s automotive/vehicle sponge was named one of the seven best products at the recent Automotive Aftermarket Product Expo in Las Vegas.
Pets product line 
The Company also markets Uncle Norman's™ Pet Sponge for shampooing dogs, cats and other pets. Embedded in the Pet Sponge are 1) shampoo, 2) coat conditioner, 3) odor inhibitor and 4) massage bumps. These items are embedded using hydrophilic foam that inhibits bacterial growth and provides a thorough gentle cleaning. In addition, 42 embedded massage bumps on the pet sponge’s surface increase the effectiveness of the bath and provide a massage effect that helps relax the pet.
This earth-friendly product eliminates the need to purchase separate bottles of shampoo, conditioner, and odor neutralizers. Each pet sponge is good for multiple applications. The shampoo and other ingredients are activated when the sponge is squeezed after being soaked in water.
Other applications
The Company is exploring additional applications for its technology including an anti-bacterial, kitchen and bath cleaner, and a unique foaming bath sponge for children.
SPNG has developed a children's bath foam sponge (Puddle Pals), which features a "safe mesh" coating that prevents tearing. The sponge comes in various animal shapes and colors and is infused with a gentle no-tear, non-irritating anti-bacterial soap. The bath foam sponge does not leech soap when it is floating in the bathtub as the inner hydrophilic matrix retains the soap until the sponge is squeezed for use. SPNG may pursue retail distribution for this product through pharmacies and department stores.
The Company has also developed prototype household cleaning sponges infused with anti-bacterial bath and kitchen soaps. These products are being testing by a national detergent manufacturer for possible use under its logo and brand.
SPNG can use a wide variety of cleansers, including anti-bacterial and abrasive soaps, in its sponges. Products can be tailored to the cleaning needs of different kinds of vehicles. New vehicles or those being prepared for classic car shows, for example, require a gentle cleaner while older cars with faded paint may require a cleanser containing a compounding substance or gentle abrasive.
Sales and marketing
During FY 2008, SPNG’s quarterly sales rose from $64,000 in the first quarter to $1.3 million in the third quarter. Fourth-quarter sales are estimated to exceed $3.8 million. The strong sales gains reflect an expanded marketing campaign that included sales from the Web site.
In the past, the Company sold its products through a network of representatives including TurtleWax, Lidel Fitzmaurice, Bill Perry & Associates, Creative Marketing and others. During FY 2008, SPNG significantly expanded its sales and marketing effort and began airing TV commercials for the auto wash & wax system. The commercial is currently appearing on a variety of cable and satellite channels and is scheduled to run through February 2010. While SPNG’s advertising began on a modest scale, it has since expanded to all 50 U.S. states. The Company’s commercials will air on LOGO, Inspiration, Hallmark Movie Channel, Discovery Science, NBATV, ESPN University, CBS College Sports, Sports New England, Sports Mid-Atlantic, Sports South, Fox Sports Pittsburgh, Fox Sports Southwest and other cable and satellite channels.
SPNG is also producing a new commercial for the Pet Sponge Care Kit. When completed, the commercial will air on a variety of cable and satellite channels through June 2010.
During 2008, SPNG entered into numerous arrangements, which help to promote its product offerings:
- The Company has committed to donating a percentage of sales from its children’s bath sponge to The Darryl Strawberry Foundation, an organization dedicated to raising global awareness of autism and other developmental disorders.
- SPNG signed an agreement with the New York Yankees, giving it the right to display advertising in Yankee Stadium and make certain other commercial arrangements for the 2008 baseball season. The Company held a promotional day at Yankee Stadium on July 28 and distributed key chains to the first 18,000 fans. Before the game, SPNG’s products were advertised through radio and television spots. In addition, the Company’s name was spotlighted in the ten games played prior to the promotional day. The term of the agreement extend through November 1, 2008.
- In March, SPNG entered into a one-year consulting agreement with Straw Marketing and Darryl Strawberry. Per the terms of the agreement, Darryl Strawberry will make promotional appearances for the Company, coordinate promotional appearances with the New York Yankees and New York Mets, and introduce the Company to promotional opportunities with Major League Baseball
- In April, SPNG’s auto care products, including "Smart Sponge," with wash and wax imbedded inside, and the Detail Sponge and Chamois, were featured on QVC’s “Keep It Clean” broadcast.
- Also in April, the Company signed an agreement with the New York Mets for certain advertising rights during the 2008 baseball season. Per the terms of the agreement, SPNG has the right to post signage in left and right fields during three full innings of each game. The Company had a promotional day on May 13 and distributed T-shirts to the first 12,000 children in attendance.
- SPNG was featured on The Price is Right Game Show during May TV Sweeps. The feature included two product placements on games. Airdates are tentatively scheduled for April 30 or May 7, May 14 or May 21.
- In May, SPNG began offering coupon inserts for its auto wash & wax system. The Company will be advertising in a variety of magazines and catalogs, including Eastwood Co Automotive, JC Whitney, Mid-America Motorworks, Publisher's Clearinghouse, Quadratec Essentials for Jeep, Speedgear, Doubleday Military Book Club, Handyman Club of America, Carol Wright, Heartland America, Overstock.com, Reiman Country Store, Seventh Avenue, Fingerhut, and Cabela's Catalog. This campaign will complement SpongeTech's ongoing radio and TV advertising on WFAN-AM Radio, SportsNet New York, BusinessTalkRadio and LifestyleTalkRadio.
In addition, the Company has updated its corporate Web site to include product information, an updated online ordering section for placing product orders and a new investor relations section with recent Company news, stock quotes and IR contact information.
SPNG is also promoting its products at trade shows. During 2008, SPNG attended or plans to attend the Los Angeles Auto Show, the North American International Auto Show, the South Carolina International Auto Show, the West Virginia Auto Show, the Pennsylvania Auto and Boat Show, the Northeast Auto Show, the Motor Trend International Auto Show, the Chicago Auto Show, the Virginia International Auto Show, the New York International Auto Show, the Tampa Bay International Auto Show, the Charlotte International Auto Show and the National Hardware Show.
Recent SPNG News:
December 9 -
SpongeTech(R) Delivery Systems, Inc. Partners with MGM Consumer Products for Pink Panther(TM) Licensed Products
SpongeTech(R) Delivery Systems, Inc. America's Cleaning Company(TM) (OTC Bulletin Board: SPNG) has partnered with MGM Consumer Products, a division of MGM Home Entertainment Distribution Corp., a wholly owned subsidiary of Metro-Goldwyn-Mayer Studios Inc., to manufacture and market Pink Panther themed products to include a pet grooming sponge, a children's bath sponge, and a chamois. Marketing of these products, which are based on the popular animated character, will begin no later than March 1, 2009, with retail distribution to various outlets across the United States beginning no later than June 30, 2009.
The Pink Panther film series began in 1963. Directed by Blake Edwards and starring comedic great Peter Sellers as the bumbling French police inspector Jacques Clouseau, the Pink Panther cartoon character was featured in the opening sequences of each film and became instantly popular. This 'cool cat' starred in 126 of its own short animated films, as well as numerous television shows, all set to instantly recognizable theme music composed by Henry Mancini. The film franchise was successfully re-launched in 2006, with Steve Martin in the role of Inspector Clouseau. The Pink Panther 2 film is scheduled to open in February 6, 2009.
SpongeTech(R)'s COO Steven Moskowitz, said, 'The Pink Panther is one of the rare movie franchises that renews its popularity with each generation. We are very excited to be partnering with MGM Consumer Products, and consider this a wonderful opportunity for all involved. This partnership, along with recent other successes with leading sports and entertainment companies, is a testament to SpongeTech(R)'s superior product line and the wealth of licensing opportunities to which our products lend themselves.'
December 8 -
SpongeTech(R) Delivery Systems, Inc. Updates Sales from Television and Radio Marketing Campaign Running in Several Major Cities
SpongeTech(R) Delivery Systems, Inc. America's Cleaning Company(TM), (OTC Bulletin Board: SPNG), updated sale reports with new revenues in excess of $3.2 million in sales from their radio and television marketing campaign running in several major cities across the U.S. and in the last ten days. In addition, initial orders to Ace Hardware have been shipped!
SpongeTech(R) COO, Steven Moskowitz said, 'I am pleased with response to our television and radio marketing campaign and very pleased we have shipped Ace Hardware initial orders. This is the type of quality company that we look to align ourselves with to bring our products lines to the forefront of consumers in the United States.'
