Dow Jones 12504.79 +114.31 7:20 am PDT, June 5, 2008 NASDAQ 2537.57 +34.43 For info, visit access.smallcapnetwork.com S & P 500 1392.10 +14.90 Change your subscription status here Russell 2000 749.87 +6.16 VOLUME 08 : ISSUE 53 SpongeTech/CEO Letter Confirms It... In a blog entry yesterday I was explaining why I felt SpongeTech Delivery Systems (OTCBB: SPNG) was on the verge of a breakout. The resistance at the 4.9 cent level has been under attack for some time now, and the attack has been getting stronger (on higher volume). In fact, SPNG hit 5 cents yesterday for the first time since December. Something's gotta' give soon.  Almost as if on cue, today the company put their success path in writing. I knew they were doing well on the sales front - current and projected - but once again I underestimated those numbers ....which isn't the kind of problem to complain about.  I want to hit the highlights from CEO Michael Metter's letter to shareholders, and offer some of my own comments on them. At the bottom of today's edition we'll reprint the company's entire press release.  Prepare to be further convinced.    It's All About the Benjamins According to the letter, SpongeTech is expecting to post sales ofsomewhere near $3.87 million for their fiscal Q4 (which ended on May 31st). Nice, but a little perspective may be in order. What the letter didn't tell you was just how much growth that $3.87 million represents. During Q3, they posted revenues of $1.28 million. The quarter before that, they did $331K in sales.  In other words, they pushed the top line higher by 286% in Q3, and are going to raise it around 202% for Q4. I can't wait to see what happened in Q1, which we're in right now. That's not the big part of the story though. The CEO's letter also put in writing what their 12 month sales backlog currently is. They've got $27 million worth of orders to be filled over the course of fiscal 2009. Phenomenal. Oh, and they're profitable too. Last quarter's net margin was around 14%. I think Q4's is going to be even better. If you've been reading the newsletter for any length of time, then you'll know I've been pounding the table on SPNG for one simple reason - the stock is just undervalued on a price-versus-sales basis.  Using the 12-month revenue forecast of $27 million, and dividing that number by the current market cap of $9.23 million, you come up with a projected price/sales ratio of 0.34. Folks, the S&P 500's current P/S ratio is 2.13, meaning by comparison, you could argue SpongeTech is valued at about 1/6th of what it should be.  And don't forget, the sales backlog could be pushed higher between now and the end of the year. What else can I say? I think it's just a matter of time before the market figures this out and corrects the issue. If they do, current owners could be very happy shareholders.    Poised For More Growth I admit a few months ago I was just thinking about seeing the stock overcome its undervalued situation (relative to the hefty sales backlog). I really wasn't thinking about what may happen beyond that, figuring the revenue growth might start to slow then. Now I'm not so sure ....SpongeTech actually does have more growth vehicles in the pipeline. Metter's letter also mentioned several new products in the works. Their car care products we knew about - that's what got them to where they are now.  We've also learned a little about pet care and child care products that are on the way. Those two lines will see their official launch in July and August. For the first time in a long time, the letter spoke of home care products (which I assume means household cleaning). The letter also mentioned a new venue however...pharma and beauty products. We still know very little about those two ventures. The company has already been in discussions with some suppliers, and has been testing their patented sponges for use with personal care products. I think they're a few months down the road, though both are also multi-million opportunities. The point is, SpongeTech doesn't look like they're going to hit a ceiling anytime soon. Between those five markets, the $27 million backlog is just a stepping stone.    The Stock - Oh So Close Every day I look at this chart I get a little more excited. I just get a feeling it's coming.  What I'm talking about is a breakout move, past 5 cents, and on to who knows where.  The chart pretty much speaks for itself. We've peaked at 4.9 cents several times, and hit 5 cents yesterday.  That's not the compelling part for me though. What I'm convinced by is the volume - there are a lot of buyers behind the stocks big gains, and very few sellers on the weaker days. Given that volume is an indication of the market's conviction, 'now' is much different than prior upswings....this one could actually stick. By the way, if you're looking for a fairly easy way to quantify a volume trend (the volume bars aren't always as explicit as they are with SPNG now), I suggest an accumulation-distribution line. It's easy to read and interpret.  In any case, keep an eye out for today's action. A good move above 5 cents could really spark something, and finally get the stock priced right. The company is certainly doing their part. Here's the whole letter. Good stuff.    SpongeTech(r) Delivery Systems, Inc. CEO Michael Metter Issues Corporate Update on Company for Shareholders Thursday June 5, 2008 9:10 AM EDT  NEW YORK, NY (PRNewswire) SpongeTech(r) Delivery Systems, Inc. (OTCBB: SPNG) has had a lot of activity in the past several months and we want to take the time to update our shareholders on some of our recent accomplishments and delve a little into what they can expect moving forward in the next few quarters.  Message from SpongeTech(r) CEO, Michael Metter:  Dear Shareholders:  FINANCES  Un-audited revenues for our fiscal fourth quarter ending May 31, 2008, were approximately $3,875,000; approximately $600,000 ahead of guidance and an increase of $2,315,000 over our fiscal third quarter.  With our balance sheet and cash positions, we have greatly improved due to the increased sales of our products. We do not expect to have any dilutive financing in the near future.  ORDERS  Confirmed signed orders for fiscal year 2009, which started four day ago, are $27,000,000. We see no reason why these orders won't be shipped in their entirety. We are experiencing strong demand in the United States and very strong demand from international buyers  MARKETING  Marketing efforts continue to provide new customers for our "Car Care" products. We are optimistic that this trend will continue and we hope to announce new retail accounts in the near future.  We plan to formally introduce our "Pet Care" as well as our "Child Care" (Puddle Pals) products during July and August. We have increased our production capacity, purchased fabrication molds, and increased our sales and support team to handle the anticipated increased business.  PRODUCTION  Independent sub-contractors using our patented technology and brand names produce our products here in the United States. These sub-contractors have adequate capacity to meet our growing demand.  OPERATIONS  Under the SpongeTech(r) Delivery Systems corporate umbrella, we plan to operate SpongeTech(r) as five operating divisions as new products are introduced:      Car Care Products  Pet Care Products  Child Care Products  Home Care Products  Pharma and Beauty Products  MANAGEMENT  Management is actively seeking other opportunities for its patented delivery system. Our Research and Development team are currently testing and evaluating new uses for our delivery system. I would like to thank the Management Team for a great year and they are already set to more than double next year.  OUTLOOK  We are currently in negotiations with major retailers who are now evaluating and "test marketing" our products. For contractual and competitive reasons, we cannot further elaborate. At this time, I may add, we do not have signed contracts or firm orders and there is no assurance that our proposals to these clients will be accepted.  We are also in negotiations with a major supplier of Brand Name household cleaning products. Our discussions focus on SpongeTech(r) using its patented technology to produce various household cleaning products using the Brand Name of our prospective client. Let me again say, while we are hopeful, there is no assurance of our entering into a final agreement with this client. We are also evaluating and testing our product delivery system using our patented technology in other products. These include suntan lotion, topical medical uses, beauty aids, and other hardware and houseware product solutions.  In conclusion, we are pleased with our progress and look forward to continued growth in the next year.  Best Regards, Michael Metter, SpongeTech(r) CEO  For more information, please contact Investor Relations at 1-877- SPONGE-T, and/or visit the Company's website at: www.spongetech.com.  About SpongeTech(r) Delivery Systems, Inc.  SpongeTech(r) Delivery Systems is a development stage company, which designs, produces, and markets a unique line of reusable cleaning products for the automotive aftermarket parts industry. These sponge-based products utilize SpongeTech's(r) proprietary, patent (and patent-pending) technologies involving hydrophilic (liquid absorbing) foam and polyurethane matrices. The Company's sponges are specially configured with an outer contact layer and an inner matrix, the latter of which comes pre-loaded with specially formulated soaps and wax that are released when the sponge is wetted and applied to a surface with minimal pressure. The Company's primary product line has been designed specifically for automotive/vehicle applications, however, SpongeTech(r) is currently exploring additional applications for its technology including an anti-bacterial, kitchen and bath cleaner, as well as a unique 'foaming' bath sponge for children.  "Safe Harbor Statement" Under The Private Securities Litigation Reform Act of 1995: The statements in the press release that relate to the Company's expectations with regard to the future impact on the Company's results from new products in development are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The results anticipated by any or all of these forward-looking statements may not occur. Additional risks and uncertainties are set forth in the Company's Annual Report on Form 10-KSB for the year ended December 31, 2005, the Company's Quarterly Report on Form 10-QSB for the first quarter ended March 31, 2006. The Company undertakes no obligation to publicly release the result of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof, or to reflect the occurrence of unanticipated events or changes in the Company's plans or expectations  Contact:  SpongeTech(r) Delivery Systems, Inc.  Investor Relations:  Bill Young, 1-877-776-6438  wayoung55@aol.com  or  info@spongetech.com  SOURCE: SpongeTech(r) Delivery Systems, Inc.    We Value Your Feedback   Got comments, questions or suggestions? 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