Spongetech Delivery Systems, Inc. (fka SPNGQ)

[pennypacker]

June 2009 Video Conference-previously posted by 1jk1

Every LONG needs to see and listen to this video. Most everything has come true to date with more to come. GO SPNG!
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Many of you have seen the presentation Michael Metter and Steve
Moskowitz did at the Noble Capital Markets Small Cap Conference on June 8, 2009. This gave shareholders a great insight into the product, the company and the future.

I wanted to go back to the video and pull out the important statements made by Metter and Moskowitz as a reminder to not only what this product is, but what the company is trying to do to grow their product line and distribution channels. Of course all that affects the company sales, profitability and ultimately all of our investments.

These are the statements from the video as Metter and Moskowitz gave
their presentation. Nearly everything here is word-for-word out of
their mouth. I did take the liberty of ignoring repetitious or
irrelevant statements and cleaned up the grammar in places. I haven’t
changed else. I’ve simply summarized and condensed it so people don’t
have to sit through the 30-min presentation to remember what was
said.

If you haven’t seen the video, I would strongly suggest you do so at
some point. The filming is bad and the audio is worse. But for the
most part you can understand the most important parts. Here is the
link: http://hosted.mediasite.com/mediasite/Viewer/?peid=3bf950b23c3d4cd79150b998f17295be

Some of this data is a bit outdated, but I left it in to preserve the
authenticity as well as to give people an understanding of how far
they’ve come in this short time.

This list of statements is in chronological order as presented by
Metter and Moskowitz.

CEO: Metter:

• We are really a technology company. Even though when you look at it
you believe it to be a sponge, it is a sponge in looks but it is a
delivery system in nature. Anything put into this sponge will stay in
the sponge until it is activated with water and mechanically
[squeezed]
• Look at this sponge as an alternative to bottles. Anything that is
water-based can be put into the sponge.
• Technology is called “Super Absorbent Polymer”
• Acquired the technology about 10 years ago.
• When we started the company we were involved in heavy-duty focus
groups, conducted by Lysol. They realized because it was a delivery
system, there is a mass appeal to the product line that could meet
many, many applications.
• Really started rolling out the company about 2 years ago. The first
quarter we did $67,000.
• We realized the auto sponge was the fastest way to get into the
market place.
• We are not a 1-product company. We have right now (even though we
haven’t introduced them all) we have in excess of 25 different SKUs.
• We’ve taken advantage of the tremendous opportunities in sports
marketing and advertising. We’ve been able to build our brand.
• We want to be a household name and not just with our products. There
will be SpongeTech mops, brooms, carpet cleaners, floor cleaning
products.
• We want to brand and develop the name SpongeTech and enhance it with
our own proprietary products.
• Our revenue has taken off and we owe that to our aggressive
marketing campaign, which we can do because of our large gross margins
and our proprietary technology.
• We’re not a baby-stage company anymore. Our 3rd full year as a
publicly traded company we told Wall St. we would do $40 million.
• [Slide]: U.S. Retail Sales: 28%, Worldwide Sales: 72%. Goals:
Increase U.S. market share, Continue to grow international business.
• We have very, very large earnings because we are proprietary,
because we are unique, because it is a technology that cannot be
duplicated.
• Look at this as a bottle. This replaces bottles.
• We started selling the auto products first overseas to South
America, Dubai to help roll out the product.
• Any place you see us associated with a sports team, rest assured our
products are in stores in that marketplace.
• We are now in CVS, Walgreen’s, Sav-ons. We’re talking with some
major, major retailers.
• By the end of the summer we’ll be in over 100,000 doors.
• The product, most importantly, is exceptional.
• The auto sponge claims to be able to be used 8 times. But frankly
you can get 10 or 12 washes out of it.
• The auto sponge can hold 32 oz. of fluid.
• If the sales get exponentially larger, the profit margins will
follow along.
• We are positioned correctly to buy right. We have a nice clean
balance sheet.
• [Slide]: U.S. Retailers: WalMart, CVS, Costco, Walgreens, SuperValu,
Ace Hardware, HSN, Kroger, Basha’s
• Just signed our first order with Costco that we will be rolling out
now.
• We’ve done extremely well with Ace Hardware. They continue to
reorder and reorder.
• We have not had to pay for shelving. We’ve been able to put in free-
standing displays.
• In about 2 weeks we’re rolling out another national product. We’ve
signed a deal with Nickolodeon (Viacom). They were very, very tough on
us and we’ve met their standards. This product is entirely made in
America.
• SpongeBob product gets between 250-300 squeezes. Filled with
children’s soap that will not irritate their eyes.
• Viacom believes in our first full year of distribution we’ll do $20
million on SpongeBob.
• We’ve had conversations at licensing show with some major players in
“characters” and I hope we will have some things to say soon on that.
• We have a license with MGM Entertainment for Pink Panther. We have
about a year to develop that and we will.
• We have our own children’s products called Puddle Pals. You’ll see
these in .99 stores, Big Lots, This is another very profitable item
for us.
• At Westminster Dog show, we introduced Uncle Norman’s Pet Sponge”.
Product is shampoo, conditioner, detangler. Product is now in PetSmart
and Pet Co.
• Will continue to develop more brands under the name “Uncle Norman’s
Pet Products”

COO: Moskowitz:

• Last year we raise shares to 1.2 billion
• We started buying back shares
• We’re trading right now at about 9x earnings
• 69 million market cap
• About a month ago we were only about a 10 million market cap
• Last year we did $5.2 million.
• This year we’ll do over $40 million.
• We should keep up that same growth pace over the next 3 to 5 years
as the products start coming out.
• We have about 25 products now. We should have about 100 by the end
of 2011
• Better products are still yet to come.
• We wanted to test the products on cars and dogs before we started
using it on human beings and in the house.
• Now we can add to products like glass cleaners, carpet cleaners,
cleaning dishes, cleaning tables, mopping the floors. Those are where
the big dollars are in the products and that is where our biggest
gross profit margins are going to be.
• Even after advertising, we’re still left with about 20% gross
margins
• 95% of everything is made domestically. Remainder is made in China.
• We have 3 warehouses on the east coast handling production.
• We have patents with Dicon and other companies
• Polymer comes from Dow Chemical. Foam comes from Corning. Chemicals
come from Rochester Chemicals.
• Shipments to plants are unmarked. Mixing is done based on a formula
provided by SpongeTech.
• Company has over a few million in cash. No debt at all.
• Shareholder equity is in excess of $20 million and growing every
day.

CEO: Metter:

• Kitchen sponges typically absorb bacteria, get moldy and smelly.
SpongeTech sponges will never smell, will never, ever absorb the dirt.
It will always stay clean.
• Product can be made as small as 1/16 of an inch, which will give us
opportunities in the medical industry and in in nursing homes.
• We spend about half a million dollars a year in research. We’re
working on suntan lotions and sunblocks.
• The grand slam is in the kitchen. The focus groups proved that
people who work in the kitchen (instutitionally or at home) like the
product because you cannot get dirt in the sponge.
• If we were able to put a major chemical (like a disinfectant) in
there and market it under someone else’s name – that is where the
grand slam is.
• We have signed non disclosures and we are working with one company
that is the biggest in the world.
• We have an appointment in a couple of weeks to meet with another
NYSE company.
• There are probably 12 to 15 patents that surround the product. Some
patents are pending. Some are issued.
• 35 worldwide trademarks. Patents filed in Europe and China – total
about 26 countries.
• Don’t lose sight that this is a worldwide product.
• If you look at Proctor & Gamble, right now we’re a pimple on their
rear end. Some day we won’t be. These big companies – they do not
develop new products and technology. They just ultimately buy new
product and companies.
• [Jack/Marketing?]: In 23 major league ball parks
• [Jack/Marketing?]: Spending over $300k a week in television and
direct response advertising.
• Steven and I believe this is a life changer. OxiClean had 3
products. They were sold for $325 million.
• The big companies want technology. They want uniqueness.
• We are really focused on building this over the next 3-5 years to a
$500 billion company. We believe we can do it. We believe there is
SpongeTech Europe in our future. We believe we have the capability,
capacity and the smarts to make it happen.
• The building of the brand SpongeTech is much greater than the
product distribution, it’s the licensing of the name.
• [Question]: Is the Costco rollout regional or nationwide? [Answer]:
Costco rollout are going into their “A” stores. Costco will not allow
SpongeTech to release the number of stores where products will be
distributed.
• In America you have “push through marketing” you have to drive it
home, they won’t come to you. That’s how you get into the WalMarts and
the K-Marts.
• [Question]: Don’t you have to be @ $4 minimum stock price to apply
to NASDAQ? [Answer]: Yes. We have a meeting Thursday with NASDAQ. As
you know , NASDAQ has lost 700 companies this year, alone. We have 3
of the 4 qualifications. We have the asset base, we have the
shareholder base, we have the profitability base.
• [Question]: Would you entertain a 1:100 reverse split to get listed?
[Answer]: Well, we’ll deal with it when…Right now we’re going to go
there on the basis of what the stock is going to grow to. The time has
come for us to move off the Bulletin Board.
• [Question]: Do you manufacture or outsource these products?
[Answer]: We have exclusive manufacturers. We have very close
relationships. Some of the factories, we are the production. We have 4
factories in this country that we outsource to. We have the capacity
with these factories to do 100+ million sponges a year and that’s only
on one shift. Some of the factories are thinking about going 24/7. We
have the capacity.

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Okay, my thoughts:

I’m glad I watched this again and had to capture these statements. It
really helped me understand the what these guys really want to do with
the technology and the company. I used to think they were setting this
up for a buyout. That could still happen and if their lofty goals
don’t pan out, they could very well do that.

But if you listen to Metter talk, he understands the leverage of the
brand SpongeTech and what it means for licensing. A SpongeTech sponge
with Lysol or PineSol or Windex or Scrubbing Bubles or basically any
and all the household cleaners in your house would be amazing. I
thought about this more. The reason their margins would be so high is
that they don’t to buy the chemical that goes into the sponge. They
only have to license their technology to Proctor & Gamble for
royalties. SpongeTech has already done most of their R&D for the
delivery system. The key isn’t the stuff inside. It is their method of
delivering these cleaners. And PG will pay for that. That is
brilliant. This is the Microsoft model in household cleaner form. And
it will make these guys wealthy – and all of us, too!

I’m nervous about the NASDAQ situation only if they can’t get their
price where they want it quickly. Metter’s strong statement “The time
has come for us to move off the Bulletin Board.” Sounded impatient.
He’s right, based on what they want to do with the company. And if
they are true to their word that they are trying to get NASDAQ to give
them a pass on the share price requirement because so many companies
have been delisted, then perhaps they’ll be even more aggressive and
we will see this stock price move strongly up. If they see continued
growth like they think they will, then I think a reverse split would
be unlikely. It just sounded like they would do one if they couldn’t
get on the NASDAQ any other way. One other thing to consider is that
these guys seem to have contacts. Moskowitz’s Carter’s connection is
huge (that means $$$) and Metter is an old Wall St. guy. It is
entirely possible they could buy their way on – or at least NASDAQ to
give them a pass on the 4th requirement with a time stipulation to
reach $4. That’s just my take after listening and putting those pieces
together.

There has been great debate as to whether or not Metter says they want
SpongeTech to be a $500 billion (yes, with a ‘b’) company in the next
3-5 years. Either that was a slip of the tongue and he meant $500
million, which seems insanely easy after rewatching this and
understanding what they’re trying to do. Or he was talking about a
sale price after 5 years. I still can’t imagine someone paying that
much. But if you think every liquid in your supermarket, drug store,
auto store, hospital, dr. office, school, etc. could be part of this
master plan then perhaps using the ‘b’ word is more realistic for a
sales price, not an annual sales number. Although I still think $500
billion is a bit out there.

I finally get it. I think I finally understand what they’re trying to
do. These guys have a very big plan. Previously my head was trying to
figure out how they’d make so much money selling these sponges. Even
to all the retailers in the world, there would still be a saturation
point. And they could never compete with soap and household cleaning
companies on their small budget. So why not license the technology of
the “delivery system” to big companies that already have solutions,
but are using standard sponges. If you really think about it, it
boggles the mind. Try this: Go to Walgreens and walk up and down the
isles and do a rough count of all the products that could be applied
or used with SpongeTech’s proprietary sponge delivery system.
OMG….that is scary! Maybe using the ‘b’ word isn’t so far out there.

Sorry for yet another long post, guys. But if you’re like me you want
to know everything you can to help you understand and feel better
about this company and their products. I am more excited now after
going through this exercise than I’ve ever been. If they execute and
grow correctly, this company is going to be so amazing. It really
could be a business case like Microsoft or Google. This plan is that
good. I’m in India right now and it is 5:30 in the morning and I
can’t sleep! I’ve been up all night translating this video and getting
myself all hyped up!!!

Good luck to everyone! Position: Long (and I’m going to buy more,
more, more)